Qliro AB (publ)

Thank you, and welcome to our Q3 presentation. I'm Kristoffer Huskisson, and with me today, I have also our new CFO, Deckel Rahms, and we'll run through the presentation for today. So the agenda is, first, I will give you a strategic update and some highlights for the quarter, talk through the business model, then a financial update, talk a bit about the outlook, and then open up for questions. So jumping into the strategic update. So first of all, we are making a strategic shift to double down on our payments business with new growth investments. We brought in more than 100 million in capital during the quarter and are now focusing on accelerating the business. Secondly, we already now see an accelerated growth momentum in our payments volume with more than 35% volume growth that is signed and expected to come live on the platform going forward. We see also kind of a strong growth of merchants on the platform with more than 100% growth, 175% growth in the quarter versus last year, as we now have more than 200 merchants onboarded on the platform that is live and processing. And we also see good early results with our Norwegian launch above expectations. And we have decided to launch in Finland in January. So we'll go live in Q1 in 2025 also in Finland. And last but not least, we have launched several new products in the quarter. So we start to see good results from our investments in product development. First of all, with our new Clio checkout 0.0, where we're setting a new standard for conversion. We also broadened our offering to in-store, as well as kind of improving our consumer experience with a new product we call Loyalty Driver, where we can guide consumers back to the merchant. I will talk this through, so we jump into the first point. So on our strategic shift from profit towards accelerated growth, we have, first of all, in the quarter divested our loans business and kind of worked through that during the quarter. So now we are a pure payments company. Our ambition is to deliver a world-class experience for our merchants and their consumer journey. And within that, we felt that... loans business doesn't fit so that's why we sold it and so we can also focus fully on accelerating the payments business from here and forward secondly we also see a great opportunity in the market right now there's a lot of merchants looking for new solutions and we see a very good product market fit with our new clear checkout 0.0 so we have more interest than ever and also fueled a bit by one of our main competitors divesting their checkout solution which opened up a lot of new discussions. So we see that materialized both in new merchants and new pipeline and kind of design volumes going forward. And third, we also have now a kind of accelerated growth focus. So we, during the quarter, brought in an equity raise of 50 million, as well as raised kind of additional tier one bond of 55 million in order to kind of bring in capital to fuel the growth going forward and the new expansion plans. So the investments are primarily in scaling up sales and marketing, which we can also see in the cost in the quarter, but also kind of investing ahead of growth in new markets. So we are launching up in, we're kind of setting up our office in Norway, started in August. We've now been live for three, four months. We see good early results. We'll come back to that. And we also decided to launch in Finland. So we have a country manager signed. And with this, we have the ambition to become the market leader in the Nordics. We see good potential to get there. And we also have the longer vision of expanding across Europe. So with that said, we have more than 35% volume growth contracted so far. We see this kind of stepping up in volume month over month over the last few months, which is good. And we expect that to materialize into income growth also in the medium term. We want to deliver a world-leading merchant experience and a world-leading experience for their customer journey. And that's where we said that digital banking services or a loan portfolio doesn't really fit into a consumer journey for a merchant. We have heard that feedback for years and we already stopped selling the loans business or selling loans to new consumers for a while. And then that led up to divesting the business during the summer and that is now fully executed. We also see that this vision or mission is kind of setting Cleary apart from the competition. No one else is doing what we do in respecting the consumer journey of the merchants. And we see that this was one kind of strategic reason for why many merchants are moving to Cleary as a new provider. So in terms of volume, in the quarter we saw a 6% growth in processed volumes and A fairly weak summer, quite warm August, so August was a bit down. But then we see a quick ramp up month over month, 11% growth in September, growing to 19% in October. And on top of that, we have signed contracts with new merchants that are not yet live on the platform, with an additional at least 16%, taking us to an expected growth in payments volume going forward of more than 35%. Some of these merchants will onboard here and now, but many of them are also waiting after high season, given that Christmas sales are coming up. So we expect most merchants to go live in Q1 or early Q2. In terms of volumes, we also see more and more volumes being processed on our unified payments offering. And unified payment is one of the reasons we're also winning a lot of new deals with merchants, because Now we have a full Nordic offering. In the quarter, we also launched two new payment methods, Apple Pay and Vips in Unified, which means we are now in a pole position for the Nordics, having the broadest offering of all the Nordic payment providers in terms of payment methods easily integrated into our checkout. We also launched new FX services, basically being able to optimize FX for the merchants, which is good for the merchants. It's also good for Kiro in terms of the the take rates going forward. So with that said, we have now almost 50% of existing volumes in Unified, and basically all new merchants are getting onboarded on Unified when they become clear merchants. We do see this as one of the factors that helps us both sell and onboard new contracts much quicker than we could in the past. Next, we also see a good momentum in the market in terms of number of merchants, which is now taking off. As you know, we have for a while started to invest also in the SME segment. We're coming from the enterprise area. We've been very good at composable solutions for large merchants, but we package that also for smaller merchants. And we see now a bigger uptake in merchants wanting to work with free drawing and getting live on the platform. So we have now more than 200 merchants live on the platform. And we also announced earlier that we have more than 200 merchants signed only this year. So we expect this number to increase going forward. So we may wonder kind of why is leading merchants choosing Cliro? And if you look at this, it's both an impact of our focus on the merchant experience, as well as the consumer experience that we focus on, which makes Cliro unique versus the competition. We have a leading conversion in the Nordics. We also help the merchants with upsell, keeping orders open after the checkout, enabling them to add more consumers to add more products into the basket, helping the merchants to increase their gross margin. We also have a very modular solution and integration for modern e-commerce players, and that's what we call composable payments. We also have a very partner-focused approach and focus a lot on performance. I'm an old analytics manager myself, and we have invested a lot in analytics to make sure we can have the highest