Mandatum plc, Stock exchange release/Interim Report, 8 November 2023 at 9:45 EET
Mandatum Group’s result for January-September 2023
- The Group’s profit before taxes for the period increased to EUR 164.1 million (13.11). Growth was particularly seen in the net finance result, which was driven not only by a good investment return but also by a strong increase in the discount rate for insurance contract liabilities in the third quarter.
- The Group’s fee result was EUR 39.2 million (37.1).
- Net flow for the period amounted to EUR 543.9 million (300.0) indicating an increase of 81 per cent compared to the prior year. During the same period, client assets under management increased by EUR 935.0 million to EUR 11.2 billion (10.3).
- The Group’s Solvency II ratio amounted to 316.9 per cent (265.5; 31 December 2022). The strong result and the increase in the discount rate for with-profit technical provisions increased Mandatum’s own funds and reducing investment risk lowered solvency requirements. The pro forma solvency ratio with dividend accrual was 236.6 per cent. (224.5% at the end of June).
KEY FIGURES
|
EUR million |
1–9/2023 |
1–9/2022 |
Change |
7–9/2023 |
7–9/2022 |
Change |
|
Profit before taxes for the period1 |
164.1 |
13.1 |
151.0 |
83.9 |
-21.2
|
105.1 |
|
Fee result |
39.2 |
37.1 |
2.1 |
12.7 |
18.7 |
-5.9 |
|
Net finance result |
123.7 |
-27.6 |
151.44 |
67.2 |
-50.5 |
117.7 |
|
Result related to risk policies |
9.9 |
3.9 |
6.0 |
7.4 |
-0.1 |
7.5 |
|
Other income |
-8.7 |
-0.1 |
-8.6 |
-3.3 |
10.9 |
-14.2 |
|
Earnings per share € (Pro forma)2 |
0.26 |
0.02 |
0.24 |
0.14 |
0.0 |
0.1 |
|
Equity per share € (Pro forma)2 |
3.33 |
3.25 |
0.11 |
|
|
|
|
Net flow |
543.9 |
300.0 |
244.0 |
96.0 |
46.0 |
50.0 |
|
Return on equity3, % |
10.4 |
0.9 |
9.5 |
|
|
|
|
EUR million |
1–9/2023 |
1–12/2022 |
Change |
|
|
|
|
Client AuM |
11,237.0 |
10,302.0 |
935.0 |
|
|
|
|
Solvency ratio, % |
316.9 |
265.5 |
51.4 |
|
|
|
|
Cost/income ratio related to client AuM |
65.0 |
67.0 |
-2.0 |
|
|
|
1) For the comparative period, comprehensive income items taken into account.
2) The number of shares used in the calculation of pro forma key figures corresponds to the number of shares after the partial demerger of Sampo Group on 2 October 2023: 501,796,752.
3) Annualized.
Mandatum GROUP FINANCIAL TARGETS
|
Target |
|
1–9/2023 |
|
GROUP-LEVEL TARGET |
|
|
|
Dividend |
Mandatum aims to distribute cumulative dividends of EUR 500 million during 2024–2026. |
- |
|
Solvency ratio |
Over the medium term, Mandatum is targeting a solvency ratio between 170 and 200%. |
316.9% and pro forma 236.6%2 when taking into account dividend accrual |
|
BUSINESS AREA SPECIFIC TARGETS |
|
|
|
Business related to the management of client assets |
|
|
|
Annual net flow |
In the medium term, Mandatum targets net flow of 5 per cent of client AuM.1 |
Mandatum's net flows between 31 December 2022 and 30 September 2023 amounted to EUR 543.9 million, which was 5.3% of client AuM and 7.0% annualized. |
|
Fee margin |
Mandatum targets a stable fee margin |
Mandatum's fee margin on 30 September 2023 was 1.2%. |
|
Cost/income ratio (%) |
Mandatum targets improving the cost/income ratio of managing client AuM. |
Mandatum's cost/income ratio related to client AuM on 30 September 2023 was 65%. The cost/income ratio related to management of client AuM on 31 December 2022 was 67%. |
|
With-profit business |
|
|
|
Insurance contract liability development |
Mandatum is targeting the with-profit portfolio run-off with active portfolio management actions. |
The with-profit insurance contract liability on 30 September 2023 was EUR 2,313 million, which is EUR 174 million lower than on 31 December 22 (EUR 2,487 million). |
1) Based on client AuM at the beginning of the period.
