Finecobank Banca Fine Spa

Good afternoon. This is the Coral School Conference Operator. Welcome and thank you for joining the Fineco Bank Full Year 2022 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 2022 results conference call. As you know, our new dimension of growth is underpinned by the new structure of the interest rates. Thanks to this, adjusted net profit in 2022 reached a new record level at 429 million, up by 23% year-on-year. Adjusted revenues at 948 million, increasing by 18% year-on-year, and mainly supported by investing, thanks to the volume effect and the higher control of the value chain by Finneco Asset Management, and by net financial income, which is sustained by our clients' very sticky and invaluable transactional liquidity and not driven by lending. Operating costs were under control at $281 million, increasing by 4.6% year-on-year by excluding costs related to the growth of the business and confirming operating leverage as a key strength of the bank. Adjusted cost-income ratio was equal to 29.6%. On cost, let me please remind you that the strategic decision to manage 100% internally our IT is protecting us from the inflation on IT cost. Our capital position confirmed to be strong and safe with a common equity TR1 ratio at 20.8%. Let me please underline that we are very pleased to propose to the next Annual General Meeting a dividend per share of 49 euro cents. Our commercial activity confirms to be extremely solid also in January with net sales at around 750 million and a strong mix with around 700 million in asset under management and around $320 million in assets under custody. Let me underline that Fineco Asset Management has recorded its best month ever in terms of retail net sales with around $700 million thanks to the launch of the new capital preservation product offer. Estimated brokerage revenues in January at around $16 million more than 35% higher compared to the average revenues in the period 2017-2019. This result was achieved despite market volumes extremely low in the month and close to the historical lows, thus confirming once again that the floor of the business is now definitely higher. Looking at 2023 and going forward, we expect to continue to deliver a strong growth thanks to our very diversified business model. On the right-hand side of the slide, you can find a summary of our 2023 guidance more in detail. On net financial income, we have improved our 2023 guidance, and we now expect a growth by around 80%. and respected the better than expected 2022 results. On investing revenues, we expect for 2023 an increase high single digit compared to 2022 with a higher after-tax margin. We confirm 5 billion assets under management net sales both in 2023 and 2024 with 4.5 billion retail net sales for FinEcoset management. We also confirm management fee margins after tax at around 55 basis points in 2024 with pre-tax margins at around 73 basis points. On brokerage, we confirm for 2023 expected revenues strong with the floor higher versus pre-COVID period. On operating costs, we expect an 6% growth year-on-year in 2023, not including around 2 million of additional costs for final cost management, strategic discontinuity, around 3 million for UK operational costs, and other costs for the expansion in Germany and eventually additional marketing expenses. We expect our cost of risk in the range between 5 and 9 basis points. And finally, we expect a growing CT1 and leverage duration. Let's now move on to slide five. As announced, we reached a new record high adjusted net profit in 2022 at 429 million plus 23% year-on-year on a like-for-like basis in a very challenging macro scenario. Revenues at 948 million, up by 18% year-on-year, as we have been able to catch the strong acceleration of the structural trends in place, mainly thanks to the robustness of our net financial income and to the contribution of the investing business. Operating costs at 281 million, well under control, and increasing by 4.6% year-on-year, excluding costs strictly related to the growth of the business. Let's now move to slide 6 and start to analyze more in detail the dynamics of our results. Net financial income in 2022 at 392 million, increasing by 40% year-on-year, with net interest income at 343 million and profit from treasury management at 49 million. Let me highlight that net interest income is progressively increasing thanks to the strong gearing to interest rates we have, driven by our clients' valuable and sticky transactional liquidity. We are continuing to accelerate the growth of our non-financial income, which in 2022 reached $555 million, up by 6% year-on-year, mainly thanks to the positive contribution of investing and banking. Now, jumping to slide 18, we will deep dive on the performance of the brokerage business. Overall, brokerage registered an excellent 2022 at $190 million, despite the persistent negative market context in terms of volumes and the bear market, confirming a structurally higher floor compared to pre-pandemic levels regardless of market conditions. As you can see in the chart on top of the slide, in the fourth quarter of the year, brokerage revenues reached 41 million, resulting in a monthly average 22% higher compared to the monthly average 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 continuous process of deep reshaping of our brokerage business. Second, the widening of our client base using the platform with active investors growing significantly in absolute terms and standing around 35% above the average level of 2018-2019. And this trend has been confirmed also in the most recent quarters despite the low volumes on the market, as our target market is focused on wealthy and financially aware clients able to trade in every environment. Third, we are continuously increasing our retail market share. Let's now move on to slide seven for a focus on investing. Pineco is positioned in the sweet spot to capture the structural trends in place in Italy, and also thanks to our initiatives, we have experienced a strong acceleration towards asset under management. On top of this, Finneco asset management is delivering on heat discontinuity and taking more control of the value chain. As a result, investing revenues were equal to $308 million in 2022, increasing by 12% year-on-year with management fees increasing by 13.5% year-on-year. Let me highlight that the strong contribution by FinEco City Management has been able to sustain margins and revenues. Management fees margins after tax reached 53.1 basis points in the quarter, in line with the previous one, despite the stronger negative market performance at the end of the third quarter, which has resulted in lower average asset under management in the last three months of 2022. Let's now move to slide 8 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. Operating costs in 2022 at $281 million growing by 4.6% year-on-year, excluding costs related to the growth of the business. Mainly, additional $5.7 million costs for FinEco Asset Management that are current with the acceleration to further expand its business and have in higher control of the value chain. Additional $4.3 million in marketing costs. Staff expenses at $117 million. in the period, increasing by 5.1% on a yearly basis, net of the cost related to the expansion of the business of finical asset management. Finally, non-HR costs at $164 million, growing by 4.2% year-on-year, net of the cost related to the growth of the business. Let's now move to the slide 10 for a focus on our capital ratios. Fineco is confirming once again a rock-solid capital position on the wave of a safe balance sheet. Common equity tier 1 ratio at 20.82%, leverage ratio at 4.03%. Risk-weighted assets at 4.74 billion and total capital ratio at 31.2%. 