Finecobank Banca Fine Spa

Good afternoon. This is the Coral School conference operator. Welcome and thank you for joining the FinEco Bank first quarter 2021 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. Alessandro Foti, CEO of Fineco. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining our first quarter results conference call. Before we start going through the details of the presentation, let me please highlight the main strategic developments we are undertaking as we have entered in a new dimension of structural growth given the strong acceleration in the long-term trends. The first quarter of the year marks a turning point in our story as we have introduced a wide set of initiatives to progressively become more a platform fulfilling the financial needs of our clients than a bank. The new dimension of growth is generating, first, an acceleration of the leveraging of our balance sheet, which will in turn progressively increase and improve our revenues mix, boosting fees and commissions. Second, a strategic discontinuity in FinEco asset management, which is entering in a second wave to take more control of the value chain to further accelerate our investing revenues and margins. Let me highlight that in the first quarter of the year, we recorded a record high net profit reaching $95 million. and increasing by 3% year-on-year, despite the full contribution to the single resolution fund equal to 5.8 million paid for the first time in 2021. These results is even more valuable considering that has been achieved in a new normal world and compares with the best quarter of 2020, which was characterized both by low operating costs due to the strict lockdown in place in Italy and by the strong performance of brokerage due to the volatility peak. Gross operating profits stood at 144 million increasing by 7% year-on-year, excluding non-recurring items of 2020, showing the soundness of our industrial growth. Revenue stood at 218 million, increasing by 8% year-on-year, excluding non-recurring items of 2020 and mainly supported by investing and brokerage. Operating costs well under control and confirming operating leverage as a key strength of the bank, with cost-income ratio at 33.8%. Also, during the first month of the year, Our commercial activity continued to strengthen compared to the impressive growth experience in 2020. After the record net sales registered in the first quarter, April recorded almost 950 million inflows with an outstanding mix, 95% of asset under management, and 6% 122 million outflows in liquidity, confirming again the efforts of the bank in reducing deposits and improving the asset mix. In April, we also registered strong brokerage revenues, estimated at around 17 million. This is very good news considering the unfavorable market conditions due to both low volatility and volumes. Nevertheless, revenues were around 50% higher compared to the average monthly revenues in the period 2017-19, confirming once again that the floor of the business is now definitely higher compared with the past. Let's now move on to slide five and start commenting our first quarter results. As announced, we reached very strong industrial results also in a new normal world, with net profit standing at $94.7 million in the quarter, plus 2.7% year-on-year on a like-for-like basis. Gross operating profit stood at $144.5 million, increasing by 7.2% year-on-year, excluding non-recurring items of 2020. Thanks to very strong revenues, reaching a record high level of $218.2 million, up 8.4% here and here, as we have been able to catch the strong acceleration of the structural trends in place, mainly thanks to the contribution of investing and brokerage. Operating costs stood at $73.8 million, increasing by 4.5% here and here, excluding costs strictly related to the growth of the business. We will deep dive on cost later on during the presentation. Cost income confirmed to be very low at 33.8% despite the continuous expansion in assets and clients, thanks to our strong operating leverage and to the scalability of our platform. Let's now move to slide six and start to analyze more in detail the dynamic of our results. In this slide, we are showing our net financial income, including net interest income and profits from treasury management. This is in order to give a better representation of the overall contribution coming from the way we are managing the investments of our clients' liquidity. Going forward, the more we will be effective in leveraging the balance sheet and the more we will be able to slow down and possibly even reverse the growth of our financial investments. This will lead to recurring industrially driven profits from treasury management and progressively improve revenues mix within higher components of fees and commissions. In the graph on the left-hand side of the slide, we are representing the first six years of this process as our net financial income reached 75.1 million in the quarter, growing by 4.3% year-on-year and 17.1% quarter-on-quarter. Net interest income remained resilient at 61.8 million despite the worsening of interest rates environment and profit from treasury management stood at $13.2 million. Let's now move to slide seven. Fees and commissions stood at $118.7 million in the first quarter of 2021, growing by 13.1% year-on-year and by 22.8% quarter-on-quarter, thanks to the positive contribution of all-product high-risk. in particular investing in brokerage. Trading income net of non-recurring items and profit from treasury management reached 23.9 million in the quarter, thanks to the strong performance of brokerage. Let's jump now on slide 26 to deep dive on our brokerage business. Brokerage confirmed once again that after the recent events, the floor of the business is structurally higher. compared to the past and regardless of the level of volatility. As you can see in the chart on the top of the slide, in the first quarter of 2021, overall