Mandatum Oyj

Good morning and thank you for joining Mandatum's Q2 2025 audio cast. My name is Lotta Burström and I lead investor relations here at Mandatum. I am pleased to be joined by our CEO Petri Niemisvirta and CFO Matti Ahokas who will walk you through the highlights of our second quarter after which we'll take the Q&A where you have the possibility to dial in for any questions. Without further ado, I would now like to hand over to our CEO, Petri Niemisvirta, who will take you through Mandatum's key achievements and developments for the second quarter. Petri, the floor is yours.

Thank you, Lotta. And now let's move on to the second quarter. The start for the second quarter was somewhat shaky due to planned tariffs and aggressive trade policy in the US, leading to a widespread market uncertainty. However, the sentiment rebounded swiftly after April and the markets stabilized. Fee result grew by 26% year-on-year, reaching 18.5 million euros, reflecting mainly improved cost efficiency and an increase of 11% in client assets under management. Cost efficiency improved significantly, with the cost-to-income ratio dropping by 11%, which points to 53%. The result related to risk policies in the second quarter decreased to 2 million euros. Main reason for this was the high comparison figure that included a profit of 6 million euros related to the insurance portfolio transfer to IF during 2024. Profit before taxes fell to 34.2 million euros during the second quarter, impacted mostly by the decline in net finance result. The net finance result decreased to 21.6 million euros, mainly driven by the decline in long-term interest rates used in the discounting of insurance contracts liabilities. Also, the comparison figure was notably strong due to the sharp rise in the long-term interest rates during the second quarter of last year. It is important to remember that fluctuations in the net financial result are part of the nature of life and pension insurance business, even if the volatility has decreased significantly in the recent years, thanks to interest rate hedging measures taken. Capital-like profit before taxes was 20.6 million euros in the quarter. The decrease from last year is primarily due to negative one-off factors and adjusting for the six million one-off gain from the portfolio transfer to IF. We have actually grown our underlying capital like profit before taxes by some 8%, quarter on quarter and 25% year to date. The solvency to raise adjusted for dividend accruals and without the transitional measures remains strong at 193%. Organic capital generation, one of the key factors driving our ability to pay dividends, was especially strong. Capital was also released through the divestment of our N&T holding and other publicly listed shares, which means that Mandatum continues to be a very well capitalized company. The steady growth of client assets under management continued to a new record high level, even though it was weighted down by a weaker US dollar, especially in retail funds and lower investment product sales in April. The increase in assets under management was largest among institutional wealth management business, 16% year over year, followed by the corporate business, 12%. The impact of weakened US dollar was largest in retail assets under management that remained flat year over year. Net flow from the corporate clients increased significantly year to date, the growth coming mainly from personal funds. Sales to corporate clients remained strong. The Unitlink pension business continued to grow steadily, while sales of both risk life insurance and personal funds remained at good level. Eight 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. Net flow from the institutional wealth management business grew less than last year, mainly driven by the lower investment product sales in April. Sales of investment products declined in April due to an uncertain market environment, but picked up significantly during the May and June, increasing the net flow of the second quarter to 164 million euros. Overall, we have managed to keep the net flow positive, even in turbulent market conditions. Client assets under management were increased by the positive net flow and a positive market movement of 240 million euros. The steady growth in our institutional wealth management business continued in the second quarter. In terms of assets under management, the largest growth came once again from international institutional clients, 40%, and amounted to 1.7 billion euros. New client accounts were established in, among others, France and Norway. To further accelerate growth, especially in continental Europe, we are establishing a new sales unit in Luxembourg, bringing us closer to a potential European customer base. The largest increase in asset management was once again in credit and allocation products, followed closely by external products. Also, we launched a new European High Yield Total Return Fund. Our award-winning credit products, such as the Nordic High Yield Fund, are good examples of leading industry expertise. Operational efficiency continues to improve significantly, with the cost-to-income ratio dropping by 11 percentage points to 53% over the trailing 12 months. The improved operational leverage demonstrates that a determined focus on cost efficiency is paying off, supporting sustainable profitability. While the fee margin decreased slightly to 1.14% to the growth in lower margin international institutional business and personal funds, standalone product margin remained stable. Mandatum organized a capital markets day early in June, during which we announced our new financial targets. Setting new targets was essential to reflect our ambition to grow in capitalized business areas while also enhancing profitability. The updated financial targets for 2025 to 2028 are return on equity up to 20 percent, up of 10 percent compound annual growth rate in capital like profit before taxes and solvency margin of 160 to 180 percent with cumulative shareholder payout exceeding one billion euros. We want to develop into an even more capital efficient and increasingly fee-based company, while committed to being a good dividend payer also in the future. Our vision is to be fastest growing Nordic asset and wealth manager with optimized growth in Finnish life and pension sectors, positioning us strongly for the future. Although our new targets are ambitious, I have every confidence that we will achieve then by 2028 through determined actions and the dedication of all mandatum employees. And now let's move over to Matti and the figures.

