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Edited Transcript of QIWI earnings conference call or presentation 20-May-20 12:30pm GMT

·35 min read

Q1 2020 Qiwi PLC Earnings Call NICOSIA Jul 9, 2020 (Thomson StreetEvents) -- Edited Transcript of Qiwi PLC earnings conference call or presentation Wednesday, May 20, 2020 at 12:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Andrey Protopopov Qiwi plc - CEO of Payment Services * Boris Kim Qiwi plc - CEO & Director * Varvara Kiseleva Qiwi plc - Interim CFO & Head of IR ================================================================================ Conference Call Participants ================================================================================ * Andrey Pavlov-Rusinov Goldman Sachs Group Inc., Research Division - Research Analyst * Cristopher David Kennedy William Blair & Company L.L.C., Research Division - Associate * Ildar Davletshin Wood & Company Financial Services, a.s., Research Division - Equity Analyst * Maria Sukhanova BCS Financial Group, Research Division - Research Analyst * Ulyana Lenvalskaya UBS Investment Bank, Research Division - Director and Analyst of Media & Technology * Vladimir Bespalov VTB Capital, Research Division - Analyst of Industrials, Transportation, Infrastructure, Chemicals & Equities and Internet Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, everyone, and welcome to QIWI's First Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Varvara Kiseleva, Interim Chief Financial Officer of QIWI. Please go ahead. -------------------------------------------------------------------------------- Varvara Kiseleva, Qiwi plc - Interim CFO & Head of IR [2] -------------------------------------------------------------------------------- Thank you, operator, and good morning, everyone. Welcome to the QIWI First Quarter Earnings Call. I'm Varvara Kiseleva, Interim Chief Financial Officer. And with me today are Boris Kim, our Chief Executive Officer; and Andrey Protopopov, Chief Executive Officer of the Payment Services segment. A replay of this call will be available until Wednesday, June 3, 2020. 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 May 20, 2020. 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 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 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 Boris Kim, our Chief Executive Officer. -------------------------------------------------------------------------------- Boris Kim, Qiwi plc - CEO & Director [3] -------------------------------------------------------------------------------- Thank you, Varvara, and good morning, everyone. Thanks for joining us today. Today, I would like to share our first quarter 2020 financial results with you. This quarter, we demonstrated robust performance. Even at the end of March, we have already started to see the negative impacts of the COVID-19 and global lockdown on some of our segments and categories. It is fair to say that many of our key niches are impacted by the current crisis. For example, our Payment Services for betting merchants are affected by the suspension of the major sport events. Our SOVEST project is under pressure from the general downturn in Russia, while Tochka is affected by the corresponding significant decline in the SME activity. Many categories, like Payment Services for online games and projects like Factoring and Flocktory showed resilience in these turbulent times and demonstrate steady growth trends. Despite the global challenges all of us are facing now, we believe that our performance proves the value and relevance of the payment ecosystem and digital solutions we have developed so far and aim to develop further. As an omnichannel provider of digital payments and financial services, we were able to continue offering our services to our customers, merchants and partners in full and without any interruption. Moreover, we believe that some of our key categories are niches, though negatively affected by the ongoing crisis, may be well positioned to show fast and (technical difficulty) as soon as the situation normalizes. At the same time, we continue to focus on optimizing our operations and implementing stricter cost controls across the group. We have prioritized the health and well-being of our employees, while also supporting our clients and partners within our ecosystem during these challenging times. With the absolute majority of our employees working remotely since mid-March, I'm glad to know that our business has continued to operate smoothly across all projects, including the planned wind-down of Rocketbank operations. Even though we already began to see the first signs of recovery, including the restart of some major national soccer leagues, we remain cautious that the next couple of quarters will be challenging. However, we believe that we have proved many times before that we have created a resilient ecosystem that is highly adaptive and consumer-oriented. We will continue to develop it further by targeting our core niches and areas of expertise and creating new use cases well fitted to serve our users, merchants and partners. Now to some operational highlights. First quarter 2020 total net revenue increased by 17% to reach RUB 6.3 billion (technical difficulty) RUB 5.4 billion in the first quarter of 2019. The increase was mainly driven by Payment Services and Consumer Financial Services segment net revenue growth. This growth was slightly offset by the technical decrease in Tochka project's net revenue. Andrey will discuss the performance of Payment Service segment in a minute, while I will walk you through the results of our other segments. Consumer Financial Services segment payment volume reached RUB 8.8 billion for the first quarter of 