QIWI

QIWI

FORM 20-F
(Annual and Transition Report (foreign private issuer))

Filed 03/22/17 for the Period Ending 12/31/16

Telephone
CIK

01135722653390
0001561566

Symbol QIWI

SIC Code
Industry
Sector
Fiscal Year

7389 - Business Services, Not Elsewhere Classified
Business Support Services
Industrials
02/07

http://www.edgar-online.com
© Copyright 2017, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

  
  
Table of Contents

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 20-F


☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACTOF 1934Or
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Or
☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934Commission file number: 001-35893

QIWI PLC(Exact name of Registrant as specified in its charter)

N/A(translation of Registrant’s name into English)Cyprus(Jurisdiction of incorporation or organization)Kennedy 12, Kennedy Business Centre, 2 nd floorP.C. 1087, Nicosia, Cyprus(Address of principal executive offices)Varvara Kiseleva+7 (357) 250-28091ir@qiwi.comKennedy 12, Kennedy Business Centre, 2 nd floorP.C. 1087, Nicosia, Cyprus(Name, telephone, e-mail and/or facsimile number and address of company contact person)Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which RegisteredAmerican Depositary Shares, each representing one Class B ordinary share,having a nominal value EUR 0.0005 per share
The NASDAQ Stock Market LLCClass B ordinary shares, having a nominal value of EUR 0.0005 per share*

*Not for trading, but only in connection with the registration of the American Depositary Shares.Securities registered or to be registered pursuant to Section 12(g) of the Act:None(Title of Class)Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None(Title of Class)

Indicate
the
number
of
outstanding
shares
of
each
of
the
Issuer’s
classes
of
capital
or
common
stock
as
of
the
close
of
the
period
covered
by
the
annualreport.As of December 31, 2016, 15,516,573 Class A ordinary shares, par value EUR 0.0005 per share and 45,080,461 Class B ordinary shares, par value EUR0.0005 per share were outstanding.Indicate
by
check
mark
if
the
registrant
is
a
well-known
seasoned
issuer,
as
defined
in
Rule
405
of
the
Securities
Act.



Yes

☐



No

☒If
this
report
is
an
annual
or
transition
report,
indicate
by
check
mark
if
the
registrant
is
not
required
to
file
reports
pursuant
to
Section
13
or
15(d)
of
theSecurities
Exchange
Act
of
1934.



Yes

☐



No

☒Indicate
by
check
mark
whether
the
registrant
(1)
has
filed
all
reports
required
to
be
filed
by
Section
13
or
15(d)
of
the
Securities
Exchange
Act
of
1934during
the
preceding
12
months
(or
for
such
a
shorter
period
that
the
registrant
was
required
to
file
such
reports),
and
(2)
has
been
subject
to
such
filingrequirements
for
the
past
90
days.



Yes

☒



No

☐Indicate
by
check
mark
whether
the
registrant
has
submitted
electronically
and
posted
on
its
corporate
website,
if
any,
every
Interactive
Data
File
required
tobe
submitted
and
posted
pursuant
to
Rule
405
of
Regulation
S-T
(§232.405
of
this
chapter)
during
the
preceding
12
months
(or
for
such
shorter
period
that
theregistrant
was
required
to
submit
and
post
such
files).



Yes

☒



No

☐Indicate
by
check
mark
whether
the
registrant
is
a
large
accelerated
filer,
an
accelerated
filer,
or
a
non-accelerated
filer.
See
definition
of
“accelerated
filerand
large
accelerated
filer”
in
Rule
12b-2
of
the
Exchange
Act.
(Check
one):Large
accelerated
filer

☐
















Accelerated
filer

☒















Non-accelerated
filer

☐Indicate
by
check
mark
which
basis
of
accounting
the
registrant
has
used
to
prepare
the
financial
statements
included
in
this
filing:
U.S.
GAAP

☐



International
Financial
Reporting
Standards
as
issuedby
the
International
Accounting
Standards
Board

☒

Other

☐If
“Other”
has
been
checked
in
response
to
the
previous
question,
indicate
by
check
mark
which
financial
statement
item
the
Registrant
has
elected
tofollow:
Item
17

☐



Item
18

☐If
this
is
an
annual
report,
indicate
by
check
mark
whether
the
registrant
is
a
shell
company
(as
defined
in
Rule
12b-2
of
the
Exchange
Act).
Yes

☐



No

☒(APPLICABLE
ONLY
TO
ISSUERS
INVOLVED
IN
BANKRUPTCY
PROCEEDINGS
DURING
THE
PAST
FIVE
YEARS)Indicate
by
check
mark
whether
the
registrant
has
filed
all
documents
and
reports
required
to
be
filed
by
Sections
12,
13
or
15(d)
of
the
Securities
ExchangeAct
of
1934
subsequent
to
the
distribution
of
securities
under
a
plan
confirmed
by
a
court.



Yes

☐



No

☐


Table of ContentsTABLE OF CONTENTS
PART
I
ITEM
1.

Identity
of
Directors,
Senior
Management
and
Advisers


3
ITEM
2.

Offer
Statistics
and
Expected
Timetable


3
ITEM
3.

Key
Information


3


A.













Selected
financial
data


3


B.













Capitalization
and
Indebtedness


8


C.













Reasons
for
the
Offer
and
Use
of
Proceeds


8


D.













Risk
Factors


9
ITEM
4.

Information
on
the
Company


37


A.













History
and
Development
of
the
Company


37


B.













Business
Overview


37


C.













Organizational
Structure


49


D.













Property,
Plants
and
Equipment


49
ITEM
4A.

Unresolved
Staff
Comments


49
ITEM
5.

Operating
and
Financial
Review
and
Prospects


49


A.













Operating
Results


50


B.













Liquidity
and
capital
resources


62


C.













Research
and
development,
patents
and
licenses,
etc.


64


D.













Trend
information


64


E.













Off-balance
sheet
arrangements


64


F.













Tabular
disclosure
of
contractual
obligations


64


G.













Safe
harbor


64
ITEM
6.

Directors,
Senior
Management
and
Employees


64


A.













Directors
and
Senior
Management


64


B.













Compensation


65


C.













Board
Practices


67


D.













Employees


69


E.













Share
Ownership


69
ITEM
7.

Major
Shareholders
and
Related
Party
Transactions


69


A.













Major
Shareholders


69


B.













Related
Party
Transactions


70

1Table of Contents


C.









Interests
of
Experts
and
Counsel

70
ITEM
8.

Financial
Information


71


A.









Consolidated
Financial
Statements
and
Other
Financial
Information


71


B.









Significant
Changes


71
ITEM
9.

The
Offer
and
Listing


71


A.









Offer
and
Listing
Details


71


B.









Plan
of
Distribution


71


C.









Markets


71


D.









Selling
Shareholders


72


E.









Dilution


72


F.









Expenses
of
the
Issue


72
ITEM
10.

Additional
Information


72


A.









Share
Capital


72


B.









Memorandum
and
Articles
of
Association


73


C.









Material
Contracts


76


D.









Exchange
Controls


77


E.









Taxation


77


F.









Dividends
and
Paying
Agents


86


G.









Statements
by
Experts


86


H.









Documents
on
Display


86


I.









Subsidiary
Information


86
ITEM
11.

Quantitative
and
Qualitative
Disclosures
About
Market
Risk


86
ITEM
12.

Description
of
Securities
Other
Than
Equity
Securities


88


A.









Debt
Securities


88


B.









Warrants
and
Rights


88


C.









Other
Securities


88


D.









American
Depositary
Shares


88




PART
II

ITEM
13.

Defaults,
Dividend
Arrearages
and
Delinquencies


89
ITEM
14.

Material
Modifications
to
the
Rights
of
Security
Holders
and
Use
of
Proceeds


89
ITEM
15.

Controls
and
Procedures


89
ITEM
16.

[RESERVED]


90
ITEM
16A.

Audit
Committee
Financial
Expert


90
ITEM
16B.

Code
of
Ethics


91
ITEM
16C.

Principal
Accountant
Fees
and
Services


91
ITEM
16D.

Exemptions
from
the
Listing
Standards
for
Audit
Committees


91
ITEM
16E.

Purchases
of
Equity
Securities
by
the
Issuer
and
Affiliated
Purchasers


91
ITEM
16F.

Change
in
Registrant’s
Certifying
Accountant


91
ITEM
16G.

Corporate
Governance


91
ITEM
16H.

Mine
Safety
Disclosure


94




PART
III

ITEM
17.

Financial
Statements


95
ITEM
18.

Financial
Statements


95
ITEM
19.

Exhibits


95

2Table of ContentsSPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSThis
annual
report
contains
forward-looking
statements
that
reflect
our
current
expectations
and
views
of
future
events.
These
forward
looking
statements
aremade
under
the
“safe-harbor”
provisions
of
the
U.S.
Private
Securities
Litigation
Reform
Act
of
1995.
Some
of
these
forward
looking
statements
can
be
identifiedby
terms
and
phrases
such
as
“anticipate”,
“should”,
“likely”,
“foresee”,
“believe”,
“estimate”,
“expect”,
“intend”,
“continue”,
“could”,
“may”,
“plan”,
“project”,“predict”,
“will”,
and
similar
expressions.
These
forward-looking
statements
include
statements
relating
to:

•
our
goals
and
strategies;

•
our
ability
to
grow
our
payment
volumes;

•
our
ability
to
maintain
and
grow
the
size
of
our
distribution
network;

•
our
ability
to
increase
our
market
share
in
our
key
payment
categories;

•
our
ability
to
successfully
introduce
new
products
and
services,
including
our
payment-by-installment
card
SOVEST;

•
our
ability
to
maintain
our
relationships
with
our
merchants
and
agents;

•
the
expected
growth
of
Visa
Qiwi
Wallet
and
alternative
methods
of
payment;

•
our
ability
to
continue
to
develop
new
and
attractive
products
and
services;

•
our
future
business
development,
results
of
operations
and
financial
condition;

•
our
ability
to
continue
to
develop
new
technologies
and
upgrade
our
existing
technologies;

•
our
ability
to
grow
our
value
added
services;

•
competition
in
our
industry;

•
projected
revenue,
profits,
earnings
and
other
estimated
financial
information;
and

•
developments
in,
or
changes,
to
the
laws,
regulation
and
governmental
policies
governing
our
business
and
industry.The
preceding
list
is
not
intended
to
be
an
exhaustive
list
of
all
of
our
forward-looking
statements.
These
forward-looking
statements
are
based
on
ourbeliefs,
assumptions
and
expectations
of
future
performance,
taking
into
account
the
information
currently
available
to
us.
These
statements
are
only
predictionsbased
upon
our
current
expectations
and
projections
about
future
events.
There
are
important
factors
that
could
cause
our
actual
results,
level
of
activity,performance
or
achievements
to
differ
materially
from
the
results,
level
of
activity,
performance
or
achievements
expressed
or
implied
by
the
forward-lookingstatements.
In
particular,
you
should
consider
the
risks
set
forth
in
Item
3.D
“Risk
Factors”
in
this
annual
report.These
forward-looking
statements
speak
only
as
of
the
date
of
this
annual
report.
Except
as
required
by
law,
we
undertake
no
obligation
to
publicly
update
orrevise
any
forward-looking
statements,
whether
as
a
result
of
new
information,
future
events
or
otherwise.PART I
ITEM 1.Identity of Directors, Senior Management and Advisers.Not
applicable.
ITEM 2.Offer Statistics and Expected Timetable.Not
applicable.
ITEM 3.Key Information.
A.Selected financial data.The
following
tables
set
forth
our
selected
consolidated
financial
and
other
data.
You
should
read
the
following
selected
consolidated
financial
and
other
datatogether
with
the
information
in
Item
5
“Operating
and
Financial
Review
and
Prospects”
and
Item
3.D
“Risk
Factors”
and
our
consolidated
financial
statements
andthe
related
notes
included
elsewhere
in
this
annual
report.
Our
consolidated
financial
statements
have
been
prepared
in
accordance
with
the
International
FinancialReporting
Standards
as
published
by
the
International
Accounting
Standards
Board,
or
IFRS,
and
endorsed
by
the
European
Union.
3Table of ContentsThe
following
tables
also
contain
translations
of
ruble
amounts
into
U.S.
dollars
for
amounts
presented
as
of
December
31,
2016
and
for
the
year
endedDecember
31,
2016.
These
translations
are
solely
for
convenience
of
the
reader
and
were
calculated
at
the
rate
of
RUB
60,6569
per
U.S.
$1.00,
which
is
equal
tothe
official
exchange
rate
quoted
by
the
Central
Bank
of
the
Russian
Federation,
or
CBR,
on
December
31,
2016.



Year ended December 31,



2012

2013

2014*

2015*

2016



RUB

RUB

RUB

RUB

RUB

U.S.$



(in
millions,
except
per
share
data)
Consolidated Income Statement Data:






Revenue


8,911


11,666


14,718


17,717


17,880


295
Cost
of
revenue


(5,454)


(6,396)


(7,273)


(8,695)


(8,646)


(143)
Selling,
general
and
administrative
expenses


(1,838)


(2,678)


(3,082)


(3,469)


(3,423)


(56)
Depreciation
and
amortization


(129)


(113)


(353)


(689)


(796)


(13)
Impairment
of
intangible
assets
and
goodwill


(4)


(5)


—




—




(878)

(14)Profit from operations

 1,486 
 2,473 
 4,010 
 4,864 
 4,137 
 68 Loss
on
disposal
of
subsidiaries


(1)


—



—




(38)


(10)


(0)
Other
income


17


91


42


20


7


0
Other
expenses


(29)


(20)


(30)


(43)


(76)


(1)
Foreign
exchange
gain


81


79


3,359(1)



2,801(1)



1,040(1)



17
Foreign
exchange
loss


(103)


(71)


(1,428)
(1)



(1,360)
(1)



(1,963)
(1)



(32)
Share
of
loss
of
associates


(13)


(79)


(26)


—




—




—

Impairment
of
investment
in
associates


—



(22)


(25)


—




—




—

Interest
income


26


22


2


16


36


1
Interest
expense


(9)


(29)


(42)


(109)


(64)


(1)
Profit before tax from continuing operations

 1,456 
 2,445 
 5,862 
 6,151 
 3,107 
 51 Income
tax
expense


(408)


(610)


(894)


(877)


(618)


(10)
Net profit from continuing operations

 1,048 
 1,835 
 4,968 
 5,274 
 2,489 
 41 Loss
from
discontinued
operations


(240)


—



—




—




—




—

Net profit

 808 
 1,835 
 4,968 
 5,274 
 2,489 
 41 Attributable
to:





Equity
holders
of
the
parent


910


1,873


5,024


5,187


2,474


41
Non-controlling
interests


(102)


(38)


(56)


87


15


0
Weighted
average
number
of
shares





Basic


52


52


53


58


60


60
Diluted


52


52


54


58


61


61
Earnings
per
share



Basic


17.50


36.00


94.09


89.72


40.91


0.67
Diluted


17.50


35.70


92.73


89.49


40.79


0.67
Dividends
declared
per
share



RUB


16.67


35.86


53.46


11.56


79.92


n/a
U.S.$


0.55


1.10


0.95


0.25


1.16


n/a



As of December 31,



2012

2013

2014

2015

2016



RUB

RUB

RUB

RUB

RUB

U.S.$



(in
millions)
Consolidated Balance Sheet Data:





Cash
and
cash
equivalents


9,943


11,637


17,080


19,363


18,997


313
Total
current
assets


15,607


16,342


25,036


27,015


27,205


449
Total
assets


18,709


20,665


30,050


41,577


39,674


654
Total
equity


2,499


2,704


8,334


22,436


19,969


329
Total
debt


65


110


43


3


0


0
Total
liabilities


16,210


17,961


21,716


19,141


19,705


325
Total
equity
and
liabilities


18,709


20,665


30,050


41,577


39,674


654

*The
amounts
shown
here
may
immaterially
differ
from
the
amounts
shown
in
Annual
report
on
Form
20-F
for
the
year
ended
December
31,
2015
due
torounding
adjustments.
4Table of Contents


Year ended December 31,



2012

2013

2014

2015

2016



RUB

RUB

RUB

RUB

RUB

U.S.$



(in
millions,
except
as
otherwise
indicated)
Other Financial and Operating Data:






Adjusted
net
revenue
(2)


4,169


6,168


8,836


10,228


10,611


175
Adjusted
EBITDA
(2)


1,851


2,978


4,818


5,640


6,035


100
Adjusted
net
profit
(2)


1,306


2,173


3,496


4,142


4,714


78
Payment
volume
(in
billions)
(3)


475


561


645


860(4)



847


14
Active
kiosks
and
terminals
(units)
(5)


169,102


168,236


181,148


172,269


162,173


n/a
Active
Visa
Qiwi
Wallet
accounts
(at
period
end,
in
millions)
(6)


11.4


15.4


17.2


16.1


17.2


n/a
Average
net
revenue
yield
(7)


0.88%


1.10%


1.37%


1.19%
(4)



1.25%


n/a

(1)Primarily
relates
to
foreign
currency
changes
resulting
from
the
funds
received
in
connection
with
our
offering
of
ADSs
in
June
2014.
As
of
December
31,2016,
the
majority
of
these
funds
had
not
been
utilized.(2)See
“—Non-IFRS
Financial
Measures”
for
how
we
define
and
calculate
adjusted
net
revenue,
adjusted
EBITDA,
and
adjusted
net
profit
as
non-IFRSfinancial
measures
and
reconciliations
of
these
measures
to
revenue,
in
the
case
of
adjusted
net
revenue,
and
net
profit,
in
the
case
of
adjusted
EBITDA
andadjusted
net
profit.(3)Payment
volume
consists
of
the
amounts
paid
by
our
customers
to
merchants
or
other
customers
less
intra-group
eliminations.(4)The
amount
shown
here
do
not
correspondent
to
the
amounts
shown
in
Annual
report
on
Form
20-F
for
the
year
ended
December
31,
2015
as
the
result
ofmethodological
adjustments
in
respect
of:
(i)
adjustment
to
methodology
in
QIWI
Kazakhstan
to
conform
with
the
methodology
used
in
QIWI’s
Russiaoperations
and
corresponding
reallocation
of
Kazakhstan
payment
volumes
and
payment
adjusted
net
revenues
to
appropriate
market
verticals;(ii)
adjustment
to
methodology
of
revenue
and
cost
allocation
between
categories
and
corresponding
reallocation
of
certain
commissions
and
costs
betweenmarket
verticals;
(iii)
change
in
methodology
of
accounting
for
transactions
in
foreign
currencies
and
corresponding
revaluation
of
certain
payment
volumes,costs
and
revenues;
(iv)
change
in
methodology
of
Contact
and
Rapida
volume
recognition
in
ongoing
effort
to
bring
methodology
in
line
with
QIWI’sprocesses
and
procedures.(5)We
measure
the
numbers
of
our
kiosks
and
terminals
on
a
daily
basis,
with
only
those
kiosks
and
terminals
being
taken
into
calculation
through
which
atleast
one
payment
has
been
processed
during
the
day,
which
we
refer
to
as
active
kiosks
and
terminals.
The
period
end
numbers
of
our
kiosks
and
terminalsare
calculated
as
an
average
of
the
amount
of
active
kiosks
and
terminals
for
the
last
30
days
of
the
respective
reporting
period.(6)Number
of
active
Visa
Qiwi
Wallet
accounts
is
defined
as
the
number
of
wallets
through
which
at
least
one
payment
has
been
made
or
that
have
been
loadedor
reloaded
in
the
12
months
preceding
the
end
of
the
relevant
reporting
period.(7)Average
net
revenue
yield
is
defined
as
adjusted
net
revenue
divided
by
payment
volume.Non-IFRS Financial MeasuresWe
present
adjusted
net
revenue,
adjusted
EBITDA
and
adjusted
net
profit,
each
of
which
are
non-IFRS
financial
measures.
You
should
not
consider
thesenon-IFRS
financial
measures
as
substitutes
for
or
superior
to
revenue,
in
the
case
of
adjusted
net
revenue,
or
net
profit,
in
the
case
of
adjusted
EBITDA
andadjusted
net
profit,
each
prepared
in
accordance
with
IFRS.
Furthermore,
because
these
non-IFRS
financial
measures
are
not
determined
in
accordance
with
IFRS,they
are
susceptible
to
varying
calculations
and
may
not
be
comparable
to
other
similarly
titled
measures
presented
by
other
companies.
We
encourage
investorsand
others
to
review
our
financial
information
in
its
entirety
and
not
rely
on
a
single
financial
measure.Adjusted net revenueAdjusted
net
revenue
is
calculated
by
subtracting
cost
of
revenue
from
revenue
and
adding
back
compensation
to
employees
and
related
taxes.
Adjusted
netrevenue
is
a
key
measure
used
by
management
to
observe
our
operational
profitability
since
it
reflects
our
portion
of
the
revenue
net
of
fees
that
we
pass
through,primarily
to
our
agents.
In
addition,
under
IFRS,
most
types
of
fees
are
presented
on
a
gross
basis
whereas
certain
types
of
fees
are
presented
on
a
net
basis.Therefore,
in
order
to
analyze
our
two
sources
of
payment
processing
fees
on
a
comparative
basis,
management
reviews
adjusted
net
revenue.
We
add
backcompensation
to
employees
and
related
taxes
because,
although
they
are
an
essential
part
of
our
distribution
network,
these
expenses
are
not
directly
linked
topayment
volume.
Nevertheless,
compensation
to
employees
and
related
taxes
represents
an
important
portion
of
our
operating
costs
and
affects
liquidity
andfinancial
performance.
5Table of ContentsThe
following
table
reconciles
adjusted
net
revenue
to
revenue.



Year ended December 31,



2012

2013

2014*

2015*

2016



RUB

RUB

RUB

RUB

RUB

U.S.$



(in
millions)
Revenue


8,911


11,666


14,718


17,717


17,880


295
Minus:
Cost
of
revenue
(exclusive
of
depreciation
and
amortization)


(5,454)


(6,396)


(7,273)


(8,695)


(8,646)


(143)
Plus:
Compensation
to
employees
and
related
taxes


712


898


1,391


1,206


1,377


23
Adjusted net revenue


4,169


6,168


8,836


10,228


10,611


175

*The
amounts
shown
here
may
immaterially
differ
from
the
amounts
shown
in
Annual
report
on
Form
20-F
for
the
year
ended
December
31,
2015
due
torounding
adjustments.Adjusted EBITDAAdjusted
EBITDA
is
defined
as
net
profit
before
income
tax
expense,
interest
expense,
interest
income
and
depreciation
and
amortization,
as
further
adjustedfor
loss
from
discontinued
operations,
share
of
loss
of
associates,
impairment
of
investment
in
associates,
foreign
exchange
gain
and
loss,
other
expenses,
otherincome,
loss
on
disposal
of
subsidiaries,
corporate
costs
allocated
to
discontinued
operations,
income
from
depositary,
offering
expenses,
share-based
paymentexpenses
and
impairment
of
goodwill
and
intangible
assets
acquired
in
the
business
combinations.
We
present
adjusted
EBITDA
as
a
supplemental
performancemeasure
because
we
believe
that
it
facilitates
operating
performance
comparisons
from
period
to
period
and
company
to
company
by
backing
out
potentialdifferences
caused
by
variations
in
capital
structures
(affecting
interest
expenses,
net),
changes
in
foreign
exchange
rates
that
impact
financial
asset
and
liabilitiesdenominated
in
currencies
other
than
our
functional
currency
(affecting
foreign
exchange
loss/gain,
net),
tax
positions
(such
as
the
impact
on
periods
or
companiesof
changes
in
effective
tax
rates),
the
age
and
book
depreciation
of
fixed
assets
(affecting
relative
depreciation
expense),
non-cash
charges
(affecting
share-basedpayments
expenses
and
impairment
of
intangible
assets),
and
certain
one-time
income
and
expenses
(affecting
other
income,
offering
expenses,
loss
on
disposal
ofsubsidiaries
and
income
from
depository).
Adjusted
EBITDA
also
excludes
other
expenses,
share
in
losses
of
associates
and
impairment
of
investment
in
associatesbecause
we
believe
it
is
helpful
to
view
the
performance
of
our
business
excluding
the
impact
of
entities
that
we
do
not
control,
and
because
our
share
of
the
netincome
(loss)
of
the
associate
and
other
expenses
includes
items
that
have
been
excluded
from
adjusted
EBITDA
(such
as
finance
expenses,
net,
tax
on
income
anddepreciation
and
amortization).
In
addition,
adjusted
EBITDA
excludes
the
non-cash
impact
of
loss
from
discontinued
operations
and
corporate
costs
allocated
todiscontinued
operations
because
we
do
not
believe
these
items
reflect
the
underlying
performance
of
our
business.
Because
adjusted
EBITDA
facilitates
internalcomparisons
of
operating
performance
on
a
more
consistent
basis,
we
also
use
adjusted
EBITDA
in
measuring
our
performance
relative
to
that
of
our
competitors.Some
limitations
of
adjusted
EBITDA
are:

•
adjusted
EBITDA
does
not
include
offering
expenses;

•
adjusted
EBITDA
does
not
reflect
income
tax
payments
that
may
represent
a
reduction
in
cash
available
to
us;

•
adjusted
EBITDA
does
not
include
other
income,
other
expense
and
foreign
exchange
gains
and
losses;

•
adjusted
EBITDA
excludes
depreciation
and
amortization
and
although
these
are
non-cash
charges,
the
assets
being
depreciated
and
amortized
mayhave
to
be
replaced
in
the
future;

•
adjusted
EBITDA
does
not
include
gains
and
losses
from
discontinued
operations;
and

•
adjusted
EBITDA
does
not
include
share-based
payments.
6Table of Contents


Year ended December 31,



2012

2013

2014

2015

2016



RUB

RUB

RUB

RUB

RUB

U.S.$



(in
millions)
Net Profit

 808 
 1,835 
 4,968 
 5,274 
 2,489 
 41 plus:






Depreciation
and
amortization


129


113


353


689


796


13
Impairment
of
investment
in
associates


—



22


25


—




—




—

Other
income
(excluding
income
from
depositary)


(17)


(20)


(4)


(20)


(7)


(0)
Other
expenses


29


20


30


43


76


1
Foreign
exchange
gain


(81)


(79)


(3,359)
(1)



(2,801)
(1)



(1,040)
(1)



(17)
Foreign
exchange
loss


103


71


1,428(1)



1,360(1)



1,963(1)



32
Share
of
loss
of
associates


13


79


26


—




—




—

Interest
income


(26)


(22)


(2)


(16)


(36)


(1)
Interest
expenses


9


29


42


109


64


1
Income
tax
expenses


408


610


894


877


618


10
Income
from
depositary
(2)


—



(71)


(38)


—




—




—

Corporate
costs
allocated
to
discontinued
operations


61


—



—




—




—




—

Offering
expenses


109


155


32


—




—




—

Share-based
payment
expenses


66


231


422


88


224


4
Loss
from
discontinued
operations


240


—



—




—




—




—

Loss
on
disposals
of
subsidiaries


1


—



—




38


10


0
Impairment
of
intangible
assets
and
goodwill


—



5


—




—




878


14
Adjusted EBITDA

 1,851 
 2,978 
 4,818 
 5,640 
 6,035 
 100 
(1)Primarily
relates
to
foreign
currency
changes
resulting
from
the
funds
received
in
connection
with
our
offering
of
ADSs
in
June
2014.
As
of
December
31,2016,
the
majority
of
these
funds
had
not
been
utilized.(2)Income
from
depositary
is
presented
in
the
separate
line
in
reconciliation
tables
for
convenience
purposes,
while
it
is
included
in
other
income
in
ourfinancial
statements.Adjusted net profitAdjusted
net
profit
is
defined
as
net
profit
excluding
loss
from
discontinued
operations
(net
of
tax),
corporate
costs
allocated
to
discontinued
operations,amortization
of
fair
value
adjustments,
loss
on
disposals
of
subsidiaries,
share-based
payment
expenses,
offering
expenses,
impairment
of
goodwill
and
intangibleassets
acquired
in
the
business
combinations,
income
from
depositary,
foreign
exchange
gain
on
June
2014
offering
proceeds
and
the
effects
of
taxation
on
thoseexcluded
items.
Adjusted
net
profit
is
a
key
measure
used
by
management
to
observe
the
operational
profitability
of
the
company.
We
believe
adjusted
net
profit
isuseful
to
an
investor
in
evaluating
our
operating
performance
because
it
is
widely
used
by
investors,
securities
analysts
and
other
interested
parties
to
measure
acompany’s
operating
performance
without
the
effect
of
non-recurring
items
or
items
that
are
not
core
to
our
operations.
For
example,
loss
from
discontinuedoperations,
corporate
costs
allocated
to
discontinued
operations,
gain
on
bargain
purchase,
gains
on
disposals,
the
effects
of
deferred
taxation
on
excluded
items
andoffering
expenses
do
not
represent
the
core
operations
of
the
business,
and
amortization
of
fair
value
adjustments
and
share-based
payments
expenses
do
not
have
asubstantial
cash
effect.
Nevertheless,
such
gains
and
losses
can
affect
our
financial
performance.
7Table of ContentsThe
following
table
reconciles
adjusted
net
profit
to
net
profit.



Year ended December 31,



2012

2013

2014

2015

2016



RUB

RUB

RUB

RUB

RUB

U.S.$



(in
millions)
Net profit

 808 
 1,835 
 4,968 
 5,274 
 2,489 
 41 Loss
from
discontinued
operations,
net
of
tax


240


—




—




—




—




—


Impairment
of
intangible
assets
and
goodwill


—




5


—




—




878

14Corporate
costs
allocated
to
discontinued
operations


61


—




—




—




—




—


Amortization
of
fair
value
adjustments


42


22


74


270


396


7
Loss
on
disposals
of
subsidiaries


1


—




—




38


10


0
Offering
expenses


109


155


32


—




—




—


Income
from
depositary
(1)


—




(71)


(38)


—




—




—


Share-based
payment
expenses


66


231


422


88


224


4
Effect
of
taxation
of
the
above
items


(21)


(4)


(15)


(52)


(258)


(4)
Foreign
Exchange
gain
on
June
2014
offering
proceeds
(2)


—




—



(1,947)


(1,476)


975


16
Adjusted net profit

 1,306 
 2,173 
 3,496 
 4,142 
 4,714 
 78 
(1)Foreign
exchange
gain
on
June
2014
offering
proceeds,
as
presented
in
the
reconciliation
of
net
profit
to
adjusted
net
profit
differs
from
the
foreign
exchangeloss/(gain)
in
the
reconciliation
of
net
profit
to
adjusted
EBITDA
as
the
latter
includes
all
the
foreign
exchange
losses/(gains)
for
the
period,
while
the
formerrelates
solely
to
foreign
currency
changes
resulting
from
the
funds
received
in
connection
with
our
offering
of
ADSs
in
June
2014.(2)Income
from
depositary
is
presented
in
the
separate
line
in
reconciliation
tables
for
convenience
purposes,
while
it
is
included
in
other
income
in
financialstatements.Exchange Rate InformationThe
following
tables
show,
for
the
periods
indicated,
certain
information
regarding
the
exchange
rates
between
the
Russian
ruble
and
the
U.S.
dollar,
basedon
the
official
exchange
rate
quoted
by
the
CBR.
Period

Period End


Period average (1)


High


Low
Year
ended
December
31,
2012


30.37



30.97



34.04



28.95
Year
ended
December
31,
2013


32.73



31.98



33.47



29.93
Year
ended
December
31,
2014


56.26



39.34



67.79



32.66
Year
ended
December
31,
2015


72.88



62.01



72.88



49.18
Year
ended
December
31,
2016


60.66



66.35



83.59



60.27
September
2016


63.16



64.56



65.87



63.16
October
2016


62.90



62.62



63.40



62.05
November
2016


64.94



64.31



65.86



63.20
December
2016


60.66



62.09



65.24



60.27
January
2017


60.16



59.63



60.32



59.15
February
2017


57.94



58.54



60.31



56.77
March
2017
(through
March
17)


58.24



58.65



59.22



57.96

(1)The
period
average
in
respect
of
a
year
is
calculated
as
the
average
of
the
exchange
rates
on
the
last
business
day
of
each
month
in
the
relevant
period.
Theperiod
average
in
respect
of
a
month
is
calculated
as
the
average
of
the
exchange
rates
for
each
business
day
in
the
relevant
month.
B.Capitalization and Indebtedness.Not
applicable.
C.Reasons for the Offer and Use of Proceeds.Not
applicable.
8Table of ContentsD.Risk FactorsIn conducting our business, we face many risks that may interfere with our business objectives. Some of these risks relate to our operational processes, whileothers relate to our business environment. It is important to understand the nature of these risks. If any of the following risks actually occurs, it may materiallyharm our business, results of operations or financial condition.Risks Relating to Our Business and IndustryThe payment services industry is highly competitive, and we have a number of competitors that are larger and have greater financial and other resources.The
payment
services
industry
is
highly
competitive,
and
our
continued
growth
depends
on
our
ability
to
compete
effectively.
In
the
countries
inwhich
we
operate,
we
face
competition
from
a
variety
of
financial
and
non-financial
business
groups.
These
competitors
include
retail
banks,
non-traditionalpayment
service
providers
(such
as
retailers
and
mobile
network
operators,
or
MNOs),
traditional
kiosk
and
terminal
operators
and
electronic
payment
systemoperators,
as
well
as
other
companies
which
provide
various
forms
of
payment
services,
including
electronic
payment
and
payment
processing
services.Competitors
in
our
industry
seek
to
differentiate
themselves
by
features
and
functionalities
such
as
speed,
convenience,
network
size,
accessibility,
hours
ofoperation,
reliability
and
price.
A
significant
number
of
our
competitors
have
greater
financial,
technological
and
marketing
resources
than
we
have,
operate
robustnetworks
and
are
highly
regarded
by
consumers.In
Russia,
we
face
significant
competition
from
retail
banks
for
our
services.
Our
primary
competitors
include
Sberbank,
Russia’s
largest
retail
bankthat
is
majority-owned
by
the
Russian
state,
and
Alfa-Bank,
one
of
the
leading
privately
owned
Russian
retail
banks,
both
of
which
have
electronic
banking
systemsand
large
retail
networks.
Some
retail
banks
have
either
developed
or
are
currently
developing
their
own
networks
of
kiosks
and
terminals
and
various
electronicpayment
products.
Sberbank,
for
example,
has
long
stated
that
its
strategic
goals
include
the
promotion
of
alternative
banking
channels,
such
as
kiosks,
internetbanking
and
mobile
banking,
and
actively
develops
its
online
payment
services
capabilities,
including
through
Yandex.Money,
a
major
electronic
payment
systemoperator
in
Russia.
In
November
2016
the
Supervisory
Board
of
Sberbank
approved
a
strategic
initiative
to
transform
the
bank
into
an
e-commerce
ecosystembased
on
open
source
software
by
2018.
If
implemented,
this
move
may
make
Sberbank’s
model
closer
to
that
of
our
company,
enable
Sberbank
and
other
playersto
develop
new
financial
products
on
the
basis
of
Sberbank’s
platform
and
potentially
further
intensify
competition
between
us.
Sberbank
has
access
to
significantfinancial
resources
and
an
extensive
nationwide
network
of
branches.
Sberbank
is
the
largest
processor
of
utility
bill
payments,
which
constitute
a
very
significantportion
of
overall
consumer
spending
in
our
industry.
These
factors
may
give
Sberbank
a
substantial
competitive
advantage
over
us
in
the
kiosk,
internet
bankingand
mobile
banking
businesses.
In
January
2017,
it
was
reported
that
Sberbank
and
the
Chinese
e-retail
company
Alibaba
are
in
discussions
to
create
a
joint
venturethat
would
include
the
Chinese
group’s
existing
cross-border
e-commerce
businesses
in
Russia
and
neighboring
countries,
which
could
further
strengthen
bothcompanies’
respective
positions
in
the
e-payments
market.
Other
Russian
banks
are
also
actively
pursuing
the
electronic
payments
business
with
well-developed
e-wallet
products
and
other
solutions,
including
Alfa
Bank
and
Tinkoff
Bank.Our
competitors
also
include
the
Russian
Federal
State
Unitary
Enterprise
Postal
Service,
or
Russian
Post,
which
offers
certain
payment
services.Russian
Post’s
geographical
penetration
is
more
dispersed
than
our
physical
distribution
network
(i.e.
our
kiosks
and
terminals).
It
also
owns
a
full-servicecommercial
bank.
As
a
state-sponsored
institution,
we
believe
that
it
is
able
to
provide
payment
services
at
significantly
lower
prices
than
we
are
able
to
matchprofitably.
An
increase
in
competition
by
other
market
participants,
including
Sberbank,
Alfa-Bank
or
Russian
Post,
could
result
in
a
loss
of
consumers
and
ourmargins
could
be
harmed.
The
geographical
footprint
of
some
of
our
competitors
could
also
be
leveraged
by
them
to
gain
or
increase
a
market
share
in
the
moneytransfers
business.
We
also
face
competition
from
non-traditional
payment
service
providers
that
have
substantial
financial
resources,
such
as
majortelecommunication
and
small
electronics
retailers,
including
Euroset
and
Svyaznoy,
online
retailers
such
as
Alibaba
(and
its
financial
services
subsidiary
AntFinancial
which
operates
the
AliPay
payment
system),
as
well
as
MNOs,
in
particular
the
Russian
“Big
Three”
MNOs,
MegaFon,
VimpelCom
and
MTS,
as
well
astheir
closest
competitor
Rostelekom.
In
February
2017
MTS
announced
the
launch
of
MTS
Money
Wallet,
an
e-wallet
which
combines
all
payment
tools
on
oneplatform,
including
electronic
wallet,
bank
cards,
and
customers’
mobile
account
balances.
We
also
compete
against
some
directly
comparable
businesses,
such
astraditional
kiosk
and
terminal
operators,
including
Cyberplat,
Compay
and
Elecsnet,
and
electronic
payment
system
operators
(primarily
Yandex.Money,WebMoney
and
PayPal).
New
competitors
may
penetrate
the
Russian
electronic
payment
market
as
well,
including
established
international
players
such
asMoneyGram,
Google,
Samsung
(which
acquired
an
electronic
payments
company
LoopPay
in
February
2015)
or
Apple
(which
introduced
its
own
paymentsservice
Apple
Pay
in
September
2014).
In
connection
with
our
recently
launched
payment-by-installments
card
program
under
the
SOVEST
brand,
we
face
intensecompetition
from
all
commercial
banks
with
unsecured
retail
consumer
lending
programs
and
we
may
expect
to
face
increasing
competition
in
case
commercialbanks
launch
similar
products.
Additionally,
some
of
our
competitors
are
currently
our
major
merchants
(the
Big
Three
MNOs)
or
our
large
agents
(for
example,Svyaznoy).
If
we
are
unable
to
compete
successfully
for
consumers,
agents
and
merchants,
our
business,
financial
condition
and
results
of
operations
could
bematerially
adversely
affected.Our continued growth depends on our ability to maintain or increase our average net revenue yield.One
of
the
key
measures
we
use
to
assess
our
financial
performance
is
our
average
net
revenue
yield,
which
we
calculate
by
dividing
adjusted
netrevenue
by
the
total
payment
volume
of
the
transactions
we
process.
Our
average
net
revenue
yield
may
be
affected
by
a
number
of
factors,
including
increasedcompetition,
pressure
from
merchants
and/or
agents,
and
acquisitions.
We
have
experienced
declines
in
our
average
net
revenue
yield
for
certain
merchantcategories
in
the
past,
in
particular
for
our
Telecom
merchants
where
the
merchant
fees
were
sharply
reduced
by
the
Big
Three
MNOs,
who
have
been
seeking
toreduce
costs,
and
may
continue
to
do
so
in
the
future.
In
addition,
in
2015,
our
average
net
revenue
yield
declined
following
the
acquisition
of
the
Contact
moneytransfer
system
(“Contact”)
and
the
Rapida
payment
processing
system
(“Rapida”)
businesses,
both
of
which
had
been
operating
with
a
significantly
lower
averagenet
revenue
yield
than
QIWI
(excluding
Contact
and
Rapida)
during
2015.
In
order
to
maintain
our
competitiveness,
we
must
continue
to
ensure
that
our
paymentprocessing
system
provides
a
more
convenient
and
attractive
option
for
both
merchants
and
customers
than
alternative
systems
that
may
not
require
payment
of
aprocessing
fee.
9Table of ContentsRetail
banks
and
various
payment
service
providers
are
constantly
developing
low
to
zero-commission
payment
channels
for
their
consumers.
To
attractconsumers,
we
also
offer
certain
services
on
a
commission-free
basis,
such
as
most
peer-to-peer
transfers
within
Visa
Qiwi
Wallet
and
certain
payments
in
e-commerce.
Despite
our
efforts,
consumers
may
still
choose
to
use
other
payment
systems,
even
if
those
systems
do
not
offer
the
convenience
that
we
do,
becausethey
charge
lower
fees.
In
addition,
because
agents
and
merchants
are
able
to
switch
between
different
payment
processing
systems,
we
may
face
additionalpressure
to
reduce
the
fees
we
charge
due
to
increased
competition
from
other
payment
service
providers.As
a
result,
if
average
net
revenue
yields
continue
to
decline,
we
must
offset
the
financial
impact
of
such
decline
by
increasing
our
payment
volume
orthrough
the
development
and
enhancement
of
value
added
services.
We
cannot
assure
you
that
we
will
be
able
to
increase
our
payment
volumes
or
that
any
valueadded
services
we
introduce
will
be
profitable.
If
we
are
unable
to
offset
the
decline
in
our
average
net
revenue
yield
resulting
from
this
and
other
factors,
ourbusiness,
financial
condition
and
results
of
operations
could
be
materially
adversely
affected.We are subject to the economic risk and business cycles of our merchants and agents and the overall level of consumer spending.The
payment
services
industry
depends
heavily
on
the
overall
level
of
consumer
spending.
We
are
exposed
to
general
economic
conditions
that
affectconsumer
confidence,
consumer
spending,
consumer
discretionary
income
or
changes
in
consumer
purchasing
habits.
Economic
factors
such
as
employment
levels,business
conditions,
energy
and
fuel
costs,
interest
rates,
inflation
rate
and
the
strength
of
the
ruble
against
foreign
currencies
(in
particular
the
U.S.
dollar)
couldreduce
consumer
spending
or
change
consumer
purchasing
habits.
A
reduction
in
the
amount
of
consumer
spending
could
result
in
a
decrease
in
our
revenue
andprofits.
If
our
merchants
make
fewer
sales
of
their
products
and
services
using
our
services
or
consumers
spend
less
money
per
transaction,
the
volume
of
paymentswe
process
will
decline,
resulting
in
lower
revenue.
A
further
weakening
in
the
economy
could
have
a
negative
impact
on
our
merchants,
as
well
as
consumers
whopurchase
products
and
services
using
our
payment
processing
systems,
which
could,
in
turn,
negatively
impact
our
business,
financial
condition
and
results
ofoperations,
particularly
if
the
recessionary
environment
disproportionately
affects
some
of
the
market
segments
that
represent
a
larger
portion
of
our
paymentprocessing
volume.
In
addition,
these
factors
could
force
some
of
our
merchants
and/or
agents
to
liquidate
their
operations
or
go
bankrupt,
or
could
cause
ouragents
to
reduce
the
number
of
their
locations
or
hours
of
operation,
resulting
in
reduced
transaction
volumes.
We
also
have
a
certain
amount
of
fixed
costs,including
salaries
and
rent,
which
could
limit
our
ability
to
adjust
costs
and
respond
quickly
to
changes
affecting
the
economy
and
our
business.Russia’s
economy
has
been
facing
significant
challenges
for
the
past
few
years
due
to
the
combined
effect
of
the
ongoing
crisis
in
Eastern
Ukraine
andSyria,
the
economic
and
financial
sanctions
imposed
in
connection
with
it
on
certain
Russian
companies
and
individuals,
as
well
as
against
entire
sectors
of
Russianeconomy,
by
the
U.S.,
EU,
Canada
and
other
countries,
a
steep
decline
in
oil
prices,
a
record
weakening
of
the
Russian
ruble
against
the
U.S.
dollar,
a
lack
ofaccess
to
financing
for
Russian
issuers,
capital
flight
and
a
general
climate
of
political
and
economic
uncertainty.
See
“–
Economic
instability
in
Russia
could
havean
adverse
effect
on
our
business”
and
“–
The
situation
in
Ukraine
and
the
U.S.,
EU
and
other
sanctions
that
have
been
imposed
could
adversely
impact
ouroperations
and
financial
condition”.
The
Russian
economy
contracted
both
in
2015
and
in
2016.
At
the
same
time,
the
population’s
purchasing
power
decreased
dueto
the
weakening
of
the
ruble,
basic
necessities
such
as
food
products
and
utilities
became
more
expensive,
and
consumer
confidence
declined
significantly,according
to
the
Russian
Consumer
Confidence
Overall
Index
reported
by
Rosstat.
According
to
Rosstat,
inflation
was
11.4%
in
2014
and
12.9%
in
2015
(althoughit
relatively
stabilized
in
2016
at
5.4%),
while
real
average
wages
have
been
declining
(with
Rosstat’s
data
for
2016
indicating
that
the
population’s
real
disposableincome
contracted
by
5.9%
in
2016
as
compared
to
2015).
Against
this
backdrop,
household
consumption
decreased
significantly
in
2015
versus
2014,
although
itgrew
slightly
by
1.5%
in
2016,
according
to
Rosstat.
A
prolonged
economic
slowdown
in
Russia
could
have
a
significant
negative
effect
on
consumer
spending
inRussia
and,
accordingly,
on
our
business.
As
a
result
of
the
challenging
operating
environment
in
Russia,
we
have
experienced
slower
payment
volume
growth
incertain
of
our
payment
categories
and
payment
volume
decline
in
certain
others.
In
particular
Money
Remittance
and
Financial
Services
categories
were
affected
byweak
consumer
spending
and
lack
of
growth
in
the
underlying
markets
resulting
from
decrease
in
real
disposable
income,
cautious
consumer
spending,
reducedmigration,
ongoing
purge
of
the
Russian
banking
industry
by
the
CBR
and
shrinkage
of
the
banking
sector
as
well
as
several
other
sector
specific
challenges.
Thecurrent
financial
crisis
in
Russia
is
still
ongoing.
Further
adverse
changes
in
economic
conditions
in
Russia
could
adversely
impact
our
future
revenues
and
profitsand
cause
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.We do not control the rates of the fees levied by our agents on consumers.Our
agents
pay
us
an
agreed
fee
using
a
portion
of
the
fees
levied
by
them
on
consumers.
The
fee
paid
to
us
by
the
agent
is
based
on
a
percentage
ofthe
value
of
each
transaction
that
we
process.
In
certain
cases,
mostly
in
telecom
market
vertical,
the
amount
of
fees
levied
by
an
agent
on
a
consumer
for
eachparticular
transaction
is
determined
by
such
agent
at
its
own
discretion.
We
do
not
cap
the
amount
of
such
fees
or
otherwise
control
it.
We
believe
that
the
fees
setby
our
agents
are
market-driven,
and
that
our
interests
and
our
agents’
interests
are
aligned
with
a
view
to
maintaining
fees
at
a
level
that
would
simultaneouslyresult
in
our
agents’
profitability
and
customer
satisfaction.
However,
we
can
provide
no
assurance
that
our
agents
will
not
raise
fees
to
a
level
that
will
adverselyaffect
the
popularity
of
our
products
among
consumers.
At
the
same
time,
if
we
are
forced
to
cap
customer
fees
to
protect
the
strength
of
our
brand
or
otherwise,
wemay
lose
a
significant
number
of
agents,
which
would
reduce
the
penetration
of
our
physical
distribution
network.
In
some
instances,
we
have
introduced
such
capsat
the
request
of
our
merchants.
No
assurance
can
be
made
that
this
trend
will
not
increase.
Material
increases
in
customer
fees
by
our
agents
or
the
imposition
ofcaps
on
the
rates
of
such
fees
by
us
could
have
an
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.
10Table of ContentsOur independent public registered accounting firm identified a material weakness in our internal control over financial reporting during our 2011 audit, andwe can provide no assurance that additional material weaknesses will not be identified in the future.Our
internal
controls
relating
to
preparation
of
our
financial
statements
have
not
kept
pace
with
the
changes
in
and
increasing
scope
and
volume
of
ourbusiness.
Our
financial
reporting
function
and
system
of
internal
controls
is
less
developed
in
certain
respects
than
those
of
payment
service
providers
that
operatein
more
developed
markets
and
may
not
provide
our
management
with
as
much
or
as
accurate
or
timely
information.
The
Public
Company
Accounting
OversightBoard,
or
PCAOB,
has
defined
a
material
weakness
as
“a
significant
deficiency,
or
combination
of
significant
deficiencies,
that
results
in
more
than
a
remotelikelihood
that
a
material
misstatement
of
the
annual
or
interim
statements
will
not
be
prevented
or
detected.”
In
connection
with
their
audit
of
our
consolidatedfinancial
statements
for
the
year
ended
December
31,
2011,
our
independent
registered
public
accounting
firm
identified
a
material
weakness
in
our
internalcontrols
with
respect
to
our
financial
statement
closing
process.
As
a
result
of
efforts
we
undertook,
we
remediated
the
related
material
weakness
as
ofDecember
31,
2012.
However,
we
can
give
no
assurance
that
additional
material
weaknesses
in
our
internal
control
over
financial
reporting
will
not
be
identified
inthe
future.
Our
failure
to
implement
and
maintain
effective
internal
control
over
financial
reporting
could
result
in
errors
in
our
financial
statements
that
could
leadto
a
restatement
of
our
financial
statements,
cause
us
to
fail
to
meet
our
reporting
obligations
and
cause
investors
to
lose
confidence
in
our
reported
financialinformation,
which
may
result
in
a
decline
in
the
market
price
of
our
ADSs.If consumer confidence in our business deteriorates, our business, financial condition and results of operations could be adversely affected.Our
business
is
built
on
consumers’
confidence
in
our
brands,
as
well
as
our
ability
to
provide
fast,
reliable
payment
services,
including
electronicpayment
and
payment
processing
services.
As
a
consumer
business,
the
strength
of
our
brand
and
reputation
are
of
paramount
importance
to
us.
A
number
offactors
could
adversely
affect
consumer
confidence
in
our
brand,
many
of
which
are
beyond
our
control,
and
could
have
an
adverse
impact
on
our
results
ofoperations.
These
factors
include:

•
illegal
or
improper
use
of
our
systems
and
compliance
related
concerns;

•
regulatory
action
or
investigations
against
us;

•
any
significant
interruption
to
our
systems
and
operations;
and

•
any
breach
of
our
security
system
or
any
compromises
of
consumer
data.In
addition,
we
are
largely
dependent
on
our
agents
and
to
some
extent
on
our
franchisees
to
which
we
license
our
products
to
maintain
the
reputationof
our
brand.
Despite
the
measures
that
we
put
in
place
to
ensure
their
compliance
with
our
performance
standards,
our
lack
of
control
over
their
operations
mayresult
in
the
low
quality
of
service
of
a
particular
agent
or
franchisee
being
attributed
to
our
brand,
negatively
affecting
our
overall
reputation.
Furthermore,negative
publicity
surrounding
any
assertion
that
our
agents
and/or
merchants
are
implicated
in
fraudulent
transactions,
irrespective
of
the
accuracy
of
suchpublicity
or
its
connection
with
our
current
operations
or
business,
could
harm
our
reputation.Any
event
that
hurts
our
brand
and
reputation
among
consumers
as
a
reliable
payment
services
provider
could
have
a
material
adverse
effect
on
ourbusiness,
financial
condition
and
results
of
operations.A decline in the use of cash as a means of payment or a decline in the use of kiosks and terminals may result in a reduced demand for our services.Substantially
all
of
our
business
is
in
emerging
markets,
including
Russia
and
Kazakhstan,
where
a
substantial
part
of
the
population
relies
on
cashpayments,
rather
than
credit
and
debit
card
payments
or
electronic
banking.
We
believe
that
consumers
making
cash
payments
are
more
likely
to
use
our
kiosks
andterminals
as
well
as
Visa
Qiwi
Wallet,
which
is
most
commonly
reloaded
via
kiosks
and
terminals,
than
using
alternative
payment
methods.
As
a
result,
we
believethat
our
profitability
depends
to
an
extent
on
the
use
of
cash
as
a
means
of
payment
and
the
reach
of
our
kiosks
and
terminals
network.
Over
time,
the
prevalence
ofcash
payments
is
expected
to
decline
as
a
greater
percentage
of
the
population
in
emerging
markets
adopts
credit
and
debit
card
payments
and
electronic
bankingand
as
our
kiosks
and
terminals
network
decreases.
The
shift
from
cash
payments
to
credit
and
debit
card
payments
and
electronic
banking
could
reduce
our
marketshare
and
payment
volumes
and
may
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.Other
factors
could
also
contribute
to
a
decline
in
the
use
of
kiosks
and
terminals,
including
regulatory
changes,
increases
in
consumer
fees
imposedby
the
agents
(see
“–We
do
not
control
the
rates
of
the
fees
levied
by
our
agents
on
consumers”),
and
development
of
alternative
payment
channels.
Based
onavailable
data,
we
believe
that
the
overall
number
of
and
the
use
of
kiosks
declined
in
2015
versus
prior
years
and
was
slightly
lower
in
2016
as
compared
to
2015.Since
mid-2015
the
CBR
enhanced
its
scrutiny
over
the
compliance
by
the
agents
with
legislation
that
requires
them
to
remit
their
proceeds
to
specialaccounts
(see
“-
Regulation
–
Regulation
of
Payment
Services”),
which
has
had
a
negative
impact
on
the
size
of
our
kiosk
network.
Through
reducing
the
size
ofour
network,
this
adversely
affects
the
availability
and
convenience
of
our
services
to
consumers,
including
the
convenience
of
use
of
Visa
Qiwi
Wallet,
for
whichhistorically
our
kiosks
and
terminals
have
been
the
most
popular
reload
channel.
We
have
since
observed
that
these
developments
had
the
effect
of
making
the
useof
our
kiosks
and
terminals
generally
more
expensive
or
less
convenient
for
the
consumers
as
reflected
in
the
decreasing
payment
volumes
in
telecom
and
other(mainly
Multi
Level
Marketing
or
MLM)
market
verticals.
These
developments
also
increased
the
cost
to
us
of
consumers
reloading
their
Visa
Qiwi
Walletaccounts,
since
historically
our
own
kiosks
and
terminals
have
been
the
most
popular
reload
channel
(see
“–The
cost
to
us
of
consumers
reloading
their
Visa
QiwiWallet
accounts
may
increase”).
There
can
be
no
assurance
that
this
negative
impact
will
not
continue
going
forward
as
increased
regulatory
pressures
put
moreagents
out
of
business
and
deter
new
ones
from
entering
it.
Another
recent
development
that
could
have
a
similar
effect
on
our
business
is
the
introduction
in
2016of
amendments
to
the
Federal
Law
of
the
Russian
Federation
No.
54-FZ
“On
the
use
of
cash
registers
in
cash
payments
and
(or)
settlements
with
the
use
ofpayment
cards”,
dated
May
22,
2003
(as
amended).
In
particular,
the
law
mandated
that
all
kiosks
(subject
to
certain
exceptions)
be
equipped
with
new
ormodernized
cash
registers.
If
our
agents
are
not
able
or
willing
to
comply
with
the
new
legislation,
it
could
cause
a
further
reduction
of
our
kiosk
network.
11Table of ContentsAll
of
these
factors
could
undermine
the
appeal
of
our
services
for
the
consumers.
Moreover,
failure
to
comply
with
such
enhanced
control
measuresby
us
or
our
agents
could
result
in
the
CBR
imposing
fines
or
restrictions
on
our
activities
(see
“–Qiwi
Bank,
Rapida
LTD
and
other
Russian
banks
and
creditorganizations
operate
in
a
highly
regulated
environment,
and
increased
regulator
scrutiny
could
have
an
adverse
effect
on
our
business,
financial
condition
andresults
of
operations”).
All
of
these
factors
could
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.We may not be able to expand into new geographical markets, or develop our existing international operations successfully, which could limit our ability togrow and increase our profitability.Our
expansion
into
new
geographical
markets
and
further
development
of
our
international
operations
depend
on
our
ability
to
apply
our
existingtechnology
or
to
develop
new
applications
to
meet
the
particular
needs
of
each
local
market
or
country.
We
may
not
have
adequate
financial,
technological
orpersonnel
and
management
resources
to
develop
effective
and
secure
services
or
distribution
channels
that
will
satisfy
the
demands
of
these
markets.
We
may
notbe
able
to
establish
partnerships
with
merchants
or
to
attract
agents
to
invest
in
new
geographical
markets
to
strengthen
our
international
operations.
If
we
fail
toenter
new
markets
or
countries
and
to
further
develop
our
international
operations,
we
may
not
be
able
to
continue
to
grow
our
revenues
and
earnings.
Furthermore,we
may
expand
into
new
geographical
markets
in
which
we
may
not
have
any
previous
operating
experience.
We
operate
in
an
industry
that
is
often
subject
tosignificant
regulation,
and
our
lack
of
familiarity
with
the
regulatory
landscape
in
new
markets
may
result
in
us
running
into
unanticipated
problems
or
delays
inobtaining
the
requisite
regulatory
approvals
and
licenses.
We
may
not
be
able
to
successfully
expand
in
such
markets
due
to
our
lack
of
experience.
Moreover,
wemay
not
be
able
to
execute
our
strategy
in
our
existing
international
operations
successfully,
which
may
result
in
additional
losses
or
limit
our
growth
prospects.
Inaddition,
expanding
internationally
subjects
us
to
a
number
of
risks,
including:

•
greater
difficulty
in
managing
foreign
operations;

•
expenses
associated
with
localizing
our
products,
including
offering
consumers
the
ability
to
transact
in
major
currencies;

•
higher
labor
costs
and
problems
integrating
employees
that
we
hire
in
different
countries
into
our
existing
corporate
culture;

•
laws
and
business
practices
that
favor
local
competitors;

•
multiple
and
changing
laws,
tax
regimes
and
government
regulations;

•
foreign
currency
restrictions
and
exchange
rate
fluctuations;

•
changes
in
a
specific
country’s
or
region’s
political
or
economic
conditions;
and

