Kaspi.kz - Q1 2023

Transcript

Operator (participant)

Zoom toolbar. If you have joined us on the phone, please press star followed by one. I would now like to hand over to David Ferguson from Kaspi.kz to begin. Please go ahead.

David Ferguson (Managing Director)

Okay. Thanks, Terry. Good morning, good afternoon, everyone. Welcome to Kaspi's First Quarter 2023 Financial Results Call. As usual, on the call we have our CEO and Co-Founder, Mikhail Lomtadze, our deputy CEOs, Yuri Didenko and Tengiz Mosidze. Mikhail will take you through the strategic update in the presentation. I'll run you through the financial section, and then we'll open up the call to Q&A. The whole team is available to take your questions. On that note, I'll pass the call over to Mikhail. Mikhail, over to you.

Mikhail Lomtadze (CEO and Co-Founder)

Hello, everyone. We're pleased to present our Q1 numbers and the performance. The team has done a great job on delivering a strong performance in the Q1. Our payments business revenue generating TPV grew 62% year-over-year. Revenue 59%, and net income 67% due to significant operating leverage we have in this business. Marketplace continued very strong performance. We have GMV up 77%, 97% revenue and 104% net income. The fintech business first quarter was strong in terms of the origination. We have grown our finance value by 76%, revenue 35% and the net income 24%. Consolidated very strong performance. The revenue grew 53%, net income grew 52%.

So we're happy also to recommend to our board and shareholder, sorry for shareholder approval dividend of KZT 750 per GDR. We also, as announced previously, have started the GDR program back in March of a buyback program up to KZT 100 million value. Also the payments in the marketplace businesses have started, not started, they're growing faster, you know, as usual. We have now 60% of our business actually coming from the payments in the marketplace. Majority of our business comes from the fast-growing and the profitable, the payments and marketplace platforms, which creates the value for all the shareholders, and the fintech now is 40% of our business.

As we continue growing business across all our platforms, we pay a specific sort of attention and the priority to transactions. Just to take a step back, you know, we are the business which helps consumers and the merchants to transact with each other, connect to each other, but actually ultimately the transaction is what is the final result for anything we do. A number of average transactions per consumer now 64 per month. It's a 20% up to the year-over-year. It's incredible result and another justification testimony of our Super App business model. Basically consumers transacting almost like 2 times a day through our app, which is amazing.

Total GMV purchases continue growth very strongly, so 71% growth year-over-year, and revenue generating TPV transactions also growing very nicely 56% year-over-year. Again, the transaction is the final goal or aim of anything we do across our platforms. Transaction is how we monetize it, transaction is how we connect merchants and sellers, and therefore, this is really an important sort of number and trend to pay attention to. We have talked during last call about the grocery. We are now continue developing that exciting business line jointly with Magnum, who is the largest food retailer in the country. We have had a very good results. In the Q1, we have grown the GMV almost 6 times the grocery purchases. Quite a nice remarkable number.

We basically crossed almost 1 million purchases in the Q1. The consumers growing also very rapidly, 5.5 times year-over-year. Again, the grocery is a new business line for us, a huge market potential, at least 12 billion for the food retail. We're really excited about it and, you know, we're showing a very nice performance. Just to take also the step back and talk a little bit about the business model so that we make sure we're on the same page with you guys. We are focused really on the weekly purchase. Basically, the platform, at the moment we are having around 12,000 SKUs. Those 12,000 SKUs are spread around 25 categories, including fresh.

We enable our consumers to, you know, acquire those items at a very good prices. We are designing the consumer experience also in a way that that's a large ticket sort of weekly purchase, which is not only very predictable, but also helps us to build the relationship with the consumer, with the families, with the household. We're achieving a very, you know, good size of the basket, which is about $25 order value. We are not in a quick commerce. Again, we are in the business of weekly purchase. You know, orders on average would have about, you know, 10 items for the consumer to buy, and that makes a huge difference on the delivery.

