Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Banca Generali First Half twenty nineteen 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. Gianmaria Mosa, CEO and General Manager of Banca Generali. Please go ahead, sir.
So good morning and thank you for attending our first half results conference call. The 1st 6 months were very strong. Total assets reached EUR 62,900,000,000 a new record high. The total assets managed directly by our Luxembourg platform, Bijifan Management exceeded €15,500,000,000 and we set a new record high also on asset under advisory €4,000,000,000 These results are driven both by a good performance for the market as well as strong net inflows. As you already know, net inflows for the first half reached €2,800,000,000 of which 75% comes from the existing sales force and this is the highest contribution ever for the existing structure to total inflows.
In terms of financial advisor networks, we exceeded 2,000 units and we continue to see an increase in the average portfolio that exceeded €31,000,000 In terms of financial results, we are very satisfied. Reported net profit reached €132,800,000 thanks to asset expansion and a positive contribution from the market recovery. Focusing on the core net profit, let's say that core net profit increased by 12%, thanks to higher core revenues, in particular positive contribution on net interest income, management fee and other fees. On capital ratio side, we continue to have very solid position with both CET1 and TCR well above prep requirement. Page 4, where is our usual representation of the main figures of our P and L.
Total banking income increased 22%, thanks to a spike in net fees plus 33%. During this first half, as you can see in the table, we had a temporary spike in operating costs plus 7.7 percent mainly driven by one off and an acceleration of the investment for our strategic initiatives. Moving below the operating line, we had lower charges, so $10,000,000 more or less. The tax rate was at 17.8% and so total net profit reached €132,800,000 that is the 2nd best first half ever. Page 5, we have the buildup of net profit where you can see the positive contributors and the detractors to this performance.
Positive contributors, we have performance fee plus $33,000,000 higher net interest income plus 5.5 and then the effect of asset expansion plus 10,000,000. On the detractor side, with the spike of cost as already mentioned plus of course higher taxes in line with higher profits. And then you can see again the impact of IFRS 16 and IFRS 15 on the bottom line results. Now moving on to Page 7, we'll go through line by line starting from net financial income. Net financial income was in line with the Q1 close to $20,000,000 but we've a higher contribution as already said from net interest income.
Net interest income was gross at 18.6 percent once net of the IFRS 16 impact, we still have a very important number 17.7 with a number for the full half year results at 33.6. And we are pretty confident to have a significant positive contribution also for the second half. This increase of net interest income is driven by the yield, a partial recovery over the yield of the banking book from 0.7 at the end of the last year at 0.77 as well as asset expansion. So the consequent increase of the banking book from €6,000,000,000 to €6,900,000,000 If you look at the graph on the right, you can see that there was a temporary spike of loan to banks due to some events in the end of the first half and we already invested part of this liquidity in July confirming the positive trend for the future in net interest income. Next page, we start with gross fees, starting from management fees.
We see a steady recovering from the bottom of the beginning of this year. The contribution of management fee is still lower to the last part of the last year due to a more defensive product mix with free margin at 1.4% that is in line with the guidance 1.38%, 1.42%. The positive news on this side is about an increasing interest for asset management products in June and in July. So we are confident to see an acceleration also of absolute value of management fees. Page 9, other fees.
Here you can see that the increase from the same period the last year was even more important from €36,100,000 to €39,900,000 and this important acceleration is driven both by entry fees as well as banking fees. Entry fees were driven by an acceleration of structured product and certificate, while banking fees were mainly driven by the acceleration in asset under advisory. Page 10, the last component of gross fees, so performance fee. In the Q2, we had a same contribution of the first one, 35.6 percent, where the new performance fee mechanism accounts for more than 55% of total Luxembourg assets. And in the last 2 months, the contribution of the new Luxembourg is higher has been higher than the selection one.
Page 11, let's move to the fee expense. On the cost side, so total payout was at $191,400,000 that means $10,000,000 lower than last year. In particular, the payout to the network resulted below to 50%, thanks to a reduction of the cost of growth because as we already said that the existing sales force driven the inflows in the 1st part of the year. We had also a reduction in the payout of 3rd parties, thanks to the renegotiation of the agreement with the external asset managers. Total payout ratio is through the performance fee at 54% from the previous 57% same period over the last year.
