Good afternoon. This is the Chorus Call Conference operator. Welcome, and thank you for joining the Banca Generali First Half 2019 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Gian Maria Mossa, CEO and General Manager of Banca Generali. Please go ahead, sir.
Good morning. Thank you for attending our first half results conference call. The first six months were very strong. Total assets reached EUR 62.9 billion, a new record high. The total assets managed directly by our Luxembourg platform, BG Fund Management, exceeded EUR 15.5 billion. We set a new record high also on assets under advisory, EUR 4 billion. These results are driven both by good performance of the market as well as strong net inflows. As you already know, net inflows for the first half reached EUR 2.8 billion, of which 75% comes from the existing sales force. This is the highest contribution ever for the existing structure to total inflows. In terms of financial advisor networks, we exceeded 2,000 units. We continue to see an increase in the average portfolio that exceeded EUR 31 million. In terms of financial results, we are very satisfied.
Reported net profit reached EUR 132.8 million, thanks to asset expansion and a positive contribution from the market recovery. Focusing on the core net profit, to 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 rep requirements. Page four, there is our usual representation of the main figures of our P&L. Total banking income increased 22%, thanks to a spike in net fees, +33%. During this first half, as you can see in the table, we had a temporary spike in operating costs, +7.7%, 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 EUR 10 million, more or less.
The tax rate was at 17.8%. Total net profit reached EUR 132.8 million. That is the second-best first half ever. Page five, we have the build-up of net profit, where you can see the positive contributors and the detractors to this performance. Positive contributors, we have performance fee, plus EUR 33 million, higher net interest income, plus EUR 5.5, and then the effect of asset expansion, plus EUR 10 million. On the detractor side, with the spike of costs, as already mentioned, plus of course, higher taxes in line with higher profits. You can see again the impact of IFRS 16 and IFRS 15 on the bottom line results. Moving on to page seven, we'll go through line by line, starting from net financial income.
Net financial income was in line with the first quarter, close to EUR 20 million, with a higher contribution, as already said, from net interest income. Net interest income was gross at EUR 18.6. Once net of the IFRS 16 impact, we still have a very important number, EUR 17.7, with a number for the full half year results at EUR 33.6. We are pretty confident we have a significant positive contribution also for the second half. This increase of net interest income is driven by the yield, a partial recovery with the yield of the banking book from 0.7% at the end of the last year at 0.77%, as well as asset expansion, the consequent increase of the banking book from EUR 6 billion to EUR 6.9 billion.
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. 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 fee 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. We are confident to see an acceleration also of absolute value of management fees.
Page nine, other fees. Here you can see that the increase from the same period the last year was even more important, from EUR 36.1 to EUR 39.9 million. 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 second quarter, we had same contribution of the first one, EUR 35.6, where the new performance fee mechanism account for more than 55% of total Luxembourg assets. In the last two months, the contribution of the new Lux IM has been higher than the BG Selection one. Page 11, let's move to the fee expense. On the cost side, so total payout was at EUR 191.4.
That means EUR 10 million lower than the last year. In particular, the payout to the network resulted below to 50% thanks to a reduction of the cost of growth. As we already said, the existing sales force driven the inflows in the first part of the year. We had also a reduction in the payout to third parties, thanks to the renegotiation of the agreement with the external asset managers. Total payout ratio exclude the performance fee at 54% from the previous 57% in the same period over the last year. Page 12, we can see the operating cost. As we already said, we saw an overall increase of EUR 7.3 million. Part of this increase are linked to one-off items, moving M&A and the implementation of IFRS 16. The amount is EUR 1.9 million.
Net of this one-off, the cost would have been up by 5.7%, this include, for example, EUR 1 million of extra investment to accelerate Saxo initiatives. If we look at the breakdown of core operating cost on the graph on the right of the slide, you can see the impact of IFRS 16 adoption. In particular, depreciation, the impact was at EUR 8.8 million, while in G&A, we had a reduction of EUR 9.5 million. 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 a new low at 0.32, cost income also once net of extraordinary components is at 40%. We 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 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 high, much higher than the regulatory requirement, and the leverage resulted at 4.5%. Just to recap, from 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, an acceleration in the inflows, on the quality of the inflows. All the new initiatives are working well, increasing the contribution of both banking fees as well as entry fees.
