Qiwi PLC (QIWI) 2019 Q3 法說會逐字稿

Good day, everyone. And welcome to QIWI Third Quarter 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Mrs. Varvara Kiseleva, Interim Chief Financial Officer of QIWI. Please, go ahead.

Thank you, operator, and good morning, everyone. Welcome to the QIWI third quarter earnings call. I'm Varvara Kiseleva, Interim Chief Financial Officer, and with me today are Sergey Solonin, our Chief Executive Officer; and Andrey Protopopov, Chief Executive Officer of the Payment Services segment.

A replay of this call will be available until Wednesday, December 4, 2019. Access information for the replay is listed in today's earnings press release, which is available on our Investor Relations website at investor.qiwi.com.

For those listening to the replay, this call was held and recorded on November 20, 2019.

Before we begin, I would like to remind everyone that this call may contain forward-looking statements as they are defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements about our expectations for future performance are subject to known and unknown risks and uncertainties.

QIWI cautions that these statements are not guarantees of future performance. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statement to reflect the events that occur after this call.

Please refer to the company's most recent annual report on Form 20-F filed with the Securities and Exchange Commission for factors that could cause our actual results to differ materially from our forward-looking statements.

During today's call, management will provide certain information that will consider non-IFRS financial measures, such as adjusted net revenue, adjusted EBITDA, adjusted net profit and adjusted net profit per share.

Reconciliations to IFRS measures and certain additional information are also included in today's earnings press release.

With that, we'll begin by turning over the call to Sergey Solonin, our Chief Executive Officer.

Thank you, Varvara, and good morning, everyone. Thanks for joining us today. I'm glad to share our third quarter results with you today. This quarter, we have demonstrated robust performance.

Our Payment Services business delivered 29% segment net revenue and 31% segment net profit growth, securing strong results for 9 months of 2019.

Our growth was driven by solid performance of our key streams, Payment Services for digital entertainment merchants, digital money remittances and projects we developed for self-employed and sharing economy partners.

Growth was also enforced by overall expansion of our payment ecosystem, driven by the scaling of our operations and enhancement of the product proposition we offer to our users, merchants and partners.

This quarter, we also continued to invest in the development of our financial services projects, primarily SOVEST, while Tochka project has booked some positive net profit this quarter.

I believe that our performance clearly demonstrates the value of our ecosystem to our customers and serves as a solid foundation for the future growth. It's an important contribution towards the achievement of the midterm goals we have provided last year.

Moreover, significant cash flows that are generated by our Payment Services business allow us to invest in the new products and projects in the financial and payment spaces in order to secure the long-term growth prospects of our company.

Now on to some operating highlights. Third quarter of 2019 total adjusted net revenue increased by 15% to reach RUB 6 billion, up from RUB 5.2 billion in the third quarter of 2018. The increase was mainly driven by Payment Services and Consumer Financial Services segments' net revenue growth. The growth was slightly offset by the technical decrease of the SME segment net revenue and negative net revenue contribution of Rocketbank segment.

Andrey will discuss the performance of our Payment Services segment in a minute, while I will walk you through the results of our other segments.

Consumer Financial Services segment payment volume reached RUB 7.2 billion for the third quarter of 2019, increasing by 54% as compared to the same period of the prior year.

Segment net revenue was RUB 369 million as compared to RUB 125 million in the third quarter of the prior year, demonstrating the development of the SOVEST project.

Throughout 2019, we have enhanced the product offering and improved the monetization of the project. At the same time, we continue to explore potential opportunity to support and reinforce the scaling of the project primarily focusing on transforming SOVEST into a platform that can efficiently partner with other banks to offer them new solutions focused on consumer acquisition, while leveraging their balances to scale the product.

Moving on to SME segment. While Tochka platform that we developed together with the Otkritie Bank continued to demonstrate robust operating financial performance in the third quarter of 2019. Our SME segment net revenue decreased to RUB 200 million for the third quarter of 2019 as a result of the transfer of Tochka operations to JSC Tochka that happened on February 1, 2019.

Further, I would like to give you a brief update on the latest development in relation of the Rocketbank project.

Following the decision of our Board of Directors in August, we have explored currently available market opportunities of partial or complete sale of the project. The Board has further concluded that it will be in the best interest of the company and its shareholders to seek a complete sale of Rocketbank. We have hence hired a financial adviser and are currently preparing for conducting a formal sales process. At the same time, we continue to invest in the development of new products and maintenance of our customer base to secure that we are able to achieve the best possible deal.

