Allfunds Group plc (ALLFG) Earnings Call Transcript & Summary

Good morning to everyone, and welcome to Allfunds Preliminary Financial Results Presentation for the full year 2022. Thank you for joining us today. For today's presentation, let me begin by remind you the logistics. We would like to spend the first 30 minutes on the presentation 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 excel information can be found right after the event 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. Joining us on today's presentation are Juan Alcaraz, Allfunds Chief Executive Officer; and Alvaro Perera, the company's CFO. Juan and Alvaro will provide a company update as well as an overview of the company's preliminary 2022 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 into the queue if you have additional questions. For any questions that may remain unanswered, the IR team will be at your disposal after the event. With that, let me hand it over to our CEO, Mr. Alcaraz.

Thank you very much, Silvia. [indiscernible] speak to everyone today, and we are excited to report our preliminary 2022 results. As you might have seen in the statement, we have published early this morning. Today, we also announced the closing of MainStreet Partners, a unique platform delivering proprietary ESC ratings, ESC scores and ESC investment strategies via model portfolios and empower reporting. I'm very excited about this third acquisition and the opportunities and added value they will bring to our clients and marketplace. We have included a brief slide on MainStreet Partners in the appendix and our CFO, Alvaro will also comment on. But let me first take you through the key highlights of 2022. In the key messages, 3 key messages that I would like to highlight on this 2022. The first one is the resilience of our business in one of the most worst years of the last decade. The strong business momentum we are living despite the volatility and the good progress on the execution of our strategy. In 2022, we have achieved strong financial results in a very challenging environment. Through the highest combined downturn of fixed income and equities, our assets under administration are down at 13% year-on-year versus a decline of 15% for the European fund industry in the same period. However, we have seen an improved market environment in the second half of 2022 and in the first 2 months of 2023, that points hopefully to an inflection point. Our platform revenue margin stands at 3.4 basis points in the middle of our 2022 guidance. Our subscription-based revenues are up almost 100% year-on-year, thanks to the M&A activity, but also thanks to a strong organic growth. Our total revenues have remained stable despite the adverse market turmoil. Our EBITDA margin has remained very strong at 71%, demonstrating leverage of the business despite continued investment in growth. We continue to outperform the market as a result of our diversification and the secular growth levers, as I will show you later on. Secondly, we have experienced strong new business activity and momentum. We tend to experience this flight-to-quality effect in periods of high volatility, and this time was not an exception. We continue to capture market share in the fund industry, thanks to our compelling value proposition. Our flywheel affect remains very strong. We have a strong and diversified pipeline activity with high-quality clients in both platform and subscription-based segments. In addition, and thanks to our capacity to adapt to the higher interest rate environment, we will be developing a new revenue line in 2023, the net treasury income that Alvaro will explain in a minute, okay? Finally, our strategy is progressing well. We have made significant progress in value-added M&A, in addition to the 2 deals already closed and integrated, we disclosed our third acquisition a couple of weeks ago, a majority stake in MainStreet, specialist on ESC analytics and advisory. All of these acquisitions are bringing high-quality, recurring and growth accretive subscription revenues. Our digital services are getting traction, thanks to the new areas developed, Allfunds tech solutions and Allfunds data and analytics, our subscription-based revenues already represent 10% of our total revenues on a pro forma basis. That is why I'm really excited to announce our new target of subscription-based revenues to represent 30% of total revenues in the midterm. The opportunity around digital services continue to grow and Allfunds is uniquely positioned to benefit from the potential growth of this market. There is a lot more we can achieve with our customer base, and we will continue enhancing and improving our value proposition, both organically and through M&A. We also keep on investing in organic long-term and new growth initiatives, such as the new alternative platform that we will launch this year, becoming one of our main and strategic projects of 2023. Moving to our financial highlights. Well, some key figures that support what I have just described in a challenging market environment, Allfunds has shown financial resilience, growth and momentum. Starting with our volumes. 