Good afternoon. This is the Chorus Call Conference Operator. Welcome, and thank you for joining the Banca Generali 9 months, 2023 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. Gian Maria Mossa, CEO and General Manager of Banca Generali. Please go ahead, sir.
Good afternoon, and welcome to our third quarter result conference call. The first nine months were pretty strong, with the total client assets at new highs, EUR 88,800,000,000 , driven by very solid net inflows by the existing sales force. In terms of underlying investment service continuing to build size, we are at EUR 18,700,000,000 , well supported by consistent inflows, while from a financial perspective, the recurring net profit achieved new record high at almost EUR 250,000,000 . Also, on the capital and liquidity perspective, we continue to confirm the level or higher level compared to the previous conference call.
In terms of business update, we are accelerating on new strategies, very close to launch our Swiss project, acceleration in the data-driven bank, and we announce also a new way of offering advisor with the sustainable advisor. Today, we will deep dive on our Swiss project. Page four, let's start from net profit. Third quarter closed above EUR 80,000,000 , of which EUR 83,800,000 of recurring net profit, and as you will see, a strong contribution from net interest income and solid recurring fees, so management fees and other fees. Page five, we can start with the net financial income. The third quarter closed at EUR 80,000,000 . The net interest income closed at EUR 76,600,000 .
If you carve out the, inflation linked bond component, you see that we have achieved the highest level, almost EUR 76,000,000 , and from here, we do expect stabilization or a slight reduction. In terms of, margin, instead, we are in line with the previous quarter at 2.13. Page 6, total gross fees. Here, you can see, as usual in the third quarter, some seasonality. We have EUR 240,000,000 , of which 238 coming from gross recurring fees. Here you will see, a rather recovery of the management fees and some seasonality in the banking and front fee.
Starting from management fees, page seven, you see that the quarter closed at EUR 200, almost EUR 204, with stable margin 1.43, and a slight, and a double recovery of the average manageable assets at 56.8. On the gross banking and entity fees, instead, here, if you focus on the first nine months, the acceleration is pretty impressive, +21%. Quarter-on-quarter, so this quarter compared to the same quarter of last year, +25%. So the contribution is growing, steadily growing. Quarter-on-quarter, you have some seasonality, while the advanced advisory fees continue to grow. The third quarter closed at 10.6. On the expense side, also here there are some seasonality effects, but we can say that the payout to FA, the ordinary payout, is coherent with our projections.
Here is a little bit lower due to the reduction of front fees, in which we have a higher payout. Structurally, you see a lower cost of growth, and this is basically driven by the numbers of recruitment that are lower than expected. For the payout to third parties, you see a small increase, and this is linked basically to an increase of cost in banking services activities, basically credit, credit cards. The other part of cost, the operating cost, here, no news, good news. We confirm our guidance in the range of 5-6. You see on the bottom left, that core operating cost closed at 6%. Just to remind that here we are including all the costs and investment for BG Suisse, and also all the inflationary pressure.
In terms of efficiency, page eleven, the operating cost on total assets is very close to the best level. We are 0.29, while cost income ratio now is below 33%.... Page twelve, we have our usual representation of the PNL. If we focus on non-operating lines, the non-operating charges had a higher impact due to a normalization of discount rate for the provision for our financial advisors. So still positive, EUR 5,300,000 , but definitely lower than last year, EUR 18,900,000 . So the difference of this positive contribution explained almost all the higher impact of non-operating charge. On taxes, 26.9, this is in line with the guidance we communicated during the previous conference call.
And then in turn, for the Windfall Tax, we decided to allocate the tax to a non-distributable CET1 eligible equity reserve, and the total amount stands at EUR 26,600,000 . So I would say, very strong financial results. Now, let's move on, balance sheet. Page 13, in here you see a new format in which we represent in the quarter one year ago, one year ago, the number of last year results, and then the current numbers. So overall balance sheet closed at EUR 15,500,000,000 , or EUR 200,000,000 lower than the previous quarter. If you focus on interest-bearing assets, you see a figure at EUR 14 ,000,000,000, due to a reduction of the financial assets of EUR 300,000,000 .
