Earnings Call: Q4 2016

Jan 31, 2017

Thank you very much. So welcome. Hi guys and welcome to this NuveNet Q4 report presentation. And as one of the analysts wrote, it's time to say goodbye at least for a while. Next slide please. So we are quite happy with Q4 and the whole of 2016. We have seen record high transaction volumes, a fantastic customer inflow, decent net savings, 30% up in lending volume and we have experienced price pressure, especially in the Swedish market and actually changed trading patterns from our customers. And that has put pressure on transaction related operating income. And thus, we have seen now for the full year a decrease in operating profit by 18%. But the underlying business is strong. Next slide please. So some highlights from Q4. As you all know, we have a public offer for all outstanding shares in Nubnet. That offer has been prolonged now to until the 8th February. And so we can see the delisting in the near future. And you might know that there is an extra call for an extra AGM, the 21st February. So we can also expect a new Board of Directors after that AGM. You can read more about the public offer on nordnetab.com. The Board of Directors proposes a dividend of SEK 1. There is a Swedish Quality Index, SKI, and we are happy that we were named Sweden's most transparent bank. As you might know, our communication concept is transparent banking and we chose that after a market survey we did in all four markets and we asked people on the street, what is your number one frustration with your financial services supplier? And they said, lack of transparency. So we're being a bit optimistic there. As I said, we have seen a large influx of new customers, actually 16% growth in the customer base in the past 12 months. And I will come back to that further in the presentation. Next slide please. And next slide as well. So customer and accounts. So in 20 16, we grew the customer base with 76,400 customers. That is actually a Livio in terms of number of people. And actually in Q4, the number was 21,000 and that is a full columnix for those of you who know your geography. We still see Denmark with the highest growth of 25%. Norway is a runner-up with 16%. Finland is still strong with 17%, but most happy are we with the growth in Sweden, which is 13%. So from 2015 to 2016, we have taken that up from 8 percent to 13%. And the nominal number on the growth in the customer base in Sweden was 30,000. And we are also happy that 2017 has started really strong when it comes to customer growth. Next slide, please. When it comes to net savings and savings capital, net savings, I said it's a decent 2016 was a decent year. Denmark is still in the lead with a growth of 20%. Norway, runner-up here as well with 19%. Finland 2%, which is a low number, but actually given the circumstances and conditions in that market, it's decent. Sweden had a 7% growth in net savings if we adjust for the outflow from Soderberg and Partners. And when it comes to total savings capital, we have a record high of SEK235 1,000,000,000. Next slide please. As I said, we saw a record high in transaction volume in 2016. Globally, that was driven by volatility in turn, driven by some unexpected events like Brexit and the U. S. Election. On more local level, we have seen a climbing oil price and that has driven the transaction volumes in Norway up to record high levels. And we also saw in the Danish market the share collapse in Novo Nordisk. So when it comes to the markets, we've seen an a increase in number of transactions in Sweden of 13%, Norway of Finland plusminus 0 and Denmark actually a decrease of 13%. So the stock fever that we have seen in Denmark the past years have actually traveled north to Norway. So, next slide, please. So when it comes to lending, as I've said, we have grown the total lending volume 30% over the past 12 months. And we have also increased net interest income, as you might have seen, especially the growth in net interest income comes from margin lending and from mortgage. On the personal loans business, we see a very fierce competition and price pressure. And in combination with us driving the lower risk product in that portfolio, the top end Lornet product. So net interest income from that portfolio is more or less flat. So next slide, please. And then I hand over to Robert to take us through the financials. Thank you, Hakan. And please move on to the next slide, revenues. So now for a closer look at our financial performance during the final 3 months of 2016. Total revenues amount to SEK 314,000,000 in the quarter. That is up 8% compared to Q3 and minus SEK3 compared to the same quarter 2015. Let's look at the different components within our revenue. Starting from the bottom, The blue part of the bar is net interest income. Net interest income increased slightly quarter on quarter to SEK 103,000,000. And as you know, there are 4 parts to the net interest income. Looking at smart year lending, it has developed nicely during the quarter, increasing