2) The pro forma figure takes into account the effect of the partial demerger of Sampo plc on Mandatum Group's own funds and the effect of balance sheet rearrangements in accordance with the demerger plan to the extent that the transactions in question had not yet been completed by the end of the reporting period (Saxo Bank A/S, Enento Group plc and Kaleva Mutual Insurance Company's guarantee share). The dividend accrual is based on the time-weighted total amount of dividends paid for 2022 (EUR 150 million).
CEO's comment
The significant rise in interest rates has been one of the biggest changes in our operating environment over the past year. Central banks fighting against inflation have raised their key interest rates from negative or zero to 4–5 per cent, depending on the economic area. Gradually, inflation is easing from double-digit levels driven by raw materials, but core inflation is decreasing at a significantly slower pace. This keeps central banks' monetary policy tightening further. Economic growth, especially in the United States, has still surprised with its strength, but the growth prospects in Europe are deteriorating. In the Nordic countries, the real economic effects of rising interest rates have begun to manifest the most rapidly so far.
Mandatum's particular strengths lie in fixed income and loan investments, for which the market conditions are highly favourable. Mandatum has benefited from the high level of interest rates, especially in the form of better returns on fixed income investments and lower insurance contract liabilities. On the other hand, within the real estate market, the transaction activity has decelerated, and the present interest rate level does not favor a swift improvement in the situation. Despite the challenging operating environment, capital markets always offer opportunities for us and our investor clients, and of the main asset classes, opportunities are currently particularly available in the bond market.
Solvency at a record high
During July−September, Mandatum managed to sustain its positive growth trend in net flows and to maintain an active client interface despite the challenging operating environment. Net flows from the beginning of the year increased to EUR 544 million (300), which, together with the positive yield development on client assets, increased the total amount of client assets under management by EUR 935 million. Together these factors further increased the company's fee result.
Compared to the corresponding period last year profit before taxes for January–September increased significantly and was EUR 164 million (13). In particular, the result of investment activities increased, partly as a result of the rise in interest rates in July−September. The company's solvency position continued to strengthen and was at an all-time high level at the end of September.
Business areas
Institutional and wealth management clients
The third quarter of the wealth management business was strong in terms of both sales activity and yield development of products. By the end of September, the business area's net flows were at a higher level than in any previous full fiscal year. Mandatum’s assets under
management for loan investment products exceeded the EUR 1 billion mark at the end of September. Yield development of our core products was mainly good. This was positively reflected in both client assets and the business area's profits.
Corporate clients
The success of our corporate client business is strongly linked to the success of our client companies. The economic challenges have not yet significantly impacted the operations of our clients, and as a result, the business area has continued a steady development path. Finnish companies are still competing for capable personnel, making solutions for employee engagement and compensation crucial in our corporate clients' strategies.
Retail clients
On September 15, Mandatum and Danske Bank announced that they will continue their long-term cooperation for the next five-year period, until the end of 2028. The new contract period provides an opportunity to further develop cooperation and solutions offered to the bank's clients.
Excellent starting point for the new
At the turn of September and October, the largest project of the past year, Mandatum's listing on Nasdaq Helsinki, was completed. The project was carried out on a tight schedule in accordance with the decisions of Sampo's Board of Directors. At the same time, the company's administrative structure was reformed to meet the requirements set for listed companies. As expected, trading activity was high as soon as trading began. Throughout the initial week, more than 160 million Mandatum shares were traded, which is nearly a third of the company’s total shares. A huge thank you to Mandatum employees, valued shareholders, and all other contributors who facilitated Mandatum's seamless transition into a public listed company.
I believe that our way of operating, skilled personnel and strong client satisfaction will support our efforts in achieving our goals in a changing operating environment.
Petri Niemisvirta
Chief Executive Officer
FINANCIAL HIGHLIGHTS IN JANUARY-SEPTEMBER 2023
Mandatum Group's profit before taxes for the reporting period increased by EUR 151.0 million to EUR 164.1 million (13.1). All the company's key profit components, including the net finance result, increased compared to the comparative period.
In January–September, Mandatum's fee result increased by 5.4 per cent compared to the comparative year and amounted to EUR 39.2 million (37.1). The average client assets during the reporting period were approximately 3 per cent higher than the client assets in the comparative period. The fee result for the comparative period includes EUR 8.5 million in non-recurring performance-related fees. On the other hand, the result for the comparative period was negatively impacted by a EUR 3.3 million increase in the loss component, with EUR 1.5 million subsequently recovered through profit or loss during the reporting period. During the reporting period, client AuM increased by EUR 935 million. Client AuM increased due to both net flows of EUR 544 million and a positive market return on client assets. The fee margin of 1.2 per cent and the cost/income ratio of 65 per cent related to client assets under management remained at the same level as the comparative period.
