Okay, it's 10:00 A.M., so let's start. Hello, everybody. We lcome to Nordnet and the presentation of our Financial Report for the Q1 of 2022. My name is Johan Tidestad, and I'm the Chief Communications Officer of this company, and I will be hosting this session today. With me is the CEO of Nordnet, Lars-Åke Norling, and also our CFO, Lennart Krän. Lars-Åke and Lennart will make a presentation of our business and our financial numbers for Q1. That will take something around 20-25 minutes, and after that we will have a Q&A session. During the presentation itself, you will be muted as participants, so we'll let Lars-Åke and Lennart go through the slides first. We come to the Q&A session, and then you have two alternatives to ask questions.
You can either click on the button that says Raise Hand, and then I will enable you to talk, and you can ask your question verbally. You can click that button already now if you have a question. You can also send in your question in writing, and if you want to use that alternative, you just use the button that says Q&A at the bottom of the screen. Write your question and I will read it out loud. That alternative you can start using already now. I'll also come back to the practicalities later. Of course, this presentation will be available on our corporate website nordnetab.com directly after this event. Okay, let's start the presentation. Lars-Åke, please go ahead.
Thank you, Johan. Go to the first page. Okay. Thanks. Starting with the key highlights for the Q1 , we had an adjusted operating income of or profit of SEK 580 million, and that's the second highest in Nordnet's history. Only Q1 2021 was better, and that was driven by the meme hype, so a lot of trading in meme shares driven from the US. Underlying we also grow the customer base is 64,000 customers, strong net savings, and also high trading activity. Since we're also now moving into environment with higher interest rates, we also wanna note that we have a positive interest rate sensitivity. Rate hike from central banks of 100 basis points would improve results on a liquidity portfolio of around SEK 600 million per annum.
We also have received the license from the SFSA for our fund company in the beginning of April, and that's an important step in our ambition to also build the best platform for fund savings. Our Danish share savings account that we launched in November has been awarded best in test, and we already since November have 23% market shares of accounts opened in Denmark. We also see a new all-time high for Nordnet's loan products with SEK 26.5 billion in lending volume, mainly driven by growth in the mortgage product and the margin lending product. We also know that we have a considerable macro uncertainty, due to the war in Ukraine, also high inflation and interest rate hikes. It remains to be seen how this will impact savings and activity going forward.
We also know, as I mentioned, that the higher interest rates from central banks also have a positive impact on our net interest income. Can go to next page. Looking at the customers, we've grown the customer base with 20% underlying, year-on-year, but we also terminated 46,000 customers during the quarter. That's from the project to collect complete customer documentation that we announced in quarter three last year. The estimate that we will in total terminate around 60,000 customers, and we complete this by mid-year. Those customers, they are inactive. They have no savings capital, so it's no impact at all on the revenue. We grow the savings capital year on year around 20%, mainly from net savings since the market growth during last year has not been that high. Looking at trades, we had a very strong trading quarter, although a little bit less than Q1 2021.
That was a record quarter when it comes to trading, driven by this meme hype of trades, trading in meme shares driven by the US. Looking at revenues, it was a very strong quarter in revenues, equally strong as quarter four and second strongest in our history. Also good scalability still in the business. We have a slight cost growth in the cost, but that's mainly from additional resources in product and tech. I just wanna highlight two non-recurring items in quarter one, 2022 that are excluded in the numbers above. One is, we have a reversal of VAT in Denmark due to new rules and legislation of SEK 38 million. We also have a cost related to AML process upgrade with focus on automation. This is SEK 4 million in the quarter, and we total estimate the cost to be around SEK 25-30 million.
This is a one-time effort to take our AML work to the next level. Looking at the profit before tax, SEK 580 million, second best quarter ever. Can go to next. We see continued growth in both customers and savings capital. The two main reasons for this, one is that we have a constant improvement in customer experience from our focus to build the best platform for savings and investment, something we work hard with every day. The other part is that we have a critical mass when it comes to customers in all of our countries, allowing for a strong word-of-mouth-based growth as well. Go to next. Here we see the customer growth and the net savings growth broken down per month.
