Qliro AB (publ)

Thank you. Welcome to today's Q2 presentation for Cliro. With me today, I have our CFO, Robert Stambro, and I'm Kristoffer Rutgersson, CEO of the company. The agenda for today, I will walk through business and strategy update. I will hand over to Robert for our financial update. We will talk shortly about outlook and then open up for questions. So we're starting off with our business and strategy update. First of all, we are doubling down on our payments transformation to deliver a world-leading experience for merchants and their customer journey. This is our mission and to do this really well, we will focus more and are divesting the assets in our digital banking services segment. And third, we are building an accelerated growth momentum in payments. We are launching a composable payment product strategy that we'll talk a bit about and Last but not least, we are launching our sales office in Norway in Q3 this year in order to increase our addressable market. So I will walk through all of these five areas, starting with the first one. So to deliver a world-leading experience for merchants and their customer journey, this is our mission. And to do this, we have done a strong transformation of our payment business, which has been a key driver to our profitability that we've seen increasing over the last two years. So in 2023, we increased operating profit in the payment segment by more than 90 million and increasing even further in Q1, Q2 this year, reaching breakeven in payments for the first time in CTIRO's history. The main drivers behind this have been the new leadership team with a lot of payment experience. It's been a focus on the payments business. where we launched our profitability program in 2022 that also went into 2023. And we now have the full effect of that program. We also went back to our core of focusing on the payment business with increasing sales, both in the enterprise and SME segment. And we launched what we call unified payments, processing of all the payment methods, also within PayNow, through our ending to handle also kind of the financial flows of the PayNow payment methods. We have also worked hard on operational excellence across all teams, functions and platforms. And we accelerated our commercial focus and we have now roughly four times the size of sales teams as we had in 2022. We have also invested significantly in technology and automation kind of across our processes. Part of this has been the launch of our unified payments offering, where we're now processing more than 30% of our pay in our volumes in the unified payments engine. We've not walked through the full offering, you've seen this before, but it's a good trend that we continue to onboard more and more of our existing merchants on the unified payments offering. Secondly, we have a significant increase of payment platform performance. So the investments we've done in kind of increasing the scalability and stability of our platform, we've seen good results with close to 100% uptime, more than 99.99% in the last four or five quarters, which is really strong and very important for our growth in the enterprise segment. We are also increasing the app usage for our consumers where they pay on our pay later offering. So the investments we have done in digitalizing the services and increasing the digital or improving the digital consumer journey, we start to see very good results with a higher uptake on the consumer side. This is also leading to an increased consumer rating of our services. And we see that also not only in our internal net promoter score, which is also all time high, But also externally on, for example, Trustpilot, where we are now into green on 3.8. So this is something we are very proud about. And it's important for our merchants that we deliver a really good consumer journey for them and their customers. So this is leading up to that we increase the focus on payment solution even further by divesting the assets in the digital banking services segment. This means that we are selling the loan portfolio of the private loans in the digital banking services and we are kind of transforming the business to close down the operations in the digital banking service during Q3. The transaction will close in August and we will have a few months of kind of transitionary work that we'll focus on in Q3 and a few months into the Q4. So the strategic rationale for this is that we Payments have been the key driver for our profitability and growth. As you can see, we have had a declining trend on digital banking services and the loan portfolio since we reduced the investments in marketing and sales on the digital banking services since 2021. And the portfolio has been more or less in a run-off mode. So this will enable us to focus more on what we do best, which is the payment solutions. We are also improving our capital position and stability on the capital side significantly, which will be a good foundation for us to grow going forward. So on payments, we are building an accelerated growth momentum. We have more than 100% growth in connected merchants in the quarter compared to last year. We are growing our process volume on the platform by more than 8% in the quarter. And we have signed more than more merchants kind of representing roughly 20% or more than 20% increased volume that is not yet live on the platform. And this is both in enterprise and SME. The big volume of merchants is on the SME side, but we have significant wins on the enterprise side with the prolongation of kind of contracts with merchants like CDON and Epicolo, which also connected to that we are We have a plan to onboard Findix, that is part of the CDON group, with more than 500 million and more than 600 million in expected volumes. We also have a contract with Makevibo, that says we can have more than 500 million. And a lot of mid-sized merchants, like Penn Store and CES Normal, that was signed in the quarter. And we have more than 100 new SME merchants signed during the first half of this year. And this is due not only to the kind of increased interest