Thank you, operator, and good morning, everyone. Welcome to the QIWI Second Quarter 2013 Earnings Call.

I'm Yakov Barinskiy, Head of Investor Relations. And with me today are Sergey Solonin, our Chief Executive Officer; and Alexander Karavaev, our Chief Financial Officer.

A replay of this call will be available until Tuesday, September 3, 2013. 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 of this call, it was held and recorded on August 27, 2013.

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 of 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 statement to reflect the events that occur after this call. Please refer to the prospectus on Form 424B4 filed on May 3, 2013, from our initial public offering 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 will begin by turning the call over to Sergey Solonin, our Chief Executive Officer.

Thank you, Yakov, and thanks, everyone, for joining us today. QIWI delivered another quarter of strong operating and financial results.

For the second quarter, our adjusted net revenue grew 62%, driven by strong growth in payment volumes particularly in Visa QIWI Wallet, where we continue to see solid momentum in both new customer adoption and increased usage among our existing account holders.

Our adjusted EBITDA grew 88%, reflecting revenue growth and continued operating leverage in the business. And our adjusted net profit grew 57%.

Our financial performance in the second quarter was boosted in part by one-off effects from the reintroduction of fees charged for inactive wallets. Alexander will walk you through this in more detail in a few moments.

Overall, our results for the second quarter and first half 2013 demonstrate the value of our proprietary network and comprehensive use of differentiated payment services, as well as the continued execution of our strategic growth plan.

Moving into the second half the year, we continue to see positive trends in the underlying growth drivers of our business, which combined with our strong first-half results, gives us the confidence to rise our revenue and adjusted net profit guidance for 2013. Alexander will provide you with more detail on our results and guidance in a moment, but first, I would like to share with you some business highlights of the second quarter, as well as some important recent corporate developments.

First, as I mentioned, we continue to see strong growth in our Visa QIWI Wallet business. The number of Visa QIWI Wallet accounts grew by over 50% or approximately RUB 14 million, and payment volumes grew by an 80% compared to the second quarter of 2012.

We believe our customers truly recognize the value and the convenience of what an electronic wallet provides.

Second, as you are aware, in July, we appointed Alexander Karavaev as our CFO, and Anna Stoklitskaya as Head of our Visa QIWI Wallet business. Alexander brings a number of years of experience to the CFO role, including to the experience as CFO for large Public Confidant [ph] .

And as you know, he was previously our Chief Operating Officer. Anna brings more than 15 years of strategic and production marketing experience to us from Procter & Gamble.

The appointments of Alexander and Anna to their respective roles reflect our commitment to position QIWI to capitalize in under a wide range of growth opportunities available to us, as well as our transition to a public company.

And finally, we announced today that our Board of Directors approved the dividend of approximately $16.6 million or $0.32 per share. Our dividend payment underscores QIWI's significant financial flexibility, supported by our strong free cash flow and balance sheet, and our commitment to enhancing total shareholder value.

In summary, I'm very pleased with our second quarter results. As we look to the second half of 2013 and beyond, we remain focused in our growth initiatives of increasing the number of participants in our network by enhancing our value proposition to our customers and partners, introduce and in driving the penetration of real value-added services and expanding our network distribution and market presence over the long term.

And now, I will turn the call over to Alexander, who will discuss our financial results in greater detail. Alexander?

Thank you, Sergey, and good morning, everyone. As Sergey mentioned, QIWI generated strong financial and operating results in the second quarter of 2013.

On a consolidated basis, our total revenue increased by 36% to RUB 2.9 billion compared to RUB 2.1 billion in the second quarter of 2012. Our adjusted net revenue for the quarter increased by 62% to RUB 1.56 billion compared to RUB 0.97 billion in the second quarter of 2012.

By reporting segments, QIWI Distribution net revenue grew 16% to RUB 782 million. Revenue growth was driven primarily by 12% growth in payment volumes to approximately RUB 124 billion and terminal limited extent by an increase on our net revenue growth supported by the growth of high-margin value-added services and other related services that we provide to our network participants.

For example, the revenue from advertising increased by 26% in the second quarter of 2013 as compared to the same period in 2012, to reach RUB 134 million.

You may see that advertising revenues significantly outpaced the growth of QIWI Distribution net revenue. We also wanted to reemphasize as in -- that in the current period, the increase in the payment volume of QIWI Distribution is fueled by the significant networking share, under which increasing volumes of Visa QIWI Wallet rewards drive volumes and driving our QIWI Distribution.

