Ladies and gentlemen, welcome to the Avanza Q1 report 2018. For the first part of this call, all participants will be in listen-only mode, afterwards, there'll be a question and answer session. I'll now hand the floor to our first speaker, Rikard Josefson, CEO. Please begin.
Okay. Thank you very much. You're all welcome to this web course. As I understand it, we cannot see the slides, you have it on our website. I will try to guide you on what page I'm talking to. If you start off by looking at the second page, which is headlined Q1 Highlights. We can see for the first quarter that we have a very strong customer growth. It's the second-best quarter ever when it comes to new clients, 42,400. We also see high net inflow, especially in the beginning of the quarter. We also see that existing customers are a bit hesitant to add more money into Avanza because the trading activity has gone down quite significantly at the end of the quarter.
We're also both proud and happy to see that the Net Promoter shows that we still have a very high recommendation rate with our clients. As you know, customer satisfaction is very high up on our agenda. That's nice to see that is still going on. We can also see when it comes to activity that we have not yet at the moment the theme like we had in before Christmas. We had a lot of Bitcoin trading and cryptocurrencies. In the beginning of the year, it was a lot of cannabis shares trading, now that has faded out a little bit. Now it's more a very hesitant market with low activity.
If you take the next page, which is highlighted Mixed Market Environment in Q1, we can see, as I said, it was a very strong first part of the quarter, very slow at the end of the quarter. We also see good funding flows, fund share savings kept on increasing. Of course, that's in line with our strategy to create a more stable top line with the recurring income. We also, from the fourth of April, we launched our Mortgage Loan+ completely. We have been in a soft launch private phase since November until the end of March. During the period which we reached SEK 630 million in lending, now as mid-April, it's SEK 870 million, the demand seems to be quite good. I think one highlight when it comes to Mortgage Loan+ for us also that we see that the average LTV of our lending is 34%.
That shows that a lot of customers are moving their mortgages from other competing institutes in the market to us, and that also shows that the quality is excellent in the portfolio that we are building up. Of course, we are happy with the results on the Mortgage Loan+, but it will take time to build the mortgage portfolio before it has a very significant impact on our P&L. If you go to the next page, you can see that the turnover on Stockholm Stock Exchange, including First North, rose 10% in the quarter and turnover on (Avanza Customer Check pays). The number of transactions by Avanza customer fell by 3%, while the number of transactions with Stockholm Stock Exchange, including First North, rose 16%.
We also see that the big increase in transactions for the Stockholm Stock Exchange as a whole is mainly due to higher activity among foreign institutional investors. And that kind of trading is, of course, not in competition with Avanza. If you look at the next page, you can see the headline Record Strong Quarterly Income. We have a record high income of SEK 271 million. We believe our brokerage income is still strong, and I would like to highlight the fund commission. Birgitta will come back to that, but it now accounts for 26.6% of our revenues compared to 21.7% in Q1 2017. So that also, once again, in line with our strategy to create more recurring income. We also have good foreign stock trading, and we can see increased interest in foreign markets and Avanza Markets contributed to higher other income.
Corporate finance were a bit slower quarter one, but we had a very strong Q4, and that is, of course, a volatile business in itself. Cost development is according to our plans, and we are very comfort in that we will deliver the 8%-10% cost increase on an annual basis. Of course, the cost has been higher for Q1, but we have no reasons to believe that we cannot deliver the 8%-10%. And the net result was SEK 104 million. The next page is about the successful MiFID II implementation. We think that the MiFID II is a very good regulation. We have high ambitions when it comes to simplicity and clarity. We think that we did a very good launch of MiFID II with very high transparency. We see that prices on mutual funds are more in discussion among investors.
