Hello, everyone, and welcome to the Avanza Interim Report, January to March 2020. Today, I'm pleased to present Rekha Josephson, CEO and Birkitte Hagenfeldt, CFO. Please go ahead.
Okay. Good morning to you all, and thank you for listening in. I expect that some of you are working from your homes, as it's 85% of the staff at the launch at the moment. And I hope that in these testing times, you are and your families are doing well despite the crisis that we are living in with COVID-nineteen. If we get going on a business update on Page number 2, where you saw the strong customer growth throughout the quarter, we had a fantastic quarter when it came to new customers.
We started the quarter quite well in January, February, and I'd like to emphasize the fact that the growth in number of customers, of course, March was exceptional, but we had a good start of the year in January, February, and the corona crisis hit Sweden, I would say, in week 9. So pre the crisis, the start of the year was quite well. We got about 156% more clients than comparable quarter 'nineteen. And compared to Q4 'nineteen, it was up 131%. We can see that the new clients is, as always, a bit tilted to the younger age groups.
There are no difference with the new clients as with the old clients, but a slightly higher increase in the age group 41 to 50 during Q1, which is, of course, good news for us. Slightly higher more male customers than female customers, which, of course, is something we would like to have equally new men and women as customers. Also, of course, number of customers becoming customers on mobile devices is still increasing. My personal reflection is also, I think, that a lot of people working at home has actually been beneficial for us because people might have a little more time to take care of the personal finances, opening the account and get going on the Novanta platform. If we go to Page number 3, we look at the high net inflows for the quarter, which is also on a record level by far.
And as I said, among new clients, we also saw January, February up until week 9, very strong net inflows and, of course, exceptionally strong net inflows in March. But we are also up 189% when it comes to net inflows to Q1 'nineteen and 2 21% compared to Q4. If you look at the savings capital total in the company, it's now or CHF8 billion, which is, of course, a little less than in the beginning of the quarter, but it's at the same level as we had in August 2019. So of course, our savings capital has been a bit hurt by the stock market going down, but at the same time, the levels are quite high. We can also see a higher number of new clients coming in buying equities, and also the clients have a very high liquidity during the quarter.
So there's a lot of money on the sideline going into the invested. And 62% of the net inflow was from the existing customer base. So that means that people are trusting us with more and more of their savings, which is, of course, also very good news for Amansda. If we go to the next slide, it's Slide number 4, record high activity throughout the quarter. And of course, it's been a turbulent quarter as has been in the whole economy, in the whole world.
But as I said before, high activities in January, February. And the number of clients generating equity sales was record high, 34% up to quarter to quarter, and commission generating notes was up quarter to quarter 90%. So that's been an unheard of quarter when it comes to activity. Our IT systems on the platform has throughout the quarter worked well. We had an availability on the site of 99.8%, but we did have some hiccups during the quarter when the load on the systems became too much, but it was only small period of time during the day and especially in the morning that we had some lag in the systems, but we have fixed those problems.
And for the last 3 weeks, everything has been working exceptionally well. Going to the next slide, of course, it's an interesting slide for us because we can see that we are gaining market share in compared to our competitors, which is, of course, important for us and it's good news. And it also shows that our customer is trusting us in these days. They are reallocating the portfolios. They are using the Avanza platform.
And when it comes to turnover, we also are happy that we surpassed SEB, and we are now also the number 1 on the stock exchange when it comes to turnover, which is, of course, also good news for us. Going to the next slide. Of course, on Page 6. We had made a little less new launches during the quarter and focused a lot on customer communications. We did a lot of logs, a lot of calls with record high listening and reading of those.
So people were really seeking information, education and somewhat inspiration. We did launch our European Index Fund, which we think is a very good path very good part in the past when it comes to long term investment even though, of course, the fund has gone down since we launched it. We have improved the fund pages, especially when it comes to sustainability data. We added more than 800 new ETFs on the platform. We have made small improvements on the site, and we have supported our clients.
And the poll listening is up 130 percent, and over 8.50 people were listening to our polls in the Q1. And also, we have 1,700,000 customers visiting the Avanza blog, and that's up 175% since last year. So we have been there for our clients. We have talked to them. We have been in social media supporting them and intensified our communication with them.
