Qiwi PLC (QIWI) 2020 Q4 法說會逐字稿

Good day, everyone, and welcome to the QIWI Fourth Quarter and Full Year 2020 Earnings Conference Call. (Operator Instructions) As a reminder, today's conference is being recorded.

At this time, I would like to turn the call over to Ms. Tatiana Vlasova, Acting Head of Investor Relations of QIWI. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to the QIWI Fourth Quarter and Full Year Earnings Call. I'm Tatiana Vlasova, Acting Head of Investor Relations, and with me today are Boris Kim, our Chief Executive Officer; Andrey Protopopov, Chief Executive Officer of the Payment Services segment; and Pavel Korzh, Chief Financial Officer.

A replay of this call will be available until Tuesday, April 13, 2021. Access information for the replay is listed in today's earnings press release, which is available on our Investor Relations website at investor.qiwi.com. For those listening to the replay, this call was held and recorded on March 30, 2021.

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. Be cautious that these statements are not guarantees to our future performance. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statements 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 our forward-looking statements.

During today's call, management will provide certain information that will constitute non-IFRS financial measures such as total net revenues, 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 Boris Kim, our Chief Executive Officer.

Thank you, Tatiana, and good morning, everyone. Thanks for joining us today on this call. I'm pleased to share our fourth quarter and full year 2020 results with you.

2020 was a year of unprecedented changes for the world. But despite that, we demonstrated robust performance driven by the solid results of Payment Services segment and cost optimization measures we implemented in 2020, including the sale of SOVEST project and wind down of Rocketbank.

The growth of the group was amplified by the development of Factoring PLUS and Flocktory projects. I'm glad to confirm that we delivered full year 2020 results in line or even above the guidance with the full year. Total net revenue and adjusted net profit increased by 12% and 54%, respectively.

Now on to our recent developments. As you know, in December 2020, following a routine schedule audit of QIWI Bank, the Central Bank of Russia imposed certain restrictions on QIWI Bank's operations. These restrictions suspended or limited more types of our core mode of payments.

At the current moment, the CBR restrictions continue to have a negative impact on our volumes and revenues, primarily in E-commerce and Money Remittance growth curve. The CBR imposed these restrictions for 6 months period starting from December 2020. We are currently working closely with the CBR. As a result of our negotiation, we were allowed to restart cross-border operations in favor of certain foreign merchants.

I believe this easening of restrictions will allow us to maintain partnerships with our foreign merchants and retain some of our clients that use QIWI Wallet for cross-border payment. However, we cannot be sure that CBR will ease all these restrictions. We also do not exclude that some of these restrictions may become permanent, including through the adoption of new laws and regulations.

But even the CBR lifts these restrictions, we probably may not be able to gain back the business we lost because of these restrictions. Andrey will discuss the impact of the CBR restrictions in more details while I'll move to the changes in betting industry landscape.

Sports betting continues to be a significant revenue stream for QIWI. Currently, we serve as one of the TSUPIS that accept electronic bets on behalf of sport betting companies in Russia. In December 2020, a new law was enacted. This law established a unified gambling regulator and its Unified Interactive Bets Accounting Center or ETSUP. By the end of September 2021, the ETSUP will be replace 2 existing TSUPIS.

We have made the proposal to serve as the ETSUP. However, we cannot be sure that our bid will be successful. If we cannot become a part of the new industry landscape, we may experience a decrease in or complete loss of payment volumes and income related to the TSUPIS. At the same time, we believe that we should be able to retain a part of our revenue generated from QIWI Wallet services for the betting industry, which are not directly related to our TSUPIS, including betting account top-ups and winning payoffs.

With increasing competition of the payment mark, changes in e-payment regulation, providing security to cyberspace and cross-border payments as well as changes in the betting industry landscape, 2021 presents a number of novel changes. Nevertheless, I believe that our resilient ecosystem will serve as a solid foundation for our future growth. We strive for innovations, and we'll continue to reinvent our business model to better reflect the changing environment, fully serve the needs of our customers and diversify QIWI's ecosystem.

This being said, we continue to focus on optimizing and improving efficiency of our operations across all projects. We see many opportunities ahead and we'll pursue our ultimate goal of securing the sustainable growth of the company.

Now on to some operational highlights. Fourth quarter 2020 total net revenue was RUB 6.2 billion. The decrease was mainly driven by Customer Financial Services segment net revenue decline due to the sale of the SOVEST project in July 2020, which was partially offset by Payment Services segment net revenue growth.

