This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk06: Good day, everyone, and welcome to the Kiwi fourth quarter and full year 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, today's conference is being recorded. At this time, I would like to turn the call over to Ms. Tatyana Vlasova, Acting Head of Investor Relations of Kiwi. Please go ahead.
spk01: Thank you, Operator, and good morning, everyone. Welcome to the Kiwi fourth quarter and full year airing call. I'm Tatyana Vlasova, Acting Head of Investor Relations, and with me today are Boris Kim, our Chief Executive Officer, Andrei Petropov, Chief Executive Officer of the Payment Services segment, and Pavel Korsh, Chief Financial Officer. A replay of this call will be available until Tuesday, April 13, 2021. Access information for the replay is listed in today's earnings press release, which is available on our investor relations website at investor.kivi.com. For those listening to the replay, this call was held and recorded on March 30, 2021. Before I begin, I would like to remind everyone that this call may contain forward-looking statements as they are defined under the Private Security Litigation Reform Act of 1995. These forward-looking statements about our expectations for future performance are subject to known and unknown risks and uncertainties. Keep it cautious that these statements are not going to use our future performance. All forward-looking statements made today reflect our current expectations only, and we undertake no obligations to update any statements to reflect the event that occurred after this call. Please refer to the company's most recent annual report on Form 20F filed with the Security and Exchange Commission for Factories that could cause our actual results to differ materially from our forward-looking statements. During today's call, management will provide certain information that will constitute non-IFRS financial measures, such as total net revenue, adjusted net profit, and adjusted net profit per share. Reconciliations to IFRS matters and certain additional information are also included in today's earnings press release. With that, we'll begin by turning the call over to Boris Kim, our Chief Executive Officer.
spk05: Thank you, Tatiana. And good morning, everyone. Thanks for joining us today on this call. I'm pleased to share our first quarter and full year 2020 results with you. 2020 was a year of unprecedented changes for the world. But despite that, we demonstrated robust performance driven by the solid results of payment services segment and cost optimization measures we implemented in 2020, including the sale of service projects and wind down of RocketBank. The growth of the group was amplified by the development of factory plus and projects. I'm here to confirm that we delivered full year 2020 results in line or even above the guidance with the full year. Total net revenue and adjusted net profit increased by 12% and 54% respectively. Now on to our recent developments. As you know, In December 2020, following a routine scheduled audit of KiwiBank, the Central Bank of Russia imposed certain restrictions on KiwiBank's operations. These restrictions suspended or limited more types of our cross-border payments. At the current moment, the CBR restrictions continue to have a negative impact on our volumes and revenues, primarily in e-commerce and money remittance world cup. The CBR imposed these restrictions for a six-month period starting from December 2020. We are currently working closely with the CBR. As a result of our negotiation, we were allowed to restart cross-border operations in favor of certain foreign merchants. I believe this easing of restrictions will allow us to maintain good partnerships with our foreign merchants and retain some of our clients but used Kiwi wallets for cross-border payments. However, we cannot be sure that the CBR will ease all these restrictions. We also do not exclude that some of these restrictions may become permanent, including through the adoption of new laws and regulations. But even if the CBR lifts these restrictions, we probably may not be able to gain back the business we lost because of these restrictions. Andrey will discuss the impact of the CBR restrictions in more details, while I'll move to the changes in the betting industry landscape. Sports betting continues to be a significant revenue stream for Kyiv. Currently, we serve as one of two cities that accept electronic bets on behalf of sports betting companies in Russia. In December 2020, a new law was adopted. This law established a unified gambling regulator and its unified interactive debt accounting center, or ITSUP. By the end of September 2021, the ITSUP will replace two existing entities. We have made a proposal to serve as the ITSUP. However, we cannot be sure that our bid will be successful. If we cannot become a part of the new industry landscape, we may experience a decrease in or complete loss of payment volumes and income related to the 2Ps. At the same time, we believe that we should be able to retain a part of our revenue generated from keyword services for the betting industry, which are not directly