Banca Mediolanum SpA

MIL:BMED

Earnings Call Analysis

Robust Growth and Positive Outlook for Managed Assets

Company's operating margin surged by 118%, with net income more than doubling to EUR 31.1 million compared to the first half of the previous year. Total assets grew 11%, hitting EUR 9.9 billion, with EUR 6.8 billion in managed assets. Net inflows were positive at EUR 495 million, driven by a strong uptick in mortgages and customer base growth. Looking ahead, the company is on track to surpass EUR 8 billion in total net inflows for 2022 and aims to approach EUR 5 billion in managed asset inflows for 2023, setting the stage for sustained future gains.

Exceptional Performance and Enhanced Interest Income

The company reported a striking 51% increase in net income compared to last year, reaching EUR 363.3 million without reliance on performance fees. The remarkable growth is largely driven by favorable interest rate conditions, effectively doubling net interest income to over EUR 347 million. Looking ahead, net interest income is projected to grow beyond the previous forecast of EUR 730 million for the full year, a trend attributed to the company's positive gearing in a rising rate environment.

Sharing Success and Modest NII Guidance Adjustment

In a show of commitment to customer benefits and long-term core business growth, the company has devised promotional offers to share the advantages of the current financial landscape. Although this will result in a slight increase in the cost of funding, the net interest income (NII) guidance for 2023 has been adjusted only modestly to EUR 750 million, with an expected further 10% rise in 2024.

Net Commission Income and Recurring Fees Growth

Net commission income displayed resilience with a 2% enhancement, reaching nearly EUR 510 million. This achievement is accentuated by a 5.5% year-over-year increase in management and investment management fees, collectively hitting EUR 646 million. The performance reflects client preferences shifting from money market to equity funds, encouraged by an effective advisory model promoting regular investment through automatic services.

Improving Operating Margin and Cost-Income Ratio

A strengthening operating leverage continues to positively impact the cost-income ratio, which improved significantly to 41.3%, down from a restated 46.9% the previous year. This improvement in efficiency underscores the company's ability to grow its margins while managing expenses.

Stellar Growth in Net Inflows and Assets

With a keen focus on customer-oriented strategies, the company managed to accrue EUR 4.69 billion in total net inflows in the first half of the year, marking an 8% increase compared to the same period last year. Concurrently, total assets achieved a historic peak at EUR 112.7 billion, exceeding the previous record set in 2021 by 4%. Despite observable shifts in the real estate market and variances in customer loan appetites, the company maintains an extraordinarily high-quality loan portfolio with a net non-performing exposure (NPE) ratio of 0.73%.

Capital Strength and Regulatory Confidence

Banca Mediolanum solidifies its reputation for robust capitalization, posting a notable Common Equity Tier 1 (CET1) ratio of 21.5% and a leverage ratio of 6.4%. These figures highlight the company's prudent approach to managing its finances, adding a layer of trust amidst regulatory bodies and stakeholders.

Network Expansion and Customer Growth

As the company expands, its customer base has grown by 4% to reach 1,750,500. This is accompanied by a growth in Family Bankers, which are central to the company's business model, reaching a total of 6,169, reflecting a 2% increase. Recruitments and trainings have been instrumental in this growth, and expectations are set to reach between 6,300 and 6,400 Family Bankers by the end of 2023.

Outlook and Strategic Deployments

Looking ahead, the company is poised to accelerate customer acquisition and enhance the share of wallet, with an aim to surpass EUR 8 billion in total net inflows marked last year. Particular attention is on managed asset inflows, which are expected to surge in the second half of the year. The strategic promotional offerings have attracted EUR 2.4 billion in deposits, which are anticipated to transition significantly into managed assets, in alignment with the interests of both the company and its customer advisors.

Recognition and Stress Test Success

The company's stability and strength were affirmed by recognition from the European Central Bank, placing it among the top banks in Italy and Europe. The company showcased resilience in the face of hypothetical economic shocks during stress tests, confirming its ability to sustain profitability even under adverse conditions.

Earnings Call Transcript 2023-Q2

[Operator]

Good day, and thank you for standing by. Welcome to Banca Mediolanum Half Year 2023 Results Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to turn the conference over to Alessandra Lanzone, Head of Investor Relations. Please go ahead, madam.

