Finecobank Banca Fine Spa

Good afternoon. This is the Coral School Conference operator. Welcome and thank you for joining the Fineco Bank second quarter 2024 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. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining our second quarter 2024 results conference call. Net profit in the third half of 2024 is $320.3 million, up by 9.8% year-on-year, excluding systemic charges due to a different seasonality compared to 2023. Revenues at $658.3 million, increasing by 9.6% year-on-year, and supported by all our product areas. Net financial income is increasing by 10.7% year-on-year, investing up by 11.9% year-on-year, thanks to the volume effect and the higher control of the value chain by Finneco Asset Management. And the brokerage is up by 13% year-on-year, thanks to the enlargement of our active investors. Operating costs were under control at $160.3 million, increasing by 6.7% year-on-year by excluding costs related to the growth of the business. Cost-income ratio was equal to 24.4%, confirming operating leverage as a key strength of the bank. In the first half, Finicol confirmed once again outstanding commercial performance thanks to our organic growth strategy. First of all, we recorded a strong acceleration in our new clients' acquisition, increasing by 22.5% year-on-year, with a further increase on 2023 record here. On this, Let me highlight that we are not just growing fast on the overall numbers of new clients, but we are coupling this with an improvement of the underlying quality. Second, very solid net sales at 5 billion. Our capital position confirmed to be strong and safe with a common equity TR1 ratio at 25.8%. and the leverage ratio at 5.35%. On the right-hand side of the slide, you can find a summary of our 2024 guidance with the outlook that has improved even more, and we are expecting another record here for our net profit. More in detail on revenues, we expect them at the record level with an improvement of the mix in favor of commissions, thanks to investing revenues. expected to increase low double digits versus 2023, with a natural market assumption going forward. Banking fees expected stable versus 2023. Brokerage, we confirmed for 2024, expected revenues stronger with a floor higher versus pre-COVID period. On operating costs, we expect 6% growth year-on-year in 2024, not including additional costs mainly for financial 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 on to slide 5. As announced, net profit in the first half of the year stood at 320.3 million, increasing by 9% year-on-year, excluding systemic charges due to the different seasonality compared to 2023. Revenues at 658.3 million, up by 9.6% year-on-year, as we have been able to catch the strong acceleration of the structural trends in place. The growth of our net financial income, increasing by 10.7% year-on-year, is supported by our high-quality and capital-light net interest income. Net commission increased by a sound 6.2%, driven by the solid contribution of the investing, up by 12% year-on-year, and brokerage business up by 11.4%. Trading profit increased by 25.4% year-on-year, mainly thanks to higher brokerage activity. Operating costs at 160.3 million, well under control, increasing by 6.7% year-on-year, excluding costs strictly related to the growth of the business. Mainly, additional costs for Finneco Estate Management to further expand its business and having a higher control of the value chain. additional marketing costs to further improve our growth and catch the strong momentum of the business. Let's now move on to slide six for a deep dive on the performance of the investing business. Investing revenues reached 174.7 million in the first half of 2024, increasing by a solid 11.9% year-on-year. On the back, both growing volumes thanks to our best-in-class market positioning and of the higher efficiency of the value chain through financial management. 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 mostly driven by recurring management fees with no performance fees at all. Let me underline that this set of results is particularly remarkable, given the more challenging marketing environment for the asset management industry. Also, the bank is going ahead with its plan to deeply reshape its products and services offer 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 adding new market shares. Let's move on to slide seven for a focus on our asset management company and our advanced advisory services. In this slide, we are representing the two main sources of growth for our investing business going forward. On one end, as you know, Finneco Asset Management is progressively delivering in increasing the control of the investing value chain. Its contribution to the group net sales has been consistent over the cycle thanks to its incredible time to market in delivering new investment solutions perfectly aligned with what clients are looking for. As a result, the contribution of Finico Asset Management out of the total stock of assets under management has been steadily growing and is now equal to 35.4%. On the other end, being a platform, Fineco is the best place to catch the latest trends in terms of clients' investment behaviors. There is a clear change underway in the structure of the market, with clients increasingly looking for quality, efficiency, and fair solutions. All of this is channeling a strong demand towards advanced advisory services with an explicit fee, where Fineco is by far the best position As you can see down in the slide. Thanks to our operating efficiency, we are fully catching this powerful trend in a way that is keeping our margins pretty much stable, allowing us to be very positive on the sustainability and the quality of our growth going forward. Let's now move on to slide eight for a focus on brokerage. Brokerage, once again, registered excellent results. confirming a structural increase in clients' interest to be more active on the financial market, and building up a clear bridge between the brokerage and investing world. In the first half, revenues were equal to $111.6 million, resulting in a monthly average around 65% higher compared to the monthly average revenues in the period 2017-2019. thus confirming a structurally higher floor. 