AVANZA ÅRSREDOVISNING 2003

Transcription

1 003 AVANZA ÅRSREDOVISNING 2003

2 AVANZA ANNUAL REPORT 2003 Table of contents Comments from the Managing Director The operations Avanza s offering Organisation Avanza s shares The Director s report Proposed appropriation of profits Consolidated income statement Consolidated balance sheet Parent company income statement Parent company balance sheet Cash flow statement Comments on the accounts and accounting principles Notes The Auditors Report Definitions Five-year overview Articles of Association The Board of Directors, the management and the auditors Annual General Meeting and financial calendar

3 Are you interested in doing better business? Dear Shareholder, There are numerous things we choose not to do for ourselves. Time, interest, and ability are important factors in the decision to get someone else to do a job. But looking after one s own share trading is not like baking bread or painting the house. It is a lot more important than that. It is about you and your family s immediate future. In a world where personal savings are of increasing importance, and where company scandals and an increased mistrust in the way in which bankers and traditional brokers deal with investors money, every private investor is forced to take a position. But how do you take a position over where and how to do business? I put this question to you as a shareholder. This is because, increasingly, our shareholders also choose to be customers of Avanza, and we naturally want you to be an Avanza customer. Avanza offers clear advantages. As an Avanza customer, you get a rapid and clear overview of the stock market and your holdings by using our site. You also receive first class backing in matters of news, analyses, as well as technical assistance in, for example, working out your tax return. Again, as a customer, you can reach us rapidly by telephone or . It goes without saying that Avanza s brokerage fees and other charges are low. A strong indication of Avanza s worth is that our customers on average obtained a 40 per cent return on their portfolios during 2003 in comparison with the market as a whole, which rose by 30 per cent. The conclusion - Avanza provides you with better conditions for managing your affairs. Things change Nearly 6,000 new private investors moved their business to Avanza in Total net savings with Avanza during the year came to almost SEK 1,700 million. This is the highest level of growth so far this century, and, at year-end, the number of active Avanza customers was estimated at over 82,000 custodian account holders, with more than SEK 11,000 million on deposit. All told, this means Avanza has succeeded in increasing revenues by 22 per cent to SEK 150 million. Avanza s excellent growth is explained to a large extent by increasing numbers of share investors taking active decisions on what they want to do with their savings. The explanation lies in the following trends regarding customer behaviour: - Customers are more ready to ask questions. Most professional advisers swim with the tide and do what others do. In addition, customers don t get the service they expect. Who wants to look after their money like that? - Customers are more aware of what they are paying for. The time is past when what the customer paid was unimportant because the stock market went up every year. Nowadays, fees are a significant factor in portfolio development. - Trust is a central issue. In the wake of recent scandals, trust has been called into question and is an issue of increasing importance. Good customer relations involve more than products and services. The customer s perception of professionalism, customer service, and ethics is at least as significant.

4 Last year, I wrote that the main goals for 2003 were improved tools for share trading, more savings products and continued cost control. These targets have been met. During the year, Avanza has, among other things, developed a number of business applications and a service for automatic calculation of income tax returns. In this way, we have simplified and made it easier for customers to look after their business with us. Our product range has been supplemented with a wider fund offer and individual pension savings (IPS), offering even greater freedom of choice. We have also succeeded in reducing costs by 5 per cent to SEK 91 million, and thus reached our cost target of SEK million in annual operating expenses*. Avanza has had the industry s best cost-efficiency for a number of years now, and this is the surest guarantee that we can offer low prices both now and in the future. * Excluding goodwill amortisation Avanza in 2004 Last year, I wrote that Avanza s aim was to reach revenues of SEK 250 million by The rapid increase in use of online financial services, the growing involvement of investors in their own investments, and a very high percentage of investors among the total population has created formidable conditions for continued growth. Avanza is the market leader among online brokers in terms of both size and trademark and is well-positioned on this market. Our ambitious growth target is therefore fixed. The work that Avanza intends to undertake during 2004 can thus be summarised as follows: - Reaching out to more customer categories. We now have various accounts which differ in service-level, products, and pricing. We will refine and develop new services which are even better adapted to the requirements of each customer. - Attract a higher proportion of our customers savings. Customers now have a wide choice regarding their investments with Avanza shares, bonds, and funds, to name but a few. Despite this, most private investors have only a few shares in their portfolios. Avanza will develop better tools to spread risk and create overview. - Launch new creative alternatives. A lot of new ideas are emerging from Avanza s creative and technical knowhow. During the year, we will be offering exciting products which provide customers with improved conditions for looking after their business dealings. Avanza s success will be a result of how well we meet our objectives in 2004, whilst continuing to keep costs as low as possible. In this way, Avanza will be in an even better position to deal with price changes in the share market, whichever way they turn out.

