ANNUAL REPORT 2007 1
Art in the ABGSC Annual Report Every year, ABG Sundal Collier chooses an artist in its collection on which to focus for its annual report. The ABGSC collection includes a wide range of artistic media, including sculpture, painting and photography. This year we are pleased to showcase the work of Norwegian artist Håvard Homstvedt. ABG Sundal Collier would like to thank Håvard Homstvedt for making his work available for this edition of the Annual Report, and Galleri Riis in Oslo for their assistance and contribution.
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Håvard Homstvedt ABG Sundal Collier ASA is pleased to feature the work of Norwegian artist Håvard Homstvedt in this year’s annual report. Håvard Homstvedt (b.1976) was born in Trondheim, Norway, and now lives and works in New York. He received his artistic education from Yale University School of Art (2003) and Rhode Island School of Design (2000). Recent exhibitions include Galleri Riis, Oslo (2007-08), Astrup Fearnley Museum of Modern Art, Oslo (2008), Southfirst, Brooklyn, NY (2005), Kantor/Feuer Gallery in Los Angeles (2006), and LA ART in New York (2007). Homstvedt will be featured by Galleri Riis in the Statements section of the Art Basel fair, 2008, and his works will be presented in Perry Rubinstein Gallery in New York, November 2008. Homstvedt lives and works in New York. Characteristic for Homstvedt’s paintings is a heightened focus on the materiality and surface of the work. Painted in oil on canvas, Homstvedt’s compositions have a textile-like appearance. The paintings are woven together with strings of paint over time, allowing some areas to stand in relief to the rest of the surface. In doing so, Homstvedt seeks to draw
attention to the painterly construction, staging possibilities through the fragments and characters depicted. Referencing outmoded image making methods and imagery, there is a sense of displacement in these works. In it’s cast of characters, as well as in the patterns employed, Homstvedt’s paintings traverse broad historical terrain to explore possibilities of narrative with a contemporary backdrop. The exhibition titled ”You Will Hardly Know” in Galleri Riis featured large and mediumsized paintings from the past year, as well as painted and patinated bronze sculptures which accentuated the three-dimensional qualities of the paintings. Homstvedt also showed, for the first time, a large wall relief in neon. Galleri Riis will on the occasion of the exhibition publish an 80-page artist-book in large format, with an essay by the author Trinie Dalton. ABG Sundal Collier ASA would like to thank Håvard Homstvedt for making his work available for this edition of the Annual Report, and Galleri Riis in Oslo for their assistance and contribution.
Images
Cover:
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The Hangers-On (2007)
Page 41:
Mirror Top (2007)
Page 42:
Women Waiting (2006)
Page 2:
Fell (2007)
Page 48:
Measure (2007)
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The Road’s My Nemesis (2007)
Page 57:
Let (2007)
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Wall (2006)
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Tatted Edgings (2007)
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Wanderer (2007)
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Øyne uten ansikt (2007)
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Woven (2007)
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My Shadow is a Gossip (2007)
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Undertow (2007)
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Remnants (2006)
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How’s the weather (2007)
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Diagonal (2007)
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Lakelight (2007)
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Edouardo Paolozzi in the Mirror (2007)
Page 17: Curtain (2007)
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Grey canvas (2007)
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Earthling (2006)
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Portrait of Artist with Bust of a Woman (2006) /
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Star Grazer (2007)
Emblem (2006)
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Room of Windows (2007)
Page 80:
Under Tree Skirt (2007)
Page 25:
Mirror Mask (2007)
Page 82: Black Hussar (2006)
Page 26: Stack (2nd version; Orange) (2007)
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Under ens egen dekorert himling (2007)
Page 28: You and Me and the Moon (detail, 2007)
Page 87:
Winter Worries Melt (detail, 2007)
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Weather Vanes (2007)
Page 88: Lyra (2007)
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Tegnet (Skyggelagt felt) (2007)
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Page 37:
Bechamel (detail, 2007)
Page 97: Weave a Garland (2007)
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Moon House (2007)
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Nordic Companies/Global Money
Asket (2007) The Hangers-on (2007)
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Ta b l e of C on te n ts ABGSC Profile – Nordic Companies/Global Money.............................. 8 2007 Highlights ..................................................................................... 9 Key Figures............................................................................................. 10 Letter from the Chairman .................................................................... 14 Letter from the Chief Executive............................................................ 16 Market Backdrop.................................................................................... 19 Equities Division..................................................................................... 21 Corporate Finance Division.................................................................... 24 Directors´ Report.................................................................................... 33 Consolidated Financial Statements....................................................... 37 Notes to the Consolidated Financial Statements................................. 43 Financial Statements – Parent Company.............................................. 64 Notes to the Financial Statements – Parent Company......................... 69 Auditor´s Report..................................................................................... 75 Board of Directors and Group Management....................................... 76 Setting the Compliance Ethos at ABGSC.............................................. 78 Corporate Governance........................................................................... 81 Articles of Association..............................................................................87 Shareholder Information.........................................................................89 Financial Calendar 2008......................................................................... 96 Addresses................................................................................................ 99
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ABGSC Profile – Nordic Companies/Global Money ABG Sundal Collier ASA (ABGSC) is a Nordic investment bank, publicly quoted and listed on the Oslo Stock Exchange (ticker: ASC). The firm serves an audience of largely institutional investment clients and corporations to provide advice that is both locally aware and in a clear international context. We operate from offices in five countries and under the highest governance and regulatory standards of our industry. The trust and confidence of our clients is the essence of our past history and our future success. ABGSC operates under the direction of its Board, led by a non-executive director as its Chairman and with a majority of nonexecutive directors. The firm uses a management matrix that provides both local depth of knowledge and cross-border functional control. ABGSC is focused exclusively on the Nordic region of Europe, an area of economic strength, diversity and innovation. ABGSC has three operating divisions, Corporate Finance, Equities and Trading & Risk. All Divisions operate as parallel units with robust
governance controls to assure proper integrity of information at all times. The firm’s investment research team is considered among the most outstanding in the region and remains a lynchpin of our ability to deliver the most informed and knowledgeable advice to our various client groups around the world. ABGSC’s operating as a partnership ensures parallel interests between external shareholders and staff. As of year-end 2007, 137 of the firm’s active staff were partner-shareholders, controlling approximately 44% of the firm’s equity through shares and forward contracts for shares. The firm’s partners are committed under a partnership agreement that restricts the manner and circumstances in which shares can be disposed and generally helps to ensure that key members of the A BGSC team have an important economic stake in the success of the entire enterprise. Our ownership culture and commitment to the right things for our clients has ensured both the growth and profitability of the firm.
Our Vision and Mission We are a leading Nordic investment bank built on specialist research knowledge and committed to delivering long term, superior value for all our key stakeholders by • ensuring an ethos that always puts client interests first • building a passion for real quality in everything we do • delivering our work in the most cost effective manner • pursuing value in ways that reach all our stakeholders Our goal is to be the preferred business partner for our clients. We are problem solvers and value builders.
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2007 Hi ghl i ght s • Stock markets around the world were shaken during the second half of 2007 by growing concerns over credit conditions, losses among banks and the prospect of constrained growth as a result of restricted circumstances for borrowers. Reflecting these conditions, world stock markets produced only a 2.8% increase for the full year. Virtually every market dropped towards the end of the year and the Nordic region was no exception with a fall of about 7% in the final quarter. For 2007 overall, the Nordic region still produced the second strongest result of any region for the full year, rising 8.6% in local currency terms. • ABGSC continued to perform strongly in the positive market environment. Total operating revenue increased by 19% to NOK 2,192 million, Pre tax income grew by 23% to NOK 887 million, net profit grew by 15% to NOK 625 million and the EPS grew to NOK 1.81 vs. NOK 1.73 for 2006. • While ECM-type activity dropped sharply in all markets during the second half, the ABGSC Corporate Finance team still produced excellent results. This was an outstanding achievement in the face of both market uncertainty and very strong prior year comparisons. Corporate Finance revenues increased by 29% for the full year to a new record high of NOK 1,224 mil. • The ABGSC Equities Division experienced good growth in volatile markets with Stockbroking delivering a 14% revenue gain for the full year to NOK 884 mil., also a record high for the firm. The drop in ECM activity also had an impact in the secondary markets but the firm maintained good momentum with clients. International investors were once again an especially c ritical factor in growing volumes in the Equities Division. The firm increased its share of traded volume in the region with an increase of 27% compared to 25% for the market overall. • Investments to support the growth of our business continued during 2007. Improved techno logy for both risk management and client support has led to better operating efficiencies and continued focus on the risk control and compliance side of our business. Headcount rose to reflect the need for expanded coverage and sales support but this growth was less than that for revenues during the period. In aggregate, full year operating expenses rose by 17% and with a slower increase in costs than in income, the Cost/Income ratio improved further to 64% for 2007. • The ABGSC dividend in respect of 2007 will rise once again. Directors have been pleased to recommend an increase to NOK 1.70 per share in keeping with the firm’s historic policy of distributing substantially all its earnings to shareholders.
Our ownership culture and commitment to clients, have ensured that 2007 was the best year in our business history with strong revenue growth and solid margins leading to record profits for the firm.
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Key Fi g u re s Group Key Figures (NOK 1,000)
2007 6)
2006 6)
2005 6)
2004 6)
2003 6)
Revenues: Stockbroking revenues Corporate Finance revenues Other revenues
884 436
779 194
573 541
457 818
380 249
1224 445
952 334
554 904
362 933
246 086
83 463
103 078
64 928
18 782
1 521
Total revenues
2192 344
1834 606
1193 373
839 533
627 856
EBIT before bonus and profit to partners
1646 604
1366 194
798 174
451 296
295 282
788 107
654 375
391 120
226 698
147 241
EBIT after bonus and profit to partners Profit before taxes
887 241
719 577
426 920
390 383
159 825
Net result for the period
625 107
544 222
338 780
300 578
108 797
29.2%
Key Figures: 49.1%
69.1%
53.7%
79.1%
Earnings per share (NOK)2)
1.81
1.73
1.14
1.12
0.41
Book value per share (NOK)3)
4.88
3.40
2.74
2.19
1.57
Payment to shareholders per share (NOK)4)
1.70
1.60
1.40
1.10
0.50
Return on Equity (%)1)
12.60
13.00
8.80
7.39
4.80
Number of shares outstanding at 31/12 (in 1,000)5)
Share price at 31/12 (NOK)
337 480
288 556
269 289
262 874
264 045
Diluted average number of shares (in 1,000) 5)
353 859
321 689
302 810
269 307
263 386 11.7
Price/Earnings
7.0
7.5
7.7
6.6
Price/Book value equity
2.6
3.8
3.2
3.4
3.1
Number of employees/partners per 31/12
289
246
222
198
171
Definitions: 1) Net result for the period / average equity for the period 2) Diluted average number of shares. 3) (Book equity per 31/12 + dividend) / (total number of shares - treasury shares) 4) Dividends, proposed past year end interim dividends or reduction in share premium fund 5) Adjusted for treasury shares 6) 2007 - 2004 according to IFRS, 2003 according to NGAAP
Return on Equity (%)
Cost/Income Ratio (%) 100
80 70 60
80
50 40 60
30 20
40
10 2002
2003
2004
Cost/Income Ratio
2005
2006
2007
1500
2004
2005
2005
2007
Operating Profit Margin
1000
1200
1 224
900
120 2002
246 2003
200
363 2004
2005
Nordic Companies/Global Money
884 779 574
400
555
300
800 600
952
600
10
2003
Return on Equity
Stockbroking Revenues (NOKmil)
Corporate Finance Revenues (NOKmil)
0
2002
Compensation/Income Ratio
2006
2007
0
335
380
2002
2003
458
2004
2005
2006
2007
Operational Revenue Distribution 2007
Geographic Revenue Distribution 2007
Denmark 1% Norway 59%
UK/Continental Europe 18%
Other 4%
Stockbroking 40%
USA 10%
Corporate Finance 56%
Sweden 12%
Geographic Partner and Employee Distribution
23 New York
Bergen 8
134 Oslo 76 Stockholm 9 Copenhagen
39 London 289 employees per 31 December 2007
Norway
Sweden
Denmark
United Kingdom
USA
• Equity Sales
• Equity Sales
• Equity Sales
• Equity Sales
• Equity Sales
• Equity Research
• Equity Research
• Equity Research
• Equity Research
• Group Compliance
• Corporate Finance
• Corporate Finance
• Corporate Finance
• Bond Sales • Alternative Investments • Foreign Exchange • Back Office • Group Compliance • Group Admin
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Le t t er from t he C h a irm a n Dear Stakeholders, We are pleased to report an excellent set of results for 2007, despite a backdrop of turbulence and uncertainty in the financial services industry. Our focus on providing value-added advice to our clients enabled us to increase revenues by 19.5%. More importantly, we avoided losses in proprietary trading and structured products, areas of particular difficulty in the market. We believe that our partnership culture helped us to negotiate these difficult markets without losing money. As all of our senior professionals are shareholders as well as partners, the interests of shareholders and staff are aligned. We took several steps in 2007 to position the company for future growth. We added new product areas, including convertible bonds, corporate bonds and foreign exchange facili tation. We also expanded the geographic reach of our client list to include valued new clients in the Middle East and North America. Our goal is to solve problems and build value for these new clients, as for all of our c lients. In addition to this step-by-step growth, we also took time together as a board and management team to develop a long term strategic plan that set ambitious goals for multiyear growth. The strategic planning process extended past efforts to help identify our strengths as well as areas for improvement.
This group is able to challenge and support management in a constructive relationship that focuses in equal measure on enhancing shareholder value and preserving high ethical standards. Although we are pleased with the current structure of our board, we will miss our former chairman, Terje Moe Gustavsen. In November 2007, Terje became Director General of the Norwegian Public Roads Administration. As a government official, he is no longer in a position to serve as our Chairman. Terje chaired ABGSC from October 2004 until November 2007. During his tenure as Chairman, the company grew from NOK 840 million in annual revenue to NOK 2.2 billion. He oversaw important changes in management structure, corporate governance and geographic expansion. His wisdom and encouragement will be missed. We hope you will review our work over the past year as captured in this report. We encourage feedback on both what we have said and our goals for the future. The partners and staff of ABGSC have achieved real progress during the past year despite a volatile, fast changing environment and our strong results are a tribute to their efforts and the support of our clients. Yours sincerely,
The ABGSC board benefitted from the establishment of a Nomination Committee in 2007. This committee helped to identify and recruite two new non-executive members of the board, Cecilie Lind and Anders Grudén. The board now has a broad range of knowledge, experience and international perspective.
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Judy Bollinger Chairman
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Le t t er from t he C h ie f Exe c u tive Dear Shareholders, Clients and Friends, It has been an extraordinary year by any measure, a year characterised by s ignificant change within ABGSC and even more dramatic change in our operating environment. As our new Chairman, Judy Bollinger, has already noted the changes to our Board during the year are changes that we believe will strengthen the firm in the future. With a broader, more internationally diverse Board, I expect the firm will benefit as our business expands to new client markets and more diverse market activities. The strategic work of the Board and the company’s management has given us a better sense of the growth avenues before us and a clearer vision of how to achieve the results we expect for ourselves and our shareholders. To cope with growth and ensure the best support for our clients, we made a number of changes to our operating structure and management during 2007. Most important
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among these was a streamlining of our core management group, the Executive Committee (Excom). This will now be composed of myself, Arild Engh (Corporate Finance), Christen Heiberg (Equities), Geir Ringstad (Trading & Risk) and Tore Grøttum (Support). In addition, Steinar Nordengen and Mats Kummelstedt will work in support of the Excom. We have created separate management groups within each of the Corporate Finance and Equities divisions as well so that decision-making is focused at a level appropriate to the business. In addition to these changes at our most senior business levels, we have moved to streamline the operation of our largest and most important overseas office, London. Johan Roth became our new Managing Partner in London at the start of 2008 with overall responsibility for our London office, succeeding Mats Kummelstedt.
Sweden has been at the core of our business since the merger of ABG and Sundal Collier and it is a key strategic goal to expand activities in Sweden to a level commensurate with our success in Norway. As part of our 2008 expansion efforts, Knut Pedersen succeeded Carl Palmstierna as Managing Partner in Sweden and Anders Grudén will succeed Carl Palmstierna as a board member of our Swedish subsidiary, ABG Sundal Collier AB. As I have considered both our 2007 results and the outlook for 2008, my instincts for caution are much in evidence. Despite a difficult second half in 2007, we managed to produce an increase of 19% to nearly NOK 2.2 bil in revenues, with an increase of 21% in EBIT to NOK 1.65 bil - all record breaking numbers in our firm’s history. Moreover, despite adding 17% to headcount and expanding our cost base, we continued to improve profitability per head, a testament to our ability to grow our business in a sound fashion. But de-
spite the strengths underscored by these results, we cannot ignore the market events of the last two quarters and it is my responsibility to note that 2008 may be a challenging year. Credit market disruptions are reducing the scope for business expansion at the moment and banking liquidity will need to improve if the year is to reach its full potential. We have come a long way in building our company since the merger in 2001, in both good and bad times. With the right preparation and attitude I am convinced that we can continue to improve our market position even with a more demanding environment in 2008.
Yours truly,
Jan Petter Collier Chief Executive
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Market Ba c k d ro p Global investors have enjoyed strong markets since 2003, the year that marked the recovery from the collapse of the dotcom bubble. The Global Markets have in aggregate returned over 12% per year in local currency terms since the start of 2003. In that same timeframe, Nordic companies have enjoyed rates of growth above the global average such that valuations have remained relatively reasonable over the entire ensuing period despite share price improvement. Indeed, Nordic indices have provided the best return to investors of any regional group in the developed market world over this period. Annual returns to investors have been 18.6% over five years compared with 18.0% in the Pacific (ex-Japan) and 13.8% for Europe overall. These very happy results were never destined to last forever and it was in the second half of 2007 that things began to unwind. Nordic markets still produced a positive return for the full year but a look at the calendar shows that it was all in the first half with Q4 alone showing a nearly 7% drop.
markets outperformed global indices by more than 5 percentage points. This was the fourth consecutive year of outperformance for the region. 135 130 125 120 115 110 105 100 95 90
80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 %
Jan. Feb. Mar. Apr. May. Jun. Jul. Aug. Sep. Oct. Nov. Dec. Sweden
Norway
Finland
Denmark
Price index change Jan 1 – Dec 31
35%
10 9 8 7 6 5 4 3 2 1
30% 25% 20%
The trouble was not with equities per se but in credit markets and related derivatives. The catalyst for change was the US sub-prime mortgage sector, an area of lending so obscure to most investors at the time as to have been largely invisible until the problems were written in large-type newspaper headlines, together with increasingly dire predictions from economists. Banking and Securities regulators around the world have rallied to shore up the banking system and credit markets in the face of both market stress and investor disquiet. Despite supportive actions by central banks, the outlook for 2008 economic activity continues to weaken as does equity investor sentiment. While economic growth generally beat expectations in 2007, numbers since then have combined with well publicised bank write-offs to send a much more restrained message about what investors might expect for the year ahead. Nordic markets finished a volatile year with a gain of 8.6%, led by strong performances in Finland (+20.5%) and Norway (+13.5%). The region’s largest market, Sweden, on the other hand, fell by 6% after a soft second half of the year in which heavily US dollar exposed engineering firms had an especially difficult time along with disappointments from Ericsson. For 2007 as a whole, Nordic region
15% 10% 5% 0% 2004 MSCI Nordic
2005
2006
2007
MSCI World
Global economies began 2007 in high gear, with GDP growth surprisingly resilient in all regions. However, as the year progressed and it became clear that the fall-out from the credit market turmoil would be greater than initial estimates suggested, growth momentum deteriorated sharply. While this deceleration had limited impact on earnings in 2007, the decline in leading indicators has triggered a number of downward revisions of earnings forecasts for 2008. The turbulence in credit markets – that originally started as a ‘sub-prime crisis’ in the US, and later spread to other parts of the financial system – also created a ‘flight to safety’ in which investors’ preferences shifted towards government-backed securities with short maturities. The resulting increase in high-yield bond spreads was dramatic, and had a clear negative impact on equity market valuation
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across the world. Persistence of credit market problems in 2008 will certainly hurt overall rates of economic activity but it is too early to assess the extent of the likely damage.
Among the relative losers, companies with exposure to the US economy were espe80 % cially notable (particularly those in consumer % goods). For70 example, Electrolux and Husq60 varna plunged%by 43% and 28%, respectively, 50 % from their mid-year highs as concerns about % a consumer40 recession in the US mounted and 30 % US dollar weakness persisted.
