flatexDEGIRO AG
XETRA:FTK
Earnings Call Analysis
Q2-2023 Analysis
flatexDEGIRO AG
The company celebrated a milestone with an all-time high of EUR 47.8 billion in assets under custody, showcasing robust client trust and an expanding asset base. However, investor enthusiasm was tempered as the firm saw a sharp decline in the trading activity compared to the previous quarter, likely a result of seasonal trends that typically see Q2 performing weaker in transactional volume.
A substantial EUR 6 billion in cash inflows underscored the firm's draw as a transactional bank, as a significant portion, 91%, was directed into securities. This reflects a client base that's keen on investment rather than just saving, and it demonstrates active participation in market opportunities.
The company's financial narrative was a tale of two contrasting factors: On one hand, the falling trading activity led to an 8% quarter-on-quarter drop in adjusted revenues, missing out on the revenue from 3 million fewer transactions. On the other hand, there was a silver lining as rising interest rates bolstered interest income, dampening the revenue drop's impact. Net commission income followed a similar pattern, dropping in sync with transaction volumes yet balanced by an increase in commission per trade and higher interest rates on cash holdings.
In a move to solidify financial performance, the firm is banking on Q3 to validate recent price increase strategies, which proved to be effective as evidenced by unchanged trading activity following fee hikes. This move suggests the firm's pricing power and customer loyalty, alongside a favorable competitive environment resilient to price elasticity concerns.
Strategic marketing cuts saved the firm nearly EUR 9 million between the first and second quarters of the year, part of an overall marketing expense reduction strategy. Operational costs also benefited from cost-saving measures such as one-time tax-incentivized employee benefits and an expected reduction in nonrecurring expenses like sports sponsorship bonuses.
The financial health of the company improved, indicated by a 13% growth in adjusted EBITDA to EUR 34 million for the second quarter. This marks both quarter-on-quarter and year-on-year increases, highlighting efficient cost management and a resilient operational model in the face of lower transaction volumes.
Optimism persists as the company reaffirms its full-year guidance with anticipated revenues of EUR 380 million, alongside robust EBITDA and EBT margins of 40% and 30% respectively. The guidance is backed by continued customer growth outpacing industry peers, even as transaction assumptions are moderated to 58 million for the year. These factors, coupled with strategic commission pricing and interest rate adjustments, paint a picture of confidence in future profitability and market leverage.
As the company looks to the second half of the year, they anticipate maintaining commission income levels with a noteworthy 10-12% predicted rise in interest income. Operational expenditures are expected to decrease further, fostering ambitions for a heightened adjusted EBITDA margin in the high 40% range and a solid EBT margin in the high 30s. This forward-looking vision signifies an acute focus on refining cost structures and maximizing income diversity.
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Hello and welcome to the flatexDEGIRO Preliminary Results Half Year 2023 Analyst Call. Please note this call is being recorded. For the duration of the call, your lines will be on listen-only. However, you will have the opportunity to ask questions at the end. [Operator Instructions]
I will now hand you over to CEO, Frank Niehage, to begin today's conference. Please go ahead, sir.
Yeah. Good morning, everyone. This is Frank Niehage. A warm welcome to our half-year preliminary results 2023. A warm welcome here from Tegernsee where we celebrate the 10th anniversary with [indiscernible]. The team is here in the training's camp. Present are my colleagues out of the Management Board which is Dr. Benon Janos; Stephan Simmang; Muhamad Chahrour; and myself; and obviously, our Head of IR, Achim Schreck.
Warm, warm welcome from Tegernsee. We are happy to talk today about very robust numbers. And before we go into details, a personal note. We also had to announce today that unfortunately, Muhamad Chahrour has decided on his own to leave the firm by end of this year.
As we are professionals, we like to focus on the firm's result first, and then Mu will give you a bit more details at the end of this call about his personal motivation, which I regret on one-hand side, but I have to respect and you will see on the personal side, why those reasons that he has to leave us.
However, let's please start with the firm first, let's start with our highlights. I will always start as usual and then hand over to Mu and he will shift gears and drill down into commercial and financial aspects more in detail.
I'm happy to confirm our guidance in a very challenging environment, needless to say, the geopolitical situation in Europe, the interest rate hikes, the high inflation will have and do have an impact on our business. However, we confirm guidance and we also have a very positive outlook for the second half due to the measures taken and we will go into more detail very soon.
I will also start with the regulatory environment and let me spend a short moment on what's going on with respect to our German BaFin regulator. And then I will talk thereafter about the European level PFOF, which will have a severe impact on our industry as well.
Let me start with the well-known aspect of BaFin. We are very positive that we have fully automated the process, and developed and implemented with respect to the credit risk mitigation techniques, and that was hard work, but we were very close with BaFin and our special auditor, and we have handed over all the relevant information.
So, from our side, the work is done, which is a very good news. And the process runs and it's implemented. Now it's up to the Commissioner to take his samples and review everything and report it back to BaFin. We are very positive in the respect that by end of September, we will get a feedback on this. And hope then after that be able and allow to apply the credit risk mitigation again as we temporarily were not allowed.
Obviously, we continue to aim on other findings and work on this, what's relevant with respect to hiring new people and implement new processes. And to run that project has been done, so it's up and running and allow me to mention after an audit, it's normal course of business and overdraft to 24 months to work on those findings and improve and that's what we are doing.
