Qliro AB (publ)

Hi everyone and welcome to Cliro's Q4 presentation. I'm Kristoffer Rutgerssonen, CEO of the company, and with me today I also have Mikael Rahm, our CFO. So the agenda for today, I will give a quick strategic update on the business, we'll do a summary of the Q4 and the year-end report, talk a bit about the business model, and then our financial update, and then outlook for the year, and we finalize with a Q&A. So in regards of the strategic update, We see a big opportunity to build a new European leader in composable payments. We want to deliver a world-leading experience for merchants and their customer journey. And we have the ambition to build first kind of a leading position in the Nordic market. We currently see an accelerated growth momentum in payments volume with more than 35% volume in new signed agreement that we expect to go live in 2025. We have a strong growth of connected merchants with more than 200% growth in Q4 versus last year. We also see that our launch of our sales office in Norway is above expectations and we're planning the launch of in Finland during the first half of this year. We also kind of capitalizing now on the new products we launched in 2024, both our new checkout with leading conversion, we opened up our solutions also for pay later in an in-store environment, and we launched a new consumer experience with special features on loyalty drivers where we guide the consumers back to the merchant in contrast to local competition. We also have a uniquely scalable business model with high marginal return on capital, which makes it very attractive at this point in time, push on growth and investing, kind of expanding further. Overall, strategically, our vision is to build a European leader in composable payments. And we're starting in the Nordics, but we have global capabilities. We enable our merchants to sell across the globe. Our mission is to deliver a world-leading experience for our merchants and their customer journey. And this is important that we see the consumers as the merchant's consumer, and we guide the consumers back to the merchant they come from. we're not selling other services we're not selling loans or other financial services like many of the niche banks and we divested the clear loan portfolio during 2024 and we're now focusing fully on payments we're also not selling other kind of price comparison sites or cashbacks or whatever but focus on on the merchants customer journey and this makes our kind of solution very different from from competition and it's a good reason for why many merchants are upgrading to clear and our ambition is to become first kind of the local market leader in the nordics within the next three to five years so kind of why are leading merchants upgrading to clero and looking at our position we want both to develop a very good merchant experience but also the consumer experience that we control on on the pay later and this makes us quite uniquely positioned both versus local niche banks that are not investing as much in the experience but also versus other players like marketplace and price comparisons solutions that are also offering pay later that only now focusing on the consumer experience and not on the full merchant offering including the checkout So we're more positioned like some of the global leading PSPs that are very strong on the merchant experience. But we also have the consumer profiles and the consumer journey guiding back the consumer to where it comes from. So overall, this leads to that we have a leading conversion in the Nordics. The Clio Checkout 0.0 that we launched in 2024 has now been A-B tested across all local competitors. And we see we are leading in conversion. And that means merchants are selling more when they use our solution versus others. Secondly, we have upsell features in the checkout and after the checkout, helping merchants drive a higher gross margin. Third, our solution is very modular and we have a lot of new integrations. more kind of features with kind of with incomposable payments. Fourth, we are very driven on kind of by performance. So we're investing in product analytics and supporting our merchants in optimizing the performance in the checkout. And our consumer experience is focusing on driving the consumer back to the merchant they came from. which is increasing loyalty and customer lifetime value for the merchant. Last but not least, summing up all the different values from the product, we typically deliver a business case of 10 to 20 times return on investment for the merchant that are upgrading to our solutions. That's why we see an increase in the merchant inflow. Looking at the growth, we're processing 16% growth in Q4. And on top of that, we have signed new agreements and recently onboarded merchants that we expect to drive an additional 35% in total payments volume going forward compared to 2024. And looking at the merchant perspective, that's even more. So we're growing around 200% in merchants in Q4 versus the year before, and primarily driven by number of merchants by the SME segment that this is now taking off as we're reaching kind of a good product market fit for most of the kind of the larger SME platforms in the Nordics and we expect this kind of growth to continue going forward. If we look at the kind of geographical perspective, Cliro have historically only sold to Swedish e-commerce merchants, even if we have supported them with their sales