Ladies and gentlemen, welcome to Avanza interim report for January to September 2017. Today, I am pleased to present CEO Johan Prom and CFO Birgitta Hagenfeldt. For the first part of this call, all participants will be in a listen-only mode, afterwards there will be a question-and-answer session. Johan Prom, please begin your meeting.
Thank you. My name is Johan Prom. I am the CEO of Avanza. I would like to welcome you all to this Q3 presentation. I will start with a business update, thereafter our CFO, Birgitta Hagenfeldt will take you through the financial part. The presentation will take approximately 20 minutes, then we will open up for questions afterwards. The trading climate in the quarter was relatively weak and volatility was lower and even lower than in Q2. At the same time, index was down both in July and August. The weaker market development in the major part of the quarter affected both customers' trading activity and fund inflows. The trading volume per trading day was lower as well as number of trades, even though the number of commissions-generating customers were at record high levels, which well followed our long-term strategy.
The market environment affected our trading-related income, including both brokerage and FX. In September, however, index rose and both customer activity and fund volume increased. Corporate activity was seasonally lower in the third quarter, pipeline looks good for the current quarter since market conditions for investors remain. The market share on other markets, our commission on free trading in ETP was strong at 66% of volumes in the third quarter. Our market share on ETP market as a whole was 77%, and ETP activity was good. All together, this gave a net result of SEK 89 million, in line with last quarter, but 6% lower than the same period last year due to higher costs and in line with our cost guidance.
Our cost guidance for the full year remains at 15%-20%, our assumption is that we will end up in the higher end of the range. Although trading climate was affected by market conditions, customer growth in the quarter was strong given our always ongoing efforts to secure truly appealing offering that attracts both existing and new customers. If we look at the customers we have seen during Q3, Avanza has grown with more than 30,000 new customers, 31,200 to be specific. That is 28% more than the same period last year and record strong for the third quarter. During the nine-month year, we have welcomed close to 100,000 new customers to Avanza, that is 32% more than last year. We have now 670,000 customers on the platform, customer growth is strongly correlated with the net inflow and revenue growth long term.
Net inflow, however, was weaker in the quarter at 6 billion SEK. We saw inflow from both existing and new customers decrease. That is in line with the observed overall lower risk willingness in the market. Net inflow for the first nine months amounts to 23 billion SEK, an increase of 40% year-over-year. Overall, we are very confident that our record high inflow and new customers are on the right track on our long-term strategy that is our strategic focus. The order to market share of net inflow to the Swedish savings market was published and amounts to a market share on a rolling 12-month basis was 12.6%, which well exceeds our long-term target of 9%. Contributing to a growing market share of the Swedish savings market. At the end of the quarter, total savings capital at the platform amounted to 222 billion SEK.
As you can see from this graph, our market share in Q2 is normally lower. This is due to the tax refund that is paid to the customer's transaction accounts, which we don't offer. Also, the collective agreements are made in Q2, which is not part of Avanza. Looking at Nasdaq OMX Corporate business in the first quarter, turnover was down by 18% compared to Q2. Turnover of Avanza, however, was up by 10% and Avanza thus gained market share substantially. Looking at the Q3 highlights the largest launch for this quarter was Avanza Auto, where our ambition is to make it easier to start investing. Avanza Auto is especially developed for those who want to invest but don't have the time nor the energy to explore how it's done today.
The launch of Avanza Auto is also a step towards broadening our offering to larger customer groups. Interest in Avanza Auto has been high even though it's still early to draw any major conclusions. As of last Friday, after three weeks, we have over SEK 300 million invested in the six Avanza Fonder, and we find that really pleasing. We want Avanza to be a tool for our customers to succeed with their entire economy. Another existing but small step towards that direction was the possibility for our customers to view their holdings in cryptocurrencies such as Bitcoin through the Avanza account. The interest of cryptocurrency has increased dramatically, and this is a way for us to meet customer demand and stay in the forefront of what's happening in the market. Moreover, we continue to evolve our site and apps with new features.
This, together with our strong customer focus, have made Avanza the 11th most visited site here in the .se, something we, of course, are truly and very happy about. Another positive thing in this quarter in favor of many of our customers and others with is the government proposal to regulate how much a company may charge for pension transfers. Their ambition is to have this implemented by law by next summer. It feels just right. It's something we have waited for and worked for a very long period of time. This is both exciting growth factor for Avanza, together with increased transparency in the coming year after year-end, which make it clear what each and everyone is paying for different solutions and where Avanza is very competitive, where we have a very competitive offering.
