Amundi : 11.02.2023 - Transcript - Amundi's Q3 2023 Results

Q3 & 9M 2023

Results

27 October 2023

Amundi Q3 & 9M 2023 Results Conference Call	Transcript
List of MAIN speakers	Company	Job title
Nicolas Calcoen	Amundi	Deputy CEO
Domenico Aiello	Amundi	CFO

Q3 & 9M 2023 RESULTS

Speaker 1

Good morning to all, and welcome to this conference call. I will very rapidly leave the floor to Nicolas Calcoen, Deputy CEO, for an introduction to these Q3 results of Amundi and then to Domenico Aiello, CFO. Nicolas, the floor is yours.

Nicolas Calcoen

Deputy CEO

Thank you and good morning to all. It's a pleasure to be with you today and thank you for attending this presentation. I'm very happy to introduce you to our results for the third quarter and for the nine months of 2023. As usual I will start with the highlights that we want to emphasise for this quarter, and then I'll hand over to Domenico Aiello to run you through the details of our performance.

As you know it is the last analyst presentation for Domenico as he will move to a new position in a few days, and I wanted to take this opportunity to thank him on my behalf, and I think on all of your behalf as well, for the outstanding work he has accomplished over the last six years as a Deputy CFO then CFO. Starting next week Aurélia Lecourtier will take over from Domenico. She is with us today and she's I'm sure very eager to meet you soon.

After this digression let me turn back to the past quarter. I would like to underline three main points from these results.

Q3 2023: HIGH PROFITABILITY MAINTAINED, CONTINUED DEVELOPMENT

The first one is our strong commercial drive, with high inflows of +14 billion euros, positive in all segments; Retail, Institutional and Joint Ventures. And in all categories: medium to long-term assets, as well as treasury products. This is particularly satisfactory in an asset management market that has suffered from low flows, and even outflows in medium-long term assets this quarter, as Domenico will show in a minute.

I would also like to highlight in particular a very good performance in active management fixed income products at +€6 billion. This is thanks to the adaptation of our product offering to the current market conditions on the client needs in particular with the Buy & Watch bond funds. And it's probably the best teaser we could think of for the upcoming fixed income workshop that our CIO, Vincent Mortier, will host in London on December 15th, and you are obviously all very welcome to attend to this event.

Finally this high level of inflows translated into asset growth over one year by +4% which again is a good performance in this uncertain market backdrop.

The second highlight for this quarter of course is the very good profitability that is maintained on a high level. Our net income is growing by +3% year-on-year to €290 million, which is again a testimony

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of Amundi's diversified profile, allowing a sustained level of revenues, and a strong operational efficiency resulting in a good cost income ratio of 54.4%, further improved from the same quarter last year. Despite the inflationary environment and volatile markets our revenue grew faster year over year than our costs.

Finally, as in previous quarters, we have kept the pace of our growth initiatives and enjoyed continued development in key strategic priorities. First of all passive management, which enjoyed a very good level of inflows, +11 billion on this quarter, of which close to +4 billion in ETF. Second, in Asia, our JV in India continued to record high inflows thanks to its virtuous model of very sustainable and profitable growth, and Domenico will zoom a little bit later on this JV. I would also like to underline the stabilisation of the activity in our JV in China.

And finally in responsible investment we have extended further the product offering, being more and more adapted to client expectations in three directions. First, in green infrastructures we have launched this quarter a new fund to finance the production and usage of renewable energies in cooperation with several Regional banks of the Crédit Agricole Group, which gives us access to, I would say, a unique sourcing of local projects. We have also continued to extend our range of funds aligned with the net zero trajectory. And we have also continued to extend our range of ESG ETFs, which now account for 32% of the total number of ETFs we propose. So, continuing to go in the direction of our objective which is to reach 40% or for 2025.

Domenico will now provide you with more details about our activity and results starting with the environment. Domenico, the floor is yours.

BUSINESS ACTIVITY

Domenico Aiello

CFO

Thank you very much Nicolas and thank you for your words. So good morning to all of you.

EQUITY AND BOND MARKETS VIRTUALLY STABLE Q3/Q2

So, following this introduction I will pick up from slide seven with a quick overview of market conditions to set the context.

As you can see the movements between Q2 and Q3 2023 were limited on an average basis, even if equity markets deteriorated and rates rose at the end of Q3. And compared to Q3 last year - 2022 - we find, like we did in previous quarters, an improvement in equity indices on one side, however a decrease of bond markets driven by the increase in rates on the other.

