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 Azimut Holding's Full Year 2021 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Gabriele Blei, CEO of Azimut Holdings. Please go ahead, sir.

Thank you very much, and good afternoon to everyone. We'll go through the presentation as usual and then leave as much time as possible for Q&A. So on Slide #4, we have highlighted 5 key features of last year results and performance. First inflows with almost EUR 19 billion that brought our assets under management to EUR 83 billion, of which 40% are coming from our international operations. Within the fundraising activity, a good chunk of our efforts was dedicated to our private market initiative, which increased its asset to EUR 4.6 billion, reaching 8.4% of total managed assets as well as some activities and M&A transactions we have done in the fintech environment delivering some growth that we will see in a later stage. Solid performance vis-a-vis clients, net weighted average performance of 6.5% in excess of the benchmark of 1.6%. And all of this produced a record net profit, which was already anticipated in the market at the beginning of January of EUR 605 million or 84 basis points as far as average assets are concerned. We have proposed -- the Board has proposed the AGM, which will be held in April to pay a dividend of EUR 1.3 per share, representing 63% of recurring earnings. Turning to the next slide, the evolution of assets under management. As you can see, there is a 16% aggregate growth rate, and this is especially thanks to the last year performance, where our assets under management in our international businesses grew 2x, also thanks to the contribution of Sanctuary transaction. And our Italian business developed nicely with a 15% year-on-year growth rate. A snapshot of the pie chart on the bottom side of the page, 8% is clearly something that we didn't have just 2 years ago, if you remember. Now it's starting to build up. And as we have mentioned in several occasions, we will continue to focus part of our commercial attention to develop this business. Turning to the following Slide, 6. Net inflows by region and product. You see how the -- all the regions have posted positive net inflow development with clearly, Italy of EUR 3.5 billion, of which 90% is into managed products, which is what -- exactly what we dedicate ourselves to. As far as Sanctuary is concerned, we bought Sanctuary, we had EUR 7 billion roughly and now between organic growth and the M&A, so the inclusion of the assets that they had at the beginning of February, we are having EUR 18.3 billion coming from Sanctuary in terms of flows. All in all, EUR 19 billion almost of net inflows, clearly a record year, which as you can see on the following Slide #7, it's just a continuation of what we have been doing since the IPO time back in 2004 -- sometimes it's useful to look at the longer period of time just to observe how the business has developed throughout different market cycles, both in terms of assets that grew 9x since the IPO times almost -- we have doubled the number of clients in Italy as well as the number of financial advisers. Turning to the following Slide, #8, focusing on our full year 2021 results. Assets grew 38%, of which 40%, again, in our international business. The growth has been basically driven by the net new money that we have seen and positive market performance. All in all, total revenues have grown to EUR 1.45 billion with recurring fee margin that has developed nicely and is spending at 191 basis points. This figure is clearly taking away or stripping out Sanctuary as well as Australia from the management fee and all the other fee -- sorry, from the management fee and clearly, the asset base. Operating cost up to 24%, mainly due to higher rebates to the network linked to the higher recurring fees that we have seen just a moment ago, change in the perimeter that is having an impact, but we will dig into the details later on and higher variable compensation, but with a stable percentage of distribution cost as a percentage of recurring -- sorry, revenues, excluding performance fees. Net profit up 59% to EUR 605 million as we have just seen. Turning to Slide #9, digging into the details of the results. Total revenue, as far as same perimeter is concerned, I remind you as far as the same perimeter, we're stripping out the acquisition of Sanctuary and some M&A transactions we have concluded in Australia. So if you want to have the same perimeter, this is the picture we're looking at. As far as the breakdown is concerned, recurring revenues are up 25% to EUR 966 million. Clearly, in December, we've closed the year nice in terms of performance for our clients, which had also a very sizable contribution towards performance fees -- that stood at EUR 322 million out of our mutual funds, discretionary accounts, and advisory business. If I look at the right-hand side of the page, recurring revenues are growing quarter after quarter becoming EUR 260 million. Of that, the change of perimeter in terms of recurring revenue amounts to EUR 60 million. If we include EUR 12 million of other income booked in the other income line related to Sanctuary and Australia and an acquisition we did in Italy. All in all, the change in the perimeter in total revenue stands at EUR 72 million that you see on the left-hand side of the page. Looking at the expense breakdown, distribution costs -- are on a same perimeter basis, clearly up 8% year-over-year, whereas SG&A are up 11%, again, on a same perimeter basis. The change in the perimeter amounts to EUR 78 million, which net of what we have already seen as far as the change in the revenue contribution coming from the change in the perimeter is a negative contribution of EUR 6 million, which is mainly linked to Sanctuary, as we've stated several times during 2021 is going through a period of very sizable growth and investment, which is still producing or has produced in 2021, a slight negative result. As far as the fourth quarter is concerned, we wanted to highlight a couple of drivers behind the step-up in the cost in Q4, which are mainly driven by higher variable compensation, both at the network level, fund management levels and employee level, some growth linked to the organic as well as inorganic growth, both in Italy and abroad. And for instance, in the other cost line, we had to make an extra