Presentation of the Q2 report. My name is Henrik Schellian, Acting CEO of Avanza. I will start with the business update of the Q2. After this, our CFO, Birgitte Hagenfeld, will take you through the financials. During the presentation, you can post questions through the system to be answered after the presentation.
The presentation will take approximately 20 minutes and we will open up for questions afterwards. The operating profit at SEK 111,000,000 was 3% lower than in Q1 and 8% lower than in Q2 last year. The stock market continued down during Q2, but was a bit less volatile except for the second half of June that was deep downturn and our customers were net buyers of the deep downturn in the market. Despite this, trading activity in Q2 were lower than in Q1 and affected brokerage income negatively. Also, the negative repo rate put pressure on revenues.
Compared to last year, the lowered repo rate affected revenues even more, and the trend towards funds with lower fees was vital. The overall activity on the stock on stock exchange and First North was up 15% year on year. However, trading activity accounted as number of trades among Avanthus customers rose by 46%, while at the same time, the average transaction size has fallen. Consequently, income per the commission note has gone down by 22% to SEK 42 since last year. As a result of this and despite the higher activity, brokerage income was only slightly higher year on year.
We also saw an increased activity in corporate transactions, and Avanta did its largest rights issue ever when Paradox Interactive was listed. Revenues from corporate finance was higher than last year's record quarter. Avanta Markets, which was launched a year ago, continues to contribute to higher other income. Costs were up 7% year on year, mainly due to increased personnel costs. Compared to last quarter, costs were only slightly up by 1%.
Cost savings capital ratio continued to decrease and is down by 7% to 23 basis points from last year. This is well on track to reach our long term target below 20 bps and tremendously important for our ability to maintain price leadership and high profitability in any market condition. We saw a good uptick in customer improve last year, especially in May June, resulting in 23,100 new customers in the quarter. That is 13% up from last year. And we have already exceeded our customer targets with regards to inflow for this year.
Customer inflow is what drives growth in savings capital and also net inflow was high in the second quarter at SEK 9,000,000,000. Total savings capital at the end of the period amounted to SEK 199,000,000,000. We were first in launching free stock trading on the Stockholm Stock Exchange, an offer for customers with a savings capital below SEK 50,000 and that was very well received from our customers. In our effort to keep making our customers' offering better, easier and less expensive, we also have improved our mobile apps in the quarter, including a number of general improvements as well as a new feature allowing customers to make deposits in real time from other banks to their Avance accounts. We strengthened our mortgage offering by lowering the rate to 0.79 percent and launched a new input stock list, making it much easier to select stocks to match each one's desired investment strategy.
Altogether, our customer focus and focus on user experience resulted in a couple of awards in the quarter, which we, of course, are very proud of. Avanta was awarded best customer service in the financial industry by Service Corp for the 2nd consecutive year. The growth in Avanza Pension is strong. Over 1500 companies have chosen Avanza Pension as their occupational pension provider during 2016. And one of them this quarter was Tobi, a Swedish listed company with 2 60 employees.
Our pension company was also awarded during the quarter and renamed Life Insurance Company of the Year 2015 and Marketing Achievement of the Year for the launch of Avanza Academy, an online educational center. As already mentioned, both customer inflow and inflow of savings capital was strong in the quarter. Net inflow was up 116% year on year, and we had the 2nd best inflow ever for a separate quarter, even excluding the inflow from Remium at SEK 2,200,000,000. Last quarter, we saw lower risk appetite among our savers due to the unsettled markets, which was especially obvious among our existing customers and the inflow from them went down. This is a trend that we've seen before in turbulent periods.
In the Q2, sentiment recovered somewhat even though it was anxious due to the Brexit referendum. And we saw input from our existing customers improve from 34% to 41% of the total net inflow. Customer growth was 13% higher than Q2 last year, and we continue to attract a large number of younger people. The most common age is 29, while the median age is 40. As we see savings capital grow substantially with age from around like 50,000 to 400,000 within these age brackets, we see great potential in our customer base, and it's important to further improve user experience and digital decision support on our website and in our mobile devices as the customer base broadens.
Number of commission notes were slightly down by 1% from last year's quarter's record and up 38% from last year. Avata's market share in terms of number of transactions on the Stockholm Stock Exchange and First North during the Q2 was 13%, up from 11.3% in the Q1 and up from 10.3% in the Q2 last year. This is a result of strong customer growth and several key product launches. The market share in terms of turnover were flat from last quarter and up by 25% from Q2 last year. I would also like to comment on the development of Avanza Markets, not including these statistics.
