QIWI plc
Q2 2021 Earnings Call Transcript

Published: 19 Aug 2021

[Operator:]

Good day, everyone, and welcome to the QIWI Second Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the call over to Mr. Dmitry Kovalenko, Head of Investor Relations of QIWI. Please go ahead, sir. You may begin the presentation.

[Dmitry Kovalenko:]

Thank you, operator, and good day, everyone. Thank you for joining us to discuss the QIWI’s operating and unaudited financial results for the second quarter of 2021. With me to review the results are Andrey Protopopov, our Chief Executive Officer; and Elena Nikonova, Interim Chief Financial Officer. A replay of this call will be available until Thursday, September 2, 2021. Access information for the replay is listed in today's earnings press release. The announcement and presentation are available on our Investor Relations website at investor.qiwi.com. For those listening to the replay, this call was held and recorded on August 19, 2021. 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 our 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 our forward-looking statements. During today's call, management will provide certain information that will constitute non-IFRS financial measures, such as total net revenue, adjusted EBITDA, adjusted net profit, and adjusted net profit per share. Reconciliation to IFRS measures and certain additional information are also included in today's earnings press release. After our remarks, we look forward to taking your questions. I will now turn the call over to QIWI's CEO, Andrey Protopopov. Andrey, please.

[Andrey Protopopov:]

Good day, everyone and thanks for joining us today. This is my first earnings call in the position of CEO of the group. So I would like to start with the priorities set for the team and myself. We are customer centric and return driven in all our decisions. We are all united on the clear mandate to deliver profitable and sustainable growth, while maintaining superior service level for our clients and partners. To achieve that, we keep our focus on the key areas of our expertise, namely Payment Services segment with digital entertainment, self employed digital commerce and money remittance directions. Those are main drivers of growth and ambition to develop this new proposition through factoring project. To deliver it, we already have the essential parts in place, the talented team of professionals required IT infrastructure and broad product portfolio, knowledge of our customers and countless opportunities emerging around big economy underpinned by overall digitalization of payment. Historically, we managed to navigate in the rapidly changing regulatory environment and find new issues. From where I stand, I just have to do it once again. There's no doubt we are looking into the future ready to take current challenges. And now to our second quarter results, I am pleased with strong numbers we delivered. Although we have lost significant share of our volume and revenue in the wake of CBR restriction, we managed to compensate it by the development in our key initiatives, resulting into net revenue growth of underlying business by 2% to 3% year-on-year. Our Core Payment Service segment shows remarkable results with payment service payment volume growth of 32% and Payment Service payments net revenue increasing by 7% year-on-year. In terms of volume, this quarter was the second highest quarter in our history. At the same time, we demonstrated superior profitability level with adjusted EBITDA margin of 64% and adjusted net profit margin, reaching 45% on the back of optimization initiative and divestiture of loss-making projects. Then the Board of Directors approved interim dividend payment of $0.30 per share in line with the target payout ratio of 50% of group adjusted net profit announced earlier. I will now add some color to the key quarter development and operating results, while Elena will cover financials right after. Payment Service payments net revenue increased by 7% as strong volume growth compensated average net revenue yield decline. Our volumes in the second quarter show sound growth of 32%, which help to offset net revenue yield decline by 25 basis points. Volume growth was largely driven by the exceptional performance of the money remittance market vertical aiding over RUB100 billion year-on-year, representing 71% growth. Payout to the self-employed from QIWI Wallet account holders increased by 109% year-on-year. In the second quarter, we connected to our platform 653 taxi companies and basically doubled the number of taxi companies versus last year. We on boarded 6 scrap metal companies and 46 new partners working with the self-employed in other industries. We observed significant increase in winning payout by 59% year-on-year built on overall strong TSUPIS growth. Contact Money Remittance System demonstrated volume increase by 29% year-on-year as we continue to develop our partnership model, reaching out Zoom, in Korea. Moreover, B2B2C and peer-to-peer transactions attributed to the QIWI remitter product and other use cases contributed to overall growth of our money remittance. E-commerce vertical volume also increased by 4% partially due to weaker base of last year, but also thanks to recovery of tourism and increasing interest in Russian betting streamline, which offset the negative impact of CBR restrictions active till June 2021. We enjoyed exciting matches at Euro 2020. The team did an amazing job with promo activities which paid off dozens of times, resulting in volume and net revenue uplift. This quarter we also have substantially reduced onboarding time for our partners connected TikTok to our payments network and launched soft force product. Payment Service payments net revenue yield declined by 25 basis points year-on-year, driven by the temporary restrictions imposed on high yielding cross-border payments, which affected the e-commerce market vertical. Corporate and other net revenue decreased by 25% year-on-year mainly driven by Tochka, while Factoring and Flocktory projects continue to grow. Factoring PLUS net revenue adjusted for one-off increased by 17% year-on-year. Factoring portfolio increased by 59% and reached RUB5.3 billion with number of active clients going up by 39% to 492. Digital bank guarantees portfolio increased by 87% to RUB24.8 billion. Number of yields increased by 44% for over 8,000. On top of active portfolio growth and expansion of customer base, we have launched our credit product for contract execution and started to provide loans via marketplaces via our platform at . Please note the demand for Factoring services is seasonal and is expected to be significantly higher in the second half of the year. Tochka net rating declined 56% year-on-year due to switch of some Tochka customers from QIWI to Tochka bank. We have announced earlier that we are going to sell our stake in Tochka for RUB4.95 billion, which resulted in about 2.5x return on our total investment or IRR of 35%. The due amount is subject to certain performance adjustment dependent on Tochka fiscal year 2021 audit results. In the next quarter, the impact on operating results from Tochka is expected to seize. Now, let me pass the floor to Elena and walk you through our financial results.

