Allfunds Group plc (ALLFG) Earnings Call Transcript & Summary

Good morning to everyone, and welcome to Allfunds first half results presentation. Thank you for joining us today in our very first webcast of financial results following our IPO. Before we begin, I would like you to remind you that our earnings press release, the results presentation and the supplemental [indiscernible] information can be found on the IR section of our website. This call is being broadcasted live and a replay will be available on our website too. Joining me on today's presentation are Juan Alcaraz, our Chief Executive Officer; and Amaury Dauge, our CFO. Juan and Amaury will provide a company updates and an overview of the first half 2021 financial results. After our prepared remarks, we will open the call to questions. I will ask you to please stick to one question plus a follow-up. If you have any additional queries, you may go into the queue afterwards. With that, I will hand over to Juan.

Thank you, Silvia. Thank you very much, and Good morning to everyone. I'm really glad to be here with you today and be able to [indiscernible] the team to walk you through our first half results, which I believe are pretty strong, okay? So, let's jump into first slide. The takeaways 2021 takeaways, please? Okay. So, during the IPO road so we talked about all fans as a growth company. I think that 4 months after this -- our IPO, what you can see today and what you are going to be able to see during the whole presentation are even stronger, even stronger trends, results and financial performance. When we talk about assets under administration, you see that we had a growth of 16.4% with an 11.5% growth of organic growth, which means existing clients and migrations, new clients, thanks to a strong commercial activity and really strong secular tailwinds. When we talk about revenues, very strong revenues upside 40% year-on-year. up to EUR 247 million of revenues first half of the year. And this brings us to also a fantastic and record adjusted EBITDA of EUR 181 million with a 73% margin. A second important takeaway for me is that we keep on focused on our strategic pillars, the 5 strategic pillars that you can see on the right of the presentation. So, subscription revenues keep on diversifying our revenue stream, what we call the fun house harmonization program. So, keep on implementing the new open fee across all the different fund houses that work with us. All the new business strategies like blockchain, digital, sub-advisory. The fourth pillar is our migration. So, keep on focusing on bringing new clients and gaining market share across the world. And finally, the fifth pillar is working on the BNP transformational integration. It's a critical project for the company. So, the third main takeaways regarding the customer proposition. So, we kept on investing in technology, innovation, people. And as you have -- as you will see later in the presentation, we have launched a number of new products, new service services and new strategic partnerships that we have announced during H1. And finally, the famous flywheel effect. So more on houses, more clients helps all funds to gain scale. And also, H1 has been a record period of onboarding Newland houses on boarding distributors, something very important, not just coming from a couple of countries but coming from 22 different countries and also a record number of migrations. In fact, in this first half of the year, we have migrated more assets, okay, than the 3 previous years altogether, again, comparing first half of the 3 previous years. So, record also on migrations. These are the main takeaways of today's presentation. So now I'm going to move pretty quick, okay, and I will try to cover all the slides. So please next slide. Well, I think I have already touched many of these numbers. So, scale, very important, EUR 1.348 billion as of end of June. This is the 16.4% growth that I mentioned before. But let's translate this growth, the EUR 16.4 million billions. We are talking about EUR 189 billion of growth which just to give you some color and to contextualize if this is a lot or not, just bear in mind that it took all funds 15 years, okay? From 2000 when we created the company up to 2015 to reach the EUR 200 billion mark. In one semester, we have gathered the same. EUR 247 million of revenues, which represents 40% year-on-year pro forma and 81% of growth, 81% of growth compared to 2020 H1 results. Net flows, I have already mentioned, 11.5 million, which represents EUR 85 billion. So, this is excluding market appreciation -- and regarding profitability, I already mentioned it, EUR 181 million, which compared to H1 of last year represents a 99% growth, okay? When we see this number pro forma, so including all the [Foreign Language], the business coming from BNP Paribas. -- the figure, the growth is 46%, 73% EBITDA margin, we come from 70%, more or less end of last year. So, I think that all the metrics, all the financial KPIs are really strong in a minute, we will touch these KPIs and some others. So just let me go very, very quick to what makes a [indiscernible] special. Next slide, please. Well, our unique for selling points, scale, we are the largest B2B platform in the world. [indiscernible] we like to work in this combination of being close to our clients, 15 offices across the world, but at the same time, having the support of the global framework, the one-stop solution, our integral solution unique in the market. And finally, this [indiscernible] for distributors, which is still also unique in the market. These unique 4 selling points combined with our historical track record, more than 20 years serving our clients. founder-led business, I think, is important. The top management, I think apart from my friend, Amaury been with me working in this company, and therefore, they are responsible of all these KPIs, all these metrics, all these numbers for the last almost 20 years. and a proven global expansion through organic growth and more recently through acquisitions. This is a combination of these unique selling points plus this historical record makes all funds to be a special company without [indiscernible]. Next, please? -- very quick. Just 2 comments regarding our one-stop shop integral solution. So, from fund trading, custody and execution, we do data and analytics, digital solutions, investment solutions, all under the bundle of our digital ecosystem, Co-connect. And more recently, last year, we launched our Allfunds [indiscernible] initiatives. So, we have a company called Hanson that is also bringing the new and disruptive technology to the fund industry market. Next, I mentioned a minute ago. Next slide, please. I mentioned a minute ago, Connect, what is Connect. -- a new digital way that we have to communicate, not to interact with our clients. So, we launched this new ecosystem digital ecosystem in 2019 previous to 2019. All our relationships were well through files were not a digital company since then. And since we have Connect, I think we have enhanced the relationship of Allfunds with both distributors and fund houses. -- in a much more efficient way. So, these are the famous 5 components of our connect the digital ecosystem, fund information, data analytics, all type of digital wealth solutions, the digital investment center and finally, the digital, what we call online trading execution system. Next, as I said at the beginning, when we went and when we talked during the IPO road so we talked about growth, fans is a growth company. Well, 4 months later, what I can tell you is that the growth is even bigger than during that [indiscernible]. I see these secular market growth