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 9 Months 2023 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Luca Mirabelli, Head of Investor Relations. Please go ahead, sir.

Thank you. A warm welcome to everybody connected. I'm Luca Mirabelli, I'm the Head of Investor Relations for Anima. And I've been the Head of Investor Relations since almost 2 days. I started yesterday, I'm very honored to be here. And clearly, my role today will be limited to a little more than giving the floor to the CEO, Alessandro Melzi D'Eril for his usual comments about the results we presented today.

Thank you, Luca, and welcome onboard. Hi, everybody. As usual, I'll bring you through to our presentation. I will start from Page 4. In the 9 months closed at the end of September, we reach -- we have reached EUR 184 billion of assets in terms of assets under management, plus 5% if compared to last year. AUM up EUR 8.5 billion year-on-year and EUR 6.8 billion year-to-date. We registered EUR 300 million approximate of net new money versus EUR 0.800 million (sic) [ EUR 0.800 billion ] last year. Net flows continue to be characterized by a stronger repositioning toward fixed income solutions in line with the historical allocation of our client base. The WAP, the weighted average performance is positive year-to-date and more or less in line with the Italian market, even though we are less exposed to the equity component as you know perfectly. If you look at the numbers and the numbers of income statement numbers, we have a positive margin trend. We are top line still affected by a lack of performance fees. The EBITDA margin is at 72%, thanks to our resilience of the top line and the -- our cost efficiency even if we saw some inflationary pressure. The cash flow remains strongly resilient and a double-digit rate. Page 5, the composition of our assets business by segment as always, 50% of assets invested by the retail, 50% by institutional. We have something new this time. If you look on the institutional chart. We have a new component 4.5% of AIF -- of close-ended funds, thanks to the acquisition closed in July of Castello and we'll get back to it. Page 6. Investment performance. On the left side of the page, the year-to-date WAP is more or less in line with the Italian industry, as I was saying before, even though our historical lower level of equity exposure. On the right part of the page, you can clearly see that we have -- if compared to the industry, we have a lower level of equity while we are more exposed on the flexible and balanced. If you look at net flows, Page 7, as I was saying before, repositioning towards fixed income that accelerate in Q2 continue in Q3. We experienced negative net new money in our flexible funds largely due to the decrease in drop time. As I explained this item more than once, basically, with increasing interest rates, we are now structuring targeted funds fully invested in fixed income. While historically, we were structuring targeted funds with a balanced composition within the portfolio. And maybe the EBITDA component of these funds was invested through -- from the funds mechanism. So now we have these funds getting to an end, and so we have these assets that are going out, while the new funds are fully invested on fixed income without these funds of funds mechanism. Just to remind you that the funds of funds, if you invest in funds of the house, you cannot duplicate the fees. So these assets, basically these outflows has profitability and revenues negligible for the company. If you look at the all the drop component within our asset under management, this accounts for almost EUR 70 million (sic) [ EUR 16.7 billion ] of assets, but only EUR 3 billion are potentially exposed to the effect that I mentioned earlier, throughout '2025. Equity flows remain positive, mostly thanks to accumulation plan. Overall, the impact on margins remain neutral looking at the different composition of our net inflows. Page 8, we continue with robust gross due to the clients' repositioning towards, as we were saying before, fixed income products. Here in the chart, we have a list of funds that we launched this year with the net new money that we have been able to raise on this front. As you can clearly see, we have funds with a massive amount of money flowing in, and these are pure fixed income products. We don't have pressure on fees on the -- on fixed income component. This is out of the table, as I said, more than once. And this is basically is providing to us a stable profitability without additional charge on the customer. What's new? This is something that we didn't have in our past presentation. I would like to talk to you through about Castello a little bit. Page 10. This is our group structure after the acquisition that we closed in July of the 80% of Castello. Castello is a key player in Italian real estate industry. This move basically