Avanza Bank Holding AB (publ) (AZA) Earnings Call Transcript & Summary

Hello, and welcome to the Avanza Full Year Report 2020. [Operator Instructions] Today, I'm pleased to present Rikard Josefson, CFO -- CEO, sorry; and Birgitta Hagenfeldt, CFO. Please go ahead with your meeting, Rikard.

Okay. Thank you very much, and thank you all for listening in, and hope you are doing well in this testing time for the word. Today, I will hold a presentation, a business overview, as I usually do. Then Birgitta will give the financials. And then a new thing we added today is that Peter Strömberg, who is our CIO, will give an overview of the status on the tech side of the company. This is due to the fact that we all experienced during the fall, a lot of questions from the investor community about technology questions, and then we thought it was going to be appropriate for Peter to give you a quick overview and how we look at the IT situation, so to speak, in -- within the company. But before I get started, I would like to take the opportunity to thank Birgitta Hagenfeldt, who is our CFO, who is -- the last time she is presenting the results, and for the 53rd quarter. She's been with the company since 2008 and has done a tremendous job for the company. And on a personal note, I would say that I've appreciated Birgitta's support when I became the CEO in a fantastic way, and we wish Birgitta all the luck. She will stay on with the company until the end of May, being my adviser in certain areas and also supporting Anna Casselblad, who will take up the role as CFO at the 1st of February, who is also sitting in the table here in Stockholm. Having said that, let's get started. Looking at 2020, of course, it's an exceptional year. Given the growth, we grew by over 300,000 new clients within the company. We grew almost SEK 76.3 billion in AUM. And the fourth quarter was a record quarter for us. We had 85,600 new clients, and we had a very good strong net inflow within the quarter. And we ended the year with an AUM at a record level, [ SEK 571 billion ]. And as I always say, driving higher AUM is the foundation for creating good things within the P&L going forward. Our fund volumes was also at a record level at SEK 150 billion, which was a good number, in my opinion, because in March, as you will remember, we had big outflows of especially actively managed funds, and that turned into inflow at the rest of the year. So that has been a very good year. If you're looking at what we disclosed the last time about monthly savings, now our pension premiums and monthly savings, so to speak, automatically generated net inflow is up, up to SEK 980 million. So it's almost SEK 1 billion a month that we more or less can see will come in going forward. So all the numbers when it comes to growth is satisfactory, even though all the numbers always can be better. The customer activity, of course, has been at unseen levels. And I think that if you have -- when we presented the Q4 for '19, if we have predicted these levels, people would've probably thought that we were going crazy, but it's been commission generating clients, people trading equities is up 76% from a year from now. And we also increased the mutual fund tires by 36%. And an interesting note that we saw is also that over 400,000 of our clients are daily users of the Avanza platform. That means that they log in at least once a day in the mobile app or on the desktop. So it's been a fantastic year, high activity. And of course, this has been due to the fact that we have gotten a lot of new clients. So I'm very satisfied with the activity level. Looking at the market shares on the stock exchange, we can see that we are still around 20%, a little downward trend in the quarter, but that's due to the fact that more international players have been trading on Stockholm Stock Exchange. And we also see on the turnover that large institution and the institutional trading within the large Swedish bank also been higher, but we're still keeping the gap to our competitors as being the largest player in the Stockholm Stock Exchange, which, of course, is an important factor for us, so that gives us also good prices that will benefit all our clients. Looking at one of the most important slides from my perspective is that we don't have the Q4 for this, that will come in a couple of weeks, is that we now are taking 19.4% of the market growth within the Swedish savings market. And what that says is that 1 out of 5 new [ kronas ] into the market ends up on Avanza platform, which is extremely important for us because that also gives us the indication that we are taking market share and our market share is up to 5.4%. So that has been a good development. And as I always say, if you look at this quarter-by-quarter, in Q2, it's always a bit down, but we're looking at it from a rolling 12 months perspective. And that solid numbers that we are delivering on that. And as we stated last year, our ambition was to have 15% of the net inflows in 2025, but the progress has been quite more rapidly than we anticipated a year ago, which is, of course, good news for us. This slide, we have changed a bit since the last one, and that's just because we want to really highlight the potential we see within the market, because here, you have the different types of investment opportunities that we have. We have individual persons insurance, where we have 9.5% market share, and the market is still very much up for grabs for us. In the occupational pension insurance markets, which is an addressable market for us, we have highlighted that the light gray part of this slide is the traditional life part of the market, and we don't have a traditional life offering. But at the same time, we still see it as a potential market because we can get additional life clients to move to unit-linked clients, where we are the strongest. And as you can see, the growth potential within pensioners is absolutely there, and we are absolutely planning to capture a lot of it. So having said that, I always usually said internally with the 5.4% market share, there's still 94.6% to go for, so we still see very long-term growth potential for Avanza within the Sweden savings market. And we think that 2020 has proven that we're on track of achieving a lot of our goals. Coming back to the full year, what we have done for our clients, I think 2 things stand out, which is actually the same. We have launched our first 2 actively managed funds. One, together with TIN funds that has been a tremendous success for us. And also important is that it has given good returns to our client in a good environment, of course, and then we launched the Swedish small cap fund, that's called Avanza, small-cap by Skoglund. And Skoglund is the manager of that fund. That has also been a very good success and a flying start for that fund. But we did also -- maybe not the best timing in the world, in end of January, we launched a European index fund that will be a good piece in the parcel for a lot of investors, even though the returns on that front in the beginning of the year was not so good, of course. But we also did a lot of things during the year. One thing is that what I started talking about was that we have more monthly savings, and that's not just by accident because that was a focus area for us in the beginning of 2020 to make it easier to set up monthly savings, get better overview, do it in a better manner, and that has had a good effect on the monthly savings for us. And also, we have done an easier onboarding process where the customers are guided to the interest they have on the site and not just given everything that we can offer them. Because we offer today about 63,000 investment opportunities on the platform. And going forward, we think we've done a good job, is guiding our clients and making sure that they can sort out the investment opportunity that is aligned with the preferences, the risk level and the time horizon of their investments. And we also, at the end of the year, launched a stock swiping function, which is, I can say, inspired a little bit by Tinder. And that function we did because we see that still the customer needs more diversification in the portfolios. And this is a fun way, easy way to get in context, so to speak, with stocks companies that you maybe normally will not find on the platform because we have such a large offering on that case. And that has been very appreciated, especially I've seen that in the social media. Also, of course, we're always proud that we get recognition from the outside world. We were -- won the quality index for the 11th time in a row, with the biggest margin that we ever had. That's, of course, our most important goal when it comes to customer satisfaction. So that's something we're proud of. And we also are #1 when it comes to reputational index, which is -- which comes in May. And we were #6 overall in Swedish companies, the #1 in financial industry, which is an important goal for us. And we were also named Bank of the Year in Sweden for the third time in a row, and no bank has achieved that award 3 times in a row since the early '90s. So that has never happened during the lifetime of Avanza. When it comes to private banking, we were #5 in the Prospera ranking. But important note in that ranking is that we are absolutely #1 when it comes to recommendation, that means that Avanza's private banking clients are those who are most likely to recommend family and friends to use their private banking services for us, and that was a strong indicator that we are doing good things within our private banking also. And the Lipper Fund Awards for Avanza 75, we won in the second year in a row. And that's also important for us because that is the full solution when it comes to occupational pension. Target fulfillment for the year is, of course -- as I said, we managed once again to have the most satisfied clients in the savings market. And one of my personal most important KPIs is that we had extremely good engagement from our employees. And we had the goal of 45 when it comes to what we call eNPS, and we reached 69. And I think the average for the financial industry is around 7. So that shows that one of the key success factors for us our fantastic employees, our fantastic staff are extremely devoted and engaged in committing to Avanza's development. And I would on the note, also say that, that's, in my opinion, a very strong number, given that we had about 75% of our people from March and still are working from home or are very, very seldom in the offices. So we have been able to keep the culture, keep the momentum, even though we have a distributed way of working at the moment. Market share, of course, we have said 7% 2025, around 7%. We are at 5.4%. Return on equity, 57%, speaks for itself. Increased share of capital in sustainable investment, we have done that. And we have also increased the share of female customers, even though we are not 50-50. But a number of clients, we never got so many female customers on the platform as we did in 2020. And also important for us is -- going forward is that we believe, and that's our, so to speak, commitment that shareholder value is always driven from customer satisfaction. And in a long-term target, high customer satisfaction is the key for growing the company and keep innovating the company. Of course, the customer proposition is all about a superior user experience. And that goes with good offers, good prices, good guidance too, but the customers really enjoy the experience of being on Avanza platform or in the mobile app or wherever, it has to be superior to our competitors. We see also growth potential and we have growth in, as I said, when it comes to different parts of the savings market, but we also see that we are getting broader customers. We get a lot of notifications with people who said that I have never been interested in savings. I understand it's important. I opened an account in Avanza. And I think the fun factor is they are really taking care of my investments. And that is absolutely vital for us. And I see no limits for the 1.3 million clients that we have now. We can probably start growing that to at least 2 million clients or somewhat a much larger number. And also one of the important thing is that the revenues and cost is that as we've proven in 2020 given the revenues that we have, that the scalability there, we are a scalable company. So with those words, I would like to to make a dramatic way of saying it. For the last time, I will leave the word to Birgitta to go through the financials.

