Thank you. Welcome to this Q1 presentation. My name is Johan Prom, I am the CEO of Avanza. We will start to give you a business update, I will do that part. Afterwards, our Chief Financial Officer, Birgitta Hagenfeldt, will take you through the financials. Altogether, this will approximately take 20 minutes, thereafter we will open up for questions. If we just have a look on what happened in Q1, we had overall a very strong quarter with continued strong momentum and good growth. We saw a record high customer inflow, only a couple of years ago we had this number of inflows during an entire year that we just had in one quarter now.
For the customers, it was a very good quarter when it comes to activity, that we had a total number of commission notes that was growing quite a lot. Bond volumes increased, we had a record high number of brokerage-generating customers. If we compare to Q4, the market activity among Avanza customers on Nasdaq, OMX, Stockholm, and First North was fairly flat in terms of volume, but we saw a very good increase in number of trades. If we compare to Q1 last year, we saw a continuously high trading and continuously print in that period. Therefore, the volume decreased when we compare it to this quarter. However, the number of trades rose quite significantly. Altogether, this gave us a result of SEK 103 million for the first quarter 2017. Moreover, the activity was very high internally.
We launched the Aktiegeneratorn that makes it easier for customers to select stocks. We also improved the inspiration page for stock trading, we enhanced our mobile offering in various ways with increased functionality. We saw that actually two-thirds of the visits to Avanza site now come through mobile devices, almost 50% of the new customers sign up through these devices. During the quarter, we also launched digital stock trading on a number of European markets that have been requested for long, our customers can now trade electronically big shares in Germany, Netherlands, Belgium, Portugal, France, and Italy. As announced earlier, we are planning for a broader mortgage offering with our customers together with Stabelo. That was announced earlier in the quarter.
Just recently we signed a cooperation agreement, we will get back during the year with how we actually will define that offering and have a more broad offering on mortgage loans to our customers. We see quite strong demand for that, the indication that we have had for our private banking customers is that it is very appreciated when we could get a very good offering in mortgage loans. We are very excited for this. We are very delighted that we were one of the 50 most visited .se sites. In addition to that, we got very high scores from the Swedish site [unsure], which constantly reviews Swedish banks, Avanza scored best among banks with top scores in all categories. That is customer service and offering and technique and price and recommendation.
During the quarter, the net inflow was high with SEK 8.6 billion, and the savings capital now totals to SEK 246 billion. In the quarter, we received new market share regarding the Swedish savings market for the full year 2016. Avanza now has a market share of 16.2% of the net inflow in Q4 and 10.9% on a 12-month rolling basis. This is well above our target of 9% that we communicated in the Q4 report. Overall, we now have a 5.9% market share in the Swedish population and 3.3% when it comes to the Swedish savings market. There's really a lot of things going on in the financial industry right now, and also in the FinTech arena, and it's happening quite fast. During the quarter, we've seen an intensified competition on brokerage fees, and we've seen more cooperation between large established players.
There's lots of FinTech startups that are more and more offering one-product offerings to the financial market. This is nothing new, and it's really something that we have seen over the years, and we believe that we are well positioned to take care of this development. As we see it, the first phase of digitization in the financial industry just happening now when the incumbent banks' offering is now being fragmented by niche players. Many of these banks are focusing hard on one product or one service. In that case, it's easy for them to keep costs down and consequently price it good. Therefore, we believe that going forward, price leadership and a good position to price accordingly will be key. How this will play out is really hard to predict.
We have seen over the years in many other industries that the first phase really encounters the bundling. After a while, there will be a bundling in a new way, and we look much at the media and music industries where we have seen good examples of this. The first phase is that you carefully specialize one product services, but over time, the market will seek new ways of bundling this to make it convenient for the customers. This is exactly where Avanza has a history and strength. We started by offering stock trading, and then we had a fund platform. We moved over to our Sparkonto Plus offering, and now we will go into mortgage loans. We believe that over time we will develop one hub where you could be the vehicle for your entire economy.
