Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Azimut Holding Full Year 2018 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. Pietro Giuliani, Chairman of Azimut Holding, for some opening remarks. Please go ahead, sir.
Thank you. Good afternoon to everybody. Thanks for being here. I'd like to provide four key remarks today before I leave the floor to my colleagues for the formal presentation and Q&A session. I will not participate. Well, the four key remarks. Number one, dividend. The board decided to propose a DPS of EUR 1.50, about 140% payout and about 12% as yield. For the second consecutive year, highest dividend yield amongst FTSE MIB members. Technically, the dividend is based on the previous year's earnings. However, this amount is based on Azimut generating EUR 300 million of net profit in Full Year 2019, the last of our five-year business plan, and the only one still not to be achieved by the group. A DPS of EUR 1.50 over at EUR 300 million of profits is perfectly in line with our business plan guidelines in terms of payout, is between 60% and 75%.
I trust this can provide you the amount of confidence that we all have to achieve EUR 300 million in 2019. Second key remark, MiFID II. Still not a major problem in our view. Performance will be the key differentiator. Our performance remains well above industry, almost 5% net of fees to the customer, more than 1.5% above our competitors. Over the next quarters, you will realize that this will have a limited impact on our results. Even with the latest pricing change, our total expense ratio remains below other key competitors, with a significantly higher net performance to clients. Key remarks number three, financial advisor. I'm not seeing at all an issue with certain key financial advisors leaving the company.
At the contrary, I see a tangible action of more than 1,200 colleagues buying EUR 100 million worth of Azimut shares in a leveraged buyout, showing strong signs of commitment, alignment, and compactness. Anyway, also here, results will be visible over the next quarters. Last key remarks, number four, replacement of CEO. Over the next few weeks, Timone Fiduciaria will propose to the AGM a new slate of board members of Azimut Holding, including a new management team. The idea is not to have a traditional single CEO, but more likely a team of senior leaders with specific and distinct mandates. Well, I give the floor to my colleagues for the formal presentation and QA session. Vittorio Pracca, our IR, I give the floor to him. Go, Vittorio, please.
Perfect. Thank you, Pietro, good afternoon, everybody. Let me jump in straight into the presentation. As you can see, 2018 results are no big surprise. The results have been widely expected. The financial figures are clearly impacted by what has been a very tough year. At the same time, there's a few key initiatives that we have already started and are already working on in 2019, which we think are meaningful for the equity story of the stock. If we look at the financials, Alessandro will go through them later with a little bit more detail. In 2018, we closed the year with almost EUR 750 million of revenues, slightly below the previous years. At EBIT level, the numbers are around EUR 190 million. Again, a little bit lower than last year.
Of course, net profits normalized through following certain IFRS accounting standards that, again, we'll go through later, was a little bit lower than 2017, almost entirely due to a significant reduction in variable fees, obviously related to the market. Fourth quarter, again, the bottom line was around EUR 22.5 million. This is a normalized number through the IFRS. The revenues were clearly below last year as well, the EBIT around EUR 40 million compared to EUR 79 of the previous year. Again, this is pretty much entirely due to markets and how the movements went over the last year. If you look at the inflows and performance, inflows last year were EUR 4.4 billion.
The number is slightly below the previous years, if you look at it from a net new money growth perspective, we're close to 10%, which is in line with our historic average, in many ways is a good number considering last year. January and February started off well. We closed around EUR 800 million of net inflows, which we think is good, with a pretty solid contribution that has been consistent in the last year or years actually from our international business. Looking at performance, last year was in line with the industry, nothing great. In 2019, it is worth highlighting that the performance we are delivering to clients is very positive. We are close to 5% net of fees, compared to an average Italian industry of about 3.5%.
This has an impact not only on the way that is performance, but also on the performance fees that we're going to go through later on in the presentation. Looking at the key initiatives we went through at the beginning of this year, I think there's a couple to highlight here at the beginning of the presentation. The first one is on the fee structure. As you remember, in early January, we released a press release where we are aligning our performance fee methodology in line with the IOSCO principles. This is something that has been an issue and a concern around the company for a long time.
We think this is an important move that not only will take away this uncertainty, but will also significantly transform our P&L into something that is much more recurring and much more linked to assets and assets growth rather than market and its volatility. We have aligned our fixed commission with an additional roughly 50 basis points. This is nothing extraordinary. This is perfectly in line with the Italian market. The total expense ratio remains virtually unchanged and is pretty much in line, if not slightly below, a few of our competitors. In terms of dividend, as Pietro said at the beginning, the board is proposing a total dividend of EUR 1.5 per share. This is a significant number compared to the income that we made last year.