•
differing
intellectual
property
laws.In
addition,
our
global
operations
expose
us
to
numerous
and
sometimes
conflicting
legal
and
regulatory
requirements,
and
violations
or
unfavorableinterpretation
by
authorities
of
these
regulations
could
harm
our
business.
In
particular,
we
are
exposed
to
the
risk
of
being
deemed
to
have
permanentestablishment
in
a
specific
country
and
transfer
pricing
risks
which
could
result
in
additional
tax
liability.If
we
are
not
able
to
manage
these
and
multiple
other
risks
associated
with
global
operations
successfully,
our
business,
financial
condition
and
resultsof
operations
could
be
materially
adversely
affected.We are subject to extensive government regulation.Our
business
is
impacted
by
laws
and
regulations
that
affect
our
industry,
the
number
of
which
has
increased
significantly
in
recent
years.
We
aresubject
to
a
variety
of
regulations
aimed
at
preventing
money
laundering
and
financing
criminal
activity
and
terrorism,
financial
services
regulations,
paymentservices
regulations,
consumer
protection
laws,
currency
control
regulations,
advertising
laws,
betting
laws
and
privacy
and
data
protection
laws
and
thereforeexperience
periodic
investigations
by
various
regulatory
authorities
in
connection
with
the
same,
which
may
sometimes
result
in
monetary
or
other
sanctions
beingimposed
on
us.
Further,
these
laws
and
regulations
vary
significantly
from
country
to
country.
Many
of
these
laws
and
regulations
are
constantly
evolving,
and
areoften
unclear
and
inconsistent
with
other
applicable
laws
and
regulations,
including
across
various
jurisdictions,
making
compliance
challenging
and
increasing
ourrelated
operating
costs
and
legal
risks.
If
local
authorities
in
Russia,
Kazakhstan
or
other
countries
choose
to
enforce
specific
interpretations
of
the
applicablelegislation
that
differ
from
ours,
we
may
be
found
to
be
in
violation
and
subject
to
penalties
or
other
liabilities.
This
could
also
limit
our
ability
in
processing
someof
the
payments
we
currently
process
going
forward
and
may
increase
our
cost
of
doing
business.For
example,
on
January
01,
2017,
the
Regulatory
Framework
for
Stored
Values
and
Electronic
Payment
Systems
came
into
force
in
the
United
ArabEmirates.
It
introduced
a
mandatory
licensing
and
related
compliance
regime
for
certain
electronic
payment
service
providers
and
established
a
one-yeartransitional
period
for
existing
digital
payment
services
providers
to
take
appropriate
measures
to
comply
with
the
new
rules.
In
case
of
failure
to
do
so
paymentservices
provider
may
be
mandated
to
cease
provision
of
such
services.
Moreover,
any
individual
or
entity
providing
(or
representing
themselves
as
capable
ofproviding)
digital
payment
services
without
the
appropriate
license
or
authorization
will
be
subject
to
administrative
penalties.
We
are
currently
assessing
theapplicability
and
potential
impact
of
the
new
legislation
on
our
business.
12Table of ContentsIf
our
position
on
our
status
under
the
Regulatory
Framework
is
different
from
that
of
the
UAE
regulator
or
if
we
are
unable
to
comply
with
the
mandatorylicensing
if
it
is
deemed
applicable
to
us,
it
could
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.Further,
at
the
end
of
2014,
our
subsidiary
in
Kazakhstan
became
subject
to
local
financial
monitoring
legislation,
imposing
certain
clientidentification
requirements
on
us.
In
connection
with
this
legislation,
we
had
to
restructure
our
operations
in
Kazakhstan
to
make
our
Kazakh
subsidiary
theoperator
of
our
payment
system
in
the
country.
The
restructuring
was
completed
in
September
2015.
As
the
anti-money
laundering
legislation
in
Kazakhstan
isrelatively
nascent
and
undeveloped,
we
may
face
various
difficulties
when
applying
the
legislation.
If
we
are
not
able
to
comply
with
the
applicable
legislation
forany
reason,
we
could
become
subject
to
regulatory
action
in
Kazakhstan
and
could
face
fines
or
significant
restrictions
on
our
operations
in
the
country.Moreover,
the
Law
of
the
Republic
of
Kazakhstan
No.
11-VI
“On
Payments
and
Payment
Systems”,
dated
July
26,
2016,
came
into
force
inSeptember
2016
substituting
the
Law
of
the
Republic
of
Kazakhstan
No.
237-I
“On
Payments
and
Money
Transfers”
dated
June
29,
1998.
The
new
law
introduceda
more
comprehensive
regulatory
regime
for
the
payments
market
in
general,
thus
bringing
the
Kazakh
legislation
more
in
line
with
the
international
standards.Since
the
position
of
the
local
regulator
in
relation
to
the
enforcement
of
the
new
legislation
is
not
yet
clear
and
established,
we
may
be
found
in
violation
ofapplicable
laws
and
regulations
and
be
subject
to
penalties
or
other
liabilities.Furthermore,
recently
there
has
been
increased
public
attention
and
heightened
legislation
and
regulations
regarding
money
laundering
and
terroristfinancing.
We
sometimes
have
to
make
significant
judgment
calls
in
applying
anti-money
laundering
legislation
and
risk
being
found
in
non-compliance
with
it,particularly
in
relation
to
its
mandatory
client
identification
requirements,
if,
for
example,
we
process
payments
made
by
our
consumers
from
their
Visa
QiwiWallet
accounts
for
amounts
in
excess
of
the
thresholds
imposed
by
anti-money
laundering
legislation
or
for
certain
types
of
merchants
without
the
required
clientidentification.
Although
we
use
all
methods
available
for
client
identification
and
believe
we
are
in
compliance
with
market
practice
(see
“—Know-your-clientrequirements
established
by
Russian
anti-money
laundering
legislation
may
adversely
impact
our
transaction
volumes”),
the
Russian
regulators
may
view
us
asbeing
non-compliant
and
impose
fines
and
other
sanctions
on
us.
There
can
also
be
no
assurance
that
the
mandatory
client
identification
requirements
under
theanti-money
laundering
legislation
will
not
change
further
in
a
manner
adverse
to
our
business,
for
example,
through
making
the
identification
process
moreburdensome
or
through
lowering
the
thresholds
for
transactions
which
non-identified
customers
or
customers
that
only
underwent
the
simplified
identificationprocess
can
perform
(see
“Regulation”),
which
could
result
in
lower
payment
volumes
for
us.
For
instance,
there
have
already
been
proposals
from
certaingovernment
officials
to
ban
payments
by
unidentified
consumers
altogether.
Any
adverse
change
to
these
requirements
could
have
a
substantial
negative
effect
onour
business.Generally,
Russian
lawmakers
and
enforcement
agencies
have
recently
demonstrated
increased
scrutiny
in
matters
relating
to
cyberspace
and
e-payments,
as
borne
out
in
the
enhanced
enforcement
activities
in
the
kiosk
market,
the
de-anonymization
of
e-payments
and
various
other
initiatives
aimed
atincreasing
state
control
over
online
activities.In
July
2016,
we
were
served
with
notices
from
Roskomnadzor,
the
Russian
state
agency
responsible,
among
other
things,
for
overseeing
the
mediaand
Internet,
stating
that
we
had
breached
Russian
laws
on
public
distribution
of
information
about
gambling,
since
our
website
contained
links
to
services
offeredby
certain
betting
operators
which
were
allegedly
not
in
compliance
with
the
Russian
betting
legislation.
We
have
complied
with
the
prescriptions
contained
in
thenotices.
However,
there
can
be
no
assurance
that
further
violations
will
not
occur
in
the
future
as
we
service
a
wide
variety
of
merchants
and
depend
on
theircompliance
with
relevant
laws
in
this
regard.
If
we
are
found
to
be
in
breach,
Roskomnadzor
or
other
agencies
could
take
further
action
against
us,
including
byblocking
our
website
or
imposing
fines
or
other
sanctions.Moreover,
recent
amendments
to
the
Russian
betting
legislation
introduced
a
more
comprehensive
regulatory
framework
in
this
area.
In
particular,under
amendments
to
the
Russian
betting
laws
introduced
in
2014
(see
“Regulation”),
in
order
to
engage
in
the
betting
business,
a
bookmaker
has
to
become
amember
of
a
self-regulated
organization
of
bookmakers
and
abide
by
its
rules,
and
any
and
all
interactive
bets
may
be
only
accepted
through
an
Interactive
BetsAccounting
Center
(TSUPIS)
set
up
by
a
credit
organization
together
with
a
self-regulated
association
of
bookmakers.
In
2016
QIWI
Bank
established
a
TSUPIStogether
with
one
of
the
self
-regulated
associations
of
bookmakers
in
order
to
be
able
to
accept
such
payments.
If
any
of
our
merchants
engaged
in
the
bettingbusiness
is
not
able
or
willing
to
comply
with
the
Russian
betting
legislation
or
if
they
decide
to
cease
their
operations
in
Russia
for
regulatory
reasons
orotherwise,
we
would
have
to
discontinue
servicing
them
and
would
lose
the
associated
income.
Moreover,
if
we
are
found
to
be
in
non-compliance
with
any
of
therequirements
of
the
applicable
legislation,
we
could
not
only
become
subject
to
fines
and
other
sanctions,
but
could
also
have
to
discontinue
to
process
operationsthat
are
deemed
to
be
in
breach
of
the
applicable
rules
and
lose
associated
revenue
streams.
We
may
also
be
subject
to
reputational
risks
associated
with
beinginvolved
in
the
betting
business
through
offering
our
payments
services
to
betting
merchants.
Furthermore,
we
could
face
similar
difficulties
in
other
jurisdictionsince
online
betting
is
an
area
of
intense
focus
by
regulators
in
many
of
the
countries
in
which
we
operate.Besides,
in
July
2016,
a
bill
was
signed
into
law
making
online
services
subject
to
VAT
at
the
location
of
the
customer,
which
would
require
anyforeign
companies
selling
certain
online
services
in
Russia
to
register
as
taxpayers
in
Russia
and
pay
VAT
on
Russian
sales.
See
“VAT
on
digital
services
inRussia”
for
more
details.
The
new
law
also
requires
companies
providing
settlement
services
on
behalf
of
the
foreign
merchants
to
act
as
tax
agents
and
withdrawand
remit
to
the
tax
authorities
the
applicable
VAT.
If
we
are
found
to
have
any
obligations
under
this
law
or
not
be
in
compliance
with
such
obligations
or
if
theauthorities
choose
to
enforce
specific
interpretations
of
the
applicable
legislation
that
differ
from
ours,
we
could
face
significant
adverse
tax
consequences.
Wecould
also
experience
a
reduction
in
volumes
from
our
foreign
merchants
as
they
cease
or
downsize
their
sales
to
Russia
in
the
light
of
the
new
regulation.In
2016
the
Ministry
of
Finance
of
the
United
Arab
Emirates
announced
that
it
was
planning
to
introduce
a
value
added
tax
at
a
rate
of
5%
with
somelimited
exceptions
including
basic
food
items,
healthcare
and
education
starting
from
January
01,
2018.
If
implemented,
it
could
increase
our
tax
burden
and
thusreduce
our
margins.Changes
in
our
industry
are
rapid,
and
new
products
that
we
develop
may
become
subject
to
government
regulation
undoing
the
benefits
we
expect
toderive
from
such
products.
13Table of ContentsIn
some
jurisdictions
where
we
operate,
there
is
currently
little
or
virtually
no
legislation
addressing
electronic
payments,
and
no
assurance
can
bemade
that
if
such
legislation
is
adopted
it
will
be
beneficial
to
our
business.
For
instance,
if
a
statutory
cap
is
imposed
on
the
fees
that
can
be
charged
to
theconsumers
using
our
kiosks
and
terminals,
it
could
significantly
reduce
our
margins.
From
time
to
time,
proposals
are
submitted
to
the
Russian
State
Duma
to
capthe
amount
of
such
fees.Subsequent
legislation
and
regulation
and
interpretations
thereof,
litigation,
court
rulings,
or
other
events
could
expose
us
to
increased
costs,
liabilityand
reputational
damage
that
could
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.We may not be able to complete or integrate successfully any potential future acquisitions, partnerships or joint ventures.From
time
to
time,
we
have
evaluated
and
expect
to
continue
to
evaluate
possible
acquisition
transactions,
partnerships
or
joint
ventures
on
an
on-going
basis,
some
of
which
may
be
material.
At
any
time,
including
currently,
we
may
be
engaged
in
discussions
or
negotiations
or
diligence
evaluations
withrespect
to
possible
acquisitions,
partnerships
or
joint
ventures
or
may
have
entered
into
non-binding
documents
in
relation
to
such
transactions.
As
part
of
ourstrategy,
we
intend
to
continue
our
disciplined
approach
to
identifying,
executing
and
integrating
strategic
acquisitions.Potential
future
acquisitions,
partnerships
and
joint
ventures
may
pose
significant
risks
to
our
existing
operations
if
they
cannot
be
successfullyintegrated.
These
projects
would
place
additional
demands
on
our
managerial,
operational,
financial
and
other
resources,
create
operational
complexity
requiringadditional
personnel
and
other
resources
as
well
as
enhanced
control
procedures.
In
addition,
we
may
not
be
able
to
successfully
finance
or
integrate
anybusinesses,
services
or
technologies
that
we
acquire
or
with
which
we
form
a
partnership
or
joint
venture.
Furthermore,
the
integration
of
any
acquisition
maydivert
management’s
time
and
resources
from
our
core
business
and
disrupt
our
operations.
Moreover,
even
if
we
were
successful
in
integrating
newly
acquiredassets,
expected
synergies
or
cost
savings
may
not
materialize,
resulting
in
lower
than
expected
benefits
to
us
from
such
transactions.
We
may
spend
time
andmoney
on
projects
that
do
not
increase
our
revenue.
Additionally,
when
making
acquisitions
it
may
not
be
possible
for
us
to
conduct
a
detailed
investigation
of
thenature
of
the
assets
being
acquired
due
to,
for
instance,
time
constraints
in
making
the
decision
and
other
factors.
We
may
become
responsible
for
additionalliabilities
or
obligations
not
foreseen
at
the
time
of
an
acquisition.
In
addition,
in
connection
with
any
acquisitions,
we
must
comply
with
various
antitrustrequirements.
It
is
possible
that
perceived
or
actual
violations
of
these
requirements
could
give
rise
to
regulatory
enforcement
action
or
result
in
us
not
receiving
allnecessary
approvals
in
order
to
complete
a
desired
acquisition.
To
the
extent
we
pay
the
purchase
price
of
any
acquisition
in
cash,
it
would
reduce
our
cashreserves,
and
to
the
extent
the
purchase
price
is
paid
with
our
stock,
it
could
be
dilutive
to
our
stockholders.
To
the
extent
we
pay
the
purchase
price
with
proceedsfrom
the
incurrence
of
debt,
it
would
increase
our
level
of
indebtedness
and
could
negatively
affect
our
liquidity
and
restrict
our
operations.
Our
competitors
maybe
willing
or
able
to
pay
more
than
us
for
acquisitions,
which
may
cause
us
to
lose
certain
acquisitions
that
we
would
otherwise
desire
to
complete.
All
of
the
aboverisks
could
have
a
material
adverse
effect
on
our
business,
results
of
operations,
financial
condition,
and
prospects.We have grown rapidly in recent years and need to implement enhanced compliance processes, procedures and controls with respect to the rules andregulations that apply to our business.Our
business
has
grown
and
developed
rapidly
in
recent
years
and
we
are
continuing
to
realign
our
compliance
function
with
the
size
of
our
business.In
light
of
the
fact
that
we
are
a
highly
regulated
business
that
processes
large
volumes
of
payments,
we
need
to
implement
enhanced
processes,
procedures
andcontrols
in
order
to
provide
reasonable
assurance
that
we
are
operating
in
compliance
with
applicable
regulatory
requirements.
In
particular,
the
Russian
anti-money
laundering
laws
to
which
we
are
subject
contain
numerous
requirements
with
respect
to
identification
of
clients,
and
documentation
and
reporting
oftransactions
subject
to
mandatory
control
and
other
suspicious
transactions
to
the
relevant
authorities.
Following
our
acquisition
of
Rapida
LTD
in
2015,
we
havehad
to
devote
additional
resources
to
enhance
the
compliance
function
within
Rapida
LTD,
which,
at
the
time
of
our
acquisition,
was
deficient
in
several
areas.Among
others,
we
are
subject
to
the
U.S.
Foreign
Corrupt
Practices
Act,
or
the
FCPA,
which
prohibits
U.S.
companies
and
their
intermediaries
frombribing
foreign
officials
for
the
purpose
of
obtaining
or
keeping
business
or
otherwise
obtaining
favorable
treatment,
and
other
laws
concerning
our
internationaloperations.
Similar
legislation
in
other
jurisdictions
contains
similar
prohibitions,
although
varying
in
both
scope
and
jurisdiction.
We
have
implemented
policiesand
procedures
and
internal
controls
designed
to
provide
reasonable
assurance
that
we,
our
employees,
distributors
and
other
intermediaries
comply
with
the
anti-corruption
laws
to
which
we
are
subject.
However,
there
are
inherent
limitations
to
the
effectiveness
of
any
policies,
procedures
and
internal
controls,
including
thepossibility
of
human
error
and
the
circumvention
or
overriding
of
the
policies,
procedures
and
internal
controls.
There
can
be
no
assurance
that
such
policies
orprocedures
or
internal
controls
will
work
effectively
at
all
times
or
protect
us
against
liability
under
these
or
other
laws
for
actions
taken
by
our
employees,distributors
and
other
intermediaries
with
respect
to
our
business
or
any
businesses
that
we
may
acquire.Our
success
requires
significant
public
confidence
in
our
ability
to
handle
large
and
growing
payment
volumes
and
amounts
of
consumer
funds,
aswell
as
comply
with
applicable
regulatory
requirements.
Any
failure
to
manage
consumer
funds
or
to
comply
with
applicable
regulatory
requirements
could
resultin
the
imposition
of
fines,
harm
our
reputation
and
significantly
diminish
use
of
our
products.
In
addition,
if
we
are
not
in
compliance
with
anti-corruption
laws
andother
laws
governing
the
conduct
of
business
with
government
entities
and/or
officials
(including
local
laws),
we
may
be
subject
to
criminal
and
civil
penalties
andother
remedial
measures,
which
could
have
an
adverse
impact
on
our
business,
financial
condition,
results
of
operations
and
prospects.
14Table of ContentsIf we cannot keep pace with rapid developments and change in our industry and provide new services to our clients, or if any of the new products we roll outare unsuccessful, the use of our services could decline, and we could experience a decline in revenue and an inability to recoup costs.The
payment
services
industry
in
which
we
operate
is
characterized
by
rapid
technological
change,
new
product
and
service
introductions,
evolvingindustry
standards,
changing
customer
needs
and
the
entrance
of
more
established
market
players
seeking
to
expand
into
these
businesses.
In
order
to
remaincompetitive,
we
continually
seek
to
expand
the
services
we
offer
and
to
develop
new
projects.
These
projects
carry
risks,
such
as
delays
in
delivery,
performanceproblems
and
lack
of
customer
acceptance.
In
our
industry,
these
risks
are
acute.
Any
delay
in
the
delivery
of
new
services
or
the
failure
to
differentiate
ourservices
or
to
accurately
predict
and
address
market
demand
could
render
our
services
less
desirable,
or
even
obsolete,
to
consumers.
In
addition,
if
alternativepayment
mechanisms
become
widely
available,
substituting
our
current
products
and
services,
and
we
do
not
develop
and
offer
similar
alternative
paymentmechanisms
successfully
and
on
a
timely
basis,
our
business
and
prospects
could
be
adversely
affected.
Furthermore,
we
may
be
unable
to
recover
the
costs
wehave
incurred
in
developing
new
services.
Our
development
efforts
could
result
in
increased
costs
and
we
could
also
experience
a
loss
in
business
that
could
reduceour
earnings
or
could
cause
a
loss
of
revenue
if
promised
new
services
are
not
timely
delivered
to
our
clients,
are
not
able
to
compete
effectively
with
ourcompetitors’
or
do
not
perform
as
anticipated.
As
we
enter
markets
that
are
new
for
us
with
our
new
product
and
services
offerings,
we
face
additional
operational,regulatory
and
other
risks
that
we
may
not
be
able
to
adequately
address
due
to
our
lack
of
experience
with
such
markets
and
associated
risks.In
late
2016,
we
launched
a
payment-by-installments
card
program
under
the
SOVEST
brand.
At
the
moment
these
cards
are
issued
exclusively
byQiwi
Bank.
SOVEST
cards
are
not
co-branded
with
any
other
payment
network.
SOVEST
cards
operate
as
a
payment-by-installment
cards:
consumers
can
usethese
cards
to
make
payments
to
merchants
within
the
card’s
limit
and
then
top
up
the
balance
of
the
card
to
repay
the
funds
they
used
in
equal
installments
or
atonce.
If
balance
is
topped
up
in
a
timely
manner
during
the
installment
period,
no
interest
or
fee
is
charged
on
the
consumer
except
for
an
annual
subscription
fee.We
would
only
charge
the
consumers
if
they
are
late
to
repay
the
funds
they
have
used.
We
believe
that
such
charges
would
generally
be
lower
than
the
interestcharged
on
credit
cards,
and
the
free
use
installment
period
would
generally
be
longer
than
the
grace
period
offered
by
credit
card
issuers.
We
would
receiveincome
from
the
use
of
SOVEST
cards
in
the
form
of
fees
payable
to
us
by
merchants
that
accept
them
in
return
for
enabling
consumers
to
receive
better
access
totheir
products.
Therefore,
we
view
these
late
payment
charges
as
a
tool
to
disincentivize
late
repayments
rather
than
a
source
of
income
for
us.
SOVEST
cards
canonly
be
used
with
merchants
that
have
enrolled
in
the
program
and
not
with
any
other
companies.
They
also
cannot
be
used
to
withdraw
funds
from
an
ATM.Although
we
expect
the
SOVEST
program
to
deliver
substantial
future
growth,
there
can
be
no
assurance
that
it
will
ultimately
gain
sufficient
acceptance
witheither
merchants
or
consumers
to
justify
our
investment
and
to
deliver
the
growth
that
we
are
projecting.
We
will
incur
significant
costs
in
connection
with
its
roll-out
and
operation
that
are
likely
to
not
be
offset
by
associated
income
at
least
for
a
certain
period
of
time.
This
program
will
be
a
cash-intensive
project
for
us
inparticular
since
we
will
have
to
use
our
own
funds
to
pay
the
merchants
that
our
consumers
make
purchases
from
with
the
use
of
SOVEST
cards,
and
if
it
does
notyield
the
expected
results,
it
will
result
in
a
substantial
sunk
cost
for
us.
See
also
“–Our
business
is
exposed
to
counterparty
and
credit
risks”
and
“–Our
operationsmay
be
constrained
if
we
cannot
attract
or
service
future
debt
financing.”We
also
actively
develop
other
new
products,
services
and
technologies.
Recently,
we
launched
a
company
specifically
dedicated
to
R&D
work
inconnection
with
our
blockchain
and
cryptoprocessing
initiatives.
If
our
efforts
in
connection
with
any
of
our
R&D
initiatives
do
not
pay
off
as
expected,
this
willresult
in
the
loss
of
our
investment
both
in
terms
of
money
and
management
time,
which
could
adversely
affect
our
profitability.Additionally,
in
order
to
remain
competitive
in
an
innovative
industry
such
as
ours,
we
have
to
make
investments
in
start-up
companies
or
undertakedifferent
research
and
development
initiatives.
If
our
investments
in
start-up
companies
or
research
and
development
initiatives
do
not
yield
the
expected
results,we
may
lose
money,
time
and
effort
invested.If
we
are
unable
to
develop,
adapt
to
or
access
technological
changes
or
evolving
industry
standards
on
a
timely
and
cost
effective
basis,
or
if
our
newinitiatives
do
not
yield
the
expected
results,
our
business,
financial
condition
and
results
of
operations
could
be
materially
adversely
affected.Our success depends to a large degree on our ability to successfully address the rapidly evolving market for transactions on mobile devices.Mobile
devices
are
increasingly
used
for
e-commerce
transactions.
A
significant
and
growing
portion
of
our
customers
access
our
platform
throughmobile
devices.
We
may
lose
customers
if
we
are
not
able
to
continue
to
meet
our
customers’
mobile
and
multi-screen
experience
expectations.
The
variety
oftechnical
and
other
configurations
across
different
mobile
devices
and
platforms
increases
the
challenges
associated
with
this
environment.
In
addition,
a
number
ofother
companies
with
significant
resources
and
a
number
of
innovative
startups
have
introduced
products
and
services
focusing
on
mobile
markets.
Our
ability
tosuccessfully
address
the
challenges
posed
by
the
rapidly
evolving
market
for
mobile
transactions
is
crucial
to
our
continued
success,
and
any
failure
to
continuouslyincrease
the
volume
of
mobile
transactions
effected
through
our
platform
could
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
ofoperations.Our systems and our third party providers’ systems may fail due to factors beyond our control, which could interrupt our service, cause us to lose business andincrease our costs.We
depend
on
the
efficient
and
uninterrupted
operation
of
numerous
systems,
including
our
computer
systems,
software
and
telecommunicationsnetworks,
as
well
as
the
data
centers
that
we
lease
from
third
parties.
Our
systems
and
operations,
or
those
of
our
third
party
providers,
could
be
exposed
to
damageor
interruption
from,
among
other
things,
fire,
flood,
natural
disaster,
power
loss,
telecommunications
failure,
vendor
failure,
unauthorized
entry,
improperoperation
and
computer
viruses.
In
addition,
because
both
of
our
data
centers
used
for
processing
payments
are
located
in
the
city
of
Moscow,
a
catastrophic
eventaffecting
the
city
of
Moscow
may
result
in
the
loss
of
both
data
15Table of Contentscenters.
Substantial
property
and
equipment
loss,
and
disruption
in
operations
as
well
as
any
defects
in
our
systems
or
those
of
third
parties
or
other
difficultiescould
expose
us
to
liability
and
materially
adversely
impact
our
business,
financial
condition
and
results
of
operations.
In
addition,
any
outage
or
disruptive
effortscould
adversely
impact
our
reputation,
brand
and
future
prospects.Unauthorized disclosure of data, whether through cybersecurity breaches, computer viruses or otherwise, could expose us to direct loss, liability, protracted andcostly litigation and damage our reputation.We
store
and/or
transmit
sensitive
data,
such
as
credit
or
debit
card
numbers,
mobile
phone
numbers
and
other
identification
data,
and
we
haveultimate
liability
to
our
consumers
for
our
failure
to
protect
this
data.
We
have
experienced
breaches
of
our
security
by
hackers
in
the
past,
and
breaches
couldoccur
in
the
future.
In
such
circumstances,
our
encryption
of
data
and
other
protective
measures
have
not
prevented
unauthorized
access
and
may
not
be
sufficientto
prevent
future
unauthorized
access.
For
example,
in
January
2014
we
discovered
unauthorized
activity
in
687
of
our
accounts
which
were
inappropriatelycredited,
and
the
improperly
credited
funds
were
subsequently
withdrawn.
Although
we
do
not
believe
that
any
confidential
customer
account
data
wascompromised
as
a
result
of
the
activity,
we
incurred
a
loss
of
RUB
88
million.
Rapida
LTD
also
experienced
several
security
breaches
prior
to
our
acquisition
ofthe
company.
Any
future
breach
of
our
system,
including
through
employee
fraud,
may
subject
us
to
material
losses
or
liability,
including
fines
and
claims
forunauthorized
purchases
with
misappropriated
credit
or
debit
card
information,
identity
theft,
impersonation
or
other
similar
fraud
claims.
A
misuse
of
such
data
or
acybersecurity
breach
could
harm
our
reputation
and
deter
clients
from
using
electronic
payments
as
well
as
kiosks
and
terminals
generally
and
our
servicesspecifically,
increase
our
operating
expenses
in
order
to
correct
the
breaches
or
failures,
expose
us
to
uninsured
liability,
increase
our
risk
of
regulatory
scrutiny,subject
us
to
lawsuits,
result
in
the
imposition
of
material
penalties
and
fines
by
state
authorities
and
otherwise
materially
adversely
affect
our
business,
financialcondition
and
results
of
operations.If we fail to comply with the applicable requirements of our agreements with Visa Inc., Visa could seek to fine us, suspend us or terminate our registrations.Under
our
agreements
with
Visa,
we
are
required
to
comply
with
both
the
terms
of
those
agreements
and
the
terms
of
Visa
Core
Rules
and
VisaProduct
and
Service
Rules.
If
we
do
not
comply
with
the
terms
of
the
agreements
or
the
rules,
Visa
could
seek
to
fine
us,
suspend
us
or
terminate
the
registrationsthat
allow
us
to
process
transactions
on
its
network.
In
addition,
under
our
agreements
with
Visa,
Visa
is
entitled
to
terminate
the
agreements
in
case
of
a
materialbreach
by
us
or
if
it
determines
the
agreements
are
contrary
to
its
interests.
If
we
are
in
breach
of
the
agreements
or
Visa
otherwise
terminates
its
agreements
withus,
we
may
be
unable
to
issue
Visa-branded
cards,
which
could
have
a
material
adverse
effect
on
our
business.
The
termination
of
our
registration,
or
any
changesin
the
payment
network
rules
that
would
impair
our
registration,
could
prevent
us
from
issuing
Visa-branded
cards,
thereby
reducing
the
number
of
transactionsmade
through
Visa
Qiwi
Wallet.
Any
of
these
factors
could
have
a
material
adverse
effect
on
our
reputation,
as
well
as
on
our
business,
financial
condition
andresults
of
operations.The cost to us of consumers reloading their Visa Qiwi Wallet accounts and other products may increase.We
make
available
to
our
consumers
a
large
variety
of
methods
to
reload
the
Visa
Qiwi
Wallet
accounts
and
SOVEST
cards,
including,
among
others,mobile
phone
balances,
bank
cards,
kiosks
and
terminals
and
ATMs.
The
top
up
methods
have
different
cost
implications
for
us.
For
example,
on
payments
madethrough
the
kiosks
and
terminals
owned
by
our
agents,
we
historically
paid
lower
fees
for
reloading
the
Visa
Qiwi
Wallet
than
on
payments
made
from
bank
cardsas
well
as
certain
other
channels.
We
currently
do
not
attempt
to
direct
consumer
preferences
towards
particular
reload
methods.
If
their
preferences
are
for
otherreload
methods
that
come
at
a
higher
cost
to
us,
our
margins
could
be
adversely
affected,
which
could
have
a
material
adverse
effect
on
our
business,
financialcondition
and
results
of
operations.Qiwi Bank, Rapida LTD and other Russian banks and credit organizations operate in a highly regulated environment and increased regulatory scrutiny couldhave an adverse effect on our business, financial condition and results of operations.In
September
2010,
we
acquired
Qiwi
Bank
from
certain
of
our
shareholders.
Qiwi
Bank
provides
issuing,
acquiring
and
deposit
settlement
functionswithin
our
group
as
well
as
serves
as
the
issuing
bank
for
our
payment-by-installment
card
product
under
the
brand
SOVEST.In
June
2015
we
acquired
Rapida
LTD
from
Otkritie
Investment
Cyprus
Limited,
or
Otkritie.
Rapida
LTD
is
a
non-banking
credit
organization
andoperates
payment
processing
and
money
transfer
settlements
within
the
group.
In
January
2017
Rapida
LTD
began
the
process
of
merger
into
Qiwi
Bank.All
banks
and
non-banking
credit
organizations
operating
in
Russia
are
subject
to
extensive
regulation
and
supervision.
Requirements
imposed
byregulators,
including
capital
adequacy,
liquidity
reserves,
prudential
ratios,
loss
provisions
and
other
regulatory
requirements
are
designed
to
ensure
the
integrity
ofthe
financial
markets
and
to
protect
consumers
and
other
third
parties
with
whom
a
bank
deals.
These
regulations
may
limit
our
activities,
and
may
increase
ourcosts
of
doing
business,
or
require
us
to
seek
additional
capital
in
order
to
comply
with
applicable
capital
adequacy
or
liquidity
requirements.
Existing
laws
andregulations
could
be
amended,
the
manner
in
which
laws
and
regulations
are
enforced
or
interpreted
could
change
and
new
laws
or
regulations
could
be
adopted.In
April
2015
we
have
received
order
from
the
CBR
prescribing
QIWI
Bank
to
comply
with
applicable
electronic
payments
thresholds
requirements
inconnection
with
electronic
money
transfers
and
the
topping
up
of
electronic
accounts.
We
requested
certain
clarifications
from
the
CBR,
for
which
we
are
stillawaiting
a
reply.
In
2015
the
CBR
revealed
certain
violations
by
Rapida
LTD
of
the
applicable
Russian
legislation,
including
breaches
of
anti-money
launderinglegislation.
As
a
result,
a
range
of
restrictions
were
imposed
on
its
operations
that
have
been
removed
due
to
full
rectification
of
the
violations
as
of
the
date
of
thisannual
report.
After
the
acquisition,
we
implemented
additional
compliance
and
internal
control
procedures
in
Rapida
LTD
aimed
to
rectify
the
detected
violationsand
to
prevent
them
in
future.
However,
there
can
be
no
assurance
that
such
measures
will
be
sufficient.
16Table of ContentsIn
July
2016
the
CBR
completed
an
audit
of
Qiwi
Bank
and
discovered
a
number
of
deficiencies
in
its
compliance
with
certain
banking
regulations
inrelation
to,
among
other
things,
reporting
requirements,
cybersecurity
and
using
of
special
accounts
of
payment
agents
and
bank
payment
agents.
The
CBR
issuedan
order
to
Qiwi
Bank
to
rectify
discovered
violations,
and
Qiwi
Bank
is
undertaking
measures
to
implement
the
CBR’s
recommendations,
which
is
still
ongoing
asof
the
date
of
this
annual
report.There
can
be
no
assurance
that
similar
inspections
in
the
future
or
increased
scrutiny
by
the
CBR
will
not
result
in
discovery
of
more
significantviolations
of
various
banking
regulations,
or
what
sanctions
the
CBR
would
choose
to
employ
against
us
if
this
were
to
happen.
Moreover,
such
scrutiny
can
beexpected
to
increase
following
our
launch
of
SOVEST
as
it
brings
us
into
the
consumer
lending
territory
that
is
an
area
of
intense
focus
by
the
regulators.
Anybreach
of
applicable
regulations
could
expose
us
to
potential
liability,
including
in
extreme
instances
the
revocation
of
our
banking
license.
Revocation
of
any
ofour
banking
licenses
would
significantly
hinder
our
ability
to
process
payments,
and
would
result
in
a
decrease
of
our
profitability,
damage
our
reputation
andcould
cause
other
regulators
to
increase
their
scrutiny
of
our
activities.
Furthermore,
under
our
arrangements
with
Visa,
Qiwi
Bank
represents,
among
other
things,that
it
is
in
good
standing
and
has
been
granted
all
necessary
authorizations
from
applicable
governmental
and
regulatory
authorities
to
operate
a
Visa
cardprogram.
If
any
of
Qiwi
Bank’s
licenses
are
revoked
or
it
loses
its
authorization
to
operate
a
Visa
card
program,
Qiwi
Bank
will
not
be
able
to
sustain
the
samelevel
of
operation
under
Visa
card
program.
As
a
result
of
such
breach
Visa
could
terminate
its
agreements
with
us.
For
these
reasons,
any
breach
of
laws
andregulations
by
Qiwi
Bank
or
the
revocation
of
its
banking
licenses
would
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
ofoperations.In
recent
years,
the
CBR
has
considerably
increased
the
intensity
of
its
supervision
and
regulation
of
the
Russian
banking
sector.
Historically,
therevocation
of
banking
licenses
by
the
CBR
has
been
a
relatively
rare
event
mostly
occurring
to
local
banks
with
little
assets
and
little
or
no
significance
for
thebanking
sector
as
a
whole.
Starting
October
2013,
however,
the
CBR
has
launched
a
campaign
aimed
at
cleansing
the
Russian
banking
industry,
revoking
thelicenses
from
an
unusually
high
number
of
banks
(including
significant
banks
such
as
Master-Bank,
Investbank,
ProBusinessBank,
Svyaznoy
Bank,Vneshprombank,
Tatfondbank
and
others)
on
allegations
of
money
laundering,
financial
statements
manipulation
and
other
illegal
activities,
as
well
as
inability
ofcertain
banks
to
discharge
their
financial
obligations.
These
measures
resulted
in
turmoil
in
the
banking
industry,
instigated
bank
runs
on
a
number
of
Russiancredit
institutions,
and
severely
undermined
the
trust
that
the
Russian
population
had
with
private
banks.
In
addition
to
putting
increasing
regulatory
pressure
onQiwi
Bank
and
Rapida
LTD,
this
change
in
policy
by
the
CBR
has
also
impacted,
and
we
expect
may
continue
to
impact,
our
business
in
a
number
of
other
ways,including
reduced
spending
by
the
banks
on
advertising,
a
decrease
in
consumer
lending,
resulting
in
less
loan
repayments
through
our
network
and
thereforereduced
fees
as
well
as
a
decrease
of
the
Contact’s
network
of
partner
banks
through
which
it
operates
and
corresponding
decline
in
the
reach
of
its
network
andthus
money
remittance
volumes.
As
a
result
of
a
general
decrease
in
banking
activity,
among
other
factors,
Russia
may
continue
to
experience
less
robust
consumerspending,
which
could
also
result
in
the
reduction
of
our
payment
processing
fees.
In
addition,
these
factors
could
further
tighten
liquidity
on
the
Russian
marketand
add
pressure
onto
the
ruble.
All
of
these
factors
could
materially
and
adversely
affect
our
business,
financial
condition
and
results
of
operations.Customer complaints or negative publicity about our customer service could affect attractiveness of our services adversely and, as a result, could have anadverse effect on our business, financial condition and results of operations.Customer
complaints
or
negative
publicity
about
our
customer
service
could
diminish
consumer
confidence
in,
and
the
attractiveness
of,
our
services.Breaches
of
our
consumers’
privacy
and
our
security
systems
could
have
the
same
effect.
We
sometimes
take
measures
to
combat
risks
of
fraud
and
breaches
ofprivacy
and
security,
such
as
freezing
consumer
funds,
which
could
damage
relations
with
our
consumers.
These
measures
heighten
the
need
for
prompt
andattentive
customer
service
to
resolve
irregularities
and
disputes.
In
addition,
we
have
previously
received
negative
media
coverage
regarding
customer
disputes.Effective
customer
service
requires
significant
personnel
expense,
and
this
expense,
if
not
managed
properly,
could
impact
our
profitability
significantly.
Anyinability
by
us
to
manage
or
train
our
customer
service
representatives
properly
could
compromise
our
ability
to
handle
customer
complaints
effectively.
If
we
donot
handle
customer
complaints
effectively,
our
reputation
may
suffer
and
we
may
lose
our
customers’
confidence,
which
could
have
a
material
adverse
effect
onour
business,
financial
condition
and
results
of
operations.Our agreements with our agents and our merchants do not include exclusivity clauses and may be terminated unilaterally at any time or at short notice.We
normally
do
not
include
exclusivity
clauses
in
our
agreements
with
agents
or
merchants.
Accordingly,
our
merchants
and
agents
do
not
have
anyrestrictions
on
dealings
with
other
providers
and
can
switch
from
our
payment
processing
system
to
another
without
significant
investment.
Additionally,
due
tomandatory
provisions
of
Russian
civil
law,
our
agreements
with
agents
may
be
unilaterally
terminated
by
the
agents
at
any
time,
and
our
agreements
withmerchants
may
be
unilaterally
terminated
by
the
merchants
upon
one
month’s
prior
notice.
The
termination
of
our
contracts
with
existing
agents
or
merchants
or
asignificant
decline
in
the
amount
of
business
we
do
with
them
as
a
result
of
our
contracts
not
having
exclusivity
clauses
could
have
a
material
adverse
effect
on
ourbusiness,
financial
condition
and
results
of
operations.Our payment system has been and may continue to be used for fraudulent, illegal or improper purposes, which could expose us to additional liability and harmour business.Despite
measures
we
have
taken
and
continue
to
take,
our
payment
system
has
been
and
may
continue
to
be
used
for
fraudulent,
illegal
or
improperpurposes.
These
include
use
of
our
payment
services
in
connection
with
fraudulent
sales
of
goods
or
services,
illicit
sales
of
prescription
medications
or
controlledsubstances,
illegal
online
gambling,
software
and
other
intellectual
property
piracy,
money
laundering,
bank
fraud,
terrorist
financing,
trafficking,
and
prohibitedsales
of
restricted
products.
17Table of ContentsCriminals
are
using
increasingly
sophisticated
methods
to
engage
in
illegal
activities.
It
is
possible
that
fraudulent,
illegal
or
improper
use
of
ourpayment
system
could
increase
in
the
future.
Our
risk
management
policies
and
procedures
may
not
be
fully
effective
to
identify,
monitor
and
manage
these
risks.We
are
not
able
to
monitor
in
each
case
the
sources
for
our
counterparties’
funds
or
the
ways
in
which
they
use
them.
Increases
in
chargebacks
or
other
liabilitycould
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.
An
increase
in
fraudulent
transactions
or
publicity
regardingchargeback
disputes
could
harm
our
reputation
and
reduce
consumer
confidence
in
the
use
of
our
kiosks,
terminals,
virtual
wallets
and
other
products.
In
addition,changes
in
law
have
increased
the
penalties
for
intermediaries
providing
payment
services
for
certain
illegal
activities
and
additional
payments-related
proposalsare
under
active
consideration
by
government
authorities.
Moreover,
the
perceived
risk
of
the
use
of
e-payments
to
finance
fraudulent,
illegal
or
improper
activitiesis
causing
the
regulators
to
impose
restrictions
on
the
payment
systems’
operations
that
negatively
affect
regular
compliant
transactions
as
well.Any
resulting
claims
could
damage
our
reputation
and
any
resulting
liabilities
(including
the
revocation
of
applicable
banking
licenses
or
significantfines),
the
loss
of
transaction
volume
or
increased
costs
could
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.Our business is exposed to counterparty and credit risks.We
seek
to
sell
services
on
a
prepayment
basis
or
to
ensure
that
our
counterparties
have
low
credit
risk
profiles,
such
as
large
merchants
and
agents.Nevertheless,
we
are
exposed
to
the
risk
of
non-payment
or
other
default
under
our
contracts
with
our
agents
and
merchants.
If
we
provide
trade
credit
or
loans
toan
agent
and
we
are
unable
to
collect
loans
or
proceeds
paid
to
the
agent
by
its
consumers
due
to
the
agent’s
insolvency,
fraud
or
otherwise,
we
must
nonethelesscomplete
the
payment
to
the
merchant
on
behalf
of
the
consumer.
As
a
result,
our
losses
would
not
be
limited
to
a
loss
of
revenue
in
the
form
of
fees
due
to
us
fromthe
agent,
but
could
amount
to
the
entire
amount
of
consumer
payments
accepted
by
such
agent
for
a
certain
period
of
time.We
also
have
significant
receivables
due
from
some
of
our
merchants
and
agents,
and
may
not
recover
these
receivables
in
the
event
of
suchmerchants’
bankruptcy
or
otherwise.
As
of
December
31,
2016,
we
had
credit
exposure
to
our
agents
of
RUB
2,998
million
and
to
our
merchants
of
RUB
2,470million.
Our
receivables
from
merchants
are
generally
unsecured
and
non-interest
bearing,
our
receivables
and
loans
from
agents
are
generally
interest-bearing
andunsecured.
Although
we
monitor
the
creditworthiness
of
our
counterparties
on
an
ongoing
basis,
there
can
be
no
assurance
that
the
models
and
approaches
we
useto
assess
and
monitor
their
creditworthiness
will
be
sufficiently
predictive,
and
we
may
be
unable
to
detect
and
take
steps
to
timely
mitigate
an
increased
credit
risk.In
connection
with
our
SOVEST
installment
card
program,
we
are
also
subject
to
risks
related
to
the
credit
quality
of
loans
to
our
cardholders
whohave
outstanding
payments
on
SOVEST
cards.
Changes
in
the
creditworthiness
of
our
customers,
or
in
their
behavior,
or
arising
from
macroeconomic
risks
in
theRussian
or
global
financial
systems,
could
result
in
losses
for
us
and
in
us
having
to
make
provisions
for
impairment
of
related
receivables.
In
recent
years,
Russiahas
experienced
an
increase
in
non-performing
retail
loans,
and
many
of
the
banks
that
have
been
particularly
active
in
this
sector
have
faced
difficulties.
See
also“–We
are
subject
to
the
economic
risk
and
business
cycles
of
our
merchants
and
agents
and
the
overall
level
of
consumer
spending”
and
“–The
banking
system
inRussia
remains
underdeveloped.”
While
we
have
credit
policies
in
place
to
manage
this
risk,
the
techniques
and
checks
used
by
us
to
evaluate
the
creditworthinessof
applicants
for
the
SOVEST
cards
(many
of
whom
are
expected
to
have
little
or
no
credit
history)
may
not
always
present
a
complete
and
accurate
picture
of
eachconsumer’s
financial
condition
or
be
able
to
accurately
evaluate
the
impact
of
various
changes,
including
changes
in
the
Russian
macroeconomic
situation,
whichcould
significantly
and
quickly
alter
a
consumer’s
financial
condition.
We
have
little
experience
addressing
such
risks
as
we
have
not
been
active
in
the
consumerlending
market
before.
Part
of
the
anticipated
appeal
of
the
SOVEST
program
is
its
availability
to
people
who
would
not
fall
within
the
normal
target
groups
ofregular
banks,
including
consumers
with
limited
or
no
credit
histories.
We
plan
to
manage
such
risk
by
restricting
the
card
limits
available
to
such
individuals;however,
due
to
our
lack
of
relevant
experience,
our
projections
may
prove
incorrect.
Additionally,
we
cannot
always
accurately
ascertain
what
the
currentindebtedness
of
any
particular
current
or
potential
customer
may
be
as
the
credit
bureau
databases
in
Russia
are
still
in
a
developmental
stage.
Additionally,
wehave
no
way
of
preventing
our
customers
from
taking
additional
loans
from
other
financial
institutions
or
otherwise
taking
steps
that
heighten
the
risk
that
acustomer
may
default
on
their
SOVEST
payments.
As
a
result,
we
may
not
always
be
able
to
correctly
evaluate
the
current
financial
condition
of
each
prospectivecustomer
and
accurately
determine
the
ability
of
our
customers
to
pay
us
back
the
funds
they
have
used.
In
addition,
we
do
not
plan
to
take
any
security
forpayments
outstanding
under
the
SOVEST
cards.
As
a
result,
in
the
event
of
defaults
by
a
significant
number
of
our
consumers,
we
may
be
unable
to
recover
all
or
asignificant
proportion
of
the
balance
of
such
outstanding
amounts.If
we
experience
material
defaults
by
our
consumers,
agents
and/or
merchants,
our
business,
financial
condition
and
results
of
operations
could
bematerially
adversely
affected.We are subject to fluctuations in currency exchange rates.We
are
exposed
to
currency
risks.
Our
financial
statements
are
expressed
in
Russian
rubles,
while
our
revenues
and
expenses
outside
Russia
are
inlocal
currencies
and
some
of
our
assets
and
liabilities
are
in
foreign
currencies
(predominantly
cash
from
offering
proceeds
denominated
in
U.S.
dollars,
for
detailssee
“—Quantitative
and
Qualitative
Disclosures
About
Market
Risk
–
Foreign
Exchange
Risk”).
Accordingly,
our
results
of
operations
and
assets
and
liabilities
areexposed
to
fluctuations
in
exchange
rates
between
the
ruble
and
such
other
currencies.
Changes
in
currency
exchange
rates
also
affect
the
carrying
value
of
assetson
our
consolidated
statement
of
financial
position,
which,
depending
on
the
statement
of
financial
position
classification
of
the
relevant
asset,
can
result
in
losseson
our
consolidated
statement
of
financial
position.
In
addition,
because
our
earnings
are
primarily
denominated
in
Russian
rubles
whereas
our
ADSs
are
quoted
inU.S.
dollar,
currency
exchange
rate
fluctuations
between
the
Russian
ruble
and
the
U.S.
dollar
significantly
affect
the
price
of
our
ADSs.
18Table of ContentsOver
the
past
ten
years,
the
Russian
ruble
has
fluctuated
dramatically
against
the
U.S.
dollar
and
the
euro.
Due
to
the
economic
sanctions
imposed
oncertain
Russian
companies
and
individuals
by
the
US,
EU,
Canada
and
other
countries,
as
well
as
the
volatility
in
oil
prices,
high
inflation
and
a
sharp
capitaloutflow
from
Russia,
the
Russian
ruble
has
significantly
depreciated
against
the
U.S.
dollar
and
euro
since
the
beginning
of
2014.
According
to
the
CBR,
fromDecember
31,
2014
to
December
31,
2015
and
from
December
31,
2013
to
December
31,
2014,
the
ruble
has
depreciated
by
30%
and
72%
against
the
U.S.
dollar,respectively,
and
by
17%
and
52%
against
the
euro,
respectively.
From
December
31,
2015
to
December
31,
2016,
the
ruble
appreciated
somewhat
against
thesecurrencies,
but
no
assurance
can
be
given
that
significant
fluctuations
will
not
occur
in
the
future.
Further
fluctuations
of
the
ruble
could
have
a
material
adverseeffect
on
our
business,
financial
condition,
results
of
operations
and
the
price
of
our
ADSs.Regulatory authorities in Russia and Kazakhstan could determine that we hold a dominant position in our markets, and could impose limitations on ouroperational flexibility, which may adversely affect our business, financial condition and results of operations.The
Russian
anti-monopoly
authorities
impose
various
requirements
on
companies
that
occupy
a
dominant
position
in
their
markets.
One
of
theimportant
questions
is
to
identify
and
define
the
relevant
market,
in
which
the
entity
in
question
operates.
There
are
numerous
aspects
to
be
taken
into
account,including
interchangeability
or
substitutability
of
the
products
and/or
services
for
the
consumer,
their
pricing
and
intended
use.
Different
approaches
may
beapplied
in
this
respect
by
anti-monopoly
authorities
and
the
participants
of
the
market.
Thus,
the
state
authorities
may
conclude
that
we
hold
a
dominant
position
inone
or
more
of
the
markets
in
which
we
operate.
If
they
were
to
do
so,
this
could
result
in
limitations
on
our
future
acquisitions
and
a
requirement
that
we
pre-clearwith
the
authorities
any
changes
to
our
standard
agreements
with
merchants
and
agents,
as
well
as
any
specially
negotiated
agreements
with
business
partners.
Inaddition,
if
we
were
to
decline
to
conclude
a
contract
with
a
third
party
this
could,
in
certain
circumstances,
be
regarded
as
abuse
of
a
dominant
market
position.Any
abuse
of
a
dominant
market
position
could
lead
to
administrative
penalties
and
the
imposition
of
a
fine
of
up
to
15%
of
our
annual
revenue
for
the
previousyear.
In
addition,
in
April
2012
the
Competition
Protection
Agency
of
the
Republic
of
Kazakhstan,
or
the
Competition
Protection
Agency,
included
our
subsidiaryin
Kazakhstan
in
the
state
register
of
market
participants
with
dominant
or
monopoly
position
in
Kazakhstan.
We
have
subsequently
been
taken
off
this
register
dueto
changes
in
Kazakh
law;
however,
there
can
be
no
assurance
that
we
will
not
be
deemed
to
hold
a
substantial
market
share
in
Kazakhstan
going
forward
andtherefore
could
become
target
of
antimonopoly
action
or
related
operating
restrictions
in
certain
jurisdiction
in
which
we
operate.
These
limitations
if
imposed
mayreduce
our
operational
and
commercial
flexibility
and
responsiveness,
which
may
adversely
affect
our
business,
financial
condition
and
results
of
operations.We may not be able to successfully protect our intellectual property and may be subject to infringement claims.We
rely
on
a
combination
of
contractual
rights,
copyright,
trademark
and
trade
secret
laws
to
establish
and
protect
our
proprietary
technology.
We
alsomaintain
patents
for
certain
of
our
technologies.
We
customarily
require
our
employees
and
independent
contractors
to
execute
confidentiality
agreements
orotherwise
to
agree
to
keep
our
proprietary
information
confidential
when
their
relationship
with
us
begins.
Typically,
our
employment
contracts
also
includeclauses
requiring
our
employees
to
assign
to
us
all
of
the
inventions
and
intellectual
property
rights
they
develop
in
the
course
of
their
employment
and
to
agree
notto
disclose
our
confidential
information.
Nevertheless,
others,
including
our
competitors,
may
independently
develop
similar
technology,
duplicate
our
services
ordesign
around
our
intellectual
property.
Further,
contractual
arrangements
may
not
prevent
unauthorized
disclosure
of
our
confidential
information
or
ensure
anadequate
remedy
in
the
event
of
any
unauthorized
disclosure
of
our
confidential
information.
Because
of
the
limited
protection
and
enforcement
of
intellectualproperty
rights
in
certain
jurisdictions
in
which
we
operate,
such
as
Russia
and
Kazakhstan,
Moldova,
Romania
and
Belarus,
our
intellectual
property
rights
maynot
be
as
protected
as
they
may
be
in
more
developed
markets
such
as
the
United
States.
We
may
have
to
litigate
to
enforce
or
determine
the
scope
or
enforceabilityof
our
intellectual
property
rights
(including
trade
secrets
and
know-how),
which
could
be
expensive,
could
cause
a
diversion
of
resources
and
may
not
provesuccessful.
The
loss
of
intellectual
property
protection
could
harm
our
business
and
ability
to
compete
and
could
result
in
costly
redesign
efforts,
discontinuance
ofcertain
service
offerings
or
other
competitive
harm.
Additionally,
we
do
not
hold
any
patents
for
our
business
model
or
our
business
processes,
in
part
because
ourability
to
obtain
them
in
Russia
is
subject
to
legislative
constraints,
and
we
do
not
currently
intend
to
obtain
any
such
patents
in
Russia
or
elsewhere.We
may
also
be
subject
to
costly
litigation
in
the
event
our
services
or
technology
are
claimed
to
infringe,
misappropriate
or
otherwise
violate
a
thirdparty’s
intellectual
property
or
proprietary
rights.
Such
claims
could
include
patent
infringement,
copyright
infringement,
trademark
infringement,
trade
secretmisappropriation
or
breach
of
licenses.
In
addition,
while
we
seek
to
obtain
copyright
registration
certificates
for
the
critical
software
we
develop,
our
rights
tosoftware
obtained
as
works
for
hire
might
be
potentially
challenged
by
the
employees
and
former
employees
or
developers
of
such
software.
We
may
not
be
able
tosuccessfully
defend
against
such
claims,
which
may
result
in
a
limitation
on
our
ability
to
use
the
intellectual
property
subject
to
these
claims
and
also
might
requireus
to
redesign
affected
services,
enter
into
costly
settlement
or
license
agreements,
pay
costly
damage
awards,
or
face
a
temporary
or
permanent
injunctionprohibiting
us
from
marketing
or
selling
certain
of
our
services.
In
such
circumstances,
if
we
cannot
or
do
not
license
the
infringed
technology
on
reasonable
termsor
substitute
similar
technology
from
another
source,
our
revenue
and
earnings
could
be
adversely
impacted.
Additionally,
in
recent
years,
non-practicing
entitieshave
been
acquiring
patents,
making
claims
of
patent
infringement
and
attempting
to
extract
settlements
from
companies
in
our
industry.
Even
if
we
believe
thatsuch
claims
are
without
merit
and
successfully
defend
these
claims,
defending
against
such
claims
is
time
consuming
and
expensive
and
could
result
in
thediversion
of
the
time
and
attention
of
our
management
and
employees.
19Table of ContentsWe may use open source software in a manner that could be harmful to our business.We
use
open
source
software
in
connection
with
our
technology
and
services.
The
original
developers
of
the
open
source
code
provide
no
warrantieson
such
code.
Moreover,
some
open
source
software
licenses
require
users
who
distribute
open
source
software
as
part
of
their
software
to
publicly
disclose
all
orpart
of
the
source
code
to
such
software
and/or
make
available
any
derivative
works
of
the
open
source
code
on
unfavorable
terms
or
at
no
cost.
The
use
of
suchopen
source
code
may
ultimately
require
us
to
replace
certain
code
used
in
our
products,
pay
a
royalty
to
use
some
open
source
code
or
discontinue
certainproducts.
Any
of
the
above
requirements
could
be
harmful
to
our
business,
financial
condition
and
operations.We do not have and may be unable to obtain sufficient insurance to protect ourselves from business risks.The
insurance
industry
in
Russia
is
not
yet
fully
developed,
and
many
forms
of
insurance
protection
common
in
more
developed
countries
are
not
yetfully
available
or
are
not
available
on
comparable
or
commercially
acceptable
terms.
Accordingly,
while
we
hold
certain
mandatory
types
of
insurance
policies
inRussia,
we
do
not
currently
maintain
insurance
coverage
for
business
interruption,
property
damage
or
loss
of
key
management
personnel
as
we
have
been
unableto
obtain
these
on
commercially
acceptable
terms.
We
do
not
hold
insurance
policies
to
cover
for
any
losses
resulting
from
counterparty
and
credit
risks
orfraudulent
transactions.
We
also
do
not
generally
maintain
separate
funds
or
otherwise
set
aside
reserves
for
most
types
of
business-related
risks.
Accordingly,
ourlack
of
insurance
coverage
or
reserves
with
respect
to
business-related
risks
may
expose
us
to
substantial
losses,
which
could
materially
adversely
affect
ourbusiness,
financial
condition
and
results
of
operations.In a dynamic industry like ours, the ability to attract, recruit, retain and develop qualified personnel is critical to our success and growth.Our
business
functions
at
the
intersection
of
rapidly
changing
technological,
social,
economic
and
regulatory
developments
that
require
a
wide
rangingset
of
expertise
and
intellectual
capital.
In
order
for
us
to
compete
and
grow
successfully,
we
must
attract,
recruit,
retain
and
develop
the
necessary
personnel
whocan
provide
the
needed
expertise
across
the
entire
spectrum
of
our
intellectual
capital
needs.
This
is
particularly
true
with
respect
to
qualified
and
experiencedsoftware
engineers
and
IT
staff,
who
are
highly
sought
after
and
are
not
in
sufficient
supply
in
Russia
and
in
most
other
markets
in
which
we
operate.
The
marketfor
such
personnel
is
highly
competitive,
and
we
may
not
succeed
in
recruiting
additional
personnel
or
may
fail
to
replace
effectively
current
personnel
who
departwith
qualified
or
effective
successors.
Our
efforts
to
retain
and
develop
personnel
may
result
in
significant
additional
expenses,
which
could
adversely
affect
ourprofitability.
We
cannot
assure
you
that
we
will
be
able
to
attract
and
retain
qualified
personnel
in
the
future.
Failure
to
retain
or
attract
key
personnel
could
have
amaterial
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.Our operations may be constrained if we cannot attract or service future debt financing.We
may
incur
debt
financing
to
finance
the
development
of
the
SOVEST
installment
card
program,
and
our
operations
and
growth
may
be
constrainedif
we
cannot
do
so
on
favorable
terms
or
at
all.
Our
debt
capacity
depends
upon
our
ability
to
maintain
our
operating
performance
at
a
certain
level,
which
is
subjectto
general
economic
and
market
conditions
and
to
financial,
business
and
other
factors,
many
of
which
are
outside
of
our
control.
If
our
cash
flow
from
operatingactivities
is
insufficient
to
service
our
debt,
we
could
be
forced
to
take
certain
actions,
including
delaying
or
reducing
capital
or
other
expenditures
or
other
actions,to
restructure
or
refinance
our
debt;
selling
or
mortgaging
our
assets
or
operations;
or
raising
additional
equity
capital,
which
we
might
not
be
able
to
do
onfavorable
terms,
in
a
timely
manner
or
at
all.
Furthermore,
such
actions
might
not
be
sufficient
to
allow
us
to
service
our
debt
obligations
in
full
and,
in
any
event,could
have
a
material
adverse
effect
on
our
business,
financial
condition,
and
results
of
operations.
Moreover,
our
inability
to
service
our
debt
through
internallygenerated
cash
flow
or
other
sources
of
liquidity
could
put
us
in
default
of
our
obligations
to
creditors,
which
could
trigger
various
default
provisions
under
ourfinancings,
which
could
have
a
material
adverse
effect
on
our
business,
financial
condition,
and
results
of
operations.Risks Relating to Corporate Governance Matters and Organizational StructureThe substantial share ownership position of our chief executive officer Sergey Solonin may limit your ability to influence corporate matters.Our
chief
executive
officer
Sergey
Solonin,
through
Saldivar
Investments
Limited,
beneficially
owns
76.5
%
of
our
class
A
shares,
representingapproximately
59.3
%
of
the
voting
power
of
our
issued
share
capital.
As
a
result
of
this
concentration
of
share
ownership,
Mr.
Solonin
has
sole
discretion
over
anymatters
submitted
to
our
shareholders
for
approval
that
require
a
simple
majority
vote
and
has
significant
voting
power
on
all
matters
submitted
to
our
shareholdersfor
approval
that
require
a
qualified
majority
vote,
including
the
power
to
veto
them.
Our
articles
of
association
require
the
approval
of
no
less
than
75%
of
presentand
voting
shareholders
for
matters
such
as
amendments
to
the
constitutional
documents
of
our
company,
dissolution
or
liquidation
of
our
company,
reducing
theshare
capital,
buying
back
shares
and
approving
the
total
number
of
shares
and
classes
of
shares
to
be
reserved
for
issuance
under
any
employee
stock
option
planor
any
other
equity-based
incentive
compensation
program
of
our
group.
Matters
requiring
a
simple
majority
shareholder
vote
include,
among
other
matters,increasing
our
authorized
capital,
removing
a
director,
approving
the
annual
audited
accounts
and
appointing
auditors.This
concentration
of
ownership
could
delay,
deter
or
prevent
a
change
of
control
or
other
business
combination
that
might
otherwise
give
you
theopportunity
to
realize
a
premium
over
then-prevailing
market
price
of
our
shares.
The
interests
of
Mr.
Solonin
may
not
always
coincide
with
the
interests
of
ourother
shareholders.
This
concentration
of
ownership
may
also
adversely
affect
the
price
of
our
ADSs.Our ADS holders have limited rights in relation to the appointment of our directors, including our independent directors.Other
than
in
certain
limited
cases
provided
for
in
our
articles
of
association,
our
directors
are
elected
by
shareholder
weighted
voting,
sometimesreferred
to
as
cumulative
voting,
under
which
each
shareholder
has
the
right
to
cast
as
many
votes
as
the
voting
rights
attached
to
its
shares
multiplied
by
a
numberequal
to
the
number
of
board
seats
to
be
filled
by
shareholders.
As
a
result,
our
class
A
shareholders
will
have
the
ability
to
appoint,
through
the
weighted
voting
setforth
in
our
articles
of
association,
at
least
a
majority
of
the
board
of
directors
for
the
foreseeable
future.
The
interests
of
our
directors
may
therefore
not
be
alignedwith
or
be
in
the
best
interests
of
the
holders
of
our
ADSs.
20Table of ContentsThe rights of our shareholders are governed by Cyprus law and our articles of association, and differ in some important respects from the typical rights ofshareholders under U.S. state laws.Our
corporate
affairs
are
governed
by
our
articles
of
association
and
by
the
laws
governing
companies
incorporated
in
Cyprus.
The
rights
of
our
shareholdersand
the
responsibilities
of
members
of
our
board
of
directors
under
Cyprus
law
and
our
articles
of
association
are
different
than
under
the
laws
of
some
U.S.
statelaws.
For
example,
by
law
existing
holders
of
shares
in
a
Cypriot
public
company
are
entitled
to
pre-emptive
rights
on
the
issue
of
new
shares
in
that
company(provided
such
shares
are
paid
in
cash
and
the
pre-emption
rights
have
not
been
disapplied).
In
addition,
our
articles
of
association
include
other
provisions,
whichdiffer
from
provisions
typically
included
in
the
governing
documents
of
most
companies
organized
in
the
U.S.:

•
our
board
of
directors
can
only
take
certain
actions
by
means
of
a
supermajority
vote
of
75%
of
its
members,
including
approving
our
annual
budgetand
business
plan,
disposing
of
our
interest
in
a
subsidiary
if
such
disposal
results
in
a
change
of
control
over
such
subsidiary,
issuing
shares
forconsideration
other
than
cash
and
other
actions;

