AZIHF - Azimut Holding S.p.A. (AZIHF) Q4 2022 Earnings Call Transcript
2023-03-09 17:08:09 ET
Azimut Holding S.p.A. (AZIHF)
Q4 2022 Earnings Conference Call
March 09, 2023, 09:00 AM ET
Company Participants
Gabriele Blei - CEO
Ale Zambotti - CFO
Conference Call Participants
Hubert Lam - Bank of America Merrill Lynch
Giovanni Razzoli - Deutsche Bank
Elena Perini - Intesa Sanpaolo
Filippo Prini - Kepler Cheuvreux
Alberto Villa - Intermonte SIM
Presentation
Operator
Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Azimut Holding Full Year 2022 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Gabriele Blei, CEO of Azimut Holding. Please go ahead, sir.
Gabriele Blei
Thank you very much, and good afternoon to everyone. We'll go through the slides as always as quickly as possible to leave you time for Q&A. So if we turn to slide number 4, we have a quick highlight of the past four years, summarizing the growth in assets, which had a cumulative annual growth rate of 12%, and we closed at €79 million of total assets, which is already discounting for the deconsolidation of Sanctuary.
Net flows, €36 billion in the four years with €8.5 billion in just 2022, so roughly speaking, 10% of the assets. And private markets has been a strong driver of our commercial activity as well as flows with €6.5 billion or 10 times more the value that we had when we started in 2019.
On the performance side, so what we deliver in terms of net weighted average performance to clients, net of fees, despite a very challenging 2022, we're still up 6.5% in the four years, where net profit closed at €402 million in 2022, bringing the four-year accumulated profit to almost €1.8 billion. On the dividend side, we have proposed to the AGM the distribution of €1.3 per share dividend this year, and we will look into it in a minute in more detail, which basically accounts for €631 million of total dividend distributed over the four years.
I remind you that we had, in 2019, almost €1 billion of debt with completed a number of M&A transactions over the four years as well as buyback, which help us reconciling the dividend distribution with the net profit that we have achieved.
Moving to slide number 5, we just wanted to summarize to you what we have completed in February 2023. With the closing of the second LBO transaction, which basically has enabled us to close the transaction, with the 75% increase of the money we had invested. I remind you that half of the money was through leverage, €30 million, and the rest has been equity capital that more than 1,000 people has contributed to.
As far as the transaction is concerned, we wanted to highlight and stress one very simple principle, we did not sell any of our shares. We just had to go through an accelerated book building to close the leverage. And therefore, we basically sold enough shares to repay the debt and then all the remaining shares went to Timone, subject to the usual lockups.
So no management has sold any single share on the contrary through the equity participation instrument that the management team and the key personnel has. We will go through the usual acquisition of shares on the market during the month of June once the equity participation instruments will receive the dividend.
So today, there are more -- almost 2,000 individuals in Timone, of which 21% account for the total shares of Azimut within the trust.
Moving to the following slide, slide number 6, a quick picture of the asset inflows through the years. We have closed, as I've mentioned already, €79 billion. Average assets, excluding Sanctuary, closed at €80.4 billion, and this is despite the negative market effect that hit also our asset base. But we have been able to continuously gather assets throughout every single quarter of 2022, thanks to the strong diversification in our distribution platform and network across the world.
Moving to slide number 7, you have the usual split by product and region in terms of flows. You see on the bottom left, Italy with €1.3 billion. That does not take into account the fact that we had to divest €150 million due to the bond repayment. If we look at the EMEA region, €550 million with mainly flows coming out of Turkey and Dubai, whereas Egypt has suffered the negative macro environment as well as local volatility.
APAC, Australia and Singapore were the main driver behind the €625 million of close. Whereas as far as the Americas is concerned, clearly, the big chunk of the flows are coming out of Sanctuary, so €4.8 billion as well as Brazil with almost €800 million; and Mexico, almost €300 million.
On the M&A side, we have been active on two fronts, mainly. One is related to RoundShield. The RoundShield acquisition is a private real estate company active across Continental Europe, €530 million; and then a smaller acquisition out of Australia for €210 million. This brings the total to €8.5 billion in a very challenging environment.
Slide number 8, another snapshot or representation of where the assets are based with 24% out of the Americas; 58% in Italy, our domestic market; 8% out of Europe and Middle East and Africa; and 10% out of the Asia-Pacific region.
On slide number 9, you have a stronger or in-depth representation of what are the main countries of the €32.9 billion or 42% of the total assets belonging to our international operations with U.S., Australia and Brazil, as we have mentioned several times, being the major markets.
On the Italian side, you see a drop from €49.8 billion to €46.1 billion year-over-year, and this is effectively linked to the negative market effect with our weighted average performance negative by 9%.
Moving to slide number 10, a bit of a different representation from the usual slides, but we wanted to highlight after having implemented the new pricing scheme as of April 2022, how the fee structure has impacted our revenue generation and contribution, whereby you see a slower and diminished contribution coming out of performance fees, whether this is performance fees on our Luxembourg usage funds or our insurance unit-linked products.
So nowadays, we have €1.3 billion, of which only 4% belong to performance fees, whereas 96% are the current revenues. The drop year-over-year of €276 million is explained by the significantly lower contribution of performance fees, partly offset by the growth of the new distribution fee that we have introduced as of April, as I mentioned, and the growth of our foreign operations, which we will see in a minute.
As far as the bottom line is concerned, the 4% translates into 8% performance fees on the net profit. And we expect going forward that the contribution from performance fees will be between 5% to 10% of the revenues, or 10% to 20% of our total net profit, depending clearly on the market environment and our capability to overperform.
