Amundi : 05.02.2024 - Amundi Q1-2024 Earnings Call - Transcript

Amundi - Q1 2024 Earnings

Transcript from the

Investors & Analysts Conference

on Friday 26 April 2024

Cyril Meilland (Amundi Head of IR):

Bonjour, good morning to all and welcome to a sunny Paris, albeit by video.

It is my pleasure to introduce you to our video conference regarding the first quarter results of Amundi.

And it's my pleasure to introduce Nicolas Calcoen, our Deputy CEO, and Aurélia Lecourtier, our CFO.

Just as a brief introduction, please remember that this is a video conference. For the time being you are on mute. If you want to ask a question, please raise your hand virtually via Zoom and we will unmute your line. Please make sure that obviously your mic is also unmuted so that you can ask a question.

And without further ado, let's start with Nicolas for the introduction.

Nicolas Calcoen (Amundi Deputy CEO):

Thank you, and good morning, everybody. Thank you for attending this video conference on our first quarter result. I will as usual go first through the highlights of the quarter, and then I will leave the floor to Aurélia to go more into details of the results and the activity, and then we will take your questions.

So, to start, the beginning of this year was as you have seen a very busy and intense period for Amundi.

Busy in terms of commercial momentum with a good level of inflows and record level of asset under management and high level of profitability. But also, very busy and intense in terms of development initiatives. Both organically, in line with the priorities of our strategic plan, but also in terms of M&A, with the announcement or confirmation of two significant and value-creative transactions.

So first, let's have a look at the overall numbers.

As you can see, we posted a very strong performance in both activity and results. Our net profit was up by +6% year on year and reach 318 million euros driven by the growth in management fees and our best-in-class operating efficiency with the cost income ratio of 53.3%.

Our net inflows reached 17 billion euros and were positive in active as well as passive management, well diversified across the client segments and across geographies. Thanks to these high inflows and thanks to a good level of the markets our assets under management reached an all-time high above 2.1 trillion euros.

At the same time, we continue to make progress in our key strategic growth pillars.

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First of all, third party distribution gathered +7 billion euros representing an annualised flow rate of 8%, and it's worth highlighting again that this business accounts now for more than half of our retail business. We also continued to grow in Asia, where our assets reached 422 billion euros, so +6% compared to the beginning of the year. We will go back in more details on that.

And Amundi technology revenues grew by +36% compared to the first quarter of last year. And the business added 4 clients during the quarter, so a total of 61 clients now in 14 countries.

Also, please note that we accelerated our IT investments during this quarter.

And finally, in line with our strategy, we initiated 2 transactions in the beginning of the year that will accelerate our growth in the future.

First, the acquisition of Alpha Associates. You remember that we announced it in February when we published our annual results.

The deal was closed on April 2nd, so basically three months ahead of the planned schedule. This means that we have started integrating the business and we are starting proposing new multi- management solutions to our client base.

And, second operation, we just announced last week plans for a partnership with Victory Capital in the US, to create a larger US asset manager and get access to a wider range of high performing US products for our clients across the globe.

Both deals are clearly value creative for our clients and our shareholders, and they will contribute to our future business and profit growth.

Let me maybe give a little bit more details on these strategic initiatives and momentum.

As I said in terms of commercial momentum, our net flows in the first quarter were very much diversified across client segments, across types of management and across geographies.

Europe remains of course our main market with +12 billion euros in Europe gathered during this first quarter. We also gathered 1 billion in net flows in the US. But I would like more specifically to highlight the growth in Asia. As I said, our assets under management grew to 422 billion euros with +7 billion positive flows during this quarter, split between our JVs and our direct business.

Our JVs gathered +4.4 billion euros, mostly in long term assets, thanks again to a very strong performance in India and in Korea.

But outside the JVs, we also enjoyed a very good momentum. The direct business grew significantly and was well diversified across the main countries of the region. Hong Kong, mainland China outside of the JV business, but also Singapore and Japan. All contributed in a very material way, you can see it with the numbers, to this performance.

Turning to expertise, clients continued to favour our attractive risk return proposal of fixed income solutions, both in bonds and treasury.

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In bonds we collected +14 billion euros overall, of which +12 billion in actively-managed products, with in particular the success of, again, the target maturity funds in retail, in particular international networks, but also a success in the attractiveness of the asset class with institutional clients.

