Mandatum Oyj

Good morning and welcome to Mandatum's Q1 audio cast. My name is Lotte Borreström from Mandatum's Investor Relations and I am pleased to be joined today by our CEO Petri Niemisvirta and our CFO Matti Ahokas. During the audio cast, Petri Niemisvirta and Matti Ahokas will present the highlights and key developments of Mandatum's first quarter of 2025, 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 first quarter. Mandatum's first quarter went well despite turbulent market conditions. We achieved a 23% -over-year increase in fee result, reaching 18.8 million euros. The increase was mainly driven by improved cost efficiency and higher client assets under management that also saw a significant rise up 12% -over-year to 14 billion euros. The improved cost efficiency was also highlighted by a 10 percentage point reduction in the cost income ratio, now at 55%, which I'm very happy about. These metrics reflects our strategic focus on profitability and operational efficiency, setting a strong foundation for future growth. Net flow increased to 256 million euros during the quarter, as an indication of strong client activity despite the market uncertainty. The net finance result increased by 73%, totaling 51.8 million euros. The return on investment was 0.8%, and the rise in the discount rate reduced the finance expenses on insurance contract liabilities. Also, the net finance result includes a positive fair value change of Saxo Bank shares, totaling 17 million euros. Profit before taxes increased by 32% -over-year to 62 million euros, whereas profit before taxes from the capital-like business, our strategic growth area, including institutional wealth management, corporate client, and retail client businesses, increased by 24% to 20 million euros. Earnings per share stood at 0.10 euros, and organic capital generation per share was 0.17 euros. The solvency to ratio stood at 207% as of March 31st, compared to 210% at the end of 2024. The level is well above our midterm target, and Mondatum continues to be a very well-capitalized company. In terms of assets and management, the steady growth in our institutional wealth management business continues. The 18% -over-year growth is a significant achievement driven by positive net flows and favorable market conditions. March was, however, a challenging month in the investment markets, and the total assets and management of 14 billion euros was flat -to-date due to negative market movements of 177 million euros, even if the net flow development was positive. Net flow from the corporate clients increased significantly during the quarter. The growth came mainly from personal funds. Four new personal funds were established during the quarter. The strong corporate net flow shows also the diversification of our capital-like business, highlighting the importance of corporate business to our growth story. Nevertheless, the market conditions were demanding for all the capital market players, and net flow from the institutional wealth management business grew less than last year. We have been able to deliver a very good net flow and investment performance during recent years despite tough competition. The first quarter net flow of 256 million euros was well above our 5% target of client assets under management, and we continue to increase market share in our key markets. Spring has, however, been extremely volatile in the global financial markets. This rocky road has obviously had an impact on us as well, but we actively continue to support our customers in all market situations and remind them that unusual markets tend to create unusual investment opportunities. The fee income was up 10% year over year, supported by an increase in 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 continue to have good discipline in our pricing. Also, it goes without saying that the product makes shifting towards institution will impact the fee income margin going forward. When it comes to operational efficiency, I'm really pleased with our improving cost income ratio, now at 55%. As we have stated before, our business is scalable and we can now clearly see that. The steady growth in our institutional wealth management business continues in the first quarter. In terms of assets under management, the largest growth came once again from international clients, 55%. Demand for our credit products, especially in Sweden, continues to be very strong. This is a strong sign of the demand for our investment products in regions where we still have a significant market potential. The Mandatum Nordic High Yield Fund was once again awarded the Fripper Fund Award as the best high yield fund in the entire Europe over the three year and five year review periods. Our award-winning credit products, such as the Nordic High Yield Fund, are good examples of leading industry expertise. The largest increase in assets under management was once again in 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. In April, we announced that Janne Sarvikivi was appointed as a head of Mandatum's institutional wealth management business area. He will start in his new role on the 12th of May 2025. I'm very happy that our management team will be joined by such deep management experience in the Nordic capital markets. And now let's move over to Matti and the figures.

