Introduction
The Board and Chief Executive Officer of Nordnet AB (publ)
(Nordnet), company registration number 556249-1687, headquartered
in Stockholm, hereby submit the Annual Report and principles of
consolidation for the 2009 financial year. For other information on
the company, please see Note 1.
Business
Via its subsidiary Nordnet Bank AB, Nordnet offers savings and
securities trading. A large number of safe deposit and information
services are also offered. The company operatus mainly via the
Internet. Simpler Internet broker services at the lowest brokerage
on the market are offered via the subsidiary and under the
Aktiedirekt brand. Cross-border operations are run in Denmark,
Finland and Germany. In Norway, operations are run via a branch.
The wholly-owned subsidiary eQ Bank Oy in Finland offers an
Internet broker service aimed mainly at Finnish customers. The
wholly-owned subsidiary Nordnet Securities Luxembourg S.A. in
Luxembourg offers an Internet broker service aimed mainly at Nordic
people living abroad. Nordnet offers life insurance operations
focused on pension products via its subsidiary Nordnet
Pensionsförsäkring AB. In Norway, operations are run via a branch.
Nordnet's other operations are the share discussion service VCW
Internet Services AB and the derivatives information site Deriva
Financial Services AB.
Significant events over the year
The year as a whole was characterised by plenty of activity in
all customer segments due to ‒ among other things ‒ a more stable
financial market in combination with rising stock market indices on
all markets in which Nordnet operates. Over the year, the number of
active accounts rose by 77 600 to 308 600; equivalent to an
increase of 34 per cent. Most of this increase originated from the
acquisition of eQ in July. Excluding eQ, the number of accounts
increased by 11 per cent. The positive stock exchange climate
increased customers' confidence in the market, which was reflected
in net savings; these amounted to SEK 12.3 billion for the year.
The economic upturn has had a positive effect on the size of the
average deal. This, combined with greater activity among customers
and the acquisition of eQ, have brought about an increase in net
brokerage income over the year, from SEK 27 per trade in the first
quarter to SEK 34 per trade in the fourth quarter. For the whole
year, net brokerage income amounted to SEK 32 per trade. Over the
year, Nordnet has reinforced its position on the Nordic stock
exchanges and is now the biggest broker in terms of number of deals
closed. The company's market share, measured in terms of turnover,
has also increased significantly in 2009.
On 1 July, subsidiary Nordnet Bank AB acquired 100 per cent of
shares in eQ Oyj for a cash sum of EUR 37.1 million, equivalent to
SEK 389 million. Direct acquisition expenses amounted to SEK 2.6
million. eQ is Finland's biggest Internet broker, with some
57 000 customers. This acquisition supplements Nordnet's
operations, reinforces the company's Nordic position and is
increasing our customer base in Finland. Nordnet estimates that it
will have integrated eQ's business area focusing on Internet-based
securities trading, online brokerage, in its operations by 1 June
2010 at the latest. Various strategic decisions have been made for
the business areas at eQ which do not form part of Nordnet's core
business. Fund operations, asset management and corporate finance
have been sold to their respective management teams, while the
proprietary trading, institutional sales and analysis units have
been shut down. The acquisition of eQ saw the occurrence of
negative goodwill of SEK 53.8 million, which has been recognised in
income in accordance with IFRS 3. eQ is expected to have a positve
effect on profits in 2010.
In Denmark, pension services were launched in 2009. Pensions
were offered on the Swedish and Norwegian markets previously. As
the pensions market is being deregulated, pension savings will
become an ever more important part of Nordnet's range of savings
services. In the long term, pensions will also be offered in
Finland.
Earnings and financial position
Group
Operating income for the financial year increased by 31 per cent
to SEK 921.0 (702.7) million. Of this operating income, SEK 565.1
(408.5) million was net commission, SEK 204.3 (251.4) million was
net interest income, SEK 114.9 (31.1) million was charges and other
income, including negative goodwill, and SEK 36.7 (11.7 ) million
was net profit from financial transactions. Operating expenses
before credit losses increased by 30 per cent to SEK 661.9 (-510.8)
million. This includes items of a non-recurring nature amounting to
SEK - (-12.1) million in respect of notice salary and severance
pay. Operating profit for the financial year was SEK 252.9 (182.4)
million. Operating margin amounted to 27 (26) percent. The
operating profit for the year totalled SEK 203.4 (138.1) million.
