flatexDEGIRO AG

Hello and welcome to the Fledex De Giro Q1 2023 analyst call. Please note this call is being recorded. For the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone keypad. I will now hand you over to CEO Frank Niehager to begin today's conference. Please go ahead.

Good morning everyone to our Q1 call. A warm welcome from Frankfurt. I'm here with my colleagues Mohamed Shahour and Achim Schreck. We like to start to run you through our presentation. Like always, I will start and set the agenda and then hand over to my colleague Mohamed to shift gears and drill down a bit more into details. So let me start with our most important project, which is our regulator BaFin project, where I'm happy to tell you that we are fully on track with the proceedings. Worthwhile to mention, we had a joint kickoff workshop beginning of this month together with BaFin Bundesbank and our special representative auditor. And we made great progress with respect to the credit risk mitigation situation with respect to the margin loan at the zero. Happy to share with you that the IT release, the fully automated patient has been released, delivered and deployed. and the process automation has been implemented. Everything has been properly documented and evidence has been delivered. In parallel, further automation of data has been started. We are quite happy with respect to testing as well. The regulator is also happy with the situation. We are fully on track with the most important project. Obviously, the other relevant findings are hardly worked on as well, and we expect them to be dealt with and finished within the next 12 to 18 months, which is, after such an audit, the normal course of business. So targeted timeline is unchanged, and we keep on focusing and as soon as possible we will come back with further information hopefully positive let me now move over to our governance happy to share with you that we're going to continue to enlarge both the management board as well as the supervisory board and happy to mention that we continue to focus on the enlargement and diversity which means the following it's on the agenda of our annual general meeting taking place in june that we propose to appoint britta lefeld as a further member of the supervisory board and if that successfully takes place We're going to see five supervisory board members. So if you recall, we started with three, now it's four. And after the annual general meeting, hopefully it's going to be five. And we're also happy to mention that two out of the five are women. So diversity is still a focus. And the same goes to the management board. We've enlarged from two to four beginning of this year, and we are continuing to focus on bringing Christiane Strubel as soon as regulator gives us green light into the management board as well, which would lead then to five members in the management board and five members at the supervisory board. I think this is clearly a sign that we're going to reflect our growth in the company and strengthen governance as you would expect us to do so let me now move over to the business highlights and happy to mention that as planned we rolled out for our very important ATP business the partnerships in Spain Portugal and Switzerland Italy will follow soon and we continue to focus in this respect On top, happy to mention that we started the partnership with Textown in Spain, and here we are talking about additional tech service for 250,000 Spanish clients. Further, I'm happy to share with you that we got awards again in the Netherlands from Cash Cow, in Germany from Brocaval, and in Portugal from Rankia, and here I would like to take the opportunity to thank our clients and to thank the participants for the trust in participating and helping us to be awarded those awards. And needless to say, we will continue to work hard to deliver quality and whatever is necessary to please our clients and make sure that we continue to be reflected in those contents. Let me now move over to margin loans and happy to share that we managed to increase one percent and this happened already in January and also will continue to be increased in July further we have done adjustments with respect to commissions at the zero and we've increased by one euro for use trades and local trades and that's going to be effective mid of next month. So all in all it's increase of monetization and it's also helping us to benefit from positive environment with respect to higher interest and we also in a challenging environment see an improved meant of trading activities, which obviously is still on a lower level, but has improved, especially compared to last quarter. And we also like to share with you that the higher marketing spend was only relevant for the first quarter. And as already indicated in our last call, after preliminary figures 2022, the marketing cost will decrease with respect to next quarter and continue to decrease and also important to know that we had several one-off cost in the first quarter which I know Mohammed will elaborate more about in detail soon further we are happy to see net cash inflows and last but not least We are also happy to share with you that our very important CET1 ratio, where minimum requirement for us would be 15%, has been increased to almost 20% now, so rock solid. And this all gives me a very comfortable feeling that we see a positive trend and that we will manage to deliver the guidance of this year. Let me now hand over to my colleague, Mohamed, to shift gears and drill down a bit more in detail. Mo, why don't you take over, please?