5 *Source: Aktiefrämjandet Avanza s success is the sum of the creativity, integrity and responsibility its employees feel towards its customers. We have put an exciting and hardworking year behind us, and are ready to face another one that should be challenging as well as eventful. It is a great privilege to be able to work with the involved and ambitious group of people who today make up Avanza. People who, day after day, work untiringly to provide customers the best service and to create new solutions for simplifying their everyday lives. Last but by no means least, Avanza s success is a matter of customer trust. We will retain and create new trust when we live up to our ideal: to always be on the customer s side. This is why it is our hope that we will not only involve you as shareholders, but as customers, too. We look forward to doing better business with you! Stockholm, February Nicklas Storåkers Managing Director nicklas.storakers@avanza.se Telephone:

6 The operations Business concept Avanza s business concept is to offer Sweden s best site for active savings. Our most important task is to provide our customers with top-class, economical tools for carrying out profitable share trading. Avanza offers Swedish share investors online solutions for information and securites trading. Avanza s competitive edge lies in its advanced decision-making support and applications, its broad product and service offering and its low prices. Avanza focuses primarily on Swedish private investors, but also has a low price offering aimed at institutional investors. Group structure Avanza AB is the Parent Company of the Avanza Group. Operational activities take place mainly within the whollyowned subsidiary Avanza Fondkommission AB, which is supervised by the Swedish Financial Supervisory Authority. On 1 February 2004, an agreement was reached with Delphi Economics to initiate Avanza Vikingen AB, a joint-venture company for developing programs for technical analysis and share trading. Avanza will own 51 per cent of this company. Business performance Operations On 31 December 2003, Avanza had a total of 82,400 (76,000) custodian account customers. The net increase in custodian account customers was thus 5,800 (3,600) during the year, which is equivalent to a growth figure of 7.6 per cent (4.9%). An absolute majority of all customer applications came directly via Avanza s site. The majority of the growth took place in the autumn as a consequence of the strong development of the stock market. During the year, customer accounts grew in value by 40 per cent, thus exceeding Stockholmbörsen s All Share-Index which rose by 30 per cent. Customers had a net liquidity during the year of 9 14 per cent. A comparatively high exposure to several sectors which developed well contributed to the excellent portfolio development. In comparison to the share index, Avanza s customers were over-represented in sectors such as telecomms, IT, and oil exploration. Net deposits came to SEK 1,660 million (SEK 1,300 m) in 2003, corresponding to 25.5 per cent of the value of custodian accounts at the beginning of the year. Net deposits came from both existing and new customers. The underlying growth in value and net deposits combined to contribute to an increase in total value of custodian accounts by 69 per cent (-23%) to SEK 11,000 million (SEK 6,500 m). The average value of custodian accounts was SEK 135 thousand (SEK 86 thousand) at the end of the year. Each custodian account reported an average of 0.98 (0.86) contract notes per month in The number of transactions per contract note was 1.55 (1.54). During the first part of 2003, the stock market experienced a downward turn and activity was therefore lowest in the first quarter. Stockholmsbörsen s All Share-Index quoted an annual trough on March 12, after which there was a steady recovery which lasted the rest of the year. This contributed to an increase in activity, and, during the fourth quarter, the number of contract notes per custodian account holder per

7 month rose to 1.26 (1.20). The lowest level of activity in a single month occurred in February with an average of 0.61 contract notes per custodian account holder, while the corresponding figure for the best months was 1.37 in September and October. The average commission per contract note for custodian account customers was SEK 103 (98). This increase in average commission is explained partly by certain price rises, and partly by higher turnover per contract note. Of the total number of contract notes for custodian account customers, 88 per cent involved Swedish shares and warranties, while 7 per cent related to options, 4 per cent to funds and 1 per cent to other securities. Income per custodian account averaged SEK 1,920 (SEK 1,600) in Avanza s institutional services comprise two areas, institutional brokerage services and the management of share issues. Avanza offers institutional customers the same business applications as day-traders, and, during the year, Avanza attained a stronger position in areas such as futures trading and trading in index baskets. Despite the increased number of institutional brokerage customers during the year, the weak first quarter market meant that activity in this customer sector was hesitant. The subsequent market recovery, however, was reflected in a certain recovery in business, with higher turnover and more transactions as a result. Several assignments were completed in the area of management of share issues during The market was characterised by fewer issues and significant price pressure. Paucity of flotations also had a clearly negative effect on the market. Avanza is thought to have excellent potential in a stronger stock market climate to compete for distribution commissions, for example, in conjunction with stock market flotations. Income from the institutional operations was SEK 6.6 million (SEK 7.1m). Processes Avanza s processes comprise both current administration, and business and technical development. Contact between Avanza and customers take place mainly on Avanza s site where customers receive a comprehensive overview of their accounts holdings, transactions, and current market value of their investments. Customers can also access extensive market information such as share prices, news, analyses, and fundamental data. Via its underlying IT system, Avanza s site is directly connected to various stock exchanges, information suppliers, and settlement systems. If customers place orders and carry out business, the transactions are in most cases completely automatic. The work processes that require manual input are kept to a minimum. This provides advantages of scale and ensures that Avanza can offer its customers both low prices and high quality. Customers can also contact Avanza by telephone to place orders, obtain current market information, or receive support on various customer issues. The quality of current administration procedures is evaluated through customer satisfaction surveys and by monitoring a variety of factors, such as capacity utilisation, response times and error frequency, at both organisational and system platform level. Our business and technology development processes are controlled by the management group. These development projects are strongly customer-oriented and are therefore prioritised and evaluated with the help of our regular customer surveys. The development of new products and services continued to maintain a rapid pace throughout A series of new functions was launched during the year with a view to further enhancing our customers money-making ability

