Ladies and gentlemen, welcome to the Avanza Q1 Report 2018. I'll now hand the floor to our first speaker, Richard Josserson, CEO. Please begin.
Okay. Thank you very much and all welcome to this webcast. As I understand that we cannot see the slides, but you have it on our Web site. So I will try to guide you on what page I am talking to. And if you start off by looking at the second page, which is headlined a Q1 highlights, we can see for the Q1 that we have a very strong customer growth.
It's the second that we would have when it comes to new clients, 42,000 of 100. We also see high net inflow, especially in the beginning of the quarter, but we also see that existing customers are a bit hesitant to add more money to our answer because the trading activity has gone down quite significantly at the end of the quarter. We also are more proud and happy to see that more event sharing shows that we still have always have very, very high recommendation rate with our clients. And as you know, customer satisfaction is very, very high up on our agenda. So that's nice to see that, that is stable and on.
We can also see when the constant activity that we have not at the moment we are seeing that it hasn't 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 and now that has traded out the EBIT. 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 and very slow at the end of the quarter.
We also see good fund inflows and fund share savings kept on increasing. Of course, that's in line with our strategy to create a more stable top line recurring income. We also from the 4th we launched our mortgage plus completely. We have been in a soft launch private phase since November until November March, during the period which we reached $630,000,000 in lending and now as mid April, it's $870,000,000 and the demand seems to be quite good. I think one highlight when it comes to Moody's platform is also that we see that the average LTV of our lending is 34%.
That shows that a lot of customers are moving the mortgages from other competing institutes in the market towards us and that also shows that the quality is excellent in the portfolio that we are building up. But of course, we are happy with the results on our mortgage plus, but it will take time within the mortgage portfolio before it has a very significant impact on our P and L. If you go to the next page, you can see that the turnover on stock exchange, including 1st loss, rose 10% in the quarter and turnover in Alonzo customer caretakers. The number of transactions by Alonzo customer fell by 3%, while the number of transactions in the stock exchange, including 1st floor, was 16%. But we also see that the big increase in transactions for the stock exchange as a whole is mainly due to higher activity among foreign institutional investors and that kind of change is, of course, not in competition with Avanza.
If you look at the next page, you can see that the headline records strong quarterly income. We have a record high income of $271,000,000 This we believe our brokerage income is still strong. And I would like to highlight the fund commission, DeGeeter will come back to that, but it now accounts for 26.6% of our revenues compared to 27% in Q1 'seventeen. So that's also once again in line with our strategy to create more recurring income. And then we also have good foreign stock trading and we continue to increase interest in foreign markets and Avanza markets contributed to higher other income.
And corporate finance were a bit slower quarter 1, 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% to 10% cost increase on an annual basis. But of course, the cost has been higher for Q1, but we have no reasons to believe that we cannot deliver the 8% to 10%. And the net result was $104,000,000 The next page is about the successful MiFID II implementation. We think that the MiFID II is very good regulation.
We have high ambitious when it comes to simplicity and clarity. We think that we did a very good launch of our MiF II with very high transparency. We see that prices on mutual funds are more in discussion among investors, but 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, boosted their activity more than anything else. We also see our private banking business in because we can see that a lot of private banking customers and then our competitors are being more aware of what they are paying for the services that they are giving.
And since we are a low price alternative, we can see very many new customers in our cargo lending area. We also see our strong pension offering gaining market share. We are growing from a low level and that's of course also linked to our mutual fund because most of the pension capital is, of course, investing in mutual funds. And we also know that some regulation in common place is somewhere that will also help the customers to move from other institutes, Swarvonsa. So we see great opportunities in that area.
And the next slide, Slide 7, As always, the key factor for Avanza is customer satisfaction. And I think that from top of everybody's head in Avanza to keep that number one position because it's a very important ingredient in our brand. Continue as well, both in number of customers and ingredients. That's always high up on the agenda. And of course, we have a lot of things in the call right now that I think makes me comfortable that we will have strong innovation and we see a lot of possibilities in the innovative areas.
With that said, I will turn you over to Debjita, our CFO, to comment on the financials.
Thank you, Richard. And if we start at Slide 9, where you have the financial overview, you can see that the operating income is, as Philip said, on record high level for the Q2 year. OpCo is still high, while decreases due decrease in the second half of the year. So 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 also an operating margin of 44% for the quarter. Revenues per sale used capital are at the same level as Q1 last year, but two basis points lower than Q4. Cost per sale used capital are at about the same level both quarter on quarter and year on year and we expect that to be below 20 basis points pretty soon if we continue to have the strong growth quarterly revenues on next slide, we can see, as I said, the revenues have been flat quarter on quarter and that some commissions have been higher, but the revenues from corporate finance were lower. The brokerage income was flat both quarter on quarter and year on year and this despite record high number of commission generating customers and the commission notes. The securities transactions are still executing smaller volumes and in lower accretion capital, 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, but then it's tough. So it definitely slowed down at the end of the quarter and but it still stands for 7% of the total brokerage income for the quarter. The trading activity has and the consequencing brokerage income was higher in January even though the volatility were lower and then increased in February March. And it 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 some 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 over time capital in January. Then the NSE sales were a little bit slower in February March and we had a decrease in the market values in February March as well. But the savings capital in the fund increased by 22% since Q1 'seventeen. 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 given positive effects on the MMI.
