Earnings Call: H1 2021

Jul 29, 2021

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Azimut Holding first half 2021 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and 0 on their telephone. At this time, I would like to turn the conference over to Mr. Gabriele Blei, Chief Executive Officer of Azimut Holding. Please go ahead, sir. Thank you very much, and welcome to everyone. We'll go, as always, quickly through the presentation and leave you as much time as possible for Q&A. If we can start on slide number 4, key highlights of the first semester 2021. We are still delivering a very positive net weighted average performance to clients of in excess of 5%, and in excess of the benchmark. Net total assets at record level, as well as the inflows that we have gathered through the first semester of EUR 12.9 billion. This includes also the recent and announced acquisition in the private market in the U.S., Pathlight, as well as the Kennedy Lewis lift out of the team. This is something that we have already plugged in to provide you the most updated number. First half net profit of EUR 226 million, and we will go into the detail through the presentation of how this has been generated. Turning to the next slide, we want to provide you with an update of our private market initiative. It's been now a couple of years of strong work in this area with a global footprint that has been created. In Italy, we have Azimut Libera Impresa officially launched in 2019. The company was operating since 2015. In 2019, we had EUR 600 million in assets under management. Today, we are at EUR 2.1 billion with a very diversified product range, and 30 employees, of which 25 investment professionals. These are people that we have hired throughout those years in order to be able to be a credible player in the private market space. Not only to that, we also have third-party agreements with selected counterparties. Among those, we mention Blackstone, Peninsula and Muzinich, with whom we have delegated investment management agreements. On the right-hand side, Azimut Alternative Capital Partners, our U.S. company that is operating since 2019. The first transaction was completed in July 2020, and now has EUR 1.4 billion of pro-rata assets under management, whereby the pro-rata means we only plug in those numbers, the 20% on average, assets under management of our affiliate company. The first transaction, as I said, Kennedy Lewis. It's an opportunistic private credit manager. We are already starting to unlock their expertise throughout our distribution system. When we bought the company, the business had EUR 2.1 billion in assets under management. High Post, 12.5% so far, behind the backing of the Bezos and Morris families. They are launching in the fundraising phase of their fund. Actually, yesterday, they have told me that they will be completing their first investment by mid August. We're very excited about this initiative, and we are presenting this initiative throughout our distribution system, both in Italy and in the U.S. The latest addition is Pathlight, an asset-based lending private credit manager, EUR 1.4 billion. Clearly here we have to still work with them to create a parallel fund or vehicles in order to distribute their capabilities throughout our network. Moving to slide number 6, recurring revenues. As you can see, we have tried to provide you a bit more color on how numbers have been built up throughout the first semester, excluding or highlighting the change in the perimeter due to M&A, where clearly Sanctuary plays a role. Revenues are up 19%, up to EUR 566 million, of which in the same perimeter, if we exclude the M&A transactions, we are up 14%. The breakdown, you can see this on the bottom of the slide, left-hand side. I would like to stress to you the fact that if you add the insurance revenues and the management fees, we're speaking about more than 90% of our fees coming from these two sources that tend to be quite recurring. On the right-hand side, margin trend as well as the contribution on a quarterly basis. Clearly, in the first quarter, we had Sanctuary only for one month, whereas there is the full impact in the second quarter of Sanctuary as well as the other M&A transactions that were completed. The basis point trend is rather stable. We're quite pleased with that. This obviously excludes the impact of Sanctuary, we did it on a like-for-like basis. Turning to the next slide. On the cost side, distribution costs are up 5% as far as the same perimeter is concerned. If we add on top the M&A impact, we reach EUR 200 million in the semester of total distribution cost. Whereas in the SG&A line, we are confirming or reaffirming for this quarter as well and the semester, a rather stable, on a like-for-like basis, trend in terms of SG&A. If we include the change in the perimeter of the last 12 months, the number goes up to EUR 117 million. Cost income ratio stays rather flattish as far as the quarter-over-quarter trend. I would say, again, a decent control in terms of where costs are going on a like-for-like basis. Next slide. Net profit. We are up 58% to EUR 226 million. EUR 30 million come from the tax goodwill realignment. Alessandro will go into the details, this is basically what we had announced with the full year numbers of 2020, that we were going into analysis of a potential adoption of a tax law that was drafted towards the end of last year that would have generated eventually such an impact on our numbers, and we plugged this in the 2nd quarter of this year. Needless to say that recurring net profit is going up substantially. Even excluding the goodwill realignment, we're quite pleased with where the numbers are going. Remember that when we did our investor day back in 2019, we were assuming a recurring profit on an average basis and based on the then mix of EUR 50 million per quarter. I guess, here it's good to remember those numbers and see where we're going. On the right-hand side, EUR 226 million so far. We have significant potential performance fees to be cashed in, which we are accruing on a daily basis. This is a good starting point for the remainder of the year, and to actually reaffirm that when we set targets, we tend to set targets that are quite challenging to achieve. If the business goes in the right direction and all the people work together to achieve those numbers, then these numbers become achievable by our company. Turning to the next slide. A snapshot of our inflows and AUM. We are reaching record levels, benefit and courtesy of the market, indeed, but also a strong inflow activity. So far, we are at EUR 76 billion almost. If you include the private market initiative closed in July, we are in excess of the EUR 76 billion in terms of assets. 