RETURN AND SHARE PRICE DEVELOPMENT
The total return on the DNB share, including dividends, was 21 per cent in 2016, while the Oslo Børs Benchmark Index rose by 12 per cent. The price of oil, which fell towards the end of 2015, was recorded at less than USD 30 per barrel in mid-January 2016, which was the lowest level during the year. From mid-January and through the first half of the year, the oil price rose and stabilized at around USD 50 a barrel during the second half of 2016, ending at just over USD 57 per barrel at end-December. The flat trend in the DNB share price during the first half of 2016 reflected continued uncertainty surrounding the Norwegian economy and impairment losses on loans. The other large Nordic financial services groups all recorded positive returns in 2016. DNB achieved a stronger return than the average unweighted return for other Nordic financial services groups in 2016.
Over the past ten years, the DNB share has generally been priced higher than the Group’s recorded equity. Towards the end of 2015 and at the start of 2016, the share was traded below recorded equity, while at year-end 2016, the share was once again traded above recorded equity.
DNB was the second largest primary listed company on Oslo Børs at year-end 2016 and the sixth largest financial services group in the Nordic region, with a market capitalisation of NOK 209 billion, up NOK 30 billion from end-December 2015.
Trading volume in the DNB share rose in 2016, which was the third year with an increased turnover rate. The total trading volume in 2016 was up 6 per cent to
2 714 million shares, which corresponded to just under eleven million shares per day. Trading on open market places, mainly Oslo Børs, continued to rise and was up 36 per cent. There was a significant increase in trading on private exchanges (“dark pools”). Off-exchange trading (OTC or “over-the-counter”) declined by 22 per cent.
The value of all traded DNB shares was reduced by just over NOK 40 billion to NOK 281 billion. The value of OTC trading declined significantly from NOK 177.5 billion to NOK 108.5 billion. There was an increase on open markets, such as Oslo Børs, from NOK 123.9 billion to NOK 146 billion. These market places’ share of total trading increased by 13.3 percentage points to 51.9 per cent. Trading on private exchanges rose by NOK 7.4 billion to NOK 26.6 billion, which represented 9.5 per cent of total trading.
At the beginning of 2017, the DNB share was weighted on all relevant Oslo Børs indices, with 10.05, 12.20, 14.33 and 8.91 per cent, respectively, on the Benchmark, All-share, OBX and Mutual Fund Indices. DNB was also represented on global indices, but with relatively low weights.
DNB’s Board of Directors has approved a dividend policy which aims to create value for shareholders through both increases in the share price and dividend payments. Overall, this will ensure an attractive and competitive return.
The Group’s long-term dividend policy is to have an ordinary dividend payout ratio of more than 50 per cent. The Group aims to increase nominal ordinary dividends each year. In addition to dividend payments, DNB will consider a share buy-back program. This will be a flexible way to allocate any surplus capital to the Group’s shareholders.
The Group’s aim is to have a common equity Tier 1 capital ratio of approximately 16.0 per cent, including a management buffer.
At end-December 2016, the share capital of the company was NOK 16 286 million divided into 1 628 798 861 shares, each with a nominal value of NOK 10. DNB has approximately 42 300 private and institutional shareholders, of which the two largest are the Norwegian government, represented by the Ministry of Trade, Industry and Fisheries, and Sparebankstiftelsen DNB (the DNB Savings Bank Foundation). A further description of the government’s ownership can be found in the chapter “Corporate governance”, section 4, about equal treatment of shareholders. The object of the Savings Bank Foundation is to manage its long-term ownership interests in DNB and support the company in its efforts to continue the savings bank tradition. The Foundation may donate a portion of annual profits to non-profit causes. The Foundation’s governing body is the general meeting, with members elected among the bank’s depositors and by county councils in eastern Norway. The general meeting has elected a board with six members.
It is in the interests of DNB that high-quality equity analyses are published on a regular basis, reflecting the information that is distributed to the stock market. The DNB share is covered by 33 brokerage houses, of which 13 are Nordic-based. Emphasis is thus placed on providing relevant and complete information and on ensuring that all analysts receive equal treatment at all times. A list of analysts following the share can be found on dnb.no/investor-relations. Daily contact with investors and analysts is handled by the Investor Relations department.
Early in 2016, analyst price targets for the DNB share were significantly higher than the actual share price. The price target was lowered somewhat during the first three quarters of the year, while from October, it was increased in step with the rising share price. There was a predominance of buy recommendations throughout 2016. Due to a strong increase in the share price towards the end of 2016 and rising price targets, the DNB share was traded at a price that was in line with average estimates from analysts in the fourth quarter of 2016.
DNB Investor Relations provides information to and communicates with capital market participants, including shareholders, potential investors, analysts, portfolio managers, investment banks and others that are interested in the company’s shares. Investor relations activity is primarily aimed at giving the market a correct picture of the company’s activities and future prospects. All price-sensitive information must be given simultaneously to all market participants. DNB thus complies with Oslo Børs’ recommendation on the reporting of IR information issued in June 2014. DNB Investor Relations arranged more than 300 meetings with investors and analysts in 2016.
