TCS.L Regulatory News (TCS)

TCS GROUP HOLDING PLC

ANNOUNCES IFRS RESULTS FOR Q1 2014

Moscow, Russia - 9 June 2014. TCS Group Holding PLC (TCS LI) (the "Group"), Russia's leading provider of online retail financial services, including "Tinkoff Credit Systems" Bank ("TCS Bank") and Tinkoff Online Insurance, today announces its interim condensed consolidated IFRS results for the three months ended 31 March 2014.As previously stated, the Group has adopted the rouble as the presentation currency for IFRS consolidated statements going forward.

Q1 2014 KEY FINANCIAL HIGHLIGHTS

· Net interest income increased by 36% y-o-y to RUB 7.4 bn (Q1 2013: RUB 5.5 bn)

· Profit before tax amounted to RUB 481.3 mln (Q1 2013: RUB 1.3 bn)

· Net profit amounted to RUB 362.3 mln (Q1 2013: RUB 1.0 bn)

· Net interest margin stood at 33% (Q1 2013: 34%)

· Cost of risk was at 20.5% (Q1 2013: 16.2%)

· Total assets increased by 2.2% YTD to RUB 101.2 bn (2013YE: RUB 99 bn)

· Gross loans and advances to customers up by 4.9% YTD to RUB 87.5 bn (2013YE: RUB 83.4 bn)

· Share of non-performing loans (NPLs) at 8.9% (2013YE: 7%)

· Customer accounts reached RUB 43.1 bn (2013YE: RUB 43.2 bn)

· Total equity up by 1.8% YTD to RUB 20.9 bn (2013YE: RUB 20.6 bn)

KEY HIGHLIGHTS IN Q1 2014 AND POST THE END OF THE QUARTER

· In April 2014, Tinkoff Online Insurance launched online sales through its website and started offering personal accident, property and travel insurance services to the mass market

· As of 1 June 2014, over 4.3 mln credit cards issued

· In Q1 2014, over 270,000 new customers acquired

· In February 2014, TCS Bank signed a partnership agreement with Euroset, Russia's largest mobile phone retailer, to offer credit lines to prepaid bonus cards "Kukuruza" in Euroset stores

· In February 2014, TCS Bank launched a co-branded credit card for frequent travelers together with OneTwoTrip, Russia's leading online travel agency

Oliver Hughes, CEO of TCS Bank, commented: "The Q1 results reflect our conscious efforts to reduce the acquisition rate of new customers and as a result our gross portfolio grew by 4.9% Q-o-Q. We have focused on maintaining our operating efficiency and net interest margin which stood at 33%, while significantly tightening our underwriting criteria. In the current challenging economic and market environment our cost of risk has increased, however we continue to diversify the business with the launch of new credit card products and partnerships, as well as online insurance in the mass market. Although in the quarter our profitability was reduced, we remained meaningfully profitable. We believe that the flexibility and scalability of our business model makes TCS Group more resilient to the downturn, while positioning us favorably for return to growth in the market as soon as the cycle turns.

We now see the cost of risk likely to remain in the 20-22% range for the remainder of the year, even as we continue to tighten our underwriting, monitoring and collection activities. Our net profit guidance for the full year which we have previously stated at over RUB 7.0 bn is under review."

FINANCIAL AND OPERATIONAL REVIEW

In Q1 2014, the number of new credit cards issued for the period was 278 thousand (Q1 2013: 278 thousand), while the volume of credit cards transactions increased by 8% y-o-y to RUB 22.3 bn (Q1 2013: RUB 20.7 bn).

The Group reported net interest income increase of 36% y-o-y to RUB 7.4 bn compared to RUB 5.5 bn in Q1 2013. A modest growth in net interest income was attributable to a reduction in interest expense while the slowdown in the growth of the gross loans portfolio to 4.9% YTD led to a decrease in gross yield. The Group's net interest margin stood at 33% compared to 34% in Q1 2013 providing it with substantial profitability and meaningful loss absorption capacity. Whilst the cost of risk increased to 20.5% in Q1 2014 from 15.4% in Q4 2013, the Group generated a solid 13.5% risk-adjusted net interest margin after provisions for loan losses.

In Q1 2014, operating expenses increased by 48% y-o-y to RUB 2.7 bn from RUB 1.8 bn in Q1 2013, driven mainly by an increase in marketing costs as the Group executed a large advertising campaign during the quarter aimed at building brand awareness among the mass-affluent audience. The Group has been successful in making significant cost savings across the business. Administrative staff costs decreased by 25% Q-o-Q to RUB 0.8 bn, and other administrative costs were down by 6% to RUB 0.6 bn. As a result, the Group's cost to income ratio excluding acquisition expenses declined to 18.9% in Q1 2014 compared to 22.2% in Q4 2013.