Moving to Slide 11. This is quite now the usual slide of the operating cost evolution. We have only highlighted in 2021 and 2022, the impact from the deconsolidation of Sanctuary on the distribution cost as well as on our SG&A because from July 2022, we only consolidate Sanctuary no longer on a line-by-line basis but below the operating line. If we dig into the detail of the delta on an annual basis of the SG&A, we can check that there is a delta of €23 million, of which basically almost €7 million is linked to the new perimeter coming out of Italy and €6 million of new perimeter coming out of the international operations.
We have had some savings out of Italy of, roughly speaking, €3 million for lower bonuses, which are offset by the growth of our international business, which is also impacting our cost base for €12 million.
On the distribution side, there is a delta between the two years of €16 million, of which €8 million belongs to the fact that we deconsolidated Sanctuary, whereas €6 million is a concept we have touched upon during our last call and is basically linked to the impact of higher yield curve on our -- and the discounting of future severance payments related to the network of financial advisers in Italy.
Moving to Slide 12, a quick representation of the evolution of the EBIT margin year-over-year with and without the performance fee element. So the green line is without, and you see how the EBIT margin has evolved from 19% of 2018, certainly a very complicated year, up to 40% in 2022, thanks to all the actions and growth and strategy that we have put in place. So it's slightly more than two times over this period.
Moving to Slide 13, we move to the representation of the net profit and the recurring net profit over time. And you see how, as far as 2022, we have -- we are confirming the €350 million recurring net profit that we have mentioned during our pre-closing statement in January and €402 million of net profit.
The growth has been consistent. If we compare the margin of 2022 with 2021, you see that we have a very stable margin of 42 basis points despite a very challenging market environment and a higher tax charge in 2022 when compared to 2021. If we rebuild the impact of performance fees to this 42 basis points, we will be trending to the 50 basis point net profit margin that we always try to maintain. Interestingly enough, the €350 million recurring net profit is the highest in our history and is quite almost the double of what we had back in 2019.
Let's go to Slide 14 and 15. We'll spend a bit of time because this is the very first time that we have been providing, especially Slide 15, but let's focus on Slide 14 for a minute. These are the usual four boxes through which we provide you with some colors and numbers on our international operation. So total assets at €32.9 billion clearly have the impact of the deconsolidation of Sanctuary for, roughly speaking, €7 billion. This is exactly offset by the flows that we have generated from our foreign operations during 2022 of €7.2 billion.
On the revenue side, we have observed a cumulative annual growth rate of 24%, exactly in line with what we have seen on the asset base. Total revenues of €273 million are up 10% year-on-year. And if we were to exclude the impact of the deconsolidation of Sanctuary, you would see that in 2021, we would have had €184 million vis-a-vis €248 million, whereas the 2022 figure would be dropping from €273 million to €221 million, which translates into a growth of 20% year-over-year or, roughly speaking, 70 basis points of revenue margin.
One thing that I want to underline before commencing the EBIT and net profit is that the total revenues do not account for those revenues that are booked in our product factory in Luxembourg and are not -- and are, sorry, and are belonging to our international business. Why I'm saying this is because in the EBIT and net profit boxes, you see two lines.
The two lines are basically a result of a management accounting approach, which is aiming at providing you the industrial profitability of our foreign business by reconciling all the revenues and the profit that we generate out of our business wherever this is based, i.e., trapped in our Luxembourg operations.
So if we turn to the EBIT line, we have achieved €78 million of EBIT from a management -- an EBIT perspective, whereas the statutory number is €56 million. The delta is explained by what we call as cross-investment that is basically income from our operation -- foreign operations in our Luxembourg entity. If you check the growth year-over-year of these two lines, it is slightly lower in terms of progression of year-over-year, and this is due to lower performance fees that we had in 2022 when compared to the previous year.
Moving to the net profit, again, the two lines, the statutory line of €47 million, whereas the €60 million line includes the income of our Luxembourg product factory and does not include, and this is important when we turn to the next slide, does not include the fair value options that, in a way, distort the picture of our industrial profitability.
It can be a positive or negative number, clearly, depending on the year, but we prefer not to have this impact and show you that between 2020 and 2022, the profitability of our management accounting in our foreign operations went from €30 million to €60 million. So quite a double from 2022 to 2020.
Moving to Slide 15. This is trying to answer some of the requests that we have had in the last years or quarters to provide with a better representation and more transparency when it comes to the four building blocks of what we do as far as Azimut Group is concerned. As you very well know, we have our historical business in Italy where we have €42.5 billion. And here, we have extracted the Private Market assets belonging to our Italian operations that you will find in the Private Market column in order to provide you with a fair representation.
This €42.5 billion generates €918 million, which basically is the result of the revenues generated from our distribution activity and production activity linked to our domestic market and domestic clients. So it includes clearly Luxembourg, Ireland and our Italian asset management activities, excluding clearly the Private Market.
And EBIT, this corresponds to a margin of 216 basis points and an EBIT, we closed with €424 million or €295 million of net profit, which is basically 70 basis points of net profit margin. Internationally, we have €32.5 billion adjusted for Sanctuary. This number produced €273 million of revenues or quite 85 basis points of revenue margin. Clearly, you see a difference with Italy, but we have never hide the fact that internationally, there are different dynamics in different markets and, therefore, the profitability of the assets and revenues that we generate on the asset is different.
€83 million of EBIT and €64 million of net profit, which is virtually 20 basis points of net profit margin. Why the €83 million and the €64 million do not speak with the €78 million and €60 million of the previous page is basically because we are including the fair value options. And we are not accounting within this column for the contribution coming from our alternative business in the U.S., which is included in the Private Markets column that I'm going to comment in a second.
So turning to the Private Markets, €5.6 billion, which are split €3.2 billion in Italy and €2.4 billion abroad. This has generated €77 million of revenues in 2022. And if we observe the €77 million with the €3.2 billion of our Italian AUM, this is 240 basis points of margin. Why just €3.2 billion and not the full EUR 5.6 billion? This is because the Azimut Alternative U.S. business is accounted for in terms of dividend below the operating profit line. So it has an impact on the net profit, not on the revenue generation.
