Kaspi.kz AO (KSPI) 2022 Q4 法說會逐字稿

Hello, and welcome to the Kaspi.kz Fourth Quarter and Full Year 2022 Financial Results Conference Call. My name is Harry and I'll be your operator today. (Operator Instructions) It is now my pleasure to turn over to David Ferguson to begin. David, please go ahead whenever you're ready.

Great. Thank you, Harry. Good afternoon or good morning, everyone. I'm David Ferguson from Kaspi. Welcome to our fourth quarter and full year 2022 results. As usual, on the call with me, I have our CEO, Mikheil Lomtadze; our Deputy CEOs, Tengiz Mosidze and Yuri Didenko. As usual, we will go through -- Mikheil will take you through the strategic highlights. I'll take you through the financial highlights and guidance, and then we'll open the floor up to Q&A. The entire team are available to take your questions.

So on that note, I'd like to hand over to Mikheil. Mikheil, over to you.

Hello, everyone. So pleased to present last full year and the fourth Q numbers. And the slides, we don't have them on the screen.

The slides are showing on my side.

Really. Well, I don't see them.

Harry, do you confirm, can participants see the slides or not?

Yes, confirming if slides are currently being shared?

Okay, let me see. I don't know, I don't see the slides of my screen, unfortunately. But I can do it on my paper presentation. So Slide #2. So our performance has been very strong through the last year and the 4Q specifically. So the team has done a great job in the execution. So as you can see, our payments business has grown, RTPV 53% year-over-year. The revenue has grown also 53% fast. And then net income because of operating leverage, 60% up year-over-year.

The marketplace GMV 60% year over year, accelerating in the fourth quarter revenue, 67%, and net income 68%. And our Fintech business continued good growth with the TFE of 27% revenue, 27% and net income, 7%. Our consolidated business has grown, net income 37% and the revenue, 40%. So this is the set of extraordinary results. And subject to the shareholder approval, we also have KZT 600 per GDR dividend recommended to -- for payments to the shareholders.

Obviously, the next slide -- obviously, the Kaspi Juma has been fueling our business really well. So we have launched Kaspi Juma last year after the COVID break. So the growth has been extraordinary. So 2 events during the year, just to remind everyone, it's actually a 3-day event. And the 3-day event, which is 6 days for the total for the 2 events, almost 14% of our total GMV. And this is a truly nationwide shopping event, which has been created by Kaspi.kz. And what is also remarkable, the second event actually grew 47% compared to the July event, and we're talking about several months difference between those 2. So really excited and very strong performance.

The next slide on the guidance. So as you can see, our team has once again, pretty much exceeding the guidance on the back of extraordinary execution. So I'm not going to really go through every single of those numbers. But very importantly, the GMV RTPV growth, net income margin numbers, adjusted net income, very importantly, I mean, we have exceeded the guidance in 2022. So another proof how execution driven is the management team of Kaspi.

In terms of the split of the profitability, so the payments in the marketplace businesses are growing fast and, therefore, taking the increasing share of our bottom line. So we have 59% of our bottom line now is coming from the Payments and the Marketplace. So we're really excited about this, and we believe that diversified -- providing diversified sources of revenue, net income, different type of businesses, really is extremely -- a very important competitive advantage of Kaspi.

Next slide is just to step back. We have a lot of new investors. And just to remind everyone, the business model of Kaspi. So we have 2 products, or 2 super apps. So one super app is for consumers and other super app is for merchants. Both apps are extremely unique in actually in every comparison to any other example in the world. So consumers on a Kaspi.kz Super App, they can do pretty much everything around their regular daily needs, right? So they can manage their personal finance. They can make payments. They can transact in stores, they have access to wealth of government services. They have ability to order items with the free delivery through the e-Commerce. They can get items out of the customer.

They can do a P2P, Bill payment transactions. So really a very wide range of the products. And e-Grocery is one of the latest sort of additions to our consumer Super App alongside with the government services and travel. And then the merchant Super App, which is the Kaspi Pay, we're replicating the success in the knowledge of Kaspi.kz consumer Super App, and now our merchants can accept the payment, they can have access to government services, they can pay taxes.

We've just created the service, you can actually file your tax reports, B2B payments, instant invoicing. And we have also launched last year cash register when you can actually provide the online seamlessly, received sort of fiscal receipt for both cash and cashless payments. So very exciting product, which will actually grow in scope over coming years.

But what is even more important is not just a stand-alone type of apps, but actually that we are creating these 2 sort of suits of the products, but how we actually connect because we believe that by connecting consumer to merchant, we create more value for both for consumers and for merchants and also create very strong network effect and competitive advantages. So things which connect both is the payment network, is the Marketplace where we enable sellers to buy and consumers to -- sorry, sellers to sell and consumers to buy, delivery services when you can trade across the whole country, and then financing both on the consumer side and the merchant side, increasing the share of wallet, ability to purchase items but also for businesses to develop their business. And then marketing services, again, highly personalized advertising when merchants can reach right users. So really the power of our business model is not just a Super App strategy, but also how we connect both to each other.

If we look at the potential that we currently have, we traditionally show the cohorts in our annual presentation. So you can see that RTPV continues very, very strong growth. And yes, there is no sign of the slowdown. So again, more merchants, more users, more transactions per consumer, more transactions per merchant is driving the growth for the RTPV. And obviously, we're creating more opportunities to transact as we add more verticals over time.

The same on the Marketplace. So you could actually see that differently from many other e-Commerce and marketplaces in the world, actually, we are accelerating our growth post COVID. So that's, again, tells you how resilient our business model is. And as we continue adding more merchants and increasing the SKUs, adding more diversified payment options, especially on the merchant side of things. We see actually acceleration of GMV on our cohort. So we see both strong user acquisition, but also more transactions and the more growth for consumer in our Marketplace business.