in the market to take more control of the consumer journey and our improved offering, but also that we have scaled up our sales capacity and sales capabilities over the last two years. During the quarter, we brought in a new CCO, Pedro Lenius. We have experience of building the European sales team at Cinch with a lot of good experience. The sales team in Sweden is now closer to 20 people, and we have a plant also launched in Norway during the autumn. And this increased capacity can now start into results. Typically, sales cycles on the SME side may be everything from one to six months, and on the enterprise side, it's not unusual that the sales process may be everything from six months up to three years, depending on contract times and migration plans and kind of tech roadmap at the merchant. So the investment we started to do in kind of late 2022 and early 2023 are now starting to kind of show good momentum in signed contracts that will later turn into volume on the platform and then turn into revenue over time as we build up the loan book in the business. We have also increased our addressable market through a couple of new platform integrations like Shopify that was launched recently in the quarter and But also our integration to Brink Commerce, one of the leading composable e-commerce platforms, where we went live with Nelly a couple of weeks back, one of our main merchants that are changing platforms to Brink. And that also opened up for us to sell to other merchants on the Brink platform and the Shopify platform. So the more partners we add, the more our kind of addressable market grows and the more we can sell. So that's very positive and in line with our strategy. On the SME side, we see growth taking off. We are now onboarding more than one merchant per day. And given that we have not been used to taking on this kind of volume of merchants before, we were struggling a bit with onboarding lead times during last year and early this year, but that's now resolved. We are investing in significantly improving processes, automation, and digital tools around onboarding to be able to scale going forward. The lead times are now where we want them to be. During the quarter, we also launched our new Composable Payment product strategy. We did this at our annual e-commerce summit in Stockholm at Moderna Museet in May with more than 200 merchants and partners joining. Composable has been a concept in e-commerce for a long time. There's a lot of other kind of tech platforms serving e-commerce that have a kind of composable best-of-breed strategy, going from monolith platforms to composable platforms. And Cliro fits very well into this ecosystem where we were founded by e-commerce, for e-commerce, enabled to provide a more flexible journey and solution. And with that flexibility, we're now taking the next step in our modularity, adding a lot of more partners, both on the the platform side, but also in terms of other services that the merchants are using, where we can plug in our solution to make that whole ecosystem works better. And that may be data sharing with certain platforms. It's connecting tools into our upsell module, where we, for example, launched the SIFT lab late last year. This quarter, we are launching Ingrid as a shipping provider that we plug into the checkout, which both increased conversion, but it also enabled the merchant to kind of optimize their the kind of profit from this kind of shipping section. We also launched a couple of new payment methods like Apple Pay going into Unified that was launched also here just before summer. Last but not least, we are opening up our sales office in Norway during the third quarter. We've been working on this during the spring. And we are live with our kind of first merchants in Norway locally. Our country manager that we signed up with experience from several of our competitors are starting 1st of August. Our product offering are already available in Norway. We process roughly a bit more than 15% of our volume today in Norway. We have had that for a while, but now we're taking this step because we're also launching sales to local merchants. So that will increase our addressable market by a bit more than 50% compared to only being active and selling to Swedish merchants as we are today. We are also seeing similar market dynamics in Norway as in Sweden, which means that merchants want to take back the control of their consumer journey. Competitors are fairly similar. Tech stack is fairly similar. We see a lot of similarities between Norway and Sweden. The e-commerce tech stack is similar, which means that also our composable payment strategy is scalable for Norway with a lot of the integrations we already have. So we see that we can start to sell actively in Norway with fairly limited additional technology investments. We also onboarded our first few merchants in Norway during the spring with successful results to see that everything working from a local experience perspective. And we're now investing in a local team where most of the team is signed up to start during the autumn with the target of being a bit more than kind of five FDs before year end. So with that said, we summarized the first half of 2024 with we are doubling down on our kind of payment transformation and focus on the payment solutions. We see significant growth momentum in the payment business that is starting to materialize. We have a robust merchant-based growth with more than 100%, laying the foundation for long-term growth and profitability. And we are divesting the digital banking services, which aligns with our strategy, but also can strengthen our capital position to enable us to accelerate in payments. We are launching the composable payment strategy to enhance our scalability and flexibility, modularity, and speed of innovation in payments. This is a topic we will come back to also going forward. And we see several opportunities to accelerate further, and we start in Norway, and we are very positive about the future. And with that said, I hand over to Robert, who will walk through our financials.

