flatexDEGIRO AG

XETRA:FTK

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, hello, and welcome to the flatexDEGIRO 2022 Preliminary Figures Analyst Call. Please note this call is being recorded. [Operator Instructions]

I will now hand over to your host, Mr. Frank Niehage, CEO, to begin today's conference. Thank you.

[Frank Niehage, CEO]

Good morning, everyone. I welcome you to our preliminary earnings call 2022. First of all, I have to start and excuse my friend and colleague, Muhamad Chahrour, due to the loss of his father and the attendance of the funeral today. And we all, here from Frankfurt, send him our condolences.

In the call today, therefore, is my new colleague, the CFO, Dr. Benon Janos, and obviously, Achim Schreck, our Head of IR, like always. We will split the presentation among the three of us, and I will start now.

Let me summarize quickly and give you a sneak preview of what we've prepared today as it is a lot of information. And as I like to give you six key takeaways from the CEO point of view with respect to the presentation; first, the situation with the regulator; second, the robust financials; third, the improvement with ESG; fourth, more transparency in the future; fifth, higher profitability due to cost discipline; and last but not least, our guidance comes in very conservative and cautious due to the geopolitical situation, inflation and interest environment. And obviously, we included today only the status quo with respect to the actual interest rates.

Let me start first with the situation of our regulator. The 44 audit is finished and the necessary project to resolve the findings is on track. There was a misdemeanor proceeding which came to an end. And we're relating to incidents out of the years '20 and '21. The fine is non-material from an accounting point of view.

The appointment of a special representative allows the BaFin to adjust and post capital measures and we would not have to wait for regular follow-up audit in 12 to 24 months. The project teams are working on all relevant findings full steam with a clear focus of more form over substance. Our project plan has been cleared by two audit firms. Finally, we are in good terms with the regulator.

Second, we showed robust financials in 2022, although it was one of our toughest year in the industry with respect to the geopolitical situation, the inflation and the interest tax. Nevertheless, we managed to exceed €400 million in revenues, we exceeded €183 million in EBITDA, and we managed to exceed net profit of over €100 million, the first time in the history of our company, and as I said, in a very challenging year, 2022.

Commercially, we won over 460,000 new client accounts and we settled €67 million transactions. The assets under custody dropped only from €43 billion to €39 billion, although the major indices dropped much more, as you all know. This goes to our clients and shows the quality of our clients.

Third, ESG, environmental, social and governance. We worked very hard, the last 12 months, to improve and we did that before the audit results were disclosed and thanks to the feedback of several conversations we had with you, our shareholders, we managed to enlarge the Management Board from two to four members.

Further, we increased the Supervisory Board members from three to four and there is more to come on the next Annual General Meeting, which will take place in June. Further, our ESG rating has improved a lot.

With respect to Morningstar, we managed to be reached top five position out of 146 companies and obviously, there are some other ratings which have not yet all been updated. But obviously, this does not mean that we're at the end. We will continue to improve here and there's more to come.

Fourth, we will focus in the future more on transparency, and already today, we have provided you with three new KPIs, the number of new accounts, the number of trades and the assets under custody. And we will do this now every month.

And fifth, we will increase profitability due to cost discipline. As we already said, we will no longer guide trades as it is not serious anymore during those challenging times. But as I mentioned, we've introduced the monthly KPIs, and therefore, provide you with more transparency.

We've also decided to not continue with sports sponsoring in the future anymore as this went very well with respect to brand awareness and you will see that later in our presentation. And the brand awareness increased a lot over the last couple of years, but we will focus more in the future on conversion.

We will end the sponsoring of Sevilla in summer and we will become the co-sponsor of Borussia Monchengladbach in '24 and continue as co-sponsor until '27 as contractually agreed. Therefore, we will have a significant reduction in the marketing budget in the coming years.

And my colleague, Dr. Benon Janos, will provide you more details later. We will still grow more than our competitors, but with a higher focus on profitability. Higher interest rates will contribute significantly on top of everything.

Again, my colleague will provide you with more details and let's shift gears now. I'm happy to hand over to Dr. Benon Janos, our CFO.

[Benon Janos, CFO]

Good morning.

