Ladies and gentlemen, welcome to the Avanza Full Year 2017 Report. Today, I'm pleased to present Richard Josephson, CEO. Speakers, please begin. Okay. Thank you
and very welcome to this presentation of the Q4 results for Avanza. A short introduction of myself, I've been the CEO of Avanza since November 6. I have previously been the CEO of Elef Bank, and I've been in this business for over 30 years. And I think my objective as this relatively new CEO is, of course, to not make revolution of Avanza and to develop Avanza and to make Avanza's culture even more a part of Avanza's growth ambitions in the future. So my target is an evolution of Avanza and also the evolution of Avanza.
If you look at Avansa's story, of course, we have been a lot of innovation and creativity has been the backbone of building Avansa's brand. And I think during 2017, we have added Avanza Outdoor, we have digital onboarding of pension, improved European trading, which we see a growing interest in our client base. So I would say that innovation has been part of Avanza very, very highly during 2017. And if we look at the Q4 for the year, we have a record high income during the Q4 of SEK 274,000,000. We still have a low volatility, but we have a lot of customer activity during the quarter, partly also because our trading.
We see smaller trades, but more trades, so to speak. We see fund commissions become a larger part of revenue, which, of course, is very, very much in line with our ambition to create revenue streams that are more stable than just brokerage income. We also had in our corporate finance a good quarter with a few deals that benefited us from a P and L perspective. Cost development during 2017 has been in line with what we previously have communicated, but we see a lot of the cost increase in 2017 more or less investment in future growth in building a larger Avanza that can create even more innovation going forward. The net result was SEK98 1,000,000,000 and the Board proposed EBITDA dividends to the general meeting will be unchanged at $10.50 per share.
And if you look at the going forward, I think on the Slide 4, you see a very important part of our ambition is, of course, to grow our customer base. And we added another 140,000 new customer during 2017, which of course is the highest number of new customers we ever got in Avanza. It's up 36%. The net flows was in the 4th quarter not as strong as could be expected because we had some one off large withdrawals from Avanza. But we can see during 2018, the 1st 2 weeks, we have record in new clients and SEK 2,000,000,000 in new flows during the 1st 2 weeks.
So we have a fairly satisfying start of this year also. If you look at the performance targets for 'seventeen, we of course, our most important target is customer satisfaction. And we won for the 8th consecutive year most satisfied clients. We are in line and above line, I would say, a bit early in creating 1,000,000 customers. So we have that insight.
We had 11.8% share of the Swedish savings markets in the growth, but we have also raised the target from 9% to 10 percent, and that is over time. So that will be in good market condition and in more challenging market conditions. We had a strong employer branding result, but not to the expectation we want to. I take that very seriously because motivated, engaged employees is a priority for me because that is what creates the customer experience, that creates the satisfied customers and that basically creates the volumes and the growth of Oanta. And the cost growth outpaced the income growth for 2017, and we are absolutely focused on during 2018, deliver higher income growth than cost growth, and the proposed dividend is 83% of the net profit.
And I would also like to point out the next slide, which is the distribution among new customers. We have a lot of discussions that we get so many young customers, but that's always been the story with Avansa that their customers onboard Avansa in the age groups 25 to 30 as we did the last year previous years. But I think that is a lot to do with utilization. I think that on boarding clients has become much easier for the customers, and we see that they're on boarding more than ever. But if you move to the next Slide 7, I think that's a very important slide to understand because what we can see is that the vintage in the And after 9 years, they have close to SEK 500,000 in assets with Avansa and up to 9 years, they have close to SEK500,000.
So this history has been with Avanza for a long time. So my point is that the good customer growth through 2017 makes a very good outlook for growing asset under management going forward for the next couple of years. And the last next slide, I think, is also a bit of our strategy that you have to understand. And that is that, of course, if you take the right stand, it's the do it myself customers, the investment customer, the trade customer and the gambling customer, that's a cornerstone of Avanza, of course, and we will still develop that offering to the market. But what we are achieving and trying to achieve, of course, is to move to the left with the innovations like Alto to make more customers engaging with Avanza who maybe not log in every day and have that extremely high interest in the savings market, but would see that Avanza is a partner that can help the customers, who wants to say in an orderly manner with some guidance to be very satisfied with Avanza.
And also we see a growth in customer that we call do it for me. That's, of course, customers who will engage in more discretionary products and wants a stable saving, but don't want to spend a lot of time and effort in achieving the savings goals. So I think it's a lot about broadening the customer group, but not losing focus on the intensive customers, which has built the brand of Avanza. So it's that's I think, is a very, very important part of our strategy going forward. And if you look at the last slide, I think it's also very important to understand that we have built this company on customer satisfaction, and that is, of course, the number one priority.
