flatexDEGIRO SE (FTK) Earnings Call Transcript & Summary

Hello, and welcome to flatexDEGIRO Analyst Call. Please note this call is being recorded. [Operator Instructions] I will now hand over to your host, Frank Niehage, CEO of flatexDEGIRO to begin today's conference. Thank you.

Good morning, everyone, A warm welcome to our Q3 earnings call. I'm here with my colleague Muhamad Chahrour and Achim Schreck. Like always, I will do a short brief introduction, and then I'm happy to hand over to Muhamad to run you through the presentation and the details. Let me start as follows. Needless to say that we are in tough times and that the geopolitical situation here in Europe as well as the fear of recession and the inflation and the interest hikes are very, very challenging for our industry. However, we are happy to present solid financial and operational performance in Q3. I'm happy to mention that the revenues are positive, up 4.3%. The increase of revenue per transaction is even up 6.5% versus last year Q3. And thereof, no surprise, the EBITDA is positively up 25% versus last year's Q3. And therefore we will continue to stay with the guidance of at least EUR 400 million revenues. And we are confident that the fourth quarter is going to be financially even better than this one. Let me highlight a few things before we shift gears and go into details. I'm happy to report that we are on top of things and do well with respect to our cost management. And you will see an even stronger effect next quarter. And although we are talking about very challenging times, there's also a flip side of the coin. There is positive element with respect to the interest environment. What does that mean? Many, many years, we didn't earn in treasury with respect to our deposits, and we even had to deal with negative interest and after ECB has increased positively to 0.75. Obviously within the next weeks, we're going to expect a further increase in interest. And that obviously has a very positive impact of our treasury situation and Mu will talk about that more in detail later. But overall, we expect for the next 12 months, a positive effect of up to EUR 50 million provided that the expected interest rates increase is going to happen as everyone believes. Further, there is additional income due to several management measures taken by us. For instance, we've increased, at DEGIRO, the charges by EUR 0.50 per transaction and that is going to have a positive effect already in Q4, but even more positively, obviously, next year. Second, we have enlarged the offering of our credit product, our security credit product at DEGIRO; where in the past, literally only 10% were technically able to use that credit product. Now it's going to be enlarged to almost 100% of our clients and obviously Mu will be going to talk more about the details and what the expectation of the usage is going to be. And third, we have enlarged our ETP offering, which in the past was restricted to Germany and the Netherlands. And now we're going to offer it in 3 more countries in Europe and that will also have a slight effect in Q4, but even bigger one next year. And last but not least, we have started a program Member get Member. And the first days already show positive effects and that's going to be more affected in the last quarter and then obviously for next year. So all in all there is, from our side, positive elements here to highlight and mention. And although the environment is quite challenging, we will prove how solid our financial and operational business model is. And let me highlight 3 more events, which have been -- happened this year. As I mentioned already, the increase in charges at DEGIRO. But we also waived negative interest, obviously, for our clients when ECB stopped charging negative interest. And we do quite well with respect to our sports sponsoring beyond the fact that we have Borussia Moenchengladbach advertising our brand flatex. We also now do the main sponsoring with Sevilla and we use for the international business digital trademark. And this obviously will help to increase brand awareness very positively. And keep in mind that when we started 2 years ago, until now, we have a 300% increase in brand awareness. So the sports sponsoring does work well in this respect. And we are positive to see that not only in Spain, which is our third largest growth market, our third largest market, but also internationally. This is in a nutshell what I would like to highlight and please allow me one more thing. Don't be surprised if in the future we will no longer forecast trade numbers and client numbers. Obviously we're still going to report that and it's important to us. But we will stop forecasting and the explanation is quite obvious in those times and in an environment with a geopolitical situation and inflation and recession fear, we rather focus on what we can control and this is our financials and this is very positive. And this then brings me to hand over to Mu. Mu, please, the floor is yours.