Thank you, Petri. Let's then look closer at the first quarter result components. As Petri mentioned, our fee result was up 23% year on year, with assets under management up 12%. Year to date, our AUM was actually roughly unchanged, mainly due to negative translation effect from the weaker US dollar, as roughly 25% of our client AUM is denominated in US dollars. And of course, the weaker US dollar had a small negative P&L impact on the Q1 fee result itself. Client margins remained stable in the first quarter when looking at on a 12-month rolling basis. Our income was up and cost were down year on year. This means that our cost income ratio of the client AUM continued to decrease according to plan and was 55%. The net finance result came in at 52 million euros despite the weak investment markets in March. Q1 turned out to be an only slightly softer finance result quarter at the end. Note that the Q1 net finance result also includes a net 16 million euro revaluation of our stake in Saxo Bank. Note that we expect to book some more transaction cost related to Saxo once the transaction is finalized, probably at the end of the year. Our result related to risk policies was unchanged compared to a year ago. Note that Q1 is typically seasonally a higher cost quarter in the risk insurance business mainly due to the booking of reinsurance cost. The return on equity stood at .4% in the quarter. Note that the underlying level would have been some 3 percentage points higher when adjusting for the proposed 2024 dividend payout in two weeks. If we then look closer at the group net finance result, it was up to 52 million euros and in the with-profit segment it was up to 37 million euros. The with-profit investment return in the quarter at .8% was in line with last year but slightly below the normalized run rate as March investment returns were negative. Our with-profit fixed income assets continue to generate stable returns with a -to-market yield of .7% and this was unchanged from Q4. In the first quarter, equities contributed positively. We continued to decrease our equity exposure as planned and we're net sellers of equities during the quarter. The listed equity exposure was down to 160 million euros and is now 5% of total assets, roughly 7% in the previous quarter. Private equity and private credit had a fairly normal quarter with a roughly 2% return during the quarter but we had a 2 million euro negative value change in our own real estate portfolio during the quarter. As long-term interest rates increased in the quarter, the discount rate change had a 25 million euro positive P&L impact and as communicated previously, the quarterly unwinding costs is now down to 13 million euros compared to 18 million euros a year ago. Worth noting is as well that the with-profit portfolio interest rate hedging ratio increased and was 88% at the end of Q1. This was a result of the increase in the overall fixed income exposure in line with our strategy and also means that the net finance result should become less volatile and more fee type. At the end of Q1, a 100 basis point decrease in the market rates would have translated to a 30 million euro net decrease in the net finance result. Despite the turbulent markets, we continue to consistently generate capital. Organic capital generation was up to 88 million euros in Q1. This measure, as you know, takes into account, for example, the own funds generation from income booked in the CSM as well as potential capital release from a lower solvency capital requirement. The main positive driver of the OCG in Q1 was the higher capital release in the with-profit business driven by asset, de-risking enlisted equities as mentioned, and also a lower private credit exposure. As pointed out before, we think the OCG is a more relevant measure than the reported IFRs result assessing our performance and capital generation of the period. Our own funds generation increased the solvency margin by 10 percentage points in the quarter. Looking at the solvency, our group's solvency margin decreased to 207 percent following the dividend deduction but remains well above the 172 percent target range. In addition, the announced sales of the Saxo Bank share when executed is expected to increase the solvency margin by around 35 percentage points. Back to you, Lotta.

Thank you, Matti. Thank you, Petri. Now let's move on to the Q&A. Please dial in for any questions you might have.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Andrew Baker from Goldman Sachs. Please go ahead.

Great. Thank you for taking my questions. Two for me, please. The first one, just given the market volatility that we've seen in the second quarter, are you able to give a bit more color on your net flow development in the second quarter? And then secondly, again sort of on the capital light segments, are you able just to give us a sense of the current revenue margins that you're seeing on split between the corporate institution or retail business, please? Thank you.

