Earnings Call: H2 2020

Mar 11, 2021

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Agimut Holdings Full Year twenty twenty Results Conference Call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions. At this time, I would like to turn the conference over to Mr. Gabriela Blei, CEO of Agimut Holdings. Please go ahead, sir. Thank you very much, and good afternoon to everyone. We will go through the presentation as usual and then leave you as much time as possible for Q and A. So if we start on Slide number four, we wanted to provide you with three key highlights of what we have achieved in 2020. The three main focuses have been clients, our business model and our stakeholders. As far as clients are concerned, so far clients since 2019 up to today, they are generating a positive net performance, net of any fees of 14%. In 2020, we pushed our business model towards a different approach vis a vis the asset allocation and the production center that we have developed in the private market segment. And we reached EUR 2,200,000,000.0 from short of EUR 600,000,000 at the 2019. Last but not least, in 2020, we have been generating a consistent net profit margin of 64 basis points, which should please our stakeholders. Turning to Slide number five. We wanted to provide you with a snapshot on a relative basis of what are the Italian peers listed at least doing. In the first box, you can see the asset growth from 2014 to 2020. We have been experiencing significant growth, 124%, thanks to both the development of our Italian presence as well as our international exposure that provided the extra growth. If we look at total net inflows, we have been generating EUR 39,000,000,000 of net flows in the seven years that we see in the box, Despite being much smaller than many of our competitors, the capability of the group, again, thanks to the integration of the model, thanks to the international expansion and the main initiatives has have been deploying significant net inflow growth. Box number three, net profit. We have been consistently delivering profit throughout the years, have shown the highest increase. And if you consider that we have cumulatively generated EUR 1,700,000,000.0, this leads us to the last box, which is the dividend to shareholders. We have roughly speaking generated one or paid back EUR 1,300,000,000.0 in the period twenty fourteen to twenty twenty of cash dividends. And to this, we should add the buyback that we have done over the period, which increases the return that we have generated to shareholders. Unfortunately, this is not exactly reflected in the growth that we can experience in our market cap. Among the four, I guess, can differentiate ourselves as the only integrated gatherer and asset management independent player, while there are three players that have banking platforms and more or less developed FinTech platforms in the brokerage segment. We will refrain ourselves to comment on what is the right value, what is behind our commitment as well as our actions both in terms of long term shareholders and management willingness to keep growing the business. Turning to Slide number six. This is the snapshot of what has happened in 2020. Assets have grown to billion if we include Sanctuary, which is the latest acquisition in The U. S, which has been completed in February 2021. If you exclude that, the number is more close to billion, while our international exposure is going up from 29% to 34% including factory clearly. Recurring revenues are up almost 3% with recurring fee margin holding up well at 178 basis points And operating costs are going down, thanks mainly to the decrease in distribution costs, which Alessandro will discuss later, but this is mainly driven by lower marketing and overhead charges as well as the change in the amortization of the recruitment cost that we have discussed in the last conference call. Last but not least, net profit. Q4 net profit is up 103 basis points, up from 85 basis points. This is the combination effect of higher revenues, recurring revenues as well as a good generation of performance fees in Q4. So we closed the year with $382,000,000 of net profit, which is the highest ever level achieved by the group so far. Turning to Slide number seven, revenue evolution. Here, we go back to trying to see what has been the development in a recently in a decently long period of time. And you see how the cumulative annual grade trough is 11% in terms of total revenues. And if we look mainly on recurring revenue, this is more close to 12%. And in 2020 and 2019, you see how the change in fee structure is starting to materialize with the higher level of recurring revenue being the core revenue component for the 1,054,000,000.000 that we have achieved so far. Slide number eight. On the flip side, in terms of operating expenses, taking the same period of observation, the first year is up to 2015, costs have grown to 12% on average. This is mainly a combination of strong recruitment campaign as well as the beginning of the international expansion that I remind you started in 2011. In more recent period, costs have stabilized. We have achieved this year the lowest cost income ratio so far ever achieved. And we can say that the SG and A line, the EUR $220,000,012 million is mainly split 50% Italy and 50% our foreign operations. Turning to Slide number nine. We have again presented what has been the development in the last ten years. Assets have done four times. Net inflows capabilities is increased substantially given what we were able to achieve in 2010 with the only generator being the Italian network with the mix of Italy and foreign operations, we're now generating nine times higher annual net inflows than what we were generating in 2010. Revenues up three times to the more than EUR 1,000,000,000 and costs have increased, but at a lower pace, which leads us to a net profit that has developed four times vis a vis 2010. Here, we wanted to provide you on Slide number 10, a big small snapshot of what is the digital process underpinning the business in Italy because mainly during some investor calls, I've been asked or I've been we've been compared to other competitors tend to be more geared towards the FinTech world. What we can say is as far as the commercial activity, you see how the digital proposal, so what a client has can receive in terms of advice from his financial advisors is going up significantly in terms of how many proposals are put forward to clients from a digital point of view. So nowadays 42% of the proposals that we put forward are done with the digital process and clients that have embraced the digital systems that we make available to them are up from 20% to 46%. This percentage gives us still quite a bit of room to further exploit the efficiencies that the system can generate and deliver to us. The flip side of that is that our FAs are now fully digital. The network has embraced the digital transformation, having been going through the difficulties in 2020 due to the COVID emergency. So in a snapshot, from a commercial point of view, Assimut has been developing silently the digital transformation. We are very much focused on pushing this forward, whereas we are not going to enter services that