QIWI Plc (NASDAQ: QIWI) Q2 2020 earnings call dated Aug. 19, 2020
Corporate Participants:
Varvara Kiseleva — Interim Chief Financial Officer
Boris Kim — Chief Executive Officer of QIWI Group
Andrey Protopopov — Chief Executive Officer of Payment Services
Analysts:
Chris Kennedy — William Blair — Analyst
Vladimir Bespalov — VTB Capital — Analyst
Andrey Mikhailov — Sova Capital — Analyst
Andrey Pavlov-Rusinov — Goldman Sachs — Analyst
Svetlana Sukhanova — Sberbank — Analyst
Ildar Davletshin — Wood & Company — Analyst
Presentation:
Operator
Good day everyone and welcome to the QIWI Second Quarter 2020 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the call over to Ms. Varvara Kiseleva, Interim Chief Financial Officer of QIWI. Please go ahead.
Varvara Kiseleva — Interim Chief Financial Officer
Thank you, operator, and good morning everyone. Welcome to the QIWI second quarter earnings call. I am Varvara Kiseleva, Interim Chief Financial Officer. And with me today are Boris Kim, our Chief Executive Officer and Andrey Protopopov, Chief Executive Officer of the Payment Services segment.
A replay of this call will be available until Wednesday, September 2, 2020. Access information for the replay is listed in today’s earnings press release, which is available at our Investor Relations website at investor.qiwi.com. For those listening to the replay, this call was held and recorded on August 19, 2020.
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 future performance. All forward-looking statements made today, reflect our current expectations only, and we undertake no obligation to update any statements to reflect 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 any 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. Reconciliations to IFRS measures and certain additional information are also included in today’s earnings press release.
With that, we’ll begin by turning the call over to Boris Kim, our Chief Executive Officer.
Boris Kim — Chief Executive Officer of QIWI Group
Thank you, Varvara, and good morning, everyone. Thanks for joining us on this call. Today, I’m glad to share with you our second quarter 2020 financial results. This quarter, we demonstrated robust performance and reached a number of important goals.
Our Payment Services segment showed solid dynamics despite challenging market environment and delivered 5% segment net revenue growth. That being said, April and May were the most challenging months for us so far.
Our e-commerce market vertical was affected by the cancellation of numerous major sporting events. Our Money Remittances market vertical was temporarily hit by decline in various self-employed payment streams. Our physical distribution network was negative, affected by the lockdown measures and temporary retail shutdown that limited users’ access to certain retail locations, as well as overall activity.
However, in June, we started to see strong recovery in the key markets and niches of our Payment Services segment and managed to achieve positive year-over-year growth. Moreover, our B2B projects, including Factoring PLUS, Flocktory and even Tochka JV showed impressive resilience and strong operational performance despite the complicated environment.
We believe that the performance of Payment Services business, as well as our other projects, demonstrated resilience of the digital solutions we have developed so far, their value and relevance for our customers.
This quarter, we focused on optimizing our operations and loss-making projects. We also prioritized the health and well-being of our employees. Hence, the absolute majority of our employees is still working remotely. I’m glad to note however, that our business continued to operate mostly on all projects including the wind down of Rocketbank and the sale of SOVEST, notwithstanding the challenges of — that are new to Rocket.
We strive to further improve the efficiency of our operations across all key segments and projects. Today, we aim to focus on our Payment Services business, in order to grow further by targeting our core niches and areas of expertise, creating new use cases well fitted to serve our clients. Simultaneously, we strive to expand our B2B proposition through projects like Factoring Plus and Flocktory.
Having said that, I’m glad to acknowledge that we continue to see many opportunities both in the payment space and readjustment markets. I believe we are very well positioned to continue to strengthen and enhancing our ecosystem in order to secure our long-term goals for us.
Although the current recovery and performance give us optimism, we remain cautious. We continue closely monitoring the situation across the world and stay prepared for potential negative developments. At the same time, I do believe that we are well positioned to continue developing our business and strengthen our ecosystem to provide our clients the best-in-class digital solutions.
Now, onto some of the recent highlights. Second quarter of 2020, net revenue increased by 23% to reach RUB6.8 billion, up from RUB5.6 billion in the second quarter of 2019. The increase was mainly driven by Rocketbank segment net revenue, as well as by Payment Services segment and Consumer Financial Services segment’s net revenue growth. Andrey will discuss the performance of our Payment Services segment in a minute while I walk you through the results of our other segments.
Rocketbank net revenue was equal to RUB509 million for the second quarter of 2020 as compared negative net revenue of RUB132 million in the second quarter 2019. That significant growth resulted primarily from measures taken as part of wind-down process that we are implementing from the late March 2020, including mostly the termination of the Rocketbank loyalty program.