2022 has been a difficult year for our assets under administration that have ended at around 1.3 trillion, as usual, migrations that have amounted to 55 billion in total, in line with the guidance we have been providing throughout the year have been instrumental to offset some of the outflows from existing clients that we have experienced. But we have seen an improved performance in the second half of the year with assets remaining flattish since June. And the performance suggest a stabilization in the downward trend, which can be a prelude to a recovery. Before jumping into more detail of the business review, I will start by providing a bit of context. Last year, we have seen perhaps the worst combined -- the worst combined, yes, underperformance, okay? Return on both the stocks and bonds. So let me -- yes, excuse me. Okay. Now we are back. Okay. So last year, we have seen perhaps the worst combined total return for both stocks and bonds. Market indexes have strongly suffered last year. But if we look at the market performance of our platform, service assets under management versus the year-to-date market indexes, you will see that equities have had the worst performance of any asset class as both the stocks and bonds fell, the traditional portfolio of 60% equities and 40% bonds dropped 18% last year. The worst return for this type of portfolio since 2008. While Allfunds assets were resilient with only 13% growth. In this challenging context, however, our assets growth continues to outperform markets. How do we achieve this outperformance? Well, something that you probably have heard from me in the last 2 years, this is a result of diversification we have achieved in the company throughout our 23-year history, diversification not only by region, but by asset class, by client type, per together with secular growth levers such as outsourcing, open architectural penetration, share gains from other platforms or legacy structures and the demographic wealth or savings growth. We managed to consistently beat most of the market indices. Shifting our attention to the strong activity and the business momentum, despite the conditions in the market, our market share has been growing uninterruptedly for the last 10 years, both in the European fund industry and as well as on the European cross-border UCITS business or what we call now the open architecture space. We have reached a 12.6% market shares of December of 2022 when taking into consideration only the European fund industry. There is significant upside remaining underpinned by the open architecture penetration, outsourcing trend and potential to win share from competition. The key to our success resides in our unique selling points. The 3 unique selling points that you have been also hearing from me in the last 2 years. First, the global scale with local offering and service; second, the one-stop, the truly one-stop-shop solution leading on innovation and digital offering and the unique buy-free model for distributors. Moving on to probably one of the most relevant issues for the market at the moment. How are we viewing the business in terms of flows in 2023 in these last 2 months. For almost a year, it is the first time in which we have seen the 3 engines of assets under administration growth in positive. Since January, we have not seen outflows from clients. We continue with our migrations, and we have a positive market backdrop of around 4%. All of this has translated into a 5% growth of our organic assets year-to-date. We believe this is important. As in previous cycles, we have always gone through a period of stabilization before recovering back that flows into the platform. Depending on how markets might evolve going forward, this might be a prelude to a recovery. We would like to remind you that this recovery usually takes place with some lack. As the majority of the end investors are retail investors who tend to react with a 3-month delay. Back to 2022 performance, our flywheel affect remains really strong in this period of extreme volatility. As you can see in this slide, we have onboarded 71 new distributors and 132 new fund houses in the year. It is worth highlighting not only our healthy new client migrations of EUR 55 billion but our very high retention rates. We benefit from long-standing, deeply embedded client relationships with distributors and with fund houses. These excellent metrics highlight the strength of our value proposition. Moving to more detailed information about our clients. I would like to just focus on 3 messages. We keep on diversifying our client base by region, by origin and by client type. Second, around 34% of the on-boarded clients have