AB Artea bankas (ROE1L) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Siauliu Bankas Investor Webinar. Today, we're excited to announce a new chapter in our organization, the introduction of new dividend policy. It's a pivotal moment in our journey, and it represents our ongoing effort to deliver exceptional returns to our shareholders. We'll begin today's seminar with opening remarks from management team, followed by a Q&A session. Vytautas Sinius, the CEO; and Tomas Varenbergas, the Head of Investment Management Team and Treasury, will be leading the presentation today. And I, Tautvydas Medzius, Strategy Partner at Siauliu Bankas, will moderate Q&A session. Please feel free to submit questions as we go along through the presentation or at the end of the webinar. We look forward to having an interesting and informative discussion. And on that note, I'll hand it over to Vytautas.

Good day, dear investors. Thank you for your time and interest to Siauliu Bankas. And today, we are glad to present an updated dividend policy of Siauliu Bankas and give some more ideas about how we'll work with the capital, and what's along to the dividends, what's going to be with buybacks. So starting, I would say that updated dividend policy is a part of our capital efficiency and shareholder value growth and distribution plan. The recent success in the participation of capital -- capital markets of -- with subordinated debt and also with the Eurobond issuance, which we've done successfully recently in the last month, encourage us to optimize further our capital base to work with that, how to use different type of instruments to be even more efficient on the capital level. And that allows us to consider higher dividend payout ratio. And there are several capital allocation principles that we would like to share. So the most important and critical one is to maintain the levels that would meet all the regulatory requirements. That's an unconditional and mandatory thing to follow. Then we focus on the dividend payout and strategically supplementing that with share buybacks, addressing the valuation discount when it's needed. The other thing important that with this dividend policy, we maintain ability to follow our strategic objectives that we announced earlier this year, and we will follow our long value creation for the shareholders growing organically. Of course, our history shows that we are active in M&A markets when it's a good opportunity. So we will keep our eyes open further in the market. And if any would raise, we would consider that as an option to pursue and to go forward. Therefore, some capital could be needed in those circumstances. And of course, if we maintain excess capital with the previous mentioned principles, we will continue to distribute additional dividends or to use as buybacks. Therefore, we can go to our further dividend policy. And that's updated information on the slide, that our dividend policy commits to a minimum payout of 50% of the previous year's net earnings. There are several assumptions to that, that has already been mentioned, that we should be in compliance with all external and internal capital and liquidity and other regulatory requirements with execution of this dividend policy. The other thing that we committed, as I mentioned, to our strategy, therefore, this payment of dividends should allow us to grow further in -- according to our plan. Therefore, all the development plans and capital consuming activities will be included and considered by paying this dividend amount. In special circumstances, when we see that there is a discount price-to-book considerations, we could use share buyback as a part of the dividend payout. But as I mentioned, that should be specific circumstances. If we would deviate from the dividend policy, we will come back to the shareholders. And in our proposition, we would explain why we're deviating from that. And the last is mentioned that who's approving the dividend policy. So this dividend policy has been just approved by the Supervisory Council. And for sure, the final decision will be after the general meeting of the shareholders.