This is something that we have been building for very many years, and we believe that the course that we have is the right one for the future, given the digitalization trends that we see in the financial industry. Avanza has a good and strong brand in Swedish society with now over 600,000 customers. We focus very hard on building a top-notch user experience, and we've come quite far already. We also have the innovation culture that we are very proud of and that we think will be key going forward when we develop our offering. We have a well-functioning business model that is built on the cost leadership and also scalability, and this is why we could still grow and earn a lot of money while decreasing prices. That is all built on the cost leadership and scalability strategy.
Also going forward, compliance and legal will be key. We believe that we have the right position there to have a good position also in those areas when it comes to the development going forward. Our strategy stands and will continue to offer cheaper, better, and simpler products. We want to continue to stick close to the customer, and we will stay in charge of our user experience, and we believe this is key going forward. But we also need to find cooperation partners, and we've done so in the past with Trustly is a good example with direct payments, and now we've just recently communicated that we work together with Stabelo when it comes to mortgage loans. I think the combination of having the online platform where you could use and succeed with your overall economy together with partners, that will be the key going forward.
In focus for the coming years is to continue to drive the digitalization in the financial industry. We also believe that the flexibility and security will be very important pieces. We want to make sure that we capture all the possibilities that comes with regulation to be sure that we have both the right set of offerings, but also that we do it in a compliant way that will always have a secure offering to our customers. All in all, we believe that we could create a better future for millions of people by having the cheaper, better, and simpler offering. In doing so, we will have the one online platform where we succeed with your economy. By that, we mean the overall economy that our customers have.
If we look a little bit forward, we believe that we have good potential to capture the possibilities that emerge in the landscape. We mean that our cost position is vital and that by having continued cost focus will always be key, and by doing that, we will have the possibility to price our service accordingly. We continue to see a good growth potential in the changing environment, not only when it comes to digitalization, but also in light of coming regulations that we just discussed. We also believe that staying close to our customers and do what's best for them is what will always deliver value over time. If we do that, we believe that the shareholder value will come as a consequence of it. We've now seen in the quarter a very strong growth in customers and paid-in capital. That is also true for the recent years.
In the quarter we had a record high inflow of new customers We've done a couple of new launches in 2017, and we will continue to improve our offering as we have always done. We will fine-tune and build on customer feedback, and every 10th day we update our site, and we don't believe in a big bang in that way, but rather a continuous evolution to always serve customers in an efficient way. Overall, our vision is to create a better future for millions of people like we have discussed. We aim at being the online platform that serves our customers in a perfect way when it comes to their overall economy. We really believe that we need to have that focus and at the same time cooperate with the right partners to deliver the full offering that we could.
Over time, we think that we have a very good position that we stand on right now. We believe that we always need to stand on our toes in order to deliver on what the customers ask us to deliver for them. In so, we believe that we have the position to deliver a better future for millions of people. With that, I will hand over to Birgitta Hagenfeldt to take up with the financials.
Thank you, Johan. As a result of lower costs and stable revenues, operating profits increased by 3% compared to Q4 2016, giving an operating margin of 49%. Compared to the first quarter last year, the operating profit increased by 5%, with both revenues and costs increasing. The revenue increase is mainly an effect of growing customer base and higher activity among our customers. I will come back to more details later. The cost increase of 13% year-on-year is in line with our guidance of 15%-20% for the full year. If you look at the total revenues compared to the previous quarter, they remain unchanged. Revenues per savings capital ratio, however, decreased by three basis points to 41 due to higher savings capital. Number of brokerage-generating customers were record high and number of commission notes increased. Brokerage income per turnover rose, but turnover per trade decreased.
Taken together, brokerage income remained unchanged. Fund commissions increased by 10% due to larger fund volume, which on average increased by 11% during the period. Net interest income fell by 5%, mainly because of higher deposit guarantee fees and resolution fees, but also more surplus liquidity deposited with credit institutions. Increased lending made a positive contribution. The reference rate remained unchanged while STIBOR three months was five basis points higher, which however, had a marginal effect on NII. Other income increased by 8%, mainly due to lower income from corporate finance, which was still at a relatively high level. During the quarter, Avanza Markets accounted for 27% of total other income and currency-related income for 56%, and income from corporate finance was 17%.