been captured from other platforms or legacy providers. And third, we continue onboarding fund houses from new markets. So, strong activity and strong momentum. Our pipeline is growing in both our traditional business and in the subscription-based revenues. On the new distributor activity, pipeline has experienced an increase of around 15% since last summer, which shows again that in turbulent times, clients want to accelerate the outsourcing and look at the leading entity in this space. We are seeing this acceleration of subscription-based revenues pipeline through acquisitions and notably thanks to the new -- our new subsidiary, Allfunds Tech Solutions. As you can see on the right-hand side of the slide, we are already experiencing early signs of revenue synergies that prove the strategic rationale of these acquisitions. Our pipeline has experienced a 76% increase, thanks to the cross-selling opportunities that these acquisitions bring. There are very good figures. And I think they clearly saw the high potential growth that we can capture going forward. And as a result of this, what you can see in this slide is that we -- our improved digital ecosystem has further opportunities ahead. Thanks to our strategy focused on both organic and inorganic growth. Our newly rebranded areas, Allfunds Tech Solutions and Allfunds Data and Analytics, are already accelerating our ambition to keep living in the WealthTech space by providing cutting edge and comprehensive solution for our clients. There are also new features added to Connect like our new ManCo services with private labeling mandates and fund hosting services. For 2023, there is more to come in our one-stop-shop, the closing of MainStreet majority stake acquisition is key for us as it covers an increasing gap of specialized ESG-related services such as ESG advisory or scoring and reporting for our clients. This is a high-growth company that we bring value to all our client base. We have been already working for months on our new proprietary Allfunds Alternative platform through which we will offer new funds and distribution services in the private markets. We will be able to provide you with more details in the coming months. We continue to see a large and growing opportunity in the digital service ecosystem, and we are well positioned to capture market share. In this slide, what we can see is that all the 3 companies that we have acquired are successful businesses, specialists in their field with CEO founders with a skin in the game. This M&A has helped us already to improve our business mix and diversify our revenues. Thanks to these acquisitions and to the organic growth of our subscription-based revenues. As I said before, we have already achieved in less than 2 years the target of 10% of subscription-based revenues over total revenues of Allfunds. If we were to include MainStreet, this target would be already overachieved as it would represent 11%, okay, on a pro forma basis. And how this achievement has been possible? Well, with increased level of penetration in our customer base, both in fund houses and distributors with a fast integration of the newly acquired companies, which has favorable to-market strategy deployed and value-added products already set, targeting also clients outside the platform and achieving real revenue synergies. And finally, with a favorable pricing policy for all our clients. But our opportunity is massive and relies on an evolving accessible universe of more than 2,000 clients between the more than 860 distributors that we have and the more than 1,300 fund houses on our platform. This universe is a large and growing proprietary or target addressable market or TAM that grows on average at around 10% rate on an annual basis. Our goal is to be able to cross-sell and upsell this universe, cross-selling by further penetrating the client base. We believe our current penetration levels are still low and we have a lot of potential to improve based on our long-standing relationship with both sets of clients, fund houses and distributors, upselling by increasing the average fee paid in exchange for these digital services through enhanced tools, services and solutions. This upselling will be done either organically or through M&A. That is why I'm really excited to finalize this business update with the significant progress we have achieved and with our target -- and new target for the future. As I said at the beginning of my presentation, we want subscription revenues to represent almost 1/3 of our total revenues in the midterm. Since day 1, this has been the ambition of my team and the vision for this company, our Allfunds 3.0, to remain as a leading B2B WealthTech transforming the digital ecosystem. Let me now turn the call over to Alvaro, who will take you through our financial results, and then I will be back for some closing remarks before taking your questions. Thank you very much.

