Allfunds Group plc (ALLFG) Earnings Call Transcript & Summary

Thank you. Good morning to everyone, and welcome to Allfunds Financial Results Presentation for the First Half of 2022. Thank you for joining us today. For today's presentation, we would like to spend the first 30 minutes giving you a business and financial update and an additional 30 minutes for Q&A. Before we begin, I would like to point out that our earnings press release, the results presentation and supplemental econ information can be found under the IR section of our website at allfunds.com. This call is being broadcast live, and a replay will be available on our website. I encourage you to review the cautionary statement on Slide 2 for customary disclosures. Joining me on today's presentation are Juan Alcaraz, Allfunds' Chief Executive Officer; and Alvaro Perera, the company's Chief Financial Officer. Juan and Alvaro will provide a company update as well as an overview of the company's first half 2022 financial results. After our prepared remarks, we will open the call to questions. [Operator Instructions] With that, I will now turn over the call to our CEO, Mr. Alcaraz.

Thank you very much, Silvia. Good morning to everyone. Thank you very much for your interest in Allfunds and for joining us in today's presentation. Okay. So let's begin. Very good. So let me start with key highlights, okay, on H1 2022. So let's start with a clear message, which is a solid H1 financial results despite the market volatility. We have 5% revenue growth year-on-year and a 4% EBITDA growth. 58% growth of year-on-year also in subscription revenues and maintaining the 73% EBITDA margin, 3.5 basis points on platform revenue margin, so stable margin. And assets under management down 3.5% compared to 7.4% from the market declined year-on-year in the last 12 months, taking into account the unbelievable volatility that we have experienced. So a key message, the company grows in revenues. We grow in EBITDA. We maintain and keep our EBITDA margin, and we maintain our platform revenue margin. On the business side, we believe that we have a pretty resilient business. We continuously win markets as you will see in the next slides. We have a very strong pipeline distributor with a secure migrations of above EUR 40 billion that we will explain in a minute. So very, very strong momentum on the business side, very strong and fast-evolving digital ecosystem. So subscription-based revenues represent already close to 10% of our total revenues. Remember that last year during the IPO we were below 5%. So we have more than doubled the percentage of our subscription revenues, it's through that and also thanks to acquisitions, but that is part of our business to keep on improving and enhancing our value proposition organically and inorganically. And finally, a key message regarding significant progress that the company has done in H1 on the M&A. Well, we have closed, as you know, 2 deals and the latest deal that we closed last night makes 3 acquisitions in 6 months in order to focus on those things that were under our control, which is again, to keep on enhancing our value proposition. And these 3 acquisitions that come with really talented teams of people. I'm sure that they are going to help us to enhance the services, products and tools that Allfunds has. So if we move to the next slide regarding just a few financial highlights, I think you have seen all the numbers, so again, 5% of revenues, 4% on EBITDA growth, growth in both subscription revenues and also in our profit after taxes of 31% year-on-year. Very good momentum on the commercial side that we will see in a minute. So let's enter into some details. Well, the first thing is that I think it's important to contextualize what has happened in the markets in H1 because we all know that equity markets have suffered a lot and also fixed income. But what I think is very important is to point out that it has been the worst H1 market backdrop in history when we combine how equity market performs and also fixed income performance. So traditionally, in our 2 decades of history, when we -- when equity markets suffer we always have fixed income as a buffer. But as you can see in this slide, in H1, the performance of fixed income has been pretty negative with almost 14% of drop. So it has been very difficult really to find an asset class to protect the assets from such an incredible underperformance and volatility. Despite this, if we move to next slide, well, I think that Allfunds, again, has been to outperform the market, and basically, thanks to 2 things: migration, so gaining market share, bringing new clients -- and thanks to a really well-diversified business. It's all about diversification when volatility is so amazing, diversification by asset classes. So we have a significant portion of our assets are in multi-asset category that has behaved better on average than the rest. Diversification by region, you know that we have clients today, I think they're in more than 65 countries. So it's really important, even though it has been a -- and it is a global crisis. I mean the more countries where you operate, as you can imagine, the better. And finally, I mean, a diversification by client, we have all type of distributors, we have private banks, we have wealth managers, we have banks, we have insurance companies, and that also gives us an extra layer of diversification and therefore, it protects us better from this market volatility. If we move to the next slide, please. Well, this is like -- we just want to show you what has happened in the past with 3 of the most significant crisis, so the U.S. sovereign crisis, U.S.