Avanza Bank Holding AB (publ)

Good day and thank you for standing by. Welcome to the Avanza Full Year Report 2024 conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference has been recorded. I would now like to hand the conference over to your first speaker today, Gustav Unger, CEO. Please go ahead. Thank you and welcome all.

Here in the room in Stockholm, we have Sofia Svabar, Head of Investor Relations and Communications. We have Anna Kasseblad, CFO and myself, Gustav Unger, CEO. So I hope we are well represented to take your questions after the presentation, which I will start on a broader note, and then Anna will go into the P&L and balance sheet, and then I will make swift concluding remarks before we open for questions. If I look at 2024, I'd say that it was a good year, and it was a great last quarter. The one achievement that I'm mostly proud of is that we had, again, the most satisfied savings customers. We increased our lead, these are the competitors, and we were ranked number one in all individual categories. I think that's a great testimony from our customers. The year also showed strong growth. We had inflows of 86 billion, which I think is really good. We attracted 171,000 new customers. And maybe more importantly, that trend accelerated in Q4. And in Q4, it accelerated in December. So we have a good momentum into this year. I think the year was also a year of high innovation. And we had many appreciated launches, especially towards our most active customers, to improve their ability to do fundamental analysis, to do technical analysis, and to do better order execution to mention a few areas. The risk willingness among our customers increased in the latter part of the year, and we reported the highest share of foreign trading ever. We also saw that customers were fully invested, and only 7.1% of their savings capital were in cash on our balance sheet. and we had an increased appetite for margin lending. Volume grew with 32% during the year. And the fund business continues to grow and we report our best full year profit ever. And as you recall from Q3, we set new targets and strategic priorities up until 2030. If we go into the different parts and start with the fund side, We grew our net flows into funds with 76%, I think that's an impressive number, from 24 billion in 2023 to 41 billion last year. And the fund business is increasingly important for us, now amounting to almost a third of the total savings capital, and that is contributing with a stable source of income. Proceeding to the trading side, the market sentiment has improved and we see increased customer activity across all segments, similar to previous periods of positive market sentiments. We saw 12% more customers generating brokerage in 2024 compared to the year before. And we saw, as I mentioned, the highest share of foreign trading. And that trend has been ongoing for long. and should continue as home bias diminishes. We saw increased trading, especially in Q4, and that was spread across many large blue-chip stocks and crypto-related securities, including ETPs. But we are still way below the pandemic levels on activity. If I look back on the targets we had entering into 2024, I think we can be fairly satisfied. We ticked the box on customer satisfaction, we ticked the box on employee engagement, and we ticked the box on the value growth side, on reaching our return on equity target. The board is proposing a dividend that is way in line and above the dividend policy. and our cost to savings capital ratio decreased from 16 to 14 basis points. On the sustainability side, there's a little bit more mixed picture. The sustainability score of our customers' overall investments improved, but we still have lots to do to help our female customers to become bigger savers and investors. And here I reiterate our strategic priorities and long-term targets that we presented in the Q3 report. And we want to develop and grow the leading position in our core business, and that is savings and investments in Sweden. And the emphasis here is to improve our share of wallet, which currently is around only one third. We want to achieve market leadership in private banking. We want to achieve market leadership in occupational pension. We want to increase our efforts to fuel further growth, including cloud migration and automating manual processes. And we want to establish Avanza in at least one additional European market. And of our seven long-term targets, three are new, the ones in the middle, to grow our savings capital with, on average, 15%, to have an annual cost growth of 8%, and to decrease our cost to savings capital over time. The other targets that you see there you are well familiar with from previous years. And our ambition is as mentioned to grow savings capital in Sweden by 15 percent annually and reach 2000 billions by 2030. Historically we have grown the savings capital over the last five years on average with 19 percent. And in 2024, we grew it by 22%. But to the right, you can see that we were helped by a very nice market depreciation of 11%. So I think it's important to look at the net inflow, which last year was strong of 11%. And our target is to grow the savings capital by 15%, which we can decompose into a net flow of 10% and a market depreciation assumption of 5%. And to visualize our growth potential, I like to compare our market share of the front book versus the back book. And in the latest market data, we take 20% of all new business that hold only 7.5% market share of the back book. So mathematically, if we continue to do a good job, I mean, we should have 20% in our back book, i.e. our portfolio, that that will take time. Going into the price banking side, I am happy that we announced the acquisition of Sigma Stock. I think it is an important step for us to deliver on our ambitions, and it helps us to swiftly create a digital discretionary offering to our customers. And this is a market, the discretionary market in Sweden is around 1000 billion, and we don't even compete there today. And it's frustrating to see our customers having part of their portfolio with competitors because we don't offer this solution today, but we will then soon. We got new figures