provision in terms of the pension fund products given the termination of the contract from the insurance company that is behind this product simply because the new parameters are having a worse -- an effect in terms of guaranteed returns that we have to guarantee to the subscriber of this pension fund. Turning to Slide 11, snapshot, -- the usual snapshot of our international business development. As you see, total assets are up to EUR 33 billion with a good contribution as far as net inflows are concerned, and total revenues with Sanctuary included reached EUR 250 million almost and EBITDA at EUR 70 million, whereas excluding Sanctuary EBITDA is standing at EUR 77 million. Turning to Slide 13, a snapshot of the performance. We are -- we have delivered 17% in the last 3 years of net positive performance to clients. This is net of fees, clearly, the beginning of 2022 has been challenging for us as well as many industry participants, although we haven't had any issue or material exposure to Russian assets, which is less than 0.5%, so quite negligible for us. And the net weighted average performance is somehow down almost 5%. As far as looking at a longer period of time, which is sometimes interesting to have a look at. So over the last 25 years, we have delivered performance to our clients of 3% per year in excess of the industry by 70 basis points and this is something that clearly is pleasing us as well as our clients. Turning to Slide 15, not much to add. We continue to overperform in terms of net new money collection in the Italian industry, and this is driven by a mix of the contribution coming from Italy as well as our international operations. Focusing on Italy, on Slide 16, we have hired in 2021, 141 new financial advisers coming from competition, a mix of banks and competing and competitors in terms of independent financial advisers. The FAs have brought EUR 1.7 million on average in terms of net flows in 2021, of which 99% are going to managed assets whereas clients are 96%. So almost all of them have enjoyed a positive net weighted average performance in 2021. EUR 25 million the average per financial advisers. Clearly, in this number, there is a good divergence between the traditional financial advisers as well as the wealth managers so the higher-end spectrum, which are trending towards EUR 50 million average AUM per wealth manager. 92% of this money is invested in managed assets, again, a confirmation of our focus to -- and continue to be an active manager for our clients' money, 18,000 net -- sorry, gross new clients, of which 76% from existing financial advisers, which we're quite pleased to see. Also thanks to a portion of that is coming through the fact that we are launching this private market initiative that is attracting interest from non-urgent clients. So where do we stand? We stand that 85% of our financial advisers have sold at least one product market product to clients. But if we look at the clients that have invested in at least one product market product that we have launched, these are just 13%. This explains the higher potential that we have going forward in terms of future penetration of this asset class into our client asset allocation. Turning to Slide 17, the usual snapshot on factories. You see how the business is developing, both in terms of revenues as well as reducing the loss at an operating level. And as I mentioned before, we bought the company at roughly EUR 7 billion, they closed in 2021 with EUR 16 billion in assets under management. And this has been produced also thanks to strong recruitment activity as well as the organic net flows of the existing advisers that are producing solid results. Turning to Slide 18. The diversification of our prior market offering is ongoing, both in terms of geography as well as in asset class. As you can see, 64% is in product credit, whereas the rest is spread across private equity, 23% and our infrastructure fund at 7%, that stands at EUR 400 million of assets under management. In the bottom part of this chart, you see a snapshot of our 2022 product pipeline at least for the beginning of this year, where we have the second version of an Italian VC fund that will -- that is almost already closed with EUR 35 million of potential assets under management. We're launching finally a fund in Luxembourg with the management of our partner in the U.S. -- Canada U.S. as well as the second version of our digital lending product that originally the first version collected EUR 225 million of assets, and now we're targeting something between EUR 200 million to EUR 250 million. Last but not least, we are launching our global product market, next-generation fund, which is a product that will invest in the staking business as well as feeding the fund of alternative asset managers in which we will buy stakes. So we will offer to our clients the possibility to invest in a similar way the one we do with our Azimut Alternative Capital Partner business in the U.S. Moving to Slide 19, a snapshot of our fintech lending activity. As I mentioned at the beginning, the market is growing extremely strongly between 2019 and 2021, 10x in terms of loans and bonds. And we are taking a market share of 17%, thanks to our positioning and the recent acquisition of Azimut Direct that has -- is playing a good role in this market. In the bottom part of the slide, you see how our fintech offering is developing across the different kind of segments. We are launching our application for the young generation that is going to offer product dedicated to this application for planning investments as well as potential objectives that these net new clients will have along the way. For the SMEs, we are quite active with the synthetic brand project, which is articulated across a number of companies that we have in order to attract a different type of businesses in terms of size. And we're also, as you know, quite active in the new innovation through the token that we have launched and the block and studying how the blockchain can be applied to our business. We are also developing a fee-based advisory model, which is called Azimut MAX that will optimize the asset allocation going forward of our financial advisers that will certainly help advisers in managing better the clients. I will leave now the floor to Alessandro for the usual comments on the income statement and net financial position.