2020, increasing by 76% as compared to the same period of the prior year. Segment net revenue was RUB 566 million as compared to RUB 218 million in the first quarter of the previous year. Our loan portfolio reached over RUB 8.5 billion as of March 31, 2020. Service project has demonstrated strong financial results in the first quarter of 2020, simultaneously increasing the credit portfolio and improving consumer monetization. However, we already see the current crisis is having a substantial effect on both consumer activity and purchasing power. We have taken all necessary actions to optimize our credit exposure as well as the overall operations of the projects. We believe that our efforts are currently sufficient to mitigate key risks and uncertainties. We are actively monitoring the behavior of our clients. As of now, we are managing the portfolio and credit limits very tightly. We have taken a conservative approach towards our lending business, and we do not see any critical changes in portfolio, quality or consumer behavior as of now. We will continue to closely monitor the situation. At the same time, we continue to explore partnership opportunities to support the scaling of the projects. We are also developing different strategies aimed at refocusing the projects on offering customized products and services to clients in the niches, core to our Payment Services segment. Corporate and Other Category segment net revenue, which includes primarily QIWI Bank net revenue of the Tochka project JV, net revenue from accounts receivable financing and digital bank guarantees products of Factoring PLUS project and net revenue of Flocktory SaaS platform was RUB 350 million as compared to RUB 476 million in the first quarter of the prior year. The decline was driven by the technical decrease of the Tochka project net revenue offset by (technical difficulty) contribution of other projects. Further, I would like to give you a brief update on the latest developments in the relation of the Rocketbank wind-down process. In March 2020, the Board decided to wind-down Rocket operations. We have commenced this process and are currently proceeding following the initial wind-down plan. As part of the measures, we have terminated marketing activities, including the cancellation of the Rocketbank loyalty program, significantly increased tariffs and are currently reducing the headcount of the projects. We have already seen a significant decline in the number of Rocketbank customers as well as corresponding account balance sheet. We believe that the winding down of the current Rocketbank B2C service, offering the final loss in the next 3 to 6 months. At the same time, we continue to review the most efficient way to reduce or dispose Rocketbank assets. We are currently piloting certain projects, earlier developed in Rocketbank in our Payment Services segment, particularly as part of our B2B2C product pipeline. Finally, yet, importantly, I'm glad to announce that following the determination of the first quarter 2020 financial results and taking into consideration the current level of the uncertainty of our operating environment, our Board of Directors have approved a dividend of $0.14 per share. We remain committed to the target dividend payout ratio of at least 50% of the adjusted net profit for 2020, approved by the board in March 2020. The Board of Directors reserves the right to distribute the dividends quarterly as it deems necessary so that the total annual payout is in accordance with the targets provided. However, the payout ratios for each of the (technical difficulty) may vary and be above or below provided target. Even in these challenging times, we see many opportunities, both in payments space, in the adjacent markets, and I believe we are very well positioned to continue strengthening our ecosystem with the ultimate goal of securing our long-term growth for us. With this, I will turn the call over to Andrey for an update of the Payment Services business. Andrey? -------------------------------------------------------------------------------- Andrey Protopopov, Qiwi plc - CEO of Payment Services [4] -------------------------------------------------------------------------------- Thank you, Boris, and good morning, everyone. It's my pleasure to be here with you today. Now on to the results of our Payment Services segment. For the first quarter 2020, our Payment Services segment volume increased by 14% to reach RUB 370 billion, driven by significant growth in Money Remittances and e-commerce categories, which grew 24% and 18%, respectively. The growth in e-commerce and Money Remittance verticals was largely driven by the development of our key streams, including digital entertainment, self-employed and sharing economy partners. As Boris mentioned earlier, in the second half of March, we started to see the impact of the coronavirus crisis on our key payment categories, including primarily services for betting merchants. Other categories, such as travel and ticketing services we provide to taxi companies and drivers, were affected by lockdowns and other restrictions as well. On the other hand, certain categories, such as, for example, online games and physical e-commerce, are demonstrating strong growth rates during the lockdown. Generally, we believe that most of our categories, such as digital entertainment and to large extend services for the self-employed, though negatively affected by the crisis, may be well positioned to show good recovery rates as soon as the restrictions are lifted. At the same time, certain categories, such as, for example, Money Remittance, remains sensitive to the general level of economic activity, and maybe pressured by the decrease of such for a longer period. To put