Thank you, Kristoffer. CLIRU generated yet another quarter of profitability. It is the sixth quarter in a row with positive results. This has been achieved by the fundamental transformation of Cliro during the last two years. It has impacted Cliro in a profound way, both from an income and cost perspective, especially in payment solution, which in its turn has resulted not only that Cliro is profitable as a whole, but also that the payment solution segment is profitable, reaching breakeven in Q1 and positive result in Q2. Given the positive development and the strategic directions to focus on payments, This is an opportune moment to further enhance focus and create a pure payment company. The decision to divest personal loans was published in the beginning of July and is made at the premium of 2%. According to the contract, the deal is due to be completed in August 2024. Having that said, let's look at the financials in Q2. Income grew with 4%, driven by payment solutions that grew by 8%. The cost base is 82 million in the quarter, flat versus Q2 last year, but higher than last quarter due to expansions within the payment solutions. Credit losses is lower than Q1 and Q2, and 2 million higher than last year, same period. The increase compared to Q2 last year is driven by the shift in loan book towards payments. Worth to notice is that income grew faster than credit losses, contributing to the improved operating profit, reaching 5 million for the quarter. So to sum it up, Cliro is becoming a pure payment company, enhancing focus by divesting the personal loans business. Cliro made 5 million in profit in Q2, the sixth quarter in a row with profitability. Total cost in Q2 amounted to 82 million and is in line with the same period last year. Q4 should be viewed as an outlier given the many one-offs in that quarter, which held the cost base down. The changes in cost compared to Q3 and Q1 is driven by increased staff costs due to the expansions within payment solutions, primarily of commercial capabilities. IT cost increases due to higher license costs for software, Other costs are somewhat lower, given less marketing and a VAT effect in the quarter. We continue to evaluate costs closely to ensure efficient resource allocation and maximize return on investments. Payment solutions continue to show progress in the quarter. The number of new onboarded merchants grew with 114% year-over-year, and we grew our merchant base with 74 additional merchants. Total payment volume grew with 8% in the quarter. Pay now volume increased by 26%. The customer reach of Clearoo continued to grow and 5.7 million consumers have used our checkout the last 12 months. A growth of 100,000 new unique consumers. The Clearoo shift in the consumer preference towards BNPL volumes seen throughout 23 and 24 in favor of invoices continue. Invoices decreased with 16% and BNPL increased with 3%. The payment balance grew with 7%. The take rate, which is the operating income divided by total payment volume from both pay now and pay later, remains unchanged year over year at 3.3%. Income grows with 8% or 7.6 million in the quarter. The growth is driven by 8% volume growth combined with 7% increase in payment balances. Credit losses continue to grow in nominal terms compared to the same period last year, but at a slower rate than the operating income. Credit losses grew with 4.3 million in income by 7.6. The credit losses in relation to pay later volume increased in comparison to previous year, but was unchanged in comparison to the last two quarters, 1.8%, which indicates a stabilized credit loss level. The segment reached break even for the first time in Q1, 24, and continued to contribute positively to the operating profit in Q2 this quarter. So to sum it up, income grew with 8% in the quarter or with 7.6 million reaching 101.2 million in operating income. Income grows faster than losses compared to the same period last year. Digital banking is a smaller part of the income generation compared to one year ago. The digital banking loan book continued to shrink in size and have lost 9% since last year. The 16% reduction in income generation is primarily driven by the reduction of the loan book size. Credit losses significantly reduced due to decreased inflow of new volume and optimized credit process. As mentioned, digital banking services segment will be discontinued following the divestment of the loans portfolio. So let's look briefly at the capital and liquidity position before I hand over to Kristoffer again. CLIRU has a capital headroom of 6.1%, or 147 million, to regulatory requirements. By divesting the personal loans, CLIRU's capital situation will improve on all three capital levels, given that the personal loans book does not need capital coverage anymore after the divestment. The liquidity position is strong, which is proven by LCR of above 200%, and the net stable funding ratio of 126%. The lending activities are focused on the Nordic countries and funded mainly by deposits in Sweden and in Germany. Lending in Norway and Denmark is financed by the swap market. And with that, I hand over the word to Kristoffer again.