lending volumes to SEK 5,100,000,000 at the end of the quarter, which is an increase of 8% quarter on quarter. The volume growth is slightly offset by lower rates. Personal loans also show increasing volumes. We increased volumes by over 24% year on year and 11% quarter on quarter, having a total of SEK 3,100,000,000 lent out at year end. The volume growth in personal loans is, however, offset by lower rates. Our mortgage product that was launched in Sweden earlier this year has grown to over SEK900 1,000,000 at the end of the period, and we contribution to net interest income from the liquidity portfolio, but the low and even negative market rates continue to be a challenge in this area. In total, the lending portfolio excluding treasury has increased with 30% year on year as mentioned previously by Hakan. Next, the gray part of the bar represents commission income. This is up SEK 50,000,000 compared to the previous quarter. This is mainly due to the high activity in the stock market, driven by the American election. Number of trades was up over 14% compared to Q3 'sixteen. Net commission per trade is at a slightly lower level compared to Q3 and about NOK4 lower compared to Q4 last year. The reduced commission per trade is due to the changed price plan introduced in Sweden Q2 2015. This, together with a shift in trading behavior towards customers trading smaller tick sizes and the mix in between the countries, contribute to lower price per trade. Net commission totals SEK 157 1,000,000. That includes SEK 37 1,000,000 in commission on mutual funds, slightly up from Q4 2015 as savings capital in mutual funds has increased to just over SEK 42,000,000,000. Moving on to other income. It includes FX income generated when customers trade outside their home market. It also includes license fees and other administrative fees. However, the main part of the increase from Q3 is related to the increased amount of cross border trades. That covers the main revenue items. Operator, next slide please. Expenses, including credit losses, amount to SEK206 1,000,000 for the quarter, and that is a decrease of SEK 3,000,000 year on year and at the same level as previous quarter. This is in line with our guidance in Q2 that costs for the coming quarter would be at Q2 level or lower for the full year. Expenses, excluding credit losses, increased by 6.8%. It is also in line with the guidance given at the start of the year of cost increase, excluding credit loss for 2016 compared to 2015 of 6% to 8%. That's it for expenses. Moving on to the next slide, please. The operating profit for the 4th quarter is SEK 108,000,000, an increase of SEK 24,000,000 or 21 percent from the previous quarter. For the full year 2016, operating profit is SEK 368,000,000. Next slide, please. And we'll take a look at financial performance by market. These slides illustrate our business across the Nordics. And as you can see in the charts, roughly 50% of our business come from Norway, Denmark and Finland. More than half of NORDNET's customers reside outside of Sweden. Also measured by operating profit, the share from Denmark, Norway and Finland is increasing. Year to date, 2016, the 3 countries make up 43% of operating profit, more than double what it was 2 years ago. We'll go to the next slide for a closer look at the income statement compared to corresponding period 2015. Revenues for the 3 month period, October to December 2016, totaled almost SEK 340,000,000. That is down 2.5% compared to the same period 2015. Also, full year 2016 shows a decrease compared to the full year 2015 with revenues down 3%. The decrease compared to 2015 is mainly within net commission income, but also to some extent within net interest and other income. Operating expenses amount to SEK199,100,000 and are slightly lower than compared to Q4 2015. For the full year, operating expenses are up by around 6.8% compared to 2015. The increase lies mainly within general administrative expenses, which includes personnel and other operating expenses, which includes marketing. Moving down to credit losses. They are all related to our personal loan business, that is our unsecured consumer lending. Losses totaled almost SEK 7,200,000 for the 3 month period and for the year SEK 29,100,000. And this is lower than 2015 and loss level is now at 1% for the full year. Partly this is due to a lower risk level in the portfolio, which also affects interest rates. Tax is 20.3 percent for the quarter, resulting in a tax rate of 18.2%. All that results in a profit for the period of SEK 87,400,000, leading to an EPS of SEK 50 per share. For the rolling 12 month period, EPS is at NOK 1.7 per share. Moving on to the statement of financial position. Total assets have increased since the start of the year to just above SEK 70,000,000,000. This increase in assets is mainly a consequence of deposits from the public increasing. Also increasing our assets and liabilities where policyholders bear the risk. That relates to customers' assets in