Good morning, and welcome to Allfunds' preliminary financial results presentation for the full year 2023. Thank you for joining us today. For today's presentation, let me begin by reminding you the logistics. We would like to spend the first 30 minutes on the presentation and an additional 30 minutes for Q&A. As a reminder, I would like to point out that the results presentation and supplemental Excel information can be found right after the event, under the IR section of our website at allfunds.com. This call is being broadcast live, and a replay will also be available on our website. For first-time viewers, joining me on today's presentation are Juan Alcaraz, Allfunds' Chief Executive Officer, and Álvaro Perera, the company CFO.
Juan and Álvaro will provide a company update, as well as an overview of the company's preliminary 2023 financial results. After our prepared remarks, we will open the call to questions. With that, I will now turn over the call to our CEO, Juan.
Thank you very much, Silvia. Good morning to everyone. It's a pleasure to be discussing our full-year results with you today. As you might have seen in the statement we have published early this morning, 2023 was a very strong year of growth, financial performance, and delivery of our strategy. I am excited to share these results today. In 2023, we had a record performance against several operating and profitability metrics. Assets under administration have grown 7%, driven by positive market contribution and continuous client wins. This compares with a 4% growth of the European cross-border UCITS industry, which indicates we continue to gain market share. I will discuss this a little bit later. We reached historical record revenues of EUR 546 million, with a growth rate of 10% year-on-year.
Our revenue margin increased to 3.6 basis points, driven by the resilience of Allfunds' operating model, which resulted in a strong treasury income of EUR 76 million, offsetting a lower level of transactional activity. Subscription revenues grew by more than 46% last year. Our adjusted EBITDA increased by 3% and amounted to EUR 359 million, and our adjusted EBITDA margin stood at 66%, in line with 2023 guidance. We also reached record reported EBITDA of EUR 319 million, following the significant reduction of separately disclosed items. We had a strong and consistent delivery on our strategy. First, our flywheel effect remains strong. We onboarded a record number of new distributors in Asia, and we persist diversifying by geography and type of client.
This is something you have heard me several times, but I would like to stress the importance of our winning business model that allow us to attract and win clients from all around the world. In line with above, we had a solid level of migrations, as we guide you this year, amounting to EUR 60 billion, when considering also the EUR 11 billion of Iccrea Banca paying agent acquisition that came late in late December. In addition, we are happy to share with you that after many months of significant outflows, we are starting to see a change in trend, with a strong deceleration of outflows experienced last December, and we have seen that this trend has continued in 2024. Subscription-based revenues are poised for significant organic growth, thanks to cross-selling initiatives related to completed M&A.
Finally, we carry on with an active capital allocation between growth and shareholder distributions. We are increasing our capital distributions, as rewarding our shareholders is one of our main priorities. We have distributed more than EUR 100 million to our shareholders last year, a 91% increase compared to 2022, through the EUR 50 million of the first tranche of the share buyback and EUR 56 million in dividends. We plan to propose a dividend of around EUR 0.09 per share at the next AGM, approximately EUR 58 million in total for the financial year 2023. This implies a 27% payout ratio based on our adjusted net profit. As you know, we closed two strategic acquisitions last year.
First, MainStreet Partners in February, complementing our outstanding offering in the wealth tech space, and the local paying agent business of Iccrea Banca in Italy last December, which has helped us to consolidate our leadership position in that segment of the business. Let's first discuss business growth, starting with AUA on slide number five. We have achieved AUA growth of EUR 1.38 trillion, almost 7% above December 2022 levels. From the three engines of growth, I always like to explain you, we had two strong engines performing and contributing positively. Market performance, which was positive, especially in the last part of the year, but also in Q1 and Q2.
Just to give you a reference, full year 2021, which was an outstanding year in every metric, was only EUR 5 billion above this level of market performance, EUR 78 billion in 2021 compared to EUR 73 billion last year. The second driver behind this AUA growth are new client migrations, being able to offset outflows from a limited number of clients. We have achieved consistent market share gains throughout the last 10 years, and this year was not an exception.
Within our control, I reiterate that we continue to win a larger share of our TAM, and we see material upside potential in the coming years. Following the temporary reduction in the penetration of open architecture that we saw since mid-2022 until June 2023, we are seeing open architecture recover market share, given that long-term structural trends are intact and the need for more diversified investment products increases.
Year 2023 saw a significant growth in captive flows due to a strong commercial push by large distributors for mutual funds with fixed-term durations, driven by the current market sentiment and volatility, combined with high base interest rates. Some large distributors shift some assets into low-risk captive money market and short-term maturity fixed income funds. As a reference, looking at some of our core markets, Spain and Italy, around EUR 41 billion of assets were invested in conservative products in Spain, and around EUR 250 billion in Italy. We believe that there is a fantastic opportunity on potential inflows. Around EUR 85 billion have the potential to be invested in open architecture, especially treasury notes and mutual funds with 2024 maturity, another fixed income with maturity in the next two to three years.