Thank you, Juan, and good morning, everyone. I will now run you through the key financial figures and explain the main underlying drivers of this solid performance. So as you can see on this slide, we have delivered solid financial results, showing great resilience in a very challenging environment. In fiscal year '22, the company delivered stable revenues, high profitability and strong cash flow generation while reinvesting in future growth of the company. We will have a chance to look at these metrics in detail in a couple of minutes. But before that, let's pause on Slide 19 to take a quick look at the unedited income statement for the full year 2022. Thank you. So compared to fiscal year '21, net revenues are only down by 2% to EUR 495 million, thanks to the contribution of our net subscription revenues, which almost doubled versus the previous year. Our adjusted EBITDA margin remained very strong at 71% as we managed to offset new costs from recent acquisitions, inflationary pressures and business as usual, incremental expenses with good cost management and adjustment to variable compensation. Adjusted profit after tax is up 16% to EUR 225 million, increasing our adjusted EPS from EUR 0.308 to EUR 0.357 per share. Let's now deep dive into the details behind this resilient performance. So turning our attention to revenues, you'll see that the company has been able to largely offset the decline in platform revenues with our subscription revenues. Compounded annual growth rates since 2020 is around 16%, which is in line with our IPO guidance that, by the way, assumed a normalized market environment. So for the full year 2022, the net platform revenues declined by 6% on a year-on-year basis, driven by a more normalized volume of transaction revenue which are down 14% versus the previous year and to a lesser extent and by lower commission revenue, which was impacted by lower average AuA and slightly tighter platform margin. On the other hand, the company showed continued uptake of our subscription revenues, which almost doubled to EUR 40 million and increased the relative weight from 6% to 8% since last year, representing already a 10% on a pro forma basis. So even without the contribution from the acquisitions of WebFG and instiHub, which are now fully integrated into Allfunds Tech Solutions, this revenue line has increased by more than 30% on an inorganic basis. And for the avoidance of doubt, please note that these figures do exclude any future positive impact from our recent M&A announcement MainStreet Partners, which, as we've heard from plan, would increase the relative weight to around 11%. I think it goes 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 let's shift our attention to margins. Look, I would like to highlight that our business has demonstrated margin resilience and that our overall net Platform revenue margin is in line with the guidance that we provided, 3.4 basis points. The Platform Service margin decreased by 0.4 basis from 5.1% in 2021 to 4.7 bps. And as like in previous slides, the full year '21 margin was impacted by exceptional transaction revenue performance during the first half of the year, which of course, explains the slight decline in platform service margin. Furthermore, as you've heard from Juan, 2022, so the worst market backdrop in history, both combined total return for stocks and bonds. So as a result, we have seen a change in the asset mix, which, combined with the shift in demand for less riskier assets have temporarily affected our platform margin while the market recovers. And perhaps finally, you'll also note that on Dealing & Execution margin, we've seen an improvement margin-wise. This is a result of a better monetization and the migration of a higher-margin client. So looking now at our expenses, you'll see that we continue with our discipline on cost while also keeping investing in the future growth and revenue diversification of our company through M&A. Adjusted expenses increased by 2.2%, i.e. EUR 3 million versus 2021, with organic adjusted expenses actually down EUR 8.5 million, offset by EUR 11.6 million, combining -- coming, sorry, from the integration by the year-end of the acquisitions that we carried out in the beginning of the year. Personnel expenses decreased by EUR 9.3 million, so roughly a 10.5% decline despite M&A, thanks to our flexible variable compensation structure. FTE-wise, we've increased the number from 907 to 1,031, which is, as you can imagine, mainly driven by the M&A. But for clarity, this number does not include the employees from MainStreet as we closed this literally a few weeks ago. So this increase in organic adjusted SG&A expenses that you're seeing on the screen is a result of: first inflationary impact: secondly, the continuous improvement in our technological backbone of the platform: third, the incremental activity and, of course, back to traveling: and fourth, the impact of being listed for the full period, right, 12 months. Let me assure you that we remain absolutely committed to maintaining cost control discipline and return to margin expansion as the market conditions normalize. I will provide further guidance on the cost structure for the 2023 outlook, but let's first look at the adjusted EBITDA numbers. So as a result of all the above, our adjusted EBITDA in 2022 was EUR 350 million with a strong EBITDA margin of 71%, in line with our guidance and despite the challenging environment and the effect of the M&A. Adjusted EBITDA was 5% below [ at rate ] 2021, and it represents a 15% compounded annual growth rate since 2020. Moving on to investments. Our underlying capital expenditure rose to EUR 39.6 million for 2022 due to our ongoing IT development projects to support the future growth of the group. Maintenance CapEx remains at 4% of net revenues with the year-on-year increase mainly coming from integration work that we performed following the BNP transaction as well as some continued