QIWI plc

Good day, everyone, and welcome to the Kiwi fourth quarter and full year 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, today's conference is being recorded. At this time, I would like to turn the call over to Ms. Tatyana Vlasova, Acting Head of Investor Relations of Kiwi. Please go ahead.

Thank you, Operator, and good morning, everyone. Welcome to the Kiwi fourth quarter and full year airing call. I'm Tatyana Vlasova, Acting Head of Investor Relations, and with me today are Boris Kim, our Chief Executive Officer, Andrei Petropov, Chief Executive Officer of the Payment Services segment, and Pavel Korsh, 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.kivi.com. For those listening to the replay, this call was held and recorded on March 30, 2021. Before I begin, I would like to remind everyone that this call may contain forward-looking statements as they are defined under the Private Security Litigation Reform Act of 1995. These forward-looking statements about our expectations for future performance are subject to known and unknown risks and uncertainties. Keep it cautious that these statements are not going to use our future performance. All forward-looking statements made today reflect our current expectations only, and we undertake no obligations to update any statements to reflect the event that occurred after this call. Please refer to the company's most recent annual report on Form 20F filed with the Security and Exchange Commission for Factories 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 revenue, adjusted net profit, and adjusted net profit per share. Reconciliations to IFRS matters 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 first 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 service projects and wind down of RocketBank. The growth of the group was amplified by the development of factory plus and projects. I'm here 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 scheduled audit of KiwiBank, the Central Bank of Russia imposed certain restrictions on KiwiBank's operations. These restrictions suspended or limited more types of our cross-border 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 world cup. The CBR imposed these restrictions for a six-month 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 easing of restrictions will allow us to maintain good partnerships with our foreign merchants and retain some of our clients but used Kiwi wallets for cross-border payments. However, we cannot be sure that the 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 if 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 the betting industry landscape. Sports betting continues to be a significant revenue stream for Kyiv. Currently, we serve as one of two cities that accept electronic bets on behalf of sports betting companies in Russia. In December 2020, a new law was adopted. This law established a unified gambling regulator and its unified interactive debt accounting center, or ITSUP. By the end of September 2021, the ITSUP will replace two existing entities. We have made a proposal to serve as the ITSUP. 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 2Ps. At the same time, we believe that we should be able to retain a part of our revenue generated from keyword services for the betting industry, which are not directly related to our 2Ps, including betting account top-ups and winning payouts. With increasing competition of the payment market, changes in e-payment regulation, rising 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 will continue to reinvent our business model to better reflect the changing environment, fully serve the needs of our customers, and diversified Kiwi ecosystem. We've been set. 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, onto some operation highlights. First quarter 2020 total net revenue was six The decrease was mainly driven by customer financial services segment net revenue decline due to refill of the service 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 26 billion rubles up from 23.2 billion rubles in the prior year, primarily as a result of payment services segment net revenue growth and Rocket Bank net revenue contribution generated from the termination of the loyalty program due to project win-down. Andrei 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 679 million rubles compared to 285 million rubles in the previous year. Factoring Plus offers its clients two types of services, digital factoring financing and digital bank guarantees. The core clients of factoring 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 5.7 billion rubles. Factoring Plus project has already issued over 60,800 bank guarantees with digital bank guarantees portfolio, which 20.9 billion rubles as of the end of 2020. Factoring Plus clients involved primarily into building and construction business use digital bank guarantees on the broad range of transactions, primarily performance guarantees for public procurement, participation, and execution. That said, the NPL level of the bank 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 the SME market. The consolidation of locally projects starting from December 2019 also contributed to total net revenue growth. The fluctuate full year 2020 net revenue amounted to 499 million rubles. For the full year 2020, the total net revenue declined by 41% to 588 million rubles as a result of a decline in revenue generated from cash and settlement services due to low number of active Tochka clients being served by KiwiBank, as well as by the transfer of the Tochka business to GSC Tochka, our equity associate, starting from February 1, 2019. Finally, last year, we successfully completed the optimization process and diverted to making projects, service, 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 adjustment profit for 2020. The final amount of dividends, as well as record and payment dates, 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 investment in 2021, both of the records prove 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 2021 primarily related to the long-run effect of FIBA restrictions and our ability to recover or replace currently restricted closed-border operations, 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 floor. 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 user expectation only and is based on the trends we see as of the day of the call. If such trends were to deteriorate further, the impact on 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 extent of factors impacting our results become clear. Finally, I would like to announce that I have notified the Board of Directors regarding my intentions to resign from the position of the CEO with the effect on the date of the 2020 Annual General Meeting. Together with the QV 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 this job. I'm also happy to share that our Board of Directors has recommended that Andrei Potapopov take the position of Chief Executive Officer of Kiwi. The recommendation comes after a profound executive search undertaken by the Board among internal candidates and is the result of a long-running strategic process to transform Kiwi into a management-driven business that is able to succeed without reliance on its founder team. Andrei has long played a vital role at KWIC, particularly in product development functions, and I believe the nomination of Andrei 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, Andrei has been actively involved in management of the operation of the business, and I believe his skills and commitment supported by our leadership team will help him fulfill long-term goals. With this, I will turn the call over to Andrei for an update on our payment services business. Andrei.