Earnings Call: H1 2018

Jul 26, 2018

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Admiral Holding First Half twenty eighteen Results Conference Call. After the presentation, there will be an opportunity to ask questions. At this time, I would like to turn the conference over to Mr. Sergio Albarelli, Managing Director and CEO of Altimut Holdings. Please go ahead, sir. Thank you, and welcome, everybody. Welcome to this conference about our semiannual results. Let me say that we had some improving trends versus the last quarter despite volatility. All of you are perfectly aware of what's going on in the market. So our results are pretty encouraging according to what we've seen. Our total assets are €51,600,000,000 up 9% versus June 2017. Significantly, 25%, I. E. Euros 13,000,000,000 is international and the rest is Italy. Our net inflows in the first half, 2,400,000,000.0. And again, we had a strong organic contribution from our overseas business. Financial results, pretty good despite the volatility. First half total revenues, 375,700,000.0 versus EUR $415,000,000 first half last year. Recurring fee, solid, EUR 3 and 13,800,000.0 versus EUR $299,000,000 first half last year. Variable fee is obviously down. We're talking about EUR 15,000,000 less from EUR 81,600,000.0 to EUR 30,300,000.0. And our net profit encouraging EUR 72,600,000.0 versus EUR 121,000,000 first half last year. Obviously, the lower result is mostly due to the perfect impact of performance fee. On corporate development, in Italy, we completed the acquisition of the carve out of Sofia SGR, a total contribution of roughly $900,000,000 in 14 UFAs. As you probably remember, we came through the operation of our largest shareholder, Timone Fiducharia, completed the stake building transaction on Azimuth holding shares. The stake increased from 15.8% to 20.7%, with a total investment of roughly EUR 100,000,000, including both debt and equity. Obviously, I'm not including into this figure the contribution of our institutional investors as well. If we move into our evolution of asset under management, as you can see, we are a bit lower than the previous peak, even if we stay pretty high above the €51,500,000,000 threshold. Our net inflows in Italy are a mix of organic and M and A. I remember you what I just said before about Sofia's GR. Overseas, pretty stable. Performance year to date is 75 basis points higher than the Italian industry, and our assets under management are exactly as you can see in the pie chart on the slide. Once again, let me go back on the transaction of Timone. Timone strengthened its stake in ADEMON Holding from 15.8% to 20.7. Significant participation of 1,200 colleagues from 14 countries worldwide. This is not anymore a participation of Italians to an Italian company. We're talking about colleagues from overseas. I perfectly remember a few colleagues from Australia I met in person investing their private money into the company. So a significant presence of our international expansion recognized in the participation of the stock price. It was financed 50% through equity raised by Timone members and 50% through a bank debt secured by a pledge on shares acquired and a cash collateral. Peninsula institutional investor joined the deal with a prepaid forward acquiring at settlement roughly 3,800,000.0 shares. On the right hand side, you see some graphic representation of it. We have a very interesting total investment of EUR 155,000,000, out of which EUR 100,000,000 from Timone and the balance coming from Peninsula. EUR 7,000,000 admin of shares, EUR 14.4 the average share price, 5% the stake we acquired, 20.7 resulting stake, 23.3% including Peninsula. Interesting to see the total 24.1% at the end of all the settlement and so on and so is giving the company significant stable shareholder ship. Timeline, just for remembering, June sorry, January 2018 transaction announced in the off-site in Monte Carlo. June 2018 transaction completed June 2021 maturity of our debt financing. The rationale, I should not be underlining once again the rationale, but please let me go once again into it. Obviously, strengthening and providing additional stability to our Zimura governance with strong and renewed commitment to the market, provide additional lever upside to existing younger Timona members considering the stock is significantly undervalued and messages reinforced by the involvement of the leading financial investors like Peninsula sharing the same view. People working in Azimut do believe there is value at the level of the stock price, and we do believe it makes sense to invest our private money into the company itself. If we move into our as usual description of what's going on as much as performance and funds breakdown, you can see in Slide eight that despite what's going on in the markets, our net performance is improving and is remaining pretty ahead of the Italian industry. The bottom part of the chart is highlighting our recovery started from March, pretty significant. The funds breakdown category in brackets, you can see the previous quarter, slight increase in cash, 41%, balance asset sorry, down to 9%. If you look at underlying assets, significant increase in equity from 42% to 44 We see some first result of our strategy trying to convince through our agents, our clients to invest more money into equity markets. Pretty diversified across categories. North America still representing healthy 20.8%. Europe, slightly down from 41.1 to 40.7%. If we go to Fixed Income, we have a significant reduction in sovereigns from 15.9% to 8.1%, an increase in investment grade, almost 3.5 points from 26.3 to 30.7, and a slight increase as well into high yield. That's