-China crisis and COVID 19. I think the key message is that our business model demonstrates significant growth or performance during periods of market turmoil. So the recovery is always pretty strong. In the moment that risk appetite improve, and it will improve savings and cash savings are invested into investment products, it has happened always and it will happen again. And this appetite for riskier assets means that the appetite for open architecture will be there. And Allfunds, as I said, is gaining market share and awaiting for this return of that appetite for investments. And another thing that I think is important is to point out that migrations we have in our 22 years of history, we have seen that migrations have never been really affected by market volatility. So I mean clients that want to join the platform, join the platform. It doesn't matter if the market is going up or down. So well, the message is that our experience and track record tells us that we have always emerged stronger after a crisis, and this is exactly where we hope that it will happen with this current cycle. If we move to the next slide. Well, this to me is really important because it proves that the business model of Allfunds works is where we put all our focus as a company and as a management to keep on enhancing our value proposition to keep on reinforcing our unique selling points. The features that make Allfunds unique. This famous one-stop shop, the famous unique buy-free model with distributors global scale, but having local teams that we operate as local companies now in 16 countries, always close to the client in order to understand their needs and come back with a solution. The beauty of the Flywheel effect and this is helping us to keep on gaining market share, of course, also using acquisitions, of course, but also without them. If we move to the next slide, we see how this year we have -- in H1, we have been able to onboard EUR 17 billion. We were expecting a little bit more it's true, but it's also true that one very big Italian client decided to postpone the migration to H1 of next year. In any case, I think the good news is that we have what we call secure migrations which are clients with the contracts already signed and with a date, a specific date to migrate assets that accounts for EUR 40 billion. So it looks like even though despite this market turmoil, it is going to be a good year for Allfunds in migrations. Regarding Fund House's incorporation, again, this is business as usual for us. And this year we will capture probably the same number as last year or similar number. If we move to next slide, please, Okay. Well, this slide probably is my favorite slide because you know that I'm very, very client-centric, client focus. We are obsessed as a company with our clients. And it's difficult or very difficult to maintain these customer retention rates. Well, last year 99.9%, 99.8 million in 2020, first half of the year, 99.9%. So this means that our clients -- existing clients like Allfunds. They like what we do and they keep on working with us. They don't change our platform, they don't move to any other place. But I mean it's really demanding this retention rate. But that's why you will always hear me talking about how to improve what we have today, how to improve our value proposition, because it's in our DNA to keep on improving, enhancing what we have, again, in order to be able to maintain this unbelievable retention rate. Well, this is a picture of what has happened in H1 regarding both distributors and Fund Houses. Again, more important on the distribution side, in this case, so 34 new clients coming from 20 different countries. I think this is the most important takeaway of this slide. So it's not that the clients are always coming from the same place. If you see the chart by region, the by region chart to me is ideal, it's like we have clients coming from absolutely everywhere. Which means that our business model works, works not just in a couple of countries or in a region but it works all around the world. By size, well, our ideal clients are clients between EUR 1 billion to EUR 5 billion. So clients that really have a clear strategy regarding selling best-of-breed and therefore, clients that love open architecture. And those are the clients that we are targeting. Of course, we have smaller clients and of course, we have bigger clients that obviously join the platform. But well, I think it's a good mix. Origin from where are all these clients coming? I think it's also important not to see that almost 40% of the new clients of these 34 clients, 40%, 38% to be more precise. They come from competitors. Competitors from, I mean, global competitors and local competitors which means that, again, and for the moment, we keep on having a pretty competitive value proposition, and we are trying to do our best to keep on increasing the gap between what we offer and what our competitors offer. When we talk about Fund House, as I said before, I mean, this is our business as usual. The goal of Allfunds to have the largest number of Fund Houses under global distribution agreement. Now that I think, in some way, brings a lot of value to our distributors that they sign an agreement with Allfunds, and they have access to the largest number of fund houses under distribution agreements. If we move to the next slide, well, growing pipeline, what does it mean? Well, this is how we -- what forest pipeline means distributors that have signed an NDA, a nondisclosure agreement with Allfunds. So we have already started to negotiate with them but we have not yet signed an agreement with them, okay? So the good news is that the future pipeline of the company and when I say pipeline is 18 to 24 months is pretty, pretty positive. In fact, it's bigger than last year pipeline. Obviously, and unfortunately, we are not going to be able to convert to clients the whole pipeline. But well, it's definitely better to have EUR 130 billion of assets under nondisclosure agreement than less. So we take this migration pipeline very seriously, and the goal is to keep on always enhancing that red battle that you see there. On the right, I think the key message on the right is that the acquisition of Web Financial Group 2 months ago as we expected has increased significantly, the pipeline of clients. So for -- in the case of Web Financial Group pipeline, the fact of being part of Allfunds Group has helped them to increase their pipeline