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 reshape of our brokerage business. Second, the widening of our client base using the platform, with active investors growing significantly in absolute terms. On this, let me add that in the last few months, we are experiencing a further enlargement of our active investors, which are growing much wider also compared to the post-pandemic period. Third, we are continuously increasing our retail market share. Let's now move on to slide 9 to further deep dive on the potential of our brokerage business given the most recent developments. Let me spend a few words on the most recent trends in our brokerage business. As you can see in the graph on the top of the slide on the left, our base of active clients has recently seen a substantial increase, around 20% higher compared to 2023, and with a 40% step up compared to the level recorded during the pandemic. The drivers of such an increase are all structural, namely we are delivering on a a number of new initiatives like the new brokerage-only account and the new platform Fineco X. The new market structure is confirming the bridge between brokerage and investing. The most recent increase in the rate environment has resulted in a renewed interest in Govis, with Fineco emerging as the platform of choice for clients. In the graph down in the slide, we are showing that executed orders has been increasing this year compared to 2023 and is back at the pandemic levels, despite the poor market environment for brokerage overall in the year. Let's now move on to slide 11 for the focus on our capital ratios. Sineco confirmed once again a capital position well above requirement on the wave of safe balance sheet. Common equity tier 1 ratio at 25.78%, and leverage ratio at the very sound 5.35%, while risk-weighted assets were equal to 4.78 billion. Total capital ratio at 36.24 as of June 2024. As for the liquidity ratios, liquidity coverage ratio is at 882%, And the net stable funding ratio is at 369%, while the ratio of high-quality liquid assets from deposits is at 73%, well above the average of the industry. Going forward, we confirm that we will continue to generate capital structurally and organically, thanks to our capital-light business model. Texas Capital, we are going to generate will be partly used to further invest in our organic growth opportunities, while for the remaining part, which in any case will be the most relevant one, by the end of the year, we're going to define the amount and the terms for the distribution to the market. Let's now move to slide 13 for a focus on the acceleration of our commercial dynamics. Let me spend a few words on the strong acceleration on our new 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, from the top of the slide, your clients here to date were 22.5% higher, outgrowing 2023 records here. These outstanding results have been achieved keeping our marketing strategy unchanged and translates in a high-quality and sticky client base. key to grow in a healthy business in a long-term horizon. Let me highlight that we are not just growing fast on the overall number, but we are coupling this with an improvement of the underlying quality of new clients. As an example, private banking clients are growing by an impressive 30% year-on-year. Down in the slide, you can see the usual highlight of the improved efficiency of our marketing engines. thanks to our innovative, brand-new organ process. On top of this, we are now leveraging on AI 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's now move to slide 17 for a deep dive in our transactional city. The granularity and thickness of our deposit base is confirmed quarter by quarter. Our clients have an average ticket of around 17,000 euros and a median ticket of 4,500 euros. On top of this, differently from other players mostly focused on brokerage and investing, our successful one-stop solution relies on a fully-fledged banking platform with around 50% of our clients crediting salary and pension with us. Down in the slide, we show our usual breakdown of the deposit net sales and where we once again saw an increase in the net new liquidity before investment. As you can see, up to the end of June, the bank collected $9.2 billion of liquidity coming from salary and pensions and $6.3 billion from net bank transfers. After the expenses in cash, bills, and taxes, deposits were up by 4.1 billion. Once taking into account investments in asset under management and asset under custody, the final result is minus 0.9 billion of deposits net sales. On the graph on the right, we can see the trend in terms of liquidity flows per cluster 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 more than 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 the total financial assets is at 10% as of June, at the lowest level since 2015, suggesting that they are approaching the floor. Finally, please note that new clients acquired in the year also brought positive liquidity. Let's now move on to slide 19 for a process on our guidance. 2034 guidance, the outlook has been improved even more and we are expecting another record here for our net profit. Revenues are expected to be at the record level with an improvement of the mix in favor of commissions. thanks to investing revenues for which we expect a low double-digit growth versus 2023 with a natural market effect assumption going forward. Banking fees are expected as stable compared to 2023. Brokerage revenues are expected to remain strong with a floor in relative terms with respect to the market contest that is definitely higher than in the pre-COVID period. Competiting costs are expected to grow at around 6% year-on-year not including additional costs mainly for P&A cost management and marketing expenses. Cost income, we expect it comfortably below 30%, thanks to the scalability of our platform and to the strong operating gearing we have. On capital ratios, we expect a growing CT1 ratio and leverage ratio year-on-year, currently with a combination of both a strong acceleration in the growth of the bank and the distribution of general dividends. On leverage ratio, our goal is to remain above 4.5%. We expect a higher dividend per share for 2024. Cost of risk was equal to 5 basis points, thanks to the quality of our lending portfolio, and we expect it in 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 the continued strong growth expected for our client acquisition, as we are in the sweet spot to keep on adding new market shares. Thank you for your time, and now we can open the call to your questions.

Thank you. This is the Corusco Conference Operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 under touchstone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Azzurra Guelphi City Group. Please go ahead.