Azimut Holding Spa Ord

Good afternoon. This is the Coral School conference operator. Welcome and thank you for joining the Azimuth Holding 9-month 2023 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Gabriele Blei, CEO of Azimuth Holding. Please go ahead, sir.

Thank you very much. Good afternoon to everyone. As always, we will go through the presentation and leave as much time as possible for Q&A. So we'll start from page number four. You have a snapshot of the key results up to the nine months of 2023, 5 billion in net inflows. If we consider also the month of October, as you've seen a couple of days ago, we stand at 5.4 billion, vis-a-vis the target that we have between six to eight billion for the full year. Total revenues of 965 million. We will see this in more detail later, but we have observed the linear development, especially on the recurring fees component, despite the market volatility 431 million of EBIT ahead of the consensus that we have shared with you and last but not least 349 million of adjusted net profit which as we have discussed in the first half results excludes the tax settlement that we have shared with you in April 2023, as well as the impact of IFRS 17. So we try to clean these up from the non-recurrent items. Moving to slide number five, the usual snapshot of assets. Clearly, diversification is delivering its benefit with all areas contributing to our flows, despite the one-off effect that we have in Italy, which we will see in a minute. Slide number six, as I was just mentioning, we have 43 million out of our Italian franchise. This, however, has to discount 925 million of outflows in the first nine months, mainly from the institutional investor that we have mentioned several times in the past quarterly presentation, as well as the crop divestment from our own investment in the first semester. This is clearly offset by flows from our financial advisors in Italy as well as other institutional and direct clients that have been able to offset this negative contribution. Turning to EMEA, we have continued to see a positive development out of Turkey with flows that account for slightly more than 800 million euros in the first nine months. and Monaco that is benefiting from the recruitment of private bankers for almost 300 million, whereas Switzerland we have a bit of outflows down there. As far as APEC is concerned, the bulk of the numbers are driven by Australia with 700 million of which almost 200 million, the 194 that you see on the M&A column is linked to the Australian business. Turning to The Americas, we have a solid contribution from the U.S. of 3.4 billion, of which 1.3 billion has been the consolidation of Kennedy Capital that you see in the M&A column. And clearly Mexico is still benefiting from positive flows for slightly more than 400 million euros. whereas in Brazil as we have able to discuss over the last course we recorded up to July negative flows which have been for are in the process of being partly upset since August with with positive flows so we have a had three months of consecutive positive flows for roughly speaking 200 million euros accumulated between August and October. Moving to slide number seven, snapshot of the revenues. I will focus my attention on the nine-month results. Alessandro later on will try to give you some detail on the quarterly trends. results of recurring revenues that are up 9% year-over-year to $856 million. There is a positive development vis-à-vis 2022 of $74 million in terms of recurrent revenues. We can split this into 23 million coming from the new perimeter, mainly linked to the Australian M&A transactions. We have then a new distribution fee that we mentioned in the past several times of 35 million positive, and then the international business that is contributing for 14 million positive. When it comes to private market, we have a contribution that is positive in the nine months for almost $7 million, with revenues accounting for 11% now. This has been partly offset from the contractions in fees on third-party funds and insurance products, as well as some switch from our usage funds into our private market products. If we turn to our insurance revenue, 84 million, there is a positive development of 16 million compared to a year before, of which 3 million we can link this to recurring revenues, whereas the rest, I would say almost 11 million comes from performance fees. Lastly, the big delta that you see on the performance fees is basically linked to the fact that in 2022, in the first quarter, we had the crystallization of the performance fees under the old methodology, whereas this year we are giving back some performance fees to clients linked to the Fulcrum mechanism, which is partly offset by performance fees from our foreign business for 8 million euros. On the quarterly results, just to mention a few things, there is a linear development in the quarter of recurrent revenues, and this is... However, despite very challenging markets in the quarter, which have slightly eroded the margin, the average margin, nothing that concerns us too much. It's the usual fluctuations in a very short period of observation that is a consequence of markets and mixed effect. Moving through the cost side, on slide number eight, we have total cost in the nine months for $534 million, up 8%. If we dig into the details, as we have done for the revenues, as far as the distribution costs are concerned, they are increasing by 1% to $287 million in the nine months. We have observed a flat environment when it comes to the distribution cost, whereby given what I was mentioning to you, the recurrent revenues are basically flat in Italy. We are not observing any major swings down there. The bulk of the increase is explained by 4 million of higher severance payments to Italian financial advisory that is basically linked to the flattening of the yield curve. Turning to the SG&A, we have 227 million as the nine months 2023, so a progression of 41 million vis-à-vis the year before. This is explained 20 million so almost half of that by the new perimeter which the bulk account is accounted for the Australian evolution of the perimeter and the rest of the 41 million so 21 million is explained by organic growth from our international business and 7.5 million of, sorry, of that 21 million, 17.5 million is explained by the international business evolution. However, 7.5 million of this 17.5 million is linked to FX movements from all the different countries in which we operate. So