Ladies and gentlemen, welcome to the Avanza Interim Report, January to June 2017. Today, I'm pleased to present CEO, Johan Plom and CFO, Birgitte Hagenfeldt. 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. I will now hand you over to Johan. Please begin.
Thank you. Welcome to this Q2 presentation. My name is Johan Prahm and I'm the CEO of Vantaa. I will start with a business update. And after this, I will see if I will give a Haagenfeld that will take you through the financials in the second section.
Overall, the presentation will take approximately 20 minutes, and then we'll open up for questions afterwards. We saw a strong customer growth continue in Q2 with almost 28,000 new customers, which is 22% more than in the same period last year. During the 1st 6 months, we have had a benefit to welcome 66,200 new customers to Avanta and that is plus 34% compared to last year. And we now have 636,900 customers on the platform. Also net inflow was strong in the quarter at $8,700,000,000 amounting to $17,300,000,000 for the first half year, and that's an increase with 20% compared to the first half twenty sixteen.
60% of the new inflow comes from new customers. Looking at the market share of net inflow into the Swedish savings market, amount of share for the Q1 was 18.6% or 12.2% on a rolling 12 month basis, and this is well above the target that we have set out and previously communicated. We've seen risk appetite among our customers to go down in the quarter with fixed return index at record levels. At the same time, volatility has been low during the first half year and declined further in Q2. This resulted in both lower trading volumes and fewer number of trades.
However, commission generated customers were still on high levels and only down by 1% competitively last quarter and up by 14% year on year. Furthermore, due to the Easter holiday, Q2 had 5.5 fewer trading days versus Q1. And all in all, fewer days, lower market volatility and decreased risk willingness affected brokerage commissions negatively in the quarter. On the same time, customers as customers have net sold shares, they have net bought funds giving a good inflow in SUNS in the quarter. And at the end of the quarter, total savings capital amounted to 662,000,000,000 in SaK.
Corporate activity in Sweden has been good, and Avanx has been participating in a couple of IPOs and a number of ownership diversifications. Avanza was leading 1 IPO, Simcoe Marine, during the quarter. And the second quarter last year was also very strong and we did our largest IPO anywhere in the products interactive case. And corporate activity for the second half Flux continues to strong. Altogether, this gave a net result of $89,000,000 which was 14% lower than last quarter, and this was primarily given the lower revenues that I talked about and also given the cost increases that we have previously communicated and that will be elaborated on in the second section.
Compared to the first half year twenty sixteen, the net result. Looking at Nasdaq, we make stock from First North compared to the first half year twenty sixteen. The turnover was 7% lower, which some extent also is explained by the high activity in fingerprint costs at that time. Number of trades was strongly higher, up 32%. Looking at the market shares seen in these graphs, they have gone down both when it comes to transactions and turnover.
Market shares have been gained primarily by large international players in main institutional trading such as provided by Deutsche Bank, Morgan Standard, etcetera, but also foreign high frequency traders. So we see that overall that our retail position is very much still on a good basis. Regarding the intensified price competition, we've seen in the end of the last quarter and to which to some extent continued in this quarter, we have neither noticed any increased outflow customers nor less inflow, and our churn remains very low at 1%. During the quarter, we have strengthened our customer offering further. In addition to the evolutionary fine tuning and updates that we do every 10 days, we have launched a few substantial more heavyweight thesis in the quarter.
In the middle of June, we made it possible for smaller companies to onboard and start pension saving completely digital in our site. It's still too early to control the effect, but we have but it's been well received among smaller companies and we have good hopes for efficiency gains. This means that we are freeing up time for our sales force to focus on midsized and large sized companies. And in connection to this, we have also focused on our sales force in Gatlinburg and Stockholm, and this means that the Malmo customers will be handed from here and we will close down the office in Malmo. Last quarter, we launched the digital stock trading in a larger European market.
And this quarter, the offering was extended with French France and Italy. International stock trading still stands for relatively small parts. European trading is still increasing, but U. S. Volumes still stand for the main part.