6.00 5.50 5.00 4.50 4.00 3.50 3.00
20 %
2.50 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec US high-yield bond spread over US Treasury High 5.79 26/11/07. Low 2.54 5/6/07. Last 5.1 31/12/07 2.50
13.00
3.00
12.50
3.50
12.00 11.50
4.00
11.00
4.50
10.50
5.00
10.00
5.50
9.50
6.00
9.00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec US high-yield bond spread over US Treasury (inverted) Nordic Equities 12m forward P/E retio (r.h scale)
On a more positive note, growth in emerging economies remained strong throughout 2007 and this had a positive impact on demand for commodities and commodity prices. Strong demand pushed oil prices higher by nearly 60% during the year, resulting in an understandably positive impact on energy sector stock prices. This benefited the energy heavy Norwegian equity market. Turning to individual sectors and stocks, the rising oil price and increasing awareness of the problems associated with ‘global warming’ made companies exposed to ‘alternative energy’ emerge as winners in 2007. REC (+142%), Vestas Wind Systems (+131%), ABB (+49%) and Novozymes (+42%) were among those that benefitted from this trend, although REC has since suffered a serious earnings setback in 2008. Investors also actively looked for exposure to emerging markets, where the superior economic growth was expected to lead to higher returns in the future. Here, we note stocks
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such as Millicom (+91%), Yara (+77%), Nokian Tyres (+55%) and Oriflame (+46%) as winners in both absolute and relative terms.
Nordic Companies/Global Money
While Nordic avoided significant 10 banks % exposure to credit market problems such as US sub-prime mortgages, they nonetheless were hit by a global de-rating of financial stocks. Banks with significant presence in the Baltic 80 region were especially punished, with % Swedbank 70 % down by 26% and SEB off by 24% during60the % year. 50 %
Outlook 40 %for 2008 30 % 20 % The year has started with sharp falls in all 10 % world equity markets, driven developed by renewed concerns about a softening of global demand for goods and services. While we believe that the aggressive monetary easing by the US Federal Reserve Bank and other central banks will eventually have a positive impact on demand, we expect that equity markets will remain volatile until firm evidence of a broader economic stability is available. The main uncertainty here is the financial system’s ability (and willingness) to embark on a new round of credit expansion, where more risk-averse bankers may cause traditional transmission mechanisms to work more slowly than normal.
At the microeconomic level, corporate operations and balance sheets are in good shape. Combined with earnings multiples at lower levels than has been seen in years, we believe that the potential for a recovery in Nordic equity markets during the course of 2008 is good. Whether that recovery will be strong enough to offset the declines in the first three months of the year or not remains to be seen.
Equiti e s Di v i s i on Nordic markets dropped nearly 7% during Q4 but were still up 8.6% for the year in local currency terms. Only the Pacific Region had a better result in 2007. Supported by research ideas and good fundamentals, trading volumes were up again with foreign clients taking a greater share of activity than those in domestic markets. ABGSC’s market share rose modestly for the year reflecting our higher traded volumes compared to markets overall. On the back of this volume improvement, Stockbroking revenues increased by 14% to NOK 884 mil in 2007. Investors changed focus in the latter part of 2007 as volatility increased and markets dropped. Perhaps because of the abruptness of the change and certainly driven by worries about credit markets, investors shifted their concentration toward more macro issues, taking a more top down and broadly negative view that led to high volumes of activity in the face of lower equity prices. The most vexing question for many investors seems to be whether the drop in prices represents a real improvement in valuation attractiveness or if 2008 earnings will revise downward and undermine prices further. The heavily US dollar exposed Swedish market bore the biggest negative hit towards the end of the year and the level of IPO activity was much reduced compared with earlier in the year. 2007 was a year of change and renewal for the Equities Division in several areas as new management was installed, sales and trading capacity expanded, research continued to evolve and the Corporate Access team achieved new high levels of contact success.
Research Earnings worries, Fed cuts, volatility and de-coupling 2007 was a mixed year for equities, with global markets dropping and rapid changes in sector correlation through the year. A bear market in financials had already started in the beginning of the year but intensified following increased credit concerns over US subprime debt and complex debt structures. OECD sensitive cyclical stocks weakened after the summer on the back of US recession worries and a concern the downturn would become contagious.
Nordic markets - mixed Nordic markets roughly followed global patterns during 2007 in terms of sector results. Sweden did well in the first half, but collapsed in the second and ended the year down 7%, with its large cyclical component and a big exposure in engineering and banks. In addition, the misery emanating from telecom equipment player Ericsson accelerated with its market cap falling by nearly half through the year. Norway, heavily skewed towards energy, was up 13.5% in 2007 (but suffered badly in January this year). In addition to the traditional oil producers and oil service companies, alternative energy plays like the solar company REC (up 142%) and the fertiliser producer Yara (up 77%) were big contributors to performance although REC has since suffered as a result of earnings shortfalls. As elsewhere in the region, most of the positive performance in Norway came in the first half. Finland, up 20%, was lifted by Nokia (up 71% in 2007), the best performing company in the global telecom equipment industry. Denmark rose 4% for the year but was sharply down in the second half, driven lower by Maersk and Danske Bank. While we recognise that 2007 was a tough year for analyst recommendations and investor success, we would like to highlight a few of our stock picks. In the comments that follow, we look at three areas and four companies that represent good examples of key themes for investors in Nordic equities last year - Materials, Financials and Telecom Equipment.
Theme One: Materials – Pulp & Paper turning to ash, agriculture and Yara shining We have maintained a structural bear case on the Nordic Pulp & Paper sector throughout 2007. The sector fell about 25% during the year, with the more leveraged names dropping by half. The core of our case has been a weak USD, cost inflation and a weaker macroeconomic outlook. US paper producers have been at the top end of the global cost curve and have set the global price for paper. The weakening USD then translates into weaker paper prices in Euros, which undermines the profitability of Nordic paper companies. Furthermore, paper makers have also been hit by sharply higher fibre costs (partly due to
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escalating Russian export duties on wood) as well as higher energy costs. Finally, while the sector has historically had a good correlation with industrial production growth (where the outlook has now worsened), paper consumption has been hit by a structural shift away from paper use and into new electronic media (e.g. internet). The agricultural companies have been increasingly in the news as weather related crop shortfalls have driven soft commodity prices to historically high levels and growing use of biofuels has spurred demand from new users. We have seen Yara as a key beneficiary of these trends, something we identified as increasingly important some years back. Our micro-case has been that fertilizer prices are driven by energy prices and grain prices. Natural gas makes up ~80% of the cash cost of fertilizer production and determines the price floor. The strength of prices in the grain market effectively determines the margin on top of the gas cost to the fertilizer producer. With both grain and energy prices up dramatically, fertilizer prices have rocketed and so has Yara’s earnings. In addition, Yara benefits from having ~30% of its capacity in very low cost gas regions. The grain market has tightened for a number of reasons: i) bad weather has reduced grain output and pushed the global stocks-to-use ratios down to 40 year lows, ii) the impact of biofuels, iii) diet-changes towards more meat-consumption, iv) Asian population getting wealthier. These trends are likely to persist for some time to come.
Theme Two: Banks – avoiding credit market woes The ABGSC research team went into 2007 with a cautious view on the banks, something that turned out to be the right strategy but in a more dramatic way than anyone anticipated. Our view was that in the late stages of an economic cycle, credit risks typically escalate, sometimes dramatically. Asset quality was in our view becoming more of a concern and we felt investors would be wise to take a more cautious stance on the sector, especially areas with asset quality issues. We counselled investors that such risks were increasing rapidly with the Baltic exposed banks (Swedbank and SEB), and that a negative position was appropriate. We also preferred to avoid banks with a high exposure to capital market related
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Nordic Companies/Global Money
revenues (SEB has the highest exposure), arguing that these were likely to prove both volatile and vulnerable at this point in the cycle. When the risks started to surface more visibly during the summer, we upgraded what we perceived as the low risk names, DnB NOR and Svenska Handelsbanken. DnB NOR provides a core exposure to the continued strong Norwegian economy. In Svenska Handelsbanken, the divestment of SPP reduced earnings volatility significantly, while its leverage to increased credit risks is lower than the other banks. Credit market risks remain high but our strategy seems to have captured the right balance.
Theme Three: Getting the basics right Telecom Equipment – big gains with the right bets There were dramatic shifts in share prices in the Telecom Equipment sector during 2007, those changes reflecting a dramatic shift in both company achievements and investor perceptions. The Nordic region has been home to arguably the mobile industry’s two most important firms, Nokia and Ericsson, but their fortunes have varied over the years as one or the other seemed to gain an advantage in an especially critical area. Ericsson has always been the stronger firm in the network equipment area while Nokia has had the better position in handsets. This continues to be the case but one firm, Nokia, has established a far better reputation for execution and delivery on its goals. 2007 was a dramatic example of these differences. Ericsson shares started the year above SEK 27 and finished 45% down at just above SEK 15, while Nokia started the year a bit above EUR 15 and finished close to 27, up 71%. Estimate changes explain most of the move in Nokia though it also benefited from a 10% multiple expansion. Ericsson dropped as earnings forecasts plummeted and investor patience was exhausted. Individual company performance explains most of the earnings surprises for both companies, as Nokia was helped by its strength in the handset market and its ability to maintain margins. Interestingly, volume growth was stronger in mobile infrastructure (we estimate up well over 30% vs. a 14% unit volume growth in mobile handsets) but margin pressure was intense. Nokia managed to combine
a major gain in market share with higher margins from a very competitive product portfolio and severe problems for Motorola, one of its key competitors. In contrast, while Ericsson also gained market share, it experienced a dramatic decline in margins reflecting sharp price competition.
pany locations. In total, the CAG managed 426 such visits during 2007, 30% for Swedish companies and 56% for Norwegian firms. This reflected the high interest in energy related companies and the amount of capital raising activity by specialist energy firms in Norway during the year.
Corporate Access
In addition to its roadshow efforts, our team ran five successful specialist conferences during the year, including seminars on Mining capital equipment, Seafood, Consumer sectors, Real Estate and the Seismic industry. The Corporate Access Group also ran a unique set of visits to Russia, providing a first hand opportunity for investors to meet the Nordic company subsidiaries and joint ventures that have played an important growth role for many Nordic players.
The Corporate Access Group (CAG) at ABGSC had a torrid pace of activity during 2007 as companies sought to maintain as much direct investor contact as possible and in the face of very high ECM volumes during the first three quarters of the year. The team’s focus is to give investors access to company management either through roadshows, direct meetings at client locations or client visits to com-
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Cor p or a t e Fi na n c e Div isio n Unlike the weather, climate changes in investment banking are abrupt, not gradual. The example of 2007 underscores this reality as ECM transaction activity tended to dominate the first part of the year, encouraged by a climate of optimism, easy money and little concern about future slowdowns. Q3 was a transitional period with some ECM activity continuing but in a far more circumspect environment as investors became more cautious about the future. The final quarter saw an almost total reversal of earlier optimism as ECM activity came to a halt and corporate decision-makers took a far more sceptical view of the future. The dramatic changes in credit market conditions were a clear signal that the overall level of economic activity was destined to slow as liquidity was limited, credit availability diminished and investor risk appetite shrank quickly. Against a backdrop such as this, the performance of the ABGSC Corporate Finance team was strong throughout 2007 and perhaps especially in Q4. Indeed, the final quarter of the year was a new record high in spite of an extremely difficult comparison with last year and notwithstanding the dramatic change in market conditions. Picking up the slack from ECM, areas such as M&A, convertible bonds and real estate more than compensated for weakness in equity market fundraising and reflect the firm’s ability to act creatively on
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Nordic Companies/Global Money
behalf of clients in challenging circumstances. One outstanding exception to the absence of IPO successes was in Sweden where the firm continued to increase revenues from Corporate Finance to achieve a new record result. Total Corporate Finance revenues increased by 29% to NOK 1,224 mil for the full year as shown in the graphs below. The pipeline for M&A advisory work is promising as we start the new year but much slower ECM activity suggests that overall results in the first half of 2008 will be lower than 2007. The ABGSC Nordic team led or co-led 46 ECM transactions with a total value of NOK 34 billion. During the year, ABGSC managed nine initial public offerings for companies in Norway, a substantial share of the aggregate 57 IPOs in Norway during 2007. In Sweden, ABGSC co-led the IPO of Duni, one of the few large IPOs in this market last year. ABGSC consolidated its position as a leading Nordic merger and acquisition advisor during 2007 and completed several milestone transactions. Among ABGSC’s key engagements during the year were: • Advisor to Storebrand in the acquisition of SPP from Handelsbanken • Advisor to A. Wilhelmsen in the acquisition of Expert
• Advisor to Borse Dubai in the offer for OMX • Advisor to Norske Hydro in the sale of Hydro Polymers to Ineos It has been our strategy to expand the range of our activities in order to have a better overall balance to the revenues of our business. This objective has encouraged us to extend the firm’s business model to include areas we have either not previously pursued or where our involvement has not been substantial. An active bond origination business has been developed over the last two years and we have focused considerable effort on building our Bond team. 2007 was a gratifying breakthrough year in terms of completed deals for the ABGSC Bond team. This was particularly evident in the convertible bond segment where ABGSC played a significant role in Nordic issues during 2007. ABGSC was co-lead manager in the USD 1 billion convertible bond offering for the Norwegian oil service company, Seadrill. Other clients included Golden Ocean, Petrominerales, Songa Offshore, Artumas, Petrobank and Eastern Echo. In total, ABGSC managed convertible bond deals with a value in excess of NOK 11 billion in 2007. Alternative Investments were another area of business diversification for the firm and our team in this area has established a good position in creating these specialised vehicles
during the past year, focusing primarily on high net worth clients with particular risk/ return objectives. During 2007, the Alternative Investments unit successfully structured and distributed equity index, foreign exchange warrants and real estate products, as well as distributing various third party fund products. Of particular interest was our ability to distribute private equity products to the high end of the Norwegian High Net Worth market, both with individual subscriptions and through feeder funds. One notable example was our facilitation of more than NOK 1 billion from our clients into the highly successful, Swedish based activist fund, Cevian Capital
Corporate Finance Revenues (NOKmil) 1500 1200
1 224
900
952
600
555
300 0
120 2002
246 2003
363 2004
2005
2006
2007
Nordic Companies/Global Money
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26
Anatomy of a Corporate Finance Transaction In the past we have chosen a selection of transactions that we felt captured the high points of our corporate finance activities during the past year for this section of the annual report. This year, partly reflecting the extraordinary level of activity and sheer number of transactions, we thought it might be interesting to present a complete “birth to wedding” review involving our work with a single client in a wide variety of activities throughout the year. We have chosen the saga of a new company, Eastern Echo, founded in March 2007 as a new player within the marine seismic industry, an area of particular interest in the oil and gas sector as the search for new reserves intensifies.
The creation of Eastern Echo Early 2007, ABGSC was approached by the founders of Eastern Echo, regarding ABGSC’s potential role as advisor for the company. The predecessor of Eastern Echo had been incorporated back in the autumn of 2006. The key assets were construction agreements with a Spanish ship yard, Hijos de J. Barreras, for four 3D seismic vessels. All the vessels feature the revolutionary Ulstein X-Bow design along with other important features for increased redundancy, comfort, environmental mitigations and improved efficiency. ABGSC was formally appointed as advisor in February 2007 and immediately initiated preparations for the company’s initial financing. ABGSC recognised that new investors would require well regarded and experienced management for the company before any new financing and in early April 2007, Mr Rolf Rønningen was appointed CEO and Mr. Tore Karlson was appointed chairman of the company. We also worked to ensure the appropriate changes in the company’s legal structure to satisfy the demands of international investors. This was accomplished quickly and the first phase of financing was able to move ahead.
The initial financing Following completion of initial preparations, financing work commenced in April 2007. In total, Eastern Echo had a financing need of more than USD 400 million, and ABGSC
together with management and owners evaluated an optimal financing structure. The chosen model for the initial financing comprised USD 125 million in new equity, 40 million in convertible bonds and USD 200 million in senior secured bonds. To secure sufficient investor interest, ABGSC organised a global roadshow that included more than 50 investor meetings, including prospective equity and debt investors from the US, UK and Europe. The private placement processes attracted significant interest and the financing was successfully completed in the beginning of May 2007.
The stock exchange listing With the initial financing for four vessels in place, Eastern Echo was then in a position to proceed with a listing process for the company’s shares. The ambition was to conclude a listing on Oslo Axess by the end of October 2007, a demanding timetable but one that ABGSC felt could be achieved. During this process, the company had the opportunity to acquire two additional construction agreements and in September 2007, Eastern Echo signed a letter of intent with Dubai Drydocks for the construction of two additional vessels. These vessels are of the same design as the first four, with expected delivery in March and June 2009. Furthermore, on 21 September 2007, the company announced that the four original vessels would be upgraded to 12 streamer capacity. With the additional contracts in hand and the remaining financing requirements for the first four vessels, Eastern Echo now needed additional financing of about USD 100 million. As advisors, we recommended that this be achieved as part of the initial public offering. The offering was completed on 29 October 2007 at a share price of NOK 7.60 implying total proceeds of more than USD 100 million. The Company was listed on Oslo Axess on 30 October 2007 with a market capitalisation of NOK 1.9 billion (USD 357 million).
The unsolicited offer After only six days of trading, on 6 November 2007, industry giant Schlumberger announced
Nordic Companies/Global Money
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that it had acquired and received pre-acceptances for an ownership stake of 39 percent in Eastern Echo. Later the same day, Schlumberger announced that it offered to acquire all outstanding shares, convertibles and warrants in Eastern Echo at a minimum offer price of NOK 11 and a maximum of NOK 12 per share with the final price dependent on the acceptance level achieved under the offer. ABGSC was retained by Eastern Echo to act as advisor and to assist in reviewing all strategic options open to the company. Subsequent to the announcement from Schlumberger, ABGSC approached several other potential interested parties to explore other possibilities for Eastern Echo as well as to assess the Schlumberger offer. On 8 November 2007 the board of directors of Eastern Echo issued a statement that the offer price of a minimum of NOK 11 and a maximum of NOK 12 per share did not represent the fair value of the company. Later the same day, Schlumberger increased its offer to NOK 12 per share.
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Nordic Companies/Global Money
On 12 November 2007, the seismic leader CGG Veritas announced that it had acquired 30,900,000 Eastern Echo shares, representing ~13 percent of the total shares outstanding. On 16 November 2007, Schlumberger put forward a new offer to acquire all outstanding shares, convertible bonds and warrants in Eastern Echo. The offer price was now at NOK 15 per share and the members of the board and key management had pre-accepted the offer for their shares, comprising approximately 14 percent of the outstanding shares. Following the improved offer, Schlumberger achieved more than 90 percent acceptances and on 21 January 2008, Eastern Echo was delisted from Oslo Axess. The start to finish story, filled with drama, surprising twists and final resolution seems a good example of the diversity of our work, its importance to clients and their shareholders. Significant values were created and the equity investors participating in the initial private placement experienced a return of 150% in less than a year.
29
Real Estate and shipping activities
Transactions in 2007
Background
The real estate transaction team consists of 10 professionals with a strong focus on acquisition advisory work. This primarily involves identifying properties in a variety of geographies and segments according to client investment criteria, initialising negotiations, leading due diligence processes and closing the transaction with the right external financing. This last year, as credit markets became increasingly challenging, our deep experience within debt financing and our strong relationships within the Scandinavian and European banking community, have been of great value to our clients. These debt financing activities are driven by personnel from both our transaction and asset management teams.
ABGSC started a specialised real estate group within its Corporate Finance division in 2002 following several years of ad hoc development. Real estate activities have grown rapidly in the ensuing years as our innovative approach, deep real estate knowledge and excellent distribution relationships have combined to produce an exciting business, active in a number of important markets both within and increasingly outside the Nordic region. Today’s real estate team is comprised of 23 professionals focused on real estate transactions and property asset management, each activity with separate, but closely interlinked teams. In addition to these direct market real estate activities, our real estate team, in close collaboration with the rest of the Corporate Finance team, is active in various corporate finance activities and advisory services within the real estate sector. Our deal activity is highly international and is covered by our main office in Oslo and by our dedicated US team, based in New York. Product development has been an essential ingredient in the success of ABGSC’s real estate group. From 1999 to 2002 all projects were Norwegian commercial properties with long leases and bond-like financial characteristics, and in 2003, long lease term Swedish commercial properties were introduced. In 2003 we further introduced regulated Swedish apartments for the first time and with considerable success. Late in 2005 we turned to the German residential market, where 20 years of insipid economic performance had left the market price of residential real estate at about one third of the typical Scandinavian apartment. In 2004, the product offering was increased to include investments in ships, an area with investment characteristics similar to real estate. In 2006, in our continuous search for interesting investing opportunities for our clients, we identified a new opportunity in Germany investing in homes for the elderly. Also in 2006, with rising demand for our packaged products, we began to tap the large and diverse US real estate market for the first time, mainly focusing on products with preferred cash flow structures.
