Kaspi.kz AO (KSPI) 2021 Q4 法說會逐字稿

Good afternoon, everybody, or good morning. Thanks a lot for your time today. Sorry, we are a little bit late starting the call.

As usual, I'm David Ferguson from Kaspi joined by Mikhail Lomtadze, CEO and Co-Founder; Tengiz Mosidze, CFO and Deputy CEO; and Yuri Didenko, also Deputy CEO. We will run through the presentation quickly. Plenty of time for Q&A at the end.

And on that note, I will just hand it straight over to Mikhail.

Hello, everyone. So traditionally, I would like to go through some of the strategic things that we have done during the year and the last quarter.

So the results for 2021 are strong, and we had an excellent quarter. We have the growth across all the platforms and services. So payments are up 99% in RTPV, the revenue, plus 80% net income plus 92% in a marketplace has shown a very strong growth. 78% on GMV; 76% on revenue net income again driven by operating leverage growing faster at 79%.

And Fintech has also performed strongly. So TFV is plus 103%, revenue 49%, and net income 38%.

On a consolidated level, we have done a very good job on continuing engaging the consumers. So the monthly transaction is up 81%, revenue 60%, net income 60%.

From the last year, we have excess capital that we would like to return to shareholders up to 86 billion tenge. And we are currently considering having -- exploring the intention of doing the GDR buyback or the dividend distribution.

Again, as we said in our press release, we believe that considering the company's profile, its performance, we believe that company is undervalued so we are considering GDR buyback program.

This is just a quick, probably the most complicated slide of our presentation. I mean, the point here is quite straightforward. We have an excellent team that consistently executes and actually achieves higher -- exceeds expectations, so we have exceeded pretty much every single KPI target on the guidance.

And if you recall, we have updated guidance multiple times. So we have exceeded and achieved our targets for 2021.

As we also mentioned that we have fastest growing marketplace in the payments businesses and this transformation -- that using the numbers is extraordinary. So we have achieved -- now 51% of our bottom line is coming from marketplace and payments platforms which are faster growing in our higher-margin profitable businesses. And that trend to continue this year and years to come.

I would like to quickly refresh again our strategy and business model. We have the business model when we build the Super App around the regular needs of the users or consumers on one side and merchants on another side. So those are the two Super Apps that we build around the daily needs on the both sides.

And again, I'm not going to go through every single service, but that's a pretty remarkable suite of services for consumers around shopping and payments and bills payments and financial products and savings and consumer loans.

We have entered e-Grocery last quarter of the last year, which is a very important priority for us in 2021 and beyond.

And then last year, we've launched the Kaspi Pay Merchant Super App, which again we are launching the services around the merchant's needs just to help them drive sales and grow their business.

So the merchants can again increase their sales through the marketplace, the advertising services. They can list their products on our e-commerce platform. They can accept payments with merchant acquiring. They can use advertising to drive their sales.

And we have also quietly during the last year have been launching B2B payments which also is a very promising business. We're excited about it, and I will share with you later the details.

So if you look at our business model, on the one hand, we constantly develop the services around consumers and merchants. But on the other hand, there is a real-time, seamless interaction between both merchants and consumers.

So this is like a substantial business model which is built around some of the common things which are important for consumer and strategic for the merchants. So you have proprietary payment network where we enable payments from consumers to merchants at the cheapest rates. We have the marketplace which enables merchants to sell more, consumers to buy more, and we connect buyers and sellers. We have delivery services.

And if you think from the merchant perspective, that enables merchants to pretty much trade from one city to another nationwide, but also consumers can find increasing number of items to buy.

And then buy-now-pay-later products which increase the purchase frequency and the size of the ticket in one hand. But, on the other hand, they give the flexibility of managing personal finance for consumers.

And then marketing services. For consumer, that means more relevance of the offers and the promotions on a one hand, and then increasing sales from the merchant side. So those are the two business models which are connected with each other.

So Super Apps which actually work with each other seamlessly, and that builds that important competitive advantages for us. Next slide, please.

So Kaspi.kz Super App is the one which is an important strategic asset that we have and continues to build important competitive advantages. Has very unique features which have resulted in a very unique dynamics.

So for example, we have grown daily usage now to 7 million users out of 11.2 million, and that is equal to the engagement of daily users to the monthly users of 62%.

So basically over 6 users out of 10 monthly users are accessing the app on a daily basis, and that number is just a reflection and actually is the result of adding the new services constantly.

So our app is extremely relevant for the users and consistently shows extraordinary dynamics, and actually one of the highest engagement rates between the Super Apps globally. Next slide.

So here, we are a transaction business. So again, one of the important KPIs for us. And here you see that we have now reached on a monthly basis almost 51 transactions per month per user.

And again, transactions are extremely important. This is how we monetize the business; this is how we deliver the value to consumers and we deliver the value for merchants. And also transactions enable us to develop a very personalized experience because the type of data points we accumulate are very unique and proprietary.

So one of the highest transaction engagement, Super Apps, and businesses actually worldwide. I think PayPal has less than 50 transactions per year or something like that.

So as we continuously increase the assortment of our marketplace and we drive our business, our cohorts continue showing a very strong performance. So that is a marketplace platform cohort.

As you can see, we are consistently growing and growing at a very rapid rate, and actually that's a reflection also of consistently increasing assortment of our marketplace.

So for example, if you take the last cohort, last-year transactions or the latest transactions of the cohort, pretty much all the cohorts are transacting at very high rates in excess of 400,000 tenge. And that again is a result of increasing assortment.

So as soon as the consumer starts transacting, they have increasing selection of items to buy from. And that's why the cohorts are growing very, very nicely, very quickly, but also showing a very large significant GMV for consumer.

If we go to the payments platform cohorts, that is a reflection of a user behavior. So we have a very strong growth and (technical difficulty) continues growing.

But at the same time, this is more of a -- payments business is something which is not only delivering profits and value, but also transformational experience from cash to cashless for our consumers and merchants.