Moreover, I’m happy to confirm that we have substantially completed the wind-down process and reached our initial operating targets in terms of the number of clients and the amount of client balance. We believe that the termination of the current Rocketbank services, also which will be completed shortly and the total net loss of Rocketbank for the full year 2020 will be slightly below our initial expectations.
At the same time, we continue to review different ways to reuse Rocketbank assets. We are piloting certain B2B2C-focused products in our Payment Services segment, such as, for example, debit card programs for our partners and the employees earlier developed in Rocketbank. Hence, the expenses associated with piloting such products, including predominantly personnel expenses will be attributed to the Payment Services segment going forward.
Moving on to another achievement that I wanted to share with you. On July 30, 2020, we completed the sale of our SOVEST projects to Sovcombank. As part of this transaction, we have transferred to Sovcombank, SOVEST loan portfolio, as well as certain other assets related to the project. While we incurred a certain pre-tax loss on the disposal of the project, the transaction valuation was significantly better than initially expected.
We were able to achieve such impressive results largely because of a better performance of our loan portfolio, including smaller gross portfolio as of transaction date, better collection and low reserves. At the same time, Consumer Financial Services segment net revenue has reached RUB437 million in the second quarter of 2020 as compared to RUB283 million for the same period of prior year, driven primarily by higher adoption of consumer paid value added options as well as overall growth of the project, including significant increase of the loan portfolio.
For the avoidance of doubt, as of June 30, 2020, SOVEST project is presented as “Discontinued Operation” in our IFRS financial. Corporate and Other category net revenue was RUB496 million as compared to RUB264 million in the second quarter of the prior year.
Category net revenue was primarily driven by Factoring net revenue growth to RUB204 million compared to RUB53 million in the second quarter of the prior year. Factoring net revenue growth was driven by the scaling of the project, including the expansion of bank guarantees and Factoring portfolios. Flocktory project consolidation started in December 2019, also contributed to the above-mentioned growth.
Finally, I’m glad to announce that following the determination of the second quarter 2020 financial results, our Board of Directors has approved a dividend of $0.33 per share. We remain committed to the target dividend payout ratio of at least 50% of the adjusted net profit for 2020 approved by the Board in March 2020.
The Board of Directors reserves the right to distribute the dividends quarterly as it deems necessary, so that the total annual payout even in accordance with the target provided. However, the payout ratios for each of the quarter may vary and be above or below provided target.
Despite the challenges we all face today, we continue to see many opportunities, both in the payment space and our key niches, including self-employed and the adjustment markets. We will continue to explore such opportunities and we’ll strive to further strengthen our ecosystem with the ultimate goal of securing our long-term growth prospects.
With this, I will turn the call over to Andrey, for an update of our Payment Services business. Andrey?
Andrey Protopopov — Chief Executive Officer of Payment Services
Thank you, Boris, and good morning, everyone. Thanks for joining us. Moving on to the result of our Payment Services segment. For the second quarter 2020, our Payment Services segment volume decreased by 6% to RUB347 billion, driven primarily by decline in financial services market vertical volumes, offset predominantly by increase in Money Remittances market vertical volumes.
The volume dynamics in Financial Services vertical was primarily driven by the decline of our physical distribution network. As Boris mentioned, it was negatively affected by the lockdown measures and temporary retail shutdowns that limited users’ access to certain retail location as well as their overall activity.
The growth in Money Remittances verticals was largely driven by the strong performance of Contact Money Remittance system, primarily resulting from the development of the Tajikistan corridor. As we have already discussed, we started to see the impact of the coronavirus crisis on our key Payment categories, including primarily services from betting merchants in the second half of March.
In April and May, our operation across most of our key categories were affected by the COVID-19 and consequent measures to one extent on another. For example, we saw significant pressure in our Retail Distribution. Other categories such as travel and ticketing services we provide to taxi companies and drivers, were also affected by lockdown and other restrictions as well.
On the other hand, certain categories such as, for example, online games and physical e-commerce were demonstrating strong growth rate during lockdown. However, from end of May, lockdown measures started to ease across the globe and some major sport events were started.
In June, we saw a strong recovery in our key niches and markets, and we continued to see the growth in most of our key categories. We believe that the performance of our Payment Services business demonstrates the resilience of our ecosystem as well as the value and relevance of our digital solutions we have developed to-date and aim to develop further.
We are taking this opportunity to review and strengthen our product pipeline and extend the field of services we offer. I believe we will be able to find new niches and enrich our value proposition as a result of this crisis.
Going back to the second quarter results. Payment Services segment net revenue increased 5% to reach RUB5.4 billion compared to RUB5.2 billion the prior year. Payment Services payment adjusted net revenue increased 4% to RUB4.6 billion, up from RUB4.4 billion in the prior year, primarily due to the improvement of payment average adjusted net revenue yield, resulting predominantly from higher net revenue yield in e-commerce market verticals, offset by an overall decline in volume.