In terms of yield on interest-bearing assets, you see another, a further acceleration, 2.8%, and this is driven by all the major components, so loans to banks, loans to clients, and financial assets. On the other side, on the liabilities, page 15, you see that the total deposits stood flat, quarter-on-quarter, almost flat, with stable client deposits at EUR 11,100,000,000 . In terms of cost of funding, you see a slight increase, 0.79%, and with an almost stable cost of client deposits from 0.31% to 0.38%. For this reason, page 16, we further increase the projection of the net interest income for this year, up to around EUR 300,000,000 from the previous projection that was in the range, EUR 270,000,000 -EUR 280,000,000 .
For next year, instead, we confirm the target we announced in the previous conference call, that it was in the range EUR 270-EUR 280. Page 17, capital and liquidity ratios, all good news. Stronger CET1 and total capital ratio, leverage ratio, net stable funding ratio, and liquidity coverage ratio, well, we are above the track requirement. Just focusing on capital ratio, the 18.5% of total capital ratio include a distribution and accrual of dividend for EUR 1.75. And as you know, our commitment is to pay as much as we can in terms of dividend. Next page, page nineteen, let's focus on total assets. Here, plenty of good news. First of all, the highest total client assets ever achieved, EUR 88.8.
The highest level of Advanced Advisory Services, EUR 8,900,000,000 , or more than 10% of total assets. Fee Generating Assets continue to increase in absolute terms, EUR 60,700,000,000 . In relative terms, you see that we are still below 70%. We are at 68%. But here, you know, I'm a very positive view because in a normalization phase, I do expect to resume standard levels that are in the range 70-75. Page 20, you see, the deep dive of asset management and insurance products. Starting from asset management products, highest level ever in Financial Wrappers, above EUR 10 ,000,000,000. It's a pretty strong result, considering financial market conditions. And for the funds, you see the relative strength of in-house funds, towards... compared to the third-party funds. On the insurance products, three good news.
The first one, steady recovery of the Insurance Wrappers. The second, we do see a slowdown in the outflows, in the relative outflows of the traditional life insurance. The third one, we have just released the new offer, both traditional as well as Insurance Wrappers, and in the recent data, we see a positive impact. For the net inflows, I go directly to page 23, just because there is an update with numbers in October. October closed above EUR 300,000,000 , so the total net inflows for the first 10 months is higher on year-on-year basis. Managed solutions amounted 0.6 year-to-date, and add that you have to add to the assets under advisory, almost EUR 1,300,000,000 overall, of which 1.5 on total assets under custody.
So the overall result of fee-based net inflows is above EUR 2,000,000,000 . New recruits, here you see 2 different behaviors, 2 different trends. We close the gap in terms of recruitment from financial advisors compared to last year, while there is a gap in terms of recruitment for from the traditional banking system. This is due to the fact that employees in during difficult times have more difficulties to transfer and to move. The project, instead of a phase without remuneration package in junior, continues to go in the right direction, and we are now above the number of last year. So overall, we start seeing some, say, normalization path in the client behaviors.
If you look at the cash, so deposits of our clients in the last two months, the result is positive, excluding the BG, the BTP Valeur, so the one-off issue of government bonds. So on the cash side, I, I start being a little bit more positive for the future, even if there is a very aggressive commercial offering from all the major commercial banks and also from asset gatherers. Because, you know, liquidity is shrinking in the system, we move faster and, before others, so I see we are least exposed to the risk of further contraction in liquidity than the market. But I do see an acceleration in the, the cost of deposits, not for the bank, but for the system.
Another consideration, as I mentioned, insurance is getting better and better, thanks to the new offering, and we are very close to launch new fund, new products in the asset management industry, so I do expect also stabilization and positive contribution from, say, financial wrappers and fund in the next weeks. The last part of the presentation is focused on our BG Suisse Private Bank initiative. Finally, they are there. We received the green light for the banking license. You know, we will be different from the traditional players. First of all, because the financial advisors or private banker will be at the core of the relation between client and bank. Second, it will be a very smart bank, digital, with a very light cost structure, but with also a very senior management team.
