Anima Holding SpA

MIL:ANIM

Earnings Call Transcript 2021-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Anima Holding First Quarter 2021 Results Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Alessandro Melzi D'Eril, CEO of Anima Holding. Please go ahead, sir.

[Alessandro d'Eril, executive]

Thank you very much. Hi to everybody, and thank you for attending our First Quarter 2021 Conference Call. I would like to start, as usual, with our presentation, Page 4. The Q1 2021 highlights. We closed the quarter. It was the highest quarter for the -- in the history of the group in terms of AUM, fixed fees, total revenues and net profit. We reached EUR 195 billion of assets, plus 11% versus last year. 124 million total revenues, plus 21%. More than EUR 100 million of EBITDA, plus 44% -- 24% if compared to 2020 and almost EUR 58 million of net income in the first quarter, plus 50% if compared to last year. The negative flows registered in the Q1 were fully recovered in April with a strong increase in terms of retail net inflows. And therefore, given the results, and moreover, the net inflows that are increasing in the retail segment, we have a positive outlook for the year, a very positive outlook in terms of -- if compared to 2020.

Page 5, the AUM evolution. As I mentioned in Q1, we registered minus EUR 300 million approximately of outflows, of which almost EUR 500 million in the retail. In April, we registered more than EUR 300 million of net inflows with positive retail. Market effect, almost EUR 2 billion minus EUR 700 million in terms of AUM change for the Class I mandate.

Page 6, in terms of business by segment, nothing particular to highlight. 88% is the percentage related to our strategic partner in the retail. Institutional, 73% of the total AUM, EUR 142 billion of assets.

Page 7, looking at our performances in the quarter. The WAP as compared to the Italian industry was very positive. The market is well performing. And in the last year, in particular, our investment team did very well, and we are very happy for that. And continue to perform very well. Looking at our funds breakdown by category, as I already highlighted in the last call, we have the large part of our assets related to flexible and balanced fund. With less bond and less cash if compared to the industry. In particular, in the last period, we saw the equity component increasing, moreover, related to our accumulation funds.

Page 9. The P&L get into numbers. Top revenues, as I said, plus 21%, reaching almost EUR 124 million. Net revenues EUR 80 million, a little bit more than EUR 80 million as compared to EUR 79,600,000 of last year. Performance fees, strongly increasing as compared to Q1 2019, reaching EUR 43 million. EBITDA plus 44 -- 24%, a little bit more than EUR 100 million. Cost a little bit increasing related to the increase of estimated variable compensation, mainly linked to performance fees and the company performance. Net income plus 50%, EUR 58 million. Adjusted net income plus 34%, EUR 77 million -- EUR 67 million over.

Looking at the profitability on the right side of the page, if you look at the margins on the retail seems to be decreasing. This is an optical effect, if you want, because as we said more than once, many of our target date funds distributed on the retail, invest the equity component through fund of fund mechanism where the profitability of the fund invested by the fund distributor under retail is accounted on the institutional. Therefore, we have an optical dilution on the retail and an increase in profitability on the institutional while the institutional increased the assets significantly as compared to last year.

Therefore, what we would expect is a decrease in institutional profitability. If you look at the average one, there is probably more simple to be understood if compared to last year. We have 0.9 basis points of dilution and this is mainly explained by the fact that if compared to last year, we have EUR 10 billion more on the institutional side, therefore, diluting the average margin. Out of this EUR 10 billion, EUR 6 billion relates to the Class I mandate of Poste Italiae, and we know that the profitability of these assets are a little bit more than 2 basis points.

Looking at the cost income, excluding performance fees, remains absolutely under control. Moreover, if we don't take into consideration the variable compensation, the extra variable compensation related to the performance of the company, the cost income decreased compared to last year. Tax rate substantially stable and this includes also the intercompany charges on dividends paid in the first quarter.

Page 10. Net fees if you look at the absolute number, we see that we continue the recovery after the further shock of the Q1 2020. And we reached in this quarter, the highest historical level of the company. Looking at the personnel expenses, I already mentioned the variable compensation. If you look at the fixed salary, we see that we have substantially stable cost.

Page 11, getting back a little bit on fixed fees. Core fees, the gray column on the right side of the page, continuously growing and very close to our historical maximum. Even if we have average retail AUM, EUR 1.9 billion lower on the retail. The growth rely on product mix, there is with relevant number having an, as I mentioned before, an increased component of equity. So EBIT accumulated in the portfolio. This typical product we offer to our client base in the last years and moreover now. The equity component reached 28% of total AUM in AUM mutual funds in Q1. The institutional margin, excluding Class I, increases mainly because of the wrap component. I said this fund are invested by the fund distributed on the retail and this profitability, typically, of equity fund is accounted in the institutional segment.