8 - Individual pensions savings (IPS). - Automatic tax return calculation. - Improved customer offers for day-traders. - Widest range of real-time applications for share trading on the market. - Improved account information. - Increased fund offer and special market for growth and hedge funds. The accessibility level to Avanza s site improved to 99.7 per cent (99.3%). Good accessibility and speed in the Internet service is an important competitive parameter. During 2003, a number of steps were taken regarding software, system architecture, and hardware to ensure very high accessibility. Avanza s strategy is always to make adequate resources available to increase accessibility, and an in-depth plan has been drawn up for how this will be accomplished in Market and competitors The number of people in Sweden who own shares or funds now amounts to 7.2 (6.8) million individuals, corresponding to about 80 per cent (79%) of the whole population*. Sweden therefore has the most extensive share investment in the world. Of the total number of shareholders, only 26 per cent (31%) were active in share investment during Of active share investors, those who do business wholly or partially online increased to 49 per cent (36%). The online market consists primarily of five independent brokers, the four main banks, and niche banks. During the year, two Norwegian online brokers have launched services in Sweden, without attaining wider market penetration. The services offered by these Norwegian online brokers in terms of products or services cannot compare favourably with Avanza, nor can they compete in terms of price. It therefore seems they will not be able to attract a significant market share in Sweden. *Source: Aktiefrämjandet

9 Price competition on the Swedish market is still significant. Because Avanza is the most cost-effective in the industry, the company possesses the right conditions to maintain competitive prices and to be able to adapt to a lower price level. With 82,400 custodian account holders, Avanza was the largest independent online broker in Sweden, and, during the year, gained market share from its main competitors. In the last quarter, Avanza became the largest online broker on Stockholmsbörsen, both in terms of numbers of transactions and turnover. Avanza s market share of Stockholmsbörsen was 7.9 per cent (6.6%) of the number of transactions, and 1.8 per cent (1.2%) of turnover in the last quarter. The corresponding market share figures for the whole of 2003 was 6.9 per cent (5.3%) and 1.5 per cent (0.8%) respectively. Strategic position and competitive advantages Avanza focuses mainly on Swedish private investors who are interested in following their own investments and managing their own investment decisions. Generally speaking, Avanza s customers belong to the top per cent of the total Swedish savings market in terms of activity and wealth levels. During the year, Avanza has shown a clear trend towards attracting a greater number of wealthy customers. Avanza s competitive edge lies in its comprehensive and user-friendly site, sophisticated share trading tools and low prices. Avanza plans to use this offering to attract customers from banks and traditional brokerage firms. Due to negative market development over the greater part of last year, there was significant mistrust in traditional brokerage firms and banks and this has favoured players such as Avanza. During 2003, Avanza has also succeeded in creating a significant net influx of new customers who formerly used these same players. In order to be able to strengthen its offering to its most active customers and attract even larger numbers, Avanza needs to develop its products and services. Around 30 per cent of Avanza s organisation focuses on business and technology development. High standards of innovation and cutting-edge technology are two crucial keys to success for Avanza. Avanza s price strategy is to be able to offer customers some of the lowest prices on the market. In the long-term, Avanza can ensure this through high cost-efficiency, real advantages of scale, and technology-based solutions with a high degree of automation. Avanza is actively engaged in structured sales promotion focusing on additional sales to existing customers and on the recruitment of new customers. Avanza has highly developed routines and systems in place for monitoring each step of this sales process.