from Prospera during the fall showing that our customers are the most willing to recommend Avanza compared to our competitors. That's great news. Our market share decreased slightly to 12%. and to a number five position when it comes to number of customers. But these numbers fluctuate a bit between the years. What you can see to the right is that we have a great potential to build our brand within private banking. So our customers are very willing to recommend others our private banking offering, but the knowledge of us offering private banking is low. And as I mentioned in the beginning, many of our product features we launched in 2024 was directed towards the more complex and demanding customers. And last week, we launched Simply Wall Street as an advanced analysis tool, and we continue to make our offerings stronger among deep right banking customers. We also want to achieve market leadership within occupational pension, and we, since Two, three months have a new development team in place that will work solely on improving the experience for the corporate. The corporate is the one who actually buys the service from us. We're also making improvements for the individual pension customer. And our market share when it comes to premium increased to 11% and to a number four position. And we will increase our sales force during 2025 to leverage our improved offering and strengthen our position in this market. Our market leading cost efficiency is an important competitive advantage. And the new long term target to demonstrate increased scalability is to decrease cost to savings capital ratio over time. And as I mentioned, it decreased from 16 basis points in 2023 to 14 business points last year. And increasing our operational efficiency is a step-by-step process where we systematically go through our main processes. And to exemplify, we have recently automated the securities transfer process that was previously manual. And our cloud migration is progressing according to plan. We are currently negotiating with suppliers. We're preparing migration of our systems. And we will start migration and new developments in the cloud in the latter part of this year. Before I hand over to Anna, I want to say that I think that we are well positioned in an improving macro environment. We Swedes, we get more disposable income now after having a bit of a depressed couple of quarters. We see lower rates, we see lower inflation, we see lower taxes which is all good for us Swedish households. We also currently have an improved trading environment, positive market sentiment, increased volatility, big movements where people can act in Quant computing or Novo Nordisk or the 10 year US rate or in crypto. And we have tax incentivized savings on the popular ISK and endowment insurance. And these are all positive with Swedish savings markets. And then our job, of course, is to take an over proportionate part of this growth. And I think we're well positioned to do that. We have very good customer satisfaction. We have a great platform. We are by large the biggest players when it comes to Swedish transactions, which makes a big competitive advantage to use us vis-a-vis other players. And we have highly engaged employees. To summarize our strategy 2030 ambitions, before I hand over to Anna, we want to sustain our number one customer satisfaction position. We want to maintain our unique corporate culture and high employee engagement. We want to strengthen our position as the number one savings and investment platform in Sweden. We want to more than double our customers' savings capital. We want to take the leading position within private banking and occupational pension. And we want to expand into at least one additional European market before 2030. And we want to retain and improve our industry-leading cost position. Anna.

Thank you Gustav and good morning everyone. I'm proud to say that we are reporting record full year results today and once again the strength of our business model with several income streams has been demonstrated. We are also reporting a strong Q4 where operating income increased by 11% compared to Q3 boosted by the pickup in trading activity while NII remained resilient despite the policy rate decreases. When it comes to costs, we have been affected by a few one-offs during the year that couldn't be foreseen when we set the 2024 budget and ended up at 11%. Excluding these one-offs, we're coming in slightly below our cost guidance at a cost increase of 9.2% compared to 2023. Net profit was up 17% compared to last year, and return on equity ended up at 38%, fulfilling our ROE target of at least 35%. Altogether, this means an earning per share of 14.33 SEK for the full year, 13% up from 2023. Total income, both for the full year and the quarter, came in at record levels. It is also our first quarter ever, reporting revenues about one billion SEK. Net brokerage income increased compared to last quarter as a result of higher brokerage generating turnover and notes, despite four and a half fewer trading days in Q4. And as Gustav mentioned, the higher trading activity is spread across all customer segments and the number of brokerage generating customers has increased in general. The mix of customers who are trading was stable and the share of brokerage from private banking and pro customers only decreased slightly compared to Q3 and was 25%. The brokerage margin increased to 11.8 bps positively affected by higher trading in exchange-traded products and a higher share of foreign trading, which reached an all-time high of 29% in the quarter. This was also reflected in the substantially higher currency-related income compared to Q3. And as I said, the trend towards the higher share of foreign trading has been ongoing for years, but spiked since the US election in November. We are also seeing a healthy development of our fund business, which provides a stable source of income. For the full year, we have had net inflows to funds of 41 billion, and fund capital volumes have grown by 37%. This is key to keep growing fund revenues, even though we're still seeing pressure on the margin, with an increased share of allocation to index funds. And despite this, net fund commissions