You're already aware of the positive news with respect to the SREP. Our capital requirement was lowered by 75 basis points. Again, the first step in the right direction. In general, we will continue to improve wherever possible this overall situation. So that's the positive news on our German situation. Let me move over to the EU level.
Again from my point of view, positive news. Why is that? The PFOF ban to me is ranging the single market view. The single market requires fair rules for all of us, which in the past and up to now, it's not the case. In some countries like the Netherlands, the UK, you are not allowed to receive payment for order flow, and in others, you are.
So, in my opinion, the EU moves into the right direction and will have same rules for all of us. Like always, there is a transition period from January '24 until 2026, where member states have the possibility to have a different situation. However, this has no impact to us and for us, because over 99% of our revenues, as we always said, are independent of any payment for order flow.
So this is a good news for our industry in my opinion. In general, it's a good news for us, and it's a good news for our clients. Why is that? As that has no impact, we will not have to increase prices for instance on the 4,500 ETF and saving plans like it is discussed here and there in the media. And we will continue, especially in Germany for over 20 years with our price model that flatex EUR5.90 per trade. We never touched that and we will not touch that. And therefore, again, news into the right direction.
Obviously, the retail investment strategy, we will continue to watch and report when there is any changes or impacts on our industry. So this goes to the regulatory environment. Now I'd like to repeat and mention again governance.
As we always said, we will improve and develop our governance, and at the Annual General Meeting as you are fully aware of, Britta Lehfeldt was appointed. So now it's five Supervisory Board members and we are happy that we are even more diverse than before. And we are all looking forward to work together with Britta Lehfeldt successfully as we already started in the bank. And as now at the General Assembly -- at the Annual General Meeting was positively voted for. So again, we develop, as always said, into the right direction with respect to governance.
Obviously, let me also highlight the few business aspects. Obviously, we improve our relationship with the ETP partners and are very happy and proud that JPMorgan is our new platinum partner. The work is great and we are happy for their partnership and everything is on track and works well.
Long, long time ago, we mentioned that we work on the digital wealth product and we are happy now that our partnership with Whitebox, who we knew from the B2B side for many, many years, is now live on the B2C side as well, and flatex Wealth has started and taken off this month.
We are targeting here potential new clients who do not decide themselves but rather want to go for a managed strategy. And we hope that the government clients who are not trading at all for a long, long time. Instead of doing nothing, might rather have an alternative when they look at the potential offering of that wealth management product. So we wish good luck for this. And I move ahead with adjustments.
We did at DEGIRO especially, we increased the rate on our loan product. Obviously, over the last month, interest rates were increased, so we adjusted here as well with respect to our credit product and improved. And we did a bit on the commissions with respect to US trades and local trades. This, all-in-all, will have a big impact in the second half and we are looking forward to that.
Again, in Spain, we were awarded Best Stock Broker with Rankia for the seventh consecutive time. So again, a great tradition, we try to continue with and again, positive highlights so far, and we will promise to work on it more hard and bring up more of this in the future. So in general, this is the beginning.
Now we will shift gears and I will hand over to Mu like always. Mu, the floor is yours. Please.
Yeah. Good morning, everyone. Thank you for joining today's call. And as Frank said, in the first place, I'll run you through the financial deep dive of the first half year, and then I am asking for five minutes to give a little private note on the announcement of this morning.
If we jump into the commercial performance of the company, we have to admit that under the given circumstances and under the given environment, we have continued to manage our customer growth, very, very well. We have increased the number of customer accounts in the first half by 186,000 clients with an annualized retention rate of 98.1%, which includes a churn rate of 2%. The net growth was 162,000 accounts.
As you remember, we have forecasted this year 1.5 growth -- customer account growth of 1.5 to 2 times. Our European peers, actually, the account growth in the first half was 2.1 times the relative growth of our peer average.
The relative share of customer accounts growth per month is the following seasonal patterns. We are showing on slide 11, what the seasonal pattern looked like in the years 2016 until 2019, to just actually adjust for the COVID years and the mean stock years. And what we see is literally that we are very much in line with what we have seen historically with respect to seasonality.
Strong customer growth in the first quarter, which usually drops in the second quarter, and then the third and fourth quarter, it usually picks up again. So absolutely in line with respect to seasonality on -- also in terms of absolute number in line with our forecasted numbers.
The second important point -- or actually not the second important point for us with respect to customer growth, the most important point is the development of the assets under custody. We are looking back to three, four years of customer growth, the absolute number of customers was usually the most important thing.
We actually see here the importance to highlight what the assets under custody development looks like. As of June 30th, we have reached an all-time record of EUR47.8 billion in assets under custody, which are split in EUR44.2 billion in securities and EUR3.5 billion in cash. So what we see is, actually two things. The first thing that we see is that our net cash inflows are still positive now with EUR2.9 billion in the first half. We had in total roughly EUR6 billion of cash inflow, EUR3 billion of cash outflow. So the delta of it, the EUR2.9 billion is the net cash inflow.
Quite interesting to see, we are again and again highlighting we're not a savings bank, we are a transactional bank. We're an online broker. And the evidence for that is that 91% of the net cash inflows of $3 billion where we -- were invested into securities by the clients. So the actual growth in cash was only EUR0.3 billion out of a total EUR3 billion net cash inflow.