To illustrate this fact, the integral revenue of QIWI distribution, which primarily comes from QIWI Wallet alone, in the second quarter of 2013 constitutes of approximately 34% of the total gross revenue of QIWI Distribution for that period, up from approximately 19% for the corresponding period in 2012.

first, an increase in active accounts and payment volumes; second, an increase in net revenue yields; and third, the change in the way the company charges for inactive accounts. I will discuss each of this in order.

Visa QIWI Wallet payment volumes grew strong 80% to almost RUB 59 billion due to the fact of just drive by share gains. Visa QIWI Wallet net revenue yield was 1.29% in the second quarter of 2013, up from approximately 0.81% in the corresponding 2012 period.

The increase in Visa QIWI Wallet net revenue yield was primarily driven by an increase in payment volumes associated with higher revenue-generating transactions, such as e-commerce, as well as the change in the way the company charges for inactive accounts mentioned before.

Lastly, beginning in March 2013, QIWI introduced the fees for inactive wallets that was temporarily discontinued in October of last year. This fees amounted to RUB 224 million in the second quarter of 2013, up from approximately RUB 29 million in the same period of the prior year.

Though we expect to have this revenues to be occurring going forward, the amount of the second quarter of 2013 represents that effectively a catch-up of the inactive balances accumulated starting from the last year where we temporarily discontinued to charge these fees, and we, therefore, expect the amount of these revenues to decline in the near future to wear-off the still historically Q4 to discontinue.

The year-on-year growth rate projected net revenue, adjusted EBITDA and adjusted net profit in the second quarter of 2013, excluding the share of revenue derived from inactive accounts, were 43%, 48% of 13%, respectively. I would like to highlight that even when excluding these one-time benefits, Visa QIWI Wallet net revenue still more than doubled when compared to the second quarter of 2012.

Now moving to the expense side of our income statement. First of all, I would like to mention that we have generally continued to experience positive operating leverage in respect of the majority of our expenses.

Now I will walk you through major items with significant fluctuations year-over-year. The first item is bad debt expense, which increased in the second quarter of 2013 almost 8 times as compared to the same period in 2012 to reach RUB 73 million as compared with RUB 9 million in 2012 due to the fact that we booked an additional provision for doubtful accounts in respect to shorten large overdrafts to agents.

Second, we reported a foreign exchange gain of RUB 4.2 million in the first quarter of 2013, just as a foreign exchange gain of more than RUB 51 million in the corresponding period of 2012, which primarily resulted from gains on March as originally measured in U.S. dollars and euro have the key to deal shield [ph] the second quarter of 2012.

And third, we recorded RUB 93 million of share of loss of associates, together with the impairment of investments in associates in the second quarter of 2013 as compared to RUB 6 million loss in the corresponding period of 2012.

The increase in share of loss of associates and the corresponding impairment was predominantly caused by one associate, [indiscernible], and investments, which we have completely written down to 0 yield for the regeneration of this operating result. A carrying amount of investments in Associates is 0 on our balance sheet as of now.

Consequently, we do not expect any significant further losses arising from those this year.

Finally, as Sergey mentioned, we announced today that following the determination of second quarter 2013 financial results, our Board of Directors approved the dividend of $16.6 million or $0.32 per share. Please note that the amount of dividend was also positively affected by the one-time effect of the revenues we derived from inactive wallets, and the determination of future dividend amount will depend on effects and circumstances after the end of each particular quarter, and the final decision rests with our Board of Directors.

The dividend record date is September 9, 2013, and the company intends to pay the dividends on September 10.

Now I would like to review our 2013 guidance. Based on strong results for the first half of 2013, we are raising our adjusted net revenue and adjusted net profit guidance ranges.

We now expect adjusted net revenue to increase by 27% to 30% over 2012, just as our prior outlook of 21% to 26% growth. And we now expect adjusted net profit to increase by 35% to 40% over 2012, just as 27% to 32% previously.

With that, may I kindly ask the operator to open up the call for the questions.

The question on the pay -- the QIWI Wallet, what percentage of the payment volume is coming from e-commerce? And what is the trend -- what would you expect that trend to be over the next year or 2?

It's Alexander. Thank you for the question, Bob.

