Earnings Call: H1 2019

Aug 1, 2019

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Atimut Holdings First Half twenty nineteen 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. Gabriele Blay, CEO of Admiral Holding. Please go ahead, sir. Thank you very much, and good afternoon to everyone, and welcome to this presentation. We will go very quickly through the slides, so you will have more time to ask questions. If we move to Slide four, we have summarized the highlights of the major trends we have seen in the 2019. On the left hand side, you can see the revenues component. Revenues are have been four times increased year on year in terms of vis a vis the operating cost. 29% increase year on year with a strong boost in terms of recurring fees, up 14% year on year, mainly driven by AUM growth as well as the repricing component, which is the first full quarter impact that we have seen since the repricing was introduced back in February. If we look at the variable fees, we see a very good contribution, mainly thanks to the excellent job that was done during the first half by our investment managers with CHF 87,000,000 of variable fees in the quarter in the first semester. If we turn to the operating cost on the right hand side, distribution costs are up 10% or EUR 17,000,000 more. This is mainly driven by the increase in assets and the recruitment activity that has been performed during the first half. We will see the details later. While we have managed to control, I would say, well the SG and A and personnel cost in this first half of the year with a total increase of the operating cost of 6%. If we turn to Slide five, just a brief summary of the main trends at the bottom line. At a margin level, we are back at 82 basis points of net profit margin. This is done on managed assets, average managed assets year on year, so up from 36 basis points up to 82 basis points. In the quarter, we have achieved the famous EUR 50,000,000 recurring contribution that we have discussed during the Investor Day presentation. And this is true even if we will be stripping out positivenegative one off component, but we will see this later on in the presentation. On the consolidated net profit level, we have achieved €171,000,000 of net profit or 136% increase year on year. Turning to Slide number six. There has been a significant increase in assets. If you look at the last four point five years, we have almost increased the assets almost 2x. This has come through an increase in assets from our domestic business in Italy as well as the growing contribution of the foreign operations. Assets stands at almost EUR 56,000,000,000. If we include the preview of the net new money that we have recorded in July, we should stand in excess of 56,400,000,000.0, and we will communicate shortly in the next couple of days the final data, including the foreign operations. Net inflows in the first half have been predominantly organic. And again, if we take into consideration the July net inflows, this stands at EUR 3,200,000,000.0 since the beginning of the year. In July, as we said, EUR 500,000,000, of which EUR $350,000,000 coming from the Italian operations, of which EUR $325,000,000 from managed assets, while we expect the foreign operations to have contributed in the region of EUR 150,000,000 in terms of net new money in July. International business, as I was mentioning, at EUR 16,200,000,000.0 at the June, stand at 20% of our total assets. While if we look at the performance of our assets and the clients' performance year to date, they stand at 6.9%, which is above the Italian industry average and fully recovering the negative performance that was delivered in 2018. Looking at Slide number seven, our international business update. We have provided here a quick snapshot of the three main regions. In the European African region, we stand at EUR4.7 billion of total assets under management, with net new money of almost EUR580 million. This includes the $60,000,000 acquisition we have concluded in Egypt, which was announced some months ago. We are growing our presence and the activities picking up in The UAE. While we have enjoyed in the first half a solid performance in Switzerland and Monaco with net new money flows in the first half as well as a good contribution coming from the performance of the funds. Turkey, we have seen, again, quite a volatile environment down there. Although despite this, we have recorded positive net new money year to date as well as the company continues to generate profits. If we look at the Asia Pacific region, the total assets stand at 5,500,000,000.0 with EUR $312,000,000 of net new money in the first half of this year. The main news are the JV we have entered into with Youmai Wealth Management in China. This is a group active in the family office business in private equity and asset management. We are launching some funds with them. And they act as our main entry point in terms of distribution of these funds. As far as the Australian business is concerned, the fallout of the Royal Commission guidelines in terms of investigating the conflict of interest in the financial industry has produced some shakeups in the industry, which we are trying to exploit in order to grow our distribution as well as our production business in Australia. When it comes to Taiwan