a consequence of the new hiring in our fixed income team. Niccolo Bocchin and his team are paying much more attention to investment grade in Nihil than before. As much as distribution, this is an excellent opportunity to tell you that once again, we're moving pretty well against our industry. If you look at the blue line in the chart, this is what we're doing, plus 11.7% that we averaged in the last few years. The industry average is still negative, is minus 1.1%. We are in an uptick trend, I. E, we are reversing the trend versus the last quarter. It's a significant position, and we're pretty confident to maintain that situation going forward. As much as the network, the network of our agents in Italy, you will remember that we've been discussing for a long time, I. E, eighteen months, that we were in a process of revising the structure and composition of our network, making sure that only the best people were going to stay with us, less non performing agents living and having significant contribution from outside. Well, today, if we break down our activity through you remember the campaign on millennials, wealth management and financial agents, we have 14 new entrants in millennials, five on wealth management and 60 on financial agents, plus a significant contribution of the 40 agents coming through the Sofia acquisition. Average age, no surprise, millennials pretty low as well as the assets under management. But please note, management percentage of total assets is a healthy 80%. On wealth management, very sophisticated people, lots of securities. We're talking about 62% in managed funds, but assets obviously on average pretty higher, 32. On financial agents, 81%, that's the top in managed funds. We're talking about managed funds, we're talking about unit links, we're talking about wrappers, average age 48, which is below the average age of the network itself. Moving to some metrics on financials. I'm pretty happy to pass to Alessandro Zambotti, who's our Chief Financial Officer, to give you a description of what's going on the numbers. Thank you, Sergio. Let's start on the consolidated net profit, euros 73,000,000 for the first half twenty eighteen with a variation compared to the first half 'seventeen of €39,000,000 negative. This is already mentioned at the beginning, mainly explained by the variation on the variable fees. In fact, the total revenues decreased compared to the period that we are referring of EUR 40,000,000. Therefore, the variation of the variable fees generated by the recurring fees, that increase of EUR 14,000,000, thanks to the growth of our company in terms of asset under management. On the operating cost side, cost increase of EUR 11,000,000, mainly explained by the line of personnel and the amortization cost. So again, here following the evolution of the growth and the investments of the company abroad and in Europe. The level of the distribution costs are almost in line. Maybe looking back to the first quarter twenty eighteen, we can see a positive effect variation. Let me say, this is also explained by it's around EUR 4,000,000, thanks to the new accounting principle, the IFRS 15, that allow us to amortize the cost at the level of the acquisition in a longer period. Therefore, we get a positive effect. At the level of the interest income, we can see a variation of 7,000,000. Therefore, we have a less negative impact. This, again, we have to remember the buyback of the convertment bond that impacted last year. And at the level of the interest expenses, which again here, we reduced the impact, thanks to the new bond that we issued that is in higher side, but with a less cost. Moving to the net financial position. We have a negative net financial position of EUR 57,000,000. We have a variation compared to the December of 192,000,000. This is explained on the slide that you have in front of you. Therefore, play by the significant important dividend that we paid, 131,000,000, the 80,000,000 due to stamp duty and police order tax advance, EUR 30,000,000 of share buyback purchases and acquisition of EUR 17,000,000. Thank you, Riesandro. Let's summarize how things are. Trouble waters, we're not talking about Semor and Garfunkel, we're talking about the last six months, but still a clear direction. We are an independent company, pretty compact and united for the future sustainable growth. That's not a slogan. That's the way we operate. Despite volatility that persisted in the second quarter and impacted financial results. As you can see, our performance is pretty high versus our competitors 75 basis points. And limited contribution coming from performance, it obviously explains the large majority of the difference versus the result of the previous year. The net inflows are solid in a context obviously of much higher uncertainty compared to previous years. Our business in Italy is going fine through equipments and through the launch of new products, which will be announced in the next few months, where we expect to raise significant money. Abroad, the numbers are always positive, and I'm pretty happy to say that what's going on foreign operation is pretty solid for our future. It will be a significant contribution of what's going on in Abzimuth going forward. Let me be a bit clear about this. We keep receiving lots of question about acquisition in foreign markets and so on. You know that whenever we move, it's either through small acquisition in Australia, and that's our strategy and we like to pursue that way. Even if we're still considering some opportunistic acquisition because where we are not good at, I. Some asset classes or investment teams or whatever, we are not excluding at all to go for some opportunistic