Mandatum Oyj

Good morning and a warm welcome to Mandatum's Q4 Result Audio Cast. My name is Lotte Bureström. 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 on Mandatum's last quarter and full year 2024, after which we'll take the Q&A where you have the possibility to dial in for any questions you might have. Also, please don't 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, Lotte. And now let's move on to the figures. All in all, I'm very pleased with Mandatum's performance during the past year. In the fourth quarter, we experienced a steady 39% increase in the fee result, reaching 18.6 million euros. Client assets under management rose by 5% quarter over quarter to 14 billion euros, driven by strong net flows and positive asset returns across all client segments. Net flow increased to 392 million euros, reflecting an 86% year over year increase. It is worth noting that the level is unusually high due to some larger client tickets, but our net flow development in general, considering the current market situation, has been very good throughout the year. Our net finance result decreased by 5%, totaling 23.7 million euros, with a quarterly investment return of 0.3%, impacted by weaker financial market returns. Profit before taxes fell by 24% year over year to 35.1 million euros due to the negative impact of 6 million euros from updated long-term actuarial assumptions. Earnings per share EBS stood at 0.07 euros, and organic capital generation per share was 0.10 euros. For the full year of 2024, our fee result increased by 27% to 67 million euros. The main reasons for the positive development were growth in client assets under management and improved cost efficiency, which I am very happy about. As we have stated before, our business is scalable, and we can now clearly see that in the figures. Client assets under management grew by 17% year over year to 14 billion euros. Net flow reached 983 million euros, up 30% year over year, representing 8% of client assets under management, which is well above our target of 5%. The net finance result declined by 9% to 136 million euros, with a -to-date investment return of 4.3%. Profit before taxes for the year was 203 million euros, down 4% year over year. Organic capital generation per share at 0.44 euros was clearly above the EPS at 0.33 euros. The solvency too raised to 210% as of December 31, 2024, compared to 221% at the end of 2023. The level is well above our midterm target, and Mandatum continues to be a very well-capitalized company. Our aim is to be an attractive dividend payer to our approximately 213,000 shareholders. As our dividend capacity developed better than we expected last year, Mandatum's board of directors has decided to propose to the annual general meeting an ordinary dividend of 0.33 euros plus an extra dividend of 0.33 euros, totaling 0.66 euros per share. The core of our strategy is growth in our institutional wealth management business. Accordingly, the highest growth in asset management, as well as in the net flow, came once again from institutional and private wealth customers. However, also the corporate and retail businesses contributed with double-digit growth to the hefty increase of 17% -on-year in asset management. Roughly half of the increase came from net flows and the other half from positive market movements. In the retail business area, 2024 was a clear game-changer. The cooperation with Danske Bank took off, and both investment and loan insurance sales continued to outperform the previous year, which can be seen in the improving net flow development. It is worth pointing out that the following year's pension payments are booked in the last quarter of the year, now decreasing the net flow. The full-year net flow development in corporate business was fairly stable, and the net flow increased mainly in personal funds. Fifty new personal funds were established during the year. We still have a very dominant market position in both the unit-linked pension business and personal funds, and our continuous efforts ensure that our market share will remain high. Demand for risk-life insurance products continued to grow, and the premiums increased roughly by 3% last year. The largest increase, 14%, in net flow was once again in institutional wealth management, amounting to 912 million euros. I'm very happy with that outcome. In general, we have been able to deliver a good performance in both the net flow and assets under management during the recent years. One of our most important financial targets is the annual net flow in proportion to assets under management, as it shows how much new money we succeed to get in. Excellent sales activity contributed to the inflow, and the client outflow has remained low. Partly due to the consistently high level of customer satisfaction. Also, Mandatum's assets under management have grown steadily during recent years, reaching new levels almost every quarter. The fee income was up by 14%, supported by increase in assets under management and stable fee margin levels. Even though most of our sales were related to credit and fixed income types of products, our fee income margin remained at the same level at 1.2%. This means that we have good discipline in our pricing during the quarter and the whole year, which is also one of our financial targets. When it comes to operational efficiency, I'm really pleased with our improving cost income ratio. As we have stated before, our business is scalable, and we can now clearly see that in early yearly development. In terms of assets under management, the largest growth came from international institutional clients, 67%. This is a sign of huge market potential, but also the appeal of our investment products abroad. Our award-winning credit products, such as the Nordic High Yield Fund, are good examples of leading industry expertise. Also, we succeeded in acquiring the first clients outside of Nordics in Central Europe. The majority of net flow went to the credit and allocation products, followed closely by external products. The returns on our credit and fixed income products are still at attractive levels, and the good performance gave additional support to our sales. I would also like to remind you that Mandatum's real estate exposure is very low. Mandatum was ranked as top institutional asset manager within large companies' SFR Research Survey in November. Mandatum reserved top scores in its category for long-term investment returns, market insights, and the clarity of its investment process. In addition to customer service, we were praised for our product range and reporting services. During the past five years, Mandatum has succeeded in climbing to the absolute top of its industry, which is a great achievement. Strong investment expertise and proven track record have contributed to the success. Not only do institutions seem content with Mandatum's performance, but customer satisfaction is high even among the private customers. The NPS score measuring customer satisfaction and loyalty was 83.2 in private wealth management and 76.4 in all customer segments. Mandatum continues to perform clearly above industry average. Mandatum was included to OMX Helsinki 25 ESG Responsible Index last week. The fulfillment of the index criteria is based on the Sustainability X rating among others. We are positioned among the best in our field in the Sustainability X ESG risk rating, updated in December 2024, ranking in the low ESG risk category 13.6. Among our peers, the result was in the top 2%. The results have been good also in the sustainability assessments. We have recently put extra emphasis on our sustainability efforts, which are now reflected in our ESG ratings. And now over to you,