Placement fees. Fees are back to normal. As we expected, more or less, a little bit less than Q1 of last year, it was very strong. But in any case, we got back to a number that is more or less in line with the past. After Q1 last year, then we had a drop because of the very low gross activity because of the COVID of the health emergency. It seems to us that in the last 2 quarters, we got back to more or less normal activities -- gross activities. And we hope we will continue like this.

Positive trend in the other income, the growing administrative fees are linked to typically very small items. But for a very large number of clients, these admin fees are typically between EUR 2 and EUR 9, but are generated on having more than 1 million clients and therefore, this line continue to grow and become a significant item in our revenue stream. The items are typically subscriptions, redemptions, coupon payment, et cetera.

Page 12, performance fees. We saw the very strong contribution of performance fees in the quarter. This is all related to our absolute watermark fund with no reset. So the performance was related to the high level of reach by the market and by the capability of our managers to catch this desire. Many of our funds are very close or above the watermark. And therefore, on the end of Q1, therefore, this is a good -- an important point of start for the rest of the year. A large part of this performance fees more than half were cashed on the targeted funds. As we mentioned more than once in the past, this became an item -- revenue item for us, more stable than performance fees cash on open-ended funds.

Page 13, consolidated net financial position. Strong cash generation in the quarter. I would say, as usual, we also issued a new bond for EUR 300 million was a very successful transaction. The fixed yield of demand for 7-year maturity is 1.6%. And this bond will be related -- the cash related to the bond raise with the bond will be partially used to pay down the banking debt of EUR 90 million. The higher duration of our debt will increase -- has already increased our, let's say, capability to exploit potential strategic options in terms of external growth.

Anima, why. Page 15. We -- I wanted to remind the complexity of our machine because sometimes we always present our company as a company with very strong and strict cost control. But we control the cost, notwithstanding the capability to grow and to increase our capabilities and skills and also asset classes. And I wanted to remind you a little bit the complexity of our machine that continues to evolve and to adopt and try to adapt to the market. We have a wide product range. As you can see, we go from open-ended fund to alternative fund that we recently launched with our first private fund.

We have 137 open-ended fund, almost 160 target date. We have individual accounts from the retail pension funds, insurance mandates with over 123 mandates, other institutional mandate with some mandate and strong relation, very important institutional players. Our investment division cover almost everything compared, let's say, looking at the size, relative size of our company, going from the alpha strategies where we have global equity Europe equity, Italian equity, multi-asset emerging, fixed income, positive strategies and individual mandates for our institutional clients. After almost half of the company is focused on sales and investments, so 50% of our FTE focus on sales and investments.

Notwithstanding the complexity. As a machine, number of withstanding -- considering the complexity of the machine on the distribution component, we just want to remind you that we are a full -- and not vertically integrated asset manager. So we are a pure asset manager. The vast majority of our AUM are linked to distributor and to distribute our funds. So this is our retail segment. Other solutions are -- that we account as institutional solutions are anyway product distributed to the retailer. So this is called a B2B, B2C. Life insurance business as unit-linked advisers to major funds, for instance.

And then we have a pure institutional business made of pension funds, wrap solutions and Class I insurance. Where do you want to focus in terms of distribution? Of course, in the last period, we had the segment where we suffered more was the retail the pure retail. Therefore, where we want to focus more today and where the management has the major challenge is to address our retail growth. We continue to grow -- we continued in the last year to grow on our stronger distributor, namely BAMI.

There is a positive contributor in the last 5 years. We want to strengthen all our relationship in the retail in order to get back to a growth path. And as I mentioned, this is the management challenge. Of course, in the last -- in last period from the MiFID II implementation, this has provided some bumpy period in terms of relationship we have with some of our distributor.

We have more than 100 distributors. We have to gain -- the idea for us is to gain additional traction on our main partners in order to offset some channel that was weak -- a little bit weaker in the last year. Closing remarks, what -- in the last period, we experienced changes in our top line with a better diversification of our items. As you can see, if you look at the -- our income statement in the last years, performance fees are becoming more resilient, a little bit more important. Other revenues steadily increasing. This has provided a more stronger diversification of our income statement and a stronger resiliency, we believe. This is coupled with the cost control. As you know, this is embedded in our corporate culture. We demonstrated continuously in the last 7 years since we listed the capability to stay below 30% of cost income, continuing investing in several initiatives, as we mentioned before, artificial intelligence, new research team, alternative business, et cetera. This graph provided by Fabrizio, provides the our -- demonstrate or illustrate our, let's say, the characteristic of the business.

