Earnings Call: Q1 2020

May 7, 2020

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Azimut Holdings First Quarter 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. Gabriel LeBlay, Chief Executive Officer of Azimut Holdings. Please go ahead, sir. Thank you very much, and good afternoon to everyone. Let's start from Slide number four. We just want to summarize some of the key features that characterize the group. And let me start by saying that we want to extend as a management team our gratitude to all the staff and the employees, the financial advisers and the fund managers that have been working with an incredible passion throughout this very, very complicated period as well as our clients that have to had to work with us in a very digital manner, which is obvious given the time we live in, not obvious to do it in such a short period of time. But the group has continued to operate throughout every single day so far. The business is extremely resilient. We have 90% of the stock of our asset is retail. And we have been able to consistently deliver net new money throughout the past months with Italian network being able to post significant flows in the first four months, but we'll see this later on. As far as the track record is concerned, we have systematically delivered the three business plan. More than ever, it's important to stress that we do five year business plan instead of three because we have to have sufficient time to work and deliver on the targets that we set ourselves, especially in a five year period of time, we are able to recover any major disruption that might occur. Diversification, we are much better off than in the past today, simply because we have been pursuing our international expansion, which has enabled us to be able to work on every market on a 20 fourseven basis. And this has prompted significant innovation in terms of product range. On top of that, we have been diversifying away from the traditional public investment also recently in the private investment side, which will enable and this is something we have discussed several times over the next the last year and will enable us to diversify the returns of clients and enable us to provide the extra return that would generate positive performance for clients over the medium term in a context of very low interest rate. Fourth and last point, solid economics. The business is mainly based on recurring fees. We don't and we do not want to have a banking license. This has been a key feature throughout the history of the group because we do see the banking service as an add on, which can be easily delivered through partnerships that we have in place. We have therefore avoided the limitations on how we manage our capital and we have decided to go ahead with the payment of the EUR 1 per share dividend. And we retain a very flexible cost base, which can be managed quite effectively and efficiently. Turning to Slide number five, how do we see the resiliency in numbers? We wanted to show you a quick snapshot of the history, and we decided to take some of the very bad years, although this crisis is probably much worse than the 2019, 2029 prices and not comparable to the 2008 and 2011 in terms of speed of the disruption and potential fallout in the coming quarters and years. As you can see in first quarter, the industry posted a net negative out flows of almost EUR 14,000,000,000. The bulk is coming from equity, flexible and bond funds with only cash funds being on a positive territory. On our side, we have delivered with April included EUR 1,200,000,000.0 year to date. And this compares with similar situations in 02/2008, where the industry posted a major outflows of EUR135 billion, while we managed to be at basically breakeven. Same story during the European sovereign debt crisis, the industry suffered almost EUR 50,000,000,000 outflows. We had the benefit of EUR 1,100,000,000.0 in that year. In the first quarter, what we have been able to do, we onboarded 6,000 new clients. We hired 31 new financial advisers. And in a very short period of time, we have enabled the smart working across the network as well as across our staff. Nowadays, we are working with 90%, 95% of our people in the headquarter from home and we are perfectly operational. The financial advisers clearly starting from the lockdown are not able to visit the clients in person, but they are able to onboard and execute any transaction, thanks to the digital system that has been rolled out in the past years and has been enhanced during the last couple of months. Turning to slide number six, track record, needless to repeat what we have delivered in terms of the past business plans with the last one concluded in 2019. As far as the commitment of ourselves and all the people that work within the company, we have showed in the fifteen plus years of history that no one of us is expecting to cash out and run to the beach, especially because you cannot run to any beach these days. But most importantly, we want to remain invested in the company and continue to develop the business. In 2018, we invested EUR 100,000,000 of our money plus of which 50% was leveraged in investing in the share of the company. 