TCS Group Holding PLC Holding PLC TCS Group 2016 Annual Report TCS GROUP HOLDING PLC 2016 Contents TCS Group is an innovative provider of online retail financial services in Russia operating through a high-tech branchless platform. STRATEGIC REVIEW DIRECTORS’ REVIEW About us. .02 Board of Directors ..........................................34 2016 highlights .............................................04 Corporate governance and Chairman's statement ............36 Our history .................................................05 Management team ..........................................42 Founder’s statement ........................................ 07 Business model .............................................08 FINANCIALS ...............................................F-1 Market context ..............................................10 Market position ..............................................11 GLOSSARY .................................................G-1 Strategy .................................................... 12 What makes us different? ....................................14 INVESTOR INFORMATION .................................G-2 Chief Executive's strategic review ............................ 19 Our recent awards ...........................................21 Chief Financial Officer's financial review ......................23 Risk review .................................................26 Employees and corporate social responsibility ...............30 THE TCS Group (or the Group) is the name used in this document for TCS Certain statements and/or other information included in this Group Holding PLC and its group of companies operating under document may not be historical facts and may constitute “forward the Tinkoff brand in Russia. These include Tinkoff Bank and Tinkoff looking statements”. The words “believe”, “expect”, “anticipate”, Insurance. “intend”, “estimate”, “plan”, “forecast”, “project”, “will”, “may”, “should” and similar expressions may identify forward looking Summary of presentation of financial and other information statements but are not the exclusive means of identifying such LARGEST All financial information in this document is derived from the statements. consolidated financial statements of TCS Group Holding PLC and has Forward looking statements include statements concerning INDEPENDENT GLOBAL been prepared in accordance with International Financial Reporting our plans, expectations, projections, objectives, targets, goals, Standards as adopted by the European Union and the requirements strategies, future events, future revenues, operations or of Cyprus Companies Law, Cap 113, which are for the year ended 31 performance, capital expenditures, financing needs, our plans or DIRECT BANK December 2016 included in this document. A detailed description of intentions relating to the expansion or contraction of our business the presentation of financial and other information is set out as well as specific acquisitions and dispositions, our competitive after page 45 of this document. strengths and weaknesses, our plans or goals relating to forecasted Market data used in this document, including statistics in respect operations, reserves, financial position and future operations and of market share, have been extracted from official and industry development, our business strategy and the trends we anticipate in sources TCS Group Holding PLC believes to be reliable and is the industry and the political, economic, social and legal environment sourced where it appears. Such information, data and statistics may in which we operate, together with the assumptions underlying these be approximations or estimates. Some of the market data in this forward looking statements. We do not make any representation, document has been derived from official data of Russian government warranty or prediction that the results anticipated by such forward * According to a report by Frost & Sullivan (October, 2016), an international consulting firm. Frost & Sullivan analysed online agencies, including the CBRF, Rosstat and the FSFM. Data published looking statements will be achieved. and direct banks across the globe and compiled a comprehensive study and global ranking by number of customers. Tinkoff, by Russian federal, regional and local governments are substantially Nothing in this document constitutes an invitation to invest in as an unaffiliated and totally branchless bank, came out on top of this ranking in terms of number of customers. less complete or researched than those of Western countries. securities of TCS Group. 