Yes, thank you, Andrew. Petri here. You know, we can't comment on going quarter, but of course it's market turbulence, especially in April, which is more or less now in a different level as well today than it used to be a month ago. But of course, the April was really turbulent market and of course affecting to all the players in the market in many ways. But unfortunately, we can't comment on net flows in an ongoing quarter. And when it comes to fee margins in different segments, we have stated those in previous presentations and I don't have exact numbers, but it's in retail. If the total is 1.2 as a combine, it's less than 1% in our institutional wealth management. Of course, we are selling to professional buyers, institutions, and the higher end, close to 2%, is in our pension business, private pension business, old portfolio and group pension business. And let's say the wealth management, especially asset management fees are under 1%. And as we have stated, the further we go, the growth is coming more and more from our institutional and wealth management side. Even though we have very disciplined pricing, the average margin will go down if we grow with these numbers as we have seen in the wealth management side. But it has kept its level very well, better than we thought. So it's still 1.2 and we haven't seen any any erosion on that side really.

Great, thank you very much.

The next question comes from Antti Sori from OP Markets. Please go ahead.

Hello and thanks for taking my question. First, I would like to ask about the other result. It was mentioned that higher interest expenses affected it negatively. Could you tell us something about this?

Hi Antti. The answer references to last year, remember that we took the bridge loan for the Saxo bank stake, the 200 million we discussed in May. So if we then look at Q1 over Q1, then the interest rates were higher. So that reference is to Q1, 24.

Okay, that's clear. Then I'd like to ask you about the cost level of the asset light business. In Q4, you mentioned that the cost base was a bit higher than normally. Would you now describe it as normal what we saw in Q1?

Yeah, I

think you could say it's kind of roughly normal as at the moment. Of course, like Petri also mentioned, we were paying a lot of attention to cost management and that is paramount all the time. Our FTE numbers are also down a bit, so that of course should contribute positively. The most important thing of course is on the fee result. If you're looking at that, as mentioned, is the currency impact. As I said, well over 25 percent of our AUM is linked to the US dollar and that means that it has had an impact on the income, but hardly any impact on the costs. So I think that's a bigger item explaining the movements in the first quarter.

Exactly, so pretty normal cost base to model. Okay, that's all from my side.

The next question comes from Hans Rettigel-Christensen from Downscare Bank Markets. Please go ahead.

Hello and thank you for taking my questions. The first one is on the net flow development this quarter and you obviously don't split based on sort of geographies, but you do on the AUM. I was just looking at the international institutional AUM, which is sort of showing a sequential decline quarter over quarter. I was wondering if you could maybe give some qualitative comments around how that part of the business is affecting the net flow number for this quarter. The sort of follow-up question to that is also your cost income is obviously very good in Q1, but is there any way you can kind of perhaps increase the distribution that you have into the international market, which would perhaps take the cost income somewhat higher. Then my second question is in the organic capital generation slide where you split it out by the SCR and the capital component, you've included a sort of comment on the 150% calculation. I was just wondering when you're looking at the overall targets for the solvency, should we, as the With Profits book is kind of declining, also kind of assume going forwards that the solvency target should be coming down with that?

If I start with the last question and then Petri can take a talk a bit. Just out of curiosity, I think if you look at sequentially, the international institution is not down, but it's actually up. Petri can comment a bit more on the net flow development. On the last question, you're absolutely correct and it's a very good observation that we have a different capital or the With Profit and the capital light capital requirement, which it should be. It's actually very natural and definitely a factor that plays a role here. Now we've in our organic capital generation kind of taken this because it is clear that the With Profit business has a higher capital requirement compared to the capital light, which is a lower capital requirement. Then of course the question is that what is the exact level where it should be? I think we will come back to that at our capital market day and talk a bit more about the kind of development there. But it is clear that both capital light and With Profit should not be 170 to 200. There is a difference and now we've taken 150 for the capital light and 200 for the With Profit business. So that is the reason and it's good that you noticed that that was the change we did in the first quarter.

