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Edited Transcript of INTER.AS earnings conference call or presentation 6-Feb-20 9:00am GMT

Full Year 2019 Intertrust NV Earnings Call

AMSTERDAM Feb 13, 2020 (Thomson StreetEvents) -- Edited Transcript of Intertrust NV earnings conference call or presentation Thursday, February 6, 2020 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Rogier Maurice Sven van Wijk

Intertrust N.V. - CFO & Member of Management Board

* Stephanie D. Miller

Intertrust N.V. - CEO & Member of the Management Board

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Conference Call Participants

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* Henk Veerman

Kempen & Co. N.V., Research Division - Research Analyst

* Konrad Zomer

ABN AMRO Bank N.V., Research Division - Equity Research Analyst

* Rory Edward McKenzie

UBS Investment Bank, Research Division - European Support Services Analyst

* Sylvia Pavlova Barker

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Operator [1]

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Hello, and welcome to the Intertrust Q4 and Full Year 2019 Results Call. My name is Courtney, and I'll be your coordinator for today's event. Please note that this conference is being recorded. (Operator Instructions)

And I will now hand you over to your host, Stephanie Miller, Chief Executive Officer; and Rogier van Wijk, Chief Financial Officer, to begin today's conference. Thank you.

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Stephanie D. Miller, Intertrust N.V. - CEO & Member of the Management Board [2]

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Thank you, operator. Good morning, everyone. It's Stephanie Miller, CEO of Intertrust. Thank you for joining us this morning.

I want to make a few opening comments before we get started with the highlights on Page 4. First of all, let me just confirm to all of you, just like my quote says, I am really super pleased with the results. The 2019 results were exactly what we guided towards, and we've met that guidance. We've executed and when I've met all of you previously, you've all asked what was the risk 2019? Well, that risk was always about execution. We talked to you in late 2018 about what the strategy was. The strategy was both organic as well as M&A. And as you could see in 2019, that's what we did.

We stuck to our story, and we stuck to that strategy, which was invest in funds. We did that with the acquisition of Viteos. We said that we would invest in geographical expansion. We did that in this year. We did Paris, we did China and we did Auckland, New Zealand. We said that we wanted to grow Americas. We did that also with the acquisition of Viteos.

We set ourselves off on a journey to create scale and build technology to become a tech-enabled company. We're looking to change the landscape for all of our clients. We're looking to be a client-facing organization, delivering the value to our clients they need in the constantly changing ecosystem. So in short, I am really super proud.

So I know you want to talk about the highlights, so let's get going with that. So as I've said, we've met our guidance. We've always said we've guided to around 3% and we've delivered 3%, which is in line. We've met our margin guidance, which is -- which was at least 36%. We've made 36.1% for the year-to-date.

In terms of highlights for the year, we've had growth in the sectors as we predicted. We had moderate growth in Corporate. You could see that's 35% of our top line. The growth is just under 2%. We've had growth in Funds, which has been extraordinary, which is just under 11%. Funds now comprise 42% of our top line. And on Capital Markets, just under 3% growth. All of those things predict that we are investing in the right areas.

We've got the highlights in terms of the Viteos integration. It is now in the final stages of the Corporate integration. Really, what that means is they've become India Intertrust. They have become part of the team, part of the fabric of our company and we've embraced all of their employees. We've created the Centers of Excellence in Bangalore and Chennai. I was there in summer of last year. If you will, the walls were blank and empty as we built out the site. I was just there in January, and it's full of bustling people working on our client work.

As I've mentioned, we've expanded our global operating footprint to now include Auckland, New Zealand, which is new to this quarter. Overall, we are moving full steam ahead on our program, our program of change.

Now the program of change requires the investment. I will talk and Rogier will talk today about the forward-looking guidance and about 2020. But bottom line is, our top line, we are again guiding towards the 4% to 6%, and we'll discuss the at least EBITA at least 35% for 2020. This program of change requires an investment. It's the bridge for us going for where we are, which is at least 36% to the future, which we're still committed, which is the 40%.

What do we do? And why do we believe that statement to be true? I think, first and foremost, clients and services. We believe that statement to be true because people like our clients like Round Hill Capital, which is a multijurisdiction global real -- fund real estate group has now entered into a strategic partnership with us. That is a fantastic deal, a fantastic opportunity where we're taking their team, we're working with them to deliver our bespoke tech-enabled services.

We've completed an acquisition for Wells Fargo Trust Corporation, which is our further commitment to the aviation space, which is a part of our capital market service line. And we've got an expanded market opportunity. We are seeing more and more deals in the pipeline, which we wouldn't have seen before. It's exactly what we talked about with the expansion of the wallet. We said Intertrust alone would play in a specific set of wallet. Now with the Viteos capability, the stronger, larger Intertrust interest has a more expanded opportunity. That's why we believe in the 4% to 6% growth.

In terms of innovation and technology, we've delivered, we've executed on the plan. When I joined in 2018, we said that we would build IRIS. We did do that build. In January of 2019, we said that build was complete, and we would take 2019 to roll out all of our clients on to IRIS. Well, that's happened. We've got a dedicated team, and we've got a 100% client activation.

We now embark on what we talk about is our Fastlane program. What is our Fastlane? It's the leveraging of the 130 professionals in India to build an automated corporate services platform. It's the ecosystem to our core clients. It really is the client activation and digitalization of our corporate services book. It's an online AML/KYC program. It's transaction monitoring and processing, understanding what transactions are and what a transaction profile should look like. And last, but not least, it's the integrity risk rating. It is how we do business.

We've talked about our purpose previously. We're the enablers, the navigators and the gatekeepers. We enable our clients to deliver on their purpose. We navigate any of the change. And in 2019, there were dozens and dozens of changes in all of our jurisdictions. Quite notably, the ones that we've talked about in terms of tax reform, decisions on Brexit, being economic substance. All of those changes, we need to accommodate our clients and help them. And ultimately, we are the gatekeeper. We need to do good business in everywhere we do it, and we need to keep our clients safe and compliant. Fastlane helps us do that in an automated platform way. That is our ecosystem.