Now let's move on to the commercial results. Net inflows, assets, and the recruitment, starting from page 16. As we already announced, we reached a new high in terms of total assets, EUR 62.9. This is driven both by positive inflows as well as very important performance of the asset management products. In this first six months, the average performance was at 7%, more than offsetting the negative performance of the 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. 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, there 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, EUR 0.3 billion, and we see an acceleration in certificates that almost double the result of the last year. All in all, the contribution of asset under custody 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 product.
We see a tremendous interest in these solutions, in particular in the second quarter, and we achieved more than EUR 1 billion of total assets in the retail distribution. This is probably the best number for years for the bank. 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 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 autumn, we will consider the opportunity to re-accelerate gradually the recruitment activity. Why we slow down the recruitment activity in this last 12, 18 months? Two main reasons.
The first one, because we wanted to be very cautious to the phase-in and implementation of MiFID II, as you know. 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. Also the negative contribution of the financial advisor out was at the lowest level ever for the bank. 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 our FA network account 2,022 financial advisors, two-thirds of which manage more than EUR 15 million. That is the floor to us to do this kind of business.
They all account for more than 90% of total AUM, achieving well in advance the target of having financial advisors with more than EUR 15 million above 90% of total AUM. Why this achievement? We continue to grow selectively, thanks to ordinary recruitment. We have a very low churn rate. 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 EUR 11 million per financial advisors. Five years ago, it was less than EUR 7 million.
There is an increase of almost 50% in terms of average portfolio. Basically, the commercial activity is very sound and of great quality. Probably we will see some seasonal effect on the inflows. We saw a slowdown in the inflows in these last two weeks, and probably will be the same in August. We are confident to see, again, an acceleration in September, October, and for the last part of the year. We will wait for the trend in the next few weeks to decide whether confirm or increase the target of total net inflows for this year. Last part of the presentation is about an update of the main initiatives on assets under advisory, assets under custody, and assets under management. Starting from assets under advisory, numbers are well above the plan with, in the first six months, EUR 1.7 billion of new contracts.
This lead total asset 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 tools that are unique in the market, and second, because we provide these kind of services in a very diversified way with three main different value propositions. The first one is about pure financial. We completed the rollout of our Ro4Ad, fully integrating the tool provided by UBS, but with a very high degree of personalization, and are fully integrating in our BG Personal Advisory platform. We strengthen our market strategy team. 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 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-net worth individual and private clients to focus more and more the attention of our clients and our financial advisors also on asset 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 six half of this year was about the asset, 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, let's say, the asset under custody increased by 55%. It means that if we maintain this path, we should have more than EUR 1 billion of net inflows only from the transferring of stock and bonds. This is thanks to the refocus of the attention also on asset under custody, driven by the BG Certificate Hub, the BG Personal Advisory, Ro4Ad, 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 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 2020, because we will launch BG SAXO Investor. That is a simplified version of the app of BG SAXO, and second, because we will introduce both the B2C business, so dedicated to traders, and derivatives also for hedging strategies. 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 particular, we achieved EUR 15.6 billion, again, in July, we are seeing a further acceleration. The most important news is about retail distribution. You see the red bar reach 6.3, changing the trend and reaching a record high compared to numbers at 2017. We continue to focus on the retail distribution, consider that in September we will complete the journey of Lux IM with the third wave. Total BG Fund Management assets out of total AUM is around 53%, well-balanced, consider that 80% of our total assets in Luxembourg are managed directly by third parties. We are very focused on maintaining a great diversification of the underlying of our Luxembourg platform.