If we take the U.S market as an example, the S&P 500 finished 2022 down 19.4%. That is the seventh worst in this index stretching back more than 90 years. 2022 is comparable to the Great Depression, the 2000 dot-com bust or the 2008 great financial crisis. To make matters worse, this time bond investments also fell significantly in value, given the sharply rising interest rate environment, further dampening trading and investing interest.

Yet, flatexDEGIRO was able to deliver the second best financial year in terms of revenue and best year in terms of reported net income. We observed an industry-wide muted customer trading activity with approximately €67 million trades within our Group in 2022. At the same time, we saw in the second half of 2022 and particularly in Q4, a first positive impact from higher interest rates.

Our customer base continued to grow double-digit and we saw continued net cash inflow onto our platform. With €407 million, we saw a decline of approximately 3% of the reported 2021 revenues of €417 million.

A more proper representation, which excludes positive one-off effect of approximately €38 million due to releases from the long-term variable compensation plan leads to adjusted revenues of €369 million, which in turn represents a 12% decline of the reported '21 revenue figures. I will revert back to this in more detail shortly.

The €369 million in adjusted revenues are comprised of commission income of €272 million, interest income of €72 million, and other income of approximately €25 million. To illustrate the muted trading activity in Europe, we have chartered the daily average revenue trades per customer and compared to industry trends. Our development through the year is in line to what we see from other European peers.

A strong 2022 Q1 with almost €22 million trades was followed by two spring and summer quarters of €16.2 million and €15.3 million trades respectively with a further decline in Q4 to €13.6 million trades.

Yesterday, we have, for the first time, and we will come to this later, published January trade numbers of €5.3 million, an increase month over month of 25%, but a decrease of 28% year-on-year for the month of January. A similar but not identical pattern has been observed in our customer growth number of 462 -- additional 462,000 additional accounts on a gross level.

A seasonally strong Q1 with 185,000 net additions has been followed by three similar quarters of -- gross additions has been followed by three similar quarters of approximately 90,000 gross additions per quarter resulting in the customer account growth rate of more than 20% compared to the end of 2021 or beginning of 2022 respectively.

The breakdown of account growth into net customer growth can be summarized as follows, normal churn of minus 53,000 corresponding to a retention rate of almost 98%, yield at 409,000 net customer account additions.

We offboarded 73,000 customers in total representing; one, the closure of the DEGIRO Austria brand; two, the discontinuation of the flatex brand in the Netherlands as well as; three, the exit from the Norwegian; and four, Hungarian market for our brand, DEGIRO; in addition, five, a number of B2B accounts were also terminated after ending of the respective business relationships.

The resulting net customer account growth number of 336,000 clients puts us above comparable peers in Europe. Commission per trade started off at €426 per trade in Q1 and decreased to €390 in the fourth quarter.

This is reflected in the smaller percentage of high revenues transaction compared to, for example, savings plans. The latter is typically more stable throughout the year given more regular automated execution. Therefore, in the less active trading environment, the relative share of such constant savings plans increase.

This slide reflects the organic decline of minus 18% in our brokerage business with adjusted EBITDA of €145 million for 2022 compared to €177 million in 2021. Both EBITDA numbers here are adjusted for one-off personnel expenses for long-term variable compensation, and in 2021, in addition, for personnel expenses related to the merger of flatexDEGIRO Bank and DEGIRO B.V.

In 2022, we spent €49 million on marketing. Marketing expenses in both 2021 and 2022 were between €45 million and €50 million driven by the creation and distribution of the European-wide documentary true stories of investing and other increased brand awareness campaigns. The development of marketing expenses throughout 2022 shows that we are capable of adjusting our marketing spend on relatively short notice in relation to the market environment. We will continue to do so in 2023 and I will revert to this later.

On brand awareness, we have successfully increased our brand awareness in our key markets and consider now this part of the group marketing efforts as accomplished, finalized and finished. Allow me, a comment on the development of our assets under custody.

Assets under custody at flatexDEGIRO declined from €43.8 billion to €39.5 billion at year-end 2022 representing a decline of only minus 10%. While securities in total declined from €41 billion to €36.2 billion, client cash deposits grew from €2.8 billion to approximately €3.2 billion. One of the influencing stabilizing factors for securities under custody was the decline of the currency euro versus the U.S dollar in 2022.