[Alessandra Lanzone, executive]

Good afternoon, everyone, and thank you for joining us today. Before we get started, please remember that we will limit questions in the Q&A sessions to 2 per person in order to give an opportunity to each of you. By -- at the end, we will swing back to you if you have any unanswered questions. And please don't forget to connect and to ask your questions in the language of the language line you're calling in on. Either way, the questions will be answered in Italian with an English translation.

So I'll hand this over to our CEO, Massimo Doris, who is leading the presentation today, alongside Angelo Lietti, our CFO. So Massimo, the floor is yours.

[Massimo Doris, executive]

Thank you, Alessandra. Hello, everyone. I appreciate you joining us today. I'm very proud to take you through another set of results that are [ well ] worthy and that exemplifies a business that is super resilient and agile.

As you can see Slide #4, we were able to outperform last year's related -- restated earnings by 51% as net income reached EUR 363.3 million, with recurring business, the sole driver since performance fees did not contribute anything during the first half. It's not every day that you come across a P&L with the bottom line of plus 50-something percent, and one that is also attainable for the future.

Of course, this result is largely tied to the supportive interest rate dynamics during the period given our positive gearing to the rising rate environment. In fact, our net interest income more than doubled to over EUR 347 million, thanks to the powerful tailwinds on our EUR 24 billion of variable rate assets in the banking activities.

As you know, our NII hasn't peaked yet. It will gradually increase over the year quarter-by-quarter. Given the current Euribor rates and the fact that the ECB apparently intends to keep rates elevated for an extended period, whatever time is needed to bring inflation down to the targeted 2%, we could expect our NII to increase accordingly to well over the previous guidance of some EUR 730 million for the full year.

But although, we are going to make good use of this further and exceptional increase. In line with our long-term strategic approach, we intend to share part of the benefit with customers through the promo offers we specifically designed to support the long-term growth of our core business. Exactly as we've often done in the past, investing in our future growth. Our cost of funding will increase as a result. In fact, it now stands at 76 basis points, and we could envision a few more points by year-end. Therefore, we stick to our NII guidance for 2023, adjusting it just slightly up to EUR 750 million. And for 2024, we foresee an increase of some 10%.

For sure, NII is the current star of the P&L, but also our net commission income fell pretty well with an increase of 2%, reaching nearly EUR 510 million. This is thanks to the contribution from our recurring fees, namely management and investment management fees, which together totaled EUR 646 million, surpassing last year's figure by 5.5%.

Steady managed asset inflows and finally, positive market performance supported our core revenue generators, allowing us to entirely recuperate the average assets under management that were down following prolonged market decline in 2022 and with a higher quality asset mix versus H1 last year. In fact, on a pre-IFRS 17 like-for-like basis, the recurring fees on average assets would be 212 basis points. And again, this was mainly thanks to the ongoing asset shift from money market to equity as a result of our powerful advisory model that drives our customers to invest in equity products on a regular basis through our automatic investment service.

And while we are on the subject, it's worth mentioning, as shown in Slide #15, that the equity component for -- of our customers -- our customers managed assets has now reached [ and arrived ] 60%, 6-0. In the final analysis, our operating margin reached a record high of EUR 464 million, surging a solid 47%, a demonstration of our ability to build integrity into our business across the board yet again. That's why we could expect a similar trajectory in the operating margin for the rest of the year. And as operating leverage strengthens, the cost/income ratio continues to improve, driving it down to 41.3% from a restated 46.9% of H1 last year.

Let's go on to business results whose highlights for H1 are shown in Slide #5. As you are well aware, we continue to lead the banking industry in our ability to generate resilient flows whatever the conditions with a steady commercial performance that continues to differentiate Banca Mediolanum.

Our total net inflows registered EUR 4.69 billion in H1, 8% higher year-on-year. As you know, we have decided to share part of the benefit of the current interest rates with those customers who commit either to direct deposit their salary or to increase their share of wallet with us, which has proven to be a winning strategy, permitting us to increase our market share and to acquire 101,000 new qualified customers in the first 6 months, 10% more with respect to last year.