So we are pretty confident to have a significant competitive advantage on this field. Page 26, you see that we will start with two different offering, alternatives and complementary. The first one will be a new engine of growth, the Swiss market, so Swiss clients with Swiss offering. The second will be an extension of the services for Italian client, so we leverage the Swiss license for banking services while we continue to offer the Italian investment services. Let's deep dive on the two different models. Page 27, Switzerland. First of all, first target, the south of Switzerland, so Ticino, and then we're going to extend penetration also in the rest of the Switzerland. We will be a challenge bank just because we'll be more digital, a new one, it's really important in traditional, say, industry.
Bias for a sustainable offering and also offering focusing on investment by women, so also with some specific characteristics to attract new clients. As I said, this will be 100% in Switzerland, so the bank will provide banking services as well as investment services, also leveraging the capabilities of Valeur, and the distribution will be driven by Swiss private banks. Next page, page 28. Instead, we are in the other segment of the business, the cross-border. Very clear and transparent framework in which we're going to provide the Italian client with two different services: the banking services from Switzerland and investment services from Italy. This will allow us to leverage all the competencies and capabilities developed in Italy, in the digital one included. So the client will be an Italian client.
The financial advisor will be an Italian financial advisor. We're going to provide the financial wrappers and Advanced Advisory Services from Italy, and managed in Italy, and the value proposition will be very disruptive. To enhance also multi booking center and to repatriate money in Switzerland, because you can continue to diversify the deposit, but you can get the investment services within, with just one entry point, that is our financial advisors. And the positive impact is immediate. You can see page 29, for example, because you will see an integrated position, integrated monitoring on all the positions. Just as a reminder, in Switzerland, there is projection of EUR 100,000,000,000 and EUR 150,000,000,000 of assets there are of Italian investors.
Today, I can say that we are first mover in this with this model, and we have been working for almost 2 years to be ready and to be first. So I do see a significant advantage. Page 30, you see the implication and the timeline. Timeline, we have just received the green light from FINMA. We are setting up the procedure, and we're going to be ready to onboard the first client before the end of November, beginning of December.
Second step, after having received the formal approval from Bank of Italy for the freedom of service, FPS, we will deliver also this kind of service to Italian clients, and we expected to be ready for the first family and friends pilot at the end of March, beginning of April, and full speed in the second half of next year. Impact, this is a new engine growth. We do expect to have up to EUR 1,000,000,000 for each year. So starting from EUR 1,100,000,000 , in three years time, we will target EUR 3,600,000,000 -EUR 4,100,000,000 of assets as overall contribution. And as I said before, it is a very important initiative from a strategic perspective for the bank.
We can increase cross-selling, get new clients from Italy, launching a new revenue engine in Switzerland, but it's not the only project we are delivering. Very close to speed up in the data-driven bank, and to increase probably the productivity of our financial advisors. Then there are several other projects that we will take time to explain and to focus on the impact of this new project in the next conference call. Now I will hand over for the Q&A session.
Thank you. This is the host 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 touchtone 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 Elena Perini, in Intesa Sanpaolo. Please go ahead.
Yes, good afternoon, and thank you for taking my questions. I've got two questions. Essentially, the first one is on the data-driven bank. If you can elaborate a bit more on it, and how would you expect it to contribute to enhance your offering for your clients? And then, looking at the guidance you provided for the NII for the current year, so around EUR 300,000,000 . And looking at the trend in the third quarter, it seems that the net interest income have already peaked. What are your expectations for next year?
I don't know if you have already mentioned it, as I was disconnected for a few minutes or so. If you have already mentioned it, I apologize for asking it again. Thank you very much.
Thank you. First of all, data-driven bank, we shared our view during our Investor Day. We are almost ready to provide our financial advisor with the potential of the client. You know, the bank is a sort of treasury in terms of data. We work out with machine learning the potential of each client, and we create a matrix in which you see the assets of the client with us and the expected amount of assets overall. And then we compare this gap with the quality and with the ranking of the financial advisors. Of course, you're going to see some opportunities, and we are redefining the organization of the network to support, say, less productive financial advisors to explore the potentiality of the client. And we will show you some numbers.
