DWS Group GmbH & Co. KGaA (DWS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. My name is Emma, your Chorus Call operator. Welcome, and thank you for joining the DWS Q1 2021 Analyst and Investor Conference Call. [Operator Instructions] I would now like to turn the conference over to Oliver Flade. Please go ahead, sir.

Yes. Thank you, Emma, and good morning, everybody from Frankfurt. This is Oliver Flade from Investor Relations, and I would like to welcome everybody to our earnings call for the first quarter of 2021. I hope everybody is keeping healthy and safe, wherever you are. And before we start, I would like to remind you that the upcoming Deutsche Bank Analyst call will outline the asset management segment's results, which have a different premise or basis to the DWS results that we are presenting today. I'm joined as always by Asoka Woehrmann, our CEO; and Claire Peel, our CFO. And Asoka will start with some opening remarks, and Claire will take you through the presentation, and for the Q&A afterwards also. As always, [Operator Instructions] And I would also like to remind you that the presentation may contain forward-looking statements, which may not develop as we currently expect. And I therefore ask you to take note of the disclaimer and the precautionary warning on the forward-looking statements at the end of our materials. And now I would like to pass over to Asoka.

Thank you, Oliver, and good morning, everyone, and thank you for dialing in today. Let me say that I genuinely hope you are all staying healthy over 1 year now into a global pandemic. Following a unique and unprecedented 2020, during which we were able to achieve our IPO targets 1 year ahead of schedule, we started the new year by launching Phase 2 of our corporate journey as a listed company. During the second phase, we will, in the midterm, transform DWS, invest into the firm's growth in order to become a leading asset manager with global reach. We will invest into a dedicated stand-alone infrastructure designed for fiduciary asset manager, and we will invest into technology and growth opportunities wherever we see them. We will do so in order to take a leadership position in our industry on both sides of the barbell. In Passive on one side, in high-margin Active and Alternative strategies on the other side, and vertically in ESG products and ESG investing. Ladies and gentlemen, during the first 3 months of 2021, we were focused on delivering profitable growth, and we were successful doing it. Net inflows, excluding cash products, totaled EUR 9.7 billion in quarter 1, our second highest level ever, driven by continued flow momentum into targeted growth strategies. Our assets under management increased to EUR 820 billion amid improved market performance and favorable FX movements. And the firm's adjusted cost-income ratio improved substantially in the first quarter as we were able to book higher revenues, especially from performance fees and also our holding in China Harvest. What makes this a truly successful quarter is that we were able to deliver this profitable growth while starting to execute our medium-term Phase 2 strategy to transform, grow and lead. Our barbell strategy worked well, with growth coming from the both sides of the scale and profitability equation. We saw very strong inflows into our Passive franchise DWS Xtrackers and also substantial inflows into high-margin strategies, especially Alternative products and Active Fixed Income. During the quarter, we saw laid the foundation for our own technology platform as we move more and more into a stand-alone asset management dedicated infrastructure. The project jointly executed with our majority shareholder is now in full swing. Furthermore, we implemented our new functional role framework, removing corporate titles and strengthening our firm's corporate culture of performance and fiduciary responsibility. It is the ambition of our entire Executive Board to position DWS for future growth and shaping our firm into a true leading asset manager on the global stage. This is precisely why we have even further strengthened the importance of ESG for the firm by pulling together responsibility, not only for our ESG strategy, but also for the execution across our organization with me as CEO. Going forward, I will work closely with my direct team to ensure we are taking the clearest possible action and decisions to integrate the best ESG practices for our clients, our shareholders and our employees. Sustainability in general, is an area we continue to focus on, including in this quarter. As we look to lead the asset management industry in its transformation and modernization, we teamed up with our strategic partner, Arabesque AI, to launch our first joint fund that uses artificial intelligence to support better and more sustainable investment decisions. We also partnered with the Asset Management Exchange in the U.K. to develop an investment solution that allows pension plans to express stewardship preferences in pooled funds. This is an industry first innovation and one that we believe will be a game changer for pension clients in Europe. We are pleased that DWS can play a part in finding solutions and improving the market, demonstrating our ability to innovate in the ESG space. So in summary, we have made significant progress during the first quarter of 2021, delivering profitable growth for the firm and its shareholders, while diligently executing our longer-term strategy to transform, grow and lead. With that, allow me to pass over to our CFO, Claire Peel, to talk about our financial results in more detail before I give you an outlook of our road ahead. Claire, please.

