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2017-02-02

OP Financial Group's Financial Statements Bulletin for 1 January-31 December 2016: Embracing industry transformation from a solid foundation

OP Financial Group
Stock Exchange Release 2 February 2017 09.00 am EET
Financial Statements Bulletin

OP Financial Group's Financial Statements Bulletin for 1 January-31 December
2016: Embracing industry transformation from a solid foundation

OP Financial Group improved its earnings further, above-the-market average
growth continued on a wide front

* Earnings before tax totalled EUR 1,138 million (1,101).
* Earnings before tax in October-December were EUR 218 million (175).
* Net interest income increased by 3% and net insurance income by 6% and
total income grew by 3% on a year earlier. Expenses rose by 3%. The rise
was entirely explained by higher development costs.
* The CET1 ratio increased by 0.6 percentage points year on year to 20.1%.
Based on the results of the stress test conducted by the European Banking
Authority, the Group's capital adequacy clearly exceeded regulatory
requirements also in an operating environment of an extremely adverse
scenario.
* The home loan portfolio increased by 4%, the corporate loan portfolio by 3%
and deposits by 6%. New home loans drawn down were 8% and corporate loans
10% higher than a year ago.
* Insurance premium revenue increased by 2%.
* Assets managed by Wealth Management increased by 9% over the previous year.

* Full-year earnings for 2017 are expected to be about the same as or lower
than in 2016 due to increasing development costs and other expenses arising
from strategy implementation.

Almost 160,000 new OP Financial Group banking customers and 260,000 new
owner-customers

* OP Financial Group received almost 160,000 new banking customers, or 21%
more than a year ago. The number of owner-customers increased by almost
260,000 to over 1.7 million. The number of joint banking and non-life
insurance customers increased by almost 100,000 to over 1.7 million.
* New OP bonuses totalled over EUR 200 million, up by almost 5% year on year.
The estimated interest payable on Profit Shares totals EUR 83 million.
* The Group launched several #Suominousuun (Putting Finland on a new growth
path) initiatives in its social role. During the financial year, the Group
announced, for example, donations worth over EUR 6 million to Finnish
universities.
* OP Financial Group's gift to the 100-year-old Finland is 100 years of
volunteering. Hiiop100.fi, a new volunteer work exchange site, brings
together those in need of help and volunteers.
* In June, OP Financial Group confirmed an updated strategy aimed at
broad-based renewal which is being implemented on a wide front.

OP Financial Group's key indicators

------------------------------------------------------------------------------------------------------------------------
| Q1-4/2016 Q1-4/2015 Change, % |
| Earnings before tax, EUR million 1,138 1,101 3.3 |
| Banking 596 642 -7.3 |
| Non-life Insurance 230 259 -11.1 |
| Wealth Management 232 213 8.8 |
| New OP bonuses accrued to owner-customers 208 197 5.3 |
| 31 Dec. 2016 31 Dec. 2015 Change, % |
| CET1 ratio, % 20.1 19.5 0.6* |
| Return on economic capital, % ** 22.7 21.5 1.2* |
| Ratio of capital base to minimum amount of capital base (under the Act on the 170 191 -21* |
|Supervision of Financial and Insurance Conglomerates), % *** |
| Ratio of impairment loss on receivables to loan and guarantee portfolio, % 0.09 0.10 0.0* |
| Owner-customers (1,000) 1,747 1.491 17.2 |
| |
------------------------------------------------------------------------------------------------------------------------
Comparatives deriving from the income statement are based on figures reported
for the corresponding period in 2015. Unless otherwise specified, balance
sheet and other cross-sectional figures on 31 December 2015 are used as
comparatives.

* Change in ratio
** 12-month rolling, change in percentage
*** The FiCo ratio has been calculated under Solvency II transitional
provisions and the comparatives have been adjusted.

Comments by Reijo Karhinen, President and Group Executive Chairman

Even a strong one must reform itself. The year 2016 for OP Financial Group was
a combination of business success on a wide front and the launch of strategy
implementation aimed at broad-based renewal. The determined steps we have
taken for several years now amid the operating environment characterised by
various challenges culminated in all-time high earnings, excellent capital
adequacy and an above-market-average growth rate on a broad basis. In
addition, favourable developments in customer satisfaction and the number of
our customers that has grown faster than ever before strengthen, for their
part, the basis on which we will build the reforming OP.

