Mandatum Oyj (MANTA) Earnings Call Transcript & Summary

Good morning, and welcome to Mandatum's Q3 audiocast. I am Lotta Borgström from Investor Relations. And it is my pleasure to introduce you our CEO, Petri Niemisvirta, and our CFO, Matti Ahokas, who will guide you through today's presentation. During this audiocast, we will begin by presenting the highlights and key developments of Mandatum's third quarter of 2025. Following this, we will proceed to the Q&A session, where you will have the opportunity to dial in with any questions you may have. As a new feature, participants can also submit questions through the chat which we will review after the dial-in Q&A. With these remarks, I will hand over to Petri. Please go ahead.

Thank you, Lotta. And now let me give you an overview of Mandatum's third quarter of 2025. In Q3, we saw another period of solid growth, which reflects our strong momentum. Our profit before taxes increased by 23% compared to the same time last year. The good earnings growth was supported by the fee result, which increased by 20% from the last year, in line with our guidance. On top of that, our net finance result increased significantly from last year due to the favorable interest rate movements. The capital-light result before taxes, including institutional wealth management, corporate and retail businesses was roughly at last year's level. However, the comparison period included a profit of EUR 3.3 million related to portfolio transferred to If in 2024. Since becoming a listed company, we have made operational efficiency a top priority. One clear sign of this is our cost income ratio, which has improved to 50%, a 13 percentage point improvement from a year ago. This shows that our scalable business model is working. We are able to grow our income without a large increase in costs which puts us in a good position for continued growth. Our financial strength remains solid. In the third quarter, our solvency stayed at a high level and we have generated EUR 0.48 per share in organic capital since the start of the year. It's worth noting that this organic capital generation is a more reliable indicator of our capability to pay dividends than just looking at earnings per share. Looking at the client activity. We achieved a net flow of EUR 163 million, which is especially good given the usual slowdown during the summer holidays. Client assets under management reached a new record of EUR 14.9 billion. This was driven by both strong net inflows and a favorable investment market where the overall market development was much steadier than early in the year. Optimism about earnings growth helps support global stock markets and the bond market was stable. We also saw good sales activity across all our business areas. Our retail business developed as expected, helped by the successful launch of our partnership with Pohjantähti insurance company, selling our personal risk insurances. Loan insurance sales to the Danske Bank channel were active and average coverage amount of granted loan insurances continue to increase. Turning to our corporate client business. Sales of pension insurance and personal funds remain strong. Even though the Finnish economy has faced challenges, our clients have generally performed well in their businesses. Net flow from the corporate clients increased significantly year-to-date. The growth coming mainly from personal funds. The strong corporate net flow shows also the diversification of our capital-light business highlighting the importance of corporate business to our growth story. Net flow from the institutional wealth management business year-to-date was lower than last year, the growth still being clearly above the historical average of 5% of assets under management. Also, institutional wealth management net flow in the quarter was 51% higher than last year. In our institutional wealth management segment, we focus on growing our international presence and private wealth management in line with our strategy. Our efforts are paying off. Sales in Sweden were particularly strong, supporting international institutional sales and assets from international clients grew by 45% year-on-year. We also made process in Central Europe with our first team members starting in the new Luxembourg sales office, bringing us closer to the European customer base. Private wealth management asset increased by 17%, mainly thanks to the clients using full mandate solutions. The largest increase in assets under management was once again in credit and allocation products. Product development continues to be a cornerstone in our business. In May, we introduced the European high-yield total retail fund which focus on Europe and high-yield bonds and has been well received. It has been now already attracted over EUR 100 million in investments. Our mandate to Managed Futures Fund, which uses systematic investment strategies, also attracted significant new investments this quarter. Operational efficiency continued to improve significantly with the cost-to-income ratio dropping by 13 percentage points to 50% over the trailing 12 months. The improved operational leverage demonstrates that the determined focus on cost efficiency is paying off supporting sustainable profitability. Having said that, we have not sacrificed our investments to the future. During the quarter, we recruited new salespeople in order to speed up our growth in the institution and wealth management and corporate segments. While the fee margin decreased slightly to 1.13% due to the growth in lower-margin Institutional Wealth Management business, stand-alone product margins remain stable. And now let's move over to Matti and the figures.