Managed assets demonstrated consistent and high-quality inflows, reaching EUR 2.16 billion, with equity flows remaining strong via Double Chance, Intelligent Investment Strategy and fixed income gaining appeal again. Thanks to the high-diversification investment strategy we apply, our managed asset flows were less impacted than peers by the competition coming from BTPs, which actually created an active market for fixed income products in general, allowing our Family Bankers to step in and take advantage of this booming environment.

So solid net inflows, sticky deposits and positive market effects pushed our total assets to record high levels, reaching EUR 112.7 billion, up 9% since the start of the year and beating our previous record in 2021 by 4%. On the other side, our credit book grew further, up 3% in the same period to EUR 16.95 billion, despite mortgages granted being down year-on-year following the real estate market slowdown and our wealthier customer base showing a weaker appetite for personal loans compared to traditional banks.

The quality of our loan portfolio remains extremely high with a net NPE ratio of 0.73% and a 12-month rolling cost of risk of 19 basis points in line with the expectation we shared with you of some 20 bps. And lastly, cross-selling of general insurance policies continues coming in at nearly EUR 90 million as an objective to protect households' assets.

Now let's talk about the balance sheet ratios in Slide #6. We show our robust capital position resulting from our prudent business approach. Our CET1 ratio moved to 21.5%, generally showing low volatility given the non-material size of our HTSC (sic) [ HTCS ] portfolio and more than adequate regarding the requirements. And the same can be said for our leverage ratio at 6.4%.

Finally, on Slide #7, you can see that all signs continue to point to a strong growth momentum. Our customer base benefited from stronger than ever acquisition and retention rate. Bank customers totaled 1,750,500, up 4% in the first 6 months. Bank customer acquisition showed significant progress, thanks to solid organic growth, supported by our marketing activities aiming and acquiring qualified customers. Sorry, Alessandra, can you [indiscernible] sorry, for a moment.

[Alessandra Lanzone, executive]

On the other side, the development of the network continues on as we recruit and train professionals coming from other sectors, while Banker Consultant gradually joined the franchise. The number of Family Bankers at the group level has reached a total of 6,169 at the end of June, an increase in the headcount of 2% since the start of the year.

An important contribution is coming from the project we call NEXT. By the end of July, 166 Banker Consultants were already working as licensed FAs alongside their senior Private Banker or wealth adviser with 88 Banker Consultants in training, working on their Executive Master. We expect to reach 200 by year-end.

The success of the project has been so evident, and the benefits are so tangible that out of the 244 senior bankers in the project so far, 10 of them already have 2 Banker Consultants. To give you an idea of the benefits generated, those senior bankers who have been working with a Banker Consultant for more than 10 months have gone from outperforming the peer group by 6% in terms of total net inflows to 39%. And the acquisition of new customers has greatly accelerated, actually tripling. All in all, we feel comfortable with the expectation of reaching a total of somewhere around 6,300, 6,400 Family Bankers by the end of 2023.

Finally, I'd like to spend a minute on our automatic investment services, another key driver supporting our growth. At the end of June, there was a healthy reservoir of over EUR 3.5 billion parked in the money market funds of the Intelligent Investment Strategy service. And in the deposit accounts of Double Chance, all assets that are ready to be transferred automatically to equity funds on a monthly basis over the next few years, opening the door to future flows and margins.

All right. Let me now give you a quick overview of our business in Spain. Going over to Slide #32. The dynamics in Spain are identical to those of the group business overall with impressive results in terms of operating margin, which jumped by 118%. And in terms of net income, which more than doubled versus H1 last year, reaching EUR 31.1 million. Total assets grew 11% since the beginning of the year to EUR 9.9 billion, of which $6.8 billion are in managed assets.

Net inflows totaled EUR 495 million, with net inflows into managed assets remaining strongly positive at EUR 296 million. In addition to that, we made notable progress in other areas since the start of the year. The credit book increased significantly, up 11% to nearly EUR 1.3 billion, particularly thanks to the higher volumes of mortgages granted in contrast to the market. Family Bankers grew by 2% to 1,650 and the number of customers surpassed 221,000, a nice increase, up 6%.

I know you'd all like to hear a few comments about our outlook for the remainder of the year. As 2023 continues to unfold, we are confident that we will be able to acquire a significant number of customers at a rapid pace. And more than that, we believe we will become the primary bank of our new incoming customers. 66% of our customers now have their salary direct deposited in their current account with us.

