QIWI plc
Q1 2021 Earnings Call Transcript

Published: 20 May 2021

[Operator:]

Good day, everyone and welcome to the Qiwi First Quarter 2021 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to Ms. Tatiana Vlasova, Acting Head of Investor Relations of Qiwi. Please go ahead.

[Tatiana Vlasova:]

Thank you, operator, and good morning, everyone. Welcome to the Qiwi’s first quarter earnings call. I am Tatiana Vlasova, Acting Head of Investor Relations and with me today are Boris Kim, our Chief Executive Officer; Andrey Protopopov, Chief Executive Officer of the Payment Services segment, and Elena Nikonova, Interim Chief Financial Officer.

[Boris Kim:]

Thank you, Tatiana and good morning everyone. Thanks for joining us today on this call. I’m pleased to share our first quarter 2021 results review. Notwithstanding the restrictions imposed by the CBR in December 2020, which have adversely affected and will continue to affect our Payment Services business, I’m glad to announce that in the first quarter of 2021 our adjusted EBITDA and adjusted net profit increased by 23% and 18% respectively. This growth primarily resulted from the cost optimization measures implemented in 2020 as well as the development of our strategic areas in Payment Services business, namely self-employed and digital entertainment. This year, we will continue to devote particular attention to the development of our Factoring PLUS and Flocktory products which would strengthen our future growth and secure greater diversification of Qiwi Group. Taking this into account, I would like to confirm that we remain committed to investing in our future, our products, and our ecosystem to reach our primary goal of securing the long-term growth of QIWI Group.

[Andrey Protopopov:]

Thank you, Boris and good morning everyone. It’s my pleasure to be here with you today. Let’s move on to the results of our Payment Service segment. Despite the restrictions which currently affect our Payment business, we processed over RUB380 billion in cash and electronic payments and increased our payment volume by 4%. In first quarter of 2021, we are just positive trends in our key focus areas, including self-employed and money remittances, which supported our Payment Service results. Let me now provide you with a brief update on the CBR restrictions. Currently restrictions continue to persist and have a negative impact on our operations. As Boris mentioned earlier, our e-commerce and money remittance market verticals continue to be under constraints. As we previously stated, cross-border transactions in general have higher commissions. Therefore, the CBR restrictions significantly depressed our Payment average net revenue yields, with the e-commerce adjusted net revenue yield declined by 49 basis points in the first quarter of 2021. Following the huge decline, e-commerce net revenue decreased by 34% compared to the first quarter of the prior year. Now, let’s move on to the operating results. For the first quarter of 2021, our Payment Service segment volume increased by 4% to reach RUB384 billion, driven by significant growth in money remittance market verticals which grew by 32%. The growth in money remittance verticals was largely driven by the development of our key streams, namely the self-employed where we focused on extending our partner network and building up our relations with our existing partners. At the same time, the growth of payment volume was offset by significant decline of volume in e-commerce market vertical due to the CBR restrictions.

[Elena Nikonova:]