performance in the market. And here we work very closely with our largest merchants to make that happen. Fifth, we have invested a lot in our consumer experience. We launched a new app across the Nordics, where we also now can bring all the functionality into Nordics. Norway and Finland over time. And we see this as increasing loyalty, more consumers coming back to our merchants. And last but not least, we have a positive business case for the merchants that are shifting to us, given all the additional benefits of conversion and upsell and more consumers coming back to the merchants where they came from. And that's a big reason why merchants are choosing Clio. Fourth, looking at geographical expansion, we are coming from having only a focus on Swedish merchants in the past. But we have over the last two years built up a successful sales team and marketing team in Sweden. And we have during this quarter also launched in our sales office in Norway. So we now have a new counter manager, Jens Rygg, that started up the office in August. We have four sales reps now supporting him in the market. And we have So far signed a contract with more than 300 million in volume, which is a very good start. Typically sales process are much longer and we're just getting started. So this is a bit kind of above expectations. Only that is around 2.5% growth for us in volume in total. And then based on kind of the early kind of success and kind of very good reception from merchants in Norway, we also decided to start up in Finland. So we have recruited a country manager. That will start up in January and we're now setting up all kind of operations around that in terms of hiring a team, setting up an office and getting ready to make a bigger market launch into Finland as well. This kind of expansion approach is also kind of fueled by our new product offerings that we soon will talk about. So that's applicable for all of the Nordics and we want to capitalize on this investment as much as possible. We've also had our pay later offering within Cliro for basically all of the Nordics, also including Denmark for a long time, but previously not kind of capitalized on those investments. So we're already processing around 20% of our volume in Norway. We're processing around 7% of our volume in Finland. So the product is already there from a checkout perspective and from a pay later perspective and for kind of the whole consumer journey, but we had previously not sold to local merchants, which we're now opening up, um, Fifth, talking about our products. So this is a big thing for us. During the quarter, we launched our new clear checkout 0.0, where we're setting a new standard for conversion. And conversion is very important for merchants because it's basically a metric of how many consumers do you get through in terms of the volume. So higher conversion leads to higher sales for the merchants. And it's one of their most important metrics. And we have done significant technology investments, improving the whole UX and UI data connections, as well as how we handle the consumer data and flows in the checkout. We're also now leading, as I mentioned, in terms of payment methods in the checkout. We were first of all the Nordic providers who launched Apple Pay in the checkout. And we have all the payments within Unified Payments, which means it's very easy to sign a contract with us and get onboarded. So we are now in kind of pole position for kind of winning the Nordic market with the performance we see. And that's why we're also pushing a bit on growth and letting go of the profitability in the short term to really can make the most of the opportunity with the market momentum that we see in front of us. We have also, in terms of performance on the checkout, this is an example, we're looking at the performance of the new checkout versus our former solution. We are improving conversion around 10% in Sweden. We also see good improvements in the other Nordic markets. And this leads to more sales for our merchants, which is positive for everyone. And it's basically driven by kind of working through all the steps in the consumer journey, improving and make sure that kind of consumers don't drop off kind of along the way. We have also launched Cliro in-store recently, and this is a solution where we enable merchants to load our checkout within a physical environment in a store. So we can enable primarily our pay later products, but all our payment methods are available, but it's primarily to enable the kind of pay later products in a kind of a physical store as well. And this is broadening our addressable market. So we've become a very good solution for omni-channel retailers. More and more e-commerce players are also launching physical stores. And we also see most of the physical stores today also have some kind of e-commerce that they are investing in. So this puts us in a position where we can have a well position to cater for the business from omni-channel retailers. Last but not least, we're also improving our app for consumers where they pay Kind of a clear invoice or clear part payment. It's an app we had for a long time. We always had a kind of a good consumer experience, but we revamped the kind of experience during the last year. And with that, we're now also enabling merchants to, with personalized campaigns, take over some of the areas, kind of surfaces within our app to guide the consumers back to where they come from. And we do this very differently from competitors. We will have no marketplace, there's no cashback, there's no price comparison, no deals kind of between merchants. But for a consumer paying an invoice from a specific merchant, we let that merchant drive those consumers back to where they come from. And we see this with the kind of drive volume for our merchants and increased loyalty, which is good for everyone. And this is quite unique in our approach of handling the consumer journey. And we'll continue to build on this kind of strategy going forward. And it's also one of the reasons we see that merchants that are today using a provider that are focusing maybe more on kind of marketplaces or cashbacks and kind of driving the consumers to the competition of the merchant, which no merchant like. we see this is a big differentiation helping kind of the consumers to come back to where they come from with that said to summarize the quarter we are now doubling down on our payments transformation we already now see significant commercial momentum with more than 35 percent in volume growth that is signed and expected to go live kind of going forward We also already now see a strong merchant-based growth, which is laying the foundation for our long-term growth and profitability, and also showing the interest in the market around Clearboard right now. We see very good momentum with a lot of discussions and also increasing pipeline for new merchants. We see an uplift in process volumes in Q4, as I mentioned. We're up to 90% in October. And we have kind of enhanced our product offering with industry-leading capabilities for conversion and the consumer experience. And I think this will help us kind of fuel our growth momentum going forward. We have an ongoing Nordic expansion. So we have launched in Norway and we are now launching in Finland. And that's the first steps on kind of growing the kind of company outside Sweden for real. I think this is a great opportunity for us to kind of also learn kind of how do we sell internationally. And the way we do this internally is we, even if we're launching in Norway, even if we launch in Finland, we're building for Europe and trying to make this into a repeatable model that we can scale going forward. With that said, I hand over to Mike to run through the financials and our business model. Thank you.