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Nordic Companies/Global Money
2007 has been a year of high activity, both with regards to property acquisition advice, as well as real estate corporate finance transactions. We have carried out a broad range of property acquisitions in Norway, Sweden, Finland, Germany, the US and Canada during the year, in property segments ranging from residential apartments and homes for the elderly, through retail properties, to offices and hotels. This highly diversified strategy incorporates German residential real estate and preferred shares in US commercial properties. The diversification into Finland started carefully with a small transaction in 2006 and continued in 2007 with the acquisition of a sizeable office portfolio in the Helsinki area. In addition, the previously identified opportunity of investing in homes for the elderly in Germany was extended in 2007. The low risk strategy, has proved especially sensible in light of the credit crunch and we have pursued it further with the acquisition of a major property portfolio with especially long leases from Kongsberg Gruppen in Norway at the end of the year. Going forward, we will also re-focus on Swedish rent-regulated apartments as we expect municipal sales of such developments to increase. The crisis in some US residential markets is now well documented and represents another opportunity for 2008 that we intend to exploit through investment vehicles now being created. In the last year, we were also able to leverage the synergies between our real estate transaction team and the rest of the Corporate Finance team as well as the Equities Division.
Together, we advised on one of the largest and most complex real estate transactions of the year. The sale involved several companies holding large land plots with development projects at Fornebu outside Oslo to the newly formed company Scandinavian Property Development, at a transaction value of approx. NOK 5 bill. We also advised on the capital formation of this new company, acting as joint lead managers of a NOK 3 bill. private placement and subsequent listing on Oslo Børs. During the year ABGSC was also active in the private placement and listing of the property company, Northern Logistic Property, as well as being sole advisors to Canica in its acquisition of and mandatory bid for Steen & Strøm. The year was rounded off when we won the mandate of Canica as joint advisor with a major international bank for a strategic review and potential sale of Steen & Strøm. This mandate will be a major commitment for the entire ABGSC Corporate Finance team during the first part of 2008.
Shipping We experienced high growth in our shipping related investment activities throughout 2007, an area we have been developing since 2004. Our main focus has been on shipping projects where the vessels are deployed on long term contracts. The supply of interesting projects has increased across all shipping segments following the start of the credit crunch in the second half of 2007, as sale/-leaseback arrangements are now a more competitive source of funding for ship-owners. Despite volatile market conditions growth has continued in 2008, and we are expanding our activities accordingly.
Property Asset Management (PAM) Having grown rapidly, our property asset management team at year end consisted of 13 professionals, now actually outnumbering our transaction group. PAM provides services to our transaction clients, taking responsibility for additional value creation by choosing and monitoring the best property managers, reporting to investors and enhancing value through further development of the properties after initial acquisition. Their tasks include monitoring of sub suppliers delivering property management services, group accounting and budgeting, tax planning, debt
financing, development work and various strategic advice to the boards of our clients. PAM does not only merely take over when a property is acquired, but joins the transaction team early in a transaction process, ensuring a smooth transfer from the transaction to the operations stage. The real estate expertise encompassed in our property asset management group is a major contributor and integral part of the work being done by our transaction team. The property asset management group is critical to maintaining the inherently long term nature of our real estate activities, the relationship with clients and the stability of income for ABGSC.
Distribution Distribution of our real estate and shipping products is undertaken through several streams of activity but our long-standing cooperation agreement with Acta Holding ASA (“Acta”) is by far the most important. ABGSC creates real estate investment products for distribution by Acta through various real estate holding companies. This effort has benefited from a variety of positive market factors as well as our strong, innovative products and Acta’s well run organisation. Acta’s syndication of real estate and shipping equity products has increased from approx NOK 500 mil in 2002 to more than NOK 5 bil. in 2007. Acta funds are now Norway’s largest private real estate owner with a total of approx. 5.4 million sq m under management. Acta’s real estate funds are also Sweden’s largest private holder of residential property, as well as a large owner of German residential property, with a total holding of approx. 53,500 apartments in these countries. ABGSC’s own distribution of real estate and shipping savings products is done trough our Alternative Investment unit established in 2005.
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Direct o r s’ Re p o r t Statutory Directors’ Report Introduction ABG Sundal Collier is a Nordic investment bank listed on the Oslo Stock Exchange. The Group is organised into three operating divisions plus a central support services group. The company has its main offices in Oslo, Bergen, Stockholm, Copenhagen, London and New York. The Group is authorised to engage in investment services in Norway, Sweden, Denmark, the UK and the US. Further, the Company has notified The Financial Supervisory Authority of Norway (Kredittilsynet) regarding crossborder activities in a number of other European countries. The group is one of the largest Scandinavian participants in Nordic markets and works constantly to strengthen its position both within current business activities and related areas, but still within the current Nordic frame.
Comments on the annual accounts Highlights Earnings for 2007 improved at both the operating and Net Profit levels. Based on the established dividend policy of a high dividend payout ratio the proposed dividend for 2007 is set at NOK 1.70 per share (NOK 1.60 for 2006). The Nordic markets strengthened during 2007 with an increase in traded volumes and ABGSC was able to increase its combined Nordic market share and grow the volume of its activities at an even faster rate. The Board believes that the company has performed well in 2007. A high level of activity within the capital markets sector including IPOs and other advisory business benefitted our results in 2007. Improved profitability among our corporate clients raised management confidence and led to increased acquisition activity. The positive outlook for many sectors in combination with abundant liquidity among investors ensured an environment conducive to a variety of investment projects and syndication of investments. ABGSC is an important player within the market for IPOs and other advisory business in the Nordic region. Norway has continued to be our most active market, but
our revenues and turnover have seen growth in all the Nordic markets. Pursuant to the Norwegian Accounting Act, the Company confirms that parent company accounts have been prepared on a going concern basis under Norwegian GAAP. Group accounts have also been prepared on a going concern basis but based on International Financial Reporting Standards (IFRS).
Income Statement Total revenues for 2007 were NOK 2,192 million (vs. NOK 1,835 million in 2006), with Stockbroking revenues rising by 14% and Corporate Finance revenues rising by 29%. The Equities Division has seen a year with high activity levels in most markets. A high level of IPOs and ECM activity has contributed significantly to the increased volumes in the markets. The combination of good underlying markets for part of the year, good research ideas, supportive ECM activity and a strong management helped us to maintain and even slightly increase our market share in the Nordic market. The Corporate Finance Division benefited from a huge variety of deals, both when it comes to industry/segment, size and type of transaction. Total transaction volumes in the Nordic markets decreased by 17% for the full year while ABGSC increased overall transaction volume by 5% reflecting an increase in market share. The Corporate Finance Division was lead or co-lead on 46 ECM transactions during the year with a total value of approx NOK 34 bn. During 2007 we have completed several important deals in the Bond market, both with the issuance of ordinary high-yield senior bonds and with convertible bonds. We have strengthened our Bond team in 2007 and been able to service our clients with opportunities to exploit this market. In 2005 we started a small unit for Alternative Investments servicing the high net worth client segment in Norway with investment products. We have continued to expand this unit and at the end of 2007 the unit reached 8 people, with further expansion planned for 2008. The unit has reached a profitable
Nordic Companies/Global Money
33
level of business and has started to establish itself as an important distribution channel for private equity products to the high net worth market.
addition, value adjustment of financial investments recorded as an equity adjustment is equivalent to NOK -0.06 per share (NOK 0.02 in 2006).
Our Trading & Risk unit had revenues of NOK 82 mil compared to NOK 103 mil in 2006. The unit operates out of Oslo and Stockholm and started a small operation in London in the second half of 2007. We aim to take advantage of market movements and arbitrage opportunities without being exposed to significant risks. Risk limits for Prop trading are moderate and appropriate to the size of the group’s equity.
Balance Sheet and Liquidity
Operating expenses for 2007 (excluding bonuses) were NOK 546 million (NOK 468 million in 2006), an increase of 17%. The cost increase reflects an increase in the number of partners and employees and increased traded volumes with their associated costs. Pre bonus cost / income ratio improved from 26% in 2006 to 25% in 2007. Operationally 2007 have been a good year with focus on smooth operations and no unforeseen or non-recurring cost of any significance. The activity level has grown significantly over the last years and it’s a challenge to build infrastructure and business support in parallel with the growth in business. Through increased utilization of resources and economies of scale we have however been able to improve the cost to income ratio over the last years. Pre-tax Pre-bonus profits for 2007 were NOK 1,647 million (NOK 1,366 million in 2006), an increase of 21%. In line with the bonus and profit sharing model applied for the group, NOK 858 million (NOK 712 million in 2006) has been allocated to bonus and profit to partners and employees for 2007. Net financial items improved from NOK 65 million in 2006 to NOK 99 million for 2007. The group benefits from the increase in the general interest rate level and the increased demand for financing of share purchases either in the form of lending or through forward contracts. After tax profits were NOK 625 million (NOK 544 million in 2006). Net profit is equivalent to an EPS of NOK 1.81 (NOK 1.73 in 2006). In
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Nordic Companies/Global Money
In the opinion of the board, ABG Sundal Collier ended 2007 with a strong balance sheet. The increase in assets is mainly attributable to increased volumes of accounts receivables and short term liability payables, reflecting the increase in trading volumes. The balance to a high degree consists of short term receivables and bank deposits and the maturity profile is positive with short term assets partly financed by long term debt and equity. The investment in Carnegie that was done during the year was in full financed by an issuance of new equity. The Group’s capital ratio was 86% as at yearend 2007 while the capital ratio required by The Financial Supervisory Authority of Norway is 8%. There are new capital ratio requirements and an adjusted method of calculations that will take effect as from 2008 and capital measures in accordance with those regulations on a pro forma basis show the capital ratio would have been at 1.7 still well above the requirement of 1.0. Cash flow from operations is positive but the working capital requirements fluctuate significantly on a daily basis, and hence also between reporting dates. In order to meet the varying liquidity demands from the operational activities the group has established overdraft facilities with its main bank.
Allocation of Profit ABG Sundal Collier’s consolidated accounts and the annual accounts for ABG Sundal Collier ASA are presented in the annual report. The net profit of ABG Sundal Collier ASA was NOK 440,132,000 and the Board proposes that the annual general meeting adopt the following allocation; Amounts in NOK (in thousands) Dividend From other equity Total allocation
577,847 -137,715 440,132
Following the allocation above the parent company ABG Sundal Collier ASA will have other equity of NOK 45.8 million of which 27.0 million is the maximum amount available for dividend distribution. The Company has consistently noted its commitment to maintain a high dividend pay out ratio and the Board has been pleased with an opportunity to increase the firm’s payout to shareholders for this year.
Shareholders The closing price of the ABG Sundal Collier share at 31 December 2007 was NOK 12.60 compared to NOK 13.00 at 31 December 2006. Shareholders received a NOK 1.60 dividend during the spring of 2007, so that the total return for the period has been 9%. The Oslo Stock Exchange’s main index (OSEAX) rose by 13.5% over the same period. ABG Sundal Collier has some 3,814 shareholders and the Company’s partners own approximately 38 % of the total shares outstanding as at the date of this report. The Board believes that ABG Sundal Collier as a publicly listed company has managed to retain a partnership ethos. The Company’s key people are significant owners of the firm and there is a reassuring parallel set of interests between shareholders and staff as a result. We believe strongly that these coinciding interests help us focus on providing the best possible advice and the creation of truly long term relationships while maintaining a clear understanding of the importance of the bottom line.
Organisation, management and environmental information The Group had a total of 289 partners and employees as of 31 December 2007, of which 142 in Norway, 76 in Sweden, 9 in Denmark, 39 in the UK and 23 in the US. As of 31 December 2006, the Group had a total of 246 partners and employees. The employees and partners consisted of 245 (204) males and 44 (42) females. The Group’s working environment is considered to be good and absence due to illness of 0.9 per cent continues to be low. The activities
carried out by ABG Sundal Collier cause no pollution to the outside environment besides what is normal for office operations. Norwegian legislation enacted in 2003 has required companies to make specific comments on their efforts to recruit women to the labor force. ABGSC has a long-standing anti-discrimination policy and women occupy important positions in various parts of the firm. We seek to identify highly qualified candidates for all positions and maintain an environment that is “gender-neutral”. Women occupy senior positions in sales, research, corporate finance and operations/compliance in locations across the organization and we are committed to policies that should make the company an attractive working environment for female investment professionals. 2 out of 4 Board members are females. The Board was, during the year reduced from 5 to 4 members, when the former chairman Terje Moe Gustavsen had to resign when he was appointed Director General of the Norwegian Public Roads Administration. Judy Bollinger succeeded Terje Moe Gustavsen as chairman of the Board.
Other conditions Since year-end, no matters have arisen which have a material negative affect on the parent company’s or the Group’s business position. Legal matters are reviewed in note 14 to the annual accounts. For a description of the Group’s risk profile and risk management, see further note 24 to the annual accounts. The Executive Committee of the firm has established limits for market risks within the trading operations. The main trading activities are carried out on a short term basis with a low level of overnight exposures. Breach, if any, of the set limits are reported to the Board of directors of the subsidiary. The purpose of the trading activities is to facilitate client orders, to profit from arbitrage opportunities in the market and to profit from market volatility. The Executive Committee supplemented with the CCO also fills the position as a credit committee of the firm and approves limits for financing of shares for clients and correspond-
Nordic Companies/Global Money
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ing limits for cash collateral and pledging of shares. Changes in the value of collateral are followed up on a daily basis and shall be compensated for by reduction in exposure or with additional collateral. Regular stockbroking trades are settled with exchange of cash and shares and the credit risk is thereby reduced to the difference between unsettled amount and market value of the shares.
Prospects for 2008 2007 results reflected continued growth in the health and vitality of the ABGSC business and the firm is in a good position to perform well compared to other firms in the same industry going forward. If the current market turbulence continues trough 2008 we expect to see lower volumes of business in the form of ECM transactions and IPOs, but there should be new opportunities relating to M&A and other advisory related corporate finance work.
Broader research coverage, selective expansion in the Nordic markets and the broadening of our business model by providing alternative investment services should all contribute to results in 2008. Our Bond department should also have the opportunity to perform well in a turbulent market. We expect a further expansion of corporate finance activities in Sweden this year along with ongoing progress in expanding our activity in the different segments as Debt products and Foreign exchange. The Board believes the company is well positioned to make the most of its improved position in all operating areas as it continues to focus on building for the future
Oslo, 28 March 2008 The Board of ABG Sundal Collier ASA
Judy Lee Bollinger Chairman
Cecilie Steenhoff Lind
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Nordic Companies/Global Money
Arild Abel Engh
Anders Grudén
Jan Petter Collier Chief Executive Officer
Consol i d a t e d Fi na ncia l Sta te m e n ts C o n so l i d ate d In c ome State me nt Amount in NOK 1,000 OPERATING REVENUES AND EXPENSES
NOTES
Stockbroking revenues Corporate Finance revenues Proprietary Trading revenues Other revenues Total operating revenues
2007
2006
2005
884 436
779 194
573 541
1 224 445
952 334
554 904
81 955
102 624
61 356
1 508
454
3 572
2 192 344
1 834 606
1 193 373
Wages and social costs
12 , 15
275 829
231 533
202 871
Administration costs
6 , 19
255 859
225 335
179 848
Depreciation
22 , 23
14 051
11 544
12 480
545 739
468 412
395 199
1 646 604
1 366 194
798 174
Bonus to employees and profit-sharing to partners
858 498
711 819
407 054
Operating profit
788 107
654 375
391 120
246 344
120 267
41 187
18 206
10 358
18 294
-152 449
-63 139
-15 158
Total operating expenses Operating profit before bonus to employees and profit-sharing to partners
FINANCIAL INCOME AND EXPENSES Interest income Other financial income Interest expense Other financial expenses
-12 966
-2 284
-8 523
Net financial result
99 134
65 202
35 800
Profit before taxes
887 241
719 577
426 920
262 134
175 355
88 140
625 107
544 222
338 780
Tax expense
4
NET PROFIT FOR THE YEAR Diluted earnings per share
21
1.81
1.73
1.14
Basic earnings per share
21
1.99
1.95
1.27
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C o n s oli d ate d Balan c e Sheet a s a t 31 December
Amount in NOK 1,000 ASSETS
NOTES
2007
2006
Non-current assets Intangible assets Deferred tax assets
4
46 466
47 017
Goodwill
23
34 870
34 870
81 336
81 887
38 417
23 640
38 417
23 640
59 590
58 010
Total intangible assets Fixed assets Office equipment and fittings
22
Total fixed assets Financial non-current assets Other shares Other non-current receivables Total financial non-current assets
7 - 10
Total non-current assets
733
1 994
60 324
60 005
180 077
165 532
Current assets Receivables Accounts receivables
3 607 355
2 454 086
Receivables from other stockbrokers
313 254
374 118
Other current receivables
118 589
101 823
4 039 198
2 930 028
7 - 10, 13
526 310
31 085
5
806 028
615 694
Total current assets
5 371 536
3 576 806
TOTAL ASSETS
5 551 614
3 742 338
Total receivables
6
13
Investments Securities and financial instruments Cash and bank deposits Cash and bank deposits
38
Nordic Companies/Global Money
C o n so l i d ate d Balan c e Sh e e t as a t 31 December
Amount in NOK 1,000 EQUITY AND LIABILITIES
NOTES
2007
2006
16 , 17
77 620
66 368
Equity Paid-in-capital Share capital Treasury shares at nominal value
0
-4
Share premium reserve
539 457
96 983
Total paid-in-capital
617 077
163 347
Other equity
1 030 518
816 806
Total equity
1 647 596
980 153
Other equity
Liabilities Non-current liabilities Deferred tax
4
270
83
Pension liabilities
12
32 702
18 206
Long term borrowings
20
334 504
300 000
Deposits from partners Total non-current liabilities
17 361
17 480
384 837
335 768
338 412
767 433
Current liabilities Bank overdraft facility
5 , 13
Accounts payable Liabilities payable to customers Liabilities payable to other stockbrokers
7-8
Income tax payable
4
Public duties payable and holiday pay
29 203
26 958
635 048
352 615
1 162 354
217 676
253 655
198 658
33 306
19 072
1 067 202
844 004
Total current liabilities
3 519 181
2 426 417
Total liabilities
3 904 018
2 762 185
TOTAL EQUITY AND LIABILITIES
5 551 614
3 742 338
Other current liabilities
11
Oslo, 28 March 2008 The Board of ABG Sundal Collier ASA
Judy Lee Bollinger Chairman
Cecilie Steenhoff Lind
Arild Abel Engh
Anders Grudén
Jan Petter Collier Chief Executive Officer
Nordic Companies/Global Money
39
C o n s oli d ate d Cas h Flow
Amount in NOK 1,000 CASH FLOW FROM OPERATING ACTIVITIES Profit before taxes
2007
2006
2005
887 241
719 577
426 920
-195 917
-91 689
-68 082
Depreciation and amortisation of fixed assets and intangible assets
14 051
11 544
12 480
Pension costs, net of contributions
14 496
2 513
1 546
Profit/loss of foreign currency transactions
-21 650
-3 917
7 354
Items classified as investing or financing activities
-59 621
-17 887
-102 533
-1 094 345
-704 299
-870 753
1 230 574
-559 182
258 602
Change in other current assets/liabilities
239 490
311 933
191 270
Net cash flow from operating activities
1 014 319
-331 408
-143 195
Taxes paid
Change in accounts receivables/ receivables from other stockbrokers Change in accounts payable/ payable to customers and other stockbrokers
CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets
-29 578
-12 438
-9 293
Net Proceeds from sale of/ (investments in) fixed financial items
-456 508
-51 610
333 070
Net cash flow from investing activities
-486 086
-64 048
323 777
Proceeds from long-term loans
35 976
312 413
378
Proceeds from short-term loans
0
645 165
70 104
Repayment of short-term loans
-429 021
0
0
550 710
82 089
1 530
CASH FLOW FROM FINANCING ACTIVITIES
Paid-in share capital Change in own shares/ foreign currency adjustments
40
275
46
20 258
Paid dividend
-472 438
-389 514
-294 336
Net cash flow from financing activities
-314 499
650 198
-202 066
Foreign currency effects on cash and cash equivalents
-23 401
3 535
-6 987
Net increase/ (decrease) in bank deposits, cash and cash equivalents
190 333
258 277
-28 471
Bank deposits, cash and cash equivalents at beginning of year
615 694
357 417
385 888
Bank deposit, cash and cash equivalents at end of year
806 028
615 694
357 417
Nordic Companies/Global Money
C o n so l i d ate d State m e n t of c h a nges in Equit y
Amount in NOK 1,000 Cumulative
Share Share
Own
premium
Retained
translation
Other
Total
capital
shares
reserves
earnings
differences reserves
equity
61 936
-9
19 326
Shareholders’ equity at 1 January 2006 Net profit for the year Dividend paid out Share issues
4 432
Change in own shares
652 944
4 552
180
544 222
-389 514
-389 514
77 657 5
738 929
544 222
82 089 41
46
Investments available for sale - valuation gain
6 544
6 544
Translation differences on investments in foreign subsidiaries Hedge of net investments in subsidiaries Tax on items booked directly to equity Shareholders’ equity at 31 December 2006
3 348 -7 654
2 143 66 368
-4
96 983
Net profit for the year Dividend paid out Share issues
3 348 -7 654
11 252
Change in own shares
807 693
2 389
2 143 6 724
625 107
625 107
-472 438
-472 438
539 457 4
Reduction of share premium fund
550 710 271
-96 983
980 153
275
96 983
0
Investments available for sale - valuation loss
-20 193
-20 193
Translation differences on investments in foreign subsidiaries
-48 730
Hedge of net investments in subsidiaries Tax on items booked directly to equity Shareholders’ equity at 31 December 2007
77 620
0
539 457
1 057 616
-48 730
43 051
43 051
-10 338
-10 338
-13 628
-13 469
1 647 596
Nordic Companies/Global Money
41
42
Notes t o t h e C o n s o l i d a t e d Fi n a n c i a l Statem e n t s All amounts are in thousands unless otherwise indicated
Note 1 – Accounting Principles The consolidated accounts for the Group are prepared in accordance with the International Financial Reporting Standards (IFRS) published by International Accounting Standards Board (IASB) and all interpretations from the Financial Reporting Interpretations Committee (IFRIC), which have been endorsed by the EU commission for adoption within the EU. Financial statement preparation requires estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as disclosures of contingencies. Actual results may differ from estimates.