During the period from January to September, institutional and wealth management segments played a pivotal role in driving substantial growth in client assets under management. Notably, the most rapid expansion was observed within the categories of foreign institutional clients and ultra-high-net-worth clients. The growth in the wealth management segment was supported by strong collaboration between corporate sales and wealth management. AuM growth was strongest in fixed income products. In the context of retail clients, we announced, as of 15 September 2023, the extension of Mandatum’s partnership with Danske Bank for an additional five-year term. This new agreement lays a strong foundation for the ongoing development of our collaborative efforts.
The net finance result related to with-profit business increased to EUR 118.7 million (-27.6). The investment return was 3.6 per cent (-10.5) and for segregated investment assets, it was 4.6 percent (-7.8). In addition to the good investment return, the increase in the discount rate for insurance contract liabilities supported the net finance result, increasing the net finance result particularly in the third quarter. Mandatum Group’s other interest income was EUR 5.0 million, raising the Group’s net finance result to EUR 123.7 million.
The company significantly reduced its investment risk during the first half of the year. The most notable change is the reduction in the original portfolio’s equity allocation from 19.9 percent to 8.3 percent. This change in risk level lowered the company’s capital requirements by 135 million euros during the first three quarters of the year, which is equivalent to 14 percent of the year-end capital requirements.
The result for risk life insurance was EUR 9.9 million (3.9). In September, Mandatum announced the termination of distribution cooperation with If P&C Insurance Plc (If) and the transfer of the portfolio of risk insurance contracts sold and managed by If. The portfolio transfer is expected to be completed by autumn 2024. The purchase price is EUR 17.5 million, of which approximately EUR 8 million increased the result for the first nine months, of which EUR 3 million affects the result of risk life insurance and approximately EUR 5 million affects the net finance result. The remaining contractual service margin for this portfolio is approximately EUR 10 million, which is expected to be realised in the company's result between the end of September and the date of the portfolio transfer.
The key event during the period was Sampo's decision on the partial demerger and listing of Mandatum on 2 October. In connection with the partial demerger, the parties agreed on the transfer of Sampo's Saxo and Enento investments and some other smaller investments to Mndatum Holding. Sampo’s ownership of Saxo Bank A/S is 19,43 per cent and of Enento plc is 12,15 per cent. The sales contract for the Saxo transaction was signed in September and the transaction is expected to be completed in the first half of 2024. The transaction is subject to regulatory approval. Sale of Enento plc shares is expected to be completed during November 2023.
Mandatum's solvency ratio was 316.9 per cent on 30 September 2023, corresponding to an increase of 51.4 percentage points compared to the situation on 31 December 2022, when Mandatum's solvency ratio was 265.5 per cent. During the period, the development of Mandatum’s own funds was fairly stable: the net finance result was good, and the rise in interest rates reduced technical provisions in accordance with solvency calculations, which contributed to the increase in Mandatum’s own funds. The solvency capital requirement decreased during the period mainly due to a decrease in listed equity allocation covering the with-profit insurance portfolio. The decreased interest rate risk also reduced the solvency capital requirement. Considering the pro forma solvency ratio together with the time-weighted dividend accrual on 30 September 2023 was approximately 236.6 per cent. The difference from the official solvency ratio is due to the restructuring of Mandatum's balance sheet in connection with the partial demerger of Sampo, which is described in more detail under "Group solvency” in the Interim Report.
THIRD QUARTER 2023 IN BRIEF
Mandatum Group's profit before taxes for the third quarter was EUR 83.9 million. The comprehensive income for the comparative period was EUR 21.2 million negative. The most significant reason for the strong improvement in the result was the net finance result, which was EUR 67.2 million, while the comparable result for the comparative period was EUR 50.5 million negative. The investment return on the original portfolio assets was 0.5 per cent in the third quarter, and in addition to that, the increase in the discount rate of insurance contract liabilities improved the net finance result. For the comparative period, the return on investment assets was -2.3 per cent, which was only partially offset by the increase in the discount rate during the quarter.
The fee result for the third quarter was EUR 12.7 million (18.7). The fee result for the comparative period includes non-recurring fee income of EUR 8.5 million. Net flows for the quarter were EUR 95.9 million, which represents an increase of EUR 49.9 million from the comparative period (46.0).
The result related to risk policies for the third quarter was EUR 7.4 (-0.1) million. The growth was driven by the release of the contractual service margin (CSM) and risk adjustment (RA), and the result was EUR 6.2 million higher for the quarter compared to the comparative period. The share of the growth attributable to the portfolio transfer agreement signed with If was approximately EUR 3 million.
The solvency position developed favourably due to the good result for the quarter and higher interest rates. The pro forma solvency ratio, including dividend accrual, increased from 225 per cent at the end of June to 237 per cent.