To give you some color, just 10 years ago, this number was 52% and on a customer base, that in the meantime, grew by 56%. The point is that the percentage of sticky customers is increasing. And thanks to the well-known relationship management capabilities of our Family Bankers, the share of wallet is increasing as well.

And this brings us to flows. As you've seen, we are largely on track with our guidance of beating the EUR 8 billion in total net inflows of 2022. And as far as managed assets are concerned, we expect to see an acceleration in the inflows in the second part of the year, in particular, in the fourth quarter when the EUR 1.9 billion of time deposits from the 4% promo offer in Q1 will have matured.

In the 18 months following, we expect our new customers will make full use of our investment strategy model, especially via Double Chance. As such, keep in mind, you're not going to see a jump in managed assets all at once. This takes time. First, to get new customers up to speed regarding our services and then to see the resulting flows end up into managed assets. Therefore, we surely won't hit the 2022 levels of managed asset inflows, but we fully believe that we can get close to EUR 5 billion for 2023 and lay the groundwork during the second half to fully exploit the benefits in years to come.

One thing before we go. I'm really happy to share with you that Banca Mediolanum was recognized by the European Central Bank as among the top banks in Italy in terms of capital strength and among the best on the European scene, in particular, in the context of the stress test published by the supervisory authorities last Friday with the aim to compare and assess how resilient European banks are to country-specific economic shocks, our bank reported values that placed us in a leading position in both Italy and Europe.

In particular, we reported an impact on capital ratios deriving from a potential economic adverse scenario below 300 basis point, in fact, in the lowest range of this bucket. On top of this, the quality of our credit book also tested well in the adverse scenario with loan loss provisions up only 1.9%. And furthermore, the stress test showed a projected reduction in our NII of just 2.8% and of net profit of only 7.4%.

The results of the EU-wide stress test exercise confirm our ability to generate sustainable profitability also in the adverse scenario, thanks to our diversified, low risk and low capital absorption business model.

Thanks for your attention, and we're now ready to take your questions.

[Unknown Executive]

Thank you, Alessandra.

[Operator]

[Interpreted] [Operator Instructions] We have the first question coming from the line of Giovanni Razzoli, Deutsche Bank.

[Giovanni Razzoli, analyst]

[Interpreted] Two questions. First, I'd like to know whether you could share with us the deposit stocks that you have gathered, thanks to the promo offer of a 4%, 5% interest rate to current account. So you started off in May, and I'd like to know what kind of deposit stock you have gathered. You have a leverage ratio of 6.4%, really, really low. And the stress tests proved you have -- even in adverse scenario, the impact on CET is really limited and your CET1 level is twice as much as the system. So are you thinking about how to use this obvious excess capital you have? Or do you want to continue on as is?

[Unknown Executive]

[Interpreted] Well, as far as the first question is concerned, a 4% interest rate deposit. There is a big difference between the 4% offer we made and the 5% offer. 4% was an offer destined to new customers or new liquidity of existing customers. The 5% offer is entirely targeted to managed assets. So Double Chance, you deposit some money in the account and in a maximum of 12 months, that money will be transferred into managed account. While the 4% was just deposit, you would just have to deposit money [indiscernible] money, but you will not force to invest that money.

The 5% offer was this. You invest EUR 100,000 in managed asset, I would offer you a 5% time deposit for a maximum of 6 months for an amount, which is equivalent to the money you have invested in managed asset. So the 5% offering was entirely targeted to managed asset, and it's an initiative that we had already taken in the past with Double Chance or Double Value, but the 4% offering, which really was the one that generated more funds.

Well, thanks to that, we gathered EUR 1.9 billion in deposits at 4%. The first few matured early in July, but most of them will mature between August and September. And at that point, we believe a good chunk of this money will be transferred into managed asset because let me remind you that Family Bankers don't make any money on deposit accounts. So it's in their best interest as well as in the customers' best interest to really switch this money into managed assets so as to generate attractive returns.

As far as the capital ratios are concerned, our objective -- or let me say that we closed at 21.5%, and we aim at hovering over 20%. So we want to stick to a capital ratio, which is quite elevated, not necessarily 21.5%, 20% or 19.5% is equally good. But we want to really stick to a very high level for all capital and liquidity ratios.