37% spent outside of the domestic market. The number is incredibly high. Remember that, again, when we did our investor day, we were trading at something like 20%, and we were assuming that this number would reach 35% by 2024. Once again, when we say things, we then tend to deliver them, if not overcome them. Private market at EUR 3.5 billion so far, up from EUR 2 billion at the end of 2020. Year to date, net inflow of EUR 12.9 billion, again, including the initiative closed in July on the private market side. EUR 5.5 billion of organic growth with a mix of Italy and foreign operation, which we'll see in a minute. Once again, life insurance alternative and mutual funds make up 86% of our AUM breakdown. This is something that some of you had requested for quite some time. We have provided this snapshot of breakdown of the inflows in terms of Italy and all the different Let me say, the three macro areas in which we operate. Europe, Middle East, and Africa, Asia Pacific region, and the Americas. As well as for transparency reasons, we are plugging in the M&A effect, which is mainly driven by Sanctuary, the Australian operation, as well as Pathlight, as far as the private market is concerned. As you can see, our foreign operations have collected so far EUR 3.5 billion, Italy EUR 2 billion. On the Italian side, we're very pleased with the mix that we are delivering. There is clearly not the full impact on those numbers due to the fact that some of our products are in the fundraising phase on the private market side, and therefore you don't exactly see the full activity and the benefit on the numbers exactly when we have to post our quarterly results. As far as the EUR 300 million of custody, or not internally managed products on the Italian side, this is mainly driven by the effect of the recruitment activity, which is proceeding well, and the first movement is through administered assets. Turning to the next slide, a bit of details on private markets. We are at EUR 3.5 billion, as I said, very diversified across different strategies, across countries. We will be continuing to launch and close funds in the coming months. Four products that we are pleased to highlight in terms of the new initiatives that have already reached our network in terms of fundraising capabilities. HighPost, as I was mentioning before, is the first initiative with our friends that we can deliver to our network, both in Italy and abroad. We are committing to reach at least $50 million in terms of fundraising. Blackstone, we have completed a partnership with them on one of their products, and we are participating in the closing of their second Asian fund, following the successful launch that they had of their first fund. Here, the target is to reach maximum EUR 150 million. As far as Peninsula is concerned, we have launched some months ago, a European Long-Term Investment Fund, and now we are launching a REIF fund for professional investors. Last but not least, we are expanding our knowhow and partnership also with an Israeli very successful VC company, Sweetwood. They are managing a fund of funds. We will be launching soon. Sorry, it's already launched, a fund that invests in the second, in terms of size, VC market in the world. We are targeting EUR 150 million, both in Italy as well as throughout all our distribution systems. Next slide. Very quickly, nothing to highlight, I would say, if not the usual breakdown in terms of assets as well as geographical footprint. We would like to, on the following slide, provide you with a bit of color on Pathlight. They are a leading private credit manager with EUR 1.4 billion focused on asset-based loans secured on a first or second lien basis. They have, I would say, achieved successful unlevered IRR between 14%-18%. The team is working together since quite a long time, and they have a very diversified and solid investor base. They're actually in their second fundraising phase, and they are expecting to close this in the coming months, reaching or exceeding their original target. Just as a reminder, what are we doing in the U.S.? We're acquiring minority stake in GP companies, and this will benefit the flow of current revenues as well as carried interest that we will be able to achieve, and it provides us with the expertise as well as geographical diversification for the effort that we're putting into raising private market funds. Clearly, for Azimut, the Pathlight deal has a benefit in terms of pro rata assets under management that we're consolidating, almost EUR 300 million. As well as we will receive quarterly distribution from profits, because this company charges carried interest with an American approach. As I said just earlier, the team is working together for quite some time, very consolidated, and with a very solid track record in the industry. It's an industry, this one in which they operate, that has quite a significant barrier to entry. It's either you have the content, the relationship, and the knowledge on how to structure these transactions, or it can be extremely complicated to step in. As a quest to transparency, we're providing you some details as far as Sanctuary is concerned. Some key metrics of a company that is actually in its ramping up phase still, because they are completing very solid transactions in terms of bringing independent advisors into their system. The AUM evolution is quite significant between the day in which we closed the transaction and today. We will see in a minute where it is they are sourcing their deals. Accumulated monthly revenues that are quite three times the ones that they had in February, as far as June is concerned. Clearly here there is a lag effect, because AUM are transitioning and are building up. The full impact will be seen in the following months, quarters, provided that they are unable to keep growing, which is actually the opposite of what's happening. As a consequence, net new money growth is on the high end with an annualized net inflows in terms of assets, which trends towards 50%, if not more %, as far as June is concerned. We are working with them to start, and this is why there is one sentence in bold, which is the integration between production and distribution, and therefore cross-selling Azimut Global Team products. Starting clearly from the private market footprint that we have in the U.S., and understanding with them how we can provide them with further investment solutions to close the gap between production and distribution. Clearly we want to continue for them to be able to increase the number of RIAs, as well as the participation in the business that they are buying. As you can see in the following slide, they are transitioning gross assets of EUR 5.3 billion. 