Allfunds Group plc (ALLFG) Earnings Call Transcript & Summary

Good morning to everyone, and welcome to Allfunds Preliminary Financial Results Presentation for the Full Year 2021. Thank you for joining us today. Before we begin, I would like to point out that our earnings release presentation -- sorry, press release, the results presentation and supplemental excellent information can be found under the IR section in our website at allfunds.com. This call is being broadcasted live and a replay will be available on our website during the day. Please note that reported figures are unaudited. And for 2021 figures, those are affected by M&A impact of recent BNP acquisition. However, to facilitate comparisons, we have provided pro forma figures. I encourage you to review on Page 2, the cautionary statements for customary disclosures. In addition, please refer to slides in the appendix to see further additional information. As a reminder, we aim to spend 30 minutes for the presentation and 30 minutes available for Q&A afterwards. Joining me on today's presentation are Juan Alcaraz, Allfunds Chief Executive Officer; and Amaury Dauge, the company's CFO. Juan and Amaury will provide a company update as well as an overview of the company's full year preliminary financial results. After our prepared remarks, we will open the call to questions. During the Q&A, please limit yourself to one question plus one follow-up. You may get back in the queue if you have additional questions. And of course, the Investor Relations team will be available to take any calls after that. With that, let me hand it over to our CEO, Mr. Alcaraz.