So as to ward off any bad surprise or not to be caught off-guarded by requirements by the supervisory authority or maybe a new ban on dividend distribution or whatever. We want to really be well capitalized. Liquidity is a good marketing tool to acquire new customers. We have acquired over 100,000 customers in the first half of the year, 10% more than last year, which was a record year in terms of customer acquisition. So liquidity can also be a marketing tool that -- and also it's something that makes the authority really feel at -- a lot of peace of mind because of our excess liquidity.

Just a second, I want to qualify my remark, EUR 1.9 billion was the 4% promo offering. If we add the deposits that we gathered via the 5% promo offering, which was targeted to managed accounts and also at present to managed assets. Also, we have a 2% offering for a 6 months' time deposit or 2.5% for existing and wealthy clients. So this is not tied to managed assets and the return is lower, the rate is lower. So putting all together, we go up to EUR 2.4 billion. So EUR 1.9 billion generated by the 4% offering, plus an additional EUR 500 million generated by the 2% and the 5% offering always tied to a 6 months' time deposit.

[Operator]

[Interpreted] The next question is from Marco Nicolai, Jefferies.

[Marco Nicolai, analyst]

[Interpreted] I have a question on deposit charges. 26 basis points, if I got it right, you sort of mentioned it during your presentation. However, I would like to know whether this is as at the end of June, is this 6-month average? Or is it end of July? And then we have to maybe wait also for deposits at the end of the year. Then whether you can give us a sort of guidance or an indication on net interest income for 2024, that would be nice. And then banking fees. Why did we have this quarter-on-quarter volatility? And can you give us a guidance there on for the financial -- the entire financial year?

[Unknown Executive]

[Interpreted] These 76 basis points are the cost of retail deposits for the second quarter. And we expect it to really crawl very little upwards by the end of the year. We expect the annual average to increase slightly quarter-by-quarter, but the annual average should stay at 76 basis points as we see on this slide.

Then as far as net interest income is concerned, I mentioned that before, we expect it to stand at EUR 750 million. And for 2024, we expect a plus 10%. And then banking service fees volatility. In banking services fees, we have charges and the fees. And then we have also the fees and commissions for the sale of certificates. These certificates are structured for our clients and then sold on the primary market.

With respect to certifications sold -- sorry, certificates sold in the first half of 2023 compared to the first half of the year before, we are more or less at the same level. However, compared to the first half of 2022, rates are much higher. So we were able to structure certificates, which can generate much more interesting result for our clients. And the term is shorter. So if in the first half of last year, most certificates had a 6-year term. Those we sold this year, most of them have a 3-year tenor. And therefore, the cost for the customer since the tenor is half of it has a much lower impact in absolute terms.

So although volumes remain the same, we actually -- we're able to have lower proceeds. But since the term is shorter, we are going to receive the 3 -- the -- this year's certificates in 3 years' time, whereas those we carried out in the first half of 2022 will come due in 6 years' time. And this is the main difference. And then let me add one more thing.

Our Family Bankers offer to our clients the product they deem most adequate also with respect to the risk appetite of the client, but also with respect to what is happening in terms of scenario. Because in terms of coupons, sometimes, it's more interesting for the client to offer a certificate. At other times and under other circumstances, unit-linked products might be more adequate. So as far as I'm concerned, for me, it's the same. However, the fees and commissions tied to unit-linked products are posted under another line item compared to certificates. Therefore, depending on where revenues come from, we might have a volatility in the various line items depending on whether given products are more interesting under certain circumstances or not.

Then if we make a comparison between the first quarter of 2023 and the second quarter of 2023, in second quarter, volumes were half the amount. However, in the first quarter, we fared much better compared to the first quarter of 2022. So once again, it really depends on the type of products that are being offered right at that time. And the network might be in -- used to sell one product more than another.

[Operator]

[Interpreted] [Operator Instructions] We have no further questions from the Italian line at present. So I'll hand it over to the English conference for questions. [Operator Instructions] And the questions come from the line of Hubert Lam from Bank of America.

[Hubert Lam, analyst]

I've got 2 questions. Firstly, can you give us any guidance around your costs for this year, either in terms of the cost income ratio, I think it was 41% in H1. Can it be maintained at the same rate? Or can you give us an absolute cost guidance for the G&A costs? That's the first question.

