Anima Holding SpA

MIL:ANIM

Earnings Call Transcript 2019-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ANIMA Holding's First Quarter 2019 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Marco Carreri, CEO of ANIMA Holding. Please go ahead, sir.

[Marco Carreri, executive]

Hello, everybody, and thank you for attending to our conference call dealing with our first quarter 2019 results. Let me start from sharp at Page 4, showing as always some highlights. Let me start with commercial. AUM reached almost EUR 178 million, the highest ever in our company. And while net new money was in total negative for around EUR 100 million with 2 different teams. Very good period in the institutional segment even if the [ issuance ] activity since highly -- below the good productivity while the retail flows show once again, since the beginning of this year, except that this version that is in some ways affecting the productivity.

Moving to financials, over EUR 76 million the net commission above net income, above EUR 27 million and adjusted net income USD 38.2 million. Let me highlight the EBITDA margin, EUR 12.7 million, well above the guidance that we gave you May 2018. And just to conclude, the buyback we concluded the first tranche of 3% was completed at the end of [indiscernible].

Moving to the second section and specifically to Page 6, we have the usual business by segment. No material changes in the split between retail institutional with retail segment invested for around EUR 55 billion, representing around 31%. The rest is institutional above EUR 122 billion representing around 69% of total AUM. No changes in terms of the split between strategic partners and the rest, with strategic partners representing around 87% and that with money more than 50% of total retail invested through their customers and the BMPS around 28%, 29%.

Moving to the institutional, we see that poster represents around 2/3 of the total institutional AUM, that's considering the sum of plus 1 insurance activity, so call that additional life insurance and the sum of [ unit linked ] and subadvisory removal fund for around EUR 5.7 million. Following my other insurance that covered representing around -- above 15%. If we move to Page 7, you have the evolution of the AUM, you see that the evolution represents around a growth of around EUR 4.7 million, fully presented by performance effect, exactly EUR 4.72 million, while if you see the split between the close, you can note that the net demand in institutional was positive for around EUR 400 million, while the retail segment represents EUR 500 million negative in terms of net new money.

Page 8, we have the breakdown by category. The slide show how much is due to the customers' behavior in our country as of today.

As you can note, we registered at a moderate outflow from every category with the exception of monetary funds and in the most offensive category that show positive flows for around EUR 200 million.

Page 9, investment performance. As you can see, we registered very positive results in terms of absolute performance delivered to customer, above 4% in the first quarter. That improved once again during April. And if you look in [ relative term ], you can note that once again that we have registering a positive GAAP versus competitors in the region of 30 basis points of outperformance.

Product innovation. Just to show you once again our [ industrialized ] process of launching customized solution through targeted funds for our banking network and for bank of [indiscernible]. As you can note that the new launch continued regularly also in the first quarter this year. And the amount attracted is pretty in line with the last quarter in last year and in the second, third and fourth quarter, EUR 1.4 billion, the amount registered [indiscernible] net new money in the first quarter this year. But if you compare the first quarter of last year with the first quarter this year, you see a significant gap in terms of net new money because of the reduction in terms of [ positivity ] by the banking network.

I think that now we stay on Page 11, going on Page 11, looking at implementation of ERG principal. We have an ongoing project with an internal team supported by external advisers in order to mesh 3 items: First of all, to mark the best practice in this area; secondly, integrate these ESG factors into our investment processes; and least but -- last but not least, the large ESGs screened into our [ multi-fund range ], institutional mandates within the end of this year. If we look at ANIMA Holding as a listed entity, we are currently working with standard [ FX ] to have it most likely by the end of the second quarter and SG valuation of our company.

I think that now we are going to enter in the third section so I leave the floor to Alessandro Melzi, our General Manager.

[Alessandro d'Eril, executive]

Thank you, Marco, and hi to everybody. I bring you to Page 13. We have a quick general overview for the first quarter. You can see total revenues reached for the first quarter approximately EUR 80 million, the decrease in respect to first quarter 2019 is fully explained by a decrease in performance fees. These are performance fees and funds, which apply the high-water mark mechanism [ under their accounting ] during the year.

