flatexDEGIRO AG

Good day and welcome to the FLYTEX Digital Analysis call for the preliminary half-year figure 2022 conference call. Today's call is being recorded. I would like to turn the conference over to Frank Niehage. Please go ahead, sir.

Yes, good morning, everyone. A warm welcome from my side here out of our office in Frankfurt together with Achim Schreck, my colleague who is heading IR. in the call as well as my colleague Mohamed Shahour, the CFO is joining us from the associate office. We are happy to share with you a bit more details on our half year figures. And like always, I will start with a rather brief and general introduction and then hand over to my colleague, Mohamed Shahour, who will then run you through our presentation. And yeah, let me briefly start with the geopolitical situation and I don't want to spoil your day. but you all know we are in tough times with a war in Europe and with interest rate hikes and inflation going up and everyone fearing recession. So very, very challenging times. However, we are very proud that we could show that our business model is a very robust one and that we have great clients. What does that mean? If we look at the first quarter, Our clients only dropped with respect to the assets under custody with us 2%. And then within the second quarter altogether here today, the assets of our clients only dropped 13%. You all are aware that a lot of indices globally dropped more than 20%. And our tech industry shares dropped 30% to 40%. So what does that prove? That our clients are rather, as we always say, above average, well financially educated. They are not the young kids on the block with 20 years, but they are rather end of 30 and beginning of 40 and have seen crisis like that. And they are not doing that bad. And obviously, I don't have to explain much about book losses and realized losses. We see with respect to the trading activity of our clients rather normalized times. And when I talk about normalized times, then I'm referring to before COVID. And if we look back in the history of our company, the last 10 years before COVID, our clients were trading in average in the range of 34, 35 trades in rather low volatility times. This is a bit what we've seen in the first and second quarter of this year. However, I think our top line has decreased slightly, but we are very proud that the bottom line came up and that we were proud to present a half year profit, which already exceeds the full year profit of last year. I think that's a very strong message and that distinguish us from a lot of other neo-broker businesses who are still losing money and who are not profitable. We are, as you know, highly profitable. Having said that, let me briefly touch our marketing situation. And again, we are very proud to have renewed this year our engagement with Borussia Mönchengladbach for FlatX in Germany. And we also announced only recently that we're going to do the same main sponsoring with Sevilla in Spain. Obviously, in Sevilla, we're going to advocate with our brand Digiro, which is relevant and responsible for international growth. And in Germany, we continue to use Flatex for sponsoring reasons. Important to mention is that our activities in sports sponsoring are fully in line with our budget this year. And the total amount we spent this year for both Sevilla and Gladbach is not more than 20% of our total budget. So very healthy, fully in line, and to us a great opportunity, especially if you take into account that since we started two years ago with Gladbach in Germany, The relevance and awareness of our brand, the brand awareness has increased by 300% already, and it's continuing to increase. And this morning, a great journalist mentioned that we do so well that FlatX Diageo wins a new client every minute. And I think to win a new client every minute, to me, is a great message and should give you comfort that we do allocate our marketing budget in the right direction. So that goes to marketing. And then let me move over to a bit of discussion and rumors and, you know, recent press articles about capital allocation and M&A. I think if you know that our cost per clients do not exceed 100 euro per client, and if we do the math and win 1 million clients, then we are talking about 100 million marketing budget. You all know how some of our competitors do evaluate their clients, and only for calculation purposes, and I know it's early in the morning, if we buy a million clients, probably the price per client is at least 1,000 euros, some even 2, 3, 4, and 5, but for calculation purposes, let's use the 1,000, we would have to pay a billion for buying that amount of clients. I think from a shareholder value point of view we all agree that wouldn't make any sense. So we are not interested to overpay anything at this point in time and we will not grow by M&A at the moment because organically we grow faster, faster than three of our competitors together in Europe and for such a low cost per client acquisition that we think that is the right direction to go ahead. If there would be any opportunity to grow inorganically, we would definitely look into it and we have the right resolutions in place to increase capital up to 50% if necessary. But then again, we don't see any necessity nor any opportunities right now. Moving on then to our capital allocation situation. Out of last year, we are already sitting on 220 million. If you add the net profit of this year, of the first half year, it's right clear that by the end of the year, we're going to exceed 300 million excess cash. And we were asked many times now, what are we doing with that amount of money? And the obvious is that we review whether we can start share buyback programs or dividend or a combination thereof. And this is what we do in the second half of the year. Obviously, you are all aware of we would need a shareholder resolution for that. So that requires an extraordinary shareholder meeting. And obviously, we would need approval of the regulator in a regulatory environment if we would buy our shares. So this is all under review and in process. And we will notify you accordingly once things are ready to be notified. But we believe that's what you expect for management to do and management is on top of things and is doing this. This is a bit a general introduction. As I said, I'm quite proud that our clients are not getting that nervous and that our clients know what they are doing. And I'm also proud that our employees are working so hard and we are still hiring people. A lot of our competitors have to lay off people. Here again, we distinguish ourselves from the rest of the pack and Mo will now take over and shift gears and run you through the presentation. Thank you so far and over to you, Mo.

Thank you very much, Frank, and good morning, everyone.