Considering we are confident in achieving EUR 300 million this year, it's a number that already reflects a company that is running at EUR 300 million net profit per year. We gave a floor in terms of the cash portion, which is at least three quarters, which is going to depend on the treasury shares we have at the moment of the delivery of the dividend and any potential further buybacks, as well as how the stock will perform. This translates into a yield of roughly 12%. It's for the second consecutive year, the highest yield in the FTSE MIB market, and the payout that is above 140%. It's a very generous dividend approach and policy towards shareholder. It's consistent versus the previous years, and we think this is a strong message again to the shareholders.
On the following page, you can go through a little bit the achievements and the progress that we worked on last year. Last year was a particular year, but this didn't mean that the company was not focused on a lot of key initiatives that were completed, both from a corporate point of view and from a business point of view. We started off the year with announcing the big management buyouts. A few months later, we completed it in June 2018. During that time, we made a small acquisition in Italy of Sophia SGR. Right after the summer, we kicked off the Azimut or the private markets and alternatives business, which has already been in place, but we revamped it with a new leadership team and with a new business plan that will be delivered in the next few years.
We launched another private debt fund, which is in line with what we had said before, There will be new launches already starting from this year. Later on, we've continued our expansion in Australia. We've increased our presence in the alternatives and innovative strategies in Italy with the acquisition of P&G. At the beginning of this year, as I said, there was the proposed change to the fee methodology, as well as another M&A opportunity in Egypt, and the most recent EUR 200 million financing that we closed to have greater flexibility and in order to grasp a good market opportunity in terms of pricing. On the following page, you can see, I think, what is really the bulk of this presentation and going forward. What's going to happen in the future. The key priorities are summarized in this slide. First of all, growth and profits.
We're confirming the EUR 300 million net profit for 2019. This looks ambitious, but we are confident that we're working on a lot of practices that will enable us to achieve this challenging but doable goal. At the same time, in terms of growth, clearly the international business has been driving a lot of the growth in the past, and we believe it's going to continue driving the growth in the future. Just to give you an example, in the past couple of years, the AUM doubled to almost EUR 15 billion, which is equivalent to 28% of our total AUM, and it's set to continue growing at a strong pace. Sustainability. Sustainability for us is important because, as I said before, we've changed the fee structure, going into something that we think is more sustainable in the future.
It's going to be in line, the methodology will be in line with the IOSCO principles, and this will have an impact in terms of the P&L that we are able to achieve today and the P&L that we can deliver in the future, given it will be much less reliant on the volatility and more on our assets. Diversification. As we said earlier, the private markets for us is an important leg of growth. The EUR 4 billion target is just the beginning. We are working to deliver new funds and new ideas that we can use both for our financial advisors and for our clients. This is going to be something where we'll give you more color in the future.
Last but not least, compactness, because the transaction that was made last year in a year that was very full of news from a political and macro point of view, is something that is worth highlighting. EUR 100 million worth of shares bought by managers, PMs, and advisors. This really shows the compactness and the unity of the group and of our colleagues working all together. On the following page, a quick view of our evolution of AUM. As you can see, 2018 was essentially flat year-on-year. We delivered a good net new money of EUR 4.4 billion. A lot of it was balanced by performance. What is important is that 2019 already started off well with a good rebound, both thanks to net inflows as well as market performance.
Last year, the contribution of our international business was virtually all organic, which is again, another important point. The weight, as I said before, is close to 30% of our total AUM. On the asset management section, you can see on page nine what I briefly discussed before, so the weighted average performance. We are essentially at 5% net of all fees. This is about 150 basis points above the industry. Let's see how it evolves during the year. It's definitely a good start, and it's a promising start considering how the market ended last year. On the following couple of pages, the usual breakdowns of AUM. You'll probably see that in the category section, there's no major change compared to the previous quarter.
The total equity clearly was reduced at the end of December because of the market correction, but I would say it's understandable and is normal. In the following page, in terms of equities and fixed income, again, you can see a pretty good diversification across geographies and types of fixed income. North America keeps having a big weight as well as Europe, and the fixed income is also pretty diversified and not too different compared to the previous quarters. If we pass now on the distribution side, this is again our usual slide comparing the Azimut numbers versus the Italian industry. We have remained well above the industry in terms of net new money. 2018, of course, there's been a correction for everyone, but again, 2019, if we look at the early numbers we've delivered, we are back up to a significant amount.
