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Edited Transcript of QIWI earnings conference call or presentation 16-Aug-18 12:30pm GMT

Q2 2018 Qiwi PLC Earnings Call

NICOSIA Sep 13, 2018 (Thomson StreetEvents) -- Edited Transcript of Qiwi PLC earnings conference call or presentation Thursday, August 16, 2018 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alexander Karavaev

Qiwi plc - CFO

* Sergey A. Solonin

Qiwi plc - CEO & Director

* Varvara Kiseleva

Qiwi plc - Head of IR

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Conference Call Participants

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* Andrey Mikhailov

Sova Capital Limited, Research Division - Research Analyst

* Robert Paul Napoli

William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology

* Svetlana Sukhanova

Sberbank CIB Investment Research - Senior Analyst

* Vladimir Bespalov

VTB Capital, Research Division - Analyst of Industrials, Transportation, Infrastructure, Chemicals & Equities and Internet Analyst

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the Qiwi Second Quarter 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Mrs. Varvara Kiseleva, Head of Investor Relations. Please go ahead.

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Varvara Kiseleva, Qiwi plc - Head of IR [2]

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Thank you, operator, and good morning, everyone. Welcome to the Qiwi second quarter earnings call. I'm Varvara Kiseleva, Head of 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 Thursday, August 23, 2018. 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 August 16, 2018.

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.

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Sergey A. Solonin, Qiwi plc - CEO & Director [3]

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Thank you, Varvara, and good morning, everyone. Thanks for joining us today. I'm excited to share our second quarter results and robust performance in the first half of 2018 with you.

Our core Payment Services business demonstrated solid performance with 28% segment net revenue and 22% segment net profit growth. Our growth this quarter was mainly driven by the development of our payment ecosystem and implementation of our B2B2C strategy, as well as certain external drivers that I will mention later.

On top of that, we continue to develop our key products and use cases in order to offer our clients convenient solutions in our focused market vertical. We are preceded to invest in scaling up our Consumer Financial Services segment, which is represented by SOVEST project, as well as building up our SME segment through Tochka and multi-banking platform.

Given all of the above, we believe that our performance serves a solid foundation for our future growth. We achieved strong financial results in our Payment Services business in the first half of 2018, building up a firm foundation for investing in the development and scaling of a new business lines and projects. We believe, we are well positioned to grow our Payment Services segment in our business order.

In order to achieve this goal and generate substantial operating cash flows to support our investment in the new projects, we will focus on executing our strategy through building a wider digital infrastructure, creating new enriching existing client use cases and expanding the ecosystem of our business through offering our consumers the widest use of services and expanding the consumer life cycle.

Now on some operating highlights. Payment Services segment volume increased by 21%, to reach RUB 263 billion, driven by significant growth in E-commerce and Money Remittances verticals, which grew 48% and 42%, respectively, over second quarter of 2017. We are pleased with the dynamics in both verticals, and believe that such growth was largely driven by the development of our peer-to-peer ecosystem, secular growth in our core market, as well as the rollout of the products we deployed together with our partners, such as [Adetour] taxi company, as part our B2B2C and self-employed focus. The increase in E-commerce market vertical was also driven by the sports betting volumes, elevated by the Football World Cup 2018.

As of 30th of June, we had 20.5 million Qiwi Wallet accounts, an increase of 2 million as compared to the prior year, resulting from our continuous efforts to grow and then leverage our ecosystem, an implementation of our B2B2C strategy. Our total Consumer Financial Services segment payment volume reached RUB 3.2 billion for the second quarter of 2018. We also see positive dynamics across key operating metrics of the project.

Moreover, the second quarter, we have significantly enlarged the capabilities of the product, introducing several new options for our consumers, which make the product even more attractive and useful, while improving user monetization.

We continue to develop our products and enhance our business model with the aim to start testing the multi-banking model for SOVEST by the end of the year. And we see substantial interest over the installment card projects from other players in the banking sector. We believe that we have entered an interesting niche with a significant potential and have built a robust infrastructure, including best-in-class distribution and partner networks.