related to our 2Ps, including betting account top-ups and winning payouts. With increasing competition of the payment market, changes in e-payment regulation, rising security to cyberspace and cross-border payments, as well as changes in the betting industry landscape, 2021 presents a number of novel changes. Nevertheless, I believe that our resilient ecosystem will serve as a solid foundation for our future growth. We strive for innovations and will continue to reinvent our business model to better reflect the changing environment, fully serve the needs of our customers, and diversified Kiwi ecosystem. We've been set. We continue to focus on optimizing and improving efficiency of our operations across all projects. We see many opportunities ahead and we'll pursue our ultimate goal of securing the sustainable growth of the company. Now, onto some operation highlights. First quarter 2020 total net revenue was six The decrease was mainly driven by customer financial services segment net revenue decline due to refill of the service project in July 2020, which was partially offset by payment services segment net revenue growth. For the full year 2020, total net revenue increased by 12% to reach 26 billion rubles up from 23.2 billion rubles in the prior year, primarily as a result of payment services segment net revenue growth and Rocket Bank net revenue contribution generated from the termination of the loyalty program due to project win-down. Andrei will discuss the performance of our payment services segment in a minute while I'll walk you through the operating results of our other projects. For the full year 2020, Factoring Plus, Net revenue more than doubled and reached 679 million rubles compared to 285 million rubles in the previous year. Factoring Plus offers its clients two types of services, digital factoring financing and digital bank guarantees. The core clients of factoring financing are small and medium-sized entrepreneurs operating mainly in food processing industry, pharmaceutical industry, and real estate. As of the end of 2020, Factoring Plus had more than 470 active clients using factoring financing with a total factoring portfolio of 5.7 billion rubles. Factoring Plus project has already issued over 60,800 bank guarantees with digital bank guarantees portfolio, which 20.9 billion rubles as of the end of 2020. Factoring Plus clients involved primarily into building and construction business use digital bank guarantees on the broad range of transactions, primarily performance guarantees for public procurement, participation, and execution. That said, the NPL level of the bank guarantees portfolio is below 0.2%. Despite the challenging macroeconomic environment in 2020, the project demonstrated strong operating and financial results. In 2021, we aim to focus on enhancing the current services of factoring-plus clients and development of new products, which will be strengthening our position in the SME market. The consolidation of locally projects starting from December 2019 also contributed to total net revenue growth. The fluctuate full year 2020 net revenue amounted to 499 million rubles. For the full year 2020, the total net revenue declined by 41% to 588 million rubles as a result of a decline in revenue generated from cash and settlement services due to low number of active Tochka clients being served by KiwiBank, as well as by the transfer of the Tochka business to GSC Tochka, our equity associate, starting from February 1, 2019. Finally, last year, we successfully completed the optimization process and diverted to making projects, service, and RocketBank. Moving on, I'm glad to confirm that in accordance with the decision of the board, we will be distributing 50% of our adjustment profit for 2020. The final amount of dividends, as well as record and payment dates, will be announced following the publication of our audited full-year results. Further, considering our expectations about the group's performance and our anticipated level of investment in 2021, both of the records prove the target dividend payout ratio of at least 50% of group-adjusted net profit for 2021. The Board of Directors reserves the right to distribute the dividends on a quarterly basis as it deems necessary so that the total annual payout is in accordance with the target provided, though the payout ratios for each of the quarters may vary and may be above or below provided target. Now on to our guidance. Looking ahead, this remains significant uncertainty 2021 primarily related to the long-run effect of FIBA restrictions and our ability to recover or replace currently restricted closed-border operations, as well as our ability to secure a place in the new banking industry landscape. We remain conscious and we closely monitor the situation on the market floor. Having said that, we expect Group total net revenue to decrease by 15 to 25% over 2020. Payment services segment net revenue to decrease by 15 to 25% over 2020. While adjusted net profit is expected to decrease by 15 to 30% over 2020. Our outlook reflects our current user expectation only and is based on the trends we see as of the day of the call. If such trends were to