The customer growth, strong 64,000 for the quarter underlying, less than last year, but that was also due to very positive market sentiment and the meme hype during that quarter. Net savings is on a strong level of SEK 21 billion. Can go to next. We are the leading digital platform for savings and investments in the Nordics. We have a well-diversified revenue footprint with around 40% of revenues in Sweden and 20% roughly each in the other countries. We still have a higher growth outside of Sweden when it comes to customers. We also know that we have higher margins overall outside of Sweden due to higher share of cross-border trading, where you trade more outside of your local exchange, where we also have higher margins. Can go to next.
This is just a breakdown of the customer growth and savings capital growth per country, but overall it looks good in all of our Nordic countries. Go to next. This is a revenue development and also revenue margin. As you see in the graph to the left, we've had a good revenue development since 2019 in all of our revenue streams, both net interest income, non-transactional related income, and transaction related income, where transaction related income has been growing the most. Going forward, I would say we will see more even growth between the revenue streams. Looking at the margins, in the graph down to the right, starting with net interest income on the top, it's been stable, but we know that this margin will increase quite a bit when central banks start to increase the interest rates.
The middle one is the brokerage margin where we see a drop due to mainly that the trading activity per customer is going back to more historic norms. Then the bottom one is margin for funds, where we see slight drop, and that's due to a mix shift from active funds to more index funds in the customers' portfolios. Go to next. A little bit trading specifically then, we see in the graph to the left that the number of trading customers has really been increasing the last years. Of course, as a function of the strong customer growth. But we also see that in the graph top right, that the trades per trading customer is going down now to more historic norms from a very high 2020 and H1 of 2021.
But we also see that the share of cross-border trading is on a higher level of around slightly above 25%. And that that's driven then from a naturally high share of cross-border trading in the countries outside of Sweden, Denmark, Finland, and Norway, where we also have a strong customer growth. Can go to next. Trading seasonality, as we've shown before, shows a clear V shape, and that continues. In the graph to the left here, you see the trades per customer per trading day. Red one here is in 2021, the blue one is 2020, and the light blue in the bottom is average 2015 to 2019, which was the more normal period. If you see start of this year, we are more aligned to the historic trends when it comes to trades per customer.
Also, if you look at the share of full year trades per month, where we also account for number of trading days, it's also a V-shaped pattern. Go to next. We have a very strong focus on customer satisfaction measured through NPS, where we have a clear number one position in Denmark, Norway, and Finland and a strong number two in Sweden. This strong position when it comes to customer satisfaction has also allowed us to taking market share in all of our markets. We're taking market share in a market that has also strong underlying growth. We get two effects from this. Can go to next. Also strong focus, as you know, on operating leverage. We have a very scalable business model.
Even though we've increased the revenues with around 40% per year the last four years, we maintain the cost flat in absolute terms, also allowing for a big improvement in cost margin from 38 basis points down to 16 basis points. The main drivers for the good operating leverage is one is of course our scalable cloud-powered platform. So we can onboard a lot of new customers without driving cost. Also the strong focus we have on process simplification automation, and this we see as a win-win. This will allow a better experience for our customers, but at the same time, we need less people on our side. We also have a very strong word of mouth based customer growth, but also very strong peer-based customer growth, and that allows for low customer acquisition costs. At the same time we have low churn and high lifetime value on the platform.
The entire customer growth is very profitable. Of course like all the players, we manage third-party spending in a very good way as well. You can go to next. There's been a lot of releases during the quarter to present a few. One to the left here is the launch of a fully digital savings flow if you wanna move equities and funds in Sweden. It's cooperation with Tink. You just select the bank you wanna transfer your shares or funds from. You get automatically what you can transfer, and you select, and you sign off, and you're done. That's a good example of an automated and simplified process. We also had a number of releases on our app. I'm not gonna go through all of those. The same on the web.
We have a lot of new features that has been really appreciated by our customers, not least on the ETF side. With that Lennart, I hand over to you to talk a little bit about the financial performance in detail. I think you're still on mute.
You can't hear me.
Great.
