Words from the Chairman
The sovereign debt crisis continued to drag on economic performance in the European Union and threaten the pace of the global economic recovery in 2011. Factors of the financial worries in the U.S. persisted, growth momentum in China continued to weaken, and oil price volatility due to unrest in the Middle East further increased risks to global growth. Relevant global economic growth impact also was felt on Taiwan's economy with weaker demand from major trade partners slowed export growth, private investment growth turned negative, and private consumption cooled. Weighing the impact of slower global growth on Taiwan's economy and rising price index, the Central Bank suspended interest rates increased after two hikes of 0.125 percentage points each in March and June 2011. Looking ahead to 2012, the global economy continues to face uncertainty and risk due to the persistence of the European debt crisis. On the plus side, recent economic data show that the U.S. economic recovery is getting on track, contraction in the Euro area is expected to narrow, and China seems to be decelerating growth at a modest pace. If these trends boost domestic demand, Taiwan's economy is forecast to improve gradually. The Directorate General of Budget, Accounting and Statistics estimates that Taiwan's economy will expand at a pace of 3.03% in 2012 and maintain stable growth.
Steady Profit Growth
Shin Kong Financial Holding (SKFH) weathered the financial crisis by implementing an effective business strategy in 2011. Consolidated total assets reached NT$2.1 trillion, and earnings grew in the third consecutive year. Consolidated net profit after taxes rose to NT$5.49 billion, up 145.7% from 2010, achieving budget targets and improving profitability.
Shin Kong Life Insurance (SKL) maintained momentum in its core business. In 2011, the company's total premium beat the annual target to reach NT$178.56 billion. On the product sales front, SKL's strategy continued to focus mainly on value-driven long-term and regular payment products. First year premium (FYP) from traditional and health products increased by 67.7% and 10.9% respectively, over 2010, while FYP from traditional regular payment products improved by 25.1% in the same period. These figures point to a steady improvement in SKL's product mix. The achievement ratio for premium from existing policies was 102.1%. Marketing continued to emphasize traditional products to increase embedded value. On the investment front, SKL benefited from sound currency hedging despite major fluctuations in foreign exchange and stock markets. Hedging costs in 2011 were contained to 1.21%. The company's allocation strategy for high dividend yield stocks also paid off, netting the company NT$7.12 billion in cash dividend income from domestic and foreign equity investments. In November 2011, SKL was approved as a qualified foreign institutional investor (QFII) in the mainland. At the end of February 2012, China's State Administration of Foreign Exchange gave SKL the green light to invest US$100 million quota in the mainland stock and fixed-income markets as a QFII. In Hong Kong, SKL continued to invest RMB-denominated financial instruments to strengthen investment performance, improve equity, and thereby diversify investment risk. Reviewing the past year, SKL's profit performance steadily emerged from the cloud of the financial storm, with after-tax profit reaching NT$2.47 billion, and earnings per share (EPS) posting at NT$0.45.
To enhance overall operations, Shin Kong Bank (SKB) deepened links with corporate banking customers in the global e-banking (GEB), accounts receivable, syndicated loan, Treasury Marketing Unit (TMU) and cash management business sectors. Deposit and loan businesses both performed well in 2011. Deposit balance (excluding interbank deposits) increased by 16.7% to end the year at NT$482.19 billion; and loan balances (including revolving balance on credit cards and excluding overdue receivables) rose by 13.8% to NT$375.28 billion. SKB also maintained its position as Taiwan's biggest issuer of VISA Infinite Cards. Transactions on the cards amounted to NT$12 billion, contributing strongly to the bank's overall credit card business. Despite conservative market sentiment in 2011 due to turbulence in the international economy, SKB continued to perform well on both profitability and growth. Net interest income for the year rose from NT$6.05 billion in 2010 to NT$7.15 billion in 2011. In the same comparison period, after-tax profit surged by 56.5% to reach NT$3.14 billion, lifting EPS to NT$1.53. In 2012, SKB will continue to enlarge deposits and loans scale and expand assets to US$20 billion in order to improve economic scale and support expansion of overseas operations.
Other SKFH subsidiaries also performed well in 2011. Shin Kong Investment Trust (SKIT) floated two public funds and one private equity fund. Shin Kong Insurance Brokers (SKIB) increased its number of property and casualty insurance policies to a record-high 752 thousand. After-tax profit rose to NT$70 million, and EPS reached NT$111.66.
Stellar Results from Integrated Marketing
SKFH continued to integrate the resources of its subsidiaries to cross-sell related products in 2011. Net income contribution from sales through these channels increased by 6.9% to NT$0.57 billion for the year, indicating that synergies realized through integrated marketing continue to contribute to overall profitability.