•
our
shareholders
are
able
to
convene
an
extraordinary
general
meeting;
and

•
if
our
board
of
directors
exercises
its
right
to
appoint
a
director
to
fill
a
vacancy
on
the
board
created
during
the
term
of
a
director’s
appointment,shareholders
holding
10.01%
of
the
voting
rights
of
the
company
may
terminate
the
appointment
of
all
of
the
directors
and
initiate
reelection
of
theentire
board
of
directors.As
a
result
of
the
differences
described
above,
our
shareholders
may
have
rights
different
to
those
generally
available
to
shareholders
of
companiesorganized
under
U.S.
state
laws
and
our
board
of
directors
may
find
it
more
difficult
to
approve
certain
actions.Acquisitions of Russian entities are subject to pre-closing approval by multiple government authorities which exercise significant discretion as to whether aconsent should be granted or not, and are regulated by a significant body of law which is often ambiguous and open to varying interpretations.Due
to
our
ownership
of
Qiwi
Bank
and
Rapida
LTD,
any
transactions
resulting
in
the
acquisition
of
more
than
50%
of
our
voting
power
or
the
rightto
otherwise
direct
our
business
activities
would
become
subject
to
preliminary
approval
by
the
CBR.
In
addition,
any
acquisition
of
more
than
50%
of
our
votingpower
may
also
be
subject
to
a
preliminary
approval
by
the
Russian
Federal
Antimonopoly
Service,
or
the
FAS.
Furthermore,
Qiwi
Bank
and
Rapida
LTD
holdencryption
licenses
which
are
necessary
to
conduct
their
operations,
and
by
virtue
of
this
may
be
deemed
to
be
“strategic
enterprises”
for
the
purposes
of
theFederal
Law
of
the
Russian
Federation
No.
57-FZ
“On
the
Procedure
for
Foreign
Investments
in
Enterprises
which
are
Strategically
Important
for
the
State
Defenseand
National
Security”,
dated
April
29,
2008,
as
amended.
In
this
case,
any
acquisition
of
control
over
our
company
would
require
an
approval
of
a
specializedgovernment
commission,
which
is
a
relatively
lengthy
process
that
typically
takes
between
three
and
six
months
in
practice.
See
“Regulation—Regulation
ofStrategic
Investments.”
These
regulatory
approval
requirements
may
have
the
effect
of
making
a
takeover
of
our
company
more
difficult
or
less
attractive,
and
mayprevent
or
delay
a
change
of
control,
which
could
have
a
negative
impact
on
the
liquidity
of,
and
investor
interest
in,
our
ADSs.Additionally,
under
Russian
law,
the
depositary
may
be
treated
as
the
owner
of
the
class
B
shares
underlying
the
ADSs,
and
therefore,
could
bedeemed
a
beneficial
shareholder
of
Qiwi
Bank
and
Rapida
LTD.
This
is
different
from
the
way
other
jurisdictions
treat
ADSs.
As
a
result,
the
depositary
may
besubject
to
the
approval
requirements
of
the
CBR,
the
FAS
and
the
government
commission
described
above
in
the
event
an
amount
of
our
shares
representing
over50%
of
our
voting
power
is
deposited
in
the
ADS
program.
Accordingly,
our
ADS
program
may
be
subject
to
an
effective
limit
of
50%
of
our
voting
power,
unlessthe
depositary
obtains
FAS,
CBR
and
potentially
additional
government
commission
approvals
to
increase
its
ownership
in
excess
of
50%
of
our
voting
power.This
could
limit
our
ability
to
raise
capital
in
the
future
and
the
ability
of
our
existing
shareholders
to
sell
their
ADSs
in
the
public
markets,
which
in
turn
mayimpact
the
liquidity
of
share
capital.The quota imposed on foreign ownership of Russian banks may make a takeover of our company by a foreign purchaser impossible.Under
current
Russian
law,
the
Russian
government
is
entitled,
upon
consultation
with
the
CBR,
to
propose
legislation
imposing
a
quota
on
foreignownership
in
the
Russian
banking
industry,
covering
both
Russian
branches
of
international
banks
and
foreign
participation
in
the
charter
capital
of
Russian
banks,such
as
Qiwi
Bank.
In
December
2015,
a
50%
quota
on
foreign
ownership
was
introduced,
subject
to
certain
exemptions.
If
such
quota
is
exceeded,
a
takeover
ofour
company
by
a
foreign
purchaser
may
become
impossible,
which
could
limit,
prevent
or
delay
a
change
of
control
of
our
company
and
in
turn
could
negativelyimpact
the
liquidity
of
our
ADSs.As a foreign private issuer whose ADSs are listed on Nasdaq, we have elected to follow certain home country corporate governance practices instead of certainNasdaq requirements.As
a
foreign
private
issuer
whose
ADSs
are
listed
on
Nasdaq,
we
are
permitted
in
certain
cases
to,
and
do,
follow
Cyprus
corporate
governancepractices
instead
of
the
corresponding
requirements
of
Nasdaq.
A
foreign
private
issuer
that
elects
to
follow
a
home
country
practice
instead
of
Nasdaqrequirements
must
submit
to
Nasdaq
in
advance
a
written
statement
from
an
independent
counsel
in
such
issuer’s
home
country
certifying
that
the
issuer’s
practicesare
not
prohibited
by
the
home
country’s
laws.
In
addition,
a
foreign
private
issuer
must
disclose
in
its
annual
reports
filed
with
the
Securities
and
ExchangeCommission
any
significant
requirement
that
it
does
not
follow
and
describe
the
home
country
practice
followed
instead
of
any
such
requirement.
We
followCyprus
corporate
governance
practices
with
regard
to
the
composition
of
our
board
21Table of Contentsof
directors
which,
unlike
the
applicable
Nasdaq
rule
for
U.S.
corporations,
do
not
require
that
a
majority
of
our
directors
be
independent.
As
a
result,
althoughcurrently
four
out
of
seven
directors
on
our
board
are
independent,
we
cannot
assure
you
that
our
board
of
directors
will
always
have
a
majority
of
independentdirectors
in
the
future.
We
also
do
not
have
a
compensation
committee
or
a
nominating
committee
comprised
entirely
of
independent
directors,
and
our
independentdirectors
do
not
meet
in
regular
executive
sessions.
In
addition,
our
board
of
directors
has
not
made
any
determination
whether
it
will
comply
with
certain
Nasdaqrules
concerning
shareholder
approval
prior
to
our
taking
certain
company
actions,
including
the
issuance
of
20%
or
more
of
our
then-outstanding
share
capital
orvoting
power
in
connection
with
an
acquisition,
and
our
board
of
directors,
in
such
circumstances,
may
instead
determine
to
follow
Cypriot
law.
Accordingly,
ourshareholders
may
not
be
afforded
the
same
protection
as
provided
under
Nasdaq
corporate
governance
rules.Our ADS holders may not have the same voting rights as the holders of our class A shares and class B shares and may not receive voting materials in time to beable to exercise their right to vote. Our ADS holders’ right to receive certain distributions may be limited in certain respects by the deposit agreement.Except
as
set
forth
in
the
deposit
agreement,
holders
of
our
ADSs
are
not
able
to
exercise
voting
rights
attaching
to
the
class
B
shares
represented
byour
ADSs
on
an
individual
basis.
Holders
of
our
ADSs
have
to
appoint
the
depositary
or
its
nominee
as
their
representative
to
exercise
the
voting
rights
attaching
tothe
class
B
shares
represented
by
the
ADSs.
Upon
receipt
of
voting
instructions
from
an
ADS
holder,
the
depositary
will
vote
the
underlying
class
B
shares
inaccordance
with
these
instructions.
Pursuant
to
our
articles
of
association,
we
may
convene
an
annual
shareholders’
meeting
or
a
shareholders’
meeting
called
forapproval
of
matters
requiring
a
75%
shareholder
vote
upon
at
least
45
days’
notice
and
upon
at
least
30
days’
notice
for
all
other
shareholders’
meetings.
If
we
givetimely
notice
to
the
depositary
under
the
terms
of
the
deposit
agreement,
the
depositary
will
notify
you
of
the
upcoming
vote
and
arrange
to
deliver
our
votingmaterials
to
you.
We
cannot
assure
our
ADS
holders
that
they
will
receive
the
voting
materials
in
time
to
instruct
the
depositary
to
vote
the
class
B
sharesunderlying
their
ADSs,
and
it
is
possible
that
our
ADS
holders,
or
persons
who
hold
their
ADSs
through
brokers,
dealers
or
other
third
parties,
will
not
have
theopportunity
to
exercise
a
right
to
vote.
In
addition,
the
depositary
and
its
agents
are
not
responsible
for
failing
to
carry
out
voting
instructions
or
for
the
manner
ofcarrying
out
voting
instructions.
This
means
that
our
ADS
holders
may
not
be
able
to
exercise
their
right
to
vote
and
there
may
be
nothing
such
holders
can
do
ifthe
class
B
shares
underlying
your
ADSs
are
not
voted
as
requested.
In
addition,
although
our
ADS
holders
may
directly
exercise
their
right
to
vote
by
withdrawingthe
class
B
shares
underlying
their
ADSs,
they
may
not
receive
sufficient
advance
notice
of
an
upcoming
shareholders’
meeting
to
withdraw
the
class
B
sharesunderlying
their
ADSs
to
allow
them
to
vote
with
respect
to
any
specific
matter.
Furthermore,
under
the
deposit
agreement,
the
depositary
has
the
right
to
restrictdistributions
to
holders
of
the
ADSs
in
the
event
that
it
is
unlawful
or
impractical
to
make
such
distributions.
We
have
no
obligation
to
take
any
action
to
permitdistributions
to
holders
of
our
ADSs.
As
a
result,
holders
of
ADSs
may
not
receive
distributions
made
by
us.Risks Relating to the Russian Federation and Other Markets in Which We OperateEmerging markets, such as Russia and Kazakhstan, are subject to greater risks than more developed markets, including significant legal, economic andpolitical risks.Investors
in
emerging
markets,
such
as
Russia
and
Kazakhstan,
should
be
aware
that
these
markets
are
subject
to
greater
risk
than
more
developedmarkets,
including
in
some
cases
significant
legal,
economic
and
political
risks.
Investors
should
also
note
that
emerging
economies
are
subject
to
rapid
change
andthat
the
information
set
out
herein
may
become
outdated
relatively
quickly.
Accordingly,
investors
should
exercise
particular
care
in
evaluating
the
risks
involvedand
must
decide
for
themselves
whether,
in
light
of
those
risks,
their
investment
is
appropriate.
Generally,
investment
in
emerging
markets
is
only
suitable
forsophisticated
investors
who
fully
appreciate
the
significance
of
the
risks
involved,
and
investors
are
urged
to
consult
with
their
own
legal
and
financial
advisorsbefore
making
an
investment
in
our
ADSs.The situation in Ukraine and the U.S., EU and other sanctions that have been imposed could adversely impact our operations and financial condition.The
Ukraine
crisis,
which
started
in
late
2013
and
remains
unresolved,
has
brought
Russian
relations
with
the
West
to
a
post-Cold
War
low
point.Western
countries
protested
when
Crimea
(which
had
been
part
of
Ukraine
since
1954)
entered
into
the
Russian
Federation
in
March
2014
and
have
complainedthat
Russia
is
fomenting
civil
insurrection
in
east
Ukraine.In
response
to
the
Ukraine
crisis,
Ukraine,
the
European
Union
and
the
United
States
(as
well
as
other
countries
such
as
Norway,
Canada
andAustralia)
have
passed
a
variety
of
economic
sanctions
against
Russia.
One
form
these
sanctions
have
taken
is
to
identify
certain
persons
as
‘designated
nationals’with
the
basic
practical
consequences
that
U.S.
persons
cannot
do
business
with
them
while
EU
persons
cannot
provide
funds
or
other
economic
resources
to
them,their
assets
in
the
EU
and
United
States
are
subject
to
seizure
and
in
the
case
of
individuals
they
can
be
subject
to
travel
bans.
A
number
of
Russian
governmentofficials,
businessmen,
banks
and
companies
have
been
so
designated.
Another
form
these
sanctions
have
taken,
with
greater
consequence
for
the
Russianeconomy,
is
‘sectoral’
sanctions
with
the
basic
consequence
that
several
of
Russia’s
leading
banks
–
including
Gazprombank,
Vnesheconombank,
Bank
ofMoscow,
Russian
Agricultural
Bank,
VTB
Bank,
and
Sberbank
–
cannot
access
Western
capital
(as
EU
and
U.S.
persons
are
prohibited
from
extending
them
debtfinancing
in
excess
of
30
days
or
dealing
in
their
new
equity
issuances
and
providing
related
services);
similar
sectoral
sanctions
have
been
applied
against
severalprominent
Russian
oil
and
gas
and
defense
companies.
Other
Western
sanctions
have
been
imposed
in
respect
of,
among
other
things,
Russian
military
defenseentities,
dual
use
technologies,
sophisticated
off-shore
oil
drilling
technologies
and
doing
business
in
Crimea.In
November
2016,
the
National
Bank
of
Ukraine
has
banned
several
Russian
payment
systems
from
the
Ukrainian
market,
including
ours.
So
far
thismeasure
has
not
had
a
significant
impact
on
our
business;
however,
there
can’t
be
any
assurance
that
it
will
not
do
so
in
the
future,
or
other
countries
will
notintroduce
similar
measures.
While
other
current
sanctions
do
not
target
us
or
the
payments
industry
more
generally,
these
sanctions
have
had
and
may
continue
tohave
the
effect
of
damaging
the
Russian
economy
by,
among
other
things,
accelerating
capital
flight
22Table of Contentsfrom
Russia,
weakening
of
the
Russian
ruble,
exacerbating
the
negative
investor
sentiment
towards
Russia
and
making
it
harder
for
Russian
companies
to
accessinternational
financial
markets
for
debt
and
equity
financing.
In
addition,
a
number
of
Western
businesses
have
curtailed
or
suspended
activities
in
Russia
ordealings
with
Russian
counterparts
for
reputational
reasons
even
though
currently
neither
such
activities
nor
dealings
with
their
relevant
Russian
counterparts
wereproscribed
by
the
sanctions.
An
expansion
of
the
existing
or
introduction
of
new
sanctions,
including
those
mentioned
above,
or
sanctions
specifically
targeting
usor
our
management
or
shareholders,
or
our
sector
generally,
could
result
in
our
international
customers,
suppliers,
shareholders
and
other
business
partners
revisingtheir
relationship
with
us
for
compliance,
political,
reputational
or
other
reasons,
which
could
affect
our
business.As
a
response
to
the
Western
sanctions,
since
2015,
all
Russian
domestic
transactions
with
the
use
of
cards
issued
under
international
brands,
such
asVisa
and
MasterCard,
have
been
processed
through
the
facilities
of
the
Russian
national
payment
card
system
rather
than
the
international
payment
systems’
ownfacilities
pursuant
to
legislation
that
came
into
effect
in
2014
in
response
to
international
payment
systems
shutting
off
Russian
banks
that
became
targets
ofWestern
sanctions.
While
both
Visa
and
MasterCard
are
continuing
to
operate
in
Russia
within
the
framework
of
the
new
legislation,
there
can
be
no
assurance
howsituation
will
further
develop.
If
further
adverse
legislative
changes
are
implemented
and
Visa
ceases
to
operate
in
Russia,
we
may
be
unable
to
issue
Visa-brandedcards.
This
could
lower
consumer
confidence
with
our
products
and
could
reduce
the
number
of
transactions
made
though
Visa
Qiwi
Wallet,
which
could
have
amaterial
adverse
effect
on
our
Visa
Qiwi
Wallet
business
and
our
business
as
a
whole.
Additionally,
these
developments
have
caused
international
payment
systemsto
start
increasing
their
fees
for
Russian
banks
to
protect
their
margins.
Additional
sanctions
or
other
countermeasures
imposed
by
Russia
against
the
U.S.
or
theE.U.
may
have
a
material
adverse
effect
on
our
business,
financial
condition,
results
of
operations,
prospects
or
the
price
of
our
ADSs.
In
particular,
there
is
a
draftlaw
under
consideration
by
the
Russian
State
Duma
that
would
restrict
money
remittance
from
Russia
to
countries
that
have
introduced
sanctions
against
Russianpayment
systems,
proposed
as
a
response
to
the
Ukrainian
sanctions
discussed
above.
The
draft
law
has
been
approved
by
the
Duma
in
the
first
reading
in
February2017.
If
it
becomes
law,
or
if
the
Russian
government
introduces
similar
restrictions
on
payment
systems’
operations,
this
could
negatively
impact
our
volumes
orput
us
in
breach
of
applicable
law
and
make
us
subject
to
penalties.In
addition,
following
the
accession
of
Crimea
to
Russia,
which
is
seen
by
the
EU
and
the
US
as
illegal
annexation
of
Crimea,
some
of
our
agents,which
are
incorporated
elsewhere
in
Russia,
started
to
place
and
operate
QIWI
branded
kiosks
in
that
region.
Further,
we
have
direct
contacts
with
several
Crimeabanks
that
are
registered
as
financial
legal
entities
in
Crimea
and
operate
as
our
agents
or
merchants.
On
December
19,
2014,
U.S.
President
Obama
signed
a
newexecutive
order
imposing
comprehensive
sanctions
on
the
Crimea
region.
Almost
all
transactions
involving
a
U.S.
person
or
that
are
subject
to
U.S.
jurisdiction
andthat
directly
or
indirectly
involve
an
individual
or
entity
in
Crimea
are
prohibited,
with
the
exception
of
certain
transactions
involving
certain
agriculturalcommodities,
medicine
and
medical
devices.
The
executive
order
also
permits
the
designation
of
persons
that
operate
in
Crimea,
leaders
of
entities
operating
inCrimea,
entities
that
are
owned
or
controlled
by
a
person
that
is
designated
by
OFAC,
or
persons
that
provide
material
assistance
or
financial,
material,
ortechnological
support
to
a
person
that
is
designated
by
OFAC.
The
EU
has
similarly
introduced
a
broad
set
of
sanctions
through
the
Council
Regulation
(EU)692/2014
as
amended
by
Regulation
(EU)
1351/2014,
including:
an
investment
ban
prohibiting
to
acquire
new
or
extend
any
existing
participation
or
ownership
ofreal
estate
located
in
Crimea
or
Sevastopol,
acquire
new
or
extend
any
existing
participation
or
ownership
or
control
of
an
entity
in
Crimea
or
Sevastopol,
providefinancing
to
an
entity
in
Crimea
or
Sevastopol,
create
any
joint
venture
in
Crimea
or
Sevastopol
or
with
an
entity
in
Crimea
or
Sevastopol
or
provide
investmentservices
directly
related
to
the
above
activities;
an
embargo
on
certain
listed
goods
and
technology
that
are
suited
for
the
key
sectors
of
transport,telecommunications,
energy
and
mining;
and
an
import
ban
on
goods
originating
from
Crimea
and
Sevastopol
and
on
financial
assistance
as
well
as
insurance
andreinsurance
related
to
such
import.To
date,
we
do
not
believe
that
any
of
the
current
sanctions
as
in
force
limit
our
ability
to
operate
in
Crimea.
Nevertheless,
any
new
or
expandedsanctions
that
may
be
imposed
on
Russian
businesses
operating
in
Crimea
by
the
U.S.,
EU,
or
other
countries
may
materially
adversely
affect
us.In
the
ordinary
course
of
our
business,
we
may
accept
payments
from
consumers
to
or
otherwise
indirectly
interact
with
certain
entities
that
are
thetargets
of
U.S.
sanctions.
We
operate
primarily
within
the
Russian
financial
system
and,
accordingly,
many
of
our
customers
have
accounts
at
banks
in
Russia.
Anumber
of
Russian
banks,
including
Bank
Rossiya,
SMP
Bank,
Investcapitalbank
and
Sobinbank
have
been
designated
by
OFAC
and
are
subject
to
U.S.
economicsanctions.
In
addition,
Tempbank
was
designated
due
to
its
dealings
with
the
Syrian
government.
U.S.
sanctions
may
be
extended
to
any
person
that
U.S.authorities
determine
has
materially
assisted,
or
provided
financial,
material,
or
technological
support
for,
or
goods
or
services
to
or
in
support
of,
any
sanctionedindividuals
or
entities.
For
example,
we
may
be
associated
with
U.S.-designated
banks
due
to
us
accepting
payments
for
them
from
consumers
in
the
ordinarycourse
of
our
business,
even
though
we
may
not
have
any
direct
contract
relationships
with
them.
There
can
be
no
assurance
that
the
U.S.
Government
would
notview
such
activities
as
meeting
the
criteria
for
U.S.
economic
sanctions.In
addition,
because
of
the
nature
of
our
business,
we
do
not
generally
identify
our
customers
where
there
is
no
express
requirement
to
do
so
underRussian
anti-money
laundering
legislation.
Therefore,
we
are
not
always
able
to
screen
them
against
the
Specially
Designated
Nationals
and
Blocked
Persons
Listpublished
by
OFAC
and
other
sanctions
lists.While
we
believe
that
our
indirect
interaction
with
Russian
banks
and
potential
interaction
with
designated
individuals
that
may
be
subject
to
U.S.
orEU
economic
and
financial
sanctions
does
not
contravene
any
law,
our
business
and
reputation
could
be
adversely
affected
if
the
U.S.
government
were
todesignate
us
as
a
blocked
party
and
extend
such
sanctions
to
us.
The
executive
orders
authorizing
the
U.S.
sanctions
provide
that
persons
may
be
designated
if,
interalia,
they
materially
assist,
or
provide
financial,
material,
or
technological
support
for
goods
or
services
to
or
in
support
of,
blocked
or
designated
parties.
EUfinancial
sanctions
prohibit
the
direct
and
indirect
making
available
of
funds
or
economic
resources
to
or
for
the
benefit
of
sanctioned
parties.
Investors
may
also
beadversely
affected
if
we
are
so
designated,
resulting
in
their
investment
in
our
securities
being
prohibited
or
restricted.
Furthermore,
under
those
circumstances,some
U.S.
or
EU
investors
may
decide
for
23Table of Contentslegal
or
reputational
reasons
to
divest
their
holdings
in
us
or
not
to
purchase
our
securities
in
the
first
place.
We
are
aware
of
initiatives
by
U.S.
governmentalentities
and
U.S.
institutional
investors,
such
as
pension
funds,
to
adopt
or
consider
adopting
laws,
regulations,
or
policies
prohibiting
transactions
with
orinvestment
in,
or
requiring
divestment
from,
entities
doing
business
with
certain
countries.
There
can
be
no
assurance
that
the
foregoing
will
not
occur
or
that
suchoccurrence
will
not
have
a
material
adverse
effect
on
our
share
price.
Even
if
we
are
not
subjected
to
U.S.
or
other
economic
sanctions,
our
participation
in
theRussian
financial
system
and
indirect
interaction
with
sanctioned
banks
and
potential
interaction
with
designated
individuals
may
adversely
impact
our
reputationamong
investors.
There
is
also
a
risk
that
other
entities
with
which
we
engage
in
business,
or
individuals
or
entities
associated
with
them,
are,
or
at
any
time
in
thefuture
may
become,
subject
to
sanctions.The
crisis
in
Ukraine
is
ongoing
and
could
escalate.
Were
full-fledged
hostilities
to
break
out
between
Ukraine
and
Russia,
they
would
likely
causesignificant
economic
disruption
and
further
calls
from
the
Western
countries
for
a
comprehensive
sanction
regime
that
would
seek
to
further
isolate
Russia
from
theworld
economy.
Even
the
current
level
of
ongoing
civil
insurrection
in
eastern
Ukraine,
if
no
resolution
is
forthcoming,
may
well
lead
to
further
strengthening
andbroadening
of
Ukraine-related
sanctions.
For
example,
there
have
been
proposals
to
cut
off
Russia
from
the
international
SWIFT
payment
system,
which
woulddisrupt
ordinary
financial
services
in
Russia
and
any
cross-border
trade.
The
potential
further
repercussions
surrounding
the
situation
in
Crimea
and
EasternUkraine
are
unknown
and
no
assurance
can
be
given
regarding
the
future
of
relations
between
Russia
and
other
countries.
Overall,
the
situation
in
Ukraine
andCrimea
remains
uncertain
and
we
cannot
predict
how
the
Ukrainian
crisis
will
unfold
or
the
impact
it
will
have
on
our
business
or
results
of
operations.
Any
or
allof
the
above
factors
could
have
a
material
adverse
effect
on
our
business,
financial
condition,
results
of
operations
and
prospects
.Russian military support for the Syrian government could also contribute to a further deterioration in relations with Western governments, and result in theimposition of sanctions, which could materially adversely affect the value of investments in Russia, including our ADSs, as well as our business, financialcondition, results of operations and prospects.Another
recent
point
of
tension
between
Russia
and
U.S.
and
E.U.
governments
has
been
the
Russian
role
in
the
Syrian
crisis
and
its
steadfast
supportfor
the
government
of
Syria
headed
by
President
Bashar
al-Assad.
Throughout
2015,
and
2016,
direct
Russian
military
support
for
the
Syrian
government
has
beenincreasing,
with
Russian
military
being
directly
involved
in
air
bombing
missions
on
various
anti-government
rebel
forces
and
on-the-ground
combat
againstthem.
According
to
press
reports,
Russian
planes
have
carried
out
such
missions
not
only
against
Islamic
State
rebel
forces
(which
are
also
under
attack
by
U.S.-ledforces)
but
also
against
the
rebel
forces
generally
supported
by
Western
countries.
Western
governments
have
generally
called
for
the
immediate
departure
ofPresident
Assad,
a
position
that
Russia
rejects.
Concern
has
been
expressed
that
these
uncoordinated
military
missions
of
Russia,
the
United
States
and
other
forcesin
Syria
could
lead
to
confrontation.
U.S.
and
EU
officials
have
stated
that
they
do
not
view
increased
Russian
military
support
of
the
Syrian
government
as
helpfulin
resolving
the
ongoing
Syrian
civil
conflict.
Russian
military
involvement
in
Syria
has
also
been
increasingly
blamed
for
the
humanitarian
crisis
currently
goingon
in
Syria,
particularly
in
connection
with
the
bombings
of
Aleppo.The
U.S.,
the
E.U.
and
a
number
of
other
states
have
imposed
economic
sanctions
against
various
Syrian
government
officials
and
other
Syriannationals
in
light
of
the
current
civil
conflict
in
Syria.
Russia’s
role
in
the
Syrian
conflict
might
lead
to
further
sanctions
against
Russia,
including
economicsanctions,
and
may
be
an
additional
factor
in
an
overall
deterioration
in
relations
between
Russia
and
the
West.
Accordingly,
the
Syrian
crisis,
for
which
noresolution
appears
imminent,
and
Russia’s
apparent
expanding
role
in
supporting
the
Syrian
government,
could
lead
to
international
sanctions
or
othercountermeasures
by
Western
countries
again
Russia,
and
ultimately
have
a
material
adverse
effect
on
our
business,
financial
condition,
results
of
operations
andprospects.Know-your-client requirements established by Russian anti-money laundering legislation may adversely impact our transaction volumes.Our
business
is
currently
subject
to
know-your-client
requirements
established
by
Federal
Law
of
the
Russian
Federation
No.
115-FZ
“On
Combatingthe
Legalization
(Laundering)
of
Criminally
Obtained
Income
and
Funding
of
Terrorism”,
dated
August
7,
2001,
as
amended,
or
the
Anti-Money
Laundering
Law.Based
on
the
Anti-Money
Laundering
Law
we
distinguish
three
types
of
consumers
based
on
their
level
of
identification,
being
anonymous,
identified
through
asimplified
procedure
and
fully
identified.
The
consumers
who
have
not
undergone
any
identification
procedure
are
qualified
as
anonymous
and
are
not
allowed
toperform
transactions
in
excess
of
RUB15,000
as
well
as
hold
an
electronic
money
account
balance
in
excess
of
RUB15,000.
They
may
also
face
some
restrictionsin
terms
of
categories
of
merchants
they
can
pay
to
(for
example
they
cannot
pay
for
foreign
merchants).
The
consumers
who
have
undergone
simplifiedidentification
procedure
with
the
payment
services
provider
are
entitled
to
perform
electronic
money
transactions
in
excess
of
RUB15,000
provided
that
at
anypoint
of
time
the
account
balance
of
electronic
money
does
not
exceed
RUB60,000
and
the
total
amount
of
transactions
does
not
exceed
RUB200,000
per
month.Fully
identified
consumers
are
entitled
to
perform
same
type
of
electronic
transfers
as
consumers
identified
through
a
simplified
procedure
but
with
increasedthreshold
of
the
electronic
money
account
balance
of
RUB600,000
and
no
limitations
for
the
total
transaction
amount
per
month.
The
key
difference
between
thesimplified
and
the
full
identification
procedures
is
that
the
simplified
identification
can
be
performed
remotely.
The
remote
identification
requires
the
verificationof
certain
data
provided
by
consumers
against
public
databases.
Albeit
a
government
order
No.
630
dated
8
July
2014
was
enacted
providing
that
public
databasesshall
be
set
up
by
specific
government
authorities
and
access
to
them
shall
be
granted
to
the
third
parties
authorized
to
carry
out
identification
of
consumers,
to
ourknowledge,
such
databases
are
not
yet
up
and
running
at
scale.
Thus,
current
situation
could
cause
us
to
be
in
violation
of
the
identification
requirements.
In
casewe
are
forced
not
to
use
the
simplified
identification
procedure
until
the
databases
are
fully
running
or
in
case
the
identification
requirements
are
further
tightened,it
could
negatively
affect
the
number
of
our
consumers
and,
consequently,
our
volumes
and
revenues.
Additionally,
Russian
anti-money
laundering
legislation
is
ina
constant
state
of
development
and
is
subject
to
varying
interpretations.
If
we
are
found
to
be
in
non-compliance
with
any
of
its
requirements,
we
could
not
onlybecome
subject
to
fines
and
other
sanctions,
but
could
also
have
to
discontinue
to
process
operations
that
are
deemed
to
be
in
breach
of
the
applicable
rules
and
loseassociated
revenue
streams.
24Table of ContentsPolitical and governmental instability could adversely affect the value of investments in Russia.Political
conditions
in
the
Russian
Federation
were
highly
volatile
in
the
1990s,
as
evidenced
by
the
frequent
conflicts
amongst
executive,
legislativeand
judicial
authorities,
which
negatively
impacted
the
business
and
investment
climate
in
the
Russian
Federation.
Over
the
past
two
decades
the
course
of
politicaland
other
reforms
has
in
some
respects
been
uneven
and
the
composition
of
the
Russian
Government
has
at
times
been
unstable.
The
Russian
political
systemcontinues
to
be
vulnerable
to
popular
dissatisfaction,
including
dissatisfaction
with
the
results
of
the
privatizations
of
the
1990s,
as
well
as
to
demands
forautonomy
from
certain
religious,
ethnic
and
regional
groups.Over
the
last
15
years,
the
Russian
political
system
and
the
relationship
between
the
President,
the
Russian
Government
and
the
Russian
Parliamentwere
generally
stable.
There
have
been,
however,
public
protests
in
Moscow
and
other
urban
areas
following
elections
for
the
State
Duma
in
December
2011alleging
that
the
elections
were
subject
to
substantial
electoral
fraud.
The
Prime
Minister
at
that
time,
Mr.
Vladimir
Putin
has
rejected
calls
by
opposition
leadersthat
the
elections
for
the
State
Duma
be
annulled
and
re-run,
but
has
instituted
limited
political
reforms.
Similar
protests
took
place
following
the
presidentialelections
in
March
2012
which
resulted
in
re-election
of
Mr.
Vladimir
Putin.Future
changes
in
the
Russian
Government,
the
State
Duma
or
the
presidency,
major
policy
shifts
or
eventual
lack
of
consensus
between
the
president,the
Russian
Government,
Russia’s
parliament
and
powerful
economic
groups
could
lead
to
political
instability.
Additionally,
the
potential
for
political
instabilityresulting
from
the
worsening
of
the
economic
situation
in
Russia
and
deteriorating
standards
of
living
should
not
be
underestimated.
Any
such
instability
couldnegatively
affect
the
economic
and
political
environment
in
Russia,
particularly
in
the
short
term.
Shifts
in
governmental
policy
and
regulation
in
the
RussianFederation
are
less
predictable
than
in
many
Western
democracies
and
could
disrupt
or
reverse
political,
economic
and
regulatory
reforms.
Any
significant
changein
the
Russian
Government’s
program
of
reform
in
Russia
could
lead
to
the
deterioration
of
Russia’s
investment
climate
that
might
limit
our
ability
to
obtainfinancing
in
the
international
capital
markets
or
otherwise
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.The implementation of government policies in Russia targeted at specific individuals or companies could harm our business as well as investments in Russiamore generally.The
use
of
governmental
power
against
particular
companies
or
persons,
for
example,
through
the
tax,
environmental
or
prosecutorial
authorities,could
adversely
affect
the
Russian
economic
climate
and,
if
directed
against
us,
our
senior
management
or
our
major
shareholders,
could
materially
adversely
affectour
business,
financial
condition
and
results
of
operations.
Russian
authorities
have
recently
challenged
some
Russian
companies
and
prosecuted
their
executiveofficers
and
shareholders
on
the
grounds
of
tax
evasion
and
related
charges.
In
some
cases,
the
results
of
such
prosecutions
and
challenges
have
been
significantclaims
against
companies
for
unpaid
taxes
and
the
imposition
of
prison
sentences
on
individuals.
There
has
been
speculation
that
in
certain
cases
these
challengesand
prosecutions
were
intended
to
punish,
and
deter,
opposition
to
the
government
or
the
pursuit
of
disfavored
political
or
economic
agendas.
There
has
also
beenspeculation
that
certain
environmental
challenges
brought
recently
by
Russian
authorities
in
the
oil
and
gas
as
well
as
mining
sectors
have
been
targeted
at
specificRussian
businesses
under
non-Russian
control,
with
a
view
to
bringing
them
under
state
control.
More
generally,
some
observers
have
noted
that
takeovers
inrecent
years
of
major
private
sector
companies
in
the
oil
and
gas,
metals
and
manufacturing
sectors
by
state-controlled
companies
following
tax,
environmental
andother
challenges
may
reflect
a
shift
in
official
policy
in
favor
of
state
control
at
the
expense
of
individual
or
private
ownership,
at
least
where
large
and
importantenterprises
are
concerned.Political and other conflicts create an uncertain operating environment that hinders our long-term planning ability and could adversely affect the value of ourinvestments in Russia.Russia
is
a
federation
of
85
sub-federal
political
units,
consisting
of
republics,
territories,
regions,
cities
of
federal
importance
and
autonomous
regionsand
districts.
The
delineation
of
authority
and
jurisdiction
among
the
members
of
the
federation
and
the
federal
government
is,
in
many
instances,
unclear
andremains
contested.
Lack
of
consensus
between
the
federal
government
and
local
or
regional
authorities
often
results
in
the
enactment
of
conflicting
legislation
atvarious
levels
and
may
lead
to
further
political
instability.
In
particular,
in
the
past,
conflicting
laws
have
been
enacted
in
the
areas
of
privatization,
securities,corporate
legislation,
regulation
of
land
use
and
licensing.
Some
of
these
laws
and
governmental
and
administrative
decisions
implementing
them,
as
well
as
certaintransactions
consummated
pursuant
to
them,
have
in
the
past
been
challenged
in
the
courts
in
Russia
and
such
challenges
may
occur
in
the
future.Ethnic,
religious,
historical
and
other
divisions
have
on
occasion
given
rise
to
tensions
and,
in
certain
cases,
military
conflict
and
terrorist
attacks
incertain
regions
of
Russia.
For
example,
a
military
conflict
in
August
2008
between
Russia
and
Georgia
involving
South
Ossetia
and
Abkhazia,
as
well
as
theongoing
conflict
between
Russia
and
Ukraine,
resulted
in
significant
overall
price
declines
in
the
Russian
stock
exchanges
and
capital
outflow
from
Russia.
Suchtensions,
military
conflict
or
terrorist
activities
could
have
significant
political
consequences,
including
the
imposition
of
a
state
of
emergency
in
some
or
all
ofRussia
or
heightened
security
measures,
which
could
cause
disruption
to
domestic
commerce
and
exports
from
Russia,
disrupt
normal
economic
activity
in
Russiaand
materially
adversely
affect
our
business,
financial
condition
and
results
of
operations.Deterioration of Russia’s relations with other countries could negatively affect the Russian economy and those of the nearby regions.Over
the
past
several
years,
Russia
has
been
involved
in
conflicts,
both
economic
and
military,
involving
other
members
of
the
CIS.
On
severaloccasions,
this
has
resulted
in
the
deterioration
of
Russia’s
relations
with
other
members
of
the
international
community,
including
the
United
States
and
variouscountries
in
Europe.
Many
of
these
jurisdictions
are
home
to
financial
institutions
and
corporations
that
are
significant
investors
in
Russia
and
whose
investmentstrategies
and
decisions
may
be
affected
by
such
conflicts
and
by
worsening
relations
between
Russia
and
its
immediate
neighbors.
25Table of ContentsFor
example,
relations
between
Ukraine
and
Russia,
as
well
as
Georgia
and
Russia,
have
recently
been
strained
over
a
variety
of
issues.
On
March
21,2014,
President
Putin
signed
legislation
to
recognize
Crimea’s
accession
to,
and
status
as
part
of,
Russia.
Since
then,
there
has
been
continuing
tensions
betweenRussia
and
Ukraine,
which
were
aggravated
by
the
military
conflict
in
Eastern
Ukraine.
The
events
in
Ukraine,
Crimea
and
Syria
have
prompted
condemnation
bymembers
of
the
international
community
and
have
been
strongly
opposed
by
the
EU
and
the
United
States,
with
a
resulting
material
negative
impact
on
therelationships
between
the
EU,
the
United
States
and
Russia.
See
“–
The
situation
in
Ukraine
and
the
U.S.,
EU
and
other
sanctions
that
have
been
imposed
couldadversely
impact
our
operations
and
financial
condition”.
Additionally,
in
December
2016
the
U.S.-Russia
relationships
became
further
strained
over
the
allegedinvolvement
of
the
Russian
government
in
the
cyber-attacks
aimed
at
disrupting
the
election
process
in
the
U.S.
and
the
new
sanctions
imposed
by
the
U.S.president
in
response.
The
emergence
of
new
or
escalated
tensions
between
Russia
and
other
countries
could
negatively
affect
the
Russian
economy.
This,
in
turn,may
result
in
a
general
lack
of
confidence
among
international
investors
in
the
region’s
economic
and
political
stability
and
in
Russian
investments
generally.
Suchlack
of
confidence
may
result
in
reduced
liquidity,
trading
volatility
and
significant
declines
in
the
price
of
listed
securities
of
companies
with
significant
operationsin
Russia,
including
our
ADSs,
and
in
our
inability
to
raise
debt
or
equity
capital
in
the
international
capital
markets,
which
may
affect
our
ability
to
achieve
thelevel
of
growth
to
which
we
aspire.Crime and corruption could create a difficult business climate in Russia.The
political
and
economic
changes
in
Russia
since
the
early
1990s
have
led,
amongst
other
things,
to
reduced
policing
of
society
and
increasedlawlessness.
Organized
crime,
particularly
property
crimes
in
large
metropolitan
centers,
has
reportedly
increased
significantly
since
the
dissolution
of
the
SovietUnion.
In
addition,
the
Russian
and
international
media
have
reported
high
levels
of
corruption
in
Russia.
Press
reports
have
also
described
instances
in
whichgovernment
officials
have
engaged
in
selective
investigations
and
prosecutions
to
further
the
interest
of
the
government
and
individual
officials
or
business
groups.Although
we
adhere
to
a
business
ethics
policy
and
internal
compliance
procedures
to
counteract
the
effects
of
crime
and
corruption,
instances
of
illegal
activities,demands
of
corrupt
officials,
allegations
that
we
or
our
management
have
been
involved
in
corruption
or
illegal
activities
or
biased
articles
and
negative
publicitycould
materially
and
adversely
affect
our
business,
financial
condition
and
results
of
operations.The Russian economy has fallen into recession in 2015 and continues to suffer from ruble depreciation, inflation and capital flight, and depends highly on theglobal pricing of crude oil, which has fallen significantly compared to 2014.Russian
real
GDP
contracted
by
3.7%
in
2015,
putting
Russia
in
recession.
2015
was
the
worst
year
for
the
Russian
economy
since
2009,
whenRussian
GDP
fell
7.8%,
according
to
Rosstat.
In
2016
Russian
real
GDP
sustained
a
decline
at
a
slower
pace
and
fell
by
0.2%
according
to
Rosstat.
Given
theimportance
of
the
energy
sector
to
the
Russian
economy,
a
principal
reason
for
this
downturn
has
been
the
continued
low
level
of
global
oil
prices.
After
a
steep
fallin
2015,
the
price
of
the
global
benchmark
Brent
crude
in
2016
rose
from
U.S.$37.28/bbl
on
December
31,
2015
to
U.S.
$54.96/bbl
on
December
31,
2016,
whichremains
significantly
lower
than
the
pre-2015
prices
and
was
not
sufficient
to
stabilize
the
economy.
The
international
sanctions
arising
from
the
Ukraine
crisishave
also
undercut
confidence
in
the
Russian
economy
and
added
to
the
cost
of
capital.
The
lack
of
confidence
in
the
Russian
economy
led
to
a
run
on
the
ruble
inlate
2014
and
further
weakening
in
2015
(which
were
slightly
offset
by
appreciation
by
the
end
of
2016:
the
average
ruble/U.S.
dollar
exchange
rate
wasRUB36.18/$1
for
the
third
quarter
of
2014,
RUB46.96/$1
for
the
fourth
quarter
of
2014,
RUB62.16/$1
for
the
first
quarter
of
2015,
RUB52.63/$1
for
the
secondquarter
of
2015,
RUB62.85/$1
for
the
third
quarter
of
2015,
RUB65.86/$1
for
the
fourth
quarter
of
2015,
RUB74.63/$1
for
the
first
quarter
of
2016,
RUB65.89/$1for
the
second
quarter
of
2016,
RUB64.62/$1
for
the
third
quarter
of
2016,
and
RUB63.07/$1
for
the
fourth
quarter
of
2016,
according
to
the
CBR.
This
has
beenaccompanied
by
rising
inflation
and
a
declining
trend
in
real
average
wages.
According
to
Rosstat,
inflation
was
11.4%
in
2014,12.9%
in
2015
and
5.4%
in
2016,while
real
average
wages
have
been
declining
(with
Rosstat’s
preliminary
data
for
2015
indicating
that
the
population’s
real
disposable
income
contracted
by
5.9%in
2016
as
compared
to
2015).
Against
this
backdrop,
household
consumption
decreased
significantly
in
2015
versus
2014,
although
it
grew
slightly
by
1.5%
in2016,
according
to
Rosstat.
Another
indicator
of
lack
of
confidence
in
the
Russian
economy
is
capital
flight,
which
was
U.S.$15.4
billion
in
2016,
U.S.$56.9
billionin
2015,
U.S.$153.0
billion
in
2014
and
U.S.$63.0
billion
in
2013.
There
are
concerns
that
the
Russian
government
may
seek
to
increase
the
tax
burden
of
Russiancompanies
or
become
stricter
in
its
enforcement
of
existing
tax
legislation
in
the
light
of
the
shrinking
state
income
due
to
decline
in
oil
prices.
The
weakening
ofthe
Russian
economy
and
the
deterioration
of
Government
finances
(which
rely
significantly
on
taxes
on
oil
revenues)
has
also
led
to
international
rating
agenciesto
lower
the
Russian
Federation
credit
ratings.
Credit
ratings
for
a
number
of
Russian
companies
and
banks
have
been
lowered
in
the
past
months,
another
factorcontributing
to
an
increased
cost
of
capital
in
the
Russian
economy.The
ongoing
deterioration
of
the
Russian
economy
could
have
a
material
adverse
effect
on
our
business,
financial
condition,
results
of
operations
andprospects.Economic instability in Russia could have an adverse effect on our business.The
Russian
economy
has
been
adversely
affected
by
the
recent
global
financial
and
economic
crisis.
A
continuation
of
the
economic
crisis
could
havea
negative
effect
on
the
scale
and
profitability
of
our
business.
Any
of
the
following
risks,
which
the
Russian
economy
has
experienced
at
various
points
in
the
past,may
have
or
have
already
had
a
significant
adverse
effect
on
the
economic
climate
in
Russia
and
may
burden
or
have
already
burdened
our
operations:

•
significant
declines
in
gross
domestic
product,
or
GDP;

•
high
levels
of
inflation;

•
sudden
price
declines
in
the
natural
resource
sector;

•
high
and
fast-growing
interest
rates;
26Table of Contents
•
unstable
credit
conditions;

•
international
sanctions;

•
high
state
debt/GDP
ratio;

•
instability
in
the
local
currency
market;

•
a
weakly
diversified
economy
which
depends
significantly
on
global
prices
of
commodities;

•
lack
of
reform
in
the
banking
sector
and
a
weak
banking
system
providing
limited
liquidity
to
Russian
enterprises;

•
pervasive
capital
flight;

•
corruption
and
the
penetration
of
organized
crime
into
the
economy;

•
significant
increases
in
unemployment
and
underemployment;

•
the
impoverishment
of
a
large
portion
of
the
Russian
population;

•
large
number
of
unprofitable
enterprises
which
continue
to
operate
due
to
deficiency
in
the
existing
bankruptcy
procedure;

•
prevalent
practice
of
tax
evasion;
and

•
growth
of
the
black-market
economy.In
the
past
few
years,
the
Russian
economy
has
been
characterized
by
significant
volatility
in
the
debt
and
equity
markets
(which
experienced
significantdeclines
in
the
second
half
of
2008),
causing
market
regulators
to
temporarily
suspend
trading
multiple
times
on
the
principal
Russian
securities
exchanges,MICEX
and
the
Russian
Trading
System
(which
subsequently
merged
in
2011,
creating
the
Moscow
Exchange).
The
Russian
economy
has
also
been
characterizedby
significant
reductions
in
foreign
investment
and
sharp
decreases
in
GDP.As
Russia
produces
and
exports
large
quantities
of
crude
oil,
natural
gas,
petroleum
products
and
other
commodities,
the
Russian
economy
is
particularlyvulnerable
to
fluctuations
in
oil
and
gas
prices
as
well
as
other
commodities
prices,
which
historically
have
been
subject
to
significant
volatility
over
time,
asillustrated
by
the
recent
decline
in
crude
oil
prices.
Russian
banks,
and
the
Russian
economy
generally,
were
adversely
affected
by
the
global
financial
crisis.
TheRussian
economy
has
fallen
into
a
recession
in
2015.
There
can
be
no
assurance
that
any
measures
adopted
by
the
Russian
government
to
mitigate
the
effect
of
anyfinancial
and
economic
crisis
will
result
in
a
sustainable
recovery
of
the
Russian
economy.
Current
macroeconomic
challenges,
low
or
negative
economic
growth
inthe
United
States,
China,
Japan
and/or
Europe
and
market
volatility
may
provoke
or
prolong
any
economic
crisis.As
an
emerging
economy,
Russia
remains
particularly
vulnerable
to
further
external
shocks.
Events
occurring
in
one
geographic
or
financial
marketsometimes
result
in
an
entire
region
or
class
of
investments
being
disfavored
by
international
investors
-
so-called
“contagion
effects”.
Russia
has
been
adverselyaffected
by
contagion
effects
in
the
past,
and
it
is
possible
that
it
will
be
similarly
affected
in
the
future
by
negative
economic
or
financial
developments
in
othercountries.
Economic
volatility,
or
a
future
economic
crisis,
may
undermine
the
confidence
of
investors
in
the
Russian
markets
and
the
ability
of
Russian
businessesto
raise
capital
in
international
markets,
which
in
turn
could
have
a
material
adverse
effect
on
the
Russian
economy
and
the
Group’s
results
of
operations,
financialcondition
and
prospects.
In
addition,
any
further
declines
in
oil
and
gas
prices
or
other
commodities
pricing
could
disrupt
the
Russian
economy
and
materiallyadversely
affect
our
business,
financial
condition,
results
of
operations
and
prospects.The banking system in Russia remains underdeveloped.The
banking
and
other
financial
systems
in
Russia
are
not
well-developed
or
regulated,
and
Russian
legislation
relating
to
banks
and
bank
accounts
issubject
to
varying
interpretation
and
inconsistent
application.
The
1998
financial
crisis
resulted
in
the
bankruptcy
and
liquidation
of
many
Russian
banks
andalmost
entirely
eliminated
the
developing
market
for
commercial
bank
loans
at
that
time.
From
April
to
July
2004,
the
Russian
banking
sector
experienced
furtherserious
turmoil.
As
a
result
of
various
market
rumors
and
certain
regulatory
and
liquidity
problems,
several
privately
owned
Russian
banks
experienced
liquidityproblems
and
were
unable
to
attract
funds
on
the
inter-bank
market
or
from
their
client
base.
Simultaneously,
they
faced
large
withdrawals
of
deposits
by
both
retailand
corporate
customers.
Several
of
these
privately
owned
Russian
banks
collapsed
or
ceased
or
severely
limited
their
operations.
Russian
banks
owned
orcontrolled
by
the
government
and
foreign
owned
banks
generally
were
not
adversely
affected
by
the
turmoil.There
are
currently
a
limited
number
of
creditworthy
Russian
banks
(most
of
which
are
headquartered
in
Moscow).
Although
the
CBR
has
themandate
and
authority
to
suspend
banking
licenses
of
insolvent
banks,
many
insolvent
banks
still
operate.
Many
Russian
banks
also
do
not
meet
internationalbanking
standards,
and
the
transparency
of
the
Russian
banking
sector
in
some
respects
still
lags
behind
internationally
accepted
norms.
Banking
supervision
is
alsooften
inadequate,
as
a
result
of
which
many
banks
do
not
follow
existing
CBR
regulations
with
respect
to
lending
criteria,
credit
quality,
loan
loss
reserves,diversification
of
exposure
or
other
requirements.
The
imposition
of
more
stringent
regulations
or
interpretations
could
lead
to
weakened
capital
adequacy
and
theinsolvency
of
some
banks.
Prior
to
the
onset
of
the
2008
global
economic
crisis,
there
had
been
a
rapid
increase
in
lending
by
Russian
banks,
which
many
believehad
been
accompanied
by
a
deterioration
in
the
credit
quality
of
the
loan
portfolio
of
those
banks.
In
addition,
a
robust
domestic
corporate
debt
market
was
leadingRussian
banks
to
hold
increasingly
large
amounts
of
Russian
corporate
ruble
bonds
in
their
portfolios,
which
further
deteriorated
the
risk
profile
of
the
assets
ofRussian
banks.
The
global
financial
crisis
of
2007-2008
has
led
to
the
collapse
or
bailout
of
some
Russian
banks
and
to
significant
liquidity
constraints
for
others.Profitability
levels
of
most
Russian
banks
have
been
adversely
affected.
Indeed,
the
global
crisis
has
prompted
the
government
to
inject
substantial
funds
into
thebanking
system
amid
reports
of
difficulties
among
Russian
banks
and
other
financial
institutions.
27Table of ContentsIn
recent
years,
the
CBR
has
considerably
increased
the
intensity
of
its
supervision
and
regulation
of
the
Russian
banking
sector.
Historically,
therevocation
of
banking
licenses
by
the
CBR
has
been
a
relatively
rare
event
mostly
occurring
to
local
banks
with
little
assets
and
little
or
no
significance
for
thebanking
sector
as
a
whole.
Starting
October
2013,
however,
the
CBR
has
launched
a
campaign
aimed
at
cleansing
the
Russian
banking
industry,
revoking
thelicenses
from
an
unusually
high
number
of
banks
(including
significant
banks
such
as
Master-Bank,
Investbank,
ProBusinessBank,
Svyaznoy
Bank,Vneshprombank,
Tatfondbank
and
others)
on
allegations
of
money
laundering,
financial
statements
manipulation
and
other
illegal
activities,
as
well
as
inability
ofcertain
banks
to
discharge
their
financial
obligations,
which
resulted
in
turmoil
in
the
industry,
instigated
bank
runs
on
a
number
of
Russian
credit
institutions,
andseverely
undermined
the
trust
that
the
Russian
population
had
with
private
banks.
It
could
be
expected
that
the
difficulties
currently
faced
by
the
Russian
economycould
result
in
further
collapses
of
Russian
banks.
With
few
exceptions
(notably
the
state-owned
banks),
the
Russian
banking
system
suffers
from
weak
depositorconfidence,
high
concentration
of
exposure
to
certain
borrowers
and
their
affiliates,
poor
credit
quality
of
borrowers
and
related
party
transactions.
Currenteconomic
circumstances
in
Russia
are
putting
stress
on
the
Russian
banking
system.
Combined
with
heightened
interest
rates
–
with
the
key
interest
rate
of
theCBR
currently
at
10%
per
annum
(and
rising
as
high
as
17%
over
the
course
of
2014-2015)
–
these
circumstances
decrease
the
affordability
of
consumer
credit,putting
further
pressure
on
overall
consumer
purchasing
power.Our
business
is
significantly
affected
by
development
in
the
Russian
banking
sector.
First,
we
periodically
hold
funds
in
a
number
of
Russian
banksand
rely
on
guarantees
given
by
those
banks
to
enhance
our
liquidity.
Increased
uncertainty
in
the
Russian
banking
sector
exposes
us
to
additional
counterparty
riskand
affects
our
liquidity.
In
addition,
a
significant
portion
of
our
revenue
is
derived
from
consumer
payments
in
the
banking
industry
in
our
Financial
Servicesmarket
vertical.
As
a
result,
the
bankruptcy
or
insolvency
of
one
or
more
of
these
banks
could
adversely
affect
our
business,
financial
condition
and
results
ofoperations.
The
continuation
or
worsening
of
the
banking
crisis
could
decrease
our
transaction
volumes,
while
the
bankruptcy
or
insolvency
of
any
of
the
bankswhich
hold
our
funds
could
prevent
us
from
accessing
our
funds
for
several
days.
All
of
these
factors
could
have
a
material
adverse
effect
on
our
business,
financialcondition
and
results
of
operations.Social instability could lead to labor and social unrest, increased support for renewed centralized authority, nationalism or violence.Failures
to
adequately
address
social
problems
have
led
in
the
past,
and
could
lead
in
the
future,
to
labor
and
social
unrest.
Labor
and
social
unrestcould
have
political,
social
and
economic
consequences,
such
as
increased
support
for
a
renewal
of
centralized
authority;
increased
nationalism,
with
support
for
re-nationalization
of
property,
or
expropriation
of
or
restrictions
on
foreign
involvement
in
the
economy
of
Russia;
and
increased
violence.
Any
of
these
could
have
anadverse
effect
on
confidence
in
Russia’s
social
environment
and
the
value
of
investments
in
Russia,
could
restrict
our
operations
and
lead
to
a
loss
of
revenue,
andcould
otherwise
have
a
material
adverse
effect
on
its
business,
results
of
operations
and
financial
condition.Russia has experienced high levels of inflation in the past.As
a
substantial
portion
of
our
expenses
(including
operating
costs
and
capital
expenditures)
are
denominated
in
rubles,
the
relative
movement
ofinflation
and
exchange
rates
significantly
affects
our
results
of
operations.
The
effects
of
inflation
could
cause
some
of
our
costs
to
rise.
Russia
has
experiencedhigh
levels
of
inflation
since
the
early
1990s.
For
example,
inflation
increased
dramatically
after
the
1998
financial
crisis,
reaching
a
rate
of
84.4%
in
that
year.According
to
Rosstat,
inflation
in
the
Russian
Federation
was
6.5%
in
2013,
11.4%
in
2014,12.9%
in
2015
and
5.4%
in
2016.
Certain
of
our
costs,
such
as
salariesand
rent,
are
affected
by
inflation
in
Russia.
To
the
extent
the
inflation
causes
these
costs
to
increase,
such
inflation
may
materially
adversely
affect
our
business,financial
condition
and
results
of
operations.The immaturity of legal systems, processes and practices in the Russian Federation may adversely affect our business, financial condition and results ofoperations.Risks
associated
with
the
legal
systems
of
the
Russian
Federation
include,
to
varying
degrees,
inconsistencies
between
and
among
laws,
presidentialdecrees,
edicts
and
governmental
and
ministerial
orders
and
resolutions;
conflicting
local,
regional,
and
federal
rules
and
regulations;
the
lack
of
judicial
oradministrative
guidance
regarding
the
interpretation
of
the
applicable
rules;
the
untested
nature
of
the
independence
of
the
judiciary
and
its
immunity
from
political,social
and
commercial
influences;
the
relative
inexperience
of
jurists,
judges
and
courts
in
interpreting
recently
enacted
legislation
and
complex
commercialarrangements;
a
high
degree
of
unchecked
discretion
on
the
part
of
governmental
authorities;
alleged
corruption
within
the
judiciary
and
governmental
authorities;substantial
gaps
in
the
regulatory
structure
due
to
delays
in
or
absence
of
implementing
regulations;
bankruptcy
procedures
that
are
not
well-developed
and
aresubject
to
abuse;
and
a
lack
of
binding
judicial
precedent.
All
of
these
weaknesses
affect
our
ability
to
protect
and
enforce
our
legal
rights,
including
rights
undercontracts,
and
to
defend
against
claims
by
others.
In
addition,
the
merger
of
the
Supreme
Arbitration
Court
of
the
Russian
Federation,
which
used
to
overseebusiness
disputes,
into
the
Supreme
Court,
which
used
to
only
handle
criminal
cases
and
civil
lawsuits,
is
viewed
by
some
as
having
further
aggravated
theseissues.The
Russian
judicial
system
is
not
immune
from
economic
and
political
influences.
The
Russian
court
system
is
understaffed
and
underfunded,
andthe
quality
of
justice,
duration
of
legal
proceedings,
and
performance
of
courts
and
enforcement
of
judgments
remain
problematic.
Under
Russian
legislation,judicial
precedents
generally
have
no
binding
effect
on
subsequent
decisions
and
are
not
recognized
as
a
source
of
law.
However,
in
practice,
courts
usuallyconsider
judicial
precedents
in
their
decisions.
Enforcement
of
court
judgments
can
in
practice
be
very
difficult
and
time-consuming
in
Russia.
Additionally,
courtclaims
are
sometimes
used
in
furtherance
of
political
and
commercial
aims.
All
of
these
factors
can
make
judicial
decisions
in
Russia
difficult
to
predict
and
makeeffective
redress
problematic
in
certain
instances.
28Table of ContentsThe
relatively
recent
enactment
of
many
laws,
the
lack
of
consensus
about
the
scope,
content
and
pace
of
political
and
economic
reform
and
the
rapidevolution
of
legal
systems
in
ways
that
may
not
always
coincide
with
market
developments
have
resulted
in
legal
ambiguities,
inconsistencies
and
anomalies
and,in
certain
cases,
the
enactment
of
laws
without
a
clear
constitutional
or
legislative
basis.
Legal
and
bureaucratic
obstacles
and
corruption
exist
to
varying
degrees
ineach
of
the
regions
in
which
we
operate,
and
these
factors
are
likely
to
hinder
our
further
development.
These
characteristics
give
rise
to
investment
risks
that
donot
exist
in
countries
with
more
developed
legal
systems.
The
developing
nature
of
the
legal
systems
in
Russia
could
materially
adversely
affect
our
business,financial
condition
and
results
of
operations.Unlawful, selective or arbitrary government action may have an adverse effect on our business.Governmental
authorities
have
a
high
degree
of
discretion
in
Russia
and
at
times
appear
to
act
selectively
or
arbitrarily,
without
hearing
or
priornotice,
and
in
a
manner
that
is
contrary
to
law
or
influenced
by
political
or
commercial
considerations.
Moreover,
the
Russian
Government
also
has
the
power
incertain
circumstances,
by
regulation
or
government
act,
to
interfere
with
the
performance
of,
nullify
or
terminate
contracts.
Unlawful,
selective
or
arbitrarygovernmental
actions
have
reportedly
included
denial
or
withdrawal
of
licenses,
sudden
and
unexpected
tax
audits,
criminal
prosecutions
and
civil
actions.
Federaland
local
government
entities
also
appear
to
have
used
common
defects
in
matters
surrounding
share
issuances
and
registration
as
pretexts
for
court
claims
andother
demands
to
invalidate
the
issuances
or
registrations
or
to
void
transactions,
seemingly
for
political
purposes.
Moreover,
selective,
public
criticism
by
RussianGovernment
officials
of
Russian
companies
has
in
the
past
caused
the
price
of
publicly
traded
securities
in
such
Russian
companies
to
sharply
decline,
and
there
isno
assurance
that
any
such
public
criticism
by
Russian
Government
officials
in
the
future
will
not
have
the
same
negative
affect.
Standard
&
Poor’s
has
expressedconcerns
that
“Russian
companies
and
their
investors
can
be
subjected
to
government
pressure
through
selective
implementation
of
regulations
and
legislation
thatis
either
politically
motivated
or
triggered
by
competing
business
groups”.
In
this
environment,
our
competitors
could
receive
preferential
treatment
from
thegovernment,
potentially
giving
them
a
competitive
advantage.
Unlawful,
selective
or
arbitrary
governmental
action,
if
directed
at
our
operations
in
Russia,
couldmaterially
and
adversely
affect
our
business,
financial
condition
and
results
of
operations.Russian companies can be forced into liquidation on the basis of formal non-compliance with certain requirements of Russian law.Certain
provisions
of
Russian
law
may
allow
a
court
to
order
the
liquidation
of
a
Russian
legal
entity
on
the
basis
of
its
formal
non-compliance
withcertain
requirements
during
formation,
reorganization
or
during
its
operation.
There
have
been
cases
in
the
past
in
which
formal
deficiencies
in
the
establishmentprocess
of
a
Russian
legal
entity
or
non-compliance
with
provisions
of
Russian
law
have
been
used
by
Russian
courts
as
a
basis
for
the
liquidation
of
a
legal
entity.Weaknesses
in
the
Russian
legal
system
create
an
uncertain
legal
environment,
which
makes
the
decisions
of
a
Russian
court
or
a
governmental
authority
difficult,if
not
impossible,
to
predict.
If
any
of
our
operating
subsidiaries
incorporated
in
Russia
were
subject
to
involuntary
liquidation,
such
liquidation
could
lead
tosignificant
negative
consequences
for
our
business,
financial
condition
and
results
of
operations.For
example,
under
Russian
corporate
law,
negative
net
assets
calculated
on
the
basis
of
the
Russian
accounting
standards
as
of
the
end
of
the
yearfollowing
the
second
or
any
subsequent
year
of
a
company’s
existence
can
serve
as
a
basis
for
creditors
to
accelerate
their
claims
and
to
demand
payment
ofdamages,
as
well
as
for
a
court
to
order
the
liquidation
of
the
company
upon
a
claim
by
governmental
authorities.
Many
Russian
companies
have
negative
netassets
due
to
very
low
historical
value
of
property,
plant
and
equipment
reflected
on
their
Russian
accounting
standards
balance
sheets.
However,
their
solvency(defined
as
their
ability
to
pay
debts
as
they
come
due)
is
not
otherwise
adversely
affected
by
such
negative
net
assets.
There
are
cases
when
courts
have
orderedmandatory
liquidation
of
a
company
based
on
its
negative
net
assets,
though
such
company
had
continued
to
fulfill
its
obligations
and
had
net
assets
in
excess
ofthe
required
minimum
at
the
time
of
liquidation.Shareholder liability under Russian corporate law could cause us to become liable for the obligations of our subsidiaries.Russian
law
generally
provides
that
shareholders
in
a
Russian
joint-stock
company
or
participants
in
a
limited
liability
company
are
not
liable
for
thatcompany’s
obligations
and
risk
only
the
loss
of
their
investment.
This
may
not
be
the
case,
however,
when
one
company
(the
“effective
parent”)
is
capable
ofmaking
decisions
for
another
(the
“effective
subsidiary”).
Under
certain
circumstances,
the
effective
parent
bears
joint
and
several
responsibility
for
transactionsconcluded
by
the
effective
subsidiary
in
carrying
out
such
decisions.In
addition,
under
Russian
law,
an
effective
parent
is
secondarily
liable
for
an
effective
subsidiary’s
debts
if
an
effective
subsidiary
becomes
insolventor
bankrupt
as
a
result
of
the
action
of
an
effective
parent.
In
these
instances,
the
other
shareholders
of
the
effective
subsidiary
may
claim
compensation
for
theeffective
subsidiary’s
losses
from
the
effective
parent
that
causes
the
effective
subsidiary
to
take
action
or
fail
to
take
action
knowing
that
such
action
or
failure
totake
action
would
result
in
losses.
We
could
be
found
to
be
the
effective
parent
of
our
subsidiaries,
in
which
case
we
would
become
liable
for
their
debts,
whichcould
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.Our operations in Kazakhstan have become significant, and many of the risks we face in Kazakhstan are similar to those we face in Russia.In
addition
to
Russia,
our
operations
in
Kazakhstan
have
become
significant.
In
many
respects,
the
risks
we
face
in
operating
business
in
Kazakhstanare
similar
to
those
in
Russia
as
set
out
above
in
“—Risks
Relating
to
the
Russian
Federation
and
Other
Markets
in
Which
We
Operate”.
As
is
typical
of
anemerging
market,
Kazakhstan
does
not
possess
a
well-developed
business,
legal
and
regulatory
infrastructure
and
has
been
subject
to
substantial
political,
economicand
social
change.
Our
business
in
Kazakhstan
is
subject
to
Kazakhstan
specific
laws
and
regulations
including
with
respect
to
tax,
anti-corruption,
and
foreignexchange
controls.
Such
laws
are
often
rapidly
changing
and
are
unpredictable.
In
addition,
we
are
exposed
to
foreign
currency
fluctuations,
between
the
Russianruble
and
the
Kazakh
tenge,
which
could
affect
our
financial
position
and
our
profitability.
Our
failure
to
manage
the
risks
associated
with
doing
business
inKazakhstan
could
have
a
material
adverse
effect
upon
our
results
of
operations.
29Table of ContentsRisks Relating to TaxationWeaknesses and changes in the Russian tax system could materially and adversely affect our business and the value of investments in Russia.We
are
subject
to
a
broad
range
of
taxes
and
other
compulsory
payments
imposed
at
federal,
regional
and
local
levels,
including,
but
not
limited
to,profits
tax,
VAT,
corporate
property
tax
and
social
contributions.
Tax
laws,
namely
the
Russian
Tax
Code,
have
been
in
force
for
a
short
period
relative
to
tax
lawsin
more
developed
market
economies,
and
the
implementation
of
these
tax
laws
is
often
unclear
or
inconsistent.
Historically,
the
system
of
tax
collection
has
beenrelatively
ineffective,
resulting
in
continual
changes
to
the
interpretation
of
existing
laws.
Although
the
quality
of
Russian
tax
legislation
has
generally
improvedwith
the
introduction
of
the
first
and
second
parts
of
the
Russian
Tax
Code,
the
possibility
exists
that
Russia
may
impose
arbitrary
or
onerous
taxes
and
penalties
inthe
future,
which
could
adversely
affect
our
business,
financial
condition
and
results
of
operations.
A
large
number
of
changes
have
been
made
to
various
chaptersof
the
Russian
Tax
Code
since
their
introduction.
Since
Russian
federal,
regional
and
local
tax
laws
and
regulations
are
subject
to
changes
and
some
of
the
sectionsof
the
Russian
Tax
Code
relating
to
the
aforementioned
taxes
are
comparatively
new,
interpretation
of
these
regulations
is
often
unclear
or
non-existent.
Also,different
interpretations
of
tax
regulations
exist
both
among
and
within
government
bodies
at
the
federal,
regional
and
local
levels,
which
creates
uncertainties
andinconsistent
enforcement.
The
current
practice
is
that
private
clarifications
to
specific
taxpayers’
queries
with
respect
to
particular
situations
issued
by
the
RussianMinistry
of
Finance
are
not
binding
on
the
Russian
tax
authorities
and
there
can
be
no
assurance
that
the
Russian
tax
authorities
will
not
take
positions
contrary
tothose
set
out
in
such
clarifications.
During
the
past
several
years
the
Russian
tax
authorities
have
shown
a
tendency
to
take
more
assertive
positions
in
theirinterpretation
of
the
tax
legislation,
which
has
led
to
an
increased
number
of
material
tax
assessments
issued
by
them
as
a
result
of
tax
audits.
In
practice,
theRussian
tax
authorities
generally
interpret
the
tax
laws
in
ways
that
do
not
favor
taxpayers,
who
often
have
to
resort
to
court
proceedings
against
the
Russian
taxauthorities
to
defend
their
position.
In
some
instances,
Russian
tax
authorities
have
applied
new
interpretations
of
tax
laws
retroactively.
There
is
no
establishedprecedent
or
consistent
court
practice
in
respect
of
these
issues.
Furthermore,
in
the
absence
of
binding
precedent,
court
rulings
on
tax
or
other
related
matters
bydifferent
courts
relating
to
the
same
or
similar
circumstances
may
also
be
inconsistent
or
contradictory.
Taxpayers
often
have
to
resort
to
court
proceedings
todefend
their
position
against
the
tax
authorities.The
Russian
tax
authorities
are
increasingly
taking
a
“substance
over
form”
approach.
For
example,
starting
from
January
1,
2015
a
number
ofamendments
have
been
made
to
the
Russian
tax
legislation
introducing,
among
others,
the
concepts
of
controlled
foreign
companies,
corporate
tax
residency
andbeneficial
ownership
(see
also
“Russian
anti-offshore
measures
may
have
adverse
impact
on
our
business,
financial
condition
and
results
of
operations”).
Due
tothe
relative
lack
of
court
and
administrative
practice,
no
assurance
can
be
currently
given
as
to
how
these
amendments
will
be
applied
in
practice,
their
potentialinterpretation
by
the
tax
authorities
and
the
possible
impact
on
us.In
addition,
in
April
2016
a
draft
law
introducing
country-by-country
reporting
(“CbCR”)
requirements
has
been
released
for
public
discussion.
InSeptember
2016
significantly
expanded
version
of
draft
law
was
published
by
the
Russian
Ministry
of
Finance.
Introducing
mandatory
filing
of
CbCR
is
in
generalin
line
with
the
Organization
for
Economic
Co-operation
and
Development
(“OECD”)
recommendations
within
the
Base
Erosion
and
Profit
Shifting
(“BEPS”)initiative.
The
proposed
amendments
would
require
multinational
corporate
enterprise
groups
with
consolidated
revenues
of
over
certain
threshold
to
submit
annualCbCR,
as
well
as
certain
other
reporting
forms
detailing
multinational
corporate
enterprises
groups
operations
(locally
and
globally,
respectively),
as
well
astransfer
pricing
methodologies
applied
to
intra-group
transactions.
It
is
at
the
moment
unclear
how
the
above
measures
will
be
applied
in
practice
by
the
Russiantax
authorities
and
courts.
It
is
proposed
that
only
multinational
corporate
enterprises
with
consolidated
revenues
of
over
RUB
50
billion
to
be
subject
to
CbCRrequirements.
Thus,
if
the
proposed
amendments
come
into
force
and
we
reach
the
reporting
threshold
in
Russia,
or
alternatively
in
any
other
jurisdiction
of
ourpresence
(e.g.
in
Cyprus,
where
the
Decree
issued
by
the
Cyprus
Minister
of
Finance
on
December
30,
2016
introduced
a
mandatory
CbCR
for
multinationalenterprise
groups
generating
consolidated
annual
turnover
exceeding
EUR
750
million)
we
may
be
liable
to
submit
relevant
CbCR.The
possibility
exists
that
the
Government
may
introduce
additional
revenue-raising
measures.
Although
it
is
unclear
how
such
measures
wouldoperate,
the
introduction
of
any
such
measures
may
affect
the
Group’s
overall
tax
efficiency
and
may
result
in
significant
additional
taxes
becoming
payable.Further,
the
Russian
Ministry
of
Finance
in
its
“Main
Directions
of
Russian
Tax
policy
for
2017
and
the
Planning
Period
of
2018
and
2019”
outlined
anumber
of
initiatives.
Among
others,
the
following
changes
were
put
in
force
as
a
legislative
implementation
of
those
initiatives:
temporary
limit
on
the
amount
ofloss
carried
forward
to
be
utilized
to
reduce
taxable
income
(applicable
for
2017-2020
inclusively);
increase
of
late
payment
interest
for
overdue
tax
payments;changes
to
classification
of
controlled
transactions
under
the
transfer
pricing
rules
(starting
from
2017
any
guarantees
between
Russian
non-banking
organizations,as
well
as
interest-free
loans
between
Russian
related
parties
will
not
be
treated
as
controlled
transactions).It
is
expected
that
other
initiatives
of
the
Russian
Ministry
of
Finance,
such
as
acceding
to
the
OECD
Multilateral
Convention
on
amending
double
taxtreaties,
and
automatic
information
exchange
with
foreign
tax
authorities,
will
also
be
adopted
in
the
near
time.There
can
be
no
assurance
that
the
Russian
Tax
Code
will
not
be
changed
in
the
future
in
a
manner
adverse
to
the
stability
and
predictability
of
the
taxsystem.
These
factors,
together
with
the
potential
for
state
budget
deficits,
raise
the
risk
of
the
imposition
of
additional
taxes
on
us.
The
introduction
of
new
taxes
oramendments
to
current
taxation
rules
may
have
a
substantial
impact
on
the
overall
amount
of
our
tax
liabilities.
There
is
no
assurance
that
we
would
not
be
requiredto
make
substantially
larger
tax
payments
in
the
future,
which
may
adversely
affect
our
business,
financial
condition
and
results
of
operations.
30Table of ContentsOur business in Russia may be deemed to receive unjustified tax benefits.In
its
decision
No
138-0
dated
July
25,
2001,
the
Constitutional
Court
of
the
Russian
Federation,
or
the
Constitutional
Court,
introduced
the
concept
of“a
taxpayer
acting
in
a
bad
faith”
without
clearly
stipulating
the
criteria
for
it.
Similarly,
this
concept
is
not
defined
in
Russian
tax
law.
Nonetheless,
this
concepthas
been
used
by
the
tax
authorities
to
deny,
for
instance,
the
taxpayer’s
right
to
obtain
tax
deductions
and
benefits
provided
by
the
tax
law.
The
tax
authorities
andcourts
often
exercise
significant
discretion
in
interpreting
this
concept
in
a
manner
that
is
unfavorable
to
taxpayers.
On
October
12,
2006,
the
Plenum
of
the
HigherArbitrazh
Court
of
the
Russian
Federation,
or
the
Higher
Arbitrazh
Court,
issued
Ruling
No.
53,
formulating
the
concept
of
an
“unjustified
tax
benefit”
which
isdefined
in
the
ruling
mainly
by
reference
to
specific
examples
of
such
tax
benefits
(e.g.,
tax
benefits
obtained
as
a
result
of
a
transaction
that
has
no
reasonablebusiness
purpose)
which
may
lead
to
disallowance
of
their
application.
There
is
growing
practice
of
the
interpretation
of
this
concept
by
the
tax
authorities
or
thecourts
and
it
is
apparent
that
the
tax
authorities
actively
seek
to
apply
this
concept
when
challenging
tax
positions
taken
by
taxpayers.
Although
the
intention
ofRuling
No.
53
was
to
combat
the
abuse
of
tax
law,
based
on
cases
brought
to
courts
to
date
relating
to
Ruling
No.
53,
the
tax
authorities
have
started
applying
the“unjustified
tax
benefit”
concept
in
a
broader
sense
than
may
have
been
intended
by
the
Higher
Arbitrazh
Court.
In
particular,
we
are
aware
of
cases
when
thisconcept
has
been
applied
by
the
tax
authorities
in
order
to
disallow
benefits
granted
by
double
tax
treaties.
To
date,
in
the
cases
where
this
concept
has
beenapplied,
the
courts
have
ruled
in
favor
of
taxpayers
that
managed
to
demonstrate
business
rationale
of
the
operations
challenged
by
the
Russian
tax
authorities,
butit
is
not
possible
to
determine
whether
the
courts
will
follow
these
precedents
in
the
future.In
May
2015,
a
draft
legislation
introducing
the
concept
of
“unjustified
tax
benefit”
into
the
Russian
Tax
Code
passed
the
first
reading
in
the
StateDuma
of
the
Russian
Federation.
Subject
to
certain
exceptions,
the
proposed
legislation
would
prohibit
taxpayers
from
deducting
expenses
for
profits
tax
purposesand
corresponding
input
VAT
in
cases
where
a
business
transaction
was
primarily
aimed
at
tax
avoidance,
the
primary
documents
were
signed
by
unauthorized
orunspecified
persons,
or
the
seller
did
not
actually
sell
goods
(work,
services)
or
transfer
any
property
rights.
Although
at
the
moment
the
draft
law
is
still
underreview
and
pending
amendments
to
be
made
by
the
State
Duma
of
the
Russian
Federation
and
it
is
not
clear
how
the
final
legislation
will
be
worded
it
is
anticipatedthat
the
introduction
of
these
changes
would
allow
the
Russian
tax
authorities
to
have
more
arguments
in
disputes
with
taxpayers
related
to
unjustified
tax
benefits.It
is
unclear
if
and
when
the
concept
of
“unjustified
tax
benefit”
is
to
be
introduced
into
the
Russian
tax
legislation.In
addition
to
the
usual
tax
burden
imposed
on
Russian
taxpayers,
these
conditions
complicate
tax
planning
and
related
business
decisions.
Thisuncertainty
could
possibly
expose
our
Group
to
significant
fines
and
penalties
and
to
enforcement
measures,
despite
our
best
efforts
at
compliance,
and
could
resultin
a
greater
than
expected
tax
burden.Our Russian subsidiaries are subject to tax audits by Russian tax authorities which may result in additional tax liabilities.Tax
returns
together
with
related
documentation
are
subject
to
review
and
investigation
by
a
number
of
authorities,
which
are
enabled
by
Russian
lawto
impose
substantial
fines
and
interest
charges.
Generally,
taxpayers
are
subject
to
tax
audits
for
a
period
of
three
calendar
years
immediately
preceding
the
year
inwhich
the
decision
to
conduct
the
audit
is
taken.
Nevertheless,
in
some
cases
the
fact
that
a
tax
period
has
been
reviewed
by
the
tax
authorities
does
not
preventfurther
review
of
that
tax
period,
or
any
tax
return
applicable
to
that
tax
period.
In
addition,
based
on
the
court
practice
and
the
first
part
of
the
Russian
Tax
Code,the
three-year
statute
of
limitations
for
tax
liabilities
is
extended
if
the
actions
of
the
taxpayer
create
insurmountable
obstacles
for
the
tax
audit.
Because
none
of
therelevant
terms
is
defined
in
Russian
law,
the
tax
authorities
may
have
broad
discretion
to
argue
that
a
taxpayer
has
“obstructed”
or
“hindered”
or
“createdinsurmountable
obstacles”
in
respect
of
an
audit,
effectively
linking
any
difficulty
experienced
in
the
course
of
their
tax
audit
with
obstruction
by
the
taxpayer
anduse
that
as
a
basis
to
seek
tax
adjustments
and
penalties
beyond
the
three-year
term.
Therefore,
the
statute
of
limitations
is
not
entirely
effective.
Tax
audits
mayresult
in
additional
costs
to
our
Group
if
the
relevant
tax
authorities
conclude
that
our
Russian
entities
did
not
satisfy
their
tax
obligations
in
any
given
year.
Suchaudits
may
also
impose
additional
burdens
on
our
Group
by
diverting
the
attention
of
management
resources.
The
outcome
of
these
audits
could
have
a
materialadverse
effect
on
our
business,
financial
condition
and
results
of
operations.Russian transfer pricing legislation may require pricing adjustments and impose additional tax liabilities with respect to all controlled transactions.Russian
transfer
pricing
legislation
became
effective
in
the
Russian
Federation
on
January
1,
1999.
This
legislation
allowed
the
tax
authorities
to
maketransfer-pricing
adjustments
and
impose
additional
tax
liabilities
in
respect
of
certain
types
of
transactions
(“controlled”
transactions).
Following
the
adoption
ofFederal
Law
No.
227-FZ
“On
amendments
to
certain
legislative
acts
of
the
Russian
Federation
in
connection
with
the
improvement
of
pricing
principles”
datedJuly
18,
2011,
current
transfer
pricing
rules
became
effective
from
January
1,
2012.
The
list
of
the
“controlled”
transactions
under
the
current
transfer
pricinglegislation
includes
transactions
with
related
parties
(with
several
exceptions
including
any
guarantees
between
Russian
non-banking
organizations
and
interest-freeloans
between
Russian
related
parties)
and
certain
types
of
cross
border
transactions.
The
amendments
have
toughened
considerably
the
previous
transfer
pricingrules,
by,
among
other
things,
effectively
shifting
the
burden
of
proving
market
prices
from
the
tax
authorities
to
the
taxpayer
and
obliging
the
taxpayer
to
keepspecific
documentation.
The
current
rules
also
permit
taxpayers
to
enter
into
advance
pricing
agreements
with
the
tax
authorities;
however,
it
is
unclear
how
suchagreements
will
operate
in
practice.
Special
transfer
pricing
rules
apply
to
transactions
with
securities
and
derivatives.
It
is
currently
difficult
to
evaluate
what
effectthese
provisions
may
have
on
us.
31Table of ContentsCurrently
the
tax
authorities
perform
tax
audits
of
some
Russian
taxpayers
with
major
focus
on
compliance
with
existing
transfer
pricing
legislation.
Itis
therefore
possible
that
the
Group
entities
may
become
subject
to
transfer
pricing
tax
audits
by
tax
authorities
in
the
foreseeable
future.
Due
to
the
uncertainty
andlack
of
established
practice
of
application
of
the
Russian
transfer
pricing
legislation
the
Russian
tax
authorities
may
challenge
the
level
of
prices
applied
by
theGroup
under
the
“controlled”
transactions
(including
certain
intercompany
transactions)
and
accrue
additional
tax
liabilities.
If
additional
taxes
are
assessed
withrespect
to
these
matters,
they
may
be
material.ADS holders outside of Russia may be subject to Russian tax for income earned upon a sale, exchange or disposal of our ADSs.In
the
event
that
the
proceeds
from
a
sale,
exchange
or
disposal
of
ADSs
are
deemed
to
be
received
from
a
source
within
Russia,
a
non-resident
holderthat
is
an
individual
may
be
subject
to
Russian
tax
in
respect
of
such
proceeds
at
a
rate
of
30%
of
the
gain
(such
gain
being
computed
as
the
sales
price
less
anyavailable
documented
cost
deduction,
including
the
acquisition
price
of
the
ADSs
and
other
documented
expenses,
such
as
depositary
expenses
and
brokers’
fees).In
case
of
non-resident
holders
that
are
legal
entities
or
organizations
proceed
from
sale,
exchange
or
disposal
of
ADSs
would
be
regarded
as
Russian
sourceproceeds
subject
to
tax
in
Russia
at
the
rate
of
20%
if
more
than
50%
of
our
assets
consist
of
immovable
property
in
Russia.
Relevant
tax
may
be
eliminated
underany
available
double
tax
treaty
relief,
provided
that
the
necessary
requirements
to
qualify
for
the
treaty
relief
and
the
appropriate
administrative
requirements
underthe
Russian
tax
legislation
have
been
met.
For
example,
holders
of
ADSs
that
are
eligible
for
the
benefits
of
the
United
States-Russia
double
tax
treaty
shouldgenerally
not
be
subject
to
tax
in
Russia
on
any
gain
arising
from
the
disposal
of
ADSs,
provided
that
the
gain
is
not
attributable
to
a
permanent
establishment
or
afixed
base
that
is
or
was
located
in
Russia
and/or
provided
that
no
more
than
50%
of
our
assets
consist
of
immovable
property
situated
in
Russia
(as
defined
in
thetreaty).
Because
the
determination
of
whether
more
than
50%
of
our
assets
consist
of
immovable
property
situated
in
Russia
is
inherently
factual
and
is
made
on
anon-going
basis,
and
because
the
relevant
Russian
legislation
and
regulations
are
not
entirely
clear,
there
can
be
no
assurance
that
immovable
property
situated
inRussia
does
not
currently,
or
will
not,
constitute
more
than
50%
of
our
assets.
If
more
than
50%
of
our
assets
were
to
consist
of
immovable
property
situated
inRussia,
the
benefits
of
the
United
States-Russia
double
tax
treaty
may
not
be
available
to
an
ADS
holder
(whether
a
legal
entity
or
an
individual).Changes in the double tax treaty between Russia and Cyprus may significantly increase our tax burden.A
company
that
is
tax
resident
of
Cyprus
is
subject
to
Cypriot
taxation
and
qualifies
for
benefits
available
under
the
Cypriot
tax
treaty
network,including
the
Russia-Cyprus
double
tax
treaty.
We
can
provide
no
assurance
that
the
double
tax
treaty
will
not
be
renegotiated
or
revoked.The
Protocol
of
October
7,
2010
introduced
a
number
of
amendments
to
the
Russia-Cyprus
double
tax
treaty
dated
December
5,
1998.
Most
of
theseamendments
have
been
in
effect
since
January
1,
2013.
Additionally,
the
Protocol
contained
a
clause
on
Article
13
of
the
Russia-Cyprus
double
tax
treaty,
underwhich
gains
from
the
alienation
of
shares
or
similar
rights
deriving
more
than
50%
of
their
value
from
immovable
property,
must
be
taxed
in
the
country
where
theproperty
is
located
starting
from
January
1,
2017.
According
to
information
from
the
Cypriot
Ministry
of
Finance,
an
additional
protocol
to
the
Russia-Cyprusdouble
tax
treaty
is
expected
to
be
signed
as
the
parties
are
currently
finalizing
this
document.
It
will
stipulate
that
the
changes
described
above
will
eventually
takeeffect,
but
will
be
postponed
to
a
later
date.
The
final
deadline
will
depend
on
when
similar
amendments
are
made
to
Russia’s
double
tax
treaties
with
otherEuropean
countries.
It
is
still
unclear,
however,
whether
these
changes
are
introduced
and
how
these
changes
of
the
Russia-Cyprus
double
tax
treaty
(if
adopted)could
be
postponed
as
they
are
already
in
effect
since
January
1,
2017.Adverse
changes
in,
or
the
cancellation
of,
the
Russia-Cyprus
double
tax
treaty
may
significantly
increase
our
tax
burden
and
adversely
affect
ourbusiness,
financial
condition
and
results
of
operations.We may be deemed to be a tax resident outside of Cyprus.According
to
the
provisions
of
the
Cyprus
Income
Tax
Law,
a
company
is
considered
to
be
a
resident
of
Cyprus
for
tax
purposes
if
its
managementand
control
are
exercised
in
Cyprus.
The
concept
of
“management
and
control”
is
not
defined
in
the
Cypriot
tax
legislation.
The
Cyprus
Tax
Authorities
havepublished
a
questionnaire
form
indicating
information
that
need
to
be
provided
by
a
company
when
obtaining
Cyprus
tax
residency
certificate.
According
to
theinformation
provided
by
a
company
via
submission
of
the
said
questionnaire,
it
may
or
may
not
be
considered
a
Cyprus
tax
resident.
For
more
details
in
relation
totax
residency
see
“Item
10.E
Taxation—Material
Cypriot
Tax
Considerations—Tax
residency”.
If
we
are
deemed
not
to
be
a
tax
resident
in
Cyprus,
we
may
not
besubject
to
the
Cypriot
tax
regime
other
than
in
respect
of
Cyprus
sourced
income
and
we
may
be
subject
to
the
tax
regime
of
the
country
in
which
we
are
deemed
tobe
a
tax
resident.Further,
we
would
not
be
eligible
for
benefits
under
the
tax
treaties
entered
into
between
Cyprus
and
other
countries.
If
applicable
Russian
law
is
amended
sothat
a
company
that
is
a
tax
resident
of
Cyprus
can
also
be
considered
a
tax
resident
of
Russia,
the
tax
treaty
in
force
between
Cyprus
and
Russia
provides
that
sucha
company
shall
be
deemed
to
be
a
tax
resident
of
the
state
in
which
the
place
of
effective
management
of
the
company
is
situated.
A
protocol
to
this
treaty
wassigned
in
October
2010
and
ratified
by
Cyprus
in
September
2011
and
the
Russian
Duma
in
February
2012.
This
protocol
provides
that
the
process
of
determiningthe
effective
management
in
this
case
will
be
achieved
through
the
two
states
endeavoring
to
determine
the
place
of
effective
management
by
mutual
agreementhaving
regard
to
all
relevant
factors.
Where
the
majority
of
our
board
of
directors
comprises
tax
residents
or
citizens
of
Russia,
this
may
pose
a
risk
that
we,
even
ifwe
are
managed
and
controlled
in
Cyprus
and
therefore
a
tax
resident
in
Cyprus,
may
be
deemed
to
have
a
permanent
establishment
in
Russia
or
elsewhere.
Such
apermanent
establishment
could
be
subject
to
taxation
of
the
jurisdiction
of
the
permanent
establishment
on
the
profits
allocable
to
the
permanent
establishment.
Ifwe
are
tax
resident
in
a
jurisdiction
outside
of
Cyprus
or
are
deemed
to
have
a
permanent
establishment
in
Russia
or
elsewhere,
our
tax
burden
may
increasesignificantly,
which,
in
turn,
may
materially
adversely
affect
our
business,
financial
condition
and
results
of
operations.
32Table of ContentsWe may be subject to Special Contribution for the Defence Fund in Cyprus.According
to
the
provisions
of
the
Special
Contribution
for
the
Defence
of
the
Republic
Law
N.117(I)/2002,
as
amended,
Special
Contribution
for
theDefence
might
be
imposed
on
dividend
income,
“passive”
interest
income
and
rental
income
earned
by
companies
tax
resident
in
Cyprus
(See
“Item
10.E
Taxation–
Material
Cypriot
Tax
Considerations
–
Taxation
of
Dividend
income”
and
-
“Deemed
Dividends
Distribution”).Cyprus
tax
resident
companies
which
do
not
distribute
70%
of
their
profits
after
tax,
as
defined
by
the
Special
Contribution
for
the
Defence
of
theRepublic
Law,
by
the
end
of
the
two
years
after
the
end
of
the
year
of
assessment
to
which
the
profits
refer,
will
be
deemed
to
have
distributed
this
amount
asdividend.
Special
Contribution
for
the
Defence
will
be
payable
on
such
deemed
dividend
to
the
extent
that
the
shareholders
for
deemed
dividend
distributionpurposes
at
the
end
of
the
period
of
two
years
from
the
end
of
the
year
of
assessment
to
which
the
profits
refer,
are
Cyprus
tax
residents.
The
Special
Contributionfor
the
Defence
rate
is
equal
to
17%
in
respect
of
profits
of
years
of
assessment
2012
onwards.
The
amount
of
this
deemed
dividend
distribution
is
reduced
by
anyactual
dividend
paid
out
of
the
profits
of
the
relevant
year
by
the
end
of
the
period
of
two
years
from
the
end
of
the
year
of
assessment
to
which
the
profits
refer.This
Special
Contribution
for
the
Defence
is
paid
by
the
Company
for
the
account
of
the
shareholders.In
September
2011,
the
Commissioner
of
the
Inland
Revenue
Department
of
Cyprus
issued
Circular
2011/10,
which
exempted
from
the
SpecialContribution
for
the
Defence
any
profits
of
a
company
that
is
tax
resident
in
Cyprus
imputed
indirectly
to
shareholders
that
are
themselves
tax
resident
in
Cyprus
tothe
extent
that
these
profits
are
indirectly
apportioned
to
shareholders
who
are
ultimately
not
Cyprus
tax
residents.To
the
extent
that
we
are
unable
to
recover
this
amount
due
to
a
change
in
shareholders
or
no
actual
dividend
is
ever
paid
out
of
the
relevant
profits,we
will
suffer
the
cost
of
this
defense
tax.
Imposition
of
this
tax
could
have
a
material
adverse
effect
on
our
results
of
operations
and
financial
condition
if
we
areunable
to
recover
the
tax
from
shareholders
as
described
above.Depending upon the value and the nature of our assets and the amount and nature of our income over time, we could be classified as a passive foreigninvestment company (“PFIC”) for U.S. federal income tax purposes.We
will
be
classified
as
a
PFIC
in
any
taxable
year
if
either:
(a)
50%
or
more
of
the
fair
market
value
of
our
gross
assets
(determined
on
the
basis
of
aquarterly
average)
for
the
taxable
year
produce
passive
income
or
are
held
for
the
production
of
passive
income,
or
(b)
75%
or
more
of
our
gross
income
for
thetaxable
year
is
passive
income.
As
a
publicly
traded
foreign
corporation
we
intend
for
this
purpose
to
treat
the
aggregate
fair
market
value
of
our
gross
assets
asbeing
equal
to
the
aggregate
value
of
our
outstanding
stock
(“market
capitalization”)
plus
the
total
amount
of
our
liabilities
and
to
treat
the
excess
of
the
fair
marketvalue
of
our
assets
over
their
book
value
as
a
nonpassive
asset
to
the
extent
attributable
to
our
nonpassive
income.
Because
we
currently
hold,
and
expect
tocontinue
to
hold,
a
substantial
amount
of
cash
and
cash
equivalents
and
other
passive
assets
used
in
our
business,
and
because
the
value
of
our
gross
assets
is
likelyto
be
determined
in
large
part
by
reference
to
our
market
capitalization
securities,
we
would
likely
become
a
PFIC
for
a
given
taxable
year
if
the
market
price
of
ourADSs
were
to
decrease
significantly.
The
application
of
the
PFIC
rules
is
subject
to
uncertainty
in
several
respects,
and
we
must
make
a
separate
determinationafter
the
close
of
each
taxable
year
as
to
whether
we
were
a
PFIC
for
such
year.
If
we
are
a
PFIC
for
any
taxable
year
during
which
a
U.S.
investor
held
our
ADSsor
ordinary
shares,
the
U.S.
investor
might
be
subject
to
increased
U.S.
federal
income
tax
liability
and
to
additional
reporting
obligations.
We
do
not
intend
toprovide
the
information
necessary
for
the
U.S.
investor
to
make
a
qualified
electing
fund
election
with
respect
to
our
ADSs
or
ordinary
shares.
See
“Taxation
–United
States
Federal
Income
Tax
Considerations
–
Passive
Foreign
Investment
Companies.”Our companies established outside of Russia may be exposed to taxation in Russia.Due
to
our
international
structure,
we
are
subject
to
permanent
establishment
and
transfer
pricing
risks
in
various
jurisdictions
in
which
we
operate.We
manage
the
related
risks
by
looking
at
management
functions
and
risks
in
various
countries
and
level
of
profits
allocated
to
each
subsidiary.
If
additional
taxesare
assessed
with
respect
to
these
matters,
they
may
be
material.The
Russian
Tax
Code
contains
the
concept
of
a
permanent
establishment
in
Russia
as
means
for
taxing
foreign
legal
entities,
which
carry
on
regularentrepreneurial
activities
in
Russia
beyond
preparatory
and
auxiliary
activities.
The
Russian
double
tax
treaties
with
other
countries
also
contain
a
similar
concept.If
a
foreign
company
is
treated
as
having
a
permanent
establishment
in
Russia,
it
would
be
subject
to
Russian
taxation
in
a
manner
broadly
similar
to
the
taxation
ofa
Russian
legal
entity,
but
only
to
the
extent
of
the
amount
of
the
foreign
company’s
income
that
is
attributable
to
the
permanent
establishment
in
Russia.
However,the
practical
application
of
the
concept
of
a
permanent
establishment
under
Russian
domestic
law
is
not
well
developed
and
so
foreign
companies
having
evenlimited
operations
in
Russia,
which
would
not
normally
satisfy
the
conditions
for
creating
a
permanent
establishment
under
international
norms,
may
be
at
risk
ofbeing
treated
as
having
a
permanent
establishment
in
Russia
and
hence
being
exposed
to
Russian
taxation.
Furthermore,
the
Russian
Tax
Code
contains
attributionrules,
which
are
not
sufficiently
developed
and
there
is
a
risk
that
the
tax
authorities
might
seek
to
assess
Russian
tax
on
the
global
income
of
a
foreign
company.Having
a
permanent
establishment
in
Russia
may
also
lead
to
other
adverse
tax
implications,
including
challenging
a
reduced
withholding
tax
rate
on
dividendsunder
an
applicable
double
tax
treaty,
potential
effect
on
VAT
and
property
tax
obligations.
There
is
also
a
risk
that
penalties
could
be
imposed
by
the
taxauthorities
for
failure
to
register
a
permanent
establishment
with
the
Russian
tax
authorities.
Recent
events
in
Russia
suggest
that
the
tax
authorities
may
be
seekingmore
actively
to
investigate
and
assert
whether
foreign
entities
of
our
Group
operate
through
a
permanent
establishment
in
Russia.
Any
such
taxes
or
penaltiescould
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.A
number
of
amendments
had
been
made
to
the
Russian
tax
legislation
introducing,
amongst
others,
the
concepts
of
controlled
foreign
companies,corporate
tax
residency
and
beneficial
ownership
(Federal
Law
No.
376-FZ
was
signed
by
the
Russian
President
on
November
24,
2014
with
its
provisionsapplicable
starting
from
January
1,
2015).
Due
to
the
lack
of
court
and
administrative
practice,
no
assurance
can
be
33Table of Contentscurrently
given
as
to
how
these
amendments
will
be
applied
in
practice
and
their
exact
nature,
their
potential
interpretation
by
the
tax
authorities
and
the
possibleimpact
on
us.
We
cannot
rule
out
the
possibility
that,
as
a
result
of
the
introduction
of
changes
to
Russian
tax
legislation,
certain
of
our
companies
establishedoutside
Russia
might
be
deemed
to
be
Russian
tax
residents,
subject
to
all
applicable
Russian
taxes.
For
more
details
see
risks
described
in
“Russian
anti-offshoremeasures
may
have
adverse
impact
on
our
business,
financial
condition
and
results
of
operations”.We may encounter difficulties in obtaining lower rates of Russian withholding income tax envisaged by the Russia-Cyprus double tax treaty for dividendsdistributed from Russia.Dividends
paid
by
a
Russian
legal
entity
to
a
foreign
legal
entity
are
generally
subject
to
Russian
withholding
income
tax
at
a
rate
of
15%,
althoughthis
tax
rate
may
be
reduced
under
an
applicable
double
tax
treaty.
We
intend
to
rely
on
the
Russia-Cyprus
double
tax
treaty.
The
tax
treaty
allows
reduction
ofwithholding
income
tax
on
dividends
paid
by
a
Russian
company
to
a
Cypriot
company
to
10%
provided
that
the
following
conditions
are
met:
(i)
the
Cypriotcompany
is
a
tax
resident
of
Cyprus
within
the
meaning
of
the
tax
treaty;
(ii)
the
Cypriot
company
is
the
beneficial
owner
of
the
dividends;
(iii)
the
dividends
arenot
attributable
to
a
permanent
establishment
of
the
Cypriot
company
in
Russia;
and
(iv)
the
treaty
clearance
procedures
are
duly
performed.
This
rate
may
befurther
reduced
to
5%
if
the
direct
investment
of
the
Cypriot
company
in
a
Russian
subsidiary
paying
the
dividends
is
at
least
EUR100,000.
Although
we
will
seekto
claim
treaty
protection,
there
is
a
risk
that
the
applicability
of
the
reduced
rate
of
5%
or
10%
may
be
challenged
by
Russian
tax
authorities.
As
a
result,
there
canbe
no
assurance
that
we
would
be
able
to
avail
ourselves
of
the
reduced
withholding
income
tax
rate
in
practice.
Specifically,
our
Cypriot
holding
company
mayincur
a
15%
withholding
income
tax
at
source
on
dividend
payments
from
Russian
subsidiaries
if
the
treaty
clearance
procedures
are
not
duly
performed
at
the
datewhen
the
dividend
payment
is
made.
In
this
case
we
may
seek
to
claim
as
a
refund
the
difference
between
the
15%
tax
withheld
and
the
reduced
rate
of
10%
or
5%as
appropriate.
However,
there
can
be
no
assurance
that
such
taxes
would
be
refunded
in
practice.Russian
withholding
tax
may
also
be
applied
when
dividends
are
received
from
Russian
subsidiaries
by
the
company’s
non-Russian
subsidiaries.Although
we
intend
to
rely
on
an
applicable
double
tax
treaty
between
Russia
and
the
country
where
the
relevant
non-Russian
subsidiary
is
resident,
no
assurancecan
be
given
that
the
reduced
withholding
tax
rate
would
apply.
A
number
of
amendments
had
been
made
to
the
Russian
tax
legislation
introducing,
amongstothers,
the
concept
of
beneficial
ownership.
Under
this
concept,
double
tax
treaty
benefits
are
only
available
to
the
recipient
of
income
from
Russian
sources,
ifsuch
recipient
is
the
beneficial
owner
of
the
relevant
income.
Foreign
entities
that
do
not
qualify
as
beneficial
owners
may
not
claim
double
tax
treaty
relief
even
ifthey
are
residents
in
a
double
tax
treaty
country.
For
these
purposes,
the
beneficial
owner
is
defined
as
a
person
holding
directly,
through
its
direct
and/or
indirectparticipation
in
other
organizations
or
otherwise,
the
right
to
own,
use
or
dispose
of
income,
or
the
person
on
whose
behalf
another
person
is
authorized
to
useand/or
dispose
of
such
income.
In
order
to
determine
whether
a
foreign
entity
is
a
beneficial
owner
of
income,
it
is
necessary
to
take
into
account
the
functionsperformed
by
such
foreign
entity,
as
well
as
the
risks
borne
by
it.
Entities
are
not
recognized
as
beneficial
owners
of
income
if
they
have
limited
authorities
to
useor
dispose
income
received
from
Russian
sources,
perform
agency
or
other
similar
functions
in
favor
of
third
parties,
not
taking
any
risks,
or
transfer
such
income(either
partially
or
in
full)
to
third
parties
that
are
not
eligible
to
double
tax
treaty
benefits.Introduction
of
the
concept
of
beneficial
ownership
may
result
in
the
inability
of
the
foreign
companies
within
our
Group
to
claim
benefits
under
adouble
taxation
treaty
through
structures
which
historically
have
benefited
from
double
taxation
treaty
protection
in
Russia.
This
may
be
the
case
if
the
recipient
ofthe
income
is
not
recognized
as
its
beneficial
owner,
look-through
approach
cannot
be
applied
or
is
challenged
by
the
tax
authorities.
Recent
court
casesdemonstrate
that
the
Russian
tax
authorities
actively
challenge
application
of
double
tax
treaty
benefits
retroactively
(i.e.
prior
to
concept
of
beneficial
ownershipwas
introduced
in
the
Russian
Tax
Code)
on
the
grounds
that
double
tax
treaties
already
include
beneficial
ownership
requirement
to
allow
application
of
reducedtax
rates
or
exemptions.
In
these
cases
the
Russian
tax
authorities
obtained
relevant
information
by
means
of
information
exchange
with
the
foreign
tax
authorities.The
imposition
of
additional
tax
liabilities
as
a
result
of
the
application
of
this
rule
to
transactions
carried
out
by
us
may
have
a
material
adverse
effect
on
ourbusiness,
financial
condition
and
results
of
operations
(see
“-
Russian
anti-offshore
measures
may
have
adverse
impact
on
our
business,
financial
condition
andresults
of
operations”).Russian anti-offshore measures may have adverse impact on our business, financial condition and results of operationsThe
Russian
Federation,
like
a
number
of
other
countries
in
the
world,
is
actively
involved
in
discussion
of
measures
against
tax
evasion
through
theuse
of
low
tax
jurisdictions
as
well
as
aggressive
tax
planning
structures.
Initiatives
such
as
the
incorporation
into
Russian
tax
law
of
the
concept
of
beneficialownership,
corporate
tax
residency
of
legal
entities,
the
controlled
foreign
companies
rules,
conclusion
of
multilateral
agreements
for
the
exchange
of
informationbetween
the
tax
authorities
of
different
countries
have
already
been
raised
by
the
Government
in
the
Main
Directions
of
Russian
Tax
Policy
for
2013
and
theplanned
period
of
2014-2015
and
were
found
in
the
Main
Directions
of
Russian
Tax
Policy
for
2015
and
the
planned
period
of
2016-2017.Starting
from
January
1,
2015,
the
Federal
Law
No.
376-FZ
came
into
force.
This
law
introduced
several
concepts
into
Russian
tax
legislation,including
the
following:

(i)the
concept
of
“controlled
foreign
companies”
(the
“CFC
Rules”).
Under
the
Russian
CFC
Rules,
in
certain
circumstances,
undistributed
profits
offoreign
companies
and
non-corporate
structures
(e.g.,
trusts,
funds
or
partnerships)
domiciled
in
foreign
jurisdictions,
which
are
ultimately
owned
and/or
controlled
by
Russian
tax
residents
(legal
entities
and
individuals)
will
be
subject
to
taxation
in
Russia.
The
Russian
CFC
Rules
are
being
furtherdeveloped.
In
particular,
in
June
2015,
the
President
of
the
Russian
Federation
signed
a
federal
law
introducing
technical
amendments
to
the
RussianCFC
Rules,
and
another
federal
law
amending
the
CFC
rules
was
signed
in
February
2016.
In
the
meantime,
certain
provisions
of
the
Russian
CFCRules
are
still
ambiguous
and
may
be
subject
to
arbitrary
interpretation
by
the
Russian
tax
authorities;
34Table of Contents
(ii)the
concept
of
“corporate
tax
residency”.
Under
this
concept,
a
foreign
legal
entity
may
be
recognized
as
a
Russian
tax
resident
if
such
entity
is
in
factmanaged
from
Russia.
When
an
entity
is
recognized
as
Russian
tax
resident
it
is
obligated
to
register
with
the
Russian
tax
authorities,
calculate
andpay
Russian
tax
on
its
worldwide
income
and
comply
with
other
tax-related
rules
established
for
Russian
entities.
The
new
rules
set
principal
andsecondary
criteria
for
determining
the
place
of
management
(among
other
things,
the
place
where
the
company’s
executive
body
operates).
However,there
is
some
uncertainty
as
to
how
these
criteria
will
be
applied
by
the
Russian
tax
authorities
in
practice;

(iii)the
concept
of
“beneficial
ownership”.
Under
the
Russian
Tax
Code,
a
beneficial
owner
is
defined
as
a
person
holding
directly,
through
its
directand/or
indirect
participation
in
other
organizations
or
otherwise,
the
right
to
own,
use
or
dispose
of
income,
or
the
person
on
whose
behalf
anotherperson
is
authorized
to
use
and/or
dispose
of
such
income.
When
determining
the
beneficial
owner,
the
functions
of
a
foreign
person
that
is
claimingthe
application
of
reduced
tax
rates
under
an
applicable
double
tax
treaty
and
the
risks
that
such
person
takes
should
be
analyzed.
In
accordance
withthe
provisions
of
the
Russian
Tax
Code,
the
benefits
of
a
double
tax
treaty
will
not
apply
if
a
foreign
person
claiming
such
benefits
has
limited
powersto
dispose
of
the
relevant
income,
fulfills
intermediary
functions
without
performing
any
other
duties
or
taking
any
risks
and
paying
such
income(partially
or
in
full)
directly
or
indirectly
to
another
person
who
would
not
be
entitled
to
the
same
benefits
should
it
received
the
income
in
questiondirectly
from
Russia.
The
Russian
Tax
Code
gives
the
right
to
the
tax
agent
(i.e.,
the
payer
of
income)
to
require,
in
addition
to
a
certificate
of
taxresidency,
a
confirmation
from
the
recipient
of
the
income
that
it
is
the
beneficial
owner
of
the
income,
however,
at
the
moment
it
is
still
not
clear
inwhat
form
such
confirmation
should
be
obtained.
Starting
from
January
1,
2017
this
right
of
the
tax
agent
becomes
an
obligation.It
is
currently
unclear
how
the
Russian
tax
authorities
will
interpret
and
apply
the
new
tax
provisions
and
what
will
be
the
possible
impact
on
us.
As
tothe
beneficial
ownership
concept,
in
a
number
of
recent
court
cases,
the
tax
authorities
successfully
applied
this
concept
retroactively
in
respect
to
payments
madebefore
2015
(i.e.
prior
to
the
date
when
the
Russian
beneficial
ownership
concept
have
come
into
force).
Herewith,
the
tax
authorities
were
unable
to
refer
to
thenew
rules
enacted
by
the
Federal
Law
No.
376-FZ
for
the
period
prior
to
2015,
so
they
referred
to
an
applicable
double
tax
treaty
and
the
Commentaries
to
theOECD
Model
Tax
Convention.
Starting
from
2015
the
tax
authorities
may
refer
to
specific
provision
of
the
Russian
Tax
Code
when
they
challenge
the
beneficialownership
of
the
recipient
and
charge
additional
tax.
Moreover,
as
mentioned
above,
starting
from
2017,
obtaining
a
confirmation
that
the
income
recipient
is
itsbeneficial
owner
will
become
an
obligatory
procedure
(rather
than
a
right
of
a
tax
agent)
for
applying
a
reduced
withholding
tax
rate.Therefore,
it
cannot
be
excluded
that
we
might
be
subject
to
additional
tax
liabilities
because
of
these
changes
being
introduced
and
applied
totransactions
carried
out
by
us,
which
could
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.On
November
4,
2014
the
Russian
President
also
signed
Federal
Law
No.
325-FZ
ratifying
the
multilateral
Convention
on
Mutual
AdministrativeAssistance
in
Tax
Matters
developed
by
the
Council
of
Europe
and
the
OECD,
which
the
Russian
Federation
signed
in
2011.
Ratification
of
this
Convention
willenable
the
Russian
Federation
to
receive
tax
information
from
all
participating
countries
which
include,
among
others,
a
number
of
offshore
jurisdictions.
Theprovisions
of
the
Convention
came
into
force
for
Russia
starting
from
July
1,
2015.No
assurance
can
currently
be
given
as
to
the
potential
interpretation
of
the
abovementioned
changes
into
Russian
tax
legislation
by
the
Russian
taxauthorities
and
the
possible
impact
on
us
and
our
subsidiaries.
These
developments
could
have
a
material
adverse
effect
on
our
business,
financial
condition
andresults
of
operations.VAT on digital services in RussiaStarting
from
January
1,
2017,
the
new
rules
of
the
Russian
Tax
Code
introducing
obligation
to
pay
Russian
VAT
on
the
digital
(electronicallysupplied)
services
in
case
such
digital
services
are
supplied
(deemed
to
be
supplied)
in
Russia
(“VAT
law”)
entered
into
force.
Based
on
the
new
VAT
law
digitalservices
shall
be
regarded
as
supplied
at
the
place
of
the
buyer’s
location.
The
new
rules
establish
special
criteria
to
determine
whether
the
buyers
are
located
inRussia.Based
on
the
new
rules
obligations
to
pay
VAT
on
digital
services
supplied
in
Russia
would
depend
on
the
way
of
the
provision
of
such
services.
Inparticular,
VAT
law
contains
the
following
provisions
in
respect
of
agents:

•
If
services
are
provided
by
foreign
suppliers
to
Russian
individuals
via
Russian
sales
agents
under
agency
(or
other
similar)
agreements
andsuch
agents
participate
in
settlements
directly
with
individuals,
then
such
Russian
agents
would
be
obliged
to
act
as
tax
agents,
withhold
andpay
the
respective
amounts
of
VAT
to
the
Russian
budget.
No
VAT
registration
will
be
required
for
the
foreign
suppliers.
If
services
areprovided
via
chain
of
sales
agents
the
last
sales
agent
in
the
chain
collecting
money
from
customers
should
withhold
and
pay
the
respectiveamounts
of
VAT;

•
If
services
are
provided
by
foreign
suppliers
to
Russian
individuals
via
foreign
sales
agents
and
such
agents
participate
in
settlements
directlywith
individuals,
then
such
foreign
agents
are
obliged
to
register
in
Russia
for
VAT
purposes
and
fulfill
VAT
obligations
related
to
digitalservices.
If
sale
of
digital
services
is
made
via
several
foreign
agents,
then
a
foreign
agent
which
performs
settlements
with
individuals
isregarded
as
a
tax
agent
which
should
be
register
in
Russia
for
VAT
purposes
and
fulfill
VAT
obligations.
35Table of ContentsThe
new
rules
do
not
contain
exact
list
of
companies
which
should
be
regarded
as
tax
agents
for
payment
of
VAT
on
digital
services.
Therefore,
it
isnot
clear
at
the
moment
whether
Russian
payment
operators
and
other
third
party
companies
involved
in
cash
collection
should
be
treated
as
tax
agents
for
thepurposes
of
the
VAT
law.
In
case
we
are
deemed
to
be
a
tax
agent
and
face
the
respective
liabilities
in
terms
of
tax
collection,
we
may
have
to
renegotiate
ourcontractual
arrangements
with
foreign
suppliers
in
order
to
comply
with
VAT
law.
Moreover,
no
assurance
can
be
given
that
all
foreign
suppliers
will
continue
tooffer
their
services
in
Russia
in
light
of
the
new
legislative
constraints.
Any
further
developments
on
enforcement
of
VAT
law
could
have
a
material
adverse
effecton
our
business,
financial
condition
and
results
of
operations.Risks Relating to our ADSsThe class B shares underlying the ADSs are not listed and may be illiquid.The
class
B
shares
underlying
the
ADSs
are
neither
listed
nor
traded
on
any
stock
exchange,
and
we
do
not
intend
to
apply
for
the
listing
or
admissionto
trading
of
the
class
B
shares
on
any
stock
exchange.
As
a
result,
a
withdrawal
of
class
B
shares
by
a
holder
of
ADSs,
whether
by
election
or
due
to
certain
otherevents
will
result
in
that
holder
obtaining
securities
that
are
significantly
less
liquid
than
the
ADSs
and
the
price
of
those
class
B
shares
may
be
discounted
as
aresult
of
such
withdrawal.Our ADSs trade on more than one market and this may result in increased volatility and price variations between such markets.Our
ADSs
trade
on
both
Nasdaq
and
MOEX.
Trading
in
our
ADSs
on
these
markets
occurs
in
different
currencies
(U.S.
dollars
on
Nasdaq
andRussian
rubles
on
MOEX)
and
at
different
times
(due
to
different
time
zones,
trading
days
and
public
holidays
in
the
United
States
and
Russia).
The
trading
pricesof
our
ADSs
on
these
two
markets
may
differ
due
to
these
and
other
factors.
The
liquidity
of
trading
in
our
ADSs
on
MOEX
is
limited.
This
may
impair
yourability
to
sell
your
ADSs
on
MOEX
at
the
time
you
wish
to
sell
them
or
at
a
price
that
you
consider
reasonable.
In
addition,
trading
of
a
small
number
of
ADSs
onthat
market
could
adversely
impact
the
price
of
our
ADSs
significantly
and
could,
in
turn,
impact
the
price
in
the
United
States.
ADSs
are
completely
fungiblebetween
both
markets.
Any
decrease
in
the
trading
price
of
our
ADSs
on
one
of
these
markets
could
cause
a
decrease
in
the
trading
price
of
our
ADSs
on
the
othermarket.
Additionally,
as
there
is
no
direct
trading
or
settlement
between
the
two
stock
markets,
the
time
required
to
move
the
ADSs
from
one
market
to
anothermay
vary
and
there
is
no
certainty
of
when
ADSs
that
are
moved
will
be
available
for
trading
or
settlement.Future sales of ADSs or ordinary shares by significant shareholders could cause the price of our ADSs to decline.If
any
of
our
significant
shareholders
sell,
or
indicate
an
intent
to
sell,
substantial
amounts
of
our
ADSs
or
ordinary
shares,
including
both
class
Ashares
and
class
B
shares,
in
the
market,
the
trading
price
of
our
ADSs
could
decline
significantly.
We
cannot
predict
the
effect,
if
any,
that
future
sales
of
theseADSs
or
ordinary
shares
or
the
availability
of
these
ADSs
or
ordinary
shares
for
sale
will
have
on
the
market
price
of
our
ADSs.
As
of
the
date
of
this
annualreport,
we
have
outstanding
60,632,585
ordinary
shares,
including
those
represented
by
ADSs.
Of
these,
45,116,012
ordinary
shares
are
immediately
freelytradable,
without
restriction,
in
the
public
market.In
addition,
we
have
granted
registration
rights
to
Saldivar
Investments
Limited,
Sergey
A.
Solonin,
Andrey
N.
Romanenko,
Igor
N.
Mikhaylov,
E1Limited
and
Mitsui
&
Co.,
Ltd.,
who
collectively
own
100%
of
our
class
A
shares
and
approximately
77.5%
of
the
voting
power
of
our
issued
share
capital
as
ofthe
date
of
this
annual
report.
To
the
extent
these
shares
are
sold
into
the
market,
the
market
price
of
our
ADSs
could
decline.
We
cannot
predict
what
effect,
if
any,market
sales
of
securities
held
by
our
significant
shareholders
or
any
other
shareholder
or
the
availability
of
these
securities
for
future
sale
will
have
on
the
marketprice
of
the
ADSs.Investors in our ADSs may have limited recourse against us, our directors and executive officers because we conduct our operations outside the United Statesand most of our current directors and executive officers reside outside the United States.Our
presence
outside
the
United
States
may
limit
investors’
legal
recourse
against
us.
We
are
incorporated
under
the
laws
of
the
Republic
of
Cyprus.Almost
all
of
our
current
directors
and
senior
officers
reside
outside
the
United
States,
principally
in
the
Russian
Federation.
Substantially
all
of
our
assets
and
theassets
of
our
current
directors
and
executive
officers
are
located
outside
the
United
States,
principally
in
the
Russian
Federation.
As
a
result,
investors
may
not
beable
to
effect
service
of
process
within
the
United
States
upon
our
company
or
its
directors
and
executive
officers
or
to
enforce
U.S.
court
judgments
obtainedagainst
our
company
or
its
directors
and
executive
officers
in
Russia,
Cyprus
or
other
jurisdictions
outside
the
United
States,
including
actions
under
the
civilliability
provisions
of
U.S.
securities
laws.
In
addition,
it
may
be
difficult
for
investors
to
enforce,
in
original
actions
brought
in
courts
in
jurisdictions
outside
theUnited
States,
liabilities
predicated
upon
US
securities
laws.
There
is
no
treaty
between
the
United
States
and
the
Russian
Federation
providing
for
reciprocalrecognition
and
enforcement
of
foreign
court
judgments
in
civil
and
commercial
matters.
These
limitations
may
deprive
investors
of
effective
legal
recourse
forclaims
related
to
their
investment
in
our
ADSs.Our ADS holders may not be able to exercise their pre-emptive rights in relation to future issuances of class B shares.In
order
to
raise
funding
in
the
future,
we
may
issue
additional
class
B
shares,
including
in
the
form
of
ADSs.
Generally,
existing
holders
of
shares
inCypriot
public
companies
are
entitled
by
law
to
pre-emptive
rights
on
the
issue
of
new
shares
in
that
company
(provided
that
such
shares
are
paid
in
cash
and
thepre-emption
rights
have
not
been
disapplied).
Our
ADS
holders
may
not
be
able
to
exercise
pre-emptive
rights
for
class
B
shares
represented
by
ADSs
unlessapplicable
securities
law
requirements
are
adhered
to
or
an
exemption
from
such
requirements
is
36Table of Contentsavailable.
In
the
United
States,
we
may
be
required
to
file
a
registration
statement
under
the
Securities
Act
to
implement
pre-emptive
rights.
We
can
give
noassurance
that
an
exemption
from
the
registration
requirements
of
the
Securities
Act
would
be
available
to
enable
U.S.
holders
of
ADSs
to
exercise
such
pre-emptive
rights
and,
if
such
exemption
is
available,
we
may
not
take
the
steps
necessary
to
enable
U.S.
holders
of
ADSs
to
rely
on
it.
Accordingly,
our
ADS
holdersmay
not
be
able
to
exercise
their
pre-emptive
rights
on
future
issuances
of
shares,
and,
as
a
result,
their
percentage
ownership
interest
in
us
would
be
reduced.
InApril
2013,
our
shareholders
authorized
the
disapplication
of
pre-emptive
rights
for
a
period
of
five
years
from
May
8,
2013,
the
date
of
the
closing
of
our
initialpublic
offering,
in
connection
with
the
issue
of
up
to
an
additional
52,000,000
class
B
shares,
including
in
the
form
of
ADSs.
Any
issuances
of
class
B
shares
forcash
exceeding
this
amount
during
this
five-year
period
would
require
disapplication
of
pre-emptive
rights
by
the
class
B
shareholders
at
such
time.
However,
aCyprus
court
or
regulatory
authority
could
determine
that
such
waiver
should
not
apply
to
an
issuance
of
class
B
shares
even
if
it
is
within
such
amount.
If
for
anyreason
the
disapplication
of
these
rights
proves
to
be
ineffective
or
class
B
shareholders
do
not
approve
any
further
disapplication
of
pre-emptive
rights
that
may
berequired,
our
ADS
holders’
ability
to
participate
in
future
issuances
of
class
B
shares,
including
in
the
form
of
ADSs,
may
be
limited.
Furthermore,
rights
offeringsare
difficult
to
implement
effectively
under
the
current
U.S.
securities
laws
and
our
ability
to
raise
capital
in
the
future
may
be
compromised
if
we
need
to
do
so
viaa
rights
offering
in
the
United
States.ADS holders have no legal interest in the underlying class B shares.ADS
holders
acquire
the
beneficial,
and
not
the
legal,
interest
in
the
underlying
class
B
shares,
which
the
depositary
holds
on
trust
for
them,
under
theterms
of
the
deposit
agreement.
The
intended
effect
of
the
trust
is
to
ring-fence
the
class
B
shares
in
the
hands
of
the
depositary
by
conferring
a
property
interest
onADS
holders
as
beneficiaries.
The
interest
of
the
ADS
holders
as
beneficiaries
in
trust
assets,
which
are
the
class
B
shares,
is
indirect,
in
the
sense
that
in
the
normalcourse
they
do
not
have
any
direct
recourse
to
the
class
B
shares
nor
do
they
have
any
direct
right
of
action
against
us.ADS holders may be subject to limitations on transfer of their ADSs.ADSs
are
transferable
on
the
books
of
the
depositary.
However,
the
depositary
may
close
its
transfer
books
at
any
time
or
from
time
to
time
when
itdeems
expedient
in
connection
with
the
performance
of
its
duties.
In
addition,
the
depositary
may
refuse
to
deliver,
transfer
or
register
transfers
of
ADSs
generallywhen
our
books
or
the
books
of
the
depositary
are
closed,
or
at
any
time
if
we
or
the
depositary
deems
it
advisable
to
do
so
because
of
any
requirement
of
law
or
ofany
government
or
governmental
body,
or
under
any
provision
of
the
deposit
agreement,
or
for
any
other
reason
in
accordance
with
the
terms
of
the
depositagreement.
ITEM 4.Information on the Company
A.History and Development of the CompanyWe
were
incorporated
in
Cyprus
under
the
name
of
OE
Investments
Limited
on
February
26,
2007
as
a
new
holding
company
for
JSC
QIWI
(previouslyknown
as
OSMP
CJSC
and
QIWI
CJSC),
which
was
incorporated
in
Russia
in
January
in
2004.
In
2007,
we
acquired,
among
other
entities,
CJSC
E-port
and
LLCQiwi
Wallet,
which
were
reorganized
in
the
form
of
accession
to
JSC
QIWI.
In
April
2008,
we
launched
the
Qiwi
brand,
which
gradually
became
the
marketingname
for
our
businesses.
We
changed
our
name
to
Qiwi
Limited
on
September
13,
2010,
and
subsequently
to
Qiwi
plc
upon
converting
to
a
public
limitedcompany
on
February
25,
2013.Our
principal
executive
office
is
located
at
Kennedy
12,
Kennedy
Business
Centre,
2nd
floor,
P.C.
1087,
Nicosia,
Cyprus.
Our
telephone
number
at
thisaddress
is:
+357-22-653390.
Our
registered
office
is
the
same.Our
primary
subsidiaries
are
QIWI
Bank
(JSC),
or
Qiwi
Bank,
JSC
QIWI,
QIWI
Payments
Services
Provider
Limited
and
Rapida
LTD.
We
acquired
QiwiBank
in
September
2010
from
a
group
of
our
shareholders,
and
JSC
QIWI
was
incorporated
in
Russia
in
January
2004.
QIWI
Payments
Services
Provider
Limitedwas
incorporated
in
the
United
Arab
Emirates
in
February
2011.
In
June
2015,
we
acquired
the
Rapida
payment
processing
system
and
the
Contact
money
transfersystem
from
Otkritie
Investment
Cyprus
Limited
(“Otkritie”).
In
January
2017
Rapida
LTD
began
the
process
of
merging
into
Qiwi
Bank.For
a
description
of
our
principal
capital
expenditures
and
divestitures
for
the
three
years
ended
December
31,
2016
and
for
those
currently
in
progress,
seeItem
5
“Operating
and
Financial
Review
and
Prospects.”For
a
description
of
the
rules
and
regulations
under
which
we
are
governed,
see
Item
5
“Regulation.”
B.Business OverviewWe
are
a
leading
provider
of
next
generation
payment
services
in
Russia
and
the
CIS.
We
have
an
integrated
proprietary
network
that
enables
paymentservices
across
physical,
online
and
mobile
channels.
We
have
deployed
over
17.2
million
virtual
wallets,
over
162,000
kiosks
and
terminals,
and
enabledmerchants
to
accept
over
RUB
70
billion
cash
and
electronic
payments
monthly
from
over
56
million
consumers
using
our
network
at
least
once
a
month(aggregating
consumers
across
QIWI,
Contact
and
Rapida
networks,
without
elimination
of
potential
duplication).
Our
consumers
can
use
cash,
stored
value
andother
electronic
payment
methods
in
order
to
pay
for
goods
and
services
across
physical
or
virtual
environments
interchangeably.
We
believe
the
complementarycombination
of
our
physical
and
virtual
payment
services
provides
differentiated
convenience
to
our
consumers
and
creates
a
strong
network
effect
that
drivespayment
volume
across
our
business.
With
37Table of Contentsthe
acquisition
of
Contact
and
Rapida,
we
broadened
the
scope
of
services
primarily
in
the
money
remittance
and
further
increased
our
distribution
network.Further,
with
the
launch
of
our
new
payment-by-installment
card
SOVEST
we
entered
a
consumer
lending
market.
We
believe
that
our
leading
market
position,proprietary
network
and
complementary
services
provide
us
with
competitive
advantages
that
have
enabled
us
to
generate
strong
growth
and
profitability.We
operate
in
and
target
markets
and
consumer
segments
that
are
largely
cash-based
or
that
lack
convenient
alternatives
for
consumers
to
pay
for
goods
andservices
in
physical,
online
and
mobile
environments.
We
help
consumers
and
merchants
connect
more
efficiently
in
these
markets
by
providing
an
integratednetwork
of
physical
distribution
points
and
virtual
wallets
as
well
as
payment
channels
and
methods
that
enable
consumers
to
deposit
cash,
convert
it
into
a
digitalform
and
transfer
the
funds
to
a
virtual
wallet
or
pay
for
any
merchant
in
our
network
quickly
and
securely
–
for
example,
to
pay
bills,
add
minutes
to
their
mobilephones,
purchase
transportation
tickets,
shop
online
or
at
a
retail
store,
buy
digital
services
or
send
money
to
a
friend
or
relative
both
within
Russia
and
abroadusing
our
extensive
network
of
partners,
which
include
banks
branches,
retail
stores
and
certain
other
points
of
service.Our
platform
provides
simple
and
intuitive
user
interfaces,
convenient
access
and
best-in-class
services
combined
with
the
reputation
and
trust
associatedwith
the
QIWI
group
brands.
The
payments
processed
on
our
physical
distribution
network
are
typically
small
with
a
limit
of
RUB
15,000
per
transaction
for
themajority
of
the
transactions
and,
since
they
are
primarily
funded
with
cash,
consumers
do
not
have
to
undergo
a
lengthy
registration
process
to
execute
certain
typesof
transactions.
Alternatively,
consumers
can
create
an
online
account,
or
virtual
wallet,
with
QIWI
where
they
can
store
money,
deposited
from
cash
or
fundedfrom
a
variety
of
other
sources,
such
as
mobile
phone
balances,
bank
accounts,
credit
card
or
money
transfers,
that
can
be
used
to
make
payments
and
purchases
atany
time.
Our
services
also
allow
merchants
in
Russia
and
other
markets,
including
leading
MNOs,
online
retailers,
financial
institutions
and
utilities,
to
acceptpayments
via
our
network,
enabling
them
to
attract
more
consumers,
generate
more
sales
and
get
paid
faster
and
more
easily.We
have
deployed
our
network
of
kiosks
and
terminals
using
a
proprietary
agent
model.
Under
this
model,
our
kiosks
are
assembled
by
third
partymanufacturers
using
our
proprietary
specifications
and
are
then
purchased
by
over
6,400
agents
who
are
responsible
for
placing,
operating
and
servicing
the
kiosksin
high-traffic
and
convenient
retail
locations.
In
addition,
an
agent-owned
point
of
sale
terminal,
computer,
laptop
or
mobile
phone
can
serve
as
a
QIWI
terminalonce
our
proprietary
software
is
installed
on
it,
which
allows
the
agent
to
process
consumer
payments
to
merchants
through
our
system.
In
Russia
and
Kazakhstan,the
QIWI
brand
is
well-known
and
our
kiosks
and
terminals
provide
unique
physical
access
to
an
alternative
payment
method
for
the
population
there.
They
can
befound
next
to
convenience
stores,
in
train
stations,
post
offices,
retail
stores
or
airport
terminals
in
all
of
the
major
urban
centers,
as
well
as
many
small
and
ruraltowns
that
lack
large
bank
branches
and
other
financial
infrastructure.
In
addition,
we
distribute
our
payment
services
through
our
virtual
Visa
Qiwi
Wallet
product,which
enables
consumers
to
access
and
make
payments
through
their
computers
or
mobile
devices.We
run
our
network
and
process
our
transactions
using
a
proprietary,
advanced
technology
platform
that
leverages
the
latest
virtualization,
analytics
andsecurity
technologies
to
create
a
fast,
highly
reliable,
secure
and
redundant
system.
We
believe
that
the
breadth
and
reach
of
our
network,
along
with
the
proprietarynature
of
our
technology
platform,
differentiates
us
from
our
competitors
and
allows
us
to
effectively
manage
and
update
our
services
and
realize
significantoperating
leverage
with
growth
in
volumes.Our Payment NetworkConsumers
access
our
payment
network
through
two
primary
channels:
physical
distribution
represented
by
our
kiosks
and
terminals,
and
virtual
distributionrepresented
by
our
online
product
that
we
operate
under
the
Visa
Qiwi
Wallet
(in
Russia)
and
Qiwi
Wallet
(in
Kazakhstan).
These
two
channels
are
highlysynergetic,
creating
a
self-reinforcing
network
that
we
believe
has
been
key
for
the
continuing
success
of
our
business.In
2014,
2015
and
2016,
we
had
processed
RUB
645
billion,
RUB
860
billion
1
and
RUB
847
billion
in
payments,
respectively.Physical distributionOverviewOur
physical
distribution
comprises
approximately
of
113,000
kiosks
and
49,000
terminals
(including
various
interfaces
at
physical
points
of
service)
that
areassembled
and
sold
by
third
party
manufacturers.
These
kiosks
and
terminals
run
our
proprietary
software,
which
provides
the
user
customized
interfaces
thatdisplay
our
broad
range
of
payment
services
and
provides
the
connectivity
to
our
processing
platform.
These
capabilities
help
connect
consumers
and
merchantsand
enable
them
to
conduct
commercial
transactions,
such
as
bill
payments
and
purchases,
at
thousands
of
convenient
locations,
without
the
need
to
interactdirectly.In
2014,
2015
and
2016
we
had
approximately
142,000,
115,000
and
113,000
kiosks
and
38,000,
57,000
and
49,000
terminals
in
our
network
as
of
year-end,respectively.In
2015
and
2016
Contact
and
Rapida
provided
consumers
with
approximately
25,000
and
22,000
additional
physical
points
of
service
which
are
located
inretail
stores
and
bank
branches
across
Russia
and
the
CIS,
respectively.
1

The
amount
shown
here
do
not
correspondent
to
the
amounts
shown
in
Annual
report
on
Form
20-F
for
the
year
ended
December
31,
2015
as
the
result
ofmethodological
adjustments
in
respect
of
Kazakhstan
business,
revenue
and
cost
allocation
between
market
verticals
and
several
other
internal
accountingpolicies
made
to
the
calculation
of
our
volumes
as
well
as
distribution
of
volumes
and
net
revenues
between
market
verticals
38Table of ContentsOur Kiosks and TerminalsA
kiosk
is
a
stand-alone
computer
terminal
with
a
touch
screen
and
specialized
hardware
and
software,
which
enables
consumers
to
make
cash
payments
tomerchants.
Each
kiosk
is
connected
to
our
network
using
a
dedicated
SIM
card
or
via
internet
and
is
equipped
with
a
cash
acceptor,
a
printing
device
and
atransaction
recording
device.
Our
kiosks
are
assembled
by
third
party
manufacturers
using
our
proprietary
specifications.
Kiosks
are
relatively
easy
andinexpensive
to
install
and
operate
and
are
equipped
with
specialized
software
that
monitors
the
condition
of
the
kiosk
and
its
components,
including
the
amount
ofcash
stored,
and
the
sufficiency
of
expendable
materials
such
as
thermal
paper.
A
kiosk
is
also
relatively
simple
to
assemble,
and
we
generally
have
notencountered
any
significant
issues
in
relation
to
underproduction
or
shortage
of
kiosks.
There
are
21
base
models
of
kiosk
available
in
the
Russian
market.In
addition
to
kiosks,
our
network
includes
approximately
49,000
terminals
at
various
retail
locations,
including
a
number
of
major
Russian
retail
chains
suchas
Svyaznoy
and
Euroset.
We
provide
these
businesses
with
access
to
our
network
through
our
proprietary
software
and
process
the
payments
made
by
theircustomers.Our
kiosks
and
terminals
are
typically
owned
by
our
agents,
except
in
limited
circumstances
when
we
enter
new
markets
where
we
may
own
a
number
ofkiosks
or
terminals.
We
believe
this
ownership
structure
has
allowed
us
to
build
a
large
network
in
a
relatively
short
period
of
time.
The
agents
purchase,
install,operate
and
service
the
kiosks
and
terminals
themselves;
we
provide
them
with
our
platform
and
technical
solutions,
help
them
comply
with
reporting
requirementsand
provide
them
with
various
forms
of
support
and
incentives.
Historically,
we
have
signed
rental
agreements
with
large
retail
networks
including
Magnit,
X5Retail
Group
and
Dixy
to
further
sublease
those
locations
to
our
agents.We
believe
it
is
important
to
provide
our
agents
with
comprehensive
support
in
order
to
ensure
quality
of
service
and
unique
competitive
environment.How Our Kiosks and Terminals WorkTo
make
a
payment
through
a
kiosk,
a
consumer
selects
the
hyperlink
icon
of
a
particular
merchant
on
the
kiosk
screen
and
enters
the
data
necessary
for
themerchant
to
identify
the
consumer.
For
instance,
this
may
be
the
consumer’s
mobile
phone
number
or
details
on
the
consumer’s
utility
bill.
The
consumer
insertsmoney
into
a
cash
acceptor,
which
automatically
recognizes
the
value
of
the
banknotes.
Once
the
necessary
amount
of
money
has
been
inserted,
the
consumerpresses
a
button
to
confirm
that
he
or
she
wishes
to
complete
the
transaction,
and
the
software
installed
on
the
kiosk
sends
an
instruction
to
our
processing
systemto
transmit
a
corresponding
amount
to
the
merchant
and
to
withdraw
it
from
the
agent’s
account.
The
kiosk
then
prints
a
receipt
confirming
that
payment
has
beenmade.
The
interface
of
a
kiosk
is
highly
intuitive
to
facilitate
a
convenient
user
experience
with
the
entire
transaction
process
normally
taking
no
more
than
a
fewminutes.
A
transaction
is
mostly
automated
and
usually
performed
in
three
or
four
easy
steps,
so
that
the
user
is
only
required
to
input
a
minimum
of
information.When
making
a
payment
through
a
terminal,
a
consumer
gives
the
same
information
(merchant
name,
amount
of
transaction
and
account
identifying
data)
to
acashier
at
a
cash
desk,
who
processes
it
on
a
computer
or
a
mobile
phone
using
specialized
software.Our AgentsOur
agent
base
includes
more
than
6,400
agents
who
own
kiosks
and
terminals
and
are
responsible
for
placing,
operating
and
servicing
them
in
high-traffic,convenient
retail
locations.
Most
of
our
agents
are
small
to
mid-sized
businesses,
which
we
believe
provides
them
with
insight
into
local
market
dynamics.
Formany
of
our
agents,
the
business
of
kiosk
and
terminal
ownership
is
a
full-time
occupation,
while
some
view
it
as
an
ancillary
service
that
increases
consumertraffic
in
their
outlets
or
provides
additional
convenience
to
consumers.
We
do
not
consider
ourselves
to
be
materially
dependent
on
any
of
our
agents.Our
agents
determine
the
consumer
fee
for
a
number
of
services,
mainly
for
Telecom
merchants,
while
we
control
and
set,
if
applicable,
consumercommissions
for
services
of
other
categories
of
merchants.
Moreover,
we
are
in
a
position
to
cap
these
fees
depending
on
our
marketing
actions
or
merchant’srequest.
When
the
fee
payable
by
the
consumers
is
absent
or
capped,
we
normally
award
the
agents
with
an
increased
portion
of
merchant
fees.Our International Kiosks and TerminalsAlmost
our
entire
physical
distribution
network
is
currently
located
in
Russia
and
Kazakhstan.
We
also
have
a
limited
number
of
kiosks
in
Moldova,Romania
and
Belarus.Virtual DistributionOverviewWe
have
a
virtual
distribution
channel
that
we
operate
under
Visa
Qiwi
Wallet
and
Qiwi
Wallet
brands.
Visa
Qiwi
Wallet
is
an
online
and
mobile
paymentprocessing
and
money
transfer
system
that
we
offer
in
Russia
that
allows
accountholders
to
pay
for
the
products
and
services
of
merchants,
and
to
perform
peer-to-peer
money
transfers
using
a
virtual
wallet,
which
effectively
replaces
a
physical
wallet
in
an
online
and
mobile
environment.
A
virtual
wallet
enables
its
holder
tomake
online
purchases
through
a
convenient,
secure
and
intuitive
online
or
mobile
interface
with
multiple
payment
methods.
Visa
Qiwi
Wallet
accounts
can
belinked
to
virtual
or
physical
Visa
prepaid
cards
that
can
be
used
to
make
purchases
at
any
merchants
that
accept
Visa
worldwide.
We
believe
Visa
Qiwi
Wallet
isone
of
the
leading
virtual
wallet
providers
in
Russia.
39Table of ContentsPrior
to
November
2012,
Visa
Qiwi
Wallet
was
branded
as
Qiwi
Wallet.
Qiwi
Wallet
became
a
co-branded
product
pursuant
to
our
5-year
FrameworkAgreement
with
Visa
entered
into
on
November
19,
2012.
As
of
the
date
of
this
annual
report
we
cannot
give
any
assurance
as
to
whether
our
FrameworkAgreement
with
Visa
will
be
renewed
or
extended
upon
its
expiry
in
November
2017.
If
the
Agreement
is
not
renewed,
we
would
rebrand
our
wallet
business,although
we
expect
to
continue
to
work
with
Visa
under
Qiwi
Bank’s
other
agreements
with
Visa
(which
are
consistent
with
those
Visa
has
entered
into
with
otherbanks
in
Russia),
issue
Visa
prepaid
cards
and
provide
our
customers
with
access
to
Visa
Direct
card
to
card
transfer
services.
We
may
also
negotiate
other
formsof
partnership
on
top
of
the
standard
agreements
Visa
has
with
member-banks.
We
operate
Qiwi
Wallet
as
a
separate
brand
in
certain
jurisdictions
outside
ofRussia.In
2014,
2015
and
2016,
we
had
17.2
million,
16.1
million
and
17.2
million
active
virtual
wallets
registered
with
our
system
as
of
year-end,
respectively.Our Virtual WalletWith
Visa
Qiwi
Wallet,
consumers
can
create
an
online
account,
referred
to
as
a
virtual
wallet,
in
which
they
can
store
money,
deposited
from
cash
or
fundedfrom
a
variety
of
other
sources
such
as
mobile
phone
balances,
bank
accounts,
credit
or
debit
cards,
or
money
transfers,
that
can
be
used
to
make
payments,purchases,
peer-to-peer
transfers
or
to
remit
money.
To
register
a
virtual
wallet,
a
consumer
only
needs
to
have
a
mobile
phone
number
to
which
the
account
islinked.The
account
loading
process
is
simple
and
intuitive
regardless
of
the
interface
that
the
consumer
uses
to
access
Visa
Qiwi
Wallet,
whether
it
is
our
ownwebsite,
the
screen
of
a
kiosk,
the
virtual
banking
service
of
the
consumer’s
bank
or
a
mobile
app.
Normally,
a
consumer
just
needs
to
enter
the
uniqueidentification
number
of
his
or
her
virtual
wallet
and
indicate
the
amount
and
source
of
money
he
or
she
wishes
to
load
to
the
account.
Likewise,
while
the
processof
making
a
payment
through
Visa
Qiwi
Wallet
may
vary
slightly
depending
on
the
interface,
it
is
always
intuitive.We
believe
that
a
key
part
of
our
service
offering
is
consumer
convenience
and
ease
of
use.
Visa
Qiwi
Wallet
is
available
through
a
variety
of
interfaces,including
mobile
apps,
its
own
website,
touch-screens
of
our
kiosks,
merchant
websites,
and
SMS/USSD
(whereby
a
payment
is
made
by
sending
an
SMS
messageto
a
specified
phone
number).
An
increasing
percentage
of
consumers
are
accessing
Visa
Qiwi
Wallet
directly
through
mobile
applications
and
our
own
websiterather
than
through
our
kiosks
(which
was
historically
the
most
popular
Qiwi
Wallet
interface).
Nevertheless,
accessing
Visa
Qiwi
Wallet
through
our
kiosksremains
the
primary
means
by
which
consumers
load
and
reload
their
accounts,
which
we
believe
highlights
the
synergies
between
our
physical
and
virtualdistribution
networks
and
will
continue
to
support
the
sustainability
of
our
business.We
offer
downloadable
Visa
Qiwi
Wallet
applications
for
the
most
popular
mobile
and
digital
platforms
and
devices,
including
Apple
iPhone
and
iPad,Android
and
Microsoft
Windows
Phone.
We
also
support
major
mobile
operating
systems:
iOS,
Android
and
Windows
phone.
We
believe
that
these
efforts
are
avital
part
of
our
overall
marketing
strategy
and
serve
to
increase
our
consumer
base.In
February
and
May
2015,
we
announced
our
strategic
partnerships
with
MegaFon
and
Beeline
respectively
by
launching
a
co-branded
products
based
onVisa
QIWI
Wallet
technology.
In
May
2016
we
launched
a
similar
co-branded
product
with
Tele2.
As
a
result
of
these
partnerships,
operator’s
subscribers
nowhave
an
opportunity
to
make
payments
for
merchants
supported
by
the
Visa
QIWI
Wallet
using
their
mobile
phone
balance
as
the
source
of
funds.
We
view
this
asan
important
achievement
in
terms
of
deepening
our
relationship
with
Mobile
operators
and
offering
our
users
new
valuable
features.
These
agreements
are
notexclusive
which
allows
us
to
execute
similar
contracts
with
other
MNOs.How Our Virtual Wallet WorksPayments
made
through
Visa
Qiwi
Wallet
can
be
categorized
into
push
payments
and
pull
payments.
A
push
payment
is
a
payment
initiated
by
the
consumerfrom
a
Visa
Qiwi
Wallet
interface.
After
entering
Visa
Qiwi
Wallet
through
one
of
its
secure
interfaces,
a
consumer
is
required
to
select
the
name
of
the
merchantfrom
a
drop-down
list
or
using
a
search
function
and
to
type
in
the
payment
amount.
Consumers
are
not
subject
to
a
fee
when
making
most
payments
through
VisaQiwi
Wallet.
Additionally,
consumers
are
able
to
link
their
bank
cards
to
their
Visa
Qiwi
Wallet
accounts
to
make
online
payments
without
divulging
their
bankcard
details
on
merchant
websites,
decreasing
the
perceived
risk
of
fraud
associated
with
online
payments.
A
pull
payment
is
a
payment
initiated
by
the
consumerfrom
a
merchant
interface,
typically
a
merchant
website
through
which
the
consumer
makes
a
purchase.
During
the
check-out
process
at
a
merchant
website,
theconsumer
chooses
Visa
Qiwi
Wallet
as
a
payment
method
and
is
re-directed
to
a
Visa
Qiwi
Wallet
web
page.
Next,
if
the
consumer
is
already
registered
with
VisaQiwi
Wallet,
he
or
she
is
prompted
to
enter
his
or
her
mobile
phone
number
to
which
his
or
her
Visa
Qiwi
Wallet
account
is
linked
and
his
or
her
Visa
Qiwi
Walletpassword.
If
the
consumer
is
not
yet
registered
with
Visa
Qiwi
Wallet,
our
system
automatically
generates
a
virtual
wallet
for
him
or
her
once
the
mobile
phonenumber
is
entered.
A
registered
Visa
Qiwi
Wallet
user
is
then
required
to
select
a
source
of
funds
to
be
used,
including
the
prepaid
balance
of
the
Visa
Qiwi
Walletaccount,
a
bank
card
previously
linked
to
the
Visa
Qiwi
Wallet
account,
or
his
or
her
mobile
phone
account.
The
consumer
may
also
select
a
deferred
paymentoption,
whereby
our
system
generates
an
electronic
invoice
from
the
merchant
to
the
consumer
which
is
stored
in
the
consumer’s
virtual
wallet
and
can
be
paid
at
alater
stage.
After
a
payment
option
is
chosen,
the
consumer
is
required
to
confirm
the
transaction,
following
which
funds
are
withdrawn
from
the
source
theconsumer
is
using
and
transmitted
to
the
merchant.
The
only
option
available
to
consumers
who
did
not
have
a
Visa
Qiwi
Wallet
account
previously
is
the
deferredpayment
option.
Once
the
consumer
loads
his
or
her
newly
registered
virtual
wallet
or
links
a
bank
card
to
it,
the
invoice
can
be
confirmed
and
paid,
after
which
thetransaction
is
completed.
40Table of ContentsOur Reload ChannelsVisa
Qiwi
Wallet
accounts
can
be
reloaded
through
virtually
any
payment
method
available
on
the
market,
including
making
cash
deposit
at
any
of
ourkiosks
or
terminals
or
third
party
kiosks
and
terminals,
bank
cards
and
accounts,
mobile
phone
balances,
online
banking
and
retail.
Visa
Qiwi
Wallet
benefits
inparticular
from
access
to
our
own
network
of
kiosks
and
terminals,
which
is
the
largest
cash
reload
network
in
Russia.
We
believe
that
by
offering
the
convenienceof
reloading
at
our
kiosks
and
terminals,
we
increase
the
likelihood
of
consumers
using
Visa
Qiwi
Wallet
as
well
as
the
other
services
that
we
offer.Qiwi
branded
kiosks
and
terminals
are
the
primary
means
by
which
consumers
reload
their
Visa
Qiwi
Wallet
accounts.
In
2014
and
2015
the
percentage
ofreloads
made
through
bank
cards,
mobile
phone
balances
and
directly
from
bank
accounts
was
less
than
15%
of
total
reloads.
However,
in
2016
we
have
seen
anincrease
in
the
share
of
this
reload
channels
to
more
than
25%
of
total
reload
as
the
result
of
the
decline
in
the
number
of
our
and
third
party
kiosks
on
the
market(see
“Item
3.D
Risk
Factors—Risks
Relating
to
Our
Business
and
Industry—A
decline
in
the
use
of
cash
as
a
means
of
payment
or
a
decline
in
the
use
of
kiosksand
terminals
may
result
in
a
reduced
demand
for
our
services”)
as
well
our
efforts
to
increase
the
convenience
and
diversify
alternative
reload
channels.Our International Virtual WalletsAs
of
December
31,
2016,
the
vast
majority
of
active
Visa
Qiwi
Wallet
accounts
were
based
in
Russia.
We
also
have
a
limited
number
of
electronic
walletsin
Kazakhstan.Qiwi Bank and Rapida LTDIn
September
2010,
we
acquired
Qiwi
Bank
(which
is
licensed
as
a
bank
in
the
Russian
Federation)
to
serve
as
a
platform
for
our
Visa
Qiwi
Wallet
business.When
a
consumer
deposits
cash
on
his
or
her
Visa
Qiwi
Wallet
account,
Qiwi
Bank
issues
a
virtual
prepaid
card
to
a
consumer.
Qiwi
Bank
also
issues
plastic
cardsto
Visa
Qiwi
Wallet
customers.
Funds
received
by
Qiwi
Bank
resulting
from
customers
loading
and
reloading
their
Visa
Qiwi
Wallet
accounts
are
held
on
QiwiBank’s
account.
Qiwi
Bank
does
not
pay
interest
on
Visa
Qiwi
Wallet
accounts.
Qiwi
Bank
also
maintains
a
small
number
of
accounts
for
our
employees,
officersand
directors,
agents
and
certain
related
parties.
In
the
end
of
2016
Qiwi
Bank
started
to
serve
as
an
issuing
and
lending
bank
for
our
pay-by-installment
cardproject
SOVEST.In
November
2016
following
the
regulatory
changes
in
legislation
governing
the
betting
business
in
Russia
Qiwi
Bank
together
with
one
of
the
self-regulatedassociation
of
bookmakers
established
an
Interactive
Bets
Accounting
Center
(TSUPIS)
and
started
acting
as
a
platform
for
acceptance
of
interactive
bets
in
favorof
the
members
of
the
self-regulated
organization
of
bookmakers.
See
also
“—Risk
Factors
–
We
are
subject
to
extensive
government
regulation”.In
June
2015,
we
acquired
Rapida
LTD
which
is
a
licensed
non-banking
credit
organization
in
the
Russian
Federation.
Rapida
LTD
operates
paymentprocessing
and
money
transfer
settlements
within
the
group.
In
January
2017
Rapida
LTD
began
the
process
of
merging
into
Qiwi
Bank.See
also
“—Regulation”
for
a
brief
description
of
the
regulatory
regime
applicable
to
Qiwi
Bank
and
Rapida
LTD.QIWI Prepaid CardsAt
the
end
of
2009,
we
launched
a
prepaid
card
program
in
partnership
with
Visa
Inc.
Qiwi
Visa
prepaid
cardholders
enjoy
all
the
benefits
of
a
Visa
cardwithout
having
to
open
a
bank
account
or
credit
line,
eliminating
the
perceived
risk
in
the
markets
we
serve
of
fraud
associated
with
traditional
credit
and
debitcards.
Our
Visa
prepaid
cards
can
be
ordered
through
a
Visa
Qiwi
Wallet
and
currently
consist
of
the
following
card
products:
QIWI
Visa
Virtual
or
QIWI
VisaCard
–
virtual
prepaid
cards
linked
to
the
balance
of
a
consumer’s
Visa
Qiwi
Wallet
that
can
be
used
to
make
purchases
online
from
any
merchant
that
acceptsVisa-branded
cards,
and
QIWI
Visa
Plastic
Card
–
a
physical
card
that
can
be
used
to
make
purchases
online
or
in
a
physical
retail
environment
through
a
POSterminal
from
any
merchant
that
accepts
Visa
branded
cards.
Qiwi
Visa
Plastic
Cards
are
also
linked
to
the
balance
of
a
consumer’s
Visa
Qiwi
Wallet
and
can
beused
to
withdraw
cash
from
a
participating
ATM.Qiwi
Visa
co-branded
cards
are
issued
by
Qiwi
Bank
pursuant
to
an
agreement
with
Visa
International
Service
Association.
Under
the
agreement,
Qiwi
Bankis
authorized
to
issue
Visa-branded
prepaid
cards
within
Russia,
and
to
offer
and
perform
Visa
Direct
transactions
in
and
between
Russia,
Ukraine,
Kazakhstan,Uzbekistan,
Georgia,
Tajikistan
and
other
CIS
countries,
using
Visa’s
electronic
payments
processing
network
to
deliver
transferred
funds.In
2015
we
have
also
launched
a
Visa
payWave
contactless
payment
capabilities
in
Visa
Qiwi
Wallet
based
on
host
card
emulation
technology.
This
featureavailable
for
users
of
Android
smartphones
(4.4
or
higher)
broadens
the
scope
of
use
of
the
wallet
and
allows
customers
to
do
a
contactless
payment
in
anyequipped
offline
locations
with
the
balance
of
his
or
her
Visa
Qiwi
Wallet
without
issuing
a
plastic
card.Payment-by-installment card SOVESTIn
late
2016,
we
launched
a
payment-by-installments
card
program
under
the
SOVEST
brand.
SOVEST
is
the
first
large-scale
payment-by
installments
cardsystem
in
Russia
developed
to
help
consumers
to
get
easy
and
transparent
access
to
funds
and
purchase
a
wide
range
of
goods
and
services.
SOVEST
operates
as
apayment-by-installment
cards.
Consumers
can
order
and
use
these
cards
to
make
payments
with
our
partner
merchants
within
the
card’s
limit
and
then
top
up
thebalance
of
the
card
to
repay
the
funds
they
used
in
equal
installments
or
at
once.
If
balance
is
topped
up
in
a
timely
manner
during
the
installment
period,
nointerest
or
fee
is
ever
charged
on
the
consumer
(except
for
a
fixed
annual
participation
fee).
SOVEST
cards
can
only
be
used
with
merchants
that
have
enrolled
inthe
program
and
not
with
any
other
companies.
They
also
cannot
be
used
to
withdraw
funds
from
an
ATM.
Our
business
model
presumes
that
we
would
receive
themajor
part
of
our
income
from
the
use
41Table of Contentsof
SOVEST
cards
in
the
form
of
fees
payable
to
us
by
merchants
that
accept
them
in
return
for
enabling
consumers
to
receive
better
access
to
their
products.
At
themoment
SOVEST
cards
are
issued
exclusively
by
Qiwi
Bank
and
Qiwi
Bank
serves
as
a
lender
and
bears
all
credit
risk
on
outstanding
loans.As
of
December
31,
2016
operating
results
of
the
project
were
not
significant
as
it
was
launched
on
November
22,
2016
and
the
roll
out
program
started
onJanuary
23,
2017.Value Added ServicesOur
network
of
merchants
and
consumers
and
flexible
technology
platform
enable
us
to
introduce
value
added
products
and
services
that
can
generate
morerevenue
per
consumer.
In
November
2006,
we
started
using
the
interfaces
of
our
kiosks
as
an
advertising
medium,
leveraging
the
strength
of
our
network
and
thedata
that
we
receive
from
our
consumers.
We
advertise
mostly
in
the
form
of
pop-up
ad
banners
in
the
kiosk
interface
that
allow
a
consumer
to
enter
a
micrositewith
a
detailed
product
description.
Each
kiosk
has
6
advertising
spaces
on
its
screen.
Additionally,
at
the
end
of
a
transaction
where
a
payment
is
made
to
an
MNOwe
may
send
an
SMS
message
to
the
consumer
to
confirm
the
specific
transaction.
This
SMS
message
may
also
contain
an
advertisement
of
a
product
or
service,provided
the
consumer
has
not
opted
out
from
receiving
such
advertisements.
We
also
allow
advertisers
to
create
a
branded
page
in
a
subsection
of
the
kiosk
menu.As
a
result
of
the
general
economic
downturn
in
Russia,
which
has
adversely
affected
the
advertising
market,
advertising
revenue
has
become
a
smallerportion
of
overall
revenue
of
our
Group.
We
do
not
believe
that
advertising
revenue
will
be
significant
to
our
Group
in
the
near
term.In
2016
we
launched
a
self-pick-up
parcel
lockers
project
that
allows
our
agents
to
buy,
install
and
connect
compact
self-pick-up
delivery
boxes
to
theirkiosks
and
to
use
our
network
in
order
to
offer
customers
additional
logistics
services.MerchantsAs
of
December
31,
2016,
we
had
approximately
13,000
merchants
active
on
a
monthly
basis
in
our
system.
Our
merchants
are
vendors,
including
mobilenetwork
operators,
utilities,
banks,
money
remittance
companies
and
online
retailers.
Consumers
can
access
our
larger
merchants
through
hyperlink
icons
placeddirectly
on
kiosk
screens.
Other
merchants
can
be
easily
accessed
through
Visa
Qiwi
Wallet
and,
since
any
of
our
kiosks
can
be
used
as
an
interface
to
register
aVisa
Qiwi
Wallet
account
or
to
access
an
existing
one,
the
merchant
offering
is
effectively
the
same
for
both
kiosks
and
Visa
Qiwi
Wallet
accounts.
In
addition,Visa
Qiwi
Wallet
accounts
can
be
linked
to
virtual
or
physical
Visa
prepaid
cards
that
can
be
used
to
make
purchases
at
any
merchant
that
accept
Visa
worldwide.We
regularly
add
new
merchants
to
our
already
extensive
merchant
list
with
the
aim
of
creating
a
“one-stop
shopping”
experience
for
our
consumers.Our
merchants
fall
into
five
broad
payment
categories:
E-commerce,
Money
Remittance,
Financial
Services,
Telecom
and
Other,
according
to
the
nature
ofthe
products
and
services
they
provide
to
the
consumers.
The
following
table
shows
the
payment
volume,
payment
adjusted
net
revenue
and
the
payment
averagenet
revenue
yield
for
each
of
these
payment
categories.