deteriorate further, the impact on our business and operations could be more severe than currently expected. At the time, we reserve the right to revise the guidance in the course of the year when the scope and extent of factors impacting our results become clear. Finally, I would like to announce that I have notified the Board of Directors regarding my intentions to resign from the position of the CEO with the effect on the date of the 2020 Annual General Meeting. Together with the QV team, we achieved goals that I initially had in mind when I stepped to the CEO position. We refined our business model and improved the operation of the group, and we also revised our strategy. I would like to thank our team for this job. I'm also happy to share that our Board of Directors has recommended that Andrei Potapopov take the position of Chief Executive Officer of Kiwi. The recommendation comes after a profound executive search undertaken by the Board among internal candidates and is the result of a long-running strategic process to transform Kiwi into a management-driven business that is able to succeed without reliance on its founder team. Andrei has long played a vital role at KWIC, particularly in product development functions, and I believe the nomination of Andrei will ensure continuity of our strategy focused on development, our payment ecosystem, and the growth in our key niches, as well as enhancement of our other projects. For the last couple of years, Andrei has been actively involved in management of the operation of the business, and I believe his skills and commitment supported by our leadership team will help him fulfill long-term goals. With this, I will turn the call over to Andrei for an update on our payment services business. Andrei.
spk03: Thank you, Boris, and good morning, everyone. It's my pleasure to be here with you today. First of all, I would like to thank the Board of Directors for the trust they have placed in me. Since joining Kiwi in 2013, I have been involved in different aspects of the business, and I am very confident in Kiwi's potential. I am eager to take the helm and execute our strategy focusing on enhancement of our payment service segment market position, as well as development of our other projects, including Factoring Plus and Floodstream. Now on to the results of our payment service segments. Despite all challenges we faced in 2020, we processed over 1.6 trillion rubles in cash in electronic payments and increased our payment volume by 9%. I would like to thank our entire team for their contribution and engagement. This result proves the resilience of our ecosystem and clearly emphasizes the value and relevance of solutions that we have developed so far and aim to develop further. I will begin with a discussion of the impact of the CBR restriction on our payment service segments. The restrictions have and continue to have a negative effect on our operations. As Boris mentioned earlier, our e-commerce and money remittance market verticals continue to be constrained. Cross-border payments in general have higher commissions, and therefore CBR restrictions significantly depressed our first quarter payment average net revenue yields, with e-commerce adjusted net revenue yields declined by 58 basic points. Following the yield decline, e-commerce net revenue decreased by 8% compared to the fourth quarter of the prior year. We believe that the total impact of those restrictions on payment services net revenue in the fourth quarter of 2020 was between 500 and 600 million rubles. Now let's move on to the operating results. For the fourth quarter of 2020, our payment service segment volume increased by 16% to reach 464 billion rubles, driven by significant growth in money remittance and e-commerce market verticals, which grew by 33% and 21% respectively. The growth in e-commerce and money remittance verticals was largely driven by the development of our key streams, namely digital entertainment and self-employed, where we focused on expanding our partner network and building our relations with our existing partners. The fourth quarter volume growth was limited by CBR restrictions. Payment services segment net revenue increased by 6% in the fourth quarter of 2020 to reach 5.8 billion rubles compared to 5.5 billion rubles in the prior year. Payment services payment adjusted net revenue increased by 4% to 5 billion rubles up from 4.8 billion rubles in the prior year primarily as a result of the net revenue growth in our money remittance vertical, which grew by 22%. The continued growth in money remittance vertical was driven mainly by the strong performance of the contact money remittance system and the significant increase in payouts resulting from the scaling of our strategic self-employed stream. In the first quarter of 2020, we connected to our platform over 550 taxi companies, continued to improve our services for taxi parks and other self-employed use cases, in order to support future growth of the stream. Our payment average adjusted net revenue yield was down by 12 basic points year-over-year by 1.09%, driven by the yield decline in our e-commerce and money-limited market verticals. Such