Avanza Bank Holding AB
STO:AZA
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Ladies and gentlemen, welcome to the Avanza Q1 Report 2018. [Operator Instructions]I'll now hand the floor to our first speaker, Rikard Josefson, CEO. Please begin.
Okay. Thank you very much, and you're all welcomed to this webcast. As I understand that we cannot see the slides but you'll have it on our website, so I will try to guide you on what page I'm talking to. And if you start off by looking at the second page, which is headlined, Q1 highlights. We can see for the first quarter that we have a very strong customer growth. It's the second-best quarter ever when it comes to new clients, 42,400. You'll also see a high net inflow, especially in the beginning of the quarter, but you'll also see that the existing customers are a bit hesitant to add more money into Avanza, because the trading activity has gone down quite significantly at the end of the quarter.We're also both proud and happy to see that Nordic Bench’s survey shows that we still have -- always have a very, very high recommendation rate with our clients. And as you know, customer satisfaction is very, very high up in our agenda, so that's nice to see that, that is still going on.We can also see when it comes to the activity that we have not -- at the moment it seems like we had been -- before Christmas had a lot of bitcoin trading and the cryptocurrencies. In the beginning of the year, it was local Cannabis shares trading and now that has traded out a little bit. So now it's more a very hesitant market with low activity.If you turn to next page, which is highlighted mixed market environment in Q1. We can see, as I've said, it was very strong first part of the quarter and very slow at the end of the quarter. We also see good fund inflows and fund share of saving capital increasing. And, of course, that's in line with our strategy to create a more stable top line with recurring income.We also, from the 4th of April, we launched our mortgage plats completely. We have been in a soft launch pilot phase since November until the end of March. During the period which we reached SEK 630 million in lending and now as mid-April it's SEK 870 million and the demand seems to be quite good.I think one highlight, when it comes to mortgage plats was also that we see that the average LTV of our lending is 34% and that shows that a lot of customers are moving their mortgages from other competing institutes in the market towards us and that also shows that the quality is excellent in the portfolio that we are building up. But of course, we are happy with the results on our mortgage plats but it will take time to build the mortgage portfolio before it has a very significant impact on our P&L.If you go to the next page, you can see that the turnover on the Stockholm Stock Exchange, including First North rose 10% in the quarter, and turnover among Avanza's customer kept pace. The number of transactions by Avanza customer fell by 3%, while the number of transactions in the Stockholm Exchange, including First North rose 16%. But we also see that the big increase in transaction for the Stock Exchange, as a whole, is mainly due to higher activity among foreign institutional investors. And that kind of trading is, of course, not in a competition with Avanza.If you look at the next page, you can see the headline, record strong quarterly income. We had a record high income of SEK 271 million, which, we believe, our brokerage income is still strong. And I would like to highlight the fund commission, later will come back to that, but it now comes for 26.6% of our revenues compared to 21.7% in Q1 '17. So that's also, once again, in line with our strategy to create more recurring income.And then we also have good foreign stock trading, and you can see increased interest in the foreign markets and Avanza Markets contributed to higher other income. And Corporate Finance were a bit slower quarter 1, but they had a very strong Q4. And that is, of course, a volatile business in itself. Cost development is according to our plans, and we are very comfort [comfortable] in that we will deliver the 8% to 10% cost increase on an annual basis. But, of course, the cost has been higher from Q1, but we have no reasons to believe that we cannot deliver the 8% to 10%. And the net result was SEK 104 million.The next page is about the successful MiFID II implementation. We think that the MiFID II is a very, very good regulation. We have high ambitions when it comes to simplicity and clarity. We think that we did a very good launch of our MiFID II with very high transparency. We see that prices on mutual funds are more in discussion among investors, but we also think that a lot of people thought that the Q1 would be slow because of -- hesitant to change because of MiFID II. But we can see that the pretrade information and the transparency creates more comfort among our clients and they actually have, I would say, boost the activity more than anything else.We also see our private banking business going, because you can see that a lot of private banking customers among our competitors are being more aware of what they actually are paying for the services that they are given. And since we are a low-priced [indiscernible] we can see very -- many new customers in our private banking area. We also see our strong pension offering gaining market share. We're growing from a low level and that's, of course, also linked to our mutual fund business, because most of the pension capital is, of course, invested in mutual funds, and we also know that some regulation will come in play to some of that, that will also help the customers to move from other institutes to Avanza. So we see great opportunities in that area.On the next slide, Slide 7, as always, the key success factors for Avanza is customer satisfaction. And I think that in total everybody has in Avanza to keep that #1 position, because it's a very important ingredient in our brand. Continuous growth, both in number of customers and in volumes, that's always high up in our agenda. And of course, we have a lot of things in that for right now that I think makes me comfortable that we will have strong innovation, and we see a lot of great possibilities in the innovative areas.With that said, I will turn over to Birgitta, our CFO, to comment on the financials.