in short, we currently see, and we likely continue to see, mixed trends across our key streams. Overall, taking into account challenges we all are facing due to the lockdown and social distancing, we expect that the importance of digital solution and payments will continue to increase in the near future. We are taking this chance to review and strengthen our product pipeline and suite of services we offer, and believe that we will be able to find new niches as a result of this crisis. Going back to the first quarter results. Payment Services segment net revenue increased 10% to reach RUB 5.3 billion compared to RUB 4.8 billion the prior year. Payment Services Payment adjusted net revenue increased 10% to RUB 4.6 billion, up from RUB 4.2 billion in the prior year, primarily as a result of net revenue growth in our Money Remittance and E-commerce verticals, which grew 11% and 10%, respectively. Our financial results were predominantly driven by the volume growth in Money Remittance and E-commerce categories. Our payment average adjusted net revenue yield was down by 4 basis points year-over-year to 1.24% driven by the yield decline in the E-commerce and Money Remittance market verticals. The yield decline resulted primarily from scaling of our business that came largely through offering our merchants and partners new services, such as online inquiry. Such services have lower commissions than our Qiwi Wallet solutions. The growth of this new product streams diluted our payment average adjusted net revenue yield primarily in the E-commerce category, while the commissions we charge in our core solutions remains same. Payment Services other adjusted net revenue increased 10% to RUB 727 million as compared to EUR 661 million in the prior year as a result of growth of revenue from fees from inactive accounts and unclaimed payments that was in line with the overall growth of our consistent and interest revenue. As Boris mentioned earlier, our growth was driven by the robust performance we have achieved in our key strategic streams, which was expansion and enhancement of the product proposition we offer. Surely, at the moment, we see many challenges imposed primarily by the coronavirus crisis and corresponding lockdown worldwide ahead of us. Even though we are starting to see some restrictions are being lifted we remain cautioned. We believe that we are well positioned to continue to grow our business, enrich our suite of services, develop new niches and create new use cases for our users, merchants and partners. We are doing our best to improve and optimize our operations in order to lay a groundwork for the longer-term growth. With this, I will pass over to Varvara for more details on the financial performance of the group. Varvara? -------------------------------------------------------------------------------- Varvara Kiseleva, Qiwi plc - Interim CFO & Head of IR [5] -------------------------------------------------------------------------------- Thank you, Andrey. Moving on to expenses. This quarter, our Payment Services business continued to demonstrate strong operating performance and generate substantial cash flow. At the same time, in the end of the first quarter, we have launched certain cost and growth optimization initiatives, including the wind-down of Rocketbank operations, with the aim to improve the operating efficiency across our key operating segments. This being said, adjusted EBITDA for the first quarter of 2020 decreased 2% to RUB 2.3 billion. Adjusted EBITDA margin was 37% compared with 44% in the prior year. Adjusted EBITDA margin contraction primarily resulted from an increase of personnel expenses in Payment Services segment and Corporate and Other categories as well as growth of credit loss expenses mainly related to the SOVEST project. This was partially offset by the total adjusted net revenue growth as well as declines in rent of premises and related utility expenses and a decline in advertising, client acquisition and related expenses. Group adjusted net profit increased 6% to RUB 1.8 billion from RUB 1.7 billion in the first quarter of the prior year. The growth adjusted net profit was primarily driven by the same factors impacting adjusted EBITDA. Net profit was also affected by the following factors: share gain of an associate and a joint venture as opposed to share of loss of associate and a joint venture for the same period in the prior year, mostly related to Tochka JV and net foreign exchange gain as compared to net foreign exchange loss for the same period in the prior year offset by higher income tax expense and other income expenses, net loss as compared to other income and expense as seen for the same period in the prior year. Payment Services segment net profit increased 2% to RUB 3.1 billion compared with RUB 3 billion in the prior year, driven primarily by the Payment Services segment net revenue growth, offset by the increase of payroll and related taxes. Payment Services segment net profit increased 2% to RUB 3.5 billion compared to RUB 3 billion in the prior year, driven primarily by Payment Services segment net revenue growth offset by the increase of payroll and related taxes, excluding effects of share-based payments and foreign exchange loss. Consumer Financial Services segment net loss was RUB 522 million in the first quarter 2020 as compared to a net loss of RUB 532 million in the same period of the prior year, resulting primarily from segment net revenue growth, offset by an increase in credit loss expenses. An increase in credit loss expenses was primarily driven by the RUB 186 million increase in expected credit loss allowance that was due to the adjustments made to our provisioning models in light of the expected operating environment