Finecobank Banca Fine Spa

Good afternoon. This is the Corusco conference operator. Welcome and thank you for joining the FinEco Bank's full year 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 2021 results conference call. Last year confirmed our new dimensional growth thanks to the acceleration of the structural trends. and we are progressively delivering on our two strategic discontinuities in order to become more a platform fulfilling the financial needs of our clients than a bank. First, the growth of our balance sheet is now definitely under control, which is in turn progressively improving our revenues mix in favor of fees and commissions. Second, P&E asset management is now reaching a new dimension and it has accelerated its process of taking more control of the value chain to further increase our investing revenues and margins. The strategic discontinuities are making Fineco more and more a fast-growing and capitalized business model with a structurally higher profitability thanks to the investing and the structurally higher room to dispose of it, as the leverage ratio is no more a point of attention. This will allow us to distribute a higher level of dividends and at the same time to be in the position to invest more on our growth. In this regard, we are very pleased to propose to the next annual general meeting a dividend per share of 39 euro cents. Coming back to our results, in 2021, we recorded a record high adjusted net profit of $349 million, up by 7.6 percent year-on-year, despite the increased contribution of systemic charges. This result is even more valuable, considering that it has been achieved in a new, normal world and beats the previous record set in 2020. Adjusted revenues were at $805 million increasing by 7.4% year-on-year, and mainly supported by the investing, thanks to the growth in asset under management and the higher control of the value chain by Finnecoset management. Brokerage confirmed a structurally higher flow, also in an environment characterized by a much lower volatility compared to 2020. Operating costs were under control, and cost-income ratio leverage as a key strength of the bank. On cost, let me please underline that the strategic decision to manage almost 100% internally our IT is protecting us from the inflation on IT costs. Our capital position confirmed to be strong and safe with a common equity TR1 ratio at 18.8%. Our commercial activity continued to strengthen compared to the impressive growth experience in 2020. After the record net sales registered in 2021, in January, we recorded around 7 billion, 0.7 billion. The mix confirmed to be strong with about 0.3 billion in assets under management, of which around 75% were represented by FinEQ asset management retail net sales. On our Irish company, let me please underline that January saw a further confirmation of the acceleration in the discontinuity on the investing value chain with 0.5 billion institutional net sales. Brokerage revenues are estimated for January at around 19 million, also thanks to the uptick in volatility, mainly in the second part of the month. Revenues are around 70% higher compared to the average monthly revenues in the period 2017-2019, confirming once again that the floor of the business is now definitely higher. Let's now move on to slide five, As announced, we reached very strong industrial results, also in a new normal world, with adjusted net profit standing at 349.2 million in 2021, plus 7.6% year-on-year on a like-for-like basis, despite the higher contribution for systemic charges. Revenues at $800 million, or $804.5 million, up 7.4% year-on-year, as we have been able to catch the strong acceleration in the structural trends in place, mainly thanks to the contribution of investing. Operating costs equal to $258.9 million, increasing by 4.4% year-on-year, excluding costs strictly related to the growth of the business. Cost income confirmed to be very low at 32.2%, 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 on to slide six and start analyzing more in detail the dynamics of our results. In this slide, we show our net financial income amounting to $280 million and remaining flat in the year. Net interest income was equal to $248 million, despite the worsening of interest rate environment, and profit from Treasury management to $32 million. Let me remind our sensitivity to a change in interest rates. The parallel shift of 100 basis points would generate 133 million of additional net interest income. With a parallel shift of minus 100 basis points, we would generate minus 160 million of less net interest income. Let's now move on to slide seven. One of the main consequences of our focus on becoming more a platform than a bank is that we are continuing to accelerate the growth of our non-financial income, which in 2021 was equal to $522.1 million, up by 11.9% year-on-year, mainly thanks to the positive contribution of investing. Now, jumping to slide 24, we will deep dive on the performance of the brokerage business. In 2012, brokerage confirmed once again that the floor of the business is structurally higher compared to the past, and regardless to the level of volatility. As you can see in the chart on the top of the slide, in the fourth quarter of last year, brokerage revenues reached 52.9 million in a period characterized by low volatility, resulting nevertheless in a monthly average 57% higher compared to the monthly average revenues in the period 2017-2019. In January, estimated brokerage revenues were equal to $19 million, around 70% higher compared to the average monthly revenues in the period 2017-2019. 