Thank you, Rikard. If we start at Slide 9, where you have the financial overview, we can see that the operating income is, as Rikard said, on the record-high level for the second quarter in a row. Cost growth is still high, while decrease -- it will decrease in the second half of the year, so we still have our guidance of 8% to 10% for the full year. The operating profit improved compared to Q4, but more or less it's flat year-on-year due to higher both revenues and costs. This gives us an operating margin of 44% for the quarter. Revenues per savings capital are at the same level as Q1 last year, but 2 basis points lower than Q4.Cost per savings capital are at about the same level both quarter-on-quarter and year-on-year and we expect that to be below 20 basis points pretty soon, if we continue to have the strong growth in customers and savings capital.So if we look at the quarterly revenues on next slide, we can see that, as I said, the revenues have been flat quarter-on-quarter, and that the fund commissions have been higher, but the revenues from Corporate Finance were lower. The brokerage income was flat both quarter-on-quarter and year-on-year and this despite record high number of commissions generating customers and the commission notes. The securities transactions are still executing the smaller volumes and in lower accretion classes, which produced slightly lower brokerage income for turnover, which fells from 10.3 to 10 basis point drop from Q4.During the quarter we have seen that the cryptocurrency trading was strong in the beginning in January, but then it fell. So it's definitely slowed down in the end of the quarter, and -- but it still stands for 7% of the total brokerage income for the quarter.The trading activity has -- and consequently, brokerage income was higher in January even though the volatility were lower and then increased in February and March. And this shows that our customers actually are hesitating a little bit about what to invest in, even though that the volatility is a little bit higher.When it comes to fund commissions, the revenues increased by 12% quarter-on-quarter and 37% year-on-year. We saw a very strong net inflow in January and an increased market value of the fund capital in January then the net inflows were a little bit slower in February and March, and we had a decrease in the market values in February and March as well. But the savings capital in the fund increased by 22% since Q1 '17.Looking at the net interest income, it was up 11% quarter-on-quarter and flat year-on-year. We can say that both mortgage and margin lending product has increased during the quarter, which gave a positive effect on the NII. On the other hand, we had increased cost for our solutions fee and the cost of guarantee fee. All else equal and without taking changes in customer behavior into account 1 percentage point increase of interest rate where today's volume would affect the full year net interest income by close to SEK 250 million.Other income was down 17% quarter-on-quarter due to lower Corporate Finance revenues, which, as you know, were very high in the last quarter -- last year.Customers interest in foreign securities and the activity in Avanza markets has increased both compared to Q1 and Q4 last year. We have seen that the activity in Avanza Market is coming back as the interest for cryptocurrency has cooled down. So if a change planning goes to the cost part instead, we can see that the costs are according to plan even though they are higher in the first quarter of '18 compared to the same period last year. We will see that the cost growth will slow down for the -- in the second half of the year. Cost of -- activity has been 3% lower quarter-on-quarter, but mainly due to lower personnel cost and lower marketing cost. But year-on-year, we had a cost increase of 23%, mainly due to expanded development capacity for further growth. The number of NPVs are higher and with that comes for higher -- other higher cost such as premises and license fees, but we have also increased the IT consulting cost. So all in all, the cost guidance of 8% to 10% for the full year as it may. So switching to the next slide regarding capitalization, we can see that we still have a very strong capital situation with a total capital ratio of 17.6%. This should be compared to our requirements, which are 15.6% if we include both the external legal requirements, the buffer requirements and also our internal buffers and Pillar 2 requirements.This year and the main changes in the capital requirement calculation is due to a new interpretation regarding the credit facility to Stabelo, which had a possible effect on the capital ratio. Other changes in the capital requirements is merely a result of increased lending and deposits.And with that, Rikard, I think, we could actually hand over to questions.
