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spk01: Vlatsova, Acting Head of Investor Relations of Kiwi. Please go ahead.
spk05: Thank you, operator, and good morning, everyone. Welcome to the Kiwi First Quarter Earnings Call. I'm Tatyana Vlatsova, Acting Head of Investor Relations, and with me today are Boris Kim, our Chief Executive Officer, Andrey Petropov, Chief Executive Officer of the Payment Services segment, and Yelena Nikonova, Interim Chief Financial Officer. A replay of this call will be available until Thursday, the 3rd of June, 2021. Access information for the replay is listed in today's earnings press release, which is available on our investor relations website at investors.kivi.com. For those listening to the replay, this call was held and recorded on May 20, 2021. Before we 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 guarantees of future performance. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statements to reflect the events that occur after this call. Please refer to the company's most recent annual report on Form 20-F files with the Security and Exchange Commission for factors that could cause our actual results to differ materially from any forward-looking statements. During today's call, management will provide certain information that will constitute non-IFRS financial matters, such as total net revenue, adjusted EBITDA, adjusted net profit, and adjusted net profit per share. Reconciliations to IFRS measures 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.
spk09: Thank you, Tatyana, and good morning, everyone. Thanks for joining us today on this call. I'm pleased to share our first quarter 2021 results with you. Notwithstanding the restrictions imposed by the CBR in December 2020, which have adversely affected and will continue to affect our payment services business. I'm glad to announce that in the first quarter of 2021, our adjusted EBITDA and adjusted net profit increased by 23% and 18% respectively. These growths primarily resulted from cost optimization measures implemented in 2020, as well as the development of our strategic areas in payment services business. namely self-employed and digital entertainment. This year, we will continue to devote particular attention to the development of our factory and factory projects, which would strengthen our future growth and procure greater diversification of the group. Taking this into account, I would like to confirm that we remain committed to investing in our future, our products, and our ecosystem to reach our primary goal of securing the long-term growth of Kivya Group. Now, on to some operating highlights. First quarter 2021 total net revenue was 5.2 billion rubles. The decrease was mainly driven by payment services segment net revenue decline, underpinned by consumer financial services. segment net revenue decrease resulted from the sale of the service project in July 2020. Andrei will discuss the performance of our Payment Services segment in a minute, while I will walk you through the operating results of our other projects. For the first quarter of 2021, Factoring Plus net revenue almost doubled and reached R194 billion compared to R101 million rubles in the corresponding period of the prior year. As of the end of March 2021, Factoring Plus had more than 480 active clients using Factoring Finance with a total factoring portfolio over 4.9 billion rubles. Digital Bank Guarantees portfolio has reached 17.2 billion rubles at the end of March 2021. That's important to know that we closely monitor the risk profile of the growing portfolio of digital bank guarantees. As of the end of the first quarter of 2021, the NPR level of the portfolio was below 0.5%. I would like to highlight that both business lines, factoring and bank guarantee services, characterized by marked seasonality. In general, the demand for such services is significantly higher in the second half of the year. This explains why the size of both portfolios has slightly decreased compared to the first quarter of 2020. In 2021, Factoring Plus aims to focus on enhancing the current services for clients and developing of new products which will strengthen our position in the S&P market. In the first quarter of 2021, we have already launched new products. performance loans for SME clients, which will allow us to attract new clients and increase our penetration on this market going forward. For the first quarter of 2021, Fluctuary Net Revenue was 132 million rubles, increased by 48% compared to the same period of the prior year. In the first quarter of 2021, Fluctuary has attracted 20 new clients in the MarTech stream and launched the new mass mailing model which has broadened the offering personalization products. In the first quarter of 2021, Tochka net revenue declined by 50% to 82 million rubles as a result of a decline in revenue generated from cash and certain services due to low number of active Tochka clients being served by KB. Meanwhile, I would like to highlight that Tochka itself which formed quite well in the first quarter of 2021, with net profit increased by 34% compared to the same period of the prior year. Moving on, I'm glad to announce that following the determination of the first quarter 2021 financial results, our Board of Directors has approved the dividend of $22,000 per share. will remain committed to the target dividend payout ratio of at least 50% of the adjusted net profit for 2021, approved by the Board in February 2021. The Board of Directors reserves the right to distribute the dividends quarterly as it is necessary so that the total annual payout is in accordance with the target provided. However, the payout ratios for each of the quarters may vary and may be above or below the provided target. Now, I would like to give you a brief update on the current situation with CBR restrictions and the upcoming changes in the betting market. As