ageas SA/NV (AGS) Earnings Call Transcript & Summary

Good morning, everybody, and thanks for dialing into this call. Last late moment invitation. So happy that you are so plenty to dial in. I'll give the word immediately to our CEO, Hans de Cuyper. I just want to flag you that there is a chat in this Teams call where you can either put some logistic problems that you want to flag to us and also potentially put in some of your questions. We will see if we can tackle them in this call. Otherwise, IR team will get back to you afterwards. Leaving the word to Hans, go ahead.

Thank you, Veerle. Good morning, ladies and gentlemen, and thank you for joining us on this call. Today, I'm pleased to announce that we have reached an agreement with our long-standing partner, Maybank in Malaysia, to sell our 31% stake in Etiqa to them. After more than 25 years of close collaboration with Maybank, having created a national insurance champion in Malaysia, we have jointly decided that now is the right moment to conclude our journey and for Maybank to take over full ownership of Etiqa. At the successful collaboration it has been as the terms of the transaction show, we are able to monetize the value that we have created together over the last 25 years, providing us with EUR 1.1 billion of cash proceeds. I would like to take a moment to reflect on what the 25 years partnerships has delivered. Together with Maybank, we have taken Etiqa from a start-up to a true national insurance champion, a true market leader in Takaful and non-life and a strong multiline insurer across life and non-life active in both Malaysia and Singapore. This success stems from a powerful combination, Maybank's unmatched distribution and customer reach which paired with Ageas' deep expertise in bancassurance, insurance risk, financial management capabilities and product expertise. That's how we have consistently outperformed the market. And I would like to take this opportunity to warmly thank our partner, Maybank, for the collaboration in building this success story together. It has been an exciting journey also for me personally as I look back with very positive memories on the time I was on the ground in Malaysia. Between 2007 and 2013, I was able to actively contribute myself to the development of Etiqa first as the CFO and later as the CEO. Financially, the partnership has also been highly attractive for Ageas. The company became profitable, and it started paying dividends as from year 7, up to a total of EUR 316 million, leading to a positive cumulative cash flow of EUR 83 million and a double-digit return on investment. A tangible demonstration of the strength, resilience and value delivered by our partnership. This divestment allows us to realize the significant value created together with Maybank over the past 25 years, and it exemplifies how our unique partnership model allows to build value-creating market-leading positions. And as you are aware, we operate a model where we partner up with a strong local player who knows the market dynamics and has customer access, while we add our deep insurance and bancassurance expertise. It has proven to be the best way to enter the market and get commercial traction to build the activity and build out national champions, as you see in Malaysia, but also in all the other Asian markets we operate in. How the partnership potentially evolves in a later stage of maturity depends on the specific situation. As you remember, in our Indian Life entity, AFLI, for instance, we stepped up to control, now owning 70%. And as we show today, our partnership model is not only designed to build value for the long term and create in partnership national champions, but also to realize the value when the moment is right. This transaction is another step in the development of our business portfolio. Recently, we have invested some EUR 3.5 billion in further strengthening our operations in Belgium and Europe through in-market consolidation. While we now divest one of our activities in Asia, this will have no impact on the diversification strategy of Ageas. As part of our balanced profile and business model, focusing on both European and Asian markets, we will continue to further build on and invest in our partnerships in the Asian region. We are present in Asian markets that are sizable and our strong market positions will allow us to capture the continued long-term growth potential in the region. We will further develop our existing operations according to their needs and stage of maturity. And in reinsurance, we continue our organic growth with focus on profitability and diversification. Let me now turn to the impact on our financial metrics. Our initial guidance for the full year 2026 net operating result, including Etiqa's expected full year 2026 contribution. With this divestment, we anticipate a lower contribution of around EUR 30 million, 3-0 million, EUR 30 million in 2026 from Malaysia, which is quite limited in the total group results. Additionally, we expect to recognize a net capital gain of around EUR 450 million from this transaction. At the half year 2026 results publication, we will provide you with an updated guidance for the full year 2026 net operating result. Going forward, when all recent transactions will be closed and coming to full contribution to the group, net operating result, our profile will be made of 1/3 Asian partnerships and 2/3 Belgium, Europe and Reinsurance. Regarding the recurring cash upstream, this transaction doesn't affect the expectations going forward. The cash received from Malaysia represented only about 2% of the total cash upstream over 2025, hence, a very limited contribution in our broader cash generative profile. This divestment will also have a positive impact of some 25 percentage points on our Solvency II ratio, the one-on-one translation of the increase in own funds to be recognized at closing of the transaction. Before taking your questions, let me summarize the key highlights of this deal. The transaction delivers a very attractive financial return of around 2x price to book, generating EUR 1.1 billion in cash proceeds and resulting in an estimated net capital gain of around EUR 450 million, hence, crystallizing the substantial value created throughout the partnership over the past 25 years. This transaction further validates our value creation story and demonstrates that our partnership approach creates long-term value while remaining flexible to seize opportunities that reinforce shareholder interests. We reaffirm our strong belief in the growth potential of the Asian market, a region that remains a core pillar of our long-term growth strategy. I've now reached the end of my presentation, and I'm happy to take any questions you might have.