in 47%. And in the case of Allfunds digital services, the fact of having Web Financial Group team, services, tools being incorporated to Allfunds digital value proposition, it has helped us to grow in 62%, or to increase in 62% of our pipeline. So for the moment, first 2 months, I think, very, very positive result of this acquisition, as I said, we made 2 months ago now. Well, our famous digital ecosystem now with the 4 models, fund solutions, wealth solutions, data and analytics solutions and regulatory solutions. So when we -- all the M&A activity has a strategy. It's not that we buy companies because I don't know, we want to grow and we want to know. I mean, we buy companies because we want to enhance the value proposition in each of these models. So Web Financial Group is definitely helping us to launch new tools and services under fund solutions. Web Financial Group and now Main Street, we will talk later about Mainstreet, the deal that we closed yesterday, well, yesterday, it's helping us on the wealth solutions side. So Web Financial Group is bringing us multi-asset capabilities. Next portfolio 3 come from an organic development from next portfolio that, what we have been developing since 2019. And now MainStreet is going to bring us all these capabilities on ESC solutions. Data and analytics solutions, of course, we have our tools and services, but without any doubt, instiHub, the other company that we bought, I think 3 months ago, more or less, we take the lead inside the Allfunds group in relation to data and analytics. So that is already our team. The team in charge of bringing value solutions, added value solutions regarding data and analytics. And on the right, the regulatory solutions model, well, today it's all about organic services, organic tools and products. And what we are exploring if there is a way to accelerate and to enhance and improve the services under this model through potential acquisitions. We are always studying and screening the market to see if there are opportunities, again, our obsession, as I said before, is always the same. It's to keep on enhancing the services that we provide in order to be able afterwards to maintain those retention rates. Those retention rates reflect that we take very, very seriously the level of service that we provide to our clients. And I think next, please? So well, this is also pretty important. I mean, it's what I call the subscription-based opportunity. So how I see this opportunity? First of all, I see an accessible universe of more than 2,000 clients. And here, when I say clients it's a combination of fund houses under distribution agreements with 1,000 and close to 300 Fund Houses and close to 900 distributors. That's the accessible universe. And which is the objective, as you can imagine, is both cross-selling and upselling. So cross-selling is further penetration of this client base. So currently, the penetration is low. I mean we talk about the 27% of penetration in fund houses, which means that just 27% of those 1,300 Fund Houses are paying for some digital services of Allfunds, so huge room for growth. And on the distributor side, just 28% I think of distributors are using are paying for some services of Connect. When we talk about how many distributors are using Connect, we go up to 85%, but paying? Just 28%. So again, huge opportunity to penetrate and to sell more and upselling. I mean, if we are able to enhance the services, the products, the tools that we have, we should also be able to increase the average fee paid by each of these clients. Today, in my opinion, is still very low. We can definitely upsell, if we have the right products, we can definitely upsell and we can definitely increase that fee. On the right of the chart, what you can see is that, well, for the moment the strategy is working. So remember that we launched our first digital services, Q3, Q4, 2019. So in 2020, we already made EUR 6.5 million first half of the year, we increased to EUR 9 million last year first half. Today, we are already in close to EUR 50 million first half. It is true with the help already of one of our acquisitions. But in any case, I think that the growth is pretty significant, it's almost close to 60%. And finally, well, I have been already describing this and covering this throughout my presentation. I mean, again, we buy -- we have a very, very, very clear strategy. It's all about -- as I have said during the presentation, it's all about improving, increasing, enhancing the value proposition of Allfunds. So Web Financial Group has helped definitely Allfunds with our digital value proposition as we have seen before. instiHub, as I have said, the same with data and analytic tools, and now MainStreet offers us the opportunity to enter into a new business, a new opportunity. I think the momentum and the timing is perfect. It's a real, really clear scarcity in this sector of ESE. And I think that listening to our clients, we clearly detected that our clients in both sides distributor of Fund Houses needed something or need -- we clearly we're asking Allfunds to help them with ESE. And again, this is our goal to be close to our clients, listen, understand their pain points and came back with a solution. And this is exactly what we have done with Main Street. So just to finalize my part and before asking Alvaro to walk us through the financials. For me, the message is that, well, at least you know the things that are under our control which are mainly doing things better, retaining talent, bringing talent to the company, controlling costs, and again, all about being very close to our clients and deliver better services. That's in where we put all our focus, that's in where we concentrate all our resources. There's nothing that Allfunds can do with, unfortunately, regarding the war in Ukraine or inflation or interest rates, but all our focus has to be in delivering value for our clients and our shareholders. And using this we're, we put all our efforts. Thank you very much. Alvaro, I think I have taken 25 minutes, unfortunately.