Our Payment average adjusted net revenue yield was up by 14 basis points year-over-year to 1.33%, driven by the increase in e-commerce and Financial Services market verticals. The yield increased resulted primarily from the change in product mix, with a lower proportion of low-yielding retail cash transactions across most of our verticals as compared to the previous year.
Payment Services Other adjusted net trading increased 5% to RUB788 million as compared to RUB746 million in the prior year, as a result of growth of revenue from fees from inactive accounts and unclaimed payments. This was in line with overall growth of our operations.
This quarter, we have relatively seen a decline in the number of active Qiwi Wallet from 21.8 million as of June 30, 2019 to 20.9 million as of June 30, 2020. We believe that the key factors that resulted in such decline is related primarily with regulatory and operational reasons rather than any substantial changes in the consumer preferences for economic slowdown. Such declines did not substantially impact our financial operating performance due to increasing diversification of our product proposition and operating models.
Our growth this quarter was supported by the robust result we have achieved through our key products we offer and core categories we serve.
Surely, at the moment, we see many challenges ahead and remain cautious. We believe that we are well positioned to continue to grow our business, enrich our field of services, develop new initiatives and create new use cases for our users, merchants and partners. Simultaneously, we are doing our best to improve and optimize our operations in order to lay a groundwork for the longer-term growth.
With this, I will pass over to Varvara, for more details on the financial performance of the Group. Varavara?
Varvara Kiseleva — Interim Chief Financial Officer
Thank you, Andrey, for an exciting update. Moving on to expenses. This quarter, our Payment Services business continued to demonstrate strong operating performance and generated strong cash flow supported by the successful completion of the SOVEST transaction.
In this quarter, we have also significantly increased overall efficiency of our operations as well as our margins through successful divestiture of the key investment-intensive project, as well as other cost control and optimization measures that we have started to implement in the end of the first quarter.
Before we move on, I would like to highlight that going forward, I will refer to the segment numbers that includes the effect of both continued and discontinued operations under IFRS.
This being said, adjusted EBITDA increased 48% to RUB3.9 billion. Adjusted EBITDA margin was 57% compared to 47% in the prior year. Adjusted EBITDA growth primarily resulted from total net revenue growth, underpinned by a decrease in selling, general and administrative expenses that resulted primarily from a decrease in advertising and client acquisition costs.
In the second quarter 2019, such advertising and client acquisition costs related predominantly to SOVEST and Rocketbank projects, that are being divested in the second quarter of 2020. It was partially offset by an increase in personnel expenses, primarily related to the Payment Services segment personnel expense growth as well as consolidation of Flocktory and Rocketbank redundancy costs.
Group adjusted net profit increased 40% to RUB2.8 billion from RUB2 billion in the second quarter of the prior year. The growth of adjusted net profit was primarily driven by the same factors impacting adjusted EBITDA, offset by an increase in income tax expenses, as well as an increase in foreign exchange loss, resulting largely from the ruble devaluation.
Payment Services segment net profit increased 1% to RUB3.3 billion, driven primarily by Payment Services segment net revenue growth, offset by increase in payroll and related factors, excluding effect of share-based payments and foreign exchange loss.
Consumer Financial Services segment net loss was RUB134 million in the second quarter of 2020 as compared to a net loss of RUB435 million in the same period of the prior year, resulting primarily from segment net revenue growth as Boris discussed earlier, as well as a decrease in selling, general and administrative expenses, primarily related to the lower markets and consumer acquisition costs, offset by an increase in credit cost factors predominantly resulted from the portfolio growth as compared to prior year.
The loss of approximately RUB700 million that we have incurred in the disposal of SOVEST project, did not affect our adjusted EBITDA or adjusted net profit numbers, as it was treated as a nonrecurring item in our segment reports.
Rocketbank segment net profit was RUB44 million compared to a net loss of RUB511 million in the prior year, resulting primarily from net revenue growth, driven mostly by revenue generated from the loyalty program termination, as well as decrease in selling, general and administrative expenses that narrowly related to lower marketing and consumer acquisition costs.
Now, onto our guidance. Firstly, I would like to remind everyone that at the moment we have limited visibility regarding the potential impact of the outbreak of the COVID-19 strain of coronavirus on our business and operations.
In addition, it is currently unclear how much consumer demand would be negatively affected by the outbreak of COVID and what effect that outbreak will have on the macroeconomic environment as a whole. The impact remains uncertain and will depend on the length and severity of the effect the coronavirus has on economic synergy in our markets. The full scope of the negative impact with the abrupt decline oil price and resulting devaluation of the ruble may have on Russian economy also remains unclear but has the potential to be signifcnat.