not really industrial cost increase from a year before. In terms of DNA, this is what we have mentioned in the first half result presentation. There has been a release of provisions. I wouldn't spend too much time on mentioning anything else. If not, turning to the Q3 numbers where you see contraction in the distribution cost, there is a bit of seasonality clearly in Q3, but As we have mentioned before, flat rebate to the network in Italy. We have had lower overheads in the quarter, as well as lower severance payments, which is contrary to the nine months, simply because there has been an uptick in the quarter of the yield curve. And as we have commented in the past, this produced a contraction in the severance payments. Moving to slide number nine. This is the results at an EBIT level. We end up the nine months of 2023 with $431 million, or if you prefer a margin. of 45%, which is basically stable with a year ago, adjusted clearly by the consolidation of sanctuary. And when we observe the net profit evolution, as we were mentioning before, we have adjusted this to reflect the real profitability of the business, which stands at 349 million. That excludes the one of tax impact and the IFRS 17. This translates into a margin of 55 basis points, which is clearly, we're very pleased with that, especially taking into account the volatile market environment. Moving to slide 11, we just wanted to give you a quick update on our international business. at our two-day convention with our international colleagues, more than 250 colleagues joined from our 18 offices around the world in Mexico. It was a very interesting two-day event where we have been able to reiterate the target, so the 150 million annualized net profit target from the end of 2024. as well as the increase in profitability that has to be driven out of the key markets, Australia and the US mainly, as well as the focus on continuing with the stronger integration between production and distribution, which is effectively what we have been doing in Italy for quite some time. We also presented some key initiatives. Among others, we would like to mention some three private market products that will be distributed globally to our institutional investor base. One is effectively the application of the model of the GP staking that we have done with our prop money. Another product is the distribution of the automotive heritage fund that you have probably seen in the press as well as mentioned in our presentation in the past quarterly results. And the other fund is a fund that is called Hybrid Growth, which gives access to the US venture capital deal flow. Turning to two slides, this one and the next one, we just wanted to give you a snapshot of why we are present in Australia and the underlying dynamics of those markets because we continue to see very interesting developments even going forward. In Australia, you have this superannuation scheme, which is clearly quite large, 3.5 trillion Australian dollars, and growing year after year. even the way the scheme has been designed, it will continue to grow year after year. Our focus is on the affluent segment of the market, which is a segment that is growing and needs advice. And when we see the dynamics of this industry, we see that there is a decreasing number of advisors in the industry. So there is a concentration of wealth for each advisor on the one side. And on the other side, clients are in need for more and more professional advisors. So effectively, some of our colleagues believe that there can be a higher profitability per client that we will be able to achieve over time in Australia, given these trends that we are observing. On an industry level, we see that there are many financial advice firms or accounting practices down there that are still operating, and we are clearly one of the key market players capable of attracting practices and delivering growth and the clear benefits of managing the succession planning within these practices. So we have all the premises to keep growing our asset base that today stands at 12 billion Australian dollars, 164 financial advisors and 130 transactions completed since 2015, including consolidation among practices. So all this will lead us to being willing to remain present in these markets as a key shareholder of our subsidiary. But at the same time, we are constantly assessing and evaluating exactly as we have done in Brazil or in the U.S. with Sanctuary, the potential of strategic partnership that may lead to the opening up of the shareholding to a financial investor and potentially over time an IPO. Same thing goes for the US where we have similar dynamics, an industry that is expected to grow significantly over the next 10 years and an industry that has seen already quite a big shake-up in the composition of the main players because as you can observe, the independent financial advisor platform has increased to more than doubling the share of the market. We have clearly, even there, a focus on the affluent investor base, and those clients are willing more and more to have professional advice. Sanctuary is clearly an independent platform that is obviously capable and still is doing the attractive, sorry, the consolidation of financial advisories and we aim with them to achieve further and further integration and scale to increase profitability today. Sanctuary is a platform that was founded in 2018 and today it has almost 25 billion of US dollars in assets, 80 partner firms, and 300 plus advisors. And as we have mentioned for Australia, the same concept goes here in terms of actively managing our participation in Sanctuary. Moving to slide 14, the usual snapshot. As you can see, US and Australia account for almost two thirds of our AUM internationally. So the clear focus of what we just mentioned is justifying our actions. Slide 15, no big news here. It's not that you're seeing a development of the asset base, which is 13 times what we had at the beginning of 2020. And we are pleased with the fact that The private market evolution is not just an effect that we have in Italy and the US, given the strategy that we have deployed, but it is something also that we are starting to observe in other emerging markets in which we operate, being Brazil and Turkey some of the places where we have production capabilities in this segment. As far as the private market as of September, $7.7 billion, almost just slightly in excess of 13%. Nothing major has changed in terms of composition, either geographically