I'll try to be a bit quicker. Thank you, Juan, and good morning, everyone. I will run you now through the key financial figures and explain the main underlying drivers of this solid performance. But we go into details let's pause a bit on Slide 19 and take a quick look at our unaudited income statement for the first half of 2022. As you've seen in previous slides, we have delivered solid financial results, showing great resilience in a challenging environment. Compared to H1 '21, net revenues are up 5% to EUR 259 million. Adjusted EBITDA is up 4% to EUR 188.4 million, margin is stable at 73%, thanks to good cost management and adjusted profit after tax is up 31% to EUR 123.5 million. Let's now deep dive into the details behind the strong performance. So as you've heard from Juan, the evolution of AUA has been impacted by an unprecedented negative market performance in both equity and fixed income markets. As a result, total AUA dropped by 13% since the beginning of the year or 3.5% since last year, almost entirely driven by negative market performance in both equities and fixed income markets. So in the first 6 months of the year, platform AUA declined by EUR 132 billion due to negative market performance. Net flows from existing and new clients combined were down by less than 1%, thanks in particular to continued growth activity from new client onboardings. As mentioned by Juan, we expect new client migrations to accelerate in the second half of the year to around EUR 40 billion compared to the EUR 17 billion that we've delivered in H1. Existing flows -- sorry, new flows from existing clients were modestly negative in H1. This is entirely consistent with what we've seen in the past with client behavior we have experienced in past periods of market turmoil. We also know by experience that these flows return to our platform in addition to ongoing growth once markets recover. So let's turn our attention to revenues on the following slide. And you'll see that both platform and subscription revenues have grown despite the challenging conditions. Our H1 revenues grew by 5% on a year-on-year basis, representing a 20% compounded annual growth rate since H1 2020, which is well in excess of our IPO guidance that assumed a normalized market environment, by the way. This was driven by net platform revenue resiliency, which grew by 3% on a year-on-year basis and the continued uptake of our subscription revenues, which grew by 58% and increased the relative weight from 4% to 6% since last year. This excludes, of course, the future positive impact from our recent M&A announcement, which Juan described today. On a pro forma basis, subscription revenue already represent approximately 10% of revenues and will continue to grow from here. It is without saying that we are very excited about this trend, what we've achieved since our IPO and the scale of the opportunity ahead. So focusing on that platform revenues for a moment, remember that these can be split into commission revenue or AUA-based revenue and transaction revenue. The commission revenue has experienced an increase of 8%, driven by larger average AUA during the period as well as really solid margin resiliency. Transaction revenue have returned to more normalized levels. Bear in mind that the level of activity seen in H1 '21 was extraordinary. So if we compare it with H1 2020, the EUR 55 million actually represent a 34% growth. This is all very much in line with our expectations. And finally, moving on to subscription revenues, as I said, these increased by 58% to EUR 14.6 million, thanks to the effort in selling membership fees and adding new features to Connect. This is in line with our ambitions for this revenue line and has been boosted only marginally so far by the acquisition of WebFG, which has delivered EUR 1.7 million roughly of new subscription revenues since its incorporation to the group. But even without this impact, revenue increased by 41% on an organic basis. So let's now move into margins. And you'll see -- yes, thank you, Silvia. So what I would like to highlight here is that our business has demonstrated strong margin resilience and that the overall net platform revenue margin is, in fact, at the high end of the guidance we provided, 3.5 basis points. The platform service margin has decreased by 0.2 basis points from 5.1% to 4.9%. But it's flat in the previous slide, the full year margin of 2021 was impacted by exceptional transactional revenue performance during the first half of 2021, which explains a slight decline in platform service margin. And finally, you will also notice that the dealing execution margin has improved as a result of higher dealing activity and improved pricing in this business line. Let's move. Thank you. So looking at our expenses, you'll see that we continue investing in future growth and scalability while, of course, remaining committed to maintaining cost discipline, as Juan said. Adjusted expenses increased by 5.6%, i.e., EUR 3.8 million on a year-on-year basis, of which most is linked to increased adjusted SG&A expenses. This increase is a result of several factors: first, additional improvement in technological backbone and incremental activity. Secondly, the impact of being listed for the full period. Third, some incremental operational expenses from WebFG and instiHub. Fourth, what we would call post-COVID return of events and trouble. And finally, as expected, some incremental BNPP disconnection costs and some marginally inflationary impacts. However, adjusted personnel expenses