For the full year 2020, total net revenue increased by 12% to reach RUB 26 billion, up from RUB 23.2 billion in the prior year primarily as a result of Payment Services segment net revenue growth and Rocketbank net revenue contribution generated from the termination of the loyalty program due to project wind down. Andrey will discuss the performance of our Payment Services segment in a minute, while I'll walk you through the operating results of our other projects.

For the full year 2020, Factoring PLUS net revenue more than doubled and reached RUB 679 million compared to RUB 285 million in the previous year. Factoring PLUS offer its clients 2 types of services: digital factoring financing and digital bank guarantees. The core clients of custom financing are small and medium-sized entrepreneurs operating mainly in food processing industry, pharmaceutical industry and real estate.

As of the end of 2020, Factoring PLUS had more than 470 active clients using factoring financing with a total factoring portfolio of RUB 5.7 billion. Factoring PLUS project have already issued over 60,800 bank guarantees with digital bank guarantees portfolio reached RUB 20.9 billion as of the end of 2020. Factoring PLUS clients involved primarily into building and construction business, new digital bank guarantees on the broad range of transactions, primarily performance guarantees for public procurement participation and execution. That said, that NPL level of the banking guarantees portfolio is below 0.2%.

Despite the challenging macroeconomic environment in 2020, the project demonstrated strong operating and financial results. In 2021, we aim to focus on enhancing the current services of Factoring PLUS clients and development of new products, which will be strengthening our position in SME market.

The consolidation of Flocktory projects starting from December 2019 also contributed to total net revenue growth. The Flocktory full year 2020 net revenue amounted to RUB 499 million.

For the full year 2020, Tochka net revenue declined by 41% to RUB 588 million as a result of a decline in revenue generated from cash and settlement services due to a lower number of active Tochka clients being served by QIWI Bank as well as by the transfer of the Tochka business to JSC Tochka, our equity associate, starting from February 1, 2019.

Finally, last year, we successfully completed the optimization process and divested 2 loss-making projects, SOVEST and Rocketbank.

Moving on, I'm glad to confirm that, in accordance with the decision of the Board, we will be distributing 50% of our adjusted net profit for 2020. The final amount of dividends as well as record and payment date will be announced following the publication of our audited full year results.

Further, considering our expectations about the group's performance and our anticipated level of investments in 2021, the Board of Directors approved the target dividend payout ratio of at least 50% of group adjusted net profit for 2021. The Board of Directors reserves the right to distribute the dividends on a quarterly basis as it deems necessary so that the total annual payout is in accordance with the target provided, though the payout ratios for each of the quarters may vary and may be above or below provided target.

Now on to our guidance. Looking ahead, this remains significant uncertainty in 2021 primarily related to the long-drawn effect of CBR restrictions and our ability to recover or replace currently used ticket cross-border operation as well as our ability to secure a place in the new banking industry landscape. We remain conscious, and we closely monitor the situation on the market laws.

Having said that, we expect group total net revenue to decrease by 15% to 25% over 2020; Payment Services segment net revenue to decrease by 15% to 25% over 2020; while adjusted net profit is expected to decrease by 15% to 30% over 2020.

Our outlook reflects our current views and expectation only and based on the trends we see as of the day of earnings call. If such trends were to deteriorate further, the impact of our business and operations could be more severe than currently expected. At the time, we reserve the right to revise the guidance in the course of the year when the scope and external factors impacting our results become clear.

Finally, I would like to announce that I have notified the Board of Directors regarding my intention to resign from the position of the CEO with the effect on the date of the 2020 annual general meeting. Together with the QIWI team, we achieved goals that I initially had in mind when I stepped to the CEO position. We refined our business model and improved the operation of the group, and we also revised our strategy. I would like to thank our team for a great job.

And I'm also happy to share that our Board of Directors has recommended that Andrey Protopopov take the position of Chief Executive Officer of QIWI. The recommendation comes after a profound executive search undertaken by the Board from among internal candidates and is the result of long-running strategic process to transform QIWI into a management-driven business that is able to succeed without relying on its founder team.

Andrey has long played in the right role at QIWI, particularly in product development function. And I believe the culmination of Andrey will ensure continuity of our strategy focused on development, our payment ecosystem and the growth in our key niches as well as enhancement of our other projects. For the last couple of years, Andrey has been actively involved in management, the operation of the business. And I believe his skill and commitment, supported by our leadership team, will help him fulfill our long-term growth.

With this, I will turn the call over to Andrey for an update on our Payment Services business. Andrey?

Thank you, Boris, and good morning, everyone. It's my pleasure to be here with you today.

First of all, I would like to thank the Board of Directors for the trust they have placed in me. Since joining QIWI in 2013, I have been involved in different aspects of the business, and I am very confident in QIWI's potential. I'm eager to take the hat and execute our strategy, focusing on enhancement of our Payment Service segment market position as well as development of our other projects, including Factoring PLUS and Flocktory.