1,200 people were involved and EUR 35,000,000 was the cash that was invested by the management team. We announced at the beginning of this year that we would have tried to pursue a similar LBO transaction. We announced through Timone that this would have been for EUR 60,000,000 with similar leverage, so two times leverage, EUR 30,000,000 equity and EUR 30,000,000 debt. From the first figures we have been communicated by Timon and the management team, we continue to be significantly involved through investment in the second LBO transaction. But the main point is that 1,000 colleagues will participate, of which 200 are the people that have entered start after 2018. So after the transaction, the first LBO transaction that was concluded, which is why we are doing this kind of transaction in order to be able to involve as many people as possible over the life of the company. Turning to Slide number seven, diversification. We have why we're better off than today is very easily summarized in this slide, because we have not just a diversification in terms of product range and product mix, but we have a geographical diversification that we could not have prior to 2011. And especially these days, in certain areas, are with solid businesses, with proven track record and very consolidated brands that we'll be able to develop even further. If we want to look at the positive side, we have been in net new money flow in the first quarter plus April as well. Italy is back on track and improving in terms of capability to raise money from our existing and new client base. On the negative side, eventually what we can highlight is some outflows driven by institutional investors that in any case have lower margins, but clearly have an impact on the monthly flow as well as the devaluation of certain emerging market currencies that clearly have an impact on the assets under management base. Slide number eight, solid economics. We have continued to post recurring EBIT of in excess of EUR 64,000,000. Even in Q1, we are above the average in the region of EUR66 million. And we have been wise probably in deleveraging the company's balance sheet in periods of normal market, let me say, and taking advantage of the low rate environment and extending the maturity of our debt. Turning to Slide number nine, this is the follow on of the solid economics. We're not a bank. We generate strong cash flow and we continue to do so. And therefore, our dividend policy can be set to be sustainable. I'd like to underline how by coincidence we have been able to basically multiply by three, the average of the dividend paid in the three business plans that we have delivered. In Q1, we also completed a buyback of EUR44 million, which was previously announced in the market. Turning to Slide number 10, some key metrics of the first quarter results. Recurring fee margin is up two basis points vis a vis the average of twenty nineteen to 198 basis points. When we look at distribution costs, we have been able to contain that in terms of percentage of recurring fees from 45% down to 43.7%. And looking at SG and A, we have basically at constant perimeter. So if we were to exclude the private market initiative and certain M and A, we are basically flat in terms of SG and A line at EUR 50,000,000 per quarter. Normalized recurring net profit, as we will see also later at EUR 50,000,000, which compares well to the average of the second, third and fourth quarter twenty nineteen. We are excluding the first quarter simply because the first quarter has been a transition quarter that you might remind. Looking at Slide number 11, an update on the private market initiative in Italy. We are now at EUR 1,200,000,000.0 with half of that in private credit funds. The remaining is mainly in private equity exposure. We were successfully able to close during March 2020, the closing of Italia Cincocento, which is the venture capital that we have discussed in the past. So even despite the complexity of the moment, our financial advisers have been able to collect the commitment in a smart working modality. 2020, the recent development, there is another further €80,000,000 commitment that we are collecting in Demos One, which is not yet consolidated in the flows. We will wait for the further closing of the funds to consolidate these figures. Eventually, if we can state from an investment perspective, the advantage of this dislocation in the market is that we potentially have a potential good investment cycle in the medium to long term ahead of us when it comes to the investment that these private equity funds will do in Italy. During the quarter, we have also obtained the approval and we have started the fundraising of the new infrastructure fund, which we mentioned in the past. It's called Fundinfrastructore Perla Crecita. It's a social impact real estate fund. It has a target of EUR300 million this year with a capacity ranging between EUR800 million and EUR900 million. Last but not least, the company continues to develop the product range in the private market segment. We have a number of pipeline of products in the pipeline as well as we are continuing to engage the regulators to obtain the approvals. Slide number 12, just a quick snapshot of what we have been doing throughout this very complicated times to try to be as close as possible to the real economy, which basically falls within the Libera and Pesa project, but probably goes a bit beyond what is the launch and management of private market funds. We have announced an equity crowdfunding initiative, Azimuth Sustien Italia, which is aimed at bringing private capital directly to local commercial activities. The fundraising is ongoing and we aim to support with up to €8,000,000 small businesses in Italy. We have then announced a JV with