Matti. Thank you, Petri. And let's look closer at the Q4 result components. Our fee result, as Petri mentioned, was up 39% year on year with AUM up by 17%. Client margins remained stable in the fourth quarter and throughout the year. We've also continued to focus on the expense side and this contributed positively in the fourth quarter. If we zoom in to the fee result a bit closer, the fees from investment and asset management services were up by around 100%. At the same time, the other part of the fee result or the insurance service result from the CSM release was slightly down due to one of a lower CSM release due to updated actuarial assumptions during the quarter. Our net finance result came in at 24 million euros, which is below the historical average. Q4 was actually a pretty difficult investment quarter with a lower than normal investment return. We had negative returns in both our equity and real estate portfolios. In addition, we had a 5 million euro negative value change impact from our holding in Enento this quarter. On a positive note, we actually received a 16 million euro dividend from Saxo Bank in December. Our result related to risk policies was lower than a year ago. This line was also impacted by updated long-term actuarial assumptions. In addition, there were no CSM releases related to the portfolio transfer to IFP&C like we saw in the previous quarter. Then the group net finance result decreased, as I mentioned, to 24 million euros and in the with-profit segment it was down to 10 million euros. The with-profit investment return in the quarter was .3% clearly lower than last year. However, if you look at the with-profit fixed income assets, they continue to generate good returns with a -to-market yield of 4.7%. As you know, this is largely unchanged compared to the previous quarters. Our equities contributed negatively this quarter, 11 million euros. But again, I think it's really important to stress that our own equity portfolio is not an index portfolio rather reflecting the legacy of Finnish small caps. In addition, we also had a 6 million euro negative value change in our real estate portfolio in the fourth quarter. But overall, as Petri also mentioned, our real estate exposure is small, only around 3% of total investment assets. Private equity and private credit also had a bit of a softer quarter in the fourth quarter. As long-term rates increased towards the end of the year, the discount rate had a 15 million euro positive P&L impact. The quarterly unwinding cost was unchanged at 18 million euros, but as we mentioned before, the unwinding cost will drop to, we expect, around 12 million euros per quarter in 2025. Although market interest rates fell in the fourth quarter, especially in the short end of the yield curve, this had actually a limited impact on our result, as especially our hedging strategies continue to work well. Also worth remembering is that our future profit generation is a function of the return we can achieve above the discount rate and not the actual level of interest rate, and the spread has actually remained largely unchanged. We continued to consistently generate capital. Organic capital generation was 50 million euros in Q4 and 191 million euros for the full year. In addition to the reported profits, this measure takes into account, for example, the own funds generation from income booked in the CSM, as well as potential capital release from lower solvency capital requirement. As we pointed out several times before, we think the OCG is a more relevant measure than the reported profits when assessing our performance, especially our dividend generation. Our own funds generation increased the solvency margin by 24 percentage points in the full year of 2024. And if we look at 2023 and 2024 combined, we've generated a total of around 500 million euros of capital, or almost one euro per share, and this is also reflected in the board's dividend proposal. Our group solvency margin decreased following the larger dividend deduction but remains well above the 172% target range. 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.

