Qiwi PLC (QIWI) 2013 Q1 法說會逐字稿

Welcome to the QIWI first quarter 2013 earnings call. A replay of this call will be available until Tuesday, June 11, 2013. Access information for the replay is listed in today's earnings press release which is available on QIWI's Investor Relations website at investor.QIWI.com. For those listening to the replay, this call was held and recorded on June 4, 2013.

Before we begin, I would like to remind everyone that this call may contain forward-looking statements as they are defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements about the Company's expectations for future performance are subject to known and unknown risks and uncertainties. QIWI cautions that these statements are not guarantees of future performance. All forward-looking statements made today reflect current expectations only and the Company undertakes no obligation to update any statement to reflect the events that occur after this call. Please refer to the prospectus on Form 424(b)(4) filed on May 3, 2013 from QIWI's Initial Public Offering filed with the Securities and Exchange Commission for factors that the could cause actual results to differ materially from any forward-looking statements.

During today's call, management will provide certain information that will constitute non-IFRS financial measures such as adjusted net revenue, adjusted EBITDA, adjusted net profit, and adjusted net profit per share. Reconciliations to IFRS measures and certain additional information are also included in today's earnings press release. With that, we'll begin by turning the call over to Sergey Solonin, Chief Executive Officer for QIWI. Sergey, please go ahead, sir.

Thank you, operator, and good morning, everyone. Thank you for joining us on our first quarter 2013 earnings conference call. The first quarter of 2013 represents a strong start of the year and a great way for QIWI to begin a new chapter as a publicly traded Company. As you are aware, we successfully completed our Initial Public Offering on May 8 and I want to thank the entire QIWI team for their hard work and dedication throughout that process. I also want to thank and welcome our new shareholders.

And now I'm pleased to share with you our business highlights for the first quarter, as well as some important recent announcements. In the first quarter, QIWI experienced strong operating performance as we continued to execute on our core growth strategies and leverage our significant competitive advantages. First, we reported adjusted net revenue growth of 50% year-over-year to almost RUB1.3 billion. Our first quarter revenue growth was driven by strong growth in payment volumes over our fully integrated network and growth in value-added services. Second, we reported adjusted EBITDA growth of 105% to RUB611 million and expanded our adjusted EBITDA margin to 47.6% from 34.7% a year ago, highlighting significant operating leverage in our business. Third, we reported adjusted net profit of RUB455 million, more than tripling our adjusted net profit as compared to the year ago period. And finally, on May 31, our Board of Directors approved a special dividend in the amount of $0.29 per share or approximately $15 million with the record date of June 17, 2013, and the payment date of June 18, 2013. Alexander Karavaev, our Chief Operating Officer, will review these results in greater detail later in the discussion, but before turning the call over to Alexander I thought since this is our first quarterly earnings call as a publicly traded Company it would be helpful to provide a brief overview of QIWI and our strategy for long-term profitable growth.

QIWI is a leading provider of next generation payment services in Russia and the CIS with strategic presence in eight countries. We have an integrated proprietary network that enables payment services across physical, online and mobile channels. We have deployed approximately 13 million active virtual wallets, over 165,000 kiosks and terminals, and enabled over 47,000 merchants to accept over RUB41 billion in cash and electronic payments monthly from over 60 million consumers. Our consumers can use cash, stored value and other electronic payment methods and pay for goods and services across physical or online environments interchangeably. We believe the complementary combination of our physical and virtual payment services provides differentiated convenience to our consumers and creates a strong network effect that drives payment volume across our business. Our network of interactive kiosks also enables us to provide advertising services and billions of transactions we process annually allow us to collect and analyze valuable data (technical difficulty) value-added services. We believe that our leading market position, strong brand, proprietary network and complementary service provide us with significant competitive advantages that have enabled us to generate strong growth and profitability.