Going to the next slide. Further investments in short continued high customer satisfaction. Of course, as we stated, we are adding about SEK 10,000,000 when it comes to cost during 2020. Most of it will probably come in the second half of the year because it's very much about scaling up IT, hiring more people and the number of clients, the number of activity. We also see a demand of scaling up a bit on our back office, private banking and customer services and IT.
And we this is nothing that's new for us. I would say that all these cost increases have been in our plans or the midterm plans, but we took the decision to front load this cost and do it now. And that is, of course, a reaction to the very high activity that we felt we need to make these investments in further growth a little earlier than we expected. If we go to the next page, number 8. Of course, how sustainable is the Q1 results and activity going forward after the COVID-nineteen crisis?
Okay, we believe that we have raised the bar. We know that we have more clients. We have a lot of savings capital on the platform. We are growing, and we believe that very strongly that even though we should go into a more boring market, we're going to see that the customers' activity will be higher than in boring market previously. So the lowest level of our answer, I'm convinced we have increased that.
Of course, we can also expect some marginal effects in retention business because some of the corporate customer might go bankrupt or tend to not pay in as much pension as they used to for liquidity reasons. And we also can see that the high liquidity is expected to gradually be reinvested in the market, which is, of course, driving activity. We had high outflows from funds in the beginning of March, but we can see at the end of the quarter that, that's turned around and the customers are coming back in the nuclear fund business. Also, we expect that to be quite sustainable going forward. If you go to the next page on number 9, of course, we believe continued low interest rates will be there for the foreseeable future.
The risk of the Riksbanken will put in a negative rate again doesn't feel very strong today. I was more concerned with that a few weeks ago. But that the underlying reasons for people taking care of their own savings is still there and maybe stronger than ever because a lot of people became unemployed or temporary out of work. And to have a buffer in your economy, to have the savings capital is more important than ever. And we can also see a very strong increased focus on sustainable investments going forward.
And at the last slide, of course, the key focus is for us continuous growth, customer satisfaction, being there for our clients, and we keep on innovating, keep on improving, keep on being there for our customers with innovating tools, education and inspiration. And as always, the employee engagement is key to drive this success for us. And with that note, I will turn over to Birgitte.
Thank you, Krista. And as always, we start with the financial overview. We have seen record high revenues in the quarter, up 65% compared to Q4 and more than doubled compared to Q1 last year. Operating expenses decreased compared to Q4, mainly due to extraordinary write down on leased assets of $8,300,000 we had in the Q4. Excluding the write down in Q4, expenses were stable.
Compared to Q1 last year, expenses increased by 9%, primarily caused by a higher number of employees. Despite the turbulence in the stock market, we had no credit losses, which shows the low risk in the balance sheet and that the collateral and allowance of processes are working the way they should even when it's very uncertain and volatile market conditions. The operating profit increased by 2 61% compared to last year. And consequently, the operating margin for the quarter improved to 67%. Revenues per savings capital was up by 22 basis points to 56, percent, and costs per savings capital decreased slightly to 18.6 percent.
The long term ambition is to lower the cost per savings capital to close to 16 basis points. Even though the volatile market has hit our customers' investments, total savings capital is at about the same level as at the end of August last year. As of 2020, we added a return on equity target to our long term goals. The target is to have a return on equity between 25% 30% the coming 5 years. Due to the record high revenues in the quarter, return on equity for Q1 reached 47% 64% and earnings per share was SEK 1.98 If we look at the quarterly revenues, you can see that Q1 is extraordinary.
As I said, we had exceptionally high revenues in the quarter, which were up 65% quarter on quarter. Net brokerage income more than doubled compared to Q1 and Q4 last year as a result of record high trading activity. Customer activity was high already in January February and it could increase even further in the end of February March after the COVID-nineteen outbreak. Commission generating turnover increased by 90%. The number of commission generating notes by 96% compared to Q4.
Brokerage income per turnover krona increased from 9.8 to 10.8 bps since the higher share of the brokerage income was generated in lower commission fee classes, which means that it wasn't only the professionals that acted on the stock market, but a much broader group of customers. The number of commission generating customers was once again record high with an increase of 34% from Q4. Pump commissions increased by 5% quarter on quarter, mainly due to higher average fund capital. Capital was high during January February, but then decreased significantly during the fall of the stock market and net sales. Income per se of funded capital increased slightly to 33 basis points despite an almost unchanged share of index funds.