As I have said before, Allfunds has experienced outflows from existing clients during 2023, higher than what we expected when we started the year. But two main conclusions can be extracted. Flows have been resilient from the vast majority of clients. Main outflows experienced throughout 2023 were concentrated in less than a handful of large distributors, who are moving the conservative products away from open architecture funds to captive funds. European cross-border fund outflows has slowed down last year compared to 2022. In that same trend, we have seen a strong deceleration of outflows toward the end of the year, with outflows from existing clients nearly ceasing in December 2023. As a result, Allfunds is poised for inflows from existing customers again. Moving now to our strongest engine of growth, migrations.
Migrations from new clients have continued to be strong, which underpins the strength of our franchise. We onboarded 53 new clients, and we brought EUR 48 billion of new assets into the platform. We win clients from all around the world, as you see. More than 50% of our new clients are coming from Asia and Americas. We keep our focus on the sweet spot of mid-sized clients, from EUR 500 million-EUR 5 billion, which are more attractive to us from a business perspective. It has been the best year in attracting this type of clients, while capturing significant share from competitors, helping us to diversify our distributor base. As a result, as you see in the next slide, we have managed to significantly reduce the weight of our four strategic partners with exclusivity agreements.
They account for only 26% of our net revenues as of December 2023, and we expect this to continue over the time. Our flywheel effect remains as strong as ever. We keep on winning new distributors and onboard new fund houses, which in turn make our asset base grow and turn them into even stickier customers, as proven by our extraordinary retention rates. But all of this would be incomplete if we didn't make our proposition to our clients more compelling. Many of you, you always ask me, no, about, well, why clients choose Allfunds, no? And this is all about our true competitive advantage, no, which is so difficult to replicate, no. The most compelling one-stop-shop platform, supported by best-in-class proprietary technology, offering the most complete range of services to our clients.
From the most basic ones, billing and execution or regulatory solutions, to the most powerful ones, like tech solutions, data and analytics, and innovative solutions like blockchain and digital investments. With the new additions of last year, ESG services and the private markets platform. Thanks to a sound, long-term, and consistent strategy, we have successfully navigated through the most difficult period in the last markets, in the last 50 years. Since we are talking about strategy, let's have a quick look at our defined strategic growth pillars. Three main strategic growth drivers that will be our focus in the next years. First, our leading B2B platform.
Thanks to our strong flywheel and network effect, we will keep on increasing our share in current markets while we expand into new regions. Second, our subscription business is instrumental for our enhanced value proposition.
To ensure we accelerate the penetration and share of wallet of our client base, we will keep on investing while we reinforce our existing capabilities, both organically and also inorganically. The Allfunds Alternative Solution platform, this is a high growth and margin accretion potential opportunity for us, and it fits perfectly with Allfunds' strategy to be a one-stop shop for distributors and fund houses. I would like now to spend a little bit more of time, no, in these, initiatives. First, our pipeline. Our pipeline continues to be very strong, both in our traditional business and also in the subscription-based revenue business. On the traditional platform business, our pipeline remains at EUR 150 billion for a second consecutive year, with a high diversification by region and by client type.
This again proves that clients want to accelerate the shift to open architecture and look at the leading entity in the space. As we share with you in our latest trading update, we are seeing an acceleration of the subscription-based revenues pipeline. As you can see on the right-hand side of the slide, we have doubled the pipeline for 2024, thanks to the cross-selling opportunities that the recent acquisitions bring. More importantly, the new clients will come from all around the world. On the traditional platform business, we believe there are clear opportunities to expand further globally. Looking at three main regions in which we are present, our strategy is based on, first of all, consolidating our leadership position in core markets.
Second, keep on growing in new markets where we are underrepresented, such as Germany and France. Capture large opportunities in expansion market.
This is the case of Latin America, but also China and India. We hope to provide you with more information around these new markets during the year. We have been focusing heavily on expanding our subscription revenue base pool, and I'm very proud of what we have achieved in terms of growth and diversification. We have a team of 224 people, fully dedicated and delivering value-added services to our clients. We have been successful so far implementing a double strategy of organic growth and selective M&A. This has resulted in achieving an 11% of contribution to total revenues. But as we explained last year, our ambition is to reach a 30% in the medium term. We have increased our subscription revenues by more than 46% following the integration of latest acquisitions. The opportunity in this segment remains very large.