Thank you, Frank, and good morning also from my side for today's conference call and earnings call. I'm happy to go directly into the highlights of the last quarter and happy to run you through a bit of detail, a bit of additional information to give you a better understanding of the development, not only in the last quarter, but also looking forward to the Q4 and to next year. The revenue development has been reported already yesterday, we've been 4% up quarter-on-quarter compared to last year's quarter. Compared to last quarter, so Q2 2022, we are almost flat, about EUR 300,000 in revenues. Obviously there is an impact given through the release of provisions with respect to the long-term incentive plan. And since I expect also questions towards this topic, the release has happened due to 2 factors. The first factor, as you know, the long-term incentive plan is based on 2 factors: Share price and EPS, expected EPS over the next years. Since both have been adjusted or the share price has decreased and then the EPS consensus has been adjusted. There is even -- there is actually this effect also. The release of provisions is considered under other income and explains also the development of the revenue. Operationally still a very strong quarter with respect to revenue per trade. I remember when we started, after we took over DEGIRO, we kept promising, I kept promising that there's a big chance to rebalance DEGIRO's setup between profitability and growth. We managed now over the last 12 months to continuously increase the revenue per trade by 7%. We promised sustainable revenue per trade of about EUR 5. It's actually the fourth consecutive quarter with revenue per trade of above EUR 5. And they are -- well, this development is mainly driven, obviously, by the DEGIRO measures that we took over the last 15, 18 months. On a 9-months comparison, the effect is even more significant. And as I said, especially given the fact that since beginning of this year, the changes in the DEGIRO pricing have kicked in, in the first half. The second step was since the 1st of September 2022, we have increased the handling fee on the DEGIRO side by EUR 0.50. We will come later to this point to explain in detail the consequences of this measure. Given also the development of revenues per trade, there is a slight decrease between Q2 to Q3 with respect to revenues per trade. The reason here for is also to be very clear and transparent. The reason here for is mainly that the trade mix has slightly changed. I give you also here a little comparison and a little bit of data. In Q1 2022, for example, we had 74.7% in high revenue trades. We consider equities and ETPs to be high revenue trades. And in Q3, the number is 72.7%, which is obviously roughly a 4% decrease and that decrease is also reflected in the revenues per trade. But despite this change, still a very -- we are very happy about the revenue per trade generated by our business model. An increasing revenue per trade, we'll come in a second to the trade activities despite dropping trading activities flat compared to Q2, but plus 25% compared to last year's same quarter, very solid, obviously, also slightly driven by the release of provisions. However, for us, it's important to continuously provide a significant accounted EBITDA as well as adjusted EBITDA figures. Speaking about the adjusted EBITDA, so adjusted for long-term incentive plans and provisions for long-term incentive plans, the adjusted EBITDA is down by 37% compared to last year. What I would like to do here is to highlight, again, the operational leverage of our business model and quite interesting also to explain where this drop of 37% comes from. If we look into the absolute drop, it's a drop of EUR 14.2 million. Compared to last year's quarter, we did also EUR 3 million less of trades. If you multiply the 3 million trades by the EUR 5, let's make it simple, EUR 5, that's a EUR 15 million revenue that is literally missing compared to last year's quarter. Why am I explaining this, to actually show you the consequence when we talk about the drop-through rate on EBITDA? If you apply a drop-through rate of 80% to 85% of the EUR 15 million revenues, we're talking about EUR 12 million to EUR 13 million of EBITDA that is missing, and that's literally very comparable to the EUR 14.2 million actual delta. Operational leverage, if you run a business like ours, fortunately or unfortunately it goes both directions. When trades are growing, you will enjoy the 80% incremental margins. If trades are going down, you will enjoy the -- or less enjoy the 80% because they will start then to kick it into the other direction. However, we are reaching more and more kind of floor in trade numbers. Our Q3 was a relatively weak quarter with only 15.3 million transactions. Why is that important also to understand, if this is the kind of floor for our business model and if we manage to generate in a floor scenario, still EUR 24 million of adjusted EBITDA, which is almost 100% cash quota, I think that describes very well the solidity of our business. At the same time, our marketing has been also normalized and reduced. I think that is very important to highlight. We are very much aware of our cost base. We are very much aware of which instruments we have or where we have the ability to reduce variable costs. We managed very well to bring down the marketing costs. Nevertheless to also continue with client growth compared to, for example, Q2, we reduced the CAC significantly. High investments are made in strong commercial environment, that's absolutely obvious. And given the current environment, we don't see the necessity to have high investments in marketing. But nevertheless we will continue to have a stable level or sustainable level of marketing investments to win clients and to win high-quality clients. I think we are proving that we are capable of adapting to the environment. And going forward for the last quarter, we will put our full focus on pull marketing. We'll reduce significantly the push marketing. So to focus on Sevilla, on affiliates, on all these type of marketing where clients have the intention to look for a broker or are going for brokerage services instead of like nudging first-time users to make use of a brokerage service. Yes. We do discuss it, I think, up and down, a challenging market environment effect. The trading, we are 16% down compared to last year's quarter in terms of transactions. I think it's important here to recap on Frank's words. Trading activity is something that is very, very difficult to forecast because it depends to the vast majority to external factors, to factors that we cannot control as a management, whether geopolitical factors, as we have noticed in the first and second quarter and