TCS.L Regulatory News (TCS)

TCS Group Holding PLC Announces 2Q and 1H 2016 IFRS Results

Moscow, Russia - 6 September 2016. 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 second quarter and for the first six months ended 30 June 2016.

KEY FINANCIAL HIGHLIGHTS

2Q 2016

· Net interest income up 47.6% y-o-y to RUB 9.3 bn (2Q15: RUB 6.3 bn)

· Profit before tax up 6x y-o-y to RUB 3.3 bn (2Q15: RUB 0.5 bn)

· Net income up 6.4x y-o-y to RUB 2.5 bn (2Q15: RUB 0.4 bn), a second consecutive quarter of record high net income for the Group

· ROE increased to 41.5% (2Q15: 7.6%)

· Net interest margin at 29.6% (2Q15: 25.6%)

· Cost of risk decreased to 7.7% (2Q15: 16.4%)

1H 2016

· Net interest income grew by 38.2% y-o-y to RUB 17.7 bn (1H15: RUB 12.8 bn)

· Profit before tax up 20x y-o-y to RUB 5.8 bn (1H15: RUB 0.3 bn)

· Net income up 22x y-o-y to RUB 4.4 bn (1H15: RUB 0.2 bn)

· ROE grew to 36.9% (1H15: 1.9%)

· Net interest margin at 29.3% (1H15: 26.8%)

· Total assets increased by 9.3% to RUB 152.7 bn (YE15: RUB 139.7 bn)

· Gross loans and advances to customers up 9.8% to RUB 111 bn (YE15: RUB 101.1 bn)

· Net loans and advances to customers up 13.5% to RUB 93.1 bn (YE15: RUB 82.1 bn)

· Share of non-performing loans (NPLs) down to 10.9% (YE15: 12.4%)

· Customer accounts increased by 13.8% to RUB 101.7 bn (YE15: RUB 89.3 bn)

· Total equity up by 8.8% to RUB 25.0 bn (YE15: RUB 22.9 bn)

KEY HIGHLIGHTS FOR 1H 2016

· In 1H16, over 460,000 new active customers were acquired

· In April 2016, Tinkoff Bank successfully launched the Tinkoff.ru financial marketplace with its mobile version released in May 2016

· As of 1 July 2016, Tinkoff Bank was the second largest Russian credit card market player, with a market share of 9.4%

· In 1H 2016, Tinkoff Bank's debit card turn-over was 40% higher than its credit card turn-over

· In June 2016, Tinkoff Bank successfully completed a RUB 3 bn bond placement with a coupon of 11.7%

KEY HIGHLIGHTS POST 1H 2016

· As of 1 August 2016, Tinkoff Bank solidified its position as Russia's second largest credit card player, with a market share of 9.6% 

· In July 2016, Tinkoff Bank joined the Russian blockchain consortium formed by major domestic companies for joint exploration and implementation of blockchain technology and its derivatives

· In July 2016, Tinkoff Bank won three international awards, including Euromoney's Best Digital Bank in CEE; Global Finance's Best Consumer Digital Bank and Best Integrated Bank Website

· In July 2016, Tinkoff Bank was named the best mobile bank in Russia by Deloitte (for the fourth consecutive year) and by Markswebb Rank & Report for the third consecutive year

· In July 2016, Tinkoff Bank completed the roll-out of its SME service, which now books over 4,000 new accounts a month

· In July 2016, Tinkoff Bank launched multi-currency deposits

GUIDANCE FOR 2016 REITERATED

While the Group's full year guidance remains unchanged, the Group now expects its ROE to be comfortably above 30%. The Group expects net income for the year to be at the top end of its previously communicated guidance of RUB 7-8 bn; cost of risk and cost of funding at the lower end of the previously communicated range of 10-12%. Net portfolio growth is expected at 15-20%.

Oliver Hughes, CEO of Tinkoff Bank, commented:

"We are very pleased to report record 2Q and 1H profits for the Group of RUB 2.5 bn and RUB 4.4 bn, respectively. These excellent results demonstrate the resilience of our business model and the series of good operational decisions that we made over the last few years. As revenue from our new business lines increasingly comes through the P&L, the potential of our new expanded business will also become apparent. With a return on equity of 41.5% as at the end of the second quarter, Tinkoff Bank continues to stand out as one of Russia's most profitable banks.