General information The consolidated financial statements for ABG Sundal Collier ASA, including notes, for the year 2007 were approved by the Board of Directors of ABG Sundal Collier ASA on 28 March 2008. ABG Sundal Collier ASA is a public limited company and its head office are located in Vika, Oslo in Norway. The company’s shares are listed on the Oslo Stock Exchange.
Group accounts The consolidated accounts for the Group are prepared in accordance with the International Financial Reporting Standards (IFRS) published by International Accounting Standards Board (IASB) and all interpretations from the Financial Reporting Interpretations Committee (IFRIC), which have been endorsed by the EU commission for adoption within the EU. The income statements, balance sheet and discosures for the parent company have been prepared in accordance with Norwegian Generally Accepted Accounting Principles (NGAAP). Financial statement preparation requires estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as disclosures of contingencies. Actual results may differ from estimates. The Financial statements are presented in Norwegian crowns (NOK), which is also the parent companys functional currency.
Basis of consolidation The Group accounts show the total profit/loss and the total financial position of the parent company ABG Sundal Collier ASA and its controlling interests as a financial whole. The Group accounts include companies where ABG Sundal Collier ASA owns shares, directly or indirectly, such that the shares owned represent the majority of voting rights in the Company or allow the Group the right to appoint the majority of the members of the Company’s Board of Directors. The Group’s subsidiaries Sundal Collier & Co AS, ABG Sundal Collier Norge ASA, ABG Sundal Collier Real Estate AS and ABG Sundal Collier Eiendom AS are the principal partners in the Sundal Collier & Co partnership, ABG Sundal Collier Norge partnership, ABG Sundal Collier Real Estate partnership and ABG Sundal Collier Eiendom partnership. See footnote 3 in the consolidated financial statement for a complete list of subsidiaries. All Group-internal transactions and intercompany balances between the Group companies have been eliminated. Foreign subsidiaries’ assets and liabilities have been translated at the exchange rates on the balance sheet date. Revenues and expenses from foreign subsidiaries have been translated using the monthly average exchange rates during the year. Translation gains and losses, including effects of exchange rate changes on financial instruments designated as hedges of net foreign investments, are included in shareholder’s equity as a separate component.
Net investment in foreign operations Exchange differences arising from the translation of the net investment in foreign operations, and the related hedges, are booked towards other equity and will not be recognised in the profit/loss until the net investments are realised.
Revenue recognition Revenue is recognised in conjunction with the performance of the services used to complete an engagement. Revenues from performance fees are recognised upon completion of the transaction. Fixed fees are recognised as earned. Commissions from equity trades are recognised at the trade date.
Classification of assets and liabilities Receivables that are to be repaid within one year and assets that are not of a permanent nature or use in the business are classified as currents assets. Other assets are classified as non-current assets. Liabilities are classified as a non-current liability if the liability is due to be repaid after more then one year after the balance sheet date. All other liabilities are classified as current liabilities. Current assets are valued at the lower of original cost and net realisable value.
Goodwill Excess value on the purchase of operations that cannot be allocated to assets or liabilities on the acquisition date is classified in the balance sheet as goodwill. In the case of investments in associates, goodwill is included in the cost price of the investment. The identifiable assets and liabilities on the transaction date are to be recognised at fair value on the transaction date. The minority’s share of identifiable assets and liabilities is calculated on the basis of the minority’s share of the fair value of the identifiable assets and liabilities. Should further information on assets and liabilities as at the transaction date come to light after the acquisition has taken place, the assessment of the fair value of assets and liabilities may be altered until the date when the first annual financial statements have been authorised for issue.
Nordic Companies/Global Money
43
Goodwill is not amortised, but an assessment is made each year as to whether the carrying amount can be justified by future earnings. If there are indications of any need to recognise impairment losses relating to goodwill, an assessment will be made of whether the discounted cash flow relating to the goodwill exceeds the carrying amount of goodwill. If the discounted cash flow is less than the carrying amount, goodwill will be written down to its fair value.
Fixed assets and depreciation
Fixed assets are carried at original cost less accumulated depreciations. If the fair value of a fixed asset or group of assets is lower than the recorded cost value, and such fair value is not expected to be of temporary nature, the assets are written down to fair value. The same principles are applied to current and non-current debt.
Other financial instruments Financial Instruments are recognized in the group’s accounts in accordance with IAS 39. Financial instruments included in the balance sheet include accounts receivable, receivables from other stockbrokers, other current receivables, other shares and securities and financial instruments on the asset side. On the liability and equity side, financial instruments include accounts payable, borrowings, payables to other stockbrokers and customers. Financial instruments are initially recognized at cost which corresponds to the financial instrument’s fair value plus transaction costs for all instruments except those classified as financial assets, which are recognized at fair value in the income statement. Fair values are determined based on price quoted in an active market or based on valuation. The way in which a financial instrument is recognized depends on how it has been classified. See below for a summary of classifications. A financial asset or liability is recognized in the balance sheet when the company becomes engaged by contract. Accounts receivable are entered into the balance sheet when an invoice has been issued. Liabilities are entered when the counterparty has performed and the agreed liability is due for payment, even if an invoice has not yet been received. Accounts payable are entered when an invoice has been received. A financial asset is removed from the balance sheet when the right per agreements are realized, expired or ceased. A financial liability is removed from the balance sheet when the undertakings in the agreement have been fulfilled or extinguished. IAS 39 operates with four categories of financial instruments, based on the reason for the acquisition: Financial assets held for trading Financial assets held for trading are financial assets purchased with the purpose of generating profit from short term price fluctuations. These assets are initially recognized and subsequently measured at fair value in the balance sheet. Transaction costs are expenses through the income statement. Changes in fair value is recognized in the income statement. Financial assets recognized at fair value in the income statement This category has two sub-groups, financial assets held for trading and other financial assets which were initially meant to be invested into this category. Assets in this category are measured at fair value and changes in fair value are recognized in the income statement. Loan receivables and accounts receivable This category holds financial assets that are not-derivative with fixed payments that are not quoted on an active market and that are not meant for trading. Assets in this category are measured at the amortized cost. Financial assets available for sale Financial assets available for sale are initially recognized at fair value plus transaction cost in the balance sheet. Subsequently they are measured at fair value. Changes in fair value is recognized directly in the equity. Accumulative changes in fair value recognized in equity are transferred to the income statement in “financial result” when the assets are derecognized or impaired.
Cash and bank deposits Cash and bank deposits include cash, bank deposits and other monetary instruments where the maturity is less than three months from the date of purchase. Funds on client accounts are not included in the balance.
Unsettled trades Security trades transacted prior to the year-end but for which settlement does not occur until after year-end are recorded under accounts receivable and accounts payable to customers. Allowance is made against receivables for estimated losses.
Assets and liabilities in foreign currency Realized and unrealized profit or losses arising from transactions, assets or liabilities denominated in foreign currencies are included in the net result for the year. Exchange rates at year-end are used to convert foreign currency amounts to NOK.
Accounting of partnership The partnership’s accounts are fully incorporated in the accounts of the principal partner. Unpaid profits to partners are classified as current liabilities. Deposits from partners are classified as long-term liabilities.
Income taxes The tax charge is based on the net profit and consists of the aggregate of taxes payable and changes in deferred tax. Tax payable is recognized in the financial statements at the amount that is expected to be paid on the basis of taxable revenues reported in consolidated financial statements.
44
Nordic Companies/Global Money
Deferred tax liabilities and assets are recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax base used in the computation of taxable profit, and are accounted for using the balance sheet liability method. Deferred tax liabilities and assets are generally recognized for all taxable temporary differences. Deferred tax and deferred tax assets are only off-set as far as this is possible under taxation legislation and regulations. Deferred tax assets are continuously assessed and are only capitalized to the extent it is probable that future taxable profit will be large enough for the deferred tax asset to be usefully applied. Current and deferred tax are recognized as expense or income in the income statement, except when they relate to items recognized directly to equity, in which case the tax is also recognized directly in equity.
Pensions The Group’s Norwegian companies have pension schemes, which entitle the employees to agreed future pension benefits (defined benefits plans). The basis for recording pension liabilities in the firm’s defined benefit plans is the estimated salary level upon retirement and years of service. Deviations from estimates and effects of changes in assumptions are amortised over the expected remaining years of service if exceeding 10% of the greater of pension liabilities and pension funds. Changes in the pension plan are dispersed over the remaining years of service. These figures include social security tax. The Group’s non-Norwegian subsidiaries have pension schemes where the company’s commitment is to contribute to the individual employee’s pension scheme (defined contribution plans).
Note 2 – Information about Segments and Geographical Markets The Group’s three business segments are Equities, Corporate Finance and Trading & Risk. The Equities segment consists of stockbroking products, research services, and corporate access services. The Corporate Finance segment consists of traditional corporate finance, real estate, bonds and alternative investments. The Trading & Risk segment consists of proprietary trading activities. The internal management system is matrix-based. Revenues and expenses are recorded both by business segment and geographical markets. The business segment is based on which department has generated the revenue or expense, while the geographical market is determined on the location of each legal entity. Assets and liabilities except from directly allocatable items specified below, and equity and cash flow are recorded by geographical markets only.
Operating costs, bonus to employees and profitsharing to partners
Operating revenues 2007
2006
2007
Operating Profit
2006
2007
2006
Equities
1 047 586
882 288
716 264
628 617
331 323
253 671
Corporate Finance
1 062 803
849 694
598 989
476 799
463 814
372 895
Trading & Risk Total
81 955
102 624
88 984
74 815
-7 029
27 809
2 192 344
1 834 606
1 404 237
1 180 231
788 107
654 375
Allocation of balance sheet items by primary segment (business segment) 2007 Equities
Corporate Finance
Trading & Risk
Unallocated
Total
3 351 426
255 929
0
0
3 607 355
313 254
0
0
0
313 254
Other assets
0
0
68 696
1 562 309
1 631 005
Total assets
3 664 680
255 929
68 696
1 562 309
5 551 614
Accounts receivables Receivables from other stockbrokers
Liabilities payable to customers
635 048
0
0
0
635 048
1 162 354
0
0
0
1 162 354
Other liabilites
391 174
428 332
39 242
1 247 868
2 106 616
Total liabilities
2 188 576
428 332
39 242
1 247 868
3 904 018
Liabilities payable to other stockbrokers
Nordic Companies/Global Money
45
2006 Equities
Corporate Finance
Trading & Risk
Unallocated
Total
2 320 435
133 528
0
123
2 454 086
374 118
0
0
0
374 118
Other assets
0
0
31 085
882 966
914 051
Total assets
2 694 554
133 528
31 085
883 089
3 742 255
Accounts receivables Receivables from other stockbrokers
Liabilities payable to customers
352 615
0
0
0
352 615
Liabilities payable to other stockbrokers
217 676
0
0
0
217 676
Other liabilites
340 049
337 022
34 747
1 480 074
2 191 893
Total liabilities
910 341
337 022
34 747
1 480 074
2 762 185
Operating profit reported by secondary segment (geographical markets)
Operating revenues
Operating costs, bonus to employees and profitsharing to partners
Operating Profit
2007
2006
2007
2006
2007
2006
Norway
1 285 279
1 175 692
728 421
665 928
556 858
509 764
Sweden
269 914
196 401
225 610
168 780
44 303
27 621
31 207
31 320
29 829
28 366
1 377
2 954
386 355
281 961
258 946
203 035
127 409
78 926
Denmark UK 1) US Total
219 589
149 232
161 430
114 122
58 159
35 110
2 192 344
1 834 606
1 404 237
1 180 231
788 107
654 375
1) Incl. Continental Europe Allocation of balance sheet items by secondary segment (geographical markets)
Total assets
Total liabilities
Total equity
2007
2006
2007
2006
2007
2006
Norway
4 716 932
3 097 088
3 379 590
2 408 960
1 337 342
688 128
Sweden
275 834
196 621
165 619
111 637
110 214
84 984
18 977
23 463
15 585
21 531
3 391
1 932
313 202
264 335
213 496
136 096
99 706
128 239
Denmark UK 1) US Total
226 670
160 747
129 728
83 877
96 942
76 870
5 551 614
3 742 255
3 904 018
2 762 102
1 647 596
980 153
1) Incl. Continental Europe
46
Nordic Companies/Global Money
Cash flow statement by secondary segment (geographical markets) 2007 Norway
Sweden
Denmark
UK 1)
US
Total
889 767
50 157
179
-97 629
171 845
1 014 319
Net cash flow from investing activities
-480 173
-2 484
-517
-1 330
-1 583
-486 086
Net cash flow from financing activities
-364 257
0
0
49 758
0
-314 499
Net cash flow from operating activities
Foreign currency effects on cash Net change in cash and cash equivalents
0
-9 120
-31
-54
-14 196
-23 401
45 338
38 553
-368
-49 255
156 066
190 333
Cash and cash equivalents - opening balance
340 240
126 857
902
50 672
97 024
615 694
Cash and cash equivalents - ending balance
385 577
165 410
533
1 417
253 090
806 028
Norway
Sweden
Denmark
UK 1)
US
Total
Net cash flow from operating activities
-6 389
-38
43 094
36 107
-331 408
Net cash flow from investing activities
-1 321
-105
-1 050
-411
-64 048
Net cash flow from financing activities
0
0
0
0
650 198
2006
Foreign currency effects on cash
8 248
33
432
-5 178
3 535
538
-110
42 476
30 519
258 277
Cash and cash equivalents - opening balance
126 319
1 011
8 196
66 506
357 417
Cash and cash equivalents - ending balance
126 857
902
50 672
97 024
615 694
Net change in cash and cash equivalents
1)
Incl. Continental Europe
Note 3 – Related parties The Group’s ultimate parent company is ABG Sundal Collier ASA. The consolidated financial statements include the financial statements of ABG Sundal Collier ASA and the subsidiaries, all 100% controlled, listed in the following table: ABG Sundal Collier Norge ASA ABG Sundal Collier Real Estate AS ABG Sundal Collier Eiendom AS ABG Sundal Collier Forvaltning AS ABG Sundal Collier Inc ABG Sundal Collier Real Estate Inc ABG Sundal Collier Holdings Inc ABG Sundal Collier Ltd ABG Sundal Collier AB Sundal Collier & Co AS Sandberggården AS Lagerselskapet Holding AS and subsidiares
Note 4 – Taxes Tax expense in the income statement: Tax payable in Norway Tax payable outside Norway
2007
2006
193 183
149 186
82 502
56 328
Total tax payable
275 685
205 514
Change in deferred tax in Norway
-13 056
-27 391
Change in deferred tax outside Norway
-496
-2 768
Total change in deferred tax
-13 551
-30 159
Total tax expense
262 134
175 355
Nordic Companies/Global Money
47
Reconciliation from nominal to effective tax rate:
2007
2006
Profit before taxes
887 241
719 577
Expected tax expenses based on nominal tax rate (28%)
248 427
201 482
-1 312
-14 479
Tax-free income Non deductible expenses
1 994
1 241
Prior year adjustment
2 648
-2 372
Differences in tax rates outside Norway
9 294
8 980
Valuation allowance
1 082
-19 497
262 134
175 355
29.5%
24.4%
Tax expense on ordinary profit Effective tax rate Tax effect on temporary differences at year end: Current items Receivables
9 133
9 103
Provisions
15 695
13 172
Other current items
10 105
184
Total current items
34 934
22 459
13 808
15 010
Non current items Fixed assets Net pension liabilities
6 604
3 839
Valuation allowance
-1 413
-1 597
Other non current items
-10 116
643
Total non current items
8 884
17 895
Loss carried forward
2 378
6 580
46 196
46 934
Total deferred tax asset
Note 5 – Cash and Bank Deposits Foreign currency holdings have been valued at the exchange rate as at 31 December. Included in Group balance of cash and bank deposits are amounts of restricted cash of NOK 394 million. Funds on client accounts are not included in the cash balance. The Group has a bank overdraft facility with a limit of NOK 2,000 million.
48
Nordic Companies/Global Money
Note 6 – Accounts Receivable Gross accounts receivable Allowance for doubtful accounts Net accounts receivable
2007
2006
3 642 242
2 495 041
-34 887
-40 955
3 607 355
2 454 086
Balance sheet: Specific allowance for doubtful accounts at 1 January + New specific allowance
40 955
26 044
2 358
15 787
- Reversal of specific allowance
-8 426
-876
= Specific allowance for doubtful accounts at 31 December
34 887
40 955
Profit & loss: 2 358
15 787
+ Realised loss
New specific allowance
-2 050
1 838
- Reversal of specific allowance
-8 426
= Expensed loss on receivables -8 118
-876 16 749
Note 7 - Classification of financial assets and liabilities 2007 Fair value through P/L
Available for sale
Loans and receivables
Total
Cash and bank deposits
0
0
806 028
806 028
Accounts receivables
0
0
3 607 355
3 607 355
Financial assets
Receivables from other stockbrokers
0
0
313 254
313 254
Other current receivables
0
0
118 589
118 589
Securities and financial instruments
68 696
457 614
0
526 310
Total current assets
68 696
457 614
4 845 227
5 371 536
Other non-current receivables
0
0
733
733
Non-current shares
0
59 590
0
59 590
Total non-current assets Total financal assets
0
59 590
733
60 324
68 696
517 204
4 845 960
5 431 860
338 412
Financial liabilities Bank overdraft facility
0
0
338 412
Accounts payable
0
0
29 203
29 203
Liabilities payable to customers
0
0
635 048
635 048
Liabilities payable to other stockbrokers
0
0
1 162 354
1 162 354
Other current liabilities
0
0
1 067 202
1 067 202
Total current liabilities
0
0
3 232 219
3 232 219
Long term borrowings
0
0
334 504
334 504
Total non-current liabilities
0
0
334 504
334 504
Total financal liabilities 0 0 3 566 723
3 566 723
Nordic Companies/Global Money
49
Note 8 - Fair value of financial assets and liabilities 2007 Carrying amount
2007
2006
2006
Fair value
Carrying amount
Fair value
Financial Assets Securities and financial instruments Accounts receivables and other receivables Other non-current receivables Cash and bank deposits Non-current shares Total financial assets
526 310
526 310
31 085
31 085
4 039 198
4 039 198
2 930 028
2 930 028
733
733
1 994
1 994
806 028
806 028
615 594
615 694
59 590
59 590
58 010
58 010
5 431 860
5 431 860
3 636 711
3 636 811
3 232 219
3 232 219
2 208 687
2 208 687
334 504
334 504
300 000
300 000
3 566 723
3 566 723
2 508 687
2 508 687
Financial liabilities Financial liabilities and other current liabilities Long term borrowings Total financal liabilities
The carrying value of financial assets and financial liabilities is assumed to approximate their fair value. Both receivables and liabilities have short settlement-date and no material change in value between contract date and settlement date is expected. All shares are carried at fair value.