For the year ended 31 December,



2014

2015*

2016

2016



RUB

RUB

RUB

USD
Payment volume (RUB billions)




E-commerce


75.2


119.3


143.8


2.4
Financial
services


193.2


239.9


263.3


4.3
Money
remittances


66.7


161.7


184.1


3.0
Telecom


251.3


265.8


198.6


3.3
Other


59.0


73.6


57.2


0.9
Payment adjusted net revenue (RUB millions)




E-commerce


2,006


3,439


3,992


66
Financial
services


1,931


1,210


1,378


23
Money
remittances


987


1,417


1,963


32
Telecom


1,169


1,123


881


15
Other


422


334


295


5
Payment average net revenue yield (in %)




E-commerce


2.67%

2.88%

2.78%

2.78%Financial
services


1.00%

0.50%

0.52%

0.52%Money
remittances


1.48%

0.88%

1.07%

1.07%Telecom


0.47%

0.42%

0.44%

0.44%Other


0.72%

0.45%

0.52%

0.52%
*The
amount
shown
here
do
not
correspondent
to
the
amounts
shown
in
Annual
Report
on
Form
20-F
for
the
year
ended
December
31,
2015
as
the
result
ofmethodological
adjustments
in
respect
of
Kazakhstan
business,
revenue
and
cost
allocation
between
market
verticals
and
several
other
internal
accountingpolicies
made
to
the
calculation
of
our
volumes
as
well
as
distribution
of
volumes
and
net
revenues
between
market
verticals.
42Table of ContentsE-commerce. E-commerce
is
one
of
our
major
merchant
categories
and
mostly
comprises
of
merchants
that
sell
their
products
and
services
online,
includinglarge
international
e-commerce
merchants
such
as
AliExpress,
JD.com
and
eBay,
local
e-commerce
merchants,
social
networks
such
as
Vkontakte
andOdnoklassniki,
online
game
developers
such
as
Wargaming
and
Mail.ru
and
sport
betting.
We
also
accept
payments
on
behalf
of
software
producers,
couponwebsites,
and
numerous
other
merchants.
Our
kiosk
and
terminal
network
provides
these
businesses
with
an
attractive
offline
interface
to
their
online
services,while
our
Visa
Qiwi
Wallet
provide
their
customers
with
a
convenient,
fast
and
secure
payment
option
to
make
online
purchases
and
top
up
their
personal
accounts.Financial Services. Financial
Services
includes
primarily
banks,
micro
finance
organizations
and
insurance
companies.
As
of
December
31,
2016,
weaccepted
payments
on
behalf
of
over
240
banks,
including
most
major
Russian
retail
banks
such
as
Sberbank,
VTB
24,
Alfa-Bank,
Tinkoff
Credit
Systems,
RussianStandard
Bank,
Home
Credit
Bank,
Promsvyazbank,
Raiffeisen
Bank
and
others.
Based
on
information
available
from
public
sources,
we
believe
our
kiosk
andterminal
network
is
larger
than
the
ATM
network
of
any
major
bank,
and,
as
a
result,
we
are
able
to
provide
banks
with
the
ability
to
reach
a
larger
market
throughour
network
by
enabling
their
customers
to
make
deposits,
replenish
their
cards
and
repay
loans.Money Remittance. Our
Money
Remittance
category
includes
major
Russian
and
international
money
transfer
merchants
such
as
Western
Union,
Unistream,Post
of
Russia
and
Anelik.
In
June
2015,
we
acquired
the
Contact
money
transfer
system,
one
of
the
largest
operators
on
the
Russian
money
transfer
market.
Thistransaction
allowed
us
to
grow
our
market
share
by
leveraging
the
ecosystem
that
we
have
built
to
date
and
offering
our
clients
new,
convenient
services.
FromAugust
2010,
we
offer
our
consumers
Visa
Direct
and
MasterCard
Money
Send
services,
which
allow
a
Visa
Qiwi
Wallet
accountholder
to
reload
the
account
of
aVisa
or
MasterCard
bank
card
with
a
few
clicks
on
our
website,
in
a
mobile
application,
or
a
kiosk
touch-screen,
with
the
only
information
required
being
thenumber
of
the
recipient
card.
Since
2015,
we
started
offering
our
users
similar
services
for
China
Union
Pay
bank
cards.Telecom. Telecom
merchants
include
various
telecommunication
service
providers,
such
as
MNOs,
internet
services
providers,
pay
television
channels
andpublic
utilities.
MNOs,
in
particular
the
three
largest
operators
in
Russia,
have
historically
represented
the
largest
portion
of
our
merchant
base
and
are
expected
tocontinue
to
do
so
in
terms
of
volumes
for
the
foreseeable
future.
For
the
years
ended
December
31,
2014,
2015
and
2016,
the
Big
Three
MNOs
accounted
for
26%,19%
and
15%
of
our
payment
volume,
respectively.
However,
their
share
in
our
transaction
volume
has
been
falling
over
the
last
three
years
due
to
the
expansionof
our
merchant
base
and
the
increased
use
of
our
payment
systems
by
the
consumers
for
purposes
other
than
mobile
phone
account
reloading
as
well
as
thedecrease
of
our
kiosk
network
that
affected
Telecom
category
the
most.Other. Our
Other
category
includes
all
other
merchants
to
which
we
offer
our
payment
processing
services.
These
includes
a
broad
range
of
merchants
inutilities
and
other
government
payments
as
well
as
charity
organizations.While
we
already
have
considerable
penetration
with
recurring
payments
merchants
(such
as
MNOs
and
internet
services
providers),
financial
servicesproviders
and
e-commerce
businesses,
there
are
numerous
markets
in
which
we
see
opportunities
to
add
new
merchants
and
develop
our
relationships
with
theexisting
merchants.Our Technology PlatformOur
services
are
based
on
our
advanced,
proprietary
high-performing
technology
platform.
All
of
our
key
technology
has
been
developed
in-house.
Ourplatform
utilizes
innovative
Java
and
Scala
-based
architecture,
which
enables
us
to
have
scalable,
clustered,
fault
tolerant
processing
system
and
various
consumer,merchant
and
agent
interfaces.
In
addition,
the
interfaces
are
connected
to
the
processing
system
through
a
secure
protocol.Hardware
supporting
our
platform
is
hosted
in
two
leased
data
centers
(build
in
an
active-active
mode
and
linked
in
a
private
data
cloud,
each
capable
ofhandling
twice
the
usual
traffic),
located
in
a
geographically
distributed
parts
of
Moscow.
The
data
centers
have
been
Payment
Card
Industry
Digital
SecurityStandard
(PCI
DSS)
certified,
and
one
of
them
is
ISO
27001
security
standard
compliant
as
well.
We
are
able
to
switch
our
processing
core
between
the
datacenters
within
three
minutes.
Furthermore,
in
order
to
support
uninterruptible
connectivity,
we
linked
our
headquarters
and
both
data
centers
via
fiber
optics
with
atleast
doubled
lines
between
any
two
locations.The
principal
software
under
which
the
kiosks
operate
is
our
proprietary
application
called
Maratl,
which
enables
payment
acceptance,
proper
billing
andprocessing
connectivity.
Maratl
is
a
cutting
edge
software
that
employs,
among
others,
such
technological
features
as
code-obfuscation
and
strong
3-layerproprietary
cryptographic
network
protocols.
Such
security
features
enable
kiosks
and
terminals
to
connect
with
any
open
communication
network
as
the
data
flowis
strongly
protected.
Our
kiosks
are
not
connected
to
each
other,
thus
reducing
any
network
risks.
Kiosk
infrastructure
including
hardware,
software
and
thenetwork
as
a
whole
are
certified
with
Payment
Application
Data
Security
Standard
(PA
DSS).Visa
Qiwi
Wallet
is
the
application
that
enables
customers
to
pay
online
easily
and
quickly
to
thousands
of
merchants
and
services,
using
either
mobile
orweb
interface.
Our
customers
are
also
able
to
utilize
card
technologies
using
Qiwi
Visa
Plastic
or
Qiwi
Visa
Card
-
physical
or
virtual
cards
issued
and
linked
toVisa
Qiwi
Wallet
account
balance
or
pure
virtual
cards
with
a
stored
balance
-
Qiwi
Visa
Virtual.We
have
a
robust
transaction
intelligence
system
designed
to
trace
and
prevent
suspicious
transactions
inside
our
payment
network.
In
the
vast
majority
ofcases,
fraud
through
Visa
Qiwi
Wallet
is
attributable
to
scams
rather
than
to
a
security
system
failure.
We
also
employ
a
certified
3-D
secure
system
similar
to
thoseadopted
by
other
major
payment
networks
and
banks.
We
have
established
a
sophisticated
system
of
security
monitoring
utilizing
the
Security
Information
andEvent
Management
system
(SIEM)
and
Security
Operations
Center
(SOC),
each
of
which
are
43Table of Contentsoperating
and
supported
continuously.
Our
critical
internal
resources
are
protected
with
an
advanced
intrusion
prevention
system
(IPS);
all
applications
areprotected
with
a
web
application
firewall
(WAF)
set
up
in
a
blocking
mode
ensuring
all
unauthorized
or
ambiguous
activities
are
prohibited.
Moreover,
we
have
in-house
forensic
lab
that
assesses
any
potentially
harmful
events.Our
Framework
Agreement
with
Visa
dated
November
19,
2012
imposes
stringent
security
requirements
on
us
to
protect
the
data
of
our
consumers.
Underthe
terms
of
this
agreement,
we
are
under
an
obligation
to
be
compliant
with
Visa-approved
security
standards
and
to
undergo
periodic
assessments
to
certify
suchcompliance.
In
particular,
we
have
annual
PCI
DSS
compliance
audits
fulfilled
by
qualified
security
assessors.In
July
2014,
as
a
part
of
our
strategic
relationship
with
Visa
we
received
VisaNet
Processor
status,
which
effectively
allows
us
to
process
Visa
transactionson
behalf
of
other
Visa
member
banks.Sales and MarketingWe
have
a
dedicated
team
of
sales
and
marketing
personnel
who
seek
to
expand
our
network
of
agents
and
merchants,
attract
and
maintain
consumers
andpromote
our
products.
Our
marketing
program
includes
advertising
campaigns
as
well
as
other
promotional
activities,
such
as
joint
loyalty
programs
with
ourmerchants.Brand AwarenessWe
believe
our
brand
is
a
household
name
in
Russia.
According
to
Synovate
Comcom,
“Qiwi”
is
the
most
recognized
Russian
brand
among
kiosk
operatorswith
prompted
brand
awareness
of
89%,
as
well
as
in
electronic
payment
services
with
a
prompted
brand
awareness
of
93%.In
addition,
we
believe
that
in
our
sector
maintaining
a
social
media
presence
is
important
to
sustaining
brand
awareness.
As
a
result,
we
have
a
dedicatedteam
of
people
who
regularly
update
our
Facebook,
Twitter,
Vkontakte,
Odnoklassniki,
Instagram
and
Youtube
accounts.
We
also
use
social
networks
to
seekfeedback
from
our
consumers
to
improve
our
business.As
part
of
our
branding
strategy
we
run
a
QIWI
Finteen
program
–
an
educational
program
for
school
children
aimed
at
promoting
financial
literacy.
Webelieve
that
such
programs
while
benefitting
and
educating
participants
help
us
promote
our
brand
among
younger
users
and
attract
new
customers.As
part
of
maintaining
our
brand
image,
we
have
employees
available
to
respond
to
agent
and
merchant
concerns
and
to
handle
consumer
issues.Advertising and Promotional ActivitiesBecause
we
maintain
a
kiosk
network
as
widespread
and
visible
as
ours,
third-party
advertising
is
not
as
important
to
maintain
brand
awareness.
Wemaintain
a
relatively
low
advertising
profile,
mostly
employing
Internet
advertising
to
promote
Visa
Qiwi
Wallet.In
addition,
we
engage
in
promotional
campaigns
together
with
our
merchants,
in
which
merchants
offer
discounts
to
their
customers
who
make
paymentsthrough
our
network.CompetitionThe
most
significant
competitive
factors
in
our
business
are
speed,
convenience,
network
size,
accessibility,
hours
of
operation,
loyalty
programs,
reliabilityand
price.
Our
competitors
include
retail
banks,
non-traditional
payment
services
providers
(such
as
retailers
and
MNOs),
traditional
kiosk
and
terminal
operatorsand
electronic
payment
system
operators
as
well
as
other
companies
which
provide
various
forms
of
payment
services,
including
electronic
payment
and
paymentprocessing
services.We
face
significant
competition
from
major
retail
banks.
Our
competitors
include,
among
others,
Sberbank,
Russia’s
largest
retail
bank
that
is
majority-owned
by
the
Russian
state,
and
Alfa-Bank,
one
of
the
leading
privately
owned
Russian
retail
banks,
both
of
which
have
robust
electronic
payment
products
andlarge
retail
networks.
Some
retail
banks
are
currently
developing
their
own
kiosk
networks
and
are
active
in
the
area
of
electronic
payment
products.
In
January2017,
it
was
reported
that
Sberbank
and
the
Chinese
e-retail
company
Alibaba
are
in
discussions
to
create
a
joint
venture
that
would
include
the
Chinese
group’sexisting
cross-border
e-commerce
businesses
in
Russia
and
neighboring
countries,
which
could
further
strengthen
both
companies’
respective
positions
in
the
e-payments
market.We
also
face
competition
from
major
telecommunication
and
media
devices
retailers,
including
Euroset
and
Svyaznoy,
which
offer
some
financial
andpayment
services
of
third-party
providers,
such
as
instant
money
transfers,
loan
repayments,
utilities
payment
and
other
services,
and
sell
third-party
insurance
andconsumer
banking
products,
building
on
the
strength
of
their
retail
networks.
We
compete
to
an
extent
with
the
MNOs,
which
allow
their
subscribers
to
makeinstant
payments
using
their
mobile
phone
balances.
Furthermore,
in
February
2017
MTS
announced
the
launch
of
MTS
Money
Wallet,
a
product
which
enablesusers
to
get
an
easy
“one-click”
access
to
MTS’s
financial
services
and
be
rewarded
with
bonuses
and
loyalty
points.
The
new
service
combines
all
payments
toolson
one
platform
such
as
electronic
wallet,
bank
cards,
and
customers’
mobile
account
balances.
44Table of ContentsWe
also
potentially
face
competition
from
the
Russian
Post,
due
to
its
vast
network
of
offices
throughout
Russia
which
accept
payments
for
certain
third-party
services,
including
utilities
and
banking
services,
and
their
plans
to
build
a
bank
on
the
existing
infrastructure.Finally,
we
also
compete
against
some
directly
comparable
businesses,
such
as
traditional
kiosk
and
terminal
operators
(primarily
CyberPlat,
Comepay
andElecsnet)
and
electronic
payment
system
operators
(primarily
Yandex.Money
(a
majority
stake
of
which
is
owned
by
Sberbank),
WebMoney
and,
to
a
lesser
extent,PayPal
and
AliPay).Intellectual PropertyOur
intellectual
property
rights
are
important
to
our
business.
We
rely
primarily
on
a
combination
of
contract
provisions,
copyrights,
trademarks,
patents
andtrade
secrets
to
protect
our
proprietary
technology
and
other
intellectual
property.Our
in-house
know-how
is
an
important
element
of
our
intellectual
property.
Almost
all
of
our
key
software
has
been
developed
in-house
by
our
employees.Accordingly,
we
seek
to
enter
into
confidentiality
and
copyright
assignment
agreements
with
our
employees
and
consultants
and
confidentiality
agreements
withother
third
parties,
and
we
rigorously
control
access
to
our
proprietary
technology.QIWI,
QIWI-“KIVI”
and
the
Contact
money
transfer
system’s
logotypes
are
registered
trademarks
in
Russia
and
several
countries
around
the
world,including
CIS
countries.
The
Rapida
payment
processing
system’s
logotypes
are
also
registered
trademarks
in
Russia.
A
number
of
other
applications
forregistration
of
our
brand
and
logotypes
(including,
SOVEST)
are
still
pending.
We
also
hold
copyrights
for
software
applications,
such
as
“Maratl”,
“Observer”,“Universal
Payment
Gateway
Server”,
and
“Universal
Processing
System”.
We
have
obtained
copyright
registrations
for
some
of
our
key
software
in
Russia,
Braziland
in
the
United
States.EmployeesThe
following
table
sets
out
the
average
number
of
employees
for
the
years
ended
December
31,
2014,
2015
and
2016
by
function.



For the year ended 31 December,



2014


2015


2016
Qiwi Group





Front
Office


464



463



428
Back
Office


439



575



621
IT
Personnel


218



260



326
Total

 1,121 

 1,298 

 1,375 In
2014
we
conducted
an
internal
reorganization
to
change
our
organizational
structure
from
a
business
unit
organizational
structure
where
Qiwi
Distributionand
Visa
Qiwi
Wallet
were
largely
managed
as
separate
entities
to
a
functional
management
structure
where
management
is
focused
on
centralized
core
operationaltasks
such
as
sales,
marketing,
IT,
legal,
HR
and
finance.
The
reorganization
was
intended
to
better
reflect
the
manner
in
which
our
business
is
managed.In
2015
and
2016,
the
main
driver
underlying
headcount
growth
was
the
acquisition
of
the
Contact
and
Rapida
businesses.
Additionally,
in
2016
we
havehired
a
number
of
new
employees
in
connection
with
the
development
and
launch
of
our
new
project
SOVEST.We
place
a
high
value
on
technological
innovation
and
compete
aggressively
for
talent.
We
strive
to
hire
the
best
software
engineers,
as
well
as
talentedsales,
marketing
and
financial
and
administrative
staff.
We
seek
to
create
a
dynamic,
fulfilling
work
environment,
encouraging
participation,
creativity,
theexchange
of
ideas
and
teamwork.
We
believe
that
our
relations
with
our
employees
are
good.RegulationWe
are
subject
to
a
number
of
laws
and
regulations
in
Russia
and
other
jurisdictions
that
regulate
payment
services,
anti-money
laundering,
data
protectionand
information
security
and
advertising
services.
Qiwi
Bank
and
Rapida
LTD
are
also
subject
to
numerous
laws
and
regulations
governing
banking
activities,consumer
lending
and
money
remittances
in
Russia.Regulation of Payment ServicesA
legislative
framework
for
the
payment
services
industry
is
not
yet
fully
developed
in
Russia,
and,
moreover,
is
not
universal,
and
various
business
modelsthat
payment
services
providers
such
as
ourselves
pursue
are
regulated
differently.Virtual
wallet
operations
are
legally
considered
cashless
transfers
with
the
use
of
bank
cards.
For
regulatory
purposes,
when
a
Visa
Qiwi
Wallet
account
isreloaded,
the
accountholder
is
issued
one
or
several
virtual
prepaid
cards,
depending
on
the
amount
of
the
reload.
While
the
accountholder
agrees
to
the
issuance
ofthe
cards
through
accepting
a
public
offer,
he
or
she
is
not
explicitly
provided
with
details
of
each
card.
From
a
consumer’s
perspective,
the
amount
of
the
reload
issimply
transferred
to
an
account
of
a
digital
wallet,
whereas
legally
it
becomes
stored
value
of
a
virtual
prepaid
card.
Prepaid
cards
are
regulated
as
“electronicmeans
of
payment”
under
the
Federal
Law
of
the
Russian
Federation
No.
161-FZ
“On
the
National
Payment
System”,
dated
June
27,
2011,
as
amended,
or
thePayment
System
Law.
45Table of ContentsThe
Payment
System
Law
classifies
electronic
means
of
payment
into
personalized
and
non-personalized,
depending
on
whether
they
allow
for
identificationof
the
payer
for
the
purposes
of
the
Federal
Law
of
the
Russian
Federation
No.
115-FZ
“On
Combating
the
Legalization
(Laundering)
of
Criminally
ObtainedIncome
and
Funding
of
Terrorism”,
dated
August
7,
2001,
as
amended,
or
the
Anti-Money
Laundering
Law.
Any
electronic
money
transfers
are
subject
tothresholds
on
remaining
electronic
money
balances,
which
amount
to
RUB
600,000
for
personalized
means
of
payment
and
RUB
15,000
for
non-personalizedmeans
of
payment
(or
RUB
60,000
if
the
holder
underwent
a
simplified
identification
procedure
–
see
“-
The
Anti-Money
Laundering
Law
“).
The
total
monthlyturnover
for
each
non-personalized
means
of
payment
cannot
exceed
RUB
40,000
(or
RUB
200,000
if
the
holder
underwent
a
simplified
identification
procedure
–see
“-
The
Anti-Money
Laundering
Law”).
There
are
no
limitations
on
the
total
monthly
turnover
for
fully
identified
consumers
(see
“-
The
Anti-MoneyLaundering
Law”).The
CBR
is
the
agency
commissioned
with
supervision
of
compliance
with
the
provisions
of
the
Payment
System
Law.
As
such,
it
is
entitled
to
suspend
theactivities
of
market
participants
regulated
by
the
Payment
System
Law
in
case
of
violations
and
impose
administrative
liability
on
the
offenders.JSC
QIWI,
as
operator
of
our
kiosk
network,
is
deemed
to
be
a
payment
agent
in
accordance
with
the
Federal
Law
of
the
Russian
Federation
No.
103-FZ“On
Collection
of
Payments
from
Individuals
by
the
Payment
Agents”,
dated
June
3,
2009,
as
amended,
or
the
Payment
Agents
Law.
The
Payment
Agents
Law
isinapplicable
to
electronic
payments
and
thus
does
not
regulate
our
Visa
Qiwi
Wallet
business.The
Payment
Agents
Law
requires
payment
agents
to
comply
with
the
Anti-Money
Laundering
Law.The
payment
agent’s
obligation
to
transmit
the
funds
to
the
merchant
is
required
to
be
either
insured
or
secured
by
means
of
a
pledge,
guarantee,
orotherwise.
The
amount
of
such
insurance
or
security
is
not
statutorily
fixed,
and
there
are
no
other
guidelines
regarding
this
requirement.The
Payment
Agents
Law
provides
that
payment
agents
are
entitled
to
levy
fees
from
the
merchants’
customers
for
each
transaction
processed
by
them.These
fees
are
not
statutorily
capped,
although
proposals
to
cap
them
are
from
time
to
time
considered
by
the
Russian
legislature.This
law
also
requires
both
the
payment
agent
and
the
merchant
serviced
by
them
to
maintain
segregated
bank
accounts
for
the
purpose
of
depositing
fundsreceived
from
the
customers
and
from
the
payment
agent,
respectively.
All
funds
received
by
a
payment
agent
need
to
be
deposited
into
such
specialized
accounts.Although
the
CBR
authority
in
respect
of
monitoring
the
activities
of
the
payment
agents
is
limited
to
collection,
systematization
and
analysis
of
industrydata,
the
CBR
activities
may
have
indirect
impact
on
payment
agents.
For
instance,
in
April
2015
the
CBR
issued
recommendations
to
credit
institutions
to
enhancetheir
scrutiny
over
the
compliance
by
the
payment
agents
with
legislation
that
requires
them
to
remit
their
proceeds
to
special
accounts,
which
resulted
in
a
declinein
the
number
of
kiosks
in
the
market
as
well
as
our
active
kiosks.Payment Systems RegulationIn
2015,
we
acquired
the
Contact
money
transfer
system.
Contact
was
established
in
1999.
It
provides
funds
transfer
services
without
bank
accounts
toindividuals
and
legal
entities
in
Russia,
CIS
and
European
countries,
the
USA,
Canada,
Israel,
Vietnam,
Turkey,
UAE,
RSA,
India,
Thailand,
New
Zealand
andSingapore.
It
also
allows
its
clients
to
reload
cards
of
international
payment
systems
such
as
MasterCard,
VISA
and
UnionPay.For
legal
purposes
Contact
is
set
up
differently
than
Qiwi
and
is
regulated
as
a
payment
system.
Pursuant
to
the
Payment
System
Law,
a
payment
system
is
agroup
of
organizations,
including
the
payment
system
operator,
payment
infrastructure
service
providers
(operational,
payment
clearing
and
settlement
center)
andpayment
system
participants
(which
in
most
cases
are
credit
institutions),
which
cooperate
in
order
to
transfer
funds
under
the
payment
system
regulations.The
payment
system
operator
has
the
key
role
in
a
payment
system.
Since
August
27,
2014,
Rapida
LTD
has
been
the
operator
of
Contact
money
transfersystem
and
its
operational,
payment
clearing
and
settlement
center.
In
anticipation
of
the
completion
of
Rapida
LTD’s
merger
into
Qiwi
Bank,
Qiwi
Bank
assumedthe
role
of
the
operator
of
Contact
money
transfer
system
in
March
2017.
Qiwi
Bank
is
also
expected
to
eventually
assume
the
roles
of
Contact’s
operational,payment
clearing
and
settlement
center
simultaneously
with
or
prior
to
the
completion
of
the
merger.The
payment
system
operator
determines
the
payment
system
regulations
which
the
payment
system
participants
adhere
to.
The
Contact
money
transfersystem
regulations
are
in
full
compliance
with
the
current
Russian
legislation.
The
CBR
is
the
agency
commissioned
to
exercise
supervision
and
oversight
withrespect
to
payment
systems.TSUPIS RegulationAs
part
of
our
business,
we
service
merchants
which
provide
betting
services.
The
regulatory
framework
with
respect
to
betting
in
the
Russian
Federation
isset
by
Federal
Law
No.
244-FZ
“On
State
Regulation
of
Organization
and
Conducting
Games
of
Chance
and
on
Introducing
Changes
to
Some
Legislative
Acts
ofthe
Russian
Federation”,
dated
December
29,
2006,
as
amended,
or
the
Betting
Law.
46Table of ContentsIn
order
to
engage
in
the
betting
business,
a
bookmaker
has
to
become
a
member
of
a
self-regulated
organization
of
bookmakers
and
abide
by
its
rules,
andany
and
all
interactive
bets
may
be
only
accepted
through
an
Interactive
Bets
Accounting
Center
(TSUPIS)
set
up
by
a
credit
organization
together
with
a
self-regulated
association
of
bookmakers.
The
core
functions
of
a
TSUPIS
are
as
follows:
(i)
to
accept
interactive
bets
in
favor
of
the
members
of
the
self-regulatedorganization;
(ii)
to
pay
winnings
to
the
bettors;
(iii)
to
identify
bettors
in
a
manner
allowing
to
ascertain
their
age;
(iv)
to
record
and
provide
to
the
members
theinformation
on
the
bettors
and
accepted
interactive
bets.Qiwi
Bank
serves
as
an
interactive
bets
accounting
center.
It
has
entered
into
a
contract
with
the
self-regulated
organization
“Association
of
Bookmakers”
in2016.
The
activity
of
Qiwi
Bank
as
a
TSUPIS
is
in
compliance
with
the
applicable
legislation.Consumer Lending RegulationIn
November
2016
QIWI
launched
a
new
payment-by
installments
card
product
SOVEST.
The
consumer
lending
activities
in
Russia
are
mainly
regulated
byFederal
Law
No.
353-FZ
“On
Consumer
Credits
(Loans)”
dated
December
21,
2013,
as
amended,
or
the
Consumer
Credit
Law.
The
law
imposes
a
range
ofrestrictions
on
the
lender,
including
interest
rate
limitations,
prohibition
to
increase
the
interest
rate
and
prohibition
of
artificial
extra
charges.The
terms
and
conditions
of
our
consumer
loan
agreements
in
connection
with
the
SOVEST
project
comply
with
applicable
legislation.Before
granting
a
loan
Qiwi
Bank
performs
a
credit
scoring
procedure
of
the
potential
borrower,
for
the
purposes
of
which
we
employ
various
facilities
andmethods
in
full
compliance
with
the
Russian
legislation.Banking RegulationOur
Qiwi
Bank
and
Rapida
LTD
are
“credit
institutions”
and
are
accordingly
subject
to
the
following
financial
services-related
laws
and
regulations:Federal
Law
of
the
Russian
Federation
No.
395-1
“On
Banks
and
Banking
Activity”,
dated
December
2,
1990,
as
amended,
or
the
Banking
Law,
is
the
mainlaw
regulating
the
Russian
banking
sector.
Among
other
things,
it
defines
credit
institutions,
sets
forth
the
list
of
banking
operations
and
other
transactions
thatcredit
institutions
may
engage
in,
and
establishes
the
framework
for
the
registration
and
licensing
of
credit
institutions
and
the
regulation
of
banking
activity
by
theCBR.The
Banking
Law
provides
for
a
list
of
the
so-called
“banking
operations”
that
cannot
be
conducted
without
an
appropriate
license
from
the
CBR,
including,among
others,
accepting
deposits,
opening
and
maintaining
bank
accounts,
performing
money
transfers
from
and
to
bank
accounts
of
the
clients,
and
performingmoney
(including
electronic
money)
transfers
without
opening
a
bank
account
(other
than
postal
transfers),
etc.
The
latter
type
of
banking
operations
is
the
only
onethat
Qiwi
Bank
and
Rapida
LTD
pursue
as
a
main
line
of
business,
although
Qiwi
Bank
is
also
entitled
to
accept
deposits
from
individuals
and
legal
entities,
investthe
funds
received
in
the
form
of
deposits,
maintain
accounts
for
individuals
and
legal
entities
and
perform
settlements
through
their
bank
accounts,
perform
tellerand
cash
collection
services,
sell
and
purchase
currency
and
issue
bank
guarantees,
while
Rapida
LTD
is
also
entitled
to
maintain
accounts
for
legal
entities
andperform
settlements
through
their
bank
accounts,
perform
teller
and
cash
collection
services,
sell
and
purchase
currency
in
a
non-cash
form.Capital and Reserve RequirementsThe
Banking
Law
and
legislative
acts
promulgated
thereunder
establish
minimum
charter
capital,
capital
base
and
various
reserve
requirements
for
creditinstitutions,
which
Qiwi
Bank
and
Rapida
LTD
are
in
compliance
with.
The
reserve
requirements
of
the
CBR
negatively
impact
Qiwi
Bank’s
and
Rapida
LTD’sability
to
distribute
their
profit
to
their
shareholders
in
the
form
of
dividends.Loss ProvisionsCredit
institutions
are
required
to
adopt
procedures
for
calculating
and
posting
provisions
for
loan
losses
and
for
possible
losses
other
than
loan
losses,
whichmay
include
losses
from
investments
in
securities,
funds
held
in
correspondent
accounts
of
other
banks,
contingent
liabilities
and
other
transactions.Qiwi
Bank
and
Rapida
LTD
maintain
certain
provisions
for
losses
from
loans,
default
by
counterparties,
impairment
of
assets
and
liability
increases,
and
isin
compliance
with
applicable
legislation.Prudential RatiosCBR
establishes
and
periodically
amends
mandatory
prudential
ratios
for
banks.
Key
mandatory
economic
ratios
that
banks
must
observe
on
a
daily
basisand
periodically
report
to
the
CBR
include
capital
adequacy
ratio,
instant
liquidity
ratio,
current
liquidity
ratio,
long-term
liquidity
ratio,
maximum
exposure
to
asingle
borrower
or
a
group
of
affiliated
borrowers,
maximum
exposure
to
major
credit
risks,
maximum
amount
of
loans,
bank
guarantees
and
sureties
extended
bythe
bank
to
its
participants
(shareholders),
aggregate
amount
of
exposure
to
the
bank’s
insiders,
ratio
for
the
use
of
the
bank’s
capital
base
to
acquire
shares(participation
interests)
in
other
legal
entities.
Failure
to
comply
with
the
prudential
ratios
may
lead
to
negative
consequences
for
the
bank,
including
revocation
ofthe
banking
license.As
of
December
31,
2016,
prudential
ratios
of
Qiwi
Bank
and
Rapida
LTD
were
in
excess
of
the
minimum
thresholds
imposed
by
the
CBR.
Qiwi
Bank
andRapida
LTD
are
in
compliance
with
applicable
legislation.
47Table of ContentsReporting RequirementsA substantial
amount
of
routine
reporting
has
to
be
performed
by
credit
institutions
on
a
regular
and
non-regular
basis,
including
disclosure
of
financialstatements,
various
operational
indicators,
affiliates
and
persons
who
exercise
(directly
or
indirectly)
influence
over
the
decisions
taken
by
the
management
bodiesof
the
credit
institution.
The
CBR
may
at
any
time
conduct
full
or
selective
audits
of
any
credit
institution’s
filings
and
may
inspect
all
of
its
books
and
records.Additionally,
banking
holdings
such
as
ourselves
(i.e.,
groups
of
legal
entities
in
which
a
legal
entity
that
is
not
a
credit
institution,
directly
or
indirectly,controls
decisions
of
the
management
bodies
of
a
credit
institution
within
such
groups,
such
as
Qiwi
Bank
and
Rapida
LTD)
must
regularly
disclose
theirconsolidated
financial
statements
and
provide
to
CBR
certain
additional
information
regarding
the
business
operations
and
financial
condition
of
the
group
in
orderfor
the
CBR
to
assess
their
risks.The Anti-Money Laundering LawIn
Russia
the
companies
performing
transactions
with
funds
and
other
assets,
so
called
financial
services
providers,
shall
comply
with
national
anti-moneylaundering
and
counter-terrorist
financing
legislation,
as
well
as
requirements
of
Foreign
Account
Tax
Compliance
Act
(FATCA).
Usually
financial
servicesproviders
in
Russia
also
follow
the
best
international
practices
in
this
sphere
such
as
recommendations
of
the
Financial
Action
Task
Force,
or
the
FATF.
Under
theAnti-Money
Laundering
Law,
the
main
obligations
of
a
financial
services
provider
are
as
follows:1)
to
elaborate
internal
control
rules
and
programs
for
the
anti-money
laundering
and
counter-terrorist
financing
purposes
and
control
their
implementation,to
designate
an
officer
responsible
for
compliance
of
these
rules
and
programs
with
the
Russian
legislation;2)
to
conduct
internal
and
external
trainings
of
the
staff
in
the
anti-money
laundering
and
counter-terrorist
financing
sphere;3)
to
detect,
document
and
report
to
the
Rosfinmonitoring
on
clients’
transactions
subject
to
mandatory
control;4)
to
detect,
document
and
report
to
the
Rosfinmonitoring
on
clients’
suspicious
(unusual)
transactions;5)
to
keep
a
close
eye
on
certain
transactions
where
one
of
the
counterparties
is
resident
in
a
country
included
in
the
FATF
“black
lists”
or
uses
a
bankaccount
maintained
in
such
country,
to
take
reasonable
measures
for
identifying
clients
that
are
politically
exposed
persons
(domestic
or
foreign)
and
clients
thatare
posing
high
money
laundering
or
financing
of
terrorism
risks,
to
apply
enhanced
due
diligence
measures
to
such
clients;6)
to
detect
and
to
freeze
(block)
funds
or
other
assets
of
natural
or
legal
persons
that
is
known
to
participate
in
extremist
or
terrorist
activities
and
report
tothe
Rosfinmonitoring
on
the
taken
actions,
not
less
than
once
each
three
months
to
inspect
whether
there
are
clients
whose
funds
or
other
assets
were
or
shall
befreezed/blocked
and
provide
the
Rosfinmonitoring
with
the
results
of
such
inspections;7)
to
suspend
or
to
restrict
the
performance
of
certain
operations
on
the
grounds
set
forth
by
the
anti-money
laundering
and
counter-terrorist
financinglegislation;8)
to
provide
the
Rosfinmonitoring
on
its
request
with
the
information
on
the
clients,
their
operations
and
beneficial
owners;9)
to
identify
clients,
their
representatives
and/or
beneficial
owners,
to
take
reasonable
measures
for
identifying
beneficial
owners,
to
update
the
informationon
the
clients
on
a
regular
basis,
to
determine
a
procedure
for
cooperation
with
the
persons
who
assigned
to
perform
identification.Financial
services
providers
are
generally
required
to
identify
their
clients.
However,
certain
transactions
are
exempt
from
the
identification
requirementsunder
the
Anti-Money
Laundering
Law,
unless
officers
of
a
financial
service
provider
suspect
that
such
operation
is
carried
out
to
legalize
funds
received
fromillegal
activities
or
to
finance
terrorism.
Money
transfers
by
individuals
not
exceeding
RUB
15,000
are
generally
exempt
from
the
identification
requirement,
butpeer-to-peer
transfer
and
transfers
to
foreign
entities
and
certain
kinds
of
non-profits
require
at
least
a
simplified
identification
of
the
customer
regardless
of
theamount.
The
key
difference
between
the
simplified
procedure
and
the
procedure
that
must
be
followed
in
all
other
circumstances
is
that
simplified
identificationcan
be
performed
remotely.
However,
the
simplified
identification
process
is
still
not
well
defined
and
the
public
databases
that
such
remote
identification
issupposed
to
be
based
on
are
still
not
entirely
operational,
which
could
cause
us
to
be
in
violation
of
the
identification
requirements.
The
identification
requirementsof
the
Anti-Money
Laundering
Law
only
pertain
to
individual
transactions
and
not
series
of
transactions.
48Table of ContentsPrivacy and Personal Data Protection RegulationWe
are
subject
to
laws
and
regulations
regarding
privacy
and
protection
of
the
user
data,
including
the
Federal
Law
of
the
Russian
Federation
No.
152-FZ“On
Personal
Data”,
dated
July
27,
2006,
as
amended,
or
the
Personal
Data
Law.
The
Personal
Data
Law,
among
other
things,
requires
that
an
individual
mustconsent
to
the
processing
(i.e.
any
action
or
combination
of
actions
performed
with
or
without
the
use
of
technology
on
personal
data,
including
the
collection,recording,
systematization,
accumulation,
storage,
alteration
(updating
or
changing),
retrieval,
use,
transfer
(distributing,
providing
or
authorizing
access
to),depersonalization,
blocking,
deleting
and
destroying)
of
his/her
personal
data
and
must
provide
this
consent
before
such
data
is
processed.
Generally,
the
PersonalData
Law
does
not
require
the
consent
to
be
in
writing
but
requires
it
to
be
in
any
form
that,
from
an
evidential
perspective,
sufficiently
attests
to
the
fact
that
it
hasbeen
obtained.However,
the
consent
must
be
in
writing
in
certain
cases,
including:
(i)
where
the
processing
relates
to
special
categories
of
personal
data
(regarding
theindividual’s
race,
nationality,
political
views,
religion,
philosophical
beliefs,
health
conditions
or
intimate
information);
(ii)
where
the
processing
of
personal
datarelates
to
any
physiological
and
biological
characteristics
of
the
individual
which
can
help
to
establish
his
or
her
identity
(such
as,
for
example,
biometric
personaldata);
(iii)
cross-border
transfers
to
a
state
that
does
not
provide
adequate
protection
of
rights
of
individuals;
and
(iv)
the
reporting
or
transferring
of
an
employees’personal
data
to
a
third
party,
etc.
The
written
consent
of
individuals
must
meet
a
number
of
formal
requirements
and
must
be
signed
by
holographic
or
electronicsignature.We
obtain
consents
from
our
users
by
asking
them
to
click
an
icon
indicating
their
consent
to
us
processing
their
personal
data.Subject
to
certain
limited
exemptions,
the
recording,
systematization,
accumulation,
storage,
adjustment
(update,
alteration),
retrieval
of
personal
data
ofcitizens
of
the
Russian
Federation
is
required
to
be
performed
through
database
located
in
the
territory
of
the
Russian
Federation.
Since
all
our
data
centers
used
tostore
such
personal
data
are
located
in
the
Russian
Federation,
we
are
not
impacted
by
this
localization
requirement.Regulation of Strategic InvestmentsThe
Strategic
Enterprise
Law
provides
that
an
acquisition
by
a
foreign
investor
(or
a
group
of
persons
including
a
foreign
investor)
of
direct
or
indirectcontrol
over
a
company
holding
encryption
license
requires
prior
approval
of
a
specialized
governmental
commission.
The
approval
process
usually
takes
betweenthree
and
six
months.
Qiwi
Bank
and
Rapida
LTD
hold
encryption
licenses,
which
are
necessary
to
conduct
their
operations,
and
by
virtue
of
this
may
be
deemed
tobe
a
“strategic
enterprise”.Under
the
Strategic
Enterprise
Law,
a
person
is
deemed
to
have
control
over
a
strategic
enterprise
if,
among
other
things,
such
person
controls,
directly
orindirectly,
more
than
50%
of
the
total
number
of
votes
attributable
to
the
voting
shares
comprising
the
share
capital
of
such
strategic
enterprise.
Where
thepurchaser
is
a
foreign
state,
foreign
governmental
organization,
international
organization
or
entity
controlled
by
a
foreign
government,
or
internationalorganization,
the
threshold
for
obtaining
a
preliminary
approval
is
more
than
25%
of
the
voting
power.
In
addition,
investors
that
are
controlled
by
a
foreign
state
ora
foreign
government
or
international
organization
are
prohibited
from
owning
more
than
50%
of
the
voting
power
of
a
strategic
enterprise.
Failure
to
obtain
therequired
governmental
approval
prior
to
an
acquisition
would
render
the
acquisition
null
and
void.The
Strategic
Enterprise
Law
is
not
clear
on
how
to
interpret
“indirect”
control
over
a
strategic
enterprise
and
in
what
circumstances
an
acquisition
of
sharesin
the
holding
company
of
a
strategic
enterprise
would
represent
an
“indirect”
acquisition
of
shares
in
the
latter
and,
consequently,
require
approval
of
thespecialized
governmental
commission.
Although
a
view
can
be
taken
that
an
“indirect”
acquisition
takes
place
if
a
foreign
investor
acquires
over
50%
of
the
sharesin
the
holding
company
of
a
strategic
enterprise
or
otherwise
obtains
control
over
the
holding
company,
there
is
no
assurance
that
Russian
state
authorities
wouldnot
interpret
it
differently
and
apply
a
lower
threshold
to
the
acquisition
of
such
holding
company.
C.Organizational StructureQIWI
plc
is
a
holding
company
that
operates
through
its
subsidiaries.
Our
major
operating
subsidiaries,
each
of
which
is
a
wholly-owned
(direct
or
indirect)subsidiary,
are
QIWI
Bank
(JSC),
QIWI
JSC,
QIWI
Payments
Services
Provider
Ltd
and
Rapida
LTD.See
Exhibit
8.1
for
a
list
of
our
subsidiaries.
D.Property, Plants and Equipment.We
currently
lease
a
total
of
over
12,000
square
meters
in
Moscow
and
other
regions
across
Russia
as
well
as
in
Kazakhstan,
Cyprus
and
other
jurisdictionswhere
we
operate.
ITEM 4A.Unresolved Staff CommentsNone.
ITEM 5.Operating and Financial Review and ProspectsYou
should
read
the
following
operating
and
financial
review
together
with
our
consolidated
financial
statements
and
related
notes
included
elsewhere
in
thisannual
report.
Certain
statements
in
this
section
are
“forward-looking
statements”
and
are
subject
to
risks
and
uncertainties,
which
may
cause
actual
results
to
differmaterially
from
those
expressed
or
implied
by
such
forward-looking
statements.
Please
see
“Special
Note
Regarding
Forward-Looking
Statements”
and
“RiskFactors”
for
more
information.
49Table of ContentsA.Operating ResultsOverviewWe
are
a
leading
provider
of
next
generation
payment
services
in
Russia
and
the
CIS.
We
have
an
integrated
proprietary
network
that
enables
paymentservices
across
physical,
online
and
mobile
channels.
We
operate
in
target
markets
and
customer
segments
that
are
largely
cash-based
and
lack
convenientalternatives
for
consumers
to
pay
for
goods
and
services
in
physical,
online
and
mobile
environments.We
have
built
a
physical
network
of
over
162,000
kiosks
and
terminals
using
a
proprietary
agent
model.
Under
this
model,
our
kiosks
and
terminals
are
builtwith
our
proprietary
specifications
and
technology
by
third
party
manufacturers
and
then
purchased
and
managed
by
approximately
6,400
agents
responsible
forplacing,
operating
and
servicing
the
kiosks
in
high-traffic,
convenient
retail
locations.
We
also
distribute
our
payment
services
online
through
our
virtual
Visa
QiwiWallet
and
Qiwi
Wallet
products,
which
enables
consumers
to
access
and
make
payments
through
their
computers
or
mobile
devices.
The
payments
processedthrough
our
network
are
typically
very
small
and
are
usually
subject
to
a
limit
of
RUB
15,000
per
transaction,
and
since
they
are
primarily
funded
with
cash,consumers
do
not
have
to
go
through
a
lengthy
registration
process
to
execute
most
transactions.Our
primary
source
of
revenue
is
fees
we
receive
for
processing
payments
made
by
consumers
to
merchants
or
other
customers,
which
we
refer
to
aspayment
processing
fees,
typically
based
on
a
percentage
of
the
size
of
the
transactions
that
we
process,
which
we
refer
to
as
payment
volume.
We
refer
to
paymentprocessing
fees
that
are
paid
to
us
by
merchants
for
collecting
payments
on
their
behalf
as
merchant
fees
and
to
payment
processing
fees
that
are
paid
by
ourconsumers
directly
to
us
or
transmitted
to
us
by
our
agents
as
consumer
fees.
We
typically
pass
on
a
portion
of
the
merchant
fees
to
our
agents.Key Measures of Financial and Operational PerformanceOur
management
monitors
our
financial
and
operational
performance
on
the
basis
of
the
following
measures.Financial MeasuresThe
following
table
presents
our
key
financial
measures
for
the
year
ended
December
31,
2014,
2015
and
2016.



Year ended December 31,



2014


2015


2016



(in
RUB
millions)
Adjusted
net
revenue
(1)


8,836



10,228



10,611
Adjusted
EBITDA
(1)


4,818



5,640



6,035
Adjusted
net
profit
(1)


3,496



4,142



4,714

(1)See
“Selected
Consolidated
Financial
and
Other
Data
—
Non-IFRS
Financial
Measures”
for
how
we
define
and
calculate
adjusted
net
revenue,
adjustedEBITDA,
and
adjusted
net
profit
as
non-IFRS
financial
measures
and
reconciliations
of
these
measures
to
revenue,
in
the
case
of
adjusted
net
revenue,
andnet
profit,
in
the
case
of
adjusted
EBITDA
and
adjusted
net
profit.Operating MeasuresThe
following
table
presents
our
key
operative
measures
for
the
year
ended
December
31,
2014,
2015
and
2016.



Year ended December 31,



2014

2015

2016



(in
RUB
millions,
unless
otherwise
indicated)
Payment
volume


645,422


860,329*


846,980
Active
kiosks
and
terminals
(units)
(1)


181,148


172,269


162,173
Active
Visa
Qiwi
Wallet
accounts
(at
period
end,
in
millions)
(2)


17.2


16.1


17.2
Average
net
revenue
yield
(3)


1.37%


1.19%*


1.25%

*The
amount
shown
here
do
not
correspondent
to
the
amounts
shown
in
Annual
Report
on
Form
20-F
for
the
year
ended
December
31,
2015
as
the
result
ofmethodological
adjustments
in
respect
of
Kazakhstan
business,
cost
allocation
and
several
other
internal
accounting
policies
made
to
the
calculation
of
ourpayment
volumes
as
well
as
distribution
of
payment
volumes
and
net
revenues
between
payment
categories.(1)We
measure
the
numbers
of
our
kiosks
and
terminals
on
a
daily
basis,
with
only
those
kiosks
and
terminals
being
taken
into
calculation
through
which
atleast
one
payment
has
been
processed
during
the
day,
which
we
refer
to
as
active
kiosks
and
terminals.
The
period
end
numbers
of
our
kiosks
and
terminalsare
calculated
as
an
average
of
the
amount
of
active
kiosks
and
terminals
for
the
last
30
days
of
the
respective
reporting
period.(2)Number
of
active
Visa
Qiwi
Wallet
accounts
is
defined
as
the
number
of
wallets
through
which
at
least
one
payment
has
been
made
or
that
have
been
loadedor
reloaded
in
the
12
months
preceding
the
end
of
the
relevant
reporting
period.(3)Average
net
revenue
yield
is
defined
as
adjusted
net
revenue
divided
by
payment
volume.
50Table of ContentsNumber of active kiosks and terminals .
We
measure
the
numbers
of
our
kiosks
and
terminals
on
a
daily
basis,
with
only
those
kiosks
and
terminals
beingtaken
into
calculation
through
which
at
least
one
payment
has
been
processed
during
the
day,
which
we
refer
to
as
active
kiosks
and
terminals.
The
period
endnumbers
of
our
kiosks
and
terminals
are
calculated
as
an
average
of
the
amount
of
active
kiosks
and
terminals
for
the
last
30
days
of
the
respective
reporting
period.From
December
31,
2015
to
December
31,
2016,
we
have
decreased
our
number
of
kiosks
from
115,000
to
113,000
and
decreased
the
number
of
terminals
from57,000
to
49,000.
Our
kiosks
and
terminals
can
be
found
next
to
convenience
stores,
in
train
stations,
post
offices,
retail
stores
and
airport
terminals
in
all
majorurban
cities
as
well
as
many
small
and
rural
towns
that
lack
large
bank
branches
and
other
financial
infrastructure.
While
the
number
of
our
kiosks
was
significantlyaffected
by
the
regulatory
developments
in
the
second
half
of
2015
(see
Item
3.D
Risk
Factors—Risks
Related
to
Our
Business
and
Industry—
A
decline
in
the
useof
cash
as
a
means
of
payment
or
a
decline
in
the
use
of
kiosks
and
terminals
may
result
in
a
reduced
demand
for
our
services),
we
believe
that
we
maintained
oreven
slightly
increased
our
market
share
of
our
network.Number of active Visa Qiwi Wallet accounts .
Number
of
active
wallets
represents
the
number
of
wallets
through
which
at
least
one
payment
has
been
madeor
which
has
been
loaded
in
the
12
months
preceding
the
end
of
the
relevant
reporting
period.
Number
of
active
wallets
is
a
measure
of
our
success
in
penetratingthe
market
and
expanding
our
virtual
distribution
channels.
Our
strategy
is
primarily
focused
on
quality
of
Visa
Qiwi
Wallet
usage
and
we
believe
we
are
able
toleverage
our
large,
active
base
of
over
56
million
consumers
who
use
our
kiosks
and
terminals
at
least
once
a
month
and
our
brand
recognition
and
presence
onsocial
media
platforms
to
drive
the
adoption
and
usage
of
the
Visa
Qiwi
Wallet.Payment volume .
Total
volume
provides
a
measure
of
the
overall
size
and
growth
of
our
business,
and
increasing
our
payment
volumes
is
essential
togrowing
our
profitability.
Payment
volumes
have
decreased
by
1.6%
in
2016
as
compared
to
2015
reaching
RUB
847
billion
for
the
year
ended
December
31,
2016mainly
as
a
result
of
the
weak
macroeconomic
climate
in
Russia
affecting
some
of
the
markets
that
we
service
as
well
as
decrease
of
our
kiosk
network
(seeItem
3.D
Risk
Factors—Risks
Related
to
Our
Business
and
Industry—
A
decline
in
the
use
of
cash
as
a
means
of
payment
or
a
decline
in
the
use
of
kiosks
andterminals
may
result
in
a
reduced
demand
for
our
services).
Payment
volumes
increased
by
33%
in
2015
as
compared
to
2014
mainly
as
a
result
of
acquisition
ofContact
and
Rapida.
The
following
factors
may
have
a
significant
impact
on
the
payment
volume:

•
Russian economy .
We
carry
out
our
operations
primarily
in
Russia.
Macroeconomic
conditions
in
Russia
significantly
impact
thevolume
of
payments
made
by
our
consumers.
During
periods
of
economic
growth,
overall
consumer
spending
tends
to
increase
alongwith
rises
in
wealth,
and
during
economic
downturns,
consumer
spending
tends
to
correspondingly
decline.
In
2016
we
haveexperienced
negative
pressure
on
our
payment
volumes
resulting
largely
from
general
economic
downturn
and
decreasing
real
wagesand
disposable
income
of
our
customers
as
well
as
other
market
specific
factors
affecting
some
of
our
categories
of
merchants.

•
Use of cash as a means of payment .
Changes
in
the
aggregate
use
of
cash
as
a
means
of
payment
is
an
important
variable
affecting
ourrevenues.
Cash
payments
are
the
principal
form
of
payment
in
Russia,
and,
as
a
result,
a
majority
of
our
payment
volumes
are
cash-based.
We
expect
cash
payments
to
continue
to
be
the
principal
means
of
payment
in
Russia
and
to
sustain
demand
for
use
of
our
kiosksand
terminals
in
the
near
future.
As
cash
payments
in
Russia
grow
in
absolute
terms,
we
expect
our
payment
volumes
tocorrespondingly
increase.
If
the
use
of
cash
as
a
mean
of
payment
declines
in
Russia,
it
would
negatively
impact
our
financial
results.

•
Increase in the volume of online transactions and the use of alternative payment methods .
The
volume
of
online
transactions
has
grownconsiderably
in
the
recent
years
and
continues
to
grow.
Similarly,
we
expect
the
use
of
both
banking
cards
and
alternative
paymentmethods
in
Russia,
such
as
smartphones
to
grow
considerably.
We
believe
that
growth
in
online
transactions
and
alternative
paymentmethods
will
be
an
important
driver
in
increasing
the
number
of
potential
merchants
for
which
we
can
offer
payment
services
and
inincreasing
the
potential
number
our
users.
However,
the
rapid
development
of
banking
card
transactions
in
online
could
hinder
thegrowth
in
alternative
payment
methods.

•
Consumer adoption .
We
have
actively
sought
new
merchants
to
offer
consumers
more
payment
choices
when
using
our
products.
Webelieve
that
growth
of
merchant
network
will
lead
to
more
consumers
using
our
payment
systems
more
frequently.
In
addition,
weactively
encourage
consumers
to
use
multiple
distribution
channels,
in
particular,
for
users
of
our
kiosks
and
terminals
network
to
createa
Visa
Qiwi
Wallet
account.
We
believe
that
the
synergies
offered
between
our
physical
and
virtual
distribution
networks
will
helpenhance
consumer
adoption
of
our
services
in
the
future.Average net revenue yield .
We
calculate
total
average
net
revenue
yield
by
dividing
adjusted
net
revenue
by
payment
volume.
Average
net
revenue
yieldprovides
a
measure
of
our
ability
to
generate
net
revenue
per
unit
of
volume
we
process.
Average
net
revenue
yield
was
1.37%,
1.19%
and
1.25%
in
2014,
2015,and
2016,
respectively.
In
2016,
average
net
revenue
yield
increased
by
6
bps
in
comparison
to
2015
primarily
as
a
result
of
an
increase
in
the
share
of
paymentvolumes
associated
with
higher
revenue
generating
transactions
such
as
e-commerce
and
certain
types
of
money
remittance
payments.
The
following
factors
haveinfluenced
average
net
revenue
yield:

•
We
have
experienced
a
changing
business
mix
towards
higher
yielding
transactions
which
are
primarily
e-commerce
and
moneyremittances,
whereas
lower
yielding
transaction,
such
as
telecoms,
have
declined
as
a
percentage
of
total
payment
volume.
51Table of Contents
•
We
have
experienced
a
decline
in
net
revenue
yields
derived
from
large
merchants
such
as
MNOs
since
they
have
a
substantialbargaining
power
over
the
payment
channels
they
use
including
our
network.
We
expect
that
the
net
revenue
yields
will
be
declining
incertain
verticals
such
as
E-Commerce
in
case
merchants
in
these
verticals
will
continue
to
gain
scale
and
accordingly
bargaining
powerwithin
our
network.