As the market environment stabilises, we have been the first to go back to a more normal pace of customer acquisition, without compromising our strict selection and underwriting criteria. This rigorous control over portfolio quality has helped us to significantly reduce the cost of risk, bringing it down to 7.7% in the second quarter.

The launch of our Tinkoff.ru platform in April 2016 was a major milestone in becoming a financial marketplace, providing a wide range of financial services both for Tinkoff customers and non-customers alike. This platform has already helped us to significantly boost our current accounts business, resulting in 40% higher turnover for debit cards over credit cards at the end of 1H 2016. We are excited by the opportunities for growth that we see for the Tinkoff.ru platform as we broaden our product lines and diversify our revenue sources."

FINANCIAL AND OPERATING REVIEW

The Group delivered another strong set of results for 2Q and 1H16 following continued improvements in both Russia's macroeconomic environment and operating processes driven by increased credit card issuance amid tighter portfolio quality control, continued consumer deleveraging, a material decrease in the cost of risk and a successful push to develop new business lines.

As a result, the Group reported a record high net income for both 2Q16 and 1H16 of RUB 2.5 bn and RUB 4.4 bn respectively. This translated into ROE of 41.5% for 2Q16.

In 1H16, the Group issued 620K credit cards, including 330K in 2Q, with the total volume of credit card transactions in 1H16 growing by 68% y-o-y to RUB 78.0 bn (1H15: RUB 46.4 bn).

The Group continued its push to develop its transactional and current accounts businesses, boosted by the launch of the Tinkoff.ru financial marketplace in April 2016. As a result of this continued effort, over 1.3 mn debit cards were issued as of 1 July 2016, with debit card turn-over 40% higher than its credit card turn-over in 1H16.

In 2Q16, gross interest income increased by 31.7% y-o-y to RUB 12.8 bn (2Q15: RUB 9.7 bn), while in 1H16 it was up 29.0% y-o-y to RUB 24.6 bn (1H15: RUB 19.1 bn). Gross yield improved to 44.5% in 2Q16 from 40.6% in 2Q15 due to steady new issuance levels and the falling cost of risk. Gross yield for 1H16 amounted to 43.8% (1H15: 40.0%).

Interest expense stayed flat at RUB 3.3 bn in 2Q16, while the cost of borrowing continued to decrease to 11.1% in 2Q16, translating to 11.6% for 1H16 (2Q15: 14.1%; 1H15: 13.7%). This was due to the fact that the expensive deposits collected in early 2015 had rolled almost completely off the books.

In 2Q16, net interest income grew by 47.6% y-o-y to RUB 9.3 bn (2Q15: RUB 6.3 bn), while in 1H16 it increased by 38.2% y-o-y to RUB 17.7 bn (1H15: RUB 12.8 bn). Net interest margin (NIM) rose to 29.6% in 2Q16 (2Q15: 25.6%) and to 29.3% in 1H16 (1H15: 26.8%). Risk-adjusted NIM was up to 23.0% in 2Q16 (2Q15: 10.1%), and to 21.7% in 1H16, up from 10.1% in 1H15 due to lower cost of risk.

The Group continues to prioritise its cost of risk and tight control over the quality of its credit card portfolio. In 2Q16, the Group's cost of risk materially improved and decreased to 7.7% (2Q15: 16.4%), while for 1H16 it fell to 8.6% from 17.1% in 1H15. This positive dynamic indicates further improvements in consumer deleveraging and demonstrates the efficiency of the Group's enhanced portfolio management and tight underwriting policy.

The Group continues its efforts to diversify its income sources with the roll-out of the Tinkoff.ru financial marketplace. In 2Q16, the Group's fee and commission income increased 3.7% q-o-q to RUB 0.82 bn and in 1H16 it grew 4.5x to RUB 1.62 bn from RUB 0.36 bn in 1H15. The Group expects this upward trend to continue as the new business lines launched over the past 18 months gain momentum.

In 2Q16, operating expenses increased by 14.3% q-o-q due to continued investment in new business development as part of the Tinkoff.ru financial marketplace. The cost-to-income ratio increased slightly q-o-q to 44.5% in 2Q16. The Group expects it to remain at this level throughout the remainder of the year.

