Azimut Holding SpA

MIL:AZM

Earnings Call Transcript 2021-Q1

[Operator]

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

At this time, I would like to turn the conference over to Mr. Gabriele Blei, CEO of Azimut Holding. Please go ahead, sir.

[Gabriele Blei, executive]

Thank you, very much, and good afternoon to everyone. We will go through the usual presentation as quickly as possible to give you as much time as possible for Q&A.

So if we take Slide #4, we highlighted 4 -- 3 key metrics. First, net weighted average performance to clients, net of fees, 4.2% year-to-date, 200 basis points ahead of the index; net inflows of EUR 10.3 billion in total and EUR 1.8 billion in managed products, of which EUR 400 million in private market funds; and net profit of EUR 97 million or 100% vis-à-vis the first quarter 2020.

Slide #5, we highlighted a bit of a recap of what has been done over the last year or so with a number of different initiatives, both in the M&A, business development, financial results context as we would like to highlight in terms of the strategic rationale of what we're doing. In terms of M&A, we are trying to increase the footprint of our presence in the countries in which we operate and/or in the asset classes in which we invest, such as the private market initiatives in the United States.

And more recently, the deal with a venture capital firm that we know since many years, P101, which will enable us to cover better the venture capital environment and tech environment in Italy.

Moving to Slide #6. We have recurring fees that are EUR 218.6 million, 13% year-on-year, and it's the new record level that we have achieved, and total revenues up 20% to EUR 273 million. If we look on the right-hand side of the slide, you can see how recurring revenue have progressed from EUR 193 million to EUR 219 million or EUR 25 million more, of which I would say 2/3 is explained by Italy and 1/3 by our foreign operations.

As far as the margin is concerned, we have continued the recovery since the drop of last year following the COVID emergency that started in March, and we are now standing at 181 basis points.

Turning to Slide #7, expenses. We are quite pleased with the development of the distribution cost. Despite an increase in assets of EUR 4 billion quarter-over-quarter and recurring revenues going up 13%, we have contained the increase from EUR 93 million to EUR 96 million. And this is obviously a constant payout of the network. So 40% of the fixed management fee, whereas the cost associated to the network also due to the continuous limitation from COVID have been contained pretty well in Q1.

SG&A, as we have highlighted in the past several times, as far as the constant perimeter is concerned, costs are flat, if not slightly down, whereas there is an increase of 6.7% due to EUR 4.3 million of M&A transaction which were concluded and were not present in Q1 2020. And I'm mainly referring to transaction in the United States and/or Australia.

Moving to the right-hand side of the slide, you see how there is a further development of the cost line that is, in total, EUR 160 million of the total operating expenses, with the cost income ratio down to 40% versus 50% in Q1.

Moving to Slide #8, the net profit. This is the best quarterly net profit in history for the company. We have reached EUR 97 million. If we look at the recurring net profit, this is spent at EUR 86 million. And as many of you are curious to understand how well are we performing in terms of returns to clients, we have shown this in the first slide, 4.2% net.

What does it translate this for the company is a potential performance fees that will eventually catch in at the end of this year. As you know, the new pricing is working on an annual basis of a solid figure, which we will see in the development of the year how much we will be able to end up with. But we are pretty satisfied with how things have progressed in the first quarter. And indeed, we see the EUR 350 million target at reach with normal market conditions, as we pointed out several times.

Slide #9, net inflows. This is -- has been a very solid quarter in terms of net flows, even excluding the consolidation of Sanctuary Wealth in February 2021, thanks to funds and insurance flows that have increased from EUR 628 million in Q4 2020 to almost double in Q1. Solid development also in the private market. We still have a lot of funds that are in the fundraising phase and a few others that will be launched from June onwards, which makes us remain positive as far as the asset gathering activity in the private market segment is concerned.

Slide #10. We reached almost EUR 73 billion, which equals to EUR 12.5 billion more vis-à-vis the end of 2020, so 4 months ago. Total -- and international business stands at 35% of the total -- of our total assets of EUR 25.6 billion, and EUR 2.4 billion are coming from the private market. As I've already stated, the EUR 10.3 billion net flows or if you prefer, EUR 3.4 billion organic. And we're also very pleased by the fact that 87% of our total assets under management are linked to mutual funds, alternatives and life insurance products.