•
In
2015
our
net
revenue
yield
was
diluted
by
the
acquisition
of
Contact
and
Rapida
businesses
that
historically
operated
withsignificantly
lower
net
revenue
yields
than
Qiwi.
In
2016
we
renegotiated
some
of
the
contacts
to
more
favorable
terms,
however
weexpect
that
Contact
and
Rapida
will
continue
to
operate
with
a
lower
levels
of
yields
than
Qiwi
has
historically
operated.Sources of RevenueOur
primary
source
of
revenue
is
payment
processing
fees.
In
addition,
we
derive
revenue
from
interest
revenue,
gain
from
currency
swaps,
cash
andsettlement
services,
rent
of
space
for
kiosks,
advertising,
interest
revenue
from
agent’s
overdrafts,
and
other
revenue.Payment processing fees .
Payment
processing
fees
constitute
the
substantial
majority
of
our
revenue
and
comprise
of
fees
charged
for
processing
paymentstypically
based
on
a
percentage
of
the
total
volume
of
each
payment.
A
majority
of
our
payment
processing
fees
are
paid
to
us
by
merchants
for
collectingpayments
on
their
behalf,
which
we
refer
to
as
merchant
fees,
and
the
fees
paid
by
consumers,
which
we
refer
to
as
consumer
fees.
We
typically
pass
on
a
portionof
the
merchants
fees
to
our
agents.
In
certain
situations,
we
may
not
receive
any
merchant
fees,
for
example,
when
a
merchant
is
a
government
body.
We
generallyrecognize
merchant
fees
gross
at
the
point
when
merchants
accept
payments
from
the
consumer.
Consumer
fees
fall
into
two
categories
–
those
collected
by
usdirectly
and
those
collected
by
our
agents.
We
recognize
revenue
from
consumer
fees
charged
through
Visa
Qiwi
Wallet
or
Qiwi
Wallet
as
well
as
most
revenuefrom
consumer
fees
charged
through
our
kiosks
and
terminals
gross
at
the
point
when
the
consumer
makes
a
payment.
Additionally,
we
earn
revenues
from
fees
forinactive
accounts
and
unclaimed
payments,
writing
down
leftover
balances
when
our
customers
do
not
use
their
wallets
for
prolonged
periods
of
time
and
thewallets
are
deemed
to
be
inactive.Other sources of revenue .
In
addition
to
payment
processing
fees,
we
generate
revenue
from
various
other
sources
including
cash
and
settlement
services(representing
revenue
from
different
types
of
support
and
services
that
we
provide
to
our
agents),
advertising
revenue
(representing
revenue
from
displayingadvertising
on
our
kiosks,
through
short
message
service
and
various
messengers),
interest
revenue
on
agent’s
overdrafts
(representing
revenue
from
interest
earnedon
amounts
of
credit
that
we
provide
to
our
agents
for
them
to
be
able
to
operate
within
our
network),
interest
revenue
and
gain
from
currency
swaps
(representingrevenue
from
interest
earned
on
cash
deposits
with
financial
institutions,
and
short-
and
long-term
investments
performed
as
a
part
of
our
treasury
operations),revenue
from
rent
of
space
for
kiosks
(representing
revenue
from
rent
obtained
for
subleasing
retail
space
for
kiosks
to
our
agents)
and
other
revenue
(representingrevenue
primarily
generated
from
such
operations
as
software
licensing
for
our
processing
system
to
third
parties).Operating ExpensesCosts of revenue (exclusive of depreciation and amortization)Transaction costs .
When
payments
are
made
through
our
network,
we
incur
transaction
costs
to
our
agents,
which
represent
the
amount
of
fees
we
passthrough
to
agents
for
use
of
their
kiosks
and
terminals.
Additionally,
we
incur
transaction
costs
when
Visa
Qiwi
Wallet
consumers
reload
their
wallets.Compensation to employees and related taxes .
Payroll
and
related
taxes
represents
salaries
and
benefits
paid
to
employees,
primarily
IT
and
operatingservices
employees,
and
related
taxes,
where
such
payroll
and
related
taxes
are
associated
with
payment
processing
and
other
revenue-generating
activities.Ancillary expenses .
We
incur
other
expenses
in
addition
to
transaction
costs
and
payroll
and
related
taxes,
including
advertising
commission
(primarilyrepresenting
commission
we
pay
to
SMS
operators
and
our
agents
for
displaying
the
advertising),
cost
of
rent
of
space
for
kiosks
(representing
the
rental
paymentswe
make
to
retail
shop
owners
to
allow
agents
to
install
kiosks
on
their
premises
under
lease
arrangements)
and
other
expenses
(including
call
center
expenses(payment
to
call
center
provider
for
the
number
of
the
calls
serviced)
and
SMS
notification
expenses).Selling, general and administrative expensesSelling,
general
and
administrative
expenses
consists
primarily
of
payroll
and
related
taxes
for
our
senior
management,
finance,
legal
and
otheradministrative
staff,
advertising
and
related
expenses,
rent
of
premises
and
related
utility
expenses,
office
maintenance
expenses,
bad
debt
expense,
offeringexpenses,
taxes
other
than
income
taxes,
professional
fees
and
other
operating
expenses.Depreciation and amortizationDepreciation
is
calculated
on
property
and
equipment
on
a
straight-line
basis
from
the
time
the
assets
are
available
for
use,
over
their
estimated
useful
lives.Intangible
assets
are
amortized
on
a
straight-line
basis
over
their
useful
economic
lives,
unless
the
useful
life
is
indefinite.
We
do
not
amortize
intangible
assetswith
indefinite
useful
lives,
but
we
test
these
assets
for
impairment
annually,
either
individually
or
at
the
cash-generating
unit
level.
52Table of ContentsImpairment of intangible assetsAs
of
December
31,
2016
the
Group
identified
impairment
indicators
for
intangible
assets
allocated
to
Rapida
LTD
Cash
Generating
Unit
or
CGU
(customerrelationships
and
trademarks
identified
and
recognized
upon
acquisition)
as
a
result
of
the
overall
macroeconomic
slowdown
in
Russia
and
loss
of
certain
bankingpartners
and
agents
that
resulted
in
decreased
payment
volumes
associated
with
this
particular
CGU.
The
recoverable
amount
of
Rapida
LTD
CGU
was
determinedbased
on
a
value
in
use
calculations
using
updated
cash
flow
projections
that
took
into
account
decreased
turnovers
from
a
five-year
financial
model
covering
theperiod
of
2017-2021.
The
pre-tax
discount
rate
adjusted
to
risk
specific
applied
to
cash
flow
projections
of
Rapida
LTD
CGU
is
21%.
The
growth
rates
applied
todiscounted
terminal
value
projection
beyond
the
forecast
period
is
3%.
There
was
no
impairment
of
intangible
assets
in
2014
and
2015.Other Income and Expense ItemsLoss on disposal of subsidiariesIn
2016,
loss
on
disposal
of
subsidiaries
was
recorded
in
the
amount
of
RUB
10
million.
The
loss
is
related
to
the
disposal
of
Processingovyi
Tsentr
RapidaLLC
in
December
2016.
In
2015,
loss
on
disposal
of
subsidiaries
includes
the
disposal
of
CMT
Engineering
LLC
on
December
29,
2015
in
the
amount
of
RUB70
million
that
was
partially
offset
by
a
gain
from
disposal
of
IT
Billion
LLC
and
QIWI
USA
LLC
on
May
1,
2015
in
the
amount
of
RUB
32
million.
No
similarexpenses
were
incurred
in
2014.Other incomeOther
income
in
2016
included
a
variety
of
individually
insignificant
items;
in
2015
primarily
included
gain
from
sale
of
investments
and
income
frompenalties
charged
to
agents
for
violation
of
our
payment
system
terms
and
conditions.
Other
income
in
2014
primarily
included
income
from
depositary.Other expensesOther
expenses
in
2016
primarily
represented
discounts
recognized
on
loans
issued
at
rates
lower
than
market
rate,
tax
penalties
and
charitable
donations.
In2015
other
expenses
were
mostly
represented
by
discounts
recognized
on
guarantees
provided.
In
2014,
other
expenses
primarily
included
charitable
donations.Foreign exchange gain and lossForeign
exchange
gain
and
loss
arise
as
a
result
of
re-measurement
of
monetary
assets
and
liabilities
denominated
in
foreign
currencies
at
the
functionalcurrency
rate
of
exchange
at
the
reporting
date.
The
amount
of
foreign
exchange
gain
and
loss
for
the
reporting
period
is
directly
related
to
the
currency
ratesfluctuations.Interest incomeInterest
income
represents
primarily
interest
on
non-banking
loans
issued.Interest expenseInterest
expense
primarily
represents
interest
expense
accrued
on
bank
guarantees
issued
to
selected
merchants.Income tax expenseIncome
tax
expense
represents
current
and
deferred
income
taxes
with
respect
to
our
earning
in
countries
in
which
we
operate.
Deferred
tax
also
includestaxes
on
earnings
of
our
foreign
subsidiaries
that
have
not
been
remitted
to
us
to
the
extent
applicable
and
will
be
taxed
in
Cyprus
once
remitted.Critical accounting policies and significant estimatesThe
preparation
of
consolidated
financial
statements
in
conformity
with
IFRS
requires
management
to
make
judgments,
estimates
and
assumptions
thataffect
the
reported
amounts
of
assets
and
liabilities,
disclosures
of
contingent
assets
and
liabilities
at
the
reporting
dates
and
the
reported
amounts
of
revenues
andexpenses
during
the
reporting
periods.
The
most
significant
judgments
relate
to
the
recognition
of
revenue
and
functional
currency.
The
most
significant
estimatesand
assumptions
relate
to
determination
of
the
fair
values
of
assets
acquired
and
liabilities
assumed
in
business
combinations,
impairment
of
goodwill
andintangible
assets,
recoverability
of
deferred
tax
assets,
impairment
of
loans
and
receivables
and
measurement
of
costs
associated
with
share
based
payments.
Wehave
based
our
estimates
on
historical
experience
and
on
various
other
assumptions
that
we
believe
to
be
reasonable
under
the
circumstances,
the
results
of
whichform
the
basis
for
making
judgments
about
the
carrying
values
of
assets
and
liabilities
that
are
not
readily
apparent
from
other
sources.
Actual
results
maymaterially
differ
from
these
estimates
under
different
assumptions
or
conditions.An
accounting
policy
is
considered
to
be
critical
if
it
requires
an
accounting
estimate
to
be
made
based
on
assumptions
about
matters
that
are
highlyuncertain
at
the
time
the
estimate
is
made,
and
if
different
estimates
that
reasonably
could
have
been
used,
or
changes
in
the
accounting
53Table of Contentsestimates
that
are
reasonably
likely
to
occur
periodically,
could
materially
impact
the
consolidated
financial
statements.
We
believe
that
the
following
criticalaccounting
policies
are
the
most
sensitive
and
require
more
significant
estimates
and
assumptions
used
in
the
preparation
of
our
consolidated
financial
statements.You
should
read
the
following
descriptions
of
critical
accounting
policies,
judgments
and
estimates
in
conjunction
with
our
consolidated
financial
statements
andother
disclosures
included
in
this
annual
report.Revenue recognitionWe
exercise
significant
judgment
in
reaching
a
conclusion
about
our
accounting
policy
for
gross
versus
net
reporting
of
payment
processing
fees
and
relatedtransaction
costs.In
particular,
there
are
two
major
sources
of
payment
processing
fee
revenues:

•
Payment
processing
fees
charged
to
consumers
on
payments
collected
through
agents,
mobile
operators
and
other
payment
methods;
and

•
Payment
processing
fees
charged
to
merchants.Either
one
or
both
of
the
two
types
of
payment
processing
fees
above
apply
to
a
single
consumer
payment.
Transaction
costs
relate
to
acquisition
ofpayments
by
agents,
mobile
operators,
international
payment
systems
and
some
other
parties,
and
the
applicable
fees,
generally
determined
as
a
percentage
ofconsumer
payment,
for
each
specific
payment
channel
are
on
terms
similar
to
those
available
to
other
market
participants.A
merchant
fee,
when
it
is
charged,
is
recorded
gross
of
related
costs,
because
(i)
we
are
the
primary
obligor
as
we
undertake
to
transfer
the
customerpayment
to
the
merchant
using
our
payment
processing
system;
(ii)
we
negotiate
and
ultimately
set
the
commission
rate
receivable
from
a
merchant;
and
(iii)
webear
credit
risk
in
most
of
the
cases,
unless
the
payment
is
made
from
a
deposit
made
with
our
group.A
consumer
fee,
when
it
is
charged
on
payments
made
by
consumers
through
kiosks
and
terminals,
is
reported
net
of
any
fees
payable
to
or
retained
byagents.
This
is
because,
although
we
are
the
primary
obligor,
we
do
not
have
any
discretion
over
the
ultimate
commission
set
by
the
agent
as
a
kiosk
or
terminalowner
to
the
customer,
we
do
not
have
readily
available
information
about
the
gross
commission,
and
we
are
only
exposed
to
the
net
amount
of
commissionpayable
to
us
by
the
agent.A
consumer
fee
collected
through
mobile
operators
and
other
payment
methods
is
reported
gross
of
related
transaction
costs.
Such
payments
are
made
byconsumers
through
our
website
or
an
application
using
a
unique
user
login
and
password,
and
are
called
electronic
payments.
In
contrast
with
the
consumer
feecollected
through
kiosks
and
terminals,
we,
being
a
primary
obligor
in
electronic
payment
transactions,
also
set
the
consumer
fee,
although
credit
risk
for
thesetransactions
is
limited.
Thus,
we
have
concluded
that
our
ability
to
control
the
consumer
fee
for
electronic
payments
is
a
key
differentiator
from
the
customer
feeson
payments
collected
through
our
kiosks
and
terminals.SMS
advertising
revenues
are
recorded
gross
of
related
SMS
expenses
because
(i)
we
act
a
principal
in
the
transaction,
because
we
are
ultimately
responsiblefor
the
delivery
of
service,
(ii)
we
have
discretion
over
a
choice
of
SMS
delivery
channel,
and
(iii)
we
determine
the
price
and
bear
credit
risk.We
also
charge
a
fee
for
managing
special
guarantee
deposit
accounts
made
by
agents
to
cover
consumer
payments
they
accept.
Related
revenues
in
theamounts
of
RUB
757
million,
RUB
548
million,
and
RUB
130
million
for
the
years
ended
December
31,
2014,
2015,
and
2016
are
reported
gross
of
transactioncosts
paid
to
the
same
agents
for
collection
of
consumer
payments,
because
these
revenues
relate
to
a
separate
service
having
distinct
value
to
agents
and
providedat
their
discretion.Functional currencyEach
entity
in
the
Group
determines
its
own
functional
currency,
depending
on
the
economic
environment
it
operates
in,
and
items
included
in
the
financialstatements
of
each
entity
are
measured
using
that
functional
currency.Fair values of assets and liabilities acquired in business combinationsWe
recognize
separately,
at
the
acquisition
date,
the
identifiable
assets,
liabilities
and
contingent
liabilities
acquired
or
assumed
in
the
business
combinationat
their
fair
values,
which
involves
estimates.
Such
estimates
are
based
on
valuation
techniques,
which
require
considerable
judgment
in
forecasting
future
cashflows
and
developing
other
assumptions.
In
some
cases,
when
the
amounts
of
fair
values
are
significant,
we
hire
third
party
appraisers
to
assist
us
in
determiningthe
related
fair
values.Impairment of goodwill and intangible assetsWe
determine
the
following
Cash
Generating
Units
(GSU):
JSC
QIWI,
Visa
QIWI
Wallet,
Rapida
LTD
and
consider
that
goodwill
relates
to
the
group
ofthree
CGUs.
For
the
purpose
of
goodwill
impairment
test,
we
estimate
the
recoverable
amounts
of
group
of
three
CGUs
as
fair
value
less
costs
of
disposal
on
thebasis
of
quoted
prices
of
Company’s
ordinary
shares.
For
the
purpose
of
intangible
assets
with
indefinite
useful
life
impairment
test,
we
estimate
the
recoverableamounts
of
each
asset
as
fair
value
less
costs
of
disposal
on
the
basis
of
comparative
method
and
cost
approach.
For
the
purpose
of
intangible
assets
with
definiteuseful
life
impairment,
when
indicators
of
impairment
are
noted,
we
estimate
the
recoverable
amounts
as
higher
of
value
in
use
or
fair
value
less
costs
to
sell
of
anindividual
asset
or
the
CGU
to
which
this
asset
relates.
54Table of ContentsRecoverability of deferred tax assetsThe
utilization
of
deferred
tax
assets
will
depend
on
whether
it
is
possible
to
generate
sufficient
taxable
income
against
which
the
deductible
temporarydifferences
can
be
utilized.
Various
factors
are
used
to
assess
the
probability
of
the
future
utilization
of
deferred
tax
assets,
including
past
operating
results,operational
plans,
expiration
of
tax
losses
carried
forward,
and
tax
planning
strategies.The
allowance
relates
to
deferred
tax
assets,
which
were
not
recorded
because
we
do
not
expect
to
realize
certain
of
our
tax
loss
carry
forwards
in
theforeseeable
future
due
to
the
history
of
losses.Impairment of loans and receivablesOur
management
assesses
an
impairment
of
loans
and
receivables
to
account
for
estimated
losses
resulting
from
the
inability
of
customers
to
make
requiredpayments.
When
evaluating
the
adequacy
of
an
impairment
of
loans
and
receivables,
our
management
bases
its
estimates
on
the
aging
of
accounts
receivablebalances
and
loans
and
historical
write-off
experience,
customer
credit
worthiness
and
changes
in
customer
payment
terms.
If
the
financial
condition
of
customerswere
to
deteriorate,
actual
write-offs
might
be
higher
than
expected.Measurement of costs associated with share-based paymentsAs
of
December
31,
2016
we
had
two
outstanding
equity-based
compensation
programs:
Employee
Stock
Option
Plan
(ESOP)
and
Restricted
Stock
UnitsPlan
(RSU
Plan).
We
estimate
fair
value
of
ESOP
that
are
expected
to
vest
using
the
Black-Scholes-Merton
option
pricing
model
and
RSUs
that
are
expected
tovest
using
the
binominal
pricing
model
and
recognize
the
share-based
payment
expense
ratably
over
the
requisite
service
period
applicable
to
each
option
vestingtranche.
We
used
the
following
assumptions:



2012 Employee Stock Option Plan

2015 Restricted Stock Unit PlanAdoption
date

October,
2012

July,
2015Type
of
shares

Class
B
shares

Class
B
sharesNumber
of
options
or
RSUs
reserved

Up
to
7
%
of
total
amount
of
shares

Up
to
7
%
of
total
amount
of
sharesExercise
price

Granted
during:

Granted
during:

Year
2012:
U.S.
$
13.65

Year
2016:
n/a

Year
2013:
U.S.
$
41.24
-
46.57



Year
2014:
U.S.
$
34.09
-
37.89

Exercise
basis

Shares

SharesExpiration
date

December
2017

December
2022Vesting
period

Up
to
4
years

Three
vesting
during
up
to
2
yearsExpected
volatility
(%)

28
–
32.2

64.02Risk
free
interest
rate
(%)

0.29
-
3.26

2.99Dividend
yield
(%)

0
–
2.83

5.03Other
major
terms

The
options
are
not
transferrable

The
units
are
not
transferrableAll
other
terms
of
the
units
under2015
RSU
Plan
are
to
bedetermined
by
the
Company’sBoard
or
the
CEO,
if
so
resolved
bythe
Board,
acting
as
administratorof
the
PlanThe
expected
life
of
the
option
represents
the
period
during
which
our
option
awards
are
expected
to
be
outstanding.
The
expected
life
of
each
option
tranchewas
based
on
the
simplified
method
outlined
in
Staff
Accounting
Bulletin
No.
107,
Share-Based
Compensation.
This
method
is
also
in
line
with
the
requirements
ofIFRS
2
Share-Based
Payment.With
respect
to
price
volatility,
for
ESOP
(as
it
was
adopted
prior
to
our
initial
public
offering
and
we
did
not
have
an
active
trading
market
for
our
shares)we
estimated
the
volatility
of
our
shares
based
on
the
historical
volatility
of
peer
group
companies
over
a
period
which
approximates
our
expected
life
of
optionawards
and
for
the
RSU
we
used
the
historical
three
year
volatility
of
our
publicly
reports
share
price.We
based
the
risk-free
interest
rate
that
we
use
in
ESOP
model
on
the
implied
yield
currently
available
on
the
US
treasury
bonds,
adjusted
for
a
country
riskpremium,
with
a
remaining
term
approximating
the
expected
life
of
the
option
award
being
valued;
for
RSU
model
we
based
the
risk-free
interest
rate
on
RussianEurobonds
yield
curve
with
a
maturity
of
six
years.At
the
time
of
the
grant
date
of
ESOP
on
December
21,
2012,
we
expected
that
we
would
not
pay
cash
dividends
after
the
closing
of
the
initial
publicoffering.
In
light
of
that
expectation,
we
used
an
expected
dividend
yield
of
zero
in
our
option
pricing
model
for
option
awards
granted
in
the
year
endedDecember
31,
2012.
In
April
2013,
our
board
of
directors
subsequently
reconsidered
this
determination,
and
we
currently
expect
that
we
will
pay
dividends
fromtime
to
time
in
the
future.
Any
determination
regarding
the
amount
of
future
dividends
will
depend
on
a
range
of
factors,
including
the
availability
of
distributableprofits,
our
liquidity
and
financial
position,
our
strategic
plans
and
growth
initiatives,
restrictions
imposed
by
our
financing
arrangements,
tax
considerations,planned
acquisitions,
and
other
relevant
factors.
Taking
into
consideration
the
current
dividend
policy
for
dividend
distribution
in
the
near
term
we
estimateddividend
yield
for
RSU
plan
based
on
the
dividends
paid
during
the
previous
six
quarters.
55Table of ContentsWe
determined
the
amount
of
share-based
compensation
expense
based
on
awards
that
we
ultimately
expect
to
vest,
taking
into
account
estimatedforfeitures.
IFRS
requires
forfeitures
to
be
estimated
at
the
time
of
grant
and
revised,
if
necessary,
in
subsequent
periods
if
actual
forfeitures
differ
from
thoseestimates.
To
properly
attribute
compensation
expense,
we
are
required
to
estimate
pre-vesting
forfeitures
at
the
time
of
grant
and
revise
those
estimates
insubsequent
periods
if
actual
forfeitures
differ
from
those
estimates.
The
forfeiture
rate
used
in
valuation
models
granted
during
the
year
2016
is
15%.
It
is
based
onhistorical
data
and
current
expectations
and
is
not
necessarily
indicative
of
forfeiture
patterns
that
may
occur.Because,
prior
to
our
initial
public
offering,
there
had
been
no
public
market
for
our
shares,
with
the
assistance
of
an
independent
valuation
firm,
wedetermined
the
fair
value
of
our
shares
on
the
basis
of
valuations
of
our
company
arrived
at
by
employing
the
“income
approach”
and
the
“market
approach”valuation
methodologies
described
further
below.
Since
May
2013,
QIWI
plc
is
a
public
company
and
the
fair
value
of
its
shares
is
defined
by
reference
to
closingmarket
price
of
its
traded
shares.Results of OperationsSet
out
below
are
our
consolidated
statements
of
operations
data
for
the
years
ended
December
31,
2014,
2015
and
2016:



Years ended December 31,



2014*


2015*


2016



(in
RUB
millions)
Revenue


14,718



17,717



17,880
Cost
of
revenue
(exclusive
of
depreciation
and
amortization)


(7,273)



(8,695)



(8,646)
Selling,
general
and
administrative
expenses


(3,082)



(3,469)



(3,423)
Depreciation
and
amortization


(353)



(689)



(796)
Impairment
of
intangible
assets
and
goodwill


—




—




(878)














Profit from operations

 4,010 

 4,864 

 4,137 














Loss
on
disposal
of
subsidiaries


—




(38)



(10)
Other
income


42



20



7
Other
expenses


(30)



(43)



(76)
Foreign
exchange
gain


3,359



2,801



1,040
Foreign
exchange
loss


(1,428)



(1,360)



(1,963)
Share
of
loss
of
associates


(26)



—





—


Impairment
of
investment
in
associates


(25)



—





—


Interest
income


2



16



36
Interest
expense


(42)



(109)



(64)















Profit before tax

 5,862 

 6,151 

 3,107 














Income
tax
expense


(894)



(877)



(618)















Net profit

 4,968 

 5,274 

 2,489 














Attributable
to:





Equity
holders
of
the
parent


5,024



5,187



2,474
Non-controlling
interests


(56)



87



15

*The
amounts
shown
here
may
immaterially
differ
from
the
amounts
shown
in
Annual
report
on
Form
20-F
for
the
year
ended
December
31,
2015
due
torounding
adjustments.Set
out
below
are
our
consolidated
statements
of
operations
data
for
the
years
ended
December
31,
2014,
2015
and
2016
as
a
percentage
of
total
revenue:



Years ended December 31,



2014


2015


2016



(as
a
percentage
of
revenue)
Revenue


100.0



100.0



100.0
Cost
of
revenue
(exclusive
of
depreciation
and
amortization)


(49.4)



(49.1)



(48.4)
Selling,
general
and
administrative
expenses


(20.9)



(19.6)



(19.1)
Depreciation
and
amortization


(2.4)



(3.9)



(4.5)
Impairment
of
intangible
assets
and
goodwill


—




—




(4.9)Profit from operations

 27.2 

 27.5 

 23.1 Loss
on
disposal
of
subsidiaries


—




(0.2)



(0.1)
Other
income


0.3



0.1



0.0

56Table of ContentsOther
expenses


(0.2)



(0.2)



(0.4)
Foreign
exchange
gain


22.8



15.8



5.8
Foreign
exchange
loss


(9.7)



(7.7)



(11.0)
Share
of
loss
of
an
associates


(0.2)



—




—

Impairment
of
investment
in
associates


(0.2)



—




—

Interest
income


0.0



0.1



0.2
Interest
expense


(0.3)



(0.6)



(0.4)
Profit before tax

 39.8 

 34.7 

 17.4 Income
tax
expense


(6.1)



(5.0)



(3.5)
Net profit

 33.8 

 29.8 

 13.9 Attributable
to:



Equity
holders
of
the
parent


34.1



29.3



13.8
Non-controlling
interests


(0.4)



0.5



0.1
Year ended December 31, 2016 compared to year ended December 31, 2015RevenueSet
out
below
are
our
revenues,
by
source,
for
the
year
December
31,
2015
and
2016,
and
as
a
percentage
of
total
revenue:



Year ended December 31,



2015


2015


2016


2016



(in
RUBmillions)


(%
ofrevenue)


(in
RUBmillions)


(%
ofrevenue)
Revenue


17,717



100.0



17,880



100.0
Payment
processing
fees


14,935



84.3



16,289



91.1
Interest
revenue


859



4.9



917



5.1
Cash
and
settlement
services


557



3.1



130



0.7
Revenue
from
advertising


324



1.8



253



1.4
Ancillary
revenue


1,042



5.9



291



1.7
Revenue
for
the
year
ended
December
31,
2016
was
RUB
17,880
million,
an
increase
of
1%,
or
RUB
163
million,
compared
to
the
same
period
in
2015.This
increase
was
primarily
due
to
an
increase
in
payment
processing
fees
(including
fees
for
inactive
accounts
and
unclaimed
payments).
Payment
processing
fees(including
revenue
from
fees
for
inactive
accounts
and
unclaimed
payments)
for
the
year
ended
December
31,
2016
were
RUB
16,289
million,
an
increase
of
9%,or
RUB
1,354
million,
compared
to
the
same
period
in
2015.
The
increase
in
payment
processing
fees
resulted
primarily
from
an
increase
of
average
net
revenueyield
due
to
the
shift
in
payment
volume
mix
towards
higher
yielding
payment
categories,
such
as
E-commerce
and
Money
Remittance
as
opposed
to
loweryielding
payment
categories
such
as
Telecom,
an
increase
in
fees
for
inactive
accounts
and
unclaimed
payments
by
16%,
or
RUB
177
million,
from
RUB1,113
million
in
2015
to
RUB
1,290
million
in
2016
as
a
result
of
changes
to
the
write-off
policy,
partially
offset
by
a
decrease
in
payment
volumes
in
Telecom
andOther
market
verticals
following
the
contraction
of
our
kiosk
network
as
well
as
further
diversification
of
alternative
methods
(outside
of
QIWI’s
products)
for
freemobile
phone
top
up
available
to
the
consumers.The
number
of
active
Visa
Qiwi
Wallet
consumers
increased
to
17.2
million
as
of
December
31,
2016
from
16.1
million
as
of
December
31,
2015.
Theincrease
was
driven
mainly
by
our
marketing
activities.
The
number
of
our
kiosks
and
terminals
decreased,
with
162,173
active
kiosks
and
terminals
as
ofDecember
31,
2016
compared
to
172,269
as
of
December
31,
2015
primarily
as
a
result
of
regulatory
changes
further
described
in
“Item
3.D.
Risk
Factors—RisksRelated
to
Our
Business
and
Industry—A
decline
in
the
use
of
cash
as
a
means
of
payment
or
a
decline
in
the
use
of
kiosks
and
terminals
may
result
in
a
reduceddemand
for
our
services.”Interest
revenue
that
consists
primarily
of
interest
revenue
on
deposits
for
the
year
ended
December
31,
2016
was
RUB
917
million,
an
increase
of
7%,
orRUB
58
million,
compared
to
the
same
period
in
2015.
This
increase
was
primarily
due
to
increase
in
interest
income
on
deposits
placed
by
Rapida
LTD
in
April2016
that
remained
until
December
31,
2016.
In
2015,
a
similar
deposit
was
canceled
in
July,
and
Rapida
LTD
was
only
acquired
in
June
of
that
year.
The
increasein
2016
was
partly
offset
by
decrease
in
gain
from
currency
swaps
due
to
stabilization
of
ruble
exchange
rate.Revenue
from
cash
and
settlement
services
for
the
year
ended
December
31,
2016
was
RUB
130
million,
a
decrease
of
77%,
or
RUB
427
million,
comparedto
the
same
period
in
2015.
This
decrease
was
primarily
driven
by
the
decline
in
our
kiosk
network
and
corresponding
transaction
volumes.Advertising
revenue
for
the
year
ended
December
31,
2016
was
RUB
253
million,
a
decrease
of
22%,
or
RUB
71
million,
compared
to
the
same
period
of2015.
This
decline
primarily
resulted
from
a
decrease
of
activities
by,
or
termination
of
advertising
contracts
with,
a
number
of
clients
due
to
overall
economicdownturn.Ancillary
revenue
for
the
year
ended
December
31,
2016
was
RUB
291
million,
a
decrease
of
72%,
or
RUB
751
million,
compared
to
the
same
period
in2015,
primarily
due
to
(i)
a
decrease
of
revenue
from
sales
of
kiosks
by
99%
or
RUB
392
million
as
a
result
of
disposal
of
CMT
Engineering,
whose
primaryactivity
was
production
and
sales
of
kiosks,
in
December
2015,
(ii)
a
decrease
in
revenue
from
rent
of
space
for
kiosks
by
54%
or
RUB
157
million
as
a
result
ofdecrease
of
the
quantity
of
spaces
for
kiosks
following
the
termination
of
agreements
with
several
contractors
and
(iii)
a
decrease
of
interest
revenue
from
agent’soverdrafts
by
59%
or
RUB
177
million
primarily
resulting
from
the
decrease
of
demand
for
overdraft
facilities
by
our
agents.
57Table of ContentsOperating expensesSet
out
below
are
the
primary
components
of
our
operating
expenses
for
the
year
ended
December
31,
2015
and
2016,
and
as
a
percentage
of
total
revenue:



Year ended December 31,



2015

2015

2016

2016



(in
RUBmillions)

(%
ofrevenue)

(in
RUBmillions)

(%
ofrevenue)
Cost
of
revenue
(exclusive
of
depreciation
and
amortization)


(8,695)


(49.1)


(8,646)


(48.4)
Transaction
costs


(6,300)


(35.6)


(6,490)


(36.3)
Compensation
to
employees
and
related
taxes


(1,206)


(6.8)


(1,377)


(7.7)
Ancillary
expenses


(1,189)


(6.7)


(779)


(4.4)
Selling,
general
and
administrative
expenses


(3,469)


(19.6)


(3,423)


(19.1)
Depreciation
and
amortization


(689)


(3.9)


(796)


(4.5)
Cost of revenue (exclusive of depreciation and amortization)Cost
of
revenue
(exclusive
of
depreciation
and
amortization)
for
the
year
ended
December
31,
2016
was
RUB
8,646
million,
a
decrease
of
1%,
or
RUB49
million,
compared
to
the
same
period
in
2015.
Transaction
costs
increased
by
3%,
or
RUB
190
million,
in
the
year
ended
December
31,
2016,
compared
to
thesame
period
in
2015,
from
RUB
6,300
million
to
RUB
6,490
million
largely
due
to
entering
into
new
agreements
and
the
acquisition
of
Rapida
LTD
in
June
2015partially
offset
by
the
decrease
in
commission
to
agents
from
RUB
3,700
million
in
2015
to
RUB
3,218
million
in
2016
as
a
result
of
decline
in
the
number
ofkiosks.Compensation
to
employees
and
related
taxes
for
the
year
ended
December
31,
2016
was
RUB
1,377
million,
an
increase
of
14%,
or
RUB
171
million,compared
to
the
same
period
in
2015,
primarily
due
to
(i)
increase
in
payouts
of
termination
benefits
to
employees
in
2016;
(ii)
increase
bonus
payments
for
newly-hired
employees
relating
to
the
launch
of
new
projects
(e.g.
SOVEST)
and
(iii)
an
increase
in
share-based
payment
expenses
(start
of
2016
RSU
program).Ancillary
expenses
for
the
year
ended
December
31,
2016
were
RUB
779
million,
a
decrease
of
34%,
or
RUB
410
million,
compared
to
the
same
period
in2015.
The
decrease
in
ancillary
expenses
was
mainly
due
to
a
decrease
in
cost
of
kiosks
sold
from
RUB
332
million
in
2015
to
RUB
3
million
in
2016
as
a
result
ofthe
disposal
if
CMT
Engineering,
whose
primary
activity
was
production
and
sales
of
kiosks,
in
December
2015
and
a
decrease
in
the
cost
of
rent
of
space
forkiosks
by
RUB
67
million
from
RUB
213
million
in
2015
to
RUB
146
million
in
2016,
resulting
mainly
from
the
termination
of
agreements
with
severalcontractors.Adjusted net revenueAdjusted
net
revenue
for
the
year
ended
December
31,
2016
was
RUB
10,611
million,
an
increase
of
4%,
or
RUB
383
million,
compared
to
the
same
periodin
2015.
The
increase
in
adjusted
net
revenue
was
primarily
due
to
growth
of
payment
adjusted
net
revenue
where
an
increase
in
payment
average
net
revenue
yieldwas
partially
offset
by
the
decline
in
payment
volumes
as
well
as
increase
of
fees
for
inactive
accounts
and
unclaimed
payments
offset
by
a
decline
of
otheradjusted
net
revenue.
Average
net
revenue
yield
increased
by
6
bps,
from
1.19%
for
the
year
ended
December
31,
2015
to
1.25%
for
the
year
ended
December
31,2016.
Excluding
fees
for
inactive
accounts
and
unclaimed
payments,
average
net
revenue
yield
increased
by
4
bps,
from
1.06%
for
the
year
ended
December
31,2015
to
1.10%
for
the
year
ended
December
31,
2016.
The
increase
in
average
net
revenue
yield
is
primarily
due
to
an
increase
(as
a
percentage
of
paymentvolume)
of
higher
yielding
transactions
such
as
e-commerce
and
certain
categories
of
money
remittance
payments
and
a
decrease
lower
yielding
categories,
such
asTelecoms
and
Other.Selling, general and administrative expensesSelling,
general
and
administrative
expenses
for
the
year
ended
December
31,
2016
were
RUB
3,423
million,
a
decrease
of
1%,
or
RUB
46
million,
from2015.
This
decrease
resulted
primarily
from
decrease
in
bad
debt
expenses
from
RUB
362
million
in
2015
to
RUB
215
million
in
2016,
due
to
significant
accrualsfor
provisions
and
impairments
made
in
2015
and
a
decrease
in
advertising
and
related
expenses
by
32%,
or
RUB
77
million
due
to
the
optimization
of
advertisingexpenses
partially
offset
by
(i)
a
growth
of
payroll,
related
taxes
and
other
personnel
expenses
by
11%,
or
RUB
171
million,
from
RUB
1,511
million
in
2015
toRUB
1,682
million
in
2016
mostly
due
to
increase
in
share-based
payment
expenses
due
to
launch
of
the
new
RSU
plan
in
2016,
and
(ii)
an
increase
of
11%,
orRUB
35
million
in
office
maintenance
expenses
due
to
renovation
of
our
Moscow
office.
We
anticipate
that
our
SG&A
expenses
will
increase
in
2017
as
a
result
ofthe
roll
out
of
our
new
pay-by-installment
project
SOVEST.Depreciation and amortizationDepreciation
and
amortization
for
the
year
ended
December
31,
2016
was
RUB
796
million,
an
increase
of
16%,
or
RUB
107
million,
compared
to
the
sameperiod
in
2015.
The
depreciation
increase
resulted
primarily
from
the
capitalized
leasehold
improvements
associated
with
our
Moscow
office.
The
amortizationincrease
resulted
primarily
from
acquisition
of
CIHRUS
LLC
and
its
subsidiaries
in
June
2015,
mostly
from
purchase
of
customer
base
and
its
computer
softwareand
licenses
that
are
used
in
core
operating
activities.
58Table of ContentsOther non-operating gains and lossesOther expensesOther
expenses
for
the
year
ended
December
31,
2016
was
RUB
76
million,
an
increase
of
77%,
or
RUB
33
million,
compared
to
the
same
period
in
2015.The
increase
was
mainly
due
to
discount
amortization
on
loans
issued.Loss on disposal of subsidiariesLoss
on
disposal
of
subsidiaries
for
the
year
ended
December
31,
2016
was
RUB
10
million
compared
to
RUB
38
million
for
the
same
period
in
2015.
Theloss
in
2015
was
represented
by
the
loss
on
disposal
of
CMT
Engineering
LLC
on
December
29,
2015
that
amounted
to
RUB
70
million
that
was
partially
offset
bythe
gain
from
disposal
of
IT
Billion
LLC
and
QIWI
USA
LLC
on
May
1,
2015
that
amounted
to
RUB
32
million.
The
loss
on
disposal
in
2016
relates
to
sale
ofProcessingovyi
Tsentr
Rapida
LLC
in
December
2016.Interest expenseInterest
expense
for
the
year
ended
December
31,
2016
was
RUB
64
million,
a
decrease
of
41%,
or
RUB
45
million,
compared
to
the
same
period
in
2015.This
decrease
mainly
resulted
from
the
termination
of
VTB
guarantees
and
redemptions
of
most
of
the
borrowings
in
2015.Foreign exchange gainForeign
exchange
gain
for
the
year
ended
December
31,
2016
was
RUB
1,040
million,
a
decrease
of
RUB
1,761
million,
compared
to
the
same
period
in2015.
The
decrease
of
foreign
exchange
gain
was
primarily
a
result
of
a
revaluation
recorded
on
US
dollar
funds
received
from
June
2014
public
offering
due
to
theappreciation
of
the
U.S.
dollar
rate
against
Russian
ruble.Foreign exchange lossForeign
exchange
loss
for
the
year
ended
December
31,
2016
was
RUB
1,963
million,
an
increase
of
RUB
603
million,
compared
to
the
same
period
in
2015mainly
as
a
result
of
the
depreciation
of
the
U.S.
dollar
rate
against
Russian
ruble.Income taxIncome
tax
for
the
year
ended
December
31,
2016
amounted
to
RUB
618
million,
a
decrease
of
30%
(or
RUB
259
million)
compared
to
the
same
period
in2015,
due
to
a
decrease
of
profit
before
tax.
Our
effective
tax
rate
in
2016
was
19.9%,
an
increase
of
5.6
%
compared
to
the
same
period
in
2015,
due
to
change
instructure
of
profit
before
tax
that
was
affected
by
foreign
exchange
loss
in
low
tax
jurisdiction.Non-controlling interestsNet
gain
attributable
to
non-controlling
interests
for
the
year
ended
December
31,
2016
was
RUB
15
million,
a
decrease
of
83%,
or
RUB
72
million,compared
to
the
same
period
in
2015,
primarily
due
to
the
disposal
of
QIWI
USA
LLC
in
2015.Year ended December 31, 2015 compared to year ended December 31, 2014RevenueSet
out
below
are
our
revenues,
by
source,
for
the
year
December
31,
2014
and
2015,
and
as
a
percentage
of
total
revenue:



Year ended December 31,



2014*


2014


2015*


2015



(in
RUBmillions)


(%
ofrevenue)


(in
RUBmillions)


(%
ofrevenue)
Revenue


14,718



100.0



17,717



100.0
Payment
processing
fees


12,250



83.2



14,935



84.3
Interest
revenue


595



4.0



859



4.9
Cash
and
settlement
services


768



5.2



557



3.1
Revenue
from
advertising


289



2.0



324



1.8
Ancillary
revenue


816



5.6



1,042



5.9

*The
amounts
shown
here
may
immaterially
differ
from
the
amounts
shown
in
Annual
report
on
Form
20-F
for
the
year
ended
December
31,
2015
due
torounding
adjustments.Revenue
for
the
year
ended
December
31,
2015
was
RUB
17,717
million,
an
increase
of
20%,
or
RUB
2,999
million,
compared
to
the
same
period
in
2014.This
increase
was
primarily
due
to
an
increase
in
payment
processing
fees.
Payment
processing
fees
for
the
year
ended
December
31,
2015
were
RUB14,935
million,
an
increase
of
22%,
or
RUB
2,685
million,
compared
to
the
same
period
in
2014.
The
increase
in
59Table of Contentspayment
processing
fees
resulted
primarily
from
an
increase
in
payment
volumes
by
33%,
or
RUB
215
billion,
from
RUB
645
billion
in
2014
to
RUB
860
billion
in2015,
primarily
resulting
from
the
acquisition
of
Contact
and
Rapida,
the
growth
in
payment
volumes
in
higher
yielding
payment
categories,
such
as
E-commerceand
Money
Remittance
offset
by
a
decrease
of
average
net
revenue
yield
following
the
acquisition
and
consolidation
of
the
Contact
and
Rapida
businesses,
whichhistorically
were
lower
yielding,
and
an
increase
in
fees
from
inactive
accounts
and
unclaimed
payments
by
70%,
or
RUB
457
million,
from
RUB
656
million
in2014
to
RUB
1,113
million
in
2015
as
a
result
of
changes
to
the
write-off
policy
as
well
as
consolidation
of
Contact
and
Rapida.The
number
of
active
Visa
Qiwi
Wallet
consumers
decreased
to
16.1
million
as
of
December
31,
2015
from
17.2
million
as
of
December
31,
2014.
Thedecrease
was
driven
mainly
by
the
lower
marketing
expenditures
in
2015
as
compared
to
2014,
as
well
as
the
decrease
in
the
kiosk
network
in
Russia
that
started
inthe
second
half
of
2015
and
the
overall
economic
downturn
in
Russia
affecting
consumer
activity.
The
number
of
our
kiosks
and
terminals
decreased,
with
172,269active
kiosks
and
terminals
as
of
December
31,
2015
compared
to
181,148
as
of
December
31,
2014
primarily
as
a
result
of
regulatory
changes
further
described
in“Item
3.D.
Risk
Factors—Risks
Related
to
Our
Business
and
Industry—A
decline
in
the
use
of
cash
as
a
means
of
payment
or
a
decline
in
the
use
of
kiosks
andterminals
may
result
in
a
reduced
demand
for
our
services.”Interest
revenue
that
consists
primarily
of
interest
revenue
on
deposits
and
gain
on
currency
swaps
for
the
year
ended
December
31,
2015
was
RUB859
million,
an
increase
of
44%,
or
RUB
264
million,
compared
to
the
same
period
in
2014.
This
increase
was
primarily
driven
by
growth
of
deposits
partly
as
aresult
of
acquisition
of
Rapida
LTD.Revenue
from
cash
and
settlement
services
for
the
year
ended
December
31,
2015
was
RUB
557
million,
a
decrease
of
27%,
or
RUB
211
million,
comparedto
the
same
period
in
2014.
This
decrease
was
primarily
driven
by
the
decline
in
our
kiosk
network.Advertising
revenue
for
the
year
ended
December
31,
2015
was
RUB
324
million,
an
increase
of
12%,
or
RUB
35
million,
compared
to
the
same
period
of2014.
This
growth
primarily
resulted
from
an
increase
of
advertising
on
agents
kiosks
following
entry
into
new
advertising
agreements.Ancillary
revenue
for
the
year
ended
December
31,
2015
was
RUB
1,042
million,
an
increase
of
28%,
or
RUB
226
million,
compared
to
the
same
period
in2014,
primarily
due
to
an
increase
in
interest
revenue
on
agent’s
overdrafts
resulting
from
higher
market
rates
and
an
increase
in
revenue
from
sale
of
kiosksslightly
offset
by
a
decrease
in
revenue
from
rent
of
space
for
kiosks
as
a
result
of
more
favorable
terms
we
offered
to
our
agents.Operating expensesSet
out
below
are
the
primary
components
of
our
operating
expenses
for
the
year
ended
December
31,
2014
and
2015,
and
as
a
percentage
of
total
revenue:



Year ended December 31,



2014


2014


2015


2015



(in
RUBmillions)


(%
ofrevenue)


(in
RUBmillions)


(%
ofrevenue)
Cost
of
revenue
(exclusive
of
depreciation
and
amortization)


(7,273)



(49.4)



(8,695)



(49.1)
Transaction
costs


(5,079)



(34.5)



(6,300)



(35.6)
Compensation
to
employees
and
related
taxes


(1,391)



(9.5)



(1,206)



(6.8)
Ancillary
expenses


(803)



(5.5)



(1,189)



(6.7)
Selling,
general
and
administrative
expenses


(3,082)



(20.9)



(3,469)



(19.6)
Depreciation
and
amortization


(353)



(2.4)



(689)



(3.9)
Cost of revenue (exclusive of depreciation and amortization)Cost
of
revenue
(exclusive
of
depreciation
and
amortization)
for
the
year
ended
December
31,
2015
was
RUB
8,695
million,
an
increase
of
20%,
or
RUB1,422
million,
compared
to
the
same
period
in
2014.
Transaction
costs
increased
by
24%,
or
RUB
1,221
million,
in
the
year
ended
December
31,
2015,
comparedto
the
same
period
in
2014,
from
RUB
5,079
million
to
RUB
6,300
million.
Transaction
costs
increased
in
2015
as
compared
to
2014
primarily
due
to
increase
intransaction
volumes.Compensation
to
employees
and
related
taxes
for
the
year
ended
December
31,
2015
was
RUB
1,206
million,
a
decrease
of
13%,
or
RUB
185
million,compared
to
the
same
period
in
2014,
primarily
due
to
a
decrease
in
share-based
payment
expenses
and
bonus
payments
as
well
as
the
restructuring
of
employeesfrom
front
office
to
back
office
and
IT
resulting
in
the
wages
of
certain
employees
not
being
accounted
for
as
cost
of
revenue.Ancillary
expenses
for
the
year
ended
December
31,
2015
were
RUB
1,189
million,
an
increase
of
48%,
or
RUB
386
million,
compared
to
the
same
periodin
2014.
The
increase
in
ancillary
expenses
was
mainly
due
to
an
increase
in
cost
of
kiosks
sold
from
RUB
216
million
in
2014
to
RUB
332
million
in
2015,
growthof
the
cost
of
rent
of
space
for
kiosks
from
RUB
159
million
in
2014
to
RUB
213
million
in
2015,
resulting
mainly
from
new
projects
with
large
retail
networksthat
started
in
the
end
of
2014;
an
increase
in
call
center
expenses
from
RUB
189
million
in
2014
to
RUB
232
million
in
2015
and
SMS
and
voice
messagesexpenses
from
RUB
97
million
in
2014
to
RUB
241
million
in
2015
resulting
from
a
significant
growth
of
tariffs.
60Table of ContentsAdjusted net revenueAdjusted
net
revenue
for
the
year
ended
December
31,
2015
was
RUB
10,228
million,
an
increase
of
16%,
or
RUB
1,392
million,
compared
to
the
sameperiod
in
2014.
The
increase
in
adjusted
net
revenue
was
primarily
due
to
an
increase
in
payment
volume
as
well
as
fees
for
inactive
accounts
and
unclaimedpayments
offset
by
the
decline
of
net
revenue
yield.
Average
net
revenue
yield
decreased
by
18
bps,
from
1.37%
for
the
year
ended
December
31,
2014
to
1.19%for
the
year
ended
December
31,
2015.
Excluding
fees
for
inactive
accounts
and
unclaimed
payments,
average
net
revenue
yield
decreased
by
21
bps,
from
1.27%for
the
year
ended
December
31,
2014
to
1.06%
for
the
year
ended
December
31,
2015.
The
decrease
in
average
net
revenue
yield
is
primarily
due
to
consolidationof
the
historically
lower
yielding
Contact
and
Rapida
businesses
partly
offset
by
an
increase
(as
a
percentage
of
payment
volume)
of
higher
yielding
transactionssuch
as
E-commerce
and
a
decrease
in
transactions
with
lower
yields,
such
as
Telecoms.Selling, general and administrative expensesSelling,
general
and
administrative
expenses
for
the
year
ended
December
31,
2015
were
RUB
3,469
million,
an
increase
of
13%,
or
RUB
387
million,
from2014.
This
increase
resulted
primarily
from
growth
of
payroll,
related
taxes
and
other
expenses
by
12%,
or
RUB
162
million,
from
RUB
1,349
million
in
2014
toRUB
1,511
million
in
2015
due
to:
(i)
the
aforementioned
restructuring
which
resulted
in
transfer
of
salary
expenses
of
certain
employees
from
the
cost
of
revenueto
selling,
general
and
administrative
expenses;
(ii)
an
increase
in
payroll
expenses
of
newly
acquired
subsidiaries,
including
CIHRUS
LLC;
(iii)
increase
of
rublesalaries
of
foreign
subsidiaries
(denominated
in
foreign
currencies),
partially
offset
by
the
decrease
in
share-based
payment
expenses.
Further
selling,
general
andadministrative
expenses
were
affected
by
an
increase
in
bad
debt
expenses
from
RUB
151
million
in
2014
to
RUB
362
million
in
2015,
resulting
mainly
from
anincrease
in
reserves
for
receivables
from
several
of
QIWI’s
agents
who
have
shown
signs
of
financial
instability;
an
increase
of
rent
of
premises
expenses
fromRUB
242
million
in
2014
to
RUB
338
million
in
2015
primarily
due
to
higher
USD
rate;
an
increase
in
office
maintenance
expenses
from
RUB
236
million
in
2014to
RUB
310
million
in
2015
due
to
increased
automation
expenses;
and
the
increase
in
other
tax
expenses.
These
effects
were
partially
offset
by
a
decrease
inadvertising
and
related
expenses
by
53%,
or
RUB
271
million,
from
RUB
513
million
in
2014
to
RUB
242
million
in
2015
as
there
were
no
significant
marketingactivities
in
2015
as
compared
to
2014.Depreciation and amortizationDepreciation
and
amortization
for
the
year
ended
December
31,
2015
was
RUB
689
million,
an
increase
of
95%,
or
RUB
336
million,
compared
to
the
sameperiod
in
2014.
This
increase
resulted
primarily
from
the
depreciation
and
amortization
charge
associated
with
acquisition
of
CIHRUS
LLC
and
its
subsidiaries
aswell
as
acquisition
of
computer
software
and
hardware
used
in
core
operating
activities.Other non-operating gains and lossesImpairment of investment in associatesImpairment
of
investment
in
associates
for
the
year
ended
December
31,
2015
was
not
recognized
compared
to
RUB
25
million
in
the
year
endedDecember
31,
2014,
resulting
from
impairment
of
all
our
holdings
in
QIWI
BRASIL
TECNOLOGIA
DE
CAPTURA
E
PROCESSAMENTO
DE
TRANSAXESLTDA,
whose
operating
performance
significantly
deteriorated
in
2014.Other incomeOther
income
for
the
year
ended
December
31,
2015
was
RUB
20
million,
a
decrease
of
52%,
or
RUB
22
million,
compared
to
the
same
period
in
2014
as
noincome
from
depositary
was
recognized
in
2015.Loss on disposal of subsidiariesLoss
from
disposal
of
subsidiaries
for
the
year
ended
December
31,
2015
was
RUB
38
million
compared
to
the
nil
in
the
same
period
in
2014.
This
loss
wascomposed
of
loss
on
disposal
of
CMT
Engineering
LLC
on
December
29,
2015
amounted
to
RUB
70
million
that
was
partially
offset
by
a
gain
from
disposal
of
ITBillion
LLC
and
QIWI
USA
LLC
on
May
1,
2015
amounted
to
RUB
32
million.Share of loss of associatesShare
of
loss
of
associates
for
the
year
ended
December
31,
2015
was
nil,
a
decrease
of
RUB
26
million
compared
to
the
same
period
in
2014.
This
decreaseresulted
from
the
full
write-off
of
all
investments
in
associates.Interest expenseInterest
expense
for
the
year
ended
December
31,
2015
was
RUB
109
million,
an
increase
of
160%,
or
RUB
67
million,
compared
to
the
same
period
in2014.
This
increase
was
a
result
of
addition
of
new
interest
payments
on
loans
and
bank
guarantees
of
Rapida
LTD.Foreign exchange gainForeign
exchange
gain
for
the
year
ended
December
31,
2015
was
RUB
2,801
million,
a
decrease
of
RUB
558
million,
compared
to
the
same
period
in
2014.This
decrease
of
forex
gain
is
primarily
a
result
of
a
translation
gain
recorded
on
US
dollar
funds
received
from
June
2014
public
offering.
61Table of ContentsForeign exchange lossForeign
exchange
loss
for
the
year
ended
December
31,
2015
was
RUB
1,360
million,
a
decrease
of
RUB
68
million,
compared
to
the
same
period
in
2014as
a
result
of
volatility
of
the
Russian
ruble.Income taxIncome
tax
for
the
year
ended
December
31,
2015
was
RUB
877
million
a
decrease
of
2%,
or
RUB
17
million,
compared
to
the
same
period
in
2014,
due
toa
decrease
in
tax
on
dividends.
As
a
result
our
effective
tax
rate
decreased
insignificantly
(by
approximately
1.0
per
cent).Non-controlling interestsNet
gain
attributable
to
non-controlling
interests
for
the
year
ended
December
31,
2015
was
RUB
87
million,
an
increase
of
255%,
or
RUB
143
million,compared
to
the
same
period
in
2014,
primarily
as
a
result
of
the
disposal
of
QIWI
USA
LLC.
B.Liquidity and capital resourcesOur
principal
sources
of
liquidity
are
cash
on
hand,
deposits
received
from
agents
and
consumers,
and
revenues
generated
from
our
operations.Our
principal
needs
for
liquidity
have
been,
and
will
likely
continue
to
be,
deposits
with
merchants
and
other
working
capital
items,
capital
expenditures
andacquisitions.
We
may
seek
to
raise
additional
liquidity
(through
the
capital
markets
or
through
bank
financing)
in
order
to
finance
the
development
of
our
new
pay-by-installment
project
SOVEST
or
for
other
potential
projects.
We
believe
that
our
working
capital
is
sufficient
to
meet
our
current
obligations.Our
balance
of
cash
and
cash
equivalents
as
of
December
31,
2016
was
RUB
18,997
million
compared
to
RUB
19,363
million
as
of
December
31,
2015
andRUB
17,080
million
as
of
December
31,
2014.
Cash
and
cash
equivalents
comprise
predominantly
cash
at
banks
and
short-term
deposits
with
an
original
maturityof
three
months
or
less.An
important
part
of
our
credit
risk
management
and
payment
settlement
strategy
relies
on
deposits
we
receive
from
agents
in
advance
for
payments
madethrough
the
kiosks.
When
a
payment
is
made
through
a
kiosk,
we
offset
these
deposits
against
the
payments
we
make
to
the
merchant.
For
certain
agents
withwhom
we
have
long
and
reliable
relationships,
we
provide
limited
credit
support
in
the
form
of
overdrafts
and
loans
for
payment
processing.Similarly,
certain
of
our
merchants
(primarily
the
Big
Three
MNOs
and
Visa)
request
that
we
make
deposits
with
them
in
relation
to
payments
processedthrough
our
system.
Whenever
a
customer
makes
a
payment
to
a
merchant
with
whom
we
have
made
a
deposit,
that
payment
gets
offset
against
the
deposit
heldwith
the
respective
merchant.As
of
December
31,
2016,
deposits
received
from
agents
and
individual
customers
were
RUB
7,991
million,
compared
to
RUB
9,343
million
as
ofDecember
31,
2015
and
RUB
15,231
million
as
of
December
31,
2014.
The
decrease
was
primarily
driven
by
lower
deposits
received
from
agents
as
a
result
of
thedecline
in
the
number
of
agents
and
payment
volumes
going
through
kiosks
and
contraction
of
working
capital
financing
options
available
to
our
agents.
As
ofDecember
31,
2016,
deposits
issued
to
our
merchants
were
RUB
2,315
million,
compared
to
RUB
2,723
million
as
of
December
31,
2015
and
RUB
4,331
millionas
of
December
31,
2014.
The
decline
predominantly
resulted
from
partial
substitution
of
deposits
with
bank
guarantees.
At
the
same
time
cash
receivable
fromagents
increased
from
RUB
521
million
as
of
December
31,
2014
to
RUB
1,980
million
as
of
December
31,
2015
and
RUB
2,998
million
as
of
December
31,
2016.The
increase
in
2016
as
compared
to
year
ended
December
31,
2015
is
mostly
a
result
of
outstanding
cash
receivables
from
several
new
agents
and
holidays
timing(December
31,
2016
was
a
holiday
in
Russia
in
2016,
but
not
in
2015
when
it
was
a
working
day)
that
resulted
in
more
cash
receivables
from
agents
beingaccumulated.Capital ExpendituresOur
capital
expenditures
primarily
relate
to
the
acquisition
of
IT
equipment
for
our
processing
systems
and
leasehold
improvements
as
well
as
the
acquisitionof
the
software
that
we
use
in
our
operations
as
well
as
for
the
R&D.
Capital
expenditures
were
RUB
680
million
for
the
year
ended
December
31,
2016,
including(i)
RUB
182
million
related
to
the
acquisition
of
computer
software;
(ii)
RUB
113
million
related
to
the
acquisition
of
the
processing
servers
and
engineeringequipment;
(iii)
RUB
102
million
related
to
the
leasehold
improvements;
(iv)
RUB
61
million
related
to
the
prepayments
for
the
acquisition
of
computer
software;(v)
RUB
49
million
related
to
the
internal
development
of
R&D
projects
and
(vi)
RUB
173
million
related
to
other
capital
expenditures
including
the
acquisition
ofoffice
equipment,
construction
in
progress
and
other
equipment.For
the
year
ended
December
31,
2015
our
capital
expenditures
were
RUB
314
million
and
included:
(i)
RUB
226
million
related
to
the
acquisition
ofcomputer
software
(ii)
RUB
44
million
related
to
the
acquisition
of
the
processing
servers
and
engineering
equipment,
and
(iii)
RUB
44
million
related
to
theacquisition
of
computer,
office,
construction
in
progress
and
other
equipment.For
the
year
ended
December
31,
2014
our
capital
expenditures
were
RUB
407
million
that
included:
(i)
approximately
RUB
135
million
that
related
to
theacquisition
of
the
processing
servers
and
engineering
equipment;
(ii)
approximately
RUB
42
million
that
related
to
the
acquisition
of
computer,
office
and
otherequipment,
and
(iii)
approximately
RUB
226
million
that
related
to
the
acquisition
of
computer
software
or
advances
for
computer
software.
62Table of ContentsAs
of
December
31,
2016we
had
no
material
capital
expenditure
commitments.Cash FlowThe
following
table
summarizes
our
cash
flows
for
the
years
ended
December
31,
2014,
2015
and
2016:



December 31,



2014


2015


2016



(in
RUB
millions)
Net
cash
flow
(used
in)/generated
from
operating
activities


4,755



(1,007)


5,543
Net
cash
flow
(used
in)/generated
investing
activities


(1,602)



3,556



180
Net
cash
flow
(used
in)/generated
financing
activities


179



(1,893)


(4,637)
Effect
of
exchange
rates
on
cash
and
cash
equivalents


2,126



1,612



(1,428)Net
increase/(decrease)
in
cash
and
cash
equivalents


5,458



2,268



(342)Cash
and
cash
equivalents
at
the
beginning
of
the
period


11,637



17,095



19,363
Cash
and
cash
equivalents
at
the
end
of
the
period


17,095



19,363



19,021
Cash flows from operating activitiesNet
cash
generated
from
operating
activities
for
the
year
ended
December
31,
2016
was
RUB
5,543
million,
compared
to
net
cash
used
in
operating
activitiesof
RUB
1,007
million
for
the
same
period
in
2015.
The
increase
in
net
cash
flow
from
operating
activities
is
a
result
of
changes
in
working
capital,
primarily
anincrease
in
accounts
payable
and
accruals
partially
offset
by
increase
in
trade
and
other
receivables.
In
2016,
our
working
capital
balances
returned
to
a
moreordinary
course
of
business,
as
our
agents
stabilized
their
businesses
after
more
stringent
regulation
by
the
CBR
and
the
overall
deterioration
of
the
Russianeconomy
in
2015.Net
cash
used
in
operating
activities
for
the
year
ended
December
31,
2015
was
RUB
1,007
million,
compared
to
net
cash
generated
in
operating
activities
ofRUB
4,755
million
for
the
same
period
in
2014.
The
decrease
in
net
cash
flow
from
operating
activities
is
a
result
of
changes
in
working
capital,
primarily
adecrease
in
accounts
payable
and
accruals
partially
offset
by
decrease
in
trade
and
other
receivables.
The
sharp
decrease
in
accounts
payables
and
accruals
isprimarily
due
to
the
decrease
in
deposits
received
from
agents
as
of
December
31,
2015
compared
to
December
31,
2014.
Deposits
received
from
agentssignificantly
declined
in
2015
compared
to
2014
due
to
the
decrease
of
our
agent
network
and
the
financial
instability
of
some
of
our
agents,
as
a
result
of
morestringent
regulation
by
the
CBR
and
the
overall
deterioration
of
the
Russian
economy
in
2015.Cash flows from investing activitiesNet
cash
inflow
generated
from
investing
activities
for
the
year
ended
December
31,
2016
was
RUB
180
million,
compared
to
RUB
3,556
million
for
thesame
period
in
2015.
The
decrease
in
net
cash
flow
was
primarily
a
result
of
a
significant
amount
of
net
cash
acquired
upon
business
combination
or
RUB3,181
million
in
2015
compared
RUB
10
million
of
net
cash
used
in
business
combination
in
2016.Net
cash
inflow
generated
from
investing
activities
for
the
year
ended
December
31,
2015
was
RUB
3,556
million,
compared
to
net
cash
outflow
in
investingactivities
RUB
1,602
million
for
the
same
period
in
2014.
The
increase
in
net
cash
flow
was
primarily
due
to:
(i)
a
significant
amount
of
net
cash
acquired
uponbusiness
combination
of
RUB
3,181
million
in
2015
compared
to
nil
in
2014;
and
(ii)
higher
net
cash
inflow
from
the
redemption
of
debt
instruments
and
lesspurchases
of
the
new
debt
instruments
in
2015
as
compared
with
2014,
resulting
from
our
declining
use
of
these
instruments
as
collateral
with
large
merchants.Cash flows used in financing activitiesNet
cash
used
in
financing
activities
for
the
year
ended
December
31,
2016
was
RUB
4,637
million,
compared
to
RUB
1,893
million
for
the
same
period
in2015.
The
increase
in
net
cash
used
in
financing
activities
was
primarily
due
to
the
fact
that
we
paid
an
additional
RUB
3,929
million
in
dividends
to
ourshareholders
in
2016
compared
to
2015.This
increase
was
partially
offset
by
a
decrease
in
the
repayment
of
borrowings
in
2016
as
a
result
of
the
settlement
ofoutstanding
debt
in
2015.Net
cash
used
in
financing
activities
for
the
year
ended
December
31,
2015
was
RUB
1,893
million,
compared
to
net
cash
generated
from
financing
activitiesin
the
amount
of
RUB
179
million
for
the
same
period
of
2014.
The
decrease
in
net
cash
from
financing
activities
was
primarily
due
to:
(i)
no
cash
inflow
from
theissue
of
share
capital
in
2015
compared
to
2014
when
it
amounted
to
RUB
3,044
million;
(ii)
we
paid
RUB
2,242
million
less
dividends
to
our
shareholders
in
2015compared
to
2014;
and
(iii)
cash
outflow
due
to
the
repayment
of
borrowings
acquired
upon
business
combinations
in
the
amount
of
RUB
1,252
million
in
2015compared
to
RUB
1
million
in
2014.BorrowingsDuring
the
year
ended
December
31,
2016
the
Group
used
overdraft
credit
facilities
with
an
overall
credit
limit
of
RUB
1,460
million,
with
maturity
fromNovember
2017
to
August
2018,
and
interest
rates
up
to
30%
per
annum.
The
balance
payable
under
these
credit
lines
as
of
December
31,
2016
was
zero.
Some
ofthese
agreements
stipulated
the
right
of
a
lender
to
increase
the
interest
rate
in
case
covenants
are
violated.
In
previous
years
some
of
the
overdraft
credit
facilityagreements
were
guaranteed
by
the
Group’s
CEO.
63Table of ContentsC.Research and development, patents and licenses, etc.See
Item
4.B,
“Business
Overview
—
Intellectual
Property.”
D.Trend informationOther
than
as
disclosed
elsewhere
in
this
annual
report,
we
are
not
aware
of
any
trends,
uncertainties,
demands,
commitments
or
events
for
the
year
endedDecember
31,
2016
that
are
reasonably
likely
to
have
a
material
adverse
effect
on
our
net
revenues,
income,
profitability,
liquidity
or
capital
resources,
or
thatwould
cause
the
disclosed
financial
information
to
be
not
necessarily
indicative
of
future
operating
results
or
financial
conditions
E.Off-balance sheet arrangementsWe
do
not
have
any
off-balance
sheet
financing
arrangements.
F.Tabular disclosure of contractual obligationsThe
following
table
sets
forth
our
contractual
obligations
as
of
December
31,
2016:



Total


less thanone year


one to three years


three to five years


more than fiveyears



(in
RUB
millions)
Operating
lease
obligations


827



244



391



192



—

Purchase
contractual
obligations


210



210



—





—




Total
contractual
obligations


1,037



454



391



192



—


G.Safe harborSee
“Special
Note
Regarding
-
Forward
Looking
Statements”
on
page
1
of
this
annual
report.
ITEM 6.Directors, Senior Management and Employees
A.Directors and Senior Management.Directors and Executive OfficersThe
following
table
sets
forth
information
regarding
our
directors
and
executive
officers
as
of
the
date
of
this
annual
report.
Name