and Singapore, we are seeing a positive trend in terms of recruitment of high profile bankers out of Singapore, dropping out of banks and willing to come to work for an independent and more and more consolidated brand domestically. Looking at The Americas, the assets under management stands at EUR 6,100,000,000.0 and $560,000,000 in terms of net new money year to date. Again, a very strong contribution from our Brazilian business. In the first half, we have just for as a side note, we had to close or soft close some of the funds in the first half because of capacity constraint and a subdued market, which has reduced the liquidity in some of the asset classes. We expect, however, to see a more benign environment in Brazil in terms of market performance, especially following the approval of some of the major reforms that this the current government has announced starting from the pension fund the pension reform. Out of Mexico, we are seeing some good trends in terms of financial adviser growth in terms of recruitment as well as productivity. The company is heading towards more and more a breakeven situation. So overall, assets stand at EUR 16,200,000,000.0. We have more than 800,000,000 people around the world, EUR 1,800,000,000.0 coming from net new money in the first half, of which shy of EUR 500,000,000 is related to two M and A transactions. One is Egypt and another one is down in Australia. Turning to Slide eight, the private market business. We have discussed some of this aspect during the Investor Day. Here, it's just a remind of what can be the potential of the private market business. We have, in Italy, 150,000 small and medium enterprises. Italy is the number two country after Germany in terms of presence of SMEs. And if we were to align the investment into illiquid products of Italy to those of, say, France or The UK, we would reach the potential AUM targets that you see on the slide. So EUR 100,000,000,000 sorry, for the retail, whereas EUR 150,000,000,000 in terms of institutional money come out of the permitted range that these the institutional investors have to invest in this kind of asset class. Our aim is to, as we have argued, to lower the threshold to invest in these products. And this comes through an ongoing dialogue we have with the regulators in terms of approval of product. Approval of products that you see on the following Slide nine, and you see how we are slowly moving into the direction of having a decent range of product in terms of private equity, venture capital or debt funds that we have already invested in or have been recently approved, which is the case of Demos one, which, by the way, has a minimum threshold of EUR 5,000 to be invested by the retail public. We have a decent pipeline of ongoing products that we will be launching soon. To this end, we will organize a very big event in Italy in October for the launch of this initiative as well as these funds. Turning to Slide 11. Performance of the weighted average performance of net to clients is in the region of 6.9, which is still above the industry. And the gap vis a vis the industry has been reduced simply because we have a different asset allocation when it comes to the exposure to the Italian government bonds. Turning to Slide 12. No major change here. We still are having an exposure to equity of 39%. It ranges very much during the quarter simply because we manage mainly in flexible funds that can have a very active management of the exposure to any asset class. Slide 13, the breakdown of equities and fixed income by geography, but we leave you to go through the numbers and ask questions if you have any. When it comes to our performance in terms of net inflows vis a vis the average Italian industry, you see how we are still above the industry, which unfortunately has recorded year to date. If you exclude a one off transaction coming out of cost that ranged for 53,000,000,000. The industry, as I was saying, is still has recorded a negative net new money of €6,000,000,000 year to date. So unfortunately, we see how even in a very strong market environment, the industry is not behaving very well in terms of collection. And therefore, the clients will, unfortunately, not benefit from the performance that the market has generated. Turning to Slide 16. You see a focus on our Italian networks. There are some KPIs. We have added 90 financial advisers as a gross figure year to date. The recruitment comes mainly from other financial network distribution systems, 3356%, 33% of these people come from banks and 11% from other financial institutions. Consider that in these 90 people, we also have a good chunk of young colleagues that join us. And this is one of the project that was illustrated also during the Investor Day linked to the millennials, where we want to hire young colleagues to be able to follow some of the client base that we will have in the future. I leave the floor now to Alessandro for the financials, and then we will go back to the outlook. Yes. Thank you, Gabriela. Good afternoon to everyone. So let's start as usual from the net profit of Artemud EUR 178,000,000 to the level of the group, 100,000,000 more compared to the 2018 and more than 2x compared to the 2018. Going back, these results, it has been reached, thanks to a total revenue that is today EUR $486,000,000, has been more than EUR 110,000,000 compared to last year. And the operating cost increased by €18,000,000 and the operating profit is now set to €191,000,000 so €92,000,000 more compared to the twenty eighteen first half. This result, it has again, it's representing a good result for the group, the second best. And to me, looking to the single line of the income statement, you can see how recurring fees increased compared to the 2018 by EUR44 million, thanks to the growth, but also the new repricing that we put in place starting from February 2019. The variable fees increased by EUR 57,000,000, which and also to the level of the insurance revenue, we increased by EUR 60,000,000. I mean, also here, again, thanks to our growth and the new type of the new repricing of the IDD. Moving to the cost, distribution cost increased by EUR 70,000,000. Here, it's linked directly linked to the growth of the asset under management, but also affected by the new recruiting that we characterize the half. To the level of the personnel and the administrative cost, we are almost in line. We have any way also to consider the effect of the IFRS 16. Here, we have a class of EUR 4,700,000.0 from this line of cost to the amortization cost and to the interest expenses. But anyway, as you know, we increased outside Italy from June 3018. So we have we need to consider I mean, element to explain the difference. Going down, the interest income, really positive. As you remember, here, we have the positive effect of the fair value of our portfolio, but also the positive effect coming from the option that we have. At the level of the net note operating cost, we have an increase of EUR 3,000,000. Here, we have to consider a one off of EUR 3,200,000.0 that is directly linked to the new reorganization that we performed in the second quarter at the level of the, let me say, the Italian field. And to me, nothing special to add, maybe it makes sense also to focus on quarter on quarter. Here, again, the variation are not really significant to a different explanation compared to what I say before. Maybe it's easiest to understand how is changing our P and L because here you can see how the new repricing is going directly down on the bottom line of the group profit. And because as you can see, the difference in terms of variable fees is very, very low. Therefore, the effect of the increase is really related to the new approach in terms of income. So here, we are more predictable compared to the previous assuming previous years. And also here, you can see, if I take out the effect of the variable fees, and I clearly able to compensate the positive effect coming from the fair value of our portfolio. So the normalized effect that we are recovering from last year is netted by this one off cost that impacted the group in first half. Moving forward, so moving to the net financial position. We are more negative compared to the 12/31/2018. We are more negative by EUR43 million. Total debt increased by EUR200 million. We have already discussed about that. It's represented by the new loan. And at the level of cash and cash equivalents, we moved from EUR 3,000,000 to $474,000,000. So we increased our cash of €150,000,000 The simple reconciliation of this difference, it's, let me say, easy. We should consider the €200,000,000 coming from the loan, EUR 178,000,000 coming from the result of the half and then we have to take out the effect of the dividend EUR 166,000,000, 27,000,000 from standard duty and €33,000,000 of acquisition that we performed during the half. This should give you the result of the difference in terms of cash. I'm going to leave to Gabriela. Thank you, Alessandro. So just summing up some of the key actions that we have taken. First, performance fees. We have as we have already had the chance to discuss with you, filed a new methodology of performance fees. The dialogue with the SSSF in Luxembourg is ongoing, and we expect to introduce the new pricing as of 01/01/2020. We are not seeing major pushbacks. It's a very constructive dialogue that we continue to have, and we do not expect any further delay down there. Structure of the new management team is fully ongoing. No major news down here, and we are working in coordinated way. And we are very focused on delivering the results for this year as well as working on the next five year business plan. As far as the volatility of the P and L is concerned, we have now fully implemented the new methodology of recurring fees. And you see how the P and L is has been transformed and has been more and more skewed towards a stable and recurring activity. As far as the international business is concerned, the results are positive, both at a consolidated level as well as if we drill down to the subsidiaries we have around the world, and they are increasing their brand as well as the results in home markets. Profitability is improving and growing faster than the assets. So we are confident that we will be able to deliver more results to the group P and L from the international business. Operating costs, we are putting a lot of efforts to study and analyze our cost base. We do see some potential to control this. We do want to continue the analysis for the rest of this year and then implement some actions from 2020 onwards to gain some efficiencies. Some