In June, the same intercount plus offering was improved at better rates, And this is a good alternative for those who want to be not want to be fully invested in the market. And the interest so far has been very high. In the quarter, our customers exceeded $10,000,000,000 in savings capital and savings account plus. That is 21% up from last quarter. Furthermore, our cooperation with Stapiello, where we have a plan to have a broader mortgage offering and that continues according to plan and we expect, as we already have said, to come back with an offering in the second half of this year.
Of course, we're very proud to have the strong rating that we received from our customers and we received the top score on best service international services in racking conducted by service quarter. And also our NPS and NKI rating scores remain at very high levels. Altogether, high customer satisfaction, continued strong innovation focus and a leading cost position. This altogether gives a high growth in customers and savings capital and that is key for our success going forward. Overall, that is an important piece in our effort to create a better future for millions of people.
And in the second half, we will get more get back to we get back with even more pieces of this puzzle how we will create a more cheap and better and simple offering on our journey to create an online platform for our customers to see their entire economy. And I would also like to take this opportunity to welcome Rick and Josephson on board, and he will assume the role within 6 months as previously communicated. This was all from my side in this section. And now I hand over to Birgitte to take you through the financials.
Okay. Thank you, Jawad. Starting with a financial overview. If we look at the operating profit quarter on quarter, we had a decrease of 15%, which is due to lower revenues and higher costs compared to Q1. This gives us an operating margin of 44% for the quarter.
Compared to the same quarter last year, we had an decrease of 7% on operating profit due to both increased operating income and operating expenses. The revenue increase is mainly an effect of growing fund capital, and the cost increase is in line with our guidance of 15% to 20% for the full year. For the half year period, cost increased by 15% compared to last year. If we instead look at the revenue compared to the last quarter, total revenues decreased by 5%. Revenues per Salient capital ratio decreased by 4 basis points to 27, which is a result of lower revenues but also increased sales capital.
Brokerage income. Well, we had a number of brokerage generating customer was still on very high levels, and the number of commission notes decreased. Turnover per customer decreased mainly due to fewer trading days. Brokerage income per turnover decreased slightly even though turnover per trade was flat. And altogether, this gives us a brokerage income that decreased by 18%.
Fund commissions, on the other hand, increased by 16%, and this is mainly due to larger fund volumes, which in average increased by 12% in the quarter. If we look at the net interest income, it decreased by 8%, which is the yellow line. And this is mainly due to more surplus liquidity deposited with credit institutions at lower interest rates. And this is something that you cannot see in the group balance sheet since SEK 3,800,000,000 of these are deposited by our insurance company. Lending was flat, a result of our customers' lower risk willingness, which resulted in lower margin lending.
Even though mortgage lending increased, This also had a negative effect on NII or although small. The repo rate remained unchanged, while LIBOR 3 months decreased by 4 basis points. This, however, only had a marginal effect on MII due to the interest rates for our bond portfolio. This will give small effect on MII when cyber rises to negative 0.2 percent but also acted like a cushion on the downside. Other income increased by 9%.
This is mainly due to higher income from our asset markets. Currency related income was down due to fewer trading days. Corporate finance revenues were up by 6% in the quarter. Avanza Markets now stands for 31%, currency related income for 51% and Corporate Finance for 18% of other income. If we instead compare the revenues to the same quarter last year, total revenues increased by 5%, mainly due to higher fund commissions.
Brokerage income decreased by 9%. The number of commission generating transactions were up 8%. The number of commission generating customers rose by 14%. Activity is increasing with more customers and higher number of trades. Transaction volumes, however, are lower.
Income per commission load fell by 22% even though brokerage income per turnover increased by 9% compared to the Q2 of 2016. Fund commissions increased by 60%, which is the blue line, mainly due to higher fund volumes and partly because customers have reweighted to funds with higher fees. Fund permissions now accounted for 26% of revenues compared to 17% last year. Net interest income was flat. We had higher expenses for deposit guarantee fees and resolution fees.