BORSO del Credito. BORSO del Credito is a fintech company that was launched in 2015. They have been one of the leading operator in Italy in the peer to peer lending, developing an algorithm through which they are able to deliver credit to small Italian businesses in a very, very quick way within less than forty eight hours. And especially in this moment, it helps in having such a solution because of the social distancing that we are all subject to. We aim to have a target size for this project of up to EUR 100,000,000. Last but not least, together with an enormous amount of private and public initiatives and companies that have been donating material and medical equipment, we have reacted quite aggressively, especially in the first phase of the outbreak of this COVID-nineteen by donating a lot of material, which you find there, also thanks to the context that we have been leveraging on from our international presence. We just wanted also on Slide 13 to remind maybe ourselves that this is not just some initiatives that Assamut has been undergoing because since many years, we have created a foundation, which has the main aim to fight against poverty, which will probably be a consequence of what we are living today. So ADDIMMO donates 1% of the pretax profit every year. And the aim is to support families who are below the poverty threshold as well as territories under social distress. I don't want to discuss now the many initiatives that our colleagues have been analyzing and successfully funding through this percentage of the pretax that we donate. But what I'm more inclined to do is that we have opened a bank account where donation and charity towards hospital will be pursued. And for every euro donated, ADEMULT will match a similar amount towards these costs. If you're interested, the foundation website contains all the details for such an initiative. Turning to Slide 15, we show you a bit of a different picture because probably just talking about the drop in our weighted average performance is not as effective. But if we look at this chart, it shows you that if you had €1 invested with us on the 01/01/2019, and we fast forward this to the April 29, the result is that you end up having the same money, if not slightly in the positive territory, net of the fees that have been paid. And bear in mind, because obviously the obvious comment could be yes, but why should I bother paying a fee if you deliver me zero? That can be correct, but consider with we are living in a disruption moment, which not even the nineteen twenty nine crisis has been so severe. We do remind you that the percentage of government bonds in our portfolios is much lower than what we can find in the portfolios of other financial institution in Italy. And clearly, we do not have any banking risks. Turning to Slide 16, the comparison vis a vis the average of the industry. I wouldn't bother commenting too much. We continue to be ahead of what the industry is delivering. Slide 17, this is an example of the product innovation that has been pursued during these times also to deliver what we have been quite pushy in stating several times during 2019. Clients had to revisit their asset allocation. They cannot have such a big pool of liquidity sitting on bank accounts. We cannot remain with the traditional asset allocation that we have lived in, in a low rate environment, which would probably stay for quite some time. So what we have created are two long term opportunity fund, one in the equity space and one in the credit space with a bridge mechanism. And this basically translates in a PIPE, which stands for private investment in public equities. So we will collect money to invest over the life of this period and also in private investment both in the equity and credit space benefiting from the higher returns or the higher potential returns that these asset classes have delivered over their history. I will leave the floor to Alessandro for the usual comments on the reclassified income statements and net financial position. So thank you, Gabrielle. So on Slide 18, as usual, we represent the consolidated reclassified income statement. I would like to start with the normalized consolidated net profit, 59,000,000 for the first quarter twenty twenty. As you can see, we use a normalized level of net profit as then we maybe discuss better later. But in the quarter, we are impacted by the negative valuation of our portfolio of assets. Therefore, we took out this unrealized effect that we are impacted on. Comparing the result with the first quarter twenty nineteen, we have a negative variation, fully explained by the variation of the variable fees. As you can see, we had EUR 57,000,000 in 2019. And also in this quarter, we have only EUR 9,500,000.0. Therefore, the variation is mainly there and also neutralized at the same time with the increase of the recurring fees and the insurance revenue. Back to the main line of the income statement, you can see that the total revenue decreased by EUR 19,000,000, but we already mentioned the reason why. And also focusing on the recurring fees, you can see that comparing to the 2019, we increased by EUR 23,000,000. This variation could be considered less if we, let me say, normalize also the repricing at the level of the 2019 quarter. But even if we consider the adjusted results, we still have a variation positive of EUR 8,000,000. And this result I mean, this positive variation despite the negative effect of the market of our on our assets