development of our digital offering and, of course, our blockchain capabilities. Moving on to cash flow generation. The pro forma normalized free cash flow amounts to EUR 218 million for 2022, which demonstrates that Allfunds is a high cash generating business, with 85% pretax cash conversion or 62% post-tax conversion. This is a real differentiator of our business model, especially in the current environment as we are a high cash-generative business, and we can fund our innovation investments organically. So I think before -- Yes, thank you, Silvia. Before we move into guidance, let's have a very quick look at our latest acquisition, MainStreet, which as you remember, is a trusted ESG partner of top-tier financial institutions in Europe. MainStreet has a recurring revenue model with around EUR 6 million to EUR 7 million revenue which has been growing at an average of 50% since 2019. It has reached breakeven in 2022 and is expected to add around 2% EPS accretion in year 2. This acquisition of a 65% stake has been funded with our revolving credit facility and envisage a path to full control by Allfunds in the next 3 to 5 years. So now moving into 2023 and before getting into guidance, I think it's worth to highlight a few key financial developments you should expect for next year. First, we are increasing our focus on maximizing current rate environment and our high operational liquidity, creating a new revenue line, net treasury income, that will be included as platform revenue. Secondly, our current estimate is that we will generate at least EUR 25 million of net treasury income for 2023. It's important to be remind that this countercyclical revenue line should help us compensate market volatility due to the current high rate environment. Secondly, Allfunds today is a more diversified company than it was in past years, as you've heard from Juan. We have increased our subscription revenues from 4% of total revenues at the time of the IPO to more than 10%, thanks to our organic and inorganic growth. Our expectation is for that diversification to keep increasing to at least 12% for 2023 as our subscription revenue business outgrows the rest of the business. Those acquisitions will have a short-term impact on our margin, but we remain committed to improving that as we consolidate them in our platform and get scale. On the cost side, we are confident that the scalability of the platform will generate positive euros as we return to growth, but there are some incremental costs for 2023 that require a rebasement. So first, we need to include the effect of M&A, both for the full year effect of WebFG and instiHub and the integration of mainstream. So for 2023, we expect this impact to be around EUR 20 million. Secondly, variable compensation should return to a normalized level in 2023 after the adjustment of a very challenging 2022, as you've heard. And finally, 2023 will be the first year without the transition service agreement with BNP, which will be a significant improvement below the line, but generates around EUR 6 million to EUR 8 million of incremental cost when we transfer the operations to our system as we explained at the time of IPO. However, remember that this will lead at the same time to lower adjustment below the line and higher cash and capital generation. Again, management remains committed to cost discipline and minimize incremental cost, but you should also expect some marginal cost increase mainly from inflationary pressure for 2023. So in summary, 2023 is a year of rebasement, but the fundamentals of our financial profile do not change and remain very strong. A more diversified, leading scalable platform that generates margin expansion as the multiple structural growth drivers of the business normalize. Let's now move into outlook. So how does all this translate into our outlook for 2023? So naturally, our near-term P&L is impacted by the performance of equity and fixed income capital markets, which have been experiencing high volatility over the last 12 to 18 months. Note that the market has already contributed with mid-single-digit growth of AuA year-to-date and that this outlook you're looking at is based on the assumption of flat markets for the remainder of the year. We do expect a gradual recovery to normalized flows from existing clients with inflows in the second half of the year and around EUR 40 billion to EUR 60 billion from new client migrations, all in Platform Service. Under this scenario, our AuA reaches close to EUR 1.45 trillion by year-end. We also expect high single-digit to low double-digit revenue growth, including our net treasury income, of which more than 12% should now come from a more recurring subscription revenue. And finally, we expect adjusted EBITDA margin to be in the mid-60s, temporarily impacted by our recent M&A activity, but trending towards 70%. So I would like also to leave you before I hand it over back to Juan with Slide 29. We wanted to close up with something we have already shared with you in the past. When looking at past periods of market turmoil, we wanted to remind you how our business model is naturally well positioned to capitalize on market recovery. So remember, we looked at different crisis in the past 10 years as well as the current cycle on the right-hand side. We analyze what has been the peak and the trough of each crisis. Based on those states, we have compared the performance of our AuA, excluding, of course, the impact of any acquired M&A. And during that period, on average, global spans portfolio composed of 60% equity and 40% fixed income. So as you will see in each crisis, we have remained resilient in every trough, having actually a better performance. And as Juan has already explained at the beginning of this webcast, we are already seeing signs of a potential recovery if markets continue in the same trend. Thank you very much for your attention, and let me turn it over to Juan for closing remarks.