Age

PositionBoris
Kim

53

Director,
Chairman
of
the
BoardSergey
Solonin

43

Director,
Chief
Executive
OfficerAndrey
Romanenko

37

DirectorRohinton
Minoo
Kalifa

55

Independent
DirectorOsama
Bedier

41

Independent
DirectorMarcus
Rhodes

55

Independent
DirectorDavid
Birch

57

Independent
DirectorAndrey
Protopopov

35

Head
of
IT
and
ProductAlexander
Karavaev

41

Chief
Financial
OfficerBiographiesAndrey
Romanenko.
Mr.
Andrey
Romanenko
has
served
as
our
director
since
December
2010
and
as
chairman
of
our
board
of
directors
since
October
2012until
June
2014.
Mr.
Romanenko
is
an
entrepreneur
and
has
over
16
years
of
experience
in
the
payment
services
and
banking
industries.
He
is
one
of
the
co-founders
of
our
predecessor,
OSMP,
and
from
July
2007
until
October
2012
served
as
our
chief
executive
officer.
Since
March
2011,
Mr.
Romanenko
has
been
apartner
of
two
venture
funds,
AddVenture
III
and
iTech
Capital
and
is
a
partner
of
Run
Capital
venture
fund
since
2014.
Mr.
Romanenko
served
as
a
member
of
theboard
of
directors
of
Qiwi
Bank
from
June
2009
to
April
2015.
Mr.
Romanenko
is
a
Chief
Executive
Officer
of
Evotor
LLC
since
June,
2016.
Mr.
Romanenkograduated
from
International
Independent
University
of
Environmental
and
Political
Sciences
in
2000
with
a
degree
in
financial
management.Sergey
Solonin.
Mr.
Sergey
Solonin
has
served
as
our
director
since
December
2010
and
as
our
chief
executive
officer
since
October
2012.
Mr.
Solonin
is
anentrepreneur
and
has
over
14
years
of
experience
in
the
payment
services
and
banking
industries.
He
is
one
of
the
co-founders
of
OSMP
and
from
April
2009
untilOctober
2012
served
as
an
advisor
to
the
president
on
financial
matters
at
OSMP.
Mr.
Solonin
is
a
General
64Table of ContentsDirector
of
QIWI
JSC
since
January,
2014
and
of
Association
for
Development
of
Financial
Technologies
since
January,
2017.
He
also
serves
on
the
board
ofdirectors
of
Qiwi
Bank
and
from
March
1999
until
September
2009
was
the
chairman
of
its
board
of
directors.
Mr.
Solonin
is
also
one
of
the
two
directors
of
iTechAdvisors
Ltd.
Mr.
Solonin
graduated
from
the
Distance-Learning
Institute
of
Finance
and
Economics
(now
part
of
Financial
University
under
the
Government
ofthe
Russian
Federation)
in
1996
with
a
degree
in
economics.Osama
Bedier.
Mr.
Osama
Bedier
has
served
as
our
director
since
June
2,
2014.
He
founded
and
led
Wallet
&
Payments
at
Google
for
two
and
a
half
yearsstarting
January
2011.
Prior
to
Google,
Mr.
Bedier
spent
8
years
running
product
development
at
PayPal
starting
from
April
2003.
He
has
also
held
engineeringleadership
roles
since
the
dawn
of
the
web
at
organizations
such
as
eBay,
Gateway
Computers
and
AT&T
wireless.Rohinton
Minoo
Kalifa.
Mr.
Ron
Kalifa
has
served
as
our
director
since
June
2,
2014.
He
was
appointed
Deputy
Chairman
of
Worldpay
in
April
2013.
From2003,
Mr.
Kalifa
was
CEO
of
Worldpay.
Before
becoming
CEO,
Mr.
Kalifa
held
various
roles
within
RBS
where
he
built
the
Worldpay
business.
Mr.
Kalifa
hasbeen
a
non-executive
director
of
Visa
Europe
since
September
2011.
Mr.
Kalifa
is
also
a
member
of
the
UK
Cards
Association.
He
has
been
recognized
as
IndustryPersonality
of
the
Year
for
his
work
in
the
Payments
sector.
Mr.
Kalifa
studied
Executive
Education
at
Harvard
Business
School.Boris
Kim.
Mr.
Boris
Kim
has
served
as
our
director
since
May
2013
and
as
chairman
of
our
board
of
directors
since
June
2014.
Mr.
Kim
is
an
entrepreneurwith
over
18
years
of
experience
in
the
payment
services
industry.
He
is
also
the
head
of
the
payment
networks
and
banking
instruments
committee
at
the
RussianE-Market
Participants
National
Association.
He
is
one
of
the
co-founders
of
e-port
payment
system
and
served
as
its
chief
executive
officer
from
November
2004until
September
2007
and
from
September
2007
until
February
2010
was
an
advisor
to
the
chief
executive
officer
of
e-port.
From
October
1999
until
October
2004,Mr.
Kim
was
advisor
to
the
chairman
of
the
board
of
the
banking
and
financial
group
Zerich.
From
September
1993
until
January
1999
he
was
a
chairman
of
themanagement
board
of
Chastny
Bank.
Mr.
Kim
graduated
from
Lomonosov
Moscow
State
University
in
1985
with
a
degree
in
chemistry,
Russian
Institute
ofFinance
and
Economics
in
1996
with
a
degree
in
finance,
Moscow
State
Law
Academy
in
2000
with
a
degree
in
law
and
Lomonosov
Moscow
State
University
in2004
with
a
degree
in
psychology
and
a
degree
in
philosophy.Marcus
Rhodes.
Mr.
Marcus
Rhodes
has
served
as
our
director
since
May
2013.
He
is
also
an
independent
director
and
chairman
of
the
audit
committee
forZoltav
Resources
(since
May
2014)
and
PhosAgro
(since
May
2011).
From
September
2009
to
June
2015
Mr.
Rhodes
was
an
independent
director
and
chairman
ofthe
audit
committee
for
Tethys
Petroleum,
from
July
2008
until
June
2011
an
independent
director
and
chairman
of
the
audit
committee
for
Wimm-Bill-DannFoods,
from
February
2009
to
May
2016
for
Cherkizovo
Group
and
from
November
2009
until
June
2011
for
Rusagro
Group.
Mr.
Rhodes
was
an
audit
partner
forErnst
&
Young
from
2002
until
2008.
Prior
to
that,
he
was
an
audit
partner
for
Arthur
Andersen
from
1998
until
2002.
He
qualified
as
a
chartered
accountant
in1986
and
is
a
member
of
the
Institute
of
Accountants
in
England
&
Wales
(ICAEW).
Mr.
Rhodes
graduated
with
a
BA
(Hons)
from
Loughborough
University
in1982
with
a
degree
in
economics
&
social
history.David
Birch.
Mr.
David
Birch
has
served
as
our
director
since
June
2,
2016.
He
is
also
a
Director
of
Innovation
at
Consult
Hyperion,
the
secure
electronictransactions
consultancy,
and
a
Visiting
Lecturer
at
the
University
of
Surrey
Business
School.
He
is
an
internationally
recognized
thought
leader
in
digital
identityand
digital
money.
Mr.
Birch
has
a
B.Sc
(Hons.)
in
Physics
from
the
University
of
Southampton,
England,
awarded
in
1980.Alexander
Karavaev.
Mr.
Alexander
Karavaev
has
served
as
our
chief
financial
officer
since
July
2013.
Mr.
Karavaev
has
over
15
years
of
experience
infinance
and
accounting.
From
August
2012
to
July
2013,
Mr.
Karavaev
served
as
our
chief
operating
officer.
Before
joining
us,
from
November
2008
untilSeptember
2011
Mr.
Karavaev
was
a
chief
financial
officer
of
Mail.ru.
He
also
previously
served
as
a
nominee
director
for
Mail.ru
on
our
board
of
directors.Previously,
Mr.
Karavaev
was
a
chief
financial
officer
of
Akado
Group
(a
subsidiary
of
Renova
Holding)
between
March
2008
and
October
2008
and
a
deputychief
financial
officer
at
Renova
between
May
2007
and
October
2008.
He
was
also
vice
president
of
development
of
financial
systems
at
SUAL
Holding
fromDecember
2003
until
May
2007.
Mr.
Karavaev
started
his
career
at
the
audit
department
of
Arthur
Andersen
in
July
1997
and
after
moving
to
Ernst
&
Young
inMay
2001
worked
at
the
audit
and
business
consulting
departments
until
December
2003.
Mr.
Karavaev
graduated
with
honors
from
Siberian
Aerospace
Academyin
1998
with
a
degree
in
economics,
majoring
in
management
and
strategic
planning.
Concurrently,
between
September
1996
and
October
1997,
he
attended
theUniversity
Passau
in
Germany,
studying
strategic
planning.Andrey
Protopopov.
Mr.
Andrey
Protopopov
has
served
as
our
head
of
IT
and
product
since
June
2015,
before
this
he
served
as
head
of
product
managementfrom
September
2013
to
June
2015.
Mr.
Protopopov
has
over
12
years
of
commercial
and
product
managing
experience.
Before
joining
QIWI,
Mr.
Protopopovworked
at
Procter
&
Gamble
for
12
years,
holding
numerous
positions
in
market
strategy
and
planning
as
well
as
business
development.
Mr.
Protopopov
graduatedfrom
Novosibisrsk
State
University
in
2004
with
a
masters
degree
in
mathematics.
B.Compensation.Compensation of Directors and Executive OfficersUnder
our
articles
of
association,
our
shareholders
determine
the
compensation
of
our
directors
from
time
to
time
at
a
general
meeting
of
our
shareholders,our
board
of
directors
determines
the
compensation
of
our
chief
executive
officer
(which
power
has
been
delegated
to
the
compensation
committee).
Thecompensation
of
our
other
executive
officers
is
determined
by
our
chief
executive
officer
while
our
board
of
directors
approves
corporate
key
performanceindicators
(“cKPI”)
and
total
bonus
pool
for
those
executive
officers.
In
case
of
underperformance
of
KPIs
a
right
to
make
a
final
decision
on
bonus
pooldistribution
is
left
with
the
Board.
65Table of ContentsFor
the
year
ended
December
31,
2016,
the
aggregate
remuneration
paid
(comprising
salary,
discretionary
bonuses,
share-based
payments
and
other
short-term
benefits)
to
our
directors
and
executive
officers
was
RUB
124
million.
No
amounts
in
respect
of
pensions,
retirement
or
similar
benefits
have
been
accrued
inany
of
the
periods
presented
in
this
annual
report.
None
of
our
non-executive
directors
and
independent
director
appointees
has
a
service
contract
with
us
thatprovides
for
benefits
upon
termination
of
office.Our
key
management
and
some
other
senior
managers
fall
under
the
bonus
program
of
the
Company
subject
to
performance
cKPI
approved
by
the
Board
ofDirectors.
The
cKPI
for
2016
consisted
of
net
revenue
(weight
–
40%),
adjusted
net
profit
(weight
–
40%)
and
number
of
active
QIWI
Wallet
users
(weight
–
20%)of
the
Company.
The
cKPI
for
2017
compose
of
core
business
net
revenue
(weight
–
25%),
core
business
expenses
/
net
revenue
(weight
–
25%),
core
businesspayment
volume
(weight
–
25%)
and
assistance
of
core
to
non-core
(assessed
by
CEO).
Bonus
shall
be
allocated
fractionally
on
a
quarterly
basis
subject
toperformance
of
the
cKPI
according
to
the
formula
approved
by
the
Board
of
Directors.
Bonus
allocation
shall
take
place
upon
approval
of
the
quarterly
/
annualconsolidated
financial
statements
of
the
Company
by
the
Board
of
Directors.Employee Stock Option PlanGeneral.
In
October
2012,
our
board
of
directors
adopted
and
our
shareholders
approved
an
Employee
Stock
Option
Plan,
or
the
2012
Plan,
an
equity-basedincentive
compensation
plan
intended
to
help
align
the
interests
of
our
management
and
others
with
those
of
our
shareholders.
Certain
amendments
were
introducedto
the
2012
Plan
in
2013
and
2015
and
2017.
Under
the
2012
Plan,
we
may
grant
options
to
purchase
our
class
B
shares
to
employees
and
service
providers
inconnection
with
their
provision
of
services
to
us
or
our
subsidiaries.
A
maximum
of
3,640,000
of
our
class
B
shares,
or
7%
of
our
entire
issued
and
outstandingshare
capital
as
of
the
date
immediately
preceding
our
initial
public
offering,
are
reserved
for
issuance
under
the
2012
Plan,
subject
to
equitable
adjustment
in
theevent
of
certain
corporate
transactions,
such
as
a
stock
split
or
recapitalization.
The
2012
Plan
is
scheduled
to
expire
on
the
tenth
anniversary
of
its
adoption,although
previously
granted
awards
will
remain
outstanding
after
such
date
in
accordance
with
their
terms.Administration.
Our
chief
executive
officer
and
our
deputy
chief
executive
officer
administer
the
2012
Plan,
including
determining
the
vesting
schedule,exercise
price,
term
of
the
award,
transfer
restrictions
applicable
to
shares
acquired
pursuant
to
an
option
exercise
and
other
terms
and
conditions
of
option
awardsunder
the
2012
Plan.
Our
board
of
directors
has
the
authority
to
make
all
necessary
or
appropriate
interpretations
of
2012
Plan
terms.
The
participants
of
the
2012Plan
are
also
selected
by
our
chief
executive
officer.Option
Terms
Generally.
Options
granted
under
the
2012
Plan
permit
the
holder
of
the
option
to
purchase
our
class
B
shares
once
such
options
are
vestedand
exercisable,
at
a
purchase
price
per
share
determined
by
our
board
of
directors
and
specified
in
the
option
grant.
Grants
of
options
under
the
2012
Planfollowing
the
initial
public
offering
have
a
purchase
price
per
share
not
less
than
the
average
closing
price
of
our
class
B
shares
on
the
principal
exchange
on
whichsuch
shares
are
then
traded
for
the
ten
business
days
immediately
preceding
the
date
of
grant.
Options
granted
under
the
2012
Plan
cannot
be
sold,
pledged
ordisposed
of
in
any
manner
without
our
prior
written
consent.Net
Income
Transfer
Restriction.
All
options
granted
under
the
2012
Plan
are
subject
to
an
additional
transfer
restriction
applicable
to
shares
acquired
byexercising
the
option.
This
transfer
restriction
prohibits
the
individual
from
transferring
these
shares
unless
we
have
achieved
RUB
5,359,284,000
in
net
income(measured
in
accordance
with
the
management
reporting
practices)
during
the
previous
12
months’
period.
We
determine
at
the
end
of
each
fiscal
quarter
whethersuch
net
income
test
has
been
met
and,
to
the
extent
that
it
has
not
been
met,
individuals
holding
shares
acquired
through
the
exercise
of
these
options
are
notpermitted
to
transfer
the
shares
while
they
remain
employed
by
us
or
one
of
our
subsidiaries.
This
transfer
restriction
will
cease
to
apply
in
the
event
that
the
optionholder’s
employment
or
service
with
us
or
our
subsidiaries
terminates.
In
May
2015
our
board
of
directors
eliminated
the
net
income
target
restriction
for
half
ofthe
vested
option
shares
of
each
participant
of
the
2012
Plan
and
replaced
the
initial
U.S.$170
million
net
income
target
by
the
RUB
5,359,284,000
net
incometarget
(the
amount
is
the
equivalent
of
U.S.$170
million
converted
into
Russian
ruble
at
the
foreign
exchange
rate
as
of
October
31,
2012,
which
was
the
date
ofapproval
of
the
2012
Plan)
for
the
remaining
half
of
the
vested
option
shares
of
each
participant
of
the
2012
Plan.
In
March
2017,
our
board
of
directors
removedthe
net
income
target
restriction
in
its
entirety.Other
Information.
Shares
subject
to
options
which
are
cancelled
or
forfeited
without
being
exercised
will
be
returned
to
the
2012
Plan
and
will
be
availablefor
subsequent
option
grants
under
the
2012
Plan.
Any
material
amendment
to
the
2012
Plan
(such
as
the
addition
of
more
class
B
shares
to
the
pool
of
sharesavailable
under
the
2012
Plan)
or
the
adoption
of
a
new
equity
compensation
plan
is
subject
to
approval
by
our
shareholders
to
the
extent
required
under
Cypriotlaw.Employee Restricted Stock Units PlanGeneral.
In
July
2015,
our
board
of
directors
adopted
and
our
shareholders
approved
an
Employee
Restricted
Stock
Units
Plan,
or
the
2015
Plan,
an
equity-based
incentive
compensation
plan
intended
to
help
align
the
interests
of
our
management
and
others
with
those
of
our
shareholders.
Under
the
2015
Plan,
we
maygrant
the
restricted
stock
units
(“RSUs”)
to
employees,
officers
and
contractors
with
their
provision
of
services
to
us
or
our
subsidiaries.
A
maximum
of
sharesequal
to
7
percent
of
the
aggregate
number
of
class
A
and
class
B
shares
issued
and
outstanding
from
time
to
time
are
reserved
for
issuance
under
the
2015
Plan,subject
to
equitable
adjustment
in
the
event
of
certain
corporate
transactions,
such
as
a
stock
split
or
recapitalization.
The
2015
Plan
is
scheduled
to
expire
onDecember
31,
2022.Administration.
Our
board
of
directors
administers
the
2015
Plan,
including
determining
the
vesting
schedule,
term
of
the
award
and
making
all
necessary
orappropriate
interpretations
of
the
terms
of
the
2015
Plan.
The
participants
of
the
2015
Plan
are
selected
by
our
chief
executive
officer
and
the
list
of
top-30participants
of
each
grant
shall
be
approved
by
our
board.
Our
chief
executive
officer
and
members
of
the
board
are
eligible
to
receive
the
RSUs
subject
to
theapproval
by
the
relevant
corporate
body
of
the
Company.
66Table of ContentsTerms
and
Conditions
Generally.
The
recipients
of
the
RSUs
have
no
dividend,
voting,
or
any
other
rights
as
a
stockholder
of
the
Company.
Upon
vesting
ofthe
RSUs,
the
Participants
will
receive
class
B
shares
free
of
all
restrictions.
RSUs
that
have
not
become
vested
as
of
the
date
of
termination
of
the
participant’semployment
or
service
shall
be
forfeited
upon
such
termination.
Except
for
transfers
resulting
from
the
laws
of
descent
and
distribution,
no
RSUs
granted
under
the2015
Plan
can
be
sold,
pledged
or
disposed
of
in
any
manner
without
our
prior
written
consent.Other
Information.
The
number
of
shares
underlying
expired,
terminated
or
cancelled
RSUs,
shall
continue
to
be
available
for
the
purpose
of
further
awardsunder
the
2015
Plan.
Any
material
amendment
to
the
2015
Plan
(such
as
the
addition
of
more
class
B
shares
to
the
pool
of
shares
available
under
the
2015
Plan)
orthe
adoption
of
a
new
equity
compensation
plan
is
subject
to
approval
by
our
shareholders
to
the
extent
required
under
Cypriot
law.Outstanding Equity Awards to Certain Executive OfficersThe
following
table
sets
forth
certain
information
with
respect
to
outstanding
equity
awards
held
by
the
following
executive
officers
at
March
17,
2017:



Optionplan

Grant Date


Number of Class B SharesUnderlying Vested Options (#) Exercisable


Number of Class B SharesUnderlying Unvested Options (#) Unexercisable


Option Exercise Price ($)


Option Expiration Date
Alexander
Karavaev

RSU
Plan


August
12,
2016



—





12,333



n/a



December
31,
2022
Andrey
Protopopov

ESOP


November
15,
2013



51,000



—





41.2380



December
31,
2020


RSU
Plan


August
12,
2016



—





11,333



n/a



December
31,
2022

C.Board Practices.Board of DirectorsOur
company
has
a
single-tier
board
structure,
with
a
board
of
directors
comprised
of
up
to
seven
directors
nominated
and
elected
by
the
shareholders(subject
to
certain
exemptions),
including
not
less
than
three
directors
who
shall
be
independent
directors
(see
also
“Description
of
Share
Capital—Board
ofDirectors”).
The
primary
responsibility
of
our
board
of
directors
is
to
oversee
the
operations
of
our
company,
and
to
supervise
the
policies
of
senior
managementand
the
affairs
of
our
company.
The
term
for
the
directors
serving
on
our
board
of
directors
at
the
time
of
the
annual
report
will
expire
at
the
annual
general
meetingof
shareholders
to
be
held
in
2017.
Our
directors
shall
be
elected
at
each
subsequent
annual
general
meeting
of
shareholders.
Our
articles
of
association
provide
thatwe
may
have
up
to
seven
directors,
including
not
less
than
three
independent
directors.
Non-independent
directors
shall
not
be
more
than
four.Under
the
Nasdaq
Listing
Rules,
a
director
employed
by
us
or
that
has,
or
had,
certain
relationships
with
us
during
the
three
years
prior
to
this
annual
report,cannot
be
deemed
to
be
an
independent
director,
and
each
other
director
will
qualify
as
independent,
only
if
our
board
of
directors
affirmatively
determines
that
thedirector
has
no
material
relationship
with
us,
either
directly
or
as
a
partner,
shareholder
or
officer
of
an
organization
that
has
a
relationship
with
us.
Ownership
of
asignificant
amount
of
our
shares,
by
itself,
does
not
constitute
a
material
relationship.
Our
articles
of
association
provide
that
any
elected
director
may
be
qualifiedas
an
independent
director
if
such
director
meets
certain
criteria
under
the
Nasdaq
Listing
Rules.
Accordingly,
our
board
of
directors
has
affirmatively
determinedthat
Mr.
Marcus
Rhodes,
Mr.
Ron
Kalifa,
Mr.
Osama
Bedier
and
Mr.
David
Birch
are
each
an
independent
director
in
accordance
with
the
Nasdaq
Listing
Rules.Committees of our Board of DirectorsWe
have
established
three
committees
under
the
board
of
directors:
the
audit
committee,
the
compensation
committee
and
the
strategy
committee.
We
haveadopted
a
charter
for
each
of
these
committees.
Each
committee’s
members
and
functions
are
as
follows.Audit
committee.
Our
audit
committee
consists
of
Messrs.
Kalifa,
Rhodes
and
Birch.
Mr.
Rhodes
is
the
chairman
of
the
audit
committee
and
our
board
ofdirectors
has
determined
that
Mr.
Rhodes
qualifies
as
an
“audit
committee
financial
expert,”
as
defined
under
Nasdaq
Listing
Rules
and
the
rules
and
regulations
ofthe
Exchange
Act.
Messrs.
Kalifa,
Rhodes
and
Birch
are
each
an
independent
director
in
accordance
with
the
Nasdaq
Listing
Rules.The
purpose
of
the
audit
committee
is
to
assist
our
board
of
directors
with
its
oversight
responsibilities
regarding:
(a)
the
integrity
of
our
financial
statements,(b)
our
compliance
with
legal
and
regulatory
requirements,
(c)
the
independent
auditor’s
qualifications,
independence
and
performance
and
(d)
the
performance
ofour
internal
audit
function
and
independent
auditor.
67Table of ContentsOur
audit
committee’s
duties
include,
but
are
not
limited
to:

•
selecting
the
independent
registered
public
accounting
firm
and
pre-approving
all
auditing
and
non-auditing
services
permitted
to
be
performed
by
theindependent
registered
public
accounting
firm;

•
reviewing
with
the
independent
registered
public
accounting
firm
any
audit
problems
or
difficulties
and
management’s
response;

•
reviewing
all
proposed
related
party
transactions,
as
defined
in
Item
404
of
Regulation
S-K
under
the
Securities
Act;

•
discussing
the
annual
audited
financial
statements
with
management
and
the
independent
registered
public
accounting
firm;

•
reviewing
major
issues
as
to
the
adequacy
of
our
internal
control
and
any
special
audit
steps
adopted
in
light
of
material
control
deficiencies;
and

•
meeting
separately
and
periodically
with
management
and
the
independent
registered
public
accounting
firm.Compensation
committee.
Our
compensation
committee
consists
of
Messrs.
Bedier,
Kalifa
and
Romanenko.
Mr.
Kalifa
is
the
chairman
of
the
compensationcommittee.
Messrs.
Bedier
and
Kalifa
are
independent
directors
in
accordance
with
the
Nasdaq
Listing
Rules.
We
follow
Cyprus
law
which
does
not
requirecompanies
to
have
a
compensation
committee
made
up
entirely
of
independent
directors.
Given
Mr.
Romanenko’s
long
history
and
commitment
to
the
Company,we
believe
he
is
well
positioned
to
advise
on
matters
of
compensation.
None
of
the
members
of
our
compensation
committee
is
an
officer
or
employee
of
ourcompany.Our
compensation
committee’s
duties
include,
but
are
not
limited
to:

•
approving
the
compensation
package
of
the
chief
executive
officer;

•
administering
our
equity
incentive
plan;

•
overseeing,
and
advising
the
board
of
directors
on,
overall
compensation
plans
and
benefit
programs;
and

•
authorizing
the
repurchase
of
shares
from
terminated
employees.Strategy
committee.
Our
strategy
committee
consists
of
Messrs.
Bedier,
Birch
and
Kalifa.
Mr.
Bedier
is
the
chairman
of
the
strategy
committee.
Our
strategycommittee
has
a
key
role
in
defining
our
strategic
goals
and
objectives,
advises
our
board
of
directors
on
the
implementation
of
our
strategic
goals
and
objectivesand
oversees
their
implementation.Code of Ethics and Business ConductWe
have
adopted
a
Code
of
Ethics
and
Business
Conduct
that
applies
to
all
of
our
directors,
officers
and
employees.
The
Code
of
Ethics
and
BusinessConduct
is
intended
to
promote
honest
and
ethical
conduct,
full
and
accurate
reporting,
and
compliance
with
laws
as
well
as
other
matters.
A
copy
of
the
Code
ofEthics
and
Business
Conduct
is
available
on
our
website:
http://investor.qiwi.com/documents.cfmDirectors’ DutiesUnder
Cyprus
law,
our
directors
owe
fiduciary
duties
at
both
common
law
and
under
statute,
including
a
statutory
duty
and
common
law
duty
to
act
honestly,in
good
faith
and
in
what
the
director
believes
are
the
best
interests
of
our
company.
When
exercising
powers
or
performing
duties
as
a
director,
the
director
isrequired
to
exercise
the
care,
diligence
and
skill
that
a
responsible
director
would
exercise
in
the
same
circumstances
taking
into
account,
without
limitation,
thenature
of
the
company,
the
nature
of
the
decision
and
the
position
of
the
director
and
the
nature
of
the
responsibilities
undertaken
by
him.
The
directors
are
requiredto
exercise
their
powers
for
a
proper
purpose
and
must
not
act
or
agree
to
the
company
acting
in
a
manner
that
contravenes
our
articles
of
association
or
Cypruslaw.Employment AgreementsWe
have
entered
into
employment
agreements
with
each
of
our
executive
officers.
Each
of
these
contains
standard
terms
and
conditions
in
compliance
withRussian
labor
law.
The
terms
of
these
employment
agreements
include,
among
other
things,
duration,
remuneration,
the
treatment
of
confidential
information,social
insurance
and
employment
benefits.We
may
terminate
the
employment
agreements
with
our
executive
officers
in
accordance
with
the
general
provisions
envisaged
by
Russian
labor
law
if,among
other
things,
one
of
our
executive
officers
commits
serious
breach
of
duties,
is
guilty
of
any
gross
misconduct
in
connection
with
the
handling
of
money
orvaluables,
or
takes
an
erroneous
decision
that
leads
to
improper
use
of,
or
causes
damage
to,
our
property.
In
addition,
Russian
labor
law
and
employmentagreements
of
certain
of
our
executive
officers
contain
certain
additional
provisions
whereby
we
may
terminate
their
employment
agreements
if
such
officers
aredismissed
from
office
in
accordance
with
Russian
bankruptcy
legislation.Each
executive
officer
has
agreed
to
hold
in
strict
confidence
any
confidential
information
or
trade
secrets
of
our
company.
Each
executive
officer
alsoagrees
to
comply
with
all
material
applicable
laws
and
regulations
related
to
his
or
her
responsibilities
at
our
company
as
well
as
all
material
corporate
and
businesspolicies
and
procedures
of
our
company.
68Table of ContentsLimitation on Liability and Indemnification of Directors and OfficersOur
memorandum
and
articles
of
association
provide
that,
subject
to
certain
limitations,
we
will
indemnify
our
directors
and
officers
against
any
losses
orliabilities
which
they
may
sustain
or
incur
in
or
about
the
execution
of
their
duties
including
liability
incurred
in
defending
any
proceedings
whether
civil
orcriminal
in
which
judgment
is
given
in
their
favor
or
in
which
they
are
acquitted.Insofar
as
indemnification
for
liabilities
arising
under
the
Securities
Act
of
1933
may
be
permitted
to
directors,
officers
or
persons
controlling
us
pursuant
tothe
foregoing
provisions,
in
the
opinion
of
the
U.S.
Securities
and
Exchange
Commission
such
indemnification
is
against
public
policy
as
expressed
in
theSecurities
Act
of
1933
and
may
therefore
be
unenforceable.Interests of our Directors and our EmployeesCertain
of
our
directors
and
our
executive
officers
have
beneficial
ownership
interests
in
our
shares
or
hold
options
to
purchase
shares.
The
economicinterests
through
these
holdings
may
give
rise
to
a
conflict
of
interest
between
their
duties
owed
to
us
and
their
private
interests.
For
example,
it
could
cause
themto
pursue
short-term
gains
in
respect
of
those
private
interests
instead
of
acting
in
our
best
interest.
Other
than
the
potential
conflicts
of
interest
described
in
thefootnotes
to
the
table
in
“Principal
and
Selling
Shareholders”,
we
are
not
aware
of
any
other
potential
conflicts
of
interest
between
any
duties
owed
by
members
ofour
board
of
directors
or
our
executive
officers
to
us
and
their
private
interests
and/or
other
duties.Under
our
articles
of
association
and
Cyprus
Law,
a
director
who
is
in
any
way,
directly
or
indirectly,
interested
in
a
contract
or
proposed
contract
with
usmust
declare
the
nature
of
his
or
her
interest
at
a
meeting
of
our
board
of
directors.
In
addition,
a
director
has
no
right
to
vote
in
respect
of
any
contract
orarrangement
in
which
he
or
she
is
interested,
and
if
the
director
does
vote,
his
or
her
vote
will
not
be
counted
nor
will
he
or
she
be
counted
for
purposes
ofdetermining
whether
quorum
at
the
meeting
has
been
established.Our
directors
are
generally
not
prohibited
from
owning
or
acquiring
interests
in
companies
that
could
compete
with
us
in
the
future
for
investments
orbusiness,
and
each
of
them
has
a
range
of
business
relationships
outside
the
context
of
their
relationship
with
us
that
could
influence
their
decisions
in
the
future.
D.Employees.See
Item
4.B
“Business
overview—Employees.”
E.Share Ownership.See
Item
7.A
“Major
Shareholders”
for
information
on
the
shareholdings
of
our
directors
and
executive
officers.See
Item
6.B
“Compensation—Outstanding
Equity
Awards
to
Certain
Executive
Officers”
for
information
on
options
granted
to
our
executive
officers.See
Item
6.B
“Compensation—Employee
Stock
Option
Plan”
for
a
description
of
our
employee
stock
option
plan.
ITEM 7.Major Shareholders and Related Party Transactions
A.Major Shareholders.The
following
table
sets
forth
information
with
respect
to
the
beneficial
ownership
of
our
ordinary
shares,
as
of
March
17,
2017,
by:

•
each
of
our
directors
and
executive
officers;
and

•
each
person
known
to
us
to
own
beneficially
more
than
5%
of
our
ordinary
shares.Beneficial
ownership
is
determined
in
accordance
with
the
rules
and
regulations
of
the
SEC.
In
computing
the
number
of
shares
beneficially
owned
by
aperson
and
the
percentage
ownership
of
that
person,
we
have
included
shares
that
the
person
has
the
right
to
acquire
within
60
days,
including
through
the
exerciseof
any
option,
warrant
or
other
right
or
the
conversion
of
any
other
security.
These
shares,
however,
are
not
included
in
the
computation
of
the
percentageownership
of
any
other
person.The
calculations
in
the
table
below
are
based
on
15,516,573
class
A
shares
and
45,080,461
class
B
shares
outstanding
as
of
March
17,
2017,
which
compriseour
entire
issued
and
outstanding
share
capital
as
of
that
date.
Class
A
ordinary
shares
have
ten
votes
per
share,
and
Class
B
shares
have
one
vote
per
share.
69Table of ContentsCurrently,
none
of
our
ordinary
shares
are
held
by
U.S.
holders.



Total Class AShares


Total Class B Shares


Total % of IssuedClass A Shares


Total % of IssuedClass B Shares


Total % of Votes at a GeneralMeeting
Directors and Executive Officers: Andrey
Romanenko


1



—





*



—





—


Marcus
Rhodes


—





500



—





*



—


Sergey
Solonin
(1)


11,877,822



—





76.5



—





59.3
Osama
Bedier


—





—





—





—





—


Rohinton
Minoo
Kalifa


—





—





—





—





—


Boris
Kim
(2)


1,923,346



—





12.4



—





9.6
David
Birch


—





—





—





—





—


Andrey
Protopopov
(3)(5)


—





62,333



—





*



*
Alexander
Karavaev
(4)(5)


—





28,617



—





*



*
All directors and executive officers as a group







 * 

Principal
Shareholders:









Saldivar
Investments
Limited
(1)


11,877,821



—





76.5



—





59.43E1
Limited
(2)


1,923,346



—





12.4



—





9.6
Mitsui
&
Co.,
Ltd.
(6)


1,715,403



—





11.1



—





8.6
Otkritie
Holding
JSC
(7)


—





3,514,423



—





7.8



1.8
Platinum
Investment
Management
Limited
(8)




3,636,817



—





8.1



1.8
Sylebra
Capital
Management
(9)


—





2,508,650



—





5.6



1.3
Waddell
&
Reed
Financial,
Inc.
(10)


—





2,385,500



—





5.3



1.2

*Represents
less
than
1%.(1)Sergey
Solonin
is
the
owner
of
94.81%
of
shares
of
Saldivar
Investments
Limited
and,
accordingly,
holds
voting
and
dispositive
power
over
our
shares
heldby
such
entity.
The
address
of
such
entity
is
Themistokli
Dervi,
6
P.C.
1066,
Nicosia,
Cyprus.(2)Boris
Kim
is
the
owner
of
63.38%
of
the
shares
of
E1
Limited,
and,
accordingly,
holds
voting
and
dispositive
power
over
our
shares
held
by
such
entity.
Theaddress
of
such
entity
is
Diagoras
4,
Kermia
Building,
6th
floor,
office
601-602,
Nicosia,
Cyprus,
1510.(3)Reflects
options
to
purchase
51,000
class
B
shares
that
have
already
vested
and
the
right
to
receive
11,333
class
B
shares
that
are
currently
unvested.(4)Including
the
right
to
receive
12,333
class
B
shares
that
are
currently
unvested.(5)Calculated
as
percentage
of
the
issued
share
capital
assuming
the
exercise
of
all
vested
options
and
restricted
stock
units
held
by
the
participants.(6)Mitsui
&
Co.,
Ltd.
is
a
widely-held
public
corporation
the
shares
of
which
are
traded
on
the
Tokyo,
Nagoya,
Sapporo,
and
Fukuoka
stock
exchanges.
Theaddress
of
such
entity
is
2-1,
Ohtemachi
1-chome,
Chiyoda-ku,
Tokyo,
Japan.(7)Based
solely
on
the
Schedule
13-D/A
filed
by
Otkritie
Investments
Cyprus
Limited
and
Otkritie
Holding
JSC
with
the
Securities
and
Exchange
Commissionon
February
27,
2017.(8)Based
solely
on
the
Schedule
13-G
filed
by
Platinum
Investment
Management
Limited
with
the
Securities
and
Exchange
Commission
on
February
15,
2017.(9)Based
solely
on
the
Schedule
13-G/A
jointly
filed
by
Sylebra
HK
Company
Limited,
Sylebra
Capital
Management,
Jeffrey
Richard
Fieler,
and
DanielPatrick
Gibson
with
the
Securities
and
Exchange
Commission
on
February
15,
2017.(10)Based
solely
on
the
Schedule
13-G/A
jointly
filed
by
Waddell
&
Reed
Financial,
Inc.,
Waddell
&
Reed
Financial
Services,
Inc.,
Waddell
&
Reed,
Inc.,Waddell
&
Reed
Investment
Management
Company,
and
Ivy
Investment
Management
Company
with
the
Securities
and
Exchange
Commission
onFebruary
14,
2017.
B.Related Party Transactions.Agreements with VTBDuring
the
year
ended
December
31,
2016
the
Group
used
overdraft
credit
facilities
with
an
overall
credit
limit
of
RUB
1,460
million,
with
maturity
fromNovember
2017
to
August
2018,
and
interest
rate
up
to
30%
per
annum.
The
balance
payable
under
these
credit
lines
as
of
December
31,
2016
was
zero.
Some
ofthese
agreements
stipulated
the
right
of
a
lender
to
increase
the
interest
rate
in
case
covenants
are
violated.
In
previous
years
some
of
the
overdraft
credit
facilityagreements
were
guaranteed
by
the
Group’s
CEO.Bank Accounts and DepositsQiwi
Bank
maintains
accounts
and
deposits
of
various
affiliates
of
our
directors,
executive
officers
and
shareholders
in
the
ordinary
course
of
its
businessamounting
to
RUB
27
million
as
of
December
31,
2016.
We
believe
that
all
of
the
agreements
pertaining
to
such
accounts
and
deposits
are
entered
into
on
arm’slength
terms
and
do
not
deviate
in
any
material
aspect
from
the
terms
that
we
would
use
in
similar
contracts
with
non-related
parties.Employment Agreements and Share OptionsSee
“Management
–
Employment
Agreements”
and
“Management
–
Employee
Stock
Option
Plan.”
C.Interests of Experts and Counsel.Not
applicable.
70Table of ContentsITEM 8.Financial Information
A.Consolidated Financial Statements and Other Financial InformationSee
Item
18
“Financial
Statements.”Legal ProceedingsFrom
time
to
time,
we
are
involved
in
various
litigation
matters
arising
in
the
ordinary
course
of
our
business.
We
are
not
currently,
and
have
not
been
in
therecent
past,
subject
to
any
legal,
arbitration
or
government
proceedings
(including
proceedings
pending
or
threatened)
that
we
believe
will
have
a
material
impacton
our
business,
financial
condition
and
results
of
operations.Dividend PolicyWe
intend
to
distribute
all
excess
cash
to
our
shareholders
in
the
form
of
an
annual
dividend.
Excess
cash
is
defined
as
adjusted
net
profit
for
a
year
less
anamount
management
deems
necessary
for
near
term
corporate
action
or
other
business
needs
including
but
not
limited
to
merger
and
acquisition
activities
andcapital
expenditures.
The
board
of
directors
reserves
the
right
to
distribute
the
dividend
on
a
quarterly
basis
as
it
deems
necessary.
This
statement
is
a
generaldeclaration
of
intention
and
the
actual
declaration
of
dividends
will
require
corporate
action
at
the
relevant
time
on
which
a
decision
will
be
taken
by
the
board
ofdirectors
or
the
general
meeting
of
its
shareholders,
as
the
case
may
be,
depending
on
the
precise
circumstances
that
prevail
at
the
time,
and
shareholders
orpotential
investors
should
not
treat
this
statement
as
an
obligation
or
similar
undertaking
by
us
that
dividends
will
be
declared
as
set
out
herein.
Under
Cyprus
law,we
are
not
allowed
to
make
distributions
if
the
distribution
would
reduce
our
shareholders’
equity
below
the
sum
of
the
issued
share
capital,
including
any
sharepremium,
and
the
reserves
which
we
must
maintain
under
Cyprus
law
and
our
articles
of
association.As
a
holding
company,
the
level
of
our
income
and
our
ability
to
pay
dividends
depend
primarily
upon
the
receipt
of
dividends
and
other
distributions
fromour
subsidiaries.
The
payment
of
dividends
by
our
subsidiaries
is
contingent
upon
the
sufficiency
of
their
earnings,
cash
flows,
regulatory
capital
requirements,
anddistributable
profits.
B.Significant ChangesExcept
as
disclosed
elsewhere
in
this
annual
report,
we
have
not
experienced
any
significant
changes
since
the
date
of
our
audited
consolidated
financialstatements
included
in
this
annual
report.
ITEM 9.The Offer and Listing
A.Offer and Listing Details.See
Item
9.C
“—Markets.”
B.Plan of Distribution.Not
applicable.
C.Markets.Our
ADSs,
each
representing
one
class
B
share,
have
been
listed
on
the
Nasdaq
since
May
3,
2013
and
have
been
admitted
to
trading
on
MOEX
sinceMay
20,
2013,
under
the
symbol
“QIWI.”
However,
our
ADSs
were
not
offered
for
trading
on
MOEX
until
October
10,
2013.
Prior
to
that
time,
there
was
nopublic
market
for
our
ADSs
or
our
ordinary
shares.
The
following
table
sets
forth
for
the
periods
indicated
the
high
and
low
sales
price
per
ADS
as
reported
onNasdaq:



High


Low



(in U.S.$)
Year



2013
(from
May
3)


59.24



14.59
2014


56.37



18.70
2015


34.89



15.07
2016


17.77



10.65
Quarter



2015:



First
Quarter


25.80



19.03
Second
Quarter


34.89



24.64
Third
Quarter


30.62



15.07
Fourth
Quarter


20.03



15.51

71Table of Contents2016:



First
Quarter


17.77



10.65
Second
Quarter


16.40



10.73
Third
Quarter


15.91



11.47
Fourth
Quarter


15.00



12.36
Most recent six months



2016:



September


15.91



14.64
October


15.00



12.87
November


13.67



12.47
December


12.95



12.36
2017:



January


13.71



11.80
February


15.70



13.40
The
following
table
sets
forth
for
the
periods
indicated
the
high
and
low
sales
price
per
ADS
as
reported
on
MOEX:



High


Low



(in RUB)
Year



2013
(starting
October
10)


2,000



1,302
2014


1,948



1,004
2015


1,895



995
2016


1,300



709
Quarter



2015:



First
Quarter


1,600



1,220
Second
Quarter


1,705



1,335
Third
Quarter


1,895



995
Fourth
Quarter


1,350



1,025
2016:



First
Quarter


1,300



825
Second
Quarter


1,075



709
Third
Quarter


1,018



770
Fourth
Quarter


945



770
Most recent six months



2016:



September


1,018



937
October


945



824
November


894



803
December


829



770
2017:



January


821



711
February


904



800
The
closing
price
for
our
ADSs
on
the
Nasdaq
on
March
17,
2017
was
US$16.66
per
ADS
and
on
MOEX
was
RUB
939
per
ADS.
D.Selling Shareholders.Not
applicable.
E.Dilution.Not
applicable.
F.Expenses of the Issue.Not
applicable.
ITEM 10.Additional Information
A.Share Capital.Not
applicable.
72Table of ContentsB.Memorandum and Articles of Association.Our
memorandum
and
articles
of
association
contain,
among
others,
the
following
provisions:ObjectsOur
objects
are
set
forth
in
full
in
Regulation
3
of
our
memorandum
of
association.Shareholders’ General MeetingsShare
CapitalOur
share
capital
is
divided
into
two
classes
of
shares:
class
A
shares,
each
of
which
carries
ten
votes
at
shareholders’
general
meetings,
and
class
B
shares,each
of
which
carries
one
vote
at
shareholders’
general
meetings.Convening
Shareholders’
MeetingsThe
shareholders’
general
meeting
is
our
supreme
governing
body.
An
annual
general
meeting
must
be
held
not
more
than
15
months
after
the
prior
annualgeneral
meeting,
with
at
least
one
annual
general
meeting
held
in
each
calendar
year.Our
board
of
directors,
at
its
discretion,
may
convene
an
extraordinary
general
meeting.
Extraordinary
general
meetings
must
also
be
convened
by
the
boardof
directors
at
the
request
of
shareholders
holding
in
aggregate
at
the
date
of
the
deposit
of
the
requisition
either
(a)
not
less
than
10%
of
our
outstanding
sharecapital
or
(b)
not
less
than
10%
of
the
voting
rights
attached
to
our
issued
shares,
or,
in
case
the
board
of
directors
fails
to
do
so
within
21
days
from
the
date
of
thedeposit
of
the
requisition
notice,
such
requisitioning
shareholders,
or
any
of
them
representing
more
than
one
half
of
the
total
voting
rights
of
all
of
them,
maythemselves
convene
an
extraordinary
general
meeting,
but
any
meeting
so
convened
may
not
be
held
after
the
expiration
of
3
months
from
the
date
that
is
21
daysfrom
the
date
of
the
deposit
of
the
requisition
notice.The
annual
general
meeting
and
a
shareholders’
general
meeting
called
for
the
election
of
directors
or
for
a
matter
for
which
Cypriot
law
requires
a
specialresolution,
which
means
a
resolution
passed
by
a
majority
of
not
less
than
75%
of
the
voting
rights
attached
to
our
issued
shares
present
and
voting
at
a
dulyconvened
and
quorate
general
meeting,
must
be
called
with
no
less
than
45
days’
written
notice
or
such
longer
notice
as
is
required
by
the
Companies
Law
(notcounting
the
day
in
which
it
was
dispatched
and
the
date
in
which
it
was
received).
Other
shareholders’
general
meetings
must
be
called
by
no
less
than
30
days’written
notice.A
notice
convening
a
shareholders’
general
meeting
shall
be
served
within
5
days
after
the
record
date
for
determining
the
shareholders
entitled
to
receivenotice
of
and
attend
and
vote
at
such
General
Meeting
that
is
fixed
by
the
Board
and
is
not
more
than
60
days
and
not
less
than
45
days
prior
to
an
Annual
GeneralMeeting
and
a
General
Meeting
called
for
the
passing
of
a
Special
Resolution
or
for
the
election
of
Directors
and
not
more
than
45
days
and
not
less
than
30
daysprior
to
any
other
General
Meeting.
A
notice
convening
a
shareholders’
general
meeting
must
be
sent
to
each
of
the
shareholders,
provided
that
the
accidentalfailure
to
give
notice
of
a
meeting
to,
or
the
non-receipt
of
notice
of
a
meeting
by,
any
person
entitled
to
receive
notice
will
invalidate
the
proceedings
at
thatmeeting
to
which
such
notice
refers
in
the
event
that
a
shareholder
holding
not
less
than
5%
of
our
outstanding
share
capital
is
not
in
attendance
at
that
generalmeeting
as
a
result
of
the
accidental
failure
to
give
notice
or
non-receipt
thereof.All
shareholders
are
entitled
to
attend
the
shareholders’
general
meeting
or
be
represented
by
a
proxy
authorized
in
writing.
The
quorum
for
a
shareholders’general
meeting
will
consist
of
shareholders
representing
50.01%
of
the
voting
rights
attached
to
our
issued
shares
present
in
person
or
by
proxy.The
agenda
of
the
shareholders’
general
meeting
is
determined
by
our
board
of
directors
or
by
whoever
else
is
calling
the
meeting.VotingMatters
determined
at
shareholders’
general
meetings
require
an
ordinary
resolution,
which
requires
a
simple
majority
of
the
votes
cast
at
any
particulargeneral
meeting
duly
convened
and
quorate,
unless
our
articles
of
association
and
the
Companies
Law
specify
differently.
It
is
within
the
powers
of
theshareholders
to
have
a
resolution
executed
in
writing
by
all
shareholders
and
in
such
event
no
meeting
needs
to
take
place
or
notice
to
be
given.Reserved MattersOur
articles
of
association
provide
for
special
majorities
for
resolutions
concerning,
among
other
things,
the
following
matters
(for
so
long
as
class
A
sharesare
in
issue
and
outstanding):
(i)
any
variance
to
the
rights
attached
to
any
class
of
shares
requires
approval
of
the
holders
of
75%
of
the
shares
of
the
affected
class,passed
at
a
separate
meeting
of
the
holders
of
the
shares
of
the
relevant
class,
as
well
as
a
special
resolution
of
the
general
meeting;
and
(ii)
approval
of
the
totalnumber
of
shares
and
classes
of
shares
to
be
reserved
for
issuance
under
any
of
our
or
our
subsidiaries’
employee
stock
option
plan
or
any
other
equity-basedincentive
compensation
program
requires
approval
of
a
majority
of
not
less
than
75%
of
the
voting
rights
attached
to
all
issued
shares
present
and
voting
at
a
dulyconvened
and
quorate
general
meeting.
73Table of ContentsBoard of DirectorsAppointment of DirectorsOur
articles
of
association
provide
that
we
shall
have
up
to
seven
directors,
including
not
less
than
three
independent
directors.
As
a
foreign
private
issuer,we
have
elected
to
follow
Cyprus
corporate
governance
practices,
which,
unlike
the
applicable
Nasdaq
requirements
for
domestic
issuers,
do
not
require
themajority
of
directors
to
be
independent.It
is
understood
that,
if
at
a
proposed
general
meeting
there
shall
be
elections
of
both
non-independent
directors
and
independent
directors,
(i)
there
shall
betwo
separate
set
of
voting
procedures,
one
with
respect
to
the
non-independent
directors
and
one
with
respect
to
the
independent
directors;
(ii)
at
each
suchprocedure
the
shareholders
shall
have
the
number
of
votes
provided
by
the
articles
of
association
for
the
election
of
non-independent
directors
and
independentdirectors
respectively
and
(iii)
voting
procedure
in
respect
of
the
minimum
number
of
independent
directors,
being
three
directors,
shall
take
place
first.Each
of
the
board
and
any
shareholder
or
group
of
shareholders
is
entitled
to
nominate
one
or
more
individuals
for
election
(or
re-election)
to
our
board
ofdirectors
not
less
than
30
days
prior
to
any
general
meeting
at
which
all
the
non-independent
directors
are
scheduled
to
be
appointed.
The
board
shall
screen
allsubmitted
nominations
for
compliance
with
the
provisions
of
our
articles
of
association
following
which
it
shall
compile
and
circulate
a
final
slate
of
nominees
tobe
voted
on
at
the
general
meeting
to
all
the
shareholders
entitled
to
attend
and
vote
at
the
relevant
general
meeting
at
least
15
days
prior
to
the
scheduled
datethereof.Except
as
set
out
below,
the
non-independent
directors
are
appointed
by
shareholder
weighted
voting,
under
which
each
shareholder
has
the
right
to
castamong
one
or
more
nominees
as
many
votes
as
the
voting
rights
attached
to
its
shares
multiplied
by
a
number
equal
to
the
number
of
non-independent
directors
tobe
appointed.
Non-independent
directors
are
appointed
as
follows:
(1)
the
term
of
office
of
the
non-independent
directors
shall
be
for
a
period
from
the
date
of
theannual
general
meeting
at
which
they
were
elected
until
the
following
annual
general
meeting;
(2)
all
the
non-independent
directors
shall
retire
from
office
at
eachannual
general
meeting;
(3)
all
retiring
non-independent
directors
shall
be
eligible
for
re-election;
and
(4)
the
vacated
position
may
be
filled
at
the
meeting
at
whichthe
non-independent
directors
retire
by
electing
another
individual
nominated
to
the
office
of
non-independent
director
by
any
of
the
board,
any
shareholder
orgroup
of
shareholders
by
serving
a
notice
at
least
30
days
prior
to
such
general
meeting,
and
in
default
the
retiring
non-independent
director
shall,
if
offeringhimself
for
re-election
and
if
he
has
been
so
nominated
by
the
board,
be
deemed
to
have
been
re-elected,
unless
at
such
meeting
it
is
expressly
resolved
not
to
fillsuch
vacated
position
or
unless
a
resolution
for
the
re-election
of
such
non-independent
director
shall
have
been
put
to
the
meeting
and
not
adopted.The
independent
directors
are
nominated
by
the
board,
a
shareholder
or
group
of
shareholders.
All
independent
directors
are
appointed
by
shareholderweighted
voting
in
the
same
manner
as
voting
for
non-independent
directors.
The
independent
directors
will
be
appointed
as
follows:
(1)
the
term
of
office
of
eachindependent
director
shall
be
for
a
period
from
the
date
of
the
annual
meeting
at
which
such
independent
director
has
been
duly
elected
and
qualified
until
thefollowing
annual
general
meeting;
(2)
all
the
independent
directors
shall
retire
from
office
at
each
annual
general
meeting;
(3)
all
retiring
independent
directorsshall
be
eligible
for
re-election;
and
(4)
the
vacated
position
may
be
filled
at
the
meeting
at
which
the
independent
directors
retire
by
electing
another
individualnominated
by
any
of
the
board,
a
shareholder
or
a
group
of
shareholders,
and
in
default
the
retiring
independent
director
shall,
if
offering
himself
for
re-election
andif
he
has
been
so
nominated
by
the
board,
be
deemed
to
have
been
re-elected,
unless
at
such
meeting
it
is
expressly
resolved
not
to
fill
such
vacated
position
orunless
a
resolution
for
the
re-election
of
such
independent
director
shall
have
been
put
to
the
meeting
and
not
adopted.At
any
moment
of
time
after
the
appointment
of
the
non-independent
directors
any
director
may
request
the
board
to
screen
the
non-independent
directors
forcompliance
with
independence
criteria
within
the
meaning
of
the
Nasdaq
Listing
Rules.
In
case
the
board
determines
that
any
non-independent
director
meets
thecriteria
such
non-independent
director
shall
be
re-classified
as
the
independent
director.In
the
event
that
the
entire
board
of
directors
is
terminated
by
a
shareholder
or
a
group
of
shareholders
representing
at
least
10.01%
of
the
voting
rightsattached
to
our
issued
shares,
Board
will
remain
in
office
only
to
summon
a
general
meeting
for
purposes
of
(1)
terminating
the
entire
board
pursuant
to
a
request
ofthe
requesting
shareholders
and
(2)
appointing
new
non-independent
directors,
and
new
independent
directors.
If,
for
any
reason,
the
number
of
directors
fallsbelow
the
number
fixed
by
the
articles
of
association
as
the
necessary
quorum
for
board
meetings
and
the
vacant
positions
are
not
filled
as
per
the
above
procedurewithin
21
days,
the
remaining
directors
may
remain
in
office
only
to
convene
a
general
meeting,
at
which
all
directors
must
retire
and
new
directors
will
beappointed
as
provided
above.Our
board
of
directors
can
elect
a
chairman
by
an
absolute
majority
of
votes
of
all
the
directors
provided
that
an
affirmative
vote
of
at
least
one
independentdirector
is
received
(for
so
long
as
class
A
shares
are
in
issue
and
are
outstanding).Removal of DirectorsUnder
Cyprus
law,
notwithstanding
any
provision
in
our
articles
of
association,
a
director
may
be
removed
by
an
ordinary
resolution
of
the
generalshareholders’
meeting,
which
must
be
convened
with
at
least
28
days’
notice
(under
our
articles
of
association
at
least
30
days’
notice
is
required).
The
office
ofany
of
the
directors
becomes
vacant
if,
among
other
things,
the
director
(a)
becomes
bankrupt
or
makes
any
arrangement
or
composition
with
his
or
her
creditorsgenerally;
or
(b)
becomes
permanently
incapable
of
performing
his
or
her
duties
due
to
mental
or
physical
illness
or
due
to
his
or
her
death.
If
our
board
of
directorsexercises
its
right
to
appoint
a
director
to
fill
in
a
vacancy
on
the
board
created
during
the
term
of
a
director’s
appointment
as
provided
in
our
articles
of
association,shareholders
holding
10.01%
of
the
voting
rights
attached
to
our
issued
shares
may
terminate
the
appointment
of
the
entire
board
of
directors.
See
also
“—Appointment
of
Directors.”
74Table of ContentsPowers of the Board of DirectorsOur
board
of
directors
has
been
granted
authority
to
manage
our
business
affairs
and
has
the
authority
to
decide,
among
other
things,
on
the
following:

(a)approval
of
strategy
and
annual
budget
and
for
the
group;

(b)approval
of
certain
transactions,
including
material
transactions
(as
defined
in
our
articles
of
association),
borrowings
as
well
as
transactions
involvingsale
or
disposition
of
any
interest
in
any
group
company
(other
than
QIWI
plc)
or
all
or
substantially
all
of
the
assets
of
any
group
company;

(c)any
group
company’s
exit
from
or
closing
of
a
business
or
business
segment,
or
a
down-sizing,
reduction
in
force
or
streamlining
of
any
operationover
certain
thresholds
as
set
out
in
our
articles
of
association;

(d)any
merger,
consolidation,
amalgamation,
conversion,
reorganization,
scheme
of
arrangement,
dissolution
or
liquidation
involving
any
group
company(other
than
QIWI
plc);

(e)entry
into
any
agreement
or
transaction
with
a
related
party
except
for:
(1)
transactions
in
the
ordinary
course
of
business
(as
defined
in
our
articles
ofassociation)
on
an
arm’s
length
basis,
(2)
intra-group
transactions,
(3)
transactions
at
a
price
less
than
U.S.$50,000
(if
the
price
can
be
determined
atthe
time
the
transaction
is
entered
into);