[Elena Nikonova:]

Thank you, Andrey. Profitability was robust and adjusted EBITDA margin of 64% and adjusted net profit margin reaching 45%. Thanks to the cost optimization measure successfully implemented in 2020. We have significantly increased the overall efficiency of our operations, and our margins went up year-on-year by 6.6 percentage points for EBITDA and 4.4 percentage points for adjusted net profit. The divestiture of SOVEST and Rocketbank compensated negative operating leverage effect driven by the temporary restrictions imposed by the CBR on cross-border payments. In absolute terms, adjusted EBITDA and adjusted net profit declined by 1.4% and 1.9% year-on-year, respectively, primarily driven by total net revenue decline by 12%. Payment Services net profit decreased by 6.2% year-on-year driven by margin decrease of 6.5 percentage points. First of all, we continue to see negative implications on margins due to cross-border payment restriction. We are also reviewing compensation our employees align it to market level. Corporate and other category net loss adjusted to one-off decrease by 23% or RUB99 million year-on-year. Net revenues declined by RUB126 million was more than offset by lower ForEx loss by RUB82 million. Decrease in personnel costs by RUB116 million and RUB40 million one-off impact on Factoring net profits due to a reverse of agents expenses accrued in the second quarter of 2020. We continue to optimize our operations and monitor margins and OpEx to net revenue ratio in order to sustain healthy financial performance of the group and ensure its sustainable and profitable growth. I will now give a few highlights on our upgraded guidance. Our outlook reflects our current use and expectations only, and is based on the trends we see as of the day of this earnings call. And such trends were subject to change, the impact on our business and operations could deviate more than currently expected. I would like to note that at the moment, there still remains significant uncertainty in 2021, primarily related to the long run effect of the CBR restriction and our ability to recover or replace previously restricted cross-border operations as well as our ability to define our place in the betting industry landscape. Our guidance reflects expected changes in the betting industry landscape, converse -- conservative projections on recovery of cross-border operations and sale of stake in Tochka project, which eliminates contribution in net revenue as net profit in the second half of the year. Having said that, we upgraded our guidance in respect of 2021 outlook. We expect total net revenue to decrease by 10% to 20% over 2020. Payment Services segment net revenue to decrease by 10% to 20% over 2020, while adjusted net profit is expected to decrease by 15% or 30% over 2020. We remain cautious and reserve the right to provide the guidance in the course of the year when the scope and extent of factors impacting our results become clear. And now I will give the call back to Andrey for some closing remarks.

