Qiwi PLC (QIWI) 2015 Q4 法說會逐字稿

Good day everyone and welcome to the QIWI Fourth Quarter and Full-Year 2015 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Mr. Yakov Barinskiy, Head of M&A and Investor Relations. Please go ahead, sir.

Thank you operator and good morning everyone. Welcome to the QIWI Fourth Quarter and Full-Year Earnings Conference Call. I am Yakov Barinskiy, Head of M&A and Investor Relations. And with me today are Sergey Solonin, our Chief Executive Officer and Alexander Karavaev, our Chief Financial Officer.

A replay of this call will be available until Tuesday, March 22, 2016. Access information for the replay is listed in today's earnings press release, which is available in our Investor Relations website at investor.qiwi.com. For those listening to the replay, this call was held and recorded on March 15, 2016.

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 our 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 our current expectations only and we undertake no obligation to update any statement to reflect the events that occur after this call. Please refer to the Company's most recent Annual Report on Form 20-F filed with the Securities and Exchange Commission for factors that could cause our 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, our Chief Executive Officer.

Thank you, Yakov and good morning everyone. Thanks for joining us today. Our fourth quarter remained strong, despite the challenging macroeconomic environment in our core market. In 2015, we continued to strengthen our market position, completed a strategic acquisition in Money Remittance market, and further increased our product awareness with consumers across both physical and virtual distribution channel.

Our total payment volume increased by 35% to reach RUB873 billion, fueled by the acquisition of Contact and Rapida in the second quarter of 2015, while payment volume in Money Remittance and E-commerce market verticals grew even faster by 146% and 53% to reach RUB164 billion and RUB115 billion respectively.

As of December 31, we had 16.1 million Visa QIWI Wallet accounts, a decline of 1.1 million as compared to the prior year, resulting from lower marketing spend in 2015 as compared to 2014. The decrease in the kiosk network in Russia in the second half of 2015 and the overall economic downturn affecting consumer activity. Our physical distribution network was negatively affected by stricter regulation of agents business, as well as adverse market conditions. And as of December 31, 2015, we had around 170,000 kiosks and terminals. Out of those, Contact and Rapida added 25,000 physical distribution points to our network, broadening the reach and scope of our services we offer to our consumers.

Turning to the financial results, in the fourth quarter, total adjusted net revenue increased 8% to RUB2.7 billion. Payment adjusted net revenue was up 7%, driven by strong payment volume, in turn offset by decrease in net revenue yields across all market verticals. We continue to see volume pressure in the Financial Services vertical, which is affected by weak consumer loan market, as well as our Money Remittance vertical, where shift in migration trends contributed to decrease in the demand for remittance services.

As we have previously highlighted in our guidance revision statement, the trends in our E-commerce market vertical in the fourth quarter of 2015 were weaker than we expected, driven by lower seasonal demand and shrinking consumer spending in Russia. However, I believe that we successfully continued to execute our strategy and penetrate this diverse and technological market by offering [demanded] solutions to our customers and merchants.

Adjusted EBITDA grew 34% in the quarter, primarily affected by lower marketing expenses and certain other factors that Alexander will tell you more about shortly. Adjusted net profit grew by 44%, largely affected by same factors as adjusted EBITDA.

Our Board of Directors has approved a dividend of [$0.50] per share, which we will distribute on March 31, 2016. This reflects our current understanding of liquidity requirements for the business and we will be reassessing our dividend policy on a quarterly basis in 2016.

We're continuing to introduce new products and services across different verticals, as well as looking for potential acquisitions, specifically focusing on the technological and infrastructural angle to the Money Remittance and E-commerce verticals.

With this I will turn the call over to Alexander, who will take you through our financial results in more detail. Alexander?

Thank you, Sergey, and good morning, everyone. As Sergey just discussed, we delivered strong operating and financial results in the quarter and the year. I will start with a discussion of our fourth quarter and full-year financial results in more detail and then conclude by providing the guidance for 2016.