And then last, but not least, for the innovation technology. As we become a tech-enabled company, we need to have tech-enabled tools to make sure that we are operating at full command and full throttle. And what have we done? We've had a -- we've installed a state-of-the-art help desk command center for our own ecosystem in our Bangalore office. And again, I just visited, there is -- it is super impressive, and it really is the heartbeat of the company.

We continue to invest in people. People are core to our strategy. I've always talked about that since we've done Capital Markets Day 1.5 years ago. We spoke in 2018 about changing the way we have sales. We've completed that journey in 2019. But how do we handle sales and our sales opportunities? How do we go out to our clients and bundle the value-added products? And how do we [take that to listening]?

We are a much more outward bound company as of 2019, and a part of that is to establish a well-defined client relationship management team. So we've always had client relationship management, of course, but really to establish targets and goals to make sure that our clients, the heartbeat of what we do, is delivered appropriately.

At the helm, earlier this year, we announced Ian Lynch, who is our CCO, our Chief Commercial Officer. Underneath him, we hired Frank, who is the Global Head of our Sales. He just joined. He's at the helm and at the core of that focus.

We also continue to invest in our own people, keeping them motivated, understanding what they need to make sure that they deliver on what we're talking about, which is our client proposition.

With that being said, we rolled out, in fourth quarter 2019, the FLEX management program. Early in the year, we developed something called ELLA, which was our online training. So this is a systematic set of investment. We looked at our people and what they needed. They need investment in training. We created the ELLA program. We created an induction program, which we've previously announced. And now we've rolled out our management program called FLEX. This is consistently with our investment in our people.

And last, but not least, we've always talked about the 3 pillars of our strategy. So clients and services, innovation and technology, and people have to be wrapped in operational excellence. We want to delight our clients, and we want to deliver the best we can for them. And how do we do that? The Center of Excellence, which is part of that program of change, now has over 100 staff in 2 locations. Over the summer, we had no staff in those locations so you could see how far we've come.

We've also looked at our target operating model in our 40 offices. We have well over 700 processes that we're going to look to reduce dramatically by standardization. That's what I'm talking about here. We did a bottoms-up approach for a target-operating model. How does Intertrust want to work? How do we want to behave? How do we want to roll this out for our staff? And how do we continue having them service our clients? That's critical. So that target operating model is critical to what we do.

Now I'm going to turn to Page 6. So delivering the Viteos synergies in line with our expectations. So what does that mean? When I met with you all in the fourth quarter of last year, there were a lot of questions around, are you going to tell us how you're doing in terms of the synergies? Well, we committed to that in 2020, we would. In 2019, we just did the acquisition midyear. We needed to ramp up the centers, which we've done. We needed to create space to hire the people. We needed to align their team into our team, which is the corporate integration, which we've done. And now we need to invest and take forward. That's the bridge that I want to talk about. That is the bridge of why we're guiding in 2020 to at least 35%.

We've achieved the centralization of the internal IT functions, which I mentioned is that command center. We've got about 18% of the planned headcount and hired and on-board, which is the over 100 people. And we've got the new space, that I talked about when I was there, it was cement and now it's reality.

If you look at the graph on Page 6, you could see, December '19, it's the investment to achieve the run rate by 2021. That's how we get to the 40% margin. That's how we get to the commitment that we gave you, which was the reduction of the EUR 22 million. But right now, in the first half of 2020, we're going to have to invest in order to deliver that.

Again, as I talk to our investors and the analysts, people often ask me, how do you continue to ensure that the margin of the firm will remain? Well, this is how we do it. We continue to invest in workflow, we invest in our people, we invest in our sales strategy, we roll out our Center of Excellence and we move becoming a traditional corporate services firm to a tech-enabled company.

So again, we will achieve 20% of the net run rate by the end of 2020, and that is the bridge. That bridge requires this investment, and that investment was always planned as a part of the strategy. So we haven't deviated, and we haven't walked away to that top line growth.

When I talked on the page before about the deals that we've done with Wells Fargo and with Round Hill, we wouldn't have been invited to that table. That is specifically relevant to opening up the wallet of Intertrust. If we didn't have this investment, if you're not at the table, you cannot win the growth. In order to be at the table, we have to invest. That investment now requires us to guide you at 35% at least for 2020, and that's the bridge. That's the bridge to get you to the 40%, which, again, we are absolutely committed to.

With that all being said, I'm now going to hand it over to my CFO, Rogier, and he's going to walk through the numbers. And then, of course, we will take your questions. Rogier?

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Rogier Maurice Sven van Wijk, Intertrust N.V. - CFO & Member of Management Board [3]

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Thank you, Stephanie. And yes, indeed, let me guide you to Slide 8, where you can see the highlights of the fourth quarter as well as the full year 2019. And let me start by saying we have delivered on our promise. We have delivered on the guidance. I know Stephanie said it, I just love repeating it.

First, if you look at our revenue growth, we have increased our revenue from EUR 496 million in 2018 to EUR 545 million in 2019. This is a 9.8% increase. And like I also did at the end of Q3, let me split that 9.8%, where is it coming from. There's 1.5% positive impact because of currency, particularly the British pound and the U.S. dollar. That helped us increase our revenue. Then there's 5.3% in there related to the inclusion of Viteos from the date of acquisition, June 18, 2019. That is EUR 26 million that we've added here. If you deduct those, you get to 3.0%, 3.0% being the stand-alone growth and that compares to the around 3% guidance that we gave at the end of Q3.

So with that, we've delivered on our guidance. Moreover, if you now do include Viteos. So if you look at the business as we have it today, you include full year 2019 and full year 2018, we show 3.7% growth. That is the growth rate that we've delivered at the new combined business.

Secondly, looking at adjusted EBITA, we've increased from EUR 186 million in '18 to EUR 197 million, of course, also driven by the inclusion of Viteos. If you look at the margin, you see a reduction from 37.5% last year to 36.1%, in line with our plan, in line with our guidance.

And let me explain that difference between last year and this year, or '18 and '19, I should say. The same 3 elements that I mentioned at the end of Q3 have impacted that margin, or is the result of this margin.

