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.

Thank you, Matti. 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 Hans Retterdel-Christensen from Downscare Bank Markets. Please go ahead.

Good morning, and thanks for taking my question. So the first question I have is on the sort of fee margin and net flow. And so thank you for the slide 14, where you started reporting the cost income and fee margins. You say on the slide that you have strong growth in international client business, which is affecting the mix. And so what I was really wondering is, are you able to quantify how much of the $100 60 million in net flows this quarter is coming from the international business and institutional and wealth management versus how much is, if I can sort of say, local, I guess.

Okay, yeah. So the number what we are getting from what is the portion of international sales, it's quite substantial during this quarter. Lotta, remind me, do you have an exact number? No, we don't publish that exact number, but I would say it's the fastest growing as you have seen the numbers 40% growth year on year. So it's quite substantial amount what we are getting. Another growing body, it's really fast growing is our private wealth management in Finland, which is growing more or less the same speed. But it's very big part of our sales nowadays. Okay.

Thank you very much. And then I guess my second question is a bit more technical in nature, but on the transitional measure that you're starting to report on this quarter, I was wondering how to kind of think about the unwinding of this measure, and especially up against your target of 160 to 180% on solvency over the next four years. So if your solvency was at sort of 193% with that measure at the end of last year, I guess that would imply that it was 170 million at Q4, and then it's 155 million this quarter. So am I thinking correctly that it's down sort of 15, 14 million for a half year? And that would imply sort of an unwinding of 30 million each year. I guess my question is, is that the right way to think about it up against your total goal or am I completely off here?

I think that's the right way to think about it. But remember, the 193 is an all-in figure. So of course, technically, that's the figure we look at. So there is no unwinding there at all. But of course, in the actual figure that we report, then that will be lower and gradually unwinding until 2028. But that's exactly the reason why we look at the 193 is the all-in figure, and there is no unwinding effect on that at all. And as you know, our new financial target is exactly for that reason, that otherwise the ratio would technically decrease every year simply because of the lower impact of the transitional measures. So 193 is comparable to the 160, 180, and there is no kind of unwinding or transition figure impacting that at all. And just to remind you that obviously, once the transaxle bank transaction is finalized, the ratio will jump quite significantly, as I mentioned.

That's very clever. Thank you so much. That was all for me.

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

Hello and thanks for taking my question. From an international growth perspective, I would like to ask whether you can mention us any blockbuster products or are there any like few products that are leading the sales and in a way causing this lower margin level.

Yes, thank you, Antti. So we have stated already before that our fee margin will go down once our fastest growing part is our institutional wealth management division. And traditionally that business is lower margin than what we have in our retail and corporate, which are not growing that fast than our wealth management. division so it's not specifically international it's all institutional business both in Finland and outside of Finland which are let's say lower margin business but still we are in asset classes that we have a quite reasonable decent and quite high fee levels all together so what we are selling in our internationally is our Nordic High Yield Fund, which is not very low margin, but of course it's not 1.2 or over 1%. And what we are also selling is in your secured loan fund, European High Yield Fund and a little bit also we started to see some growth in our Managed Futures Fund which is a hedge fund which is high margin product so But it's about wealth management division or fee level is around 0.8. So that's something which is more we sell that. Of course, the combined number will go down.

Okay. So the reason for lower margin is client mix, not product mix.

It's the client mixing. Yes, that's true. So more we sell to institutions. So it's not retail or corporate. Traditionally, in those areas, we have higher margins. And I guess most of our competitors have the same things happening for them as well once they're selling different customer segments.

I see. Then more technical question, looking at with profit business, the other result was now negative for second quarter in a row. So what should we expect about this and is this sort of a new normal?

Hi, Antti. It's Matti here. No, it's a good question. And here again, we had some actually portfolio transfers related to kind of IT system renewal. So no, it's not the new normal. And of course, when you have a couple of quarters where you see negative figures, it's kind of annoying. But the figure should be pretty close to zero going forward. So in our line of business with very long tale of liabilities and hundreds of thousands of customers and different client segments and cohorts, what we call. There's always these kind of some movements here. But actually this quarter, it was mainly caused by a technical move from actual corporate to with profit other. Some of the portfolios that have both with profit and unit link capabilities. It's not a big figure, but I think the figure should be pretty close to zero going forward.