Avanza Markets are traded on both MDX and OMX and accounted for 58% of the on the total ETP market during the half year period. In total, Avanta's market share on the ETP market was 71% in terms of turnover. Something that I'm particularly pleased with is that we managed to decrease the cost savings capital ratio further during the Q2. When we develop new products, they should not only better be better and simpler than others but also less expensive. That's what our business model is built on and what's going to make customers having more left in their own pockets with us than with any other bank.
That's our way to build customer growth and sustainability in our business. With the growing demand from customers, competitiveness will be a matter of cost position and user experience. In the long run, a highly competitive cost savings capture ratio is tremendously important for our ability to maintain price leadership while maintaining high profitability in any market condition. We strive to a cost position where it is hard for others to follow. The operating margin in 2nd quarter was 49%, which is a decrease with 4% from last year.
This graph proves the importance with satisfied customers. Long term, client growth numbers are the single most important driver of net inflow and growth in savings capital and thus the most important long term driver of revenues. As you can see from this graph, revenues flattened out a bit since the RIX Bank and started to lower the Rev rate in 2012. So The upcoming regulatory changes with MiFID II and other regulations will make it increasingly more expensive for retail banks to offer financial advisory services in the coming years. Consequently, we believe a growing part of the retail market will be forced into digital services with savings and investments.
This is a great opportunity for us to capture growth over the coming years as Avanza is the leading online savings and investment platform in Sweden. To maintain strong growth and to attract broader customer groups with younger savers as well as those who need more support, We will continue to improve our digital support tools and mobile user experience. Higher price sensitivity for financial services among the retail segment and in order to strengthen our competitiveness further, our focus on cost effectiveness, scalability and internal efficiencies will continue with a cost to savings capital ratio target below 20 bps long term. Thank you. And now your our CEO, Birgitan Margenfeldt, will take you through the financials.
Thank you, Henrik. First, some financial highlights. Operating income decreased by 1% compared to the same quarter last year. Decreases in net interest income and some commissions was offset by increased other income. Compared to the Q1 2016, revenues were also down by 1%.
Operating profit decreased by 8% year on year to €111,000,000 the result of higher operating expenses that were up 7% year on year, mainly due to increased stock costs. Costs per savings capital ratio decreased to 23 basis points, which strengthens our competitiveness even more. Although altogether, this gives us an earnings per share of SEK 3.18 for the 2nd quarter, a decrease of 11% year on year. A larger number of customers traded in Q2, but the decreases in the overall trading activity resulted in lower brokerage income quarter on quarter, which is the dark green line. The brokerage fee per commission notes decreased since the trades are smaller and more customers consequently trade in the lower brokerage fee classes.
Compared to Q2 2015, we saw an increase of 2% on brokerage income due to higher trading activity. The RevPAR rate cut in February, coupled with the lower mortgage loan rates, kept pressure on net interest income, the light blue line, in combination with deposits increasing more than Lending. Net interest income was down 25% year on year with a repo rate that on an average was 25 basis points lower during Q2 'sixteen compared to the same period last year. During the quarter, we also lowered the mortgage loan interest rate to by 20 bps to 0.79%. Our customers' savings in mutual funds has decreased since the year end by 1% to 24% of total savings capital.
The trend towards funds with lower fees and the customers taking less risk in the uncertain markets resulted in 13% lower fund commissions year on year, which is the light green line. Other income, the dark blue line, increased year on year by 27%, mainly due to higher market shares in the ETP market but also higher activity in Corporate Finance. The launch of the Avanta Markets in Q2 2015 has been successful. Avanta Market offers commission free trading in ETPs and Avanta Markets part of other income in Q2 amounted to just over 29%. FX income decreased due to lower trading in foreign securities, mainly in funds.
Corporate transactions picked up, and we had made our largest IPO ever as advisers to Paradox Interactive. This proved Savansa as a good alternative also in large transactions. We also took part in a number of ownership diversifications where companies seek our unique customer base to broaden their own base. Compared to the Q1, other income increased by 52%, mainly due to corporate finance that was up 18% and amounted to 31% out of total other income. Total operating expenses increased by 7% year on year to $113,000,000 about the same level quarter on quarter.