[Andrey Protopopov:]

Thanks, Elena. I would like to give you a brief update on the current situation with the CBRS restriction and changes on the banking market. The restriction imposed by the CBR on cross-border payments in December 2020 have expired. Unfortunately, the impact from restriction will have a long lasting negative effect on our operation, primarily in the e-commerce market vertical. We have started to onboard foreign merchants but the recovery process is highly dependent on change customer behavior. It cannot be accurately estimated as well as may never be restored. We are conservative in our assumptions, which is also reflected in our guidance. Update on the betting industry regulation. We have made a proposal to serve as a ETSUP pursuant to the new regulatory regime. However, there can be no assurance that our bids will be successful. By the end of September 2021, the newly appointed ETSUP will take over a duration of both existing TSUPIS provider. If we are not able to secure an active role in the new industry landscape, we may lose the ability to generate volume and income directly related to certain businesses in Russia and most likely if you're negatively affect acquiring services and winning payouts provided to the sports betting company in a bundle with our TSUPIS operations. For the first half of 2021 TSUPIS businesses and related acquiring services as well as winning payouts accounting 23% or RUB2.1 billion of Payment Services payments net revenue. At the same time, we believe that we should be able to retain a part of our revenue generated from QIWI Wallet services for the betting industry, which represents betting accounts top ups and winning payouts, about 14% of Payment Services payment net revenue. I strongly believe in my team and our resilience and consumer oriented payment package system. We will further develop our product proposition for key niches and areas of expertise. There are many opportunities ahead and we will pursue our ultimate goal of securing the sustainable and the profitable growth of the company. Thanks for listening, we are ready to take your questions.

[Q - Chris Kennedy:]

Hey, guys, thanks for taking the question. Andrey, at the top of the call, you gave a little bit of your core focus for QIWI. Can you just kind of give a little bit more details on your 3 to 5-year vision for where QIWI will sit in the ecosystem in Russia?

[Andrey Protopopov:]

Yes. Hello, Chris. Thank you for your question. So we continue to focus on our key niches in the payment services, including the digital entertainment, self-employed, money remittance and digital commerce. We believe that in those niches, there are good growth opportunities because the market is still in many cases unsolved, and the markets themselves will be growing for at least several years to come. Moreover, we are focused on our proposition for SME services with factoring fees. And as well, we see quite a strong growth opportunities for the years to come. At the same time, the current situation with ETSUP is uncertain. Difficulty for us as we are not clear yet how big volume and revenue we'll be able to keep. And because of that, we -- while we are working on those segments initiatives that I told about, we are looking for other opportunities to grow to compensate potential loss in the ETSUP. And as soon as we together with the Board of Directors will be ready, we will be informing you on the revenue update.

[Chris Kennedy:]

Right. Appreciate that. And then on that contract, it’s the last question. What type of cost initiatives if you were to lose that contract with sports betting one, are there costs you could take out of the business or how would that impact net income? Thanks a lot guys.

[Andrey Protopopov:]

Okay. So, for the cost side, the biggest impact in the second quarter was related to these continuous businesses with primarily service in Rocketbank and some smaller projects as well that we stopped last year. On top of that, we are constantly looking at our cost level and in the end of 2020 and beginning of 2021 given the difficult situation with CBR restrictions and ETSUP uncertainty we need some -- I would say, cost cutting in core business as well.

[Chris Kennedy:]

Right Thank you.

[Operator:]

Our next question comes from the line of Andrey Mikhailov with Sova Capital. You may proceed with your question.

