flatexDEGIRO SE (FTK) Earnings Call Transcript & Summary

Good morning, everyone. Pleasure to have you with us on the call. First and foremost, from the whole flatexDEGIRO family, a happy and healthy new year. I hope you had a good rest during the holiday season and are starting very well into the new year. Yes, we kicked it off relatively early this year to come out with our commercial KPIs and the guidance to give you immediately the good insight into 2021, but more important even to set the outlook for 2022. As we always say, 2021 is over. Books are closed, done and dusted, full focus, full steam now in 2022. So I'm happy to have the chance to discuss with you today the achievements of 2021 from a commercial perspective and the outlook for 2022. You might have wondered about the fact that we only published the commercials, not any financials yet. They are still in preparation. As you can imagine, almost a week after the year end we plan, just as a side note, we plan around end of February to publish the preliminaries and end of March, as stated also in the financial calendar to publish our annual reports. Yes, let's dig into the prepared slides to show you our success over the recent quarters and years. I think the very first and most important point for us is that we have delivered on both as promised with respect to our customer growth as well as with our transactions. As you might remember, we have guided 9 months ago a customer number of 2 million to 2.2 million at the year end. We ended up with 2.06 million customer accounts. And with respect to transactions, we guided 90 million to 110 million, and landed to 91.0 million, virtually .0 trades in 2021. The growth is -- from our perspective, fabulous. The team worked very, very hard. It's -- I was just yesterday also communicating to the team saying it's not an average milestone. It's not something very easy to do to settle 90 million-plus transactions in a year, in a very turbulent year that started with big volatility, that then fell to a normalized level and finalized the year with something in between, so to speak. But a fabulous job by the whole 1,000-plus people that we have, reaching these milestones, focusing, not getting distracted from anything left and right. And then there were in between, obviously, some steps that result, from quarterly results that we discussed with the investor base with the sell-side analyst space, but also obviously internally. And we always said, hey, guys, let's focus on the whole year end. We are there, we met it. And I'm very thankful and very happy to say it was the seventh year in a row that we fulfill our guidance and the seventh year that we deliver record figures. I think this is, in a nutshell, the situation with respect to 2021 internally. If we look into the outside perspective, we managed to outperform any of our competitors in the European landscape with 730,000 new customer accounts. We grew again as fast as almost our 2 biggest peers, so to speak, in Scandinavia. But we outperformed the top 5 of our competitors all over Europe, with a growth rate of 55% in customer base. I think, again, here, yes, we are a growth company, but that massive growth is fabulous. And my thanks go again to all our colleagues that put so much effort into our systems and to our product, into our setup to allow for this growth, which is magnificent. The outperformance that we show on a customer base is also obviously something that we can split down now into geographies. I hope, and I know that many asked for more detailed information around countries. And our clear policy was we will not go into country by country base because, in the end, we consider ourselves, and this is our clear philosophy, we are a pan-European online broker. So we are totally indifferent and agnostic whether the client sits in Italy, in Spain or in Germany or in France or in the Netherlands and trades, for us, the trade counts, the client counts. And this is for sure also the philosophy going forward. However, we understood that you would have loved to get a bit more transparency with respect to at least regions to get a good understanding of how we split our business. So we decided the first time, and we'll continue now to run it over the next quarters to split the growth into 3 key markets, as we always defined. Our core markets, consisting of the Netherlands, Germany and Austria; our growth markets, France, Spain, Portugal, Italy, Switzerland, Ireland and U.K.; and then the research markets consisting of the Nordics, Poland, Czech Republic, Hungary and Greece. I think -- I'm not going through each and every number now. But I think what I would like to highlight here again is that we managed in each of our, let's say, customer buckets or regional geographical buckets to grow