are not linked to the asset management segment. So on the production side, we're very much focused on trying to develop products that can allow us to enter new fields such as the Synthetic Bank project that we have discussed in the past. Turning to Slide 11. This is a quick snap of and a reminder of what we said back during our Investor Day in 2019. We argued how revenues, but mainly net profit were going to change due to the change in the fee structure with the bulk of the net profit. So we were estimating back then 80% was going to be generated by recurrent component. As you can see in 2019 and 2020, during this transition year, which some have criticized, but I understand also some competitors are also using transition years to make the transitions move from an old pricing scheme to a new pricing scheme. The numbers reconfirm our early assumption of being able to move away from a more variable component into a more stable and recurrent and visible component as far as the net profit generation is concerned. Turning to Slide 12. These are some KPIs that we have plotted, Adzimuth vis a vis some alternative players as well as traditional players. You see in the footnote the names of the players that we have taken as reference. And I guess one can summarize this slide by just saying that the integration of production and distribution is capable of generating higher margins. The integration delivers superior returns for shareholders as well as for clients as we've seen before. And as far as the net new money capabilities, 7.7% compares with almost the double of the alternative. And this is one reason why we are steering the ship into the alternatives because we can get superior growth and we can deliver superior returns in the medium to long term for our clients, especially in the current environment. Last but not least, the mix of Italy plus our foreign operation plus the product innovation and all the strategic initiatives that we have decided to take have delivered a superior asset growth, especially vis a vis traditional asset management players. Last but not least, to conclude this first part of the presentation on evaluation perspective, clearly, is a gap vis a vis traditional and nontraditional. I understand that many people are still skeptical about our capability to provide you with guidance in terms of net profit as well as to actually deliver on the guidance. And to that end, we still have to try to fill the gap. However, there is it's our from our perspective, still a bit of potential in terms of rerating the stock from a multiple perspective. Going into group intros and asset evolution, we are now as we said with the latest press release at €70,000,000,000 including the Sanctuary acquisition in the first two months of 2021 in terms of net flows. Our international business stands at 34%. In 2020, we added 4,500,000,000.0 of which I would like to stress the EUR 1,400,000,000.0 in private market funds. These days we are standing at 4% vis a vis 3% at the 2020. And we're not accounting for products that have been launched and are in the fundraising phase. And this account for several hundreds of millions of euros of net new money that we will be consolidating going forward. Turning to Slide number 15, a quick snapshot of the product range or a summary of the product range that are already operating. We show you the new infrastructure ESG fund that has collected so far 200,000,000 from professional investors and is starting to deploy this money into real economy investment. As I was mentioning, we have a strong pipeline of private market funds. You can see this on Slide 16. There are these are ranging from equity and credit funds as well as some pipe products that we have been launching and that are not constrained by target size and minimum investment. These pipe funds will be very much useful in the future to raise money that then can be deployed into private market funds that we will be launching going forward. We are also proud to underline a small initiative, but very innovative in the venture capitalcraudfunding segment, which brings basically these two components together into a private market fund, which is called AliCloud. More products will be launched in the coming months and especially starting from the 2021. And we are very confident that this will be well received by our network. Turning to Slide 18. As we mentioned at the beginning of our presentation, the performance net performance delivered to clients has percent from the beginning of 2019. We have been able to deliver positive performance in 2019, in 2020 and so far in 2021. If you turn on Slide 19, you see how we have broken down the different components of the performance. And clearly, see how our equity component has been over performing. And this is a mix of the product mix that we have as well as proper timing as far as the market timing in terms of exposure and investment is concerned. As far as the fixed income component, you see an underperformance. The underperformance is easily explained by the fact that we are not overweight Italian government bonds as it is the case for the index. And we are overweight typically these days in terms of corporate exposure, high yield and emerging market, which have given a drawdown in phase of the market, but we are quickly recovering the gap that has been created. As far as the allocation component is concerned, this includes balanced funds, obviously, as well as one of our biggest fund that follows a value approach, which has not been very much in favor during 2020 and is explaining a portion of the gap, including the fact that the balance funds are under way structurally the exposure to government Italian government bonds. Lastly, the liquid alternative strategy. Unfortunately, here there is a bit of everything and we're not able to compare apple with apple, but we're trying to compare apple with bananas, because unfortunately the index is very widespread in terms of what is inside the index. Whereas our strategy mainly focus on deco related strategy commodities, ILS merger, ARB and so on and so forth. So we are not very much representing same strategies and same investment approaches. But we wanted in any case to provide you with a bit a big snapshot of the four major drivers. I remind you that alternatives do not include the private market funds exposure that we are building. Turning to Slide number 20, a bit of the snapshot that we have already proposed to you. You see how private credit covers almost half of our AUM breakdown in terms of private markets, 25% private equity and private equity funds 6.5%. Venture capital 2% and with the real estate infrastructure fund, are almost delivering a 10% coverage. By region, 22% in The U. S, 82% in Italy, hasn't changed much since our last update. Slide 21, we still are observing a bit of a gap vis a vis the industry, not very much to add to this slide. We wanted, as usual, on an annual basis, provide you with an international snapshot of what we have been doing in our three major geographies. We start with The Americas. In The U. S, we have been particularly active in 2020 with a couple of initiatives. Firstly, we have set up our private market companies, Admiral Alternative Capital Partners