Anima Holding SpA (ANIM) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Anima Holding First Half 2020 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Alessandro Melzi D'Eril, CEO of Anima Holding. Please go ahead, sir.

Hello to everybody. Hi to everybody. Thank you for attending our H1 2020 conference call. Sorry for the delay, but this is a very busy day with many other conference calls. We're trying to find the right timing. I will start with our presentation, Page 4 with the highlights of this first semester of 2020. We reached the end of the semester EUR 183.4 billion of assets, minus 1% if compared to end of 2019. Net new money in the 6 months, plus EUR 600 million approximately, excluding Class I mandates. We -- I would like to highlight that we delivered in this semester solid results in a relevant -- within relevant uncertainty and with high volatility of the context of the market. The cost control to enhance our operating leverage continued to be very high and demonstrated also in this period. High cash flow generation with positive outlook in order to -- for the rest of the year, in order to provide interesting returns for our shareholders and still remaining one of the player -- one of the most important player to play the M&A card in Italy and potentially also Europe. Total revenues -- going into numbers. Total revenues, plus 14% year-on-year; EBITDA, plus 20%, reaching almost EUR 145 million; net income, plus 15%. Following page, Page 5, the AUM evolution. In the semester, we register, as I mentioned before, almost EUR 600 million of net new money made by EUR 1.4 billion of net new money on the institutional side minus EUR 800 million on the retail side. The market effect, negative by EUR 3.3 billion of assets but recovering strongly from the first -- from beginning of March. Class I mandates plus -- almost plus EUR 500 million approximately in terms of AUM change. Page 6, the business by segment. As usual, 28% of the assets comes from the retail, EUR 52 billion of assets. 72% from the institutional. Just -- I would like just to highlight the share of our strategic partners, BAMI, BMPS and Creval out of the retail business, 88% of the total. Page 7, the investment performance. We are pretty happy with the performance delivered in the semester. It wasn't easy as the volatility was very high. Anyway, our WAP, if compared to the Italian industry, minus 3%, [ approximately ] minus 3.1% compared to minus 4.1%. In terms of breakdown by category, I would like just to highlight something that is, let's say, historical for our company. So lower exposure in terms of pure equity of our company in terms of asset mix or proper asset mix and higher exposure in terms of flexible fund. Page 8. In this semester, the performance of the -- the recovery of the market and the strong performance of our portfolio managers brought us quite an interesting level of performance fees. We see it with the numbers. But we have also a significant amount of the AUM demonstrated by the chart at the bottom of the page. A significant amount of AUM close to the historical high watermark for funds catching performance fees with this calculation methodology. EUR 12.5 billion of assets are below 5% of these funds. This is also made by, as I said before, by an important overperformance made by some of our important funds, in particular, European equities, U.S. and global entities and absolute return strategies. Entering more into details in this respect, Page 9. I would like just to highlight some of these funds that perform pretty well like ANIMA Europa with a 20 years track record that overperformed the benchmark significantly, like Anima Iniziativa Europa, a European small-cap fund that did very well as well. Page 10, U.S. Equities. We are an Italian equity house -- an Italian player, not equity house, but Italian player. This fund is managed by the same PM since 2012 and was able also this year to outperform the index quite significantly. Anima Megatrend is a fund launched recently, a global fund, again, able to provide an impressive overperformance if compared to the index. Last but not least, our absolute return strategies, in particular, on the European sector, the high potential absolute term funds very actively managed. Sometimes we may be perceived as a company more passive in terms of asset management. While instead we are an active equity house -- an active asset management with strong capabilities also in many different areas. This is one of the historical areas where we have strong capabilities in terms of asset management. In particular, in the last semester, we have been able to -- the team has been able to overperform on the index European and to be one of the most quoted fund -- absolute term funds in the category. I will get into the numbers, Page 13. Our P&L, some highlight on the P&L. Looking at the comparison with H1 2019, on net revenues, we registered a minus 2.6%, then we'll get into it. A strong increase in terms of performance fees. Total revenues up 14% if compared to last year, reaching almost EUR 186 million. In terms of cost, we show a decrease compared to last year even if taking into consideration an increased accrual for variable compensation also linked to performance fees. Of course, we have been able to save cost partially because some of our other investment expected was postponed because of the possibility to pursue it, but also because of the company in this period and uncertainty surrounding the sector was very, very keen in keeping costs strictly under control. EBITDA, up 20%, reaching almost EUR 145 million. Net income, plus 15%, reported net income. Adjusted net income, plus 19%, EUR 94 million as compared to EUR 79 million of last year. Looking at margins. Page -- on the right side of the page. The margin decrease is attributable mainly to the absence of placement fees. Then we'll get back to it mainly due to the zeroing of the bank's activity in Q2 caused by the lockdown. Expense ratio reached the historical minimum at 4.5 bps over average cost AUM. Cost income, excluding performance fees, remaining stable, as I mentioned before, thanks to the flexibility of our variable cost base and to the strong attention paid by the company. Page 14. Net fees Q-on-Q reduction, as I mentioned quickly before, is made by a minus EUR 4 million