flatexDEGIRO AG

Hello and welcome to FLATEX DeGiro Analyst Call. Please note this call is being recorded and for the duration of the call, your lines will be on listen only. However, you have the opportunity to ask questions. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0 and you will be connected to an operator. I will now hand over to your host Frank Niehage, CEO of Flatex DeGiro, to begin today's conference. Thank you.

Good morning, everyone. A warm welcome to our Q3 earnings call. I'm here with my colleague Mohamed Shahroor and Achim Schreck. Like always, I will do a short brief introduction and then I'm happy to hand over to Mohamed to run you through the presentation and the details. Let me start as follows. Needless to say that we are in tough times and that the geopolitical situation here in Europe, as well as the fear of recession and the inflation and the interest hikes are very, very challenging for our industry. However, we are happy to present solid financial and operational performance in Q3. I'm happy to mention that the revenues are positive up 4.3%. The increase of revenue per transaction is even up 6.5% versus last year Q3. And thereof, no surprise, the EBITDA is positively up 25% versus last year's Q3. And therefore, we will continue to stay with the guidance of at least 400 million revenues. And we are confident that the fourth quarter is going to be financially even better than this one. Let me highlight a few things before we shift gears and go into details. I'm happy to report that we are on top of things and do well with respect to our cost management. and you will see an even stronger effect next quarter and although we are talking about very challenging times there's also a flip side of a coin there is positive elements with respect to the interest environment what does that mean many many years we didn't earn in treasury with respect to our deposits and we even had to deal with negative interests And after ECB has increased positively to 0.75, obviously within the next weeks, we're going to expect further increase in interest. And that obviously has a very positive impact of our treasury situation. And Mo will talk about that more in detail later. But overall, we expect for the next 12 months a positive increase. The effect of up to 50 million provided that the expected interest rates increase is going to happen as everyone believes. Further, there's additional income due to several management measures taken by us. For instance, we've increased at Digiro the charges by 50 cents per transaction and that is going to have a positive effect already in Q4. but even more positively obviously next year. Second, we have enlarged the offering of our credit product, our security credit product at Digiro, where in the past literally only 10% were technically able to use that credit product. Now it's going to be enlarged to almost 100% of our clients and obviously More we're going to talk more about the details and what the expectation of the usage is going to be. And third, we have enlarged our ETP offering, which in the past was restricted to Germany and the Netherlands. And now we're going to offer it in three more countries in Europe. And that will also have a slight effect in Q4, but an even bigger one next year. And last but not least, we have started a program, Member Get Member, and the first days already show positive effects, and that's going to be more affected in the last quarter and then obviously for next year. So all in all, there is, from our side, positive elements here to highlight and mention, and although the environment is quite challenging. We will prove how solid our financial and operational business model is. And let me highlight three more events which have happened this year. As I mentioned already, the increase in charges at D0, but we also waive negative interest obviously for our clients when ECB stopped charging negative interest and we do quite well with respect to our sports sponsoring. Beyond the fact that we have Borussia Mönchengladbach advertising our brand Flatex, we also now do the main sponsoring with Sevilla and we use for the international business De Giro trademark and this obviously will help to increase brand awareness very positively and keep in mind that when we started two years ago until now we have a 300% increase in brand awareness so the sports sponsoring does work well in this respect and we are positive to see that not only in Spain, which is our third largest growth market or third largest market, but also internationally. This is in a nutshell what I would like to highlight and please allow me one more thing. Don't be surprised if in the future we will no longer forecast trade numbers and client numbers. Obviously, we're still going to report that, and it's important to us, but we will stop forecasting, and the explanation is quite obvious in those times and in an environment with a geopolitical situation and inflation and recession fear. We rather focus on what we can control, and this is our financials, and this is very positive. And this then brings me to hand over to Mo. Mo, please, the floor is yours.

