Kaspi.kz - Q3 2023

Transcript

Moderator (participant)

Hello, everyone, and welcome to the Kaspi third quarter 2023 financial results webinar. My name is Harry, and I'll be your operator today. If you'd like to ask a question during Q&A, please use the Raise Hand button on your Zoom toolbar, or dial star one if you're joining us over the phone. It's now my pleasure to turn the call over to David Ferguson from Kaspi to begin. David, please go ahead when you're ready.

David Ferguson (Managing Director and Head of Investor Relations)

Hi, thanks, Harry. Hello, everyone. Welcome to Kaspi.kz's third quarter 2023 financial results. Usual format on the call, our Co-founder and CEO, Mikheil Lomtadze, Deputy CEOs, Tengiz Meskhi and Yuriy Didenko, myself, David Ferguson. Mikheil will run you through the strategic update. I'll run you through the third quarter results, and then the team available for Q&A at the end. So on that note, I'll hand over to Mikheil. Mikheil, over to you.

Mikheil Lomtadze (CEO)

Thank you, David. Thank you, everyone. We will be reporting our Q3. Team have done a good job, so we're pleased to report our solid performance. At the moment, what we are really doing as a company, I mean, strategically speaking, we are developing the innovative services that improve our customers' lives, our consumers and partners, and we operate these two super apps.

The one super app around the daily use of consumers, and another super app around regular needs of our partners or merchants. You know, consumer super app has been used now by around 13.5 million users, and Kaspi Pay Super App, we have about 600,000 active merchants.

If you think in terms of the universe of the type of services we're really providing, and we have innovated across many years, it's really deep around the daily needs. You can do anything from managing your purchases and e-Commerce, and the travel, and the grocery, and Fintech financial products, classifieds, which we have entered, the government services, which is source of the pride for many of our consumers, and but also ourselves and the country as a whole, really stand out.

You know, you can have digital documents in our mobile app. You can move ownership of the car, you can pay taxes, you can register your business, you can issue your driving license, and things like that. We're really excited about all those sources we have done.

Just wanted to give you a very high-level overview, but those two apps is the core of our business. They interact with each other, they connect it to each other, and again, they are developing this universe and the suite of the products for consumers and merchants. For the merchants to develop their business, for consumers to improve their lives.

As the deep the services that we have and the wide range of the services, we're showing very strong engagement metrics, which I think are, you know, very unique and stand out. So we would be probably the second among the highest compared to other sort of selected apps. So we're 65%, which is basically out of 100 people visiting our consumer app monthly, 65 would visit it daily.

On top of these engagement metrics, also the type of transactions which take place through our services, right? They've increased 18% year-over-year. Now, our consumers have done 68 transactions a month. It's over two transactions a day, which is really impressive, and as we have those transactions, and we have those engagement metrics, they really are flowing, you know, fueling our financial performance and the growth.

Next slide, David, please. So as you can see, the results in terms of our financial performance are strong. So we have delivered both top-line growth and bottom-line growth, and again, that's because of the Super App business model, and it's because of network effects, which are inherent to our business.

So we have grown our revenue 51% year-over-year in Q3, and reached the revenue of USD 1.1 billion equivalent in local currency. Also, we have increased our net income 40% year-over-year to around USD 0.5 billion. So that really has been a very strong performance on our part. We are also quite unique compared to many technology companies across many other markets.

So we are not only profitable, but we also do a buyback of our own shares, and we distribute dividends. So our board has recommended the dividend of 850 tenge per share, per GDR, and that's subject to shareholder approval.

We're also announcing another GDR buyback program of up to $100 million. Again, and as of today, since April 2022, we have completed $248 million repurchase buyback program. The performance is fueled by our platform. So, you know, we have three platforms which we operate: Payments, marketplace, and the Fintech, and all of them are showing very strong growth.

The Marketplace is showing even stronger standout performance. So, Payments TPV has grown 42%, revenue 41%, and net income 47% just because we have this operating leverage in the Payments business, and we have network effect across the board for all our services. Marketplace GMV has grown 50%, driven by e-Commerce growth, 85% revenue growth, 64% net income growth. Then Fintech continues a very nice growth.

TFV is accelerating 41%, revenue 39%, and the net growth of net income growth is 17% year-over-year. You know, we're also becoming increasingly diversified business. So as you can see, almost 2/3 of our net income is now faster growing Payments and the Marketplace businesses.

Juma has been a very strong performer. We reported it last during our last quarterly call, just to reinforce, it was really the biggest, the largest, more successful Juma that we had in July. So the growth has been 82% year-over-year. So this is our three-day shopping festival, which is created by Kaspi and led by Kaspi, but all the platform opportunities to sell for our partners and for consumers to buy.

We will have another Juma in the November, beginning of November, so we're now preparing for it. Again, you know, we will be making sure that we execute so that our partners can happily increase their sales, and consumers can reach all our partners and their goods to buy. We're also growing very nicely our e-Grocery business. So the growth has been very strong.

