2005 was a good year for VPS. The good results are essentially due to higher income from volume growth as a result of high activity in the securities market, sales of new services and effective cost control.
The VPS Group is organised as a holding structure whose parent company, VPS Holding ASA, wholly owns the operating company, VPS ASA, and Manamind AS. VPS ASA is licensed to register rights in financial instruments with the legal effects entailed by the Securities Register Act. VPS resides in Oslo and has no branches.
The Group reported a pre-tax profit for the year of NOK 150.7 million – a steep increase from the 2004 figure of NOK 90.6 million. The post-tax profit for the year was NOK 107.6 million. Operating income came to NOK 337.7 million compared with NOK 270 million in 2004. Costs were kept well under control, rising from NOK 181.7 million in 2004 to NOK 188.3 million in 2005. The increase is essentially due to Manamind’s absorption into the Group. Development projects were capitalised at NOK 10.2 million. At year-end total book equity stood at NOK 345.5 million.
Activity in the securities market was exceptionally high throughout the year. VPS handled a total of 20 million transactions linked with trades in equities, mutual fund units and other VPS-registered securities, an increase of 50 per cent over the 2004 figure. The number of holdings rose by 2.9 per cent, mainly due to growth in securities funds. At year-end more than 2 million holdings in financial instruments were registered across a total of 1.25 million VPS accounts. There was a net increase of 61 mutual funds registered in VPS, bringing the total to 649 at year-end. New company registrations came to 42, net, bringing total VPS-registered private and public limited companies to 1,181 at year-end.
Reliability
VPS systems’ production and accessibility were at a stable high level in 2005, as previously. The production system’s uptime averaged 99.8 per cent, while the internet system’s uptime was 99.5 per cent. The settlement ratio – the number of trades settled on the agreed date – rose to 97.1 per cent in 2005, up from 96.5 per cent the previous year. Our data security was excellent, and there were no significant deviations affecting our data integrity.
VPS scrutinised significant risks and measures in place to safeguard against these risks. No significant risks posing a threat to VPS’ operations were revealed. Tests conducted of continuity and contingency plans successfully restored all critical systems at a secondary site.
VPS was recertified by Det norske Veritas (DnV) under ISO 9001:2000. This standard puts emphasis on the internal processes needed to achieve corporate goals.
VPS and other securities depositories are regularly evaluated by Thomas Murray Depository Services. The latest evaluation gave VPS an improved risk rating, and risk is now regarded as low in most areas.
VPS conducts regular surveys to gauge clients’ perceptions of VPS’s services and products. Clients report a high level of satisfaction.
Focus on customers
VPS seeks to make life easier for market actors by delivering innovative and reliable solutions to the securities market, and distributes its products and services through banks, investment firms and management companies. VPS invests continuously in innovation and systems upgrading in close collaboration with its clients. This includes refining services for the end users – investors and issuers.
Together with its clients VPS has invested in and adapted its settlement systems to ISO 15022, an international standard which simplifies the entry of settlement instructions and confirmation back to the customer. All our settlement customers now use this standard, thereby bolstering the competitiveness of the Norwegian securities market. VPS acquired seven new settlement participants (remote members) in 2005 as against one in 2004.
On 20 May last year a parliamentary majority emerged in favour of mandatory occupational pensions. The Act came into force on 1 January 2006. VPS has adapted its systems accordingly, and has recorded a steadily rising influx of entrants to contributory schemes.
VPS marked itself out in 2005 as a possible provider of solutions for a “Pensions Overview”. VPS has developed a prototype giving a complete overview of active pensions and paid-up policies based on data from pension funds, insurance companies and other institutions. The idea is to make the pensions overview available to users via internet banks etc.
VPS polled its customers in 2005 on whether participation in the pool-based securities borrowing and lending programme should be mandatory. Since customers were not unanimously in favour, VPS decided to take steps to improve the current arrangement before making participation mandatory.
Together with customers, VPS is working to increase the proportion of investor reports and company notices sent by electronic means. We have noted a marked increase in the use of this medium of late, to the mutual benefit of customers, end users and VPS alike.
Under Manamind auspices VPS is developing internet-based share trading as an integrated part of VPS’s investor services. The aim of this service is to make it simpler for financial institutions to offer share trading online.
In collaboration with account operators VPS has initiated a development project whose aim is to replace its services to account operators and investors with new, broader-based facilities based on modern, more user-friendly, technology. Banks, investment firms and fund managers will in future be able to interact with VPS using web-based solutions integrated in their own systems.