Thank you, Frank. Good morning, everyone, also from my side. Thanks for joining today's Q1 conference call. Let's immediately shift gears and step in into some KPIs and the development of the KPIs. Starting with the commercial performance, we managed in the first quarter to add 112,000 clients gross, which reflects actually over the last four quarters the highest number that we have achieved. Obviously driven on the one hand side by also a level and a certain level of seasonality. First quarter is usually a very attractive client acquisition quarter. given the fact that most of the clients are waiting their tax statements for a full year and then take the opportunity to onboard with new online brokerage businesses. Again, with a very high level of already brokered clients, it's an effect that we have seen over the recent 12 months more and more. that the number of first-time users, so to speak, is rather decreasing, whereas the number of already online brokerage clients coming from incumbents is increasing. On top of that, obviously, Q1 was also quite attractive, given the fact that the sentiment has been improved and has been improved, especially compared to Q4 2022. The higher spend in marketing in the first quarter, as indicated in end of February already, and as indicated, we expected to spend 40 to 50% of the annual budget in the first quarter. It happened exactly as we have indicated and had an effect on the gross customer additions. Another quite interesting, and I would say, quite satisfying KPI and KPI development is the assets under custody. We have recorded actually a historic record in our 17 year history with respect to assets under custody. surpassing the first time ever the 45 billion euros. We hope and we think that this reflects also the high level of loyalty of our clients, the high level of belief in what we do and what type of clients we win and add to our customer base, which was a significant growth compared to December 22. obviously driven also by normalizing markets and again seeing indices growing towards the positive end but still a challenging environment and still quite I would say not really hundred percent transparent environment and nevertheless we will come in a second to it to show also where this growth was coming from quite interesting movement The number of settled transactions also over the last 12 months, the highest number that we have achieved with 16.3 million transactions, absolutely in line with our expectation for Q1, lower than last year's first quarter. But I think fair to mention, if we think about Q1 2022, it was still a little bit, so to speak, tailwind of the 2021 environment. It was pre-war situation, pre-inflation situation. and thus rather biased to the positive end, Q1 2023 absolutely in line with what we expected as management. If we deep dive into the customer growth, as I mentioned, 112,000 gross customer ads with roughly 13,000 churn leaves us with flat 100,000 net new customers. the churn of 13 000 indicates a customer retention rate of 98 percent um on an annualized base which is absolutely uh in in our expectation i would even say a bit better than than we expect usually we expect an annualized churn of three to four percent uh after the first quarter we are at two percent on an annualized level which also indicates quite a significant and high loyalty um On top of that, last year was affected by, if you remember rightly, last year was affected by a couple of B2B divestments, a couple of geographic divestments with the Giro. This has been also now all cleaned out, so this number is literally now reflecting the organic, so to speak, the organic churn in the brokerage segment. We grew year-to-date by 4.2%, which is two times Our peer group, as we have indicated also with respect to our guidance, we assume to grow one and a half to two times our peer group. The first quarter was on the higher end compared to the peer group, which also is absolutely in line with what we as management expect for this year. Going to the development of the assets under custody. Two effects. The first effect is resulting from a slight cash increase, increase in cash position from 3.2 to 3.3 billion. The significant effect is coming obviously from the growth in securities under custody, so to speak, going from 36.2 billion, growing by more than 5 billion to 41.7 billion euros. which if you just take it on the level of securities, reflect roughly 16, 17 percent growth. This is coming partially from, as I mentioned earlier, from better sentiment since beginning of this year with respect to indices and stock price development on the one hand side. But on the other hand side, if we go to the next slide, we see that we still are enjoying significant cash inflow from new clients and existing clients. In the first quarter, we have 3.2 billion of gross cash inflows into our platform, which is absolutely fabulous. And I am here a little bit euphoric, to be honest, especially given the situation and the environment of the first quarter, with all the difficulties that we have seen across the globe, whether it was the SVB, or whether it was other banks in Europe, also the Credit Suisse discussion, to literally experience still a significant inflow into our platform of 3.2 billion gross. At the same time, we had 1.5 billion of outflows, leaving 1.7 billion of net cash inflows to our platform. Interesting point. 99% were actually traded into securities. So the vast majority of our cash position that was brought to our platform was immediately used by our clients to acquire securities, to buy securities. I think two important takeaways on that end. The first takeaway that we try to prove for quarters and for years by saying our clients are bringing deposits to our platform not because they are fixed income saving interest driven they bring money to our platform actually more or less out of only one reason which is firepower to acquire and to to buy securities and and assets and this is 100 reflected in the figures the second point is that despite the fact that we are not paying any interest on the deposits we still experience a significant number of cash inflows. Again, we're talking about 3.2 billion of cash inflows in the first three months, despite the fact of paying 0.0 interest rates on the deposits. The trading activity, quarter and quarter picked up on absolute terms and relative terms. An interesting point here to mention as well with this uptick of trading activity, Also, the relative distribution with respect to high revenue trades has increased. Q4 was at roughly 71% of high revenue trades, whereas Q1 2023 is now at 73%, which is also then we will see in two slides is reflected also on the commission per transaction, obviously, that has improved as well. If we look into the revenue splits, where's the revenue coming from? On the one hand side, obviously from commission incomes ending at 68 million euros. Quite interesting here, just an effect that I would like to highlight, to compare Q1 2023 to Q2 2022. Why? Because both quarters did literally the same number of trades, 16.2 versus 16.3 million transactions. However, we managed to increase the commission by 4 million euros. Why is that? Mainly driven by the fact that in September 2022, we had the adjustment of the handling fee with DeGiro from 50 cents to 1 euro, which increased also the commission per trade and thus reflects our strategy as management. What we always have said, we are able to control monetization and we will work towards improving the monetization. This was the step back in September 2022. But there have been also more steps. We have informed our clients mid-April that we will adjust also the fees for U.S. trades across all digital geographies and the local transactions for our key growth markets, each by one euro. Also here, the narrative is very clear. We are in a highly inflationary environment. We were coming in the past from a different high retail brokerage sentiment environment and tried to explain it as best as we can to our clients why we have to charge this little one euro now and have not seen any effects with respect to our trading figures due to the change of the fees. I will come in a second to a point to what we expect this change will lead. Interest income is obviously peaking at 27 million euros, resulting mainly out of two effects. The first effect, the yield on our ECB deposits that has increased over the recent now nine months. We had another increase during the first quarter in February, which is obviously not 100% reflected, but will be reflected in Q2, plus I think next week, in 10 days, we have the next ECB meeting, and we'll see to what these next meetings will lead. The second point is that the margin loans, as Frank has indicated, were adjusted, the yields on margin loans, so the cost for the margin loan has been adjusted, on the 1st of January, 2023. And the second adjustment will happen with effective date 1st of July, 2023. Given also here the fact that since the ECB, or let me put it the other way around, the ECB has increased over the recent nine months, the yields from zero to 300 or 350 basis points, deposit and lead rate, whereas we have only surpassed In that time, 200 basis points to our clients in average. Also here with a very clear narrative to our clients, with a very clear, we try to make it as clear as possible to our clients why we have to go through these steps. And so far, to be honest, despite the fact that we increased on the 1st of January the rates, since then the margin loan book, as you can see in the monthly statistics, is rather increasing. One point with respect to interest income and to the deposit structure and especially the asset structure and the use of deposits, we are still and we will continue to be on the absolute minimum of duration. Our interest rate duration is currently below 30 days. The vast majority of the deposits sits overnight with the Bundesbank ECB accounts. Residual part, 90% of that sits in the margin loans, the 900 million, roughly 1 billion, and a very small portion of roughly 250, 300 million