So we've increased it 3.4x year-over-year, both on the GMV and the purchases side. So we've reached, in the third Q, 1.4 million purchases, which is a very encouraging dynamics, and those purchases and GMV was delivered by 422 active consumers. So we're pleased with the business, with operating performance and the financial model.

Just to remind everyone, we are now focused on the two cities, which is Almaty and Astana, one of the largest cities in the country, and we are making sure that the business model continues a fast growth, but also it's operationally excellent, and that's our priority, but it's still extremely exciting, 442,000 active consumers making 1.4 million purchases in the third Q.

We also are growing our last mile and building the last mile delivery network. We're happy to report here that we have now exceeded 5,200 automated parcel machines across the country, so it's 5,222, to be precise and that is now the probably the largest last mile delivery network in the country, and it contributes 37% of our deliveries.

Again, this is important for us just because that's something which our team is executing strongly because that's the-- that's an important delivery channel for us, but also it's great for operationally because it's cheaper to operate, but also it's great for the country and citizens because it's greener to operate.

You know, instead of... Just to give you a basic equation, instead of delivering 70 parcels to the door and traveling to all those destinations separately, you know, you're delivering 70 parcels to one specific location, and then consumers can pick up them at the convenient times. Consumers love it because it's their choice when they want to pick it up. So that's a great functionality.

We're pushing it, and we are aiming to have around 6,000 automated parcel machines, or Kaspi Postomats, as we call them, by year end. Another business which we're also growing and really excited about it is a B2B. So B2B Payments continues to show a very strong performance. We have grown our TPV 2.3x year-over-year for nine months, and purchases 17.4 million.

That's basically, for us, again, it's a sort of a foundation for the further innovations for our merchant partners and their suppliers, just because we're really focused on making sure that the transactions flow and the liquidity flows in the value chain and yeah, this business is growing really fast. We're excited about it.

It's roughly about 4% of our TPV, even though the Payments business is growing across the board, that business is just a start of innovation for the merchant products and their suppliers. I'm happy to report that we have completed the transaction of acquiring Kolesa Group from a private equity shareholder. This is a great business in terms of the addition to our services and an extension of our value towards consumers around the real estate and around the cars. That Kolesa really has number one brand recognition.

It's almost 13x more recognized than the nearest brand in the cars vertical, and it's number one as well, almost 5x, in the real estate. Those are the two most important decisions that the household would make.

One of the most important, either you buy a car or you buy an apartment, and all of that really is a very good addition to, and extension for our business because, you know, we know that we can improve our consumers' lives by helping them to make those decisions smoother. So really excited about that, the opportunity that we have in front of us.

Through the acquisition of the both, you know, that we also operate the largest classified businesses in Azerbaijan, both in leading businesses in Azerbaijan, both in cars, real estate, but also in the general classifieds and if you would actually pull everything together, now we have a good platform across three countries with more than 10 million monthly active users, and now we have classifieds in Kazakhstan, Azerbaijan, and Uzbekistan.

This gives us another opportunity both for additional consumer insights, but also for continuing innovating and delivering services to our consumers, and the partners actually, whether it's merchants, it's individuals selling their used items or everything else, cars and so on our platforms now. So David, I-

David Ferguson (Managing Director and Head of Investor Relations)

So, yeah, thanks, Mikheil. So I'll run you all through the financials for the three respective divisions, starting with the Payments division. Mikheil talked earlier about the importance of growing transactions. In Payments, that is a function of new merchants and product development, giving customers more opportunities to transact. In the quarter, you see transactions were up 34% year-on-year, up 41% year-on-year for the nine months. That is a good result.

Payments platform is also our main customer acquisition tool. A large and diverse merchant base drives new consumers, and here, too, you see that growth was robust, up 15% year-on-year for the nine months, and that's consistent with the trends that we've reported over the first and second quarter. As merchants shift more of their volumes to us, that drives TPV.

So just to be clear here, TPV is what we'd previously described as RTPV, so there's a change in definition. It refers to transactions that are monetized. It excludes non-monetized transactions. TPV growth was up 42% year-on-year in the third quarter, 49% year-on-year for the nine months, and all key payment platform products are contributing to this result. Growth in Kaspi Pay merchants and transactions, rapid adoption of B2B, which is expected to remain additive to TPV, and the ongoing popularity of bill Payments.

Interest-free balances were up 22% in the third quarter, which is consistent with the previous quarter and indicative of a broadly healthy consumer environment. Take rate for the quarter was stable at 1.2%, and indeed take rate has been stable for a longer period of time.

The combination of fast TPV growth and stable take rates translates into similar revenue growth, up 41% year-on-year in the third quarter, 49% for the nine months. From a profitability perspective, during the quarter, Payments platform delivered a record level of profitability. The drivers remained the same. That's the elimination of third-party costs, proprietary networks, inherent gearing, and just tight cost control, which is a theme across the business.

Overall, Payments platform is well positioned to keep growing as customers' incomes grow. We'll keep adding opportunities to transact across retail and services, particularly services, which is under-penetrated in Kazakhstan. B2B is additive in terms of addressable market and will remain disciplined on costs to ensure payment platform's gearing remains intact. Moving on to Marketplace. So all platforms contributed during the third quarter, but if there was a standout performance, it was from Marketplace.

