Joint Stock Company Kaspi.kz (KSPI) Earnings Call Transcript & Summary

[Audio Gap] in Tokyo, it's 28% growth on the constant currency basis. Our major business in the payment still continues to grow very nicely, around 13% growth quarter-quarter and average net log portfolio continues to grow strongly around 18% year-over-year. So e-commerce is the area which we believe is extremely important for us. That's the final destination for our consumers and merchants is where we can add the most of the value in terms of enabling the purchases and connecting merchants and sellers. So e-commerce GMV has grown nicely around 28% on the constant currency basis year-over-year, and the take rate continues to expand, the main driver of the take rate is the value-added services, which would continue scaling, and that's about delivered in advertising. What is important is how engaged the consumers remain and how frequently they transact with us. So the number of purchases for consumer continued to grow in both Turkey and Kazakhstan and the e-comm purchases grew 33%, which is a very nice growth, and we delivered in excess of $76 million purchases in the second quarter, about 20% of our GMV is a and that is 1P mainly the gross rate in Kazakhstan, which is the fastest-growing e-commerce vertical for us and the 1P in Turkey, which is electronics and historically has been a category for 1P in Turkey. And we are about 53% of our GMV in Kazakhstan and 47% in Turkey. And again, both for us, the important priorities just continue building up our e-commerce capabilities and making sure that the delivery quality and the speed is improving, the value-added services are monetized, and we just continue working on converting the traffic and the properties that we have into the purchases from our consumers, so connecting merchants and consumers to each other successfully. E-commerce has been growing the take rate with the value-added services. So as you can see, the value-added services grew 49% on a constant currency growth and 27% wheel growth growing faster on the constant currency basis than e-commerce revenue. Again, just to reinforce the fact that we are extremely responsible in terms of growing those additional sort of services and making sure that we deliver the value for the merchants. And also we make sure that our services are highly reliable on the delivery side and highly relevant on the advertising side, if we sort of promote something to our consumers that actually is something they really need, and we deliver value to both merchants and the consumers through this experience. We're also approaching this new stage of the -- of our company's development. As you know, the CASB has done sort of reinvention of itself or transformations multiple times during this history. We have started from financial services, then we expanded into the ecosystem of everyday services and then we united all these everyday services in a single super app. And now we are approaching the stage when we want to develop the personal AI assistant, which will help with everyday tasks to our consumers and to our merchants. And in the first of July, we launched Casper, which is the the assistant for our consumers. We started with the one task now, which is actually enabling shopping. So Casper actually is built on our technology and is built on our data and build on our consumer experience, and it's in a single mobile application. So it's actually integrated in our super -- so Casper, we coin, a Casper or the new personal assistant and he can actually understand your needs. He can recommend the best products, we can engage in a conversation with you and ask to clarify questions, compare different products, give you the reviews and so on and so forth. So actually, it's enabled in voice and tax, so you can actually type your task or you can -- you can record it by voice and then customer helps you to find the right product for you among 20 million in products in our Kazakhstani commerce platform, he can follow up with the smaller questions, and then he can lead you to the right product for you, which you can after complete in our e-commerce. So we have launched it in the first of July. We have been scaling during the month. So now it's available to everyone to all our consumers in Kazakhstan. So it has been very rapid sort of scaling. It's still early to give you any sort of detailed performance metrics, but I think the metrics we already have are quite encouraging. So 1 out of 5 customers whom customer was available actually used it. The response rate is around seconds. So this tells you that all the sort of investments we have done both in the compute, but also in optimizing the speed had played off really nicely. So you as a consumer get response really quickly, which is extremely important for any AI model at assistant, the