Thank you very much, Alvaro. I would like to take this opportunity to remind you that following a difficult 2022. Allfunds will focus, going forward, on those things that remain strictly under our control, as I've been saying during -- especially during last year to focus on the things that are under our control. Therefore, we will improve our value proposition through product development, either organically or through M&A. We will bring new clients into the platform by winning market share and making sure we do not lose any of our existing clients to any competitor. Cost discipline, given the potential negative outlook, diversifying our revenues to increase the subscription-based revenue shares and retaining and attracting the right talent. This company and this management team have a long-term vision, which will lead to our client success and value creation for our stakeholders. Thank you very much for your attention, and let's now open to Q&A.

Thank you, Juan. Thank you, Alvaro. Before moving into Q&A, let me remind you that in connection with recent events, as you are all already aware, we issued a statement last Wednesday to confirm that we had received an unsolicited, indicative and conditional public offer proposal from Euronext. At this point, there are no further announcement to make. The Board is mindful of its responsibilities to the company and its stakeholders, and it's currently evaluating carefully the offered proposal. Given the nature of the circumstances, we will kindly ask you to avoid any questions on the topic and further announcements will be made if and when appropriate. So let's move on to questions. Operator, can you please proceed with the first one, and includes name and company of the caller?

Our first question comes from Tom Mills from Jefferies.

Just had a few questions, please. Firstly, on the NII guide, could you just tell us what you're kind of assuming there in your guidance of at least EUR 25 million for '23? That would be very helpful, please. And then I guess one thing perhaps that wasn't touched on with the potential inducement ban with maybe some news coming in April. Could you maybe just give us an idea of how you're thinking about that? Obviously, there's no kind of firm proposal on the table at this point. Could you give us an update maybe on how much rebate AuA you have in the mix? And I guess for you guys, there's a potential negative in terms of fee margin but also a potential positive in terms of opening up your addressable market. So just any comments around those would be very helpful.

Alvaro, do you want to you cover the treasury income and about the regulation?

Yes. So the -- what we've included in our 2023 guidance with regards to net treasury income is that EUR 25 million figure. Of course, we are working to improve that number, but that's what's in the guidance page that we have just went through.

Yes. Thank you, Alvaro. And regarding the potential ban of rebates. Well, I think you explained it extraordinary well. We don't have anything clear at this point. And whenever it happens, if it happens, I think the company, we have enough time to react at least 2 to 3 years in our opinion, in order to mitigate any potential impact on our revenues. But as you know, I think the good news in any case is that rebates are becoming less and less important for Allfunds. But I think you also mentioned something really important, which is what happens if in 3, 4, 5 years, there are no rebates, then the main reason for choosing a platform like Allfunds would just be based on the value proposition of the platform and not in the fact of having the best rebates in one specific country, that is super good news for Allfunds, super good news. Because it's true that sometimes we struggle to compete in specific countries because we still don't have the best terms with the local fund houses. And that is an advantage for local platforms. If rebates disappear, well, distributors will just choose the platform with the best added value services, with the best value proposition and that, as you perfectly know, is in where we are working for, what, since almost -- since more than 10 years. Well, 20 years ago, and let's say, 5 to 7 years ago, when we started to boost our digital ecosystem, Connect.

Operator, next question, please?

Our next question comes from Alex Medhurst from Barclays.

I had a couple, please. Firstly, on revenue margins. Can you give a bit more color on the moving parts to the weaker revenue margin [indiscernible] in H2? Are you comfortable saying this was all cyclical mix factors or transactional revenues falling away? Or were there any more persistent or underlying negative market trends to -- or sorry, negative trends turning the revenue margin? A second question on that revenue margin picture. Can you give the assumptions for revenue margins that sit behind the FY '23 revenue guide? And also including and excluding the additional NII you're generating there would be useful as well. And then finally, on the subscription revenue target of getting to 30%. Could you flesh out a bit as to which areas you'll be looking for M&A? And equally, do you see a big enough wallet from existing customers to get to 30%? Or will that sort of mix of clients outside the platform that thing you talked about in the presentation, has to increase materially to get to 30%.

Do you want me to take the first two?

Okay. I'll take the other.

Alex. So on revenue margins, we haven't seen anything structural during 2023. The margin decline that we've experienced, as I explained earlier, is predominantly linked to this, I would say, lower transaction revenue, which is, as you correctly highlighted, cyclical, but also linked to this shift to a more -- to a less value-added or less riskier asset mix, right, which, as you know well, typically yields a lower margin, right? So we do think that this is -- resonates with what's happening and what has happened in the past. We've seen those outflows into money market guaranteed or lower value-add fixed income type of products. But we know that based on experience that those flows tend to go back after the market stabilizes into more investment type products that yield a higher margin. So in summary, we do think this is a purely cyclical, and we do expect the margin to remain within the guidance that we provided at the time. Again, it's very hard to give you a specific number for 2023 because as -- it will depend on how -- when those flows will go back, and of course, the transaction income. But I think you should assume the range that we've always been providing and 3.3% around that range, 3.3%, 3.4%. That's a good proxy. In terms of with or without net treasury income. I think the way to look at it is I mentioned earlier to Tom that we included around EUR 25 million more in the guidance. So if you adjust for that, you'll arrive at your -- at the platform margin excluding attest income. However, the way we look at it, and that's why we highlighted it during the presentation, this net treasury income is a way to hedge ourselves and offset this current rate environment, right, where people have moved into less riskier asset classes that are yielding, I would say, let me say, decent performance, or decent margin. And we are sort of suffering it on the pure asset-based revenue side. But the beauty about Allfunds and you've heard this from quite many times is that we also have these other levers to offset it. And this is one of those levers, right? So we're generating, I would say, a significant amount of revenue on this front. So I would look at it in combination with the rest of the platform margin. And regarding subscription revenue, I think Juan you wanted to take this one?