The negative interest rate with increased expenses for surface liquidity also had a negative effect, but the lending, on the other hand, had a positive effect on NII due to higher volumes. And all else equal, without taking any changes in our customer behavior, 1 percentage point change of the repo rate would have a full year effect of about $200,000,000 on NII. Other income decreased by 4%, and that is mainly due to lower corporate finance revenue, revenues which had a strong Q2 last year with the listing of Paradox. Currency related income was higher due to increased trading in foreign securities. If we look at the cost development compared to last quarter, operating expenses increased by 5%, mainly due to personnel costs and external services.
And if we instead compare it to the same quarter last year, expenses increased by 17%, and this is mainly due to higher personnel costs and cost of regulation and additions into IT and product development capacity. Other expenses rose due to higher expenses for external services. Costs per savings capital decreased by 2 basis points to 21 in the quarter despite the increased costs, and this is, of course, an effect of higher savings capital due to strong both customer and capital inflow. Costs compared to the first half year twenty sixteen increased by 15%, which is in line with our cost guidance of 15% to 20% for the full year. And thereafter, we expect annual cost growth to return to 8% to 10% per year.
As a consequence, operating margin was decreased by 15% quarter on quarter and decreased by 7% compared to the same quarter last year. The operating margin was 44% for the quarter, which is slightly lower than our long term ambition of 50% and of course, a result of lower revenues. But even more important, an effect of our investments in growth going forward. Profit after tax decreased by 14% quarter on quarter to $89,000,000 and by 0 point 0 $6 compared to the same quarter last year. Compared the first half year of twenty sixteen net profit was flat.
Income per savings capital decreased in the 2nd quarter and cost per savings capital was flat. And this is in line with our scalable business model and growth strategy to attract more customers and savings capital by price and cost leadership. Given continued strong growth in customers and savings capital, we still see good opportunities to lower the cost per savings capital ratio below 20 basis points in a few years despite the increased costs for this year. We had a strong capitalization with a total capital ratio of 18.3. This should be compared to our capital requirements of 15.3, which includes all external and internal buffers and Pillar 2 requirements.
The capital base was more or less unchanged in the quarter since the results for the first half year hasn't been included. The risk exposure amount was affected slightly by higher mortgage lending volumes and increased surplus liquidity, which led to larger investments in bonds. Avanza is a very capital efficient and strong, and the strong capital situation entitled us to continue to grow also at a quicker pace. And with that, Johan, I think we can open for questions.
Absolutely. Thank you, Birgitte. I think that was all from our side. Please, do we have any questions from the audience?
Thank Our first question comes from the line of Peter Wallin from Handelsbanken. Please go ahead. Your line is now open.
Yes. Thank you and good morning. I'd like to say start off with what kind of impact of this quarter just to check whether those conditions still prevail that's kind of the all time high valuation of the market made some of your clients take profits and decrease the risk appetite. Is it I mean, can you see whether this is still the case or whether maybe the report season starting off has changed the activity levels?
I think as we I could start off and I could fill out even more. I think what we have concluded is that we see that the majority or that we've seen both fewer trading days, but also that the market volatility and lower risk willingness have affected the broker income negatively. But we still see a fantastic inflow of customers and we also see that the fab business is going very well. And we also have seen that, well, given the current interest regime that we're living on, that is hindering us quite a lot. So that is about the effect that we have seen.
And we don't see any effect of the increased price pressure or we want to see that the new customers are very active and so forth. So I would say that the it's exactly like we stated in the report that the lower revenues are driven by the points that we stated out. That would be my comments, David. I don't know if you have any Yes.
Maybe I could just add to that a bit. What we see is that the volumes on the stock on stock exchange are lower and has been so for a few months and also in July. So the trading volumes overall, not just the Avanza customers, are lower right now. So I guess it's this will probably be so as long as the risk willingness and the volatility is on these levels.