Thank you, Asoka, and welcome, everyone. I hope you're all keeping well. Today, I will present the results and activities for the first quarter of 2021, starting with the key financial highlights. Adjusted profit before tax increased to EUR 249 million, up 17% quarter-on-quarter, reflecting strong revenue growth in Q1. Adjusted cost income ratio improved to 60.7%, driven by both higher revenues and lower costs over the quarter. Net inflows totaled EUR 1 billion in Q1, including significant contributions from our ESG dedicated funds. Excluding cash, net inflows were EUR 9.7 billion, driven by inflows into targeted asset classes. Moving on to our financial performance snapshot in Q1. Starting at the top left, AUM increased to EUR 820 billion in Q1, up 4% quarter-on-quarter, driven by market performance and favorable FX movement. On the top right, adjusted revenues grew to EUR 634 million in Q1, up 5% from Q4, reflecting higher performance fees and other revenues. On the bottom left, adjusted costs were down 2% at EUR 385 million due to lower general and administrative expenses quarter-on-quarter. Together this supported an adjusted cost-income ratio of 60.7% in Q1. Adjusted profit before tax increased to EUR 249 million, up 17% quarter-on-quarter and up 39% year-on-year as a result of higher revenues in Q1. Let's recap on the market environment. All major equity indices rallied strongly in the first quarter, reflecting the progress made in vaccination campaigns worldwide. The continued accommodative fiscal and monetary policies of central banks and governments also contributed to the overall improvement in the macroeconomic backdrop in Q1, with inflation once again playing a role in the market. In currencies, we saw the U.S. dollar appreciate against the euro, which also contributed to a higher AUM base this quarter. For now market momentum remains positive, and we expect this to support an optimistic outlook for markets in 2021. Moving on to AUM development. After reaching a record high in full year 2020, assets under management continued to grow to EUR 820 billion in Q1, up 4% quarter-on-quarter and up 17% year-on-year. The quarterly increase was driven by positive market performance and favorable FX movements in Q1, and net inflows also contributed to overall asset growth, which I'll now explain in more detail. In Q1 2021, we reported net inflows of EUR 1 billion, and EUR 9.7 billion excluding cash. This result reflects broader investor sentiment, especially in Europe and the Americas, where institutional investors are increasingly shifting out of cash safe havens amid improving market conditions. In addition, retail demand continues to grow and made our strong 3- and 5-year investment performance at 75% and 77%, respectively. Once again, Passive remains a key driver of our flow success, attracting EUR 7.4 billion net inflows in the first quarter. This was supported by continued demand for ESG ETFs. Total European-listed ETPs accounted for a significant contribution of our quarterly profit total, helping us to continue winning market share in the region. Active Fixed Income inflows improved to EUR 1 billion in Q1, driven by insurance mandate wins. Alternative flows remained in positive territory in the first quarter, with EUR 1 billion of net inflows. This is primarily driven by Liquid Real Assets, including strong inflows into DWS Real Asset funds. Active SQI recorded EUR 600 million of net inflows in Q1, representing the first positive flows into the asset class since 2019, amid growing European retail demand for such offerings. Altogether, these inflows more than compensated for Active multi-asset outflows, which continued to be impacted by investors shifting away from broad-based multi-asset portfolios in the first quarter. [Technical Difficulty] [ through all ] ESG dedicated fund contributed EUR 4 billion to our total net inflows in Q1 and continue to play an important role in our growing portfolio, which I'll now outline in more detail. Since Q2 2018, new product launches have attracted EUR 26.4 billion of cumulative net inflows and reported an overall management fee margin of 44 basis points. This includes a EUR 4.6 billion contribution to our Q1 2021 net inflows. The growing flow momentum into our new fund launches is testament to our product innovation, which can also be seen in Q1 product launches. In the first quarter, we collaborated closely with our strategic partner, Arabesque AI, to jointly launch the DWS Concept ESG Arabesque AI Global Equity Fund. This product is designed to address 3 key industry megatrends over the coming decade: sustainability, digitalization and low interest yields, and it uses artificial intelligence to drive stock selection, support better investment decisions, and mitigate common behavioral biases. As committed, we also launched the DWS Invest SDG European Equities Fund in Q1, which aligns 66% of its revenues with UN Sustainable Development Goals. And we launched the DWS Concept ESG Blue Economy Fund as part of ongoing effort to proactively address water risk in our investment portfolio. As we advance further into Q2, we maintain strong focus on ESG and ensuring we develop products in line with client demand and market expectations. We are continuing to expand our range of ESG ETFs in response to greater interest in such products. And we are meeting growing investor demand in fixed income ESG strategies, with the upcoming launch of the DWS Invest Low Carbon Bond fund. The objective of this product is to reduce carbon emissions in line with the long-term global warming objectives of the Paris Agreement. And in addition, this fund has been completely designed in accordance with Article 8/9 of the EU SFDR regulation, which we expect to play an increasingly important role in our product development going forward in 2021. Moving on to revenues. Total adjusted revenues grew to EUR 634 million in Q1, up 5% quarter-on-quarter and up 21% year-on-year. Management fees and other recurring revenues were positively impacted by higher average AUM of EUR 797 billion, amid stronger markets and currency performance in the first quarter, and with a management fee margin of 27.9 basis points in Q1. Performance in transaction fees increased by 21% from Q4 2020, driven by nonrecurring real estate performance fee. Performance and transaction fees are expected to represent 3% to 5% of adjusted revenues per annum, with opportunity for upside in a continuing strong performance environment. Other revenues also contributed strongly to our revenue growth in the first quarter. This included a EUR 27 million contribution from our Chinese investment Harvest, together with a favorable change in fair value of guarantees and higher investment income. Moving on to costs. Total adjusted costs declined by 2% quarter-on-quarter to EUR 385 million in Q1. This was driven by lower adjusted general and admin expenses, which fell by 16% from Q4, reflecting reduced vendor spend as well as the sustainable impacts of our cost efficiency initiatives. This more than offset adjusted compensation and benefits costs, which increased in the quarter due to higher variable compensation and seasonal uptick in benefit costs. A continued decline in adjusted costs, together with the higher quarterly revenues, supported an adjusted cost-income ratio of 60.7% in Q1. To conclude, DWS has sustained its strategic and financial success of 2020 into the first quarter of 2021. This is reflected in an adjusted profit before tax which grew 17% quarter-on-quarter and grew 39% year-on-year, and in the continued improvement of our cost-adjusted income (sic) [ adjusted cost-income ] ratio, which remains below the 65% level as committed. Higher revenue growth was a key driver of our strong quarterly financial results, further supported by lower costs and in spite of continued investments into our growth and transformation projects. While total net inflows were lower compared to previous quarters, we continue to track strong flow momentum into our targeted growth areas, including ESG, Passive and Alternatives. And our retail funds continue to outperform peers as reflected by our strong 3- and 5-year investment performance at 75% and 77%, respectively. Thank you, and I will now hand over to Asoka for the strategic outlook.

