Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Azimut Holding Second Quarter 2020 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 zero on their telephone. At this time, I would like to turn the conference over to Mr. Gabriele Blei, CEO of Azimut Holding. Please go ahead, sir.
Thank you very much. Good afternoon to all of you. As always, we will start to go through the presentation quite quickly, and then leave you all the necessary time for questions and answers. If we go to slide number four, we have tried to summarize the major three key takeaways of the first half 2020 results, which we can summarize in the first point being shareholder returns, the focus on the fact that we have paid dividends of EUR 137 million in the first half, on top of completing EUR 44 million of buyback. Probably one of the very few Italian financial companies being able to do so. Second aspect, as you are all aware, we are a people business, and a business that had to go through a very challenging moment during the first half.
However, we decided that we wouldn't proceed with any downsizing of our employee base.
No one has been put on subsidies or furlough. We continue to believe that we will have to invest in our people and in the future generation that will come. Third point, we have achieved EUR 143 million net profit in the first half. As I tried to argue during the last quarterly result presentation, we wouldn't have been looking to update the target of 2020, we kept EUR 300 million. We believe we can be on track for reaching the EUR 300 million target that we have set ourselves. Of course, markets remain highly unpredictable and therefore, we will have to live every month, as in a marathon. Slide number five. A quick snapshot on the results. The revenue margins are holding off well, respecting continuous focus on asset quality. Our asset base in second quarter 2020 has gone down 3% year-on-year or 3.6% quarter-on-quarter.
We are speaking about managed assets, landing at EUR 41.5 billion. On the revenue side, we're quite pleased, especially on the red part of the chart. Margins of the recurring component have improved year-over-year by four basis points, 179 basis points. If we compare this with the first quarter of 2020, which had obviously two months of normal markets and one month of very uncertain conditions, we compare 179 basis points with 180 basis points. If we go further in the detail, we have achieved EUR 26 million of insurance revenue and slightly in excess of EUR 30 million in the second quarter in terms of performance fees. I remind you there were EUR 9 million in the first quarter and EUR 29 million in the second quarter. A total revenue up 4% year-on-year to EUR 248 million. Turning to slide number six. Operating expenses are under control.
As we have stressed a couple of times, we are trying to implement a discipline in the way we control cost and in the way we invest money. If we look at the overall picture, we are down from EUR 148 million in second quarter 2019 to EUR 141 million in the second quarter of 2020. In detail, distribution costs are down 11%, and this is due to less investment in marketing or activity related and associated to the network, as well as a reassessment of the IFRS accounting principle. If I look at the SG&A line, we can be quite pleased with the result, given that we're flat year-over-year. Although year-over-year, the perimeter has changed with significant investments both in the Azimut Libera Impresa project as well as in the M&A transaction of our foreign business.
Net profit and net profit margin, we closed the second quarter with EUR 94.5 million, up 18% versus a year before. With a net profit margin of 91 basis points. We had achieved 45 basis points in Q1 2020. Turning to slide number seven, the focus is on managed flows. As you all know, we are a company that does not have any banking license or ancillary services such as brokerage business. We focus on managed assets, and therefore, for us, it's very key, the improvement we had in the second quarter of 2020 of the managing flow over the total inflows. The bulk of this is achieved on our Italian business, although our foreign business, as we will see later on, has demonstrated a good resiliency over the most difficult month, and a good capability to recover thereafter. Turning to slide number eight.
Total assets in the first half has closed to EUR 55.4 billion, of which 15 or 27% are associated to our international presence in different markets. Obviously, this component, despite being in total net new money, has had a hit when we look at this in EUR terms, also by the FX movements that we have had in several emerging markets. As far as the Italian business, there has been a higher contribution in terms of flows over the first semester, which we are pleased with, of which EUR 1.8 billion are entirely organic, of which EUR 1 billion is related to our Italian business. Last but not least, I'd like to point out the bottom right of the chart where you start to see that our breakdown in terms of AUM is also now comprising a decent and growing percentage in terms of alternative assets vis-a-vis the total.