So the users are going through this journey when they are actually moving from cash to cashless. They are exploring the new ways to pay. And as a result, pretty much every single cohort continuously showing the growth.

And if you take, for example, our consumers before 2016, which is this grey line on the presentation, I mean it just continues growing every year again and again and every other cohort is catching up. So very important business, very strategic, but also continuously growing very nicely.

So we also would like to show you some of the way we look at our businesses. So here is most of our products. This is not the exhaustive list of the products and services, but those are the main products which we monetize. So important for revenue.

And here, as you can see, we have a very wide range of the products, but also the penetration. So some of the products that have been driving the consumer acquisition. So those are usually the payment products.

So they are continuously growing in terms of volume of the business per consumer as we continuously add in merchants. But at the same time, they have been important for our consumer acquisition.

And then there is also the list of the products in our products for consumer, which has a huge growth potential. Things like Kaspi travel, for example. It's only 8% of our monthly users, or e-commerce is only 2.6 million of the monthly users.

So that basically just gives you a feeling of how much growth we have in most of the products. Plus the payments business which I've just showed you, the cohort, also continuing to grow very strongly because of the volume of the business we generate now for acquired consumers.

And because we have a Super App, all these products are accessible through the screen of the smartphone. So extremely efficient from the operating perspective and extremely highly engaged potential for us. Next slide.

That is an example for us -- of Kaspi Travel. So Kaspi Travel is an example of the business that we can scale. So we have launched this business basically in the 4Q of 2020.

In the 4Q of 2021, we only sold almost 2 million tickets. So it's [20] times more than the 12 month before in the 4Q of 2020. And the GMV also growing almost 20 times. And we are also increasing -- apart from the fact that we are growing this business, it has a huge potential. It's only 0.8% of our monthly users.

At the same time, it's growing very nicely. And the take rate is growing just because we added the new services like railway tickets which are higher take rate business. And we will continue adding new products around the travel for our consumers.

So the same view we can take of the merchants. The merchant has been an extremely important priority for us. Basically, our merchant business virtually didn't exist in 2020. So we (technical difficulty) extremely rapidly last year. So we have scaled number of merchants in stores to 242,000 which is 353% increase year over year. And that is just a reflection of how we can drive the execution.

And on the back of having the commercially minded buyers, we are extremely attractive for the merchants in order to grow their business, and the very strong growth continues this year.

If we look at the merchant products again, those are very new products. But at the same time, strategy is quite similar. So the payments is the source for merchant acquisition and consumer acquisition. So we have been growing the number of merchants in the back of QR transactions, mobile commerce, instant invoicing which we have launched last year. So basically just building the payment network.

And now there are products which we also are adding to our suite of Kaspi Pay, Super App products. So financing, e-commerce, delivery, and the marketing services.

Now again, not [100%] of the merchants will be fit for delivery or fit for e-commerce, but still that is a huge potential. And our priority at this stage is just to acquire merchants, deliver them value, help them increase sales, and then start using specific use cases so that we can add new products which deliver even more value. And that is the kind of network effect of which our business is -- is built in our business model.

So we have launched basically an acquiring business, started to scale last year. So when we are doing our IPO, I remember again the discussions about the fact that actually majority of our transactions are depending on third-party acquiring.

So we have proved that actually we have an execution capability. And what we have told at the time of our IPO, the time runs very fast. But also during last year, we have consistently increased the share of our acquiring business in our total payment business.

So now 82% is our own acquiring, majority of it is QR, and then 18% is the third-party acquiring. And that just tells you that basically we have our own network and we pretty much don't depend on the third-party acquiring businesses.

QR code is another example of our execution. Those slides will become traditional slides on our payments segment because this is me reporting that we have done it during 2021.

So 86% of the Kaspi QR is a share in the transactions. And this has become now the most popular payment method in the country, and we have been able to basically just execute. And we've pretty much [throw] the card, the plastic card.

So now all our users, and a vast majority of the cases, transact with a QR code. They don't need plastic and they transact straight from their mobile phone with the merchants.

And now we are working even on things which are sort of QR device-to-device. Users now interact with the vending machines, interact with -- I don't know how to say it in English. When you are entering through the entrance just to identify yourself and the gate opens. So this type of device through the QR code interaction so that will increase this engagement and also the convenience for our consumers.

E-commerce has been an important priority. So we are growing on both sides. The merchants -- actually we are growing merchants. That increases the selection, that increases SKUs, that becomes more interesting for consumers. Therefore, consumers are growing. And the more consumers we have, then more merchant wants to enter the platform.

So we have increased the number of SKUs more than three times to 1.5 million. Those are extremely high-relevance products because we leverage the data in order to look for specific verticals and specific categories.

For example, home and garden has been quite important category for us. And as we grew SKUs, the GMVs obviously are growing and the sales of the merchants are growing.

We have entered e-grocery market last year. So we have done different tests with different type of formats. And now we believe that we are ready to scale.

And we have started to ramp up our e-grocery business together with the number-one food retailer in the country, Magnum, in the last quarter of last year.

So the market itself is huge. It is around $12 billion. The business model that we came up with is all about significant assortment, so we could purchase with a significant ticket.

So we are talking about dark stores which have 33,000 SKUs, an average ticket of around $18. And because of the ticket is also large enough, the economics of this business are completely different from high frequency small ticket transactions, so we can allow free delivery.

We are doing delivery speed for this family household purchases the same day, and those items are currently delivered from the dark store.

So we operate it in Almaty. We started with basically one dark store. And as we have been operating the pilot, while operating the pilot, we have become number-one e-grocery business in the country.

So we have achieved a 1.1 billion GMV -- tenge GMV in the 4Q. We have achieved 128,000 orders. And this is only 36,000 consumers.

And as we continue adding the convenience, as we continue adding the data and relevance for the purchases, we will not only -- will basically grow the consumer base, but also this year, we will start working on scaling this business across the country.