Thank you, Silvia. Thank you very much. Good morning to everyone, and of course, thank you very much for being with us today. Before I start, I would like to introduce you to Alvaro Perera, who will-- I mean who will succeed Amaury Dauge as our new CFO, starting first week of April. So congratulations, Alvaro. And let's start. So -- well, 2021 was an amazing year for Allfunds. It has been a record year when we see all the KPIs, all the metrics. As you can see in this slide, the AUA growth was amazing. We went -- I mean we grew 29%, reaching the EUR 1.5 trillion. Also, we made more than EUR 500 million in revenues, which means a growth of 36.5%. And our EBITDA was also fantastic. I mean, EUR 367 million, which implies a growth of 40%, okay? Our EBITDA margin also grew from 71% in 2021, up to 73%. But apart from numbers, which, of course, Amaury will enter into much more detail. I think it's important to mention that also 2021 was a fantastic year when we talk about winning market [indiscernible] important because that proves that our value proposition is still unique and that our value proposition is differential. So last year, we were able to onboard 85 new clients, distributors, which is also a record figure. I think also it's important to point out that almost half of them come from direct competitors. So again, reinforces the message of our unique value proposition. And we were also able to migrate EUR 67 billion from new clients, which is also a record figure for the company. Also, I think it's interesting to see that these clients are coming from are around the world. So our value proposition works not just in some countries, but all around the world. We also had a very good year in strengthening our value proposition. We made important investments in order to enhance Connect, our digital -- our digital ecosystem, launching new versions of telemetrics, launching new versions of next portfolio. And we also were able to close some strategic partnerships in order, again, to enhance a Allfunds value proposition like opens Allfunds Blockchain or the access to private equity funds and illiquid products. So I mean, my main takeaway is that our full year 2021 results are well ahead of our IPO guidance. And we also envision a strong 2022 outlook despite the current market volatility. So if we enter into some more details, here, you see that our 3 main levers of growth when we talk about assets were extraordinary strong. So you can see how the flows coming from existing clients went up in EUR 84 billion, again, a record figure, migration, 67. So new assets coming from new clients, again, also a record figure. And also market performance was extraordinary with EUR 78 billion. All these numbers help the company to grow up to 41.4%, what we define as Allfunds traditional business. On top of these assets, you can see the growth of the billing and execution portfolio coming mainly from the FBS or BP2S deal that went from EUR 412 billion end of 2020 up to EUR 439 billion. December 2021, a 6.6% growth that takes us to this 29% growth in assets that I described before. Well, again, very, very strong organic and growth of our assets of the market helped without any doubt, the market was positive and that contributed to the growth of the company last year. But if we isolate the effect of the market, of the positive market, you can see that the company was able not to reach to gather EUR 151 billion. Again, of organic growth, which is more than 2x what -- I mean, double the amount that we reached last year -- sorry, 2 years ago, 2020, which was also a record figure not compared to 2019. So again, extraordinary growth, organic, compared to our historic track record, which demonstrates that the business on the flywheel effect is getting traction. In this slide, what we try to show to you is how our numbers not compare with the industry, with the indexes because I think it's important to contextualize all these numbers and all this growth. So as you see, we grew in the last 5 years, the CAGR growth of the company is around 19% compared to the 11% growth of MSCI index, 2% of Barclays aggregate index and 7%, okay, of the European fund industry. More precise when we see 2021 evolution, remember the 29% growth of Allfunds compares with a 19% growth of the UTC fund industry. So we are gaining market share compared to the market. So we are going from the 9.9% that we had market share in 2020 to 10.4% in 2021. And we are doing all our best to keep on bringing and enhancing new distributors, new fund houses and, therefore, strengthen the global network of partners that we have at Allfunds. So as you can see here, we have combining distributors and funhouses, we have 2,000 partners around the world, helping and contributing to strengthen our value proposition around the world. These 2 charts just proof the traction that is getting both the onboarding of new distributors with these 85 new clients and the same coming with fund houses almost with a record figure that we achieved in 2020. Let's talk a little bit more about the clients. Now that as I said at the beginning, it's not all about numbers because the numbers are, in the end, is a consequence of the business, not that we do on a daily -- well, every day. It's our business as usual. And this is where I think that also 2021 was an excellent extraordinary year for the company. These 85 new clients come from 30 different countries. This EUR 67 billion of new assets coming from new clients. As I said at the beginning, almost 50% of these assets, okay, come from come from direct competitors, okay, which as I said before, it's important to point out this because this proves that our value proposition, well is still unique. And it's our job to keep on increasing the gap between our value proposition and our competitive value proposition. So by region, you see that we have been able to bring distributor's new clients from all around the world, from Americas, from Asia, EMEA, everywhere in the world. Something also important is that it's the size of the clients. I mean we prefer to focus on midsized clients rather than just target one big client in one