Ladies and gentlemen, welcome to Avanza Bank Holdings Full Year Report 2019. Today, I'm pleased to present Richard Josepflson, CEO and Birkitte Hagenfeld, CFO. Speakers, please begin.
Okay. Good morning, everybody. This is Rick Derusselsson, together with the GISTAS, something that results for 2019 and the Q4. Thank you for listening in. Let's start by moving to Page 2, where you can see that during 2019, Avanta had grown 18% when it comes to net inflows.
Custom growth was 10% and it's in line with a record year of 2017. That means that we always gain 140,000 new customers in Avanta and almost $33,000,000,000 in net inflows. Of course, we had a good year when it comes to market climate with the stoppage change up almost 35%. Of the net inflows, as always, almost about 50% is from existing clients and 50% is from new clients. Notable for us is also that we have on the platform taking about 16% of the net inflows in the mutual funds market, which is, of course, a good sign that our strategy is working when it comes to growing the company comes to mutual funds.
Let's move on to the next page. Looking at the activity, especially the Avanza clients had an active year on the spot exchange, and we have quarter by quarter increased our market share when it comes to number of transactions and has almost 14.5% of the transactions when it comes to the oil mix and FX. And in the turnover, we had a good year with increasing market shares in turnover, and we almost surpassed SEB as the largest player on the stock market when it comes to turnover. Interesting noting on the trading activity last year is that we did not have any crypto trading, cannabis trading or Bitcoin trading. So it was no theme that was driving the Avanza clients to trading.
It was more customers than ever trading, trading broadly in a lot of large caps and small caps company, which in my opinion is a sign that was a quality year when it comes to trading activity and not any one off events. Moving to the next slide, I also are quite happy that we have even though we have always had customer satisfaction as a priority and we have very satisfied clients, we dare to change our platform. We have an entire new start page, avanta. Se. My pages, we change totally for our customers with good results, and that's a little bit like redoing somebody's living room, and it's always a challenge to do that and keep the customer satisfaction, which we were able to do.
Also, we took our first steps in Open Banking, and I especially like the fact that you can now see savings accounts with other banks. You can display your mortgage and your mortgage rates on other banks to compare them with Avanta offers. And we can also look at PEPFINS, the crowdfunding sites, holdings, and you can also look at Lendify, peer to peer lending site, so you can get a better picture of your total financial situation on the OnePath platform. We also did a total rebuild of our fund pages with more information and especially pointing out much better sustainability data, which is becoming more and more important for our customer. We've seen very large increased demand in sustainability investments.
We also improved a lot of data on foreign stocks, which have been appreciated. The declines are very much into the stock market. And we also, during the real year, launched Avanza Emerging Markets and Avanza USA Just Before Christmas, which is very suitable index fund for the normal savior on the Avansa platform. And the start of these 2 new new Jets funds has been quite promising. Emerging market is growing quite well, and Avanza USA has over 300,000,000 dollars in assets, and we launched it just before Christmas.
Moving on to the next page, it's about the target fulfillment of 2019. Of course, we're very happy that we for the 10 CRM in a row have the most satisfied clients, which is a check-in the box on that one. Employee engagement, for me personally, is equally as important as customer satisfaction because I believe deeply that employee engagement is the way that we keep our satisfaction high. We came in at 54%, which is a very high number of a goal of 45. Market share, we have a goal of taking 10% of the market's growth in rolling 12 months of the net inflow to the market.
As of the Q3, we had 14.6%, and we'll come back to that when we talk about the new targets. And we are well on track to achieve the target of 1,000,000 clients, and I always trust my CFO, who says that, that would be on the 14th February. We will see about that. Also, for the first time in a few years, we also have an income growth of almost 14% and a cost growth of 10.6%, excluding fee on one off write down, which is the 8,300,000 dollars And the dividend is suggested to the Board to be $2.30 which will be 79% of net profit, which is in line with our previous target. All in all, it was a record year for Avanza.
Taking the next page of our new targets, we have stated that we will raise the bar from 10% of the net inflows to 15%. And you could be a bit questioned about we had 14.6% if 15% will be a high target. 2019 was a year where the markets were in Avanza favor, and that means that if you look back a few years, we've been around 11%. So, raising the bar that over time having 15% until 2025 feels quite ambitious. And that would imply that we will get close to 7% market share in the Swedish savings market, which in fact means that we will double the size of Avanza the next 5 coming years.