The feedback is extremely positive; engagement is huge. And that business drives not only GMV, but also drives the engagement and relevance of our app.

Between the Magnum and Kaspi, we basically have the joint activity, which means the Magnum itself is operating the dark store and everything related around operation of the dark store, actually including delivery.

And Kaspi is bringing sales through the front end of the consumer relationship, brings highly personalized orders.

We also are able to work on the assortment, the pricing. So there is a lot of added value from Kaspi through this relationship.

And we truly believe the combination of our efforts with the largest food retailer and the largest technology in the fintech company brings a lot of relevance for the users, and one plus one will be three.

At the same time, the take rate is healthy. The business is -- as you know, the food and supermarket business is a low margin business and achieving 3.3% take rate. This is excluding Kaspi Pay. So on top of it, 0.95% is a Kaspi Pay payment fee.

So that is a very healthy business, and we are extremely bullish. That is a priority for us. One of the important strategic priorities for us this year.

So as we grow our e-commerce business, the delivery becoming also important. So we continue to scale the delivery now. We have done 2.4 million orders in 4Q.

The majority of those orders are delivery; 16% is pick up. That is kind of convenient for the consumers. Most of the deliveries are free and most of the -- over half of the deliveries are done in less than two days. And delivery is clearly the backbone for the growth of our e-commerce.

As we talked on the last call, we have -- next slide. So we have started with Postomats. So as we have promise, we have delivered 300 operational lockers by the end of last year in Almaty. Extremely successful.

With only 300 lockers, we have achieved almost 5% of our deliveries in Almaty done through the lockers. So we have extremely positive feedback from our consumers.

And we are on the track to build the largest Postomat network in the country by the year end with the total over 3,000 lockers.

And again, 300 lockers, almost 5% of deliveries and the 3,000 lockers therefore will be a very big piece of our -- big part of our deliveries. We have a very positive feedback from our consumers. They love convenience of picking up items on their way going home.

So as we have planned, as we have promised, we executed and the product delivers highly satisfied consumers.

So we have also quietly identified the merchant use case. Again, that is B2B payments. So B2B payment is actually when the micro store, let's assume the convenience store in your building, is able to select the supplier, when the items get delivered, then scans QR code on the invoice and instantly pays.

So the money basically hits the merchant -- sorry, the wholesaler or the distributor supplier. Instantly, the invoice is done and paid seamlessly. And this is an example of us identifying the use case on the back of B2B and the Kaspi Pay merchant needs.

And this is one of the businesses which we quietly scaled during last year, and we believe its significant potential on the merchant side.

So there are numbers, for example, on the next slide -- yup, great. Thanks, David.

So here, you can see the growth rates which are extraordinary. So we have grown that business during the year very nicely. So we have grown into 55 billion tenge from basically [non-existent] business.

We have done 1.5 million transactions in the 4Q 2021, up from 27,000 transactions in the 4Q of 2020, and it delivers a very healthy take rate of 0.8%.

And again, based on the regular needs of the merchants, we believe we can continue scaling this business. And B2B payments is a significant growth opportunity for our payments platform.

Next slide. Great. Back to you, David.

Great. So thank you, Mikhail. I will run you all through the Q4 and full-year 2021 financial results, and then I will talk about the 2022 financial guidance.

So as always, starting on the payments platform, I think you have all heard me say before, I will say it again, last year's strategic priority was to grow the merchant side of the business.

You saw consistently strong growth throughout the year. And again, that was evidenced in the fourth quarter of the year with active merchants of 400,000.

If you think about the transformation in the business, it's fair to almost say that 12 months ago just around the time of the IPO, we barely had merchant business.

Today, we have just short of 250,000 merchants at the end of last year. And it's not over. That number will continue to see strong growth this year.

It won't see the same level of growth that it has seen in 2021. The basis is clearly much higher. But there's still more to go for.

On the consumer side of the equation, 25% growth in active consumers to just under KZT10 million. A robust number consistent with trends throughout the first nine months of the year.

Clearly, as we go north of 10 million consumers, there is less scope for this number to move up. Both trends still remain very, very healthy and robust.

Payments platform funds coming into the ecosystem to enable transactions is indicative of the general health of Kaspi.kz. What you see here is again ongoing strong growth in TPV payment volumes moving into Kaspi, number one.

And more importantly, number two, strong growth in monetized payment volumes, RTPV, booked just under 100%, 99% year on year in the fourth quarter.

This is important because again strategic priority last year was to roll out Kaspi Pay, grow the merchants side of the business, and monetize B2C transactions, particularly in offline retail.

What you see with this RTPV number is that, number one, Kazakhstan continues to move to a non-cash economy; and number 2, with Kaspi Pay formalization, that economy continues to take place at a very, very rapid rate.

Here, essentially looking at same things from a different angle, P2P will always be an important part of the platform. It's the way by which consumers can move funds into Kaspi; it drives consumer engagement.

And you see that it remains a very strong component with 76% of volumes. But what you also see is the Kaspi QR monetize volumes is increasing in each share.

And here, too, just looking at monetize volumes, again, you see that Kaspi QR is growing in share relative to other monetize products, such as bill payments, such as international peer-to-peer.

Again, these are trends that should remain in place in 2022 and actually for that matter well into the medium term.

Another way of looking at funds flow into the business is interest free balances, the funds that people keep in their wallet to enable transactions. Here again in the fourth quarter, up 48% year on year. So again, another strong number.

And really what strikes me with all of these numbers in the payment platform is both strong growth and consistent trends throughout the whole of 2021. And that puts us in a good -- that means momentum is strong going into 2022.

Ultimately, in terms of what that means for payments platform financials both within the fourth quarter and for the full year, you saw strong revenue growth. It is slightly lower than RTPV growth as we [flanked] versus shift in take rate from Kaspi Pay, 0.95%.

So mechanically as that just becomes a larger component of RTPV, take rate moves down. That will be again evident this year, 1.2% consolidated will become 1.1%. That is in the guidance.

