Earnings Call: Q1 2021

Apr 29, 2021

Okay. Hello, everybody. It's a beautiful April day today. It's also 10 o'clock and time to get this event started. Welcome to Dornet all of you and our presentation of the report for the Q1 of 2021. My name is Johan Thijderstoel. I'm the Chief Communications Officer at Donet and I will be hosting this session today. Lars Rokken Noling, our CEO and Lennart Kren, our CFO, We'll make a presentation of our business and our financial numbers for Q1. That will take something around 20 minutes. And after that, we'll have a Q and A session. And during the presentation itself, all participants will be muted. So we simply let Lars Hoglund not go through their slides first. When we come to the Q and A session, you click on the button at the bottom of the screen that says raise hand and then I will enable you to talk and ask your question verbally. We'll come back to that later. And of course, the presentation itself will be available on our corporate website together with a recording of this session. Speaking about the corporate site that is, as you might know, available at nordnetab.com. That is also where you'll find and all information about Noden as a company. Among other things, we have all our financial reports available in Swedish and in English. Okay then, let's Let's do this. Lars Rokke, please go ahead. Thank you, Johan. So we can move to the 1st page, Sanit. Starting with some highlights. Record info on new customers. We've grown now the customer base is 39 percent in 1 year, and we currently have 1,400,000 customers on our platform. And savings capital, also all time high, Somewhere SEK 48,000,000,000 and we see a good increase here, both from strong net savings, but also from market appreciation. Also very high trading activity in the quarter and the quarter with the highest trades ever and a large share also of cross border trading. We also launched a Norwegian pension account, EPK product, And I'm going to cover that in more detail later. It was implemented, did it a process for sign and transferring occupational pension in Sweden. As you all know, it's a cap on the transfer fee from April 1, and we will, of course, want to attract customers to our platform in a digital way. And from very strong revenues and good cost control, we also see a record financial result And they have a net profit of SEK 830 1,000,000 in the quarter. We can go to the next. So some highlights A very strong quarter. Like I said, customer base has been growing 39% in 1 year. Also very good growth then in the savings capital. We almost doubled that, again, from market depreciation and net savings. Also very strong trading activity, 61% up versus last year. And then with the strong customer inflow, So increase in savings capital, not least the trading activity, that's also allowed for a very strong increase in revenues of 73%. At the same time, we see a slight increase in costs versus last quarter 1 last year. If you compare to quarter 4 last year, we're basically a little bit down actually cost. But we see an increase in cost pressure in customer service and also in back office from the Great momentum we have now in the customer growth. But overall, good revenue increase coupled with good operating leverage It's also allowed for then the record profit of SEK830,000,000 in the quarter. Go to next. This is just a little bit comparison versus quarter 4 also. We see a strong development there as So there's a few reasons for this. One is, of course, the big improvement we've done in our platform, which has allowed for a far better customer experience. Then we also see a very strong digitization trend in And overall, also a large interest in savings and investments. But also a little bit unique for Nordnet, we See that we reached critical mass and a tipping point when it comes to growth in the customers outside of Sweden. We Almost what we say have hyper growth in especially Denmark and Norway. Go to next. This is just a summary of the customer growth per month versus last year and also net savings versus last year. And if If you summarize the quarter, then we brought in almost 170,000 new customers compared to 89,000 last year for the in period. And that was a strong quarter. So overall, a very strong growth quarter for customers. And net savings, we are Slightly ahead of last year, which had a very high net savings from most of the corona crisis at that time. We go to next. And we continue to leverage on our Nordic We have a well diversified revenue footprint with the 12% of revenues coming from Sweden And Denmark, number 2, 24% and then roughly 20% Eastern, Poppin and Norway. If you look at the middle graph, that's the customer growth For country, and as I said, we have a tremendous growth outside of Sweden and a stable growth also in Sweden. But we also see in regard to the right that we have higher margins overall outside of Sweden. That's due to that's more cross border trading in Denmark compared to Sweden, so they trade more outside of their local exchange, and that has higher margins for us. So we're growing the most in the countries with highest margins. We go to next. This is just Summary per country in customer growth and savings capital growth. And as you see, it's good numbers all over. And short comments on Sweden. Even though the growth rate is a little bit lower than the other countries, we see Doubling of the growth rate in quarter 1, 