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TCS Group Holding PLC (TCS)
TCS Group Holding PLC reports strong performance in 3Q'20; announces 4th 2020 interim dividend and updated guidance
LIMASSOL, CYPRUS - 12 November 2020. 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 and nine months ended 30 September 2020.
Oliver Hughes, CEO of Tinkoff Group, commented:
"The third quarter of this year was a strong one for us, despite the continuing uncertainty caused by the global COVID-19 pandemic. Net income rose 30% year-on-year to RUB 12.6 billion in 3Q'20, underpinned by unrelenting customer acquisition and particularly strong performance by our fee businesses, which accounted for a record 41% of revenues.
"Our resilient, highly scalable business model and adaptability to our customers' changing needs meant that we continued expanding by leaps and bounds. We reached an important milestone in the third quarter when we welcomed our 12 millionth customer, keeping us on track to reach our goal of 20 million customers by 2023. In addition, according to recent research published by Deloitte, Tinkoff has become Russia's most preferred non-state bank.
"As we unlock the benefits of our ecosystem strategy, our engagement with each customer continues to grow. We are now in sight of reaching 1.4 products per customer from 1.3 at the beginning of the year, despite our fast growth pace. More than 30% of our customers now have 2 or more products with us, up from 24% in January. Each cohort of new customers takes less and less time to use more of our products and services.
"Tinkoff Investments continues its impressive growth. Assets under custody have grown sixfold year on year, as the platform's number of customer grew to over 2.4 million, solidifying Tinkoff's status as the largest retail brokerage on Moscow Exchange by number of active clients. Meanwhile, Tinkoff Business is continuing to show robust growth, with SME client current account balances up over 50% year on year.
"On the back of these solid results and in light of the optimism we have for the fourth quarter, we are recommending a dividend of USD 0.25 per GDR/share and we are upgrading our guidance for FY2020. We expect net income to reach at least RUB 42 billion, which was the original target provided at the start of the year, before the pandemic."
FINANCIAL AND OPERATING REVIEW
In 3Q'20, the Group's total revenue grew by 12% year-on-year to RUB 48.8 bn (3Q'19: RUB 43.5 bn). Gross interest income increased by 3% year-on-year to RUB 30.2 bn (3Q'19: RUB 29.5 bn), as our loan portfolio returned to growth across the diversified product range. At the same time, interest income declined compared to Q1 and Q2'20, mostly driven by our resumption in loan growth in lower-yielding loan products, including car loans and home equity.
Gross interest yield decreased to 29.8% in 3Q'20 (3Q'19: 33.6%), mainly as a result of the declining interest rate environment and changes in the loan mix. The interest yield on the Group's securities portfolio decreased to 5.3% (3Q'19: 6.5%), primarily due to declining rouble interest rates.
In 3Q'20, despite the significant increase in our funding base year-on-year as we continued to grow our customer base and account balances, interest expense decreased by 5% year-on-year to RUB 5.3 bn (3Q'19: RUB 5.6 bn). This was driven by a continued decline in our cost of borrowing from 5.8% in 3Q'19 to 3.9% in 3Q'20, following a gradual decrease in deposit rates and a growing share of current accounts in the funding mix.
In 3Q'20, net margin grew by 4% year-on-year to RUB 24.4 bn (3Q'19: RUB 23.4 bn), primarily as a result of our growing loan portfolio and declining funding costs.
Cost of risk fell to 6.5% 3Q'20, a material decline from 9.1% in 3Q'19 and 12.5% in 2Q'20. This was driven by the front-loading of loan provisions in the first and second quarters of 2020 in accordance with IFRS9, a swift normalisation in the economic environment in 3Q'20, and a significant reduction in the number of loans subject to agreed restrucuring in response to the pandemic. Our risk-adjusted net interest margin rose compared to 2Q'20, remaining at a comfortable level of 11.8% in 3Q'20 (3Q'19: 14.9%).
Our non-credit business lines continue to deliver robust performance thanks to growth of the customer base and continued monetisation efforts, and now represents 41% of the Group's revenue. In 3Q'20, fee and commission revenue rose by 39% year-on-year to RUB 13.0 bn (3Q'19: RUB 9.4 bn) and grew q-o-q as well, as consumer transaction activity improved in the post-lockdown period. Tinkoff Investments once again performed exceptionally well, with record inflows, record transaction volumes and record fee and commission income. Tinkoff Investments' revenue grew 8x year-on-year to RUB 2.2 bn (3Q'19: RUB 0.3 bn), and now accounts for 16% of total fee and commission revenue. As economic activity normalised in 3Q'20, so did Tinkoff Black and Tinkoff Business transaction volumes, leading to solid sequential improvement in their revenues.
At the end of 3Q'20, the Group had:
In 3Q'20, operating expenses increased 25% year-on-year to RUB 14.3 bn (3Q'19: RUB 11.4 bn) driven by the resumed growth of our loan portfolio, and continued investing in new growing business lines.
The Group reported robust quarterly net income of RUB 12.6 bn in 3Q'20 (3Q'19: RUB 9.7 bn), supported by continued customer acquisition and monetisation. As a result, ROE for 3Q'20 stood at 45.0% (3Q'19: 56.5%).