still unfortunately going on. Second, macroeconomic factors. Third, also a general sentiment, retail sentiment with respect to markets. All of these factors are explicit factors. The only way how we can control implicitly trade numbers is to take care of a net client add with high quality, so not to dilute the customer base. This is something we can control very well as management. We come in a second to trading activity and to clients' quality and hope that we can show that we are managing to do this with respect to this parameter, a quite a good job with the marketing team, but trading activity can be, to a large extent, not be controlled. So we will stop forecasting client trading activity going forward, rather focus on the financial KPIs. Now we see a drop, agreed that big hypothesis still is, is that an industry-specific drop? Or is it because of our actual client -- quality and client activity and the quality of our clients? What we did here is to, again, as we do every quarter, to benchmark the trading activity of our client base. We use here the DARTs per customer account to compare our trading activities. With actually the most from my perspective, personally, but also I can -- I think I can speak for our management compared to the most admirable peers in Europe, which are Avanza and Nordnet. And what we actually see is that the trading activity is dropping industry-wide. It's not an effect of flatexDEGIRO. It's an effect that Avanza and Nordnet have experienced as well. Keep in mind, we are comparing here Continental European clients, by the way, with the best possible trading region in Europe, which is the Nordics, with the highest activity, with the highest engagement and still managed to be in line with actually the most admirable region for retail brokerage, which I think proves very clearly that our customer adds are of great quality. And as I said, given that we compare here a Continental European customer base, by the way, with a very, very accelerated growth and speed of growth to the Nordic peers which are Tier 1 Champions League peers. This is the evidence for us that it's not our clients' quality that is getting less and less in activity, but that it is rather an industry-specific movement. Let's go from a macro perspective of the clients into micro perspective. Customer activity per quarter is still relatively good in 2022. In the first 9 months, we had already an engagement trades on activity rate of 47%, close to 50%, so -- which does say that almost half of our client base that we had at the end of September 2022, did at least 1 trade during the last 9 months. Now there is Q4 to come. I assume personally that this number will go close to 50%, which becomes very comparable then to the 2019 figure of 52%. So a relatively stable trading active customer base of roughly 50%. Now how does this translate the activity level to the activity of the active clients, which is the top right diagram, the top right graph? It shows actually that the activity of our active clients has been in average over the last 6 quarters, relatively flat at somewhere between 20 to 25 trades per quarter. Why is that important to highlight? Because during these last 6 quarters, we added roughly more or less 800,000 clients to our business model. Now if we would assume that these 800,000 clients are of bad quality, this number must drop, must drop significantly. It does not. It's staying flat. It's staying sustainable and stable, which again is for us a clear evidence for the client quality and activity. The share of U.S. volume has dropped. Fair to say, U.S. volumes in the retail brokerage sector is mainly driven by tech companies and tech investments. Usually Europeans don't need to go to the U.S. to buy utilities, something they can do in good, old Europe as well as they could do in the U.S. So there is no need to buy electricity provider or oil and gas provider in the U.S., something they can do also with British Petroleum and can do with Dutch Shell. However, the tech industry is mainly globally a U.S.-dominated environment, thus the peaks in '20 and '21. Now we are normalizing back to a percentage of roughly 20%, 20% of the total volume, which is still above the 2019 levels that were rather at 15%, 16%. Bringing us from the quality, which is getting more and more important for us and which is also the driving force. Getting to the quantity; as I said, in Q3, we added 94,000 gross clients, flat and consistent growth despite the challenging markets. And the good quality has been proven over the last 2 slides with industry-specific; industry-specific growth and activity levels. Interesting also to highlight here, the 2022 cohort in terms of activity has actually exceeded the 2021 activity levels. So the cohort levels of 2021 and is very much in line with 2019 and '20; which tells us again here the quality, the type of quality that we are winning in 2022 is still relatively high, which is also, I would say, very logic given the market, given the circumstances, the number of, let's say, first-time users and rather leisure traders is decreasing because these people are now, as I always say, discussing at barbecues or at dinners with their families, with their friends, inflation, interest rate than what to buy or what to sell. So the quality, the residual quality at the market that you can convince to come to us increases organically, so to speak. How does this transfer and translate into net growth? 376,000 customer' adds in the first 9 months. We had 40,000 accounts that were churned and with a retention rate of 98.4%. We expect by year-end to be at 50,000 to 55,000 churn clients. So the customer additions, the net customer additions were actually 337,000 customer additions in terms of brokerage. Given the organizational offboardings in B2B and B2C; on the B2C side, to clarify here again, it's mainly the merger that we had between DEGIRO and flatex in Austria. It's the merger that we do between DEGIRO and flatex in the Netherlands. And the divestment of Hungary and Norway, plus a number, a significant number, actually, roughly 50,000 clients that were coming from B2B2C business that we discontinued is the reason why we expect for the full year an offboarding and active offboarding by the company of roughly 100,000 clients. So we'll be left over with 294,000 net customer growth. And I think here, again, to highlight not only the quality is right, but also the quantity we grew in the first 9 months faster than Avanza, Nordnet and Fineco together. With respect to the organizational offboarding, also here, why are we pushing for this -- why is the result such a high number? Because we are pushing to finalize this organizational offboarding in 2022. So to get rid of all these accounts by the year-end, so