But overall strong revenue growth and that has dropped through to the bottom line, a reflection of both [gearing] within the business. And what's been happening as we move volumes to our own proprietary network disintermediating third party.

As Mikheil showed you in one of the earlier slides, third-party account map -- third-party's account map for only 18% process transactions.

Moving on to marketplace. A similar message. Priority number one was to grow payment merchants. The natural consequence of that is that once we have onboarded merchants onto payment products, they are upgrading on to marketplace products.

First, m-commerce; secondly, e-commerce. You see very clearly that that is playing out. Merchant is up 281% in the third quarter. That number was around 187% growth in the third quarter.

So you can see not only strong, but also accelerating merchant momentum in the marketplace business.

And again, to reiterate, that is on the back of the foundations that we've built last year with Kaspi Pay. And again, this is a trend that isn't over at the end of 2021. It will continue into 2022 and over the medium term here as well.

Growth in merchants, more things to buy, more SKUs, leads to growth in GMV and consumer, number one. It leads to growth in active consumers, number two.

And here again, you see strong growth of 44% year on year in active consumers. As Mikheil talked about, marketplace and particularly e-commerce is a platform that still offers great growth potential over the next couple of years.

Strong growth in consumers, strong growth in merchants translates into strong growth in GMV, up 78% year on year in the fourth quarter. Take-rate trends throughout the year consistent with full-year guidance, which was revised during the course of the year, take-rate guidance of around 8.5%.

Within each quarter, there can always be variability with a strong end to the year, with take rate principally boosted by changes in mix. That will remain a theme.

To a lesser extent, monetization of marketing services and logistics. Those factors played a small role in 2021. They will play a small role in 2022. But again, they will become more important to growth over the medium term.

You see here, looking at individual verticals, 3 of the top 5 verticals -- the top three rather verticals were all additive to take rate. It can be a mix of factors going forward.

And Mikheil talked about e-grocery. That is clearly lower take rates. It will take time for that to achieve meaningful scale. But of course, what it gives you is engagement and material volumes.

If we break down e-commerce and m-commerce, e-commerce GMV growing at 57% year on year in the fourth quarter; e-commerce number of purchases growing considerably faster, up 73% year on year.

So it's worth just remembering our ticket size on e-commerce is high -- one of the highest in the world.

As we are adding more merchants, more SKUs, they are often at lower price points, further enabling us to provide more things we will buy on a day-to-day basis. That ticket size is dilutive, but you see that the number of purchases increases at a faster rate than GMV. Again, a trend that I would expect to remain visible into 2022.

With m-commerce, the difference is less pronounced. Ticket sizes are lower and will remain lower on m-commerce.

Here, the growth is being driven by two things. One, just volume. M-commerce as being the first participant of payment merchants migrating to marketplace. Over time, those merchants will migrate to e-commerce.

And secondly, in 2021, m-commerce benefited base effect, the reopening of street retail post-COVID restrictions in 2020.

Whilst for 2022, we are not formally guiding between m-commerce and e-commerce. Generally speaking, I would expect both sides to grow broadly similar rates.

And here you see the split. M-commerce did grow at a faster rate and increasing share in 2021. But again, as I said earlier, going forward, we [see] accelerating growth between the two platforms.

What did that mean for marketplace financials? GMV growth and revenue growth strong and in line. Strong profitability growth, and that is even taking into account.

One of the drivers of e-commerce this year has been investment in subsidized delivery. That is a free delivery for the consumer; we subsidized on behalf of the merchant.

Despite that investment, you see the strong profitability growth at higher margins overall remain intact, and again, that is being reflected in the guidance for 2022.

Finally moving on to the fintech platform, strong growth in deposits over the course of the year, up 32% year on year in the final quarter, a trend that was consistent. Strong growth in loan consumers up 34%. Actually, broadly, loans and deposits growing at similar rates, number of consumers, and trends again consistent throughout the year.

If you think back to 2020, lending TFV origination was subdued certainly in the first half of 2020. It started to return to growth in the autumn of 2020 and has consistently accelerated over 2021, principally on the back of a stable economic backdrop.

Strong TFV origination of 103% year on year. And what you see is rapid conversion more quickly than we have predicted.

So this is telling you that healthy consumer is borrowing, is re-paying, and borrowing again. They are taking what they need when they need it and carrying low levels of total indebtedness.

And it is the nature of the fintech product. Small ticket, short duration, low-risk-type lending.

Here, you see that over the course of the year, buy-now-pay-later and general purpose loans accounted for a broadly similar level of origination, BNPL slightly more.

BNPL, you should remember, is materially lower ticket than general purpose lending. BNPL ticket size is roughly around $140; general purpose ticket size is roughly around $450, depending on what exchange rate you use. So there is a difference in size there.

And going forward this year, the mix won't change dramatically. Today, we would expect buy-now-pay-later to grow slightly faster than general purpose, but net-net, broadly the mix will stay the same.

And similarly, merchants and micro financing, a product that scale from zero 18 months ago will grow faster and will increase in share, but the mix isn't going to change dramatically.

Average net portfolio loan -- net portfolio growth of 72%, so this reflects the fact that higher conversion [while returning] the balance sheet twice during the year. So loan growth below origination growth.

Yield reduction, a function of buy-now-pay-later, low yield; a function of the growing share from merchant financing, low yield going forward. And again, that will remain a theme in 2022.

Strong growth in savings, in deposits to fund origination. Worth remembering at this point in time, all of our origination is in local currency. 80% of our deposits are also in local currency and we have probably the highest share of local currency deposits in the financial system, with another business with material US dollar or foreign currency exposure.

What did that mean for the fintech business? Improving revenue growth over the course of the year. Higher origination takes time to feed into the P&L, so you see full-year revenue growth of 25% versus 49% in the final quarter.

Given the ramp up in origination in the second half of last year, you should expect strong revenue growth in the first half of this year. And despite lower yield, a combination of tight cost control, strong risk metrics, seeing strong translation into profitability growth.