So how do we plan to drive continuous, solid and profitable growth into the future? First, we intend to grow our business by expanding the number of participants in our network and increasing the utilization of our payment services. We will do this by enhancing the value of our core payment services, adding new payment options and new merchants, introducing value-added services that altogether we drive new consumers to use our services and use them more and more frequently. Second, we intend to leverage our large active base of consumers who use our kiosks and terminals to drive the adoption and usage of our other payments offerings such as our virtual Visa QIWI Wallet and companion Visa prepaid cards. Third, we intend to leverage our existing infrastructure to introduce new value-added high margin products and services to address evolving customer demand, to provide cross-selling opportunities, and to expand existing value-added services such as targeted marketing and remote banking. Fourth, we plan to expand our operations into other countries by investing directly into markets where we can leverage our operational experience, franchising our operations or licensing our technology to selected payment service providers and networks. And finally, we intend to make Visa QIWI Wallet a global online and mobile payment processing and money transfer system. To reach any Visa member bank we'll be able to offer a Visa QIWI reward account to its customers.

In summary, our first quarter results were strong and demonstrate our ability to execute on our long-term growth strategy. Looking to the future, we are very excited by the multiple opportunities that our scale, leading brand and unique set of assets and capabilities provide us to expand our business further and continue to drive long-term shareholder value creation. And now I will turn the call over to Alexander who will discuss our financial results in greater detail.

Thank you, Sergey, and good morning, everyone. As Sergey discussed earlier, QIWI generated strong financial and operating results in the first quarter of 2013. Just by way of background for those new to the story, our QIWI Distribution segment primarily generates revenue direct from our payment system offered through our kiosks and terminals. Our Visa QIWI Wallet segment generates revenue from payments processed through virtual electronic wallets and bank prepaid product including our prepaid card business. Our primary source of revenue in each of these segments are fees that we receive for processing payments made by consumers to merchants based primarily on a percentage of the value of the transactions that we process.

In certain cases, payment processing fees are paid to us by merchants for collecting payments on their behalf and in certain cases payment processing fees are paid by our consumers and transmitted to us by our agents, or paid by our consumers via (inaudible.) We typically pass on a portion of the fees paid to us by merchants to our agents. We generate additional revenue from advertising and certain other high-margin loan payment services.

On a quarterly basis, we plan to report both revenue and adjusted net revenue. Adjusted net revenue is calculated by subtracting cost of revenue from revenue and adding back payroll-related taxes. We believe that adjusted net revenue when reviewed together with revenue is meaningful in terms of understanding our performance since it reflects the portion of revenue that QIWI retains net of fees that we pass through to our agents and other business partners.

Now moving to our first quarter results. On a consolidated basis, our total revenue increased by 32% to RUB2.5 billion compared to RUB1.9 billion in the third quarter of 2012. Our adjusted net revenue for the quarter increased by RUB427 million, or 50%, to reach almost RUB1.3 billion as compared to RUB857 million in the first quarter of 2012.

The underlying segments. QIWI Distribution segment net revenue grew 29% to RUB758 million. Revenue growth was driven first by 14% growth in payment volumes to more than RUB117 billion as compared to RUB103 billion in the prior year. Second, by the growth of our high-margin value-added services. For example, the revenue from advertising increased by more than 150% in the first quarter of 2013 as compared to the first quarter of 2012 to reach RUB133 million. The revenue from advertising constituted more than 5% of the total consolidated revenue in the first quarter 2013, up from less than 3% in the corresponding period in 2012. It is also worth mentioning that the increase in the payment volume of QIWI Distribution is fueled by the significant network effect.

It works in a way that the more loyal consumers are using Visa QIWI Wallet, the larger of the Wallets of the virtual QIWI Wallets through our distribution network. That drives volumes and revenue of QIWI Distribution to [this trade] effect. The intragroup revenue of QIWI Distribution in the first quarter of 2013 constituted approximately 34% of the total gross revenue of QIWI Distribution for that period, up from approximately 17% for the corresponding period in 2012. As you may well understand, these intragroup revenues are predominantly coming from Visa QIWI Wallet segment. Our Visa QIWI Wallet segment net revenue more than doubled to reach RUB505 million from RUB256 million in the prior year. Revenue growth was driven primarily by 107% growth in payment volumes to almost RUB54 million, which is the effect of predominantly two factors. First, 4.3 million, or 49%, increase in our active Visa QIWI Wallet accounts to 13 million, and second, 38% increase in the average quarterly volume per QIWI Wallet to reach RUB4,134.