in sovereign bonds that we need as collateral with our counterparties for our brokerage service is also relatively short-durated. So there is no reason to believe in any distress effects should clients ask for their deposits. But again, let me go back to slides back in mind. We see everything but clients withdrawing their cash. The commission for transaction, as indicated, has been improved. This is what we promised as management, that we will always have a close look towards monetization of our core business, of the brokerage business and the commissions. The Commission's increased from 319 q4 to 4 euros 17 in q1 Mainly driven one effect is obviously the higher Contribution of high revenue trades which which had a significant effect second the introduction of ETPs in Spain and Portugal and Switzerland And as indicated by Frank Italy will follow these products are high revenue products Thus they bias positively the Commission for trade The mentioned price adjustments make us believe that the full year commission per trade will be at 4.25 and levels of 4.25 euro, i.e. we expect to see continuous uptake in commission per income quarter by quarter. With respect to interest, I would like also to give a little indication that we also made clear in our written report yesterday evening. Given the adjustments on the margin loans and given obviously the expected potentials coming out of ECB, we believe that the average yield for the full year on our deposits will be at 4.5% for the full year. um coming to the to the uh to the middle part to the cost development um we had uh we had a cost development in the first quarter very much in line with our with our budget um and i would like to highlight three effects the first effect is the personnel expenses which included in the first quarter 3.3 million euro of a one-time inflation compensation that we made to our employees. Those of you who were Germany-based might know this. The German government has allowed for tax-incentivized one-off inflation payments to employees, which allowed us to pay our colleagues gross for net, so without any tax payments to the government. We believed as management in the first quarter that this is a very interesting and very positive sign also to our colleagues, to our employees, that we are here to support them, especially in a high inflationary period, and to make use of this governmental offer, which is, by the way, capped on a per-employee base, and we made use of this cap. So this is literally not only a one-time effect defined by management, but also a one-time effect defined by the government, by the German government, that we made use of. On top of that, we had the personnel expenses and the accounted personnel expenses, the effect of 10.6 million building up provisions. Where is this coming from? Very simply speaking, due to the fact that our share price since beginning of the year has increased by slightly 45%. A higher share price indicates, obviously, a higher option value. A higher option value requires building provisions, and this is what we did in line with the SARS program. Coming to the marketing part, the marketing expenses were at 17.2 million euro in the first quarter, driven obviously still by marketing campaigns, TV campaigns, brand awareness campaigns that we already have booked in the beginning of the first quarter. And as indicated, We told you two months ago in our guidance call for this year that we expect to spend the vast majority of our marketing budget in the first quarter. It has also obviously to do with, as I stated earlier, that it is the most attractive quarter with respect to client acquisition. Over the next nine months, we expect a marketing budget of 15 to 18 million euros in total for the next nine months. Again, here it will be not linearly distributed. But overall, we believe that this will absolutely normalize. We don't believe it. We will manage to normalize that budget. Again, here, this is something that we can control as management. And no surprises at all on that end. Last but not least, in the other expenses, there were a couple of expenses, like always in the beginning of the year, that pop up. One significant expense was, as also published, the 1.1 million euro fine. that we received resulting from the audit of last year that has also obviously a one-time effect on our cost development. Shifting finally to the EBITDA developments, the adjusted EBITDA for Q1 2023 at 30 million euros. Let me please clarify one point to avoid misunderstanding. The adjusted EBITDA, we have not changed in any way the adjustment. It's still only the adjustment with respect to stock appreciation rights. So we did not adjust for the 3.3 million one-off tax incentivized payments to our colleagues. We did not adjust for the 1.1 million Bafin payment. The adjustment has not been changed, will be not changed. It will always only consider the long-term incentive plan. As I said, €30 million of adjusted EBITDA. If we then think of and keep in mind the special effects that marketing was roughly €9 million, more than €9 million higher than Q4, and keep in mind the €3.3 million payment to colleagues. and the 1.1 million Baffin fine, you end up somewhere at around 13, 14 million of, I don't want to, I mean, let me call it special effects that will not be seen in the next quarters. The counted EBITDA, the drop from 57 to 19 is mainly driven by the ZARS development. Just to remind you, in Q4, we released 18 million euros because in Q4, the share price dropped significantly between 1st of October and 31st of December, whereas in the first quarter, we built more than 10 million. So the net effect just resulting from long-term incentive plan is roughly 30 million euros that obviously has to be accounted for. Summing all this up, With respect to our guidance, there is no reason to believe that there is any change needed. The adjustments, as I said, refer only to the ZARs. The cost management is in place and will kick in more and more over the next months. The lower marketing expenses, as promised, will also be seen over the next quarters. The increase in the fees and the interest rates will also have a very significant and positive effect. And maybe I'm a bit mean now to already answer a question that might be stated, why don't we touch our guidance? Why don't we adjust it, especially given the effects from commission and interest? I think two, three points here are important to highlight. for going forward, especially given the sentiment in the market, but it's still not very clear. It's not 100% clear where this year will go. We will continue with a strategy that is under-promise and over-deliver, point number one. Point number two is we know that Q2 and Q3 are historically very, very weak quarters compared to Q1 and Q4. So again, here, we don't believe that there is any need after three months of operational business to jump into the market and adjust guidances Let's continue to see how the next quarters, how the next three to six months develop, and we'll continue and hope for a better environment, for continuously improving environment. And if we believe there is a significant need and the necessity to adjust, we will let you definitely know about this fact. And in the end, we will continue to focus on what we can control as management. And number of trades, trades per client are things that we cannot control. So here we would like to get a little bit more transparency and transparency comes by time. So the more time we walk down the year, the higher the level of transparency. Last but not least, touching on our capital structure. In total, we are currently sitting at roughly 1.3 billion of risk-weighted assets. of which at due date as of 31st December 22, roughly 376 million were coming from the de jure margin loan where we were not able to apply our credit risk mitigation techniques. With a CET1 requirement of 15.6%, we have a CET requirement in absolute terms of 204 million euros. Our CET1 as of due date was at 261 million euros and in percentage terms 19.9%, so well above the requirements of 15.6 million, indicating, so to speak, a management buffer and capital surplus of 57 million euros. We would like to shift your eyes towards the potential from resolving the Baffin finding with respect to credit risk mitigation techniques. As Frank indicated, we are very happy that we have managed in time to finalize the development of our automatized credit risk mitigation system. We deployed the system in our latest release end of March. Q2 is going to be a very heavy testing phase and internal audit phase where we will make clear and the documentation is properly set up that the system is working properly and are hopefully then going to hand over to our special auditor over the summer period to sign it off. So we're still here on a very, very a positive way. The team did a fabulous job. Many thanks also in the name of the whole board for a brilliant job over the recent four months. In financial terms, what does it mean if we go back to credit risk mitigation techniques that we will obviously or that we will be able to decrease the vast majority of the 376 million additional risk-weighted assets from the margin loans? This translates, so to speak, in an effect of decreasing the CET requirement from 204 million to roughly, on a like-for-like basis, 145 million euros, which would result in a CET one ratio of 28%. Very, very well capitalized, very well positioned for future growth, and obviously, with respect to management buffering capital surplus, this would indicate 116 million of free capital. With respect to leverage ratio, you see it on the bottom right hand. There's absolutely no stress or no topics also given the potential growth throughout the next years. That's it from my side, from our side for now. Happy to hand over to the analysts and to open up the Q&A session. Thank you.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. That is star 1 for your questions today. We will pause for a brief moment. And our first question today comes from Benjamin Conge of KBW. Please go ahead.