Absolutely. Let's open up for questions.
[Operator Instructions] Our first question comes from Peter Kessiakoff of SEB.
Yes. Peter Kessiakoff from SEB here. Three questions, starting off on the pharmacies. I mean, as you mentioned, clients have become more risk-averse or become more hesitant that's also noted in the market press releases that you're sending out in terms of what, kind of, funds are people buying moving from equity funds to kind of bond funds. But when I look at the results, the number or the amount of savings in mutual funds is up some 2%, 3% quarter-on-quarter, but the actual income from mutual funds is up 13%, so you have a margin expansion. Could you just elaborate what could be the driver of that? And, I mean, I note that going back a few years, there are quarters now and then when the average fee picks up a lot during a single quarter and then comes down a lot the following one or 2 quarters, is this sustainable or should it be coming down from these levels? That's my first question.
Well, as I said, what we have seen during the quarter is that in January we had a very strong inflow, and that we had a market growing up. So the market value of the fund savings capital actually increased pretty much in January. Then, we had a little bit slower inflows in February and March and when it comes to the market value, it's actually, what's it, quite some decrease in March. And of course, this fluctuation seems that if you only compare the savings capital with the number that we have by year-end and the number by the end of March, it could look a little less tranche compared to the revenues. But I think it's more fluctuations during the quarter that's the reason for these figures.
Okay. So -- okay, so it's more an effect of how the average savings has been during the quarter rather than there being anything different in the underlying?
Yes.
Okay. Then in terms of foreign trading, just noticing that it's some 10% of trading in the quarter and has been around 6% to 7% the last year. Is this solely driven or the increase, is that solely driven by kind of trading in Cannabis stocks or is there anything else that has increased this as well and do you expect this to remain at these levels or what -- do you see the reason for it to kind of remain here or go down to the normalized level?
It's a difficult question, but I would answer it like this. We see that Swedish is -- our clients are getting more and more comfortable and interested in investing in other markets than the Sweden stock exchange. So I think the Home Bias launched in the [savings] is going down a little bit. My prediction is that this will continue because we are a more globalized world and I think people are more comfortable in buying Apple shares than in Ericsson shares, it's the same thing for the customer. So I think we will see a increasing interest.
Okay. Then the last question is just around the Stabelo. And as you mentioned, you kind of released the offering during late in the quarter or early Q2, and the lending accelerated quite a lot. Is this the SEK 240 million that you -- that was originated during the first 2 weeks in April? Is that the level that you would expect -- is that the run rate that you expect for, say, the coming periods so SEK 5 billion to SEK 6 billion on an annualized level? Is that...
I think it's a little bit early days to have that prediction. We are comfortable that this is a good number, we think it's a growth that is in line with our expectations. But I would rather answer that question more firmly after Q2 when we can see a few more weeks or months with a full offering as we have done since April,4.
Okay. But if I rephrase the question then, is it -- is there anything else that you will do in terms of change that could ramp up the pace or is it now solely dependent on actual demand from your clients?