10 Financial results and position Income and financial performance Avanza s operating income came to SEK million (SEK m), an increase of 22.3 per cent (31.1%) on the previous year. Of total operating income, commission income less commission expenses accounted for 68 per cent (63%), net interest income/expenses for 30 per cent (33%), net profit/loss on financial transactions for 0 per cent (3%), and other income for 2 per cent (1%). Of commission income, 87 per cent (90%) came from brokerage fees, with other commission income making up the remaining 13 per cent (10%). Private customers provided 93 per cent (93%) of brokerage income and institutional customers 7 per cent (7%). Brokerage income with allowance for commission costs accounted for 58 per cent (55%) of total operating income during The remaining income, which is not directly related to share trading activity, thus came to 42 per cent (45%) of operating income. Net interest income/expenses came to SEK 45.5 million (SEK 40.1 m), the improvement being mainly attributable to a sharp increase in lending during the year. Operating expenses excluding goodwill amortisation, came to SEK 90.8 million (SEK 95.7 m), a reduction of 5.1 per cent. This fall is explained mainly by lower costs for IT and external services, and a lower depreciation requirement. These cost savings allowed Avanza to reach its objective of annual operating expenses excluding goodwill amortisation of SEK million for Rationalisation is carried out continuously as a normal part of company activities. The objective is to maintain a high degree of cost-efficiency to ensure competitive pricing to customers. The largest cost items were staff (42%), IT (14 per cent) and information (7%). Write-offs excluding goodwill amounted to 6 per cent (11%) of total operating income excluding goodwill amortisation. Organisation costs increased slightly at the end of the year, partly as a result of the wider product range and partly due to a temporary increase in staff because of the very high level of activity near the end of the year. The number of full-time employees (excluding those on unpaid and parental leave) came to 61 (53) at the end of the year. Some performance-related bonuses have been introduced, and with a number of important targets being reached, bonuses have been paid to a number of employees. Staff costs rose by 5 per cent (8%) during the year. Marketing continued to concentrate on campaigns with demonstrable effectiveness. Marketing costs during the year came to SEK 6.2 million (SEK 3.4 m).

11 Operating profit before goodwill amortisation improved to SEK 59.1 million (SEK 26.9 m), which is equivalent to an operating margin of 39.4 per cent (21.9%). The profit during the second half-year was particularly strong and the operations managed to report an operating profit before goodwill amortisation of SEK 40.8 million (SEK 23.8 m), equivalent to an operating margin of 46.7 per cent (34.8%). financial results. The recovery in the financial results seen in the second half of the year is due to the fact that Avanza s business model is based on fixed operating expenses. The increase in activity levels seen in the second half of the year thus had a significant impact on the Goodwill amortisation totalled SEK 8.8 million (SEK 8.8 m). The pre-tax profit came to SEK 50.8 million (SEK 18.1 m). Reported tax for the period was SEK 14.2 million (SEK 4.6 m), of which SEK 13.6 million refers to utilisation of previous year s activated deficit deduction. The remaining SEK 0.4 million is actual tax. The net profit after tax came to SEK 36.6 million (SEK 13.5 m), resulting in a return on equity of 17.6 per cent (7.3%). The profit per share after equity dilution came to SEK 1.35 (SEK 0.50). The profit per share before goodwill amortisation and after equity dilution came to SEK 1.50 (SEK 0.73). Capital structure and financial position The balance sheet total came to SEK 1,376.6 million (SEK m) on 31 December Deposits totalled SEK 1,107.0 million (SEK m) at the end of the year. In addition to this, there are funds managed on behalf of third-parties totalling SEK million (SEK m). Lending to the public increased by 98 per cent (16%) to SEK million (SEK m), the increase being due to the positive development of the stock market. Goodwill totalled SEK 22.5 million (SEK 31.3 m) at the end of the year. Provision is made in the balance sheet of SEK 69.6 million (SEK 83.4 m) for deferred tax demands, which represents a deficit deduction activated as a result of losses incurred in previous years. Investments totalled SEK 6.6 million (SEK 1.3 m) in 2003, and thus exceeded write-offs (excluding goodwill) by SEK 0.8 million. Shareholders equity came to SEK million (SEK 192.0m), while the capital adequacy ratio was 26 per cent (37%). On 1 January 2004, new rules for calculating capital adequacy ratio came into effect. These will have a negative effect on Avanza s capital adequacy ratio, since the rules include a requirement that deferred tax demand and assets and liabilities goodwill should be removed from the capital base. Under the new rules, the capital adequacy ratio would have been 17 per cent on 31 December Equity per share was SEK 8.58 (SEK 7.21) at the end of the year. Outlook for the future Avanza s business concept is to help customers achieve better business goals. The goal is to make full use of the possibilities of the Internet and develop user-friendly and advanced services for active share trading. Avanza s size offers economies of scale, which, together with cost-effective technical solutions, ensures that Avanza can offer more services at low prices.