I'd like to highlight the average of the past over 10 years, 12% net new money over a period of longer than 10 years is a very significant amount. I don't think there's a lot of companies in this sector that can continue performing at such a high pace. On the following page, you can see an idea of the breakdown of our net inflows. As you can see, the Italian business, of course, remains an important component of the net inflows, and we are looking for this to continue delivering in terms of net inflows going forward. What is important to highlight is that the three main regions were able to deliver a strong amount that is almost entirely organic with Americas and within it, Brazil, that has contributed significantly.
Asia Pacific, and within the region, Australia is the largest market, which is also contributing. EMEA, ex-Italy, which also contributed positively considering that we have both mature markets like Switzerland and Monaco and very emerging markets like in the Middle East and Turkey. This is definitely a good number that we are proud to show in the presentation. On page 15, you can see a quick snapshot on the Italian business. In the Italian business. The result has been very good because we've hired a record financial advisors, almost 200 people in total.
You can see also an interesting breakdown on the left-hand side, that we have continued to hire the traditional financial advisors, the wealth managers with slightly higher portfolio, but we have also expanded into new distribution pots, if I may, which are both banking evolutions, so people working in a bank branch, as well as millennials, which are going to be important, especially in the future. We have already started this. We're starting to recruit people, and this will be important to continue managing the relationship with the clients, even in the next generation. On the financials, I'll pass the word to Alessandro.
Yeah. Thank you, Vittorio. Let me start from the bottom line of the income statement. The consolidated net profit, in my opinion, is EUR 145 million. I'm excluding the one-off, as mentioned at the beginning of the call. This, I would say, is the real result of the group today for the full year 2018, because as you know, starting from beginning of the year, it has been introduced a new accounting principle, the IFRS 9. As you know, the main changes that came up from this new accounting principle, it linked to the fact that the fair value variation of the investment in funds, it's booked directly on the P&L side, not anymore in equity. This is going to directly impact, therefore, our P&L, even if the impact is just an unrealized loss.
We are considering something that today, considering the performance of the 2019 on our funds, is absolutely totally recovered. From the 2019, we will have a positive impact from this new accounting principle. On the other side, the other element that has been taken in consideration, it's a put option that again here, the underlying asset is linked, let me say, to the market. Therefore, with the market that is performing negative in 2018, it has an impact of other EUR 15 million. In total, the impact is EUR 23 million. Going back to the main line of the P&L, the variation that we have seen in the net profit is EUR 75 million. I'm considering the adjustment one. Following this, it's completely explained by the variation of the variable fees that compared to last year, it's EUR 80 million less. This is the main reason why we had these results.
On recurring fees, we are solid. We increased by EUR 22.5 million. This is thanks to the increase of our asset under management in Italy and outside Italy. To the level of the distribution cost, we are almost in line. We don't see any particular element. This is the result on one side of the new IFRS 15 that give us the possibility to reduce the cost in terms of amortization. At the same time, as you know, we are still investing in recruiting new financial advisor. It has been balanced during the year compared to last year. To the level of the personal and administrative cost, we have an increase of EUR 25 million, which again here link to our growth in Italy, outside Italy, and our investment that we are still continuing at the level of the operation.
Moving to next page, to the level of the net financial position. At the end of the year, we are negative by EUR 31 million, compared to EUR 135 million of 2017. We are more or less a variation of EUR 160 million. This is mainly explained, we can reconcile, I would say, the result of this net financial position started from the cash and cash equivalent that we had at the end of the year 2017. More or less EUR 500 million. We increased by the result. Therefore, I'm going to consider EUR 145 million because I'm consistent on what I said before, that as the result is not impacted, but is just an unrealized loss, I'm considering that there is no cash flow, of course. The total cash in should be EUR 645 million.
From that amount, I should take out the dividend, EUR 131 million, more than EUR 100 million linked to stamp duty and policyholder tax advance, EUR 40 million of buyback, and EUR 38 million of M&A. This is going to give you the result of EUR 323 million of cash and cash equivalent. I'm going to leave back to Vittorio for the rest of the presentation.
Okay. Thank you, Alessandro. On the following page, capital management and return. On this slide, I think you can see really the consistent growth that the company was able to deliver to shareholders in terms of dividend per share, and payout. Especially in the past few years, the company generated a lot of cash, a lot of profits, and a good part of it was returned to shareholders with another good part of it that was used for investments. The number that we're proposing this year is, as I said, EUR 1.5 per share. It's a pretty significant amount. As we said, this is based essentially on the company generating EUR 300 million of net profit, which remains our target for this year and remains a target that we are confident that we can achieve.