Thanks for joining today's analyst call for our preliminary half-year figures. Yeah, it's quite a challenging first half that we passed, especially when we benchmarked it against the last two years, which were the super hype years when it came to retail brokerage. I think we're all aware of that fact. Again and again, we tried to communicate to the market a very clear message that it's absolutely not our intention in this year to beat last year with respect to trades, given the hype that we had last year. But nevertheless, the intention is and will continue to grow our customer base, to keep the trading activity of our clients as healthy as possible, and last but not least, to continue optimizing the monetization of our business model. I think we have here to summarize a couple of topics. Yes, we continued with the growth, not with the same growth that we had over the last quarters in terms of client acquisition, however, still a massive industry-leading growth. I'm again at a point where I would love to highlight that it does not make any sense to compare Q2 2022 to, for example, Q1 2021 or Q2 2021. Given the surroundings, given the environment, given the positivism that we had last year in the first half, absolutely the opposite fact that we see currently and over the last six months. Nevertheless, we managed to grow continuously and healthy. As I said, monetization is a very important point. We continue to increase or to stabilize our revenues. We managed to keep a relatively high profitability. I know there were a number of concerns with reduced number of trades, how the operational leverage will look like. We will come on that or discuss that in a second as well. The cash generation, Frank mentioned it, and obviously the continuous push for market shares. I will also have a couple of words to that. Let's start with the customer ads in the first half, 282,000 clients. Just to put this a little bit into context, this is a massive number if you would compare it already to 2020. our first merger year and COVID year. And we exceeded literally that number of the first half of 2020. In 2021, as I said, it's a very difficult benchmark. But if you consider the numbers for the first half, Q1 and Q2, compared to the average that we used to have in Q2, Q3, and Q4 last year, we're absolutely in line. And as you all know, Q2 is usually a relatively weak quarter, very similar to Q3. Nevertheless, almost 300,000 clients. We'll come in a second also to the quality of these clients because this is a discussion point that we again and again will have together. What type of clients do we win? And you know my credo for years that it's not only the number of clients, it's much more the quality of clients. And what we have seen with a lot of competitors and peers in the market that are rather focusing on lower quality clients, so to speak, in terms of age, in terms of assets under custody, in terms of activities, that especially these clients used to withdraw now from markets. They literally fall down to zero trade, which fortunately didn't happen with our clients. How does the gross number of 282,000 translate into a net number of 226,000? First, we had an organic churn of 27,000 clients in the first half, which is an annualized number of roughly 54,000 clients. If you put this into relation to the 2.3 million total clients that we had at the end of this half year, you see we are talking about the churn of, give or take, 2.5%. So still a very, very high retention rate, a very, very strong customer loyalty and high customer loyalty that supports us, obviously, in revenue generation and profitability generation. We continued with the off-boarding of B2B of a bit slightly above 20,000. Second part of this swing will happen in the second half of this year. And last but not least, By merging Digiro Austria to Flexx Austria, the two brands and the two businesses, we terminated another 9,000 clients because of insufficient documentation with respect to AML and KYC. Long story short, we ended up with 226,000 net new clients, which is compared again to our three listed peers in Europe, Nordnet, Fineco and Avanza, 50% exceeding their net growth. And this is what I would love to highlight again. Benchmarking is always a very crucial thing, but to benchmark against the right numbers is even more important. And what we are delivering here month on month, quarter on quarter, half year for half year with our teams, with a brilliant marketing, And we'll come to that as well with a brilliant marketing to exceed market growth of three peers. And we are doing all this not by living from investors money, not by living from funding round to funding round, but literally by generating high profitability, irrespective of the fact that we spend three, four times actually marketing of many peers outside. The strong customer win was across all markets. Mainly, however, in the first two markets, the core markets, Netherlands, Germany, and Austria, we managed again to add up slightly above 80,000 clients, which is roughly 17% year-on-year growth in the core markets over the last 12 months. In our growth markets, we had roughly a 40% growth over the last 12 months. so it would exclude, so to speak, the new stock hype in the first half. Nevertheless, very substantial and sustainable growth with roughly 130,000 clients. The research markets are the research markets with 11,000, sorry, 110,000 client ads since last year, June. new customer accounts in the first half only with 15 000 neglectable but as we said earlier here we are following also strategy of thinking about discontinuing certain countries um to continue mental focus on core and growth markets and the profitability in these countries is always given We never have to pay for countries, so all of them are breakeven, but nevertheless to focus the mental capacity on our growth and core markets we're currently discussing to reduce here one or the other market. Coming to the trading activity, as expected after the first quarter, the second quarter was determined by a lot of uncertainty. massively dropping retail activity in capital markets. The retail flow came literally to a bottom and to a floor that we haven't seen over the last 10 years that much. And which is reflected also obviously in the number of trades with our clients. However, again, when you benchmark this with other peers, it's relatively stable. We had in the first half 38 million transactions, second quarter went down to 16 million. If you compare the second quarter 2022 to Q3 2021, for example, with 18.2, you see also here, yes, there is a backdrop, but it was by no means in any way risky or threatening to us, much more expected to what we are seeing in the markets, to what is happening in the markets. This translates into an annualized trading activity in Q2 2022 of 30 trades. What you see here again is that this is literally a normalization effect across the whole market. And a year ago, we were discussing that, and I was saying we expect over the next two, three years, a mean reversion. I did not expect it to happen that quickly, to be honest. And what we see now is What we see now is a continuous loyal customer base that is trading with us irrespective of the fact that the markets are more or less having less and less liquidity. The supportive function is and will continue to be the quality of the clients that we win. And here we are still in a very, very good mode and very good quality market. with respect to the portfolio. I mentioned the normalization of trading activity. And if you look actually since Q3, 2021, so the last four quarters, the trading activity on a monthly basis, somewhere between seven and a half and nine trades on a monthly basis, which is very comparable to what we saw in 2019, by the way, and what we saw in 2014. And this is exactly the first time actually that we provide these numbers, but I think it's very helpful here to show also a certain level of where the new normal and the old normal used to be. What we see very clearly is that Q1 2020 until Q1 2021 were absolute outliers. And this is something we have to respect from operational perspective, from strategic perspective, that we will go back to a normalization effect. Yes, we had years like 2015 and 2016, which were determined by higher trading activity. But also keep in mind the context in 2014 and 2015, we had the sovereign crisis, a lot of volatility because of the sovereign crisis, decision-making processes about Brexit, Trump election. So there was a lot of things going on that drove capital markets without any level of war fears and uncertainty and inflation and interest hikes.