Turning to slide number nine, we would like to give you a bit of detail in terms of the transaction which was announced yesterday with the press release. We have completed the first deal in our U.S. venture, Azimut Alternative Capital Partners, thanks to an incredible effort of our colleagues in the U.S. as well as Vittorio, which has been quite close to the deal. Anybody interested, the best person to speak to is Vittorio rather than myself. The partnership is with Kennedy Lewis, a private credit manager that has so far collected EUR 2.1 billion in terms of assets under management. They have so far closed the first fund at EUR half a billion and is fully invested. The second fund is in fundraising since 2019.
They have increased their capacity several times given the success of the fundraising initiative, which have been so far based on their own capabilities to raise money across a number of different investor types, which are globally spread. The target of their investment strategy is primarily turnaround situations in the credit space, targeting an IRR of between 12% and 14%. A fantastic team, which we will look at afterwards, of 28 people and 19 investment professionals. One thing which I would like to point out, we acquired a minority stake of around 20% in a number of different entities. The bulk of the proceeds, so 90%, goes into the investment of the GP's commitment into funds, and a very minor part is a cash-out component for the founding partners of Kennedy Lewis.
With this first transaction, we have been able to start our venture in the alternative space in the U.S. market. We have a healthy pipeline of transactions we are looking at, both in the credit as well as other alternative asset classes, which we will be updating you in due course. What will be the impact on Azimut is that we will consolidate Kennedy Lewis AUM on a pro rata basis, therefore EUR 400 and something million, and we will receive, on a quarterly basis, the distribution of profits. This therefore marks a number of different aspects, which include the increase of recurring profit for the group. We will be able to increase the private market fund range that we will be able to offer to our clients in the U.S., in any country that we will be marketing these funds to. We will geographically diversify our presence.
In slide 10, you see the background and track record of the partners and the employees of Kennedy Lewis. Quite pleased also with the average age of the team, which is in their 40s. They are quite a long way ahead of them. Continuing with the private market look-through, we have tried to summarize in the next couple of slides, the latest initiatives we have developed. The first one comprise the early-stage vehicles that we have launched. Azimut Digitech Fund, it's focusing on B2B in the IT space, and is in partnership with the GELLIFY Group. We are in the fundraising status, and the target size is $50 million. Italia 500 Venture Capital Fund has already started the deployment of the asset that has been raised, EUR 40 million.
It's mainly targeting retail clients, and the fund has also the nice twist of having the tax benefit linked to the innovative SMEs companies in Italy. Slide number 12. Later stage, private equity and infrastructure. A couple of updates here. DEMOS I has been closed. By the end of this month, we will be closing the fund and start the deployment of the money, and therefore in the forthcoming July press release, you will see the last tranche of the money that has been raised in the last period. AZ LT for failure. This is a very interesting private equity fund. We are probably one of the very few companies being able to market an alternative PIR-compliant fund.
The target size is EUR 200 million, and we are quite keen to be as quick as possible to deploy this to all our accessible client range because of especially the PIR angle. Lastly, the infrastructure fund. It's a EUR 1 billion fund at maximum capacity. ESG compliant with the current effort dedicated to the fundraising, We're receiving encouraging signs from a number of different institutional investors. This is mainly to professional and institutional investors. Lastly, we have reopened our private debt fund after having received the approval from CONSOB for another EUR 50 million tranche. We move to slide 13. We have also been engaged during the first semester in structuring two club deals. One through Azimut Private Equity, one which is a vehicle that will participate in one of the largest PIPE transactions in Europe. We're investing in INWIT, the listed company.
Target size is up to EUR 110 million, and it's reserved to Italian and non-Italian qualified investors. The other transaction, we are in the fundraising status for a vehicle that will be targeting the insurance Insurtech market via a specific target company, size EUR 33 million. If we sum all this up, you see on page 14 the breakdown of our exposure in terms of asset classes by category. You see how slightly more than half of the pie is dedicated to the private credit side, the rest being 25% private equity, private equity fund of fund 6%, and venture capital 2.4%, with our SPAC investment being 9%. Also very pleased by the fact that by region, we are now diversifying, so we're no longer just focusing on our Italian presence, but we have started our U.S. venture in a very interesting manner.
