Azimut Holding S.p.A. (AZM) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Azimut Holding's First Half 2021 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Gabriele Blei, Chief Executive Officer of Azimut Holding. Please go ahead, sir.

Thank you very much, and welcome to everyone. We'll go, as always, quickly through the presentation and leave you as much time as possible for Q&A. If we can start on Slide #4. Key highlights of the first semester 2021. We are still delivering a very positive net weighted average performance to clients of in excess of 5% and in excess of the benchmark. Net total assets at record level as well as the inflows that we have gathered through the first semester of EUR 12.9 billion. This includes also the recent and announced acquisition in the Private Markets in the U.S., Pathlight as well as the Kennedy Lewis lift-out of the team. And this is something that we have already plugged in to provide you the most updated number. First half net profit of EUR 226 million, and we will go into the detail through the presentation of how this has been generated. Turning to the next slide. We wanted to provide you with an update of our Private Market initiative. It's been now a couple of years of strong work in this area with a global footprint that has been created. Initially, we have Azimut Libera Impresa launched -- officially launched in 2019. The company was operating since 2015. In 2019, we had EUR 600 million in assets under management. Today, we are at EUR 2.1 billion with a very diversified product range and 30 employees, of which 25 investment professionals. These are people that we have hired throughout those years in order to be able to be a credible player in the Private Market space. Not only to that, we also have third-party agreements with a selected counterparties. Among those, we mentioned Blackstone, Peninsula and Muzinich with whom we have delegated investment management agreement. On the right-hand side, Azimut Alternative Capital Partners, our U.S. company that is operating since 2019. The first transaction was completed in July 2020 and now has EUR 1.4 billion of pro rata assets under management, whereby the pro rata means we only plug in those numbers the 20% on average assets under management of our affiliate company. The first transaction, as I said, Kennedy Lewis, it's an opportunistic private credit manager. We are already starting to unlock their expertise throughout our distribution system. When we bought the company, the business had $2.1 billion in assets under management. HighPost, 12.5% so far, behind the backing of the Bezos and Moross families. They are launching in the fundraising phase of their fund. Actually, yesterday, they have told me that they will be completing their first investment by mid-August, and we're very excited about this initiative. And we are presenting this initiative throughout our distribution system, both in Italy and in the U.S. The latest one, latest addition, is Pathlight, an asset-based lending private credit manager, $1.4 billion. Clearly, here, we have to still work with them to create a parallel fund or vehicles in order to distribute their capabilities throughout our network. Moving to Slide #6, recurring revenues. As you can see, we have tried to provide you a bit more color on how numbers have been built up throughout the first semester, excluding or highlighting the change in the perimeter due to M&A, where clearly Sanctuary plays a role. Revenues are up 19%, up to EUR 566 million, of which in the same perimeter, if we exclude the M&A transactions, we are up 14%. The breakdown, you can see this on the bottom of the slide, left-hand side. And I would like to stress to you the fact that if you add the insurance revenues and the management fees, we're speaking about more than 90% of our fees coming from these 2 sources that tend to be quite recurring. On the right-hand side, margin trend as well as the contribution on a quarterly basis. Clearly, in the first quarter, we had Sanctuary only for 1 month, whereas there is the full impact in the second quarter of Sanctuary as well as the other M&A transactions that were completed. The basis point trend is rather stable. We're quite pleased with that. And this obviously excludes the impact of Sanctuary. So we did it on a like-for-like basis. Turning to the next slide on the cost side. Distribution costs are up 5% as far as the same perimeter is concerned. If we add on top the M&A impact, we reached EUR 200 million in the semester of total distribution cost. Whereas in the SG&A line, we are confirming or reaffirming for this quarter as well in the semester a rather stable on a like-for-like basis a trend in terms of SG&A. If we include the change in the perimeter over the last 12 months, the number goes up to EUR 117 million. Cost/income ratio stays rather flattish as far as the quarter-over-quarter trend and I would say, again, a decent control in terms of where costs are going on a like-for-like basis. Next slide, net profit. We are up 58% to EUR 226 million. EUR 30 million come from the tax goodwill realignment. Alessandro will go into the details. But this is basically what we had announced at the end of -- sorry, with the full year numbers of 2020 that we were going into analysis of potential adoption of a tax law that was drafted towards the end of last year that would have generated eventually such an impact on our numbers. And we plugged this in the second quarter of this year. Needless to say that recurring net profit is going up substantially. And even excluding the goodwill realignment, we're quite pleased with where the numbers are going. Remember that when we did our Investor Day back in 2019, we were assuming recurring profit on an average basis and based on the then mix of EUR 50 million per quarter. I guess here, it's good to remember those numbers and see where we're going. On the right-hand side, EUR 226 million so far. We have a significant potential performance fees to be cashed in, which we are accruing on a non -- on a daily basis. And this is a good starting point for the remainder of the year and to actually reaffirm that when we set targets, we tend to set targets that are quite challenging to achieve. But if the business goes in the right direction and all the people work together to achieve those numbers, then these numbers become achievable by our company. Turning to the next slide, a snapshot of our inflows and AUM. We are reaching record levels, a benefit and courtesy of the market, indeed, but also a strong inflow activity. So far, we are at EUR 76 billion almost. If you include the Private Market initiative closed in July, we are in excess of the EUR 76 billion in terms of assets. 37% stands outside of the domestic market. The number is incredibly high. And remember that, again, when we did our Investor Day, we were trailing at something like 20%. And we were assuming that this number would reach 35% by 2024. And once again, when we say things, we then tend to deliver them, if not overcome them. Private Markets at EUR 3.5 billion so far, up from EUR 2 billion at the end of 2020. And year-to-date, net inflow of EUR 12.9 billion, again, including the initiative closed in July on the Private Market side. EUR 5.5 billion of organic growth with the mix of Italy and foreign operation, which we'll see in a minute. Once again, life insurance, alternative and mutual funds make up 86% of our AUM breakdown. This is something that some of you had requested for quite some time. We have provided this snapshot of breakdown of the inflows in terms of Italy and all the different -- let me say, the 3 macro areas in which we operate, so Europe, Middle East and Africa, Asia Pacific region and the Americas as well as, for transparency reasons, we are plugging in the M&A effect, which is mainly driven by Sanctuary, the Australian operation as well as Pathlight as far as the Private Market is concerned. As you can see, our foreign operations are collected so far, EUR 3.5 billion; and Italy, EUR 2 billion. On the Italian side, we're very pleased with the mix that we are delivering. There is clearly not the full impact on those numbers due to the fact that some of our products are in the fundraising phase on the Private Markets side. And therefore, you don't exactly see the full activity and the benefit on the numbers exactly when we have to post our quarterly results. As far as the EUR 300 million of custody or not internally managed products on the Italian side, this is mainly driven by the effect of the recruitment activity, which is proceeding well. And the first movement is through administrative assets. Turning to the next slide, a bit of details on Private Markets. We are at EUR 3.5 billion, as I said, very diversified across different strategies, across countries. And we will be continuing to launch and close funds in the coming months. Four products that we are pleased to highlight