Moving to the expense side of our income statement. Our cost of revenue excluding depreciation and amortization were RUB1.5 billion for the first quarter of 2013 representing an increase of RUB232 million, or 19% as compared to a year ago. The growth in our cost of revenue was primarily due to an increase in our transaction costs by RUB212 million, or 22%. The transaction costs include the portion of our processing revenues that we passed through to our partners. The increase in transaction costs is primarily driven by the growth in transaction volume.

Total selling, general and administrative expenses were RUB543 million for the quarter representing an increase of approximately RUB129 million, or 31%, as compared to the corresponding 2012 period. The increase in our selling, general and administrative expenses was primarily due to an increase in our payroll and related expenses by RUB46 million, or 24%, to reach RUB331 million, and RUB20 million of operating expense related to our recently completed IPO. Depreciation and amortization expense for the first quarter of 2013 was RUB26 million, representing a decrease of RUB13 million from RUB40 million in the corresponding 2012 period, primarily the result of short- and long-lived assets being fully depreciated and/or amortized.

We recorded a foreign exchange gain of RUB3 million in the first quarter of 2013. We also had a foreign exchange loss of RUB45 million in the corresponding 2012 period. Foreign exchange loss in the first quarter of 2012 was primarily due to the devaluation of cash balances and loans issued in US dollars and euro against Russian rubles. Other expenses were RUB1 million in the first quarter of 2013 compared to RUB27 million in the first quarter of 2012. The decrease was primarily due to the reduction in shared losses related to non-controlling interests by RUB24 million. Income tax expense was RUB136 million for the quarter ended March 31, 2013 compared to RUB51 million in the corresponding 2012 period. The higher income tax expense in 2013 primarily represents higher after-tax profit from continuing operations.

Adjusted EBITDA for the quarter ended March 31, 2013 was RUB611 million, an increase of RUB313 million, or 105%, as compared to RUB298 million in the corresponding 2012 period. The increase in adjusted EBITDA was primarily driven by the aforementioned growth in adjusted net revenue. Aggressive proportion of our net revenue is coming from our higher margin QIWI Wallet business and significant operating leverage. Adjusted EBITDA margin improved significantly to more than 47.5% from approximately 35% in the corresponding 2012 period. Adjusted net profit was RUB455 million or RUB8.75 per diluted share for the first quarter of 2013 representing an increase of 215% from RUB144 million in the corresponding 2012 period. The increase in adjusted net income was primarily driven by the same factors impacting adjusted EBITDA.

As Sergey mentioned, we successfully completed our Initial Public Offering of 12.5 million Class B shares in the form of American depositary shares at a price of $17 per share in May. The offering comprised 100% secondary shares sold by certain stockholders.

Now I would like to review our 2013 guidance and medium-term outlook. For 2013, we expect our adjusted net revenue to grow between 23% and 26% versus 2012 to reach a midpoint of the range of RUB5.2 billion. Based on our strong 2013 revenue growth outlook and our expectations for continued margin improvement, we expect our adjusted net profit to grow between 27% and 33% to reach the midpoint of the range of almost RUB1.7 billion. Over the medium term, we'll maintain our annual growth targets we communicated to you during our IPO. Specifically, we expect annual adjusted net revenue growth of 20% or more, continued moderate EBITDA margin expansion, and adjusted net profit growth of more than 25%. With that, may I kindly ask the operator to open up the call for the questions.

Thank you. We will now be conducting a question-and-answer session.

(Operator Instructions)

Thank you. Our first question is coming from the line of Alexei Gogolev of JPMorgan. Please proceed with your question.

Hello. My first question would relate to your advertising revenues. Could you please discuss the trends that you've seen in advertising, especially in the kiosk segment in Russia and Kazakhstan?

