Tinkoff reports 1Q '20 results, announces 2nd 2020 interim dividend
- 13.05.2020 09:56 am
TCS Group Holding PLC (LI: TCS, MOEX: TCSG) (“Tinkoff”, “We”, the "Group", the “Company”), Russia's leading provider of online financial and lifestyle services via its Tinkoff ecosystem, today announces its interim condensed consolidated IFRS results for the three months ended 31 March 2020.
Oliver Hughes, CEO of Tinkoff Group, commented:
“The first quarter of 2020 was a strong one for us, despite the unprecedented challenges facing Tinkoff customers and consumers in Russia as a result of the COVID-19 pandemic. Our net income rose by 26% to RUB 9.0bn, aided by a RUB 3.4bn pre-tax gain from disposals of debt securities, and despite a RUB 5.9bn pre-tax impact from adjusting our IFRS9 provisioning models in light of the COVID-19 outbreak.
Importantly, we saw 1.0mn new Tinkoff Black current accounts opened in the first three months of the year – this is a record for us, and this strong growth has continued through the current crisis. The growth of Tinkoff Black was given a further boost bythemigration of Rocketbank customers to Tinkoff. As a result, more than 50,000 customers have moved to Tinkoff and this will continue asRocketbank winds down its operations.
As a branchless, online provider of banking, investment, insurance and other lifestyle services, we are able to continue offering best-in class service to customers undisrupted by the current COVID-related problems in the face-to-face world. We are also leveraging our ability to innovate and adapt quickly, and we see opportunities in the current challenging situation. We have expanded cashback offers for Tinkoff Black and made them more tailored to current online shopping needs. Tinkoff Bank launched an offer called ‘Surviving Quarantine’, which allows customers to benefit from discounts on popular digital services and subscriptions, such as film streaming, home fitness, audio books and online courses.
As a responsible lender who is committed to long-term relationships with its customers, the Group launched a range of flexible repayment restructuring programmes for customers adversely impacted by the current crisis (these programmes supplement and work in parallel with the Government-backed options).
Tinkoff Investments is going from strength-to-strength. We launched a new process to onboard new customers through the mobile app, without the need for an in-person meeting; we redesigned and enhanced our web terminal; we launched six new currencies that can be traded at the interbank rate; and we established a series of online events and webinars for Tinkoff Investments customers. All of these efforts and a lot more fuelled the opening of more than 600,000 brokerage accounts year-to-date (reaching 2.0mn) and record inflows in April (RUB 23 bn). The average balance of a Tinkoff Investments account rose by 12% YTD. More than 250,000 customers are currently using Pulse, our social network for investors. I am pleased to report that Tinkoff Investments has been the #1 retail brokerage on MOEX by number of active customers for the fifth consecutive month in April.
We are also paying close attention to the needs of our SME banking customers, as Tinkoff Business remains a veryimportant business line for us. To help these customers, Tinkoff Business launched a service that enables self-employed customers to register with the tax authorities and gives them a convenient way to manage their tax returns. We are assisting small offline businesses to move to online and wealso lowered merchant servicing fees for online acquiring.
Tinkoff Mobile now allows customers to open virtual SIM cards. We also implemented a service that allows customers to delay payment of mobile services by up to two weeks without penalties, waive roaming fees for customers who aren’t able to return to Russia due to lockdown and to use unlimited data for remote working apps including Zoom, Skype and Slack.
We adopted a conservative stance on lending from early March. We are managing the portfolio and credit limits very tightly and have shifted resources to our cloud-based pre-collection and collection teams. We will see how the situation develops from here and make further adjustments if necessary.
While continuing to innovate and work flexibly in response to the current circumstances, as always, we remain focused on profitability. Our ROE was 37.5% in the first quarter of this year, one of the highest ROEs in the world, even as we created significant prudent provisioning cushions.
The business environment remains fluid. We understand the need to be sensible about capital returns in this uncertain environment. We have no plans to alter our dividend policy of paying up to 30% of quarterly net income, but we will prioritise the capital needs of the business ahead of dividends if the situation demands it.’’
FINANCIAL AND OPERATING REVIEW
Credit accounts acquired (mn pcs)
Net margin after provisions
Profit before tax
Return on equity
Net interest margin
Cost of risk
31 Mar 2020
31 Dec 2019
Net loans and advances to customers
Share of NPLs
Cash and treasury portfolio
Tier 1 capital ratio
Total capital ratio
CBR N1.0 (capital adequacy ratio)
In 1Q’20, the Group’s total revenue grew by 38% y-o-y to RUB 47.1 bn (1Q’19: RUB 34.0 bn). Gross interest income increased by 37% y-o-y to RUB 31.5 bn (1Q’19: RUB 22.9 bn), driven by the continued growth of our balance sheet, customer base, and credit product range.