The trading -- coming to the trading activity, the trading activity dropped compared to Q1. I just mentioned it, it has also to do with the seasonality effect. Q2 as I already mentioned in our first quarter call is expected to show lower transaction activity, first given because of, in general, less trading days, but second, also because Q2 historically has been the weakest quarter in terms of transaction activity.
We are absolutely in line with the trading activity of our, let me call it, most admired peers, Nordnet and Avanza. Now also there, you can see the drops between Q1 and Q2. So the patterns follows, flatexDEGIRO patterns follows absolutely a market pattern. And with no respect, adjacent traffic or because I'm highlighting this point because as you remember, very often, we've been challenged with respect to the quality of growth, and if the quality was worse than our peers' quality, we would have to see literally stronger drops in activity. But I think it's absolutely in line. We confirm at least that the quality is as good as with our peers.
I just touched on this point, activity follows seasonal patterns. So in the history, if we look back usually, 26% of all transactions happen in the first quarter. 23% of all transactions of the year happened in the second quarter, this is exactly what I mentioned is historically the weakest quarter. Our first quarter was slightly stronger than in the past, the second quarter is absolutely in line with historical seasonal patterns, so we feel pretty good with respect to the residual six months of this year and our forecasts and guidance that we will come to in a moment.
If we come to the commercial aspects, I mean most of you have read them obviously, and see them. The adjusted revenues grew by 8% quarter -- so year-on-year -- sorry quarter-on-quarter they dropped by 8%, mainly due to the fact that Q1 versus Q2, we are missing 3 million transactions that were done in the first quarter, but did not happen in the second quarter, and 3 million transactions with EUR4 of revenue per trade or actually a little bit more than EUR4. But to use it for the mathematical calculation, we're talking about actually EUR12 million of revenue drop.
The drop is not as heavy as the EUR12 million. It's only EUR7 million, and the reason for that is obviously the improved -- significantly improved monetization on the one hand side. On the other hand side, also, and to a much bigger effect, also the increasing interest rates for the deposits in the second quarter compared to the first quarter.
The commission income is much more in line with what I've just discussed or what I've just mentioned, the drop of roughly EUR12 million, EUR13 million. This is what explains the drop from Q1 to Q2. The similar drop is also between Q2 to Q2 because also in Q2 2022, we were at 16.2 million transactions, so also a delta of 3 million.
The interest income is record high, obviously driven by two mechanisms. The first one, as I said, is the deposit, the deposit facilities that are enjoying month by month, more and more interest gearing, so to speak. And on the other hand side, Frank mentioned it, at 1st of July -- it's not reflected obviously in Q2, but as of the 1st of July, we have increased the margin loan interest rates with DEGIRO, that will also have a significant impact on the second half interest income.
The commission per trade is still relatively flat in this range of roughly EUR4 with a little bit of uptick towards EUR4.17 in Q1 2023. The drop from Q1 to Q2 is mainly explained by the drop in transactions, 3 million less in transactions. It was also a significant drop in higher revenue transactions. That's point number one. And point number two is that there are some account fees that are charged in the first quarter that also fall out in the second quarter.
But if we look into second quarter and take more a monthly perspective, June, which was the first full month with the newly implemented fees on the DEGIRO side, did a revenue -- sorry did a commission per transaction of north of EUR4.20 so we are now absolutely in line with what we expect going forward for the second half. And obviously, also the April month, which was a super weak month, had a dilutive effect also on the Q2 commission per trade.
So as of now, Q3 will be, so to speak, the quarter to confirm the price increases on both ends, interest income as well as commission income. And as I said, June has already provided us some transparency with respect to commission per trade and interest income.
We had last year -- sorry, no, in the last call, not last year, we had a discussion about the low, the elasticity and after price increases and I know that there is some of the covering sell-side analysts have questioned and have challenged the elasticity that results from price increases with DEGIRO and let's say, at least, build a correlation between price increases and transaction activity. And to clean up this mess, we are providing this slide that shows literally the indexed trading of US stocks at flatex and DEGIRO beginning in the first calendar week of 2022.
So what we are showing is literally that we indexed for the brand flatex and for the brand DEGIRO, the number of transactions in the first calendar week of 2022 and have sketched, so to speak, both graphs until the most recent week and the development of the trade in US stocks.
Why US stocks? Because we mainly changed our pricing at DEGIRO with respect to US stocks. And the evidence that we wanted to bring to you is that the changes in fees with DEGIRO did not affect the transaction activity on the DEGIRO side. Since we didn't do anything on the flatex side, it's the perfect benchmark for the activity development.
And as you can literally see, both graphs are developing literally at exactly the same magnitude. And actually over the recent weeks, the DEGIRO graph was above the flatex graph, which means that actually activity -- the index activity at DEGIRO was higher than at flatex.
What we did is, over the recent 18 months, first, we increased the FX fee from 0.1% to 0.25% at DEGIRO with no changes at flatex. In December '22, we increased the DEGIRO's handling fee from EUR0.50 to EUR1 with no changes at flatex. And in mid-May 2023, we changed the US commission from EUR0 to EUR1 with no fee change at flatex. And what we see is actually a parallel development of our trading activity. So again, the drop in activity is not an idiosyncratic result, it's literally market-driven and defined by the environment in which we -- which all mature online brokers have to operate.