Thank you, Gabriele. We can move to Slide 22. I will not bother you line by line as -- since the main variation destination in terms of effect on the P&L 2021 has been already clearly explained before, probably made sense to focus excess additional effect on total revenue on the insurance revenue, as you can see, increased by EUR 50 million. Comparing this variation to 2020, the effect is coming mainly from the recurring fees of the business, thanks to our growth in terms of AUM and the market effect. And at the level of the utility costs, again here, probably doesn't set us something more. We already explained what is coming from the new perimeter. Therefore, the rate is linked to the significant increase in terms of the revenue that we reduced during the year. So focusing on the last part of the income statement. On finance income, we have a positive effect of EUR 43 million. This is the result of the unrealized gain coming, let's say, that we can divide in the past, 50% is the effect of the fair value option. And the other 50% is mainly linked to the unrealized gain generated on the cash that we invested on our funds. At the level of the nonoperating cost, we are almost in line, slightly less compared to 2020. And then at the level of the tax, the overall tax rate is in line with 15%. This is the guidance that we always keep as a reference -- anyway, slightly higher compared to 2020 due to the variable impact that significantly have the effect of the P&L in 2021. So moving to the net financial position. Total debt is slightly less compared to 2020. At the end of December, we paid back the loan with BM. And now we are ready to pay back the senior bond at the end of March. So we will additionally reduce our debt to EUR 500 million. Cash and cash equivalents increased significantly compared to 2020 and the net financial position, therefore, is higher by EUR 378 million compared to 2020, and this can be reconciled considering obviously the result of the year, less the cash dividend paid for EUR 136 million, plus the EUR 4 million for the dividend paid to the foundation. It's almost EUR 75 million has been paid in terms of tax advance and then EUR 130 million for coming from the M&A. I'm going to give back to Gabriele.

