Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Banca De Nirole 9 Months 2019 Results Conference Call. As a reminder, all participants are in a At this time, I would like to turn the conference over to Mr. Zaan Maria Mossa, CEO and General Manager of Bancadin Rally.
Please go ahead, sir.
Thank you. Good morning, and welcome to our Q3 results conference call. Let me start saying that the bank is really, really in good shape. Reported net profit achieved €196,000,000 of which EUR 103,000,000 of core net profit. These numbers have been driven mainly by market expansion, great results from all the new revenue streams and asset expansion.
And at the end of September, total assets reached almost €66,100,000,000 The one increase goes for the acquisition of Valeura. We have just signed the closing in October, we reached EUR67.2 billion. And this implies an asset dispersion of almost EUR10 1,000,000,000. I think that the best result is in terms of inflows and the quality. More than 74% comes from the existing sales force and the quality of our financial advisers continue to increase with a portfolio average above €32,000,000 The numbers are pretty impressive.
What impressed me more, and I'm very proud of that, in the quality. All the engine that we launched in the last 12, 18 months to accelerate the revenues are working very well and are beyond our expectation. Black team, in particular, with the distribution to the retail, structural product, advisory fee and retail brokerage fee. As usual, at Page 4, you see the detail of the P and L, starting from the operating profit up to up 34.1% where the main contributors were the net interest margin and the net fees. Net fees climbed the same to, of course, performance fee as well as a higher contribution of other revenues and lower cost for growth.
Total operating costs up 8.6 percent, of which important part are driven by M and A and one off, while all the lines below the operating results are a positive contribution for the year. Tax rate is a bit higher than the same period last year at 17.4% compared to 16.4% over the 1st 9 months sorry, 17.4% compared to 'nineteen, so it's positive. Page 5, you see the buildup of the net profit with the split between variable profits and recurring profit. Variable profits jumped thanks to an increase in the performance fee that more than offset the lower contribution of the trading gains, while as you can see, the main contributors to the recurring profit comes from almost €10,000,000 will increase in net interest income and €20,000,000 coming from asset expansion, new revenue, engines and lower cost for growth. On Page 7, we go through the very single line, starting from the net financial income.
Comparing the 1st 9 months of the year to the 1st 9 months of last year. You see that the net result is a little bit lower, but the mix is much more important. Net interest income up to EUR 56,500,000 and the share income at EUR 69.3 percent. Focusing on the quarterly trends, the Q3 was very, very strong with net interest income at €20,300,000 once included the impact of IFRS 16. And we are confident to be around this number also for the last part of the year, while the trading income confirms the projection of €3,000,000, €4,000,000 per quarter and totally above €10,000,000 Why this impressive acceleration of net interest income?
Two main reasons. The first one, thanks to the maturity of part of the portfolio, we have invested higher rate. And second, the asset expansion. Asset expansion, total balance sheet exceeded €11,800,000,000 of which €7,900,000,000 of financial assets. And in terms of net interest margin, we accelerate from 0.77 percent to 0.85 So to say that for the Q4, we are positive despite the reduction of the yield because we have several maturities and we reinvested part of the previous maturity at the higher yield.
Moving on page 8, we start with the gross fees. Main component management fees, best quarter level for the bank, €163,200,000,000 In terms of total contribution for the 1st 9 months, the total contribution is slightly lower compared to the last year. But also in this case, we are very confident to close the year definitely higher than the last year. In terms of margin, you can see a gradual recovery from 1.4 to 1.41. You see like for like because from this quarter, we start including also next time results.
Also in case of manual increase, most part of the increase comes from an acceleration of rapid expansion, in particular on our Luxembourg platform. Page 9, probably the best news of the day comes from other fees. If you look at the 1st 9 months, we are almost €60,000,000 compared to the €51,400,000,000 of the full year 2018 with raising contribution of both banking fees and entry fees. Focusing on the last quarter and due to some seasonal effect comparing it with the Q3 of the last year, you see an impressive acceleration of both entry fees from 3.6% to 5.2% and banking fees from 11.6% to 14.7%. Percent.