trends increasing. So, the fan industry in Europe first half of the year had record numbers. We see that this platform outsourcing, open architecture penetration is still there. And what we see, and you see is that everybody now talks about investments. It's not so much about savings, so cash accounts, bank deposits, but real investments. Now -- the second pillar of our building blocks of growth are the continued share gain. So, this is what I think we have been doing for the last 2 years, the flywheel network effect, keep on growing, keep on bringing clients, keep on onboarding from houses, keep on making the cake bigger and bigger. The strategic growth initiatives is also an important lever of growth through Connect advisory and blockchain. And finally, the strategic M&A, which -- what I can tell you without disclosing of course, any deal is that we are working in the 2 M&A strategies that we have, not the platform M&A strategy. So, seeing if there are opportunities around the world to incorporate B2B platforms to all funds, local champions, okay? And the second strategy is what we call product M&A, which is all about bringing to all funds or enhancing all funds value proposition with bolt-on acquisitions. If we move to the next slide, a very quick commercial update. When we talk about regional updates. I think all the countries are performing extra ordinary well, things, especially Spain and Italy booming. Also in the Nordics, very powerful pipeline since we bought NFM a couple of years ago. So, the model is working extra ordinary well in the Nordics. I think that doing -- I also think a great job in the U.K., #1 purely B2B platform with EUR 75 billion. And Asia in Asia, we got the approval from the Board 3 days ago. I think it's not in the presentation, but what is -- because it happened 2 days ago, the approval to open in Shanghai, which means that we will have 3 offices, okay, in Asia, our Singapore of is Hong Kong office and now our Shanghai office. So, as you can imagine, our commitment in the region is huge. 47 new distributors, as I mentioned before, in 22 different countries, which means that the business model works, but it works all around the world. This is a strain important. Migrations, EUR 34 billion, as I mentioned before, record migrations in the first half of the year. As I said before, when you sum 2018, '19 and '20 migrations first half of the year, we don't even reach this EUR 34 billion mark. When we see on houses also record number in front houses on boarded more than 100. So I believe that this year is also going to be a record number because remember that last year, I think we had around 185 new fund houses onboarded. And first half of the year, we are already 100. In Connect, revenues plus 42% revenues, okay. And as you see there, 35% increase in year-on-year new contracts. So, it's also performing pretty well. And we are really pretty happy with our subscription revenues, which as you know, are pretty new, no. I mean we started to diversify this or to bring these new revenues to the platform in 2019. So just a couple of years ago when we launched Connect. And finally, this is one of the hottest questions during the IPO presentation, which was, okay, what about the BNP Paribas opportunity. We thought this famous client migration, I mean and conversion. So, converting those hundreds of distributors to our global distribution agreements. Well, during the IPO, we did not have any number to give you. The good news is that now we have some numbers, and I think they are pretty promising numbers. So, as you can see here, we have converted 20 new clients for -- that accounts for EUR 20 billion, okay? And we are in advanced negotiations, as you see there, with another 15 clients that if we finalize these agreements in the coming weeks, months, we will add to the EUR 20 billion, another EUR 38 billion. Next, well, I think I have covered next. I think I have covered almost all these points. powerful flywheel effect. -- fund houses, record number of houses, record number of distributors, exceptional growth in assets, the 3 levers of growth. Remember that -- how we fit all funds, when we talk about AUMs, assets, we always see it with 3 levers. One is organic growth, so existing clients buying so EUR 51 billion, migrations, new clients that joined the platform, EUR 34 billion and market appreciation, EUR 49 billion. This accounts for EUR 134 billion of growth that if you include on top of this, the EUR 55 million that comes from what we call BNP Paribas, other businesses, other flows. -- is what it takes us to the EUR 189 million and the EUR 16.4 billion growth. How is the BNP Paribas integration going, I think, pretty good. We expect to finalize all the AUM migration for Q1 of next year. We also expect, although it's very challenging, very challenging to migrate all the IP system, not the flash system to host to open infrastructure also for Q1 2022, so 6 months. And as you can imagine, we are going to do all our best to keep on converting clients to our distribution agreements with [indiscernible] houses throughout the whole 2022. This is a project that takes a lot of time, as you can imagine, because we have to visit client by client. Okay. So next, please. I think I have already covered this. As you can see, we record, again, record organic flows in the first half of the year. Here, you can see what the company did in first half of 2018, 4% growth, H1 2019, not even 1%. And last year, 3.7% this year, 11.5%. So I think that the growth -- the unbelievable growth of first semester is then. Okay. And before we enter into the financial update by our CFO, yes, let me talk very, very quick about some initiatives now that we have launched because this is a are important. I mean -- we need to help our distributors or we try to help our clients with bringing them new ideas. It's not just all about trying to solve the pain points that our clients have. It's also trying to bring new solutions and to anticipate, okay, our clients' needs. So that's why we have closed this, I think, pretty extraordinary and unique agreement with [ ICapital ]. So now our clients, I think, is going to -- we will start in October. Our clients will be able to buy all type of private market products, private equity funds, private debt, infrastructure, real estate through Connect and through all funds. Okay. That's basically why we have closed this deal with [ ICapital ], again, trying to anticipate the need of our clients. We recently -- we also closed this strategic agreement with interactive brokers in the U.S., why -- well, we have an interest as -- special interest, as I mentioned during the IPO [indiscernible] in 2 countries in where we need to grow the U.S. and China. I think I have already mentioned our strategy in China, becoming local in China. And in the U.S., we are already local just for offshore business. But again, I hope that you will see news in the coming months regarding our U.S. business because we have a lot of focus on this market. And finally, blockchain, okay? So here, you can see 2 initiatives that we launched just in the first half of the year, the sandbox with the Spanish regulator and FAST, which is supplying our innovative technology to deliver efficiencies in investment fund transfers. And what I really like also of this fast new product is that it's going to be the first initiative in which all fans blockchain is going to monetize our technology. We will monetize our technology. So it's not just about -- all about new technology, disruptive technology, but it's also about making money with blockchain. And I think that with this, I'm going to hand to Amaury please. Amaury... Thank you very much.

