Amundi : Transcript de la conférence téléphonique (en anglais)

Amundi Q3 and

Nine-Months 2019

Results

Thursday, 31st October 2019

Amundi Q3 and Nine-Months 2019 Results

Thursday, 31st October 2019

Q3 and Nine-Months 2019 Results

Nicolas Calcoen

Head of Finance, Strategy and Public Affairs, Amundi

Q3 2019 highlights

Thank you very much and good morning to all. Thank you for participating in this call dedicated to our quarterly results. As you probably have already seen, I think we can qualify this result as good-quality results for two reasons. In terms of activity, we recorded the best quarterly net inflows since the creation of Amundi, with €43 billion of inflows, translating the significant recovery in our flow stream. Secondly we experienced very good operational performance in this quarter, with an increase in revenues but expenses that are kept under control.

Markets have returned to their average 2018 levels

So, if I may start with just a few quick elements on the business environment, I am on page seven on the slide deck. Since the beginning of the year, we benefited from a significant improvement in the market environment, with two elements. On the equities side, a significant recovery since the beginning of the year. Most equity indexes are up around 20% since the beginning of the year and it continued 2-3% in the third quarter.

The second element is a significant decline in interest rates, with now the majority of sovereign rates in Europe being in negative territory. So, in terms of market impact, there was a positive market impact around this element. If you look at the equity market, the recovery is significant since the beginning of the year. Considering the average level of the equity indexes over the first nine months of the year, we are basically at the same level as in the first nine months of 2018. In terms of average assets and average net income, it is important to keep this element in mind.

Inflows on the European asset management market are gradually recovering

A second element of context regarding the asset management business. What we are seeing in Europe is a gradual recovery after a difficult 2018 and a difficult start of 2019.

Page eight presents the flows on the European market of open-ended funds. Until the beginning of 2018, we experienced very strong net inflows, between €150-200 billion of inflows quarter after quarter. This trend basically stopped in Q2, with net inflows around zero, or even negative, at the end of 2018. Since the second quarter, we have started to see a progressive recovery; to illustrate this: during the first two months of the third quarter (no data yet for September), we saw positive flows of €125 billion in the market although a significant part of it was in treasury funds. There is also recovery on medium-to-long-term assets but such recovery has been quite progressive.

Assets under management

(Page 9)In this context, Amundi performed well with total assets under management reaching €1,563 billion at the end of September so a significant recovery. Such recovery represents a 5% increase in AUM compared to the end of June and around 10% since the beginning of the year. We benefited from a significant positive market impact, €33 billion in

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the quarter and a bit more than €100 billion since the beginning of the year. However, we also benefited from a significant recovery in inflows, with the €42 billion inflows in the third quarter of 2019. It is the best level of inflows on a quarterly basis for Amundi since its creation.

Record net inflows

(Page 10) As you can see, these net inflows have been driven by both medium and long-term assets and treasury: €25 billion in the long-term assets and €17 billion in treasury.

Treasury products

(Page 11) To illustrate a bit on treasury products. The inflows were as usual concentrated on the corporate and institutional clients. After the seasonal outflows that we saw in the first half of the year, we benefited from a recovery in this quarter, after the dividend payments by corporate clients in Europe. So more than a recovery compared to the first half of the year.

Retail

Concentrating on medium-long-term assets, we are seeing this recovery in the retail market, with net inflows in retail ex-JVs of €2.8 billion excluding treasury products. What is in particular noticeable is the significant recovery rebound on third-party distributors in most of our geographies in Europe and Asia.

Also to notice that French networks are back in positive territory, slightly positive at €0.2 billion thanks to unit-linked, in a context where the majority of savings inflows are still going on traditional life insurance.

Regarding the international network, we are seeing moderate outflows in Italy and some other positive signs such as the development that we see on unit-linked.

However, overall, the main element is the recovery in particular in third-party distribution.

Institutionals and corporates

(Page 13)Regarding the institutional and corporate clients we are as well seeing a recovery. In addition to treasury funds that I previously mentioned, we experienced medium-long-term inflows of a bit more than €6 billion. The €6 billion in medium-to-long-term assets reflects the continued positive inflows coming from the life insurers of Crédit Agricole and Société Générale. Until recently we have seen strong inflows from individual savers in France going to traditional life insurance. Additionally, we are also seeing a good recovery on external clients, institutional and sovereign clients in particular, which represented close to €2 billion in this quarter.

Strong net inflows in the JVs driven by India and Korea

(Page 14) Focusing on JVs, we have seen very strong inflows in India partially thanks to a specific mandate of €14.6 billion won by the JV from SBI pension fund. The rest of the business however is also very positive, in particular the retail business and overall our Indian JV which recorded more than €21 billion inflows since the beginning of the year.

In Korea we are also seeing a good level of activity with positive inflows of a bit more than €4 billion since the beginning of the year. On the contrary, we have experienced some outflows in China which is mainly driven by the change in regulation and treasury product outflows.