Yes, Petri here. So first question about net flows and especially the international institution part of that. You are right, we are not giving the exact numbers how net flow is divided between the sub-segments. But if you look at the slide six and you can see what area is really growing and year on year how it has been changing. So it's obvious that it's our international business has a really big portion of our net flow in the last year and also lately. So we are very pleased that our international business, especially in Sweden, is going really well. We have seen some and also high net worth, ultra high net worth. I guess the less net flow what we have seen is in our institutions in Finland. And that's partly explained so that we have concentrated a lot to sell our private debt fund which is commitment based. So we don't see the net flows on that side even though we have been very active among Finnish institutions and we managed to raise fund almost 200 million to that fund. But it's commitment based and that's not shown as a net flow there. But it's not giving exact figures but international bodies getting more and more important in our net flows. And when it comes to our cost income ratio I would say that we have already done and we are all the increasing the number of our salespeople in those areas we see as a good business where we have seen good business plans meaning international, Finland corporate, Finland wealth management. And what we are doing is we are scaling our processes, support functions and so on. So we try to invest those areas which are really giving us growth and streamline those areas that are let's say burning our money.

And if I may continue I think Petri had a very important point here that when looking at the net flows Hans I think it's you should remember especially the fact that we do sell also commitment based products as well as fund based products and the kind of fee generation is slightly different but they are also fee generating and depending a bit on the quarter in some quarters we sell more commitment based and then which don't show as net flow and in some quarters we of course show sell more flow based products altogether. But it's a combination of these factors and it's important to kind of understand the totality and the commitment based ones will show as net flow in the quarters when they're called but they're still kind of so to say money in the bank. Got

it thank you very much.

The next question comes from Joko Turvenen from SEB please go ahead.

Yes good morning thanks for having my questions. A couple of technical ones and I'll start with the very strong quarter in the corporate segment. Was this strength during the quarter purely driven by dimension for you personal funds and the timing of those and how was the kind of underlying performance of the corporate segment excluding these funds?

Yeah thank you Joko. I better hear is yes as we said it was mainly related to personal fund because the net flow is let's say so the group pension business is more like diesel it can't go double the good numbers from quarter to quarter. It's not that kind of business very good business but the growth rates are not that high. A personal fund business is the new getting down in certain ways so the growth numbers are also very high and having in mind the

market

share we have in that business is that and lately last years we have established a lot lot of new personal funds and now it's really started to gain success as well so the companies who have established last two three years new personal funds and they are very successful companies they are paying a lot of bonuses to personal funds as well and then this spring was really high on that side so we are happy that we have customers on the corporate side who are doing really well in their business season which is of course affecting to our business as well.

If you look at then the overall corporate segment you were asking Jako if you look at the performance it's been actually really good as well so I think it's not only this it's a broad based positive development with around almost seven million euros in in profit before tax for the segment.

Good thank you. Again on the you are about to pay a dividend of more than 300 million in a few weeks. Just to understand on the technicality here is the money now sitting in the in the weak profit book or the portfolio there or do you have the kind of cash already separately in hand to pay the dividend?

Well it is a very technical question but it absolutely the money is on on our bank account in our holding company so you know ready to to be paid out to the shareholders once the company.

Okay so it shouldn't kind of a dramatically impact on the on the on the original portfolio the amount of euros over there.

Correct yeah now I understand what you're kind of referring to. Absolutely so we normally pay out the life company and the subsidiaries pay out the internal dividends roughly at the at the end of the year close to the end of the year so that money has been kind of at the holding company level for for a while.

Okay that's good and I guess it was the first time you are kind of reporting capitalized profit separately and then you have a on the table you have weak profit and and the line other. Regarding this line line other what should we expect kind of for a run rate going forward now it included the gain from Saxo I believe and but what should be expected for the for the coming years?

Yeah of course it's including a lot of items but the biggest ones are are typically the or the kind of biggest recurring ones are are are holding company funding costs. We have the 200 million loan from from a bridge loan and then we have another 100 million loan as well so the finance costs of that is the biggest item there and you can quite well easily calculate how much the interest cost on that is roughly then of course we all do also have the holding company cost there but probably somewhere between 20 to 25 million is is the kind of level at the moment and then of course once we repay the loans it will change change a bit but maybe our kind of main point is that you shouldn't multiply that by four you will get to a too high negative figure if you do that.

Okay okay excellent that's all from my side thank you.

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

Yes good morning and thank you for taking my questions so I have two questions the first question is about the capital generation so the capital generation of course was very very strong because we have seen 10 percentage point contribution this is well above the average of the previous quarters and you mentioned that the risking ongoing the risking I don't know if it's still ongoing I mean if we can expect for 2025 a positive contribution on the SCR side from you know the further the risk and if you are doing more so this is the first question and the second question is about the other element in the solvency work that you publish there is you mentioned traditional measures unwinding I was wondering what is the contribution of traditional measures overall to the solvent situation thank you.