Our outlook reflects the current views and expectations only and is based on the trends we see as of the date of the earnings call. If such plans were to deteriorate further, the impact on our business and operations could be more severe than currently expected. We continue to monitor the situation closely.
Having said that, we upgrade our guidance in respect of the 2020 outlook. We expect Group total net Revenue to increase by 7% to 15% over 2019. Payment Services segment’s net revenue to increase by 3% to 10% over 2019, while adjusted net profit is expected to increase by 35% to 50% over 2019.
Although we see our second quarter results as a solid foundation for this year, certain other factors remain beyond our control and we reserve the right to revise the guidance in the course of the year.
With that, operator, please open up the call for questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Chris Kennedy with William Blair. Please proceed with your question.
Chris Kennedy — William Blair — Analyst
Hello. Thanks for taking the question. Can you go into a little bit more color on your B2B initiatives, please? Thank you.
Varvara Kiseleva — Interim Chief Financial Officer
Chris, I’m sorry for the radio silence. We’re trying to see if the equipment works well. So, Boris will take the question. He will talk about —
Boris Kim — Chief Executive Officer of QIWI Group
No, I’m okay. I’m okay. I was just on mute. I was just on mute. Thank you, Varvara.
Varvara Kiseleva — Interim Chief Financial Officer
Yes.
Boris Kim — Chief Executive Officer of QIWI Group
Thank you for your question. My understanding is that your question refers to Flocktory and Factoring business. Indeed, we have consolidated 100% of Flocktory in December and this company is a B2B company which provides the management of customer cycle. It’s basically a beta company and you — what is viewed by this company that they showed very good results even during the crisis, which is — I would say — more or less obvious, because especially during the crisis time, relationship with customers, attracting new customer and keeping loyalty with old customer is necessary for all the companies, especially in e-commerce segment.
The second company in B2B segment is Factoring PLUS. They offer structured financing for SME segment. So, they work with SME company which works with big companies, so they have some orders from them, they provide with materials of services for big company.
And they have two basic products, factoring itself and bank guarantees. Both products, as you know, traded very good resilience to provided situation during the first half of the year. And the business model looks very promising and we are planning to develop the ecosystem for SME segment in this field, providing new product. And so, we are discussing like three new products which we are going to launch to the end of this year.
Chris Kennedy — William Blair — Analyst
Great. Thanks for that additional color. And then just one other one. Can you give an update on the sports betting market and I understand there’s some regulatory changes in the fall; how could that impact your business? Thanks a lot guys.
Boris Kim — Chief Executive Officer of QIWI Group
Yes, I will give you a small update regarding the regulation of betting segment, and probably Andrey will give you some more details regarding market itself.
You know that we already mentioned that the government was considering the proposal from Boxing Federation regarding the change in regulation of betting market. And according to the media report, the government has decided to postpone the discussion of this proposal and [Indecipherable].
And the first reaction of regulators and market participants to the proposal was generally negative. At the grant of its proposal, the federation mentioned below contributions to the development of sports and the lack of transparency in their calculations. These problems were addressed with the adoption in July of two laws which define the regulation of the industry.
They also reported in the press about the affiliation of the Boxing Federation on one of the market players and at least they have joint projects [Indecipherable]. However, I don’t think that it’s possible to delegate the regulation of the market under the control of its participants, a private company.
Nevertheless, we believe that uncertainty in market regulation has increased, and we will closely monitor the situation. We are also confident that our expertise as service acquirer and issuer of Qiwi Wallet will be in demand in any scenario. And this will allow us to maintain a significant presence in this market in any case.
Andrey Protopopov — Chief Executive Officer of Payment Services
Let me add a bit on the dynamics of the market itself. So, as we, I think, told earlier, there was a decline in April and, let’s say, it was mid of May. Later on we started to see the increase of the volumes in June and the trend continuous. And I would say that overall, the summer is very strong for betting, because as most of the championship and competitions will stop for half of the spring. Now, we have a lot of events going on almost every day. So, like, these two weeks we have Championship League and the volumes are quite high because we have, kind of, events really, really every day.
So, we will see how it will go after this, I would say, transition period will end. But current trends are quite — quite strong, I would say, overall, in the betting market.
Chris Kennedy — William Blair — Analyst
Great. Thanks a lot.
Operator
Thank you. Our next question comes from the line of Vladimir Bespalov with VTB Capital. Please proceed with your question.