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. In this regard, we are live with the marketing campaign on our leveraged certificates platform. And in the first half of 2022, we will launch a brand new brokerage platform which we will combine our state-of-the-art standard with top quality, easy to use. Second, the client base using our platform is widening with active investors that have grown significantly in absolute terms, standing around 35% above the average level of 2018 and 2019. As you know, our active investors have an average of Four executed orders per month are wealthy people in their 40s slash 50s with assets on average above 200,000 euros. And the vast majority of them has a relationship with some financial advisors for the long-term planning of their financial wealth. We are also live with the most competitive offer in Italy to catch the next generation of active investors with a very aggressive pricing for our investing and brokerage platform, giving clients up to 30 years old access to global markets through shares, bonds, ETFs, and mutual funds, also through accumulation plans. we are continuously increasing our retail market share. 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, and we have been able to catch the structural strength in place in Italy. On top of this, Finneco asset management is now reaching a new dimension in the economies of scale, this taking more control of the value chain. As a result, investment revenues amounted to $275.6 million in 2021, increasing by nearly 30% year-on-year. Management fees increased by nearly 30% year-on-year in 2021, while in the fourth quarter of 2021 increased by 36.1% year-on-year and by 8.1% quarter-on-quarter. In the fourth quarter, we also recorded 4.2 million in other commission lines, which are strictly linked to the operating efficiency in the value chain reached on the institutional classes by FinEQ Asset Management, and booked at the end of the year. Management fees margins after tax increased to 50 basis points in the fourth quarter, thanks to FinEco asset management delivering on its strategic discontinuity, and thanks to the accumulation of products, which are increasingly shifting towards equity. On top of this, we have also recorded a positive contribution by FinEco asset management activity on the institutional business, which is in turn reinforcing the effect coming from retail classes. Let's now move on to slide nine for a focus on our cost. This slide confirms, once again, efficiency to be part of our DNA and core in our bank represented a clear and unique competitive advantage. Let me please underline that 2021 was characterized by cost directly related to the strong acceleration of our growth dynamics in the new normal world. Operating costs in the year at 258.9 million, growing by 4.4% year-on-year, excluding costs related to the growth of the business, mainly related to additional 4.2 million costs for financial management that they are current with the acceleration to further expand its business and have a higher control of the value chain. additional $1.1 million in marketing costs in the UK. Staff expenses were equal to $109.6 million in the period, increasing by 6.5% on a yearly basis, net of the costs related to the expansion of the business of Fine Costs Management. non-HR costs at 149.3 million, growing by 2.9% year-on-year, net of above-mentioned costs related to the growth of the business. Let's now move on to slide 11 for a focus on our capital ratios. Finneco confirmed once again a rock-solid capital position on the wave of a safe balance sheet. Common equity tier one ratio was equal to 18.8%, including the 2021 dividend proposal. Leverage ratio was equal to 4.02% in line with the optionality allowed by ECB and Bank of Italy, our leverage ratio. and total capital ratio to 29.63% as of December 2021. Let's now move on slide 13. As you know, 2021 has confirmed that in the new normal world Finicco is in a new dimension of growth And last year, we were able to deliver record net sales with a strong asset mix, as assets under management increased by almost 70%. Let me now spend a few words on the recruiting. In the new environment, Finneco emerged more clearly as the perfect bank for professionals looking to grow their own business in a sustainable way. As you can see on slide 14, starting from last year, we have experienced a strong increase in the interest of financial advisors to join our bank, thanks to our business model. To this regard, please