As you can see, the penetration levels are still low. Only 26% of our distributors are paying for value-added services, and just 45% of our fund houses require these services for the moment. Moving now to our strategic project of last year, Alternative Solutions, I want to share with you the progress that we have made. As you might remember, our Allfunds Alternative Solutions platform was launched just last year. We have been focusing on bringing the best technology enhancements to the alternative space, making easier and more efficient the access to these products. In parallel, we launched the Allfunds Private Partners program, a unique way to tap this opportunity. We have brought the top global alternative fund houses as they consider Allfunds their ideal partner to access this opportunity in Europe and other regions.
Why we believe that Allfunds is ideally positioned, to lead this opportunity? Well, Allfunds' leading full-service offering on its traditional platform can be extended at scale across the alternatives platform. This is a massive untapped revenue opportunity for Allfunds. Alternatives funds is a large asset pool in Europe, with higher growth than other asset management segments and lower AUM volatility. It fits perfectly with Allfunds' strategy to be a one-stop for distributors and fund houses, as they are currently focused on growing in alternatives, too? The financial case is also very strong because alternatives have the highest platform service margin. Following the great adoption and interest that fund houses have expressed this year, private markets are expected to grow exponentially, and investors are more willing to allocate more assets into alternatives over the next years.
There is a significant runway based on a large addressable market that we estimate to be around EUR 4 trillion-EUR 10 trillion in the medium term. Finally, a slide that we generally use to remind you, our stakeholders, that Allfunds has a unique business model and an extremely attractive investment case in the industry. We keep proving our leading position as a scaled global WealthTech. We have an increasingly compelling value proposition as a one-stop shop. We offer a unique and attractive revenue model, widely diversified, and have a superior financial profile based on high growth, high margin and profitability, low risk, and high cash flow conversion. With that, let me now turn to, turn the call over to Álvaro, who will take you through our financial results. Thank you very much.
Excellent. Thank you, Juan, and good morning, everyone. I will now run you through the key financial figures and explain the main underlying drivers of this strong performance. Let me start with a few key performance indicators on slide 21. As you can see, we have delivered strong financial performance in 2023, combining growth, profitability, and cash generation, three pillars of our financial profile. In 2023, the company delivered record net revenues of EUR 546 million, a 10% growth versus 2023, an adjusted EBITDA of EUR 359 million, implying a margin of 66%, in line with our guidance, and an 80% pre-tax cash conversion. As we said last year, 2023 was a year of return to attractive growth and operating leverage, and we have delivered it.
Despite the challenging external environment, with multiple global shocks, combined with the fastest interest rate hikes in modern history, Allfunds has comfortably delivered on our guidance for the year. This reflects the strength and diversification of our business model and the good execution against our plan. Growth in revenues was at the upper end of our range and a slight acceleration in the second half. Margin continued to expand, and we reached 66% Adjusted EBITDA margin. But let me take you through some of these metrics in details. So starting with the unaudited income statement for the full year 2023, net revenue increased by 10%, thanks to both the contribution from platform and subscription revenues. Our Adjusted EBITDA stood at EUR 359 million, growing by 3%, underpinned by improved operational leverage as the platform continues to scale further.
The reported EBITDA increased by almost 20%, driven by significant one-off cost reduction of almost 52%. Focusing on the bottom line, our adjusted profit after tax was affected by higher financing cost and incremental D&A from the recently acquired businesses. However, our reported earnings per share increased by 74%, from EUR 0.08-EUR 0.14 per share . Turning our attention again to the top line, Juan highlighted that our business momentum and the increased diversification of our revenues. We reached a record net revenue of EUR 546 million in 2023. When looking at the revenue mix, you'll see that the platform revenues have increased by 7% year-on-year and amounted to EUR 487 million.
This was thanks to the resilience of our commission income in the second half and the contribution of net treasury income, which more than offset the temporary decline in transaction revenues, which remained below historical levels, given transactional activity remained subdued for most of the year. These are at a cyclical low, and we expect a recovery to more normalized levels in 2024. As I'm sure you recall from our H1 2023 call, net treasury income is a key component of our revenue. It acts as a natural hedge against impact from asset rotation into less risky or lower margin assets. The sources of this revenue are stable customer funds that are sent to Allfunds in connection with their transactional activity, i.e., subscription and redemption of funds, in which we invest daily in low-risk entities.
We consider this revenue line not only stable but also highly diversified, as cash balances come from over 1,000 counterparties, comprised of fund houses and distributors. Therefore, we expect a stable contribution going forward in a more normalized environment of rates as we continue growing our business and gathering new assets. At the same time, subscription revenue grew by 47% year-on-year, driven by incremental revenues from acquired businesses and strong mid-teen growth of non-M&A-related revenues. Please note that all these businesses are now fully integrated into the Allfunds ecosystem, which should drive significant growth acceleration in the next years. Let me now dive a little deeper into the main drivers behind these strong results. Platform revenue margin has increased from 3.4 basis points to 3.6 basis points , in line with the guidance we provided.
