flatexDEGIRO AG

Dear ladies and gentlemen, welcome to the conference call of FLATxDJRA-AG. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulty seeing the conference, please press star key followed by zero on your telephone for quick assistance. May I now hand you over to Mohamed Chargour, CFO, of FLATx DGRIT who will be here for this conference. Please go ahead.

Thank you very much. Good morning, everyone. Thanks for joining our today's conference call with, yeah, quite positive and interesting news. I hope you're all doing well in this current environment. Before we start the call, allow me to welcome two new sell-side analysts from EXAMP, BNP Paribas and Otto BHF. After Deutsche Bank took up the coverage in Q4 last year, I'm happy also to welcome these two new sell-side analysts in Q1. We are in total now actively covered by nine national and international brokers. which we are really thankful for. And thanks again also for your work. Yeah, before jumping into the numbers and going through facts and figures, let's wrap up for a second on the market environment in Q1 2022. The start of the year was already quite turbulent, I would say, coming out of 2021. with a macroeconomic environment determined by expected interest rate hikes that put a bit of pressure into the market. Over the last three months, we recorded record inflation, quite some disappointing reportings by U.S. tech companies, a sector rotation from tech into value, or in general from growth into value, that was obviously then, yeah, pinnacled by the beginning of the war in Ukraine at the end of February and the ongoing war, unfortunately, until today. And all this is resulting in mainly low retail liquidity in the markets, especially, as I just mentioned, visible with the U.S. big tech numbers that were published, big drops, double-digit percentage drops with very low liquidity. And resulting all in all in relatively bearish markets, all of the key indices across Europe and the U.S. are compared to the beginning of the year between minus 5 and minus 15% down. So all in all, the situation, it's challenged. for capital market participants, whether brokers or clients. But despite all these macroeconomic backdrops, the team did a fabulous job. Thanks again here to our almost now 1,200 people in the company delivering really gratefully our Q1 target. And the reason for that great result is is that we, as FlatX Vigero and the PaaS, have continuously focused on growing with right clients. And we'll come in a second into the numbers and discuss the numbers, but this has been our clear strategy for the last years. We are in the market to grow with strong clients, with experienced clients, especially with experienced clients that are still with inferior peers, that are more expensive, that have a smaller product offering, and or even a weaker platform. And yes, the online brokerage penetration in continental Europe, as you know, we describe them usually as the underdeveloped G7, is still below 10%. And there will be an increasing number of people penetrating the brokerage market over the next years, but this is nothing we will wait for. The clear strategy is to win new clients, but first and foremost to be a pain in the neck for our peers and our incumbent competitors all over Europe. And don't forget, there are still 25 to 30 million brokerage clients that are still with these peers, these inferior peers and incumbent peers, that we will give over the next quarters and years a hard time by stealing their clients. In general, as I mentioned, the macroeconomic environment resulted in a situation where retail investors were pretty cautious. The volatility didn't really translate to higher activity compared to especially Q1 2021. I have discussed this multiple times during the first quarter in many investor meetings that the volatility jumps that we saw in Q1 are different from those that we saw in Q1 2021. Volatility was driven by, let me call it, positive environment, enthusiasm, a high involvement of retail clients and brokerage markets, whereas the peak in volatility in Q1 2022 was mainly driven by unfortunate events, war, inflation, uncertainty with respect to interest rates, hikes with further growth potential with many companies. And despite all these uncertainties and uncertain macro environment, our clients traded very well because we managed to win over the recent years the right clients. So what are the highlights for Q1 2022? First and foremost, that it was our, literally, the strongest quarter in our 15 year history, if we exclude the mean stock mania quarter Q1 2021. We managed to continue our customer growth. We managed to continue with a stable trading active client portfolio. We managed something that we promised an increase in our revenues for trade, and in the same time, we managed our profitability very well, and that resulted in an increased adjusted EBITDA compared to previous quarters. Let's start with the continuous customer growth and a bit of breakdown. If you consider Q1 2022, we grew by 185,000 gross clients. The average of the previous three quarters was around 142,000 clients. We got it for 640 to 840,000 client additions, client account additions in 2022. And we indicated this already in Q3 and Q4. of last year, 2021, that if we continue to grow with these average quarters in 2021, we will meet the 600,000. To exceed the 600,000, we have to top up a bit. This is literally what we did starting with Q1 with the 185,000. Nevertheless, the strategy did not change and will continue to be