Thank you, Frank. Good morning also from my side. Today's conference call and earnings call. I'm happy to go directly into the highlights of the last quarter and happy to run you through a bit of additional information to give you a better understanding of the development, not only in the last quarter, but also looking forward to the Q4 and to next year. The revenue development has been reported already yesterday. We've been 4% up quarter on quarter compared to last year's quarter. Compared to last quarter, so Q2 2022, we are almost flat of 300,000 euros in revenues. Obviously, there is an impact given through the release of provisions with respect to the long-term incentive plan. And since I expect also questions towards this topic. The release has happened due to two factors. The first factor, as you know, the long-term incentive plan is based on two factors, share price and EPS, expected EPS over the next years. Since both have been adjusted, or the share price has decreased and the EPS consensus has been adjusted, there is actually this effect also. The release of provisions is considered under other income. explains also the development operationally still very strong water with respect to with respect to revenue per trade and I remember when we when we started after we took over the hero we kept promising and I kept promising that there is there's a big chance to rebalance DeGiro set up between profitability and growth. We managed now over the last 12 months to continuously increase the revenue per trade by 7%. We promised the sustainable revenue per trade of above 5 euro. It's actually the fourth consecutive quarter with the revenue per trade of above 5 euro. And they are, or this development is mainly driven obviously by the De Giro measures that we took over the last 15, 18 months. On a nine-month comparison, the effect is even more significant, as I said, especially given the fact that since the beginning of this year, the changes in the De Giro pricing have kicked in in the first step. In the second step, since the first of September, We have increased the handling fee on the DeGiro side by 50 cents. We will come later to this point to explain in detail the consequences of this measure. Given also the development of revenues for trade, there is a slight decrease between Q2 to Q3 with respect to revenues for trade. The reason here for is also to be very clear and transparent. The reason here for is mainly that the trade mix has slightly changed. Give you also here a little comparison and a little bit of data. In Q1 2022, for example, we had 74.7% in high revenue trades. We consider equities and ETPs to be high revenue trades. And in Q3, the number is 72.7%, which is obviously roughly 4% decrease, and that decrease is also reflected in the revenues portrayed. But despite this change, still we are very happy about the revenue portrayed generated by our business model. An increasing revenue per trade. We'll come in a second to the trade activities. Despite dropping trading activities flat compared to Q2, but plus 25% compared to last year's same quarter. Very solid. Obviously also slightly driven by the release of provisions. However, for us it's important to continuously provide a significant account at EBITDA as well as adjusted EBITDA figures. Speaking about the adjusted EBITDA, so adjusted for long-term incentive plans and provisions for long-term incentive plans, the adjusted EBITDA is down by 37% compared to last year. What I would like to do here is to highlight again the operational leverage of our business model. and quite interesting also to explain where this drop of 37% comes from. If we look into the absolute drop, it's a drop of 14.2 million euros. Compared to last year's quarter, we did also 3 million less of trades. If you multiply the 3 million trades by the 5 euro, let's make it simple, 5 euro, that's a 15 million revenue that is literally missing compared to last year's quarter. Why am I explaining this? To actually show you the consequence when we talk about the drop through rate on EBITDA. If you apply a drop through rate of 80 to 85% of the 15 million revenues, we're talking about 12 to 13 million of EBITDA that is missing. And that's literally very comparable to the 14.2 actual data. Operational leverage, if you run a business like ours, fortunately or unfortunately goes both directions. When trades are growing, you will enjoy the 80% incremental margins. If trades are going down, you will enjoy the or less enjoy the 80% because they will start then to kick in into the other direction. However, we are reaching more and more kind of floor in trade numbers. Q3 was a relatively weak quarter with only 15.3 million transactions. why is that important also to understand if this is the kind of floor for our business model and if we manage to generate in a floor scenario still 24 million of adjusted EBITDA which is almost 100% cash quota, I think that describes very well the solidity of our business. In the same time, our marketing has been also normalized and reduced. I think that is very important to highlight. We are very much aware of our cost base. We are very much aware of which instruments we have or where we have the ability to reduce a variable cost. We managed very well to bring down the marketing costs. Nevertheless, to also continue with client growth. Compared to, for example, Q2, we reduced the CAC significantly. High investments are made in strong commercial environments. That's absolutely obvious. And given the current environment, we don't see the necessity to have high investments in marketing. But nevertheless, we will continue to have a stable level, a sustainable level of marketing investments to win clients and to win high quality clients. I think we are proving that we are capable of adapting to the environment. And going forward for the last quarter, we will put our full focus on pool marketing. We'll reduce significantly the push marketing, so to focus on affiliates, on all these type of marketing where clients have the intention to look for a broker or are going for brokerage services instead of nudging first-time users. To make use of a brokerage service Yeah, we discussed it I think up and down a challenging market environment affects the trading We are 16% down compared to last year's quarter in terms of transactions and I think it's important here to Recap on Frank's words trading activity is something that is very very difficult to forecast because it depends to the vast majority to external factors to two factors that we cannot control as a management whether geopolitical factors as we have noticed in the first and second quarter and still unfortunately going on second macroeconomic factors Third, also general sentiment, retail sentiment with respect to markets. All of these factors are explicit factors. The only way how we can control implicitly trade numbers is to take care of a net client ad with high quality. So not to dilute the customer base. This is something we can control very well as management. We come in a second to trading activity and to client's quality. and hope that we can show that that we are managing to do this with respect to this parameter quite a good job with the marketing team but trading activity can be to a large extent not be controlled so we will stop forecasting client trading activity going forward rather focus on the financial kpis now we see a drop agreed the big hypothesis still is is that an industry specific drop Or is it because of our actual client quality and client activity and the quality of our clients? What we did here is to, again, as we do every quarter, to benchmark the trading activity of our client base. We use here the darts per customer account to compare our trading activities. with actually the most, from my perspective personally, but also I think I can speak for our management, compared to the most admirable peers in Europe, which are Avanza and Nordnet. And what we actually see is that the trading activity is dropping industry-wide. It's not an effect of flat-x to zero, it's an effect that Avanza and Nordnet have experienced as well. Keep in mind, we are comparing here continental European clients, by the way, with the best possible trading region in Europe, which is the Nordics, with the highest activity, with the highest engagement and still managed to be in line with actually the most admirable region for retail brokerage, which I think proves very clearly that our customer ads are of great quality. And as I said, given that we compare here a continental European customer base, by the way, with a very, very Accelerated growth and speed of growth to the Nordic peers, which are tier one Champions League peers This is the evidence for us that it's not our client quality. That is that is that is getting less and less in Inactivity, but that it is rather industry specific movement let's go from macro perspective of