in terms of lack of placement fees, lower administrative fees. Both of these items -- both the items are mainly related to the zeroing of bank commercial activity. And then we have lower management fees that are coming from the decrease of assets end of March, and then that went through basically all the 3 months of the Q2. Personnel expenses, this component, broadly stable. We didn't stop the investments, the hirings we were doing on the research team and on our alternative project. We had postponed some of the hirings, but we continue to do the -- we continue the strategy. FTEs growing to up to 312 if compared to 306 last year. Page 15, focus on fixed fees. As I said before, the Q2 decline on the fixed fees was made by lower level of AUM at the beginning of the quarter. The strong volatility in the markets and the decreasing AUM was registered from 8th of March on. So we entered the new -- the semester with a lower level of AUM if compared to the first semester -- for the first quarter. And of course, most profitable asset classes were hit more by the negative market performance. Moreover, we saw more inflows into lower risk profile and lower fixed products. As I mentioned, this is coming from a more conservative approach of clients and networks. At the end of Q2, total AUM is now EUR 3 billion lower than the end of 2019. So we expect a certain level of recovery if compared to Q2 and Q3. Page 16, going more in depth in terms of placement fees. Placement fees are an item applied on target date funds, 3 to 5 years, maturity of these funds, and basically consists on the fronting of the fees to be paid to the distributor during the life of the product only once at the beginning of the -- when the distributor is placing the product. Typically, ANIMA gets a small part of this placement fees in order to compensate product origination, structuring and marketing. Placement fees, let's say, the aim of this placement fee is to avoid entry fees because if placement fees are applied, no subscription fees can be applied nor incentivize the holding period of the client who pays no entry fee, but pays exit fee if -- is not holding the product until the end of the expected life. Getting back to our income statement. As you can see on the right side of the page, ANIMA placement fees went down significantly during this quarter, and this is was due by the absence of gross commercial activity by the banks, and this is the explanation of the drop of this item. Page 17, consolidated net financial position. The consolidated net financial position is increasing, and this is due by the payment of dividends in May, EUR 73 million, plus the tax paid in June, EUR 47 million. Of course, during the year, we will generate amount of cash in order to reduce further the net financial position. If you look at our gross exposure in terms of debt, we -- during the quarter, we repaid -- we paid back EUR 51 million of gross debt, EUR 16 million as a bond buyback and EUR 35 million as a bank loan buyback. Page 19, retail flows. Just to get back and to look at the quarter in terms of flows. Q2 was a very peculiar quarter. We never experienced something like that since we are here. As we said already, probably during the call of May, we experienced a period where the gross -- the commercial activity was almost closed for a long time period. And then now when the banks reopened, the banks and their activities fully end of June, we are seeing -- we saw and we are seeing a quite conscious and conservative approach by the client base. The branches are now almost entirely up and running. And this approach of the client base is providing, let's say, results that are not in line with the potential of this branch. It's also considering the massive amount of liquidity sitting on deposits and kept there by the clients in order to see what will happen in the next few months. This massive amount of money is one of the, let's say, the feature that gives us a positive view on the medium term. Retail product development. What we have done in terms of product development in order to support the recovery and what we are doing in order to support the recovery of the commercial activity. In Q2, we started successfully the distribution of ESaloGo product range with EUR 225 million collected on 3 new products, global equity balance and PicPac flexibility with exposure -- equity exposure and corporate bonds exposure. We also launched 3 thematic funds that started the distribution since July. One, New Normal, an increasing equity exposure, so an accumulation of equity within a target date fund with an exposure to particular important sectors like health care, information technology and new consumer preferences. In global and health care, very similar to New Normal 2025, but with a more global exposure, including emerging markets. And then PicPac Megatrend, where we have an accumulation plan embedded in target date with a flexible equity exposure. Page 21, closing remarks. As I mentioned more than once during this presentation, the environment is still an environment with a limited visibility. Even in a limited visibility, given also the strong performance of the company, we continue to see growth opportunities both in terms of -- both organically and in terms of potential external opportunities. Looking at the organic growth. In addition of -- to what we said before in terms of product launches with risk-adjusted returns, we are also experiencing renewed interest on certain flagship funds. As I mentioned before, we had some flagship performing very well, and this is something that we hope to be able to exploit on the affluent, private banking and institutional segments, and this is something where we are pushing a lot. Looking externally, the environment in terms of asset management sector, we've looked for longer rate environment, high competition and sector fragmentation. Moreover, COVID health emergency that probably affected some player more than other, we still believe put pressure towards a potential consolidation in all the segment of the sector. And for what concerned Italy, there is one more element, that is the banking industry undergoing relevant changes, and this may provide the potential opportunities that could be catch by the group. I finished my presentation. So I may fully available for your questions.