specific country. I think that everything is about diversification, and we are super keen and happy with the way we approach the market. So bringing clients from around the world, midsized type of distributors that need to enter into open architecture or that they are working with a competitor, and they decide to move to Allfunds platform. Thanks to, again, that they perceive, that we have something differential and unique. When we talk about asset management companies, as you can see in the chart, well, this is pretty exceptional. You see that France and also Sweden are pretty important in last year numbers, okay, but this comes -- is the result of the M&A that we did in 2020 and 2021. So what about our subscription-based revenues. So the revenues that come basically from Connect and our digital services. I think we also have very good news now. As you see, we grew in 45% our revenues coming from, as I said, mainly from our digital services. And you can also see that our average monthly users of Connect grew in 32% from 5,400 in 2020 to be above 7,000. It's very important to take into account that these are professional investors, okay? Connect is close to the end customer, not to the public. So we are talking about portfolio managers, fund selectors, private bankers. These are the people that are using our digital ecosystem. And we believe that the group has been also extra ordinarily good. Connect. We keep on working on the strategy that I mentioned to all of you during the IPO road show. Our 4 main models: fund solutions, wealth solutions, regulatory solutions and data analytics. And we keep on working on the 3 strategies that I explained almost a year ago. So 3 ways of reinforcing connect, by in-house developments, by strategic alliances. Best example, probably capital, reinforcing our product range with liquids and also through inorganic growth, okay, which is something that we take very seriously and that we are really on top of working on potential deals to also enforce Connect. Just let me give you a very quick update of BNP Paribas integration. So okay, the biggest transformational deal that we -- that started end of 2020. And just to tell you that we are on track. We are on track with the wealth management platform. So all the BNP-Paribas in France. We are on track with all the Banca Corrispondente business that we acquired in Italy, October 2020, and we are on track with all the migration of the FBS assets not to Allfunds platform. Also regarding this deal, there has always been a lot of interest from investors regarding the -- to try to seize the opportunity of what we call client conversion or client upselling opportunity. And I committed. When I -- when we discuss about Q3 results, I committed to give you a guidance, okay, regarding to seize the opportunity regarding this opportunity. And this is the result of all the meetings that we have had with FDS clients, okay? So you can see that out of a book of EUR 439 billion, the assets that we believe are in scope are around EUR 140 billion, out of which we estimate a success ratio between 25% and 30%, okay? When we talk about Banca Corrispondente, the Italian business, we are talking about EUR 80 billion of assets in scope and an estimated success ratio of 40% to 45%. So this takes us to the following key numbers. So already closed EUR 29 billion as of December 2021. And therefore, when you apply all this estimated success ratio to the EUR 220 million of total potential conversion, it takes you to an additional EUR 50 billion of probability of converting all these assets to our traditional and full service model, which means having these assets under our distribution agreements, not with the fund houses, okay? So I think it's a pretty good number. When we started, we -- what we didn't know exactly what we were going to find and for me to be around EUR 80 billion of opportunity. I'm pretty happy with this number. If we move on -- well, as I said at the beginning 2021 has also been a year of doing -- of trying to enhance our value proposition. Again, until now we were not offering to our client's access to liquid solutions to illiquid products, thanks to the recent partnership that we closed with iCapital. Now our clients and Allfunds can offer a one-stop solution in both liquid and illiquid products. We also finalized all the setup of our sub-advisory platform with more than 27 mandates. And in fact, we are about to obtain the license for our ManCo. Today, we have our ManCo outsource to a third party. We will have our own ManCo in the coming weeks. And this is going to allow us to offer new services to our partners like, for instance, dedicated private label solutions or also be able to offer 2 fund houses that want to establish in Europe, so you have their [indiscernible] in Europe. I don't know, U.S. firms, Asian firms, we will be able to give them fund hosting services. And finally, regarding blockchain and our digital assets, I think, well, very good news because we were able to successfully execute the first tokenized fund in the Spanish industry. The first time that this happens, using blockchain technology. And in summer, we will also launch our new solution for transfers, called fast in Spain and in Italy. Apart from this, we have several business labs with custodians, with transfer agents and with fund houses. In other, in my opinion, to -- in some ways to disrupt the industry in building and execution to make it much more efficient. And again, this is our commitment with both -- with our distributors and with our fund houses to help them to be more efficient. And finally, before we start with the numbers, okay, well, the company we have a clear ESG embedded strategy in the company. We are aligned with the major ESG international standards. And we have integrated ESG at all levels of the organization. So we take ESG very seriously as a company. And also, when we look at the new products, new services and new tools that we launched, we are also reinforcing all the ESG components. And with this, I'm going to ask my colleague, Amaury. So if you can please walk us through the full year results. Thank you, Amaury.

