Okay. This is Rikard Josefson. Thank you for listening in on our Q1 result presentation. I will start off by just commenting on the sanction that the pension company within Avanza got in February for SEK 35 million administration fee. All in all, it was due to poor implementation of the Solvency II regulation that went into place on the 1st of January in 2016, and we agree with the authorities of the implementation by itself. We also see that the actions we have taken actually from a little bit more than a year ago, where we have changed the board in the company. We have one board member left, the rest of the board is new, and we also put on new board members in the annual meeting here in March. We also made the CEO change, who left the company.
We now have an experienced pension CEO in the company. We're quite confident for the future because the pension company is, of course, still a very important growth area for us. We can also see that the occupational pension capital has grown 27% year-on-year. The underlying growth in the company is giving us a lot of confidence. The ongoing monthly inflow, just from premiums paid in by corporate, is in excess of SEK 200 million a month on a rolling 12-month basis. Also commenting on the pension company, we have talked a lot the last couple of years of the legislation when it comes to moving pensions into Avanza from other pension companies and the hassle that has been in the legislation.
We got a new legislation proposal right now, which was at the first glance quite promising, but digging into it a bit deeper, there will still be incentives for companies losing volumes to charge for embedded value 10 years back, which is quite sad for the Swedish consumers. Of course, we cannot just feel sorry for ourselves in that respect. We are working a lot on, even though the processes are quite burdensome to increase the movement of pension into Avanza from other company, and we see there's a customer interest for that. All in all, we have great confidence that our pension company, our pension offering, and using the pension company as a gathering tool will increase the inflows into Avanza in the next couple of years. Coming back to a bit more short term, we can see that the quarter, we considered a decent quarter.
We still had a continual growth in number of new clients. We see that we are tracking to one million clients next year. The net inflow was satisfactory looking at the quarter, which showed different phases in the quarter. I would say that the quarters, even though the stock exchange increased in January, activity didn't increase in January as much as the stock prices increased. Going into the quarter, we saw picking up Avanza clients' trading activity. We saw the fund volumes coming back. On average, it was a bit weak in the quarter, but at the end of the quarter, the volumes were at very good levels. That makes us confident going forward in the future. We can see that increased interest from clients investing in fund. Brokerage was up, but the turnover decreased from 9.8 to 9.4 basis points.
We also saw as a seasonal effect, not that many corporate finance activities, but you also have in the pipeline, we are confident that if nothing happens with the market conditions, the corporate finance business will pick up during the year. We also saw that the volumes in our Bolån+ together with Stabelo reached over SEK 7 billion. We also noticed that somewhat a little price war has emerged. We also see activity with the larger banks calling the customer who wants to move the mortgages and try to have a recovery unit to keep them. I think there will be intense competition when it comes to mortgages going forward, but we are confident that we will be able to handle that quite well.
Going to the next slide, we can see that the turnover of the stock exchange, we actually increased our market share a little bit when it comes to number of transactions. We see that the institutional investors' part of the trading was decreasing and turnover was quite stable. We are keeping our position as the number one on transaction on the stock exchange, which of course is important for us to keep volumes up and to get good prices for our clients. Moving on to the next slide, of course, it's a lot about costs. We have a budget that we have communicated a 10.5% increase in cost during this year. We are confident that that will be something we can deliver on.
I also think it's worth noting that compared to other similar entities like Avanza, we have over 70% related to staff cost because we do everything almost in-house. That means that increasing staff cost is increasing our ambitions when it comes to time to market, to development, and also to give our clients a better customer experience and good services. We still have a target to reach 16 öre per savings krona in cost, which is the number one in the industry who have that. We think we will do that both by being cost efficient, but also by growing the savings capital over time. That, I think, will be the way to think for us. Other costs also just mentioning is actually market data that we give our clients premises and some IT costs.