consumers are looking for the products across pretty much the entire catalog. So product categories have been covered so far, which is pretty much our entire catalog, which just tells you that the customer is performing the tasks across wide range of the products that we have, 8 in 10 conversations, so 80% of conversations actually end up with a product recommendation and 60% of those take customer through the specific product. So if you are looking for a vacuum kitclearer, he will just guide you through the process, understand your needs but then you basically have your product in the shopping cart. And what is important is obviously the speed, so with the Casper is 50% faster than just a regular product discovery and 50% faster adding to fibroids and 30% faster to the basket. So again, what we believe is that this sort of technology or this customer experience is lipfogging all the traditional way you to finding the products, you're scrolling, you are reading, you were analyzing the information on the screen, you are tapping buttons and so on and so forth. So you're spending much more time going through multiple stages of the product discovery and understanding the product that you need yourself. So Casper is actually speeding up this process. So Casper is helping to find the products faster, and he's really is working on the task with you rather than you sort of typing in the search box name of the product. So highly relevant, highly reliable, faster, and those are the most important metrics for us at the moment. We're not looking for, I mean our goal is to build a trusted assistant. So assistant is equal trust, which means that if you don't trust your assistant, you can easily fire him. So we treat Casper like your personal assistant and our priority now is to build the trust, which means it's highly reliable, highly relevant service that actually helps you to buy a product, which is exactly the product that you need. So this is our priority as we're scaling customers. So it's just month, but those are really very encouraging metrics that we observe with the customer interaction of consumers with customer. This is just an example of the queries, which basically tell you how different it is, is in track term with the customer and actually the traditional search, more traditional way to find the products you usually type the product that you have in mind. And then traditional e-commerce or marketplace way to offer your product is you are trying to give you a selection of the products, which you then are reading through females yourself with the ratings, but also a rate down through filters and other navigation tools, which have been developed over time. So when customers are interacting with the customer now, they just give them a task. I want to give my a gift for her second birthday or I want to have like after shape for consistency in fact that has a strong smell or I want a sprayer that I can set up next to the house. So it creates a cool miss. I mean, this type of interaction and the type of tasks which Casper is getting and able to solve is really remarkable. So we're truly be true sort of delivers in this technology, which we have been developing already for quite some time behind the scenes and getting ready to scale it. So it's really remarkable how consumers interact, how Casper really helps. And those examples, which you see here, they actually ended up in a real order but it's really important when you sort of think how customers do mission shopping, how they're focused on delivery, give me the items which can be delivered within 3 hours or solve this type of problem, which I have like after double-sided tape that has it was left on the plastic window, what product will help to remove it. I mean this is not the regular search. This is you asking someone to help with an advice. So all those tailings are extremely encouraging for us. We're scaling customer as we speak in our e-commerce platform. And again, our mission is to develop a personal assistant for everyday tasks and e-commerce and shopping is just 1 task we're now focused on. But in the future, we believe that Casper can help with all other tasks across all our services in our Super. I just would like to give you a bit of a demo. So the -- some of you that actually watch the screening, I think it would be pretty cool. So David, can we go to the demo -- so Gaspar actually has a dedicated space in our e-commerce. So you can basically type the task which you want aspire to be. So for example, I need a vacuum cleaner? The users basic analysis, and he starts asking good clarifying questions. For example, what type of bacon cleaners use you best. -- but then he goes into the requirements. So one of the things which is important for any vacuum cleaner is size of the apartment. So he will ask you to