If you look at the slide, not the slide, but the screen, same-day delivery, for example. You know, we have developed the functionality when on the one hand, because it's a $25, the economics make sense and really work. And on the other hand, we are delivering for free orders which are above $11. Also we've developed the functionality when you can actually choose the time which is convenient for you. For us, it also means that it's very sort of predictable. We can plan, and we can fulfill our promise on delivery to our users. The result has been, you know, incredibly exciting.

We have on the most important sort of for us, the KPI is really the feedback from the consumers. Here you see that 92% of our users rate the shopping experience with our grocery business as excellent. That's our priority. We'll continue to develop delivering excellent quality of service, predictable delivery around the weekly purchase, and that's the business model which we'll be pushing forward. We're also rolling out the delivery network. Now we have almost 4,000 Postomats across the country. That's sort of the last mile. We plan to have around 6,000 by the year-end.

Notwithstanding such an incredible growth of, you know, whatever, 328% year-over-year in terms of the Postomats and 30 times in terms of deliveries, you know, on top of that growth, we're still achieving a very good penetration, right? 37% of our deliveries are now done through the Postomat. Postomat is enabling us to deliver cheaper than to door, because again, you know, you deliver like one parcel per door, and here you can deliver, you know, 70 parcels into one device. Also our customers or end users are extremely happy because it's convenient for them, and they don't have to talk to the couriers, and they have flexibility to pick up on the way home from work, for example. Also this is environment-friendly, right?

Because, you know, couriers are driving significantly less because they are delivering the packages to the one device instead of going from around the houses and apartments with a single to-door delivery. Very excited about it. We're pushing forward 6,000 Postomats by the year-end. We continue also driving the B2B. B2B for us would be sort of the kind of, you know, initial stage of really building the transactional business with for the businesses to help settle invoices. Growth has been extremely impressive. We've grew almost over 3 times in money terms, and we have grown 2.5 times in the number of transactions.

Just to remind everyone, again, that's a business which was built on the back of our payments platform, the P2P and other transactions which have been taking place between the businesses. This service, take rate is 0.7%. We deliver the value to the suppliers, to the distributors, wholesalers, by seamlessly and instantly settling invoices between the convenience store, for example, where sort of Coca-Cola delivers its items, and the distributor or the manufacturer or the supplier. We're shortening the days of receivables. We are getting rid of cash in the value chain of the retail trade, and also the settlements are done according to the invoices, which provides a greater transparency, everyone participating in that.

Great value for the players, great business, which we've started from zero. Basically didn't exist a couple of years ago, and now it's really fast-growing business in our in our payments platform. David, back to you.

David Ferguson (Managing Director)

Thank you, Mikhail. I'll run you now through the three respective platforms and the guidance for the remainder of the year, starting with the payments platform. We've built a large and engaged consumer and merchant base. Merchants are up 75% year-on-year in the first quarter. As Mikhail talked about, priority number one now is increasing transaction intensity. You see that this is playing out. Our TPV transactions up 56% year-on-year. That's an acceleration in run rate versus the fourth quarter of last year. More broadly, it's just indicative of a healthy consumer. The caveat on this slide, and for that matter on subsequent slides, is that the year-on-year comp is favorable in the first quarter. It will become less favorable, particularly in the second half of the year.

Therefore, when looking at growth and extrapolating it relative to the guidance that we've provided, you should bear in mind that growth this year is first half weighted. That's true in all platforms, and actually more so in marketplace and with regard to Fintech, TFE origination. Strong growth in the number of merchants and opportunities to transact drives strong growth in consumers, up 16% year on year to 11.7 million. The objective of all our payment platform products, cash to pay, Bill Payments, B2B, is to monetize transaction volumes. Here too, you see that playing out. RTPV, monetized transactions growing at a faster rate than TPV. This is a two-year, close to two-year trend now of RTPV outperforming TPV.