double-digit percent in each of them, almost with at least 50% to 46% in the core markets, 75% in the growth markets. And even in the research markets, where we literally spend no marketing at all, we managed to grow by 67,000 -- sorry, 67% by 40,000 clients to 100,000. Again, it's not big numbers, as you might see them in the core markets on the growth markets. But it shows we are in, so to speak, Tier 3 countries, Tier 3 research countries doing much better than some other players, some other peers that considers some of their markets to be core and not managing to have 100,000 clients in this market. So the focus continues, obviously, on the core and the growth markets, especially given also the introduction of the zero commission trading that we introduced in Q4. By the way, it became effective on the 20th of December. So it's now live. The new pricing is set up. The whole marketing campaigns are running now for the last 2 weeks, 2.5 weeks since Christmas and then around Christmas and New Year. And full-fledged now in the process to continue throughout the whole first quarter, which we consider to be the most promising quarter, which is historically the most promising quarter and are very keen here to jump into a quick start into 2022. We truly believe that we will continue this growth also, especially given the significant measures that we started. And I just touched on the zero commission. But if we recap 2021, let's look into what we launched also and what we did in H1 2021. We finalized the merger. Again, so we have managed with our teams, with our people a record all-time record year during a merger process, which is also not the normal status to manage merger, to manage a merger of big companies, both with each 500 employees and millions of clients, to put these companies together and to deliver such a brilliant result. This is done and dusted. The merger is done. All measures have been implemented around -- if you remember, the project [ IBAN ] so in account for each and every client with DEGIRO and so on and so forth. Plus, obviously, also the introduction, this was the first step of the zero commission strategy, the introduction of the zero commission ETF and fund savings teams at flatex. During H2, the introduction and implementation of Tradegate early and late trading, the ETP partnerships that we just also finalized in December. The crypto trackers that we also introduced only in November, plus the new pricing structure. I touched on that, and finalizing with flatex next 3.0, which will take now more and more shape and is going obviously in 2022 to be also part of the DEGIRO strategy. 2022, the early start. I said it that we have started the campaigns all over Europe 2, 3 weeks ago and are running them now throughout the whole Jan and Feb. We are driving the whole marketing strategy with an educational and informational basis. So our educational documentary will be started to be broadcasted all over Europe during Q1. We are really looking forward to it. I had a chance to see it, but I will watch it also on the TV. We will put more and more effort into informational and educational aspects of brokerage. There are a lot of discussions around that, especially given also the inflation and potential interest increases. And people are asking me again and again, do you mind that maybe the interest in stocks will decline and people will rather than go into bonds and more and more or into savings? And I think it's important here, although it does not fit perfectly into what we are discussing as a topic now, but I think it's important to give also this side note. We truly believe that any changes with respect to interest rate might affect us in a positive way. Yes, there might be clients going out of the stock market. But I doubt, and I literally mean it, I doubt to see banks offering higher saving interest rates just because lead rates are increasing. I think we have here more and more a macro environment. And the phenomena in the macro environment that this links the actual lead rates and inflation. And given the inflation, the best possible tool to mitigate inflation is investing in assets. So literally inflation should drive the interest in the spot market. Especially, as I said, since I believe that we will not see banks rising now. They're saving interest to 100 or 150 or 200 basis points, irrespective of what the lead rate will become. So this is, I think, also a massive point why we are putting so much into educational and into informational marketing, to bring the people up to speed, how to set up dollar-cost averaging ETF schemes, investing into equities and so on and so forth. Now all these measures that we have set in very late 2021 but they are kicked in, in 2021. And now going into 2022, we expect to go this year for 2.7 