This is a business where the operating leverage is very important. You have a bunch of costs that are more or less stable. And on top of that, you have to exploit and you have to be able to exploit the growth in assets and in revenues. Increasing, let's say, the operate level from revenues to net profit. And I strongly believe our company has been outstanding in the last year, continue to be in exploiting such an operating leverage.

At the end, we remind you that we paid also this year, 50% of the reported net income in dividends as we did in the last years. And we have been able to do so, also retaining a significant amount of cash in order to be able to catch opportunity -- strategic opportunity to grow in the next few years. This is a 5% yield. So we believe that we continue to be a strong generating -- a company, strongly generating cash with a very interesting yield and with many potential opportunities to growth in the future. Thank you and I am fully available for your questions.

[Operator]

[Operator Instructions] The first question is from Elena Perini with Intesa Sanpaolo.

[Elena Perini, analyst]

Well, I would like to know if you have any expectations, if you can quantify them with us about your new partnerships with small local banks here in Italy.

And then I would like to ask you about your new EUR 300 million bond. If you can quantify more or less how much that you are going to repay and so that we can have an idea of the remaining amount for potential M&A.

[Alessandro d'Eril, executive]

So Elena, here I am. Well, looking at our smaller partnership, let's call it like this. Our aim, our objective as a company is to be able to sign 2/3 new smaller partnerships per year. This is a way to increase our capabilities on this small, medium-sized bank segment to have, let's say, recurring and continuous growth path. There is no change in the pace of our company because the amount of this demand available in terms of assets of this company, of course, is not that huge, but it's very important in my opinion because once you will be able to have 5, 6, 7, et cetera, of this partnership will provide a significant -- potentially significant flows -- news flows for us. We don't have a specific target per bank. We have a target in terms of banks to be linked to our company per year.

If you look at the bond -- at our bond issue, the bond issue provides us with EUR 300 million of additional resources. As I mentioned, EUR 90 million will be put back -- will be used to put back the part of the existing debt financing. After dividend and after this reimbursement of that, we will leave -- we'll end up with a little bit more than EUR 400 million in cash. So this is the -- let's say, our potential today.

[Operator]

The next question is from Angeliki Bairaktari with Autonomous Research.

[Angeliki Bairaktari, analyst]

So first of all, you mentioned that the retail net flows were positive in April, which is very encouraging. Could I please ask you what was the exact amount of retail net flows in that month, if you can disclose it?

Secondly, following up on the question of my colleague, can you tell us what level of net flows we should be expecting from the recent partnerships that you agreed with Banco Popolare di Crédito and Banca Val Sabina? And what is the level of AUM roughly that they currently have with other providers, which could potentially migrate to Anima over time? And one third question, if I may, on the management fee margin. Can you explain to us what is the margin that you earn on the WAP product which of those target date funds that sort of have this fund of fund structure that is captured under the institutional AUM and do I understand correctly that effectively, the drop in the retail margin was because there was a shift out of other retail funds into those target date funds that are captured under the institutional segment?

[Alessandro d'Eril, executive]

Right. Yes. I will start from the last question. Yes, you're right. It works like that. When you have a target date fund, for instance, that is distributed on the retail. This target date need is required to invest a part of this -- of the portfolio inequity. In order to have more efficiency because, as you saw before, we have almost 160 of these targeted funds in order to be more efficient, the equity component is invested through our funds of funds investment. So the target date is investing in other equity fund of the house. In terms of regulation, we cannot double charge the client. So the fee is taken from one part or the other.

In terms of accounting, it works that the fee is taken by the equity fund. So the equity fund, so we register the margin on the equity fund that we accounted as institutional. So this ends up with a dilution of the profitability of the retail fund and an accretion on the institutional. I don't know if it was clear.

[Angeliki Bairaktari, analyst]

Yes, I think that's clear. I was just wondering, if I have a plain vanilla fund with a balanced fund, that you currently recognize under retail versus the target date fund, part of which is recognized under the institutional component, would they have the same margin? I'm just trying to figure out, if I am a retail client, and I switch out of the balanced fund today and go into a target date fund. Is the margin that I'm paying the same or is the target date fund a little bit lower? And this is what creates this sort of rebalancing that we see?

[Alessandro d'Eril, executive]

It's very much -- it depends because the balance fund typically is an open-ended fund with a certain allocation that will depend from the benchmark. This target date are not -- are without benchmarks because our target is 5 years target base. So typically, I didn't have a benchmark. And it very much depends from the, let's say, from the composition of the fund in terms of asset classes that provide the fee. So it's very -- it's almost impossible to answer to such a question. Because in terms of, let's say, asset mix, I would say that the client is paying the same, but the funds are typically all different.