in terms of the new initiatives that will have already reached our network in terms of fundraising capabilities. HighPost, as I was mentioning before, it's the first initiative with our friends that we can deliver to our network, both in Italy and abroad. We are committing to reach at least USD 50 million in terms of fundraising. Blackstone, we have completed a partnership with them on one of their products. And we are participating in the closing of their second Asian fund, following the successful launch that they had of their first fund. Here, the target is to reach some -- at maximum EUR 150 million. As far as Peninsula is concerned, we have launched some months ago a European long-term investment fund, and now we are launching RAIF fund for professional investors. Last, but not least, we are expanding our know-how and partnership also with an Israeli, very successful VC company, Sweetwood. They are managing a fund of fund, and we will be launching soon -- sorry, it's already launched, a fund that invests in the second in terms of size VC market in the world. And we are targeting EUR 150 million, both in Italy as well as throughout all our distribution systems. Next slide, very quickly, nothing to highlight, I would say, if not the usual breakdown in terms of assets as well as geographical footprint. Hence we would like to, on the following slide, provide you with a bit of color on Pathlight. They are a leading private credit manager with $1.4 billion focused on asset-based loans secured on a first or second lien basis. And they have, I would say, achieved a successful unlevered IRR between 14% and 18%. The team is working together since quite a long time, and they have a very diversified and solid investor base. They're actually in their second fund fundraising phase, and they are expecting to close this in the coming months, reaching or exceeding their original targets. Just as a reminder, what are we doing in the U.S., we're acquiring a minority stake in GP companies. And this will benefit the flow of revenues, recurring revenues as well as carried interest that we will be able to achieve, and it provides us with the expertise as well as geographical diversification for the effort that we're putting into raising Private Market funds. Clearly, for Azimut, the Pathlight has the benefit in terms of pro rata assets under management that we're consolidating, almost $300 million, as well as we will receive quarterly distribution from profit because this company charges carried interest with an American approach. As I said just earlier, the team is working together for quite some time, very consolidated and with a very solid track record in the industry. It's an industry, this one in which they operate, that has quite a significant barrier to entry. So it's either you have the content, the relationship and the knowledge on how to structure the transaction, or it can be extremely complicated to step in. As a quest to transparency, we are providing you some details as far as Sanctuary is concerned, some key metrics of a company that is actually in its ramping-up phase still because they are completing very solid transactions in terms of bringing independent advisers into their system. So the AUM evolution is quite significant between the day in which we closed the transaction and today. And we will see in a minute where they are sourcing their deals. Accumulated monthly revenues that are quite 3x the ones that they had in February as far as June is concerned. Clearly, here, there is a lag effect because AUM are transitioning and are building up. So the full impact will be seen in the following months, quarters provided that they are unable to keep growing, which is actually the opposite of what's happening. As a consequence, net new money growth is on the high end with an annualized net inflows in terms of assets, which trends towards 50%, if not more, as far as June is concerned. We are working with them to start, and this is why there is one sentence in bold, which is the integration between production and distribution and, therefore, cross-selling Azimut Global Team products, starting clearly from the Private Market footprint that we have in the U.S. and understanding with them how we can provide them with further investment solutions to close the gap between production and distribution. Clearly, we want to continue to -- continue for them to be able to increase the number of RIAs as well as the participation in the business that they are buying. As you can see in the following slide, they are transitioning gross assets of $5.3 billion. 60% is something that was already being transitioned, and they are capable of the teams that they are hiring of bringing 90% plus of the AUM. They already have LOIs signed for additional $1.2 billion going forward, and we expect them to continue to grow. This is exactly the reason why we provided the vast majority of the money into the business because they were seeing a strong potential for growth and for attracting these RIAs that are shifting away from the traditional wholesale model into independent structures. Moving to Asset Management. I wanted to provide you with a bit of a snapshot as far as our innovation process is concerned. We've done quite significant achievements in the first half. But I would say, since 2019, since the reorganization of the product range and onwards, we have launched our first token. It's the first security token and asset in the asset management sector. We have really strengthened our neoLending activity. This is the Synthetic Bank project, where we are basically providing a bridge between Private Market funds and the needs of SMEs through technology, implementing fintech approach. And on the digital asset side, we are actually quite proud to be the first asset management company in Luxembourg to have received the authorization to manage virtual asset strategies as well as leverage on the FundsDLT platform in order to use technology as an investment opportunity but as well as the capability to become even more efficient as far as operational processes are concerned. So through the platform, we will be able to reduce cost and improve efficiency as far as the asset management back end is concerned. The ALTO range is another initiative we're quite proud based on the PIPE approach. We have launched 2 additional products, ALTO Italia and ALTO Venture that are quite interesting as far as our client base is concerned. Further to this, P101 is something we have announced during the first semester. We took a 30% stake in a company that we know very well that has been working with us for many years. We are a corner investor in some of their products, and we want to further leverage our respective expertise in order to create a European investment platform, supporting innovation and supporting SMEs with the tech and driven footprint. ESG, it's an element that we are never forgetting. Azimut Sustainable is now live and kicking. 40%, if not more, of the Luxembourg fund range is following ESG criteria and their investment strategies, and we have implemented the shareholders' directive across all our asset management companies in Luxembourg and in Italy. Private Markets, last but not least, as I said, very successful so far. And we're trying to leverage our internal expertise as well as our third-parties expertise. Following slide, there is a bit of a snapshot of Azimut Direct, which is part of the Synthetic Bank project or the neoLending project, which basically becomes the bridge between our funds, our Private Market funds and the SMEs. We are more and more pushing into bringing closer to the real economy and private savings and extracting an interesting return for our investors. So far, we have generated EUR 450 million of financing. Remember that we were speaking about a target of EUR 1.2 billion in the period up to 2025. Next slide, we have a net weighted average performance which is quite -- which we're quite pleased of, 5.2% net of our cost. And in 2.5 years, we have delivered to our clients 16% of net weighted performance, which is something that clients are happy about and an additional reason for actually revisiting the asset allocation as far as traditional investments are concerned, so to kind of crystallize the returns generated so far and then move to asset classes that can deliver superior returns in the medium to long term as Private Market funds. Following slide, same picture as always, and we are overperforming the average of the industry with good contribution also coming from our foreign operations. Italy, the network is recruiting significant people so far year-to-date, 96, and 12% growth of the network in just over 3 years. You can see some statistics, but I would refrain from commenting them. And if you have any questions, please ask them at the end of the presentation. I will turn to Alessandro for the financials, as usual, and then going to the outlook.