million to 2.9 million clients at the year-end, which equals a growth of 30% to 40% of our customer base. It is a massive growth step again to grow double digit and mid-double digits in percentages. But we truly believe that we have all ingredients in place. And I truly believe that we can deliver here on our promises. With respect to transactions, we did something that we do always, again and again, to under-promise and rather overdeliver. What we did here is to say, okay, 2021 was an exceptional year, given also the first quarter. For the whole year of 2022, we go back with our base assumption to what we know historically and what we learned from our data analysis. And also here, to be frank with you, it's not like we sit around and think about, okay, what could be possible. No. What we did is we digged into data. We have analyzed over the last 10 years the data that we have, what happens with respect to volatility, what happens in trading activity with respect to certain events that might happen throughout 2022 and try to find a very, very also data-based guidance, which ended up to be 95 million to 150 million transactions, which assumes that our client base will do in average 40 to 45 transactions in that respective year. We started last year, if you can -- if you remember, we started last year as well with a very -- with a strong, however, cautious guidance. This is the same way how we start this year. Let's see how Q1 goes, let's see how Q2 goes. The world is upside down. To be honest with you, I think you're all aware of that fact. In H1 2021, we were discussing with investors how trading activity will change given that lockdown is over, COVID is over, people are back to the normal world. Finding ourselves 5, 6 months later, again, in many countries and lockdowns in a very early corona stage environment again. So I think this is also what drove us to be here more on the conservative side, on the cautious side to say, okay, let's see how the start -- how the year starts. And we rather increase our guidance over the year, if necessary to do so. And if we see that quarter-by-quarter, it goes much better than we expected, then to surprise negatively with any guidance cost. In May 2021, we have presented our growth vision of 78 million clients, 250 million to 350 million transactions. Both with respect to clients, we assume a 30% CAGR. So we grew last year in 2021, as I said, 55%. So overachieved that CAGR expectation. This year, we're going to 30% to 40%. So we'll again exceed this -- hopefully, this CAGR assumption, but are absolutely in line with our expectation going forward to our vision. And I always said that I believe -- and I truly believe, that size creates markets. And given our increasing size all over the European landscape, awareness will increase, brand awareness will increase. And that will, over time, accelerate also our customer growth on the one hand side. On the other hand side, we are in Europe at a tipping point of retail brokerage. And yes, the last 2 years, we're a massive accelerator -- we're a massive accelerator to the whole environment, to the brokerage environment. Nevertheless, we are still in newborn shoes and -- as an industry in Europe. Again, keep in mind, 0.25 billion of people in Continental Europe do not have a brokerage account. And this is nothing that happens overnight, this is something that happens over the years, sometimes even over a decade. And this is a clear vision for 2026. It's not a short-term aspect, some long-term belief that we have as a management with our team. And it's our -- obviously, our duty and responsibility to deliver on this vision. I think 2021 was a perfect evidence. And yes, let's now focus and put full steam on 2022 to continue our road to the Vision 2026. Yes, that is the summary of the commercial KPIs and of our presentation, the financial calendar is also included in the presentation where you will see when we will report what. Again, I'd like to thank you all for supporting us, for being on our side, whether it's a sell-side analyst or the buy-side investors during 2021. Thanks for your belief and your trust in us and as a management, but also, obviously, as a whole team, we will continue to put a lot of effort and a lot of work into our big baby that is now a big company. Again, when we always think back 7, 8 years ago, it was a very, very small setup now growing and growing, expecting to continue the fabulous growth over the next years, given big markets, given big opportunities. But most -- first and foremost, given also the big, big measures that we have implemented during the last, I would say, 3 months that we will definitely harvest the fruits from. Yes, thank you. That is all from my side. I'd like to open the discussion for the Q&A by the sell-side analysts.