I think our cost structure is quite simple. If we want to increase time to market, increase our ambitions, of course, we will increase costs when it comes to staff. Going to the next slide, of course, we have also done other things during the quarter. One is we have a new starting page for our clients, which is always a tricky thing to do because customers are used to the starting page. The customer seems to like our new starting page a lot. We have also education at the savings school that we have to reach new clients, group. Also, I think we have done something excellent for the consumer in the transparency where they can see exactly what they have paid during 2018 in fees, how much was Avanza, et cetera.
That of course, is something connected to MiFID II which over time I think will be very beneficial for us because I think the transparency and the security for the customers, what they are paying is going to be important factor in the future. When it comes to new products, we have launched AVA Gender Equality Tracker, which is an alternative to ETF and we now have over in the excess of 25 Avanza trackers on Avanza Markets, which is appreciated by the clients because to have an alternative to the ETFs has been in demand from our clients. We also see that Avanza Global, our global index fund that we launched the 26th of August last year, which I must say was not the best timing because we all know what happened to the market. I think the world index peaked on the 29th of August.
Now we're seeing good inflow in that fund and we have around SEK 2 billion in it. Also in Avanza Emerging Markets, which we launched here two and a half weeks ago, something like that. We have seen great interest from the clients. It's a well-priced, well-positioned product for our clients, and we have almost SEK 500 million in just a few weeks in capital and that's a more niched fund for our clients. We're very satisfied with that development. Going forward, I think one thing we like to note out also is that we have launched our first real open banking services and I think it's, in my opinion, the best in the industry and this makes it a lot easier for our clients who have securities, assets, and mutual funds in other institutions to transfer them over to Avanza.
Now this is done in collaboration with Tink but it's also we can see early days that the clients are using it more. They are moving more funds and also in every move they move more funds than they did previously. This means that you can move your mutual funds from one bank into Avanza in less than 60 seconds and you don't have to fill out any forms or anything. I think this is something is promising for the future in connection to our ambitions, of course, to increase the share of wallet with the existing client base. This is one piece of the puzzle that will enhance that strategy and I think also enhance the customer experience. Going forward to the next slide, of course cost growth, which will lead to increased growth and shareholder value long term is very important for us.
We are confident that we are investing in the right things. We also see that time to market is going to be more and more important. We launch our platform every Thursday morning and we can see that ability to have that kind of speed and time to market is extremely important for the future. We also see customer satisfaction is also dependent on that we can be fast, new things on the platform, new things on the mobile phones and the customer expects things to happen in Avanza to create a wow factor that we want to do. We also see that we are becoming more and more relevant to the larger audience, the people who are not that into the market.
We see good flows when it comes to monthly savings and customers who also come to Avanza are becoming a bit more active while they're Avanza clients as they were in the previous banks. Of course both customer growth and share of wallet is very important for our growing the net inflow. Of course, also in the quarter, the repo rate increase helped our NII. Of course the full effect of that, I think Birgitta will mention it will come in the late part of the quarter. That's always a continuous growth, customer satisfaction and strong innovation is extremely important for us going forward and we are confident that we are on the right track growing the business. With those words, I will leave it to Birgitta.
Thank you, Rikard. We will start with a financial overview. The revenues were in line with the previous quarter and slightly down year-on-year. Operating expenses year-on-year were up 8% as planned for and in line with our budget of 10.5 cost growth for 2019. Compared to last quarter, costs were down due to the fine from Swedish FSA of SEK 35 million regarding the pension company which was recorded in Q4. Please note that the costs for Q4 have been amended compared to the preliminary financial statements. The costs excluding the fine were up 6% quarter-on-quarter. As from last year, Stabelo is classified as an associated company in Avanza's accounts. Therefore, our share of Stabelo's results are included in the consolidated accounts. Stabelo's results burdened the operating profit with about SEK 2 million in the quarter.
We are convinced this is a good investment long term, even though the effect for the profit negatively in the startup phase. Altogether, this gives us an operating profit of SEK 100 million in the quarter, a decrease compared to Q4 of 10%, excluding the fine, and a decrease of 16% compared to Q1 last year. Consequently, the operating margin dropped to 37% in the quarter, down from 44% a year ago, a result of investment in further growth. Revenues per savings capital was stable compared to Q4, but down four bps year-on-year, mainly due to higher average savings capital. Cost per savings capital, which excludes the fine, was up one basis point quarter-on-quarter to 21 and stable year-on-year. A long-term ambition is, as Ulrika mentioned, to lower the cost per savings ratio to close to 10 bps.