12 Avanza s goal is to increase its operating income by per cent per year under normal stock-market conditions, and is matched by similar growth targets regarding value of custodian accounts. In the long-term, there is a clear connection between growth in custodian accounts and growth in operating income. Growth in the value of custodian accounts is dependent on two factors, namely value appreciation and net deposits. ] Value appreciation normally maintains levels of around 6 8 per cent per year, bearing in mind the way custodian account customer activities break down in terms of shares and interest-bearing assets. The value appreciation rose to 40 per cent in The growth in net deposits is believed to total per cent per year over the next three years. The figure for 2003 was 25 per cent at the beginning of the year and was mainly due to the fact that existing custodian account customers moved an increasing part of their savings activities to Avanza, as well as to the 8 per cent increase in the number of custodian account customers during the year. Avanza believes that the company still has excellent potential when it comes to attracting both new custodian account customers and a growing share of the savings activities of existing custodian account customers. With the positive market situation which exists at the moment, Avanza s assessment is that conditions for growth are favourable. Avanza s business model means that the majority of costs are fixed costs. Given income growth, therefore, increase in profitability will be even higher, relatively speaking. Cost levels however will also be marginally higher during 2004 compared with This higher cost level is explained by a certain increase in organisation and system resources required as a result of the higher level of activity, the greater number of customers, and a wider product range. Operating expenses (excluding annual goodwill amortisation of SEK 8.8 million) are estimated to reach SEK million in Operating expenses during the first and last quarters are seasonally higher than during the second and third quarters. Due to our considerable dependence on stock market performance, Avanza is not however submitting a profit forecast for 2004.

13 Avanza s offering Share trading for everyone - how it all began In the mid-nineties, two parallel events led to the growth of companies offering cost-effective online share trading. One was the deregulation of finance markets, and the other was the rapid development of the Internet itself. When Avanza was founded in 1996, the company was one of the first in Europe to offer direct online share trading. This provided revolutionary change for private individuals who wanted to trade in shares. Within only a year or two, the costs of share trading had fallen, in some cases by as much as 90 per cent. Accessibility and speed of transaction increased. In general, this democratised share trading so that it ceased to be only available to those who had millions in the bank and access to a broker who could carry out rapid transactions and have access to all the information. Share trading was now available to everyone on equal terms. Share ownership in Sweden is very widespread 84 per cent of the adult population now invest directly or indirectly in funds and shares. Sweden, therefore, has the most extensive share investments in the world. This makes the country an ideal market for this growing new industry. Numerous companies offering online share trading came into being as a result, the majority being the nine independent brokers in Sweden. However, even though the market grew rapidly, it was oversaturated by the end of the nineties, and through mergers and takeovers the industry was reshaped into the three streamlined Swedish companies that now offer online share trading. = Mergers that formed the modern Avanza The company that is now Avanza was formed through the merger of HQ.SE Fondkommission, Aktiespar Fondkommission, and the original Avanza. The company is now the market leader in terms of the most common indicators - number of customers, turnover and number of transactions on Stockholmsbörsen, profitability, and industry distinction. From share trading to a complete range of investment products It all started with trading in shares quoted on Stockholmsbörsen. This is still Avanza s core product today, accounting for almost 90 per cent of customer business. Avanza s offering is however considerably more extensive today than was the case at the end of the nineties. Today, Avanza offers the whole spectrum from low-risk products to advanced services for day-traders. Avanza offers online trading in 450 funds from around 20 fund companies, shares on Stockholmsbörsen and other markets such as NGM, share and index options, futures trading, premium bonds, and warranties. Telephone trading in convertibles and foreign shares on exchanges all over the world is also part of our product portfolio. In addition, Avanza creates its own offer packages in the form of share index bonds and parcels of shares that customers can purchase on preferential terms. All these financial products are available to customers though their accounts with Avanza. There are several different types of account, with conditions specially adapted to various target groups. Avanza Share Investment is the account for customers who make a relatively large number of relatively small transactions. This type of account has an annual fee and minimum brokerage comes to 59 SEK. Avanza Base is for customers who simply want a cost-free way of gaining an overview of their shares and fund investments. This type of account has no annual charge or other fixed fee, with customers paying only when they trade. Minimum brokerage is 99 SEK. Avanza

14 Gold is for customers with a deposit greater than SEK 1 million, or alternatively for those who execute more than 40 transactions per quarter. Avanza Pro, launched in 2003, is intended for private individuals who have share trading as their main occupation, or, day-traders * as they are known. In addition to these four basic types, there is also Avanza IPS, an account for individual pension savings. Customers can also link endowment insurance to their accounts. IPS Avanza s breakthrough on the pensions market In November 2003, Avanza launched the market s first totally online-based solution for Individual Pensions Savings (IPS). With an Avanza IPS-account, it is possible to save for a pension in both shares and funds. The advantage of an IPS-account is that deposits are tax-deductible up to one basic amount. For small business owners, the deduction rules are even more favourable. There are 1.2 million IPS accounts in Sweden. This form of pension saving is therefore not as widespread as pension insurance. However, with an Avanza IPS account, the customer has significantly greater placement opportunities and charges are considerably lower than for a corresponding pension insurance. The background to Avanza s IPS venture is the major changes which the whole pension area has experienced during the last few years. The trend is to hand over responsibility for pensions to individuals and is clearly set to continue. At the same time, competition falls short, as the IPS schemes offered by banks do not usually contain funds other than the banks and do not cover share trading at all. Avanza competes with a broader fund offer, a more flexible product, and lower fees.