Let me make, at this stage, a referral to our yesterday published January 2023 numbers for a second time showing total assets under custody at the end of January 2023 at €43.5 billion and thereof, the cash position of €3.5 billion. Gross cash customer inflows of €13.4 billion in 2022 were offset by €7.5 billion in normal withdrawals resulting in a net cash inflow number of €5.9 billion.

Thereof, about €5.2 billion were reinvested into financial markets on our platform, reducing the number to approximately €0.6 billion. Of the €0.6 billion, about a third can be attributed to a reduction of our margins loans outstanding, with the remainder of €0.4 billion being the positive cash under custody development from end of 2022 versus end of 2021.

Let us move now onto our strategy going forward. Now, despite all challenges, we delivered a financially solid 2022. So what is the underlying outlook for our 2023 guidance and our mid-term ambition.

After 14 years of sustainable growth, two years of an abnormally bullish brokerage environment during COVID, the meme stock hype and zero interest rate policies only to be followed in 2022, but the worst year with respect to retail brokerage sentiment in our history, we focus towards the strategy of higher profitability growth.

On the one hand, this includes optimizing our product and pricing strategies and to increase our market share by leveraging our strength and expertise as well as attracting long-term trading clients in Continental Europe.

On the other hand, focus on our margins as we mature in our corporate evolution will be significant part of the strategy. This includes more stringent operational cost monitoring, reducing our cost base through operational improvements as well as general cost management. We want to ensure that we are maximizing our margins and are well-positioned to drive sustained margin improvement.

Combined with customer growth, we will also focus on higher profitability to our shareholders within our strategy. The implemented product and marketing strategies plus the given environment allowed for unusually high client growth periods in 2020 and 2021. Since 2020, we grew our customer base by almost 200%. We are aware of the fact that the environment has changed.

Going forward, we need to prioritize the quality of growth, the quality of our products and services as well as enhancing the overall client experience more than before. We still believe in the secular trends in the digitization and the increase in financial literacy, especially in the under-developed Continental European markets where we have a very unique positioning. However, at a different speed than estimated in the past.

Thus, the first takeaway in the outlook session for today, the Vision 2026 of very high growth rates that we gave two years ago aiming for 7 million to 8 million clients has been revised given the changed environment and will be formally dropped.

Key to our sustainable success in the past was our Triple P strategy as in platform, product and price, that is what distinguished us from competition and will continue to define the future path of the company.

Long-term but sustainable customer growth, cost discipline and corresponding margins, we will continue to grow pan-European investment platform. Over the last three years, we managed to position flatex and DEGIRO in most growth markets as the quality broker with significant investments made into brand awareness and indirect marketing as we saw a few minutes ago in the brand awareness overview.

We will now channel our marketing efforts mainly into targeted marketing and pre-marketing efforts. This was -- this will involve leveraging our data and analytics to improve conversion in our existing markets and invest more effectively to attract trading-oriented clients, leading to the second take away.

We will adjust our marketing strategy towards more targeted marketing. As a consequence, as Frank Niehage already alluded to, flatexDEGIRO will discontinue the main sponsor brand awareness activities of European football clubs. This will lead to football-related marketing cost reduction starting in 2024 and resulting in a high single-digit million cost saving per year.

After years of investments into our brand development, we will focus on attracting and retaining high-quality clients, putting our product and platform first as well as rolling out already existing products into new geographies is a key low-hanging synergy that paced in on the long run on both, customer growth and margin.

So the third takeaway, we aim to increase our operational margins towards the benchmark margins of established and mature local European players. Also, the market is generally expected to grow mid-term with the speed of high single percentage. We aim to grow our customer base 1.5 times to 2 times faster than our benchmark peers by having the advantage of our distinctive footprints in 16 countries that allows us to efficiently allocate marketing spending across those geographies.