Okay. So then I assume interpret that as risk willingness kind of being at the same level still as was the case during Q2. And then just following that Q1 when kind of this the lower risk willingness result in surplus liquidity, which was difficult for you to kind of place without paying for it. Is there anything else then I mean, then I assume that the surplus situation still is the case. Is there anything else you can do in Q3 in order to not see the equally large negative impact on NII as we did in Q2?
Well, what we are doing, of course, is trying to find portfolio bonds to invest in our portfolio bond portfolio. But as you know, the market is very weak, and there are lots of institutions seeking the same kind of bonds that we are. So that is a problem for us. What we are doing is, of course, trying to get our customers to know all about our Savings Account Plus cooperations and to at least get some kind of revenues on their liquidity instead of having them at a zero interest rate on our accounts. So continue to do that and, of course, look over what kind of bonds we could invest in.
That is, of course, the problem is we have to take care of the liquidity some way, and it's not a very good market right now.
I can just add to that. I mean, what we did with Spark 100 plus during this quarter was that we improved that offering. And of course, we are I think the key here is to always strive for a better customer offering like Brigitte is saying. And we have a lot of we focus a lot on that and we have some stuff coming up in Q2. And the more we could have attractive pieces of the offering to our customers so that we don't need to have it on our own balance sheet, the better it is.
Okay. Okay. And then I would like to just ask on your cost guidance, you're still within your cost guidance and you reiterate that at this point in time. But you also communicate that you're going to be shutting down your mother mail for your pension offering. So should one assume that this kind of the cost saving coming from there is going to be fully reinvested?
Or was this part of the plan from the beginning?
Well, actually, Malmo was a trial period, and we decided to focus on that region from Gothenburg instead. So and that is I mean, that is a really small cost compared to the overall cost. So it's I mean, that yes, that will be used in sales force in Gothenburg and Stockholm instead, and our cost guidance still stands.
Okay. Thank you.
Thank you. Our next question comes from the line of Petr Kessiakov from SEB. Please go ahead. Your line is open.
Yes. Hi. Thank you. So a couple of follow-up questions actually on what was previous loss. And then you alluded a bit to that you're trying to strengthen the Spore Conto Plus offering.
Given the negative interest rates that we have at the moment and perhaps the inflow that we're seeing of excess liquidity from or well, simply clients just putting money on their deposit accounts, Is it so that when you're saying that you're improving this barcode to Klas offering that you are lowering kind of your kickbacks that you're getting from, I mean, Collector, Nordex, Klarna and so on that have these accounts with you? Or is there anything else that you have done? Because I noticed that you've raised the rates that customers get on those accounts. But when I look at what the respective bank has done on their interest rates or their savings rates. It looks like they've kept them largely unchanged during the quarter.
So that implies that you perhaps have lowered your kickbacks. Is that the case?
We don't disclose the distribution fee yet. I mean, it's a negotiation between us and our counterparties. But when I said that we will improve the offering, it's more how could we work with that piece of the offering given that it's important for our customers. And like Brigitte is saying that instead of having it on, yes, taking care of the liquidity ourselves, if we could find ways of improving the situation for our customers and still not having it on our balance sheet, that is how we would see it as improved. And given the current situation, we see that I mean, this is important for our customers, and hence, we work a lot with that piece of the offering.
And does this mean launching new products? Or is it, for instance, creating an advisory tool that says that or that recommends people to move their money to this Spark onto Plus account and perhaps actively moves it for them as well as long as they approve it? Or yes, if you could allude a bit on that.
I think you could imply various things. I think we are continuously always working on improving our offering exactly what it will look like in the future. We'll have to get back with that. And as soon as we have something ready, we communicate it to the market. But I think the only thing that we were commenting upon and this is an important piece of the offering.
We made some improvements during Q2. And of course, if we could find and when we have more attractive or better offerings here, it could be a win win situation because it's good for our customers and also good for us given the comments that were made on our balance sheet.