And that means that in 5 years, we'll achieve something that has taken 28 to achieve so far. We also changed our goal when it comes to profitability to look at return on equity in the line of 25% to 30%, which also implies that we will be very careful handling our balance sheet and also how we consume capital within Avanza. We also believe that the most important target for us is always customer satisfaction. So that will be in place for the next 5 years also. That will never we never lose sight of customer satisfaction in Avanza because over time, we know that's the most valuable asset that we have within the company.
Employee engagement, 45, that is our target. It's a very high number, even though we surpassed it with 53. We believe if we can keep it over 45 year in and year out, we are very well aware of that. We have the most motivated employees in the industry, which is, of course, a very important part of reaching our future targets, and that the dividend of at least 70% on net profits for the year will stay in place going forward. Also during the last couple of months, we worked a lot with the sustainability strategy and targets, and we have taken a new sustainability strategy within Avanza, which is in 3 parts.
1 is sustainable investments, the other is educate and challenge, and of course, a sustainable organization. We want to increase share of capital in sustainable investments. We want to increase share of customers who save in sustainable alternatives. We want to be the leading brand and the natural go to place when it comes to sustainable investment. We want over time 50% of our customers to be female.
And of course, we want an organization that parity between women and men. And we want to become climate positive. We will have to climate compensate a bit to become climate positive. And a lot of this has to do with that we see an increasing demand from our customer to make sustainability investment. We made a lot of actually improvements during January to help and to facilitate our customers to make sustainable investments.
We believe very, very much that this is an extremely important thing for Avanza, for our employees and our customers to make sure that customers really get good data, good decision making tools to make sure that, given your choices of sustainability, Avanfa can deliver good tools for you to sleep good at night where your money is working in this world. Going to the next slide. It's also we believe that we have a lot of indicators out there that shows continuous growth is possible. 1, of course, is the low interest rates for the foreseeable future, which, of course, in some sense, will help asset values on a decent level. But we also see, especially once younger generation, that savings is becoming a bit of fashion because we know inflation.
The social system is a bit not as good as it was 20 years ago. A lot of people understand if you're going to be financially, you have to take care of your savings and make sure that if you want retirement, you have to make sure that you save money from early days to be able to live the life you want to live. And we also believe that the sustainable investment has also getting people who maybe have not been so much into savings understand that the pension money, the savings money can make a difference in the world, which is changing when it comes to climate crisis. Next page is a little bit that we will also like to stress the fact that we're in it for the long term. That means that we are investing, we are developing our platform, we are becoming a bit from being a net broker to savings platform to being a savings partner to our clients.
That means that even though we truly understand that markets will not always be as good as it was 2019, we will have years that will be tougher, but we will keep on investing, keep on making sure that our customers always appreciate the ambitions that we have to give them a better future. And that means also that we believe that in tough times, the companies that they are to be customer oriented invest in customer satisfaction will also, when things turn around, be very largely a winner in that situation. And my last slide is always the success factors for Avanza is growth, customer satisfaction, strong innovation, also questioning ourselves what we have done, ways of doing it better, which we always believe it is. And of course, for me, employee engagement
Thank you, Richard, and we will start with the financial overview. The revenues for the quarter were all time high, and the revenues for the full year were also all time high and increased by 14%. The main driver was the NII, but we also saw increase in fund commissions and brokerage income. Other income were flat. The operating expenses for the full year increased by 10.6%, which means that we have reached our target of increasing revenues more than the costs.
In the table, you can see that the operating expenses increased by 6%, but this is including the fee in our insurance company in the Q4 of 2018 of $35,000,000 but also a one off write down of lease assets, which I will come back to later. Our operating profit increased all time high as well, mainly driver again, of course, the NII. The operating margin consequently increased to 44%. Income per savings capital was down 1 basis points, mainly due to our savings capital actually increasing by 36% during the year. Costs per savings capital also decreased by 1 basis points to 19.
And as you know, we have a long term goal to reach 16 basis points. As Rick had mentioned, we have now a new target regarding return on equity that should be between 25% 13%. And for 2019, we reached 27%. And the earnings per share was DKK2.94. So the all time high revenues in the quarter, which increased by 5%, and year on year, the revenues increased by 23%.
Brokerage income was slightly down compared to Q3, mainly due to 4.5 less trading days. The brokerage per tonne over decreased, which is the reason for that is mainly that larger share of transactions were made in the higher fee classes, such as fixed fee, private banking and pro. The brokerage per day though increased and the turnover per day increased as well, and we could see that we had all time high number of commission generating customers. Compared to the same quarter last year, the brokerage income increased by 11%. Some commissions increased quarter on quarter, mainly due to higher fund capital.