Thank you, Rikard. And if you continue to do that, I'll start crying soon. But the year -- let's go to the figures. The year finished strongly, and Q4 turned out to be the strongest quarter ever. Operating profit for the quarter increased by 23% compared to Q3, mainly as a result of higher revenues. Adjusted for the Stabelo one-off, operating profit exceeded previous quarter by 7%. In the quarter, we reduced our holding in Stabelo from 27% to just under 20%, which contributed positively to the result with SEK 63 million, both in revenues and net profit. Stabelo is considered a holding for business purposes, which makes it the gain tax-free. After the reduced ownership, Stabelo is classified as a shareholder and thus no longer as an associate company of Avanza. As a result, from now on, Stabelo will not be recorded as profit loss from participation in associated companies in the P&L. The holding will be valued at fair value via other comprehensive income. After the transaction in October, the shares have been revalued by SEK 144 million. Operating profit for the full year ended up more than 3x as high as last year. And the operating margin for the full year was 67%, and earnings per share increased to SEK 8.66. Revenues increased by 23% in the quarter and adjusted for the Stabelo effect, they were up 12%. All revenues, except for NII, increased. Compared to Q4 last year, revenues more than doubled. Net brokerage income was record high despite fewer trading days compared to Q3 and a slightly decrease in brokerage income per SEK of turnover as a larger share of income was generated by private banking customers. The share of brokerage income generated in the Private Banking and Pro customer segments has, however, decreased from 26% to 20% during 2020, highlighting the importance of the broad customer base. Both commission-generating turnover and number of notes increased. Compared to Q4 last year, they more than doubled. The number of commission-generating customers also had a very strong development during the year, plus 76%. This means that during the last 2 years, we added as many commission-generating customers as it took us close to 20 years before to achieve. If you look at the fund commissions, it increased mainly due to higher average fund capital. Net inflow in the quarter was just over SEK 8 million. And we saw the share of index and fixed income funds decreasing slightly, and consequently, income per SEK of fund capital increased to 36 bps from 35 the previous quarter. NII increased by 1%, mainly due to lower returns on surplus liquidity as a result of lower average salary for 3 months. Lending volumes were higher and contributed positively. Also note that the subordinated loan of SEK 100 million was redeemed early in December, which, however, had a marginal effect in the quarter. Other income, as mentioned, was affected positively by the sale of Stabelo shares in October. But FX income also increased due to the very high trading in foreign equities, which stood for over 20% of the transactions and almost 18% of the turnover. Revenues from corporate finance increased substantially from the seasonally low Q3 to a higher -- due to higher corporate activity. Income from Avanza markets decreased slightly. If you look at the annual revenue development compared to last year, revenues almost doubled, mainly due to the strong customer activity reflected in both net brokerage income and other income. The repo rate increase in January from negative 25 bps to 0, also had a strong positive effect, giving higher return on surplus liquidity. In connection to this, we also increased the rates on both margin lending and mortgages. The expense own forecast indicates a 0% repo rate for the foreseeable future. The aftermath of the pandemic is hard to predict, but it's not unusual for customer activity to slow off the great turbulence of the -- as the market stabilizes. However, we have not seen any signs of that yet. And whenever activity slows, our view is that our lowest level has been raised substantially due to new customers and increasing savings capital. Operating expenses in the quarter increased by 25%, primarily as a result of higher personnel costs, which are seasonally low in the Q3. Depreciation increased as a result of a write-down of SEK 16 million, which was communicated in December and refers to a rental cost for the entire remaining rental period of the office in Vasagatan. Compared to Q4 last year, expenses increased mainly due to more personnel. As then, we had a write-down of EUR 8.3 million. Both write-downs are shown by the shadings in the graph. Annual operating expenses increased by 15% compared to last year. Excluding extraordinary expenses, the increase was 11.6%, which is in line with our year guidance. This exclude the write-downs of leased assets in '19 and '20 and the one-off costs associated with the relocation of SEK 13 million. Personnel costs increased due to more employees, mainly to expand development capacity. Other expenses increased mainly due to higher costs for IT and premises as well as share price information. Marketing costs were slightly higher. And as Rikard mentioned, and as communicated in December, we raised our cost guidance for 2021, with another SEK 20 million to about 15% growth. However, the long-term guidance of our cost growth, 9% to 12%, remains unchanged. Avanza is a growth company with a strong growth potential. And the higher ambition will give us the opportunity to respond to new opportunities but in a cost efficient way, as always. The cost of savings capital ratio decreased by 2 basis points to 17 in 2020, while the income to savings capital ratio rose by 17 points to 51 basis points. This clearly illustrates the scalability of Avanza's business model. In the third quarter, we mentioned that we work to reach our long-term ambition of a cost to savings capital ratio of 16 bps for the full year. Adjusted for the write-down of SEK 60 million earlier mentioned, we did reach this goal, meaning we are now down to a level among the very best in the industry when it comes to cost efficiency. In June '21, the new leverage ratio requirements of 3% will enter into force. In addition, the Swedish FSA introduced a leverage ratio guidance of between 0.2% to 0.5%. This has required us to strengthen the shareholders' equity and as a consequence, we announced in October that we will not be able to distribute dividends according to our dividend quality of 70% this year. However, we do have the power to distribute SEK [ 3.80 ] per share compared to SEK 2.30 last year. But due to the pandemic, the Swedish FSAs recommendation to financial institutions, is to be restrictive with dividends until September '21. Therefore, the Board only proposes the AGM to distribute SEK 0.85 per share, in total, SEK 132 million. After September, the Board hopes to be able to come back with an additional dividend proposal of SEK 2.95 per share to an extraordinary general meeting. After distributing SEK 3.8 per share, we will end up with a leverage ratio of 4.1%, well above the requirement and our own internal target of SEK 3.8. This will ensure an adequate margin to the requirement, both in the bank and for the consolidated situation. Even though market conditions would change with increased customer deposits as a consequence. As of 31st of December, the leverage ratio for the consolidated situation was 4.9% after the proposed dividend of SEK 132 million, as has been deducted compared to the 3.5% at the end of the previous year. Since the leverage ratio from now on steers our capital planning, the previous internal capital planning buffer had been replaced with a mentioned internal target for the leverage ratio. I would like to take the opportunity to thank all of you for interesting and inspiring discussions during my 13 years as CFO at Avanza. It has been a tremendous time, and I have enjoyed every minute. In about a week from now, I will hand over my duties to Anna Casselblad, who, I'm convinced, will do an excellent job. And with that, I would like to hand over to Peter Strömberg to give us -- who will give us the overview of Avanza's IT.