Yes, the fee result is expected to increase in 2025 provided the market environment remains stable and the with-profit portfolio is expected to decrease further. Overall, results are influenced by various factors, including client behavior and asset allocation, competition, market environment, as well as actuarial assumptions that are updated from time to time. Thank you for your attention. We are confident in our strategic direction and committed to delivering strong financial results and value for our shareholders.

Thank you, Petri. And now let's move on to the Q&A. Please dial in for any questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Antti Sori from OP Markets. Please go ahead.

Hi, Antti. Thanks for taking my questions. I would like to talk about the fee result. You made some savings measures to your support functions in Q4, some personal cuts, etc. So was this already visible in Q4 expenses? And on the other hand, was the cost level in asset management on a normal level, so to say, that it wasn't especially low in Q4?

Hi, Antti. You're absolutely correct that we started the change negotiations in the fourth quarter, but this actually did not have an impact in the quarter. Actually, there was a minor negative impact in terms of the costs in the fourth quarter. Overall, as you know, the third quarter is a bit lower in terms of cost because of holiday season in the Nordics and in the fourth quarter the activity picks up. So that's normally we see that happening. But there was nothing really out of the ordinary here, except as pointed out that we had the actuarial assumptions decreasing the fee result, mainly due to updated cost assumptions, quite technical factors. But apart from that, there was nothing out of the ordinary in the fee result.

Okay. To put it short, the cost level for asset management in Q4 is a good baseline going forward. And on the other hand, your cost reduction measures should improve the situation going forward.

Yeah, I think that's a fair assessment. However, as we've discussed and we announced that the staff reductions are not significant, so it will not have a huge impact. But of course, as we pointed out, we pay a lot of focus on the cost development overall, and this will of course be helpful. We said that 17 FTEs will be reduced in 2025.

Okay, thanks. And another one. Last year, you stated in the guidance that you expect to achieve your targeted net inflow level of above 5%, but you haven't stated this for this year. So has something changed in the outlook or do you believe that you can achieve the target this year?

Yes, thank you, Antti. Petri Niemes-Virta here. So yes, that's our original KPIs when we were listed in 2023 October, and this 5% net flow target is still relevant. And we will come back in our capital market day in June, and then we will tell more about our KPIs going forward. But it's the 5% of course, when the bigger you are, of course, it's a little bit getting harder to achieve the target, but at least now we have reached the target and well above that.

Okay,

thanks.

That's all from my side.

The next question comes from Michelle Ballator from KBW. Please go ahead.

Yes, good morning. Thank you for taking my question. So I have three questions. So the first question is about the capital generation, in particular the parts coming from the capital light, let's say the fee business. I mean, in fourth quarter was like five million of capital generation coming from there. So what I'm wondering is when we think about the development of this metric long term, considering that, you know, the profit business is quite quickly decreasing. I mean, how should we think about that? I mean, the certain point, the fee business has to take over. So if you can give us like some guidance, what should we expect and also maybe think about this metric? So this is the first question. The second question is about the asset under management and development. In particular, the, you know, clearly the international business, you know, added the lion's share, let's say, of the increase in net, in net. So I mean, what should we, what kind of products you are pushing there? Yeah, I mean, any color on this would be helpful. And the third question, sorry, is about the Sachs or bank. I mean, I know that you can give, you know, specifics, but there are a lot of rumors about, you know, the development of this, of the story. Any comment would be very helpful on this. Thank you.

If I start, Taimi Kele, on the, on the first capital generation question, yes, you're absolutely correct that the, that the capital generation slowed down a bit. Remember that we've actually grown our unit link assets by over 2 billion euros during 24. So even though it's capital light, it is still consuming some capital. And then, of course, the other aspect of is that the with profit business continues to decrease. So we haven't given any guidance how the OCG would develop, but I think it's important to note out that there's two different forces. The capital light business, the fee result, which is increasing by a significantly higher percentage than the, so like around 10% decrease in the, in the with profit liabilities. So if you do the math, you should get to some kind of indication how it looks like. As Petri also mentioned, we probably will come back on, on these topics at our capital market day on, on kind of also quantifying the potential impact here. But it is clear that the OCG is a very important measure and also reflected in our, in the board's dividend proposal. We generate around one euros of OCG in those in 23 and 24 combined. And actually, if you then calculate the dividend of of 23 of 0.33 and the 0.66, you get to around similar figure. So yes, the OCG is a clear important figure. No, we can't give you more guidance, but I think you can do the math yourself and get to relatively kind of kind of consistent figures from that end. But we'll come back with more details early summer.