Thank you, Juan, and good morning, everyone. It's a pleasure to walk you through our preliminary unaudited 2021 financials. So as you've seen in the previous slides, we have delivered a very strong first year as a listed company. And I will now run you through the key financial figures and explain the main underlying drivers of this solid performance. Before going into the detail, though, let's look at the key main drivers of our business again. So all of these drivers are in advance or in line with the IPO guidance we provided a few months ago last year. So first, the strong activity in 2021, which was fueled by all of our growth engines, enabled a revenue growth of 36.5% to EUR 506 million of net revenues. Second, the highly scalable nature of Allfunds business also allowed for an even higher growth of our EBITDA to 40%. Our EBITDA margin for the period stood at 73%, and this is to be compared to a 71% margin in 2020 and an objective of reaching 75% in the midterm. As a side note, we are focusing on adjusted EBITDA, which excludes separately disclosed items such as integration and IPO-related costs as well as other one-offs. So thanks to these positive dynamics, Allfunds illustrative normalized cash flow stood at EUR 228 million in 2021 to be compared to EUR 171 million in 2020. And while we increased our overall CapEx to support the ongoing transformation of our group and integrate recently acquired activities, maintenance CapEx remained at around 3% of net revenues. So if we focus now on net revenues, our net platform revenues were up 36% versus 2020 pro forma to be looked in conjunction with an AUA growth of 29% over the period. Platform revenues benefited from strong tailwinds in the first half of the year, as you know, especially on the front of market performance, flows from existing clients and a high average margin, which was driven by higher-than-usual transaction-based revenues. But our H2 revenues also grew by 33% on a year-on-year basis, with commission net revenues up 37% from EUR 141 million to EUR 193 million. And while transaction revenues returned in the second half of the year to what we believe is a more normalized level, they were up 20% versus H2 of 2020. Subscription-based revenues also registered a strong performance in 2021 on the back of additional clients that join our platform and new product launches. These 2 factors combined led to a higher engagement of customers. And as a result, subscription revenues grew by 45% in 2021 and H2 '21 was even up 48% when compared to H2 of the previous year. We believe that there is still a lot of additional runway for our subscription-based activity. At the end of 2021, 86% of distributors were on Connect, whereas for fund houses, the penetration was at 25%. So as stated during the IPO, our objective in the midterm is to have subscription revenues representing 10% of the group's total revenues. In 2021, these stood at 4%, as they did in 2020, but this is more attributable to the strong performance we experienced on the side of the platform revenues. Focusing on margin now. So there are a couple of key messages that I would like to share with you today. First, our business has demonstrated strong margin resilience with average margin of 3.6 basis points for the year versus 3 basis points in 2020 or 3.3 basis points as reported with pro forma figures at the IPO. Second, now that the integration of acquired business is well underway. We felt it was time to make a change in the way of reporting margins to better reflect the way we look ourselves at our business. And from now on, you will see AUAs related to the traditional platform business and AUA related to dealing and execution only. So previously, the BNPP other category included AUAs from -- for which other services were provided beyond dealing and execution. With this new reporting, we are really separating the traditional platform service from the pure dealing and execution, and both of them come at a different margin. However, the traditional platform service with a margin of 5.1 basis points now represent over 70% of total AUAs. And we expect that this trend is what is driving the overall strength of our business. Looking at our expenses now, they have increased see that next... Yes. Looking at our expenses. So they have increased by 30%, which is EUR 33 million during the period, of which EUR 25 million is linked to an increase in staff cost. So this increases the results of a couple of factors. First, change of scope. So one with the staff that was transferred from BNP as a result of the transaction; and second, with a long-term incentive plan, as discussed at the time of the IPO. We have implemented an LTIP to promote long-term value creation and foster talent retention. And then staff costs also include a higher bonus accrual, which is in line with the group's performance and some one-off items such as the end of the deferral of bonuses for senior employees on a going-forward basis. We have also increased our expenses in IT incomes by about EUR 6 million. This evolution of our cost base is both a reflection of our continued investment in the future of the company as well as the scaling nature of our business. Looking at our EBITDA now. We've been through most of those metrics. I would just like to insist on the fact that this -- the positive jaws effect that we have experienced is a result of the exceptional AUA growth we had in 2021, combined with higher margin that translated into higher levels of revenues with some control on the cost side. Moving to the CapEx. So again, we told you already that as usual, we're spending CapEx between maintenance and transformational. CapEx amounted to EUR 27 million in the year versus EUR 20 million for the past year. This growth was mainly driven by the integration work performed following the BNPP transaction as well as the continued development of our digital offering and our blockchain capabilities. This slide is showing you, again, as usual, the bridge to reported figures. In 2021, we have booked EUR 114 million of exceptional items affecting the adjusted EBITDA, in line with our IPO guidance. Again, the cost of the IPO themselves stood at EUR 21 million and TSAs and restructuring from the Credit Suisse and BNPP acquisitions amounted to around EUR 53 million. The other nonrecurring items include M&A-related expenses and staff-related one-offs. Finally, most of the other one-offs, which are affecting the adjusted profit after tax or the PPA amortization charges of EUR 139 million, and this has increased versus last year due to the acquisition of BNP. Turning now to the cash flow generation. The pro forma normalized free cash flow amounted to EUR 228 million for the full year, demonstrating that Allfunds is a high cash-generating business. Please note that in this slide, we have normalized the cash tax expense, meaning that we have removed the impact of the Italian tax step-up to get again to an illustrative cash flow level. So we've covered most of the metrics of 2021. What we would like to do now is to turn a bit our attention to what is ahead of us. So given the market volatility and performance, we wanted to provide you with some visibility on the evolution of our AUA since the beginning of the year versus a couple of benchmarks. And as you can see in this chart, Allfunds AUA is quite resilient when compared to overall market performance. Year-to-date, Allfunds has decreased 3.4%, which is significantly better than other indices like MSCI, S&P 500 and Euro STOXX 600. This resilience is a result of the diversification of the business, as Juan pointed out, in terms of asset classes, but also geographies and client base. And it's also the result of the other drivers of growth of Allfunds, such as new client migration that will continue to support our expansion even during market headwinds. So now looking at the outlook and how are we doing versus again the IPO guidance that was provided back in April. So given the industry in which we operate and the continued expansion of our business proposal, we had decided at IPO to provide you with the midterm as well as a long-term guidance rather than an annual one. We operate in an industry with short-term factors that are out of our control, but we firmly believe that these do not impact the long-term prospects of Allfunds. If we look at our first year as a listed company again, we can see that the 2021 performance has been well ahead of the guidance provided at the IPO. How is 22 shaping up for us? So first, we do not think it makes a lot of sense in the current environment and especially in light of the recent events to elaborate too much on short-term market evolutions. So here, we are making a very simple assumption. We are looking at a theoretical scenario where markets will be flat in 2022, implying a gradual recovery of markets from now on to the end of the year versus 2021. And we would like to show you what impact such a scenario would have on our performance. So platform revenue margin would be between 3.3 basis points to 3.5, again versus IPO guidance of 3.3. Net revenue growth would be around 10% in 2022 under such scenario and implying a higher than 20% CAGR between 2020 and 2022. Again, that was the CAGR provided at IPO. So we would be beating the IPO guidance. EBITDA margins would be maintained at the 72%, 73% level on track to reach the 75% in the midterm. And then irrespective of market evolution, we expect our other KPIs to move as follow. D&A will stand at EUR 30 million, reflecting increased investment in our digital proposition and continued transformation -- the effective tax rate will move towards the bottom of the IPO range at 27% as we start to take advantage of the tax step-up. Obviously, this would be potentially affected by growth in our various geographies. And then the payout ratio, which we have indicated that for this year, we'll be at the low end of the range we had provided at IPO, i.e., 20% to 40% of adjusted profit. We expect that for 2022, this will move from to the low to mid-range of course, depending on M&A initiatives that we may run during the year. So before we turn to Q&A, I would like to leave you with a few key messages that you see here on this slide in both good and more challenging market environments, the fundamentals of Allfunds investment case remain very strong. We are a leading global scale wealth stack with superior financial profile. We're offering a unique value proposition to our customers through our one-stop shop, continuous innovation and charging model, and we operate in a large and high-growth market. So thanks for your attention, and let's now open the Q&A.