For more than a decade, both brands, flatex and DEGIRO, has been price leaders when it comes to quality brokerage services. We always have focused on maximizing the value we deliver to our clients by offering an exceptionally broad range of products and services, but we will also continue to optimize our pricing and revenue strategies. When we acquired DEGIRO, we highlighted that we need to find the right equilibrium between growth and profitability.

In 2020 and 2021, given the inviting environment, growth was clearly in the foreground. In 2022, we benefited from newly introduced products and selectively raised prices at DEGIRO.

As a fourth takeaway, we will further assess sensible product and pricing strategies to improve margins and long-term value for our shareholders while offering our clients a best in-market investing experience. Over the recent two years, we increased the revenue per trade from approximately €4 to more than €5 and aimed to develop at mid-term more towards the €6 range.

As of January 1, we increased the pricing for our margin loans at DEGIRO and flatex by one percentage point each reflecting only partially the ECB interest rate environment. In the previous years, we have guided for total trades in the current year at the beginning of each year.

While we as management can influence on business metrics such as customer growth or monetization incentives, trading activity of clients is very difficult to forecast properly. Market conditions, investor sentiment, and other external factors can significantly impact trading volume and liquidity as we have seen back-to-back in the last three years.

As we cannot accurately forecast client activity, the fifth takeaway, we will not guide trade numbers anymore. When we come in a minute to the guidance for 2023, obviously, there is an underlying assumption for trade number to derive a revenue guidance, but please let us be very specific on this topic. These 2023 numbers are variable based on current environment and not a formal trade count guidance or estimates, neither for the whole year nor mid-term.

Before ending the discussion around top line drivers, one more thing on transparency, since we do not forecast clients and trades -- clients and transaction numbers anymore, we would like to conclude with the already indicated six takeaway.

Starting yesterday, we will disclose monthly commercial numbers including gross account growth number, number of transactions and assets under custody amongst others. We hope this allows the market to better follow and understand the development of our top line drivers. It also follows peer benchmark standards and strengthened governance. The numbers will be published on every third working day of the month for the previous month.

I will now briefly hand over to Achim Schreck, our Head of Investor Relations, to share a few more facts on our monthly reporting going forward.

[Achim Schreck, Head of IR]

Thank you, Benon.

And welcome from my side as well. As already mentioned, given that we are no longer guiding on the number of trades, we believe it's fair and helpful to the market to provide the monthly development on those commercial KPIs, not just for the recent month and the month before but providing as well the 13-month overview which we believe will help also to get a bit of understanding for seasonal patterns and understanding the development throughout the year for older mentioned KPIs that there are customer account growth on a gross and net basis as well as the development of our assets under custody including the split between securities and cash held by our clients, as well as the current levels of the margin loan book and traditionally, the trading activity, again, split also what we believe is very relevant to assess the business in high revenue trade. So products by stocks and bonds versus lower revenue trades like ETFs and savings plans.

As Benon mentioned, we will provide those figures every morning of the third working day after the close of the month. So you will have those data available in line, also with the peer publications.

I would hand over back to you, Benon.

[Benon Janos, CFO]

Before coming to the guidance, one final comment. Given the maturity stage of our business, and by carefully targeting our marketing activities to our most affected markets, we can ensure that we are maximizing the return on our marketing investments and reducing sub-optimal investments.

Over the recent years, we have invested significantly in our brand awareness activities. Now, it this time to leverage and focus on conversion. Thus, let me repeat the second take away, we have decided to discontinue the main sponsor brand efforts with both Monchengladbach and FC Sevilla after the contracts run out which will save 2024 and onwards a significant single-digit million amount annually.

Guidance. The revenue guidance, 2023, is based on an assumed trade number of 65 million transactions and is based approximately on the trading activity in Q2 to Q4 of 2022. This assumed trade number might be higher or lower, depending on external factors. Half of the analysts will probably agree with that number, half are a bit more optimistic.

Again, we cannot control that number explicitly, but want, nevertheless, to give a perspective. So assuming a trade number of 65 million and forecasting a commission per trade of €4.10, we expect a commission income of approximately €265 million.

Additionally, we will monetize our client deposits on two ends. We assume the volume of margin loans to be on average at €900 million and expect an average yield of 4% contributing another €36 million. The short-term dated trade treasury portfolio is assumed to be on average at €2.5 billion with an average yield of the current ECB deposit rate of €2.5 million, contributing €62.5 million.

