Ladies and gentlemen, welcome to the Avanza full year 2017 report. Today, I am pleased to present Rikard Josefson, CEO. For the first part of this call, all participants will be in listen-only mode, and afterwards there will be a question and answer session. Speakers, please begin.
Okay, thank you, and welcome to this presentation of the Q4 results for Avanza. A short introduction of myself. I have been the CEO of Avanza since 6 November . I have previously been the CEO of LF Bank, and I have been in this business for over 30 years. I think my objective as the relatively new CEO is, of course, to not make revolution of Avanza, to develop Avanza, and to make Avanza's culture even more a part of Avanza's growth ambitions in the future. My target is an evolution of Avanza and not a revolution of Avanza. If you look at the Avanza story, of course, a lot of innovation and creativity has been the backbone of building Avanza's brand.
I think during 2017, we have added Avanza Auto, we have digital onboarding of pension, improved European trading, which we see a growing interest in our client base. I would say that innovation has been a part of Avanza very highly during 2017. If we look at the fourth quarter for the year, we have a record high income during the fourth quarter of SEK 274 million. We still have a low volatility, but we have a lot of customer activity during the quarter, partly also because our strong customer inflow and the new customer do a lot of 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 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&L perspective. Cost development during 2017 has been in line what we previously have communicated, but we see a lot of the cost increase in 2017, more as investment in future growth in building a larger Avanza that can create even more innovation going forward. The net result was SEK 19 billion and the board proposed dividends to the general meeting will be unchanged at SEK 10.50 per share. If you look at going forward, I think on slide four, you see a very important part of our ambition is, of course, to grow our customer base. We added another 140,000 new customers during 2017, which of course is the highest number of new customers we ever got in Avanza. It is up 36%.
The net flows was in the fourth 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 first two weeks, we have a record in new clients and 2 billion SEK in new flows during the first two weeks. We have a fairly satisfying start of this year also. If you look at the performance targets for 2017, of course, our most important target is customer satisfaction. We won for the eighth consecutive year, most satisfied clients. We are in line and above line, I would say, a bit early in creating one million customers. We have that in sight. We had 11.8% share of the Swedish savings market in the growth, but we have also raised the target from 9% to 10%, and that is over time.
That will be in good market condition and in more challenging market conditions. We had a strong employer branding result, 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 Avanza. The cost growth outpaced income growth for 2017, and we are absolutely focused on, during 2018, deliver higher income growth than cost growth. The proposed dividend is 83% of the net profit. I 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 Avanza, that their customers onboard Avanza in the age groups 25 to 30, as we did the last year and previous years. I think that is a lot to do with digitalization. I think that onboarding clients has become much easier for the customers, and we see that they're onboarding more than ever. If you go to the next slide, seven, I think that's a very important slide to understand, because what we can see is that the vintage in the portfolio is that the clients who we gain after one month has about 50,000 SEK in assets with Avanza and up to nine years they have close to 500,000 SEK. This history has been with Avanza for a long time.
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. The 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-yourself 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.
What we are achieving and trying to achieve, of course, is to move to the left with innovations like Auto 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 save in an orderly manner with some guidance to be very satisfied with Avanza. Also, we see a growth in customers that we call do it for me. That's of course, customers who will engage in more discretionary products and want a stable saving but don't want to spend a lot of time and effort in achieving their savings goals. 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.
That I think is a very important part of our strategy going forward. 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 create possibilities for continued strong innovation. I think that's very important because we will have a lot of innovation going forward. We have 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 hand over to Birgitta, our CFO, to comment on the figures.
Thank you, Rikard. If we start with a financial overview, we can see that compared to Q3, our operating profit increased, and we saw record high revenues in the quarter increasing in all revenue lines. However, costs were also on very high levels. If we compare to the full year comparison, we can see that the revenues were up, mainly an effect of growing fund volumes, but also higher other income related to corporate finance activities and currency related income. For the full year, we had a net cost increase by 20%, which is in line with the guidance that we had. The operating profit decreased therefore by 5%. Due to the higher investment in 2017, the operating margin was down to 45%, but our ambition is to have an operating margin of around 50% as we had said before.