OUTLOOK
Outlook for 2023
Mandatum Group's capital-light client business related to client assets under management is expected to achieve net flows in 2023 that are 5 per cent of client assets under management. The market situation and client behaviour affect annual net flows. Although Mandatum has been able to maintain disciplined pricing and a stable fee margin in its client asset management business during the third quarter, the fee result for 2023 is also dependent on capital market development.
In its with-profit business, Mandatum is confident in the long-term reduction of the with-profit portfolio, although there may be annual fluctuations in the development of the portfolio.
The financial outcomes of the investment and financial operations are subject to fluctuations in the capital markets, notwithstanding the substantial reduction in market risk within the with profit portfolio. Furthermore, in line with industry standards, Mandatum's overall performance is impacted by adjustments to actuarial assumptions, which are periodically revised.
The major risks and uncertainties for the Group in the near term
In its daily business, Mandatum Group is exposed to various risks and uncertainties primarily through its key business areas. Mandatum Group's profitability and its fluctuations are affected by market, insurance, expense, and operational risks. For Mandatum Group, the key risks in the near term are unexpected changes in the investment market and a decrease in interest rates. Unexpected changes in the investment markets may reduce the amount of client assets under management and weaken the result of investment and financing operations. A decrease in interest rates increases the with-profit insurance contract liabilities and thus weakens the result of investment and financing operations.
Unpredictable, significant events may have an immediate impact on Mandatum Group's profitability. Identifying uncertainties is easier than estimating the probabilities, timing, and extent of potential economic impacts of uncertainties. Macroeconomic and financial market developments affect Mandatum Group mainly through investment assets and insurance contract liabilities. Over time, possible unfavourable macroeconomic impacts may also be reflected in Mandatum's operative business. For example, a decline in economic growth may have a negative impact on the development of client assets.
Restraining inflation may force central banks to continue raising interest rates and keep interest rates high for longer than expected. This could lead to both a significant slowdown in economic growth and difficulties in coping with debt for companies, households, and governments. In addition, restructuring Europe's energy supply will take time and create the risk of an energy crisis. The war in Ukraine also remains a significant economic risk, as does the tense situation in the Middle East. These factors currently create significant uncertainty for the development of the economic and capital markets. Simultaneously, rapidly evolving hybrid threats create new challenges for governments and businesses. There are also several commonly recognised macro-economic and political factors, as well as other sources of uncertainty, which may negatively affect the financial sector in many respects.
Mandatum's balance sheet does not include significant direct investments in Russia or Ukraine. Considering the low level of direct risk positions, the greatest risk to Mandatum arising from the war in Ukraine is related to the secondary impacts on the capital markets and macroeconomics described above.
Other sources of uncertainty include unpredictable structural changes in the operating environment as well as already identified trends affecting the operating environment and potential events with major impacts. These external factors may also have an impact on Mandatum Group's business operations in the long term. Examples of identified trends include demographic changes, sustainability themes, and technological developments in areas such as artificial intelligence and digitalisation, including cybersecurity-related threats.
Conference call on 8 November at 4:00 PM (Finnish time)
A conference call in English for analysts and investors is scheduled for 8 November 2023, at 4:00 PM (Finnish time). You can register for the conference call using the link provided below. The phone numbers for the conference call and the associated code will be provided upon registration.
Registration for the event: https://palvelu.flik.fi/teleconference/?id=10011941.
The conference call can be followed live on the internet at www.mandatum.fi/en/result. A recording of the call will be made available for later access at the same web address.
Additional information
Petri Niemisvirta, CEO, petri.niemisvirta@mandatum.fi, +358 10 516 7200
Jukka Kurki, CFO, jukka.kurki@mandatum.fi, +358 50 424 6630
Niina Riihelä, SVP, Marketing and Communications, niina.riihela@mandatum.fi, +358 40 728 1548
Lotta Borgström, VP, Investor Relations, lotta.borgstrom@mandatum.fi, +358 50 022 1027
The supplementary presentation material for investors accompanying Mandatum’s interim report is available at www.mandatum.fi/en/result.
Mandatum will release its financial statement for the year 2023 on 13 February 2024.
Mandatum in brief
Mandatum is a major financial services provider that combines expertise in money and life. Mandatum offers customers a wide array of services covering asset and wealth management, savings and investment, compensation and rewards, pension plans and personal risk insurance. Mandatum offers services to corporate customers, retail customers as well as institutional and wealth management customers. At the center of Mandatum's success are highly skilled personnel, strong brand, and investment track record. mandatum.fi/en/group
Distribution:
Nasdaq Helsinki
Financial Supervisory Authority
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