Page 12, we can see the operating cost. As we already said, we saw an overall increase of $7,300,000 Part of this increase are linked to 1 off items, moving M and A and the implementation of IFRS 16, the amount is 1.9 dollars Net of this one off, the cost would have been up by 5.7% and this includes, for example, dollars 1,000,000 of extra investment to accelerate Saxo initiatives. If we look at the breakdown of core operating costs on the graph on the right of the slide, you can see the impact of IFRS 16 adoption in particularly depreciation, the impact was at €8,800,000 while in G and A we had a reduction of €9,500,000 dollars In the annex, you have the detail of this impact. Next page, Slide 13, we see the ratios. Operating cost out of total assets reached the new law at 0.32 and cost income also once net of extraordinary components
is at
40%. We continue to represent best practice in the market. Page 14, capital position, CET1 ratio and TCR ratio respectively to 15.7% and 17.1%. Consider that first of all 100% of interim profit has been set aside for the new dividend policy and the both capital ratios include the first time application of the IFRS 16 and the impact is between 0.8 and 0.87. Liquidity ratios are very, very high, much higher than the regulatory requirement and the leverage resulted at 4.5%.
So just to recap from a financial perspective, all the core components are growing and are gaining momentum. We had positive impact from net interest income and we are confident to see a further acceleration in the second half. We saw a steady growth of asset under management fees and again good news from the last weeks and acceleration in the inflows and the quality of the inflows. All the new initiatives are working well increasing the contribution of both banking fees as well as entry fees. So now let's move on to the commercial results.
So net inflows, assets and recruitment starting from Page 16. As we already announced, we are reaching a new high in terms of total assets $62,900,000 This is driven both by positive inflows as well as very important performance of the asset management products. In this 1st 6 months, the performance the average performance was at 7%, more than offsetting the negative performance of the second quarter second half of the last year. On the top right of the slide, you can see the breakdown of managed solutions. All the different investment solution grew in the period exceeding the levels of last year.
And again, all the initiatives are accelerating. Bottom right, you can see the banking assets. We break down also banking assets to show also the acceleration in asset under custody that is driven both by the performance of the market as well as inflows. If you move on Page 17, where is the breakdown of net inflows in asset under custody and here you can see good news. First of all, we confirm the good results of securitization €300,000,000 and we see an acceleration in certificates that almost doubled the result of the last year.
All in all, the contribution of asset under Castorin to total net inflows was in line with last year. Another positive achievement was about our Luxembourg platform. You know that one of our core pillar of the strategy announced in December of last year was a focus on retail distribution of our in house products and we see a tremendous interest in these solutions in particular in the second quarter and we achieved more than €1,000,000,000 of total assets in the retail distribution. And this is probably the best number for years for the bank. And again, in July, we can confirm a positive trend in our retail distribution platform.
Page 18, a focus on recruitment. You remember at the beginning of the last year, we announced a gradual reduction of recruitment activity. Numbers for the second half of last year was about were about 40 new colleagues. In this first half, we were in line with the second half of the last year, so plus 43. In the say that in autumn, we will consider the opportunity to reaccelerate gradually the recruitment activity.
Why we slow down the activity the recruitment activity in these last 12, 18 months? Because we have 2 main reasons. The first one because we wanted to be very cautious to the phase in and implementation of MiFID review as you know. And second, because we wanted to be fully dedicated to the activity of our existing sales force and the results were impressive. On the graph on the right of the page, you can see the total contribution of the existing sales force, 75% compared to the 58% of the previous year and also the negative contribution of the financial advisor out was at the lowest level ever for the bank.
So Page 19 is a focus on our FA Networks in terms of numbers, in terms of trends. On the left, you can see that we achieved the say that our FA network accounted 2022 financial advisors, 2 third of which manage more than €15,000,000 that is the floor to us to do this kind of business and they all accounts for more than 90% of total AUM, achieving well in advance the target of having financial advisers with more than €15,000,000 above 90% of total AUM. Why this achievement? Because we continue to grow selectively, thanks to ordinary equipment. We have a very, very low churn rate.