Great. Thank you so much. I know the first slide says tech overview. But in my world, tech is about people because the innovators behind our people. And you -- if we go -- yes, next slide. If you look at what Rikard has said and what Birgitta has said, our focus, as always, and the path we're on is high scalability. Scalability can be divided in many areas, with one of them being technology for sure, but it's as much as competence and capacity as well. So how we build technology serves how we scale, competence and the capacity with the people and the innovators. That's really, really important. That's why it's key. It also gives us the possibility to cut out, fearlessly, legacy, not every quarter, not every half year, but every single release. We do releases once a week or more often if we like. It's important that our people, the competence and capacity within Avanza cut out legacy constantly. That's also key. Why is that key? Because that prepares us for the future in so many ways. And some people will call it agile. Some people will just call it true flexibility in terms of where we want to go from here. And that in a couple of words, is about preparing out for the future. So how do we do that? Harmonization and autonomy, and I'm going to go through some of that in more detail, so you get the flavor of what I mean and what we mean. Harmonization is one word of putting it. It's about customers should recognize themselves, our competence and capacity within Avanza, developers, product owners, quality assurance or what have you, driving network capacity or other technical things. It should be easy for them to navigate through innovation. So then it simplifies over and over again to have 1 development language, Java, 1 solution for data storage, such as MongoDB, or 1 tech stack for web, which is halfway through because that's one of the things we're continuously developing of the channels we're using, as you know, as mobile and web, I'll come back to that. It's also 1 type of architecture with the microservices. And none of this that I've mentioned so far is nothing new for Avanza, but we develop it over time all the time and revisit, if this is the new one for us. We have the microservices platform and solution for architecture. Many companies have our way over looking at it is to make them as small as possible. For the moment, we have closer to 1,100 microservices that makes us flexible in terms of what we want to do next. If you have them too large, that's going to be complicated in some aspects to move forward. But we believe in this for flexibility. We have 1 solution for deployment -- or I should admit, close to 1 solution for deployment. Because it is a difference to deploy web towards or versus mobile apps because Apple and Android and Huawei and others are sometimes telling us what to do and how we're going to do it. But we try to simplify that and harmonize that as well. Another example is we have created 1 design system, meaning that the components you would look and feel as the customers on our website and in the mobile experience is the same, should be the same. Why is that important? I'll come back to that about harmonization and the feel for our customers. So it's also important how fast and how flexible we can be internally as well, with something new functionality, new way of working into the experience that the customer and me helps as well in terms of speed. Moving on to other things. That means that if we harmonize the tech stack, we solve problem in once and use them many times, that scalability in terms of how we use our competence and capacity. Quite frankly, it also makes it more fun. It gives motivation for the people who work with it. It gives them the motivation to innovate and find new solutions and find the problem once, not find the problem over and over again or a flavor of it 3 months later. Motivation is also important for people, the innovators. Developer experience creates a speed and attract talent -- it attracts talent to stay because they know that we have a promise within Avanza to continue to live this promise internally and make sure they have fun, are motivated and have the opportunity to lead technology but also see what will be next, what is behind the next corner. They have to be, yet again, fearless of taking out legacy. It also means that we have to have the courage to try new technology in many ways. And sometimes, we just don't use it. Sometimes, we do the same and look at it, and we don't use that either. And then the second time, the third time or the tenth time, we see the best to fit. That's where the stars come together for us. And it also gives us the opportunity when you have that type of harmonization, the competence mobility within Avanza. Because we have 25 teams. Let's say we had 47. It's still Java, it's still MongoDB, it's still the microservices. Meaning that what developers and other tech people need to know is they have the opportunity to learn a new domain. It could be anything from trading options, trading stocks, it could be anything within our offer -- our business offer to our clients. Where we want to go in the future will be a similar technology, similar competence and that helps. It also gives us faster development cycles. Why is that so in terms of harmonization? Because we don't have to solve problems so many times. We saw that people recognize themselves in terms of how we're going to do things, and that's going to be faster in so many ways. And let's say, we harmonize the design system as we have done, that will make it faster and take it down to -- that we can do things in days rather than weeks or in months. We believe also that this attracts talent externally. Why is that important? Yes, it's important as both Birgitta and Rikard, they really constantly invest in talent, in competence. Because the competence we had yesterday is great, but there are also new areas that comes up. Anything from new open source possibility on technologies and what technologies you want to use, but also about other technologies and other areas, as machine learning, or AI or any other data platform competence that are crucial. Also, IT security and information security area is moving extremely fast. So we need to continue to attract talent in many ways. So autonomy, for me, that means independency or non dependencies. It can be technical, it can also be from a team perspective. But let's take the team first. If we have 25 teams developing certain things for Avanza and Avanza's customers, we want to make sure they don't have to step on each other's toes and ask where are you with this functionality and so forth. We need