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Market Cap £3.74bn
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TCS Group Holding PLC TCS Group Holding PLC reports robust profit in 1Q'20; announces 2nd 2020 interim dividend

Wed 13th May, 2020 8:13am
============

   TCS Group Holding PLC (TCS)
   TCS Group Holding PLC reports robust profit in 1Q'20; announces 2nd 2020
   interim dividend

   13-May-2020 / 10:13 MSK
   Dissemination of a Regulatory Announcement, transmitted by EQS Group.
   The issuer is solely responsible for the content of this announcement.

   ══════════════════════════════════════════════════════════════════════════

   TCS Group Holding PLC reports robust  profit in 1Q'20; announces 2nd  2020
   interim dividend

    

     • Net margin up  40% year-on-year to  RUB 25.3 bn  in 1Q'20 (1Q'19:  RUB
       18.1 bn)
     • Net income of RUB 9.0 bn in 1Q'20
     • 1.0 mn new credit accounts added in 1Q'20
     • Return on equity of 37.5%

    

   LIMASSOL, CYPRUS -  13 May  2020. TCS Group  Holding PLC  (LI: TCS,  MOEX:
   TCSG) ("Tinkoff",  "We", the  "Group",  the "Company"),  Russia's  leading
   provider of  online  financial  and lifestyle  services  via  its  Tinkoff
   ecosystem, today announces its interim condensed consolidated IFRS results
   for the three months ended 31 March 2020.

    

   Oliver Hughes, CEO of Tinkoff Group, commented:

   "The first  quarter  of  2020  was  a  strong  one  for  us,  despite  the
   unprecedented challenges facing Tinkoff customers and consumers in  Russia
   as a result of the  COVID-19 pandemic. Our net income  rose by 26% to  RUB
   9.0 bn,  aided  by  a  RUB  3.4bn pre-tax  gain  from  disposals  of  debt
   securities, and  despite a  RUB 5.9bn  pre-tax impact  from adjusting  our
   IFRS9 provisioning models in light of the COVID-19 outbreak.

    

   Importantly, we saw 1.0mn new Tinkoff Black current accounts opened in the
   first three months of the year - this is a record for us, and this  strong
   growth has continued through  the current crisis.   The growth of  Tinkoff
   Black was given a further boost  by the migration of Rocketbank  customers
   to Tinkoff. As a result, more than 50,000 customers have moved to  Tinkoff
   and this will continue as Rocketbank winds down its operations.

    

   As a branchless,  online provider  of banking,  investment, insurance  and
   other lifestyle services, we are  able to continue offering best-in  class
   service to customers undisrupted by the current COVID-related problems  in
   the face-to-face world. We are also leveraging our ability to innovate and
   adapt quickly,  and  we  see  opportunities  in  the  current  challenging
   situation.  We have expanded  cashback offers for  Tinkoff Black and  made
   them more tailored to current online shopping needs. Tinkoff Bank launched
   an offer called 'Surviving Quarantine', which allows customers to  benefit
   from discounts on popular digital services and subscriptions, such as film
   streaming, home fitness, audio books and online courses.

    

   As a responsible lender who  is committed to long-term relationships  with
   its  customers,  the  Group  launched   a  range  of  flexible   repayment
   restructuring programmes for customers  adversely impacted by the  current
   crisis  (these  programmes  supplement  and  work  in  parallel  with  the
   Government-backed options).

    

   Tinkoff Investments is going from strength-to-strength.  We launched a new
   process to onboard new customers through the mobile app, without the  need
   for an in-person meeting; we redesigned and enhanced our web terminal;  we
   launched six new currencies that can be traded at the interbank rate;  and
   we established  a  series  of  online  events  and  webinars  for  Tinkoff
   Investments customers.  All of  these efforts and a  lot more fuelled  the
   opening of more than 600,000 brokerage accounts year-to-date (reaching 2.0
   mn) and record  inflows in April  (RUB 23  bn). The average  balance of  a
   Tinkoff Investments account rose by  12% YTD. More than 250,000  customers
   are currently using Pulse, our social network for investors. I am  pleased
   to report that  Tinkoff Investments has  been the #1  retail brokerage  on
   MOEX by number  of active  customers for  the fifth  consecutive month  in
   April.

    

   We are  also  paying close  attention  to the  needs  of our  SME  banking
   customers, as Tinkoff Business remains a very important business line  for
   us. To  help these  customers, Tinkoff  Business launched  a service  that
   enables self-employed customers to register  with the tax authorities  and
   gives them a convenient way to manage their tax returns. We are  assisting
   small offline businesses to  move to online and  we also lowered  merchant
   servicing fees for online acquiring.