Good morning, gentlemen. I hope you can hear me all right. A few questions from my side, please. First one, now, I fully understand why you didn't touch the guidance at this point. That's no question. The only point I'm trying to understand is to what extent does the uncertainty you mentioned also relate to potential negative reactions of your client based on the recent price increases, i.e., higher than expected price elasticity And maybe if you can, what sort of tests have you run before you actually decided to implement those and sort of just to get a better picture here. The second one would relate to customer acquisition costs, please. They've been remarkably steady or sort of in line with your with your targets below 100 euros in the first quarter. And I presume this is despite a lot of above the line sort of marketing expenses. And I would just like to get your view on the further trending of the CAGS for the remainder of the year. Do you see any significant changes on this front end? The last question, and sorry, I guess I have to ask this, but I take your comments on Q2 as an indication that there are no plans to touch your strategy on customer deposit rates, despite all the noise in the market. I think even this morning SwissQuote decided to launch customer or sort of to introduce customer deposit rates just to get an update there. Thank you.

Thanks for the great question. Let me start with the marketing spend. I think you recall that last year we spent over 50 million in marketing, and I think we've already indicated in the last call with respect to preliminary figures 2022 that we're going to decrease the marketing budget to at least 35 million this year. If you do the math right, and I just did it for you, if you divide 35 million by 400,000 clients this year, If I'm not mistaken, then that is far below 100 euro per client acquisition. And we continue to run like that. Secondly, with respect to our clients, they're going to trust us. They sent gross over 3 billion net cash to us and they invested there of 99%. And if you look at what we saw last year with respect to the cash of 3.2 billion, We are now up $100 million to $3.3 billion. And this, although we don't pay interest. And as Mo already said, and I'm happy to repeat that, our clients are not fixed income driven. Our clients are equity driven. It has been like that over the last 10 years and it will continue to be like that. And with respect to our platform and the challenging marketing environment, and let me repeat that again, We've seen bad things in the States with respect to Silicon Valley Bank. We've seen bad things in Switzerland with respect to Credit Suisse. And we all in the industry are shocked about that. But I like to mention two things. We don't have an interest rate change risk. And we don't have a bank run risk. And why is that? Mo already mentioned this. Happy to repeat. We don't own a long-tail sovereign fixed income portfolio. We don't own that. And second, we run 2.5 billion cash with the German Central Bank, which is daily available. And as we don't own a long-tail sovereign fixed income portfolio, we don't have to deal with interest rate changes, and we don't have to hedge, and we cannot lose on the price of the fixed income portfolio because we don't have that. So we only benefit from interest rate hikes. And that's why we're going to do 75 million plus this year, maybe even more, depending on whether there's further interest rate hikes as expected. So here we are very comfortable. However, happy to hand over to Mo with respect to the other questions.

