REG - TCS Grp Hldg PLC - TCS Group Holding PLC 1Q15 IFRS Financial Results <Origin Href="QuoteRef">TCSq.L</Origin>

TCS HoldingAnnouncement

16/07/2015 09:53

RNS Number : 4752P
TCS Group Holding PLC
08 June 2015
TCS Group Holding PLC Announces 1Q 2015 IFRS Results 
Moscow, Russia - 8 June 2015. TCS Group Holding PLC (TCS LI) (the 'Group'), Russia's leading provider of online retail financial services, including Tinkoff Bank and Tinkoff Insurance, today announces its interim condensed consolidated IFRS results for the first three months ended 31 March 2015.
1Q 2015 KEY FINANCIAL HIGHLIGHTS 
 Net interest income stood at RUB 6.5 bn (1Q14: RUB 7.4 bn) 
 Operating profit before FX stood at RUB 85 mln (1Q14: RUB 495 mln) 
 Reflecting extraordinary FX volatility,Net loss after FX totaled RUB 193 mln (1Q14 net profit: RUB 0.4 bn)
 Net interest margin at 28.4% (1Q14: 33%)
 Cost of risk well-managed at 17.9% despite seasonal peak (1Q14: 20.5%)
 Total assets increased by 5% to RUB 114.1 bn (YE2014: RUB 108.8 bn)
 Gross loans and advances to customers at RUB 91.3 bn (YE2014: RUB 93.9 bn) 
 Share of non-performing loans (NPLs) down at 14.4% (YE2014: 14.5%)
 Customer accounts increased by 27% RUB 55.2 bn (YE2014: RUB 43.4 bn)
 Solid capitalisation with CBR N1 capital adequacy ratio at 15.2% at the end of 1Q15
KEY BUSINESS HIGHLIGHTS FOR 1Q15 AND POST 1Q15
 Starting January 2015, Tinkoff Credit Systems bank and Tinkoff Online Insurance were renamed as Tinkoff Bank and Tinkoff Insurance respectively
 As of 1 April 2015, over 5 mln credit cards were issued
 In 1Q15, over 75,000 new active customers were acquired
 In February 2015, Tinkoff Bank introduced saving accounts for its online and mobile banking
 In February 2015, Tinkoff Bank launched brand new online and mobile banking applications for all mobile platforms 
 In February 2015, Tinkoff Bank's mobile banking app was named as best in Russia by Deloitte for the second consecutive year 
 In 1Q15, Tinkoff Bank launched a co-branded debit card with OneTwoTrip, an online travel agency, and a co-branded loyalty programme with AliExpress, an online retail arm of Alibaba. 
 In April 2015, Tinkoff Bank launched co-brands with online retailers Lamoda and Rendez-Vous
 In May 2015, Tinkoff Bank launched a platform for non-balance sheet mortgage loans in partnership with other banks and in line with its strategy to make Tinkoff.ru an online financial marketplace
 In 1Q15, Tinkoff Bank's payroll programme was launched onto the mass market 
Oliver Hughes, CEO of Tinkoff Bank, commented:
'In 1Q15, the Group continued to focus on maintaining robust collections, quality portfolio management and conservative underwriting policies. These efforts helped us keep cost-of-risk in check, bringing it down to 17.9% despite a usual seasonal spike in January. We were also focused on building our liquidity profile given the busy 2015 wholesale debt maturity schedule in a highly volatile funding environment. By doing so we took a decision to sacrifice the bottom line in the first quarter of 2015. Following this effort, we require no further funding to meet our obligations for the year and can now concentrate on building our business profitability in the remainder of the year.
While maintaining a cautious approach, we are currently gradually increasing issuance of credit cards as we originate high-quality customers in a slower market. We are also investing into expanding our product portfolio in line with our strategy to evolve into a universal 'online financial marketplace' and reach out to new customer segments. As part of this effort, we have recently launched a non-balance sheet mortgage platform in partnership with several banks. This strategy will help us reach out to new customer segments and boost commission income.
The worst case macro scenario for which we were preparing at the end of 2014 and beginning of 2015 has not materialised. However, given the continuing uncertainty and instability in the Russian economy in general and in its banking sector in particular, we assume that the operating environment is likely to remain challenging in 2015. 
We expect our loan portfolio to remain more-or-less flat for the rest of the year,which is consistent with the market as a whole. We do not expect to see a material decline in gross yield this year while funding costs will likely reduce in the second half of 2015. We expect the cost of risk to remain at broadly the same level as in 2014 and plan to end the year in profit assuming there will be no further sharp FX swings.'