of them will come also from the implementation of the new IT platform that is expected to be rolled out rolled on from the end of the summer towards and concluding in the end by the end of the year. Outlook, Slide 22, and this is the last slide. The P and L transformation is almost complete. We are, as I was mentioning, ready for the new five year business plan, which we'll be presenting in the within the 2020. There are some encouraging results on which we are going to start. We're generating 2x the recurring fee net profit in the 2018. We saw it was EUR 42,000,000. We are now working with EUR 84,000,000 in the 2019. We do not see, in terms of outflows or negative activity, any impact coming from the MiFID regulation, introduction of the MiFID regulation as well as the repricing. I probably anticipate one of the questions, we are already we have already sent out some of the statements MiFID compliant, and we will conclude the distribution by the end of the summer. The onboarding of new client is improving. We are running with 8,000 new client year to date. And the client net performance is still above the industry and has recovered the losses we generated in 2018. Going forward, as I mentioned, the new business plan is going to be something important that will be released in the next twelve months. We have started the work in terms of the private market activity that we envisage for the future. As you have seen, the aim is to try to democratize this asset class in order to make sure that this is something the retail clients will have access to. We are always keen to study and analyze potential M and A transaction, whether in Italy or abroad. We do see and we have some dossier at an international level, both in countries in which we are already present as well as in countries in which we would like to enter. We are more than ever fully committed towards the EUR $250,000,000, 300,000,000 net profit going forward, of which 80% will be coming from the currency of the revenues following the repricing. Last but not least, we expect the international business to continue to grow, mostly organically as well as through selective M transaction that we can perform. That's it. And I would leave you the floor for any Q and A. Excuse me. This is the Chorus Call conference operator. We will now begin the question and answer session. The first question is from Alberto Villa, Intermonte. Please go ahead. Good afternoon and ciao to everybody. I wanted to ask a few questions. The first one is on the inflows you announced yesterday on July, which were very strong also in Italy. I was wondering if you can give us the breakdown between the contribution from recruitment and if you think this trend is a real turning point for the Italian operations as you mentioned already in the meeting in London or we can have more volatility going forward. So expecting the Italian operations to stably contributing positively in the future to net inflows? And also net inflows, you have a new target in mind for the full year 2019 in light of the recent good numbers? The second one is if you can give us an idea of the performance fees you cashed in July and if it's fair to assume that if markets stay at current levels, August could be really a very strong month for your business? And the third one is on management fees in percentage on the average assets. If we isolate the component coming from the repricing that started in mid February, seems that the average management fees has gone down slightly. I was wondering which were the drivers there? And if you can comment on what we can expect on, let's say, normalized level of management fees going forward? Thank you. Okay. Thank you very much. So in terms of inflows breakdown for the month of July coming from recruitment and existing advisers, We have seen a positive activity coming from both channels, I have to say. So if you want, you can split this between a good fifty-fifty coming from the existing ones and the remaining linked to the recruitment activity that is has been carried out. I didn't catch the second part of that question, but I'll go through the others, and then please ask what I'm not answering. Target in terms of net new money for 2019. When we started the year, we said we were looking to achieve at least the same level of net new money we achieved in 2018, which is 4,400,000,000.0. The year so far has been quite good, both in terms of market performance and, of course, activity coming from net new money. We are now at EUR 3,200,000,000.0. We could update this figure, assuming markets are going to be are going to remain, as we have seen them, benign so far. Or we could just simply reconfirm the $4,400,000,000 Honestly, given that markets could be volatile, I would prefer just to say we are confident that we can achieve the EUR 4,400,000,000.0. If markets are not going to go upside down, we can even overcome this target, but it's something that we cannot control. So for the time being, 4,400,000,000.0 seems the most reasonable figure as far as the full year is concerned. Performance fees. In July, we have seen a single digit number in terms of performance fee we have collected. As you have correctly pointed out, August could be a quite significant number in terms of performance fee generation. But I would say, let's wait and see