On a transaction basis, you see transactions up 31% year-on-year in the quarter, 43% year-on-year for the nine months. That's a good result, and just illustrative of the depth of Marketplace's proposition across m-Commerce, e-Commerce, travel, e-Commerce, 1P, grocery, and the other value-added services like Kaspi Postomats that we continue to add.

Overall, that drives the attractiveness of the proposition, drives transactions, it also drives new consumers up 20% year-on-year to 6.9 million. If you contrast that with Payments platform at 12.6 million, you can see, still see that there is some way to go in that regard. When I talked about standout performance, transactions translated into fast GMV growth, and then subsequently you'll see the higher take rate translated into faster, revenue growth.

From a GMV perspective, 50% year-on-year in the third quarter. That is a material acceleration from the second quarter. GMV was up 39% in the second quarter. Why? As a reflection of the success of Juma. Again, just the breadth and depth of the proposition with all of the key components playing their part.

In addition to that, you saw take rate expansion, 70 basis points in the third quarter, 90 basis points for the nine months, and that reflects product mix, promo, and Juma, all those things are connected, delivery, and to a lesser extent, advertising. Within Marketplace, if there was a standout performance, it was e-Commerce. e-Commerce delivered 56% GMV growth during the quarter. That's an acceleration from 39% in the second quarter, and it's a mix of promo, i.e. Juma, e-Grocery, all playing their part in this.

In terms of purchases, up 120% versus GMV up 56%, so purchases growing at a faster rate reflects, number one, the addition of grocery, and number two, just an ongoing effort. We've talked about it before, to expand the depth and breadth of SKUs across all areas of e-Commerce to make the platform more relevant.

What you should see happen in time is the growth in SKUs moderates, and orders and GMV converge together. Take rate expansion in e-Commerce, 10.8% from 9.6%, so this relates to the 3P part of the business, primarily driven by merchant seller fees, which means higher fees on the back of promo and Juma, advertising, and delivery. m-Commerce, as always, m-Commerce delivered... Sorry, on e-Commerce, this is just reiterating the point around adding SKUs.

You can see there's been a material expansion in e-Commerce SKUs over the last 12 months. We're expanding the depth and breadth of the proposition, making it more relevant to everyday life, driving- with the aim of driving transaction frequency. On m-Commerce, m-Commerce has consistently delivered good results. This quarter was no exception, GMV up 47%, an acceleration from 35% in the second quarter.

Take rate moving up by around 50 basis points to 8.8% from 8.3%, previously. So another good result from m-Commerce, and actually another good result from travel. GMV growth of 45%. Here, take rate expansion driven by faster growth from rail, which is higher take rate versus flights.

We've talked about previously, we expect international holidays, package holidays, to be additive to both growth and take rate going forward. So overall, the combination of good GMV growth, take rate expansion, translated into materially faster and accelerating revenue growth, up 85% year-on-year in the third quarter, up 90% year-on-year for the nine months.

The timing of promotional events can vary from quarter-to-quarter, but Juma is scheduled to take place again next month, and we're excited about that event. Net income grows at 64% year-on-year in the third quarter, 72% year-on-year for the nine months, which is a slower rate than revenue, and it reflects investment in e-Grocery, which is growing fast, but still early stage, still in investment mode.

Finally, the Fintech platform, we've continued to prioritize growth in deposit customers, up 30% year-on-year for the nine-month period. When rates move down, we think deposit customers will stay with us, and their money will drive future transactions and also give us more funding to drive TFV, to drive lending origination in the business.

You can see that strategy is paying off with another quarter of good deposit growth expansion, faster than growth in loan customers, although growth in loan customers of 12% is solid and consistent with trends you've seen in previous quarters. Looking to origination, up 41% year-on-year, so that is a pretty healthy level of origination.

Origination has been running at normalized levels since really the second half of last year, and again, this is illustrative of a supportive consumer environment. Origination now drives revenue growth going forward. In terms of mix, the drivers are low risk, short duration BNPL, which is our most important Fintech product. Merchant financing is our fastest growing Fintech product, and merchant SME lending is an under-penetrated opportunity in Kazakhstan, with significant growth potential ahead.

Loan conversion, a measure of how quickly people borrow and repay, stable and consistent with long-run trends at 2.2x for nine months, 2023. Again, supportive of the consumer environment. From a balance sheet perspective, that translated into 35% loan portfolio growth and 42% growth in deposits. So again, you see the deposits growing at a faster rate than loan growth.

As a result of that, the loan-to-deposit ratio continues to move down to 79%. We have a good, strong financial position. In terms of yield, just a point to note on this slide, this number is either for the quarter or for nine months. It isn't an annualized number. In previous updates, you'll see that we've always talked in annualized terms, but you'll see that that is consistent.

If you annualize those numbers, you will see that it's consistent with what we've talked about previously, i.e., BNPL and SME lending are lower-yielding products. As they grow in share, that results in the blended yield moving down slightly, and the trend we report in the third quarter, again, is consistent with that.