In terms of take rate, what you see here is take rate has proven stable or consistent with the full year guidance of around 1.1% as lower take rate businesses, cash to pay and B2B, move in the mix. Timing, take rate will gradually move down. Effectively, it's a function of timing. Within our payments platform and actually within all platforms. Although we talk about three main platforms, within each platform now you have a range of products, diverse revenue streams. In payments, that is QR. We talk about that a lot, but it's also B2B payments that Mikhail mentioned. Even actually our sort of legacy product Bill Payments is still growing very, very fast. You have a large and diverse revenue base all delivering good growth rates currently.

To wrap up the payment financials, the combination of strong volumes or transactions, stable take rate translates into fast revenue growth, up 59% year-on-year. On the profitability side, the ongoing elimination of 30 third-party costs, just the natural operational gearing inherent within the payment business, and more broadly tight cost control theme throughout the company translated into material margin improvement, up 310 basis points year-on-year to 65.1%. Bottom line, growing faster than top line. Again, I'll caveat that. Don't expect to see a 310 basis points improvement in profitability in every quarter. The full year guidance that we've given is the guidance that stands. Moving on to the marketplace platform. Here too, we have focused on growing the number of purchases.

That is the priority now going forward across all three of the Marketplace platforms, e-Commerce, m-commerce, and travel. You see that is playing out. e-Grocery is not included in Marketplace. We now present that as a standalone segment. If you were, however, to look at combined Marketplace and e-Grocery transactions, the number would be up 71% year-on-year. No surprise that e-Grocery will be additive to growth. A combination of strong merchant base, attractive range of SKUs, free delivery to the consumer, amongst other factors, continues to translate into ongoing strong consumer growth, up 27% year-on-year to 6.4 million, but still some way short of the just short of 12 million of payment platform consumers. GMV momentum in the first quarter, very strong, up 77% year-on-year.

Remember Q1 last year a favorable base. On take rate, take rate will always vary from quarter to quarter. Remember, particularly last year in Q1 and Q2, questions around take rate being down. Here you see it up again. It's primarily a function of base and promo activity. Last year, in the first part of the year, we scaled back promo activity. This year, promo is running at a normalized level, and merchants pay a higher take rate to participate in promo, hence the reason for the higher year-on-year take rate of 8.4%. That is consistent with the full year guidance of around 8.5%. Going forward, take rate will vary from quarter to quarter, depending on the level of promotional activity.

As I talked about with payments, a diverse platform of multiple revenue streams. You see that that's also the case now with Marketplace, m-commerce, e-commerce, and Travel. Travel having reached 9% of GMV in just over two years. By respective platform, starting with m-commerce. m-commerce just keeps on delivering the numbers every quarter, and Q1 was no exception. Another strong quarter. Purchases up 46% year-on-year. GMV up at a faster rate, up 75% year-on-year. That is a function of the faster GMV growth is a function of normalized promo activity year-on-year, combined with just growth in retail trade, it translates into a higher ticket size. Similar comment on take rate, up to 8% from 7.4% year-on-year. Again, a function of normalized promo activity. Moving to e-commerce.

e-Commerce is seeing incredibly strong growth in purchases, up 216% year-on-year. This is again, a function of more merchants, more SKUs, free delivery and everything else we're doing to increase the attractiveness of the platform. GMV is growing at a slower rate. We talked about this theme over the last 12 months. A lot of the new purchases, a lot of the new SKUs that we're adding are at lower price points. That's take rate. That is GMV dilutive. Once the sort of SKU base normalizes, then you will see the two growing at a more comparable rate. That said, actually this is the fourth consecutive quarter of accelerating growth in the e-Commerce platform. e-Commerce take rate up to 10.2% from 8.7% in the first quarter last year.