Thank you, Claire. Without a doubt, the first quarter marks a strong start to Phase 2 of our corporate journey as a listed asset manager. In quarter 1, we delivered profitable growth, including an adjusted cost-income ratio of below 65%, as committed for the full year 2021, and with a clear and achievable path to a sustainable adjusted cost-income ratio of 60% in 2024. We also continued to develop products in line with client demand and market expectations, with a strong focus on ESG, as we are convinced these strategies are vital for our future growth. And this is precisely what we are focused on at DWS, the future. Our sights are firmly fixed on how we can sustain our success in the years ahead in the long term, especially as our industry continues to evolve amid growing social and regulatory pressures. So consequently, our ambition for Phase 2 of transform, grow and lead is substantial and based in the medium to long term. In this respect, we are working towards a number of key milestones to ensure DWS is strongly positioned for any potential industry challenges as well as opportunities. First, we will continue to develop and build our dedicated infrastructure platform as part of ongoing efforts to establish ourselves as a stand-alone asset manager. Second, we will advance further and faster with our "ESG first" principle in our fiduciary and corporate actions. We feel strongly about the change needed in the global economy to ensure prosperity and sustainability for our future generations. And it is our declared ambition to help lead this change in every way we can through stewardship, dedicated products, corporate action and much more. We understand this is a long-distance race, so we will continuously stay on our front foot, never settling for the status quo and never resting on what we have achieved. Third, we will play to our strength in Passive, targeting efficient organic growth to further expand our market share, especially in the European space. Both we will intensify our focus on high-margin strategies to ensure we remain focused on profitability, with a particular focus on thematic equity and active and liquid investments. And finally, fifth, we remain committed to capturing growth opportunities, especially in Asia Pacific, by tightening our collaboration with our existing partners and also by finding new ones. Without a doubt, there is a lot of groundwork we still need to cover, to ensure we are strongly positioned for the future. So over the next quarters, we will focus on these topics, keeping our eyes on the longer-term horizon. We will transform our organization, the way we operate and the way we work together for our clients, our shareholders and our employee base. And we will invest where we feel we can grow and where we know we can lead. Equally, we remain laser-focused on making sure we are constantly heading in the right direction as exemplified by the strength of our results this quarter. Thank you for listening. I will now pass on to Oliver for Q&A. Oliver, please.