Note 9 - Shares and other financial instruments Current assets - investments Securities and financial trading instruments:
Number
Acquisition cost
Fair value
Unrealized change in value
Seadrill ASA
6 884 000
24 960
23 712
-1 249
Kungsleden AB
1 855 600
17 964
18 042
78
Aker BioMarine ASA
9 500 000
9 385
9 385
0
35 000
5 526
5 915
389
Company name
StatoilHydro ASA Algeta ASA
61 000
2 655
1 983
-672
Boliden AB
35 000
1 476
1 374
-102
Nobia AB
22 800
1 118
1 108
-9
-
7 702
7 177
-525
-
70 787
68 696
-2 091
Number
Acquisition cost
Fair value
Unrealized change in value -19 889
Securities and financial trading instruments < NOK 1 million
Securities and financial instruments, available for sale:
Company name D. Carnegie & Co AB Wood ASA Kanikenäsholmen AB
50
Nordic Companies/Global Money
4 200 000
465 552
445 663
17 142 857
6 000
6 000
0
500
5 951
5 951
0
-
477 503
457 614
-19 889
Non Current assets - Other shares Other shares, available for sale:
Company name Nordisk Mobiltelefon AB Kompetansekapital AS C Invest AS
Number
Acquisition cost
Fair value
Unrealized change in value
733 500
25 168
18 338
-6 831
13 318 143
3 682
14 650
10 968 1 780
10 000
10 000
11 780
800 000
8 000
8 400
400
C Invest 2007 AS
5 000
5 000
4 885
-115
Other shares available for sale < NOK 1 million
2 357
1 320
1 538
Sigma Eiendom 1 AS
53 170 59 590
217 6 420
Note 10 – Unrealised change in value in P/L and changes recognized in Equity Unrealized change in value
Recognized in Profit/ (loss) 2007
Recognized in Equity
Fair value through profit and loss
-2 091
-2 091
0
Available-for-sale financial assets
-13 469
0
-13 469
Total
-15 560
-2 091
-13 469
Note 11 – Other Current Liabilities
2007
2006
Amounts due to partners in silent partnerships
554 153
473 336
Accrued expenses and other short-term liabilities
513 049
370 668
1 067 202
844 004
Other current liabilities consist of :
Total other current liabilities
Note 12 – Pensions The total pension liabilities are related to employees and partners of the subsidiaries in Norway. Employees at the offices outside Norway are all part of defined contribution plans. Employees and partners in Norway are covered by a collective pension plan. At 31.12.07 there were a total of 70 employees and 72 partners covered under the plan. The collective plan is accounted for as a defined benefit plan. Normally these retirement benefits are based on the number of years of service and the expected salary level upon retirement, and the level of the state pension from the national insurance. The Company’s legal obligations under the plans are not influenced by the accounting methods used or the assumptions used in calculating the amounts recorded in the financial statements.
Nordic Companies/Global Money
51
The calculations are based on standard assumptions regarding mortality and disability rates, together with other demographic factors, which are prepared by the Norwegian Financial Services Association (FNH). K1963 scale of rates has been used in the actuarial assumptions at opening balance of 2007 and K2005 has been used at ending balance of 2007. Table KU 2002 scale of rates has been used for disability. The pension costs for the year are calculated by an independent actuary and are based on information provided by the Company as at 1.1.07 and updated based on the most recent information available at year end. Social security taxes related to the net pension expense for the period are charged as an expense. Assumptions in determination of the pension liability and expense:
2007
2006
Discount rate
4.50%
4.35%
Future salary increase
4.50%
4.50%
Assumed pension increases
4.25%
4.25%
Assumed changes in G
4.25%
4.25%
Assumed rate of return on plan assets
5.50%
5.40%
Voluntary departures of participants up to 40 years
8.00%
8.00%
Voluntary departures of participants after 40 years
15.00%
15.00%
31.12.07
31.12.06
Accrued pension liability : PBO at the beginning of year
93 834
51 837
Service cost
16 126
9 059
Interest cost
4 072
2 452
Past service cost Actuarial (loss)/gain Benefits paid
-146
-
-14 345
30 905
-435
-420
99 106
93 834
Plan assets at beginning of year
39 968
34 235
Estimated return on plan assets
2 290
1 993
-448
-3 120
8 423
7 279
PBO at end of year Change in plan assets
Actuarial (loss) Contribution Past service cost
-124
-
Benefits paid
-435
-420
49 673
39 968
-49 433
-53 866
Plan assets at end of year Obligation in financial statement Funded status (underfunded) Social Security Tax
-1 756
-4 159
Unrecognised actuarial (gain)/loss
18 487
39 818
-32 702
-18 207
Balance sheet provision (prepayment) at beginning of year
-18 207
-15 693
Cost in financial statement
-23 492
-10 158
8 987
7 643
Obligation (underfunded) in financial statement Reconciliation
Contributions/benefits paid during year (including Social Security Tax) Other Balance sheet provision at end of year
52
Nordic Companies/Global Money
10
-
-32 702
-18 207
Net pension expense in income statement: Service cost
16 126
Interest cost
4 072
2 452
-2 290
-1 993
Estimated return on plan assets Amortisation of past service cost Amortisation of actuarial losses Net pension cost Social Security Tax
9 059
-24
-
4 386
190
22 270
9 708
1 222
450
Pension expense defined benefit plan
23 492
10 158
Pension expense defined contribution plan
16 970
17 271
Total pension expense in income statement
40 462
27 429
Category
2007
2006
Bonds
52%
54%
Equity
27%
29%
Money market and similar
9%
6%
Property
12%
11%
Development of actuarial gain/loss last year
2007
2006
This years actuarial loss in pension assets
-448
-3 120
0.9%
7.8%
In percent of pension assets Actuarial loss in pension liability
-14 345
30 905
In percent of pension liability
14.5%
32.9%
In percent of pension liability
14.5%
32.9%
2007
2006
585 900
89 095
Note 13 – Guarantees and Mortgages
Shares Receivables
4 039 198
2 930 028
Total assets pledged as collateral
4 625 099
3 019 123
338 412
767 433
Carrying amount of mortgaged liabilities
ABG Sundal Collier Norge ASA has issued guarantees of NOK 380 mill in favour of ABG Sundal Collier AB, and GBP 4 mill in favour of ABG Sundal Collier Ltd. ABG Sundal Collier ASA has issued a guarantee in respect of the open bond issued by ABG Sundal Collier Norge ASA (NOK 235 mill outstanding per 31.12.2007).
Note 14 – Legal Matters / Disputes The subsidiary Sundal Collier & Co AS (SCC) has been party to a legal dispute with Procedo Capital Corporation (Procedo), relating to unsettled trades undertaken by Procedo and a counter-suit from Procedo concerning alleged groundless attachments of Procedo’s assets. On 22 January 2004, Borgarting Court of Appeal ruled that Procedo is to pay SCC NOK 18.1 million plus interests, and found in favour of SCC also in the counter-suit. In addition, the court ruled that Procedo is to pay SCC NOK 8.7 million in legal costs. The decision was appealed by Procedo. The appeal was dismissed by the Supreme Court Interlocutory Appeals Committee on 16 July 2004, making the decision by Borgarting Court of Appeal legally binding and enforceable. SCC is now in the process of enforcing payment from Procedo and related parties, in Norway as well as in Luxembourg, where SCC has had an attachment of Procedo’s fund pending the outcome of the legal dispute since 1998.
Nordic Companies/Global Money
53
The Norwegian VAT appeals committe (”Klagenemnda for merverdiavgift”) has in a decision upheld the earlier decision made by the Oslo County Revenue Office regarding supplementary VAT for the subsidiary ABG Sundal Collier Norge ASA. ABG Sundal Collier Norge ASA has earlier made payment of the VAT claim, approx. NOK 13 million, to the authorities, but objects to the legal basis of the decision and has through the issuance of a writ initiated legal proceedings. In a judgment by Oslo District Court of 11 December 2007, the court found in favor of ABG Sundal Collier Norge ASA with regard to the disputed corporate finance services being covered by the VAT Act’s exemption rules, but not with regard to VAT pursuant to the principle of reversed settlement for financial analysis. The claim for supplementary VAT is approximately split equally on the two issues. The judgment has been appealed. Oslo Revenue Office (“Oslo Likningskontor”) has for ABG Sundal Collier Norge ASA silent partnership decided to make changes in the tax assessments for the years 2002, 2003, 2004 and 2005. For ABG Sundal Collier Eiendom AS silent partnership, the revenue office has decided to make changes in the tax assessment for the years 2003 and 2004, and have notified possible changes to the tax assessment for 2005. Oslo Revenue Office has also notified ABG Sundal Collier Real Estate AS silent partnership of possible changes to 2005 tax assessment. The silent partnerships do not agree with the revenue Office’s assessments and decisions. and will consider legal action. Any change of the tax assessment will not affect the General Partner or the Group tax expense. In the normal course of business the Group will from time to time be involved with minor complaints with various parties that will have no material impact on the Group’s overall financial position.
Note 15 - Wages and Social Costs
Wages/partner remuneration
2007
2006
187 614
162 931
Social security tax
26 057
24 999
Pension costs including social security tax
40 462
27 429
Other personnel costs
21 696
16 174
275 829
231 533
267
234
Total wages and social costs Average number of man-labour years Average number of man-labour years in silent partnerships
65
58 Board of Directors’ statement on Executive Committee Remuneration The Board of Directors will prepare a separate statement regarding the remuneration of the Executive Committee in accordance with the Norwegian Public Limited Companies Act. Almennaksjeloven § 6-16a. The following guidelines will be presented at the Annual General Meeting in April. These guidelines have been complied with for the year 2007 and are valid for 2008 onwards. All partners and employees of the group participate in a company-wide bonus/ profit participation programme. The remuneration to senior management is based on the same principles for remuneration that is applied for all partners of the Group. Compensation to partners and employees consists of a fixed salary or compensation and a variable discretionary bonus/ profit participation, the amount of which is dependent on a combination of company results and the individual performance. In general, the size of the bonus/profit participation pool is set at 50% of the firm’s earnings before tax, less a calculated interest of the average equity of the group. Principles for the allocation of the bonus/ profit participation pool is decided by the Board after recommendations from the Compensation Committee. The bonus to each partner and employee is decided by the Compensation Committe and approved by the Board. The bonus to individual members of senior management is decided by the CEO after taking advice from the Compensation Committee. The compensation of the CEO is proposed by the Compen sation Committee and approved by the Board. There are no specific agreements regarding remuneration at termination for the CEO or members of the Executive Committee. The CEO and members of the Executive Committee participate in pension schemes according to the same conditions as other partners and employees. Board of Directors Remuneration The highest level of governance body of the firm is its Board of Directors. The Board has a majority of Non-Executive Directors. Remuneration of the Non-Executive Board members consists of payment of fees, and is based on the position of the Board member. Executive Board members are not receiving remuneration in their role as Board members. There are no specific agreements regarding fees at termination for the Chairman of the Board or other members of the Board. ABG Sundal Collier did not have any outstanding loans to, or guarantees made on behalf of, any Board member during 2007. Board & consulting fees paid in 2007, as well as outstanding number of shares as of 31 December 2007 are shown in the table below:
54
Nordic Companies/Global Money
Board Member
Board Fees
Consulting fees
Number of Shares
125
321
1 890 934
Arild Abel Engh
0
0
4 520 744
Per-Anders Grudén 2)
0
0
0
Cecilie Steenhoff Lind 2)
0
0
0
Merete Haugli 3)
125
0
0
Per-Anders Ovin 3)
125
0
0
Terje Moe Gustavsen 4)
250
0
100 000
Judith Lee Bollinger (Chairman) 1)
Related to services prior to assignment as Chairman of the board Board member from 26 April 2007 3) Board member until 26 April 2007 4) Board member until 10 November 2007, share ownership at date of resignation. 1) 2)
Executive Committee Remuneration The core decision-making group of the firm is the Executive Committee. Remuneration of the members of the Executive Committee consists of a fixed payment as well as a performance related element, plus pension contribution and other remuneration in-kind. There are no specific agreements regarding salary at termination or change of conditions of employment for any member of the Executive Committee. Executive Committee’s remuneration, shares on forward contracts as well as owned or controlled outstanding number of shares as of 31 December 2007 are shown in the table below: 2007: Performance related Pension payment Contri1) & 2) bution
Number of Shares on Number forward Loans 4) of Shares contract 3)
Executive Committee Member
Position
Jan Petter Collier
Chief Executive Officer
600
20 000
123
25 32 427 486
0
0
Arild Abel Engh
Global Head of Corporate Finance
600
24 225
73
25
4 520 744
0
0
Christen Heiberg
Global Head of Equities
600
24 250
83
25
3 100 000
0
0
Geir Ringstad
Global Head of Trading & Risk
600
11 685
86
25
2 634 005
0
0
Tore Grøttum
Chief Operating Officer
600
2 750
88
25
50 000
550 000
0
Andrew Stuttaford
Managing Partner US
764
4 250
212
113
130 000
500 000
0
Lars Söderfjell
Head of Research Sweden
867
4 456
166
26
1 640 000
160 000
0
Petter Bjertnæs
Head of Sales Oslo
600
8 500
50
0
1 338 000
0
0
Johan Roth
Head of Sales London
1 290
7 778
226
37
1 550 000
0 4 249
Espen Bruu Syversen Global Head of Research
600
7 950
46
0
761 321
325 000
0
Mats Kummelstedt
Managing Partner UK
938
3 103
164
48
2 470 000
0
344
Steinar Nordengen
Chief Financial Officer
600
15 000
69
0
1 607 529
0
0
Carl Palmstierna
Managing Partner Sweden
867
3 398
336
0
5 275 500
625 000
0
Eivind Haugan 5)
Global Head of Compliance
600
3 000
19
0
930 000
0
0
David Feinburg 6)
Global Head of Sales
234
9 458
58
422
4 340 000
0
0
Fixed payment 1)
Benefits in kind
Norwegian Executive Committe members are part of a silent partnership and receive fixed and performance r elated payments through participation of the profit distribution from the silent partnership. These payments are not subject to national insurance contributions for the firm. 2) Performance related payments in respect of calendar year 2006, paid in March 2007. 3) The forward contracts have settlement in 2008 - 2010. 4) Interest rate is 12 months NIBOR + 1%. Balance to be paid within 31 May 2009. 5) Executive Committee member until 30 September 2007, share ownership at 30 September 2007. 6) Executive Committee member until 31 March 2007, share ownership at 31 March 2007. Executive Committee’s remuneration, loans, shares on forward contracts as well as owned or controlled outstanding number of shares as of 31 December 2006 are shown in the table below: 1)
Nordic Companies/Global Money
55
2006: Performance Pension Fixed related Contri ayment payment bution p
Number of Shares on Benefits Number of forward in kind Shares contract Loans
Executive Committee Member
Position
Jan Petter Collier
Chief Executive Officer
600
9 000
97
0
0
Carl Palmstierna
Managing Partner Sweden
867
2 268
341
0
6 400 000
1 050 000
0
Arild Engh
Global Head of Corporate Finance
600
9 000
58
35
5 551 312
0
0
35 32 427 486
David Feinburg
Global Head of Sales
942
4 433
232
1 550
4 340 000
200 000
0
Mats Kummelstedt
Managing Partner UK
942
2 394
165
38
2 370 000
0
579
Andrew Stuttaford
Managing Partner US
1 094
3 214
232
91
130 000
500 000
0
Lars Söderfjell
Head of Research Sweden
867
1 966
168
26
1 350 000
355 000
0
Petter Bjertnæs
Head of Sales Oslo
600
4 500
44
35
1 120 000
268 000
0
Espen Bruu Syversen
Global Head of Research
600
4 800
40
35
887 300
325 000
0
Geir Ringstad
Global Head of Prop trading & Risk
600
12 736
68
35
3 277 119
0
0
Tore Grøttum
Chief Operating Officer
600
650
70
35
0
550 000
0
Eivind Haugan
Global Head of Compliance
600
1 900
70
35
1 050 000
0
0
Steinar Nordengen
Chief Financial Officer
600
17 500
56
35
1 257 529
500 000
0
The Group accounts for 2007 include a fee to the auditor Deloitte and associated companies of NOK 1,792,900 for audit services, NOK 225,000 for other attest services, NOK 677,900 for tax-related services and NOK 542,000 for other non-audit services. The Group accounts for 2006 include a fee to the auditor Deloitte and associated companies of NOK 1,854,000 for audit services, NOK 109,500 for other attest services, NOK 2,256,000 for tax-related services and NOK 506,000 for other nonaudit services.
Note 16 – Shareholder Information As of 31 December 2007 there are a total of 337,479,951 (288,556,451 at 31 December 2006) shares outstanding at face value of NOK 0.23 in the company. The Company has forward-agreements with partners purchasing a total of 36,664,500 (39,288,000 at 31 December 2006) shares from the company with settlement in 2008-2011. The Company owns 1,750 Treasury shares at year end, down from 16,750 at the beginning of the year. The Company has authorisation to re-purchase its shares in the market or to issue new shares. In 2007, the Company purchased 250,000 shares from departing partners at NOK 812,500 and sold 265,000 shares to partners at NOK 900,800 related to previous forward-agreements. Partners of the company may purchase partner shares, which are settled in cash or financed up to a 3-year period carried through by using a forward contract. Partner shares are offered at marketprice, with a 15% discount of the last 30 days volume weighted average price reflecting several severe restrictions with regards to the selling (or purchasing) of these shares.
Overview of shareholders registered in VPS on 31.12.07:
56
Number of shares
Share
Sanden AS (controlled by Jan Petter Collier and his family)
32 427 486
9.6%
JP Morgan Chase Bank
10 586 365
3.1%
State Street Bank and Trust Co.
10 194 998
3.0%
Storebrans Livsforsikring AS
9 512 007
2.8%
Rasmussengruppen AS
7 146 800
2.1%
Goldman Sachs & Co. - Equity
6 216 708
1.8%
Citibank N.A. London
5 947 552
1.8%
Carl Palmstierna
5 275 500
1.6%
Citibank N.A.
5 214 484
1.5%
Bank of New York. Brussels Branch
4 754 657
1.4%
Amphytron Invest AS (controlled by Arild Engh)
4 520 744
1.3%
Nordic Companies/Global Money
UBS AG. London Branch
4 427 666
1.3%
SIS Segaintersettle AG
4 318 225
1.3%
Pershing LLC
4 293 575
1.3%
Paul Sisson
4 030 000
1.2%
LBPB Nominees Limited
3 881 000
1.1%
Bank of New York. Brussels Branch
3 690 000
1.1%
Mellon Bank AS Agent for Clients
3 444 772
1.0%
Lamholmen Invest AS
3 403 317
1.0%
Ramaputtra AS
3 361 574
1.0%
Other shareholders
200 832 521
59.5%
Total
337 479 951
100%
Note 17 – Forward contracts for ASC shares held by partners of the Company Partners of the Company held by 31 December 2007 forward contracts for 36,664,500 shares. The forward contracts have settlement in 2008 – 2011. Based on settlement on termination date, the number of shares under these contracts that will be issued in the following years and with the lowest and highest settlement price for the shares are noted below. The settlement price will be adjusted to reflect any dividends paid prior to settlement. The interest element in the forward contract will also lead to an adjustment of the settlement price in cases where the contract is settled prior to original expiry date.
Expiry year
Number of shares
Lowest exercise price (NOK per share)
Highest exercise price (NOK per share)
Volume weighted average exercise price (NOK per share)
2008
13 667 000
2.53
2.61
2.56
2009
11 112 500
5.85
9.06
6.83
2010
11 555 000
12.47
13.74
12.68
2011
330 000
12.99
14.80
14.36
36 664 500
The exercise price is based on the market price for shares at the initial contract date. The stated high/low and average prices have not been adjusted for the proposed 2007 dividend. Restrictions on shares As of 31 December 2007, partners of ABGSC held a total of 127,937,624 shares in the Company. These shares are subject to certain material restrictions. A total of 79,452,871 shares are held as “Partner Shares” and regulated by the Partnership Agreement.