Vladimir Bespalov — VTB Capital — Analyst
Hello. Congratulations on good numbers and thank you for taking my question. My first question will be on dividends, maybe not for this year but going forward. In general, how you look at this? You have a 50% payout. But if we look at the business currently, it’s mostly Payment Services. It’s a good cash generator. In terms of funding, you no longer have SOVEST. You are winding down the Rocketbank. And Factoring is probably the only difference, but relatively small, which requires funding. So, is there a chance that this 50% payout ratio will be increased going forward and still distribute more cash dividend?
And the second question is on your full-year guidance. If I look at the first half and at what you guide for the full year, the second half of the year doesn’t look very strong, even though like we know that most of pressures were in April and May. So, maybe you could provide some color; are you generally very cautious because there is not that much visibility at the moment or there are any headwinds that you anticipate in the water? Thank you very much.
Varvara Kiseleva — Interim Chief Financial Officer
Vladimir, hi. Thank you for your questions. I will take both of them and Andrey would probably add on the guidance if there is something else.
So, for the dividends, I want to remind everyone that the decision about the dividend payout ratio is taken by the Board of Directors annually, and we do establish an annual payout ratio. For 2019, as you mentioned, 50%, it’s at least — for 2020, I’m sorry, as you mentioned, it’s at least 20 — 50% of adjusted net profit. The payout ratio for the next year, for 2021, will be adopted by the Board of Directors in March.
So, as to potential changes to the dividend distribution strategy and higher payout, that will depend largely on the market outlook at the time when we revert with the decision on our plans, on opportunities that we see ahead, etc., etc. So, we expect, generally speaking, that the payout will not — is unlikely to be lower than this year, but to judge on the opportunity of increasing the payout, first of all, as I said, it’s up to the Board. And secondly, it’s too early to give any guidance in this respect.
On the guidance question, there are several points that I would like to mention. First of all, we discussed it already, I believe, on our last call, the Q3 of 2019 have — is a very high base for us. So, we expect that the growth for the second half would kind of have a high base effect. And this would be more complicated to show faster growth rates.
Secondly, we still don’t see how, and hence don’t have enough visibility on how the macroeconomic environment overall, our consumer behavior and consumer sense will evolve given all the turbulences etc.
So, in this respect, we do believe that second half would have a high base and a complicated comparison for us. But we do believe that there is quite a healthy growth potential.
Moreover, I would like to mention one thing you should take into consideration when you’re looking at the Group guidance that for 2019, you will have SOVEST revenues as part of the top line, contributing to the topline growth. And given that the sale of SOVEST was finalized in July 2020, so the base in terms of having SOVEST contribution to the Group will also — will be different for 2019 and 2020.
Andrey Protopopov — Chief Executive Officer of Payment Services
Yes, well, I will probably just say that, although we see quite strong trends now, we believe it’s not yet kind of the normal play. Because, as I mentioned, for the sports betting, we have currently kind of postponed that, because there was cancellation of events, limited opportunity to play. Now, those major events are back, like everyone is excited etc.
So, when we will be, let’s say, in the autumn, we’ll see how this new reality is really formed and what will be the trends on this market and some other markets as well. So, that’s why we are, as Varvara said, on the one hand, looking positive but still are cautious.
Vladimir Bespalov — VTB Capital — Analyst
Okay. Thank you very much. Very clear.
Operator
Thank you. Our next question comes from the line of Andrey Mikhailov with Sova Capital. Please proceed with your question.
Andrey Mikhailov — Sova Capital — Analyst
Good afternoon. Thank you very much for the call. I have a couple of questions. The first one is on the number of active Qiwi Wallet. I would be grateful if you could share the dynamics of this metric in July and August, and perhaps also how it evolved in the second quarter on a monthly basis? And I’ll ask my second question afterwards. Thank you.
Andrey Protopopov — Chief Executive Officer of Payment Services
Actually, thank you for your question, but we are not disclosing these numbers on a monthly basis. Overall, I would say that we may continue to see the same dynamics of some decline for the next period of time. So, the same reason that we mentioned in the press release.
Andrey Mikhailov — Sova Capital — Analyst
Thank you. My second question —
Andrey Protopopov — Chief Executive Officer of Payment Services
Yes, I think that — actually, just want to underline that those reasons are partially kind of technical, because we have different policy, how we collaborated with non-active wallets, and this happened to have some technical effect on the numbers.
And secondly, what is important is that key use cases that are driving our revenues of the wallet, mainly digital entertainment wallet and self-employed wallet are representing not this big number of wallets. So, that dynamic number of wallet that we are reporting cannot really, kind of, reflecting the dynamics of the volumes and the revenues that those wallets are representing.
Boris Kim — Chief Executive Officer of QIWI Group
Yes, I would probably add that the number of wallets itself is not relevant anymore for our company, because we operate in certain niches. We have done not — we don’t have to rate in mass-market segment. So, we focus on the quality of the wallets and not on the quantity.