that has completed the first acquisition of a minority stake in Kennedy Lewis, a special situation alternative manager in the credit space. They have closed Fund two by oversubscribing the fund at EUR 2,150,000,000.00. And they are already they've already invested more than half of the assets into this strategy and they are ready to launch Fund III for which they are expecting EUR 3,000,000,000 of target size. We have a pipeline of ongoing negotiations, and we would be pleased to announce soon the closure of some of the businesses in which we are engaging ourselves. Wealth Management Sanctuary, as I've mentioned earlier, the acquisition has been completed in February 2021. Between November and February year, assets have grown by more than EUR 1,000,000,000, thanks to both market effect as well as net inflows generation. Outlook is quite strong. Our partners are keeping on delivering growth by adding new teams and new bankers, and we expect to provide you with an update in the next couple of quarters. Brazil, I would say this is probably across all our geographies, the market that has suffered the most in 2020. It has been a very volatile market, but we have proven to have a very resilient business model, thanks to the integration between production and distribution, which no one else has in Brazil. And the fact that interest rates are very low and for Brazilian standards, extremely low, even negative in terms of real rates should push clients towards asset allocationmanaged savings equity exposure to increase over the coming months. Mexico is the other country in which the situation has been quite severe, although our business model has proven to be resilient. We are focusing on developing our production center and we should be sending out a press release later today to announce what should be an interesting development in the equity space of our Mexican asset management capabilities. Turning to the Europe and Middle East, when looking at The Middle East, firstly, Turkey has been an incredible contribution to our growth in 2020. We have been able to increase asset on a monthly basis, thanks to net inflows that have been positive month after month. We now have 7% of market share in that market. And the Sukuk fund, which we have launched several years ago is now 1,500,000,000.0 as far as the strategy is concerned across different location. And this explains also our presence in several countries across The Middle East. Egypt, we have been very pleased with the launch of our first Egyptian retail fund in the country, which has been very welcomed by local distribution channels and has collected so far EUR 30,000,000. Monarch and Switzerland, despite the turbulence in the market, have delivered the stronger results since their foundation. And obviously, we're trying to consolidate and retain the margin profiles that we have in both countries. International Asia Pacific, last snapshot EUR 7,000,000,000 and EUR 1,800,000,000.0 of net flows. China has been a good performer, both in terms of fighting the pandemic as well as the financial markets with the equity market being very strong in the recovery. And our funds has been able to deliver superior returns vis a vis the MSCI China, which compares 52% vis a vis 34%. Singapore has been a strong contributor towards inflows with 1,000,000,000 of AUM reached during 2020. We had a very solid contribution from new private bankers. And we have we are expecting to be developing the business further, thanks to several hiring in Singapore that are expected to come in 2021. Last but not least, Australia. We have reverted back to some M and A activity overcoming the bureaucracy that the government has increased in Australia. I remind you to complete an Australian acquisition, even if you are a local player, you had to go through sorry, if you are an international company, you have to go through a process and you have an authorization process that requires time. But luckily, we have been able to revamp that business in 2020. And to conclude on the international presence evolution, you see how our 34% is split across different countries with nowadays The U. S. Being the major market in our 17 locations. And thanks to this diversification across a number of different markets, we have been able to be very resilient, and you will see this in a minute on the numbers, which I will give Alessandro to comment on Slide 27. Yes. If we can move to 27. Here, you have a summary of the contribution of the international business to the consolidated accounts. Starting from left side, you have the total asset. We closed the year slightly below the 2019 due to the market volatility and the FX such effect that we were able actually in a way to recover during the year. And despite this level of total assets, we remain strong in terms of net margin. We achieved EUR 142,000,000 of net margin at the end of the year, euros 5,000,000 more if we consider also, let's say, the contribution of the variable fees. Moving to the EBITDA as well, are still increasing the level of the impact and with EUR 54,000,000 in terms of contribution, and as well EUR 59,000,000 if, again, we consider the variable fees. And then as well, the EBITDA margin, which is still increasing compared to last year, until we reach the 30%. Thank you, Alex. Going back to Slide 28. We think we are different from our Italian players and competitors for a number of different reasons. We have in house manufacturing and we had it for the past thirty years. Thanks to this, we have been able to offer superior returns to our clients. And we are now developing the private market initiative, which we can say we have been a first mover in Italy. And this is offered to retail clients mainly as well as to institutional clients. We do have a global bridge, which is true because we are on 17 countries operating for time twenty four hours a day. And this integration is helping our asset management capabilities in providing clients with local contact know how and superior returns. We have turned into the ESG focus onethree of our Luxembourg based funds are ESG compliant and are following ESG strategies. And since by now ten years, we have been running our foundation, which continues to fight the fight against poverty for those that are less lucky than us. Corporate finance, we have been developing our capabilities in supporting entrepreneurs alongside our initiatives in the private markets, which is creating synergies with our network of wealth managers. Last but not least, everyone here is a long term shareholder and fully aligned with interest of clients and shareholders. Quick snapshot on our Italian financial advisory network. I'll leave you to look through the numbers, but one can say that we are reducing our average age with recruitment. And the average assets that are flowing to the system are slightly shy of our average that we currently have. But we have seen in many, many situations that advisers, once they join Assimo, they can increase not just the asset size, but also the component of managed assets vis a vis the total portfolio, also thanks to the benefit that they can have by, as I was mentioning before, our in house production centers. I will turn to Alessandro for the financials. And