note that we have no need to overpay financial advisors with huge upfront fees and using the aggressive approach historically taken by the industry. As a result, last year we recorded a net increase of 184 personal financial advisors in our network as we recruited 116 seniors and 155 juniors with net sales generated organically by the bank at 87% in the period. Let's now skip to slide 19. In this slide, we summarized our guidance with regards To our banking revenues, we expect our net financial income to be in 2022 at least stable at the level of 2021. Going forward, we expect our net interest income to benefit from the new interest rate environment, both thanks to the sensitivity of the existing portfolio and thanks to their investments. I would like also to remind the point that Finneco, thanks to the fact that we have half of our investment portfolio that is at the variable rate, we have one of the highest gearing to interest rates among the banking industry. Let me also add that this new interest rate scenario, coupled with the most recent newsfloss on tax credit, has changed our appetite towards this activity. And we are now expecting to buy a lower amount of fiscal credit, but counterbalanced by a higher contribution from financial investments, thanks to the new investment. In any case, we expect to keep on lowering our exposure towards Italy, also considering the runoff of the unicredit bonds. Overall, banking fees are now expected above 50 million in 2022. Going forward, they are expected to keep on growing thanks to the increase of the client base and the previous repricing actions. Already taking into consideration the negative market effect of January, we expect for 2022 revenues to increase high teams with higher management fees margins. We also expect an increase of around 100, 120 personal financial advisors in our network, and we are emerging as the reference point for professionals looking to grow in a sustainable way. Going forward, we confirmed the guidance of around 6 billion per year in asset under management net sales and 6 billion per year in retail net sales by Finneco Asset Management. We also confirmed the increase of the bank's management fees margins after tax up to around 55 basis points and pre-tax margins up to around 75 basis points by 2024. At this regard, let me please underline that based on the most recent numbers, we could reach that level before than expected. Brokerage revenues are expected to remain strong. with a floor in relative terms with respect to volatility. That is definitely higher than in the past. And let me underline that in 2022, it is reasonable to expect a higher volatility compared to 2021. So we are confident that brokerage revenues will be higher compared to last year. Operating costs in 2022 are expected to grow around 5% year-on-year, not including around $7 million of additional costs related to farm strategic discontinuity to improve the efficiency of the investing value chain. On costs, let me please underline that the strategic decision to manage 100% internally our IT is protecting us from the inflation on IT costs. Thanks to this, we will consider in the coming months the possibility to further accelerate the marketing expenses to take advantage by the strengthening of the structural trends. Cost income, we confirm our guidance of a continuously declining cost income in the long run, thanks to the scalability of our platform and to the strong operating gearing we have, this excluding potential higher marketing expenses. Systemic charges for 2022 are expected in a range between 42 and 44 million, look at within provisions for risk and charges. Tax rate for 2022, we expect a decrease of around one percentage point. On our capital ratio, we expect CT1 ratio to remain above the floor of 70%, and leverage ratio comfortably in a range between 3.5 and 4%. Currently, with the combination of both strong acceleration in the growth of the bank and the distribution of generous dividends. As you can see in slide 54, in the annex of our presentation, the point of attention related to the leverage ratio has been definitely fixed. On dividend per share, going forward, it's constantly increasing, also thanks to the progressive delivery on our strategic discontinuity. quarter 2021, thanks to the quality of our lending portfolio that is offered exclusively to our loyal customer base and to the improvement of the macroeconomic scenario. In 2022, we expect a hit in the range between 10 and 15 basis points. Finally, we expect a robust and high-quality net sales with a mix mainly skewed towards asset under management and with a lower component of deposits thanks to the whole initiatives we are undertaking. Let's now move to slide 20. As you know, in order to take full advantage of our new dimensional growth, we have undertaken a wide set of initiatives to keep the growth of our balance sheet under control. Let me now go briefly through the new initiatives. First, we changed the incentive scheme of our network of financial planners that is now only linked to net