Our SME segment, which we developed through Tochka, continued to demonstrate robust operating performance in the second quarter of 2018. We currently operate Tochka as a multi-bank service that provides its customers with the opportunity to open accounts with either Qiwi Bank or Otkritie Bank.

As we have disclosed earlier, this June, we signed a partnership agreement with Otkritie and management team of Tochka, launching our joint development of this business. Under our agreements, we have established a joint venture Tochka, which will serve as technological partner and service provider for banks, members of the multi-bank platform.

We're very excited about Tochka business and our partnership with Otkritie in SME segment. We believe that Tochka is one of the best solutions for SME business in Russia, that is offering entrepreneurs broad range of financial services, distinguished by a unique quality of client experience.

Moreover, in August, we have had a first meeting of Tochka supervisory board, where we adopted the strategy and business plan of Tochka. As we discussed earlier, we will be financing the development of the project in equal parts. 50% each with Otkritie, with aim to reach breakeven in the first half of 2019 and reach the target of RUB 1 billion net profit in 2021.

Positive volume dynamics in our key market verticals converted into strong Payment Services segment net revenue growth and together with our SME segment contributed to our overall robust performance in our business. Alexander will walk you through the second quarter numbers in more detail, just -- in just a moment, while I would like to walk you through some recent developments.

We have also recently finalized our negotiations with Otkritie in respect of the Rocketbank project. In accordance with these agreements, we aim to transfer Rocketbank customers personal and business processes to Qiwi by the end of 2018.

We believe that apart from unique proprietary product offerings that Rocketbank possess, there is a profound potential for synergies between our core products and use cases in Rocketbank offering. We're currently working on our strategy in respect of this line of business and will provide an update once we finalize the transition of the business.

And now I would like to add a personal point. Starting from tomorrow, I will embark on around the world trip, with my family that will last next 9 months. At the same time, I remain fully committed to Qiwi and will continue to serve as the CEO and be actively involved in the executive management of Qiwi, while I'm on the journey.

During the last decade, we have created a unique modern best-in-class and self-sustainable management team and structure, that has been and will continue to lead Qiwi. So my trip will not affect the day-to-day operations and management of Qiwi.

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

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Alexander Karavaev, Qiwi plc - CFO [4]

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Thank you, Sergey, and good morning, everyone. Second quarter 2018 total adjusted net revenue increased by 54% to reach RUB 4.5 billion, up from RUB 2.9 billion in the second quarter of 2017. The increase was mainly driven by Payment Services and Small and Medium Enterprises segment net revenue growth.

Payment Services segment net revenue increased 28%, to reach RUB 3.8 billion compared to RUB 3 billion in the second quarter of 2017. Payment Services payment adjusted net revenue increased 36% to RUB 3.4 billion, up from RUB 2.5 billion in the prior year.

As a result of the net revenue growth in our E-commerce and Money Remittances verticals, which grew 62% and 22%, respectively, offset by a decline in trend in Financial Services vertical by 11%.

Our financial results in these segments are driven both by increase in volume, as Sergey just described, and the improvement of the payment average net revenue yield by 14 basis points year-over-year, as a result of change in category and product mix.

Payment Services other adjusted net revenue decreased 10% to RUB 470 million as compared to RUB 522 million in the prior year, mainly because of the decrease in revenue from advertising, as well as revenue from overdrafts provided to agent. Payment Services segment net revenue, excluding revenue from fees for inactive accounts and unclaimed payments increased 32% compared to the same period in the prior year, primarily as a result of growth in Payment Services payment adjusted net revenue, as discussed earlier.

Consumer Financial Services segment net revenue was RUB 58 million for the second quarter of '18, as compared with a net revenue loss of RUB 68 million in the second quarter of the prior year, showing the development of our SOVEST project as well as the effect of the introduction of new consumer focused option.

Net revenue of the Small and Medium Enterprises segment was RUB 597 million for the second quarter 2018 compared with 0 in the prior year. Small and Medium Enterprise segment net revenue include mostly Tochka revenues, recognized from information and technology service agreements with Otkritie Bank, for providing services to Tochka clients that have their accounts with Otkritie Bank.

Net revenue of the Corporate and Other category was RUB 23 million for the second quarter 2018 compared with RUB 7 million in the prior year.