Yes. Thank you, Gabriele. We can move to Slide 24. As we always do, we can, let's say, give you a bit of color on the numbers. So here, you have the consolidated income statement. As we always do, let's start from the consolidated net profit, EUR 226 million, around EUR 83 million if we compare it with the first half 2020. And even if we, let's say, take out the effect of the EUR 30 million coming from the tax realignment, we are absolutely, let's say, positive and satisfied of the first half results. And also, if we compare the second quarter 2021 with the second quarter 2020, again, here, take out the effect of the tax, then we can -- I mean, we reached [ EUR 99 million ] of adjusted net profit. We are EUR 5 million above the second quarter 2020. And also, if you consider the effect of the variable fees, up from this quarter compared to the previous [indiscernible] that we have EUR 14 million less. And also, there was a positive effect on the interest income coming from the valuation of the fair value. Here, the gap, I mean, that we create in the 2021 is more significant. Again, back on line by line to -- without spending too much time. In total revenue, we increased by EUR 90 million. In operating costs, there is an increase of EUR 41 million. And the operating profit increased by EUR 50 million. And the profit before tax, we are above EUR 62 million if we compare to the first half 2020. The recurring fees has a significant increase compared to the 2020, about EUR 77 million. Here, the difference which is coming from EUR 21 million is the new perimeter. If we consider the acquisition of Sanctuary and the acquisition that we performed in Australia, this is [ almost explaining ] the variation in terms of new perimeters. But then also, we had a significant increase for EUR 47 million coming from, let's say, the standard business; and then EUR 7 million are coming from the international business, so call it [indiscernible] figure. Variable fees decreased by EUR 12 million. If we focus the effect of the variable fees in the first half 2021, we have up to around EUR 20 million, EUR 21 million coming from the Luxembourg business, so the crystallization method; and then EUR 6 million is coming from the international business. On other income, we have, again, a significant variation if we compare it with the 2020. This is coming from Sanctuary again. So the acquisition performed in the first half 2021 but also something that's coming from what we call and we already called in the presentation as Synthetic Bank. So this is something that will come in -- I mean, it is coming up as contributing the P&L, and probably we will see a better, let's say, impact in the future. About the insurance revenue, we have a valuation of EUR 18 million. Again, here, the valuation is coming EUR 6 million from the recurring fees and EUR 12 million from variable fees. At the level of the cost, distribution costs, EUR 25 million more compared to 2020. Again, if we give you more details, around EUR 12 million are coming from the international business and the evolution of the new perimeter, and EUR 3 million is coming from the Italian business, I would say, so the financial adviser directly linked to the evolution of our recurring fees that we were mentioning before. On personnel and SG&A, EUR 13 million more. To avoid any issue for this line that you see increasing for EUR 13 million, it's again here the effect of the acquisition in Australia and as well in the U.S. So taking out the valuation of the new perimeter, costs are essentially flat. So again, here, we are demonstrating Q-on-Q the attention of some cost and the discipline that we are still keeping starting from 2019. The other line are -- I mean, moving under the operating profit, the interest income is mainly explained with a mix of impact coming from the fair value option, coming from the valuation of the fair value of our liquidity that is investing on our option funds and then dividend coming from the minority stake. The other line, let's say, that are almost in line, therefore, I will not spend time. Just few seconds on the income tax, yes, you have EUR 5 million of impact in terms of what we paid for the realignment of the goodwill, so 3% of EUR 150 million. So the added valuation that you see is explained by this EUR 5 million. And on the deferred tax, you have a EUR 35 million coming from, again, this effect of the realignment. Moving to Slide 25, you have the net financial position. We are back to a positive net financial position if we compare it with June 2020. We are positive despite the fact that we paid the dividend. So it's -- actually, the cash generation that we are doing -- performing is very important and significant. Cash and cash equivalents increased compared to the 2020 December by EUR 20 million. And also during these 6 months, we paid back EUR 7.5 million to the loan BPM. You can see at the beginning of the slide that there is a variation between December 2020 and December 2021. I'm going to leave back to Gabriele, who will give you a little bit of focus on the debt.