we can start in 2023 with a cleaned base of customers. Now we talked about quality. We talked about quantity. And there is one more, I think, important aspect to highlight, which is the assets under custody with respect to quality. There's been a couple of questions by the investor base and by the analyst base with respect to AUCs, assets under custody, how they develop? There is obviously the hypothesis that I absolutely respect and understand with increasing interest environment, are the clients trading less, are they buying less, they don't bring any fresh money to the table. They are rather withdrawing the cash to put it into interest gearing asset products, saving accounts and so on and so forth. So we are happy to highlight here the assets under custody analysis for you. What you see as compared to the beginning of the year, our AUCs decreased from EUR 43.9 billion to EUR 37.7 billion. This decrease is mainly or only explained actually by the decrease in securities value from EUR 41 billion to EUR 34 billion, which is EUR 7 billion, delta in percentage 17% and very much explained by market developments. If you compare this number to indices across the globe, we are talking about drops of 20% to 30%, 35%; so very much in line with the drop that we see in the indices. Now interesting however, to consider 2 things; the first thing is what is happening to cash? Cash has increased from EUR 2.8 billion to EUR 3.5 billion, so by EUR 600 million -- EUR 700 million. As I said, the hypothesis is or very often, when we discuss it with interested parties is people will not bring any more fresh money to the table. They are rather withdrawing the cash and invest it into saving products. Let's see what happened to our actually net cash inflows. What we have seen is in the first 9 months of this year that the actual net cash inflow was EUR 5 billion. This EUR 5 billion is split into existing customer accounts of EUR 2.1 billion. So existing customers that we used to have by the end of 2021, brought EUR 2.1 billion more of cash to our platform during the last 9 months, leaving more interesting, which also highlights again the quality of our customer adds is that the new customers, these 380,000, almost 380,000 that we acquired in the first 9 months, brought EUR 2.8 billion in cash into our platform. If you think about what the average is, we're talking about that every client that we won in 2022 brought EUR 7,000 in cash into our platform. I think that describes very well the quality of the customer adds. That's the first point that we would like to highlight here. So in total, we had a cash inflow of EUR 5 billion. Now the second interesting point is, what was the use of these proceeds, what did clients do with these EUR 5 billion net cash inflow? Actually EUR 4.3 billion, so the vast majority of it, roughly 90%, were invested and reinvested into securities. So people were buying shares, ETFs, funds, whatever. And EUR 600 million was the positive delta under cash custody. So what we are actually doing here is, first, to bring the evidence that clients are bringing fresh money to the table. And second, we have bringing the evidence that they are not withdrawing cash from our platform to be invested into interest asset products. On top of that, throughout the whole year, so just also here to avoid misunderstandings, throughout the whole year, the whole 9 months from January until September, for each and every single month, we had a positive cash net inflow. So it's not like that in the first half, we were brought in EUR 7 billion and we lost EUR 2 billion over the last 3 months. So even in July, August and September, every single month of Q3 was a positive net cash inflow month. That is with respect also to that question. And to, so to speak, the last 9 months, I hope we provided you with diligent information and transparent information. Now I'd like to jump over to the outlook that Frank touched already on and provide you with a couple of highlights. The outlook is more, let's say, more a kind of 2023 outlook. I think the year is -- let's be fair, almost over. There's 2.5 months to go. We are very confident that the next 2.5 months will be good 2.5 months. We have taken some measures that will be -- that will have obviously an effect already on Q4. But please don't consider it too much as an explanation for Q4, but rather with respect to potentials for the next year. We started -- Frank mentioned it members get members activities across all DEGIRO countries. We used to do it only on the flatex side. Now we have it also on the DEGIRO side, which is obviously a very strong marketing tool because it is a relatively cheap marketing tool. And as we all know, referrals from friends and families are usually the best converting or is the best converting marketing. So you pay less and get usually a higher quality that should be also a very good driver towards the next quarters and years to generate more and more high-quality clients for less cost. Second, we started the big ambassador program with our people, with our teams, aiming on the one hand side to increase financial literacy across our growth markets. We are collaborating with the leading universities in France, Spain, Italy and Portugal, business school, colleges, investment clubs to also here not only to promote obviously flatex and DEGIRO in these countries DEGIRO, but to increase also the awareness for financial literacy and to do presentations, workshops and any type of support that could contribute also here, clients to our platform, but not like clients that are facing trading as gambling, but rather as sustainable investing. Let's a bit on the qualitative part, going to the quantitative part and the potentials. The most obvious discussion and environmental change that we are all facing are interest rates. We just touched on that. We increased over the last 9 months, our cash position by 22%, roughly EUR 700 million from EUR 2.8 billion to EUR 3.5 billion. Now what -- is the use of proceeds from our perspective as a bank and our balance sheet of the 3.5 deposits -- EUR 3.5 billion of deposits? Roughly EUR 1 billion is being used to refinance the margin loans and EUR 2.5 billion sits literally in a highly rate sensitive, very, very short-durated. I think the interest duration is currently less than 50 days liquidity and credit portfolio. So EUR 2.5 billion are literally on a 1-month role fully sensitive to interest swings. Now if we consider the current discussion around interest environment and potential increases. That says that only for Q4, we expect at a depository rate, which we currently have of 75 basis points, an additional positive effect on the EBITDA of EUR 5 million. In 10 days, if I'm not mistaken, 9 days on the 27th or 28th, we