Both the margin loan book, as well as the treasury book are only an assumption and might fluctuate depending on trading activity, customer deposits and customer growth. The same holds true for yields that as of today, seem to be pointing up and potential rate hikes may not be fully reflected, but the year is long and we might also encounter interest rate cuts later in the year.

Including other operational income of €15 million from our B2B brokerage business, we expect a total revenue number of €380 million for 2023. For informational purpose, we assume the costs of goods sold to stay at a level of 17% to 19% of total revenues. Deviations here might also result based on assets under custody and thus, cost of custody as well as various exchange fees that might change.

For 2023, we guide operational expenses consisting of personnel, marketing, and general and administrative expenses in the rate on €150 million to €160 million. This includes a stricter marketing budget and structural cost savings. Through these initiatives, we will manage not only to continue to develop a solid regulatory framework, but also a cost-effective business model that delivers more sustainable results.

As a key contributor to operational cost savings, the marketing budget for 2023 is expected to be around mid-€30 million, significantly lower than 2022 where we were close to €50 million. For clarification purposes and to avoid surprises after Q1 results, we would like to highlight as usually the quarterly split of the marketing budget in 2022 is similar to 2022, i.e. 40% to up to 50% of the 2023 budget is spent and allocated in Q1 of 2023 given the seasonal high client interest at the beginning of each year to change his or her brokerage provider or to open a new brokerage account.

Also, we will, at the same time, continue to invest into areas of regulatory importance. Having said all this, we will work towards growing our margin. A key driver of margins is the number of trade, given the fact that each additional trade generates an incremental more than €4 in commission and converts into 80% bottom line margin.

We cannot control the transaction number explicitly, nevertheless, given the first two months of operational business and the operational cost focus, we are confident to deliver already in 2023 a margin step-up compared to 2022.

Based on the mentioned assumptions, for 2023, we expect an adjusted EBITDA margin of 40% plus and an adjusted profit before tax margin of 30% plus. As always, the adjustments refer only to building and releasing provisions for long-term variable employee compensation and nothing else.

Let me summarize the underlying assumptions for this year's guidance. First, trading activity cannot be controlled and depends heavily on external factors. January and February trading figures are supporting our assumptions made. We have initiated certain operational cost measures that will support the margin expansion mid-term with first effect to be seen this year.

Over the recent weeks, we have analyzed the status quo diligently and understand clearly where we need to sharpen our strategy. We have had successful 15 years. Among the leading mature online brokers, we are a pan-European player with plenty of additional potentials ahead of us.

We will continue to leverage market opportunities when they come up. However, we'll focus day to day on what we can control, solid and high-quality customer growth, as well as strong margin generation while strengthening the governance of our regulated business.

Thank you very much for your attention. We would now like to open up on the Q&A session.

[Operator]

[Operator Instructions] The first question comes from the line of Marius Fuhrberg calling from Warburg Research. Please go ahead.

[Marius Fuhrberg, Warburg Research]

Yes. Hi, everyone. Thanks for taking my question. A couple of them from my side, if I may. The first one with regards to the BaFin. The appointment of a special representative by the BaFin, should we see this more as a sign of the severity of the special order which was conducted or how should we think of what the specific role of this special representative is, and second also on the BaFin, what is your expectation on the risk mitigation for the digital margin loans and when they will be usable again or what is your schedule on this?

The second -- another question on marketing, you mentioned that you plan to have about €50 million in marketing, and looking at last year, this breaks down to a customer acquisition cost of around €106 per additional customer, whereas in previous times, this was rather in the area of around €50. So should we expect this figure to remain that high, especially for year 2023 or how do you look at it?

And lastly, just for confirmation, when you say that you're growing stronger than peers and all the figures you compare to competitors you referred to listed competitors, am I wrong -- am I right there? So this does not include probably your main competitor treasure public which is private, right?