Looking at the various risk metrics, whether it be default rates, delinquency rates, loss rates, or collections, the overall message here is that in terms of risk, you see strong and stable trends. Actually, trends that have been consistent now over a long period of time. That points to a low risk, low risk product, low risk environment, and predictable end environment.

Ultimately, that translates into a cost of risk for the nine-month period of 1.5%. So again, that is not an annualized number, although it is consistent with the annualized numbers we've talked about previously, and again, is exactly where we would want it to be. Similarly, on NPLs, NPLs moving down over the course of the year.

There is always an element of seasonality when you're looking at NPLs on a quarterly basis, but this trend is exactly what we've talked about on previous calls. So where does this leave us? Fintech revenue growth, decent in the quarter, up 39% year-on-year on the back of normalised origination over the last 6-9 months, and even taking account of slightly lower yield. On the net income side of things, up 17% year-on-year.

That is decent growth, but is impacted by higher funding costs and a larger deposit base, which we've previously talked about. When rates start to move down, we think the impact on net income profitability will be you'll see accelerating growth, the decline in profitability being cyclical rather than structural.

So overall, Fintech is well-positioned, as evidenced by good organic growth in loan and deposit customers, the structural growth opportunity in BNPL, and SME, combined with our own sort of tight control of risks and tight control of costs. That wraps up the platform summaries. At this point, we would usually turn to guidance. I simply just draw your attention to the press release. We noted in the press release the final quarter of the year has gotten off to a strong start.

We noted in the press release Juma is scheduled for November, and we're excited about that, and more generally, we observe a healthy and predictable merchant and consumer environment. However, in light of the SEC registration process, we're not providing our usual guidance at this point. It's our intention to return to that practice when it is permissible and appropriate to do so. On that note, we'll open the call up to Q&A. Harry, over to you.

Moderator (participant)

Thank you, David. If you would like to ask a question and you've joined us via Zoom, please use the Raise Hand button on your Zoom toolbar, and if you're joining us over the phone, please dial star one to register for a question. When preparing to ask your question, please ensure that you are unmuted locally. Our first question today is from the line of Gabor Kemeny. Gabor, your line will be open if you'd like to unmute locally and proceed.

Gabor Kemeny (Equity Research Analyst covering Diversified Financials)

Yes. Hi, thank you. A few questions from me, please. First one is on the Marketplace, where growth has been trending pretty strongly, I believe. Maybe, maybe more strongly than you anticipated some time ago. This 53% GMV growth, I guess compares with, I think you said 40+ earlier.

I understand you won't be able to provide the guidance now, but maybe you can just give us a sense of why the underlying growth has been stronger than you had expected. I guess Juma was known when we last spoke. The other question I have is on the news flow and proposals around the interest rate caps.

Would you be able to comment on the odds and what impact would it have on Kaspi if the rate caps indeed, the consumer rate caps indeed drop to 44%? I believe that was a previous proposal. Just finally, maybe you can give us an update on the US IPO progress, please. Thank you.

David Ferguson (Managing Director and Head of Investor Relations)

All right, Gabor, so thanks for your questions. I'll pass the regulatory question over to Mikheil, but just to sort of address the U.S. listing question, I guess it's around timing. It's a perfectly reasonable question, but at this point, we're unable to add any detail beyond what we've said publicly, namely, that we've filed with the SEC.

But beyond that, we can't talk about timing or anything else related to this event, so just ask you to bear with us in that regard. On Marketplace, again, from my side, I'd just, without trying to be unhelpful, reiterate, there's a limit to what we can say in terms of forward-looking comments. So I'd reiterate the comments that we've made previously. You're right, Marketplace delivered a standout performance, number one.

Number two, it was led by e-Commerce, so that's an important point to be aware of, although all platforms delivered. In terms of e-Commerce, there's a culmination of lots of things coming together. We talked about Juma being one. We talked about expansion in the depth and breadth of the proposition. SKUs, number two, and that's both 3P and 1P.

We've talked about value-added services, Postomats, for example, promotion and advertising. So if you put all of these things together, it's hard to identify any one factor, but they've contributed to a good result, and e-Commerce remains structurally underpenetrated in Kazakhstan. I'll pass the floor over to Mikheil.

Mikheil Lomtadze (CEO)

Thank you, David. Thank you, Gabor, for the questions and regarding the regulation, this is a general question which we really discuss on a pretty much regular basis on most of the calls. So, you know, there is nothing specific to report. So, I mean, it has been a communication back and forth, and the discussion about it on, in the broader context and different events. So, yeah, I mean, there's nothing really specific that I can add to what I said before about this.

Gabor Kemeny (Equity Research Analyst covering Diversified Financials)

Okay, thank you. Maybe, if I can just follow up, on this point, because that proposal of rate caps possibly coming down, I think was quite specific. Can you remind me, what's your message? What's your commentary on you know, rate caps coming down to 44, potentially?