Yes. I think that we have done our homework with the latest acquisitions. I think we are ready to really grow significantly with our existing clients and with new clients. I'm not really expecting or missing some features and tools which means that we are forced to make more M&A. I think that M&A will come just to reinforce what we currently have and to accelerate it but not because today Allfunds value proposition has any gap. We had gaps, of course, in the past, but that's why we acquired what we have acquired, I mean to reduce those gaps. And today, again, I think we are ready for the cross-selling, which is already happening, as I speak and for the upselling and also very good news coming from non-platform clients. So we are also seeing appetite from financial institutions that do not work with Allfunds, closing deals, closing agreements with Allfunds Tech Solutions, which is great because, I mean, it increases our TAM, plus in the moment you know that, that bank starts using our digital services, the probability or the possibility of Allfunds platform core services to also be able to sell those core platform services to that client also increases. So it's a win-win for the group.

Next question, please?

Our next question comes from Andrew Coombs from Citi.

Two big picture questions. I guess, firstly, on M&A, you've obviously given the details on MainStreet. You talked about being EPS accretive from year 2. Just intrigued on what you use as your key KPIs for any M&A that you do and whether the EBITDA margin, whether it's dilutive or accretive factored into that, given the temporary step down in the EBITDA margin that you're guiding for next year? And then second question, just a big picture one on competitive dynamics. We've seen Clearstream as a parent for Fund Center now and Euroclear the parent from FEX for a little bit of time. Clearly, the rationale for those entities was more cross-selling potential with their custody and testament businesses. So wondering if you've seen any step change in market share dynamics, not necessarily in the overall space but within the open outsourced space in particular and whether that has any implications on pricing?

Thank you very much. Alvaro, you can cover the first part, that's the competition side.

Sure, Andrew. So M&A-wise, we look at -- I mean, you would imagine, right? We look at EPS accretion, we look at diversification of revenue sources. We look at stability of those revenues. And of course, we look at ensuring that it fits within our ecosystem and that there is a cross-sell opportunity apart from, of course, cultural fit so on and so forth. Of course, we don't focus too much or don't put too much attention to the current EBITDA margin of those businesses, as you might have noticed. I think I mentioned earlier during my presentation that MainStreet actually is already breakeven as of 2022. So it is, by definition, very dilutive when incorporated into the Allfunds overall numbers. But having said so, we also think that as we managed to leverage those businesses or outsource business leverages, leverage on Allfunds and on our network and our capabilities, we can very quickly make them more profitable and, of course, accretive and that's part of the beauty that I mean, Juan described earlier, right? So these are businesses that are relatively small, founder-led, profitable. So profitable, no one actually below breakeven. But when incorporated into Allfunds, as you suggested, we see that margin dilution.

Yes, I think -- No, no, No. I mean I think, yes, from my side, as Alvaro mentioned, the businesses, the companies need to be profitable, and we want top, top management. So means that the guy running the company has to be the founder of the company and needs to have a skin in the game, okay? Those to me are the most important features that I personally look when we analyze M&A on the added value space, okay? And regarding competition, well, I think that as I've been saying, as I said last year, competition is strong. Not in every country, but it's strong in some specific countries, in some specific regions. We see them adopting or trying to adopt the concept of the one-stop-shop model of Allfunds that we launched 20 years ago. So we see them replicating that model and therefore, becoming a better and stronger competitors, which makes the game even more exciting.

[Operator Instructions] Our next question comes from Greg Simpson from BNP Paribas.

The first one is, can you talk about how we align the EUR 150 billion of the pipeline, I think you cited, and the EUR 40 billion to EUR 60 billion of new client migrations guided for the year? Is the pipeline of all the clients you're in discussion with? And is there a way to think about it? Do you think you can win about the 1/3 of that pipeline with the EUR 40 billion to EUR 60 billion just to confirm what those different metrics are? And second question would be, can you just talk through the actual mechanics around how you earn interest income? Is it across the whole platform business? Or is it just on the rebate model? What is the base of the kind of cash balances that you earn that interest on? And then finally, our retention rates are very high, but it fall a little bit year-on-year. I think it was 98% in Fund Houses and then fell a bit in Distributors. Is there any kind of theme you'd call out around where Distributors or Fund Houses leave Allfunds, is there any kind of thing to flag or not?

