Afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Banca Generali Preliminary 2020 Results Conference Call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions.
At this time, I would like to turn the conference over to Mr. Gian Maria Moza, CEO and General Manager of Banca Generali. Please go ahead, sir.
Good afternoon and thank you for participating at our full year results conference call. As you know, 2020 Was for several reasons, one of the most difficult years ever with the pandemic and the economic crisis That changed significantly the client's perception and client's priority. In this context, the increasing need for advisory and for protection has accelerated the structural shift From the traditional distribution channel to the FAs network. And this new normal explain very well The very, very strong inflows of all the industry and of Banca Generali as well. We closed last year with €5,900,000,000 of net inflows, Basically driven by the quality of our financial advisors network plus the digital enablers we provided to the bank.
These numbers plus positive performance of the portfolio, thanks to diversification, allowed us to reach new highs in terms of total assets €74,500,000,000 Total assets in Luxembourg, EUR 18,700,000,000 a total asset under advisory fee model, €6,000,000,000 In terms of net profits, we achieved new highs €274,900,000 despite €8,100,000 of 1 off And as you know higher taxation. These results has been driven by basically Both management and other fees and a great discipline in managing costs. Last, Probably even more important, we closed last year with very solid position in terms of capital Ratios, net already net of cumulative dividend for 2019 2020 of €3.3 per share. It implies a payout ratio higher than 11% at current Moving on Page 4, there is our usual representation of the P and L. You can see very sound operating performance, plus 7%, driven by net financial income, plus 24% and total net recurring fees plus 7%.
Operating costs grew 7%, But when you consider the change of perimeter, so on a like for like basis, the increase the operating cost increase is at 3% in line with our projection. If we move below the operating profit, You can see that we have 8.1 1 off charges, in particularly 5.9 because we Have increased in the actuarial valuation of the pension benefits because we decreased basically The discount rate and then there is a one off of EUR 2,200,000 for higher provision to the Interbank Deposit Protection Fund for 2 Specific situation in the banking industry. Last year, of course, as we already announced, Tax rate at 20.8 percent that is in line with our long term guidance And a year then 2019. Page 5 is a way to see The great quality of these results, because you can see the breakdown between the variable net profit And recurring net profit on a like for like basis. So recurring net profit jumped To 158.8 and basically driven by operating items.
On the graph on the right, you can see the positive contribution of net interest income and net fees And the negative impact of non operating items in particular provisions and write downs and taxes. Now starting from Page 7, we're going to go through line by line our P and L. Starting from net financial income, We closed the year at 109.6 percent, thanks to both trading income and net interest income. In particular, if we focus our attention of the Q4, we can see a spike in the trading income at 9.9. We take some profits, thanks to favorable market conditions and the net interest margin at 22.5.
Now for this year, as a consequence of a further reduction of the yields and the spread, We reduced slightly our guidance in the range of minus 3.0. So Our previous guidance was between 0+2, now is between 0s and minus 2, minus 3. In the next two slides, there are 2 focus, 1 on the banking book And one on the lending book, starting from Page 8, we are at €9,000,000,000 In our financial assets in the banking portfolio, on the right of the page, you see the bond classification, 61% Gobi bonds, Italian Gobi bonds and a well diversified portfolio for the rest for the 39%, so Gobi bonds, European Gobi bonds and corporate and The percentage of the portfolio held for held to collect and sales is at 30%. And as usual, maturity duration highlights a very conservative approach with both maturity duration in line or a little bit lower compared to the previous the same period of the last year. In terms of yield, financial assets are at 0.81, in line with 2019.
Page 9 is a new representation of our secured loan portfolio. I think that it's very useful to understand how conservative is our approach also to the credit, to the lending side The assets, you can see on the left top of the page, the increase from 1.9 €2,200,000,000 On the right, you see the breakdown and some proxy of quality. In particular, 1.3 is lines of credit, in particularly Lombard, then we have Mortgage for €400,000,000 and personal loans all collateralized for €500,000,000 In terms of quality, 90% is about performing loans and then we have 1.1 of NPL. Let's say that of this 1.1, 72% is Cover it with indemnity by indemnity and it's about an indemnity provided by an institutional investor And it comes from the deal with Banca Gottardo almost 10 years ago. So it's Full coverage covered by indemnity and the other part is collateralized, is over collateralized, so the 28% and is a portfolio of private clients.