On the first question of the capital generation overall it's the de-risking is expected to continue I think we've kind of alluded to that already previously that over time we believe that the with-profit portfolio should be more or less almost entirely fixed income instruments and at the moment as you know we are in a situation where for example around 75 percent is fixed income so you should expect that this will be a positive contributor going forward the main obstacle here is the fact that that we just a lot of these instruments are are fairly illiquid like private equity especially also our real estate part in these markets is difficult to kind of liquidate very fast and we're not in a hurry to do so but over time you should expect that this portfolio should be as I mentioned a bit like fee like that it's very highly hedged and then very low exposure to anything else except fixed income and that should also mean higher predictability but also a lower capital requirement than and a capital generation overall then in terms of the of the the transitional measures it is actually fairly small altogether but we're talking about roughly between five and eight percentage points.

Thank

you thank you much.

The next question comes from Jan-Erik Gierland from AG. Please go ahead.

Thank you for taking my questions as well. When it comes to the risk results you shed some light to the one of last quarter is it so that this now is the new run rate so to speak you used to have some in the corporate area and some in the retail area so we can better understand the the result generation from from the risk policies and secondly we have seen a lot of disability and disability increase in the Norwegian society we also see it in the Swedish society so just wondering how do you see this in the Finnish society when it comes to the old with profit book and also how it comes to the potential the new book and how you sort of price this risk into your premiums and how easy it is to reprice then secondly on Hans questions where you have had some success in both Sweden and Denmark and you touched upon your success in Sweden this time around how has Denmark done is that so they they were sort of very well done last year and it's halted a little bit or is Denmark still sort of a market where you want to grow and how fast is it growing this time around thank you

if i start with the risk policies Jan-Erik this is a pretty volatile item as i mentioned especially in the first quarter we looked at the reinsurance costs here so that that typically means that q1 is lower i'd say that the kind of run rate is somewhere between you know 30 and 15 million euros on an annual level it can be varying every now and then but q1 in terms of risk policies return is is a bit lower because of the kind of cost related to to to that altogether and i think if petri continues on them

yeah yeah petri so if if i continue continue with the disability question is is as far as i know the Norwegian and Swedish situation disability and the market behavior and the pricing especially in in those those countries is finland is totally different so so disability pricing and market situation has been always so that it's it's quite a kind of very profitable business so we haven't seen those that kind of pricing related to unit link or with profit that we have seen for example in Norway so so i would say that we don't have any problem with disability neither in in old book or new book or new business and when it comes to to to to new businesses is that in corporate business we of course we can change the pricing it's it's a yearly yearly yearly policies and then about Denmark yes we have spoke a lot of Sweden because we have seen really really high growth on that side and we have a office at that moment in in in Stockholm but of course then Danish business has went well as well and and we are keen on to stay there and and of course to improve and increase our business in Denmark as well as well in the whole Scandinavia even though we we haven't yet started in in in certain way in Norway but we are trying to do that and and we have sales activities over the border there as well so so the whole Scandinavia is our target area to to to enhance our institutional wealth management business

maybe just also to

kind of remind you Jan-Erik that all of our new policies since 23 don't have any insurance component in the unit link unit link policies there so they only have a savings component but of course that what you referred to the policies sold before 23 they of course have the insurance component there which Petri referred to

yeah very clear on the on your commitment based fee or or fee funds or we should fit and they sound like more like private equity sort of income related stuff where you where you have potential book a running fee or something and and a commitment fee etc so how should we think about the the the how did the earnings is coming through from this with these funds is it when you sort of get the commitment or is it during the lifetime of the period or how should it treat that level of am now coming into your book with these kind of private sectors like commitment funds