And remember that there are times where we account performance fees, where we take performance fees only once a year and benchmark all of these funds in particular. On total expense, we see synergies starting to work with the decrease in the total expense and notwithstanding the increase of the [ premium tax ] compared to Q1 2018. EBITDA is almost EUR 60 million for the first quarter. Net income, adjusted net income. Again, the difference compared to first quarter 2018 is fully explained by the decrease in performance fees, the DNA related to the purchase price allocation that was not considered in the first quarter of 2019, particularly around the Aletti Gestielle acquisition and the MPA fee that was approved during the -- that wasn't accounted last year.

Going on the right side of the page, which is the profitability. Average margin, as you can see, reflect the full integration of all the institutional volumes that we acquired last year in particular with Poste, and with the bond issuance mandate, bringing the average profitability to 16 basis points, down from the 30 of last year. We'll come back later on, on this side. Looking at the cost side, and looking at the cost-income ex performance fees that we believe is more appropriate to be looked at. As you can see, we brought down almost 27% of our cost/income, keeping it strictly under control and exploiting some synergies on the cost side.

Tax rate. The increase was in the portfolio [indiscernible] the first quarter is mainly due to [ computation ] of last quarterly activities in Italy from our [indiscernible] and some, let's say, admission from the government of previous tax deductions that are affecting 2019.

Page 14, looking at the margins. On the retail side, we can see the margin is affected mainly by the lower AUM year-on-year and typical and most profitable asset classes and reduced gross flows in the first quarter that affect placement fees in particular. As you may remember, [indiscernible] last year -- first quarter of last year had shown a strong level of AUM over on the retail side while we had a decrease in terms of proper AUM during the year. On the institutional side, the decrease is only due to a technical effect coming from the consolidation of the acquisition completed last year, as I mentioned before, bond insurance mandates and the large institutional mandate for Poste. The average -- the total average is 16 basis points, is mainly affected by the acquisition completed last year.

Page 15, beginning on the net fees. As you can see, the revolving fee is for net fees during the quarter. For the quarter, basically in Q1 2019, the changes in perimeter, and the perimeter is upsetting lower level of placement fees due to lower level of gross activities and the expiration last year in April of last month [indiscernible] mandate that we had in the first quarter of 2018. And of course, we are -- it is not included in 2019. On the right part of the page, personnel expenses. Fixed component declined due to lower head count , mainly related to acquisitions. As you can see, last year we absorbed more than 60 colleagues coming from Aletti Gestielle and 10 people from Poste. Then we had been able already to start with some synergy between [indiscernible] moreover, the fixed component of that. Variable remuneration is also linked to the contribution of performance fees. I was not preferred the performance fees, so it is mainly related to this figure.

Page 16, cost efficiency. As you know, cost efficiency is one of our key features and one of our strong driver from a managerial standpoint. The decrease q-on-q is close to 6%, but if you take into consideration that we -- during the period, we absolved the BAMI insurance mandates plus the non-concern from Poste Italiane, bringing approximately EUR 2 million of costs, the decrease on a like-for-like basis would have been EUR 1.8 million, approximately minus 6% on costs.

Page 17. As Marco mentioned at beginning of the presentation, P&L ratio analysis. Last year [indiscernible] we provided some guidance in terms of the profitability on the asset that we believe is more than confirmed with the first quarter results.

In fact, applying margins are in line, not sustaining the limited contribution of placement fees and strong market effect also in the institutional segment with lower margins, optically diluting the top line. We of course, as I said before, reached better results in terms of costs, and this resulted in an EBITDA above guidance, 12.7 basis points per AUM, above 70% of net commissions [ if you exclude ] performance fees.

Just to remind you also that when we talk about EBITDA, EBITDA is not including performance fees [ weighed ] in the costs. We include variable compensation linked to performance fees.