In terms of granted loans, you see that the drawn credit It's at 2.2. The total granted loans are at 3,100,000,000 So the ratio between drawn loans and granted loans is at 73%. And what is really important to emphasize is the collateral. Collateral assets are at €4,600,000,000 means twice the drawn loans. For Every euro of loans we have on average €2 of collateralization.
On the bottom left, we can see some information on the yield. Yield is at 1.08, Slightly lower on year on year basis due to the strong competition in the market, but this reduction in yield It is more than offset by the expansion of the assets and then there is the detail of cost of risk That is negligible at 0.05 and of course this number is influenced negatively by the Economic projection for this year. So net interest income comes from A very high quality banking portfolio plus a highly secured loan portfolio with negligible cost of risk. Moving on gross fees, Page 10, also in this case, we Revenue high $782,400,000 driven by both management fees and banking entry fees. If we focus on Q4, the contribution was at 207 with margins at 1.16.
So with a full recovery of the reduction in profitability linked to the pandemic. On the right, we can see variable fees. 4th quarter closed at 41.4 And the full year result is slightly lower 2019 at 141.8. One very positive information comes from management fees, Page 11. Overall management fees at €6.75 but what impressed me more is The number for the Q4, 178.6 percent with average assets at 52% and management fee margin at 1.4%.
Just projecting these numbers For this year, we have a single high digit growth. So I think that we can achieve also double digit growth with this market condition. So very positive news from management fees, also banking and entry fees Supported very well the P and L, overall contribution at 106.9, 4th quarter at $28,500,000 with banking fees close to $20,000,000 and entry fees Above 9 and we have a slight increase in margins at 0.16. In terms of breakdown On the right, I think this is pretty impressive the acceleration of the new revenue streams at €60,000,000 Or more than 55% in the day, 56% of the total banking entry fees. This is driven by all of 3 initiatives and we are at page 13.
I'd set Under advisory, we gave a target for the end of 2021 of 2025 And we are confident to achieve at least €30,000,000 so we raised the target. BG certificate, We had a target of €10,000,000 and we are confident to stay at or above €13,000,000 MBG Saxo, again, we are confident to stay at or above €25,000,000 So the total expected contribution of the new revenue streams has been revised Upwards from around €55,000,000 to €70,000,000 We've a year on year increase no less than 15% and since these three initiatives were Set up during the year of the presentation of the new business plan, the 3 year business plan, I think that this is a great example of deliver on promises. Page 14, we start with fee expenses. Let's say that the overall total fee expenses is slightly better than Expected with payout ratio to the network at 47.4%, so below the range 48.50 And thanks to, let's say, constant ordinary payout and say, very low cost of growth, Because you know a great part of the inflows comes from the existing sales force. Payout to third parties is slightly up To 5.8, basically the payout to asset manager and the payout to brokerage is in line with expectation is constant and then there is A small increase in the payout to 3rd party for the advanced advisory services, but we think that this Spy can be absorbed in the next quarters.
Page 15, where is the detail of the operating cost. As usual on the left, you have the total operating cost. The cost of the change of perimeter is $20,600,000 COVID $1,000,000 The cost of personnel sales Personnel cost is 14.3 percent and the core operating cost up 3% to 191.3 It's important to focus on the Q4 at 54.4 because due to the favorable market condition, We decided to accelerate in investments. Page 16, our The usual representation of cost ratios and again here we have a best practice level. So you have the total cost on total assets at 0.3 is a new breaker for us and cost income ratio well below 40% Even excluding the variable components of revenues.
Thanks to strong numbers and I'm at Page 17, we can propose to the AGM A distribution of a dividend of €3.3 per share in 2 tranches. The first one start in the Q4 of this year and the second tranche In the Q1 of next year, we have a dividend payout of 70% On the cumulated net profit 2019 2020, of course, We will comply with the recommendation of authorities, But we are pretty confident to be able to pay the first tranche As soon as October 2021. Despite these important dividend, Capital position is even stronger than in the past. We have CET1 at 17.1%, TCR at 18.4 percent and this is also thanks to capital optimization and TSA adoption in Operating risk. So let me sum up just this first part.