The activity of our customer base remains very healthy.

In Q2 2022, we had again an activity of roughly 35% of all accounts. Roughly 750,000 accounts were active and traded, which gives again a very good feeling for what is happening despite this massive pressure on capital markets. what we see, the trades per active customer account also dropped. So it's not like that the activity only dropped with respect to that people stopped trading, but also even the active traders are trading less, given less opportunities, given less movements and less short-term certainty. On the other hand, the share of US volume picked up slightly again against last quarter. And what we see here is a little bit of A little bit of, let's say, positive perspective on the U.S. capital markets after the very, very hard first quarter for U.S.

shares.

The last of our three variables, the revenues per trade. We promised when we started and when we took over Digiro and started this journey of Fletchers Digiro, we promised in many, many calls that we will manage over the next years to improve the monetization of the business model. Given the fact that the Jiro transactions were relatively cheaply sold to clients, let me put it that way. And we did our price changes at the end of last year, which are now kicking in more and more and would even kick more in the more trades we do. In the half year 2022, we had an average revenue of €5.31 compared to €4.27 half year last year. So we literally increased the revenues per trade by 25%, which is a very, very strong message, while continuing customer growth, by the way, and while continuing having a very solid, robust and healthy trading activities. And that in the end is the evidence for also the price power that you have as a market leader. And if you use it diligently and if you use it in the right way, that will definitely support also the growth in the financial growth, so to speak, over the next years. And I think we can and we always have promised that this is most probably not the last price step that we did. And let's see how this goes over the next half years, years, and the next time. Our revenues in the second quarter, despite the drop in trading of roughly 30% compared to last year, our revenues developed very well and dropped by only 7%. 210 million almost in revenues generated in the first half of 2022. And what I find here also very interesting and I'm happy to highlight is if you compare Q2 2022 to Q2 2021, we actually outperformed two quarters of the last year's quarters. Q2 and Q3 were outperformed by the Q2 revenues, which goes back to the improved monetization, obviously. But I think this is also a great achievement by the whole team to manage to outpace literally the drop in trading activity with an optimized monetization. Efficiency indicators are very much in line with what we expect for this year, an annualized revenue of 419.3 million euros. The assets under custody at the end of the half year at $38 billion, which is a drop compared to the end of last year of 13%, compared to what Frank just mentioned, to indices that dropped by more than 20% and 30%. It shows the stability of our clients' assets and shows also the substantial and sustainable trust that our clients have in us and in the brokerage sector, given their high financial literacy, given their high interest in investing and trading. The revenues translate, so to speak, into 100 basis points of margin generation on the assets that we have, which is very much in line of what we had in 2019 before the COVID and the stock hype. Coming to the profitability of the business, our EBITDA increased relatively well to 89.1 million in the first half, which is very much what we also expected in the last months. Obviously, one parameter that is playing a big role is that we didn't build any provisions for long-term incentive plans anymore. we actually released a slight number of roughly 7 million in the revenues because of the long-term incentive plans and giving the share price development. But all in all for this year, even without the share price development, we were expecting to build maximum roughly around 12 to 13 million in provisions, which did not happen obviously in the first quarter. So what we see also here in profitability, We just saw it with the revenues, how they outperformed Q2 and Q3 2021. With respect to EBITDA, we literally outperformed Q2, Q3, and Q4 of last year. Again, evidence for the very, very significant profitability and growth in profitability. The solid adjusted EBITDA, despite increased marketing spend, was still at 81.8 million. So when we adjust for the release of the provisions of roughly 7 million euros, 7.3 million, we still end up with 81.8 million of operational EBITDA generation. As I said, despite the marketing spend that we had, we will continue with the marketing spend. We will continue in a diligent way. We will continue in terms of our budgets that we started with in this year. And the reason for that is that we clearly believe and truly believe that what you see currently in the market is that while a lot of participants, traders, investors, savers, are withdrawing from the market because they are rather first-time users or second-time users, the people that are left, the retail clients that are left in the markets are the...

Pardon for the interruption. Speaker will be back shortly. So I think I'm back.

Sorry, I dropped out of the line. So coming back to the point, we are going to continue with this very diligent and straightforward marketing efforts. We believe that this residual retail clients that are still in the market, that are still trading, are the hardcore traders and investors that we are looking for, that we are focused on the last 15 years of our history. and that we will go for with brand awareness campaigns, with the sponsoring, however also with conversion marketing and to ensure that we win here best quality clients in the brokerage sector. The adjusted EBITDA margin pre-marketing has been relatively stable. in Q2 2022 with 47.3%. So here we managed also, if you would, normalize for marketing expenses and for the growth to continue with a very solid EBITDA margin in the high 40s. This is what we always aimed for. This is what we will continue to aim for.

And in the first half 2022, it's actually even at 55.7%.