Thank you very much for letting me know. Now, as a summary, I mean, we have had a quarter of quite a lot of macro things here with the war in Ukraine. We have the inflation. We have interest rates, wars, and things like that. Even though we have actually presented the second-best result ever in Nordnet's history, so we're very proud of that one to maintain that. But also. You can go to the next one. Also, which is very important for us is that the inflow of customers still are at the growth rate of 20%. That's very important for us and very comforting to say. Regarding value of savings capital, yes, that fluctuates due to the value of the stocks, of course, and the funds. As Lars-Åke mentioned before, the net savings are still on very good levels with SEK 21 billion.
What you can see here is actually also that the deposit part has increased quite significantly, and that is due to the wars, of course. The money stays with us, and that is very important for it because then it will return into the business with the funds and with the equities, which is our prime business. You can take the next one. As we can see here and discussed before, I mean, we really leveled up from 2020, 2021. We of course had this very hyped Q1, especially January and February Q1. That was the best one. Still we are on a very high level and a very good which is a step forward and step upward all the time with the customer inflow and with the growth of the customer.
This is also given within all the income streams, so it's a very well-diversified business model which as we pointed out here with expectations of higher interest rates from central bank will actually. There's a positive potential in that one coming forward. We can take the next one. As said, the costs are stable. I mean, yes, they have increased SEK 20 million from Q1 2021 and further on, but that is to be seen on the income revenue increases. It's a very scalable operating business model. You can go to the next one. That is what we see here. We have all the revenue coming up, coming down into the profit before tax situation. We're really a very continuous growth and usage of this operating leverage, which we also intend to maintain with the stable costs as we already have in the financial targets.
It's good to see that we still hold those costs at the level that is expected and that we control it very highly. Yes. As I said, the deposit side is the funding side, and that is coming into the liquidity. You already know that. The liquidity portfolio is now about SEK 58 billion equivalent. That is, as we said, with 1% underlying interest rate hike, that would give about SEK 600 million more in revenue. Not just that, we're very pleased to see the lending situation because it has increased from SEK 22 billion last year to SEK 26-27 billion this year. especially in the margin lending product, which you could think about would be worrisome in those times that we have had in the Q1. still a good growth in those, and also, of course, with the mortgage product that we have.
With the worries, some parties could ask how is the credit quality? Is it maintained? Yes, it is, and the credit losses are in line with previous year and with the expectations. no changes in the credit quality at all. We can take the next one. The very important part for us is also the capital situation of course, and that remains very stable both in respect of a risk-weighted capital requirement, capital buffers, but also which is our constraint, the leverage ratio. We had at year-end 4.8% in leverage ratio, and this quarter we ended up at 4.4%, and that is including the increase in deposits, as I mentioned before. We ended up with the capacity down to the minimum requirement of being able to take on SEK 40 billion more in deposits without breaching that level.
\As I said, we do have deposits of SEK 82 billion or something like that. It's almost 50% in addition, and that is very comforting for me to say. Yes. Lars-Åke Norling. You're on mute.
No, you could pay me back there.
Yes. Thank you.
Correct. Short on our key focus areas and on our midterm financial targets, but starting with the focus areas, of course, most important is the customers, where we have the ambitions to be one-stop shop for the savers and investors with a great customer experience. Our main focus is to every day build on our platform for savings and investments with new features in our app and web, new exciting savings products, and also automation of the customer journeys. We want to, of course, strengthen even further the strong NPS position that we have and secure that we also continuously going forward have low churn on the platform. We know we can never have happy customers unless we have really passionate and talented employees.
We also work a lot with having a good environment within Nordnet and see an upward trend on the employee satisfaction that we measure through eNPS. Also that we have a strong employer brand, so we can attract and retain top talent, not least within product and tech. Sustainable business. We are in a trust business. We need to earn that trust every day. To do that, we need to manage our risks in a good way, both the compliance risks and other risks, and that we overall are considered as a trusted and liked brand. The last part, profitable growth, and here the focus is, of course, capture the tremendous growth potential we have in the Nordics.
We currently have around 6% market share of the addressable market, so ample room to grow for many years. Secure that we're also going forward have a good scalability and a stable cost level. Here we leverage, of course, our cloud-based tech platform, but also this strong focus on automation and simplification is key here. Can go to next. Those are the medium-term financial targets that we revised in the Capital Markets Day in February. As you can see, we are above or aligned with all of the targets from customer growth to average savings capital customer, the income margin, and also the operating expenses. We also have the ambition then to have a 70% payout of the statutory net income and for 2021, payout that translates into 5.56 SEK per share. With that, Johan, I'll hand over to you, and we can start the Q&A.