Thank you, Juan, and Good morning, everyone. So we've seen, as Juan has said, a very strong set of results in the first 6 months. And in this section, I will run you through the key financial figures and explain the main underlying drivers of this solid performance. We will begin with our -- with the Zoom on our AUA and we'll then move to our financials. But before doing that, let's go to Slide 16 and take a look at a couple of key metrics that you've already seen. So, I'm not going to go through them again. We're going to try to move fast. But I think it's fair to say that the performance has been highlighted in AUA, of course, translating into revenues, profitability and of course, cash flow, as we will see later. So, moving to the next slide, please. AUA is a key performance indicator of our business, and the team is particularly proud of the amount and more importantly, high-quality growth we have achieved this semester. Let me explain this in 3 points. First, we have grown by EUR 189 billion of AUA or 16.4% since December 2020. This is against the actual AUA as of the end of last year and not the pro forma AUA, which included assets yet to be transferred. Second, growth is evenly split, as Juan said, across all of our 3 drivers. 4.4% came from flows from existing clients, 3% from migrations and 4.3% from market performance. If we look at Allfunds organic business, our net flows in H1 were EUR 85 billion. That represents an overall 18.1% growth and net flows growth of 11.5% over the EUR 746 billion of AUA, again, excluding the BNPP portfolio. And then last, in addition, the BNPP portfolio has also performed well this semester with EUR 55 billion of flows. From this EUR 55 billion, EUR 42 million were net transfers into all funds platform and EUR 13 billion corresponded to an increase due to the flows and market performance. So, turning now to the next slide. Let's look at the group's continued diversification. As you can see here, our AUA continues to diversify in all verticals, client type, asset class and geography, allowing us to withstand market volatility more comfortably. Looking at client types, private banks, asset managers and banks represent around 20% of AUA with the remaining being custodians, insurers and others. From an asset class perspective, our mix is still roughly on sale equity, no fixed income and once the mix of multi-asset and alternatives. We're also well geographically diversified, in particular across Europe, but the rest of the world has also slightly increased since the beginning of the year, as you can see on the right-hand side. Following the acquisition of the activities of BNPP, France and Benelux now represent about 38% of the group AUA. Moving to Slide 19 and focusing on the top line. Our net revenues totaled EUR 247 million in H1, representing a year-on-year growth of 40% on a pro forma basis. Out of this, EUR 238 million were platform revenues and EUR 9 million subscription-based revenues. Therefore, platform and subscription-based revenues contributed 96% and 4% of total net revenues, respectively. In H1, platform revenues year-on-year growth was about 40%. And this again was mainly driven by 3 factors. The first one is higher volumes of AUA. Second, positive dynamics from the Funhouse harmonization program, as mentioned by Juan, that was initiated in 2020. We're going to discuss revenue margin dynamics in more detail in the following slide. And then lastly, an increase in transaction revenues given the higher volumes of transaction in this period. Looking at subscription-based revenues, they also increased by 40% year-on-year, following an improved penetration from fund houses and distributors. There is, as you well know, still a significant potential to expand the current penetration. Fund houses, for instance, which currently generate 62% of subscription revenues, has still only 24% of penetration rate versus 93% for distributors, and both have a strong potential for upselling. So, let's now focus on the revenue margin evolution on Slide 20. Thank you. So Slide 20 is showing you the platform aggregated margin that is looking at the ratio between average annualized revenues and average AUA over the period. Platform margins stood at 3.8 basis points versus 3.3% in December of last year. The increase was mainly driven by a stronger contribution from all funds portfolio, excluding BNPP, which has a higher margin than BNPP operations. During H1, the contribution of our fund stand-alone portfolio has been 64% versus 57% during 2020, as you can see in the peak bubble. The second and also very important driver for the