you know, in December 2020, following a routine scheduled audit of the Kiwi Bank, the Central Bank of Russia imposed certain restrictions on Kiwi Bank's operation. At the current moment, the CBR restrictions continue to be in effect. and have a negative impact on our volumes and revenues, primarily in e-commerce market vertical. In spite of the fact that CBR imposed these restrictions for a six-month period starting from December 2020, we cannot be sure that the CBR will ease a part of all these restrictions going forward. We also do not exclude that some of these restrictions may become permanent, including through the adoption of new laws or regulations. The point could be supported by the fact that the new draft bill was recently submitted to the Russian legislature that would prohibit some types of cross-border operations. It's also important to notice here that even if the CBR leaves these restrictions, we probably may not be able to gain back the business we lost because of these restrictions. Andrea will discuss the impact of the CBR restrictions in more detail while I'll move to the changes in the betting industry landscape. As I previously announced, we have made a proposal to serve as a unified, interactive bet accounting center, or HITSU, which started operation in the end of September 2021. However, we cannot be sure that our bid will be successful. At the current moment, the success hasn't been announced yet. We will monitor the situation closely and will notify you regarding any significant updates which could have an impact on our future results. If you cannot become a part of this new industry landscape, we may experience a decrease or complete loss of payment volumes and income related to this. At the same time, we believe that we should be able to retain a part of our revenue generated from KiwiWallet services for the betting industry, which are not directly related to our two-piece, including betting cards, top-ups, and winning payouts. Moreover, we suppose that our profound expertise will be in demand even if we are unable to become the hit soup. I do strongly believe, and we have proved many times before, that our resilient ecosystem is highly adaptive and consumer-oriented, and regardless of all the changes in our operating environment, it will serve as a solid foundation for our future growth. We always strive for innovations and will continue to enhance our business model to better reflect the changing environment, fully serve the needs of our customers, and diversify Kiwi ecosystem. We will further extend our product proposition for key niches and areas of expertise. This being said, we continue to focus on optimizing and improving efficiency of our operation across all projects. We see many opportunities ahead and will pursue all ultimate goal of securing the sustainable growth of the company. With this, I will turn the call over to Andrei for an update on payment services business. Andrei.
spk10: Thank you, Boris, and good morning, everyone. It's my pleasure to be here with you today. Let's move on to the results of our payment service segment. Despite the restrictions which currently affect our payment business, we processed over 380 billion rubles in cash and electronic payments and increased our payment volume by 4%. In the first quarter of 2021, we observed positive trends in our key focus areas, including self-employed and money remittances, which supported our payment service results. Let me now provide you with a brief update on the CBR restrictions. CBR restrictions continue to persist and have a negative impact on our operations. As Boris mentioned earlier, our e-commerce and money remittance market verticals continue to be under constraint. As we previously stated, cross-border transactions in general have high commissions. Therefore, the CBR restrictions significantly depress our payment average net revenue yields. With e-commerce adjusted net revenue yield declined by 49 basic points in the first quarter of 2021. Following the yield decline, e-commerce net revenue decreased by 34% compared to the first quarter of the prior year. Now let's move on to the operating results. For the first quarter of 2021, our payment service segment volume increased by 4% to reach 384 billion rubles driven by significant growth in money remittance market verticals which grew by 32%. The growth in money remittance verticals was largely driven by the development of our key stream, namely safe self-employed, where we focused on extending our partner network and building up our relations with our existing partners. At the same time, the growth of payment volume was upset by significant decline of volume in the e-commerce market, vertical due to the CBR restrictions. Payment service segment net revenue decreased by 11% in the first quarter of 2021 and amounting to 4.8 billion rubles compared to 5.3 billion rubles in the prior year. Payment net revenue decreased by 11% to 4.1 billion rubles down from 4.6 billion rubles in the prior year, primarily as a result of the net revenue decline in our e-commerce market vertical, which decreased by 34%. In contrast, we continue to see the growth in our money remittance verticals, which grew by 41% and currently represent 47% of payment service payment net revenue. The growth of money remittance net revenue was driven mainly by the strong performance of the contact money remittance system and the second increase in winning payout and payout to the self-employed, resulting from the development of our strategic stream. In the first quarter of 2021, we connected to our platform over 630 taxi companies, 6 scrap metal companies, and 21 new partners working with the self-employed in other industries. We continue to improve our services for businesses working with the self-employed and self-employed entrepreneurs by creating a mini-ecosystem for key niches which address their needs and