Aktia Pankki Oyj

A very good morning, everyone, and welcome to follow Aktia's half-year and second quarter result presentation. My name is Oskar Taimitarha. I am Aktia's Investor Relations Director. Earlier today, we published our results for the second quarter. Aktia's CEO, Aleksi Lehtonen, now in this role for the first time, and CFO, Oti Henriksson, will soon walk us through the results. If you're following us online, please feel free to write your questions in the comments section of the website. We will answer the questions after the presentations. And the audience here on site can ask questions live after the presentations, or you can, of course, if you choose to, post your questions online as well. So let's move on. Aleksi, please welcome.

Thank you, Oskar. It's a great pleasure to be here as a new CEO of Aktia and present our fresh Q2 result that came out this morning. My name is Aleksi Lehtonen, and I'm happy to go through this result together with our CFO, Oti Henriksson, in a few moments. But first, before delving into the details of our result, let me summarize my key takeaways after the first two months as a CEO. First and foremost, I'm very glad to notice our colleagues being truly professionals and committed to help our customers in their needs to drive our business forward. Secondly, I've noticed many very strong and fruitful customer relationships after already having met many of them in my first weeks at the office and visiting our regional branches. To sum up, I do see a lot of potential on many fronts within our business areas. We've now started the process of reviewing the group strategy and our long-term financial goals. We'll comment it on and present these when we have completed the work. So bear with me. The work has started. We'll comment it on when it's ready. Now, let us go through the highlights of the second quarter. Our performance was once again strong. The financial result improved in all our business areas, asset management, banking and life insurance. In May, as we published, we entered a strategic partnership with Swedbank in many fronts, such as payments, leasing, higher purchase, etc. And we look very much forward in developing this commercial collaboration with mutual benefits to our customers. We launched a new private debt fund with a target size of 100 million euros, with the first investment being a globally leading alternative investment manager, Oaktree. Once again, our truly professional portfolio management team got further recognition by winning several awards. After European award in Q1, our emerging markets team got a Nordic LiPo fund award now in Q2. And in addition, our Actia Wealth Allocation 25 fund was recognized as the best fund in the Nordics in its category, respectively. Aktia wants to be at the forefront on sustainability, and I'm happy when noting that already 98% share of our asset under management is now invested in Article 8 and Article 9 funds. We don't have an exact target on this, but for sure, this is an already high proportion. And now let us take a look at our financial result in more detail. Our comparable operating profit amounted to 30.8 million euros, and that is 21% higher than in the previous year. Also, return on equity and cost income came out in strong postings. The comparable ROE was at 14.9% and cost-to-income ratio improved to 57, both driven by improved profit. Net commission income also increased with the asset under management at 14.1 billion euros, and those were driven by favourable market development. We continued to maintain a strict cost control with decreased personal costs. However, comparable operating expenses increased 5%, mainly due to higher IT spend and inflation, as we all know we've been going through. The loan book remained in a good shape, as shown by reservations for credit losses, and those amounted to eight basis points, which is a moderate level. And now when looking at a bit of a history, our comparable operating profit for the past five years, we can notice that we are well underway to beat last year And for 2022, one must remember the IFRS 17 change we did within our life insurance business area. And therefore, we have two bars in this graph to recognize the reported and restated figures. But all in all, a very strong first half of the year is now behind us. And now let us take a more closer look at the business areas and also sustainability topics. In banking, our NII net interest income developed positively, and that was 18% higher than Q2 2023. And even though our lending volumes decreased slightly, as seen in the graph on top of the picture, With the steady housing loan demand, our interest income from lending and growth in profitable financing solutions supported the NII. Margins also improved driven by factoring, leasing and higher purchase financing. And we also saw a fairly good demand in sales of investment solutions to banking customers. In asset management, our assets under management grew in Q2, and those were supported by favorable market development. We saw total net negative subscriptions in Q2. However, the net subscriptions were positive in June in main customer segments, such as domestic institutions, international institutions, private banking, and banking customers. And actually, the similar trend continued in July, referring to net subscriptions. We continue to develop our asset management business further by simplifying the organizational structure during the quarter. Our life insurance business delivered a solid result with the sales of both risk life insurance policies and investment linked insurance policies. Both remained on a stable level. We saw positive net flow of the latter amounting to 28 million euros during Q2. The solvency ratio increased during the quarter by 3.1 percentage point to 187.5, which is a fairly good solvency ratio for our life insurance business. Then a few words about sustainability. This is a topic which is an essential part of our core, and we want to be a forefront in this area. As a highlight in Q2, we raised the level of our ambition by filing a commitment letter to the Science-Based Targets Initiative in line with the Paris Agreement. And in addition, we are now participating in the Spring Initiative, that drives to halt biodiversity loss by 2030. More of our ESG topics. When looking at these areas, we can first of all notice that many of the targets for 2025 are already met, like the ESG ratings on the right-hand side, and those are actually above the industry average. The share of asset under management in the article 8 and 9, they were already mentioned before. But I want to highlight also the thing in the middle, which is composition of our employee satisfaction indices, which are all developing now in the right direction. For sure, we have room to improve, but the good direction is important to note as a CEO in here. So to sum up, we are on the right track to achieve Actea's financial targets, which extend to end 2025. And I will now hand over to Oti to go through our result and financial result in more detail. So Oti, the stage is yours.