[Andrey Mikhailov:]

Hello and thank you very much for the call. I have several questions. I'll ask them one by one. The first question relates to the restrictions by CBR. They were listed in June. And you noted that you started to onboarding foreign merchants. So my question is, are you only basically allowed some word for merchants that are new to you, or can you re-onboard the merchants and the payments to home were essentially prohibited during those 6 months. And I have another questions. Thank you.

[Andrey Protopopov:]

Hello, Andrey. Thank you for your question. So, yes, in June 2021, the term of restrictions imposed by Central Bank expired. So we really started on board foreign merchants, including old and new one as well. At the same time in July 2021, certain amendments to the regulations, cross-border regulations were introduced. And we are still analyzing the terms and additional KYC procedures required based on those regulations. So following this, more stringent KYC procedures, and durability requirements, the recovery process is moving quite slowly. And on top of that, what is also important is that customer behavior has changed in the last 6 months, which is not helping as well. So that's why we are not able to provide some estimates of how long this process will take and if we be able to actually reconnect all the merchants and partners at all, but we don't provide any guidance on this one.

[Andrey Mikhailov:]

Thank you very much. My second question is on the estimates for sports betting related revenues, in particular, the ones that are related to TSUPIS and acquiring, you provide the estimate that comprise RUB2.1 billion approximately in the first 6 months that we see here. Do I understand correctly that these are those revenues that in operations that you could lose the right process, if you funds you centralize the authorizer for sports betting payments?

[Andrey Protopopov:]

Yes, that's correct. So basically we divide our revenue here for that we are getting from Russian breaking into two parts. The first one is RUB2.1 billion is related to TSUPIS operation them self and online acquiring winnings way out to cut operations, which can be done by other market participants, I would say. And the second half is QIWI Wallet operations where we are obviously only provider of this type of operation so that we believe that we will be able to keep -- QIWI Wallet operations in any case for a certain extent and for the first one RUB2.1 billion, it can be much more easily replicate if we are not a part of the new regulation landscape.

[Andrey Mikhailov:]

Thank you. Thank you for that. And a follow-up question to that. When you set up -- come into force like that in September, but would you say that the announcement on who becomes the centralized operator. One, would you expect such announcements to be made, if you have any expectations for this?

[Andrey Protopopov:]

No news so far. So we are waiting for that official update that will be, I think, available for the whole market but no news so far. We are waiting as well.

[Andrey Mikhailov:]

Thank you. My next question relates to the card-to-card money transfers from QIWI as well as the banking cards whose volumes doubled year-on-year in Q2. And my question is how much of that those operations or those volumes is represented by customers actually leading QIWI, just making their transfers out of QIWI Wallets and never return? Thank you.

[Andrey Protopopov:]

Andrey, sorry, I didn't get the last half. What portion of those volumes …?

[Andrey Mikhailov:]

What portion is represented by customers completely withdrawing their funds from QIWI and closing their QIWI wallets.

[Andrey Protopopov:]

No, it's actually a small one with -- we don't have -- I don't have the direct number, but majority of this volume is, I would say, with active for wallet that continues operation. So to give you some or color on this, it's usually part of some bigger use case, it either can be, let's say, self employed person that is getting paid by other customers via peer-to-peer transaction for the certain goods or services provided. And then once he or she is accumulated money on the QIWI Wallet, then one of the way how to use them is to transfer it to other bank cards to accounts to actually spend it because they're not using QIWI Wallet for their, let's say, daily banking in most of the cases. They more use it for this specific as a self employed, let's say payment type of operation. So it's kind of getting their revenue and then put it to their bank account. That would be the one of big use cases here.

[Andrey Mikhailov:]

Thank you very much. Sounds really nice. Final question is on Kazakhstan. I would be grateful if you could provide some color on the operations there, and in particular on the growth rates in operations in Kazakhstan versus Russia? Thank you.

[Andrey Protopopov:]

Andrey, can you repeat please? The sound is not good.

[Andrey Mikhailov:]

Unfortunately, I’m sorry about that. Operations in Kazakhstan, how well are they developing especially compared to Russia?