This was due to the improvement of our platform service margin from 4.7 basis points to 5.1 basis point, and a stable dealing execution margin, which remained at 0.2 basis points. The increase in platform service margin is mainly driven by the net treasury income contribution, which has compensated the temporary decline in transaction revenues and the progressive shift to non-rebate model, which stands at an all-time low. We'll have a chance to look at this in the coming slide. So let's pause on slide 26 and provide you with a bit more of an explanation on how our margin has evolved and our guidance. So platform margin has remained consistently above the 3.3 basis points IPO guidance since 2020.
It has been a long-term strategic priority for management to transition from traditional rebates that accounted for almost 30% of total AUA in the year 2017 to Allfunds platform fees. This has driven most of our historical margin compression. However, we have managed to achieve a much stabler margin while hedging ourselves from any potential impact derived from regulatory changes. As of December 2023, rebate-earning AUA accounted only for 12% of total AUA, and I think it's worth noting that around 42% of those assets are also covered by Allfunds platform fee. However, our ambition is to continue increasing this coverage to 100% over time.
If you pay attention to the graph at the bottom, you'll see that net treasury income compensated a temporary decline in transaction revenues, that strong growth in regions like the U.K., which have contributed very positively to revenues but slightly negatively to margins. Three, the higher weight of the platform service has almost entirely offset the revenue model shift from rebate to platform fee, and as a result, we obtain a resilient commission income margin. So let us shift our attention now to costs. In 2023, we experienced a cost rebasement. First, unwinding the variable compensation adjustment from 2022. Secondly, the incremental cost to serve the BNPP assets, as we forecasted at the time of the IPO.
Third, the full year impact of companies that were acquired back in 2022, and finally, the incorporation of a new cost base linked to the latest acquisition, mainly MainStreet Partners. The rebasement is now completed, so on a like-for-like basis, our cost basis grew by only 5% year-on-year, 6% in personal expenses, and 4% in SG&A expenses, as we managed to offset some of the inflationary pressures with platform efficiency programs while we continued investing in our growth initiatives, such as subscription business and alternative platform. I would like to reiterate our commitment with cost discipline. We expect the cost structure to remain stable going forward and to benefit from the operational leverage that the company has.
So even despite the cost rebasement and the new M&A, which was onboarded at a lower Adjusted EBITDA margin, we were able to deliver high profitability in line with our guidance of mid-60s, while growing our Adjusted EBITDA by 3%. As we continue scaling, Adjusted EBITDA margin should progressively improve towards the 70%, as we've seen in the past. I would also like to outline the record reported EBITDA achieved in 2023, which increased by almost 20%. Now turning our attention to outlook for 2024. We have started the year with positive momentum, with supporting markets already contributing 2% of growth to AUAs and carrying over the improved flows picture that we saw towards the end of 2023.
We are optimistic, sorry, that those flows will turn positive again this year, and we see encouraging dynamics, but it is too soon to predict when this will happen. Assuming no incremental contribution from markets, we are guiding to AUA by the end of 2024, between EUR 1.45 trillion- EUR 1.5 trillion, supported by EUR 40 billion-EUR 60 billion of migrations and limited impact from flows. We acknowledge that if early year dynamics carry on, we could see an upside potential from markets, and more importantly, earlier recovery of flows, but we need more evidence. We see 2024 revenue grow -ing at high single to low double digits, supported by AUA growth, higher transactional activity after a subdued 2023, and three, a stable treasury income, as already mentioned.
We expect subscription revenues to grow at mid - to high teens, in line with what Juan has already outlined. And finally, we continue to focus on our operational leverage with an intention to at least maintain last year's Adjusted EBITDA margin and an ambition to keep improving it to a 70%. Thank you very much for your attention, and let me hand it back to Juan.
Thank you, Álvaro. Let's now open the Q&A part. Thank you very much.
Thank you, Juan. Thank you, Álvaro. Let's move on to the questions next. As it is customary, please limit yourself to one question, plus one follow-up. You may get back into the queue if you have additional questions. Operator, can you please proceed with the first question, including name and company of the caller?
Of course. Our first question today is from Haley Tam, from UBS. Haley, please go ahead. Your line is open.
Morning. Thank you very much for the presentation, and for taking the questions. Could I ask one then, please, on existing client fund flows? Obviously, there is the third BTP Valore issue going on this week, and thank you very much for the details you gave us on slide seven. I just wondered, could you maybe help us think about any potential impact of the current and future BTP Valore issues by telling us the contribution of Italian distributors to Q4 outflows? And then if I look at the details on slide seven, would I be correct in concluding that the EUR 44 billion of potential Italian flow coming back is not expected to come back until after those Valore maturity dates, are a few years away? Thank you.