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So, the overall JVs YTD inflows consist of €21 billion of inflows in India, €4 billion in Korea and €13 billion of outflows in China, totalling €12 billion of inflows accounted for just in the third quarter.

Expertise

Net inflows were driven by long-term assets at €25 billion and even excluding the Indian JV's specific mandate, it's a bit more than €10 billion of inflows, driven by fixed income to some extent, as we can see in the market in general and partially driven by insurance mandates but not only. Also, positive inflows in real assets, with a continued positive trend for several years now, as well as for structured products. Equities also experienced positive flows, especially on the passive side.

It is also worth mentioning that these long-term assets are quite well balanced between active and passive management, where we recorded a bit more than €4 billion inflows over this quarter.

During this period we continued to implement our plan regarding our responsible investment positioning, which we announced last year. In particular, in September we launched a new initiative with the Asian Infrastructure Investment Bank in Asia, namely a $500 million initiative dedicated to developing the green bond market in emerging countries.

Accounting net income up more than +5% over nine months 2019

(Page 17) This good level of activity translated in an increase in our net result, in particular an increase in our accounting net income of 5% over the last nine months and 4% on the third quarter.

This is in particular due to a solid operating performance, illustrated by our adjusted gross operating income, which posted an increase of 1.7% on a nine-month basis and of almost 10% on the third quarter compared to the third quarter of 2018.

Net revenues up sharply

(Page 18) Firstly this is due to a significant increase in our revenues on a quarterly basis of 5.7%. The net asset management revenues increased by 5.6% since the third quarter of 2018, with net management fees increasing by 2.6% and in line with the increase of assets under management, which rose by 3.3%. The level of performance fees is reported at €25 million, where in 2018 in the third quarter the level of performance fees was quite lower. Overall, we see a good level of revenues driven by operating revenues, while financial income is close to zero in the context of low, or negative, interest rates.

So we see a good level of revenues and costs that remain under control. The overall increase in cost is around 2% on the third quarter compared to the third quarter of 2018 while on a nine-month basis it increased by 1.1%. If you exclude the foreign exchange effect, the change would be around 0%. This means that the remaining impact of the synergies associated with the integration of Pioneer are offsetting the impact of inflation and the impact of the targeted investment we are doing in the development; specifically targeted in areas such as passive management or real assets management.

Cost/income ratio of 51.1%

So revenues are rising while costs are under control, translating into decreasing cost/income ratio, at 51.1%, both on a quarterly basis and on a nine-month basis. We remain at the

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lowest level of the industry with cost/income ratio decreasing by 1.8% compared to the third quarter of 2018.

Detailed income statements

(Page 20) Increasing revenues and costs that remain under control translate into a good level of operating result with gross operating income increasing by 9.7% on a quarterly basis. Taking into account cost of risk, which is negative in this quarter due to a mark-to-market on some assets related to guaranteed products and a decrease in the contribution of equity-accounted entities in the JVs, driven by two opposite trends, continued progression in India and South Korea while a decline in China, all this results in an adjusted net income of €230 million in the quarter, which is stable compared to the third quarter of 2018 but increasing by around 2% on a nine-month basis. The accounting net income increased by around 4% on a quarterly basis and a bit more than 5% on a nine month basis.

Conclusion

To conclude and before leaving the floor to the Q&A session, I would like to summarize with three main takeaways from these results.

The first is the significant recovery in activity. We have a record level of inflows of €43 billion and even excluding the recovery of treasury product inflows (after the usual outflows on the first half of the year) and the specific mandate from the Indian JV, we are still very positive. So this is significant recovery in an environment that remains volatile.

Secondly, our operating performance is strong, illustrated by the increase in our gross operating income and the improvement in the cost/income ratio for two reasons: this recovery in activity and the impact of the synergies associated with the integration of Pioneer.

Thirdly, we clearly see from these results that now that the integration of Pioneer is completed, Amundi as a whole, together with all its staff and management, is totally focused on its future development. Thank you very much.

We can now move to a Q&A session and Domenico Aiello, CFO and myself will be happy to take your questions.

Q&A

Jacques-HenriGaulard: Good morning everyone, two small questions. On the cost of risk and the -€9 million, which is linked to the mark-to-market on the guaranteed product, according to your competitor DWS yesterday, that was due to interest rates coming into negative territories. Is it fair to assume that interest rates remaining as they are, this is something that is not going to recur or do you believe that there is more to come in 2020?

The second question is on the joint venture. You had an amazing mandate in India, congratulations but I realise that in profitability terms, the impact of China may have been a little bit overwhelming this. How should we look at the associate line on your joint venture going forward? Thank you very much.

Nicolas Calcoen: Okay, so the first question, on cost of risk: yes, it is clearly due to the move in interest rates. So, going forward, again, it is mark-to-market effect so it can move,

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