The cash and shares proportion will be decided before the payment of the dividend, while three quarters of it is a floor, and at least three quarters of it will be paid in cash. The dividend policy and the capital management policy at the moment remain as we have done in the past, a flexible use of cash in terms of dividends, in terms of buybacks, opportunistically, and, of course, maintaining an attractive return to our shareholders. On the summary and outlook, we've said it now numerous times in the presentation, I think it's pretty clear to you that we're all focused on delivering on this last item of our business plan, which is the net profit. Year to date, we have already cashed in about EUR 20 million of performance fees, which is a good amount considering how the previous quarters have behaved.
We'll see how March ends, we're confident that this can help us in achieving the EUR 300 million net profit target. As we said, the 2019 dividend is already reflecting the EUR 300 million net profit that we are all working on to achieve. MiFID II, again, as Pietro said at the beginning, there's been a lot of talk about it. The bottom line in our view is that what will be a key differentiator is going to be performance. Performance where Azimut has historically and even recently delivered a significantly higher performance than our competitors. Year to date, we are 150 basis points above the industry.
We are confident that once there will be a level playing field, this will be the key differentiator, and this will be really what is going to matter for clients, rather than a focus on the pure costs, which alone does not mean much. The new fee structure, this is the other relevant news, as we said at the beginning. We have proposed to the Luxembourg authorities a change in the methodology that would be in line with the IOSCO principles. We are just waiting on the details in order to finalize the exact formula, but the methodology will be in line with the IOSCO, and we hope we can hear back soon.
At the same time, the fixed commissions have an average increase of 50 basis points, which, as I said at the beginning, is not a big deal because this brings us perfectly in line with the Italian market in terms of pricing. It leaves us virtually unchanged in terms of total expense ratio. Again, considering that we are today delivering almost 5% net of fees, if we're able to continue this way, this will not be an issue in our view. The conclusion of all of this is that the P&L of the company will now be much more recurring, which will be much more predictable and much less reliant on the volatility of the markets. This is really a deep change that is going to happen in the numbers of Azimut.
It is important that now the growth of the business is really going to be connected with the assets that we are able to bring in, and we are able to continue growing as we have done in the past. Last point, the key growth areas will remain mostly the international business, as well as our expansion into the private markets. These are the two components where we think can bring a big contribution to the growth of the group, as well as, of course, the Italian business that's continuing to deliver and to consolidate a leading position and our more traditional products that we are working on to continue to deliver. The new management team, as Pietro said at the beginning, will be proposed shortly to the AGM, and you will have more details about that as soon as this has been proposed and announced.
Last but not least, we're working to set an investor day in the second half of the year where we can provide you access to the new management team and a bit more color on what we have been doing with our international business, with our alternatives business, and where we see the upcoming future of the company, including the target of EUR 300 million that we are confirming for 2019. The last page is the usual update on the business plan. There's really not much left. As we said at the beginning, the total asset has been reached. The annual net inflows has been well above the target. The dividend payout is significantly over the 60%-75% range that we had delivered. What is missing is the net profit. We're closing the year with EUR 145 million. It seems a big bridge to get to the EUR 300 million.
If you consider the new pricing scheme that we have announced in January, if you consider even, let's say, moderate contribution of performance fee in 2019. If you consider the growth of the international business, that it's going to provide more and more impact, even on a net profit level. Of course, an AUM growth that is reasonable. We are confident that the EUR 300 million can be achieved. That's it for now. Thank you, and we'll open to Q&A.
Excuse me. This is the Chorus Call 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 touch-tone 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 Hubert Lam of Bank of America. Please go ahead.
Good afternoon, everybody. I've got three questions. Firstly, on your EUR 300 million profit target for this year. If you currently look at consensus, it's actually around 25%-30% below what your target is for this year. Just wondering what you think is the delta between the consensus or what the market thinks and what the EUR 300 million implies. Is it because of your assumptions for higher performance fees, higher flows, better markets or costs? That's my first question. The second question is on your financial position. You already have a slightly negative financial position at the end of 2018. However, with your higher dividend that you plan on paying out, this will put you further in a negative financial position. How negative financial position are you willing to tolerate, just given your guidance for dividend for this year? The last question is on the commission expense.
Your commission expense ratio went up to about 56% on my calculations for the last quarter, for EUR 87 million for Q4. How should we think about this run rate, either the ratio or the absolute amount going forward? Should it be at about this type of level, just given your outlook on hiring, or how should we think about this? Thank you.