growing quality, not in quantity. What does the translation look like between customer additions and net customer growth? We had two key measures in place in Q1 that reduced, so to speak, the net customer growth. We had, first and foremost, a very normal organic churn of 11,000, which which equals around 0.5% of churn in the first quarter. But we had two big measures where we actively, at FlatX DeGiro, off-boarded both B2B as well as B2C clients. The off-boarding of the B2B, so to speak, B2B to C clients has no effect on the trades. It's with respect to one B2B client where we will, by the end of the year, terminate the relationship. We have indicated this in the last quarter already that we assume for Q1 roughly 20,000 off-boardings. This is what happened. We off-boarded slightly above 20,000. There are some more to come during the next quarters focusing on our clear, simple, and clean online brokerage strategy. We believe that this is the right way to get rid of obstacles and disturbing businesses. irrespective of their profitability. By the way, it will not have any impact on the profitability. So you will see some more off-boardings in the coming quarters. I assume another 20,000 to 25,000 client accounts that will be off-boarded by the end of the year. On the DeGiro auspice side, the off-boarding is a result of the migration. As you know, we migrated into Flatex Austria. The reason is that Flatex Austria was almost tenfold in size of the Giro Austria. It doesn't make sense to continue with two brands in such a market, so we decided to migrate. By this migration, we had a drop-off on the Giro side of 8,000 accounts that we terminated, that we off-ported. We are speaking here about clients that did not have any tradings or did not have any portfolios anymore with us, where we decided that it doesn't make sense to keep them. And all the clients were obviously offered to move over to FlatX Austria. The process is almost closed. I assume by half year, we should be done with the FlatX Austria migration. One more point that I would touch on before we come to the net customer growth is that we will start now the migration of FlatX Netherlands towards DeGiro Netherlands. Actually, very similar ratios. DeGiro Netherlands is more than tenfold in size compared to FlatX Netherlands. So here the strategic decision was made to consolidate the FlatX business into the DeGiro business. where we also expect during the course of this year to off-board roughly again 20 to 25,000 Flatex Netherlands clients, and then finalize the cleanup in clients in 2022. If we look into our net customer growth of 145,000 clients, we can conclude that it is the strongest net growth is coming in growth countries What we find very interesting is that our research and growth markets grew faster than our three biggest peers in Europe combined. If we add even the core markets, you will see that we outperformed the growth of our largest three peers combined by more than 50%. Our net customer growth increased between Q4 and Q1 by 21%. So we used to outperform our peers already in the past. Now what we see is that the gap is literally widening. You know, we usually don't disclose numbers on specific countries, but we are always happy to give information whenever we reach in certain countries certain benchmarks or certain interesting metrics One of these highlights is for us, DeGiro Italy. As you can see, without giving a figure to DeGiro Italy, it is almost the size of Finneco's net ads. So what we managed in Q1 is to grow almost as fast as the market-leading monopolist in Italy. That should give you, I think, also an impression and an idea of what we are going for. and the strategy that we are focusing on. If we look into the split of our markets, core markets, growth markets, research markets, you see that actually we had a very nice customer growth also in the core markets. We added 48,000 clients net. So if we actually – this is something you should be aware of. Remember that the off-boardings that we had on the previous slide, so the B2B off-boardings and the DeGiro Austria off-boardings that equal roughly 30,000, all happened in core markets. So if we would normalize for this event our net customer accounts, in 2022 were roughly 70,000, which equals a growth rate of roughly 6.5%. We discussed the growth markets, the speedy growth of Italy. Although Italy was only on rank three of absolute growth in these growth markets, we managed very well to grow in Spain and Portugal and in France. UK Ireland is still something that we are working on with respect to the licensing and license application. For us, a very, very interesting market in which we also managed to grow very well and will continue to push then in UK, especially after having the setup ready, which should happen hopefully in the second half of this year. It depends on the approval process that might take a bit of time. on the UK side. The research markets, as you know, are research markets by name, not only by name, but also literally by strategy. But nevertheless, even without almost any marketing campaigns in these countries, we managed to grow 12% in client accounts, and we're pretty stable with respect to trade. So that was the topic, customer ads, trading activity. We closed Q1 2022 with 21.9 million transactions, which is the second highest trading quarter ever in our history. As I said, the only quarter that outperformed Q1 2022 was Q1 2021, the means stock mania quarter. I would even say a really big success. And I mentioned that I'm really