On risk, consistently low cost of risk during the course of last year. A number of factors behind that, both principally improvements in origination; to a lesser extent, improvements in collection processes, or supported by fundamentally a low-risk product, a point I made earlier, and a stable consumer backdrop.

And whatever risk metrics you look at, whether it be non-performing loans or anything else, you see that overall risk metrics consistently improve during the course of 2021, putting us in good shape at the start of this year.

Again, more (technical difficulty) on the metrics, I talked about on previous calls, you would see a normalization advantages in 2021 post a very high quality -- restricted but high quality origination in 2020 linked to COVID. And that is exactly what has played out.

So net-net, where does that leave us for the year? It leaves us with strong financial growth, revenue growth of 46% year on year, net income of 66% year on year.

Over the course of the year, every platform delivering margin improvement, and group net income of 455 billion tenge, both ahead of guidance provided in October of last year and guidance that was operated multiple times throughout 2021.

Moving on to 2022, I will just quickly address here events in January. For those of you who I spoke to at that time, I said that the disruption that took place would not have a material impact in our 2022 financials. I stand by that comment today.

January and particularly the first two weeks of January are low season in terms of transaction activity. But what you can see here is that even taking into account the disruption in January, year-on-year growth was strong and year-on-year growth is fully normalized in February 2022. The business recovered very, very quickly.

As a result, here is the full-year 2022 guidance. I won't run through it line by line, but I will just simply make the following point. Digitalization and the structural growth story that stems from that is as strong today as it has ever been in Kazakhstan and across the broader region.

Within the last week, there has been a material deterioration in regional macro visibility that makes forecasting difficult. We are not immune to macro factors, namely in the form of FX.

To the extent that that impacts inflation, consumer purchasing power, then it will have implications for our business.

However, structural growth will remain intact. We are confident at delivering growth -- good healthy growth this year. But given the macro volatility and uncertainty, we believe we have taken a conservative approach to guidance versus previous years we have provided a wider range of estimates than we would normally look to do so.

Experience tells us that FX volatility is actually usually only for a limited period of time. Things do stabilize relatively quickly. And as we report, Q1's [H1] numbers we hopefully will be able to provide more precise guidance as the broader macro backdrop stabilizes and visibility once again improves.

Net-net, 20% to 30% net income growth for the year is very, very robust growth in the context of what is a difficult macro environment.

And on that note, I will pause. Sam will open the line up to Q&A. And the entire management team is on the call and happy to answer your questions. Thank you.

Thank you, David. (Operator Instructions) Kirill Panarin, Renaissance Capital.

Yeah. Hi, everyone. Thanks for the opportunity. I have four questions, please. So firstly, can you talk about how you believe Kaspi will be impacted by events in Russia? And please also clarify any direct exposure to Russian banks, in particular low Swiss subsidiaries in Kazakhstan. So that is one.

Number two, you talked about the buyback program up to 86 million tenge. When will you expect this to commence?

Number three, you have changed your revenue accounting policy. Can you please provide a bit more color on the rationale for this?

And then finally on the potential economics in e-grocery, will it require material investments this year? And do you consider launching express delivery and managing the last mile on your own? That's it. Thank you.

Okay. Thanks a lot for your questions, Kirill. I would say that probably the first two are probably the questions that everyone wants answers, too. So maybe I will pass those to Mikhail and also the question on grocery.

And then I can quickly take at the end the question on change in accounting policy. So over to you, Mikhail.

Yeah, sure. In terms of the exposure to Russia, either banks or the merchants, we have pretty much no exposure. So we are a business based in Kazakhstan -- so because we have been growing in Kazakhstan, so we have virtually no cross-border with Russia, and the merchants in the marketplace side and we virtually have no exposure to Russian banks. So that's basically -- the response to your first question is no.

In terms of the buyback, again we have up to 86 billion tenge to return to the shareholders, and we have an intention to do a buyback program. And we will be launching this as soon as feasible.

And the split between the dividends and the buyback, we will be looking at the market conditions. But we truly believe that the buyback is the appropriate way to go just because we believe the company is undervalued.

In terms of the grocery, I mean, again, there is a huge [demographic] so we're just scratching the surface. I mean, we just started to warm up pretty much.

And by warming up, we already are number one, growing really fast and just being with a one dark store. So just tells you how much potential is there. There are a lot of synergies between us and the retailers and Magnum specifically.

So Magnum, at this point, is the one who is taking care of delivery. But obviously, there are a lot of synergies on the last mile side as well which we are developing on the Kaspi.kz side.

So the growth will be our priority for e-grocery, then we will be putting all of our capabilities to ensure the growth.

Then also we are extremely excited just because we have such an incredible feedback from our consumers. I mean, one of the feedback I was reading recently is that the older generation is even providing us a feedback that they don't walk through the store anymore. So convenient it is with the one click, ordering the items which they loved the order regularly.

So if the older generations of around 60 years old is able to use our e-grocery platform, you can imagine how much potential we have here.

So again, our priority is the growth and our team is prioritizing the assortment, the scaling across different cities. And we have a very successful pilot which is pretty much ready to scale.

And I will just take your question on change in revenue accounting, Kirill. So for the benefit of everyone, this relates to Kaspi Bonus. Kaspi Bonus is points is that our consumers accrue for transactions on the platform that they can spend with merchants on the platform.

In our annual consolidated accounts, previously, we have classified this as marketing spend. However, in practice, it is more closely aligned with IFRS 15 which relates to revenue from contracts and requires it to be recognized as a deduction to revenue. So we showed net revenue. So that is the main point.

But I would say in practice however, if you look at our marketing budgets, 85% of it is Kaspi Bonus. And that is a great tool for us to drive engagement on the platform and to drive cross-platform penetration.

So from the perspective of management accounts rather than IFRS, and from the perspective of segment reporting, we will continue to recognize the bonus points within marketing spend.