Personnel costs, the dark green line, increased by 7% year on year to $74,000,000 This increase is, as mentioned earlier, mainly due to the expansion in our IT Development department, compliance and legal. The latter is an effect of the heavy burden of new regulations coming up and that will take place in January 2018. Marketing expenses like Green Line increased year on year, but this is more a question of timing. Our cost guidance for 'sixteen remains with an increase of 8% to 10% compared to 'fifteen, which means that costs will increase more in the second half of the year than in the 1st 6 months. The operating profit in the second quarter decreased by 8% year on year to 111,000,000 dollars compared to the Q1, a decrease of 3% due to lower revenues and higher costs.
The operating margin was 49%, which is lower than the average level last year of 54% as a result of the market environment, further investment in growth and the broader customer base with younger customers. Income to savings capital ratio in Q2 was 46 bps, a decrease of 8 bps compared to the corresponding period of 'fifteen. The expenses per savings capital ratio decreased by 2 bps year on year to 23 basis points compared to 25 at year end and 24 in Q1. This means we are well on track to reach below the 20 basis point mark as a long term target. Profit after tax decreased year on year by 9% to €94,000,000 dollars Lending is still on low levels in spite of increased stock market activity.
Margin lending is primarily a product for our more active customers, and they tend to seek leverage in other ways or do not seek leverage at all under these market conditions. Total lending is down 1 percent during the quarter and somewhat up since year end and amounting to SEK 6,600,000,000 Margin lending is down 5% during the quarter to $3,600,000,000 and is now amounting to 1% 1.8% of total savings capital. Mortgage loan is up 6% and now amounts to $3,000,000,000 And during the quarter, we extended the lending ceiling with 0 point $5,000,000,000 to $4,000,000,000 to meet our customers' demand. The profits, including external accounts, has increased by 7% in Q2 to €34,900,000,000 and has since the year increased by 15%. Deposits amounted to $17,500,000,000 of the total savings capital by the end of June.
As a result, our covered bonds portfolio increased by 6% to $13,800,000,000 during the quarter and by 14% since year end. The total capital ratio in the consolidated situation was 17.2% compared to the requirements, including buffers, of 12%. In June, the contracyclical buffer rose from 1% to 1.5%. The liquidity ratio was 4.18% at the end of the period and compared to the requirements of 0.7%. This strong capital situation entitle us to keep on growing.
We have a dividend policy that at least 70% of the net profit shall be paid out as dividend to the shareholders. In April, a dividend of SEK 10.50 per share was paid out. And with that, I think we should open up for questions or if there's anything you want to add, Henrik. No? Then we'll move over to questions.
Thank you very much. And we have our first question from the line of Peter Wallin of Handelsbanken. Please go ahead. Your line is open. Peter Wallen of Handelsbanken, you may go ahead and ask your question.
Sorry about that. I forgot to unmute there. Good morning. I just would like to ask a question about the very, very strong trading activity seen post Brexit and then second half of June. Is it reasonable to assume that, that will continue also like to stay for longer in June in July, I mean?
You mean in July. Usually in July, the 1st summer month and usually the trading activity goes down. But as you know, we have the report season coming up now. So we have seen pretty good activity in the beginning of July and probably you're going to see some good activity during the report period also. But generally, the activity goes down from July and also in August.
Okay. Thank you. And then I don't know maybe a bit more of a philosophical question. Considering I would assume that like the very strong effects we can see now from your very market leadership in terms of pricing. Do you have any ideas at all of how to maybe try to get clients up to slightly more expensive pricing schemes or try to mitigate a very strong slight drop in commission per average trade?
No, actually. Our strategy is to always offer the best product, the best offering and to the best price to our clients. That's why our most important goal is the cost per savings capital ratio. So we are striving to be the most effective company in the market, having the lowest cost structure. So that is not.
Okay. And then a question on the other income and your very strong performance in the ETP market. I don't know if I misheard you, but if I just read the report, I think you say that you had a 60 percent of the turnover in Q2 and that was 72% in Q1. So is that correct? And if that's the case, why is like the market share turnover even though very high but still dropping so relatively fast quarter over quarter?
The market share for Avanxa in the ETP market, the first half year was 71%.
Okay.
So what was that
The 60%. That was for Avanza Market.
Yes. Avanza Market has 60% market share in the second quarter. In the half year, it was 58%.
Okay. Okay. So then it was very stable quarter over quarter essentially?
Yes.
Okay. And then just a final question on NII. Just looking into the figures, I mean, the interest income is dropping quarter over quarter is very reasonable, but also that your interest expenses are increasing quarter over quarter. What's driving that?
Well, that's mainly driven by our customers having more deposits, which means that we have more liquidity in deposits and in overnight. In other banks.