before doing so, I just wanted to highlight you that we have delivered a solid set of results and numbers, which we will then obviously comment with you. Clearly, being a very generous year, we have decided to take an extra stance and cautiousness in terms of provisioning. So we are we have been over provisioning to some extent in certain line. But I think given how the year has developed and the contribution that we have had from performance fees, we're pleased also to have done extra provisioning as well as payment of bonuses to our fund managers and employees that deserve recognition. Alessandro? Yes. If you can move to Slide 31. Here, you have the consolidated and classified income statement. So as usual, we can start from the bottom line. As we already said, we closed 2020 with the highest result of the history of Tovarpion with EUR $382,000,000 of net profit, EUR 12,000,000 more compared to the 2019. And as well, if we look to the quarter, we are to almost EUR 80,000,000 above compared to the 2019. This result, it has been reached with, let me say, less impact in terms of variable fees, as you can see, 57,000,000 less compared to the 2019. But despite that, we can also fix a new record in terms of total revenue, 4,000,000 more compared to the 2019. Therefore, we were able to recover this negative impact of the variable fees, thanks to the increase in all the lines that compose the total revenue. In fact, you can see EUR 4,000,000 more in commission income. You can see EUR 21,000,000 on the recurring fees. This is explained mainly with EUR 7,000,000 from the new pricing model that generated, let me say, that composed the full year 2020 compared to the 2019. And EUR 12,000,000 is full recurring fees, thanks to our growth in terms of asset under management. The other income increased as well of EUR 6,000,000. This is a significant impact coming from the generated I mean are generated on the club business initiatives that implement during the year and also a few million from other new services. To the level of the issuance revenue, we are EUR 30,000,000 above compared to 2019. This variation is I mean, can be explained with EUR 30,000,000 from recurring fees and the implementation of the new IDD model that we already shared with you in terms of contribution and as well EUR 70,000,000 of variable fees compared to the 2019. Moving at the level of the operating cost, can see EUR 7,000,000 less compared to the 2019. This has been reached, thanks to reduction of the distribution cost, twenty three million less. This, as we were already shared with you in the last quarter, are coming from the new amortization method, the IFRS 15 that we amortized in a longer period compared to last year. And as well, obviously, less recruiting due to the contingent situation of the market. As well, we reduced cost in terms of marketing and activities on the financial adviser and also less cost in terms of overheads. On the other side, we have an increase of 4,000,000 coming from social indemnities and as well, obviously, an increase in terms of recurring cost of the financial adviser linked to the evolution of the asset under management. Therefore, the operating profit, sorry, it increased by EUR 11,000,000 that summarizes the evolution of the total revenue and the operating cost. Probably it makes sense also to focus on Q on Q, in specific on the administrative cost and where you can see that we are almost stable compared to the 4Q twenty nineteen. This is an important message where despite the evolution of the international business, we were able to keep to almost the same level of last year. Because looking to year on year, the 11,000,000 that you see in terms of variation are explained by the evolution of the international business and for 50% almost and the other 50% is the, let's say, the full impact of the new machine charging, delivery and pricing. Moving to the nonrecurring cost and income, you see interest income that contributed to the net profit with EUR 7,500,000.0. In a simple way, 50% of this amount are coming from the active approach that we have managing our liquidity. Therefore, during the year, we were able to fix our realized gain on our portfolio for €3,500,000 and the other €3,500,000 are coming from the unrealized fair value of our portfolio. At the level of the non operating cost, are including one off cost due to our acquisition activities, which outside Italy that Cesar was saying are one off, therefore, we move on this side of the income statement. At the level of the interest expenses, the increase is simply explained by the new bond that we issued at the December 2019. If we move to the net financial position, we recover and we are back to a positive level of EUR 30,000,000 compared to the June 2020. We are EUR 42,000,000 less compared to the 2019. In the note, you have, let me say, the full explanation of the variation of the net financial position. In fact, if you add almost the results of the year, but you take out the effect coming from the buyback with EUR 45,000,000 and as well you can see the EUR 69,000,000 of policyholder tax paid in advance, the dividend paid during the year and as well at the end, all the M and A activities and as well the investment that we did during the 2020, we will able to reach the value of the net financial position that we have today. I'm going to give back to Gabriele for the last part of the presentation. Thank you very much. So the proposal that we will submit to the AGM in terms of the dividend payment is a confirmation of what has been paid in 2020 among the very few financial company to be able to pay a dividend in 2020, which we confirm a EUR 1 dividend. Let me clear the way to a potential comment here as well. We did not want to push the dividend too high in a year in which uncertainties are still all around us. We do have the possibility to distribute higher dividends. But at this stage of the development, we think we want to retain some cash in the business to be able to finance the many growth initiatives that we have and we are analyzing. So although one may see the gap between the net profit per share and the dividend, we are in a phase in which we favor growth vis a vis strong shareholders' returns through dividend. This is consistent with what we said back in January 2020, and we do have this preference at this stage. Turning to Slide 35. What is Adzimum today? Today, we have a consolidated presence in Italy. We have we see we have upside in the Italian market from the retail segment, but especially from the high end segment as well as the requalification of the asset that a typical client has by being exposed also to the private market segment. As far as the international component of our business, we do see ongoing growth and we have total focus on increasing the profitability between now and the next five years, because we do have scale and we do have the right mix of integration of production and distribution that will be able to support the higher profitability going forward. Last but not least, we need to scale up the private market and we need to be able to do so quickly in order to leverage on the competitive edge that we have created and in order to reposition our clients with the