the clients into micro perspective and Customer activity per quarter is still relatively good. In 2022, in the first nine months, we had already an engagement rate, so an activity rate of 47, close to 50%, which does say that almost half of our client base that we had at the end of September 2022 did at least one trade during the last nine months. now there's q4 to come I assume personally that this number will go close to 50% which becomes very comparable then to the 2019 figure of 52% so relatively stable trading active customer base of roughly 50% now how does this translate the activity level to the activity of the active clients which is the the top right diagram the top right graph It shows actually that the activity of our active clients has been in average over the last six quarters relatively flat at somewhere between 20 to 25 trades per quarter. Why is that important to highlight? Because during this last six quarters, we added roughly more or less 800,000 clients to our business models. Now, if we would assume that these 800,000 clients are of bad quality, this number must drop, must drop significantly. It does not. It's staying flat. It's staying sustainable and stable, which again is for us clear evidence for the client quality and activity. The share of US volume has dropped. Fair to say, U.S. volumes in the retail brokerage sector is mainly driven by tech companies and tech investments. Usually Europeans don't need to go to the U.S. to buy utilities, something they can do in good old Europe as well as they could do in the U.S. So there is no need to buy electricity provider or oil and gas provider in the U.S. something they can do also with British Petroleum and can do with Dutch Shell. However, the tech industry is mainly globally a US-dominated environment, thus the peaks in 2020 and 2021. Now we are normalizing back to a percentage of roughly 20%, 20% of the total volume, which is still above the 2019 levels that were rather at 15%, 16%. Bringing us from the quality, which is getting more and more important for us, and which is also the driving force, getting to the quantity. As I said, in Q3, we added 94,000 gross clients, a flat and consistent growth, despite the challenging markets. And the good quality has been proven over the last two slides with industry-specific growth and activity levels. Interesting also to highlight here the 2022 cohort in terms of activity has actually exceeded the 2021 activity levels so the cohort levels of 2021 and is very much in line with 2019 and 20 which tells us again here the quality the type of quality that we are winning in 2022 is still relatively high which is also, I would say, very logic given the market, given the circumstances, the number of, let's say, first time users and rather leisure traders is decreasing because these people are now, as I always say, discussing at barbecues or at dinners with their families, with their friends, inflation, interest rate, then what to buy or what to sell. So the quality, the residual quality at the market that you can convince to come to us increases organically, so to speak. How does this transfer and translate into a net growth? 376,000 customer ads in the first nine months. We had 40,000 accounts that were churned. And with the retention rate of 98.4%, we expect by the end to be at 50 to 55,000 churned clients. So the customer additions, the net customer additions were actually 337,000 customer additions in terms of brokerage. Given the organizational off-boardings in B2B and B2C, On the B2C side, to clarify here again, it's mainly the merger that we had between De Giro and Flatex in Austria. It's the merger that we do between De Giro and Flatex in the Netherlands. And the divestment of Hungary and Norway, plus A number, a significant number, actually roughly 50,000 clients that were coming from B2B to C business that we discontinued is the reason why we expect for the full year an off-boarding, an active off-boarding by the company of roughly 100,000 clients. So we'll be left over with 294,000 net customer growth. And I think here again to highlight not only the quality is right, but also the quantity we grew in the first nine months faster than Avanzo, Nordnet and Fineco together. With respect to the organizational offboarding also here, why are we pushing for this? Why is the result such a high number? Because we are pushing to finalize this organizational offboarding in 2022. So, to get rid of all these accounts by the year end, so we can start in 2023 with a clean base of customers. Now, we talked about quality, we talked about quantity, and there's one more, I think, important aspect to highlight, which is the assets under custody with respect to quality. There's been a couple of questions by the investor base and by the analyst base with respect to AUCs, assets under custody, how they develop. There is obviously the hypothesis that I absolutely respect and understand with increasing interest environment. Are the clients trading less? So are they buying less? They don't bring any fresh money to the table. They are rather withdrawing the cash to put it into interest-gearing asset products, saving accounts, and so on and so forth. So we are happy to highlight here the assets under custody analysis for you. What you see is compared to the beginning of the year, our AUCs decreased from 43.9 billion to 37.7 billion. This decrease is mainly or only explained actually by the decrease in securities value from 41 billion to 34 billion, which is 7 billion delta in percentage 17%. very much explained by market developments. If you compare this number to indices across the globe, we are talking about drops of 20 to 30%, 35%, so very much in line with the drops that we see in indices. Now, interesting, however, to consider two things. The first thing is, what is happening to cash? Cash has increased from 2.8 billion to 3.5 billion, so by 600, 700 million euros. As I said, the hypothesis is, or very often when we discuss it with interested parties, is people will not bring any more fresh money to the table. They are rather withdrawing the cash and invest it into saving products. Let's see what happened to our actually net cash inflows. What we have seen is, in the first nine months of this year, that the actual net cash inflow was 5 billion euros. This 5 billion is split into existing customer accounts of 2.1 billion. So existing customers that we used to have by the end of 2021 brought 2.1 billion more of cash to our platform during the last nine months. And even more interesting, which also highlights again the quality of our customer ads is that the new customers, the 380,000s, almost 380,000 that we acquired in the first nine months brought 2.8 billion euro in cash into our platform. If you think about what the average is, we're talking about that every client that we won in 2022 brought 7,000 euro in cash into our platform. I think that describes very well the quality of the customer ads. That's the first point that we would like to highlight here. So in total, we had a cash inflow of 5 billion. Now, the second interesting point is what was the use of these proceeds? What did clients do with these 5 billion net cash inflow? Actually, 4.3 billion, so the vast majority of it, roughly 90%, were invested and reinvested into securities. So people were buying shares, ETFs, funds, whatever. 600 million was the positive delta under cash custody. So what we are actually doing here is, first, to bring the evidence that clients are bringing fresh money to the table. And second, we are bringing the evidence that they are not withdrawing cash from our platform to be invested into interest asset products. On top of that, Throughout the whole year, so just also here to avoid misunderstandings, throughout the whole year, the whole nine months, from January until September, for each and every single month, we had a positive cash net inflow. So it's not like that in the first half we were brought in $7 billion and we lost $2 billion over the last three months. So even in July, August, and September, every single month of Q3 was a positive net cash inflow month. That is with respect also to that question and to, so to speak, the last nine months. I hope we provided you with diligent information and transparent information. Now I'd like to jump over to the outlook that Frank touched already on and provide you with a couple of highlights. The outlook is more, let's say, more a kind of 2023 outlook. I think the year is, let's be fair, almost over. There's two and a half months to go. We are very confident that the next two and a half months will be good two and a half months. We have taken some measures that will have obviously an effect already on Q4, but please don't consider it too much as an explanation for Q4, but rather with respect to potentials for the next year. We started, Frank mentioned it, members get members. activities across all