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Amundi Q3 & 9M 2023 Results Conference Call	Transcript

EUROPEAN ASSET MANAGEMENT MARKET IN Q3:

CONTINUED MODEST INFLOWS DRIVEN BY TREASURY PRODUCTS

Moving to slide eight. To complete the illustration of the operating context it is worth reminding also the flows evolution for the whole European asset management industries, as measured by flows in open-ended funds. So the level of flows remained quite low - +€36 billion - and driven in particular by liquidity products with +€47 billion of inflows. So that means that medium to long term products, or what we refer to as MLT, products were negative for -€12 billion. And in particular we saw an acceleration of outflows in active MLT management with stronger outflows compared to Q2 -€59 billion of outflows compared to €24 billion in Q2 - only partially compensated by inflows in passive MLT for +€47 billion. So, outflows in active partially compensated by inflows in passive.

ASSETS UNDER MANAGEMENT AT 30 SEPTEMBER: €1,973BN

If we now move to slide nine, we can see how Amundi performed in this context. So very briefly on this slide, AUM as of 30th of September stood at €1,973 billion. As mentioned already this is an increase over 12 months of around +4% as well as an increase over the quarter, so from the 30th of June 2023, of +0.6%.

POSITIVE INFLOWS IN MLT ASSETS, TREASURY PRODUCTS AND JVS

If we move now to slide ten, the good level of inflows in the third quarter is achieved in MLT assets, in Treasury products, as well as Joint Ventures for a total of +€13.7 billion. The high level of net inflows in MLT for just under +€8 billion is sustained by a couple of large institutional mandates and also by strong flows in passive, but it is also sustained by over +€10 billion of inflows into fixed income across different client segments, of course, excluding the group insurance, but we'll see more details in the next few slides.

RETAIL: POSITIVE INFLOWS BUT CONTINUED RISK AVERSION

So let's now move on page 11 to comment on the flows in the Retail segment. Overall we achieved net inflows of +€2 billion. So positive inflows. The fact that this was driven by Treasury products as well as the fact that the flows in medium to long term assets are still skewed towards the yield and capital protected products gives you a sense of the prevailing risk aversion sentiment.

Now regarding Third-party Distributors, net inflows were positive, +€2 billion, with significant inflows in Treasury products but also positive flows in MLT, +€0.5 billion, and in particular a good level of inflows into ETFs and other passive products.

Regarding the Partner Networks we also saw positive flows for +€0.3 billion, again including an element of Treasury products. So if we exclude that MLT products were slightly negative at -€0.8 billion. And as I just mentioned we continued seeing a good level of inflows for structured products, fixed

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income products, in particular Buy & Watch funds, counterbalanced by outflows, predominantly in multi-asset solutions.

And a word on Amundi BOC Wealth Management. So we report a slightly negative quarter: -€0.5 billion. We saw again in this quarter the maturity of one term product that was launched 12 months ago, however partially offset by the net inflows in the newly launched range of open-ended funds, which are slowly but surely accelerating their inflows.

INSTITUTIONALS: HIGH MLT INFLOWS THANKS TO THE GAIN OF 2 LARGE MANDATES

Moving to page 12, the institutional segment. There we saw an important level of net inflows this quarter, over +€9 billion, the majority of which was in MLT assets but as I mentioned already the institutions & Sovereign segment was positively influenced by the contribution of the two mandates that we won during the quarter. One is in active fixed income, and one is in equity index. So in passive management. And on the other hand we saw outflows in the Group Insurance segment for around -€3 billion as we saw in previous quarters, and this is in relation to redemptions from the euro contracts.

JVS: POSITIVE INFLOWS IN ALL COUNTRIES, STABILISATION IN CHINA

Maybe to complete the quarterly activity, if we now move to slide 13 we can have a look at the commercial performance of our minority joint ventures. As I mentioned this is positive for +€2.4 billion, with the contribution of all joint ventures. The driver remained, as Nicolas mentioned, India with the inflows of around +€2 billion but even more importantly, that would have been +€3.4 billion excluding the outflows in liquidity funds. So MLT was even higher at over +€3 billion for India. Concerning the minority joint ventures in China, ABC-CA, we saw a stabilisation of flows. They were positive for around +€0.3 billion excluding the usual outflows in the Channel Business product, which is as you know of course a low margin business in run-off. So we update you quarter after quarter on this run-off. And finally also the other joint ventures contributed positively, +€0.4 billion coming from both Korea and Morocco.