It's pretty impressive, the potentiality of the initiative. On the guidance, you are right. I do believe that the third quarter, if you carve out the inflation-linked bond, is a sort of peak. I do not expect significant reduction. I do expect a sort of stable net interest income on quarterly basis, and we say that for next year, we do expect to stay above EUR 270,000,000 . Despite a more aggressive competition on the liquidity side from all the players, both commercial banks and asset gatherers, we set a target of cost of funding from clients in the range of 70-80 basis point. It is almost twice the current one.
Okay. Thank you very much.
The next question is from Alberto Villa with Intermonte. Please go ahead.
Good afternoon. I wanted to little bit deep dive on the net inflows outlook. Now, thank you for your comments. You mentioned about what have been the recent trends in terms of cash deposits and traditional and insurance wrappers. I wanted to understand if you are seeing some different behavior by clients in looking at their investment decision due to the swift change in the interest rates environment.
So if we can expect this trend of increasing their, let's say, direct investments into fixed income investments to continue going forward, or if you expect when some of their clients investments get to maturity, you will be able to capture these flows in some ways, and maybe if you can comment on which kind of products are you considering to offer to the clients, and if the margin, the margin, prospective margins are in line with the current offering, or we do have to expect some sort of erosion in the margins going forward. Then going back to the NII guidance for 2024, just if you can share with us the basic assumptions on this guidance, would be helpful.
And that's it. Thank you.
Thank you. First of all, on net inflows output, I do see a smaller cake, and I try to explain what I mean. The pressure from inflation, reduction of saving rate, less liquidity events are impacting overall in the last months on the overall amount of money in the system. So I see very aggressive initiatives to get a part of this cake, smaller cake. We haven't launched yet significant initiatives in this direction, and we are very focused to maintain the cost of funding under control. So this is the first point. I do see some slowdown in the overall inflows in the system, for inflation and all the reasons that I already mentioned. In this context, I start seeing some normalization in the behaviors of the clients, and I try to explain what I mean by normalization.
Slowdown in the reduction of cash deposits, the trend we will continue. For example, we do expect for 2024 another EUR 1,000,000,000 of reduction on the current account, with a cost of funding for clients in the range of 0.7-0.8. So the numbers or the projection of next year are basically a small, another reduction of the balance sheet, so EUR 1,000,000,000 of net outflows, and a sort of twice for the cost of funding for the on the client deposits. In terms of mix, you are right. I think that in this moment, the asset under custody is a sort of the lion's share, but it's also invested mainly in short maturities, and I do see the opportunity to transform these short maturities in new solutions.
Basically, I do expect inflows in the financial wrappers and in the insurance wrappers. The margin should be in line with the existing one. Any acceleration on traditional life insurance or target funds would imply lower margins. And since I believe that in the medium term, insurance will be again part of the story, in the medium term, we could see again the share of the traditional life insurance gaining momentum. If we successfully convert some asset under custody and some funds in wrappers, insurance and financial wrappers, we maintain the existing margin. So I'm confident to confirm for next year the targets to stay above 1.41. It is the target for our strategic plan.
By the way, if you look at the fiscal reform for the financial products, financial and insurance products, we could see a positive effect for asset management and insurance. So I do not exclude that, if and when we're going to see the implementation of the fiscal reform, we could see some positive effect for our industry. And again, last question was a turning point for asset under custody. You know, the asset gatherers are faster in adapting to a new context. So while in the traditional banking system, I continue to see a relative strength of asset under custody, in the asset gatherer business, I do expect in the next two or three months a stabilization. Probably the first quarter of next year will be the moment in which we could see some inversion.
Thank you. Thank you very much. If I can, just a quick follow-up. On the recruitment side, if you can, give us an indication of what was the contribution, year to date on the inflow side, and if you have a, let's say, a outlook on what could be the contribution next year?
Yes. The contribution for this year was pretty low, was below 20%, so far. Also in the recruitment, we do expect a normalization. So we are confident to receive higher numbers next year. Also, thanks to the Swiss project, because I do expect a sort of reinsuring of some bankers that now, who now work in Switzerland, just to stay close to the Italian clients, thanks to the new model.
Okay, thank you.
The next question is from Gian Luca Ferrari, Mediobanca. Please go ahead.