Now on to the results of our Payment Service segment. Despite all challenges we faced in 2020, we processed over RUB 1.6 billion in cash and electronic payments and increased our payment volume by 9%. I would like to thank our entire team for their contribution and engagement. This result proves the resilience of our ecosystem and clearly emphasize the value and relevance of solutions that we have developed so far and aim to develop further.

I will begin with a discussion of the impact of the CBR restriction on our Payment Services segment. The restrictions have and continue to have a negative effect on our operations. As Boris mentioned earlier, our E-commerce and Money Remittance market verticals continue to be constrained. Cross-border payments in general have higher commissions then. Therefore, CBR restrictions significantly depressed our fourth quarter payment average net revenue yield, with the E-commerce adjusted net revenue yield decline by 58 basis points. Following the yield decline, E-commerce net revenue decreased by 8% compared to the fourth quarter of the prior year. We believe that the total impact of those restriction on Payment Services net revenue in the fourth quarter of 2020 was between RUB 500 million and RUB 600 million.

Now let's move on to the operating results. For the fourth quarter of 2020, our Payment Services segment volume increased by 16% to reach RUB 464 billion driven by significant growth in Money Remittance and the E-commerce market vertical, which grew by 33% and 21%, respectively. The growth in the E-commerce and Money Remittance verticals was largely driven by the development of our key streams: namely digital entertainment and self employed, where we focus on expanding our partner network and building our relations with our existing partners. The fourth quarter volume growth was limited by CBR restrictions.

Payment Services segment net revenue increased by 6% in the fourth quarter of 2020 to reach RUB 5.8 billion compared to RUB 5.5 billion in the prior year. Payment Services payment adjusted net revenue increased by 4% to RUB 5 billion, up from RUB 4.8 billion in the prior year primarily as a result of the net revenue growth in our Money Remittance vertical, which grew by 22%. The continued growth in Money Remittance vertical was driven mainly by the strong performance of the CONTACT Money Remittance System and the significant increase in payouts resulting from the scaling of our strategic self-employed stream.

In the fourth quarter of 2020, we connected to our platform over 550 taxi companies, continued to improve our services capacity park and other self-employed [services] in order to support future growth of this stream. Our payment average adjusted net revenue yield was down by 12 basis points year-over-year by [109%], driven by the yield decline in our E-commerce and Money Remittance market verticals. Such reduction was driven primarily by the CBR restriction as well as the change in product mix as we continue to see an increase in volume of several lower-yielding services such as online acquiring.

Payment Services other adjusted net revenue increased by 18% (sic) [19%] to RUB 766 million (sic) [RUB 769 million] as compared to RUB 647 million from the prior year as a result of the growth of fees for inactive accounts and unclaimed payments as well as due to some cost optimization measures we implemented in 2020. Our financial and operation results were negatively affected by COVID-19 pandemic and related restriction enforced globally.

We adjust the decline in revenues that we derived from our services from the betting industry due to the cancelation of numerous major sports event and the growth in Money Remittance primarily resulting from an overall slowdown in business activity. We also experienced a decline in the use of our kiosk and terminal network due to the lockdown measures, which led to a decrease in the number of kiosks and terminals.

The full impact of COVID-19 pandemic on the global economy is difficult to predict due to the lack of clarity of how long it could be expected to lag. Nevertheless, we believe that QIWI built a new technology platform, highly graded by both customers and partners and [granted] limited supply demanded by the market.

Despite uncertainties and challenging operation environment, we see diverse opportunities for growth in the mid and long term, including through general digitalization plan. In accordance with our business strategy, we will focus on the development of new services and products through our key initiatives, including digital entertainment, self-employed, digital E-commerce and Money Remittance in order to increase our penetration in those markets. I do believe that we are well positioned to continue developing our business and strengthening our ecosystem to provide our clients with best-in-class digital solutions.

With this, I will pass over to Pavel for more detail on the financial performance of the group. Pavel?

Thank you, Andrey. Moving on to expenses. In 2020, the Payment Services business demonstrated strong operating performance and continued to generate substantial cash flows, supporting our investments in the development of the new projects.

For the full year of 2020, we have significantly increased the overall efficiency of our operations and our margins through successful divestiture of the key investment-intensive projects and other cost control and optimization measures that we were implementing throughout the year. The full year net revenue growth, which was underpinned by the decrease in expenses, supported an increase of profitability of the group.

