Interim report for the period January - June 2001

INTERIM REPORT for the period January - June 2001*) · Sales amounted to SEK 78 billion (114) · New sales of unit linked assurance excluding the USA rose 11 percent · The operating result for the core businesses for the second quarter was SEK 1,595 million (1,549), compared with SEK -2,543 million for the first quarter · The group's operating result for the second quarter was SEK 1,679 million (1,502), compared with SEK -2,988 million for the first quarter. The operating result for the first half of the year was SEK -1,309 million (3,704) · Assets under management increased by 6 per cent, to SEK 1,049 billion, compared with the start of the year Comments by Lars-Eric Petersson, President and CEO: "The world's stock markets remained turbulent during the second quarter. Naturally, this affects Skandia's sales. In the USA and the UK this has led to lower sales than a year ago. In other markets our sales for the most part have increased compared with a year earlier. "During the first half we launched a large number of new products. In addition, we are continuing our unrelenting efforts at strengthening and broadening our distribution. As a part of this work, Skandia's distribution operation and asset management business have been integrated with SkandiaBanken, forming the premiere private bank in the Nordic region. "The work on refining Skandia continues, and Sinser, the world's third largest captive administration and consulting company, has now been sold to Aon Corporation. "Our market position, product development and the systematic build-up of our distribution power create good opportunities for the future." OVERVIEW The operating result for the core businesses for the second quarter was SEK 1,595 million, compared with SEK -2,543 million for the first quarter. The operating result for the first half of the year was SEK - 948 million (3,602). Skandia conducts long-term savings business in which fund growth is assumed to be approximately 6 per cent per year during the term of contracts in force. In the short term the result is affected - positively as well as negatively - if the trend in the stock market deviates from this assumption. During the first half of the year, the stock indexes that are relevant for Skandia decreased by 15 per cent, compared with an assumed rise of 3.0 per cent. The trend during the first half of 2000 was positive. The result decline compared with the preceding year is therefore mainly attributable to financial effects arising due to the difference between the stock market decline primarily during the first quarter and the stock market rise a year earlier. Sales of unit linked assurance decreased by 33 per cent during the first half of the year, to SEK 51 billion (77), mainly due to a drop in single- premium policies in the USA. Outside the USA, new sales increased by 11 per cent during the first half of the year due to strong development for annual-premium policies. The decline in total new sales for the group was thereby limited to 15 per cent. During the last twelve-month period, new sales excluding the USA rose by 32 per cent. Sales of single-premium unit linked assurance policies and lump-sum payments into mutual fund savings products were affected the most by the stock market climate. Sales of mutual fund savings products decreased to SEK 21 billion (33). However, the group's total sales during the second quarter were at the same level as during the first quarter. The stock market decline also had a negative impact on assets under management. Assets increased by 6 per cent, however, to SEK 1,049 billion, compared with the start of the year. During the last twelve- month period, assets under management increased by 10 per cent. The return on net asset value for the core businesses, before taxes and financial effects, was 20 per cent on a moving twelve-month basis (24 per cent for the full year 2000). The group's operating result was SEK -1,309 million (3,704), and the return on the group's adjusted net asset value, after tax, was 10 per cent on a moving twelve-month basis (21 per cent for the full year 2000). The return before financial effects was 22 per cent. INSURANCE AND SAVINGS PRODUCTS Market and Sales Unit Linked Assurance Skandia's goal is to expand operations geographically and thereby reduce the risk associated with individual markets. This can be seen in the 11 per cent rise in new sales during the first half of the year outside the USA (new sales defined by the industry-wide definition as periodic premiums recalculated to full-year figures plus 1/10 of single premiums during the period). Due to the focus on pension products, new sales of annual premium products increased by 49 per cent. In terms of new sales, the markets in the USA, the UK and Sweden each represent roughly 30 per cent of total, and New Markets 13 per cent. Sales in the USA consist primarily of single-premium variable annuities, which were strongly affected by the decline in the stock market and the US economy. Compared with the first half of 2000, when the stock markets in the USA began falling, new sales decreased by 55 per