Yes. Thank you very much, Asoka. And operator, we're ready for Q&A now. [Operator Instructions] Thank you very much.

[Operator Instructions] First question comes from the line of Bert Lam with Bank of America.

I've got 2 questions. Firstly, on M&A, you said that you're willing to do more M&A. Can you discuss your view of transformational deals versus bolt-on deals? Is increasing your size a big target of yours? And what will you be looking for specifically in a deal, particularly in a larger type of transaction? That's the first question. Second question is on flows. You've had very strong Passive flows while Active flows remained quite muted. Is there much interest in Active funds? Or is it just lagging? Or is it attributed to weak performance [ certain ] funds that you're not seeing active inflows?

Hubert, thank you. I will take the M&A question, and Claire will come back on the flows. M&A, I think we have never changed our opinion on that. We always phrase we want to grow organically. And on the way of our organic growth path, we would like to do bolt-on acquisition if that fits to our -- to enrich our asset classes, our offering, our footprint and also the client bases. And also, I think I always mentioned, Hubert, the cultural fit is important not to lose shareholder value in this transition of mergers. And the transformational ones, as I knew there's a lot of rumors in the market. As you also knew, I never comment on rumors on M&A. But I do think I am expecting now after nearly 1.5 years of COVID, we are going enter into a consolidation momentum in M&A area and asset management. So therefore, we are actively looking around. But again, at the moment, we can't comment in any M&A rumors and our path of organic growth and enrich our strategies by bolt-on strategies, we are in always active. So with that, I think I will hand over to Claire.