have decreased by 4% versus the first half of 2021, reflecting successful control measures and delivery of synergies related to the integration of BNPP activities. Let me also assure you that we will remain absolutely committed to maintaining cost control discipline, and we have identified drivers to offset potential additional inflationary pressure. So if we move forward as a result of what I've just explained, our adjusted EBITDA in H1 '22 rose to EUR188.4 million, which represents an increase of 4% compared to the previous year and a 22% compounded annual growth rate since H1 2020. And again, on a 2-year stack basis, this performance is well ahead of our IPO guidance, which was given under the premise of normal market conditions. Furthermore, our adjusted EBITDA margin remained stable at around 73%. Moving on to investments. Our underlying capital expenditure rose to EUR 15.2 million for the first half of 2022, mainly due to IT development projects to support the future growth of the group. This growth was mainly driven by the integration work performed following the BNPP acquisition as well as continued development of our digital offering and our blockchain capabilities. Still, our maintenance CapEx represents roughly 5.9% of total revenues, which is generally in line with previous years. So moving on to cash flow generation. The pro forma normalized free cash flow amounts to EUR 120.8 million for the first half of the year, demonstrating that Allfunds is a high cash-generating business with almost 87% pre-cash tax conversion. This is a real differentiator for our business model, especially in the current environment. We are highly cash generative and we can fund our innovation investments organically. Furthermore, recent and future hikes in interest rates will affect our net interest income and expense positive. Why? Given the high amount of liquidity we have on our balance sheet. So at current levels, second half of the year, net interest expense will be reduced significantly. And for reference, an additional 25 bps increase across euro, dollar and sterling rates, would have an annual positive effect of another EUR 5 million. So in line with our guidance, if we move to bridge -- the bridge to reported figures, you'll notice that H1 exceptional items affecting adjusted EBITDA have been reduced by EUR 37 million, which represents almost 50% versus previous year. Remember that separately disclosed items are mainly the transitional service agreements, costs from the transaction with BNP, consultancy costs and legal fees linked to M&A as well as some accounting impact, which is noncash of the long-term share incentive plan for employees. So if we move -- thank you, Silvia. I think as a final remark for this section, what we wanted to give you is our view on the potential outlook for the remaining of 2022. You've heard this in the past, we operate in an industry with short-term factors that are beyond our control. But we believe that these do not impact the long-term prospects of Allfunds and of course, not the attractiveness of our franchise. Naturally, our near-term P&L will be impacted by the performance of equity and fixed income capital markets. So we thought to give you some visibility of what that means, we have included 3 theoretical P&L scenarios depending on the underlying market performance assumptions for the second half of this year. We've built, what we call, the continued bear market scenario, a flat market scenario and the bull or recovery market scenario. Our central scenario, the flat market scenario assumes flat markets for the remainder of the year, no flows from existing clients and roughly EUR 40 billion from new client migrations to be gathered during the second half of the year. What this means is that under this scenario, total AUA would reach EUR 1.3 trillion by year-end and low single-digit revenue growth would be delivered for the full year 2022. On the left-hand side, our bear market scenario assumes market performance will contribute with an additional 10% decline in AUA from June to December. And under this scenario, we have also assumed negative flows from existing clients in line with H1 2022, which were -- which are going to be or would be offset with EUR 40 billion from new client migration. Under this scenario, our total AUA would reach EUR 1.2 trillion by the year-end and revenue for the full year 2022 would be flat versus the previous year. And finally, if we look at the right-hand side, our bull/recovery market scenario assumes that markets will turn positive and contribute with a 10% increase in AUA from June to December. Under this scenario, we have assumed gradual return to positive flows from existing clients, so EUR 10 billion to EUR 20 billion, plus the EUR 40 billion migrations from new clients. So under this scenario, our total AUA would reach EUR1.4 trillion by year-end and mid-single-digit revenue growth would be delivered for the full year 2022. In each case, we expect adjusted EBITDA margin to sit above 17%. Of course, this will be partially impacted by our recent M&A activity, which is temporarily margin dilutive. And finally, we do not expect that our subscription revenues or new client migrations will be materially different between these 3 scenarios. So in summary, you could say that for the current financial year or this current financial year is at this point relatively protected from changes in the near-term market environment. Thank you very much for your attention, and let me hand it back to Juan for final remarks.

