Allfunds Group plc (ALLFG) Earnings Call Transcript & Summary

Hello, everyone, and thank you for joining the Allfunds Group plc First Half 2025 Interim Results. My name is Lucy, and I will be coordinating your call today. On the call today are Annabel Spring, CEO; Alvaro Perera, CFO; and Carlos Berastain, Head of Investor Relations. [Operator Instructions] It is now my pleasure to hand over to your host, Carlos Berastain, Head of Investor Relations, to begin. Please go ahead.

Thank you, Lucy. Good morning, everyone, and welcome to Allfunds financial results presentation for the first half of 2025. Thank you for joining us today. This session is being broadcast live, and a replay will be available on our website later today. The presentation materials are already accessible for download on our corporate website. So without any further delay, I will now hand it over to our CEO, Annabel Spring.

Thank you, Carlos. Welcome, everyone. I'm very pleased to be hosting my first interim results presentation as CEO of Allfunds. I believe these results demonstrate the strength of our positioning at the heart of a growing global wealth management industry with a unique scale platform powered by an experienced team with strong relationships. As you can tell, I'm excited to be here and by the opportunities. Let's start with the broader context. The global wealth management industry is underpinned by long-term structural growth. We're seeing continued economic expansion, favorable demographics, increasing financialization of wealth with greater accessibility to investment opportunities, driven in large part by technology. We're seeing end investors are becoming more sophisticated and digitally engaged. That sophistication has driven a growing preference for open architecture products, rising demand for access to alternatives and more digital experiences also, even in advisory relationships. Of course, this rising complexity presents challenges for distributors particularly as product sets expand and data and operational requirements grow. Increasingly, we're seeing firms look to outsource elements of their operations. On the other side of the equation, fund managers are needing to access an increasing multiplicity of distributors globally, even more so with the growth of alternatives. It's at this intersection where Allfunds pay such a critical role. We sit at the center of this evolving global wealth management ecosystem and benefit from these trends. As a market-leading B2B wealth tech platform, we connect front houses to distributors. Our scale and technology provide a strong foundation. Our absolute unique buy-free model helps our distributor clients efficiently scale, modernize and globalize their offerings. The range of our offerings, including alternatives and value-added digital and data services allows distributors to meet those increasing needs of their end clients. Over the past month, I've had the privilege of meeting many of our colleagues across Europe, the Americas and Asia and spending some time with numbers of our clients and our partners. So in addition to the strategic positioning, I would add what also really differentiates us is the deep expertise and the client focus about people, the quality of our relationships and the spirit of innovation that runs through everything we do. Now of course, there are some areas that we will refine and improve and my priority in these first few months is to listen, to learn and to gain a deeper understanding of our clients, our partners, our people and our opportunities throughout that wealth ecosystem. Together with the leadership team, we'll focus on sharpening our execution and sharpening our strategy and importantly, of course, accelerating our execution. Looking ahead, our Investor Day in first quarter 2026 will be a key moment to share with the market our refreshed strategic direction and updated medium-term business and financial plans. And now to the results. In terms of starting momentum, it's particularly pleasing to be able to announce strong first half results with record net revenues, underpinned by a 7% year-on-year growth in assets under administration. However, having just passed the 1 month mark in the role, it's appropriate maybe to slightly adjust the format for today's call. So our CFO, Alvaro will take you through the financials in detail, and we'll both be available to answer your questions at the end. And with that, I'll now hand over to you, Alvaro.