thankful for the team that did a superb job. We are coming out of the merger year 2021. Still a lot of things to do also in our setup, in our organization. But then to manage that growth and to manage that stability in our systems and to manage that number of trades is really excellent performance by the people. And despite all the backdrop that we discussed in the beginning, the macroeconomic backdrop that we all saw, that led, by the way, to most of our peers, and some of them have already reported, the other will report over the next days, that led to massive declining numbers, whether it's the growth in clients, whether it's the growth in a number of trades. I think this is, today, we are providing to the market the evidence of the sustainability of our business that is based on quality growth, that is based on quality product, and that is based on superior pricing in the market and superior profitability. If we look into the trading activity by our client base, you see that we managed to stay pretty stable in Q1, Q2, Q3, and Q4. It's a stable line being at 41 transactions per client on an annualized base. If we look into the number of clients in average in Q1 and the number of transactions. Why don't we see here the drop in trades? Although I think a lot of questions were raised. We're asked in the previous quarter what happens if we have a macroeconomic backdrop. It is, I'm repeating myself, it is the pure quality of our client base. I indicated this a couple of times over the recent quarters. Two-thirds, almost two-thirds of our client ads are clients with previous brokerage experience, and this is what we will continue to focus on. Clients with previous brokerage experience, that don't fear, that don't hesitate to trade also in environments like these that we have that offers them a potential for capital gains. During a lot of Q1 investor meetings, we discussed volatility. We discussed the comparable situation in Q1 2020 to Q1 2022. I indicated a couple of minutes ago that Q1 2021 was volatility that was mainly driven by positive enthusiasm, by increasing markets in value, and less by macroeconomic uncertainty and geopolitical uncertainty. What was quite interesting to see in our trading behavior of our clients was that we had a shift towards European equity. And so the distribution between US trades and European-based equity trading was slightly towards European portfolios. The reason is that you can see it pretty well. Actually, the first half of the first quarter, we had a very, very narrow spread between US and European VIX. With the beginning of this terrible war in Ukraine, we see a massive widening of the VIX spread between the US markets and the European markets. Thus, the liquidity in Europe or the trading activity in Europe with our client base was relatively higher than in the U.S., which explains also why the trading volume in U.S. equities and ETFs was lower than in previous quarter. If we look into the activity in detail, so to what results did this volatility spread lead, I think a quite important figure is that one here. So the number of trading customer accounts was I think even slightly higher than what we saw in Q1 2021. Again, in evidence for growing with the right type of clients. Q1 2021, I think we all remember the boom quarter. we had obviously a lot of trading clients that were coming also to trade in this environment, whereas now with the backdrops that we saw, you could say, okay, it's really the hard core of our client base that is trading. So what we're managing to do is to increase the number of clients and customers in this hard core of our business, which is in the end the base for recurring revenues and for stability in our business model, so happy to see this result, despite the fact that the share of active customer accounts is on a Q3 level 2021. The trades per active customer account have picked slightly up between Q3 and Q4, so slightly, in relative terms, slightly less Customers that are trading in relative terms, in absolute terms it's more, but these clients that are trading are, as I said, high quality clients that make use of the environment and thus contribute also more trades on a per active customer base. The share of U.S. volume dropped, as I said earlier, mainly due to the drop, also the massive drop in volatility and uncertainty in the U.S. It's difficult to give a forecast for the next quarters I assume that we will see a normalization here, irrespective of how the U.S. trading flow will develop. It's much more about that I assume that the spread of volatility will narrow down, and thus the share of U.S. volume should then increase again. So that's with respect to trading activity. Let's come into the increased revenues per trade. The revenues in total and ARPU, €118 million in revenues, very, very, very strong number as I said, the second best quarter in the history or actually the best one after Q1 2021. That led also to an increase in ARPU, which is also very important. So just to grow on both ends with the number of customer accounts as well as in revenues that shifted up our ARPU. So we see also here that we are not growing revenues with no growth on the customer-based side and all the other way around. I think a very interesting point is the share of revenues related to inducement from trading venues So to speak, PFAS in Q1 has been reduced to 0.7%. Last year, we were at slightly above 3%. So you can see also here, we promised that we will get independent more or less by the end of the year of 2022 from