Moving onto expenses. Strong operating performance of our Payment Services business that continued to generate substantial cash flows, supported our investments in the development of our new projects, most notably, SOVEST and Tochka. These being said, adjusted EBITDA increased 1% to RUB 1.39 billion, from RUB 1.38 billion in the prior year.

Adjusted EBITDA margin was 31% compared with 47% in the prior year.

Adjusted EBITDA margin contraction primarily results from the increase in compensation for employees and related taxes, excluding effects of share based payment, higher SG&A

(technical difficulty)

expenses both incurred in connection with service in Tochka project as well as client acquisition and advertising expense, incurred due to investments in the scaling up of service project and Tochka projects. Adjusted EBITDA was also affected by the increase in Other administrative expense.

Group adjusted net profit decreased 19% to RUB 872 million, down from RUB 1.1 billion in second quarter of the prior year. Adjusted net profit was largely affected by the same factors as adjusted EBITDA, as well as increase in net foreign exchange loss as compared to the same period in the prior year.

Payment Services segment net profit increased 22% to RUB 2.3 billion compared with RUB 1.8 billion in the prior year, primarily driven by Payment Services segment net revenue growth. Consumer Financial Services segment net loss was RUB 702 million in the second quarter 2018, as compared to a net loss of RUB 576 million in the prior -- in the same period of the prior year, resulting from the expansion of the operation of SOVEST project and this cost mostly related to the consumer acquisition.

Small and Medium Enterprises segment net loss was RUB 263 million, resulting mostly from client acquisitions and marketing costs. Corporate and Other category net loss was RUB 413 million, an increase of 123% compared with a net loss of RUB 185 million from the prior year. The net loss was primarily driven by expenses incurred in connection with the Rocketbank project, as well as several other individual insignificant project.

Finally, as you saw in our earnings release, our Board of Directors decided to refrain from distributing the dividend, while we are incurring significant investments in connection, we're launching a lot of new projects. We expect that throughout the 12 months, starting from the third quarter of 2017, we will concentrate on investing into our future growth. While long term we remain committed to distributing all the excess cash to our shareholders.

Now onto our guidance. We increase our Payment Services segment net revenue guidance and expect Payment Services segment net revenue to increase by 18% to 22%, driven by the strong performance of our Payment Services business in the first half of 2018.

We increased our total adjusted net revenue guidance to incorporate the increase of our Payment Services segment net revenue guidance, as well as overperformance of net revenue recognized in connection with our Tochka project in the first half of 2018 and our expectations regarding SME net revenue for the second half of the year. Thus, we expect our total adjusted net revenue to increase by 26% to 32% over 2017.

We increase our Payment Services segment net profit guidance to incorporate the increase of our Payment Services segment net revenue guidance, and expect Payment Services segment net profit to increase by 12% to 17% over 2017. At the same time, we divide group adjusted net profit and expect it to decrease by 15% to 25% over 2017. The revision of our guidance is driven by the incorporation of Tochka project and Rocketbank cost for the second half of 2018.

We expect that the additional net loss for second half of 2018, after shares with Tochka project, will amount for around RUB 0.5 billion. The cost of share with the transfer in rollout of Rocketbank operations in Qiwi, I expect that the amount roughly RUB 600 million for the second half of the year.

Although we see our first half 2018 results as a solid foundation for our future growth, certain other factors remain beyond our control, and hence, we reserve the right to revise guidance in the course of the year.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Bob Napoli with William Blair.

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Robert Paul Napoli, William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology [2]

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Couple questions. The -- first on the E-commerce growth, the World Cup, you pointed out the World Cup, and the addition to sports gambling on -- now what -- can you give -- what would the growth of E-commerce have been without the World Cup? And can you give some feel for the segment mix under E-commerce? What verticals or -- make up the majority of that business today?

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Alexander Karavaev, Qiwi plc - CFO [3]

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Yes, so in terms of World Cup growth -- I mean World Cup effect on the sport betting growth. So the -- actually it's something that we are still testing. So we believe that the part -- at least the part of the gamers and participants that used to make sports betting during the World Cup, will probably stay within the ecosystem.

