flatexDEGIRO AG

Hello, and welcome to the Phylatex Digital Analytics call. My name is Jess, and I'll be your coordinator for today's event. Please note, this call is being recorded, and for the duration of the call, your lines will be on listen only. However, there will be the opportunity to ask questions. This can be done by pressing star 1 on your telephone keypad to register your question at any time. If at any point you require assistance, please press star zero and you'll be connected to an operator. I will now hand over to your host, Achim Schreck, to begin today's call. Thank you.

Thanks, Jess. Good morning, everyone, and many thanks for dialing in. My name is Achim Schreck. I'm heading the IR department here at Fletix Digiro, and with me today I have our co-CEO and CFO, Dr. Benon Janos. as well as our Global Head of Finance and Procurement, Dr. Thomas Lindner, and my colleague in IR, Laura Hecke. We would very much like to welcome you all to our analyst call regarding our H1 and Q2 numbers, as we've published them yesterday evening post-market close. As usual, we would like to provide a short run through the presentation before we open up for your questions. And without any further ado, I'd like to hand over to you, Ben, on the floor is yours.

Thanks a lot, Achim. Good morning, everyone, also from my side, and welcome to today's earnings call. Let's jump right into the highlights of the first half of the year on slide three. We are very happy to close a successful first half of the year and also continue our strong start to the year during the second quarter. we were able to grow both top as well as bottom line during that period, reaching new record results. Revenues increased by 28% year-on-year to 242 million euros in H1, while net income more than tripled compared to the previous year, reaching 61 million euros and growing more than 200% year-on-year. This is driven by commissions and interest income. Based on these results, we are very confident to achieve a record year in 2024 and are still expecting to reach the top end of our fiscal year 24 guidance with revenues growing up to 15% and net income growing up to 50% year over year. Moreover, our 2024 AGM on June 4 approved the distribution of a dividend of $0.04 per share, our first dividend ever, and we are happy to deliver on our capital allocation strategy to our shareholders. Speaking about capital allocation, the 2024 AGM also approved our plan to pursue a share buyback program of up to a total of 10% of the share capital. I'm sure you saw our ad hoc notification this Monday that we now have applied for the approval of our share buyback program with the German regulator BaFin. We expect an answer during the coming weeks or months. While we have not communicated the precise volume of our share buyback program yet, let me reiterate what I already said during the Q1 call, that a large portion of the 2023 balance sheet net profit is planned for the share buyback program. As a reminder, our balance sheet net profit for the fiscal year 23 amounted to around 72 million euros. Of course, we will keep you informed about the further progress as soon as possible. Also, as you may have seen, we had some changes in our supervisory board recently. Herbert Zoellink decided to step down from the supervisory board, while our shareholder, Bernd Ferch, who directly and indirectly owns close to 20% of the company, was elected as supervisory board member. These changes were effective as of the end of the 2024 AGM. The management board would like to thank for Mr. Zeuling's contribution to the supervision of our firm over so many years. Now let's have a look at the development of our key KPIs during the second quarter of 2024. We are very pleased to see that all major KPIs showed a nice development. In the second quarter, Revenues grew strongly with more than 30% year over year. Commission income increased by 25%, driven by a continuously growing customer base, higher trading activity, and higher commissions per transaction. Interest income grew by 47%. This can be attributed to a growing average margin loan book, higher amounts of cash under custody, and interest rates above the previous year's level. Both the ECB deposit rate and the margin interest rate are around 30% higher compared to Q2 of 2023. Gross margins benefited from positive mixed effects with the higher share of interest income and improved by 3%. Our operating expenses stayed more or less flat in Q2 as lower marketing spending and less additions to provisions for long-term variable remuneration, mostly compensated higher general administrative costs, and an increase in current personal expenses, most of them still inflation-driven. We have also seen higher costs related to regulatory requirements. These are not limited to BaFin findings in general, but occurred because we also drive improvements in related areas that were not triggered by the audit results directly. Moreover, we have some exceptional expenses around this year's AGM and resulting external professional services, for example, for legal advice, communication and proxy advisor consulting, as well as for the CEO search. Going further down the P&L, our EBITDA increased by 82% year over year in Q2, with a margin growth of 39%. This is attributable to the high scalability of our business model. On the back of this, net income more than doubled with a margin growth of 78%. We continue to manage our costs well while growing new customer account openings by 15%. Driven by the great efforts of our teams, we were able to bring the average customer acquisition costs down by another 32% during the quarter. Also, trading activity remains solid with the numbers of settled transactions increasing by 16%. So in a nutshell, we are very happy with the progress Flatex de Giro made during the past month. And in the name of the whole management board, I would very much like to express our gratitude to all our employees who work very hard every day to achieve this result. Now on to our commercial performance in the second quarter. Gross customer additions amounted to 85,000, an increase