Turning to Slide 11, focus on the private market. We have experienced a growth of 4x versus the beginning of 2020. Products -- the number of products today are 18 products, whom some of them are still, as I said, in the fundraising phase versus 6 in early January 2020. Total assets are EUR 2.4 billion, split across credit, EUR 1.2 million, private equity EUR 0.9 million, and our infrastructure fund that has almost EUR 250 million, while the venture capital is EUR 130 million. As you can see, this is split between Italy and the U.S., where in the U.S., we are progressing very well in terms of management of the existing funds and potential new fund launches in the coming quarters.

Slide #12, we wanted to give you a snapshot of the Synthetic Bank project. This is something that has been launched at the beginning of the year with a number of different products. In the middle, you see a laptop, which basically tells you how this Synthetic Bank project works with the technology of our partners, Borsa del Credito and Epic, thanks to algorithms that enable us to be extremely efficient in terms of timing of the lending process.

On the left-hand side, you see a number of different products that we have: the digital lending fund, which is focusing on guaranteed loans and commercial credits; and the private debt fund, the multi-strategy that is embracing performing and nonperforming direct lending and special situations investment; and then the capital solution funds, which has been launched with the help of Muzinich and other several preserved alternative investment funds. All of this will be channeling loans to SMEs. We have a target of EUR 1.2 billion between 2021 and 2025.

We're also -- so far, we have managed to reach EUR 450 million, and this positions us as a leader in the direct lending, also thanks to the partnership that we have successfully completed. The yield that we expect to provide is at least 5%, and this is a project that will be rolled out in the coming years with a very high degree of attention.

Turning to Slide #13. Another initiative we have launched in February is the first security token issued by an asset manager in the world. It is a digital securitization of loan portfolio of Italian SMEs. These loans are originated by Borsa del Credito. They are guaranteed by the Medio Credito Centrale, which basically guarantees 90% of the portfolio. And the token is a negotiable token. Actually, we have done the first transaction yesterday. And it's thanks to the partnership of Sygnum Bank that we can enable this first venture in the tokenization work.

It gives us -- why did we do all of this? It provides diversification and it provides alternative solution to our clients. And in essence, we have the possibility to speed up the ownership of the financial assets and simultaneously ensuring the transferability to investors of the asset itself through the distributed ledger technology. What does this produce? It produces lower cost and decreases the limitation of the intermediation.

Turning to the U.S. venture. We have closed the HighPost transaction in the first quarter. HighPost is -- has been founded by Mark Bezos and David Moross in 2019. They have set up this with the backing of the family offices of this 2 families, and they are involving a number of different institutional investors in the vehicles. This is -- are about to be launched. And things are progressing well, and we're quite pleased with the interaction with David and Mark.

On the Sanctuary front, we have completed finally the transaction in February. So we have consolidated Sanctuary just for 1 month. Assets since the announcement have grown 39%, up to the end of April to EUR 9.7 billion. And they are continuing to recruit significant partner firms with a decent pipeline still up to August which is quite visible. So these days, we have EUR 11 billion of assets in the U.S., 28 investment professional, 80 employees, and 140 financial advisers.

Moving on to the asset management side. We wanted to give you an update on the ESG activities that we are continuously doing, mainly in our Luxembourg platform, but this is also involving our Italian asset management company as well as some bench -- some initiatives that we have in Brazil or in Egypt with input funds.

So these days, all our funds have been internal scoring, whether they invest on -- 95% is -- of the investment are investment-grade ESG. All the funds have adopted the exclusion list. So we are pretty in line with this new piece of legislation. And we are finalizing the implementation of the best-in-class list. Last but not least, we have applied to all our funds the engagement policy. So these days, all the fund range in Luxembourg are compliant.

If you look on the following page, it tells you how the EUR 11 billion, or more than 40% of our Luxembourg products are spread across different asset classes, across fixed income, equity, alternative and allocation. We do have our alternative funds in Italy, the infrastructure fund that is ESG compliant as well as the pension funds that is following ESG principle in the investment process. As I mentioned, we do also have an impact fund in Brazil and an ESG fund in Egypt.

Turning to Slide 18. Performance net to the clients in excess of 4%. From 1st of January 2019, our clients are enjoying -- enjoining 14% of net returns, net of fees. So despite the drop of March last year, we've been able to fully recover that, thanks to the work of our global asset management team.