Thank you very much. Well, I think we have seen it, no, during the presentation. There has been a clear change of trend regarding flows, no? In fact, we have countries like Spain already in positive, no, some other countries not yet there, but there is a clearly improvement, and I believe we are already there, knowing that inflection point, no? And regarding the opportunity, I mean, here, what we just wanted to say is that part of these outflows, no, that we experienced last year, our distributors experienced last year, were basically, you know, this move from big distributors to captive products, captive funds, fixed income, no, captive products.
But the good news for Allfunds is that the maturity of many of these products is pretty short. Okay? And that's basically what we try to explain now in slide seven, where out of all those billions that were distributed last year in Italy and Spain, we estimate that around EUR 85 billion, okay, are expiring, the maturity is expiring in 2024. Okay? And this is a clear opportunity for Open Architecture, you know, to capture part of these assets. Basically, that's what we are trying, you know, to explain in this slide.
Thank you very much.
Thank you.
Thank you. Our next question is from Panos Ellinas, from Morgan Stanley. Panos, please go ahead.
Yeah, hi. Thanks for taking my question. My question is around the revenue growth guidance. I just wonder, what shall we expect for NTI? Should it stay steady or go down? What do you factor in your guidance? And then what do you also factor for transactional revenues? Thank you.
Yeah. Hi, Panos. So on treasury, based on what we know today, with regards to flows, sorry, to rates, we're expecting stability around that number. So we expect a first half of 2024 should be very much like the second half of the previous year. We haven't seen any meaningful changes in the amount of cash that our clients leave on our balance sheet. So, on that front, we feel very comfortable.
And then with regards to the second half of the year, well, depending on when we start seeing those rate cuts and the amount of those cuts or the size of those cuts, we should probably see something, well, slightly below, no, or more in line with the first half of the previous year. So long story short, our expectation is to be around, yeah, around similar levels as 2023. With regards to transactional revenue, we are, let's say, a bit more optimistic versus the previous year, so versus 2023. As I mentioned in my presentation, we saw, I would say, an abnormally low level of transactional activity, especially in the Banca Corrispondente business, which we expect to pick up.
In fact, we are already seeing, I would say, positive signs in this start of the year. And remember that we also have the Iccrea LPA business contributing since day one, which did not contribute almost anything now meaningful last year. That should also help improve the transactional level revenue for the year 2024.
Thank you very much.
You're welcome.
Thank you. Our next question is from Alex Medhurst from Barclays. Alex, please go ahead. Your line is open.
Yeah, morning, all, and thanks very much for taking my question. I just wanted some color to help square the operating margin guidance, the sort of flat operating margins this year versus 2023. Kind of conscious of your comments that we're seeing a better operating environment, potentially some tailwinds from markets, better flows, strong migrations, and also controlling costs in the background with, you know, some of the value M&A impacts fading in 2024. So just conscious, is there anything that we're missing here that would stop you from being more optimistic on a, you know, on a higher operating margin in 2024 versus 2023? Thank you.
Hi, Alex. No, you're right. In fact, we are slightly more optimistic than last year. But, you know, management is typically prudent when putting together the outlook. So, I stick to the guidance, to the outlook that I shared with you a few minutes ago. I think we should expect stable margins in the mid-60s region and, yeah, hopefully, a bit higher.
Great. Thanks very much. Maybe just a very quick follow-on.
Sure.
Can you help scale the ongoing impact from the model shift from rebate? And, you know, are we expecting a similar level of headwind in 2024, 2025, et cetera, or is there a point where that starts to trough? Thank you.
Well, Alex, it's hard to tell because while it is true that management now, and I've mentioned it earlier, has pushed on and sponsored that shift, no, it is also true that the rebate-earning AUA are more, slightly more profitable, right? So we need to keep a balance between that hedging effect that I talked about, but also, well, let's say, face it, so that we don't leave too much money on the table. On the other hand, it is also true that we are already reaching, I would say, relatively low levels of pure rebate-earning assets, as I said. So that 12% has more than 40% platform fee coverage, right?
Which, I mean, is something that we are planning to expand. But you shouldn't read into my statement that that is something that's going to happen in 2024 or even 2025, right? So if we can phase it over the next years, that's something we're going to do. I don't know, Juan, if you want-
No, thank you. No, Álvaro, absolutely. I mean, of course, you know, it's not under our control, which type of share class, retail or clean, our clients distribute. But what is under our control is to protect our margin, and that's exactly what we are doing with this extension, or expanding, the platform fee on top of all the retail surplus assets. And we have a plan, of course, you know, and as Álvaro said, I think we are not in a rush, but we believe that in the next 3 to 5 years, potentially around 95%, you know, to 100% of the retail surplus assets should be, should have, on top, a platform fee.
protecting, again, our margin and reducing the volatility of our revenues that we generate with the rebate.