Page 18, net financial position. Net financial position in the first quarter is reflecting EUR 35 million that we spent for the share buyback. We completed [ mainly the 2% ] buyback for a total consideration of EUR 41 million. We would like also to remind that in May we will put the dividend to show there is approximately EUR 61 million, and in June, we will pay back EUR 50 million of bank loan.

I give back the floor to Marco for the final remarks.

[Marco Carreri, executive]

Thank you, Alessandro. So let me start from the scenario that we are leading right now, which flows remain weak, let me say in Italy, but not only in Italy. If we look at European levels at this point [indiscernible] the total amount was around EUR 58 million. Means that, in any case, the industry on the retail side but also this is [indiscernible] is suffering [ the most from inflows ]. Let me say that we depend from banks in terms of distribution is very clear and this is very well known. And the banks in the first quarter appear more concentrating on derisking activities, funding activities and matching needs of very conservative customers through guaranteed products through certificates. In this scenario, we believe that there is something to do certainly, but a lot of things that we are doing well and that is in our company in which we are proud of it. First of all, there is a strong mutual fund performance. Once again, I show you that the absolute and relative performance versus competitors is going very well, save for the product innovation that we need to have -- to have to represent this practice in Italy in this area showing the [ neutralization ] process and the money that we are able to attract quarter-by-quarter.

And last but not least, very lean cost side with very high control of costs, operating efficiency that support our solid financial results that once again, let me repeat, are above the expectation of the guidance that we gave you one year ago. What is not working right now clearly are flows. We are in some ways disappointed by the result, considering most of the outflows registered in April. In some ways, there are still something that is not specific of our company if you look at the industry. Also seen in the result in the first quarter, and we expect not positive result during April. What is affecting, not only the distribution banking effort that is in some ways, as I mentioned before, concentrated in other area in the first quarter, but also there are in some ways the item of the PIR that represent around 50% of net new money last year that in some ways represented the [ frozen product ] after the regulation, the new rules effective by January 1 this year. And as always, the macro uncertainty that really brought the risk aversion as a result of very -- as a result of the [ more ] performance in the last year and the high volatility that we faced.

So saying that, we believe that we saw the worst in terms of our flows. We have -- [ we put ] -- we believe that there are some good reasons to improve in this area. We show in some ways some encouraging flows in term of gross flows, not net flows and that we see a certain interest from the banks, also declared by the CEO in terms of asset [indiscernible] looking forward. And last but not least, the insurance partnership we had are very part from the full speed and we aim at least getting much better results and looking forward during this year.

I think that we have concluded, so you have time for any questions and we are fully available. Thank you.

[Operator]

[Operator Instructions] The first question is from Elena Perini of Banca IMI.

[Elena Perini, analyst]

I have 2 questions. The first one is on the theme flows. Are you still confident on the guidance you provided at the shareholders meeting of a total [ net-net ] inflow of approximately EUR 1 billion to [ EUR 1.2 billion ] for this year? And with reference to this guidance, does it include the class 1 insurance mandates? Or does it exclude them? And then the second question is on the tax rate. Can you provide us with some guidance, given the fact that they're aware, as you mentioned, some changes in the previously -- in the previous tax deductions?

[Marco Carreri, executive]

Elena, this is Marco. I will answer to your first question. We are certainly facing a more complex scenario than what we thought was reasonable to expect looking at the good performance that we realized in terms of performance on products. You also know that our distribution power depends largely from banks' commercial activity, was clearly weak in the first quarter during 2019 as far as concerning asset management and products certainly. You heard in the conference call of the result of some banks that they were focused on the activity they just mentioned before, so derisking their commercial activity was -- they were focused on guaranteed products, so it clearly affected our result.

There are also specific problem, some issue regarding our main partner on [indiscernible] issue as that in some ways affected also the productivity in the network. But we are really confident because we see that it's clearly not the full speed that each area of the business from [indiscernible] institutional component that we believe that is part of a big room for improving there. Also consider what they declare because if I well understood, all this year we declared that asset management will remain key for the productivity in the way of the banks during the rest of the year. So saying that, at this stage we believe they are still in the position to fulfill our guidance proposed in the region between EUR 1 billion and EUR 1.2 billion, even if clearly the debt is flatter than 3 months ago.