optimal asset allocation that in our view also include private market funds. Lastly, Slide 36, for key investor concerns, performance fees. As you have seen, we've changed our performance fee methodology. We've done this earlier than many other players. And we see a similar approach by a number of different Italian players. We do rely more much more than before on the recurring component and AUM growth in order to generate P and L numbers. And if and when we will have to think of changing the new the performance fee structure again, we will do so and we will promptly communicate this to the market. International business, it's 34% of the total assets of the group and it has generated and it will continue to generate profit going forward as I was mentioning before at a higher pace than in the past in order to increase the contribution to the group results. Thirdly, Italian business. Clearly, private market is the key focus. We have seen in the first month of the year a good development. And hopefully, we will be able to communicate for additional closing to some of the funds that we have in the fundraising phase. And we are also trying to develop a number of different services within the framework of the asset management capabilities by but being and remaining far away from the transformation into banking or a more sophisticated business model. Last but not least, I will not comment on how our CEO structure has been performed. It's under your eyes. But I want to thank as always the strong commitment of all our employees as well as financial advisers wherever they are based because it's been a very, very challenging year. Last but not least outlook. We do insist on providing guidelines on an annual basis on our net profit. $350,000,000 is the target under normal market condition, whatever this means. And this is based on a combination of strong revenue margin, as we have seen in the presentation, cost control as we have proven to be able to do and asset growth as we have started to do also in the first few months of 2021. All of this with a bit of luck and support from the market will lead us to EUR $350,000,000. The breakdown of the inflows at this stage, we reiterate the EUR 4,500,000,000.0, clearly excluding the acquisition of Sanctuary is a mix of private markets international and core Italy. So anything that is not private market related. That concludes our presentation and we leave it to you for Q and A. Thank you. Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session. Session. The first is from Alberto Villa with Intermonte. Please go ahead. Questions, if I may. The first one is on the assumption in the guidance for €350,000,000 net profit this year. Do you give an indication or can you give us an indication of what is the component related to performance fees, which for us is going to be different from previous years in terms of modeling? So just to give to have a sense of what is implied in this target. The second one is related to the target on net inflows. Again, if you can give us an idea of how much you expect it to come from organic and how much from recruitment for this target? The third question is, well, I was wondering on Slide 19, when you give us the performance of your funds compared to benchmark for different asset categories, how you can split the assets? And if you can give us an idea of how big is the portion related to the four different brackets, so meaning how big is the equity, let's say, in terms of IUM and fixed income and so on? Thank you. Thank you, Alberto. So in terms of guidance, in terms of net profit, what we think is that our assumption of the 80% being recurrent component of the net profit and 20% being performance related under a market that behaves normally should lead us to the $350,000,000. So if you assume 20% of that or something in that range, this is basically our base case assumption provided market behave in under a normal scenario. As far as the net inflows, that's a very complicated question to answer just because we're all reading in the newspaper news of potential additional lockdowns and restrictions. And this clearly limits or restrict the capabilities of commercial activity in accelerating on the recruitment. So eventually, we could have a year of slow recruitment similarly to 2020. From the first indications we had in the first couple of months, things were a bit more lively, but that's a situation that changes on a decree by decree basis. Although we expect a contribution from the recruitment. As far as the breakdown in the four different categories, I don't have the numbers with me, but we will provide them to you. What I can tell you is that the equity component has reached at a certain point in the first or in the last part of 2020 and '11 of the highest ever record level, although back in early two thousand, we were at 60%. We were shy of 50% these days. So our overexposure to equity and probably the right allocation within that asset class has been able to generate a significant overperformance in the first couple of months so far. So these days, we are returning a net performance to clients of 2.5% or ranges between 2.53% depending on the behavior of the market. But as far as all the other asset class, we can say that fixed income accounts for something like 40% and cash is still in the region of 10%, 11%. Okay. Thanks. Interesting. Thank you. The next question is from Hubert Lam with Bank of America. Please go ahead. Hi. Good afternoon. I've got a few questions. Firstly, on Sanctuary, what's the impact of Sanctuary on group profits for 2021? Will have any accretion this year? And, what are your expectations for 2022 in terms of profits coming from Sanctuary? And also regarding Sanctuary, how does, including Sanctuary in your numbers, how will it change the look for your P and L if we were to model, the revenues and costs, from Sanctuary? That's the first question. Second question is on dividend. How should we think about the dividend going forward? For example, if you do hit your $350,000,000 profit target, does that mean that dividend, it will be unchanged year on year at €1 Is that a fair assumption? Third question is on M and A. You were quite active in M and A, in 2020. What's your thinking about doing more deals in 2021, for example, perhaps expanding more in The U. S. Or in private assets or any other type of deals, either by product or international for this year? Thank you very much, Hubert. Sanctuary, the contribution to 2020 result is basically zero. As far as 2021, we do expect Sanctuary to start generating profit, not material profit given by still a very heavy investment cycle that they are undergoing. The profit contribution, everything as being the same and assuming that the business plan that we have agreed with them materialize exactly as we have agreed, a strong contribution or an increasing contribution from profit will be starting from 2023 onwards. This is because they are still in a very heavy investment phase and we have been pleased to actually finance and help them to finance and accelerate that investment cycle because it will provide returns over the coming years. Consider that we do have strong activity in order to recreate the integration of the platform also