reduction was driven primarily by the CBR restriction, as well as the change in product needs, as we continue to see an increase in volumes of several lower-yielding services, such as online acquiring. Payment services are the adjusted net revenue increased by 18% to 765 million rubles as compared to 647 million rubles in the prior year as a result of the growth of fee for inactive account and unclaimed payment as well as due to some cost optimization measures implemented in 2011. Our financial and operations Results were negatively affected by COVID-19 pandemic and related restrictions imposed globally. We observed the decline in readiness we derived from our services from the betting industry due to the cancellation of numerous major sports events, and the drop in money returns primarily resulting from an overall slowdown in business activities. We also experienced a decline in the use of our kiosk and terminal networks due to the lockdown measures which led to decrease in the number of kiosks and terminals. The full impact of COVID-19 pandemic on the global economy is difficult to predict due to the lack of clarity of how long it could be expected to last. Nevertheless, we believe that Kiwi built a unique technology platform highly valued by both customers and partners and gathered unique expertise demanded by the market. Despite uncertainties and challenging operation environment, we see diverse opportunities for growth strategy will focus on the development of new services and products for our team issues, including digital entertainment, self-employed, digital commerce, and money remittance, in order to increase our penetration in those markets. I do believe that we are well positioned to continue developing our business and strengthening our ecosystem to provide our clients with best-in-class digital solutions. With this, I will pass over to Pavel for more details on the financial performance of the group. Pavel?
spk04: Thank you, Andrey. Moving on to expenses. In 2020, the payment services business demonstrated strong operating performance and continued to generate substantial cash flows, supporting our investments in the development of the new projects. For the full year 2020, we have significantly increased the overall efficiency of our operations and our margins through successful director of the key investment intensive projects and other cost control and optimization measures that we were implementing throughout the year. The full year net revenue growth, which was underpinned by the decrease in expenses, supported an increase of profitability of the group. Before we move on, I would like to highlight that going forward, I will refer to the segment numbers that include the effects of both continued and discontinued operations under IFRS. For the avoidance of doubt, as of December 31, 2020, Soviet and Rocket Bank projects are presented as discontinued operations in our IFRS financials. This being said, Adjusted EBITDA for the fourth quarter of 2020 increased by 125% to 3.6 billion rubles from 1.6 billion rubles for the same period in the prior year. Adjusted EBITDA margin was 58% compared with 26% in the previous year. For the full year 2020, Adjusted EBITDA increased by 52% to 13.8 billion rubles from 9.1 billion rubles in the prior year due to total net revenue growth. Adjusted EBITDA margin was 53% compared with 39% in the prior year. Adjusted EBITDA margin increase mostly resulted from the decrease in selling general and administrative expenses due to the decline in advertising, client acquisition, and related expenses driven by the divestiture of Soviet and the wind down of Rocket Bank and lower other administrative expenses mostly related to traveling. Group adjusted net profit increased by 116% in the fourth quarter 2020 to 2.5 billion rubles from 1.2 billion in the fourth quarter of the prior year. while for the full year 2020, group adjusted net profits increased by 54% to 10.3 billion rubles from 6.7 billion rubles in the preceding year. Adjusted net profit growth largely resulted from the same factors impacting adjusted EBITDA, offset by an increase in income tax expenses. Payment services segment net profit for the fourth quarter 2020 increased 1% to 2.7 billion rubles, driven primarily by payment services segment net revenue growth offset by the growth of personnel expenses, excluding the effect of share-based payment expenses. Corporate and other category net loss for the fourth quarter decreased by 23% to 162 million rubles, from 210 million rubles in the fourth quarter of the prior year, while copper and other category full-year 2020 net loss decreased by 35% to 730 million rubles from 1,128,000,000 rubles in the previous year as a result of Tochka net profit growth by 121% to 785 million rubles. primarily due to the higher equity pickup driven by the project growth and strong performance. Factoring plus net profit was 206 million rubles compared to a net loss of 23 million rubles in the prior year. We continue to optimize our operations in order to improve operating and financial performance of the group and ensure sustainable growth. With that, operator, please open up the call for questions.