But generally, the good way to look at it as full, so if you take the Q1 growth in that category, Q1 to Q1 of last year, then that would be approximately the same in Q2. So everything was -- that would be kind of related to World Cup.

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Robert Paul Napoli, William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology [4]

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And vertical mix, can you give some feel what percentages -- fiscal goods versus sports gambling -- versus sports versus Other ...

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Alexander Karavaev, Qiwi plc - CFO [5]

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So look, yes, well, I mean, it's more or less unchanged, but I -- still the sort of vast majority in E-commerce would be virtual, of which, like the half approximately would be like all types of gambling, I mean not gambling but sports betting and gaming, social and more PGL kind of things. And then the rest would be like other virtual goods like social networks and (inaudible).

So given that World Cup effect, I think the share of classical online E-commerce probably dropped slightly in Q2, but again, we see that it's a temporary effect generally.

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Robert Paul Napoli, William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology [6]

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And then, SOVEST, the -- how successful you've been in adding banks, trying to develop that multi-banking model? And do you still target breakeven next year? And at what point would you pull back investment, if you're not able to get the multi-banking model to work for you?

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Sergey A. Solonin, Qiwi plc - CEO & Director [7]

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Yes, well. Hi, Bob. For SOVEST, we're working now with only one bank, although, we have few banks in a row, so -- because the integration is not that quick as you would like to see. So one bank will be launched this year and we will test on it the distribution system and multi-bank model in general.

So right now, we do have understanding that our model works. So, we have a feasible model and economics on the project. So independently on multi-bank model, if it works or not, because we don't know. We think that it will work, but we still don't have a case. So we will think about pushing this project forward and pressing gas in the next year. So this will be decided I think in the budget on the next board meeting, that will be more by the budget for the next year.

So depending on that we either go as we planned, and then we will breakeven as we planned or we will -- want to scale the business and in the case we want to scale the business, it will mean that, next year, we will push for more clients. And then it will mean that, we will spend some money next year which will, I think, in the most aggressive scenario which will be the same as this year.

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Robert Paul Napoli, William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology [8]

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And last question for me is, it's nice to see you get a -- the credit rating from S&P. They do one thing, they point out a few times, is an increase there in a competition. Where are you seeing an increase in competition? Is it from Yandex. Money, Sberbank? Or are there new -- where are you seeing your most difficult competition?

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Sergey A. Solonin, Qiwi plc - CEO & Director [9]

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No, the competition now is coming from SOVKOMBANK, which is one of the banks in the banking system, which made a very similar model and all the other products are not competing with us, as I think.

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Operator [10]

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Our next question comes from the line of Vladimir Bespalov with VTB Capital.

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Vladimir Bespalov, VTB Capital, Research Division - Analyst of Industrials, Transportation, Infrastructure, Chemicals & Equities and Internet Analyst [11]

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First, I would like some clarification on your guidance and how you going to consolidate, deconsolidate Tochka, Rocketbank, so maybe you could provide some color? Is that correct to assume that you deconsolidate Tochka from the 1st of July? And to reflect from this time only, you're showing net losses of Tochka?

Then for Rocketbank, this is the full year consolidation, but would you expect like Rocketbank to move to a certain stage to breakeven and to what will be, let's say, the effect of this Rocketbank next year?

And in your revenue guidance outside of the core business, there is a pretty good increase in that guidance as well. Is that just the effect of, as you mentioned, of the outperformance of Tochka in the second quarter? Or there might be something beyond just Tochka and maybe SOVEST is going to perform better, and what is behind this?

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Alexander Karavaev, Qiwi plc - CFO [12]

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Okay, okay. Thank you. So now, first of all, on the accounting treatment. So on Tochka, yes, you are exactly right, so as soon as that new joint venture will go live, we will deconsolidate the Tochka business and the majority of the profits will be picked up through the equity pickup.

On the exact date, we're still discussing that with Otkritie, so it's more, shall be decided on the facts and circumstances. So it's likely will not be July 4, but probably slightly later, but this is something that we're going to be discussing with Otkritie for the next kind of reporting period.