But the income per se in this capital decreased to 32 basis points, which is the reason where You can see that our customers are having a higher proportion of index funds. Year on year fund commissions increased by 24%. The NII also increased in the quarter, mainly due to higher volumes in our own lending products. Quarter if you compare the NII with the same quarter last year, we almost doubled the NII. And of course, the repo hike that we had in January 2019 is the reason for that, but also lending increased lending volumes.
Other income, you can see that the corporate finance were higher in the quarter, mainly as it's seasonally low in Q3. If we compare to Q4 'eighteen, the corporate finance was higher as well, and we can see that the revenues from markets and FX related income were flat. The revenues for the full year increased by 14%, and of course, the NII, which increased by 70%, was the main driver, where we had a better return on the surplus liquidity as the repo rates were raised in January 'nineteen, but also as a consequence, the SIBOR increased. We could see that the costs for surplus liquidity was turned into positive yield from March 'nineteen. All else equal and without taking any changes customer behavior into account, a 1 percentage point change in the interest rate from here with today's volume would affect full year net interest income by around $300,000,000 About 2 weeks ago, the Riksbank increased the repo rate once again with 25 basis points to 0.
This raise will affect our mortgage with 20 basis points, which wasn't the case a year ago since we had a fewer in our mortgage product by over minus 20 basis points. Brokerage increased due to higher commission generating notes, higher commission generating turnover and higher brokerage turnover. And as I said earlier, we had all time high number of commission generating customers. The pump commissions increased as the average pump volumes increased by 18%. The income from capital decreased by 2 basis points to 33%.
And again, the reason is a higher proportion of index funds. Other income was flat, even though we can see that the Avanza market revenues and corporate finance were higher. But at the same time, the costs for payment services and mortgage applications also increased. Operating expenses increased quarter on quarter and the underlying increase is in higher personnel cost, which is seasonally low in Q3. By the end of 'nineteen, we signed a new lease agreement for our 2 offices here in Stockholm or rather to be one office in Stockholm, which means that we, by the fall this year, will be able to move again all our employees under the same roof.
This had an effect though on the depreciation, which increased due to a write down of SEK 8,000,000 for on leased assets. And this is for the risk of having unused spaces in the office that we leave from up to October this year. Another effect of this new lease agreement is that we, in 2020, also will have a one off cost of around $11,000,000 and this is partly due to us having double rents from June to September, but also, of course, direct costs connecting with the moving of our employees. The full year costs increased by 10%, which we saw was in line with the budget of 10.5%, and this is excluding the one off items of the write down R and D assets, but also the administrative fee that we had in Q4 'eighteen. The underlying cost growth was personnel costs and increased development capacity, but we also had higher costs for IT and IT licenses.
Our long term cost guidance remains at 9% to 12%, and we have estimated the cost growth for 2020 to be around 10%. This is not including the one off costs in Q4 'nineteen nor the higher costs for 'twenty regarding the new lease agreement. We still have a good capitalization with a capital ratio of 17.7% to be compared with the requirement of 15.8%. It includes all our external and internal quarter, mainly due to higher operational risk exposure amounts, and this is due to that is calculated based on the 3 year revenues. And in Q4, the 2019 revenues were included instead of the 16 revenues.
We also had higher credit risk exposure amounts connected to the increase in mortgage and margin lending. Our LCR ratio increased during the quarter due to we having deposits in our Central Bank, which we will continue to have. And as we had said before, Avanxo's need of capital is very strongly connected to the LR ratio, which will a requirement will come into place in June 21 of 3%. Increasing deposits is very negative for our LR ratio, and therefore, we are internally discussing and monitoring the size of buffer we need to the LR requirement in order to comply in all market conditions but also as we grow. Therefore, the Board of Directors has proposed a dividend of DKK 2.30 per share, in total DKK 354,000,000 which is a payout ratio of 79%, in line with our goal have at least 70% of the net result to be paid out to our investors.
And with that, I think we can open up for
Thank you. Our first question is from Niklas McBeath from DNB Markets. Please go ahead. Your line is open.
Yes. Thank you. So first of all, if you could comment any further on the impact on the rate hike, how much of that was already reflected in Q4? And how much delta do you expect from the rate hike to come to benefit the Q1 MII versus Q4?
Well, we could see that the cyber increased already during the end of 'nineteen. So in some sense, I would say that the rate hike will have pretty strong effects from the start. But of course, we have still the portfolio with bond portfolio that we have still, of course, have to roll out lower rates. So probably not a full effect during this quarter from the start of the quarter.
