Finecobank Banca Fine Spa

Good afternoon. This is the Coruscall conference operator. Welcome and thank you for joining the Fineco Bank fourth quarter 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. Alessandro Foti, CEO and General Manager of Fineco Bank. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining our fourth quarter 2023 results conference call. Adjusted net profit in 2023 reached a new record high and was equal to $609.1 million, strongly up by 42% year-on-year. and by 54% excluding 2022 profits from treasury management. Adjusted revenues achieved 1,237.6 million, increasing by 30.5% year-on-year, and mainly supported by net financial income, which is sustained by our clients' very sticky and valuable transactional liquidity, and by the solid growth of our investing business, thanks to the volume effect and the higher control of the value chain by Finnecoset management. Operating costs were under control at 298.3 million, increasing by 4.7% year-on-year by excluding costs related to the growth of the business. Adjusted cost-income ratio was at a very remarkable level at 24.1%, strongly improving year-on-year and confirming operating leverage as a key strength of the bank. In 2023, Fineco achieved an outstanding commercial performance thanks to our organic growth strategy. First of all, we recorded a strong acceleration in our new clients' acquisition, increasing by around 23% year-on-year and allowing the bank to reach the new yearly record in terms of new clients. Let me highlight that this remarkable acceleration is confirmed also in January, which recorded the second best month ever in terms of new clients for the bank and bodes extremely well for our future growth. Second, our net sales confirmed to be very solid with 8.8 billion inflows in 2023. In January, we met sales at around $0.6 billion, of which deposits at minus $374 million as short-term traders deployed liquidity to buy both equity and GOVIs for trading purposes. As a consequence, brokerage recorded a very strong month with estimated revenues at $16 million, 40% higher compared to the average revenues in the period 2017-2019. Asset under management, net sales were positive at around 79 million, despite one or six million outflows from insurance business, and with Finneco Asset Management recording 153 million retail net sales. Asset under custody was equal to 875 million. Let me also add that we are in the process to launch new investment solution in February, and this will be supported for both volumes and revenues. Third, our network of personal financial advisors confirmed to be once again the leader in terms of productivity within the asset gatherers space, thanks to our power for organic growth engine and FinTech DNA. Our capital position confirmed to be strong and safe with a common equity TR1 ratio at 24.3%. and a leverage ratio at 4.95%. Let me please underline that we are very pleased to propose to the next Annual General Meeting a dividend per share of 69 euro cents, increasing by more than 40% year-on-year. On the right end of the slide, you can find a summary of our 2024 guidance, where we confirmed the outlook we shared in the last quarter conference call. with a better mix, more in detail. On revenues, we expect them to consolidate in 2024 around the record level of 2023 with an improvement of the mix in favor of commissions thanks to investing revenues expected to increase low double digit in comparison to 2023 with a natural market assumption. Banking fees expected stable Brokerage, we confirmed for 2024, expected revenues stronger with a floor higher versus pre-COVID period. On operating costs, we expected 6% growth year-on-year in 2024, not including additional costs for both FiniCost management and marketing expenses. We expect our cost of risk in a range between 5 and 10 basis points. in 2024, and finally we expect in 2024 a growing CT1 and leverage ratio year-on-year. Let's now move to slide five. As announced, adjusted net profit in 2023 reached a new record level at 609.1 million in a very challenging macro scenario with an outstanding increase by 42% year-on-year and by 54% excluding profits from Treasury management realized in 2022. Revenues achieved 1,237.6 million, up by 30.5% year-on-year, as we have been able to catch the strong acceleration of the structural trends in place. The strong growth of our net financial income, increasing by 75.4% year-on-year, supported by our high-quality and capital-like net interest income, which doubled here on here. Net commissions increased by a sound 5.2% here on here, mainly thanks to the solid contribution of our investing business. As for trading profit, let me remind you that in this line, there are accounted minus 7.2 million related to the ineffectiveness of hedging derivatives in accordance with the accounting standard IFRS 9, compared to the plus 12.2 million in 2022. The value is influenced both by the spread between the euro short-term rate and the euro reward, and by the amount of the fair