Thank you, Alessandro. We've been polishing, we are proposing EUR 1.3 per share, a 30% increase versus 2020. But most importantly, we are proposing a dividend that is 63% of our recurring EPS. As we -- as you remember, in November, we stated that in the next years, we would have stayed between the range of 50% to 70%. Bearing in mind the M&A, the debt repayment and the buyback opportunity that we could exploit, we consider that we are maintaining our work and proposing this EUR 1.3 per share dividend. Moving to the summary and outlook, -- just as we are at the end of our 3-year term, we wanted to provide you a snapshot of what has been the result. Just unfortunately, on a numerical approach because otherwise, we would have to write books on the many things that have been done in the last 3 years. We have increased, on average, the assets to 18%, EUR 28 billion of net new money, and a good start of our prime market initiative with EUR 3.9 billion of net inflows into this new asset class. As far as net profit are concerned, we have cumulatively reached EUR 1.350 billion -- and as far as dividends, we paid out EUR 456 million of dividends. Moving to the business development. We will continue to focus our attention on our integrated business model. This is what makes the difference for our clients, and I assume also for our stakeholders. We will also expand our production capacity globally in order to better integrate our asset management capabilities and leverage on our distribution wherever they are based. On the sustainability front, of 46% of our Lux funds are compliant with Article 8 under SFDR and we target to reach 75% by 2025. On the private market front, we have a very strong pipeline of products in the launch phase for 2022 and beyond. We are working with implementing new partnership in the U.S., which will be announced over the coming months. And once again, we reiterate the target to reach at least 15% of AUM by 2024 in product market. Now finance and fintech. This is the new addition and the new era of where probably financial market will go in the next years, we need to be present and to be present significantly. So our target to develop EUR 1.2 billion in loans by 2025 is confirmed we are standing at EUR 350 million today. And we will do and explore ways to further use technology to improve our business across products and services that are offered to our clients. Lastly, our U.S. partnership, this is something that we will stress in the future as well. We will continue to invest in our alternative capabilities as well as to integrate Sanctuary with our production centers. Moving to Slide 27. I guess this is something that you were expecting from our side, the new fulcrum fee. It has finally been approved. It will start to be applicable on our Luxembourg funds as of 1st of April 2022. So on EUR 27 billion, roughly speaking, of assets under management. The total expense ratio for clients will remain in line with the higher historical average. We're not charging on top. We are just changing things because of the ESMA guidelines, and we don't want to be attacked or accused to be someone that are applying commissions, not in line with the ESMA guidance. Therefore, the average increase of the 50 basis point would be on the EUR 27 billion of -- and will be booked within the recurring fee level. Based on the overall underperformance against a benchmark, which will depend the benchmark on the type of funds. We will apply fulcrum adjustment, whereby we will increase or decrease linearly the management fee and capping this at plus/minus 20% of the respective management fee of the fund. As far as the performance period, this is a rolling 3-month period, the variable fulcrum adjustment crystallizes after the end of each calendar month. So if we assume the 1st of April as the starting point, then we will start to apply the fulcrum from July 2022. If any performance fee using the existing model, so prior to this change will be there, will be crystallized on the 31st of March 2022. Moving to the last slide, short and midterm targets. We are expecting under normal market conditions, although during these times, it is extremely difficult to define what normal means and the impact of volatility is clearly quite dramatic beyond our imagination. So EUR 6 billion to EUR 8 billion is our best estimate at this current time for what we can do in terms of net new money. As of 1st of April, as I just mentioned, we will apply the new fulcrum fee, aligning our interest with that of the clients. And net profit for the year is expected to be at least EUR 400 million, again, assuming normal market conditions. We are ongoing with the deleveraging of the balance sheet, EUR 350 million will be repaid. We will be going down in terms of gross debt-to-EBITDA to 0.66x, something that nobody believed could be possible just a few years ago. Dividend is going to be paid as every year. And the yields of this dividend based on today's pricing is in excess of 6%. As far as tax rate is concerned, what we are hinting to is given the international development with the introduction of Pillar 2 and our geographical presence, we will be trending towards somehow in excess of 20% of sustainable long-term tax rate, which is something percentage points more than our existing target. As far as the international business is concerned, we expect the contribution of EUR 150 million of management net profit by 2024. And this is something that we will have to work on and will be achieved through the integration of production and distribution. We close it here and leave it to you for any Q&A.

This is the Chorus Call conference operator. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Alberto Villa of Intermonte SIM.

The first one is on the net inflow target of EUR 6 to EUR 8 billion. Can you give us an indication of what is the target for managed assets? And if there is any embedded assumption on M&A on this target eventually also eventually an indication of what the Sanctuary wealth contribution within this number is considered. Staying on Sanctuary, maybe you can elaborate a little bit more on the trajectory you're expecting for the future profitability of the asset. So maybe when according to your projections, Sanctuary, will reach breakeven and contribute to the target that you have given of international business contribution to the future net profit of the company. In that sense, you said EUR 150 million in 2024 at management net profit. Just if you can clarify what the management net profit stands for in this case? And finally, I have a question on the net average performance. As of today, you mentioned during the presentation, it's down around 5%. I guess this one is not including the -- well, it's probably related to the market funds and not the private markets, just a clarification on that as well.

Alberto, starting from the last one, yes, it is indeed not including any mark-to-market or our prior market funds. It's just the liquid products that we manage. So roughly speaking, we're in that range. Going backwards in terms of questions, net inflow target, what's the basic mechanics that we have done, -- we think M&A will continue to contribute to our net inflows. Clearly, there is a portion of contribution that will be incorporated in this target. We're not incorporating a deal that can increasingly or significantly increase the net new money expectations in 2021 in the case of Sanctuary, -- so clearly, we will continue to perform M&A both in Australia and/or the U.S., but this is a kind of physiological by now for a group like ours. The contribution from managed assets, this very much will depend on the market. But we're working under the assumption that we will not go -- for the -- most of the countries will not go to work. Therefore, the situation will normalize and stabilize at a certain point. And therefore, the contribution of inflows into managed assets will be, let's say, 2/3 of our expected projection. Clearly, what is the flows coming from Sanctuary will increase the proportion of administrative assets. But as we work with them to transform part of these assets into inflows into products that we manage, this will improve over time. So at the current stage, being more precise than this, it's quite hard given the many uncertainties that we see and we have on our eyes. But from what we are seeing in the first 2 months, the network is still focused on managed products as well as product markets as well as insurance products. These are the 3 most selling products. As far as Italy is concerned, abroad, we have a situation of Sanctuary being -- having a strong pipeline up to June, I would say, and flows from Brazil are reverting back to strong positive flows. So for the current situation, we're not seeing major impact given the macroeconomic scenario. As for Sanctuary, the future profitability, we expect this to become profitable in 2022, slightly profitable. And clearly, we will update you over the course of the next quarters on where we stand. Management net profit, what this means, it means that some of the profit that we generate is not within the company that generates this profit because eventually, we use product factories in other company -- in other countries. So we are simply grouping the contribution coming from the international operation, although somehow is spread across a number of different product factories.