We also think that a lot of people thought that the Q1 would be slow because of hesitant to trade because of MiFID II. But we can see that the free trade information and the transparency creates more comfort among our clients, and they actually have, I would say, boost the activity more than anything else. We also see our Private Banking business growing because you can see that a lot of our banking customers among our competitors are being more aware of what you actually are paying for the services that are given. And since we are a low price alternative, we can see very many new customers in our Private Banking area. We also see our strong pension offering gaining market share.
We're growing from a low level, that's, of course, also linked to our mutual fund business because most of the pension capital is, of course, invested in mutual funds. We also know that some regulation will come in place this summer that will also help the customers to move from other institutes to Avanza. We see great opportunities in that area. The next slide seven. As always, the key success factor for Avanza is customer satisfaction, I think that's on top of everybody's head in Avanza to keep that number one position because it's a very important ingredient in our brand. Continuous growth, both in number of customers and in volumes. That's always high up on the agenda.
Of course, we have a lot of things in the forum right now that I think makes me comfortable that we will have strong innovation, we see a lot of great possibilities in the innovative areas. With that said, I will turn you over to Birgitta, our CFO, to comment on the financials.
Thank you, Rikard. If we start at slide nine, where you have the financial overview, you can see that the operating income is, as Rikard said, on a record high level for the second quarter in a row. Up growth is still high, while decrease is a little decrease in the second half of the year. We still have our guidance of 8% to 10% for the full year. The operating profit improved compared to Q4, but more or less flat year-on-year due to higher both revenues and costs. This is just an operating margin of 44% for the quarter. Revenues per savings capital are at the same level as Q1 last year, but two basis points lower than Q4.
Cost per savings capital are at about the same level, both quarter-on-quarter and year-on-year, we expect that to be below 20 basis points pretty soon if we continue to have the strong growth in customers and savings capital. If we look at the quarterly revenues on next slide, we can see that, as I said, the revenues have been flat quarter-on-quarter that fund commission has been higher, the revenues from corporate finance were lower. The brokerage income was flat both quarter-on-quarter and year-on-year. This despite record high number of commission generating customers and the commission notes. The securities transactions are still executed in smaller volumes and in lower commission classes, which produced slightly lower brokerage income per turnover, which fell from 10.3 to 10 basis points from Q4.
During the quarter, we have seen that the cryptocurrency trading was strong in the beginning in January. It fell. It definitely slowed down right in the end of the quarter, but it still stands for 7% of the total brokerage income for the quarter. The trading activity has, and consequently, brokerage income was higher in January, even though the volatility were lower and then increased in February and March. This shows that our customers actually are hesitating a little bit about what to invest in, even though the volatility is a little bit higher. When it comes to fund commissions, the revenues increased by 12% quarter-on-quarter and 37% year-on-year. We saw a very strong net inflow in January and an increased market value of the fund capital in January.
The net inflows were a little bit slower in February and March. We had a decrease in the market values in February and March as well. The savings capital in the fund increased by 22% since Q1 2017. Looking at the net interest income, it was up 11% quarter-on-quarter and flat year-on-year. We can see that both mortgage and margin lending products have increased during the quarter, which gave a positive effect on the NII. On the other hand, we had increased cost for resolution fee and deposit guarantee fees. All else equal, and without taking changes in customer behavior into account, one percentage point increase of the interest rate with today's volume would affect the full year net interest income by close to SEK 250 million.
Other income was down 17% quarter-on-quarter due to lower corporate finance revenues, which, as you know, were very high in the last quarter last year. Customers' interest in foreign securities and the activity in Avanza Markets has increased both compared to Q1 and Q4 last year. We have seen that the activity in Avanza Markets is coming back as interest for cryptocurrencies has cooled down. If we change slide and go to the cost part instead, we can see that the costs are according to plan, even though they are higher in first quarter of 2018 compared to the same period last year. We will see that the cost growth will slow down in the second half of the year. Cost has actually been 3% lower quarter-on-quarter. Mainly due to lower personnel costs and lower marketing costs.