ensure the future growth of these streams by strengthening our position in this market. We are also constantly seeking new markets and areas which lack convenient payment solutions to penetrate and diversify our business. We believe that new products and services will help us expand our B2B2C product proposition and provide more demanded, diversified, and relevant services for our clients, cementing our market position and growth. Our payment average net revenue yield was down by 18 basic points year-over-year to 1.06%, driven by the yield decline in our e-commerce market vertical. Such reduction was driven primarily by the CBI restriction as I've explained before. The growth of money limit and share in payment service payments net revenue also have a negative impact on the payment average net revenue yield. Payment services other adjusted net revenue decreased by 5% to 694 million rubles as compared to 727 million in the prior year as a result of decline in fees for inactive accounts and unclaimed payments. The pandemic has accelerated the digitization of cash and we see the impact of this process on our network of kiosk and terminals. However, kiosk and terminals are part of our ecosystem and important component of our infrastructure. Offline presence and the capability to transfer cash from offline to online are still important use case for Kiwi. Taking that into account, we aim to further maintain our network of kiosk and terminals. It's of course obvious that the payment service market has become more competitive. Moreover, we are just increasing scrutiny from the regulators towards repayments and cyberspace. Nevertheless, we do believe that we are well positioned to continue developing our business and strengthening our ecosystem to provide our clients with the best-in-class digital solutions. With overall trends on the digitalization of payments, we see diverse opportunities for growth in the mid- and long-term and will make further efforts to gain a large share of payment markets and enter new niches which are currently underserved and lack convenient digital solutions. With this, I will pass over to Elena for more details on the financial performance of the group. Elena?
spk06: Thank you, Andrey, and good morning, everyone. Moving on to expenses. Thanks to cost optimization measures we successfully implemented in 2020, we have significantly increased the overall efficiency of our operations and our margins. Despite the decrease in total net revenue in the first quarter of 2021, we see an increase in adjusted net profit and adjusted net profit margin of the group. This being said, adjusted EBITDA for the first quarter of 2021 increased by 23% to 2.8 billion rubles from 2.3 billion rubles for the same period in the prior year. Adjusted EBITDA margin was 55% compared to the 37% in the previous 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 driving by the diversity of service and the wind-down of rocket banks and low other administrative expenses. Group adjusted net profit increased by 18% in the first quarter of 2021 to 2.1 billion rubles from 1.8 billion in the first quarter of the prior year. Adjusted net profit growth largely resulted from the same factors impacting adjusted EBITDA, offset by an increase in the income tax expenses. Payment services segment net profit for the first quarter of 2021 decreased by 19% to 2.5 billion rubles, driving primarily by payment services segment net revenue decrease, underprinted by the growth of personal expenses, excluding the effect of share-based payment expenses. Corporate and dozen net loss for the first quarter increased to 419 million rubles from 115 million rubles in the first quarter of the prior year. Primarily due to foreign exchange loss amounted to 13 million rubles compared to a foreign exchange gain of 94 million rubles in the same period for the prior year. As Boris mentioned earlier, Tochka net profit grew by 34% to 191 million rubles primarily as a result of the higher equity pick-up driven by the project growth and strong performance. We continue to optimize our operations in order to improve operations and financial performance of the group and ensure sustainable growth. Now on to our guidance. First of all, I would like to remind everyone that at the moment there still remains significant uncertainty in 2021 primarily related to the long-run effect of the CBR restrictions and our ability to recover or replace currently restricted cross-border operations, as well as our ability to secure a place in the new betting industry landscape. We remain conscious and will closely monitor how the situation on the market evolves. Our outlook reflects our current views and expectations only and is based on the trends we see as of the day of this earning call. If such trends were to deteriorate further, the impact on our business and operations could be more so than currently expected. Having said that, we reiterate our guidance in respect of 2021 outlook. We expect total net revenue to decrease by 15-25% over 2020. Payment service segment net revenue to decrease by 15-25% over 2020, while adjusted net profit is expected to decrease by 15-30% over 2020. Despite the fact that the first quarter results surpassed our expectations, we remain conscious and reserve the right to revise the guidance in the course of the year when the scope and extent of the factors impacting our results become clearer. With that, operator, please open up the call for the questions.
spk01: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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 questions. Thank you. Our first question comes from the line of Chris Kennedy with William Blair. Please proceed with your question.
spk03: Hello. Thank you for taking the question. Can you give us an update on some of the efforts that Kiwi is doing to mitigate some of the headwinds from the CVR restrictions?