Thanks, Christopher, and hi, everyone. I want to start this part by taking a few minutes to walk through our business model. Starting on the left, we partner with both enterprise and SME merchants, which have different, obviously, different business profiles. In terms of sales process, SMEs normally have shorter decision process to upgrade to us, whereas enterprise obviously takes longer time, and they also often have longer contracts that sort of extend 24 to 36 months, which naturally extends the sales cycle. Once signed, onboarding can take up to a year for large merchants, but normally faster, but it can take up to a year due to technical onboarding, but also individual considerations such as they want to gradually onboard or they need to take peak season into account and so forth. So that normally sort of extends that time. But once onboarded, transactions are then processed and we start generating interest and fees, but with different timing. So pay now, that has an instant impact on our revenues, whereas pay later sort of build up the loan portfolio over time. And that, of course, causes a natural delay between volumes and profit. And normally, we see that 50 to 60% of the sort of full potential is reached within the year, and then 85 to 90% after two years, and then 100% during the third year on average. But the key thing here is that higher payment volumes generate higher profit over time with reliability. And then once we grow, we also have a scalable sort of technical and operative platform that enables fast profit growth. And we estimate that if you increase volumes by 100%, that would only increase cost by about 30%. Moving on to Q3 performance, as Christopher said, with a new strategy focused on payments, we're now short-term shifting focus from property growth. And as a result, our adjusted operating profit decreased to about minus 12 million in the quarter, primarily due to increased focus on growth and geographic expansion. Our operating income grew by 2.3%. Primarily driven, and obviously a few pluses and minuses, but fundamentally driven by continued increased interest in our payment products. Adjusted operating expenses increased by 4.6 million. I'll go through that a bit later in this presentation. Credit losses increased to 27 million, about 1.5 million. 0.1 percentage points relative to total payments volume compared to Q3 last year, mainly due to continued changes in the product mix towards longer durations, plus a temporary elevation that we see due to improvements in our Dunning chain with improved communication to consumers. If we move on to looking at non-financial KPIs, total payment volume increased by 6% to 2.9 billion. This is mainly driven by PayNow, which increased by 26% to 1.7 billion, mainly as domestic payment methods such as Swish, Vips, and MobilePay continue to grow. On the BNPL volume side, it decreased by 3%, while total pay later volume decreased by 14%. And this is as a result of continued lower invoice volumes. Looking at our cost base, as I said, cost increased by 4.6 million during the quarter. This is a deliberate shift and increased investments in growth and geographic expansion. So we increased sales and marketing expenses by 6.4 million compared to Q3 last year. In addition to that, depreciation increased by 1.1. So other operating expenses actually declined by 3 million SEK. In addition, these numbers are excluding items affecting comparability. In addition, we incurred 5.6 million in restructuring expenses classified as IAC. This is relating to severance in order to further optimize our cost base as we now have divested our banking services from portfolio. And then moving to the capital side, we continue to show solid capital and liquidity position. both to regulatory levels and also including Pillar 2 guidance. And the new capital raised in October has further strengthened our position. And as we mentioned earlier, during Q3, we divested our personal loans, and this freed up capital requirements, which enabled us to repay our T2 bond. Good. Moving back to Christopher.