60% is something that was already being transitioned, and they are capable of the teams that they are hiring of bringing 90% plus of the AUM. They already have LOIs signed for additional EUR 1.2 billion going forward, and we expect them to continue to grow. This is exactly the reason why we provided the vast majority of the money into the business, because they were seeing a strong potential for growth and for attracting these RIAs that are shifting away from the traditional wholesale model into independent structures. Moving to asset management, wanted to provide you with a bit of a snapshot as far as our innovation process is concerned. We've done quite significant achievements in the first half, but I would say since 2019, since the reorganization of the product range and onwards, we have launched our first token. It's the first security token and asset in the asset management sector. We have really strengthened our neo-lending activity. This is the synthetic bank project where we are basically providing a bridge between private market funds and the needs of SMEs through technology, implementing FinTech approach. On the digital asset side, we are actually quite proud to be the first asset management company in Luxembourg to have received the authorization to manage virtual asset strategies as well as leverage on the FundsDLT platform in order to use technology as an investment opportunity, but as well as the capability to become even more efficient as far as operational processes are concerned. Through the platform, we will be able to reduce cost and improve efficiency as far as the asset management back end is concerned. The ALTO range is another initiative we have, and we are quite proud based on the PIPE approach. We have launched 2 additional products, ALTO Italia and ALTO Venture, that are quite interesting as far as our client base is concerned. Further to this, P101 is something we have announced during the first semester. We took a 30% stake in a company that we know very well, that has been working with us for many years. We are a corner investor in some of their products, and we want to further leverage our respective expertise in order to create a European investment platform supporting innovation and supporting SMEs with a tech-driven footprint. ESG, it's an element that we are never forgetting. Azimut Sustainable is now live and kicking. 40%, if not more, of the Luxembourg fund range is following ESG criteria in their investment strategies, and we have implemented the shareholders directive across all our asset management companies in Luxembourg and in Italy. Private market, last but not least, as I said, very successful so far. We're trying to leverage our internal expertise as well as our third parties' expertise. Following slide, there is a bit of a snapshot of Azimut Direct, which is part of the synthetic bank project or the neo-lending project, which basically becomes the bridge between our private market funds and the SMEs. We are more and more pushing into bringing closer the real economy and private savings, and extracting an interesting return for our investors. So far, we have generated EUR 450 million of financing. Remember that we were speaking about a target of EUR 1.2 billion in the period up to 2025. Next slide. We have a net weighted average performance, which we're quite pleased of, 5.2% net of our costs. In two and a half years, we have delivered to our clients 16% of net weighted performance, which is something that clients are happy about, and an additional reason for actually revisiting the asset allocation as far as traditional investments are concerned. To crystallize the returns generated so far and then move to asset classes that can deliver superior returns in the medium to long term as the private market funds. Following slide. Same picture as always. We are over-performing the average of the industry, with a good contribution also coming from our foreign operations. Italy, the network is recruiting significant people so far year to date, 96, and 12% growth of the network in just over 3 years. You can see some statistics, but I would refrain from commenting them, and if you have any questions, please ask them at the end of the presentation. I will turn to Miss Sandro for the financial as usual, and then go into the outlook. Thank you, Gabriele. We can move to slide 24. As we always do, we can give you a bit of color from the numbers. Here you have the consolidated income statement. As we always do, let's start from the consolidated net profit, EUR 226 million. It's around EUR 33 million if we compare it with the first half 2020. Even if we take out the effect of the EUR 30 million coming from the tax realignment, we are absolutely positive and satisfied of the first half results. Also, if we compare the second quarter 2021 with the second quarter 2020, again, here, taking out the effect of the tax, we reach EUR 99 million of net profit. We are EUR 5 million above the second quarter 2020. Also, if you consider the effect of the variable fees on this quarter compared to the second 2020, that we are EUR 14 million less. Also, there was a positive effect on the interest income coming from the variation of the fair value. Here, the gap that we create in the 2021, it's more significant. Again, back on line by line, without spending too much time. In total revenue, we increased by EUR 90 million. In operating cost, there