positive margin evolution is the positive individual evolution of both portfolios, which is another highlight of the semester. The margin of all fund stand-alone increased from 5.4 basis points to 5.5% due to several factors: high amount of new clients onboarded usually at a lower margin, which is offset by higher transaction-related revenues and our ongoing efforts and successful implementation of contract harmonization. And then 3, a slowing shift to clean asset classes. The BNP platform margin has also performed positively at 0.6 basis points versus 0.5 basis points in December 2020. The slight increase is driven by good progress on margin initiatives in the BNPP operations. Moving to next slide and to cost. We can see that total adjusted expenses increased by 24% year-on-year on a pro forma basis. This is mainly driven by an adjustment of perimeter as expenses are now reflecting BNPP support functions as well as the Paris office. In the period, we've also onboarded 43 new employees, a 5% increase in headcount, taking our total number of employees to 908. Staff costs also includes a higher bonus accrual in line with year-to-date performance and some one-off items such as the end of the deferral of bonuses for some employees. Finally, with regard to bundle or BNP integration, this is ongoing and in line with our plan. The synergy plan should allow for further savings and headcount reductions going forward. Moving to the next slide. So EBITDA was EUR 181 million in H1 versus EUR 124 million for the same period last year, representing a 46% year-on-year growth. The EBITDA margin stood at 73% for the semester versus 70% last year. The positive jaws effect is a result of the strong AUA performance in H1, translating into higher level of revenues, while costs increased at a lower rate despite the level of activity due to the scalability of our platform. Next slide is showing you the exceptional items, which stood at EUR 77 million for the period. In line with our guidance, IPO costs stood around EUR 20 million to EUR 21 million and TSAs from Credit Suisse and BNPP acquisitions stood at around EUR 30 million. Other one-offs include sign-on bonuses paid by pre-IPO shareholders to some employees, and these are noncash items. Most of the other one-offs affecting adjusted net income are the PPA amortization charges of EUR 69 million, which increased following the acquisition of the BNPP business. From a capital expenditure perspective, they stood at EUR 10.4 million in H1 versus EUR 8.5 million last year, out of which EUR 10 million were maintenance CapEx, which means that the maintenance CapEx over net revenue ratio is about 4.1%, which is in line with the figure we had last year. And finally, we see on the next slide, thank you, that the free cash flow for the period was EUR 114 million from an adjusted EBITDA of EUR 181 million, proving the strong cash conversion of the business on a normalized basis. So looking at now quickly moving into outlook and financial guidance on Slide 28. Thanks. We have included a reminder here on this slide of the midterm and near-term financial guidance we had presented at the IPO. The performance we've seen in H1 gives us strong comfort to reaffirm this longer-term guidance, and we believe it is the best proxy to model the performance of our business in the long term. Special mention those to some parameters in which we've outperformed this longer-term guidance in the first half of the year. So the first one is platform margin. As already discussed, the 3.8% platform margin is the result of the solid growth combined with a positive mix effect and the action undertaken on harmonization. For the rest of the year, we expect the overall platform margin to stand between 3.3 and 3.8 basis points depending, of course, on the level and type of market activity in the second half. And then the second one that you can see on the table, which is a bit different from the guidance is the effective tax rate, which sits on the top of the range of the guidance we provided. This is mainly the result again of the strong performance of H1 and country mix. It's worth noting that this effective tax rate excludes the optimization that we've carried out recently, which needs further evaluation, which we will share with you in due course, most probably when we present our full year numbers. But from a tax perspective, it's important to note that the effective tax rate going forward would probably sit at the lower end of medium-term guidance with potentially some further upside to that. So, thanks for your attention. And with that, let's now open for Q&A.