or by asset class, and we keep going on with our strategy. Slide 17, the update on the GP staking, as you probably have came across in the news, Kennedy Lewis has been able to close its third fund for 4.1 billion. It's their biggest fund despite the challenging period. They had to increase their target and increase the hard cap that they have faced. Since our entry, the company has grown six times in terms of assets. They continue to be extremely profitable and competent in managing this after-class. On the other spectrum hypothesis on the private equity side, again, since our entry, the evolution of the AUM has increased six times, and we have recently uplifted our stake in in hypos to 15%. We have the options to reach up to 25%. And we have welcomed Mark and David as our, not just partners, but shareholders also in Antima Holding. Slide 18, an update on UniCredit. As we are almost one year from the announcement back in December 2022. As we have mentioned back then, there was going to be a period in 2023 of licensing and the setup of the operations. We are almost done with all of that. The license has been granted on the 20th of October 2023. There are now the last round of comments on the prospectus for the first 12 funds. We're almost done with that, and we expect to go ahead by the end of November. This clearly leads us to the ramp-up phase of supporting Unicredit in the preparation of the marketing materials in light of several planned internal initiatives that they have, and therefore perfectly on time with our original schedule, we expect to the green light in terms of asset gathering activity starting from Q1 2024. As a gentle reminder, this transaction should lead us to generate similar profitability level to the one that we generate out of Italy. Slide 19, not much difference here. We just probably are further increasing the fixed income exposure at the expense of cash, given the higher yields that we can receive on this asset class. On slide 20, there is a kind of a different and new representation of the breakdown of the portfolio by geography and asset classes. You see how the 48% in equities has been split by geography, as well as the 49% that you have seen in the previous slide between corporates and sovereigns. and I leave you to dig into all these details. Weighted average performance on the next slide, no much news. Despite the volatile market, we keep overperforming over a medium term the market, and we continue to approach an active management of the portfolios. I will turn now to Alessandro for a deep dive on the financials and then get it back later.

Thank you, Gabriele. We can move to slide 23. As Gabriele said at the beginning, we will focus on the quarter-long quarter variation. Also, following how we built the slide, so we specifically note additional comments on the nine months 2023, there are four. Back to the variation of the quarter, starting from the operating profit, as you can see, we have a variation of almost $10 million positive compared to the second quarter. This has been obtained thanks to an increase of $5 million in terms of total revenue, and on the other side, we had less operating costs for $4.4 million. Starting from the revenue, the main variations are allocated from the insurance revenue with 3 million positive thanks to an increase in terms of recurring revenues. So again, thanks to our growth in terms of asset management and as well of 2.6 million generated from additional performance during the quarter. We have positive increase in terms of other income. The recurring fees are almost flat or negative for 0.5 million. This is a combination of two effects. On one side, the positive side is the continuing increase from the international business. On the other side, we have a slightly negative effect in terms of market effect and also asset mix of our clients. Last for the revenues are the variable fees that are negative of almost 3 million. We are impacted negatively by the new mechanism for 4.7 million, but this has been netted by positive effect of the variable fees generated by our international business, in particular from Turkey and Brazil. At the level of the cost, as I was saying, 4.4 million less compared to the second quarter. This is, again, a combination of two effects. On the distribution cost, we have almost 7.5 million less compared to the second quarter. As we said at the beginning, explaining mainly by lower overheads and severance payments, so lower compared to the previous quarter. And on the administrative cost, we have 2.6 million more. This is mainly driven by an effect-to-effect link to an accounting of hyperinflation, so following the YAS 29 rules that we applied. Moving to the next slide, so moving to the below, the operating profit. Probably the main line that we should give you more details is the finance income. Also in this quarter we have a positive effect of 14 million. This can be reconciled considering 2.2 million of positive effect from our fair value option mechanism. 5.6 million are generated by our alternative capital partners, GP Staking, so the business that we have built in the U.S., and additional 7.5 million are realized and are realized again on our liquidity management that we actually manage also in Italy, but also from our international countries. The non-operating income are back to, let's say, a normal contribution to the P&L. As you may remember, the second quarter was impacted by the write-off of the discontinuation of the new front-end program for our KFA in Italy. At the level of the basis point, I mean, net profit margin in terms of basis points, we have one basis point more compared to the second quarter, and significantly we increased if we compare the nine months 2023 with the nine months 2022. Moving to the net financial position, so slide 25. We are positive, almost 360 million, almost, I mean, more than 100 million compared to June 23. This variation can be explained taking consideration. So starting from the 250 on June, we should add the net profit before tax of the quarter, sorry, so 156 million. and taking negatively the effect of the tax advance for 25 million and additional 15 million in terms of M&A activities, we are almost there in terms of reconciliation and the numbers that we have disclosed. Also, we put the global effect, I mean, following the nine months in terms of M&A dividends and taxes, just a reminder of our main use of cash during the nine months. I'm going to leave it back to Gabriele for the conclusion.