Before we move on, I would like to highlight that going forward, I will refer to the segment numbers that include the effects of both continued and discontinued operations under IFRS. For the avoidance of doubt, as of December 31, 2020, SOVEST and Rocketbank projects are presented as discontinued operations in our IFRS financials.

This being said, adjusted EBITDA for the fourth quarter of 2020 increased by 125% to RUB 3.6 billion from RUB 1.6 billion for the same period in the prior year. Adjusted EBITDA margin was 58% compared with 26% in the previous year.

For the full year 2020, adjusted EBITDA increased by 52% to RUB 13.8 billion from RUB 9.1 billion in the prior year due to total net revenue growth. Adjusted EBITDA margin was 53% compared with 39% in the prior year. Adjusted EBITDA margin increase mostly resulted from the decrease in selling, general and administrative expenses due to the decline in advertising, client acquisition and related expenses driven by the divestiture of SOVEST and the wind down of Rocketbank and lower other administrative expenses mostly related to traveling.

Group adjusted net profit increased by 116% in the fourth quarter 2020 to RUB 2.5 billion from RUB 1.2 billion in the fourth quarter of the prior year. While for the full year 2020, group adjusted net profit increased by 54% to RUB 10.3 billion from RUB 6.7 billion in the preceding year. Adjusted net profit growth largely resulted from the same factors impacting adjusted EBITDA, offset by an increase in income tax expense.

Payment Services segment net profit for the fourth quarter 2020 increased 1% to RUB 2.7 billion driven primarily by Payment Services segment net revenue growth, offset by the growth of personnel expenses, excluding the effect of share-based payment expenses.

Corporate and other category net loss for the fourth quarter decreased by 23% to RUB 162 million from RUB 210 million in the fourth quarter of the prior year, while corporate and other category full year 2020 net loss decreased by 35% to RUB 730 million from RUB 1.128 billion in the previous year as a result of Tochka net profit growth by 121% to RUB 785 million primarily due to the higher equity pickup driven by the project growth and strong performance.

Factoring PLUS net profit was RUB 206 million compared to a net loss of RUB 23 million in the prior year. We continue to optimize our operations in order to improve operating and financial performance of the group and ensure sustainable growth.

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

(Operator Instructions) Our first questions come from the line of Vladimir Bespalov of VTB Capital.

Congratulations on the numbers. I have a few questions. My first question will be on betting. It remains like 6 months before the new operator will be unified TSUPIS is going to start operations. So with this time remaining, probably there should be more clarity, do you say, the company which will be providing these services has to make [different] solutions and things like this. Maybe could you update on the status, what is going on, what is the status of your talks? And what are the options? Could you serve, for example, as an outsourcing company for solution to be provided? And what kind of revenue this option can generate?

Thank you for your question. Sports betting continues to be a significant revenue stream for QIWI. However, our future results depend on our ability to secure a place in the new betting industry landscape.

In December 2020, a new law was adopted to establish a unified gambling regulator as a new governmental agency with broad authority to oversee the betting market and creating the role of a Unified Interactive Bets Accounting Center, ETSUP. This role is designed to accredit institutions specifically authorized by the President of Russia based on the proposal made by the government. The new regulation enters into force in stages. By the end of September 2021, ETSUP will be established and will replace the 2 existing TSUPIS.

At the current moment, we have submitted a proposal to serve as a ETSUP, and we are waiting for the announcement of the organization who will serve as ETSUP. Meanwhile, even if we are enabled to become ETSUP or somehow other participating ETSUP operations, we can retain part of revenue related to betting, primarily for services associated with QIWI Wallet, including commissions for betting counts, top-ups and winning payouts.

We believe that QIWI has built unique technology platform that is highly valued by both customers and partners and gathered unique expertise that is sought after the market. We believe that our services will continue to be demanded by the market, and we'll strive to maintain the quality and availability of our services.

Okay. And my other question is on the Money Remittance vertical. When I look at the numbers for the fourth quarter, I don't see, at least on the surface, the impact from the Central Bank's regulations because both yields are okay and growth is okay. So could you maybe comment a little bit whether the negative impact from the CBR regulation was offset by some other acceleration in this vertical? And maybe you could provide more color on what is going on there?

Vladimir, thank you for your question. I will cover this one. So first of all, we should mention that Contact Money Remittances, that is a big portion of overall Money Remittances of Payment Service, they are not affected by CBR limitations. So this one, we're still allowed.

Second big portion of Money Remittances is related to self-employed businesses, both peer-to-peer payments between the wallet that were as well not affected by the CBR regulation and payout to the taxi companies and other companies that doing payout to the self-employed. So majority of those operations were as well not affected by the CBR regulation. So that's why I would say that this vertical is growing quite nicely and is continuing to grow in now as well.