    

   Tinkoff Mobile now  allows customers to  open virtual SIM  cards. We  also
   implemented a service  that allows  customers to delay  payment of  mobile
   services by up  to two  weeks without  penalties, waive  roaming fees  for
   customers who aren't able to return to  Russia due to lockdown and to  use
   unlimited data for remote working apps including Zoom, Skype and Slack.

    

   We adopted a  conservative stance  on lending  from early  March.  We  are
   managing the portfolio  and credit  limits very tightly  and have  shifted
   resources to our cloud-based pre-collection and collection teams. We  will
   see how the situation develops from  here and make further adjustments  if
   necessary.

    

   While continuing to innovate and work flexibly in response to the  current
   circumstances, as always, we remain focused on profitability. Our ROE  was
   37.5% in the first quarter  of this year, one of  the highest ROEs in  the
   world, even as we created significant prudent provisioning cushions.

    

   The business  environment remains  fluid.  We understand  the need  to  be
   sensible about capital returns in  this uncertain environment. We have  no
   plans to alter our dividend  policy of paying up  to 30% of quarterly  net
   income, but we will prioritise the capital needs of the business ahead  of
   dividends if the situation demands it.''

    

   FINANCIAL AND OPERATING REVIEW

    

   RUB bn                            1Q'20 1Q'19 Change
   Credit accounts acquired (mn pcs) 1.0   1.1   -9%
   Net margin                        25.3  18.1  +40%
                                           13.3
   Net margin after provisions       9.6         -28%
                                            
   Profit before tax                 11.6  9.3   +26%
   Net income                        9.0   7.2   +26%
   Return on equity                  37.5% 64.4% -26.9 p.p.
   Net interest margin               19.9% 21.5% -1.6 p.p.
   Cost of risk                      15.9% 7.5%  +8.4 p.p.

    

   RUB bn                              31 Mar 2020 31 Dec 2019 Change
   Total assets                        606.7       579.5       +4.7%
   Net loans and advances to customers 335.8       329.2       +2.0%
   Share of NPLs                       9.4%        9.1%        +0.3 p.p.
   Cash and treasury portfolio         209.6       193.0       +8.6%
   Total liabilities                   510.0       483.4       +5.5%
   Customer accounts                   419.6       411.6       +1.9%
   Total equity                        96.6        96.1        +0.5%
   Tier 1 capital ratio                19.2%       19.1%       +0.1 p.p.
   Total capital ratio                 19.2%       19.1%       +0.1 p.p.
   CBR N1.0 (capital adequacy ratio)   12.8%       12.1%       +0.7 p.p.

    

    

   In 1Q'20, the  Group's total  revenue grew  by 38%  y-o-y to  RUB 47.1  bn
   (1Q'19: RUB 34.0 bn). Gross interest income increased by 37% y-o-y to  RUB
   31.5 bn  (1Q'19: RUB  22.9 bn),  driven  by the  continued growth  of  our
   balance sheet, customer base, and credit product range.
    

   Gross interest yield rose marginally to  32.2% in 1Q'20 due to our  stable
   asset  mix.  The  interest  yield  on  the  Group's  securities  portfolio
   decreased to  6.0%  (1Q'19: 7.1%),  primarily  due to  declining  interest
   rates.

    

   In 1Q'20, interest expense grew by 26% y-o-y to RUB 5.6 bn (1Q'19: RUB 4.5
   bn), driven  by  significant  growth  of our  customer  base  and  account
   balances. At the  same time, our  cost of borrowing  decreased to 4.8%  in
   1Q'20 following a gradual decrease in deposit rates.

    

   In 1Q'20, net margin  grew by 40%  y-o-y to RUB 25.3  bn (1Q'19: RUB  18.1
   bn), primarily as a result of solid net loan growth.

    

   Cost of risk rose to 15.9% in 1Q'20 (1Q'19: 7.5%), of which 6.0pp were due
   to the adjustments made to our  IFRS9 provisioning models in light of  the
   expected macroeconomic deterioration due to the decline in oil prices  and
   the COVID-19 outbreak. Absent  these adjustments, our  cost of risk  would
   have been 9.9%, a small deterioration y-o-y. Therefore, our  risk-adjusted
   net interest margin decreased to 7.6% in 1Q'20 (1Q'19: 15.8%).