Okay, thanks. Then one more question. You mentioned this distribution agreement with Pohjantähti. Could you remind us whether you have other distributors in insurance space and Do you expect this deal to have meaningful impact to your sales?

Yes, so we have two distributors in Finland, so Danske Bank of course is our main partner in Finland, selling both risk insurance, which is called loan insurance, it's creditors protection loan product and of course endowment and the capital redemptions, so savings products as well. Pohjantahti is only concentrating to risk policies, private people and then micro companies, so very small companies. And is it meaningful? We hope so and we believe that, otherwise we wouldn't have done that. But of course in our figures, if you look at the risk premium numbers, of course they are not that big, but it's a meaningful partner and they have very substantial distribution and close to 200 sales people all around to Finland so we are waiting a good result for and this is a good add-on to our risk sales in it for retail segment that's clear okay this is all from my side thanks

The next question comes from Kasper from Mellas. Please go ahead.

Hi, this is Kasper from Inderes. Thanks for having my question. How many persons do you plan to recruit to boost your international sales in Luxembourg? And are these additional costs included in your guided 1% annual cost growth going forward?

Yeah, of course, it's additional cost, even though one person from Finland will move there to do his job from there, which he's currently doing from here. So heading to international business, but it's... Of course it's extra cost, but of course we will believe that it's the investment, not just the cost to enhance our business. And let's say we are targeting few people at this point, so not a huge amount of people. A little bit the same what we have done in Sweden, so handpicked people, which can really deliver results in a short period of time, so meaning few people, couple of people at this point, like in Sweden, what we have done.

And Kasper, yes, it is included in the cost guidance.

Okay, thank you very much.

The next question comes from Jocko from Terveinen. Please go ahead.

Good morning. Joko here from SCB. You're noting some new mandates in Norway and France. Could you elaborate a bit on how is the pipeline looking in these new markets? If you compare the situation a year or two ago, what is kind of your activity level internationally versus a few years back? Yes.

Thank you, Jaakko. It's far better than it was two years ago. Of course, we have more salespeople and sales forces also, and we have more people to cover those markets. We just recruited last year one new wealth manager salesperson to Stockholm, and he has really put a lot of effort to Norway, and he has a lot of connections there, and it started to started to get some money in as well so it's a good process and pipeline is of course very promising. At the same time it's not just the activity or more people it's also that we have award-winning products Nordic High Yield all our credit products are really performing well they are top products in surveys and so on so we are in a good position in certain way that we have a lot of questions in various places because they have recognized our performance, our products, and they want to look at more carefully, meet our teams and so on. So for example, this France case came actively from the customer's side. And now we see that there's a lot of demand in certain way for our products, and that's why we also made a decision to put more efforts than the resources and make investments to Luxembourg, because it's a lot of ground to our products. Totally different and much better situation than two years ago.

Excellent. That's helpful. Thanks. Then on the fee margin and the weaker USD, obviously the USD, like Matti mentioned, it impacts on the absolute numbers in Euro terms, but does it have impact on the reported blended fee margin as well?

Yeah, Jaakko, a very small impact. So this is mainly a kind of product mix and client mix impact, as said. And then there is some also variation, of course, If you look at back in 2024, especially in the institutional and wealth management business, alternatives played a much bigger role than today for obvious reasons. The private equity and real estate market has been slow. So that, of course, is impacting as well. But the main impact is actually coming from the product mix, a mixed impact here together. And there is some quarterly variation. a lot of products that we sell and the margins may vary a bit every now and then. So I guess the fall in the second quarter was a bit bigger than expected. So small impact from the US dollar, but not of course at all as big as to the reported figures.