Thank you, Andrey and good morning everyone. Moving on to expenses, thanks to cost optimization measures we successfully implemented in 2020, we have significantly increased the overall efficiency of our operations and our margins. Despite the decrease in total net revenue in the first quarter of 2021, we see an increase in adjusted net profit and adjusted net profit margin of the Group. This being said, adjusted EBITDA for the first quarter of 2021 increased by 23% to RUB2.8 billion from RUB2.3 billion for the same period in the prior year. Adjusted EBITDA margin was 55% compared to the 37% in the previous year. Adjusted EBITDA margin increase mostly resulted from the decrease in selling, general and administrative expenses due to the decline in advertising, client acquisition and related expenses driven by the divestiture of Sovest and the wind-down of Rocketbank and lower other administrative expenses. Group adjusted net profit increased by 18% in the first quarter of 2021 to RUB2.1 billion from RUB1.8 billion in the first quarter of the prior year. Adjusted net profit growth largely resulted from the same factors impacting adjusted EBITDA, offset by an increase in the income tax expenses. Payment Services segment net profit for the first quarter of 2021 decreased by 19% to RUB2.5 billion, driven primarily by Payment Services segment net revenue decrease, underpinned by the growth of personnel expenses, excluding the effect of share-based payment expenses. Corporate and other net loss for the first quarter increased to RUB419 million from RUB115 million in the first quarter of the prior year, primarily due to foreign exchange loss amounted to RUB13 million compared to a foreign exchange gain of RUB94 million in the same period for the prior year. As Boris mentioned earlier, Tochka net profit grew by 34% to RUB191 million, primarily as a result of the higher equity pick-up driven by the project growth and strong performance. We continue to optimize our operations in order to improve operations and financial performance of the group and ensure sustainable growth. Now, onto our guidance, first of all, I would like to remind everyone that at the moment there still remains significant uncertainty in 2021 primarily related to the loan grant effect of the CBR restrictions and our ability to recover or replace currently restricted cross-border operations as well as our ability to secure a place in the new betting industry landscape. We remain conscious and will closely monitor how the situation in the market evolves. Our outlook reflects our current views and expectations only and is based on the trends we see as of the date of this earning call. If such trends were to deteriorate further, the impact on our business and operations could be more tough than currently expected. Having said that, we reiterate our guidance in respect of 2021 outlook. We expect total net revenue to decrease by 15% to 25% over 2020. Payment Service segment net revenue to decrease by 15% to 25% over 2020 while adjusted net profit is expected to decrease by 15% to 30% over 2020. Despite the fact that the first quarter results surpassed our expectations, we remain cautious and reserve the right to revise the guidance in the course of the year when the scope and extent of the factors impacting our results become clearer. With that, operator, please open up the call for the questions.

[Operator:]

Thank you. At this time, we'll be conducting a question-and-answer session. Thank you. Our first question comes from the line of Chris Kennedy with William Blair. Please proceed with your question.

[Chris Kennedy:]

Hello, thank you for taking the question. Can you give us an update on some of the efforts that Qiwi is doing to mitigate some of the headwinds from the CBR restrictions?

[Andrey Protopopov:]

Hello Chris, thank you for your questions. As we said before, we are in the -- on the one hand, we are in the level of compact with CBR. And as we said before, as well, we get some clarification, for example, the second important notion for us -- that they're out of the CBR restriction and we are continuing working with them. This includes some big famous name like Steam, AliExpress, and Google and some others type of notions and that's helping us. At the same time, we are sending the regular reports to CBR and almost weekly contact, how good we are in the dealing with restrictions that we have. So, we believe that currently, we are fully in line with our expectations. And that's why -- as we said, there is a good chance that we will have -- restrictions will be lifted up after six months.

[Boris Kim:]

Yes, but I would add quick -- and Boris is here. But of course, we cannot guarantee that the CBR will lift all the restrictions completely. And we also should keep in mind that some of the restriction could become permanent, just because of changing legislation in Russia. And the recently, Minister of Finance, submitted a bill to the parliament, which make some times of cross-border payments impossible. So, that's another point you should keep in mind discussing that point.

[Chris Kennedy:]

Okay, that's helpful. And then just, I guess, the clarification. So, the current run rate should be sustainable, even if restrictions are lifted. Is that the way to think about it?

[Andrey Protopopov:]

Generally, yes. It will -- of course we will -- even when restriction will be lifted, we'll be working to get back some of the notions and partners we're working with. But we believe it will take time and we will need to see how fast and how big portion of the world's revenue we'll be able to get back. So, currently for let's say this several quarters or months, it's more or less the same growth rate that we have currently.

[Chris Kennedy:]

Great. Thanks a lot, guys.