Thank you, Alvaro. I think that we are going to go directly to Q&A. So we have 20 minutes. So again, I mean, just thank you very much for your interest in this company. And please, let's go ahead now with Q&A.

Thank you, Juan. Thank you, Alvaro. Let's move on to questions. Operator, can you please proceed with the first one, including name and company of the caller?

[Operator Instructions] Our first question comes from Tom Mills of Jefferies.

Congratulations on a strong result and the mainstream deal and thanks for the new disclosures and scenario analysis. Perhaps just stepping away from the super short term for a second. Could you please give us an update on where you see the structural shift towards open architecture? Clearly, the EUR 130 billion, 24-month pipeline gives us an idea. But should we expect further acceleration in the coming years post the current market drawdown? And then secondly, with the mainstream deal coming on stream later this year, together with the 2 other deals you've done year-to-date, how complete do you see your product service offering on Connect now? Are there any other obvious gaps you need to fill in order to ramp up the number of paying clients?

Thank you, Thomas. Very good questions, really. Okay. So the first -- regarding the first question, I think this open architecture is an absolutely unstoppable trend thanks to, in some way, regulation, which after MiFID II is, well, backing the access in some way, forcing distributors and financial institutions to offer best of breed. So we have a clear tailwind regulation. Another clear tailwind is outsourcing. So there is a clear outsourcing trend from distributors, small distributors, midsized distributors and big distributors regarding outsourcing, there's part of the services that they could do internally or in-house. But if you have a company like Allfunds that is able to give you a one-stop solution. And in the case of distributors, without any cost. I mean, it's kind of a no-brainer that in this context of cost cutting, the outsourcing train is really unbeatable. And as you said, not so much in a short-term view, but in a long-term view, we definitely believe that markets will recover as it has always happened. And whenever that happens, the appetite for equity products, the appetite for more sophisticated fixed income product, the appetite for illiquid products will definitely rise. And that's the perfect context for open architecture, which, in the end, is offering best of breed to investors. So well I think we are in the right sector, and it's a clear long-term winner. And regarding Connect and if we have already a comprehensive value proposition, I think -- I don't know, really, I think that from 0 to 10, if I have to rank where we are today, probably we are at 8%. So with the latest acquisitions plus all the organic and internal in-house developments, I think we have 80% of done, okay? But we are still looking for some additional add-on or bolt-on acquisitions that could take us to 100%, which means having the very best value proposition for our clients. But again, very close, very close to that about 100% value proposition for our clients, and again, distributors and fund houses, yes.

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

You say that you -- that's about 1/3 of your new clients come from other competitors. Could you talk a little bit about exactly -- about what sort in general of competitors? I mean is this the other businesses roughly like yourself? So the IFS and the [indiscernible] of this world or is this the sort of smaller players or the custodians? And alongside that, have you ever lost clients to any of your competitors?

Okay. Well, I'm talking about, as I said, global competitors, and I don't include custodians. Those are potential clients. So global competitors and local competitors. And yes, we all know who is in that list of global competitors and local competitors. And regarding to your question of have we ever lost a client, yes, of course, we lose clients but we lose clients because -- the client is acquired by another bank and that bank doesn't use Allfunds, for instance. So in that case, we lose a client, yes, exactly because that client, that bank was using Allfunds and suddenly, as it has been acquired by another bank that is using, I don't know, probably they are not even using a competitor, probably they are using -- they're accessing open architecture directly. They stop dealing with Allfunds. So that has happened. What has never happened at least in the last 5, 6 years, 7 years, is that we have lost a client because the client has decided to change our platform, okay? So we were not delivering the service that they were expecting, and they decide to change. That has never happened.

Our next question comes from Bruce Hamilton of Morgan Stanley.

I apologize. I've been on the access presentation. So if this has been covered in the slides, my apologies. But firstly, on the revenue margins, obviously, 3.5% was pretty good. I think in the first quarter, you indicated that reasonably elevated levels of transaction as people sold funds had helped. I was just thinking whether you -- as we look forward, do you think that's kind of a sustainable level or any sort of messages around margin dynamics Q2 and Q1 and as we enter Q3. And then secondly, on the sort of recovery path based on previous crisis, it sounded like in the bull market recovery set up, you were talking EUR 10 billion to EUR 20 billion of inflows, which didn't sound that material. Is that based on what you've seen historically in recovery cycles? Or would it be that there's a bit more of a delay? I mean what's the sort of delay before you see the substantial pickup based on past crises, basically?

Hi Bruce, look, on margin stability, I mentioned it briefly during the presentation, but thanks for asking because it's worth reiterating the message, I believe. We're seeing margin stability across the board. What this means is, look, we guided during the IPO to a 3.3 basis points in the mid long term. And of course, we are currently at 3.5%, which, as you correctly said, is at the high end of what we guided towards in Q1. Q1 was indeed a very strong month in terms of transaction income. It has cooled off a little bit in Q2. But still, if you think about how much transaction income represents over the platform revenue, H1, I think we're talking about roughly 22% versus 20% on average historically, excluding H1 '21. So to your question, is this a reasonable or is it reasonable to believe that this should be a normalized level? I think it is. I think, look, we -- transaction incomes are more volatile per definition. But I think this 20 to 22 is a reasonable number, which, as we've seen in the past, can increase very quickly if we start seeing higher volatility in the market. And with regards to the bull market, when we look at past performance, and I think Silvia, we will be uploading a spreadsheet shortly with historical performance around market and…

Quarterly flows.

Exactly with quarterly flows, you'll be able to see it by yourself. Yes, of course, we've seen periods where in bull market scenarios, flows are significantly stronger than the ones we've quoted today. But then on the other hand, we wanted to be, I would say, relatively cautious in how much we put under this scenario, given this market recovery might not necessarily happen tomorrow, right? It might take a bit of time. And as you know, flows typically start reacting after the market impact. So we wanted to be sure that, look, the recovery phase can happen in different ways or in different phases, right? But I think this bull-market scenario is a very reasonable scenario that we feel comfortable with.

Take our next question from Alex Medhurst of Barclays.