15 Day-traders - an important sector for Avanza Swedish day-traders carry out approximately ten share transactions per trading day, and normally concentrate on a few shares on Stockholmsbörsen s Most Traded-List. They are an active and aware group with an average age of and with, on average, 20 years stockmarket experience. Day-traders are an important customer group to Avanza. Their high level of business activity coupled to the high standards they demand develop Avanza s offering, resulting in benefits for our other customers. Day-traders - who are they? The core number of day-traders who trade full-time in Sweden numbers around 200, with an additional 500 who trade part-time. During a short market upturn, this group grows rapidly. In the autumn of 2003, the total number of day-traders increased to over 1,000, and they represented around 30 per cent of private trading on Stockholmsbörsen. During 2003, Avanza sharply increased its market share in this area. Avanza s research and interviews with this target group has identified three types of day-trader: flow-traders, interval-traders, and value-traders. Full-time traders are most likely to be the ones who trade in flows. These flow-traders aim constantly at the difference between buying and selling rates. Their business is based on their own continuous analyses of factors such as order depth, volumes, and how players in the market are reacting. They normally make transactions per day, concentrating on a few companies with a high trading level, and they rarely retain their holdings overnight. The second group of day-traders are what are known as interval-traders. They follow rates over a few hours, and look out for peaks and troughs over the course of the day. This means that on average they make 5 10 transactions per day, and their trading can cover up to ten companies. In general, they offload their holdings before the market closes. This group often works part-time. The third group are known as value-traders. They follow rates over periods of several days to several weeks. For this reason, they carry out fewer transactions per day, perhaps 2 3 on average. They tend to have holdings in up to 20 different companies. These traders possess a keen interest in market information and have great knowledge of market psychology and the ability to interpret trends and rate-cycles. They often retain holdings overnight. This group also has the highest average age, and are usually part-time day-traders. Most value-traders take significantly lower risks in a particular transaction than the average share investor. Value-traders follow the market carefully and adapt their business on the basis of the information, knowledge, and analyses to which they have access. They normally decide in advance on the rate at which they will sell before they carry out their transactions.

16 Organisation Avanza s explicit aim is to recruit and retain the most outstanding talent in the new industry that online broking represents. Avanza is organised so as to look after the interests of its customers as effectively as possible. Because its webservice is the office that the customers interact with, the Internet is the focus of all functions involved with that interaction. This affects the design of the web-service, system architecture, and customer communications. In addition direct contact with customers via and telephone takes place. Those functions which interact directly with customers are: Brokering- doing business, Customer support- general issues, Cash- transfers, and Riskcredit issues. These departments are small in terms of the total number of customers, but routines are automated and scalability is good taken over time. Altogether, this means that a comparatively small organisation is capable of handling over 80,000 custodian account holders as well as keeping costs at an even level despite fluctuations in activity. Employees The average number of employees during 2003 was 56. At year-end, the number of full-time employees (excluding those on unpaid or parental leave) was 61 (53). Men represent 61 per cent while Women represent 39 cent. The average age is 31 (30). Avanza regularly checks employees of the company and their employment situation through employee surveys. The company moved to newer, more modern premises in October. per views Skills development The development of skills is an important area and where the company has invested considerable time and resources over the year, notably in business and technology development. In 2003, the investment in training activities totalled SEK 741 thousand. Six employees underwent Swedsec broking licensing training during the year, and the IT Department has also profited by the best training available, from an international perspective, in the specific programming language upon which Avanza has based its IT environment.

17 Avanza s shares Outstanding warrants programmes for 2002/2006 entitle warrant holders to subscribe for a total of 842,800 shares at an exercise price of SEK per share up to and including 17 February The warrants are valued at the market rate in accordance with the Black & Scholes valuation model. If the warrants are fully exercised, the dilution effect will be 3.1 per cent.

18 Largest shareholders According to the VPC share register, the following institutions and people were the largest registered shareholders at the turn of the year 2003/2004. The percentage of foreign owners is estimated to be 13.9 per cent of the shares in the company. The number of shareholders came to 8,934. The ten largest shareholders on 31 Dec. 03 No. of shares Investment AB Öresund % Mats Qviberg (incl. family) ,7% Sven Hagströmer (incl. companies) ,6% Aktiespararnas Service AB ,4% SEB fonder ,8% Sten Dybeck (incl. companies) ,0% Boston Holdings Ltd ,0% European Financial Services ,4% Anders Elsell (incl. family) ,5% Mats Sundqvist (incl. companies) ,2% Others ,4% Total % Concentration of capital Percentage of share capital and votes, % The 10 largest shareholders 56,6 The 25 largest shareholders 69,4 The 50 largest shareholders 73,0 Dividend policy The Board of Directors of Avanza AB has drawn up a dividend policy stating that dividends shall be paid to shareholders using the portion of the company s profits that are not considered necessary to consolidate or develop the business. In the long-term, it is the ambition of the company to earmark at least 50 per cent of profits for the payment of dividends. Dividend The Board of Directors proposes to the Annual General Meeting of shareholders that a cash dividend of SEK 1.00 (-) per share be paid for Payment of dividend If the Annual General Meeting of shareholders on the 31 March accepts the Board of Directors recommendation, the dividend is estimated to be paid out by VPC AB on 8 April 2004.