Reflects, as previously mentioned, higher promo, but specific to eCommerce. It also is part due to initiatives to monetize logistics, monetize advertising and changes in product mix. Certainly monetization of advertising and logistics will be themes that will become more important in subsequent years. Here, just to reiterate the point, you've seen a dramatic increase in SKUs over the last, well, over the last 18 months, up two times year-on-year to 3.1 million SKUs. As I just mentioned previously, that growth rate will start to normalize. Here too, the focus will be on value-added services that drive transactions, advertising, logistics, being two good examples. On delivery, for the last two years now we have made delivery free to the consumer for the vast majority of orders, 92% of orders.

We've subsidized the cost of delivery for merchants to incentivize merchants to come onto the platform and sell, deliver nationwide. You can see that that investment is bearing fruit with orders delivered up 232% year-on-year. That's a massive increase. What that does as well as just improve the consumer proposition, more volume means better unit economics, more profitable for both merchants and ultimately over the long run, for ourselves to provide delivery services. Kaspi Travel continues to deliver good growth. That's been a consistent theme over the last two years. Purchases up 54%, GMV up 84% year-on-year. Take rate moving up to 4.1%, that just reflects higher, relatively higher ticket rail versus flight, growing at a faster rate.

In the first quarter, we started to roll out international package tour holidays. This is a billion-dollar addressable market that's similar in size to the flight market. There's no impact on in the Q1 numbers. This will become more important as we go into 2024. For the remainder of this year, overall travel should be additive. Actually, travel GMV should be additive to marketplace GMV, and over the medium term, package holidays should be additive to travel GMV and travel take rate for that matter. To wrap all this up on the marketplace side of things, strong GMV growth up 77%, combined with take rate expansion translated into revenue growth up 97%. On the profitability side, again, just as with payments, profitability growing at a faster rate than revenue.

That is despite the investment that we've made in free delivery and the substantial increase, +200% in delivery volumes. It also again, just reflects ongoing tight cost control across the rest of the company. Finally moving on to the Fintech platform. Here the focus is different. We raised interest rates last year to attract new customers and to attract new deposits. You can see that that is working well with the deposit base up 35% year-on-year to 4 million. Growth in loan customers also continues at a robust rate, up 15% year-on-year. In terms of origination or TFE, here a very vivid example of where the comp is boosting growth in the first quarter, up 76% year-on-year. Last year, we dramatically scaled back origination.

At the beginning of the year, origination has been running at normalized levels since last summer. On conversion, how quickly customers repay their loans, 2.1 consistent with the trend over the last two years. That effectively means that people repay on average just after six months. The combination of strong payment trends, the combination of growth in deposit base and the combination of people repaying loans normally. All of these three things are sort of lead indicators for consumer health, which is never so often a question that people ask. In tune now we have a diverse product mix. Buy now, pay later is our most important fintech product. With Kaspi Juma scheduled to take place in the third and fourth quarter of the year, buy now, pay later will naturally step up again.

Merchant financing now is our fastest growing fintech product, and at 14% of origination is now at a point where if it continues to grow faster, it starts to really matter. Average net loan portfolio up 32% and consistent with previous comments, savings deposits growing at a faster rate, up 45%. The result of that is the loan to deposit ratio falls to 79% year-on-year from 88%, although broadly consistent with where we finished 2022. Over the medium term, more deposit customers, more funding will allow us to do more origination. That's over the next couple of years, and you'll gradually see the loans to deposit ratio move up again.

The yield declining to 25.3% from 27.1% reflects ongoing changes in product mix, namely the growing importance of BNPL and merchant financing, and is consistent with the guidance that we provided for the year. In terms of credit quality, credit quality remains good. That's in terms of both origination and collection. I mentioned earlier the sort of the indicators are that are payments, transactions, deposit growth, loan repayments, loan conversion. What you see here is ongoing strong trends. There is always in the first quarter some seasonal deterioration recognized in first and second payment defaults due to a higher number of public holidays, payment discipline slips. It's normal, and you see that that improves subsequently later on in the year.