Yes. Hi, Ciao, Gian Maria. Three for me. The first one is on product strategy and asset management. I was wondering if you are working like many other networks to some target maturities, starting with BTPs and then switching into equities, or rather you see more interest in private markets, or you keep focusing on liquid, even though liquid products in Europe doesn't seem to have a great momentum right now. The second is on life insurance. If you can remind me, what was the profitability of the old GS savings? I think it was 150 basis, if I recall properly. Then you lowered that to allow clients to have a better performance. I think you're mentioning new solutions together with Generali.
If you can elaborate a bit more, which are those kind of solutions and which margins they have attached? The third and final one is on loans. I think there is a deleveraging across the board in the upper affluent private segment. I was wondering if you are evaluating any solution to improve this trend of deleveraging, if there are some chances to have clients increasing leverage in certificates, for example, or any other measure you might be evaluating. Thank you.
Thank you, Gianluca. On the product strategy, let's say that we are very conservative in the private markets, very conservative in this moment, because we see a risk of bubble, especially in private equity and private debt. Let's say for the target maturity fund, we are using them just tactically, it's just a small amount. I know some competitors, just to switch assets in asset management, are providing very, very cheap solutions. We are working more on financial wrappers with high diversification, going through all the capital structure and working on very, let's say, all the credit structure. So just to give a sort of yield in line of higher the BTPs, but with higher diversification and lower, by definition, concentration.
We see, we see great interest from especially high net worth individual to see such a kind of, of a solution where you can invest also in, in institutional bonds through your asset manager. So it's more an idea to see the coupon, but in a very efficient way. You know, you can optimize also the, the tax impact of distribution using one product compared to another one. But I don't think that the, in the medium term, the solution is to lower margins. It doesn't work, it hasn't worked, and, and it won't work in the future. So it's just to, let's say, a sort of window dressing of numbers, but I do prefer to give our numbers and show that the, the strategy is committed to delivery profitability and, and remuneration. Clients are not asking for a discount.
Clients are asking for diversification, yield, and, more in general, how to reduce the volatility. In the insurance space, you are right. In the Segregated Accounts, we launched several initiatives in which the first two years, the clients pay lower fees. So we target a yield, and the management fees are the complementary to the return of the Segregated Accounts and the target yield that we communicate. Basically, we do expect to stay in the range of 30-50 basis point for the first two years, and then there is a normalization at 120-130, so slightly lower than the 150.
Consider that if you look at our back book, so the, let's say almost EUR 15,000,000,000 , the overall margin is closer to 120, 130 than 150, because the first traditional insurance were with a very strong front fee, and then the recurring was very low. So let's say that in 2, 3 years' time, the profitability should be almost in line with the existing position. In the ramp up moment, a moment in a situation, so in the first 12-14 months... 12-24 months, you will see lower margin on this such kind of initiatives.
The new wrapper we launched, it is a sort of is a insurance wrappers, where you can start with very high percentage of segregated accounts, and then smoothly you can invest in equity, which is very efficient from a tax perspective, and you can mitigate the volatility of the underlying. This kind of insurance wrappers for the unit-linked part has the traditional profitability, so I do not see impact, overall impact on our margin. But it's more flexible solution where you can switch from unit-linked and segregated accounts more easily and frequently. In terms of loans, again, in this moment, I do prefer to maintain a very conservative approach to the balance sheet and to the loan as well. I'm not so optimistic on the Italian economy and for the next year and for European economy.
Italy is just a part of the European story. So we are not stimulating or incentivizing the use of leverage, neither for certificate nor for asset management products. So, if you look at numbers, you see that the overall portfolio of loans is shrinking, but just because we do not want to, again, penalize margin or, push leverage in the portfolios just now.
Thank you very much.
Welcome.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Once again, if you wish to ask a question, please press star and one on your telephone. The next question is from Marco Nicolai with Jefferies. Please go ahead.
Hi, one question from me. What's the mix you expect on the net inflows that will come from BG Suisse in 2024? So I'm referring to the EUR 500,000,000 -EUR 700,000,000 net inflows you expect, and then to the EUR 1 ,000,000,000 you expect from, I guess, you know, the following year. What's the mix you see from that those inflows? Thank you.