FINANCIAL AND OPERATING REVIEW
RUB bn
1Q 2015
1Q 2014
Change
Credit cards issued ('000 pcs)
79
278
(72%)
Credit cards transactions
20.4
22.3
(8%)
RUB bn
1Q 2015
1Q 2014
Change
Net interest income
6.5
7.4
(13%)
Net interest income after loan impairment
2.4
3.0
(23.5%)
Profit before tax
(0.3)
0.5
(153%)
Net profit
(0.2)
0.4
(153%)
RUB bn
31 March 2015
31 December 2014
Change
Total Assets
114.1
108.8
5%
Net Loans and advances to customers
72.1
74.6
(3%)
Cash and treasury portfolio
24.2
16.3
48%
Total Liabilities
93.2
87.8
6%
Customer accounts (deposits)
55.2
43.4
27%
Debt securities in issue
19.0
19.4
(2%)
Total Equity
20.9
21.0
(1%)
Tier 1 capital ratio
14.8%
15.9%
(1.1 p.p.)
Total capital ratio
20.2%
21.8%
(1.4 p.p.)
CBR N1
(capital adequacy ratio)
15.2%
15.5%
(0.3 p.p.)
In 1Q15, the Group deliberately reduced the issuance of new credit cards to 79,000 as part of its efforts to build its liquidity cushion, while the volume of credit card transactions decreased by 8% to RUB 20.4 bn (1Q14: RUB 22.3 bn). 
In 1Q15, the Group's gross interest income decreased by 2.9% y-o-y to RUB 9.4 bn (1Q14: RUB 9.7 bn and 4Q14: RUB 9.6 bn) as a result of the deliberate reduction of the loan portfolio, which affected the Group's credit card fees. In 1Q15, interest expense grew by 30.4% y-o-y to RUB 2.9 bn (1Q14: RUB 2.2 bn), driven by the increase in deposit rates and the expanding deposit book following the spike in the CBR key exchange rate in December 2014. 
Net interest income for 1Q15 decreased by 12.8% y-o-y to RUB 6.5 bn (1Q14: RUB 7.4 bn) with a net interest margin at 28.4%. In the first three months of the year, risk adjusted net interest margin went down from 18.9% to 10.3% due to a seasonal risk increase in the beginning of the year. 
Gross yield stood at 40.5% compared to 45.3% in 1Q14. Cost of borrowing grew to 13.3% in 1Q15 compared to 11.6% in 1Q14. 
In 1Q15, the Group continued to prioritise credit risk management. Despite a usual seasonal spike in January, 1Q15 cost of risk decreased to 17.9% (1Q14: 20.5%) thanks to the quality of the Group's portfolio as well as enhanced collections throughout 2014.
In 1Q15, operating expenses remained flat at RUB 2.7 bn compared to 1Q14 and 4Q14. The Group continued to leverage its flexible business model by implementing significant cost-saving measures while still looking towards further growth through the launch of new products. As a result of lower income the Group's cost-to-income ratio increased to 36.7% (1Q14: 33.3%).
In 1Q15, the Group demonstrated a positive operating profit of RUB 85 mln before FX. However, in 1Q15, following continued FX volatility, the Group demonstrated a loss of RUB 193 mln, which was further affected by the Group's efforts to build a strong liquidity cushion in 4Q 2014 and 1Q 2015. ROA stood at (0.7%) and ROE at (3.7%) in 1Q15. 
In 1Q15, total assets increased by 5% to RUB 114.1 bn (YE14: RUB 108.8 bn) which was primarily driven by cash accumulation from customer accounts. Cash and treasury portfolio increased to RUB 24.2 bn (YE14: RUB 16.3 bn), representing 21% of the Group's assets. Cash is kept on overnight accounts or on money market with top-rated banks, while investment portfolio includes the Russian government and high-rated corporate bonds, eligible for repo with the CBR. The Group maintained an ample liquidity cushion with cash and cash equivalents at 15% of assets and 31% of customer accounts.
In 1Q15, gross loans increased by 4.4% to RUB 91.3 bn as compared to RUB 87.5 bn in 1Q14: and decreased by 2.7% as compared to RUB 93.9 bn at year end 2014 following the RUB 4.3 bn loans write-off. This reflects a deliberate slowdown of the Group's portfolio expansion and tightening of approval rates to address credit risk in the market. Starting mid-March the Group stopped reducing its loan portfolio and cautiously and gradually resumed its growth.
As a result of its conservative underwriting policy in 1Q15, provision for loan impairment decreased by 5.3% to RUB 4.1 bn (1Q14: RUB 4.4 bn ). The Group continued to maximise recoveries in-house by collecting delinquent loans.