We are, in my opinion, very much a growth company, both in number of customers and in volumes, and it creates possibilities to continue strong innovation. And I think that's very important because we will have a lot of innovation going forward. We had a lot of innovation historically, and I think that's the backbone of Avanza's brand, and that will be the story going forward also. With those comments, I will leave over to Birgitte, our CFO, to comment on the figures.
Thank you, Ricker. So if we start with a financial overview, we can see that compared to Q3, our operating profit increased, and we saw a record high revenues in the quarter increasing in all revenue lines. However, costs were also on very high levels. Also, if we compare to for the full year comparison, we can see that the revenues were up, mainly an effect of growing fund volume but also higher other income related to corporate finance activities and currency related income. For the full year, we had net cost increase by 20 percent, which is in line with the guidance that we have, and the operating profit decreased, therefore, by 5%.
Due to the higher investments in 2017, the operating margin was down to 45%, but our ambition is to have an operating margin of around 60% as we have said before.
If you look at
the quarterly revenues, total revenues were up 20% compared to the 3rd quarter. This is mainly due to good corporate finance activity, but also higher trading in foreign securities. Also brokerage income was up due to high trading activity, and we particularly saw an increased interest in cryptocurrencies, especially in December. Brokerage income connected to ETPs with cryptocurrencies is as an underlying asset accounted for 7% of the brokerage income during Q4. This means that the brokerage income increased even without the cryptocurrency trading.
The number of commission generating notes were up 18% compared to the 3rd quarter despite fewer trading days this quarter. Brokerage per turnover in the quarter increased to 10.3 basis points compared to 9.4 basis points for the previous quarter. Revenues per savings capital ratio increased compared to last quarter, mainly as a result of higher revenues, while savings capital was only slightly higher. If you look at the annual revenues on a full year comparison, some commissions were up by 43%, and this is in line with our ambition to increase the share of more stable income and to grow in broader customer groups with more decision support tools, as Rick had mentioned just a few minutes ago. Baccarat income was lower, although number of commission generating customers were record high.
Income was affected by lower turnover, but also was affected by
lower turnover, but also more customers making
trades in lower brokerage classes. Volatility in the market, which has an impact on the activity, has been lower during the year, on an average just around 13% compared to almost 20% in the previous year. The NII has been under pressure this year due to higher costs for surplus liquidity and higher resolution and deposit guarantee fee. Lending, however, contributed positively, and revenues for mortgage lending were up about 35%. Other revenues were up mainly due to increased trading activity in foreign securities.
Equity trading in foreign markets accounted for 6.5% of the turnover compared to 5.1% in 2016. Also corporate finance and Avanza marketing income was higher compared to last year. If we look at the savings per capital ratio compared to 'sixteen, it was down by 66 basis points as a result of 18% higher savings capital where revenues were only up 7%. Costs were up for the quarter by 28%, mainly due to higher personnel costs, which are, of course, seasonally low in Q3. Other costs also increased as a result of higher costs for consultants.
And I want you to note that the depreciation period for our new trading system has been extended to 10 years and then recognized depreciation in the quarter has been adjusted accordingly to $1,800,000 per quarter. In full year comparisons, costs were up about 20%, and this is what we had guided for before. This is mainly a result of higher staff costs and higher other costs, which to the largest part is a result of investments in increased development capacity with more employees within IT and product development. Consequently, other costs other expenses rose with higher costs for example, the premises. Going forward, we expect annual cost growth to go to to return to 8% to 10% for the full year, and we would expect the cost growth in the 1st 6 months to be higher.
And just to remind you, we are now coming from a higher cost base, so we will still increase our costs going forward. Costs per savings capital decreased by 1 basis points to 21 for the full year despite the increased costs, and this is a result, of course, of our scalable business model and in line with our growth strategy. And we soon expect our cost per savings capital to go below 20 basis points. So looking at the capitalization, this is still strong with a external buffers and Pillar 2 requirements. Also, if including our internal buffers for growth, capitalization is good.
As of year end, our risk exposure amount is higher due to increased mortgage loans and a credit facility to Stabilo, but also due to a higher capital requirement for operational risks, which is based on the last 3 years' revenues. Our dividend policy to distribute at least 70% of net profit to our shareholders remains, and the board has proposed a dividend for 'seventeen of SEK 10.5 or SEK 315,000,000 in the total, representing a payout ratio of 83%. And with that, Ricard, I think we can hand over for to
Thank you. And our first question comes from the line of Ermin Kerwich from Nordea.