But, it will not concern the revenue, because the part of the revenues that we actually -- when we sell the book the part of the revenue that would relate to the clients, Tochka clients, that shows through the balance sheet of Qiwi Bank. And then we're going to be having approximately same amount, of course. So more or less equal to revenue that we're going to be paying to Tochka for servicing those clients.

So from that point of view, the accounting treatment will probably be a slightly more complicated. So we plan for the next quarter, as soon as we issue our next quarter results, probably spend some time to explain how that's going to be working from the accounting point of view. And, obviously, the guidance reflects our current understanding of accounting effects of Tochka as I just described, so we're still going to be having quite business revenue in that segment.

So on Rocketbank, we -- Rocketbank will be fully consolidated, so we own all the assets and we're now in the process of migrating all the technology, personnel and clients onto the Qiwi Bank, which we believe will probably take around couple months starting from now. So we already a few thousand clients of Rocketbank migrated successfully from Otkritie Bank to Qiwi Bank.

And again as for the next year losses, we -- unfortunately, I'm not really able to say it as of now. So we basically, first of all need to complete the migration and we, as Sergey said, we plan the budgeting session, the budgeting board, that will approve the key indicators in November. Then probably the formal budget going to be approved in December.

Generally, we believe, Rocketbank would require some investments within next couple years, but that will really depend on our joint project pipelines, which what we are trying to achieve is to basically look to the synergies that it may create by using Rocketbank for our users. And based on those kind of conclusions, we will provide the budget for the -- for its development.

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Vladimir Bespalov, VTB Capital, Research Division - Analyst of Industrials, Transportation, Infrastructure, Chemicals & Equities and Internet Analyst [13]

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And on the revenue side, the upgrade of your guidance apart from the core business, was there something else beyond just Tochka's contribution in the second quarter? And have you revised any numbers for service, for example, or anything else?

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Alexander Karavaev, Qiwi plc - CFO [14]

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We -- no, no, we have not revised. So service numbers for that year, I remind is exactly the same as we basically used for the guidance that have been provided previously. So the upward [reason of theirs] is primarily core business in Tochka.

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Vladimir Bespalov, VTB Capital, Research Division - Analyst of Industrials, Transportation, Infrastructure, Chemicals & Equities and Internet Analyst [15]

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Okay. And another question a little bit broader one, we see a lot of discussion right now in the government about taxing self-employed people, individuals and so on and so forth. What is your view on this? Do you see this as an opportunity for Qiwi? Or you believe that the people might just move to cash settlements and things like this? And this might adversely impact your business?

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Sergey A. Solonin, Qiwi plc - CEO & Director [16]

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No, we -- Vladimir, we definitely believe that it is an opportunity. So we are participating in all these discussions in tax departments. And we think that for Qiwi as a platform, this is an opportunity to give an ability for both the government and people who are self-employed, to cooperate and work through a platform so that it will be easy for both sides.

And as far as I know at least for now, the current tax, the regimes that they think about for the future for self-employed is not difficult, or is not very high, or is not any high -- anyhow high for self-employed. And the only thing that should be in place is automation of the process, which we hope we'll be able to provide for our customers.

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Vladimir Bespalov, VTB Capital, Research Division - Analyst of Industrials, Transportation, Infrastructure, Chemicals & Equities and Internet Analyst [17]

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Okay. And maybe the last question, you mentioned that Tochka will require some investment from Qiwi and from Otkritie. How much Qiwi is going to invest, let's say, over the next 1, 2 years?

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Alexander Karavaev, Qiwi plc - CFO [18]

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Vladimir, look, we believe for the -- all I think we have provided we have slightly [better results], it's around RUB 700 million to RUB 800 million additional investment from our side this year, and approximately same amount shall come in from Otkritie. And next year, Tochka going to breakeven, so we're pretty sure that, that will happen because it's something that has been already proven. That would be that we believe.

So again, we have some interesting new strategic ideas inside Tochka on how we might deploy the assets in broader sense that they have in terms of brand force and brand. But this is something that we want to be discussing next year. So far their core business going to be profitable next year already and hence we're not required an additional investment.