Total adjusted net revenue increased by 8% to RUB2.7 billon, up from RUB2.5 billion in the fourth quarter of 2014. Total adjusted net revenue growth, excluding revenue from fees from inactive account decreased 1% compared to the prior year.

Payment adjusted net revenue increased 7%, to RUB1.97 billion, up from RUB1.84 billion in the prior year, as a result of the net revenue growth in our Money Remittances and E-commerce verticals, which grew 58% and 18% respectively, offset by a continued decrease in net revenue in Financial Services and Telecom verticals, of 30% and 13% respectively.

We continue to feel considerable pressure in the Russian retail loan repayment market. In the last quarter, the Money Remittance market in Russia decreased significantly, both in terms of quantity of transactions, as well as volume. While we continue to show strong growth in this segment, still we believe 2016 will be challenging. Our financial results were driven by payment volume growth, resulting from consolidation of Contact and Rapida, offset by a decrease in net revenue yields across all verticals, as a result of consolidation of Contact and Rapida, which historically had provided significantly lower net revenue yields than QIWI legacy business.

Average payment net revenue yield was 0.82%, down 23 basis points from the prior year. Our total average net revenue yield was 1.11%, down 30 basis points from the prior year. Other adjusted net revenue increased 9% to RUB688 million, up from RUB630 million in the prior year, mainly as a result of higher inactivity fees and increase in interest revenue.

Moving to expense, this quarter we managed to tightly monitor our costs. Adjusted EBITDA increased 34% to RUB1.217 billion, up from RUB911 million in the prior year. Adjusted EBITDA margin was 46% compared to 37% in the prior year. Adjusted EBITDA margin expansion primarily resulted from significantly lower marketing and advertising expenses, partially offset by increased bad debt expense. Adjusted net profit increased 44% to RUB860 million, up from RUB597 million in the prior year. Adjusted net profit was largely affected by the same factors as adjusted EBITDA.

Moving to the full-year results. Total adjusted net revenue reached RUB10.2 billion, an increase of 16% as compared to RUB8.8 billion in the prior year. Payment adjusted net revenue increased 15% to RUB7.5 billion, up from RUB6.5 billion in the prior year. Other adjusted net revenue increased 17% to RUB2.7 billion from RUB2.3 billion in the prior year.

Adjusted EBITDA for the full year was RUB5.6 billion, 17% growth year-over-year. Adjusted EBITDA margin was 55.1%. Adjusted net profit was RUB4.1 billion, compared to RUB3.5 billion in the prior year. Adjusted net profit, excluding inactivity fees, was RUB3.3 billion, a growth of 9% year-over-year.

Now on to our guidance. Despite difficult macroeconomic situation and low visibility over the potential market environment change, we are providing the following guidance for 2016. Adjusted net revenue to increase by 5% to 8%, and adjusted net profit to increase by 7% to 12% over 2015. As was already noted, given the difficult macroeconomic environment, we might see further impact in our key market verticals throughout the year. With that and certain other factors beyond our control, (inaudible) to revise guidance in the course of the year.

With that operator, please open up the call for questions.

(Operator Instructions) Bob Napoli, William Blair.

My question is the outlook for 2015 and the trends you saw so far in the first quarter. What will your expectation be for payment volume growth by key verticals? Do you expect E-commerce (inaudible) growth? And then your revenue yields did pick up this quarter from last quarter. What are your thoughts on the revenue yields for 2016?

We expect 2016 growth coming primarily from Money Remittance and E-commerce. Generally speaking, we would expect that the net revenue yields will not be changing quite substantially, though we may expect a certain improvement of net revenue yields in Money Remittance that we discussed on the last call. If we would think about how the growth, how the guidance would be spread throughout the year, we would expect that Q1 would be probably the most challenging one, and then we expect to see a certain improvement in Q4, and then the second half of the year. So that's our understanding of how 2016 (inaudible).

The E-commerce segment, is there any change in mix between virtual and physical [growth] and do you expect the E-commerce segment to grow over 10% next year?