Thank you, Juan. Thank you, Amaury. As Amaury said, let's move on to questions. Operator, can you please proceed with the first question and state the name and the company, please?

Absolutely. Our first question today comes from Tom Mills of Jefferies.

Very much for the presentation, and congratulations on the results. I just wondered if you could say a little bit more about the partnership that you've put in place with iCapital and obviously, is now launched with Carlyle as a kind of cornerstone player product provider there. What -- can you talk a little bit about your kind of near-term ambitions there? Who else you'd like to see signed up? And perhaps just elaborate on what we could expect there.

I don't -- thank you very much for your question. Well, we published the go-live of this initiative a couple of weeks ago, which means that we have opened the new service really recently, I mean, last week, okay? What I can tell you is that our clients, especially private banks for a high net worth individual segment, okay, in all around the world. Our -- believe you know that happy with the fact that Allfunds has opened our platform to deal with illiquids product, okay? And the number that I can give you, but again, this last week is at around 100 of our close to 900 distributors. So 100 distributors have asked our sales teams to start discussing how to start working with -- or through our platform and these partnerships. So I think that's pretty good news, but again, really recent. And as you know, what we are trying to do is to reduce all the complexity of accessing illiquid products. That's our main goal to facilitate the access of these products to our clients. And we also have an exclusive agreement with iCapital because we want to put focus on this initiative. And also the pricing is, I believe, is pretty, pretty interesting for our clients, not that we want to trade these products through Allfunds. But we are going to need at least a couple of quarters in order to know the size of the opportunity to tell you a truth. It's too recent.

Our next question today comes from [ Renard Chaumet ] of BNP Paribas.

It's Renard here from BNP. I've got a question and a follow-up, please. If I could follow up on the private markets initiative. Are you going to be doing the structuring, the feeder funds, et cetera, in which case, there's probably quite a bit of upside, I think, on the potential revenue margin. And more generally, do you have a longer list of automate asset managers that they already to sell to sell through you? And my second question is with regards to the drop in revenue margin in H2 versus H1. So I mean roughly weaker 3.4 basis points for H2 versus 3.8% in H1. I understood that transactions could be a component part of that reduction. But could you maybe walk us through the -- what's happened between H2 and in H1?

Okay. I'll take the first one, Renard. So we are not going to enter into structuring these filers. I mean this is a iCapital task. What we do is to try to, as I said before, to simplify the access to this product that until now, at least for European investors was pretty complicated. But we are not entering into that business with illiquids in this moment. We will probably do it for long-only products through our -- as I mentioned before, our fund hosting, no service. And regarding the number of products, it's going to depend more on iCapital, again, that they keep on placing okay, new GPs, new feeders in the platform. So we have started with 3, but we are expecting to see new GPs joining the platform. I cannot give you a number, but I think around 10 to 15 GPs or new products, no will join on an annual basis, at least. And the second question, I'm going to ask Amaury to cover it.

So yes, you're right, and your calculation is correct. So we -- the average margin decrease in H2. As anticipated, if you remember, right, because we -- when we published our H1 numbers, we knew that the margin would decline. And the main drivers, which led to such a decline was, on one hand, the transaction revenues, we had experienced very strong local paying agent, more notably, activity in H1. And that return to what we believe is a more normalized level, as I just said. Again, knowing that it's hard to talk about normalization in an environment that that is difficult to normalize, number one and with a company that has -- that keeps on changing. You remember that a lot of the LP activity comes from BNP as well. We had one before the BNP integration, but it has significantly increased with the BNP transaction. And then the second impact, which is also something that we have flagged, hopefully, consistently throughout the engagement with investors and analysts is regarding migrations, right? Sometimes we migrate clients that comes with a higher margin and sometimes they come at a lower margin. And again, I'm sure you will have heard me say that this is specifically why we never look at the margin independently from the AUA evolution and a very low margin, if we were -- we always take this example with Juan, if we were signing a client in the U.K. where traditionally, the margins are lower, which would be $100 billion of AUA, which would come at a significantly lower margin and potentially affecting the overall margin of the group, it would still make a lot of sense from a P&L perspective, right? So whenever we're looking at the evolution of this driver, we should look at it in conjunction with the evolution of AUA and 2021 has been very strong in migrations. So just to summarize, expected, we had guided correctly here, and we're providing a revised guidance again for -- going forward, where we still -- we believe we're going to be at or above what we said at IPO.

