Earnings Call: Q4 2020

Feb 16, 2021

And hi, and welcome to the presentation of Clio's Year End Report for 2020. I'm Carolina Grantsman, the CEO of of Clio. And with me as the presenter, I have Robert Sandro, CFO. And in the room, we also have Andreas Fried, Head of Investor Relations. I will start by giving a brief introduction to Cliro before we get into the Q4 results and highlights. So next stage, please. Clearway is a tech company offering payment solutions in the Nordics and digital banking services in Sweden. We were founded 6 years ago by the, at the time, largest e commerce group in the Nordic. And back then, there was a need for a payment provider who listens to the needs of the merchants and develop the products and services based on the needs of merchants and consumers. And with that purpose clearly was founded by merchants, for merchants and that's deeply ingrained in our DNA. We offer our payment solution MKF Delivery or Buy Now Pay Later products across the Nordics and Personal Loans and Savings in Sweden. And since day 1, we've had almost 5,000,000 customers using our services. And today, we have more than 2,500,000 active customers who frequently use 1 or more of our products. With text data and customer experience in focus, we have been improving our position in the market. And today, we are the number one challenger when it comes to payment solutions for larger eco merchants in the North. Please turn to Page 3. We offer a payment solution that adds value for both the merchant and the consumer. And the most common way for the merchant to integrate is with our full checkout solution. That is the way the customer gets in contact with Clio for the first time in the merchant's checkout. And that is what you see on the phone to the left. The checkout is developed to optimize conversion and to maximize of SMIC's convenient and transparent customer experience and at the same time lend into the merchant's Clear checkout offers both before and after delivery payment methods. Before delivery with direct payments and card payments through partners of Mpay after delivery with invoice, buy now pay later products and fixed and flexible part payments that we offer ourselves in the Nordics. And these are the payment methods that we referred to when we talked about Cliro Payments, which is the part that gives us our income. Our target area is the Nordics, and that is where we offer our pay after delivery products together with our fulfillment method. The Clio check out can also be offered to our margins that are growing outside the Nordics. Today, we don't offer our own products or have an income or significant income related to these transactions, but we make sure that our merchants can sell in those markets. It's a service where we support our merchants that have a reach outside the Nordics. In some markets, we offer an invoice product as well together with a partner, but it's not on our balance sheet. Clear Checkout is today able to process payments in more than 30 of ITS and have localized language in 6 markets outside of the Nordics. We acquire all of our customers through the checkout. So when someone chooses to pay after delivery product, they become a clear customer and then they're welcome to our new digital of which is now available in the Nordics. As a Swedish customer, you can handle all your payments, convert into a different payment method, post the payment while you return your purchase. You can change payment dates and you can connect your bank accounts to make sure that you're able to do your payment in time. And we notify and remind you before your payment is due. The digital platform is where we interact with our customers, and we want to offer suggestions and products that are of relevance. And currently, we cross sell loans and savings to our customers and Tweed. And since the launch of our new platform during 2020, we can also integrate other financial products through 3rd party providers in an easy way. We have chosen this strategy, yet we don't think it's efficient to develop those products ourselves. And by offering a larger range of products, will create more relevance for our customers without having to develop everything ourselves. So it provides flexibility and it lowers the risk. During 2020, we launched a corporation regarding insurances and we have now integrated a sustainability initiative related to ecommerce and that's something I'll come back to later in the presentation. So with that, we leave the overview of the organization to look into the Q4 highlights and numbers. So stick to Page 5, please, so 2 pages. I'm pleased with our financial and volume development in Q4. Our income growth was 14% with contributions from both our major segment Payment Solutions, but also a steady growth in the Digital Banking Services segment. The driver is increased volumes and transactions. When compared to the historical pattern for income, we were helped this quarter by the fact that the consumption peak was a bit earlier than usual because of an earlier Black Week and an earlier Christmas shopping, which meant that more income related to these peak volumes were recognized in the 4th quarter compared to usually being recognized in the Q1 of the coming years. We have during 2020 been conscious with our cost development, while we still continue to invest in our checkout solution as well as our digital platforms and organization. And I'm pleased with the results this quarter as we've been able to maintain a stable level when comparing to the same period in 'nineteen, even though we ran the business with higher volumes and continued to develop our payment and consumer platform. Our credit quality continues to be stable. And during the year, we haven't seen any general deterioration in the willingness or ability to pay. And I'm pleased that we have checked our underlying loss ratios below the guidance that we had pre COVID. Q4 is usually our strongest quarter when