The share of NPLs (non-performing loans) decreased slightly to 14.4% (YE: 14.5%). The loan loss provision coverage increased slightly from 142% to 146% as the Group continued to maintain its conservative approach. Balance sheet provisioning for impairment of loans decreased to RUB 19.2 bn (YE14: RUB 19.3 bn). 
As a result of the Group's decision to extract cash from loan portfolio to build a liquidity cushion, in 1Q14 net loans decreased to RUB 72.1 bn (YE14: RUB 74.6 bn). 
In 1Q15, the Group's liabilities increased by 6.1% to RUB 93.2 bn (YE14: RUB 87.8 bn) due to the growth in customer deposits by 27% q-o-q to RUB 55.2 bn (YE14: RUB 43.4 bn). In 1Q15, Deposit Insurance Agency (DIA) coverage stood at 84% of the deposit portfolio following the amendment to the deposit insurance law in December 2014. 
At the beginning of 2Q15, the Group repaid a series of local bonds, as well as completed a partial USD 80 mln buyback of its USD 250 mln Eurobond due September 2015 thanks to organic cash extracted from the loan book. Most of this repurchase took place in early April and therefore was subsequent to the reporting date. Following these efforts, scheduled wholesale debt repayments are amply covered by current liquidity and the Group requires no further funding to meet its obligations in 2015. 
In 1Q15, the Group maintained a robust capital position with the statutory CBR N1 total capital ratio of 15.2%, well above the level required by the Group's debt covenants. The Group's equity remained flat at RUB 20.9 bn. 
***
The management team will host an investor and analyst conference call at 15.00 UK time (17.00 Moscow time, 10.00U.S. Eastern Daylight Time), on Monday, 8June 2015.
The press release, presentation and financial statements will be available on the Tinkoff Bank website athttps://www.tinkoff.ru/eng/investor-relations/results-and-reports/
To participate in the conference call, please use the following access details:
Conference ID
8779363
Russian Federation - Local
+7495 705 9450
Russian Federation - Toll Free
8 800 500 9312
United Kingdom - Local
+44(0)20 3427 1901
United Kingdom - Toll Free
0800 279 5004
United States of America - Local
+1646 254 3365
United States of America - Toll Free
1877 280 1254
A live webcast of the presentation will be available at: 
http://www.audio-webcast.com/cgi-bin/visitors.ssp?fn=visitor&id=2819
Please register approximately 10 minutes prior to the start of the call.
***
For enquiries:
Tinkoff Bank
Darya Ermolina
Head of PR
+ 7 495 648-10-00 (ext. 2009)
d.ermolina@tinkoff.ru
Tinkoff Bank
Larisa Chernysheva
IR Department
+ 7 495 648-10-00 (ext. 2312)
ir@tinkoff.ru
FTI Consulting London
Maria Shiryaevskaya
+44 (0) 20 3727 1677
FTI Consulting Moscow
Olga Lundquist
+7 495 795-06-23
About the Group
TCS Group Holding PLC is an innovative provider of online retail financial services operating in Russia through a high-tech branchless platform. In order to support its branchless platform, the Group has also developed a "smart courier" network covering almost 600 cities and towns in Russia which allows next day delivery to many customers. 
Since its launch in 2007 by Mr Oleg Tinkov, a renowned Russian entrepreneur with a long track record of creating successful businesses, the Group has grown into a leader in the Russian credit card market. As of 1  2015, the Group has issued over 5 mln credit cards.
In addition to a market-leading credit card offering, the Group has developed a successful online retail deposits programme. The Group's other innovative lines of business include Tinkoff Online Insurance, which enables the Group to underwrite and sell its own innovative online insurance products, and Tinkoff Mobile Wallet, mobile payment solutions and financial services for Russian consumers. 
As of 31 December 2014, the Group's total assets amounted to RUB 108.8 bn, net loans and advances to customers stood at RUB 74.6 bn and customer accounts (deposits) amounted to RUB 43.4 bn. In 2014, the Group generated a net profit of RUB 3.4 bn and net interest income of RUB 30.8 bn. 
The Group is well capitalised with the total capital ratio and Tier 1 capital ratio of 20.2% and 14.8% at 31 March 2015, respectively, in accordance with Basel III methodology.
Forward-looking statements
Some of the information in this announcement may contain projections or other forward-looking statements regarding future events or the future financial performance of the Group and Tinkoff Bank. You can identify forward looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could," "may" or "might", the negative of such terms or other similar expressions. The Group and Tinkoff Bank wish to caution you that these statements are only predictions and that actual events or results may differ materially. The Group and Tinkoff Bank do not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Group and Tinkoff Bank, including, among others, general economic conditions, the competitive environment, risks associated with operating in Russia, rapid technological and market change in the industries the Group operates in, as well as many other risks specifically related to the Group, Tinkoff Bank and their respective operations.

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