When looking at these charts as well, you need to be careful if you magnify any change in direction, whether that be up or down, because you're looking ultimately at what is a very, very low base. Cost of risk is probably the best measure to look at to understand how much we lend, we ultimately collect. Cost of risk of 1.7% in the first quarter of 2023 is stable year-over-year and is consistent with our full year guidance of around 2%. NPLs, the small step up, 6.5% versus 6.3% at the end of last year. That is consistent with the comments I made around normal first quarter seasonality. Our coverage stays at levels consistent with historic trends.

To wrap up the Fintech numbers, the combination of faster origination in the second half of last year, partially offset by yield compression, is translating into decent revenue growth, up 35% year-on-year. On the net income side of things, funding costs are up substantially, up 103% year-on-year. That's partially offset by lower provisioning and lower sales and marketing costs year-on-year, but you can't offset that completely. Here you do see a margin erosion down to just short of 31% from just short of 34% last year. The comment we made on the last call still stands true, that this is cyclical, not structural, as rates are very, very high currently.

Rates will normalize over time, and when that happens, we'd expect newly attracted deposit customers and their funds to stay with us and margins to recover quickly. Overall, just to wrap that up, all platforms, particularly payments and marketplace, contributing to strong top-line growth. That is translating into comparable bottom line growth, even with substantial increase in funding costs, even with investment in delivery. All this is against what is still a backdrop of a limited visibility and volatile external environment, a global theme. Moving on to guidance. The simple point here is guidance is unchanged versus the numbers we presented to you, well, just over six weeks ago. Growth, as we said previously, will be H1 weighted. That's particularly true for marketplace GMV and for TFV origination.

Overall, we're on track for a very, very good year. Again, that's even taking into account the volatile macro environment, limited visibility and higher funding costs. We continue to expect bottom line net income growth of around 25% year-on-year. On that note, let's open the call up to questions. Terry, would you like to ask the audience please?

Operator (participant)

Of course. Thank you. If you would like to ask a question, please use the Raise Hand button found on your Zoom toolbar. If you've joined us on the phone, please press star followed by one on your telephone keypads.

Our first question comes from Gabor Kemeny from Autonomous. Please go ahead. Your line is open.

Gabor Kemeny (Managing Director)

Yes. Hi. Thank you for the presentation. I have a few questions. First one is on the marketplace take rate. When in Q1 you were trending around the level you are guiding for the full year, around 8.5%, and I believe that you are planning some promotional events for later this year, like Juma type events, which I suppose may imply some further upside for the rest of the year. Could you please elaborate a bit on on this seemingly on the level of conservatism built into this 8.5% full year guidance in light of Q1?

The other question I had was on the merchant network, which is still expanding consistently, but I believe in the last quarter or two, the growth in the merchant network slows down a little bit. How do you see your addressable market here, like in terms of the number of merchants you might be able to acquire? If you can provide any pointers on what this means for your addressable markets in marketplace and payments, please. My last question is on the preparations for the U.S. IPO, which you mentioned in the release. What have you actually done, and what is your current thinking on the timing? Thank you.

David Ferguson (Managing Director)

Thanks a lot for your questions, Gabor. I'll pass your question on sort of addressable market and how we think about it over the medium term to Mikhail. On the marketplace take rate guidance, a couple of things to think about. One, you should just bear in mind that the first quarter is usually the smallest quarter in the context of the year. Whether you have outperformance or underperformance, its impact on the full year outcome is less pronounced. It's a small quarter, basically. That's the first thing. The second thing, you're right. We will have events like Juma in the second half of the year, but we had them last year, and so they were in the base last year.

They're in the base, and they're going into this year. You certainly. The guidance that we're giving is the right guidance, and you're not going to see that kind of substantial year-on-year increase in take rate that you've seen in the first quarter. That reflects ultimately a very unusual quarter where there was almost no promo activity last year, back to normal this year, sorry. Then on the U.S. listing. Look, we don't wanna sort of get boxed into any particular timeframe simply because actually it's contingent on market to a large extent rather than ourselves. All of the sort of work streams that are necessary to make that happen, so they're around things like legal and accounting, are all now actively taking place.