Nordic Companies/Global Money
57
Note 18 – Capital Ratio The Group must have a capital ratio of a minimum 8% of a basis of computation, which is established in a regulation from the Banking, Insurance and Securities Commission. The capital ratio at year end is (figures in NOK 1,000):
Total basis of computation currency risk and risk from the trading portfolio
252 748
418 225 621 981
-398 063
0
Total basis of computation
1 470 542
1 040 206
Core capital
1 647 596
980 153
Total basis of computation from risk outside the trading portfolio
-
Deductions
-
2006
1 615 857
+
-
2007
Intangible assets
-81 336
-49 109
Supplementary capital
100 000
100 000
Deductions
-398 063
0
Total capital
1 268 197
1 031 044
Capital ratio
86.2%
99.1%
Note 19 – Rental Expenses and Lease Commitments Rental and leasing expenses included in 2007 operating expenses: Office rental
17 527
Other
4 463
Total Minimum lease commitments under non-cancellable leases having a remaining lease term in excess of one year as at 31 December 2007:
21 990
Year
Lease expense
Sub-lease income
2008
26 941
2 314
2009
27 795
2 407
2010
25 730
0
2011
25 869
0
2012
26 903
0
2013
27 293
0
162 098
0
Thereafter
Note 20 – Bonds and other financial securities with fixed return Type of instrument
Drawn amount 2007
Drawn amount 2006
Interest rate
Subordinated Bond Issue
NOK 100 mill
NOK 100 mill
3MNIBOR + 1.75%
3 May 2016
Open Bond Issue
NOK 235 mill
NOK 200 mill
3MNIBOR + 0.80%
15 Nov 2011
Borrower ABG Sundal Collier ASA 1) ABG Sundal Collier Norge ASA 2)
Maturity
The loan is subordinated all other debt of the borrower. The interest rate will increase to 3MNIBOR + 2.50% after 5 years. The borrower has a repayment option of the loan in 2011. 2) The loan is an open issue up to maximum of NOK 500 mill. The loan will mature in full at the maturity date. 1)
58
Nordic Companies/Global Money
Note 21 – Earnings per Share Diluted earnings per share 2007
2006
2005
625 107
544 222
338 780
Net profit for the year
NOK 1,000
Interest on forward contracts
NOK 1,000
15 567
10 916
7 828
Numerator diluted EPS
NOK 1,000
640 674
555 138
346 608
Average number of outstanding shares
Numbers in 1,000
314 607
279 322
266 349
Average number of own shares
Numbers in 1,000
-37
-32
-1 240
Average number of shares on forward contracts
Numbers in 1,000
39 290
42 399
37 701
Diluted average number of shares
Numbers in 1,000
353 859
321 689
302 810
Diluted earnings per share
NOK
1.81
1.73
1.14
Basic earnings per share 2007
2006
2005
Net profit for the year
NOK 1,000
625 107
544 222
338 780
Average number of outstanding shares
Numbers in 1,000
314 607
279 322
266 349
1.99
1.95
1.27
Office and computer equipments
Furniture and fixtures
Total
Acquisition cost at 1.1.07
79 138
34 767
113 905
FX-adjustment
-1 864
-1 304
-3 168
Disposals at cost
-2 190
-2 821
-5 011
Additions 2007
17 300
12 278
29 578
Acquisition cost at 31.12.07
92 384
42 920
135 304
Accumulated depreciation 1.1.07
63 664
26 600
90 264
FX-adjustment
-5 682
-1 746
-7 428
Depreciation 2007
10 408
3 643
14 051
Accumulated depreciation 31.12.07
68 390
28 497
96 887
Carrying amount 31.12.07
23 994
14 423
38 417
20 - 33%
10 %
Basic earnings per share
NOK
Note 22 – Fixed Assets
Depreciation rates (linear method)
Nordic Companies/Global Money
59
Note 23 – Goodwill Total Acquisition cost at 1.1.07 Additions 2007 Acquisition cost at 31.12.07 Depreciation/ write down 2007
46 493 0 46 493 0
Accumulated depreciation 31.12.07
11 623
Carrying amount 31.12.07
34 870
Note 24 – Risk Management Risk management ABG Sundal Collier ASA aims to maintain a low risk profile. In managing its risk, distinction is made between market, liquidity, credit and foreign currency risk. Risk is managed through clearly defined decision making processes, authorisation systems and exposure limits. Market risk The Group is exposed to fluctuations in the value of its own investments, market-making and settlement from customers. Financial market risk is managed under rules established in the Norwegian Companies Act and internal control regulations established by the Banking, Insurance and Securities Commission. The ABG Sundal Collier Board has established procedures for internal control designed to monitor financial market risk and ensure a robust control discipline. In order to facilitate settlement on the Group’s agency business, the Group may borrow stock or fund the purchase of stock leaving the Group with a risk that the buyer or seller may not be able to complete their obligation under the trade. Settlement risk is mitigated by only trading with good quality, credit worthy clients who are usually large institutional investors or high net-worth individuals. Generally, the underlying stocks are highly liquid blue chip stocks for which there is a transparent and liquid market. The Group’s interest rate risk is small due to the modest volume of balance sheet investments. Liquidity risk The Group’s operation demands rapid access to liquidity. Liquidity needs are secured by a liquidity fund and bank overdraft provisions. The assets of the Group are generally short-term and are due within one month. Credit risk The Executive Committee fills the position as a credit committee of the firm and approves limits for financing of shares for c lients and corresponding limits for cash collateral and pledging of shares. Changes in the value of collateral are followed up on a daily basis and shall be compensated for by reduction in exposure or with additional collateral. Regular stockbroking trades are settled with exchange of cash and shares and the credit risk is thereby reduced to the difference between unsettled amount and market value of the shares. Credit losses have been immaterial in previous years.
60
Nordic Companies/Global Money
Foreign currency risk The Group’s foreign currency exposure is linked to future cash flow and balance-sheet items in all operations. The foreign currency risk is mitigated by use of drawing rights in the respective currencies and a variety of financial instruments such as forward contracts.
Note 25 – Credit risk (applicable only to receivables)
Low risk
Medium risk
High risk
Defaulted and exposed positions
3 607 355
0
0
34 887
3 642 242
Receivables from other stockbrokers
313 254
0
0
0
313 254
Other current receivables
118 589
0
0
0
118 589
733
0
0
0
733
4 039 932
0
0
34 887
4 074 819
Accounts receivables
Non current receivables Total
Total
Allowance for doubtful accounts
34 887
Net carrying amount receivables
4 039 932
Analysis of receivables overdue at balance sheet date 30-60 days
0
60-90 days
0
over 90 days
34 887
Total
34 887
Unless clients have defaulted on payment, the credit risk is determined to be low. This is due to both unsettled trades and financing of shares being collateralized with cash and/ or shares.
Note 26 – Liquidity risk Amounts included earned interest
Agreed rest maturity assets
1-30 days
30 days - 1 year
1-3 years
>3 years
Total value
Accounts receivables
2 894 400
712 955
0
0
3 607 355
313 254
0
0
0
313 254
80 289
38 300
0
0
118 589
Securities and financial instruments
526 310
0
0
0
526 310
Other assets
806 029
0
733
179 344
986 106
Total 2007
4 620 282
751 255
733
179 344
5 551 614
Total 2006
3 576 806
506 420
494
165 037
3 742 338
Agreed rest maturity liabilities
1-30 days
30 days - 1 year
1-3 years
>3 years
Total value
Long term borrowings
0
0
0
334 504
334 504
Bank overdraft facility
338 412
0
0
0
338 412
29 203
0
0
0
29 203
635 048
0
0
0
635 048
1 162 354
0
0
0
1 162 354
Receivables from other stockbrokers Other current receivables
Accounts payable Liabilites payable to customers Liabilities payable to other stockbrokers Social and corporate taxes
0
286 962
0
0
286 962
Other liabilities
0
1 067 202
0
50 333
1 117 535
2 165 017
1 354 164
0
384 837
3 904 018
Total 2006 1 468 314 958 103 0
335 768
2 762 185
Total 2007
Nordic Companies/Global Money
61
Note 27 – Exchange rate risk Financial assets and liabilities in foreign currencies
Assets
Liabilities
Net position in foreign currency
SEK
764 028
-755 958
8 070
6 823
NOK
USD
28 240
-33 803
-5 563
-30 102
EUR
3 289
-8 415
-5 126
-40 811
DKK
42 320
-43 810
-1 491
-1 591
GBP
19 163
-19 855
-692
-7 482
HKD
1 116
0
1 116
774
CHF
225
-452
-227
-1 090
JPY
12 053
0
12 053
582
AUD
158
-66
92
439
MXN
932
0
932
462
CAD
341
0
341
1 887
1 432
-70
1 362
ISK
118
Total net position currency 2007
-69 990
Total net position currency 2006
79 078
Exchange rate risk is predominantly short term related to settlement of customer trades, where settlement is being executed at trade date plus 3 business days. The sensitivity to currency effects on these trades is limited. Longer term exchange rate risk is related to investments in Carnegie, and in foreign subsidiaries where accrued equity is b eing held in foreign exchange. In order to reduce the sensitivity to currency fluctuations related to these holdings, the group is hedging these investments.
62
Nordic Companies/Global Money
63
Fi na nc i a l St a t e m e n ts – Pa re n t C o m p a n y In c ome State me n t Amount in NOK 1,000 OPERATING REVENUES AND EXPENSES
NOTES
2007
2006
Other revenues
0
0
Total operating revenues
0
0
Wages and social costs
8
738
613
Administration costs
7
12 290
7 620
Depreciation
5
4 649
4 649
17 677
12 882
-17 677
-12 882
Interest income
2 463
523
Other financial income
2 609
423
Total operating expenses Operating loss
FINANCIAL INCOME AND EXPENSES
Dividend/contribution from group companies
7
640 000
648 000
Interest incomce from group companies
7
19 592
4 908
Interest expense to group companies
7
-7 456
0
-9 738
-6 138
Interest expense Other financial expenses
-26 730
-8 884
Net financial result
620 740
638 831
Profit before taxes
603 063
625 949
162 931
143 155
440 132
482 794
Tax expense NET PROFIT FOR THE YEAR
3
ALLOCATIONS AND TRANSFERS To/(-From) other equity
64
-137 715
10 356
Proposed dividend
577 847
472 438
Total allocations and transfers
440 132
482 794
Nordic Companies/Global Money
Ba l a n ce Sh e e t as at 31 De c e mber – Pa rent Compa ny
Amount in NOK 1,000 ASSETS
NOTES
2007
2006
Non-current assets Intangible assets Deferred tax assets
3
2 458
2 570
Goodwill
5
16 273
20 922
18 731
23 492
409 597
Total intangible assets Financial non-current assets Shares in subsidiaries
4,6
812 597
Other shares
4,6
46 553
48 394
Total financial non-current assets
859 150
457 992
Total non-current assets
877 881
481 484
662 211
751 595
662 211
751 595
451 663
0
38
37
Total current assets
1 113 912
751 633
TOTAL ASSETS
1 991 793
1 233 116
Current assets Receivables Receivables from group companies Total receivables
7
Investments Securities and financial instruments Cash and bank deposits Cash and bank deposits
Nordic Companies/Global Money
65
Balan c e Sh e e t as at 31 December – Pa rent C ompa ny
Amount in NOK 1,000 EQUITY AND LIABILITIES
NOTES
2007
2006
77 620
66 368
Equity Paid-in-capital Share capital
9 , 10
Treasury shares at nominal value
0
-4
Share premium reserve
536 109
96 983
Total paid-in-capital
613 729
163 347
45 809
86 270
659 537
249 617
100 000
100 000
288 692
74 327
Other equity
2
Total equity Liabilities Non-current liabilities Long term borrowings
11
Current liabilities Bank overdraft facility Accounts payable Liabilities payable to group companies
7
Income tax payable
3
Dividend Other current liabilities
101
318
187 821
180 364
176 080
154 501
577 847
472 438
1 715
1 550
Total current liabilities
1 232 256
883 498
Total liabilities
1 332 256
983 498
TOTAL EQUITY AND LIABILITIES
1 991 793
1 233 116
Oslo, 28 March 2008 The Board of ABG Sundal Collier ASA
Judy Lee Bollinger Chairman
Cecilie Steenhoff Lind
66
Nordic Companies/Global Money
Arild Abel Engh
Anders Grudén
Jan Petter Collier Chief Executive Officer
Ca sh Fl ow State me n t – Pare n t C ompa ny
Amount in NOK 1,000 2007
2006
CASH FLOW FROM OPERATING ACTIVITIES Profit before taxes Taxes paid Depreciation and amortisation of fixed assets and intangible assets Change in accounts payable/ payable to customers and other stockbrokers
603 063
625 949
-141 241
-67 388
4 649
4 649
-217
301
96 840
-472 613
Change in other current assets/liabilities
165
-11 680
Net cash flow from operating activities
563 259
79 219
Change in intercompany accounts
CASH FLOW FROM INVESTING ACTIVITIES Investment in financial current assets
-451 663
0
Investment in financial non-current assets
-401 159
-35 064
Net cash flow from investing activities
-852 822
-35 064
CASH FLOW FROM FINANCING ACTIVITIES Proceeds from short term loans
214 365
74 327
Proceeds from long term loans
0
100 000
547 361
82 089
Paid-in share capital Change in own shares/ foreign currency adjustments
275
46
-472 438
-389 514
289 563
-133 053
1
-88 897
Bank deposits, cash and cash equivalents at beginning of year
37
88 934
Bank deposit, cash and cash equivalents at end of year
38
37
Paid dividend Net cash flow from financing activities Net increase in bank deposits, cash and cash equivalents
Nordic Companies/Global Money
67
68
Notes t o t h e Fi n a n c ia l St a t e m e n t s – Parent C omp a ny All amounts are in thousands unless otherwise indicated
Note 1 – Accounting Principles The accounts are prepared in accordance with the Norwegian Accounting Act and Norwegian Generally Accepted Accounting Principles (NGAAP). Financial statement preparation requires estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as disclosures of contingencies. Actual results may differ from estimates.
General information The consolidated financial statements for ABG Sundal Collier ASA, including notes, for the year 2007 were approved by the Board of Directors of ABG Sundal Collier ASA on 28 March 2008. ABG Sundal Collier ASA is a public limited company and its head office are located in Vika, Oslo in Norway. The company’s shares are listed on the Oslo Stock Exchange.
Revenue recognition Revenue is recognised in conjunction with the performance of the services used to complete an engagement. Revenues from performance fees are recognised upon completion of the transaction. Fixed fees are recognised as earned. Commissions from equity trades are recognised at the trade date.
Classification of assets and liabilities Receivables that are to be repaid within one year and assets that are not of a permanent nature or use in the business are classified as currents assets. Other assets are classified as long-term assets. Liabilities are classified as a long-term liability if the liability is due to be repaid after more then one year after the balance sheet date. All other liabilities are classified as current liabilities. Current assets are valued at the lower of original cost and net realisable value.
Goodwill When a business is acquired, a purchase price in excess of the identified fair value of assets and liabilities is accounted for as goodwill. Goodwill is amortised using a straight-line method over the expected economic life of the asset not exceeding 10 years.
Financial non-current assets Other non-current shareholdings, minor investments where the company does not hold substantial influence and investments in subsidiaries, are in general carried at original cost. If a decline in fair value below the carrying amount is expected to be permanent, the investments are written down. Dividends received and other surplus distributions from these companies are recognised as financial income.
Receivables Receivables are carried at face value less provision for expected loss. An estimate is made for doubtful receivables based on a review of all outstanding amounts at the year-end. Losses on receivables are written off in the year in which they are identified.
Cash and bank deposits Cash and bank deposits include cash, bank deposits and other monetary instruments where the maturity is less than three months from the date of purchase.
Assets and liabilities in foreign currency Realised and unrealised profit or losses arising from transactions, assets or liabilities denominated in foreign currencies are included in the net result for the year. Exchange rates at year-end are used to convert foreign currency amounts to NOK.
Income taxes Tax expenses are matched with profit/ loss before tax. Tax related to equity transactions is posted directly towards equity. The tax expense consists of current income tax expense and change in net deferred tax. Deferred tax is calculated at the nominal tax rate for timing differences arising between accounting and tax values. Deferred tax liabilities and deferred tax assets are presented in the balance sheet as a net amount.
Nordic Companies/Global Money
69
Note 2 – Shareholders’ Equity
Shareholders’ equity at 1 January 2006
Share capital
Own shares
Share premium reserves
Other equity
Total equity
61 936
-9
19 326
465 387
546 640
Net profit for the year Dividend paid out Proposed dividend Increase in share capital
4 432
Change in own shares Shareholders’ equity at 31 December 2006
-4
96 983
Net profit for the year Proposed dividend Increase in share Capital
11 252
Shareholders’ equity at 31 December 2007
-96 983 3 77 620
-389 514
-472 438
-472 438 82 089
41
46
86 270
249 617
440 132
440 132
-577 847
-577 847
536 109
Reduction of share premium fund Change in own shares
482 794
-389 514 77 657 5 66 368
482 794
0
536 109
547 361 96 983
0
271
275
45 809
659 537
2007
2006
162 819
143 018
Note 3 – Taxes Tax expense in the income statement Total tax payable Total change in deferred tax
112
138
162 931
143 155
Profit before taxes
603 063
625 949
Expected tax expenses based on nominal tax rate (28%)
168 858
175 266
Tax-free income/ expense
7 514
-35 678
Goodwill amortisation
1 302
1 302
368
2 303
Total tax expense Reconciliation from nominal to effective tax rate
Non deductible expenses Prior year adjustment
-15 110
-37
Tax expense on ordinary profit
162 931
143 155
27.0%
22.9%
2 429
2 253
Effective tax rate Tax effect on temporary differences at year end Current items Receivables Provisions
0
281
2 429
2 534
Fixed assets
29
36
Total non current items
29
36
Total deferred tax asset
2 458
2 570
Total current items Non current items
70
Nordic Companies/Global Money
Note 4 – Financial assets Shares in subsidiaries: Registered office
Company name
Number
Ownership
Voting right
Book value
Sundal Collier & Co AS
Oslo, Norway
256 000
100%
100%
193 049
ABG Sundal Collier Norge ASA
Oslo, Norway
1 200 000
100%
100%
600 070 10 000
ABG Sundal Collier Forvaltning AS
Oslo, Norway
10 000
100%
100%
ABG Sundal Collier Real Estate AS
Oslo, Norway
1 000
100%
100%
6 208
ABG Sundal Collier Eiendom AS
Oslo, Norway
30 000
100%
100%
3 020
Sandberggården AS
Oslo, Norway
170
100%
100%
Book value of shares in subsidiaries at 31 December 2007
250 812 597
Other shares: Company name Nordisk Mobiltelefon AB Kompetansekapital AS C Invest AS Sigma Eiendom 1 AS C Invest 2007 AS Other shares Book value of other shares at 31 December 2007
Number
Acquisition cost
Book value 18 338
733 500
25 168
13 318 143
3 682
3 682
10 000
10 000
10 000
800 000
8 000
8 000
5 000
5 000
4 885
429
61
1 649
-
51 911
46 553
Number
Acquisition cost
Book value 445 663
Securities and financial instruments: Company name D. Carnegie & Co AB Other Book value of Securities and financial instruments at 31 December 2007
4 200 000
465 552
17 142 857
6 000
6 000
-
471 552
451 663
Note 5 – Goodwill Acquisition cost at 1.1.07
46 493
Additions 2007
0
Acquisition cost at 31.12.07
46 493
Depreciation 2007
4 649
Accumulated depreciation 31.12.07
30 220
Book value 31.12.07
16 273
Depreciation rate (linear method)
10%
Note 6 – Guarantees and Mortgages Book value of assets pledged as collateral Shares Receivables Total assets pledged as collateral
2007
2006
1 310 813
457 992
662 211
751 595
1 973 024
1 209 587
Nordic Companies/Global Money
71
Note 7 – Related Parties Details of transactions with subsidiaries as at 31 December 2007 are as follows:
Company
Liability
Receivable
Interest income
Management expense
Dividend/ Group contribution 640 000
ABG Sundal Collier Norge ASA
0
623 899
14 733
8 850
ABG Sundal Collier Real Estate AS
0
23 374
925
0
0
Sandberggården AS
0
14 937
3 933
0
0
Sundal Collier & Co AS
187 821
0
-7 456
0
0
Total intercompany balance transactions
187 821
662 211
12 136
8 850
640 000
The Group has no other related parties than mentioned above, in note 8 about wages and other payments, or note 9 about shareholder information. All transactions between these related parties are carried out on an arms-length basis.
Note 8 – Wages and Social Costs 2007
2006
625
500
Social security tax
88
74
Other costs
25
39
738
613
Fees to external board members
Total wages and social costs
The company has no employees. External Board members have received board member fees of NOK 625,000, and NOK 321,100 in consulting fees in 2007. There are no specific agreements regarding salary at termination or change of conditions of employment for the Chairman of the Board, other members of the Board or the management. The CEO and one board member (Arild A. Engh) are partners in ABG Sundal Collier Norge ASA and receive through this remuneration and profit participation. The accounts for 2007 include a fee to the auditor Deloitte and associated companies of NOK 371,250 for audit services, NOK 83,750 for other attest services, NOK 268,966 for tax-related services and NOK 297,031 for other non audit services
Note 9 – Shareholder Information As of 31 December 2007 there are a total of 337,479,951 (288,556,451 at 31 December 2006) shares outstanding at face value of NOK 0.23 in the company. The Company has forward-agreements with partners purchasing a total of 36,664,500 (39,288,000 at 31 December 2006) shares from the company with settlement in 2008-2011. The Company owns 1,750 Treasury shares at year end, down from 16,750 at the beginning of the year. The Company has authorisation to re-purchase its shares in the market or to issue new shares. In 2007, the Company purchased 250,000 shares from departing partners at NOK 812,500 and sold 265,000 shares to partners at NOK 900,800 related to previous forward-agreements Partners of the company may purchase partner shares, which are settled in cash or financed up to a 3-year period carried through by using a forward contract. Partner shares are offered at marketprice, with a 15% discount of the last 30 days volume weighted average price reflecting several severe restrictions with regards to the selling (or purchasing) of these shares. Overview of shareholders registered in VPS on 31.12.07:
Number of shares
Share
Sanden AS (controlled by Jan Petter Collier and his family)
32 427 486
9.6%
JP Morgan Chase Bank
10 586 365
3.1%
State Street Bank and Trust Co.
