Aktia Pankki Oyj (AKTIA) Earnings Call Transcript & Summary

I will walk you briefly through the highlights of the fourth quarter and last year in total. And after that, our CFO, Outi Henriksson, will walk you more into details. Thank you. Briefly about our last year's result. Our fourth quarter result was EUR 19.8 million. That was more than the fourth quarter of 2019, and it was the clearly best quarter of 2020 for us. Overall, our results for last year was below that of 2019 for obvious reasons. However, I would like to point that the growth in our underlying business was 4%. And as you can see further down in the presentation, we had a very healthy growth in our net interest income. Our assets under management grew to an all-time high, reaching a level of EUR 10.4 billion. This was the first time ever in our history that we went above EUR 10 billion in assets under management. Our net interest income, as I said, continued to grow well and steadily throughout the year. We have increased our market share and our market share of new lending in housing loans, and even more so, this came through the latter half of the year. Our life insurance business has grown well, helped both by the COVID-19 pandemic as well as increased sales focus, both internally in Aktia and through our third-party distribution channels. Our costs were above that of 2019. This was due to growth investments that we have made. And now we are in the position to take out some other costs that have become available to be taken out due to these investments. Hence, we will be able to capitalize on the improved processes, both on the sales side as well as on the administration side regarding our banking business. Taking a short look at the COVID-19 situation, which largely shaped last year. I think we cleared last year exceptionally well given the circumstances and the high degree of uncertainty that we had with us throughout the year. The first quarter or first half year but even more so the first quarter drop that we witnessed was steadily offset during this -- partly during the second but third and fourth quarter in underlying business. However, the unrealized valuation changes in lowered life insurance company's investment portfolio remained and are weighing our result for last year. The banking business and customer activity on our banking business has been reshaped due to COVID-19, the amount of acceptance towards digital services and digital interaction among those customer segments who have been, at least to some degree, somewhat reluctant towards these services have changed. And I believe this is a feature that will carry also post-COVID-19. This suits us well as we believe we are able to give more uniform and a more effective experience towards our customers, the more they are willing to accept a digital means of interaction. We supported about 15,000 customers last year with commission-free, installment-free period, so installment-free terms to their loans. There has been some speculation in the media. What is the consequence when these installment-free periods run out? At this point, I can see that the situation regarding installment-free periods has returned to pre-COVID levels and hence, normalized. And we have not witnessed any effect on our credit portfolio of these installment-free period. Hence, the worries and concerns that have been raised during the year and in the media have turned out to be -- luckily so, have turned out to be without ground. I think the agility and the ability to adapt that our organization has demonstrated during last year has proved that we are well equipped to meet an exceptional -- or to meet exceptional situations. We have been, throughout the year, in a very, should I say, untraditional operating mode with a large number of my colleagues working at distant and with sort of temporary or exceptional setups. Given all this, we have done a remarkable work in serving our customers, building our business. And as I said, we witnessed a 4% growth in our underlying numbers -- or the numbers of our underlying business. Looking forward to year 2021, I see that we should expect an operating profit that is clearly higher than that of last year, of course, provided that market conditions and conditions in society in general remain stable. But I do expect to see a continued growth in our net interest income supported by stable funding costs. Regarding our commissions income, of course, this is affected by market movements. The same with our life insurance investment portfolio. Market changes have an effect on that investment portfolio. Expenses are expected to be somewhat higher than what they were last year. However, these are due to planned investment projects that we are running and continuing through into this year to improve our degree of automization and our degree of digitalization in our customer interaction. Our credit losses, our liquidity, our capital adequacy all remain on a very solid and stable level. And there is nothing, for example, in our credit portfolio that raises any particular concern due to COVID-19 or due to any other reason for that matter. Taking a closer look -- or before taking a closer look at our specific business areas, our Board of Directors have decided to propose the Annual General Meeting of an authorization to pay a dividend of a maximum of EUR 0.43 per share for the year 2020, at the earliest 1st of October 2021. Hence, the pattern follows, to a large extent, philosophically, the same that we had a year ago. And