If we turn to asset management and distribution on slide 16, you see how from the trough of March, we have been able to recover quite significantly in terms of performance, and this is a slide that shows you how we've been able to maintain a performance between 2019 and 2020 so far. Looking at the distribution side, net new money of our company stays on top of the industry and continues to be in positive territory. Clearly, the industry has been suffering the volatility and the repositioning of certain companies in terms of priorities of what they were marketing. Moving to slide 18. We have been able, despite the challenges that we had to live with social distancing and being able to hire from remote places, we have inserted 48 new colleagues in our financial networks in Italy, totaling slightly more than 1,800 colleagues across the country.
Of our international business, we wanted to give you a quick snapshot of the latest development. Brazil, where we have been witnessing a very difficult moment in terms of the country. They are living probably one of the worst impact geographically of the COVID emergency. The business has held up quite well in terms of our resiliency to generate inflows through our proprietary network, whereas we had suffered, as I mentioned in May, some outflows in terms of our third-party distribution networks. July will probably be the first month where both channels will be in positive net new money. We are finally looking at a better situation.
What I wanted to also to highlight is that during the month of April and May, as planned originally in the first transactions that we completed back in 2015, we have proceeded with a corporate restructuring whereby we have combined production and distribution and their partners under one roof, replicating the successful model that we have in Italy. We have also agreed and retained the key people of both the distribution side as well as the production side with long-term agreements, as well as them holding equity stake in the newly constituted holding company.
Turning to the MENA region, we have been pleased by launching the first Egyptian equity UCITS compliant fund, which provides access from a number of different investor type to this emerging market, and the target size is $50 million in terms of AUM. Our Turkish business has been also posting a very interesting first semester, reaching the highest net profit margin level since we have been operating in Turkey from 2011, and has been able to collect net new money every single month of 2020. Singapore, also very good development of our business down there. We have been hiring teams in the past months and years, which are finally delivering very interesting results, and the business there reached almost EUR 1 billion, having collected in excess of EUR 600 million in the first semester of 2020.
In Chile, we have obtained, after a very long period of time, unfortunately, we had not expected these delays, but we are patient, and we look for establishing our presence over the long run, but we have been able to obtain the license to operate as a local asset manager. As always, I leave the floor to Alessandro for a walkthrough to our income statement and net financial position.
Thank you, Gabriele, and good afternoon to everybody. As usual, we go through slide 21, so the consolidated classified income statement. We just approved the first half 2020, with a consolidating net profit of EUR 143 million. Probably it's above also the expectation of the market. We have EUR 28 million less if we compare the result with the first half 2019, but EUR 14.5 million more if you compare the second quarter 2020 with the second quarter 2019. Back to the half. This EUR 28 million, as you can see, are mainly explained by the negative variation that we register on the variable fees. As you can see, we have EUR 37 million less. Despite this negative impact, we were able to increase our recurring fees by EUR 21 million. We increased our insurance revenue by EUR 13 million.
This maintaining a stable margin and also with positive impact of performance fees.
On the other side, I think that it is important to underline the operating cost that half on half, you can see that we are stable and to be precise, EUR 2 million less if we compare the 2020 with the 2019. This attentional cost, you can see that we have a reduction in distribution cost thanks to the cost control, the lower recruitment that obviously impacted the second quarter, and also the IFRS impact. Probably it is more important, let me say, significant, to look for the administrative cost to the first quarter 2020. You do not have it on the slide, but if you remember, we registered EUR 42.7 million. If we compare with the second quarter 2020, we have a reduction of almost EUR 1 million. Here we are demonstrating and try to fix what we already anticipated. Our attention on some cost.
Also on the depreciation amortization. Which again, back to the first quarter 2020, we are stable. The positive effect that we registered in the second quarter is also linked to the loss that we booked in the first quarter 2020. As you remember, we were impacted by the negative effect of the market on our liquidity invested on our portfolio fund. This quarter we recover almost EUR 8 million of this loss. On the other line, I think that there is nothing special to add. The interest expenses, as you know, we increase our debt, therefore you can see the variation that is explained there. Moving forward, we move to the net financial position. We are negative by EUR 34 million.