Apart from expanding operations, SKFH subsidiaries remained focused on revenue contribution from cross-selling products. In 2011, SKL leveraged its resources and channel advantages to cross-sell related products of SKB and SKIT. For example, SKL encouraged customers to open credit card and premium payment accounts at SKB and by tied investment-linked policies to SKIT funds. As a result, cross-selling operations surpassed the annual target. In the bancassurance sector, SKL products sold through SKB contributed NT$15.88 billion in FYP. Fee income from insurance policies reached a record high and accounted for 45.1% of SKL's FYP through bancassurance channels. In addition, SKIT collaborated on the "Fu-Yun-Nian-Nian Variable Universal Life" policy, a successful discretionary managed investment-linked product developed in partnership between SKL and Robeco Investment Management Group (Robeco). These achievements underscore the ways that SKFH has effectively tapped the different industry resources of its subsidiaries to serve customers and grow revenue. SKFH will continue to strengthen integrated utilization of subsidiary resources to increase profits and build value for win-win results.
Strengthening Capital Structure
SKFH is committed to bolstering internal capital, improving group investment earnings and core businesses, and strengthening its capital adequacy ratio (CAR). In 2011, the group CAR stood at 117.7%, while capital adequacy ratios at SKFH subsidiaries exceeded the regulatory standards and internal targets, attesting to the group’s financial strength.
Enforcing Risk Management
Business diversification has increased the complexity of SKFH's aggregate risk and heightened the importance of risk management in its operations. In 2011, SKFH continued to carry out substantive risk management programs rooted in the guiding four pillars of: "risk management culture, risk management mechanisms, risk assessment tools, and risk performance systems".
Specific measures in this area include: promoting a risk management culture, heightening awareness of and support for risk management among upper management, and holding risk management education and training courses for board members and senior executives to increase the strategic level of risk management. SKFH also regularly convenes its Risk Management Committee to inspect the risk and risk controls of each subsidiary. Based on its review, the committee formulates comprehensive risk management practices and norms to help subsidiaries to implement risk control mechanisms and consider related risks in the decision-making process.
Expanding in the China Market
In 2009, SKL and HNA Group officially launched their joint venture, Shin Kong-HNA Life Insurance (SKHNA Life). In July 2010, the venture opened a branch in Beijing's Chaoyang District. At the end of December of the same year, SKHNA Life opened its first provincial-level branch in Haikou City, Hainan Province. At the end of 2011, the company received the official approval to open a branch in Shaanxi Province. The branch commenced operation at the end of the first quarter of 2012. Though newly established, SKHNA Life has adopted a flexible business strategy that has netted the company awards for service innovation for two consecutive years facing intensive competitions. In 2011, SKHNA Life posted annual premium of RMB 0.18 billion, an increase of 58.3%. Ongoing expansion of the company's branch network is anticipated to inject new growth momentum for the company in various insurance sectors.
In May 2011, SKB expanded its reach in the Asia-Pacific market with the opening of a Hong Kong branch. The branch taps opportunities to serve Taiwan enterprises in the mainland by providing them with new financing channels. In March 2011, the bank signed an MOU with mainland China's First Sino Bank to establish cooperative relations and strengthen exchanges of experience. SKB also continued to strengthen cross-selling and cross-marketing by integrating resources of the Shin Kong group, positioning it to expand services and carve out new market niches.
In April 2011, SKFH established Shin Kong Venture Capital International Co., Ltd. (SKVC). That November, SKVC established Shin Kong Leasing Corp. in Suzhou, China by reinvestment through an offshore company. Shin Kong Leasing will team with SKB's full-service Hong Kong branch to tap China's financial markets and meet the capital needs of Taiwan business customers in the mainland.
Corporate Good Citizenship
SKFH is deeply committed to public service and philanthropy rooted in the spirit of giving back to society. The company has established the Shin Kong Life Scholarship Foundation, Shin Kong Life Foundation (SKLF), and Shin Kong Bank Education Foundation. It also advocates energy-saving, supports educational programs for indigenous children and adolescents, and promotes creative aging services, women's health, traditional culture, and community-based insurance education, among other causes. The company's dedication to public welfare extends throughout Taiwan and beyond its borders to tangibly fulfill a commitment to corporate social responsibility.
Cherishing the Earth's Resources:
■ SKFH is actively engaged in energy conservation and carbon reduction. The company is a supporter of the "Earth Hour", "Lights Out on Summer Solstice", and Mid-Autumn Festival "Light Free Moonlight" activities. It also promotes energy saving by encouraging employees to dress lightly in summer and increasing the temperature of the air conditioning by one degree centigrade. Between 2007 and 2011, Shin Kong Life Tower honed its green credentials by cutting electricity usage by over 4,811 kilowatts, reducing carbon emissions by 2,954,382 kilograms. In 2011, SKL (Shin Kong Life Tower) won first place in the Fourth Taipei City Gold Energy Saving Award in the Industrial and Commercial A-group (office group). The award recognizes the company's contributions in energy conservation and underscores SKL's trend-setter position in working towards a greener future.
■ SKFH's battery recycling program netted 3.7 tons of waste batteries in 2011 collected from recycling bins placed at the company's offices nationwide. The batteries were donated to organizations to redeem for recycling incentive payments, providing funds to help intellectually challenged children.