If you look at the quarterly revenues, total revenues were up 20% compared to the third quarter. This is mainly due to good corporate finance activity, but also high trading in foreign securities. 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 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 third quarter, despite fewer trading days this quarter. Brokerage turnover in the quarter increased to 10.3 basis points compared to 9.4 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, fund 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 Rikard mentioned just a few minutes ago. Brokerage income was lower, although number of commission-generating customers were a record high. Income 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. NII has been under pressure this year due to higher costs for surplus liquidity and higher resolution and deposit guarantee fees. 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 Markets income was higher compared to last year. If we look at the savings per capital ratio compared to 2016, 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. I want you to note that the depreciation period for our new trading system has been extended to 10 years, and the recognized depreciation in the quarter has been adjusted accordingly to SEK 1.8 million 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 expenses rose with higher costs, for example, the premises. Going forward, we expect annual cost growth to return to 8%-10% for the full year, and we will expect the cost growth in the first six months to be higher. 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 one basis point to 21 for the full year, despite the increased costs.
This is a result, of course, of our scalable business model and in line with our growth strategy. We soon expect our cost per savings capital to go below 20 basis points. Looking at the capitalization, this is still strong with a capital ratio of 16.5% compared to the regulatory requirements of 14.1%, including all external buffers and Pillar 2 requirements. Also, 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 Stabelo, but also due to a higher capital requirement for operational risks, which is based on the last three years' revenues.
Our dividend policy to distribute at least 70% of net profit to our shareholders remains, the board has proposed a dividend for 2017 of SEK 10.5 or SEK 315 million in total, representing a payout ratio of 83%. With that, Rikard, I think we can hand over to questions.
Thank you. Ladies and gentlemen, if you do have a question for the speakers, please press 01 on your telephone keypad now and you will enter a queue. There will be a brief pause whilst any questions are being registered. Our first question comes from the line of Ermin Keric from Nordea. Please go ahead. Your line is now open.
Hi, thank you for taking my questions. The first question is relating to the other income. Do you see any trend shifts in Q4 as it was quite substantially stronger than at least I and the consensus expected?
Well, the main part of our other income is FX revenues, it's corporate action income revenues and Avanza Markets. 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 if it's still on small levels. As I said, it increased from about 5% to a bit over 6% for this quarter. Yeah, we can see a small trend going our customers more interested in foreign securities. Avanza Markets still on about same levels as we have had for the last quarter. It's hard to take a trend on that. Corporate actions, of course, that's all about the markets and depending on what companies wanting to go to the market to search more capital.
I understand, thanks. Then on Stabelo, 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 Stabelo case is, of course, that there is 50 basis points in the Stabelo case which will be divided by three parties, and Avanza is one of those three parties. That's what we have communicated, and that's what we will for the moment communicate. I think the upside, of course, to Avanza is, one, it's repeatedly income we will get on the volumes a certain basis points for that. The second part is, of course, our ownership of close to 20% of Stabelo, which we also think will create a value creation process over time as Stabelo grows.
Okay, thank you. Then just one final question also on Stabelo. 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 Avanza 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 customers, the bulk of those 25,000 customers are existing customers. We 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 a first question, a follow-up on Stabelo. You mentioned that you've given a credit facility to Stabelo.
Yes
looking in reports it says some SEK 350 million. 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 SEK 350 million is more of a cash management tool to get the flows from the investors, the pension funds into Stabelo and the payouts we do when we pay out the mortgages to the customers. It's more cash management issue together with Stabelo to get the flows going, the customer advances Stabelo in an efficient way.
Okay. On brokerage income, as you point out, roughly 7% of brokerage income was driven by cryptocurrencies. As you also write, it had a marginal impact for the first nine months of 2017. The bulk of it came during the fourth quarter.
In terms of impact on income, if we go back some two years ago when we had, for instance, high activity in Fingerprint shares, my impression was that mainly Pro customers 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 the average client of yours that are paying the average commission rate, so somewhat higher. Is that the impression that you have as well, that it's been a bit more broad-based average client trading cryptocurrencies?