10 194 998
3.0%
9 512 007
2.8%
Storebrans Livsforsikring AS
72
Nordic Companies/Global Money
Rasmussengruppen AS
7 146 800
2.1%
Goldman Sachs & Co. - Equity
6 216 708
1.8%
Citibank N.A. London
5 947 552
1.8%
Carl Palmstierna
5 275 500
1.6%
Citibank N.A.
5 214 484
1.5%
Bank of New York, Brussels Branch
4 754 657
1.4%
Amphytron Invest AS (controlled by Arild Engh)
4 520 744
1.3%
UBS AG, London Branch
4 427 666
1.3%
SIS Segaintersettle AG
4 318 225
1.3%
Pershing LLC
4 293 575
1.3%
Paul Sisson
4 030 000
1.2%
LBPB Nominees Limited
3 881 000
1.1%
Bank of New York, Brussels Branch
3 690 000
1.1%
Mellon Bank AS Agent for Clients
3 444 772
1.0%
Lamholmen Invest AS
3 403 317
1.0%
Ramaputtra AS
3 361 574
1.0%
200 832 521
59.5%
337 479 951
100%
Other shareholders Total
Note 10 – Forward contracts for ASC shares held by partners of the Company Partners of the Company held by 31 December 2007 forward contracts for 36,664,500 shares. The forward contracts have settlement in 2008 – 2011. Based on settlement on termination date, the number of shares under these contracts that will be issued in the following years and with the lowest and highest settlement price for the shares are noted below. The settlement price will be adjusted to reflect any dividends paid prior to settlement. The interest element in the forward contract will also lead to an adjustment of the settlement price in cases where the contract is settled prior to original expiry date.
Expiry year
Number of shares
Lowest exercise price (NOK per share)
Highest exercise price (NOK per share)
Volume weighted average exercise price (NOK per share)
2008
13 667 000
2.53
2.61
2.56
2009
11 112 500
5.85
9.06
6.83
2010
11 555 000
12.47
13.74
12.68
2011
330 000
12.99
14.80
14.36
36 664 500 The exercise price is based on the market price for shares at the initial contract date. The stated high/low and average prices have not been adjusted for the proposed 2007 dividend. Restrictions on shares As of 31 December 2007, partners of ABGSC held a total of 127,937,624 shares in the Company. These shares are subject to certain material restrictions. A total of 79,452,871 shares are held as “Partner Shares” and regulated by the Partnership Agreement.
Note 11 – Long term borrowings Borrower ABG Sundal Collier ASA 1)
Type of instrument
Drawn amount
Interest rate
Maturity
Subordinated Bond Issue
NOK 100 mill
3MNIBOR + 1.75%
3 May 2016
The loan is subordinated all other debt of the borrower. The interest rate will increase to 3MNIBOR + 2.50% in 2011. The borrower has a repayment option of the loan in 2011.
1)
Nordic Companies/Global Money
73
74
Aud i tor’s Re p or t
Nordic Companies/Global Money
75
B o a rd of Di rec t o r s a n d Gro u p Ma n a g e m e n t ABGSC has an Executive Committee as its most senior, management decision-making body. The Excom is composed of key members of the Group’s management matrix. Members of the Executive Committee are as follows: Group Management
CEO Jan Petter Collier Projects S. Nordengen / M. Kummelstedt
Compliance R. Hatling / D. Miller
Denmark Gustav Lassen Equities Christen Heiberg Norway Jan Petter Collier Trading & Risk Geir Ringstad Sweden Knut Pedersen Corporate Finance Arild Engh UK Johan Roth Support Tore Grøttum USA Andrew Stuttaford
76
Board of Directors
Executive Committee
• Judy Bollinger (Chairman) • Arild Engh • Anders Grudén • Cecilie Lind
• Jan Petter Collier (CEO) • Arild Engh • Christen Heiberg • Geir Ringstad • Tore Grøttum
Nordic Companies/Global Money
EXECUTIVE COMMITTEE Jan Petter Collier (57) Jan Petter Collier was one of the two founders of Sundal Collier in 1984. He was Executive Chairman from 1992, and in 2004 became Chief Executive and Managing Partner of the Oslo office. Prior to founding Sundal Collier he was Chief Executive of Tennant and Deputy General Manager of Rogalandsbanken. Arild Engh (44) Arild Engh joined Sundal Collier in 1993 and has been Global Head of the Corporate Finance Division since 1999. Engh is a member of the Board of ABGSC. Before joining Sundal Collier, he was involved in the cruise and oil service sectors. Christen Heiberg (49) Christen Heiberg joined the firm in 2001 as a partner in Corporate Finance. In 2007 he took on the role as Global Head of Equities. Before joining ABGSC, Heiberg worked at Alfred Berg in Oslo (1995-2001) as Head of Corporate Finance (1995-2001) and Managing Director (1999-2001) and at FIBA Nordic S ecurities (1993-1995). Before going into investment banking, he was involved in industry, venture capital and the cruise business. Geir Ringstad (47) Geir Ringstad joined Sundal Collier in 1991 and is now Global Head of Proprietary Trading & Risk. Ringstad has held a number of leading positions in the firm both with respect to Equities and Fixed Income. Tore Grøttum (46) Tore Grøttum joined ABG Sundal Collier in 2005 and is Chief Operating Officer. Prior to joining ABGSC he has held various positions within Christiania Bank (currently Nordea Norway) as well as CFO at Ocean Rig and C.Tybring-Gjedde.
The BOARD of Directors Judy Bollinger - Chairman Judy Bollinger has 27 years of experience in the securities business, in both the US and Europe. Since 1993, she has lived and worked in London, initially for Goldman Sachs as Head of UK and European Research, then subsequently for Janus, CSFB and ABG Sundal Collier. Mrs Bollinger was a partner with ABG Sundal Collier (previously ABG Securities) from 1999 to 2006. Mrs Bollinger is an MBA graduate from the Wharton Business School. Anders Grudén Anders Grudén is currently the CEO of the Swedish IT and software company Syncron. Prior to joining Syncron Mr Grudén spent seven years with Accenture, formulating strategies for large, global clients in a variety of industries, and four years with the Swedish investment company Investor AB, as Managing Director for its European venture capital operation with a focus on technology companies. Anders Grudén holds two degrees: a M.Sc. in Industrial Engineering & Management and a B.Sc. in Economics & Business Administration. Cecilie Lind Cecilie Lind has extensive experience within the Norwegian securities industry stretching back over 25 years. She has held leading positions for Finansbanken, Orkla Finans, Unibank Markets and Nordea Investment Management. In the last four years she has held various advisory positions within the Norwegian financial regulator Kredittillsynet. Cecilie Lind has a Business Administration degree from University of Denver. Arild Engh Arild Engh is the only partner serving as a member of the Board of ABGSC. Details of his background are included under the Executive Committee.
Nordic Companies/Global Money
77
Set t i ng t h e C om p lia n c e Eth o s a t AB G S C The business of advising people about their money has always relied on trust as its most basic underpinning. No matter how capable you are perceived to be, no one will listen very hard to an advisor they do not feel they can trust. And trust is a fragile fabric, woven over long periods of time but easily torn. 2007 and early 2008 have deteriorated the fabric of trust in the investment industry, a year from which it will take time and effort to recover. Some of that recovery will be aided by changes in the regulatory framework within which we operate but much will depend on self-corrective measures and new attitudes toward the nature of conflict in our business and the ways we manage it. This will be an ongoing topic of discussion among both practitioners and their regulators but the quality of that discussion will be helped greatly by the establishment of some basic truths and operating principles. At ABGSC, these can be summarised as follows: Basic Truth #1 – The integrity of each person in a firm will either support or undermine the reputation of all. Any organisation that is seen to tolerate less than the highest standards of integrity as a result of the questionable behaviour of any of its people will loose trust. In a business like ours, such a breach will have a very direct and negative impact on the firm. Basic Truth #2 – The attitude of a firm’s leaders will set the tone for those around them. If leadership cheats, the message to others is that such behaviour is acceptable. If leadership fails to set high standards in all areas, the message to others is that laxity is okay. If leadership is seen to place the short-term deal above the longer-term integrity value of our franchise, others will follow. None of these behaviours is acceptable in the context of the ABGSC partnership. Basic Truth #3 – Shortcuts are inherently flawed and those flaws will surface sooner or later. Good advisors must be understood to give considered, robust and well-reasoned advice. Shortcuts are inconsistent with this and will compromise a reputation for thoroughness and probity.
78
Nordic Companies/Global Money
Basic Truth #4 – Transparency, independence and fairness always strengthen integrity. The overriding idea here is simple – no one should ever be able to suggest or infer that we do not hold to the highest standards of ethics in our daily activities. No one in the firm is above these rules and they will be enforced with the passionate commitment our clients would expect from us and that we should expect of ourselves. Basic Truth #5 – The Potential for conflicts is inherent in our business. How we handle them is what makes the difference between public confidence and public disdain. Basic Truth #6 – There are always some people who will seek unfair advantage. Clients have a right to assume that we are knowledgeable, sophisticated professionals with an understanding of the markets in which we operate, the way its participants behave and the dangers that can accompany any investment decision. Naiveté must not be allowed to compromise the value of our advice. Basic Truth # 7 – You can delegate many things in business but NOT your responsibility for the ethics and standards of yourself and those around you. At ABGSC, we have always espoused the notion that the effective management of conflict is the business of management in investment banking. What this means in practice is that we have a broad framework of principles within which to operate whereby managers exercise supervision in their areas of responsibility across the firm. This is what management is all about and it cannot be delegated. Indeed, the principles-based approach taken by European regulators consistently emphasizes that management responsibility must reflect the differences that exist from firm to firm. European regulators have resisted rigid, universal standards in favour of our own use of judgement. That puts a burden on each of us to be knowledgeable, observant and active in seeking a compliant culture throughout the firm.
Basic Principles If there are a small number of inescapable truths about our business, they must be reflected in the fundamental operating principles of the firm to ensure good governance and a compliant culture. The principles below can be elaborated extensively and our Group Compliance & Business Standards do just that, but the essence of our governance culture is captured accurately in these four basic points. Basic Principle #1 - when we publish research, it is objective. ABGSC must never be perceived as having compromised in this area or the credibility of our business model will be compromised as well. Much of our approach to conflict management is the common sense outgrowth of this imperative. Basic Principle #2 - The boundaries between research and all the other areas of our firm must be clearly defined so that analysts are never placed in a potentially compromising position. This means that research cannot be too closely identified with the management’s of the companies followed, cannot be thought to be providing direct assistance or be influenced by corporate finance and must
not permit the special knowledge they have about future research to be compromised. Basic Principle #3 - Corporate finance management must exercise care regarding the way in which they ask for general help from research and the point at which that help must stop. Corporate finance management has a direct responsibility to ensure that analysts are not compromised by their association with transactions and that such a perception does not develop. Basic Principle #4 - ECM situations create perhaps the greatest potential for conflict or the appearance of conflict. It is in such transactions that sales may be drawn into awkward circumstances and regulators are very aware of how the book building process works in theory as well as practice. Issue size, pricing and client allocations are all areas in which the possibilities for perceived or actual conflict are very real. Both Equities and ECM management share a responsibility to prevent circumstances that might call our position into question.
Nordic Companies/Global Money
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80
Corpora t e Governa nc e Board of Directors’ statement of policy on corporate governance
Introduction ABG Sundal Collier undertakes its business in a number of geographical markets and has adopted a matrix of good local and international practice for corporate governance. ABG Sundal Collier is committed to the Norwegian code of practice for Corporate Governance as issued by NUES (Norwegian Committee for Corporate Governance) and will be in broad compliance with the Code’s recommendations. This report explains our adherence to those recommendations in detail.
1. Corporate governance policies The Board of Directors of ABG Sundal Collier will aim to follow the Norwegian recommen dations for the Code of practice for corporate governance and the company has during 2007, implemented amendments to its Articles of Association in order to comply with the Code’s recommendations. The Group has an established set of principles that govern company and employee behavior - “Setting the compliance ethos at ABGSC” and “Operating principles”. These principles are reproduced on pages 78-79 of this annual report.
2. Business activities The business activities of each division and of the group are specified in the Articles of Associ ation. The articles of association are included in the annual report. The articles of Association cover the current and expected business activities of the group. Together with Management’s discussion of our strategy, business model and objectives, these provide both shareholders and the capital market with an understanding of current and future developments.
3. Equity and dividends ABG Sundal Collier is regulated by The Financial Supervisory Authority of Norway (Kredittilsynet) and subject to capital adequacy rules as laid down in regulations covering the financial sector in Norway. At the end of 2007, ABG Sundal Collier had a capital adequacy ratio of 86 percent compared to the regulatory minimum of 8 percent. The method of calculation
is significantly altered from 2008 and the capital adequacy figure on the revised basis would have been 1.7 measured pro forma under the new system. Compared to the regulatory minimum 1.0. In addition to these requirements, ABG Sundal Collier constantly evaluates the need for equity in order to maintain a balance that satisfies both our growth objectives and our desire to provide shareholders with a high dividend pay out ratio. The business model of ABG Sundal Collier requires a relatively modest capital base. The Board has established a dividend policy for the firm that commits us to dividends representing most of net earnings, subject to the changing needs of our business or regulatory requirements. The Board of Directors has a mandate from shareholders to issue new shares as well as to buy back its own shares. The one year mandates are valid until end of June 2008. The proposal put forward to the AGM in 2008 is to cancel the old authorities and replace them with updated ones. The proposed authority will cover buy back of shares as well as issuance of new shares in connection with the settlement of existing forward agreements in ABGSC shares, issuance of shares to the partners of the firm, issuance of new shares in order to attract equity capital as well as issuance of shares in connections with mergers or acquisitions of companies or business units within the current scope of the business of the group as defined in the articles of association.
4. Equal treatment of shareholders ABG Sundal Collier has only one class of shares. All shares have equal voting rights and all shares have the same rights to dividends. Certain shares held by Partners of the group are however, restricted as “partner shares”. Partner share restrictions are a part of the partnership agreement. Partners of the firm enter into this agreement as a condition of partnership. The agreement places severe restrictions on a Partner’s ability to sell (or buy) shares. The agreement stipulates that partner shares can be repurchased by the firm at a price the firm decides in cases were the Partner acts in breach of the partnership agreement. The restrictions placed upon the partner shares are seen as an important part of the enforcement of each partner’s obliga-
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tions under the partnership agreement and as a consequence are a benefit to all shareholders. The company normally carries out transactions in its own shares at market value. In recognition of the economic impact of these restrictions on share value, any issuance of partner shares is done at a price equal to 85% of the market price for freely tradable shares at the time of issuance. As a part of the partnership agreement, partner shares held by partners who act in breach of the partnership agreement can be repurchased by the firm at a price substantially below market price. The company has not entered into any transactions or other contracts with shareholders, members of the Board or management outside the normal scope of business. Internal guidelines require special approval for any transactions where members of the Board or Management might have conflicting interest with the firm.
5. Freely negotiable shares The company does not have any restrictions on the trading of its shares in the Articles of Association. The trading in shares owned by partners of the firm is restricted by the terms of the Partnership Agreement noted above.
6. The Annual General Meeting (AGM) The AGM provides shareholders with an opportunity to participate in the company’s governance and through voting to approve or reject changes in the Articles of Association, election of Board and Election Committee members and approval of Board authorizations. All proposals to be dealt with at the AGM must be submitted to shareholders at least 3 weeks prior to the AGM. The proposals will also be published on the Oslo Stock Exchange. Persons wishing to participate in the AGM are required to register with the company, at latest by the end of business the day before the AGM is held. It is possible to attend by proxy, either to the Chairman, to the Chief Executive or to any other representative that the individual shareholder chooses.
AGM. Other Board and Board Committee members are present when required.
7. Nomination Committee At the AGM in April 2007 a Nomination Committee was elected and the Articles of Association were amended accordingly. The committee consists of 3 members who are elected for a term of 2 years. The period of service can be adjusted to permit staggered terms and avoid situations were all committee members stand for election simultaneously. Committee members and the Chairman are elected by the AGM. The Committee shall propose members of the Board to be elected by the AGM. The Committee shall identify and nominate candidates suitable for the position as Board members. As a part of its evaluation, the Committee is required to consider issues relating to ownership representation on the Board as well as issues relating to relevant experience, possible conflicts of interest, and availability of time in connection with the work as a Board member as well as the legal requirements relating to nationality, gender and approval by supervisory authorities. The Committee shall ensure that a sufficient number of proposed Board members are independent of management or partners of the group. The committee shall also propose the remuneration for Board members to be approved by the AGM.
8. Composition and independence of the Board The Articles of Association stipulate that the Board shall consist of 4 to 8 members. The current Board had 5 members, but was reduced to 4 when Terje Moe Gustavsen had to resign due to his appointment as Director General of the Norwegian public Roads Administration. Members are elected for a 2 year term of office. The Chairman of the Board is elected by the AGM. A presentation of the current members of the board can be found in the annual report (see page 77). The Board is of the opinion that, in total, it has sufficient expertise and capacity to carry out its duties in a satisfactory manner.
As a general rule, the Chairman of the Board, the CEO and the auditor are present at the
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Partners of the group have, in total, a significant shareholding in the company, and Partners are therefore represented on the Board. In order to avoid any possible conflicts of interest, the Board will use separate committees to consider certain matters when deemed necessary. Currently, the Board has established a Compensation Committee. The “Rules of Procedure” for the Board establishes rules for situations where a Board member should be disqualified from participating in deliberations due to close relationship or personal interest in the issue under discussion. Board members of the company can also hold board positions with other listed companies in which ABG Sundal Collier may trade shares either for customers or on its own behalf or conduct other forms of business. The Rules of Procedure for the Board prevents any Board member from engaging in any Board discussions relating to a business relationship with another company in which he or she has a material interest. Several Board members own shares in the company. Board member shareholdings are included in the annual report.
9. The work of the Board The Board produces an annual agenda as part of its forward planning. The agenda includes dates for board meetings and the main topics to be covered in each meeting. The work of the Board is based on the “Rules of Procedure” for the Board of ABG Sundal Collier ASA. A similar set of instructions have been issued for the CEO. As from 2007, the Board had a deputy chairman to serve as chairman in situations where the chairman is absent or prevented from participating in a Board discussion. With the resignation of Mr. Gustavsen as chairman, the deputy chairman has been acting chairman since November 2007. The Board has established a Compensation Committee. The Compensation Committee shall evaluate the performance of the CEO and senior management as well as propose the remuneration of the CEO to the full Board. The committee shall also approve the
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general guidelines for any share incentive plans to partners of the group. The committee shall also advise the CEO upon issues relating to the remuneration of members of senior management.
10. Risk management and internal control The firm faces a variety of risks and the operation of the group is based on taking intelligent risks in different forms. The Board supervises the risks incurred by the firm, either directly or through delegation to the appropriate levels in the organization. The purpose is not to eliminate risks, but to control them and keep them within acceptable levels. As a part of its trading operation the firm takes on financial risk relating to positions in financial instruments. All trading operations are kept within pre-defined limits and any breach of such limits is reported to the Executive Committee of the group. The group has established a separate compliance and risk control unit. The CCO (Chief Compliance Officer) has an established dual reporting line and reports both to the CEO and to the Chairman of the Board. The CCO issues a compliance report to each Board meeting. The report deals with any breach of regulation and internal rules, contacts with regulatory authorities and any new or expected regulations relevant to the group. In addition to the report from the CCO, the Board also receives an annual management letter from the independent auditor.
11. Remuneration of board of directors The remuneration of the members of the Board is decided by the AGM. Provided that the AGM approves the establishment of a Nomination Committee, the remuneration of the members of The Board will be proposed by the Nomination Committee going forward. The remuneration of the Board members has not been linked to the company’s performance and the Board members do not have any share options for the ASC share. The chairman receives a higher remuneration then the other Board members. Partners of the group who also serve as Board members do not receive any separate compensation as
Board member, but do receive remuneration in their capacity as a partner of the group. Members of the Board may receive additional remuneration if they take on assignments or other duties for the firm that does not form a natural part of the responsibilities of a board member. Any such assignments shall be approved by the Board in advance. The agreement must be in accordance with normal commercial terms in respect of payment and other terms. During 2007 one member of the Board had carried out such assignments. Details of the corresponding remuneration are set out in notes to the financial accounts.