2021 compared to 2020. And then again, fantastic closing in customers and savings capitals Norway, 65% customer growth. In Denmark, close to 90% customer growth year on year and also very strong 33%. And we have a clear number, one position in Norway, Denmark and Finland and a strong number 2 position in Sweden. Go to next. And this is showing the development in our different revenue streams where the Red one is net interest income. The dark blue is non transaction related income, mainly income from funds. And the light blue is Transaction related income, mainly brokerage. And as you see over the years here, we have a good growth in all the revenue streams, but then an extra boost in the brokerage income. And that's due to what you see on the graph Down right there with the margins, but we have a stable margin on net interest income. It's just affected on The treasury, but underlying very stable, also very stable margin on the fund business. But we see a big increase In the brokerage margin from higher activity in the customer base. And I have 2 growth showing that as well. We can go to next, Sunny. So in regard to the left, you see here that they have a big increase in number of trading customers. And that comes, of course, from the high customer growth, but also that larger share of a customer base is not trading with shares. It's currently around 45% compared to historically around 30%. And then we also see an Increase share of cross border trading. So we're currently around 35%, but we started to have been around 20%. And it is two reasons for this. One is the general increased interest in foreign shares. Also, we'll wish to diversify a bit for our customers, which is good. But then it's also due to the country mix. Like I said, in Finland or in Denmark, it is a higher share of cross border trading because their locally changed sales are fairly small. Go to next. And then the strong position we have in customer Experience, as you know, we measure that to net promoter score. It allows us also to take market share in the different Countries and here we show the market share in trades on the local exchanges. We have increased our market share in all markets year on year. Go to next, Sunny. There's a few slides on the product The feature side, so we now successfully launched Norwegian Owned Pension Account in the beginning of the year and it's been successful. Of the customers that have done an active choice, We've taken 25% of the share of those. And we currently have around 9,000 customers that have Choosing to have their pension with us in the EPK shelf. And also, we Good transfer also on net savings from that customer base. Go to next. On we also improved our fund instrument pages on our web and on our app. So we have more information about funds in general, but also a lot easier to navigate compared to before. And this has been well received by their customers and also increased the buy of funds from this release. We also we can go to next. We also launched buycellbots In our charge, you as a customer can see when you bought an instrument or sold an instrument and this has been Very, very appreciated by our customers and also a feature that many have asked for previously. And now it's here. We also focused a lot on availability and stability in our systems. And as you know, in quarter 1, we had a number of Record trading days. And in spite of that, our systems has performed very well. And we have 99.9% Availability through the quarter, while we know that some platforms, especially in the U. S. And U. K, have had tremendous problems during Q1. So that was a short introduction, and I hand over to you, Lennart, for covering more of the financial Thank you very much. We can go to the next slide, Sunny. And as you all know and are aware of, I mean, we're Two main key value drivers and that is the customers and the savings capital. And as Lassek Hock already presented to you, I mean, we had a year on year growth By 40% and on the customer side and on the capital savings capital, an 8% growth. So we now I have 1,400,000 customers and 615,000,000,000 in savings capital above. So it's been a very, very strong year, but also a very strong quarter as you see and you saw before here with 167 new customers just in this quarter. We can go to the next slide. This has also resulted as you can imagine With the new customer base, with this uplift in new customers and the customer growth, we have a step from 'nineteen to 'twenty and Now we're into 2021, always a step up, SEK1.5 billion in revenue in 2019, SEK2.7 billion in 20 and now on a rolling 12 months, SEK 3,100,000,000. We can also say that this comes From all the 3 major revenue streams is the growth not just in brokerage or net transaction related income. It's from all But it's also very important to see that it's all across Nordic with all 4 countries that are actually growing and are now the revenue comes In more and more diversified from all countries, giving strength also that we're not just depending on Sweden or Denmark. We now have it in all countries for all the revenue streams. We can go to the next one. One important thing for us is, of Of course, to have scalability. And even though this tremendous growth that we have had since 2019 and up to now and the Exceptional one in Q1. We have been able to keep the costs still. And yes, we do intend it even though we had a slight uptick here in Q1. And we have a pressure