The larger deposit volumes?
Yes.
Okay, great. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Petr Kessiakoff of Carnegie. Please go ahead. Your line is now open.
Yes. Thank you very much. A couple of questions from my side. I'll start off on the cost side. And I know, Birgitte, that you reiterated your cost guidance there for the full year.
But just if you can comment a bit in terms of cost flexibility given that you're seeing bigger income pressures that perhaps most of us had anticipated. You're saying costs to increase by 8% to 10% for the full year. It's increased 6% during the first half. But if we continue to see these income pressures, would you perhaps be willing to reduce that cost guidance a bit? Or should we or how should we look in terms of cost into 2017 assuming this continues?
Well, of course, we have our eyes on both the costs and the revenues at all time. But as you know, we are here for the long term, so we're not investing for the next quarter or the next quarter or next year. So what we will do is look into the opportunities that we see for the moment. And if we believe that this is a good time to actually invest in growth, even if revenues for 1 quarter or a few quarters is up or down. We will have our eyes on the horizon and look further for the 4th instead.
So just because the revenues have been a little bit weaker than consensus, doesn't mean that we are going to change our cost targets. And if we will change our targets for the coming years, we will inform you, But now we have no such decisions that we could inform about.
Okay. So great opportunities ahead, I guess. Then just in terms of the staff cost, just to understand that part a bit, I think it increased to roughly 7% year on year while employees are growing around 3%. And I know that you're adding a lot of stuff within compliance, but also IT. And I know that we can read in terms of, well, to some extent that you have a shortage of competent IT staff in Sweden and difficulties with the housing in Stockholm and so on.
Are you seeing big or a fairly high cost or sorry, staff cost inflation being driven by IT staff? And how is your ability to attract relevant staff?
No, I do not see an inflation in salaries, but I mean, some IT personnel is, of course, has higher salary than the average employee. So that could be a reason when we are adding very skilled persons within our IT development department. What we have seen when it comes to attracting new employees is for a year or 1.5 years ago, it was really tough, and we had been working a lot on the market in order to get Avanza on the map for field persons. And I think our IT development partners worked very well in order to do that and manage that. And today, we have a lot easier to actually find the right persons to employees in that department.
So even if it's a top market and we have a lot of competitors wanting to have the same skills that we want, we believe we have good opportunities to offer them an interesting place to work.
Okay. Then just 2 more questions. You're saying that you are attracting more young people than before. Was it the average new person or new customers below 30 percent and has significantly less savings on day 1 compared to your existing customers. If you look at the last year and a half, you've seen pressures on income pressures on the broker side coming from people trading in smaller ticket sizes.
Would you say that the trend of attracting more young people will continue driving this trend? So without you actually changing any commission rates, you will most like to see lower commission per notes going forward on the back of the trend of more young people.
Well, we think it's probably yes on that question. We attract more junkie people now, and of course, they don't have that lot of money that our average client has in our client base. But they are as I said in the presentation, the savings capital growing by age, we've seen that and that's the very interesting potential in Avanza. And the commission note the site and the commission note is going down, but also we see that it's more clients than before who is doing trades on the stock on the exchanges. It's up 37% in last year, and I think it was up 9% since Q1.
So yes, it's younger people and it's a smaller fee per commission out, but it's more people more customers who is trading.
Okay. Then just one last question. I guess this one goes to Birgitte. But just in terms of Ria, which increased 12% quarter on quarter, and I guess partly related to the increased deposit base from customers. How should we view that plan going forward?
Yes, that's correct. It's mainly due to the deposits. And we're trying to well, it's hard when you have those large inflows that we actually have had this last quarter to invest in bonds in the same pace as the net inflows. So we are trying to invest in secured bonds, and we will continue to do that taking down the RIA and to have a better level bonds compared to overnight deposits.
Okay. So just assuming that deposits don't increase from customers in Q3, for instance, should we expect Ria to be down quarter on quarter?
Yes, I would say so.
Okay. Thank you very much. Thank you.
Thank you. Our next question comes from the line of Nicholas McBeath DNB. Please go ahead. Your line is now open.
Hi, Henrik and Begirta. A few questions from me, starting with the price pressure we see in the brokerage commission. It seems like it accelerated over the past 2 quarters. And I appreciate it's partly driven by the impact from younger customers coming in. But I mean, this seems like something that's been going on for maybe the past year or so.