Thank you, Petri. Let's now take a closer look at the third quarter result components. As mentioned, our fee result was up 20% year-on-year with assets under management up by 12%, and if we compare to Q2, our AUM was up by some 3% or around EUR 500 million to EUR 14.9 billion, just shy of the EUR 15 billion mark. The client fee margins were largely unchanged in the quarter when looking on a 12-month rolling basis. We saw similar trends as before, a gradual mix change from the growing international institutional business and a lower share of alternative assets compared to 2024. And as Petri mentioned, the product-specific margins were largely unchanged during the quarter. The cost income ratio of our client AUM continued to decrease according to plan and was 50%. The main driver for this was a 4% higher average AUM versus Q2, which supported income and then a smaller impact from seasonally lower costs. Our net finance result came in at EUR 39 million. Financial market returns were pretty close to normal during the quarter. In addition, we had some tailwind from the long IFRS discounting rates during the quarter. And I'll talk a bit more about this later on. Our results related risk policies in Q3 was down compared to 2024, and you all know that the comparison figure included around EUR 3 million of one-off income from the portfolio transferred to If. Also, the cost CSM release was a bit lower in the quarter due to timing effects, but the new business CSM continued to grow. Capital generation is a key success factor for any financial company, and we still continue to consistently generate capital. Organic capital generation was EUR 70 million in the third quarter. This translates to EUR 0.14 per share. The main positive driver here was the increase in own funds. And one of our financial targets, return on equity stood at 13.6% in the quarter. One of our financial targets is to grow the capital-light profit before taxes by more than 10% annually by 2028 compared to 2024. And if we look at the first 9 months of 2025, the reported profit before taxes was EUR 65 million or 3% below the level of 2024. And as you remember, in the first 6 months of the year, the result was impacted by the turbulent financial markets, FX headwinds from the weaker U.S. dollar and lower sales altogether. But it's encouraging to see that Q3 saw a step change in quarterly profitability. All segments increased their profit sequentially. The quarterly level of EUR 25 million suggests a run rate in line with our financial targets. Also worth noting here again is that the comparison figure in '24 included a EUR 11 one-off gain from the portfolio transferred to If. Adjusted for this, the profit before tax growth in capital-light was 16% year-on-year. Then the group net finance result, up to EUR 39 million in Q3. With-profit investment return in the quarter at 0.9% was below last year and slightly below the expected run rate. Our fixed income portfolio had a negative impact -- negative mark-to-market impact from higher rates, but this was also partly offset by positive spread movements in the quarter. The mark-to-market yield was down slightly, ever so slightly, you could say, to 4.2% due to tightening spreads, and we also did some portfolio adjustments here. But it's important to stress that this is still well above the cost of liabilities. Equities contributed positively this quarter, but as you know, our exposure here is very low. The listed equity exposure was unchanged at 4% of total during the quarter. On the alternative side, private credit had a fairly normal quarter again, but we had a small negative value change in our own real estate portfolio during the quarter. Private equity returns were positive, but slightly below the normal rate in the quarter. If we then look at the long swap rates, they were up by 5 to 10 basis points in the quarter. And the IFRS rates that we use for discounting in the long end of the yield curve increased in the quarter by around 15 basis points, lowering the cost of liabilities by EUR 12 million. The illiquidity premium contributed positively to the IFRS discount rates by around 8 basis points. And as you probably remember, in Q2, the impact was negative in the second quarter. With profit portfolio, interest rate hedging ratio increased further and was unusually high, one could say, at 109 at the end of Q3, this was mainly due to technical factors as the fixed income exposure increased and mainly in the 20-plus year bucket. And as we show in our presentation and although the average hedging ratio is high, there are big differences in the different maturities. And in the third quarter, the hedging ratio was also impacted by tactical bond investments. And finally, worth noting again that the IFRS discount rate mark-to-market changes have no impact on the actual contract cash flows nor our dividend paying capacity. We continue to consistently generate capital. Organic capital generation, as Petri mentioned, was EUR 70 million in Q3 and again significantly higher than the reported IFRS result. In the first 9 months of '25, we generated capital organically by EUR 242 million net of taxes or EUR 0.48 per share. And looking at 2024, for the first 9 months, the figure was EUR 0.34. As pointed out before, we think the OCG is a more relevant measure than the reported IFRS result when assessing our performance and capital generation in particular. Own Funds generation increased the solvency margin by 9 percentage points in the quarter. Group solvency margin increased by 4 percentage points in the quarter compared to the -- compared to Q2, but decreased by 16 percentage points to 206 when taking into account the larger dividend deduction compared to last year. And maybe worth noting still is that the announced sale of the Saxo Bank shares is expected to increase the solvency margin quite significantly around 35 percentage points once the transaction is finalized. And now back to you, Lotta.