I mentioned expenses on marketing and especially on brand awareness and marketing. And we are developing here a business that should last for decades and not for quarters. And we are not here to believe in some fancy ideas or short term profitability. Our mission is very clear, to retailize capital market access. And this is what we will continue to do. We will continue to focus and to offer everyone in Europe, the 250 million non-brokered clients, an opportunity to join capital markets. And yes, it's tough times currently. This is part of the game. We had last two years, we had great times. This year is rather a weak year. But again, we will have a mean reversion. The mean reversion will go both ways. So we'll have also the mean reversion after this year, hopefully. So we have to continue to be visible, to create trust, to create brand awareness, to create loyalty with our clients. And what we see very clearly is how well we have developed the brand awareness across literally all our core and growth markets. And with the sponsoring now in Spain, Spain is a very, very important market for us. The third largest portfolio market of the group, the second largest portfolio market of the Giro with almost a quarter million of clients. The clear aim is to grow this market significantly over the next years and to continue with the push in Spain. We believe that the market is very mature and ripe to get penetrated. So this is also the reason behind the Sevilla sponsoring And the idea here is to continue with this strong brand awareness to allow ourselves that if markets normalizes over the next 12, 24 months to be visible from day one and not to continue to operate as a hidden champion.

I mentioned the sports sponsoring with Sevilla.

Very, very diligent decision-making again over weeks and months. looking for the right club. Sevilla is playing, as you know, in the Spanish First League. They qualified for the Champions League. So we will have the chance with the Giro not only to be visible in 38 league games in Spain, in our second most important market in the Giro portfolio, but also in at least six European Champions League games, which will help to carry also the Giro across Europe and across very, very different nations. We hope as well to use and to scale the Sevilla sponsoring by using synergies that we learned over the last two years with Borussia. So to have a much faster kickstart with Sevilla, a very, very traditional club, very successful on European level, very down to earth, very solid, very comparable to Borussia Mönchengladbach. So happy to have this new partner on our side.

while developing the Spanish market. That's literally from my side or from our side.

Thank you very much for attending today's conference call. And I would like to hand over to the sell-side analysts for a Q&A session.

Thank you.

Thank you, sir. Dear participant, if you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from INY. Your line is open. Please go ahead, sir.

Hi, good morning. Thanks for doing the presentation. Thanks for taking my questions. I wonder if I could ask three, please. First of all, can you just maybe clarify for us what you're seeing in the data that makes you confident of a cyclical recovery in the second half of 2022 specifically? I guess if I look at the guidance, you put out a couple of weeks ago. It embeds a reasonably strong recovery in new client wins and total trades in the second half. And I'm just interested to understand kind of what gives you confidence in that cyclical recovery in the near term, please. Second question, just around dividend and capital return capacity. Can you just talk us through The binding constraints there, which I suspect is to do with the bank's capital requirements. So what is the binding regulatory constraint there and how much regulatory headroom do you have as we sit today, for example? And just finally, a sort of detailed question. Can you just remind us what defines a churned client and a new client in your view, please? Is that somebody who, for example, has closed their account, withdrawn all of their assets, not traded for a certain period of time?

Just clarify those definitions for us, please. Thank you.

Start in general and then hand over to Mo in order to shift gears and present with more details. Why are we so comfortable with respect to the second half of the year? Obviously, we all don't know how the geopolitical situation will develop. Hopefully, the war in Ukraine will end. Hopefully, the ECB will take the right measures to fight inflation. And it's not rocket science what's necessary in order to fight inflation. You only have to increase interest reasonably. However, we are not ECB, we are not politicians. But if I look back into how our clients have behaved the last 10 years before COVID, and you all agree, those times were rather normal, low volatility times. Our clients have traded between 33 to 35 times per annum. You could also consider that a floor. If we apply that experience out of the last 10 years and look as clients have behaved in the first half year, then it's very, very similar to that. And if we believe they're gonna continue to behave like that and trade in the range of 33, 35 times per annum, then you can multiply the revenues per trade second half and then you can calculate the result we foresee and yeah that makes us feel comfortable with respect to our clients and our clients do not panic our clients are rather experienced and calm and if you look at people who do saving plans for instance yeah when they've saved using some indices when there were 2500 beginning of the year and are now down to 2,000 or maybe 1,800, they just save on a lower rate, but they continue to save every month. So we don't see that activity will even slow down more. I think that makes us feel comfortable. And if you look at our journey rate, that was always record low, Achim, wasn't it in the range of 2% that journey?

For this year, yes, if you annualize the number, it would be 2.5%.

Yeah, so still quite low. And again, no surprise. We have very loyal clients. And yeah, that gives us comfort. But then I hand over to Mo with respect to the other questions. Mo, would you want to ask that? Yeah, thanks.

Yeah, thank you for your question first. I think it's not about an overconfidence in cyclical recovery for the second half. Two things we should all keep in mind. Second quarter is usually one of the weakest quarters, the second and the third. So you could very much say the distribution of trading activity in the Ceteris Paribus world is more or less 50-50 between the first and the second half because we usually have a very strong fourth quarter. Now, what we saw is that our clients did, even in a very, very weak second quarter, 30 trades on an annualized base, which is 15 trades per client on a half-year basis. If we multiply this with 2.3 million clients, we end up with roughly 32, 33 million trades that should be done with this existing client base on a week quarter basis. And if we add this up to the 38 point-ish millions, even if we would continue like in Q2, again, week quarter in general, quarter with the lowest trading base, by the way, And the environment that we have, considered more or less to be some kind of relatively for-law case, would end up north of 70 to 75 million transactions. So that is a bit the mathematical derivative that we think about. Dividend restrictions and general capital allocations. Allow us, please, not to go too much into details because there are different regulatory approvals needed for these type of steps. We are currently, and this is the duty of us as a management, to rethink capital allocation and to think about what to do with the existing cash that we have already on the balance sheet, which is obviously also needed for CET1 and P1 requirements. We are, at this point in time, 100% CET1 financed. So RT1 equals CT1, no AT1 at all. So there are different scenarios, different possibilities that we will now examine, think through. And as soon as we have the robust and fundamental information that we need to share with the market, we will share it with the market. What is a churned client? A churned client is very simply a client that does not have any legal client relationship to us. So a client that terminated the account. this is also why we provide the activity levels of accounts to make clear um how much the activity of our client base is return client is literally client that is not with us anymore i hope that answers your questions uh thanks can i just um follow up on the um on the um