[Operator Instructions] The first question is from Alberto Villa with Intermonte.

I have 2 questions. The first one, well, they are related to the final remarks basically. So the first one is on the push on institutional mandates. Can you give us an idea what is the environment there, if there are potential opportunities? In the last conference call, you discussed about some postponements in decisions. So I was wondering if there are opportunities effectively to get new mandates. And if the profitability in general in the institutional segment is holding up or remains under pressure. The second question is on the banking consolidation after Intesa and UBI. In the past, you've been penalized because of the risks of debt consolidation. So I was wondering if this move, in your view, opens more opportunities or class to your current and prospective banking partnerships. And the third one is on the PIR and alternative PIR. If you can give us an outlook on what you're expecting in terms of potential from this kind of product.

Alberto, well, first question on the institutional side. During the last call, I said, I mean, on demand, it is always difficult to make a forecast or assumption because, typically, let's say, something where you are in an auction or where you concur and it's difficult to know when you will win. Anyway, as you saw probably by our -- one of our last press release, we won a mandate at EUR 500 million beginning of July that will enter in 3 months. So it will be -- this -- we will see a part of it in the net inflows in July, August and September. And for instance, this mandate is a quite large mandate with typically institutional profitability, so lower if compared to our average profitability. Of course, still interesting, in my opinion, because this is managed fully exploiting our operating leverage. And there is something more come in. Difficult to say, but we are in the market every day and trying to catch this kind of potentials. And in the last 2 to 3 years, our presence in this segment increased quite significantly. But looking at institutional, what we are also pushing is the selling of our fund with institutional classes, and this is fully driven by performances. As I mentioned, we have some product doing quite well. And so we'll be able to push also on this segment where the profitability is more interesting, so less assets and more profitability. The banking consolidation. In February, we commented the transaction Intesa, UBI as neutral to positive for us. I confirm this view. Of course, Intesa, we always said, was a flat for us. And so Intesa is probably out in the table. UBI was a potential threat and a potential opportunity. Overall, let's say, the scenario now looks better, in my opinion. We have a few Italian banks left for the -- for a consolidation play. Two of these banks are very important partners for ANIMA. In particular, BAMI is our main shareholder -- main partner in terms of contribution to our assets and profitability. BAMI seems to be probably the -- in the middle, at the center of this consolidation play, conversation gain. And therefore, I'm looking very positively at this situation. What will happen is very difficult to be understood. But in general, I see it with -- I see the scenario with many potential opportunities. And PIR. PIR, we started the revamping of PIR. So we started marketing -- remarketing the PIR, the 20th of February, in the region of 20th of February. So basically, we started and we stopped immediately, given the lockdown. Now we are restarting marketing more proactively the product. As I was mentioning before, we are seeing a case -- a quite conservative approach of the client base. So we still believe this product will be very important going forward, but we are not seeing yet strong flows incoming.

The next question is from Angeliki Bairaktari with Autonomous Research.