The Group reported net income of RUB 362.3 mln compared to RUB 1.0 bn in Q1 2013. Net income was largely affected by additional loan loss provisions that allowed to maintain the Group's 1.6x provisioning ratio.

In Q1 2014, the Group maintained a strong balance sheet with total assets growing by 2.2% to RUB 101 bn from RUB 99 bn at the year-end 2013. The Group has maintained a high liquidity cushion with cash accounting for 17.3% of the Group's total assets and 40.7% of customer accounts.

The Group deployed some of its excess cash in a portfolio of Russian government and high-rated corporate bonds with short maturities to make a further positive contribution to its interest income. At the end of Q1 2014, the Group accumulated a bond portfolio of RUB 1.4 bn, and continued to increase it in the second quarter to slightly over RUB 3 bn.

The Group's gross loan portfolio grew by 4.9% to RUB 87.5 bn from RUB 83.4 bn at year-end 2013, which represents a deliberate effort to slow down the growth of the loan portfolio and significantly tighten the approval rates. This was done to address the current challenging credit risk environment following the period of significant growth in recent quarters.

In Q1 2014, net loans increased by 1.4% to RUB 75.0 bn from RUB 74.0 bn at 2013YE, with the share in total assets remaining stable at 74%. Given the current environment of higher credit risk and tighter credit markets, TCS Group has become more selective with offering new loans to customers and growing its loan portfolio.

Share of non-performing loans in total gross loans increased to 8.9% from 7% at 2013YE due to more challenging environment and increased retention of overdue loans and NPLs on the balance sheet. Loan loss provisioning ratio went up commensurately with NPLs as the Group kept a robust LLP coverage ratio at 1.6x of NPLs.

As of Q1 2014, balance sheet provisioning for impairment of loans was up to RUB 12.5 bn compared to RUB 9.4 bn as of 2013YE. These loan portfolio quality trends have been due to higher credit risks currently observed in the broader Russian retail lending market with increased leverage in certain areas of the Group's portfolio and increased social default of previously good standing customers.

The Group's liabilities grew largely in line with the assets by 2.3% to RUB 80.3 bn from RUB 78.4 bn at 2013YE. Customer deposits continued to account for the majority of the Group's liabilities and stood at 54% with volumes remaining largely flat at RUB 43.1 bn. Debt securities in issue were the second most important source of funding, and declined by 12.3% to RUB 23.0 bn from RUB 26.2 bn at the year-end, primarily due to the repayment of two of the European Commercial Paper facilities that matured in Q1 2014.

The Group's capital base remains strong with the statutory N1 capital adequacy ratio at 18.3% as of 1 April 2014, substantially higher than the minimum CBRF capital requirement of 10% and the minimum capital ratio requirement of 13% set by debt covenants. N1 ratio increased from 15.8% at the year-end to 18.3% as the USD 175 mln of primary IPO proceeds at the Group level was injected into the equity at the Bank level. Total equity of the Group grew by 1.9% to RUB 20.9 bn in Q1 2014 from RUB 20.6 at the year-end 2013 as the Group reinvested its net earnings into the business.

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The management team will host an investor and analyst conference call at 14.00 UK time (17.00 Moscow time, 09.00 U.S. Eastern Daylight Time), on Monday, 9 June 2014.

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

Please register approximately 15 minutes prior to the start of the call.

The Group's financial statements for Q1 2014 ended 31 March 2014 can be found at the Group's website at https://www.tcsbank.ru/eng/about-bank/news/

A live webcast of the presentation will be available at: https://webconnect.webex.com/webconnect/onstage/g.php?t=a&d=666268267

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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, one of the best known Russian entrepreneurs with a long track record of creating successful businesses, the Group has grown into a leader in the Russian credit card market, with the third largest credit card loan portfolio and a market share of 7.3% based on non-delinquent receivables (according to Central Bank of Russia (CBR) data, as of 1 April 2014). As of 1 June 2014, the Group has issued over 4.3 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 March 2014, the Group's total assets amounted to RUB 101.2 bn, net loans and advances to customers stood at RUB 75 bn and customer accounts (deposits) amounted to RUB 43.1 bn. In Q1 2014, the Group generated a net profit of RUB 362.3 mln and net interest income of RUB 7.4 bn.

The Group is well capitalised with its total capital ratio and Tier 1 capital ratio of 22.3% and 17.3%, 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 TCS 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 TCS Bank wish to caution you that these statements are only predictions and that actual events or results may differ materially. The Group and TCS 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 TCS 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, TCS Bank and their respective operations.