under management by 5% if we consider the full 2019 and by 12% if we consider the 2019 in terms of our September months. Moving forward to also the insurance revenue are increased by EUR 3,000,000. This this increase also we can see this increase also considering the 2019 because despite the fact that maybe you remember €22,000,000 $2,022,000,000 euros we have 7,500,000 of performance fee. Therefore, if we took out this effect, we still have a positive variation. Moving forward, at the level of the operating cost, distribution costs are almost in line with the 2019 and decreased by EUR 4,000,000 if we look to the first quarter twenty nineteen. On personnel and SG and A cost, we increased by EUR 4,000,000. This is mainly explained by the increase of the business in Italy and outside Italy. But again, here, probably is mainly it's more important to focus on the last quarter twenty nineteen, where we had a total cost of EUR 53,000,000. Therefore, we can see how our business is moving in a flat way. So I mean, the efficient part of our job is producing some results. At the level of the operating profit, again, here, we have obviously a negative variation. But again, if we take out the effect of the variable fees comparing the 2018 and considering also the repricing adjusting on 2018, we still have a positive generating of profit. Therefore, we confirm our solidity as already mentioned by Gabriela. I would say that the last point that makes sense to focus on are the EUR 14,000,000 that you can see that are negative. This, as I said at the beginning, EUR 14,700,000.0 are no realized loss. Therefore, this is something that probably we could recover in the future, in the following quarter. EUR 2,000,000 are positive and are to realize the gain because we performed some trade during the quarter. Therefore, we had the possibility to get some positive impact. And EUR 1,500,000.0 are related to the valuation of the fair value option. Moving forward, so moving to Slide 20. Here, we show the net financial position. At the level of our debt, there are no variation. Nothing happened, let me say, during the quarter. We increased our cash and cash equivalent by €32,000,000 Therefore, the net financial position moved up to €108,000,000 with a variation of €36,000,000 This variation, just to mention, let's say, the main element that characterized this movement are linked to the buyback of 45,000,000 EUR 6,500,000.0 of M and A. And then if we add the result of the quarter plus the normalized effect, almost we got the deviation in play. I'm going to leave back to Gabriel. Thank you very much, Arlen. So what happened, we don't have the crystal ball, and I expect that you will all be much very much focused on guidance and objectives for the business, which is extremely difficult to provide. So we will try to articulate some of the answers in order to provide you our point of view. Having said that, if you look at some of the difficult periods in which the business had to adapt and react, we see with the exception of the net flows in 2019 versus 2018, the capability of the group to deliver double digit growth across all the metrics, if not more. Clearly, the 2019 has the repricing and the performance fee element in the revenue component, which has delivered the highest profit in history for the business, which can and will be replicated as we will go forward. If we look at Slide '23, outlook. The first quarter shows the solidity of business model. It's diversified more than ever and can sustain the main challenges that we will have to face. Nowadays, we are 100% digital and we only work in this way with our client base. We delivered net new client onboarding and net new money figures in the quarter. We have a geographical and product diversification, which is helping ourselves in managing expectations of clients and in allocating the money in the most optimal way to extract long term returns. Flows are encouraging from our perspective, consider we do not as we probably as other players in the market are benefiting from, we are not pushing and focused on admin or brokerage flows. We are mainly focused on trying to deliver managed flows as well as reallocating the mix of the clients. So far this year, the Italian FA network has raised EUR 900,000,000. Financial performance is robust, euros 50,000,000 of recurring net profit. And we have been holding up well in terms of fee margin despite, as we were mentioning, the strong drop in negative market performance, which is down 5% in terms of average AUM and 12.9% Q on Q in terms of total assets. Areas of focus for 2020, we continue to insist on the regain of efficiency in the domestic market, especially on the distribution side. We are working. We are doing our homework in the kitchen. We will be able discuss some of these initiatives over the coming quarters. But so far, we remain undercover to fix and try to see if the actions that we are taking are going to deliver the numbers in the first quarters that will follow. We are accelerating the digital transformation and rethinking the traditional way of working. This is something that probably many companies are reassessing. There's no way back. We have to think on ways to implement and insist on the smart working. And we have to consider the transformation will that was happening, but was happening at a slow pace, if it's going to be increased, we'll eventually deliver a more efficient system and eventually lower cost. We will focus we will continue to