by exposing them to our asset management capabilities, both in the alternative space that we have already and eventually over the future if we do further investment. We dividend, this is a very interesting question, but a question that should be asked in twelve months' time. Firstly, because we first need to achieve $350,000,000. And you know how seriously we take these numbers and our commitment vis a vis the market. And we do think that there is a strong potential for the group to continue to generate cash flow over the coming years. However, don't forget that we have EUR $850,000,000 of debt in the balance. And we belong to a country that is not keen on repaying debt. But we think that eventually, debt has to be repaid when it falls due and to that extent, we are taking our commitment to our bondholders very seriously and we need to fulfill both our commitment to our shareholders as far as the equity component is concerned and pay them dividends, but have a consistent, solid sustainable business model when it comes to leverage and payment of debt. M and A, we do see M and A still in 2021. We are very active on certain regions and countries. This doesn't mean that everything will materialize, but we are exploring possibilities to increase our penetration in the private market in The U. S. Indeed. We are looking to reinforce certain countries eventually with the acquisition of teams of asset managersasset gatherers, so production and distribution. We do not see at this stage and this is something I've been saying for a while, new countries and new addition as our focus is fully concentrated on what we have that already leave us with full hands. Great. Thank you very much. Thank you. The next question is from Domenico Santoro with HSBC. A couple of well, a few questions also from my side. First of all, on the quarterly number, there was an increase in the distribution cost in the quarter. My understanding is that from the call, it was mentioned before there was some upfronting of bonuses or other components. So can you give us a bit of color there? And looking forward, how shall we model this for the year 02/2021? Then if my calculation was correct, for sure you have monthly numbers at hand, so you can help me. There was a bit of correction of margins in the quarter, but the equity was up quarter on quarter. Again, I mean, if there is an explanation, your numbers for sure are more accurate and if you can give us a bit of color for next year what's going to happen. A guidance on cost would be nice for 2021. And then can you remind us of this $3,700,000,000 organic flows in 2020? How much was specifically from Italy? Okay. So first question, distribution costs. As it is always a bit the case with Q4 numbers, and this is true for at least since I've been covering the stock back in 2004 and then becoming an employee of the company. In Q4, we tend to have a bit of a spike, which is mainly linked to variable compensation and end of the year provisioning. Even in the distribution cost line, there has been a bit of an impact there. We do see this within a normal behavior also linked to the generation of net profit, considered a good portion of the variable compensation for anyone that works in Azimut is linked to the results that the group achieves. So there is a bit of a direct link between that line as well as SG and A line with the strong results that we have been achieving. Margin correction, honestly, don't see or we from our numbers, we haven't been seeing a correction in terms of margins. We do see month of the month as far as the Q4 numbers are concerned, very stable environment between 178, 179 basis points. So from what we have from our point of observation, things are pretty stable, especially after the drop that we have seen in the 2020. Guidance in terms of cost, distribution cost is the key variable because it is linked with the behavior of the recurrent component as well as the recruitment activity that we can actually achieve throughout the year. We do expect in any case to be able to keep under tight control marketing and overhead expenses within that line simply because we are still in a semi or total lockdown scenario and things are quite rigid at least for the foreseeable future between now and say September. So we don't expect that part of the distribution cost line to increase dramatically. On the contrary, we will retain a decent control. As far as SG and A line, excluding the change in the perimeter and potential additional investment of people that we can have within the private market initiative, cost we commit to a flat cost approach because we do still have potential savings initiatives underway. And we do hope that the move towards the digital approach is maintained and further improved, which will deliver extra savings that we will be able to use to further reinforce our IT and operation systems. Lastly, the inflows in 2020 of the organic component, it's been fifty-fifty between Italy and the foreign operations broadly speaking. I apologize for following up on No worries. Another On the insurance instead, sorry, missed the comment. How much was performance fees in Q4? And a bit of a direction for next year as well given that you have revised all your product range also in the insurance. Yes. Listen, in terms of the performance fees in Q4, we're speaking about 7,000,008 million euros And what Alessandro was arguing is that of the €30,000,000 increase year over year of that revenue line, around EUR 30,000,000 has been linked to the recurring component and the rest being performance related. We did revise the product range. We are very convinced that we have a very interesting offering for clients. We're pushing this quite strongly. And besides the market effect, we still hope that with the development of the asset base, that revenue line will continue to grow in 2021 as it did in 2020. And let's see how the first couple of quarters will behave and we can be a bit more precise on the trend that we are seeing in terms of recurrent component at least. Understood. Thank you very much. Thank you. The next question is from Elena Perini with Intesa Sanpaolo. Please go ahead. Yes. Good afternoon and thank you for taking my questions. I've got, first of all, a follow-up on the insurance revenue line because if I understood correctly, so the recurring component or I cannot understand well if the recurring component of total 2020 insurance revenues was two thirds or the two thirds are the recurring component of the changes, so of the €30,000,000 change between 2020 and 2019? And then other two questions. The first one is related to your exposure of the assets of Tantori. If I remember correct in the press release on your February net inflows, you put them in the assets under administration, but I was actually convinced that they would have been putting the assets under management. So if you can explain this type of classification. And finally, do you have any news on the goodwill realignment because I imagine that it was not included in your 2020 net profit? Thank you very much. Thank you, Elena. So let me start from the last one. Yes, we did not include the goodwill realignment. So we did not reach the higher end of our bracket because of