It is in line with the best international peers. As said, total revenues were flat quarter-on-quarter, slightly down compared to Q1 last year. Net brokerage increased only slightly quarter-on-quarter, despite some more trading days and increased number of commission-generating notes and higher commission-generating volume. Brokerage income per turnover decreased from 9.8-9.4 basis points, the result of a larger share of transactions in fixed commission classes. Compared to Q1 2018, when brokerage were boosted by the high trading increase for certificates, net brokerage decreased by 8%. Brokerage income per turnover decreased from 10-9.4 basis points, while at the same time, turnover decreased by close to 1%. The number of commission generating notes increased slightly, whereas the volume was down slightly. Customer securities are traded at lower volumes and in lower brokerage fee classes.
Fund commissions decreased slightly, both quarter-on-quarter and year-on-year. Quarter-on-quarter, this is an effect of lower average fund capital after the big downturn in Q4. Fund inflow was good in the quarter, though, and the markets were up, and as of March, the capital is back on high levels. Year-on-year, the annualized fund commission per fund capital decreased by close to 3 basis points to 33 basis points, an effect of customers investing in funds with lower management fees. The NII increased by 34% both quarter-on-quarter and year-on-year. This is a result, of course, of the repo rate in January and consequently also higher STIBOR, which decreased the cost for our surplus liquidity. Since our bond portfolio is managed an average interest duration of three months, the interest rate hike was not fully materialized until in March.
Income from margin lending was only slightly higher than in Q4, despite increased volumes. This is due to a lower average interest rate, which in turn is a result of the improved customer offering in October. All else equal, and without taking any changes in customer behavior into account, the one percentage point increase in the interest rate from here with today's volume would have a full year effect of interest income by nearly SEK 300 million. Other income decreased by 16% quarter-on-quarter, mainly due to lower income from corporate finance and lower other commission income. Income from Avanza Markets and FX were stable in the quarter. Compared to last year, income from corporate finance was lower as well as the currency-related income, which last year was positively affected by the high activity in Canadian shares. Income from Avanza Markets increased.
Looking at the cost, you can see that in Q4 2018 we was burdened by the fine of SEK 35 million in the pension company. If we exclude the fine, costs increased quarter-on-quarter by 6%, mainly related to personnel costs and marketing expenses. Due to the introduction of IFRS 16 in 2019, leases on premises are now recognized as a right of asset and a lease liability in the balance sheet. This reduces costs from premises, including in other costs, the green line, while the depreciation increased by about the same amount, which is the yellow line. At the same time, an interest expense of about SEK 500,000 per quarter in 2019 arises in the net interest income. Compared to Q1 last year, costs increased by 8%, also here due to higher personnel costs and higher marketing expenses.
Personnel costs rose due to increased number of employees, mainly related to expanded development capacity. Capitalization is good with a total capital ratio of 17.2%, which is well over the capital requirement of 16.1%, which includes all external and internal buffers and Pillar 2 requirements. Part of significant holdings, which is Stabelo Group and our pension company, is now deducted from the capital base. The aggregated sum of significant holdings can up to 10% of Core Tier 1 be managed through capital requirements for shares with a risk weight of 250%. The part that exceeds 10% of Core Tier 1 must be deducted from the capital base. The Q4 figures have been adjusted accordingly. Please note that the figures for Q4 have also been changed compared to what we previously reported due to the fine from the Swedish FSA.
The decrease in total capital ratio compared to Q4 is mainly due to higher risk exposure amount for credit risk regarding institutions and covered bonds. We had a one-off effect in Q4, where we temporarily had a deposit of SEK 2.9 billion at the central bank with a risk weight of 0%, compared to the institutions that cover bonds with risk weights of 20% and 10% respectively. This also had a temporary effect on the LCR, which reached eight at year-end, but now has returned to above two, well above the requirement of one. The leverage ratio for the group is 2.9%, which is just under the required level of 3%, that is expected to be implemented in the second half of 2021. With that, Rikard, I think we can open up for questions.