focus on the private market division in Italy as well as in The U. S. Where we're counting and selecting targets in which to invest. Last but not least, our international business despite the FX movement continues to grow and continues to post results in the profit side. And if we are to look at our net profit, the normalized rate of EUR 60,000,000 and some of you will want to make an exercise of the expectation for full year 2020, you simply multiply this number by four. Eventually, it very much depends on how markets will be in the coming quarters. But probably this is the base case on which we will have to work over the next quarters. And if markets will be benign in terms of trend, we'll be able to probably take advantage of that. Last but not least, as I mentioned, Timone confirmed to us that the 60,000,000 has been committed and we will be able to pursue the second LBO transaction. Probably Timone will exploit the optimal market conditions and situations as far as the entry price is concerned. We'll leave now the floor to Q and A, and we're happy to answer. Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session. The first question is from Domenico Santoro of HSBC. Please go ahead, sir. Hello. Hi. Good afternoon. Thanks for the presentation and I hope everything is okay on the call. Just a couple of questions on my side. First of all, margin, I have seen in the quarter margins holding up very well, but probably they are not taking into account yet the market performance even if there's change in the mix. So I was just wondering whether you can give us a more sort of short term guidance for the second and going forward. A question on your target. Of course, there is no confirmation of your target for the end of the year. My understanding is that you are working maintain the €50,000,000 recurring net profit per quarter. My understanding is also there is an FX effect that's going to help you, especially on the Brazilian real. So I was just wondering at this point, given there is no visibility on the performance fees for the end of the year, whether you can give us an idea of what is the bridge, if you have any managerial actions on cost and other P and L lines in order to get close to that level, even if you are not confirming here, of course, any number. Then the negative one off that you have in the quarter, my understanding is that there is some negative results also from the way you invest and you manage your liquidity. I was wondering whether there is any improvement in the quarter given the performance of the market has improved a bit and a reversal if you can quantify? And then the distribution cost, you say that they are 42.5%. I guess a different number. Can you give us a bit of an idea where we should land over the next couple of quarters? Thank you very much. Okay. Let's start from the first question. Yes, margins have been holding up well. You are probably correct in saying we had only one plus some days one month plus some days in the quarter of turbulence, which have been hitting our margins and our AUM base. It's probably too early to say what should be the Q2 guidance in terms of margin. We are not seeing further deterioration in the mix. On the contrary, we're seeing some positive flows into managed products. Clearly, the AUM base on which we will be calculating our fees are on an average basis higher than in March, in April and May. So eventually, we might start from an assumption that we shouldn't be expecting very different numbers. But I would say it's a bit too early to confirm that, but the first indication could be of no further major deterioration in the margin. As far as the EUR 50,000,000 target, yes, this is what we have announced back at the Investor Day, and we were living in very different times back then. We want to continue to deliver this figure and maintain this figure as our reference point. You remember, we when we provided the last guidance, the idea was to increase that €5,000,000 over time, thanks to a number of different initiatives, which I remind you were including the growth of the business in Italy, the growth of the business internationally, the private market initiative as well as some cost efficiency actions that we could have put in place. All these aspects clearly remain valid and in place and this is how we are conceiving our strategy and daily activity. We are obviously distracted by the volatility in the market, whether it's on the assets, on the FX. But the long term target that we have set is to maintain and deliver positive performance to clients over the long term, retain and regain the capability to raise assets both in Italy and abroad and try to make the company more efficient. And this efficiency comes because we will implement cost reduction measures or because we will benefit from the digital transformation and some smart working implementation throughout the coming quarters. So what I'm trying to tell you is that our mission commitment as a management team is not changed because of the what is happening on the market. Clearly, it might take slightly more time, but the idea on how we wanted to deliver results and boost the company over the medium to long term remains the same. The way we invest our liquidity, we have always stated that we prefer to invest our liquidity and our cash in the funds because we know how these are managed. In the past, it already occurred that we had quarters or years in which we had to have negative results on our P and L. We do