Page 19. You see the usual representation of the different macro asset classes, equity fixed income allocation and what we call liquid alternatives. On the equity side, we have been able to overperform, thanks to a good decision from our fund managers of being overexposed and enjoying the rally that we've witnessed in the first 3 months of the year.

We are cautiously moving away from riskier stocks, although remaining invested. Today, we are around 40%, 42% equity exposure, but we -- I would like to say that eventually, we are less exposed to the volatility of the equity markets.

Fixed income. The index is down 0.8%. Our fund managers have been able to do a fantastic job there, with a positive performance year-to-date of plus 1.2%, and this is mainly thanks to the active management style and the exposure to some emerging markets.

Allocation combines basically the fixed income and the equity component. And thanks to the active management style, we are able to perform with a plus 6% year-to-date versus the index up 4%.

In the liquid alternatives, not much to say vis-à-vis what I've already mentioned in the last call, is the index is very widespread. And we mainly focus on decorrelated strategies and strategies that invest in commodities. So the comparison is not very appropriate, but we still represent this in that last chart.

On Slide 20, not much to add, although there has been a big rebound from our side in terms of net new money as a percentage of AUM. Considering the acquisition of Sanctuary, this would have gone outside of the slide, but we are representing it in a decent way.

Slide #21, focus on our financial advisory network. 64 hires. We have done a lot of activity to pre-pensioning our advisers. I've seen some concerns that eventually, the churn is somehow higher than usual. But from our side, this is not impacting the flows nor anything within the network in terms of motivation or satisfaction. I have to say that if you look at the authority data, net flows per FA are still showing a very good development of Azimut vis-à-vis our listed peers in the average of the industry, although there has been a catch-up from the listed peers in the first quarter of 2021. As we've seen, all of us, the data are quite supportive for the entire industry.

If I look at our network specifically, average age across wealth managers and seasoned financial advisers is in line. Assets under management, on average, EUR 18 million versus EUR 50 million for our wealth managers, and 90% of what they manage is in managed assets.

I'm leaving the floor to Alessandro for the usual Q1 financials.

[Alessandro Zambotti, executive]

Yes. Thank you, Gabriele. We can move to Slide 23, where we have the consolidated reclassified income statement. As already mentioned at the beginning of the presentation, we closed the quarter with a consolidated net profit of EUR 97 million, 2x the first quarter 2020. This is a great result, also considering that we are booked almost flat in terms of variable fees. Therefore, the increase that we are showing is linked to our solidity, our attention on cost and our growth in assets under management.

Back to the total revenue. We increased by EUR 45 million comparing to the first quarter 2020, with the operating cost that increased by EUR 7 million with a net operating profit of EUR 38 million. The increase of total revenue can be simply explained by a few lines, I would say, the recurring fees that strong increase compared to the first quarter 2020 of about EUR 25 million. This is coming from the strong evolution and the stronger growth in terms of assets under management in Italy and outside Italy, EUR 50 million almost from the Italian business and EUR 9.5 million from the foreign business.

Another important valuation can be addressed at the level of the insurance revenue. Again, here, the valuation, almost EUR 70 million, is explained by the EUR 2 million -- almost EUR 1 million of new recurring fees and EUR 15 million are coming from the variable fees.

At the level of cost, distribution cost increased by EUR 2.7 million. This increase is completely in line with the evolution of the recurring fees. And asking a change in terms of remuneration, we have -- we are absolutely consistent. What we are benefiting and therefore, offset partially the variation is mainly explained by the less activities in terms of cost and marketing costs that we are addressing on our financial advisers. So we are [ as touched ], I would say, by the contingent situation that we are living.

On personnel and SG&A, we are increasing cost of EUR 3.6 million. But if we consider the EUR 4.3 million are coming from the new perimeter that we are considering linked to the M&A, as already mentioned by Gabriele, I would say that at the end of the day, the variation, it's negative. So we are taking and we are maintaining what we told you in the past, so our attention on cost and the discipline that we fix internally.

Moving on the, let's say, no recurring business at the level of the interest income. We have a positive effect of EUR 6 million. This value can be splitted by EUR 1 million of fair value option, EUR 1 million are coming from dividend of our minority stake, and EUR 3 million is coming from the active management of our liquidity in our contracts. We are flat at the level of the nonoperating costs and the interest expenses.