it comes to payment volumes and this year was no exception. Total PAG volume increased with an impressive 26%, reaching more than 2,000,000,000 and the number of transactions grew with 37%. And this is the result of both organic growth from our partnerships prior to 2020, but also with a large contribution from our new partnerships that were onboarded during the year. But I'll drill down a little bit more into this later in the presentation. Next page number 6, please. Our partnership promise to our merchants includes that we always want to be in the of Front with our technical solution and deliver value to the merchant and a great experience for the customer. Therefore, we constantly develop our payments platform and of Foreman Checkout to deliver on that promise. When we integrated the shipping in our Checkout a number of years ago, we were the first in the Nordic market. And now through a partnership with Unifound, we improved that integrated solution further. To have the most relevant shifting of which is easily available for the consumer is important. And with this solution, all relevant choices are integrated for the merchant and the merchant just need one integration with Clizero instead of having one integration with us and one with every logistics partner. This service, together with the flexibility we already deliver for how the merchant wants to provide shipping, with the ordering or how it's presented is of great value for the merchant. We have also during the year been successful in signing major e com brands such of the Ilkestia Cosmetics and others to add to our merchant portfolio. And during the Q4, we signed an agreement with the Nordics giant, Ilksema. CNCM has an impressive growth, which historically have been focused on physical warehouses. And in the beginning of 2020, They started to focus more on ecom and launched their Click and Collect and Click and Drive Thru services. And in this journey towards a larger focus on ecom, They search for a new payment partner to support them in this transition, and we're super excited to be their preferred choice. The ambition is to start the rollout in the end of Q1 and then continuously rollout the services in the different markets in Menorvik, which takes us to the next page. The next page, number 7, please. In Q1 2020, we launched our updated consumer platform in Sweden with substantially improved of the customer experience in handling payments, loans and savings. And the new platform, which has a new and improved design, allows for personalization towards the customer and makes it easy to integrate partnership offerings through 3rd party suppliers. We have now launched a similar app in all our Nordic markets and also on logged in mode for clear.com, which is based on the same foundation. To have the same platform in all markets simplifies updates and increases the efficiency of speed of which we can do updates of Envirosh New Services. The app has been a big success in Sweden and the fact that we now have made improvements in the other Nordic countries is important, both for the customers and in our discussions with merchants as the customer experience of the repurchase is higher on the agenda for many merchants as well. So next page number 8 please. Besides customer experience, data and tech, sustainability is a focus area including strategy, and we want to make an impact. We believe with our position between merchants and consumers that we can contribute to drive the change towards a more sustainable Econ. We work with this on multiple levels. We try to influence the market through seminars with sustainability teams. And during the Q4, we joined the initiative Sustainable Ecom in Sweden, which is a market initiative within ecom to share knowledge, to inspire and drive change in different focus areas. We also try to influence the consumer directly. And through the newly launched Vituva Smart in our app, We start with addressing the returns, which is a pain point for merchants, for consumers and for the environment. With Resurgemont, our customers will gain information on how they how their returns affect the environment and through different quizzes, Customers can get information on how you as an e shopping consumer can make more environmental brand new choice when it comes to, for example, logistics or returns. It's not about making people feel ashamed, but rather to educate and inspire on how you can act to lower your carbon footprint. This is the first step for us that as we really believe in the concept of spreading knowledge to customers and merchants regarding how you through informed decisions can make more sustainable choices. And we look forward to continuing this journey. Next Page number 9 please. More merchants lead to more customers using our services. And during the last 12 months, we've had 2,500,000 unique customers using our services more than 7,000,000 times. This is an increase with 400,000 customers. And as you can see from historical development, this is an increased growth, which gives us more data and more relationships that we can develop. Our thesis of platform, as we discussed earlier, is becoming more and more popular, which which increases the efficiency and improves the experience for the customer and also connects the customer closer to us. And as you can see from the graph on the right, which illustrates the development in number of logins in our Swedish app. Those interactions increased with almost 50% year over year. And it is with these interactions that we build even more knowledge to continue to offer even better services and insights to merchants and customers. Next Page 10, please. Before I hand over to Robert To drill down a bit more into our financial development in the quarter, I'd like to share a bit more data regarding how our pay after delivery volume has developed during the quarter and increased the transparency around this. Our previous Clear Group friends, Sirion and