[Operator Instructions] Our first question today comes from Antonin Baudry of HSBC.

Antonin Baudry from HSBC. 2 questions, if I may. The first one is on your geographical expansion. Could you give us more color about your expansion in Asia on the opportunity you have 4 months after your IPO. I saw it was a strong contributor in H1. So, what should we expect in the future for Asia? My second question is about M&A strategy. Can you remind us the strategy of the competitive terms of M&A and if you have some acquisitions in the pipe currently...

Yes. Absolutely. -- well. Thank you. Thank -- thank you very much. Well, regarding Asia, there are 2 main countries in where -- no, I mean, locations. I mean one in Singapore and Hong Kong, Hong Kong is China, okay? And we're open architecture, the business model of -- it's the traditional open architecture business model of all funds. So, insurance companies, private banks wanting to access plain vanilla open architecture. So again, Hong Kong and Singapore for us is, in some ways, it's more of the same. It's promoting our -- all our added value services and our billing and execution platform to this type of entities. In the case of our future -- near future Shanghai initiative, that is different, okay? Because as you know, Chinese institutions today are -- they have limited access to offshore or open architecture. So we will definitely focus on strengthening, okay, our institutional relationships with the Chinese main Chinese financial institutions. We currently have 16 agreements with Chinese institutions, but for their offshore businesses or offshore units, understanding by offshore Hong Kong and Singapore, so outside China. This is very important for the Chinese market to -- well, to be local to see the commitment for us for that country. But what we are really going to do in Mainland China is to focus on our added value services. So basically, investment services and digital services, okay? So again, they have limited access on the execution and dealing in third-party funds -- offshore third party funds. However, we see a fantastic opportunity to serve these institutions with our connect value proposition. So, this is regarding Asia. So again, Singapore score. We are there since the last -- I think since 2017, Hong Kong core and now the new opportunities in Mainland China. And I think with this, we have covered the Asian question. Of course, we keep on trying to onboard the top distributors in other countries, not like in the region, like Thailand and Indonesia or the Philippines. But again, our main and core strategy is in these 3 locations, not that I have mentioned before. And regarding M&A, I think I already mentioned it, no, there are like -- we see M&A as 2 different types of strategy. One is to keep on increasing our scale. So identifying local champions in Europe, but it could also be in Asia. -- that could contribute with assets, with business, with clients and could help our funds to penetrate in a new market, okay? And we are always going to be very active with this strategy. It's what we did with NFM for instance, in the Nordics or we did with InvestLab in Switzerland. So yes, there are opportunities, and we are on top of these opportunities. And the other strategy is completely different. It's what we call product M&A strategy, which is more about identifying mid-size in some cases, not midsized, but even big fintech companies, what the companies that could enhance our connect value proposition, okay? So as I mentioned during the road so we have 2 strategies. One is to partner with these entities through the open connect project, remember, so bringing third-party vendors to connect, we do not necessarily need to do everything in-house, okay? And the other strategy is not just to partner, but to acquire that company. And yes, we are currently analyzing around 5 deals on the bolt-on acquisition and fintech space -- thank you.

If I may, a quick follow-up on your platform margin. I see the guidance for H2, but should we assume that, that guidance for H2 2021 can be a new guidance for 2022, '23 and the coming years?

Yes. This is Amaury again. So no. I mean the idea was to try to -- again, to show you where we -- to put things in context of where we stood for the first semester of the year and to try to guide you a bit for the second half, right? And to make sure that people kept in mind the relationship between the margin and the mix, the growth of the activity and so on, right? So we feel that what I was trying to say and hopefully, it's clear is that we're very happy with the results of H1. We've seen some very strong growth. All the 3 levers have grown exceptionally well and which led also to a margin that has been very strong, right? Hopefully, it's clear to explain how the 3.8 move compared to the 3.3 at the end of last year. We think that we -- we're not coming back on what we were saying. And if you were there at the IPO, you remember probably that we were explaining that we found that the margin would stabilize and potentially increase a little bit. That's what we've seen here. We think that this is still the case. But we're not going to be talking about -- this is not the moment in the place to start talking about near-term and midterm guidance update. We'll do that at a later stage. For the moment, we are reconfirming our guidance on all the lines. And on this one, providing a bit of more color on what will happen in the second half...

Our next question comes from Andrew Coombs of Citi.

I'll have a couple as well, please, if possible. Firstly, just repeat, I guess, to understand the previous question. When you look at the improvement in the platform revenue margin, as you said, you provided very specific guidance on the second half between 3.3 and 3.8 basis points. But when you dig into the improvement from 3.3 to 3.8, you provided a list of reasons. You talked about the results of the harmonization program. The transaction revenues, we can obviously calculate for ourselves. You've also talked about some of the BNP portfolio platform margin improvement. I've been intrigued if you could split out the 0.5 basis points improvement between some of those items that you flagged. Is there any way you can provide for the quantification of each of those drivers with one driver much bigger than the other. That would be very useful. And then the second question just on interactive brokers in the U.S. and Canada. Can you just provide a bit of detail on how the economics are going to work for that...

You want start with the margin...

