TCS.L Regulatory News (TCS)

TCS Group Holding PLC Announces 2Q and 1H 2015 IFRS Results

Moscow, Russia - 27 August 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 second quarter and for the first six months ended 30 June 2015.

KEY FINANCIAL HIGHLIGHTS

2Q 2015

· Net interest income stood at RUB 6.4 bn (1Q15: RUB 6.5 bn)

· Profit before tax of RUB 0.5 bn (1Q15: loss of RUB 0.3 bn)

· Net income of RUB 0.4 bn (1Q15: loss of RUB 0.2 bn)

· Net interest margin at 26.0% (1Q15: 28.4%)

· Cost of risk decreased to 16.6% (1Q15: 17.9%)

1H 2015

· Net interest income stood at RUB 12.9 bn (1H14: RUB 15.2 bn)

· Profit before tax amounted to RUB 0.3 bn (1H14: RUB 2.2 bn)

· Net income amounted to RUB 0.2 bn (1H14: RUB 1.7 bn)

· Net interest margin at 27.1% (1H14: 34.0%)

· Total assets increased by 12.3% to RUB 122.2 bn (YE14: RUB 108.8 bn)

· Gross loans and advances to customers up by 1.3% to RUB 95.1 bn (YE14: RUB 93.9 bn)

· Net loans and advances to customers at RUB 75.6 bn (YE14: RUB 74.6 bn)

· Share of non-performing loans (NPLs) down to 14.3% (YE14: 14.5%)

· Customer accounts increased by 65.3% to RUB 71.7 bn (YE14: RUB 43.4 bn)

· Total equity up by 0.7% YTD to RUB 21.1 bn (YE14: RUB 21.0 bn)

KEY HIGHLIGHTS FOR 1H 2015

· In 1H15, over 175,000 new active customers acquired

· In 1H15, Tinkoff Bank launched a range of new co-branded credit and debit cards with AliExpress, eBay, Lamoda, Rendez-Vous and Tele2

· In May 2015, Tinkoff Bank launched an integrated mortgage platform in partnership with other banks

· In May 2015, Tinkoff Bank launched its internet acquiring service in partnership with several leading online aggregators and marketplaces

· In June 2015, Tinkoff Bank acquired a part of high quality credit card portfolio of RUB 1.6 bn from Svyaznoy Bank

KEY HIGHLIGHTS POST 1H 2015

· In July 2015, Tinkoff Bank launched its new MoneyTalk mobile app that combines an instant messenger with money transfers

· In July 2015, Tinkoff Bank acquired an additional part of credit card portfolio of RUB 1.5 bn from Svyaznoy Bank

· In July 2015, Tinkoff Bank was recognised as Russia's best consumer digital bank in 2015 by Global Finance

· In July 2015, Tinkoff Bank started to develop its Tinkoff SME platform which will offer current accounts and other services for Russian SMEs. The launch is expected later this year

· As of 1 August 2015, over 5.2 million credit cards issued

· In August 2015, Tinkoff Bank enhanced its mortgage platform via a partnership with Absolut Bank, one of Russia's largest mortgage providers

· In August 2015, Tinkoff Insurance appointed Vadim Yurko as CEO

· In August 2015, Tinkoff Bank launched a co-branded debit card together with the Svyaznoy Club loyalty programme

GUIDANCE FOR FULL YEAR 2015

· Despite continued market volatility, the Group reiterates its guidance to end the year in profit

· Cost of risk for the year 2015 expected to be in the range of 17-19% in line with previous guidance

· Guidance for 2015 net portfolio improved as the Group expects growth in net loans

Oliver Hughes, CEO of Tinkoff Bank, commented:

"I am pleased that we were able to achieve a solid 2Q15 net income of RUB 0.4 bn and 1H15 net income of RUB 0.2 bn given the highly challenging operating environment at the beginning of the year. The Group's bottom-line result, which should be considered in the context of the Russian financial services sector performance, is a testament to the robustness and flexibility of our business model, our continued focus on credit quality and the hard work of our team.

We took a conscious decision to sacrifice net profit in 1Q15 by significantly increasing the inflow of higher interest rate deposits. We did this to ensure that the Group was well protected in a very volatile market and to manage our maturities throughout 2015. By the end of June 2015 we had grown our deposit base by 65% to RUB 72 bn, which enabled us to complete several bond buy-backs and slow down deposit growth. As a next step, we are planning a gradual reduction in our cost of funding, which is expected to boost our profitability in 2H15 barring any major volatility in the second half of the year.

We have also cautiously resumed organic loan book growth by gradually increasing the issuance of new credit cards, and we are growing inorganically based on the first two credit card portfolio transactions with Svyaznoy Bank in June and July 2015. As the situation remains extremely difficult for a number of Russian lenders, we believe that there will be other opportunities to acquire high quality loan portfolios and we will continue to consider them as they arise.

After a seasonal increase in 1Q15, the cost of risk stabilised in 2Q15, reflecting our strict underwriting policy, low approval rates and efforts to maximise recoveries through in-house collections.

In 1H15, we continued to invest in developing the business. We launched the new mortgage platform through our financial portal Tinkoff.ru, new mobile apps and a series of cobrands.