Meli, is our largest of merchant relationships and 2 really large ecom players in the Nordics with exciting growth potential. And as we've been successful in attracting the new merchants during the last year. The share of volumes from our former sister companies has decreased and other merchants now represent 57% of the total volumes compared to 45% a year ago. Looking at the right hand graph, We are really pleased to see the volume growth of 26% year over year. This is a result of growth in volumes outside previous Clear Group as well as the successful onboarding of new merchants in 2020. What we illustrate in Mikra is the nominal growth in volumes between Q4 2020 and Q4 2019. If we start on the left, external merchants, so merchants not part of Clear Group that were live prior to 2020, has a growth level of 33% and represents almost 50% of the total growth in our PAB volume. There was a strong growth in ecom in general and something that we clearly see when looking at our merchant base as well. The next bar represents merchants that we signed and we went live with during 2020. And in Q4, they represent 15% of our total volume and more than 70% of the total growth in volume is coming from this point. The churn is Escobierv, who left us in the Q1 2020 and that impacts the growth negatively in comparison. Next Page number 11, please. With that, I hand over to Robert to drill down on the financials for the Q4. Thanks, Carolina. Next Page, number 12, please. So let's look at the financials of the company. I'm primarily focused on the Q4 figures. As you know, the last quarter of the year is the most shocking in 'twenty one, and this Q4 was No exceptions and delivered a strong 19% lending book growth and a 26% past volume growth, Which in its turn resulted in an income growth of 14%, driven by solid development in both our segments, of Payment Solutions and Digital Banking Services. As mentioned in the Q3 presentation, Cost will increase in Q4 due to higher customer activity. In comparison to the Q4 2019, The cost is kept more or less flat, although we processed more volumes on our platform this year. We are coming in under the previously communicated guidance in terms of credit losses, and we do not see any signs of deterioration in credit quality. The 17 present reduction in credit losses year over year are explained by 1 offs last year connected to the selling of nonperforming loans to implement a clean balance sheet strategy. Next page, number 13, please. Let's turn our eyes towards the segments and start with Payment Solutions stands for 84% of our income generation. Volumes processed on our platform grew with 26% in the quarter, which is the strongest growth rate in more than 2 years. Worth to pinpoint here is that the volume came in relatively early in the quarter this year than compared to last year. This contributed Positively to the income growth rate in the quarter. Consequently, the relative income boost In Q4 'twenty, we'll have the reverse negative effect in Q1 'twenty one when comparing to Q1 'twenty 20. Operating income grew 10% in the quarter, which is slightly slower than the loan book growth of 13%. This is caused by the headwinds from the regulations as mentioned in the previous Q3 report. Operating income margin, therefore, decreased slightly, however, still being at the high level. Loan loss level are below the withdrawn pre COVID-nineteen guidance and no Next Page, number 14, please. Let's focus on personal loans during the quarter. The income growth reached 39% and the loan book grew with 29% year over year. And as mentioned in the Q3 presentation, When it comes to new lending within personal loans, we have chosen to be a bit more cautious in our underwriting due to COVID-nineteen. We also see that the demand has dampened somewhat. And the growth during corona has been around 5% quarter over quarter. We have successfully grown the book during the period with a higher margin on new lending compared to the portfolio margin without of increasing our risk appetite. Our operating margin has grown 30 basis points year over year, reaching 7.2 percentage. Worth to mention is that we have kept operating margin level flat quarter over quarter throughout the entire 2020. We continue to see good opportunities to grow our lending book as we attract more customers through our payment solution and increase the digital interaction with them. As with the payment solution, we applied a clean balance Chief Strategy, meaning that we sell off nonperforming loans to debt collectors under forward flow agreement. The underlying credit quality was stable and no negative effects on customers' ability to pay was noted due to COVID-nineteen. Next Page number 15, please. We have a stable cost development, of Oslo processing 26% higher volumes in the quarter. And as you know, Payment Solutions is a seasonal business And especially in the shopping intensive last quarter of the year. We have events like Black Friday, Cyber Monday and Christmas, which drives of Merchant Sales and thereby our volume and consequently variable cost. Apart from that, we have to some extent of additional cost of being a listed company. The quarterly year over year cost growth is 1%. With that said, we will continue to invest in our organization and platform in the coming years. Our ambition is to grow income faster than cost over the year, but there may be variation in timing between quarters depending on seasonality and the timing delay in between volume and income growth. Our cost base is through the majority built up by fixed cost, leaving good room for scalability and leverage in adding more volume to our platform. Next Page, number 16, please. Let's take a closer look at the credit quality and let's start with Payment Solutions. Historically, we have had volatility related to sales and write downs of portfolios not included in our continued sales agreement And the implementation of our clean balance sheet