growth. It doesn't make any sense to start planning something now, investing lots of money, be ready in two years, went through a very small acquisition, we can immediately ready to get on board. We strengthened our shareholder base through the Timone operation, confirming the strong commitment from top management and colleagues worldwide. It's a special deal, and we received lots of compliments from investment banks and market participant on how we structured this. But apart from the technicalities, what we like to think is that this is a clear indication of the confidence and trust of the Admiral people versus the company. Areas of focus going forward, obviously, consolidation of our franchise in Italy, recruitment and organic growth. Overseas business keep growing both organic and through acquisition and we keep thinking it will make some sense to be disclosing a bit more about how things are progressing over there. Continuing improving operational and technology with positive impact on both revenues and cost. We recently launched a few application, digital application, simplifying the life of our financial agents and obviously reducing the overall burden from an administrative and cost standpoint. Growing in alternative business, we recently, just a few days ago, launched the first private debt fund, which is aiming to private investor, retail investors with a very small amount to be the first investment itself. We receive congratulation and compliments for not participant. It's once again a confirmation of our ability to be innovative when we're talking about new products. Again, this era will be strengthened with new arrivals. We are going to strengthen the team in Libra and Pesa. This is the section of Adriemo totally dedicated to innovation. M and A opportunistic, I already mentioned this before. Last point, obviously focusing on improving performance to our clients. Hiring new portfolio managers, introducing portfolio managers coming from Sofia, consolidating our product offering, it's all about making sure that performance experience from our clients is going to be better going forward. As usual, my last slide, an update on where we are on our business plan. Total assets, pretty fine, 51.6%, 25% outside Italy. Annualized net profit, 146 We could be there. We are not this year. Annual net inflows working fine. The target was 2,500,000 We're running 4,800,000.0 annualized. Dividend policy, last year it was €2.01 euro cash, one on stock. It was above 100% as a payout. We keep thinking it will make sense to continue on a significant dividend policy. I think that could be the case. I can open up to questions. So operator, if you can start collecting requests from our friends and colleagues, please open up. Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. The first question is from Alberto Villa of Intermonte. Please go ahead. Hi, good afternoon. A few questions from my side. The first one is on the net inflows we have seen in the first half. It seems that it's very much coming from the foreign operations. I would like to know if you can share with us who are the most important contributors to net inflows nowadays. And stripping the foreign operations and the recruitment, it seems the organic growth in Italy has been a little bit subdued in recent months. Is that something we can expect going forward? Or there might be launch of new products or any, let's say, other initiative that could boost organic growth in Italy again? And also net inflows and in general on assets foreign assets. Can you give us an idea what is the percentage of institutional versus retail? Thank you, Alberto. Well, first of all, the most important foreign market as much as contribution to our revenues, we're talking about Brazil and Australia in the last six months. Brazil, despite the turmoil that recently impacted market has been in a very solid trend. If you look at the numbers of Brazil, generally speaking, not just about Avimod, you could have been realized that in the last eighteen months, thanks to market evolution and evolution itself on the financial condition of Brazil, things were progressing pretty well. The second market, no surprise, is Australia. Australia was something that we decided now a long time ago to get in. Our business model is pretty unique still today. The numbers are confirming. Things are progressing fine. Italy, you're right. We suffered a bit in the first six months, but we already seen June, July, some significant positive contribution and reversal of the trend, I. E, we see numbers which are much more in line with the past rather than the numbers we have been used in the last few months. As much as business institutional business on foreign operation, you will apologize, but this is something that we are pretty happy to disclose, but in the medium future by talking about exactly what's today is institutional, institutional is a bit premature. Okay. Thank you. And on the change in accounting for the distribution cost, the IFRS 15, you mentioned gave you a positive of around EUR 5,000,000. Is that something we can expect on the coming quarter in the same magnitude? And how it is working Let compared to the previous three years me give Alessandro the opportunity to give you some more explanation about this. Yes, the impact to me for sure will continue and almost is going to be something like $2000000.2500000.0 dollars per quarter, almost. It's a one to two. So that was the combination of the two Yes, exactly. So the two quarters. Correct. And what is the new methodology all about? You have the possibility to amortize the incenting cost and the acquisition cost on a longer period. Therefore, the impact on the P and L is