clarify size of your partner -- the bacon -- and then in basically a couple of seconds, he pulled together for you different vacuum cleaners, which are available in. They are described in a simple language. I can get you a list of the bacon cleaners, which are acceptable for you and then you can ask him to compare specific models. And then give us comparison. So on one screen, you can see the main characteristics and you can compare the products. You can actually use your voice. So if can ask with your voice at this task can be actually something which is in the core, for example, in terms of added value, like which of these vacuum cleaners is best suited for a person with. And he gives you a selection of the products which fit this criteria and explains why -- if you see some technical term, then you can ask him, for example, he's telling you that HEPA filter is important, and you can ask him what is water. And he can tell you in a simple language what is hyperfiltrand then you select the vaccine, you want, you push the button, and that's it. You can continue through the checkout and actually buy the product, all the charts, obviously, the store, personalized and things like that, you could go back and forth. So it's really it's a important development for us. As I have said, we are starting from the shopping experience because that's where we can add most of the value. But over time, we plan customer to expand in all our services in our super apps and also the service is highly scalable. And when it's built on the high-quality data can become highly relevant and obviously, the customer is highly scalable to all our other markets and the businesses. So we'll be thinking about scaling him to Turkey as well. Another just a quick update. So we have secured the banking license. So we've basically completed the acquisition of Rubber bank. And now we're building up our fintech capabilities, so we will be investing around $300 million as we initially said in order to just for the capital of the bank. We're scaling fintech products now, and we're building up the capabilities to roll them out next year and we expect no material impact this year. But obviously, the sort of the combination of -- I mean this is feedback and financial services is where we started. So we're true believers that you can deliver the most value to your consumers and to your merchants, when you actually combine capabilities of the fintech and the e-commerce together. So that's something which is important strategically for us. This is something which we're extremely experienced is successful and we will be rolling them out sort of next year, the fintech products, both for consumers and merchants. We are not sitting idle, obviously. So we have been working on launching the new shopping loan based on the consumer finance license, which we already have in Turkey. And we have launched the new shopping loan on sort basically flow is extremely similar to what you actually have in Cascade itself. So you can actually silent the product based on the product, you can select the monthly payment, which feeds best of your needs and then you can proceed seamlessly through the checkout. So this product is -- we are piloting the new shopping loan is already 0.54% of the GMV in June. Again, we have been preparing ourselves for quite some time in any financial services, originated loan or financing customer is step #1. So actually, get being paid back, it's more important than originating the loan. So for all these months, we have been building up our risk management capabilities. You're rolling out risk management, which consists of the approval, managing the consumer and also the collection process, like the entire sort of loan journey. We have been implementing and rolling out now. So now we're with all the metrics, and we're piloting the new cash loan basically on the Hepsiburata platform. And again, we're strong believers that combining this around the consumers and merchants, shopping experience and the fintech experience and the financial products will give us a more -- at a lot of value for consumers and merchants and therefore, a lot of that for the company. The products which we'll be focused on to roll out as we build the foundation for them will be products around shopping, around merchants and you know all the products that Gaspihas, right? So we have shopping loan, BNP, Merchant Finance and the consumer finance product. So and obviously, savings accounts and so on and so forth. So we can expect us that next year, we'll be launching those products in Turkey and banking license allows us to do that and technology we're rolling out in Turkey, encourage risk management, basically, all those things coming together very nicely. So we're very optimistic about launching financial services and fintech products in Tokyo.