Yes, Alexei, thank you for the question. Yes, as we presented, the advertising revenue was one of the drivers of growth of QIWI Distribution segment in Q1 and that actually is according to our expectations. Generally speaking, we believe that advertising would be a growth driver for the next several months and probably next year. In terms of the more mid-term outlook, what we might say, the advertising that we are using for now, it's pretty simple and (inaudible.) So it's simple advertising, but we are already having a lot of the projects in the pipeline and that we'll introduce new types of advertising, more type of the promotion components, more targeted advertising and those things where we can really leverage the value of our data we have on our consumers, and that we believe will be the growth driver in the mid to long term.

Okay, great. Also I had a question regarding eCommerce revenue, so I realize that you don't disclose those, but could you at least say how much faster, or whether the eCommerce-related revenues were growing faster than QIWI Wallet revenues?

Thank you for your question, Sergey. ECommerce right now is the fastest growing category in our (inaudible) set, so it's growing faster than banks which are growing quite fast, so it's outperforming right now. And we cannot disclose exact figures.

Great, but could you elaborate, what do you think is driving eCommerce in Russia particularly because as we know, there's certain issues with Russian eCommerce such as pay upon delivery. Has that trend been changing in Russia at all?

Well, we may say that we can see some changes in this pattern and we think that we're only in the beginning of this growth, so we think that there is a lot of space to grow into still.

Understood. And my final question is about dividends. I'm very happy to hear about special dividends that you plan to pay. Any plans to introduce a regular dividend policy in the coming quarters?

Going forward, our Board will review the dividend question every quarter and decide based on the facts and circumstances in any specific case.

Understood, but will it be fair to say that given the pretty significant amount of free cash flow that you generate, what would be your policy for this cash? Unless there are any acquisitions would you consider distributing any excess cash that you may have?

Historically, we did distribute the cash in the dividend form over time unless we have something that the Board may review.

Understood, thank you very much.

Our next question is from the line of George Mihalos of Credit Suisse. Please proceed with your question.

Great, thanks, guys, and congratulations on a nice first quarter. Just wanted to dig in on the yields a little bit. The net revenue yield was very healthy across both segments. You saw nice expansion there. Would you expect, as you look out over the remainder of the year, to see the revenue yield in each segment tick up even further from what we saw in the first quarter?

Hi, George, thank you for the question. Look, we were not really driving toward net revenue yield for what we are committed to achieve, it's the net revenue and the adjusted net profit for the year. Both numbers will be represented in our guidance. So generally speaking, net revenue yield is more effective parameter for us. In certain cases, we may be monetizing a little bit more, increasing in the net revenue yield, and that is in Q1 for certain factors with the effect of the net annual yield.

One would be the growth of eCommerce and in that specific category we are usually hitting higher net yields. And secondly, the value of the services, for example, QIWI Distribution. Generally speaking, in certain cases, we may be and actually we talk the rest of the public that we may continue to invest in our customer base by adding the services that would increase our customer base but will not produce the high net revenue yield. Both decisions we will be taking based on the facts, the circumstances, and based on the relations with any specific merchant. So generally speaking, we will not be providing the guidance on the net revenue yield.

Okay, and just to go back to Alexei's question, maybe if I could ask it a bit of a different way. I know you don't want to break out the revenue contribution from eCommerce, but is there a way to think about the percentage of volume over the Visa QIWI Wallet that is being sourced from eCommerce?

Well, we are not providing the numbers so I can't really tell you about it. It's still not that much, I would say. So generally, we see that as a huge growth driver for the future. But still, as we report (inaudible) that banks would still be the largest product category in QIWI Wallet and move it forward by mainly product specifics that actually none of those would be having a substantial share. So eCommerce is not that much so far in the fourth quarter, but it's outpacing all of the other categories in terms of the growth.

So we believe we -- and it [doesn't] affect the net revenue yield -- so we believe that generally speaking, it will be a growth driver in the future. In terms of the reporting, it's probably important to mention, but look, we have specifically mentioned that in presentation of Q1 results. Now we see it that the segments, the QIWI Distribution and QIWI Wallet, are even more interconnected. Actually, interconnected more than ever because the QIWI Distribution, it's a tremendous feature that will attract new loyal consumers of QIWI Wallet, and the QIWI Wallet users are feeling the volumes in QIWI Distribution.