[Angeliki Bairaktari, analyst]

Yes. Okay. I guess, if I may follow-up on this one. The target date fund would -- the way I understand it would be a little bit more conservative in allocation, at least in the beginning. And so that might be the reason why the margin on that is a little bit lower?

[Alessandro d'Eril, executive]

It's typically targeted funds. The targeted funds are structured as, let's say, targeted with our accumulation of equity embedded goes like that. You have lower fees at the beginning, increasing with the increase of the equity component. But it very much depends from the type of fund. As I showed before, we have more than EUR 300 million fund between open-end and target date. So it's difficult to say the -- is difficult to answer to your question. What I'm looking at is the -- just to try to summarize is the average profitability because if you look at the average profitability, we lost 0.9 basis points if compared to last year. But as I mentioned, we have an increase of EUR 10 billion in institutional assets. Of this EUR 10 billion, EUR 6 billion were plus 1 life insurance at basis point. So this tells me that the profitability of the company is absolutely there. I mean, because the dilution is made by the growth on the institutional, on average.

[Angeliki Bairaktari, analyst]

Great. And on the retail net flows and also your expectation from the recent partnerships?

[Alessandro d'Eril, executive]

Yes. Sorry. I was looking at -- well, first of all, the retail in April, your question for the retinal was positive. We don't provide the number on the single month. We will provide the number on the 3 months, but any case, the retail was positive out of the EUR 300 million that we showed released yesterday.

On the new partnerships, what we expect, we don't have a number to provide to the market in the sense that we have our internal number, but we don't provide such level of detail. We provide -- we expect a positive contribution, of course. As I mentioned, these are not great numbers because of the -- these banks small medium banks. What we want to do is to continue to add to add such kind of partnerships. One will have a good bunch maybe we will be more, let's say, clear on the total of these banks.

[Angeliki Bairaktari, analyst]

Have you already started seeing flows coming from this partnership? Or have these partnerships not closed yet?

[Alessandro d'Eril, executive]

Yes. Yes, no, no, no, this partnership. We already worked with these banks. So this partnership were signed, but we already had a distribution agreement with them. So now we are reinforcing the activity with them. We are doing, in particular, commercial activity on the networks. So we are seeing some signs, but it will need some months in order to see some more important result. The important thing instead on the retail is that we turn positive because Banco BPM is doing very well since February. And also Monte dei Paschi is getting better, is doing far better than before. So this is the reason why we are turning positive on the retail.

[Operator]

The next question is from Alberto Villa with Intermonte.

[Alberto Villa, analyst]

Alessandro, a few questions from my side. Quite quick, I guess. One is on the performance fees for the month of April, it provide us with some indications about how it's going?

And the second one is regarding the discussions or, let's say, what Monte dei Paschi said during the presentation of the plan about potential monetization of distribution agreements, if there has been any kind of say, step forward on that front? Or if you can elaborate on that for what you can say. The other one is on Creval, probably premature, but have you got any idea of what may happen now after the recent change in control of the bank and finally, for products, I was wondering if there is any, let's say, increasing interest for the PIR and the alternative PIR products, if you see opportunities there or seems to be slowly moving across the industry. But if you have any, anything to share with us on that front would be helpful.

[Alessandro d'Eril, executive]

Thank you, Alberto. I'll start from the last, PIR. Some sign, but it's too early probably to say if it's -- there is a trend. April was positive, slightly positive on the PIR for us. We launched the new health if that raised a small amount, a few hundred thousand euros. So still eligible. So I would say some sign, yes, also because we believe in the product, and we hope that will be able to raise money during the year.

Year-to-date, we are slightly -- just to give an idea, in the first 3 months, we were slightly negative. With April, we turn a little bit positive, but to be honest, it's too early to say that will be -- that this will continue.

Creval. We continue to work with them. We don't have particular news. Of course, they close the criterial close the offer, and we will wait till the employment of new management, and then we will probably get in touch in order to set the future of the partnership. The NPS, as you rightly mentioned, there was, let's say, something in their business plan. In order to, let's say, something related to discussions with Anima on the agreements, we are very discussing a lot with the management team. The situation has changed. Also, our commercial trend with Monte are getting better. So we are very happy from that because this also ties us that the ratio with the pond management is very good. Let's see if we'll be able to further strengthen in our relationship. Of course, this is one of our key goal as a management team because Monte dei Paschi is our second distributor on the retail.

Performance fees. Slide 13 was -- no, 12 was showing that many products at the end of the quarter were on the watermark. This is the only thing I can say.

[Operator]

Mr. Melzi D'Eril. At the moment, there are no more questions registered.

[Alessandro d'Eril, executive]

Perfect. I thank you all to -- for the participation to our call, and see you in the next 3 months. Bye-bye.