Congratulations on a good set of results. I just had a couple on the cost side of things. Firstly, I wondered if you could flesh out a bit the cost control measures taken on the personnel side of things during the first half. And also if you could quantify any of those BNP synergies that you also discussed on the call, it would also be useful just to get a little flavor of how you expect costs to develop in some of those scenarios. The follow-up, I guess, is that it's interesting that the operating margin target for the saving all of those bear market, flat, bull market scenarios. So it would be useful if you could just give a quick comment on the levers you have on the cost base in those scenarios and how actively you will manage the cost base depending on what market conditions are.

Sure, Alex. Look, on cost control, I mean we're not reinventing the wheel here. We've always been very mindful of our cost base, and we've run, I would say, a very tight chip as you can see, given our high EBITDA margins. But of course, there's things that we can do, right? And what we basically do is we look very carefully at any incremental cost. We periodically review third-party contracts. We analyze our outsourcing policy. We -- in the context of the recent M&A, we carefully identify whether we need to replace people that, for whatever reason, have left the company or that we should be hiring because we are finding somewhere in the acquired entity that can perfectly fit that position, right? And there are more things that, again, I could spend hours here talking about expenses and how we look at this with our IT folks and rest of the team. But I think what's important to bear in mind that is what I mentioned in my last slide, right? So even with the recent M&A, which is slightly margin dilutive for the time being, we still believe that we can run the ship at above a 70% EBITDA margin. Of course, the EBITDA margin won't be exactly the same under bull case, flat case or bear case, -- but I don't think we -- I mean, we did not want to entertain in starting to provide different ranges for each scenario. As we said during the IPO, this is all about scale. This business continues growing every year, continues scaling. And yes, we guided towards, I think, mid-70s EBITDA margin in the medium term. We are currently at this 73%. This doesn't mean that we're going to get there in a straight line, so we might have ups and downs. But again, back to the message, we think there's still room for scaling. And regarding your question around quantification of the BNP synergies, we don't like to do that because to us, BNP is already integrated in the business. And what we're finding is that, look, the people that joined the company are not doing -- not just doing things that they used to do for BNP, but they're doing also stuff for, let me call it Allfunds legacy, right? So what we're really doing is we're shaping the structure of the team to make it very efficient, very, of course, profitable. And I don't know, Juan, if there's anything you want to add to that.

Well, not many more things really, Alvaro. Yes, we really want to become a truly digital company. And we are not yet there, okay? Because it's not just about offering digital services to distributors and to fund houses. It's also been a digital company in house, internally. And we still have many manual -- so we're still doing many things on an annual basis because, again, we keep on growing extraordinarily fast, many places, different type of clients. So it's difficult to digitize everything. But I like to see it as an opportunity to be more efficient and to reduce costs, not really in the short term and not because of the crisis, but in the long term, I think this company has a lot of potential to even be more efficient if we are able, again, to be a more digital company in-house. And that's the goal. And that's why I'm always so positive with the EBITDA margin, not just on the revenue side that you have seen, we keep on growing our revenues, but also on the cost side.

[Operator Instructions]. We'll take our next question from Greg Simpson of BNP Paribas.

First one would be a broader question. You mentioned that sweet spot for new clients [indiscernible] maybe up to EUR 5 billion of AUA is open architecture. Is there any way to quantify think about what the investable market is in terms of number of clients that are out there that aren't on the platform. I know you show this 13% European fund market share, but that's the total market and including -- that includes larger distributors and capital models. So just kind of thinking about that. And then the second question would be around the existing client flows, which have been negative in H1. Is it -- is there any kind of pattern around client types or regions where they're coming from? Or is it quite broad based in terms of those outflows and just the -- any sort of outlook so far in Q3 on that front.

Okay. Thank you very much. So regarding the last part of the question. So if we have seen any trend from, I guess the organic growth, negative organic growth. So we have seen in H1 clients, distributors redeeming, not investing, but redeeming. I just -- we have seen a trend well a trend. We have seen -- we don't know if it is yet a trend or not. But we have seen some asset managers, so asset management arms of banks, redeeming more than other type of clients that we have, like insurance companies or private banks, making direct distribution. So I believe it's a matter of rebalancing their portfolios, risking their portfolios, probably moving part of the portfolios to cash, and therefore, you're redeeming more than some of the other clients that we have. But I think that's the beauty of Allfunds is that we do not just work with insurance companies or with custodians or with asset manager -- asset management companies for their final financial multi-manager programs, but we have all type of clients. But yes, we have seen this trend, especially in Spain and also in Italy. And regarding the first question was, excuse me, was…

I think, Greg, you wanted to know whether we could quantify.

It's difficult because…

Yes. How you think of [indiscernible].