    

   Our non-credit  business  lines  continue to  deliver  robust  performance
   thanks to  customer base  growth, and  now represent  34% of  the  Group's
   revenue. Fee and commission  revenue rose by  33% y-o-y to  RUB 8.9 bn  in
   1Q'20 (1Q'19: RUB  6.7 bn),  accounting for  19% of  total revenue,  while
   Tinkoff Insurance  more than  doubled  its revenue  y-o-y  to RUB  4.8  bn
   (1Q'19: RUB 2.3 bn), accounting for 10% of total revenue.

    

   As at the end of 1Q'20, the Group had:

     • over 8.1 mn  current account  customers with  a total  balance of  RUB
       225.2 bn across all accounts
     • over 545k SME customers, with a  total current account balance of  RUB
       50.9 bn
     • 1,436k brokerage customers opened at MOEX through Tinkoff Investments.
     • Tinkoff app had over 20 mn installs, MAU stood at 5.6 mn, DAU stood at
       1.8 mn
     • Tinkoff Bank's credit card market share  stood at 13.3% as of 1  April
       2020, confirming its position as  Russia's second largest credit  card
       issuer

    

    

   In 1Q'20, operating  expenses increased by  only 7% y-o-y  to RUB 11.6  bn
   (1Q'19: RUB  10.8  bn)  mainly  due  to  a  slight  decrease  in  customer
   acquisition expenses. Despite this, the cost-to-income ratio decreased  to
   32.5% in 1Q'20 (1Q'19: 42.3%).

    

   The Group  reported solid  quarterly net  income of  RUB 9.0  bn in  1Q'20
   (1Q'19: RUB 7.2 bn).  As a result,  ROE for 1Q'20  stood at 37.5%  (1Q'19:
   64.4%).

    

   In 1Q'20, the  Group continued to  maintain a healthy  balance sheet  with
   total assets growing by  4.7% since the  end of 2019 to  RUB 606.7 bn  (31
   Dec'19: RUB 579.5 bn).

    

   The Group's gross  loan book grew  by 4.2% in  1Q'20 to RUB  399.9 bn  (31
   Dec'19: RUB 383.9 bn), while the net  loan book grew by 2.0% to RUB  335.8
   bn (31 Dec'19: RUB 329.2 bn).

    

   The Group's NPL ratio rose to 9.4% (31 Dec'19: 9.1%) primarily due to  the
   denominator effect as  loan book growth  slowed in 1Q'20,  while our  loan
   loss provision coverage increased to 1.7x non-performing loans.

    

   The Group's  customer accounts  increased  by 1.9%  to  RUB 419.6  bn  (31
   Dec'19: RUB 411.6 bn).

    

   Tinkoff's total equity only rose a marginal  0.5% in 1Q'20 to RUB 96.6  bn
   (31 Dec'19: RUB 96.1 bn), due to the payment of the dividend for 4Q'19 and
   the negative revaluation of our securities portfolio. As of 1 April  2020,
   the Group's statutory  N1.0 ratio  had increased  to 12.8%,  and its  N1.2
   ratio had declined to 11.2%. N1.1 stood at a comfortable 8.7%.

    

    

   GUIDANCE FOR 2020 WITHDRAWN

    

   Because of  the  current uncertain  operating  environment caused  by  the
   COVID-19 pandemic, the  Group is  withdrawing its  previously issued  2020
   guidance, and will not issue new guidance for 2020 unless and until market
   conditions stabilise.

    

   Instead of formal  guidance, below  the Group  provides some  illustrative
   performance indicators for  the remainder of  2020. Although the  business
   environment in Russia remains fluid and may change quickly:

    

     • We expect our gross loan portfolio will be in 'steady state' in  2020,
       with the  net  loan  portfolio being  negatively  affected  by  rising
       provisions
     • We expect cost of risk to remain elevated in 2020, given the necessity
       to frontload provisions and the expected migration of loans to  Stages
       2 and 3
     • We expect the Group's cost of borrowing in 2020 to decline y-o-y
     • We are confident  the Group  will remain profitable  and can  maintain
       adequate capital ratios in 2020

    

   Second 2020 Interim Dividend Announcement

    

   In line with the  Group's dividend policy, and  given our confidence  that
   the Group will remain profitable and can maintain adequate capital  ratios
   during the year, the Group's Board of Directors has approved a second 2020
   interim gross  dividend of  USD  0.14 per  share/per  GDR (with  each  GDR
   representing one class A share) with a total amount allocated for dividend
   payment in relation to  1Q of around  USD 28 mn.  Subject to London  Stock
   Exchange regulations, indicatively the dividend will be payable on 1  June
   2020 to those shareholders  on the register  as at the  record date of  29
   May. The ex-dividend date will be 28  May 2020. According to the terms  of
   the GDR  deposit agreement,  holders of  the Group's  GDRs should  receive
   their dividends approximately 3-5 business days after the payment date.