and credit quality deterioration resulting from the global distress caused by COVID-19, falling oil prices and ruble devaluation as well as by the expansion of our operating portfolio. Rocketbank segment net loss was RUB 660 million, an increase of 35% compared to the net loss of RUB 490 million in the prior year, resulting primarily from an increase in payroll, including RUB 142 million severance payment provisions related to the wind-down process started at the end of the first quarter. Now on to our guidance. Firstly, I would like to remind everyone that at the moment, we have limited visibility regarding the potential impact of the outbreak of the COVID-19 strain of coronavirus on our business, including the negative effects from the betting industry in general, and our revenue generated from products and services we provide to our betting merchants caused by postponement and termination of the major sports events as well as by negative effects on the consumer lending market in Russia and corresponding impact on our SOVEST project. In addition, it is currently unclear how much consumer demand will be negatively affected from the outbreak of COVID-19 and what effect such outbreak will have on the macroeconomic environment, as a whole. The full impact remains uncertain, and will depend on the length and severity of the effects of the coronavirus on economic activity in our markets. The full scope of the negative impact that the abrupt decline in oil prices and resulting devaluation of the ruble may have on the Russian economy also remains unclear but has the potential to be very significant. Our outlook reflects our current views and expectations only, and is based on the trends we see as of the day of this earnings call. If such trends were to deteriorate further, the impact on our business and operations could be more severe than currently expected. We continue to monitor the situation closely. Having said that, we reiterate our guidance in respect of the 2020 outlook. We expect group total net revenue to increase by 3% to 13% over 2019, Payment Services segment net revenue to change by minus 3% to plus 5% over 2019, while adjusted net profit is expected to increase by 10% to 30% over 2019. Although we see our first quarter results as a solid foundation for the year, certain other factors remain beyond our control, and we have, therefore, right to revise guidance in the course of the year. With that, operator, please open up the call for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question is from Ulyana Lenvalskaya with UBS. -------------------------------------------------------------------------------- Ulyana Lenvalskaya, UBS Investment Bank, Research Division - Director and Analyst of Media & Technology [2] -------------------------------------------------------------------------------- This is Ulyana from UBS. Firstly, is it possible for you to comment on the current trends, i.e., April and May so far? If possible, with numbers? And if not, can you maybe just describe the trajectory for Payments or for the business altogether? -------------------------------------------------------------------------------- Andrey Protopopov, Qiwi plc - CEO of Payment Services [3] -------------------------------------------------------------------------------- Our overall volumes and revenues, mainly behind betting merchants as well as, to a certain extent, the self-employed categories like taxi drivers and some others, due to the cancellation of the sport event and lockdown. The major dynamics are more or less the same as April. -------------------------------------------------------------------------------- Boris Kim, Qiwi plc - CEO & Director [4] -------------------------------------------------------------------------------- Ulyana, its Boris here. Yes, I just wanted to make some comments regarding other segments of the business. You know that we are winding down Rocket, so it's -- the process is going well and according to the initial plan. There is nothing new about that. Regarding SOVEST, they performed well, quite well in the first quarter now. We see some deterioration in the quality of portfolio and also change in transactional behavior of the customer. But we are closely monitoring situation in SOVEST. As for other business units like Flocktory and Factoring, they really performed very well in April. Unfortunately, I'm afraid that I can't give you exact figures, but they performed well. -------------------------------------------------------------------------------- Ulyana Lenvalskaya, UBS Investment Bank, Research Division - Director and Analyst of Media & Technology [5] -------------------------------------------------------------------------------- Okay. And secondly, there was a sequential decline in the number of active e-wallets for the first time ever. Can you please comment on that, what are the reasons? -------------------------------------------------------------------------------- Andrey Protopopov, Qiwi plc - CEO of Payment Services [6] -------------------------------------------------------------------------------- We see it's not a decline, it's more like saturation number. We said in the past that our key effort is not on the number of -- on the wallet per se, but on the key niches and things that we have developed in digital entertainment and self-employed. And talking about those wallets, there is no decline. And actually, the growth we demonstrated in the first quarter in revenues and volumes in our key categories is behind those niches. I would say that overall, we are fine with the number of wallets. -------------------------------------------------------------------------------- Ulyana Lenvalskaya, UBS Investment Bank, Research Division - Director and