As we see this result is achievable in stable market condition, it was stable until one week ago. We hope that in some ways, maybe we go back to the same scenario that we reaped in the last 2, 3 months. And so in some ways, we expect a relevant improvement in both retail segment but also institutional segment because in the unit link that we are confident that we would make very good result starting from May, this month. We are clearly very far from the full speed. So at the moment, we have no reason not to modify this guidance.

Let me also say that answering to the second part of your question, that the guidance does not include the [indiscernible] primo, so the so-called traditional life insurance that is a different means and source in terms of profitability.

[Alessandro d'Eril, executive]

Elena, Alessandro speaking. In terms of tax rate, let's say annualizing the effect that I mentioned before, our tax rate should be in the region -- year end, should be in the region of [ 33% ]. On top of that, on the positive side, this year we will use the possibility of a tax relief from [indiscernible] Italian that will -- will provide the benefit of approximately EUR 6 million.

[Operator]

The next question is from Federico Braga of UBS.

[Federico Braga, analyst]

Just a few questions on my side. The first one on flows. I was interested to know what was the contribution of Poste in the first quarter of the year. Because yesterday when they presented their results, we actually saw pretty good inflows into their insurance products, in particular, the multi-class products. So I was wondering to what extent you were able to benefit or not from these flows at Poste? The second one is just a clarification on tax rates. So the [ 33% ] includes a EUR 6 million benefit that you just mentioned, I imagine? And then finally, just an update on M&A, again, and overall potential continuation of the buyback?

[Alessandro d'Eril, executive]

Federico, this is Alessandro. I will start with tax rate. Tax rate is 33%, excluding the tax revision. And as a positive instead, this year we'll have the EUR 6 million effect of the tax relief.

The buyback, well, on the buyback side, we -- as I said -- as I mentioned before, we closed the program in April. At this stage, we prefer to stay on hold with the program as you see, and this leads to the other part of your question. We see M&A opportunity rising potentially also for this year. And we do not have indications whether such opportunities could imply paying also on our shares or not. And so we would like to keep flexibility on the balance sheet in order to be able to catch potentials.

[Marco Carreri, executive]

Federico, this is Marco. About the relationship with Poste and new flows, let me confirm that the relationship is very, very, very good at all the levels. We are still enforcing in training the network and producing new money with each of the level of around EUR 700 -- EUR 7 billion of managed assets, so considering only mutual funds [ uniquely ]. That's not considered in the realm of [indiscernible]. And as far -- as concerning the first quarter, let me see that the results are very strong and good, so we are completely, fully in line with our estimation. What is missing right now is the banking network production. The other question was concerning?

[Federico Braga, analyst]

M&A. Update on M&A.

[Marco Carreri, executive]

Update on M&A. About the M&A, you know that, first of all, we are concentrating on our process of diversified distribution network in Italy, that is clearly our country and we are, as a local player, we are active right now. We are -- we believe that there are 2 targets, very well known. First of all ARCA. In this respect, we are waiting for the chance to better understand which is their plan. So now -- concerning the shareholders. We know that -- we read that they appointed an [ industrial ] consultant in order to evaluate the different options that they have. We were pleased to have the opportunity to discuss with them about the possibility to put inside an aggregation. But clearly, as you know, we must speak to [indiscernible].

We also are interested in possible expansion to institutional business cooperating in terms of industrial partnership with some standard players that are on the European level, very focused on the institutional business that could permit to us to expand the capabilities and adding big room for growth in this area. And we think about some capabilities that we need to ask to be more successful. If we look at -- their profit target could be a mid-sized company not listed and very well skilled in the institutional components, searching for an asset manager like us that is very particularly skilled in the retail business and leaving very huge success on the Italian market. This is the priority, I think that this -- we still are in place to seek a chance to make some deal. I think that we are fully available to discuss.