Thanks, Alessandro. So turning to the following slide, we wanted to picture where we are in terms of debt maturity and potential future actions that we will be taking. As we have seen so far, we are still highly cash generative. We now have 3 outstanding debt, one that would be fully repaid by the end of the year, 44 -- EUR 45 million left of the senior bank loan. Then we have a EUR 350 million bond that was launched to finance the growth between 2017 and 2021, which will be fully repaid by March 2022. And then we have the remaining one, the EUR 500 million bond that we launched in December 2019, which will be probably repaid when it would fall due. As you see on the bottom of the slide in red, we have basically very low ratios as far as net or gross debt to EBITDA, and this compares with the Fitch approach, which basically doesn't include any performance fee in their rating approach, and therefore, the metrics that they use are quite more stringent than the actual situation of the business. Moving to the summary and the outlook. We have 4 main points. We -- in Italy, the momentum is continuing to improve. As you have seen, margin-wise, there is a solid trend, and we're confirming the numbers of Q1. The quality of the inflows is what matters to us because through this, we are able to change the future performance of clients. Clients eventually at an industry level are losing money on their bond side, and this is probably not very well perceived because of the equity component that is clearly benefiting portfolios. We have been able to -- so far, year-to-date, we are up 1.5% as far as our returns on the bond component. So we have been able to, through strong diversification and selection of the different driver of performance within the bond component, to actually perform pretty well. The last point on Italy, we are one-of-a-kind network based on partnership and entrepreneurial approach, and we are probably the one and only advisory network that is bringing to our retail clients Private Market investments. As far as the international is concerned, trends are encouraging. We've been trying to discuss this with you for quite some time now. We were seeing an acceleration. And the acceleration is happening. Even excluding the performance fee component, the business is, across all the different locations in which we are operating, is building up. And we clearly need to focus our attention on further integration between asset management and distribution in our key markets. This is something that will be quite a theme over the next years. The global team is now deploying and creating synergies and opportunities of cross-selling as far as markets and products are concerned. Private Markets, EUR 3.5 billion with a very good presence in the United States. This didn't exist after a year ago. Now it's real, and it's 42%. And it's something that we will be pursuing further because it brings a lot of benefits in terms of know-how and potential deployment of the cash that we will be raising from our clients. Last but not least, the business of Private Markets clearly brings us recurring and stable fees, and when it happens, carried interest that we'll have the benefit of cashing in, and we'll build up the net profit of the future. Capital management. Dividend and buyback, this is something that will continue going forward. Since the IPO, we have always paid dividends. We have started to be active on buybacks since many years. And this is done in a very opportunistic approach. So far, up to today, we've paid EUR 1.6 billion cash returned to shareholders in the form of dividends since the IPO. On top of that, we had delivered EUR 400 million of buybacks for a total of EUR 2 billion out of EUR 2.6 billion of net profit generated since the IPO. Deleveraging is something that we have discussed many times. It's ongoing, thanks to the sound cash flow generation. We are going to remain strictly focused on our deleveraging approach because we want to show discipline in leveraging and deleveraging the balance sheet. On the very last slide, this is something that we are not very often we do, but we discussed this internally, and we decided that it was about time to say something vis-à-vis our targets that are still questioned by the market. We believe that with the results that we have achieved up to the first half of 2021 of EUR 226 million and the recurrent business as well as the performance fees that we have accrued, we can move to a target, that provided market remain kind of normal, will range between EUR 350 million and EUR 500 million. The higher end of the spectrum is increasingly higher than the EUR 350 million target. And this is mainly linked with the courtesy of performance fees that we will be able to generate up when the year will close. As far as net inflows are concerned, we had stated a target of EUR 4.5 billion, obviously, excluding the consolidation of the EUR 7 billion of Sanctuary. We are now at EUR 4.8 billion and expect the year to close, under normal market conditions clearly, to at least EUR 6 billion of net new money. I will close it here and leave you time for Q&A. Thank you.