The profit margin amounted to 22 (20) per cent. Earnings per share
before dilution amounted to SEK 1.23 (0.84), and after dilution
amounted to SEK 1.21 (0.82). At the end of the year, Group goodwill
amounted to SEK 156.6 (144.0) million. The Group's cash and cash
equivalents as of 31 December 2009 amounted to SEK 2,425.4
(4,204.2) million, of which blocked assets amounted to SEK 1,084.4
(418.4) million. As of 31 December 2009, the Group's equity
amounted to SEK 1,036.4 (851.8) million distributed over
166,937,285 outstanding shares, which is equivalent to SEK 6.21 per
share. The Group's capital quotient was 1.14 (1.70). Investments
over the year in equipment amounted to SEK 8.3 (9.7) million.
Investments over the year in intangible assets, such as capitalized
expenditure for development work, amounted to SEK 25.1 (24.0)
million, of which SEK 3.5 (8.2) million covers internally
capitalized product development expenses. Marketing expenses
totalled SEK -54.2 (-50.5) million. The Group's five-year review
and key figures can be found on the page Five-year review.
Parent company
Net interest income for the period amounted to SEK -1.8 (-16.9)
million. This amount includes intra Group interest expenses of SEK
-0.4 (-14.9) million. The Parent Company's operating income
amounted to SEK 26.2 (10.7) million and relates to intra Group
administrative services. The Parent Company's profit before tax
amounted to SEK 72.4 (63.7) million. The profit includes
anticipated dividends from subsidiaries of SEK 114.0 (85.0)
million. As of 1 January 2009, the Group's staff functions
have been employed by the Parent Company, which explains the
increase in expenses. The Parent Company's cash and cash
equivalents amounted to SEK 17.9 (18.9) million, and its equity to
SEK 706.9 (655.4) million. Dividends of SEK 82.2 (82.5) million
have been paid to shareholders in respect of the 2008 financial
year.
Future prospects
The financial unease which characterised 2008 and also the start
of 2009 passed in the first quarter, turning into a powerful
recovery which continued throughout the year. A positive market
trend is favouring Nordnet's income as volumes are growing and
customer activity is increasing. It is our view that activity among
customers will continue to be high in 2010, but that the market
trend cannot be expected to be as strong as in 2009. This means
that customers will have to review their savings portfolios more
actively in order to improve their chances of returns.
Nordnet's net interest income was adversely affected in 2009 as
a consequence of the generally very low interest rate situation. It
is our view that interest rates will be increased in 2010, which
would thus have a positive effect on our net interest income.
The work in progress at Nordnet aiming to bring about more
efficient processes, increased cost-effectiveness and increased
control and security must lead to good opportunities to maintain
strong growth in the long term and good profitability over the
coming years. The Nordic region is our domestic market, and growth
on all of these markets is expected to be good: we have seen this
in 2009, as Nordnet has been viewed as a secure and simple option
with which people can invest their savings.
Nordnet has two clear customer groups - the people who play a
very active part in their own investments, and the people who are
active but still looking for support and tools to make saving
simpler. Continuation of our development of administrative services
will provide the latter customer group in particular with some
important tools.
Securities Trading, Banking and Pensions are Nordnet's product
areas. Securities Trading is Nordnet's core business, and so it
will continue as we aim to become the leading Nordic savings bank.
Services in this field will continue to be developed and remain at
the leading edge. The number of banking products offered by Nordnet
on the Nordic markets will be expanded in 2010, with products such
as savings accounts and wage accounts. These products are required
if savers are to be able to keep all their finances with Nordnet.
We think most customer growth will occur in this field. Pension
savings ‒ both private and service pensions ‒ will take on more
importance in the future. Nordnet offers complete pension solutions
for private individuals, employers and entrepreneurs.
Despite the fact that conditions are favourable in the long
term, it is important to work with the insight that it must be
possible to adapt expenses quickly if market conditions worsen in
the short term.
Objectives
Nordnet's objective is to double its income from 2007 levels
over the next two to three years, while maintaining a high
operating margin.
By the end of 2011 at the latest, we will have 100 per cent cost
coverage from non brokerage-related income; that is to say, income
from fund commissions, net interest rates and administration
services, for example.
Employees
The average number of full-time positions over the year was 324
(301). At the end of the year, there were 353 (260) full-time
positions. This increase can be attributed mainly to the
acquisition of eQ.
