Ladies and gentlemen, welcome to the Avanza interim report January to June 2017. Today, I'm pleased to present CEO Johan Prom and CFO Birgitta Hagenfeldt. For the first part of this call, all participants will be in listen only mode. Afterwards, there will be 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 Prom, and I'm the CEO of Avanza. I will start with a business update, and after this, our CFO, Birgitta Hagenfeldt, 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 first six months, we have had the benefit to welcome 66,200 new customers to Avanza, and that is +34% compared to last year. We now have 636,900 customers on the platform. Also net inflow was strong in the quarter at SEK 8.7 billion, amounting to SEK 17.3 billion for the first half year, and that's an increase with 20% compared to the first half 2016.
60% of the new inflow comes from new customers. Looking at the market share of net inflow into the Swedish savings market, Avanza share for the first quarter was 18.6% or 12.2% on a rolling 12-month basis. 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 SIX 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 generating customers was still on high levels and only down by 1% compared to last quarter and up by 14% year-on-year.
Furthermore, due to the Easter holiday, Q2 had five and a half 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 as customers have net sold shares, they have net bought funds giving a good inflow in fund in the quarter. At the end of the quarter, total savings capital amounted to SEK 262 billion in funds. Corporate activity in Sweden has been good, and Avanza has been participating in a couple of IPOs and a number of ownership diversifications. Avanza was lead in one IPO, Simpro Marine, during the quarter, and the second quarter last year was also very strong when we did our largest IPO ever in the Paradox Interactive case. The corporate activity for the second half looks continuously strong.
Altogether, this gave a net result of SEK 89 million, which was 14% lower than last quarter. 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 2016, the net result was flat. Looking at Nasdaq OMX Stockholm at First North compared to the first half year 2016, the turnover was 7% lower, which to some extent also is explained by the high activity in Fingerprint Cards at that time. Number of trades was strongly higher, up 32%. Looking at the market shares seen in this graph, they have gone down both when it comes to transactions and turnover.
Market shares have been gained primarily by large international players and mainly institutional trading such as provided by Deutsche Bank, Morgan Stanley, et cetera, but also foreign high frequency traders. We see that overall that our retail position is still on a good basis. Regarding the intensified price competition we've seen in the end of last quarter which to some extent continues 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 10th day, we have launched a few substantial more heavyweight pieces in the quarter. In the middle of June, we made it possible for smaller companies to onboard and start pension saving completely digitally on our site.
It's still too early to conclude any effect, 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 mid-sized and large-sized companies. In connection to this, we have also focused on our sales force in Gothenburg and Stockholm. This means that the Malmö customers will be handled from here, and we will close down the office in Malmö. Last quarter, we launched the digital stock trading in the larger European markets, and this quarter the offering was expanded with France and Italy. International stock trading still stands for a relatively small part European trading is still increasing, but U.S. volume still stands for the main portion. In June, the Sparkonto+ offering was improved with better rates.
This is a good alternative for those who not want to be fully invested in the market. The interest so far has been very high. In the quarter, our customers exceeded SEK 10 billion in savings capital in Sparkonto+. That is 21% up from last quarter. Furthermore, our cooperation with Stabelo, 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 a top score on best service in financial services in ranking conducted by ServiceScore. Also our NPS and NPI 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. That is key for our success going forward. That is an important piece in our effort to create a better future for millions of people. In the second half, we will get back with even more pieces of this puzzle on how we will create a more cheap and better and simpler offering on our journey to create an online platform for our customers to succeed in their entire economy. I would also like to take this opportunity to welcome Rikard Josefson on board, he will assume the role within six months as previously communicated. This was all from my side in this section, now I hand over to Birgitta to take you through the financials.
Thank you, Johan. Starting with a financial overview. If you look at the operating profit quarter-over-quarter, we had a decrease of 15%, which is due to lower revenues and higher costs compared to Q1. This gives us a operating margin of 44% for the quarter. Compared to the same quarter last year, we had a 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, the cost increase is in line with our guidance of 15%-20% for the full year. For the half-year period, costs increased by 15% compared to last year. If we instead look at the revenue compared to the last quarter, the total revenues decreased by 5%.
