Nordnet AB (publ)

Hello, everyone, and welcome to the presentation of Nordnet's second quarter of 2023. My name is Marcus Lindberg, and I'm the head of investor relations at Nordnet. With me today, I have our CEO, Lars-Åke Norling, and our CFO, Lennart Kran. Lars-Åke and Lennart will start off by presenting the results, and then we'll have a Q&A session. During the presentation, all participants will be on mute, and then when we come to the Q&A session, you have two alternatives to ask questions. So you can click the raise hand button. I'll then unmute you and call your name. Or you can submit a question in writing through the Q&A button. The presentation itself is available on our corporate website, nonetab.com. Okay, let's start the presentation. Lars-Åke, please go ahead.

Thank you, Markus. We can go to the next page. Just some key highlights. It's been a good quarter with strong financial performance with revenue growing 50% versus quarter two last year and profit up 75%. Also good customer growth and positive net savings in spite of quite challenging macro. But uncertain macro environment and low volatility is an overhang on trading activity. And we see the volatility index, the VIX index being on a four-year low. Net interest income more than doubled due to high interest rates and we see also positive interest rate sensitivity going forward and we assume to grow the net interest income significantly into 2023 when we see the full impact of interest rate increases. We also expect to meet the full year guidance on cost and it's been quite a productive quarter also when it comes to product development with improved curated lists, new landing pages and instant deposits at Finland. And we have an overall strong capital and liquidity situation and our CFO Lennart will cover that later in the presentation. We can go to the next page. So some financial highlights for the second quarter. We've grown the customer base with 9% in one year. Savings capital is up 15%. And we see a clear turnaround in the markets from October last year. And number of trades is down. We scored two last year with 16% due to challenging macro environment with high interest rates, high inflation, and it was a weakening economy. And as I mentioned, the volatility index, volatility in the market has also been low during the quarter. The revenues are up 47%, where we see slightly lower trading revenues, but that's more than well compensated by an increase in net interest income. Operating expenses is up 8% from quarter two last year, so a little bit higher in our guidance of 7%, but we estimate to meet The guidance we meet also a little bit easier comparables in H2 this year versus H1. But it's also worth mentioning underlying cost increase. If you discount the FX effect is around 6%. As you know, the Swedish krona has depreciated quite a bit during H1. And when we then convert cost in foreign currency to SEK, that of course impacts cost up. So hopefully we see a little bit calmer development in the Swedish krona in H2. And we see that we still have very good operating leverage in the business and we grow the profit with 74% year on year. And go to next. And we see continued growth in customers and net savings, despite the macro environment we are in, and looking at the customer base, we have actually larger growth in customers in quarter two this year versus quarter two last year. And that savings is a little bit mixed picture. It's a little bit low in April and May. And that's mainly due to that the inflows have been low during those months. And it's related to it's been a lot of holidays, Easter and other holidays. But if you look at overall in H1 and net savings, we see a stable development in retail segments, but it's been more reallocation of capital in the private banking segments where they've done a lot of amortization of mortgage and also done alternative investments like real estate and private equity. We can go to the next page. We also continue to have positive impact from geographical diversification that the risk of business model and also enables growth. We see quite good growth when it comes to customers in all of our countries, but we have higher growth in savings capital outside of Sweden, but it's also partly due to the FX effect when converting the foreign currencies to weak Swedish krona. You can go to the next page. Look at a little bit of trading. As you see on the graph to the left of the blue line, we have slightly less number of trading customers versus quarter one. That's due to a little bit worsening macro. But what you see up to the right in the graph that trades per trading customer is down quite a bit in the quarter. And the dark blue line is the VIX index, the volatility index. Overall, the volatility and thereby the trading in the market has been low overall in quarter two, not just with Nordnet. But we see continuous strong performance in cross-border trading, where we're slightly up versus quarter one. And that's due to this higher level that we have in cross-border due to the country mix with more customers outside of Sweden. Go to the next page. But in spite of the lower trades per customer, we see that trades per day has almost doubled since 2019, since we also doubled the customer base from around 900,000 customers to 1.8 million customers during the same period. We also see that the income for trade is also higher than in 2019, so pre-COVID, and that's due to higher share across border trading due to the country mix that customers outside of Sweden trade more on foreign exchanges than in Sweden. We can go to next. Talking a little bit about the fund business, we see a strong growth in the fund capital, close to 170 billion SEC now in fund capital on the platform. It's both from underlying market growth, but also that we see very good net flows, as you see in the chart at the bottom, and not the least in H1. And if you see it, the mix of the fund capital is around 50%. This is index funds, external index funds, and also Nordnet funds, which are mainly index. While active funds' share is now 35%, and it's down from 48% in 2020. So it's a clear shift from active to index in the customer base. But fixed income we see on a fairly stable level of 13%. And then it's also, as you know, been a proposal on the retrocession ban in a new risk regulation in EU. But the impact for us on that one will not be material. Fund revenues are around 10% of revenues overall and also only around 50% of the fund capital will be impacted by a retrocession ban. It goes in Norway and also in the partner business in Sweden. That's 48 billion. We already have a platform fee to repay distribution fees there. So that's no problem. And then we have 38 billion in our own funds where we don't pay distribution fees. And then it's basically half left we need to address, and likely it's going to be a platform team model that might impact the margin slightly negatively in Sweden, but we have very low margin in Denmark and Finland already, so that we might instead see an upside. Fund customers is growing also well, and 46% of the customer base now own a fund on our platform. We can go to next. Coming into deposits and net interest income, looking at deposit development in the quarter has been fairly stable, but we still see a strong net buy from the customers in the market, both equity and funds, 13 billion in the quarter. It's a little bit lower than quarter one, but still a strong net buy. And that's compensated by dividends and also less savings in cash coming onto the platform. But if you look at the deposits versus savings capital on the platform, a total is around 9% now, and that's below the average we've seen the previous year, there's been around 11 to 15%. Go to next. So talking a little bit about the different components of net interest income, starting with the liquidity portfolio. where we give then a snapshot of assuming then to second quarter volume, currency allocation, credit space and market consensus estimate on rates going forward. We see a snapshot of 1.7 billion in total in revenue from liquidity portfolio. The main sensitivity here is of course, deposit and deposit development going forward. If you look at the chart up to the left, we see we currently have 47 billion in the liquidity portfolio, and that's derived from 73 billion in deposits, 5 billion in equity and others, and then deducted 30 billion that we have in lending. And we see a good growth in net interest income from the liquidity portfolio in spite of the liquidity volume is falling a bit and that's due to the high interest rates that we have had during the year. And we continue also to have some increases later this year. You go to the next page. Looking at the loan portfolio and assuming then the second quarter volumes and interest rate per 1st of July, we see a snapshot here of 1.3 billion in revenue for 2023. Here we might have a slight upside because we estimate that the lending volumes is going to increase a bit and also the interest rates are likely going to increase as well later in the year. But looking at lending volume, it's currently around 29 billion, where we see a stable development in personal loans and mortgage, where we see growth in margin lending. But that's also partly due to the FX effect and converting margin lending volumes from DKK and Euro to SEC. But we see a very good growth overall in the revenue from the lending, both from higher volumes, but also from higher interest rates. And overall, we have a low risk lending portfolio, as you know, with loan to value around 40% and also very limited credit losses, basically only related to the person loans business. Let me go to the next page. Looking then at deposit interest rates, what we need to, what we pay them back to the customers, assuming then the interest rates we have now on our accounts and the volume and the currency and customer account mix, we have end of this quarter. We see that, we estimate that we're going to pay back around 330 million SEC in 2023. And currently we have around 27% of the deposits, the total on interest bearing accounts. And we see in the graph up to the right here that the big interest for savings account and interest rates is in Sweden, where we see quite a big transfer to the Swedish savings account. While the transfer to the savings account in the other countries has been very low, in spite of having fairly good interest rates, both in Norway and Denmark. But one reason for this is, of course, that we have customers with more capital in Sweden. And if you want to be liquid for a while with a larger pool of cash, of course, you want to have as good yield on that capital as possible. And looking also a little bit on net savings versus interest rate or savings account down to the right. We don't see any real correlation between interest rates and savings accounts and net savings, at least not between the countries. Because we see that 70% of the net savings are coming from Finland and Denmark and H1. In those countries, we have the lowest interest rates on savings accounts. Go to the next page. So summarizing then the revenue picture, we see now that the net interest income on the last 12 months is around 50% of the revenue and the provision income from the fund-based and transaction revenue is another 50%. And we see that we have diversified and a good model that's because the net interest income is a little bit communicating vessel with the permission income. So if you have high interest rates that we have now, we have good development in net interest income. But we also know that high interest rates are impacting markets negatively. That means less trading. and thereby less provision revenues. But we know also when the interest rates drop and the activity in the markets pick up, then we have higher provision revenues, but then a bit lower net interest income. So very good communicative vessels between those two revenue streams. And if you look at the revenue margin per product or for asset class, of course, we see very good development in the deposit due to high interest rates. If you look at the light blue line there, it's the trading margin is going down due to less trades per customer and also fund margin going down a bit due to the revenue shifts or revenue mix between active and passive funds. Go to next. So all in all, we have a good operating leverage and a good growth in revenues, around 30% per year since 2019. The same time, very stable cost, only up 4% year-on-year. So basically an entire revenue increase ends up on the bottom line, so true position of profitable growth. Go to next. Some highlights on the product side during the quarter, we have launched a new content management system and that allows for a lot more dynamic content on our web pages and also in our app. and we have launched now new start pages in all countries but we will also launch new pages the key pages on the web is going to be based on the new content management system we also have a 50 new version of our award-winning app so we basically launch a new app version every four days And so it's both improvements in the curated list that we have, instant deposit with Trustly and more shareable features in the app to mention a few. So with that, I think I hand over to you, Landrak, to talk a little bit about the capital and liquidity situation.