€33 million of EBIT, which corresponds quite to the same level of management and net profit of €33 million or 60 basis points of net profit margin. The two numbers are similar if not identical simply because we are including the dividends coming from our U.S. GP staking business. And this is quite offset by the tax charge that we have on this division.
The Fintech. Here, you can incorporate all the activities coming from the fintech world as well as some of the so called investment merchant banking activities that we have started to develop over the years. These do not have specifically assets for the time being. We generate advisory fees and commissions of €19 million. And then it brings us to €8 million of EBIT and €11 million of management net profit.
Clearly, from the 8 to 11, we have the taxes, but we include also the fair value of the options that we have within this division. I'm not going to comment any longer on the fact that the sum of all these four divisions lead us to the €402 million and all the other numbers. But one thing I would like to highlight is the fact that within the Private Markets segment, which has started in 2019, sooner or later, we will be starting to generate carried interest, which will hopefully uplift the 60 basis point net profit margin.
So moving on to the other slide, Slide 17. The usual representation of our weighted average performance. We still are benefiting from very solid results in 2022. We started the year with a very strong outperformance vis-a-vis the industry, and we are kind of very active and diligent in the way we approach the asset allocation of our clients' money given that markets are still quite volatile.
Slide 18, focus on Italy -- this slide and the following ones. We wanted to provide you with a bit of insight of who are our clients and how much money they have with us. So you can see that virtually, 73%, so quite two thirds of our client base has more than €250,000 with us. So we should be able to justify our prices, our advisory service to them with or without any inducement ban that eventually may come into play. On our segmentation in terms of clients' age, you see that quite a good chunk of our clients are within the, let's say, mature bracket between 50 and more than 65 years of age.
Turning to Slide 19, Private Markets, the usual breakdown of where we are geographically by region, U.S. and internationally, mainly -- sorry, Italy and internationally, mainly U.S. and the UK with 57% in Italy, €3.7 billion or 43% and €2.8 billion.
As far as the asset split, no major change vis-a-vis the last update we have provided to you. And what is a statistic that we have discussed with some investors over the course of the last year has been the fact that nowadays, there is a very large acceptance by the network of selling Private Market products to their clients because 90% of our network also 1,660 financial advisers sold at least one Private Market product to their client base. This converts into a penetration within our client base in Italy of just 20%, which gives us ample room to continue to pursue a different asset allocation for our clients as far as Private Markets are concerned to generate long-term, consistent, positive overperformance vis-a-vis our competitors.
Slide 20, Private Markets platform. A different view of what we are doing and how. So you see that we have grouped the activities under three pillars: direct investment, €3.2 billion; GP taking, €2.8 billion; and some of the partnership agreements that we have with a number of very respectable and renowned players in the private markets field for €0.5 billion. So of the direct investment, we do it in six countries across the group.
So we're quite pleased that we have started this process in Italy. And going forward, we will be expanding the private market capabilities across a number of different operations as there is appetite from our clients. We have launched a bunch of funds within the RAIF, ELTIF and other structures that enable us to have full flexibility and approach different type of investors.
On the GP staking side, this is basically the U.S. operations, and we have completed the six transactions that we have updated you on.
Moving to Slide 21. Another way of looking at what we have been doing on our Italian business is to focus on the other two businesses that have driven the flows during 2022. So Azimut Life, our life insurance business, has generated net flows for almost €0.5 billion. And you have to take into account that if you look at the gross figure, this is even more relevant because we have generated €1 billion of gross flows, which have been offset by €0.5 billion of outflows due to the death of policyholders and resulting in the €0.5 billion net new money.
AUM of €6.7 billion impacted clearly by the negative market vis-a-vis 2021, but steadily growing year after year. What is more important and relevant in this slide is the bottom part because, as you can see, we are able and capable of growing in terms of new policyholders, whether firms or clients, and this is probably the result of the thorough work we have done over the years in trying to improve the product offering as well as delivering significant performance to our clients.
Lastly, one thing that we are very careful is always to decrease, over time, the average age of the policyholders in order to maintain a consistent and significant growth within this business line. 2022, as I mentioned, marked the best year in terms of net flows since 2016 for this business line.
Another way of looking at things within Italy is the pension environment where we are present with a number of products and solutions, including an ESG-compliant pension product. And as you can see, the work that has been done and the performance that has been achieved over the years has enabled us to grow in terms of assets to €1.5 billion from shy of €1 billion. And most importantly, to reach a 5.5% market share overcoming in this segment, some of the very large players that operate in Italy.
Also for the pension business, we have been active in 2022 and recorded the best net flows ever.
Moving to Slide 24. I just wanted to give you a quick snapshot of the partnership that we have announced back in late December 2022. This partnership is delivered with UniCredit in order for UniCredit to develop their own asset management capabilities. And we will be setting up an independent management company that has been called Nova Investment Management in Ireland. And we will develop a range of usage funds only for them out of our -- of this Irish operations.
The agreement is based on a nonexclusive distribution with UniCredit network that can rely on 7 million customers in Italy today. So why UniCredit has chosen probably Azimut is a recognition of the work that we have done over the last 30 years, both in Italy and abroad. We have built a global asset management team that has more than 170 investment professionals across all the countries in which we operate. And probably, we have been able to establish a significant recognition as far as the work we do and the brand that we represent.
Flows and AUM from this partnership are expected over time. It does not clearly depend on our decision, but we are closely working with UniCredit in order to establish the product that they need and be able to educate and transfer the know-how that we normally do with other banking players to their network in order to ramp the business up in a very significant way.