value of the derivatives. Excluding these effects, the decline in trading profit is mainly related to the brokerage activity due to the lower level of market points. Operating costs up to $298.3 million, well under control and increasing by 4.7% year-on-year, excluding costs strictly related to the growth of the business, mainly additional costs for Finicost management to further expand its business and have higher control of the value chain. Additional marketing costs to further improve our growth and catch the strong momentum of the business. Finally, within our provisions, we are accounting a one-off effect due to Eurovita equal to minus 11 million, related to the contribution to the rescue of the company. Let's now move on to slide 6 for a deep dive on the performance of the investing business. Investing revenues reached 329.1 million in 2033. increasing by a solid 6.8% year-on-year. Let me please remind you the great quality of our investing revenues, mirroring our transparent and fair approach towards clients. As a result, our revenues are exclusively driven by recurring management fees. On the quarterly management fee dynamics, let me underline that we were affected by the negative market performance at the end of the third quarter, which resulted in lower average volumes in the last three months of 2023. Let me please underline that this set of results is particularly remarkable given the more challenging marketing environment for the asset management industry. Also, let me underline that the bank is going ahead with its plan to deeply reshape its products and services offered to better fit with the new context. This will give more fuel to our growth engine in the month ahead and will allow us to keep on heading new market share. Let's now move on to slide seven for a focus on our asset management company. Fineco asset management is progressively delivering in having more control of the value investing of the investing value chain. The contribution of Fineco asset management to the group asset under management net sales is further improving regardless of the macro scenario, moving from 77% in 2022 to 118% in 2023. At the end of December, the contribution of Finneco Asset Management out of the total stock of asset under management of the bank improved to 34.5% from 30.3% in the fourth course of 2022. The commercial performance by Finnecoset Management in 2023 has been outstanding, not only in absolute, but also in relative terms. Down in the slide, we are showing a benchmarking based on a suggestion in retail net sales as of December. As you can see, our Irish company successfully delivered the second best net sales compared to the to the most relevant asset manager operating in Italy. These remarkable results, despite the very challenging environment, is due to Fineco asset management effectiveness in quickly developing the right set of products to catch what clients are currently looking for. Let's now move on to slide 8 for a focus on brokerage. Brokerage registered an excellent 2023. at $186.4 million, achieving a monthly average more than 35% higher compared to the monthly average revenues in the period 2017-2019, thus confirming a structurally higher floor compared to the pre-pandemic levels, regardless of the market conditions. As a reminder, January recorded revenues at around $16 million of revenues, 40% higher versus the average of 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 relentless process of improvement of our brokerage business thanks to our new initiatives like the new platform, FinEco X, the new brokerage current account, and leverage certificates. Second, the widening of our client base using the platform with active investors growing significantly in absolute terms. Third, we are continuously increasing our retail market share. As you can see on slide 9, all of this is translating in a very solid revenue generation regardless the market context, delivering a far better performance compared to the peers. Let's now move on slide 11 for a focus on our capital ratios. Fineco confirmed once again a capital position well above requirement on the wave of a safe balance sheet. Common equity TR1 ratio at 24.34% and leverage ratio at a very sound 4.95%, while risk-weighted assets was equal to 4.73 billion, increasing due to the usual yearly update of operational risk. Total capital ratio at 34.91 as of December, 2023. As for the liquidity ratio, liquidity coverage ratio is at 823% and the net stable standing ratio at 378%. While the ratio high quality liquid assets on deposit is up 68%, well above the average of the industry and position Finneco as the best positive outlier, as you can see on slide 12. Let's now move to slide 14 for a focus on the acceleration of our commercial dynamics. Let me spend a few words on strong acceleration of our client acquisition, which is even more remarkable considering the context and bodes extremely well for our future growth. As you can see from the graph on top of the slide, new clients, 