All right. So thank you, Michael. So just to run through the financials. Starting, firstly, with marketplace, so marketplace constant current GMV growth up 15% year-on-year. So as you saw, that's driven by less GMV growth, up 28% with commerce and travel broadly flat, consistent with trends in the first quarter. Take rates increased 120 -- sorry, 110 bps to 12.1%, again, driven by e-commerce and specifically advertising and delivery. The revenue and EBITDA growth of 11% and 9%. That is reported growth, not constant currency, so impacted by 21% depreciation of the Turkish lira versus the Kazakh tenge. That's the first thing to keep in mind and the second thing to keep in mind, 9% EBITDA growth, that differential versus revenue growth of that margin pressure. That's sort of the lease per announced we've seen actually for the last couple of years and despite the investments that we're making into hep C Parada. Moving on to payments. TPV growth was 13%. That's a slight moderation, reflecting a slight moderation in inflation and as inflation continues to come down. TPV growth will reduce accordingly. The take rate declines by 7 bps. So again, that is something similar to what we saw in the first quarter. Long run trend, though, driven by changes in product mix in favor of CASB Pay. The result is reported revenue growth of up 5% and EBITDA down 1%, the pressure on EBITDA is 2 things. Number one, it's the investment in CAS Alicon. So that's pay by Par. It's tech and product development spend. And number two, you should keep in mind that adjusted EBITDA exclude the interest revenue, the payments generate. So that interest revenue was up 15% year-on-year. That's not reflected in EBITDA, but is reflected in net income is net income accretive. And then on to fintech. Firstly, we talked on our last call about strategically focusing on loans that generate more revenue. These are longer duration loans. So what that really means is within the loan portfolio, the mix is shifting, short duration, low revenue-generating loan is getting smaller in the mix or the loans, general purpose match and financing of growing in share. [Audio Gap] 18%, the mix changing in favor of higher revenue generating loans. Pricing is stable and so the result is faster revenue growth -- revenue growth of both net loan portfolio growth and revenue growth, up 23% year-on-year. So that's the first point. The second point would be that you see that cost of funding remains an issue, up 150 bps year-on-year in the second quarter. However, as some of you will have seen, Kazakhstan lowered its national Bankrate at the end of June and we lowered on 1 of our products, our deposit rate last week, effective last Wednesday, I believe. So that was our fast rate cut for over 2 years. It applies to our 3-month duration product, which is around 30% of deposits. We lowered the rate from 20% to 19%. So clearly, this isn't reflected in Q2 numbers. Some of it will be reflected in Q3. It's a 3-month duration product. So it will be reflected to a much greater extent in the fourth quarter and then fully as we go into next year. But the bigger point to keep in mind is this isn't just about 1 rate cut for the last several years on this call, we'd be talking about how high rates have been a pressure on the bottom line. If inflation continues to fall in Kazakhstan rates will continue to come down, you can see that growth in our deposits is strong, up 21%. So naturally, we'll be able to push those rate cuts through. And that will be very beneficial at the bottom line for us over actually not just 1 quarter, but potentially over the next couple of years. In the second quarter, EBITDA up 6% versus the revenue growth of 23%. On the risk side of things, cost of risk, 0.7% and that's up slightly versus 0.6% in the second quarter of last year, but flat quarter-on-quarter. We would expect cost of risk to moderate slightly in the second half of the year. The NPL ratio, NPL coverage trends consistent with what we've talked about previously as the portfolio mix shifts, particularly towards merchant financing and to a lesser extent, the carload, these are products with a higher level of -- a higher probability of collection. Therefore, we can keep those NPLs on the balance sheet for longer, a higher probability of collection means they require less coverage. So this remains just a function of changing mix. If you look at the sort of the real-time credit metrics, you see whether it be first, second payment default on the left, or delinquency rates on the right, they remain low and stable. So to sort of wrap everything up for the second quarter. Reported revenue up 15%, driven by e-commerce and FinTech revenue growth. Adjusted EBITDA, up 5%, impacted by higher rates and investments into Turkey and net income flat, again, reflecting those same pressures on EBITDA. And you should also keep in mind that the regulatory changes that were announced last year, particularly higher national bank reserve requirements have been introduced in 2 phases. The first phase was last year. The second kickup was in the second quarter of this year. So you see that pressuring net income. And as we go into next year, that is in the base as well. On the -- just another way of cutting things up, I think this just very clearly illustrates where the pressure on profitability is coming from. It's coming from interest rates. We've always said that, that is cyclical. It now looks for the start of the cycle, that going from being a negative from being a headwind to being a tailwind. If you think about the investments that we're making into Heps and these things, tech and product spend, sales and marketing, the not just Tarkett Kazakhstan as well. But actually, you can see that in the context of CASB that earnings generation, they're relatively small. That's whether you cut it from an earnings perspective or if you look at from a dividend perspective, the cash that we're able to return despite these factors and despite these investments. On the guidance, guidance reiterated. GMV up 17% as of the first half of the year. Guidance for the full year remains around 20%. We would expect faster trends in the second half versus the second quarter driven by the timing of promotional events and other product initiatives. TPV growth up 13% versus the guidance of around 15%, the will be assuming inflation moderates that will be a downward pressure, although integration with Apple Pay should see us benefit from higher overseas volumes, particularly over the summer period. As we talked about, we've moved from TF guidance to average net loan portfolio guidance 20% in the first half of the year guiding for 15%. But the full year. EBITDA is trending up 7% at this stage in the year versus the guidance of around 5%. So overall, we're comfortably on track for where we expected to be at this point in the year. So on that note, so let's open the call up, please to Q&A.