will have the next ECB meeting. And if we assume there will be another 2 interest steps to 125 basis points that would have an effect of EUR 8 million on the Q4 of additional incremental EBITDA. Now looking to the 12 months EBITDA potential, is -- next year, 2023 stays at 125 basis points. We are talking about slightly above EUR 30 million EBITDA potential. If rates might go up towards 2%, we might even hit the EUR 50 million of additional interest income on the top line that literally drops through to the bottom line. I know there will be, again, the question or there might be the question; do you have to pay interest rates to your clients? And let me again highlight 2 things. The first point is, over the last 15 years, fortunately, there was some period where we were generating interest income. We never paid interest to our clients. Second, we always told our clients, look, you pay as you go with us. You only pay for trading. You're not paying for using the platform. You're not paying for analyzing assets on our platform. You're not paying for getting news on our platform. You're not paying for getting any kind of financial KPIs on our platform; you only pay when you trade. But because we are a broker and understand ourselves as a retail broker, we cannot pay you interest for the money for the trading money that you leave on the table with us. So rather invest it. And if you don't invest it, it's your trading credit that you need to invest. And we just have shown that over the last 9 months, we did not have any cash outflows despite the ECB growth, ECB rate growth. And which tells us here that we are not expecting as of today, to pay any interest to our clients. So we consider this EBITDA potential actually to be a full gross potential that kicks in. Handling fee DEGIRO, also here to give you a bit more of transparency and a bit more of inside. In the first 9 months, at DEGIRO, we did roughly 35 million transactions, which is what I always also communicate, give or take, 2/3 of our total trades in the group. Thereof, 20 million transactions were carrying a handling fee. The delta is coming from products that do not carry a handling fees, such as ETPs, such as ETFs, such as option contracts, futures, all that type of products because only or mainly equities are carrying handling fees. So on 20 million transactions, so to speak, in the first 9 months that we did, if we break this down for or have an expected figure, just going pari passu, it's saying that in Q4 2022, we expect 7 million handling fee carrying trades, increasing the handling fee by EUR 0.50 should give us an EBITDA effect for Q4 of EUR 3.5 million. On a 12 months perspective, again, here, going for next year, on an annualized basis, that will result in an effect of EUR 14 million, but just by increasing the handling fee by EUR 0.50. Do we expect any further price increases on the fees? Let's see. We always said and I've said it today, again, we're always working very hard to find a very fair and transparent balance between profitability and growth to offer our clients best service, best platform, best products and best prices, but actually with also a level of profitability that ensures to continue this business model in the way we do it today. ETP partnerships; we discussed it shortly in the -- or we mentioned it shortly in the introduction. We started 1st of January this year to roll-out with Societe Generale and BNP Paribas in Germany, Netherlands and France at DEGIRO to roll-out ETP products. Also here to give you some feeling, with this rollout, we gave actually 900,000 clients access to these products in these 3 countries. Clients did or are expected to do in 2022 in average 3.5 ETP trades, which results in total in 3 million ETP trades at DEGIRO only. We are not including flatex here. We're just talking about DEGIRO. Now we will roll out in Stage 2, starting now in Q4 to roll out the ETP platform to Spain, Portugal, Italy and Switzerland, which will add another 500,000 clients, giving them access to ETP products that they don't have today. Assuming a significantly lower ETP activity, just out of conservatism that will result in an additional EUR 1 million ETP trades that we could create next year; with a potential EBITDA of EUR 4 million to EUR 5 million, given that we generate EUR 4 to EUR 5 revenues per transaction. Last measure, price measure, margin loans at DEGIRO. Margin loans at DEGIRO so far have been only made available to 250,000 DEGIRO clients, so 250,000 DEGIRO clients have technically the ability to go for a margin loan. The utilization is today at 15%; so roughly 40,000 DEGIRO clients are using the margin loan with an average margin amount of EUR 15,000. 40,000 clients, EUR 15,000 per client equals EUR 600 million of margin loans on DEGIRO side. As you know, we have currently EUR 1 billion, so it's easy mathematics to find out that the other EUR 400 million are sitting more or less with the flatex clients. Now what we started in the summer is to do further analysis with respect to our products, account types, what do we offer to whom, how do we allow access? We came up together to large or to enlarge the accessibility of this product and will roll out in November, the access to margin loans to another 1.3 million clients that today do not access technically the margin loan. They will be then able to access it. Again, here, just based on assumptions, we said, okay. If the utilization is only 1/3 of what we have today, it's 5% instead of 15%; that should then translate into 65,000 additional DEGIRO clients that can use the margin loan. And if they take up 15,000 in average, but only 5,000 in average, that's another EUR 300 million, EUR 325 million of additional margin volume at an interest rate of 400 basis points, that translates into EUR 30 million of potential EBITDA on an annualized basis. Again, here, it's a simple product measure for us, very similar to ETPs. There is no cost against it because the product is already existing. It was just only not made available to the whole group of clients by extending geographically, but also extending it from customer perspective, extending our product base. We expect here, for sure, a positive return. The first 2 measures, interest income as well as increase of handling fee will have definitely an impact. We'll have also a very forecastable impact. The third and fourth measure, the ETP and margin loans depend obviously on the usage, depend obviously on the interest of clients. But we feel we're also very confident to generate incremental EBITDA with no cost against that. That's it for the outlook. I'd like to thank you for being with us and for listening. And I would like to open up the discussion and open up the lines for questions by the participants. Thank you.