to build technical APIs. We have hundreds of them internally to make sure that every team or individuals can consume the services, the technical service they need from a connectivity to other banks. Data they want to use for their next personalization functionality or how to be better to build a stock portfolio at Avanza. So we need the teams to be independent in so many ways. So we need to make sure the technology, its autonomy, we drive that within the technology that gives the autonomy for the teams and individuals. It also gives the opportunity to decentralize decisions and responsibilities and focus on innovation, once again, motivation to innovate people. It also makes the tech ecosystem less complex because it's extremely complex. I just said that we have 1,100 microservices and so many things we want to do, the ambitions of Avanza. It's vast in that sense. So we want to make sure that even if the world is complex, we want to try to make it as less complex as we possibly can to move faster, meaning the speed of innovation. So that means that teams and individuals should spend more time focusing on what they should do and their mission in the team rather than the outside world, that's easy to understand. It also makes it easier for them to take out legacy rather than -- or take out legacy without speaking to too many others. Of course, there's synchronization between 2 or 3 or 4 teams potentially once in a while, but not as we had 3 to 4 years back. And this is something we have also developed over the years. And that's a constant problem to solve. Because, again, we got to be -- the more we're going to build, the more complex it's going to be. So this is never going to end. So simplicity, as you could summarize that is it makes us well prepared. I talked about the front-end side in one way. The progressive web apps is just an example of one of the technologies where we nowadays use for this, meaning that rather than writing code 3x and -- or similar code 3x and then push that out to iOS app, Android app, and soon to be Huawei app and the web as such because we should not decide which channel our customers want to use because they want to do it whenever they like, in whatever format they like, but they want to recognize the experience. So that's why we use that type of technologies. We also tried to find more third-party integrations, such as Open Banking, some of you might know what we use today and think and how we connect to others. That's just the beginning. There's just so many things beyond that. And comparing what you have in other banks and so forth, moving in funds and other equities, et cetera, to sort out how you want to move next in terms of your savings and investments. So Open Banking is just in the beginning of the era, as for many companies, I should say. It also makes this future to use more cloud than we do today. We do use cloud for our data platform, for customer engagement platform going forward, for the design system such, for analytics and so forth, and that's going to be important. And of course, it's also being prepared for the future to always look at the next step ahead in terms of IT and information security. And quite frankly, that's an area where you can do everything yourself. You have to be and look at all the options you have to make sure you build them the trust in a platform like Avanza. Yes, moving forward, continuously, it's also important for performance and capacity due to the fact that it helps the people to solve the problems or the challenges we might have of performance, of capacity as well because then we can use it across the platform rather than in just certain areas because there's so many parameters that comes into capacity and performance as well. Moving on. There is a new dawn. Yes, you can say that because 2020 just took us to 2024. That's my interpretation of what Birgitta and Rikard have just gone through. In terms of -- I mean, no one, absolutely, no one could have looked at 2020 and thought we're going to go closer to 310,000 customers or the behavior we have seen or anything, I must say. So saying that, we've learned a lot. We've learned a lot about our -- how we work, how we need to work forward, how we need to look at capacity and performance and all the different aspects of technology. We also learned that some of the technology or technology vendors around us that we're using might not be what we need in the future. Some of them has really stepped up and showed us and impressed us. I think some of the stuff that we have done has impressed us, and we -- some of the areas we need to look at even further going forward. But there is a new era because there is a new black here, but we need to look at that very thoroughly and continue that journey. And -- but still have in mind have the courage to take out legacy we also need to, from that knowledge, reinvent ourselves, the technology and how we work, making sure we have the right people, challenge every area going forward. There will always be buzz words that we need to look at. It could be AI. It has been areas of open source. There could be cloud solutions, et cetera. We should jump on what is relevant for us and our customers. That means that we need to try, experiment and repeat. Try, experiment and repeat. That builds culture and then builds innovation. And that's what is good for our clients, for sure. And we need to continue to think platform in so many aspects and through the autonomy and harmonization I just talked about. That has served us well. I'm pretty sure we need to see what that means going forward from here, definitely. Technology and culture, as you might know by now, in my view, it's an endurance race, it's not a 1-year sprint. 2020 has given us a lot of insight but quite frankly, we need to look at 2024, the true 2024, even though in 1 or 2 aspects, we think we're there already. So that's also important. We need to continue to build up culture. So summarizing how we do it from a technology side is continue to innovate, not just for our clients, primarily, but also internally for our clients at the end. That's the way we're going to do it. That's how we're going to get the availability, performance and capacity going forward. That's how we're going to scale everything we do, no matter what behavior we will see within savings and investments and we need to make sure we find it and do it together in terms of competence and capacity. So I have to say that I think we have been writing history from a business and tech perspective in the last 20 years, and our promise to our customers and ourselves is that we plan to continue to do that. Thank you.