Okay. Hi, Hubert. On the EUR 300 million, I think it's briefly what I was touching on in the last slide. The recurring component will be meaningful. Probably this is what is still, let's say, estimated in a conservative way. Which is fine, but we think that component will be quite meaningful in reaching the EUR 300 million. We're also assuming performance fees that are not exaggeratedly huge, so it's not going to be the differentiating factor. We've got the overseas business that, as we said, we have not provided a lot of details at the moment for the reasons that all of you know very well, but it is also contributing to net profit in 2019.
In general, if you assume moderate growth in terms of AUM, with the new recurring fee scheme and the other things that we touched upon, we're confident that the EUR 300 million can be reached. On the second one of net financial position. The dividend is a big amount, but in reality, as you can see on the net financial position slide, we have more than EUR 300 million cash. We have already closed the new financing of EUR 200 million. Clearly, if you see the payment that will be in the second quarter as of today, it will have a certain impact on your cash flow and on the net financial position. If you see the impact over the year in 2019, where we are going to generate cash flow in Q1, in Q2, this will help to rebalance the net financial position.
We don't see any particular issue in terms of leverage of the company. We have done in the past that the company was much more leveraged than what it is today, and we have seen that the company has recovered very quickly without any major issue. On the third question of the distribution costs. Distribution costs were up, but of course, as you have seen, we've hired a lot of financial advisors. This is, let's say, one of the points that should be kept in mind when looking at this number. The year has started off well in terms of recruitment, so we keep on hiring people at a pretty good pace.
There's a lot of interest now in joining the company, so we can expect going forward a distribution cost that is similar to the one that we've seen in Q4, depending, of course, on the opportunities. If there's opportunities, we'll go for it, and while maintaining a strict recruitment cost that, as you know, is not above the 2%, 2.5%.
The next question is from Alberto Villa of Intermonte. Please go ahead.
Hi. Thank you. Good afternoon. I have a few questions. The first one is on net inflows. After the EUR 800 million you gathered in the first two months of the year, I was wondering if you can share with us a target for 2019 in terms of net inflows. Going back to last year net inflows that you show in slide number 14, I was wondering if there is a significant component of institutional money, or is mostly retail, especially for the foreign operations? The second question is on the, let's say, profitability of the assets abroad. Now they are almost 30% of your total AUM. It's quite surprising that you have a resilient level of management fee on assets despite the different composition in terms of geography.
I was wondering if there is really a certain similar level of management fee in any jurisdiction or if there are major differences in profitability in the foreign countries. The second question is, it's more on the performance fees. Basically, two questions. One, if you can tell us how much you cashed in in the first two months of the year, and if we can assume that March could be a crucial one for performance fees if markets remain at this level. The second one is when there would be the switchover, if you confirm it will be in June, as probably was mentioned when you changed the fee structure. The last one is, I guess, for Pietro. You announced the intention to propose a different management team.
I was wondering if you can share with us what would be your role in this management team in the future if you are going to have specific, let's say, tasks and powers. Thank you very much.
Okay. Thank you, Alberto. In terms of net inflows, I think the target that we have in mind for this year, it's of course very early to say, but we're aiming to achieve at least the same number that we have achieved last year. North of EUR 4.4 billion.
Okay.
In terms of the second question on the foreign contribution of inflows, the answer is no, in the sense that there's not a lot of contribution from institutional. We have institutional clients, but it remains a minority of the business, and this was also reflected in the inflows numbers in Italy and outside of Italy. In terms of the profitability and management fees. I understand the questions, but it's difficult to give you an answer because we're present in many markets with different clients and with different type of presence. In some markets, we have distribution, in others, asset management, and several clients within each of these markets. In general, if you take similar products, mutual funds with retail clients as we have in Italy, there can be a similar marginality also abroad.
Of course, different products and different clients will have a slightly different management fee and margin mix. Overall, as you said, I think what is important is that even in Q4, the management fee and margin remained in line. This is what we're working on, of course, even in the future. Performance fees. January and February was about EUR 20 million. Yes, if March remains at these levels, it can be a significant amount. This will be, of course, quite important as well as going forward in the next few months. The new performance fee methodology, we have submitted it to the Luxembourg authorities, so we are waiting to hear back. They haven't told us a specific deadline as by when they will get back to us, but it can probably be over the next few months. We are waiting to hear from them.
On the last question of Pietro. Pietro is non-executive Chairman, and our understanding is that he will remain as non-executive Chairman going forward, even in the new management team.
Thank you.
The next question is from Giuseppe Mapelli of Equita. Please go ahead.