On the other hand, we had increased costs for resolution fee and deposit guarantee fees. All else equal and without taking changes in customer behavior into account, a 1 percentage point increase of the interest rate in today's volume would affect the full year net interest income by close to $250,000,000 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 the Vanta markets has increased both compared to Q1 and Q4 last year. We have seen that activity in the rental market coming back as the interest for cryptocurrency has cooled down. So, if you change slide and go to the cost part instead, we can see that the costs are according to plans, even though they are higher in the Q1 of 'eighteen compared to the same period last year, we see that the cost growth will slow down in the second half of the year.
Costs have actually been 3% lower quarter on quarter, but mainly due to low personnel costs and lower marketing costs. But year on year, we had a cost increase of 23% and mainly due to expanded development capacity for further growth. The number of employees are higher and we should be back on for other higher costs such as premises and license fees, but we have also increased the IT consulting costs. So all in all, the cost guidance of 8% to 10% for the full year remains. So switching to the next slide regarding capitalization, we can see that the still have very strong capital situation with a total capital ratio of 17.6%.
This should be 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 Tier 2 requirements. Since your end, the main changes in the capital requirement calculation is due to a new interpretation regarding the credit facility to Saviello, which had a positive effect on the capital ratio. Other changes in the capital requirements is merely a result of increased lending and deposits. And with that said, I think we could actually hand over to questions.
Absolutely. That's it. Not for questions.
Thank you. Our first question comes from Peter Kieslof of SCV. Please go ahead. Your line is open.
Yes. Hi. Pieter Kessel from SCV here. Three questions. Starting off on the fund fees, I mean, as you mentioned, clients have become more risk averse or become more hesitant.
That's also noted in the amount of press releases that sending out in terms of what kind of funds are people buying moving from equity funds to kind of bond funds. But when I look at the results, the number or the amount of savings in mutual funds is up some 2%, 3% quarter over quarter, But the actual income from mutual funds is up 13%. So you have a margin expansion. Could you just elaborate what could be the driver of that? And I mean, I note that going back a few years, there are quarters now and then when the average fee picks up a lot during a single quarter and then comes down a lot the following in 1 or 2 quarters.
Is this sustainable or should it be coming down from these levels?
That's my first question.
No. 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. Then we had a little bit lower sales in February March and when compared to the market value, it actually had some decrease in March. And of course, this translation means that if you only compare the savings capital with with that number that you have by year end and the number by the end of March, it could look a little bit more strange compared to the revenues. But I think it's more fluctuations due in the quarter.
That's the reason for this figure.
Okay. So it's more an effect of how the average savings has been during the quarter rather than there being anything different in the underlying? Yes. Okay. Then in terms of foreign trading, just noticing that it's some 10% of of trading in the quarter and it's been around 6% to 7% the last year.
Is this solely driven or the increase, is that solely driven by kind of trading in cannabis stocks? Or is there anything else that has increased this as well? And do you expect this to remain at these levels? Or whether it's do you see any reason for it to kind of remain here or go down to the normalized level?
It's a difficult question, but I would answer it like we see that Swedish is our clients are getting more and more comfortable and interested in investing in other 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 shares than an Ericsson share. It's the same thing to the customers. So I think you will see increasing interest.
Okay. And then the last question is just around Stabilo. And as you mentioned, you kind of released the offering during late in the quarter, early Q2 and the lending accelerated quite a lot. Is this the SEK240 1,000,000 that you that was originated during the 1st 2 weeks in April, is that the level that you would expect set the run rate that you expect for, say, the coming periods of SEK 5,000,000,000 to SEK 6,000,000,000 on an annualized level? Is that 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 setting in line with our expectations. But 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. But if I rephrase the question then, is it 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 need to pay for it, but we have not done any external marketing about offer yet. We will do some marketing ambitions when it comes to mortgage class. Okay. That's
those are my questions. Thank you.
Thank you.
Thank you. Our next question comes from Matt Sliunaro of Handelsbanken. Please go ahead. Your line is open.
Yes. Good morning. Can you hear me? Yes.
Yes. A question regarding the NII sensitivity. You raised it from 200 to 250. If there's been any changes in your underlying headsets, etcetera. And you also previously said that you didn't expect a lot of NII sensitivity up to minus 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 portfolio, our bond portfolio. So that's one of the reasons. But of course, the main reason is that the total balance of our balance sheet is actually large amount. So we have a larger portfolio, we have a larger part in lending to our customers and so forth. So but of course, what we do have when it comes to the first thirty basis points is that we have a floor when it comes to our mortgage loan because that is capped to minus negative 20 basis points.
But otherwise, it's mainly the growth in our business that's reaching for this change.
Okay. Thank you. Yes, that was all from me. Thank you.
Our next question comes from Nicholas Breit of DNV. Please go ahead. Your line is open.