PFAS, and we are actually on the way to get there. The revenues per trade, Obviously, benefited from the Hero Goes Zero in Q1 2022, we had a revenue per trade of almost €5.40, €5.39 to be precise. The LCM has been now or topped now the €5 level. And it's important to highlight that not only the Hero Goes Zero that contributed to this increase. I think two interesting points, two interesting data points that I would like to share with you. The introduction of TradeGate with DeGiro had a positive effect. Just to give you some numbers, the contribution of TradeGate trade to the total equity trades at DeGiro was in September 21, 1.9%. At the end of Q4, 2.7%. And at the end of Q1, it was 3.3%. So we doubled almost the first six months. We doubled almost the contribution of TradeGate to total equity trades. And we totally believe that this is the right way to do. With the introduction of TradeGate at DeGiro, we allow clients to trade now between 8 in the morning and 10 in the evening. which is one product and a key product to retailize capital market access. A lot of people are working during market opening hours and are excluded from the opportunity to trade. With the introduction of TradeGate, we've allowed them to access capital markets also pre and after prime markets opening and closing. The same applies very well to the ETP trades with DeGiro. At the end of Q1, we were above 6% of the total trades. So the ETP trades make now more than 6% of the total DeGiro trades. Also here, a steep and strong pickup that proves also the rightfully introduced products to DeGiro clients or the replacement of the old products. with a much better offering, with a much better and user-friendly offering, having BNP Paribas and Societe Generale, the two market leaders in Europe, issuing these products next to us and offering these products today to three markets, Germany, Austria, sorry, Germany, Netherlands, and France. We are currently progressing to offer these products also in further countries, including Switzerland and Spain. And Italy, there was a beneficial change in regulation with respect to the fact that it makes it much easier to offer ETPs now in Italy as well. Efficiency indicators, yeah, the revenues I think are self-explaining. The Q1 annualized level is about 470 million euros. The assets under custody, quite interesting. Although we had quite big slumping market valuation and indices that dropped by, yeah, 10% and more, the AOCs of our clients declined only from 43.9 billion to 43.1 billion. So we're talking about 800 million euros in drop, which is, if I'm not mistaken, 2%, whereas the market indices dropped by between 10% and 15%. It shows also here that first, the clients that are coming to us that we have added on are good clients that are bringing portfolios with them, that are bringing cash with them on the one hand side. On the other hand side, it also indicates that our clients are not hit by the drops in the indices, given again the quality of the clients, the experience of the clients to know when to go in and when to go out. It results in a revenue margin of 117 basis points, which is above 2019 and above 2020-21, if you would annualize the revenue above the assets under custody. So that is it. As we always say, the formula of success, the number of clients times the number of trades per client, times the revenue per trade. How did all this translate it into profitability? And before we start to speak about profitability, I think it's important to highlight to you one key expense item, which is marketing. In Q1, we spent 18 point, 4 million euros in marketing, which is, by the way, the highest spend that we ever had in our business model. And this spend was mainly driven, as you can see, by almost 70% by brand awareness and offline campaigns. That is an important item to understand. When we want to grow in a lot of markets where we are maybe today not the super known player to broker for the local population, it's important to create trust. It's important to create a brand. It's important to create a level of security and safety for the clients to understand what we are literally providing them with. And this means that you have to create the brand awareness because we truly believe that brand awareness and an increased brand awareness is highly correlated with the probability to win clients. Thus, the big documentary that we had in the first quarter, thus a lot of TV campaigns that we had in Q1. If you take the 18.4 million euros and you would just divide them by the gross air, you would end up with a CAC of 100 euros, which is absolutely fine. So going on for this year, I actually expect the CAC to be at the higher end of our range, 60 to 80 euros. And the main reason for that is that we truly believe that we are winning right clients. We're literally winning the right clients with this marketing. So there's nothing better than to spend 100 euros in CAC, and as you've seen before, to generate an ARPU of 220 euros. So we're literally generating with 100 euros, 120% of return in the first year. That is something that we will continue to focus on. Very dedicated. I mentioned before Italy. Italy is, for example, a market. France is a market where we will extend these brand awareness campaigns to make the population aware of our products in Italy and France that are dominated today. You know my clear perspective on these markets. by inferior incumbent monopolists. Now, what was the result of this spend? So if I tell you about my hypothesis that I believe that brand