[Operator Instructions] The first question comes from the line of Ian White of Autonomous Research.

I had a few questions, please. First up, on marketing expenditure; I'm just wondering why you wouldn't cut in marketing spend? I think you've described on the call, drive lower midterm client acquisition. Basically, kind of how have you determined the expenditure you're cutting was inefficient basically? That's the first question. And the second question, just on cash sorting and NII. I guess I kind of sort of understand your points there and what you've communicated to customers and reluctance to pass on rate increases. But are you, in some ways, beholden near to what peers or even European banks choose to do? Does the fact that the customers have sort of more access to sort of online information, online deposit services, make it more difficult perhaps to earn high margins there than when rates were higher previously. Maybe you could just flesh out some thinking around that for us, please. And just finally, anything on the capital return outlook, I think we discussed that at some length at 2Q results. I'm just wondering is there anything else to say there, please.

Thank you, Ian, for your questions. Yes, happy to answer them. The first one with respect to marketing expenses, I think as we mentioned, Ian, it's important as a management to control our costs and to adjust our cost and expenses, especially on marketing side, with the environment. So it might be that next year, we will turn up again marketing expenses if the environment invites for these investments. It's not only a cut with respect to, "hey, we don't want to spend any more money, but rather a very diligent cut to say, okay, what does the environment look like?" And does it make sense to go now -- let me put it that way, to go wild with our marketing expenses in an environment where average people are not really interested in capital markets. No, it doesn't make sense. It makes much more sense to rather reduce this, let's call it, always on budget and on the air budget to reduce it, to rather reduce it to a budget that we use only as of the date for pull marketing. So for clients that; are already on the search for neobrokers and to try to convert these high-quality clients. What does it mean for the midterm customer acquisition? Let's see how the market develops. That's exactly what we started with that under the current circumstances and under the current environment, it's not possible to forecast midterm customer growth, midterm trading activity. If the market -- but what we can say is if the markets continue to be what they are, what they were this year, we'll still do 400,000 to 500,000 clients every year. I mean we are evidencing it this year. And this is what -- so to speak, the bottom line of our customer growth should and hopefully will look like. With respect to your NII question, the reluctancy that we have comes exactly from the point that you mentioned. We are by definition and by law a bank, but not by commercial definition. We are not the saving banks. We never invited people to bring their money to us. We don't want their cash to put that clear. We want them to do trades with us. We want them to invest with us. We want them to buy shares and to sell shares to buy ETFs and to sell these ETFs to buy ETPs. We never defined ourselves as an interest-paying platform. That is, I think, a very important point and let me repeat that. We never did that. It's not like we did it in the past and then we stopped it while interest rates were negative. Now they're getting positive and we say, "Oh, let's be now super spins. We don't pay them it." No, this has never been part of our DNA to pay interest rate as a full-fledged online broker. Second, what we see as well is that just because you do it -- you don't have the guarantee that your clients like you and will keep your inflows or will keep their cash with you. I think there have been a couple of press releases over the last week of very, very market-leading online brokers as well that are known for being also paying interest rates to their clients, where clients are not keeping the money. It has to do a lot with the type of how you socialize your clients. If you socialize them from day 1, yes, I am an interest-paying platform; they will obviously require to see interest. We never did it. We'll not do it in the future.