Actually, on the loan side, it's a little bit different and actually positively surprising us. We did the same thing also for margin loan changes. The blue line is again DEGIRO, the orange line is the flatex. What we did with DEGIRO is as you know already in last year, so at the beginning of this year, on the 1st of Jan, we increased the margin loan rates for DEGRIO clients, and we did so on the 1st of July again.
And we indexed as well the usage of margin loans at flatex and DEGIRO, and what we see is even before -- or let me put it the other way around. Finally, since we increased the margin rates for DEGIRO, the volumes have picked up and also, here again, the volumes with DEGIRO have increased or back literally to a level where we were in 2022. And with flatex, we are still 10 percentage points down in terms of volume.
Long story short, we want to show you here is that there is no significant statistical significant elasticity on the volumes of DEGIRO loan amount given that we have changed the rates at DEGIRO and did not change the rate at flatex.
Coming to the OpEx side, I think it's important to highlight the key OpEx driver, which is obviously marketing expenses. We have promised that we will reduce the marketing expenses throughout the year. And actually, there is a significant reduction in marketing from Q1 to Q2 by roughly EUR9 million.
So, in Q1, we were at EUR17.2 million. In Q2, we were at EUR8.3 million. For the residual year, for the residual six months, we budget roughly EUR11 million, which totals then roughly EUR36 million. That would equal to a drop in marketing spend compared to last year by EUR30 million or 25%.
We expect a further significant decrease in 2024, since in 2023, we still have the sponsoring of Sevilla which went perfectly fine with winning the European League, obviously, but also had an impact on the one-off cost because we had, as usual, in these contracts, a bonus clause for winning the European League which kicked into the surprise of many, many people which will drop out next year. So we expect also for next year even lower marketing costs than EUR36 million, which we expect for this year.
I mentioned it, the sponsorship of Sevilla FC came to an end, at a probably high note winning the European League. A great success, especially also not from a sportive perspective, but also from a brand awareness perspective for our brand, DEGIRO, and for the flatexDEGIRO group. We have here shown a little bit the amount of DEGIRO web searches during the final game on normal Wednesdays versus the final Wednesday, which shows a significant pickup.
All-in-all, a very, very successful sponsoring agreement, the sponsoring engagement that comes to an end. Thanks to Sevilla FC, to the whole team, to the whole people at Sevilla for having us as a sponsor and for the great hospitality that we enjoyed, and the great support on all media channels with a social media TV. And finally, obviously, winning the European League.
Last but not least on some numbers with respect to OpEx. I think it's important to highlight that we have some nonrecurring effects, one-time effects on our OpEx side. We mentioned it in the first quarter, we paid to all our employees EUR3.3 million of a one-time tax-incentivized inflation compensation.
This was a tax incentive provided by the German government where we were able to pay, so to speak, net amount as a gross amount to our clients. So without any taxes and without any social payments that we have -- that we had to take and we made use of this. This was capped to, if I am not mistaken, EUR3,000 per employee. And we have made use of this scheme.
On top, as I just mentioned, marketing, we had an additional expense due to the European League winning of Sevilla FC in the second quarter that is absolutely a nonrecurring item. Last but not least, we mentioned the EUR1.1 million fine in Q1 by BaFin and in other legal dispute in which we are currently is with the legal -- with the Italian Competition Authority, where we had a EUR4 million fine prepayment in Italy, that is based on the competitor's claims.
And this claim did not come from a client, did not come from any regulatory body, it came literally from a competitor in Italy and not only against us, but against also some other competitors in the market. We are following this -- obviously this legal dispute with very, very high diligence and are supported obviously by the world wide known legal firm.
And we have appealed this decision and both we but also our legal support sees very high probability to win the appeal. And also an information that was interesting to find out that only 14% of the, so to speak, spoken penalties and fines by the Competition Authority, only 14% came into effect after decisions were appealed in front of the court.
So we absolutely see here no base for this fine. All our arguments were not heard and this is something that we will now bring in front of -- actually, we did already bring it in front of the court in Italy to be decided on a court level.
So despite all these one-off effects, the adjusted EBITDA provided in the second quarter was quite positive with EUR34 million, which is a quarter-on-quarter growth of 13%, year-on-year growth quarter-by-quarter of 24%, despite much, much lower transaction, which I think proves the cost discipline that we have started this year, and that will obviously become much more visible in the coming next two quarters.
The accounted EBITDA is also with EUR29 million in Q2, relatively stable. So what you see is actually that we build EUR5 million of, sorry, we released EUR5 million of results provisions and that, sorry, no, we built EUR5 million of results provisions between or in during Q2, which reduces the adjusted EBITDA from EUR34 million to EUR29 million.
Coming a little bit to the full-year perspective. Frank mentioned it, we are absolutely confirming our guidance in the end, which was EUR380 million of revenues, 40% of EBITDA margin, 30% of EBT margin. The assumptions have been mostly stable. The customer account growth of 1.5 to 2 times ahead of peers is continuing.
The set -- the number of settled transactions has been adjusted in the assumption base. We've started the year with the assumption of 65 million. The assumption for this year is now 58 million transactions. The lower assumption and number of trades is balanced out by the higher commission per transaction of EUR4.15 for the full year. The average interest rate on margin loans is adjusted to 5% as an assumption, the average interest rate on the remaining cash under custody has been adjusted to 3.5%.