The first one is mix. We see significant growth in our lower-margin countries, in particular, the ones in rest of the world, and I'll get back to that later in a later slide.

Secondly, we have increased our group expenses, particularly the IT expenses. We're investing in the workflow automation, and we're investing in our IT infrastructure. That is visible here.

The third element is the increase in local expenses to support the additional sales efforts; higher additional sales resources, as announced earlier; as well as to support these transformation programs that we have started in 2019.

All of that brings you to 36.1% for the full year. However, bear in mind, there is a phasing in there. This was the full year, but there's an effect where expenses have increased in the course of the year and we're now at that stable level of expense.

Last thing to note here is the adjusted EPS, which has gone up by 2.6%, from EUR 1.54 to EUR 1.58, and this is the basis of our dividend that we're paying out for the full year.

Now let's look at Slide 9, where we go into a bit more detail on our revenue growth, the 3.7% underlying revenue growth that we've shown. Clearly, the majority of that is coming from Funds. Funds is growing significantly at 10.6% and doing better than what we see in the market. That does include Viteos. Viteos represents roughly 12% of revenue growth in 2019. So if you exclude that, even excluding Viteos, we're growing more than 10% in the Funds market.

Corporate is a mix at 1.8%, where we see a decline in Netherlands and Luxembourg, but a very strong growth in rest of the world, particularly Nordics and U.K.

Capital Markets has performed in line with market at 2.7%. And I have to note there was some softness in the second half of this year, which is also in line with what we see in the market and mentioned at the end of Q3.

For Private Wealth, we see a decline of 7.8%. Of course, in the first half of the year, there was the impact of the client insourcing that we had announced in 2018. In the second half, we've also seen the impact of the uncertainty around Brexit, lower transactional activities and lower client inflow.

Then if we look at that same 3.7% revenue growth, but now by region, on Slide 10, you can see that the majority of the growth -- the significant growth is visible in rest of the world. In particular, Asia Pacific, U.K., Nordics and Spain are performing very well. Some of these countries delivering double-digit growth.

Then looking at Western Europe. We've delivered 1.1% for the full year, and that is largely a mix between Netherlands and Luxembourg, where Netherlands, although declining 1%, performed very well in a declining market, and that is evidence of continued increase of market share for the Netherlands. Luxembourg has grown roughly 3% for the year, and that brings the total, if you include Germany, Belgium, Switzerland into Western Europe, brings the total to 1.1%.

Americas also showing a strong growth at 4.4%. That does include this growth from Viteos. But even excluding Viteos, we see a positive growth delivered by Americas. And in Q4, we've seen a positive uptick in Cayman in relation to the economic substance requirement where we've performed additional activities for our clients.

Now if we move to Slide 11, where you can see for the same regions, the margin. And if you overlay the growth percentages from the previous slide here, you can clearly see the margin impact, a mix impact that I mentioned earlier.

The growth, 6.5% in rest of the world is in the lower margin region. That is element one. The other element I mentioned was that locally we have invested in additional sales resources and in resources to support our transformation programs. That is also visible on this slide. If you then look at the last -- the total group margin, that is also impacted by our HQ and IT expenses where we see the additional investment in IT expenses.

Let me go to Slide 12, our KPIs, where the first 3 has been impacted in 2019 by the inclusion of the Viteos. No surprise to you. Of course, FTEs has gone up, and we've seen that billable FTE as a percentage of total FTE grew from 75% to 76% now because Viteos is bringing more billable FTEs proportionately. But I should also note, when it comes to these 3 KPIs, that forward-looking 2020, these will be impacted by the setup of the Center of Excellence. The duplication of resources will lead to higher FTEs, lower revenue, but also higher billable -- revenue per billable FTE and also higher billable FTE as a percentage of total FTE.

Our HQ and IT expenses were 14.9% in the fourth quarter of -- the infrastructure, and that is the level that we'll operate on a quarterly basis for also 2020. Our working capital remains strong at minus 2.8% as a percentage of the last 12-month revenue.

Now on Slide 13, you can see our capital employed, where also the impact of the Viteos acquisition is visible and was already visible last quarter. But I'd like to draw your attention to the table on the right-hand side, which shows the total working capital. And although you may see in this table a slight increase of our working capital from minus EUR 16 million to minus EUR 15.3 million. If you correct this for the fact that we've now included Viteos, you'll actually see an improvement of EUR 5.6 million in our working capital. And I'm very proud to say that this is now the fifth consecutive quarter that we are delivering on our promise to reduce working capital year-over-year.

Also to note on this slide is our CapEx at 2.3%, in line with our guidance of around 2%; and our leverage ratio, which was at 3.96 at the end of 2019, well within our bank covenant of 4.5. And we will continue our disciplined approach to bring that down to 3.0 by the end of 2021, as mentioned earlier.

Then on Slide 14, you can see the tax reconciliation. And there's 2 items I'd like to highlight here when you compare 2018 to 2019. The first one you can see underlying current tax expenses, where we've increased our tax expenses from 22.1% to 22.9%. And this is following the fact that we've now -- we report higher profits, more profits in India and U.S. following the Viteos acquisition. This is in line with the earlier announcement, after the acquisition and the fact that we've increased our guidance on ETR.

Also, I'd like to mention here that there is an impact on the deferred tax liability following the announcement in 2018 of a reduction in corporate income tax rates for the Netherlands. That led, and was mentioned to you earlier, at the end of 2018, to a reduction of a deferred tax liability in relation to the intangibles on the balance sheet and reduced our tax rate -- our tax expenses significantly in 2018. At the end of 2019, the same Dutch government announced a delay of some of those tax rate changes, which, this year, or 2019, has a slight negative impact on that same DTL. Now the good news of all of that, this is pure accounting and has no impact on our cash flow.

Now before I go to the guidance, let me recap 2019, because we are proud of the performance. We have delivered on our guidance, and this is proof of good, solid forecasting and reporting processes that we have in place. That gives us good visibility and comfort in the guidance that we delivered to you.