Then if you go into the -- another dimension, which is the penetration of different consumer products per user. So you can actually see that we have -- we have a wide range of the products. And some of them are in early stage like e-Grocery, extremely early stage. Some of them like P2P are instruments when we have completed the build-out of the users. However, we continuously drive transactions and will drive engagement.

Again, to take a step back, our strategy is always build the foundation with consumers, build foundation with users, bring the network effects, bring -- build the network effects and then build more business around the merchants and consumers. Actually, any of those products are really growing fast, but they are at different stage of the strategy and execution by our team.

And then if you look at the number of merchants, this sort of growth we have generated is really driven by the fact that we have been building the merchant base. Initially, we started with consumers. Now we've also built the base for the merchant side of things. We have more than doubled the number of merchants during 2022. So really excited about it. And that obviously is driving the transaction. So more consumers have more merchants to transact that. As a result, we have strong growth across the board.

If we look at the infrastructure sort of building up, what we call is the POS network devices. So we have built this unique foundation for also the future growth. Now 92% of all the transactions are actually done through the Kaspi.kz POS network and only 8% is done through the third-party acquiring. So we largely completed sort of building that side of the infrastructure for our business.

And then if you look at the sum of the new services which we're launching, the B2B is extremely important part of our business now. This business didn't exist at all before, about sort of a bit over a year ago. That's a service which connects the brands and the wholesalers and the distributors to the convenience stores, to the smaller merchants. And the growth has been really healthy. We have grown more than 3.5x in terms of the amount of the transactions and almost 3x in terms of the number of transactions. And again, some of the leading brands are joining like Coca-Cola, Pepsi, Nivea. So we're really excited about this new business, and we believe that's the foundation of -- and other services, which will follow our B2B strategy.

We have been also building another project, what we call infrastructure. That's the last-mile delivery. So customers didn't exist basically a year ago. And now we have built the largest network of last-mile delivery. So you have -- you can see that we went virtually from 0 to almost 3,400 customers across the country. And now almost 1/3 of all our deliveries are done through the customer. And if you look in terms of number of deliveries then even mind blowing. So we almost -- over 2 million deliveries we have managed through the customer.

Customer is not just only more efficient and cheaper for us, but also it's more environmental friendly, and we control the user experience. So the consumers are extremely happy, and we plan to roughly double the number of customers during this year.

Another business which went from 0 to #1 business in the country is airline and railway bookings. That business also didn't exist actually, I don't know, 18 months ago. So now we are selling over 3 million airline and railway tickets in the fourth Q. So the growth has been almost 2x in terms of GMV. So really very, very good example of how execution driven is -- our team is, and also we create the value for airlines and the railway by helping them to digitalize the sales. So really, very excited about this.

And there is another addition to this business. So as we speak -- true, we're launching the package holidays. I've mentioned this briefly, I think, last year in meeting some of our investors. That's another sort of big market for us, about $1 billion in the GMV addressable market. We believe about 1 million travelers. Average ticket is about $1,500, which is a great size also for BNPL opportunity, and we're launching with the 3 primarily destinations, which is the Turkey, Egypt and Emirates. And the take rate is also will be very attractive, will be 8% to 10%.

So we're launching already. Usually, it's the first stage when we allow our employees to use it, and then we roll out nationwide. Just to give you a bit of a look into the user experience, how we have really organized, it's really straightforward. So we have -- you can basically search any tour in this destination. You can select the hotel, which is helped by the reviews and the ratings and the pricing. And then you can complete your transaction with our Kaspi Gold payment or BNPL. And also very importantly, we finalized our part of the transaction by giving you all the details of the tour and actually putting you in touch with the agents or tour operators that will help you on the way. So really very excited about this opportunity. So we'll be building that this year.

Another opportunity that we're going very strategically about is e-Grocery. So we're very excited about the -- probably the largest market that we have in front of us. So we're making investment into rolling out nationwide, the e-Grocery business across the country. If you look at the recent performance that we had, we have talked about e-Grocery through the year. So this is not -- for us, it's not just entirely new business, so we validated it.

If you look at the e-Grocery GMV, we have grown at 8x during last year. The number of purchases is already 668,000. We're talking mainly Almaty, a bit of Astana, so sort of 2 major cities. But we're excited the way that the business has been built up. We're excited about the trends that we have and the results that we achieved in Almaty and Astana already. So if you look at the kind of simple rationale from our side that we have the business, which is at least -- market of at least KZT 12 billion in front of us. We have Kaspi.kz, who has technology who has the ability to design this remarkable user experience, but also a lot of operational experience on this type of businesses. And then we have Magnum partner, who is the largest food retail network in the country, and they have extraordinary food retail experience. And we also are building on the back of already proven kind of validated business model, especially in Almaty.

The highlights of this investment is around KZT 70 billion we'll invest over the course of next 3 years that will be an investment to build the infrastructure. Again, the dark stores also provide working capital, 90% stake in the Magnum e-Grocery. And we will retain the brand Magnum because it's the #1 brand in the country. And we are -- again, just to repeat myself, really excited about this partnership when we can 1 plus 1 will equal 3 kind of partnership. And then we will fund -- the investment will fund the growth and the regional expansion.

Just to give you a bit of a highlight on what I mean under the first dark store in Almaty is basically, I don't know if -- I don't know any example in any other parts of the world when within the, whatever, 4, 5 quarters, you can break even. And this is just an example of how we have achieved in Almaty in the first dark store. So it's EBITDA positive in the 4Q.

We have -- and with a store utilization of 65%, we have increased the gross margin to 30%, just also by managing strategically the assortment. So yes, so that's -- business is a huge market, validated business model, and we're really excited to roll it up.