Compared to the first quarter last year, revenues increased due to higher fund commissions and increase in other income, while lower NII and brokerage income had the opposite effect. Brokerage income decreased by 3% compared to last year when we, as Johan already mentioned, saw high trading and especially Fingerprint Cards. However, the number of equity transactions gained 30% and the number of commission-generating customers rose by 26%, which means that activity is increasing with more customers and a higher number of trades. Transaction volumes, however, are lower and made in lower brokerage classes suited to customers' trading patterns. Income per commission note fell even though brokerage income for turnover increased by 8% compared to 2016. If you put this in other words, we are attracting younger customers and customers with smaller capital that trade more but at smaller volumes.
Fund commissions increased by 42%, mainly due to higher fund volumes and partly because customers have reweighted the funds with higher fees. Fund commissions accounted for 21% of total revenues. Net interest income fell mainly as a result of negative interest rates with increased expenses for surplus liquidity, but also expenses for the deposit guarantee fee and resolution fee. All else equal, without taking any change in customer behavior into account, a one percentage point change in interest rates with today's volume would affect the full year net interest income by around SEK 200 million. Other income increased mainly due to higher currency-related income caused by increased trading in foreign securities. Equity trading in foreign markets by Avanza customers accounted for 6.5% of turnover in the quarter. Corporate finance income increased compared to previous year. Compared to last quarter, operating expenses decreased by 3%, mainly due to lower marketing costs.
We compare to the first quarter last year, operating expenses increased. This is mainly due to higher personnel costs, partly because of added IT and product development capacity. Other expenses rose due to higher expenses for external services. Cost to savings capital decreased by three basis points to 21 for the quarter, despite increased costs. This was an effect of higher savings capital due to strong customer inflow and net capital inflow. Just over 50% of net inflow came from new customers. Our cost guidance remains. We estimate costs to increase by 15%-20% during 2017, and thereafter return to an annual cost growth of 8%-10%. Sorry, moving too fast. Let's take it back. Operating profit and margin. The operating margin was 49% for the quarter, in line with our ambition of a margin of around 50%.
Profit after tax increased by 5% year-on-year to SEK 103 million. That's 2% compared to fourth quarter. Both income for savings capital and cost for savings capital ratio decreased in the first quarter, which 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 to savings capital ratio to below 20 basis points in a few years, despite the increase of cost guidance for this year. Customer's total deposits was unchanged during the quarter, even though the balance sheet item has increased, mainly an effect of liquidity management in our insurance business. Deposits amount to about 14% of total savings capital, which is slightly less than before.
Loans to the public have increased both in terms of margin lending and mortgage loans. The balance sheet item loans to the public includes lending entirely covered by cash that is not included in lending within the savings capital. The difference between lending and savings capital and balance sheet does not affect the NII. Consequently, the bond portfolio has decreased due to maturing bonds, and loans to credit institutions have increased. The increase in other assets and other liabilities are mainly due to customer securities trading receipts and liabilities. During the quarter, the dividend of SEK 330 million was paid out, which together with the profit for the period explains the change in equity. The risk exposure amount increased to SEK 4.8 billion, mainly due to increased mortgage lending and higher loans to credit institutions. The capital base was unchanged in Q1 since results hasn't been included.
All in all, this gives us a total capital relation of 90.1% compared to the requirements, including external and internal buffers and Pillar 2 requirements of 15.45%. The strong capital situation entitles us to continue to grow also at a quicker pace. With that, Johan, I think we can open up for questions.
Absolutely.
Thank you. Ladies and gentlemen, if you haven't already and you wish to ask a question, could you please press zero and then one on your phone keypad now to enter the queue? Then after I announce you, simply ask your question. If you find your question has been answered before it's your turn to speak, just press zero and then two to cancel. There'll be a brief pause while question's being registered. We first go to the line of Peter Wallin of Handelsbanken. Please go ahead. Your line is now open.
Great. Thank you, and good morning. I would like to start off with some questions regarding this coming announcement of your cooperation with Stabelo regarding mortgages, if we could get any more color regarding this. To start off with, will you be the only distributor of mortgages from Stabelo, and also how does Stabelo fund these mortgages?