Thank you, Matti. And now let's move on to the Q&A. Please dial in or submit your questions through the chat.

[Operator Instructions] The next question comes from (35)8415-289122.

It's Antti from OP. Two questions from my side. Firstly, regarding risk policies. You have guided us that 10% of CSM is a pretty good estimate for results from risk policies. But now it has been 4 quarters in a row quite significantly below that level. So should we do any conclusion about this? And do you still believe that you're going to reach the 10% level this year, meaning about EUR 13.5 million?

Yes. Antti, it's Matti here. A valid question, and your observation is exactly correct. The CSM release has been lower than one should expect. However, I think it's very important to note here that we've actually been generating the CSM. So it's not a question that we won't be kind of -- having the kind of potential release, it just has been slower due to the modeling we use. We are looking into this so that it would not kind of be pushing the CSM too much forward, and it would be a more stable release, and you should still expect the EUR 13 million to EUR 14 million as the annual run rate, of course, in '25, it's lower. But from the following quarters, I think it should be roughly the same. But a valid point, and we're definitely looking into that. But of course, the main thing is that the CSM is still there. The release has just been slower.

Okay. And then other question regarding your very strong fee result. It stated in the report that, yes, costs are seasonally lower in Q3, but were there anything exceptional? Or do you think that the cost base was normal for Q3, so to say?

Yes. I think the cost base was pretty normal for Q3. So -- but the main reason for the improvement in the cost-to-income ratio now in the third quarter was actually the fact that we've been able to grow our AUM. And by AUM, we've talked about the average AUM because in the beginning of the year, there was a lot of volatility in the market. So even though the end of period AUM grew, the average AUM growth was significantly lower. So I would actually say that the bigger impact in Q3 was both in the income side. Costs were maybe EUR 1 million lower than normal. So that was probably the impact in the quarter. So a combination of both, but definitely more impact from the income side because of higher average AUM.

The next question comes from Emil Immonen from DNB Carnegie.

Maybe to continue on the cost/income ratio. So if I understood correctly, it's a lot now scale benefits that you're seeing. But has there been any cost cutting that you're doing that also is showing an effect because I think the jump Q-on-Q in the cost/income ratio was quite big.

Yes. Emil, as I mentioned previously, in this quarter, the impact from higher income was more significant. But as we pointed out several times that operational efficiency is one of our key strategic priorities. And this means then obviously, that it has had an impact. But now in the third quarter, isolated, it was more driven by income, which we are very happy about altogether.

That is good to hear. Maybe then touching on the net flow. So it was negative in both corporate and retail. Could you maybe elaborate on how that should be analyzed?

Yes. Thank you, Emil, Petri here. So yes, it's -- let's say, if I first answer to retail segment. Retail segment has been quite much flat or a little bit negative over the years or quite a long period of time. So we have very old cooperation with Danske Bank and a large portfolio, which was mainly sold in before 2010 when the Sampo Bank was still part of the Sampo Group. And since then, the sale has been let's say, more modest than especially the savings side, not especially in loan, loan insurance side. So there's nothing special on that compared to other years before and other quarters. So of course, we try to enhance and put some speed to Danske Bank sales, but it's quite difficult to really increase a lot that sales on that side. So nothing special on that. About the corporate side, there was some seasonal withdraws from personal funds. So it varies a little bit from quarter-to-quarter. So when the companies are paying the variable compensation payments in spring, so then we will see a lot of inflow in personal funds, which is the largest part of the inflow nowadays. And during the summertime, that's the time when the personal fund numbers are ready, and that's the time when the people has a chance to withdraw their money, so some employees wanted to have their money and use those. So that's a little bit seasonal issues and nothing special in our business wise -- in business and business-wise.