Treasury products were also very successful, +8.7 billion euros, well balanced between institutional and retail clients. We are seeing retail clients coming back for now a few quarters to this class, thanks to the attractive returns at the lower end of the yield curve.

And finally, in ETFS, we posted the high net inflows +5 billion euros overall. In particular thanks to a good performance in fixed income or in ESG ETF, and now our ETF assets under management reach 227 billion euros, up by more than +25% compared to last year.

Thanks to these blockbusters, we are able to post a better performance than the industry in total net inflows, in particular in active management as we will see with Aurélia.

Turning to M&A, first a few words about Alpha Associates, you remember this operation. So, as I said, the closing took place a few weeks ago, at the beginning of this quarter.

This means that Alpha will contribute to our profits starting in the second quarter.

Just a few words to remind you what we are talking about: Alpha Associates is specialised in private asset multi-management. They now manage 9 billion euros at the end of March, for around 100 clients, mainly in Switzerland, in Germany and in Austria.

So this acquisition will allow us to increase our footprint in the fast-growing private asset market and create in particular a leader in the multi-management space. We will manage, combining Amundi and Alpha Associates, around 21 billion euros in this category of expertise, and will be able to sell this expertise to our global institutional client base, and also to develop solutions adapted to the needs of retail.

So clearly a very value creative deal for our shareholders, thanks to the synergy revenues expected from the deal and, just a reminder, we expect to have a return on investment in excess of 13% within 3 years.

Second operation announced last week, the partnership with Victory Capital in the US.Again, a reminder: this project is to combine Amundi US into Victory Capital with Amundi Group becoming a strategic shareholder of the new Victory Capital, with a stake of around 26%, 26.1% to be exact and to establish a long term, 15-year, reciprocal distribution agreement between Amundi and Victory. So clearly this operation is, I would say, a unique opportunity to strengthen our presence in the US and is fully in line with our strategy in this large country and savings pool. Because indeed with this deal, our clients across the globe will have access to a broader set of high-performing US strategies, and this is secured through this long-term distribution agreement, and we also create a strong, very comprehensive US investment platform, with large distribution capabilities.

Clearly this deal will create a lot of value for both our clients and our shareholders. In addition to the organic growth prospects, the new combined entity has already identified around 100 million dollars of cost synergies achievable within 2 years, that will boost the profitability of the combined

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entity, and hence of Amundi Group as a main shareholder. And this, of course, without any, cash disbursements, any issue of new shares of Amundi. And so the deal will be materially accretive on Amundi net income and earnings per share.

I thank you for your attention, and I now leave the floor to Aurélia to go into more detail.

Aurélia Lecourtier (Amundi CFO):

Good morning to all. I will start my presentation from slide 9 with a quick overview of market conditions to set the context of this first quarter.

So, all markets were up here and year based on an average market data in Europe, equity markets were up by +15% and fixed income markets, by +4%. Therefore, the market effect on our net management fees was positive compared to last year.

However, despite this bullish markets, European investors in mutual funds remained very cautious this quarter.

Moving to slide 10, we see that the activity in the European asset management industry in open- ended fund and ETFs remained low at +19 billion euros inflows in Q1representing an increase of less than 3%.

One third of these inflows was collected in treasury products, and medium to long-term products were positive by +61 billion but with a sharp contrast between passive products, collecting +68 billion, and active ones, that posted net outflows of -6 billion.

Moving to next slide, we can see how Amundi performed in this context. Assets under management at the end of March reached an all-time high at more than 2.1 trillion euros, an increase by +4% in the quarter alone and by +9% over one year.

In both cases, this was achieved thanks to net inflows and positive market effects. Over 12 months, we see that the market effect totalled almost +150 billion euros for Amundi, and we posted also positive flows totalling +53 billion euros in the past 12 months, despite the headwinds in the European asset management markets.

First quarter net inflows were at a high level reaching almost +17 billion euros, and as Nicolas explained these net inflows were very diversified by client segments with +6.5 billion euros in retail, +5.6 billion in institutional and +4.5 billion in JVs.

It was also well diversified in terms of types of management and geographies.

As we see on the slide, like for the European market, inflows were mostly driven by treasury products and by the performance of our JVs.

Treasury products continued to be attractive in an environment of high short-term yields in the Eurozone, and thanks to Amundi's wide range of liquidity solutions.