Revenues per savings capital ratio decreased by four basis points to 37, which is a result of lower revenues, also increased savings capital. Brokerage income. We had a number of brokerage-generating customers was still on very high levels, 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. Altogether, this gives us a brokerage income that decreased by 18%. Fund commissions, on the other hand, increased by 16%, 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%, it's the yellow line. This is mainly due to more surplus liquidity deposited with credit institutions at lower interest rates.
This is something that you cannot see in the group balance sheet since SEK 3.8 billion 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, although small. The repo rate remained unchanged, while STIBOR three months increased by four basis points. This, however, only had a marginal effect on NII due to the interest rates for our bond portfolio. This will give small effect on NII when STIBOR rises to negative 0.2%, also acted like a cushion on the downside. Other income increased by 9%. This is mainly due to higher income from Avanza 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. 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 note fell by 22%, even though brokerage income turnover increased by 9% compared to the second quarter 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 commissions now accounted for 26% of revenues, compared to 17% last year. Net interest income was flat.
We had higher expenses for deposit guarantees fees and resolution fees. The negative interest rate with increased expenses for surplus liquidity also had a negative effect. The lending, on the other hand, had a positive effect on NII due to higher volumes. All else equal, without taking any changes in our customer behavior, one percentage point change of the repo rate would have a full-year effect of about SEK 200 million on NII. Other income decreased by 4%, and that is mainly due to lower corporate finance revenues, which had a strong second quarter last year with the listing of Paradox. Currency-related income was higher due to increased trading in foreign securities. We look at the cost development compared to last quarter, operating expenses increased by 5%, mainly due to personnel costs and external services.
If we instead compare to the same quarter last year, expenses increased by 17%. This is mainly due to higher personnel costs because of regulation and the additions into IT and product development capacity. Other expenses rose due to higher expenses for external services. Cost per savings capital decreased by 2 basis points to 21 basis points in the quarter despite the increased costs. This is, of course, an effect of higher savings capital due to strong both customer and capital inflow. Cost compared to the first half year 2016 increased by 15%, which is in line with our cost guidance of 15%-20% for the full year. Thereafter, we expect annual cost growth to return to 8%-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. Even more important, an effect of our investments in growth going forward. Profit after tax decreased by 14% quarter-on-quarter to SEK 89 million and by 6% compared to the same quarter last year. Compared the first half year of 2016, net profit was flat. Income per savings capital decreased in the second quarter and cost per savings capital was flat. 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 have 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 very capital efficient and strong, and the strong capital situation entitles us to continue to grow also at a quicker pace. With that, Johan, I think we can open for questions.
Absolutely. Thank you, Birgitta. I think that was all from our side. Please, do we have any questions from the audience?
Thank you. Ladies and gentlemen, if you do have a question for the speakers, please press 01 on your telephone keypad and you will enter the queue. After you are announced, please ask your question. 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 start off with what kind of impact of this quarter, just to check whether those conditions still prevail, that kind of all-time high valuation on the market made some of your clients take profits and decrease the risk appetite. Can you see whether this is still the case or whether maybe the report season starting off has changed the activity levels?
I could start off and Birgitta could fill out even more. I think what we have concluded is that we've seen both fewer trading days, but also that the market volatility and lower risk willingness have affected the broker income negatively. We still see a fantastic inflow of customers, and we also see that the fund business is going very well. We also have seen that given the current interest regime that we're living in, that is hindering us quite a lot. That is about the effect that we have seen and we don't see any effects of the increased price pressure, or we want to see that the new customers are very active and so forth. I would say that 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 to it. I don't know, Birgitta, if you have any.
Maybe I could just add to that what we see is that the volumes on the Stockholm stock exchange are lower, and have been so for a few months and also in July. The trading volumes overall, not just the Avanza customers, are actually lower right now. I guess it will probably be so as long as the risk willingness and the volatility is on these levels.