on, as I said, customer services, but that I think you should expect when having this Extremely high organic growth of new customers. It takes time to onboard them all. But as I say, we have been able to keep them quite stable for now 3 years. So yes, we can go further. And this resulting, of course, in high revenue with flat costs with a very nice growth in As the profit before tax, aiming as this quarterly result and on record highs of 830,000,000. It's really amazing to see that. We can go to the next slide. We have also not just have had a growth in customers and savings capital and activity, but also on the lending side, where we have grown the portfolio, lending portfolio from 15,000,000,000 to 22,000,000,000 this year. And as we have pointed out before, It is the margin lending product that we want to grow the most and that we do as well. We also do grow the mortgage, But not that the pace is margin lending, of course. And then we keep the unsecured stable on the nominal level, Giving us a very, very nice credit portfolio with the low risk, utilizing the capital and liquidity as we can. The credit losses are very low. I mean, the accounted losses are even lower than they are. We're having credit losses in the same pace as we have had before. The low number of €4,000,000 for the Q1 is actually resolving reserves That comes from the modeling of IFRS 9 due to lower unemployment rates. And that is also the same reasons that we have an increase in Q1 2020 to 18,000,000. So it's really the underlying credit losses All the same as 2020, as 2019 and forward. So we have no change in those And it is only the unsecured part that is giving the losses. The margin lending here is actually a reserve increase Due to the heavy uplift in the volume of it, also due to IFRS 9 not Recorded any losses there, so this year this quarter either. You can go to the next slide. Regarding capital position, we have a very nice capital adequacy with 21.7%, so no restriction. And also the leverage ratio is on a stable level of 4.0 and that is in spite of that we have quite a lot of new Deposits that which is the one that grows the balance sheet, but also decrease Or affect the leverage ratio the most. We can take next one. Lars Rokke, May I hand over to you, Orest? Yes. So I'm just going to conclude with the performance versus midterm financial targets and a little bit our key focus areas going forward. But Looking at then where we are versus the midterm targets. On the FAS side, we have still a clear number 1 position in Finland over Denmark and a strong number 2 position in Sweden. Customer growth, I mean, as you see in the In Sweden. Customer growth, I mean, as you've seen, it's 39%, which is considerably higher than the guidance of 10% to 15%. Average savings capital is above slightly above the guidance of 409 1,000 per customer in spite of this high customer growth. That means that we have a tremendous growth in service capital for existing customers New customers that come in dilute this number a bit, but we also see that new customers bring in a lot of new savings capital from other banks and pension companies pretty fast. And then the margin revenue margin is It's also considerably higher than the guidance. It's currently 64 bps. Merchants guidance is slightly above 40. And as you saw on the revenue breakdown, it mainly comes down from the increase in a margin for trading from cross border and also higher trading activity in general in the base. And rolling 12 months cost is also in line with the guidance. And Dividend, we have covered before and that we follow the SFSA guidance for dividend this year, 25% of The profit of the tax in 'nineteen and 'twenty. We can go to the next, Sunny. And our key focus areas, starting of course with the customers and having really satisfied and happy customers. And to have that, we continue to build then on our best platform for savings and investments. That's what we do every day. And we want to continue to be number 1 in MPS. And of course, you see from this double digit customer growth and also high retention in our base. But we also know we can never have happy customers unless We have happy employees. We also measure employee satisfaction and work very actively on that. We want to see here Continued upward trends. It's very strong development currently. And also that they have the possibility to track and retain top talent because That's key, especially not the least in product and tech. Then governance is, of course, Extremely important. We are in a trust business and we need to earn that trust every day. So we need to have good earning already. And That means that we need to manage our compliance and other risks in a good way. And that we, overall, are trusted and light brand, which we are today. And then profitable growth, continue to leverage on the great growth potential we have in our Nordic footprint. We currently only have around 5 Market share of the addressable market, so hopefully many years of growth ahead of us. And then this very strong focus we have on Scalability, also to maintain a stable cost level going forward. So with that, We conclude the actual presentation and we can move into Q and A. Yes, we will. Thanks a lot guys. Like I said before, if you have a question, you just raise your hand digitally and I will enable you to speak. And you do that by Push the button, raise hand at the bottom of the screen and I will