I'm very Satisfied with these numbers. First of all, for the resiliency of our net interest income. 2nd, for the acceleration of management and fees. And 3rd, for the overall contribution of the new revenues Above definitely well above the targets and providing all of free Good support to our margin. On top of that, there is a solid good cost discipline.
Next, Page 20, the total assets, we already said €74,500,000,000 Driven by asset management products, 37.4 percent, we exceeded 50% of total assets, you can see on the bottom left of the slide, 50.2% of total assets. On the top right, you can see the acceleration on almost all the solutions. So in house funds, 3rd party funds and insurance wrappers. Financial wrappers are almost stable. What is really important to see is the acceleration of the insurance wrappers And stable assets in the traditional life insurance products.
As we already announced, We are very focused on the insurance portfolio in order to rebalance the 2 different business in favor of Wrapper's solution banking products steadily growth over the year. Page 1, Total net inflows, we already said 5.9, strong performance in terms of managed product, 3.2, of which 1.4 In the Q4, if you focus your on the graph on the right, quarterly trend, And you look at the traditional life insurance, you can see that we decided to launch a specific commercial initiative In the Q2, when the pandemic was at the highest level and we collect €300,000,000 And in the first, in the third and in the 4th, the inflows were negligible, while the insurance wrappers continue to increase Assets, we are very, very close to €10,000,000,000 And this conversion is very positive also in terms of margin. Page 22, you see total net inflows by acquisition channel 77% Highest level ever existing sales force minus 4 the outflows and this is an example of the Strong, strong resiliency and sense of belonging to the bank with the churn rate very, very low. On the right, Page 22, you see recruitment. We resume a recruiting activity in the last part of the year.
We I have a target of 20, 25 per quarter and so the sum on the second half was 44, so in line with expectation. Page 23, there is details on the quality of our network. We are probably the only player with a Steady growth of the numbers of financial advisors year by year, year by year and at the same time A stable growth of portfolio average that is the key driver of our sustainable growth. The portfolio average is at €33,200,000 and this is almost 50% Higher than the average of the sector and almost 50% of our assets are Managed by financial advisors with more than €50,000,000 So the quality of our financial Adviser network continue to improve and here there is our greatest focus. Page 24, there is Preliminary numbers for January, total inflows slightly lower on year on year basis, but with definitely better Quality and in particular you can see that asset under advisory continue to accelerate 6.2 €1,000,000,000 and recruitment is going better than expected with 16 new colleague In January, it means twice the number of January 2020.
So Just again to sum up also this section, I think that it's really important to highlight The great performance in asset management products, the great commercial focus On the rebalancing between traditional life insurance and insurance wrappers And last but not least, the acceleration in the recruitment activity, as you know, I think it's It's a great way to nurture the quality of our financial advisor networks. Now, Last part of the presentation, Page 26, there is a slide to give you the idea of our Priorities in terms of business initiatives, we gather these initiatives in 3 main blocks. The first one is about key business drivers. So it's about the core business of the bank To nurture the sustainable growth of management fees and it's about our Luxembourg platform, Our insurance platform and ESG offer. The second block, it's about Our new revenue engines, the 3 initiatives that we already dealt in the previous slide And then the new business levers, the new business levers provide us and is a way to reinforce to strengthen our Bank proposition in the medium and long term because it needs a sort of cultural change, transformation And it's a way to capture new growth opportunities, lumber to increase the diversification of the assets of the bank, private market To increase the diversification of the asset of our clients and international expansion both as a defensive move and a new Engine of growth.
So the focus of the next slides will be only on BG Fund Management Luxembourg, Because it's probably the most important engine of our revenues and at Page 27, you see And say the key contents of the following slides. The first focus is on our the overall platform And we will comment briefly total assets in retail distribution and the fee structure With the in anticipation of the change in the fee structure that will happen In the first at the end of the first half of this year. And then I did dive on Luxim with 3 main topics. The first one, the product offer to see why we are so confident on margins. The second on ESG offers and the third on selling plans.