Yes. And maybe if you allow me to add, at flatex, over the last 20 years, the clients were never fixed income driven, never. They are alpha driven. They want to trade equities or ETP products. And this will stay like that. And it was very obvious over the last 2 decades, with positive interest and with negative interest.

At last at least capital return. I mean, with respect to capital return, I think we have mentioned it a couple of times, whether it was frank, whether it was me. In the end, let's say, the current valuation implies a certain expectation, declines, decreases in our business model. And continuously, we are trying very hard and working very hard to prove that this is not the case. And we are still convinced with the figures, with the numbers that this is not the case. So obviously, as the management, our duty is to analyze any kind of possibilities and opportunities, how we can take advantage of what we are seeing. And this might result in capital return strategies. We are, as we said, more than happy to communicate to the market in more detail whenever we come to such a conclusion. Such a conclusion requires not only a decision in the management, but also a decision in the Supervisory Board, regulatory approval depending on the capital return measure and an AGM approval. So there is a little bit of stuff to do to get to that point. But we actively, as a management are literally following our duties to think these strategies through. With respect to capital requirement and capital structure, we are currently not currently, as of June, we were running on a CET1 ratio of 21.5%. We consider the capital requirement plus management buffer to be at roughly 17%. So there is headroom for potential, for potential capital return strategies. And over the next -- including these 6 months, so last quarter and next quarter, in the year-end, we will definitely increase that CET1 ratio and next year and next financial year, we are happy then to communicate if there is something, if there is a decision, if there is an option to communicate to the market whenever necessary. I hope that answers your questions, Ian.

The next question comes from the line of Marius Fuhrberg of Warburg Research.

A couple of questions from my side as well. The first one with regards to your current guidance for 2022. I mean you still stick to your guidance of at least EUR 400 million of revenues and adjusted EBITDA margin of about last year. But especially to -- with regards to your EBITDA margin, what is your assumption of kind of trading development or at least top line development that is necessary to still reach the EBITDA guidance. And yes, disregarding the effects that you mentioned from the interest side and also from price increases. Second one on the margin loans for DEGIRO. Will they look like of flatex loans just like with 4.9%? And also what prevented you from offering those loans to the customers previously? And why you don't you just generally offer them to all customers? And maybe a last one is, in the last call, you mentioned that you would -- that you are reviewing a share buyback or a dividend -- a possible dividend considering the low share price currently. How are things at this side and how you're looking at this, given that your share price did not really recover since?

Yes. Marius, this is Frank. Let me start with the capital allocation strategy. As Mu has pointed out just a few minutes ago, we are working and reviewing our capital allocation strategy. We need the shareholders assembly in order to do that. And the next shareholder assembly is scheduled for next year. So don't be surprised if you see something on that agenda, but the agenda is not out yet. And the agenda obviously cannot be out there. The 4 we have reviewed finally. And the most important thing is if we do share buyback and dividend, we would need to get approval of the regulator. We are in touch with the regulator. And we have enough time until the agenda is due, and that's what we are doing. And for the other questions, happy to hand over to Mu.