Good morning on my behalf as well, and welcome to Aktia's second quarter results presentation. Happy to be here. Very pleased with the second quarter financial results. And let's now take a little bit more detailed look at the financial performance. A few things that I would like to point out from this one. First of all, apparently the comparable operating profit, that was 30.8 million euros, 21% above last year's second quarter. And look, entire first half of the year, we reported 64.7 million euros, which was 34% above the first half of the comparison year. Another thing that I would like to point out here, and Alexi also mentioned, is our return on a comparable return on equity that was 14.9% in the second half and 16.1% for the first half of the year. You certainly Bear in mind that our long-term financial targets include a return on equity target that is above 12%, and now we are way over. The same thing goes for the cost-income ratio. That was 0.57 in the second quarter and 0.55 in the first half of the year. When comparing the first half cost income ratio with the comparison period, you need to bear in mind that we did book a 4.3 million euro stability fee in the first half of the comparison year. Take that out from the cost base, then the comparison becomes between 0.60 and 0.55. So 0.6 compared to 0.55, very nice improvement there. as well. Look at the income development, total operating income was 11% up from last year. The top line growth was driven by net interest income that grew by 18% compared to last year. Behind that, we had a margin improvement throughout the loan book that we have. However, the majority of the improvement comes from the product mix. As Alexi mentioned, financing products such as leasing have contributed to the solid development of the NII. I will get back to the composition of the net interest income in a minute. Net commission income was relatively flat, slightly up. We'll get back to that one as well. And life insurance business continued to deliver stable and good results, doing the contribution to the top line as well. And here is then the composition of the group net interest income. A few words about lending. First, now for the first time, the lending was slightly below the first quarter of this year. Two factors behind it. The loan book has decreased slightly. The amortizations have been slightly higher now in the second quarter. And that has an impact, obviously, on lending. Another thing is that, actually, Our household loan book is about 5 billion euros and quite a large portion of it is tied to 12 months Euribor. And quite a large portion of that portion is now repriced or has had the kind of interest rate fixing now in the second quarter. And if we look back a year and the second quarter of last year, 12 months Euribor was approximately at 4% level. Now we are at... or were at 3.6 approximately. So that has obviously some impact on the top line in the second quarter. Then if we look at the cost of borrowing, that is the deposits and covered bonds, there we have now included the reservation for correction of the technical error in the interest calculations. So that is included in the 41.4 million euros and that correction covers or reservation covers, it is for this year, the reservation covers both first quarter and second quarter. which means that roughly half of the 1.2 belongs to the first quarter, making it slightly more difficult to compare, taking that into account, then actually the top line development on NII would have been flat, slightly positive. It is not in the picture, but if you look at the... banking segment asset management. You see a decline in the banking business segment result. Obviously, the NII has an impact on it. And then the fact that a large portion of the IT costs are allocated to the banking business. And that is the part of the cost base that has grown, as you can see from the P&L. The third thing is that we have actually adjusted Internal pricing between central functions, that is treasury, and banking business. We have charged 3 million euros of internal financing costs from treasury to banking, and that covers the entire... That has to do with the card business that we have, that is an internal charge that we didn't do in the first quarter, and that belongs to a banking card business. No impact on the group-level numbers. And here's the composition of the net commission income. A large portion or larger portion of the net commission income comes from asset management and funds, approximately two thirds. And now the growth has mainly come from the banking side of the net commission income. And that is the card business that you can see in the graph. The costs have been well under control, despite the fact that we have increased our IT spend quite substantially. That has to do with the investments or spend related to the core banking system, system functionality, information security, to improve