Risks and uncertainty factors
Nordnet's operations are influenced by a number of environmental
factors, the effects of which on the Group's profit and financial
position can be controlled to varying degrees. When assessing the
Group's future development, it is important to take into account
the risk factors alongside any opportunities for profit growth. The
primary risks to Nordnet are credit risk, market risk, liquidity
risk and operational risks. The objective of Nordnet risk
management is to identify, gauge, control and limit the risks to
operations. For a detailed description of risks and the handling of
these, please see Note 7.
Official supervision
Nordnet's operations are subject to official supervision.
Operations are largely regulated by laws, regulations, general
advice and industry agreements. Therefore, compliance with rules
within the Group is of major significance and the subject of
regular inspections and reviews from bodies such as the Board of
Directors, the independent review function appointed by the Board
and the compliance functions established. These compliance
functions check regularly and assess whether the guidelines and
instructions compiled for the company are appropriate and
effective. The compliance functions are also tasked with ensuring
that Group employees and the Board of Directors are kept informed
of applicable rules for the operations conducted. This takes place
by means of courses concerning new and amended business rules, for
example.
Authorisations received
Subsidiary Nordnet Bank AB, which is subject to supervision by
the Swedish Financial Supervisory Authority, is licensed to carry
on banking operations in accordance with the Banking and Finance
Business Act (2004:297), licensed to carry on securities operations
in accordance with chap. 2, § 1, 1-7 of the Securities Market Act
(2007:528), licensed to carry on pension savings operations in
accordance with the Individual Pension Savings Act (1993:931), and
licensed for registration as a manager of fund units in accordance
with the Investment Fund Act (2004:46).
Subsidiary Nordnet Securities Luxembourg S.A. in Luxembourg,
which is subject to supervision by the Commission de Surveillance
du Secteur Financier (CSSF) in Luxembourg, has been licensed by the
CSSF and "est autorisée exercer l'activité de commissionnaire, de
courtier en instrument financiers et de conseiller en
investissement conformément à l'article 24, 24-1 et 24-2 de la loi
modifiée du 5 avril 1993 relative au secteur financier" (has been
allocated a broker licence for receipt and transfer of financial
instruments for execution on behalf of customers).
Subsidiary Nordnet Pensionsförsäkring AB, which is subject to
supervision by the Swedish Financial Supervisory Authority, is
licensed to run insurance operations in accordance with the
Insurance Business Act (1982:713).
Subsidiary eQ Bank AB in Finland, which is subject to
supervision by the Finnish Financial Supervisory Authority, has
been granted permission to carry on banking operations in
accordance with the Credit Institution Act and authorisation to
operate investment services in accordance with §§ 5 and 15 of the
Act on Securities Companies.
Environmental work
The business run by Nordnet has no direct effect on the outdoor
environment. However, Nordnet works actively to optimise recycling
of office products in the form of paper and data. Attempts are
always made to select environmentally-friendly options when
purchasing.
Policy on dividends
Nordnet's policy on dividends means that profits and capital not
needed to consolidate, develop and expand operations are to be
transferred to the shareholders. The share dividend in the long
term must not amount to less than 40 per cent of the profit.
The Board proposes a dividend for 2009 of SEK 0.50 (0.50) per
share, equivalent to 41 (60) per cent of the net profit.
Nordnet shares and ownership
Nordnet shares have been listed on the NASDAQ OMX Stockholm Mid
Cap list since 2 October 2006. Prior to this, the company's shares
were listed on the O-list of the Stockholm Stock Exchange since
April 2000.
The total number of registered shares is 166,937,285
(165,018,878). There is only one share type, and share capital
amounts to SEK 166,937,000 (165,019,000) with a nominal value of
SEK 1 per share. One share provides equal entitlement to one vote
at the Annual General Meeting and any extraordinary general
meetings. E. Öhman J:or AB was the biggest shareholder in Nordnet
as at 31 December 2009, with a holding of 30.5 (30.9) per cent of
share capital and votes. The second-biggest owner is Premiefinans
AB, with a holding of 10.6 (10.7) per cent. Further information on
Nordnet shares can be found on the page Shares.
