flatexDEGIRO AG

Hello and welcome to the FlatX DeGiro Preliminary Results Half Year 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 Niehage to begin today's conference. Please go ahead, sir.

Good morning everyone, this is Frank Niehage, a warm welcome to our half-year preliminary results 2023. A warm welcome here from Tegernsee, where we celebrate the 10th anniversary with Borussia Mönchengladbach. The team is here in the training camp. Present are my colleagues out of the management board, which is Dr. Benon Janos, Stefan Simmer, Mohamed Charoua and myself, and obviously our head of IR, Achim Schreck. Warm, warm welcome from Tegernsee. We are happy to talk today about very robust numbers. And before we go into details, a personal note. We also had to announce today that unfortunately, Mohamed Charoua has decided on his own to leave the firm by end of this year. As we are professionals, we like to focus on the firm's results first. And then Mo will give you a bit more details at the end of this call about his personal motivation, which I regret on one hand side, but I have to respect. And you will see on the personal side why there is reasons that he has to leave us. However, let's please start with the firm first. Let's start with our highlights first. I will always start as usual and then hand over to Mo and he will shift gears and drill down into commercial and financial aspects more in detail. I'm happy to confirm our guidance in a very challenging environment. Needless to say, the geopolitical situation in Europe, the interest rate hikes, the high inflation will have and do have an impact on our business. We confirm guidance and we also have a very positive outlook for the second half due to the measures taken and we will go into more detail very soon. I will also start with the regulatory environment and let me spend a short moment on what's going on with respect to our German BaFin regulator and then I will talk thereafter about the European level PFOF, which will have a severe impact on our industry as well. Let me start with the well-known aspect of BaFin. We are very positive that we have fully automated the process and developed and implemented with respect to the credit risk mitigation techniques. And that was hard work, but we were very close with BaFin and our special auditor. And we have handed over all the relevant information. So from our side, the work is done, which is very good news. And the process runs and is implemented. Now it's up to the commissioner to take his samples and review everything and report it back to BaFin. We are very positive in respect that by end of September, we will get a feedback on this and hope then that after that be able and allowed to apply the credit risk mitigation again, as we temporarily were not allowed. Obviously, we continue to aim on other findings and work on this, what's relevant with respect to hiring new people and implement new processes, and to run that project has been done, so it's up and running. And allow me to mention after an audit, it's normal cost of business and over 12 to 24 months to work on those findings that improve. And that's what we are doing. You're already aware of the positive news with respect to the SREP. Our capital requirement was lowered by 75 basis points. Again, the first step in the right direction. In general, we will continue to improve wherever possible this overall situation. So that's the positive news on our German situation. Let me move over to the EU level. Again, from my point of view, positive news. Why is that? A PFOB ban to me is strengthening the single market view. The single market requires fair rules for all of us, which in the past and up to now is not the case. In some countries like the Netherlands, the UK, you are not allowed to receive a payment for order flow, and in others you are. So in my opinion, the EU moves into the right direction and will have the same rules for all of us. Like always, there is a transition period from January 2020. 24 until 2026, where member states have the possibility to have a different situation. However, this has no impact to us and for us because over 99% of our revenues, as we always said, are independent of any payment for order flow. So this is good news for our industry, in my opinion, in general. It's good news for us. And it's a good news for our clients. Why is that? As that has no impact, we will not have to increase prices, for instance, on the 4,500 ETF and saving plans like it is discussed here and there in the media. And we will continue, especially in Germany for over 20 years with our price model at flat X, 5,090 per trade. We never touched that and we will not touch that. And therefore, again, news into the right direction. Obviously, the retail investment strategy, we will continue to watch and report when there is any changes or impact on our industry. So this goes to the regulatory environment. Now I'd like to repeat and mention again governance, as we always said. We will improve and develop our governance, and at the annual general meeting, as you are fully aware of, Britta Lehfeldt was appointed, so now it's five supervisory board members, and we are happy that we are even more diverse than before, and we are all looking forward to work together with Britta Lehfeldt successfully, as we already started in the bank, and as now the general assembly at the annual general meeting has positively voted for. So again, we develop as always said into the right direction with respect to governance. Obviously, let me also highlight the few business aspects. Obviously, we improved our relationship with the ETP partners and are very happy and proud The JP Morgan is our new platinum partner. The work is great and we are happy for that partnership and everything is on track and works well. A long, long time ago we mentioned that we work on a digital wealth product and we are happy now that our partnership with Whitebox, who we knew from the B2B side for many, many years, is now live on the B2C platform. site as well and Fletex Wealth has started and taken off this month. We are targeting here potential new clients who do not decide themselves but rather want to go for a managed strategy and we hope that the dormant clients who are not trading at all for a long, long time instead of doing nothing might rather have an alternative when they look at the potential offering of that wealth management product. So we wish good luck for this, and I move ahead with adjustments. We did, at Ejiro especially, we increased the rate on our loan product, obviously, over The last month's interest rates were increased, so we adjusted here as well with respect to our credit product and improved. And we did a bit on the commissions with respect to U.S. trades and local trades. This all in all will have a big impact in the second half, and we are looking forward to that. Again, in Spain, we were awarded Best Stock Broker. with Renkia for the seventh consecutive time so again a great tradition we try to continue with and again positive highlights so far and we will promise to work on it more hard and bring up more of this in the future. So in general this is the beginning Now we will shift gears, and I will hand over to Mo. Like always, Mo, the floor is yours.