Analyst of Media & Technology [7] -------------------------------------------------------------------------------- Okay. And if I may, another question. What was the net cash position at the end of the quarter? -------------------------------------------------------------------------------- Varvara Kiseleva, Qiwi plc - Interim CFO & Head of IR [8] -------------------------------------------------------------------------------- Favorite question. Thanks, Ulyana. Net cash position was around RUB 30 million, RUB 40 million, the same basically as of the end of Q4. -------------------------------------------------------------------------------- Ulyana Lenvalskaya, UBS Investment Bank, Research Division - Director and Analyst of Media & Technology [9] -------------------------------------------------------------------------------- And it's denominated in dollars, right? -------------------------------------------------------------------------------- Varvara Kiseleva, Qiwi plc - Interim CFO & Head of IR [10] -------------------------------------------------------------------------------- The potential part is denominated in dollars, but second part is in rubles. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- Our next question is from Ildar Davletshin with Wood & Company. -------------------------------------------------------------------------------- Ildar Davletshin, Wood & Company Financial Services, a.s., Research Division - Equity Analyst [12] -------------------------------------------------------------------------------- So could I ask, what was your revenue growth in January and February of this year, particularly in the Payment segment before March? So that would be my first question. And I would also like to understand 2 more things. So your margin has declined quite substantially. And you mentioned additional personnel costs. I'd like to understand if you could the -- maybe the numerical part, like what was the degree of this extra cost? And then more like what's the nature? Is it like bonuses to last -- related to prior year activity? And how much of it is the one-off in nature? And so that would be my second question. And then the third would be, in general, like now that you've seen kind of the new reality, and you mentioned you are looking at new niches, like what do you think would be the most interesting opportunities? Have you identified them already apart from betting, which was a big driver for you? So anything that say, when the life goes back to normal, you could say that there is, I don't know, 10%, 20%, like a substantial percent of your revenue coming from new services that you developed during this crisis? -------------------------------------------------------------------------------- Boris Kim, Qiwi plc - CEO & Director [13] -------------------------------------------------------------------------------- Yes, just a short -- just a quick answer to your question regarding first 2 months of the first quarter. The group figures are as follows: plus 17% in net revenue and plus 30% in net profit compared to the first 2 months of 2019. And Andrey will comment the other questions. -------------------------------------------------------------------------------- Andrey Protopopov, Qiwi plc - CEO of Payment Services [14] -------------------------------------------------------------------------------- Yes. So on the Payment Services, the growth was more or less the same that in the total quarter. Because in March, we had some mixed effect of the, like I would say, the kind of speed up of the growth before the lockdown started. So we have kind of mixed effects in March. So I would say that in total, you can think of more or less the same growth numbers for the January, February for the Payment Services segment. -------------------------------------------------------------------------------- Varvara Kiseleva, Qiwi plc - Interim CFO & Head of IR [15] -------------------------------------------------------------------------------- On the marginality that our comments and to sum up a lot of the answer to the previous question, I would say that we started to feel the crisis only in the very end of March. So the growth rate that we demonstrated in the first quarter are representative for mostly of the pre-crisis level. The marginality and the personnel costs, that payments -- in Payment Services that primarily relates -- the growth primarily relates to the LTI program that we haven't used in August 2019. So if you're looking on the first quarter 2020 versus first quarter 2019, there -- this program is not included, was not present in the first quarter of 2019. The size for the numerical value is roughly about RUB 100 million. That's not a one-off. That's the program that we have introduced, and it will continue going forward because it's kind of a long-term incentive -- longer-term incentive program for top and middle management. I hope this answers your question. For the new niches about the new niches, I'll pass on to Andrey to speak about Payment Services. -------------------------------------------------------------------------------- Andrey Protopopov, Qiwi plc - CEO of Payment Services [16] -------------------------------------------------------------------------------- Yes. I just found that number for January, February, it's actually several percent higher than the quarter, I would say. But like just several percent higher, the growth rate. And for the new niches, I would say that we are generally keeping our focus on the -- what we were talking previously. First one is digital entertainment, and we believe that overall, the only category within digital entertainment that is heavily affected is sports betting, and it's a temporary effect. So in the future, it should