Great. Thanks a lot to Lars-Åke and Lennart. Now we open up for questions. Like I said before, you just raise your hand digitally, and I will enable you to speak, and I will announce you by name. When I do that, you also need to accept to be unmuted, and you do that by click a box in that request that show up on your screen. You can send in your question in writing by using the Q&A button. The first question comes from Mats Liljedahl at SEB. Hello, Mats.
Yeah, hi. It's actually Jacob Hesslevik from SEB as well.
Jacob.
Okay.
Hello, Jacob.
Hi, good morning. Can you hear me?
Morning. Yes.
My first question, which I think is gonna be the main focus, is the central bank just hiked the interest rates here in Sweden. I mean, you said a 100 basis point hike would yield SEK 600 million. Is that a parallel shift in all rates or how much will come from the Swedish Riksbank?
That is, in all, parallel shift in all the central banks.
All right. All banks. How much of the deposit is in SEK?
I would say that increase of 25 basis point indicates if it comes all down to about SEK 45 million on a yearly basis.
SEK.
SEK, yes.
Okay. Yeah, SEK. Okay. On the 25 basis point hike. Perfect. Okay. That's clear. Secondly, costs were actually really low at SEK 264 million, and you guide for 5% cost increase. Does that mean it's back-loaded, or how should we think about this?
Yeah, that was the unadjusted cost. If you adjust, it was SEK 297 million. Yeah, around 5% increase that we guided for. We had two non-recurring items that I talked about, which are excluded, and it's a VAT reversal in Denmark of SEK 38 million due to new legislation and regulation, and then a cost related to AML process upgrade with focus on automation of SEK 4 million in the other direction. It's-
All right.
Gonna change the cost guidance.
Sorry, but you reiterate cost guidance of 5% even though.
Yeah
You had the one-off headwind there.
Yeah, but it, that's the cost guidance is on the adjusted cost.
Oh, okay.
Not on the actual cost. The adjusted-
That's clear.
Cost guidance is still 5%.
Okay. Perfect. Lastly from me is, I mean, in the monthly statistics we can see net inflow and outflow each month, and I was just wondering how large share of the inflow is from monthly saving being directly invested in mutual funds versus compared to invested in stocks. Do you know how the split look like, so we can make a guesstimate?
Yeah. We have internal estimates, of course, on monthly savings. It's something we track. We don't go out with that externally because we don't have a perfect figure. Of course, a chunk of the net savings is, of course, coming from monthly savings. We don't publish that externally.
Okay. Thanks.
Thanks a lot, Jacob. Next one out is Patrik Brattelius from ABG. Hello, Patrik.
Hello. Hello. Can you hear me?
Yes, perfectly. Please go ahead.
Great. Perfect. I continue on the rate sensitivity then. Can you please be as detailed as possible regarding the underlying assumptions, how you arrived to the SEK 600 million, please?
It's quite easy actually. I mean, we're only having that figure for the liquidity portfolio, and that is, as I said before, around SEK 60 billion equivalent. If you have, as Jacob was indicating here, a parallel shift of 100 basis points, that would give SEK 600 million on a yearly basis. That's not more complicated than that. Of course, we do have the lending portfolio of SEK 26-27 billion as well, but that is, the sensitivity on that one is very much due to market situation. We have the possibility to change those interest rates as we whenever markets change and also without, but that is a market competition. We have the funding side or the deposit side rather.
That is also a market situation and deposit is not something that we require for funding. It's really a residual of the customer savings. We don't estimate that or go out with sensitivity because it's so much due to market conditions rather than the underlying interest rates.
Okay. If I rephrase it then, and go from another angle, at which rate do you expect you'll start offering interest rates on deposits?