how August will end. It seems that there is a bit of a volatility kicking in following the announcement of the central banks. And as you know, August tend to be a volatile month. Management fees, Alen, you want to quickly Well, my opinion, here, we should focus mainly considering also the insurance revenue because due to the IDD pricing, so there is an effect of, let me say, reclass between recurring fees and issuance revenue. Therefore, the significant increase that is you can see on the issuance revenue should be share with the recurring fees. So there is, let me say, maybe a misunderstanding in terms of representation that we cannot offset as we have to consider, let me say, the two revenue. But together, I think that you answered to I will answer to your question. Therefore, the two amounts will be considered together maybe today more than yesterday due to this effect. Which means that the average, let's say, recurrent fees on assets isolating the repricing is pretty much in line with the previous quarter. That's correct. Yes. Okay. Sorry, Gabriel, the part of the question was related to the fact that we have seen improvements in Italy. I was wondering what has happened to justify these improvements because it was a weak spot, the Italian net inflows in the past. If this is mainly driven by you already answered in part, but if there is a real change in the, let's say, organic contribution by the Italian network to the net inflows? And if you can expect this trend to continue? We have rolled out a number of projects to make network goes back to the usual trend, especially given the positive market trends. So we have as we have mentioned also this in London, we have reorganized the product range. We have made sure that the distribution is properly supported by our professional in the investment team. And we have taken specific actions with the financial network to address the productivity issue that we have seen in 2018. This has produced some results starting, I would say, from April, May. It was not immediate simply because the heat coming from the Q4 negative market performance has been strong and severe. I guess, are seeing exactly what we were mentioning a couple of months ago. It takes some time. It's not immediate that the network and the existing advisers especially resume their activity vis a vis their clients, especially their existing ones as well as going out and making new clients. We are, however, seeing this trend slowly recovering, and we expect this to continue. Also in August, we have started the month really with some positive signs vis a vis the net new money collection coming out of our Italian distribution system. Got you. Thank you. Thank you. The next question is from Hubert Lam of Bank of America. Please go ahead. Hi. I've got a few questions, but I think you may have answered one of them already. Just on just to clarify on the insurance revenues, are you saying now that because of the repricing, the insurance revenue should at least be at least is now a step higher than what it was in the past? And that the number should as AUM grows, that the number the insurance revenue should also grow in line with that as it's opposed to repricing? That's the first question. Second question is on the other income. I noticed that's also higher than what it was at $3,800,000 compared to the prior quarters. Is there one off there? Or is that also part of the or is that line also benefiting from the repricing? Just a little clarity on that number. And lastly, on tax rate, what tax rate should we assume for the recurring earnings of $50,000,000 I noticed the tax rate was a little bit lower at 9% this quarter. And I assume that going forward, it's going to be higher just because you have less performance fees. So what's the tax rate we should think about in 2020 for the recurring earnings? Thank you. Thank you, Hubert. So starting from the last one, the tax rate. We do not change our long term guidance of 15%. You know that on a quarterly basis, this can range up or down. But long term sustainable tax rate, we have announced, I would say, now more than ten, fifteen years ago, it's still the 15% that we have always stated. At the other income level, this is mainly just linked to client activity. There is nothing specific. There are no one offs in there. It's just driven by the activity generated by the clients. As far as the first question on the insurance revenue, what we mean is following the repricing in the IDD, the flows are split among different companies. And therefore, from our perspective, when we look at the numbers we have internally, we do not if we reconcile the flow and the different distribution among the two companies, we do not see the swings that you may perceive from outside in terms of margin levels. We do see stable Q on Q margins. And honestly, we see this trend quite stable even now. So unless market will turn very negative, and therefore, may decide to take a more conservative approach towards their investment and therefore, switch more to less risky products, then we may see some reduction in the margins. However, I just want to share with you that we have launched one product specifically that basically works to slowly and gradually accumulate exposure to risky assets, which is exactly what client needs eventually these days