the Giro countries. We used to do it only on the FlatEx side. Now we have it also on the Digiro side, which is obviously a very strong marketing tool because it is a relatively cheap marketing tool. And as we all know, referrals from friends and families are usually the best converting marketing. So you pay less and get usually a higher quality. That should be also a very good driver towards the next quarters and years to generate more and more high quality clients for less cost. Second, we started a big ambassador program with our people, with our teams, aiming on the one hand side to increase financial literacy across our growth markets. We are collaborating with the leading universities in France, Spain, Italy and Portugal. Business school colleges investment clubs to also here not only to promote obviously flat X and the Giro or in these countries the Giro but to increase also the awareness for financial literacy and to do presentations workshops And any type of support that could contribute also here clients to our platform but not like clients that are that are facing trading as gambling but rather as sustainable investing That's a bit on the qualitative part. Going to the quantitative part and the potentials. The most obvious discussion and environmental change that we are all facing are interest rates. We just touched on that. We increased over the last nine months our cash position by 22%. roughly 700 million euros from 2.8 to 3.5 billion. Now, what is the use of proceeds from our perspective as a bank and our balance sheet of the 3.5 billion euro of deposits? Roughly 1 billion is being used to refinance the margin loans and 2.5 billion sits literally in a highly rate sensitive, very, very short durated. I think the interest duration is currently less than 50 days. liquidity and credit portfolio so 2.5 billion are literally on a one-month roll fully sensitive to interest swings now if we consider the current discussion around around interest environment and potential increases that says that only for q4 we expect at a depository rate which we currently have of 75 basis points an additional positive effect on the ebt of 5 million euros and in ten days if I'm not mistaken nine days on the 27th or 28th we will have the next ECB meeting and if we assume there will be another two interest steps 225 basis points that would have an effect of 8 million euro on the q4 of additional incremental EBT now looking to the 12 months EBT potential is a Next year, 2023, stays at 125 basis points. We are talking about slightly above a 30 million EBT potential. If rates might go up towards 2%, we might even hit the 50 million euro of additional interest income on the top line that literally drops through to the bottom line. I know there will be again the question, or there might be the question, do you have to pay interest rates to your clients? And let me again highlight two things. The first point is over the last 15 years, fortunately, there was some period where we were generating interest income. We never paid interest to our clients. Second, we always told our clients, look, you pay as you go with us. You only pay for trading. You're not paying for using the platform. You're not paying for analyzing assets on our platform. You're not paying for getting news on our platform. You're not paying for getting any kind of financial KPIs on our platform. You only pay when you trade. Because we are a broker and understand ourselves as a retail broker, we cannot pay you interest for the money, for the trading money that you leave on the table with us. So rather invest it. And if you don't invest it, it's your trading credit that you need to invest. And we just have shown that over the last nine months, we did not have any cash outflows despite the ECB growth, ECB rate growth, which tells us here that we are not expecting, as of today, to pay any interest to our clients. So we consider this EBT potential actually to be a full gross potential that kicks in. Handling fee DeGiro. I'm also here to give you a bit more of transparency and a bit more of insight. In the first nine months at DeGiro, we did roughly 35 million transactions, which is what I always also communicate, give or take two-thirds of our total trades in the group. Thereof, 20 million transactions were carrying a handling fee. The delta is coming from products that do not carry handling fees, such as ETPs, such as ETFs, such as option contracts, futures, all that type of products, because only or mainly equities are carrying handling fees. So in 20 million transactions, so to speak, in the first nine months that we did, if we break this down or have an expected figure, just going pari passu, it's saying that in Q4 2022 we expect 7 million handling fee carrying trades increasing the handling fee by 50 cent should give us an EBT effect for Q4 of 3.5 million euros on a 12 months perspective again here going for next year on an annualized base that would result in an effect of 14 million euros but just by by increasing the handling fee by 50 cents Do we expect any further price increases on the fees? Let's see. We always said, and I said it today again, we're always working very hard to find a very fair and transparent balance between profitability and growth to offer our clients best service, best platform, best products, and best prices, but actually with also a level of profitability that ensures to continue this business model in the way we do it today. ETP partnerships, we discussed it shortly in the, we mentioned it shortly in the introduction. We started 1st of January this year to roll out with Societe Generale and BMP Paribas in Germany, Netherlands and France at the Giro to roll out ETP products. Also here to give you some feeling With this rollout, we gave actually 900,000 clients access to these products in these three countries. Clients did or are expected to do in 2022 an average 3.5 ETP trades, which results in total in 3 million ETP trades at the GRO only. We are not including FlatX here. We're just talking about the GRO. Now we will roll out in stage two, starting now in Q4, to roll out the ETP platform to Spain, Portugal, Italy and Switzerland which will add another 500,000 clients giving them access to ETP products that they don't have today. Assuming a significantly lower ETP activity just out of conservatism that would result in an additional 1 million ETP trades that we could create next year with a potential EBT of 4 to 5 million euros given that we generate 4 to 5 euro revenues per transaction. Last measure, price measure, margin loans at the Giro. Margin loans at the Giro so far have been only made available to 250,000 Digiro clients. So 250,000 Digiro clients have technically the ability to go for a margin loan. The utilization is today at 15%. So roughly 40,000 Digiro clients are using a margin loan with an average margin amount of 15,000 euros. 40,000 clients, 15,000 euro per client, equals 600 million of margin loans on the de jure side as you know we have currently 1 billion so it's easy mathematics to find out that the other 400 million are sitting more or less with the flat x clients now what we started in the summer is to do further analysis with respect to our products account types what do we offer to whom how do we allow access we came up together to enlarge the accessibility of this product and will roll out in November the access to margin loans to another 1.3 million clients that today do not access technically the margin loan. They will be then able to access it. Again here, just based on assumptions, we said, okay, if the utilization is only a third Of what we have today, it's 5% instead of 15%. That should then translate into 65,000 additional Giro clients that can use a margin loan. And if they take not 15,000 on average, but only 5,000 on average, that's another 300 million, 325 million of additional margin volume. At an interest rate of 400 basis points, that translates into 30 million of potential EBT on an annualized basis. Again here, it's a simple product measure for us, very similar to ETPs. There is no cost against it because the product is already existing. It was just only not made available to the whole group of clients by extending geographically, but also extending it from customer perspective, extending our product base. We expect here for sure a positive return. The first two measures, interest income as well as increase of handling fee will have definitely an impact, will have also a very forecastable impact. The third and fourth measure, the ETP and marginal loans, depend obviously on the usage, depend obviously on the interest of clients, but we feel here also very confident to generate incremental EBT with no cost against it. That's it for the outlook. I'd like to thank you for being with us and for listening and would like to open up the discussion and open up the lines for questions by the participants. Thank you.