Yes. Good afternoon. I have some questions. The first one is on management fees. The new pricing. Is it right to say that the new pricing will start from March full steam? That's the first question. The second question is on performance fees. You gave us some color on the new methodology. I would like to understand if you back-test the new methodology on previous years, and you can share with us what these results are, and the percentage of performance fees that you would have cashed in, for example, in 2017 and 2018, assuming the new scheme of performance. My last question, I understood that the IFRS 9 is impacting you at P&L level. Are you projecting a change in the treatment of these funds in order to avoid this impact at P&L? If these, when this could be applied. Thank you.
Okay. Thank you. In terms of management fees, actually, the change was from mid-February, it will impact essentially half of the first quarter and almost the entire 2019. In terms of performance fee, it's a little bit difficult for us to provide you a formal guidance on this. It's a little bit early, and especially, we are waiting to define the actual formula with the Luxembourg authorities. Based on that, once we have the formal and complete answer, we can provide you with some guidance. Clearly, it will be an amount that will be significantly less than what we have done in the past with the current mechanism.
Yes, regarding the new accounting principle. To be honest, I would say that there is already rumor on the market that something could change again on this principle. We will not do, let me say, the EUR 300 million, considering the effect on the P&L side of this valuation. I think that it's better to focus on the recurring fees, the growth that we are putting on the markets, and to me, for sure, it will be positive for 2019 without considering the effect of the IFRS.
Okay. Just a follow-up, is it right to assume that up until there will be the reply from authorities in Luxembourg, you're going to apply the previous variable management fees calculation scheme? Thank you.
Yes, that's correct.
Okay. Thank you.
Thank you.
The next question is from Elena Perini of Banca IMI . Please go ahead.
Yes, good afternoon. I've got four questions. The first one is if we follow up on your target for 2019 in terms of net inflows, as you mentioned, the EUR 4.4 billion, but the EUR 4.4 billion of 2018 also included the acquisition of Sophia SGR. I would like to know if we can think about EUR 3.5 billion, which was the normalized level more or less for the last year. The second question is on the new financing from Banco BPM. You mentioned that you signed it to have greater flexibility. I would like you, if possible, to add some more color. Do you want to go on the expansion abroad? In which countries? About the international business. When you mentioned that will give us more color on your business abroad in the Investor Day. Shall we be able to have also a P&L for regions?
Are you working on it? Finally, I was wondering if you can provide us with the amount of performance fees that you recorded in 2018 on Italian funds and on the international business. Thank you very much.
Okay. Hi, Elena. On the first question of the inflows, Sophia was an acquisition, but it was less than EUR 1 billion. In any case, the target of at least EUR 4.4 billion remains. It's not EUR 3.5 billion, but it's EUR 4.4 billion and north of that amount for 2019. For what regards the financing, in general, as we said in the press release, it's general corporate purposes, more flexibility. This can mean potential investments, potential M&A opportunities, buybacks, dividends, any type of use of cash. We wanted to have a broad flexibility and get this done in a favorable market condition. There isn't a specific aim for it, but it's in general to have greater flexibilities on all of these items. For what regards the Investor Day, you're going to get a bit of a clearer idea later on.
In general, I think the point shouldn't be on the separate P&L of specific countries or areas. I think what will be important to show you is what we have tried to achieve, what we have done at the beginning, what has been done in these years, and where we are now, where we would like to go. We'll try to provide you a broader view of where we see the businesses going and what we have done in order to achieve this. Again, we'll put together a schedule which we're sure that will make it very interesting from your point of view, both on the international, on the private markets, and in general on the new management team that will step in going forward. The last question, I think, was on performance fee in Italy. In Italian funds, it was virtually zero.
Clearly December was very negative, and as you know, it's one time per year at the end of December. It was essentially zero. Zero. That's it, I think, right?
Yes. On the international business, because you have, for example, a significant amount of performance fees from Brazil in the second quarter. I was wondering if you can provide us with the total amount of performance fees coming from the foreign business in 2018.
If you look at the performance fee overall, we're talking about something around 14 basis points. Of that, there was a contribution from the foreign operations. It wasn't the majority, but it was a contribution. We have not yet provided the detailed breakdown.
Okay, thank you.
The next question is from Federico Braga of UBS. Please go ahead.