spk06: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Vladimir Vespolov of VTB Capital. Please proceed with your questions.
spk05: Hello. Congratulations on the numbers. I have a few questions. My first question will be on betting. It remains like six months before the new operator will be unified. Who is going to start operations? So with this time remaining, probably there should be more clarity because the company which will be providing these services has to make IT solutions and things like this. Maybe could you update on the status? What is going on? What is the status of your talks? And what are the options? Could you serve, for example, as an outsourcing company for solutions to be provided and what kind of revenue this option can generate? Thank you for your question. Sports betting continues to be a significant revenue stream for Kiwi. However, our future results depend on our ability to secure a place in the new betting industry landscape. In December 2020, a new law was adopted establishing a unified gambling regulator as a new governmental agency with broad authority to oversee the betting market and creating the role for Unified Interactive Best Accounting Center . This role is assigned to a credit institution specifically authorized by the President of Russia, based on the proposal made by the government. The new regulation enters into force in stages. By the end of September 2021, Yitzhuk will be established and will replace the two existing cities. At the current moment, we have submitted a proposal to serve as a Yitzhuk and we are waiting for the announcement of the organization who will serve as Yitzhuk. Meanwhile, even if we are enabled to become Yitzhuk or somehow other participating Yitzhuk operations, we can retain a part of revenue related to betting primarily for services associated with KiwiWars, including commissions for betting accounts, top-ups, and winning payouts. We believe that Kiwi has built unique technology platform that is highly valued by both customers and partners and gathered unique expertise that is sought after the market. We believe that our services will continue to be demanded by the market and will strive to maintain the quality and availability of our services. Okay, thank you very much. And my other question is on the money remittance vertical. When I look at the numbers for the fourth quarter, I don't see, at least on the surface, the impact from the central bank's regulations because both yields are okay and growth is okay. So could you maybe comment a little bit whether the negative impact from the CBR regulation was affected by some other acceleration in this vertical and maybe you could provide more color what is going on there?
spk03: Vladimir, thank you for your question. I will cover this one. So first of all, we should mention that contact money remittances, that is a big portion of overall money remittances of payment service, they are not affected by CBR limitations. So this one was still allowed. Second big portion of money remittances is related to self-employed businesses, both peer-to-peer payments between the wallets that are as well not affected by the CBR regulation and payouts to the taxi companies and other companies that are doing payouts to the self-employed. So majority of those operations are as well not affected by the CBR regulation. So that's why I would say that this vertical is growing quite nicely and is continuing to grow now as well.
spk05: Okay, thank you very much. And my third question would be on the trend in e-wallets. You report that type of wallet if a user uses it over the past 12 months. But if we look at the trend, let's say, over the past three months after the regulation by the central bank was imposed on YouTube, Do you see any meaningful change of trends? Do you see the number of e-wallets declining, the flow through e-wallets declining? Maybe some color on that. Thank you.
spk03: I would say it's too early to say that we have any kind of consistent trend on the wallet number, so we more see the trends we saw before. Obviously, some wallets, we lost some wallets that we're using in international operation. At the same time, We continue to, as we said, we kept some of the operations with the big merchants that a lot of wallets were involved, like, for example, AliExpress. And our Russian business that is related to wallets, including, for example, super business, is growing as well. So I would say it's mixed trends currently, and it's too early to say how it will go further. And it as well will be affected by the fact how the CBR limitation will be lifted and how we will be able to get back the clients and some of the clients and volume that we had before.
spk05: Thank you very much. Thank you.
spk06: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next questions come from the line of Maria Suquenoza of BCS. Please proceed with your questions.