So, let's start with the margin. So yes. So look, this is what you see on Slide 20 of our presentation, and we've tried and you've got the main blocks of -- which contributed to this evolution. It's very, very hard. And in fact, it's not possible, not that we don't want to share it, but to attribute some clear points between those various impacts because, of course, they accumulate, right? So, for instance, migration can be done with different types of asset classes, flows as well. So, it's very hard to okay. This is what's coming from asset class versus migration and so on because they will be cumulative to some extent. What I can say though is, again, as we've described, the biggest contributor here of the margin evolution, of course, is the reason that is the fact that the orphans organic -- if you go back to Slide 20, which accounted for 57% as of end of last year and now 64%. And given that it's coming with a higher margin, of course, is going to drive the overall platform margin, right? Don't forget that -- and this is what I was trying also to make clear, the fee structure and the way the yield management of our funds is quite complex, right? So of course, it's not like we have one fee covering everything. This is more of a theoretical margin to help you see how the business is evolving and what are the main angles. But I would say that the main drivers, if you want to -- is the one I've just mentioned, is the fact that transaction revenues or transaction-related revenues stood quite high during the period and then the impact of harmonization. And the offset of this was additional migration, which came sometimes from countries where the average margin is a bit lower. And then clean share classes evolution, which, as we said during the IPO, moves up and down, but it kind of has kind of stabilized around the level that we have -- we were talking about already a couple of months ago.

[ Probably ]... Just to add the product mix. Yes. Very favorable product mix, bear in mind how bullish is the market. Obviously, this means that our clients have appetite for equity products and equity products have higher management fees are more expensive, and therefore, our margin is higher. And very quick regarding interactive broker, I mean, this is an agreement with a fantastic distributor client in the U.S. Always remember that we do not do any onshore U.S. business. This is all about offshore, okay? And well, our first goal in the U.S. now that we are local is to keep -- and it's to become #1 provider of offshore funds to U.S. entities and second, to explore how can we became, okay, an onshore provider, the same as with China, as I mentioned before...

And is there a revenue sharing agreement between yourselves and interactive brokers.

Revenue sharing agreement is no, we have a revenue sharing agreement with ICapital, but with Interactive Brokers, we have a normal revenue agreement...

Our next question comes from Greg Simpson of Exane BNP Paribas.

The first one is on the BNP business. Slide. Slide 11 shows EUR 20 billion converted and it seems like 8 billion near-term pipeline, so that's about 12% of the original book size. So, is there any sense of how far this can go in terms of conversions, given the work you've done since closing the deal? And then is the revenue margin you're capturing on these converted clients? Is that comparable to the 5 basis points you show for all funds organic -- that's my first question.

I'm going to try to answer the first part because the second part of your question, we were not able to hear you, okay? We had some problems. I don't know if...

Revenue margin from... Of this bile... This comparable with the one that...

Okay. So there was me, it was not this.

No, it was hard, but Okay.

So I will answer the first part, and I will let Amaury cover the second part. Well, I think we were -- if you remember during the IPO road and all the meetings, we were extraordinary conservative, extraordinary costs with this client conversion. Why? Because as I said before, we have to go client by client, okay? -- knocking at the door and trying to convince that client to join our distribution agreements with the fund houses and then make that client that today is, yes, not trading and execution, full service of [indiscernible] client. So unfortunately, and I said that 4 months ago, we are not able to give you any guidance. What we will do, and of course, as you can remind for us is very, very important. What I can guarantee you is that we have a specific team working on this conversion program, this conversion project, and I'm really glad and happy with what we have achieved in the first couple of months, this EUR 20 billion. But I cannot, unfortunately, give you any guidance if this is going to move to EUR 50 billion or to EUR 100 billion -- we have converted 20 and we have a very good pipeline almost done of another EUR 40 billion, but that's all I can say, really, at this point.

Yes. And maybe to add on what Juan was saying, this is a point that was mentioned a couple of times during IPO, but now that we have a semester on our dealt with numbers to show it, I think it's important to again emphasize the fact that all funds is not dependent on this from a migration perspective, right? I mean we've had a record semester in terms of migration. This -- without taking this into consideration, right? So in the business plan and the numbers we gave in the guidance and so on, this is what is going to be important is the level of overall migration of the group. And then in terms of margin, Yes, there should be -- I mean, there's no reason why they should not be in line. Again, with the caveat, of course, that the 3.8% is a blended margin. It includes many different things. But there's no reason why the EUR 20 billion that we just mentioned should perform differently than the rest of the AUA.

And the follow-up would be on the private markets initiative, which sounds quite interesting in terms of being able to offer distributed access to private markets. But since it's in partnership with iCapital, is this more about enhancing the offering of Allfunds? Or is there a specific revenue angle? I mean, for example, distributors need the premium version of Connect to access it? Or is it in the standard for volume for distributors?

Yes. Andy apologies, but the line was cut off. Can you please repeat the last part...