Yes. Good morning. So first a question regarding the news from this morning that the Swedish regulator has withdrawn Remium's license. I think you have some corporation and some business volumes coming from Remium. Could you remind us of the setup of this corporation and if you see any risk of revenues or business volumes being lost as a consequence of the license being withdrawn?
The incorporation with Ingviel, Lotte was finished in beginning of 2017, I think. So, we have more business in Wixen whatsoever.
Okay. Thank you. And then another follow-up on the mortgages. So 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 fixed income 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 we have the activity of 60%. A lot of new customers buying the 1st apartment or house, they need more rental than that. But we also see that we can and we will, over time, take on new customers if they have relatively below 60%. And a lot of people, especially in Stockholm, who are in the market, they sell and lease a lot of equity and we will be able over time to serve those customers too.
Okay. But could you give any kind of what's the expectation? Do you think that it's reasonable during this year? Or do you think it's more long term ambition on that?
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 rooms or new when you buy a new apartment or house. But of course, that's in our plans and we will disclose more about it later.
Okay. And then 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 yes, could you give any info left?
We don't disclose that information.
Okay. And then finally also on the mortgages. What do you see at the MEN in a bottleneck for the growth? Is it funding demand or your internal processes, how much you can process?
I think that we at the moment, we don't see any bottlenecks. But of course, if the demand would increase a lot, we will test our system. But at the moment, I think we have given the interest we see right now, I think we will be able to manage it quite well with the good customer experience. If the volume bottlenecks, if you get an extremely high demand, time will fail. But I cannot see that right now.
Okay. But 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 bottom rate maybe could be in some sense probably a combination of those, because I think we are 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 Kirich of Nordea. Please go ahead. Your line is open.
Thank you. I think most of my questions have been answered. But in terms of the brokerage income, you say that the commission per note is continuing somewhat down still. But more looking across your offering, is there 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 for that alone. Will the interest grow more and more? Will that become a competitive factor with the competition? We will, of course, we will ship quite close.
But right now and for the foreseeable future, we don't see a pressure in that.
Okay. And then a final question just on new clients coming in and applying for the Sibylla loan. Do you see any kind of cross selling trends already? Do they often also become savers with events then? Or do you still see customers coming in and just leaving an 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 Algonquin clients has been taking the Fabero loan and that's also because in the soft launch, we direct the opportunity to get the loan to our existing client base. So for totally new clients, our loan sites only been open since 4th April. So I cannot draw any conclusions of that.
I understand. That's all for me. Thank you.
Thank
you. Our next question comes from Ian Tillian of Carnegie. Please go ahead. Your line is open.
Okay. 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 Q1. Is that maybe also an indication of how the Q2 has started, if you can give us an idea of that?
We have seen that the activity on the stock on stock exchange has been slower even in the start of April. So I would say that it's in line with how we at the end of Q1. Okay.
So it's continuing more or less at the same level, it's not falling further?
Is that what you said?
I don't see it falling. I think March was boring, April has started boring.
Okay, fair enough. Thank you. And then second question on costs. And as you say, they increased quite a lot in the Q1.
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 3 quarters, I. E, how are you going to come down to the total 8% to 10% mark for the year?
Well, we had very low costs in Q1 last year and since we ramped up during the 2nd year and 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 have 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. So I definitely think that we will see large increased cost increase in Q2 as well, but we think it's smaller and even smaller in Q3 and Q4.
Okay. But will the focus then be not so much on staff cost, but on other operating expenses? Is that where we're going to see the, I guess, the increase now for the next three quarters?
Well, I think you'll see the increase in different lines. I mean, one of the cost per quarter is that we now have 2 offices and that means that we have more benefit costs. In Q4, we had some IT consultants as a replacement for not employee personnel yet. So I think you will see increases in personnel costs as well. So it will turn out on different plans.
Okay. Thank you. And then finally on Stabilos, so you now now it's becoming a bit more meaningful, in terms of volumes, in terms of revenues for you. When do 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. That's a lot of numbers you need to have to be notable. But I mean, we know that we are sharing the 50 basis points that's in the fund between 3 parties, not equally low. And you can get through the calculation yourself there when it comes to the volume.
And clearly, as I stated, I think that when it comes to the impact on
the PML on the line
side, it will be few years down the road because it will have some major impact. So this is a long term investment we are doing, building active volumes. And I think that we are more focused on, so to speak, volumes getting attracting new clients and over time, of course, if we increase the P and L. But we already have the same to predict the growth rate of StudyL, both internally and especially externally, because we want to make sure that we create a great customer experience in the Stabiola Corporation and that's our focus at the moment.
Okay. Fair enough. Thank you very much. That's all for me.
Thank you. And we have one further question coming through. That's from Veronika Eek 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?
So, Truett, it's affecting us a lot because we cannot play. So, of course, it's I think it's remarkable that we are now at 10:30 on the stock exchange. So we went into the meeting and still not open. So of course, it's a very sad day for our customers and also they cannot have the stock exchange open.
Thank you.
Thank
you.
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.