I interpret that as risk willingness being at the same level still as was the case during Q2. Just following that cue, when the lower risk willingness resulted in surplus liquidity, which was difficult for you to place without paying for it. Is there anything else 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?
What we are doing, of course, is trying to find bonds to invest in our bond portfolio. As you know, the market is very weak, and there are lots of institutions seeking the same kind of bonds that we are. 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. Continue to do that and, of course, look over what kind of bonds we could invest in.
Okay.
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 could just add to that. What we did with Sparkonto+ during this quarter was that we improved that offering. Of course, I think the key here is to always strive for better customer offering, like Birgitta is saying. We focus a lot on that, and we have some stuff coming up in Q2. 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. 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 Malmö office for your pension offering. Should one assume that the cost saving coming from there is going to be fully reinvested, or was this part of the plan from the beginning?
Well, actually, Malmö was a trial period. We decided to focus on that region from Gothenburg instead. That is a really small cost compared to the overall cost. 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 Peter Kjesen from SEB. Please go ahead. Your line is open.
Yes, hi. Thank you. A couple of follow-up questions actually on what was previously asked. You alluded a bit to that you're trying to strengthen the Sparkonto+ 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 simply clients just putting money on their deposit accounts, is it so that when you're saying that you're improving the Sparkonto+ offering, that you are lowering your kickbacks that you're getting from Collector, Nordax, Klarna, and so on that have these accounts with you? Or is there anything else that you have done? Because I noticed that you raised the rates that customers get on those accounts.
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. That implies that you perhaps have lowered your kickbacks. Is that the case?
We have not disclosed the distribution fee yet. It's a negotiation between us and our counterparties. When I said that we will improve the offering, it's more look how could we work with that piece of the offering, given that it's important for our customers. Like Birgitta is saying, that instead of having it on just 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. Given the current situation, we see that this is important for our customers, and hence we work a lot with that piece of the offering.
Does this mean launching new products or is it for instance, creating a advisory tool that recommends people to move their money to the Sparkonto+ account and perhaps actively moves it for them as well, as long as they approve it? If you could allude a bit on that.
I think it 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. As soon as we have something ready, we communicate it to the market. I think the only thing that we were commenting upon is that this is an important piece of the offering. We made some improvements during Q2, 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.
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 the run rate assuming all else equal?
Well, I would say that it probably is a run rate that we are 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.
Just in terms of costs, they were up 15% the first half year-over-year. Your guidance is 15%-20%. 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%-20% and that stands.
I think we have to reiterate that. As you can understand, it's difficult to say exactly when some cuts will come and the exact timing. We have said that 15%-20% in 2017 is the cost guidance and we stick to that.
Okay. Just one last question relating to Stabelo. I know that you said that you will disclose more during the second half. Is there any cost that you have taken that relate to Stabelo? Is investments there done completely separate within the Stabelo company?
Well, 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, sometimes we have business development costs and in some cases we have to add more costs to that. Exactly where and how we will work with this offering, we have said that we will come back to that in detail. Of course, developing all products take some costs, there's no difference to other products that we are about to launch.
Okay. I think I'll stop there. Thank you very much.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Nicklas Färm from DNB. Please go ahead. Your line is open.
Thank you and good morning.
Good morning.
Follow-up question on the net interest income as well from me. I was wondering, you reiterated the guidance of SEK 200 million NII sensitivity in the quarter. Is it not reasonable to assume that this sensitivity would have increased in a quarter given the increase in excess liquidity? Yeah, that's my first question.
Well, we say around SEK 200 million and I guess that could be SEK 170-SEK 230 or something like that. Instead of giving you a precise interval, we have decided to just have it in a round figure. It depends on the business decisions that we make when it comes to savings accounts and so forth and interest rate on our accounts. Yeah, that's the round figure and I said that it would be okay even at these volumes.
Okay, thanks. 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? Are there any lump fees received in a quarter, for instance, that boost the quarterly results on this income line? 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 a lump?
Yeah. It could be, for instance, that there's some kind of seasonality or that you received some fund commissions from fund companies for the whole year in the second quarter or so that boost the quarterly results or is this evenly period over the quarters?