pension insurance products. Increasing deposits have affected financial assets available for sale and to some extent financial assets held to maturity. Both those items refer to our liquidity portfolio. Shareholders' equity amounts to SEK 1.979 1,000,000,000. And that brings us to the next slide, the capital situation. Starting with our capital base, it is made up of shareholders' equity, which includes profit from this year. We deduct proposed dividend of SEK 1 per share, which amounts to SEK 175 1,000,000. Also, Compared to the end of 2015, it's about SEK 1,295,000,000 as capital base. Compared to the end of 2015, it's about SEK 155 1,000,000 better. Risk exposure amounts for credit risk are up SEK250 1,000,000 compared to 1 year ago. This is due to increased credit volumes. Market risk is a little bit lower and operational risk at the same level as compared to last year. Total exposure amounts to SEK 7,000,000,000 765,000,000, and that results in a total capital ratio of 16.7%. And that was the end of my prepared remarks. I'll hand back to Hakan for wrap up. Thanks, Robin. Next slide, please. So what's next at Norde? We will continue to build and beef up our product development capability. The future lies in bringing good things out to our customers, and we want to do that in a higher pace than we have done before. We will continue to work on the beta side. As you know, we launched a beta for family and friends in Q4, and we will make that public in end of Q1. Continued focus on lending in this low interest rate environment. We make better use of the money lending them than having them on the treasury portfolio. Sorry about that, Robin. We will design and launch digital advisory services, both in our own services as well as partnered services. And of course, the new owners will come in. We will have a new board. I will sit down with them and kind of detail their further strategy. So that's it for the presentation, and we will open up for questions. We have a question from the line of Monica Hanfeld from SEB. So one question. We could see that the number of FTEs down in the quarter. And I'm just wondering why and if we could expect this to continue declining in the future regarding your investment plan or if the FTEs should come up? Well, we are planning to actually increase the number of FTEs and especially, as I said, in the product development. And we are hiring as we speak and that is specifically coders or IT developers. They are not easy to find, but we are happy that we have seen our employer brand being strengthened over the past years. So it's becoming increasingly not so difficult to hire them. So and we have previously guided a cost increase of 6% to 8% from 2016 to 2017. And that is mainly actually people and IT developers. Okay. And then a more high level question. I'm wondering, we've been talking about the changed customer behavior for several quarters now during 2016. And I'm just wondering what are you seeing any trend shifts here? Or are they continuing? So it's actually 2 things. 1 was we changed the price plan in Sweden in mid-twenty 15. The effect of that was larger than we expected, but we pattern has actually stabilized. That doesn't mean that things can happen, but so the price change flattening out the effect and change trading pattern stabilized. Okay. So, and on the customer growth, are you growing more in younger ages? Or is it more evenly distributed? It's actually evenly distributed. So but we so we welcome customers in all the age spans. But actually, when we go for digital advisory services, we might see that change, but it's too early to say actually. Okay. And the loan losses this year, are they related to you lending out higher average loans? Or are you seeing a risk migration, if you may so call it? Yes, we see a risk migration to lower risk segments. So the big so it's actually our personal loans business is risk based pricing. And now our low risk product, top and nonet, is the one that grows the most. So the whole portfolio is actually decreasing in terms of risk. But if we see increases in credit losses, that is because we see higher volumes, right? So lower risk, but higher volumes. Does that answer your question? But the consumer lending, Cosmanikt, is that still are you still are you only is the only channel a node net customers? Or are you cooperating with external distribution channels as well? The latter. So we distribute top and lower net. We distribute kind of directly to our customers, but also via loan brokers. The other products, Continentallaonet, is mainly actually distributed by loan brokers. Okay. Thank you very much. Thank you. Thank you. There appears to be no further questions at this point. So please go ahead, speakers. Okay. No further questions. Then it remains only for me to say it's been a pleasure working with you guys. And I'll see you around somewhere. Thank you very much. Thank you. That concludes our conference call. Thank you all for attending. You may now disconnect your lines.