is an increase of EUR 41 million, and the operating profit increased by EUR 50 million. The profit before tax, we are above EUR 63 million if we compare to the first half 2020. The recurring fees has a significant increase compared to the 2020, about EUR 77 million. Here, the difference is coming from EUR 21 million, is the new perimeter. If we consider the acquisition of Sanctuary and the acquisition that we perform in Australia, this is to explain the variation in terms of new perimeter. We had a significant increase for EUR 47 million coming from, let's say, the standard business. EUR 7 million are coming from the international business, already existing. Variable fees decreased by EUR 12 million. If we focus the effect of the variable fees in the first half 2021, we have up to around EUR 21 million coming from the Luxembourg business, so the crystallization method, and then EUR 6 million are coming from the international business. On other income, we have, again, a significant variation if we compare it with 2020. This is coming from Sanctuary again, so the acquisition performed in the first half of 2021. Also something is coming from what we call, and we already call in the presentation, a synthetic bank. This is something that is coming up as contributing the P&L, and probably we will see a better impact in the future. It's about the insurance revenue. We have a variation of EUR 18 million. Again, here, the variation is coming EUR 6 million from the recurring fees and EUR 12 million from variable fees. At the level of the cost. Distribution cost, EUR 25 million more compared to 2020. Again, if we give you more details, around EUR 12 million are coming from the international business and the evolution of the new perimeter. EUR 3 million is coming from the Italian business, I would say. The financial advisor directly linked to the evolution of our recurring fees that we were mentioning before. On personnel and SG&A, EUR 13 million more. To avoid any issue for this line that you see increasing for EUR 13 million, it's again here the effect of the acquisition in Australia and as well in the U.S. Taking out the variation of the new perimeter, costs are essentially flat. Again, here we are demonstrating Q on Q, the attention of some cost and the discipline that we are still keeping, starting from 2019. The other line, to me, moving under the operating profit, the interest income is mainly explained with a mix of impacts coming from the fair value option, coming from the variation of the fair value of our liquidity that is invested on our option funds, and then dividend coming from the minority stake. The other line, let's say, that are almost in line, therefore I will not spend time. Just few seconds on the income tax. Here you have EUR 5 million of impact in terms of what we paid for the realignment of the goodwill, so 3% of EUR 150 million. The aggregate variation that you see, it's explained by this for EUR 5 million, and on the deferred tax, you have EUR 35 million coming from, again, this effect of the realignment. Moving to slide 25, you have the net financial position. We are back to a positive net financial position if we compare it with June 2020. We are positive despite the fact that we paid the dividend. The cash generation that we are doing, performing, is very important and significant. Cash and cash equivalent increased compared to the 2020 December by EUR 20 million. Also during these 6 months, we paid back EUR 7.5 million to the Banco BPM. You can see at the beginning of the slide that there is a variation between December 2020 and December 2021. I'm going to leave back to Gabriele that will give you a bit of focus on the debt. Thank you, Alessandro. Turning to the following slide, we wanted to picture where we are in terms of debt maturity and potential future actions that we will be taking. As we have seen so far, we're still highly cash generative. We now have 3 outstanding debt, 1 that will be fully repaid by the end of the year, EUR 45 million left of the senior bank loan. We have EUR 350 million bond, that was launched to finance the growth between 2017 and 2021, which will be fully repaid by March 2022. We have the remaining 1, the EUR 500 million bond, that we launched in December 2019, which will be probably repaid when it could fall due. As you see on the bottom of the slide in red, we have basically very low ratios as far as net or gross debt to EBITDA. This compares with the Fitch approach, which basically doesn't include any performance fee in their rating approach, therefore, the metrics that they use are quite more stringent than the actual situation of the business. Moving to the summary and the outlook, we have four main points. Initially, the momentum is continuing to improve. As you have seen, margin-wise, there is a solid trend, and we're confirming the numbers of Q1. The quality of the inflows is what matters to us, because through this, we are able to change the future performance of clients. Clients eventually, at an industry level, are losing money on their bond side, and this is probably not very well-perceived because of the equity component that is clearly benefiting portfolios. So far, year to date, we are up 1.5% as far as our returns on the bond component. We have been able to, through a strong diversification and selection of the different driver performance within the bond component, to actually perform pretty well. Last point on Italy. We are one of a kind network based on partnership and entrepreneurial approach. We are probably the one only advisory network that is bringing to our retail clients private market investments. As far as the international is concerned, trends are encouraging. We've been trying to discuss this with you for quite some time now. We were seeing an acceleration, and the acceleration is happening. Even excluding the performance fee component, the business is across all the different locations in which we are operating, is building up, and we clearly need to focus our attention on further integration between asset management and distribution in our key markets. This is something that will be quite a theme over the next years. The global team is now deploying and creating synergies and opportunities of cross-selling as far as markets and products are