is aimed at strengthening our company in the alternative asset management business, unlocking for us new growth avenues and of course, maximizing shareholders' value in the medium term. Page 11, Castello is one of the top 10 Italian real estate asset manager with EUR 4 billion of assets approximately, 73 close-ended funds, more than 400 assets within the funds and more than 150 investors in Italy and others. They have a wide range of experiences. They are leader in the hospitality segment, but they cover basically all the segments within the real estate industry. And they have a strong track record in terms of acquisition in the past of EUR 2.2 billion of assets acquired in the last 8 years. If you go to Page 12 the fact and you will look at the chart on the [indiscernible] page, they -- you can clearly see that the strong acquisition capabilities demonstrated by Castello during the years. This chart is very much similar to the one of RE AM in the same period. So we have a similar DNA of organic -- of both organic and M&A growth. The Castello holds 4% of the real estate asset market in Italy as I said before, ranking among the 10 major companies in the sector. Page 13, our project, the alternative. We talked about it more than once, but just to remind you that we started the project in 2020, with the startup of Anima Alternative. We launched our first private credit fund in 2022, we raised EUR 160 million approximately. In 2023, we launched the second private credit fund, EUR 180 million of assets today. And we closed the acquisition of Castello reaching for the -- let's say, for the segment of the group, EUR 4.2 billion of assets managed. The idea is to continue to grow organically and also potentially through M&A in this segment. The -- let's say, the -- every asset class is only private credit, real estate and infrastructure. And so I think that here, this business can be an important leverage for the group, and we will try to maximize the value of this business in the next few years. Looking at our numbers, Page 15. Net revenues -- consolidated net revenues. This includes also the Castello numbers from the 19th of July on, of course, after the closing. Net revenues reached EUR 245 million with performance fees of EUR 3.3 million, decreasing from the EUR 8 million of last year. EBITDA, EUR 178 million decreasing from last 2 years, basically, I mean fully -- the decrease is fully explained by lower average AUM as compared to 2022 and like the decrease in performance fees. If you look at the net income, we are up if compared to 2022 by almost EUR 10 million to EUR 96 million. Right side of the page margins, the trend remains stable. This is driven mainly by the -- a favorable product mix, negative net new money on flexible funds, as I explained before, flexible funds with negligible profitability for the company and plus 1 traditional life insurance has a very low profitability for the group. Of course, focus on actively managed products help bringing up the -- our profitability in general. Cost/income, excluding performance fees from revenues, as always, we remain at the best European level amongst asset managers. I will skip Page 16. This -- but we will give you the number of -- more specific of -- on the color on the Castello acquisition. And I would go to Page 17. Net fees gradually recovering. I mean we had a 2021 very positive, of course, then we have a decrease in 2022 because of the decrease of assets, of course. And now we are slowly recovering, but continuously recovering quarter-by-quarter, and we will continue to do so. On the right side of the page is this component salaries, so personnel expenses. This component is increasing due to investments, mainly on front office sales and alternative business. Page 18, just to explain you how we get to an increased net income given the decrease in the EBITDA item. So if we start from the net income of 2022 if you look at the chart, we registered minus EUR 18 million approximately of EBITDA. But then we recovered -- we were able to recover EUR 9 million with investments in -- basically the funds in house, funds of the house. These are EUR 9 million compared to last year, EUR 10 million invested in liquidity because of investments in liquidity. The unwinding of a derivative on a financing that we closed in June. EUR 2 million on -- from taxes and EUR 1 million from other [ small basis ]. So this -- and this is bringing our net income -- 9-month net income up to EUR 97 million. Net financial position. Net financial position basically is EUR 61 million negative. At the end of September, this includes EUR 71 million of dividend in May, EUR 82 million debt repayment in June, as I said -- as I mentioned before. EUR 60 million of the Castello acquisition in July and EUR 33 million of share buyback that we closed a couple of days ago. This robust cash generation of the company in this case is