Please. Good morning, everyone. Thank you for joining today's call. As Frank said, let me first please run you through the financial deep dive of the first half here, and then I'm asking for five minutes to give a little private notes on the announcement of this morning. If we jump into the commercial performance of the company, we have to admit that under the given circumstances and under the given environment, we've continued to manage our customer growth very, very well. We have increased the number of customer accounts in the first half by 186,000 clients with an annualized retention rate of 98.1%, which equals a churn rate of 2%. The net growth was 162,000 accounts. As you remember, we have forecasted this year one and a half growth, a customer account growth of one and a half to two times our European peers. Actually, the account growth in the first half was 2.1 times the relative growth of our peer average. The relative share of customer accounts growth per month is following seasonal patterns. We are showing on slide 11 what the seasonal pattern looked like in the years 2016 until 2019 to just actually adjust for the COVID years and the new stock years. And what we see is literally that we are very much in line with what we have seen historically with respect to seasonality. Strong customer growth in the first quarter, which usually drops in the second quarter. And then in the third and fourth quarter, it usually picks up again. So absolutely in line with respect to seasonality, also in terms of absolute number in line with our forecasted numbers. The second important point, or actually not the second important point, for us with respect to customer growth, the most important point is the development of the assets under custody. We are looking back to three, four years where customer growth, the absolute number of customers was usually the most important thing. We actually see here the importance to highlight what the assets under custody development looks like. As of June the 30th, we have reached an all-time record of 47.8 billion euros in assets under custody, which are split in 44.2 billion securities and 3.5 billion in cash. So what we see is actually two things. The first thing that we see is that our net cash inflows are still positive, now with 2.9 billion in the first half. We had in total roughly $6 billion of cash inflow, $3 billion of cash outflow. So the delta of it, the $2.9 billion is the net cash inflow. Quite interesting to see. We are again and again highlighting we are not a saving bank. We are a transactional bank. We are an online broker. And the evidence for that is that 91% of the net cash inflows of $3 billion were invested into securities by the clients. So the actual growth in cash was only 0.3 billion out of a total 3 billion net cash inflow. Coming to the trading activity, the trading activity dropped compared to Q1. I just mentioned it. It has also to do with seasonality effects. Q2, as I already mentioned in our first quarter call, is expected to show lower transaction activity, first given because of, in general, less trading days, but second also because Q2 historically has been the weakest quarter in terms of transaction activity. We are absolutely in line with the trading activity of our, let me call it, most admired peers, Nordnet and Avanza. Also there you can see the drops between Q1 and Q2. So the patterns follows, the zero patterns follows absolutely a market pattern and is with no respect idiosyncratic or, because I'm highlighting this point because as you remember, very often we've been challenged with respect to the quality of growth. And if the quality was worse than our peers quality, we would have to see a literally stronger drops in activity, but it's absolutely in line It confirms at least that the quality is as good as with our peers. I just touched on this point. Activity follows seasonal patterns. So in the history, if we look back, usually 26% of all transactions happen in the first quarter. 23% of all transactions of the year happen in the second quarter. This is exactly what I mentioned. It is historically the weakest quarter. Our first quarter was slightly stronger than in the past. The second quarter is absolutely in line with historical seasonal patterns. So we feel pretty good with respect to the residual six months of this year and our forecasts and guidance that we will come to in a moment. If we come to the commercial aspects, I mean, most of you have read them, obviously, and see them. The adjusted revenues grew by 8% quarter, so year-on-year, sorry, quarter-on-quarter. They dropped by 8%, mainly due to the fact that Q1 versus Q2, we are missing 3 million transactions that were done in the first quarter but did not happen in the second quarter, and 3 million transactions with... with four euros of revenue per trade, or actually a little bit more than four euros, but to use it for the mathematical calculation, we're talking about actually 12 million of revenue drop. The drop is not as heavy as the 12 million, it's only seven million euros, and the reason for that is obviously the improved, significantly improved monetization on the one hand side. On the other hand