Just to give you a bit also overview of the process itself. Again, you start from the marketplace, so you really have a dedicated button on our front page. You have a catalog of different items we are going actually from consumer sort of FMCG-type of goods, but also fresh. Then you select the products. And extremely importantly that you also actually would -- can select the time slot when the item is delivered. And this has been a really important feature, which we've developed as we learn about this business. And then you obviously pay. But we have been able to validate the business model and economics, and we reached around KZT 25,000, sort of $25 average ticket. So that makes a huge difference in economics. And all the orders over KZT 5,000 are delivered for free, which is about $11.

So David, back to you.

Okay. Great. Thank you, Mikheil. So I'll run you all through the financial performance of each of the respective platforms, starting with the payments platform.

So as we've talked about consistently since the IPO, strategic objective has been to scale the merchant side of the ecosystem. And here, again, you continue to see good results in that regard with the merchant base of 101% year-on-year. That's a function of Kaspi Pay. It's a function to a lesser extent of bill payments. These products continue to work and help us continue to grow the merchant base.

This will inevitably slow just as it has happened on the consumer side of the equation. But what's important in 2023 and beyond, merchants will continue to shift more volumes to us driving RTPV.

Similar message on the consumer side of the equation. Here, the growth is more modest, although still respectable given that this is our most mature platform. But as Mikheil showed you in the cohort analysis, if we give consumers whether that be new or old, more opportunities to pay, they will use these services, and that drives our RTPV growth.

With that in mind, RTPV growth has been strong and consistent throughout the year, finishing the fourth quarter up 53%, actually in line with the full year trend. So this is important in the context of the question around the health of the consumer. But what you can see here is that our payment business is indicative of the health of the consumer, whether you look in Q1, Q2, Q3, Q4, you see a very, very similar trend and very, very strong trend throughout, both in RTPV or in number of transactions.

On the take rate side of the equation, 1.2% take rate both in the fourth quarter and for the full year, that is ahead of the guidance of around 1.1% that we gave you at the beginning of the year. But it is the function timing as Kaspi Pay at 95 bps and as Kaspi B2B increase in the mix, take rate mechanically comes down, hence, the guidance for this year is take rates around 1.1%. And again, it's just a function of product mix.

On the next slide, you can see here how RTPV payment mix continues to evolve. And I guess the takeaway here is that it's not just about offering existing consumers and merchants more opportunities to pay, but we can also grow our entire addressable market. B2B was 1% of RTPV last year. Today, it's 3% of RTPV. That might not sound like a big number, but in the context, our RTPV is big. B2B, as Mikheil said in the fourth quarter, grew 3.5x, it will be additive to RTPV growth over the medium term. And more broadly, incidentally, can just be the start of one of a long list of targeted merchant products, not just in payments that we can develop.

Interest-free balances in the fourth quarter increased 11% year-on-year for the full year. They were up 21% year-on-year. So that is actually slightly above the guidance that we provided at the beginning of the year. But it's certainly the case that what has happened over the last 12 months is that interest rates have moved up. Kaspi deposit is very, very popular. Kaspi deposit interest rates are currently 15%. So there has been a relative switch in favor of consumers keeping funds in deposit versus their interest-free wallet. That said, trends in line with our plan for 2022 and for 2023, we expect robust growth in wallet balances of around 15% year-on-year.

So as a wrap-up on payments financials, that fast and consistent RTPV growth, combined with stable take rate throughout the year translated into fast and consistent and stable revenue growth through the year, up 53% in the fourth quarter, up 54% for the full year. As has been the case in previous years with payments platform, you've got a combination of things on the cost side. We continue to eliminate third-party costs, Visa and Mastercard as we move more volumes to our own network. We keep a tight control on costs, particularly this year on sales and marketing. And that, combined with just the inherent gearing that sits in this business model and remains intact going into 2003 (sic) [2023] drove margin progression both in the fourth quarter and more materially for the full year.

Moving on to marketplace. Just as for the payments platform, strategy was to grow number of payment merchants in term. That drives growth in a number of marketplace merchants. And here again, you see a very, very strong trend, up 159% year-on-year. Why do we do this? more merchants, more SKUs increase the breadth and depth of the product proposition drives on the one hand, more consumers, on the other hand, more transactions per consumer. And here you see decent growth in the number of consumers, up 28% year-on-year to 6.1 million, but with still more upside potential as we go forward.

Looking at the GMV trends on the back of that, here you see that GMV was strong, up 61% in the fourth quarter, 81% for the full year. Actually again, indicative of the health of the consumer marketplace for the year as a whole, outperformed the guidance that we provided. And given the scale of our marketplace and its relevance across all areas of consumer spending, from grocery, to travel, to consumer electronics, it gives you a pretty good snapshot of how the consumer is feeling for the year, particularly in the fourth quarter.

Take rate for the year, stable, 8.2%. So I think this is important because I remember a lot of discussions around Q1 of where the take rate was down year-on-year and investors asking around that. I think the message here is that: number one, you need to look at it over a longer period of time, there can be volatility from a quarter-on-quarter basis. And overall, you've got sort of 2 dynamics going on here: The benefit or promotional activity, particularly Juma drives take rate up, offset by lower take rate businesses such as travel and grocery. But if you take that and again, you look at the guidance that we're giving for 2023, the long-run trend is that take rate continues to be stable or going forward to move up despite these sort of lower take rates part of the mix.

M-Commerce continues delivering good numbers. This has been a very, very consistent trend now for several years. Number of purchases up 37%, GMV, up 60%. So higher ticket size in m-Commerce, take rate stable for the year or in the fourth quarter slightly, again linked to promotional activity. But overall, a very, very strong performance throughout the year from Marketplace. And then when we look at e-Commerce, what is important to take out here is that e-Commerce performance has consistently accelerated throughout the year. So GMV growth of 57% in the fourth quarter was the strongest quarter of the year. Q2 was up 32% -- sorry, Q3 was up 32%, Q2 was up 23%. So you can see here that in this part of the business, the run rate has been very strong into the end of the year.