brokerage revenues reached a new quarterly record at 65 million, increasing by 2% year-on-year, despite a much lower market volatility. As anticipated at the beginning of the call, also revenues in April were very strong, reaching $17 million in a month characterized by low volatility and low volumes. This is very good news for us as revenues were 50% higher than in the period 2017-2019, confirming once again that the floor of the business is now higher compared to the past. Let me remind you that the growth of the brokerage business is driven by the contribution of three structural components. First, the deep reshape of our brokerage business. Let me remind you that we have recently launched a new U.S. options platform and that in the first half of 2021, we will launch our leveled certificate offer, becoming issuer, market maker, and distributor through our platform. Second, the client base using our platform is widening with active investors that have grown significantly in absolute numbers, standing well above the average level of 2018 and 2019. Please note that our active investors have an average of five executed orders per month, are wealthy people in their 50s with assets above 200,000 euros on average. And the vast majority of them has a relationship with our financial advisors for the long-term planning of their financial wealth. Third, we are continuously increasing our market share. For example, our market share in Italy on equity traded volumes increased to 27.8% in December 2020. Let's now move on slide eight for a focus on investing. Let me remind you that over the last few months, we have experienced a strong acceleration towards asset under management, as we have been able to catch the structural trends in place in Italy. The acceleration of investing business is expected also going forward, as we are preparing a strategic discontinuity in Finneco asset management that will allow us to improve the efficiency of the value chain, generating higher revenues and margins. We will deep dive on this initiative later on during the presentation. Investing revenues amounted to 69.4 million in the first quarter of 2021, increasing by 13.8% year-on-year and 6% quarter-on-quarter, thanks to the volume effect and stronger net sales into asset under management driven by higher contribution by FinEco asset management. More in detail, management fees increased by 17.3% year-on-year and by 7.4% quarter-on-quarter. Let me please highlight that the court is also showing the first sign of higher risk appetite by clients. resulting in management fees margins slightly increasing to 63 basis points. Let's now move on slide nine for a focus on our costs. This slide confirms once again efficiency to be part of our DNA and core in our bank, representing a clear and unique competitive advantage. Let me please underline that the first quarter of the year was characterized by costs directly related to the strong acceleration of our growth dynamics in the new normal world. On top of this, the yearly comparison is affected by the strict lockdown in the first quarter of 2020, driving non-HR costs to their lowest level of the last 10 years. Operating costs in the first quarter of 2021 stood at $73.8 million, growing by 4.5% year-on-year, excluding costs related to the growth of the business, particularly in the quarter we spent additional 2.4 million in marketing costs, mainly in the UK and not in place in the same period of 2020, 0.7 million additional costs related to our financial advisors, as we have higher contribution to FEAR and the NASARGOR due to the strong net sales recorded at the beginning of the year. Please note that these contributions have a fixed annual limit. and that is mainly fielded in the early months of the year. Additional $1 million cost for FiniCost Management that is preparing itself to further expand its business, allowing us to have a higher control of the investing budget chain. Finally, additional $0.2 million related to cost for the customer care as the new current accounts almost doubled. Going into the details, non-HR costs stood at $47.5 million, excluding the previously mentioned expenses related to the growth of the business. They only grew by 3.8% year-on-year, confirming our strong operating leverage. Finally, staff expenses stood at $26.2 million in the period, increasing by 3%. 5.7% on yearly basis net of the cost related to the expansion of the business of Finneco Asset Management. Let's now move on slide 12 for a focus on our capital ratio. Finneco confirmed once again rock solid capital position on the way of a safe balance sheet. Let me remind you that Following the extension of the recommendation by ECB and Bank of Italy on December 2020, we will refrain from paying dividends until September 30th, 2021. Let me highlight that our intention is to give back to our shareholders our excess capital at the first window of opportunity. With this regard, let me please remind you that the courtier-on-war ratio is not a constraint for us. And thanks to the initiative the bank is undertaking, we expect the leverage ratio to stabilize in a comfortable zone in range between 3.5 and 4%. Common equity tier 1 ratios stood at 26.5%. Let me please note that the quarterly decrease is mainly explained by temporary increase of risk-weighted assets post-Brexit related to our treasury exposure toward UK financial counterparties. Going forward, we expect this component to significantly reduce, as the regulators should pronounce, on the treatment of exposure towards U.K. counterparties, making them equivalent to the European ones. In case of different treatment, we will significantly reduce our existing exposure. Respected assets stood at 4,208 million. increasing compared to December, mainly due to the previously mentioned temporary effect related to the UK counterparty's exposure. Total capital ratio stood at 38.4% as of March 2021.

Let's now move on to slide 14.