side also, and to a much bigger effect also the increasing interest rates for the deposits in the second quarter compared to the first quarter. The commission income is much more in line with what I just discussed or what I just mentioned, the drop of roughly 12, 13 million euros. This is what explains the drop from Q1 to Q2. The similar drop is also between Q2 to Q2 because also in Q2 2023, Two, we were at 16.2 million transactions, so also a delta of 3 million. The interest income is record high, obviously driven by two mechanisms. The first one, as I said, is the deposit facilities that are enjoying month by month more and more interest gearing, so to speak. And on the other hand side, Frank mentioned it, at the 1st of July, it's not reflected obviously in Q2, But as of the 1st of July, we have increased the marginal loan interest rates with the GRO that will also have a significant impact on the second half interest income. The commission for trade is still relatively flat in this range of roughly four euros with a little bit of uptake towards four euros, 17 and Q1, 2023. The drop from Q1 to Q2 is mainly explained by the drop in transactions. 3 million less in transactions equals also significant drop in high revenue transactions. That's point number one. And point number two is that there are some account fees that are charged in the first quarter that also fall out in the second quarter. But if we look in the second quarter and take more monthly perspectives, June, which was the first full month with the newly implemented fees on the DeGiro side, did a commission per transaction of north of €4.20. So we are now absolutely in line with what we expect going forward for the second half. And obviously also the April month, which was a super weak month, had a dilutive effect also on the Q2 commission per trade. So as of now, Q3 will be, so to speak, the quarter to confirm the price increases on both ends, interest income as well as commission income. And as I said, June has already provided us some transparency with respect to commission per trade and interest income. We had last year, sorry, no, in the last call, not last year, we had a discussion about the elasticity after price increases, and I know that some of the covering sell-side analysts have questioned and have challenged the elasticity that results from price increases with DeGiro, and let's say at least build a correlation between price increases and transaction activity. And to clean up this myth, we are providing this slide that shows literally the indexed trading of U.S. stocks at Flatex and DeGiro beginning in the first calendar week of 2022. So what we are showing is literally that we indexed for the brand Flatex and for the brand DeGiro the number of transactions in the first calendar week of 2022 and have sketched, so to speak, both graphs until the most recent week and the development of the trade in U.S. stocks. Why U.S. stocks? Because we mainly changed our pricing at Dechiro with respect to U.S. stocks. And the evidence that we want to bring to you is that the changes in fees with Dechiro did not affect the transaction activity on the Dechiro side. Since we didn't do anything on the Flatex side, it's the perfect benchmark for the activity development. And as you can literally see, both graphs are developing literally at exactly the same magnitude. Actually, over the recent weeks, the DeGiro graph is above the Flatex graph, which means that actually the activity, the index activity at DeGiro is higher than at Flatex. What we did is, over the recent 18 months, first we increased the FX fee from 0.1% to 0.25% at DeGiro with no changes at Flatex. In September 22, we increased at DeGiro the handling fee from 50 cents to 1 euro with no changes at Flatex. And in mid-May 2023, we changed the US commission from zero to one euro with no fee change at Flatex. And what we see is actually a parallel development of our trading activity. So again, the drop in activity is not an idiosyncratic result. It's literally market-driven and defined by the environment in which all mature online brokers have to operate. Actually, on the loan side, it's a little bit different and actually positively surprising us. We did the same thing also for margin loan changes. The blue line is, again, the Giro. The orange line is the FlatEx. What we did with the Giro is, as you know, already last year, so at the beginning of this year, on the 1st of Jan, we increased the margin loan rates for the Hero clients, and we did so on the 1st of July again. And we indexed as well the usage of margin loans at Flatex and Digiro. And what we see is even before, or let me put it the other way around. Funnily, since we increased the margin rates for Digiro, the volumes have picked up. And also here again, the volumes with Digiro have increased, are back literally to a level where we were in 2022. and with Fletix, we are still 10 percentage points down in terms of volume. Long story short, what we want to show you here is that there is no significant statistical significant elasticity on the volumes of the GRO loan amount given that we have changed the rate at the GRO and did not change the rate at Fletix.