At the level of the debt, we have no significant variation except the fact that we pay back EUR 7.5 million at the end of June, linked to the amortization side of the BPM loan. In general, charging the net profit, obviously, of the first half to the cash equivalent of the 31st of December 2019, we have to consider that we pay a significant dividend of EUR 140 million. We complete a buyback program in the February and March 2020 by EUR 45 million. Also we had EUR 56 million of M&A, and also we anticipate tax by EUR 41 million. Therefore, we explain here the evolution of our cash that netted the debt. It's negative. I'm going to move back to Gabriele.
Thanks, good job. If we turn to the last couple of slides, on page 24, how are we doing so far? Here it's just a summary of what was the second quarter versus the first quarter of 2020, in terms of assets, inflows, revenues, and net profit. Most importantly, we wanted to show and remind to all of us how the business model has been able, during very difficult moments and different moments throughout its history, to recover and progress even further during those moments. Total assets are up 8%, net inflows more than 170%, revenues plus 9%, and net profit plus 95%. You see how these figures are similar in years of recovery following period of extreme volatility in the markets or peculiar situations. Turning to the summary and outlook, on page 25.
We have evolved the business model as we have witnessed during 2019, and as we have tried to explain to you, throughout the latest calls and Investor Day. We wanted to come out with a more resilient business, with a more diversified business, profitable still as always, and with a focus on the recurrency of our fee generation and therefore cash flow. The Italian business has proven to be resilient. We are pleased and we thank our advisor, AB Networks, and all our financial advisors to have been able to adapt to the new environment. It hasn't been easy, but they have done an incredible job with their clients. So far, 12,000 new clients and 48 new financial advisors in the first half.
The strong focus, and this will be even more in the second half of the year, is on managed flows and try to focus on products that can deliver a higher margin for the business. As always, cost control is in our mind, and we have started during the first half a number of actions that will be delivering certain results in due course, which we're not disclosing at the moment. Whenever we will be able to demonstrate tangible figures, we will be more than welcome to share and discuss with you. Lastly, we have completed the re-hosting exercise of our IT infrastructure during the worst moment of our history in terms of IT stress, given the situation that had to place a lot of effort on our digitalization and automation approach.
On our international business, we have, luckily, a very widespread exposure, and this has demonstrated the capability of different markets to come out stronger and quicker and in different phases from the COVID emergency. We see improving trends in terms of assets as well as the generation of recurring fees. The pickup of our Asian business, Singapore, as well as Australia and Turkey and the MENA region, are clear examples of how we are able to manage the businesses in an integrated way through different market cycles. As I've mentioned, we have completed the combination exercise in Brazil, and net-net, this has produced 47% of the global net inflows year to date. Following slide 26. Private markets reflects our proactiveness vis-a-vis different environment. We have launched a number of different products and initiatives, which we have tried to summarize in this presentation.
We are investing in companies through our Italia 500 VC fund. We are expecting to be able to announce the first transaction in our PE fund, Demos 1, the first private equity fund that we have launched back in October 2019. Last but not least, once again, we have started our private market footprint in the U.S. with the transaction of Kennedy Lewis. Areas where we will be focusing, especially during the second half of the year, we are working, as I mentioned during our last call. We did not revise the target. We did not take our hands off the table. We did not feel that it was appropriate to update, in any way, our target of EUR 300 million. We stayed with the EUR 300 million in our mind. Our people are working with EUR 300 million in our mind, although markets remain highly unpredictable.
We continue to focus on improving our cost base, and we are putting in place a number of actions, both in the distribution cost line as well as in the SG&A. Institutional business will be a future driver of growth as well as increasing profit. We are continuing to scout and select potential M&A opportunities and transaction in different countries. Lastly, we are accelerating on our private market initiative. In fact, you can see this on the last slide of this presentation, where we stand today at EUR 1.7 billion in terms of assets under management. We started from EUR 0.6 billion. At the end of 2019, we had a target, as you probably remember, of reaching EUR 2 billion by 2020. We are quite on track vis-a-vis our short-term objective, although the main goal that we want to achieve is the long-term target of 2024.
