Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- DWS Group GmbH & Co KGaA (WBO:DWS, Financial) reported a quarterly increased adjusted profit before tax totaling EUR249 million, reflecting positive execution of their strategic plan.
- The adjusted cost income ratio improved to 63.2%, staying well within the guidance for 2024.
- The company increased its guidance for the full year 2024, expecting higher adjusted revenues and adjusted profit before tax compared to 2023.
- DWS Group GmbH & Co KGaA (WBO:DWS) showed strong client dynamics in the retail business, with six consecutive quarters of inflows driven by their Passive franchise.
- The company is investing in digital transformation and new partnerships with neobanks and brokers, aiming to become their partner of choice and grow their digital distribution channels.
Negative Points
- DWS Group GmbH & Co KGaA (WBO:DWS) reported net outflows of EUR18.7 billion in the second quarter, driven by three high-volume, low-margin mandates.
- Total assets under management decreased by 1% quarter on quarter to EUR933 billion, impacted by outflows in low-margin products.
- The Active business reported outflows of around EUR13 billion, mainly driven by two fixed-income insurance mandate outflows.
- The market environment for alternatives continues to be challenging, with EUR1.4 billion net outflows driven by LRA and real estate.
- The company acknowledged that the flow picture looks mixed, with low double-digit billion outflows in the second quarter.
Q & A Highlights
Q: The first question on your cost guidance, which -- you're flat cost guidance for this year. This implies that adjusted costs in the second half will be 5% lower year on year and also 4% lower versus the first half of 2024. And we do see that H1 '24 costs are actually up 5%.
A: Thank you, Angeliki, for the two questions. I would start with you answering your first question and Stefan afterwards addressing the flow question. When we provided guidance and mentioned that we are essentially flat with regard to our adjusted cost base. That does not mean that we are exactly flat in absolute euro numbers. It allows for certain range, for which we cater for. I mean, I would just remind that we have volume linked expenses which increase when AUM go up. We have the variable part of the compensation, both the discretionary as well as formulaic. We have also a range of products or projects which are addressing regulatory requirements this year. And there are always items which, like taxes fees, audit fees and the like, which are also adding the contribution. However, when we look into the second half of the year, we expect that to be flat compared to the second half of the year, last year.
Q: And then with regards to the flows you guide for long-term net flows to be higher than 2023. In 2023, long-term net flows were EUR16.5 billion. In the first half of this year, long-term net flows are only EUR2 billion. So that implies a very big increase in net flows for the second half of the year, which asset classes are expected to drive this increase in net inflows? And do you have any visibility on any specific mandates that are going to help you achieve that guidance? Thank you.
A: Angeliki, let me answer the second one. And thank you for pointing out that, as you said last year, we had long-term inflows of EUR16.5 billion, we're now at two. How can we have confidence that we'll get to above EUR16.5 billion for the year, which obviously means we have some path ahead of us for Q3 and Q4. A couple of comments because you asked about specific mandates. I mean, to some extent, people always say that timing is everything. In insurance fixed income, that's a pretty volatile market. And we have always a couple of potential large inflows, potential large outflows. And coincidentally, with a significant inflow this Monday, so two days ago of EUR8 billion, which was pretty much in line with the very large outflow which we had end of Q2. And Markus and I when we talked about the timing is everything, just imagine we would have had the inflow in Q2 and the outflow in Q3, right. In that case, we would have had long-term inflows of EUR10 billion instead of outflows of EUR6 billion, but the Company would be the same. So to some extent, is a little bit of timing. Now take that out, because those one-offs -- they help, but we will get to higher long-term inflows than last year even without these one-offs. Let me just walk you through the asset classes. When you look at Xtrackers, that business is humming nicely. And so we have EUR8 billion, EUR9 billion even if it's a little bit lower in Q3, Q4, but that inflow should be, let's say, EUR6 billion to EUR9 billion every quarter. So that will at EUR12 billion, EUR13 billion, EUR14 billion for the next couple of quarters. When it comes to alternatives. I can no longer speak about specific funds because we're now in active fundraising, and we've had a couple of first closes. So I cannot be specific, but you know, which ones are currently in active fundraising. So we expect alternatives to contribute net inflows in Q3 and Q4. When it comes to active, SQI is continuing to do really well. And as you know, the average flow margin -- this is very profitable business. So I will sort of walk through where this comes, some cases pension, some cases retail but it's high-margin inflows and that we continue. So we expect that to continue. And then multi-asset and equities, obviously, we aim for flat. Could they be up a little bit potentially performance has been strong, but that's probably not a significant ingredient. Fixed income, we are more positive for Q3 and Q4. So Markus already gave the update in the script, that if you take out the two big insurance mandates, we actually had decent flows. So in European retail, we had EUR2 billion of inflows in fixed income in the first half. So we expect fixed income to contribute positively in Q3, Q4. So from EUR2 billion to above EUR16 billion will Xtrackers be EUR6 billion, EUR7 billion, EUR8 billion a quarter. Positive contribution from alternatives, expected a positive contribution from fixed income, which obviously, I can say with confidence, given the massive inflow this week. And then for equity, multi-asset and SQI, that may be a wash, but obviously we aim for also positive contribution from that.
Q: I wanted to know roughly how many -- how much excess capital do you have following the EUR800 million spec dividend that you paid to shareholders. And now you having, as you said, DWS in really nice marching order, at least by next year now. We're seeing consolidation again, you still at the $930 billion AUM, which is good, but which one could argue it could be bigger than that. Are you going to be in a situation now considering that the company is really well structured to be able to actually go into some of the big movements that we're starting to see in the industry.
A: I can give you the CFO answer on the capital. And afterwards, Stefan, you may add then more strict strategic perspective. We do not disclose the excess capital, but we are well capitalized even after a total payment of EUR1.2 billion in June for ordinary and extraordinary dividends. I mean, one figure I may share is that our liquidity position end of June was at EUR2.6 billion, and that is also adding quite nicely onto other revenues. More than that, we do not disclose at this stage. And Jacques-Henri, thank you for your comment in the beginning. But just to add to that, so we have -- when you think about and I guess your question was focused on ability to potentially do M&A. In addition to excess capital and our Moody's rating, which we could always use for debt and our ability to increase to have a share increase. That puts us in a position to do M&A if we find it sensible. Now also to your point, we actually like our organic growth path in the West, right. So broadly speaking, in the West, we're satisfied. We flirt here and there and speak to people and see what's happening. But overall, we're not in a desperate position where we need something inorganic to deliver on
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