awareness spend by my marketing team will increase the brand awareness and will increase the probability for clients to convert, what we are doing is to now track quarterly our brand awareness and the interest of clients in the brand, the hero. And this is the result between Q4, so end of the year 2021, and Q1 2022, so end of March, our brand tracker, this is how we call it. What you see is in one quarter, how we increase the added brand awareness in literally all our core markets, Austria, Netherlands, and Germany, and in our growth markets, in the key markets of our growth markets, Portugal, Spain, Italy, and France. And what you see is that with an increasing added brand awareness, the preference is increasing as well. How is preference defined? By a very simple question, where would you most likely open a brokerage account in the next three months? So the higher my brand awareness, the higher the preference of potential clients. This is where we'll continue to work on increasing our added brand awareness. And in Austria, in the Netherlands, in Portugal, in Germany, and in Spain, we see quite a very positive development of the added brand awareness, as well as of the preference. France and Italy are markets that we started only last year with big brand awareness campaigns, but we will continue to do so and believe that we can shift these countries into an area that should somewhere sit in this quarter here, somewhere around 25% in brand awareness, and 10 to 15% in preference. It's the first time that we provide you with this data. I think, however, it's important to understand when we spend marketing and brand awareness, where this marketing ends up first, and second, what results it has. So the spend that we did in November, December, January, February, March in TV advertisement is clearly here significantly positive on both the added brand awareness and the preference of clients to join us. However, it's not enough. We will continue to do so with all prudent perspective on marketing expenses. Don't worry, no one is going here in any way crazy with marketing expenses, but we have understood and we have learned that it is worth to spend 80, 90, 100 euros for a client if this client generates in the first 12 months of his lifetime, 220 euros. And in general has a lifetime with us of yeah, five, 10 years plus. Despite a record marketing expenses in Q1, 2022, we have achieved the highest adjusted EBITDA ever in our lifetime of this company with 54.5 million euros. That equals the margin of 46.1%, which is higher than Q4, Q3, and Q2, the last three quarters. The adjusted EBITDA pre-marketing was at roughly 73 million euros and equals 61.7% margin. The clean EBITDA in Q1 2022 was at 51.7 million euros. The difference is, as always, just the delta in provisions for long-term incentive plans. which was in Q1 relatively moderate, but this is actually due to the plan development. This is also what we told you in the past. So in the Q1, we had only additional provision building of 2.8 million euros. To make it very simple for you, it's quite interesting. The EBITDA, the account of EBITDA in Q1 2022 was almost as high as the Q2, Q3, and Q4 account of EBITDA in 2021. So that's it with respect to Q1 2022. Again, a big thank you to our 1200 employees that really did a great job to allow us to deliver these superior results. Allow me a couple of remarks to IR activity, because as you all know, May is usually quite a busy month. I'm giggling a bit because my calendar looks really, really messy. A lot of traveling, a lot of conference, which I'm really looking forward to, and to see most of you again also in person, since this is now allowed and possible. We'll be, and this is to give you an indication of it, but also to give you also the insights where we are. If you're not on any list, if you have not been approached, but would like to meet us, please reach out to Akin. or to the organizers, London, Madrid, Paris, New York, then again, London and Frankfurt. So quite a busy schedule in May. But as I said, really looking forward to meeting you in person. On the 17th of May, we are hosting our virtual annual general meeting to which I all invite you to come and see and listen. It's going to be, allow me to put it in these words, going to be a quite standard AGM. There are no decisions to be made apart from one, I have to say. We are very happy to propose to the AGM to call into our supervisory board of the director with a subsidiary of Deutsche Bank, as well as Deutsche Bank PCC services, GmbH. A very, very reputable person with the right professional background with respect to our business model, knows about banking, knows about regulation, also in her role, in her past role as a politician. Yeah, we would highly appreciate if you support this proposal. proposal to have her with us in the supervisory board member of the Fletics de Giro AG, which is a further step, by the way, as you know, a further step in our institutionalization of our corporate to increase the supervisory board and to increase it also with the right person that fulfills the requirements that we also have as a corporate both the supervisory board, but also the management board. So I'm really looking forward to having your vote to see Aigul Özkan, not only with the supervisory board of the FlatEx DeGiro Bank, but also with the supervisory board of the FlatEx DeGiro AG. That's it from my side. I'd like to thank you very much and would like to open up for the Q&A session with our sales side analysts. Thank you very much.