As a reminder, if you'd like to ask a question on today's call, please press star 1 on your telephone keypad To withdraw your question, please press star 2. The first question comes from the line of Ian White of Autonomous Research. Please go ahead.

Hi, morning. Thanks very much for doing the presentation for all the detail you've provided. I had a few questions, please. First up on marketing expenditure, I'm just wondering why won't the cut in marketing spend that you've described on the call, drive lower midterm client acquisition. Basically, how have you determined that the expenditure you're cutting was inefficient, basically? That's the first question. The second question, just on cash sorting and NII, I guess I kind of sort of understand your points there and what you've communicated to customers and reluctance to pass on. rate increases. But are you in some ways beholden here to what peers or even European banks choose to do? Does the fact that customers have sort of more access to sort of online information, online deposit services, make it more difficult perhaps to earn high margins there than when rates were higher previously. Maybe you could just flesh out some thinking around that for us, please. And just finally, anything on the capital return outlook? I think we discussed that at some length at two key results.

I just wanted anything else to say there, please. Thank you. Thank you, Ian, for your questions.

Yeah, happy to answer them. The first one with respect to marketing expenses. I think as we mentioned, Ian, it's important as a management to control our costs and to adjust our costs and expenses, especially on marketing side, with the environment. So it might be that next year we will turn up again marketing expenses if the environment invites for these investments. It's not only a cut with respect to, hey, we don't want to spend any more money, but rather a very diligent cut to say, okay, what does the environment look like? And does it make sense to go now, let me put it that way, to go wild with our marketing expenses in an environment where average people are not really interested in capital markets? No, it doesn't make sense. It makes much more sense to rather reduce this, let's call it always on budget and on the air budget, to reduce it to rather reduce it to a budget that we use only as a state for pool marketing. So for clients that are already on the search for new broker and to try to convert this high quality clients. What does it mean for the midterm customer acquisition? Let's see how the market develops. That's exactly what we started with that under the current circumstances and on the current environment, it's not possible to forecast mid-term customer growth mid-term trading activity if the markets but what we can say is if the markets continue to be what they are what they were this year we will still do 400 000 to 500 000 clients every year i mean we are we are evident evidencing it this year and this is what what what what so to speak the bottom line of our customer growth um should and hopefully will look like with respect to your nii question the reluctancy that we have comes exactly from the point that you mentioned. We are, by definition and by law, a bank, but not by commercial definition. We are not the saving banks. We never invited people to bring their money to us. We don't want their cash, to put it that clear. We want them to do trades with us. We want them to invest with us. We want them to buy shares and to sell shares, to buy ETFs and to sell ETFs, to buy ETPs. We never defined ourselves as an interest paying platform. That is, I think, a very important point. And let me repeat that. We never did that. It's not like we did it in the past and then we stopped it while interest rates were negative. Now they're getting positive as we say, oh, let's be now super, super stingy. We don't pay them. No, this has never been part of our DNA to pay interest rate as a full-fledged online broker. Second, what we see as well is that just because you do it, you don't have the guarantee that your clients like you and will keep their cash with you. I think there have been a couple of press releases over the last weeks of very, very market-leading online brokers as well that are known for being also paying interest rates to their clients where clients are not keeping the money. It has to do a lot with the type of how you socialize your clients. If you socialize them from day one, yes, I am an interest-paying platform, They will obviously require to see interest. We never did it. We'll not do it in the future.

Yeah, and maybe if you allow me to add, at FlatEx over the last 20 years, the clients were never fixed income driven, never. They are alpha driven. They want to trade equities or ETP products. And this will stay like that. And it was very obvious over the last two decades with positive interest and with negative interest.

Last but not least, capital return. I mean, with respect to capital return, I think we have mentioned it a couple of times, whether it was Frank, whether it was me. In the end, let's say the current valuation implies a certain expectation, declines, decreases in our business model. And continuously, we are trying very hard and working very hard to prove that this is not the case. And we are still convinced with the figures, with the numbers, that this is not the case. So obviously, as the management, our duty is to analyze any kind of possibilities and opportunities, how we can take advantage of what we are seeing. And this might result in capital return strategies, We are, as we said, more than happy to communicate to the market in more detail whenever we come to such a conclusion. Such a conclusion requires not only a decision in the management, but also a decision in the supervisory board, a regulatory approval depending on the capital return measure, and an AGM approval. So there's a little bit of stuff to do. to get to that point, but we actively as a management are literally following our duties to think these strategies through. With respect to capital requirement and capital structure, as of June, we are running on a CET1 ratio of 21.5%. We consider the capital requirement plus management buffer to be at roughly 17%. So there is a headroom for potential capital return strategies. And over the next, including this six months, so last quarter and next quarter in the year end, we will definitely increase that CET1 ratio. And next year, next financial year, we are happy then to communicate if there is something, if there is a decision, if there is an option to communicate to the market whenever necessary. I hope that answers your questions, Jan.

Super. Thanks for the details.

You're welcome.

The next question comes from the line of Marius Vorburg of Warburg Research. Please go ahead.

Yeah, hi. A couple of questions from myself as well. The first one with regards to your current guidance for 2022. I mean, you still stick to your guidance of at least 400 million of revenues and adjusted EBITDA margin of about last year. But especially with regards to your EBITDA margin, what is your assumption of a kind of trading development or at least top line development that is necessary to still reach the EBITDA guidance and disregarding the effects you mentioned from the interest side and also from price increases. The second one on the margin loans for DeGiro Will they look like FedEx flex loans, just like with 4.9%? And also, what prevented you from offering those loans to the customers previously? And why don't you just generally offer them to all customers? And maybe a last one is, in the last call, you mentioned that you would that you are reviewing, a share buyback or a dividend, a possible dividend considering the low share price currently. How are things at this side and how are you looking at this given that your share price did not really recover since?