We are not disclosing the percentage of volume that comes from e-commerce. Generally speaking, we have emphasized that in the past and we're going to reemphasize that the e-commerce is one of the fastest-growing segments in our portfolio in Visa QIWI Wallet.

And actually, we expect to continue to increase our share in e-commerce in Russia over the next few months.

Okay. Maybe a question on the inactive accounts, the RUB 224 million that you earned this quarter.

What would be a normal run rate, I guess, for that? And why -- what was the reasoning behind halting the fees and then re-adding them?

Okay, thank you very much. We have discontinued the -- I mean, the -- I -- may I please start by saying that historically, that has been, let's say, a normal revenue stream.

And usually, what's happening is the people, after some period of activity would never becoming in the end. And actually, we historically charge for inactive accounts.

We have discontinued that revenue stream in October of last year because we transferred the operation of QIWI Wallet from a commercial [indiscernible] within the group to a bank due to the new law that was coming forth in Russia. And due to the legal implications, we actually omitted to have a 6-month period until we made and renewed that policy again.

I think we can mention that previously that, that's right offerage [indiscernible] this year, was in our budget starting from Q3 of this year. While we have [indiscernible], as soon as we haven't gotten the clearance from the legal point of view.

So effectively, what happened is that we catch up the -- those inactive wallets, inactive accounts that were accumulated, seems at the point of time when we discontinued. Going forward, while we actually expect that amount to be [indiscernible], which would come to a more normal -- into normal levels that you've seen in the past.

Historically, as we present from the press release in Q2 of 2012, that amount was approximately RUB 29 million. Generally speaking, we are not here with the one in the guidance on exact amount of those revenues because it's not easy to predict.

It certainly depends on the churn and on the activity of the users. The goal, we expect that, that amount would not be that significant in -- as in Q2 2013, but is rather would be close to something you have seen in Q2 2012 going forward.

Okay. And Sergey, the competitive environment, I mean, PayPal was making more noise about entering Russia.

That may not -- I know it's not going to be easy for them. And I'm just wondering if you could comment on any changes in the competitive environment from either the likes of PayPal, or the Yandex Money or other new competitors?

Well, no, we did not see any effect from PayPal or other competitors. Although I know that recently, their bank announced some program to increase its presence in retail on self-service kiosks, but I'm not sure about that.

Okay. So you're not seeing any -- your outlook on the competitive environment is?

No changes. And also, we introduced some measures a few months ago when we stopped providing QIWI Wallet services on competitors' self-service kiosks.

So we think that QIWI now in quite favorite position in retail as soon as the turnover on kiosks is quite substantial for Visa QIWI Wallet.

My question relates to the guidance that you provided. Could you maybe quantify how much of the guidance increase came from the additional benefits or one-off of the inactive accounts?

And how much of the guidance increase was on the back of your general better outlook for the year?

I mean -- thank you very much for the question, Alex. Yes, I mean, it's -- we're not really quantifying those effects in our guidance.

So what I can say is that certainly, this one-time benefit that we had in Q2 helped us to increase the guidance. Though we are optimistic about the outlook for the rest of the year and we generally see good trends in acquisition of new customers in Visa QIWI Wallet and the -- in the, I mean, the activity of our customers.

Though as we have previously communicated, we are, too, in investment mode. We reiterate that we may be investing some more through P&L both to the top line by adding some of the new products that will not produce huge revenues for us, though we would increase the consumer base.

And as well on the OpEx side, we may be investing some more in the education of the consumers in the advertising and in promotion campaigns that we feel will increase the number of users that are using our QIWI Wallet. And we also plan to invest certain amounts into a development that will go through operational expenses like the projected visa that we need to develop a certain product for as well from other stuff.

So those are probably the major bigger [indiscernible] guidance for the rest of the year.

You mentioned that momentum continues to be pretty good after Q2. We're already about 2/3 of the way through Q3, and I'm just wondering, can we expect wallets and volume and pricing, kind of average yield, all of those metrics to continue to be up sequentially in Q3?

And maybe you can refresh us a little bit on seasonality in Q3 as well.

Thank you, David. Thank you for the question.

Yes, indeed. This year is probably the first year when we can feel some seasonality in the consumer [indiscernible] share in the volumes and average volumes in Visa Wallet.