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On the other hand, despite risk aversion across our client segments, we succeeded in posting good performances in medium to long term assets with +3.1 billion euros of net inflows.

It should be noted that this quarter we posted positive net flows in active management medium to long term for the first time since the third quarter of 2022, outperforming the European market.

This was achieved thanks to strong inflows into key areas for Amundi, well adapted to current market conditions, and in particular active management bond solutions and ETFs that collected respectively +12 billion and +5 billion euros over the quarter.

Next slide, we see that the good results came from sustained performances from our investment teams. More than two third, as you can see on the slide, of our assets under management in open- ended fund were in the first and second quartiles over 1, 3 and 5 years, according to Morningstar.

And we have 262 funds rated 4 of 5 stars.

To take a broader view, including all active strategies, 83% of our assets under management outperformed their respective benchmarks over the last 5 years.

This is obviously supportive of our commercial activity across all our client base.

Turning to slide 14. I will detail the performance of our retail segment.

So overall we achieved net inflows of close to +7 billion euros over the quarter. The highest level since the first quarter 2022.

This was driven mostly by third party distribution and French networks. In third-party distribution, positive flows were driven by passive management and treasury products, but also by active management that was positive this quarter.

In French networks, flows were driven by treasury products. International networks posted net outflows mainly due to the strong competition again this quarter from BTP Valore in Italy, thanks to the strong tax advantage, and still outflows in the multi-asset space in the Italian market.

On the other hand, our partner in Spain, Sabadell, posted net inflows thanks to the success of our structured products and of our target maturity funds.

Moving to next slide, we can see the institutional segment that posted net inflows of +6 billion euros in the first quarter.

Treasury products gathered +4 billion in this segment, driven by institutionals and CA & SG insurers, while corporates cashed out from these products as it is usually the case at this time of the year.

As for medium to long term assets, net flows totalled +1.7 billion on this segment thanks to institutional and sovereigns and despite a -5 billion withdrawal from an index mandate in an institution in the Gulf region.

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The group insurance segment posted also net outflows of 0.6 billion of medium to long term asset, but due to redemptions from Euro contracts.

The employee savings and retirement segment also posted net outflows, as employees took profits after the strong performances in the shares of their employers and following, as we see, a usual trend at this time of year.

Moving to slide 16, we can have a look at the commercial performances of our JVs.

As mentioned, it was positive overall by +4.5 billion euros in the first quarter, with a strong contribution from India and Korea.

SBI MF in India totalled +2.9 billion in flows, despite seasonal outflows from treasury products at the end of their fiscal year.

Please note that we expect a material withdrawal in assets under management at SBI MF, probably in the second half of the year, but with a negligible effect on our revenues.

Actually, SBI MF manages, along with one other asset manager, the fixed income mandate of the Employee Provident Fund Organization (EPFO), that is the largest Indian pension fund with 240 billion euros assets, out of which SBI MF manages 98 billion.

The Indian authorities have decided to share this mandate with other asset managers instead of 2 today. So this reallocation, that is expected to take place in the second half of the year, will lead to a material AuM withdrawals for SBI MF, even though it is not possible for the time being to assess their amount.

However, looking at the revenue from these assets, they are barely material and totalling a few hundreds of thousand, not million, euros.

So this withdrawal would have almost no impact on SBI MF revenue and obviously to its contribution to Amundi's net income.

Turning to South Korea now, NH-Amundi also posted good inflows of +1.5 billion euros.

And last, concerning our JV in China, ABC-CA, the stabilisation of flows is confirmed, with slightly positive net flows in mutual funds.

Moving now to Amundi's results for the quarter.

So starting with the revenues, they reached 824 million euros in the first quarter, up by +4% and +30 million euros compared to Q1 last year.

This was entirely driven by the good performance of our net commission income, which was up by +4% and also +30 million euros, like total revenues.

This is due to the rise of our average AUM over the quarter, of +6% excluding JVs.

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However, as you can see, the positive volume effect of the net inflows was partially offset by the impact of the product mix on revenues.

Concerning the other revenues. Performance fees were down -38% year on year due to a cautious management of our funds, that we assume.

While net financial income, were up by +43% thanks to higher short-term rates. And technology revenue still up by +36% on the quarter.