Thank you, Asoka and good morning, Hubert. Just to answer the question on flows. EUR 9.7 billion of inflows in the third quarter are very strong in terms of trend. Absolutely the barbell is driving that to Passive. EUR 7.4 billion is our strongest quarter, and we expect to continue to see that growth in Passive and ETF space. And of course, that's an investment area for us. On the point of Active, I think we can say that the scale of growth is not to the magnitude of that, that we see in ETFs, but we do see inflows in Active equity, in Active SQI, and Active Fixed Income in the first quarter. And indeed, we did also in the fourth quarter. So we continue to see growth and inflows in Active, albeit not at the pace that we see in Passive. But the key themes that we observe in our Active space is the shift to ESG thematic funds. And we are participating very actively there, ensuring that we are launching products that meet client demand in the Active ESG space as demonstrated in the first quarter, and that's where we see a lot of attention in our net flows in Active. I'd also point to retail overall, where we see an increasing net flow contribution in Q1, compared to prior quarters last year in the retail space in general.

Operator, I think we can go on with [ Jacques-Henri ]. [ Technical Difficulty]

Sorry. Can you guys hear me, apologies.

Yes, yes, your line is open.

Oh, I'm sorry, I didn't hear anything at all. Okay. Two quick questions. I was looking at the outlook, just for the year, which is an outlook which is a little bit muted, let's say, so at pretax profit, I noticed that if the idea is to maintain the pretax profit flat, okay, and let's call it EUR 800 million for the year. You've already reported EUR 250 million. It means that you would need to actually deliver EUR 180 million for the remaining 3 quarters, which is okay, but it is not necessarily, on average now, none of the best quarters we've seen. So the question, isn't your outlook for '21 a little bit conservative in light of that? That's the first question. And maybe the other question would be on the other income. And maybe have an idea about where the fair value of guarantee are now? Is it basically an offset of what we had in Q1 last year? And where should we basically put this line? Is it going to have an impact now on the growth in revenues going forward? Or should we assume that the volatility of this line is going to remain pretty much flat?

Thank you for the questions. I'll take those two. The first one on outlook. So we did publish our outlook in March. And we did indeed state there that we expected 2021 revenue to be slightly higher, cost to be slightly higher, which would lead us to have a profit before tax which would be essentially flat. I think it's very fair to say that we've had a strong start to 2021. We have seen a strong growth in the markets and a strong growth in revenues. And we certainly remain optimistic in the equity markets, but cautiously so. So yes, I think we are conservative in our outlook. We'll observe that very closely in the coming weeks and months, but it is early in the year for us to immediately adjust away from that. But as I mentioned earlier, I think certainly, we could see some upside if we continue to operate at these levels on a sustainable basis. If I come on to the question about other revenue income. Within other revenue income, we've done well in Q1 from 3 key factors, 1 of which is the guaranteed portfolio that you pointed to. Our joint venture in Harvest has performed particularly strongly in the first quarter. We've also seen investment income from our co-investments in our Alternative space. And we saw a positive return in the change in our guaranteed portfolio. We did see the opposite side of that in Q1 of last year, but we haven't seen the full return in the first quarter, given it's a nonlinear growth that we see in the guaranteed portfolio. But in terms of the forward guidance around the other revenues, I wouldn't expect to see a substantial increase in the fair value guarantees. I'd expect that to be largely flat from where we are now, subject to interest rate environment.

The next question comes from the line of Shamoli Ravishanker with Morgan Stanley.

I have two questions, please. Firstly, on the margins, was the decline in margin mainly due to mix of flows that went into Passive? Or was there any other pressures within each asset class, for example, within -- with Alternatives, more flows into liquid alts, which might be lower margin than the overall asset class? And the second question is on the cost-income progression through the year. How should we think about the phasing of investments over the rest of the year? And what areas would this focus on? Do you maintain your previous guidance of getting to below 60% by 2024, being more back-end loaded within that period?