First of all, you mentioned on Slide 19 that retail network productivity remains well below its potential, and you also mentioned that customers have taken a wait-and-see approach. So I was just wondering whether you could give us some color on what you've seen so far in the networks in July. And could those new products that you are launching help you recover and move towards a positive retail net flow in the second half? Or is that too optimistic to expect that? And then could you give us some color on how your strategic partners have performed in the second quarter in terms of net flows? And which one of them do you think has the highest potential to grow organically going forward? Is it BAMI? Is it Monte? I would it be interesting in hearing your thoughts on this. And one last question. With regards to the institutional market, have you seen any competition from non-Italian asset managers in your domestic market, effectively? The large U.S. players, are they sort of undercutting prices in this market? And what is effectively your edge versus some of the larger peers operating in Italy? I am thinking that year-to-date, we have seen a lot of flows towards passive, and that is not really one of your capabilities. So any thoughts on sort of where you see the trend going forward in the institutional market would be welcome.

Right. Here I am. Retail. First of all, last quarter, the second quarter on the retail, we -- as I mentioned at the beginning, we saw -- we have the dynamic because April and May, all the networks were basically closed. The gross activity went down to 10% of the normal activity, and we turned positive on the retail as ANIMA on April and May because the activity was, both in terms of subscription, our redemption was very close to 0, and we had accumulation plan still continue to work and some money entering automatically in our funds as net inflows. In June, banks reopened, let's say, smoothly their networks. What we saw, we saw a strong increase in turnover of portfolios. The effect was neutral to negative with no very important outflows, but no important inflow. So we saw a situation depending on the network, some positive, some negative, but with small numbers. What we expect? We expect that if the situation -- and we hope that the situation will become more stable, so people will have more visibility on what will happen. Every day on the newspaper, we read September, we don't know what will happen, will be potentially dramatic for the economy. So people, I believe, is a little bit scared by the situation going forward. And they are, as I said before, on a wait-and-see position. If the situation will come down, I believe that we can turn positive, absolutely, on the retail. Who has more potential of our partners? BAMI is our largest contributor, is largest in terms of number as a network. So BAMI, for sure, is the partner where we expect to see more important numbers. Institutional. Well, Italy -- well, the Italian market is probably the most open market in Europe, probably after U.K. 30% of the assets are head by foreigner, Americans, European. I mean, we have almost probably all the most important asset managers playing a role in the country. So we are pretty used to competition since ever. We -- they -- what to play as what our -- which are our strength if compared to the Americans or to the other asset managers, we are in Italy, we are here. We are -- we have always been here. We know people. We performed pretty well. We provide a good service. And so we are also able to compete with these guys. And we are continuing to raise money in this segment. So we are happy for that, and this tells me that we are competitive if compared to all these guys. Looking at the passive, it depends from -- just to give you an idea, the mandates with pension funds, cash, et cetera, may vary in the region of, on average, 10 basis point profitability. So we are not too far from our cost of the passive. Anyway, we also have a range of product, low tracking error, that we already have since quite a while, and we are also expanding in order to be able to provide additional services to our institutional client. But I think that there is still space for an active management in this segment.

And if I may just follow up on the threat part to retail networks. I guess the argument has been until now that obviously networks don't want to distribute those because they can't get a retrocession fee. Do you see a long-term risk in terms of passive penetration, especially from maybe some new players, digital players, et cetera? Or is Italy still very far away from that threat?

Italy seems -- is still far away from this threat. For sure, we don't have -- and in the last -- a few days ago, we saw a red money farm that is probably one of the few players raising money without, let's say, physical touch, physical contact in Italy. They reached EUR 1.2 billion of assets, distributing assets between Italy -- among Italy, U.K. and Germany. There are no other relevant players in Italy as of today. So maybe we see changes in the future, we expect changes in the future. But for what is our observation point, the physical contact in order to manage investments is still one of the key driver of this business. The technology is used by many distributors. Technology is used, but in order to help the relationship manager to sell the product. In terms of rebates, let's say, the RDR in U.K. in -- no wonder, it seems to me, that is out of the table for the time being in the Continental Europe. So it's something that, as of today, I don't see it as a threat.

Mr. Melzi D'Eril, there are no more questions registered at this time.

Okay. Thank you very much to all of you for attending our H1 conference call, and see you soon and see you at the third quarter. Bye-bye.