Yeah, thanks, Frank. I think the indicated points were absolutely fine. With respect to annual CAG, I think, Ben, It's important always to keep in mind, and I'm repeating myself, I think now for a couple of quarters, it's very difficult to look into quarter by quarter. If we take the last 12 months, actually, we grew by roughly 400,000 clients. And if you look into our marketing spend, the 400,000 clients are at roughly 45 million euros. So going forward, it's absolutely what you also, I think, indicated in your question. We will see a normalization in the CAC. So nothing has changed with respect to the full year assumption to be at a CAC of roughly 100 euros. And as we indicated also end of February, it was very, very much expected and very much forecasted that Q1 will have a special effect given the more expensive marketing. So just to make it even more concrete, we don't have any TV campaigns anymore, right? Usually, it doesn't sound very sensible to make TV campaigns between June and September in southern European states because people in southern Europe usually don't sit at home and watch TV while they have 40 degrees outside. This is totally different, obviously, in Q1 and mid-Europe where people spend a lot of time in front of TVs and in front of media in general, whereas the summer months are lower. And this is quite expensive marketing, thus also the bias or let's call it the skewness towards Q1 with respect to marketing. Customer deposits, I think Frank answered it, and we will continue to see a lot of also players to introduce deposit rates. But I think, again, here, if we just take a factual look into the market, we have enough peers, and I'm not here to name the peers, but there's enough peers that are offering interest rates and are having to fight heavily to cash withdrawals, despite offering 2%, 2.5% of interest rates. It's a very important topic on what platform and with what ideology we have socialized our clients. And we have socialized our clients for 17 years. And by the way, I think most of us have forgotten, but there was a period six years and before where there were already interest rates. But we have always socialized our clients never to be a saving bank, never to be a deposit bank for them. We're always only the cheap, the low cost online brokerage business. And this is the ideology also going forward. Last but not least, price elasticity. Absolutely fair question. No, we don't believe any churn given the price changes. Did we test it? I think we are discussing price development, price changes now for two years. Over the recent two years, we increased our commission per trade by more than 40%. So there were a number of tests where we did it and where we tested. And in the result, let's be fair, the trade on a US, whatever, average 2,500 euro transaction will now increase from an average 5 euros to 6 euros. It doesn't move the needle. It's still a perfect offer for the client, especially because they can access direct markets, not via market maker, not via a single exchange, but via, I think, now currently roughly 80 different exchange possibilities. So we don't see any elasticity, and this has also nothing to do why we are not touching the guidance. We are just not touching the guidance because we don't see the necessity at this point in time giving the intransparency, let me repeat it very clear, not on a micro level. We're not talking about intransparency on a micro level. We are talking about the intransparency on a macro level, not to know how the next three, four, five months will continue. And I think after summer, we will have that transparency, and then we'll have also, I think, more stable and sustainable forecasts for the full year.

All right. Thank you very much.

You're welcome, Ben.

Thank you. And we're now moving on to our next question, which comes from Christoph Grolisch of Berenberg. Please go ahead.

Christoph Grolisch Yes, good morning, Frank. Three questions from my side, please. I would like to start with the capital situation. So you've talked quite a bit about the situation with regard to the margin loans and the risk mitigation. I mean, one thing we haven't heard that much about is the increase in the regulatory CT1 or capital requirements. Last year, this was still at 11.6%, and now this has gone up to 15.6%. So, yeah, just wondering if you could explain us a bit what has driven the increase, and what is your level of visibility for that to come down again to the 11.6%, and if there's any kind of timeline or timeline in place for that.

Yeah. Hi, Chris.

To answer your first question, we had an increase, obviously, in the, I think, second half of 2022 with the annual SREP evaluation by the regulator. And, by the way, the number has been indicated, if I'm not mistaken, now for the last 12 months in our presentation. So, it's not popping up, I think, the first time in this quarterly presentation. So we are carrying the 15.6% with us now for almost 12 months. Resulting from an SREP evaluation, in general, we see on the one hand side an increased SREPs on banks and on financial services players, resulting also from changes in operational structure, growth, and obviously all in all also the setup of our business, the growth of our business, We believe also, obviously, that in general, the effect was also reflecting the whole situation of last year. And we will work very hard. And this is also what Frank mentioned earlier. One thing is the credit risk mitigation techniques that will release a significant risk-weighted asset portion. But it's absolutely also our duty as a management to get all the other formal findings of the BAS and audit rights and to work towards an effect sooner or later also to reduce the SREP. But in general, it's nothing that in any way results from or that creates with us headache. But still, there are options to reduce this number again. I don't know. I don't see it to go back to 11.5% because we see in general in the total banking industry that the SREPs are increasing. But there is a potential to bring this number again down with finalizing and with working out the Baffin audit findings.

Yeah, maybe just to highlight. So it's industry-driven trend to increase SREP and obviously, only subject to regulatory approval, it can be decreased.

And that's the case.

If we move on to the next question, it's with regard to the price increase, the one that will be effective as of May. So the one euro increase in the commission, could you give us an idea how much of the overall trade flow of the group is impacted by that, roughly speaking?

Since it's mainly affecting the US transactions, and as I indicated, the local trades in some of the growth markets, we assume on a like-for-like basis, so compared to, so to speak, last year, that roughly 20 to 25% of the total transaction number will be affected.

Perfect. And then, yeah, last one from my side on the marketing budget. So I understand, I mean, this is something that is more or less fully within your control. Historically speaking, I think that you had a bit of an opportunistic approach saying that if good market opportunities arise, you're willing to spend more money on marketing to exploit this opportunity. So if you now look at the next nine months, would you say that if the situation in the market environment changes in a way that you think there is a good opportunity to spend more marketing euros in a value-creating way, you would be open to that, or are you very committed to this guidance that you've given now in the mid-30 million euro area?

I would say we are always flexible, and we will decide upon market changes and the situation. Obviously, we like to stick to the guidance and like to deliver our targets. We like under-promise and over-deliver, and that's how we're going to look at it. And I always say let's cross the bridge when we get there.

Absolutely confirmed. I think a little note on a detailed level also. The strategic shift resulting also in the guidance that we did end of February, has also to do a little bit with optimizing our marketing strategy and with respect to growth versus profitability, right, in the end. And we believe that this is something, this is a balance, this is an equilibrium that we steadily, have to look for and as you're absolutely indicating rightfully chris it depends very much on the market environment so if for whatever reason we would start to see in june 2021 coming back hopefully without covet by the way but if it's on a positive end why we we experience an environment where clients are doing not only over a week but sustainably again 50 60 70 trades and everyone at dinner tables and lunch breaks and morning coffees are discussing what to buy and what to sell, we will start to rethink whether it makes sense to spend more budget to acquire also the right clients. But this is, as Frank said, let's cross the bridge when we get there. Nothing from today's perspective that we expect over the nine months. But let's see, maybe we get surprised. But I don't see now this type of strategy to happen over the next nine months.