Thanks for your questions. On the first one on the management fee margin, we saw a fee margin of 27.9 basis points compared to 28.3 in the fourth quarter. The net flow and the market environment has been net positive in the first quarter. We've seen some other effects within the quarterly margin decline, which are threefold. One is related, indeed in the Passive space, where we see a change in the mix of the assets overall and the average margin within Passive, that is certainly a contributory factor. Also in Alternatives, we had a closing in the fourth quarter of an infrastructure fund which gave us effectively a higher effect in our margin in the fourth quarter, which we don't see in Q1, but we may indeed see again in the second quarter as we move into another closing, so some volatility that we always see in Alternatives. And to a lesser degree, there's an effect from the cash mix that we see in the first quarter as well. So those would be the 3 effects in the second quarter. As I say, the Alternative effect could go in the other direction. On the second question, on the cost-income ratio progression, we still very much hold [Technical Difficulty] [ to ] our guidance of a target of 60% by 2024. At the end of last year, we have, of course, met our original target of below 65%, and we stay below 65% cost-to-income ratio in a sustainable way, and that's what we see in the first quarter. We do intend to invest in growth, and we haven't seen the full pace of that in the first quarter, hence, the 61% that we see in Q1. But we would expect to see that investment develop as we go through subsequent quarters of this year.

Next question comes from the line of Nicholas Herman with Citigroup.

Yes. Two for me, please. Just firstly, on the EUR 27 million Harvest contribution, presumably there were some one-offs or performance fees. Is there anything you can quantify, please? And just what drove such a big step-up there? And then secondly, on ESG, could you just clarify with any color you can provide on the average margin on the EUR 4 billion of ESG inflows, please? That will be helpful.

On the first question on Harvest, yes, you're right, we saw an exceptionally high recognition of income from our JV, and there were some one-off effects in that -- from one-offs that we saw in Harvest that followed through to the net income that we gained. So I would expect that to normalize in the second quarter. But at the same time, I think we see a very strong performance in our JV in China, and we would expect to see a high return this year compared to last year, but clearly not at the same run rate of Q1. On the second question of ESG, of course there is a range mix across ETFs across Active within these ESG portfolio investments. I can't give you a specific fee, I'm afraid, against the GBP 4 billion. But if we look at all of our new fund launches since 2018, the cumulative effect there is 44 basis points. But the range of ESG would depend on asset class.

Next question comes from the line of Julia Varesko with JPMorgan.

First question I have, on Slide 17 is there anything to drive the lower relative performance recently in Active equities? And then when it comes to regional performance, in the U.S. you saw some outflows. So I was just wondering, was that mainly driven by cash products? Was there anything else? And also, do you expect to see some further outflows in cash in the coming quarters? Or has that rebalance now largely happened?

Thank you, Julia. I think for the 2 questions, I think second question, I will start with that. I think there is a cycle always in the market on cash, and I do think we have seen unbelievable cash injections last year into the market. And I think we have also seen our peers have collected a lot of cash. Last year, we collected a lot of cash. And as I always mentioning, this is a kind of service, and it is not giving us -- it's not a really dedicated franchise we are looking for. But again, I am seeing further cash going to, let me say, equity and fixed income and alts, asset classes that have to be recycled into investments at some point. So we are seeing a strong momentum course of the year. That's the second question. And the first question, I think active equity and general equities, I do think we had a fantastic market this year. It's a stunning market and I think the first reaction is always the first players are allocators, and they are playing on ETFs space. That's what we have seen very strongly this year, especially in Europe now that we have seen a very strong equity [ plate ] through the ETFs, but also we have seen in the thematic equities, now the clients are coming back. That is -- and I would say, we are not seeing ESG as a thematic, but we have seen a lot of strong inflows into the SDG equity type funds also in our portfolio, and also that now more and more clients are going to thematic type of equities. This is what we have seen overall. But at the same time, we have also seen that like not ESG equity income, we have seen great inflows. But at the same time, we have also seen in our top dividend fund, outflows. So that is why our picture looks like in net not very strong equity flow. But we have seen a very strong shift into equity area, and that is what I'm expecting to continue because this year will be very much -- clients willing [ to ] go into equities because of the performance and especially in the retail area.