Last but not least, I'm glad to announce that following the determination of the third quarter 2019 financial results, our Board of Directors has approved a dividend of RUB 0.28 per share keeping the nominal per share payout constant as compared to the previous quarter, in accordance with the decision of the Board being to distribute between 65% to 85% of our adjusted net profit for 2019.

With this, I will turn the call over to Andrey, for an update on the Payment Services business. Andrey?

Thank you, Sergey, and good morning, everyone. It's my pleasure to be here with you today. Now on the results of our Payment Services segment.

For the third quarter 2019, our Payment Services segment volume increased by 32% to reach RUB 391 billion, driven by significant growth in E-commerce, Financial Services and Money Remittance vertical, which grew 56%, 37% and 33%, respectively.

The growth in the E-commerce and Money Remittance vertical is largely driven by the development of our key streams, mainly the digital entertainment, self-employed and sharing economy partners, where we were able to extend our partner and merchant network, build up our relations with our existing partners and expand our product offering. This growth was reinforced by secular market trend towards the digitalization of payment in our key regions.

The growth in Financial Service category was driven primarily by the new distribution contracts. Payment Service segment net revenue increased 29% to reach RUB 5.5 billion compared to RUB 4.3 billion in the prior year. Payment Services payment adjusted net revenue increased 28% to RUB 4.7 billion, up from RUB 3.7 billion in the prior year, primarily as a result of the net revenue growth in our Money Remittance, E-commerce and Financial Service vertical, which grew 33%, 30% and 19%, respectively.

Our financial results in these segments were predominantly driven by the increase in volumes. Our payment average adjusted net revenue yield was down by 3 basis points year-over-year to 1.2%, driven by the yield decline in our E-commerce and Financial Services market vertical. Such decline was driven mainly by our focus on increasing the scale of our business through offering our merchants and partners the new services, such as online acquiring, which may have lower commissions than our Qiwi Wallet solutions.

The growth of these new product streams may dilute our payment average adjusted net revenue yield, primarily in the E-commerce category, while the commissions we charge on our core solutions remain stable.

Payment Service other adjusted net revenue increased 37% to RUB 808 million as compared to RUB 589 million in the prior year as a result of growth of revenue from fees from inactive accounts and unclaimed payments that is in line with our overall growth and scaling of our consistent and interest revenue.

As Sergey mentioned earlier, our growth was driven by the robust performance we have achieved in our key strategic streams and through the expansion and enhancement of the product proposition we offer to our users, merchants and partners.

We believe that we are well positioned to continue growing our business by enriching our suite of services in this area, while we aim to further improve our key solutions and use cases and develop new strategic niches to support our long-term growth.

With this, I will pass over to Varvara for more details on the financial performance of the group. Varvara?

Thank you, Andrey. Moving on to expenses. Strong operating performance of our Payment Services business that continues to generate substantial cash flows, supported our investments in the development of the new projects. Our net revenue growth outpaced the growth of the expenses supported by the improving operating leverage. So this being said, adjusted EBITDA increased 54% to RUB 2.5 billion from RUB 1.6 billion in the prior year.

Adjusted EBITDA margin was 42% compared with 31% in the prior year. Adjusted EBITDA margin expansion primarily resulted from adjusted net revenue growth, enforced by decline in payroll and related taxes related to the quarter revenue and advertising client acquisition and related expenses, partially offset by the increase in compensation to employees and related taxes relates to the SG&A expenses as well as the increase in other expenses related mostly to the transfer of operations of Tochka platform.

Group adjusted net profit increased 62% to RUB 1.9 billion from RUB 1.2 billion in the third quarter of the prior year. Adjusted net profit was largely affected by the same factors as adjusted EBITDA as well as by a net foreign exchange gain as compared to the net foreign exchange loss for the same period in the prior year.

Payment Services segment net profit increased 31% to RUB 3.3 billion compared with RUB 2.5 billion in the prior year, driven primarily by the Payment Services segment net revenue growth slightly offset by growth of payroll compensation to employees and related taxes, excluding the effect of share-based payments.

Consumer Financial Services segment net loss was RUB 424 million in the third quarter 2019 as compared to net loss of RUB 699 million in the same period of the prior year, resulting from the expansion of the operations of SOVEST project and improvement of user economics, as Sergey previously mentioned.

SME segment net profit was RUB 156 million as compared to net loss of RUB 80 million in the third quarter of 2018. Net profit growth in the SME segment resulted primarily from the growth and development of the Tochka business.