So, we focus on such parameter as lifetime value, business units, economy. And we are trying to enrich our ecosystem with new products like debit cards, which we started to offer to our self-employed and B2B2C segment.
Andrey Mikhailov — Sova Capital — Analyst
All right. Thank you very much for the detailed answer. Thank you. My second question is on the SME product. You already have the Factoring product and first of all, I would like to know, if possible, what’s the current size of the Factoring loan book and what’s the expected size of this loan book by the end of the year?
And my second question on this one is, you mentioned that you plan to launch three products by the end of the year; would you be able to elaborate on them? And in particular, how many of these three products will have or are expected to have a credit component? Thank you very much.
Varvara Kiseleva — Interim Chief Financial Officer
Andrey, thank you for your second question. So, on the loan book size, currently the — for current portfolio, size is around RUB4 billion, and we expect that by the end of the year, it will reach between RUB7.5 and RUB8 billion.
As for other projects that we aim to test, pilot and probably launch this year, I would say that it’s premature to discuss the details. Once we have the pipeline, we would present them to the market and discuss it in more details. But I would say that all of these products are around different types of SME services and based on Factoring executed and you have by Factoring PLUS, even based on their infrastructure.
Andrey Mikhailov — Sova Capital — Analyst
Thank you very much.
Andrey Protopopov — Chief Executive Officer of Payment Services
Yes, I would add that the portfolio of bank guarantee will reach like RUB25 billion by the end of the year. And while all the products I mentioned and Varvara mentioned, we have around structured financing of SME segment. But at the moment, it’s very early to discuss this in detail.
Andrey Mikhailov — Sova Capital — Analyst
Thank you very much. That’s clear. Thank you. That’s all from me. Thank you.
Operator
Thank you. Our next question comes from the line of Andrey Pavlov-Rusinov with Goldman Sachs. Please proceed with your question.
Andrey Pavlov-Rusinov — Goldman Sachs — Analyst
Good afternoon. Thanks a lot for the call and congrats for the strong results. My first question is about the e-commerce segment. Essentially, first of all, if you could give a little bit more color on how the volumes in this market still showed very solid and dynamic despite the cancelation in major sports events and what basically helped you to sustain the solid performance? And also, what basically drove the yield upwards in that segment? There was a 20 basis points increase both year-on-year and quarter-on-quarter. That’s my first question.
Andrey Protopopov — Chief Executive Officer of Payment Services
Yes, Andrey, thank you for your question. So, for the volumes, there are two reasons. First one is the decline. While we absorbed the decline in betting volumes, though it was not like dramatic and drastic decline as we told in our previous calls. So, because people were still playing for other types of sports and other type of events.
Second reason is that at the same time, other digital entertainment from other digital entertainment categories, such as, for example, online games, demonstrated solid growth at the same period of time. So overall, we managed to, let’s say, keep them — the overall volume.
Talking about the yield, there are two reasons how we managed to grow the yield. First one is the same type of mix effect, because betting does not always have higher yield within the e-commerce category, and some of those merchants and particularly that grow during — the lockdowns have high yields versus what they’re making, for example, average yields.
At the same time, we have — we managed to have more top-up cost and lower cost of our transactions. Some of this effect was temporary. For example, we have lower cash top up volumes versus average because of the lockdown, and cash top up for the wallet and market bank [phonetic] top up. And secondly, we optimized some of our acquired top up cost as well. So, part those effect included the mix effect and the mix of top up cash volumes will have temporary effect.
So, in the next periods, we’ll probably see the numbers back — in terms of the yields, the numbers back to the levels where it was in the first quarter.
Andrey Pavlov-Rusinov — Goldman Sachs — Analyst
Thank you, Andrey, that’s very clear. And a couple of follow-up questions, maybe also on the Payment business. Do you expect basically the margin in the business to be more or less stable in the second half of the year or there will be some changes essentially regarding the staff remuneration or other things?
And finally, just small question about your Financial Services segment. There was also a little bit interesting dynamics with the increasing yield and declining volumes. So, maybe you could share some color on that as well. Thank you.
Andrey Protopopov — Chief Executive Officer of Payment Services
Okay. Let me cover the financial services piece. So, it’s again kind of mix effect. So, we have some high-volume, low yields contract with the retail partners for the loan repayments. And those volumes were down for the lockdown period because of the lockdown. And so, we do see — the volumes went down and the yields were technically up because we didn’t have those lower yielding wallet volumes in this segment.
Secondly, we managed actually to optimize, at the same time, some of our contract in higher operating yields on those. So, probably, in this area, we will — going forward, we will have a — we will keep some of this yield effect for the future as well.