02 STRATEGIC REVIEW DIRECTORS’ REVIEW FINANCIALS 03 Full Cycle Day-to-Day Brokerage SME ... Banking 1 2 Platform 3 4 Point-of-Sale Internet Cash Loans Mortgages Retail Mobile and Personal online lending Acquiring Securities Internet banking manager Trading Debit Cards Deposits Insurance Pre-Paid Cards Travel Car Loans Quick Built-in CRM payments Credit Cards Co-branded Mobile Applications Payroll projects Built-in • Tinkoff Platinum cards • Gibdd traffic fines accounting • ALL Airlines • OneTwoTrip • Card-to-card • All Games • Google Play • MoneyTalk mobile • WWF messenger • Planetacard • Tinkoff mobile bank • Ulmart POS-and Built-in e-acquiring government relations debit credit cards cards Marketplace banking and non-banking 1.8 mn 6.9mn services The ecosystem built around customer needs through a unique online, branchless platform TCS GROUP HOLDING PLC | ANNUAL REPORT 2016 04 STRATEGIC REVIEW DIRECTORS’ REVIEW FINANCIALS 05 Highlights Our history Proven track record of driving sustainable growth 2016Growth Profitability Net loan portfolio Highlights of TCS Group’s innovative development growth (RUBmn) • Gross loans up 19% to RUB120.4bn since YE2015 • FY2016 net income, a Group record at RUB11bn, • More than one million new active customers acquired with 4 consecutive quarters of record net income in 2016 and over 1.3mn new credit cards issued • ROAE of 42.5% for FY2016 • Launched a network of software development hubs • SME business developing rapidly, over • Growing contribution from non-credit- 2016 countrywide, the first in St Petersburg 50,000 SME customers acquired card business income streams • Joined the Russian blockchain consortium 102,912 • Customer accounts up at RUB124.6bn • Introduced a face recognition system for scoring Key events • Launched a new management long term incentive plan Credit quality • One of the first launching Apple Pay and Samsung Pay in Russia • Launched a network of software development • Ongoing focus on credit quality hubs countrywide, the first in St Petersburg • Acquired parts of Svyaznoy Bank’s credit card portfolios • NPLs (90d+) dropped to 10.2% at YE2016 • Joined the Russian blockchain consortium '15 • Became Russia’s second largest credit card provider 82,067 • Loan loss provision coverage stayed at 1.4x at YE2016 • Introduced a face recognition system for scoring • Launched a range of new business lines, transitioning • Launched a new management long term incentive plan to online financial marketplace Tinkoff.ru • Issued new co-branded cards Liquidity and capitalisation • Launched Tinkoff Investments, now accounting for around 25% of all new accounts • Total assets up by 25.6% over 2016 at RUB175.4bn, opened on the Moscow Exchange • New brand - Tinkoff Bank with cash and treasury portfolio up at RUB49.5bn • One of the first launching Apple Pay '14 • Launch of a series of co-branded cards 74,580 • Total equity up by 28.6% to RUB29.5bn at YE2016 and Samsung Pay in Russia • Launch of a number of mono mobile applications • 31 December 2016 CBRF N1 statutory capital • Credit rating agency upgrades ratio of 11.1% and Tier 1 up at 14.8% • TCS Group IPO on the London Stock Exchange Main Market • Treasury portfolio of RUB33.3bn of '13 • Launch of Tinkoff Insurance 73,962 highly liquid CBRF repoable bonds • Launch of cash loans • Minority stakes sold to Baring Vostok and Horizon Credit cards Total Customer '12 • Launch of online POS loan programme 47,784 issued in 2016 assets accounts • Launch of mobile banking '11 • Launch of the mobile and telesales sub-channels of 21,359 Tinkoff Bank online customer acquisition platform > • Launch of online acquisition channel for credit cards 1.3 175 125 '10 • Launch of “smart courier” service 9,643 mn RUBbn RUBbn • Launch of the retail deposit programme '09 • First debit card issued 5,254 Net ROAE Strong N1.0 capital ratio profit for 2016 at the end of 2016 of • Minority stakes sold to Goldman Sachs and Vostok Nafta '08 • Launch of internet bank 4,117 11.0 42.5 11.1 '07 • First credit card issued 1,593 RUBbn % % '06 Tinkoff Credit Systems Bank was created by Oleg Tinkov TCS GROUP HOLDING PLC | ANNUAL REPORT 2016 STRATEGIC REVIEW DIRECTORS’ REVIEW FINANCIALS 07 Founder’s statement Dear Stakeholders, Net income RUBmn story, continued. We consolidated the It was good to see ROAE% existing plans and expanded them to It is my privilege to be writing to you to embrace a wider band of management. 2016 produce share with you my take on the year just n/a n/a 71 23 85 60 45 16 8.6 42.5 We launched their successor MLTIP gone, a year in which after navigating the 11,0 (Management Long Term Incentive Plan) record results for crisis we continued rolling out Tinkoff.ru, in March 2016 which at that time had our online financial supermarket. I wrote 51 senior management participating the Group; not a year ago that I felt it would be a huge in a pool of 4.1% of share capital. With success, that the timing felt instinctively the continuing