[Andrey Protopopov:]

Yes, I get you, Kazakhstan. Kazakhstan is grown, I would say, and it was different from Russia market. We don't have, obviously, any type of restrictions with Kazakhstan. Volumes and revenues are growing versus last year. And here I also would like to add that we have added a lot of taxi companies in Kazakhstan in the second quarter, over 600s of them. So volumes are growing.

[Andrey Mikhailov:]

Any specific comments on the growth rates, any estimates?

[Andrey Protopopov:]

Probably not.

[Andrey Mikhailov:]

Okay, okay. Thank you. That's all for me. Thank you.

[Andrey Protopopov:]

Thank you.

[Operator:]

Our next question comes from the line of Alex . You may proceed with your question.

[Unidentified Analyst:]

Good morning. My question is regarding competitive advantage for QIWI. It seems that the recent emphasis to be on developing tailor made solutions for targeted markets such as taxi drivers, air travelers, etcetera, and over here QIWI is competing with established international players such as Uber for taxi drivers, Expedia for travel markets. So my question is what is QIWI's competitive edge over those established international players?

[Andrey Protopopov:]

I would say that we are not really competing with Uber, Expedia level travel international players. We are -- when Uber was operating in Russia, Uber was actually one of our sales partner on the taxi business in those area, distributing our prepaid card and we proceeded with the payout and as well, different international players with the proceeding, let's say, payout for example airbnb to the Russian landlords. We are connected TikTok this quarter for the payouts as well. So I would say that for the international players that are in need for the either payouts or payments, specifically with the QIWI Wallet as a payment method, we are kind of one of the payment gateway to the Russian market and to an certain extend to Kazakhstan as well.

[Unidentified Analyst:]

All right. So basically what you're saying that when international players try to enter Russian market, they actually come into QIWI and asking for to provide support in terms of financial services. Is it correct?

[Andrey Protopopov:]

Yes. It's the case, we are obviously not the only player on this one. And there are other players like , for example, but we are obviously one of those and we are working with lot of international players, as well.

[Unidentified Analyst:]

Okay. And I have a couple of related questions. So how secure and reliable QIWI's financial solutions versus competitors?

[Andrey Protopopov:]

Could you elaborate a bit what do you mean how reliable …?

[Unidentified Analyst:]

Like you provide financial solutions in terms of payments. So how reliable and how secure those solutions?

[Andrey Protopopov:]

Solutions, we are operating in the market for a long time and we believe that our solutions were reliable. We have no like major issues with any of our products and with any of our customers for a very, very long time. So our clients, including majority of our key customers are working with us for a long time. That data links will like -- not for the, I don't know how many years, I don't remember, if we have any of those at all. So we believe that we are reliable payments company financial services.

[Unidentified Analyst:]

So would it be fair to say that both solutions as reliable as credit solutions?

[Andrey Protopopov:]

I believe so.

[Unidentified Analyst:]

All right. And my last question is, if anonymous wallets remain important feature for QIWI's customers, it seems to be in last quarter at least was a significant decrease of QIWI's Wallet accounts, which primarily was related to anonymous wallets.

[Andrey Protopopov:]

Yes, there's actually different -- several reasons why the number of QIWI wallets decreased over time. There were some trends for certain period of time already that is related to the changes of how we work with anonymous wallets and some procedures. At the same time, as a bigger impact, of course, this quarter was related to the CBR restrictions and payments with international merchants, because obviously many of our clients are doing the payments to the -- a lot of different international merchants. And as soon as those payments are available, some of those wallets will not exist.

[Unidentified Analyst:]

Thank you very much.

[Andrey Protopopov:]

And I will just add on the anonymous wallets as well. With more than 90% of QIWI Wallets volumes are growing through wallets with KYC, either simplified KYC or full KYC. So anonymous wallets is more like a stage of the product lifetime. So usually people starting to use the wallet as anonymous and as soon as they need to do some operations that requires KYC or they need to spend more money with us required KYC, they use either simplified or full KYC for the wallet. That's why majority of the wallets is with -- are not with anonymous wallets.