37% as of December 2022. Let's now move on to slide 16. Let's now focus on our 2023 guidance and outlook going forward. On banking revenues, we expect the net financial income in 2023 to grow by around 80% compared to the better than expected results in 2022. Let me remind you the assumptions behind the guidance. First of all, the guidance is updated with the forward rate code as of February the 3rd, 2023. We confirm that we will not pay any interest on current accounts, 1 billion net inflows in deposits. In terms of our investment policy, we will continue the diversification of our bond portfolio by buying European Govins and we have stopped reinvestments in Italian and Spanish GOVIs. Finally, let me remind you that the net financial income is expected to be represented entirely by net interest income, as we don't expect any contribution in terms of profits from treasury management in the present interest rate environment. Going forward, we expect net interest income to keep on benefiting from the new interest rate environment. Overall banking fees are expected stable compared to 2022. On investing, taking into consideration the negative market effect up to the end of January, we expect the 2023 revenues to increase by high single-digit year-on-year, with higher management fee margins after tax. Overall, banks' asset under management net sales are expected at around 2%. 5 billion, while for Finacost management, we expect to retail net sales around 4.5 billion. On this, let me add that inflows in January have been very solid and promising, and we will update the guidance in case of a consolidation of the current trend. Our financial planner network is expected to increase by around 100, 120 financial advisors. In 2024, we expect around 5 billion net sales per year in the overall bank's assets under management. For our Irish company, we expect a retail net sales of around 4.5 billion per year. Finally, despite the challenging context, we confirm the increase of our management fee margins after tax up to around 55 basis points by 2024. thanks to Finneco asset management operational efficiency that is more than offsetting the negative market performance. Pre-tax margins are confirmed at around 73 basis points by 2024. Brokerage revenues are expected to remain strong with a floor in relative terms with respect to the market context that is definitely higher than in the pre-COVID period. Operating costs in 2023 are expected to grow at around 6% per year, not including around 2 million of additional costs related to FinEQ asset management strategic discontinuity, around 3 million for UK operational costs, other costs for the expansion in Germany, and eventually additional marketing expenses. Cost income, we confirm our guidance on a continuously declining cost income in the long run thanks to the scalability of our platform and to the strong operating gearing we have. Systemic charges for 2033 are expected in a range of 50-55 million. On capital ratio, we expect a growth in 2033 for both CT1 ratio and leverage ratio, currently with a combination of both a strong acceleration in the growth of the bank and the distribution of generous dividends. On dividend per share, going forward, we expect a hit constantly increasing, also thanks to the progressive delivery on our strategic discontinuities. Customer risk was equal to four basis points, thanks to the quality of our lending portfolio that is offered exclusively to our loyal customer base. In 2023, we expect a hit in a range between five and nine basis points. Finally, we expect a robust increase and high-quality net sales with a mix mainly skewed towards asset under management and with a lower component of deposits thanks to all the new initiatives we are undertaking. Let's now move to slide 17. As you know, Finneco Asset Management is progressively taking more control of the investing value chain, resulting in higher revenues and margins for the group. The contribution of Finicco asset management to the group asset under management net sales is further improving regardless of the macro scenario, moving from 53% in 2021 to 77% in 2022. At the end of 2022, the contribution of Finicco asset management asset under management out of the total stock of asset under management for the bank moved from 27.3% in 2021 to 30.3%, and in January is above 31%. Let me please underline that our Harish company has recently launched a new generation of product perfectly in line with clients' needs in the current environment, as shown by the strength of the influence in the last few months, with January recording the best month ever in terms of retail net sales. On top of this, Finicost Management continued to deliver the internalization of value chain by collecting net sales of funds underlying of wrappers. As a reminder, this process is linked to the substitution of Finicost Management funds within the building block used for funds of funds or insurance wrappers, thus leading to an additional margin contribution for the bank. I now leave the floor to Paolo Di Grazia, our Deputy General Manager, for an update on our international business on slide 21.

Good morning. Let me start with the usual update on our UK business. We are finalizing our talks with the local authorities on the post-Brexit setup and we have submitted the request to open a live subsidiary in the UK. This will imply a slight increase in our UK cost base in the region of around 3 million more. As for the results in 2022, let me underline that we are very happy for the growth of the business we experienced despite we stopped our marketing activity due to the talk spending with the local regulator. Our client base kept on increasing thanks to the word of mouth and our revenue generation has doubled year on year to 2.7 million. The next country we are assessing to enter is Germany in 2023, leveraging on our new platform for investments. Our intentions are to develop the offer in two steps. brokerage and multi-currency, and the second investing with no financial advisor. The offer will tailor German customers' behaviors, leveraging on stocks, ETFs, certificates, and CFDs on a multi-currency platform. While the brand positioning will look to acquire sticky, high-value, and financially aware clients looking for fairly priced quality service as in our DNA. Finally, in the next few years, we will assess to approach different countries across Europe, depending on the opportunity that may arise. Thank you for your attention, and I will hand it back to Alessandro.