#1 ASSET MANAGER IN INDIA, AN ATTRACTIVE MARKET

As we have done in recent quarters also on this occasion we would like to provide you with a focus on one of our important business drivers. So we have a specific page on slide 14 on our Indian joint venture SBI FM. So firstly why our interest in the market and the potential for the asset management business? As you can see top left of the page, India's economy is growing and it is expected to grow faster than the global economy, we have not listed of course all the possible statistics but you also know that India is by now the most populated country in the world, and we expect it to rank very high in the list of largest economies globally. This is a huge potential for growth for the asset management industry if you consider that it represents today, if we measure it by the size of the industry as a percentage of GDP compared to other economies, only 12%, when overall the asset management industry represents 63% globally or over 100% in Europe, not to speak of the US at 120%. So here you

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have the potential of the industry to increase its weight as a percentage of an increasing base and this is an important growth perspective.

Secondly our local partner is a truly national champion. SBI is the largest bank in India. It enjoys a very strong franchise. To mention just a few numbers or statistics it has 22,000 branches, 480 million clients, and a 23% market share in retail. The relationship between Amundi and SBI is strong and of course we are aligned in the future strategic development of the joint venture.

Thirdly, coming to SBI MF, it is already a very strong player. It has accelerated its growth in the past few years increasing its market share of mutual funds to 17.5%, becoming the number one player in the Indian market. This is a phenomenal trajectory, as you can see from the 7% market share back in 2014. And besides its historical franchise with retail clients of SBI, this joint venture has worked to develop its own distribution network, with over 300 points of sale, and it keeps deploying its strong digital tools. So this has allowed the joint venture to enjoy today a relationship with retail clients that goes beyond the pool of SBI clients.

At the same time, and in parallel, it has also developed its franchise with institutional clients and with pension funds, resulting in a significant boost of its AUM over the past few years, as you can see. And to conclude on SBI FM itself, it's important to note that it's really a truly a complete player in terms of asset management, having expertise in active and in passive management as well as liquidity funds so therefore covering all possible client needs in different market conditions.

And this virtuous situation is translating into growth, as you can see at the bottom right of the slide; growth in both volumes and profitability. CAGR of AuM was +44% over the last eight years and CAGR of net profit contribution to Amundi was +34% over the same period. The contribution to Amundi's results was around €58 million in 2022 and this growth is of course continuing this year.

GOOD LEVEL OF REVENUES MAINTAINED

So, now moving to the results, we can start from slide 16 with revenues. Revenues were €780 million in the third quarter. On the one hand we saw a good resilience of net management fees compared to the recent quarterly history. Performance fees were low this quarter. As we mentioned in the past we have fewer anniversary dates during the third quarter. This is, as a reminder, the dates, when we can crystallise and earn performance fees. And in addition this low level of performance fees also reflects the prudent management of our funds given the current market conditions.

Revenues for Amundi Technology were €14 million for the quarter. This represents a +13% increase year on year if we look at the sort of long term development for Amundi Technology.

And finally net financial and other income; this shows another good quarter with a contribution of €19 million from a situation of a negative contribution a year earlier.

GOOD COST CONTROL IN AN INFLATIONARY ENVIRONMENT

I suggest we move to page 17 now, and we can comment on the cost evolution. So as you can see costs remained under control in Q3, at €424 million. This is a decrease compared to the previous quarter and an increase of just over +2% compared to the third quarter of 2022. It's an increase that

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is lower than the increase in revenues. So positive jaws effect. The inflationary environment was offset by the realisation of Lyxor synergies which are now as already mentioned last quarter nearly fully completed as well as of course productivity efforts. So as a result, the cost income ratio stood at 54.4% for the quarter. As I mentioned this represents an improvement compared to a year earlier.

HIGH LEVEL OF NET INCOME IN Q3

So this leads us to page 18 displaying the quarterly evolution of our adjusted net income. And as you can see this remains quite stable despite the different market backdrops quarter after quarter. The main variability, as we tried to show on this slide, is linked to the level of performance fees. Compared to the third quarter of 2022, which is more comparable in terms of performance fees, the profits increased by +3% to €290 million, as Nicolas mentioned at the beginning.

NET INCOME OF €910M OVER NINE MONTHS 2023

Finally moving to slide 19, just to provide a quick summary and overview of the performance over nine months, which also gives a good overview of our performance over a longer period of time. So adjusted net income was €910 million, which is a +4% increase compared to the same period last year. More in details how did we get there? So in a market context that is globally neutral over the nine months this is the result of management fees that remained at a strong level; they displayed a broad stability of revenue margin over the period, thanks to the overall mix of client segments; revenues from Amundi Technology, one of our levers of growth, progressed well with a +26% increase; cost income ratio improved to 53.4% over the period; and finally the contribution of Joint Ventures to Amundi's result increased by +14% over the nine months of 2022.