With this, I leave you the floor for any Q&A.
Excuse me. This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Alberto Villa, Intermonte. Please go ahead.
Good afternoon. I have a few questions. The first one is on the insurance revenues that are growing pretty nicely. I was wondering if you can give us an idea what is the current run rate or if there were any specific reasons why the second quarter was so strong. The second one is on the distribution cost. You mentioned the change in accounting. I was wondering if you can provide us with some quantification of the benefit you had in the second quarter and how we should model going forward this line item, taking into account the change in accounting and what this change in accounting is. The third one is on the yesterday announced transaction, Kennedy Lewis. I don't know if it's possible to have an indication of the price, but in any case, the company has been growing the assets very significantly recently.
Are you expecting this kind of growth to be sustainable going forward? Is this transaction a sort of, let's say, a blueprint for other transactions in the U.S.? Are you expecting anything to happen by the end of this year on a similar base? Finally, my question is on the explanation for the net financial position. You mentioned EUR 55 million of M&A. I was wondering if you can give us some details about where you deployed this money, and if you can give us an idea when is the cash out expected for the Kennedy Lewis transaction. Thank you.
Okay. Let me start from the Kennedy Lewis, as you have tried twice to obtain the price of the transaction. The price is undisclosed because of confidentiality reasons with our partners. What I can tell you is that we have reached an agreement that is on over a long period of time with the founding partners. As I said, the bulk of the proceeds goes into the GP commitments, so there is virtually no cash out. These people are in their growth phase. They've launched the first fund and the second fund. They are closing these funds. Probably, they will be reaching $two and a half billion with the closing of the second fund. They have already in the pipeline a third product to be launched, say between September and October this year.
The idea that we shared with them is to be able to run this marathon with them, which should envisage a strong growth path ahead of us in terms of product generation and asset raising. Whether we will be able to conclude other transactions, probably this has some similarities to what we have done in Australia back in 2016. The first transaction was quite complex to achieve and close. This one probably, we have had a bit of experience on our side, and excellent colleagues down in the U.S. It was more smooth in terms of negotiation and timing of the transaction. We do expect that this will start to generate some traction with the other discussions that we have in place.
I cannot say now whether we will be able to close anything before year-end, but we are clearly working to close the best, and at the best terms, transaction, if possible. In terms of the net financial position, the EUR 55 million of M&A transaction. The bulk covers Brazil, the combination exercise, and therefore, the call and put option agreements that we had in place since the very beginning of our venture down there. There is some transaction done in Australia over the course of the quarter. As far as the insurance revenue line, there are two aspects there. We certainly have been able to maintain the margin level also in the insurance revenue, not just on the recurring revenues that you see from our mutual funds.
Quarter-over-quarter, the level of margin, despite the drop in the asset base due to the market performance, has been stable. Clearly, we have achieved a decent level of performance fee also in our insurance business, which, during the semester, accounts to something in the region of EUR 9.5 million. Lastly, as far as the distribution costs are concerned, I'll try to give you an idea of what we have done, and then I leave to Alessandro if he wants to add any other element. We are assessing, basically, with our auditors, the capability to amortize the cost of the recruitment, or comparing this with the expected life of the client, let me say, revenue generation stream.
Matching the two has produced a better alignment of our capability to amortize the cost of the recruitment as well as, or better, vis-à-vis the revenue generation that we are able to make out of any asset that we manage from our client base. This is one aspect, obviously, that has led to the drop in the distribution cost, including also, as Alessandro has referred during his presentation, to less marketing expenses, less events, less recruitment activity, obviously, which has impacted the first half.
The next question is from Hubert Lam of Bank of America. Please go ahead.