We've talked previously about the divergence between number of purchases and GMV. So again, we focused on particularly adding more merchants in e-Commerce, more SKUs, to drive more transactions per consumer and just to embed our sort of long-term competitive advantage. But over time, you will see that these numbers move closer together. Good performance from e-Commerce, particularly at the end of the year.

Reiterates the point really here you can see quite dramatically the increase in SKUs. It gives you a good sense of how it strengthened. It's not the only area we strengthened market e-Commerce's proposition, but it is one area SKUs increasing 1.9x over the course of the year. So we increased the depth and breadth the relevance of this proposition to all consumers with good results. Here too, this will change going forward, and we'll focus on less on adding more merchants, less on adding more SKUs and more just on helping the existing merchants sell more. This is where products like advertising and logistics and merchant financing become particularly relevant, but that's more going forward than what you're looking at in 2022.

Another area where we strengthened the consumer merchant proposition of e-Commerce is free consumer delivery. There's a cost to this. It's an investment. But the return is quite clear, both in growth in merchants, merchants on-boarding and in terms of consumers adopting delivery. Now 95% of orders are delivered, 46% of those orders are delivered within 2 days. And you've seen here quite a substantial increase in volumes, up 241% year-on-year. So that's material. But going forward, higher volumes help us improve the unit costs, the economics of delivery, making it more affordable for our merchants.

On travel, still very, very strong growth here at the top line. Take rate moving up, that just reflects a change in mix. Rail is a higher take rate than our flights. Going forward, growth will remain strong. But as Mikheil talked about, you'll get the added upside as tours start to kick in. It will be more in the second half of this year than the first half of the year. But tours will be GMV additive to travel and will also be substantially take-rate additive to travel as well over the medium term. So tours additive to travel, travel additive to Marketplace GMV, still going forward.

Here, you see how the mix has changed, travel becoming more important in the mix. Although you should bear in mind that in the fourth quarter, that is a seasonally softer quarter for travel, and it's a seasonally more important quarter for e-Commerce. So if you go into the first half of the year, you'll see travel increases in the mix and e-Commerce moves down, but it's just a reflection of normal seasonality.

Wrapping up marketplace financials. Here, you saw strong GMV growth, stable take rate. Therefore, that translated into very similar trends at the revenue line with, again, the fourth quarter being the strongest for Marketplace. Investments in free delivery is a cost. That does mute the margin upside. But despite the substantial investment we've made in delivery, you can see here that margins remain very, very solid for the fourth -- for the full year. And actually despite the investments in the fourth quarter, Marketplace margin moved up once again. So again, both on the top line and the bottom line, Marketplace finishing the year in a very strong position.

Moving on to the Fintech side of the business, we focused strategically this year on growing the deposit base, recognizing the opportunity to take deposit market share. I mentioned earlier that Kaspi deposit is a popular product, and you see very strong growth in deposit customers at a faster rate than in loan customers, deposit customers, up 35%, loan customers up 15%, having benefited from very strong market-leading deposit inflows over the course of the year. Part of that is the attractiveness of our deposit account, but part of that is just the attractiveness of the full suite of services.

At the first quarter and during the first half of the year, we talked about scaling back origination TFV in response to economic volatility and uncertainty. Approval levels have been back to business as normal since the summer, and you've seen that we've ramped up acceleration in the third and fourth quarters. Again, you can take this as indicative that the trends we see amongst our consumer base are healthy and robust going forward. Another area you can assess, sort of, think about credit quality as in terms of conversion. That's been stable throughout the year. So that tells you that consumers are borrowing, repaying, repaying early, at exactly the same rates has been the case over the year and broadly similar with the long-term trends. So consumer repayment activity, as evidenced by conversion rate, remains very, very healthy.

Strategically, we've always talked about growing BNPL share of mix. You see that continue to play out. It will have been boosted by Juma. One of the components of Juma is BNPL in the fourth quarter. What you also now see is the merchant financing, which is a similar product, similar-type product but aimed at merchants, is now also becoming more material in the mix. And that will continue into 2023 where you should see merchant finance take another step-up in terms of its importance. These products are all low risk, short duration, whether we're talking about BNPL or we're talking about merchant financing.

Low risk, short duration, but also lower yielding, and that's the reason for the decline in yields, both in the fourth quarter and for the full year. That decline in yield is consistent with the guidance that we provided at the beginning of the year and the trend -- and consistent with the guidance that we are providing for 2023. As we have attracted deposit inflows, particularly towards the end of the year, the loan-to-deposit ratio has fallen to 79%. Going forward, more deposit customers, more deposits will enable us to drive more origination, more TFV over the medium term. And you'll see that, that ratio gradually moves over the medium-term horizon.

Looking at credit quality. This has been a question that understandably has come up consistently throughout the year. If you look at first and second payment default rates, if you look at delinquency rates, what you see is -- once there can be volatility on a quarterly basis, the long run trend is that these levels remain very, very low and actually broadly consistent with the long run trend. Credit quality as a whole remains very, very healthy, both in terms of origination and in terms of collection.

Ultimately, the best measure of how we originate and how we collect is cost of risk. We started the year guiding for cost of risk around 2%. We finished the year with cost of risk of 1.9%. But with the fourth quarter up 1.6%, which was the strongest of the year. Additional macro provisions that we put through at the end of the first quarter were fully amortized. You see that being completed in the fourth quarter as we talked about and expect it to happen earlier on in the year. And again, we continue to guide cost of risk this year around 2%, i.e., we expect broadly similar credit quality trends in 2023.