CONCLUSION

So in conclusion the key elements that we can retain for the third quarter, I would say, are AuM growth and good net inflows in Q3 and an asset management market that shows modest flows and risk aversion, a good level of results: €290 million thanks to strong revenues, thanks to good cost control and notwithstanding a low level of performance fees, and finally a result that confirms the good positioning of Amundi against the long term trends that represent our development priorities, passive management, Asia, Technology and services, and private assets and responsible investments that contribute to our development.

So unless Nicolas you would like to make any final remarks I guess we can open up to Q&A.

Nicolas Calcoen

Deputy CEO

Absolutely. Thank you, Domenico.

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Amundi Q3 & 9M 2023 Results Conference Call	Transcript

QUESTIONS AND ANSWERS

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question you'll need to press star, one and one on your telephone and wait for your name to be announced. And to withdraw your question you can press star, one and one again. Thank you. We'll now take the first question. This is from the line of Nicholas Herman from Citigroup. Please go ahead.

Nicholas Herman (Citigroup): Yes, good morning. Thank you for the presentation and for taking my questions. I have three questions please. One on net financial income; one on institutional pipeline; and finally one on real assets and alternatives.

So on NFI that was pretty strong in the quarter. Fixed income markets were down so presumably the increase is due to net interest income, but the net interest income benefit seems pretty limited in the first half. So I was just curious what drove that step change in Q3. And in the quarter the growth in capital was pretty muted; should we assume an even higher run rate in net financial interest income going forward please? So, that's question one.

On institutional mandates, good to see some large mandate wins coming through. I'm just curious with these mandates, you said that they were low margin; are they margin dilutive to the institutional margin, which is about 10 basis points, or just dilutive to the group margin? And how is the institutional mandate pipeline looking right now?

And then finally in real assets and alternatives what is it that drove the strong performance in alternatives? I guess more generally can you talk about the performance of the alternatives and real assets franchise versus peers or versus benchmarks? And can you talk about the outlook for demand for real assets? Are you getting some more interest as we approach peak rates? Thank you very much.

Domenico Aiello (Amundi): Good morning. I'll start with the first question on net financial income. I hope I'll answer your question as you got cut at some point. So basically I would say a couple of remarks. First of all this line can also be a little bit bumpy at times because it's a line that includes as you mentioned net interest income but also other effects which could be mark-to-market on some areas of our portfolios that are marked to market, but then of course, as you rightly pointed out, the improvement comes mainly from the higher interest rates environment. I wouldn't expect that to keep increasing further, I would say, given the general environment that we are facing.

The second question on the institutional. I would say generally speaking in terms of pipeline we consider it to be good. When you look at some large mandates you can assume that the profitability is generally lower than the average profitability that we have on the institutional segment.

Nicolas Calcoen (Amundi): And on the real and alternative assets, I'm not sure I completely got the question, but what we are seeing now from the beginning of the year is two different movements. We are seeing some outflows in real estate in a context where of course the asset class is less attractive because of decreasing valuations, but we continue to post positive flows in the other asset classes, in private debt, funds of private equity and in infrastructure with the example I mentioned - the new infrastructure fund launched during the quarter.

Nicholas Herman (Citi Group): Thank you very much. Very helpful.

Operator: Thank you. We'll now move to our next question. This is from the line of Hubert Lam from Bank of America. Please go ahead.

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Amundi Q3 & 9M 2023 Results Conference Call	Transcript

Hubert Lam (Bank of America): Hi. Good morning. Thank you for taking my questions, and I'd first like to thank Domenico for all his help over the years, and I wish you good luck in the future in your new role.

On to my questions, the first question is on structured products. You reported a +€0.2 billion of outflows in structured products after recent quarters of inflows. Can you talk about this? I thought you said earlier that structured products had continued to be good in French networks so just wondering what's driving this lower flows in structured products in the quarter?

The second question is on Italy. You reported -€1.5 billion outflows in Italy. Again can you explain the dynamics happening there? Are people switching over to BTP? And could it get worse in Q4 given the new BTP issuance that took place in October?

And lastly on Amundi Technology. You mentioned is still growing but it's still well below the run rate of the €150 million you'd like to achieve in 2025. I'm just wondering if you think this target in 2025 is still achievable. Thank you.

Domenico Aiello (Amundi): So, on the first question, on the structured products, you're right. What we mean is that it's a product that we are still selling pretty well. Of course at some point there are quarters in which depending on what we had sold in the past, there are also redemptions, therefore you cannot achieve always very significant net inflows. But this doesn't mean that it's not a product that is selling well and in particular this is in the French Networks something that is still absolutely a product of interest, let's say, for the network and the clients.