announce you by name and then you also need to accept to be unmuted. It will show up a request on your screen. I will go through all the people 1 by 1 that have raised their hand. Of course, it's nice if you just briefly introduce yourself before you ask your question. The first question today comes from Patrick Bratilius. Hello, Patrick. Hello, hello. Do you hear me? Yes, we do. Please go ahead. Hi, I'm Patrick Brasilius from ABG. A few questions from my side. To start off, I would like to you highlighted in the CEO wording that The large influx of customers is leading to cost pressure, mainly on customer service and back office. If you were to continue to see this large inflow of customers, would that lead you to need to change your cost Guidance or revise it? Or is it just the temporary and you are still convinced that you will be able Keep the cost guidance that you currently have for the future. Yes. So as you stated, I mean, the great inflow is put pressure on customer service and operations. We are automated to a large extent, but we do have manual For example, of onboarding on some customer categories like miners and the moving of securities from one bank to another, which is, Of course, a lot of new customers are doing. And in general, new customers have more questions overall. So that's pushed a pressure then on cost in customer service and in back office. And as you know, we have a growth rate of 40% compared to the mid term guidance of 10% to So I would say the cost level for 2021 will depend on customer growth now in the coming But I can also be clear, we will not sub optimize the business and limit customer growth to any cost meet the flat target. So I think the coming quarters are quite Telling regarding the development. Yes. So would that lead To you could temporarily increase costs, but you would still expect That cost will come down the coming years given that less dependence on IT consultants And rolling off all the IT systems or would that be the new cost base, so to speak? I think The main driver for efficiency is actually automation. And we work both with builders, A lot of small automation initiatives, but also a number of larger automation initiatives that will take longer time. But as you know, we, for example, released a fully digitized Customer journey for mortgage and also improved and digitized our move the pension functionality. So we will work very actively with that going forward. So of course, ambition is to maintain stable development going forward. And as you highlighted on the slide, FX revenue was very high in comparison To, for example, total income this quarter, have you already now in Q2, are we expecting to see a normalization where we Going back to the level we have seen, let's say, during 2020, is that a more fair assumption The coming after. It's a little bit too early to tell. And we will include also The share of cross border trading and our monthly reports, so we will be able to follow this on a monthly basis also going forward. But we have 2 effects here that I talked about. 1 is, of course, the general interest of trading across border. And it was exceptionally high in quarter 1, not least due to a lot of trading in the U. S. But the other effect we have is This country mix where we have fundamentally higher cross border trading in Finland, Denmark and Norway compared to Sweden. So even if they perhaps the interest in cross border training is decreasing a bit, will we also have this Fundamental effect from the country mix that gives perhaps a different development. Thank you. And the last question, keeping on the topic, have you received any criticism on the Absolute level from clients. And do you foresee any price pressure on this line the coming years? Yeah, I think we I mean, we have 25 bps and we're very transparent about that cost We also show it when you do a trade. And in general, that's not a very high level compared to what you see On similar platforms, but also in other automatic changes that's done, then it's pretty cheap. Also, if you're really trading a lot, you can also open a currency account on the side, but then you need to do the exchange manually. And Okay. Thank you. No further question on my part. Thanks a lot, Patrick. And next one Up is Nicholas McBeef. Hello, Nicholas. We cannot hear you, Nicholas. Niklas, I think you have to accept. Yes. Hello. Can you hear me? Yes, we can. Please go ahead, Niklas. Perfect. Good morning. It's Nikolas Herr from DNB. So yes, one question to start with on the revenue margin, 64 Points here in Q1 and you stick to your guidance of revenue margin slightly above 40 bps. So I was just Wondering how you think about that. Do you expect kind of customer activity and or the share Of cross border transaction to come down? Or is it more that you anticipate some kind of price pressure That's going to drive down that revenue margin or maybe a combination of both? Or how do you think about that? Why should the revenue margin come down so much from the current level? It's a good question. But as you know, also not probably sort of midterm and we're currently a lot higher than that. And We also want to see the development now a little bit going forward. I think Q2 is going to be interesting. But again, we see And would that mean that we will have a high normal, especially from slightly higher activity that more Customers trade, but also then in general, from the country