Hi. Good afternoon. Just a few questions as well. Firstly, on the follow-up question on the distribution costs. They fell EUR 10 million year-on-year. Going back to the original question, how much of that is due to cost savings, and how much would you say is due to the accounting change? Whether or not we should use the, I guess the EUR 82 million in the quarter as kind of the new base going forward. The second question is on update on performance fees. If you can give us, in terms of July performance fees, if we were to stop end today, how much would you be getting? If you confirm that the change to the performance fee calculation will not happen this year, and you'll likely get more performance fees for the rest of the year. Third question, again, is on Kennedy Lewis.
My understanding is that you'll be getting about 20% of the profits going forward of the company. Just wanted to get a sense as to how much profits Kennedy Lewis has made recently just for models. And lastly, on the EUR 300 million profit target. To achieve that, you would have to earn more than what you did in the first half of the year. Just wondering where the extra earnings you think are going to come from. Thank you.
Thank you, Hubert. As far as the distribution cost is concerned, we are probably looking at something which is 50/50 in terms of the IFRS impact, as well as all the other aspects that I've mentioned before. As far as the performance fee is concerned, as you know, we do not comment the capability to generate performance fee unless the month has been closed. Unfortunately, we still have two days to go. The unpredictability that we see in the market and the strong volatility that is coming back in the last couple of days, would suggest a more conservative approach than ever. Allow me not to answer this question, because it's just too risky. As far as you had another aspect that you wanted to discuss on the performance fee. Sorry, I forgot it.
Yes. About the calculation changes, is it now assumed that's going to start maybe next year instead of sometime in Q2H2?
Listen, again, as we have had the chance to discuss, this is something that I stop betting on the date or on the day in which we will have cleared all this with our CSSF. The expectation that is going indeed to be closed during the course of 2020. Probably it's going to be something that we will see in the second half, gradually moving towards the new system. It's a bit of a delay vis-a-vis our original expectation of the first half 2020, as I mentioned sometimes. I guess, a number of different things have been delayed, given the situation. Kennedy Lewis, it's a highly profitable business, especially when you consider the results that these guys have achieved so far in their existing funds and the expectations that they have to be able to raise additional money.
We do expect them to continue to generate significant profit. I have to say, we have all the ground to believe that they are going to be in the top notch of the alternative companies in their asset class. This is what has interested us, as well as the incredible team expertise and alignment to certain core values that are very important for us. The EUR 300 million target, this is something that I don't know how you want to discuss, for us, it's the only objective that we have in our mind. All the rest, we can forget about it. EUR 300 million is what we have repeatedly stated as being the level of profits that this organization has to generate. This means that we have to make at least the same amount of profit, if not more, of what we have recorded in the first half.
The math don't lie. We cannot go back and relax on holidays. We just need to work and work hard during the second half of the year and try to achieve this.
Fair enough. Just going back on Kennedy Lewis, what were the earnings in 2019 then?
At this stage, we will not disclose it, Hubert.
Okay, no problem. Thank you.
My pleasure.
The next question is from Luigi De Bellis of EQUITA SIM. Please go ahead.
Yes, good afternoon. Just one question on the international business. Could you provide an update of the net new money trend for the main important countries in First Half and expectation for the coming months, and an update on revenues and profitability of international business in First Half. Thank you.
Sure. No problems. If you want, I'll give you the top three countries in which we have collected money. Singapore, as I said, in excess of EUR 600 million. Australia collected EUR 300 million, and Turkey, EUR 160 million. We had, in the first half, as I said during the presentation, some volatility in our Brazilian business, which is reverting. Therefore, we expect to recover what we have lost so far. In terms of the margins of our businesses, we have clearly had good improvements across several countries that have reached or overcome our expectations. In terms of profitability and margins, we hope and expect that they will be able to continue with this trend. Therefore, I wouldn't say that net of the performance fee-driven business in our asset management companies across the globe, which has obviously been subdued vis-a-vis the previous year.
The underlying profitability is stable, if not improving.
Thank you.
The next question is from Elena Perini of Intesa. Please go ahead.
Yes. Good afternoon. I have got one question and a follow-up request. The question is about the recommendation issued at the beginning of June by ESRB on dividends and buybacks. Reading the paper, it seemed that also financial companies not under the supervision of banking or insurance authorities were interested. I was wondering if you have any ideas. Well, you already paid your 2019 dividend, and you have already done a buyback. You are also interested in continuing the buyback. If you can give us some more color on this point. I have a follow-up request about the performance fees and the change in calculation. At the beginning of the year, I have understood that approximately the full range of your funds would have been passed to the new method by the end of June.