concerned. Private market, EUR 3.5 billion, with a very good presence in the U.S. This didn't exist up to a year ago. Now it's real, and it's 42%. It's something that we will be pursuing further because it brings a lot of benefits in terms of know-how and potential deployment of the cash that we will be raising from our clients. Last but not least, the business of private market clearly brings us recurring and stable fees. When it happens, carried interest that will have the benefit of cashing in and will build up the net profit of the future. Capital management, dividend buybacks, this is something that will continue going forward. Since the IPO, we have always paid dividends. We have started to be active on buybacks since many years, and this is done in a very opportunistic approach. So far, up to today, we have paid EUR 1.6 billion cash return to shareholders in the form of dividends since the IPO. On top of that, we had delivered EUR 400 million of buybacks for a total of EUR 2 billion, out of EUR 2.6 billion of net profit generated since the IPO. Deleveraging is something that we have discussed many times. It's ongoing. Thanks to the sound cash flow generation, we are going to remain pretty focused on our deleveraging approach because we want to show discipline in leveraging and deleveraging the balance sheet. On the very last slide, this is something that not very often we do, but we discussed this internally, and we decided that it was about time to say something vis-à-vis our targets that are still questioned by the market. We believe that with the results that we have achieved up to the first half of 2021 of EUR 226 million, and the recurring business as well as the performance fee that we have accrued, we can move to a target that, provided market remains kind of normal, will range between EUR 350 million and EUR 500 million. The higher end of the spectrum is increasingly higher than the EUR 350 million target. This is mainly linked with the courtesy of performance fees that we will be able to generate up when the year will close. As far as net inflows are concerned, we had stated the target of EUR four and a half billion, obviously excluding the consolidation of the EUR 7 billion of Sanctuary. We are now at EUR 4.8 billion, and expect the year to close under normal market conditions, clearly, to at least EUR 6 billion of net new money. I will close it here and leave you time for Q&A. Thank you. Thank you, sir. Excuse me, this is the conference call operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. To remove your question, please press star and 2. Please pick up the receiver when asking questions. The first question is from Giovanni Razzoli of Deutsche Bank. Please go ahead. Good afternoon to everybody. Thank you for taking my questions. The first question is about your target in terms of net income. Can you share with us what are the performance fees which you have yet accrued as of today, so to have an idea of the sensitivity of the target to changing market conditions? The second question relates to your net financial position. You are generating a lot of cash. Clearly, there has been the dividend payment in the second quarter. The market is increasingly focusing on the dividend of the companies. Given the trajectories of your earnings, and the fact that you plan to reduce quite significantly your gross debt in the next couple of quarters, I was wondering whether you may consider the introduction of an interim dividend as some of your peers already do. The third question, allow me to ask you this. We've seen yesterday one of your competitors sterilizing the losses on some of the clients' investments. What are your views there? Are there any position that you see at risk, or any comments on that would be useful? Thank you. Thank you. Let me start from the last one, because this is something we are quite focused on since the very beginning of the business. We've always argued one thing with our clients, with investors, with the market. We wanted to be an integrated player between production and distribution, not because it was an easy way to find higher margins, but because we wanted to know where we were putting and investing the clients' money. We wanted to understand how our distribution system could market certain products to our clients and build an asset allocation that had to be in line, and has to be always in line, with the clients' expectations. When you start to outsource either the production or the distribution, you lose grip. When you lose grip, something bad can happen. Probably it's not that bad for our competitors, but for us, an independent player, our reputation vis-a-vis our clients and the market is the most important asset we have. Honestly, we're not concerned by what happened. Certain problems can always occur. We are more focused on retaining and delivering on the strategy based on a sound business model that recreates and keeps the full integration. This is why we went abroad by proposing a similar model where it was possible. This is why we insist on our Italian franchise based on production and distribution. On your second question, the introduction of an interim dividend. It's something possible. It is something that creates a bit more bureaucracy, because of paperworks that you need to do. It is something that we will, or we may, discuss and analyze going forward. So far, we had up to last year, a profit and loss that was driven by a strong contribution in performance fees, which was clearly something that we couldn't anticipate, and therefore would hinder the possibility to have an interim dividend. Going forward, it's something that we can consider. So far it's not, let me say, at the top of the agenda. We will certainly put our head on that. Target on the net income. I guess there is a slide on page Let me see. In the highlight, where we show the numbers of EUR 350 compared to the EUR 226, page 8, and the potential performance fees that we can cash in. We didn't use random numbers. These are underlying real numbers behind. I would leave you to guess estimate how much performance fee, since this is a number that we don't speak, even with our wife or daughters, because it is a well-kept secret, since we will be able to understand how much money we will be cashing in on