First of all, I think it really differs in different countries, and it also differs between different situations. That is why we're quite careful about this. As you're aware of, we have a negative interest rate on the deposits in Denmark, which we actually do gain money on, and that one we must, I would say, follow up to a zero position. That is on 50% of the deposits in Denmark. So that is one thing. You have another market situation in Norway where you already have 75 basis point as underlying interest rates. It really depends on where we need to-
Well, we can be clear. I mean, of course we see that we will have a margin on our side. We will not put interest rates on the accounts until a certain rate, of course, in the market, but I don't think we wanna comment exactly what rate we're talking about because it's also due to competitive and market situation.
Okay. In Sweden, the Swedish Riksbank, they said that they target approximately 2% within three years. Do you not expect that you will raise rates on the mortgages or the margin lending products?
Yeah, of course we do that. It's also a little bit what the other guys are doing and when they're doing. Of course we assume that we will raise the interest rates as well on the lending portfolio.
Because one of your closest peer, their mortgage offering is linked to the central bank rate. Do I understand correctly that yours is not?
Correct.
Correct. A question regarding this, these costs that will come to SEK 25 million-SEK 30 million. Will that come in Q2, or is that spread out throughout 2022, or how should we think about that?
Yeah, that's a one-time cost related to the upgrade of AML processes and the focus on automation, and that will come during, mostly during 2022 but spread out.
Okay. Yeah. Thank you. That was all for me.
Thank you. Thank you, Patrick. Now it's time for Mr. Enrico Bolzoni from JP Morgan. Hello, Enrico.
Hi. Good morning. Can you hear me well?
Yes, we can.
Yes.
Please go ahead.
Hi. Thanks for the presentation. Just a few questions from me. One, the question on this new functionality that basically allows you to transfer accounts and funds and shares from one bank to the other, in your case it's quite a big deal because one issue to that is that to transfer a fund from one account to the other, you basically need to have the same. You need to be invested in the same fund class.
Yeah.
I just wanted to ask, how much of a problem is there? Is it because? Are you confident this is not an issue because share classes are much more homogeneous or actually would potentially prevent it? That's the first question. The second question I have is on your new fund launches. Can you just remind me or if possible, give any color in terms of what margins you think you can extract from these products? I presume higher margin, consider that they are vertically integrated. In general, how would you market them to customers? I mean, we are one month into April. We're at the end of April. Can you say anything in terms of how client sentiment has evolved over the month?
That would be very useful. Thank you.
Yeah. I think when it comes to transfers, it's the only thing you need to check is that you transfer to between equal accounts. It's no problem to transfer the fund per se, but if you have it in an endowment wrapper, for example, then it's more difficult when it's an ISK transfer to another ISK. It's just a transfer and a normal depot to another depot is just a transfer. It's not the fund per se, but it's account type that controls it. We see that most of the funds and shares is possible to move in a very simple way.
When it comes to the fund launches, there's gonna be three allocation funds per country mixed between shares and bonds, different risk weights, and with also automatic reallocation in those funds. They're gonna be launched from quarter two at the beginning of quarter three. Of course, the margin there is gonna be higher than a normal index fund. I don't know, Johan, we haven't published the actual rates yet.
Oh, we haven't done that, so we have to come back to that.
You have to wait for that, but it's definitely gonna be higher rates than normal in index funds. April numbers, I mean, as I mentioned, there's a lot of uncertainty and remains to be seen how this plays out. April is probably not the best month to look it up because you also have Easter that shuts down a large part of the Nordics both the week before Easter and week after. I think we really are supported by the interest rate hikes and we will see now going forward.
Thank you. If I may, sorry, a very quick follow-up. Actually, I forgot to ask on the clear drop in fund AUM. Can you give any color in terms of how much was the market impact and how much were the underlying net flows?
Net flows were on a Q basis, ±0. It's mostly market drop on the fund side.
Okay. No, no outflows, basically. Pretty much.
I think limited outflows. It's mainly market drop in.
In market
Normally, you know, we have fairly high net growth, but now it was, yeah, almost nothing.
Okay. Thank you.
Thank you, Enrico. I leave the floor now to Mr. Ermin Keric from Carnegie. Hello there, Ermin.
Good morning. Hope you can hear me well.
Yeah, I can hear you well.
Good. Thanks for taking the question. The first one on the interest rate sensitivity, could you just help us? Is it fair to assume that your sensitivity to 600 basis points, that's kind of proportionate to the deposit base you have in each country, or is it more sensitive to say the STIBOR or Swedish rates?