Moving to the net financial position. We are positive. At the end of March 2021, we have a net financial position of EUR 147 million. And the variation that you can see from December 2020 is simply explained by the effect, the contribution of the net profit of the quarter. We have no variation in terms of treasury shares. And in the following weeks, we will pay the dividend. Therefore, we will impact, obviously, the cash.

I will leave back to Gabriele.

[Gabriele Blei, executive]

Thank you very much, Alessandro. As always, summary and outlook, Slide 26. We tried to picture graphically where we spend vis-à-vis the EUR 350 million target, which we take very seriously, as always. And if we divide the EUR 350 million by 4, we can see how we are ahead of what is a mathematical exercise. Clearly, Q1 has benefited from a number of different aspects that we have tried to summarize in the previous slide.

We are seeing Q2, or at least so far since the beginning of Q2, an ongoing progression of what we have observed in Q1. So, so far, so good. Obviously, the performance fee element is a big variable which we'll know just at the end of 2021.

As far as net flows are concerned, we are organic at EUR 3.4 billion vis-à-vis our objective of at least EUR 4.5 billion, in line with 2020. I think the next couple of months will still be solid month in terms of activity, both on the fund side as well as our price market initiatives as well as our international operation. So we will see how things evolve, but we can eventually come back to you with an update on the figure when we speak again in end of July.

The business is constantly evolving, but we're able to maintain a very profitable company with 80 basis points of net profit over total managed AUM. And this is the combination of a number of different factors, most important, first and foremost, the quality of the people that we have within the company, both in Italy and abroad, the innovation and product launches that we're able to do and the effectiveness of our distribution channels to address or readdress the asset allocation of our clients.

Going forward, EUR 350 million is the target, on Slide 28, under normal market condition. We stress this because, unfortunately, this is the only variable that we are not able to control.

On the Italian side, the product development will -- is ongoing, public and private. We have 3 new funds on the pipeline that will be launched on the private side, a number of funds on the public side and a reorganization that is almost completed. And all this will be improving the network efficiency.

Recruitment is ongoing. We still have a number of options that are under negotiations. 64 FAs means also that we have hired, I would say, a good chunk of that is referring to young guys or sons and daughters of colleagues that will be the future of the business, and we're quite pleased with that. So the absolute numbers tend to increase the overall figure, but the quality is more important than ever.

Top line margin is expected to remain consistent. So, so far, we do not see major swings as far as the margin is concerned. But again, markets will eventually drive the volatility with -- in the margin.

International business, asset -- the global asset management team is working as a reality by now. It's a fact that we have 150 colleagues around the globe working together, sharing information and sharing ideas which are benefiting, obviously, the results that we can produce for our clients. We are developing integrated businesses in mostly or almost all of our countries, Australia, U.S., Brazil, Turkey, Egypt, and so on and so forth. I think the improvement in profitability that we have started to see is something that will stay with us for some time, again, albeit the volatility in the emerging markets.

Lastly, private markets, EUR 2.4 billion. Honestly, I think this figure would be higher at the end of the year. It depends how successful the new fund launches will be, but we expect to meet at least the EUR 3 billion mark by the end of the year. Actively fundraising on different products across the alternative space, this is something I mentioned several times. You will see some closing before the summer starts. And so actually, the monthly flows that we issue is not including all these fundraising activity that we are mentioning now.

That's it from us, and we'll leave the floor to you for any Q&A.

[Operator]

[Operator Instructions] The first question is from the line of Villa, Alberto with Intermonte.

[Alberto Villa, analyst]

A few questions from my side. Congratulations for the results. The first one is on the insurance revenues that are showing a very, I mean, impressive progression and growth. I was wondering if you can give us an idea of how important is the variable component there in the first quarter. And how we should look at this line item going forward if the result of the first quarter is something that we shouldn't take as granted for the next quarter? Or how we should look at it?

The second one is on the profit guidance of EUR 350 million. Of course, that's based on normal macro conditions. I was wondering if you have any idea what is the floor of net profit even in, let's say, seriously adverse market conditions, given the growth of the company and so on. We have seen other years of very tough markets and negative performance and so on. And it has had a big impact on adjuvant profitability. My feeling is that the change in the fee structure and the growth and the diversification as somewhat improved the, let's say, resiliency of your profit to adverse market conditions. So I don't know if there is any kind of sensitivity you can share with us on that.