2033, were 22.5% higher year-on-year. These outstanding results have been achieved, keeping our marketing strategy unchanged when it comes to new client acquisition and effectively translating the quality and sticky client base, key to grow and healthy business in long-term horizons. Let me also underline the very positive further acceleration in January this year when we recorded the second best month ever in terms of new clients, showing once again that our most recent marketing initiatives are delivering. Going forward, this will represent a very strong support for our future growth. As a reminder, let me also underline that we have recently improved the efficiency of our marketing engine thanks to our innovative and brand-new onboarding process. On top of this, we are now leveraging on artificial intelligence and data-driven marketing, which are allowing the bank to connect with prospect clients in a more personalized and efficient way, leading to a further acceleration in our client acquisition. Let me also quickly comment on slide 18, as another key driver of organic growth is the best-in-class productivity of our financial personal financial planners, helped by our FinTech DNA. As you can see in the slide, the productivity of our network in terms of asset under management has been by far the best one within the sector. Let's now move to slide 19. The granularity and thickness of our deposit base is confirmed quarter by quarter. Our deposit is confirmed to be extremely granular. with an average ticket of around €18,000 and a median ticket of €4,800. On top of this, definitely from other players, mostly focused on brokerage investing, our successful one-stop solution relies on a fully-fledged banking platform with 50% of our clients crediting salary and pension with us. Down in the slide, we show our usual breakdown of the deposit net sales, where we once again saw an increase in the net new liquidity before investments. As you can see, in 2023, the bank effectively collected $18.2 billion of liquidity coming from salary and pensions and $11.4 billion from net bank transfers. After the expenses in cash, bills, and taxes, deposits were up 7 billion. Once taking into account investments in assets under management and assets under custody, the final result is minus 2.1 billion of deposits net sales. On the graph on the right, we confirm the trend in terms of liquidity flows for clusters of clients. Clients with total financial assets up to 100,000 euros increase the amount of liquidity in the bank, and this is mainly transactional. On the other hand, the cash sorting process has been 100% driven by wealthier clients, which in the past accumulated excess liquidity waiting to be invested. For private banking clients, the liquidity as a percentage of total financial assets is at 12% as of December, close to the lowest level since 2015, suggesting that they are approaching what is a structural floor. Finally, please note that new clients acquired in this year also brought positive liquidity. Let's now move to slide 21 for a focus on our guidance. Let's now focus on our 2024 guidance, where we confirm the outlook we shared in the last quarter conference call with a better mix. Revenues are expected to consolidate in 2024 at the record level of 2033, with an improvement of the mix in favor of commissions, thanks to investing revenues, for which we expect a low double-digit growth in respect to 2033, with a natural market assumption. Banking fees are expected stable compared to 2033. 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 are expected to grow at around 6% year-on-year, not including additional costs for both management and marketing expenses. Cost income was set to hit comfortably below 30%, thanks to the scalability of our platform and to the strong operating gearing we have. Systemic charges for the year are expected at around 40 million. which will be accounted in the first quarter of 2024. On capital ratio, we expect a growing CT1 ratio and the leverage ratio, year on year, correlated with the combination of both strong acceleration in the growth of the bank and distribution of generous dividends. On leverage ratio, our goal is to remain above 4.5%. On dividend per shares, we expect heat increasing, Cost of risk was equal to 5 basis points, thanks to the quality of our lending portfolio, and we expect hitting a range between 5 and 10 basis points. Finally, we expect robust and high-quality net sales, keeping our priority in the direction of asset under management and continued strong growth expected for our clients' acquisition, as we are in the sweet spot to keep on adding new market shares. Thank you for your time, and we can now open the court questions.

This is the Chorus Co-Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. To remove yourself from the question queue, please press star and 2. We kindly ask to use the handset when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Giovanni Razzoli with Deutsche Bank. Please go ahead.