[Operator Instructions] Next question comes from the line of [ Johan Schmitz ] with [ Mettler ].

I have one question on your net asset flows in Asia Pacific. Could you please comment on the growth rate -- on the growth posted in Q1? That's my question.

Thank you for the question. Yes, in Asia, we saw net inflows in the first quarter of EUR 1.3 billion, overall in Asia Pacific. We saw that across the asset classes of passive ETFs and fixed income mandates.

And sorry, maybe just a follow-up for me. What are your expectations for the next quarters in this regard?

Overall I would say, when we look at this globally, we focus on a greater than 4% net flow rate over the medium term, and we stay committed to that. So we think that's very achievable. We expect to see all of our channels and our retailers contribute to that, recognizing, of course, there's always room for some volatility, but we do expect Asia Pacific, as [ with ] our other regions, to contribute to a greater than 4% net flow rate.

Next question comes from the line of Luke Mason with Exane BNP Paribas.

Just a couple of questions. Just following up on the Harvest. So seen very good progress in terms of the financials for this quarter and in 2020. I'm just wondering if you can give any more high-level commentary on net flows, the revenue margins and kind of profit margin and the trends there at Harvest? And what would you see as kind of a run rate level of growth in the medium term for that business? And then second question is on the IKS platform. I think it was reported that this was potentially up for sale a few quarters ago. Possibly can't comment on that, but I'm wondering if you can give any update on thoughts and kind of the strategic rationale for keeping it in the group?

Thanks for the questions. Yes, our Harvest JV has been performing very strongly, both last year and this year. Within Harvest itself, they have just below EUR 170 billion of assets under management and have attracted inflows in the first quarter and indeed last year. So our 30% JV holding is obviously taking a share of that and represented in our financials. We saw a strong and, I think, the best contribution from Harvest last year, and we expect that to continue to grow and development -- and grow and develop, I should say. Harvest itself is very focused as well on product launches. They had 13 new product launches in the first quarter, which was contributing to their success. So we've been very happy with the JV and partnership there that we have with Harvest. On the second question, I'm afraid we can't comment obviously on any specific market speculation. As we do with our entire portfolio, we always look very closely at how we can optimize and develop strategically, both organically and inorganically, to look to get the best return for DWS.

Your next question comes from the line of Adriaan van Otterloo with Intrinsic Value Investors.

First of all, Asoka, congratulations with your extension of your CEO role. As shareholders, we are very happy with that. But I have two questions. And that one is related to the technology platform. I assume that you're going to make those investments this year. But once they have been made and you're able to turn off the relationship with Deutsche Bank, what do you think your net-net cost savings will be? And my second point is -- my second question is on the guaranteed products. With interest rates rising, your guaranteed products rather than becoming a liability, they will probably become an asset, and it will generate more excess capital. What do you think you will do with your excess capital, which it will generate then?

Adriaan, thank you again, and thank you for the nice words, but I do think -- and you know our business well. And I think the first question is, I think, that is a part what we have triggered. As I said, we are in the [ full-in ] swing with our major shareholder to get a stand-alone infrastructure platform that is not only infrastructure, that is also all the services. And I think Claire can give you, not a precise number, but our planned numbers in 1 second. And the second question, if I may give you the insight. You are right, I am fear, Adriaan, I think, through the inflation spring, what we can see. I don't think that is a sustained one, but I do think that can -- that will happen, we will see a steeper curve, that's always -- it's creating excess capital situation or more favorable for the excess capital situation, but we have also done a very good, let me say, actions last year to manage the downturn of the long-term rates of the last 1.5 years. So I do think we are happy to look over also for our investors, how can we invest at best, as I said, organically because we have to invest into our platform, we have to invest into other growth projects, because exactly what you said, Adriaan, to make you all happy. We have to invest in the second phase to grow and to become a leading asset manager in Europe with a global reach. And the second way, and I think -- and we are also not really, let me say, active screening the market, what is fitting to us in an organic way. And I think for that it's good to have a cushion on excess capital. With that, I will hand over to Claire, and if you can give, Claire, an insight to the first question, that would be great.