Fund commissions year on year was higher due to higher average fund capital. Customer net sales during the quarter, which resulted in lower fund volume, will affect the fund commissions in the coming quarters if customers don't start investing again. The MII increased by 26% quarter over quarter and the effect of higher lending rates in connection with the repo rate hike of 25 basis points in January. Average seaborne free month was 19 basis points higher than in the 4th quarter, which also improved the return on surplus liquidity. The surplus liquidity is managed overnight and through investments in primarily covered bonds with an average interest duration of 3 months linked to Stibor.
All else equal, without taking changes in customer behavior into account, a 1 percentage point change in the repo rate with today's volume and our customers' current high all time high share of liquidity would affect full year net interest income by around EUR 450,000,000 to be compared with EUR 300,000,000 at year end. Most of the increased surplus liquidity is invested in instruments with very short maturities where returns are lower. Therefore, we now have treasury bills on our balance sheet leading according to refer rates. The reason is to be prepared when customers increasingly start to invest again. Times are very uncertain and hard to predict at the moment, but the Riksbank's own forecast indicates a rate hike at the end of 2022.
Compared to Q1 last year, NII increased by 87%, mainly due to a better return on surplus liquidity as the repo rate was raised by 20 basis points in January 2020, but also the rate hike we had in January last year. Higher lending volumes also contributed positively. Other income increased by 85% quarter on quarter, mainly due to significantly higher currency related income where customers increased trading activity also has affected trading in foreign securities. The high activity is also reflected in the income from Advanced Markets, which also rose substantially. Corporate Finance has also a good quarter like in Q4.
Compared to Q1 last year, fixed FX related income increased significantly and income from Avanza Markets and Corporate Finance also increased. Looking at the costs. Operating expenses decreased by 4% compared to Q4. And as I mentioned before, this is mainly due to the extraordinary write down on leased assets of SEK 8,300,000 in the 4th quarter. If we exclude the write down, total expenses were unchanged.
Marketing costs, which are normally higher in the beginning of the year, increased while other expenses decreased slightly. Compared to Q1 last year, expenses increased primarily due to increased development capacity with a higher number of employees and higher other costs. As communicated in the end of March and as Richard mentioned, we have raised our cost guidance for the year to a growth of 12% instead of 10% compared to last year. This means an additional cost of CHF 10,000,000 but a big part of personnel costs and other costs, which primarily occurs in the second half of the year. The capitalization is still strong with a total capital ratio of 18.1 to be compared with the requirement of 14, including all external and internal buffers as well as Pillar 2 requirements.
The regulatory requirements are lower compared to December since the contra cyclical buffer was lowered from 2.5% to 0% due to the uncertainty around the aftermath of the corona crisis. The LCR ratio increased during the quarter as a result of the increased deposits from customers. The leverage ratio, though, was negatively affected by the increased deposits. A regulatory requirement for the leverage ratio of 3% will be introduced as of June next year. We are currently discussing the level of the ratio, including an internal buffer we would need taking the volatility in the deposits into account.
This will be communicated well in advance of the requirement being introduced. Advanced leverage ratio can be approved through increased Tier 1 capital and or by reducing the balance sheet and off balance sheet commitments. As you have seen, we announced that I will leave Avanza in about a year from now. I've been working at Avanza for 12 fantastic years and decided a long time ago to not continue in an operating role for longer than the summer 'twenty one. This has been tremendous years, and I love Avanza.
So leaving will be very double edged for me. But I'm convinced that I will lead the company in the hands of a strong and confident management team that will take Avanza to new levels. And with that, Roger, I think we can open up for questions.
Thank you.
The first question is from the line of Patrick Bertellios from ABG. Please go ahead. Your line is now open.
Richard, you're right in your CEO comment that you expect to see a
more passive period going forward. Could you elaborate a little bit what you mean by that and how you expect it will affect your P and L primarily than your income side?