The final point however to make is that this is just [presentational]; it has no impact on net income. It has no impact on cash flow generation of the company.

So does that answer your questions, Kirill?

Yep, that's great. Very useful. Thanks a lot.

Thank you. Next questions, please, Harry.

Thank you, David. Gabor Kemeny, Autonomous Research.

Yes, hi, everyone. Well, firstly, it's great to see that the business has been solidly impacted by the early January events. It would be interesting if you could give us a sense whether and how it has impacted your business planning and especially credit underwriting.

I also saw that there were some changes in capital requirements after the January events. Has that impacted Kaspi at all?

Second thing would be on the take rate. You are guiding for flat 8.5% and you flagged the macro environment. To what extent is this guidance being impacted by geopolitics? So maybe in other words, where would you see the take rate trending on an underlying structural basis?

And just a final technical question. Is the KZT86 billion you are earmarking to dividends and buyback, is this deducted from the capital ratios and the local accounting? Thank you.

Okay. So thanks for your questions, Gabor. Maybe I'll start and then I will pass over to Mikhail. The third and final question is easy to answer. Yes, it is reflected.

So just again for the benefit of everyone, the capital ratios relate to Kaspi Bank. Funds at the end of the quarter, in this case end of the year, are upstream to Kaspi Group from all of the entities, whether that be bank, whether that be travel, whether that be Kaspi Pay.

And so what we talked about, that KZT86 billion, that's cash that's sitting at the group level and can therefore be paid out in theory today, and therefore the capital adequacy ratios reflected that. So that would be your third question.

On your first question and I will just go back to the slide that I showed (technical difficulty) the events that took place in Kazakhstan were for a very limited periods of time, the severe disruption days, and you know it was also during a holiday week.

You can see here the RTPV by February was growing north of 66% versus guidance for this year to the full year of 40% to 50%. So you can see that the business was firing on all cylinders within a very, very short period time. And therefore, you shouldn't issue that it led to any material change in our planning.

We do note in the guidance that the net income guidance for 2022 is adjusted guidance. As always, that's adjusted for the LTIP program [having it] adjusted for one-off contribution, voluntary contributions to the Kazakh people's fund of 10 billion Kazakh tenge, therefore that is in the numbers.

But that is taken into account in the guidance. And there is no regulatory changes to reflect that have been impacted the business plan.

And then finally on -- was it marketplace take rates that you are asking about?

Yes.

So let's say that there will be a mix of factors, there will be some positives, some negative. Generally, I would say the positive will be changed in verticals. That will be a positive.

But I would say there is -- another factor that drives take rates, that's promotional events. And probably today if you are thinking about promotional events and looking into March, which is an important sales period, you're probably looking at being conservative about promotional events and airing on the side of caution. It's clearly not the right backdrop to be marketing aggressively. So that would be a negative factor in response to the current situation.

Of course, Gabor, maybe Mikhail would like to add something particularly on the regulatory side of things.

Yes. First of all, I would like to add on the January events that our team has done an extraordinary job when pretty much Kaspi Super App was the only service in the country which enabled people to move the money, pay the bills, and it was actually working without Internet because we worked with the government bodies to enable access to our services when the Internet was limited.

And we have received a lot of incredible feedback from our consumer. Everybody was shocked because Kaspi.kz was the app which was operational and pretty much nothing else was in operation for a couple of days. So that's why it also didn't have any material impact.

On the regulatory side of things, there are no changes at this stage. So I'm not sure what you are really referring to. There is always a discussion about identifying some of the segments, which are high risk and whether the growth is too fast or too risky for consumer lending side of things. And this discussion has been always, always there and we are engaged, but our numbers also speak for themselves.

I mean, we have best-in-class credit quality. We don't have excessive leverage for consumers and we are actually meant to improve people's life. And our consumers finance products and BNPL more specifically is targeted for that mission. And therefore that reflected also in a very strong quality of our risk.

But other than that, I'm not sure what you are referring to. There is no changes to the regulation.

That's very assuring. Thank you.

Thank you.

Nida Siddiqi, Morgan Stanley.

Hi, thank you. Thank you for the presentation. I have a few questions. Firstly, on your 2022 guidance, where do you think the guidance could surprise to the upside? And at the same time, on the other hand, where do you see the most risks coming from? So that is one question.

The second is about B2B payment. If you could give the color on how big the potential TAM for these could be.

Thirdly, you touched on this briefly during the presentation. But if you could just talk about the potential impact on Kaspi from risk of currency volatility in Kazakhstan and also the recent rate hikes that we have seen.

And I have another question, but I will wait for the first three to be answered if that's okay. Thank you.

Mikhail, do you want to take the question on B2B, and then I can do guidance?

Yeah, sure. I mean, on the B2B side of things, if you think about this nature -- if you think nature of this business is actually wholesale which fuels down to retail. So that's basically just indication of how significant the potential is.

And also we are very excited because that is a potential for -- and this product is very relevant for our micro businesses, which means it's also extremely valuable for the country's economy growth just because we are talking about small and micro businesses.

Just to give you a sense, if you take on -- for example, on the merchant side of things, or wholesalers, I mean the ones which are actually distributing the items, we have around 270 suppliers in the B2B platform at the moment.

And again, we just started to scale. You saw the growth rates. And again, the nature of this business is wholesale distributors, the volume fueling to retail. So it's a good indication of the potential of B2B.

And then (multiple speakers)

(multiple speakers) guidance? Yeah.

Yeah. On your question with regards to upside/downside to guidance, I probably won't be that helpful. And this is the guidance that we have put out.

We have spent a lot of time considering this guidance over the last couple of days in light of everything that is going on.

I will repeat my previous remarks, we're as confident as we have ever been in terms of digitalization opportunity, number one.

We are as confident as we have ever been, number two, in terms of our ability to execute in whatever environment might prevail, number two.

But there is both upside and downside as macro risk, and we have deliberately given wide ranges to take account of that.