That's why when we seriously consider to report starting from next year a different contribution of segments, and then we may come to reporting the separate product categories like the banks, utilities, eCommerce and so on, but not as of now.

Okay, thank you, and just last question for me, anything different on the competitive front, maybe in terms of, again, this Burbank and [yen next] Wallet tie up, are you seeing anything different in the marketplace?

Well, we think that right now, they're quite in the initiation phase, and generally, we think that they're a very good competitor, though we are the largest so far, and we are doing a lot of things to sustain our positioning. In general, I think that it makes a lot of sense for both sides, for Burbank and us to work together, and in the hope that this cooperation will finally happen. As for PayPal, we are right now in negotiations and have some discussions on the cooperation, so hopefully we'll be cooperating with PayPal.

Okay, great. Congratulations, guys.

Thank you.

Our next question is coming from the line of Bob Napoli with William Blair. Please proceed with your question.

Thank you. Congratulations on a nice start as a public Company. Question on the EBITDA margins. They were very strong this quarter, and was there something unusual that drove the margins to this level? Do you think this is a sustainable level of margin that you will grow off of or are there investments you're making that would bring that down in future quarters?

Yes, I think in Q1, there could be no unusual items in EBITDA, so it's basically the scale effect of the business. What you might say is just in certain expense that we planned in terms of the R&D, advertising, they have not been spent fully in Q1 it will be some recapping in the following quarters. But that will not be (inaudible) in EBITDA dialogue, so we believe that the level we achieved so far in terms of EBITDA margin is sustainable going forward. In the long term, we believe that with the growth of QIWI Wallet we will have some moderate expansion of the EBITDA margins.

Okay, and just in line with that, your guidance seems a bit conservative, and as a new public Company are you trying to remain cautious or have you seen a slowdown in the business in the second quarter? What is your feeling on, right now on how your outlook and guidance and how conservative it could be?

So we believe it is probably conservative, but we would like to actually commit to a target that we are absolutely sure that we will be achieving, so we now have really a lot of new things in the pipeline both in QIWI Distribution and QIWI Wallet. We need to watch them and see how they perform, and hopefully, we will see some announcements within the next several months or so of the new product and new alliances. So we basically see all those projects with the potential upside to the existing guidance. The guidance will be provided basically our commitment that we think is perfectly achievable.

Great. That's helpful. Just one of the big risk factors for your business, Sergey and Alexander, is the anti-money laundering. Money laundering, and what, and I'm sure with your partnership with Visa especially you've gone through a lot of protections against that, but what are your thoughts on the risks around money laundering? What makes you very confident that you're protecting that the Qiwi network is protected from the bad guys, if you would?

We are, as you know, we are a bank in Russia, so we are completely compliant to all the bank regulations. We are also compliant with the law on national payment system in Russia, so we don't foresee any significant changes on that, and also we have developed lots of mechanisms internally on monitoring, and we have a lot of procedures to work with that, so we don't see huge risks in that.

Great, and just last question. As a growth company, technology growth company, your capital expenditures as a percentage of revenues are pretty low and why is that? Why is there not more? Are you expensing more items that might otherwise be capitalized, or why, or what are the major CapEx programs you have and should what you expect CapEx to be as a percentage of revenue over the long term?

Yes, look. We historically have been CapEx light, actually we expect to be CapEx light in the future, so generally speaking the majority of our investments, the investments will grow through the net revenue by actually providing a lot of services at lower margins for the consumers, and in the operating expenses. So actually the majority of the development that we are doing, it's hitting in the production expense and for our IT guys and the product guys.

In general, the categories generally, the CapEx would be represented primarily by the service equipment and by certain equipment that we need for the security infrastructure to which we pay a lot of attention, but we really are now running kind of lower capacity as compared to what we have in data centers. So we really would not be expecting any significant CapEx in the next few years. So it historically has been from $3 million to $5 million a year and that's an attainable level for the next few years, we will do it.