[Operator Instructions] And just to remind you one thing, we are currently in closed period. So it would be appreciated if you only ask questions that are related to this transaction. Farquhar, I will unmute you now.

Just 2 questions, if I may. Firstly, I wondered if you might help us understand how the consideration of EUR 1.1 billion was arrived at. In particular, was that the kind of mechanical outcome of the exit terms within the original JV agreement or perhaps some kind of agreed benchmarking exercise in terms of arriving at that number. And then secondly, with regards to the ultimate likely use of the proceeds, my understanding is obviously you'd have to prefer to reinvest back into the business if opportunities arose. But is there still kind of a geographic preference within that. Obviously, in recent times, there has been more rebalancing towards Europe. Would that still be maybe the bias of preference at the moment? Or maybe here, would it be better to recycle back into Asia? I just wondered if there's any kind of bias in terms of what might be preferred, though ultimately, everything will depend on the opportunities that come.

Thanks, Farquhar. Well, on your first part, of course, these numbers, and I cannot go into detail about what the shareholders agreement had prescribed. But of course, these numbers are part of a negotiation between the buying and selling party. So I cannot zoom in much more in the details. But again, if you look at the multiples, price to book and price to earning, I think we managed to achieve, I think, a very attractive valuation, showing also once again that mature company that we have been able to build with our partner, Maybank in Malaysia. On your second part, the proceeds, well, I think the response will not surprise you. Of course, we are a group that we prefer if we can to invest in growth, and that will definitely be the first opportunity. But before I start, first things first, we are announcing a deal now. Of course, we need to wait for closing. And then I think we can reconsider what we do with the proceeds. But your detailed question here on geography is a very relevant one. You have seen us making EUR 3.5 billion investments, I would say, on the European, the continent and the U.K. This is a divestment in Asia, but I've shown you also in the speech how it further optimizes the balance of the group, which is roughly 1/3, 1/3, 1/3. Asia, probably just below 1/3. But let me state again that with the aging population, I do believe in the mid- and long term that the growth of Asia will outperform the other regions. We also see the GDP in the Asian countries above the GDP growth we see, for instance, in Europe. So in that respect, I expect actually Asia to continue growing further in the mid- to long term compared to the other regions. So that being said, Asia is a key region for us, and it can also be a region where we further invest. So the proceeds can be used both for Belgium or Europe or Asia because I believe that the balance in the net operating result composition of the group is close to optimal if you take into account the different regions we are active in.

May I pass the word to Nasib, please. Go ahead with your questions.

Question on divestments. You kind of mentioned that this crystallizes value and shows us the value in the Asian JVs. Are there any others where you've kind of achieved that level of growth where you can potentially without front running where you can potentially crystallize some value. I guess second question, maybe a Wim type question on M&A firepower pro forma. Of course, you get the EUR 1.1 billion, but what's the debt capacity to add on to that. And then finally, I don't know if you can kind of give the moving parts on the EUR 1.5 billion net operating result target for this year, kind of if you lose maybe EUR 30 million from this transaction, Portugal losses in Belgium. What was in the guidance and what's not and kind of thinking about that for this year? That's it for me.

Okay. Well, on your first question, every country in Asia is in a very different stage of development. So I always say we talk about the Asian region, but there is no such thing as an Asian region. Every country is very different, very different characteristics. As I said, with the previous question is that we strongly believe in the further growth potential in all the countries where we are. So in that sense, I remember, we are predominantly active on the life side, aging population. I don't have to repeat myself. These are regions with material and significant growth potential, regions and countries also where we have great partners, partners who have good customer reach and where we also continue contributing expertise, and that is the strategy going forward for Ageas into the Asian region. Second one on firepower, I cannot comment right now too much. Let's -- first things first, we need to close this transaction, and that would be at EUR 1.1 billion to the potential firepower of the group. All the other areas like cash and debt capacity are topics that we can talk about and update potentially at the results announcement end of August. And the same one goes for your third question, guidance on net operating results. Remember that we have said that our ambition is to exceed the EUR 1.5 billion. What is changing here? Well, first of all, the capital gain we expect, of course, to close before the end of the year. So in that case, the capital gain can be added to the net operating results for the Asian region. On the other hand, we will miss approximately EUR 30 million of profit coming out of Malaysia for the second half of the year, and that will be 2 elements that influence the guidance of the group, but an updated guidance taking into account with everything what happened in the first half of the year, we will share with you by the end of August.

Let's move on to Michael.