Yes, that's exactly right. So in terms of the mix, we do not really expect any substantial change in the mix. I'd say that both virtual and physical are growing quite fast so far and mix hasn't changed a lot in 2015 and we do not expect that mix to be changing substantially in 2016.

Last question, just your terminals, your kiosks and terminals increased from the third quarter to a much higher level than what I expected. How you were able to increase the kiosks and terminals and are we now at a level -- at a stable level, do you expect that to grow?

I think, yes. Now we are at a quite stable level, so I'm not expecting that the quantity of terminals will be decreased. Maybe you see the effect of Rapida and Contact merger, because we had that [25,000] point of sales with Rapida and Contact. And on QIWI terminals, we dropped in September-October, I think. And right now we are quite stable and we believe that there is a space to grow in 2016.

Igor Gerasimov, Goldman Sachs.

I have a few questions. First of all, could you please elaborate a little bit on the reasons behind the improvement in the net revenue yields in your E-commerce, Financial Services and Money Remittances business lines? And then could we please discuss at least OpEx? Your guidance implies improvements in (inaudible) efficiency in 2016, although OpEx increased quite substantially Q-on-Q in the fourth quarter of 2015. Could you please talk at least about that? Thank you.

I will start from the second question. So on the OpEx side, we are actually monitoring our cost quite closely, and basically we have a program that we have launched on keeping the cost under control, basically in all the components. So we are planning to keep a close eye on the headcount and salary cost, which is primarily the largest cost component on the P&L, as well as any other G&A costs, like the office space, office maintenance and so on. So we're quite sure that we're going to be having a short-scale effect on the cost side.

On the first question, so the improvement that we -- you're probably referring to certain improvement of net revenue yeilds in Q4 as compared to Q3. That is primarily the effect of the integration activities that we took in respect of Contact and Rapida. So, we looked closely into all the commercial agreements that those companies had and brought some of those in line with QIWI practices. So basically, we managed to increase the net revenue yields. That effect you may continue to see in this year. So on top of that, we really believe and we discussed that while ago few times, that given that Money Remittance market is now subject to consolidation, basically we're having less and less [relation] in that market. We really see a room for substantial improvement of net revenue yields in that market specifically, on top of what we already have. The timing is still unclear, so that may take several months or so, probably up to a couple of years for the net revenue yields to go up in that segment, but we really believe that's going to happen.

May I just follow up with two questions. First of all, you now have to spend more on your agents, given the latest regulation from the CBR. And second question is, how did your market share in Money Remittance change in Q4?

So I think in terms of the agents, yes, we have already increased the payout to agents. That happened basically after we saw the impact on our agent network, those new enforcement process of central bank. I would not expect that we're going to be increasing the payouts to agents in the near future. So we really feel that the economics of agents is now more or less stable. Again, it might be the case that if we'll be in a position to attack the market heavily and try to substantially increase the market share, we may be basically increasing the payout to agents. This is something that we're thinking over, but this is not yet, let's say, a play that we're going to be implementing anytime soon.

On the market share of Money Remittance, we think -- sorry -- I mean, quite frankly there are no reports, I mean, service that would size the Money Remittance market on a quarterly basis. Our own kind of indication is that the share probably decreased slightly, because of the deterioration of the agent network in Q4. But the extent of that we are not really able to monitor, because we have not seen the recent report of the Central Bank to try to size that market.

Ulyana Lenvalskaya, UBS.

The first question will be about Contact and Rapida. It's now about eight to nine months since the deal was closed. Are you actually satisfied with the acquired asset performance? Was it bad or worse, versus your initial expectations back in May or June last year?

I believe that still strategically, I think, that the deal is good for QIWI, is that allows us to jump into the Money Remittances segment more heavily. We introduced several products on Messengers and social networks on Money Remittances and we are planning to do a lot on Money Rem vertical.