Thank you, Peter, and thanks for that overview of the tech status within Avanza. And now we will open up for question about the full year of the quarter, and we will open up for questions now. So let's see if you have any questions.

[Operator Instructions] Our first question comes from the line of Patrik Brattelius from ABG.

My first question is regarding that you lowered your ownership in Stabelo. You have previously highlighted the long-term potential in the Swedish mortgage market. So what has now changed? Can you elaborate a little bit behind the rationale behind this? Was it a valuation call? And are you now satisfied with the ownership level of just below 20%?

I could answer it like this. When we started our venture with Stabelo, our ownership was just under 20%. Then I think it was in the fall of '18, they needed more capital, and we were the owner at that point of time, we had the capacity to increase equity within the company. And at that time, we didn't want to bring on new owners really in Stabelo, so we took that responsibility as one of the large owners. And then opportunity knocked on our door, Stabelo did a new issue of equity and to fit a good ownership structure of the company at the same time, going down to our, so to speak, ownership, just under 20% that we had when we started the venture. And the valuation gave us opportunity to get all our initial investment back, keep -- or a bit lower than 20% of the company. And that's the reason why we did it. And it was a good deal for us. And at the same time, I would stress that we want to have a little bit under 20%, and it's a long-term investment for Avanza.

Okay. Perfect. That's fair. My second question is regarding the security lending program that you started here in Q4. Did the launch go as expected? And how much did it contribute to the Q4 profits? And on the back of this, is there any change to your previous guiding of how much this could contribute to revenues on a full year basis?

We will not change the guidance for the full year basis at this point in time. But at the same time, we launched this in October, so of course, there are possibilities to scale it up going forward. But at the same time, it's something new that we're doing. We will make sure our processes are robust, and everything is working. But we are hopeful that we can scale this up going forward. Of course, if we scale it up, it will mean more profits, but we're in the beginning of that.

Okay. And how much did it contribute to the Q4 profit? Can you help us with that?

It's a very marginal number because we started in October. So I don't have that in my head, but it did not be a contributor to the profits for the year of 2020.

Okay. Fair enough. And my last question is regarding the raised cost guidance announced in December. The absolute delta in cost is rather significant between the year that is now ahead of us compared to this year that we just closed. Can you elaborate and be a little bit more specific on what the increased cost will be used for in terms of staff and tach and so forth?

Very, man. The cost increase is more or less 100% dedicated to hiring more people. And it's more tech people, more developers, more teams to increase speed, capacity, innovation and then I'm always a bit boring because we never disclose what kind of things we are working on and what kind of more specific areas we want to do a better job in, but it's about scaling up a lot about IT people.

Okay. And then if we look at this output that these people are supposed to generate, what will we see on the web page or the -- on the platform that can be improved then?

I think that -- to be quite honest, we can improve everything. Every process, every product, every services can we do better, and that's what's driving us. So I cannot be more specific than that because it's a lot of about -- for the time being, it's a lot about higher peeping, building up the teams, more innovation. And I think that if you look at our mobile app, our website and all our services, in my opinion, they are good, but they can absolutely all be better, and that's what we're going to use this extra capacity for.

And the next question comes from the line of Robin Rane from Kepler Cheuvreux.

Yes. So start with the targets, 2020 was an incredible year for Avanza. And In Peter's words, it took Avanza to 2024. So wouldn't it be in place to revisit the targets? Or I mean the -- I pointed the financial targets, in particular, that was presented 1 year ago, I mean the net -- the share of net inflows is well above that target? And also the profitability target is -- we're well above that in 2020. And the market share of 7% in 2025, seems like we are -- or Avanza is on a good trajectory to reach that. So won't it be in place to revisit this target and perhaps make them more sort of ambitious or challenging?

I think I stated in my CEO comments that we are -- we will, during the year, in my opinion, revisit our targets and see if we're going to revise them upwards. So that is -- it is something we will do maybe when the markets are a bit more stable or we are a bit more through the pandemic, but that is something that Anna Casselblad and I will certainly spend time on during the spring, and we will come back on that. But it's a very...