We would hope that it would be possible that market conditions would allow us to complete this transaction before the end of this year. That's not going to be the first half. It's likely to be the second half, but again, it is ultimately contingent on the, the market. On that, I'll pass over to Mikhail to talk about addressable market for the business.

Mikhail Lomtadze (CEO and Co-Founder)

Sure. Well, I mean, first of all, in terms of the, in terms of the take rate, I think, I just would like to make one, 1 point about the way we look at our, at our business, right. We, we're not driven by the take rate, in a sense that, the take rate expansion that you would see in the future, it will be driven by the type of services we launch so that, you know, merchants basically get the value for those services. We want to be in a situation when merchants connecting to our platforms actually get the value, and we don't want to be in a situation when the merchants are unfairly, you know, sort of paying us.

You know, they have to use advertising services, for example, if you want to sell anything on our platform. We don't want to do that. We want actually merchants to value each individual service, and that's why we have been, you know, carefully rolling out some of the services, which is marketing, advertising, and also the delivery, for example. A slight increase in the take rate of Q1 is actually result of these initial results of this monetization as well. In terms of the merchant growth, well, yeah, we've reached half a million merchants, and it's 75% growth year-over-year. I mean, it's incredible growth.

Also, you should, you know, sort of take step back, in a sense that, you know, it's always been our strategy, right? We acquire consumers as fast as we can with the high quality services and engagement. We acquire merchants as well with the services which they, which they love, and then we connect them to each other and we start driving the transaction. As a result, you know, we basically we are at the stage of the both merchant and consumer side of things that now we are focusing even more on delivering the value through the transaction to each of the buyers and sellers. If you say in terms of the size of the market, I mean, I think there are about a million businesses registered in Kazakhstan, roughly.

That's is kind of also a moving number because we have launched a service with the government services, which enables businesses, small and micro businesses more specifically, to register. We are registering, you know, over, what is it? 20,000 merchants every month. It's also kind of we are, we are the company which is not just creating services. We are the company which actually creates the markets also for itself. Even though we are a company that is sort of very competitive, we also are not thinking about the competition, because the way that we create the markets, you know, is actually provides significant growth for us, but also, you know, provides a huge value for the country itself and digitalization and the cashless transactions across the board.

Gabor Kemeny (Managing Director)

Okay. All very helpful. Thank you.

Operator (participant)

The next question on the line comes from Catherine O'Neill from Citi. Please go ahead. Your line is open.

Catherine O'Neill (Managing Director)

Great. Thank you. I firstly had a question actually about some of these sort of earlier stage initiatives you talked about. Say Kaspi Marketing on the advertising revenue side. I just wondered how meaningful you think that could be, and what the sort of revenue model is you have in place currently, and then also on delivery, how that sort of increasingly becomes monetized. That's my first question. The second is, I get quite a lot of questions, I was saying to David earlier, about regulation. Just an update on your thoughts on the regulatory outlook for your business across the different areas and whether there's anything we should have in mind that's on the radar at all.

David Ferguson (Managing Director)

Great. Thanks for your questions, Catherine. I'll pass both of those advertising and delivery, addressable market and regulation over to Mikhail.

Mikhail Lomtadze (CEO and Co-Founder)

On the advertising and the delivery, we have just started, right? We're extremely careful. Again, we're extremely careful because we want. When the consumers or merchants are paying us something, we want to make sure they're, you know, this is our majority of our revenue, right? They're paying actual selling to us, if you put that into simple terms. As a result, we want to have an extraordinary quality of services. We want to deliver the value to both. The first few numbers that you see are just a very initial stage of the monetization. We don't expect those numbers to be sort of, you know, huge.

some of other marketplaces that charging, you know, 5%, 10% for the type of additional services and squeezing the merchants on their, on their margins and becoming very expensive places to sell, that's not our strategy. Initial monetization has been sort of very encouraging. We see that both merchants and consumers, you know, receiving the value and engaging in advertising and the paid sort of paid delivery. This is just the Q1. give us a bit of a time and, you know, we'll be able to, you know, discuss those initiatives in more details with you guys. In terms of the regulation, I mean, nothing really that stands out.