And this trend with that you mentioned with movements from lower ticket sizes and lower pricing plans, That should be more of a general trend for a longer time period, I think, than just over the past 2 quarters. Are there any other explanations behind this rather dramatic drop we see in the in, for instance, average brokerage income per commission notes rather than those that you mentioned? Thanks.
No, I don't no. I don't see any other things that affect them, no.
Okay. And then it's uplifting driven by the IPO of Paradox. Do you have any other such IPOs in the pipeline where Avanxo is targeting to be a global coordinator? Or So we consider this as more of a one off? What's your view here?
The
paradox the lithium Paradox was a success for us and for the clients and also for the company that we're very happy for. And of course, have been doing this kind of IPO. It signals out the mark that we can help others with the same kind of introduction. So if we're going to have something more in the future, yes, I hope so. And we have had some discussions, but more than that, I can't say.
Okay. And then you continue to be very focused on reducing the costs relative savings capital targeting below 20 bps to remain ahead of the competition you mentioned. Could you elaborate a bit on what's your view on the competition? What kind of peer group are you benchmarking against? And what is your assessment of where your competition is on that metric?
Well, what we are aiming for is the customers are not as well doesn't know the market as well as the customers that we have today and not as certain about what decision to make when they are trying to invest. But we are trying to and we will continue to offer more product decision support products and the digital support to make it easier to make your decision in order to reach out to customers that need more help and need more information. We will not go for the customers that do it for me, but we will try to reach out more to customers, help me do it. I have a lot of money. I want to invest it.
I don't really know how to discuss when I should choose or pick an investment. So these are kind of the customers that we reach out to, and we will, of course, even also continue to improve our offerings to our existing clients and existing customers in order to make sure that they will stick on with us.
Okay. And then final question, a little bit more this one. You had $2,300,000 in the quarter in net results of financial transactions, which is higher than what we're used to on that income line. What is the reason for that in the quarter?
I didn't hear you. 2.3 in?
In net results of financial transactions in the quarter that you booked. So yes, what is the that line is usually $0,000,000 or maybe $1,000,000 per quarter, but yes, it was a bit higher than that this quarter. Is there anything particular going on here?
No, there's nothing particular going on. It's just a one off, and we are not starting to trade. We have do not have on trading. That's an effect of our back office services to our customers. And sometimes when we aim to help our customers, we tend to or we stick with some stocks or some funds deposits and that gives us an in revenue.
That's not an ongoing business or trading or anything like that.
Okay. That's all my questions. Thank you.
Thank you. Okay. Thank you.
Thank you. Our next question comes from the line of Monica Hornfeld of SAB. Please go ahead. Your line is open.
Thank you, and thank you for the presentation. I want to come back to the brokerage fee line, and we've been discussing lower brokerage fee per transaction. And perhaps if you could give us some color on what share is due price pressure and the new price plans and what share is just the size of the tickets?
I think it's 2 things. The one thing is that the growth in customer base is mainly coming from junkie people now. So and they don't have, as we said before, a lot of savings. So that means that the ticket size going down. Also, we see that these clients are they are moving to another commission clause that we have that they have lower commission on.
So and they do more trades also. So younger people and they don't they have less savings and they do less size on their trades.
Okay. So we should expect that this is kind of a new normal ahead. Or will you see that has there are there is there any correlation with the risk appetite in the market as well? Could we see this picking up? And to what degree if market sentiment returns?
It's hard to say if it's a new trend or so. We haven't seen that long time that long period. But as we know what we know is that when we get in when they we get in younger customers, they tend to stick that out and they start to invest more money, put in more money, save capital to us and then they find other products at our in our boutique and put them in there where we can get some revenues. But it's too early to say if it's some new trends.
Okay. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Marie Rasmussen of Nordea. Please go ahead. Your line is now open.
Hi, and thank you. I have a question regarding the corporate transactions and the Paradox IPO. Is that a business you actively try to grow within and the retruthing people within?
We are not recruiting right now. We have a good really good team in the cost productions department, and we are continuing to work our way into this market and we had a lot of good connections out there. So it's a good potential also in that part of our Alansa.
Okay. And regarding mortgages, what is your growth target
in that business? Well, we really don't have a growth target actually. What we do is we try to not grow it faster than the our capital base entitle us to have.
Okay. Yes, that was all. Thank you so much.
Thank you. Thank you.
Thank you. And there are no further questions at this time. So please go ahead, speakers.
Okay. Thank you very much. I hope you get the information that we for this report and looking forward to talk to you later. Thank you very much.