You can see the pie where, of course, we have traditional equity funds as well as thematic funds, real assets, and bond strategies. Let's say that for us, asset under management is not just about funds, but it's also about portfolio management solutions and unit link. On the first topic, portfolio management solution, we completed the innovation of new dedicated investment solution, both introducing ESG concept as well as dedicated illiquid solution for top client. We organized a roadshow that we completed at the end of May and the beginning of June. While in insurance, we are very close to launch a new initiatives, a new version of our unit link, BG Stile Libero, with even higher flexibility. At the end of the day, the focus is to provide upselling, cross-selling for ultra-net-worth 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 link. On one end, focus on investment solutions for private clients, ultra network individual. On the other one, focus on saving plans, saving investments for affluent client. You know, this is a very important part of our customer base that we don't have provided this kind of solution in the past. Now we are very focused also on developing this kind of opportunity and business. Just to wrap up, as you can see, we are working on several projects. You know that our three-year plans is a multi-project approach, where we have initiatives in asset under advisory, initiatives under custody, initiatives under asset under management.
We aim at increase the diversification of the 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 and are providing great results. This is the reasons why I'm continuing to be very optimistic for numbers for the next months. Thank you. Now we are ready to take any question.
Excuse me, this is the Chorus Call conference operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Gianluca Ferrari with Mediobanca. Please go ahead.
Yes. Good afternoon, everyone. Ciao, Gian Maria. Three questions. The first one is on NII. EUR 33.6 million. If I understood it correctly, you said there could be an acceleration in the second part of the year. I am a bit surprised because you are mainly investing in two-year duration BTPs, 3.5 years maturity. How can you even accelerate such a strong number you printed for first half 2019? I think during the Q1 conference call, you guided for EUR 65 million NII in full year 2019. Can you share with us the number for full year 2019? 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 three-year certificate with a one percentage point per year in terms of charge. Can you confirm this is the kind of remuneration you are getting on certificates? The third 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.
Thank you, Gianluca. Starting from net interest income, you are right, the environment is much worse than in the past. Let's say that we haven't seen yet the full impact of the investment during the second quarter and the expansion of the total banking book. We are confident to exceed EUR 65 million full year results, and we think of a 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 invests normally two, three certificate, and we have a positive turnover. It's difficult to think of waiting for the maturity of the certificate. We are investing also in tools to provide advisor on the secondary market. Third question, banking license. No news. We are continuing the scouting. We organized meeting with several banks.
There is a great interest on our initiatives. We have the close for the valuation year at the end of September, beginning of October. We have a target of the first quarter of next year to decide about on the banking license. Thank you.
Thank you.
The next question is from Elena Perini with Banca IMI. Please go ahead.
Yes. Good afternoon. I've got some questions. First of all, coming back to the entry fees. Would you expect them to be so high and robust, even in the second part of the year? On performance fees, I was wondering if you can update us on your performance fees in July. Probably I lost something about the one-off on cost. If you can make some sort of a recap of the one-offs in the second quarter. About your pro forma assets of EUR 65 billion, I was wondering if you could provide us with the breakdown between assets under management and traditional banking products. Thank you.
Thank you, Elena. First of all, on entry fees, we think that the second half will be even stronger than the first one, because the second quarter was much higher than the first quarter. You have to consider two different components. I'm very positive on certificate, so we can confirm the trend over the second quarter, with some seasonality due to August, while the traditional entry fees are more linked to the market. In that case, there is some seasonality linked to market. For what we can manage, that is certificate and structured product, I continue to be very confident. On performance fee, July is still positive, and we are above EUR 10 million, already got. For the one-off, there are three main components. The first one is about moving. From the previous building in Via Bassi to CityLife.
The second one is about M&A, of course, the cost linked to the acquisition of Nextam and Valeur. The third is about the full implementation of IFRS account. I don't know if Tommaso wants to give more flavor. I start answering you also to the fourth question, EUR 63 billion, it becomes EUR 55 billion including also Nextam and Valeur. If we consider EUR 63 billion, we have above 73% in asset management product and insurance solution. Tommaso, if you want to give the breakdown of the one-off or more flavor.
Well, I think that the most important thing on costs is that we have done an important acceleration of the projects, which are not included in the one-off. For example, the expenses for Saxo project is included in the core costs, and they account for more than EUR 1 million in the first half of the year. I think that we can confirm also the guidance in terms of growth of the costs between 3% and 5% in the next three years. Of course, in these years, we are going to be in the higher part of the range, for the end of 2019.
Thank you.
Okay. Thank you very much.