are at an all-time high. Other income has been negatively affected by customer compensations related to ISK tax during the year, primarily in Q2 and Q3. In Q4, we saw significantly fewer claims, which together with higher income from external deposits were the main contributors to higher other income. And going forward, we expect customer claims. to stay low. NII has shown good resilience in the quarter, despite policy rate decreases and its negative impact on cyber. On the positive side, we have larger lending volumes, higher credit spreads, and on average, roughly 2.5 billion more excess liquidity in the Treasury portfolio. Still, due to the policy rates and cyber coming down, income from the treasury portfolio decreased by 8% in the quarter and income from lending portfolio by 5%. Average interest rate on lending decreased from 4.3% to 3.8%, an effect of rate decreases in August, October, and November. However, both mortgage and margin lending volumes continue to increase in the quarter. On the cost side, the average annualized rate on deposits decreased from 1.7% to 1.3%, resulting in 80% lower costs. Although our own savings account continued to grow, and we are now paying interest on a smaller part of the savings capital liquidity compared to Q3. The total was 60% versus 65% in Q3. Compared to full year 2023, NII was more or less flat. Total policy rate cuts of 125 bps since May were to a great extent compensated by higher credit spreads and higher volumes in the Treasury portfolio and income from surface liquidity grew by 16%. On top of this, increasing lending volumes contributed positively, as well as slightly higher average lending rates. However, while deposit rate volumes increased by 21 percent as the annualized average interest rate and the interest expense rose by 46 percent. And looking into 2025, on January 8, the Riksbank policy rate increase of 25 bps that was announced in December took effect. This would result in further pressure on the NII. However, our mortgage rates were also lowered by 25 bits on the date of January and margin lending by 17 bits. And lending volumes have grown strongly in the past quarters. We also lowered our deposit rates. And as we have said before, going forward, our intention is to keep on following the policy rate cuts on our savings accounts. But important to note, though, depending on how far the Riksbank will go, the savings account is today an important part of our customers' asset allocation. And we want to have an attractive offering also going forward. And adding to this, the Swedish FSA has announced new requirements on credit institutions and banks, which use deposit platforms for funding. And this means that our offering of external savings accounts will not be as attractive for these players going forward, which in turn will affect our customer offering. And as a consequence, we have today announced that we decided to phase out our external savings accounts. And it's still too early to speculate around the effect on our deposit volumes. Firstly, it will take time as the deposits will stay with the other banks as long as the customers don't make an active decision to move to Avanza. And secondly, we will have to fight for the volumes with an attractive rate of our own. But although I'm sure that our customers still prefer the strong Avanza brands and are not as rate sensitive due to this. Moving on to cost. As already mentioned, we came in slightly below our cost guidance at a cost growth of 9.2% compared to 2023. This is excluding the one of related to changes in our media company Placera and the fine from IMY which we are not aware of when we set the guidance. Personnel costs are up compared to Q3 as a result of seasonally low personnel costs during summer vacations in the third quarter and the marketing costs are seasonally low in Q4. One of our targets until 2030 is to keep annual cost increases at an average of 8% with higher cost growth in the beginning of the period due to increased investments related to our strategic priorities. And therefore, the cost increase for 2025 is estimated at 11%. And this includes our efforts to strengthen our position in private banking and pension. where, for example, an increased sales force as well as the acquisition of Sigma stocks with the development of digital discretionary portfolio management are included. Included are also further work with our core business to make sure Avanza stays in the forefront when it comes to offering and user experience. Our marketing organization is already both efficient and successful and has received several awards in the quarter. However, to support growth, we will invest slightly more in marketing during 2025, and increased marketing spend is included in the core private banking and pension part of the chart. Operational efficiency is also an important area to support continued strong growth. We already have a leaning position when it comes to cost-to-savings-capital ratio, and 5% of estimated cost growth this year is dedicated to keep improving this area. where the vast majority is connected to our accelerated cloud journey. Total salary adjustments are expected to amount to around 4%, and cost efficiency is a competitive advantage that we have the ambition to retain and improve. And over time, cost growth is expected to slow, ending at 5% in 2030. We have a very strong capital position with good margins, both to the total capital requirement and the leverage ratio. And as already mentioned, there are some uncertainties around the effects of us phasing out the external savings account offering and how this will affect deposit volumes through our own balance sheet. And therefore, our assessment is that we need somewhat larger margins to the requirements for some time. And taking this into consideration, but also a strong result, The Board of Directors has decided to propose a dividend of 11.75 SEK per share, which is slightly higher than last year. And the dividend corresponds to a payout ratio of 82%, which exceeds our target, but also implying that we continue to build capital. And this also gives us room to maneuver regarding our strategic priorities. And with that, I would like to hand back to you, Gustav.