[Operator Instructions] And the first question is from Marius Fuhrberg, Warburg Research.

Yes. Two for me, please. The first one will be did you observe any different kind of trading behavior from the customers in Q4? Because -- I mean, given the relatively high volatility, we saw in especially November and a bit of December as well, I would have expected a little bit higher trading behavior, or more trades to be honest. Nevertheless, I mean, you reached the guidance. But, yes, any color on this would be great. And the second question would be with regards to the new customers. Did you experience any change in customer acquisition costs in Q4? Or should we expect this to remain on the level we saw during the remainder of the year?

Thanks, Marius. Your first question with respect to transaction activity, your second question with respect to CAC. Let me start with the first one. The trading activity in Q4 was quite surprising, to be honest with you. Also if you look into the V2TX which is also something that we very often use, October was horrible with respect to volatility, and also the beginning of November. And then volatility kicked in, starting, I would say, the second week of November and continuing for 4 weeks. But what we saw was a very weak December. So compared to historic Decembers, so a relatively weak December. That is something that we have seen also across the industry. So when you look, for example, to our peers, Nordnet or Avanza, we actually outperformed their trade growth quarter-on-quarter. But in general, you're absolutely right. We were expecting a higher trading activity in Q4. Yes, we had a volatility phase that was but literally 4 out of 12 weeks or 13 weeks, so to speak. Second, what you should also not underestimate is we had 3 bank holidays in the U.S. So we were missing 3 out of 60, which is 5%, 6% of the total quarterly trading volume, given the U.S. bank holidays and with Columbus Day, Veterans Day and -- gosh, and Thanksgiving. So there were like 3 bank holidays. And since you know that U.S. trade has a big portion of our trading volume, we also saw less trading activity. So industry specific, on the one hand side. On the other hand side, also with respect to our setup and our focus also in U.S. equities driven by company-specific or strategy-specific facts. With respect to CAC, no, we did not see any changes in client acquisition costs. And to be honest with you, I do not expect to see any over the near future. We will continue with our dedicated approach that we budget EUR 50 per new client -- per new gross clients, obviously. And this is something that we will carry forward with. Indeed, what we had was that we prepared in Q4, especially in December, a lot of the campaigns. So you will see, again, the timing gap between expenses and so to speak, the profit because you spend the whole Christmas time and during Christmas time. So we saw it after the 15th of December to pull out -- sorry, to push out the campaigning. And that goes now until February to spend more money on growth in Q1. As we all know, Q1 is the most important quarter for us. This is what we are putting full focus on. So thus, we will see also market expenses -- marketing expenses in Q4 that will only convert into clients in Q1. But no strategic change in CAC in general.

The next question is from Mengxian Sun, Deutsche Bank.

So several questions from my side as well. Could you please provide us an update on your marketing campaign in the growth countries? So what have you achieved in the past quarters? And what's the upcoming activities for 2022? And the second question is, again, on the new customer additions. So I noticed there has been a slowdown in the net customer addition in this quarter compared to the third quarter. And based on your guidance, it seems that you're still very confident that the growth momentum will come back. Could you give us some color on how exactly do you plan to achieve the customer growth again? And in which regions do you see the biggest potential? And the last question is the off-boarding of the 20,000 non-brokerage customers. Can you give us some information on what the financial contribution is coming from these customers? Thank you very much.

Yes, thank you for your questions. So the focus is obviously to continue our growth and our growth markets, and to focus our marketing on our growth in core markets. So what are we doing in marketing? What campaigns do we run in marketing? We just started the big campaigning on TV all over -- all our growth in core markets, as I said, starting mid of December during the holiday season, continuing now into Jan and Feb. Online media is obviously social media, and online media, with informative, educational marketing. Now starting the big documentary that we have prepared throughout 2021 that will be broadcasted in all European countries and will be available to be downloaded and watched as well. And not downloaded streamed, old fashioned too downloading movies these days, so streamed online as well. So around all this, we are putting actually -- the media campaigns, the marketing campaigns, there is going to be a big push in marketing. We will also for 2022 budget, yes, a mid-number of millions in marketing. So I think we will also be again between EUR 40 million and EUR 50 million in marketing spend given also what we expect in new clients on a gross base, always to keep in mind, with a strong marketing push. But answered a bit your second question, where is our core focus? The core focus is the growth in the core markets. And it has to continue to be our focus. Again, we are now getting better and better grip in Spain and Italy and France. We're doing super well. But also here, we have some ideas how we can even improve our setup, improve our offering. So we feel very comfortable to continue the focus on the regions that we have defined as our key regions, which are our domestic markets as well as our growth markets. With respect to your last question, the slowdown in customer acquisition on the one hand side, and the contribution of the being off-boarded non-brokerage clients. So customer growth is always something, as you know, that is very, very much linked to also client acquisition costs, so the marketing spend that we do. As I said, we expected a bit more from Q4. I have to be very honest and frank with you, both in trading activity as well as in customer growth. And both was a bit lagging behind. And again, we see it industry-specific and industry wide. We see it also with our peers. So -- but for us, personally, it was a little, yes, surprised that it was not as good as we believe the market can be in Q4. There was a bit more push. We delivered. You're totally right. This is always our key fact to deliver and then to have a bit of play room where we believe we can outperform at least the market. Nevertheless, we grew all in all over the last 3 quarters, so to speak, by roughly, give or take, 450,000, 500,000 clients. That means like 150,000 in average, give or take. If we continue with that speed only, so if you would annualize this Q2 to Q4 growth, we would end up with something around 600,000 clients this year. But keep in mind that over the last 9 months, we did not have all these measures in place that I just described. And I truly believe that these measures [ weighed ] and inspired by the marketing push, by the documentary push, by increasing brand awareness will support us in delivering also our guidance in 2022. I'm even very convinced that they will do so. With respect to off-boarding the non-brokerage clients, yes, thank you for that point. Because I think we might have also some investors and analysts that are rather new to the story. From our legacy business, we used to carry with us like 50,000 -- 40,000, 50,000 non-brokerage B2C clients that used to have with us subaccounts and stuff like this. To be honest with you, the contribution of these clients is less than [ 1 pro mill ], so less than 0.1% of our total revenues. So the headache and the calculation, the data driving the split between brokerage and nonbrokerage is far too complex, first. Second, we decided strategically to get rid of all disturbing items on our brokerage strategy. And this is the reason why we started this year to offboard some of these clients. And we'll continue over the next year in 2022 to off-board actually the whole rest of these clients. So they will drop away and fall away, these clients. But without any, I would say, any significant impact on our P&L or financials, for sure not. I hope that answers all your questions.