And finally, it is more kind of a question on something I'm not very familiar with, which is the token stuff. And if you just can give us an idea of what is the potential opportunity there for the company? It's something pretty new for at least for the Italian market on the retail side, and I'm pretty curious about what are your ambitions there.

[Gabriele Blei, executive]

Thank you, Alberto. So insurance revenue, first, I would like to point out the fact that we have raised assets up to April of EUR 147 million, and total assets in insurance revenue stands at EUR 6.5 -- EUR 6.6 billion year-to-date. We had a number of years in the past where this product range suffered for a number of different aspects. And this is finally a turning point where we were able to raise money and perform very well in terms of the different products that we have. So we see an evolution in that line based on the growth in the assets and definitely also in terms of performance fee generation.

How much of that is repeatable? It depends on the market for some extent. But there is a strong support from the growth and the perception that we have and we see coming from the network as far as these products are concerned, which has been pretty changed from a reorganization that we have completed last year and is about to be completed the last couple of things during 2021.

Profit guidance and the floor, it's pretty difficult to answer, but my perception is that the stickiness is there. Obviously, we are capable of retaining our clients within the managed products. We've demonstrated this in the past. Obviously, what triggers the volatility in the market triggers the swings in the basis point that we can extract out of our assets, but because of a more conservative asset allocation.

We have seen from last year how things can revert back to the cruising speed of 178, 180 basis point margins. So eventually, time will tell if, with the new pricing scheme, the resiliency is more and as we expect, to the tune of what we expect. So in my mind, the profile of our P&L has improved substantially, which makes us more kind of solid in terms of the investment that we want to make and the evolution, that of the business going forward.

On the token, the potential are huge, simply because behind the token, there is the blockchain technology that enables us to be a lot more efficient and to overcome some of the typical hurdles behind the financial transaction. You have to go to the notary. You have to have a number of different gatekeepers aligned in order for the transaction to finally be completed. Here is technology that triggers everything in seconds. It's a fraction of the cost of the typical transaction. It is something that can be applied virtually to anything.

We did this first attempt of creating this token which will be used within our products, not sold directly to our retail clients. It's a first attempt. As you see, it's just for EUR 5 million. But as on -- as with all the strong, innovative development, we want to first be sure that it is tested well and works. And then we can deploy this on a mass scale. I believe that -- and we believe that the blockchain technology will slowly but thoroughly create a lot of advantages within our industry and not just our industry, but time, again, will tell if we're on the right side of history or we're just too much ahead of it.

[Operator]

The next question is from the line of Santoro, Domenico with HSBC.

[Domenico Santoro, analyst]

It's Domenico, HSBC. I do have a number of questions. First of all, coming back to your guidance of EUR 350 million. I know that you are not going to raise the guidance as of now or make any comments, but let's rephrase the question. What needs to go really wrong in order for you to disappoint on the net profit target? In other words, given the fears on inflation in the market, the steepening of the curve, what is the part of your business that it might be a bit more exposed to the market dislocation, if any?

The second question is on the cost. Can you give us -- you mentioned that Sanctuary is consolidated for 1 month? So I'm just wondering was the contribution of Sanctuary on cost and fees as well, given the consolidation for 1 month only. I just want to understand. I mean you're doing very well on the cost side. And because the other part of the business is, of course, reducing -- is doing well, so I'm just wondering whether this number for the quarter is a clean number for the next. Or we should consider a bit more given the consolidation of Sanctuary.

Then a bit of a color on the margins evolution, I mean how would you expect this to evolve? Apart from the -- regardless of the mix, I mean, we don't know what happens with the market, right? If -- I noticed that the equity component has gone up. But I just wonder, given the mix of products that you intend to distribute, how shall we expect margins to evolve going forward?

And then on the -- I know it's an annoying question. Allow me to ask again on the payout, which is very low. I just noticed that it was ex performance fees in the insurance component, 40% in the second quarter last year, 40% again in the third, and then there's a little bit of catch-up in the fourth quarter. I just wonder whether this is correct. Is going to happen the same for this year? And on what is based this catch-up in the ultimate part of the year in the fourth quarter? Sorry for the long question.

[Gabriele Blei, executive]

No, no, no problem, Domenico. Thank you for the questions. On the guidance, what can go wrong? God knows what can go wrong, I have to say. Honestly, now, we were a year ago in a lockdown scenario, and we were slowly recovering from a drop in the financial market that pushed our net weighted average performance down to minus 16%.