[Operator Instructions] The first question is from Giovanni Razzoli of Deutsche Bank.

The first question is about your target in terms of net income. Can you share with us what are the performance fees which you have yet accrued as of today, so to have an idea of the sensitivity of the target to changing market conditions? The second question relates to your net financial position. You are generating a lot of cash, little has been the dividend payment in the second quarter. And the market is increasingly focusing on the dividend of the companies. Given the trajectories of your earnings, I was wondering -- and the fact that you plan to reduce quite significantly your gross debt in the next couple of quarters, I was wondering whether you may consider the introduction of the interim dividend as some of your peers already do. And the third question, allow me to ask you this. We have seen yesterday, one of your competitors sterilizing the losses on some of the clients' investments. What are your views there? Are there any position that you see at risk? Or any comments on that would be useful.

Thank you. Let me start from the last one because this is something we are quite focused on since the very beginning of the business. We've always argued one thing with our clients, with investors, with the market. We wanted to be an integrated player between production and distribution, not because it was an easy way to find higher margins, but because we wanted to know where we were putting and investing the clients' money, and we wanted to understand how our distribution system could market certain products to our clients and build an asset allocation that had to be in line and has to be always in line with the clients' expectations. When you start to outsource either the production or the distribution, you lose grip. And when you lose grip, something bad can happen. Probably it's not that bad for our competitors. But for us, an independent player, our reputation vis-à-vis our clients and the market is the most important asset we have. So honestly, we are not concerned by what happened. I mean, certain problems can always occur, but we are more focused on retaining and delivering on the strategy based on a sound business model that we create and keeps the full integration. This is why we have -- we went abroad by proposing a similar model where it was possible. And this is why we insist on our Italian franchise based on production and distribution. On your second question, the introduction of an interim dividend, it's something possible. It is something that creates a bit more bureaucracy because of paperworks that you need to do. It is something that we will or we may discuss and analyze going forward. So far, we had, up to last year, a profit and loss that was driven by the strong contribution in performance fees, which was clearly something that we couldn't anticipate and, therefore, would hinder the possibility to have an interim dividend. Going forward, it's something that we can consider. But so far, it's not, let me say, at the top of the agenda, but we will certainly put our head on that. Target on the net income, I guess, there is a slide on page, let me see in the highlights, where we see -- where we show the numbers of EUR 350 million compared to the EUR 226 million, Page 8, and the potential performance fees that we can cash in. It's not a -- we didn't use random numbers. These are underlying real numbers behind. And I would leave you to get estimate how much performance fee since this is a number that we don't speak even with our wife or daughters because it is a well-kept secret since we would be able to understand how much money we will be cashing in on the 31st of December. Beside the joke, it's a significant number. It's a number that is the result of a significant performance to clients. And we can just manage this in a way to retain the overperformance that we have vis-à-vis the benchmark, and it will clearly depend on the market movements between now and the end of the year.