strategy. So in the adjusted graphs, we have taken out these effects and extra provisioning we now are having due to COVID-nineteen. The credit loss level was unusually high last year, same period, And that was connected to the last step in implementing our clean balance sheet strategy, meaning that we sold of the that are not part of the continuous sales agreement. So the risk of volatility from these kinds of portfolios are low. The underlying credit quality in Payment Solutions has therefore been rather stable the last quarters, reaching 1% in Q4, Which is below our previous guidance of 1.25 over volumes and better than we performed in Q4 'nineteen. Let us focus on personal loans. The adjustment that you see is due to the provisioning for worsening of Enviro environment, summing up to 3,500,000 during the year. Q4 'nineteen and Q1 'twenty is all about timing, and the 2 quarters should be viewed upon as 1. Given that the credit quality in personal loans is stable year over year, reaching 2.6% in Q4 of 2.2% for full year, excluding provision for worsening macro environment, which is lower than Our previous guidance of 2.5% over net loan book. So to sum up, we do not See any worsening credit quality in our books, the underlying credit loss level is under the previously communicated target, of both in Payment Solutions and in Personal Loans. Next Page 17, please. Before I hand over to Carolina, we should have a look at capital and liquidity. In December and the day before Christmas, the European Commission decided and enforced A new treatment on how much intangible assets that should be deducted from equity rather than calculate When calculating the capital base and how much that should be rather risk weighted, the objective of the regulation was to Ease the capital situation for European Institutions and even out competitive disadvantages to the rest of the world. The net capital effect of the changed regulation for Cliro is approximately SEK 90,000,000. So the capital situation is strong with 15% or SEK 340,000,000 In headroom towards regulatory requirement, that gives us good possibilities to realize our growth ambitions. Regarding liquidity, as you know, we have a diversified funding in deposit and a multicurrency credit facility that fits our business very well since we are having a fast moving cash flow in payment solution And a more stable movement in personal loans. The absolute majority of our financing is coming from deposits from customers in Sweden, and we have a growing funding in euro launched this year in cooperation with Deposit Solutions. The euro funding gives us more flexibility, and we can use the swap market to retrieve competitive funding prices. So all in all, we see that we can grow our balance sheet considerably without altering our financing means. And with that, I will hand over to you again, Carolina. Thank you, Robert. Please turn to Page 18. So to provide a short 2020 summary, it has been, to say the least, an eventful year for everyone. For Cliro, it has been, of course, the split from the group and separate listings, but even more so to develop the Cliro business. We are a tech company and change is constant. New opportunities arise from regulatory changes, from market demands and from our stride to be the preferred partner and offering customer relevance. And there have been several big improvements in the checkout, strengthening of Ship Offering further as well as enhancing the customer experience with new digital platform and laying the foundation for integrated partners offering in Sweden. All of these efforts together with the knowledge and insights that we provide our partners has resulted in growth of our merchants and of Smerbase. 2020 started with an uncertainty around how the risks would arise from the impact of COVID and actions were taken to reduce the growth rate in consumer loans. And as Robert just said, we do not see any indication on reduced the ability to pay from our customers. But being in the middle of the pandemic means that we are humble for what might happen in the economy that will impact our customer. But our focus is always to ensure sound credit risk appetite and underwriting. That is one of our core pillars of sustainability. During the year, we have furthered our sustainability focus as I previously talked about and also strengthened to you as an employer. Our employee satisfaction has increased significantly. Turnover has lowered and in our recruitment efforts, it's clear that the employer brand of Clivio has improved, which is important for the journey that we are on. This is and will continue to be a focus area for us. So moving to the final slide, number 19, please. The focus for 2021 is to continue this of Journey that was set out in 2020. Our strategy is to continue strengthening our preferred partner value and by that be the number one challenger for larger merchants in the world. We care and the merchants care about the customer experience, both pre, during and post purchase, and we will continue to focus on enhancing that experience and provide relevance to the customer by developing services that are relevant for them. By focusing on this, we will deliver on growth, Grow our number of customers, grow our number of transactions, grow the Clilio volume and grow top line faster than costs. With that, we finish the presentation part of this call, and I hand over to the operator to see if there are any questions from the audience. Thank you. Thank you. We have one question. Our first question comes from the line of of Armin Karych from Carnegie. Please go ahead. Your line is open. Good morning. Armin Karychak from of Carnegie. Thanks for the presentation. I actually have a bit more than one question, but let's begin And starting on the Payment Solutions side. So in the CEO statement, you mentioned that you see a large interest among Medium to large merchants to switch payment providers. Have you seen any shift or increase