I remember, back in June, we were down between 2% and 4%. And then we recovered everything towards year-end and closed positive by plus 1.2%. So I have no crystal ball at hand. And in order to impact the EUR 350 million which we were reiterating our previous guidance back in March and July in 2020, we're doing the same here.

We're saying we did a very good first quarter. I think everyone in the company is extremely satisfied by the way the fund managers, the network, the employees, anyone just reacted to a good 2020, which we closed the EUR 382 million. Somehow people could say, but these guys are probably satisfied, they won't make it. But we're here. We're working very hard. We're putting ahead of our clients investment solutions that are innovative, and we want to reach the EUR 350 million target.

Again, we don't control the market. The market can abruptly change, and things can go very bad. If I hear what our fund managers are saying is inflation can rise, interest rates can rise. We have a very opportunistic approach at this time of the year as far as our exposure and riskiness within our portfolios. But we consider potential drop in the market as an opportunity to build back some of the positions that we scale down. So eventually, we are kind of still in the constructive phase of the market without any major concern over the medium term as far as 2021 is concerned when it comes to the financial market.

So to us, the guidance is at reach. We're not moving the needle, but we're seeing short-term volatility as an opportunity to potentially reincrease our exposure.

Sanctuary contribution, I would say, negligible in the sense that between what we have consolidated in terms of revenues and costs. It's slightly negative, but to the tune of EUR 1 million, so nothing major there. As you have seen, assets have increased dramatically. So in the moment, they are investing so heavily in growth. The results are somehow penalized, but this over the medium-term will be completely overturned.

Mix of products and margin evolution. I think what we have seen, again, if you take a long investment horizon is quite of a resiliency in terms of how we are capable of managing the up and down of the margins. The mix of products about to be launched does not compromise the margin profile overall that we have. So nothing should change when I look at the product launches. And I would say that the higher recurrent fee component and the higher -- and the stickiness of the assets, given the product market initiative, should create longer-term visibility on our capability of retaining the margins and generating management fees.

Payout to the network. Honestly, I understand the question. And we are maintaining the same payout in the network. Nothing has changed. What is changing is still -- in 2021, the first quarter, there is limited activity that we can do in terms of gathering, in terms of events, in terms of marketing expenses. Just consider that in the first quarter last year, we had a convention -- the annual convention with 2,000 people gathering in the same place for 2 days with all the costs associated, which are not there this year, simply because we did the same thing over 2 days, but -- over 3 days, but digitally at a fraction of the cost with exactly the same results in terms of outcome, if not better, because people were very pleased with the way we handled the convention.

So all in all, the trend is a trend that is consistent with the growth of the recurring fee component. Versus Q4, Q4 had an element of variable component, simply because we didn't do just the target, but we overcame the target by more than EUR 80 million, and this has to be somehow gratified to the people that work in this company.

[Domenico Santoro, analyst]

Can I just ask -- I mean as things they stand now, the 4% growth in terms of guidance and costs still makes sense? Or...

[Gabriele Blei, executive]

In terms of the SG&A, I think it makes sense. What could change is the different perimeters in terms of M&A transaction and/or special investment that we could make in the private market initiative. But other than that, it's reasonable.

[Operator]

The next question is from the line of Lam, Hubert with Bank of America.

[Hubert Lam, analyst]

I just got a couple of questions. Sorry to ask you again on the acquisition costs. Again, it was -- I think you explained why it was lower in the quarter due to limited activity around marketing and gatherings, et cetera. If we expect like to kind of go back to normal towards the end of the year, should that percentage of the distribution costs against recurring fees go up? And how much do we think you should maybe go up by? That's the first question.

Second question is on M&A. You've done quite a bit of M&A over the last several months. Do you expect to do more M&A in the near term? What would you have in the pipeline? And what type of areas would you consider expanding into?

[Gabriele Blei, executive]

Hubert, thanks for the questions. On the distribution cost, honestly, given the overall situation, although very improving, even here in Italy, we don't see a pickup of, let me say, the costs associated with the network up to, I would say, September. We are halfway through Q2, then there is a summer break, which typically has less intense activity. And then eventually, we even hope that at some point, we could do something with our network and have a way to go back to normal life. So I would say that up to September, it's somehow not -- nothing material which should happen. So I would tend to see this distribution cost evolution of the marketing cost pretty under control.