Coming to the

OPEX side, I think it's important to highlight the key OPEX driver, which is obviously marketing expenses. We have promised that we will reduce the marketing expenses throughout the year. Actually, there is a significant reduction in marketing from Q1 to Q2 by roughly 9 million euros. So in Q1, we were at 17.2. In Q2, we were at 8.3. For the residual year, for the residual six months, we budget roughly 11 million euros. which totals then roughly 36 million euros. That would equal to a drop in marketing spend compared to last year by 30 million euros or 25%. We expect a further significant decrease in 2024, since in 2023 we still have the sponsoring of Sevilla, which went perfectly fine with winning the European League, obviously. but also had an impact on a one-off cost because we had, as usual in these contracts, a bonus clause for winning the European League, which kicked in to the surprise of many, many people, which will drop out next year. So we expect also for next year even lower marketing costs than 36 million, which we expect for this year. I mentioned it, the sponsorship of Sevilla FC came to an end at a superbly high note, winning the European League, a great success, especially also, not from a sportive perspective, but also from a brand awareness perspective for our brand, DeGiro, and for the Athletics DeGiro group. We have here shown a little bit the amount of DeGiro web searches during the final game on normal Wednesdays versus the final Wednesday, which shows a significant pickup All in all, a very, very successful sponsoring agreement, a sponsoring engagement that comes to an end. Thanks to CIVIA, to the whole team, to the whole people at CIVIA for having us as a sponsor and for the great hospitality that we enjoyed and the great support on all media channels, whether social media, TV, and finally, obviously, winning the European League. Last but not least, on some numbers with respect to OPEX, I think it's important to highlight that we had some non-recurring effects, one-time effects on our OPEX side. We mentioned it in the first quarter. We paid to all our employees 3.3 million euros for one-time tax-incentivized inflation compensation. This was a tax incentive provided by the German government where we were able to pay, so to speak, amount as a gross amount to our clients, so without any taxes and without any social payments that we had to take, and we made use of this. This was capped to, if I'm not mistaken, 3,000 euros per employee, and we have made use of this scheme. On top, as I just mentioned, marketing, we had an additional expense due to the European League winning of Serie A in the second quarter that is absolutely a non-recurring item. Last but not least, we mentioned the 1.1 million fine in Q1 by Baffin. And another legal dispute in which we are currently is with the legal, with the Italian competition authority, where we had a 4 million euro fine prepayment in Italy that is based on a competitor's claim. This claim did not come from a client, did not come from any regulatory body. It came literally from a competitor in Italy, and not only against us, but against also some other competitors in the market. We are following this, obviously, this legal dispute with very, very high diligence are supported obviously by a worldwide known legal firm. We have appealed this decision and both we, but also our legal support sees very high probability to win the appeal. And also an information that was interesting to find out that only 14% of the, so to speak, So can penalties and fines by the competition authority. Only 14, 1.4% came into effect after decisions were appealed in front of the court. So we absolutely see here no base for this fine. All our arguments were not heard, and this is something that we will now bring in front of, actually we did already bring it in front of the court in Italy to be decided on a court level. So despite all these one-off effects, the adjusted EBITDA provided in the second quarter was quite positive with 34 million euros, which is a quarter-on-quarter growth of 13% a year-on-year growth quarter-by-quarter of 24%, despite much, much lower transactions. which I think proves the cost discipline that we have started this year and that will obviously become much more visible in the coming next two quarters. The account at EBITDA is also with 29 million euros in Q2 relatively stable. So what you see is actually that we built 5 million euros of, so we released 5 million euros of ZARS provisions And that, sorry, no, we built 5 million Euro of sales provisions between, or during Q2, which reduces the adjusted EBITDA from 34 to 29 million.

Coming a little bit to...

To the full year perspective, Frank mentioned it, we are absolutely confirming our guidance in the end, which was 380 million of revenues, 40% of EBITDA margin, 30% of EDT margin. The assumptions have been mostly stable. The customer account growth of one and a half to two times ahead of peers is continuing. The number of settled transactions has been adjusted in the assumption base. We started the year with the assumption of 65 million. The assumption for this year is now 58 million transactions. The lower assumption in number of trades is balanced out by the higher commission per transaction of €4.15 for the full year. The average interest rate on margin loan is adjusted to 5% as an assumption. The average interest rate on the remaining cash under custody has been adjusted to 3.5%. The COPs will most likely benefit from the mix, given the fact that we do less equity trades than expected. The settlement costs will also come down. So we will see an effect on the COPs on the one hand side. And on the other hand side, obviously, since the interest income has a higher share in total revenues, we will see also a positive effect on the relative COPs. The impacts were explained, and marketing has been explained. So if we look into both P and L, the actual P and L for H1 and the implied P and L for H2, we see roughly the same commission income for the second half, 10%, 10, 12% increase in interest income. The other income will be most probably stable, a little bit coming down given also contracts that we have discontinued. We definitely expect to reduce further the OPEX as we mentioned, and are aiming for a high 40% EBITDA margin, adjusted EBITDA margin, and the high 30s EBIT, adjusted EBIT margin for the second half. And if you combine these two P&Ls for the full year, you will see that this is more or less what we have guided for the full year.

That's it.