In terms of margins, if you compare the 1st 9 months 2019 with the 1st 9 months 2018, you see an improvement. In fact, Italy is more impressive on a quarterly basis. At the beginning Q3 2018 were 10 basis points, Q3 2019 13 basis points. And again, year numbers are very, very impressive and focusing on October, we see a further acceleration. Last part of gross fees, focus on performance fees.
Overall, EUR 96.3 €1,000,000 with the contribution for the Q1 at €25,500,000 and of course in absolute terms it's very impressive, it's important contribution. In terms of percentage on total AUM, the margin are at 0.28%. That is far below the average over the last 5 years. And so again, also performance fee are linked to the asset expansion. Almost 60% of this performance fee comes from the new offer, the new routine offer.
On the key expense side, Page 11, you can see that the total fee expense moved down mainly thanks to lower cost of growth. So BRL 288,000,000 compared to the previous BRL301,000,000. We connect the breakdown starting from the payout to the network, overall down, slightly higher order payout and definitely lower cost of growth. And again, this is linked mainly to the quality of the inflows, most of which coming from the existing sales force. 2nd part is the payout of 3rd parties, and we had a target to go below 2% in terms of asset management.
And you see here is 3.8%. So again, almost 10% reduction, thanks to the continued renegotiation and the focus on fewer players with higher assets. So next page, you can go through the operating cost. We changed slightly the representation on the left of the slide. You see raw cost reached 160 5.7%.
We highlighted 2 new contributions, 1 coming from the 1 off items, mainly, as we already said, which is Saxon and Balu. And the other side, Nexcan, because we start including next time for 2 months, September sorry, August September. Focusing on the core operating costs, the overall increase is at 5.3% and again, mostly linked to the acceleration in key strategic projects and hiring process focus on quality people, quality manager to accelerating and accelerate our realization of the new projects. Overall, this year, we confirmed, I think that this is the most important message on the cost side. We confirmed our guidance of core cost in the range 3%, 5%.
Slide 15, focus on the efficiency, our operating leverage. All the ratios are at the lowest level. Operating costs out of total assets reached 0.31 percent. Cost income ratio, both reported and adjusted, down to 39% and 32.9%, respectively. Last part of the first chapter, Page 14, capital position.
CET1 and total capital ratio were above the FREP requirement, respectively, 16.5 and 17.8, percent slightly lower to the same period in the last year, driven by the full application IFRS 16 and the first time consolidation on Nexa. Of course, these numbers consider also the new dividend payout policy that we communicated during our Investor Day, that I confirm will be also for this year in the range of 70%, 80% of the net profit. So before moving on to the next session, just to sum up this first part, we see solid growth in almost all the revenue streams and a very efficient operating leverage. Everything is working very well. And we are confident to see further improvements from the Q4.
From Page 16, we start with asset inflows and recruitment. So total assets, as we just seen, up to €66,100,000,000 net inflows up EUR 3,800,000,000 the contribution of the performance of the kind of Canco portfolios is pretty impressive, €3,700,000 of which that implies a yield performance for the clients on the total assets of 6 €400,000,000 and if we focus only on the asset management product, it is 7.5%. So more than offset in the negative performance over the last year. Slide 17, you can see the breakdown of total assets. And again, here, the most important thing is to see how we continue to diversify all the main contributors of total assets increased in this in the 1st 9 months.
Management Solutions up EUR 4,100,000,000 traditional life policies up EUR 1,000,000,000 banking products up EUR 3,500,000,000 On the right of the page, you see that also backing down the managed solutions, all the contributors increased, Insurance wrappers and financial wrappers exceeded the €15,500,000,000 while total funds exceeded the €15,900,000,000 with a raising contribution of the in house product. Banking assets, well balanced, 9.1 deposits and 9.2 current account. And of course, in case of stabilization of the yield, we should see some extra revenues from this kind of investment. Page 18, there is a focus on our Luxembourg platform. We achieved EUR 16,000,000,000 highest level ever, 2 positive contributions.
The first one, the institutional fund classes continue to increase, €4,000,000,000 in 4 years, €9,300,000,000 And very positive, you can see the acceleration in the retail fund classes. As we said last year, the focus now is also on the retail distribution. And in just 9 months, we exceeded the highest level reached in 2015. So we closed the 1st 9 months with €6,700,000,000 On the right of the slide, you see the assets under advisory, again, present results €4,400,000,000 with positive contribution of all the different approaches, so securitization, family office and pure financial. Page 19, let's move on to net inflows.