the processes that are related to the regulation. And obviously, first and foremost, to improve the customer experience and improve our product offering. We have increased both the spend on the running cost and on the capital expenditure, and that is very much IT-driven. At the same time, we didn't book the stability fee in the first half of this year, in the second quarter, and that affects the comparison, as I pointed out earlier. Personal costs are somewhat lower than in a comparison period. We have been able to have the FTE numbers under full-time equivalent numbers under control really well. And obviously, inflation have had quite a substantial impact on our cost base and now actually shown like full in the cost base in 2024. that we do see obviously also in the personnel costs and other costs, not just IT. The quality of the credit portfolio is still good. We booked 1.8 million euros through the P&L as an increase in the credit loss reservations. And for the first half of the year, that is 4.5 million, which I do consider very modest and shows that the conservative credit policy pays off under the times that we are living now. So pleased with this one. And the loan-to-value ratio has remained at a very healthy level of 43%. Balance sheet total now approximately 12.3 billion euros. A few things to point out here. Maybe the fact that the deposits are approximately at the same level as at the year end. Obviously, deposit financing has also become somewhat more expensive over time. But pleased to see that the deposit balance is very close to the year end still. And then there's some increase in the debt securities issued. We issued a benchmark site, 500 million covered bond in May. At the same time, another 300 million expired. We also paid a portion of the central bank financing that was refinanced with senior. But those type of things show there in the debt securities issued. This is just to remind you that the majority of the loan book is from household, 67%, slightly over two thirds. And same goes for the deposits, a majority coming from household, followed by then corporates and housing associations and other. Our CET ratio has improved slightly and was 11.5% at the end of second quarter. It has improved 0.2 percentage points from the year end and is now 2.8% above the regulatory requirement. When you look at the graph, you see there an increase of the regulatory requirement. That is the systematic risk buffer requirement that entered into force in April and obviously slightly reduces the buffer between what we have reported and what is the requirements. This is not something that is ACT-IA specific, meaning the additional systematic risk buffer as it is there in a bullet. As I pointed out already earlier, we have restated our comparison figure from 2023. We sent out a Stock Exchange Relief in the beginning of July stating that we have restated 2023 and that we will reserve for the kind of the same thing This year the customers have been contacted. Issue is under control and we will do this correction now in the third quarter in the customer account. So that is well underway. The market has continued to be very active, and we have been in the market as well. As I said, we issued a benchmark five-year maturity, a five-year covered bond. That was a very successful issue. The book was over 1.9 billion, many times oversubscribed, a record for Actea, very happy with the transaction, and the pricing was at a very nice level, mid-swar plus 25 basis points. And maybe to point out as well, and the liquidity is at a very good level, very high level, the LCR was 277 at the end of June. That is obviously a point of time figure, exceptionally high, I would say, but just to make the point that the liquidity is very good. We have slightly updated our outlook for 2023. We have previously stated that the comparable operating profit for 2024 is expected to be somewhat higher or higher than the reported figure. And we have now taken out that somewhat higher, meaning only higher, which is more than somewhat higher. And the outlook is valid independent of whether you compare the outlook or the this year forecast to the reported figure earlier or the restated figure. Just to make a point, we reported 108.4 million euros, restated to 104.8 million euros and the outlook again is not tied to the change in the comparison figure. Other than that, we have slightly fine-tuned the point which covers the expenses, just to state that yes, the IT expenses will be higher, but if you look at the total operating expenses, that is to some extent offset by no stability fee this year. This concludes my part of the presentation. Thank you for those who are here present. Thank you for the audience online. And would also like to thank the whole Actia team for the great result in the second quarter of the year. And now, Alexi and myself, we are happy to answer the questions that you may have. Thank you.