the 31st of December. Beside the joke, it's a significant number. It's a number that is the result of a significant performance to clients. We can just manage this in a way to retain the over-performance that we have vis-a-vis the benchmark, and it will clearly depend on the market movement between now and the end of the year. Thank you. My pleasure. The next question is from Domenico Santoro of HSBC. Hi there. It's Domenico. Just a few question on the perimeter change. Maybe I'll go one by one, if you don't mind. If I look at the distribution cost, and the way it changes because of the different consolidation, I get that a major portion of these revenues are currently paid out to financial advisors, more than 80%. Is it correct, or I'm doing something wrong? Also, when I look at the SG&A, it looks like at the moment, the perimeter that you have consolidated is in heavy losses. I'm just wondering whether the Q2 includes some one-off in terms of SG&A, and then I have other questions. On the distribution cost, you're right. This is the level more or less of the rebate that is paid out of Sanctuary, and it's something that is in line with market standards. Clearly, what is missing within Sanctuary and within our U.S. system is always the integration between production distribution that will increase the overall margin that we can extract. I'm not sure I understood your question on the SG&A. Can you just be more specific? Sure. Sorry about that. I apologize. If I sum up the distribution cost and the SG&A that you have consolidated in H1 because of the change in perimeter, and comparing to the revenues that you consolidate, this business, it looks like it's in heavy losses. I'm just wondering whether, in reality, SG&A includes, in the second quarter, some specific one-off due to the consolidation of the different entities abroad. We are just reconstructing the numbers. Domenico, we are rebuilding the numbers so that we can provide you with an answer. Go ahead with the questions, and as soon as we have the number, we will provide you with the answer. Understand. Thank you very much. Sorry. No problem. I'm sorry for getting confused. Not at all. Based on the answer that I will get, can we just look prospectively how the contribution of Sanctuary will be in the future? If my calculation is correct, it depends which amount of assets I consider with inception, which were probably $7 billion or as of now that are much more than $1 billion. The profitability of Sanctuary is around 60, 70 basis points, depending on the level. It's not a mystery that all these assets are basically AUC. I'm just wondering how shall we consider in the future, the margin changing on this $9 billion, given that you potentially are going to remix the asset of Sanctuary, more equity and less profitable assets. Okay. Well, Sanctuary is clearly a business that is receiving an enormous amount of assets, thanks to the investment they're making. We are expecting them to be slightly negative in terms of net profit, some couple of EUR millions, in 2021, which is mainly driven by the fact that assets that are transitioned do not immediately generate fees, and those assets then have to be re-qualified as well as we need to increase the penetration of our own product. The expectation we have for full year is basically not relevant as far as our numbers are concerned. From 2022, based on the current assumptions that we have in terms of addition of assets and RIAs, we'll start to generate profit. How much profit will they generate is also a reflection of how quickly we will be able to use products that we manage and manufacture by ourselves. Clearly, this will not directly impact the number of Sanctuary, but will be profitability that we will see in our other affiliates in the U.S. or anywhere else in the world. Overall, 2021 should not be a year in which we will see a positive contribution to net profit, but very limited in terms of negative impact. 2022, instead, everything else being the same and based on the assumptions on which we're working with them, we start to ramp up and generate incremental profit contribution. Understand. A final question on your guidance on net profit for this year. If I match up the numbers for performance fees and also for one-off, which was the fiscal one-off, I get an H2, which is lower in absolute terms compared to the H1, if my calculation is not wrong. I'm just wondering whether this is due again to the consolidation of the perimeter abroad that is carrying losses or is due to seasonality on the distribution cost or any one that you might consider that you might want to comment? Thank you. It's a mix of things. I don't know what is the number you are implying in terms of second half, but as far as our thinking goes, we had clearly implemented the second half that has July, August, September, that tend to be softer months in terms of activity. Therefore, potentially, we can see not exactly the same rate of growth we have achieved in the first half. Clearly, if we achieve those net profit targets, as it happened last year, and some of you were kind of surprised, we will have to pay our people because of extraordinary numbers well above our expectations. We have variable compensation packages that trigger extra or excess payment in terms of variable bonuses. The last point is, we don't want to fully bet where markets will be going now. We were on the conservative side in terms of our recurring net profit, which eventually may fluctuate between what we are considering today, and if market will not have a strong correction or a correction, will be the number that we will be able to achieve at year-end. There is a good visibility on the low end of the range. The higher end is clearly impacting the market and a number of different dynamics we're seeing as far as top line and costs are concerned. Understand. Thank you very much. Thanks for the patience. Hold on, Domenico. I think we have the answer to your first question. Alessandro will provide you with the exact reconstruction of the numbers. Yeah. Let's start from the slide 6 that you were mentioning, but keep also the slide 24. As I was saying at the beginning, the valuation of the recurring fees, I was saying that there is a valuation of EUR 77 million, and EUR 21 million coming from