For the 1st 9 months, €3,800,000,000 slightly lower than the total interest of the last year, €4,100,000,000 But again, in the last 3 months, including October, inflows are for each month higher than the same month of the last year. So August higher, September higher and October higher, we will restrict the projection of the net interest for October about €300,000,000 In terms of asset expansion of asset under advisory, you see the numbers of contracts in the 1st 9 months 2019 and more than 6 1,600 new contracts that we should compare relative terms with last year, the increase is about 50% with an average asset per contract almost in line with the last year between €500,000,000 €600,000 In particular, in these 1st 9 months, the average was €650,000,000 The last page focusing on recruitment trends. September, 59 new colleagues. In October, we had other 10 new colleagues. It's really important, as you know, to be very cautious in this activity during the phase in of NiFi review.
We'll start seeing normalization. So as we already announced, next year, we start again recruiting in line with our historical average. On the right, you see total net inflows by acquisition channel and in particular, impressing number of the contribution of existing network at 74%. So just to sum up, I think that numbers are very good. Asset quality is impressive, well balanced, where the concept is to be well diversified in terms of assets, in terms of our investment solution, in terms of products, in terms of interest.
And we achieved, I think, the highest level of diversification. This is, I think, the thing that guarantees the sustainability of our overall growth. Now the last section is about the business update. First of all, we increased the target for the year in terms of total net inflows coming from the seasonal business from €3,700,000,000 €4,300,000,000 which was the range of the target announced during the Investor Day, to €4,550,000,000 A potential explanation of this acceleration of the infos, in particular, the existing sales force, in my opinion, comes from the introduction of a new organization in the network last year. Now it's up and running, so there is more focus for different targets financial advisors, so this is really important.
And the second is about brand awareness and brand recognition. In the last publication Magestat, where you have the ranking of the card banking companies. In Italy, we reached for the first time the volume, but the 3rd place. So this means positive noise, positive reputation. And particularly if you compare this positioning with this ranking with the rent in 2015 as we were paid and in 2013, we were 'fifteen.
So it's impressive how fast has been the acceleration of the assets of our clients and we continue to see this positive trend. And one explanation, one important explanation is we have a dedicated division, the wealth managers. Page 23, you see that this impressive growth comes from all the Claptevo clients from upfront, after ascent, tariff, exudes and export individuals. Of course, the contribution payments of assets is more relevant for tariff clients, interconnector and Midwest in terms of new clients is more distributed. And this is thanks to more and more coverage and differentiated mix the product offerings for our clients.
On one hand, we have very, very high personalization in private insurance and industry products and the other one very innovative selling products. So we continue to be focused on all our customer base and we see mounting opportunities in particular in the segment of offering clients. In the last two pages no, last three pages, you see a focus on our main initiatives. The first is about Nuksim. I would say mission accomplished.
We are very focused on launching a new sustainable offering in Luxembourg with the aim of providing a well diversified solution also for retail investors and value to investment. And if you look at Page 24 on the right, you see the impressive acceleration in retail fund classes from €1,000,000,000 at the end of the first half of the last year up to €3,000,000,000 So we tripled the assets in 15 months. And we are very, very focused and optimistic on the future. Presenting October, again, we exceeded €150,000,000 of net inflows for in the group CIM Retail Distribution. Page 65, other 3 main initiatives.
The first is about certificate and structure of the product. We exceeded the targets set for 2021 in terms of notional new issues, €317,000,000 compared with the target of €300,000,000 and we are very close to overachieved also the target in terms of new revenues. And this is thanks to the partnership with the Intesa Ariba, the extension of the offering and a very, very high focus of top managers in the bank. The second project is about Roper for advisory. Also in this case, we have well above linear projection to achieve the target of 2021.