Okay. And then if you could also specify how much you expect your resolution funds to drop in 2020 versus 2019 in nominal terms?
Well, actually, that is hard to answer on because it depends on our balance sheet. As you know, it's based on the balance sheet, which depends on how much deposits our customers have. And with a growing savings capital, I would say even if the percentage or the fee for resolution fee is actually going down, it's hard to say how much in nominal value the resolution fee will actually decrease, but they had lowered the percentage from 9 basis points to 5 basis points.
Okay. But could you then help please by giving us the number that you or the amount you paid in 2019, the resolution funded?
Well, I don't have that figure on my let me I can get back to you later on in this call.
Okay. Never mind. And then another question. If you could elaborate a bit why for the reason why you're leaving your previous revenue to growth target that you targeted before to grow revenues quicker than costs? Is it because you no longer believe that is achievable?
Or is there any other reasoning behind that?
We strongly believe that that's achievable. And of course, internally, we will absolutely drive for increasing revenue more than cost. But we also believe that the last couple of years, especially 2017, we had a very high increase in cost for investing for the future. And now we are back to the guidance of 9% to 12%. And then we believe that the return on equity will be very a very good guidance for us to drive profitability within the company.
Okay. And then if I could just ask a question on that target or the ROE target, 20% to 30%. I mean, if we look in H2 2019, the ROE was around 30% and that was before the full effect from the rate hike played out. So presumably, you have some profitability tailwinds also going into 2020. So with that in mind, why don't you target ROE above 30%?
Do you see something else impacting your ROE outlook? Is it significantly high capital base going forward or something else?
Well, of course, we since the LR ratio is coming into place, we foresee that our capital requirements will probably increase, but also growing, doubling of ANSA during 5 years and doing the same thing that we have done for 20 years and continue to have a return on equity between 25% 30%, I think that is still a very strong number.
Could you comment on that capital increase that you see? I mean you're already non compliant, but what kind of leverage ratio do you see that you would need to be at in order to feel, I mean, happy and satisfied with the volatility that you mentioned on the deposit business, of course?
Well, as I mentioned, this is what we're monitoring and discussing internally, so we haven't decided. But I would say that somewhere around 3.5%, but this is not only for the consolidated situation that you see here, but it's also for our bank, Solo. So we have to take both those in consideration. And we have to monitoring it during these years to see how much it fluctuates depending on our customers' behaviors.
Okay. Thank you so much.
And getting back to you, Nicolas, regarding the resolution fee, we had we paid $34,000,000 for both resolution fee and for the guarantee for deposits.
And the split between those 2? And I think it's
about 60%, 50%, I would say during 2019.
Okay. Thank you.
So about $15,000,000 to $16,000,000 something like that.
Okay. Thanks.
And our next question is from Petr Cieslyakov from SEB. Please go ahead. Your line is open.
Yes, thanks. So a question on the new targets or one of them being the market shares of the Swedish savings market, where you almost aim to double your market share. I mean looking at kind of inflows, what kind of assumptions do you have in terms of how much inflows you need to deliver and how much it needs to increase from today's level in order to reach that market share?
As we stated, we have an ambition to take 15% of the net inflow in the market growth when it comes to the Swedish savings market.
Okay. So but
Increasing the part of the net inflow from today's level to 15% in 5 years.
Okay. So but do I understand it correctly then that in principle, just maintaining or improving kind of the net inflows?
You should look at it a little bit like I said before. It more or less implies, as Peter said, that we will double the savings capital in the next 5 years.
Yes. When I think I have asked this question during a few quarters actually, but going back maybe a year ago, you launched this tool where it's very simple for someone who has the savings elsewhere to move their savings onto your platform. We haven't necessarily seen any improve or any material increase in the inflows for you since that tool was launched. But have you are you seeing any kind of increased use of that tool? Or people or are you considering more marketing on that given that I would have assumed and believe that a tool like that is one that should enable you to increase the share of wallet amongst your clients?
Absolutely. But I think you have to look at it. We had almost SEK33 1,000,000,000 in net inflows. And of course, this tool that we created during the last spring is part of the puzzle for having a great year
it's been largely unchanged the last 3 years. But then my last question. You mentioned that you want to be climate positive. Have you said any I'm not sure if I missed it, but did you say any year when you aim to achieve
that? Well, we do the climate analysis. So we tend to or we expect to compensate for the part that we the emissions that we have. So we haven't really I mean, that's for every year.