now taking a closer look at our business areas. I would like to start by showing one of my favorite pictures. This positions us against our domestic competitors in terms of Morningstar rankings in our mutual funds. As you can see now for a period of 3 years, we have been clearly above our domestic competitors, and there is no reason for me to expect that this would not be the trend going forward in all to what I know. As said earlier, our assets under management reached an all-time high during the fourth quarter last year. It was also the first time our assets under management exceeded EUR 10 billion. Before going to other details in our asset management, let me take a moment to stop at the news that you might have heard of a handful of our portfolio managers who resigned during the beginning of the week. I would like to, of course, thank them for the contribution that they have had in building Aktia Asset Management and taking us where we are at the moment and wishing them all the best in whatever future challenges they may have. At this point, I would also like to point that it is important to keep in mind that portfolio management is very much of a teamwork. Hence, we have a large number of highly skilled pool and highly professional portfolio managers with us who are continuing all the strategies that we have had up and until so far, we are not changing our strategy regarding asset management in general or emerging market debt products specifically. As said, this has been teamwork, and although some individual or individuals have been more in the public than others, it does not mean that they would have been without any team support. Hence, as said, we are continuing all our strategies with the professionals that we have without any change into plan. I would like to point regarding our asset management that the distribution cooperation that we started with Nordnet in December has turned out to be very promising. We have, through this cooperation, had customers from Sweden, also from Finland though, but also retail customers from Sweden that we would have not been able to reach without this cooperation. I would also like to point that the return that we have had on our Nordic Small Cap and Nordic Micro Cap funds has been recognized also outside Finland. This has been a very good product that we have had, and we have developed it over the -- over a number of years. Regarding our life insurance, the sales of life insurance has increased about 40%. And this [ in risk ] life insurance, partly driven by the COVID-19 pandemic but partly also driven by the improvements and increased focus that we have in our sales process, both internally in Aktia and also in partner -- distribution partner management that we are running. Suomen Yrittajaturva, which is a distribution partner that we are partly owning, has had a very promising start. And I'm very glad to note that the hit ratio that we have had in appointing customers to Suomen Yrittajaturva, appointing potential customers to them has been very high, and hence, the outcome has been very positive. Our loan book has had a remarkable growth. This is both in terms of household customers as well as corporate customers. I think there are a couple of reasons behind this. Firstly, regarding household customers, we have introduced what we call a presales process, which screens out loan applications that we do not believe will have a chance to succeed. And hence, we have increased the relevance of leads that our sales managers receive and which has led to an increase in hit ratio. This has had a clear impact on the attractiveness or the -- on the sort of return on investment with the time used by our sales managers and given them more relevant material to work upon. At the same time, we have automated our loan process so that we are able to give an initial indication to our potential -- prospect customers to our prospect -- potential new customers in a much shorter time than we were earlier able to do. I believe this plays a role also in customer attraction. And thirdly, our outbound service has now been built into full action and supported by marketing activities that we took during the latter part of the year, have resulted in a very solid growth in our household loan business. This resulting in that we have been winning market share in new lending, which is according to our ambition. On the corporate side, our new Head of Corporate joined us last November. And with him, we will be further increasing our focus on the SME segment and going for growth upon new customers. However, we had good, solid, healthy growth in our corporate business also throughout last year. And we see a trend emerging where corporate customers, to some extent, at least want to reduce their reliance on a single bank or on just 1 or 2 banks, hence opening the possibility for us to become more relevant to potential new customers that are out there to be taken. Our strategic principles, our strategic priorities remain unchanged. We are out to win in asset management. We are out to get new household and corporate customers in growing cities, and we are set to build an operational platform that is both efficient for us to use and both -- and both gives a good customer experience for our customers to act upon. Hence, we have an unchanged strategy. And our financial targets for 2023 that you already may be familiar with remain unchanged. With this, I would like to hand over the stage to Outi Henriksson, our CFO. Outi, the floor is yours.