12. Remuneration of the executive management All partners and employees of the group participate in a company-wide bonus program. The investment banking industry is characterized by strong competition for highly qualified personnel, and a competitive compensation model is of great importance in order to recruit and retain competent management and staff. Compensation to partners and employees consists of a fixed salary or compensation and a variable discretionary bonus or profit sharing, the amount of which is dependent on a combination of company results and the individual performance. In general, the size of the profit allocated to partners and employees is set at 50% of the firm’s earnings before tax less a calculated interest of the average equity of the group. Principles for the allocation of profit allocated to partners and employees are decided by the Board after recommendations from the Compensation Committee. The bonus to each partner and employee is decided by the Compensation Committee and approved by the Board. The allocation to individual members of senior management is decided by the CEO after taking advice from the Compensation Committee. The compensation of the CEO is proposed by the Compensation Committee and approved by the Board. All compensation to senior management is detailed in notes to the financial accounts. The Board wants to encourage partners to take a long term ownership in the group through owning shares in the company. The established system with “partner shares” has proved successful over the years and aligns
the long term interests of shareholders with the interest of Partners of the firm. The Compensation Committee must review and approve any allocation criteria for the issuance of new shares to partners of the firm.
13. Information and Communication As a consequence of its listing, the company must adhere to the information dissemination requirements laid down by the Oslo Stock Exchange. All regular information in the form of interim or annual reports is made on preannounced dates and the material used is available on the internet. Due to the confidential nature of the group’s business, the number of persons who are entitled to speak on behalf of the company is restricted.
14. Takeovers The Partners of the group own approximately 38% of the outstanding shares of the company. The Partnership Agreement which is entered into by all the partners sets out a requirement for joint voting by partners in the event of a proposed merger or takeover. In the event of a merger or takeover proposal, the board will not exercise mandates or pass any resolutions that obstruct the takeover bid unless approved by the general meeting. Any transaction that is in fact a disposal of the company’s activities will be submitted to the general meeting.
15. Auditor The independent auditor issues an annual audit plan and the plan is presented to the Board. The auditor also issues at least annually, a management letter following the audit of the accounts. The letter includes recommendations for improving the internal controls and as well as details regarding any major internal control weakness discovered. The auditor shall participate in person in at least one board meeting annually and always in the meeting that seeks to approve the annual accounts. Both the Board and the auditor have the right to demand a meeting between the Board and the auditor without the CEO or other management participation.
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Ar ticle s of A s s oc i a t i o n §1 The name of the Company is ABG Sundal Collier ASA. The Company is a public limited company. §2 The Company’s registered office is in Oslo. §3 The Company shall, through is subsidiaries conduct investment service activities, asset management service and sale and distribution of financial products, investment in other companies that conduct similar activities and other business connected to or supplementing its business. §4 The Company’s share capital is NOK 78,179,288,73 divided into 339,909,951 shares, each with a nominal value of NOK 0.23. The Company’s shares shall be registered in VPS.
§7 Shareholders that intend to participate in the General Meeting shall notify the Company within the time limit set in the notice of the General Meeting. The notifying period can not end more than 5 days before the meeting. Shareholders that have not notified the Company of their intended presence can be declined admission to the meeting. The General Meeting shall be headed by the Chairman of the Board. §8 In other respects, reference is made to the, at any time, applicable corporate law. (LAST AMENDED March 28, 2008) Translated from Norwegian original
§5 The Board of Director shall consist of between 4 and 8 members elected in accordance with the decision of the General Meeting. The election period is for 2 years. The Company’s signatory power is held by the chairman together with one board member, or one board member together with the general manager. The Board of Directors may grant signatory power and power of procuration. The Company can, if decided by the board have two CEOs. §6 The Annual General Meeting shall consider: 1. Approval of the annual accounts and the annual report, including the allocation of any profit for the year and distribution of dividends. 2. Election of board members. 3. Other matters specified by statute for consideration by the General Meeting.
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Shareh ol d e r Informa tio n The basic organisation of ABG Sundal Collier ASA (ABGSC) reflects its legal structure as a limited liability company in Norway. The organisation is also influenced by its underlying Partnership ethos and the way in which our partner-shareholder structure helps to ensure an atmosphere of continuity, longterm development and a coincidence of interests with our broader shareholder group.
Board of Directors The highest-level governance body of the firm is its Board of Directors. The Board determines broad policy, standards and procedures for the firm, generally upon the recommendations of management. The Board retains sole discretion over its decisions and will call upon external resources for support when required. The governance, management structure and procedures of ABGSC must conform to all current legal and regulatory requirements as well as the evolving needs of a growing organisation in a rapidly changing environment.
Executive Committee The core decision-making group of the firm is the Executive Committee (Excom). That group is composed of five members, which includes the functional heads of the firm. Excom is chaired by the Chief Executive. The Chief Compliance Officer (CCO) is an ex officio member of Excom, receives all Excom papers and attends Excom meetings at his/her discretion. The role and functions of Excom include decisions relating to all substantial business matters at the firm.
Divisions ABGSC is organised into three functionally based operating divisions in a matrix with five primary geographic entities. The number of functional divisions will vary over time as and when the firm adds to its current range of services. Each division is headed by a Global Head and each geographic unit is headed by a Managing Partner. The Division heads report to the Chief Executive. In addition, the Compliance and Risk Management functions are global across the firm and report directly to the Chief Executive. In circumstances he/she deems appropriate, the
CCO will also request the direct involvement of the Board.
The Partnership ABGSC is a publicly listed company born from a partnership tradition. In conjunction with the company’s creation, it was agreed that the best interests of all stakeholders would be served by maintaining the partnership tradition by creating a structure that retained the basic ethos of a partnership within the broader context of a shareholder owned, listed company. The partnership model has permitted the company to improve the retention of key staff while closely aligning the interests of staff and shareholders and partners held 38% of total shares as at 31 December 2007. In addition, partners of the firm held forward contracts in ASC shares that would bring partner ownership up to 44% of total shares. The Board of ABGSC has designed the partnership program of the firm with a view to making it more responsive to the company’s changing needs and the changing competitive environment. Generally partners are admitted into the partnership when they join ABGSC or through the annual partner promotion. All partners own partner shares, either acquired when he or she became a partner of the firm or through the annual partner share issues. The annual partner share issues are conducted following the bonus process with the intention of giving new partners the opportunity to invest in shares in ABGSC and existing partners an opportunity to increase their holdings. The number of shares issued in the annual partner share issue and the allocation criteria for the partner shares have been decided by the Board. All partner shares are restricted and the firm has rules governing the acquisition of partner shares as well as disposal of partner shares. Partners are permitted to dispose of a limited proportion of their partner shares a nnually after the initial holding period of 3 years through a company organized sale process. The Board believes that this will improve the overall liquidity of the shares for investors while creating a legitimate opportunity for long-standing partners to better balance their portfolio of assets. It is the intention of the partnership that it will continue to retain a significant shareholding in the Company over time.
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SHAREHOLDER INFORMATION
Share price development
Listing
The closing price of ABG Sundal Collier shares as at 31 December 2007 was NOK 12.60 per share, compared to NOK 13.00 as at 31 December 2006. Adjusted for dividends of NOK 1.60 per share, shareholders had a total return of 9.2% during 2007. The Oslo Benchmark Index (OSEBX) increased by 13.5% during the same period.
ABG Sundal Collier is listed under the ticker code “ASC” on the Oslo Exchange. As of 31 December 2007 the Group had a market capitalisation of NOK 4,246 million.
Share capital As at 31 December 2007, the share capital of ABG Sundal Collier was NOK 77,620,388.73, divided into 337,479,951 shares of NOK 0.23 each. The Group held a total of 1,750 Treasury shares per 31 December 2007. At year end 2007, the Group had agreements with partners purchasing 36,664,500 shares with settlement in the period 2008-2011. ABGSC has authorisation to re-purchase its shares in the market or to issue new shares.
Shareholders and shareholder structure As at 31 December 2007, ABGSC had 3,814 shareholders. The corresponding figure a year earlier was 3,925. The 20 largest shareholders held 40.5% of the total shares outstanding, while the direct and indirect ownership of the Company’s partners was 37.9%.
Equity-related Key Figures update Key Figures (in NOK unless otherwise stated)
20075)
20065)
20055)
20045)
20035)
ASC share Highest share price (closing price)
16.00
14.20
9.00
7.39
4.80
Lowest share price (closing price)
11.70
8.62
5.20
4.15
2.20
Share price as at 31 December
12.60
13.00
8.80
7.39
4.80
Number of shares at 31 December
337 480
288 556
269 289
262 874
264 045
Average number of shares
353 859
321 689
302 810
269 307
261 456
Earnings per share 2)
1.81
1.73
1.14
1.12
0.41
Book value per share 3)
4.88
3.40
2.74
2.19
1.57
Number of outstanding shares (in 1,000) 1)
Ratios
1.70
1.60
1.40
1.10
0.50
Price/Earnings ratio (P/E)
7.0
7.5
7.7
6.6
11.7
Price/Book value per share (P/B)
2.6
3.8
3.2
3.4
3.1
13.5
12.3
15.9
14.9
10.4
Payment to shareholders
4)
Yield to shareholders (%)
Including the effect of shares on forward contracts and treasury shares. Net earnings divided by diluted average number of shares. 3) Including any unpaid dividends for the year and adjusted for treasury shares. 4) Payment to shareholders of dividends, reduction in the share premium fund or past year end interim dividends. 5) 2007 - 2004 according to IFRS, 2003 according to NGAAP 1) 2)
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Share Price Development and Volume – 2007 16,000 14,000
17.00
80 %
16.00
70 %
15.00
60 %
12,000 10,000 8,000
50 %
14.00
6,000
40 %
13.00
30 %
4,000 12.00
2,000 0
20 %
11.00
1-Jan
20-Mar Volume
6-Jun
23-Aug
10 %
9-Nov
Price
Overview of shareholders registered in VPS per 31 December 2007: No Shareholder
Number of shares
Share
1 Sanden AS (controlled by Jan Petter Collier and his family)
32 427 486
9.6%
2 JP Morgan Chase Bank
10 586 365
3.1%
3 State Street Bank and Trust Co.
10 194 998
3.0%
4 Storebrans Livsforsikring AS
9 512 007
2.8%
5 Rasmussengruppen AS
7 146 800
2.1%
6 Goldman Sachs & Co. - Equity
6 216 708
1.8%
7 Citibank N.A. London
5 947 552
1.8%
8 Carl Palmstierna
5 275 500
1.6%
5 214 484
1.5%
10 Bank of New York. Brussels Branch
9 Citibank N.A.
4 754 657
1.4%
11 Amphytron Invest AS (controlled by Arild Engh)
4 520 744
1.3%
12 UBS AG. London Branch
4 427 666
1.3%
13 SIS Segaintersettle AG
4 318 225
1.3%
14 Pershing LLC
4 293 575
1.3%
15 Paul Sisson
4 030 000
1.2%
16 LBPB Nominees Limited
3 881 000
1.1% 1.1%
17 Bank of New York. Brussels Branch
3 690 000
18 Mellon Bank AS Agent for Clients
3 444 772
1.0%
19 Lamholmen Invest AS
3 403 317
1.0%
20 Ramaputtra AS
3 361 574
1.0%
Top 20 Largest Shareholders
136 647 430
40.5%
Other shareholders
200 832 521
59.5%
Total
337 479 951
100%
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Shareholders by size Numbers of shares
percentage
Number of shareholders
percentage
243 534 521
72.2%
78
2.0%
> 500.000 shares but < 1.000.000
46 481 114
13.8%
66
1.7%
> 100.000 shares but < 500.000
35 375 106
10.5%
154
4.0%
> 10.000 shares but < 100.000
9 695 076
2.9%
302
7.9%
> 1.000 shares but < 10.000
1 761 666
0.5%
545
14.3%
632 468
0.2%
2 669
70.0%
337 479 951
100.0%
3 814
100.0%
Numbers of shares
percentage
Number of shareholders
percentage
147 488 349
43.7%
3 508
92.0%
Great Britain
74 437 311
22.1%
82
2.1%
U.S.A
56 628 220
16.8%
58
1.5%
Sweden
20 280 682
6.0%
45
1.2%
Belgium
> 1.000.000 shares
less then 1 round lot Total
Shareholders by country
Norway
15 190 139
4.5%
22
0.6%
Switzerland
7 469 718
2.2%
6
0.2%
Luxembourg
5 074 654
1.5%
7
0.2%
Hong Kong
3 168 705
0.9%
2
0.1%
Denmark
2 770 993
0.8%
50
1.3%
Netherlands
2 613 000
0.8%
3
0.1%
Finland
1 923 201
0.6%
3
0.1%
Liechtenstein
201 000
0.1%
1
0.0%
Iceland
88 000
0.0%
1
0.0%
Ireland
63 950
0.0%
4
0.1%
Canada
30 500
0.0%
2
0.1%
Italy
17 500
0.0%
2
0.1%
France
14 800
0.0%
4
0.1%
Germany
12 854
0.0%
4
0.1%
Cyprus
2 400
0.0%
1
0.0%
Kenya
1 000
0.0%
1
0.0%
Central African Rep.
1 000
0.0%
1
0.0%
Spain
804
0.0%
4
0.1%
Brazil
610
0.0%
1
0.0%
Thailand
360
0.0%
1
0.0%
Singapore Total
92
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201
0.0%
1
0.0%
337 479 951
100.0%
3 814
100.0%
Dividend / Reduction of the Company’s Share Premium Fund It is the Board’s intention to maintain a high payout dividend policy to shareholders. Earnings for 2007 support a dividend of NOK 1.70 per share.
Power of attorney to issue new shares The Extraordinary General Meeting held in August 2007, authorised the Board to increase the share capital by subscription of new shares. The share capital may be increased by NOK 15,524,077.71 which equals 65,322,077 shares or 20% of total share capital. The authorisation is valid until 30 June 2008. The authorisation comprises capital increase by non-cash payment and a right to charge the company with special obligations and merger. No shares have been issued under the authorisation in 2007 after the EGM but 2,430,330 shares have been issued under this authorisation in Q1 of 2008. All the shares issued have been used in connection with new partners acquiring shares or existing partners settling their forward contracts on the shares. The Board will propose to the General Meeting to be held 24 April 2008, that the General Meeting issues a new authorisation to issue new shares and that the authorisation should be valid until 30 June 2009.
Power of attorney to purchase own shares The General Meeting has authorised the Board to acquire treasury shares, and to
Expiry year Number of shares
Lowest exercise price (NOK per share)
acquire charges created by agreement relating to its own shares. The highest nominal value of the shares to be acquired pursuant to the authorisation is NOK 7,762,038.85 which equals 33,747,995 shares or 10% of the Company’s share capital. The authorisation is valid until 30 June 2008. The acquisition, disposal of and acquisition of charges created by agreement may be carried out at the discretion of the Board of Directors, hereunder as part of the company’s incentive program. The Board will propose to the General Meeting to be held 24 April 2008, that the General Meeting issues a new authorisation to purchase own shares and that the authorisation should be valid until 30 June 2009.
Forward contracts for ASC shares held by partners of the Company As at 31 December 2007, Partners of the company held forward contracts for 36,664,500. The forward contracts have settlement in 2008 – 2011. Based on settlement on termination date, the number of shares under these contracts that will be issued in the following years and with the lowest and highest settlement price for the shares are noted below. The settlement price will be adjusted to reflect any dividends paid prior to settlement. The interest element in the forward contract will also lead to an adjustment of the settlement price in cases were the contract is settled prior to the original expiry date.
Highest exercise price (NOK per share)
Volume weighted average exercise price (NOK per share)
2008
13,667,000
2.53
2.62
2.56
2009
11,112,500
5.85
9.06
6.83
2010
11,555,000
12.47
13.74
12.68
2011
330,000
12.99
14.80
14.36
The exercise prise is based on the market price for shares at the initial contract date. The stated high/low and average prices have
not been adjusted for the proposed 2007 dividend.
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Restrictions on shares As of 31 December 2007, partners of ABGSC held a total of 127,937,624 shares in the Company. These shares are subject to certain material restrictions. A total of 79,452,871 shares are held as “Partner Shares” and regulated by the Partnership Agreement.
Shareholder rights / General Meeting ABGSC has one share class, and one share has one vote at the General Meeting. The company has no rules for negotiability of the share, but the acquisition of a qualifying holding (10%) must be notified to The Financ ial Supervisory Authority of Norway (Kredittilsynet) under the Securities Trading Act, and Kredittilsynet can refuse such acquisition.
Board of Directors
Partnership Agreement
The internal directors do not receive compensation for their role as directors. The Company intends to pay e xternal directors competitive fees based on remuneration in comparable enterprises.
Partners in the company own 38% of the company as of 31 December 2007. We believe strongly that the Partnership model helps us focus on providing the best advice, the creation of truly long term relationships and a clear understanding of the importance of the bottom line. Partners have entered into a Partnership Agreement that regulates the relationship between the partner and the Company. A partner cannot buy shares in the Company without approval from the Board, nor can a partner sell partner shares without approval from the Board. The Partnership Agreement also regulates non-competition, profit participations and bonuses. If the Company should receive proposals involving a possible sale or change of control of the firm, there will be a meeting of partners to consider the proposal. In the event partners representing 51% or more vote in favour of a sale or change of control, all partner shares will be bound to vote in favour of such proposal at the General Meeting.
Profits to partners and bonuses to employees The investment banking industry is characterised by strong competition for high quality personnel and a competitive compensation model is of great importance to recruit and retain competent staff. Compensation to partners and employees consists of a fixed
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salary and a variable discretionary bonus, the amount of which is dependent on a combination of company results and individual performance. The size and allocation of the bonus pool is decided by the Board upon recommen dation from the Compensation Committee. In general, the profit participation and bonus pool will be set to 50% of profit before tax less a calculated interest on the average equity of the Company.
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The Board shall consist of between 4 and 8 directors. Today there are 4 directors of whom one is partner in the Company. In order to secure partner representation on the Board, the partner representative has a personal deputy.
Nomination Committee The Nomination Committee shall propose board members to be elected at the Annual General Meeting and propose remuneration for board members.
Shareholder and Information Policy ABGSC aims to maximise the long-term value of the Company’s equity. Further, the Company pursues a predictable dividend policy. The company made payments to shareholders of NOK 0.50 per share in respect of the years 2001, 2002 and 2003. The payment was increased to NOK 1.10 per share for 2004, NOK 1.40 per share for 2005, NOK 1.60 per share in 2006, and the Board proposes a dividend of NOK 1.70 per share for 2007. The Company will inform the market of important events through Oslo Børs releases, quarterly reports and annual reports. All press releases and reports are provided on www.abgsc.com as well as www.newsweb.no. On our WEB-site you will also find a general presentation of the Company. Q uarterly reports are available online and annual reports are printed and sent to shareholders with more than 25,000 shares.
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Fi na nc i a l Ca l end a r 2 0 0 8 ABG Sundal Collier ASA has approved the following financial calendar for the accounting year 2008: • 24 April 2008, Earnings release 1st quarter 2008 • 24 July 2008, Earnings release 2nd quarter 2008 • 30 October 2008, Earnings release 3rd quarter 2008 • 17 February 2009, Earnings release 4th quarter 2008 The Annual General Meeting will take place on 24 April 2008.
All the dates above are important because they represent milestones toward our core goal during the year – maximising long term shareholder value. We look forward to discussing our progress with shareholders on each of these occasions, examining our results, our challenges and our successes. Please join us at 09:00 am on reporting days at our offices in Oslo for a presentation of the figures and what they represent.
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Ad d ress es Norway (Oslo) ABG Sundal Collier ASA PO Box 1444 Vika Munkedamsveien 45E NO-0115 OSLO NORWAY Tel +47 22 01 60 00 Fax +47 22 01 60 60
Norway (Bergen) ABG Sundal Collier ASA Rådhusgt. 4 NO-5014 BERGEN NORWAY Tel +47 55 21 60 00 Fax +47 55 21 60 60
Denmark ABG Sundal Collier Esplanaden 34A, DK-1263 Köbenhavn K DENMARK Tel + 45 33 186 100 Fax + 45 33 186 110
Sweden ABG Sundal Collier AB PO Box 7269 Regeringsgatan 65, 5th floor SE-103 89 STOCKHOLM SWEDEN Tel +46 8 566 28 600 Fax +46 8 566 28 601
United Kingdom ABG Sundal Collier Ltd St. Martins Court 10 Paternoster Row London EC4M 7EJ UK Tel +44 (0) 20 7905 5600 Fax +44 (0) 20 7905 5601
USA ABG Sundal Collier Inc 535 Madison Avenue 17th Floor New York, NY 10022 USA Tel +1 212 605 38 00 Fax +1 212 605 38 01
www.abgsc.com
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www.abgsc.com
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signatur.no • 280337