be back to the normal situation, and we expect it to happen as soon as the sport events will be back. Secondly, and I think we have now even more opportunities in this area, is related to the self-employed business -- businesses with the self-employed, both the payout to the self-employed by the different companies and as well as self-employed of the new economics and new niches that are actively developing. So the current situation, again, after the lockdown is lifted, we believe will stimulate actually more part of the economics move to this self-employed partners. So more companies will be trying to attract the self-employed versus the permanent workers. At the same time, the people that are currently losing their jobs or their income, they will be looking for the different titles as self-employment, including new niches. And all of this, at the same time, will be linked to the different type of digital communication businesses, et cetera. And this is exactly the area where we are playing. So kind of looking more midterm, I would say, we see the potential there to continue to develop our businesses regarding the self-employed. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- Our next question is from Chris Kennedy with William Blair. -------------------------------------------------------------------------------- Cristopher David Kennedy, William Blair & Company L.L.C., Research Division - Associate [18] -------------------------------------------------------------------------------- I just wanted to dig more into SOVEST, and if you can talk about kind of the pathway to becoming breakeven by year end, that's still in the cards? -------------------------------------------------------------------------------- Boris Kim, Qiwi plc - CEO & Director [19] -------------------------------------------------------------------------------- Chris, so we -- indeed, we plan to reach a breakeven by the end of this year in SOVEST. But situation has changed. And as I mentioned before, we see deterioration of the portfolio itself. And as you may have noticed, we created a special reserve in the first quarter for the portfolio. But the problem not only in portfolio itself and cost of risk. The problem is also in revenue side because the clarity of business model of SOVEST is that we get main revenues not from interest, but from transactional behavior of our customer. And what we see now is the number of transactions and the payment volume decreased because of 2 reasons. The service is mainly offline payment vehicle. And due to lockdown, we lost a lot of retail point of sales in offline. And second, service we operate in so-called traditional segment, which -- the consequence of price on which much higher than, say, digital entertainment segment in which Qiwi Wallet is active. So at the moment, we don't foresee the possibility of breakeven for service this year, but we closely monitor our situation, first. And then second, we are looking for different options to continue service to operations, including partnership with other banks. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- Our next question is from Andrey Pavlov-Rusinov with Goldman Sachs. -------------------------------------------------------------------------------- Andrey Pavlov-Rusinov, Goldman Sachs Group Inc., Research Division - Research Analyst [21] -------------------------------------------------------------------------------- This is Andrey Pavlov-Rusinov from Goldman Sachs. I've got a couple of questions. Maybe first of all, just wanted to start with a bit of a follow-up on SOVEST. So lately, I say that the net yield actually increased in the first quarter. So could you please elaborate on what's driving that? Is it basically declining volume that kind of increases the share of interest or anything else? And also maybe what was actually the cost of risk on your portfolio in the first quarter? And what was the part which was forward-looking versus the part that's related to deterioration? And also what should we expect in the coming quarters? I guess, the second quarter also should be challenging there. So that's my first question, and then I ask the following one after. -------------------------------------------------------------------------------- Varvara Kiseleva, Qiwi plc - Interim CFO & Head of IR [22] -------------------------------------------------------------------------------- Andrey, first of all, on net revenues of SOVEST, that's mainly related, if you look at the press release, you can see that the volume showed pretty significant growth as compared to last year. And the key reason for the increase in yield is better monetization. So as you know, we -- part of our service includes selling value-added options for our customers, including opportunities to buy prolonged installments to shop outside of the partner network, et cetera. So the penetration of these options increased, and this led to better monetization of the consumer base, that for the net revenue. On core, so for the first quarter, as were said, we don't see any significant -- in the first quarter, we didn't see any significant, I would say, signs of negative dynamics. The core was in accordance with the previous year, so around 10%, 12% on average. And the reserves that we -- the reserve allowances that we booked in this quarter, which are related to the restructuring programs introduced by the government. And so the overall decreasing quality of the macroeconomic and operational environment. This was roughly, if I'm not mistaken, around RUB 180 million. So that's connected to the events that basically happened, what we call, after the reporting date. So that's how we account for the deteriorating environment in April and May. As for our