With respect to the preliminaries, with respect to facts and figures, thank you. A warm thank you to all colleagues from the whole board for this successful first half year, despite the environment that we are operating in. Before opening up the Q&A session, allow me to take two, three moment to describe and tell you a couple of things about my decision that we announced this morning. As you all have read, I prepared to bid farewell to this exceptional organization that has been my professional home since 2015. It was obviously also for me literally a home where I spent more time with than actually with my own family. over the recent 89 years. From its humble beginnings as a German small online broker, we have witnessed the remarkable transformation of this company into the European market leader. And it has been, for me personally, an incredible journey. Filled with countless challenges, we had big triumphs. We had a lot of lessons learned that shaped me as a person and actually as a leader. I'm filled with a profound sense of gratitude and pride when I reflect upon this time. And I have to admit, it has been a privilege to serve, to develop, and to lead that company. And I'm very thankful and grateful for the trust that the supervisory board, that Frank, in very, very early days, that I was given in this game very early in 2015. And leaving a position that I've cherished for so long, first as a CFO, then as a CEO, then as a deputy CEO and CEO of the group is undoubtedly bittersweet. And rest assured, it was a very difficult decision for me, a decision that I took the diligence and the necessary time for to decide upon. And I know that I'm surprising a lot and maybe even disappoint some people with this decision. but I'm convinced that that changes an integral aspect of growth and something that I've always preached to colleagues, to employees. Um, I'm filled with a deep sense of excitement and optimism. What, what my new professional chapter will look like after my remaining time with FedEx DeGiro and, um, a break, a personal break where we'll take care of, of my private matters, of my family. Um, You know, it was also personally a tough year with the losses that we had in our family over the last 12 months, losing father-in-law and losing my own father. So taking the time to reflect on a couple of things and to fill up batteries to literally, hopefully, follow the next professional destiny. I want to express my deepest appreciation to all of you, colleagues, employees, the supervisory board, investors, clients, analysts, stakeholders, regulators, business partners, family and friends. Your support during this trailblazing years was and has been always a driving force behind our accomplishments, but also personally my accomplishments. We've developed great relationships, delivered exceptional results, and created, I'm very sure, a very lasting impact in the online brokerage industry. We have developed together the European market leader. And although I will continue to support specific internal topics and projects, this is my last IR call for Flatex DeGiro. I think it's very, very important. This is also something I absolutely believe in, to have a very inconsequent transition, especially of the capital market communication. I'm happy to hand over the responsibility for investor relations to our CFO, Ben Amiana, And I'm very sure that Ben and Akeem, and obviously Frank, will continue to answer all your questions, at least as good as Akeem and I try to do. The last personal note, Frank, I'm immensely grateful for the mentorship, guidance, and the knowledge that you have generously shared with me. Your support definitely has shaped me into a better person and leader. And I know that it's a disappointing step, but I have absolutely no doubt that this company will continue to drive and deliver. We have an excellent management board that is now back to three people that will hopefully increase at the end of the year after the approval by the regulator to four people again by having Christiane as a CHRO in the group. And I have no doubt that this company will continue to drive and to deliver. I'm absolutely excited to follow the development as a shareholder from the sideline, so to speak. Yeah, that's it. Thank you very much, everyone, for the great journey we've had and we've shared over so many years. And again, a personal thank you also to all the long-lasting and early-time investors for the last eight years. We've spent so many times, discussions and points together and thank you also for the support that made FlatX DeGiro what it is today.

Goodbye. Thank you, Mo, very much. Before we open up for Q&A, let me make a short comment. Obviously, I regret a lot that you're going to leave us. It was a successful journey we had together. Unfortunately, we share the same experience. You lost your father this year. I lost my father this year. Without going too much into private details, I have a great deal of understanding on the private side that you will take care of more of your family and take a sabbatical to digest those things, and that I respect. And I hope everyone else will respect that, should respect that. With respect to the company, we've run this business in the group management board level Long, long time and many years alone, the two of us. Now we are four. I'm rest assured that Beno and Stefan and I will continue to run it successfully. And as you said, subject to BaFin's approval, which is expected by end of the year, Christiane will join with respect and the fact of 1st of January. So then we are back to four. I'm also happy that you continue as a shareholder and will support us. And I also appreciate your comment that you will not continue to work for any competitor. And having worked with the market leader and grow this business to European market leadership, I appreciate that a lot. And I wish you for your personal belongings and for your personal life all the luck you've deserved and whatever you expect. And I trust When you go back into the professional environment, you will continue to be very successful, and I wish you all the best for that as well. Thank you very much. So thank you for all the great years, and now we open up for questions.

Thank you, sir. Ladies and gentlemen, if you would like to ask a question on today's call, please press star 1 on your telephone keypad. That is star 1 for your questions today. We will pause for a brief moment. Our first question today comes from Ian White from Autonomous Research. Please go ahead.

Hi there. Thanks for doing the call and for taking my questions. Just to start, I'd like to say a quick congratulations to Mo on a very successful tenure, and thanks for your help during my time covering Slatex. Just a few questions then, please, if I can. First up on this issue regarding the Italian competition authority. Can you just say a bit more about that, please? What exactly is it that you are alleged to have done that's contravened guidelines or whatever the competition authority has in place? Why have you chosen to prepay? this fine if you kind of think ultimately you'll be successful in your challenge against it? And is 4 million euros the upper bound of potential liability here, or could that go further? Just wondering if you could provide a bit more detail around that issue, please. Secondly, just on this question around the retail investment strategy, appreciate that you basically don't turn PFOF in your business. but I understand that you do receive sort of significant payments from the ETP providers, and the Commission's proposal is that third-party payments will be banned, as far as I understand it. So can you say a little bit, please, about sort of how you see the risks there to your revenue stream from the ETP providers? Is that at risk, basically, if the Commission's proposal's continue as they were drafted earlier this year. And just finally, I wondered if you could share with us what was the total capex in 1H23, please. Thank you.