[Operator:]

Thank you. Our next question comes from the line of Ildar Davletshin with Wood & Co. Please proceed with your question

[Ildar Davletshin:]

Well, thank you. So, I just want to bet on the -- kind of the guidance around standard uncertainty, yet you gave a pretty clear range and you repeated the range which you provided earlier. So, there are two big unknowns or uncertainties, so is it right to assume that in case in the worst case, we are talking about 30% or 45% decline in revenue in like a better case, it seems the range could be wider. And then particularly thinking also about the betting regulation which may happen -- will change at the end of September. And maybe you help us understand the current portion of revenue coming -- that that we provide.

[Andrey Protopopov:]

Ildar, thank you for your question, its Andrey again. We believe that the current range of the guidance is reflecting all the risks and let's say potentials for the year. So, that's why the range is quite high. Talking about the different possibilities, I would like to remind that first of all, in any case, we believe that we will be able to keep our key wallets and revenues for this business and that effect will be limited to the fourth quarter whatever it will be. So, that's why for this year, it's important yet not let's say that significant as it will be for the next year.

[Ildar Davletshin:]

Thank you. And maybe my second question in , we've seen quite a sharp continued decline in activity with wallet in the first quarter versus the previous quarter. What is the trend recently, have you seen any slowdown and trajectory is more or like the same ?

[Andrey Protopopov:]

Yes. For the key important, on the one hand, it was similar trends we observed before with some changes you make in the KYC procedures and some ways how we work with on active wallets at the same time. And now, of course, for the first quarter on top of the CBR restrictions for the international notions affecting this number as well because for example, in online games, there are -- we have -- let's say we the detailed small notions in online games where there are quite small checks and a lot of consumers so, of course, our current numbers are affected. At the same time, I would like to say this overall keyword is quite healthy in terms of the volume and revenue behind growth of more high usage rollers that operate within our key initiative team like ones that do the sport bets in the toolkit and in the self-employed teams as well. So, while overall our number of wallets is not is declining, were capable of business is quite healthy that would seem for the moment.

[Ildar Davletshin:]

Thank you guys.

[Operator:]

Thank you. Our next question comes from the line of Maria Sukhanova with BCS Global Markets. Please proceed with your question.

[Maria Sukhanova:]

Good afternoon. I have several questions about the sources of growth for in the first quarter. So, first of, could you please check whether some of that was driven by breaking segment because it probably makes sense to expect the felt fine and the quarter considering that the base was low. So, just want to check whether it was a big driver too? And second could you talk a bit more about self-employed and where -- which reach products exactly are you seeing nice performance, maybe which industries like for instance, is it coming from taxi segment or something else? That will be helpful. Thank you.

[Boris Kim:]

Yes, Maria, thank you for your question. Yes, you're right, are included into the vertical and this is one of the big, I would say, growth driver both for the volumes and for the yields in the category. Second talking about self-employed, I will say both putting out all the businesses to self-employed with a taxi businesses, I will say the biggest category for us, which has grown quite fast and continue to grow. And secondly, the different types of self-employed entrepreneurs that are using key rewards and accept payments via peer-to-peer payments with online, peer-to-peer checkout and other products that we are developed and are growing quite nicely as well.

[Maria Sukhanova:]

Thank you.

[Operator:]

Thank you. Our next question comes from line of Andrey Mikhailov with Sova Capital. Please proceed with your question.

[Andrey Mikhailov:]

Thank you very much for the call. I have three questions. The first one is on this new regulation by the main stream that you mentioned, how much could it impact your current allowed active revenue and volumes? That's the first question. The second question is on the betting industry regulation. I haven't actually -- and all the things changes in your written statement on that. And if there are industry changes and written statement, maybe you could buy this probabilities of various outcomes on you becoming this one selected payment services provider for the regulated parts of the betting payment segment. And the third question is on claims against the company in the States. Could you provide any updates on those, especially on the maximum amount that you could be subject to? Thank you.