On NPLs, underlying NPLs of 5.9% have been stable since last summer. What has happened is, look, we consistently aim to improve origination. We consistently aim to improve collections. When we write off debt, we continue to pursue collection. That's always been the case. But what has increasingly happened is that we've got better at collecting previously written off debt. So in 2021, we wrote off after 761 days. As we got better at collecting longer overdue debt, we're now writing off 1,080 days. That improvement in collections means that we've recovered, we bought back on balance sheet previously written off loans to the equivalent of KZT 27 billion. But that is -- that increases NPLs to 6.3%, that is ultimately indicative of a better ability to collect. Going forward for this year, we'd expect NPLs to remain stable at 6% or slightly lower than that.

So to wrap up on our fintech financials, what you are seeing, particularly in the fourth quarter, the impact of lower origination in the first half of the year combined with lower yield throughout the year results in softer revenue growth, although still very decent 27% in the fourth quarter versus 32% for the full year. But the real impact is on the bottom line where what certainly did happen last year is higher funding costs. Again, that cost has driven more deposit customers, more deposit inflows, but it impacts -- it negatively impacts fintech profitability. In the fourth quarter, our funding costs were up at 95% year-on-year. They were up 62% year-on-year for the full year. So that does have an impact on profitability even with the partial offsets of lower provisioning and lower sales and marketing costs year-on-year.

The key takeaway on this, though, is that, that margin pressure is cyclical, not structural. And as interest rates normalize, we'd expect those deposit customers and their funds to stay with us, but have the ability to drive more origination, lower cost, enhance margin recovery over the medium term.

That's the wrap-up overall of the financials. I think ultimately, we finished the year with very, very strong trends, particularly in Payments and Marketplace, 40% top line in the fourth quarter, consistent with the full year, 30% bottom line growth, slightly higher than the full year trend broadly stayed -- slight stable margins down slightly, year-on-year.

So in terms of the 2023 guidance, I won't run through this line by line. But I think the simple message here is that each platform, whether it be Payments, Marketplace or Fintech, we continue to expect very strong top line trends. Pricing trends, i.e., take rates a year or again, are consistent with what you saw in 2022. And whilst investment, ongoing investments in free consumer delivery in Marketplace and in e-Grocery in Marketplace, we'll have some profitability there. We are investing in Marketplace for the future. This is what keeps the GMV growth strong for longer.

And again, I'd reiterate the point on fintech side of the equation: Higher interest rates are helping us attract more consumers, more funding. This will ultimately help us drive more origination, more transactions over the medium term. There is a short-term impact on profitability, but that short-term impact is just that, short-term cyclical rather than structural margins will recover as interest rates normalize. Meanwhile, credit quality remains as strong as ever, well positioned to finish -- to have a good year in 2023 and extract bottom line net income growth of around 25%.

So on that note, I'll pause. Harry, I'll pass the line to you, so we can open the call...

(Operator Instructions)

And our first question is from the line of Gabor Kemeny of Autonomous.

I have a few questions. Firstly, on the Fintech, and I'd like to pick up on your point, David, that you mentioned that the rate cycle -- I mean there's some temporary developments here.

So firstly, what is the interest rate outlook embedded in your 2023 guidance? And what -- how do you expect funding costs to develop specifically?

And to follow-on from that, I think you mentioned the 15% rate you pay on new deposits these days. I reckon -- I think I reckon the Buy Now Pay Later financing came with a similar yield in the past period. So -- how are you planning to accommodate the pricing of this product to a higher rate environment. Are you planning any changes there?

Gabor, I'll just take the second one, and then I'll pass it over to Mikheil on the longer-term outlook. But what you should bear in mind, when you know the guidance for this year on year, I wouldn't think about any one individual product, overall, the yield guidance is around 25%.

What you should also bear in mind is that just sort of 1/3 of the funding comes from deposit accounts, which are interest free, 0%. So the current rate on tenge deposits is 15%. That's the main source although not the only funding, but also you should bear in mind that we have interest-free deposits which cost us 0%.

The guidance implies the current rate of interest. So if funding costs change over the course of the year, we'll adjust the guidance accordingly.

In terms of the longer-term outlook on funding costs. I don't know Mikheil, do you have any view to add there?

Well, I think you've pretty much responded. I can just take a step back and again, just to reinforce what we have talked in the last conference call as well, our strategy. Our strategy is we have a long-term strategy, and we invested to consumer relationship always. And we know that, that investment into consumer relationship, merger relationship, it will eventually pay back.

And therefore, the interest rates went from, whatever, 8%, 9% to 15% over a very short period of time. And for next year, we basically are -- for our next year guidance, we basically are thinking in terms of being in the same interest rate environment. But when we think about the interest rates will go down, then we will be beneficiaries of this, but also we'll have a much larger user base.

But we're not -- this year, we're not projecting dramatic reduction in 2023. And our guidance, therefore, based on the current interest rates.

Okay. I think that is clear. And just another question I had on how much room you see for share buybacks given the -- I guess, the limited liquidity of the shares? And what are your latest thoughts on a possible U.S. IPO, please?

Okay. So maybe I'll take those two, Gabor. So the simple answer is absolutely nothing has changed either in regard to how we think about capital allocation, or in terms of what we'd like to achieve in terms of particularly improving liquidity on the exchange.

So on the first capital allocation, I think our track record of returning cash, whether that be in the form of a dividend or buyback to shareholders is pretty -- speaks for itself. In terms of buybacks, we've been consistently in the market now over the -- pretty much every day, give or take for the last year.

Going forward, again, nothing has really changed in that regard. We have cash. We stand ready to make buybacks, subject to market conditions, subject to liquidity. And we'll continue just to watch -- we can move quickly. We'll watch and see how things evolve over the next couple of months. On the second, on the exchange, we've talked about this before. We would like to see -- have a more liquid stock, which likely means a change of exchange. That was impossible last year due to market conditions.