If I have understood correctly now, it is not like this. Just to have a clarification on this point. Thank you very much.
Okay. Thank you, Elena. In terms of the dividend and buyback, definitely, we had been witnessing, as you guys, the recommendation issued by the different bodies. Indeed, this has limited the capability of a number of different financial institutions to be able to pay dividends. As you are aware, there are some insurance companies that have paid dividends. We are not, let me say, classified as a bank, and in fact, we're not. We are out of the CRD IV regulation, and therefore, the holding company is not under the supervision of the Bank of Italy. To this end, I suspect, but I will verify this with our legal colleagues. We have then been able to proceed with our buyback and dividend payment. Whether this is something that is against the recommendation, I doubt it, because we wouldn't have done it otherwise.
We felt that given the cash flow that we have generated, given the initial announcement, which was done with the full year results and then approved by the AGM, we felt that we were in the position to maintain our commitment with our shareholders, both in terms of the dividend and buyback programs. I remind you that during the latest AGM in April 2020, we have been also receiving the approval for another buyback program with the possibility to overcome the 25% threshold because of what has been approved at the AGM. We maintain, let me say, full flexibility and we observe the situation as well as the capability to generate cash flow of the business, and we take our decisions accordingly, submitting them to our board as well as our AGM. Performance fee.
Yes, we were expecting the remaining bulk of the Luxembourg funds to be moving to the new system by first half or say the summer this year. I'm a bit embarrassed to say this hasn't occurred simply because of some delays caused by the COVID emergency, which have obviously kept some people busy doing something else. We have, again, as always, a very good dialogue with the CSSF, and it's very constructive, and I think we are in a position to say that by year-end, certainly, and this certainly is quite written in the stone at this stage, because of the interaction we're having, we will be moving the remaining funds to the new system.
Okay. Thank you very much.
My pleasure.
The next question is from Gianluca Ferrari of Mediobanca. Please go ahead.
Yes. Hi. Good afternoon. Ciao, Gabriele.
Ciao
distribution cost, this 38% is the lowest ever. I understood what you said about new IFRS 15 rules. You already used it two years ago, moving from three to six years. What is the new time horizon you are discussing with the auditors? Is it going to be eight, 10 years, what you're considering? Linked to this, did you recalculate also that for Q1 and Q2, is the 38% payout already calculating the new rules starting from 1st of January, there is also this kind of benefit in here? Second one is on insurance. The insurance result is up 37% quarter-on-quarter, with the rest of the business up 6%, including performance fees. It's not exactly performance fees explaining this growth.
The question is, can you split the EUR 26.3 million insurance result between running and performance, and potentially also the quarter-on-quarter evolution, in order to calculate and to understand if this is sustainable or not, and what drove this? Because average life AUM went down 1% Q-on-Q. Final question is on the EUR 300 million guidance. It seems that now, the EUR 300 million is calculated with something different from what we knew regarding the change in the calculation of performance fees. There is a new accounting standard applied to distribution costs. Does it make sense to reiterate the EUR 300 million guidance? It seems that we are comparing a bit apple with pears. Thank you.
Okay. On the distribution cost, I would say that the exercise that we have done with the auditors points to indeed the timeframe that you have suggested, simply because the relationship with our clients on average is even in excess of that range. We did not want to be stressing this too much, but we remained on the conservative side because we would have been able to even increase that beyond. The prudency in the accounting treatment of this recruitment cost line has been considered to between 8 and 10 years. The insurance revenue. Yes, it has increased decently. If you take out the performance fee of the first half 2019, you would have a revenue line of EUR 29 million, whereas it compares to the first half of 2020 of EUR 35 million ex performance fees, roughly speaking.
Sorry. In the level of performance fees in Q2 in insurance, out of the EUR 26.3, how much was the performance fee component?
In Q2 which year, sorry?
Q2 2020.