Mikheil Lomtadze (CEO)

Well, my commentary in general, that we are very sort of diversified business with a really broad value chain. So from that perspective, our business model itself is quite resilient to any kind of changes on the pricing of different products and that's pretty much what I have said before.

Gabor Kemeny (Equity Research Analyst covering Diversified Financials)

Okay. Got it. Thank you.

Mikheil Lomtadze (CEO)

Thank you.

Moderator (participant)

Thank you. Our next question today is from the line of Catherine O'Neill. Catherine, your line will be opened if you'd like to unmute and proceed.

Catherine O'Neill (Equity Research Analyst)

Great, thank you very much. I had a couple of questions, if that's okay. One is, could you talk a bit more about the opportunity in services in relation to Payments? I think you referenced services being more of a driver of Payments as we go forward, and how you think about that mix.

Secondly, now Kolesa is closed, I think in the release you used to talk about used car sales, you know, leverage technology, car financing, payment tools. Should we expect an acceleration in car financing, and how could that, if at all, change the risk profile and maturity?

David Ferguson (Managing Director and Head of Investor Relations)

Okay, Catherine, so maybe I'll just start on services, then pass both over to Mikheil. So the simple point I would make is if you just look at macro data for Kazakhstan, so the share of spending on services is low relative to many emerging markets and developed countries.

Typically, as incomes grow, services become a larger part of the economy, so we see services as structurally underpenetrated, a driver of long-term growth in terms of transaction activity and if you think about all of our products, whether that be m-Commerce, whether that be Kaspi Pay, or BNPL, they're all beneficiaries of growth in any transaction activity, whether it comes from goods or whether it comes from services. But maybe I'll just pass the rest over to Mikheil.

Mikheil Lomtadze (CEO)

Thank you, Catherine, thank you for questions. In terms of the, in terms of the classifieds, I mean, if you look back in general, at the pace of innovations that we're able to implement, leveraging the technology, the consumer insight, but also delivering the high quality consumer experience, I think, you know, we're excited about these new verticals that now we're getting into the Kaspi sort of business. Regarding the car financing, specifically, yes, we are having the online car product, car finance product, which is becoming and is very popular.

As you know, on the Fintech side of things, you know, one of the things which really we know what to do is how to evaluate and measure risk, or give the right amount to the right consumer at the right time for the right purchase. Actually, consumer and the merchant. So as a result, you know, you could... You know, we've mentioned this in a previous call as well, that that would be the strategy for us to enter those markets around the cars and, and yeah, that's quite... Yeah, that's, that's an exciting opportunity for us.

Catherine O'Neill (Equity Research Analyst)

Okay, thanks. I just wanted to clarify, so when you say you're sort of entering the market on the car side a bit more, does that mean you might take on some of the inventory risk as well, or will you purely be focused on sort of financing and on sort of e-services side?

Mikheil Lomtadze (CEO)

Both. Both car financing, but also, you know, helping the consumers to buy the cars at the right prices. Considering the reach of the platform that we have, that's a good opportunity that we have in front of us. Again, you know, we're just limited on some of the forward-looking statements, as you can appreciate. But, there is one thing that to be known about the Kaspi team, is our ability to execute and deliver the results.

Catherine O'Neill (Equity Research Analyst)

Okay, thank you.

Moderator (participant)

Thank you. Our next question today is from the line of Nida Iqbal Siddiqui. Nida, your line is open. Please go ahead. Nida, your line is... Apologies. Your line is open if you'd like to proceed.

Nida Iqbal (Equity Research Analyst)

Hi, can you hear me now?

David Ferguson (Managing Director and Head of Investor Relations)

Yeah, we can hear you.

Nida Iqbal (Equity Research Analyst)

Apologies. Thank you for the call, and congratulations on another great set of results. My first question is on e-Commerce. What upside to take rates do you see from advertising and delivery over a 2-3-year time horizon? Secondly, just wanted to explore a bit more on the e-Grocery dark store rollout.

You know, the speed at which you're seeing profitability of the new, new dark stores that are being rolled out, and how are you thinking about the growth of the e-Grocery segment distribution network beyond the dark store rollout that's planned right now? Then just finally on international growth, is that kind of on the agenda at the moment? If so, which countries or regions are you exploring? Thank you.

David Ferguson (Managing Director and Head of Investor Relations)

Nida, we mentioned sort of earlier that we're relatively limited in terms of forward, both guidance, but generally forward-looking statements. So when you're asking for, sort of a view on how advertising and delivery can evolve in terms of take rate on a 2-3-year view, if we can't give guidance for the fourth quarter, we can't comment on that specifically, other than a generic comment that, these products are very early stage, for us.

Given that they are early stage, under-penetrated markets, the opportunity ahead is, interesting. Similarly, for your other questions around the economics of, dark stores, again, without trying to appear unhelpful, we report profitability at a Marketplace level, not at a 1P level, so there's not really much we can add in that regard and so I'd just leave it there. I don't know if Mikheil can add more generic comments.