All right. Okay. Excellent. And then the FX-related income was strong in the quarter, and you saw a strong increase. Is that -- the customers trading in 4 markets, is that concentrated on a now few customers? Or is this more of a broad-based retail behavior that you're seeing? And what's your thoughts on the sustainability of this level of FX-related income?

I think the sustainability is always a question mark but that has to do a lot with the turnover in the number of trades. But I would say, which is maybe a bit surprisingly that lot of, so to speak, normal retail clients are getting used to trading on the platform, especially in U.S. stocks. And of course, looking at December, we still had a lot of trading in the U.S. Of course, we will not deny that there's a lot of Tesla trading going on in December. But I will believe that long term, as Birgitta said, 20% of the turnover or 18% of the turnover was on foreign trading. If you look a few years back, I think the numbers were like 5%. So of course, the number of clients that we have, more of them are used to trading in foreign markets. I think that will continue. But then if it will be 18% of the turnover or 14%, that will vary from quarter-to-quarter, but it's absolutely here to stay that the normal retail clients diversify the portfolios with equities in foreign markets, especially the U.S. and Europe.

All right. And related to that, do you think you can complete the margin on FX-related trades going forward? Or is there any reason to think that there will be better prices for customers in that area?

We think that the price that we have when it comes to FX is very competitive given the competition landscape, but who knows, it might be that somebody will start lowering this, and then we will have to take our decisions but at the same time, the brokerage is not that high in foreign trading. And I think you have to look at it from a customer perspective, the cost of trading, both with the FX part of the trade and the brokerage part of the trade, we think we have a competitive offer.

All right. And then finally, maybe it's a bit preemptive, given the financial performance or let us say its current recommendation about the dividend, but perhaps later next year, would you consider substituting equity capital for subordinated debt to fill up the leverage ratio and thus improving perhaps the ROE and maybe leave room for further distributions?

Well, as we said, when we took the decision to use equity for compliance with the LR ratio, one of the reasons for that, and I remember, we talked about this, it was absolutely that we were a bit afraid that this recommendation will come, and it came. So it shows that we took the right decision. I think at a question about giving out AT1 capital to be able to distribute dividend to our client is something that we will discuss internally, especially with the Board and Anna going forward, but we have not formed any plan for that. But I think that question will pop up during the year. And that's something we will keep very seriously if it's beneficial for our shareholders.

And the next question comes from the line of Nicolas McBeath from DNB.

Yes. And my first question is on the revenue margin. I mean, as you mentioned several times, 2020 was clearly a special year and the bump in the revenue to savings capital to above 50 basis points was quite exceptional. So I was wondering if you dare to share your expectation for revenues to savings capital in 2021, please?

Well, that's a very difficult question, Nicolas, as you know, because one of the thing is that the brokerage income that we have is, of course, tied a lot to the volatility and the market activity. I would put it like this. I believe we will perform -- the outlook for 2021 is good. As you know, we never make any guidance during income and so forth. But I think we'll be able to perform a lot better even if the market goes down, than the -- as Birgitta said, than the historical levels. So we lifted the income-generating capacity in Avanza several notches during 2021 -- during 2020. And I think that, that will be -- some of these notches will be in place for 2021 also. But to make a prediction of that is extremely difficult. But what I would say, and I think we talked about this over the years is that our focus has been a lot on number of clients, of course, but also increasing on the AUM. And now the AUM is up to SEK 571 billion, and that AUM, in some sense, is a sure bet that that will create good thing in the P&L going forward.

Yes. Okay. And then I had a question on your thoughts about your responsibility regarding your customers' behavior and trading activity and potential speculative behavior. So I think there's been an increasing attention towards gamification trends, some investments, probably more in the U.S. than in Sweden, yet at least. So yes, just wondering if you could share your attitude towards this topic. And I mean I also tried your new swiping feature that you wrote about today, it's a nice and fun feature. But yes, maybe philosophically, do you think there could be a conflict between fun and sound investments when it comes to using your platform?

That discussion, as I had with a lot of people in the last couple of weeks, I think that is -- if you look at the speculative part of our offering, we have questions you need to answer. We have texts that you need to read. We are very, very clear to all our customers that if you're going to do a certificate, which is leverage, you have to make sure that you understand what you're doing and so forth. So I think the information and responsibility that we take for our customer not doing things they don't understand because that's the basic question, it's not taking risks, some customers love risk. It's taking risk that you don't understand, that would be a potential problem. If you look at the swiper, I would say, and I think that somebody outside Avanza said this, in our opinion, not the gamification we are doing. What we are doing is make it easier for people to find stocks and make sure they diversify the portfolios. So this is an area that I think will be debated during the year. But I think that we are not giving advice, we're giving information. We talked about this, we blogged about this. We do a lot of things about this. On the site when you buy things, you have to answer question if it's an advanced instrument. So I think we are doing a good job on that. But of course, it's something that we are also discussing, could we do more because if you look at the message from Avanza to our clients is always long-term diversifying portfolio don't take risks, you don't understand.

Okay. And then a question on growth. Yes, you mentioned now a few times in this call that 2020 took us to 2024. So I was wondering if you see a risk that some of the customers that you would have received in a normal scenario over 2020 to 2024 were front-loaded now into 2020 and that you have explored some of the growth in the next few years? So that's my first question. And then a question also, you mentioned 2 million customers. In what kind of time frame do you think about 2 million customers? Is that kind of an end game or steady state? Would you think about many years ahead? Or do you find it possible that you're going to reach this level within the next 3 years or so, which I think would be the outcome if you continue to grow your customer base by 10% per year over the next 3 years from this level.

The 2 million was just that I mentioned. It's not a number you have to remember too harshly. It's just my point is that having 1.3 million customers, we don't see a limit to number of customers in the next couple of years. So we think that we can grow a number of customers. And that means that we -- if we can have 2 million customers, 2.5 million customers or whatever, we see that the potential in the Swedish population is still to make even more people or more customers of Avanza, we see a great growth potential there. If we have front-loaded some of the customers, probably, yes, some customers who have -- find us during 2020 might not have found those if we didn't have the pandemic, but we still believe that given our market shares that we have a lot of customers to convert into Avanza. And I don't see a limit to that at the moment.