Having said that, on Slide 15, you'll see our 2020 guidance, which we now give you for the first time. Underlying revenue growth, no surprise, 4% to 6%, in line with our midterm guidance provided earlier. And we believe in this 4% to 6%, based on the investments we've made in our sales force as well as the combination of Intertrust and Viteos, that is now opening more doors than before.

Then if I look at the EBITA margin, we guide on at least 35%. If I go back to my earlier statement of the investments we've made in 2019, if you look at the second half where we have increased our IT expenses and reached a stable level, we've increased our local expenses and we've increased the stable level there. To extrapolate that for 2020, you'll understand that 35%. On top of that, we will continue to see some mix impact as we expect to continue to grow faster in the rest of the world segment.

Now this is for the full year. There is a phasing, as explained by Stephanie on Slide 6. And I would like to highlight that once more here. We will see duplication, of course, in the earlier part of the year. Which will reduce margin further. But that is an investment in the savings that we've promised to you, the $22 million. That will start kicking in, in the second half and will largely be visible in 2021.

The other elements. CapEx of around 3%, including the investments we're making in the COE. Effective tax rate of around 21% and dividend of at least 40% of adjusted net income are the same as the midterm guidance provided earlier.

Then on Slide 16, our midterm guidance. This is exactly in line with what we've provided earlier, and we continue to feel comfortable, and we see that we are on track to get there. Revenue growth of 4% to 6%, EBITA margin of at least 40%. And the other elements, CapEx, 2%; tax rate, 21%; and the dividend, again, 40%.

Let me spend a second on the EBITA margin because you may be wondering, if you announced at least 35% for 2020, why do you still believe you can make that 40%? Well, first, that is simple. We have promised the $22 million savings. That is roughly a 350 basis point impact on our margin, that will kick in at the end of -- start kicking in at the end of the second half of 2020, and 90% of that, as announced earlier, in 2021. That will help us improve that margin.

That's not the only one. We've also talked to you, and Stephanie mentioned it again today, about the workflow automation, what we call Project Fastlane. That will bring savings. That will bring efficiencies.

On top of that, we expect, once we've wrapped up, we've finished these transformation programs, that operating leverage will start to kick in. Again, we won't see these increases in expenses as we did prior years.

With that, I'd like to hand it back to Stephanie for the key takeaways.

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Stephanie D. Miller, Intertrust N.V. - CEO & Member of the Management Board [4]

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Thank you, Rogier. So the key takeaways. We're on Page 17, for the folks on the phone. We're going to continue executing this strategic agenda. We haven't moved off the plan. When we did the acquisition of Viteos in the summer, I told you all that it was a 30-month plan. We're in month 7 of the 30-month plan. Again, that's the bridge.

It has opened so many doors for us that I can't even begin to describe. The Round Hill Capital transaction, the Wells Fargo transaction, and there is more exciting news to come, just not today. We continue to see an uptick on where we are playing, where Intertrust is positioned. In fact, the company has even won, if you will, in the Americas an award in the industry called the One to Watch. We are totally the one to watch.

In terms of technology and innovation, I'm very proud to say that I told you I would do a global online, a global portal, a global website for all of our clients. It's also meant to facilitate all of our team to standardize the process and that's IRIS. That's the portal that I've talked about. That is the ecosystems that we can deliver all of our program of change. It's been 100% activated for our clients. And depending on the client and the jurisdiction they're using, they're using it each and every day.

That ecosystem now facilitates the next phase. That next phase is Fastlane. We're going to spend 2020 executing on rolling out Fastlane. It's the digitalization of the platform. It's what sets us apart. We are becoming that tech-enabled company that I spoke about. We want to make our processes smarter. We want to use things like RPA, robotics and AI to make our clients more delighted and stickier with us, and that's what you want. You want us to deliver that best client experience, and for our team to understand that they are working for the best company in the sector.

And then from the conclusion, stable, predictable financial results. As I said, we're only in month 7 of the 30-month journey. We have to give you that bridge. We have to keep investing. We've delivered the guidance that we told you this year, which was at least the 3. Obviously, with combination of Viteos, it is the 3.7.

We delivered the 36.1% margin, which shows that we are a well-managed, controlled organization, and we are -- and those results we continue to meet what we promised you.

So now we will guide, as Rogier mentioned, to the 4% to 6% on the top line. So we are investing in the scale of growth for our future.

With that, I'd like -- operator, I would like to open the call for questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Our first question comes in from the line of Sylvia Barker calling from JPMorgan.

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Sylvia Pavlova Barker, JP Morgan Chase & Co, Research Division - Analyst [2]

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Predictably, a couple of questions on the margin phasing and just a couple of others. So first of all, the chart on Slide 6 is very helpful. Could you maybe just be a little bit more precise around the phasing of the EUR 18 million, now that you've got kind of properly stuck into that process? How much of the EUR 18 million might have spent already in 2019? How much could we expect in kind of H1 versus H2 this year?

Secondly, I guess an easier way of looking at -- is just the number of people that you've hired. Can I just confirm that 100 is equivalent to the 18%? And then how many people in your onshore locations might have left the company already?

And then looking at the Fastlane program, just could you provide us with a few more details in terms of how that's actually executed, kind of the time lines? Any setting up costs? And maybe just talk about the benefits in a bit more detail as well?

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Stephanie D. Miller, Intertrust N.V. - CEO & Member of the Management Board [3]

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Sure. I'm going to -- since I like the question, I'll start with the Fastlane, and then we'll go through the phasing and the cost. Sylvia, is that fair enough?

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Sylvia Pavlova Barker, JP Morgan Chase & Co, Research Division - Analyst [4]

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It's fine.

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Stephanie D. Miller, Intertrust N.V. - CEO & Member of the Management Board [5]

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Thank you. So Fastlane. So when I joined in 2018, we said we're going to become a tech-enabled company. What a corporate services firm does is it compiles all of the corporate governance, obviously, of a company doing business abroad. So what does that mean? We have got reams and reams of paper and documentation to support corporate secretarial, minutes for the firm for the Board meetings, all of that kind of, if you will, core paperwork for the firm. That, over time, will move to a digital platform.