the new perimeter. Right? Actually, you have the effect of the new perimeter that is consistent with the total revenue. I mean, what we show in the total revenue of slide 6. What we missed to show is that, which again, as I was saying for the other income, you can see that there is a bit of spike from the first half 2020 and the first half 2021 because there was, let's say, EUR 3.5 million coming from Sanctuary. What we did is that we don't show the brokerage fees in terms of other income of new perimeter. We just show the new perimeter coming from the recurring fees. This EUR 4 million, let's say EUR 3.5 million, increase for the total revenue from one side from the new perimeter. If you move to the cost that you, again, were saying, the EUR 17.8 million, it's let's say, the right number in terms of new perimeter, consider also the SG&A. There is also a one-off impact. There is a significant increase from the Singapore business that provide also the effect on the revenue that is around EUR 5.5 million. Sorry, just to clarify. Yeah. This is a one-off cost, right? On SG&A, this EUR 5.5? On the distribution cost, yes. That has not showed up in terms of numbers because it's coming from the actual business that was already included also in the total revenue. Right. All right. I will follow up with Dory. Thank you very much. Yeah. Thanks. The next question is from Hubert Lam of Bank of America. Hi, guys. Good afternoon. Just got a couple questions. Firstly, again, on Sanctuary. I just wanted to clarify, Gabriele, what you said on it in terms of profitability. Correct me if I'm wrong, you said that you expect it to be breakeven more or less this year, and possibly profitable next year. Is that the case? If so, I just wonder what the magnitude in terms of profitability could be over the next couple of years, if possible. Thank you. The other question is on the dividend. Given that this year will be a big year on profits, as you revised upwards your guidance, would you consider raising your dividend above last year's EUR 1 dividend? It seems, even if after paying the debt, you'll still have sufficient cash. Just wondering if this is a possibility. Thank you. Thank you, Hubert. As far as the expectation on Sanctuary 2021, yes, it's a year in which they will see probably a loss of EUR 2 million, and that we will consolidate. Everything else being the same, which means given the growth plans that they are delivering now as we know it. As far as 2022, the expectation is very much linked to the investment opportunities. Based on the assumptions that we are discussing with them and the build-up of the assets and what we are doing in terms of cross-selling, we do expect a contribution that will start to be material in terms of our net profit, depending on what you take. If you take EUR 350 million, which is the original target, it will probably be in excess of 5%. Okay. On the dividend question? Yep. On the dividend, this is something very trivial, and I would say it's a bit early to say and to put forward our intention as far as dividend are concerned. Clearly, we have a good net financial position so far. We have some commitment that will be coming up soon. If the cash flow generation will be important and we will not see significant additional investment opportunities, I guess that the board will thoroughly discuss whether we will be able to increase what we have paid this year on 2020 net profit. Let's see how we will close the year. The impact coming from performance fee is significant, and we will not know this number until the end of the year. The intention is, as we stated many times, to finance the growth of the business, and because the business doesn't need to maintain or retain significant amount of cash, although we need to repay the debt, we can pay dividends. As you have explained to us several times, we need to provide market with dividend guidance that increases over time eventually, if our profit increases over time. We have gone through, between 2019 and today, the change in the performance fee methodology, which has a big impact as far as our P&L is concerned. Because of that, we are, all of us, resetting our expectations as far as the net profit generation and how much we can pay out as far as dividend are concerned. There is not the willingness to retain too much cash, but there is the willingness to have a good capital structure, and a dividend payout that is sustainable over the long term. Okay, then. Thank you. The next question is from Elena Perini of Intesa Sanpaolo. Yes. Good afternoon. First of all, I would like to have a clarification about your slide number 4. When you talk about net inflows for EUR 12.9 billion, you basically add to the EUR 12 billion you had in the first half, the announced M&A transaction with Pathlight Capital, and latest Kennedy Lewis team lift-off, as you mentioned in this slide. I suppose that inflows coming from Italian activities and other activities are excluded. Then another question on your net inflow guidance. Actually, you provided an updated guidance of EUR 6 billion, excluding Sanctuary Wealth. Well, it seems to me to have read in your presentation that you are already at EUR 5.5 billion on a recurring basis. Don't you think that your guidance is a bit too low, considering that you still have five months ahead? Thank you. Thank you, Elena. Yes, you're correct. We have not provided yet the numbers as far as the other operations are concerned in terms of the July numbers, Italy and rest of the world. We are still finalizing the numbers, and the month has still 3 days to go. I can anticipate that July probably, because of some seasonality as well as some planned redemption from institutional investors that clearly when they come in a single month, they lower the figure will not be, in terms of contribution, similar to June. Nevertheless, we will still see a positive number. Let us close the figures, and I assume during the first week or 10 days of August, we will be able to publish the figures for July. As far as the guidelines, guys, when we provide you guidelines, it's always too high. When we update it's always too low. It's not that we want to be too much aggressive or too much conservative. The problem is we don't know where the market will go. We have seen in certain