Boris Kim — Chief Executive Officer of QIWI Group
Yes, the marginality of the Payment Services business, I’ll take that one. So basically, in the first and second half, the marginality of the Payment Services business included all the additional quarters compared to last year, meaning our cash LTI program and certain other costs connected to billing online for example and other projects.
On another hand, as we have stated in the press release, certain costs associated with the development of the B2B2C product proposition based on the Rocket, and to some extent SOVEST system, they basically will be included as part of the Payment Services costs; meaning, that the margin will probably be slightly lower.
At the same time, we do target — and one of the key targets and key thing that we have is our — the relationship between net revenue and SG&A, and we aim to keep the net revenue, SG&A from net revenue ratio at a constant level.
Andrey Pavlov-Rusinov — Goldman Sachs — Analyst
Thank you very much. It’s very clear.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Svetlana Sukhanova with Sberbank. Please proceed with your question.
Svetlana Sukhanova — Sberbank — Analyst
Good afternoon gentlemen. Congrats on good results. I got several small questions left.
First one would be about Cyprus tax treaty, how will affect you? Sounds like nothing should be changing for you. So, what would you expect? That would be the first question.
Then, second question would be on FX loss in your Payment Service as part of the reason why the payment margins, benefited margins are down. You quote FX loss will depreciate.; if you elaborate on that FX loss?
Third short question would be cash of the balance sheet; I mean, your Qiwi-owned cash balance sheet, what’s it size?
And very lastly, when you mentioned about — when you talk about winding down Rocketbank, you want to reuse/reposition that kind of assets for B2B2C product at Qiwi; if you can elaborate little bit about it would be much appreciated. Thanks.
Varvara Kiseleva — Interim Chief Financial Officer
Svetlana, thanks a lot for your questions. So, I’ll cover three of your questions and Andrey — and I’ll pass to Andrey for B2B2C and our Rocket efforts.
So, for the Cyprus tax treaty, we believe that — we believe on the whole that you are correct. As far as we know at the moment and as far as we understand the information that’s publicly available, public companies incorporated in Cyprus will be able to maintain the 5% dividend stock. However, of course, in order to be sure, we need to see the final documents that would be published, we believe in the beginning of September. But it’s likely that nothing in this respect would change for us at least for now.
As for the FX loss, as you know, we are — when there are significant jumps in exchange rates, we are sometimes subject to FX gains and losses, largely that results from the fact that some of our operating companies that are part of the Payment Services business do operate in other countries and report in other functional currencies rather than rubles. So primarily, these FX losses are into the re-evaluations that we do between the functional currency of sub-companies and the functional currency of the Group. So, it’s kind of dollars to rubles etc., etc. So, I would say that that’s primarily kind of a paper account.
For cash on the balance sheet, at the moment, we have around RUB5 billion of our unrestricted cash on the balance sheet. Everything else, as you know, is restricted cash, which includes different types of consumers, [Indecipherable] wallet balances, payables etc., etc.
And I’ll pass to Andrey for the Rocketbank question.
Andrey Pavlov-Rusinov — Goldman Sachs — Analyst
Yes, thank you, Lana for the question for the Rocketbank, what we are currently doing and planning to do. So, as you know, we are working for some time with our B2B partners concerning the payouts to the self-employed, approached by taxi companies and scrap metal pickers and regard with some other orients. And what is the proposal to those companies as a solution, will pay out to our Qiwi Wallet and to other bank cards. Currently, Rocket has another solution for the same type of customer. So, and with this one, we are proposing to those and other clients, payouts to the self-employed through the Rocket debit card with customizable tariffs and loyalty program.
So basically, we are enhancing our product proposition to the same or similar type of partners with new products. So, already have some early success with a contract with construction company, multi-level marketing company and courier company with Rocketbank card.
So, we will develop it within the Payment Services, both in terms of the organization and in terms of the business. So currently, already the sales team is one sales teams that are selling both Rocketbank solution and QIWI Payment Services solutions.
Svetlana Sukhanova — Sberbank — Analyst
Thank you very much. It actually sounds to me you’re offering pretty much — from the customer perspective, you’re offering pretty much the same product as the Wallet just being upgraded to the debit card; do I got you right?
Andrey Protopopov — Chief Executive Officer of Payment Services
Yes, but — you’re right. However, debit cards have — from the consumer side — from, I will say preference versus wallet, because some of our self-employed clients and the B2B customers, wallet, let’s say, are not enough. And that’s why they are asking for the payouts to other bank cards. So, they are in need of this product as well.
Svetlana Sukhanova — Sberbank — Analyst
Very clear. Thank you very much.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Ildar Davletshin with Wood & Company. Please proceed with your question.
Ildar Davletshin — Wood & Company — Analyst
Yes, thank you for the opportunity to ask a question. So, maybe I could ask also on your known sort of payment business, the one which wasn’t, I think, mentioned in detail today is Tochka, which turned profitable. And couple of questions here. So, was this level of profitability the normal one or was there any one-off?