Hi Marius, this is Frank.

Let me start with the capital allocation strategy. As Mo has pointed out, minutes ago we are working and reviewing our capital allocation strategy we need the shareholders assembly in order to do that and the next shareholder assembly is scheduled for next year so don't be surprised if you see something on that agenda but the agenda is not out yet And the agenda obviously cannot be out there before we have reviewed finally. And the most important thing is if we do share buyback and dividend, we would need to get approval of the regulator. We are in touch with the regulator. And we have enough time until the agenda is due. And that's what we are doing. And for the other questions, happy to hand over to Mo. Thanks, Frank.

Yeah, your first question with respect to the guidance for this year, the guidance is confirmed and reconfirmed, 400 million plus in revenues, and then adjusted EBITDA margin somewhere around last year's margin. What do we need in top line trades? I mean, depends obviously on not only the top line, but also the OPEX. As I said, we will take measures in reducing marketing expenses. We will have windfall profits coming from ECB, from the handling fee. But all in all, you could expect that we need for Q4 something around mid-high teen millions of trades. So something in the range of, let's say, 17, 18 million transactions to get there. That's with respect to that question. With respect to the margin loans, thank you for asking this question. To reiterate, we are not introducing margin loans to DeGiro. As I said, we already always have had margin loans with DeGiro. We offered it only to 250,000 clients. And that reason was that DeGiro used to have two different account principles. They used to have an account which was an active account, and the other one was a basic account. And only active account clients were technically able to make use of a margin loan, but not the basic account users. And after reanalyzing legally from compliance perspective, commercially, everything, we said, hey, we can also offer the margin loans to the basic profiles, and this is what we are going to do. how they will look like exactly like they have looked like over the last 10 years with the G-Row. It's exactly the same margin loan that is today in place. The current interest margin is 400 basis points on the margin loan and will be also for this additional clientele also 400 basis points. It will be exactly the same product that is already in place just being extended to much more clients than before.

Okay, thank you very much. I wasn't aware of the different account groups there. You're welcome.

The next question comes from the line of Panos Elenis of Morgan Stanley. Please go ahead.

Yeah, hi. Thanks for taking my questions. Thanks for the detail on AUC and the net cash inflow. You mentioned 5 billion euros of net cash inflow in the nine months this year. How does this compare to the same period last year, and in absolute amount, and also the split between existing and new customers? And what percentage of that was invested or reinvested the same period last year? That's my first question. The second one, on the sensitivity to rates. On the presentation, you showed the potential from high rates on the liquidity portfolio. Are you looking to pass on some rate hikes to the margin loans? And shall we expect any repricing there? Then my third question is on the guidance on revenues and adjusted VDI margin. I think currently the margin is on about 38%. So what will drive the margin to 42% by the year end with only a quarter to go? I think consensus expectations are already for around 19 million trades for Q4. but margin consensus below what you're guiding. So I'm just wondering how to bridge that. And my final question is on the cost management. You mentioned the more efficient approach on marketing expenditure. So I'm wondering, have you identified any other areas where you can do maybe better or, you know, extract more efficiencies from? For example, Yeserte, Avanza, they said that they will freeze hiring for next year. Just what's your view? Have you identified any more levers there? So that's all my questions. Thank you.

Yeah, this is Frank. I will start with your last question.

Obviously, we have already slowed down our hiring efforts for the last quarter. And as I said at the beginning, we are always on top of things and we are very efficient and very fast in order to manage our costs. We always review marketing, personal expenses, obviously travel expenses, and whatever is necessary. And whatever we identify, we will go after. But so far, we are quite confident with respect to our cost level. For the further question, happy to hand over to Mo again.

Thank you, Frank. Hi, Panos. Thanks for your questions. So with respect to your first question, the AOC split for last year, we just don't provide it. I think from our perspective, it was also not important. It was rather to show the stickiness of clients during tough years or tough environments, not during hype environments. Number two, higher rates. If I got you right, you were asking whether we pass some of the higher rates also towards the margin loan pricing. Actually, it is a good question. We are currently analyzing whether we increase the margin loan fees. They have been at 400 basis points now for many, many years. Let's see what happens next week, but most probably will then have increased its lead rates by 200 basis points. So it might be fair to also maybe think about passing out of the 200 basis points, maybe 100 basis points to our client base. This is something we are evaluating as well. And with respect to your EBITDA margin, very similar question, I think, to Marius Furberg's question, as I said. We need mid to high double digit teen million tradings. So talking about 17, 18 million trades, given also the price measures and the product measures. We feel confident that we can make it. And on the other side, as Frank said, having the cost control, we still do not feel like not being able to reach our guidance. And keep in mind, Q4 is the second best quarter in a year after Q1. So out of the nine months, we have a little bias towards weak quarters, because we have Q2 and Q3 in, and Q4 is still missing. So we'll keep and stay to the guidance and make sure that we will meet our guidance.

Thank you. Thank you.

The next question comes from the line of Christoph Greurig of Berenberg. Please go ahead.

Good morning, Frank and Mohan. Thanks a lot for taking my questions. Three from my side, please. First, quick follow-up on the guidance and what you said with regard to the cost savings or cost management. Is it possible for you to quantify the marketing budget that you anticipate for the fourth quarter? Then the second question is regarding the customer ads and number of trades. I heard your comments on no longer providing a guidance or forecast for that. Is it fair to assume that you do no longer expect to reach the guidance for this year that you had provided previously for the customer ads and the number of trades? And then lastly, if you could provide a quick update on the planned product launches. I think we have robo-advisory, crypto trading, the ISA accounts in the UK. Just where we stand and what the time plan looks for those.