less compared to the previous approach, let me say. Okay. So it will depend on the amount of obviously of this kind of cost, also the impact on the Okay. Well, that's all. The last one, if I may, on the buyback. If I understood you're going to plan to continue the buyback, is that something we can expect in the coming quarters? Absolutely. You probably remember that the shareholders meeting allowed us to go for significant amount of money to be invested in buyback. We decided for this time to go for additional €10,000,000 and we plan to keep doing this going forward. Thank you. Pleasure. The next question is from Rupert Lam of Bank of America. Please go ahead. Hi, good afternoon. I got three questions for me. The first question again is, sorry, is on decommission expense or distribution costs. Even if I add back, say, $5,000,000 for this quarter, it still seems like a relatively low number compared to the just given the hiring that you've also done in the quarter. I'm just wondering if this is kind of the new run rate we should think about going forward in terms of the absolute amount. So that's the first question. The second question is on performance fees. Performance fees were pretty good in the quarter. I'm just wondering if there are other sources of performance fees that are contributing to that or any one offs because that was a pretty good result for Q2. And the last question, in the press release you put out, your Chairman was pretty confident in terms of trying to get his share price back up to a higher number. I'm just wondering what are the plans to kind of get it to that price? Is it just more execution? And just making sure that the international business contributes more in terms of profitability and just getting things back on track. I'm just wondering if there's any big plans behind this. Thank you. Thank you, Hubert. My question is much appreciated. On distribution, it's very simple, although obviously the numbers may be looking differently. It's just a question and it's all about less intensive to be made available and paid out to the distribution network. Obviously, it is difficult to say if this is going to be a continuing trend or is a stable situation. You know my point about this. When you hire agents you enter into agreements, it's not like a straight line. It's a flexes. And occasionally, you might happen to be in a situation where you are expected to pay a bit more. In some cases, you pay a bit less. It's a one by one type of situation. That said, you know market condition in Italy, you know how it is getting expensive hiring agents. We are not in a world to hire people. That's not the philosophy of AdriMut. We like to talk about profitability and quality of the people, and that's why we are pretty sometimes aggressive in looking for what we're looking for, defining who are the right people, how we get these people on board and so on and so on. So you will apologize me, there is nothing like a run rate into this. It will be market condition quarter by quarter. On performance fees, well, I thank you for the question because this is a great opportunity to demonstrate that our international expansion that was making sense six years ago and is making sense nowadays because within performance fees, we have a healthy contribution from Brazil, about EUR5 million this quarter. So you can see that even if some people keep thinking about, well, you go foreign markets, are forgetting about the main market, which is Italy, blah blah blah. That quarter is just demonstrated that if do things right and you create a solid infrastructure in Brazil and you have top quality people in portfolio management and execution, these are the numbers you might be expecting going forward. Obviously, I would love every quarter to have additional $5,000,000 in performance fee from Brazil, but this is an excellent opportunity to demonstrate the foreign expansion makes sense and it will stay nothing for long. We're not thinking about stripping out our foreign business, not at all. It's not our philosophy. We like to buy. That's the point. And my last comment on my chairman about making a very strong statement. First of all, he made this statement not this time for the first time, but he made it long time ago with a very clear idea about the value of the company, the quality of the company itself and what was going to be the plan. Nowadays where we are. We are in a situation where sometimes our number are at best misunderstood. People are not grabbing properly where we are, how the numbers are generated and what's behind the numbers. That's normal. We are not an easy company. We are not a very simple type of structure to be understood. But the numbers who are there as much as the net profit demonstrated last year, the growth in revenues, the asset growth, international diversification, attention to clients, product diversification and so on and so on. But just to illustrate in the fact that if you really dig into the company, you dig into the numbers, you really see how this company will grow from EUR 14 to EUR 50 going forward. Great. Thank you. The next question is from Erna Tarimi of Bancaini. Please go ahead. Yes. Good afternoon. I have two questions. The first one is on your asset mix. I believe that your increased equity exposure 44% versus 42% in the previous quarter was an important driver for management fees being up despite the difficult market conditions. Would you expect your equity exposure to increase further in the coming quarters? And then the second question is about the special dividends, the sum that you paid to the participating instruments of financial advisers and management, I believe in May. Can you give us a disclosure