In connection with the release of DNB’s quarterly financial results, Investor Relations arranges presentations to help promote greater understanding of the Group’s business operations. In addition, the department holds meetings, with or without representatives from group management, with existing and potential investors in and outside Norway. Investor Relations maintains contact with investors in both equity and debt capital markets. Presentations used in meetings with individual investors are not different from the ones that have previously been published by the Group. Nor are individual investors given verbal information that is not disclosed to the rest of the market. Information about events of a price-sensitive nature which will have an extraordinary impact on profits, must be released when it is known to ensure that all market participants receive the information at the same time.
Investor Relations helps the Group ensure that the company’s shares are priced effectively on the stock exchange, manage market expectations with respect to share price performance and ensure sound liquidity.
A further description of equal treatment of shareholders can be found in the chapter “Corporate governance“.
There are two companies in the DNB Group that issue commercial paper. DNB Bank ASA issues senior and subordinated loans, while the subsidiary DNB Boligkreditt AS issues covered bonds. Norwegian regulations require that covered bonds are issued by a separate legal entity.
As the Norwegian capital market is of limited size, DNB has to cover parts of its total funding requirement in international capital markets. The Group obtains a significant share of its international funding in the euro market, but has also established funding programmes in the US and Japan.
DNB continuously seeks to improve the bank’s credit rating. This is important, as a higher credit rating will result in lower funding costs over time.
The creditworthiness of DNB Bank ASA is assessed by the rating agencies Moody’s, Standard & Poor’s (S&P) and DBRS. DNB Bank ASA had the following ratings as at 31 December 2016: Aa2 from Moody’s, A+ from S&P and AA (low) from DBRS. The ratings from Moody’s and S&P had a negative outlook, while the rating from DBRS had a stable outlook. In 2016, the rating from Moody’s was upgraded from Aa3 to Aa2 and changed to negative outlook. The ratings from S&P and DBRS were unchanged throughout the year.
Covered bonds issued by DNB Boligkreditt are rated AAA by S&P and Aaa by Moody’s, both with a stable outlook.
Limited liability companies and corresponding companies as shareholders. The tax exemption method, cf. Section 2-38 of the Norwegian Taxation Act, implies that shareholders organised as limited companies etc. as a rule are exempt from tax on dividends received and capital gains on shares, mutual fund holdings and financial instruments with shares comprised by the tax exemption method as underlying assets. Losses on the sale of shares and holdings comprised by the tax exemption method are not tax deductible. With respect to dividends comprised by the tax exemption method and dividends from businesses assessed as partnerships, 3 per cent of such income is liable to tax.
Natural persons as shareholders. The shareholder model applies to sharehold-ers who are natural persons resident in Norway. When the tax rate for companies was reduced in 2016, the taxation of shareholder income (capital gains and dividends) was adjusted upward by a factor of 1.15. The tax rate for personal shareholders is thus 28.75 per cent (25 per cent x 1.15) in excess of a shielded amount (the shielding deduction). There is a corresponding deduction right for losses on the sale of shares.
The shielding rules shall ensure that an amount of income corresponding to the normal return on a shareholder’s investment in a company is not taxed as dividends. Each year, a shielding deduction is computed, forming the basis for the dividend personal shareholders can receive free of tax. The annual shielding deduction is calculated by multiplying the shielding basis for the share by a shielding interest. The shielding basis represents the amount the shareholder has paid for the share, with the addition of any unused shielding deduction carried forward from previous years.
Foreign shareholders. Gains/losses on the sale of shares are, as a rule, taxable in the country where the shareholder is resident for tax purposes.
As a general rule, dividends received by foreign shareholders are subject to tax in Norway if the dividends are distributed by a limited company domiciled in Norway (withholding tax).
For shareholders who are natural persons resident outside Norway, withholding tax should be assessed and deducted. The company distributing the dividends is responsible for making advance tax deductions to cover the income tax on such dividends at a rate of 25 per cent. However, Norway has entered into tax treaties with a number of countries, whereby the withhold-ing tax rate is often reduced, normally to 15 per cent. Shareholders who are tax resident in other EEA countries are entitled to a shielding deduction. If the deducted tax is higher than the tax payable on dividends after the shielding deduction, the shareholder may advance a claim for a refund of excess withholding tax. All such matters must be handled by the Central Tax Office for Foreign Tax Affairs.
Dividends paid to companies that are eligible for exemption according to the tax exemption method and domiciled in an EEA country will as a rule be exempted from withholding tax in Norway. The tax exemption is conditional on the company being the real beneficial owner of the share dividends.
Changes from the 2017 income year. In consequence of a reduction in the tax rate from 25 to 24 per cent as from 2016, the upward adjustment factor has been increased to 1.24 per cent for shareholder income. This means that the effective tax rate for personal shareholders on dividends and capital gains will be 29.76 per cent (24 per cent x 1.24) as from the 2017 income year.
Share savings account. In order to make more small depositors invest in listed companies and investment funds, it has been decided to introduce a share savings account for individual taxpayers. The share savings account will probably not be avail-able until the spring of 2017, as the government will first submit a consultation paper regarding who should be allowed to offer this product. Gains on the realisation of shares and mutual fund holdings will not be taxed in connection with the actual sale, but when money is withdrawn from the account. Nevertheless, dividends received will accrue to the shareholder and be taxed on an ongoing basis.