Good. So thank you, Vytautas. Let me continue our webinar by providing more details on our capital position and further optimization plans. To begin, one of the key factors that we have improved is access to the debt capital markets. And this year, we have already placed 2 bond issues. So the first one took place in May and the most recent occurred just recently. And by placing EUR 300 million of senior preferred notes, we have managed to significantly expand our investor base. And by looking into the numbers, so more than 75% of the bonds were subscribed by the buy and hold investors and primarily, they came from Western Europe. And these successful placements allows us to remain active in the debt capital markets, and we plan to strengthen our capital base by issuing an additional Tier 1 bonds in amount of EUR 50 million, and we are working on that topic already, and our plan is to place this issue during this year. Looking to the next year, we are planning to issue another subordinated bond issue. And well, again, that will support our capital base, and it will allow us to grow organically and to keep high distributions to shareholders. As dividend policy is already publicly announced, we are ready to provide additional information on our share buyback strategy and tactics. So a tender offer is planned, and it will be followed by open market buybacks. And by doing these 2 steps, we do see that such kind of a strategy will help us to reduce the discount of our current market price and fair price to book valuation. And we continue to use share buybacks as a tool as long as it will be necessary to support our valuation in open market. What is good that by making buybacks in an open market? We were able to increase our liquidity in the secondary market as we are targeting to buy back up to 25% of daily average volume. And we believe that it will enhance our stock's appeal to investors. To summarize, management believes that buybacks is a very highly effective use of capital while the stock is trading at such valuations. And to give more precise information on our plans and the timing. So we are targeting to launch tender offer in October. It should be in the amount of EUR 5 million. The key goal of the tender offer will be to provide additional liquidity for the investors who wants to exit our stock as the secondary market turnover is not high enough at the moment. So we will provide such liquidity tool, and it will be followed by open market transaction. It should be more or less at the same amount as the tender offer. And the expected timing of starting buyback operations in the open market is after our announcement of Q3 results. As we are going to use -- to execute buybacks within the scope of market abuse regulation, so that caps us our daily average trading volume. So as already mentioned, we're up to 25%. But nevertheless, that is a huge boost for our liquidity. And well, it will decrease or kind of a little bit minimize that kind of liquidity barrier for institutional investors. Just to mention that tender offer will be offered through the NASDAQ Baltic, and the price will be set through the Dutch auction principle. So that's a new thing for Bankas. On previous buybacks, the bank executed on a fixed price. And the open market transaction is also a new tool for the bank as it will be used for the first time. As we mentioned, buybacks under such valuation is highly effective use of the capital, and we'll use that as long as it will be necessary. Passing the word to Vytautas to finish our presentation before going to the Q&A session.

Thank you, Tomas. And just wrapping up with some reminders about our financial targets. So there's no any changes with the targets that we've announced at the beginning of this year. So we've approved our strategic plan with ambitious strategy of becoming the best bank in Lithuania with continuous, strong growth higher than the market. And with this dividend policy, we've seen that we could manage this growth to continue and to follow our financial targets that were mentioned in our strategic plan. And yes, actually, as we see for '24, the half year results gives promising and gives a good background for this year. So probably we could even reach or even exceed those targets for this year and put a good background for the future growth. So as a final slide, I would like to remember you 3 figures from today's presentation. So the dividend payout ratio of 50%. So we are increasing from the previously minimum 25% to now 50%. And that shows that we could be even more interesting stock for those who are looking for higher dividend yield. Along to that, we focused on the Lithuanian economy growth, and we see opportunity to grow further. And as I mentioned, to grow faster than the market, we're projecting for the longer-term growth in the range of 10% on our loan book. Currently, we're growing even faster. And with the combination of those figures and overall development of the bank's bank franchise, increased business model after recent M&A transaction and our continuous organic growth, we continue targeting the return on equity above 15%. So thank you for your attention, and have a good day.

We're going to switch to the Q&A session now. We have only one pre-submitted question. And the question is, up to what level do you think it makes sense to do share buybacks? Maybe, Tomas you can take this one.

Yes. Thank you for the question. So probably a few things to mention. So currently, we are trading at in the area of 0.85 or 0.90x price to book value. So at least, to reach a fair valuation, so it's 1.0 is what the management seeks. But on the other hand, if you are looking to the peers that is trading in Baltics or Central Europe, so we do have 1.2x or 1.3x price-to-book valuation. So at least the current valuation is not justified, and well we are putting efforts in order to solve that.

Thank you very much. At this stage, we don't have additional questions. Thank you for joining us today. We do appreciate we want to stay in touch with you. If you have additional questions later today, feel free to reach out to the Investor Relations team or to the management team. Please subscribe to Investor Relations newsletter. And thank you again. This concludes our webinar.