Ladies and gentlemen, if you have a question for our speaker, please dial 0 and 1 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial 0 and 2 to answer your question. If you are using speaker equipment today, please lift the handset before making your selection. Remember, please, for the first question. And the first question is from Marius Fuberg, MM Warburg. Your line is now open.

Hi, Mo, and thank you for the good Q1. I have a couple of questions, if I may. The first one would be, any news on PEA plan introduction in France? The second one, you announced that potentially crypto trading will be introduced in Q2. Could you give us a bit more color on this one, how pricing will look like and what you plan there? The third one is with regard to the revenue per trade. There was quite impressive into one now, and as we see your customers shifting their trading behavior towards European equities, and with regard to the zero pricing, which prices European equities a little bit lower than U.S., should we expect revenues per trade to come down to more like five euros again, or would you expect it to remain at this level? And finally, the profitability, do you expect the profitability to remain on the Q1 level under the assumption that we see similar or even increasing transaction numbers in Q2, Q3? So if the margins are moving more in the high 40s or even to the 50s?

Thank you, Mariusz. Let me start with your first question. PA France has been discussed internally quite diligently. It's not a simple product at all. It's actually a very complicated product. Plus, we have learned from quite a number of our customers that it is not something that we will decide the market with. So we have stepped away at this point in time from the PEA accounts, given the difficulty in the French taxation system. However, what we will focus on is the ISA accounts in the UK with our branch opening, and we'll have a product live. as soon as the UK business goes live under the branch license of the FCA, because it's a much, much easier product and much more simple to handle product. So this is still on our agenda to provide locally the right products for clients, but always with a diligent perspective on whether it makes sense, whether we believe that this additional product contributes to the growth of our business within the rights high-quality customer profiles. Second, your question towards crypto. To avoid misunderstandings, we never, ever stated that in Q2 2022, we will offer cryptos. Let me please make this very clear. We said that in Q2 2022, we plan, hopefully, to announce a partnership that will allow us to introduce these products. It's nothing that we will introduce in Q2 2022, and no one disclosed ever that we will do it in Q2 2022. I just wanted to manage your expectation so no one should be disappointed why at the end of June we don't have any crypto offering. The crypto offering, as we said in the past, is something that we are looking into with a lot of patience, with a lot of diligence. It is not easy. We need to have a setup that is right. We need to have a setup that is right for our clients and for the safety of our clients. We are very keen to report to the market a good relationship, a great relationship with a highly reputable partner, but we're still working on it. So whenever there is something to announce, I promise you we will announce immediately. And then we are happy to elaborate on what the revenue structure might look like or what the setup of this partnership might look like. But I think it's not fair also with respect to our partner to disclose now details that we haven't brought under done and dusted agreements. Revenue per trade, a very simple and straightforward answer. I said in Q4 already that the short-term benchmark is 5 euros. Full stop. Yes, it's been now much higher than the five euros, but as you said, there are multiple effects that are determining the revenues per trade. And we will not give a hard guidance on the pennies what for the next quarter the revenue per trade will be. What I said, if you remember right in Q4, is that we said we believe that our revenue per trade on a short term over our next five year vision, will most probably be around five euros, here and there above five euros. We are introducing the right products, we are introducing the right price measures to keep this level relatively high, but the five euros should be the benchmark for revenue per trade. With respect to profitability, All in all, as you know, quarterly profitability is second of importance. The key driver is always to maintain a high 40s EBITDA margin, adjusted EBITDA margin, over a certain lifetime, which is a year at least. So there might be... different aspects why next quarter we might see a higher EBITDA margin or a lower one. But what we can promise is that we will continuously work to see EBITDA margins in the 40s, especially when it comes to a 12-month perspective or last 12 months perspective to achieve continuously EBITDA margins above 40% while we are spending substantial and significant amounts of marketing because the spend in marketing determines in the end the adjusted EBITDA margin. And this is something where we at this moment would say we are keen to continue to spend right marketing to grow our customer base the right way and to generate future cash flow with a very simple investment today, which is marketing. I hope that answers your questions.