On the economic side, the net profit or the agreement that we have reached with them entails for a net profit margin that stays with Azimut of -- that is in line with our margin that we generate out of our domestic business. So it's going to be quite in the 50 basis point region.
Moving to Slide 25. This is kind of a time line of what we have been doing and what we will be doing in the coming quarters and years. From -- starting from the announcement, we will be soon filing officially the application with the Central Bank of Ireland during March. We have already done the prework for the filing. So everything should be now set to be sent to them more efficiently.
We expect the license to come over in Q4. And together with that, we will be working to establish the 12 first funds that we have mentioned, which will be UCITS product. And then from that moment on, so between Q4 and Q1 2024, we will be starting the marketing activities and net flows will be generated. And then in 2028, there is the -- UniCredit will have a call option to become the majority shareholder of Nova Asset Management as they will be starting from a minority position -- sorry, from a no equity position because we will be 100% owner of this entity up until they exercise the call option.
So moving to the other more major relevant events in the M&A side is the acquisition of a minority stake in Kennedy Capital, a 35% stake. And we are very pleased that Don and his team have decided to reach this agreement with Azimut that recognize their superior capabilities in delivering returns over a very, very long period in the SMID U.S. equity market. Funny enough, one would have asked why Azimut is not present in the traditional asset management business up to now, and eventually, the honest and direct answer is we didn't find people like Don and his team to come on board and deliver and leverage on their capabilities for our client base wherever these clients are based.
So the Kennedy Capital had, at the end of February 2023, €3.8 billion. And as you can see on Slide 27, I think this slide is self-explanatory as far as the returns that the Kennedy Capital investment team has been able to achieve over the years on a consistent basis vis-a-vis the benchmark. They are in the first or second quartile since inception on all the fixed strategies that you see on this page.
So 28. This is how the U.S. presence of Azimut shapes up. So we are present with our Private Markets segment that have affiliates AUM for €17 billion. This is not the competence of Azimut in terms of the stake that we have because we have typically a 20% stake on all the companies in which we bought into. We have added the asset -- the traditional asset management capabilities with Kennedy Capital, so €4 billion of AUM. And most -- and lastly, we have our own distribution capabilities through the shareholding of Sanctuary that today accounts for €26 billion.
On the bottom part, you see the six acquisitions that we have completed throughout the year with our Private Markets initiative as well as the next-generation fund, which is basically mimicking in a fund the activity that we do out of our Azimut Alternative Partners Holdings.
I'm going to turn now to Ale for the usual representation of the financial accounts.
Ale Zambotti
Thank you, Gabriele. We turn to Slide 30. As you can see, we can start commenting the income statement, the first part of this where you have total revenue that decreased compared to last year by €163 million, thanks to an operating cost that remained stable with a lower effect of €3 million, the operating profit decreased by €160 million.
This negative variation is mainly explained by the variable fees [indiscernible] the 2021 with €322 million almost. So we have a negative variation of €276 million if we compare to this year. Therefore, many of the variation, it is there, but we were able to net this negative variation tax to the increase in the recurring fees of €132 million if we compare to the full year 2021.
This obviously includes the contribution of the new fees that we've introduced beginning of April, discount of €105 million, but also thanks to the contribution of the Private Markets growth with €18 million; and €21 million, thanks to the contribution of the international business, netted, obviously, by the €9 million of the deconsolidation of Sanctuary and a bit of volatility as we were saying was before on the open-ended fund.
Moving to the variable fees, just to comment how we built €36 million for the full year 2022. As we already shared at the beginning of the year, we have the crystallization of the old method with a contribution of €33.7 million. Then we have the fulcum effect that impacted negatively with €5 million. And also we have the positive contribution of the international business that generated €16 million in the full year 2022.
Moving forward on the other income, €9 million variation compared to 2021. The other income are mainly driven by the new perimeter where we are investing. Therefore, on 2022, we mainly invested on the vertical of the investment banking initiative that positively impacted the other income.
On the other side, moving to the insurance revenue, we have a negative variation of €23 million that comes from, again, performance fees effect. The net between the two years are €27 million, therefore, we were able to again reduce the negative effect, thanks to €4 million of recurring fees higher compared to last year, thanks to the growth that we have in terms of AUM despite the market volatility.
Moving to the cost. As I was saying, in general, we are €3 million less, but we also have to consider that in distribution costs, we benefited on one side, if we can consider it as a benefit, the deconsolidation of Sanctuary. And as we were commenting before by Gabriele, we have also less overheads and positive impact on the higher yield curve on future severance payment to the FAs.
Last point, looking to the SG&A, we have €19 million compared to last year in terms of increase of cost. Here, if we take out the effect of the deconsolidation of Sanctuary, the real effect in terms of negative impact or growth is €23 million. And this is explained on two different ways. On one side, we should consider the variation of the Italian and international business perimeter. On one side, €7 million in the first case. And then for the international business, €6 million are linked to the Australia presence. Therefore, the rest is mainly explained by the growth of the international business by €12 million.
Moving to Slide 31. We have the second part of the income statement. We try here to give you a bit of color in terms of the impact and using the note below. Finance income are driven by dividends from the GP stakes, €30 million. We have the deconsolidation of Sanctuary, and, therefore, the minority effect through the P&L of 5.8 negative. And then the effect of the fair value option netted by the realized and unrealized gain and loss on the own investment that netted together is going to be something around €2 million positive.
The net nonoperating cost, the €11 million that you see that impacted the full year 2022, is driven by the valuation effect due to the application of the IFRS 3 and linked to the transaction that we have from a minority to a majority interest in Electa and in the opposite way the deconsolidation of Sanctuary that counts around €15 million and nonrecurring cost that's effectively impacted by €7 million.
And then in general, just to comment on finance expense, we have a lower impact due to the fact that we reimbursed mid of March, the €350 million bond. And lastly, we already commented during the year, the income statement is impacted by -- mainly by the performance fee and the higher taxes in Luxembourg.