We are living in a world with more demanding customers with a more powerful
voice. The situation is made for OP. Our committed owner-customers are one of
the strengths why OP is successful. Managing our social role shows more
clearly in our daily activities. Enabled by our good earnings performance, we
have a real chance to promote the prosperity of our owner-customers and in
our operating region during the major transformation too.

The strategy published in the summer means to us a huge transformation process
from a plain financial services provider to a diversified services company.
Our strategy will challenge us to nurture our present-day business, its
product and service range and earnings power while we will increase our
investments in development and create new business with an open mind to
replace the one that will go away.

We will digitise our existing services and internal processes with a bold
approach. Ensuring our price competitiveness and operational agility will
continue to require efforts to significantly improve our operational
efficiency. We will need to modernise our intellectual capital at a faster
pace as our business models and their content undergo transformation and our
journey towards a diversified company proceeds.

After several years of sluggishness, the Finnish economy and employment are
showing an incipient recovery and economic sentiment indicators are
improving. This is a right direction but the pace is too slow in view of the
key challenges our nation is faced with: low employment rate and public
finances. In different parts of society, reforms must be sped up and the
vision must be brightened. We need a deeper, shared understanding of the
extent and speed of change. Finland's digital potential is right at the top
in the world, which is why the digital world economy transformation will
provide Finland with huge opportunities for new growth and prosperity.

Financial performance in the report period

OP Financial Group's earnings before tax were EUR 1,138 million (1,101), or
the best ever recorded. The figure improved by EUR 37 million over the
previous year.

Despite low interest rates, net interest income increased by 3.2% to EUR 1,058
million. Net insurance income improved by 6.0% to EUR 558 million. Net
commissions and fees were EUR 859 million, or slightly higher than the year
before. Fees from payment services and mutual funds and real estate agent
commissions increased whereas securities brokerage and issuance fees declined
over the previous year. Securities brokerage fees decreased by EUR 4 million
as a result of the Sijoita Suomeen (Invest in Finland) opening included in
the #Suominousuun (Putting Finland on a new growth path) initiative.

Net investment income decreased by 9.7% to EUR 390 million. Lower returns on
equity instruments and impairment losses reduced net income from
available-for-sale assets. Income from Life Insurance notes and bonds
measured at fair value was increased by the individual life insurance
portfolio transferred from Suomi Mutual to OP Financial Group at the end of
2015. Hedging interest rate risk associated with the insurance liability of
Life Insurance added to income from derivatives.

Other operating income rose by EUR 77 million year on year to EUR 122 million.
This rise resulted from the non-recurring gain of EUR 76 million recognised
on the sale of Visa Europe Ltd.

Total expenses increased by 3.1% to EUR 1,567 million. Personnel costs
decreased by EUR 19 million over the previous year due to lower defined
benefit pension costs. A year ago, personnel costs were increased by a
non-recurring provision of EUR 9 million, related to the reorganisation of
the central cooperative consolidated.

OP Financial Group's significant investments in service development increased
development costs by EUR 60 million. Development costs totalled EUR 135
million (75). Other operating expenses a year ago included the non-recurring
expenses totalling EUR 18 million related to the intra-Group ownership
reorganisation and the reconstruction of the Vallila premises.

Impairment losses recognised under various income statement items that reduced
earnings amounted to EUR 136 million (114), of which EUR 77 million (78)
concerned loans and receivables. Net impairment loss on loans and receivables
were low, at 0.09% (0.10) of the loan and guarantee portfolio.

OP Financial Group's current tax amounted to EUR 223 million (249). The
effective tax rate was 19.6% (22.6). A year ago, the tax rate was increased
by capital gains tax on OP Financial Group's internal transactions.

OP Financial Group's equity capital increased by 9.8%, exceeding EUR 10
billion during the financial year. This was explained by the Group's earnings
and owner-customers' Profit Shares. On 31 December 2016, EUR 2.7 billion
(2.5) in Profit Shares were included in equity, terminated Profit Shares
accounting for EUR 0.3 billion (0.3). The return target for Profit Shares for
2016 and 2017 is 3.25%. Interest payable on the Profit Shares accrued during
the financial year is estimated to total EUR 83 million (66). The fair value
reserve grew by EUR 77 million to EUR 318 million.

Outl...

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