allowing us to continue to provide an interesting yield to our shareholders. And also if we look at the -- we've completely -- to potential M&A -- when opportunities may arise. Page 20, operating expenses and liquidity management. This is -- if you want, is more specific into net -- of the net the financial income accumulated 2022 and 2023, just to explain you how we got to such a significant increase in this year. The active liquidity management basically brought a positive income of EUR 9 million in the 9 months of 2023 in terms of interest income. As I mentioned before, we have a derivative -- the line of the derivative fully covering the interest expenses on the outstanding bonds. So getting to some closing remarks. Page 2022 (sic) [ 22 ]. We are in a -- I mean we are in a difficult period for the asset management business. We are seeing that -- and we saw that at the end of September, the industry registered negative net new money for -- by EUR 32 billion overall. This is the first time since 2011 that the industry is registering negative flows. We were able to register positive flows by EUR 300 million into managed products. I think this is because of our diversification in terms of distribution networks, our product offering and our positive environment for our historical core solution based on fixed income, mainly Traguardo [ France ] and our Traguardo solutions. Equity flows remain positive, thanks to [ the ] fact -- all our automated plans. And this is something that we want to highlight because we didn't -- we said more than once in the past that we were pushing a lot on accumulating automation plan that were very important for the client. And today, we see that are very important also for the company. Inflows are going towards our fixed income solutions mainly targeted funds with Italian Govies underlying. This is -- this helps the clients having very interesting returns and the company to have interesting margins also thanks in terms to the fact that we are a little bit repricing upward this type of products. And this is also why the margin outlook remains neutral. So we don't see particular pressure on margins. And I think that for the time being, margin pressure is out of the table. Looking at our alternative business. I think that we have strong ambition in this business. I think there is a lot of space for us to try to grow and reach important results. This is a business with potentially important revenue synergies coming from the fact that with a joint offer traditional products and illiquid and alternative products, we can try to reach different segments of client base, namely private banking, financial advisers and a certain type of the institutional clients. On top of that, having an alternative business brings business diversification, both in terms of flows and AUM dynamics. It's a business less volatile with different dynamics that can help our -- stabilizing our business in different type of market situations. Page 23. Of course, the business and then the strong cash generation that this business provides. Dividends and buyback. Our dividend policy, historical dividend policy is 50% of consolidated net income. We did more than that more than once. And we are -- we were able to provide consistently am yield to our shareholders above 5%. On top of dividends, in the last years, we decided to pursue different buyback programs with cancellation of shares. We canceled approximately 14% of the share capital in the last years. We launched out the program also this year, EUR 30 million announced at 2nd of August and completed 31 of October. We now have approximately 4% of shares in portfolio. This has brought important benefit in terms of liquidity on the stock and is something that we have clearly in mind in order to increase the yield for our shareholders recurrently, if you want. The stock, the 4% that we have in portfolio, we'll see what to do. But typically, as we said historically, we -- we will get to the AGM of year-end, and we decided to cancel large part of this year or we keep the shares if we see that there is some M&A ongoing or very close to the -- to happen. On top of the capability to generate cash and to remunerate our shareholders, we keep an important flexibility in terms of M&A. I think that this company is generating a massive amount of cash, and we are able to remunerate our shareholders and look at the market actively. We estimated spending power at year-end after dividends of approximately EUR 500 million. This is preserving our investment-grade rating and also not considering potential profitability of some of potential targets. So I think that this slide shows how the company can continue to provide a very interesting interest to our shareholders without affecting the capability for looking at the market from a strategic standpoint. So thank you very much, and I'm fully available to your questions.