And the next question is from Christoph Greulich, Berenberg.

Two questions from my side, please. So the first one is with regards to the market buckets that you have now introduced. So how dynamic is that breakdown? Meaning do you expect any of the research markets to move into the growth bucket over the coming years? And then secondly, could you remind me of the time line for the introduction of the PEA accounts in France?

Yes. Thanks, Chris. I think we discussed it a couple of times. I think it was a little delayed, it's Christmas present also for you. You always were interested in getting a bit clearer focus on the geographies. So no, I mean, how dynamic is it? I would say, relatively non-dynamic, to be honest. So I don't expect now that countries shift every year from A to B. But it might happen that over time, over 2, 3 years, maybe a country from the research market goes into the core markets, or maybe even from the growth markets we move into the core markets over the next 5 years. I think there won't be more than 3 or 4 countries that shift from A to B. That's it, and nothing on the short term. So we'll try to keep this geographies as long as possible, very stable unless we see now whatever. We are exploding maybe coming to the second question in France. And France becomes another big core market where we go into a number of clients very similar to the Netherlands or to Germany or even to Austria or even with respect to market share. The PEA accounts are -- so I don't know, I think we discussed it in the past, there were some legal uncertainties, whether we can do it or not. Yes, we can do it. So we will now put all the focus on the PEA accounts. It's a bit of work that has to be done technically obviously, because you have to have separate accounts, they cover these tax complexity. We are working on that. At the same time, we're going again a step further, and are doing the research for the need of the PEA account. So how deeply needed are these accounts and whether there are opportunities to find also a way maybe without the accounts. So I think and I assume that, yes, by the end of the first quarter in mid-second quarter, we should have a clear visibility. If we definitely go for PEA accounts and second when to have them. If we decide to go for them, I might assume that we will have them this year.

[Operator Instructions] And there are currently no further questions. [Operator Instructions] And we have a follow-up from Mengxian Sun, Deutsche Bank.

So probably just one question on the retention rate. And as I see that the retention rate decreased a little bit in this quarter. So it is around about 97% in this quarter, and I saw it was 98% in last quarter. Do you have any customer feedback from that side, or any information that you can give us on that?

I'm a bit -- I think the 97 -- Achim, please correct me, the 97% is a full year retention rate. It's not just a quarterly retention rate. We had, I think, as of half year, 1.4% of churn on the first half. And if you annualize that, you will end up with 2.8% on churn. But there was no -- in any way, no structural movement. A little discrepancy happened actually by reducing the non-brokerage clients that we terminated so that we had here terminated clients and accounts. And thus the number dropped slightly, but even there, it was absolutely not structural.

[Operator Instructions] And we haven't received any further questions at this point. So I hand it back to Muhamad Chahrour for closing remarks.

Yes. Thank you very much. Thanks for your questions. Thanks for jumping on to the call on short notice. Yes, wish you a brilliant year, stay healthy, lot of success for all of us. We are, by the way, on a U.S. roadshow, starting on Monday throughout the next 10 days, and are happy to be where we are back end of January to see what the results of January were. As I said, the next, I think big, big communication point is then the prelims, the financial prelims on 2021. If you have any questions, anything pops up in your mind, please reach out to Achim or to myself. Looking forward to speaking and seeing you. Take care, all the best. Bye-bye.