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

Thank you. And our next question now comes from Panos Illines of Morgan Stanley. Please go ahead.

Hi, thanks for taking my questions. I've got a few. Just on the 4.25 euro average commission income, does it only include the repricing or does it also include some of the ATP opportunity? That's my first question. And then the second one, it's on the, can you maybe remind us what's the average total cost to the customer for these trades that would be repriced? Just to get a sense of the magnitude of the change in price. And then the third one is on the guidance. I appreciate the conservatism, especially on the commission income, where we have less visibility on customer activity. However, on the rates and the upside to interest income, where we have more visibility given the rate trajectory, shouldn't we expect higher than the hundred million or so interest income you gave us from the previous guidance, or are you expecting to share some of the rate benefit with clients, or do you expect a decline in cash balances? Just trying to understand why there is no more upside from an IIO, just because that's my three questions. Thank you.

Hi, thanks for your question. Your first question with respect to the 425. The 425, when we talk about commission income, we reflect everything. So it's a blended rate. This is our expectation to be fully at a level of 425. It's not with specific because of whatever the mix, the product mix. It's not because of ETP expansion. It's not because of specific price changes. It's a blended rate. that that we feel today comfortable with and i'll promise you if everything goes right and it gets better we're happy to become more confident on a different number maybe in three months or six months um your second question i will come at the end to that because i didn't get it right so maybe you can restate it but answering your last question let me indicate and speak not only for myself but for the whole management and our strategy there is lot of ideas in our minds but one idea is absolutely not in our minds to surpass any of the interest income to clients we don't see any necessity at this point to think about these things why don't we touch nevertheless the NII guidance because there are certain effects that we also have to see one thing is that in general for example the margin loan book is very stable but the margin loan book depends also on slightly to trading activity. Because of client sentiment with respect to trading is relatively high, the margin loan book tends to grow as well. If the trading activity gets less, the volumes for margin loans tend to be less as well. So we see here a slight uptake of roughly 50 basis points in our expectation. But again, here, we believe let's Consider what's happening over the next three, four, five months. Let's get the first half done. So it is absolutely, as you indicated, rather our conservative setup than because of ideas like surpassing any interest to clients. We absolutely don't see neither the necessity, nor do we discuss it even at this point. And I doubt to discuss it in the future. So that's with respect to your last question. But your second question, sorry, I didn't get that right.

It was around the average cost the customer is paying for the trades. That way you're repricing, pre-reprising and after. That's what I'm trying to get. Just to understand the magnitude of the change in price.

So you're wondering about, so to speak, the cost per trade for the clients?

Exactly. What the client is currently paying and what the plus one euro, what's the total price that the customer would be paying?

I mean, we increased at the zero, one euro per trade, but we are still the lowest in the market. We just increased the trade fee.

Okay. I think, so look in the past, if you look into US trades, okay, just take the US trade example. In the past, the clients paid zero commission plus one euro handling fee, plus if they have to do an FX swap 25 basis points. This has been changed to now one Euro commission plus the one Euro handling fee plus the 25 basis points. So it's depending obviously on the nominal. So assuming a 2000 Euro nominal on an Apple trade, this 2000 Euro Apple trade was before 25 basis points on that. So five Euros plus the one Euro handling fee, six Euros. This is what the clients are paying today. And as of 15th of May, the six euros will become seven euros. I hope that clarifies your question. And on a local base, if you have a Spanish client that buys Santander, in the past this client paid zero commission plus one euro handling fee, so total one. Now this will become one plus one, so total two.

Okay. So it's 50 euro cent increase in handling fee from last year plus the one euro now. Okay.

Sounds good.

Thank you.

You're welcome.

Thank you. And we'll take a question now from Marius Vorburg of MMM-Varburg. Please go ahead.

Yeah, two questions remaining from my side. First one, on the next interest step in July that you advised, will there be another 100 basis points, or what extent should we expect there? And the second one, also on marketing, I mean, it's not new that Q1 is usually the strongest quarter with regard to customer gains, but to what extent do your Or is your marketing approach this year different to the previous years? And considering the customer gains that you showed in Q1, are you satisfied with that considering what you paid for those clients and do you expect any spillover effects? And what makes you confident that you will stay on a rather high customer growth rate even with lower marketing spend for the next quarters?

Yeah, thanks Marius, Frank here. Let me start with marketing and then I hand over to Mo again. Last year we spent over 50 million in marketing. And you know, 20% of our marketing budget goes to sports sponsoring and brand awareness, which we've done very successfully in the past years, and especially increased awareness of over 300%. We have now strategically decided, and we mentioned it in the last call, that we will not continue with sports sponsoring anymore, but obviously stick to our existing contract and comply with it. So what does that mean? The sponsoring of Sevilla will end this season in summer. So therefore there's no more cost after that. And we continue to be main sponsor of Borussia Mönchengladbach for the next season and thereafter move over to co-sponsoring so that all in all lead to a decrease in cost for marketing And as Mo already said, we've started the year with TV campaign, which obviously is quite costly, but this is only for first quarter because as you said, it's the most relevant after a new year. Clients think of changing relationships typically in the first quarter. So we did that, but we will not do much more this year. So all in all, that leads to a decrease of over 15 million in marketing costs this year. I'm happy to hand over to Mo for the other question.