Good morning, and thanks for the question. The only thing that we've said so far is that we have invested in Stabelo, a startup company, and we own 20%. We today announced that we have signed a cooperation agreement with them. Then we've said that during the year, we will get back with more details on exactly how this offering will look like, how it will function, and to use your words, Peter, the different colors of the offering. Right now it's a little bit in black and white, and I can understand that, but that's how far we have come when it comes to communicating around this.
Coming back a bit to the business rationale behind it, if I understood you correctly during the presentation, you said that you're more or less aiming to become some kind of financial services one-stop shop over time. The initiator behind this transaction, was this that you were out looking to find to get some kind of broader mortgage potential base, which would not be based on your balance sheet, and you spoke with maybe several third-party originators? How did this deal come to be?
Exactly like you said, we have the ambition to help our customers with the full range of their economic activities. We constantly look for partners that could be helpful and really have optimal and top-notch footprint. We have Trustly when it comes to direct payments. We have several cooperation partners when it comes to the Sparkonto Plus. We believe that Stabelo is a very good partner when it comes to offering mortgage loans. We constantly search the market for various types of cooperation partners and vehicles and solutions. Everything that we could do to serve our customers in a better way is interesting for us, and Stabelo is just a very good example of that.
Could it be then that assuming that maybe this takes off fairly well, that in a couple of years' time, you might have several originators that you cooperate with?
I think that over time, it's very hard to predict the future. If we look at it right now, I think we've done quite a good job when it comes to the stock trading and the overall decrease in prices there with 80%-90% over the last decade or 2. We believe that we could make a change when it comes to mortgage loans. I think over time, we are scratching the surface there right now. Over time, I'm not taking out any options, but we believe that we could have a really good offering together with Stabelo, and I think that's a very good start. Where that will take us is hard to see. We believe that we could contribute in a good way to our customers' economical life together with Stabelo when it comes to mortgage loans.
Okay. I guess we'll just wait for further details then. I'll jump to also something you commented on your presentation, one of the major banks price cut earlier this year on commissions. We know that we've had Nordnet in the market for several years having a very good price offerings. Have you seen anything in the market dynamics the last couple of months, which looks as if the price competition is getting clearly more competitive than previously? Or is it business as usual the way you see it right now?
We never, ever think about our business as business as usual. We always stand on our toes every day and really like to everyday fine-tune our offering. We haven't seen any real effect so far, not in customer inflow, not in trading activity. I think our conclusion when it comes to prices is that the importance of price is becoming marginally lower given that we have now cut 80%-90% compared from where we started off. Of course, price will continue to be really important, and I think it's very good that some of the additional players in the marketplace have understood that. There are still other players out there that haven't the same perception on that.
The feedback that we get from customers is that other pieces of the offering, such as user experience and decision-making tools and services and so forth, are becoming increasingly important. Now we're down to that the actual difference is a couple of krona or a couple of öre. The importance of a really top-notch user experience and state-of-the-art decision-making tools and customer services in world-class are becoming increasingly important. I think that's the long answer, and the short answer is that, like I said, we haven't seen any real effects so far. We never, ever consider our business as business as usual. We always stand on our toes every day.
Okay. Just a final question of mine maybe a bit more technical on the NII development in the quarter. Also wanting to double-check a bit if I understood the information in the report correctly. You state that the fees in this quarter, if you add them up four and two is SEK 6 million, and that's an increase of around 33%. I guess that's both quarter-over-quarter and year-over-year. Essentially fees which were maybe in the range four-point something, four and a half, slightly below that last year are now around SEK 6 per quarter. Is that a correct interpretation?
When it comes to the resolution fee, we had a 50% rebate or discount last year. The cost for resolution fees are doubled compared to last year. That's the main difference when it comes to the fees.
Coming to the delta quarter-over-quarter from fees alone is maybe in the area of SEK one and a half million or slightly more, while your decline is pretty much then fully explained by that or maybe the decline comes also from some other sources. It seems like the slight increase in money market rates didn't really give very much of a positive impact in this quarter and also growing lending volumes. While you repeat your sensitivity of, or actually you narrow it down to around 200 instead of your previous interval. Is there anything else disturbing in this quarter? While saying a similar trend in money market rates the next quarter could give a clearly more positive impact, or is this a more reasonable development also in the coming quarters?