Mikheil Lomtadze (CEO)

Well, I would, you know, again, just, go, to the point of really understanding how Kaspi team operates and executes, and that's basically, I think, apart from technology and proprietary technology we have developed, it's really probably the extremely important factor in any future plans for us. If you put together the advertising and delivery revenue, you know, it's, 1.8% of our GMV on a nine-month basis, so, on the e-Commerce side.

So you can, you can see that we have, we have been really executed sometimes, behind the scenes before we sort of get really confident that this business is performing, so from that perspective, I can just, you know, reiterate what David is saying. You know, our role is really just to put our heads down and execute, which I think the Kaspi management team has proven many times that we are all about execution.

David Ferguson (Managing Director and Head of Investor Relations)

Mikheil, Nida also asked about international?

Mikheil Lomtadze (CEO)

On international, I would say probably it goes along the same kind of comments that you have mentioned in terms of limitations on our forward-looking statements. In general, I would say that, you know, we as a company have technology which is scalable, management team which is extremely experienced across different industries by now, and also different countries. So from that perspective, you know, our sort of plans, you know, haven't really changed from what we said in the previous call.

David Ferguson (Managing Director and Head of Investor Relations)

Does that answer your questions, Nida?

Nida Iqbal (Equity Research Analyst)

My phone is having some issues. Thank you very much.

Mikheil Lomtadze (CEO)

Thank you for good questions.

Moderator (participant)

Thank you. Our next question is from the line of Sergey Dubin. Sergey, your line is now open if you'd like to proceed.

Sergey Dubin (Equity Research Analyst)

Yeah. Good, good afternoon, gentlemen. Thanks, for the call. Congratulations on outstanding results. I just have one factual question. I understand you cannot comment on forward-looking issues, but relating to the concern that I think a caller before mentioned regarding rate caps. I mean, I read that your Fintech yield was 19%, non-annualized for nine months. Obviously, it's way below 44%.

So perhaps the question is, like, is—can you comment on what percentage of your book, and obviously that 19% is average across many borrowers. I mean, is there a large portion of the book that's portraying 44%? Maybe just to allay their concerns. If you can provide that color, that would be helpful. Thanks.

David Ferguson (Managing Director and Head of Investor Relations)

Mikheil, do you wanna have a go at that?

Mikheil Lomtadze (CEO)

Yes. That's the most... Yeah, the question that is winning the prize, you know, for being asked so many times on every call. I mean, you just need-- I wouldn't really speculate about this. I think you guys see all our numbers, and, you know, you can definitely make the judgment.

Again, the one thing which I would just simply reinforce is that, you know, the Fintech part of the business is only, you know, a bit over a third of our bottom line now and reducing really fast. So, you know, from that perspective, the Marketplace and Payments businesses are the ones which are growing and in our case, you know, we're just, I think the best...

You know, we have impressive. I even need to choose the words when we're discussing with you at this stage. So instead of saying best, I could say that, you know, we are probably really strong in the risk management and having cost of risk, which is below sort of 2%, just tells you that I think that's the most important factor in any financing business.

Yeah, I mean, my personal view is that in general, if the caps are going down, the competition is reducing, which is very unfortunate, and when the competition is reducing, you know, this is bad overall. But actually the strong brands which perform operationally excellent are winning in this type of environment.

The arguments can stretch all sorts of different angles, but I think that, for the strong brands and operationally managing, you know, excellent companies, this type of changes, should they happen at any point in the future, unfortunately, are reducing competition, but making the brands and the companies, like that, winners, because it's not only about interest rates, right? It's also about the type of products and, and the consumer access to those products.

Sergey Dubin (Equity Research Analyst)

Okay, great. Thank you.

Moderator (participant)

Thank you. Our next question today is from the line of David Shapiro. David, your line is now open. Please proceed.

Speaker 9

Morning, gentlemen. Can you hear me okay?

Moderator (participant)

Yeah, go ahead please, David.

Speaker 9

Just a quick thank you on behalf of the shareholders for the judicious way you guys continue to run the company. It is very much appreciated. Just moving on to two quick questions. Is there any concern from a competitive standpoint, or are you guys seeing anything more specifically on the ground that would lead you to believe that people are trying home delivery models versus the Postomats?

Obviously, you guys have created a very economic and efficient way of delivery. There's just no doubt about that. So I'm wondering if there's a lot of free-flowing capital where people are trying to go to the home more aggressively. So that's one question. Second question would be around your very powerful business model, which continues to get more powerful given the tangential lines of service you're moving into.

Are there any tangible benefits that perhaps you can talk about on this call, or that you're showing the government in particular, which is benefiting the consumer? Is there any plans to further reduce payment take rates, for instance? Just anything where you can show how the scale and the size and the increase in volume may actually drive down the pricing, so as to allay any government concerns about, you know, Kaspi's very strong business model?

David Ferguson (Managing Director and Head of Investor Relations)

All right, thanks a lot, David, for your questions. I'll pass them back over to Mikheil.

Mikheil Lomtadze (CEO)

Yeah, I can pick it up, David. So in terms of the delivery, you know, for us, the main key for this business model on the automated parcel machines, Kaspi Postomats, is really the user experience, which is developed, which is very seamless from purchase to actually getting your items picked up.