So if you look at the graph, the trend in the top right of the slide, you see how constant was the growth of the financial advisory network. On the bottom of the page, you see that the quality is still increasing because the difference between us and the market is widening. Today, the difference for us, the data are at the end of the first half for the market are at the end of the first quarter is above €11,000,000 per financial advisers. 5 years ago was less than €7,000,000 So there is an increase of almost 50% in terms of average portfolio average. So basically the commercial activity is very sound and of great quality.
Probably we can start see we will see some seasonally effect on the inflows. We saw a slowdown in the inflows in these last 2 weeks and probably will be the same in August. But we are confident to see gaining acceleration in September, October and for the last part of the year. So we will wait for the trend in the next few weeks to decide whether confirm or increase the target of the total net inflows for this year. Last part of the presentation is about an update of the main initiatives on asset under advisory, asset under custody and asset under management.
Starting from assets under advisory, numbers are well above the plan with in the 1st 6 months €1,700,000,000 of new contracts. These lead total assets under advisory at 6.5% of total assets. Why this acceleration? For two main reasons. The first one is that we continue to be innovative and to have some say some tools that are unique in the market.
And second, because we provide these kind of services in a very diversified way with 3 main different value proposition. The first one is about pure financial. We completed the rollout of our Robot4 Advisory tool, fully integrating the tool provided by UBS, but with a very, very high degree of personalization and are fully integrating in our BG personal advisory platform and we strengthened our market strategy team. So there is a growing interest in this kind of activities and services in the asset under custody and asset management products. Family office, this is probably one cutting edge solution with our proprietary platform.
We continue to upgrade the platform and there is a growing interest in both real estate advisory as well as succession planning. We start covering also the corporate advice and there is great interest from our 8,000 clients that are all entrepreneurs. Securitization, this is a confirmation of the right choice of the last year, growing interest and well diversification among the clients willing to subscribe these kind of products. We are talking about professional and institutional clients. The goal is pretty clear.
All this kind of innovation is to provide upselling to ultra network individual and private clients to focus more and more the attention of our clients, our financial advisors also on assets under custody and at the end of the day to increase diversification in the revenue streams. Next page, asset under custody. What really impressed me in the first half of this year was about the assets, stock and bonds transferred from other financial institutions. If you look at the graph on the left of the Page 22, you can see that the activity of the existing financial advisors in transferring, say, the asset under custody increased by 55%. So it means that if we maintain this path, we should have more than $1,000,000,000 of net inflows only from the transferring of stock and bonds.
And this is thanks to the refocus of the attention also on asset under a category driven by the BG Certificate Hub, the BG Personal Advisory, Road For Advisory, as well as the first release of BG Saxo. In June, we start offering BG Saxo platform to the existing clients in particular the one provided by the platform is provided by our financial advisors. The feedback are very important and we are very confident to see an acceleration also on brokerage fees in particular in the second part of the year with a full impact in the first half of twenty twenty because we will launch BG Investo that is a simplified version the app of BG Sachs. And second, because we will introduce both the B2C business, so dedicated to traders and derivatives also for hedging strategies. So again, the goal is to be best in class also in providing advice on asset under custody, diversifying again revenue streams, thanks to all the projects that we announced last year and now are up and running.
The last part is about asset under management. This is our core business, our core activities. On the left graph of the page, you can see the recovery of our Luxembourg assets. In particularly, we achieved €15,600,000,000 and again in July, we saw a far we are seeing a far acceleration. But the most important news is about retail distribution.
You see the red bar reached 6.3, so changing the trend and reaching a record high compared to numbers at 2017. And we continue to focus on the retail distribution, consider that in September, we will complete the journey of Luxim with the 3rd wave. Total BG Fund Management assets out of total AUMs is around 53%, as well balanced and considered that 80% of total assets of our total assets in Laxamun are managed directly by third parties. We are very focused on maintaining a great diversification of the underlying of our Luxembourg platform and you can see the pipe where of course we have equitritionally equity funds as well as thematic funds, real assets and bond strategies. They say that for us asset under management is not just about funds, but it's also about portfolio management solutions and unit linked.