19 The Directors Report The Board of Directors and Managing Director of Avanza AB (publ), Swedish corporate identity no , hereby submit the Annual Report for the financial year Avanza AB is the Parent Company in the Avanza Group. The business operations themselves are conducted in their entirety by the wholly owned subsidiary, Avanza Fondkommission AB, which is supervised by the Swedish Financial Supervisory Authority. Description of the operations Avanza s business concept is to offer Sweden s best active investment site and facilitate our customers investment needs. Avanza offers efficient information solutions and solutions for online trading in securities in the Swedish market. Avanza s competitive edge lies in its sophisticated decision-making support and applications, as well as its broad product and service offerings and its low prices. Avanza focuses mainly on Swedish private investors, although it also has a service and product offering aimed at institutional investors. Financial results and position Income and profit/loss The pre-tax profit for the whole of 2003 improved to SEK 50.3 million (SEK 18.1 m). Return on equity came to 17.6 per cent (7.3%). Operating income rose 22.3 per cent to SEK million (SEK m) in Brokerage income less direct expenses in 2003 accounted for 58 per cent (55%) of total operating income, while net interest income expenses, custody fees, and other income accounted for the remaining 42 per cent (45%). Operating expenses excluding goodwill amortisation in 2003 came to SEK 90.8 million (SEK 95.7 m). Goodwill amortisation for the year came to SEK 8.8 million (SEK 8.8 m). The remaining goodwill items are considered to reflect the surplus value of previous acquisitions. The tax cost totalled SEK 14.2 million (SEK 4.6 m), of which SEK 13.8 million referred to utilisation of previous year s deficit deductions booked as assets. The remaining SEK 0.4 million refers to actual tax. Deductible deficits for earlier periods and for this year have therefore been capitalised to the extent that they are expected to be used in the foreseeable future. The number of full-time employees (excluding those on unpaid or parental leave) was 61 (53) at the end of the year.

20 Capital structure and financial position The Group s balance sheet total came to SEK 1,376.6 million (SEK m) on 31 December Deposits totalled SEK 1,107.0 million (SEK m) MSEK at the end of the year. In addition, funds managed on behalf of third parties total SEK million (SEK m). Lending to the public came to SEK million (SEK m). Goodwill totalled SEK 22.5 million (SEK 31.3 m) at the end of the year. Avanza also has SEK 69.6 million (SEK 83.4 m) remaining in deferred tax claims at the end of the year, representing the deficit allowance activated as a result of losses incurred in previous years. Shareholders' equity came to SEK million (SEK m), corresponding to SEK 8.58 (SEK 7.21) per share. Capital adequacy ratio for the Group was 26 per cent (37%). On 1 January 2004, new rules for calculating capital adequacy ratio came into effect. These will have a negative effect on Avanza s capital adequacy ratio, since the rules include a requirement that deferred tax liabilities and assets and liabilities goodwill should be removed from the capital base. Under the new rules, capital adequacy ratio would have been 17 per cent on 31 December Investments totalled SEK 6.6 million (SEK 1.3 m) in The work of the Board of Directors The Board of Directors of Avanza AB consists of seven members elected by the Annual General Meeting. Information regarding the members can be found on page 60. During the 2003 financial year, the Board of Directors held 8 board meetings at which minutes were kept, one of which was a statutory meeting. The meetings of the Board of Directors follow an established work procedure, established by the Board of Directors, and is reviewed annually. Two meetings of the Board of Directors were devoted especially to strategy, the business plan, and the budget. The Board of Directors has commissioned the company s internal auditors to carry out an independent audit. In 2003, this audit focused on routines and processes in Avanza s back-office, and the findings of the audit have been submitted to the Board of Directors. The company s auditors personally report the observations made during the course of their audit work to the Board of Directors. Employees of the company participate in meetings of the Board of Directors in a reporting or secretarial capacity. Committees Nominations Committee: The 2003 Annual General Meeting voted that the nomination of Board members should be undertaken by a committee consisting of the Chairman of the Board and shareholder representatives with holdings greater than 5 per cent of shares and voting rights. The Nominations Committee is convened by the Chairman of the Board in good time before the Annual General Meeting at which the nominations are to be made. Under the directive of the Chairman of the Board, the Committee will draw up a proposal to the Board of Directors to be presented at the Annual General Meeting for decision. Remuneration and Audit Committees: The Annual General Meeting voted that neither a remuneration nor an audit committee should be set up. The Board of Directors is of the opinion that an issue of this kind, in a company the size of Avanza, is best dealt with by the whole Board.