But beyond that, there's probably not much more I can add. We will report Q1 in end of April. Hopefully, there will be more regional and global visibility on the macro outlook at that point. And that's probably as much as I can say.

To your third question, which is kind of similar, what I would say there is, yeah, it is a fair point that you would say that if the main macro risk is FX devaluation, then a direct impact of that is higher interest rates, higher funding costs for the business, and we think we have built that into the guidance.

If you look at the net income profitability, the fintech business is the business that we are currently guiding for margin downside or a margin reduction in 2022. That is the reason, higher funding costs principally. So we tried to capture that.

That's as much as I can probably say. You said you got a fourth question?

Yes, please. I just have a follow-up on the guidance as well. I noticed that on the payment side as well, you are not guiding too much of margin expansion, which we have been seeing a lot of with the operating leverage. So maybe if we can get some color on the higher part of development and marketing that has been mentioned on that side.

And then my last question is basically, do you see a risk that Baring Vostok may have to sell their position if they need to exit from their Russia families?

So on the payments profitability, I would say around 60% margin is a very, very high level of profitability. And in the context of this macroenvironment, being able to deliver that is a pretty good result. So that is my first point.

It will be fair to say that over the last few years, clearly we have benefited from the disintermediation of third-party costs. And now the third party is on the accounting for around 80% of volumes, there is less to go on that saving, if you like. So that would be the second point.

But will always, in any platform, the investment in new product initiatives and payments. Mikhail has just talked to you about B2B payments has been the massive opportunity, and we can take a level of investment given the scale that we have. But that's probably as much as we can say there.

And then maybe on Baring Vostok, I would just simply say that I don't think it is appropriate on this call to comment on any shareholder and speculate around what they may or may not do.

I don't know if Mikhail has anything else to add.

No. I mean, in general, I would just agree and reinforce the fact that we have spent a lot of time on this guidance.

And again, what we have here, we have a long-term strategy. But what we have here, we have the incredible team that puts their heads down and just works really hard and constantly executes, and then executes again and then executes again. So we have a lot of experience.

And the guidance you see and the ranges you see, they just take into account some of the things we just don't control. But ultimately, we control our business and our operation. And we are super confident in the execution in the years to come.

And this is just a temporary bump that we have on the way in terms of the market environment. So that is number one.

And in terms of the shareholders, we are not aware of any -- those types of discussion and I would agree with David here. I mean, if you have any questions, you can go ahead and ask an individual shareholder. But the company's -- it's the company's business to respond to shareholders' inquiries.

Thank you very much.

Simon Nellis, Citi.

Hi, Mikhail, David. Thanks for the opportunity. I should have clicked/raised my hand sooner. Most of the questions that I needed to ask were already asked.

But maybe just one last one on regulation, though. I thought that the central bank had mentioned they might be introducing some rate caps. Has that happened, or is there any talk about that? That would be my first question.

Also, just in terms of the contributions to the social funds, do you expect to have to make more of them going forward?

And then last on e-grocery, is this business a drag on marketplace profits? Or is it already profitable this year in your targets? Just trying to figure out when we might see some kind of uplift to the marketplace earnings from e-grocery as it is rolled out. Thank you.

Probably the first and the second question are for you, Mikhail.

Sure. So again, in terms of the regulation, we have this question pretty much on every call. From that perspective, we do have -- there is always a discussion in finding both the right balance between the growth of a consumer -- consumer lending and the risk, whether that growth is too much and consumer is overleveraged.

So there is a discussion that is going on. There is a bankruptcy law which is being currently discussed and that is a good thing. Because eventually -- I mean, if you think about the country and the history of its banking sector, I mean, there were banks that did perform well; there are banks that have not been good in terms of the risk.

And therefore, the bankruptcy law is just a nice thing to clean up the quality of the portfolio, but also enable borrowers to have the way out and get back to the civilized financial products or the banking products.

The country cannot be without the bankruptcy law. I mean, people in the companies, they need to have some way out. So there is a discussion about it. And I think the discussion is balanced and reasonable so the law is in the works. So that is number one sort of specific thing that being worked at the moment.

In terms of the social fund, we would like to be -- we are the largest and the most valuable company in the country, and we are the most loved company in the country.

So the social fund, it was a contribution that we've decided to make when the fund initiated for us is announced. And that fund mission is clearly 100% fit with our company's mission, which is improving people's lives.

So there are projects which are related to education, healthcare, and we just wanted to be -- basically, we are the first one pretty much to contribute.

Again, we just want to set an example for others. So we are quite happy that there are others that sort of came in, big companies or businessmen individually.

And in terms of the grocery and the growth in the grocery, again, the guidance is that -- you have those guidances are. Considering the grocery growth, we are prioritizing this growth as a technology platform from our side. And there are a lot of technology resources and our capabilities that we are bringing to the table like partnering with the largest retail chain. And that is sort of the strategy that we would like to pursue at the moment.

But again, if we need to put more resources just to see more growth, then we will be considering it.

But I think there are always the question about how we manage our business. So every single time we launch something, there is a discussion about capital investments. And we always said that we negotiate like crazy, we plan like crazy, and we are extremely prudent.

And as a result, we always deliver or exceed on the numbers and profitability numbers of our results. I mean, 3,000 lockers, customer acquisition during the growth -- all that has been done. But still done -- delivery rollout has been done very prudently.

So from that perspective -- and e-grocery if it becomes significant business, then we will probably be thinking about [sending a loan] presentation just because it has lower ticket -- lower take rate as the nature of the business in any other country.

That business, the economics will be shown in the marketplace, yeah?

At the moment, yes. Then in the future (inaudible)

Just strip it up, yeah.

(multiple speakers) separately exactly.

Okay. Thank you.

[Stefan Grisha]

Yeah, hi. Well, first of all, congratulations on the numbers, very well done. I have a little bit question on the situation in Kazakhstan.