still see that the benefit of investing our liquidity in our funds. We don't see alternatives around the market. We're living in a negative rate environment, and it would be not the best investment decision to park the money at minus something in a current account. I would say more than 50% continues to be invested in the funds. We have done some reallocation within the funds because we have to take into account the different environment. But we expect that as it already happened in the past, we would be able to more than recover what has occurred in this first quarter. On the distribution cost side, what was the curiosity? Sorry, can you remind me? Yes. I actually get a different payout, I mean, working out your number, but higher than what what you show in the presentation. But I mean, you might calculate on a different base. Just wonder whether you can give us a bit of a guidance for next quarters on or end of the year. And then can you quantify how much of this the one that you just mentioned in regards to your liquidity has reversed back into positive place so far? Okay. On the distribution cost side, we expect the €92,900,000 figure in the first quarter is the result of the rebate on the management fee. Clearly, the asset base has been lower than in the past. So you have an impact there. We do expect to continue to be able to recruit people, although we did so in the first quarter, clearly in the last say month, month and a half, the activity has been very much reduced. We have continued to keep contacts with potential candidates. But these things happen because you can meet and discuss and actually drink over the successful recruitment of a candidate. So certainly, it can be lower in terms of recruitment in the second quarter, I would say, with the high visibility on that. So we don't expect major swings on this line. As you may understand, the net new money has been improving, although at a slower pace than in, say, Q4 in the 2020. So eventually, the incentive and the one offs that we have to put at P and L level is somehow lower. Again, it very much depends on the activity that we will be able to recover and the speed of the recovery rather than the simple rebate of the 40 of the fixed management fee that we pay to our advisers. Having said that, the conclusion is we don't see major swings ahead of us. As you know, the first quarter is somehow heavier in certain lines. So the social security charges tend to be higher. We have the convention every year. So there are some one offs there. But over the medium, say, trend, so year or so, we do expect a similar level of distribution cost on average assets. All right. Thank you very much. My pleasure. The next question is from Hubert Lam of Bank of America. Please go ahead, sir. Hi, good afternoon. I've got three questions. Firstly, on performance fees, can you remind us how many assets you have currently that are still under the old performance fee structure? And if you could please confirm that this will all be shifted to new structure at the June? And also regarding performance fees, if the quarter were to end the day, how many performance fees will you get for Q2? That's the first question. Second question is on costs. G and A costs, I think previously you guided towards about $200,000,000 for the year. You're currently just because of what you just mentioned about the private asset costs and M and A that you're kind of running higher than that now. Should we still target $200,000,000 for the full year? Or is that going to be higher now? And last question on Brazil. We've noticed that over the last couple of months, you've seen some outflows coming from your Brazilian business. Maybe you can just talk a little bit about why that's happening and if you expect that to persist or to improve potentially? Thanks. Okay. As far as the performance fee switch all new system, the amount of funds, I have to tell you that we don't have any update from the CSF on this matter. So we continue to work with the assumption that we had previously communicated and we wait and see. On the SG and A line, $200,000,000 target is something that we never fully committed to. It's something probably that was assumed by most of you. And this is a level that we feel comfortable with. Clearly, this has to exclude this has to include the fact that we did buy companies over the last quarter and we continue to invest in the business. So if we look at constant perimeter, the 200,000,000 is what we expect as probably the sustainable level. And this is something that we can confirm. Although, if we are good enough at implementing certain actions, we might see this level somehow lower. As you remember last year, most of you have been surprised by the capability that we had to contain cost despite the strong growth of the business as well as the profit of the business. The idea we have is therefore to work on this assumption of the EUR 200,000,000 at constant perimeter. And eventually, with the new initiatives that will kick in, we might see some small headwinds in this figure. Brazil, Brazil is going through a very complicated moment. They were about to relaunch the economy, thanks to the reform package that the government was pursuing. And the all the things that happened and the lockdowns given that they are very skewed towards raw materials, so not just oil, but a number of different things has created some dislocation in their economy. From what we hear from our colleagues down there, clearly, we had