moments so far that the volatility can come and be rather strong. The visibility we have is limited because of a number of variables that we are not controlling, that are kind of new. The market is still digesting all the variants from the COVID-19 and the impact that this has on the economies, and so on and so forth. We set six plus. This plus means a lot to us and to our expectations in terms of capabilities to generate net inflows. We have launched a number of new funds in the private market segment, that if are going to be successful, will deliver growth, but most importantly, will deliver a different asset allocation. All in all, I leave it to you to assess and verify whether we will be significantly higher than $6 billion or just slightly higher than $6 billion. Okay. Thank you. If I may add another question. Do you have any worries in a medium-term perspective about the global minimum corporate tax? Thank you. Well, they've set this at 15%, and we have our long-term target since 2004 at 15%. Some years we were below, some years we were at 15%. As always, we are trying to assess ways to maintain this, and for the time being and for the foreseeable future, we expect this to be achievable. If things will change and the overall context will change, we will clearly, proactively adapt our business model. So far, we can only reaffirm our intention to maintain the 15% long term. The next question is from Angeliki Bairaktari of Autonomous Research. Good afternoon. Thanks for taking my questions. Just 2 on my side, please. 1st of all, on slide 8, you show the EUR 169 million recurring net profit for the 1st half, which implies a run rate of around EUR 85 million net profit for the quarter, which is a step up from the around EUR 50 million that you had guided for a few quarters ago. Would you say that now the EUR 85 million is a good run rate that we should be sort of using or having in mind going forward, excluding any performance fees, of course? What would be a sustainable level of net income for 2022 and beyond? Is EUR 350 million now the new minimum, and what would be sort of the potential growth for that? 2nd question. The European Union is in the process of doing a study on inducements and whether those are fair to retail customers at the moment. Do you have any concerns with regards to a potential ban on inducements or stricter rules with regards to disclosure of rebates, et cetera? Thank you. Okay. On the recurring profit, we have set EUR 50 million as something that was the base. Back then, the company was smaller, markets went through different phases. Today, especially in the first semester, we have benefited from a trend in the market, and therefore, a mix effect that has been very beneficial. However, I have to always assume and remind to all of us that if the environment we're living is the new normal, then there is a higher chance that the number you have said can be the base. If this environment, in terms of financial market, is not the new normal for the foreseeable future, then we will have volatility as it has always been the case. Because the assets are impacted, because clients move to a less aggressive mix, and because of other variables. I think we're very pleased with what is happening and as far as the global asset management industry is benefiting from all the players, are benefiting from very good conditions. There is, as I mentioned, probably in the first quarter or full year presentation, a perfect alignment of the stars. We all know that this can change, and this has, and will have an impact on the numbers that we generate. This is not to be just conservative or cautious or something else, but it's something that we need to remind, because then if I tell you the straight answer is yes, EUR 85 million, then you will tell me in a couple of quarters between now and when it's going to happen, because it will happen, that I said EUR 85 million as the base. I don't know where the base will be because the base depends on many variables. Clearly, our intention is to work on the asset allocation of clients and to make sure that the recurring component of our revenues stays high and we can maintain a good mix as far as our products and client exposures are concerned. The following question on Sorry. It was on the rebates that you pay to financial advisors. This is a standard practice in the European Union. The commission is currently doing a study, which, if I'm not mistaken, will be published in the coming quarters with regards to how fair those rebates are between different countries in the European Union. Also, they will look the impact of the inducements in countries where those have been banned, like the U.K. and the Netherlands. Is that a concern for you? We had the president of ESMA make a statement saying that there could be scope for stricter rules on rebates and inducements for retail investors. Well, I leave the regulators the comments. What I can say is the more we are integrated, the better it is for clients. You can see this in terms of our performance with the clients. You can see this in terms of avoiding making potential or causing potential problems within the client's portfolio and avoiding investing in dodgy instruments. Because this is done through the integration of production and distribution, we pay our people a portion of what they generate. As always, if something changes, fundamentally eliminates the basic principles on how we build the business model, we will clearly assess the impact and eventually adopt changes. I think we've demonstrated that we are quite flexible in terms of receiving regulatory changes and adapting to these regulatory changes, provided that our business is that of managing clients' money and providing them performance. When it moves to our stakeholders, we need to provide returns, and that's what we do for a living. There are other people that for a living do laws and new legislation, we simply need to understand the impact of these pieces of legislation. Thank you. Gabriele Blei, there are no more questions registered at this time, sir. Well, thank you very much. My colleagues and myself are available for the follow-up. Should you have any doubt, please reach out. A very good summer to those of you that will be in the summer zone. We'll speak soon. Bye-bye.