We also provide you, on Slide 32, the income statement comparing the last quarter with the previous quarter. I would say that we have no significant element to other or different estimate considering what we already provided commenting the full year. So just to take the variation, the full variation of total revenue that increased by €15 million, essentially, we were stable despite -- or positively, it's anyway impacted by the performance fee, in particular, in Turkey, as was said before, from the international business.
At the level of the personnel SG&A, where we have a significant variation, again, here, we were impacted by the higher personnel and SG&A due to bonus accruals, change in perimeter and new initiatives as we were commenting before. Lastly, the nonoperating cost, again, the application of the IFRS, it what I was discussing and explaining before.
So then moving to the net financial position, Slide 33, we are positive to €293 million at the end of the year compared to the €408 million of 2021. Below in the slide, you have a summary on what we did in terms of the investments, €240 million. We paid a dividend of €261 million. We repaid the bond. We did a buyback and also we have absorbed the cash due to the tax advance and stamp duties for €113 million. So obviously, on this, you have to add the results of the group that the net profit before taxes accounted to €555 million to reconcile the variation.
I'm going to leave to Gabriele for the last part of the presentation.
Gabriele Blei
Thank you very much, and congratulations for the excellent job. So very quickly, the very last couple of slides, capital management on Slide 34. Dividend €1.3, we have already commented on it, which is basically 51% of our recurring EPS of €2.55. We remain -- we stick to our dividend payout policy, which we have set a couple of years ago, stating 50% to 70% of the recurring net profit is what we will be paying out of our EPS as far as dividends are concerned. Why that? It's because we have this pecking order in terms of the remaining net profit of debt payback, M&A and buybacks when and if opportunities will arise.
Moving to Slide 35. It's a different way of representing what we have just mentioned or just extended over a longer period of time, where the €1.3 corresponds to a dividend yield of 6% so far, and it is consistent with the dividend paid in the previous year.
Lastly, outlook, Slide 37. We have just summarized what is the expectation for this year, 2023, where we expect to be able to gather €6 billion to €8 billion under normal market conditions and €450 million of net profit. Clearly, moving to 2024, the expectation is to reach €500 million of net profit and 15% of the Private Markets AUM and the management adjusted net profit of our international business on an annualized basis of €150 million.
So these are the targets that we have already set. I'm not going to comment further, but we're happy to take any questions that you may have. When it comes to the focus and the business development that we intend to implement over this year and the next is clearly on our domestic market, the Private Markets and becoming the one-stop shop for financial needs, including anything, any activity within the fintech world is what we will be focusing on with our network fully dedicated to that.
The U.S., we are keen to work with our colleagues in the traditional asset management, i.e., Kennedy Capital as well as our Private Markets GP staking business to try to integrate and penetrate a bit more the distribution system that we have within Sanctuary.
On an international perspective, the idea is to continue to grow, as we have done. The numbers, I think, speak by themselves, and we expect to increase the profitability and the scale in most markets, but especially U.S., Australia, Brazil and our Middle Eastern exposure.
Product offering. We have a pipeline of launches. We will be trying to become a bit more disciplined in order to become even more effective as far as the commercial activity is concerned when it comes to the product offering. And this entails mainly Private Market launches. But on the usage side, we will be merging or filling some -- few gaps that we may have in the product suite that we offer to our clients.
M&A. As always, extremely opportunistic, extremely focused to create added value and accelerate growth where we are present already. We probably don't see ourselves very much active in new regions or countries, but we can leverage on our existing presence and scale it up also with additional M&A.
Capital management. We are quite boring, but we are keen to get to a position of complete deleveraging and full debt repayment by 2024 when the €500 million bond expires. And therefore, this is going to be financed through the strong cash flow generation that we constantly achieve.
With that, I leave you with some time for the Q&A, and we thank you for your attention.
Question-and-Answer Session
Operator
This is the chorus conference operator. We'll now begin the question-and-answer session. [Operator Instructions] The first question is from Hubert Lam of Bank of America. Please go ahead.
Hubert Lam
Hi, everyone. Good afternoon. Thanks for taking my question. I've got three of them. Firstly, can you give some guidance on costs for 2023 and particularly on the G&A as well as the commission expense? I know last time you mentioned bulk cost management with our cost savings, and I think the -- any guidance for this year would be helpful.
The second question is on flows. I think the start of this year for January and February was probably a bit weaker than what I had expected particularly on the managed side, if you exclude the M&A. Can you talk about possibly postal the headwinds that you faced in the first couple of months of the year and we read across the upcoming months? And also maybe just give us also a pipeline in terms of private asset launches that we could expect to come through in the management flows over the next few months?
And lastly, on the UniCredit partnership, thank you for the details. How much profit should we -- do you -- have you baked in for your targets, the €450 million to '23 and €500 million between 2024 from UniCredit. I would assume 2023 is probably not much, but just thinking more of the €500 million that you're targeting for 2024. Thank you.
Gabriele Blei
Thank you, Hubert. Thank you for the question. So guidance on cost or guidance more in general, I would assume that you would be pleased if we try to elaborate a bit more on how do we get to the €450 million from the €402 million that we have achieved so far. So the base assumption is that we will work in a more normal market environment than what we have experienced in 2022, which was harsher than what we assumed at the beginning. And therefore, we had to work harder to get to the €402 million.
So this goes with a flat year-on-year margin assumption, which eventually we will be able to maintain.
On the cost side, distribution costs are very much tied to the revenue generation that you would be able to assume based on the fact that we will be reaching €6 billion to €8 billion and a flat margin environment, which in the end, if you look at what we have achieved in 2022 vis-a-vis 2021, is exactly a very similar growth in the net profit of €50 million. Clearly, there is a component linked to performance fees that has been €42 million or €45 million in 2022, which we are not betting to replicating full. And therefore, we are kind of more conservative down there.