Thank you very much, Annabel, and good morning to everyone. I will now provide you a brief summary of key business highlights. To begin, we have made strong progress in the first half of the year. We maintained a strong focus on client onboarding with 24 new distributors and 51 fund houses onboarded, bringing our market share to 29.6%, a 2.9% point increase year-on-year. Our assets under administration continued to show strong momentum, growing 17% year-on-year to EUR 1.6 trillion, reflecting solid underlying performance from both existing and new clients. Approximately 60% of flows came from existing client base, demonstrating strong appetite for our products. And the remainder of flows came from new distributors, well diversified across regions, customer segments and size. We continue to be the preferred platform and take market share. Turning to financial performance for the first 6 months of the year. Revenue grew by 6% to EUR 317 million, supported by strong continued growth of our core platform business. While net treasury income declined by 27% year-on-year due to lower interest rate environment, revenues, excluding net treasury income, rose 14% year-on-year to EUR 277 million. Within this, commission revenue grew 16%, transactional revenue 10% and subscription revenue, 8% year-on-year. We did observe a moderation in subscription revenue growth during the second quarter of the year, with momentum gradually easing over the period. While underlying contracted recurrent revenue cured 10% year-over-year driven by ramp-up from last year's bookings, new customer acquisitions activity showed some signs of softening in Q2. Adjusted EBITDA increased 4% year-on-year, reflecting continued business strength and investments into the long-term growth of our platform. The adjusted profit after tax rose by 10% year-on-year to EUR 124 million. We also continued to generate strong cash flows totaling EUR 126 million for the period. Our share buyback program remains on track. As of July 21, we have completed almost 26% of the initial EUR 80 million tranche with around EUR 229 million remaining under the single EUR 250 million program currently scheduled for execution. Now let's take a closer look at our core business growth, starting with the market context on Slide #7. Thank you, Carlos. Following a strong start of the year, we have seen a swift rebound in usage flows recovering quickly from the market volatility experienced in April after Liberation Day, supported by lower interest rates that are encouraging a shift from cash holdings into financial investments. European uses recorded net inflows of approximately EUR 250 billion in the first half of the year, supported by a particularly strong Q1. While Q2 was slightly softer during -- due to April weakness, momentum has clearly returned in recent months. The structural growth trend in open architecture penetration remains robust now standing nearly 58% across Europe. While this marks a significant milestone, there is still substantial room for further expansion, and we are well positioned to capitalize on these tailwinds. Let's now turn to the growth trajectory of our core business. As of the end of June 2025, our assets under administration reached EUR 1.6 trillion, representing a 7% increase since December '24. This growth was driven by strong net inflows of EUR 54 billion in platform service AuA, which more than doubled the same period last year. Approximately 60% originating from existing clients and 40% from new client migrations. This was achieved despite a negative market impact of around EUR 11 billion, primarily due to foreign exchange movements. In Q2 2025, we recorded a significant quarter-on-quarter increase in AuA within our dealing and execution business, totaling EUR 55 billion. This was fueled by both organic and market growth, which tends to accelerate during periods of volatility and the onboarding of a new client who contributed EUR 35 billion in dealing and execution AuA along with additional part from AuA. So building on that context, let's take a closer look at our net flows. We continue to see strong flows from existing clients in the first half of the year, totaling EUR 32.2 billion, our highest level since 2021. This marked the third consecutive semester of positive flows reinforcing the sustained upward trend that began in late 2023. With market conditions stabilizing and structural trends such as open architecture adoption accelerating, we are clearly entering a new phase of sustained growth. The most recent trend observed in July further reinforced its trajectory. Let's now turn to the next key contributor of our performance, client migrations. As shown on this slide, platform service migrations remained a stable and reliable contributor to our growth keeping us firmly on track to meet our 2025 guidance. In the first half of the year, we onboarded 24 new distributors across a broad range of regions. Notably, over 70% of these new distributors fell within the EUR 100 million to EUR 500 million AuA range, further reinforcing our well-diversified client base. We also continued to increase our market share. 50% of new clients transitioned from in-house models to our platform, 25% migrated from competitor platforms and the remaining 25% represent clients new to the open architecture model. On the fund house side, we welcomed 51 new fund managers, which approximately half coming from the alternative space, highlighting the growing importance of diversification in portfolios. And more importantly, our new distributor pipeline remains strong. These results reflect the strength of our value proposition and the continued trust placed in Allfunds as a leading global platform. Now I would like to take a moment to focus on the success of our Alternative Solution. Our Alternative Solutions continue to grow at a remarkable pace reaching EUR 26.8 billion in AuA by the end of June '25, a 38% increase year-on-year, driven by increasing retail customer appetite. Notably, half of this volume came from distribution AuA, which grew 87% year-on-year and 32% since the beginning of the year. Within this, we're seeing particularly strong momentum in our Allfunds Private Partners program, which has more than doubled in size. This reflects robust demand for top-tier managers. As you know, Alternative Solutions is one of our most important growth opportunities and Allfunds is exceptionally positioned to become a leading platform for private market fund distribution outside the U.S. As you can see on Slide 12, we continue expanding our platform. In the first half of 2025, we reached a total of 919 distributors. To better understand how the regional distribution has evolved, we consider 2022 as a usual reference point. Over the past 3 years, our distributor base has grown by more than 8%, with particularly strong growth in Asia. The