[Frank Niehage, CEO]

Okay, Marius. Thanks for those questions. I will start and then hand over to Dr. Benon Janos. With respect to the situation of the BaFin, you have to understand the following. In the normal cost of business, after an audit 44, there will be a follow-up audit in 12 to 24 months earliest. That's the normal procedure. Due to the fact that we have a special representative audits are coming in by end of the first quarter, there is a possibility to change the imposed measures together with the BaFin earlier than waiting for the follow-up audit.

Second, the special representative auditor will observe how we have improved those findings and will obviously take samples and report it to BaFin to come then to a conclusion whether the measures will continue or can be lifted. I think that is all to your -- the second part was, what does it mean with respect to the margin loans.

So with respect to the margin loans, if the auditor and BaFin, together, comes to the conclusion that the measures can be lifted, our risk-weighted today 75% view on the margin loans of DEGIRO are no longer applicable, and we can go back to the old view where there is zero, risk-weighted assets and obviously that would free up €75 million of regulatory capital.

Benon?

[Benon Janos, CFO]

Yes. I'm happy to address the second parts of the question. On the marketing spend, you mentioned when you post your question that we plan on spending €50 million in 2023. The number for 2023 is expected to be more in the mid-€30 million range. So let's call this €35 million or €36 million, and indeed, your assumption on our targeted marketing efforts leading to a reduction in the customer acquisition cost per new customer account is right and we expect it to decline given the activities and the numbers that we have provided.

And your final question was on the comparison to competitors, my colleague, Achim Schreck, can finish the question, but I'll start off with saying, if we have properly communicated numbers from competitors and peers, we are happy to use them, but many, particularly not public companies, simply don't provide public data, which makes it hard to quantify the respective comparison.

But, Achim, please add as needed.

[Achim Schreck, Head of IR]

Yes, you're absolutely right. Obviously, in order to compare data we need to have reliable official data, that's one. The other point we would like to make clear surely is that, neo growth in Germany and outside Germany are not the one that we would consider our main peers in the market as they are aiming for a completely different customer group and we stressed for a long period of time and in the presentation now again that our focus is on high-quality customers, people with trading experience in a different profile from those peer, which we also believe that therefore justifies or rather compare with us the listed peers.

[Frank Niehage, CEO]

Next question, please.

[Operator]

The next question comes from the line of Ian White calling from Autonomous Research. Please go ahead.

[Ian White, Autonomous Research]

Hi guys, thanks for the presentation and for taking my questions. Just a couple from my side, please. Can you just talk us through progress you've made to date with regard to additional hiring? I think it was mentioned on the December update with respect to the findings of the BaFin special audit. And can you provide a sense of the total additional costs to remediate the findings of the special audit and embedded within your guidance for 2023, please. If you could provide a sense of that, that would be helpful, I think.

And then secondly, just some sensitivities around commission revenue per trade. Can you tell us what percentage of Trade in 4Q were regular investing trades and what was the average commission revenue per trade there, please, just to help us to understand how that could change if activity were to recover? Thank you.

[Benon Janos, CFO]

Yes, thanks for your questions, Ian. I would start with respect to the hiring. We've hired the new head and the new Deputy for regulatory reporting and have further added staff to that. We've also hired a new Head of internal audit and Deputy and we will add further staff. We have also appointed a person to run internal controls globally in our Group and have hired staff to that person and we've also increased the people in the compliance department.

So all-in-all the key positions have been replaced and people who were responsible in the past for those findings, which were part of the misdemeanor proceedings have left the company. So I would say, we've made great progress. The total -- add of cost, I would say, is a single-digit million figure -- mid-single-digit million figure due to those proceedings and the fine and additional cost, but from our point of view, reasonable.

That goes to the first part of your questions, I hand over to my colleagues for the other part.

[Frank Niehage, CEO]

You specifically asked for the percentage of higher revenue trades in the fourth quarter, if I understood it correctly, and that number stands at 71%, and what we do not do, we do not disclose the absolute number of higher revenue trades and the absolute value of a high revenue trade compared to a no high revenue trade. We hope that, that answers your questions.

[Ian White, Autonomous Research]

Yes. That's helpful. On the second one, I was looking for the -- I just think that the opposite side of that number is at 29% of the trade in 4Q or basically regular monthly investing trades. I understood those to be sort of charged around €1 per transaction. Have I got that right, please, in terms of thinking about then the sensitivity?

[Frank Niehage, CEO]

We don't disclose that. And it's not the wrong assumption, but depending of the number of savings plans plenty of which are at zero cost. The number also might be actually a bit lower. But we don't properly track the number and communicate the number.

[Ian White, Autonomous Research]

Okay, got it. Thank you.

[Frank Niehage, CEO]

Next question.

[Operator]

We currently have no question coming through. [Operator Instructions] The next question comes from the line of Marius Fuhrberg again calling from Warburg Research. Please go ahead.

[Marius Fuhrberg, Warburg Research]

Yes. Just one follow-up from myself. With regards to your new monthly statistics, which I highly appreciate that you report them from now on, the share of transactions that you report, the cash products and also ETF and funds, I mean, there's a gap to reach 100% of more or less 10% in the past, is it fair to assume that these 10% refer to especially ETP trade?

[Achim Schreck, Head of IR]

It's Achim speaking. Hi, Marius. No, it's not ETP trades, it's all other kinds of trades CFE, ForEx, et cetera. The ETP trades would be included in the cash product.

[Marius Fuhrberg, Warburg Research]

Okay, thank you.

[Operator]

Next question comes from the line of Christoph Blieffert calling from BNP Paribas Exane. Please go ahead.

[Christoph Blieffert, BNP Paribas Exane]

Good morning and thank you for taking my question. The first question is on pricing. We have currently seen box having implemented a monthly service fee of €3. Given that competition is increasing prices, do you have any plans to increase your pricing and to further improve monetization in the course of the year? Then secondly on deposits, your deposits per client is relatively low, what is the reason for not being more aggressive on the deposit rate and using higher deposit rates to gain new customers? And the third question is on capital. Could you remind us on your SREP requirement and on the minimum capital ratio you feel comfortable with in the future? Thank you.

[Benon Janos, CFO]

So your first question with respect to pricing and you referred to a monthly service fee. We do not plan to introduce a monthly service fee, that should be stated quite clearly and openly, however, as alluded previously, we plan on increasing, of course, the monetization and in the presentation we gave you a couple of examples.

To remind you maybe on one, we are increasing -- have raised prices for our margin loans by 1%. That is clearly much lower than what the interest rate environment has done. So, yes, we plan on -- to continue to monetize the platform, but not by the introduction of a monthly service fee.

[Frank Niehage, CEO]

Yes, I'm happy to answer your second question, Christoph. Why are we not more aggressive with respect to deposits. First of all, the clients of flatexDEGIRO are equity driven. They are not fixed income driven. They've never been. Second, we saw significant inflows last year and although interest environment has already changed and in our history, we've never paid interest as our clients use that money to trade, and as I said, rather IFR or equity driven type of clients and they are not interest-driven, and we do not plan to introduce interest on the trading deposit.

At the end of the day, as I said, clients are not Fixed Income-driven and we offer account services -- safe custody account services for free. Some of our products are without trading fees and that's part of our business model. We are not planning to change that. And although we are not planning to change that, we see a lot of new clients come in and we see a lot of cash coming in from our clients which proves our story right.

And then for the last part of your question, I hand over back to Benon.

[Benon Janos, CFO]

Your last question referred to the SREP amount which stands at 5% for the Group, and we will publish all details on that as usual in our Basel Pillar III transparency report, which will be published at the end of April.

[Christoph Blieffert, BNP Paribas Exane]

You said your absolute requirement of 5%?

[Benon Janos, CFO]

That's correct.

[Christoph Blieffert, BNP Paribas Exane]

And on the CET1 side?

[Benon Janos, CFO]

What do you mean exactly, total capital ratios or overall. Our total overall requirement at year-end 2022 stood at 15.56%.

[Christoph Blieffert, BNP Paribas Exane]

Okay, very clear. Thank you.

[Operator]

The next question comes from the line of Benjamin Kohnke calling from KBW. Please go ahead.

[Benjamin Kohnke, KBW]

Good morning, gentlemen. Thanks for taking my question as well. Just a follow-up from the previous speaker. Around -- generally around price increases and Benon, it sounded like in your presentation that you're rather looking at potential price hikes rather than winning additional customers by price cuts for example. So it seems like you had good experience by raising handling fees at DEGIRO, for example, obviously, the introduction of FX fee. Any plans to further adjust upwards the pricing in your underlying product offering. I guess that would be my first question.

And the second, a bit, it's difficult to grasp or rather intangible when you elaborate or when you allude to product innovation or further improving your product offering in rather commoditized market, I guess, but if you could maybe give some sort of, I don't know, sneak preview some more, elaborate a little further what you maybe potentially thinking about when you talk about further product -- innovation product adjustments and maybe lastly, potentially around that as well. Maybe a quick update on partnerships and I guess the robo is the one that's most advanced. I mean, maybe if you want to a word on crypto as well and arguably -- still crypto winter, but just generally want to get an understanding how partnerships work on your platform. If you see a good uptake or an uptake as expected from your client base. And if there are plans to further add partners going forward? Thank you.

[Frank Niehage, CEO]

Yes, maybe I'll start with your rather intangible question. We've started the friends and family phase for the robo-advice. This is on plan. With respect to crypto, we are not in a hurry due to crypto winter times, let's call it this way. With respect to further product innovation, we want to offer in our core markets and growth markets, the possibility to trade ETB products, and we've started that and there's more to come.

But obviously, we like to report once we have all the facts together and are introducing it and not before. In the meantime, we strongly focus on our internal 44 improvement of the identified findings and we are working hard on resolving the identified issues with respect to the margin loans of DEGIRO in order to free up the regulatory capital. That is our focus and we stay focused and we like to report once that has been resolved and after the effect.

I hand over to Benon.

[Benon Janos, CFO]

Yes. I will address the first part of your question with respect to price hikes and managing the platform. You mentioned that we sort of don't plan to attract new clients. But that's, of course, not quite the case, we still plan on growing and new clients will continue to add on to our existing business and revenues.

On price hikes, we do not plan to have revolutionary things such as the introduction of a service fee, as I excluded that already before, but it will be an evolutionary shift allowing to participate from the general trends from the inflation environment that we have and the general tendency to increase prices.

And I'm happy to give you one example. You also asked about product innovation. Our exchange-traded product business at DEGIRO is in the process of being imported into other geographies. And we are currently rolling out that product.

So whereas in the past, clients in X countries can benefit from those transactions, coming this year, we will add a few more countries such as, for example, Italy, to be included in that. So having 16 countries and a broad shelf of products allows us to position them as needed and as demanded by the local customer base.

[Benjamin Kohnke, KBW]

Great, thank you very much.

[Operator]

And the last question comes from the line of Mengxian Sun calling from Deutsche Bank. Please go ahead.

[Mengxian Sun, Deutsche Bank]

Hi, thank you very much for taking my questions. So most of the questions have been answered, so just one last question on the business expansion in terms of geographic expansion. So you mentioned that you accept -- from Norway. And can you tell us what's your focus for the next year? And I'm trying to understand whether there is any other off-boarding activities is going to happen next year? Thank you.

[Frank Niehage, CEO]

Yes, thanks for your question. We are not planning to offboard any other markets. We want to focus on the 16 markets. Norway and Hungary both have different currencies in euro. Obviously, we like to simplify, but the main reason was that we didn't win a lot of clients in those countries, especially compared to our other 16 markets. So in order to focus and simplify it we offboarded and it was a small number of clients in those countries. Achim, you have the number.

[Achim Schreck, Head of IR]

6,000 in both countries combined.

[Frank Niehage, CEO]

Yes. 6,000 in both countries combined. So that was not really much. And keep in mind, when we bought DEGIRO, Hungary and Norway we're already in. So over the last couple of years, not much happened over there. So therefore, we focused on the remaining 16 countries and no plans to change that for the time being.

[Mengxian Sun, Deutsche Bank]

Okay, thank you very much.

[Operator]

There are no further questions. So I will hand you back to your host to conclude today's conference.

[Frank Niehage, CEO]

Yes, thank you all for taking the time and thank you very much and we wish you all a good day. Bye-bye.

[Operator]

Thank you for joining today's call. You may now disconnect.