The first question is relating to the other income. Do you see any trend shift in Q4 as it was quite substantially stronger than at least I and consensus expected?
Well, other income is the main part of other income is FX revenues, it's corporate action revenues and Avanza Markets. And when if you look at the FX part of other income, we can see that our customers are increasing their share of trading in foreign securities even this is still on small levels. As I said, it increased from about 5% to
a bit over
6% for this quarter. So yes, we can see a small trend going our customers are more interested in foreign securities. AlarmNet markets still on about same levels that we have had for the last quarter. So it's hard to take a trend on that and corporate actions, of course, that's all about the market and depending on what companies wanting to go to the market to search more capital.
I understand. Thanks. And then on STABILO, could you provide any additional information as to how your deal with them looks in terms of profit sharing? Or anything that could help us decrease uncertainty somewhat when we try to model it? As currently, we have an issue both with uncertainty regarding the volumes, but also the actual earnings impact to Avanza?
What we have said in the Sabelo case is, of course, that there is 50 basis points in the Sabelo case, which will be divided by 3 parties and Avanza is 1 of those 3 parties. That's what we have communicated and that will what we will for the moment communicate. So I think the upside, of course, to Avansa is 1, it's repeatedly income. We will get on the volumes a certain basis points for that. And the second part is, of course, our ownership of close to 20% of SABELO, which we also think will create value creation process over time as SABELO grows.
Okay. Thank you. And then just one final question also on Stabilo. You mentioned that you've received interest from, I believe it was 25,000 customers. Could you give us any flavor on how many of those are existing events at clients and how many are external clients, which you could perhaps in the future then also convert to using your savings platform?
For the first 25,000 customer, the bulk of those 25,000 are existing customers, but we're also in a lot of social media, see a lot of interest from non Avanza customers the day that we will open up for those to apply for the loan.
Okay, great. Thank you. That's all for me.
Thank you. Our next question comes from the line of Peter Kessiakoff from SEB. Please go ahead, Peter. Your line is open.
Yes. Hi. Thank you very much for taking the questions. Just first question, a follow-up on Stabilo. You mentioned that you've given a credit facility to Stabilo.
And looking in reports, it says on SEK 350,000,000. Should we read anything into that in terms of volumes that you've been able to originate so far or that you expect to be able to originate during, say, Q1? That's my first question.
No, I think that the $350,000,000 is more of a cash management tool to get the flows from the investors, the pension funds into Sabelo and the payouts we do on the when we pay out the mortgages to the customers. So it's more of a cash management issue together with Stabello to get the flows going, the customer advance of Stabilo in an efficient way.
Okay. Then on the brokerage income, and as you point out, roughly 7% of brokerage income was driven by cryptocurrencies. And as you're also right, it had a marginal impact for the 1st 9 months of 2017. So the bulk of it came during the Q4. In terms of impact on income, I mean, if we go back some 2 years ago when we had, for instance, high activity in Fingerprint shares, my impression was that mainly pro clients that had low commission rates that were very active in trading there.
While when you look at cryptocurrency, my impression is that, at least when looking at today's numbers, that it's mainly been kind of the average client of yours that are paying kind of the average commission rates, so somewhat higher. Is that the impression that you have as well that it's been a bit more kind of broad based average client trading cryptocurrencies?
No. Well, we of course, we see that our pro traders that was the main drivers in the fingerprint trading are also large when it comes to cryptocurrencies. Even though I think it's, as you say, it's the broader interest than only the pro customers, but I cannot go into exactly the parts which come from Pro customers and from other customers.
I think a margin comment on that would also be that if you look at a lot of the debate, I think a lot of young people are interested in cryptocurrencies. On the margin, I think a lot of a bit more, so to speak, 25 year olds are investing in cryptocurrencies than they did in
fingerprint. Okay. Then just one question on around the U. S. ETFs that you will be removing from your platform on the back of MiFID II and the documentation is not compliant.
What kind of impact do you think that will have? And would you be able to replace those?
We all have plans to replace them with other types of instruments. I cannot comment further on that. But of course, that we will make sure that the customer of Avanza has an offering to the kind of securities that they are in demand for.
What we have seen though is that the ETF trading are still a very small part of our total turnover.
Okay. Then just one final question, which relates to Avanza Auto. And as then for that service? What kind of volumes you think it could be able to attract?