That's very clear. Thank you very much.

Thank you, Max.

The next question is from Christoph Boerlich at Bernberg. Your line is now open.

Good morning, Mo. Thanks a lot for your presentation. Yeah, four questions from my side, please. I would like to follow up on the profitability aspect. If I look at the cost above the adjusted EBITDA in excluding the marketing, it seems like they have come down by about $10 million. in Q1 compared to the previous quarter, Q4 last year. Could you break down those 10 million in cost savings into the biggest components, and do you think that those savings will be sustainable?

Yeah. Hi, Christoph. As you know, we don't disclose on a quarterly basis P&L. You will see it then in detail in half year one. I'm happy to elaborate a bit on the reduced cost side. The reduced cost side is resulting mainly from two, three things. The first thing is, if we all go back to the Q4 call and listen to the Q4 call, we highlighted that we had in Q4 multiple one-off items resulting, especially in licensing costs, resulting from the depository system costs that we have had and that are resulting also from provisions that we build for certain penalties by the AFM that are backed by the SBA. But we have to build them, obviously, because we would be the paying entity. So those items are contributing the three, four million euros at least actually four or five million euros, sorry, four or five million euros at least of this cost saving that is not anymore given in Q1 2022. Second, we had a COGS effect in Q1. What was the COGS effect? The cost of goods sold. So we're speaking of the cost before net revenue line. Given that the markets slumped down, our AUCs at the end of the quarter were quite well, again, back to where they were in Q1, end of Q4 2022. But during the quarter, they dropped down and picked up again. You remember the indices dropped down. The DAX was almost at 13,000 points, so we were 20% down from year-end levels, which resulted also in lower, for example, custody costs with Clearstream and with our custody structures in the Netherlands. Those effects might happen as well. So you could say, yeah, we would wish for more trading activity at lower market valuation, which would reduce, obviously, the custody costs and increase the revenues. So there are different items that have actually, by the way, also a single-digit million effect. So these items, these changes in our OPEX structure, have also contributed into profitability. But again, we indicated this, I think, a couple of times in the second half. Third, by the way, not to forget, if you remember right, last year was a merger year, so we had almost 6 million euros that we built in provisions for merger costs. all these costs have been gone. So we don't see them anymore. So all these effects have obviously an impact, a positive impact on our P&L. And yes, I consider these effects to be wiped out, to be cleaned out. However, I said that in Q4 as well, if I'm not mistaken, you never know what things might happen over the next quarters also on different other cost items. It is a certain moving target here and there. But, again, as long as it is over the total on an average base of 5% or less than 5% of OPEX move, this is something we have to live with given multiple variables that are determining our OPEX structure, especially things like COX, exchange fees, custody fees, and so on and so forth.

That's very clear. Thank you. Secondly, I was wondering if you could provide some additional color on the monthly evolution of customer wins and trading activity in Q1. Have you seen any important differences between the three months in the first quarter?

Christoph, I hope you understand that I'm not going to elaborate on monthly movements.

Okay, and then maybe, I mean, if you usually look at your business, we have a quite clear seasonality, Q1 typically being the strongest quarter, both for trading activity and I think also for customer growth. So, just wondering, do you think that will be also the case in 2022 or could it be a year with a slightly different seasonality?

No, I think 2022 is actually a year that is, It is a relatively normalized year. I mean, normalized with respect to our development in customer growth and trade. Everything but normal, unfortunately, with respect to the environmental and geopolitical situation. Now, I think we might see a very stable year. However, let me also highlight this now to avoid the misunderstandings in the next quarter. Remember, Q2 has a number of bank holidays. The trading days in Q2 are lower than in Q1. So those things obviously have an influence and have seasonality effects. But the seasonality effect should not look like, look different from what we saw in the past 10 years. But let's see in general how the market environment develops over the next months and quarters. I think given the geopolitical situation and the macroeconomic situation, especially the uncertainty with respect to potential interest rate highs in the Eurozone, it's something that makes capital markets literally unpredictable. I'm happy to see that with or given or despite all this market uncertainty, our trading activity of our client base is still super stable, and that gives me a lot of confidence that with respect to seasonality, we should see a relatively normalized development.

And then lastly, from my side, you already mentioned the outlook for interest rate hikes. Could you maybe remind us of the potential additional income that you would see from, let's say, a one percentage point increase in interest rates? And also if they will come basically immediately or if there will be some time like until you see that additional interest income. And then maybe also on that point, what is the current proportion of the customer base that is paying negative interest on cash deposits?