that. We're still assessing and analyzing the implication of the decree. And we're certainly going to take a decision soon, but we preferred for 2020 not to rush and take unnecessary decisions given the strong results that we have in any case achieved. In terms of Sanctuary, the asset under administration, you are right. Unfortunately, the classification of Assuggestioni and so on obliges to be quite rigid in terms of how we plug in this kind of activities. And being mainly these days invested in third party funds, we cannot include them in the asset under management component. Although we will be working to transition a portion of the asset as we integrate the production and the distribution more strongly into asset management products. Revenue line, the insurance revenue line, actually the opposite of what you said. Just to make myself clear, we increased the revenue line from EUR74 million to EUR102 million almost EUR102 So the difference is explained so the EUR30 million difference almost is explained by EUR 30,000,000 higher recurrent revenue line in the insurance revenue line and the rest being performance related. Okay. Thank you. Very clear. My pleasure. The next question is from Angeliki Baraktari with Autonomous Research. Please go ahead. Hi, thanks for taking my questions. First of all, with regards to the $350,000,000 net income target for this year, can you give us some color on the gross management fee margin that is embedded in that number in your assumptions? Do you assume that the margin is going to remain flattish? Or do you expect it to evolve in a different direction, either down or up? And then can you also confirm that the $350,000,000 does not include the goodwill realignment impact? I are looking at a at a net at a recurring net income number when we look at this $350,000,000 And then a couple more questions. The other income line, which was quite strong in 2020, What is the outlook for other income sort of revenues going forward? And also, can you give us some color on the impact on SG and A costs from the Functuary Wealth acquisition? And last question with regards to ESG. Yesterday, we had the sustainable finance disclosure regulation becoming becoming valid in the European Union. What do you expect the impact to be for you given that you have both the production of asset management and distribution in the business? Okay. Let me start from this last one because we take the approach to ESG very seriously, and we committed ourselves to a lot of effort both from a management perspective as well as product engineering. ESG is something that has been within the group for many, many years, considered our biggest fund, which is called the trend and is active in life since 1993. Since its origin has never invested in companies producing arms or pornographies or this kind of businesses that we did not we do see now that are non ESG compliant. So since many, many years, our investment approach has been an investment approach that has taken indirectly the matter very seriously. We do see potential in the ESG approach, although it hasn't been it doesn't have to be swapped only as a marketing tool, but you have to be very consistent in what you say and in what you do within your funds and the investment approach. The we have approved across the different companies. So from the holding level down to our production centers, ESG compliant policies that actually take into account all the different aspects of the best practice and the best standards. So we are actively working on these instances. And we will be very pleased also in the coming quarters to provide you with more color on what we have done and what we have achieved. You can find in our financial statements the full disclosure of what we have been doing in 2020 and onwards. We do have in the pipeline also potential product evolution that also meets ESG investment size. And it is something that we will all discuss in more detail going forward. As far as the other income line is concerned, this is unpredictable because as you understand, when we enter into the field of M and A and corporate business, it's not a business that rests on recurrent fees, but it's a business that you have to generate every year from scratch. And you have to compete against very big players and aggressive players that have a lot to say. We hope and we do think that we have done a decent job in 2020 to set the base for potential deal flow. But as you can imagine, this depends very much on our capabilities, on the markets, on the willingness of investors to receive products and services from Adzimut. So honestly, it's hard for me to give you a ballpark number that provides you with the guidance. The gross management fee expectations for 2021, our base case scenario is that given the normal market conditions on which we are assuming to work, the gross management fee should remain at the level we have seen in the last couple of quarters, and we're not expecting major shifts. Again, as I've repeated many, many times, we are not concerned about one or two or a couple of basis points up and down on a single quarter. This can vary because of asset mix, because of the market, because of many, many different aspects. But the sustainability of the margins over the long run is what we care the most. SG and A cost, the guidance you wanted to know? Will be the impact from the consolidation of Sanctuary on SG and A cost? If you can give us an order of magnitude. Listen, they are having a strong investment cycle. And we do expect them to start generating profit from 2021. So the contribution of revenuesminus cost will generate profit. At this stage, I don't have the number with me in terms of their cost base. But what I can give you as an indication is that we are looking them to achieve net profit already in 2021. Again, the only variable that we do not control is the market, but this is unfortunately a bit always the case in any market. Okay? Yes. Thank you. Thank you. And sorry, can I just ask as well on the goodwill realignment? Can you confirm that that's not in the €350,000,000 Because that if I understand correctly, that's a that would be a sizable contribution. Listen, we the uncertainty around our decision is also is still high, and we still don't know what we will be doing. At this stage, we are not very keen on taking a strong position towards the EUR 30,000,000. So at this stage, it's not included. Then we will see if and when we will take the final decision whether we will do any adjustment or we will keep this as a buffer in case the markets will not be as supportive the question is from Luigi Dabellis with Equita SIM. Please go ahead. Yes, good afternoon. I have three questions on the international business. The first of all, how much is the contribution of the international business in the €350,000,000 net income guidance? The second question, do you expect higher profitability in 2021 compared to 2020 for international business? And can you elaborate on the drivers? And in which countries do you see the higher potential for 2021? And the last question, are you planning some exits in countries where you have small presence to concentrate your effort in a more profitable and promising countries? Thank you. Thank