So let's start from the overall assets in our Luxembourg platform, page 28. We achieved €18,600,000,000 and the good performance of the market this year and the constant inflows Are increasing more and more these total assets. And I think it's really important to emphasize the fact that Despite the focus on our Luxembourg platform, the total assets also the total assets of the 3rd party funds Continue steadily to grow and this is important because this is coherent with our value proposition of open architectural platform. You can see on the bottom left of the page, the constant growth also of third party funds now at 18.7%. So it means that Overall funds is 50% in house and 50% third parties and the in house 1 are managed Basically, mainly by again third party managers and on the right you have the total net inflows that is pretty constant over Page 29, it's about retail distribution.
You remember at the beginning, we were very focused on wrapper solutions, so on Institutional share classes and then at the end of 2018 when we accomplished the setup of rapid solution, We decided to focus the commercial activity on retail distribution and the acceleration in the last 2 years has been impressive We've total retail assets of our Luxembourg platform at €8,800,000,000 And despite this acceleration, there is also a constant increase on 3rd party fund retail Again, very coherent with our value proposition. On the right, you can see the total net inflows with the focus to the retail share classes. And you can see that the Luxe team continue to grow very with strong inflows, while The outflows of selection is decelerating over time, is running off. And as we already said, The world is behind us. And again, on the bottom right of the page, Let's say, very constant inflows in retail third party products.
Page 30, It's really important. We are very we pay great attention to the recommendation of the regulator And the new recommendation of ESMA on performance fee led us To rethink of a new mechanism coherent with the new recommendation, at page 30, you see on the left The contribution of variable fees of the performance fee over the last 5 years, the average was around €100,000,000 and this That represented our guidance every time that we discuss on performance fee, I used to give this guidance around €100,000,000 Now with the new mechanism, the new guidance will be lower, will be in the range of €70,000,000 €80,000,000 Now we are in the phase and we are waiting for the formal approval of CSSF And we should receive the formal approval in between April May and we will launch this new fee structure By the end of the first half, where basically the new mechanisms will be implemented of new funds As soon as the launch of the new funds, while on the stock starting from January 2022, at the same time, there is a sort of Price optimization, there is an organic review of the fee structure, both administrative fee and management fees Based on the price sustainability of every single fund and with a careful benchmarking, The result of this review of pricing will allow us to increase The gross management fees for in the range of €25,000,000 €30,000,000 Of these €25,000,000 €30,000,000 only 30% will be will imply also payout ratio for the network.
And so the two effects at the end of the day will be offset. To other consideration, we are Running also in overall, let's say, price optimization also on other initiatives in the bank and insurance And it's a buffer for the future. And the second is that in January performance fee was very, very Strong above €60,000,000 and also February started very well. Page 31, There is a focus we started the focus with the Luxim. First of all, why we are so confident In terms of margins in the lapsim, this is here you have part of the explanation.
You can see The increasing focus on equity thematic from 29% to 32%. We continue to be very focused on ESG and thematic investments as well as Asian markets and both or all these strategies Have on average in higher margins and on the right end of the page you see The numbers of fund of the 4th wave, so there is a sort of real optimization both of the existing Funds offering and the new strategies. And as you can see, we can increase the numbers of equity and alternative and flexible funds And we will reduce the focus on balance and bond funds. And then there is a new family. This is again very important.
We call it cash parking. It's a way to be more efficient and to automatic switch from, let's say, cash or let's say, currency Portfolio to Equity Solutions and we are confident that this cash will improve and will increase some action and some initiatives, I will call example, Twin Mix and Twin Solution. So now Page 32, there is a focus on ESG. You know ESG for us It's more than just products, it's about commercial offers, it's about the digital platform, but let's say the output is in terms of products And the acceleration on assets in ESG products is pretty impressive. We are close to €5,000,000,000 of which almost 50% in house products and what is very impressive and what impressed me more is about The constant contribution in terms of net inflows.