sales in asset under management. Second, we will further increase the productivity of the network through new software developments for our advisory services, leveraging on our deep internal IT know-how. Third, we are improving the quality of our client base, focusing our target market on the upper end, also thanks to the past repricing of our banking services in order to better control the acceleration of new clients from traditional banks and be more selective on our client acquisition. Finally, thanks to Finacost management efficiency and strong time to market, we can count on a wider product range. in order to fully catch the whole spectrum of clients' financial needs and effectively convert the excess liquidity. On top of Finnecoset management target offer, our company now is accelerating even farther in the release of a new strategy, and we also launched a passive financing retail classes. All these sets of new initiatives is already delivering, allowing us to move towards the concept of platform As you know, in 2021, we recorded a strong improvement in our assets under management and sales, growing by 70% year-on-year and increasing their penetration of total net sales to 68% from 46 in 2020. On the other end, the growth of deposits is definitely under control, decreasing 2021 by 41% to only 1.5 billion and representing only 14% of our total net sales. As a result, already now, at the same time, we can sustain our strong long-term growth, distribute an higher level of dividend per share, and comfortably remaining well above our regulatory requirements. Let's now move to slide 23, to deep dive into micro-asset management. As anticipated during the presentation, Finnecost Management is already delivering in its strategic discontinuity to take more control on the investing value chain, resulting in higher revenues and margins for the group. Finnecost Management is gaining commercial traction and increasingly contributing to the group net sales. And last year, it gathered a record high of 3.9 billion retail net sales, up by 81% year-on-year. As the Irish company is now reaching a new dimension in the economy of scale, the pipeline of new solutions is further accelerating. In the coming weeks, we will launch around 15 new strategies, allowing Finneas Consulting Management to further step up its retail net sales. Let me please underline another important leg of Finneas Consulting Management activity in the process of the internalization of the value chain, where results are even better than expected. As you know, our company has recently recorded a strong increase in its institutional classes. We have 3.2 billion net sales in 2021 and 0.5 billion already in January. The more Finnecos management grows in dimension and product offer, and the more it can use its supervisory mandate as underlying of the investment solutions. this leading an additional margin contribution from the bank. On top of this, the discontinuity in FinEQ asset management is allowing our Irish company to progressively and structurally decrease the cost of third parties through a number of initiatives, like, for example, the launch of new flagship product range fully managed in-house, new advisory services, and lower cost of mandates. I'll now leave the floor to Paolo Di Grazia, our Deputy General Manager, for an update on development on our UK business of slide 27. Thank you, Paolo.

Thank you, Alessandro. Good afternoon, everybody. Last year, I confirmed once again that our offer in the UK is very well welcome. Thanks to our best-in-class price-quality ratio and to a marketing campaign targeting a quality cluster of clients. We are not focused, as you know, on hit-and-run, highly speculative and volatile customers. but we are attracting experienced traders loyal and looking for quality offer with a strong activation rate at 65 percent on our brokerage offer as you can see from the graph on the left hand side of the slide our quality client base is now equal to around 20 000 clients and our customer acquisition metrics further improved in 2021 with new current accounts doubled compared to the 2020. This is translating in a boost of our revenues metrics, and as a result, our UK business is progressively gaining traction and is now profitable at operating level. The trend of our revenues generation is extremely positive, as you can see from the graph on the right-hand side of the slide. In 2021, we recorded 1.6 million of brokerage revenues, in 2021 and in January proved to be another strong month. On top of this, our cross-selling is working very well and we are continuing to improve our revenues, mix in favor of over-the-counter and listed products, which are now the lion's share of our growth. On a final note, we are in the process of preparing the setup to launch our offer in Germany by the end of 2022, as we think that our model, just based on the features of the German market, can be very attractive for local clients, also thanks to our unique price-quality ratio. Thank you for your attention, and I'll give it back to Alessandro.