Yes, hello. Good afternoon, everybody. I have four questions as well, if you don't mind. The first one is on recruiting. Excluding the 40 financial advisor of Sophia, you're recruiting 160 new financial advisors last year. I was wondering if you can tell us what was the contribution of these recruited financial advisor to your AUM last year, and more importantly, what do you expect to be the contribution of these hirings in 2019? A second question, again on financial advisors. Excluding the 40 financial advisors acquired with Sophia, we are talking about 160, but your net number of financial advisors increased by only 70 people. In Q4, the churn rate of your financial advisors increased quite significantly to about 8% on an annual basis.
I was wondering to what extent these financial advisors were asked to leave or if there was any specific reason why the number of financial advisors leaving Azimut increased. More importantly, also, how many assets these financial advisors that left in 2018 had. The third question is on February flows. If you can give us, please, a mix between Italy and international contribution, if possible. The last question is that if you already know, if you can already share with us how much of your 2018 profits will be paid as profit participating instruments, if we can expect a percentage in line with last year's around 14% or 15%. Thank you very much.
Hi, Federico. On the first question of recruiting, you're correct, if you take away the 40, is around 160. The contribution was fairly limited. It was about half a billion from the new recruits, and the rest being organic. On the second question in terms of. Perfect. Sorry, we had a small technical problem. Did you hear the first answer?
You said half a billion contribution from-
Exactly
2018, I don't know if you wanted to say anything also on 2019, maybe the contribution that you expect for this year.
No, on 2019, we have not broken down the amount coming from recruitment and from organic. It will be, of course, an important contribution because of the hiring, but at the same time, the existing advisors are also raising new assets. It's a bit early to say, but it will be a contribution from both. In terms of the churn and the net number, what I was saying before is that it's quite normal in the business that you have a certain level of churn rate, especially for advisors that reach a certain age. What has been traditionally the case for Azimut is that, and you can see it also in the numbers, is that the bulk of the people leaving are the ones retiring.
We have been trying to work on this by recruiting the millennials that can gradually work together with more senior financial advisors and take over the portfolio. In fact, we have not seen any meaningful outflows related to people leaving the company. This is quite an important figure that we have traditionally never had. As you know, all financial advisors are shareholders in the company. Even when they leave, they remain as shareholders. Traditionally, there has not been a direct correlation between people leaving and outflows. This has been the case, and it's no major impact on the actual AUM. In terms of February flows, it's been slightly skewed towards our international business, a ballpark figure can be around two-third international, one-third Italy. The last question was on
PSHP.
I'm sorry, the preferred dividends. The preferred dividends will be in the region of EUR 17 million, EUR 18 million.
The same percentage of last year, more or less.
Thank you.
Thank you.
The next question is from Filippo Prini of Kepler. Please go ahead.
Yes, good afternoon. I got three questions. The first one is on the G&A cost, if you can give us an indication for 2019 on this metric that exceeded EUR 200 million last year. The second one is, still if possible, a clarification of new performance fee. I assume that there will be a reset of one year length. Could you give us now that your proposal implied that the starting point to calculate this one year will be in July, basically when the new performance fee will be active and not will be the beginning of the year. Last question on the new pricing of recurring fee on the Luxembourg fund. If you can share with us the feedback of the client that been notified this new pricing, and so basically there's been some particular feedback from the client. Thank you.
Thank you, Filippo. On the SG&A question, last year was around EUR 50 million per quarter. What we are doing today is we are working on a number of efforts and initiatives to, let me say, limit, in some ways reduce the SG&A cost going forward. These initiatives are medium long term, so there won't be any significant impact in the short term. Although, the company is working on a number of efforts that should be able to keep a reasonable amount in this cost item. Probably we can give you more color in the future on this, but at the moment, this is what we are working on. In the short term, it's difficult to say. As you know, we are a very active company in terms of investments, in terms of growth opportunities.
If you see the business as it is today, there shouldn't be any reason why the SG&A cost would jump at a significantly higher number versus what we are today. Of course, if there's any opportunities to invest, that has a broader meaning, both in terms of acquisitions, in terms of new initiatives, in terms of IT, this can have an impact. It will be opportunistic and selective. The last question on the clients. No, there has not been any particular feedback. The client mood year to date is pretty positive. They're enjoying a very strong rebound of basically 5% net of all fees. The cost has not been an issue and has not been part of the discussions we are doing through our financial advisors.
The next question is from Mauro Baragiola of Citigroup. Please go ahead.
Hi, everybody. Very few questions just to verify that I understood correctly. Talking about the inflows, in Italy last year, it was EUR 1.9 billion. If you take out Sophia SGR, which is EUR 950 million, more or less is EUR 1 billion. Of this EUR 1 billion, roughly, if I understood correctly, EUR 500 million comes from new recruitment. It's fair to say that the 1,638 financial advisors of December 2017 raised EUR 500 million all together in Italy in a year time. That's the first question. The second question, the inflows abroad remain pretty strong, still are organically below those of 2017. Can you tell us where are you much happier on the results? Also on South America, can you provide an idea of what was the net service performance for the clients there? The last question, if I may.