The costs will most likely benefit from the mix, given the fact that we do less equity trade than expected, the settlement cost will also come down. So we will here see an effect on the cost on the one hand side and on the other hand side, obviously, since the interest income has a higher share in total revenues, we will see also a positive effect on the relative cost. The OpEx were explained and marketing has been explained.
So if we look into both P&Ls, the actual P&L for H1 and the implied P&L for H2, we see roughly the same commission income for the second half 10% -- 10%, 12% increase in interest income. The other income will be most probably stable, a little bit coming down given also contracts that we have discontinued.
We definitely expect to reduce further the OpEx as we mentioned, and are aiming for a high 40s percent EBITDA margin, adjusted EBITDA margin, in the high 30s, EBT -- adjusted EBT margin for the second half. And if you combine these two P&Ls for the full year, you will see that this is more or less what we have guided for the full year.
That's it with respect to the preliminaries, with respect to facts and figures. Thank you. A warm thank you to our colleagues from the whole Board for this successful first quarter -- first half year despite the environment that we're operating in.
Before opening up the Q&A session, allow me to take two, three moments to describe and tell you a couple of things about my decision that we announced this morning. As you all have read, I prepared to bid farewell to this exceptional organization that has been my professional home since 2015 and it was obviously also for me literally a home where I spent more time with than actually with my own family over the recent eight to nine years.
From its humble beginnings as a German small online broker, we have witnessed the remarkable transformation of this company into the European market leader, and it has been, for me personally, an incredible journey, filled with countless challenges. We had big dreams.
We had a lot of lessons learned that shaped me as a person and actually as a leader. And I am filled with a profound sense of gratitude and pride when I reflect upon this time. And I have to admit, it has been a privilege to serve, to develop, and to lead that company, and I'm very thankful and grateful for the trust that the Supervisory Board, that Frank in very, very early days that I was gifted in this game, very early, in 2015, and leaving a position that I've cherished for so long, first, as the CFO, then as the DEGIRO CEO, then as a Deputy CEO and CEO of the Group is undoubtedly bittersweet.
And rest assured, it was a very difficult decision for me, a decision that I took the diligence and the necessary time for to decide upon. And I know that I'm surprising a lot and maybe even disappoint some people with this decision, but I am convinced that the change is an integral aspect of growth and something that I've always preached to colleagues, to employees.
But I'm filled with a deep sense of excitement and optimism what my new professional chapter will look like after my remaining time with flatexDEGIRO, and a break -- a personal break where I will take care of my private matters, of my family. It was also personally a tough year with the losses that we had in our family over the last 12 months, losing father-in-law and losing my own father. So taking the time to reflect on a couple of things and to fill up factories to literally hopefully for the next professional destiny.
And I want to express my deepest appreciation to all of you, colleagues, employees, the Supervisory Board, investors, cilents, analysts, stakeholders, regulators, business partners, family, and friends. Your support during these trailblazing years was and has been always a driving force behind our accomplishments, but also personally my accomplishments. And we've developed great relationships, delivered exceptional results, and created I am very sure a very lasting impact in the online brokerage industry. We have developed together the European market leader.
And although I will continue to support specific internal topics and projects, this is my last IR call for flatexDEGIRO. I think it's very, very important. This is also something I absolutely believe in, to have a very low and consequent transition, especially of the capital market communication. I'm therefore happy to hand over the responsibilities for Investor Relations to our CFO, Benon Janos, and I'm very sure that Benon and our team, and obviously, Frank, will continue to answer all your questions, at least as good as Achim and I try to do.
The last personal note. Frank, I'm immensely grateful for the mentorship, guidance, and knowledge that you have generously shared with me. Your support definitely has shaped me into a better person and leader. And I know that it's a disappointing step, but I have absolutely no doubt that this company will continue to drive and deliver.
We have an excellent Management Board that is now back to three people, that will hopefully increase at the end of the year after the approval by the regulator to four people again by having Christiane as a CHRO in the Group. And I have no doubt that this company will continue to try and to deliver. I'm absolutely excited to follow the development as a shareholder from the sidelines, so to speak.
Yeah, that's it. Thank you very much, everyone, for the great journey we've had and we've shared over so many years. And again, a personal thank you also to all the long-lasting and early-time investors for the last eight years. We've spent so much time, discussions, and points together, and thank you also for the support that made flatexDEGIRO what it is today. Goodbye.
Thank you, Mu, very much. Before we open up for Q&A, let me make a short comment. Obviously, I regret a lot that you're going to leave us. It was a successful journey we had together.
Unfortunately, we share the same experience, you lost your father this year, I lost my father this year. Without going too much into private details, I have a great deal of understanding on the private side that you will take care of more of your family and take a sabbatical to digest those things and that I respect. And I hope everyone else will respect that -- should respect that.
With respect to the company, we've run this business in the Group Management Board level long, long time, and many years alone. The two of us, now we have four. I am rest assured that Benon, Stephan, and I will continue to run it successfully. And as you said, subject to BaFin's approval, which is expected, by end of the year, Christiane will join with respect and effective of 1st of January. So then we are back to four.