This healthy revenue growth was obviously complemented by our operating, good operating efficiency. As we can see on the next slide.

Cost remains under control in Q1 at 439 million euros up by +3.3% and +€14 million euros year-on- year. This growth is below the one of our revenues and therefore showing a positive jaws effect despite some investments as Nicolas mentioned in our growth initiatives and in particular in technology, where we see that almost half of the growth is coming from our investment in Amundi Technology.

Efforts on efficiency gains have compensated this and managed us to keep our cost income ratio at the best in class level at 53.3% this quarter.

Coming to our results and adjusted net income for Q1. As you can see, it is up by close to +6% year on year, reaching a high level of 318 million euros.

And the increase of a gross operating income exceeding the one of our revenues at +4.4% year-on- year. This growth was also underpinned by the contribution of our JVs, up to +30% year on year.

And finally, the adjusted net earnings per share was at €1.55 up by +5.5%.

I thank you for your attention and I now leave the floor to Nicolas for a few words of conclusion before we take your questions.

Nicolas Calcoen (Deputy CEO):

Thank you Aurélia. I will be brief and just wanted to summarise this presentation by saying that as you can see, Amundi is on the move and thanks to our very diversified profile, our long-term growth drivers, both organic and through the deals I announced, and thanks to high profitability, I am very, we are very confident in our ability to continue to create value for clients and our shareholders.

So thank you and now we are, with Aurélia, at your disposal for your questions.

Cyril Meilland (Head of IR):

Okay, thank you, Nicolas, thank you Aurélia, and thank you for your attention. So as a reminder, if you want to ask a question, you have to raise your hand virtually.

And we already have 4 questions, starting with Arnaud Giblat from Exane.

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Arnaud Giblat (BNP Paribas Exane):

Good morning. Hope you can hear me.

I've got 3 quick questions, please. Could you talk about Alpha Associates? That's onboarded and thinking maybe of distributing more products, what sort of new products could you bring to leverage Amundi's distribution, what's the outlook there, and on the retail side and on the institutional side, any colour you can give would be helpful?

Secondly, on real estate, I'm quite surprised, despite some challenging performance you've had and the market has had generally in real estate, you've had virtually no outflows, I'm just wondering, what the outlook is there? Are you seeing redemption requests in your OPCI products? Any colour would be interesting to hear.

And thirdly, on technology. Good growth, year-on-year, flat quarter-on-quarter, I'm just wondering if, how the outlook, in terms of growth acceleration looks like, bearing in mind that you have a 150 million euro target. Is it still valid target? And how do you get there? Is it selling more to existing clients? Do you have a pipeline of new clients? Thank you.

Nicolas Calcoen (Deputy CEO):

Okay. on Alpha Associates, the question was about what kind of products we could propose to our clients. It's quite diversified and we have looked obviously at what they have and, just to give a few illustrations, I know they are in the process of commercialising a new infrastructure fund, so it's clearly one of the things we could propose to our institutional clients. They have, again, it's multi-management, so they are able to propose solutions in, I would say, in the 3 main spaces of the private assets, infrastructure, private debt, private equity, or to combine.

And globally I would expect continuing the market appetite today to have probably more appetite for, especially in the institutional space, for infrastructure and private debt. And as far as the retail is concerned, what we are working on is to build solutions that are adapted to retail and including solutions that basically are, globally, an exposure to all the categories of private assets, using blocks based on private debt, private equity, and infrastructures.

Second question was on real estate. We do have outflows. I don't know exactly the number.

Aurélia Lecourtier (CFO):

300 million euros this quarter.

Nicolas Calcoen (Deputy CEO):

300 million euros this quarter, so we do see outflows. But you have to look at the various businesses. In Retail, we have mainly 2 kinds of products, what are called "SCPI", which are not open funds, and so we have limited outflows, I would say by definition, and we are seeing outflows in what we call "OPCI", which are partially open funds, and funds that are exposed to real estate by around 60%. On these funds, there is liquidity which is offered and we are seeing outflows, but it's very well managed. That's for retail.

On the institutional side, we don't see, we don't see outflows and maybe at some point I know that the valuations have already come down significantly, at some point, it may become an entry point for some investors.

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And as far as technology is concerned, there's a good momentum. Revenues are flat, quarter-on- quarter, but it's linked to the level of "Build" revenues, that vary from one quarter to another.