Yes. You can hear me. The private market initiative with iCapital, what is the kind of a revenue angle for all bonds? I'm wondering do you need the -- if you're a distributor, do you need a premium version of Connect to access it? Or is it more -- less about revenues than about enhancing the offering more broadly?

Well, as always, the main reason why we always bring these new services or these new initiatives is in order to satisfy the need of our clients. That's the main driver, okay? So -- we realized that there was appetite across many of our clients in many different countries for accessing in an efficient way, okay, to private market products. And we were there, we were not able to satisfy that in. So that's basically why we closed this strategic agreement with ICapital. Of course, we will also monetize this agreement because this part of the business was not going through Allfunds. And therefore, we were not making any money out of assets, volumes that were not trading [indiscernible] funds. And now thanks to this initiative, we will monetize also this type of assets.

Our next question comes from Arnaud Giblat of Exane BNP Paribas Arnaud.

Yes. If I could start coming back to the 3.8 basis points margin. Clearly, there seems to be some transitionary elements contributing to the element, I suppose those are transaction costs. Should we regard a period of high inflow activity as bringing in exceptional level levels of transition costs -- transaction costs, sorry, and they're pushing up the margin finally and flows were to normalize, that would bring the margin back down and that's probably why you're guiding to 3.3 to 3.8 rather than around 3.8% for H2. That would be my first question. And following up on the same topic actually. I was wondering if you could comment as well in terms of how the shift to non-rebate models has impacted the fee margin this half, if at all? And how -- what the outlook is for a continued shift to non-rebate models amongst your clients?

Yes. So Arnold, I'm sorry, but I just missed one word. I think it was the important one, which is...

[indiscernible] Revenues, I think...

Okay. So that was -- okay. Okay. So, I think I've got everything now. So yes, definitely, the transaction revenue set quite high during the semester. And this is because of FX . This is because, as you know, we have some of the ALPA or the bank correspondent activity, which sits in the transaction revenues, and we've seen a lot of volume. Where I'm not quite sure, and please follow up if I'm not spot on in the answer is this is not because of the transition, right? This is, of course, due to the underlying activity, the mix and so on. And there's a bit of cyclicality on some of those metrics in transactions such as, for instance, FX. We know that FX is not is the money we make when we obviously trade in another currency and do the conversion for our clients. And we've seen in the past that this tends to have some cyclicality elements in it. But apart from that, it's more activity based and which is hard to predict, right? So -- and that's why we see a bit of movement. And again, yes, the reason why we think that it makes sense to guide towards a margin for the second half, which as we -- again, I would like to reiterate, as we said in the IPO would be slightly above flat or above 3.3%. This has not changed. But we think that the current level is definitely -- has been impacted positively by the strong level of activity. And the second half may be a bit softer, right? So -- so that's on the first part of the question. With regard to the second one, so the mix between clean share classes and rebate shares has moved a little bit. If I'm not mistaken, and side, correct me, as he was sitting at 18% at the end of the last year. and it's now at around 16%.

Correct.

And again, this is in line with what we had said during IPO. We reiterate the fact that we feel that the evolution, which was driven from a regulatory angle he is done. And then you'll see a bit of change or liability, again, depending on the product mix and what clients are looking for at a very specific moment.

Yes. And from where the clients can no sometimes, we gather a client with a big book of direct distribution is very good, good margin. And in that case, our -- the percentage of our assets now in [ rivet ] surpluses might increase. So -- but the trend is clear. It's keep on reducing...

Our next question comes from Philip Middleton of Bank of America.

I wondered, could you talk a little bit about the level of conversions you achieved in the first half. Your guidance at IPO, I think was about EUR 100 million over several years. So you seem to be running well ahead of that. Is this a sustainable level? Do you think this is something that will revert to the mean? And what lies behind that really strong number?

We are talking about client conversion and understanding. We understand client conversion -- just for the book, the FDS book and the Banca Corrispondent book in Italy. And correct me if I'm wrong, Silvia, but I don't think we gave any specific guidance.

No, we did not. I think it's probably the mix between migration and conversion, which is onboarding on new clients. Is that the question or...

There can be a confusion, yes.

Yes. Well, there are 2 different things, as you know now. Migration for us is our play in Manila and our business as usual is what we do. So, it refers to new clients, new distributors, new banks onboarding the platform. And this is EUR 34 billion first half of the year number, which is it's a record figure, okay, in the history of the company. And different things this client conversion, that is how we -- it's the name that we have -- that we use to explain the conversion to our distribution agreements, okay, that we have with the fund houses of all the FDS and all the BNP Paribas, Banca Corrispondent institutional clients, again, to our global distribution agreement with fund houses, which are the EUR 20 billion of 2 declines. That is the figure that we have closed as of 30th of June. And the only guidance that we can give there is the one that we have already given that we are close. I mean in advanced negotiations to convert another EUR 40 billion of 15 clients. Apart from that guidance, at this point, as I said in -- as I answered not to a previous question, we are not -- I mean we prefer not to give any other number because, again, -- this is not really included in our business plan. It's not really included in any guidance is -- and we are extraordinarily conservative and cautious with this figure. We prefer to be cautious with this...