about the figure? Thank you very much. Equity exposure, well, yes. The answer is yes. You probably remember that we had in a few situation, either in one on ones or in a large group meetings, made clear that we have a campaign about increasing participation to equity market of our clients through an action on financial agents. We are I don't like to use really the word campaign, but we are supporting our agents in order to make sure the clients will be willing to undertake more risk investing in equity. And nowadays, if we look at the numbers, the numbers are encouraging. They are on the way we will have to see, but they are not yet in absolute terms the numbers we love. So the progress will be there. We keep going and supporting this activity from our agents. There are plans about services and products in order to pursue this target. And just to underline once again, it's not a short term target. In the past, Adzimut had something like 60% and above percent in equity, sometimes even more. That's the natural stance of a company like us. So the target is go towards that direction. Bumping markets may occasionally help a while what we're doing, but we keep supporting our agents to go that direction. As much as the participation instruments, what about Alessandro, would you like to paid €21.4 per instrument as approved by the shorter meetings. You repeat, The line was disturbed. Euros 21.4 per instrument, which is approved by the shareholder meeting. Okay. Thank you very much. Pleasure. The next question is from Jonathan Richards of KBW. Please go ahead. Good afternoon. Two quick questions from me. Firstly, on your Italian managed asset flows, they looked to be significantly weaker than what some of your other competitors had posted, especially in the May, June period. I was wondering if the revamp of your network that you had alluded to was the cause of that and if you were expecting basically to move back to what the independent asset gatherer sort of average is in terms of Italian asset gathering? And secondly, on the Timone stake, the increase from 15.8% to 20.7%, it sounds like that that's all basically done now. I was just wondering, were those shares purchased in the open market? Or was there some kind of placement done? Thank you. Thank you, Jonathan. Let me so sorry, thank you, Richard. Let me go to Timono, your second question. Yes, open market, absolutely open market. The first question about gathering assets and the sales, how things are progressing. What we have and very honestly, and we alluded to this at the very beginning, these last two quarters were a bit bumpy on the net sales side. Some of our products were not performing as expected. Market conditions were difficult. And we were obviously revising as well the way we were structuring our network and the way we are structuring our product offering. We do expect to see some improvement. As I mentioned before, the June, we had some positive. Hence, in July as well, we could be seeing different numbers going forward. But again, this is a situation where probably not just us, but lots of our competitors as well will be in a different stage versus the past. The ability of raising assets nowadays is getting less stronger than before. We could be facing some headwinds going forward. I'm not talking about obviously political condition, I'm just talking about economic conditions. Clients at the bottom end are reallocating portfolios from fixed income to other form of investments. What we're trying to do is to convince clients to invest for the medium term and not for the short term. And that's why we're talking about equity and that's why we're talking about the private debt. Any more questions from our friends and attendees? The next question is from Filippo Frini of Kepler. Please go ahead. Yes, good afternoon. Two questions, if I may. The first one is on the G and A cost. You see that in the still in the second quarter I'd like to understand if they include some one off effect and which should be the run rate for the next quarter of the year. And the second one is still a follow-up on the change in methodology for the accounting of the cost of recruitment. Is it correct that the new the extension on the period amortization for three to six installment applies only to the new assets that are taken by new financial advisor and does not touch the assets that were transferred before? Thank you. Let me go with the first one, while I give Alessandro the opportunity to prepare for the second question. The answer is partially yes. So we had some one off investments in technology in order to revamp our existing infrastructure. And we had some consultants involved as well. But generally speaking, that should be the run rate going forward. As much as the new Evaluation methodology, Alessandro, would you like to add some detail words? Yes, normally the impact is going to be on the new one. Obviously, we are going to have a longer period of amortization, but obviously starting from the new one. Thank you. Thank you, Filippo. Thank you, Leland. There are no more questions registered this time. Okay. So let me thank you all for not just participating to this, but for posing your questions and listening to our presentation. I think the numbers are solid despite what's going on in the last two quarters. The markets are still volatile and we expect to be even more cautious about going forward. We're planning to introduce some changes in the way we're doing things in order to make sure that our products will be more and more adapt to our clients and agents going forward and make sure that our structure will be even more profitable than before. Thank you everybody and talk to you soon. Bye.