OP-Pohjola Group
Stock Exchange Release 29 April 2014 at 8.00 am (EEST)
Interim Report
OP-Pohjola Group with a strong start to 2014
OP-Pohjola Group's key indicators
| Q1/2014 | Q1/2013 | Change % | Q1-Q4/2013 | |
| Earnings before tax, EUR million | 257 | 234 | 10,0 | 701 |
| Banking | 160 | 98 | 63,5 | 404 |
| Non-life Insurance | 62 | 56 | 12,3 | 166 |
| Wealth Management | 67 | 57 | 18,2 | 113 |
| Returns to owner-members and OP bonus customers | 49 | 48 | 2,8 | 193 |
| 31 Mar 2014 | 31 Mar 2013 | Change % | 31 Dec 2013 | |
| Common Equity Tier 1 (CET1) ratio, % / Core Tier 1** | 15.5 | 14.6 | 17.3 | |
| Ratio of capital base to minimum amount of capital base (under the Act on the Supervision of Financial and Insurance Conglomerates) | 2.00 | 1.85 | 1.90 | |
| Ratio of receivables more than 90 days overdue to loan and guarantee portfolio , % | 0.41 | 0.51 | -0.10* | 0.42 |
| Joint banking and insurance customers (1,000) | 1,535 | 1,442 | 6.5 | 1,518 |
* Change in ratio
** The comparatives are presented based on the regulatory framework effective before 1 January 2014.
Comments on Q1/2014 by Reijo Karhinen, Executive Chairman and CEO
OP-Pohjola Group had a very strong start to 2014. The first quarter was historically good and eventful quarter both in terms of our earnings and the development of our structure. Banking improved its earnings significantly and Non-life Insurance and Wealth Management improved their earnings too. At the same time, delisting Pohjola shares has fully proceeded as planned.
Exceptionally strong growth in our volumes reported in recent years lies behind our good first-quarter earnings. During the last three years, growth of our Banking has annually accounted for half of the growth in the entire sector. The strongly increased deposit and loan portfolios are now generating better net interest income and earnings. At the same time, however, it must be noted that the growth rate of total loans has rapidly slowed down in the financial sector in recent months. The caution of companies in fixed investments that has continued for quite a long time now also spread to households during the reporting period. The early 1990s were the last time when the home loan market was as quiet as it is now.
Growth in expenses eroded our good earnings performance. In addition to volume growth, the growth in expenses were affected by our active efforts in product and service development and several structural reforms that were underway and the resulting, mostly non-recurring expenses recognised. We will continue to make dedicated efforts to achieve our target at Group level that requires zero-growth in expenses. In addition, the predictable, slowing income generation as a result of weaker demand for loans will require tight cost control.
In addition to our good earnings performance, I am extremely satisfied with our progress in Non-life Insurance on a long-term basis. The most recent market share figures for this spring prove that we have managed to truly increase our market share in relation to our competitors. We have become a clear market leader, leaving the number two player behind with five percentage points. This is an excellent proof of the fact that rewarding our customers according to our customer promise bears fruit, and the number of joint banking and insurance customers is increasing.
We are now undergoing a major transformation within OP-Pohjola. Our strong belief in the future and customer ownership lies behind our major principled decisions made in February. Identifying our customers' changing needs and wishes is at the core of everything. We need to have the courage to challenge the past, structures while improving the awareness of digital technology and invest in the availability of services. OP-Pohjola has put smooth customer service on a daily basis and customer satisfaction at the core of all operations.
We will continue to simplify our structures, streamline our management system and improve our operational dynamics and efficiency through several development initiatives according to the statements that we published in early February. OP-Pohjola's new beginning aims at a transforming financial services group where customers have a stronger position and our competitiveness is better.
Economic and geopolitical uncertainty keeps the euro area and especially Finland in the grip. There is no reason to downplay challenges and the ongoing nervousness. The Finnish economy has, however, all conditions for a growth path. Finland should turn its deep crisis awareness into trust. The persistent gloomy mood has made consumers and companies overly cautious.
Instead of the crisis awareness justifiably created during the autumn and winter, we now need trust and the inspiring spirit in Finland which will bring the economy back to its growth path. Finland only has a lot of untapped resources. The Finnish economic policy has moved in the right direction recently. This is the course that we must stay. Together with a slight recovery and new business initiatives, Finland can be taken on a growth path. All constructive initiatives for growth creation are welcome. Through our efforts at OP-Pohjola, we have proved that Finnish economic growth is not dependent on the availability of financing.