[Operator]

The next question is from Filippo Prini of Kepler.

[Filippo Prini, analyst]

Three brief questions for me. The first one is referring to what disclosed yesterday by Poste Italiane during his conference call, basically said that there are meaningful class 1 product maturing in next quarter that they expected to reach into multi-class products. So my question is that, could this decision impact on your inflows? And if your guidance reiterated does include this effect?

The other 2 questions, very brief, just a couple of clarifications. The first one, the line where you mentioned the decrease of the operating cost, this effect of reduction does include any impact from IFRS 16 if any? And last one is on the tax relief, the [ sentiment ] of goodwill. Is this correct that you should pay an upfront cost to benefit from these tax breaks? And if so, could you please quantify it?

[Marco Carreri, executive]

Filippo, let me start from Poste. As I mentioned before, there are no impacts on possible switch from class 1 to multi [indiscernible] because of when we gave -- our guidance was excluding the life insurance [indiscernible] by so-called class 1 because of the very difference in terms of profitability of the different -- these areas of business which are, as you probably know, the profitability in traditional life insurance we posted is very, very low and so we consider it out of the guidance that we gave you.

[Alessandro d'Eril, executive]

Alessandro speaking. On the cost side, these effects exclude IFRS 16, so we are not taking into consideration any changes in IFRS accounting. In terms of the tax relief, yes, we have to pay EUR 7.1 million up front. This tax relief will be done at operating company level, SGR, the Italian company. Well you know that we have cash, a significant amount of cash on deposits but -- that we cannot distribute because of regulatory requirement. So we will use this cash that is sitting on credit accounts to pay the upfront taxes and we will get this benefit the first year in terms of the net income of the EUR 6 million as I mentioned before.

[Operator]

The next question is from Alberto Villa with Intermonte.

[Alberto Villa, analyst]

I just have one question is -- on the Slide 13 on the margins, especially on the retail. The decline you commented already, but I wanted just to better understand if we can expect a recovery of the marginal retail going forward, meaning that I haven't seen any deterioration in the asset mix of the mutual funds if I'm correct comparing the first quarter '19 to the 2018 situation. So a slight increase in the equity, flexible funds are more or less stable and so on. So I wonder if it was also due to the [ part or not the ] performance of the assets and so on that you have at this drop to the retail profit margin? Or if this is the effect of a structural decline in margins going forward and we should expect this to be the -- I mean, the normal for the coming quarters? And if on overall assets, the 16 basis points you're showing in the first quarter is something that you believe is the level you're expecting going forward?

[Alessandro d'Eril, executive]

Alberto, Alessandro speaking. We have 2 main drivers on this side. One, as I mentioned before, are the placement fees. Those of course affect the retail margins and may be a little bit bumpy quarter-to-quarter because depends very much on program of sales of product -- target-based products and so this may have, as we saw already in the past, some seasonality relative to the [ predicted sales ] from the beginning of the year. Of course, what we saw on this side is also that reduced gross inflows are impacting this item. So it is a little bit difficult to say that -- to commit how will we do in the next quarter, given that we expect an increase in, let's say, a recovery a little bit on the inflows. We expect also to pick up on this item in the next quarters. So to recover a little bit in terms of profitability. On the rest, the other item impacting, of course, is the market performance because we know that the market performance is affecting particularly the asset classes, the [ reshare ] of asset classes and so diluting the mark to the profitability. If we saw the profitability, excluding the replacement fee, quarter on quarter compared to last year we are -- let's say the decrease compared to last year is like 1 basis point approximately. And this will, I mean, the recovery of these basis points will depend, I believe, very much on the market performance, if the market stays there or not.

[Operator]

[Operator Instructions] Mr. Carreri, there are no more questions registered at this time.

[Marco Carreri, executive]

Okay. So thank you, everybody, for staying with us. So we are fully available in the coming days if you -- for any additional questions. Thank you.

[Alessandro d'Eril, executive]

Thank you, bye bye.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.