    

    

   1Q'2020 AND POST-REPORTING PERIOD OPERATING HIGHLIGHTS

    

   Superior  and  innovative  offering   combined  with  targeted   marketing
   activities secure Tinkoff's place as a leading fintech brand

     • In February,  Tinkoff  announced plans  to  invest in  a  new  venture
       project to set up a fintech  company providing a range of services  to
       retail customers in  Europe (excluding  CIS). The  startup will  offer
       non-credit financial products. The project  is due to launch in  2020,
       with Tinkoff as its key seed investor. Tinkoff will have a controlling
       interest in the new venture. Tinkoff's initial commitment is up to EUR
       25 million,  which will  be  contributed in  tranches as  the  venture
       develops
     • In February,  Tinkoff signed  a title partnership  agreement with  the
       Russian Football Premier League (RFPL) covering the 2019/2020, 2020/21
       and 2021/22 football seasons 

    

   Resilience and investment  in customer  loyalty amid  the global  COVID-19
   pandemic

     • Tinkoff's first priority was to safeguard the health and safety of its
       employees, while ensuring business  continuity for all its  customers.
       As a testament to this swift and early response, Tinkoff has only  had
       19 confirmed COVID-19 cases among its 27,000 employees. By the  second
       week of March, over 95% of its office-based employees had successfully
       moved to home working.  Only around 200  critical employees remain  in
       the office, and its  smart couriers continue  to deliver products  all
       over Russia.  Tinkoff has  decided to  reward the  commitment and  the
       dedication of other frontline  staff by increasing their  remuneration
       by 15-20% during this difficult period.
     • Tinkoff is proactively assisting  troubled borrowers by offering  both
       government and proprietary  restructuring programs.  Between March  20
       and May 12, Tinkoff restructured  2,2k loans according to Federal  Law
       106, 24,6k loans  according to our  own restructuring programmes,  and
       provided 1 month temporary relief to 115.2k loans.
     • Tinkoff Home  Call  Centre  (HCC) has  deployed  its  cloud-based  HCC
       platform to assist the Moscow City Government and the People's  Social
       Front (a  consumer protection  organization)  in fielding  calls  from
       people experiencing COVID-19 and related problems.
     • Tinkoff Business has launched a service allowing the self-employed  to
       register with the tax authorities  and easily manage their income  and
       taxes. We are also assisting offline small business to relocate to the
       cloud and have lowered online acquiring fees for purchases of  several
       essential products and services. We launched 0% loans to pay  salaries
       in partnership with the Russian Bank for SME support.
     • Tinkoff Mobile has implemented  functions allowing  customers to  open
       accounts using virtual SIM cards, to delay payment of mobile  services
       by up to two weeks without  charge, to waive certain roaming fees  for
       customers not able  to return  to Russia,  to record  and store  voice
       calls, and to use  unlimited data for remote  working apps like  Zoom,
       Skype and Slack
     • Tinkoff introduced a  cash-back  offer called  "Surviving  Quarantine"
       which gives  customers discounts  of  up to  75% discounts  on  online
       services, products, and subscriptions that are particularly in  demand
       during  isolation  (online  cinema,  home  fitness,  books,   language
       courses, etc.)
     • Tinkoff Black broadened  its  cashback  offers  and  increased   their
       relevance for customers.  Customers now have greater control over  the
       cash-back offers they can select through the mobile app.
     • Tinkoff Black will  migrate   Rocketbank  customers   to Tinkoff while
       carrying over their loyalty points. More than 50k customers have moved
       over to Tinkoff as Rocketbank winds down its operations.
     • Tinkoff agreed with key payment services Mastercard, Visa, and Mir  to
       delay the  expiration of  bank cards  beyond March  / April  2020  and
       implemented a system to  receive money back  on items purchased  using
       the Fast Payment System's QR codes.

    

   Focus on enhancements to corporate governance

     • As part of  Tinkoff's corporate governance  roadmap, in April  changes
       were made to two of Tinkoff's three governing bodies: the Tinkoff Bank
       Management Board and  the Tinkoff Bank  Board of Directors.  Stanislav
       Bliznyuk (SVP, Head  of Business  Development) stepped  down from  the
       Tinkoff Bank  Management  Board  and  will  be  replaced,  subject  to
       approval from  the  Central Bank  of  Russia, by  Vyacheslav  Tsyganov
       (Chief Information Officer).
     • Oleg Tinkov (Founder) stepped  down from his role  of Chairman of  the
       Tinkoff Bank Board of Directors to  focus fully on his health and  was
       replaced by Stanislav Bliznyuk.