The next question is from Domenico Santoro of HSBC.

It's Domenico. Just a few question on the perimeter change, maybe I'll go one by one, if you don't mind. If I look at the distribution costs and the way it's changes because of the different consolidation, I get that -- I mean, a major portion of these revenues are currently paid out to financial advisers, more than 80%. Is it correct, or I'm doing something wrong? And also, when I look at the SG&A, it looks like at the moment, the perimeter that you have consolidated is in heavy losses. So I'm just wondering whether the Q2 includes some one-off in terms of SG&A. And then I have other questions.

On the distribution cost, you're right. This is the level, more or less, of the rebate that is paid out of Sanctuary, and it's something that is in line with market standards. Clearly, what is missing within Sanctuary and within our U.S. system is always the integration between production and distribution that will increase the overall margin that we can extract. I'm not sure I understood your question on the SG&A. Can you just be more specific?

Sure. Sorry about that. I apologize. If I sum up the distribution cost and the SG&A that you have consolidated in H1 because of the change in perimeter, and comparing to the revenues that you consolidate, this business, it looks like, is in heavy losses. So I'm just wondering whether, in reality, SG&A includes, in the second quarter, some specific one-off due to the consolidation of the different entities abroad.

Hold on. We're just reconstructing the number. Domenico, we are rebuilding the numbers so that we can provide you with an answer. We'll go ahead with the questions, and as soon as we have the number, we'll provide you with the answer.

I understand. Sorry, sorry. I mean, sorry for creating confusion.

That's all right. Not at all. No, no, not at all.

I mean, also based on the answer that I will get, can we just look prospectively how the contribution of Sanctuary will be in the future? If my calculation is correct, it depends which amount of assets I consider with inception, which were probably EUR 7 billion or, as of now, become much more, [ another EUR 1 billion ]. The profitability of Sanctuary is around 60, 70 basis points depending on the level. So I mean, it's not a mystery that all these assets are basically AuC. So I'm just wondering, how shall we consider in the future the margin changing on the EUR 9 billion, given that you potentially are going to remix the asset of Sanctuary more equity and less profitable assets?

Okay. Sanctuary is clearly a business that is receiving an enormous amount of assets, thanks to the investment they're making. And they are -- we are expecting them to be slightly negative in terms of net profit, some couple of millions in 2021, which is mainly driven by the fact that assets that are transitioned do not immediately generate fees, and those assets then have to be requalified as well as we need to increase the penetration of our own product. And so the expectation we have for full year is basically not relevant as far as our numbers are concerned. But then from 2022, based on the current assumptions that we have in terms of addition of assets and RIAs, we'll start to generate profit. How much profit will they generate is also a reflection of how quickly we will be able to use products that we manage and manufacture by ourselves. And clearly, this will not directly impact the number of Sanctuary but will be profitability that we will see in our other affiliates in the U.S. or anywhere else in the world. So overall, 2021 should not be a year in which we will see a positive contribution to net profit but very limited in terms of negative impact. And 2022 instead, everything else being the same and based on the assumptions on which we are working with them, we'll start to ramp up and generate incremental profit contribution.

Understood. A final question on your guidance on net profit for this year. If I make up the numbers for performance fees and also for one-offs, which was the one -- the fiscal one-off, I get on H2 which is lower in absolute terms compared to the H1, if my calculation is not wrong. So I'm just wondering whether this is due again to the consolidation of the perimeter abroad that is paying losses or is due to seasonality on the distribution cost or any one-off that you might consider that you might want to comment.

Well, it's a mix of things. And I don't know what is the number you are implying in terms of second half. But as far as our thinking goes, we had clearly implemented the second half that has July, August, September, that tend to be softer month in terms of activity and, therefore, potentially we can see not exactly the same rate of growth we have achieved in the first half. Clearly, if we achieve those net profit target as it happened last year, and some of you were kind of surprised, we will have to pay our people because of extraordinary numbers well above our expectations, and we have variable compensation packages that trigger extra or excess payment in terms of variable bonuses. So -- and then the last point is we don't want to fully bet where markets will be going now. So we were on the conservative side in terms of our recurring net profit, which eventually has -- may fluctuate between what we are considering today. And if market will not have a strong correction or recorrection will be the number that we will be able to achieve at year-end. So there is good visibility on the low end of the range. The higher end is clearly impacting the market and a number of different dynamics we're seeing as far as top line and costs are concerned. Hold on, Domenico. I think we have the answer to your first question. Alessandro will provide you with the exact reconstruction of the numbers.