Well, thank you, Alexi and Oti, and welcome back on stage to the sofas. So now we're happy to answer your questions. And let's start with a couple of questions that are submitted online. You have updated the outlook for 2024. The question is, is the update really positive or only due to the restated numbers for 2023? I think, Olli, that you answered it just a moment ago, but perhaps you can talk us through it once again.

Absolutely. Yeah, the outlook has been updated slightly upwards, which means that we have taken out the somewhat higher. And again, I would like to make a point that the updated outlook is valid independent of whether you compare it to the number that we reported after 2023 or the restated number after the kind of correction of the technical error that we had in our systems. So the kind of a better updated guidance doesn't mean that it is or it is not because we have a kind of a lower comparison figure. So that is valid as it is.

Thank you. And then the next question. You commented on the net subscriptions and that the situation looks brighter now at the moment. Can you tell us a little bit more about your view on the development of the asset management business? I think this one goes to you, Alexei.

Thank you, Oskar, and for the question. Yes, it is a very important part of our business in total. And as I said, we had negative net subscriptions in Q2. However, at the end of the quarter, it turned into the positive. which also continued in July. And this is, of course, a good sign. Let's see whether we are already talking about a trend or single months. But nevertheless, it came from the very broad customer segments, as said, from domestic institutions, international institutions, private banking and banking customers. So, yeah.

Thank you. And I suppose we have questions here in the audience as well. Antti Saari, please.

Hi, Antti Saari from Opium Markets. You mentioned the new cooperation with Swedbank. And how has that started? And have you gained new clients because of the deal?

Thank you, Antti. Yes, it has started well, and we have now actually signed a few contracts. We won't go into the details of the numbers or volumes yet, but yes, there are already signed agreements based on the collaboration agreement.

And to understand it correctly, the deal itself won't cost you extra expenses, right? So all the revenues that you are able to generate are basically poor profits.

Yeah, at the moment we use our own existing systems and platforms for this collaboration and we will for sure try to develop that in a mutual way to benefit even more to our customers going forward. Actually booked already several meetings for the autumn with them.

Then about deposits. Competition for deposits has been fairly fierce lately. Have you seen any change in that situation?

Yes, you can comment maybe first.

Yeah, as I pointed out, at least our deposit base has remained quite flat, which is good news. Obviously, there's internal shift or has been internal shift from current accounts to a term deposit specifically. So that type of a moment we do see, but we haven't seen any major moment in our deposit base.

But what about the deposit pricing? Are people still moving the money to higher paid accounts? Do you need to raise your deposit rates?

We have been very competitive with the term deposits already, so the price level has been good. And actually, we have attracted money to our term deposits just because we have been very competitive there. And that obviously is to ensure that the deposit funding stays as it's a very important part of the funding, in addition, obviously, to the market-based funding.

And then a bit more broad question for Aleksi. You have now been able to see the company from inside, which is always a bit different when you look at from the outside. So have your view towards Aktia changed somewhat or is there surprises, positive or negative, that has struck you after you started?

Thank you for sure. It's been a very inspirational first two months, even though there's been a summer in the same time. As I said already in my presentations, the key takeaways are there as truly professional colleagues among ourselves. And that's a very positive note. And in addition, with those customers I've met, I've traveled throughout Finland already with the exception of two branches of ours. I've been in our customer meetings and I have a very long history of different types of customer meetings. And what I can say is that we have very strong relationships overall. This is my initial reaction to or comment when I have entered the offices.

Thank you. I guess that you have more questions, but I think after that one, we could take one submitted online, because I think it's the right moment for this question after the previous one. Alexi, what are your initial thoughts about what kind of strategic changes are needed in order to get the full potential out of active?