For the full year 2020, the total contribution was at €1,100,000,000 and here we have a significant competitive advantages. Page 33, the last slide of this section is about Saving plans, you know we decide to enter this business. We have some competitors With important assets on these kind of initiatives, for us it was the first time we started in the Q3 2019. It's pretty impressive to see the acceleration of numbers. In January, only in January, we closed 2,000 contracts.
So we move from 10,000 to 12,000 and the projection of inflows in our Luxembourg platform now Account for more than €500,000,000 and we are at the beginning. I'm pretty confident to see At least twice this number at the end of this year. This is an important engine to A dedicated offer for our affluent client and for our, let's say, smaller portfolio of financial advisers. Even more important is not just only about selling plans in financial products. We've wrapped these solutions also with an insurance Raptor, we call it BGCM projected EBITDA that it includes this includes also the traditional protection features, For example, the completion of the plan in case of negative events, but also some joyful life events, which is Something very new, innovative that you can connect your selling plan to positive events.
For example, the wedding of your the wedding, The university and so forth. And this is the beginning of a dedicated offers for Smaller financial advisors to develop and increase profitability on our 200,000 affluent clients. So to come to the conclusion, Page 34. We are more to achieve all the targets 2021 of our 3 year business plan. If you look at the column of 2020 results, The sustainable profitability was probably the most challenge goal and target.
Core net banking income closed at 67 basis points and core operating costs are at 3%, so in line with our Projection. The commercial activity is very sound solid and healthy. The start of the year was very good And we are continuing the positive initiatives we launched last year. For all these reasons, despite a change of context And economic environment, we are confident to close also this year with new eyes in most of the financial items. Thank you.
And now I will leave the floor to Q and A session.
Excuse me. This is the Chorus Call conference operator. We will now begin the question and answer session. The first question is from Angeliki Bayraktar with Autonomous Research. Please go ahead.
Good afternoon. Thanks for taking my questions. On the changes in the performance fee calculation, could you please Describe the new methodology, is it going to be effectively a comparison over 12 months? Effectively, if you can give us a little bit more details on what has changed versus the previous 3 months rolling or 12 months rolling Sort of benchmark comparison, that would be useful for us to understand. And second question, can you Out of the 5 to 6 basis points increase in the gross management fee margin, how much will be paid back to financial advisers And how much will be retained by Banca Generali?
And one last question, can you please the drivers behind the strength of the trading income this quarter and what is your expectation for trading income going forward? Thank you.
So let's start with performance fee. Since we are in the authorization process, I cannot give you all the details, but let's say that we have 2 different Mechanists, the first one for Luxim is pretty in line with the current one with the high watermark, of Of course, we've a longer time horizon and the second will be on the selection on high on high mechanism. We'll give you full disclosure once we receive the Authorization, I'm very confident both on receiving the authorization and on the estimates and projection I gave during the presentation. In terms of gross management fees, they say that of the 25 €30,000,000 we have in mind only 10 will generate payout, 10,000,000, 15,000,000 no more. So I do expect maximum €5,000,000 of payout for the new sales and price Optimization.
The third question, sorry, if you can repeat because we couldn't hear properly.
Yes. You reported EUR 9,000,000 of income from financial assets, so what I call trading income this quarter. Can you explain what drove this increase quarter on quarter? And what are your expectations for 2021 for this line?
We have just optimized our portfolio at the end of the year. So we took some profits, thanks to the market favorable condition. And we do expect for this year a normalization for us. So let's say that normally at the beginning of the year, we have a target between EUR 10,000,000 €20,000,000 Thank you.
The next Question is from Alberto Villa with Intermonte. Please go ahead.
Good afternoon, Gianmaria, and congratulations for the results. I have three 1 is related to the actual Assets under advisory. I was wondering if you expect assets under advisory to continue to grow this year and at which pace we can expect This amount to grow going forward. The second one is your outlook on the net interest margin for 2021 given the current Environment for yields and given the contribution from TLTRO, if you can maybe Give us a little bit of color on what you're expecting there. And the third one is on brokerage.
