TCS.L Regulatory News (TCS)

TCS Group Holding PLC Announces 1Q 2016 IFRS Results

Moscow, Russia - 6 June 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 first three months ended 31 March 2016.

1Q 2016 KEY FINANCIAL HIGHLIGHTS

· Net interest income increased by 29% y-o-y to RUB 8.3 bn (1Q15: RUB 6.4 bn)

· Profit before tax increased to RUB 2.5 bn (1Q15: loss of RUB 0.3 bn)

· Net income increased to RUB 1.9 bn (1Q15: net loss of RUB 0.2 bn) - a record high quarterly net income in the Group's history

· Net interest margin at 28.8% (1Q15: 28.2%)

· Cost of risk decreased significantly to 10.4% (1Q15: 17.9%)

· Total assets increased by 5% to RUB 146.8 bn (YE2015: RUB 139.7 bn)

· Net loans up by 6% to RUB 87 bn (YE15: RUB 82.1 bn)

· Gross loans and advances to customers up by 3.8% to RUB 104.9 bn (YE2015: RUB 101.1 bn)

· Share of non-performing loans (NPLs) down to 11.3% (YE2015: 12.4%)

· Customer accounts increased by 7.4% to RUB 96 bn (YE2015: RUB 89.3 bn)

· The Group is well capitalised with CBR N1 capital adequacy ratio at 12.1% at the end of 1Q16. Following the interim dividend payout the Group expects CBR N1 total capital adequacy ratio to be at around 11.5%

KEY BUSINESS HIGHLIGHTS FOR 1Q16 AND POST 1Q16

· As of 1 May 2016, Tinkoff Bank was the second largest bank in Russia by non-delinquent credit card portfolio size with 9% market share

· As of 1 April 2016, Tinkoff Bank has issued over 5.8 mn credit cards and over 1.2 mn debit cards

· In 1Q16, 220,000 new active customers were acquired

· On 16 May 2016, the Group announced payment of interim gross dividend of USD 0.17 per share/per GDR with a total amount allocated for dividend payment of USD 31,048,601

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

· In January, Tinkoff Bank was the first bank in the world to integrate NFC contactless payments into its Android mobile app

· In February, Tinkoff Bank appointed George Chesakov as VP for new channel development

· In February, Tinkoff Bank released its smart real-time FX service which minimizes FX risks for the bank and gives customers best rates in the market by narrowing the buy/sell spread

· In February, Tinkoff Bank launched its MoneyTalk client for Telegram

· In March, Tinkoff Bank launched co-branded credit and debit cards in partnership with Google Play as part of a new loyalty program

· In April, Tinkoff Bank won a tender organised by the Deposit Insurance Agency to service the remaining part of Svyaznoy Bank's portfolio

· In March, Tinkoff Bank was named the best Russian bank for remote credit card service by Markswebb Rank & Report

· In April, Tinkoff Bank was named the best Russian bank for opening and servicing deposits by Markswebb Rank & Report

· In April, Tinkoff launched the first phase of its national TV advertising campaign to promote the Tinkoff.ru financial marketplace

· In 1Q, Tinkoff Bank's debit card turnover exceeded its credit card turnover by 40%

UPDATED GUIDANCE AND OUTLOOK FOR 2016

In March 2016, the Group said it expected to at least double 2015 net income in 2016.

Following strong 1Q16 results as well as an improved operating environment the Group has now revised its FY16 net income guidance to RUB 7-8 bn. The Group expects its ROE to be above 25% in 2016.

Positive dynamics in cost of risk allows the Group to revise its 2016 outlook to 10-12% from 15% guided previously. As expensive deposits continue to roll of the Group's balance the Group expects cost of funding to decrease to 10-12% in 2016.

The Group reiterates its net portfolio growth outlook of 15-20% for the year 2016.

Oliver Hughes, CEO of Tinkoff Bank, commented: 

'Excellent first quarter results demonstrate that our numbers are coming back. We reported a record high quarterly net income of RUB 1.9 bn, ROE of 32.3% and net loan book growth of 6%. Our strong results were driven by the improvement in the Russian macroeconomic environment as well as a series of good decisions that we made at the operational level over the last couple of years. These robust results once again prove the flexibility and resilience of our business model which was put to the test during this turbulent period.

In April 2016, we launched the Tinkoff.ru financial marketplace which is a centerpiece of our strategy to develop a full financial retail business in the 'cloud'. We are rolling out a financial supermarket where any customer can find both proprietory Tinkoff and partner products. We expect the Tinkoff.ru platform to continue to drive our fee and commissions revenue which already accounts for almost 18% of our total revenue for 1Q16, having increased almost eight times year on year to RUB 0.8 bn in this quarter.'

FINANCIAL AND OPERATING REVIEW

The Group delivered a strong set of results for 1Q16 following both improvements in the Russian macroeconomic environment and operational progress, including tight underwriting policy and portfolio quality control, accelerated credit card issuance, net loan book growth, continuing consumer deleveraging, and decreasing cost of risk.

As a result, the Group reported a net income of RUB 1.9 bn for 1Q16 which is a record high quarterly profit in the Group's history.

In 1Q16, the Group issued 290,000 credit cards with a total volume of credit card transactions growing by 74% to RUB 35.5 bn (1Q15: RUB 20.4 bn).

At the same time the Group put a special focus on stepping up debit cards issuance as part of a broader effort to further develop transactional and current accounts business. As a result, over 1.2 mn debit cards were issued as of 1 April 2016, with debit card transactions exceeding credit card turnover by 40% and amounting to RUB 43 bn in 1Q16.