So what is Fastlane? One, it's the digitalization of those corporate documents. It's finding that information in an online readable way. So that's new entity creation. That's understanding who your clients are. As the gatekeepers of the industry, we need to know the purpose of our clients, we need to know what they do and we keep the critical data elements. For example, what's the purpose of their business? Where do they do business? Who are their Board of Directors? Who are their auditors? Who are their lawyers? All of that corporate information. So that is part of the platform.

So it's 4 components. One, it's core data to the company itself. Two, it's AML/KYC on the entity as well as all related entities, so you can imagine, in a global structure, entities have many, many -- than just 1 legal entity if they do business globally. It's keeping that relationship across the board. So if it's an American public company doing business abroad in 10 locations, there's at least 10 entities, if not more. It's all of that relationship and understanding what those things do. Three, it's transaction monitoring. As the gatekeeper of the industry, you need to understand what's a reasonable set of transactions and where money is flowing. And we're required to make sure that there are no tax aggressive or interested, if you will, activities happening in those entities. And then fourth, it's the integrity risk of that whole legal structure. What is the Intertrust view of that entity and that ecosystem?

So let's go back to Fastlane. Fastlane is taking those 4 components, putting it online, using state-of-the-art technology to understand if there are any compliance or regularities or anything we should be looking at and routing that work. So when your passport expires, do we know about it? When the corporate documents need to be updated, when a filing needs to happen. All of those things will sit on Fastlane. And why is that important? One, it allows our clients to be self-service; two, it allows us at our fingertips to feel all of that data; and three, it allows our staff to see all that -- for mobility.

So if clients want to do business in multiple jurisdictions, we can use that data as a baseline to copy and paste, if you will, forward. So all of this is just becoming tech-enabled. It is what we do now, but we do it in a more manual way. That's not an Intertrust thing, that's an industry thing.

So it's the next evolution. It's the same thing if you think about it years ago, when you would file a manual tax form, now you file all of your taxes online. That's the best analogy I can give you.

So I'm going to pause with that, and let's talk about the phasing. Rogier, do you want to discuss?

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Rogier Maurice Sven van Wijk, Intertrust N.V. - CFO & Member of Management Board [6]

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Yes. Sylvia, let me address the other questions that you asked. First on the EUR 18 million. The phasing of that is what you can see on Slide 6. We don't give more explicit guidance on exactly which month we spend this. What we will do, as mentioned by Stephanie, is in the course or as we progress in 2020, we will update you on those net savings. So we will share that with you after the fact.

Your question on 2019, how much have we spent? A small proportion of that. And as you can imagine, we have ramped up in the second half. So even though run rate may be a few million, the impact on the year is less than that because it was gradually ramped up in the second half of the year.

Your question on FTEs. The answer is, yes. The 18% is indeed referring to that more than 100 FTEs that Stephanie mentioned earlier.

You also asked a question on roll-off of employees. What has happened, and what we mentioned earlier, we started with the IT migration. That has happened. And the IT source -- resources are now based out of India. For the other jurisdictions, we're in the process of work shadowing, and we're actually going live with 2 of the jurisdictions next week.

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Stephanie D. Miller, Intertrust N.V. - CEO & Member of the Management Board [7]

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And Sylvia, and for the rest of the folks, I just want to keep reiterating, we are in month 7 of a 30-month journey. So first was to do the acquisition, second was to understand the corporate integration and start the infrastructure. Infrastructure being the office location in Bangalore and Chennai. Third was to hire the people. Fourth is now to start moving work and doing all the shadowing and the training, and then eventually decommissioning. All of that is in phase. And as Rogier said, we will give you this slide and these synergies and these percentages quarter-by-quarter, but we're not giving you guidance intra-quarter because to be honest, we have to roll it out. Month 7 of a 30-month journey is still too early to do it quarter-by-quarter. But you will get this data. So you'll see how far we've progressed.

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Operator [8]

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The next question comes in from the line of Henk Veerman calling from Kempen.

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Henk Veerman, Kempen & Co. N.V., Research Division - Research Analyst [9]

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My first question is on the organic sales guidance for 2020. If I look at your revenue breakdown for service, over 2019, it seems it's fully driven by Funds services. And I think it's fair to say that in 2020, about 75% to even almost 100% could come from Funds services. But at the same time, that makes you very dependent on one service line. How realistic is it to model in, let's say, 10%, 15% organic sales growth in Funds services again for 2020? How bullish do you need to be on that industry?

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Stephanie D. Miller, Intertrust N.V. - CEO & Member of the Management Board [10]

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We're seeing increased activity in Funds in all of our jurisdictions. We're seeing that -- so part of the reason we have 4 service lines is for exactly this. I absolutely take your question well. But Corporates, right now, in 2019 and '20 have gone through a change. We have the tax reform in the states that affected Corporates. We had these economic substance and Capital Markets Day at the end of '18, so that affected '19 in Corporates. All of those -- and then we have Brexit, again, which created uncertainty in terms of jurisdictional location. I do think you will see now activity come back. We have a very strong position in Corporates, but it's not a higher growth market until, if you will, everything lands.

Now that Brexit has landed and the others have landed, we know what we're dealing with, and we could sell our clients more, which is exactly why we're doing geographical dispersion. So each quarter, I will bring to you a new location or a new direction as fast as we can. So that's why we've opened Auckland. So we're doing -- we have a robust set of services. So we're doing it in more places. That's how we grow in Corporates.

In terms of Capital Markets, we saw a weaker second half of 2019 in terms of deals. We are, at least, subcategory, I'm happy to talk about, but we've invested in the Capital Markets space. We are increasing our footprint by doing more regulatory reporting for Capital Markets, which will continue to bring us more revenue to boost that service line.

And then last, but not least, it is the Funds.

But again, it's all about scale and we're driving. So I'm very bullish, I'm very positive, I'm very -- the outlook is very good that all of these things will be met for 2020.

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Henk Veerman, Kempen & Co. N.V., Research Division - Research Analyst [11]

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Okay. Then second question on the margin breakdown. Firstly, if you -- when you say HQ and IT costs are stable, are we talking absolute figures, so the Q4? Should we take it as an absolute run rate? Or is it as a percentage of sales?