Okay. But just to give you an idea, the management net profit, how does it fit with the, let's say, the one that you report?

It is exactly that. No. We -- nowadays we report the management EBITDA. So we're just -- we're just saying we will go down to net profit but applying the same principles that we use today.

I have a follow-up, but maybe I'll come back later if no one asks about the fulcrum.

No problem. Thanks.

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

I got a few questions. Firstly, maybe just give us an update in terms of client risk appetite at the moment? I know flows in February were good, but how have March flows been so far just given the market selloff and what's been happening in Russia? Are clients relatively -- are clients cautious or they've been derisking, just want to get a sense of the client sentiment so far? That's first question. Second question is on costs. There are numerous one-off effects by -- for year-end for distribution costs, G&A, depreciation, et cetera. Just wondering if you can kind of give us what the one-off effects were for each of these items just for us to give a sense of the run rate that we should think about going forward into 2022, that would be helpful? Third question is on the repricing. I just wanted to double check. So if you have EUR 27 billion of assets at 50 basis points, that's EUR 135 million, does that mean that EUR 135 million of performance fees will shift to management fees? I guess, is that number fixed? I guess, subject to the fulcrum fee bands, but is that the way to kind of look at it? And also I just want to make sure that the -- that you don't pay commissions on this additional fee change to your advisers? That's -- yes, those are my questions.

Thank you, Hubert. Absolutely, we don't pay commission and we don't share this with our distribution system. It is quite correct what you're saying we -- if we assume EUR 135 million, this is the additional fee that we will have. And then depending on the performance of the product vis-a-vis the benchmark, we might have to give back a portion of this extra revenue. So in essence, what we have is higher recurring fees and higher visibility going forward of this component, no rebate to the network of this new element and eventually plus or minus 20% difference vis-a-vis this EUR 135 million you just mentioned. As far as the risk appetite of clients, as -- unfortunately, we are getting used to extreme events after COVID, now this one. So our network is becoming more and more skilled to manage the client emotion and the concerns that clients may have at different points in time. I want to stress and remind everyone how important is to have an integrated system of production and distribution and a strong diversification of products in liquid or illiquid. We're much better off today than several years ago. We have a lot of tools and investment solutions that we can propose to clients and that can improve the asset allocation going forward. We knew that at some point, volatility will have kicked in. We didn't know when and due to what. And we were already trying to move away from bonds of our clients because of no possibility to extract a positive performance. What has happened has affected all the asset classes. And clearly, the clients that have a higher proportion of private market products are suffering less the mark-to-market of their assets at this current stage. As far as the risk appetite, we're not seeing major impact on the numbers. It's -- typically, it has a lag effect of some couple of months eventually, especially if the situation does not normalize. But at this current stage, there is certainly huge concerns among clients. We are very close to them. We -- our fund managers are spending enormous amount of time talking to our network and to clients directly to advise them on where we are invested, how we manage the situation and the fact that our exposure is very limited to these specific countries, is somehow reassuring the problem for everyone is the 90-plus percent that is not exposed to these countries that are subject to volatility. As far as the one-off effects on the cost line, I'll try to answer in a different way, but then let me know if you want to dig into the details. I will not suggest to recommend to take the EUR 230 million of -- sorry, of Q4 costs and project this over 2022. Why? Because this is the result as it was in 2020 of several one-off effects driven by the fact that all the objectives have been more than reached and therefore, there is a multiplier effect on our variable compensation package for most of our people. We have somehow applied prudent accounting principles to a number of aspects. And therefore, the EUR 230 million of Q4 costs are not a good indication. Probably, I would take the average of the 4 quarters and then apply the usual 5% to 7% cost inflation that is all normal range based on the same perimeter.