We have roughly 1.8 billion today in literally overnight money. in deposits, and if you would just apply a 1% interest hike on 1.8 billion, we're talking about annualized 18 million more EBT. Not speaking about credit book, not speaking about bond investments, we're just purely speaking about the 1.8 billion cash that we are sitting on in our ECB structures and in our treasury deposits. So that would have an immediate impact. Second, obviously, an increase in interest rates would also increase the returns on bonds. We are carrying a number of bonds with us, sovereign bonds, mainly German sovereign bonds, and we'll continue also to invest in German sovereign bonds, mainly also to provide these bond structures as collateral to our counterparties. So, I would assume that a 1% shift in interest rate would have an impact of, give or take, €20 million positive impact of €20 to €0.20 million on our EBT line. With respect to negative interest rates, I think the negative interest rates that we charge applies to, not to all clients, but to the vast majority of clients. You always have to keep in mind that the deposits per client are relatively low. With DeGiro, we have even a slightly different structure given the legacy with negative interest rates. So you pay with DeGiro negative interest rates only if you're above 2,500 euro on cash deposits, which is very, very seldom the case on the DeGiro side. So the vast majority of our client base in absolute numbers, given that DeGiro contributes the vast majority of the clients, is actually not paying negative interest rates. So the kicker would be relatively significant to our business model.

Okay, that's all from my side. Thank you very much.

Thank you, Christopher. Christopher, sorry.

The next question is from Benjamin Conquer, KWB. Your line is now open.

Good morning, Mo. Good morning, Achim. Actually, KBW. But thanks for taking my question. A couple of smaller ones, if I may. First one, I noticed a decreasing number of trades in growth markets, disproportionate decline in annualized rates per customer. If you could outline what the main reasons have been there. Then just a quick follow-up of what you said, Mo. So 3% of revenues were payment for order flow in, was that in Q1 2021 or full year 2021? And last one for now, just on your credit book activities, any sort of anomalies or any sort of special effects you wanted to point out around that business, or is it just sort of steady as it goes at the moment?

Hey, Ben, thanks for your question. And thanks for highlighting two, three points. So the slight decline, I think 1% growth market, is mainly described by the following fact. Clients in our growth markets have a large exposure towards U.S. equity trading. So given the drop in U.S. equity trading, what you see, the effect on these clients in the growth market is in relative terms bigger than, for example, in the core markets. So where core markets, especially German, Austrian, and Dutch clients, trade a lot of local stocks, you see a lot of U.S. trading in France, Spain, Italy, and so on and so forth, just given also the smaller markets that these countries partially have, so the smaller local markets. And this is the effect. So actually the drop in U.S. flow was mainly considerable in these growth markets, and thus the stable or very, very, very small growth negative trading number on the growth market. PFOF, the 3% is with respect to the nine months in Q, sorry, in financial year 2021. But actually, if you would take even full year 2021, it's slightly, I think, above 3%, or it was slightly above 3%. So this is to the whole year. But we started to, so to speak, to divest the PFOF structure only end of Q4, but it kicked in literally only now in beginning 2022. So the effect of decreasing the PFOF returns and revenues has been implemented beginning of this year. Credit product anomalies, no anomalies at all so far. But thank you for a reminder that I had on one of the pages, but it seems like I skipped it, but you reminded me then. I think it's important to highlight the following topic, that we have sold our factoring business. or divested our factoring business. We touched on this actually in the full year report 2021. To reduce here also risk and risk structure and risk profile, we will continuously focus on brokerage, on brokerage-related credit products that go very, very well. We will again have default rates in the basis point range this year. I think year-to-date we didn't see any default by now, if I'm not mistaken. But the clear strategy is also here to divest certain products, certain projects that are not brokerage-related. That means, on the one hand side, the B2B factoring portfolio that we now sold out and divested, and the second portfolio that we will now divest and sell out is the football financing that by the end of the year will also run out of our books. And to continue with the super de-risk balance sheet with respect to these treasury investments, They were fine. They were good, especially under an area and a period of negative interest to generate additional treasury income. But the clear strategy is going forward to focus and to de-risk. So thank you for the question, Ben.

Thank you very much for the answers.

No further questions. I would like to hand back to you, gentlemen.

Yeah, thank you very much. Thanks to everyone who listened to our call. It's been a great pleasure. Take care of yourself. Have a wonderful Q2 and hope to see many of you soon. All the best. Bye-bye.

Ladies and gentlemen, thank you for your attendance. This conference has been concluded. You may disconnect.