Okay. And my third question would be on the trend in QIWI Wallet. You reported that QIWI Wallet with the user use it of these past 12 months. But if we look at the trends, let's say, in -- over the past 3 months after the regulation by the Central Bank was imposed on you, do you see any meaningful change of trends? Do you see the number of wallets declining, the flow-through wallet declining? Maybe some color on that.

I would say it's too early to say that we have any kind of consistent trend on the wallet number. So we more see the trends we saw before. Obviously, some wallets, we lost some wallets that were used in international operation. At the same time, we are continuing to -- as we said, we kept some of the operations with big merchants that a lot of -- where a lot of wallets were involved like, for example, AliExpress.

And our Russian business that is related to wallets included, for example, TSUPIS business, is growing as well. So I would say it's mixed trends currently, and it's too early to say how it will go further. And it, as well, will be affected by the fact how the CBR limitations will be lifted and how we will be able to get back the clients and some of the clients on volume that we had before.

(Operator Instructions) Our next questions come from the line of Maria Sukhanova of BCS.

I have 2 questions. So first off, on the -- in your press release, you said that you are now able to make transactions to some of the foreign merchants. Just wanted to check with you how significant it is in -- versus the amount of transactions that were suspended. That's one.

And second with your guidance, do I get it right that this range, first off, the only factor you so far assume is suspension of CBR, CBR suspension. And you do not yet assume any problem, issues with betting? And second, does this range, does it come from the timing is whether the suspension is [lifted]?

Maria, thank you for your question. I'm not sure I fully heard the second one. Let me start from the first one, and then we will clarify the second.

So talking about those notions that we are taking out from the CBR limitation, they are probably not that significant in terms of the revenue that we are getting from our international operations. But they're important in terms of the number of clients and in terms of the kind of overall position because they are kind of from the image, let's say, [10 points] because they are big merchants, and they are important for our customers.

And as well, this one is important because it's crucial to keep the relationship with those merchants, let's say, while we will be probably -- it will be easier to restart our operations with a long tail of smaller merchants than with a big one because if you want to lose your contracts, then it may be difficult to repeat. So it's more kind of, I would say, related to the image with our clients than the volume and revenues.

For the second one on the guidance, could you repeat because I think there was something wrong with the sound.

Yes, yes, apologies. So with guidance, what scenario is it based on? Like, do you assume that the limitations are lifted in summer and that's what it's based on? Or you also assume some issues with betting? Just to give us some clarity what are your assumptions?

Yes. And exactly, the range that we have in the guidance is a reflection of those different scenarios. So the low range of the guidance implies that we may face certain limitations and certain issues with the betting going forward. So I would say that the range that is within the guidance is a reflection of some uncertainties that we still have for this year related both to CBR limitations and regulation overall as well as how this ETSUP will continue.

(Operator Instructions) Our next questions come from the line of Andrey Mikhailov of Sova Capital.

My first question is on the new betting regulation. You basically mentioned that if you don't become this single processor of betting payments starting in September, you will still keep some part of your revenue related to top-ups and payments of winning bets. My question is, in this scenario, if this scenario had already been applied in Q4, how much revenue would you have lost in Q4 2020? And then I'll have other questions afterwards.

Yes, let me cover this one. You can think -- we probably are not disclosing the exact numbers, but we will have, let's say, from 1/3 to 40% of overall TSUPIS volumes and revenues with us in this scenario. From 30% to 40%.

Just to clarify, that's what you could keep, right, not what you could lose?

Yes. Yes. Yes.

My second question is on the audit of your FY '20 financials. This year, you have not yet announced dividends together with the unaudited statements really is because the audit is underway. And you also state that there maybe could be some adjustments in the audited statements versus the unaudited statements published today. Would you be able to elaborate on where and what magnitude these adjustments could be?

Thank you for your question. We are waiting for the completion of the audit by the company independent auditors, which is in -- which is at the final stage. At this point in time, we're not aware of any significant changes in the numbers which would come from the audit completion.

And my final question is on the number of potential class action suits against you from a number of U.S. law firms. There are various announcements about that. Could you elaborate on the current status of any such claims against the company and the potential amount of provisions that you have already posted and the unaudited accounts published today or possibly in the audit accounts to be published later?

Thank you for your question. So we are waiting for appointment of lead plaintiffs, and we hope that happen -- will happen in May. Until that, we don't have much possibility to comment because we don't have enough information at this stage.

Just to clarify, so no provisions have been posted yet. Is that correct?

No. No. No. That's correct.

There are no further questions at this time. I would like to turn the call back over to the management for any closing remarks.

Thank you very much for attending the call. Thank you.

Thank you.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.