spk10: Hello, Chris. Thank you for your question. As we said before, we are in the – on the one hand, we are in the regular contact with CBR and as we said before as well we get some clarification for them for the certain important merchants for us that they are out of the CBR restriction and we are continuing working with them that includes some big famous name like Steam, AliExpress, Google and some other similar type of merchants and that's helping us At the same time, we are sending the regular reports to CBR and in the almost weekly contact, how good we are in dealing with the restrictions that we have. So we believe that currently we are fully in line with CBR expectations and that's why, as we said, there is a good chance that restrictions will be lifted after six months.
spk09: Yeah, but I would add, Christian, Boris is here. But of course we cannot guarantee that the CBR will lift all the restrictions completely. And we also should keep in mind that some of the restrictions could become permanent just because of changing legislation in Russia. And recently, the Ministry of Finance submitted a bill to the Parliament, which makes some types of cross-border payments impossible. So that's another point we should keep in mind discussing at that point.
spk03: Okay, that's helpful. And then just, I guess, a clarification. So the current run rate, It should be sustainable even if restrictions are lifted. Is that the way to think about it?
spk10: Generally, yes. Of course, if and when restrictions will be lifted, we'll be working to get back some of the merchants and partners we're working with. But we believe it will take time, and we will need to see how fast and how big portion of the volumes and revenue we'll be able to get back. So currently for, let's say, this several quarters or months, it's more or less the same growth rate that we have currently.
spk03: Great. Thanks a lot, guys.
spk01: Thank you. Our next question comes from the line of Ildar Davulicin with Wood and Company. Please proceed with your question.
spk08: Hello, everyone. Thank you. So I just want to better understand the kind of the guidance. So I understand there is a lot of uncertainty, yet you gave a pretty clear range and you reiterated the range which you provided earlier. And there are two big unknowns or uncertainties. So is it right to assume that in the worst case, we are talking about 30% or 25% decline in revenue. In a slightly better case, it's 15%, or the range could be wider. And I'm particularly thinking also about the betting regulation, which may happen, will change at the end of September. And maybe you could help us understand the current portion of revenue coming from the super services that you provide.
spk10: Thank you for your question. We believe that the current range of the guidance is reflecting all the risks and potentials for the year. So that's why the range is quite high. Talking about the super different possibilities, I would like to remind that, first of all, in any case, we believe that we will be able to keep our KiwiWallet volumes and revenues for this business. And that effect will be limited to the fourth quarter, whatever it will be. So that's why for this year, it's important, yet not, let's say, that significant as it will be for the next year.
spk08: Right, thank you. And maybe a second question I would ask on the wallet. So we've seen quite a sharp continued decline in active Kiwi wallets in the first quarter relative to the previous quarter. What is the trend recently? Have you seen any slowdown? Or the trajectory is more or less the same currently, I think?
spk10: For the key wallet, on the one hand, it's a similar trend we observed before with some changes we made in the KYC procedures and some ways how we work with unactive wallets. And now, of course, on top of that, CBR restrictions on the international merchants are affecting this number as well because, for example, in online games, we have the big tale of the small merchants in online games where there are quite small checks and a lot of consumers, so of course our current numbers are affected. At the same time, I would like to say that overall Kiwi Wallet is quite healthy in terms of the volume and revenue behind growth of more high-usage wallets that operate within our key niches and streams, ones that do the sport bets in the Tsupis and in the self-employed streams as well. So while overall our number of wallets is declining, the KiwiWallet business is quite healthy, I would say, for the moment. All right, thank you.
spk01: Thank you. Our next question comes from the line of Maria Suganova with BCS Global Markets. Please proceed with your question.
spk04: Good afternoon. I have several questions about the sources of growth for money remittance vertical in the first quarter. So first of all, Could you please check whether some of that was driven by betting segment because it would probably make sense to expect that betting felt fine in the quarter considering that the base was low. So just wanted to check whether it was a big driver too. And second, could you talk a bit more about self-employed and where probably which products exactly are you seeing nice performance, maybe which industries, like for instance, is it coming from taxi segment or something else? Any of that will be helpful. Thank you.
spk10: Yes, Maria, thank you for your question. Yes, you are right. The payouts of winnings in the super are included into the minor and vertical, and this is one of the big, I would say, growth driver both for the volumes and for the yields in the category. Second, talking about the self-employed, I would say it's both the payouts of the businesses to self-employed where taxi business is, I would say, the biggest category for us which is growing quite fast and continue to grow. And secondly, the different types of self-employed entrepreneurs that are using Kiwi wallets and accept their payments via peer-to-peer payments with online peer-to-peer checkout and other products that we are developing are growing quite nicely as well.