Financial performance in the report period
OP-Pohjola Group's earnings before tax were EUR 257 million (234). This was the second-best quarterly result of all time in the Group's history. Earnings were improved especially because of higher net interest income and net commissions and fees and the fact that Non-life Insurance's premiums written grew at a higher rate than the claims expenditure. Wealth Management earnings before tax improved as a result of an increase in net investment income and net commissions and fees. However, the Group's performance was eroded by higher expenses.
Net interest income increased by 17% year on year as interest rates stabilised, the average level of loan portfolio margins increased and the loan portfolio grew. Compared with the previous quarter, the net interest income was almost 2% higher.
The Group's expenses increased by 5.7%. A non-recurring EUR 8 million expense related to the tender offer for Pohjola Bank plc shares was recognised under 'Other operating expenses' during the report period. Excluding these tender offer expenses, the Group's expenses would have risen by 3.7%.
Thanks to efficiency-enhancement measures and outsourcing of ICT services, the Group's personnel costs decreased by 7.5%. Outsourcing and the reform of related operating models, on the other hand, increased ICT costs.
OP-Pohjola Group's fair value reserve before tax totalled EUR 403 million (409) at the end of the report period. Earnings before tax at fair value amounted to EUR 251 million (209).
Bonuses to owner-members and OP bonus customers recognised in the income statement increased by 3.2% year on year to EUR 46 million (45).
The world economy is expected to grow during 2014 but at a slower rate than average. The euro area and Finnish economies are also expected to recover slowly. The crisis in Ukraine has nevertheless made predictions less and less reliable and increased the risk of less favourable developments. A deepening of the crisis in Ukraine may have significant repercussions for the Finnish economy.
As a result of the slowly recovering economy, the operating environment in the financial sector is gradually becoming more stable although historically low interest rates will continue to erode banks' net interest income and weaken insurance institutions' investment income. Uncertainty about economic development also reduces growth expectations in the financial sector. Changes in the operating environment and the more rigorous regulatory framework will highlight even more the role of measures to strengthen the capital base and improve profitability.
Unless the operating environment turns out to be considerably weaker than expected, OP-Pohjola Group's earnings before tax are expected to be higher than in 2013. The most significant uncertainties affecting earnings in 2014 relate to the rate of business growth, impairment loss on receivables and changes in the investment environment.
All forward-looking statements in this report expressing the management's expectations, beliefs, estimates, forecasts, projections and assumptions are based on the current view of developments in the economy, and actual results may differ materially from those expressed in the forward-looking statements.
Press conference
OP-Pohjola Group's financial performance will be presented to the media by Executive Chairman and CEO Reijo Karhinen in a press conference on 29 April 2014 at 12 noon at Vääksyntie 4, Vallila, Helsinki.
Pohjola Bank plc will publish its own Interim Report.
Financial reporting in 2014
Schedule for Interim Reports in 2014:
Interim Report H1/2014: 6 August 2014
Interim Report Q1-3/2014: 29 October 2014
OP-Pohjola Group Central Cooperative
Executive Board
ADDITIONAL INFORMATION
Reijo Karhinen, Executive Chairman and CEO, tel. +358 (0)10 252 4500
Harri Luhtala, CFO, tel. +358 (0)10 252 2433
Carina Geber-Teir, Chief Communications Officer, tel. +358 (0)10 252 8394
DISTRIBUTION
NASDAQ OMX Helsinki Ltd
London Stock Exchange
SIX Swiss Exchange
Major media
op.fi and pohjola.com
OP-Pohjola Group is Finland's leading financial services group providing a unique range of banking, investment and insurance services. The Group's mission is to promote the prosperity, well-being and security of its owner-members, customers and operating regions through its local presence. Its objective is to offer the best and most versatile package of loyal customer benefits on the market. OP-Pohjola Group consists of some 180 member cooperative banks and the Group's central institution, OP-Pohjola Group Central Cooperative, with its subsidiaries and closely-related companies, the largest of which is the listed company Pohjola Bank plc. The Group has a staff of 12,000. OP-Pohjola Group posted earnings before tax of EUR 705 million in 2013 and had total assets of EUR 101 billion on 31 December 2013. The Group has 4.3 million customers.
www.op.fi