on a global perspective. We have our own pay later solutions also in Norway, Finland, Denmark, and we are now establishing local sales offices in Norway and Finland. So Norway was launched during the autumn. The team is now fully in place. Until this report, we signed more than 400 million in new volume from Norwegian merchants and more than 20 merchants in the period have signed agreements with Cliro and are now kind of going live on our platform. We're also setting up sales office in Finland. So we recruited a new counter manager coming from one of the current kind of local market leaders that are kind of joining Cliro in Q1. It's now getting onboarded and the team is higher than getting started in during the first half of the year. So before summer, we expect to be at full speed also in Finland. Looking at the product perspective, 2024 was a year of a lot of kind of product driven innovation that we started up in 2023 and then we launched a lot of the products in 2024. And that is with ambition to deliver kind of a world leading experience for our merchants and their customer journey. So it was both the checkout, which was the big launch around the summer where we upgraded our checkout not only to include more payment methods than any local competitor in our unified payments offering and in the checkout, but also optimized for conversion in all the Nordic markets. We have been A-B testing this during the autumn with a lot of the new merchants coming in. We did a big campaign in Q3, Q4 around conversion guarantees. We haven't failed a single A-B test. We're very proud of the product performance. And that's also the reason we see more and more merchants are upgrading to our solutions. On top of that, we look at the consumer experience. We've upgraded the full digital consumer experience, both in the app and web, but also from a communication perspective with the ambition to increase our consumer retention, both for us and our merchants. Looking at the results from that, we see a continued increase in net promoter score over the last two years. We're now around 40. And we see also that some of the improvements we've done on the consumer side, as well as from our credit underwriting with new credit models that we launched in the autumn of 2024, is also now reducing reminder fees, impacting income a bit, but we expect that also to decrease credit losses going forward. even if that reduce income a bit in the short term that's very positive both for retention customer experience and kind of long-term development of our credit losses Last but not least, I think our business model have a very high marginal return on capital. We have a very scalable platform. It's already launched with products across the Nordics and we already supporting Nordic merchants selling outside the Nordics kind of on a global level. So we see there's an opportunity to scale up the platform even further over time. And secondly, we see kind of a large growth potential in the Nordic market. We still have a very small market share with less than 5% of the market. We see that our segments are in the kind of our addressable markets in the Nordics. It is at least 300 to 400 billion Swedish krona in volume. We processed 13 billion in 2024. So we see a large growth potential of kind of continue to help merchant upgrade to our solutions. And We also expect market momentum to come back when the macro perspective from a consumer perspective increased consumption again in the Nordic market. And last but not least, looking at the business model and our GM1 and GM2 levels, we see a very high modular return on capital employed. kind of the loan book we build up from new volume kind of around 100 they can return a capital employee on on the margin which means it's very attractive to kind of invest in growth and drive more volume on the platform um to summarize the the full year 2024 we see another kind of successful year for clear towards our vision to build uh new European leader in payment and then kind of in the midterm kind of establish a leadership position in the Nordics. We are kind of doubling down on our payment transformation. So we have now launched a lot of new products. We're now investing in growth as the next step. We have divested the loan portfolio and digital banking service during 2024, which means we're much more focused now on our core business in payments. We see a good kind of strong growth momentum with more than 35% volume signed already. And then we have all of 2025 years ahead of us. We expect more merchants to continue to upgrade to clear kind of during the year. And we have a strong merchant base growth as kind of SME sales is taking off, laying the foundation for long term growth and profitability. We are now capitalizing on the new product launches we did during 2024, with both our focus on leading conversion experience for the merchants, but also on creating a very good consumer experience, guiding back the consumers to the merchant they came from. And our ongoing Nordic expansion, just from an addressable market perspective, is roughly doubling our addressable market compared to Sweden only. And we will continue to focus on improving our operational efficiency and digitalization, especially in onboarding, to ensure we can scale fast and quickly going forward. With that said, I will hand over the word to Mike, who will run through the financial update and perspectives on our business model. Thank you.