after the strong performance for generating the next two to three to five years performance simply because you cannot just enter now the equity component directly. So you need some kind of products that builds up the positions over time. The next question is from Federico Braga of UBS. Please go ahead. Hello, good afternoon, everyone. I have three questions, if you don't mind. The first one is on the average size of the financial advisors hired year to date. If you could please give us this information. And related to this actually, what is the contribution of the recruited advisers to flows year to date, so not only in July, we can assume a fifty-fifty as you said also year to date or the breakdown is different? The second question is on the IFRS 15 impact distribution cost in your Capital Markets Day, you mentioned about the EUR 15,000,000 positive impact this year. So I was trying to understand what was the contribution, the positive impact of IFRS 15 in the second quarter of this year the distribution cost and if what could be a more normalized rate for distribution cost excluding the positive impact of IFRS 15? And the third question is if you could please share with us the contribution to recurring revenues of the EUR 500,000,000 or so of AUM that you have in private assets. Thank you. Okay. So the first question was concerned the average size of the recruited advisers. You have to consider that on average, advisers employ 18 to 24, those that are really strong and good to move their existing portfolio from their previous employer to Azimut. And then from then on, they start to work on mix as well as to grow their existing base of assets. We could say that once they have terminated to transfer this asset, the pool of asset transferred is in the region of EUR 25,000,000, 30,000,000. Clearly, this depends from the profile of the advisers and the division they enter into. So whether they are a wealth management person or more a traditional financial advisory network person. Can you remind me your second question, what was about? Yes, if you can give us the contribution to flows from new advisers and organic the organic contribution also year to date. You mentioned before that in July, it was fifty-fifty according to your numbers. Just wanted to understand if you can confirm Well, this breakdown also year to as you remember, probably the we had the similar question in the first quarter presentation, and this was the indication we gave also back then. So I would say that the fifty-fifty assumption is still true and valid year to date. Distribution cost, Ale, you want to answer the question? At the level of the IFRS 15, I should double check, but if I remember well, we are around 2,000,000, 2,500,000.0 per quarter. But I mean, it's something that we already take in consideration in the 2018 because it's something that is already working from last year. So even if you consider, let's say, the compare, I mean, we already consider the effect also last year. By the way, we are talking about this number per quarter. Okay. And you had a last question, right? Yes. If you could share with us the contribution to the recurring revenues of the private assets that you have at the moment. Yes. I would say it's a negligible figure these days. The next question is from Filippo Pobrini of Kepler. Please go ahead. Yes, good afternoon. Three brief questions. Do the variable fees of this last quarter include any contribution from performance of asset in abroad, meaning Americas or Asia Pacific? Second question, how come the minorities result in the second quarter declined compared to the second quarter twenty eighteen? And finally, back to the distribution cost, if you can give us an indication of what you expect in terms of payout for 2019? Thank you. Okay. The performance fee generated from the foreign operation in the first half, you could assume a number in the region of €2,000,000 So if you compare this with the previous year is considerably lower year on year. But we are in a position, if markets do not turn too negative, to expect some more contribution in the second half. Alex? Yes. For the minorities, the difference is just explained by agreement that we had in place in the past, and it is now finished. So let me say the profit, I mean, the rule, how we determine the minority effect was impacted by this rule of agreement. So now it's finished. So you can see how it has changed the effect comparing last year. The payout on the distribution cost so far is pretty stable. We do pay the 40% of the fixed management fee. I would remind you that the repricing of the 50 basis points on average is not included in the repricing sorry, in the rebate that the adviser receives. And as far as the recruitment cost, this is clearly discounting the strong recruitment year to date. But we do not see any major swings. And there's always better to see this distribution cost line rather than on a quarterly basis on a yearly basis. And we see that the trend is always pretty stable. There is just a few bps up and down year on year depending on the recruitment activity. Okay. Thank you. Thank you. Gentlemen, there are no more questions registered at this time. Thank you very much. Happy summer for those that go a bit on holidays, and we remain available for any follow-up questions. Bye bye.