Absolutely.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad now. The first question is from the line of Peter Kessiakoff from SEB. Please go ahead. Your line is open.
Yes, thank you. First of all, just going back to your comments, Rikard, relating to the new tool that you've launched together with Tink, you mentioned that you have better flows on the back of that. Would you dare to guess that we should see a positive impact from that in the net flows in April, or is the magnitude that big that we can see it on a group level?
I think it will be early days.
That's my first question.
To answer that question, I think this is one piece in the puzzle to enhance our customer to gather more of the savings into Avanza. How large effect it will have on net inflow on the total, I think it's just a bit too early days to make a judgment of that so far. Of course, it will have a positive effect. The magnitude of the positive effect, I don't want to comment on right now.
Okay. My second question relates to your other income, where you have the other net commission income, which is a negative number of SEK 11 million in the quarter. As I understand it, part of that or a majority of that is marketing expenses. When I then add the marketing expenses that you have on your P&L, it looks like the overall marketing costs for the whole group is up close to 40% year-on-year. First of all, do I understand correctly that other net commission cost is mainly marketing? Why, in that case, would marketing expenses be up so materially year-on-year? Is this a new level, you would say?
Well, first of all, the main part is not marketing. Marketing is some part of it, but it's not the main part. The effect that the marketing has been up when it actually comes to what we mean in operational cost called marketing, that's just Well, sometimes we take the cost in Q1 and sometimes in Q2, so we had something to talk about in the first quarter. Other income is a lot of other costs, including search engine optimizing, but that is not the main part. It's also cost for our mortgage product. It's cost for all other kinds of revenues that we have, cost for our customers, traders, cost for information on the website, and so forth. It's a lot of different costs.
Okay, the level of SEK 11 million negative that we have now, is that a level that we should expect onwards, or was it a temporary increase, for instance?
Actually, it depends on what our customers actually are using on the platform. I couldn't say if that is an ongoing trend or not.
Okay. Just on Stabelo, which as you mentioned, burdened the P&L by just above SEK 2 million in the quarter. Is that the run rate that we should expect throughout the year? Secondly, as you mentioned before, you have some income from Stabelo in terms of distribution fee. Would you say that if you look at the whole P&L effect that the Stabelo Corporation, is it still loss-making or are we close to break even?
I think that we don't comment on our relationship with Stabelo when it comes how our distribution fee and the cost is, there are two reasons for that. One is, of course, it will take time before it has a significant impact on the P&L. That's for sure being a mortgage portfolio. The other side of that is that there's a lot of people in this city starting mortgage funds at the moment, we don't want to disclose how the relationship between Stabelo and Avanza is in any further detail.
Right.
Just a comment, Peter, on the SEK 2 million in the quarter. Of course, that is dependent on how many new mortgages Stabelo actually gets. Of course, it's hard to say. If we get a lot of new mortgages, then that cost will probably increase. If they would get much fewer, that would probably decrease.
Okay. Just a final question. On the leverage ratio, which is then below 3%. I think that, if I understand it correctly, you haven't audited the results in Q1, it should've been above 3% if you adjust for that. Do you feel that you need to do an additional Tier 1 issue before the leverage ratio legislation comes into place in 2021 or?
Well, actually, we haven't put our foot down when it comes to that. As you see, we are constantly, bit by bit, getting up to the 3%. Of course, it depends on what level we have to have. 3% is the lowest level when we come to the end of 2021. We haven't really finalized the discussions on how we should make sure that we at all times are above 3%. It could be a Tier 1, it could be Core Tier 1 capital lowering our dividends, we haven't discussed that yet.
Okay, thank you.
Next question is from Nicholas MacBeath from DNB. Please go ahead. Your line is open.