I think that one thing that we can do and will do is, of course, that we released it April, 4. We are not done in the external marketing about the offer yet. We will -- there is a marketing ambitions when it comes to mortgage plats.
Our next question comes from Maths Liljedahl of Handelsbanken.
Can you hear me?
Yes.
Yes. A question regarding the NII sensitivity, you raised it from SEK 200 million to SEK 250 million, if there's been any changes in your underlying headsets, et cetera. And you also previously said that you didn't expect a lot of NII sensitivity up to minus 20-or-something in terms of STIBOR. Has this also changed?
What has changed is that we now see that we don't have a lot of floors in our portfolio, our bond portfolio. So that's one of the reasons, but of course, it's the main reason is that the total balance of our balance sheet is actually large enough. So we have a larger portfolio, we have a larger part in lending to our customers, and so forth. So -- but of course, what we do have when it comes to the, of course, 30 basis points is that we have a floor when it comes to our mortgage loan because that is catched to minus negative 20 basis points. But otherwise mainly the growth in our business, that's the reason for the change.
Our next question comes from Nicolas McBeath of DNB.
Yes. So first a question regarding the news from this morning that the Swedish regulator has withdrawn Remium's license. I think you have some operation or some business volumes coming from Remium. Could you remind us of the -- is that above this cooperation and if you've seen the risk of revenues or business volumes being lost as a consequence of the license being withdrawn.
The corporation with Remium, I think, was finished in beginning of 2017, I think. So we have no business with Remium whatsoever today.
Okay. And then, another follow-up on the mortgages. So do you have any plans also to stock issuing or distributing new mortgages? Or do you think that it's mainly going to be changing or taking system mortgages onto the customer platform for a longer time from here?
This is a difficult question. I think that for the time being, I think, we will be taking mortgages from our competitors since they have the LTV of 60%. A lot of new customers buying the first apartment or house, they need more lending than that. But we also see that we can and we will, over time, take on new customers if they have an LTV below 60%. And a lot of people, especially Stockholm, who are in the market they sell and lease a lot of equity and we will be able, over time, to sell those customers too.
Okay. But could you give any kind of -- what expectation do you think that it's reasonable during this year? Or do you think it's more a long-term ambition for that?
I think we can be clear on that question on the next quarter because that's a part of our development plan, and I am not sure exactly that we will start issuing loans for new loans or -- when you buy a new apartment or house. But of course, that's in our plan so we will disclose more about it later.
Okay. And then another follow-up on that. Could you give any kind of information of the -- where do you see most of your mortgage customers coming from, is it any particular banks or -- yes, could you give any info on that?
We don't disclose that information.
Okay. And then finally, also on the mortgages. What do you see, I mean, in a bottleneck for the growth? Is it funding, demand or your internal processes, how much you can process?
I think that, at the moment, we don't see any bottlenecks. But, of course, if the demand would increase a lot, it would test our system, but at the moment, I think, we have, given the interest we see right now, I think we've been able to manage it quite well with a good customer experience. If there are any bottlenecks, if we get an extremely high demand time will tell, but I cannot say that right now.
Okay. But would you think if demand increases, is the bottleneck mainly your own systems or the availability of funding you think?
I think that the bottleneck may be -- could be, in some sense, probably a combination of both because I think we're very comfortable with the funding situation, but if we get an extremely high demand, of course, we need to attract new investors in the same pace. And that could be a challenge.
Our next question comes from Ermin Keric of Nordea.
I think most of my questions have been answered. But in terms of the brokerage income, you say that the commission per note is continuing somewhat down still. But more looking across your offering, is there anywhere you still have quite good profitability or margins in terms of the brokerage, it's probably on the FX spread and recharge 25 basis points. Do you see any risks of that not being sustainable in a long run when investors become more and more interested in creating foreign stocks?
You never know. I think that we don't see a pressure on those 25 basis points at the moment. Will the interest grow more and more? Will that become a competitive factor with the competition? We will, of course, we will be quite close, but right now and for a foreseeable future, we don't see a pressure in that.