core, we definitely expect that core would increase slightly. We're, as Boris said, monitoring the situation on a daily basis, both in terms of cost of risk and how the customers are repaying their current loans, their current debts. And of course, if we see any deterioration, we're immediately taking actions that how best curb potential risk. -------------------------------------------------------------------------------- Andrey Pavlov-Rusinov, Goldman Sachs Group Inc., Research Division - Research Analyst [23] -------------------------------------------------------------------------------- And just if I may clarify, this revenue yield, do you think it's going to be sustainable in the coming quarters, although the volume, I guess, would decline in the second quarter definitely. -------------------------------------------------------------------------------- Varvara Kiseleva, Qiwi plc - Interim CFO & Head of IR [24] -------------------------------------------------------------------------------- So we see quite a strong effect from the working operating environments, again, as Boris mentioned, because people shop less and the availability of funds is basically less. So we believe that both Payment volume and likely the yield -- and the yield are likely to decline in the second quarter. -------------------------------------------------------------------------------- Andrey Pavlov-Rusinov, Goldman Sachs Group Inc., Research Division - Research Analyst [25] -------------------------------------------------------------------------------- That's clear. And just a couple of other questions. First of all, maybe could you elaborate on what you see in your Money Remittances in April and May? And basically, as you -- as Andrey mentioned that you may expect this to recover a bit slower, given that it's kind of related to the overall economic environment. So what's your current view there? And maybe if you could also break it down between the cross border payments, the self-employed and other subsegments there, would be very helpful. And just a final question. You mentioned about the -- some cost initiatives in the payments. So, should we expect basically the growth rates and the payment costs to subside significantly from the second quarter or would that be very gradual dynamics? That's it from me. -------------------------------------------------------------------------------- Andrey Protopopov, Qiwi plc - CEO of Payment Services [26] -------------------------------------------------------------------------------- Yes. So Andrey, for the Money Remittance part, we see mixed dynamics, I would say. So the biggest decline we observed in April, mainly related to the self-employed fees, where volume decreased in the, let's say, the -- in the most way. At the same time, those are the categories where we believe we will see the growth as soon as limitations will be lifted, and we see potential there. For the more like classical money remittance and some remittance between the wallets and from the wallets to other cards and bank accounts, the volumes are not affected that much. But at the same time, we expect the negative dynamics will be longer, because it will be more related to the overall macro situation rather than with the lockdown percent. So currently, as I said, the biggest decline is in the self-employed piece of the Money Remittance. For the future, we will see no longer effect for the classical money remittance and from the wallet to the bank cards and accounts. For the cost part of your question in the Payment Services segment, there will be gradual effect quarter-by-quarter, you will see gradually. So we already made some measures actually in the third quarter, and we continued more roughly, I would say, in the second quarter, so you will see this in the next reports. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- (Operator Instructions) Our next question is from Maria Sukhanova with BCS Global Markets. -------------------------------------------------------------------------------- Maria Sukhanova, BCS Financial Group, Research Division - Research Analyst [28] -------------------------------------------------------------------------------- I have 2 questions. The first one on your guidance. How comfortable are you with the way it is? So I understand there are a lot of moving parts, but would you say that so far, situation develops? And why does your worst case scenario or like you see some downside to that? And also within the guidance question, do you expect second quarter to be the weakest within the year or you think third quarter will be weak as well? And second question on the dividends. I understand the payout would vary throughout the year, but if everything develops as you expect, would it be fair for us to expect this dividend absolute amount will increase in the next quarters? That's it from me. -------------------------------------------------------------------------------- Varvara Kiseleva, Qiwi plc - Interim CFO & Head of IR [29] -------------------------------------------------------------------------------- So for the guidance, of course, we're comfortable with it. That's why we reiterated. So currently, the situation does develop in accordance with the forecast and expectations that we had in the end of March, when we were providing the guidance first. So nothing changed materially as of now in our expectations as to significantly alter our expectations about the performance for the full year. After the core dynamics, we do expect that the second quarter is likely to be weakest. However, the distribution between second and third quarter and the growth rate in between second and third quarter kind of can vary based on when and to what extent the limitations are lifted. The sports events are back and the process with couple of other internal processes as well. So in this regard, we can expect the second quarter will be weakest, but we're still quite -- I would say, we will more -- we never provide the quarterly guidance, and we will not -- will prefer not to go into many details for the quarterly split as of now. On the dividends, as you know, the Board of Directors have approved the payout ratio of 58%, at least 50% of the adjusted net profit of the group. That's the annual payout that we're aiming for. And the quarterly numbers will vary in accordance with that. And as you know, we approve dividends quarterly, the Board of Directors that were giving us on a quarterly basis. So I would prefer not to comment on the dynamics at this time. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- Our next question is from Vladimir Bespalov with VTB Capital. -------------------------------------------------------------------------------- Vladimir Bespalov, VTB Capital, Research Division - Analyst of Industrials, Transportation, Infrastructure, Chemicals & Equities and Internet Analyst [31] -------------------------------------------------------------------------------- My first question, could you elaborate a little bit on the overhead yield that we saw in Money Remittance vertical in the first quarter. What was behind that competitive pressure, the changes in volumes? And how -- given what you see in terms of volumes in the second quarter, how this is going to develop? Then my second question would be on your bottom-line guidance. Given that SOVEST is going to perform much worse than probably you initially expected and Tochka will be under pressure. So what are probably the sources of positive surprises maybe that allowed you to leave your full year guidance unchanged? And the third one -- sorry, if I missed it because there were some problems on my line, but could you elaborate a little bit on the betting volumes in April and May? How big was the decline of betting volume? -------------------------------------------------------------------------------- Andrey Protopopov, Qiwi plc - CEO of Payment Services [32] -------------------------------------------------------------------------------- I will take the first and the third one. So for the Money Remittance first quarter yield, the main changes in the yield are due to the different product dynamics within the category. So the higher growth rate in the Money Remittance in the third quarter versus last year were in the self-employed -- pay out to the self-employed, like the taxi companies and some other similar categories, where the yields are lower versus, for example, wallet payments from the wallets to other bank cards and accounts. So overall, I would say that the mix within the category was changing behind this growth rate in the lower margin but high-growth categories. Overall, our -- at the same time, within the same product, there is no significant changes in the yield. For your third question regarding the betting volume decrease in the April and May. Yes, we, of course, observed to a certain degree around 25% to 30%. And -- but at the same time, I would say it's stabilized in the mid-April, and we are on the more or less stable trend since then on this volume. We have, I would say, moderate optimism looking forward as soon as some of the sports events already started. You know probably the Bundesliga restarted this weekend. We saw some, I would say, pick up. So we will continue to monitor other sports events and the volumes recovering going forward. -------------------------------------------------------------------------------- Varvara Kiseleva, Qiwi plc - Interim CFO & Head of IR [33] -------------------------------------------------------------------------------- And for your second question, on the bottom-line guidance. So as you know, Vladimir in 2019, the cost -- the investments that we made in Rocketbank and SOVEST were pretty significant. We expect that, however, the total investments in these 2 projects for this year will be below those that we have seen in 2019. And our overall cost optimization, both across the projects of the group and to a certain extent, in the Payment Services, would contribute primarily to the positive dynamic of group adjusted net profit. -------------------------------------------------------------------------------- Vladimir Bespalov, VTB Capital, Research Division - Analyst of Industrials, Transportation, Infrastructure, Chemicals & Equities and Internet Analyst [34] -------------------------------------------------------------------------------- Okay. And can I clarify with Andrey one more thing? Given you said about the pressure on the yields in Money Remittance and on the trends that we see in the second quarter, I would assume that the yields could actually increase because self-employed are not performing well in the second quarter. Is this the right way to look at this situation? -------------------------------------------------------------------------------- Andrey Protopopov, Qiwi plc - CEO of Payment Services [35] -------------------------------------------------------------------------------- I would say it's too early to say, but the changes may happen mainly due to the mix change in this period. So, yes, it may increase if the mix will be positive. But, I mean, overall, it will not be very good because it will be related to the decrease of the volume in some categories more than the others. -------------------------------------------------------------------------------- Operator [36] -------------------------------------------------------------------------------- Thank you. And this does conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.