It's actually usual slowdown that you would see in the companies like Internet companies when the people usually use less -- I mean, Internet usage is less than using the rest of the year. So given that in Q3, we actually have July and August, both months usually the summer vacation months.

What you may expect is a certain slowdown in the usage of QIWI Wallet and the total volumes of payment. We are not, though, guiding on each particular quarter.

Our guidance is for the rest of the year. And again, given our experience, what you may expect is the ramp-up of the revenues in Visa QIWI Wallet starting from September onwards.

So all in all, we probably would not expect Q3 to be -- to have this huge increases in terms of the usage net revenue in our income. But I mean, given Q4, I was -- we are pretty confident in the guidance that we provided for the rest of the year.

Okay. So if I heard you right, it sounds like we'd expect some growth sequentially in Q3, just not as big as we've seen sequential growth the few last quarters, and then Q4 should be the bigger growth?

That's correct.

Okay. And then, I guess, my second question, it looks like revenue and earnings guidance were nicely raised, but it also looks like really the raise was mostly just due to the Q2 benefits from the inactivity fees, and that the second half is basically about as we would have expected it to be with the old guidance.

Is that the right way to look at it? Or do you feel like the second half -- the core guidance is also better than you had expected in the past?

Well, I mean, as I talked previously, we feel that from a kind of fundamental point of view, we are perfectly on track. And where we see the expansion of the market and the fact that we are likely gaining share in some of the segments of the market, which are more interesting.

Though we are now very much concentrated on developing a kind of long-term step plan to invest in our future in 2014 and 2015. And how we see that is that we would like to get as many users as we can, and to increase the users and their loyalty and the usages to your wallets as much as we can.

That's why we basically would like to have the flexibility for the rest of this year to invest in the consumer base, both -- by which we're investing into the consumer base, both from the OpEx and from the top line as well, by adding those low-marginal products, which would be [indiscernible] drive audience. So that's actually the -- maybe the ground -- pretty kind of guidance.

I guess, 2 questions, please. Firstly, could you update us on where you are in terms of the progress on the multibank issuer model?

Will we see any banks issuing cards either in Russia or anywhere else in the near term? And then similarly, on the last call, you did talk about some very significant strategical partner agreement that you might do, has the situation changed?

Is there any update there since you last spoke to us? So that's the first question.

And then the second question, I know it's very early to talk about 2014, but maybe you can just say where you're sort of happy for consensus revenue estimates to sit at this stage -- consensus revenue growth estimates to sit at this stage for 2014? That's it.

On multibank issue, we are planning to do one more bank in Russia to the end of the year. And also, we are introducing Visa QIWI Wallet with banks in Kazakhstan also this year.

And I think we are now in the testing period in Kazakhstan so it is already available as a service for Kazakhstan clients. So on our strategic partnerships, we are moving with Visa.

We have past decided that and we are already connected to either person directly. So we're working on that.

And as I told before, we will be working on that all 2013 and I think 2014 as well. And you will see some products on the way.

And I'll ask Alexander to answer the revenue question.

On the long-term guidance, look, during the IPO, even in the roadshow, we trended our required kind of mid-term guidance of -- or our top line growth of more than 20%, and the borderline growth of 25%. And we actually do not see any reasons why we would not be sticking to that guidance as of now.

Though we certainly going to be starting our budgeting process pretty soon to be able to budget for 2014. And they'll actually -- we may be, as you're saying, we'll give you some outlook for 2014 after we report the Q3 results.

Could I find out whether or not there has been any progress regarding the potential partnership with one of the big restaurant food retail chains?

Well, we are in some talks with one of the big food retails but we are not disclosing this information yet.

This is Ryan, filling in for George. Few questions.

What exactly changed with the inactivity fees? I guess, compared to the second quarter of '12, did the fee go up?

And then more on that, what's kind of a sustainable revenue yield in the Wallet business moving forward?

Okay, thank you very much for the question. In terms of the second part of the question, so going forward, they may look -- we are not driving towards the net revenue yield.

But if you skip out the one-time effect and you would see something like 0.91% of net revenue yield into your wallets, so that's probably something that we are going to be heading going forward. It can go up a little bit or go, go down, due to some of our investments.

So top line, I mean is, I like to feel mostly will be changing substantially in the near future. As for the -- I mean, what exactly changed at work, I mean, it's the following: We have discontinued the charging for inactive wallets last year, and we reintroduced that fee this year.

And this actually is publicly available information. You might see that in our public offer.