On the first topic, portfolio management solution, we completed the innovation of new dedicated investment solution, both introducing ESG concept as well as dedicated solution, a liquid solution for top client. And we organized a roadshow that we concluded in we completed in the end of May and the beginning of June. And while in insurance, we are very, very close to launch a new initiative, a new version of our unit linked, midgisti Le Libero with even higher flexibility. So at the end of the day, the focus is to provide up selling, cross selling for ultra network individual as well as focusing more and more on saving. For the first time, we will launch saving planning, recurring plans both for single funds as well as unit linked.
So one hand focus on investment solutions for private clients, ultra network individual. On the other one focus on saving plans, saving investments for affluent client. And you know this is a very important part of our customer base that we haven't provide this and then we don't have provide this kind of solution in the past and now we are very, very focused also in developing this kind of opportunity and business. So just to wrap up, as you can see, we are working on several projects. You know that our 3 year plans is a multi project approach where we have initiatives in our advisory initiatives in under custody initiatives under asset under management and we aim at increase revenues and expand the opportunity set for our financial advisors to cross sell and up sell.
The focus is to strengthen the long term relationship between our financial advisors and our clients. The most interesting thing is that almost all the initiatives are up and running, they are providing great results. So this is the reasons why I'm continuing to be very optimistic for numbers for the next months. Thank you. And now we are ready to take any questions.
Excuse me. This is the Corusco conference operator. We will now begin the question and answer session. The first question is from Gianluca Ferrari with Mediobanca. Please go ahead.
Yes, good afternoon everyone, Ciao and Maria. Three questions. The first one is on NII, €33,600,000 If I understood it correctly, you said there could be an acceleration in the 2nd part of the year. I am a bit surprised because you are mainly investing in 2 year duration BTPs, 3.5 years maturity. So how can you even accelerate such a strong number you printed for first half twenty nineteen?
And I think during the Q1 conference call, you guided for €65,000,000 NII in full year twenty nineteen. Can you share with us the number for full year twenty nineteen? And it could be also really appreciated an estimate for 2020. The second question is on entry fees. About certificates, I think there are a lot of comments in the market around how these products are charged.
I think you are basically selling a 3 year certificate with a 1 percentage point per year in terms of charge. Can you confirm this is the kind of remuneration you are getting on certificates? And the 3rd and final question is on the banking license in Switzerland. Is there any update on that specific topic or you are still in the market looking for opportunities? Thank you.
[SPEAKER JEAN FRANCOIS PRUNEAU:]
Thank you, Gianluca. So starting from net interest income, you are right. The environment is much worse than in the past, but let's say that we haven't seen yet the full impact of the investments during the Q2 and the expansion of the total banking book. So we are confident to exceed the €65,000,000 full year results and we think of positive contribution also for 2020. On certificate side, you are right, it's 1% per year.
Here you have several good news. The first one is that each client invest normally 2, 3 certificate and we have a positive turnover. So it's difficult to think of waiting for the maturity of each certificate. So we are investing also in tools to provide advisor on the secondary market. 3rd question, banking license, no news.
We are continuing the scouting. We organized meeting with several banks. There is a great interest in our initiatives. Valour, we have the close to for the Valour deal at the end of September, beginning of October. And we have a target of the Q1 of next year to decide about on the banking license.
Thank you.
Thank you.
The next question is from Elena Perini with Bancaimi. Please go ahead.
Yes. Good afternoon. I've got some questions. First of all, coming back to the entry fees, so would you expect them to be so high and robust even in the second part of the year. Then on performance fees, I was wondering if you can update us on your performance fees in July.
Then probably, and I lost something about the one off on costs. So if you can make some sort of a recap of the one offs in the second quarter. And then about your pro form a assets of €65,000,000,000 I was wondering if you could provide us with the breakdown between assets under management and traditional banking products? Thank you.