capital or distributable reserves point, please. I think I'm right in saying that if I look at the leverage ratio at the end of 2021, it was sort of 4.4%, somewhere in that sort of ballpark. which on my math, if I look at the sort of total asset base of the company at 2021, you know, it would imply something in the sort of 30 to 40 million of distributable reserves as at 2021. And then obviously we have some retained profits in 2022 to come. Is that the right sort of thinking for understanding what the the actual size of any capital return might be, as opposed to the sort of 300 million or so of net cash that the group currently has. Am I thinking about it in the right way?

Absolutely. You're absolutely right. That is the right way to think about it. But you know very well that there are certain measures and certain instruments how you could even increase this number. As I mentioned, we are fully CET1 finance. We don't carry any AT1 on our balance sheet to maintain leverage ratios and CET1 ratios. The regulator allows you also to take in certain AT1 instruments. So this is why I'm saying the way how you think about it is absolutely right, the mathematical way. But I think let us do our homework. Let us get a good understanding of our profits, our revenues, requirement we have a relatively high requirement on the CT1 and you know the anti-cyclical buffer is being added up again after the COVID period the leverage ratio is definitely another topic that we have to look at and out of doing this big operational examination we will come up at a point if we come to the conclusion and the decision making and having the approval to do so to inform the market what the potential firepower would be. But it's absolutely the right way to think about it in a way to say how can we free up future profits and profitability and how can we maybe find a strategic way to redistribute access cash resulting out of a high profitability.

Maybe one more comment. Can you hear me? One more comment. Obviously, and needless to say, whatever we do will be fully compliant with the laws and regulations and all the respective requirements. And obviously, we will seek approval of the German regulator prior to do anything. So whatever we will do will be compliant, fully approved, and in accordance with our business model, that's a given.

Thanks very much. Thanks for those details. Can we go to the next question, please, moderator? We'll take our next question. Your line is open. Please go ahead. Panos, that's you.

Sorry.

Hey, morning. So thanks for taking my questions. I have two questions. Just a follow-up on the revenues and then bridge to the full year revenue guidance. I mean, as you mentioned, Q2 trades were relatively weaker than historical average. Just despite all the macro drivers, do you see the newer customers on average being less active than the pre-pandemic customer cohorts? And it appears that revenues in Q3 and Q4 need to be stronger now. In Q2, by at least 13% on average, if you were to exclude the one-off reversal in Q2, to hit the lower end of the guidance. And given the potentially weaker activity over summer months and the further squeeze on disposable incomes, I mean, how confident are you that activity will improve in Q3 and Q4? And secondly, on the adjusted EBITDA margin and costs, do you see any flexibility in the cost base in the second half of the year?

That's all from me. Thank you. Mo, do you want to answer that one? Thanks, Pano. Yeah, thank you.

I'm just getting the questions down. So coming to your point, the activity of clients, whether newer clients are less active than the existing client base, we have, I think, a very nice chart that shows the activity of client cohorts over their lifetime. And so what you see is that in general, we have a relatively similar return on our CAC that we spend across all cohorts. which means nothing else then. The more you spend for a cohort, the more active this specific cohort is in the end. So yes, indeed, the 2020 and 21 cohorts are relatively less active than a 2014 or 15 cohort, where we spend also much higher for. Plus, there's obviously dilutive element to it. When you grow very, very much in hype markets, so in positive environments, you also grow obviously, or you dilute obviously the average. So, um, that is, that is a given, but nevertheless, and this is the most important thing we still generate after 12 months of lifetime of a client, a hundred percent return on our investments. And after years, I mean, taking the two or 14 cohort, uh, just out of my mind, we generated with the two or 14 cohort over their lifetime. And they are still with us and still trading. already by the end of 2021, 2,800% of return. So this is exactly the point where we say we are not following up on a quarter by quarter on each cohort, but we think about the lifetime value of this cohort. And each and every cohort that we have with us has, except for the last one, because they only had half a year time, has a triple digit percentage in return or even four digit percentage in return. So still feel very comfortable with the clients that we want over the last two years. And we will update that slide and then we will have also more data on that point. Revenues. Revenues must be higher in Q3 or in Q4 to come up and to end up with our guidance compared to Q2. Allow me that sentence again, please. let's stop benchmarking Q2 for the whole year. You're taking historically the weakest quarter of all time with all brokers in the world to try to derive a four-year perspective, which doesn't make sense from our perspective. Q2, again, is the quarter with the lowest trading days, the number of trading days, because you have most bank holidays globally in this quarter, which per se reduces the activity. Q3, as I said, is also similar to Q2. It's a weak quarter, but Q4 has always been historically a very strong quarter. So let me put it in a positive nod. If we manage in the second quarter to achieve the same revenue, sorry, in the second half, the same revenue as in the first half, we will be exactly at the midpoint of our guidance. And this is what we, as of today, are 100% confident about. The adjusted EBITDA flexibility in the cost base is Again, adjusted EBITDA has with us zero meaning with cost adjustments. The only thing that we adjust for is provisions built or released for long-term incentive plans. The flexibility in the cost phase comes primarily, obviously, from marketing. Personal expenses also, but we have no reason why we should reduce our workforce. We are actually hiring people and want to continue to grow in people because we believe in our long-term strategy. And the same applies with marketing. We do not do marketing out of a pure conversion perspective. We're building here a company for 15 years and we'll continue for the next 15 or maybe 20 and maybe 30 and maybe 50 years to develop Europe's leading online broker. And when we look into the U.S., it took Charles Schwab 70 years. It took Interactive Brokers 50 years to position themselves as this market leader in the U.S. This is why I don't believe in any new players entering the market believing that they can conquer the European market in three years. It's impossible. It's about wealth. It's about trust. People to give you your money, to trade it with you, to put it into your custody. This is nothing you can... We are, as I sometimes say, with all due respect, we are not a food delivery service. If the pizza is not good, you go for another restaurant or for another food delivery service. We are a service where it's about the wealth of our clients. So the flexibility that we have, which is marketing, is a flexibility that we will not use just for the sake of optimizing the profitability by 2% or 3%. Despite the most challenging half year in our history of our company, We managed to generate EBITDA margins of above 40%. We managed to grow our customer base. We managed to grow our revenues for trade on an annual perspective, which is three big tick boxes in our long-term strategy.