Thank you, Robert. Looking ahead, we are continuing to accelerate in the payment business. We will accelerate our SME sales engine. We're executing on the strong enterprises sales pipeline that we have now built up. We are continuing to invest in our payment capabilities with the composable payments. And we are expanding the rest of the market by our launch in Norway, as well as kind of bringing in new partners that's connected to our platforms. And we'll continue to optimize onboarding to handle the larger inflow of merchants that we're now seeing. And all of this will lead up to that we will deliver a market leading experience for merchants and their customer journey. And in the short term, Q3 will be a bit of a messy quarter with the migration of our digital banking services, loan portfolio, the execution of the close down of the business and related transformation. With that said, I open up for questions. Thank you very much.

If you wish to ask a question, please dial £5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial £6 on your telephone keypad. The next question comes from Ermin Kerik from Carnegie. Please go ahead.

Good morning and thanks for the presentation and for taking my questions. I hope you can hear me well. The first question would be on the payment solutions. It looks like the lending in relation to the payment volume has taken quite a step up during H1. Is that a sustainable level or how should we think about the lending book development in segment in relation to how your payment volumes are scaling from here?

I think the more high level answer to that is that with the business dynamics that we have, the whole volume that we take in on pay later and especially on the part payment volume and the invoice volume that is converting into part payments over time is building up a loan book over time. So typically, the average length of loans are three to four months, but it takes up to 36 months to get the full value or full loan book of new volumes. We typically see around from new merchants, a new volume coming in. We typically see a full impact of that after three years with 50% to 60% during the first year and up to 90% during the second year. I'm not sure, Robert, if you want to add something on the topic.

I think you covered it well.

Thank you. Did that answer your question, Armin?

It certainly helps. But maybe just staying on that, as you said, a typical loan is maybe three, four months. Have you seen that part payments in general have become longer? The consumers are part paying for a longer time.

I think in the average in the portfolio, yes, given that we're seeing a kind of decline in the invoice volume, which is typically shorter duration of kind of 14 to 30 days, while we see kind of still a kind of a growth in the kind of DLV volumes. I think the main kind of dynamic behind that is our launch and push also for kind of more pay now payment methods like DLV. we switch vips mobile pay and so on which also give a kind of a smooth and quick kind of consumer experience kind of across the nordic market which have taken some of the invoice volume but typically not the profitable part of the invoice volume so we say that's kind of both positive for us the conversion and the consumers i was actually thinking more just like for like on the actual bmpls if that stock is being part paid longer um I don't think so.

I rather would say that it depends on the, as you know, the invoice has, the invoice volume has decreased during 23 and 24 and more volume has gone into the BNPL, which means that all else equal, it is a longer duration, given that invoices are like 14 days, right? And a BNPL is a longer duration. So it's more driven by the customer behavior.

Got it. Thanks. That's helpful. Then, I mean, you had an extraordinarily strong intake or onboarding of merchants during Q2. Was there any... specific push done during Q2 in terms of onboarding or is this a pace we should expect in absolute figures also in coming quarters?

It's mostly related to that we have significantly increased our sales capacity and with both the time it takes to get the new people onboard and up to speed as well as the typical length of sales cycles. We see quite a stable momentum over the last few months of onboarding more than one merchant per day. and we have done a lot of work to kind of open up the kind of the internal floodgates of kind of making processes smooth increasing automation and so on and that's that's something we'll continue to invest in and also kind of open up now for for norway yeah so we our expectation is then it can have increased the acceleration so it's an increased acceleration so if we look quarter on quarter how many merchants you added in q2 you expect that to actually be even higher deltas in the coming quarters understand it correctly then definitely if you look at over kind of the next 12 months then of course kind of q3 is a bit of a vacation quarter and q4 we have black week and then kind of christmas period where typically merchants don't want to make changes during kind of the christmas kind of peak season so we definitely have some kind of seasonality in kind of volumes looking kind of q3 versus q2 and so on but our expectation is definitely an acceleration going forward and

Okay, that sounds promising. And then lastly, I mean, I've been asking this question for quite a while, so I'll try my luck again. Could you share anything in terms of quantifying expectations or ambitions for 2025 by any metric?

We expect, given the acceleration, we expect a higher growth rate, but Given that we haven't done any kind of official guidance, it's a challenge for me to answer the question more specifically right now.

Got it. Thanks. I had to try it anyhow. Thank you for taking the questions and have a nice summer.

Thank you. You too.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you. Before we end, I also want to take the opportunity to thank Robert. This is his last quarterly report. He's been with the company for five years, taking the company to the stock market, taking us to profitability and break-even on payments. Thank you very much. It's been a pleasure working together, and I wish you all of the luck going forward.

Thank you, Crystal. Thanks for the kind words. Thanks.

Thanks, everyone. Have a nice summer.