It's quite similar, but you have more lending in proportion in Sweden than the other countries. That's why you have the mortgage and the unsecured lending as well.
We have higher deposits in Sweden and so on.
Yes.
Yeah. Got it. Thanks. Just on the interest expenses now in Q1, it was a bit higher. In Q4, we obviously had the deposit guarantee scheme having some retroactive effect as well. Why is it not coming down in Q1? What's kinda driving that one up still?
Sorry.
If you have the details on that, Lennart.
I don't have the details. What you have is a little bit less, but that's not on the cost side to say.
It seems like you paid more for interest-generating securities, and I'm just wondering what that is?
I have to come back with that one.
Yeah, that's fine. That's fine.
Yes.
Yeah.
Um, then it-
One thing is that, yes, we also calculate with a higher deposit guarantee cost for this year, even though it's not invoiced until the end of the year. Compared to last year and things like that is a high increase, but not compared to Q4 last year because that is what you said, we took it all down.
Got it. Thanks. Just a more maybe philosophical question in one way, the AML upgrade or the process upgrade of the AML functions, why is that classified as a one-off? Isn't that kind of ongoing business for a bank to have AML systems that are-
Yeah, of course. I think we do a one-time effort now to lift the entire process side. We spent, I mean, a lot on AML also previously, and we continue to spend on AML also going forward. We have a one-time effort this year to lift it to the next level, both the processes, and part of the system side.
Okay, thank you. Maybe just the last thing was on the non-transaction related income. Could you just help us there on the fund margins, kind of how much did the fund margin drop due to the AUM being lower on average during quarter, and how much is it lower kind of end of quarter, and how much of that is driven by more index funds? Because you also mention in the report that it's less cross-border fund transactions.
Yeah. I can try to sort that out. We have two distorting effects when you look at the fund margin because it's reported. As funds is reported mainly in non-transaction related revenues, you can't see exactly what's the fund side. We had the one transfer or shift that we moved income from related to Nordnet Markets product from a non-transaction related to transaction related income during the quarter. Going forward we will break up non-transaction related income into two parts, the fund related income and other income, so it would be easier to follow the fund development specifically. That was one effect. The other effect was when we had a very high.
We had a fairly high incoming balance of funds and outgoing balance of funds, but if you look at the margin instead per day, it's you had a dip in the middle there. If you look at the margin per day instead of incoming and outgoing balance and then also exclude this transfer between transaction non-transaction, then the fund margin is actually dropped with 2 basis points and that's explained by the shift then from active to passive. It will be much easier to follow this forward when we break up the non-transaction related income into two parts.
Great. That's super helpful and very welcome with the split. Thanks for taking the questions.
Thanks a lot, Emil. Thanks for joining the call. The next one out is, Mr. Emil Jonsson from DNB. Hello there, Emil.
Hello, can you hear me?
Yes, we can perfectly. Go ahead, please.
All right. Excellent. Thank you for the presentation. I was wondering when looking at the customer growth in the past few quarters, has the number of customers who make commission generating trades been growing at the same rate as the total number of customers, or has there been any kind of difference there?
No. Normally new customers actually do a little bit more trades. But I think Q1 last year was exceptional because new customers do a lot of trades, but otherwise it versus what we see in historical trends. New customers are still coming in with money and doing good trades.
All right. Thank you. I was also wondering, now that we're getting a rate hike in Sweden, is there any kind of time delay between the rate going up and this having an effect on the bottom line?
Quite directly I would say because the portfolio, the liquidity portfolio is quite short in interest rate risk terms.
Yeah, but it takes a couple of-
Weeks. Yes
weeks to months. Yeah.
All right. Okay. All right. That was all I was wondering. Thank you.
Okay. Thanks a lot, Emil. I think that was it when it comes to questions and before we close today I can say the next thing that happens when it comes to financial reporting at Nordnet is that we publish our monthly statistics for April next week on Tuesday, the 3rd of May, and that is available on our corporate site where you also find all other information about Nordnet as a company. Until then, thanks a lot for joining us today and your interest in Nordnet. Bye-bye.
Thank you.
Thank you all.