Okay. That's clear. Sorry, if you don't mind, I've got another follow-up question around the fulcrum fees that you're charging. So based on history, how much have you outperformed indices? Just give us a sense on that? On top of that, should we expect any performance fees from here, just because of where markets are? I'm just wondering if everything's just been transferred to the management fees or should we expect anything on performance fee line as of now?

Listen, as far as the overperformance is concerned, we wanted to show you our overperformance in the last 25 years, just to share the fact that we didn't just perform in the last 3 years because markets were going up, although with some volatility. We are active managers, and we managed our client money to beat the benchmark. And this has been done consistently over the last 25 years by 70 basis points. You may think that this is too little, but at least we beat the benchmark. And this has resulted in a performance fee generation across different market cycles. So going forward, what can we expect is to -- we're the same people, we're just changing the fee structure. So we can expect that our fund managers, wherever they are based will continue to perform and manage the assets in similar ways to the ones that they have applied so far. Although given the new system of fees, our expectations of performance fee generation, if I convert this to the past, I would assume that this would be limited vis-a-vis what we have today.

The next question is from Domenico Santoro of HSBC.

Just some follow-ups and some more questions about the new mechanism. First of all, on the operating cost, I listened to your answer before. So I just wonder whether your answer was related to SG&A only? So shall we take just the average of the fourth quarters and then apply the 5%, 6% that you were mentioning before? Well, first of all, also thanks for giving us the guide on Sanctuary, that's very helpful. Then on the new mechanism, I just want to understand more. So 50 basis points repricing on the EUR 27 billion, the EUR 135 million more of recurring fees, this is clear. But when you calculate this variable fulcrum adjustments, have I understood well that it can be a plus or a minus on top of the EUR 135 million? So it could be an additional source of revenues in terms of performance fees or eventually, it can also work as a clawback? And if the market is negative, as you said, you mentioned 5%. In case of overperformance compared to the market, shall we expect also that you might book variable fees on top of the 50 basis points? To make it very simple, if now, you said the market -- your performance is minus 5%, but the market is worse, what could be year-to-date, the additional variable performance fees just as a sake of clarity? Then maybe a very nice question. But with all the mechanism so far year-to-date, do we have additional variable fees be eventually booked at the end of the quarter? The other question is the EUR 400 million net profit target for this year, what is the assumptions in terms of fulcrum adjustments? Have you made any positive or any clawback just to be clear? Another question on dividend, sorry to be very long, because the EUR 1.3 is, of course, below the [ EUR 70 million ], assuming that in your decision, there was some M&A that they might have probably lowered the bar a little bit in terms of payout? For next year, I believe that you mentioned some M&A and also repayment of that. Is this 63% a sort of a limit for next year as well or you can do better? And then shall we assume also buyback on top of it? The EUR 400 million, what is the tax rate implication, because you mentioned that it's going to be 22% in 2023, what about 2022? And then what -- I mean, probably that was the question of the colleague before. What's the comparable EUR 150 million management net profit for the international business in 2022? Sorry for the long question.

Okay. Let me try to answer them. And if I forget something, please do remind me. Cost -- thank you for the clarification and the questions. I was commenting on the EUR 230 million, which is clearly the operating costs and total of distribution, personnel, and depreciation and amortization. If you remember, the distribution cost line, half of that line is linked to the rebate of the management fee, whereas the other half is almost evenly split between cost of the recruitment and overhead, marketing costs and so on and so forth. So clearly, the assumption there is that we will manage this line as we have done this year. But clearly, what we do not control is the recruitment costs entirely in terms of cost, it depends on where the market is going to go in terms of activity. And on the flip side, the rebate of the management fee is something that goes hand in hand with the development of recurrent fees and the mix effect has an impact. So ideally, the 5% to 7% is on the total cost line and can have a different mix in terms of SG&A and for distribution costs. The fulcrum method, what does it mean? If you assume 50 basis points applied to EUR 27 billion is EUR 135 million based on the current mix of AUM. Assuming management fee and average management fee of, say, 130 basis points, we might have to give back 20% of that, which is roughly speaking EUR 70 million. So that's the kind of math that you should take into account higher or lower depending on the capability to overperform the benchmark. We have a lot of different strategies. So it's quite difficult to be at this stage to precise, but we will see how the system runs and we will keep you updated on how we are seeing the development.

So you said EUR 17 million, right? EUR 17 million, correct?

EUR 70 million.

EUR 70 million. Yes.