Yes. So let's start from the Slide 6, as you have mentioned, but I mean, keep also the, let's say, the Slide 24. As I was saying at the beginning, the variation of the recurring fees, I was saying that there is a variation of EUR 77 million and EUR 21 million coming from the new perimeter, right? So there, I actually mean you have the effect of the new perimeter that is consistent with the total revenue. I mean what we show in the total revenue of Slide 6. What we missed to show is that -- I mean, which, again, as I was saying for the other income, you can see that there is a bit of spike from the first half 2020 and the first half 2021 because there was, let's say, EUR 3.5 million coming from Sanctuary. So what we did is that we don't show the brokerage fees in terms of other income of new perimeter. So we just show the new perimeter coming from the recurring fees. So I mean, this EUR 4 million -- let's say, EUR 3.5 million increase there for the total revenue from one side from the new perimeter. And then if you move to the cost that you again were saying, the EUR 17.8 million is, let's say, the right number in terms of new perimeter, considering also the SG&A. But there is also a one-off impact coming -- let's say, one-off impact. There is a significant increase from the Singapore business that provides also the effect on the revenue that is around EUR 5.5 million.

Sorry, got to clarify, this is a one-off on costs, right, on SG&A this EUR 5.5 million?

On the distribution cost, yes, that is not showed up in terms of numbers because it's coming from, let's say, the actual business that was already included also in the total revenue rate.

All right. I will follow up with you, don't worry.

The next question is from Hubert Lam of Bank of America.

I just got a couple of questions. Firstly, again on Sanctuary, I just wanted to clarify, Gabriele, what you said on it in terms of profitability. Correct me if I'm wrong, you said that you expect it to be breakeven more or less this year and possibly profitable next year. Is that the case? And if so, I just wonder what the magnitude in terms of profitability could be over the next couple of years, if possible. The other question is on the dividend. Given that this year will be a big year on profits, you revised upwards your guidance. Would you consider raising your dividend above last year's EUR 1 dividend? It seems even after paying the debt, you'll still have sufficient cash. Just wondering if this is a possibility.

Thank you, Hubert. As far as the expectation on Sanctuary, 2021, yes, it's a year in which they will see probably a loss of a couple of million and that we will consolidate, everything else being the same, which means given the plans -- the growth plans that they are delivering now as we know it. As far as 2022, the expectation is very much linked to the investment opportunities. But based on the assumptions that we are discussing with them and the buildup of the assets and what we are doing in terms of cross-selling, we do expect a contribution that will start to be material in terms of our net profit, depending on what you take. But if you take EUR 350 million, which is the original target, it will probably be in excess of 5%.

Okay. And on the dividend question?

Yes. On the dividend, this is something very trivial. And I would say, it's a bit early to say and to put forward our intention as far as dividends are concerned. Clearly, we have a good net financial position so far. We have some commitment that will be coming up soon. But if the cash flow generation will be important and we will not see significant additional investment opportunities, I guess that the Board will thoroughly discuss whether we will be able to increase what we have paid this year on 2020 net profit. So let's see how we will close the year. The impact coming from performance fees is significant, and we will not know this number until the end of the year. So the intention is, as we stated many times, to finance the growth of the business. And because the business has a need to maintain or retain significant amount of cash, although we need to repay the debt, we can pay dividends. As you have explained to us several times, it's -- we need to provide market with dividend guidance that increases over time, eventually if our profit increases over time. We have gone through between 2019 and today, the change in the performance fee methodology, which has a big impact as far as our P&L is concerned. And because of that, we are, all of us, resetting our expectations as far as the net profit generation and how much we can pay out as far as dividends are concerned. So there is not the willingness to retain too much cash, but there is the willingness to have a good capital structure and a dividend payout that is sustainable over the long term.

The next question is from Elena Perini of Intesa Sanpaolo.

Yes. First of all, I would like to have a clarification about your Slide 4. When you talk about net inflows for EUR 12.9 billion, you basically add to the EUR 12 billion you had in the first half the announced M&A transaction with Pathlight Capital and latest Kennedy Lewis liftoff, as you mentioned in this slide. So I suppose that inflows coming from Italian activities and other activities are excluded. So if you can give us also some view on how net inflows have gone this month for the other areas. And then another question on your net inflow guidance. Actually, you provided an updated guidance of EUR 6 billion, excluding Sanctuary Wealth. Well, it seems to me to have read in your presentation that you are already at EUR 5.5 billion on a recurring basis. So don't you think that your guidance is a bit too low, considering that you still have 5 months ahead?