Yeah, thanks, Frank. That's obviously one point. And the other point is, Marius, you indicated whether we are, or you asked whether we are confident to grow with the same number in the history with respect to client growth. This has absolutely not been guided by us. So we never said that this year we will grow like last year with 500,000 clients. We have changed also this guidance to one and a half to two times the peers. This will reflect also with respect to gross numbers, not the same development that we saw over the last three years where we grew an average by 650,000 clients over the last three years. That's one point towards marketing. With respect to the margin loan, yes, it's 100 basis points mainly with the GRO. With FlatEx, we changed the rate at the beginning of Jan, the first of Jan, from 4.9 to 5.9%. And this effect will now happen also for the margin loans with the Giro on the unallocated margin loans will also now go from 4.9 to 5.9%. That explains mainly the effect.

okay thank you and just one follow-up um i wasn't not meaning that you will grow up the same gross number that you did in the past years but you mentioned earlier that you will uh or that you aim to grow your number by around 400 000 new customers um and looking at that you gained around 112 000 gross in q1 i was wondering whether you will be able what makes you confident to grow Another, let's say, nearly 300,000 with only half of the marketing budget that you spent in Q1.

Let me precise again the words. I didn't say we are expecting to grow 400,000. The guidance is very clear. We are expecting one and a half to two times our peer market growth. And this number does not, we will not put in any way a level to it, whether it's 400 or 500 or 600, because we don't know what the next nine months will bring. based on that guidance to grow as the mark one and a half times to two, one and a half to two times the market, we indicate that for this growth, we will need give or take 35 million of marketing. So we are absolutely in line with both guidances, marketing budget of roughly 35 million euros. And with this 35 million euros, we should achieve one and a half to two times the growth of our peers. I, we, do not have any interest to put an absolute number to that. This was very clear made in the last conference call because this absolute number depends on market situation and market environment.

Thank you.

Thank you. And up next, we have Andrew Lowe from Citi. Please go ahead.

Hi, guys. Thanks for taking the question. Just one from me. You used to disclose a very helpful chart on the customer activity per quarter. I think this was last disclosed at the Q3 presentation. I'm curious to know how this has evolved over the last few quarters. So specifically, what share of your customers did not place any trades in Q1? And if we could get the same number for Q4, that would be great. And then finally, what was the number of customers that didn't place any trades at all during the year 2022. Thank you.

Thank you for your question. Absolutely fair point. And we will, as always, we will not change any way of transparency. We will add that chart to our proper presentation very shortly. In the first quarter, 30% of our customer base were active, i.e. 30% of the customer base did at least one transaction in the first quarter. which is a relatively solid number. As we usually last year, we had over the whole year 50%. So with a strong base starting already in Q1 with 30%, that gives us a very positive sentiment towards the full year.

That's great. Thanks.

You're welcome.

Thank you. And now we're moving to Ian White of Autonomous. Please go ahead.

Hi there, morning. Thanks for doing the call. I had just a few questions, please. First of all, on the pricing changes and this question of elasticity, I guess when I look at, there's been a couple of changes over the last 18 months. And since 4Q started, 21 when more of the cost of trading was was moved into fx fees rather than um sort of outright commissions we saw clients trading less uh us shares as a percentage of total transactions i think declined quite a bit and since september if i look at the monthly progression of flatx trading which are now giving us with high granularity relative to the other two firms that provide very similar disclosure. It appears to me there has been a level shift in your activity versus those peers since that fee increment was introduced. So I'm just trying to get my head around, you seem quite sanguine on the risk of some offsetting decline in volumes, but I wonder if the evidence suggests that maybe clients are adapting to these price changes and doing things differently. So very interested to hear any further thoughts you have on that or any sort of analysis that you guys have done internally that would help us to understand that better, please. That's question one. Just on question two, I'm just interested around the capitalised expenses. So what was total capitalised expense in 1Q23 and what do you expect it to be for 2023, please? And I'm looking for the figure that's comparable to the 49.4 million that you reported for FY22 including the right of use payments please and then just finally just on the gross cash inflow how much of that was from new versus existing clients please thank you thank you for your questions let me

to start with your last question, split between you and existing clients with respect to gross cash inflow has not been provided and won't be provided. Second question, capitalized expenses in the first quarter. We have capitalized expenses, especially also given the significant development of IT and systems. Overall, capitalized expenses We used to always benchmark roughly 5%, 4% to 6%, so to speak, of our revenues. So we aim for 4% to 6% of capitalization of our revenues in normal environments. In an environment where we have more regulatory changes, more commercial changes, this number might also go rather towards 7%. But that's it. So this number shouldn't go like to 10 or 15%. And this is what we expect also for the full year. This year, given the fact that we worked a lot on our system and our regulatory systems and developed a lot our regulatory systems, I assume this number for 2023 rather to be on the higher end of that range than on the lower end. So assuming give or take something in the range of 28, 30 million Euro of capitalized expenses, capitalized personnel expenses for 2023. With respect to pricing, I think, look, it's a very important point to not confuse correlation and causality. And we have, I would say, a very positive potential that some obviously of the outside people don't see. We are operating two brands, the Giro and FlatX. And we are capable of doing very nice benchmarks So what we benchmarked, for example, you mentioned the price increases for U.S. trades at the zero. When we benchmarked the trading activity at the zero for U.S. ISINs versus flat X for U.S. ISINs, what we actually noticed is, despite that we increased the fees only on the zero end, that the flat X U.S. trades dropped more than the zero U.S. trades. so having two brands in that case helps a lot to run these benchmark these benchmark models on the on the on the other hand as i've indicated uh we increased on the first of january our our yields on the margin loan and since then the margin loan book has increased so typically elasticity i don't want to say elasticity zero there's for sure some level of elasticity But we have also always to keep in mind that you have some some special clients. And I'm not talking about the Pareto special clients, but I'm talking about maybe the top whatever 1000 clients or 2000 clients that have also here and there may be some several conditions that that not every client has. But all in all, it's a mass market that we have. We are 30%, as I indicated, did a trade in the first quarter, which are 750,000 clients. So adjusting the fees for the mass market usually does not lead to significant elasticity. And as I said, a lot of internal tasks, a lot of internal controls actually on a daily level that we do to determine why is what happening. And especially U.S. trades, I mean, to link it since 2022 is very difficult because trades out of Europe into the U.S. market on the retail level have decreased significantly. Also, if you look into the Nordnet numbers, also if you look into our peer group numbers, so there was a systematic effect on the one end, and we tested it internally and did not see any levels that would concern us.