at that time? Or is that just a general thing that you've seen For some longer time. Then my second question would be on the number of merchants you have signed but not onboarded and how much Those could contribute and fully ramped up, so including Biltema and Scandinavian Luxury. Then also if you could give us any sort of color how we should think about the Q1 given that you say that part of the Seasonality, we did foresee then came already now in Q4, which is anything we could sort of use when we're modeling for that quarter. That would be very helpful. I'll start with that. Thank you. Okay. So first one in terms of interest from merchants to switch. And I think that we as we grow and as we develop, we become more of a relevant choice for more partners to be part of the selection process. And I think that's what we see that we are involved in many interesting discussions. So I would say that, that has grown compared to what it was like 2 years ago when I started, if I just do that comparison. 2nd, the impact for Digital Sema. I think that We're really happy that we signed Via Dielsma. I mean, they are a large merchant in the Nordics, and they have traditionally a very strong brand in the physical store. I think that their journey in moving into e commerce is hopefully going to be as successful as it has been in terms of their online growth. So we see a big potential in this corporation and if the partnership develops as well as we hope, We think that they will become one of our larger merchants definitely. And I don't I can't speculate because it would just be speculations to give you any more insights than that. Okay. And then the final question or not the final, the final question of the first questions that you have, Herman, was in terms of our income. So what it actually means is that we, in the 4th of the quarter has more income related to the 4th quarter volume compared to what it looked like historically because of the calendar effect and also increased shopping behavior earlier. So I will say that It impacts the comparison positively for this quarter, and at the same time, it will impact the comparison slightly negative. Of the team. And in terms of how you should model that, I don't think I can give you any guidance on that really. Understood. Thank you. That's all very helpful. Then two final questions, if I may. You state on 2021 that you have an ambition to grow income faster than cost. Will it be possible to get any more color On your expectations for 2021 in regards to any of the financial metrics we are typically evaluating you on. So either on income growth or number of merchants added or payment pay for delivery volumes or anything like that. And then lastly, Just on the credit quality, which has remained very good despite COVID and everything. And as you stated in your own remarks here that Within Payment Solutions, you're at around 1% relative to the PAD volumes. How should we think about that going forward? Is that a level to look for or is it temporarily benefiting from anything currently? I think that the level of credit losses that we are currently on, which is And below the guidance is probably a level that we expect to continue to be. And of course, there might be a variation of Jent due to things happening. But I think for the longer perspective, I think that is a reasonable and good level to be on for actually for both of the portfolios. And then so does that give you enough on the credit losses. Absolutely. That's very helpful. Thank you. And I think when it comes to the income ambition, I mean, first, I'd like to say that we're happy to deliver the 14% in this quarter combined with the stable cost and lower of Credit Quality. And I think if you look for the next year, we will have a nominal cost increase in 2021 because we're growing our volumes and our business. So I think that ambition is clear that we shall over 21, and in the longer perspective, grew our income faster than cost by delivering on that scalability. And the best way for us to do that is to continue to be commercially successful in signing new merchants and growing our volumes together with the underlying growth. So I won't give you a percentage increase that I know you're specifically asking for, unfortunately, because that would be to set the new financial goals, which I'm not to do. I had to try my last name, please. Very clear, Dan, very helpful. Thank you very much for taking the question. Thank you, everyone, for asking questions. Thank you. We have no more questions from the line. I will hand it back to our speakers for their closing comments. So we actually have one question coming in from the webcast. So the question comes from Ori Ardman, who is asking about What is Cliro's strategy for increasing activity outside the Nordic area and specifically for the pad product? So just to say, I mean, our we see a lot of growth potential within the Nordics. And the Nordics is where we want to have our risk underwriting and our balance of GEET. What we see for the time being and we see the extension there because it is our home market. So in currently, what we want to do is to support our merchants as they want to grow outside by offering our checkout and either just to process payments or to process payments and together with a partnership have an invoice product. But we don't see in the near future that we will have our own invoice product outside of the Nordics in the short term. And also one last question is, when a user is using the PUD product, is the loan paid by the user or the merchant? So if a customer uses the Peak Pad product and buys a something from a merchant, it's the customer that repays that credit. Any more questions? No, not any more questions from the webcast. Do we have any more questions on the phone? Operator? No, we have no more questions from the line. Okay. Then I want to say thank you for listening in to our Q4 presentation, and I wish you a very nice day.