Great. Thank you very much.
You're welcome, Alex.
Thank you.
Thank you. Our next question is from Alexandre Tissier from Bank of America. Alexander, please go ahead. Your line is open.
Hi, good morning. Thanks for taking my question. Just a quick question on the Swiss situation, the big Swiss client. Do you have any terms, any update on that? Are you still seeing some kind of outflow from there, or is it clearly moderating? Thank you.
You want Álvaro or...
I'm sure, Alexander, you understand, we don't want to single out any of our clients. So unfortunately, this is not something we, we can share. I think what you can imagine is that the situation that this client went through a year ago. Let me say it differently, in a different way. So they're not in the same place they were a year ago, right? Which is definitely very positive. But they will probably behave now in a or you should think about their behavior very similar to what we've seen with other clients. I don't see a reason why we should single them out, no? Because, as I said, no, their special situation, no, they, they went through is past, everyone.
I agree, yeah. I think the change of trend that we mentioned now during the presentation also applies to Switzerland, not just to a single client in Switzerland, but, you know, let's say to Switzerland and to Central Europe and, yeah, it's a slightly clear change of trend.
Thank you.
Thank you.
You're welcome.
Thank you. Our next question today is from Greg Simpson from BNP Paribas. Greg, please go ahead. Your line is open.
Yeah, morning, and thank you for the useful presentation. The first question would be, at the H1 stage, you outlined a 4.4 basis point platform service margin, excluding NTI. Can I just confirm it remained around that level in H2, and is the outlook stability from here, or is there any, you know, positive or negative factors you'd flag, you know, where that some of the flows have been skewed towards money market funds, for instance?
And then the second question would be just on the dealing and execution book. Is it possible to have an update on how much, you know, business you've migrated successfully to the platform service, and is it still the case that you know is a source of new kind of flows going forward in terms of opportunity? Thank you.
Okay. Thank you. Let me take that one. Sylvia, perhaps if you can move to the margin slide. So, Greg, quick answer is we do expect. No, the next one, please. We do expect stability in margins going forward. Treasury income contribution, as you can see on slide 26, was around 0.6. Of course, as the margin - sorry, as the business continues growing, and we see, well, net treasury income more stable in absolute terms, you should see that relative contribution, now in terms of margin, decreasing over time. But we're not expecting any meaningful impacts in absolute terms, no?
With regards to dealing execution and potential client conversion, yes, we've seen two clients from the top of my head converting back in 2023 to platform service. But as I think we mentioned a few calls ago, it's not something that the company or the sales team is prioritizing. Of course, we have still some opportunity there, but there are other bigger, you know, opportunities that as Juan described during his presentation, that our commercial folks are after, no?
Thank you.
You're welcome.
Thank you. Our next question is from Carlos Becerra from CaixaBank. Carlos, please go ahead. Your line is open.
Yes. Hi, good morning. So, first question would actually be on the cost side. Just, you mentioned in the presentation, I believe, that you expect the cost structure to remain broadly stable. I was wondering exactly how do you see that translating into cost evolution, whether we're talking about costs growing in line with inflation or what levels could we be discussing? And if I may, a bit of a negative question. There has been some news regarding the potential M&A scenarios involving Allfunds. I was wondering what type of... what can you tell us about that? How are things from on that front? What opportunities are being expressed forward?
Basically, whatever you can discuss about it.
Okay.
Thank you.
Hola, Carlos. So on cost, the way we look at this, and I'm sure you know, so the vast majority of our cost base is fixed. You could say that around 80% of our cost base is fixed. So that should grow, let's say, more in line with inflation going forward. And then we have a variable portion, which is more linked to the operational activity, that might grow at a different pace. However, as we've always said, we triangulate growth, diversification, and profitability. What does this mean? It means that we still have room to continue automating the platform, making it more efficient. In fact, in 2023, we've already delivered a series of platform efficiencies, no?
We have executed successfully redundancy programs both in Italy and Poland, as an example. What we've done is we have used most of those, let's say, savings, to fund our diversification, to fund our future growth, to fund the subscription business initiatives and the alternative initiatives, no? That's how we look at cost, of course, always being mindful of the fact that we need to be very strict when it comes to investing and dealing with cost. With regards to your second question, I don't know, Juan, do you want me to take it or?
Yeah. Well-
Yeah, so, I mean, we have noted the press reports, Carlos, regarding the potential interest from various third parties in acquiring Allfunds. But, I'm sure you understand that as a matter of policy, we do not comment on media speculation.
Next question, please.
Thank you.
You're welcome.
Thank you. Our next question is from Andrew Lowe from Citi. Andrew, please go ahead. Your line is open.