On the cost side, SG&A, the base case is that through the initiatives that we have been studying and putting in place as of 2023, we will be generating incremental cost savings, but these cost savings will probably hit in full 2024 more than 2023. Therefore, the savings that we will be generating will probably be absorbed by some initiatives that I think we have discussed in the past as far as the front-end system that is used by the financial advisers for the work to reengineer the back-end system that is again used from our domestic business.
So all in all, if I have to stay on the conservative side, I would assume that the SG&A line, given the development and the focus we are placing on our foreign business to grow and keep growing the net profit, is an assumption of 5% to 7% cost growth of the SG&A line for 2023. And again, this is because 2023 will not have the full impact of the cost savings. And this cost saving will be partly used to finance and finalize some of the projects that we have been speaking about for quite some time.
On the tax side, we would be expecting to trend to the 22%, 23% tax rate, which will be slightly lower than what we have achieved in 2022. Flows, I think I touched a bit on this topic just now. But first two months, typically, January is flattish or seasonally weaker month for the industry, and we are no exception, and this is because people come back from the holiday season. And typically, our network waits for the convention to take place and, therefore, to understand the commercial initiatives that we want to put in place.
We are also very much focused on generating flows out of the Private Markets segment, which is something that, as I've tried to explain in the past, you don't fully see these actions and the result of these actions in any single month because you will only -- we will only account for those assets once we close and, therefore, the commitment is drawn. The first two months have been impacted by the consolidation of Kennedy Capital.
So net of this €1.3 billion in February, we had €300 million of flows, which are discounting for the €300 million outflows out of our Brazilian operations due to the very problematic environment following the bankruptcy of Americanas [ph] which has had a wide range effect on the entire industry, when it comes to people reallocating the asset out of some of -- some fixed income funds into some other products.
Moving to the UniCredit profit contribution. As we have had the chance to mention to some investors, we are not expecting any contribution in 2023. On the contrary, as we are setting up the entity and the hiring, the people that are required by the Central Bank to have a fully functioning asset management company, we will incur a small loss. I would expect this loss to be in the low single-digit print. But we will be confirming this as we go along with the process and we have a bit more visibility.
2024, the €500 million net profit target does not virtually has any contribution in our simulations. So it is something that when and if it will start in terms of flows and net profit generation, it's going to build up on top of what we have had the chance to set as the €500 million mark.
Hubert Lam
Great. Thank you for the clear answers. Just one very quick follow-up. For your distribution costs for 2022, like what is the starting point adjusted for Sanctuary and the one-offs? So just we can kind of use that as a basis for forecast for the--
Gabriele Blei
Absolutely, yes. I would -- in your shoes, I would do exactly that.
Hubert Lam
So what's the number then for '22 for that distribution--
Gabriele Blei
It's -- hold on. I think we have it in -- just hold on a second. €376 million because you have on Slide 11, you have €376 million of distribution costs, which is already net of the €45 million of Sanctuary impact on the distribution cost line.
Hubert Lam
And other one-offs? I think there are some one-offs in that line previously? Or is that--
Gabriele Blei
Which one are you referring to, sorry?
Hubert Lam
Sorry, the distribution cost, there's some -- was there some one-offs in Q3. I'm just wondering if that's in that line, in that €376 million.
Gabriele Blei
Listen, there is the impact on the severance payment coming from the yield curve, which is something that I would not enter now into a prediction of where the yield curve will be, and therefore, what's going to be the impact. Clearly, this year -- sorry, last year, 2022, we had, had an advantage, but I cannot estimate how this is going to become. But if you assume a 0 impact, I guess, this is the best approach you can get at the current stage.
Hubert Lam
Make sense. Thank you.
Operator
The next question is from Giovanni Razzoli of Deutsche Bank. Please go ahead.
Giovanni Razzoli
Good afternoon, everybody. A couple of questions on my side. The first one is about the -- a little bit more of details on the target of inflows for 2022, the €6 billion to €8 billion. What kind of contribution shall we expect from the domestic business, which, if I'm not mistaken, you show in 2022 as provided something like €1.5 billion of AUM inflows is not mistaken between AUM and Private Markets?
And then if you can share with us, what was the performance year-to-date of the domestic business? And then I would also like to hear your views about the commercial effect of that, if any, on the outflows that we have seen from some competitors on traditional policies -- traditional life policies. It seems like it's a product that was not really penetrated in your client portfolio. So I was wondering whether you feel relatively relaxed about the potential negative impact that the outflows from these asset class may generate going forward.
And then the last question, Gabriele, I missed your comment about the difference between the reported EBIT and the adjusted EBIT of your foreign operations. If you can please repeat it. Thank you.
Gabriele Blei
Sure. No problem. Just to be sure that I got the right question. When you refer to performance year-to-date, I assume you are thinking of the weighted average performance that we delivered to clients, right?
Giovanni Razzoli
No, no, no. The performance in terms of AUM inflows of the Italian perimeter, just simple the AUM inflows of Italy.
Gabriele Blei
Okay. Got you. So while we recover those numbers, target, 2023, in terms of flows in Italy, we are expecting something between €2 billion, €2.5 billion. But once again, what we are keen and look to have is the quality of those flows i.e., where this money is going. And then as you have seen in 2022, the big contributors were Private Markets, life insurance and pension business. This is, for us, as far as the asset allocation, the ideal split that we can propose to our clients nowadays. So within the €2 billion, €2.5 billion, this is something that we will very much look to achieve.
The EBIT margin, when it comes to Slide 14, what I mentioned is that you have the €56 million and €78 million, just to take the 2022 numbers. What you -- the delta is basically generated by the fact that some of the earnings that are linked to our foreign business are, in a way, tracked in our Luxembourg product factory because either we set up products up in Luxembourg and we distribute them internationally or there are other type of activities that we can pursue linked to our international business.