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Rogier Maurice Sven van Wijk, Intertrust N.V. - CFO & Member of Management Board [12]

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It's an absolute run rate. So it will be absolute number indeed.

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Henk Veerman, Kempen & Co. N.V., Research Division - Research Analyst [13]

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Okay. And then related to that, so if I break down your 2020 versus 2019 margin development. I mean, is then -- it's fair to say that most of the additional costs are HQ and IT costs, and some of them are one-off costs related to fee [pay offs]. I mean there's no change in operational gearing, right? There's no difference in profitability across the different divisions like across your core earnings model? I think if I break it down.

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Rogier Maurice Sven van Wijk, Intertrust N.V. - CFO & Member of Management Board [14]

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However, you have seen a development in the course of 2019. So you should look at that second half, how we've progressed it there. That is the reflection of next year. And on top of that, I mentioned also the mix effect, which we'll continue to see -- we continue to expect rest of the world, Americas to outgrow Western Europe, which is the opposite from where we see the highest margin.

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Stephanie D. Miller, Intertrust N.V. - CEO & Member of the Management Board [15]

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And we've talked about that in previous quarter. The margin mix is definitely -- and in fact, we get really good growth out of the rest of the world, but it's not at the operational leverage. Now go back to operational leverage. Using the Fastlane and the investment in the Center of Excellence, we will be able to, in the future, 2021 and beyond, create operational leverage for offices that are smaller than our traditional Luxembourg or Netherlands office.

So when the question is, how do you ensure to get to the 40%, that's how. I don't need to grow to a 500-person office to create that leverage, if I have a Center of Excellence. That's really the bridge.

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Henk Veerman, Kempen & Co. N.V., Research Division - Research Analyst [16]

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Okay. I mean there's no significant decline in margin in, let's say, Luxembourg or Netherlands or...

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Stephanie D. Miller, Intertrust N.V. - CEO & Member of the Management Board [17]

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There is not. No. All of the offices are operating as prescribed. We're very, very happy with those results. What we're trying to do is guide towards future growth and future improvements. So nothing has gone down. It's how do we get it better.

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Henk Veerman, Kempen & Co. N.V., Research Division - Research Analyst [18]

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And last question, could you please give some more color on the moving parts in Americas in 2020? Because I -- from what I read is that in Cayman, there's a much stricter regulatory framework being presented, and that might be a headwind in 2020.

And also, could you update us on the Delaware license? I'm not sure if you already mentioned it, but -- and then in relation to fee tariffs.

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Stephanie D. Miller, Intertrust N.V. - CEO & Member of the Management Board [19]

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Not a problem. So there is -- so Cayman, just like the -- Cayman and the Caribbean, region, if you will, so it was a subpart of Americas, is going through the same thing that Europe went through. Economic substance, looking at legislation and understanding what best-in-class looks like.

For us, Cayman is a critical jurisdiction for our business in Americas because that's where they put their money and we need to service that. It's actually not a headwind. We've made money on economic substance in Cayman in the fourth quarter. We will continue to do that. The regulation hasn't been decided. There is stricter regulation coming, which, for us, is a good thing. When regulation comes in the Cayman, in that jurisdiction, we will be able to guide our clients and give them support.

That -- the issue is, all of those rules haven't been done. So we are waiting and investing. Some of the economic substance has started, which is how we had the boost in Cayman for the fourth quarter, but we see more. We do see more, especially in private funds, and that conversation is happening now and we're very in touch with that. So that's not a headwind. That's a positive. What's not happening yet is, it has to land, it has to be certainty. So that's your Cayman question.

In terms of the license, we're at the last phase of the license and it's pending approval. We still believe we will get it, and it's in a different jurisdiction. But we believe we will get the capital marketplace and to be able to expand that growth. It has taken longer than I wanted, but I can't push the bureaucracy any faster than I can.

And then last but not least, Delaware. Delaware has had an amazing result. It's a subcomponent. It's small compared to the other jurisdictions, but it's done really, really well. Deirdre and her team have led it. She was announced last year, formerly from BlackRock, and she's had -- she's led that growth expansion. In that office, we used to have only 1 service line, now we have 3. The third is the Capital Markets and that is pending full license, and that is going very well to plan. We don't guide specific for that office, but I could tell you, we're very pleased with that result.

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Operator [20]

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The next question comes in from the line of Rory McKenzie calling from UBS.

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Rory Edward McKenzie, UBS Investment Bank, Research Division - European Support Services Analyst [21]

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It's Rory here. I've got 2 on the margins and then 1 on Fastlane. So firstly, just on the synergy benefits target. Have you yet identified and notified, I guess, the headcount in onshore support and IT functions about potential redundancy, or will that happen over the course of this year? Again, you have said you're only in month 7 of that 30-month plan. But is that clearly known in the company now?

And then secondly, have you assumed that margin headwinds from mix continue as growth is led by the new openings you've highlighted within that rest of the world division?

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Stephanie D. Miller, Intertrust N.V. - CEO & Member of the Management Board [22]

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So the margin mix will continue, obviously, as we create more geographic opportunities. It starts out from 0 or from a very small base, and then we get -- and we gain operational leverage. The investment in the Center of Excellence will bring that operational leverage faster to those offices, but we do see that -- that's a growth.

So in terms of -- that's how we're looking at things. In terms of headcount, the firm, as you're aware, does have turnover where we can redeploy people for scale. This wasn't just a margin conversation in terms of elimination of heads. This is really a growth story and an opportunity for us to invest in our people. And what does that mean? We've got opportunities where we've got upwards of 20% turnover. And in those cases, those people, we just don't replace, if you will.

So we're using our own turnover to fund the synergies and savings by just moving the tasks and the positions. But this is not focused on people. This is focused on lower value tasks that we've identified through a bottoms-up process, creating that target operating model and it's those tasks that will be moved to the Center of Excellence. It will give people onshore capacity. Those people with capacity has been spoken to in terms of giving them more client coverage.

I've said this from the beginning, I want to be an outward-bound client-facing organization, so it gives our people more time and ability to do that. In the case where there isn't upskilling available or turnover doesn't exist, then yes, during 2020, we will talk to those people.