So thank you, Elena. First of all, my You have to consider 2 different components. I'm very positive on certificate. So we can confirm the trend over the 2nd quarter with some seasonality due to August, while entry fees, the traditional entry fees are more linked to the market. So in that case, there is some seasonality linked to market.
So for what we can manage, it is a certificate and structure product, they continue to be very confident. On performance fee, July is still positive when we are above €10,000,000 already got. And for the one off, there are 3 main components. The first one is about moving. So from the previous building in Via Bassi to city lies.
The second one is about M and A, of course, the cost linked to the acquisition of Nexa and Valleur. And the third is about the full implementation of IFRS account. I don't know if Tomas wants to give you more flavor. I start by answering also to the 4th question, EUR 63,000,000,000 and it becomes EUR 55,000,000,000 percent including also Nextam and Valour. If we consider 63% above 73% in asset management product and insurance solution.
Tomasso, if you want to give the breakdown of the one off or more flavor? Well, I
think that the main important thing on cost is that we have done an important of the project, which are not included in the one off. For example, the expenses for SAC O project is included in the core cost and they account for more than €1,000,000 in the first half of the year. So I think that we can confirm also the guidance in terms of growth of the cost between 3% 5% in the next 3 years. Of course, in these years, we are going to be in the higher part of the range for the end of 2019.
Okay. Thank you very much.
The next question is from Alberto Villavit, Intermonter. Please go ahead.
Hi, good afternoon and congratulations for the results, which are very strong. I wanted just to have a couple of comments. One is on the feedback from your clients from the MiFID II disclosure. I think I've been told you're sending it, especially online, the reports on MiFID II on 2018. I was wondering if you have any kind of, let's say, feedback from customers and from the financial advisers about the additional disclosure on cost.
And if that is maybe masked in the short term by very strong performance, You are delivering in the first half of twenty nineteen, but maybe an issue in the future or not. So this is the first question. The second one is on Slide 21 when you give us an update on the assets under custody. And I'm quite impressed by the acceleration you had in the first half twenty nineteen on that. And I was wondering if your target for 2021 looks, say, kind of cautious now.
And if you can just give us an idea what is the additional contribution to revenues of this kind of activity and so what we can expect going forward coming from the assets under advisory business? Thank you.
Thank you, Alberto. First of all, let me start from the feedback from clients. I have the impression that more than 50% of clients has already dealt with the cost and the feedback were pretty positive also because, as you mentioned, performance of the first half of this year helped a lot. The most important thing is that our financial advisors look very relaxed on this topic because we worked a lot in the last year, we trainee them and they see also the positive side that it means that you have the rest of 95% of the market waiting for the report. So probably now we are managing our clients, but there will be a moment where we will attack.
For Asset Under Advisory, I was really impressed. I was really, really impressed by the numbers. I'm very confident on securitization. I'm very confident on the family office. What impressed me more was about the integration of Avis Robert for advisory tool of UBS because we're ranging where platforms starting from risk and this approach likes a lot to both the network and the clients.
Probably in SeptemberOctober, we will increase our projection for the 3 year plan. The profitability is pretty good, is above 40 basis points. We are at the moment advisors started working on also with this approach. So we are confident. We want to wait for the autumn to review our targets.
Thank you.
This is very helpful. Thank you. When you talk Gianmario, when you talk about the 46 basis points, should we have to consider what you have to rebate to the network.
40% for the network.
Okay. Thank you.
The next question is from Luigi Dabelis with Equita SIM. Please go ahead.
Yes. Good afternoon to everybody. I have three questions, if I may. The first one on the management fees on asset under management and the payout ratio. How do you see this trend in the coming quarters?
Do you think to maintain the run rate of margin registered in the first half? The second question always on the fee expenses. Could you explain why there is a small increase of ordinary payout in percentage with a more cautious mix of assets under management? And the last question, could you explain the driver behind the trend of common equity Tier 1 ratio quarter on quarter? Thank you.
Okay. Thank you, Luigi. Let's start from the first question on management fees. If you consider our Luxembourg platform, the payout ratio is lower than the average that we presented in the slide. So an acceleration in the distribution of retail funds will provide support to maintain that level.