So in order to fully represent to you what is the true representation of earnings generated out of our foreign business, we believe that the light blue line of the €78 million better represent what you have in terms of international profitability vis-a-vis the Sanctuary number of €56 million.
Then turning to the traditional life insurance policy, I think you're right, I mean, today, we are observing around the traditional policies, big turmoil because of the movement in the interest rates and especially the yield that you get on COVIS [ph]. And therefore, you are seeing deep outflows, not to mention the fact that there is a medium-sized player in Italy that went into problems that has affected the sentiment across the financial market as far as these products are concerned. And I'm referring to Eurovita, the company that went into difficulties.
When it comes to our business, we are, I think, what we can say in the sweet spot in terms of products that we have distributed, and we continue to manufacture and distribute to our clients because we are in the unit-linked segment where there is no problems as far as the traditional life insurance policies are concerned. So today, we have a very, very low single-digit exposure to any of the traditional life insurance products, and none of them are with the company that went into difficulties.
On the contrary, we have engaged with very solid and renowned third-party insurance companies to sell a very minority part of products when it comes to the traditional life policies. Performance year-to-date. The number for Italy is in the €150 million region. It accounts also for some outflows that we have recorded in the institutional segment.
This is mainly referred to outflows from monetary funds, so a very low profitability business for us that was backdated. And it does not account for the work that we are doing on the Private Markets side that we would expect to show you in the coming months between March, April and May as far as the first closing on some of the products that are in the asset gathering phase.
Giovanni Razzoli
Thank you.
Operator
The next question is from Elena Perini of Intesa Sanpaolo. Please go ahead.
Elena Perini
Good afternoon. And thank you very much for your presentation. I've got a few questions. The first one is a clarification about your minorities. I don't know if you have already talked about it before because I have been disconnected for some minutes. So I see a significant jump, especially in this fourth quarter. So I was wondering whether something extraordinary occurred in this respect.
And then I was wondering if you please can repeat if you have already provided your guidance on the SG&A for the current year. Thank you.
Gabriele Blei
Okay. Thank you very much. So priorities in Q4 and more broadly in 2023, you have observed a jump on the minority side because in some of our international operations, we have been able to generate important performance fees. And therefore, we had to recognize some variable compensation to our partners across a number of countries, and this has impacted the minority line.
On the SG&A side, what I tried to explain before is that we will be looking to 2023 guidance that will generate or start to generate some cost savings linked to the initiatives that are -- have been -- started to be implemented as of January and gradually will come into full effect and eventually impact 2024 in full. These savings will compensate for some of the investment that we have mentioned in the past when it comes to the back-end system that we are reengineering as well as the change of the front-end system for our Italian domestic network.
So if I would have to make an assumption today on where the SG&A line will go net of these two aspects that I've just mentioned, I think even the stronger increase that we expect from our international operations in terms of growth and some initiatives in other markets, I would assume a 5% to 7% as a conservative guidance for cost growth at this current stage. Clearly, any change in perimeter is not included. But I mean this is something that by now, we are all quite familiar with.
Elena Perini
Okay. Thank you very much. And if I can add a further question. I don't know if you have already dealt with it, but with regards the potential ban of inducements, what's your view? Would you expect a total ban or some intermediate solution? And how do you think that you can manage this? Thank you.
Gabriele Blei
Thank you, Elena. So I think commenting on the inducement is very, very difficult because one day, you hear that it's going to be introduced. And another day, you hear that several members states of a certain size and weight have voted against the introduction of this inducement ban.
So what we can say for the time being is that we will -- we are monitoring the situation, and we are trying to understand if, how, when this change eventually, if any, will be introduced. We have gathered over the years a bit of experience working in several international markets where the inducement has been banned already. So we have a number of options or cards to play.
And one element that we should not forget is that our financial advisers, our shareholders in the business, because more than 50% of the shares that are held in Timone are owned by our financial advisers, and I think we have the full alignment of interest to find a way to work within an inducement ban system while preserving the profitability of the business and the growth of this business given that the alignment is there. And therefore, we will certainly find a solution as we have done under MiFID I and MiFID II in order not to penalize the clients on the one side and on the other side, to retain the profitability for our stakeholders.
Elena Perini
Okay. Thank you very much.
Operator
The next question is from Filippo Prini of Kepler. Please go ahead.
Filippo Prini
Good afternoon. I got three questions. Firstly, I start from again a clarification, sorry to keep on the G&A, but the 5%-6% growth in '23 that you mentioned is calculated on the cost base, including Sanctuary or already net of the 6 months of Sanctuary that were included in the 2022?
The second, regarding the partnership with UniCredit, are there any meaningful or material costs to set up the profit in Ireland that are included into your guidance of cost?
And the final, on dividend, you are paying basically 51% of payout or recurrent net profit is low end of the range, below the payout of last year. Is this basically due to the reimbursement that you plan to have of your bond in 2024? And so basically, on the noncore term, we would expect that your dividend payout could be maybe closer to the high end of this 50%, 70% range of recurring net profit? Thank you.
Gabriele Blei
Thank you very much for the question. So SG&A, the assumption for the growth is excluding Sanctuary deconsolidation. So the base is the €266 million SG&A that you see on Slide 11. As far as the UniCredit, as I mentioned before, we are expecting to incur some cost and no revenues in 2023 given the approval process that we have to complete and the timing over which this will take place. So given that we have set up our own asset management company in Ireland in 2022 and we know quite well what is the type of cost that we will be probably incurring if we just take a copy-paste approach, and for that reason, we are expecting some low single-digit number in terms of loss in 2023.