Yeah, let me start in general with Italy. It's the antitrust authority which has imposed a final fine of 4 million. That's the final sum. It can't be higher. Second, it's Italian law that you have to pay the fine in advance, regardless of whether it's justified or not. Obviously, the Italians have a little business model invented here, because they always impose fines, they receive the money, and then only if the parties who are involved go to court and fight that decision, they have to give the money back. and we have reviewed all the public available information on that and there were over 20 cases where the result is that no more than 14% of the total sum imposed had to be paid and were legally justified. So obviously we have appealed in court and we trust that we will get either the total or at least a great sum of that fine back. because we believe in general that we behaved and complied with what market standards are in Italy, but I don't want to prejudice the legal court here and we leave it to the judges finally to decide over that. Yeah, this is in general a comment and maybe more you want to mention a bit more about the details if necessary. With respect to the PFOF situation, I think technically you have to distinguish between commissions paid by investment banks to brokers and other parties with respect to ETP products. To my understanding, that is not part of PFOF. That's a different ballgame. Yeah, and maybe Mo, you want to comment on the other aspects or... give a bit more detailed information if necessary.

Yeah, I think first, thank you for your warm words to cover up. So the telling point was absolutely, as Frank said, it is what it is. You have to prepay fines. It's different in, I think, mostly and not even all European jurisdictions. You pay when you have the final decision. In Italy, you have to prepay fines and then you have, you can still appeal then. With respect also to the ETP topic, I think we have started, as Frank also mentioned, we have started already two years ago to change the structure also of the ETP settlement into a more OTC situation between us and the product partners. And on top of that, there is one, two strategies that we have in our drawers, so to speak, what to do if, for whatever reason there might be, an ETP ban, which does not, which is as of today, not given, but in the Netherlands, for example, you have seen some players that then use white label solutions to provide ETPs to the market. So we could do as well if necessary. With respect to the question, I think it was the last one with respect to CapEx. Allow me to say that we will provide all the balance sheet details and cash flow details, MP&L details in the report that is going to be published mid-August.

Okay, thanks very much. Can I just come back on the first one just briefly? Sorry if I've missed this somewhere, but what's the actual accusation against the company, please? What is the alleged wrongdoing? for which this sort of preliminary fine has been imposed. Can you just provide a bit of detail there, please?

Yeah, absolutely. Sorry again. So it is actually the vast majority of the fine is with respect to an absurd topic from our perspective, but also from the industry perspective. We discussed it with different regulatory bodies even, and all of them cannot understand it either. So the topic is the auto-effects. So when clients have euros on their account, and they buy an Apple share at NASDAQ, we have to convert the money, obviously. We cannot settle against Morgan Stanley, the prime broker, in euros. We need dollars to buy apples. And the default setting, which is actually the default setting globally, is to do it automatically. The client, however, has also the option to open with us the US dollar account. But then he has to open up a second account, which is a second reference cash account, where he can then park US dollars. And they say that we are providing, so to speak, a disadvantage to clients by having the AutoFX standard product. Now, we have obviously analyzed the whole European market, and there's literally half of the market does not even offer US dollar accounts. So clients are forced into... automatic FX conversion. And those that offer FX account, all of them have as a standard default to have automatic FX conversion. Now, in Italy, as we said, there's a competitor that opened up all this discussion with us and not only with us, but with also one, two other players. And the funny thing is that this competitor himself has as a default, the outer FX for his clients. So, which is an absurd discussion And this explains the vast majority of the fine.

Okay, got it. Thank you.

You're welcome.

Next question, please. Thank you. And we move on to Christoph Greulich from Birnberg. Please go ahead.

Yes, good morning, and thanks a lot for taking my questions. Three from my side, please. Firstly, on the UK business, it seems like you have stopped onboarding new customers there a few months ago. Just maybe if you could tell us what is the reason for that and then given that the UK has been classified as one of your growth markets, if you could quantify roughly the impact that had on the group's customer growth in Q2. Then secondly, just on the the future transition on the management team, are you planning to find a successor for the COO role? Or is the plan to distribute most responsibilities among the existing members of the management team? And then just on the PFOF evolution, the recent news flow, what is your expectations for how this might shape or change the competitive landscape?