What I believe is that when you have a turbulence in the market that we have right now with this extreme volatility and activity, of course, there will be a period after the crisis where volatility will go down, activity will go down, and that will, of course, affect us when it comes to net brokerage income. It could how it will play out with the mutual funds, we will see because I still believe that people are coming back to mutual funds. And also, of course, it's affected about the levels of the valuations. But as I said, I believe that very strongly that we have raised the bar for Alansa because with the fantastic customer base of over 1,000,000 clients with a substantial amount of asset under management, there will still be more activity on the platform than it usually is when the times are yet a bit boring. But of course, the brokerage income in the short term is what is at stake a little bit when it comes to activity going down.
But we have more clients than ever generating brokerage income, so the fall will not be as big as or as been previous times.
Yes. I understand. And regarding the strong customer inflow then, are you seeing that a lot of clients are coming in through the Open Banking app? Or is it through more traditional ways?
To become a client, you need to identify yourself with mobile bank ideas. So there's only 2 ways of becoming a client, to put it simply, is through the web or the mobile app. And what we stated is that we can see that more and more clients are the common clients using the mobile devices than it was previously.
Okay. But I was thinking this where you transfer your account from other
banks? Yes, but you have to be a client to be able to do that. So first, you have to become a client of Avanza, then you use Mobile Bank ID to transfer your funds from other bank. And of course, that's an increasing activity, which is one part of the puzzle where we can see the strong net inflows.
Okay. And lastly then is regarding activity. Can you say anything about the activity level we've seen in the last 3 weeks?
Not anything more, but you can see that the volatility is there, the turnover, the stock exchange is there. So the activity is still high.
Okay. Thank you. That's all for me.
Next question is from the line of Petr Kosiakoff from SEB. Please go ahead. Your line is open.
Yes. Hi. So first of all, just a follow-up question from Patrick, perhaps rephrasing his question a bit. The tool that you launched, was it a year ago or so, which enables you to transfer money from other banks onto Avanxo's platform in a very convenient way. And I think I've asked this question each quarter report that tool was launched.
But do you see that, that has had an impact in terms of the high inflows that you've seen in the quarter? And especially the fact that you're mentioning that you're seeing existing clients transfer more money into the platform than we've seen recently? Or is it just the ordinary kind of people just transferring cash onto your platform like they've always had?
It's one important piece of the puzzle, but I wouldn't say that, that has been the way to fame for the net inflows. But of course, it helps us.
Okay. So it's a small positive contribution, but it doesn't stick out? Then
I would say it's a positive contribution, absolutely.
Okay. Then in terms of the inflows, because it's they have been, I must say, great so far this year and also pre COVID-nineteen. Is there anything there's nothing in particular in terms of single clients transferring a lot of money on 3 platforms or any partnerships that are relevant to take into account and looking at the inflow level that we've seen so far this year?
No. It's been a broad inflow. Of course, we can see that we are also gaining private banking clients. So we have some of these clients have sort of substantial amount of money because a lot of people, in my opinion, believes that private banking has not been so active, and they are just a bit I want to see what the alternatives are. So the inflows have been very broad.
But then again, the Private Banking part of the total net inflows are not substantially. So it's absolutely a broader number of customers putting in a lot of small numbers of inflows that's achievable.
Yes. I know that that's kind of standard clients have a significant inflow as well, but there's nothing underlying in that, that is relevant to highlight then.
No partnerships, no special big
installments. Okay, okay. Then just in terms of marketing, has there been any kind of thoughts around increasing the marketing spend? I mean, it's I think we've seen a bit more ad campaigns, etcetera, from Avanza perhaps the last year than we have in the years prior to that. But in terms of increasing that spend, in order to drive inflows, is there any consideration down there?
No. We have a marketing plan, and we're sticking to that. We have not revised it. And then we discussed previously that in the biggest marketing we have is word-of-mouth, especially these days.
All right. Then just a final question, and that comes back to the leverage ratio, which is now at 2.5%. And as you to improve the leverage ratio. But I guess coming back to kind of the fact that it's a binding requirement means that you want to have a good buffer also in times in stress, such as we're seeing right now. Is there kind of any consideration done in terms of perhaps over issuing additional Tier 1 capital or perhaps holding back on the dividend in terms of improving the ratio and the resilience of that?