Hi, guys. Thanks for taking my question. I'd love you to talk a little bit more about the subscription business, revenues into the, our expectations in 2023. Could you just recap what drove that and what gives you confidence about the growth outlook in 2024? And what sort of EBITDA margin do you think you can generate on this business? And then finally, more of an observation, I guess. Would you consider showing better disclosure so that we as analysts and investors better track the success online?
Well, as you can see now in slide number 16, I think the beauty of these subscription revenues is that not just that they start to be important when we compare now to the total revenues of the company, no, already 11%. But I'm also pretty excited with the fact that two years ago, three years ago , it was just 4%, but all these revenues were coming mainly from Spain and from a specific tool, no? Digital tool, no, that we had and that we still have, no, Next Portfolio. Today we are signing deals all around the world, in Asia, Middle East, the U.K., Germany.
Not just with this specific tool, but we are selling all type of products, services, tools. So there is a clear diversification in the services that we sell. And there - I mean, there is appetite for these services in our client base, traditional client base, but also in clients outside our, let's say, platform service, traditional business. So I'm - I think that the opportunity, as we have been saying, for the last two years, is huge. I think it's, I mean, the fact of having such a big distribution network in both sides, distributors and fund houses, that we have been building for the last 25 years, is a great advantage.
I mean, these guys are waiting for new products, for new services, and the good news is that finally, we can say that we have those products, and we have these new added value services, no, and tools, no? So our main focus today is all about go-to-market. So it's all about presenting, introducing, no, these new services to our client base, no? And that's why we are investing more on the sales side, even more than on the factory, let's say, no. And as you see here, no, I mean, the penetration rates in both distributors and fund houses, in my opinion, are still very low, and therefore, you know, there is a fantastic opportunity for this cross-selling, no, activity.
Regarding the average ticket, I also believe that you know the more services we provide in this subscription revenues segment, the more, let's say - I mean, we should also be able to increase the ticket of those services. So what you should expect and what we are definitely expecting in this company is a very strong growth in the coming years, as we have stated, of between 15%-20% per year in revenues. That's what you can expect.
Hi, Andrew. So with regards to profitability and disclosure, on profitability, some of the more recently acquired businesses in this space are closer to break even, as you might imagine, than to, of course, our platform average platform margin. The others, they're ranging around 20-30-ish%. So still significant room to improve. But as I've always said, I mean, you shouldn't expect these businesses to reach the platform business margin, because by definition, these are not this type of business, right?
So, having said so, and linking this with your second question around disclosure, point taken, and for the time being, we're not doing that, but we're also discussing internally regarding well certain KPIs to that we use to track the business that might be helpful to you also to track it. So, yeah, we might come back to you on this one.
Yeah.
Thanks very much. That's really helpful.
You're welcome.
Thank you.
Next question, please. Thank you. Our next question is from Fernando Gil de Santivañes from Bestinver. Fernando, please go ahead. Your line is open.
Hi. Thank you for the presentation and for taking my questions. Can you hear me okay?
Yeah, very well.
Yes.
Loud and clear.
Okay, thank you. So the question is about free cash flow and capital. So first part of the question is, what is the target CET1 that you are considering? And if the ratio that you are disclosing in slide 37 is including the payout ratio and the buyback that you already have in place? And the second part is, so I've seen that slide, the excess capital that you have at EUR 105 million-EUR 106 million, how should we think about the use of that free cash flow going forward together with the free cash flow that you're generating for 2024 and onwards? Thank you.
Yeah. Hola, Fernando. So on CET1, and I'm looking at slide 44, the numbers include, of course, the amount that has been amortized at the first tranche of the buyback that we completed, if I'm not mistaken, yeah, on the 20th or towards the end of December. So that's included. You know, our minimum regulatory capital is, or including countercyclical buffers, that stands around 18%, but we typically like to operate the business above a 20% CET11 ratio, which is what we've done in the past. With regards to free cash flow and capital allocation, yes, I mean, we are a business that generates a significant amount of cash and capital or profit every year.
And for the time being, our capital allocation framework has not changed. I mean, we haven't changed it since the IPO, and our intentions is to continue delivering on that or according to that framework, so reinvesting in the business, in new initiatives, as the ones you heard from Juan, also some selective M&A. Of course, distributing it to our shareholders in the form of ordinary dividends, which we're planning to do as well this year. So, the proposal that we're gonna put forward to the AGM for approval is a EUR 58 million dividend for the year 2000 and...
Well, to be paid in 2024, which represents a 20% payout ratio, and if I'm not mistaken, a 4% increase in DPS versus the previous year. We also intend to grow that ratio or that payout going forward, and of course, at the same time, be opportunistic or selective, no, with the M&A that we do, and with the excess, distribute it to our shareholders, no? I think we've proven that we don't like to sit on cash, no, or capital that we're not using, so you can be sure of that.