Yeah, it's a relevant question actually tied to what Antti you said. And as I said in the presentation, we have now started the work to update our long-term financial forecasts as our long-term financial forecast end in the end of next year. And the same goes for the strategy itself. And that work has now started. I won't comment on the areas yet. It's too early stage, but as I said, bear with me. We will come and happily explain our findings when that work has completed.

Thank you. Perhaps you can comment on these. We have a couple of questions about asset management here. Well, I'll read both of them. First of all, what has changed in asset management now that Kati Eriksson is in charge? What is her agenda? And then, Aleksi, what do you see being the core reason for your sluggish long-term asset management net sales, even though your product portfolio should match really well for current market situation?

If I start with the latter, it's not for my part to comment on the history. I look forward, that's for sure, with the team that we have. When it comes to our agenda on the asset management asset, we simplified the organizational structure in the beginning of May by forming an organization of liquid assets, illiquid assets, and customers. And there, of course, operations, etc. And in that way, streamlining and looking at our core in asset management. And as said and presented already, We have recruited head of customers, Pasi Vuorinen, who will start in the beginning of September to put more focus on our customer side inside the asset management business line.

Thank you, Alexi. And now, excuse me, Antti, for interrupting, please. You had another question.

No problem. One more question. In net commission and fee income, there was quite significant improvement in cards and payments. So could you tell us a little bit about this? Is it that people are using their cards more actively, or is it like more payments between the corporations that you're handling, or where have you seen this pickup in activity?

I think this one goes to you, Olli.

Yeah, we have seen volume increases and there's some kind of periodic payments what comes to the Finnair Corporation as well. So that explains the kind of a peak in the second quarter to some extent, but we have seen the card volumes increasing and the usage of the cards.

Okay, thanks. That's all from my side.

Do we have more questions from the audience here on site? Kasperi, please.

Hi, this is Kasperi from Inderes. Do you see any improvement in demand for private and commercial loans?

If we look at the loan book in total, we have seen some decline over the quarters on the private customer side that you can obviously see from the reports. The demand hasn't been picking up yet. It's been quite stable actually. It hasn't decreased either. We have seen slightly higher amortizations now in the second quarter. And that explains why there was a small dip. We have seen growth on the corporate side throughout the quarters. Some decline now on the second quarter. But we do expect to see the pickup now when the interest rates start going down. Obviously, we expect to see the turn. But right now, it's been quite stable. No major changes, but some decline in the housing loan book.

As said, the outflows were once again quite significant from foreign investors in your credit funds. How are you planning to change the course?

Yeah, already I said we do saw a negative net subscriptions in Q2. There were a couple of large single mandates. We don't go into the details of those. However, I said the trend or there was a pickup in the latter part of the quarter. that turned the subscriptions into the positive in all business areas of ours, including international and domestic institutions. And that continued in July that we can say already now in the beginning of August.

Okay. Then a couple of questions about expenses. Is there any seasonality in your IT expenses in Q2?

Nothing major. As I said, those expenses that go through the P&L, they are kind of spent on the kind of improvement of the running daily business and our systems and so forth. No major seasonality. The level is somewhat up from previous quarters and there's no one-time expenses.

Okay. What were the one-time expenses that you booked in Q2? Excuse me? You booked some one-time expenses. What were they?

Do you mean under the IT expenses? No, just overall. No, nothing major. If there's something, they are reported under the kind of a comparable EBDA.

Okay. Well, that's about it from me.

Thank you very much. Thank you, Kasper. Then a question submitted online. Thank you for the presentation. Does the management see any risks of additional write-downs related to the Taaleri acquisition?

Thank you for the question. I'm looking forward and there is no indication at the moment that we would need to do anything like that. It's stated in our account statements what we have. And yeah, no discussions at the moment on anything like that.

Yeah, if I just fill in, we obviously do the impairment testing on the Goodwill frequently. And as you can see from the P&L, there hasn't been any impairment on the Goodwill. So the tests are fine.

Thank you. Are there any more questions here in the audience? Then I think that was the last question for today. Many thanks to all of you, both those of you who have participated here on site and those who have followed us online. We wish you all a very nice day and a nice weekend as well. Thank you very much. Thank you.