some outflows from institutional investors that are invested in our funds through third party channels. We do see from our proprietary distribution networks, so if I have to distinguish this flow environment from the third party network, we do see positive flows throughout each month so far year to date. So once again, this probably tells us that by implementing a proprietary distribution system working side by side with our production constitute a much more resilient business model than if you depend on third party distributors. We do see our fund managers having to manage certain very complicated positions, especially in terms of the credit side, especially corporate. But we are continuing to hold liquid funds to meet redemptions as they fall due. So we do not have major problems in the local operations. Consider that from a company level, our results at the Brazilian level posted a profit in the first quarter of the year with an ongoing breakeven at the distribution side, whereas the production side continues to benefit from the generation of profit. Clearly, the FX and not just the FX, but also the negative market performance have had an impact on the size of the assets under management that we manage down there. Okay. Thank you. The next question is from Elena Perini of Banca Aemi. Please go ahead, madam. Yes. Good afternoon. I have only one question, which is related to focus on acceleration towards the digitalization and the smart working. I was wondering if you have already quantified the investments related to that focus and if this could impact on your SG and A expenses for the current year? Thank you. Okay. Well, to be honest, we have going through the heavy investment cycle over the last couple of years because of something that we have discussed in the past in terms of transforming our IT and operational infrastructure towards a more advanced and competitive environment. I don't want to become technical, but we have tried to improve the framework of the IT infrastructure that we have. And we will be soon starting to reengineer each component of the business. The heavy investment, as I was saying, were taken in 2018, 2019. We continue to invest in order to maintain up to date the IT and operational perspective of the business. We don't expect at this stage to have to commit, say, significant amount of money further in order to switch into a more digital or smart working facility. What we have to embrace is much more than in the past. Capability of our financial advisors on the one side and our clients on the other side to leave the digital track experience, which means that even from far, they can decide and plan their asset allocation, they can change it, they can invest and commit more money, they can open an account and they can have their reporting fully digitally. Clearly, this has an impact as I was mentioning in terms of efficiency because we will be reducing the man hour in the back and middle office. Over time, we expect this saving to be something that we can use to do other things. So from the best case, we will reduce the cost sorry, from the worst case that we will reduce the cost, but we will spend this money on something else to obviously a scenario in which we will be saving this cost and we will not be needing to reinvest the entire saving into something else. So the idea we have is to go ahead. The company has been working and we continue to work from home, from those of us that are in the office from the office, but we probably don't need to have the same environment or approach when it comes to the way we've been working so far. I'm not sure, but I guess none of us is how long this situation will last and therefore how much we will have the capability to revert back to what we were used to do. Okay. Thank you very much. The next question comes from Angelika Barakatari of Autonomous Research. Please go ahead. Hi. Just one question on my side please on the recruitment of financial advisors. Is it fair to assume overall over the next three quarters that the recruitment of financial advisors will be lower and so effectively we end up 2020 with a lower number of hires versus 2019? And shouldn't that then lead to a lower distribution cost as a percentage of the currency for this year? And also when it comes to the recruitment of financial advisers, could you please tell us how many flows came from recruited phase in Italy last year? Thank you very much. Okay. Let me start from the last part of the question. How much was coming from recruitment and how much was coming from existing advisers? Last year, you can have this in the fifty-fifty region. So 50% from recruitment and 50% from existing advisers of the EUR 2,700,000,000.0 or EUR 2,800,000,000.0 of the flows from the Italian network. As far as the recruitment is concerned, again, it falls in the crystal ball. I don't have the crystal ball. I do not know how the markets will shape and how easier will be to recruit people. As I said, we are constantly working on this. We have 1,800 advisers across Italy with people focusing on the recruitment of advisers from competition. I guess there are fewer and fewer advisers that these days are willing to move because when you move, you tend to have to visit your client and show the client's portfolio. So in a situation in which markets are negative, historically, we have always seen less activity of people moving from one company to the other. It may not be the case for the long term if probably market will