Crystallization, I would put zero just to be on the safe side today because of the current environment, I would be not expecting any major contribution of performance fee coming from the changeover from the old to the new system. EUR 400 million, the fulcrum assumption, we are not assuming any major contribution coming from performance fees on this number at this current stage. As far as the payout -- dividend payout is concerned, I would reiterate what we have stated in November, the range is 50% to 70%. We will not commit on a year-on-year increase of the per share dividend nor on a specific percentage between 50% to 70%. There is a range for a reason, which is explained by the fact that we have to repay the debt and we want to have flexibility for M&A and buyback. Tax rate, can you remind me your question?

The target is 22% for 2023, what about this year, is that?

This year, the expectation we have is to be shy of the 22%, but somehow higher than the 15% that we have had this year and that we have always guided. So assume that a portion of our original estimate is beaten up by the 5 percentage point higher tax rate than we historically had.

Sorry, can I ask very clear -- very quickly. As of today, is the performance is minus 5% you said and the market is doing worse, will the fulcrum give an additional positive or not?

Yes.

And how about -- what about the EUR 150 million target on the international business, what's the comparable number for the year for 2021, sorry, the base?

Today, we're standing at around EUR 30 million.

Yes. All right.

The next question is from Giovanni Razzoli of Deutsche Bank.

2 very quick questions. The first one is again on fulcrum fees, it seems very clear to me the new system. I was a little bit confused by the fact that Gabriele, you mentioned that you have EUR 70 million of maximum clawback. If I assume that you have EUR 130 million of theoretical contribution out of the EUR 27 billion and you have a quarterly crystallization period, in the unlikely event that over the next 4 quarters, your asset manager all underperform, you should lose this EUR 130 million in total in case of underperformance on 4 consecutive quarters, given the 20% clawback. But I was...

Giovanni...

Yes.

Apologies for interrupting. I don't want to be rude, but the EUR 135 million is on a fee that we call distribution fee in our chart on Slide 27. The fulcrum fee is applied to management fee.

Okay. Okay.

Right? Sorry.

Yes. Yes. But if you do -- you give back 20% of it in 4 quarters, you should theoretically lose most of it, while you say that you are retaining EUR 70 million of that fulcrum fees. I was wondering whether at the end of the day, depending on the monthly performance, you may lose part or all of it? So that's my first question. And the second and the third one very quickly. You mentioned the percentage of your assets -- of your clients' asset exposure to Russia, if you can please confirm that? And what's the equity exposure of your clients today? And the third question, if I compare Azimut now with the past, you seem to me that you are more diversified in terms of asset classes. For example, you have a lot of, in relative terms, private equity and the private debt and private market instruments. You are more diversified in term of geographies, your area is a sub-perimeter of the Group. So shall we look to the future, even in the context of extremely high volatile volatility environment more positively than in the past in terms of earnings evolution?

Well, Giovanni, certainly, yes, we are more diversified in terms of geography, in terms of products and in terms of distribution channels. So we have different sources of growth, that is exactly what we wanted to have back in 2008 when we started thinking over international development. So ideally, we're better positioned, both in terms of trying to deliver performance to our clients, as well as diversify our sources of net inflows and growth. Unfortunately, we are living in an uncertain time where all the markets are impacted, but the -- indirectly, clearly. So we're still capable of generating net inflows, and we're trying to defend the good performance that we have achieved over the last years. So I think today, the business is positioned much better than it just used to be 3 to 5 years ago. And the fact that we're consistently pushing a diversification between liquid and illiquid will help us in generating performance over the next 3 to 5 years. As well as our Russia exposure or direct exposure to Russian assets, I would say it is indeed negligible, less than 0.5%. So we don't have nor a direct presence. We don't have an office down there. And we don't have a major exposure both to bonds or equity to this market. On the fulcrum, eventually, maybe Alessandro might need to...

I -- yes, I'm going to try to answer your question, and if -- I'm not sure I get exactly your point. But when you compare the 20% to the average management fee of 130 basis points, obviously, we are looking to the full year management fee. Therefore, when you apply the monthly crystallization, as we mentioned in the slide, that obviously you have to consider that the amount of management fee is not the full year. Therefore, you have to build the 20% and apply to a value of management fee that you are building as well during the year. Therefore, probably you don't match the percentage to the level that we said before because we're not probably consider it. But I'm not sure if I answered anyway.

Yes. But I was referring to the 50 basis points of average increase in the management fee. So if you can have a clawback on the 20% of it on a quarterly basis in during -- in the fourth quarter, it would be helpful.

That is a different amount, because you are considering the 20% -- I mean, you are assuming that we are part of the 20% to the distribution, therefore, to the 50 basis points, right? This is your point. But it's not applied to the 50 basis points, it is applied to the management fee. It is something we have with a different value obviously.