In particular, in the 1st 9 months, we are close to €500,000,000 And again, just linearly projecting these numbers for the Q4, you would see that we will exceed €16,000,000 volumes continue to grow. So we are very confident to reach well in advance the target of 2021. Last but not least, we start seeing also positive effect of Digisax, So even if we are just at the beginning of the story, we launched the new platform between June July. We start by piloting this platform and we're starting expanding the task at a new time. We are very, very close to launching new initiatives, a simplified version of the total platform and the possibility for our financial advisers to insert on behalf of our clients of the orders, so the so called B2B2C platform.
And if you look at numbers in the 1st 9 months, we almost achieved the total brokerage fee for retail over the last year. So again, also in this, I can see starting positive results. If you sum up these 3 new revenue streams, 1st 9 months of the year EUR 32,000,000. And again, just the linear projection show you how far we are and the quality and we meet the expectation, the NIMO projection to reach the target of €50,000,000 €60 €1,000,000 before 2021. So we can say that we will go to Page 26 in considering the 3 main ambitions we announced during our Investor Day, empowering a phase we are jointly on track, All the initiatives are up and running.
There is a room to accelerate in all the initiatives, retail distributional in house products, structured products, advisory and brokerage fee with a solid core business in the Rapid Solutions as well as more in general in asset expansion. In the second ambition was about the client's first choice. So in terms of digital footprint, in the beginning, we are just at the beginning. You know in the last 6 months, we launched the new mobile app. We start opening up the new SaaS which is SaaS platform.
We are very focused on marketing, direct marketing also in our same clients. So we see also on this ambition, positive upside. And last but not least, we've just signed a good closing of the dollar confirming our international expansion. The dollar is going ahead of expectation in terms of assets and we focus on our priorities in Switzerland in the next conference call. We are not in hurry, we want to be very focused on reputation risk and providing the best solution for the professional to gain momentum for Swiss clients as well as Italian clients willing to diversify the booking center.
So considering the acceleration of all initiatives, I can say that all the management team is very committed and confident to overachieve the targets set for the end of 2021 in terms of inflows, total assets and at the end of the day, net profit. Thank you. And now I will hand over to Q and A.
Excuse me. This is the COSCO conference operator. We will now begin the question and answer session. The first question is from Danica Ferrari with Mediobanca. Please go ahead.
Yes. Hi, good afternoon. I have three questions. The first one is on the NII. You gave us a gut feeling about the full year results in terms of net interest margin.
I guess we are speaking about something in the region of $73,000,000 $74,000,000 I was wondering if you can provide an indication for 2020, 2021. So which kind of growth rate, if any, should we attach on top of year end 2019? Also linked to this, I think you mentioned here in the speech that there are many reasons behind this very robust NII in Q3. You mentioned reinvestment, but looking at Page 29, I think you even managed to reduce the duration of your bond in the 9 months 2019. So you're remaining fairly short, 1.6 years duration, and you managed to have a 0.83 percentage points of yield on financial assets.
So I was wondering where did you invest in the 9 months and in Q3 because I guess Italian dollars probably are not there. Second question is on the performance in October, if you can give us a sense of performance fees given that the month is ending today. And also flows apart from the €150,000,000 you mentioned for the Laxim, Overall, which kind of flows you achieved in October? The third question is on your strategy in illiquid. I mean, without entering too much into some of your competitors speaking a lot about liquid.
I was wondering if you are remaining on the current strategy with certificates, with some securitization or you're planning to go more into this kind of product? Thank you.
Thank you, Gianluca. Starting from net interest income, I can say that we still expect the one digit growth for the full year of last over the next year. In terms of performance in October, they were a few million. Total interest for October about €300,000,000 with total contribution of asset management to our product above the average of the year. In terms of liquid, I confirm our very conservative approach also with securitization and with private initiatives for professional.
Probably in the first half of next year, we will enter distribution of also for the carrier clients. But for us, the carrier clients means Apera and the private, launching dedicated vehicles where the key drivers is diversification and the coupon. So nothing disruptive is a way to continue to go in the direction of increased diversification for our clients and start introducing the liquid assets also for our clients, not necessarily professional. For the quality of the reinvestment in the banking book, I hand over to Tomas. Thank you, Gianmaria.
Let me say that we are trying to we are managing the Latinx trading margin because thanks to the risk that we applied last year to the banking portfolio, we were investing in a very short duration and not really bonds. So we had a lot of bonds which were expiring by the end of the current year and the next year which have a yield which is near to 0, we are investing in the higher rate because of that. So we are still the U. S. Defender portfolio as we said in our Investor Day.