[Unidentified Analyst:]

Understand. And it looks like a number of wallets is still decreasing. Is there any expectation that the trend will change in the coming months or quarters?

[Andrey Protopopov:]

We believe that for -- because it's kind of longer trends, I believe that it will -- the trends will continue the same. At the same time, I would, as we mentioned already for those use cases that are important for us, like self-employed, for example, and related payments volumes of the wallet, we actually -- we are able to demonstrate quite significant roles like the one that was mentioned in one of the previous questions related to the payments to the card from QIWI Wallet. So while, let's say, the number of wallets, yes is decreasing, at the same time the operations in certain important use cases for us are growing. So in the press release, you may know that actually the Payment Services payment volume per active QIWI Wallet account is increasing almost 80%. It is currently about RUB30,000, while in the quarter last year, it used to be about RUB17,000. So utilization or volume is growing per active QIWI Wallet account, and that is what we're targeting.

[Unidentified Analyst:]

And what's the fraction, just follow-up on statement you made that typically customers joined as anonymous and they -- then they transfer into full solution. So what's the current fraction of anonymous wallets?

[Andrey Protopopov:]

As I said, the number -- the volume that -- volumes anonymous wallets are generated 8% of the total volumes of QIWI Wallet. We are not disclosing the number of anonymous wallets.

[Unidentified Analyst:]

Thank you. Thank you very much for taking my questions.

[Andrey Protopopov:]

Thank you.

[Operator:]

Our next question comes from the line of Vladimir Bespalov with VTB Capital. You may proceed with your question.

[Vladimir Bespalov:]

Hello. Thank you very much for taking my questions. First of all, I would like to ask a question about your guidance. You increased the guidance for total adjusted net revenues, but left the guidance for net profit growth unchanged. Even if we adjust for Tochka, it still looks very conservative because like the contribution from the growth or from higher net revenues should exceed the potential losses related to -- not losses, I mean, the part of net profit attributable to Tochka, this -- and if we look at the guidance, for example, like at the lower bound for the second half of this year, it would be something like RUB2.5 billion of adjusted net profit, which is way very low even if you lose a lot of betting streams. It's lower than the second quarter. So maybe could you elaborate a little bit what is behind all these assumptions?

[Elena Nikonova:]

Hi, Vladimir. This is Elena. I can start, maybe Andrey will add some additional comments. Usually, we are quite cautious about our guidance and may be a bit conservative. But yes, firstly, it's Tochka operations that effect net profit and that's why we decided not to upgrade guidance in respect of net profit by something like 3 or 5 percentage points. And of course, we have some uncertainties in the second half of the year that we also included in the guidance and probably this is the case why we are a bit more conservative in respect of net profit and we are more confident in net revenue. That's why we upgraded guidance only in respect of net revenue.

[Vladimir Bespalov:]

But could you elaborate a little bit about these uncertainties. Are these betting related deals? As far as I understand those uncertainties this way in the previous guidance, or there is something new coming up?

[Elena Nikonova:]

I would say that uncertainties are mostly the same. We still do not know how it will go with and all the betting operations this is probably the most uncertainty that includes our guidance.

[Vladimir Bespalov:]

Okay. Thank you very much. My second question will be on the potential use of proceeds from the sale of Tochka. First of all, when I expecting to get those proceeds, and how are you going to spend? Can we expect, for example, more dividend distributions, or you have some other plans? Thank you.

[Elena Nikonova:]

Yes, thank you for the question. I will also try to cover. We are expecting the most part of the consideration in the third quarter as we said prior in the -- our press release related to Tochka. Also, we will have final adjustment to the deal when the audited financials of Tochka will be issued. So it will be somewhere in the second quarter of 2022. And only then we will understand the real cash consideration, the real price for this deal. Also, I would like to highlight that it is a decision of the Board of Directors to decide how to distribute what amount of dividends to distribute. Prior we decided as we did in 2020, we paid 20% of our adjusted net profit. And for this year it was also agreed by the Board of Directors to distribute at least 20% of the adjusted net profit and this will be done, for sure. In respect of the Tochka payment, we firstly need to consider our budget for the next year and investments in the project that we're right now working on. And considering this at year-end, Board of Directors, there will be a decision whether to invest this money in development of current and new projects, or whether partly to distribute this part to the dividends. And of course, our highest priority is to expand with a strong focus on our return and create value for our shareholders. And of course, if we will have any extended cash, of course, we will distribute it, if it will be a decision of Board of Directors.