Clearly, everybody in this call hopes that the markets are going to be strong in 2019, so that we can all benefit from that. Assuming markets turn negative ahead in the year, given the commitment that you have on the dividend, would you consider to sell the cash if you need to liquidate the cash and equivalents? Would you consider to go to a higher gearing than the current one? Thank you.
Okay. Thank you, Mauro. On the first question, if you take the analysis that you made, of course, from a number point of view, there's nothing much to add, but I think it's important to consider the context in which the year was completed. The entire industry suffered significantly and big outflows. The performance of the industry was more than minus 6% net. It was a challenging year for the entire industry and for us as well, being part of the industry. Our advisors still were able to make positive net inflows, and you also should consider that Azimut products are not similar to what can be the ones of our competitors that offer maybe banking-like and deposit-like solutions for clients that maybe show a big number in terms of inflows.
If you look at it from a profitability point of view and transformation point of view into managed assets, it's very different. Azimut is an asset management company. We are focused on a certain amount of solutions for clients, and it reflects the year and the industry that we have lived last year. On the third question on Brazil, do you mind, sorry, repeating it?
Yeah. No, Brazil. Last year, Americas was EUR 1.7 billion organic inflows. This year is EUR 1.6 billion. Nonetheless, it's 36% of the inflows in the organic inflows of international operations this year. I wonder if we can have more granularity on what is South American now, Americas now, and in particular on Brazil, if it's possible to have the net average performance for clients having money with you in Brazil. As you show on page nine for Italy for the first two months of this year. It would be great, honestly, if we could have the same slide also for 2018 for all the markets where you compete, to understand why. Given that you say that it's all about alpha, to understand how you generate alpha last year over the globe. Thanks.
Okay. Thank you, Mauro. Brazil is for sure a success story for us because the market has increased significantly, especially in the last couple of years. To give you an idea, the Brazilian business today has about EUR 4.5 billion of AUM. It's really the second, actually, probably market outside of Italy. In terms of performance, the granularity and further details maybe we can provide at a later stage in the investor day. The Brazilian portfolio management team is really excellent, in the sense that all of the funds that they manage down there are first or maximum second quartile. They are five-star Morningstar. Both the equity and fixed income team have been doing really a great job and they're very well reputed locally from the local community.
The funds there are sold both through an in-house distribution network as well as through third parties. We have different channels where we are selling the funds. In some situations, we also had to close certain funds because of the sales and the strong increase there was from certain investors locally. Just as a color, the amount that was sold through third-party channels was over EUR 1 billion. It's a pretty meaningful amount.
Okay. That's interesting.
The last question, in terms of the dividend and the flexibility in case markets turn. We are ready, even in case of a market turn, because we have provided a floor in terms of the dividend for 2019. The treasury component will be based on a number of factors, including markets and volatility. In any case, we have quite a lot of cash and cash equivalents today. We raised the new financing that does not have any is not already invested into certain securities or certain other commitments that we have. We do have flexibility even in case of a market downturn.
Can we have more granularity on what is because if I read your financial accounts, there is only a very generic information on the funds in which the equivalents is invested. Can we have an idea if they are, what kind of funds or whatever are these equivalents?
You can consider that around EUR 170 million roughly is invested in our own funds.
Sorry, what kind of profile? It's equity? It's fixed income? It's monetary funds?
It's a mix. Of course, it's proprietary cash, so it's a diversified mix in order to have a proper exposure.
The EUR 23 million net financial income in the income statement, I should suppose, mostly it's related to losses in the funds. Am I correct?
A part of it for sure.
Okay. How big is possible to know? Last year was EUR 14, right?
Yes. Like Alessandro said earlier, it's around EUR 8 million.
Eight of 23. The remaining 23, if I may, sorry. I know that it is not a question for the Q&A, we can skip if you want, but it would be great if you can provide the detail apart.
Okay, Mauro, if you want, we can touch base later on this.
Yeah, of course.
It would be of non-realized. If you consider the same exercise done today, the effect would be essentially zero.
Okay. Thank you. I'm sorry.
Thank you. No problem.
Gentlemen, there are no more questions registered at this time.
Perfect. Thank you very much to everyone, and of course, we're available if you have any follow-ups later on. Thank you.