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Vladimir Bespalov, VTB Capital, Research Division - Analyst of Industrials, Transportation, Infrastructure, Chemicals & Equities and Internet Analyst [19]

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Okay, and out of this amount which you mentioned for this year, how much is invested already?

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Alexander Karavaev, Qiwi plc - CFO [20]

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It's -- it's on top of what we have already invested, so that...

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Vladimir Bespalov, VTB Capital, Research Division - Analyst of Industrials, Transportation, Infrastructure, Chemicals & Equities and Internet Analyst [21]

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Okay, this is in for the second half of the year, right?

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Alexander Karavaev, Qiwi plc - CFO [22]

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Yes, exactly.

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Vladimir Bespalov, VTB Capital, Research Division - Analyst of Industrials, Transportation, Infrastructure, Chemicals & Equities and Internet Analyst [23]

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And this will be cash that you're going to invest or it's going to be some kind of settlement with Otkritie for the past revenues?

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Alexander Karavaev, Qiwi plc - CFO [24]

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All of this -- this is something that we're discussing, I'm sure, we would have a really good kind of sign, as soon as we agreed with Otkritie, all the specific matters in respect of that joint venture, they eventually settled the accounts receivable in respect of Tochka for last year of RUB 644 million.

As for the -- as for this year, we don't know yet, so it might be part cash, part type of settlement, but really in relation to the accounts receivable created in 2018, so this -- again, so it's more or less doesn't matter, because what we agreed with Otkritie in principle is that, starting from January 1 of '18, we basically financed Tochka in equal part, 50-50 each and obviously, have same rights to the economic benefits that Tochka provides.

And then they have a number of different types of instruments and how we achieve that, it's either contributing the accounts receivable or cash inject from something else. So this is something that we are discussing like tactically, so to say.

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Vladimir Bespalov, VTB Capital, Research Division - Analyst of Industrials, Transportation, Infrastructure, Chemicals & Equities and Internet Analyst [25]

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And maybe just a few words on developing a multi-banking model around Tochka, when we can see progress on that?

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Alexander Karavaev, Qiwi plc - CFO [26]

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Well, certainly. So it's likely next year, so we have couple banks that are fairly interested to join that ecosystem. It's actually 3 banks.

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Sergey A. Solonin, Qiwi plc - CEO & Director [27]

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3 multi-banks.

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Alexander Karavaev, Qiwi plc - CFO [28]

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Yes, today, it's already multi-bank with the first of Qiwi and Otkritie, but if you talk about first...

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Vladimir Bespalov, VTB Capital, Research Division - Analyst of Industrials, Transportation, Infrastructure, Chemicals & Equities and Internet Analyst [29]

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Yes, yes, definitely.

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Alexander Karavaev, Qiwi plc - CFO [30]

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Yes, yes. So we have 3 banks in a pipeline, so one bank is already in fairly advanced phase, so to say, 2 other is more kind of in the strategic type of these cash levels, [something in the] -- as I said, the preparation cycle and knowledge kind of part of that project is fairly complicated. So we believe, we may be in the position to announce something early next year, not earlier than that I think.

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Operator [31]

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(Operator Instructions) Our next question comes from the line of Andrey Mikhailov with Sova Capital.

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Andrey Mikhailov, Sova Capital Limited, Research Division - Research Analyst [32]

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I had a question on Rocketbank and in particular, on its conversion to Qiwi. You mentioned that you've booked already 3,000 clients of Rocketbank to your balance sheet. And my first question is, what is your target or estimated conversion rate for the total universe of Rocketbank's clients, so to speak?

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Sergey A. Solonin, Qiwi plc - CEO & Director [33]

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Well, our estimation is around 80%. That's also due to the increase of the client base that they still experiencing, so it will be more or less the same base that they have in the [Phase 3] quarter.

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Andrey Mikhailov, Sova Capital Limited, Research Division - Research Analyst [34]

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Okay. I have a few more questions on this. Out of the few thousand clients that have already migrated, would you be able to share how many of those have already opened term accounts, term deposits with you?

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Alexander Karavaev, Qiwi plc - CFO [35]

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I think not much, but usually the term account deposit, they -- at least not something that can be easily migrated. So from a technical and legal point of view, they still keep them in Rocketbank, in Otkritie and they open the current accounts in Qiwi.