Thank you very much.

The next question is coming from the line of Dave Koning of Robert W. Baird. Please proceed with your question.

Yes, hi, guys, great start to the year. I guess my first question is just on the QIWI Wallet, the three key drivers are obviously the number of accounts that have been growing, the spending per wallet, and then the yield, and you talked a little bit about the yield already in eCommerce, but the one thing I wanted to pursue a little bit was just the average spending per wallet is up a lot, about RUB4,000 per quarter. So I guess it's $130 about per quarter. I'm wondering how much can that go up over time? Could that be RUB8,000 per quarter at some point in the future? Maybe, how do you gauge that and where can that go?

Yes, okay. That's really, it's a nice trend that actually the engagement is growing, so it's not if you see the 13 million active accounts on an annual basis, then it's already quite a nice parameter. But what we'll see, what we do see inside is that the users are using QIWI Wallet more often to use for a wide variety of services and that is actually benefiting the other expense. In terms of the future, look, so far if you're talking about the, let's say, our percentage in the total disposable income and cash spent we pay a fraction stipulation, so I do not recall the exact number but it certainly should be less than 2% in total, and the whole industry of E-payments is just [rewarding.]

We have already reached some scale, but we're just starting. So I think that the upside in terms of the growth of volume per wallet, it's really huge, so it's not only treated like a considerably small market of virtual [wood.] Now the next stage would be basically moving on cash on delivery to online payment and that trend that we already see in the market. In short, it's more a long-term vision than it's basically moving to the points-of-sale, offline detail. So given all those facts, mid to long term, the expense per wallet can really rise many times.

Okay, great. That's very helpful. I guess the second question, and Bob kind of discussed this a little bit with you too, it's just that guidance looks somewhat conservative, and one way we looked at it is that basically you could do the same revenue as in Q1 the rest of the year, basically flat sequentially, and kind of still hit the guidance range.

That seems conservative and when we think of the drivers yield, I know yield can move around, so it doesn't sound like you want to guide to that going up a lot. But the other couple things like wallets and spend per wallet, things like that, I would imagine you still expect those to grow throughout the year. So maybe you can just talk a little bit about levers to either beating guidance or keeping guidance in line. Could yields go down? Is that maybe why there's a little bit of conservatism in your guidance?

No, I thought for, again, we think in terms of the guidance we would like to announce to the market what we're seeing is perfectly achievable. Of course, we consider that is our punishment. Given that we have really certain new products, and certain new announcements within the next few months is we first need to watch and see how it goes. But generally speaking, we, after we issue Q2 results or Q3 results, we may be [reguiding] you on the annual growth rate in terms of net revenue and net profit. So we are not really in the position to reguide now after Q1. We need some more visibility throughout the year.

Yes, okay. That's fair. And then, two just short accounting questions. It looked like on the income statement, on the adjusted income statement, that the tax number, the tax expense was the same both on the GAAP basis and the adjusted basis, and I'm just wondering, typically we see companies that have a little higher adjusted tax rates because once the adjusted profit is higher than GAAP then they have a higher tax number, as well.

Excuse me, I'm not sure I understood. You are comparing the total tax including the deferred tax to adjusted net income?

Yes, I think that the GAAP tax that you reported was, I think it was like RUB136 million, and it looked like there was no adjustment for that necessarily in the adjusted net profit. And I'm just wondering, and maybe that's just intentional. I'm just not sure if that's --

Oh, okay. I got it. Look, how that reconciliation from GAAP, I mean IFRS net profit to adjusted net profit works is that we only adjust for taxable items, those items that would affect the tax, meaning that in Q1 2013 the majority of the reconciling items would be either non-deductible or non-taxable, so that's what's happening.

In 2012, in Q1 2012, so certain reconciling items are either taxable or deductible. That's why you would see a substantial tax reconciling item in the reconciliation. Generally speaking, on the tax rate, you probably have seen in terms of the US GAAP, the effective tax rate decreased a little bit in Q1 2013 as compared to the last year, so that is very simple. In the last year, we had some loss (inaudible) substitute of which we disposed of, and we, given the scale effect, especially on QIWI Wallet, we managed to achieve the greater percentage of deductible expenses from the business which is pretty natural for the growing business.