[Vladimir Bespalov:]

Thank you very much. My next question is on Factoring PLUS. As far as I remember, during some previous calls we discussed with the management that this could be a very important part of your business in the medium to longer term. But looking at the numbers for this quarter even adjusted for some one-off in the second quarter of 2020, it looks like the growth performance is not that impressive in general. Are there any changes in your views on this particular business? And in general, what you expect from it in the medium term?

[Andrey Protopopov:]

Yes, thank you for your question. I will give the overall remarks and probably will -- Elena will give more color on the numbers. Generally, while you’re right, revenue is not growing versus last year, which is mostly related to the certain one-off adjustments. If we're looking into the growth of the numbers, including, for example bank guarantees portfolio, which is growing close to -- which is close to doubling year-on-year. And Factoring portfolio is growing quite nicely as well together with a number of clients. On top of that, team was adding two new products on top of this bank guarantees and factoring. So we believe that, that it still have a quite strong potential for the growth. I would also mention that due to seasonality specifics as a majority of the growth and the volume is coming from the second half of the year. So, Elena, if you can add some colors on this adjustment -- one-off adjustment last year, that is kind of confusing the results of the second quarter.

[Elena Nikonova:]

I would say that in prior year factoring preparations were not too significant for the company. And, yes, there was some maybe not too significant for the group adjustments related to deferral of agent commission that had the effect, if you will, call it year-over-year. If you will take it off, you will also see that they are growing and operations much better and increasing compared to prior year. I would also add to Andrey's word that we also should consider economies of scale like when you will see increase in portfolio, if we will consider bank guarantees, we will see more profits the same as to the factoring preparations. We see that the project -- both projects are growing quite well and we see the 3 years plans that also have good growth rates.

[Vladimir Bespalov:]

Yes, thank you very much.

[Andrey Protopopov:]

And just a couple of figures here also on the portfolio itself. The Factoring portfolio increased by 59% year-on-year, the digital bank guarantees portfolio increased 87% year-on-year. And this comes along with active clients growth by 39% in factoring and number of deals grown over 40% in the digital bank guarantees. So the operating results are quite impressive.

[Vladimir Bespalov:]

Okay. Thank you very much. But in terms of the medium term growth, what do you think is kind of a normalized growth rate for this kind of business?

[Elena Nikonova:]

Well, probably we would not like to comment right now on the medium growth rate of this project.

[Andrey Protopopov:]

Yes, I believe that there is a market potential to continue the same level of growth of business for the next couple of years. But obviously we'll need to see how we go further, but currently its growing .

[Vladimir Bespalov:]

Okay. Thank you very much. And my last small question is purely technical on the betting related revenues. Is my understanding correct that those revenue streams which at risk go to e-commerce, while those which you -- I mean, in the worst case scenario that you're not going to be an operator for the industry, and that the revenues you're going to retain a part of money remittances.

[Andrey Protopopov:]

Yes, part of this revenues, the bigger one is going to the e-commerce, but winnings payouts to cards are going through the money remittance. So both verticals will be affected.

[Vladimir Bespalov:]

Thank you very much.

[Operator:]

Our next question comes from the line of Ildar Davletshin with Wood & Company. You may proceed with your question.

[Ildar Davletshin:]

Okay. Thank you very much for taking my question. Just mostly some follow-ups to the questions that have been already asked. So on the guidance, would you be able to confirm that this 10% to 20% decline assumes that you have absolutely no role in the new regulator, the betting regulator? So that would be my first question.