Yeah, I mean, for us, it's really business as usual. We're an important company in the country. We're one of the largest taxpayers in the country. And yeah, we contribute a lot to digital economy, so we're working with the government entities across the board. Nothing really specific to report. The one thing I would make a comment on this is a question which we're asked, you know, quite regularly, and sometimes there are a lot of speculations regarding these issues, right? My advice would be that don't make a judgment based on the speculations about regulation.

Catherine O'Neill (Managing Director)

Okay, great. Thank you. I actually just wanted to quickly ask you on the marketplace e-Commerce side, whether you're seeing any change in the competitive landscape at all or whether, 'cause you obviously got a pretty high market share, or whether it's all pretty benign?

Mikhail Lomtadze (CEO and Co-Founder)

Well, I mean, there is competition, and there has been a competition. We have different players in the market. You know, again, the same guys. We have, you know, Chinese AliExpress, which is subsidiary of Alibaba. We have Russian Ozon, we have Russian Wildberries. We have some, you know, smaller local players. They have been on the market, they have been announcing, and also the local players, trying to repeat our success. Every time sort of this question rises, our response is really that, you know, we just have this incredible business which consumers and the merchants love. As a result, we have a extraordinary performance just because, you know, they are using our services because they are highest quality services on the market.

We do create competitive advantages as well as we continue developing, right? For example, Postomats will be the significant competitive advantage. This will be the largest last mile proprietary network in the country. We're growing that network really fast. e-Grocery actually will become not only profitable business for us over large size, but also grocery provides a significant engagement, right? I mean, when we're talking about going for weekly purchase, that actually means that we are going for weekly purchase, and we want the households to buy weekly from us the product that's at very good prices with a free delivery. All of that, you know, fuels our growth. It has this incredible network effects.

Yeah, and this is the reason why we're actually profitable, being a technology company and being profitable and fast-growing. You know, very few examples in the world of companies like that. We continue delivering and exceeding actually from quarter to quarter. Great. Thank you. Thank you, Catherine.

Operator (participant)

The next question comes from Sam Brithes of Virgin Asset Management. You'll please go ahead. Your line is open. Please go ahead.

Sam Brithes (Analyst)

Hi, guys. Thanks for calling. Congratulations on the numbers. I have three quick questions. The first, how are you seeing cost of funds trending most recently? You know, should we still expect to see some upward pressure in the near term? I'm not sure if you're seeing any, you know, significant changes in consumer behavior, people locking in higher rate term deposits or anything. That's the first one. The second is on the fintech business, particularly on the lower sales and marketing costs. Could you just give a bit more color on what it is you're cutting back on there, and whether that's to defend margins or is it part of a broader strategy? The third one on Kaspi Travel. Obviously, GMV growth has been very strong.

Just curious if you can disclose how much of that GMV has been purchased using financing. Thank you.

Mikhail Lomtadze (CEO and Co-Founder)

All right, Sam. Thanks for your question. I'll ask Mikhail just to talk about sort of sales marketing approach across the entire company, not just sort of to fintech and travel also. On the funding, I would just say in terms of the guidance, it assumes basically a sort of continuation of the status quo. I think that is, that is a reasonable assumption. We're pleased with the funds that we've attracted. We're pleased with more generally sort of trends in consumer behavior that we see, and I don't think there's any sort of reason to expect that to dramatically change over the next couple of months. No sort of material change to flag to you is either seen or expected. Over to Mikhail. Yeah.