Okay. Yes. Thank you very much. So I think regarding the pipe -- I can't -- I will cover the first one and the third and I'll leave you, Alvaro, the second. So you described perfectly well, the concept of pipeline. So what we do is when we prepare the budget for following years, so October, November, okay, we sit down with all the sales team, all the regional managers and what we basically do is we collect, as you said, all the conversations that we have with clients, many of them clients, not just that we have visited, okay, but clients in where we have already started to discuss in many cases, the majority of the cases, clients with an NDA signed, okay, and this is how we build the pipeline. I mean why the pipeline is not the same as migrations because, as you know, you can sign an NDA with a client today, February, okay, start discussing, negotiating, it can take 3 months. And afterwards, it can take another 6 or 9 months for the assets to be migrated. So not necessarily all those conversations and those migrations fall into one specific [indiscernible]. It can go up to 18 months since you start the negotiations. So that's why the pipeline is not the same as the migrations. But the good news is that there is a fantastic momentum, and I see our sales teams really excited with what they are seeing in the market. As we said, outsourcing even in this -- well, in this -- with this market so volatile, nobody really thinks about any distributor really has in mind, not to internalize costs, but exactly the opposite. So it's all about outsourcing. It's an ideal environment or context for the company. And you see that reflected in the pipeline. I don't know if you want to...

Sure. Yes, Greg. So in terms of treasury income, one-off things -- one of the questions that we've heard most over the last few years was, why do you have a banking license, right? No one understood. Well, since a few months back, having that banking license is actually very interesting, among other things because we can put all that operational liquidity that we have, both our own funds but also liquidity that both Fund Houses and Distributors leave at Allfunds for operating purposes, of course, and we can put that into -- well, we can reinvest that at low risk, of course, into, well, counter-parties that yield an interesting margin. It doesn't really have to do with whether it's a rebate model or a non-rebate model. it's purely cash that is being sent to us so we can buy and redeem funds on behalf of our clients. So with those amounts that, of course, fluctuate over the year, we reinvest those amounts in different counter-parties at -- always at low risk and managed to get that additional income. I think we have not shared any balance sheet numbers at this point, but if helpful, we ended the year at around EUR 1.5 billion, EUR 1.6 billion liquidity that fluctuates and will fluctuate as I've explained. But I think it could be a good proxy for you to run your sensitivities around what we can expect from this new revenue line. And by the way, of course, I should have mentioned this at the beginning, we have reinforced the finance team, the treasury team with some key hires to actually boost this revenue line, as you can imagine.

Thank you, Alvaro. And the final question, the third question regarding retention rate. Well, with Fund Houses, you know that if a Fund Houses or Fund House, decide to quit the agreement is because they don't have assets at Allfunds. And if they don't have assets with Allfunds, probably means that they don't have assets or enough assets in Europe to keep the business. So if you see some Fund Houses again leaving the companies basically because they are closing their Luxembourg SICAV and therefore, they are leaving the business in Europe. That's the main reason. And on the Distributor side, I think that the main reason why -- well, I don't know if we have -- we are a little bit worse than 1 year ago or 2 years ago. I mean, bear in mind that there are also -- sometimes there are M&A activity, as you can imagine that -- so we can potentially lose clients because a client of Allfunds is acquired by a bank that does in usual funds. That's an example. I think that we just lost one client last year, just one single client. So we onboarded 71, and we lost 1 against a specific competitor in a country which is not core for Allfunds. And I think that is the only client that comes to my mind in this moment. So for the moment, I'm -- I don't see any change in dynamics. But as I said before, when some -- when you ask me about competition, competition will be strong for sure and that's what we expect. So we expect stronger competitors for -- without any doubt. And our goal is to keep on enhancing our value proposition in order to keep the existing gap or if possible, increase it. You it cannot stay still in this market.

[Operator Instructions]

Well, with that, we have no more time for questions. It has been a pleasure to host you on this full year financial results or preliminary results presentation. The IR team will remain at your disposal for any question. See you next quarter with our trading update. Goodbye. Thank you.