spk01: Thank you. Thank you. Our next question comes from the line of Andre Mikhailov with Sova Capital. Please proceed with your question.
spk02: Thank you very much for the call. I have three questions. The first one is on this new regulation by the MinFIN that you mentioned. How much could it impact your current allowed active revenues and and volumes, that's the first question. The second question is on the betting industry regulation. I haven't actually noticed any changes in your written statement on that. And if there are any changes in the written statement, maybe you could provide a short comment at least on your perceived probabilities of various outcomes on you becoming this one selected payment services provider for the regulated part of the betting payment segment. And the third question is on the claims against the company in the States. Could you provide any updates on those, especially on the maximum amount that you could be subject to? Thank you.
spk09: Okay, I stopped the answer to the first question. For us, if and when this new legislation will be in place, nothing will change because we already switched off all these payments, all these types of cross-border payments. For us, it's just another evidence that these payments at the moment could be performed. but we are under restriction imposed by central bank and we couldn't do that. And when they adopt this new regulation, we just want to switch it on. Therefore, for us, in terms of volume and revenue, nothing would change. The second question regarding the new regulation on two pieces. At the moment it's hard to say whether we'll be appointed as a unified two-piece, probably not, but we are sure that our expertise in the field is so wide and so profound that we'll find our place in this new regulation landscape anyway. As Andrey mentioned, at least we could keep the volume and revenue that comes from Kiwi Wallet, which is a very popular payment vehicle for the gaming industry and for bookmakers. And probably we could be able to serve as an acquirer for this new piece, but it's very premature to make any statement at the moment.
spk05: And could you please repeat the third question?
spk00: Excuse me?
spk08: Repeat the third question?
spk02: Yes, please. Yes, the third question is on the claims against the company in the States related to the class action suits.
spk06: Hello, Andrey, this is Elena. Actually, as of now, we do not have any changes. It's still on the same stage as it was in April. We're still waiting for appointing a lead plaintiff. Okay, thank you.
spk02: Is the maximum amount of these claims, is it known?
spk06: No, it's not known yet.
spk02: Thank you.
spk01: Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of Vladimir Bespalov with VTV Capital. Please proceed with your question.
spk07: hello congratulations on the number and thank you for taking my questions my my first question will be a kind of follow-up on the money remittance vertical we have seen a very good acceleration of growth for the for several consecutive quarters so if we look ahead for the full year of the of 2021 what kind of growth would you expect would you be able to maintain this momentum and how secure you feel about your clients which are using these services given the growing competition.
spk10: Vladimir, thank you for your question. Yes, as we said, there are still a lot of uncertainties related to the elements that we already mentioned including the banking question because as I said, part of the mining maintenance volumes and revenues come from and the changes in this regulation of betting industry may affect our volumes and revenue here as well. And talking about the competition, we feel it quite strong and I would say it's getting stronger with King Cove entering some of niches we are playing in. That's why I would say it's still There are still uncertainties that we have for this year that are reflected in our guidance.
spk07: Thank you very much. And on your guidance, again, I remember during the previous calls when you first communicated the guidance, you mentioned that the upper bound implies some positive developments around betting. while the lower bound of the guidance implied that you're going to lose, like the worst-case scenario for betting. But when I look at the first quarter number, it looks like you are doing much better than what was implied, let's say, several years ago. Do you see any scope to increase your guidance, even if the betting-related situation will be developing along the worst-case scenario lines?
spk10: yes that's true we see quite strong performance currently in the betting behind like organic super growth at the same time as we said we believe it's too early to to upgrade the guidance we will need to see how the situation with the regulation will be developed and the competition will be developed. I think we will be discussing it after the next quarter.
spk07: Thank you. And one more question on Tochka. There is a decrease as far as NDCD of the clients which are choosing Kiwi as a bank to be served. Are you concerned about this situation or it doesn't matter that much? And are you going to take any steps to change that?
spk10: Thank you. If you are referring to revenue related to Tochka, it's some, I would say, technical changes of the legal schemes we are using with Tochka because the most important part here is when we are creating the equity associates, so we are getting our part of the income. And this one, I believe, is growing. So that's why this revenue change is not really important.
spk07: Okay. Thank you very much.
spk01: Thank you. Ladies and gentlemen, this concludes our question and answer session and thus concludes our call today. We thank you for your participation. You may now disconnect your lines.
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