Buyback and sale of own shares
At the start of the year, Nordnet owned 671,254 of its own
shares. In 2009, 3,000 (671,254) of its own shares have been
acquired for SEK 26,000 in accordance with the authorisation
obtained at the Annual General Meeting on 24 April 2007. This
corresponds to an average rate of SEK 8.52 per share. The nominal
value of these shares is SEK 1 per share, and the total buybacks -
674,254 shares - correspond to 0.4 per cent of the number of shares
prior to the buybacks.
On 21 October 2009, the Board made a decision to sell its own
shares in accordance with the authorisation obtained at the Annual
General Meeting on 23 April 2009. Nordnet has sold in total 674,254
of its own shares in 2009, worth SEK 15.5 million. This corresponds
to a price of SEK 23 per share. The purpose of this sale is to
finance the strategic acquisition of eQ. Nordnet owns none of its
own shares following the sale.
Composition of the Board
At the 2009 Annual General Meeting, it was decided that the
Board should consist of seven regular members and no deputies. The
CEO does not sit on the Board, but presents reports to it. The
company's General Counsel is normally the secretary at Board
meetings. Where necessary, other company officials also present
reports. Members of the Board are presented on the page Board of directors and
auditors.
The Articles of Association state that Board members are elected
annually by the Annual General Meeting for the period until the end
of the next Annual General Meeting. The Articles of Association
include no specific regulations on amendment of the Articles of
Association.
Board's proposals for guidelines for remuneration to
the CEO and other senior executives
Nordnet AB (publ) has a remuneration committee, which over the
2009 financial year consisted of Board Chairman Claes Dinkelspiel
and members Ulf Dinkelspiel, Bo Mattsson and Bengt Baron. The job
of this committee is to review and provide recommendations to the
Board on the principles for remuneration to the Group's senior
executives.
The Board proposes to the 2010 Annual General Meeting the
following guidelines for determination of salaries and other
remuneration to the Chief Executive Officer and other members of
the corporate executive, which includes the company's Chief
Executive Officer and corporate executive, currently five people.
The objective is for the company to have the remuneration levels
and terms of employment required in order to recruit and retain
senior executives with the expertise and capacity to attain targets
set. The fixed remuneration must be individual and reviewed
annually. In additon, the remuneration levels shall be consistent
with and promote effective risk management, shall not encourage
excessive risk-taking, shall not discourage any of the Company's
long-term interests and for a particular period shall not
jeopardize the Company's ability to collectively report positive
results over a business cycle. Performance-related pay may be
granted according to a long term share incentive program to reward
pre-agreed profit performance targets at group level. The
performance target may be adjusted at events that affect the
Nordnet group's activities, or the number of outstanding shares of
the Company, or in other way affect the performance target and is
deemed relevant by the Board.
The Board proposes a long-term incentive programme. The
long-term incentive programme is based on shares, includes
performance measurement and an upper limitation, and also requires
investment from the participants. Remuneration according to the
programme is paid as compensation-free shares. The purpose of the
long-term incentive programme is to encourage key employees to
continued loyalty and good performance. Furthermore, the Board
believes that the incentive programme increases the group's
attractiveness as an employer.
For 2009, the CEO's variable remuneration was maximised to 50%
of the fixed remuneration, and for the rest of the Company's
management to between 30-35% of the fixed remuneration. In
view of the new FSA regulation, FFFS 2009:6 Regulations and
guidelines on remuneration policies of banks, securities companies
and fund management companies, the Board has decided that 60
percent of the variable remuneration for the CEO and the Company's
management should be postponed for three years.
With the exception of the Chief Executive Officer, the same
policy on pensions shall apply to the members of the corporate
executive as for other employees. The pension provisions of the
Chief Executive Officer must correspond to 35 per cent of the fixed
remuneration.
Members of the corporate executive were offered the opportunity
to subscribe for convertible debentures in the 2005 issue of
convertible debentures to employees. The members of the corporate
executive who met the conditions for participation in the issue
programme exercised this entitlement to subscribe for convertible
debentures on market terms. At the 2007 Annual General Meeting, it
was decided to introduce an incentives programme in the form of
subscription options, with entitlements for employees meeting
certain conditions to subscribe for acquisitions. The existing
programme from 2007 will be continuing. Other, non-monetary
benefits for members of the corporate executive shall facilitate
the executive members' execution of their work and correspond to
what may be considered reasonable in respect of practice on the
market. Deviation from these guidelines by the Board is permitted
if there are special reasons for doing so in the individual case in
question.
For more information, see note
13.