The Stabelo cooperation on mortgage loans is working according to plan, we will get back to that and with a full customer offering in Q4. With this, I would also like to welcome Avanza's new CEO, Rikard Josefson on board as he joins on November 6th. This has been a pleasure for me to give these reports to you during my time as a CEO, I will closely follow the future success and achievements of Avanza going forward from the outside. With this, I would like to hand over to Birgitta to take you to the financial part, thereafter we will have board reports.
Thank you, Johan. We will start with a financial overview. If we look at the operating profit for the quarter compared to last quarter, it was quite flat, even though both revenues and costs were lower compared to Q2. This is giving us a margin for the quarter of 25%. If we then compare with the same quarter last year, the operating profits decreased by 15%. We have profits and higher revenues, mainly an effect of growing fund capital, we have costs increasing by 27%, this is according to our plan. For the nine-month period, costs increased by 19%, which is in line with our cost guidance. I will come back and elaborate a little bit more on that, firstly, we start with the revenues.
If we compare quarter-on-quarter, total revenues decreased slightly, mainly due to seasonally lower corporate finance revenues, also lower FX related income. Revenues per savings capitalization increased by three basis points, a result of lower rate revenues, also increased savings capital. We see this decline for some customers as an effect of low risk willingness and for others due to the low volatility in the market, which has been even lower than last quarter. Brokerage income increased. We had seven more trading days compared to Q2. Turnover per day increased. Brokerage income from turnover increased slightly. Number of brokerage generating customers was also on record high levels. All in all, brokerage income increased mainly due to more trading days. Fund commissions was about flat. We had lower inflows to fund savings in the beginning of the quarter due to a weak market condition.
In September, we saw higher inflows as the stock market ticked up. Net interest income decreased by 6%, this is mainly due to increased costs for surplus liquidity as the deposits from our customers has increased. Total lending was slightly up, we saw the margin lending decrease, which is another sign of customers with lower risk willingness at the same time as mortgage lending continues to increase. The repo rate remained unchanged, while the standard three months improved by four basis points. This will ease pressure on NII over time. The floor that we have mentioned before on our bond portfolio has given us some protection against the negative market interest rates since the repo rate went up. This also means less impact on NII now and up to a rate of a negative 20 basis points.
After that, we will see larger impacts on rising interest rates. One should be aware, though, that over time, the share of our portfolio with the floor decreases as the bond matures, and at this point, we have about 25% of this portfolio with a floor. Other income decreased by 25%, and this is mainly due to corporate finance, which is seasonally low in the third quarter. Currency related income was also down, and this is connected to the market conditions where we have seen less trading in particular. Compared to the same quarter last year, revenues were up 4%, mainly due to higher fund commissions. Brokerage income decreased. Activity is increasing with more customers and higher number of trades. The transaction volumes, however, are lower. Brokerage income turnover increased slightly compared to Q3 last year. Fund commissions increased by 39%, and this is mainly due to higher fund volume.
Our fund commissions now account for 27% of the total revenues compared to 20% last year. NII was flat. We had a higher expense for deposit guarantee scheme resolution scheme, and increased expenses for surplus liquidity also had a negative effect. Higher lending on the other hand, had a positive effect on the NII. Other income decreased mainly due to less currency related income, Avanza Markets were higher and corporate finance was flat. Moving over to costs. Operating cost expenses decreased quarter-on-quarter, which is due to seasonally lower personnel costs due to summer vacations in this quarter. If you compare it to year-on-year, we had an increase of costs of 27%.
This is with a higher personnel cost, which is a result of increased development capacity with more employees within IT and product development, and consequently other costs rose with higher costs for premises and IT and depreciation. If you compare for the nine-month period with last year, we had an increase of 19%, and this is in line with our cost guidance of 15%-20% for the full year. As Johan said earlier, we expect costs to grow closer to the higher end of previously guided range, meaning close to 20% for the full year. Thereafter, we expect annual cost growth to return to 8%-10% yearly. Cost to savings capital decreased actually by one basis point to 20 for the nine-month period, despite the increased cost.