Q2 '20. Okay. Q2 '20, we had EUR eight million.
in Q1, sorry, how much of the
EUR 1 million. More or less.
Okay. That makes sense. Thank you. Was it correct that you recalculated the recruitment cost also for Q1, and the benefit was embedded in Q2?
Yeah. The benefit is spread over Q1 and Q2, and then it will carry on for the second half of 2020, so Q3 and Q4.
It applies only from Q2 onward. Q1 was still with the old rules, right?
No.
No.
No, no. It applies Q1, Q2, Q3, Q4.
You started already in January, February, March. Okay. Thank you.
Correct.
Thank you.
That's it. Yeah.
The next question is from Angeliki Bairaktari of Autonomous Research. Please go ahead.
Hello. Thanks for taking my questions. Just a few clarifications left on my side, please. Just on performance fees, just for the avoidance of doubt, how many of the EUR 30 million that you booked this quarter were under the sort of old methodology? How many of the SICAVs that you have in Luxembourg have moved to the new methodology, if any at all at the moment? It's not clear to me how many of your Luxembourg SICAVs have already moved to the new methodology versus how many will move, hopefully by the end of the year. If you could clarify that, please. Secondly, what explains the margin strength on recurring fees, so the recurring management fee margin strength that we saw this quarter? Should we now take the Q2 level as a sustainable level for the second half of the year? One third question.
The number of financial advisors has increased by only two people quarter-on-quarter, you have hired 17 people in the second quarter. This indicates quite high churn. Could you please give us some color on what was going on in that second quarter, and how many hires we should be expecting for the rest of the year? Thank you very much.
Okay, thank you very much. Let me start from the last question on the churn. The churn appears very high in the blended figure. If we look into the details, we have planned quite a significant amount of retirement in Q2. There hasn't been a blip upwards in terms of churn rate. I remind you, we are always working with a churn that including the retirement, is between 4.5% and 5% on an annual basis. As far as the recruitment of the second half of the year, we have a number of different initiatives in place. We do expect to be able to bring in additional people. We're looking very much the quality of the people that we take on. The unpredictability of the situation is clearly placing a bit of doubt in terms of when we will be closing these negotiations.
If I have to say, reiterate the 150 additions that we have, 120, 150 additions that we typically have, I would tend to go on the conservative side for this year. Question number two, the margin strength. This is, at least to me, the key takeaway of our results because it shows the resiliency. Clearly, the fact that we are able to manage our clients through flexible funds that are able to change the asset allocation quite quickly, but maintain the same level of margin, is explaining, to some extent, the resiliency of the margins Q1 versus Q2. I have to say that when we were in March with Alessandro, we were saying, probably margins will be eroding more or further in the following months.
This hasn't happened because of, clearly, the market movement, and because the flexible funds have been able to retain the assets, maintain the clients invested, and take profit and advantage of the recovery in the market. This is probably a reason why our clients are not still in a very negative situation in terms of performance year to date. Is this sustainable? Tell me where the market's going to go, and I'll try to answer to this question. Unfortunately, I can't be very precise. Obviously, if we rate the EUR 300 million, it means that we are going to work with our advisors to at least retain the same level of margin. Fingers crossed in terms of volatility in the market. Performance fee, I don't think I understood correctly the question, but I'll try to answer.
I think that the new system, any performance fee that we would be able to book, would be booked the last day of Q4 of every single year. There hasn't been any impact from moving the funds into the new system in terms of performance fee generation. Whatever is left in terms of old system is charging performance fee on a monthly basis, as you have always been used to. The expectation is that the remaining, I would say, half of the funds that are still on the old system, will be moving into the new system, as I said, during the remaining part of 2020.
Sorry, thank you. I realize my question wasn't clear. If I understood now correctly, you said half of the Luxembourg funds are yet to move to the new system. Is that correct? 50% have not yet moved, but 50% have moved already.
Yeah, I would say this is a good indication.
Thank you.
Gentlemen, there are no more questions registered at this time.
Thank you very much. I wish you all a very nice summer if possible, and we'll speak again in November. Bye-bye.