Thanks, Christopher. We walked through this last time, but just to repeat a few of the key points once on boarded, once the merchant is on board, transactions are being processed and we start generating revenue, but with different timing. So pay now payments are instant generate revenue instantly for us, but they have lower take rate. Whereas pay later are accumulated over time in our loan book and then generate revenue over time. So it takes up to three years to get full impact from a new merchant. But the key is with a higher payment volume, generate higher profit over time with reliability. And if you see them in the middle, since we're now moving, we've moved into a period of a higher growth. We have introduced four new KPIs. While take rate remains sort of one of our central KPIs, doesn't give the full picture during a period of higher growth. due to that revenue delay in our business model. So there we have introduced the GP1, which is basically operating income minus credit losses, basically risk adjusted income. That has the added benefit of being easy to benchmark against competitors as well on the market. And then GP2, which is basically GP1 minus variable expenses. And that reflects sort of the contribution to cover fixed cost. And then these KPIs are then divided by the loan book to see what margin we generate from our loan book. And these are sort of key KPIs for us to track going forward during the period of growth. If we move on to Q4, as we said before, we have moved We moved now to shifting focus from profit to growth and are investing in growth. So our operating profit decreased by 10 million to 14.8 adjusted in Q4, primarily due to the expansion in growth initiatives, also combined with interest income coming in minus 2%. That is mainly due to changes in the base rate, which generates sort of impacts our revenue faster than our cost is being impacted or adjusted. If you look at operating income, commission income increased by 11% due to faster movement to unified payments. Whereas despite reminder fees declined by 15%. On the operating expenses level, they grew by 13.9 million to 85.2. primarily due to investing 7.6 million in sales and marketing and sort of new markets, but then also due to higher depreciation as well as accrual adjustments in the previous year. Credit losses saw a decrease by 0.16 percentage points. This is mainly due to divestment we did of portfolio in the last year, which resulted in the change of reserves in that quarter. So if we look at non-financial KPIs, Christopher touched on this before, but we see strong growth in volumes, in number of merchants and also number of consumers. On the volume side, it's primarily pay now that is driving the increase. This is more of an illustration of the fork API. This is more how they are built up. I think we can move on. Moving on to the cost side, cost have increased deliberately because of the shift to growth, where we have invested sales and marketing by 7.6 million, primarily in Sweden, Norway, and also in marketing. Depreciation has increased by 0.9 million, and then other expenses have increased by 5.3, primarily because of accrual reserves adjustments in the previous year. So underlying cost is very stable. And then last, in terms of our capital situation, both capital and liquidity position are really strong, both to regulatory levels and including P2G guidance. We raised new capital in October, which obviously has strengthened our position. So with that, I'm handing over to Christopher.

Thank you, Mark. Looking ahead, we will continue to focus on accelerating our growth momentum across the Nordics. We will both accelerate in SME and enterprise with our new sales engine that we are expanding into Norway and Finland. We are prioritizing growth to capitalize on our current opportunities in the market. And we will continue to invest in our payment capabilities and the consumer experience to guide the consumer back to where they came from. We are expanding the addressable market by the launch also in Finland. That's not fully live yet, but we expect the team to be fully up and running before the summer. and we will continue to optimize our onboarding to handle the increasing inflow of merchants to make sure merchants get live quicker and smoother than before. We are expecting more than 35% volume growth from the new contracts we have already signed and the recently onboarded merchants that did not have a full effect in 2024. So 25% more growth compared to 2024. We expect that to materialize into the revenue during the year, leading to 15 to 30% growth in income from these contracts only in the second half of the year and getting fully impacting into kind of 2026. That is excluding additional new volume from continued sales during this year, which of course we kind of expect momentum to continue. And it's also excluding the kind of organic development of the existing portfolio. But to give a sense of kind of how we expect this growth to materialize into revenue. Overall, we will continue to deliver a market leading experience for merchants and their customer journey. And with that, I thank you for today and open up for questions.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six 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 question. So maybe if I just start on where you kind of rounded up with expected income growth in 24 and H2, maybe if you could just kind of help us, how do you expect organic growth to be underlying? I just see that We see our volumes up 16% year-over-year in Q4, but the pay later volume is actually down 5%. Is that a change you're seeing in consumer preference, or is that driven by the merchant mix? And do you think that improved macro could actually put further pressure on that composition, so consumers have more left in their wallet, and therefore they part pay less going forward?