Rocketbank segment net loss was RUB 632 million for the third quarter 2019 as compared to the net loss of RUB 305 million for the same period in 2018. The substantial increase in net loss was primarily driven by the expenses incurred in connection with transfer and development of Rocketbank operations in QIWI, including primarily personnel expenses as well as client acquisition and marketing costs.

Now on to our guidance. Firstly, I would like to remind you of certain accounting changes that are embedded in our 2019 guidance. We have ceased, starting from February 1, 2019, to recognize part of the Tochka revenues associated with information and technology service agreements with Otkritie Bank for providing services to Tochka clients that have their accounts with Otkritie Bank as Tochka business was transferred to a separate legal entity, JCS Tochka. Such revenues were recognized in full for the full year 2018, however, they are only being recognized for 1 month in 2019.

For the avoidance of doubt, only revenues related to Tochka clients that have their accounts with QIWI Bank are recognized as QIWI group revenue starting from February 1, 2019. We correspondingly account JCS Tochka as an equity associate.

This being said, we upgrade our 2009 guidance to reflect primarily strong performance of our Payment Services business and underlying trends that we currently observe. We expect group adjusted net revenue to increase by 15% to 19% over 2018.

Payment Services segment net revenue to increase by 25% to 29% over 2018, while adjusted net profit is expected to increase 45% to 55% over 2018. We reiterate Payment Services segment net profit guidance to reflect our current expectations in regards to certain one-off expenses we are likely to incur in the fourth quarter this year, thus Payment Services segment net profit is to increase by 25% to 29% over 2018.

Although we see our 9 months results as a solid foundation for future growth, certain other factors remain beyond our control, and hence, we reserve the right to revise guidance in the course of the year.

With that, operator, please open the call for questions.

(Operator Instructions) Our first question is from Cris Kennedy with William Blair.

I just wanted to get an update on your thoughts on SOVEST reaching breakeven in 2020?

Cris, this is Sergey. For -- on SOVEST, we are planning to be breakeven in the next year. So everything goes there. I don't know if Varvara wants to add anything.

Yes. We are -- the project is developing in accordance with the current budget. And we believe we will reach breakeven in the second half of 2020.

Can you just give a little bit more details on kind of the road map to reaching that breakeven point?

Right now the project reaches, at this point, with its current settlement and organic current growth. So nothing specific in that.

So this year, we basically improved consumer monetization. And we see good results of the project developments that we have done, and adding some value-added options for the customer...

The revenue is growing there.

So the revenue of the project is growing. We are optimizing certain functions, such as delivery, et cetera. And through that we are kind of increasing the scope of business growing and improving the business unit economics.

Okay. Great. And then just any updated thoughts on your kind of 2021 targets? I think of like 45% net profit margins.

So currently, we are still -- we did -- we reiterate our midterm guidance that we provided in 2018. We don't see at the moment any significant changes to the plans and forecasts that we have provided. And if we have anything that we're on to change to the midterm guidance, we will update the market accordingly.

(Operator Instructions) Our next question is from Vladimir Bespalov with VTB Capital.

Congratulations on some good numbers. My first question will be on the guidance. If we take the revenue growth guidance and the lower bound of this -- if my calculations are correct, this implies that your growth -- revenue growth in the fourth quarter could be somewhere close to 0. So we are more than in the middle of the quarter right now. Could you maybe provide some color what could lead to this outturn, if this is the case? Or you are just trying to be very conservative? And maybe Varvara could elaborate a little bit on the one-off item, which would push the margins for the Payment Services down in the fourth quarter.

So yes, Vladimir, thank you for your questions. For the guidance for the year and for the fourth quarter, as you know, the accounting for Tochka has changed and the largest effect from the Tochka shift from IPV to JV will be in the fourth quarter because naturally the largest revenues generated by Tochka were in the fourth quarter 2018. So this would significantly impact the group net revenue growth and the group -- and this through does affect the guidance provided. Overall, of course, we are trying to live -- to be slightly conservative, but this guidance is in line with our real and current expectations.

As for the one-off item, which was -- which has a chance to affect the Payment Services net profit in the fourth quarter, this one-off is connected to the reserves we are likely to make in connection with the operations of our business in Kazakhstan, where our partner bank went through a bankruptcy procedure. These reserves are likely to be recuperated at some point. But to be, again, on the conservative side and in accordance with IFRS, we're likely to reserve some sum of money for that case.

Okay. My second question is to Sergey. You mentioned in your recent interview that you are trying to get a loan for your personal project. And then alternative for this is a sale of a small stake. So maybe you could update how this is proceeding. Have you been capable of getting a loan? Or what are your plans?