Thank you, Mikko Ayub, and good late morning on my behalf as well. Let's then take a look at look at the financials in a little bit more detailed way. And I start with the first -- the last quarter development compared to the previous quarters and last year. Aktia's operating profit was EUR 19.8 million in the last quarter of 2020, slightly higher than the previous year at EUR 19.2 million. But as you can see, compared to the other quarters of the year, very solid improvement. There was a lot of volatility in the quarterly results driven by the income side, as you can see from the picture, as the cost base has been relatively stable throughout the year. And the volatility on the income side comes from the asset management business and specifically from the life insurance investment operations as there have been quite a bit of value changes, specifically in the beginning of the year, and as you can see, a very nice recovery in the second quarter and the second half of the year. Then if you look at the annual comparison, year 2020 and '19, total operating income was 51 -- EUR 55.1 million, clearly lower than the year before. And again, as you can see from here, the banking business has been really stable, some growth there in the operating profit. You can see it also on the income side and the decline coming from the asset management segment and specifically from the life insurance, which is part of asset management. There on the right-hand side, you can see the income from -- net income from life insurance business, which declined from EUR 30 million to EUR 20 million. But as said, all of that came from the first half of the year with a very nice pickup on the second half of the year. Then here, we have a waterfall picture of how the results have developed from year 2019 to year 2020. And looking at the picture, you have to bear in mind that this shows the change from the previous year. For example, the minus EUR 15.4 million that you see as a net income from investments, that number was positive back in 2019 and negative in '20. So the change is even bigger than we eventually booked in 2020. A couple of things to point out here, organic growth in net interest income, solid EUR 5.1 million and actuarially calculated results from life insurance business also positive, while the organic growth in net commission income was pretty flat. The largest portion of the net commission income comes from the asset management and funds. That was actually pretty stable, while there has been some decline in the provisions or commissions that come from the card operation as the usage of the cards has been less than prior to COVID-19. We will take a further look at this on the following slides. Mikko already showed the picture of the assets under management, how it has developed throughout the years. And this is a little bit more granular picture by channel of the development, on the left-hand side, international institutions; on the right-hand side, domestic institutions. And as you can see, same trend has happened in both channels. Steep decline in the first quarter and then a solid recovery on the third -- the second, third and fourth quarter. And then the same picture from the retail channel. And as pointed out, the AuM, asset under management growth that we saw last year was approximately EUR 600 million in total. Our cost base was somewhat higher than the year before. And that has mainly been driven by the recruitment. So as Mikko pointed out, we have been investing in processes, development, and that has shown in the recruitments that we have done last year. Other costs have been relatively flat. And maybe I could also point out that what is affecting the cost base to some extent is also the stability fee that was EUR 800,000 higher than the previous year. Then take a look at the -- let's take a look at the impairments for credit losses. The expected credit losses through P&L, we booked EUR 4.2 million. And then at the end of the year, impairments of credits and other commitments totaled EUR 30.9 million, while the impairment of interest-bearing securities, EUR 0.9 million. That totals EUR 31.9 million that you can see also in the graph. And then the P&L format of what I have just gone through. As said, we are pleased with the fourth quarter operating income, very pleased with the net interest income development. However, the first quarter of the year had an impact on the fact that the whole year operating profit was clearly lower than the year before. Then 2 slides regarding the balance sheet. Here, we see the structure of the lending and deposits. And here, I could maybe point out that the growth in the loan book from slightly under EUR 6.5 billion to EUR 7 billion. If you look at the growth, a higher portion of the growth came from the corporates and housing associations than housing loans. And a bit of the same trend has been on the deposit side. So our deposits grew approximately 406 -- EUR 400 million from -- [ EUR 400 million, EUR 500 million ] from the year-end 2019. Another picture of the balance sheet. As I point out, if you look at the asset side, nice growth in the loan book, EUR 7 billion in total at the year-end, while on the liabilities and equity side, as said, also growth if you look at the deposits. So We've been also active on the senior preferred market, which we can see from the liabilities. And then there's some increase in the technical provision that has to do with the life insurance business. Our common equity Tier 1 ratio at the year-end was 14.0%. And we have deducted the maximum proposed dividend already from the CET1. As Mikko said earlier, the Board will, given the AGM decision, then decide about the dividend later on. But it's been deducted from the 14.0%. Without that, the CET1 would have been 15.0%. There's been increase in the risk-weighted assets by approximately EUR 400 million, which has had an impact on the CET1 obviously as well. We have been active in the funding market. We have completed over 30 transactions in 2020 under the EMTN program. Total volume over, EUR 800 million. And the maturity is ranging from 2 to 15 years. We will be active also now in the first half of this year and planning to issue further EUR 100 million, EUR 200 million, potentially, including also inaugural additional Tier 1. But again, that hasn't -- we haven't decided yet, but that could be part of the funding plan. The solid has been really at a really good level. LCR ratio, 138 at the year-end. Liquidity at the good level as well. And the ECB tiering structure has been in pretty much full use nearly the whole period. At the year-end, slightly over EUR 300 million. That was my part of the presentation, and I would like to thank you all of you who have been listening to the presentation. Have a good day.