Thank you. First of all, on the NII impact here in Q1, you wrote that the full impact on the bond portfolio from the repo rate hike came from March. Could you quantify how much of the total NII benefit from the rate hike that came in Q1, and how much you would expect to remain also into Q2?
Well, I can, of course, not quantify that in numbers, but what I can say is that we have the full effect by the end of March. Of course, we haven't seen the full effect in the quarter from that. You have to do your calculations yourself.
Also on Stabelo, could you say anything about the outlook for volumes? Also there's been some comments from Stabelo over the past few weeks about considering to broaden the offering to also do higher loan-to-values and possibly also with down payments and bridge loans and so on. Is that something you expect to launch in 2019?
Let's put it this way. Stabelo is working, and we are working together with Stabelo in improving and broadening the mortgage offering. I think it's not today I can disclose what we are doing, when we are doing it. As always, when we will do something, you will notice it. I don't want to comment on our future plans with Stabelo also because we believe also that there's a lot of things going on in the mortgage market, and we like to keep those cards close to ourselves. The answer to the question is that we are working on if I go down the road and be a visionary, of course, our offering with Stabelo will be different and more fully than it is today. I don't want to disclose any timelines for that.
Okay, thanks. Finally, a question on the mutual fund margin, which was down a bit here in the quarter. What do you think will be the trend from here? Do you expect to see further pressure on the margin, given that you've launched some very low-cost mutual funds of your own? Do you see potential for recovery on the back of rising stock markets and the inflows into equity funds, which typically have higher fees than maybe fixed income funds?
I would comment on it like this. I think that one of the results, of course, is that in certain types of conditions, customers go to index fund, money market fund, low-income funds. Once some risk is on, we get people investing in higher funds. Of course, that fluctuation will be there. What I stated previously, and I say today, I think there will be a price pressure on mutual funds. I think that a bps or two down is probably a long-term trend. I'm also confident that we will compensate that well with volumes. I think the transparency we got with MiFID II, I think we in the industry thought that all the customers would care a lot about this in 3rd of January 2018.
I think it takes a little bit time for customers to value the price for the product when it comes to making the investment. I think the jury's out on that, but I think that the margins on mutual funds in the industry is going down a little bit compared to today. I think that number will be a bit lower in the future.
Yeah, makes sense. Okay, thanks.
Next question is from Ermine Keric from Nordea. Please go ahead. Your line is open.
Thank you and good morning. My first question is on the commission on turnover. You say this came down to 9.4 basis points in the quarter. That is mainly owing to more commissions being done on a fixed rate. Is there anything in the trend or so that points to that continuing down or bouncing back up? How should we read into that? Thank you.
I think we communicated because we noted that during Q1. I think it is one quarter. If this is something that will come for the future, I think we have to wait and see to give a very good answer to that question.
Okay, thank you. Then on the cost inflation, 8% year-on-year now Q1. Could you give us any flavor on how-
Could you please repeat the beginning of the question? There was some disturbance.
Sure. On the cost inflation, you are currently below your run rate for the full year you have guided for-
Yeah
of the 10.5%. Could you give us any flavor on how to think of the phasing to reach those 10.5%?
I think we stated our guidance. We have stated our cost budget for 2019 is a cost increase by 10.5%. We do not change that comment.
I understand that. I was more thinking throughout the year as you start the year on a lower pace.
Yeah. Yes.
I would say you don't have to expect large fluctuations in the increase ratio quarter-on-quarter. Of course, there will be some changes as we only used 8% this quarter. Pretty even over the year.
Okay, thank you. The last question just on, I'm sure you've seen Swedbank also issue this new offering, basically the corresponding of Avanza Start but with savings capital up to 100,000 for their clients. Do you see any impact from this? Avanza has historically strived to be sort of price leader. Could we expect any changes from your side to adopt to this? You rather wait out and see any effect it has first?