That's what excites both consumers and merchants and us operationally, just because we as a company like having the transactions which are repetitive, and when the transactions are repetitive means that you have a locker in a specific location, and you deliver to it constantly. That means your repetitive operation to process transaction, whatever, can become better, faster, and cheaper, more convenient with our technology, over time it's used.

So that's basically why we're excited about the Postomats and really showing us the results and it's consumers' choice. At the end of the day, it's consumers that are the ones decided, and it's through our growth and adoption of the service, you can actually see that consumers really prefer and love the convenience of picking up item when they want it and when it's convenient for them, rather than the waiting for courier and an inconvenience of dropping off stuff at the door.

So that's basically about the Postomats and we're just really focused on execution and the growth is a good, you know, evidence of that. In terms of the, you know, working on other benefits of the consumers and merchants, again, you know, our mission is to improve people's lives and the partners' lives with our innovative services and the things which we have been and are working together with the government are, for example, the tax reports, which has been and tax Payments by both individuals and the merchants.

As you can see, you know, while we're developing those services, you know, that we are contributing to overall transparency of the retail trade, and I think that's appreciated really by everyone, and we just continue streamlining those services. What is absolutely sort of encouraging and interesting is that the individuals and the merchants are...

They actually are not against the paying taxes, and as soon as the service is there, as soon as it's seamless, as soon as they have a confidence there is no sort of a mistake in that service, they are actually engaged and using it and there are significant benefits across the board, and all the services that we're doing on the government side of things are, you know, are done basically just to help make the government services accessible by the wide range of the population.

It has been widely publicized in the press and the media or the social networks, that this is really a standout source of the pride for our consumers and citizens in Kazakhstan. So that really helps us to continue innovating in this, in this regards, but also employ our front-end technology to help the state and the government to distribute services to the wider range of population. So there is a lot of win and win relationship in this.

Speaker 9

Thank you very much, and, again, a big thanks to the entire Kaspi team for the hard work you guys are doing.

Mikheil Lomtadze (CEO)

Thank you very much.

Moderator (participant)

Our next question today is from the line of Ronak Gadhia of EFG Hermes. Ronak, your line is now open. Please go ahead.

Ronak Gadhia (Analyst covering Frontier Banks)

Good afternoon. I hope you can hear me well. A couple of questions. Firstly, just wanted to, if you could share what the take rate is on your B2B Payments. I see your overall take rate for the Payments business has remained steady at 1.2%. I just wanted to see if you could give a breakdown between B2B and B2B Payments.

Second question, maybe just a follow-up of in some of the questions earlier. On your Fintech business, I see 45% is now buy now, pay later. What proportion of those buy now, pay later loans have a duration of less than three months and, you know, therefore, not paying any interest? If you could share what the effective yield on the rest of the Buy Now, Pay Later products are, that would be helpful. Thank you.

David Ferguson (Managing Director and Head of Investor Relations)

Ronak, thanks a lot for your questions. Limited again in what we can answer there. So on B2B take rate, it's not disclosed in this update. All I can point you to is you see the take rate for Payments platform as a whole has been remarkably stable over the last couple of years, and that includes the period of time from which we launched B2B to where it is today, our fastest-growing payment product. That would be the answer there.

Then in terms of your other question, I don't know if Mikheil wants to talk generally about that, but in terms of specific numbers, again, that's not just something we're not disclosing at Q3, we've never talked about that in the past. But Mikheil, anything?

Mikheil Lomtadze (CEO)

David, I think that, the conversion rate would be just a useful indicator for the maturity, right? I think we do disclose the conversion rate in our Fintech numbers. So it was about, 2.2, if I'm not mistaken. So that basically-

David Ferguson (Managing Director and Head of Investor Relations)

Yeah, that's correct.

Mikheil Lomtadze (CEO)

So that basically just tells you that, you know, the loans are the short maturity and they are just to keep in mind about our financing products. Our financing products, there are no fees to originate, there are no fees and penalties to prepay, so we're really motivating our consumers and merchants.

They can prepay any time, they can take any time, and they can actually take any amount pretty much for their needs. So that's a feature of our products, and as a result, you know, we are constantly reducing in general the duration. So duration has been very short.

Over time, as we build up the products, that are like car finance or business finance for merchants, those would be a bit of a longer term maturity as everywhere else, but so far, the profile hasn't really changed. So we are a, you know, short-term maturity, frequency, technology-driven finance products, which give maximum flexibility and the convenience to our consumers and merchants. That's why we have cost of risk of less than two, and that's, that's why our products are so popular.

Ronak Gadhia (Analyst covering Frontier Banks)

Okay. Thank you.

Mikheil Lomtadze (CEO)

Thank you.

Moderator (participant)

Thank you. Our next question is from the line of Mikhail Butkov of Goldman Sachs. Mikhail, your line is now open. Please proceed.

Mikhail Butkov (Equity Research Analyst covering CEEMEA Financials)

Good day. Thank you very much for the call, and congratulations on strong results. Being mindful of that you can provide limited information on guidance, a few questions from my side. Firstly, on the SME lending, this part of your portfolio becomes quite sizable, and in one of your results, you disclosed that approximately 21% of merchants use SME lending with Kaspi.