Thank you Thank you very much for your questions Let me start with the question with respect to marketing you know our total marketing budget for this year was a bit above 50 million and We will not exceed 50 million. Actually. We tried to save two to three million the last quarter Secondly You were talking about guidance. As we said, in this challenging environment with the geopolitical situation, with fear and inflation risk and recession risk and whatever is related to that, we find it difficult to give guidance on trades and client numbers. And that's the reason why we will no longer continue with that. We expect As Mo already said, a certain amount of clients coming in the last quarter with respect to that and additional trades, obviously. For us, it's important to reach the revenue target, to reach the EBITDA target, to reach the APS and net profit target. And we are very confident and positive on that. For the other questions, happy to hand over to Mo.

Thank you, Frank. Chris, you asked about the product measures around crypto, robo, ISA accounts in the UK, etc. Obviously, in such an environment in which we are, resources are scarce. So this is why we have focused now on measures that are immediately price and product effective, like the ETPs, like the margin loans, like the handling fee. And let's be fair, on the crypto side, we are in a crypto winter. And the situation was six, nine, twelve months ago, much different from what we see today. I think all of you know how passive in general we are on cryptos as a management. We are not the biggest fans, but it's not about what we like or dislike. It's rather what the clients want or do not want. And at this point in time, we don't see here a big, big necessity to push this product forward in this year. So we will or we have postponed this decision making to next year. With respect to Robo, we are still working on it and are keen to finalize the product hopefully this year. And we'll see then what development it takes next year. The last one was about the ISA accounts. And here with the ISA accounts, as I said earlier, it depends very much on the licensing. The licensing has not been received yet. The application has been Given to the FCA, we are in very great contact with the FCA. As soon as the license is there, we can start to offer also ISA accounts.

And maybe you allow me to add one more thing. You all ask how to manage costs. What about marketing? What about other expenses? And we find it appropriate as a management to give this priority. Second, for us, we see priority in how to increase the revenue per trades. And as we mentioned, the price increase at DeGiro, the enlargement of the ETP products, the enlargement of the credit product at DeGiro, all those measures enjoy a higher priority from our perspective as management, and I hope you appreciate that, than projects like crypto and robo, which legally are in the stage of MOU. We signed MOUs. We've not signed final contracts. projects are running but they don't enjoy the highest priority in this given market circumstances and I don't have to repeat we are in a challenging geopolitical situation we are dealing with high inflation with fear of recession we have energy crisis and so forth and that's to me a a great justification to have a bit of a shift in priorities needless to say in a crypto winter this is not on the top of my mind with first priority but we are happy to look into that next year and hopefully when the crypto winter turns into a crypto spring we will be there available and offering services and products necessary as strategically already published Does that make sense?

Yeah, all very clear.

Thanks a lot. Welcome. Thanks, Chris.

The next question comes from the line of Benjamin of KBW. Please go ahead.

Good morning, gentlemen. Thanks for taking my questions as well. Lots of them have been answered. A few left. Could you, first one being, could you maybe give a bit of, feedback a bit of an indication on early feedback from your customers regarding uh the handling fears and when you received any sort of major pushbacks on that yet uh complaints etc um second one would be on uh etps um now seems like your uh partnership uh with uh socgen bmp has been very successful so far and i'm just wondering and i think i asked a question to call already Are there any plans to add new ETP partners going into 2023? I mean, it seems like that could make a lot of sense also to drive up pricing or basically your share of the trading revenues there. And the third one, a bit broader maybe for Frank, kind of twofold. Could you give an update on, let's say, competitive behavior? I mean, recently I read some news on Trade Republic, which is currently... in terms of customer growth. And I'm just wondering, you've seen them becoming much more aggressive on pricing, especially in your growth markets and the second one around markets. Have you seen any sort of increase in willingness from especially smaller competitors to, I don't know, step out of the market? Have you been approached to act as a potential buyer of those smaller businesses given the increasingly challenging market environment and I guess generally, would you be willing to act as a consolidator? Would you be willing to buy businesses in the current market environment? Thank you.

Yeah, thank you very much for those questions.

The feedback with respect to the handling fee was rather zero, and the reason is very obvious. Everyone is used to inflation. Everyone knows that everything is going to be more expensive, be it the food, be it the petrol and be it rent and whatever it is. So obviously the clients are overall used to that and we didn't get any negative feedback on that. Actually, it was zero feedback. With respect to ETP partners, we enjoy great partnerships, as you said, with both the French investment banks, BNB Paribas and SocGen. And with respect to our European business, we're very happy with that and we don't need any other partner at this point in time. In Germany, you know, where we enjoy the biggest ETP market in Europe, we have more partners because the market is the biggest in Europe and beyond the French partners, we also have a strong, strong partnership with the US investment banks, be it Goldman Sachs, Morgan Stanley, and since this year we have a new partnership with JP Morgan and we are very happy and fine with that. And obviously there is renewal of contracts almost every 24 months. We are discussing and seeing who is the best partner, who does offer the best. And within that period, we decide partnerships. But for the time being and next year, there is no necessity of new partnerships. and we always rely on our long-lasting partnerships and we are very proud of having those long-lasting partnerships and here we also you know believe in sustainability um with respect to the competitive environment um as i mentioned in other calls when i'm i was asked what about acquisitions as long as there's a huge gap between the private sector and the public sector with respect to evaluation, it doesn't make any sense for us to buy clients which are certain competitors of the public sector, are you evaluated between 3,000 to 5,000 euro, whereas our own clients, if you divide the amount of clients to the current market cap, is in the range of 300 Euro, which is to me very hard to understand, but that's the huge gap between the public and the private sector. It would not make sense to use our equity to buy expensive clients, especially not if you take into account again that our organic growth runs on a rate of an average 100 Euro per client acquisition. Yeah, so much, much easier to continue to grow organically. And even in those challenging times, we believe we can easily grow every year with 500,000 new clients, which equals what the three largest competitors do in Europe organically. So we don't see any necessity to change anything. However, if there is an event such as the potential ban on payment for order flow. If that's going to happen and has an impact on the competitive environment, because we strongly believe that's going to be very difficult then for competitors here in Germany out of the NEO broker SEC, who are based on payment for order flow, their whole business model, to then change it due to the legal environment that when you change general terms and conditions, you have to get consent in writing from your client and retail clients don't like to consent in writing that they have to pay more, especially if they were advocated and solicited by you don't have to pay anything. With respect to your question of our international growth markets, whether we have any issues with competition such as Trade Republic, First of all, we are the zero fee broker in our European markets. In 18 markets, you can trade US stocks for zero fee. And in six core markets, you can trade the local, be it the French, the Spanish, the Italian and so forth stocks also with zero fee. So we don't have to change anything. We are the zero fee broker. And yes, we always observe our competition and we take them very serious and they inspire us and motivate us even to grow more and to do better. However, we run a very profitable growth business, whereas most of those competitors do not enjoy any profit. They are burning capital and money. And when you talk about Trade Republic, I saw that they enlarged the offering in countries where we are not mostly, in my opinion. So we have probably a very different perception of which markets are really relevant and important. And to me, it rather looks like they don't like to go into the markets where we are. But at the end of the day, it's not my business where the competitors go. But we don't see any necessity for changes, and especially if we are the leading zero fee brokers already. So what kind of changes would you anticipate?