Okay. And then just how you've applied your excess liquidity or the kind of bonds that you've acquired. Is there anything that you will be doing in the short term that means that you will have less of a drag on NII going into Q3? Or is this kind of the run rate assuming all else equal?
Well, I would say that it probably is the run rate that we are going for seeing for the future. We are not doing any major changes in the portfolio or in the investments that we are doing, and we still have the same strategy.
Okay. Then just in terms of costs, they were up 15% first half year on year. Your guidance is 15% to 20%. Does this should we be looking at the cost level for 2017 that is closer to the 15% level rather than perhaps in the middle or the upper end of your guidance?
The guidance is 15% to 20% on that stance.
Yes. I think we have to reiterate that. And as you can understand, I mean, it's difficult to say exactly when some costs will come and the exact timing. So we have said that 15% to 20% in 2017 is the cost guidance, and we stick to that.
Okay. Then just one last question relating to Stabile. And I know that you said that you will disclose more during the second half. But is there any cost that you have taken that relate to Stabilo? Is that or is investments there done completely separate within the kind of Stabilo company?
Well, the how Stabelo is developing their business, I think, like we said before, that is for them to comment upon. Of course, when we look at new products, some we are I mean, sometimes we have this development cost and in some cases, we have more cost to that. Exactly where and how we will work with this offering, we have said that we will come back to that in detail. But of course, developing all products take some costs. So there's no difference to other products that we are about to launch.
Okay. Okay. I think I'll stop there. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Nicholas McBeath from DNB. Please go ahead. Your line is open.
Thank you and good morning. A follow-up question on the net interest income as well for me. I was wondering, you reiterated the guidance of €200,000,000 NII sensitivity in the quarter. I mean, is there is it not reasonable to assume that the sensitivity would have increased in the quarter given the increase in excess liquidity? Yes, that's my first question.
Well, we say around $200,000,000 and I guess that could be $170,000,000 to $230,000,000 or something like that. It it depends on the business decisions that we make when it comes to savings accounts and so forth and interest rate on our accounts. So yes, that's around figure, and I said that it would be okay even at these volumes.
Okay. And
then on fund commissions, if I look on the fund commissions you received in relation to the savings capital in mutual funds, it showed a significant improvement quarter on quarter. Is there any special things impacting that? Like are there any lump fees received in the quarter, for instance, that boost the quarterly results on this income line? Or is this improvement just an effect of changed allocations among your customers between different kind of funds?
I didn't really get your what did you say? If it was in last year, what it was
Yes. I mean, it could be, for instance, that there are there's some kind of seasonality or that we received some fund commissions from fund companies for the whole year in the Q2 or so that boosts the quarterly results? Or is this, I mean, evenly periodized over the quarters?
No, no effects like that. It's just an effect of customers have more investments in funds and choosing different funds to invest in.
Okay. And then also on the Stabilo, I noticed a slight change in wording in the comments by Johan here in the report compared to the comments in Q1. Then I think, Johan, you had indication that you will or you said that you will get back with an offering later this year. And now in the report to you right that you plan to get back. Is this is there any reason for the change kind of wording or is it just me reading
too much into it? Just definitely still plan, if that was the word I used in Q1. We still have the plan to get back with a broader offering during 2017. So it's exactly the same message.
Okay. Thank you. That's all for me.
Thank you. Thank you.
Thank you. We have a follow-up question from Peter Wallin from Handelsbanken. Please go ahead. Your line is now open.
Yes, thank you. Yes, I just wanted to double check that I understood you correctly regarding your slightly lower market share and Stockholm Exchanges in Q2 that this was mainly more of a kind of a mix effect of the trading patterns in the market at retail clients, was a smaller share. What do you think that your market share within the retail segment was stable?
Yes, I think I mean what we concluded is that the majority of the market gained by large international players and they have very much institutional trading. I mean, for example, Deutsche Bank and Morgan Stanley and so forth and also some frequency traders. I think that's the majority of the change that we have seen. So we are very confident in our position in the market.