Vladimir, thank you for the question. I'm currently considering different options, either alone or small sale of the stake for this project. And -- but it's still not decided.

Our next question is from Maria Sukhanova with BCS Global Markets.

Congratulations from me too. So I have several questions, again, related to the guidance. If you look at the components, first of Rocketbank, you guided that for the second half, you're going to book around RUB 2 billion net loss. So it seems like you're going far below than that. So the first question is, what kind of loss do you expect for the fourth quarter? Is it going to be less than you initially guided? And second question, you were expecting the impacts on staff costs from that shift to a different accounting method. So have you already seen it in the third quarter? Or is this something you're going to see in the fourth quarter? And third, a technical question. You booked an impairment on assets around RUB 500 million this quarter. Is it related to this Kazakhstan one-off or like is this something totally different?

Maria, thank you for your questions. First of all, as for Rocketbank, we're currently going better than the budget and the investments associated with Rocketbank in Q3 were slightly below what we have initially planned. So for the second half of the year, we're likely to be, again, slightly below the RUB 2 billion we have initially planned as costs for Rocketbank.

On the PS expense, the Payment Services expenses question, yes, the additional expenses, which came not from different accounting but from shift of our long-term compensation -- part of our long-term compensation program from share-based payments to cash is already in -- embedded into the third quarter numbers. So we already started launching those programs.

And as to impairments, no, impairments is not connected to the potential reserves for the capital business. Impairments is connected with impairment of Rocketbank and impairment of QIWI books.

(Operator Instructions) We do have a follow-up question from Vladimir.

I have 2 actually. One question is on your dividend policy. Probably you haven't approved it yet for the next year. But in your internal thinking, what do you expect in this respect in 2020? And I have also a question on SOVEST. Where do you stand now in terms of developing your new strategy for SOVEST and, in particular, for the things that you mentioned earlier, such as the development of multi-banking model, adding more banks to the platform and selling a part of the loan portfolio to your partner banks?

Vladimir, on the second question, we are currently in the process with SOVEST on both projects. So first, we are doing a project with some other banks on the multibank. So -- and if we succeed on the integration side and everything, so next year, we will be in the process of selling down the credit portfolio and staying as an operator of the business.

On the first question with dividend, so we are in line with what we are doing today for the next year. As a shareholder, I would love to have dividend both in place for the next year, but it will be under the decision of the Board.

Our next question is from Svet Sukhanova with Sberbank.

Congratulations with very good results. My question will be about betting and on performance of E-commerce and Money Remittances lines. So if we compare -- if you compare second quarter versus third quarter performance, you saw some acceleration of E-commerce line. And you understand that banking revenues are recorded under that kind of E-commerce line. While we know that third quarter was much higher base for you given the World Cup last year. So how -- so 2 questions here. First, how -- what was the performance of betting-related revenues in Q3? And the second question would be, why has E-commerce revenues accelerated in the third quarter, while Money Remittances revenues decelerated in the third quarter?

Svetlana, thank you for your question. On the betting revenues, we're not growing at the same pace, of course, as the previous year. So now betting revenues are more or less in line with the budget. But not growing that as fast anymore as it was previous year, that's what you know what I can say. And the second part of the question was on the...

For the Money Remittance -- Svetlana, it's Andrey. For the Money Remittance, the question was why Money Remittance growth de-accelerated in the third quarter, right?

Yes. Money Remittance growth decelerated and the E-commerce growth -- revenues growth accelerated. So I wanted to understand the kind of dynamics in that 2 lines.

Overall, we don't see like significant changes in trends. So it's the effect of the base of the last year. So it's a base effect basically.

So, okay. Understand. That's base effect for Money Remittances. I also understand -- understood answer regarding betting-related lines with budget, but not growing that fast. But in that kind of light, can you please elaborate why E-commerce revenues growth accelerated in second -- in third quarter?

So Svetlana, it depends on, as you know, the growth -- the revenue dynamics depend on manufacturers, both on the product mix, on the commissions that we charge. And our E-commerce category includes certain other categories, apart from betting, for example, such things as online games, tourism and ticketing and things like this. There are a lot of different development that form the dynamic for the entire category as well as our new additions -- new product additions. So in this respect, it's effect of the multiple streams combined together.

Yes. And talking about the product, the key contributor was the launch of online acquiring. So it's continued to develop. And this is one of the growth driver for this category, specifically that one.

We have reached the end of our question-and-answer session and the end of our conference. We would like to thank you, and you may disconnect your lines at this time. Have a great day.