region now represents 12% of our total distributors up from 8% back in 2022. We've also continued to enrich our fund offering, reaching 1,437 fund houses, a 4.4% increase compared to the same period of last year. This expanding network of distributors and fund houses continues to reinforce our leadership in the European cross-border market, where we are consistently gaining share. I will now walk you through the key financial figures and explain the main drivers behind our performance in the first 6 months of the year. Let's begin with a few performance indicators, which you can see on Slide 14. In the first half of 2025, we continued delivering solid growth across key financial metrics. We reported net revenues of EUR 316.8 million, up 6% year-on-year and 14% excluding net treasury income, reflecting the strength and consistency of our core business. Adjusted EBITDA increased to EUR 205.9 million, a 4% growth compared to the same period of last year. The adjusted EBITDA margin declined by 1.7 percentage points to 65%, primarily due to the reduction in net treasury income. Adjusted profit after tax rose by 10%, reaching EUR 124.1 million, and our adjusted earnings per share increased by 11%, reflecting our continued ability to convert operational strength into shareholder value. We also generated EUR 125.6 million in free cash flow, up 15% year-on-year, demonstrating the strong cash generation capacity and resilience of our plan. Let's now pause on Slide 15 to take a closer look at our revenue performance. We continue to deliver consistent and structural revenue growth in the first half of the year. Both commission and transaction revenues delivered double-digit growth, reflecting strong commercial activity and helping offset the expected normalization of net treasury income. Subscription revenue grew 8% year-on-year, reaching nearly EUR 34 million. Let's take a closer look at the composition and drivers of our revenue performance on Slide #16. So shifting our focus to margins, I would like to highlight that our platform margin remained broadly stable in the first half of 2025 at 3.2 basis points when excluding the impact of the declining net treasury income. Transaction activity in Q2 moderated following the tariff announcements, easing from the elevated levels seen in the first quarter of the year. It is also worth noting that our commission revenue margin has shown resilience as it remained steady year-on-year at 2.4 basis points. While our growth trajectory remains strong, we acknowledge that the current asset class mix may exert some pressure on revenue margins in the quarters ahead. Moving on to cost. Our adjusted cost base grew by 9% year-on-year. However, when compared to the second half of 2024, the increase was more modest, just 2%, reflecting a more balanced cost trajectory. This growth reflects the combined impact of inflation and our continued investment in the platform aligned with our strategic ambition to enhance our digital capabilities. Breaking it down, almost half of this cost increase is linked to our new initiatives, including ETPs and subscription businesses, and around 25% is attributable to tech enhancements. Thanks to our operating leverage, we delivered solid profitability in the first half of 2025. Adjusted EBITDA reached EUR 205.9 million, up from EUR 198.8 million in the same period last year. And our reported EBITDA increased to EUR 182.4 million. Our adjusted cash flow generation also remained strong, increasing to EUR 125.6 million, representing a 50% year-on-year growth. These results highlight the efficiency and scalability of our business model. Allfunds continued to demonstrate strong capital generation capacity. In the first half of 2025, we reduced our risk-weighted assets by 8%, primarily driven by a decline in operational risk despite continued top line growth. Our CET1 ratio improved to 36%, and with $267 million in excess capital, maintaining a robust capital buffer. At the same time, we reduced our net financial debt by 24% bringing it down to EUR 107 million and lowering our leverage ratio to 0.3x. Before we move to the Q&A, I would like to take a few minutes to share our updated outlook for the second half of the year and what it means for the full year 2025 targets. We expect platform AuA to grow by around 10% in 2025, maintaining the positive trend of the first half of the year. Assuming a flat market contribution for the remainder of the year, net flows remain the primary driver of our growth. And on this front, we -- our outlook remains strong. We forecast platform service net flows in the range of EUR 100 billion to EUR 120 billion, representing 9% to 11% of opening AuA. Following the initial disruption in early Q2, client flows have normalized. Assuming no further dislocation, we expect the positive trend observed in recent months and weeks to continue. We are forecasting flows from existing clients at around 5% of opening AuA. Migration activity also remains solid with full year volumes expected in the EUR 50 million to EUR 60 billion range, representing around 5% of opening AuA with a notable skew towards the latter part of the year. Turning to the income statement. And as I mentioned earlier, our main business continues to show strong momentum with double-digit growth in both flows and structural revenue. While Q2 brought some moderation, particularly in transaction activity, net treasury income as expected and our subscription business. Our guidance reflects a measured outlook, though we remain open to upside potential. Some of our subscription services, such as Connect have performed strongly, even exceeded our expectations. Others, however, are showing a lighter performance driven by a global change and emphasis around ESG, which impacted the segment that we had identified as a growth driver. Challenging market conditions that have extended sales cycles and finally, delays in the delivery of certain projects. As a result, we now anticipate subscription revenue growth to be in the mid-single digits year-on-year. Overall, we forecast total revenue growth of 3% to 4% for the full year with underlying structural revenue, i.e., excluding net treasury income expected to grow by approximately 10% reflecting the continued strength and resilience of our corporations. Finally, looking at profitability, assuming a stable cost base in the second half, consistent with the first half of the year, we expect our adjusted EBITDA margin to remain at approximately 65% in the second half, flat versus the first half. Before we open the floor to Q&A, we are pleased to announce that we will be hosting our first Investor Day in Q1 2026, which will provide a refresh of Allfunds strategic priorities. Further details will be provided to the market in due course. Once again, thank you. And with that, let's open the Q&A session, Carlos.