I'm also happy that you continue as a shareholder and will support us. And I also appreciated your comment that you will not continue to work for any competitor and having worked with the market leader and grow this business to European market leadership, I appreciate that a lot and I wish you for your personal belongings and for your personal life, all the luck you deserve, and whatever you expect. And I trust when you go back into the professional environment, you will continue to be very successful. And I wish you all the best for that as well.
Thank you very much, Frank.
So thank you for all the great years and now we open up for questions.
Thank you, sir. [Operator Instructions] Our first question today comes from Ian White from Autonomous Research. Please go ahead.
Hi there. Thanks for taking the call and for taking my questions. Just to start, I would like to say a quick congratulations to Mu on a very successful tenure, and thanks for your help during my time covering flatex. Just a few questions, then please, if I can. First upon the -- this issue regarding the Italian Competition Authority. Can you just say a bit more about that, please? And what exactly is it that you are alleged to have done that's contravened guidelines or whatever the competition authority has in place? And why have you chosen to prepay this fine if you kind of think ultimately you will be successful in your challenge against it? And is EUR4 million to be the upper bound of potential liability here or could that go further? Just wondering if you could provide a bit more detail around that issue, please? Secondly, just on this question around the retail investment strategy. Appreciate that you don't -- basically don't turn PFOF in your business. But I understand that you do receive some significant payments from the ETP providers, and the commission's proposal is that third-party payments will be banned as far as I understand it. So can you say a little bit please about sort of how you see the risks there to your revenue stream from the ETP providers? Is that risk basically, if the Commission's proposals continue as they were drafted earlier this year? And just finally, I wondered if you could share with us what was the total CapEx in 1H '23, please? Thank you.
Yeah. Let me start, in general, with Italy. It's down to trust authority which has imposed a final EUR4 million, that's the final sum. Can't be higher. Second, it's Italian law that you have to pay the fine in advance regardless of whether justified or not.
Obviously, the Italian has a sort of business model invented here because they always impose fines, they receive the money, and then only if the parties were involved go to court and fight that decision, they have to give the money back. And we have reviewed all the public available information on that, and there were over 20 cases where the result is that no more than 14% of the total sum imposed had to be paid and were legally justified.
So obviously, we have appealed in court and we trust that we will get either the total or at least get some of that fine back, because we believe, in general, that we behaved and complied with what market standards are in Italy. But I don't want to prejudice the legal court here and we leave it to the judges finally to decide over that.
Yeah. This is in general comment and maybe Mu, you want to mention a bit more about the details, if necessary? With respect to the PFOF situation, I think, technically, you have to distinguish between commissions paid by investment banks to brokers and other parties with respect to ETP products. To my understanding, that is not part of PFOF. That's a different ballgame. Yeah, and maybe Mu, you want to comment on the other aspects or give a bit more detailed information if necessary.
Yeah. Ian, I think, first, thank you for your warm words. To cover up, so the Italian point was absolutely as Frank said. So it is what it is. You have to prepay fines, it's different in, I think, mostly in -- not even all European jurisdictions, you pay when you have the final decision. In Italy, you have to prepay fines and you have -- you can still appeal that.
And with respect also to the ETP topic, I think we have started to shrink also much. We have started already two years ago to change the structure also of the ETP settlement into more OTC situation between us and the product partners. And on top of that, there is one, two strategies that we have in our drawer, so to speak, what to do if, for whatever reason there might be an ETP ban, which does not -- which is as of today, not given.
But in the Netherlands, for example, you have seen some players that then use white-label solutions to provide ETPs to the market. So we could do as well if necessary. With respect to the -- your question, I think, it was the last one with respect to CapEx. Allow me to say that we will provide all the balance sheet details and cash flow details and P&L details in the report that is going to be published mid of August.
Okay. Thanks very much. Maybe, can I just come back on the first one, just briefly? And sorry if I missed this somewhere, but what is the -- what's the actual accusation against the company, please? What is the alleged wrongdoing for which this sort of preliminary fine has been imposed? Can you just provide a bit of detail there, please?
Yeah, absolutely, absolutely. Sorry, Ian. So it is -- actually, the vast majority of the fine is with respect to an absurd topic from our perspective, but also from the industry perspective, we discussed it with different regulatory bodies even, and all of them cannot understand it either.
So the topic is auto FX. So when clients have euros on their accounts and they buy an Apple share at Nasdaq, we have to convert the money obviously, we cannot settle against Morgan Stanley, the prime broker in Europe. We need dollars to buy Apple.
And the default setting, which is actually the default setting globally is to do it automatically. The client however has also the option to open with us the US dollar account. But then he has to open up a second account, which is a second reference cash account where he can then pass US dollars. And they say that we are providing, so to speak, a disadvantage to clients by having the auto FX a standard product.
Now, we have obviously analyzed the whole European market and there is literally half of -- half of the market does not even offer US dollar account, so clients are forced into automatic FX conversion. And those that offer FX accounts, all of them have as a standard default to have automatic FX conversion.
Now in Italy, as we said, there is a competitor that opened up all this discussion with us and not only with us, but with also one, two other players, and the funny thing is that this competitor himself has as a default the auto FX for his clients. So which is an absurd discussion and this is vast -- this explains the vast majority of the fine.
Okay, got it. Thank you.
You're welcome.
Next question, please.
Thank you. And we'll move on to Christoph Greulich from Berenberg. Please go ahead.