Where the bond market is concerned, VPS has decided to establish new solutions and systems for fixed income securities.
Manamind AS
Manamind supplies internet-based software, services and solutions to the financial industry. The company underwent a change process in 2005 with a view to putting information from the VPS registers on a commercial footing. Substantial resources have been invested in revie-wing existing information products, customer contracts, customer relationships, the com-petitor situation and the range opportunities available in general.
In parallel with the above, Manamind has taken its existing business further, with a particular focus on forward-looking activities, particularly short-term consultancy assignments. This affected the company’s turnover and profitability in the short term in 2005. The number of contracts entered into combined with the quality of prospective contracts suggests that the company’s positive trend is likely to continue.
Administration
At year-end the Group had 137 employees (equivalent to 119 full-time positions). Employee surveys show that VPS has a good working environment. A competence building programme has been carried through to duplicate expertise in areas critical to VPS’s operations, and spearhead competence has been strengthened in some development areas.
In an effort to further enhance cost efficiency at VPS, organisation changes were carried out in 2005 involving work processes, sectional structure and the composition of the management team. The changes are designed to achieve an organisation optimally equipped for competition, teamwork and cooperation along with greater job satisfaction.
The company has a contract with an occupational health service. In 2005 the sickness absence rate was 4.6 per cent, of which long-term sick leave (more than 3 consecutive weeks) accounted for 2.2 per cent. The company does not engage in activities causing noise or emissions that impact on the external environment. No injuries or accidents were recorded at VPS.
Remuneration to the President and CEO, Board members, the Control Committee and auditors is dealt with in Note 3 to the Accounts.
The Board of Directors would like to thank all employees for their efforts and commitment which have contributed to the excellent results achieved by the company in all key areas.
Gender equality
Forty-eight (i.e. 35 per cent) of the Group’s 137 employees, are female. The Group has 21 managers, 5 females and 16 males. The average annual salary for all employees, excluding the management team, is NOK 486,000. Females earn on average 14 per cent less than males. This is partly due to age distribution: male employees predominate among the over-50s, and virtually all have been with company since its early years.
The female proportion, standing at 35-40 per cent over time, is considered creditable in VPS’s line of business. The Group has no plans to take specific steps to increase this proportion.
Normal working time is 40 hours per week. Overtime is fairly evenly distributed between female and male employees. The great majority of employees have a home computer which can be hooked up to VPS, and home working is equally prevalent among male and female employees. A recent survey shows that the opportunity to work at home is greatly appreciated.
Collaboration and alliances
VPS Holding ASA increased its stake in NOS ASA from 16.7 per cent to 19.1 per cent in 2005. This participation in NOS is a strategic investment designed to achieve optimal solutions for settlement of financial instruments.
VPS Holding ASA owns 50 per cent of FinansNett Norge AS (FNN). FNN offers investment firms, banks, bourses and others a forward-looking, secure network for all types of data communication.
VPS is working together with other central securities depositories to put settlement systems on a more standardised footing. VPS is contemplating a broader-based collaboration with other CSDs with a view to achieving cost synergies in the IT, operations and development areas, and to harmonising settlement solutions. VPS will therefore, from an independent vantage point, be receptive to wider cooperation within the Nordic area and with other players in the securities market.
VPS Holding ASA owns 50 per cent of FinansNett Norge AS (FNN). FNN offers investment firms, banks, bourses and others a forward-looking, secure network for all types of data communication.
VPS is working together with other central securities depositories to put settlement systems on a more standardised footing. VPS is contemplating a broader-based collaboration with other CSDs with a view to achieving cost synergies in the IT, operations and development areas, and to harmonising settlement solutions. VPS will therefore, from an independent vantage point, be receptive to wider cooperation within the Nordic area and with other players in the securities market.
Public regulation
In 2005 VPS participated in the Nominee Registration Committee which delivered its recommendations to the Ministry of Finance in June. The committee’s brief was to consider whether domestic shareholders should be permitted to nominee-register their holdings in Norwegian companies. The committee does not advocate allowing domestic investors to register their holdings in the name of a nominee. Nor does it recommend restricting non-residents’ right to do so.
International relations
Clearing and settlement services in Europe are the subject of much attention from the EU authorities. The focus is on how services can be standardised to facilitate cross-border settlements. We expect to see significant changes in the next few years in regulations, standards and recommendations which VPS will need to comply with.