[Operator Instructions] The first question is from Elena Perini of Intesa Sanpaolo.

Yes. Good afternoon, and thank you for your presentation, and welcome Luca onboard. Actually, I've got 3 questions, if I may. The first one is on the trend for operating costs because while you had a significant year-on-year increase in the third quarter, the double-digit increase. So I was wondering what is your outlook for the fourth quarter? And if possible, also for 2024? And then my second question is about the inflows, the trend of flows in October and your expectations for the fourth quarter. And finally, I've got a question on the performance fees, do you have a benchmark funds in your portfolio? So I was wondering if in the fourth quarter, we could see some performance fees to help your top line.

Thank you, Elena here again. Well, looking at the cost front, actually, we registered as compared to last year, maybe we're looking at the same perimeter. So excluding the acquisition of Castello that, of course, is bringing additional cost in. We have approximately plus 6% overall on cost, it is slightly higher of our historical capability of keeping cost under control. We are -- because we didn't want -- even though we knew that this was a tough year in terms of -- on the inflow of flows, we didn't want to give up on investments, both on terms of marketing activities and personnel. We are anyway getting back to pay more attention to this item, waiting for the market to -- let's say, for the situation to change. So we will become a little bit tougher on cost. But I mean, the increase of this year, I think, was mainly driven by our, let's say, willingness to invest and by a little bit of inflationary pressure as well, of course. If you look at net inflows, well, we have October, we will close October negative because of disrupt component. We had a lot of targeted funds ending their life in October. And so disrupting phenomena, we affected the net inflows in October. But if we take out -- I mean, if you don't consider the disrupt component, we are positive in October. And we are seeing interesting sign in terms of vitality of our networks. As I said, more than one this year, we did and we are doing very well in Monte dei Paschi. We have a little bit more difficulties with Banco, but we are deploying, let's say, a cash program in order to recover in the next few months. For the rest, we are performing pretty well. We are happy if considering, of course, the context. Optically, we have this element of [ wrap ] that in October is affecting. And because October was particularly full of end of life on this target date. Performance fees, we are -- yes, we have some -- we may catch some additional performance fees on year-end. And let's see, we also hope that some decrease of interest rate that we saw in the last year may generate some additional performance fees. We don't expect huge numbers, but some -- we may have some million on -- from here to the end of the -- from now on until end of December in terms of performance fees.

The next question is from Luigi De Bellis of Equita SIM.

I have 2 questions. The first one is on Castello. So can you provide an update on the expected contribution for Q4 in terms of management fees and cost and your expectation for 2024, including net inflows expectation for the company? The second question is on the shareholder remuneration and capital allocation. So can you give us an update on your buyback strategy? And on M&A, you mentioned EUR 500 million of spending power. Are there some dossier on the table? Or are you currently working on any new distribution agreement with current or new strategic partners? And just a last one. In the last days, we are starting to see some reduction in interest rates. So how are your funds positioned in relation to an interest rate decrease and distance from high watermark?

Thank you, Luigi. Well, Castello, if you look at the Page 16, we provided the 9 months of Castello. This business is pretty much stable in terms of revenues. So it is easy to predict the fourth quarter. So you can assume more or less there is -- that the company has a stable path during the year, is less volatile as compared to our liquid business. For our concern, next year, we are working on industrial plan. I'm not ready to provide guidance for next year. So we may get in touch and we will talk about that in the next call. Buyback. Well, buyback, as I said before, buyback as of today and in the last 4 years, 5 years has become something regularly used by the company in order to increase the yield for our shareholders. And we will continue to do so. So it's something that we have clear in mind and we are not reactivating the program now, but it's something that clearly we have in mind and it's a tool that we will continue to use in the next future. And as I said before, the idea is always of buying back shares and then using the shares for M&A, if any, or canceling the shares, reducing the total number of shares at year-end as we did in the last few years. Interest rates, yes, of course, we wish the same that the reduction and decrease in interest rates is something that affects -- positively affect our business in general and of course, our product also taking in consideration of the strong fixed income -- the strong fixed income -- the fact that we are still towards fixed income in terms of general asset allocation. So this may affect the market performance of our product and potentially the performance fees moreover, will target these funds. So a strong decrease or a significant decrease in interest rates may help us in producing additional performance fees. In general, the increase in interest rates, I think, would change the section of the sector and the market trends. This would help bringing back a lot of clients on managed solutions. And therefore, I think that a more -- if you want normalized level on interest rates would be beneficial for the sector in general and for Anima moreover.

[Operator Instructions]

Sorry, I forgot an answer for Luigi, the M&A one. So we don't have, as of today -- I mean we are always, if you want, active in scouting the market and we continue to scrub the market. We don't have significant outflow -- if you want, we don't have significant transaction on the table with potential significant cash out, but we are always scouting the market, regularly scouting the market. New distribution agreements, we continue to work with medium-sized bank -- small medium sized banks in order to attract them in our -- within our partners. We are not discussing with our major distributors in order to reshape our agreements. For the time being, we are doing pretty well with them, and we continue to do so.

Gentlemen, there are no more questions registered at this time.

Okay. So many thanks, everybody, and see you in February for our year-end call. Thank you very much to everybody.

Goodbye also on my side, and we'll keep in touch and we'll certainly get in touch within the next days to establish proper contracts. Thank you.

Bye-bye.