In 1Q16, gross interest income grew by 26% y-o-y to RUB 11.8 bn (1Q15: RUB 9.4 bn) and by 5.3% q-o-q (4Q15: RUB 11.2 bn). Gross yield remained flat at 43.3% in 1Q16 due to a steady credit card issuance and lower cost of risk (4Q15: 43.5%).

Cost of borrowing continued to decrease in 1Q16 to 12% from 13.1% in 4Q15 as expensive deposits collected in early 2015 continued to be rolled off the book. The Group expects its cost of funding to decrease further throughout 2016 and into 2017.

Interest expense grew by 4.4% q-o-q to RUB 3.4 bn in 1Q16 (4Q15: RUB 3.3 bn) and by 19.1% y-o-y (1Q15: RUB 2.9 bn).

In 1Q16, net interest income grew by 28.9% y-o-y to RUB 8.3 bn (1Q15: RUB 6.4 bn) and by 5.6% q-o-q (4Q15: RUB 7.9 bn). The net interest margin stood at 28.8% in 1Q16 - this is a result of a significant portion of investment portfolio in the Group's assets being less marginal than credit card portfolio. At the same time the Group generated a solid risk-adjusted NIM of 19.6% (1Q15: 10.1%) driven by the strong NIM and decreased cost of risk.

In 1Q16, the Group continued to prioritise its credit risk management. This led to a further decline in the cost of risk to 10.4% in 1Q16 (1Q15: 17.9%, 4Q15: 13.2%). The usual 1Q seasonal spike the Group observed during last 4 years did not materialise which indicates an overall improvement in customer deleveraging and demonstrated the efficiency of the Group's portfolio management and underwriting policy.

In 2016, the Group continues its push to diversify its income sources. As a result, its commission-based products yielded positive results with a steady increase in fee and commission income as well as insurance premiums. Around 17.6% of the Group's revenue for 1Q16 was from non-credit sources. Fee and commission income for 1Q16 increased 8 times y-o-y to RUB 0.8 bn (1Q15: RUB 0.1 bn). The Group expects this upward trend to continue further with the ongoing development of its debit, SME, online acquiring businesses and roll-out of its Tinkoff.ru financial supermarket.

In 1Q16, operating expenses increased by 12% q-o-q to RUB 3.8 bn due to continued investment in the Tinkoff.ru financial supermarket which was launched in April 2016. At the same time the cost-to-income ratio remained stable q-o-q at 26.6% (4Q15: 26.1%).

In 1Q16, the Group reported a net income of RUB 1.9 bn (1Q15: net loss of RUB 0.2 bn) driven by a significant reduction in the cost of risk. This has been the best quarterly result in the Group's history. As a result ROE for 1Q16 amounted to 32.3%.

The Group's strong profitability for 1Q16 proves the responsiveness and resilience of its business model and indicates its business potential as it continues to roll out new business lines.

In 1Q16, the Group continued to maintain a healthy balance sheet with total assets having increased by 5% to RUB 146.8 bn (YE15: RUB 139.7 bn) and by 28.6% compared to 1Q15 (RUB 114.1 bn).

The Group's gross loan book grew 4% YTD to RUB 104.9 bn (YE15: RUB 101.1 bn, 1Q15: 91.3 bn). This growth is a result of stepping up organic customer acquisition which resulted in almost 300,000 new customers acquired in 1Q16.

In 1Q16, the Group's net loan book continued its steady growth despite the tight underwriting policy and increased by 6% YTD to RUB 87 bn (YE15: RUB 82.1 bn). The net loan book amounted to 59% of the Group's total assets in 1Q16. The increase in the Group's credit card portfolio resulted in Tinkoff Bank maintaining its place as Russia's second largest credit card issuer with a market share having increased to 9% as of 1 May 2016.

The quality of the Group's portfolio improved on a q-o-q basis with the NPL ratio having dropped to 11.3% in 1Q16 from 12.4% in 4Q15. The Group's loan loss provision coverage stayed at 1.5 times non-performing loans.

In 1Q16, customer accounts continued to demonstrate a strong performance and increased by 3.4% to RUB 96 bn (YE15: RUB 89.3 bn). This was achieved despite the fact that Tinkoff Bank was consistently reducing its deposit rates in line with the market trend throughout 1Q16.

The Group's wholesale funding continues to decline. The Group has currently only one major USD 200 mn subordinated bond which is due to mature in 2018. While the Group remains open to attractive opportunities in the wholesale markets, at the moment retail deposits and customer accounts remain a preferred source of funding for the Group.

In 1Q16, the Group continued to maintain a robust capital position with the statutory CBR N1 total capital ratio of 12.1%, well above the level required by the Group's debt covenants. Following the interim dividend payout the Group expects CBR N1 total capital ratio at 11.5%.

In 1Q16, the Group's total equity increased by 4% to RUB 23.9 bn. The Group's Core Tier 1 (or N1.1) capital ratio stood at 8.3% (the same for Tier 1, or N1.2, capital ratio), well above the 4.5% and 6% minimum requirements respectively.

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The management team will host an investor and analyst conference call at 15.00 UK time (17.00 Moscow time, 10.00 EDT), on Monday, 6 June 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=3631  

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

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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. 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 business, 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 May 2016, the bank was the second largest player in the Russian credit card market, with a 9% market share. As at 1 April 2016, the bank issued over 5.8 m credit cards. The bank is well capitalised: its CBR N1 total capital ratio stood at 12.3% as at 1 May 2016.

The Group's 1Q 2016 IFRS net income amounted to RUB 1.9 bn.

In 2015, the Global Finance magazine named Tinkoff Bank as the Best Internet Retail Bank in Russia. In 2013, Tinkoff Bank was recognised as the Bank of the Year and the most profitable bank in Russia by the Banker magazine, the world's premier banking and finance resource, published by the Financial Times Group.

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.