Okay.

The next question is from Angeliki Bairaktari of Autonomous Research.

Just to follow up to make sure that I understand what you've said. 130 basis points is the management fee on the Luxembourg fund, on top of that, we get, what you call now a distribution fee of 50 basis points, and then any performance fee based on the fulcrum model can reach a maximum of 20% of the 130 basis points, so that's 26 basis points. So I guess I'm getting to a range of 155 basis points to 205 basis points depending on sort of whether the fulcrum fee is at the max or at the top end or at the bottom end of the range. Can you confirm that this understanding is correct that effectively, the total expense ratio can shift from 155 basis points to 205 basis points in a given year based on this new mechanism? And second question, excluding the M&A perimeter change that you show on Slide 9 for revenues, the recurring fees were flat quarter-on-quarter in Q4 versus Q3, despite the fact that assets under management were higher. Can you give us some color on what prompted this management fee margin decline, please? And a clarification on the provisions that you mentioned that you have booked within expenses for guaranteed pension funds. What is the amount -- do I understand correctly, is that effectively a provision on the pension AUM that you managed or is it something else, please?

No, it is something else. It is something that the company is provisioning for potential difference between the type of guarantee that we used to have and the new guarantee. So we are provisioning a couple of million just in assuming the worst case scenario that we might eventually face.

Is that -- I'm sorry, just a clarification. Is that the pension fund that your employees have access to effectively? So it's effectively employee costs?

No, it's our -- it's the pension funds. We have 2 pension funds, Azimut Previdenza and Azimut Sustainable that we manage on behalf of clients and eventually people that work in the business that want to transfer their severance payment to these pension funds.

Okay.

Okay. Going back to your questions, the factor that the revenue -- the recurring revenue has not grown. Consider that in Q4, as we mentioned back in November and then we reconfirmed at the beginning of January, we closed EUR 600 million of inflows into private market products, and clearly, you're not seeing those recurring revenue, the contribution coming from the money that is linked to switch. So eventually, you have a missing component there, but which might help to explain the flattish environment despite the growth in assets. When it comes to the fulcrum, I would say that up to the range you have given us, you understood it correctly. When it comes to the range, there is -- you should also consider the fact that we have promotion and admin fee that is running, and therefore, there might be some slight variation to the range that you have given to us.

The next question is from Elena Perini of Intesa Sanpaolo.

Well, I've got only a follow-up on your costs, because you tried to give us an indication about a quarterly average. But I was just wondering if you can give us some help on an annual level that we can consider as a recurrent one and then apply the growth percentage that you suggested us?

Elena, thank you. I was suggesting to consider the total cost as an average of the 4 quarters. So if I would assume -- no, we don't have it here, but we can provide it to you later. If you take the average of the first -- the 4 quarters and apply an increase of 5% to 7% for the next year, so we are running at EUR 186 million of average for the Q -- the 4 quarters of 2021 and then apply a 5% to 7% cost inflation, this is, at this current stage, a good indication of what we might see for 2022.

The next question is a follow-up from Alberto Villa of Intermonte SIM.

And just a couple of clarification on the fulcrum fee, because I think maybe there is a little bit of confusion or at least we have to get familiar with the new system. So my question is, can you give us an idea or if you have run any backtesting on 2021 numbers, if you would have applied this new mechanism, how the P&L would have looked like, in particular, of course, the management and variable fees lines? And secondly, I understood correctly that all the fulcrum adjustments, positive or negative, will be booked in the variable fee component. So this is a line that in the future could be eventually negative in the case of adjustments up to, let's say, EUR 70 million in a very worst case. Is that correct?

Sorry, Alberto, can you repeat the second question?

The second one is the fulcrum adjustment mechanism, if I understood correctly from the slide, will be booked in the variable fees line. So assuming there will be clawbacks, this line could be negative in the future, but let's say, the calculation of the recurring fees is not affected by the fulcrum adjustment calculation?

Yes. Alberto, you understood correctly. So the variable fee line, assuming no other variable fee from any other source and applying just a fulcrum can be negative in the future, then what you will see in the evolution of our revenue line is clearly a higher recurring fee because the 50 basis point increase on average is falling within that recurring fee line. So that's the kind of combination. As far as the first question is concerned, no, we did not run backtesting on 2021 numbers. It's an exercise we can do and come back to you later.

[Operator Instructions] Gentlemen, there are no more questions registered at this time.

Thank you very much to all of you. And myself and my colleagues are available for any further follow-up, and we'll speak to you soon. Bye-bye.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.