So strategically, yes. Financially, I would say, no, I'm not happy and on the expectation side we had bigger expectations on Money Rem. And mostly it happened because of the very big drop on Money Remittances, due to the economical situation and that migrants were leaving the country. So the few figures I saw from the Central Bank was Money Remittance, in general, is dropping more than 30% right now and is not -- still is not very stable. So yes and no. Strategically yes, I believe that this is very important, a very important capability for the Company and important vehicle to compete in the future. On trans-border payments within Russia is yes, but economically negative. So economically right now we see that it dropped much more than we expected. Thank you.

And my second question will be about the number of active QIWI Wallet accounts. What are the current trends in 2016 and what should we assume for the rest of the year?

Well, right now we have the effect on the yearly base, the decrease is an effect of dropping the marketing expense. So we are not approaching, like, new users and our current base, a little bit filtering from those who were coming on the marketing expense of 2014 and 2015. So on the monthly base, we're growing two- digits, so we're quite happy with that and looking closely on what's going on and we would be deciding what to do for the rest of the year, maybe in the second quarter.

(Operator Instructions) Svetlana Sukhanova, Sberbank.

May I please ask you about Kazakhstan market. [There were] several publications recently about changes in this market and I do understand it's the second largest direction for the outgoing money transit. How different these kind of changes would be affecting your operation, if you can quantify it?

I mean, right now, we see quite a decent drop on Kazakhstan direction, so it's around 50%, little more than 50% drop, so quite substantial. Still we think that it's mostly due to the economical situation, rather than any other factor.

My second question would be about your net cash position at year end, if you might be able to disclose it?

So after we pay the dividend that we have just announced, we're going to be having slightly more than $70 million of free cash on our balance sheet.

And my very last question would be today about your long discussions about partnership with MegaFon and VimpelCom. I understand that it is ongoing, but I understand there is still no marketing investment into this partnership. Do you expect to have (inaudible)?

We're still evaluating and looking at the results. I think without a strong marketing campaign, it is unlikely that it will be growing and still we have a lot to do on the technological level. So we are introducing new services and refactoring our software in order to fit to the demand of mobile operators. So we have some time, but clearly, yes, there is no sign that it will jump-start if there will be no marking efforts from the mobile operator side and still in 2016 I think the budgets will be still quite tight. So there will be no big investments in that field.

Brady Martin, Citi.

Just wondering if you could give us any more color on or guidance on how to look at dividends beyond the one you just declared? I mean, we've gone back and forth on paying dividends, not paying dividends, and even with this dividend there's even a line in your press release saying you might revise it based on deals. I mean, like how -- could you just maybe elaborate more on how you look at dividends [when you're] returning cash or do you think it's just going to be uncertainty every quarter, we're going to have the same type of comment, if there's a deal, we'll spend dividends? Thanks.

We are really looking at the deals, a different kind of the deals right now. It's very difficult to close the deal in the circumstances that we have the very unpredictable and unstable currency rate. So we had several deals that we've not closed because of that. So we're still in a position that if there are no deals we will be trying to keep up with the current profits and distribute dividends from the current profits, taking into account that we -- I still believe that now it's a very good time to make good deals in Russia. And I hope that we will be able to find an interesting proposal. But we are not in a hurry, we don't want just to spend money. So that's why we're quite cautious and not quick maybe on that side. To the end of the year, we will be, as usual, we are revising how much dividends we can pay and this happens in the first quarter every year.

Maybe I'll ask the question [another way]. So after this dividend payment you expect to have about a little more than $70 million. Is there like a level of cash or cash pile that you want to maintain, is there some kind of target that you think you need to have in order to be flexible enough for deals, and the excess you'll distribute or is it literally just on a quarter-by-quarter basis you're going to decide this?

No. We will be deciding on a quarter-by-quarter basis, depending on the opportunities and targets that we see. So for now we do see targets and we do -- now we have conversations about that on the Board and hopefully we'll announce something soon.

Thank you. We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Thank you very much for participating in QIWI fourth quarter and full-year 2016 earnings call. That would be it probably for today.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.