Yes. Thank you, Annabel. Thank you, Alvaro. We will now open the floor to Q&A. But before that, let me remind and ask everyone to please stick to a maximum of 2 questions on this call. Lucy, can you please proceed with the first question, including the name and company name of the caller. Thank you.

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

Annabel, I was listening to your opening remarks, which gave us a useful sense of how you see things. Of course, we need to put into context that you've only been in your seat for less than a month, but I'm curious how you're kind of finding the profound switch from running a division in Europe's largest listed financial institution to taking over as CEO from a founder who's been in place for 25 years. How are you finding the difference in institutional debt versus potential for operational dynamism? And then perhaps during your time running the wealth management business for HSBC, what was your impression of Allfunds as a distributor? Did you use them as a platform? And if not, maybe why not? It would be great to hear your thoughts on those.

So I'll take the question in 3 parts. The first is how am I finding Allfunds versus where I came from. What I will say is Allfund sits in exactly the middle of the same world. So at HSBC, we dealt with all of the fund houses, and all of the fund managers. So that's a very, very familiar world. And obviously, we were a distributor. So that's a very, very familiar world. And in my previous career, I was also responsible for both distribution and being a fund manager. So this feels like home. It also feels like home because it's a tech platform, and that's a lot of what I've spent my last 5 years doing. So from that perspective, it absolutely feels completely comfortable in the same world. What I will say is it's a much more exciting world. When I said in my opening remarks that innovation runs through everything that we do and the strength of our relationships and the expertise of our people. This is such an interesting company that really does sit and have that entrepreneurial edge, that founder-led edge. And I'm hoping to continue that culture and that momentum. It's a warm and open place to join, but that innovation edge is fantastic to see and really exciting. I think your -- the second question is, did I use -- or did we use Allfunds at my previous employer? That's not something I can comment on. But what I can say was that was where I first became familiar with Allfunds, and I was extremely impressed by the platform and understanding its position in the ecosystem is certainly one of the reasons that I joined. And I think -- did I answer every element? I think I got your question. Thank you so much.

The next question comes from Carlos Peixoto from Caixa Bank.

Carlos Peixoto from Caixa Bank here. A couple of questions from my side as well. The first one is on costs. So we saw here roughly a 9% increase year-on-year in the first half. I was wondering how do you see that evolving into the second half of the year? And also, if you could give us some color on the drivers behind the cost growth that we saw in the first half. And the second question would be on the platform margin evolution. I believe you mentioned before during the presentation that you expect to see some pressure -- some additional pressure given your asset mix, if you could elaborate a bit further on that? And to what levels do you think platform margin should be at towards the full year?

So on cost, we're wealth tech, which means a substantial part of our cost growth is and will be linked to investing in our technology, which won't surprise you. Year-on-year, approximately 50% of the cost increase was linked to our new initiatives including the ETP platform and the subscription business and 25% linked to tech enhancements. We do see the second half of the year stable cost-wise compared to the first half. And I think the next question, Carlos, was on platform margin. And here, you're correct. I mentioned some slight pressure on the average margins driven primarily by factors like a continuation in the shift from rebate applicable business to nonrebate, a change in mix with more fixed income and money market. And finally, recent migrations coming in with a slightly lower average margin. So these are the 3 components that are affecting our margin in the short term while our revenue trajectory remains very strong. This asset class mix may exert as I mentioned earlier, some pressure on revenue margins in the quarters ahead.

The next question comes from Haley Tam of UBS.