Okay. And then my last question. So a couple of questions to Peter Strömberg, so to use opportunity to ask him, given he's on the call now. So just reflecting back a bit to the philosophy of -- from Avanza historically when it comes to IT systems has been to replace the back end system, I think every tenth year has been something that at least earlier management have been talking about in order to not end up like large banks trapped in legacy systems. I think the last upgrade to the back end was in 2012 or 2013. So almost 10 years ago, what's your attitude and approach to that at this point in time?

Yes. First of all, I think it's fair to say that we rebuilt our whole banking platform, calling the [ next-gen ] project, which we put into production, late 2017 and dropping off the last customers, I think, in January 2018. It is, yes, based on our GigaSpaces platform as well. And we are upgrading that as we speak to newer versions, et cetera, similar version of PriceRunner and other companies in Sweden are using and so forth. So I have to say that 2012 is not an accurate figure. And as you probably know, we're also now replacing our back office system. And we have plans for other things as well. So at the bottom of your question, you're absolutely right. We are even the large ones. We're never going to keep them. As long as you said. So we have done that, and we're going to continue to do that.

Okay. And then a follow-up there on the comment on the back end system. What will be the benefit in it for you from an efficiency point of view of the customers or yes, maybe offering new business opportunities or anything that would come as a consequence from upgrading the back end system -- or sorry, back-office system?

Yes, sure. I mean, the way we see it, it gives flexibility that we might not utilize in the first steps. We will see. I think there are instruments that we have overcomplicated in our current back-office system because that's not the newest one as WISER and NASDAQ has provided us for many years, which has been great. But I think we will see the opportunity to also really, really revisit how we have built things in the ecosystem that communicates with the back-office systems, which I -- in my world, I see as the blood streaming through the whole experience that Avanza is providing to the customers. So there is efficiencies for definitely. There's also a far better experience for our back office people within Avanza. Again, people, motivation, efficiencies as such, if you want to say that, but also opportunity to use their time to see how we can innovate around processes and look at that going forward as well. I'm pretty sure there are opportunities that we haven't used. As you probably know, if you read more about TietoEVRY and AVATech, they have far more components to what we are going to -- planning to use for the core systems. So there are plenty of things to do more when we are on that platform if we choose to do so.

Okay. And then my final question, also to you, Peter. So how do you think about the potential to move to a cloud-based back end? Would that scale better, improve development speed, security or any other advantages compared with your current set up in your view?

We look at cloud in a similar way as we look at open source. We don't necessarily go to in -- where we have chosen to so far as in data platforms, et cetera, based on the open source captcha, created by LinkedIn and other large companies. We don't look for the cost efficiency as primarily because it's not proven. You can see that in our figures and compare that to others. Flexibility has not really shown the expectations we have been looking for. What we do, though, is that we find now, and in the last couple or 3 years that the cloud companies or big tech companies giving out cloud solutions has truly come to a point where new technology is introduced within the cloud solution, that's interesting. That's interesting because it gives the speed of innovation where needed. It also, again, gives motivation to innovate for the teams within Avanza. So there are new tools and services within that. And I should definitely be open and say that open -- this type of cloud solution also have opportunities within IT security and information security, and that's also important for us to look further. We're doing that already. I will not go into any details around that, but we're doing that already, and we are looking into various areas into the cloud. And we're going to continue that journey.

Okay. And then just a final follow-up, just hypothetically, how difficult or challenging or costly would it be for you to move the back end to the cloud? Would you -- yes, is it possible to make any kind of assessment or comments on that?

I think that would be difficult to say. I wouldn't go to Anna in the future and see that as a big chunk in that sense because, I mean, we have prepared ourselves in so many ways. When or how and partially, again, small pieces is what we do, sub case, if you want to call it that or microservices in thousands. We're going to do it gradually, as we do for most things. We might choose to do certain areas or certain services or for development environments and so forth. But right now, 2020 also is, as you probably know, Schrems II, CLOUD Act, GDPR, it doesn't look too good if you haven't done security by design from the start. It doesn't look too good for many people act in that world today. So you have to be very, very cautious and clever until that is solved between the U.S. and the EU. There are ways to move forward, subdeniting data, doing that. Scientific data is coming through for sure or making it encrypted. But if you make it encrypted, you have to make sure you have the key and not another cloud-based U.S.-based company. So that's also something that has really, really come into play in how fast you -- or we could or should move within an area or space as well. We'll see what happens, but we'll follow that as well.

And the next question comes from the line of Jens Hallén from Carnegie.

Perfect. So mine are, I guess, variations of earlier questions, or maybe even a follow-up. One is you're talking about the activity. I know we've talked about that in the past. But can you help me how I should think for the future? Is there a particular reason why people will be trading more sort of after COVID than they did before COVID. I know in nominal terms, it will still be a higher number, but in terms of individual's activity levels, what's your thinking on that point?

Well, it's maybe good I could ask the question to you because it's a very difficult question. But I think what I would say that for us, I think more people than ever are interested in the savings, interested in the stock market. If you take a serious look at it, the reasons for being interested in saving is, of course, on marginal people have less things to do, still working at home. But at the same time, you cannot forget that the pandemic has created worries within people. And one thing what happens when you worry, you try to control what you can control. And then, of course, people have been looking into the savings. And we have 300,000 new people coming on to the platform. And of course, for many of them being actively managing their savings is, of course, something they will continue to do after the pandemic, but not maybe everybody will still be active. Maybe some will lose activity. So my guess and my prediction is that we will have more active customers going forward, but not all of them who's been active 2020 will be active 2021. And then I think that also one thing is that the sustainability area will come in place also that people will manage actively more of the savings because they want to make sure that they are -- invest their money and their pension funds in a sustainable way. So I think there are a lot of things talking for that activity will be on a higher level. And at the same time, people are more aware of the savings and how to take care of that, and that will lead to higher activity in the future. But of course, if the market goes flat, the turnover goes down, that will affect them in a negative way. But once again, as Birgitta said, we believe that we will perform a lot better in the future than we did in the past, so to speak.