Promoting Conservation and Health:
■ SKFH adopted the gorilla "Baobao" to help protect this highly endangered species. Each year, SKLF sponsors a birthday activity for Baobao and invites organizations for disadvantaged children to participate in this event. The activity heightens attention to the importance of gorilla conservation and eco-environmental education.
■ A total of 29 Shin Kong Life Tower Run Up activities have been held over the years under the themes of "Running for Health and Safety, Rallying for the Public Good," attracting broad-based support from the public. The 29th run up chose the theme of "Running for a Healthy 2011." A total of 3,821 people signed-up for the run. The event sought to heighten public attention to health and safety following related incidents over the past year, including the threat posed by the plasticizer incident in Taiwan and the nuclear disaster following the earthquake in eastern Japan.
Supporting Local Education:
■ SKFH supports indigenous education by arranging supplementary classes for children in the Hsinchu County villages of Xinguang and Zhenxibao, as well as Zhudong Township. Launched in 2004, the program has increased the homework completion rate among children in these communities from 40% originally to 90%. In 2011, such services were provided for a total of 15,000 students.
■ Shin Kong also supports book drives for disadvantaged children. SKB, SKL, and SKLF jointly held the "Shin Kong Christmas, Sharing Love with Books" activity, during which Shin Kong employees donated 880 second hand children's books in a week.
■ Since 2007, Shin Kong has contributed to women's health by providing free breast ultrasound examinations for 16,000 women, helping them to detect and treat cancer early.
■ Shin Kong promotes volunteer service through the Shin Kong LOHAS Volunteer Club. About 800 club members participated in over 3,000 hours of volunteer education and services in 2011.
■ In concern for agricultural development and the livelihood of banana farmers in Taiwan, SKFH purchased 2,100 cases of surplus bananas in July 2011 for donation to police officers. The program helped to alleviate the plight of farmers due to low banana prices resulting from over production.
■ In support of blood donation drives, Shin Kong has for years freely provided space at the Shin Kong Life Tower Plaza for the Taiwan Blood Services Foundation (TBSF) to park a bloodmobile. In 2011, the bloodmobile collected a total of 28,515 bags of blood from 21,564 donors. Shin Kong was also commended in the organization category of the TBSF's "2011 Blood Donation Excellence" activity.
■ Shin Kong continued to act on its commitment to public service, philanthropy, and outreach to those in need. Shin Kong subsidiaries and employees donated NT$18.03 million in relief aid for Japan following the March 11 earthquake. After the Typhoon Morakot disaster in Kaohsiung County, Shin Kong raised about NT$15.22 million in donations to fund the construction of the Liugui Shin Kong Knowledge Center for the teachers and students of Liugui Elementary School and the rest of the community.
Culture and Education:
■ Legacy Art Works embarked on its sixth year in 2011. This program encourages seniors to share their life stories through art and directed group activities. Until 2011, the program served 1,158 seniors at 18 institutions.
■ The Shin Kong Life Scholarship Foundation provides grants to help gifted children pursue a full education. As of 2011, the foundation had provided grants of more than NT$0.22 billion to 99,440 students.
Creating a Healthy Workplace:
■ Shin Kong provides extensive support for the welfare of female employees, including nursing room, breast-feeding breaks, preferential child care, maternity leave, parental leave, welfare committee fertility subsidies, and labor insurance and maternity benefits.
■ Workplace safety and building environmental health are high priorities at Shin Kong. Each year the company sends personnel to undergo certification training for fire-fighting management and first-aid personnel. The company also regularly conducts building disaster prevention drills.
■ In order to meet the physical and mental health needs of employees, Shin Kong plans to establish employee health centers at six company buildings in 2012. These centers will be staffed by professional health managers and provide follow-up guidance based on annual employee health check results to create a healthy and high-quality workplace and promote employee health.
Valuing Retain Talent:
■ Shin Kong is dedicated to providing the education and training needed to enhance the professional capabilities of its people, aiming to create an outstanding workforce and work environment to meet challenges and sustainably develop. In 2011, these efforts earned SKL honorable mention in the "First National Training Quality Award", affirming the company's achievements in this area.
■ Shin Kong has developed a system of performance-linked remuneration for top management to align executive pay with the company's strategy and objectives. This system strengthens strategic guidance for pay and performance systems, helping the company to continually improve performance, while also motivating and retaining managers.
Looking ahead, SKFH will continue to advance the following plans in line with changing the market and economic environment:
■ Pursue growth of core businesses and strengthen profitability
■ Strictly control costs
■ Strengthen risk management
■ Diversify market risk, enhance investment performance, and improve shareholder equity through development of stock, bond and other RMB-denominated financial instruments in China
■ Realize operating synergies among subsidiaries
■ Strengthen customer service
■ Steadily expand in the mainland, Hong Kong and other overseas markets and successfully manage SKHNA Life, Shin Kong Leasing, SKB's Hong Kong branch, and
■ Deepen business cooperation with and Masterlink Securities Corp.
SKFH will faithfully implement its operating plans, flexibly adapt to market conditions, fully utilize its existing advantages to capture future opportunities, and continue to create value for its shareholders.
Shin Kong Financial Holding Co., Ltd.