Yes, and another, the second question Petri here is that your question about related to our, our products and net flow internationally, what we are selling and what is the customer demand. We are currently especially increasing our business in Sweden and, and what is selling extremely well is, is our, high yield product, which is libera wanted the best high yield in Europe when it comes to its performance in three years and five years term. So that that's one of the flagship products. Another one is senior secured loan product, which, which one we are selling, not just in Sweden, but also outside of Scandinavia. As well as senior loans product and, and also our fixed income total return product as well. So, so mainly credit and fixed income side products are those one we are selling outside of Finland. Then, then third question about Saxo. Yeah, there's a lot of rumors and, and, and in the market, but we don't want to comment on the Saxo situation at all. So, so no comments from this side.

Sorry, sorry, if I can follow up on this. Of course, I mean, I know you can comment that the only thing is, I think there was a bit of confusion around capital return, sorry, capital distribution. Lots of people, me included, I mean, we were thinking about, you know, maybe additional capital distribution with the, will happen, you know, after the disposal of the, let's say, non-core private equity assets, but, but then we have done it. Now you have done it with the special dividends. So that's why I'm asking, I mean, it's just, I don't know, do you expect something to close like this year in 2025 or Sorry,

Maybe I could kind of comment a bit on, on the kind of thinking around the dividend. So, as I mentioned, if you look at the kind of combined capital generation in 23 and 24, that's around one euro per share. And now if you then calculate the, the dividend we paid out in 23 or for 23, 0.33 and now 0.66, you get to roughly that. So we've kind of, the proposal is more kind of on, under the thinking that we're paying out the capital generated in these two years. And that's the kind of thinking behind it.

Okay, thank you.

The next question comes from Johan Strom from Carnegie. Please go ahead.

Thank you very much. So I have actually a couple of follow-up questions. So I'll start with a question on SaxoBank, Australia too. And first of all, what is the book value of SaxoBank at year end 2024 in your books? And if you were able to sell that stake at book value, what would be the sort of capital available to be paid out to shareholders? And then I have a follow-up on Mikael's question around the OCG. I understand you will come back to more details at the CMD, but if I can ask on the 191 million owned funds generation during 2024, do you think that this number includes any extraordinary effects, any positives or negatives? That was my question back. And then finally, did I hear you say that at the moment you expect online costs for 2025 to be around 12 million per quarter? Thank you.

Hi Johan. We actually booked this Axo stake at fair value. So the fair value in our account is 302 million euros. And so if at some stage we're able to sell it at 302 million euros, it will not have a P&L impact. But the solvency capital requirement for a stake is at the moment 49%. So it's around 150 million euros of capital, SCR required there. And then of course we have our own solvency target above that. So you can calculate the math. So it is a significant capital contributor or SCR contributor to us. Regarding the OCG, there's nothing funny there or no kind of one of factors that one should keep in mind. I think actually, you know, if you do the math, I don't expect huge changes overall in the kind of OCG levels. Of course, that depends on a number of factors, but we've given you the kind of SCR reduction path. So you can calculate that quite easily. And then of course, the question is how much our own funds we generate on the rest of the business. Those are, of course, the most important factors to look at. So, but when you do the math without giving any kind of guidance, I'm pretty sure that you will see that there's no huge changes to any direction altogether. And then you had the last question, which was, yeah, it was the unwinding cost. Indeed. So our unwinding cost is expected to decrease from 3.4 percent to 2.4 percent this year. So it's around 12 million euros per quarter.

Thank you, Matti. And just to be sure, there's no funding or debt funding behind the Saxo bank assets, which means there will be a potential reduction of payouts if you saw it.

No, there is, of course, but that's not in the SCR. So if you look at it, we funded it with a 200 million euro bridge loan when we made the acquisition from Sampo in early May. But from a capital perspective, that does not matter. So it's more on the fact that, you know, we would, provided we would sell the asset, we will then repay the loan and get around 100 million euro of liquidity, which is the kind of cash, which is the more relevant factor when it comes to kind of the dividend bank capacity. And overall, if you look at 24, one of the main reasons why the board has also proposed that the dividend will be increased is that our liquidity position has been very strong in terms of internal dividends. We got dividends from Saxo bank. We've got dividends from Mandatum Asset Management, Mandatum Life, and of course it means that there's the liquidity position of the group was very good and the solvency position as well. So the relevant factors to look at is not only the solvency, but also the liquidity, but both would be positively impacted in case of an exit of the Saxo bank stake.

Thank you very much for that.

Thank you. As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so we will now take the conference back to the speakers.

So that was all for today. Thank you for joining us. Have a good day.