Okay. So if I understand you correctly, with what you said now and previously, perhaps not activity levels [ alas ] 2020, but even activity levels would be higher than in the past? And then we would see that.

Absolutely. And I think that since we don't make prediction that's difficult. I mean, we released some monthly statistics. So you are able to follow how we are doing in that month by month.

Perfect. Okay. And then the other question is on customer numbers. So now -- I think you talked about whether it's 2 million or 2.5 million. I guess to the point you're making is you don't see a limit. I think previously, we talked at a number, which was considerably lower than 2 million and is the wise interpretation that you've always thought that there -- where you don't know how many customers that you can have, but you actually think that they are potentially still considerable? Or has something changed? Should I draw any conclusions from -- before maybe you're talking about 1.6 million to today being a number much higher than that?

No, but I would put it like this, that every single person in Sweden has a bank account is a potential customer of Avanza if that person is interested in doing some savings.

Okay. That's fair enough. I think the last question I have, this is more of a quick one. So you now have a buffer to your leverage ratio target, which is, of course, includes the buffer to what you think the requirements will be. Do you have any ambitions to use that up maybe by doing more on balance sheet mortgage spending or something like that? Or you -- or do you want to keep such a buffer for changes in deposits in quarters, et cetera?

No, I think the buffer is for change in deposits. As deposits growth, we have increased our private banking mortgage loan. But as you know, Jens, we are conservative, we are low risk, and we're going to keep on being that.

And the next question comes from the line of Maths Liljedahl from SEB.

Yes. Peter, if you talked about 2020, was 2024, what did you realize that you could take out? You mentioned in terms of old legacy systems or processes, and perhaps more interesting, where did you see the bottlenecks? Is that something you can answer?

Yes, I would say, without giving out too much information but we've learned that some of our technology and the way we build things can handle 20x the load. We realized that some of them -- some of the areas couldn't manage more than 1.5 to 2x the load. One example which was not the most obvious was changing your -- how -- your customer level on how you trade from one day to another. That got stopped in our -- the IT system, the back-office systems and queued up. And that was one area where we realized the bottlenecks were really hard. So I mean, we practically manually some of the days, like 13th and 14th of March, which were really crucial and crazy days in the markets in a specific way, I should say, as well, and people didn't change their -- the classes. Not -- we're not doing 3,000 or 4,000, it was 37,000 customers who choose to do that in a very short period of time. That type of bottlenecks. And then we were very surprised in some areas where we really -- there was actually no activity in terms of CPU, I mean, processor power or memory usage or stuff like that. There's been, quite frankly, all over the place. And since capacity and availability is a game of extreme complexity, it's not 4 or 10 data points, it's probably more than 1,000 that we need to figure out. But of course, we learned what will happen when we add more capacity in terms of hardware or network, et cetera. We also learned that our pretty brand-new network from Cisco, which is programmable and helps our DevOps teams on a daily basis was far better than we thought in terms of capacity. We though, learned that you cannot -- we cannot trust only having load balancing on a hardware solution. We have to have both. It has to be not a backup, it has to be quadrupled in terms of different ways and different technologies to make sure load balancing in a complex world like this actually works when markets and behavior goes up 10x or 12x, et cetera. So that was the learning as well. So I think we've pushed some of our -- the technology also vendors from the outside world, one of them some of the world's biggest, on how we can funnel our learnings to them as well to see how they can help us going forward in some of that. So it's all over the place, I should say. I think that is that the load balancing act has turned legacy overnight. That's how we sell, quite frankly. So turning -- talking about something that you really thought would work far better than...

Yes. Another question. We do see a large number of notes in the start category or more than doubling, I would say, from last year. How is the -- do you have a feeling for how is the migration from clients from start into normal commission paying clients, we can say. And perhaps more interesting, could you comment on the level of activity for when clients migrate from the start level into, I would say, normal Avanza client?

I don't have that figure. I have to come back on that.

No, we don't have that figure, but the next level is the mean level. So the difference between the start and the mean level isn't that -- I don't think it makes such a big change when it comes to activity, so I would guess. Yes, so then if you look at the average number of savings and new customers put into the platform, the pretty fast move from the start level up to other segments. So I would say most of them probably are not too long time in the start segment. I mean, the limit is [ 50,000 ]. Yes.

Yes. Yes. I guess thought it's a trading activity, significantly went down when you all of a sudden need to start paying. But yes, we can get back on that.

And the last question comes from the line of Adela Dashian from Handelsbanken.

Most of my questions have already been answered, but I'm wondering if you could give us an updated view on the competitive landscape. I mean given the progress that you made in the year that just passed an increased gap that 2020 created between you and your peers and competitors?

I would say the competition is there. I think it's a fierce competition, but at the same time, I think that we have widened the gap to our competitors during 2020. And that's just fact base you looking at size and the number of net inflows and so forth. We have, of course, one head on head competitor in Nordnet. And then we have the large banks. So I wouldn't say the competitive landscape changed during the year. But I would say that our -- the things that are good about Avanza became more obvious to more clients. And I think that we are the leader in this market at the moment. But we're humble, as we talked about before, that means also that we have to improve improve, improve every day. I know my competitor, so I look at the competitors, but we don't let the competitors lead us. We lead our own way forward.

And as there are no further questions, I'll hand it back to the speakers for closing remarks.

Okay. Thank you for interesting questions. I wish you all a fantastic Thursday, and I hope you all stay healthy, and we'll probably hear from you at the next quarter. That will be Anna's first quarter. She looks a bit nervous here in the conference. No, I'm just kidding. Take care of yourself, and thank you very much.

Thank you.

Thank you. Bye-bye.

This concludes the conference call. Thank you all for attending. You may now disconnect your lines.