VPS is a member of the European Central Securities Depositories Association (ECSDA). Through its active participation in the work of this association, VPS plays a role in developing standards in the European securities market.
VPS allocates securities numbers (ISIN) and is therefore a member of the Association of National Numbering Agencies (ANNA). VPS is also a member of SWIFT NNG (Norwegian National Member Group).
Risk and uncertain factors
The Board of Directors considers that no significant risks pose a threat to VPS’s operations. Even so there are invariably factors that can be improved with a view to avoiding an undes-ired development over time.
As part of its Financial Sector Assessment Program (FSAP) in Norway in 2004-2005, the International Monetary Fund (IMF) produced a technical paper entitled “An Analysis of Possible Financial Risk in the Clearing and Settlement of Securities in Norway.” VPS, in collaboration with Kredittilsynet (Financial Supervisory Authority) and Norges Bank (the central bank), has reviewed the IMF’s comments and initiated work on possible steps to rectify relevant matters.
We risk losing business if we fail to foster good customer relationships and good customer involvement in our development projects. It is important for customers to be certain that programmes etc are implemented in line with their original requirements and expectations. VPS plans to establish market and reference groups, at both strategic and operational level, to encourage greater customer involvement and a stronger relationship between us and our customers.
Another risk is that VPS may lack sufficient competence to carry through all the activities intended to foster growth and innovation. The Board will stringently prioritise the various activities in terms of cost-benefit values, and, where appropriate, step up the resource input where good business cases are spotted.
VPS is in the process of putting new technology into use. If this process is not properly steered, there is a risk that the goals this technology was meant to support will not be
achieved. It is therefore a priority task to follow up the introduction of new technology with a particular focus on appropriate documentation of architecture, systems, data, and infrastructure.
Outlook for the future
The Board of Directors is of the opinion that the company is a going concern. The Board anticipates further growth through increased activity in core areas and in related areas. We know from experience, however, that the stock market fluctuates, and that there is no certainty about activity levels in 2006. Since realising the revenue potentials offered by higher activity and by product and service sales comes at a price, we expect expenses to rise somewhat. Investments will be needed in systems development, projects with other central securities depositories or equity participations in other companies. The Board of Directors considers that part of profit for the year should be allocated to “other equity” for such purposes.
Application of the profit for the year
The VPS Group achieved a profit after tax of NOK 107.6 million in 2005. After transfers from VPS ASA and Manamind AS, the profit for the year for VPS Holding ASA came to NOK 130.7 million. The Board of Directors proposes that the profit for the year be distributed as follows:
Allocated to dividends: NOK 16.00 per share NOK 80.0 million
Allocated to other equity NOK 50.7 million
Total transfers NOK 130.7 million
The Board of Directors of VPS Holding ASA
5 April 2006
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BOARD OF DIRECTORS
From left: Elin Sjødin Drange, born 1959, business graduate, Director Retail Banking at Sparebanken Vest, board member of VPS since 2004.
Anne Johnsrud Hagen, born 1960, business graduate, Vice President, Head of Corporate Funding and Cash Management at Norsk Hydro ASA, board member of VPS since its privatisation in 2003, a member of the committee whose recommendation underlay new legislation on registration of financial instruments (the legal basis for VPS’ operations).
Leif Teksum (Chairman), born 1952, business graduate, Group Executive Vice President at DnB NOR Bank ASA, Chairman of VPS since the privatisation of VPS in 2003, board member of the VPS foundation from 1993 to 2003 and Chairman from 1999, member of the Supervisory Committee of VPS in 1992.
Morten Nordby (employee representative), born 1959, Senior Development Officer, VPS Clearing and Settlement, board member since 2005.
Claes-Henrik Unger (employee representative), born 1957, Storage Manager Operations and Infrastructure at VPS, board member since the privatisation of VPS in 2003 and of the VPS foundation since 2001.
Svein Støle, born 1963, business graduate and law graduate, CEO at Pareto AS, board member since the privatisation of VPS in 2003.
Ida Espolin Johnson, born 1964, attorney-at-law, Senior Vice President Legal at KLP Insurance, board member of VPS since 2005.
Leiv Askvig (Vice-Chairman), born 1957, business graduate, CEO at Sundt AS, Vice-Chairman since the privatisation of VPS in 2003 and board member of the VPS foundation from 1992 to 2000.
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