Okay, and then, that's great. And my last accounting question is just free cash flow, on paper it looks negative in Q1, but I think those are all those working capital accounts that are kind better to just almost adjust out the payables and receivables, and on an underlying basis cash flow looks like it was quite strong. Is that the right way to think about it?

Absolutely. That's correct. And I think we discussed that, so generally speaking what's happening in Q1 of every year it's a decrease in working capital, and at the end of December, all the agents are depositing quite substantial and basically abnormal amounts of cash with us, because starting from January 1, the banking season is closed for like 9 or 10 days and they need to have the [bells] deposits to be able to operate.

And then during the Q1, all those deposits are basically written off against the payments of the consumer, so it's interesting but to normal as of the end of Q1. But generally speaking, we've [earned] the net working capital usually, and the way to look at the free cash flow that's really available for the Company to use for M&A, or dividends, it would usually be pretty close to the adjusted net income, so it's basically cash adjusted trailing minus cash adjusted expenses (inaudible.)

Yes, that's perfect. Well, great job.

Our next question is from the line of Nick Robinson of Renaissance Capital. Please proceed with your question.

Hi, good afternoon, guys. Just two quick questions. Firstly, it's on the QIWI Wallet international business. Is there any update you could give us on progress in Kazakhstan or any other markets?

Well, as for now we are progressing on several projects in Russia, and we are planning to do Kazakhstan as our next step for QIWI Wallet. So I think this year we are not planning any expansion of growth.

Okay, thanks. But Kazakhstan, I think, is that something we should expect news on during this year or is that something also for 2014?

Yes, this year.

Okay, great. And then my second question is on the regulatory environment in Russia. There was an article recently talking about potential changes coming into the payments law that might negatively affect the ability to receive refunds on prepaid cards, so that would affect people undertaking eCommerce transactions with prepaid cards and wallets that are based on them. Is there anything you could update us on about that, or if you see that as a problem, or if that is maybe just a generalist misreading the story?

Well, we'll be working under the national payment system law, so we are working at electronic wallets, that's a little bit different, and we don't see any significant changes planned on this law.

Okay, thank you.

(Operator Instructions)

Our next question is from the line of Marina [Troshina] of Goldman Sachs. Please proceed with your question.

So, hi, thanks a lot for your presentation, and my first question is concerning the effect of options over subsidiaries and associates, and we can see this effect in 2010, and I would like to know the nature of this effect? And is it a one-off or we can see it in the future? Thanks.

Excuse me, I'm not sure I understood, the effect on the financial in 2010 in what line item?

Yes, can you just tell me is it a one-off or is it just assume we can see it in the future?

Excuse me, adjust options or --?

Options or subsidiary associates.

Oh, okay, so yes, we basically had certain options of our subsidiaries related to both operations that we disposed of, so generally speaking, we do not have any plans to have the financial instruments over the non-controlling effects of the affiliates in the near future, though it will depend on certain circumstances. If we are seeing that we will be needing to make some (inaudible) transactions then we may have some financial instruments.

Okay, thanks a lot, and my second question is concerning the rate of growth of terminals and kiosks, and do you assume that they are going to grow faster or at the same level that we have to date?

Well, if you see from our report, they aren't growing and we are not planning them to grow because we think that we have more or less enough points-of-sale today, and our goal specifically is to increase the volumes of transactions per point-of-sale. So on each point-of-sale we expect that the turnover will be increasing, and on the number side, we don't expect any big increases or we should be quite stable.

Okay, I understand. That's it for me. Thanks a lot.

Thank you very much.

Thank you. There are no further questions at this time. I would now like to turn the floor back to management for closing comments.

So thank you very much for this first experience, the first earnings call for Qiwi. While we hope that Qiwi will continue to have successful months in the future. Thank you very much, all of you.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.