Nicolas Calcoen (Amundi): You have to keep in mind that these funds are sold through campaigns so the campaigns don't come at exactly the same time from one year to another, so sometimes you can have a period when you have some funds coming to maturity and the renewal can come a few weeks later. To explain why it can be bumpy, but really it remains really attractive in the current environment.

Regarding Italy, I just wanted also to mention that what we are seeing is absolutely not specific to Amundi; it's what we are seeing in the market. We are looking at the data from the Italian asset Management Association Assogestioni for the first eight months of the year - I think we do not have yet the figures for September - but the outflows for the first eight months were a bit more than -26 billion for the whole market, including a bit more than -7 billion just for July and August. Again we don't have yet September. So what we're seeing is not at all specific to Amundi. On the contrary Amundi is holding up well in a context where there's a strong competition from balance sheet products, from banks, as well as from the government issuance of specific BTP Valore dedicated to retail clients, with a tax advantage that unfortunately asset management products don't benefit from.

And regarding your last question on technology, maybe Domenico you want to…

Domenico Aiello (Amundi): Yes, on Amundi Technology let's say the pipeline is good. There were new wins of clients, so we are in a trajectory of growth, definitely. Then there will be obviously variations from one quarter to another in terms of the trajectory in relation to the Build, so project, let's say, invoicing, but the important element for us is that the underlying Run revenue - so license fees and basically recurrent revenues - keep increasing, which is what gives us confidence, as well as of course as I mentioned the pipeline which remains still quite good in terms of dialogue with clients or potential clients, I should say.

Hubert Lam (Bank of America): Great, thank you.

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Amundi Q3 & 9M 2023 Results Conference Call	Transcript

Operator: Thank you. We'll now move to the next question. This is from the line of Bruce Hamilton from Morgan Stanley. Please go ahead.

Bruce Hamilton (Morgan Stanley): Hi there. Morning. Thanks for taking my questions and thanks to Domenico as well and obviously congrats on the new role.

First question just on the UniCredit situation and how now we should sort of think about the range of outcomes. I guess these could go from a change in your fee take, along the lines of the SocGen renegotiation, to a kind of more open relationship, again like SocGen, or it could be I guess a loss of assets depending on how much UniCredit can build in-house. So, I'm keen to understand how you assess the sort of potential risks there?

Secondly and perhaps linked on M&A, what are the opportunities in the market today? And as you think about, say, distribution deals, has your view changed on some of these strategic partnerships, given the headache that this can create when you move towards the end of term? So how is that playing a role?

And then finally just on the technology business, could you give us a sense of the number of clients and the sort of assets under management or of the clients in that business just to give a sense of the scale today? Thank you.

Nicolas Calcoen (Amundi): Thank you, Bruce. I will start with the first two questions. So, first of all the

questions about Unicredit: just to remind that our agreements are going until 2027 so it's a bit early to say what could be the outcomes following the end of this partnership. What I could just maybe comment and following also some comments on announcements from UniCredit recently, I just want to remind that in line with our partnership and the agreement we signed in 2017, UniCredit is totally free to organise itself as it wants for the part that is not in our distribution agreement, because again this agreement is not exclusive. There's room for open architecture or internal architecture and UniCredit is totally free to organise it. I know that very recently UniCredit mentioned an objective to internalise around 20 billion euros of assets. I think it was mentioned they distribute around 130 billion or 134 billion euros of asset management products. It means that this target represents around 15% of what they distribute, which is obviously perfectly compatible with our partnership and with the leeway they have to organise open architecture…

[the line was cut off for a few minutes - Nicolas Calcoen resumed by asking Bruce Hamilton when he wa cut off]

Bruce Hamilton (Morgan Stanley): You just explained the 20 billion of the 134 billion, which is compatible with current relationship. That's where you go to.

Nicolas Calcoen (Amundi):What I was mentioning is that Andrea Orcel mentioned an objective to internalise 20 billion euros of assets which represents around 15% of what currently UniCredit is distributing in asset management products. And I was mentioning this objective is perfectly compatible with our partnership and with the leeway that UniCredit has to organise the open architecture in addition to the partnership with Amundi. So this partnership continues. We continue to propose solutions and products and work closely with the networks to propose solutions that fit the UniCredit expectations. And for the rest, the agreement that we have is still going on for four years. There's no discussions going on, so I cannot speculate about the potential outcome or potential discussion after the end of the current agreement, but I'm very confident that we will continue to be a strong partner for UniCredit considering the quality of the services we can provide.

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