Year-on-year, we had another cost increase of 23%, mainly due to expanded development capacity for further growth. The number of employees are higher. With that comes other higher costs such as premises and license fees. We have also increased the IT consulting costs. All in all, the cost guidance of 8%-10% for the full year remains. Switching to the next slide regarding capitalization, we can see that we still have very strong capital situation with a total capital ratio of 17.6%. This is compared to our requirements, which are 15.6% if we include both the external legal requirements, the buffer requirements, but also our internal buffers and pillar two requirements. Since year-end, the main changes in the capital requirement calculation is due to a new interpretation regarding the credit facility to Stabelo, which had a possible effect on the capital ratio.
Other changes in the capital requirements is merely a result of increased lending and deposits. With that said, I think we could actually hand over to questions.
Absolutely. We will take multiple questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, please dial 01 on your telephone keypad now. Our first question comes from Peter Kessiakoff of SEB. Please go ahead. Your line is open.
Yes. Hi, Peter Kessiakoff from SEB here. Three questions. Starting off on the fund fees. As you mentioned, clients have become more risk-averse or become more hesitant. That is also noted in the monthly press releases that you are sending out in terms of what kind of funds are people buying, moving from equity funds to bond funds. When I look at the results, the amount of savings in mutual funds is up some 2%, 3% quarter-over-quarter. The actual income from mutual funds is up 13%. You have a margin expansion. Could you just elaborate what could be the driver of that? I note that going back a few years, there are quarters now and then when the average fee ticks up a lot during a single quarter, then comes down a lot the following one or two quarters.
Is this sustainable, or should it be coming down from these levels? That's my first question.
Well, as I said, what we have seen during the quarter is that in January, we had a very strong inflow and that we had a market going up so the market value of the fund saving capital actually increased pretty much in January. We had a little bit slower flows in February and March. When it comes to the market value, it actually had some decrease in March. Of course, this fluctuation means that if you only compare the savings capital with the number that you have by year-end and the number by the end of March, it could look a little strange compared to the revenues. I think it's more fluctuations during the quarter that's the reason for this figure.
Okay. It's more an effect of how the average savings has been during the quarter rather than there being anything different in the underlying?
Yeah.
Okay. In terms of foreign trading, just noticing that it's some 10% of trading in the quarter, and it's been around 6%-7% the last year. Is this solely driven, or the increase, is that solely driven by trading in cannabis stocks, or is there anything else that has increased this as well? Do you expect this to remain at these levels, or do you see any reason for it to remain here or go down to the normalized level?
It's a difficult question, but I will answer it like this. We see that our clients are getting more and more comfortable and interested in investing in other markets than the Stockholm Stock Exchange. I think the home bias watched in the savers is going down a little bit. My prediction is that this will continue because we are more globalized world, and I think people are more comfortable in buying Apple share than an Ericsson share. It's the same thing for the customer. I think we will see increasing interest.
Okay. The last question is just around Stabelo. As you mentioned, you released the offering during late in the quarter, early Q2, and the lending accelerated quite a lot. The SEK 240 million that was originated during the first two weeks in April, is that the level that you would expect? Is that the run rate that you expect for, say, the coming periods of SEK 5 billion-SEK 6 billion on an annualized level?
I think it's a little bit early days to have that prediction. We are comfortable that it's a good number. We think it's a growth that is in line with our expectations. I would rather answer that question more firmly after Q2, when we can see a few more weeks or months with a full offering as we have done since April 4.
Okay. If I rephrase the question, then, is there anything else that you will do in terms of change that could ramp up the pace, or is it now solely dependent on actual demand from your clients?
I think that one thing that we can do and will do is, of course, that we released it April 4th, but we have not done any external marketing about the offer yet.
Okay.
We build some marketing ambitions when it comes to Mortgage Loan+.
Okay. Those are my questions. Thank you.
Thank you.
Thank you. Our next question comes from Maths Liljedahl of Handelsbanken. Please go ahead. Your line is open.