We obviously had these problems in January. The big worry, I guess, is with what we are seeing in the region. I am not sure to which extent you can comment. But is there any kind of reforms happening in the country? Is there anything which you could say which should help that we will not have a repeat of what happened in January a couple of months or a couple of years down the line?

I think that is a question for Mikhail.

Sure. I mean, in general, I would say there are a lot of very promising initiatives, things which are related to fight with the corruption, building the world for the population and prosperity in the country. So there is a lot of very promising initiatives.

And that all looks, as far as we are concerned or we are consulted or involved, I mean, we believe that that would be great for the country eventually.

There is only one thing which probably is important in the long term is that the wealth of the people and the well-being of the people to be growing. And that is what we believe is the mission of all those changes.

And we, as a company -- again, we are focused on the things which we control and we believe that we are putting a lot of energy and efforts in increasing the well-being of the people. And that's why we are as a brand company, which is loved.

So we are quite encouraged by the changes we see and the initiatives we see on the government side.

Okay. Thank you very much and keep up the good work. Thank you.

(Operator Instructions) Ronak Gadhia, EFG.

Thank you. Thanks, Mikhail and David, for taking the time and taking the questions. Two or three questions.

Firstly, if you look at the actions of the National Bank of Kazakhstan the last week or so, raising rates, increasing the tenge deposit protection facility, it seems like there is a bit of concern about maybe flight of deposits or dollarization within the system. So are you seeing similar trends at Kaspi with your deposits?

My second question is on your margins. When I look at your guidance, it seems like the volume growth outlook still remains quite strong. But margins generally across the three platforms seem to be lower.

So I just wanted to ask: is this just something that is cyclical, i.e., we are seeing increased investments coming through this year? And then as volumes pick up, you should start to see margins pick up in later years? Or are we now starting to see a more structural decline in margins as sort of more low-value products start getting introduced?

And the third question is, can you just give us an update on Ukraine following the expansion -- following the acquisition of the licenses and the companies, what's the current stage of your expansion in the country given what is happening there?

Thank you, Ronak. Do you want to take the first questions, Mikhail? Maybe I will say something at the end on the margin, but I will hand it over to you.

I can just quickly go through a little bit. Pretty much that will be simple. So in terms of the National Bank, this is basically a playbook which has been done before.

So for example, the deposit protection sort of plus 10% premium from the government. This is what has been done several years ago in the same circumstances.

So from our perspective, we are just involved and consulting with everyone else just to make it simple, so people really get this 10% premium so that they are commercially incentivize to keep the tenge deposits.

But our very deep experience in this type of situation also tells us [where it's at]. This is very temporary as usual. And also nature of our business.

Again, our nature of our business if you take consumer profile, it is quite straightforward. I mean, our deposits are just several thousand dollars on average. Those deposits are related to regular spendings and the family budget.

And as a result, they are highest [ratio] of the local currency deposits among all the players in the country. And that is just because of the nature of the product and again the nature of the profile of our consumers.

In terms of the margins, just would repeat what David really said, the margins you see on the fintech side again, the share of BNPL is growing, the share of merchant finance is growing.

So as a result, it also has a -- it's all influenced in terms of the product distribution on the margins of our fintech side. But then if you look at the marketplace and the payments, the margins are high.

And also if you look in general in terms of [trends], we cannot become 100% margin business. (laughter) So I guess, when we are guiding even in this environment mid-60s and around 60 on the payments and mid-60 on the marketplace, this is as good as it gets.

If you can name me a marketplace business globally with such a marginality, I will take the first plane to fly there and learn from them.

In terms of Ukraine, it's extremely -- we bought a payments company there so we have a team there, so it is extremely sad and emotional. So it's unfortunately outside of our control.

So the one thing we can really say that we just hope that the situation stabilizes as soon as possible. And we can get down to our planning and we can get down to just evaluating how quickly and what can be done.

I mean, you guys see it every day on the news, so you know better than us. So the only thing I can say is just we are extremely sad and bothered and supportive for our employees and their friends, and actually friends everywhere. All nationalities, really.

Thanks for that, Mikhail. Just a quick follow-up on the margins questions. You're absolutely right, even in the current environment, margin up to 60%, 65% is amazing.

And that really is the point when we compare Kaspi and other similar type of players. Globally, Kaspi's margins are much higher.

So my question really was [inadequacy], maybe margins decline. Are we seeing Kaspi's margins now converge to what we see the other global players report? Or can Kaspi still sustainably keep their margins above their global peers in the medium term?

Well, I mean, I think that -- I don't know if David wants to build on my comment. But in general, I would say that I just don't expect our margins to be close to the global peers because usually the global peers have no margin.

So in our case, again, we are execution driven. We have Super App strategy. Most of other guys are just thinking about the Super App strategy, but still having 15 multiple apps.

And in our case, we have significant network effect. And that's why most of the businesses, they're actually -- the businesses in general contribute to our numbers. They are not demanding cut from our numbers.

So from that perspective, yeah, no change in our business model. So yeah, I think we are good in margins. I don't think we would like to achieve the margins which are negative in most of the global peers.

I would just add to that. Number one, it's this Super App model where we are leveraging consumer over multiple products. So that is the key differentiation, number one.

Number two, profitability. We are achieving that through scale which we continue to build with these steady growth rates rather than via pricing.

Number three, fundamentals of the model -- it's not quite your question -- but fundamentals of the model is low CapEx. I don't see any of those things changing dramatically in the near term.

Margins can go up; margins can go down. But I expect them to remain sort of best-in-class through the cycle.

Thanks, guys.

I'm afraid we have no further questions. So I will hand back to David and Mikhail for any further remarks.

Well, thank you, Harry. Thanks, everyone, for participating in today's call.

If you do have follow-up questions, please get in touch with me or the team. We will be happy to help.

So thank you again for your time and looking forward to speaking over the next few weeks into our Q1 results at the end of April. Thank you.

Thank you. Thank you. Be safe. Thanks a lot.