    

   Focus on acquiring best talent to strengthen the Group

     • In February 2020,  Stanislav Bliznyuk (formerly COO)  was promoted  to
       SVP, Head of Business Development
     • In January  2020,  Pavel Khristolyubov  joined Tinkoff  Group  as  the
       company's new COO

    

    

    

    

    

    

    

    

    

    

   CONFERENCE CALL INFORMATION

   The Tinkoff management team will  host an investor and analyst  conference
   call at 14:00 UK time (16:00 Moscow time, 09:00 US Eastern Daylight Time),
   on Wednesday, 13 May 2020.

   The press release, presentation and financial statements will be available
   on                  the                  Tinkoff                   website
   at  1 https://www.tinkoff.ru/eng/ir/financials/quarterly-earnings/

   To participate in  the conference  call, please use  the following  access
   details:

                            494319
   Conference ID
                             
    
                             
                            +7 495 705 9270
   Russian Federation
                            8 010 800 2796 5011
   Toll-free
                             
   United Kingdom           +44 (0) 330 336 9401

   Toll-free                0800 279 4827
                            +1 929-477-0338
   United States of America
                            800-289-0462
   Toll-free
                             

   A live webcast of the presentation will be available at:
    2 https://webcasts.eqs.com/tcsgroup20200513

    

    

    

   Please register approximately 10 minutes prior to the start of the call.

    

   For enquiries:
   Tinkoff                        Tinkoff

   Artem Lebedev                  Larisa Chernysheva
   PR Department                  IR Department

   + 7 495 648-10-00 (ext. 2202)  + 7 495 648-10-00 (ext. 2312)

   Alexandr Leonov                Neri Tollardo

   + 7 495 648-10-00 (ext. 35738) +44 7741 078383

    3 pr@tinkoff.ru                4 ir@tinkoff.ru

                                   

    

   About Tinkoff Group
    

   TCS Group Holding PLC is an innovative provider of online retail financial
   services. It  includes  Tinkoff  Bank,  mobile  virtual  network  operator
   Tinkoff Mobile,  Tinkoff Insurance,  management company  Tinkoff  Capital,
   Tinkoff Software  DC,  a network  of  development hubs  in  major  Russian
   cities,  and  Tinkoff  Education.   The  Group  is  currently   developing
   Tinkoff ecosystem, which offers financial and lifestyle services.

    

   The Group was founded in 2006 by Russian entrepreneur Oleg Tinkov and  has
   been listed on the London Stock Exchange since October 2013.

    

   The Group's key business is Tinkoff Bank, a fully online bank that  serves
   around 10 mn customers and forms the core of the Tinkoff ecosystem.

    

   Tinkoff Bank  is the  second largest  player in  the Russian  credit  card
   market, with a share of  13.4%. The 1Q 2020 IFRS  net income of TCS  Group
   Holding PLC amounted to RUB 9.0 bn. The ROE was 37.5%.

    

   With no branches, the Group serves  all its customers remotely via  online
   channels and  a cloud-based  call centre.  The centre is staffed  by  over
   10,000 employees, making it one of the largest in Europe. To ensure smooth
   delivery of the Group's  products, the Group has  a nationwide network  of
   over 2,500 representatives.

    

   In 2018,  Global Finance  named  Tinkoff Bank  the world's  Best  Consumer
   Digital Bank, and in 2019, 2018, 2016 and 2015, the Best Consumer  Digital
   Bank in Russia. In 2017  and 2013, the  Banker recognised Tinkoff Bank  as
   the  Bank  of  the  Year  in Russia.  The  bank's  mobile  app  has   been
   consistently praised by local and  global independent experts as the  best
   of its kind (in 2013, 2014, 2015,  2016 by Deloitte and in 2018 by  Global
   Finance).

    

   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.

   ══════════════════════════════════════════════════════════════════════════

   ISIN:          US87238U2033
   Category Code: QRF
   TIDM:          TCS
   LEI Code:      549300XQRN9MR54V1W18
   Sequence No.:  63391
   EQS News ID:   1043265


    
   End of Announcement EQS News Service

   ══════════════════════════════════════════════════════════════════════════

    5 fncls.ssp?fn=show_t_gif&application_id=1043265&application_name=news&site_id=reuters8

References

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   3. mailto:pr@tinkoff.ru
   4. mailto:ir@tcsbank.ru


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