you, Luigi. The profitability of the foreign business is expected to grow, consider that we have in 2020 posted the similar EBITDA contribution with however absence of material performance fees, which on the contrary were there in 2019. So the underlines are growing and we are able to increase the profitability of the recurrent component of our international presence. This is also clearly driven by the fact that assets have grown, although the movement has gone from EUR 17,000,000,000 at the 2019 down to something like EUR 13,000,000,000 at the point in time in 2020 and up again to EUR 17,000,000,000 at the 2020. So a V shaped recovery, not exactly what pleases us in terms of capabilities to generate sustainable growth in our profit, but we take what the market gives us and we work to produce sustainable profit. And the highest potential or the countries in which we see capabilities to increase the profit are very much across the board and across the three geographies. We do see and we stress the need to show to look at our exposure divided in the three macro areas. As you can imagine, Brazil suffered, I mentioned this before, but this was offset by the fact that in that part of the world we were present also in other countries and or we were present in Asia Pacific that has seen a decent development. The MENA region has grown quite well in 2020 and we do see still solid potential. Just to mention one example, we are just now starting to go outside of Istanbul in terms of Turkish exposure with several branches in very promising cities across Turkey. And we do expect to leverage on the work that has been done in the last ten years in Turkey. As far as Australia is concerned, which is another very important market, we do expect a rebound in the profitability going forward, hopefully starting from 2021, if things stabilize and normalize a bit more than in a very difficult and strange and slow moving process as we have experienced in 2020. So honestly, I can't just speak one single country. I do see ourselves engaged in a number of different regions that have very different dynamics. But the focus and the intention is across the board and at any manager level to increase the profitability of the business between now and the next five years. This can be stronger or less strong also dependent on the market. As far as exiting specific markets in which we are not at a decent scale, it's an ongoing discussion. We always have an update among us to understand whether we could improve our exposure, whether we can scale down our presence or going for external growth. But at this stage, we do not see the necessity to exit any specific market. And this is simply explained by the fact that once you enter a market with your brand and with a strong message and an industrial project that develops over a long term investment phase, once you exit because you didn't succeed, there is no way back, at least from our point of view, in the sense that there is very little chance that regulators, industry participants and so on and so forth will be able to deliver credibility to what we're saying and our presence is compromised not forever, but for a reasonable good number of years. And at this stage, we're not we don't see the need to do that. And we actually are more focused on how can we scale up our presence if it is subscale. Thank you. If I may, just a last question. How much are the theoretical performance fees today? Thank you. This is a number that even if you put me in a closed room under torture, I will not tell you. Besides the joke, you all have, you know, your models and the way the system works. You can have an assumption, and we can have a call on the January 1 every year, if you wish, to discuss how well we performed in terms of our client returns and then performance fee generation. But at this stage, it's really too early to speak. Thank you pleasure. The next question is from Fabrizio Bernardo with Baftinburg. Please go ahead. Hello. Hi, everybody. Just one quick question about the fact that during the pandemic, you have probably your best year in terms of everything, and you put this down on Slide number five. I was a little I mean, disappointed about the dividend line. I mean, EUR1 per share is not bad per se, but could be much bigger. You said that you in this kind of situation, you want to be very liquid and you want to have cash. I guess Assimut has no problem in finding a bank granting money to them to you, sorry. So I was wondering whether in case of M and A, we may expect you go on with bits and pieces, so with maybe a small deal in core countries or maybe we can expect something much bigger because it's strange to see that you're paying the same dividend of 2016, if I'm right, when the bottom line was less than one outside the one you have in 2020. So I was wondering whether we may expect something relatively bigger than usual than a small deal. Thank you. Thank you, Fabrizio, and thanks for encouraging us in trying to do a transformational deal, which we're not shy, and we are very committed. But being ourselves shareholders and not having to do by definition any deal to boost the short term profit, we look for sustainable long term growth. So the strategy so far has been to try to develop the business, maintaining the integration of production and distribution wherever we are based and be able to continue to generate strong cash flow. We're not, as they say, bullshitters. And when we went myself and Alessandro in front of bondholders to say, listen, we want EUR $05,000,000,000 debt. Will you lend us the money to invest in the business, explore the business over the long run and we will return this in five years' time? They said yes, but we need to give it back. And to give it back, you need to have cash in the business to be able to give it back. And you have to invest your money in sustainable businesses that produce profit. I'm not saying that we have running any risks short term or medium term, but we are an independent company. We're listed 75% is free float. We have engagement with our bondholders. And sometimes it happened already in the past, kept cash in the business for a reasonable number of years. And this is because we saw opportunities to invest and deploy the strategy that we were arguing with investors for some time. We do think that we have been quite pro shareholders in terms of dividend payment. Don't forget that 2017, 2018 were very generous years. 2019 paid in 2020, we did pay a dividend. And in 2020, we decided that prolonging the approach of sustainability and fulfilling our commitment with bondholders is something that needs to be preserved in an environment that is far from being stabilized and far from being back to a normal growth trend. Being shareholder myself and my colleagues, we do like to receive dividends and higher dividends, but we also have to adopt sound and prudent management with a medium to long term vision. So it was a yes. Sorry. Provided the answer is No. You very much. You very much. Gentlemen, there are no more questions registered at this time. So thank you very much for your time. Myself and my colleagues remain at your full disposal if you have any follow-up, and have a very pleasant evening. Bye bye.