The next question comes from Jaakko Tyrvainen from SEB.

I mean my questions regarding the profit asset allocation and continuing derisking products there. Could you remind us how far you are -- you should be able to rotate the capital from the illiquid asset classes to credit and perhaps liquid equities?

Yes, it's a good question. And unfortunately, we don't really have a good answer to that. What we've seen, obviously, in the market, as you know, private credit has been returning capital quite nicely. So that is functioning normally. The private equity side has been clearly slower, some signs of positive developments there and also some capital payouts already. But of course, the big -- it's the most important factor is how that side will develop altogether, and we still feel comfortable about the guidance that during the strategy period, we will be able to release the capital from those investments and take the derisking, as we pointed out. Important to note out that during Q3, we didn't really have a lot of derisking going on altogether. So this was more of a kind of pause in that direction. But the trajectory is quite clear. We aim to continue there and we see no real changes to that side. And hopefully, the private equity market recovers faster than expected.

Then on the solvency and without transition rules, it was 191%. When thinking your capital guidance and planning and the capital payouts throughout the strategy period. Could you remind us which solvency we should be looking at with or without the transition rules?

It's the one without transition rules. So the 191% and there with the target is 160% to 180%. There is a bit of confusion obviously there because we report several solvency margin figures altogether. And remember that the transition rules, they expire in 2031. So that's still quite a long time ago until then. But our strategy, that is the figure you should be looking at.

Excellent. Then on the net flows, did you see -- during the strong Q3, did you see some pent-up demand coming from the perhaps moderate Q2? And looking a bit towards the ongoing quarter, last year, you had exceptionally very strong quarter in Q4. Was it very exceptional last year? And then how should we think about the net flows towards the year-end?

Thank you, Jaakko. It's Petri here. So I wouldn't say that there was some -- any pending cases from Q2. It was like Q2 was really difficult because of the -- especially April. And we all know that it is a very volatile market, especially in April and beginning of the Q2. But no pending cases. Let's say it was like -- there's a few things why the Q3, we managed to increase our net flow compared to other Q3s in previous years. I think the one is in wealth management here in Finland, we were more active. We had a full calendars when we came back from the holidays in the beginning of August. So really, really high activity towards customers and a lot of meetings that -- that's something we can now see in the figures. And I guess when we are growing our business outside of Finland, it's -- you have to remember that July is not a holiday season yet in Central Europe, and it looks like it's not that much in Scandinavia than it's in Finland. So it also helped us. July was really strong because normally, it has been quite weak on those time, we had only business in Finland. So international business growth is helping us in Q3, especially. And another question, the Q4 last year, yes, you are right, it was especially really, really high level. I can't comment on Q4, which is already going on, but it's -- last Q4, we were very, very successful in getting some very large tickets and institutional tickets from Sweden and international side. So let's see.

Okay. It's helpful. And finally, perhaps few words, if you may, an update on the international expansion. You just launched the new sales office, what are your own expectations when that effort should start to bear some kind of materiality?

Yes. Yes. Of course, we are -- we are not very patient people here. So of course, we are waiting every day and week, things happen and realistic is many times once you have tenders with the large institutions, it takes some time. But of course, we have a very good pipeline already in Central Europe, where we have been before establishing the sales office there. So this is just like a boosting, boosting the business what we have already done there before like 2024 and 2023. So I would say, to be realistic and a little bit optimistic. I guess we will start to see some improvement and a clear change in coming years. So we just established that in September. So I guess it's a little bit too early to wait, big change in our business during this year, but next year is something we hopefully see growth -- faster growth in that area.

[Operator Instructions] The next question comes from Kasper Mellas from Inderes.

My first question is about your profit distribution outlook. So if the sale of Saxo shares would happen in 2026 instead of Q4, would this have any effect on your profit and distribution potential for -- or plans for 2025?