Or do you think that you're able to offset a lot or improve it a lot by, for instance, reducing off balance sheet exposures or pulling other levers?
Well, that's the question that we will discuss internally going forward, of course. But just to set the ground here, we have 2.5 today. We haven't been working actively in order to improve that, which we actually could have done by the end of the quarter. So if the requirements were binding by this time, we could have made actions within our current balance sheet in order to to get the leverage ratio beyond or higher than 3%. So even though we had this stress on us, which we have had during this part and where customers are now having so much liquid assets, we still can keep the leverage ratio at 3% or above 3%.
But then again, as you said, we will need to have a buffer to make sure that if anything like this happens again, it happens again. And if that should be by lowering the dividend, issuing Tier 1 capital or decreasing our balance sheet, that's what we're going to discuss, both the mechanism and, of course, the level of the ratio. We will come back to that later in the fall.
But long before the requirements are in place.
Of course. May I just follow-up a small detail on that? Is it possible to quantify or mention some of the kind of levers that you think you could have pulled in Q1 in order to improve the ratio?
We could have moved more of our insurance company's liquidity from the company's liquidity from the bank's balance sheet, which had left the consolidation consolidated group's balance sheet smaller. We could also have our auditors to audit our Q1 results, which could mean that we could include the revenues or the results from the quarter in the calculation of the capital base. So there are different things that we could have achieved already with the balance sheet that we have today.
All right. Okay. Those were my questions. And kind of finally, kind of, big hit us, sad to see you leaving, but job well done over the years. And I'm looking forward to talking to you in the coming quarters as well before you leave.
Sir.
Next question is from the line of Nicholas McBeth from DNB. Please go ahead. Your line is open.
Yes. Can you hear me?
Yes. We can hear you.
That's good. So first a question on the fund commissions here
in the quarter. If you
could explain why the fund is in relation to fund capital increase? And if you could also comment on the business mix trends you see in this business. I was a bit surprised to see the increase in fund based in relation to fund capital as I think normally when you have this type of market, customers change into more low fee products in market declines?
Well, I would say that one thing is that as we said during the presentation, the fund outflows came in March. We had good fund months in January or February, and we get paid every day in the fund and we find commissions that we are making.
And I also would say that the customers business sell out their hedge funds investments, it was a mid part of the funds that actually wasn't the low index funds and it wasn't the hedge funds investment. It was more fixed income funds and so forth.
Could you comment on if you take a snapshot of the business mix at the end of the quarter in the fund business, is that generating a lower fee in relation to the Fund capital than the average in the quarter, so to speak?
Too early days to say. What we said during the presentation is that we see that the fund flows in the end of the quarter is starting to come back. I don't have the information exactly how the customers are which kind of fund types they are investing right now.
Okay. And then a question on the net interest income. If you could comment if the rate hike, is it fully MII level? Or do you expect a further sequential boost to the Q2 MII like we had last year after the rate hike due to how the liquidity portfolio is maturing, etcetera?
Well, I would say that the impact of the rate hike hit us pretty early this quarter since when it comes to the bond market, they already made that change in the end of Q4. So I would say that we don't have anything that is rolling over to the next quarter.
But did you have anything rolling over in Q1, which then wasn't fully reflected in the Q1 results?
I wouldn't say that. I would say that we don't have anything that will come as a consequence afterwards. I think they are fully affected.
Okay. And then also a question I mean looking at the Q1 results, very high activity and profitability, as I mentioned, ROE of 64%. Probably that's going to decline eventually. But could you consider if the activity and profitability stays elevated, could you consider then lowering prices on, for instance, brokerage to not overshoot your ROE targets?
I would say that's probably more related to the profit margin that we have. And of course, the profit margin is extremely high during the quarter. And if this was to be a profit margin that would stay on that level going forward, we would absolutely further invest some of our profits in further growth. That means lower prices, more innovation, more investment, whatever that could be. But I wouldn't take the Q1 and just prolong it, and this is not the new normal.
That's a good question. Great. Thanks. And then yes, and then finally a question on the corporate finance business. You had strong Corporate Finance sales in Q1, I think, considering the market conditions.
Do you think this performance reflects investments you have made into this business over the past year? Or is it more a coincidence of lumpy sales book in this business? And then if you could also comment on the pipe finances for corporate finance revenues for the remainder of the year, if that's been impacted now a lot by the COVID-nineteen situation.