Well, of course we see that our Pro customers 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 a broader interest than only the Pro customers. 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 bit more, so to speak, 25-year-olds are investing in cryptocurrencies than they did in Fingerprint.
Okay. Just one question around the U.S. ETFs that you will be removing from your platform on the back of MiFID II and that documentation is not compliant. What kind of impact do you think that will have, and will you be able to replace those?
We 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 customers of Avanza has an offering for 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. Just one final question which relates to Avanza Auto, as you mentioned, it's developed ahead of expectations so far. Do you have any comments on what your hopes are for full year 2018 for that service? What kind of volumes do you think it could be able to attract?
We don't comment on the ambitions we have on the volumes, 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, we think it will have a great future. We will not comment on any figures when it comes to ambitions.
Okay, understood. Thank you very much.
Thank you.
Thank you. Once again, ladies and gentlemen, if you do have an audio question, please press zero one on your telephone keypad now. Our next question comes from the line of Nicolas McBeath from DNB. Please go ahead, Nicolas, your line is open.
Hello and good morning. Another question on the Stabelo and mortgage product. 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 Stabelo has. We will say that we have enough financing so that we can launch the product and so we serve a lot of our clients going forward.
Okay.
I think you have to understand that as we launch it and we are successful, the interest on the pension side increase also. We don't see that as a cap, so to speak, on the potential in the near future.
Okay. You mentioned you received like 25. Sorry, Birgitta.
I think you should know that it will take time to build the lending portfolio. Even though we have large interest from the investors, it still will take some time to build up the portfolio.
Yeah, I understand that. I think you mentioned now that you got 25,000 applications of interest initially when you launched the product in November. Could you meet that kind of demand? Do you have funding for that? If all of those were to translate into actual take up a mortgage with Avanza.
We will not comment on that, but I think that we are, so to speak, customer by customer, working through those 25 applications. As I said previously, we don't think the funding for Stabelo in the short term is an issue that we will hold us back.
Okay. 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.
It's not the NII.
Okay. Final question, a bit more longer term maybe, but could you give some kind of indication of what your vision when you think a typical private individual in Sweden could use Avanza for all their financial services, thereby discontinue their relationship with their incumbent bank in total?
I think we have a lot of development, a lot of plans. I cannot say a date or a vision when that will happen. I would say that we are, of course, actively in the PSD2 development and we have a lot of development projects going on. I will not give any further comments on that.
Okay, I appreciate that. Thank you.
Thank you.
Thank you. Our next question comes from the line of Jens Hallén from Carnegie. Please go ahead. Your line is now open.
Oh, thank you. Three questions for me. First, 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 take off. 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. Second question on cost. I think now you're guiding for 8%-10% increase in 2018. I think you mentioned that you were expecting that to be slightly higher in the first half of this year. 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're given?
Well, our guidance is 8%-10%, and this is the guidance that we give. As you said, the first six months, we had lower costs in 2017. Of course, the growth of cost will be higher for the first six months than the last six.
Okay. You still stick with that for the full year?
Yes.
Yeah. Okay. Final question on NII. As you mentioned, it remains under pressure. Is there anything that you can do? 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. As we mentioned in the report, the cost for guarantee or the resolution fees will increase. We'll have pressure on the NII by that. Since the repo rate is still minus 50 basis points, I think that we won't take more risks. We will still continue to be very risk-averse when it comes to our bond portfolio. Of course, we do what we can to take off the pressure on NII, but still with low risk-taking.
Okay. Fair enough. Actually, maybe as a follow-up also on Stabelo. I know you don't want to give too much guidance on it now. At what stage do you anticipate being able to give us some more details about 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 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. We will start to give you more information in due time during the year when the volumes are a little bit higher than today. We're really in the start-off right now. We will give you more information during the year, but we would probably not give you any forecasts on the volumes and so forth. That is not the way we work.
Okay. Fair enough. Thank you very much.
Thank you. I'll remind you that if you want to ask a question, you will have to press zero one on your telephone keypad now. Unless there are no further questions at this time, I'll hand back to you speakers.
Okay. I just want to thank you for calling in on this call, I wish you a very great Thursday. Thank you very much.