Thank you.

You're welcome.

Next question, please.

We'll take our next question from Marius Fuberg. Please go ahead.

Yeah, I have three from my side as well. First one on the loan book, how, especially in the recent decline of the markets, how did your loan book develop? And did you experience any issues there? Given the severe losses in some portfolios, were some clients falling below the threshold that they needed to provide or is anything good there? Second one, considering the adjusted margin, EBITDA margin that you guided for 2022 to be on 2021 level. In H1 now, you're slightly below 40%, I think it is. I mean, considering or assuming that we will see a revival of the trading activity to some extent that should be enough to or enough operating leverage to reach your guidance now, but given that would not be the case, would you consider stepping on the cost break to still achieve your guidance? Coming from your last comment, I would assume that you would rather still invest in marketing and getting clients instead of reaching your guidance there. And the third question from my side is on your plan to introduce crypto trading in Q3? Anything new there or is still everything running as planned and to be introduced in Q3?

Yeah, Marius, this is Frank. I will start with the first question on the loan book and the last one and then hand over to Mo. So with respect to the loan book, you are aware that we apply very conservative LTVs and very low LTVs. everything is in line and in order no issues at all and historically you know our write-off quota the loan book was 0.07 so almost nothing continues like that um so as long as we don't see situations like wire card again where stock goes down to zero we don't see any issues and recently have not heard of that so that's all good and in line as expected with respect to crypto We've announced that we've signed MOU with Börse Stuttgart and we are now exploring further details. Obviously, crypto is at the moment rather enjoying cool days and cool times. Some call it the winter of crypto. Why is that? I mean, if you look at Bitcoin came down from 60,000 to below 20,000 and obviously if you are aware how much energy is required to create new cryptos. I think if you ask anyone in the population and not only in Germany, is there a great need for new crypto or are people rather concerned about how to manage to get over the winter times and avoid to freeze, as well as making sure that there's enough power for the industry to continue to produce and avoid any layoff of every second or third employee, I think no one needs cryptos at the moment. So for us, that is not, I would say strategically priority number one is normal cause of business after we've signed the MOU and that now we work together with Börse Stuttgart on the details and how to do that. But we are not in a hurry. And at the same time, you know, there is that regulation in draft version called NICA markets and crypto assets. And as long as that is not really clear, we are not in the rush either. So I would say our project with respect to that is a normal course of business. And we're going to inform when there's any news or when we're going to be ready to start. But I think at the moment, clients are not in desperately need for cryptos. And then I hand over to Mo.

Thanks, Frank. Marius, thanks for your question with respect to the adjusted WBA margin. I think you see here the adjusted WBA margin was at roughly 40 point, was not roughly, was at 40.4%. I slowed slightly about 40%. You have to keep in mind that when you do the adjusted EBITDA, so you take the adjusted EBITDA divided by revenues, that you have to reduce, obviously, in the revenues as well, the release of the provisions of 7.3 million euros. So you divide the 81.8 divided by 202 million, then you end up with 40.4%. So it is already in a very stable level. And our guidance was very clear. we expect the adjusted editing margin to be somewhere in line with last year's margin. But again, we believe here in a long-term story and we're performing for 15 years and we will continue to perform with our teams under best effort and to provide the best service, best products at the best price to our clients. For short-term profitability and P&L, we will not step on a brake that hurts us on the longer tail and on the long-term development of our business. So we expect the margin to be in line with last year's margin, but we will not save 2 or 3 million in marketing to, at the end of the year, optimize our margin by 0.5 or 0.8 percentage points.

Okay, that's very clear. Thank you.

You're welcome.

Next question, please.

We'll take our next question from Christoph Grealish. Your line is open. Please go ahead.

Morning, Frank. Good morning, Mo. Yeah, thanks a lot for taking my questions. Three questions from my side, please. Firstly, yeah, when we look at the revenue per trade, so this has come down slightly in Q2 compared to the first quarter. So could you let us know what were the underlying drivers of that evolution? Then secondly, a quick follow-up on the margin guidance for the full year. So do you think the guidance can be achieved throughout the revenue guidance range, or does that rather correspond to a specific point in the revenue guidance range, let's say the midpoint? And then lastly, the customer growth guidance for 600,000 to 700,000 cross-customer ads, what would that mean on a net basis? Thank you.

More, please. Chris, thanks for your questions.