Thank you for the question. I do expect very positive mix, mainly, financial wrappers and advanced advisory services. I would say 50/50. So, in this case, you will provide either financial wrappers with the profitability in line with the existing, products in Italy, or advanced advisory services, again, with the profitability in line with the, Italian offering. So, the case of, asset under custody without advanced advisory fees will be marginal. So overall, could be, 80%-90% in such an advanced investment services. Excluding the cash, of course.
Thank you.
... The next question is from Luigi De Bellis with Equita SIM. Please go ahead.
Good morning. Just one question for me on the capital position. So very high level at the end of Q3 of 2021, but stable quarter-over-quarter. Can you elaborate on the reasons and on capital allocation strategy? How do you plan to allocate the excess capital in the coming years between dividend buyback and or M&A? Thank you.
Thank you. Now, the strategy on capital allocation does not change. Priority number one, dividend. Priority number two, very solid bank. So it's also a way to market the bank, so it's a marketing tool. So, as you know, in our three-year strategic plan, remuneration, so dividend is one of the pillar, one of the main goal, and I hope to exceed the expectation on that front.
Thank you. And on the stable quarter-on-quarter plan of capital, there is any particular reason, except the accrual of dividend?
Well, I think that, I mean, the main part of the growth is linked to the net income of the period. Then we bought also own shares of Banca Generali to serve the federalization program that we have. And, I mean, and of course, we have in this quarter accrued the dividend at the maximum level that we can, because for regulatory reason, having in our policy range, we, I mean, we estimate the capital ratio, assuming that we pay the maximum dividend possible. That are the two main explanation.
Then there is also a little increase in terms of liquidated asset into the financial portfolio, which is, I mean, which is investing also. It's mainly invested in government bonds, but in this quarter, we also differentiated, diversified the investments looking at the financial and corporate investments, too. So that's why we have this evolution. But the main point, of course, is net income of the period.
Thank you.
The next question is from Giovanni Razzoli with Deutsche Bank. Please go ahead.
Good afternoon. Two clarifications on my side. You mentioned that for the sector as a whole, you expected that the fiscal reform may have a positive effect on the industry and also on your business. I may have missed something, but you can elaborate a bit more on this. Second question, there is an increasing noise on the possible impact that the Retail Investor Package may have on the product pricing in Italy. There is a usual argument, the you know, fact that the insurance policy with financial concern may be covered by the MiFID umbrella, is probably seen as a concern by foreign investors. Can you share with us your thoughts on this?
The final point, if you can share with us, what was the subscriptions of the BTP Valeur, both in October and in June, to have an understanding of the appetite of the clients for this asset class. Thank you.
Yes. Let's say that the fiscal reform, that is just a proposal, is to create a sort of normalized taxation with the compensation of all the plus and the minus of all the products. So, you know, for example, that as of today, depending on the products, you can have the opportunity, the possibility to compensate profit and loss. So in some cases, the insurance wrappers, in case of a minus or asset management products, are limited because you, from a fiscal perspective, at least because you cannot optimize. So the new strategic view is to introduce more efficient solutions from a tax perspective, where whatever the vehicle with which you invest, plus or minus will be offset.
So this is positive, especially for asset management and for the insurance, because so far, in case of negative performance in the insurance, you cannot - you could not compensate with any other, say, performance, positive performance, of the client. And, for the insurance, you are right. The intention, in my opinion, is to unify the regulation of the insurance policies to the, say, to the MiFID and to the asset management products, and consider that we implemented the MiFID for all the assets of our clients. So for us, no impact, zero impact, because we run the suitability test, the product governance test, and so forth. So, for the paid agent, probably for pure insurance distribution channels-...
You could have some impact just for transparency, for example, the overall cost, but for the asset gatherers, almost all the competitors as well as ourselves, we already implemented the stricter regulation of MiFID. For BTPs, let's say that in October, the overall result was lower than the one recorded in June. To give you some percentage, you know that our market share is between 2%-2.5%. In March, we had 1.94%, in June, 1.95%, in October, 1.83%. So as compared to our market share, it's a slower impact, and October was better than June.
In absolute terms, it was about EUR 314,000,000 compared to EUR 354,000,000 in June.
For any further questions, please press star and one on your telephone. Mr. Mossa, there are no more questions registered at this time. I turn the conference back to you for the closing remarks.
Okay. Thank you for participating to our conference call, and good afternoon.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.