Gross interest yield rose marginally to 32.2% in 1Q’20 due to our stable asset mix. The interest yield on the Group’s securities portfolio decreased to 6.0% (1Q’19: 7.1%), primarily due to declining interest rates.
In 1Q’20, interest expense grew by 26% y-o-y to RUB 5.6bn (1Q’19: RUB 4.5bn), driven by significant growth of our customer base and account balances. At the same time, our cost of borrowing decreased to 4.8% in 1Q’20 following a gradual decrease in deposit rates.
In 1Q’20, net margin grew by 40% y-o-y to RUB 25.3 bn (1Q’19: RUB 18.1bn), primarily as a result of solid net loan growth.
Cost of risk rose to15.9% in 1Q’20(1Q’19: 7.5%), of which 6.0pp were due to the adjustments made to our IFRS9 provisioning models in light of the expected macroeconomic deterioration due to the decline in oil prices and the COVID-19 outbreak. Absent these adjustments, our cost of risk would have been 9.9%, a small deterioration y-o-y. Therefore, our risk-adjusted net interest margin decreased to 7.6% in 1Q’20(1Q’19: 15.8%).
Our non-credit business lines continue to deliver robust performance thanks to customer base growth, and now represent 34% of the Group’s revenue. Fee and commission revenue rose by 33% y-o-y to RUB 8.9bn in 1Q’20 (1Q’19: RUB 6.7bn), accounting for 19% of total revenue, while Tinkoff Insurance more than doubled its revenue y-o-y to RUB 4.8bn (1Q’19: RUB 2.3bn), accounting for 10% of total revenue.
As at the end of 1Q’20, the Group had:
- over 8.1mn current account customers with a total balance of RUB 225.2bn across all accounts
- over 545k SME customers, with a total current account balance of RUB 50.9 bn
- 1,436k brokerage customers opened at MOEX through Tinkoff Investments.
- Tinkoff app had over 20 mn installs, MAU stood at 5.6mn, DAU stood at 1.8 mn
- Tinkoff Bank’s credit card market share stood at 13.3% as of 1 April 2020, confirming its position as Russia’s second largest credit card issuer
In 1Q’20, operating expenses increased by only 7% y-o-y to RUB 11.6bn (1Q’19: RUB 10.8bn) mainly due to a slight decrease in customer acquisition expenses. Despite this, the cost-to-income ratio decreased to32.5% in 1Q’20(1Q’19: 42.3%).
The Group reported solid quarterly net income of RUB 9.0 bn in 1Q’20(1Q’19: RUB 7.2 bn). As a result, ROE for 1Q’20 stood at 37.5% (1Q’19: 64.4%).
In 1Q’20, the Group continued to maintain a healthy balance sheet with total assets growing by 4.7% since the end of 2019 to RUB 606.7bn (31 Dec’19: RUB 579.5 bn).
The Group’s gross loan book grew by 4.2% in 1Q’20 to RUB 399.9bn (31 Dec’19: RUB 383.9 bn), while the net loan book grew by 2.0% to RUB 335.8bn (31 Dec’19: RUB 329.2 bn).
The Group’s NPL ratio rose to 9.4% (31 Dec’19: 9.1%) primarily due to the denominator effect as loan book growth slowed in 1Q’20, while our loan loss provision coverage increased to 1.7x non-performing loans.
The Group’s customer accounts increased by 1.9% to RUB 419.6 bn (31 Dec’19: RUB 411.6 bn).
Tinkoff’s total equity only rose a marginal 0.5% in 1Q’20 to RUB 96.6bn (31 Dec’19: RUB 96.1 bn), due to the payment of the dividend for 4Q’19 and the negative revaluation of our securities portfolio. As of 1 April 2020, the Group’s statutory N1.0 ratio had increased to12.8%, and its N1.2 ratio had declined to 11.2%. N1.1 stood at a comfortable 8.7%.
GUIDANCE FOR 2020 WITHDRAWN
Because of the current uncertain operating environment caused by the COVID-19 pandemic, the Group is withdrawing its previously issued 2020 guidance, and will not issue new guidance for 2020 unless and until market conditions stabilise.