Thank you, Elena. Yes, we will -- you're correct. We have not provided yet the numbers as far as the other operations are concerned in terms of the July numbers, Italy and rest of the world. We are still finalizing the numbers, and the month is still -- has still 3 days to go. I can anticipate that July probably, because of some seasonality as well as some planned redemption from institutional investors that clearly, when they come in a single month, they lower the figure, will not be in terms of contribution similar to June. Nevertheless, we will still see a positive number. But let us close the figures. And I assume during the first week or 10 days of August, we will be able to publish the figures for July. As far as the guidelines, guys, when we provide you guidelines, it's always too high. Then when we update it, it's always too low. It's not that we want to be too much aggressive or too much conservative. The problem is we don't know where the market will go. We have seen in certain moments so far that the volatility can come and be rather strong. And the visibility we have is limited because of a number of variables that we are not controlling, that are kind of new. The market is still digesting all the variants from the COVID-19 and the impact that this has on the economies and so on and so forth. We set EUR 6 billion plus, and this plus means a lot to us and to our expectations in terms of capabilities to generate net inflows. We have launched a number of new funds in the Private Markets segment that if -- are going to be successful will deliver growth but most importantly, will deliver a different asset allocation. So all in all, I leave it to you to assess and verify whether we will be significantly higher than EUR 6 billion or just slightly higher than EUR 6 billion.

Okay. And if I may add another question. Do you have any worries in a medium-term perspective about the global minimum corporate tax?

Well, they've set this at 15%. We have our long-term target since 2004 at 15%. Some years, we were below. Some years, we were at 15%. And as always, we are trying to assess ways to maintain this. And for the time being and for the foreseeable future, we expect this to be achievable. If things will change and the context -- the overall context will change, we will clearly proactively adapt our business model. So far, we can only reaffirm our intention to maintain the 15% long term.

The next question is from Angeliki Bairaktari of Autonomous Research.

Just 3 -- 2 on my side, please. First of all, on Slide 8, you show the EUR 169 million recurring net profit for the first half, which implies a run rate of around EUR 85 million net profit for the quarter, which is a step-up from the around EUR 50 million that you had guided for a few quarters ago. So would you say that now the EUR 85 million is a good run rate that we should be sort of using or having in mind going forward, excluding any performance fees, of course? And what would be a sustainable level of net income for 2022 and beyond? Is EUR 350 million now the new minimum? And what would be sort of the potential growth for that? And a second question, the European Union is in the process of doing a study on inducements and whether those are fair to retail customers at the moment. Do you have any concerns with regards to a potential ban on inducements or stricter rules with regards to disclosure of rebates, et cetera?

Okay. So on the recurring profit, we have set EUR 50 million as something that was the base. Back then, the company was smaller. Markets went through different phases. Today, and especially in the first semester, we have benefited from trend in the market and, therefore, a mix effect that has been very beneficial. However, I have to always assume and remind to all of us that if the environment we're living is the new normal, then there is a higher chance that the number you have said can be the base. But if this environment in terms of financial market is not the new normal for the foreseeable future, then we will have volatility as it has always been the case because assets are impacted, because clients moved to a less aggressive mix and because of other variables. So I think we are very pleased with what is happening. And as far as the global asset management industry is benefiting from -- all the players are benefiting from very good conditions. And there is, as I mentioned probably in the first quarter or full year presentation, a perfect alignment of the stars. We all know that this can change, and this has and will have an impact on the numbers that we generate. This is not to be just conservative or cautious or something else, but it's something that we need to remind because then if I tell you the straight answer is, yes, EUR 85 million, then you will tell me in a couple of quarters between now and when it's going to happen because it will happen that I said EUR 85 million as the base. I don't know where the base will be because the base depends on many variables. Clearly, our intention is to work on the asset allocation of clients and to make sure that the recurring component of our revenues stays high, and we can maintain a good mix as far as our products and client exposures are concerned. The following question was on -- sorry.

It was on the rebates that you pay to financial advisers. There is -- this is a standard practice in the European Union. And the commission is currently doing a study which, if I'm not mistaken, will be published in the coming quarters with regards to how fair those rebates are between different countries in the European Union, and also they will look at the impact of the inducements in countries where those have been done like the U.K. and the Netherlands. Is that a concern for you? We have the President of ESMA make a statement saying that there could be scope for stricter rules on rebates and inducements for retail investors.

Well, I leave the regulators the comments. And what I can say is the more we are integrated, the better it is for clients. You can see this in terms of our performance, performance to clients. You can see this in terms of avoiding making potential or causing potential problems within the clients' portfolio and avoiding investing in dodgy instruments. And because this is done through the integration of production and distribution, we pay our people a portion of what they generate. As always, if something changes and fundamentally eliminates the basic principles on how we build the business model, we will clearly assess the impact and eventually adopt changes. I think we've demonstrated that we are quite flexible in terms of receiving regulatory changing and adapting to these regulatory changes, provided that our business is that of managing clients' money and providing them performance. And then when it moves to our stakeholders, we need to provide returns. And that's what we do for a living. There are other people that for a living do laws and new legislations, and we simply need to understand the impact of these pieces of legislations.

Mr. Blei, there are no more questions registered at this time, sir.

Well, thank you very much. My colleagues and myself are available for further follow-ups. And should you have any doubt, please reach out. And a very good summer to those of you that would be in the summer zone, and we'll speak soon. Bye-bye.