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

I wondered this is probably along the same lines as the last question. But if you look at your guidance for the yield you're getting from the BNP assets you're converting, that looks on a significantly lower margin than your existing book. I wondered if you could talk about that a little, please. Why are you talking about 2 basis points for that book...

Yes. So -- you're right, Philip, right? The -- so again, just to set the picture again for everyone, right? We're talking here about the FBS activity where we make a fee that is extremely low and again, this was known fact and the potential for converting those clients to a more regular activity. And yes, indeed, we believe that on average, the yield that we will be gaining from those clients because of the very nature of the activity will be closer to 2 basis points, again, on average, right? I mean we have a different bag of clients in there. So this is an average. But on average, it's going to be 2 basis points. Only, if I can say much more on a...

No, probably we can point out that in the case of Banca Corrispondente, this EUR 80 billion of assets in scope, we are estimating to convert around 45%. I mean, this volume is pretty concentrated, Philip in very big distributors in Italy, which means that they have extraordinary good and competitive terms with the fund houses, okay. And as you know, when we talk about this client conversion in Italy, for instance, we already have the business. What we are doing now is convincing these clients to convert to our distribution agreements. But in many cases, in Banca Corrispondente, there is more a kind of a guided open architecture. So distributors concentrate not in hundreds of funhouse, but more in 30, 50 key fund houses, and they have very good terms, okay? So that's why apart from the from the margin that we make with the traditional Banca Corrispondente all the trading, we believe that we are just going to be able to put an extra 2 basis points on top of. This is regarding, for instance, the Italian business. And the FVS business -- well, it's split it all around Europe. And what we see is that they are already working with other platforms. So it's in we need to offer extraordinary competitive prices, and that's why I believe or we believe we estimate that it's going to be a little bit below our traditional margin with our existing -- of our existing book. That's what why we talk about these 2 basis points, okay?

And Juan, if you allow me, maybe one more word. This is good news for us, right? I mean, I just want to make sure that the stage is said correctly. You remember that at IPO, this was not factored in because as Juan said a number of times, we were looking at exploring the mine, trying to see if there was anything we could find in there, right? So we have found something. That's good news, it was not in the business plan. That's not the main -- that was never meant to be the main engine of growth of the company. The main engines are the client migration where we've been very successful in 2021 and expect to continue to be that successful - client flows, market performance when it's there. And this comes on top of all of this, right? So we are being very active with this book. We're going to try to convert it quickly throughout 2022 or by the end of Q1. But again, to position that correctly, I think that this is good news.

Our next question in the queue today comes from Greg Simpson of BNP Paribas.

It's Greg Simpson from BNP. The first question would be just on slide, I just want to -- thank you for the color on the business performance area, down 3.4%. Can you provide any color on your experience around flows year-to-date? I'm guessing the pipeline of migration remains healthy, but what are you kind of seeing amongst existing client flows? And how do you think they'll behave in kind of this kind of market volatility? I've got a follow-up as well...

Yes. Thank you, Greg. I don't know if I -- I can't disclose this organic growth year-to-date, probably I cannot talk about the specific number, but what I can give you some color. And what I can tell you is that, at least for the moment, what we are seeing is that our client base is not redeeming. So it's pretty stable on the organic side. And again, what is in our hands is to bring new clients. So we are, as you can imagine, focusing on migrations on convincing new clients to join our platform. And in this respect, I think that, again, 2022 market volatility should not affect at all our migrations pipeline. In fact, it has really nothing to do. I think this is much more related to our ability to enhance our value proposition and convince clients as we did last year to move to our platform. And in fact, all this volatility -- we saw it in 2020, it helps all funds because we see a clear effect of flight to quality. So distributors want to work with the #1 platform. So again, for the moment, investors, Allfunds investors stable, not redeeming and Allfunds suffering, of course, because of the market effect. But as we mentioned before, you see that we have a very good caution when we talk about how the volatility, how the drop of the equity market affects all funds, you see it here. We have good levers to compensate or to mitigate the drop of our assets linked to the market performance. You see that more around 50% cushion, at least 50% cushion. And whenever we start seeing migrations to kick in into the platform during the year, I believe that we will even improve this number...

And just a follow-up would be, are you seeing much change in the competitive landscape with the large custodians having completed their acquisition of Euroclear. Is there more competition for new clients? Do you still think there's a potential to do M&A? Just any kind of color on that on the competitive landscape would be very helpful.