Yes, good morning. Can you hear me?
Yes.
Yeah. A question regarding the NII sensitivity. You raised it from 200 to 250. If there's been any changes in your underlying hedges, et cetera, and you also previously said that you didn't expect a lot of NII sensitivity up to -20 or something in terms of STIBOR. Has this also changed? Thanks.
What has changed is that we now see that we don't have a lot of floors in our bond portfolio. That's one of the reasons. Of course, the main reason is that the total balance of our balance sheet is actually larger now. We have a larger portfolio. We have a larger part in lending to our customers and so forth. Of course, what we do have when it comes to the first 30 basis points is that we have a floor when it comes to our mortgage loans, because that is capped to -20 basis points. Otherwise, it's mainly the growth in our business that's the reason for this change.
Okay, thank you. That was all for me.
Thank you. Our next question comes from Nicolas McBeath of DNB. Please go ahead. Your line is open.
Yes, good morning. First a question regarding the news from this morning that the Swedish regulator has withdrawn Remium's license. I think you have some cooperation and some business volumes coming from Remium. Could you remind us of the setup of this cooperation and if you see any risk of revenues or business volumes being lost as a consequence of the license being withdrawn?
The cooperation with Remium, I think, was finished in beginning of 2017, I think. We have no business agreement whatsoever today.
Okay. Thank you. Another follow-up on the mortgages. Do you have any plans also to start issuing or distributing new mortgages, or do you think that it's mainly going to be changing or taking existing mortgages onto the customer platform for a long time from here?
It's a difficult question. I think that for the time being, I think we will be taking mortgages from our competitors since they have the LTV of 60%. A lot of new customers buying the first apartment or house, they need more lending than that. We also see that we can, and we will, over time, take on new customers if they have an LTV below 60%. A lot of people, especially in Stockholm, who are in the market, they sell and release a lot of equity, and we will be able, over time, to sell those customers, too.
Okay, could you give any kind of What expectation do you think that it's reasonable during this year, or do you think it's a more long-term ambition?
I think we can be clear on that question in the next quarter because that's a part of our development plan, and I'm not sure exactly when we will start issuing loans for new homes or when you buy a new apartment or a house. Of course, that's in our plans, and we will discuss more about it later.
Okay. Another follow-up on that. Could you give any kind of information of where do you see most of your mortgage customers coming from? Is it any particular banks or yeah, could you give any info on that?
We don't disclose that information.
Okay. Finally, also on the mortgages, what do you see as the main bottleneck for the growth? Is it funding demand or your internal processes, how much you can process?
I think that at the moment, we don't see any bottlenecks. Of course, if the demand would increase a lot, we will test our system. At the moment, I think Given the interest we see right now, I think we'll be able to manage it quite well with a good customer experience. If there are any bottlenecks, if we get an extremely high demand, time will tell, but I cannot see that right now.
What do you think if demand increases? Is the bottleneck mainly your own systems or the availability of funding, you think?
I think that the bottleneck maybe could be, in some sense, probably a combination of both, because I think we're very comfortable with the funding situation, but if we get an extremely high demand, of course, we need to attract new investors in the same pace. That would be a challenge.
Okay, thanks. That's all my questions.
Thank you. Our next question comes from Ermin Keric of Nordea. Please go ahead. Your line is open.
Thank you. I think most of my questions have been answered, in terms of the brokerage income, you say that the commission per note is continuing somewhat down still. More looking across your offering, if there's anywhere you still have quite good profitability or margins in terms of the brokerage, it's probably on the FX spread where you charge 25 basis points. Do you see any risks of that not being sustainable in the long run when investors become more and more interested in trading foreign stocks?
You never know. I think that we don't see a pressure on those 25 basis points at the moment. Will the interest grow more and more? Will that become a competitive factor with the competition? We will, of course, watch it quite close, right now and for the foreseeable future, we don't see a pressure in that.