The second question is, can you give us your thoughts on the European Commission's retail investment strategy review, which talks about investor protection, value for money and things like that. Just wondering what your thoughts are on that and what it means for [ fees and ] your business?

[Unknown Executive]

[Interpreted] Costs first. Well, we expect costs to grow by about 10% during the year. Why did we report a 13% increase in costs this quarter, this half, rather. Well, it is essentially due to a different distribution of costs compared to last year, a significant and costly event is the incentive trip with the network of Family Bankers, which took place in the first half of this year at about Easter time. While last year, we held the same event in October.

So at the end of the year, the 2 things will net out. But if we compare the first half of the year of 2023 and 2022, there is this additional extraordinary item, plus we held the national convention in the first half of 2023. Last year, we did not hold a convention. We organized other smaller events and had different costs related to those events. This year, we have organized the national convention. So we'll organize fewer smaller events.

So all in all, comparing 2022 and 2023 costs, there won't be much difference. Also, we have reengaged in many in-person events with the customers. So essentially, it's a different profile, a different distribution of costs. But as I said, this year, we expect a 10% increase year-on-year. And the cost/income ratio is in line with the one we have just shown. So it will remain mostly stable.

As far as the European directive on our business, value for money and so on and so forth, well, my thinking -- I'm thinking along these lines. I think they are trying to hit 2 targets. Number one, they are trying to lower costs for customers and savers. That's the first objective the EU have in mind.

And number two, they are trying and eradicate conflict of interest as much as possible. In my modest opinion, I really think they will achieve a little on both fronts. It's my humble opinion, you know. But I think they are making a critical evaluation mistake. When you talk about value for money, when you compare, say, 2 funds, okay?

Say, U.S. equity funds. One fund carries a 2.5% management commission and the other one, 1% management commission, and they are both actively managed. So you are to justify while management cost for one fund is 2.5%, and the other one is 1%. I believe that 2.5% includes the management fee, but also the distribution and advisory fee in a platform that provides no advisory at all, the customer most likely will pay 1%. But if the customer would then resort to a financial adviser for consultancy, they will have to pay an additional cost.

And if we talk about an affluent client, the client is expected to shell out 1.5% at least. So you will have to combine the product cost with the advisory fee, and you get up to 2.5%. So if it's a financial consultant that proposes a certain investment, most likely, they will propose a commission of 2.5%, which includes the advisory fee. So this approach of asking to prove the value is not correct because in one case, we have just the pure product cost, while in the other case, we have the product cost plus the distribution and advisory fees.

Little by little, the market will then create markets with lower advisory -- with lower management fees and then if the customer relies on a financial adviser, will pay additional fees for consultancy. So all in all, the cost will be unchanged. I believe that this is what is going to happen in the future. Currently, a customer that just works with a given platform would already choose those types of products that are less expensive or would go for passively -- for passive funds or for ETFs. So it doesn't take a directive to have customers to save money.

And in any case, if customers want to receive advisory, they will have to pay for that. In the U.K. for 10 years now, inducement costs have been banned. And in that country, when you will resort to a financial adviser, you pay over 2% in advisory fees. So I really don't think that in the U.K., people are saving that much money after all. But that's the direction of travel that has been chosen by Europe and the market will have to adapt to this choice. We are working in that direction. We are getting prepared. So it's to be ready should we receive a ban on inducements in this country as well in Europe as well, something that for the time being has been kind of put on the back burner, but the rebate system has been so restricted. It has been so limited that we will be forced to go towards the fee-only solution. But this is not something that concerns Banca Mediolanum exclusively, it will impact the entire sector. And I'm sure that customers will continue asking for advisory. And so I'm sure we'll continue doing business, and we'll continue to have good returns and give a good service to our customers.

[Unknown Executive]

Do we have any other questions from the English line?

[Operator]

We have no further questions on the English line. I will now hand back to the Italian operator for the Italian call. [Interpreted] [Operator Instructions] The next question comes from Luigi De Bellis, Equita SIM.