In 2Q16, the Group reported a net income of RUB 2.5 bn (2Q15: RUB 0.4 bn) driven by a material reduction in the cost of risk. This was the second consecutive quarter of record high net income for the Group. As a result, ROE for 2Q16 reached 41.5%. In 1H16, net income amounted to RUB 4.4 bn (1H15: 0.2 bn), which also set a new Group record.

This strong profitability trend proves the flexibility and resilience of the Group's business model while demonstrating its future potential as it continues to roll out new business lines.

In 1H16, the Group continued to maintain a healthy balance sheet with total assets having increased by 9.3% to RUB 152.7 bn (YE15: RUB 139.7 bn) and by 24.9% compared to RUB 122.2 bn in 2Q15.

In the reporting period, the Group's gross loan book grew 10% to RUB 111 bn (YE15: RUB 101.1 bn). This is a result of the Group's continued efforts to increase organic customer acquisition, which resulted in 460,000 new customers acquired in 1H16, including almost 240,000 in 2Q16.

Despite the tight underwriting policy in 1H16, the Group's net loan book grew 13.5% to RUB 93.1 bn (YE15: RUB 82.1 bn), or 61% of the Group's total assets. As a result of the Group's credit card portfolio growth, Tinkoff Bank's market share rose to 9.6% as of 1 August 2016, which helped to solidify its place as Russia's second largest credit card issuer.

The Group's portfolio quality continued to improve on a q-o-q basis with the NPL ratio dropping further to 10.9% in 2Q16 from 11.3% in 1Q16. The Group's loan loss provision coverage stayed at 1.5x non-performing loans.

The Group's customer accounts increased by 13.8% over the period to RUB 101.7 bn despite the gradual reduction in deposit rates by the Group in line with its peers (1Q16: RUB 96.0 bn; YE15: RUB 89.3 bn). In June 2016, Tinkoff Bank successfully completed a 5-year RUB 3 bn bond placement, with a coupon of 11.7% and a put option in December 2017.

As of 1 July 2016, the Group continued to maintain a robust capital position with a CBR N1 total capital ratio of 11.2%, well above the statutory requirements. Following the operational risk review the Group saw a decrease in CBR N1 total capital ratio in July. The Group expects the N1 total capital ratio to grow during the remainder of the year driven by retained earnings.

The Group's total equity increased by 8.8% to RUB 25.0 bn (YE15: RUB 22.9 bn). The Group's Core Tier 1 (or N1.1) capital ratio stood at 8.0% (the same for Tier 1, or N1.2, capital ratio), which is well above the respective 4.5% and 6% minimum requirements.

***

The management team will host an investor and analyst conference call at 13.00 UK time (15.00 Moscow time, 08.00 EDT), on Tuesday, 6 September 2016.

The press release, presentation and financial statements will be available on the Tinkoff Bank website at https://www.tinkoff.ru/eng/investor-relations/results-and-reports/ 

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

A live webcast of the presentation will be available at:

http://www.audio-webcast.com/cgi-bin/visitors.ssp?fn=visitor&id=3855

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

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. 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.

Tinkoff Bank's product range includes credit, debit and prepaid cards, deposits, co-branded cards, and agent-based mortgage products. With its special focus on mobile, the bank offers mobile applications both for its customer base (Mobile Bank) and beyond it (Traffic Fines, MoneyTalk, Card 2 Card instant money transfers).

As per its five-year strategy, the Group has the ambition to become a financial marketplace, offering both own brand and partner products.

As at 1 August 2016, the bank was the second largest player in the Russian credit card market, with a market share of 9.6%. The Group's 1H 2016 IFRS net income amounted to RUB 4.4 bn.

In 2015 and 2016, the Global Finance magazine named Tinkoff Bank as the Best Consumer Digital Bank in Russia. In 2016, the bank also won Global Finance's Best Integrated Consumer Bank Site award and was named the Best Digital Bank in the CEE by Euromoney. The bank's mobile application was recognised as the best in Russia by Markswebb Rank & Report for three consecutive years in 2014, 2015 and 2016, and by Deloitte for four consecutive years from 2013 to 2016.

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.