Like everyone else, we're watching market conditions closely, we hope this year will be better. If it is, we can move very quickly.

Our next question is from The line of Mikhail Butkov of Goldman Sachs.

Good day. Thank you very much for the presentation and the detailed guidance for the year ahead. My first question is on Marketplace. You guide for a 35% GMV growth in 2023. Can you maybe provide some color what is the mix between the new customers and growth in purchases for older customer cohorts do you expect? Because it is interesting, if you look at the Page #10 of the presentation, it looks like that the new customers mature quite fast, and both old and new customer cohorts have broadly similar level of GMV. So how much more potential for growth do you see for the existing customers? I'm interested to ask -- it's the first question.

Mikheil, do you want to talk about longer-term growth potential for Marketplace consumers?

Yes, sure. I mean in terms of our -- the way we really operate is that we have this unique situation when we are constantly adding new verticals. We're constantly expanding SKUs. We have dramatically increased number of offerings on our marketplace, and we're also entering the new categories, and we also acquired the consumers. So from that perspective, I think you don't really have to become sort of the rocket scientists and very granular in analysis, which is growing across the board.

And the reason why the cohorts, the earlier year, later cohorts were starting from a more GMV just because we have a more assortment, right? So -- but in terms of the purchasing of the consumers, we basically see the consumers very active across all our verticals. So I wouldn't be breaking down the consumers into new or old. They are actually buying the same type of items as we constantly expand those items and we constantly expand the basket basically of offering for a consumer. On top of the fact that delivery is driving a lot of growth as well, right? Because now we have this -- the last-mile network, which is the largest and the only probably in the country, which is hugely convenient for smaller ticket purchases as well.

So again, this is just a reflection of the fact that the assortment is growing really fast and number of merchants growing as well.

Okay. The second question is on the summer release of the macro provisions, I just wanted to clarify. Do I understand correctly that you released some macro provisions and you expect some NPLs to be collected later on the back of the -- just wondered why didn't you reflect the income, which you will receive from those ends at the factual point of time of collection and release it in advance? If I understood that correctly.

So I'm not sure the 2 are connected. So on the macro provisioning, we put through macro provisioning through the P&L in the first quarter of 2022. That was amortized throughout the course of the year and has been fully amortized. So that's one -- that's sort of the first thing.

Then second and unrelated to that, the decision to bring previously written off debt back on balance sheet is just that. This is a balance sheet transaction rather than a P&L transaction. If that debt is subsequently repaid, there will be a netting effect in the cost of risk. But at this stage, it's just bringing debt that's off balance sheet back on that balance sheet, there's no P&L implications for that. And incidentally, yes, I mean that's nothing -- that's nothing new.

Okay. And the last question is just on the buyback. Previously, you -- you were asked on the reasons for the buyback, you mentioned the valuations of the stock. Looking at comparing the stock price today and when the buyback began, it looks quite differently. So maybe what -- can you provide any new color here on the reasons and your outlook for the buyback with this regard?

Yes. I mean I'll just say, Mikhail, it's not related to valuation. And in fact, again, I'll just make the point, absolutely nothing has changed. We have cash. And as we've written in the statement, we stand ready, subject to market conditions and subject to liquidity to make buybacks in the market.

So while there's no specific news on that today, our openness to doing it in the future is no different to our openness 3 months ago, 6 months ago or 12 months ago. The only difference versus 12 months ago is that we've delivered better-than-expected numbers. And you can see that we've got a pretty strong outlook for next year. Nothing's really changed. I wouldn't overplay it.

Our next question is from the line of Sergey Dubin of Harding Loevner.

Congratulations on the outstanding results. Two questions. The first regarding Magnum JV and your investment and what are you going to be doing there. So when you say that it's roughly, I guess, I calculated a $155 million over 3 years, do you count only CapEx in that? Or is that OpEx and operating losses of the -- initial operating losses of these stores as they scale up?

It's CapEx, but I'll pass maybe to Mikheil to talk more generally about sort of how he sees that investment playing out.

So Sergey, thank you for your question. And thank you for congratulating us. You were the first one to congratulate us for the hard work we have delivered for our shareholders.

Yes, you definitely deserve that.

Now in terms of the number, yes, it's all in. It's basically everything related to this business, funding both the capital expenditures, which will be the majority of it, but also the working capital and the marketing, if needed.

Okay. And in terms of what you sort of would be doing versus Magnum in that partnership. Because my impression was that so far, you really -- you were handling sort of the front-end, consumer-facing front end, the web interface, right, and you're collecting your sort of fee of the top. But this sounds like more heavy investment. And who is going to be doing all the heavy lifting when it comes to grocery in terms of deliveries, in terms of managing inventories, all that kind of stuff? Would that still be Magnum? Or would you be more involved in that?

Well, I mean, just -- first of all, to clarify, that's a stand-alone subsidiary for e-commerce business, which means that, that business unit is actually everything around e-Grocery, just reinforced by us. So the e-Grocery unit itself is providing -- if you think about now Kaspi, so we are the ones that are delivering and also the buying and storing. So it's 100% controlled of the value chain.

Now we truly believe that this is -- we take this business extremely responsibly. So it's low-margin business clearly, so we have to get things right. And having this investment into this venture, but also having more control over the experience means that we can bring up to requested level the customer experience, which we're looking at. So we have got increasingly comfortable during the year. And once we've built the first case of 1 dark store broke it to -- basically brought it to the breakeven, we have the consumers which are just incredibly satisfied. And we believe that now we can -- if we double down both on technology side, and operations, we can build this transformative business for the food retail like we have done for any other industry.