[Operator Instructions] Our first question comes from Gabe.

Can I first ask about the fintech business, please? Indeed, a decline in your deposit pricing for the first time. I think you can't how deposit rates around 2 months after the Central Bank policy rate cut. Is this dynamics -- is this reflective of how you expect your pricing to evolve in light of the Central Bank policy rates? And can you share your thoughts on how deposit your deposit pricing may evolve in the next few quarters? And my other question would be -- just on a combination of this very quick deposit growth in the quarter, coupled with a drop in your deposit pricing. If you can elaborate a bit further on these trends, please, which clearly left you in a better funding position than you have been for some time. And my final question would be on the marketplace dynamics. It looks like Kazakhstan was growing more quickly this time than Turkey. Can you shed some light on how these respective markets are evolving?

Mike, do you want to take actually all of those questions?

Yes, sure. So thank you for your questions. In terms of the deposit rates, I mean, in general, we're really focused on always on acquiring the sort of the customers and delivering them the best product experience. So the previous actions, which we really had resulted in a very strong customer and deposit inflow. In terms of our strategy for the pricing in the future. I mean, our general strategy really will remain the same. So we just look at the dynamics. And if we believe that we will get -- if there is a relationship really strong, considering the market dynamics and the rates on the market, relationship between the way that we price our products and how we acquire customers. And if we believe that there is a room to reduce the interest rate because this dynamics on the changing the rates on the market allow us to do, then we will do it. So there is no magical formula basically behind it. And our decision to reduce the rate was driven by basically these dynamics. So what you could expect is this product specific product, which is the 3-month saving account, around 30% of our deposit base, so you expect the impact -- positive impact financially in the -- by the end of the year as deposits churn, the duration is, again, of the positive. So all the deposits will be repriced when the duration is basically in 3 months. In terms of the marketplace dynamics, I mean, again, we have a bit different strategies on the market. So our e-commerce is a priority. But in Kazakhstan, what we're doing is we're just developing consumer experience based on the specific verticals. And that's what gives us the sort of the successful growth on the e-commerce side. We are also growing extremely fast on the eco-service side, so which is also helping both with the consumer engagement but also profitability on the marketplace, but most importantly, the growth. So in Kazakhstan, our strategy is just we're working vertical by vertical. Again, the electronics has not really recovered just because of all the price changes and the conflict of the Middle East and things like that. Supply chain is still challenging GPU prices, chip prices going up. So you still see the growth because all other verticals are growing very nicely, everything around closing or car spare parts or home items and things like that. So we're really happy with the way we're proceeding in Kazakhstan, and the strategy there is cortical vertical -- and in Turkey, our strategy, considering that we're just starting to actually launch the product for the consumers, especially on the fintech side. For us, it's extremely important to work on foundational things, even though growth has been there, our focus has not been on the growth, right? Our focus really has been on the on the consumers, so consumer experience, Net Promoter Score, merchant experience, delivery speed, which we have improved dramatically during the last 12 months year-over-year like consumer frequency of transactions increased 15% in Turkey. As those things basically the strategy there to put it in simple words, it's much better to have nearly customers which do love you rather than 3 million or 5 million customers, which have just occasional shopping with you. And the reason why we want this 1 mile customer should love with us is because next products, which we will launch that will use those products if they are in love with our existing consumer experience. So in Turkey, the growth has not been the goal. We have grown nicely. Our goal is to make customers even happier, and the merchants even happier, and we're building the foundation for the phase of the growth coming next year, and we just want to drive the adoption of the new products, which we'll launch next year, especially on the fintech side.

And maybe just I'll just add on Gabor on Tek. When you're looking at its performance in the second quarter, I think you should look actually at order growth over the first half because you probably remember, there was a lot of retail disruption in Turkey in the first half March, April of last year. So that just sort of distort the comp quarter-on-quarter, both in Q1 and Q2. And probably if you look over a longer period of time, H1, where orders increased just under 18%, you get a bit of a better indication of the performance of the business this year.

Our next question comes from Maxim Nekrasov.

I have a couple of questions. The first 1 is very simple. So basically, your first half EBITDA growth was around 7% and it was already trending above the full year guidance, while you mentioned the reduction in the deposit rates that should benefit you in the second half of the year. So simply, why EBITDA guidance was unchanged? And how should we think about the second half growth and profitability? And the second topic I wanted to ask about maybe not surprisingly about AI and the Casper. So I know it's quite early, but maybe if you can tell us about the early benefits you've been seeing so far or any measurable impact. And also in terms of the costs and what level of investment? And should we expect any significant costs related to that project.

Thanks, Max. Maybe I'll take the first question on the guidance and then Michael can take the AI-related question. So you are right, we lowered the rate on the 3-month deposit. That's around 30% of the deposit base last week, last Webs Day. It will take 3 months to fully reprice that. So you're looking at the benefit really big starting to come through. from the second part of November. So really only one full month this year. So you're right, there is some benefit of it this year, but it's for a relatively short period time, the full benefit of that and actually potentially other rate cuts that we might see will be felt from the beginning of next year.

On the customer, do you want to -- David, to pull out the slide?