You gave guidance for 2021. I was wondering if There is more room to grow going forward if you are satisfied with the rollout of the Saxo Bank and if
Thank you. Let's start from asset Under advisory, we do expect double digit growth also for this year of the stock. So I have in mind no less than €1,000,000,000 Net interest margin, the outlook, as I said, it's in the range 0 minus 2%, 3%. And I don't know, Tomasso, if you can give more flavor to the different components of this The expectation, we expect to
have higher contribution in terms of lending activity because we That volumes on lending will continue on growing, although of course the yield of the investments Will be lower because today the interest rates are lower. So that's why we expect a small decrease in terms of net interest margin. Tiering and TLTRO, well Tiering is around $700,000,000 and TLTRO we In the second part of 2021, we could increase the position in terms of TRT row. And so if We could have an additional benefit in terms of net interest margin. But overall, we expect that to I mean, The guidance that we already given is minus 2%, 3% versus last year.
And the last on the BG Saxo, I think that in the appendix you can see some The numbers in terms of turnover of the first clients on the platform Are pretty impressive. We are very prudent in giving projection because we don't force Any acceleration, it is a cultural change to see the opportunity to transfer also the asset under administration And to provide a better performance compared to the market. So we are sure that BG Sachs will contribute in the next years probably more than other initiatives to our P and L. But let's say that at the moment we prefer to stay very conservative say overall revenues above €25,000,000 But we so far we are pretty impressed by numbers and we are planning several initiatives of course To accelerate the rollout, but I'm not sure that the full impact will be this year and not The second half and then full impact next year. For sure it will be a positive contributor for our numbers.
Thank you.
Okay. Thank you. If I can just a follow-up on the dividend. You said you're pretty confident. Is there an ongoing, It's a open discussion with the regulator already or they are waiting especially Bank of Italy to understand what the ECB will Eventually do in the future.
So just wondering if there is any color you can give us on the, let's say, level of confidence you have.
The level of confidence is very high because they say that Our perception is that the regulators want to achieve a normalization And they start already in the first half. I don't see any reason in this case To think to different scenarios. And of course, when we announce our A proposal to the AGM, we share it with regulators. So I'm very confident on the dividend payout This time.
Okay. Thank you.
The next question is from Domenico Santoro with HSBC. Please go ahead.
Hi. Thank you for the presentation. Good afternoon. A couple of follow-up. First of all, on the repricing On management fees, you didn't mention the timing.
Is it going to start already As we speak, as of now or at the same time of the change in performance fees mechanism? Just I want to understand whether you might benefit from these extra revenues already this year. And thinking loud About the new government, I just want to pick your brain about this. I mean, everybody is, of course, welcoming Draghi. Apart from the obvious implication for the market, that can be very beneficial for your business, loss or any errors, No, of course, chance, any chance of a well tax.
Can you think about any other reforms or whatever that can benefit your business apart from market stability, which is of course a good news? Thank you.
Thank you. So repricing, repricing will start as soon as The beginning of the second half, so July 1st For the administrative and management fees. For the performance fee on the stock, The new methodology will start on January 2022 for the new funds as soon as we launch the new funds. So consider that for 90%, 85%, 90% of the stock, it implies That the new management fee and the new performance fee mechanisms will be implemented next year. So you are right, That is just about 6 months.
And on the new government, I think that the Best scenario is stability. Stability means confidence So I think that if you have less uncertainty about the future, You can invest with less anxiety. And this can be a game changer for the oil selling industry, Especially for the ones who are considered the most strongest in the Asset Management business. And the second consequence, I agree with you, it could imply also Some reforms on the savings and investments. So Say a better, say tax frame for saving products would Further increase and accelerate product transformation, because the first priority will be to reduce liquidity.
And I'm sure that Draghi knows how to achieve it. So more confidence A more favorable, let's say, tax frame for investment could accelerate the shift from Traditional banking products to asset management and insurance solutions.
Can you give us also a guidance Cost growth for next year, please, for this year? Thank you.
Yes, of course, in our 3 year business plan, We have a target of 3%, 5%. I'm pretty confident to stay closer to 3% than 5%, That depends on the of course on the numbers during the year, but let's say that we are confident to stay in the range and if it's necessary close to the lower band.
Thank you. Thank you very much. Gentlemen,
there are no more questions registered at this time.
Okay. So thank you all for participating in our conference call and I hope to