Okay. So then having that in mind then, if one looks at the brokerage per commission notes, which was relatively stable in this quarter, CHF 34,000,000 down CHF 35,000,000 in Q1. And then I think that this decrease then we should fully or almost fully at least attribute to lower transaction value per commission while there should not be a price component there. So if the kind of market activity levels we're seeing right now prevails, then is it reasonable to assume that this broker commission should stay flattish from here in the second half of the year? And if activity levels for whatever reason would pick up, they could actually slightly go up?
Or is there some kind of price component also here in this slightly decline quarter over quarter?
Well, I mean, we don't give any protections in that way. And I think we have commented upon that we the major effect is for the lower commissions is the fewer trading days and the low stock volatility and the lower risk willingness among our customers. And also we have commented upon so that we haven't noticed any impact on the price competitive of competitors and price play out. And I think that's about how we could talk about it and then exactly the implications going forward. And I think we I mean, we don't give any projections in that way on exactly how it will play out.
No, no. But I mean, so still that the decline in to 34% versus 35%, that's fully on the average commission size or the note of the transaction, the size of the transaction rather than any price component in there?
Yes.
Okay. Thank you.
I would. Yes, I would take them. I don't know if you haven't had it, but I would definitely say yes. I agree.
Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Mats LiLiadol from Nordea. Please go ahead. Your line is open.
Yes. Hello. I just had a quick follow-up on the NII sensitivity. If you say Because we saw STIBOR actually moving marginally, but because we saw STIBOR actually moving marginally, but at least upwards this quarter and still you had a negative effect? Or how do you see the sort of the split of the NII sensitivity?
Is the main part coming from once STIBOR reaches flat?
Well, the main part is coming when we're passing negative 0.2% since we have a floor in our bond portfolio. So we had a minor or smaller effect for the first 30 basis points of the repo rate, and then we have a larger effect when it comes above that.
Okay. Thank you.
Okay. Thank you. Our next question comes from the line of Helane Blumman from Carnegie. Please go ahead. Your line is open.
Thank you. I have a question relating to net brokerage income. And we have seen a strong focus growth and focus on growth in number of customers and saving capital during the quarter, but revenue growth wasn't that strong. And I would ask you to if you could describe your strategy in more detail on how you will manage to increase income per customer and income per saving capital going forward? Thank you.
Well, I'll just start, and then we get back to fill out. I think that's the fact strategy around scalability, where we see that over time, the cost will go down and also the revenues per per savings capital. And the way we want to play with this is to have even more customers to come in and work with innovation and new product to make sure that we constantly have a good link between the savings capital and the revenues to come. So I think it comes back to the innovation pipeline and exactly what we're saying that every 10th day we make upgrades to our website and that will describe a couple of the major launches that we have made during the quarter. And if we look back over the last couple of years, we have always produced a new number of innovations, and that is exactly what Avanxo is all about, to constantly produce new innovations that will make sure that the both the existing and new customers will use the offerings that we have.
That would be nice answer. I don't know if you have any.
Yes. The only thing I could add and I mean it's about the same, like what you're just saying, but what we're trying to do is give our customers good decision tools in order to make sure that they are invested. If they are invested in stocks or in funds, that's their issue or their problem, I would say. But we want our customers to make sure that they have good tools to invest at all and not being just having liquidity. So working with good decision tools in the future will still be our efforts.
Okay. Thank you.
Thank you.
Thank you. As there are no further questions registered, I'll return the conference to our speakers.
Well, thanks everybody and thank you for listening in and thanks for good questions. And I think that we just ended it. I think we have not been through the Q2 report. And overall, I think it's we are that is we have concluded that we had a good thing to welcome and we continue our journey towards a better future for millions of people. And if there are no further questions, I'd just like to thank everybody for calling in and wish everybody a nice day.
Thank you.