If I may add, because I already answered to Antti about this issue, it's product but it's also customers, because those customers we are selling, they are buying those products which are selling very well. So I don't know which one is first, chicken or egg, but that's the case. So we are selling professional buyers, institutions, credit product, which of course is affecting the total combined fee margin. But all in all, what I haven't said yet, we haven't seen any softening tightening inside of the customer segments or product range. So it's more or less the same than what we have seen in last quarter or year ago.

Good, thanks. Then finally, my kind of a technical question one, regarding the dividend accrual, which was now raised. Why was it raised? Did I make something during the quarter? What is the reason behind it?

Well, if you look at what we said at this capital market day, we said above, you know, one billion euros of dividends. And if you kind of take that as a figure and divide that by four, it would imply 50 cents per share. This is not the guidance in any way of the dividend. It's a kind of technical adjustment we use. And since we said the one billion or above one billion actually we use now, that it would be distributed evenly. However, as you remember, like we said at the Capital Market Day, we believe it's probably going to be de facto a bit more front-loaded, obviously entirely up to the board to decide what they think about it. But of course, for obvious reasons, the Saxo Bank transaction finalization, the Nento shares means that we have ample liquidity here, but we use 50 cents per share as the assumption for the accrual. This was 33 cents, as you know, last year.

Okay, okay. I thought it would just be more technical based on the last year. Last year, 33 cents plus 33 cents. Okay, but fair enough. Very well, I understand. Thank you, that's all.

The next question comes from Emil Imonen from DNB Carnegie. Please go ahead.

hi thanks for taking my questions just a couple more maybe first starting on the cost to income ratio development i was wondering with lower fees in the international business but maybe that being a little bit smaller right now but growing very strongly is there any scale benefits you can realize here so that actually our cost income could prove even though fee margins are a little bit lower

Hi, Emil. It's Matti here. Absolutely. And as you remember, if you then take our cost guidance of 1%, which is including the investments, that means that if we grow our income by more than 1%, the cost-income ratio will improve. It will not improve, obviously, forever. most likely, but I think we still see potential for improvement. And of course, one big driver is, like we mentioned, that a lot of the significant IT investments have not been amortized and have been taken. And that, of course, means that the cost growth will be fairly limited going forward. And if the income growth is bigger than the cost growth, the cost-income ratio will improve.

That's clear. Thank you. And then on the net financial result in with profit, that seems where the maybe miss came to estimate. I wonder, could you go into a little bit more detail on how we maybe should think about the net finance result if interest rates continue to go down and how it compares, for example, to the average policy rate?

Yeah, I guess, of course, this is one bit of a surprise, because obviously externally you can observe the swap rates, which have an impact on our asset side, but then the discount, IFRS discount rate, which we use, is a combination of both the swap rate and an illiquidity premium for BBB plus euro-denominated bonds, which we actually get. from Moody's, so it's not our own invention and that move was quite significant and as said in the portfolio or in the maturities above 20 and 25 years where for obvious reasons we have hardly any hedge there and it's part of our strategy. So the interest rate moves, obviously, you should not kind of take, especially when it comes to anything below 10 years. We are very well hedged for that. But of course, if there's movements in the very long end, that will have an impact like was the case here in the quarter altogether. And if we look then overall, as you mentioned, on the kind of policyholder funds and policyholder development, first of all, if the mark-to-market yield on the fixed income portfolio comes down, Now, of course, if the unwinding rate would be the current rate, it would be also 50 basis points, roughly lower. So for us, it's not the actual level of rates. It's the spread we make on the policyholder liabilities. And as said, that is roughly the 2% that we've indicated even now. So for us, the level of interest rates is not relevant anymore. excluding the fact that if it happens in the very long end of the yield curve, and especially these illiquidity premiums, that will have an impact. I actually had a look and, for example, these moves we haven't seen for a number of years, which happened now in the second quarter. So I would like to characterize them as quite unusual. And in the level of the interest rate in the below 10 years, maturities will have very limited impact on our figures.

Okay. Thank you. That clarifies it a lot. That's all from me.

There are no more questions at this time, so I hand the conference back to the speakers.

So that was all for today. Thank you for joining us and please don't hesitate to contact us at Investor Relations should you have any further questions. Goodbye.