What we've been doing last year is that we were charging RUB 16. It's approximately $0.50 per day of inactivity, after expiration of 6 months of inactivity.

And when we introduced these fees in March of that, of this year, we decreased all of the price, so we are charging RUB 10 for each day of inactivity after the expiration of 6 months of total inactivity of the account.

Okay, okay. And now, could you guys give us some insight into the revenue drive outside of Russia and the growth rates there?

Excuse me, George, could you please repeat?

Excuse me?

Could you please repeat the...

Revenue derived from outside Russia and kind of the growth rates and what are you seeing?

Okay, thank you very much. I know, we're not driving separately on the revenue outside of Russia.

But as Sergey mentioned, we may be having some new projects that we want to be launching in NCIS potentially this year from -- I mean, one of those projects is in a testing phase now. So hopefully, we are going to be seeing some increase in the revenue outside of Russia.

Though as we've told during the IPO, so the international expansion is one of the strategic long-term initiatives, but we are not really expecting any significant monetary effect anytime soon. So how we see that is, that from a financial point of view, or from a point of view of revenues and net incomes, the international expansion will only be visible starting from 2015 and beyond.

And until that time, we just -- we'll be resting in the consumer ways and then the product in those countries.

Okay, okay. One more question, I'll get back in the queue.

As far as the value-add services and the distribution piece, how high could that get as a percentage of total distribution revenue?

I mean, if you're talking about the -- let's say, a pure kind of new type of commemorative charges that's not related to payment wallets like the advertising and so on. If -- I mean, it should be more than 10% of total distribution revenues.

And as you've seen, that percentage was going. What we noted this year is actually many other industries, they're advertising which kind of -- which subject to seasonal slowdown during the summer months.

Though strategically, we actually expect that revenue stream to be one of the growth providers and we will expect the -- that revenue stream to ramp up again in Q3 and onwards.

Just some question on the -- your medium-term financial outlook 20%, 25%. You are benefiting this year from the catch-up, I guess, in the inactive account fees.

Is it your thought to grow 20% and 25% -- that your ability will be to grow that in 2014 off of this year's numbers, including those fees?

Yes, we believe we will -- you'll have a different growth in 2014. Certainly, when we going to be reporting the 2014 numbers, then we will be actually to make the numbers comparable to see those, including and excluding the one-off effect.

Though, again, that one-off effect, if given the review, will be, I mean throughout the year, will not be that huge for the full year results. What we see is that other drivers, like the increasing the number of TV awards users and the increasing shelf of e-commerce provide us the confidence that the growth will project in 2014 will likely continue.

Okay. Let's see, the -- I guess, when you have these inactive accounts that you're charging these fees to, do you see a number of those accounts start to reactivate, or -- and is it difficult to collect those fees if they're not active?

No, I mean, the users, that I mean there's the -- as soon as the -- I mean, any specific account was inactive for like a few months. And inactive means really inactive because they never, I mean, send any SMS or beginning to assist them, top up the account place through the kiosks or our visa keywords, and so on.

And usually, after being 6 months of inactivity, I mean, quite a majority of those accounts would be, I mean, inactive forever. That, I mean, again, that usually would mean that the person probably has changed the seller number and this is how we see that.

Okay. And then last question on bad debt expense.

The increase this quarter, is that -- can you give any little more color on that? And what your expectations are how to manage -- how you're going to manage that bad debt expense?

Or we should think about as normalized levels of bad debt expense over the long-term?

No. Well, we -- actually the bad debt expense, that is potential and may happen until the end of this year.

You've already included from our guidance. So what we are trying to achieve is actually to be conservative, and we actually hear from some large accounts of the agents that we feel potentially may not be collectible.

Though, it does not necessarily mean that those accounts are completely lost. So it's just our kind of estimation.

And in certain cases, we may be reserving some of the results -- and some of their -- but their allowances -- as soon as we see that the agent is really in the contract. Going forward, it's really very difficult to predict.

I mean, certainly, we have all the procedures in place to win the credit risk. But though it's given the appraised model [indiscernible] distribution.

It really reminds how [indiscernible] risk we disclose that to quite a substantial degree in the prospectus with all the details from. Well, we believe that whatever happens with the bad debt expense, we certainly are confident that we are going to be achieving the guidance that we provided, and we are doing everything in house that we can to manage that expense.