Okay. So by
2020. Yes, from 2020.
Okay. So in principle, you are that already now. Okay. Understood. That was those were my questions.
Thanks.
Our next question is from Matsui Gerdahl from Handelsbanken. Please go ahead. Your line is open.
Yes. Good morning. On the cost here, the SEK 11,000,000 for consolidating the offices, When do you expect that? Will it be Q3, Q4 or evenly spread between them? And do you expect any future cost savings in terms of doing this?
Thanks.
Well, as I said, we will have double rent for the periods of June till September. So of course, a large part of that $11,000,000 will come during that period. But then we have a lot of costs moving from here to that in order to make the office being able to move into the office, as we say, to invest in them and so forth. So I would say a main part of that would come during Q2 and Q3 probably. When it comes to I mean, we are moving from Vasa Gassen to the Earning's Gothen, and we are we have made a new agreement for another 6 years to stay here or 5 years to stay here at the year in Scotland.
So of course, I would say that the rents will probably will be a little bit higher in TOTI, but then again, we have signed a 5 year agreement. So and as you probably know, the rent in Stockholm has increased enormously during the last years.
And our next question is from Ermin Kirk from Carnegie. Please go ahead. Your line is open.
Good morning.
So first question was more with the timeline for your financial targets. How come you've chosen 2025 instead of, say, 2023? Will you kind of have any midterm targets to steer the organizational power up on over in the near term, so to speak?
I think it is mainly because we are a long term we view our business very long term, and we like to have a 5 year target of going at. And then we also like the fact that we when we did our long term targets, concluded that we would double the company within 5 years. But of course, we will keep close eyes on that. We are delivering on that plan. But I think what you and me understand, it will not be exactly straight line to doubling because the market condition was very during the 5 years.
So we believe it's a way of guiding the long term view of how we believe we can develop this company.
Okay. And then on your target, you have the cost to savings ratio target of reaching 16 basis points. Could you give us any flavor of how fast you think you could sort of achieve that on a more consistent basis? I know you've done it in single quarters. And also if you have any view on the income to savings ratio for the more long term?
Thank you. Well, when it comes to the cost of savings capital, as you know, it depends on the savings capital, and that, of course, depends on the market. So I mean, it's impossible for me to say when that will come into place for a very consistent period. And as the market is growing now, we probably will reach that in a few years. And then again, if the market drops markedly, then that would have a negative effect, of course, of that ratio.
And to answer what's going to happen to the revenues per savings capital is as hard as saying anything about the cost, of course, because it's also dependent on both the savings capital, which is dependent on the market, but also if our customers' behavior is depending on market different market conditions. But as you know, we are trying to make sure that there are investments and savings products for our customers in all weather, so to speak. So hopefully, if the stock market falls, there will be other interesting savings products on our platform.
Our next question is from Patrick Berthelios from ABG. Please go ahead. Your line is open.
Hi, good morning. I had questions regarding the cost guidance. In 2019, we saw a lot of the cost growth came in the latter half of the year. How should we think regarding your new cost guidance in 2020? Will you see the same pattern?
Or will it be more evenly split throughout the year?
I would say that it's more evenly spread over the year, this
year. Okay. And the second question is regarding Stabilo. We saw it grew approximately €650,000,000 in the 4th quarter here. What are your ambitions for 2020?
How should we think of the growth? Are you satisfied with this growth? Or is this where you are aiming to grow more long term?
Let me disclose how we looked at our growth rate, but I would put it like this. We are satisfied with the growth when it comes to the Staviello volumes. It could have been more. It could have been less. So, I truly believe it's an okay number that we grow in Istabello.
At the same time, looking at the mortgage market, we see intense competition, which we have been part of starting that competition. So it's very difficult to predict where it will go. We can also clearly see that mortgages is becoming more and more a commodity where price is becoming more and more relevant, and we will see how it goes. But Stabilo is developing according to our plans and is given an okay.
Okay. Because we could see that Stabelo raised its list price a little bit lower than many of the large cap banks. Have you seen more inflow on the back of this?
I think you have to ask Sabelo about that. Okay. That we never answer questions when it comes to pricing and that kind of flows. That we have to call SABELO and talk to them. We're just a distributor from that perspective.
Okay. Thank you. No further questions for me.
And as there are no further questions at this time, I will hand the word back to the speakers for any final comments.
Okay. Thank you for listening in and have a fantastic
Tuesday. This now concludes our conference call. Thank you all for attending. You may now disconnect your