Instead of formal guidance, below the Group provides some illustrative performance indicators for the remainder of 2020. Although the business environment in Russia remains fluid and may change quickly:
- We expect our gross loan portfolio will be in ‘steady state’ in 2020, with the net loan portfolio being negatively affected by rising provisions
- We expect cost of risk to remain elevated in 2020, given the necessity to frontload provisions and the expected migration of loans to Stages 2 and 3
- We expect the Group’s cost of borrowing in 2020 to decline y-o-y
- We are confident the Group will remain profitable and can maintain adequate capital ratios in 2020
Second 2020 Interim Dividend Announcement
In line with the Group’s dividend policy, and given our confidence that the Group will remain profitable and can maintain adequate capital ratios during the year, the Group’s Board of Directors has approved a second 2020 interim gross dividend of USD 0.14 per share/per GDR (with each GDR representing one class A share) with a total amount allocated for dividend payment in relation to 1Q of around USD 28 mn. Subject to London Stock Exchange regulations, indicatively the dividend will be payable on 1 June 2020 to those shareholders on the register as at the record date of 29 May. The ex-dividend date will be 28 May 2020. According to the terms of the GDR deposit agreement, holders of the Group’s GDRs should receive their dividends approximately 3-5 business days after the payment date.
1Q’2020 AND POST-REPORTING PERIODOPERATING HIGHLIGHTS
Superior and innovative offering combined with targeted marketing activities secure Tinkoff’s place as a leading fintech brand
- In February, Tinkoff announced plans to invest in a new venture project to set up a fintech company providing a range of services to retail customers in Europe (excluding CIS). The startup will offer non-credit financial products. The project is due to launch in 2020, with Tinkoff as its key seed investor. Tinkoff will have a controlling interest in the new venture. Tinkoff’s initial commitment is up to EUR25 million, which will be contributed in tranches as the venture develops
- In February, Tinkoff signed a title partnership agreement with the Russian Football Premier League (RFPL) covering the 2019/2020, 2020/21 and 2021/22 football seasons
Resilience and investment in customer loyalty amid the global COVID-19 pandemic
- Tinkoff’s first priority was to safeguard the health and safety of its employees, while ensuring business continuity for all its customers. As a testament to this swift and early response, Tinkoff has only had 19 confirmed COVID-19 cases among its 27,000 employees. By the second week of March, over 95% of its office-based employees had successfully moved to home working. Only around 200 critical employees remain in the office, and its smart couriers continue to deliver products all over Russia. Tinkoff has decided to reward the commitment and the dedication of other frontline staff by increasing their remuneration by 15-20% during this difficult period.
- Tinkoff is proactively assisting troubled borrowers by offering both government and proprietary restructuring programs. Between March 20 and May 12, Tinkoff restructured 2,2k loans according to Federal Law 106, 24,6k loans according to our own restructuring programmes, and provided 1 month temporary relief to 115.2k loans.
- Tinkoff Home Call Centre (HCC) has deployed its cloud-based HCC platform to assist the Moscow City Government and the People’s Social Front (a consumer protection organization) in fielding calls from people experiencing COVID-19 and related problems.
- Tinkoff Business has launched a service allowing the self-employed to register with the tax authorities and easily manage their income and taxes. We are also assisting offline small business to relocate to the cloud and have lowered online acquiring fees for purchases of several essential products and services. We launched 0% loans to pay salaries in partnership with the Russian Bank for SME support.
- Tinkoff Mobile has implemented functions allowing customers to open accounts using virtual SIM cards, to delay payment of mobile services by up to two weeks without charge, to waive certain roaming fees for customers not able to return to Russia, to record and store voice calls, and to use unlimited data for remote working apps like Zoom, Skype and Slack
- Tinkoff introduced a cash-back offer called “Surviving Quarantine” which gives customers discounts of up to 75% discounts on online services, products, and subscriptions that are particularly in demand during isolation (online cinema, home fitness, books, language courses, etc.)
- Tinkoff Black broadened its cashback offers and increased their relevance for customers. Customers now have greater control over the cash-back offers they can select through the mobile app.
- Tinkoff Black will migrate Rocketbank customers to Tinkoff while carrying over their loyalty points. More than 50k customers have moved over to Tinkoff as Rocketbank winds down its operations.
- Tinkoff agreed with key payment services Mastercard, Visa, and Mir to delay the expiration of bank cards beyond March/April 2020 and implemented a system to receive money back on items purchased using the Fast Payment System’s QR codes.
Focus on enhancements to corporate governance
- As part of Tinkoff’s corporate governance roadmap, in April changes were made to two of Tinkoff’s three governing bodies: the Tinkoff Bank Management Board and the Tinkoff Bank Board of Directors. Stanislav Bliznyuk (SVP, Head of Business Development) stepped down from the Tinkoff Bank Management Board and will be replaced, subject to approval from the Central Bank of Russia, by Vyacheslav Tsyganov (Chief Information Officer).
- Oleg Tinkov (Founder) stepped down from his role of Chairman of the Tinkoff Bank Board of Directors to focus fully on his health and was replaced by Stanislav Bliznyuk.
Focus on acquiring best talent to strengthen the Group
- In February 2020, Stanislav Bliznyuk (formerly COO) was promoted to SVP, Head of Business Development
- In January 2020, Pavel Khristolyubov joined Tinkoff Group as the company’s new COO