This is in line with our strategy to attract more customers, more savings capital by cost and price leadership. We still have a strong capital situation in the consolidated situation with a total capital ratio of 18.7%, compared to the capital requirement of 15.3%. This includes all our external, internal buffers and pillar two requirements. As of Q2, the result for the first nine months period is included in the capital base when it comes to the consolidated situation, including the bank and fund company, but excluding our insurance company. Our dividend policy is to distribute at least 70% of net profit to our shareholders remains. With that, Johan, I think we can open up for questions.
Definitely.
Thank you, Birgitta.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad and you'll enter a queue. Our first question comes from the line of Ermin Girich from Nordea. Please go ahead. Your line is open.
Thank you. A couple of questions for me. First off, you comment that part of the reason to the cost inflation is an increased number of employees. I just wonder, are parts of these increased temporary related to development projects that will run for a couple of quarters, or is it more long-term?
I think when we look at the overall cost increases, we are investing in more capacity, and we think that will have an impact over time. We try to look for long-term development capacity, and of course, that will translate into new products. Like Birgitta said, we think that the cost development this year will be closer to 20% and the higher end of the span that we gave previously, and then we will be back at that normal cost increase levels.
I understand. With regards to you narrowing down your cost guidance, should we see this as you planning on doing more investments in Q4 than originally, or have costs been higher year to date?
I think that this has been fully in line with the cost guidance that we have been giving. With that 15%-20% during the year. I think that it varies. It's really according to plan and the cost guidance that we have been given for. There's nothing new in that.
Okay, thank you. The last question is regarding the excess liquidity. In Q2, you talked about trying to push more customers for the Sparkonto+. As you still have quite a lot of excess liquidity, do you see some other ways you can decrease it going forward, or is it just trying to calibrate that model?
I think, yeah, we have to continue to offer our customers choices to invest their savings. Avanza Auto is one of the decision tools that our customers could use actually to instead of being held in cash in the deposit account, actually find something interesting to invest in. Sparkonto+ it's one opportunity and Avanza Auto is another, and we will continue to develop newer products and offerings for our customers in order to find good investment opportunities.
You won't broaden your search. You're talking about the supply of covered bonds being quite low currently. You're not looking into perhaps other investment vehicles to place the funds in as well?
We continue to be very risk averse when it comes to our excess liquidity, and we will continue to do that. Of course, we look at all our opportunities there are, but still with low risk. Our main effort is to make sure that our customers have good opportunities in investing their savings safely.
I see. That's very helpful. Thank you.
Thank you.
Our next question comes from the line of Nicholas McPhee from DNB. Please go ahead. Your line is open.
Yes, hello. First a question on the net interest income. I think you mentioned, Birgitta, something about easing NII pressure from high rates. Should we expect that already to support NII in Q4? Could you give us some indication about the support here that we may see eventually?
Sorry, I was a little bit disturbed. Could you just take the question once?
I thought I hear you mentioning that we should expect to see some support here from the higher STIBOR on the NII. Could you confirm this or elaborate a bit on that?
Well, as I said, some of our bonds that we have in the portfolio are hedged, which have had a floor. That floor will, of course, be shown both in interest rates up and down. As more and more of the portfolio, less part of the portfolio actually has the floor, the impact of the market rates will be stronger through the bond portfolio.
Okay. Less of the bonds have this floor, shouldn't that mean also that there will be more pressure then on the NII if less of the bonds have the floor? How should we think about that?
Well, I would say that the floor is more a defense from market rates going down. It also gives us a hinder from being affected of the market rates going up. As we hopefully will see the repo rates go rather north than south from here, we hope that market rates as well will go in that direction, I would see that the effect will be larger on the portfolio.
Okay, let me put it this way then. If we were to assume that your excess liquidity would be unchanged here over the coming quarters and that the market rates would also be unchanged, just taking into account this dynamic that you mentioned about the floors and everything, what will be your expectations then about the NII, assuming that volume stays at the current levels?
Well, with no changes, I would say that there would be marginal effects on the coming quarters. I don't have the maturity for those which is actually rolling out exactly when they are going to mature. That would probably still be small effects on the coming quarters.