And allow me to add one, two sentences as well. I think that the discussion about NIA brokers have been now ongoing for the last two years. We've seen some more transparent, some less transparent, but I'd like to highlight two examples here that were publicly made available. The first one is Vox out of the Netherlands, which is considered to be the Dutch trade republic coming out of the Netherlands. What I know and what we all read is that they tried to go through a crowdfunding round. If I'm not mistaken, until today, they did not close the crowdfunding round. But if a company that was originally VC funded has to go for a crowdfunding round, and without being disrespectful, I'm just saying what it is, it gives me the intention of, okay, most probably the interest out there is not as big as everyone thinks. With respect to Trade Republic, think let's make it here again clear no one knows anything about trade republic everything that is being written out there is guessing is estimating is believing as long as there are not figures on the table that provide us with information to understand the business model or the growth or the ambitions or the results of this company it doesn't make sense honestly speaking to comment these things and as frank said If there is an environment where we can take advantage of certain circumstances, we will for sure try the very best to go for that step. But again, let me also highlight this point, and then I'm done. The clients of neobrokers are usually not the type of clients that we are attracting to our platform. So it's also a question of whether we want to have these type of clients. Because just having 2 million more clients that do only five trades per year, 10 million trades, pay for that a billion is not sensible, to be honest.

And if you allow me to add one more thing, remember, please, our clients in average in our group are at the end of the 30s, late 30s. And the Neobroker clients tend to be much, much younger. And here's some examples. I have three kids and my two older daughters in the age between 21 and 24, they always tell me, hey, dad, when we look at TikTok and sometimes in other social media, we don't find advertisement of FlatX Digio, but we see a lot about Trade Republic. And then I always tell my children that actually, you know, our clients don't look for financial information at TikTok. At other social platforms, they go to Reuters, they go to Bloomberg, they go to all kinds of other platforms, be it Comdirect, be it Finanzenet, be it internationally comparable platforms. And people in the age of late 30s, beginning of 40, have a different behavioral pattern. And that's the clients we enjoy. they are above average wealthy they are above average financially educated and they act very different from the 20 years old people and obviously they enjoy much more money and experience so that please needs to be taken into account and keep that in mind please yeah it's a big distinction thank you for understanding very clear thank you very much

The last question comes from the line of Christoph Bleifert of BNP Paribas. Please go ahead.

Good morning, and thanks for taking my question. I have two follow-up questions, please. Thank you. I've already mentioned the discussion at the European Commission to potentially restrict payment for order flow. From your perspective, what is the most likely outcome, and when do you expect a decision? This is question number one. And question number two is on net new money. Can you please provide a quarterly breakdown of the $5 billion you have collected in 2022? Thank you.

Yeah, thanks, Christoph.

I will start with the first question on payment for order flow, Ben. I've been invited to the European Commission a couple of months ago. And at that time, I was under the impression that the European Commission really wants a ban. but that was my personal opinion when I was there. As you know, the politicians need time and are not the fastest with respect to those decisions. I know there's a consultancy process now going on, and I would not expect any decision before beginning or mid of next year, but most likely there is going to be a decision next year. On the other hand, keep in mind, when I always stress the geopolitical situation with respect to our industry, the European politicians, and I don't want to excuse them, but they also face that geopolitical situation. And I think we all share the same view, let them rather deal on how to resolve the war and stop the war in Europe and how to manage the energy crisis versus some very detailed financial industry like kind of situation. So I have a bit of an understanding that their priority is not at the moment payment for order flow then. But as I said, I expect a decision next year. And yeah, we will then see what it is. Whenever I was asked, I always believe it's good to have a clear decision and it's more important when there is a decision that's applicable in all the European countries and not has different execution in different countries, which sometimes happens. But we will see next year. And for the other question, I'm happy to give back to Mo.

Thank you, Frank. Hi, Chris. With respect to your question to the split, I'm happy to provide that. In Q1, it was 2.3 billion. In Q2, it was 1.5 billion. In Q3, it was 1.2 billion.

Excellent. Thanks a lot.

You're welcome.

There are no further questions. I will hand back to your host to conclude today's conference.

Thank you all very much for attending this call. We all wish you stay healthy. And let's keep cross fingers that the geopolitical situation will resolve with the best result possible and as soon as possible. And wish you all a nice day. Thank you so much.

Have a good time. Take care. Bye bye. See you soon.

Thank you for joining today's call. You may now disconnect.