So, can we expect this profitability to continue as we’ve seen in terms of improving, maybe there is some kind of idea where this profitability could reach? I’m particularly surprised that second quarter was pretty weak for the SME’s, yet you were profitable. So, that’s quite interesting.
And then separately, within Tochka, given Otkritie plans to divest, as I understand, all of its stake, roughly a third of the company; what would be your joint project Tochka, would it be affected by this? And given how big impact this plan had, the plan to sell shares, they had on your share price — and I understand it’s not exactly the question to you, but maybe you are involved somehow to find alternative solutions mainly market solutions like find a strategic partner; would you — would it be possible or is it completely handbill [phonetic] to see kind of a new partner in your business at some point?
Varvara Kiseleva — Interim Chief Financial Officer
Ildar, hi. It’s Varvara. So, I’ll comment on profitability question. I’ll pass to Boris for the question on Tochka strategy. And for Otkritie, I can comment and probably if Boris wants to add anything on top of that, he’ll add.
So, I’ll start with the last question on our plans of Otkritie. Of course, as you mentioned yourself, we cannot comment on this plan. We don’t know what other opportunities Otkritie is considering and if they are considering. And of course, they, as the shareholder, have all the right to basically having discussions etc., that they might want to. But we are not aware and are not in a position to comment on their strategic plans.
So, for — going back to Tochka for profitability, I would say that throughout the crisis, Tochka performed much better than we expected and they managed to generate pretty substantial revenue, maintaining a lot of the client and maintaining high-client balances, which we did not anticipate. So, I would say that the level of marginality of Tochka was not horrifically affected by the crisis. So, they kept a pretty good margin level and we believe we’re, I would say, given their performance so far, we’re pretty sure that they will maintain healthy marginality going forward.
And as you know, Tochka is not kind of as far as our established business model. Historically, their profitability or their target profitability was, I believe, at the level of about 30%, 35% EBITDA margin. And I think that’s what they’re aiming to reach at some point.
Boris Kim — Chief Executive Officer of QIWI Group
Yes, I would probably make some comments regarding Otkritie strategy. Well, again, I would say that it’s better to ask Otkritie themselves regarding their strategy. But my understanding that they can see Tochka as a strategic asset for them, as they do not plan to get rid of Tochka or to sell it.
Frankly speaking, we as well consider Tochka as a very interesting asset for us, and we already have found and trying to find new synergies between Tochka and Factoring business and between Tochka and Payment business, especially in self-employed and B2B2C segment.
But at the moment, we are more financial shareholder in Tochka, very accretive controlling shareholder of Tochka, and this is true. I believe that at certain point, we have to decide. And if we decide that Tochka, which provides now very interesting services to SME, which is very complementary to what Factoring is doing for them, because they provide financing, they provide structured financing for SME, and which could provide cash and settlement service basically for the same segment.
So, the synergy could be potentially very high. So, at certain point, we have to decide what to do. If buying back Tochka is impossible for us, then we should consider some other options to sell our shares in Tochka and to build similar business within Factoring PLUS. But at this stage, it’s very early to discuss that detail.
Ildar Davletshin — Wood & Company — Analyst
Thank you very much. And maybe just very quickly on the point that was already discussed previously on the e-commerce vertical, which performed quite robust despite the lockdown. So, correct me if I’m wrong, but my understanding was that a lot of this strength was coming from other digital entertainment form, such games and other things, which in a way were driven by the lockdown. So going forward, the betting industry will continue to be the dominant — something like more than half of your payment volumes within e-commerce category, or do we actually see new — maybe I’m wrong and there are structurally new kind of sub-segments within e-commerce that’s becoming more diversified going forward?
Operator
[Technical Issues] One moment, we’re having technical difficulty. One moment, please standby. Please continue to hold, we will resume in just a moment.
Boris Kim — Chief Executive Officer of QIWI Group
We were disconnected. Can you please repeat the question?
Ildar Davletshin — Wood & Company — Analyst
My question was on the e-commerce segment within Payment business. So, am I right that your business segment, e-commerce, is becoming more diversified for the share of betting is getting lower? Or was it more the one-off effect of the lockdown in the second quarter? So, going forward, the betting will keep dominating this segment?
Andrey Protopopov — Chief Executive Officer of Payment Services
I would say that it would rather one-off effect, as I mentioned, because we saw a temporary decrease in betting volumes, while increasing else of temporary in some other categories like online games. So, going forward, the structure will be more as the same as it was before, but we will see.
Ildar Davletshin — Wood & Company — Analyst
Yes, thank you.
Operator
[Operator Closing Remarks]