[Andrey Protopopov:]

Okay, I partly answer to the first question, for us if and when this new legislation will be placed, nothing will change because we already switched off all these payments -- all these types of cross-border payments. For us it's just another evidence that these payments at the moment could be performed. But we are under restriction imposed by central bank and we couldn't do that. And when they adopt this new regulation, we just want to switch it on then. For us in terms of volume and revenue, nothing will change. The second question regarding the new regulation on two-piece. At the moment, it's hard to say whether we'll be appointed as a unified two-piece, probably not. But we assure that our expertise in the field is so wide and so profound, that we'll find our place in this new regulation landscape anyway. As Andrey mentioned, at least we could keep the volume and never in revenue comes from TV wallet, which is very popular payments vehicle for game industry and for bookmakers. And probably we could be able to be served as a acquire for utilities, but it's very premature to make any statements at the moment.

[Elena Nikonova:]

Andrey, could you repeat the third question?

[Andrey Mikhailov:]

Yes, the third question is on the claims against the company in the state, so as to the class action suites.

[Elena Nikonova:]

Hello Andrey, this is Elena. Actually, as of now, we do not have any changes. It's still on the same stage as it was in April. We're still waiting for appointing a lead plaintiff. And--

[Andrey Mikhailov:]

I guess the maximum amount of this query or these coins, is it known?

[Elena Nikonova:]

No, no, it's not known yet.

[Andrey Mikhailov:]

Thank you.

[Operator:]

Thank you. Our next question comes from line of Vladmir Bespalov with VTB Capital. Please proceed with your question.

[Vladmir Bespalov:]

Hello, congratulations on the number and thank you for taking my questions. My first question will be a kind of follow-up on the money remittance vertical; we have seen a very good acceleration of growth for several consecutive quarters. So, if we look at that for the full year of 2021, what kind of growth would you expect? Would you be able to maintain this momentum? And how secure you feel about those your clients which are using these services today, given the growing competition?

[Andrey Protopopov:]

Vladmir, thank you for your question. Yes, we -- as we said, there are still uncertainties related to the elements that we already mentioned, including the breaking question, because as I said, part of the money remittance rules and revenues come from suites and the changes in this regulation of a banking industry may affect our volumes and revenue share as well. And talking about the competition, we will feel quite strong and I would say getting -- it's getting stronger with -- entering some of niches we are playing in this right, I would say it's still -- there are still uncertainties that we have for this year, that are reflected in our band.

[Vladmir Bespalov:]

Thank you very much. And talking about your guidance, again, I'm thinking I remember during the previous calls, when you first communicated the guidance, you mentioned that like the upper bound implies some positive developments around betting, while the lower bounds of the guidance implied that you're going to lose, like the worst case scenario for betting, right? But when I looked at the first quarter number, it looks like you're doing much better than what was implied, let's say several years ago, this is any scope to increase your guidance, even if the betting related situations will be developing among the worst case scenario lines?

[Andrey Protopopov:]

Yes, that's true. We see quite strong performance currently in the betting behind, like organic stupid growth. At the same time, as we said, we believe it's too early to translate the guidance; we will need to see kind of how the situation with the regulation will be developed and the competition will be developed and so I think we will be discussing it next -- after the next quarter.

[Vladmir Bespalov:]

Thank you. And one more question on Tochka. There is a decrease as far as I understood all the clients; which are choosing Qiwi as a bank to be served. Are you concerned about the situation or it doesn't matter that much? And are you going to take any steps to change that? Thank you.

[Andrey Protopopov:]

If you are referring to revenue related to Tochka, it's some I would say technical changes of the legal teams we are using with Tochka, because the most important part here is our within the operators equity associate. So, we are getting our part of the income and this one I believe is growing. So, that's why this revenue change is not really important.

[Vladmir Bespalov:]

Okay, thank you very much.

[Operator:]

Thank you. Ladies and gentlemen, this concludes our question-and-answer session and thus concludes our call today. We thank you for your participation. You may now disconnect your lines.