I don't think we will. Swedbank launched this yesterday, we have not seen any effect yet. I think that we are confident that our offering, our customer inflows, our customer satisfaction, what we give to our clients is a very strong offering compared to all the peers in the industry. We are always following what our competitors are doing, we are not going to rush and do something just because Swedbank did something, because they don't lead our agenda. I think that if you look at this free trading, we had it since, I think, 2016. It's not a new invention into the market. I think the new invention is that they do it for 100,000. I think Nordnet has 80,000. We have 50,000. Time will tell.
Great. Thank you.
Just as a reminder, if you do have a question, please press 01 on your telephone keypad now. Next question is from Jens Hallén from Carnegie. Please go ahead. Your line is open.
Good morning. I just have one last question. Rikard, you mentioned again in the CEO comments that the higher cost will contribute to increased growth over time. Are you worried that we might not see that through the revenue impact until 2020 or even later?
I think that we are concerned that our growth has to be transformed into higher income, but we believe that the long-term target is growing number of customers, growing savings capital, and we believe that we are confident that we'll grow income over time. That's the comment that I have, because I think that we are more and more of this customer satisfaction, customer experience, brand recognition, brand name is extremely important to gain the clients and keep the clients. We think we're quite good at that, and we think that we will get paid over time for sticking to our strategy.
Okay, yeah, because of course you are succeeding in terms of customer numbers. Maybe as a follow-up on that, do you think that you can reach this revenue growth without adding on new products then? Can you reach a faster revenue growth than cost growth with the product base that you have today, or do you need to add on something different?
We added the mortgage loan, which is still early days. We launched it, I think it was the 4th of April last year. We are SEK 7 billion down the road, and I think the potential is much higher. That will, of course, increase our income. As I said before, I still think we have great opportunities of growing our mutual fund business, both by the bank and the pension company. All in all, it's about growing the volumes to savings capital that will generate more income or the business volume within Avanza. I think that we have the product and services in place, but I also think that we have to do more work with existing processes, existing services. We can make them easier, better, easier to use.
That will increase the activity among our clients as our open banking initiatives with moving securities have shown. That's one piece of the puzzle in getting more share of wallet which will be transformed into more income over time for Avanza.
Thank you very much.
Next question is a follow-up from Peter Kessiakoff from SEB. Please go ahead. Your line is open.
Yes. Hi, I just had a follow-up question. Just to, I guess, pick your brain, Rikard, a bit. If I look at products that have been launched over the last, I don't know, six, nine, 12 months, you have the Global Fund, you have the Emerging Markets funds, which you released recently. Within brokerage lending, you can borrow up to a certain amount for free. A lot of the products that have been launched have been to reduce margins or to lower the price towards customers quite significantly. When looking forward and the products that you might consider or looking at launching, is this the overall theme that it is to lower the price of existing products, or should we see that there's some element of broadening the product base?
I will not comment on future products because we never comment on them. I can put it like this. If you look at the Global Index Fund, of course, it's a very cheap fund for our clients. If you look at the Emerging Markets Fund, it's also a very well-priced fund for our clients. What we see is that when customer comes to Avanza and buy the Global Index Fund, 90% of them buy something else with a higher margin for us. It's a little bit having these products in the window, so to speak, to get the customer to go in and invest in other products with higher margin. We can see very clearly that works when you see new clients entering into Avanza, buying the Emerging Markets funds, 90% of them also invest in something else with a higher margin.
That's the basic idea behind it.
I think in the past, Avanza has communicated that the price point has become less. It's less of an important factor for the clients when they move to Avanza. It's rather the user experience, for instance, and that the platform is simply great. Would you say that has changed then?
I would say that I would emphasize that that's absolutely still in place, that the customer experience is extremely important today to gather new clients. I would say that the Avanza Emerging Markets and Avanza Global Index Fund is more of creating a wow factor, becoming the talk of the town, becoming people to get interested in Avanza, to get more inflows that will be invested in diversified portfolios for our clients. I think it's not either/or, it's probably both.
Okay. Thank you.
There are currently no further questions registered, I'll hand the call back to the speakers. Please go ahead.
Okay. Thank you very much.
Thank you. Bye bye.
Bye.