Well, I mean, on the sales and marketing, you just need to keep in mind that we are a, you know, sort of highly personalized experience company which is driven by technology and data to deliver the right product to the right consumer through at the right time. And, you know, I couldn't say the right channel because we have our Super App is the, is the channel basically for our consumers. As a result, you would actually see that our marketing we can see the marketing as an investment into a relationship. Also, you know, we're extremely smart about it, which means that we are providing the majority of it is our points program, and the points program is becoming very personalized.

you know, sort of the new basically acquired consumers would get more incentives for us to engage. Once they get engaged, once they, you know, value our services, which are high quality and they love to use them, we sort of scale back on the investment. That's basically the way we look at the marketing. The marketing reduction across the board is just a result of the fact that, you know, we are, we're just sort of providing or investing less into the marketing where the consumers are sort of fully engaged. That's just decided by sort of the data management or the personalized marketing strategy that we have in across all our platforms. The question about GMV growth, could you please remind me what was the question?

Sam Brithes (Analyst)

Sure. On the Kaspi Travel business, how much of the GMV growth, if you could disclose it at all, is purchased using some kind of financing product by the consumer?

Mikhail Lomtadze (CEO and Co-Founder)

On the travel side?

Sam Brithes (Analyst)

Yeah.

Mikhail Lomtadze (CEO and Co-Founder)

It's about 20%.

Sam Brithes (Analyst)

Okay.

Mikhail Lomtadze (CEO and Co-Founder)

It's not that high because the also the kind of type of the travelers and the type of purchases you are making. You know, there's some, you know, ticket, for example, in the railway travels is, train tickets are, you know, very small, so you don't really need the financing to acquire this.

Sam Brithes (Analyst)

Yeah.

Mikhail Lomtadze (CEO and Co-Founder)

It's about 20%. Also, just to step back, you know, just to reinforce what David said about the interest expense. It's, again, this is the way how we run the business. We look at the long-term relationship with the consumer. We actually purposely decided to sort of, you know, continue attracting depositors, continue driving the sales and taking advantage of actually increasing the interest rates. Because the interest rates in Kazakhstan are regulated, they're capped, and they're moving only with the regulation and the base rate on the market, right? As soon as the rates went up, consumers obviously prefer to have a high-quality product and services and everybody has plus or minus the same kind of interest rate of the market.

We are just beneficiaries because our product is, and consumer experience is superior. Over time, as we acquire those consumers, they will continue using our services. You know, the interest rates will go down, but those consumers will stay with us. This is the way we look at the deposit franchise. That's why it's also growing even faster than the financing business.

Sam Brithes (Analyst)

Okay. You're saying you're not using, you're not necessarily looking at kind of deposit market share. You're not using rates to try and drive market share. It's more of a case of you want to be in line with the market, and then you have confidence that your other services will retain those customers over time.

Mikhail Lomtadze (CEO and Co-Founder)

Yes. Our strategy is not to drive funds to fund our business and the fintech side of things, that's why you see funding actually growing faster. You know, again, we're building the long-term business. If you look at the, you know, several years down the road, you know, definitely rates will normalize. Those consumers engaged with all our services, they will remain with us. Actually, those are some of the highest quality consumers, right? Those are consumers which also saving money, which are, which have, you know, higher income. And those are the consumers which will be therefore, over time, will be spending sort of, and making purchases through our platform at a higher rate than other consumers. Yeah, that's exactly right.

Sam Brithes (Analyst)

Great. Thank you.

Mikhail Lomtadze (CEO and Co-Founder)

Thank you.

Operator (participant)

Thank you. We currently have no further questions, so I'll hand back for any closing remarks.

David Ferguson (Managing Director)

Thank you, Terry. If there's no other questions, thanks everyone for dialing in today. We're happy to take your questions offline, so please get in touch if there's anything we can do to help. If not, we'll update you again early summer. Thanks a lot, everyone.

Mikhail Lomtadze (CEO and Co-Founder)

Thank you. Take care, everyone.

Operator (participant)

This concludes today's webinar. Thank you all for joining. You may now disconnect from the call.