Okay. Finally on this topic, you reiterated your sensitivity from changes to short-term rates, SEK 200 million per 1 percentage point higher repo rate. Given that your deposits keeps growing and also your liquidity portfolio keeps growing, shouldn't the sensitivity have come up here in recent quarters? Is there anything else offsetting that impact from higher volumes and higher excess liquidity?
Of course, there is a range, SEK 200 million is somewhere in the middle of a range, the range changes a little bit. We used to give a more range kind of guidance before, the changes haven't been that large. We are less sensitive to the repo rate changes from here up to minus 20 basis points, we are more sensitive beyond that. It's roughly SEK 200 million still.
Okay. A question on costs as well. It seems like your depreciations increased a lot here in the quarter compared to where it's usually been. It was SEK 5 million here in the quarter, you write that it's because of depreciation of some trading system. It also seems like your intangible assets are increasing quite rapidly. Does this reflect changed accounting policies? I know historically you've been very expensing everything, all your development costs straight through the P&L. Have you changed approach there? That's my first question, my second question, if you could give us some indication what kind of level you think depreciation should be running at per quarter of the coming quarters as well.
We have not changed policy. We still want to take as much of the cost as possible through the P&L. As I mentioned before, when the accounting regulation doesn't give us that opportunity, which is in the case in this trading system that we have been developing for a few years now. We are at the end of that development, and that's why we are starting to depreciate on the trading system through the P&L. I would say that we will finalize this by year-end, I would say, and therefore you should expect the depreciation to be about the same level as we have now.
Okay. Thank you.
As a reminder, if you want to ask a question, you will have to press 01 on your telephone keypad now. Our next question comes from the line of Jens Hallén from Carnegie. Please go ahead. Your line is open.
Yes, good morning. It's Jens Hallén here.
Good morning.
Firstly, on costs, if we're maybe looking into next year a little bit, you're guiding to go in the range of 8%-10%. Can you say where you are in terms of your investments this year? Are you going to actually finish by year-end? Then maybe give us a bit of color on how you're going to reach the reduction in spending for next year.
I could start off, then Birgitta could maybe comment even more on it. I think for this year, we stay to the plan that we gave earlier, that the cost guidance for this year will be 15%-20%, and we think that it will be the higher end of it. We are according to plan, and we will get back to the normal cost guidance, and very much of the cost guidance has to do with our increased capacity in development, and we think this is a window of opportunity in the marketplace to invest even more in. Everything is according to plan, both this year and next year. That would be my take on it.
Okay. You don't expect then for next year that you will, I guess, need some additional investment to stay ahead of the pack, so to say?
No.
What you're doing this year is going to be sufficient for, I guess, a new level of starting point.
Yes. For quite some time now we have repeatedly said that the cost guidance for this year is 15%-20%. Then we will get back to the 8%-10%. We are really following that plan, and we don't see any remorse that we wouldn't follow that plan. What we have commented upon today is to say that it's going to be the high end of the 15%-20% plan. Then we will get back to the normal cost increase level of 8%-10%. We're following the plan that we gave earlier.
What we maybe should remember that is when it cost increase meant that we have been adding capacity, and we will continue to have that capacity. We have a larger capacity going forward as well.
Okay. I think the key is not to lose the bond on what we are able to do with it. For example, the Auto launch, where we have in a couple of weeks attracted 300 million SEK in investment. We really believe there's a window in the marketplace to step up here, and that's what we're doing.
Okay. No, thanks for that. Second question on the share of the net savings market. I know it's very volatile quarter by quarter, but it seems to have been coming down a little bit in the last couple of quarters. Is that just temporary, or are there any particular drivers for that competition heating up or whatever it might be? Do you see this then coming back above your 12-month rolling plan of 9%?
I think that there will always be some minor fluctuations between quarters. I think over the long-term trend is that we are really above the target that we set, and that was an increase because we stepped up a little bit, and we really see that we are well above that one as you see on our rolling 12-month basis. From quarter to quarter, month to month, it's some differences. We are very confident that we are constantly driving well above the target that we have set.
Okay. No, that's perfect. Thank you very much.
As a final reminder, if you'd like to ask a question, please press 01 on your telephone keypads now. There are no further questions registered. I will return the conference back to the speakers for any closing comments.
Thanks everybody for listening in, and thanks for the questions that were sent to us. With that, we'd like to end the session and wish you all a very nice day. Thank you