Okay. And then a final question just on new clients coming in and they're playing for the Stabelo loan, do you see any kind of cross-selling trends already, do they also become savers with Avanza then? Or do you still see customers coming in and just leaving application for a mortgage?
I would say, it's too early days to say that, because what we see is that so far it has been mainly existing Avanza clients that's been taking the Stabelo loan, and that's also because in the soft launch we directed the opportunity to get the loan to our existing client base. So for totally new clients Avanza, it's only been open since 4th of April, so I cannot draw any conclusions of that.
Our next question comes from Jens Hallén of Carnegie.
Three questions for me. First, looking at activity levels and it ended perhaps a little bit slower towards the first quarter, is that maybe or was an indication on how the second quarter has started? If you can give us an idea on that?
Well, we have seen that the activity on the Stockholm Stock Exchange has been slower even in the start of April, so I would say that it's in line with how the end of Q1.
Okay. So it's continuing more or less at the same level if not falling further, is that what you said?
Yes, a bit. Yes.
I don't see it's falling. I think, the March was boring, April has started boring.
Okay, fair enough. And then second question on costs, and as you say, there the increase quite a lot in the first quarter. Can you maybe give a little bit more flavor of why you think you now stocked it so high and why that trend should not continue for the next 3 quarters, i.e., how you're going to come down to the total 8% to 10% mark for the year?
Well, we had very low costs in Q1 last year and since we ramp up during the second year and was increased during the year, of course, there's a larger effect in the beginning of this year than -- if you compare to the same quarter last year. We have done the budget and we are holding on to that and we believe that we will continue to hold onto that for the full year. So I definitely will see -- think that we will see a large increase -- cost increase in Q2 as well a little bit smaller and even smaller in Q3 and Q4.
Okay. But will the focus then be not so much on the staff cost, but on all other operating expenses, is that where we're going to see the, I guess, the increase now for the next 3 quarters?
Well, I think we will see the increase in different lines. I mean, one of the cost so far is that we now have 2 offices and that means that we have more premises costs. In Q4, we had some IT consultants as a replacement for a North employee and personnel yet. So I think you will see increases in personnel cost as well. So you will -- it will turn out on different lines.
Okay. And then finally on -- also on Stabelo. So you've now -- now it's becoming a bit more meaningful, I guess, in the terms of volumes in terms of -- and revenues for you. When do you -- at what point do you think you will then be noticeable in the account? I guess, it will come up as somewhere in commission income.
Notable. This depends on what numbers you need to have to get to be notable. But, I mean, you know that we are sharing the 50 basis points that's assuming the fund between 3 parties, not equally though, and you can do the calculation yourself when it comes to the volume.
But we see, as a stage, I think when it comes to an impact on the P&L of Avanza, it will be few years down the road, before it has some major impact. So this is a long-term investment we are doing, building up the volumes. And I think that we are more focused on those, so to speak. The volumes getting -- attracting new clients and, over time, of course, it will increase the P&L. But we are a bit hesitant to predict the growth rate of Stabelo both internally and especially externally because we want to make sure that we create a great customer experience in the Stabelo cooperation and that's also is at the moment.
[Operator Instructions] And we have one further question coming through, that's from [ Veronica Erck ] of Bloomberg.
I was just wondering how the outage on NASDAQ is affecting you and your customers today?
Of course, it's affecting us a lot because you cannot trade, so of course, it's -- I think it's remarkable that we are now at 10:30 and the Stock Exchange [indiscernible] is still not open. So, of course, it's a very sad day for our customers and us today when we cannot have the Stock Exchange open.
[Operator Instructions] As there are no further questions at this time, I'll hand back to our speakers for the closing comments.
Okay. No further questions. Thank you for participating, and I wish you a very great Wednesday. Thank you.
Bye.
Good-bye.