Yes, I will be quite quick about that. You can go to the next slide, please. And to sum it up, we have a very solid capital position. where we have a leverage ratio of 6.1%, according to the requirement 3.9, that gives us a great capacity to take on new deposits. Of course, this is due to both an increase in capital base, but also the decreased deposits as we were talking about. But also the capital allocation, where we have a total capital ratio of 25.3% to be compared with requirement of 19.1 that is also due to the own funds of course which has increased but also the the lower deposits but also that is a decreased risk within the portfolios so a very strong capital situation regarding liquidity we have this liquidity portfolio 47.15 billion compared to the deposits where we have 72.5. So it's a strong liquidity buffer that we have here. Also on a very short maturity structure, with almost 40% maturing within 12 months, and mainly within six months. So we are always addressing the liquidity situation to have it on a short basis. And also with low credit risk, mainly AAA, AA and single A and very few BBB rated instruments. And as you can see, it's mostly covered bonds and governmental or similar parts. Senior, yes, some of financial institutions and then it's cash. So also the liquidity position, I would say, is very strong. And that is very good to have in uncertain conditions as we had this spring now i think it's stabilized but it's still very good to have this because this gives so much flexibility on how to handle the capital situation forwardly as well thank you thank you leonard so a little bit on the strategic focus going forward um