[Luigi De Bellis, analyst]

[Interpreted] First question, can you give us an update as to the -- the distance from the high watermark of your funds? Second question, we read that for 2023, you expect your dividend to increase significantly. Can you give us some color? And you were talking about the previous target of the DPS increase of EUR 0.02 per year. And then the last part, if you can give us an idea of the conversion rate you expect on the EUR 1.9 billion promo offers and on what time line and what are you reporting in July with respect to flows and conversion rate, even though it's just a few days you have been launching these promos?

[Unknown Executive]

[Interpreted] The distance from the high watermark plus the hurdle rates that we have to add in order to have performance fees, it's 11%. As to the conversion rate for the EUR 1.9 billion deposit in 18 months' time, so basically, by the half of -- the second half of next year, we expect to have a 70% conversion rate because this is more or less what we've seen in our past experience.

As for the month of July, it's really difficult to say because the 70% does not come from having clients' investing EUR 100,000 on their deposit account. Today, the EUR 100,000 come due. And next year -- and the next month, they invest EUR 100,000. This is not how it works. Maybe out of the EUR 100,000 that come due, they start investing [ 20 ] and then an additional [ 20 ] or they might put the EUR 100,000 on a Double Chance product, and it will take 12 months for that amount to be fully transferred into managed assets.

So you see it really takes some time for things to work out. In the first fortnight when we had the first maturities, some 20% has been converted. But really, this has no -- it's not really meaningful because we're talking about 2 weeks. And we're talking about the first client who started moving, who started doing something. Obviously, Family Bankers are going to give notice to their clients. They're going to start -- try and start having things moving up, but it's July and August that people are going on holiday. You know that in Italy in August, for a couple or 3 weeks, everything comes to a halt. So it's not easy to have things cranking up. But I believe that in the second part of the year, we're going to see an acceleration in managed assets rate and in the conversion rate.

Then you asked about dividends in prior years. We reported a EUR 0.02 increase per annum by share. Last year, it was EUR 0.04 2022 over 2021. Based on 2023 accounts, I expect this increase to be even higher than the EUR 0.04 we saw in 2022. Why is it? Well, I believe that this profitability level can continue and can grow even further. Whether they are going to be EUR 0.05, EUR 0.06 or EUR 0.07, I don't know. We'll make a decision when time comes. But in any case, I expect to have a significant increase and then later on, we can go back to EUR 0.02 or EUR 0.03 increases. It's not because we just go up to EUR 0.07. Every year, we're going to keep on increasing by 7%. Maybe I hope so. But I expect to see a higher increase in this period and then to keep on growing also in the coming years.

This is a base dividend, the [ excess ] special dividend, you're going to have these cents increases. I don't expect to have any special dividend this year unless markets really take off. And we are able to generate performance fees and fair value results that are extremely meaningful. Then yes, then we might have a special dividend distribution, even though I don't expect this to happen, but let's wait and see.

In any case, last year -- I mean, last year, it was EUR 0.50 per share of base dividend. This year, I expect to have an increase higher than the EUR 0.04 increase we saw between -- from -- in 2022 compared to 2021. The base dividend was EUR 0.46. Actually, we paid EUR 0.58 because we added a EUR 0.12 special dividend. So it's EUR 0.50. This year, we're going to have EUR 0.55, EUR 0.56, I don't know. We will see this later on. But certainly, more than EUR 0.54. This is what I can tell you right now.

[Operator]

[Interpreted] Next question from UBS.

[Unknown Analyst]

[Interpreted] I have a couple of questions. Could you talk about costs again. You mentioned certain events that were organized this year, the convention, et cetera. So could you shed some light on one-off costs and the plus 10% cost guidance, does it include any assumptions concerning the renewal of the banking sector contract, any provisions maybe? And then I -- inflows for next year are expected to be EUR 5 billion and also the preview for July, after all, June compared to the other months seem to have been slightly weaker. There might have been a negative effect caused by the 4% deposits that had not matured yet, so I was wondering what kind of inflows you expect. And then banking service fees -- certificates, that was very clear. But what's the run rate for this line item for next year, please?