[Elena Nikonova:]

Yes, we included all negative effects to the -- to this guidance.

[Ildar Davletshin:]

Yes, that was my understanding as well. Okay. And the second on cross-border transactions, so you sounded a little cautious in your comments about kind of current and near-term trajectory saying that there was some impact, or there could be some impact from the restrictions on future performance. So I'm just wondering now that we have 1.5, almost 2 months in the next quarter, since you reported these numbers. What trends do you see? Is it similar to the second quarter or like, let's say, June, in terms of the cross-border transactions? Or is there some further continued recovery? So I understand there was some sort of a progress month-by-month from the start of the year when it was the worst, the biggest impact and then gradual recovery. Is this recovery continuing at this level?

[Elena Nikonova:]

As of now, we see - we still see . We still continuing growth. We still …

[Andrey Protopopov:]

Yes, yes. Elena, I will cover you.

[Elena Nikonova:]

Okay.

[Andrey Protopopov:]

So, yes, generally we are mostly talking about the overall business, the same trends that are in May and June. I would say that bigger impact on our growth, let's say, growth trends this year and that sort of numbers like month-after-month was driven not by international transactions to some of operations were able to establish starting from the first month of the year, but more with the growth of TSUPIS separation because this year, it was quite strong -- quite strong growth here. At the same time, talking about this quarter, I would like to probably give you more color on guidance as well. I would like to remind that the second quarter of the last year was the worst quarter for us, because of the lockdown and cancellations of the majority sports event. And the third quarter of last year was basically the best quarter for last -- for us in the last year because it was kind of robust after the lockdown was over and a lot of sports events were back. So last year there was very, very strong results in bettings and some other key streams for us. So that's why while absolute numbers currently kind of continuing in the trends in the second quarter, when we are looking versus last year, it's obviously a high base, and its results will be much worse versus second quarter.

[Ildar Davletshin:]

I see. Okay. Thank you. And maybe just two very quick follow-ups. So on -- you mentioned Kazakhstan, which apparently is doing quite well. So I'm curious if you could give us some color in terms of contribution or the scale of this operation, maybe as a percentage of total volumes or revenue, and maybe a broader CIS, like other than Russia, other countries like percentage of your …?

[Andrey Protopopov:]

Only Kazakhstan is somewhat material, and you can think about around 5% of payment services.

[Ildar Davletshin:]

That's volumes of revenues?

[Andrey Protopopov:]

Revenues.

[Ildar Davletshin:]

Thank you. And the last one is, so there was a question already asked about capital allocation, the use of this process, but maybe more mid-term, so you've been paying around 50%, sometimes more percent of your net income, adjusted net income, like what do you think given that you have a bit less of some still early stage growth project, yet many are already becoming profitable. Do you think that it could be in the future higher share of dividend payout ratio more than 50% or alternatively, have you thought about the buyback given the current dividend yield which is seems to be over 10% on an annualized basis. Have you thought about buyback at all? Thank you.

[Andrey Protopopov:]

I will cover the midterm vision here, and probably Elena will add on the buyback, one of the additional question. So, I will say it's too early at this stage to say. As we said, for this year, Board of Directors set the minimum dividend payout. Going forward, we will be discussing this one. And as I said answering the strategy question we are currently looking for other opportunities to grow given the difficulties and uncertainties that we are facing with TSUPIS businesses. Those opportunities may require in the future investments and based on those decisions on the future dividends will be made. So it will depend, I will say, on our strategy and capital needed for its execution.

[Elena Nikonova:]

Okay. I will then cover the second question with respect of buyback. From the technical perspective, it's a bit difficult as we have a holding like another company in Cyprus. And it's a bit difficult to make a buyback through the Cyprus entity, but it's possible. I would not say that it's right now on the table what we are discussing, but this is possible.

[Ildar Davletshin:]

All right. Thank you very much.

[Operator:]

Ladies and gentlemen, we have reached the end of today's question-and-answer session. This also concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.