So you can think of it as basically investment from Kaspi now just to scale the business model, which we have approved last year.

Okay. And delivery would still be outsourced, I would guess to third parties, right? So you would be managing this -- it's kind of like essentially e-Grocery front-end, e-Grocery back end in a sense of inventory plus all the CapEx that goes into the boxes of themselves, the stores. But the last mile of delivery would still be outsourced to these various third-party companies, correct?

Well, the way we manage -- I mean this is the business which is highly repetitive. So which means that -- I mean, the excitement that we have from it is that we have an incredible retention of repeat consumers. So that actually means that you really have to have a very strong sort of operations behind it, which we have built together with the Magnum last year. The portion of the couriers are -- the couriers, which we run, significant portion is Uber-type couriers, which are employed for the specific job.

But at the end of the day, it's really a technology that is managing those couriers. What is important that in the grocery, you have to -- the reason why -- the most important reason for the success in this business, apart from the reasonable ticket size, is also that you deliver on promise for our consumers. You deliver on time, you deliver high-quality products. And therefore, there is more requirement on the delivery side than just an e-Commerce part of the business.

So again, portion is almost like in full-time sort of people working, portion is third-party contractors, Uber-style employed for delivery.

Okay. Got it. And then last, just to round up the discussion on that one. So you saw this breakeven analysis for 1 store in Almaty, which obviously reached breakeven in Q -- in fourth quarter, which is quite remarkable. So would you expect more or less the same trajectory for all 15 locations? Because I take it would go to big other locations or Almaty as well as Astana, which is big cities, a lot of population, et cetera. So you would expect same economics or similar economics for the other stores you were rolling out in the country as well?

Yes. We -- I mean, explain you the strategy. We are a technology data-driven company, right? So what we always are going after is what importantly is the satisfaction of consumers the top line. And if we have a top line, the bottom line actually follows, and we know how to build a very efficient operation.

So from that perspective, everything we do in our business specifically in the grocery, it's all data-driven. I mean we know exactly what, when and in what frequency or quantity, at what price consumers will buy. So we are not -- our growth is not coming just as a result of the capital expenditures, right? Of the footprint. Our growth is actually -- our capital expenditures and investments are following our growth.

I'm not sure if I'm explaining this in simple words, but we're not -- I mean, we hate wasting money. I mean you have seen -- that's why we're a business which is profitable but also makes consumers extremely happy.

Okay. Okay, that's fine. And then my second question is regarding the lending business on the lending side. So one thing I would just maybe, Mikheil if you can comment on -- so your cost of risk has been in the neighborhood of 2% or 3%, right, for a long time now. And you -- you said that you write off the loans now in 3 years or a little bit on the 3 years and once all in 80 days.

So if you look at these 2 facts together, right, how would you explain like your NPLs seem to be in the 6% range. Is there like any old NPLs that sit there? Like why are aren't they more closely aligned to the cost of risk numbers?

Well, I mean, cost of risk is actually the combination of our -- both origination risk of our collection processes and things like that, right? And the NPL is just a balance sheet number, right? So from that perspective, that's why we always prefer to think in terms of cost of risk and the vintages, because that's an important indication.

And also the nature of our business, right? So we -- our average maturity is 6, 7 months. And therefore, that's -- basically we're churning our portfolio almost 2x during the year. And the most important number that we believe from the cost perspective is actual cost of risk and the vintages.

So if you -- David, if you go to the vintages slide. And there, you see on the both origination vintages, default vintages, collection vintages. So I mean, this is what basically is a reflection of cost of risk, right? Again, NPL is just a balance sheet number.

Yes, yes. What I'm saying just the balance sheet just accumulates what NPL generates, right? So like why wouldn't -- over time, it can vary in the short term. But over time, I would have expected these to be more closely related, right? Because as you just said, if you have these NPLs, that have been around for 3 or more years, and you're constantly generating 2% to 3% cost of risk, and then you're writing off stuff as well.

Just in your business, like 6% NPLs is not that high of a number, given the consumer focus that you have. But I'm just curious like why is it not...

Again, I mean, we don't -- I mean think about -- we think about NPL as this is, for us, is not an end of relationship with the consumer, right? So we don't accrue interest rate after 90 days. We actually stop accruing interest rate. And as a result, we work -- we continue working with the consumers.

So when I mentioned that we turn the portfolio 2x during the year, the NPLs are 3-year NPLs on our balance sheet. So we're not selling our portfolios to the third parties. And again, our collection is extremely impressive, but the collection is also very customer oriented.

So basically, if you turn the portfolio 2 times a year with, let's say, I mean, cost of risk of around 2%, then you book those NPLs on your balance sheet for the whole year. But it's 2x turnover of the portfolio. And now if you take 3 years, this is how you get to 5%, 6% NPL. But we treat it as a still consumer relationship, and we work with the consumers. We help them out to go through this process.

And that's why our collection is so impressive as well.

Okay. And then the last point on that -- sorry to take more time, but just very quickly. So there was some mention about off-balance sheet debt getting brought back on to balance sheet? Like what -- what's the reasoning? Or why is it happening now?

No, it's just -- our collection has been constantly improving. So as a result of changing the write-off policy, we believe that if we -- if those NPLs in the balance sheet, they just will deliver the better consumer relationship, we can have a more, sort of, communication with the consumers and things like that because they have developed the cash flow.

Again, that's the balance sheet number. And as David explained to you in terms of the cash flow, net income, cost of risk, they have been always in the P&L. Because we -- again, we work with the consumers during the whole stage of their relationship with us. Even if the loan is off balance sheet, we still continue working with those consumers. So it was always in our P&L.

Our next question is from the line of Ronak Gadhia of EFG Hermes.