Thank you, Petri. Let's take a closer look at the second quarter result components. As Petri mentioned, the fee result was up 26% year on year, with assets under management up by 11%. And if we compare it to Q1, our AUM was up by some 3%, but we still had quite a substantial negative of some 300 million euros from the weaker US dollar in the quarter. As we pointed out earlier, around a quarter of our client AUM is denominated in US dollars, and this is especially big in the higher margin retail funds. Also, the weaker US dollar had a negative P&L impact on the H1 fee result itself. Client fee margins were down a bit in the second quarter. We're looking on a rolling 12-month basis, and this reflects the mixed impact from the fast-growing international institutional business. The cost-income ratio of our client AUM continued to decrease according to plan and was 53% in the quarter. Our net finance result was 22 million euros, and despite the very weak investment markets in April, especially our fixed income investments were at a good level in the second quarter. At the same time, the discounting impact in Q2 was significantly negative following the decline in the long IFRS discounting rates, and I'll come back to this a bit more later on. Worth noting is that the Q2 net finance result also included a 12 million euro capital gain from the sale of our shares in Enento in June. Our result related to risk policies in Q2 was down compared to 24. Note that the comparison figure in 24 included some 6 million euro one of income from the portfolio transferred to IF. Also H1 has typically a seasonally higher costs in the risk insurance business mainly due to the accrual of the previous year's reinsurance costs. Also, the CSM release in the quarter was lower, but this was only due to timing effects, not the CSM itself. Despite the turbulent markets, we consistently continue to generate capital. Organic capital generation was up to 85 million euros from 58 million euros in the last year. This translates to 17 cents per share altogether. The main positive driver in the quarter was the faster AUM growth in the quarter. Return on equity was 7.6% in the quarter, mainly due to the lower net finance result. As you know, one of our financial targets is to grow our capital light profit before taxes by more than 10% annually by 2028 compared to 24. And if we look at the first half of 25, the reported profit before tax was 41 million euros, basically in line with 24, despite the very turbulent financial markets, the mentioned FX headwinds and lower sales in H1. Worth noting is that the comparison figure last year includes a €7 million one-off gain from the portfolio transfer of IF. So, adjusted for this, the growth was around 25%, as Petri mentioned. So, if we then look closer at the group net finance result, it was down to €22 million, and in the with-profit segment, it was down to €9 million. However, the with profit investment return in the quarter at 1.3 was above last year and broadly in line with a normalized quarterly run rate. Especially our fixed income portfolio returns were good at 1.6% or over 6% annualized. The fixed income mark-to-market yield was down to 4.3% due to lower rates and tightening spreads, as well as some internal portfolio adjustments. This is still well above the cost of liabilities. Although equities contributed positively this quarter, and we continue to decrease our equity exposure during the quarter, Now, the listed equity exposure was down to 4% of total assets at the end of Q2. And as you all know, this is in line with what we have communicated previously. We sold equities worth some 30 million euros during the quarter. Private credit actually had a fairly normal quarterly return, but then we had negative value change in our own real estate portfolio, and also private equity returns were negative in the quarter, so these were both below normal. Although the swap rates actually were quite unchanged in the second quarter, the IFRS rates that we used for discounting in the long end of the yield curve actually decreased in the quarter. The change in the shape of the yield curve was quite unusual and had a 25 million euro negative P&L impact in the quarter. This was mainly a result of a 20 to 30 basis point lower illiquidity premium in the long IFRS discount rates that we use. The move actually was unusually large in Q2 and happened mainly in the 20 year plus maturity where our hedging ratio is very low. as you can see from page 19 in our investor presentation. The with profit portfolio interest rate hedging ratio increased further and was probably unusually high at 97% at the end of Q2. The reason for this was technical asset class mix change. The overall fixed income exposure increased mainly in the five to 10 year bucket while the share of listed equities decreased as I mentioned. As we show, although the average hedging ratio is high, there are big differences in the maturities. The hedging ratio is very high in the short end, but low in the very long end. And I'd like to also note that the IFRS discount rate mark-to-market changes have no impact on the actual contractual cash flows, nor our dividend-paying capacity. Despite the turbulent markets, we continue to consistently generate capital. Organic capital generation was up to 85 million euros in Q2, or significantly higher than the reported IFRS result. This measure, as you know, takes into account also, for example, the own funds generation from income booked in the CSM, as well as potential capital release from a lower solvency capital requirement. As pointed out before, we think the OCG is a more relevant measure to assess our performance and capital generation. Our own fund generation increased the solvency margin by roughly nine percentage points in the quarter. To reflect our new financial targets, we now report our solvency margin also including the transitional measure. The group solvency margin increased by 10 percentage points quarter on quarter, but decreased by three percentage points when taking into account the larger dividend deduction assumption compared to last year. Last year we had 0.33 and now we use 0.50. In addition to the announced sale of the Saxo Bank, a share is expected to increase the solvency margin by around 35 percentage points once the transaction is finalized. And of course, this means that we will be significantly above the target range at the end of the year. Back to you, Lotta.