Yeah, let me briefly start with UK and then maybe Mo can go a bit more in detail if necessary. We have temporarily stopped onboarding UK clients because we had a discussion with the UK regulator about the new license situation and I'm convinced that we will come back soon on that and change that. As I said, it's temporary. And I think the impact was not that big to my understanding, but maybe Mo want to comment on it a bit more in detail. With respect to the position of COO, as I mentioned earlier, my personal note, Mo and I have run the group management board, just the two of us, for almost eight years, and it was very successful. Now we are four members here. Company has grown. Temporarily, we will be three. Soon, we will be four. So we will continue to take over and divide the responsibilities most had among ourselves here. And we trust that we do that well. Anything else, we will comment on as soon as supervisory board has reached a different view. If not, we will continue like that, which for the time being is the situation. More is available until the end of the year anyway. And latest with effect of January 1st, we will have Christiane Strugel joining and then we again forehead. I think that should be enough and will work well. But I'm happy to hand over to Moe.

Yeah, let me, let me, hi Chris, let me just on the UK business, I think to give also here the reasoning. So it's literally a temporary point. As you know, we have stopped actually marketing the UK already two years ago since actually the temporary regime. And if you look into the number of clients, I mean, last year we did 7,000 gross new clients in the UK. So So it was not a big effect. We still consider it as a strong growth market, but we are waiting for the final licensing, which will happen hopefully over the next weeks, latest in Q3. And then we will open up again the onboarding. The reason is mainly that we want to avoid the transition early to this new entity that we have implemented during onboarding phase. So this is why we also stopped it. but also in the discussions with the regulators, we came to a point that it makes sense to stop it and make the transition. And as soon as we have the new licensing, we will be able to open up then the onboarding again. To your last question, Frank, the PFOF discussion advantages, potential advantages.

Yeah, I mean, as I said, we believe in a single market with fair rules for everyone. So I hope this will be more transparent and fair in the future. As we do not depend on PFOV revenues, it has no negative impact to us, other than with neobrokers who have based their business model on PFOV. And obviously, this will have an impact on the industry, where I strongly believe that we're going to benefit from it. And as you always know, We have taken time to strengthen our organization, to do our homework. We worked hard on the learnings from the audit. So I think we will head into a bright future and we will look into organic and unorganic growth. And obviously the competitors, some of them, especially the neo-brokers, have to reinvent their business model when they cannot receive any more payments from the stock exchanges and in Germany there is the federal court rule, as you are all aware of, which does not allow market participants to increase fees via general terms and conditions with two months notice and then it's going to implement it thereafter as it used to be 20, 30 years ago, which was the common practice that is no longer valid. You need consent in writing from the clients before you can change that. And obviously clients do not like that if they were solicited with the aspect that they don't have to pay anything. So that's going to be a challenge. And maybe that's also the reason why the commission is giving two years transition period to give enough time to talk to the clients. We don't have to do that. So especially in Germany, we always for 20 years kept our 590. That has not changed and will not change with respect to equity trades, and our ETF savings plans products, I think, amount to 4,500. We don't have a reason to change anything. So our clients will not be affected by this, but I think it's going to have an impact on the industry.

Yes, great. Thank you, and all the best to you, Mo. Thanks, Chris.

Thank you.

Next question, please.

And our next question comes from Andrew Lowe of Citi. Please go ahead.

Hi, guys. Just a few from me. I thought page 18 and 19 were interesting, showing increased charges at zero. I'm interested in any thoughts that you may have on future pricing at Flatex, where you've been more stable with your fee structures. And then secondly, just in terms of the fact that you've got a number of inactive customers on your platform, I'm just curious what the regulatory challenges of this include. So for example, how do you ensure that your KYC is up to date? And the reason for asking is that one of your Nordic peers recently said that they have a regulatory obligation to keep the KYC up to date, which is why they close in active accounts. So just curious on your thoughts there. And then finally, just a clarification, did I understand correctly that you said that your June commissions per trade was in line with your expectations for the second half of the year, with which your guidance implies four euros and 25 cents. Thank you.

So I had some difficulties due to reception to really understand all the questions. The only thing I really understood was why commission decreased per trade, and Mo is going to help you to comment on that. Mo, why don't you take over, please?

Yeah, I had my ear very close to the phone, so I tried to get it. So the first, I think, point was slight 18, 19, the euro versus flat X, If I'm not mistaken, your question was like whether there are price changes with FlatX or strategies around FlatX price changes. Am I right?

Hi. Sorry. I've changed away from the headset. Hopefully, you can hear me better now. Yeah, that's right.

You could speak a little bit louder. Yes, please.

Yeah. Can you hear me now?

Yeah.

Yeah? Okay, fine. Sorry about that. Okay. So basically, what's the scope for increasing pricing in your Flatex brand going forward?