I would say that what may behind the scenes as well is that our customers are increasing their loans in what we call the Super Loan, which is a margin lending with a little less interest rate. In some extent, the part of the margin lending is increasing within the Super Loan and not with the full margin loan.
It's more like it's a mix effect.
Yeah
didn't go your way this quarter.
Yeah.
Okay. Great. Thank you. That's all from me for now.
Thank you.
We now go to the line of Peter Kesejov of SEB. Please go ahead. Your line is open.
Yes. Hi. Thank you for taking the questions. A few questions on my side. You changed the wording going from previously saying that you have the lowest prices to now having low prices. Is that the way we should look at Avanza going forward, that having the lowest prices is not necessarily the most important part or one of the main selling points? That's my first question.
I think we will always make sure that we have the best offering. It's not necessarily always in every individual item the lowest price when it comes to, it used to be the case that Nordnet could have some individual price points that were lower, but we still consider that on the total level we had a very pricey offering, and I think that will be the same going forward. On the total level, price will always continue to be important, and we will make sure that we have low and really competitive prices. There will always be, or it could be some individual price points where there are other offerings that are actually lower. That is, I think, one portion of the answer. The other portion is that you have to look upon the services generated.
We believe that when it's down to a couple of SEK or in some cases a couple of EUR, the customers are willing to pay for the state-of-the-art decision tools, the world-class services, and the user experience that we provide. If you take some kind of similarity to the car industry, with the quality ladder, we want to be the Audi that have the lowest prices, but not necessarily the Škoda that illustrate the price versus quality ratio. I think when we say that we would like to have a really pricey offering, it should be given the quality that we offer.
Okay. Just looking at what competitors are doing now, if we, for instance, look at the large banks partnering up with fintechs in order to narrow their gap on the product offering relative, for instance, companies like yourself. To what extent does that worry you? To what extent does that drive the additional cost or investments that you're making now? I guess historically, at least you've had a much bigger advantage on the product offering relative to the large banks that they're now trying to at least narrow.
There will always be, we search like we attempted the previous question, we always search for cooperation partners. Right now we see a lot of new corporations coming up. I think what is important then is that you have world-class levels, both when it comes to the overall user experience, and that we think we have. There are of course other people that claim that they have it, but you also need to fill it with state-of-the-art products. In some of the corporations that we see, we see that you try to link a very modern user experience with very old school products that are not really priced in a competitive way. If you have very expensive mortgage loans, for example, or expensive stock trading we don't believe that it's enough to put it in the umbrella of a good user experience.
You have to have really good top-notch products to fill your overall user experience well. That is exactly what we think we are doing, and we don't believe that some of the other players have found that mix yet.
Okay. Just on terms of product launches, when I read around when you write about the products or the services that you launched during the quarter and what you're looking to do, I get the impression that at some point you will launch an aggregator kind of service where people in essence can see all their accounts under their Avanza app. Is it so that this is something that you will launch throughout the year, or is it very PSD2 dependent, meaning that it most likely it's in 2018 that we will see bigger product launches in that area?
To a certain extent, we already believe that we now have some type of good overall vehicle to serve our customers' economy when it comes to stock trading, when it comes to savings, funds, et cetera. I think the answer to your question is that we don't believe in big banks. We believe in continuous development. As soon as we have something that is ready, we will launch it and talk about it, and we update both the mobile platforms and the desktop platforms every 10 days. We will do continuous updates to this. Recently, we have talked about the Aktiegeneratorn that was launched in January and the digital trading European stocks and now the Stabelo cooperation. That is exactly how we look upon things going forward. We don't believe in one big bang, but rather continuous development.
Okay. Just one last question in terms of costs. You have your guidance of increasing costs 15%-20% year-on-year. Costs were up 13% now in the quarter. In terms of distribution over the year, will we see cost in Q2 reaching the kind of cost growth level that you have anticipated?
Well, I think you will see the cost grow more and during the year as we are adding personnel and other costs. We are adding costs on almost every cost line during this year. I would say that you would see this growth coming during the year rather than having the full cost effective on a certain quarter.