Thanks, Asoka, yes, just to add a little bit more on the technology platform transformation that has been kicked off and commenced in the first quarter of this year. We see this to be a 2 to 3-year investment project with benefits coming through in years 3 and 4. We have a EUR 60 million investment over that time horizon and a EUR 50 million run rate benefit on the other side. We would expect some of those benefits to come through in 2023 with the full effect in 2024. And of course, supporting our cost-income ratio target on a sustainable basis again. We're working in earnest on the project. And of course, there is always room for upside as we develop. So I think those efficiencies would be the minimum that we would expect.

And is it then -- can we assume that from 2023, the service contract with Deutsche Bank will be terminated?

We would expect to see a phased approach of the external vendor services that we are consuming today. As we go through a 3 to 4 year horizon, there's a number of services spanning both corporate function activity and infrastructure activity that we will phase down as we onboard our independent capability. So it will be a phased approach.

The next question comes from the line of Angeliki Bairaktari with Autonomous.

Just two on my side, please. First of all, out of the EUR 4 billion ESG net flows that you recorded in the first quarter, could you let us know how much went into Active funds? And second question, we had the announcement earlier this month of Amundi entering into discussions to acquire Lyxor, which is effectively changing a little bit the landscape in the ETF space in Europe. Do you expect this deal to increase pricing pressure in Passive strategies in the industry overall? You have guided for around 2 basis points margin erosion in your passive franchise year after year. Should we expect that to remain? Or could things actually get worse?

I will start with the second question. Again, I think there was a lot of rumors, that is why we're never commenting on M&A activities. Yes, I think Amundi is now with Lyxor acquisition involved as we see. And this is -- we have always said we have a very strong brand and franchise with DWS Xtrackers. We have a very strong momentum, as you can see also in the first quarter in passive. We don't want too much involvement in the next 2, 3 years on restructuring and bring our energy into this area. So we are quite confident. I do think that we can really compete in Europe with this -- the Amundi-Lyxor platform. And I do think, from this perspective, for us was important that we're investing into other passive platform. And again, I don't -- also not going to comment on -- adjudge on the valuation, how that discussed. So therefore, we are still -- we have a clear view 2024, 2025, we want to become one of the leading ETF players in Europe and the best next to the top American one. And so that is our declared view. Margin erosion is an ongoing topic. And I said that the first day on I came back, and that is not only in Active, but that is also in Passive. That is a scale play. That is why we have to invest into our platform to get the margin erosion, a counterbalance, and that is why we need a scaled approach there, and we are going to play this scale game with knowing the margin will go also in Europe down. We have seen in the U.S. We will see in Europe, but this is the biggest growing market in Europe in the asset management area, and we want to be a key player. So therefore, I want to say, we have a clear expectation in other plans our margin erosion is already there. I think Claire has already outlined in the last quarterly analyst meetings. And I do think, with that, I will give -- hand over Angeliki to Claire.

Thank you, Asoka. And just to come on to the question of the net inflows from ESG in the first quarter of EUR 4 billion. It's split approximately half and half between Passive and Active funds, more heavily weighted towards Active in that EUR 4 billion. And of the active funds, equity is the majority share. So I think this is where we see a very strong thematic in the ESG space. And again, testament to the product launches, where funds that we are launching, we are seeing attracting flows in the Active ESG space. That is supportive of the general fee margin guidance that we hold to, which is that we expect to see approximately 1 basis point of dilution across DWS as a whole per year.

There are no further questions at this time. I would like to hand back to Oliver Flade for closing comments.

Thank you very much, and thank you, everyone, for great questions, as always, and also for dialing in. Any follow-up questions, as always, feel free to contact the IR team. And otherwise, we wish you a fantastic day and a healthy time. All the best. Bye-bye.

Thank you.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.