Whilst the lending environment remains uncertain as we move into the autumn of 2015, we still believe that we will finish the year in profit. We expect the cost of risk to be in the range of 17-19% in 2015."

FINANCIAL AND OPERATING REVIEW

Given the challenging operating environment, the Group demonstrated solid results for 2Q and 1H 2015 driven by stronger profitability in 2Q15 compared to 1Q15.

In 2Q and 1H 2015, Tinkoff Bank issued 117,000 and 197,000 new credit cards respectively, while the volume of credit cards transactions in 1H15 slightly increased to RUB 46.4 bn compared to RUB 44.7 in 1H14.

In 2Q15, the Group's gross interest income grew by 3.6% to RUB 9.7 bn compared to 1Q15. In 1H15, gross interest income amounted to RUB 19.1 bn (1H14: RUB 19.5 bn).

In 2Q15, gross yield increased by 0.7 p.p. q-o-q to 40.6% which is attributed to the resumed growth of the loan portfolio, while having decreased to 40.0% y-o-y in 1H15 (1H14: 44.5%).

In 2Q15, cost of borrowing grew to 14.1% from 13.3% in 1Q15 due to the rate increase at the end of 2014 and the Group's Eurobond repurchase in April 2015. 1H15 cost of borrowing grew to 13.7% from 11.7% in 1H14.

In 1H15, net interest income amounted to RUB 12.9 bn compared to RUB 15.2 bn in 1H14.

In 2Q15, net interest margin (NIM) declined to 26.0% compared to 28.4% in 1Q15 as a result of higher funding costs and growth in assets that bear relatively low interest such as cash instruments and debt securities. In 1H15, NIM decreased to 27.1% from 34.0% in 1H14. Risk-adjusted NIM increased to 10.4% in 2Q15 from 10.3% in 1Q15 due to lower credit losses in 2Q15. Risk-adjusted NIM for 1H15 amounted to 10.3% compared to 14.9% in 1H14.

The Group continues to prioritise its risk management through a strict underwriting policy by maintaining low approval rates and low credit limits. In 2Q15, cost of risk went down by 1.3 p.p. to 16.6% after a seasonal peak in 1Q15 at 17.9%. In 1H15, cost of risk decreased to 17.1% from 19.6% in 1H14.

The Group's operating expenses in 1H15 increased by 8.4% y-o-y to RUB 5.6 bn primarily due to the salary indexation.

In 2Q15, net income amounted to RUB 0.4 bn compared to a loss of RUB 0.2 bn in 1Q15. In 1H15, net income stood at RUB 0.2 bn thanks to the robustness and resilience of the Group's business model in a downturn.

In 1H15, the Group maintained a strong balance sheet with total assets increasing by 12.3% since YE14 to RUB 122.2 bn, which was primarily driven by the treasury portfolio build-up and increase in the loan portfolio. In 2Q15, the Group's loan portfolio resumed its growth and increased to RUB 75.6 bn as of 30 June 2015. Cash inflows from retail deposits enabled the Group to further bolster its cash and treasury portfolio which increased to RUB 29.4 bn, representing 24% of assets and 41% of customer accounts.

In 1H15, gross loans increased by 1.3% to RUB 95.1 bn (YE14: RUB 93.9 bn). This growth was attributed to a number of activities in 2Q15, including the resumed organic acquisition of new customers, increased credit limits to selected high-quality low-risk customers, and the acquisitions of part of high-quality credit card portfolio from Svyaznoy Bank.

In 2Q15, the total share of non-performing loans (NPLs) decreased to 14.3% from 14.5% at YE14. The loan-loss provisioning coverage ratio remained at 1.4x NPLs. Balance sheet provisioning for impairment of loans grew to RUB 19.5 bn compared to RUB 19.3 bn at YE14.

In 1H15, the Group's liabilities increased by 15% to RUB 101.1 bn from RUB 87.8 bn as of 31 December 2014 driven by a 65% growth in customer accounts to RUB 71.7 bn in 1H15. The book value of the Group's debt securities decreased in 2Q15 which is due to the early redemption of the Eurobond and repayment of ruble-denominated BO-4 bond in amount of RUB 1.5 bn. Scheduled wholesale debt repayments are amply covered by the Group's liquidity.

The Group continues to maintain a solid capital position with the statutory CBR N1 capital ratio of 14.3% at the end of 2Q15. The Group maintained the Core Tier 1 (or N1.1) capital ratio of 11.4% (and the same for Tier 1, or N1.2, capital ratio), which is well above the 5% and 6% minimum requirements respectively. The growth in these ratios is attributed to the recognition of last year profit in Tier I capital. In 1H15, the Group's total equity stood at RUB 21.1 bn.

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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 U.S. Eastern Daylight Time), on Thursday, 27 August 2015.

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=2929 

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. 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 August 2015, the Group has issued over 5.2 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.

As of 30 June 2015, the Group's total assets amounted to RUB 122.2 bn, net loans and advances to customers stood at RUB 75.6 bn and customer accounts (deposits) amounted to RUB 71.7 bn. In 2Q15, the Group generated a net profit of RUB 0.4 bn and net interest income of RUB 6.4 bn. As of 30 June 2015, the Group is well capitalised with the total capital ratio and Tier 1 capital ratio of 19.6% and 15.0%, 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.