I would say that we had a good Q4, good Q1 when it comes to Corporate Finance. It has absolutely a reflection of the team that we have hired that will do this for us. We have developed our offering in Corporate Finance. So I'm very happy with the development up until Q1. But going further this year, looking at the IPO market and all these things, the uncertainty are extremely high.
So I have no guess what the corporate finance market will go for this year. But the corporate finance people, they meet their clients or they have Zoom meetings with their clients. We are very active in building the relationships. So we will be in a good position once the IPO market gets back, but I have no idea when that would be. So of course, the expectations going further for Corporate Finance rest of the year, the uncertainty is extremely high, especially in that type of business.
Okay.
And then just a final question as well. So other commission expenses, you're right, in the report decreased due to offloading of the administration of the Stabili mortgages. If you could just explain why this was changed during the year, if there's any change in the way you view the business or corporate with Sabelo and also how much this administration cost was that on a quarterly basis, which was handed over to Sabielo?
No, again, yes. The reason that we changed it was that we had a was administrative complicated relationship with Savero that was set up when we started that business. That was more of gross where we got the commission and we paid some of the costs. Now we have a business model that we changed where we get an income and they take all the costs. So that was the reasons why we did that.
And on the numbers in it, we will not comment on that.
Okay. Thank you very
much. Next question is from Jens Hedin from Carnegie. Please go ahead. Your line is now open.
Thank you. Good morning. Just one clarification on the brokerage revenue. I mean, I understand your general comment that after such a turbulent time, it will be slow in the future. And if that are you talking already about Q2?
Or you also mentioned volatility has been high so far in April so that we could perhaps expect a pretty decent Q2 as well?
No. What I said is that we have a high turnover in the software exchange, and we have volatility in the market. And having those things combined is also in the market, generally speaking, high activity. That's the only general comment that I made. Okay.
Let me ask a question on the capital on the leverage ratio. You talked about things you can do putting maybe some of the deposits with 3rd party providers. Do you make a margin or do you get a fee to do that? Is that income generating?
No. It's just having our insurance companies' customers' deposits in another bank in an external bank account instead of on a Vansa balance sheet. So there's no fee connected to that. It's more than the revenues or the returns that we can get on the deposits from the third bank.
Okay. Fine. And then just one question also on costs. Are you increased the guidance to or your expectation to 12%. We didn't see that coming through then in Q1.
Expectation for then Q2 to Q4, should we, yes, model an even split of those investments? Or will it be a more H2 effect?
Since we are actually I mean, it's a lot of hiring people, and it takes time to get them in place and get the costs in place, I would say. Since I said it's more part of it will come in the second half of the year, probably even a little bit end loaded to the 4th quarter.
Okay. Perfect. And then just a final comment or final question, I should say, on this fund provision. Given that you effectively get in revenue per day, Is it something that we should think about then when we're looking at Q2? We're talking with a lower volumes.
That's like we saw after Q4 'eighteen. We actually saw a decrease in nominal terms for the following quarter. Will that be something that should be receded for Q2 'twenty?
I'm not sure I understand your question. Could you take that?
Sure. It's more we saw that it was a strong performance, and you explained why that early January February was from month. That's why we had a Q on Q increases in funds commission or funds provision. For Q2 this year, we're talking from a considerably lower level. So that the amount of revenue should actually reduce in nominal terms, and let's say, we start to invest a lot.
The current amount of revenue should be down.
Since we are starting at on lower levels, and then, of course, it depends on what customers do. I mean, we are still pretty early in the Q2. So if customers reinvest the investments in funds again, so whether we will actually have an increase or not from commissions for the quarter is, of course, it's not something that we could comment on, but we are starting from a lower level when it comes to assets under management within the fund part. Okay.
Perfect. Then of course, we will have to follow and see what happened. Those were all my questions. Thank you very much.
And there are currently no further questions registered. So I'll hand the call back to the speakers. Please go ahead.
Okay. Thank you very much for listening in on the call, and I hope you all continue to have a great day. Thank you.
Thank you. Bye.
This concludes the conference call. Thank you all for attending. You may now disconnect your lines.