21 Future performance With the positive market conditions prevalent just now, Avanza s assessment is that conditions for growth are favourable. Avanza s business model means that the majority of costs are fixed costs. Given income growth, therefore, increase in profitability will be even higher, relatively speaking. Avanza s goal is to increase operating income by per cent per year under normal market conditions. Cost levels however will also be marginally higher during 2004 compared with This higher cost level is explained by a certain increase in organisation and system resources required as a result of the higher level of activity, the greater number of customers, and a wider product range. Operating costs (excluding annual goodwill amortisation of SEK 8.8 million) will probably rise to SEK million in Operating costs during the first and last quarters are seasonally higher than during the second and third quarters. Due to the company s considerable dependence on the performance of the stock market, however, Avanza is making no forecasts for its financial results in Important events after the end of the financial year On 1 February 2004, an agreement has been reached with Delphi Economics to initiate Avanza Vikingen AB, a joint-venture company for the development of programs for technical analysis and share trading. Avanza will own 51 per cent of this company. The Parent Company Avanza AB reported a profit before appropriations and tax for the financial year of SEK 10.9 million (SEK -5.3 m). The company s liquid assets on 31 December 2003, totalled SEK 1.0 million (SEK 1.0 m). The company s net sales came to SEK 0.0 million (SEK 0.0 m). Shareholders equity came to SEK million (SEK m).

22 Proposed appropriation of profits Amounts in SEK thousand The Group The Group s non-restricted equity totals SEK 52,753 thousand. No allocation to restricted reserves is required. The Parent Company The following earnings are available to the Annual General Meeting: Balanced profit 20,000 Annual profit 7,950 27,950 The Board of Directors and the Managing Director propose that: a dividend of 1.00 SEK per share be paid to shareholders, total: 26,623 carried forward 1,327 27,950 The earnings and financial position of the Group and the Parent Company are otherwise described in general in the following income statements, balance sheets, cash flow statement and notes to the accounts. Stockholm, 17 February 2004 Sven Hagströmer Chairman of the Board Johan Brenner Camilla Carlell Anders Elsell Mikael Nachemson Jacqueline Winberg Nicklas Storåkers Managing Director Our audit report was submitted on 18 February 2004 KPMG Bohlins AB Anders Bäckström Authorised Public Accountant

23 Consolidated Income Statement SEK thousand Note Operating income Commission income Commission expenses Interest income Interest expenses Dividends received - 10 Net result of financial transactions Other operating income Total operating income Operating expenses General administrative expenses 5, Depreciation of tangible and intangible fixed assets Other operating expenses Net credit losses Total operating expenses Operating profit/loss Tax on profit/loss for the year Minority holdings Profit/loss for the year Earnings per share, SEK 1,36 0,51 Earnings per share after dilution, SEK 1,35 0,50 Proposed dividend per share, SEK 1,00 - Average number of shares before dilution Average number of shares after dilution Outstanding number of shares before dilution Outstanding number of shares after dilution

24 Consolidated balance sheet SEK thousand Note 31 Dec Dec ASSETS 22 Lending to credit institutions Lending to the public Bonds and other interest-bearing securities Shares and participations Intangible fixed assets Tangible assets Other assets Prepaid expenses and accrued income TOTAL ASSETS LIABILITIES AND SHAREHOLDERS EQUITY 22 Borrowing from the public Other liabilities Accrued expenses and deferred income Minority holdings Share capital Restricted reserves Non-restricted reserves Profit/loss for the year TOTAL LIABILITIES AND SHAREHOLDERS EQUITY Memorandum items SEK thousand Note 31 Dec Dec Pledges and comparable security pledged for own liabilities Pledged assets Contingent liabilities Other contingent liabilities Disputes and tax litigation Commitments Funds managed on behalf of third parties (client funds account) Changes to Group Equity (Note 21) SEK Thousand Equity at beginning of year Conversion difference Subscription options Annual profit/loss Equity at year-end

25 Income statement for the Parent Company SEK thousand Note Operating expenses Administrative expenses Other operating income Other operating expenses Operating profit/loss Profit/loss on financial investments Profit/loss from participations in Group companies Interest income and similar P&L items Interest expenses and similar P&L items Profit/loss before tax Tax on profit/loss for the year Profit/loss for the year Balance sheet for the Parent Company SEK thousand Note 31 Dec Dec ASSETS Fixed assets Tangible fixed assets Equipment Financial fixed assets Shares and participations in Group companies Deferred tax receivable Total fixed assets Current assets Current receivables Receivables from Group companies Other receivables Prepaid expenses and accrued income Current investments Cash and bank balances Total current assets Total assets