Okay. Should we think anything around that could potentially mean that the cost growth is closer towards 15% than 20% for the full year?
Well, as we say, our guidance is 15%-20%, so I think that's what you should be working with.
Okay. That's narrow enough. Okay. Thank you very much.
Thank you.
Okay. Our next question is for the line of Nicolas McBeath at DNB Markets. Please go ahead. Your line is open.
Thank you, and good morning. Actually, I think most of my questions were already asked. Trying again, if you could give any more indication about the timing of the rollout of the Stabelo cooperation. Should we think about it that's something you look to launch more towards the end of the year or before that? Also if you could give any kind of indication how much of this higher cost growth for this year, you're saying 15%-20% for this year, how much of that is related to your cooperation with Stabelo? Could you give any kind of mark around that would be useful? Thank you.
Thank you. Well, I think we already said that throughout the year, this year, we will get back to exactly what the offering would look like when it comes to the Stabelo cooperation. We're working continuously with it, and as soon as we have something ready, we will talk about it. Since it's quite a massive thing, it's a lot of preparation that needs to take place. In due time, we will get back to the timing. Right now we leave it with sometime during 2017. When it comes to the cost guidance, I think what we've said is that it's an overall effect of various things. It's user experience in new offerings. It's in new people, of course, both IT and regulatory people when it comes to compliance and so forth.
We haven't revealed any detail on exactly to what project that is all about. I think you have to view it as a total investment in our total offering.
Okay, I understand. Second question. It seems like you're targeting now to offer your customers an overview of their whole economy, and you want to be a service that could offer the customers the tools and interface to conduct most transactions, it seems, or through your own interface. Is that your vision? Do you have a vision to maybe within one to three years be able to let your customers do all their transactions and banking services through Avanza's interface?
I think we view ourselves right now as the vehicle for your whole economy. You could trade stocks with Nasdaq, you could have your Sparkonto+, your savings account with us. You could buy funds from various sources. You could buy a lot of traded products that we've come quite a bit on. You could transfer money when it comes to Trustly, we have communicated that we work together with Stabelo, to mention a few. We already think that we have such a platform. Of course, we'll continue to develop it. We have talked about Stabelo. Historically, we have developed a lot of new innovations. I'm not ruling out that we, over time, will work with new type of offerings when it comes to different various types of payments and so forth. If and when we'll get there, we will definitely talk about it.
Up until now, we haven't really found an Avanza way of doing it. In order for it to be an Avanza way, it needs to be much more cost-efficient than the rest of the industry. It needs to be a wow feeling for the customer when they receive it, and we want to be 100% sure that it flies in all dimensions, not only regulatory-wise. When and if we will find a way to work with payments in such a way, of course, we will have a look at it. Right now, we are very much focusing on other things today to break new ground when it comes to mortgage loans.
Okay, thank you.
Thank you.
Just to remind all participants that if you wish to ask a question, could you please press zero and then one on your phone keypad now. There'll be a further pause while any further questions are being registered. Okay, we have a further question, and that's from Ulrik Zürcher at Beringer Finance. Please go ahead, Ulrik. Your line is now open.
Yeah, hello.
Hi.
Hi, I was just wondering, you mentioned two-thirds of the visits to your site are now through mobile. Is that correct?
Yes. Let me have a look at the numbers here. We say that two-thirds of the visits now come through mobile devices. We say that 50% of the new customers sign up through these devices. Yes.
Okay. Yeah, I didn't catch the 60% sign up. Great. Okay, yeah, that's great. Thanks.
You're welcome.
That's all.
As there are no further questions at this stage, may I please pass it back to you for any closing comments.
Well, I'd just like to thank everybody for listening in. It's been a great quarter for Avanza. We had a record strong inflow of new customers. We believe that all of our major KPIs have been developing in a good way. We launched a couple of new services. All in all, the focus on satisfied customers, that is key to us, and we believe that's been a very good quarter when it comes to this KPI. Thanks everybody for listening in. If you have any sort of further questions or comments afterward, don't hesitate to write me or Sofia or Birgitta an email, and we'll try to answer your questions as good as possible. With that, I'd just like to say thanks everybody, and wish you a good day.