First question, revenue per trade and why decrease compared to Q1? Let me quickly jump to that slide. There we go. From 539 to 520. The reason for that is very simple, actually. The reduction in trading activities usually touches and mainly touches equity and ETP trades, right? So the effect on the reduced transaction activity is higher on the high price and high revenue products compared to ETS, where people have savings schemes and they just continue in their savings schemes. And as you know, our savings schemes are super low profitable products that we provide to clients so you automatically dilute uh your your average because you you drop when you drop you drop mainly in in high revenue products and much less in low revenue products that's the reason for that um the margin guidance the margin guidance is a margin guidance that we will reach with the bracket that we have guided of 400 to 440 million And it will be reached from my perspective at both ends. I don't see a specific point in the range where we will reach the EBITDA guidance. And by the way, we didn't give any adjusted EBITDA guidance specifically. We said it will be somewhere around the last year's guidance. So that gives also the flexibility of one percentage point up or down. And this is something we have to accept going for long-term perspectives. Customer growth ads and how much will this translate into the net basis? So we assume for this year, all in all, roughly a natural organic churn of give or take 50,000 to 55,000 clients if we annualize the half-year figure. um and another roughly 50 to 60 000 um terminated b2b to c clients so out of this continued b2b offerings as well as uh out of merging um further businesses so what we are currently doing is after finalizing the austria merge between flatex and de jure is now the merge of flatex and de jure netherlands uh because we used to have a business as you know in the Netherlands with the Flatex brand. So we assume here also give or take 60,000 of additional discontinued client relationships. So all in all, which is roughly 120,000 of the gross ad that will translate them into a net ad.

That's all clear.

Thank you. You're welcome.

Next question, please.

We'll take our next question from Benjamin Kong. Please go ahead, sir.

Good morning, guys. Thanks for taking my questions. And apologies that I have to come back to the sort of marketing complex, if you will. So maybe starting with Frank, apologies, I joined a little later. But did I get you correctly that you said 20% of the total marketing budget is around football and sponsorship? And just asking this because I'd be curious to understand if you feel comfortable with your overall level of investment in, let me call it, branding initiatives, which is usually something where you see the benefits only a little later. And you said you measure sort of the success and customer awareness, which is understandable. I was just wondering which measures you are applying, and if you could give a little bit of a trajectory, maybe since you started Borussia, That'd be great and would obviously be great if you continue to provide those figures as we go along with, you know, Sevilla now being added. And second question on that topic, Mo, I mean, correct me if I'm wrong, but it sounded a little bit like you're willing to step up the game in terms of marketing around performance marketing. If I understand you correctly, you think the customers that you're winning in a difficult market environment are actually very good customers. And in this context, I was just wondering if you still feel the 80 euros per customer, sort of the high end of the CAC guidance, what sort of guidance quality you've given, do you still feel comfortable with that overall? And allow me one last question. You mentioned a couple of times the big success in sort of ETP trading or your ETP offering, and I was just wondering if there's any way to further improve on that front, improve on adding new partners, so to speak, potentially even raising your, let's call it prices or distribution fee on that. So any insight there would be helpful. Thank you.

Yeah, let me start with the first two questions. So first of all, yes, you are right. I said, sports sponsoring equals 20% of our budget. And I find that quite healthy. We believe in a nice market mix of affiliates and sponsorings and whatever is required and obviously we always said cost per client acquisition should not exceed overall annualized 100 euros and we will stick to that and if i'm not mistaken relatively speaking to our peers that's record low so we will continue with that and um we we we started a zero measurement before we started borussia and since then every quarter we are checking that and our brand awareness since then went up 300 so that's quite successful but obviously does not really surprise me because that was expected even more important is now after the awareness has increased significantly that we're gonna transform people who have now awareness of us into new clients, and that's the challenge for the second part, so to speak, but you always need to do the first step first before you can go to the second. Yeah, and then I hand over to Mo with respect to the other question.

Yeah, thanks Frank. Then given, thank you for your questions, given the current environment, Actually, yes, we can assume that the CAC will be, it was in the first half around 100 euros and we accept it. And I think this will be also for this year, give or take the guidance that we see, which is very much in line, by the way, with some other years that we had in the past. There were cohorts where we had 115 euros of CAC So given on the one hand side that we intensify our brand awareness marketing, that drives obviously CAG up. Because taking CAG as a metric, we just divide the number of clients by the marketing, by the number of new clients, which is a very simple mathematical function and does not distinguish about efforts like the 20% of our budget that goes into brand awareness. so this is something that we feel very confident and comfortable with and will continue with roughly the or give or take the 100 euros for this year plus keep in mind all the tailwind customer ads have dropped away i think this is something that that very often is also forgotten um when we think about it compared to last two years in the last few years we had a lot of windfall Client ads that came to DeGiro came to FlatX given the high awareness of capital markets, the high interest in capital markets. This year, all this tailwind is gone. So it's now hard work to literally win clients. They don't come just because of talking at a barbecue, doing a barbecue about stocks, right? Now people talk during barbecue about inflation, about interest, which makes it more difficult to have this zero-cost customer ad and thus increases the CAC. With respect to your last question, ETPs, the ETP offering is a very solid offering for our business. We have reduced, however, the dependency on ETPs over the last four or five years from 50% to roughly 20% of our total revenues. We have initiated the ETPs in France and the Netherlands and Germany on the digital side, only six months ago and yes we will continue to think about further markets and further products but again in a very sensible way there are markets where we don't have them yet like italy and switzerland for example where we are however active with our client base and where we are discussing with our product partners how to roll out such products but again here this is something that has to happen diligently step by step we are not in rush We'll find the right way to do it. And if we have the right way, we will do it. Italy, for example, just recently changed the regulation on ETPs that allows you today to offer OTC ETPs without paying horrible taxes. This was in the past not possible.