So looking also at other European and sovereign income and especially you see that in our banking books that are a part of the shorter banking investments, which is investing in also our European and Italian short term bonds like Spanish So it is something which is in our strategy. Overall, as you have seen, the maturity and the duration of the Brexit book is still pretty short, so we are still very conservative. But the main driver for the growth of our net income margin is basically linked to the expansion of the assets that you can see looking at our balance sheet. So a part of net inflows which has been collecting the last year has been also collecting deposits. So we have higher volumes in the asset side.
And part of the story is a better management of cash and communication as well. So the cost of cash is declining over time.
Okay. Thank you.
The next question is from Alberto Vila with Intermonte. Please go ahead.
Good afternoon. A few questions from my side as well. The first one is on the assets under custody assets under advisory, sorry, that you've been able to continue to increase and this remains a quite interesting move to me. We discussed last call about profitability there is in a 46 basis points. Is that something that you can confirm?
And how we can expect this margin to evolve meaning if there is one of the 3 classes that grows more than the other can change or it's kind of a balance, so we can expect this statistics to remain pretty stable in the future? The second one is on the factor you mentioned before, so the recruitment you think to increase next year. Can you give us some color about maybe what kind of professionals you are looking for competition from banks, from You report these 2 acquisitions, 1 in Italy, 1 in Switzerland and Germany seems to work pretty well. Have you any, I would say, hope or expectations to have other opportunities in the coming months to find other acquisitions of this kind? And if you are still focusing mostly on Italy and Switzerland, or you're looking to do something else?
And finally, this year is a good year for performance of assets. And so you're investing in net profit and expectations are pointing to a 100. But if we consider the payout ratio you gave 70%, 80%, it could easily exceed the floor of 1.25%. So can we expect this to be the EPS will be higher in this range to have a higher dividend than the floor you have set at $1.25 per share? Thank you.
Thank you, Alberto. So in terms of profitability of Santander Advisory, during our Investor Day, we announced a range of 40, 45. Now we are in a bit above, we confirm in this number 46, but we said that our core projection are in the average of the range of 40, 45. And we continue to see strong inflows over September and being in line with the previous months. In terms of recruitment, let's say that it is a well balanced activity among financial growth networks, commercial banks and parabanks.
I'm pretty confident to and if you could accelerate in the last part of this year, staying around above 80 percent and for next year around 100 percent is the range that we have in mind. With greater interest in particularly for the advisory, the Astrakhan Advisory, for the advisory services, There is greater attention on our holistic approach also to maintain a good driving, say, good payout, introducing new services, new ancillary services to the clients because to perform next year will be probably more complicated than performing this year. So you have to increase the quality of ancillary services for your clients. So in this sense, we are considered the best in the In all, we are 1st in class for the platform for our financial advisers where we can provide risk assessment for the worldwide And we have several partnerships to create value also on other sort of wealth, so for entrepreneurs and real estate and so forth. So in terms of acquisition, we are pretty confident with organic growth.
So we are starting, of course, the market. And if we see opportunity, we are ready. But in this moment, we don't have any dossier on the table. We are very focused on considering expansion in Switzerland, and we are focused on self financing any other acquisition. And this lead me to the DGS.
We are confident to provide DTS higher than 1.25 percent. So to say, we exceed the floor, but we will maintain, let's say, as a guidance, the range 70% to 80%. Thank
you. The next question is from Elena Ferini with Banca INI. Please go ahead.
Yes. Good afternoon. I have two questions. The first one is about the split of the EUR 1,100,000,000 of assets belonging to Valeura. I was wondering if you can provide us with the split between non managed and managed assets?
And then second question is about the possibility of a new voluntary disclosure, which was which appeared in the press in the past weeks about the draft budget law. I was wondering what are your thoughts about it and if you think that there could be a huge amount of money still to be repatriated? Thank you.
Thank you, Elena. Starting from Voluer, consider what you consider Voluer is you sort of external asset manager. So either in investment solution or in advisory services, all the assets are under a recurring fee. It's 100% under recurring fees, either for the investment solution or for the banking services. In terms of, let's call, voluntary disclosure, we have, of course, we hold about it.