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Rory Edward McKenzie, UBS Investment Bank, Research Division - European Support Services Analyst [23]

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Okay. Understood. I know it's an sensitive topic. Then I want to ask about the Fastlane program, which I think sounds quite exciting. It's kind of moving from the world of traditional outsourcing, kind of headcount-led growth to kind of more platform growth, I guess. So can you talk about, ultimately, which services you think clients will be able to deliver self-service almost, on that automated platform? And could the industry ever see onboarding even done by an automated platform? Or you think regulation will always stop that kind of pure digital service?

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Stephanie D. Miller, Intertrust N.V. - CEO & Member of the Management Board [24]

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Good question. So I love this topic. This is what I like to talk about all day. In a real far vision, I could see it being an automatic situation. Now what do I need for that? Right now, we have local jurisdictions that actually literally have paper-based registers, but some jurisdictions are -- have moved digital. You see the U.K., some of the Nordics, Australia and Singapore all moved to digital. So what does that mean? You can go online and actually create and register a company online without -- if you will, without a person. Obviously, there's a fee.

If I create that ecosystem, then what happens is, the governance of that ecosystem is online and only exceptions would go to a person. The data transformation would be the case that you could do almost all of your corporate governance through that. But obviously, the intelligence part of it is the people and the new rules. Regulation won't stop the digitalization, but it will keep requiring not investment, but change. So as the tax law change, as the requirement changes, you're going to have to program that platform in. Those are the types of roles that we have. It's the client-facing role. It's the investment in understanding what AI could do to the platform, and it's the ecosystem.

So now services companies, you could see even in the Netherlands, there's 50 of us, if you will. Now Intertrust is the leader by far, and we are taking full advantage of our geographical footprint. If we can, in the places where the smaller corporate services firms cannot compete, they're going to have to do things manually by paper. That's clearly not ideal. So you're right, the growth that I'm predicting is a platform-related growth. It's the consolidation of data. If you will, it's being the ultimate corporate administrator end-to-end, and providing oversight and compliance for those companies. It would be great for a risk officer to be able -- one of our clients to see everywhere in the world he exists, every type of information he needs and to create rules around any triggers or any changes. So picture a world where there's a change in sanctions or a change in a regulatory environment, a change in geographic view, those are the types of things that we're looking for. It's really taking things like most -- well over 700 processes and reducing it to a standardization of an online ecosystem down to 10%. That's the scale that I'm looking to achieve. But that's years. That's not days, that's years.

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Rory Edward McKenzie, UBS Investment Bank, Research Division - European Support Services Analyst [25]

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Yes, it's a really interesting direction to be going in. And I guess, if I may, I know [I've been on a while], but just one follow-up in terms of just kind of helping to spark or accelerate that consolidation. Have you thought about pricing and kind of how you incentivize clients to take up these new services? The industry is very risk-averse. Clients don't like changing very much, is the impression that I get. So how are you thinking about pricing of these kind of digital-led services or digital-led offering, I guess?

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Stephanie D. Miller, Intertrust N.V. - CEO & Member of the Management Board [26]

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We have, and that's part of -- so I know we talk a lot about sales and we talk a lot about our Chief Commercial Officer, Ian and Frank, that's part of their role. So it's not just selling the same old stuff, if you will, in the same old way. It's really looking at things differently. Frank's former background is not from this industry. Ian is a former CEO of a large international investment bank.

So it's the combination of traditional sales in a new way. And yes, we have a subcommittee under them that has looked at the pricing in terms of bundling, how you interact. I know that the industry has been risk adverse, but we as well are risk adverse. Being digital doesn't mean we're not risk-averse. It's a better methodology.

With this platform, I'm looking to deliver the data to those clients so they continue to be risk adverse. And with that, I do believe they'll change. All of our clients want data at their fingertips. So if they don't want to be self-service, we will continue servicing. We will have the scale and the people with the expertise to do that servicing. But of course, it's a mix in the blend. It's the white glove service. It's what they need from us. If they want a fee, the digital fee, that's what they get, and then they're hands off. If they want white glove, we will give them that white glove. But it's allowing us to have that platform to do both, which is extremely powerful.

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Operator [27]

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The next question comes in from the line of Konrad Zomer from ABN AMRO.

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Konrad Zomer, ABN AMRO Bank N.V., Research Division - Equity Research Analyst [28]

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The first one is on the organic growth of Viteos. In Q4, your underlying revenue growth for the group was 3%, but that does still -- growth from Viteos. Can you maybe tell us what the organic growth for Q4, excluding Viteos was?

And a related question. If you look at the Americas, the 4.4% organic growth you mentioned, seems a little bit low given the uptick in the Cayman Islands organic growth as well as the fact that Viteos is still included here.

And then my second question is on your leverage. I think it's great that you confirm your target of reducing your leverage ratio to 3x by the end of 2021, but that means you will have to reduce it by the 50 bps a year that you mentioned before. Does that mean that you are very unlikely to continue to consolidate this market, despite the fact that there have been some [interviews] published, which suggests at least that you are still interested to continue making acquisitions?

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Stephanie D. Miller, Intertrust N.V. - CEO & Member of the Management Board [29]

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No. Thank you. I appreciate the question. So I'll start with the last one, and I will let Rogier talk about Cayman and the margin, and what's included versus what's not included.

We give you the guidance based on the leverage in absence of M&A. In light of M&A, we will go above that. But it is absolutely our capital allocation to commit to doing the dividend, to reducing the leverage. And then when opportunistically, when it makes sense, we'll do share buybacks.

Now what does that mean? I am very interested in the consolidation of the market only if it pertains to well-valued propositions. So I've -- we've done the Wells Fargo transaction. The Round Hill is a client, but the Wells Fargo transaction is a very good example of where we will do bolt-ons. We've done the ABN and ExCo M&A. So all of those bolt-ons that add value immediately, we will do. And in that case, we will guide and the leverage could -- not could, will go up. But that -- but we are committed to getting that number down to 3 in absence of M&A. But if there are good opportunities, I promise you, they are well thought, well-disciplined and very controlled. We're looking at absolutely adding to the basket of services. That's a part of why we're committed to growing the 4% to 6%. So that's that one piece of your question. The second piece, over here.