Maybe to add, US equities are less of interest versus European equities, especially recently. The returns on US equities have decreased also. If you see how the big companies, Google, Apple, and so forth, and Facebook have dropped, that might also have had an effect. talking about behavioral science, like to share with you that German clients used to buy an Apple stock in the morning via Cetra and Tradegate in Euro versus our European clients outside of Germany who used to tend to buy those when US markets open with US dollar. So that also explains differences between the client behavior at FlatEx and the client behavior at Digiro.

Okay, thanks. Thanks so much for those points. Can I just possibly come back on the CapEx point, please? Maybe my question was a little bit unclear, but I think what you've given me there is the capitalised development cost, which the annual report guides at mid-single digits. But the figure I was hoping for was the total cost. capital expenditure, so total intangible assets, PP&E, and the usage rights and the euro amount that was spent in 1Q23, please.

Got it. We're happy to provide you via mail the information.

Are you able to give the cost that was actually incurred?

I don't have it with me here, to be honest.

Okay, thanks.

Great, thank you. And our next question comes from Christoph Bliffert of Exxon BNP. Please go ahead.

Good morning and thank you for taking my questions. I have two clarification questions, please. One on capital and the second one on your deposits. Let's start with capital. Just to be sure, could you please explain what needs to happen to get a relief of the capital Barfield imposed on the capital charge buffering imposed on the bank. Is it just the D0 margin loan which has to be solved or do also the shortfalls on internal control systems and money laundering prevention has to be solved in order to get the capital back? The second is on deposits and sorry to coming back to this topic again, but banks in Europe printing so much money with their deposit business at the moment So what are your plans to bring the relatively low deposit level per customer on a higher level in order to benefit stronger from the rising rate environment? Thank you.

Yeah, thanks for the question. Let me start, please, and repeat the situation. In general, when we look at our loan book at DeGiro, we are allowed to apply a credit risk mitigation technique leading to zero risk-weighted asset with respect to that exposure. This is temporary, not allowed, and therefore, temporarily, we have to provide 75% of risk-weighted assets capital, which equals a sum of roughly 75 million if I'm not mistaken or lower and as soon as the special representative will review all the documents and the testing which more has mentioned earlier the special representative together with the regulator is allowed to sign that off and if that's going to happen but subject to regulator and we don't want to prejudice here and we don't want to put pressure on our regulator because the regulator has the final call then we would be free to apply a zero risk rated asset view and that would free up over 50 million regulatory capital so that has nothing to do with any search charges like s rep also so hopefully I could clarify that. And then for the other question, hand over back to Mo.

Thank you, Frank. And while I'm repeating that sentence, and I think it's very important to understand, there was not a surcharge applied by the regulator. The regulator didn't say you have to apply a surcharge. What they disallowed us to do was to use the CRR regulation to reduce the risk-weighted assets to a level of 0%. That's with respect to that point. With respect to the deposits, Chris, there is absolutely no strategy for us at this point in time to increase the deposits of our clients. We don't look for it. We don't want deposits. We are an online brokerage business that wants also in the future to continue to grow its business driven by experience, driven by active driven by interested investors and financial product savers with respect to etfs and funds we have no interest at this point in time to develop flat x to zero into a saving broker like some peers in europe are and again we are seeing with with some peers What the consequence is to be is saving broker. It's not also only helpful to have that end. It's actually a tailwind. It's actually a byproduct. I said that years ago, and I still say that the deposits and interest income from deposits or from vesting these deposits by leaving them with ECB is literally a byproduct to our business. We are steadily growing the deposits. On a per client base, we assume 800 euros to 1,000 euros more of these deposits, which is absolutely in line with what we expect. But we have no strategy to increase the average deposit per client from 1,200 euros to 3,000 or 4,000 euros over the next 12 or 24 months.

Yeah, and maybe to add one more time, we are an equity broker. 80% of our trades are equity trades and ETP trades. And our clients are equity driven, not fixed income driven. Out of the 45 billion, thank God they invested most of their assets in either equities or ETPs or whatsoever. And the balance thereof, the 3.3 billion is in cash. And as the cash generates interest rates, we're going to receive additional interest income. the cash is not meant to be generating only interest. It's meant to be invested. That's the core business model we offer to our clients over the last 20 years at FedEx and over the last 10 years at Digiro. And that's why clients come to us and do this business on our platform with the UOP market leader. And they trust us and they don't require us to pay interest to them on their deposits. And again, that goes to behavioral signs of our clients.

That's clear. Thank you. You're welcome, Chris.

Thank you. And as a reminder, once again, that is star one if you would like to ask a question today. We will pause for a further moment. There appears to be no further questions at this time. I'd like to hand the call back over to you, Mr. Niehage, for any additional or closing remarks.

Thank you, everyone. Great to have talked to you. Thanks for your trust. We all are looking to continue to work with you, and we all wish you a nice day here from Frankfurt.

Thank you very much. Have a lovely day.

Thank you, ladies and gentlemen. That concludes today's conference call. You may now disconnect.