of 15% year on year. However, this is a decrease of 30% sequentially attributed to our normal seasonality where we see the usual and well-known tendency that many new customers open their accounts at the beginning of each calendar year. Assets under custody reached a new record with around 61 billion euros, therefore strongly growing 28% year-on-year and 5% sequentially. We settled 15 spot 2 million transactions, growing 16% year-on-year but also being down mid-single digits sequentially due to normal seasonality. Client trading activity across the European online brokerage industry remained relatively stable over the past few quarters with a mild uptick in the first quarter of 2024. In Q2 of this year, we saw an average 21 trades per customer account on an annualized basis for FlatX DeGiro. This puts us right in the middle of the activity of some of our closest competitors. As already mentioned previously, Our assets under custody reached a new record with 61.1 billion euros. This is split as usually into two main categories. Securities under custody of 57.6 billion euros and cash under custody of 3.6 billion euros as of June 2024. Clients' cash deposits were stable over the past few quarters. This is a positive trend as we were able to keep the cash position steady, despite some relatively aggressive interest offerings from competitors in the market. As a reminder, we do not pay any interest on cash held on our platforms. This testifies that we are able to tap the right customer segment in the market, customers that come to us for trading and not necessarily for savings. Our securities under custody grew nicely by around 6% quarter over quarter and 30% year over year. This is driven by both higher index levels and also fresh client purchases. Turning onto the next slide, you can see our net cash inflows. In the first half of the year, cash inflows of 7.2 billion euros compared to cash outflows of negative 4 billion euros left us with a net cash inflow of 3.2 billion euros. 109% of our net cash inflows were reinvested. The delta to the net investments of 3.5 billion euros was covered by an increase of our margin loan book by 0.21 billion euros or 210 million euros. The cash under custody position remained more or less unchanged. Now, as usual, we portray our revenue split in the past quarter. As we already provided a deep dive on the different drivers of the commission and interest income on slide four, let us jump directly to the next slide and to our trade monetization. We were able to generate an average of 4.33 euros per transaction in the second quarter of 2024, with a 9% increase from 3.99 euros in the second quarter of 2023. Sequentially, the commission per transaction came down from 4.64 euros in the first quarter of this year. We were very clear on our Q1 financials call that Q1 commissions per trade are typically meaningfully above average due to seasonal effects, so no surprises here. For example, some base fees are typically charged in January or February. We also explained during the Q1 call that we expect the commission per trade to come down in the following quarters of the year. This is what you can see now. But comparing the result in Q2 to other quarters besides Q1, you can clearly see the positive long-term development. Moving on to our profitability. We already discussed profitability in the second quarter on slide four. Therefore, let me allow to move on to the next slide where we will go through our half year results in a bit more depth. Revenues in the first half of this year increased by 28% year over year to 242 million and growing 20% compared to the second half of 2023. Commission income in H1 amounted to 141 million euros, corresponding to an average of 4.49 euros of commission per transaction. Together with a slight increase in the number of settled transactions based on ongoing customer growth, this 10% increase in commission per transaction was the main driver of the 17% growth in commission income recorded in H1 2024 compared to H1 2023. Interest income in H1 of this year amounted to 92 million euros, an increase of 55% year over year. The increase results from higher depository rates at the European Central Bank, increased interest rates for margin loans at both FlatEx and DeGiro, as well as higher average amounts of customer cash under custody, and an increase in the margin loan book. A few comments on costs. Operating expenses decreased by 10% in the first half of 2024. Current personnel expenses increased by 17%, driven by salary increases, as well as significant hiring of addition employees in 2023 in the context of addressing regulatory findings. However, this was compensated by lower marketing expenses, which were cut by 29% in the first half with no negative impact on customer account growth, which actually increased year over year. Other administrative expenses increased to 29 million in H1 2024 compared to 27 spot 1 million euros in the first half of 2023. This was mainly driven by significantly higher legal and consultancy fees, for example, for regulatory requirements, as well as the additional needs around the AGM and the ongoing CEO search. These increases were partially compensated by the absence of any special items, such as the payment of a penalty issued by the Italian Competition Authority in the second quarter of 2023 due to the complaint of a single local competitor against which we are taking legal action. All in, EBITDA in H1 2024 amounted to 106 million euros, thereby increasing 120% year over year. Net income for H1 of 2024 amounted to 61 million euros, more than tripling compared to H1 of 2023. The very high scalability of our business model is visible in the very strong margin increase. We grew EBITDA margins by 72%, while net income margins soared by 137%. On the back of this, we are confirming our guidance for the full year 2024 to reach the top end of our 5% to 15% revenue growth range and 25% to 50% net income growth range year over year. With that, we would like to conclude the financial presentation, and it's my pleasure to hand back to Achim and wait for your questions.