The increase is more linked to asset under advisory, where the payout ratio is at 40%. So the great interest in the first half of the year in asset under advisory increased marginally the payout ratio. We are confident to maintain this level, the range 36%, 37%, thanks to an acceleration of continued acceleration of asset under advisory as well as an acceleration on the retail distribution of funds. On so and while the part of payout ratio linked to growth, We are confident to confirm this level for the second half and of course an increase in this part would be linked to an acceleration also in recruitment that at the moment is not still the case. For Check-1, as I mentioned, CEP-one, as I already mentioned, you have 2 different topics.
The first one is the 100% let's say 100% of interim profit set aside and this would impact 0.8% more or less. So we the 100 percent of interim profit was set aside for dividend policy. We felt any positive impact on capital ratio, so 0.8. And then you have the first implementation of IFRS 16 that you account for 0.8, 0.87 depending on the capital ratio. And then we start investing and diversifying the banking book.
So the gap is excluding 100 percent of interim profit set aside and the IFRS 16 is linked to the higher diversification of the banking book.
Thank you. Thank you very much.
Okay.
The next question is from Filippo Perini with Kepler. Please go ahead.
Good afternoon. Two questions. Still on performance fee of July. Is it correct that the large part of the result that you achieved is coming from the latest launch, Luxim? And if you can please repeat when do you plan to launch the final wave of new Nuulyxim?
And the second question is on the basically, we see that your liquidity, so basically, loans to banks, has increased further in at the end of June compared to end of March. So if you plan to reinvest it with excess of liquidity again into new investment portfolio? And if for 2020, do you plan to increase some way instead your lending portfolio that contract remained stable? Thank you.
Thank you, Filippo. First of all, performance fee, the contribution of July that I mentioned is 100% driven by Luxim. We have a couple of $3,000,000 of DG selection. The externalization of this be at the end of July. So almost all the 90% of the assets are at the high watermark level of the Luxim.
2nd, the 3rd wave should be the last one will be announced to the network to our convention in September 15th. And about liquidity, we had some exceptional factors at the end of June. After a few days in July, total liquidity was below €1,000,000,000 That is the threshold that we have in mind, much lower than €1,000,000,000 dollars because part of the increase in the net interest income is linked to an optimization of the liquidity of the bank. So we continue to invest in liquidity, reducing the cost of this part of the balance sheet. For 20 20, the question was, sorry.
If you plan to give a boost to your lending portfolio.
Okay. Lending, let's say that probably if you look at our the strategy that we launched in December of the last year, the only one that is lagging is credit because we want to be ready from an IT perspective for the automatization of all the process. So we're going to launch the new mini lumber for AFFO and upper AFFO and client in the Q1 of the next year And we are pretty confident to see an acceleration also for this kind of project. Thank you.
Okay. Thank you.
The next question is a follow-up from Elena Perini with Bankaiemi. Please go ahead.
Yes. Good afternoon. Just a quick question on the net inflows. You mentioned a slowdown in this month. And well, I imagine that it is more related to the banking products or well, low margin products, if you can confirm it.
And then about your guidance, if I remember well, you guided for €4,000,000,000 to €4,500,000,000 So are you going to upgrade it in the highest part or even higher than this one? Thank you.
Thank you, Elena. Let's say that net inflows are influenced by summertime. So in July, we still see very positive inflows. I think we'll be close to EUR 300,000,000 where almost all invest in Asset Management Solutions. So the quality of numbers in July are probably the best for the year and we see this growing interest in our Luxembourg offering and on also the insurance wrapper.
So the quality is probably the best, total inflows are still very strong. We're just seeing a deceleration in these last 2 weeks and probably as usual, August and beginning of September will be a little bit lower than the average because we started the year very, very strongly and without the contribution of recruitment. So the numbers are really, really impressive. So we maintain our projection of the range of 4, 4.5 until October. And that time, we will consider the opportunity to increase our projection after having analyzed numbers also in August and in September.
Thank you.
Okay. Thank you very much.
Gentlemen, there are no more questions registered at this time.
Okay. So thank you for attending our conference call and goodbye to the next caller. Bye.