And if you look at the previous edition, it wasn't really a success. And so also in this time, we do not expect higher inflows, Even if I think that if it is the case, we are better positioned than others because now compared to the past, we have both the solutions in Switzerland and Italy. So in case of success, we'll be probably the first to take an advantage. In this moment, the details are not known. So prudentially, we project and do not project a next contribution from this initiative.
Okay. Thank you. Just a follow-up on your first because my line was disturbed. Have I understood correctly that the 100% of Valeura assets are non managed because are advisory assets?
No, no, no, no. Sorry. Okay. It means that part are managed with an investment solution and part are under advisory. So 100% of the total assets are paying recurrent fees.
Okay. It should be around fifty-fifty.
Okay. Thank you very much.
Welcome.
The next question is from Ana Damo with Autonomous Research. Please go ahead. Good afternoon. Thanks for the presentation. And the first question is to gather your high level thoughts on the current interest rate environment.
If I look at the share of deposits in the financial portfolio of Italian families, this has basically reached almost 30%. What's your view on the possibility to introduce negative interest rates on client deposits above a certain threshold in order to offset the interest rate headwinds? And my second question is on ESG. Can you talk a little bit more about Banca General approach to ESG and how this is incorporated in your investment process? And lastly, can you share with us your latest feedback from clients following the publications of Adelifted Reports?
Thank you very much.
Thank you, Anna. So starting from the feasibility to implement negative yields on the current account, in the moment, it's out of scope. We are thinking of several initiatives to offer alternatives, thanks to structured product and, let's say, some very well diversified solution in the liquidity space with the maturity of AS. I don't think that there is a real opportunity to apply a negative yield if not applied by all the, say, all the banking system. In terms of ESG, we are the 1st louver in the field.
We launched a new commercial approach where, first of all, you can quantify the real impact in terms of sustainability of the funds. And second, we translate all the single investment solutions in the 17th SDG goals. And we provide digital platform to clients where they can personalize their personal preferences in terms of the 17 SDG goals so that you optimize the total investment both in terms of risk reward as well as the personal preference versus the SG and A. So if you look at the inflows in ESG Solutions since the launch of this new digital platform that was in March of this year were very, very impressive. If you think of that new inflows, ERG Solutions exceeded €600,000,000 in 6 months basically.
So a great part of the influencing asset management for this year in the same period. So we are very confident to have also been sort of distinctive approach to offer alternative solution to clients. In terms of the MIFI, if I look at complaining or litigation for course of reporting are negligible, this is 2 or 3. It means that our financial advisers did a very good job in communicating and in anticipating the reporting to clients. I'm not sure that the all indices exactly in the same good shape because, as you know, great part of the statements were sent during the summer and most of them sent through, say, the mobile app.
So to see the full effect, in particular, in traditional banking system, we probably will need to wait a few other few quarters. So in the next 3, 6 months, we will see the full impact also because I think that the next time the statement should be sent before during March. So in let's see. I'm very confident that if there is an impact for us, we'll be positive because while we approach the topic well in advance and we trained all our financial advisers, I don't have the same intention for the market in general terms. Thank you.
Okay. Thank you. Your next question is from Philippe Bocconi with Kepler. Please go ahead.
Yes, good afternoon. Two questions. The first one, does your guidance on the single digit growth NII for 2020 if you saw the small positive debt from Tiering. And if so, could you confirm that should be something in the region of €2,000,000 The second on the performance fee, you indicated no limited performance fee for October, but is it fair to assume for the next 2 months of the year higher contribution because most of the new LUC C and C tablets you have launched that still can be lifted or it's a wrong point? Thank you.
Thank you, Filippo. You're right. We clearly contribute for EUR 2,300,000 next year and are included in our projection. In terms of performance fee, again, you are right, almost 80% of our assets are close or at the high watermark level. So of course, in case of further increase of markets, it will be very, very positively impacted, both in November, December as well as the beginning of next year.
Okay, thanks. Welcome.
Mr. Mansa, there are no more questions registered at this time.
Okay. Thank you all for the participation and goodbye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephone.