Good morning. Good, good morning, and welcome to our 2023 half year result presentation. I'm also very happy to see many participants, and seems that today we will have a record attendance of our result webinars. As always, we are conducting those webinars in English to ensure transparency towards all our existing customers, comparable, sorry, and investors, and also to be able to address as wide as possible potential investor base. For practical reasons, we are not repeating. So far, we have not repeated or duplicated those webinars in Latvian. However, if there is a very strong interest and very strong demand from our Latvian-speaking investors, we are, we are open to reconsider this practice.
If you believe strongly that Latvian webinar is absolutely necessary, please let us know. As I said, we, we, we are ready to reconsider, and probably we can come back to this issue during our Q&A session. While, while I've used this slide, or similar slides many times before, I still believe it is important to reiterate our origin and our mission. Indexo was launched more than six years ago in response to very high fees and low returns in Latvian managing Latvian pension savings, Latvian pension saving market. We entered the market by designing and offering a 2nd pillar product, which we ourselves were happy to use. We designed the product, keeping our own needs in mind.
This customer-centric approach has enabled us to become the fastest growing asset manager, pension manager in Latvia today. That, the same customer-centric approach also enabled us to design and launch two years later also innovative 3rd pillar product. One year ago, last year in July, we also successfully completed IPO to make our next big step in our development, and we raised almost EUR 7.5 million for our bank development project. We have been working on that project already for one year, or actually more, more, more than that. Yeah, the defining... Yeah, and also the entering the banking market, there can't be a better timing than than it is today.
It's not only because of the high fees and high profits of the banking sector, but also because the banking landscape very much reminds what we saw in pension management business six, seven years ago. We see low competition, high fees, high interest rates, and I would say that the banks has left a lot of open territory for us to, to enter, enter also that market. Defining term that describes our development, our journey so far, is growth. We have impressive growth track record, and our growth also continues, and you'll see that during during our presentation today. Now I would like to invite my colleague, Henrik, to take over and present some of the key achievements during first six months of this year.
Thank you, Valdis. Yes, happy to participate in this investor webinar, and thanks for everybody who has joined us. I mean, as Valdis already said, growth is the most important, most probably the characteristic of our company. As a result of fast growth, our assets under management have grown significantly this year to EUR 753 million as of end of June 2023. Our total number of customers has increased to 113,300 . Our commission income has grown to EUR 1.4 million for six months. Over the last 12 months, we have added 26,300 customers.
That's basically over 2,000 customers a month, which makes it on average, nets over 500 customers a week. You can actually make it the calculation to every hour, how many customers are joining us, but it's a constant and steady process. The asset management growth rate is 56%. We are very happy about that. We will show you later on how does that or what does that comprise of, how that growth is generated. Our revenue has grown 33% in that time. I mean, that, that's a very solid result as well. We're happy with this result. Here is just a sort of like a key metrics of looking back, let's say, what is our track record over five years?
When our launch year was 2017. I think the date was 3rd of July. Like, after 1st year of operations, we had 5,871 customers and EUR 43 million assets under management with a revenue of EUR 117,000. By that, by today, you can see really what has happened during five years in a company. I think every, any company would be very happy with these results. Here is also like a breakdown of our journey, just to give you a feeling of how our, our growth basically has evolved over time.
As you can see, last two years are, are really like where we have made like huge strides into to winning more market share. We expect that to continue. Obviously also, let's say if 2022 assets under management growth was a little bit hampered by, by the drops in the, in the, in the indexes, then this year, because of certain recovery, we are on a very good track on, on assets under management growth, and that also drives our revenue. Here we just wanted to show you really what is the difference between between us and, and the competition. Our growth exceeds next competitor growth by over 4 x.
Actually, we, we basically take most of the growth in the market. Some of the, some of the, our smaller competitors are growing because of the automatic allocation of customers into the pension funds, which happens in case the, the, customer does not make an active choice, and then they will actually be allocated automatically to a, a, fund. We obviously get a similar customer flow coming in for ourselves as well. Now, what is really interesting, I think, for me is, is the fact that we are already in the second place, in terms of really adding also asset under management.
Like, you know, the growth of the money that we manage, we have overtaken basically all but one customer, and we hope that will also, actually, we will overtake that co-competitor, we will overtake that competitor in the, in the nearest future in terms of actually also assets under management growth.
Our customer retention figure has slightly worsened since a year ago, but that is a normal, normal part of the process when we onboard a lot of customers, although we do a good explanation job, why actually Indexo is a, is a, is a good product for most of the savers in the 2nd pillar pension, we are, then there are customers who, you know, go to a bank and, and apply for a mortgage or whatever, and they, they actually get persuaded by, by one of the larger banks to leave us and join their investment funds or pension funds. Here we also have the market share as, as we are today.
I think as of June 30, our market share was 11.6%. In actually, at, on the 28th of July, we overtook Citadele as the third largest pension fund manager in Latvia. It is sort of a little bit that position is developing according to the to the customer acquisition and, and also a certain effect the also the market has on it. There may be days where we are still kind of lagging behind Citadele, but it's basically a foregone conclusion that we are actually going to solidify that position, and we will be the third largest asset manager in Latvia at the end of this year, and then trying to catch up with SEB.
Given that we only have 11.6% market share, we also see, like, a great potential still, to grow that. Our long-term plan is to grow that market share to 20%, and, also to give you a perspective, and, then actually our client-based market share is today over 8%. We also have a, you know, a vast number of customers who have not really joined, you know, still joined us, and, and hopefully they will. This is go- this is an interesting slide for us. We always promote it. It basically gives you a better understanding of, of how our co- what our growth comprises of. You can see that over the last 12 months, we got EUR 77 million, in from, monthly contributions from social tax.
161 million inflows came from new clients joining us. The churn effect on our assets under management was EUR 35 million, and the market returns were EUR 57 million. By no means is our fast growth only attributed to the market having a sort of a good rebound. It's a very wide, broad, like three pillars of growth that drive our business going forward. We are constantly measuring our, our tax, tax-based contribution inflows because this is the growth that comes for us for free, the same way as a market returns growth. We don't have to invest into it.
It's, it's an automatic, automatic increase, and we are glad to say that this keeps growing and on a monthly basis, our run rate figure is soon approaching EUR 100 million in the second pillar. And this has also shown like, this, this month, these monthly contributions, which have grown 55% for us, are then driven by a larger customer number and also the, the income growth in Latvia, which has been substantial over the last 12 months. The, the income in Latvia has grown, the average salary in Latvia has grown by, by, I think it was 12%. And our third pillar is a very important long-term product for us. We are, we are working hard to, to improve it.
Our customer number has been growing steadily and also the assets under management, what you can see. Basically, the biggest sort of like task for us is to make those people that join us contribute regularly and contribute a, a, a, you know, significant % of their income so that they would achieve a desirable retirement outcome. We are glad to, to see that over the last year, or 12 months, basically, the, the clients with regular contribution, the proportion of clients with regular contributions has increased. That means that people are putting money aside for their, for their retirement days.
We are working to, to increase that number and also then to, to help people to realize that, you know, once their income is growing, they should also regularly increase those payments into their, into their third pillar account. With the, with the bank product project, we are implementing a new CRM system, a client relationship management system, which will allow us to do a much, much better job in terms of engaging with our customers, understanding what sort of a messages each customer group needs, and help them to nudge towards a better, better, let's say, saving rate.
Hereby, I would hand over the word again to, to Valdis, who could then continue talking about the financials a little bit, and then also about the bank project.
Thank you, Henrik. So what, what does it mean for, for our profit and loss result? As Henrik mentioned, we have increased our revenue substantially, so have increased also our operating income before customer acquisition in first six months of the year to EUR 830,000. Rapidly growing customer base has incurred means also large customer acquisition costs, but we are not worried about that. That doesn't scare us. Quite on contrary, we are very happy to acquire as many customers as possible because we are acquiring them for a cost substantially below lifetime customer value. The thing is that, however, that the most of the customer acquisition costs we need to report upfront at the moment of acquiring customer.
However, revenue from each of acquired customers we receive over a period of several, several years. Our result of the, this big investment in customer acquisition, our net result, pension management operating result, is slightly negative, EUR 155,000. We also, on a group level, we continue to invest substantially in our bank project. Actually, the total investment this year has been close to EUR 2 million, EUR 1.9 million. Part of those those investments are capitalized and own-amortized over several, several years. In P&L statement, you see, you see this EUR 1 million investment in a bank project. We have also rather substantial expenses related to personnel option schemes.
However, this is non-cash item, and it doesn't affect our equity position or balance sheet. It's just reflected here in our P&L statement, as required by international accounting standards. That all gives net result, negative net result, EUR 1.4 million. Then again, I remind that it's mainly due to investments in customer acquisition, what we are very happy about, that we have managed to achieve so many customers, and also in a very promising and important bank development project. For utmost transparency, I'd like also to re-emphasize that not all our customer acquisition costs are reflected immediately in our P&L statement.
A large part is EUR 1 million, as, as, as I showed, but then, there is EUR 300,000, which are capitalized and amortized over a period of five, five years. I noticed that many of the pre-submitted questions are somehow related to timeline of launching our, launching the bank, or opening the first account. On a second, second factor is a bank licensing, licensing process.
We are, we are working towards the goal to be technically ready to first to serve the first customers by the end of this year. However, to be able to do that, we need to receive a license a couple of months before. As we have reported before, we are in active dialogue with Bank of Latvia and indirectly also with the European Central Bank. We submitted initial application already in December. We believe we are making good progress, unfortunately, it's impossible to predict exactly exact date when that process will be completed.
Also we have to take into account that this is the first time such project in Latvia, because the previous bank license in Latvia was granted more than 10 years ago. This is the first case after Latvia is a Eurozone member, and ECB is involved in this process. Nevertheless, as I mentioned, we are going full speed with to be technically ready, ready to serve our customers by the end of the year. We, we are investing this have invested this year almost EUR 2 million. As Henrik mentioned, we are actually taking into production environment already our CRM system.
Most of other systems are still in a different test environment, but CRM we are taking already in use to serve our pension management customers. Based on, on your customer feedback, we are also almost ready with all our card products, card designs, and different other product features. Very central part of our offering, at least initially, will be our mobile app, mobile application. We are developing fully native mobile application, which will be something new and fresh and unseen in Latvian Latvian banking market, and we are making very, very good good progress with that. Naturally, we, we, we have to allocate resources.
Currently, there is around 20 people full-time dedicated to the bank project, and that is excluding all our external advisors and assistants and IT developers who help us in that process. Go ahead. As I said, we are working towards our goal to be technically ready. We are designing, we're designing our banking banking services, regularly seeking feedback from our shareholders, customers, and so on. We are always impressed with really high response rates. Usually, within hours, we get thousands of responses, putting in whatever we ask certain questions.
We have received the feedback on, on card product features, on card design, on app design, and many, many other things. This doesn't only to help us to design the products, but it also yields a very positive customer feedback. Because people really appreciate that we care about their opinion, and we take their opinion into account, designing our products. That also indicates, and also questions asked today and those response rates indicates that we have several thousand of people, potential customers, eagerly waiting once they will become available.
Of course, as I, as I mentioned, this is thank to the technical readiness, but we, we need to complete also the licensing process, which is mostly in hands of Bank of Latvia and the European Central Bank. That's that is it, what we wanted to, to present in a presentation and also in, in a report we published today. There is more detailed information available about our profit and loss, balance sheet, cash flow, et cetera. If you have any questions related to the financials or any other topic, we are happy to answer those questions now.
Thank you for the presentation. Let's continue with the Q&A session now. If any of, any of you would like to join the discussion, please type your question in the Q&A section that you see underneath the screen. A side note before we start, considering the many questions that we have received prior the call, and given the time limit, we will do our best to address as many questions as possible. Nevertheless, if any additional questions arise, feel free to approach Indexo directly. The first question coming from many participants is regarding the progress of the development of the bank. When will the bank start to operate?
Mm-hmm. Yeah, thank you. I tried to address it already during the presentation. As I said, it depends on, on two key factors, is our technical readiness and, the, the licensing process. The technical readiness, we are working on making progress to be able to be ready to open first account and start serving private individuals by the end of the year. But the prerequisite is that we need to complete the licensing process couple of, couple of years, a couple of months before. And that is difficult. We're making progress, and each day we are getting closer, but it's very difficult to predict exact date when that process will be completed.
Representatives of Indexo have previously mentioned that lending is not sufficiently active in Latvia. Are there any specific changes that Indexo would like to introduce in the credit sector in Latvia, particularly in regards to the issuance of mortgage loans to individuals?
Yeah. I think one, one of the factors that encourages us or encouraged us to think about this bank entering the banking market is, is a lack of competition, and lack of competition is, is, is the best characterized by very passive lending in Latvia. Latvia is in a, in a last position, almost, excluding Ireland, in the Eurozone, if you look at the loans to GDP ratio, and that also goes to, to the mortgages. Of course, people from the banking sector sometimes try to, try to explain it by, by lack of demand or other factors, but this is, this is also definitely sup- supply side problem. We, we have very, very little innovations in a, in a, in a mortgage market as well.
We don't want to reveal all the our secrets. When we launch the bank, we will tell in details about the innovations and what we want to offer. I think there is a room for fixed rate mortgages. There is room for floating maturity mortgages and many other things which we are looking at, and I will try to explore and differentiate our offer from what is available currently in the market.
Thank you. Does Indexo plan to create savings products for children, life insurance, products for investing in stock markets, ETFs?
Yeah, I, I would take that one. Definitely, I mean, saving is an important part of our, let's say, mentality of how we started our company. Great saving products, you know, give confidence to con-- to, to our customers, give better outcome for, for future. Saving is something that we, we actively think about. Our initial, let's say, product again, while not sort of, that much talking about, you know, exact terms or what we do, what we will definitely do in the first case is, at the launch, we will have a possibility to create different saving accounts with different goals under the same sort of umbrella, one account.
We will of course look at the market situation at the at the moment when we launch our INDEXO Bank to see what are the sort of exact pricing of those saving products so if to to attract customers, because obviously customer funding is also very important for us to start lending, which is an important goal in itself. When it comes to the the product lineup in terms of savings, ETFs, you know, investment accounts, and so on, so forth, we definitely want to go into that area. We, we have had, like, several discussions with already technology partners, but at the at the time when we have so much to to prepare for the initial launch, it's not going to be the first iteration product offering.
So we are actively actively putting our effort into selecting partners and putting that into our product line of development plan. ETFs, for example, and trading is not going to be, let's say, the first version product that we will launch once we will get the license. Don't worry, we are thinking about it very actively, and we would like to move on with it as soon as possible.
Thank you. Will INDEXO Bank also be intended for businesses? If yes, what will be the directions in which Indexo, with its services, will try to approach the good examples of global players?
Yeah. Yes, as another question we sometimes hear, what, what will be the niche or, of Indexo Bank, et cetera? Here, I would like to re-emphasize that three, four years from now, Indexo Bank should be perceived and will be fully like universal bank, where almost any customer, be private individual or legal entity, can get all the, all the relevant, all, all traditional banking banking services. However, that, that will not from, be the case from the day one. We all, the first step will be only bank for private private individuals. But then, very soon after that, six-18 months, within that period, definitely we'll launch-...
services also for legal, legal entities, which in the beginning will be more tuned towards SMEs, small and medium companies, but we'll, we'll growing our capital, improving our IT systems. We will also expand the services to all sort of corporate, corporate customers. Yeah, there is as, as with the private individuals also, when we talk about the, the corporate customers, there are a lot of, there is lack of competition and lack of innovation, so there is a lot of, lot of things can be... which can be borrowed and copied from the markets, other markets and, and brought to, brought to Latvia. Then again, I don't want to start like boxing shadows right now.
Yeah, we will talk about that closer when we'll be in details when we'll be launching those services.
Mm-hmm. Will you be also organizing webinars in Latvian?
Yeah, thank, thank you. As, as I mentioned, That's a good question. As I said, we, we, we, we absolutely need a webinar in English to, to because we have English-speaking or non, non-Latvian speaking existing shareholders. Also we would like to be open for as, as the widest possible potential investor range or base. We'll, we'll definitely continue with English, but if there is a strong demand, we can, we can consider also launching a Latvian version. I'd like use this opportunity then to maybe run a quick, quick poll from existing participants. Please, please answer, give answer to one of those three, three questions.
As, as Indexo held, please, please also keep in mind that probably duplicating and running two, two seminars, that will be certain certain costs and certain time commitment also from from the company. If there is a demand, we, we, we can do that. Maybe, Henrik, you can have something to add?
No, I, I, I don't. I mean, in a way, it's, we are happy, happy to abide with, with what our shareholders, of course, expect from us. I think the reiteration is that, or what you said, initially, is that of course, bank needs capital, and bank development needs capital. Our, our, let's say, guiding, thinking has been to, to keep ourselves as open as possible for, for people who want to invest in Latvia. Yeah?
Yeah. Thank you. Thank you, for everybody who, who, who, answered, answered that, question.
Mm-hmm.
rather filled the, filled the, the.
Questionnaire
questionnaire, yeah.
The next question that we have received is regarding the custodian bank. Will the custodian bank of pension funds be changed after the creation of INDEXO Bank?
Yeah, that, that, that is the plan, and the custody business is also, custody fees is actually also a good indicator of a very limited competition. Probably we are paying one of the highest custody fees in the world, for, for our 2nd and 3rd pillar, pillar products. We know that, in most of the European countries, and even, even in Estonia and Lithuania, custody fees are considerably, lower. Yeah, that, that is the plan, and I, I think, we will let also our pension savers, benefit from, from, reduced, costs. It, it will not be only top cost saving for us, but we'll share that, that also with our pension saving customers.
From a shareholder point of view, the, the, the, the benefit of custody income, of course, is that it is growing stable income that does not require capital. Whereas, let's say most of lending that you do, you know, the interest income eats also your capital. To grow the loan book, you need to need to apply, you know, capital adequacy measures and so on, so forth, and you need to add capital. Whereas custody is a very low capital need business.
When will the price of one share hit EUR 1 million?
Yeah, no, I, I, I think hopefully very soon. In, in, let's say in, in honesty, we, we try not to think too much about the share price fluctuations as a driver or what we do. We want to really build shareholder value. Shareholder value best, best built is by focusing on the long term. Our long-term goals is to, to basically grow our market share in five years in the pension business to 20%. In banking business, in five years, achieve 5+% of the total banking market in Latvia, and I think that's a very conservative, conservative estimate in our own view, but that's basically what we put into our business plan.
That will definitely mean that whatever is the valuation today of Indexo as a business, will grow significantly over time. Really, the, the, the, the, the finance business is a, is a, is a very difficult regulated business. You know, that regulation and also sets a kind of a moat.
... around your business, not everybody can enter it, and that's also has kind of allowed some of our competitors to really build their oligopolistic market behavior. The nice thing about finance business, it, it grows together with the nominal sort of economic growth. There is, as the economy grows and as people's wealth grows, there is a bigger and bigger demand for those financial services. We are, we are really thinking in long-term, long-term about developing our group. Also that's how we design our, our product launches and everything. We, we have a pretty good understanding of what we're going to be doing over the next two, three years, at least, to, to grow our shareholder value.
Thank you. Let's have a sneak peek in the future. Let's say the next five - 15 years, what is the goal and how will you achieve the Indexo goal?
Yeah, it, I, I, and we'll need to re-reiterate maybe a little bit what Henrik said, already said. Fifteen years, it's, it's very difficult to, to, to imagine. It's a very, very long time, but, but we believe Indexo will be around as a, as a regional financial powerhouse. But, five years, again, strengthening our pension or asset management position, and asset management, pension management business is, is, we believe will, will, will grow, and there is a objective need for that. Even whatever political speculations flies around, this country needs more pension savings, and, and the politicians can, can help that process or make that process more chaotic, but, but can't, can't stop this objective, objective need for more pension savings.
If we compare ourselves to, to most of the developed, developed countries, then we are lagging behind substantially relative to GDP of our pension savings. I think in Latvia, it, well, it is around 8% of the GDP than in OECD countries on average, that is 100% of GDP when we talk about the total, total pension savings. The pension savings, be it the 2nd, 3rd pillar or some other products, that market will grow, and we will play a substantial, a substantial part in that. That, that alone will, will, will drive and positively impact in Indexo valuation.
The bank business is a much bigger, bigger territory, much bigger business and capturing just 5+% market share in five years will be very, very exciting and will be a huge driver of Indexo value. Not only that, that will also have a positive, let's say, social aspect on Latvian economy as a whole, because same happened also with a pension, pension business. When we entered the market, the competition was awakened, and all of a sudden, everybody started to get a slightly better deals. There were some fees lowered, some product innovations, et cetera.
Us attacking the market and just capturing maybe 5%, 6%, 7% of, of the market, will, will, definitely, force also our competitors to be more agile, more flexible, more, more customer friendly.
What could be the biggest hurdles for positive growth in the next five years?
It's, yeah, it's a, it's a very, very big question, and, and we need also, as a public company, very careful not to forget to mention something. I think, it was well described and disclosed in our IPO prospectus a year ago. Probably, all, all the, all the same factors are, are, are valid. Of course, nowadays, what comes into mind is, is a macroeconomical development of the country, geopolitical developments. Those would be the, the, the, the first, first factors. Henrik, do you have some?
Yeah, no, I think also, like, let's not. I mean, there's regulation is a very, very important part of all business, be it pension funds or be it banks. Obviously, a sort of a general, sensible regulatory environment is extremely important for Indexo development. Again, like, you know, the banking business is lic- is regulated by the European banks, the banking authorities. I think that's a sort of quite a stable environment where to develop, and but yeah, there are risks on the way.
I think like sort of, the, the, the really the advantage of, how would you put it, like in a, in this sort of a David and Goliath type of competition, where a young entrant, so a young and small entrant, comes to any market, is that, that, you know, we are, we are very focused. We have a clear understanding what we want to do, and, and, that's, that's how we, we, hope to, you know, make sure that our growth, goes according to plan.
What is Indexo's take on the recession predictions in 2024?
You know, we don't try to do macro, macro forecasts as a part of our business today. I mean, when we do stress tests in the future bank, when we get the banking license, if we get the banking license, obviously, then then there is a sort of a stress a stress test, but they will be driven by, by certain macro assumptions. But my own kind of professional investment history, like having been in the the field of 25 + years in in in reading different type of research and it is it is an unthankful job to try to predict what is going to happen in the macro environment in in a, you know, beyond six months.
There is so many unpredictable things that could happen, I mean, both positive and negative. I think, like, what our task is to make sure that we are well, kind of, prepared for any sort of changes. We're well capitalized, and we have a good run rate of capital to deploy for our growth so that we, we are not hampered or, like, held back by, by any sort of changes in the macro environment. Just to give you an example, let's say when we, when we decided to become a bank, that was like somewhere in the summer of 2021, when we had a, a roundtable with our shareholders, and we decided that's a strategic development that we will put on, on track.
Nobody would have guessed that the interest in the environment is going to change to what it is. I mean, there are negative and positive sides to it. From a negative side, obviously, there are customers who have to pay more for the mortgages. In case of Latvia, again, the, the average salary and then some support has mitigated somewhat that cost. You know, the war happened in that time, in Ukraine, so, you know, another sort of a thing that could have had, like, a very bad effect on the overall economic environment.
Then if you look at the banking business as a whole, regardless of whatever has been this adverse selection or, like, what people would have perceived as extremely bad scenario development, the banks are making a bumper historic profit this year in Latvia. Actually, the interest rate environment change that has taken place is extremely good for starting a banking business. This sort of a, like, let's say, slightly difficult situation is also great for building a loan book, where, where, you know, there is no exuberance that everybody's fighting for every last customer, but you can actually pick and choose your, your, your customers.
Yeah, fully agree. I think there has been recessions and periods of expansion before, and there will be in the future, but the medium to long-term Latvian economy will grow. We believe in that. And also, in a way, if there would be a slight recession in 2024, that would be very selfishly looking from, from our perspective, that would be probably a good time to launch the bank for the reasons Henrik mentioned.
Thank you. Could you tell us about the profits of the company, the market returns compared to competitors, and the expectations for the next year?
Yeah. Market returns, if you speak, if that is concerning our pension saving products, yes, we are very proud that what we, what we suggested or what we predicted, when we, when we launched Indexo, that the passive passive model indexing index tracking model will beat the returns of our competitors. We have, there is a full evidence of that. We have fulfilled that promise. If you, if you would take one...
We have three products, of course, their performance is different, but if you take like an average euro trusted to Indexo to manage, and you would compare to average euro what our competitors have managed, we are by far giving the best returns. Comparable returns are also produced by competitor index products, not actively managed, but exactly index products, which I would like to remind everybody that when we launched that product, all including the ones who are copying us right now, they said, "How bad idea is a passive product, an index product, and how wrong is Indexo," et cetera. We have by far the best long-term returns to our pension saving customers.
Yeah, Henrik.
Yes, I wanted to add just also that, that, of course, there is also index product is a very wide umbrella that can fit a lot of different things. There, there is also within, in the realm of index, index products, which is still a very small part of the market, and we, we see a lot of growth potential also because of that. The adoption, although it has been active, still there is a lot of room for, for people to actually, you know, join the index funds rather than than letting their assets be managed actively. The index product is a wide umbrella. There are, like, sort of a, you know, differences between those products, which, which, mean that in the short term, these products do not always correlate in the performance.
We are focusing on the long-term, long-term outcome and measure ourselves to our competition on a long-term basis, and we will be doing very well.
There, there was a first part of the question, which I-
Ieva, could you repeat please?
The profits of the company, the market returns compared to competitors, and expectations for the next year.
Yeah, the, the profits of the company are, I think we are in a, still in a, in a growth phase. As, as you see, we are, we are, we are, net profit-wise, we are, we are, losing money, but this is because of the two huge investments: customer acquisition and the bank, bank development. When it comes to, it comes to actually the, the pension management business, with the volumes, we are achieving right now, EUR 800 million, EUR 900 million, we will be, comfortably, positive result also after, after, customer acquisition. Still, the, the investments in the bank business will continue, and of course, the first years, after launching the bank, will, will most likely, not be, not be profitable.
Long, long term, this is a very, very promising. Medium to long term, this is a very promising investment, especially taking into account high interest rates and then the profits of banking groups in Baltic countries and Latvia, including Latvia.
Yeah, we, we are still investing into growth because we believe that that's the best way to also grow shareholder value.
Thank you. Regarding customer acquisition costs and mismatch of revenue and cost recognition timing, do you have a customer lifetime value versus acquisition costs or other KPIs that you track?
Yeah, go ahead.
Yeah, no, absolutely. We, we, we constantly measure the customer acquisition costs versus the lifetime customer value. We, we, we adjust those models on a regular basis to make sure that we are deploying our capital in a meaningful way. What comes to other KPIs, we are constantly measuring, you know, like efficiency of our sales channels. I mean, obviously, that sort of also reflects in the cost, but, but we are, we are making sure that, that, our sales teams are, you know, working according to certain, certain, results goals.
We also invest quite a bit of money into, into quality control because we believe that that's a sort of a long-term, a very important part of, of our customer journey and, and also onboarding, so they know, like, why they join us. As I said, mentioned before, in the 3rd pillar, we are actually, as a KPI, we are measuring, let's say, the regularity of our customer savings, and we have, like, certain action plans of how we, we want to improve, both the regularity and also the, the, the payments. Yeah, we, we are sort of tracking a multitude of, of different KPIs to, to run our operations well and efficiently.
If I think about the customer acquisition costs, then then yes, it has sort of like grown, like most probably more or less broadly in line with, or lower actually the last year than than the inflation.
Also, because of the market returns and because of the sort of social contributions, our customer value, the lifetime customer value or, model that we, let's say, started with five years ago, and then what we kind of, think is the model now and looking forward, has definitely also improved significantly because of multitude of factors of the income level growth that nobody foresaw that is going to be so, so huge over the last five years. Obviously now the base is much higher. You know, other factors that we put into the lifetime as well.
We are measuring it, constantly, and, and that's what we consider a very important part of our business.
Yeah, and we have a very, very exact models. It's relatively simple. There is average assets under management, monthly contributions, churn, market returns, income growth. Basically, those are the factors you need to take into account, and you get a very, very exact figure for that. It's daily, daily conversation. If not daily, at least weekly around that. It's very, very closely monitored by us.
Where the pension money managed by Indexo will be invested?
We continue investing, on in a wide, wide, let's say, you know, sense, or general sense, the same way as we started. We have a, market index, which is, developed markets equity indexes. It means that predominantly the money goes into S&P 500. That's the biggest single, object. But let's say I wouldn't focus that much on the fact that it is U.S., or S&P 500, because actually, like, you know, if you think about the S&P 500, this is truly global equity portfolio, Apple, Microsoft, you know, companies that operate globally. But for whatever reason, they have mostly decided to list in the U.S. Having that weight, is great for, for really trying to capture most of the business growth that happens around the world.
And a difference to our initial strategy that we were debating long in our own investment committee and in the board and council, was the inclusion of Latvian investment into our portfolio. We decided that because of our growth, where most probably spring next year, we will already be like a, you know, billion euro asset manager. We wanted to show also certain commitment to the Latvian market. We looked around and were thinking about what were the best ideas where we could deploy this investment to also create something new.
We decided to, to seed or start a real estate fund, which would be low costs, and which we want to make also open to retail investors over time when it sort of scales. We are doing that in a partnership. So 5% of our, our pension money will go there. You can also in the management letter, there is. This time around, there's a first time a section describing that activity, and we'll be reporting how that grows over time. We are actually excited about the development. It's, we are.
The assets under management in that particular fund are growing significantly, so there are other investors apart from Indexo as well there to make it more marketplace.
Mm-hmm. Thank you. Continuing on the same pension funds topic, what is the minimum investment amount?
There is no minimum investment account amount when you open a 3rd pillar pension fund product or plan with us. 2nd pillar, obviously, is the social contributions, the salary that is put aside automatically by VSAA. All you have to do is basically transfer the your funds to Indexo, through Latvia or any other other other means that you would, you can do that. In case of 3rd pillar, really, the most important thing is to start saving. Put aside what you can do. Remember to increase that amount as the salary grows, and the really the the the biggest biggest advice or best advice that can be given to anyone is start saving early and do it regularly.
That will lead you to have significant savings by the time when a person retires.
The question that seems relevant to everyone at the moment is the application of the EURIBOR rates to mortgage loans. What is Indexo's position on this matter, and will there be an offer that could potentially change the desire of existing borrowers to refinance to Indexo or perhaps create new credit obligations?
No, I think, this, even we have criticized the banks a lot. I think, applying EURIBOR as a base rate or a floating rate, mortgages or loans in general, this is a common, worldwide, practice, and there isn't, there is nothing wrong with that. At the same time, yes, as I said, the fixed rate or mortgages is very, very little or actually nonexistent in Latvia. There is a room to innovate on that. Also, I think, yeah, the refinancing, mortgage refinancing market has been rather passive.
I think we'll, we'll, we'll try to play our role in, in that, especially for a, for a customer who has borrowed, 10 years ago, paid down half of the mortgage, Definitely, margin can, can and should go down, and, and, and we should be probably able to offer, offer better, better terms.
Looking at the profits of Latvian banks, are there any plans in future to pay out any dividends to shareholders?
Well, I think, like, sort of, from a, from a financial, projection side, then to reach that goal, which we have to, to get to 5+% of the market share, let's say, in, in five years, we need the capital that, that we get from the profits to grow that, that banking operations. I think, like, sort of, so the, the brutally honest answer is that most probably in the coming years, we will reinvest almost everything that we earn, into, developing our business, because we think that that is a, the, the best way to grow, grow shareholder wealth.
We also think that the, the, you know, the rates of returns that we get are far better than, let's say, the many of the alternatives. Obviously, if you are an investor in a single entity, your risk is higher than having a wide index investment, so that always any investor needs to bear that in mind. We believe that there is, we are able to provide returns through reinvestment that beat the market as average index.
Do you plan to collaborate with fintech companies when offering the new services?
Absolutely. I, I think, like, you know, the whole development of a bank nowadays compared to what it was 10, 15 years ago. The availability of different API service providers that help you to plug and play, basically, a service at a simpler, with a simpler process for yourself and, and, and also limiting the, the, you know, need for, for personnel is a way we, we, we grow, and we, we want to grow. So almost every service that we are providing is driven by a kind of a micro solution or an app or a API and the provider behind it.
There is going to be very little that we are actually building or doing in-house to provide, you know, services. We provide the architecture, logic, customer product definitions and support, but get a lot of services provided by outside partners.
If there is any representatives from a fintech world, and if you believe there is a any potential for cooperation, please reach out to us, we will be glad to discuss any cooperation opportunities. I'm not promising that, of course, that every, every single idea will be, will be implemented and will suit our needs, but we're having those conversations, and the more we have them, the better choices we can, we can make. We are really open and happy to discuss any, any cooperation possibilities.
Will there be a chance to make re-crediting from another bank to Indexo?
Yeah, absolutely. Absolutely. I think we'll, we'll, we'll, we'll, we'll try to do that. I think that especially in the mortgages, that there is a, there is a rural mortgage with, with maybe, some, equity lease release component or, or half paid down mortgage, where we can offer a, a, a lower margin, et cetera. I think we'll do that. However, we will, we will need to discuss also with, with, regulators and state institutions, because in our opinion, when it comes to, lending towards the private individuals, there is, there is unreasonably, strict, restrictions on, promoting or advertising those, those products. We, we, we understand the reasons how those restrictions were implemented.
It was kind of in response to the payday lenders, extremely high interest rates, et cetera, so that the consumers are not tempted in, in, in, into that sector. When it comes to, for instance, refinancing your mortgage at a better terms, I think it's, it's a beneficial for economy and is beneficial for consumers. That products should be allowed to advertise freely.
Are there any comments in regards to the future new competitors, for example, Vairo or other new pension managing operators? What could be their impact in future business growth for Indexo?
We, we, we've, we've said that, we, we, we always preached for competition. That's our religion. We basically said that, there was not enough competition in a, in a pension management business. So, we created and, and we say, say the same thing about the, the banking, and we, we intend to do the same thing, same in the banking. So, we, we, we are born to compete. I mean, we, we are, we are competing. We are, we are tough guys to compete with. We've been rather, rather successful. We are, we are de- definitely not scared of more, more, more competition. Coming to... When it comes to Vairo, okay, I think, we see, I mean, how, how to put it? I think it's...
You should be somehow flattered if you are quoted. We see a lot of, a lot of, we, we probably we see that we, we probably have been a source of inspiration for, for, for those people behind Vairo. That's that's okay. I, I'm, I'm happy if we have inspired anybody to, to do something, something very, very similar.
We are, obviously, pension products is going to be a very important still part of what we do. It is, in a way, a well-oiled machine that works extremely well, and our own focus is going to be competing for that EUR 600 million banking profit pie in Latvia. That's where, let's say, the most of our concern is going to be focused on.
Are you planning to make a presentation, particularly about the 1st half of 2023 results in 2nd and 3rd pillar pension products? What is your prediction about the 2nd half of 2023 results?
If you are referring to, let's say, the, the, the fund results, then the fund results can be definitely reviewed in Mana Pensija site, which is the, the Latvian sort of aggregator of all the pension fund product returns. There is definitely. We are constantly updating all our pension fund savers about our results. So you should get a. If you haven't gotten a report, then maybe get in touch with, with our customer service team, because we do send out to all the customers that are registered with us, information about both second and third pillar results. We are not in the business of, of doing market predictions.
We think that over long term, you know, markets will grow because the markets do not reflect only like, let's say, the short-term balance between supply and demand of investors investing into market, but also actually reflects the return on capital that the companies are providing, where they are reinvesting and developing all the time. We are, you know, our index funds are not only like a sort of instrument in the markets, these are actually real ownership of shares in companies that are constantly improving, doing something new, developing.
Actually, our index, the S&P 500, being a dominant part of it, is also like a way of also an automatic filter of successful companies that do so, because those companies market values grow, and those who are not successful, they drop out. So we are happy with the kind of long-term scholarship that we have built into it, and I'm not really that worried about the short-term fluctuation.
Yeah, if I may add, yeah, the S&P, for, for, as Henrik mentioned, is a dominant part. What the past teaches us and the wisdom, what we can take from the S&P over 100 and more than 100 years, have generated on average, like 9%+ return on average every year. Deduct... If you deduct inflation, then it gives you 6%+. You can find the bad years, bad five years, bad decades, but when it comes to 20, 30 years, you plus, minus, plus, minus, get to the same, same averages, like nine before inflation, 6, 6+ after, after inflation. That is our religion. That's what we do.
Naturally, there will be a bad six months, bad years, and bad maybe even longer periods. But long-term gravity is up or has been so far. This also would like to remind that this 100+ year past data, it covers 2nd world wars, it covers big depression, it covers many, many adverse events, and still those averages stand. What we try to learn our, especially young, pension savers, if you are 20, 30, you don't need to look every day, how my... or every month, or even every year, how my, how my savings are, how, what's the performance of my pension fund?
You, you probably, quite on contrary, if you are 20, 30 years old, you, you'll be net investor, net share buyer. You have to be, you have to preach, basically, go to the church and preach that the, the stock prices are, are low next 10, 20 years. You, high, high share prices are not in your interest.
There is a caveat to that, and that means that you also need to do regular buy-ins.
Yeah.
That helps you to time, time diversify and then get the maximum results, regardless of.
Yeah
... what, what, what the markets are doing in the short term. That's also then basically makes your life easier, that you don't have to think like, "Is today the best day to buy, or tomorrow is better, or yesterday?" Regularity, even if it is small amounts, will allow you to get the best, best out of the, the opportunity to, to invest into equities.
Yeah. The, the, we, we did a back-in-all calculation. If you are 30 years old, person with an average salary, probably your, your second pillar saving is around EUR 3,000, but you're gonna invest until your retirement another EUR 50,000. You, you should be more, more worried about, about, about that, yeah.
Thank you. We will take two more questions. Could you please provide details on the share issuance? Specifically, how many new shares the company intends to issue, and what are the factors that are considered to determine the amount of the share issuance?
Yeah. That is needed. We, we, we don't need cash, we don't need money. We need a regulatory capital to launch a bank and to withstand all the stress tests and all the adverse scenarios. Also, we need capital to be able to generate a decent loan portfolio in the first years of operation. Exact amount is and will be a product of the dialogue with Bank of Latvia and ECB. In the spring, we got the mandate from our shareholders, from shareholder meeting, to issue up to 475 new shares within a price range EUR 14.5-EUR 17.5 per share. Most likely, we will...
The, the actual issue will be somewhere, somewhere within those parameters. However, if, if the, the licensing process... to somewhat bit different conclusions. It, it's not excluded. There is a possibility that we will may ask the shareholders to, to amend that decision. At the same time, I believe that we'll manage within, within the mandate, within the parameters that we have, the mandate we, we, we've been granted. Exact, yeah, the, the shareholders' resolutions are, are avail-- publicly available, of course, in our website and also in, in Nasdaq website as well.
If I may add here that, that just, you know, like, again, our intention is to go ahead with a capital raise only and when we are, let's say, confident in the process with, with the, that, with the Bank of Latvia, that we know exactly the, these, licensing terms. Which doesn't mean that we don't believe that, we are quite, you know, well aware of what they could be right now. We, we, we, we want to have a certain confidence before we go out. Obviously, when the, the new share issue will be announced, there will be a new prospectus with all up-to-date information.
There most probably will be sort of like, you know, slight but not significant changes in, in, in, you know, also the forward-looking statements because because the previous forward-looking statements are already 14, 15 months old. Then, we will update all these documents accordingly to the best of our knowledge at the moment when we, we go to the market.
There's one more question regarding progress with the bank. Would you mind reminding what is the optimistic look for opening time of the bank? Is it 2024 or later?
No, as I said, optimistic, that we believe that the technical readiness, we will achieve by the end of the year. Let's say, in December, we probably would, would be able to open the, the first account, provided that the, that the licensing processes are completed, one and half to two months, two months, before that. So, that, that's the earliest, earliest, possible.
Thank you. We have run over the scheduled webinar time, therefore, we have to close the session. If there are any questions that have not been answered during the call, you're welcome to approach the company individually. The recording of the webinar will soon be available online. Please follow Indexo announcements to stay up to date with company's news. Thank you for your active engagement today and a valuable hour spent together.
Thank you very much to everybody who joined. Thank you.
Thank you.
Bye. Have a nice day.