Thanks, Mike. Talking about the outlook looking ahead, we will continue to accelerate our SME and enterprise sales engine that we now built up and expanded in more markets. We are prioritizing growth to capitalize on the current opportunities, which means we will continue to take costs per capital quarters. We will continue to invest also in our new kind of payment capabilities. We see very good results from our recent product launches. And we will expand our addressable market by also kind of our launch in Finland, which represents more than 50% in addition of our addressable market versus only being in Sweden. We'll also continue to optimize our onboarding, which is kind of a big inflow, and we're working hard to get merchants live as quickly and smooth as possible. And we're also investing in digitalizing that even further. And we have a target to reach over the 35% of growth already by Q2, given that we are expecting to onboard the live volume, the volume we have now signed during Q1, or at the latest, early Q2. So our focus is to continue to deliver a market-leading experience for our merchants and their customer journey. And with that said, I open up for questions.

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

Hey, good morning, gents, and thanks for taking my questions and for the presentation. So the first one would be on the volume growth. As you say, you target to be north of 35% by Q2. How should we think about that? Is that like a peak or is that something you think you can be more sustainably at around those kind of growth figures now that you've gotten the momentum in signing new merchants up?

In terms of absolute growth or absolute numbers, of course, we expect those levels to continue at that level. And with that said, we all continue at current velocity in sales. We see that increasing. We have a bigger pipeline now than before. So I think we could expect that to continue to increase.

And then, very helpful with the slide showing how there's a delay before all of that turns into income, but could you give us an indication when you expect income growth to be around 35% as well? Is that then with like one and a half years delay or how should we think about that?

It's around that level, as you say, kind of as Mike explained, we have roughly from new contracts and new volume, 50 to 60% kind of materialized into kind of income and kind of during the first year and then up to kind of 80 to 90% during the second year. So to talk about around 18 months, I think that's kind of a fair assumption.

But quarter over quarter, you will see that sooner.

Yeah, of course. Okay, thanks. Then I think in the report, you mentioned that there is a little bit of a mismatch on the kind of lending rates coming down versus funding rates. coming down now when we see market rates trending downwards. Could you just give us a little bit more color on that and when you expect that mismatch to kind of converge?

I mean, as you know, we are funded primarily by consumer deposits. Some of that is kind of flexible terms. Some of that is on six and 12 months terms. On average, we have it around kind of eight day duration. But we see that the market on interest rates for consumer deposits or savings accounts have not come down as quickly and immediate as the public interest rates, which means that there will be some lag. Looking at our portfolio, that may be a lag up to six months. And I think before we see the deposit rates reaching the rate from the official numbers.

But once the policy rates are sort of stabilizing, this will cease.

Okay. Got it. Then another thing is, as you mentioned, I think it's probably a positive long-term, but on the commission income, it's a bit slower because of lower late fees. Is this something that we should think about going forward as well, that commission growth will be lower than NAI growth?

We see during the quarter that we have reduced reminder rates around 20% on our BNPL products, which is very good from a consumer experience perspective, and I think that benefits the merchants and returning consumers going forward. We also expect that it will impact credit losses in the mid-term, but yes, it impacts operating income in the short term.

Great. Just on cost as well, so you mentioned that you are increasing investment for modernization, you're doing the geographical expansion. The $81 million we're seeing now, this quarter on an adjusted basis, is that a good level to start from? And then we have the 30% cost growth, 400% volume kind of relation to think about, or is there any other underlying fixed cost investment we should also think of from this base now?

And we are now expanding in two new markets where we're not kind of fully live yet. So we will take a cost before revenue in order to build up kind of our kind of safety marketing capabilities also in Norway, Finland. But with that said, if you look at it over time, definitely I think we will not need to increase our fixed cost more than the 30% if we double the volume to 100%. And looking at the growth rates, we may be there sooner rather than later. except think that's all for me thank you me there are no more questions at this time so I hand the conference back to the speakers for any closing comments thank you we now in pole position to win the race for the kind of the Nordic e-commerce business so we will continue to accelerate from here. Thank you very much and look forward to discuss during the next quarter.