[Unknown Executive]

[Interpreted] Okay, costs. Those are not one-off costs because the convention will be held next year as well. The incentive trip will be organized next year as well for our Family Bankers. So these costs simply materialized in the first half this year and were instead posted in the second half in 2022. So there's a difference if you compare that the first half of 2022 with the first half of 2023. But year-on-year, those costs will more or less be the same. Then of course, there are things that are absolutely optional like advertising, convention, an incentive trip, you may decide to simply not do it a given year, but payrolls must be paid, wages must be paid every year. There are also variable costs. Every time a customer makes a money transfer, we have to pay money to the banking network to the circuit actually. So there are costs that can be cut but I don't intend to do that because I believe those costs have a positive impact on funding, on inflows, on customer acquisition and in general, on the business.

In the 10% cost increase guidance, does not include the likely increase in the banking industry's wages because I believe that if and when an agreement is achieved with the banking industry, the impact of the payroll increase will be felt in 2024, not in 2023.

As far as managed assets are concerned, like I said, we are aiming to achieving EUR 5 billion by year-end. In July, net total inflows turned out to be good despite the high taxes that our customers had to pay higher than last year. Assets under administration turned out to be slightly weaker, slightly lower, but Friday, we'll publish the specific data. But by and large, I would say a good month, even though the managed assets though being in positive territory were not as good as usual, but I expect the EUR 1.9 billion worth of deposits to mature and be switched into managed assets.

Banking fees, well, it's really difficult to share a forecast with you. It really depends on the kind of product we'll decide to market. If in the second part of the year and if in the second half of the year, we decided to sell life products or unit-linked products to pay out coupons to our clients, I think that inflows will shift from certificates to unit-linked products. If we set up a target fund, most likely inflows will shift to target funds. So we really do not focus on the individual line item.

The important thing is that inflows are good, are really robust. Whether those inflows end up into certificates, unit-linked or other type of products, that is really not important funds as well, of course. So providing you with an indication of expected banking fees considering the different type of products we may sell is really difficult.

[Unknown Executive]

[Interpreted] Are there other questions?

[Operator]

[Interpreted] There are no other questions for the time being. [Operator Instructions] There are no other questions. Let me hand it over to Mrs. Lanzone for the closing remarks.

[Alessandra Lanzone, executive]

[Interpreted] Thank you. Massimo, do you have any other remarks that you might want to deliver?

[Massimo Doris, executive]

[Interpreted] Well, the only closing remark is that I'm really positive with respect to the second quarter performance because we are acquiring many new customers. We have a lot of assets under management and under administration, especially under administration that is going to be switched into managed assets.

Results for clients are extremely good because if we take a look at the net result as an average of our fund's performance, year-to-date, we're talking about 5.5% or 6%, 5.92% year-to-date. So this is a net average return. So we are really generating a good return for our clients.

As to inflows for fixed income, well, it's true that with respect to the net managed assets, we are slightly behind compared to last year. But if we take a look at the Assoreti data from January to June. And let me remind you that they cover Italy alone and not the entire Mediolanum group scope. This data cover the Family Bankers business. Within the Assoreti data, we rank #1. The second has a 50% distance from us. Of course, it's not the same product and data differ because certificates are not considered as being administered [ assets ]. In any case, we are at EUR 1.5 billion. The second ranking is at EUR 1 billion. So maybe it's not as good as last year, but we are really faring much better than our peers. And with all these deposits coming due, I am sure that the inflows are going to take off.

Let me add that often, we are asked about BTPs, EUR 1.9 billion, how much has been purchased by our clients in the first 7 months. This is money that could have been switched to managed assets, true. However, last year, -- it's also true that last year, if we consider inflows within fixed income funds and certificates. So inflows that for clients that really wanted to receive a coupon was EUR 1 billion last year full year. This year, the EUR 1 billion was reached in the first 6 months of the year. So as I was saying, the fixed income asset class is back once again, and it was high time and data is showing this.

So again, I have a very positive outlook with respect to the second half performance and on a very strong end of the year.

[Alessandra Lanzone, executive]

[Interpreted] Thank you. Thank you, Massimo. Let me thank all of you for standing by and following us. And next conference call will be on November 9 for the first 9 month results and also the proposal for an interim dividend distribution. Thank you. I wish you a nice summer. Thank you all, and sorry for the interruption. And I really had a bad cough, and my voice wouldn't help me. Thank you. Have a nice summer.

[Operator]

[Interpreted] This is the end of today's conference call. Thank you for participating, and you can now disconnect. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]