M&A. This gives me the opportunity of eventually explaining why we just paid EUR 1 of dividend. And when I say just, is, indeed, we did a very strong net profit last year. We paid a dividend in 2020, and we're paying the same dividend in 2021. But this is because we see a lot of opportunities. We see that we have options to invest in the business, both in the regions in which we are present and in the asset classes that we want to develop. And we have debt, and we want to repay the debt. So this is something we want to stress all the time.

And if you put everything into the context of how much cash flow we're generating and you add up the numbers, you see how things are progressing as we want, meaning we are generating cash to remunerate shareholders with decent dividends and decent dividend years. We are able to fund investments by our own. And we will be repaying the debt as and when they fall due.

[Operator]

The next question is from the line of Perini, Elena with Intesa Sanpaolo.

[Elena Perini, analyst]

Yes. I got some questions. And I'm sorry if you have already answered them, but I was disconnected for some time. First of all, about your insurance revenues. If I remember well that you also factor in the performance fees, which are not subject to put a new scheme. So I was wondering if you could provide us with the amount of the performance fees included in the results of insurance revenues for the first quarter, and what kind of a run rate we can imagine for them going forward.

Then another question was about your April net inflows and in particular, your assets because they grew a bit less than the amount of net, of net inflows. So I was wondering if there was some kind of performance effects or it was more an issue of exchange rates due to the fact that you have a significant exposure in terms of foreign business?

[Gabriele Blei, executive]

Elena, insurance revenues. As I was saying before, we have developed the business [ resistant ] fee since the beginning of the year, with EUR 150 million net flows into that product range, reaching EUR 6.6 billion assets under management. We do see a benefit from this kind of uplift as well as, indeed, as you were pointing out, the contribution of performance fees, which have sustained the revenue line. Going forward, what we can expect is the buildup of the assets to continue. And then whatever is going to happen on the market will impact positively or negatively the revenue line going forward.

As far as the net flows are concerned, there is a slightly negative monthly performance in April, nothing major. But mostly what explains the variation is the FX movement, which somehow has to be taken into consideration when looking at our figures in euros, given that nowadays, 35% of the assets are linked to assets in currencies other than Europe. So we somehow have this impact that we have to factor in, given the fact that we are not hedging our currency exposure at any level.

[Operator]

The next question is from the line of Bairaktari, Angeliki with Autonomous Research.

[Angeliki Bairaktari, analyst]

First of all, if I may also ask on the gross management fee margin increase quarter-on-quarter, I see that the equity component has increased. But I was wondering, I mean the margin increase is quite substantial, around 4 basis points. So was it -- is there any chance that this was driven also by private markets funds that may have a much higher margin or anything else? Is there any sort of nonrecurring element in there?

And also, going forward, as you will start sort of consolidating Sanctuary for the full quarter from next quarter, what should we expect in terms of margin? Is it fair to expect some margin dilution on the back of the Sanctuary assets?

Then second question on the ESG AUM that you've disclosed of EUR 11 billion. Are all of these classified as Article 8 or 9 under the European SFDR? And last question on personnel costs, which were 19% higher year-on-year. Could you give us some color on what drove this increase, please?

[Gabriele Blei, executive]

Angeliki, I'll try to answer first to the last question where you asked about the SG&A line, right?

[Angeliki Bairaktari, analyst]

Yes, exactly. Yes. I was -- I broke that into the personnel expenses that you disclosed in your press release today.

[Gabriele Blei, executive]

Yes. So if you take Slide 7 on the presentation that I flip through, you see how, indeed, costs are up 6.7% year-over-year because of the EUR 56.2 million that compared to EUR 52.7 million. But if you change -- if you take out the change in the perimeter that has been occurring between 1 year, you see how costs are down 1.5% because we are extrapolating EUR 4.3 million linked to M&A activity. Okay?

[Angeliki Bairaktari, analyst]

Yes. I get that there is the M&A scope effect. I guess what I was after is, if I look at your sort of detailed P&L in the press release that you released today, I can see that personnel expenses are EUR 31.6 million, and they were EUR 26.5 million in Q1 '20. So that's a big increase. So...

[Gabriele Blei, executive]

This is fully explained with the change of the perimeter I was mentioning before.

[Angeliki Bairaktari, analyst]

Okay. Okay. That's what I wanted to check.