cent. New sales of variable annuities during the second quarter were essentially at the same level as in the first quarter. A number of new products were launched during the first half of the year. The British operation's new sales decreased by 6 per cent in local currency. The sales decline was predominantly in markets outside the UK. However, a 25 per cent decrease in single premium policies was offset by a 34 per cent rise in sales of annual premium products, particularly pension plans. During the first quarter a new product was introduced, Skandia Protect, which has been well-received by the market and is judged to have good prospects for future sales success. New sales in Sweden rose 22 per cent, thanks to successful sales of pension products - mainly in the collectively bargained pensions segment. In New Markets, new sales rose 15 per cent. In Germany, new sales rose 73 per cent in local currency. The unit linked market is accounting for an ever-greater share of the life assurance market, and changes in the tax code are expected to further contribute to greater sales of equity-related savings products. Skandia's sales success continues in Japan, as evidenced by a 70 per cent rise in new sales. Sales in Italy have recovered and have shown steadily higher figures in recent months. Growth remained strong in Austria and Mexico. Assets under management increased during the last twelve-month period by 10 per cent, to SEK 533 billion. Payments to policyholders in 2000 amounted to 9.5 per cent of assets under management at the start of the year. The corresponding figure on a moving twelve-month basis was 9.4 per cent as per 30 June 2001. Surrenders accounted for 8.1 percentage points of this total, compared with 8.0 percentage points in 2000. Mutual Fund Savings Products Sales were strongly affected by the stock market decline and decreased to SEK 20,825 million (32,924). Sales decreased in the USA to USD 1,312 million (2,621), and in the UK to GBP 315 million (560). Net inflows in the USA amounted to USD 411 million. Germany continues to show strong growth in sales volumes. Payments to customers have increased, but are well within underlying assumptions, and amounted to SEK 11,651 million (6,446). Despite the stock market decline, assets under management increased by 11 per cent compared with the start of the year, to SEK 119 billion. Operating Result and Profitability Unit Linked Assurance The operating result for the first half of the year was SEK -864 million (3,876). The result trend for the second quarter represents an improvement in all aspects compared with the first quarter. The result decline during the first half of the year is attributable to strongly negative financial effects, compared with positive financial effects during the first half of 2000. As described in the sensitivity analysis in the 2000 Annual Report, a one per cent change in the stock market affects the operating result by SEK 176 million. During the first quarter, the indexes that are relevant for Skandia fell by 15 per cent, compared with assumed fund growth of 3.0 per cent. This hurt the result by SEK -3,090 million, compared with earnings of SEK 857 million during the first half of 2000. During the second quarter, financial effects were positive, at SEK 257 million. The result for new business decreased during the first half of the year by 40 per cent, to SEK 850 million (1,428). This is entirely attributable to lower sales volumes combined with rising costs in the US operation. During the second quarter, the result for new business rose 15 per cent compared with the first quarter, which also led to a slight margin improvement. The profit margin was 10.4 per cent during the second quarter, compared with 9.6 per cent during the first quarter. During the first half of the year the profit margin was 10.0 per cent, compared with 14.2 per cent for 2000 based on otherwise comparable assumptions. The cost overrun in the USA, amounting to slightly more than USD 40 million (in relation to the cost assumptions in the product calculations), had a negative impact of 5.1 per cent on the group's profit margin. Cost-cutting measures have been implemented, which have reduced the level of expenses in the US operation starting in the second quarter of 2001. The result for new business in the UK rose 30 per cent in local currency, to SEK 281 million. The profit margin, 10.3 per cent, was lower than for the full year 2000. This is explained by an adjustment of the organization's size and a slightly changed product mix. In Sweden, the result for new business rose 225 per cent to SEK 393 million. The higher profit margin, 17.1 per cent, compared with 12.5 per cent for the full year 2000, can be credited to higher volumes and a favourable product mix. In New Markets, the profit margin was essentially unchanged at 14.6 per cent. The return on the value of contracts entered into in previous years improved during the second quarter, mainly due to a rise in investment income from assets. The outcome compared with operative assumptions developed favourably, especially during the second quarter, mainly due to favourable development