Okay, thank you. A final question just on new clients coming in and applying for the Stabelo loan. Do you see any kind of cross-selling trends already? Do they often also become savers with Avanza then, or do you still see a lot of customers coming in and just leaving application for a mortgage?
I would say it's too early days to say that because what we see is that so far it has been mainly existing Avanza clients that's been taking the Stabelo loan. That's also because in the soft launch we directed the opportunity to get the loan to our existing client base. For totally new clients, Avanza it's only been open since fourth of April, I cannot draw any conclusions of that.
I understand. That's all for me. Thank you.
Thank you. Our next question comes from Jens Hallén of Carnegie. Please go ahead. Your line is open.
Great. Thank you very much. Three questions from me. First, if we're looking at activity levels, it ended perhaps a little bit slower towards the first quarter. Is that maybe also an indication of how the second quarter has started? If you can give us an idea of that.
Well, we have seen that the activity on the Stockholm Stock Exchange has been slower even in the start of April. I would say that it's in line with how the end of Q1.
Okay. It's continuing more or less at the same level. It's not falling further in some way.
Yeah.
I don't say it's falling. I think March was boring. April has started boring.
Okay, fair enough. Thank you. Second question on costs. As you say, they increased quite a lot in the first quarter. Can you maybe give a little bit more flavor of why you think you now started so high and why that trend should not continue for the next three quarters? i.e., how are you going to come down to the total 8%-10% mark for the year?
Well, we had very low costs in Q1 last year, and since we ramped up during the second year and it was increased during the year, of course there's a larger effect in the beginning of this year than if you compare to the same quarter last year. We had done the budget and we are holding on to that, and we believe that we will continue to hold on to that for the full year. I definitely would think that we will see a large increased cost increase in Q2 as well, then it will be smaller and even smaller in Q3 and Q4.
Okay. Will the focus then be not so much on staff cost but on all other operating expenses? Is that where we're going to see the increase now for the next three quarters?
I think we will see the increase in different lines. One of the costs, of course, is that we now have two offices and that means that we have more premises costs. In Q4, we had some IT consultants as a replacement for not employing personnel yet. I think we will see increases in personal cost as well, but it will turn out on different lines.
Okay, thank you. Then finally, also on Stabelo. Now it's becoming a bit more meaningful, I guess, in terms of volumes. In terms of revenues for you, at what point do you think it will then be noticeable in the accounts? I guess it will come up as somewhere in commission income.
Notable. Depends on what numbers you need to have to be notable. You know that we are sharing the 50 basis points between the funds between three parties, not equally. You can do the calculation yourself there when it comes to the volume.
Clearly, as said, I think that when it comes to the impact on the P&L of Avanza it will be a few years down the road because it will have a major impact. This is a long-term investment we are doing, building up the volumes. I think that we are more focused on the, so to speak, volumes, attracting new clients, and over time, of course, it will increase the P&L. We are a bit hesitant to predict the growth rate of Stabelo both internally and especially externally because we want to make sure that we create a great customer experience in the Stabelo collaboration, and that's our focus at the moment.
Okay, fair enough. Thank you very much. That's all for me.
Thank you. Once again, if there are any further questions on the line, please dial zero one on your telephone keypad now. We have one further question coming through. That's from Veronica Ek of Bloomberg. Please go ahead. Your line is open.
Hi. I was just wondering how the outage on Nasdaq is affecting you and your customers today.
Of course, it's affecting us a lot because we cannot trade. I think it's remarkable that we are now at 10:30 on the stock exchange and still the internet meeting is still not open. Of course it's a very sad day for our customers and us today when we cannot have the stock exchange open.
Thank you.
Thank you. Once again, if there are any final questions, please dial 01. As there are no further questions at this time, I'll hand back to our speakers for the closing comments.
Okay. No further questions. Thank you for participating, and I wish you a very great Wednesday. Thank you.