Thanks, Frank. Yes, your first question with respect to the guidance for this year, the guidance is confirmed and reconfirmed EUR 400 million plus in revenues and then adjusted EBITDA margin somewhere around last year's margin. What do we need in top line trades? I mean it depends obviously on not only the top line but also the OpEx. As I've said, we will take measures in reducing marketing expenses. We will have windfall profits coming from ECB from the handling fee. But all in all, you could expect that we need for Q4 something around mid-high teen millions of trades. So something in the range of, let's say, 17-18 million transactions to get there. That's with respect to that question. With respect to the margin loans, thank you for asking this question to reiterate. We are not introducing margin loans to DEGIRO. As I said, we already always have had margin loans with DEGIRO. We offered it only to 250,000 clients. And that reason was that DEGIRO used to have a 2 different account principles. They used to have an account which was an active account and the other one was a basic account. And only active account clients were technically able to make use of a margin loan, but not the basic account users. And after reanalyzing legally from compliance perspective, commercially everything, we said, hey, we can also offer the margin loans to the basic profiles and this is what we are going to do. How they will look like exactly like they have looked like over the last 10 years with DEGIRO. It's exactly the same margin loan that is today in place. The current interest margin is 400 basis points on the margin loan and will be also for this additional clientele, also 400 basis points. It will be exactly the same product that is already in place, just being extended to much more clients than before.

Okay. I wasn't aware of the different account groups there.

The next question comes from the line of Panayiotis Ellinas of Morgan Stanley.

You mentioned EUR 5 billion of net cash inflow in the 9 months this year. How does this compare to the same period last year and in absolute amount and also the split between existing and new customers? And what percentage of that was invested or divested the same period last year? That's my first question. The second one on the interest rates. On the presentation, you showed the potential from high rates on the liquidity portfolio. Are you looking to pass on some rate hikes to the margin loans? And shall we expect any re-pricing there? Then, my third question is on the guidance on revenues and adjusted EBITDA margin. I think currently, the margin is on about 38%. So what will drive the margin to 42% by the year-end with only a quarter to go? I think consensus expectations are already for meet, around 19 million trades for Q4, but margin consensus below what you're guiding. So I'm just wondering how to reach that? And my final question is on the cost management. You mentioned the more efficient approach on marketing expenditure. So I'm wondering, have you identified any other areas where you can do maybe better or extract more efficiencies from? For example, Avanza, they said that they will freeze hiring for next year; just what's your view? Is there any -- have you identified any more levers there? So that's all my questions.

Yes, this is Frank. I will start with your last question. Obviously, we have already slowed down our hiring efforts for the last quarter. And as I said at the beginning, we are always on top of things. And we are very efficient and very fast in order to manage our cost. We always review marketing, personnel expenses, obviously, travel expenses and whatever is necessary. And whatever we identify, we will go after. But so forth, we are quite confident with respect to our cost level. For the further questions, happy to hand over to Mu again.

Thank you, Frank. Panayiotis, thanks for your questions. So with respect to your first question, the AUC split for last year, we just don't provide it. I think from our perspective, it was also not important. It was rather to show the stickiness of clients during tough years or tough environment, not during hybrid environment. Number 2, higher rates; if I got you right, you were asking whether we pass some of the higher rates also towards the margin loan pricing. Actually, it is a good question. We are currently analyzing whether we increase the margin loan fees. They have been at 400 basis points, 400 basis points now for many, many years. ECB -- let's see what happens next week, but most probably will then have increased its lead rates by 200 basis points. So it might be fair to also maybe think about passing out of the 200 basis points, maybe 100 basis points to our client base. This is something we are evaluating as well. And with respect to your EBITDA margin, a very similar question, I think, to Marius Fuhrberg's question. As I said, we need a mid to high double-digit teen million trading. So talking about EUR 17 million, EUR 18 million trades, given also the price measures and the product measures, we feel confident that we can make it. And on the other side, as Frank said, having the cost control, we still do not feel like not being able to reach our guidance. And keep in mind, Q4 is the second best quarter in a year after Q1. So out of the 9 months, we have a little bias towards weak quarters because we have Q2 and Q3 and Q4 is still missing. So we'll keep in state of the guidance and make sure that we will meet our guidance.

The next question comes from the line of Christoph Greulich of Berenberg.