Mandatum Oyj

Good afternoon and welcome to Mandatum's Q2 audio cast. My name is Lotta Burström. I am in charge of investor relations here at Mandatum and I am pleased to be joined by our CEO Petri Niemisvirta as well as our CFO Matti Ahokas. During this audio cast, Petri Niemisvirta and Matti Ahokas will initially take you through the highlights and key developments of today's report, after which we'll take the Q&A where you have the possibility to dial in for any questions. Also, please do not hesitate to contact us at Investor Relations should you have any further questions. With these remarks, I will hand over to Petri, please go ahead.

Thank you, Lotta, and welcome everyone to Mandatum's Q2 result presentation. Let me start with our Q2 numbers in a nutshell, after which I will make a deeper dive into our business. Matti will continue more closely with the numbers in his presentation. Mandatum's second quarter was very strong. The profit before taxes increased by 57% and all result areas contributed to the growth. The fee result increased by 18%, indicating steady performance in our capitalized business areas, such as institutional wealth management. The net flow during the quarter amounted to 232 million euros and contributed to the client asset management that increased by 16% to 13 billion euros. I'm very pleased with all these achievements. Mandatum solvency position continued to be strong. The solvency rate was 224%. Also, we succeeded in the organic capital generation during the quarter, ending up in 58 million euros. Client assets under management increased by 16% from last year, reaching 13 billion euros. The growth rates in all segments were good and showed steady growth, even if the client and asset mix varied a lot between the segments. One of our most important financial targets is the annual net flow. In medium term, Mandatum aims for a net flow of 5% of the client assets under management. The net flow of 232 million euros during the quarter equals annualized 8% of our assets under management, which is well above the target. I'm also content with the fact that all our segments reached positive net flow during the second quarter, lead by our fastest growing area, institutional wealth management, with a 12% increase in net flow. A really good sales activity contributed to a strong inflow and the client outflow remained low, partly due to the consistently high level of customer satisfaction. The positive market movements contribution to the increase in client asset under management was 593 million euros from the year end. All in all, we haven't seen any softening of the market and product mix, and our product offering continues to work well in the current market environment. As mentioned before, the growth engine of our strategy is the institutional wealth management business. The highest growth in asset management as well as in the net flow came from the institutional wealth management business. Within wealth management, all client segments grew rather evenly. The biggest growth in asset management came from the sub-segment ultra-high network clients, followed closely by our international institutional clients. I'm very pleased to see the double-digit growth percentage in our international business, implying that our sales efforts in Sweden and Denmark are paying off. International expansion is one of our strategic targets that we aim to focus on also going forward. Then over to different product areas. Mandatum's core competence is within credit products, where the growth was the strongest, 47% year to year. The mark to market yields in our credit and fixed income products were still at a high level, and the good performance gave additional support to our sales. I'm also happy that the positive trend within our allocation products continue with strong growth numbers during the second quarter. The fee income was up 12% supported by increase in assets under management and stable fee margin levels. Despite the fact that most of our sales was related to credit and fixed income type of products, our fee income margin remained at the same level, meaning that we have had a good discipline in our pricing, which is also one of our financial targets. As I mentioned earlier, I'm very pleased with our net flow for the second quarter and for the first half year. The net flow has been very stable for many quarters in a row and positive for over three consecutive years, even if the market conditions have varied during that time. No matter if one looks at the absolute numbers or the relative success compared to our peers, the performance has been very strong. The reason behind this is obvious and simple. Very high customer satisfaction, active sales and market fit product mix with good performance are the reasons behind the success. All this, together with positive market movements, has led to steadily increasing client asset management, now reaching a new all time high of 13 billion euros. Finally, after many years of modest growth in the retail segment, which is mainly cooperation with Danske Bank, I'm really glad that we have now witnessed improving sales during this year. An increase of 37 million euros in net flow year on year during the first half year is something that I'm really pleased with. Our efforts to improve our sustainability work has been a clear target since the listing, and joining the Net Zero Asset Managers initiative in June marks the next phase in our approach to combat climate change. With the initiative, we commit to support the goal of net zero greenhouse gas emissions from our investments by 2050. More information on Mandatum's sustainability and principles for responsible investments you can find in our responsible investment review available on our website. And now over to you, Matti.

Thank you, Petri. Let's take a look at our financial performance in the second quarter. Our profit before tax was 76 million euros and it was up 57% year on year. And as you can see, this was driven by an improvement on all of the P&L lines. Assets under management were up 16% compared to Q2, 23 to 13 billion euros. And our cost income ratio of our client AUM improved further to 64% in line with our financial target. The return on equity in the quarter was 14.6%. The group, and if we then take a closer look at the result components, firstly, our fee result, which was up 18% year on year, with AUM up by 16%. And if we adjust for the one-off loss component recovery of 0.8 million euros in the comparison period, the underlying growth was 26%. Within this fee result, the fees from investment and asset management services were up 50%. At the same time, the other part of the fee result or the insurance service result was largely unchanged. And the reason for this was that during the quarter, we saw a larger than expected increase in AUM and fees from the retail and corporate unit link policies. These policies have an insurance component, so the fee increase is booked partly in the balance sheet CSM instead of directly in the P&L. The impact of this in the quarter was around 1.8 million euros, and remember that these fees will be released over time from the CSM. Our net finance result came in at 55 million euros, and as you all know, there was a lot of financial market volatility in Q2. and this quarter was not great in terms of investment return. On a positive side, we had a positive discount rate impact, and we also got a 12 million euro dividend from our holding in Saxo Bank in June. The result related to risk policies continued to develop positively as volumes continued to increase, and we also had a positive expense and claims variance. In addition, the result included a 5 million euro one-off CSM release related to the upcoming portfolio transfer to IFPNC. And as you all know, this was part of the agreement with Sampo in September 23. The group net finance result increased to 55 million euros, as I mentioned, and in the with-profit segment, it was unchanged at 42 million euros. The with-profit investment return in the quarter at 0.7% was lower than last year and also below normalized levels. With-profit fixed income assets continue to generate good returns with a mark-to-market yield of 5.3%. However, at the same time, the higher share of lower return money market instruments had an impact on the total yield during the quarter. Equities contribute negatively, but especially private equity and private debt had a more normal quarter with a 2.3% investment return. And as mentioned previously, the higher discount rate had a 28 million positive P&L impact. I think it's worth noting that Q2 is a good example on how the interest rate-related investment return and discount rate movements tend to have an opposite impact. They tend to mostly offset each other and also stabilize the reported net finance result. Organic capital generation, or as we call OCG, was 58 million euros in Q2. In addition to the reported profits, this measure takes into account also, for example, the own funds generation from income booked in the CSM, as well as potential capital release from a reduction in the Solvency Capital Requirement, or SCR. We think that the OCG is a much more relevant measure than the reported IFRS result when assessing our performance and dividend generation in particular. In the second quarter, Actually, the with profit SCR reduction was offset by an increase in the unit link SCR in the retail and corporate segments. This was due to higher than expected AUMs in these segments and also a one of methodology adjustment. If we then look at the only the own funds generation isolated, it was at all time high at 67 million euros in Q2. And in a normal quarter, you should actually continue to expect that the OCG will be higher than the reported result. Nothing special really on the solvency side. Our dividend adjusted solvency margin increased by eight percentage points quarter on quarter to 224%. Own funds increased and the SCR decreased during the quarter. And as you can see from the slide, our solvency margin is robust in different stress scenarios as well. And now over to Petri for some closing remarks.