resume to a more normalized level and if we can revert back to what we used to do in terms of activity of the recruitment. Clearly, if we recruit less, the distribution cost will go in that direction. So it's there is an obvious impact on the distribution cost line. The magnitude of that, it very much depends on too many factors that at this date we cannot control. Understood. But just looking at your Slide number 10, I guess it's fair to assume that the distribution cost for the full year of 2020 will be lower than the 45.3% average that you had in 2019? If you have this certainty, you must have certainty of how the next three quarters of the year will evolve in terms of market, in terms of commercial activity. And unfortunately, I cannot commit to such a certainty. What I can expect is probably that if we recruit less, the impact on the distribution cost line is less. If you remember from our Investor Day presentation, 50% of the distribution cost was linked to the rebate of the fixed management fee and the remaining 50%, 20% was the overheads and 30% was linked to the recruitment of financial advisers. So you can probably make your assumption on how this lower recruitment will hit our distribution cost line. Thank you very much. That's very helpful. The next question is from Federico Braga of UBS. Please go ahead, sir. Yes. Hello. Good afternoon, everyone. Thanks for taking my questions. I have three questions, if you don't mind. The first one is on the insurance revenues in the quarter that were still pretty strong. So I was wondering if there was any performance fee in the number or it was or the full number is actually recurring for the quarter? The second question is a follow-up on the fee margin because actually according to my calculation, fee margins declined quite sharply in the quarter, roughly seven basis points to 173 basis points in the quarter as the average AUMs were actually high in the quarter given that the market sell off happened only at the end of the quarter. So I was wondering if you can comment a little bit more on fee margins and if the key driver of changes to this line is mainly related to AUM mix or if there is something else? And then the last question is on the normalized recurring net profit of €50,000,000 Would you say that it's fair to assume that at least for Q2, we could expect a lower number than €50,000,000 given that the lower AUMs will start to have an impact only from Q2 onwards? Thank you very much. Okay. We will ask you to repeat the last question, but we'll start answering some of your questions. On the insurance revenue, well, probably from what I've read you from your comments that I've read before coming up, you're very sure that the insurance revenue cannot be sustainable, but I'll leave it to you in stating certain things. Having said that, performance fees Q on Q sorry, year on year first quarter twenty nineteen, first quarter twenty twenty is flat. We have had EUR 1,000,000 of performance fee in both quarters. Fee margin, again, really struggle to follow your reasoning and your elaboration on your comments and your margin trends. I honestly find it find that our fee margin gross management fees over the recurring fees, so excluding performance fees, have been 198 basis points in Q1 twenty twenty, 199 basis points Q4, 118 basis Q3, 110 basis Q2 twenty nineteen and 01/1982 basis Q1 twenty nineteen. I really beyond these numbers, I don't know what numbers you're looking at. Average AUM Q on Q is down 5%. We have a number of average AUM of EUR55 billion or EUR58 billion. Or if you look at the managed assets, billion, which compares to EUR45 billion of Q4. So obviously, nobody is happy about this drop, including mainly ourselves. But the negative effect that we had on the asset base have been quite well counterbalanced by a margin level that remained pretty resilient. As I was commenting before, we will see how this will evolve in Q2 as it depends very much on the size of the AUM on which we will have to calculate our recurrent fees. The last question is not clear to me. Or could you repeat it? I wondering just if you think that it's just in the at least in Q2 we could see normalized recurring profit below the €50,000,000 figure given the lower AUM starting point or you still expect to meet the €50,000,000 figure also in Q2? Thank you. Well, honestly, we what we work goes beyond the quarters, but goes into creating a sustainable long term business model that is capable of delivering results that grow over time. So when we stated the EUR 50,000,000 back at the Investor Day, we had the idea of bringing this EUR 50,000,000 to levels that will not be flat over time. We're living in phase in which if we already have the €50,000,000 even during this very complicated times is a successful achievement. We're not satisfied and we will not be satisfied over the coming quarters. But it very much depends on the capability of our fund managers to deliver performance, on the markets to be not disruptive as we have been on our networks wherever they are located to raise assets. As far as the Q2 is concerned, I will leave it to the Q2 forthcoming presentation to comment whether we have been able to achieve the EUR 50,000,000 or not. Thank you. My pleasure. Gentlemen, at this time, there are no more questions registered. Mr. Blay, would you like to make your closing remarks, sir? Stay safe wherever you are, and happy to take any further question with my colleagues at any time you wish. Bye bye.