of surrenders and mortality assumptions, as well as economies of scale. Mutual Fund Savings Products The operation is showing a positive result trend, despite substantial investments in infrastructure and new product development. The result was SEK 32 million (21). Life Assurance The result was SEK 58 million (16). Return on Net Asset Value, Insurance and Savings Products The return on adjusted net asset value, before financial effects and after standard tax, was 16 per cent (22) on a moving twelve-month basis. Asset Management Assets under management, consisting of assets from companies in the Skandia group, external clients, and fund management, increased during the first half of the year by SEK 7 billion, to SEK 368 billion. Assets under management include SEK 40 billion in managed mutual fund assets, an increase of SEK 3 billion since the start of the year. Skandia Asset Management notes good growth in discretionary management assignments. Commissions from asset management are partly fixed and partly performance-related, the latter being ultimately determined in proportion to the achieved annual return. The result amounted to SEK 72 million (49) after interest expenses and goodwill amortization. Investment Income Investment assets in the parent company amounted to SEK 3.3 billion. The return on these assets was SEK 37 million (304). Businesses SkandiaBanken SkandiaBanken's operating result was SEK 15 million (40). The result was charged with costs for IT infrastructure and stepped-up marketing in connection with establishment in new markets. Deposits in SkandiaBanken increased to SEK 25.7 billion. The bank has a total of 532,000 customers, an increase of 33 per cent since the start of the year, including 30,000 customers from the acquisition of Din Bank AS in Denmark. The number of online customers has risen by 76 per cent, to 252,000. Netline Netline provides products in the areas of Health Care, Group Insurance, Pension Administration and Knowledge Management. The result was charged with product development costs and consequently decreased to SEK -4 million (26). The year-earlier result pertains to Lifeline, which is now part of Netline. Skandia Marketing Ltd. Skandia Marketing distributes savings and insurance products for Skandia and If in the Swedish, Danish and Norwegian markets. Business is developing well, and the result was SEK 25 million (40). The result was charged with costs for investments in the operation's expansion, primarily in Norway. Other Companies The operating result for other companies in the group was SEK -114 million (47). The result was charged with slightly more than SEK 70 million in development costs for the banking operation in Switzerland, which was granted a licence in July. Business is scheduled to commence before the end of 2001. Group Expenses Group expenses comprise management and structural costs, and goodwill amortization. Exchange Rate Effects After recalculation to higher average exchange rates compared with the preceding year, sales increased by SEK 7,455 million, and the operating result for the group decreased by SEK 253 million. Total assets have increased by SEK 61 million since the start of the year. PROPERTY & CASUALTY INSURANCE Skandia owns 56 per cent of the Nordic property and casualty insurance company If. Skandia's share of If's result was SEK -361 million (-212). The stock market decline during the first quarter was followed by a recovery during the second quarter. Consequently, the result improved during the second quarter. The technical result and cash flow also developed favourably. During the second quarter it was announced that an agreement has been reached with Sampo on the combination of Sampo's property & casualty insurance operation with If. The deal is conditional upon Sampo's acquisition of the Norwegian insurer Storebrand. BALANCE SHEET AND NET ASSET VALUE Total assets increased by SEK 44.7 billion, compared with year-end 2000, to SEK 633.9 billion. Unit linked assurance and mutual fund savings products accounted for an increase of SEK 30.0 billion. External borrowings increased by SEK 3.0 billion (including an exchange rate effect of SEK 0.9 billion), to SEK 10.7 billion, excluding the parent company's subordinated loans. Liquidity and the group's financing ability are good. A new USD 500 million credit facility with a five-year maturity was signed on 20 July 2001, replacing an existing USD 350 million facility. The reason for the increase was a greater interest by the banks in participating in the programme. The total amount of unutilized credit exceeds the total outstanding amount of debt. Net asset value amounted to SEK 37,265 million (SEK 37,031 million at year-end 2000). Capital employed in the group, which in addition to net asset value consists of borrowings to finance investments in subsidiaries, amounted to SEK 49.0 billion (45.6). Of these funds, SEK 44.4 billion (41.4) pertains to the core businesses, while SEK 4.6 billion pertains to the financing of Skandia's share of the P&C insurance operations in If. Stockholm, 8 August 2001 Lars-Eric Petersson President and CEO For questions, please contact: Ulf Spång, Chief Financial Officer, tel. +46-8-788 2905 Harry Vos, Head of Investor Relations, tel. +46-8-788 3643 This interim report has been prepared in conformity with the guidelines of the Swedish Financial Supervisory Authority and Recommendation RR20 of the Swedish Financial Accounting Standards Council. The interim report has been prepared in accordance with the same principles as in the 2000 Annual Report. Financial calendar for Skandia: 12 September 2001, August sales release 10 October 2001, September sales release 1 November 2001, interim report January-September 2001 13 February 2002, year-end report 2001 Skandia's published financial reports are available on the Internet: www.skandia.com and www.skandia.se. Skandia's websites also provide links to the audiocast of the teleconference on Wednesday, 8 August 2001. GROUP OVERVIEW Moving SEK million 12- month figures 2001 2000 2001 2000 2001 June June Q 2 Q 2 June Sales Sales, unit linked assurance 51,272 76,888 25,445 36,780 114,608 Sales, mutual funds 1) 20,825 32,924 9,824 14,087 43,713 Premiums written, life assurance 657 510 313 250 1,335 Direct sales of funds 4,865 3,022 3,408 1,276 11,142 Sales, businesses 215 172 108 89 387 Total sales 77,834 113,51 39,098 52,482 171,185 6 Result summary Unit linked assurance -864 3,876 1,606 1,925 1,432 Mutual funds 32 21 19 2 23 Life assurance 58 16 24 -4 125 Asset Management 72 49 70 33 197 Investment income 37 304 58 197 -35 Businesses -71 168 -71 108 -24 Group expenses 2) -212 -832 -111 -712 -470 Operating result, core businesses -948 3,602 1,595 1,549 1,248 Operating result, P&C insurance 3) -361 -212 84 -361 -703 Items affecting comparability 4) - 314 - 314 2,471 Operating result -1,309 3,704 1,679 1,502 3,016 Net asset value, SEK billion 5) 6) 37 32 Shareholders' equity, SEK billion 21 18 5) Assets under management, SEK 1,049 955 billion 5) Total assets, SEK billion 5) 634 568 Return on net asset value, % 7) 11 32 Return on adjusted net asset value 10 27 % 7) Return on shareholders' equity % 11 20 7) Per-share data Op. result per share before -1.28 3.62 1.64 1.47 2.95 dilution, SEK Op. result per share after -1.28 3.62 1.64 1.47 2.94 dilution, SEK 8) Earnings per share before 0.28 0.94 0.48 0.36 2.10 dilution, SEK 9) Earnings per share after dilution, 0.28 0.94 0.47 0.36 2.10 SEK 8) 9) Net asset value per share, SEK 5) 36.41 30.86 Shareholders' equity per share, 20.47 18.04 SEK 5) 1) Including discretionary 5) Figure s as per closing date. management in Spain. 6) See tableon p.19. 2) Group expenses include costs of 7) All return measurements for profit-sharing plans , totalling shareholders' equity and SEK 620 million as netasset value pertain to moving per Jun. 00 and Q 2 00 twelve-month figures. respectively. 8) According to recommendati on RR18 3) The operating result for If P&C of the Swedish Accounting Standards Insurance includes 56% of Council, the dilutive effect If's result. should only be calculated if it leads to a deterioration of 4) Items affecting comparability the key ratio Earnin gs per share. include the result of sales of 9) Earnings per share are calculated as operations, totalling SEK 314 the result for the period divided million as per June 00 and Q 2 00 by the average number of shares respectively, and repayment of outstanding. surplus funds from Skandia's occupational pension plans with Skandia Liv, totalling SEK 2,471 million on a moving 12-month basis. GROUP OVERVIEW - QUARTERLY ANALYSIS SEK million 2001 2001 2000 2000 2000 2000 Q 2 Q 1 Q 4 Q 3 Q 2 12 mos. Sales Sales, unit linked assurance 25,445 25,827 31,445 31,891 36,780 140,224 Sales, mutual funds 9,824 11,001 12,303 10,585 14,087 55,812 Premiums written, life 313 344 478 200 250 1,188 assurance Direct sales of funds 3,408 1,457 4,646 1,631 1,276 9,299 Sales, businesses 108 107 107 65 89 344 Total sales 39,098 38,736 48,979 44,372 52,482 206,867 Result summary Unit linked assurance 1,606 -2,470 600 1,696 1,925 6,172 Mutual funds 19 13 -41 32 2 12 Life assurance 24 34 54 13 -4 83 Asset Management 70 2 96 29 33 174 Investment income 58 -21 -100 28 197 232 Businesses -71 0 18 29 108 215 Group expenses -111 -101 -138 -120 -712 -1,090 Operating result, core businesses 1,595 -2,543 489 1,707 1,549 5,798 Operating result, P&C ins. 84 -445 -354 12 -361 -554 Items affecting - - 2,471 - 314 2,785 comparability Operating result 1,679 -2,988 2,606 1,719 1,502 8,029 2001 2001 2000 2000 2000 30 31 31 30 30 June Mar. Dec. Sept. June EXCHANGE RATES (SEK) EUR Closing rate 9.22 9.15 8.86 8.52 8.41 EUR Average rate 9.08 9.00 8.45 8.39 8.39 GBP Closing rate 15.31 14.82 14.22 14.16 13.38 GBP Average rate 14.69 14.22 13.86 13.71 13.70 USD Closing rate 10.89 10.39 9.54 9.68 8.81 USD Average rate 10.26 9.74 9.17 8.92 8.73 JPY Closing rate 0.087 0.083 0.083 0.090 0.083 JPY Average rate 0.085 0.083 0.085 0.083 0.082 Average rates indicate the average rates for the period 1 January through the respective book-closing dates in 2001 and 2000. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/08/07/20010807BIT00740/bit0003.doc Full Report http://www.waymaker.net/bitonline/2001/08/07/20010807BIT00740/bit0003.pdf Full Report