Yes. Well, that's a very good question. I think I can talk about 2021. And in 2021 because these are facts, it's fact-based. And as I said before, it was the best year of the company in bringing new clients and almost half of the new clients came from our direct competitors in where all these names well, not names, but all these -- well, you can include all these new competitors are included in this list. So -- this is what we saw last year. So yes, in theory, we have stronger competitors in the practice, we do not lose clients and we keep on bringing new clients to the company, not to the platform and again, record numbers. What is going to happen in the future? I don't know. Well, in theory, competition should be tougher because, of course, well, we see that they are, in some way, trying to replicate our business model when you analyze the movement that we made, we have a clear strategy of replicating a business model of all fans that has been unique for 2 decades. And we are not going to stay still, as you can in mind. And that's why I'm always obsess with enhancing our value proposition. We've been much closer to our clients to understand their pain points and to keep on running, running and running in order to be better every day...

Our next question today comes from Angeliki Bairaktari of Autonomous.

First of all, on the BNP conversions, Slide 16. Thank you so much for providing that additional information. Can I just check -- do I understand correctly that the potential that you see now for further conversions amounts to EUR 50 billion, which you mentioned could happen by Q1 2023. Is there anything that you think you could achieve after 2023? Or is that broadly based on what you see in sort of the AUA in scope that you see sort of the maximum potential conversions, those EUR 50 billion Second question on operating expenses. Can you give us some guidance on sort of the cost growth that you expect in 2022 and beyond? This would help us, especially because I know you provide guidance on the EBITDA margin, but obviously, revenues tend to be volatile and also more market dependent. But I presume that you have already an idea with regards to sort of the cost trajectory for 2022 and perhaps how flexible our cost is the cost base, could you adjust your cost base year if revenues are sort of not progressing to the extent that you expect because of market? And third question, can you just confirm, will you be paying a dividend to ordinary shareholders out of 2021 earnings or shall we expect dividends to review from next year onwards?

Good. So let me start with the client conversion and we will cover the -- thank you. Okay. So well, we are talking about EUR 80 billion, and we wanted to put a deadline, okay? Because I'm sure that if we come here and we tell you that it's going to take us 3 years to convert probably is not what you were expecting. So that's why we have put a deadline in some way, this Q1 of 2023. And the team is committed to deliver these assets for Q1 2023. This doesn't mean at all that we are going to stop the client conversion plan. And in fact, I'm sure you know that in 2023, clients that probably today are not 100% convinced to move to our distribution agreements because of whatever reason, potentially in 2023 might decide to do it, okay? But this EUR 80 million, so the EUR 29 million already converted plus the EUR 50 billion that we have put in this slide are the ones where the sales team has a clear, clear focus on achieving this conversion in the next -- or during the next 12 months, okay? But again, this is an open process, and we'll keep on working to convert more assets, absolutely.

So let's -- if we look at your question regarding operating expenses. So yes, we do expect those expenses to continue to grow in 2022 because of the investments we're making, right? And because we want to -- we don't want to -- I mean, at least for the moment, right, we'll see how the year will unfold, but we don't want to overreact to those short-term events. We have a trajectory. This business is doing great. You see that even in the context of flat market, we would be growing our top line. So we need to continue to think about what should come afterwards. And so basically, the expense increase will come first from the fact that we always start with having to take into account the full year impact of what was done in the previous year. Second, we have a couple of expenses such as LTIP. We talked about the LTIP, and I think that all investors were very supportive of this. As you know, this is building up throughout the years, right? Because we will be launching one every year. And until we have -- we come to a steady state that will represent an increase. And then again, but more importantly, it will be about hiring a few people on the digital side, continuing to reinforce our infrastructure and so on and preparing for the future. To what extent are these cost flexible? They are, of course, but I think that the tricky question and what management together with the Board, of course, will have to decide is, again, trying to make sure that we do not overreact to short-term events and put at risk the long-term growth of the company, right? Because we want to continue to grow our digital platform. We want to invest in areas in the relationship and so on. And that's necessary to support the growth side. We are not in a -- again, we don't feel that we are in a game where we have to worry about a contraction of our activity on the long term, right? This is not all the case. So we will be looking at expenses as usual, and this is what Juan had done during COVID, making sure that we were holding back on what was not necessary. But again, this will be a balanced and very focused approach. Now with regard to dividend, we -- this is, of course, will be subject to the board and then to the general assembly decision. But yes, to be clear, we do intend to distribute a dividend for 2021 numbers, as we said at IPO, right? So, this will be on a pro rata basis, right? So not for the full year, but from the IPO onwards for 9 months or so. And then as we guided, do expect that this would be towards the low end of the range for this first year because we want to make sure that as we continue to grow, we will also continue to expand this line. And as you can see, it's what we're saying in our 2022 scenario. For 2022, this would be moving from low to the midrange. Again, depending on what activities will be conducting during the year.