Okay, thank you very much.
You're welcome.
Thank you. We have a follow-up from Haley Tam from UBS. Haley, please go ahead. Your line is open.
Morning. Thank you very much for taking the additional questions. Two, if I may. Firstly, one which maybe you will not answer. There have been some repeated press reports that you are undertaking a strategic review. Could you confirm whether or not this is the case? And I guess linked to that, can you make any comment on the extent to which you discuss or are able to influence the actions of your largest shareholders? So, you know, might we think about some kind of managed placing or something like that as being an option for the future? And then the second question, would perhaps be equally unpopular, is about your exclusivity agreements.
I do obviously understand the benefits of your flywheel, your high customer retention rates, the buy free model, but could you maybe help us think about how much of your subscription and other revenues today come from your strategic partners? And also, who is currently the fund custodian for those partners? That would be helpful just to know. Thank you very much.
Well, I think, as we have mentioned before, no, if we receive any offer, you know, for the company, if we do it, you know, our board will review it in line with its fiduciary duty, no, to our shareholders and other stakeholders, and we would keep the market informed, no? As and when appropriate, no. So, as of today, we have no more comments, no. And regarding the exclusivity, no, agreements, well, I think that we can confirm you that we have already paid, no, as we said, no, to both, no, Santander and Intesa, no, for the extension of two years, no, as we said, 2024 and 2025, no?
Of course, you know, in the moment that there are any news, no, regarding further extensions, no, we will, of course, communicate to the market. I mean, we are not in a rush, as you can imagine. As I always say, you know, for me, the most important thing is not if we have an exclusivity or not, no, but it's if the client is happy or not, no, with the service that we provide. And I can guarantee you that after decades, no, of serving these two clients, they are happy, you know, with our level of service, no? We are real partners, no. And I think there was another question.
Custodios.
Regarding the custodians.
The percentage of revenues.
Ah, percentage.
Well, I...
Percentage of revenues
We don't...
No
...make those dis...
No.
No.
The only disclosure is the one that we included in slide 10.
In slide 10, no?
Yeah.
So 26% of the revenues are concentrated in these four, okay? Because it's not just Santander and Intesa, as you know, but we have also two other exclusivity agreements, no, that come from the let's say, M&A activity, you know, of the company, no? With Credit Suisse and BNP, no? But we don't have here the breakdown per type of service, no? I don't know if you wanna-
No, and with regards to sub-custodians, I mean, of course, we act as sub-custodians of both Intesa and Santander behind Allfunds, no? They also have their own providers or sub-custodians, but it's not something we can, of course, disclose, no?
No.
Understood. Thank you very much.
Thank you.
You're welcome.
Maybe a-
Thank you
... a final question or a last question, please, before we wrap up?
Of course. The last question we have on the phone is from Greg Simpson from BNP Paribas. Greg, please go ahead. Your line is open.
Yeah, so just very two quick modeling questions, if that's okay. Just the other operating income in the year was quite strong, EUR 8 million. What does that relate to, and is that recurring? And then the second is any comment on how you reflect the payments to extend the exclusivity. I think there was a comment it will be amortized, but is it gonna be a exceptional, how is that gonna be treated? Thank you.
Okay, so let me take both of them. So the other income expense, Greg, this represents predominantly capitalization of internal staff cost in connection with IT or product developments that have been carried out throughout the year. It is a higher amount than what we saw last year, but when you put it into context with previous years... So for example, in 2021, if I'm not wrong, I think that figure was around EUR 7 million, so slightly below. Plus, remember, we did not have WebFG, instiHub, or MainStreet Partners, no? That are, by definition, companies that let's say invest heavily, no, in product development and enhancements. Going forward, I would say, yeah, I mean, I wouldn't expect a meaningful variation.
It might be slightly lower, but not meaningfully. And with regards to the extension to the payment of the extensions, they have been already carried out, both for Santander and Intesa. And what we've booked is an intangible on our balance sheet, against a cash outflow. And we have sourced a part of that payment through the RCF or drawing on the RCF, hence the slide that we included in the deck. I think it's in the appendix now, Silvia...
Yes
Where we wanted to give you - exactly. So slide 41, right? The pro forma 2023 numbers, the gross financial, that already includes all the drawdowns that have been made in connection to MainStreet Partners payment, Iccrea, and the two payments to both Santander and Intesa. So that's done. Okay?
Thank you.
Super.
Well, with that, we have no more time for questions. It has been a pleasure, as always, to host you on this preliminary full year results presentation. The IR team will be at your disposal for any questions that remain unanswered, and see you next quarter with our first Q trading update. Goodbye.
Goodbye. Thank you very much.