Mandatum Oyj

Good morning and welcome to Mandatum's Q3 audio cast. My name is Lotta Burström. I am Head of Investor Relations here at Mandatum and I am pleased to be joined today by our CEO Petri Niemisvirta and our CFO Matti Ahokas. During this audio cast, Petri Niemisvirta and Matti Ahokas will initially walk 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. Now let's move over to our third quarter figures. Mandatus business continued to grow in several areas during the third quarter. The fee result increased by up to 42% from the previous year to 18 million euros. This was a great achievement considering that the spread head of our strategy is to grow in the capital light business, which we did during the third quarter. The main reasons for the positive development were growth in client assets under management and improved cost efficiency, which I am really happy about. Our client assets under management grew by 18% from the previous year to 13.3 billion euros, driven by net flow and positive market development. All client segments contributed to the growth. Allocation and fixed income products were once again the main source of inflow. The quarterly profit before taxes decreased to 45 million euros. The return on our investment was at a good level at 2.4%, but the net finance result was negatively impacted by the finance expense of with profit insurance contract liabilities that increased due to the decreasing interest rates. However, it is worth highlighting that the active investing and hedging of our own balance sheet have decreased earnings volatility, thus making Mandatum as more resilient company in different market environments. Mandatum is well positioned to pay out substantial dividends as we continue to steadily generate capital in the third quarter. The organic capital generation ended up to 0.11 euros per share, thus clearly exceeding the earnings per share at 0.07 euros. Mandatum's solvency position continued to be strong. The solvency ratio was 224%. One of our most important financial targets is the annual net flow. Mandatum aims for an annual net flow of 5% of the client assets under management. The net flow from the beginning of the year increased by 9% and was 592 million euros, which, with the fourth quarter yet to come, is already very close to our target of 5%. Furthermore, to analyze net flow, year-to-date was 7% of assets under management, which is well above the target. Excellent sales activity contributed to the 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 clients assets under management was 203 million euros in the quarter. All in all, we haven't seen any softening the market and our product range continues to work well. The growth engine of our strategy is the institutional wealth management business. The highest growth in assets under management as well as in the net flow came once again from the institutional wealth management business. Within wealth management, all client segments grew rather evenly. The largest growth in assets under management came from the sub-segment ultra-high network clients, followed closely by private wealth management and our international institutional clients. Then over to different product areas. Mandatum's core competence is within credit products where the growth was strongest, 41% year to year. The mark to mark yields in our credit and fixed income products are still at the 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 also during the third quarter. Furthermore, Mandatum's growth equity to private equity fund raised 140 million euros this autumn and became Finland's largest active growth fund. I'm very pleased with the performance at our wealth and asset management, and these examples illustrate the outcomes of the determined and consistent efforts made daily by our team of more than 180 people in the Mandatum asset management organization. The fee income was up 13%, 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. Also, I'm very pleased with the improving cost efficiency trend that we have seen during the whole year. As we have stated before, our platform is scalable and we can now clearly see that in the quarter-on-quarter development. As in the previous year, the group's net flow in the third quarter was lower than in the first two quarters of the year because of the summer season, but it increased from the previous year by 19% to 114 million euros. I'm very happy with our net flow development. We have beaten most of our competitors in that field during the third quarter as well as during the whole year. The net flow has now been positive for over three years in a row, even if the market conditions have varied during that time. No matter if one looks at the absolute numbers or relative success compared to our peers, we have had a stellar performance in net flow during the year. 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 have led to steadily increasing client asset management, now reaching new all time high of 13.3 billion euros. And now over to you, Matti.

Thank you, Petri. And then if we look at our financial performance in the third quarter, Well, firstly, our profit before tax was 45 million euros. This was down 46% compared to the third quarter of 23. But our capital light business continued its strong performance with good volume growth and stable fee margins. And as Petri mentioned, our assets under management grew up by 18% year-on-year to 13.3 billion euros. The cost income ratio of our client AUM continues to improve to 63% and our organic capital generation was 11 cents for the quarter and 34 cents here to date. And as you all know, this is the key parameter to look at when assessing our dividend generation during the year. Return on equity in the third quarter was 9.4%. And if we then look closer at the different result components, As Petri mentioned, our fee result was up 42% year on year with AUM up 18%. And if we adjust for some 2 million euros of holding company costs that now are reported under other, which were previously included in the fee result, the underlying growth was around 25%. We've clearly paid focus on the expense side, which also contributed positively to the fee result in the third quarter. Within the fee result, the fees from investment and asset management services were up around 60%. At the same time, the other part of the fee result or the insurance service result from the CSM release was largely unchanged like in previous quarters. Our net finance result came in at 27 million euros, which is below the historical average, as you can see. As you all know, the market interest rates fell significantly during the quarter, and this overall had an 81 million accounting headwind in Q3. However, we were able to generate a good investment return, and this more than offset the negative discounting and unwinding impact. On the positive side, we had a 9 million euro positive impact from our holding in Enento this quarter. A result related to risk policies, which is also an important part of our Capital Light offering, continued to develop positively. Volumes continued to increase and we continued to have a positive expense and claims variance. In addition, the result included a 3 million euro one-off CSM release related to the portfolio transfer to IF. The group net finance result decreased to 27 million euros and in the with profit segment it was down to 18 million euros. The with profit investment return in the quarter was 2.4% or 9.6% annualized and it was clearly higher than last year. Our with-profit fixed income assets continue to generate good returns with a mark-to-market yield of 4.8% when adjusting for the increase in cash from our September 300 million euro Tier 2 issue. Note that our old 250 million bond was repaid only in the beginning of October. However, the higher share of low return money market instruments had an impact on the total yield during the quarter, as we typically have a higher cash weight to prepare to upstream internal dividends to the holding company towards the end of the year. Equities contributed positively this quarter, but it's good to remember that our own equity portfolio is not an index portfolio, so the return was below international benchmarks. In the third quarter, we also decreased our equity weight further. And as you all know, this is in line with our long-term allocation strategy. Private equity had a bit of a slower quarter, but private debt had a more normal quarter with a 2.6% investment return. The lower discount rate had a 62 million negative P&L impact as market interest rates fell by 50 to 80 basis points in the quarter. The unwinding cost remained stable throughout the year. I think it's important also to remember that although declining market interest rates, especially in the long end of the yield curve, have a negative impact on the P&L of the quarter, Q3 shows that our hedging strategies worked well even in a quarter when rates fell dramatically. And even more importantly, it's worth to remember that our future profit generation is a function of the investment return we can achieve above the discount rate, not the actual level of the interest rates. and this spread has remained largely unchanged. Our organic capital generation, or OCG, was 54 million euros in Q3, and this translates to 34 cents per share during the first nine months of the year. In addition to reported profits, this measure takes into account also, for example, the own funds generation from the income booked in the CSM, as well as potential capital release from the SCR. As we've said before, we think the OCG is a more relevant measure than the reported IFRS result when assessing our financial performance and dividend generation in particular. And in a normal quarter, you should still continue to expect that the OCG is higher than the reported P&L result. Our dividend adjusted solvency margin was unchanged quarter on quarter at 224%. Own funds increased, but the SCR also increased during the quarter, mainly due to lower bond yields. And as you can see, our solvency margin is robust in different stress scenarios as well. And now I'll leave it over to Petri for some concluding remarks.