The reduction in palliative volumes is also partly driven by our new credit models and stricter underwriting, and also leading to the reduction in reminder fees that you see in the quarter. We expect this to materialize in lower credit losses going forward, which is very good from a gross profit perspective, but may limit the growth on the operating income level a bit. Looking at the guidance, we have not given a guidance on the organic portfolio. We expect that to continue to perform in line with the market. And we have not given a guidance on additional sales in 2025. But of course, we expect our growth momentum continue as kind of more and more merchants are upgrading to clear and our pipeline is larger than before but the volumes of merchants already signed and the merchants that recently online but didn't have a full year effect in 2024 it is expected to deliver an additional 35 percent volume compared to 2024 and that leading to those kind of contracts leading to 15 30 operating income growth in kind of the second half of the year kind of accelerating into kind of 2026. Was that a good answer to your question?

Great, thank you. It was maybe the only thing left outstanding was more just on the consumer preference. Do you see any difference there, especially with macro shifting, that you would have more pay now and less part payments?

We see two trends in the portfolio. One is some merchants that historically have only used us for pay later in certain markets that kind of upgraded to use our full clear checkout during 2024. One of those merchants we announced also kind of early kind of 2024 was Nelly that was not using us in all markets before. So that is a part of the shift as we were not processing their full PayNow volumes in the past, but they are now fully live within our unified payments. So that's more driven from the merchant perspective. Going forward, we expect PayLater to increase again as we are launching new features into our PayLater offering.

Okay, that's clear. Thank you. And then moving over to the cost side, you've spoken before about the scalability of the platform. But if you look now, your fixed costs are up 17% year over year and the variable 39%. So I suppose you've had some startup costs to launch in Norway and preparation for Finland. Should we expect fixed costs to kind of plateau from here and move more in line with the kind of 30% up for every hundred increase in income or kind of when can we start seeing that kind of scalability coming through in the numbers

Yes, that's a good interpretation of our communication on the matter. We, of course, have some startup costs for Norway and Finland. Looking at the increase in fixed costs versus last year, that's roughly 11 million. 7.5 of that is driven by the new investments in kind of seller marketing. Then we had some accruals for last year, so the cost was slightly lower than the underlying for 2020-2023. But kind of going forward, we expect, as we kind of double income, we don't expect fixed costs to grow more than 30%.

Very clear. And the variable one, that that's also growing more than volumes currently?

variable cost is also kind of partly driven by certain kind of one-off items but overall we kind of expect the kind of variable cost to stay at this level per volume or decrease going forward as we optimize the business.

Great and then one final question just if I take the interest expense you had in the quarter and I just divide it by the average deposit volume you've had, it looks like the yield has actually increased in Q4. Can that be correct, or is it something I'm missing here? Because I understand that you said you'll have interest expense coming down with the lag with market rates, but I was a bit surprised to see it coming up in yield terms in Q4.

Not sure how we're calculating the yield, but it's true that the lag in kind of funding costs versus the market rate is impacting operating income slightly negative from a growth perspective in the short term. Before we kind of expect that to kind of even out.

That's right. We can take the exact numbers. Thank you.

Thank you.

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 for today. Looking forward to discuss during next quarter.