So to the extent that you can provide some color, do you see the demand from the other 80% of those SMEs with who you work and what is the risk profile of SME clients compared to the rest of your book? Maybe in terms of asset... Sorry, cost of risk or some other metrics on which you can share the color.

The second question is on e-Grocery. Previously, you were providing some color on how profitability is evolving in that segment. Can you provide any color on how that was in the third quarter, or maybe any promotion strategy which you have in this segment currently? So, yeah, that are the two questions from me. Thank you.

David Ferguson (Managing Director and Head of Investor Relations)

All right. Thanks, Mikhail, for your questions. On e-Grocery, no, but you can look at what we said at the H1 stage in July. You can see that growth has been very rapid since, so usually as businesses scale, there are benefits for economics as a result of that. That would be my general comment, but I'll pass the rest over to Mikheil.

Mikheil Lomtadze (CEO)

Yeah. On the e-Grocery, the one thing which I would say that the nature of this business, and that's why we like it, it's a highly repetitive business, which goes both ways. If you don't get the product right, you actually lose the consumers, but if you get the product right, I mean, the whole user experience right, then the consumers continue using it. Kaspi, historically, I think, has been known for developing this high-quality user experience.

As consumers are building up by using this, so our services repetitively, you know, that translates into the profitability, into efficient marketing, and the fact that you are not bleeding the customer. That's just a general knowledge about the similar business models, and, you know, as you can see, the growth rate of e-Grocery is very strong, and we're just in only two cities.

As David said, that, Mikhail, you can go back to our comments that were made just very recently, in our six-month numbers. In terms of the SME, SME is actually an exciting business opportunity because it's not just only they, they lack high-quality products on the market, they are also our merchants or the partners with whom we work.

Again, you know, we are working on making sure that their user experience and the quality of relationship is of a very high standard. And as a result, the growth and penetration, of the merchant business and the microfinance business is actually a reflection of it. Can't really give you any forward-looking statements unfortunately on this call.

But the one thing we can say that the merchant's interest is significant, and when you take the step back and think about the merchant relationship overall, the way we're developing around them, it's almost like 360 degrees around the merchants, right? You can accept Payments, you can get the working capital finance in order to grow their sales.

You can board in Kaspi Zhuma, and your sales are growing, working capital is supporting that growth, and we give you the other invoicing tools and instruments. We give you an advertising services now. Now you can connect to Kaspi Delivery, so we can get your goods delivered across the country efficiently and smoothly.

You know, on top of the fact that it's a merchant products, the consumers, they are happy with the end the product, because eventually consumers are the ones that are paying to the merchants for their business. So we are very excited about this two-sided business model, and SME financing is an important priority for us, and it's a good product with the risk profile, which is acceptable for us. I mean, that's as much as I can tell you on this call.

Mikhail Butkov (Equity Research Analyst covering CEEMEA Financials)

Thank you. Thank you very much, and if I could squeeze one more question on B2B Payments. Actually, this is also the area which you highlight as a growth opportunity. What is the current profile of a client which you see in that segment, if I may ask this?

Mikheil Lomtadze (CEO)

Well, I mean, this business is, you know, we... I think we explained it on couple of calls. The nature of this business is we're helping the brands, the suppliers, wholesalers, distributors, to actually deliver the items and their orders to the convenience stores. At the moment of those, you know, goods being delivered, for example, to the convenience store, the convenience store instantly settles the invoice with that distributor or the wholesaler or the brand.

So the convenience here is actually quite similar to what we have done with the consumers. So we help the consumers to drive transactions seamlessly, instantly, and the same knowledge and expertise, and actually the technology in certain extent, we have extended this to the B2B market.

Now convenience stores are, and the distributors are using this product very actively. For every retail business, the number one priority is to streamline your working capital. So if you can settle the invoices instantly, that means you have... You need less working capital, that means you don't have large receivables.

That means you have less operations inside, because the things are, you know, the orders are settled against the invoices. There is less cash, so you have no expenses related to the cash. So there are so many benefits for the parties in this product that, and for the country, because then the trade becomes transparent, that we're excited and, you know, everybody is, we're working. This is just the beginning of actually our innovations in this area, and B2B Payments is the exciting opportunity for us, as we said before.

Mikhail Butkov (Equity Research Analyst covering CEEMEA Financials)

All right. Thank you very much for these comments. Much appreciated.

Mikheil Lomtadze (CEO)

Thank you.

Moderator (participant)

Thank you, and that brings us to the end of our Q&A session today. I'd like to hand back to Mikheil and David for any closing remarks.

David Ferguson (Managing Director and Head of Investor Relations)

Okay. Thanks, Harry. Thank you everyone for participating in today's call. If you have any questions, please feel free to reach out to us directly, but thank you everyone for your time. That's it. Goodbye.

Mikheil Lomtadze (CEO)

Thank you. Bye-bye.

Moderator (participant)

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