We will comment on the ambitions we have on the volumes, but the only thing I can say is that it has exceeded our expectations so far. We think it's a strong offering. We think the clients appreciate it. So we think it will have a great future, but we'll not comment on any figures when it comes to ambitions.
Okay, understood. Thank you very much.
Thank you.
Thank
you.
Our next question comes from the line of Nicolas Magdyss from BNP. Please go ahead, Nicolas. Your line is open.
Hello and good morning. Another question on the Stabelo and mortgage products. Could you give any kind of indication how much financings for this mortgage you get access to currently?
No, we have not disclosed the number of financings that Travello has, but we have to say that we have enough financing so that we can launch the product and sort of serve a lot of our clients going forward. But I think you have to understand that as we launch it and we are successful, the interest on the pension side increase also. So there's a lot of we don't see that as a cap, so to speak, on the potential in the near future.
Okay. So you mentioned you received like 25% yes, sorry, Birgitan?
Even though I think you should know that this it will take time to build the lending portfolio. So it will not even though we have large interest from the investors, it still will take some time to build up the portfolio.
Yes, I understand that. But I think you mentioned now that you have or that you got 25,000 applications of interest initially when you launched the product in November. So I mean could you meet that kind of demand? Do you have funding for that if all of those were to like to translate into actual take up a mortgage with AlarmNet?
We will not comment on that, but I think that we are, so to speak, customer by customer working through these 25 applications. And as I said previously, we don't think the funding for Stabilo in the short term is an issue that we will hold us back.
Okay. And then also another question on that. Will the fees that you receive for intermediating these mortgages, will they be booked as commission income or net interest income?
They would
be booked as other revenues.
Okay.
So it's not NII.
Okay. And then final question, a bit more longer term maybe, but could you give some kind of indication of what's your vision when you think a typical private individual in Sweden could use Alansa for all their financial services, so thereby kind of discontinue their relationship with their
date or issue when that will happen. But I would say that we are, of course, actively in the PSD2 development, and we have a lot of development projects going on. But I will not give any further comments on that.
Okay. I appreciate that. Thank you.
Thank you.
Thank you. And our next question comes from the line of Jens Hallin from Carnegie. Please go ahead. Your line is now open.
Thank you. Three questions for me. First on if we stick with cryptocurrencies. If you could say something about the sustainability of this and also maybe what you've seen now in January so far?
Well, I would say that we see trading in the cryptocurrencies in January also, but the sustainability, I think your idea is as good as mine. We have no idea what will this will take off. And I mean, we all read the debates and the, so to speak, environment and all the opinions about cryptocurrencies. But it seems to be of ongoing interest. When will this interest stop and what will happen?
I have no idea.
Okay. Fair enough. And second question on cost. So I think now that you're guiding for 8% to 10% increase in 2018, but I think you mentioned that you were expecting that to be slightly higher in the first half of this year. So are we then talking about the top end of that range?
Or do you expect it to even go above the 10% range that you've given?
Well, our guidance is 8% to 10%, and this is the guidance that we give. But as you said, the 1st 6 months, we had lower costs in 2017. So of course, the growth of costs will be higher for the 1st 6 months than the last 6.
Okay. So you stick with that for the full year?
Yes.
Yes. Okay. Final question on NII. As you mentioned, it remains under pressure. Is there anything that you can do?
Or do we effectively just have to wait for rates to start to pick up a little bit?
Well, I think that we always do all that we can to make that as good as it gets. But as we mentioned in the report, the cost for guarantee or the resolution fees will increase. So we have pressure on the NII by that. And since the repo rate is still minus 50 basis points, I think that we won't take more risk. We will still continue to be very risk averse when it comes to our bond portfolio.
So of course, we do what we can to take off the pressure on NII, but still with low risk taking.
Okay. Fair enough. Actually, when maybe as a follow-up also on Stabilo. So I know you don't want to give too much guidance on it now. And at what stage do you anticipate being able to give us some more details about your, I guess, your plans for it?
Do we have to wait until it's fully up and running? Or will you be able to give us at least some guidance on what do you expect for it
in terms of volumes and so on?
Well, as we have said so many times before, we don't give any guidance on the revenues or expected volumes for the future. What we can we would start to give you more information when the when in due time during the year, when the volumes have been a little or are a little bit higher than today. I mean, we're really in the starting the start off right now. So we will give you more information during the year, but I cannot we would probably not give you any forecasts on the volumes and so forth. That is not the way we work.
And as there are no further questions at this time, I hand back to you speakers.
Okay. Then I just want to thank you for calling in on this call, and I wish you a very great Thursday. Thank you very much.