Yes, it looks like, and I say it looks like because that data doesn't come from Allfunds as you can imagine, but all the sources that we analyze, they tell us that we have around that 13% of the FIT business, 13%. So in my opinion, there is still a lot of room for growth, especially in regions and in countries in where our market service is not so high. Like I don't know France, Germany. So I'm not really concerned with the fact that I don't know, we are running out of potential clients, really no way -- now even in Spain that we have an unbelievable market sir, well, this year has been fantastic. We have closed some of the few clients that we were missing. So even -- again, even in countries like Spain, where it's difficult for us to grow, we have grown. So I don't see any issue there really. Number of clients are massive of potential clients, massive all around the world because, again, bear in mind that there are other companies that just operate in one country and probably they might get, I don't know, an issue if they have a huge market. But the beauty of Allfunds is that our business model works all around the world, okay? So that gives us a huge potential of keep on gaining market share and growing our asset base.

We have no further questions in the lineup. So I'll hand back over to the management team.

Thank you. We have a few questions, written that has been sent through. So first question from Antonin Baudry from HSBC. Good morning and thank you for provided scenario. These scenarios include the positive impact of acquisitions already closed. What do you expect for platform margin in H2?

Let me take that one. So Hi Anthony. The scenarios that we portrayed today include the impact of instiHub and Web FG, obviously, just for 6, 7 months. But we have not included any impact from mainstream partners. And with regards to your second question around margin, we are -- on purpose, we did not want to provide a specific guidance on revenue margin. But I'm sure if you look at the target revenue or revenue growth that we sort of guided towards, you can back solve what we have in mind. Bottom line, we don't see any strong margin pressure impacting the business in the short term.

Another follow-up question from Antonin on M&A strategy. 3 acquisitions completed in Connect year-to-date, any M&A deals in pipeline to strengthen core business update on expansion strategy in the U.S. notably?

Look, I think I have already mentioned that, of course, we are always looking for -- not so much for opportunities, but we're always looking for teams, people -- we like to enhance our team with the best people available in the market. And therefore, yes, of course, we are always looking and trying to find those leaders. The strategy, as you have seen, is to acquire companies, but especially also to acquire the CEOs funders of these companies that can bring all their expertise, all their leadership to Allfunds and reinforce, not just a specific type of service that they will provide, like data and analytics in the case of instiHub or digital services, in the case of Web Financial Group or now, ESG solutions with Main Street. It's not just that. It's that they also help to make all funds top management much more stronger and better. So yes, always hoping to reinforce Allfunds. But it is true, as I said before, that there are not so many -- how can we say, I mean, specific services that we need to keep on improving. We are almost done, but we will always look for opportunities. And the U.S. is a different topic. U.S. I already said last year that, of course, we have interest in that market. It is difficult to say that you are global without having a significant business in the U.S. And therefore, we will always, always analyze the U.S. and see if we can bring value to that market.

One last question maybe from Jack [ Benevis ]. Congrats on such good results. Can you talk a bit about the competition versus IFS, which seem to be winning some large mandates? Also, what's your leverage today? And can you remind what is your target capital structure? Would you consider buybacks?

Okay. I will cover the first one. I don't have a competition. Well, we have a clear strategy that has been the same for the last 22 years, by free model, one-stop solution. And that's the only important thing. So we don't look at competitors really. And for the moment, we are not losing any client, as I have said, and we keep on winning clients from them. So I don't know, really, really nothing to comment. Being the leader gives you that -- I think that advantage, same management for the last 22 years, I don't know. I think that we know what we have to do and others probably need to look at us and trying to replicate what we do. That is not the case of Allfunds. So no more comments about that. And probably the second part…

I think here, we have some slight somewhere in the appendix. But again -- so on leverage, we are -- thank you there. So net financial debt as of the end of June stood at EUR 80.5 million. The way we calculate net financial debt is we take the gross debt, which basically is sitting at plc level and is coming entirely from the RCF drawdown that we've done so far, which, as you remember, was done in connection with mainly the recent acquisitions, but also some -- to fund some of the IPO costs at the time. And what we do is we deduct from that amount, what we call the notional or the excess capital, which is the amount of capital or cash that we have above the 17.8% regulatory minimum. So as you can see, I mean, very, very, very low leverage. I also mentioned during the presentation that we are a very high cash generative business and that, well, given the high cash conversion and high cash generation, we can fund operations but also our investments and innovation and to some extent, also M&A with our own sources. And finally, the share buyback question. I have to admit that's something that we've considered. Again, given the liquidity of the stock, we don't want to do anything that would restrict that liquidity at the time being, of course. But then at the same time, I think we've mentioned this also in the past, we think that the current price or the share price of Allfunds is not a reflective of its true valuation. We think it's undervalued. And we think it's a good moment to actually buy. So if we go ahead and do that, we would probably do it under the context of funding our long-term incentive plan for employees, for example, right?

Well, thank you very much. With that, we have no more time for questions. Questions that have remained unanswered will be taken by the IR team. Sorry for that. It has been a pleasure to host you on this interim results presentation. And let me wish you well this summer break and see you next quarter with our trading update. Goodbye.

Goodbye. Thank you very much.