yeah it's actually it's a good component makes things a bit more difficult but if you look at we've kind of shown how much the alternative investments are of our our portfolio and that's part of the kind of product portfolio that we sell to our customers and and especially in this quarter we've been very active more in the commitment based in some of cases they are that the commitments generate fees already in some cases they don't they generate fees instantly so so but they show as net flow and AUM only when these are called and so of course in in times when for example in q1 when being being very active in selling these commitments they don't show as AUM net flow and very little commitment sorry fee fee component there as well but over time they of course will generate fee results

okay so it's more linked to when you even actually have the net flow from your funds so when you committed you don't get sort of a big fee anywhere so it's more a low entry base and then when they actually is committed and you get it through net flow then you book a larger fee or a fee component to these kind of sales if that's how i should read it

hello yeah exactly sorry sorry the mic so jan eric you're absolutely correct that is exactly how it works

okay very good thank you just so we understand how important this will be in the future though thank you

the next question comes from casper melas from endears please go ahead

hi all and thanks for having my question uh your fee result divided by assets under management has been quite stable for for three quarters in a row now so does this mean that the scalability of your profitability in the capital segment has reached its limit or whether some one of expenses in q1

uh yeah uh hi cosper it's uh as i mentioned i think the main reason now in the first quarter was the fact that that there was the effects change quite significant if you look at our products as mentioned over 25 percent are more or less linked to the u.s dollar they are in either alternatives the global funds for example in our retail fund have a very high the u.s stock market is over 60 percent of the global market so that plays a big role and as our costs are are mainly or almost predominantly in in euros there is no offsetting factor there so that was probably the most important factor and you can do the math yourself if you look how much the dollar has weakened what the impact potentially would have been on the aum and and also with that respect on fees so in terms of the the euro denominated fee result i think that was the most important factor to look look here and uh no i would not say that the scalability is is is in any way over quite the contrary we are focusing a lot to grow the fee result faster than our assets under management

okay and and then if you want more elaborate why your organic capital generation from from the scr reduction was so high even though the reported scr in with profit business reduced only slightly by by six million euros according to my calculations and the organic capital generation was also quite high compared to eps in q1 last year as well so so is there any kind of seasonality we should expect to continue going forward

no of course the main thing is that if you look at for example if we kind of we were selling net sellers of equities by almost 50 million euros in the quarter so quite and and as you know the the solvency capital requirement of the of the equity portfolio is is very high over 40 percent so that makes a big difference the same things goes for that we had some capital redemptions in our own uh our own investments regarding private credit which also has a super high capital requirement so when you know that share goes down then there is a scr release and that is shown as as the increase in the organic capital generation so no seasonality more of our own uh own impacts altogether and then of course there was in in the with profit segment as well if you look at uh that we've seen uh that the some of the sorry in the in the capital light segment we had an impact regarding the fact that especially the retail funds were actually down year on year because of the dollar impact so that of course was was a factor that helped the scr as well so own actions and then the market development when the assets or management grow typically there the the it requires capital and now when it was a bit of a softer quarter in terms of of of fund performance there was a positive contribution from that side

okay but but the difference between the uh the reduction in your in your reported uh scr compared to the organic capital generation from the scr reduction that the reported 26 million there's a big difference could you

other items in the in the scr of the of the group as well so there are a lot of other other items when you look at the organic capital generation we look at look at these factors which we consider a kind of organic capital generation not related to the due the scr as such for example the the symmetric adjustment was was one factor there which which uh is not in the organic capital generation but it's in the scr

okay all that's no explanation thanks

okay the next question comes from Ulrich Zurcher from Nordea please go ahead

good morning um just one question i was wondering what is the amount of liquidity you hold on a whole thing company level outside the upcoming dividend and what sort of liquidity do you need to hold at that level uh

well yeah hi Ulrich we don't really kind of normally comment on that that's kind of uh you know doesn't really make a difference from a solvency perspective but uh of course we do have the liquidity to pay out the dividends and then we do obviously need something for the holding company kind of expenses as well but probably in magnitude of you know 30 to 40 million euros is the kind of required liquidity underlying in the holding company level uh to run the business

all right

makes

sense

thank you

there are no more questions at this time so i hand the conference back to the speakers

so that's all folks uh thank you for joining us today thank you for the good questions and have a good rest of the week bye