So the point with Flatex is that Flatex is operating in Germany and Austria, both jurisdictions that allow price changes only under the active consent by the client. Since the latest court decision, highest German court decision, which makes literally price increases so difficult because clients have actively to consent to these price increases. By the way, a topic that with the PFOP discussion for neobrokers will become quite interesting because a lot of people usually say, okay, if they don't do any PFOP anymore, they can just increase a little bit or charge a little bit of fees. The point is active clients have to give actively their consent to price changes, so to price increases. This is why at FlatX we don't see any price changes in the next future. With respect to – I think the second question was with respect to KYC and the BaFin audit.

Sorry, I'll just step in. It wasn't specifically the BaFin audit. It was just a question about – what the kind of regulatory challenges are and obligations with KYC about having a large number of inactive customers on your platforms. And the reason why I asked that was one of your Nordic peers recently said that they have an obligation to keep this KYC data up to date, which is why they're active at closing inactive accounts, whereas you seem to take a slightly looser approach.

At this point, the request for KYC has increased significantly over the recent years by the regulators, and obviously we're trying to the very best to comply 100% actually with all these requirements. Indeed, old accounts will become in the future, so let's call it non-terminated accounts with inactive clients with maybe old documents will become in the future a little bit more challenging to re-KYC these clients, etc., In the Nordics, you're absolutely right. In the Nordics, peers already have decided to close down inactive clients because it's much more cost-efficient to close down inactive clients, especially if it's a zero-euro account, so no cash nor securities, than to re-KYC. This is something that will be in discussion also here with us and the management board over the next weeks and months. And it might obviously also lead with respect to our client pool to off-board old clients when it's much more efficient to off-board them than to re-KYC them.

Yeah, maybe one comment here. The FlatX Wells product is also one initiative to address inactive clients because some clients might not know what to do and are inactive because of that. And If you have an alternative to do nothing and get zero revenues and zero return versus a nice conservative strategy where you get 3%, 2%, 4%, 5% return whatsoever, it might be an alternative. We will have further initiatives coming ahead where we address inactive clients. But if nothing helps, it might be a final consequence to do it as the Nordic have started to do it. We are working on that and we have a close look on that and we will make sure that we continue to be very compliant.

And your last point was with respect to commission per trade, if I'm not wrong. If I'm not mistaken, you asked like how we see the guidance for the €4.25 going forward, right?

It was just a clarification that June commission per trade was around that level.

Yeah, absolutely. So this is what we said. We expect from now on, after the latest price changes, that the commission per trade will grow to 420, 425. So given the first half where we did not have this price mechanism, the full year average will be obviously diluted to the lower. But as of July, the commission per trade should definitely go up towards 420, 425 per trade.

Great. Thanks very much, and sorry for the weak line. You're welcome. Thank you very much.

Thank you. And we're now moving on to a question from Simon Keller of Haugen Delfeuser. Please go ahead.

Good morning. Thanks for taking my questions. I have two. The first one is, how is the share of active customers relative to total customers developing? And the second one is, what type of customers have you gained recently? Could you rather cluster them as day traders or buy and hold ETF investors?

Thanks. The share of active customers for the second quarter has not been released yet. We will do it in the update of the corporate presentation, but we are happy to give the number. It's 30%. So very relatively stable to the first quarter. That's point number one. And point number two, what type of clients did we win in the first half? To do these type of analysis, we need always a little bit of time, obviously. So we will definitely also provide the information then again in the cohort analysis. But actually in such an environment that we have as of today, where clients are not really, so the mass market is not really receptive for online brokerage. The type of clients that we win is rather coming from the experience base, not on a day trader base, but rather active trading customers. The averages of the new clients that we won in terms of trading activity is very similar to the existing base. So it's not like that we are now winning only clients that do 500 trades per year. nor do we win clients that don't do any trades. So the client mix, so to speak, is very stable with respect to the existing client base.

So if that was the answer, next question, please.

Thank you. And our next question comes from Christoph Bliffert from ExanBP. Please go ahead.

Good morning and thank you for taking my question. ESMA recently made the statement that revenues from securities lending should directly accrue to the retail client rather than kept by the bank or broker. Any comment on the impact from securities lending on your revenue line would be helpful. Thank you.

Yeah, the short answer is, Mr. Bleifert, we don't offer securities lending so far. So no impact for us.

Thanks.

Next question, please.

As a quick reminder, that is star one. If you'd like to ask a question today, we will pause for just a brief moment. There appears to be no further questions at this time, so I'd like to hand back over to you, Mr. Niehage, for any additional or closing remarks.

Yeah, then thank you all very much for having taken the time this morning. We will continue to work hard. We are looking forward to a more prosperous second half. Thank you, Mo, again. Ben-Ognanos will take over. I trust he will do it with his 20 years of experience at Goldman Sachs very well. and try to do it as good as Mo. And we all are looking forward to stay in touch with you. If you have any further questions you could not provide today, happy to talk to you later or send us a mail or give us a call. Have a nice day and all the best to you. Bye-bye. Bye-bye. Thank you.

Thank you. Ladies and gentlemen, that concludes today's call. You may now disconnect.