But, again, based on the consumer service that we basically feel for the -- it is -- the term account deposits will probably (technical difficulty) time, they need to mature. So our estimation that 80% of the term accounts will migrate.

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Andrey Mikhailov, Sova Capital Limited, Research Division - Research Analyst [36]

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All right. And the final question on this, my assumption currently is that, at least for the time being, you invest most of the cash after the conversion into securities -- record securities, bonds, these and corporate bonds of that kind.

Is this a fair assumption to make? And do you think, your strategy will change in terms of that, for instance, would you be able to finance service cards with local bank balances?

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Alexander Karavaev, Qiwi plc - CFO [37]

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Yes, that's for sure, that's for sure. So from that point of view, probably, we'd love to look like a normal bank. So the part, at least the substantial part of the current accounts will be (inaudible). So, you already know the result of kind of special kind of norms and the ratios for the banks, that needs to be more important, we based around our models for the next year and couple years from now to see how well they are balanced and we are, generally.

But, again, our ultimate goal is to move service to multi-banks. From that point of view, we will not be kind of needing a lot of cash deposit, from that point of view.

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Andrey Mikhailov, Sova Capital Limited, Research Division - Research Analyst [38]

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And just to make sure, so if seeking to consolidate a bank model for service, the Rocketbank client balances so they invested mostly in securities in the future, is this correct?

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Alexander Karavaev, Qiwi plc - CFO [39]

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From -- in different low risk [instruments] in general. So that's historically has been the strategy of Qiwi not to assume any risks in investment -- cash investment. This we're going to continue that way.

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Operator [40]

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(Operator Instructions) Our next question comes from the line of Svetlana Sukhanova with Sberbank.

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Svetlana Sukhanova, Sberbank CIB Investment Research - Senior Analyst [41]

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Can you please explain that why FX loss in Q2 has expanded? And why loss for the corporate segment has expanded? What is included in that loss for the corporate segment?

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Alexander Karavaev, Qiwi plc - CFO [42]

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Yes, okay, so -- yes, thank you. So on the ForEx, it's very simple. So we -- one of the legal entities that we have say it -- so to say, it's mostly technical. So it's one of the legal entities that we have in the group, has a functional currency US dollars. This is the company that service our gateway to the merchants that use English law primarily.

And that technically, the devaluation of rubles kind of produce that ForEx loss. So if rubles be having all the companies within the group using ruble in the functional currency, so that we will not be having any loss also.

So on the corporate segment, so it primarily comes from Rocket. So though, we have not onboarded, so to say that business for the first half of the year, but we were taking some of the cost that actually Otkritie refused to have. And it's been fairly important for us not to damage the brand and the person, the client experience. So -- and we basically financed.

So the total amount of that course was around RUB 150 million, so that's probably the major part of increase of Corporate and Other category and then a few other smaller projects.

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Svetlana Sukhanova, Sberbank CIB Investment Research - Senior Analyst [43]

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Understand. So when you were talking about additional loss of RUB 600 million, attributed to Rocket in the second half of this year, do you understand to try it is -- we'll see through the -- going through the corporate segment or where Rocket would be recorded?

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Alexander Karavaev, Qiwi plc - CFO [44]

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That's a good question, it's -- there are actually 2 options, so it might be still the books for Corporate and Other or it might be presented as a separate segment. Now this is again, subject to a analysis of IFRS standard and special circumstance as well. Standard basically require a certain threshold to be kind of met for the kind of segment to be presented separately for the financial statements.

We don't yet know whether Rocket will surpass those thresholds. But anyway, even if not, we will try to make it transparent and present as separate numbers in the reporting to come.

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Svetlana Sukhanova, Sberbank CIB Investment Research - Senior Analyst [45]

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Understand, but this RUB 600 million, which you mentioned, it's like net loss which you expect for the second half for the Rocket, do I got it right?

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Sergey A. Solonin, Qiwi plc - CEO & Director [46]

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Yes, that's right.

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Operator [47]

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We have reached the end of our question-and-answer session and this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.