Yes, that was helpful. It was really the EUR 34 billion I was asking about, you highlighted how strong an extraordinary this was? Is this -- and really, I was trying to ask, is this some level you think is sustainable? Or do you think there are one-off factors in the half that made that particularly high?

Okay. Super. Well, as I mentioned before, -- we did in 6 months what we did in 3 years, first half of '18, '19 and '20. So, it's exceptional Absolutely. However, the company is much powerful than in 2018 and 2019. The fact of being bigger, the fact of being a listed company, the fact of having new offices around the world, the fact of having new products, the fact of having Connect makes the flywheel effect. And this scale business of the bigger we are, the more chances probability we have to gather new clients. Well, makes at least me to be pretty optimistic with the migrations figures in the future, okay? But it's a record figure. You cannot keep on beating records every semester, I guess...

And our final question today comes from Angeliki Bairaktari from Autonomous Research.

Just a follow-up on the migrations that we were just discussing. You had released a number of EUR 26 billion in the first quarter at the time of the IPO. And based on the 34% for the first half, and I hope those 2 numbers are comparable, the Q2 level of migration has slowed quite a bit. I think, as you mentioned, there is an exceptional element to the sort of first quarter migration flows. So I just wanted to ask you, do you have a sense of how the migrations are going to evolve in Q3 and Q4 in the second half of this year, also based on the current pipeline, is the around EUR 8 billion to EUR 10 billion number that you seem to have printed in the second quarter a better sort of run rate for us to expect. And just a clarification, are the EUR 20 billion BNP conversions included in the EUR 85 billion net flow for the first half?

Okay. So the answer to the first -- to the second question, which is share is no, okay? They are not included. And again, regarding the EUR 34 billion of migration, yes, of course, at this point, we have a clear pipeline for a second half of the year for migrations. What I'm not so sure is whether…

I... Juan, if you don't mind. Just to be clear. So -- I mean what you're saying is factually correct. Yes, the -- when you're looking at Q1 versus Q2, Q1 was stronger. But -- you should not read again migrations. They come in different shape and form, right? It's not like we're signing whatever 24 or 34 migration deals of EUR 1 billion each, right? So of course, depending on the client that we migrate, you will see some variability, right? It's not -- these are not standardized contracts. It depends on the activity of the clients. So, I mean, I think it would be a mistake to look at the trend on a quarterly basis. This is way too short. I think you need to look at it a bit with more time, and then it makes sense. One was comparing H1 of this year to last year and to what we've done in 6 months compared to the last 3 years. I think this is probably easier to look at it this way. With regards to forward-looking, again, as I've said when we were talking about the guidance, -- we are reaffirming our -- the near-term and midterm guidance we gave at the IPO. We've started very strongly. And so -- which provide us with a lot of comfort to be able to reaffirm that guidance. But we're not going to talk more today about guidance or give you any additional updates.

Sorry. Bear in mind that for a business like Allfunds, which is similar in some ways to an asset management in the sense that starting assets are really important. So, it is very important for the numbers of all funds, not for the P&L, a very strong H1 -- because remember, it's all about assets, time basis points. So it's very, very important to start first quarter, especially first quarter, not the year with very, very high and powerful assets that helps throughout -- to navigate throughout the whole year...

Thank you. Could I just add one more question since I'm the last one on the line. The initiative, the partnership that you have announced with ICapital and also interactive brokers, is it fair to assume that sort of any incremental revenue that comes from those is already included in your midterm sort of revenue growth guidance? Or is that something on top that you didn't envisage at the time of the IPO.

I -- well, I think these are agreements that came -- for instance, the ICapital, now we closed it Q2. So, it was not really a topic that we included in the discussions of -- during the IPO [indiscernible].

Yes, yes. This is -- again -- and this is definitely fueling the continued growth of the company and so on, right? It's a way to expand our offering, to reach out to new clients, to offer new ways of training to our existing clients and so on. We're going to -- we talked about what we're doing on the Connect side. So, this is fueling the growth and the potential of the company.

Yes. Now specific agreement... Correct. No, because it was not closed in those days, or...

But again, if you're trying to model, we're not giving numbers. We don't expect this in the very short term to have a strong contribution to the P&L, right? I mean again, this is going to -- it's part of all the efforts we're making, but you should not assume that this is going to drastically change the revenue number for 2021. And again, of course, in due course, and that's probably going to be early next year, we will, of course, go back to you guys with a revised guidance include all of what we've done and see what's the impact...

Well, thank you very much. Unfortunately, we do not have more time. I know there are plenty of questions that have been unanswered, but we will take them from the Investor Relations team. So, bear with us in that sense. It has been a pleasure to host you in our very first set of financial results presentation. We wish you well and see you next quarter for the trading update. Bye-bye.

Thank you very much.