spk02: Yes, good afternoon. I have two questions. So first off, in your press release, you said that you are now able to made transactions with some of the foreign merchants just wanted to check with you how significant it is versus the amount of transactions that were suspended that's one and second with your guidance do I get it right that this range first of the only factor you so far assume is suspension of CBR CBR suspension, and you do not yet assume any proper issues with backing. And second, does this range, does it come from the timing where this suspension is lifted?
spk03: Mario, thank you for your question. I'm not sure I fully heard the second one. Let me start from the first one, and then we will clarify the second. So, talking about those merchants that we are taking out from the CBR limitation, they are probably not that significant in terms of the revenue that we are getting from our international operations, but they are important in terms of the number of clients and in terms of the overall position because they are from the image, let's say, standpoint, because they are big merchants and they are important for our customers. And as well, this one is important because it's crucial to keep the relationship with those merchants, let's say, unstoppable, while it will be easier to restart our operations with a long tail of smaller merchants than with the big one because if you want to lose your contract then it may be difficult to repeat. So it's more kind of I would say related to the image with our clients than the volume and revenues. For the second one on the guidance, could you repeat because I think there was something wrong with the sound.
spk02: Yes, yes, apologies. So with guidance, what scenario is it based on? Like, do you assume that the limitations are lifted in somewhere, and that's what it's based on? Or you also assume some issues with patents? Just to give us some clarity, what are your assumptions?
spk03: Yeah, and exactly the range that we have in the guidance is a reflection of those different scenarios. So the low range of the guidance implies that we may face certain limitations, further limitations, and certain issues with the betting going forward. So I would say that the range that is within the guidance is a reflection of some uncertainties that we still have for this year related both to CBR limitations and regulation overall, as well as how this yet soup story will continue.
spk02: Thank you.
spk06: Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next questions come from the line of Andrei Mytola of Sova Capital. Please proceed with your questions.
spk00: Andrei Mytola Good afternoon. Thank you very much for the call. My first question is on the new betting regulation. You basically mentioned that if you don't become this single processor of betting payments starting in September, you will still keep some part of your revenue related to top-ups and payments of winning bets. My question is, in this scenario, if this scenario had already been applied in Q4, how much revenue would you have lost in Q4 2020? And I'll have other questions afterwards.
spk03: Let me cover this one. You can think, we probably are not disclosing the exact numbers, but we will have, let's say, from 1% to 40% of overall Tsukis volumes and revenues with us in this scenario, from 30% to 40%.
spk00: Just to clarify, that's what you could keep, right? Not what you could lose? Yes, yes, yes. Mm-hmm, mm-hmm. Thank you very much for this. My second question is on the audit of your FY20 financials. This year you have not yet announced dividends together with the unaudited statements released because the audit is underway and you also state that there maybe could be some adjustments in the audited statements versus the unaudited statements published today. Would you be able to elaborate on where and what magnitude these adjustments could be. Thank you.
spk04: Thank you for your question. We're waiting for the completion of the audit by the company independent auditors, which is at the final stage. At this point in time, we're not aware of any significant changes in the numbers which would come from the audit completion.
spk00: Thank you. And my final question is on the number of potential class action suits against you from a number of U.S. law firms. There were various announcements about that. Could you elaborate on the current status of any such claims against the company and the potential amount of provisions that you have issued? already posted in the accounts published today or possibly in the audit accounts to be published later. Thank you.
spk05: Thank you for your question. So we are waiting for an appointment of lead plaintiffs and we hope that will happen in May. Until that, we don't have much possibility to comment because we don't have enough information at this stage.
spk00: Thank you. Just to clarify, so no provisions have been posted yet?
spk05: No, no, no. That's correct.
spk00: Thank you very much for this. That's all from me. Thank you.
spk06: Thank you. There are no further questions at this time. I would like to turn the call back over to the management for any closing remarks.
spk03: Thank you very much for attending the call. Thank you. Thank you.
spk06: Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.
Disclaimer