In 3Q'20, the Group continued to maintain a healthy balance sheet, with total assets growing by 25% since the end of 2019 to RUB 725.6 bn (31 Dec'19: RUB 579.5 bn).
The Group's gross loan book grew by 9% since the end of 2019 to RUB 416.7 bn (31 Dec'19: RUB 383.9 bn), while the net loan book increased by 5% to RUB 346.3 bn (31 Dec'19: RUB 329.2 bn).
The Group's NPL ratio rose to 11.1% (31 Dec'19: 9.1%), while our loan loss provision coverage stood at 1.5x non-performing loans.
The Group's customer accounts increased by 25% since the end of 2019 to RUB 513.4 bn (31 Dec'19: RUB 411.6 bn).
Tinkoff's total equity rose 21% as at the end of 9M'20 to RUB 116.5 bn (31 Dec'19: RUB 96.1 bn) despite the payment of three 2020 interim dividends (total of $0.55/GDR), on the back of solid net income. As of 1 October 2020, the Group's statutory N1.0 ratio amounted to 13.9%, its N1.2 ratio stood at 13.4%, and the N1.1 ratio stood at 10.8% - a meaningful improvfement relative to 2Q'20 due to the Central Bank of Russia's changes to the risk weights assigned to certain unsecured loans.
UPDATED GUIDANCE FOR FY2020
With the gradual recovery in economic activity supporting strong performance during the reporting period and into the fourth quarter, Tinkoff is updating its FY2020 guidance:
Fourth 2020 Interim Dividend Announcement
In line with the Group's dividend policy, the Group's Board of Directors has approved a fourth 2020 interim gross cash dividend of USD 0.25 per share/per GDR (with each GDR representing one class A share) with a total amount allocated for dividend payment in relation to 3Q of around USD 49.8 mn. Subject to London Stock Exchange regulations, indicatively the dividend will be payable on 30 November 2020 to those shareholders on the register as at the record date of 27 November 2020. The ex-dividend date will be 25 November 2020. According to the terms of the GDR deposit agreement, holders of the Group's GDRs should receive their dividends approximately 5 business days after the payment date.
3Q'2020 AND POST-REPORTING PERIOD OPERATING HIGHLIGHTS
Customer base and engagement growth has led to increased market share
Superior and innovative product offering combined with targeted marketing activities secure Tinkoff's place as a leading fintech brand
The market and industry associations recognised Tinkoff's strong performance
CONFERENCE CALL INFORMATION
The Tinkoff management team will host an investor and analyst conference call at 1:00 pm UK time (4:00 pm Moscow time, 08:00 am U.S. Eastern Standard Time), on Thursday, 12 November 2020.
The press release, presentation and financial statements will be available on the Tinkoff website at https://www.tinkoffgroup.com/financials/quarterly-earnings/
To participate in the conference call, please use the following access details:
A live webcast of the presentation will be available at:
Please register approximately 10 minutes prior to the start of the call.
About Tinkoff Group
TCS Group Holding PLC is an innovative provider of online retail and SME financial services. It includes Tinkoff Bank, its mobile virtual network operator Tinkoff Mobile, Tinkoff Insurance, its asset management company Tinkoff Capital, Tinkoff Software DC, a network of development hubs in major Russian cities, and Tinkoff Education. The Group is currently developing Tinkoff ecosystem, which offers financial and lifestyle services.
The Group was founded in 2006 by Russian entrepreneur Oleg Tinkov and has been listed on the London Stock Exchange since October 2013.
The Group's key business is Tinkoff Bank, a fully online bank that serves over 12 mn customers and forms the core of the Tinkoff ecosystem.
Tinkoff Bank is the second largest player in the Russian credit card market, with a share of 13.5%. The 3Q 2020 IFRS net income of TCS Group Holding PLC amounted to RUB 12.6 bn. The ROE was 45%.
With no branches, the Group serves all its customers remotely via online channels and a cloud-based call centre. The centre is staffed by over 10,000 employees, making it one of the largest in Europe. To ensure smooth delivery of the Group's products, the Group has a nationwide network of over 2,500 representatives.
In 2018, Global Finance named Tinkoff Bank the world's Best Consumer Digital Bank, and in 2020, 2019, 2018, 2016 and 2015, the Best Consumer Digital Bank in Russia. In 2017 and 2013, the Banker recognised Tinkoff Bank as the Bank of the Year in Russia. The bank's mobile app has been consistently praised by local and global independent experts as the best of its kind (in 2013, 2014, 2015, 2016 by Deloitte and in 2018 by Global Finance).
Some of the information in this announcement may contain projections or other forward-looking statements regarding future events or the future financial performance of the Group and Tinkoff Bank. You can identify forward looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could," "may" or "might", the negative of such terms or other similar expressions. The Group and Tinkoff Bank wish to caution you that these statements are only predictions and that actual events or results may differ materially. The Group and Tinkoff Bank do not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Group and Tinkoff Bank, including, among others, general economic conditions, the competitive environment, risks associated with operating in Russia, rapid technological and market change in the industries the Group operates in, as well as many other risks specifically related to the Group, Tinkoff Bank and their respective operations.
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