No effects like that. It's just an effect of customers have more investments in funds and choosing different funds to invest in.
Okay. Also on the Stabelo, I noticed a slight change in wording in the comments by Johan here in the report compared to the comments in Q1. I think, Johan, you had the indication that you will get back with an offering later this year. Now in the report, you write that you plan to get back. Is there any reason for the change kind of wording, or is it just me reading too much into it?
Yes. Clarify that. No, there's absolutely no change whatsoever. I heard we 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. It's exactly the same message.
Okay. Thank you. That's all from 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. I just wanted to double-check that I understood you correctly regarding your slightly lower market share on the Stockholm exchanges in Q2, that this was mainly more of a kind of a mixed effect of the trading patterns in the market, that retail clients was a smaller share while you think that your market share within the retail segment was stable.
Yeah, I think what we concluded is that the majority of the market share has been gained by large international players, and they have very much institutional trading. 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. We're confident in our position in the market.
Okay. Having that in mind then, if one looks at the brokerage per commission note, which was relatively stable in this quarter, SEK 34, down SEK 35 in Q1. I think that this decrease then we should fully or almost fully at least attribute to a lower transaction value per commission while there should not be a price component there. If the kind of market activity levels we're seeing right now prevails, then is it reasonable to assume that this brokerage per commission note should stay flattish from here in the second half of the year? If activity levels for whatever reason would pick up, they could actually slightly go up? Is there some kind of price component also here in this slight decline quarter-over-quarter?
Well, we don't give any predictions in that way. I think we have commented upon that the major effects for the lower commissions is the fewer trading days and the low stock volatility and the low risk willingness among our customers. We have commented upon so that we haven't noticed any impact of the competitive price play-outs. I think that's about how we could talk about it and then exactly the implications going forward. We don't give any projections in that way on exactly how it will play out.
No. Still the decline in to SEK 34 versus SEK 35, that's fully on the average commission size or the note of the transaction, the size of transaction rather than any price component in there.
Yes.
Okay. Thank you.
I will. Yeah. I would say so. I don't know, Birgitta, if you have any, but I would definitely say so, yeah.
I agree.
Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Mats Lilljedahl from Nordea. Please go ahead. Your line is open.
Hello. I just had a quick follow-up on the NII sensitivity. If you say SEK 200 million per one percentage points increase, is the main part of that coming from when STIBOR passes flat? 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 split of the NII sensitivity? Is the main part coming from when STIBOR reaches flat?
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 a 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 Helén Broman from Carnegie. Please go ahead. Your line is open.
Thank you. I have a question relating to net brokerage income. We have seen a strong focus on growth in number of customers and saving capital during the quarter. Revenue growth wasn't that strong. I would ask you 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 could start, Birgitta could fill out. I think that goes back to our overall strategy around scalability. Where we see that over time the cost will go down and also the revenues per customer, per savings capital. The way we want to play with this is to have even more customers to come in and work with innovation and new products to make sure that we constantly have a good link between the savings capital and the revenues to come. I think it comes back to the innovation pipeline and exactly what we're saying, that every 10 days we make upgrades to our website, and now we've described a couple of the major launches that we have made during the quarter.
If we look backward the last couple of years, we have always produced a new number of innovations, and that is exactly what Avanza is all about, to constantly produce new innovations that will make sure that both the existing and new customers will use the offerings that we have. That would be my answer. I don't know, Birgitta, if you have any.
Yeah. The only thing that I could add, it's about the same that you're saying, that 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. We want our customers to make sure that they have good tools to invest at all and not being just having liquidity. Working with good decision tools in the future will still be our efforts.
Okay, thank you.
Thank you.
Thank you. Ladies and gentlemen, I remind you that if you would like to ask a question, please press 01 on your telephone keypad now. 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. I think that we just ended it. I think we have now been through the Q2 report, and overall I think we have concluded that we had a good thing to welcome, and we continue our journey towards a better future for millions of people. If there are no further questions, I'd just like to thank everybody for calling in and wish everybody a nice day. Thank you.