Our next question in the queue comes from Andrew Coombs of Citi.

Three questions for me. Firstly, on Slide 29 and the scenario that you've put out there. If I look at the end AUA at the end of 2021, if I look at the midpoint of your 3.3 to 3.5 basis points gross margin guidance and back of the envelope calculation, it seems to suggest that if you're only looking for 10% growth, you are assuming that -- or in your scenario, you're assuming that net new money runs below the 7% to 11% range you've seen over the last 3, 6-month periods. So I just wanted to check if that was the case. Are you assuming net new money run rate closer to mid-single digit, close to 5% in that scenario. So that's the first question. Second question on Slide 16, on the BNP deal on migration. You talked about an extra EUR 50 billion opportunity in terms of assets at 2 basis points, so give or take, EUR 10 million of revenues. That compares to EUR 25 million of revenues that I think you derived last year. So just trying to work out if there's any ancillary revenue opportunity on top of that EUR 10 million that you're guiding to, given that it's quite a step down from what you achieved last year? And then final question just on the sub-advisory business. Obviously, that's been delayed. You were hoping to start last year now coming through in 2022. You previously talked about a EUR 50 billion pipeline and recognizing 20% in year 1. Is that still the case even on this reduced also even on the delayed timetable?

Thank you, Andrew. Yes. So let's start with the first one. And I'm sure I'm going to forget the second one when I'm done. So Silvia, you will remind you too me, please.

I'll take the third one.

Okay. So with regard to your back of the envelope calculation, not quite, right? The answer is not quite -- again, what's very -- we thought hard about this scenario that we would be providing today in -- again, in light of recent events and so on. The big difficulty is to -- is not only to come to an expectation of market performance, but also what would be the impact on client flows. We feel that migration is completely within our control, right? And we feel very bullish about this going forward as we have delivered in 2021. But then something else which comes to complexify a bit the picture is what pace of recovery or what's happening, right, during the year. So here, in your calculation, and that's where the back on the envelope might be a bit misleading is that this scenario anticipate that there is a progressive recovery on a decrease that took place at the beginning of the year, right? So the impact is compounded by the fact that the recovery is only progressive. But to try to answer your question, we do expect migration to remain strong. And in this theoretical scenario, we had modeled client flows to be flattish, if I'm not mistaken, right? Yes, flattish. So that's for the first question. The second one, Silvia, please…

Yes, as the EUR 10 million, roughly 1 million, 2 basis points compared to EUR 25 million of revenues that we said. Are there any ancillary revenues on top of that?

Well, I mean, on the VLP conversion, we will be expecting to also to potentially convert them on the Connect side, right? But more importantly, again, remember that we said that, but to make sure it's clear. BNP deal was about NPA and was about getting a footprint in France, right? So this -- this is helping us further establish our local activity in France and will again generate this flywheel effect in a new geography or in a geography where we're not as strong in the past.

No, I think this extra EUR 80 billion at those -- these 2 basis points is on top of [indiscernible] margin business that we make in Italy in Banca Corrispondente, which is much higher than 2 basis points. So this is on top. Plus, as we mentioned, yes, we can also make cross-selling digital -- I mean, cross-selling of digital services, absolutely. And in relation regarding the FBS book, as Amaury said, I think we never gave a number because we didn't know, okay? And this is a result of sitting -- I mean, of approaching all the clients that work with BPS. And this is additional. I mean, and on top of any number that we gave in previous meetings with you guys. And regarding sub-advisory, well, you gave us a number. And this is not a 2022 number because in 2021, when we talked about this new business opportunity during the IPO, we didn't talk about 2022 or 2021. I think it was a clear midterm guidance. Midterm guidance means 3 years. We are still very positive with this initiative. But it is true that it has taken more time to obtain all the regulatory approvals of lunch -- I mean, in order to have the [ CECAP ], to have the mandates and now you have the ManCo. So we are still very keen with the initiative with our clients. I think that they see in Allfunds this -- as I said before, this obsession for or keep on enhancing our value proposition for meeting and trying to reduce all their pain points with advisory, with liquids with blockchain. And this is a long-term strategy. It's all about, again, reinforcing our value proposition and being the unique provider for our clients when we talk about open architecture no. That's what it really drives all these initiatives.

Thank you very much. It has been a pleasure to host you today. We would like to thank you, Amaury, for this journey. We wish you all the best.

Thank you.

Good luck, Alvaro, and see you next quarter for our trading update. Thank you very much. Goodbye.

Thank you very much.

Thank you, Amaury.