But you can see that directionally, if you compare to the first quarter, the increase is significant. So we are confident in the continued growth and it will come both by onboarding new clients as we did, as you have seen, in the first quarter again, but also, to use an expression that, in this business, is widely used, by "farming" existing clients, so proposing new solutions and sometimes adapting the pricing of the offers for existing clients.

Aurélia Lecourtier (CFO):

Maybe inside the technology revenue we can see that we have more than 70% of recurring revenues. So it's less volatile revenues, I would say, than others.

Nicolas Calcoen (Deputy CEO):

Absolutely.

Arnaud Giblat (BNP Paribas Exane):

Thank you.

Cyril Meilland (Head of IR):

Okay, the next question is coming from Hubert Lam, from Bank of America.

Hubert Lam (Bank of America):

Hi, good morning. Thanks for taking my questions. I've got three of them.

Firstly, on the fee margin. I know you don't provide quarterly fee margin, but if you back it up, back it out, I have fee margin actually going up quarter-on-quarter. I just wonder if there's any one-off, input in that, any transaction fees attached to that, just because probably think that fee margin should be going down, just given the mix pressure towards bonds and money markets. So, I'm a bit surprised that fee margin, unless I calculated it wrong, that fee margin would be up. That's the first question.

Second question is on China. It seems to be doing better now in both the Bank of China business as well as JVs. I think it's relatively stable, I think, in terms of flows. Like, what's your view on China now? Do you think we've turned the corner or are you still cautious on the near-term outlook?

And last question is on the SocGen distribution agreement, I think the contract ends in 2025, so when do you expect to renegotiate this and are you confident that the relationship can be maintained going forward? Thank you.

Aurélia Lecourtier (CFO):

Yes, I will take the question on the fee margin, as you mentioned, we do not comment on fee margins on a quarterly basis. A few elements, as you have seen, we have a +4% increase in our net commission income, mostly due to market effect, but also thanks to positive flows in the active

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management space. Still, as mentioned in my presentation, we can see that risk aversion has an impact on the product mix, still this quarter as we measure that our average AUM progressed by +6%, when our revenues and income were up by +4%.

And as a general comment, I would say that our strategy is obviously not to control our margins, but to be able to meet our clients' needs on all the products and expertise that they need, and that we still see at the moment more appetite for treasury products, passive products and also fixed income solutions, so we speak to the to the needs of our clients.

Nicolas Calcoen (Deputy CEO):

But maybe one point to complement, there's no one off, nothing specific on this quarter So I would say, clean, clean data, that you can rely on.

Your second question, I think, was about China. Indeed, we are seeing a stabilisation I would say of the situation and both with BOC despite still a little bit of outflows, and with ABC, where basically, it is neutral but slightly positive on mutual funds. Going forward, I would say, in the short term, we will remain cautious and the situation is only moving very slowly, so we remain cautious in the short term but again, positive in the longer term, considering the untapped potential, considering the amount of money that is still in deposit accounts in the Chinese economy overall, and including with our partners.

And the third question was about Société Générale. Yes indeed the existing agreement will be expiring at the end of 2025. We have not yet started to discuss with our partner about renewal, but it will come in due time and considering the quality of the relationship we have with Société Générale, we are very confident that we will continue our long-standing and fruitful relationship.

Cyril Meilland (Head of IR):

Thank you, Hubert. The next question is coming from Sharath Kumar from Deutsche Bank.

Sharath Kumar (Deutsche Bank):

Yes, good morning all, and thank you for taking my questions, and again congratulations on a very good set of numbers. So a couple of questions.

Firstly, on the evolution of client demand. Are you beginning to see any shifts in the composition of the demand? It's good to see some inflows in active management, but still, it continues to be dominated by passive and treasury products. So, any thoughts there would be appreciated.

Second, on your international networks, can you talk a bit about the underlying trends outside of the impact of the BTP issuance.

And maybe a subset to that is do we expect a retail bond issuance to be a continuing affair? We have already seen 3 large BTP issuances. And does this risk, can it extend to other geographies?

And finally, if I can squeeze in a clarification on Victory Capital. I understand today there is no additional capital allocation or outflow. But given that you are taking only a 26% stake, would you be penalised, you know, on the minority interest front, from a capital standpoint?

Thank you.

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