Well, congrats again for the results. Just maybe a couple of follow-up questions from the previous caller. So firstly, the first one is on margins on your fintech platform. Is it possible to maybe share what the effective yield is on your Buy Now Pay Later type products versus your traditional general consumer-type loans? Just trying to get a sense of where the yields on that ecosystem will eventually stabilize as maybe Buy Now Pay Later type loans continue to grow?

And then the second one is Kaspi e-Groceries. So based on the business model that you just described, how does that -- how does Kaspi e-Groceries -- how does that interact now with Magnum on a stand-alone basis? Is it a competitor? Or is it a working relationship? Just trying to understand the relationship between the 2 entities now.

On the first, the simple answer is no. We don't break out yields on a sort of product by product line, mainly because that's just not actually really how we think we run the business internally.

We give you the overall yield. You know what it was for the last year. Last year's guidance incidentally was around -- so you're asking about long run trend. Well, last year's guidance was around 25%. This year's guidance is around 25%. So that doesn't tell you the long run trend, but actually there's a high level -- a reasonably high level of consistency there. So that's something you can probably take away, but I don't know if we'll go into any more detail than that. And then maybe the second question, competitor for partner, Mikheil?

Yes. Well, I mean, partner. So it's -- it's a joint project. So I mean, it's a stand-alone subsidiary. Clearly, there is a lot of food retail expertise, the knowledge in Magnum will also -- the brand Magnum will be kept for e-Grocery business. And again, we have been working together for year-over-year. And the management teams are extremely comfortable.

And I think that's actually is one of the most important reasons for the long term success, because this type of joint efforts are not successful when there is a different incentives on different company levels and the management teams. And here, we're fully aligned and has been already proven -- so now we're just doubling down and therefore, really just to scale across the country. So yes, definitely partner.

Okay. Understood. And just one final question also going back to your fintech ecosystem. When I look at the balance sheet, at the end of last year, it seemed the balance sheet was quite liquid, quite a lot of assets in cash equivalents for investment securities. Can you just comment on what we should expect from a balance sheet perspective in terms of asset allocation going into 2023?

No major change in terms of asset allocation.

Because your loan-to-deposit ratios is a bit lower relative to where it has been historically. So is that something we should expect for you to sustain?

It's a bit lower than where it was for part of last year. I'm not sure if it's that much lower than where it's been historically. I think you'll see it move up and in. You know the nature of our lending. We can ramp up lending. Very quickly, we can scale back lending very quickly. So we think in terms of short term, our lending products are short term in nature designed to drive transactions. So I don't think there's a real fundamental change in either funding or the lending products, I think it's just timing issues if you're looking at it on a quarter-on-quarter basis.

Our next question is from the line of Can Demir of Wood & Co.

I just had a follow-up question on the e-Grocery. Is it fair to say that Magnum has a different view on the outlook, or the profitability outlook in e-Grocery business? Because they now only have 10% share in the JV. And I guess they don't have a separate e-Grocery product because you will use their brand, or the JV will use their brand.

Is it fair to say that you kind of disagree with Magnum on what you can make out of e-Grocery?

This is -- it's a very scientific -- I don't know if it's a science or -- this argument. You lost me.

No, because I think they wouldn't own 10% of the JV, if they were thinking you would make a killing out of that business. Am I right in saying that?

There's over 90% of the consumers are delivered from -- almost 100% consumers delivered from Kaspi Super App and the orders and the whole technology, and -- so there is no argument about -- both are interested. We just believe that with investment in technology, this can be a huge business.

Okay. Fair enough. I won't push you more on that. Also on travel packages, I think the ticket size will be a bit larger, right, in when you finance your packages. Does that change your approach to underwriting because it feels like you're shifting into a different category, if you will, in lending?

Well, I mean, no, because I mean, our lending is -- I mean, the cost of risk is driven not by -- it's not driven by what you buy, it's driven really who you are. So -- and it will be more of an egg and chicken with the basic situation.

What I'm saying is that those 1 million people that are traveling are those that can afford it. But again, when we originate financing, when we make risk decisions, we are driven by the risk profile of a consumer. We never push on the consumer higher tickets and we don't leverage the consumer. And that's why our cost of risk is so remarkable.

So from that perspective, the brief answer is no. And actually, those people that are traveling to those destinations are the ones that can actually afford it. And again, we will be also -- people are also going with their own financing. So there will be a combination of both -- I'm spending my own money, or I can take a bit more expensive tour if Kaspi financing me. So we've already done all the tests. I mean, obviously, when we're announcing this business, we have done a lot of homework.

Of course. My last tricky question. So Dave, did you want to break out the loan rates, but it feels like you didn't put up the rates despite the increasing yields, right? So is it fair to say that your lending product compared to your competition is much more compelling now? Is it a fair thing to say?

I'm not sure it's the right way to -- whether it's fair or not, I'm not sure it's the right way to look at it because I think that our lending product is priced at a level that drives day-to-day transactions. So it is not comparable necessarily with what you might regard as a competitor.

And there unsecured consumer loan products, which are probably larger ticket, longer duration with a different end purpose in mind, we've always priced it at the level we price that because we think it's the right level to drive transaction activity. And I think you see that's pretty evident in the end results in the context of the complete ecosystem, which is very different to how a traditional lender would be pricing an unsecured loan in isolation. So nothing's really changed in that regard.

And we have no further questions registered today. So I'd like to hand back to Mikheil and David for any closing remarks.

So thank you very much, Harry. Thank you, everyone, for your time today. That wraps up today's call. If you have any follow-up, please feel free to get in touch with us. I'll hope to meet some of you over the next couple of weeks. Thanks again and speak to you at our Q1 numbers. Thanks, everyone.

Take care. Bye-bye.

Ladies and gentlemen, this concludes today's webinar. You may now disconnect the call.