The next question is from Alberto Villa with Intermonte. Please go ahead.
Hi, good afternoon. 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, 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 advisors 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 2019, but may be an issue in the future or not. 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 2019 on that, and was wondering if your target for 2021 looks cautious now. 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's start from the feedback from clients. I have the impression that more than 50% of clients has already dealt with the cost. 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 with training them. They see also the positive side, that it means that you have the rest of 95% of the market waiting for the report. 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 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 this robot for advisory tool of UBS, because we range in their platform, starting from risk, and this approach likes a lot to both the network and the clients. Probably in September/October, we will increase our projection for the three-year plan. The profitability is pretty good, is above 40 basis points. We are at the moment 46, and there is a growing interest. Almost more than 1,000 financial advisors started working also with this approach. We are confident. We want to wait for the autumn to review our targets. Thank you.
This is very helpful. Thank you. Gian Maria, when you talk about the 46 basis points, should we have to consider what you have to rebate to the network?
Exactly. 40% for the network.
Okay. Thank you.
The next question is from Luigi De Bellis 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 assets under management and payout ratio. How do you see this trend in the coming quarters? Do you think to maintain the 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? 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. 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%. 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 a continued acceleration of asset under advisory, as well as an acceleration on the retail distribution of funds.
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 CET1, as I already mentioned, you have two 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. The 100% of interim profit was set aside for dividend policy without any positive impact on capital ratio, so 0.8. Then you have the first implementation of IFRS 16, that account for 0.8, 0.87, depending on the capital ratio. Then we start investing in diversifying the banking book.
The gap is excluding 100% 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 Prini with Kepler. Please go ahead.
Good afternoon. Two question. 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, Lux IM? If you can please repeat, when do you plan to launch the final wave of new Lux IM? The second question is on basically we see that your liquidity, so basically the loans to banks, has increased further at the end of June compared to end of March. If you plan to reinvest it, this excess of liquidity, again into your investment portfolio. If for 2020, do you plan to increase some way instead your lending portfolio that contrary remained stable? Thank you.
Thank you, Filippo. First of all, performance fee. The contribution of July that I mentioned is 100% driven by Lux IM. We have a couple of EUR three million of BG Selection. You know, the crystallization of this will be at the end of July. Almost all the 90% of the assets are at the high-water mark level of the Lux IM. Second. The third wave, which should be the last one, will be announced to the network, to our convention in September the 15th. About liquidity, we had some exceptional factors at the end of June. After a few days in July, total liquidity was below EUR 1 billion. That is the threshold that we have in mind, much lower than EUR 1 billion. Part of the increase in the net interest income is linked to an optimization of the liquidity of the bank.
We will continue investing in liquidity, reducing the cost of this part of the balance sheet. For 2020, the question was, sorry?
If you plan to give a boost to your lending portfolio.
Okay. Lendings. Let's say that probably if you look at 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. We're going to launch the new mini Lombard for affluent client in the first quarter of the next year, and we are pretty confident to see an acceleration also for this kind of project. Thank you.
Okay. Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Once again, if you wish to ask a question, please press star and one on your telephone. The next question is a follow-up from Elena Perini with Banca IMI. Please go ahead.
Yes. Good afternoon. Just a quick question on the net inflows. You mentioned a slowdown in this month. I imagine that it is more related to the banking products or low margin products, if you can confirm it. About your guidance. If I remember well, you guided for EUR 4 billion-EUR 4.5 billion. 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. In July, we still see very positive inflows. I think we'll be close to EUR 300 million, where almost all invest in asset management solutions. The quality of numbers in July are probably the best for the year. We see is growing interest in our Luxembourg offering and on also the insurance wrapper. The quality is probably the best. Total inflows are still very strong. We're just seeing a deceleration in these last two weeks, and probably as usual, in August and the 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. Our numbers are really, really impressive.
We maintain our projection of the range of four, 4.5 until October, and that time we will consider the opportunity to increase our projection after having analyzed numbers also in August and September. Thank you.
Okay. Thank you very much.
Gentlemen, there are no more questions registered at this time.
Okay, thank you for attending our conference call, and goodbye to the next call. Bye.