If I could add one for Annabel, please, and another one for Alvaro. So Annabel, first of all, welcome as well from me. I listened carefully as well to your comments at the beginning. And I just wondered if there's anything you can add in terms of the most interesting avenues for growth where you want to sharpen and accelerate execution whilst obviously, you've only been in place for 1 month, but if you can give any color there, that would be great. And the second question, just on, I suppose, longer-term EBITDA margin progression I think you've been very clear on the new guidance for this year. I think we understand a lot of the cost growth has been due to technology and investment for future growth. Conceptually into 2026 and beyond if we don't have the headwind from a lower net treasury income, even given your comments about platform margin evolution, is there any reason why EBITDA margin should not expand into the future?

So as I said, it's very early days. And I'd be reluctant to sort of definitively call out anything on the growth opportunities other than to say the challenge at Allfunds is that there are so many of them. And I -- the reason I don't want to call out anyone specifically is we need to do some work to prioritize them to make sure that as we expand our effort, we're really focusing our execution on that growth and the best and most value accretive parts forward. So you can imagine, and I've seen actually everything you've written and most of which I look at it and I think yes, yes, yes. What we need to do is prioritize those. So I think we'll be waiting for that. We'll give you some sort of checkpoint in October, so you can get a feel for our direction, but then we will do that full Strategy Day and full capital markets and investment presentation in first quarter. But suffice to say, I wouldn't be here if I didn't see many opportunities.

Haley, so on EBITDA margin and without providing long-term guidance -- but you're right. So in this year, we've seen all the headwinds from margins in the net treasury income, affecting our EBITDA margin, which we will not see, hopefully, in the future. At the same time, on the subscription business front, what we intend to do is to focus on products with strong value contribution and a clear path to profitability. So taking that into consideration. And as you know well, the fact that this business is about scale. I wouldn't see a reason why we wouldn't be in a position not to improve our profitability in the future.

Next question comes from Andrew Lowe of Citi.

I've got 2. The first is on the subscription revenue guidance. You've guided that to the mid-single digits, which is quite a considerable downgrade. So could you just put a little bit more meat on the bones as to what the drivers are there? And I know you mentioned things like sort of ESG being a drag. But can we just get some more numbers on this to sort of work out exactly what's going on? And is this a temporary thing for 2025? And should we return to a more normalized growth level in 2026? And you mentioned about focusing within this business on products with better value creation. So what examples you give about what the focus is going to be on? And then the second set of questions is on the ETP platform. And I note that you've got in your release, you said that you've got live transactions and pilot testing plans for H2. So do you have clients already signed up to use this business once it's launched? My understanding is that you're working with -- or seeking to work with a third party to do the execution. So has that agreement been finalized? And then I know that you've mentioned in the past but you think that the margins in this business should be comparable to the mutual fund platform. But does this involve clients holding lower cash balances. And therefore, are we likely to see an associated drag net treasury income as this business grows?

Andrew. So on subscription, we've seen some subscription services, as I mentioned earlier, like Connect, that has performed strongly, even, as I said, now exceeding our initial expectations, but the others are showing lighter performance. And yes. So the change in emphasis around ESG, these challenging market conditions that have, in many cases, extended our sales cycles and finally, some delays in the delivery of certain projects have impacted our first half and will impact our full year revenue number.

I think one of the things that we'll do here is we will refine and refresh our subscription offering. I think Alvaro said some things have done better than we expected, which has been great. And then some things have had some natural challenges, particularly ESG and some of the longer sales cycle product. As we refine and refocus that execution, we'll be looking at the subscription portfolio and again, focusing on those things with stronger value contribution and a clear path to profitability. As I look at the portfolio, there are other synergistic options that we may also add to it, which is why I think we're thinking carefully through the strategy and what we should add to that portfolio as well.

Exactly, thank you Annabel. In terms of ETPs, what I can tell you is we are mindful of the growth that these products and the launches that are taking place in the market. And that's why we are working on our ETP solution. While we targeted our Q4 2024 -- '25, sorry, launch, we are taking a prudent approach to ensure a high quality and scalable rollout. So we are in a pilot phase in the second half of 2025. And yes, once we feel comfortable, we will disclose more details around the status of the platform of the initiatives. And in the future, of course, the margins. But as of today, I would wait a little bit before sharing more details and around contracts being signed with third parties. I'm afraid, I cannot comment at this stage.

I think one of the things it's really important for real-time market products is to be very confident that as we launch, we're getting it right. Because taking market risk with end client money is a very, very important responsibility and will be prudent and conservative in making sure that the product certainly works before we launch.

The next question comes from David McCann of Deutsche Bank.