Yes, good morning and thanks a lot for taking my questions. Yeah, three from my side, please. Firstly on the UK business, so it seems like you have stopped onboarding new customers a few months ago. Yeah, just maybe if you could tell us what is the reason for that? And then given that the UK has been classified as one of your growth markets, if you could quantify roughly the impact that had on the Group's customer growth in Q2? Then secondly, just on the future transition on the management team, are you planning to find a successor for the COO role? Or is the plan to distribute most responsibilities among the existing members of the management team? And then just on the PFOF evolution at the recent news flow, what is your expectations for how the -- this might shape or change the competitive landscape?
Yeah. Let me briefly start with UK and then maybe Mu can go a bit more in detail if necessary. We have temporarily stopped onboarding UK clients because we are in discussion with the UK regulator about the new license situation. And I'm convinced that we will come back soon on that and change that. As I said, it's temporary and I think the impact was not that big to my understanding, but maybe Mu want to comment on little a bit more in detail.
With respect to the position of COO, as I mentioned earlier in my personal note, Mu and I have run the Group Management Board, just the two of us for almost eight years and it was very successful. Now we have four members here. Company has grown. Temporarily, we will be three. Soon, we will be four.
So we will continue to take over and divide the responsibilities Mu's had among our sales here and we trust that we do that well. Anything else, we will comment on as soon as Supervisory Board has reached a different view. If not, we will continue like that, which for the time being is the situation.
Mu is available until the end of the year anyway. And latest was effect of January 1st, we will have Christiane Strubel joining, and then we again four heads. I think that should be enough, and we'll work with it. But I'm happy to hand over to Mu.
Yeah. Let me -- hi, Chris, let me just on the UK business, I think better to give -- also give the reasoning. So it's literally a temporary point. As you know, we have stopped actually marketing in UK already two years ago. Since, actually the temporary regime. And if you look into the number of clients, I mean, last year we did 7,000 gross new clients in the UK.
So, it was not a big effect. We still consider it as a strong growth market, but we are waiting for the final licensing which will happen hopefully over the next weeks, latest in Q3. And then we will open up again the onboarding.
The reason is mainly that we want to avoid the transitionary into this new entity that we have implemented during the onboarding phase. So this is why we also stopped it. But also in the discussions with the regulators, we came to a point that makes sense to stop it and make the transition. And as soon as we have the new licensing, we will be able to open up then the onboarding again. To your last question, Frank, the PFOF discussion advantages -- potential advantages?
Yeah. I mean, as I said, we believe in a single market with fare rules for everyone. So I hope this will be more transparent and fair in the future. As we do not depend on PFOF revenues, it has no negative impact to us other than with neo-brokers who have based their business model on PFOF.
And obviously, this will have an impact on the industry where I strongly believe that we're going to benefit from it. And as you always know, we have taken time to strengthen in our organization to do our homework. We work hard on the learnings from the audit. So I think we will head into a bright future and we will look into organic and unorganic growth.
And obviously, the competitors, some of them, especially the neobrokers have to reinvent their business model when they cannot receive any more payments from the stock exchanges. And in Germany, there is the Federal Court rule, as you all aware of, which does not allow market participants to increase fees via general terms and conditions with two months' notice and then it's going to implement it, thereafter, as it used to be 20, 30 years ago, which was the common practice that has no longer -- is no longer valid.
You need consent in writing from the clients before you can change that. And obviously, clients do not like that if there were solicited with the aspect that they don't have to pay anything. So that's going to be a challenge. And maybe that's also the reason why the commission is giving two years' transition period to give enough time to talk to the clients. We don't have to do that.
So especially in Germany, we always, for 20 years, kept our EUR5.90, that has not changed and we have not changed with respect to equity trades and our ETF savings plans products I think amount to 4,500. We don't have a reason to change anything. So our clients, we will not be affected by this. But I think it's going to have an impact on the industry.
Yes, great. Thank you and all the best to you, Mu.
Thanks, Chris.
Thank you. Next person, please.
And our next question comes from Andrew Lowe of Citi. Please go ahead.
Hi, guys. Just a few from me. I thought Page 18 and 19 were interesting, showing increased charges at zero. I'm interested in any thoughts you may have on future pricing at flatex where you've been more stable in your fee structures. And then secondly, just in terms of the fact that you've got a number of inactive customers on your platform. I'm just curious what the regulatory challenges that this includes. So, for example, how do you ensure that KYC is up to date? And the reason for asking is that one of your Nordic peers recently said that they have a regulatory obligation to keep KYC up to date, which is why they're closing active accounts. So just curious about your thoughts there? And then finally, just a clarification. Did I understand correctly that you said that your June commissions per trade, which is in line with your expectations second half of the year of with which your guidance implies EUR4.25? Thank you.
So I had some difficulties due to reception to really understand all the questions. The only thing I really understood was, why commission decreased per trade and Mu it's going to be happy to comment on that. Mu, why don't you take over, please?
Yeah. I had my ear very close to the phone, so I try to try to get it. So the first I think point was slide 18 and 19, the zero growth at flatex, if I'm not mistaken, your question was like, whether there are price changes with flatex or strategies around flatex price changes. Am I right?
Hi. Sorry, I've changed away from the headset. Hopefully, you can hear me better now. Yeah, that's right.
You could speak a little bit louder. Yes, please.
Yeah. Can you hear me now?
Yeah.