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Rogier Maurice Sven van Wijk, Intertrust N.V. - CFO & Member of Management Board [30]

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The second piece was on the question on Q4 organic growth or stand-alone growth. The number, indeed, we didn't disclose because there's already a lot of numbers in there. We don't think it's relevant, but it's 2.8% to be precise, for Q4, excluding Viteos. And you also raised the question on Americas growth rate. So that is, indeed, the 4.4% and includes the 12% growth of Viteos. Excluding that, it's still a positive growth in Americas.

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Stephanie D. Miller, Intertrust N.V. - CEO & Member of the Management Board [31]

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I think it's a good place to reconfirm. Viteos -- so when we bought Viteos, we came through and we said we see a tremendous game-changing opportunity. We see double-digit growth, we see the investment in Funds, we see the investment in Americas, and that's why we did it. Viteos, with the leadership of Chitra and Shankar, who have joined my management team, continues that growth. They have performed as expected. So under the banner of Intertrust, they have been executing just as if they were -- prior to the acquisition.

So I just want to make that clear that we're in month 7 of the 30-month journey. That journey is the automation of the Intertrust business onto the Viteos or the Fastlane platform. The Viteos business that we bought, which was the USD 52 million top line, the 85 clients, the 700 professionals, that business is doing extremely well and is performing as planned, as Rogier said, in the 12% growth. The only reason that growth wasn't even more significant was that we're not allowed to count the fact that the Intertrust, as we talked about in 2019 in the beginning, we hired them to build the Fastlane for us. So that's the program.

So again, I just want to reiterate they're doing as expected under our leadership. And now from a corporate perspective, they are all embedded in our company, in our corporate infrastructure. As of 2020, they will not be including or excluding. It's one company, it's Intertrust India and they will be all under the banner. So the numbers you'll get will be all consolidated. Hopefully, that's clear.

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Konrad Zomer, ABN AMRO Bank N.V., Research Division - Equity Research Analyst [32]

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Yes. No. Those 2 answers are very clear indeed. I have one follow-up on the margin guidance going forward. I wrongly assumed that the 36% you guided for last year was going to be the lowest point, if you like. But it now looks that 2020 will be the new low point. But maybe can you elaborate a little bit more on the 500 basis point margin improvement you need to achieve to get to your 40% target because I understand a 350 basis points from the $22 million. And I think that's -- that will certainly happen. But the remaining 150 basis points will be a mix of an ongoing lower margin from business mix, offset by operational leverage. But it's still quite a gap to bridge, I think, particularly if you still think that the exit margin for 2020 should already be close to 40%.

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Rogier Maurice Sven van Wijk, Intertrust N.V. - CFO & Member of Management Board [33]

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Sorry, to start with the last point, Konrad, that is the exit margin of 2021. That should indeed be close to that 40% or should be the 40%, indeed.

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Stephanie D. Miller, Intertrust N.V. - CEO & Member of the Management Board [34]

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That's -- but that -- but you said 2020. That's 2021.

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Konrad Zomer, ABN AMRO Bank N.V., Research Division - Equity Research Analyst [35]

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Sorry. That's my mistake.

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Rogier Maurice Sven van Wijk, Intertrust N.V. - CFO & Member of Management Board [36]

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No, but that's 2021.

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Stephanie D. Miller, Intertrust N.V. - CEO & Member of the Management Board [37]

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I just want to make sure we're all the same page. It's a big difference.

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Rogier Maurice Sven van Wijk, Intertrust N.V. - CFO & Member of Management Board [38]

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It's a 30-month program. And we will continue to invest, as mentioned by Stephane on Slide 6, in the first half of the year with the duplication in cost. So the low point on a full year basis, indeed, will be 2020 with that at least 35%. On a quarterly basis, you will see different margins, as mentioned.

The -- it is exactly as you described. It's indeed the 350 basis points and 150 explained by that automation, as Stephanie just explained, the Fastlane project. We'll get significant benefits from that as well as the operating leverage that will start kicking in once we have completed all [of it].

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Stephanie D. Miller, Intertrust N.V. - CEO & Member of the Management Board [39]

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The 350 is well explained by the bottoms-up approach. We always have spoken about in the past, the fact that our rest of the world and our smaller offices did not have the same operating leverage that, let's say, Western Europe had. That was always the comparison. So how do you get the smaller offices all the way up to the operating leverage? That's where the 150 basis points will show up.

It's still keeping the footprint in Ireland, in Spain, in the Nordics, in Asia. It's still keeping all of that footprint. But now it's the better leverage because we don't have to hire in those jurisdictions for the future to scale. We will have people in those jurisdictions that are expert lawyers, expert accountants, expert to clients, but yet they're able to use a target operating model which leverages the Center of Excellence. So I don't have to get to 500 people everywhere in the world where I am. I could start off operating leverage at a much smaller base, which is exactly how I'm confident to deliver to you the 40% margin in the future. That's the 150.

We're also going to do geographic expansion. So there is always a decision point when a CEO does a geographic expansion because for the first x amount of months, it's usually a drag on margin because you're investing. This will help me shorten that drag. So it will -- if you will, make the margin mix smaller, and that's the goal.

Thank you. Operator. I think we're out of time at this point. So I think we're going to end the call at this point. And I want to thank everyone for joining and for your questions.

We are, just to reiterate, really proud of our results. We delivered, again, stable, predictable, as we promised. We've executed well. Viteos is performing, which obviously we're very proud of as well. And we're going to keep our 2020, again, guidance is all about execution, and that's what we're committed to do. Rogier and I are very committed and the management team to deliver those results for 2020.

Thank you, all. Thank you, operator.

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Rogier Maurice Sven van Wijk, Intertrust N.V. - CFO & Member of Management Board [40]

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Thank you.

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Operator [41]

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Thank you for joining today's call. You may now disconnect your handsets. Hosts, please stay connected and await further instruction.