[Gabriele Blei, executive]

Yes. Yes, absolutely. Yes. So then going backwards. The ESG AUM article 8 and 9, yes, confirmed. They are compliant with those 2 articles. And we are very pleased with that because we've been able to do so in a very short period of time.

Sanctuary consolidation. If the question is, does it dilute your margin of the overall business, well, the answer in the short-term is yes, of course. They are in the investment phase, and they are not yet embracing the integration between production and distribution that is the guiding principle of our business model. So in the short-term, I'm not expecting a margin uplift. What we are expecting from Sanctuary in 2021 is almost a negligible contribution to our P&L.

And then assuming a normalization of the pipeline of the investment and the growth and the fact that they will start to use potentially our production centers down in the U.S., we will see a stronger contribution in absolute numbers to our P&L.

Gross management fee, the 4 basis points, no, I have to say this is -- there's no secret sauce there. It's the product mix. It's the fact that the network has focused their attention on insurance products, managed funds, our own funds, especially, and this is driving the margin uplift.

So once again, looking at these things over just a quarterly variation, whether positive or negative, is a very short-time frame. But this time worked in favor of the commercial activity that the network is doing. So plus 4 basis points is something we take home and are quite happy about.

[Operator]

Our next question is from the line of Prini, Filippo with Kepler.

[Filippo Prini, analyst]

I've got 2 questions. A couple of Sanctuary. The AUM increased a lot to EUR 9.7 billion at the end of April. Despite that, you confirm a neutral contribution to your net profit for this year. This is due to the growing cost or something else that is not compensated by the increase of AUM? Still on Sanctuary, just if you can share us some perimeter for the full consolidation for the next quarter? Is it fair assuming sort of 1% gross margin with the commission -- passive commission that could be 70%, 80% of the gross commission?

And the third one is on your net finance position. You mentioned the paydown of debt. You've got a bond that's maturing in 2022. Should we suppose that this bond should be fully paid out and not rolled over with the new one?

[Gabriele Blei, executive]

Well, at this stage, we're not assuming a rollover of the bond. So we are going ahead with what we have shared with you in the past in terms of repaying down the debt and adopting this discipline.

In terms of the Sanctuary AUM increase, it's not 1 plus 1 equals 2 all the time. Because when you hire an adviser, you incur the cost and then the assets are transferred over the following 18 months. Typically, this is what happens also at Sanctuary. And therefore, the revenue generation is -- builds up over time. So in this case, if we see the Sanctuary evolution, you should go a bit beyond just the increase in assets and increase in revenues equals the cost.

Margin, I would say, yes, as far as -- as we know the business today, without the integration with the production that I was mentioning before, and eventually, this is something that creates an opportunity rather than concerns us just because it dilutes the overall margin profile.

[Operator]

[Operator Instructions] The next question is from the line of Ellinas, Panos with Berenberg.

[Panayiotis Ellinas, analyst]

So net inflows have been strong so far in the year. And I presume the key driver to this was the strong gross sales. I was wondering if you could comment on the level of redemptions or withdrawals you have seen so far in the year. I mean is it similar to previous years? Or have you also seen an improvement in the figures? And if I add to that, would you just expect a sort of uptick in the withdrawals, given the profit-taking element?

[Gabriele Blei, executive]

Thank you, Panos. Well, if I compare the level of redemption of last year same period and throughout the rest of 2020, it was very low and unusually very low, and this is mainly due to the fact that clients inertia and the stickiness of our financial advisers played a big role in diminishing the gross outflows. And this is typically what we have observed historically in very negative market over the past. This year, so far, they have slightly increased, but nothing substantial. And we're still not up to the same level.

Consider that if we look at our network, in terms of financial advisers, I give you a number that provides you an indication of how widespread is the activity behind the financial advisers. 75% of them are in the -- are posting positive net out -- net inflows, sorry. And this is unusually high, let me say, and it is also supporting the results in terms of performance that we're providing to clients, and the investment solutions that we are allowing them to have -- to propose to clients.

So all in all, slightly lower gross outflows and a very positive contribution from a very large number of financial advisers in terms of the net flows' contribution.

[Operator]

Ladies and gentlemen, there are no more questions registered at this time. I will now pass the floor to management for any closing comments. Thank you.

[Gabriele Blei, executive]

We thank you for your time, and we look forward to speaking to you again at the end of July. Bye-bye.