Yeah, okay fine. Sorry about that. So, yes, so basically, what's the scope for increasing pricing in your flatex brand going forward is the question?
Got it. So the point with flatex is that the flatex is operating in Germany and Austria, both jurisdictions, they allow price changes under -- only under the active consent by the clients, since the latest court decision, highest German court decision, which makes literally price increases so difficult because clients have actively to consent to these price increases.
By the way, a topic that with the PFOF discussion for neobrokers will become quite interesting, because a lot of people usually say, okay, if they don't do any PFOF anymore, they can just increase a little bit or charge a little bit of fees. The point is, active clients have to give actively their content to price changes, so to price increases. This is why at flatex, we don't see any price changes in the next future.
With respect to I think the second question was with respect to KYC, and then the BaFin audit.
Sorry, I'll just step it. It wasn't specifically the BaFin order, it was just a question about what the kind of regulatory challenges are and obligations with KYC about having a large number of inactive customers on your platform. And the reason why I asked that was one of your Nordic peers recently said that they have an obligation to keep this KYC data up to date, which is why they're active at closing inactive accounts, whereas you seem to take a slightly looser approach.
To that point, the request for KYC has increased significantly over the recent years by the regulators. And obviously, we're trying to, the very best, to compliant 100% actually with all these requirements. Indeed, all the accounts will become in the future, so let's call it non-terminated accounts with inactive clients with maybe all documents will become in the future a little bit more challenging to re-KYC these clients, et cetera.
In the Nordics, you're absolutely right. In the Nordics, peers are already have decided to close down inactive clients because it's much more cost-efficient to close down inactive clients, especially if it's a zero-euro account. So no cash nor securities than to re-KYC. This is something that we'll be in discussion also here with us the Management Board over the next weeks and months. And it might obviously also lead with respect to our client pool to offboard old clients when it's much more efficient to offboard them than to re-KYC them.
Yeah. Maybe one comment here. The flatex wealth product is also one initiative to address inactive clients, because some clients might not know what to do and are inactive because of that. And if you have an alternative to do nothing and get zero revenues and zero return versus a nice conservative strategy where you get 3% to 4%, 5% return whatsoever might be an alternative.
We will have further initiatives coming ahead where we address inactive clients. But if nothing helps, it might be a final consequence to do it as the Nordics have started to do it. We are working on that and we have a close look on that. And we will make sure that we continue to be very compliant.
Then your last point was with respect to commission per trade, if I'm not wrong. If I'm not mistaken, you asked like how we see the guidance for the EUR4.25 going forward, right?
It was just a clarification that June commission per trade was around that level.
Yeah, absolutely. So this is what we said. We expect from now on, after the latest price changes, that the commission per trade will grow to EUR4.20, EUR4.25. So given the first half, where we did not have this price mechanism, the full-year average will be obviously diluted to the lower, but as of July, the commission per trade should definitely go up towards EUR4.20, EUR4.25 per trade.
Great. Thanks very much, and sorry for the weak line.
You are welcome. Thank you very much.
Thank you. And we're now moving on to questions from Simon Keller of Hauck & Aufhauser. Please go ahead.
Good morning. Thanks for taking my questions. I have two. The first one is how is the share of active customers relative to total customers developing. And the second one is, what type of customers have you gained recently, could you rather cluster them as day traders or by an hold ETF investors? Thanks.
The share of active customers for the second quarter has not really -- has not been released yet. We will do it in the update of the corporate presentation. But we are happy to give the number, it's 30%. So relatively stable to the first quarter. That's point number one.
And point number two, what type of clients did we win in the first half? To do this type of analysis, we need always a little bit of time obviously. So we will definitely also provide the information then again in the cohort analysis. But actually, in such an environment that we have as of today, where clients are not really, so the mass market is not really receptive for online brokerage, the type of clients that we win is rather coming from experience, from the experience base.
And not on a day trader base, but rather active trading customers. The averages of the new clients that we won in terms of trading activity is very similar to the existing base. So it's not like that we are now running only clients that do 500 trades per year nor do we win clients that don't do any trades. So the client mix, so to speak, is very stable with respect to the existing client base. That was the answer. Next question, please.
Thank you. And our next question comes from Christoph Blieffert from Exane BNP. Please go ahead.
Good morning and thank you for taking my question. ESMA recently made the statement that revenues from securities lending should directly approved to the retail client rather than kept by the bank or broker. Any comment on the impact from securities lending on your revenue line would be helpful. Thank you.
Yeah, the short answer is Mr. Blieffert, we don't offer securities lending, so far. So no impact for us.
Thanks.
Next question, please.
Thank you. [Operator Instructions] There appears to be no further questions at this time. So I'd like to hand back over to you Mr. Niehage for any additional or closing remarks.
Yeah. Then, thank you all very much for having taken the time this morning. We will continue to work hard. We are looking forward to a more prosperous second half. Thank you, Mu, again. Benon Janos will take over. I trust he will do it with his 20 years of experience at Goldman Sachs very well, and try to do it as good as Mu. And we all are looking forward to stay in touch with you. If you have any further questions you could not provide today, happy to talk to you later or send us a mail or give us a call. Have a nice day and all the best to you. Bye-bye.
Bye-bye. Thank you.
Thank you. Ladies and gentlemen, that concludes today's call. You may now disconnect.