So these things open up also more and more flexibility in offering these products in further countries.

Okay, Benny, I mean, one more. One more general comment from my side. First of all, management is and will be always on top of things. What does that mean? If we would find out that things go wrong and if we would have to have cost, we are flexible and able to do that. What does that mean? We obviously don't share any details with respect to our sponsoring partners and we keep and honor contractual obligations, obviously. But we clearly announced that we do this year Sevilla because Gladbach is not represented internationally this next season. Sevilla is, and it's a great team. And we feel honored and privileged to be the new sponsor. And we also announced that we have an option to extend. But at the moment, we are only the sponsor for the next season. So if we would find out that anything and everything we expect that goes into the wrong direction, we don't need to be longer than 12 months a sponsor. So maybe that helps you to understand what the level of flexibility is if necessary. However, we don't start something in order to stop it after 12 months, but we have the flexibility and the right to do it if necessary. But obviously we rather want to continue and explore the successful brand awareness of Tijoux, not only in Spain, which is our strongest growth market with over 250,000 clients already. And we want to enjoy the international presence of Sevilla, but we are flexible in this respect. And then with respect to Borussia, we've expanded and extended our contractual situation for the next five years, but only the next two years we are main sponsor. So we are flexible here as well. And obviously there's a big difference between what one would pay for being main sponsor and then only co-sponsor or digital sponsor. And you can be rest assured that we have negotiated our position in a way that we are flexible and that's to the advantage of the firm. So all in all, we feel very, very comfortable with those situations. And if necessary, we can act flexible. And this is what you would expect from management. But as Mo said, and I clearly share that view, we don't see any reason to cut costs now or stop doing marketing because we are growing profitable and we are growing in the right direction and we feel comfortable with what we've started. However, the 50 million euro budget we also feel comfortable with and is not excessive in our opinion especially again if we compared how much money our peers do spend on marketing especially the neo brokers so again we find it's right and we feel comfortable with it but if we would have to change it we could change it that's very helpful thank you yeah thank you very much frank oh thank you you're welcome we'll take

We'll take our next question from Mengxin Sun.

Yes, hi, thank you very much for taking my questions, and thank you for the detailed explanations on the guidance. Just two questions from my side, and the first one is your marketing expense or the CAC. So originally, you always said that your target for 50 to 60 euro for the new acquisition of the customers, and then in the last quarter, you raised it to 18 euro And now you increase it again to 100 euro. And my question is just, what's the upper limit of your market expense for the customer acquisition? And when do we expect to see the marketing expense to go back to the historical level or the long-term targets that you're saying, the 50 to 60? And the second question is, can you give us a breakdown of the 38 billion asset under management So how much of it is deposit and how much is invested in security? Thank you very much.

I will start with the last question and then leave the first one with Mo. So the 38 million is securities only, in my opinion.

No, sorry. No, no. I think go ahead, Mo.

Okay, 35 billion is securities and another 3 billion is... Okay, then you have to deduct the cash.

Exactly. But we could say the majority is securities. The cash is always in the range of 3 billion and obviously is breathing, but the majority is securities.

Yeah. So with respect to that question, to your question with respect to the CAC, The long-term tag was never defined as 50 to 60. We started this year and in our guidance to expect something around 50 to 60 euros coming out of the last year, not expecting what is happening and what is going to happen in these six months. I think none of us was expecting that current environment and that challenging environment. And that is also the reason why we added up Just a couple of weeks ago in our portfolio, in our corporate presentation deck, the historic numbers with respect to CAC. And what you see very clearly is that the historic numbers always were roughly between, let's say, 70 and 110 euros. So the average was in an upper 80 euros CAC over the last 10 years. if you would exclude the last two years. And as I mentioned before, with respect to Ben Konka's question, this year we are back to a level where there is zero tailwind in customer acquisition. Each and every customer has to be acquired actively. And not anymore by fortune that people joining DeZero or FlatEx because they had a great talk with their friends or with their family at the barbecue. And obviously, what this means is that the budget stays as it is, but the number of new clients of the customer gross ads is decreased. And that brings CAC up. So this is why CAC is more a type of, obviously, in the end, endogenous variable. We focus on the budget. We have a budget in mind. We have a budget that we put in place that we try to maximize with to grow clients. And on top of that, we are topping up more and more brand awareness, but we also didn't have that much in the last years, except now for the last two years with Borussia, but now also with Sevilla, with the documentary, with a lot of investments into financial literacy, believing into our long-term strategy. What is the upper limit with respect to tax? Historically, I can tell you that we had one year that was at 115 euros. And that year is one of the cohorts that belong to the best cohorts that we won ever in our history. So are we willing to spend also 105 or 110 euros for a cohort? I would say yes, absolutely. We don't feel, so to speak, reluctant to having a sensible and long-term perspective on marketing expenses as long as they turn out to create the right return on investment. And as long as this is given, we can tolerate also 100 euros of client acquisition costs. We will for sure not go to 150 or 200 euros. I doubt this. This was never our strategy and will never be our strategy. But we see it now in line with historically what we had not what we had in the last two years, not what we, fair to say, expected for this year at the beginning of the year, not knowing about how this year will turn out in the first six months.

Thank you very much, very clear.

You're welcome.

There are no further questions on the line, sir. Please go ahead.

Yeah, then we leave it to thank you all for taking the time and asking those questions. Very helpful. Thank you so much. Let's hope and keep cross fingers that this war comes to an end sooner than later and that hopefully things go to normal as soon as possible. We wish you all a nice day and stay healthy. And bye bye.

Thank you, everyone.

Have a great day. Bye bye.

This concludes today's call. Thank you for your participation. You may now disconnect.