mix, higher share of cross border trading. So that, of course, we follow. But I think we want to see a little bit more quarters before we look at actual guidance per se. Okay. And then, yes, can you say anything about the customer activity development so far in the Q2, now we're almost 1 month into the quarter. I think we see a strong development also going into quarter 2. Okay. Is it like similar level as towards the end of Q1? And could you be Perhaps more explicit on the share of I copy. It's more specific than that. Okay. And then, yes, final question. You got this remark and the investigation from the FSA Related to your governance and processes, yes, connected to short sellings, do you see any risk that you need to invest More into this into your governance here on the back of these remarks. Yes. So we see a need to improve the IT system Just to manage every single case when it comes to intraday short trading that we already announced. And until that is in place, we also The short trading intraday short trading that you can do. But we're currently working on that solution. And hopefully, we can come out without in not too distant future. It's not a very costly thing and we can do it pretty fast. Okay. Thanks. That's All for me. Thanks a lot, Nicolas. So next one up is Mr. Gurjit Kambo. Hello there, Gurit. Are you with us? From JPMorgan, I think. Great. I'll come back to you later. In the meantime, We'll have Mats Lilidahl. Hello, Mats. Can you Hear me? You have to accept my unmute request, Mats, on the screen. Mats, no. Can you hear Mats? Let's go to Julia Varesco. Are you with us, Julia? Yes. Hello. Can you hear me? Yes, we can Julia. Please go ahead. Could you comment on the competitive landscape? That's the first question. How do you see that evolving? Maybe, what are the risks of someone like Funds entering the rest of the Nordic markets now that their penetration in their local market is quite high. Also could you talk about What is the progress from the EPK in Norway and what are the average balances for the customers which Bringing one through that program. Yeah. And I think the competitive Landscape, we don't see any major changes that compared to before Avan's moving into other markets. That's, of course, you need to ask them. But we also know, as we said before, it takes A long time was to build up a position in the new country. We spent almost 50 years before we reached Growth. And now we, of course, can leverage on that investment. In Sweden, we see a few players on the fund arena, Which are more aggressive, but otherwise, I wouldn't say no major changes in When it comes to EDPK, So, so far, like I said on the slide, the one the customers have done in Active Choice, we've taken 25% of their share and currently 9,000 customers have signed up, which is far above our expectations since we also know that benchmark is a little bit slow moving, but we've got a very good start. And so far, SEK 1 point SEK 7,000,000,000 has been moved from other platforms, our platform from that customer base, but It's more to come in May when the majority of the transfers will happen. Thank you. And could I just add another question? Sure. Go ahead, please. The growth in cross Border trading, is that driven also by the demographic of the customer? So is it just because As a younger, they're more, they're keener to trade cross border. So in that respect, we would probably expect this To continue? With 2 effects, I can say, on cross border. 1 is the country mix where we have a generally higher cross border trading in Finland, Denmark And nowhere where they have higher growth compared to Sweden was the local exchange is fairly small, so they trade a lot in Stockholm and in the U. S. As well. On top of that, I think it might be, I mean, is a general interest in all the countries to trade more Cross border and if that's sustainable or not, that's of course a good question. But I think the customers also realize that it's easy to trade outside of the home market and also want to diversify a little bit more outside of the whole market. So let's see how that's going to play out. Thank you. These were questions from my colleague, Gurgit. I think there was the problem with the sound on the line. All right. Good. Thank you. Thanks a lot, Julia. We'll see if we have Ermin, Kerik. Hello there, Ermin. Can you hear me? Hi, do you hear me? Yes, we do. Yes. Please go ahead, Ermin. Do you hear me? Yes. Yes, we do. We can hear you. Okay. I've got a few instead. Change. Hello. Hello. Hello, Ermin. We can hear you. Okay, that's strange. Are you with Mats? Can you hear us? No. You can also post questions, I think, on the chat. Yes, we can do that. If you have a question, you can also write it and send it in by using the chat Functionality at the bottom of the screen. So instead of asking questions verbally, you can do it in the chat if you want to. So we'll give that a couple of seconds. Okay. I don't think we have any questions in the chat now. We have answered all questions that we've been Receiving? If that's it, then I think we can say before we close next thing that happens when it comes to financial reporting at Novodot is that we publish our monthly statistics for April next week on Tuesday, 4th May. And like Lasroke said, We'll also include the proportion of cross border trading. Until then, thanks a lot for joining in today and for your interest in Donet. Bye bye. Bye. Thanks, everyone.