Dividend, I think you're right, we are in the 51% range in 2022. If I'm not mistaken, we were within the mid range, if I'm not mistaken, 63%-65% of dividend payout last year. Clearly, if you check the amount of M&A and investment that have been done this year -- I'm sorry, in 2022 compared to 2021, it's quite higher because we are at €240 million. And the year before, if my memory is correct, it was in the €120 million, €130 million range.
On top of that, we have done the buyback for €30 million, and we have repaid the €350 million of debt. So we never want to be too stretched in terms of capital management. And we maintain, as a strong commitment, the fact that we will be repaying the €0.5 billion of debt in 2024.
So from that side, we thought that maintaining a flat dividend in terms of euro per share was or is the right thing to do and within the range that we have set. So we're not revising any guidance whatsoever.
Operator
The next question is from Alberto Villa of Intermonte SIM. Please go ahead.
Alberto Villa
Good afternoon. Two questions from my side as well. First one is back on your Slide 15, thanks for that, interesting international operations and how they are contributing. Now they are contributing for 20 basis points in terms of profitability, which is obviously much lower than the entire operations in the Product Markets. So I was wondering on the current perimeter, what is a normalized, let's say, long-term profitability of the international businesses that this 20 basis points is something that can improve? And maybe you can give us some color, which areas were contributing more positively to the 2022 results and which are the one that are not performing so much?
And the second and related question is if you can provide us with the M&A that you might have to incur for corruption and so on as we stand today. And then still related is on the good year on your books is around €740 million. Do you think there are any risks of any, let's say, realigning of this [Indiscernible] or it's something that is [Indiscernible].
The second question I have is on the interest rate environment. We have seen some appetite by retail investors on direct investments into government bonds, for instance, we've just yesterday closed the issuance of [indiscernible] with around 9 billion unwrote by Time Retail [ph]. Is that something that could represent a risk for your inflows in the coming months? Or is it manageable?
And my last one is still on the Italian operations. Can you tell us how much was the contribution coming from the recruitment last year, please? Thank you.
Gabriele Blei
Alberto, I counted one, two, three, four, five questions. So not just two, but that's fine. That's fine, I don't mind. No, jokes aside, normalized net profit, I think it gives me a chance to clarify. We have never said that the international business would be or is at the same level of profitability of our Italian business simply because the dynamics on each and every market is different. Our setup is different, and the kind of fees and the also cost that you have are different. So it shouldn't come as a surprise, the fact that the margin is lower.
But having said that, which is not the core topic of the question, the reality is we are looking to increase the profitability. We have a target to reach, on an annualized basis, €150 million by 2024, which translates into strong growth that this number has to achieve. We moved from €30 million to €60 million in two years. It would mean that we will have to move exactly in the same manner, if not slightly more in the following two years, so '23 and '24.
How do you achieve that? And this is something we mentioned in the past is we need to grow the business and to reach certain scale in certain countries. But most importantly, in some markets, we need to integrate more of the production with the distribution. So in markets in which the penetration of our existing product range from our product factories, wherever these are based, has to increase within the clients' portfolios without jeopardizing the independent status of any financial advisers that work within our network.
So the major driver has to come from the fact that we will continue to grow and invest. And to that angle, we want to have capital management flexibility when and if we see opportunities to accelerate the growth through M&A. And on the other side, integration within certain markets is going to be quite relevant to uplift the profitability.
The M&A question and the call option is not very clear to me, but I'll try to answer. We have done several M&A transactions in 2022. For example, we have anticipated the exercise of a call option on our -- on one of our Italian acquisitions, whereas we have exercised the call option on another previous acquisition in Italy. So it is something that we do for a number of different reasons, either to accelerate the integration and the possibility to grow the business even quicker or because there are contractual arrangements that falls you and, therefore, we advertise the call options or the counterparty exercise their put option.
When it comes to the goodwill, we normally and regularly do the impairment exercise on a semi-annual basis. And we don't expect nor envisage to have to do any adjustment on the goodwill coming from the acquisitions and the international presence that we have had.
Interest rates, yes, they are going up. Yes, the BTPs are more appealing, but I came across a couple of weeks ago on statistics published by Console. You have to think that Italians have 70% of their wealth in current accounts and Italian BTPs already. So while they are an interesting instrument when it comes to allocating the money of our clients within the building blocks of our funds and portfolios, they cannot be the solution for providing returns, firstly, because net of the inflation, you are actually destroying or still destroying value; and second of all, because when you're too concentrated and there is a spike in the volatility, we have already seen what happens and what this can generate.
In 2022, we were quite away from the BTPs, and this has generated significant overperformance in our fixed income portfolios. But certainly now, it is indeed an element of performance that we will be taking into account on certain duration. We jeopardize the inflows probably not as far -- not as much as we are concerned because we are more focusing on a different type of asset allocation, and the strategy is quite much more focused on alternatives and sophisticated products that can generate long-term performance for our clients.
The last question, Italian split in 2022, we had a contribution from existing advisers in terms of flows that is quite around 60%, whereas 40% comes from the recruitment activity. And this is an obvious explanation of the volatility that was present in the market. And when net markets are negative, the impact from flows coming from recruitment tend to be lower than the total.
Alberto Villa
Thank you very much for the answer. Yes, on the M&A, my question was mostly on a ballpark number for what are the commitments you have today on deals we have done in the past, translating to cash out this year.
Gabriele Blei
The true and honest answer is that I don't have the number handy with me, but we will come back to you.
Alberto Villa
Okay, thanks.
Operator
[Operator Instructions] Mr. Blei, there are no more questions registered at this time.
Gabriele Blei
Thank you very much for your patience and time and questions, and my colleagues and I are available for any follow-ups. Thank you very much. Have a pleasant day, evening, and bye-bye.
Operator
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
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Azimut Holding S.p.A. (AZIHF) Q4 2022 Earnings Call Transcript