(f)issuance
and
allotment
of
shares
by
us
for
consideration
other
than
cash;
and

(g)adoption
of
any
employee
stock
option
plan
or
any
other
equity-based
incentive
compensation
program
for
our
group
(subject
to
a
general
meetingapproving
the
total
number
of
shares
and
classes
of
shares
to
be
reserved
for
issuance
under
any
such
program).Our
board
of
directors
may
exercise
all
the
powers
of
the
Company
to
borrow
or
raise
money.Proceedings of the Board of DirectorsOur
board
of
directors
meets
at
such
times
and
in
such
manner
as
the
directors
determine
to
be
necessary
or
desirable.
For
as
long
as
any
class
A
shares
areissued
and
outstanding,
the
quorum
necessary
for
a
meeting
of
our
board
of
directors
to
be
validly
convened
is
a
simple
majority
of
the
total
number
of
the
non-independent
directors
and
the
then-existing
independent
directors.A
resolution
at
a
duly
constituted
meeting
of
our
board
of
directors
is
approved
by
an
absolute
majority
of
votes
of
all
the
directors
unless
a
higher
majorityand/or
affirmative
vote
of
any
independent
directors
is
required
on
a
particular
matter.
The
chairman
does
not
have
a
second
or
casting
vote
in
case
of
a
tie.
Aresolution
consented
to
in
writing,
signed
or
approved
by
all
directors
will
be
as
valid
as
if
it
had
been
passed
at
a
meeting
of
our
board
of
directors
when
signed
byall
the
directors.Where
a
director
has,
directly
or
indirectly,
an
interest
in
a
contract
or
proposed
contract,
that
director
must
disclose
the
nature
of
his
or
her
interest
at
themeeting
of
the
board
of
directors
and
shall
not
vote
on
such
contract
or
arrangement.Chief Executive OfficerOur
board
of
directors
may
by
an
absolute
majority
of
votes
of
all
the
directors
appoint
a
director
to
be
our
chief
executive
officer
to
be
in
charge
andresponsible
for
all
day-to-day
affairs
of
our
group.
Our
chief
executive
officer
is
to
be
appointed
for
such
period
and
on
such
terms
as
our
board
of
directors
thinksfit,
and,
subject
to
the
terms
of
any
agreement
entered
into
in
any
particular
case,
his
appointment
may
be
terminated
by
our
board
of
directors
at
any
time
asprovided
in
our
articles
of
association.
The
term
of
appointment
for
our
chief
executive
officer
shall
be
for
a
period
from
the
date
of
his
appointment
until
the
firstmeeting
of
the
board
on
the
second
year
after
the
date
of
his
appointment.Rights Attaching to SharesVoting
rights.
For
so
long
as
class
A
shares
are
in
issue
and
are
outstanding,
each
class
A
share
has
the
right
to
ten
votes
at
a
meeting
of
our
shareholders;and
each
class
B
share
has
the
right
to
one
vote
at
a
meeting
of
our
shareholders.Issue
of
shares
and
pre-emptive
rights.
Subject
to
the
Cypriot
law
and
our
articles
of
association,
already
authorized
but
not
yet
issued
shares
are
at
thedisposal
of
our
board
of
directors,
which
may
allot
or
otherwise
dispose
of
any
unissued
shares
as
it
may
decide.
All
new
shares
and/or
other
securities
giving
rightto
the
purchase
of
our
shares
or
which
are
convertible
into
our
shares
must
be
offered
before
their
issue
to
our
shareholders
on
a
pro-rata
basis.
If
the
new
securitiesare
of
the
same
class
as
existing
shares,
the
offer
must
first
be
made
on
a
pro
rata
basis
to
the
shareholders
of
the
relevant
class
and,
if
any
such
new
securities
arenot
taken
up
by
those
shareholders,
an
offer
to
purchase
the
excess
will
be
made
to
all
other
shareholders
on
a
pro
rata
basis
(provided
that
such
pre-emption
rightshave
not
been
disapplied).
Our
shareholders
have
authorized
the
disapplication
of
the
right
of
pre-emption
set
out
above
for
a
period
of
five
years
from
the
date
ofthe
completion
of
our
initial
public
offering
in
connection
with
the
issue
of
up
to
an
additional
52,000,000
class
B
shares,
including
in
the
form
of
ADSs.
75Table of ContentsConversion.
At
the
irrevocable
request
of
any
class
A
shareholder,
all
or
part
of
the
class
A
shares
held
by
such
shareholder
will
convert
into
class
B
shares,on
the
basis
that
each
class
A
share
shall
convert
into
one
class
B
share,
and
the
class
B
shares
resulting
from
such
conversion
shall
rank
pari
passu
in
all
respectswith
the
existing
class
B
shares
in
issue.In
addition,
class
A
shares
will
be
automatically
converted
into
class
B
shares,
on
a
one-to-one
basis,
in
the
following
circumstances:
(1)
all
class
A
shareswhich
are
transferred
by
a
holder,
except
in
circumstances
permitted
under
our
articles
of
association,
shall,
immediately
upon
such
transfer,
be
automaticallyconverted
into
class
B
shares;
(2)
all
class
A
shares
held
by
a
shareholder
will
be
automatically
converted
into
class
B
shares
on
the
occurrence
of
a
change
ofcontrol
(as
defined
in
our
articles
of
association)
of
the
class
A
shareholder;
and
(3)
all
class
A
shares
will
be
automatically
converted
into
class
B
shares
in
theevent
that
the
aggregate
number
of
class
A
shares
constitute
less
than
10%
of
the
aggregate
number
of
class
A
and
class
B
shares
outstanding.For
so
long
as
class
A
shares
are
in
issue
and
are
outstanding,
class
A
shares
will
not
convert
into
class
B
shares
where:
(1)
the
transfer
is
to
one
or
more
ofthe
transferor’s
directly
or
indirectly
controlled
affiliates;
(2)
10%
or
more
of
the
total
number
of
class
A
shares
in
issue
are
transferred;
(3)
the
transfer
is
to
one
ormore
of
the
existing
class
A
shareholders;
and
(4)
the
transfer
is
to
the
person(s)
that
was
(were)
the
ultimate
beneficial
owner(s)
of
class
A
shareholder
at
the
timeof
Listing.
In
the
case
of
(2)
above
the
transfer
of
A
shares
is
permitted
if:
(a)
it
is
approved
in
writing
by
the
shareholders
holding
in
aggregate
at
least
75%
of
thetotal
number
of
class
A
shares
in
issue;
or
(b)
the
shareholder
(or
a
group
of
shareholders)
transferring
class
A
shares
has
(or
have)
offered
such
shares
to
the
otherthen-existing
shareholders
holding
class
A
shares
in
accordance
with
the
procedure
set
out
in
the
articles
of
association.Dividend.
For
so
long
as
class
A
shares
are
in
issue
and
are
outstanding,
our
board
may
declare
dividend,
including
final
dividend,
but
no
dividend
will
bepaid
except
out
of
our
profits.
Our
board
of
directors
may
set
aside
out
of
our
profits
such
sums
as
it
thinks
proper
as
a
reserve.
The
board
of
directors
may
also,without
establishing
a
reserve,
carry
forward
to
the
next
year
any
profits
it
may
think
prudent
not
to
distribute
as
a
dividend.
The
class
A
shares
and
the
class
Bshares
have
the
right
to
an
equal
share
in
any
dividend
or
other
distribution
we
pay.
Please
see
“Dividend
Policy”
for
more
details.Winding
Up.
If
our
company
is
wound
up,
the
liquidator
may,
upon
a
special
resolution
and
any
other
procedure
prescribed
by
the
Cypriot
law,
(i)
divide
allor
part
of
our
assets
among
the
shareholders;
and
(ii)
vest
the
whole
or
any
part
of
such
assets
in
trustees
for
the
benefit
of
the
contributories
as
the
liquidator
shallthink
fit,
but
so
that
no
shareholder
is
compelled
to
accept
any
shares
or
other
securities
with
any
attached
liability.Form
and
transfer
of
shares.
The
instrument
of
transfer
of
any
share
must
be
executed
by
or
on
behalf
of
the
transferor
and
the
transferee,
and
the
transferorwill
be
deemed
to
be
the
holder
of
the
share
until
the
name
of
the
transferee
is
entered
into
the
register
of
shareholders.
Except
as
set
out
above
and
in
our
articles
ofassociation,
shareholders
are
entitled
to
transfer
all
or
any
of
their
shares
by
instrument
of
transfer
in
writing
in
any
usual
or
common
form
or
in
any
other
form,including
electronic
form,
which
the
directors
may
approve.There
is
no
limitation
under
Cypriot
law
or
our
articles
of
association
on
the
right
of
non-Cypriot
residents
or
nationals
to
own
or
vote
our
shares.Relevant Provisions of Cypriot lawThe
liability
of
our
shareholders
is
limited.
Under
the
Cypriot
law,
a
shareholder
of
a
company
is
not
personally
liable
for
the
acts
of
the
company,
exceptthat
a
shareholder
may
become
personally
liable
by
reason
of
his
or
her
own
acts.As
of
the
date
of
this
annual
report,
Cypriot
law
does
not
contain
any
requirement
for
a
mandatory
offer
to
be
made
by
a
person
acquiring
shares
ordepositary
receipts
of
a
Cypriot
company
even
if
such
an
acquisition
confers
on
such
person
control
over
us
if
neither
the
shares
nor
depositary
receipts
are
listedon
a
regulated
market
in
the
European
Economic
Area
(EEA).
Neither
our
shares
nor
depositary
receipts
are
listed
on
a
regulated
market
in
the
EEA.Cypriot
companies
law
contains
provisions
in
respect
of
squeeze-out
rights.
The
effect
of
these
provisions
is
that,
where
a
company
makes
a
takeover
bid
forall
the
shares
or
for
the
whole
of
any
class
of
shares
of
another
company,
and
the
offer
is
accepted
by
the
holders
of
90%
in
value
of
the
shares
concerned,
theofferor
can
upon
the
same
terms
acquire
the
shares
of
shareholders
who
have
not
accepted
the
offer,
unless
such
persons
can
persuade
the
Cypriot
courts
not
topermit
the
acquisition.
If
the
offeror
company
already
holds
more
than
10%,
in
value
of
the
shares
concerned,
additional
requirements
need
to
be
met
before
theminority
can
be
squeezed
out.
If
the
company
making
the
takeover
bid
acquires
sufficient
shares
to
aggregate,
together
with
those
which
it
already
holds,
more
than90%,
then,
within
one
month
of
the
date
the
bidder
holds
more
than
90%,
it
must
give
notice
of
the
fact
to
the
remaining
shareholders
and
such
shareholders
may,within
three
months
of
receiving
such
notice,
require
the
offeror
company
to
acquire
their
shares
on
the
same
terms
on
which
the
shares
were
acquired
or
on
suchother
terms
as
may
be
agreed
between
them
or
as
the
court
may
order.
C.Material Contracts.Investment AgreementPursuant
to
the
Subscription
Agreement,
dated
May
14,
2015,
by
and
among
us,
Otkritie
Investments
Cyprus
Limited
and
Otkritie
Holding
JSC,
we
agreed
toCIHRUS
LLC
and
its
subsidiaries,
which
constitute
the
Rapida
payment
processing
system
and
the
Contact
money
transfer
system,
in
exchange
for
5,593,041newly
issued
class
B
shares,
which
represented
9.27%
of
our
outstanding
share
capital
following
the
acquisition.
The
Subscription
Agreement
contains
certaincustomary
representations,
warranties
and
covenants
for
an
acquisition
of
this
kind.
76Table of ContentsQIWI
completed
the
acquisition
of
the
70%
interest
in
Contact
and
Rapida
in
exchange
for
the
issuance
of
3,915,129
class
B
shares
to
Otkritie
on
June
2,2015.
QIWI
completed
the
acquisition
of
the
30%
interest
in
Contact
and
Rapida
in
exchange
for
the
issuance
of
1,677,912
class
B
shares
to
Otkritie
on
June
30,2015.
D.Exchange Controls.Cyprus
currently
has
no
exchange
control
restrictions.
E.Taxation.The
following
summary
of
the
Cypriot
tax,
Russian
tax
and
United
States
federal
income
tax
consequences
of
ownership
of
the
ADSs
is
based
upon
laws,regulations,
decrees,
rulings,
income
tax
conventions
(treaties),
administrative
practice
and
judicial
decisions
in
effect
at
the
date
of
this
annual
report.
Legislative,judicial
or
administrative
changes
or
interpretations
may,
however,
be
forthcoming
that
could
alter
or
modify
the
statements
and
conclusions
set
forth
herein.
Anysuch
changes
or
interpretations
may
be
retroactive
and
could
affect
the
tax
consequences
to
holders
of
the
ADSs.
This
summary
does
not
purport
to
be
a
legalopinion
or
to
address
all
tax
aspects
that
may
be
relevant
to
a
holder
of
the
ADSs.
Each
prospective
holder
is
urged
to
consult
its
own
tax
adviser
as
to
the
particulartax
consequences
to
such
holder
of
the
ownership
and
disposition
of
the
ADSs,
including
the
applicability
and
effect
of
any
other
tax
laws
or
tax
treaties,
ofpending
or
proposed
changes
in
applicable
tax
laws
as
of
the
date
of
this
annual
report,
and
of
any
actual
changes
in
applicable
tax
laws
after
such
date.Material Cypriot Tax ConsiderationsTax residencyIn
accordance
with
the
Cyprus
Income
Tax
Law,
a
company
is
tax
resident
in
Cyprus
if
its
management
and
control
are
exercised
in
Cyprus.
There
is
nodefinition
in
the
Cyprus
Income
Tax
Law
as
to
what
constitutes
management
and
control
however
it
is
understood
that
the
concept
of
“central
management
andcontrol”
followed
by
the
Cyprus
tax
authorities
is
in
line
with
the
such
concepts
applied
in
other
common
law
countries’
and
has
developed
through
case
law.
Theconcept
refers
to
the
highest
level
at
which
the
business
of
the
company
is
controlled
and
the
policy
decisions
of
the
directors
are
taken.
This
place
is
usually
wherethe
shareholders
and
board
of
directors
meets
and
takes
key
management
and
commercial
decisions.The
Cyprus
tax
authorities
have
published
a
tax
residency
certificate
request
and
questionnaire
form
indicating
information
that
need
to
be
provided
by
acompany
when
obtaining
Cyprus
tax
residency
certificate.Depending
on
the
answers
to
the
above
questionnaire
the
Cyprus
tax
authorities
will
grant
a
tax
residency
certificate
to
a
company.We
consider
the
company
to
be
a
resident
of
Cyprus
for
tax
purposes.
However,
taking
into
consideration
that
the
majority
of
the
board
of
directors
iscomprised
of
non-Cyprus
tax
residents
and
a
number
of
other
factors
which
may
be
treated
as
not
fully
in
line
with
the
abovementioned
requirements,
our
taxresidency
in
Cyprus
may
be
challenged
by
the
relevant
tax
authorities.Moreover,
we
may
be
deemed
not
to
be
a
tax
resident
in
Cyprus
due
to
the
implication
of
the
Russian
laws,
for
further
details
see
risk
factor
Item
3.D
“RiskFactors
–
Risks
Related
to
Taxation
–
We
may
be
deemed
to
be
a
tax
resident
outside
of
Cyprus.”With
respect
to
the
holders
of
our
ADSs
individuals,
such
holder
may
be
considered
to
be
a
resident
of
Cyprus
for
tax
purposes
in
any
one
calendar
year(which
corresponds
to
a
period
from
January
1
to
December
31)
if
such
holder
is
physically
present
in
Cyprus
for
a
period
exceeding
in
aggregate
more
than
183days
in
that
calendar
year.The
holding
and
disposal
of
the
ADSs
by
a
non-tax
resident
will
not
create
any
tax
liability
in
Cyprus.
Non-tax
residents
are
not
liable
for
any
tax
on
thedisposal
of
shares
or
other
securities
of
a
Cyprus
company
unless
the
Cyprus
company
is
the
owner
of
immovable
property
situated
in
Cyprus.Taxation of Cyprus Resident CompanyA
company
which
is
considered
a
resident
of
Cyprus
for
tax
purposes
is
subject
to
corporate
income
tax
in
Cyprus
on
its
income
accrued
and
derived
fromall
chargeable
sources
in
Cyprus
and
abroad,
worldwide
income,
taking
into
account
certain
exemptions.
The
rate
of
corporate
income
tax
in
Cyprus
is
12.5%
as
ofJanuary
1,
2013.Non-tax
resident
Cyprus
companies
(i.e.
not
managed
and
controlled
from
Cyprus)
are
liable
to
income
tax
in
Cyprus
only
in
respect
of
the
following
typesof
income
arising
in
Cyprus:
trading
profits
of
a
permanent
establishment
situated
in
Cyprus
(i.e.
fixed
base
from
which
a
business
is
carried
on),
profit
from
thesale
of
trade
goodwill
in
Cyprus
and
rental
income
from
property
situated
in
Cyprus.Special
Contribution
for
Defence
is
levied
on
certain
types
of
income
of
tax
residents
of
Cyprus
(See
provisions
of
sections
“Material
Cypriot
TaxConsiderations
-
Taxation
of
Dividend
Income”
and
“Taxation
of
Interest
Income”).
77Table of ContentsTaxation of Dividend IncomeDividend
income
(whether
received
from
Cyprus
tax
resident
or
non-
tax
resident
Cyprus
companies)
is
exempt
from
Corporate
Income
Tax
in
Cyprus.Dividend
income
from
Cyprus
resident
companies
is
exempt
from
the
Cypriot
Special
Contribution
for
Defence
whereas
dividend
income
received
fromnon-Cypriot
resident
companies
is
exempt
from
the
Cypriot
Special
Contribution
for
Defence
provided
that
either
(i)
not
more
than
50%
of
the
foreign
payingcompany
and/or
permanent
establishment’s
activities
result
directly
or
indirectly
in
investment
(“passive”)
income,
or
(ii)
the
foreign
tax
burden
suffered
onincome
of
the
foreign
company
and/or
permanent
establishment
paying
the
dividends
is
not
significantly
lower
than
the
tax
burden
payable
in
Cyprus
(currentlyinterpreted
to
mean
an
effective
tax
burden
of
at
least
6.25%).Dividends
declared
by
a
Cyprus
tax
resident
company
to
another
Cyprus
tax
resident
company
after
the
lapse
of
four
years
from
the
end
of
the
year
in
whichthe
profits
were
generated
are
subject
to
Special
Contribution
for
Defence
at
applicable
rate.
Dividend
income
which
emanates
directly
or
indirectly
out
of
suchdividends
on
which
Special
Contribution
for
Defence
was
previously
suffered
is
exempt.If
the
participation
exemption
for
the
Cypriot
Contribution
for
the
Defence
does
not
apply,
dividends
receivable
from
non-Cypriot
resident
companies
aretaxed
at
a
rate
of
17%.
Foreign
tax
paid
or
withheld
on
dividend
income
received
by
the
Cyprus
tax
resident
company
can
be
credited
against
Cypriot
tax
payableon
the
same
income
provided
proof
of
payment
can
be
furnished.New
provisions
incorporated
effectively
from
January
1,
2016
in
the
Cyprus
tax
legislation
in
order
to
be
harmonized
with
the
European
Directive2011/96/EU
and
related
amending
directives.
These
provisions
involve
the
introduction
of
anti-hybrid
and
general
anti-avoidance
measures
in
relation
to
thedistribution
of
profits
from
a
subsidiary
to
a
parent
company
within
the
European
Union.Dividend
income
of
a
Cyprus
tax
resident
and
Cyprus
domiciled
(as
from
July
16,
2015)
individual
from
Cyprus
and/or
non-Cyprus
tax
resident
companiesis
subject
to
Special
Contribution
for
the
Defence
at
applicable
rate
of
17%.Under
Cyprus
legislation
there
is
no
withholding
tax
on
dividends
paid
to
non-residents
of
Cyprus.
The
dividend
will
be
paid
free
of
any
tax
to
theshareholder
who
will
be
taxed
according
to
the
laws
of
his
country
of
residence
or
domicile.
Holders
of
ADSs
must
consult
their
own
tax
advisors
on
theconsequences
of
their
residence
or
domicile
in
relation
to
the
taxes
applied
to
the
payment
of
dividends.Deemed Dividend DistributionCyprus
tax
resident
companies
which
do
not
distribute
70%
of
their
profits
after
tax,
as
defined
by
the
Special
Contribution
for
the
Defence
of
the
RepublicLaw,
by
the
end
of
the
two
years
after
the
end
of
the
year
of
assessment
to
which
the
profits
refer,
will
be
deemed
to
have
distributed
this
amount
as
dividend.Special
Contribution
for
the
Defence
will
be
payable
on
such
deemed
dividend
to
the
extent
that
the
shareholders
for
deemed
dividend
distribution
purposes
areCyprus
tax
residents.
In
respect
of
profits
of
years
of
assessment
after
2012
onwards
the
Special
Contribution
for
Defence
rate
is
17%.
The
amount
of
this
deemeddividend
distribution
is
reduced
by
any
actual
dividend
paid
out
of
the
profits
of
the
relevant
year
by
the
end
of
the
period
of
two
years
from
the
end
of
the
year
ofassessment
to
which
the
profits
refer.
This
Special
Contribution
for
the
Defence
is
paid
by
the
Company
for
the
account
of
the
shareholders.In
September
2011,
the
Commissioner
of
the
Inland
Revenue
Department
of
Cyprus
issued
Circular
2011/10,
which
exempted
from
the
defense
tax
anyprofits
of
a
company
that
is
tax
resident
in
Cyprus
imputed
indirectly
to
shareholders
that
are
themselves
tax
resident
in
Cyprus
to
the
extent
that
these
profits
areindirectly
apportioned
to
shareholders
who
are
ultimately
not
Cyprus
tax
residents.Taxation of Capital GainsCyprus
Capital
Gains
Tax
is
imposed
(when
the
disposal
is
not
subject
to
income
tax)
at
the
rate
of
20%
on
gains
from
the
disposal
of
immovable
propertysituated
in
Cyprus
including
gains
from
the
disposal
of
shares
in
companies
which
own
immovable
property
in
Cyprus,
and
such
shares
are
not
listed
in
anyrecognized
stock
market.It
is
unclear
whether
this
exception
also
applies
to
disposal
of
the
ADSs.Inheritance TaxThere
is
no
Cyprus
inheritance
tax.Tax Position of Holders of ADSs with Respect to DistributionsThere
is
no
express
provision
in
the
Special
Contribution
for
Defence
law
on
the
treatment
of
holders
of
ADSs
with
respect
to
Special
Contribution
forDefence
on
dividends
nor
is
there
any
specific
guidance
issued
by
the
Cypriot
tax
authorities
on
the
point.
We
are
of
the
view
that
holders
of
ADSs
will
be
subjectto
the
same
treatment
as
holders
of
shares
with
respect
to
the
liability
of
Special
Contribution
for
Defence
on
dividends
and,
therefore,
the
provision
of
sections“—
Taxation
of
Dividend
Income”
and
“—
Deemed
Dividend
Distributions”
above
would
apply
equally
to
the
holders
of
ADSs.Taxation of income and gainsGains from the disposal of securitiesAny
gain
from
disposal
by
the
company
of
securities
(the
definition
of
securities
includes
shares
and
bonds
of
companies
and
options
thereon)
shall
beexempt
from
corporate
income
tax
irrespective
of
the
trading
nature
of
the
gain,
the
number
of
shares
held
or
the
holding
period
78Table of Contentsand
shall
not
be
subject
to
the
Cypriot
Special
Contribution
to
Defence.
Such
gains
are
also
outside
of
the
scope
of
capital
gains
tax
provided
that
the
companywhose
shares
are
disposed
of
does
not
own
any
immovable
property
situated
in
Cyprus
or
such
shares
are
listed
in
any
recognized
stock
exchange.In
accordance
with
Article
2
of
the
Income
Tax
Law
L118(I)/2002
(as
amended)
the
term
“titles”
is
explicitly
defined
to
include
shares,
bonds,
debentures,founders’
shares
and
other
titles
of
companies
or
other
legal
persons,
incorporated
under
a
law
in
the
Republic
of
Cyprus
or
abroad
and
rights.
Therefore,company’s
securities
(ADSs)
may
constitute
“titles”
based
on
the
understanding
that
they
represent
shares
of
QIWI
plc.Gains from Intellectual PropertyUnder
Cyprus
IP
box
regime
an
80%
deduction
is
allowed
from
the
net
profit
received
from
the
use
or
disposal
of
IP
rights.
If
a
loss
is
resulting
from
the
saidactivities,
in
this
case
only
20%
of
the
resulting
loss
can
be
offset
against
income
from
other
sources
or
carried
forward
to
be
offset
against
income
of
subsequenttax
years.
That
provision
has
a
retroactive
effect
starting
from
the
year
2012.Since
July
1,
2016
Cyprus
now
also
offers
a
tax
efficient
new
IP
Box,
fully
aligned
with
the
OECD/G20
Base
Erosion
and
Profit
Shifting
(“BEPS”)
Action
5report.
Under
the
new
Cyprus
IP
Box,
Cyprus
IP
companies
can
achieve
an
effective
tax
rate
of
2.5%
(or
less)
on
qualifying
profits
earned
from
exploitingqualifying
IP.
Non
qualifying
incomes
are
taxable
at
an
effective
tax
rate
of
12.5%
(or
less).Tax treatment of the Foreign exchange differencesUp
to
January
1,
2015
the
treatment
of
foreign
exchange
gains
or
losses
depended
on
the
items
on
which
they
occurred
and
whether
these
items
wereassociated
with
taxable
or
tax-exempt
activities
and
whether
it
was
realized
or
unrealized.As
of
January
1,
2015
the
Cyprus
tax
laws
provide
for
all
foreign
exchange
differences
to
be
tax
neutral
from
a
Cyprus
income
tax
perspective
(i.e.
gains
arenot
taxable/losses
are
not
tax
deductible)
with
the
exception
of
forex
gains/losses
arising
from
trading
in
forex
which
remain
taxable/
deductible.
Regarding
tradingin
forex,
which
remains
subject
to
tax,
the
tax
payers
have
an
option
to
make
an
irrevocable
election
whether
to
be
taxed
only
upon
realization
of
forex
rather
thanon
an
accruals/accounting
basis.Taxation of Interest incomeThe
tax
treatment
of
interest
income
of
any
company
which
is
a
tax
resident
of
Cyprus
will
depend
on
whether
such
interest
income
is
treated
as
“active”
or“passive.”
Interest
income
which
consists
of
interest
which
has
been
derived
by
a
company
which
is
a
tax
resident
of
Cyprus
in
the
ordinary
course
of
its
business,including
interest
which
is
closely
connected
with
the
ordinary
course
of
its
business
will
be
subject
to
corporate
income
tax
at
the
rate
of
12.5%,
after
thededuction
of
any
allowable
business
expenses.
Any
other
interest
income
will
be
subject
to
the
Special
Contribution
for
Defence
at
the
rate
of
30%
on
the
grossamount
of
interest.Specifically,
interest
income
arising
in
connection
with
the
provision
of
loans
to
related
or
associated
parties
should
be
generally
considered
as
incomearising
from
activities
closely
connected
with
the
ordinary
carrying
on
of
a
business
and
should,
as
such,
be
exempt
from
Special
Contribution
for
Defence
and
onlybe
subject
to
corporate
income
tax,
see
provisions
of
section
“Arm’s
length
principle”.Tax deductibility of expenses, including interest expenseThe
general
principle
of
the
Cyprus
income
tax
law
is
that
for
an
expense
to
be
allowed
as
a
deduction
it
must
have
been
incurred
wholly
and
exclusively
forthe
production
of
taxable
income.The
Tax
Circular
2008/14
issued
by
the
Cypriot
tax
authorities
provides
guidance
as
to
the
tax
deductibility
of
expenses
incurred
in
relation
to
the
productionof
income
which
is
exempt
from
corporate
income
tax
such
as
dividend
income
and
profits/
gains
on
sale
of
securities.
According
to
that
tax
circular:(a)
Any
expenditure
that
can
be
directly
or
indirectly
attributed
to
income
that
is
exempt
from
tax
is
not
deductible
for
Corporate
Income
Tax
purposes
andcannot
be
set-off
against
other
(taxable)
sources
of
income.(b)
Any
expenditure
that
is
attributable
to
both
taxable
and
exempt
income
(i.e.
general
overheads)
should
be
apportioned
based
on
a
gross
revenue
ratio
orbased
on
an
asset
ratio.
The
taxpayer
should
select
the
method
which
is
more
appropriate
and
should
use
this
method
on
a
consistent
basis.Interest
incurred
in
connection
with
acquisition
(directly
or
indirectly)
of
shares
in
a
100%
owned
subsidiary
company
as
of
January
1,
2012
(irrespective
ofthe
tax
residency
status
of
the
subsidiary)
shall
be
deductible
for
Cypriot
tax
purposes.
This
would
apply
provided
that
the
assets
of
the
subsidiary
do
not
includeassets
not
used
in
the
business.
However,
in
case
the
subsidiary
possesses
such
assets,
the
deductibility
of
interest
at
the
level
of
the
holding
company
is
limitedonly
to
the
amount
relevant
to
assets,
used
in
the
business.The
latest
amendments
to
tax
legislation
introduce
notional
interest
deduction
under
which
the
Cyprus
companies
that
have
issued
additional
share
capitalstarting
from
January
1,
2015
and
afterwards
will
have
the
benefit
of
a
notional
interest
that
will
be
deducted
from
their
taxable
income
for
each
tax
year
(Seeprovisions
of
section
“Material
Cypriot
Tax
Considerations
–Notional
Interest
Deduction).
79Table of ContentsNotional Interest DeductionThe
latest
amendments
to
Cyprus
tax
legislation
introduce
Notional
Interest
Deduction
(NID)
under
which
the
Cyprus
companies
that
have
issued
additionalshare
capital
starting
from
January
1,
2015
and
afterwards
will
have
the
benefit
of
a
notional
interest
that
will
be
deducted
from
their
taxable
income
for
each
taxyear.
As
per
the
legislation,
the
NID
is
calculated
on
“new
equity”
introduced
in
the
company
as
from
January
1,
2015.
The
NID
is
calculated
as
follows:
NewEquity
x
NID
rate
(capped
at
80%
of
taxable
profits).“New
equity”
is
considered
to
consist
of
paid-up
share
capital
of
any
class
(ordinary,
preference,
redeemable,
convertible
shares),
paid
in
cash
or
in
kind
andshare
premium
which
have
been
issued
and
settled
as
from
January
1,
2015
and
it
is
available
for
the
period
during
which
the
new
equity
is
in
issue.As
per
the
Cyprus
legislation,
the
NID
interest
rate
is
the
yield
on
10-year
government
bonds
(as
at
December
31
of
the
prior
tax
year)
of
the
country
wherethe
funds
are
employed
plus
a
3.0%
premium,
subject
to
a
minimum
amount
which
is
the
yield
on
the
10-year
Cyprus
government
bond
plus
the
3.0%premium.
The
NID
deduction
cannot
exceed
80%
of
the
taxable
profit
as
calculated
before
NID.
A
scheduling
approach
is
expected
to
be
followed
–
it
is
applied
byreference
to
the
taxable
profits
that
are
generated
from
assets/activities
that
are
financed
by
the
“new
equity”
on
which
the
NID
is
calculated
as
per
the
TaxTechnical
Circular
issued
by
the
Cyprus
Tax
Authorities.Arm’s length principleThere
are
no
specific
transfer
pricing
rules
or
any
transfer
pricing
documentation
requirements
in
the
Cyprus
tax
laws.
However,
the
arm’s
length
principle
in
theCyprus
income
tax
law
requires
that
all
transactions
between
related
parties
should
be
carried
out
on
the
at
an
arm’s
length
basis,
being
at
fair
values
and
on
normalcommercial
terms.More
specifically,
under
the
arm’s
length
principle,
where
conditions
are
made
or
imposed
upon
the
commercial
or
financial
relations
of
two
businesseswhich
differ
from
those
which
would
have
been
made
between
independent
parties,
any
profits
which
would
have
accrued
to
one
of
the
party
had
the
twobusinesses
been
independent,
but
have
not
so
accrued,
may
be
included
in
the
profits
of
that
business
and
taxed
accordingly.
The
amendment
to
the
income
tax
law,effective
as
of
January
1,
2015,
extends
the
arm’s
length
principle
by
introducing
the
possibility
of,
in
cases
where
two
related
Cyprus
tax
residents
transact
and
theCyprus
Tax
Authorities
make
an
upward
arm’s
length
adjustment
to
one
of
them,
effecting
a
corresponding
downwards
adjustment
to
the
other
one.We
cannot
exclude
that
the
respective
Cyprus
Tax
Authorities
may
challenge
the
arm’s
length
principle
applied
to
transactions
with
our
related
parties
andtherefore
additional
tax
liabilities
may
accrue.
If
additional
taxes
are
assessed
with
this
respect,
they
may
be
material.Stamp dutyCyprus
levies
stamp
duty
on
an
instrument
if
it
relates
to
any
property
situated
in
Cyprus
or
any
matter
or
thing
which
is
performed
or
done
in
Cyprus.Documents
are
subject
to
stamp
duty
in
Cyprus
at
a
fixed
fee
or
based
on
the
value
of
such
document
with
a
maximum
amount
of
stamp
duty
of
EUR20,000
per
instrument.
In
case
the
document
has
a
nominal
value,
there
is
a
risk
stamp
duty
to
apply
on
the
fair
market
value
of
the
underlying
asset.A
liability
to
stamp
duty
may
arise
on
acquisition
of
Cyprus
shares
and
such
stamp
duty
would
be
payable
where
the
shares
acquisition
documents
areexecuted
in
Cyprus
or
later
brought
into
Cyprus
as
the
company’s
shares
may
be
considered
as
Cypriot
property.Withholding taxes on interestNo
withholding
taxes
shall
apply
in
Cyprus
with
respect
to
payments
of
interest
by
the
company
to
non-Cyprus
tax
resident
lenders
(both
corporations
andindividuals).There
should
be
no
withholding
tax
in
Cyprus
on
interest
paid
by
the
company
to
Cyprus
tax
resident
lenders
when
the
interest
is
considered
as
interestaccruing
from
their
ordinary
course
of
business
or
interest
closely
connected
with
the
ordinary
course
of
their
business.Any
payment
of
interest
which
is
not
considered
as
interest
accruing
from
the
ordinary
course
of
business
or
interest
income
closely
connected
with
theordinary
course
of
business
by
the
company
to
Cypriot
tax
resident
(both
corporations
and
individuals)
lenders
shall
be
subject
to
Special
Contribution
for
DefenceFund
at
the
rate
of
30%,
whereby
the
company
may
be
required
to
withhold
such
tax
from
the
interest.
Depending
on
the
facts
and
circumstances
of
the
case,
thecompany
may
not
need
to
act
as
the
withholding
agent.Capital dutyCapital
duty
is
payable
to
the
Registrar
of
Companies
in
respect
of
the
registered
authorized
share
capital
of
a
Cypriot
company
upon
its
incorporation
andupon
its
subsequent
increases
thereon,
with
the
amount
of
duty
to
be
calculated
based
on
authorized
share
capital
and/or
issued
share
capital
as
the
case
may
be.
80Table of ContentsWith
the
reference
to
the
above
section
“Material
Cypriot
Tax
Considerations”
we
cannot
exclude
that
we
might
be
subject
to
additional
tax
liabilities
in
casethe
respective
Cyprus
tax
authorities
apply
different
rulings
to
the
transactions
carried
out
by
us
or
in
our
respect,
which
could
have
a
material
adverse
effect
on
ourbusiness,
financial
condition
and
results
of
operations.United States Federal Income Tax ConsiderationsThe
following
discussion
is
a
summary
of
the
U.S.
federal
income
tax
consequences
to
U.S.
Holders
(as
defined
below)
of
the
ownership
and
disposition
ofour
ADSs
or
ordinary
shares.
The
discussion
is
not
a
complete
analysis
or
listing
of
all
of
the
possible
tax
consequences
and
does
not
address
all
tax
considerationsthat
may
be
relevant
to
investors
in
light
of
their
particular
circumstances.
Special
rules
that
are
not
discussed
in
the
general
descriptions
below
may
also
apply.
Inparticular,
the
description
of
U.S.
federal
income
tax
consequences
deals
only
with
U.S.
Holders
that
own
our
ADSs
or
ordinary
shares
as
capital
assets.
In
addition,the
description
of
U.S.
federal
income
tax
consequences
does
not
address
the
tax
treatment
of
special
classes
of
U.S.
Holders,
such
as
banks
and
other
financialinstitutions,
insurance
companies,
persons
holding
our
ADSs
or
shares
as
part
of
a
“straddle,”
“hedge,”
“appreciated
financial
position,”
“conversion
transaction”
orother
risk
reduction
strategy,
U.S.
expatriates,
persons
liable
for
alternative
minimum
tax,
Medicare
tax,
brokers
or
dealers
in
securities
or
currencies,
holderswhose
“functional
currency”
is
not
the
U.S.
dollar,
regulated
investment
companies,
real
estate
investment
trusts,
partnerships
(or
any
entity
treated
as
a
partnershipfor
U.S.
federal
income
tax
purposes)
and
other
pass-through
entities,
traders
in
securities
who
have
elected
the
mark-to-market
method
of
accounting
for
theirsecurities,
individual
retirement
accounts
or
other
tax-deferred
accounts,
holders
who
acquired
shares
pursuant
to
the
exercise
of
an
employee
stock
option
or
rightor
otherwise
as
compensation,
tax-exempt
entities,
and
investors
who
own
directly,
indirectly
through
certain
non-U.S.
entities,
or
constructively
10%
or
more
ofthe
voting
power
or
value
of
our
aggregate
shares
outstanding.
The
following
discussion
does
not
address
any
tax
consequences
arising
under
the
laws
of
any
U.S.state
or
local
or
foreign
jurisdiction,
or
under
any
U.S.
federal
laws
other
than
those
pertaining
to
income
tax.The
discussion
is
based
on
the
laws
of
the
United
States,
including
the
Internal
Revenue
Code
of
1986,
as
amended,
or
the
Code,
its
legislative
history,Treasury
regulations
promulgated
thereunder,
judicial
decisions,
and
published
rulings
and
administrative
pronouncements
of
the
U.S.
Internal
Revenue
Service,
orthe
IRS,
all
as
in
effect
at
the
date
of
this
annual
report,
and
any
of
which
may
change,
possibly
with
retroactive
effect.
Further,
there
can
be
no
assurance
that
theIRS
will
not
disagree
with
or
will
not
challenge
any
of
the
conclusions
reached
and
described
herein.
The
discussion
is
also
based,
in
part,
on
representations
by
thedepositary
and
assumes
that
each
obligation
under
the
depositary
agreement
and
any
related
agreement
will
be
performed
in
accordance
with
its
terms.In GeneralFor
purposes
of
this
discussion,
a
“U.S.
Holder”
is
a
beneficial
owner
of
our
ADSs
or
ordinary
shares
that
is,
for
U.S.
federal
income
tax
purposes:

•
a
citizen
or
individual
resident
of
the
United
States;

•
a
corporation,
or
other
entity
treated
as
a
corporation
that
is
created
in
or
organized
under
the
laws
of
the
United
States,
any
state
thereof
or
the
Districtof
Columbia;

•
an
estate
whose
income
is
subject
to
U.S.
federal
income
tax
regardless
of
its
source;
or

•
a
trust
if
either
(1)
a
United
States
court
is
able
to
exercise
primary
supervision
over
the
administration
of
the
trust
and
one
or
more
U.S.
persons
havethe
authority
to
control
all
substantial
decisions
of
the
trust
or
(2)
the
trust
has
a
valid
election
in
effect
to
be
treated
as
a
U.S.
person
under
applicableTreasury
regulations.If
an
entity
treated
as
a
partnership
for
U.S.
federal
income
tax
purposes
holds
our
ADSs
or
ordinary
shares,
the
U.S.
federal
income
tax
treatment
of
suchpartnership
and
each
partner
will
generally
depend
on
the
status
and
the
activities
of
the
partnership
and
the
partner.
Partnerships
that
hold
our
ADSs
or
ordinaryshares,
and
partners
in
such
partnerships,
should
consult
their
tax
advisers
regarding
the
U.S.
federal,
state
and
local
and
non-U.S.
tax
consequences
applicable
tothem
of
the
ownership
and
disposition
of
our
ADSs
or
ordinary
shares.For
U.S.
federal
income
tax
purposes,
U.S.
Holders
of
ADSs
generally
will
be
treated
as
the
owners
of
the
ordinary
shares
represented
by
the
ADSs.Accordingly,
except
as
otherwise
noted,
the
U.S.
federal
income
tax
consequences
discussed
below
apply
equally
to
U.S.
Holders
of
ADSs
or
the
underlyingordinary
shares.Holders should consult their tax advisers regarding the particular tax consequences to them of the ownership and disposition of our ADSs orordinary shares under the laws of the United States (federal, state and local) or any other relevant taxation jurisdiction.Taxation of DistributionsSubject
to
the
discussion
under
“—
Passive
Foreign
Investment
Companies”
below,
the
gross
amount
of
a
distribution
made
by
us
with
respect
to
theordinary
shares
underlying
our
ADSs,
including
the
full
amount
of
any
Cypriot
withholding
tax
thereon,
will
be
a
dividend
for
U.S.
federal
income
tax
purposesincludible
in
the
gross
income
of
a
U.S.
Holder
to
the
extent
paid
out
of
our
current
or
accumulated
earnings
and
profits
(as
determined
for
U.S.
federal
income
taxpurposes).
Such
dividends
will
not
be
eligible
for
the
dividends
received
deduction
allowed
to
corporations.
Because
we
do
not
intend
to
maintain
calculations
ofour
earnings
and
profits
on
the
basis
of
U.S.
federal
income
tax
principles,
U.S.
Holders
should
expect
that
any
distribution
paid
will
generally
be
reported
to
themas
a
“dividend”
for
U.S.
federal
income
tax
purposes.
Dividends
received
by
individuals
and
other
non-corporate
U.S.
Holders
of
our
ADSs
that
are
traded
onNasdaq
will
be
eligible
for
beneficial
rates
of
taxation
provided
we
are
not
a
PFIC
during
the
year
in
which
the
dividend
is
paid
or
the
prior
taxable
year
and
certainother
requirements,
including
stock
holding
period
requirements,
are
satisfied
by
the
recipient.
U.S.
Holders
should
consult
their
tax
advisors
regarding
theapplication
of
the
relevant
rules
to
their
particular
circumstances.
81Table of ContentsDividends
will
be
included
in
a
U.S.
Holder’s
income
on
the
date
of
the
U.S.
Holder’s
(or
in
the
case
of
ADSs,
the
Depository’s)
receipt
of
the
dividend.
Theamount
of
any
dividend
income
paid
in
a
foreign
currency
will
be
the
U.S.
dollar
amount
calculated
by
reference
to
the
exchange
rate
in
effect
on
the
date
ofreceipt,
regardless
of
whether
the
payment
is
in
fact
converted
into
U.S.
dollars.
If
the
dividend
is
converted
into
U.S.
dollars
on
the
date
of
receipt,
U.S.
holdersshould
not
be
required
to
recognize
foreign
currency
gain
or
loss
in
respect
of
dividend
income.
A
U.S.
Holder
may
have
foreign
currency
gain
or
loss
if
thedividend
is
converted
into
U.S.
dollars
after
the
date
of
receipt.Sale or Other Disposition of ADSs or Ordinary SharesSubject
to
the
discussion
under
“—
Passive
Foreign
Investment
Companies”
below,
a
U.S.
Holder
generally
will
recognize
capital
gain
or
loss
for
U.S.federal
income
tax
purposes
upon
a
sale
or
other
disposition
of
its
ADSs
or
ordinary
shares
in
an
amount
equal
to
the
difference
between
the
amount
realized
fromsuch
sale
or
disposition
and
the
U.S.
Holder’s
adjusted
tax
basis
in
such
ADSs
or
ordinary
shares,
in
each
case,
as
determined
in
U.S.
dollars.
Such
capital
gain
orloss
will
be
long-term
capital
gain
(taxable
at
a
reduced
rate
for
non-corporate
U.S.
Holders,
such
as
individuals)
or
loss
if,
on
the
date
of
sale
or
disposition,
suchADSs
or
ordinary
shares
were
held
by
such
U.S.
Holder
for
more
than
one
year.
The
deductibility
of
capital
losses
is
subject
to
significant
limitations.If
a
Russian
tax
is
imposed
on
the
sale
or
other
disposition
of
our
ADSs
or
ordinary
shares,
a
U.S.
Holder’s
amount
realized
will
include
the
gross
amount
ofthe
proceeds
before
deduction
of
the
Russian
tax.
See
“—Russian
Tax
Considerations
Relevant
to
the
Purchase,
Ownership
and
Disposition
of
the
ADSs”
for
adescription
of
when
a
disposition
may
be
subject
to
taxation
by
Russia.
Because
a
U.S.
Holder’s
gain
from
the
sale
or
other
disposition
of
ADSs
or
ordinary
shareswill
generally
be
U.S.
source
gain,
a
U.S.
Holder
may
be
unable
to
claim
a
credit
against
its
U.S.
federal
tax
liability
for
any
Russian
tax
on
gains.
In
lieu
ofclaiming
a
foreign
tax
credit,
a
U.S.
Holder
may
elect
to
deduct
foreign
taxes,
including
the
Russian
tax,
in
computing
taxable
income,
subject
to
generallyapplicable
limitations
under
U.S.
law.
U.S.
Holders
should
consult
their
tax
advisers
as
to
whether
any
Russian
tax
on
gains
may
be
creditable
against
U.S.
federalincome
tax
on
foreign
source
income
from
other
sources.The
surrender
of
ADSs
in
exchange
for
ordinary
shares
(or
vice
versa)
will
not
result
in
the
realization
of
gain
or
loss
for
U.S.
federal
income
tax
purposes,and
U.S.
Holders
will
not
recognize
any
gain
or
loss
upon
such
a
surrender.
A
U.S.
Holder’s
tax
basis
in
withdrawn
shares
will
be
the
same
as
such
holder’s
taxbasis
in
the
ADSs
surrendered,
and
the
holding
period
of
the
shares
will
include
the
holder’s
holding
period
for
the
ADSs.Passive Foreign Investment CompaniesIn
general,
a
non-U.S.
corporation
will
be
classified
as
a
passive
foreign
investment
company,
or
PFIC,
for
U.S.
federal
income
tax
purposes,
if
either(i)
75%
or
more
of
its
gross
income
consists
of
certain
types
of
“passive”
income
or
(ii)
50%
or
more
of
the
fair
market
value
of
its
assets
(determined
on
the
basisof
a
quarterly
average)
produce
or
are
held
for
the
production
of
passive
income.
For
this
purpose,
cash
is
categorized
as
a
passive
asset
and
our
unbookedintangibles
will
be
taken
into
account
and
generally
treated
as
non-passive
assets.
We
will
be
treated
as
owning
our
proportionate
share
of
the
assets
and
earningour
proportionate
share
of
the
income
of
any
other
corporation
in
which
we
own,
directly
or
indirectly,
25%
or
more
(by
value)
of
the
shares.We
do
not
believe
that
we
were
a
PFIC
for
the
taxable
year
ended
December
31,
2016.
We
do
not
anticipate
being
a
PFIC
for
our
current
taxable
year,although
we
can
make
no
assurances
in
this
regard.
Our
status
as
a
PFIC
in
any
year
depends
on
our
assets
and
activities
in
that
year.
We
have
no
reason
to
believethat
our
assets
or
activities
will
change
in
a
manner
that
would
cause
us
to
be
classified
as
a
PFIC
for
the
current
taxable
year
or
for
any
future
year.
Because,however,
PFIC
status
is
factual
in
nature,
may
depend
in
part
on
fluctuations
in
the
market
price
of
our
ADSs,
is
determined
annually,
and
generally
cannot
bedetermined
until
the
close
of
the
taxable
year,
there
can
be
no
assurance
that
we
will
not
be
considered
a
PFIC
for
any
taxable
year.
We
could
be
a
PFIC,
forexample,
if
our
business
and
assets
evolve
in
ways
that
are
different
from
what
we
currently
anticipate.
Furthermore,
it
is
possible
that
the
IRS
may
challenge
ourvaluation
of
our
goodwill
and
other
unbooked
intangibles,
which
may
result
in
our
company
being
classified
as
a
PFIC.If
we
are
classified
as
a
PFIC
for
any
taxable
year
during
which
a
U.S.
Holder
holds
our
ADSs
or
ordinary
shares,
the
U.S.
Holder
will
generally
be
subjectto
an
increased
amount
of
taxes
and
an
interest
charge,
characterization
of
any
gain
from
the
sale
or
exchange
of
our
ADSs
or
ordinary
shares
as
ordinary
income,and
other
disadvantageous
tax
treatment
with
respect
to
our
ADSs
or
ordinary
shares
unless
the
U.S.
Holder
may
make
a
mark-to-market
election
(as
describedbelow).
Further,
if
we
are
classified
as
a
PFIC
for
any
taxable
year
during
which
a
U.S.
Holder
holds
our
ADSs
or
ordinary
shares
and
any
of
our
non-U.S.subsidiaries
is
also
a
PFIC,
such
U.S.
Holder
would
be
treated
as
owning
a
proportionate
amount
(by
value)
of
the
shares
of
each
such
non-U.S.
subsidiaryclassified
as
a
PFIC
(each
such
subsidiary,
a
lower
tier
PFIC)
for
purposes
of
the
application
of
these
rules.
U.S.
Holders
should
consult
their
tax
advisors
regardingthe
application
of
the
PFIC
rules
to
any
of
our
subsidiaries.As
an
alternative
to
the
foregoing
rules,
a
U.S.
holder
of
“marketable
stock”
in
a
PFIC
may
make
a
mark-to-market
election.
A
mark-to-market
election
maybe
made
with
respect
to
our
ADSs,
provided
they
are
actively
traded,
defined
for
this
purpose
as
being
traded
on
a
“qualified
exchange,”
other
than
in
de
minimisquantities,
on
at
least
15
days
during
each
calendar
quarter,
but
may
not
be
made
with
respect
to
our
ordinary
shares
as
they
are
not
marketable
stock.
We
anticipatethat
our
ADSs
should
qualify
as
being
actively
traded,
but
no
assurances
may
be
given
in
this
regard.
If
a
U.S.
Holder
of
our
ADSs
makes
this
election,
the
U.S.Holder
will
generally
(i)
include
as
income
for
each
taxable
year
the
excess,
if
any,
of
the
fair
market
value
of
our
ADSs
held
at
the
end
of
the
taxable
year
over
theadjusted
tax
basis
of
such
ADSs
and
(ii)
deduct
as
a
loss
the
excess,
if
any,
of
the
adjusted
tax
basis
of
our
ADSs
over
the
fair
market
value
of
such
ADSs
held
atthe
end
of
the
taxable
82Table of Contentsyear,
but
only
to
the
extent
of
the
net
amount
previously
included
in
income
as
a
result
of
the
mark-to-market
election.
The
U.S.
Holder’s
adjusted
tax
basis
in
ourADSs
would
be
adjusted
to
reflect
any
income
or
loss
resulting
from
the
mark-to-market
election.
In
addition,
any
gain
such
U.S.
Holder
recognizes
upon
the
saleor
other
disposition
of
our
ADSs
will
be
treated
as
ordinary
income
and
any
loss
will
be
treated
as
ordinary
loss,
but
only
to
the
extent
of
the
net
amount
previouslyincluded
in
income
as
a
result
of
the
mark-to-market
election.
If
a
U.S.
Holder
makes
a
mark-to-market
election
in
respect
of
a
corporation
classified
as
a
PFIC
andsuch
corporation
ceases
to
be
classified
as
a
PFIC,
the
U.S.
Holder
will
not
be
required
to
take
into
account
the
gain
or
loss
described
above
during
any
period
thatsuch
corporation
is
not
classified
as
a
PFIC.
In
the
case
of
a
U.S.
Holder
who
has
held
our
ADSs
during
any
taxable
year
in
respect
of
which
we
were
classified
as
aPFIC
and
continues
to
hold
such
ADSs
(or
any
portion
thereof)
and
has
not
previously
made
a
mark-to-market
election,
and
who
is
considering
making
a
mark-to-market
election,
special
tax
rules
may
apply
relating
to
purging
the
PFIC
taint
of
such
ADSs.
Because
a
mark-to-market
election
cannot
be
made
for
any
lower
tierPFICs
that
we
may
own,
a
U.S.
Holder
may
continue
to
be
subject
to
the
PFIC
rules
with
respect
to
such
U.S.
Holder’s
indirect
interest
in
any
investments
held
byus
that
are
treated
as
an
equity
interest
in
a
PFIC
for
U.S.
federal
income
tax
purposes.We
do
not
intend
to
provide
the
information
necessary
for
U.S.
Holders
of
our
ADSs
or
ordinary
shares
to
make
qualified
electing
fund
elections,
which,
ifavailable,
would
result
in
tax
treatment
different
from
the
general
tax
treatment
for
PFICs
described
above.If
a
U.S.
Holder
owns
our
ADSs
or
ordinary
shares
during
any
taxable
year
that
we
are
a
PFIC,
such
U.S.
Holder
may
be
subject
to
certain
reportingobligations
with
respect
to
our
ADSs
or
ordinary
shares,
including
reporting
on
IRS
Form
8621.Each
U.S.
Holder
should
consult
its
tax
adviser
concerning
the
U.S.
federal
income
tax
consequences
of
holding
and
disposing
of
our
ADSs
or
ordinaryshares
if
we
are
or
become
classified
as
a
PFIC,
including
the
possibility
of
making
a
mark-to-market
election.An
individual
U.S.
Holder
and
certain
entities
may
be
required
to
submit
to
the
IRS
certain
information
with
respect
to
his
or
her
beneficial
ownership
of
theADSs
or
ordinary
shares,
if
such
ADSs
or
ordinary
shares
are
not
held
on
his
or
her
behalf
by
a
financial
institution.
This
law
also
imposes
penalties
if
an
individualU.S.
Holder
is
required
to
submit
such
information
to
the
IRS
and
fails
to
do
so.
U.S.
Holders
should
consult
their
tax
advisors
regarding
application
of
theinformation
reporting
rules.Russian Tax Considerations Relevant to the Purchase, Ownership and Disposal of the ADSsThe
following
is
a
summary
of
material
Russian
tax
consequences
relevant
to
the
purchase,
ownership
and
disposal
of
the
ADSs.
The
summary
is
based
onthe
laws
of
the
Russian
Federation
in
effect
on
the
date
of
this
annual
report.
All
of
the
foregoing
is
subject
to
change,
possibly
on
a
retroactive
basis,
after
the
dateof
the
annual
report.
The
discussion
with
respect
to
Russian
legislation
is
based
on
our
understanding
of
current
Russian
law
and
Russian
tax
rules,
which
aresubject
to
frequent
change
and
varying
interpretations.The
summary
does
not
seek
to
address
the
applicability
of,
and
procedures
in
relation
to,
taxes
levied
by
the
regions
and
municipalities
of
the
RussianFederation.
Nor
does
the
summary
seek
to
address
the
availability
of
double
tax
treaty
relief,
and
it
should
be
noted
that
there
may
be
practical
difficulties
involvedin
claiming
relief
under
an
applicable
double
tax
treaty.
Prospective
holders
should
consult
their
own
advisors
regarding
the
tax
consequences
of
investing
in
theADSs
and
no
representations
with
respect
to
the
Russian
tax
consequences
of
investing,
owning
or
disposal
of
the
ADSs
to
any
particular
holder
is
made
hereby.GeneralMany
aspects
of
Russian
tax
law,
including
Russian
tax
rules
applicable
to
ADSs,
are
subject
to
significant
uncertainty
and
lack
interpretive
guidance.Further,
the
substantive
provisions
of
Russian
tax
law
applicable
to
financial
instruments
may
be
subject
to
more
rapid
and
unpredictable
change
(including
with
aretroactive
effect)
and
inconsistency
than
in
jurisdictions
with
more
developed
capital
markets
or
more
developed
taxation
systems.
In
particular,
the
interpretationand
application
of
such
provisions
will,
in
practice,
rest
substantially
with
local
tax
inspectorates.
In
practice,
the
interpretation
of
tax
law
by
different
taxinspectorates
may
be
inconsistent
or
contradictory
and
may
result
in
the
imposition
of
conditions,
requirements
or
restrictions
not
provided
for
by
the
existinglegislation.
Similarly,
in
the
absence
of
binding
precedents,
court
rulings
on
tax
or
related
matters
by
different
Russian
courts
relating
to
the
same
or
similarcircumstances
may
be
inconsistent
or
contradictory.For
the
purposes
of
this
summary,
a
“resident
holder”
means
a
holder
of
ADSs
who
is:

•
an
ADSs
holder
which
is
a
legal
entity
or
an
organization
and
is:

•
a
Russian
legal
entity;

•
a
foreign
legal
entity
or
organization
recognized
as
a
Russian
tax
resident
based
on
the
provisions
of
an
applicable
double
tax
treaty
(for
the
purposesof
application
of
such
double
tax
treaty);

•
a
foreign
legal
entity
or
organization
recognized
as
a
Russian
tax
resident
based
on
Russian
domestic
law
(in
case
the
Russian
Federation
is
recognizedas
the
place
of
effective
management
of
such
legal
entity
or
organization
as
determined
in
the
Russian
Tax
Code
unless
otherwise
envisaged
by
anapplicable
double
tax
treaty);

•
a
foreign
legal
entity
or
organization
which
holds
and/
or
disposes
of
the
ADSs
through
its
permanent
establishment
in
the
Russian
Federation,
83Table of Contents
•
an
ADSs
holder
who
is
an
individual
and
is
actually
present
in
Russia
for
an
aggregate
period
of
183
calendar
days
or
more
in
any
period
comprised
of
12consecutive
months
(the
“resident
holder
–
individual”).
Presence
in
the
Russian
Federation
is
not
considered
interrupted
if
an
individual
departs
for
shortperiods
(less
than
six
months)
from
Russia
for
medical
treatment
or
education
purposes
as
well
as
for
the
employment
or
other
duties
related
to
theperformance
of
works
(services)
on
offshore
hydrocarbons
fields.
The
interpretation
of
this
definition
by
the
Russian
Ministry
of
Finance
states
that,
for
taxwithholding
purposes,
an
individual’s
tax
residence
status
should
be
determined
on
the
date
of
the
income
payment
(based
on
the
number
of
days
in
Russia
inthe
12-month
period
preceding
the
date
of
the
payment).
An
individual’s
final
tax
liability
in
the
Russian
Federation
for
any
reporting
calendar
year
shouldbe
determined
based
on
the
number
of
days
spent
in
Russia
in
such
calendar
year.For
the
purposes
of
this
summary,
a
“non-resident
holder”
is
a
holder
of
ADSs
who
does
not
fall
under
the
definition
of
a
resident
holder
above
(includingany
legal
entity
or
organization
or
individual).Russian
tax
residency
rules
may
be
affected
by
an
applicable
double
tax
treaty.
ADSs
holders
should
seek
professional
advice
on
their
tax
status
in
Russia.Non-resident holdersGenerally,
a
non-resident
holder
of
ADSs
should
not
be
subject
to
any
Russian
taxes
in
respect
of
distributions
made
by
us
with
respect
to
class
B
sharesunderlying
the
ADSs.Legal
entities
or
organizationsA
non-resident
holder
that
is
a
legal
entity
or
organization
generally
should
not
be
subject
to
any
Russian
taxes
in
respect
of
any
gain
or
other
incomerealized
on
the
sale,
exchange
or
other
disposal
of
the
ADSs
unless
more
than
50%
of
our
assets
consist
of
immovable
property
situated
in
Russia.
Otherwise,
anyproceeds
from
sale,
exchange
or
other
disposal
of
ADSs
would
be
regarded
as
Russian
source
income
received
by
non-resident
holders
that
are
legal
entities
ororganizations,
subject
to
Russian
income
tax.
Because
the
determination
of
whether
more
than
50%
of
our
assets
consist
of
immovable
property
situated
in
Russiais
inherently
factual
and
is
made
on
an
on-going
basis,
there
can
be
no
assurance
that
immovable
property
situated
in
Russia
does
not
currently,
or
will
not,constitute
more
than
50%
of
our
assets.
The
above
tax
may
be
reduced
or
eliminated
under
an
applicable
double
tax
treaty,
provided
that
the
recipient
of
the
incomeis
its
beneficial
owner,
such
income
is
not
attributable
to
a
permanent
establishment
in
Russia,
the
necessary
requirements
to
qualify
for
the
treaty
relief
and
theappropriate
administrative
requirements
under
the
Russian
tax
legislation
have
been
met.Non-resident
holders
that
are
legal
entities
or
organizations
should
consult
their
own
tax
advisors
with
respect
to
the
tax
consequences
of
the
sale,
exchangeor
other
disposal
of
the
ADSs.IndividualsA
non-resident
holder
who
is
an
individual
should
not
generally
be
subject
to
Russian
taxes
in
respect
of
any
gains
realized
on
the
sale,
exchange
or
otherdisposal
of
ADSs,
provided
that
the
proceeds
of
such
sale,
exchange
or
disposal
are
not
received
from
a
source
within
Russia.In
the
event
that
the
proceeds
from
a
sale,
exchange
or
other
disposal
of
ADSs
are
deemed
to
be
received
from
a
source
within
Russia,
a
non-resident
holderthat
is
an
individual
may
be
subject
to
Russian
tax
in
respect
of
such
proceeds
at
a
rate
of
30%
of
the
gain
(such
gain
being
computed
as
the
sales
price
less
anyavailable
documented
cost
deduction,
including
the
acquisition
price
of
the
ADSs
and
other
documented
expenses,
such
as
depositary
expenses
and
brokers’
fees),subject
to
any
available
double
tax
treaty
relief,
provided
that
the
necessary
requirements
to
qualify
for
the
treaty
relief
and
the
appropriate
administrativerequirements
under
the
Russian
tax
legislation
have
been
met.
For
example,
holders
of
ADSs
that
are
eligible
for
the
benefits
of
the
United
States-Russia
double
taxtreaty
should
generally
not
be
subject
to
tax
in
Russia
on
any
gain
arising
from
the
disposal
of
ADSs,
provided
that
the
gain
is
not
attributable
to
disposal
of
sharesin
a
Russian
“immovable
property
company”
(company
with
more
than
50%
of
its
assets
consisting
of
immovable
property
situated
in
Russia
(as
defined
in
thetreaty)).
Because
the
determination
of
whether
more
than
50%
of
our
assets
consist
of
immovable
property
situated
in
Russia
is
inherently
factual
and
is
made
on
anon-going
basis,
and
because
the
relevant
Russian
legislation
and
regulations
are
not
entirely
clear,
there
can
be
no
assurance
that
immovable
property
situated
inRussia
does
not
currently,
or
will
not,
constitute
more
than
50%
of
our
assets.
If
more
than
50%
of
our
assets
were
to
consist
of
immovable
property
situated
inRussia,
the
benefits
of
the
United
States-Russia
double
tax
treaty
may
not
be
available
to
an
ADS
holder.
Therefore,
share
of
immovable
property
situated
inRussia,
owned
directly
or
indirectly,
in
our
assets
should
be
calculated
to
assess
availability
of
a
treaty
relief.According
to
Russian
tax
legislation,
income
received
from
a
sale,
exchange
or
other
disposal
of
the
ADSs
should
be
treated
as
having
been
received
from
aRussian
source
if
such
sale,
exchange
or
other
disposal
occurs
in
Russia.
Russian
tax
law
gives
no
clear
indication
as
to
how
to
identify
the
source
of
incomereceived
from
a
sale,
exchange
or
other
disposal
of
securities
except
that
income
received
from
the
sale
of
securities
“in
Russia”
will
be
treated
as
having
beenreceived
from
a
Russian
source.
In
absence
of
any
guidance
as
to
what
should
be
considered
as
a
sale,
exchange
or
other
disposal
of
securities
“in
Russia”,
theRussian
tax
authorities
may
apply
various
criteria
in
order
to
determine
the
source
of
the
sale
or
other
disposal,
including
looking
at
the
place
of
conclusion
of
thetransaction,
the
location
of
the
issuer
or
other
similar
criteria.
There
is
no
assurance,
therefore,
that
proceeds
received
by
non-resident
holders
–
individuals
from
asale,
exchange,
redemption
or
other
disposal
of
the
ADSs
will
not
become
subject
to
tax
in
Russia.
84Table of ContentsThe
tax
may
be
withheld
at
source
from
payment
only
if
the
individual
acts
via
a
professional
intermediary
that
is
registered
for
the
tax
purposes
in
Russia(such
as
trustee,
dealer,
broker
or
other
intermediary
acting
to
the
benefit
of
the
individual
holder),
otherwise
the
non-resident
holder
–
individual
shall
be
liable
tofile
a
tax
return
and
pay
the
tax
due.Additionally,
acquisition
of
the
ADSs
by
a
non-resident
holder
who
is
an
individual
may
constitute
a
taxable
event
pursuant
to
provisions
of
the
Russian
TaxCode
relating
to
the
material
benefit
(deemed
income)
received
by
individuals
as
a
result
of
acquisition
of
securities.
If
the
acquisition
price
of
the
ADSs
is
belowthe
lower
margin
of
fair
market
value
calculated
under
a
specific
procedure
for
the
determination
of
market
prices
of
securities
for
tax
purposes,
the
difference
maybe
subject
to
the
Russian
personal
income
tax
at
a
rate
of
30%
(arguably,
this
would
be
subject
to
reduction
or
elimination
under
the
applicable
double
tax
treaty).As
noted
above
with
respect
to
the
disposal
of
the
ADSs,
under
Russian
tax
legislation,
taxation
of
the
income
of
non-resident
holders
who
are
individualswill
depend
on
whether
this
income
would
be
assessed
as
received
from
Russian
or
non-Russian
sources.
Although
Russian
tax
legislation
does
not
contain
anyprovisions
on
how
the
related
material
benefit
should
be
sourced,
the
tax
authorities
may
infer
that
such
income
should
be
considered
as
Russian
source
income
ifthe
ADSs
are
purchased
“in
Russia”.
In
the
absence
of
any
additional
guidance
as
to
what
should
be
considered
as
a
purchase
of
securities
“in
Russia”,
the
Russiantax
authorities
may
apply
various
criteria
in
order
to
determine
the
source
of
the
related
material
benefit,
including
looking
at
the
place
of
conclusion
of
theacquisition
transaction
or
other
similar
criteria.
There
is
no
assurance,
therefore,
that
proceeds
received
by
non-resident
holders
–
individuals
from
a
sale,
exchange,redemption
or
other
disposal
of
the
ADSs
will
not
become
subject
to
tax
in
Russia.Non-resident
holders
who
are
individuals
should
consult
their
own
tax
advisors
with
respect
to
the
tax
consequences
arising
as
a
result
of
acquisition
ordisposal
of
the
ADSs
and
the
receipt
of
proceeds
from
source
within
the
Russian
Federation
in
their
respect.Double
Tax
Treaty
ProceduresWhere
a
non-resident
holder
of
ADSs
receives
income
from
a
Russian
source,
the
Russian
tax
(if
applicable
under
Russian
domestic
tax
law)
may
be
reducedor
eliminated
in
accordance
with
the
provisions
of
a
double
tax
treaty.
Advance
treaty
relief
should
be
available
for
those
eligible,
subject
to
the
requirements
of
thelaws
of
Russia.
In
order
for
a
non-resident
holder
to
benefit
from
the
applicable
double
tax
treaty,
documentary
evidence
is
required
to
confirm
the
applicability
ofthe
double
tax
treaty
for
which
benefits
are
claimed.
Currently,
a
non-resident
holder
is
required
to
provide
a
tax
residence
confirmation
issued
by
the
competenttax
authority
of
the
relevant
treaty
country
(duly
apostilled
or
legalized,
translated
into
Russian
and
notarized).
The
tax
residency
confirmation
needs
to
be
renewedon
an
annual
basis,
and
provided
before
the
first
payment
of
income
in
each
calendar
year.
For
non-resident
holder
that
is
a
legal
entity
or
organization
this
shouldbe
a
tax
residency
certificate
for
the
relevant
year.Starting
from
January
01,
2016,
a
non-resident
holder
who
is
an
individual
willing
to
obtain
the
advance
double
tax
treaty
relief
at
source
should
confirm
to
atax
agent
that
he
or
she
is
tax
resident
in
a
relevant
foreign
jurisdiction
having
a
double
tax
treaty
with
Russia
by
providing
the
tax
agent
with
(i)
a
passport
of
aforeign
resident,
or
(ii)
another
document
envisaged
by
an
applicable
federal
law
or
recognized
as
a
personal
identity
document
of
a
foreign
resident
in
accordancewith
the
double
tax
treaty,
and
(iii)
upon
request
of
the
tax
agent,
a
tax
residency
certificate
for
the
relevant
year
issued
by
the
competent
authorities
of
his
or
hercountry
of
residence
for
tax
purposes.
A
notarized
Russian
translation
of
the
certificate
is
required.
The
above
provisions
are
intended
to
provide
a
tax
agent
withthe
opportunity
of
applying
reduced
(or
zero)
withholding
tax
rates
under
an
applicable
double
tax
treaty
at
source.
However,
due
to
the
novelty
of
these
provisionsthere
is
some
uncertainty
as
to
how
they
will
be
applied
by
the
Russian
tax
authorities
in
practice.In
addition,
in
order
to
benefit
from
the
applicable
double
tax
treaty,
the
person
claiming
such
benefits
must
be
the
beneficial
owner
of
the
relevant
income.Starting
from
January
1,
2015,
in
addition
to
a
certificate
of
tax
residency,
the
Russian
Tax
Code
allows
the
tax
agent
to
require
a
confirmation
from
the
non-resident
holder
–
legal
entity
that
it
is
the
beneficial
owner
of
the
relevant
income.
Starting
from
January
1,
2017
this
right
of
the
tax
agent
becomes
an
obligation.As
of
the
date
of
this
annual
report,
there
has
been
no
guidance
on
the
form
of
such
confirmation
and
it
is
at
the
moment
unclear
how
these
measures
will
beapplied
in
practice.
Due
to
introduction
of
these
changes,
there
can
be
no
assurance
that
treaty
relief
at
source
will
be
available
in
practice.Non-resident
holders
should
consult
their
own
tax
advisors
regarding
possible
tax
treaty
relief
and
procedures
for
obtaining
such
relief
with
respect
to
anyRussian
taxes
imposed
on
proceeds
received
from
a
disposal
of
the
ADSs.Refund
of
Tax
WithheldIf
double
tax
treaty
relief
is
available
but
Russian
tax
has
nevertheless
been
withheld
at
the
source
of
payment,
an
application
for
the
refund
of
the
taxwithheld
may
be
made
within
three
years
from
the
end
of
the
tax
period
in
which
the
tax
was
withheld
for
non-resident
holders.In
order
to
obtain
a
refund,
the
non-resident
holder
that
is
a
legal
entity
is
required
to
file
with
the
Russian
tax
authorities,
among
other
documents,
a
dulyapostilled
or
legalized,
translated
into
Russian
and
notarized
certificate
of
tax
residence
issued
by
the
competent
tax
authority
of
the
relevant
treaty
country
at
thetime
the
income
was
paid,
as
well
as
documents
confirming
receipt
of
such
income
and
the
withholding
of
Russian
tax.The
Russian
tax
authorities
may,
in
practice,
require
a
wide
variety
of
documentation
confirming
the
right
to
benefits
under
a
double
tax
treaty.
Suchdocumentation,
in
practice,
may
not
be
explicitly
required
by
the
Russian
Tax
Code.
Obtaining
a
refund
of
Russian
tax
withheld
may
be
a
time
consuming
processand
can
involve
considerable
practicable
difficulties,
depending
to
a
large
extent
on
the
position
of
the
local
tax
inspectorates.
85Table of ContentsIf
a
non-resident
holder
who
is
an
individual
wishes
to
obtain
a
refund,
he
or
she
should
provide
a
claim
for
a
refund
of
the
tax
withheld
and
documents
confirmingthe
right
for
a
refund
under
the
Russian
Tax
Code
to
the
tax
agent.
Starting
from
January
1,
2016
a
claim
for
a
refund
and
documents
confirming
the
right
for
arefund
under
the
Russian
Tax
Code
can
be
filed
within
three
years
following
the
tax
period
in
which
the
tax
was
withheld.
In
case
there
is
no
tax
agent
on
the
dateof
receipt
by
the
individual
of
confirmation
of
its
tax
residence
status
in
a
relevant
foreign
jurisdiction
having
an
applicable
double
tax
treaty
with
Russia,
theindividual
can
file
a
claim
for
a
refund
and
documents
confirming
the
right
for
a
refund
directly
with
the
Russian
tax
authorities.Non-resident
holders
should
consult
their
own
tax
advisors
should
they
need
to
obtain
a
refund
of
Russian
taxes
withheld
on
any
payments
received
withrespect
to
the
ADSs.Resident holdersA
resident
holder
will
generally
be
subject
to
all
applicable
Russian
taxes
in
respect
of
the
purchase
of
the
ADSs
and
income
received
on
the
ADSs,including
any
distributions
on
ADS,
gains
from
their
sale,
exchange
or
other
disposal.Resident
holders
should
consult
their
own
tax
advisors
with
respect
to
their
tax
position
regarding
the
ADSs.
F.Dividend and Paying Agents.Not
applicable.
G.Statements by Experts.Not
applicable.
H.Documents on Display.We
are
subject
to
the
periodic
reporting
and
other
informational
requirements
of
the
Exchange
Act.
Under
the
Exchange
Act,
we
are
required
to
file
reportsand
other
information
with
the
SEC.
Specifically,
we
are
required
to
file
annually
a
Form
20-F
within
four
months
after
the
end
of
each
fiscal
year,
which
isDecember
31.
Copies
of
reports
and
other
information,
when
so
filed,
may
be
inspected
without
charge
and
may
be
obtained
at
prescribed
rates
at
the
publicreference
facilities
maintained
by
the
Securities
and
Exchange
Commission
at
100
F
Street,
N.E.,
Room
1580,
Washington,
D.C.
20549.
The
public
may
obtaininformation
regarding
the
Washington,
D.C.
Public
Reference
Room
by
calling
the
Commission
at
1-800-SEC-0330.
The
SEC
also
maintains
a
website
atwww.sec.gov
that
contains
reports,
proxy
and
information
statements,
and
other
information
regarding
registrants
that
make
electronic
filings
with
the
SEC
usingits
EDGAR
system.
As
a
foreign
private
issuer,
we
are
exempt
from
the
rules
under
the
Exchange
Act
prescribing
the
furnishing
and
content
of
quarterly
reportsand
proxy
statements,
and
officers,
directors
and
principal
shareholders
are
exempt
from
the
reporting
and
short-swing
profit
recovery
provisions
contained
inSection
16
of
the
Exchange
Act.
I.Subsidiary Information.Not
applicable.
ITEM 11.Quantitative and Qualitative Disclosures About Market RiskThe
main
risks
that
could
adversely
affect
our
financial
assets,
liabilities
or
future
cash
flows
are
foreign
exchange
risk,
liquidity
and
credit
risk.
Ourmanagement
reviews
and
approves
policies
for
managing
each
of
the
risks
which
are
summarized
below.Foreign exchange riskForeign
exchange
risk
is
the
risk
that
fluctuations
in
exchange
rates
will
adversely
affect
items
in
our
statement
of
comprehensive
income,
statement
offinancial
position
and/or
cash
flows.
Foreign
currency
denominated
assets
and
liabilities
give
rise
to
foreign
exchange
exposure.As
a
result
of
the
June
2014
secondary
public
offering,
the
Company
increased
its
issued
share
capital
by
2,292,330
class
B
shares
and
received
U.S.
$88,942,404.
These
proceeds
less
certain
amounts
spent
for
ongoing
business
activities
are
accounted
as
deposits
in
other
currency
in
cash
and
cash
equivalents
as
ofDecember
31,
2016,
2015
and
2014.
Due
to
the
depreciation
of
the
U.S.
dollar
against
ruble
in
2016
by
17%,
we
recognized
foreign
exchange
loss
in
the
amount
ofRUB
975
million
for
the
year
ended
December
31,
2016.
In
2015
and
2014
(from
the
date
of
June
2014
secondary
public
offering
to
December
31,
2014)
the
U.S.dollar
has
appreciated
against
ruble
by
30%
and
by
approximately
64%
respectively,
thus
we
have
recognized
a
foreign
exchange
gain
in
the
amount
of
RUB1,476
million
for
the
year
ended
December
31,
2015
and
RUB
1,947
million
for
the
year
ended
December
31,
2014.
We
intend
to
use
these
assets
for
generalcorporate
purposes
including
potential
acquisitions.
86Table of ContentsForeign currency sensitivityThe
following
tables
demonstrate
the
sensitivity
to
a
reasonably
possible
change
in
U.S.
dollar
and
euro
exchange
rates,
with
all
other
variables
heldconstant.
The
impact
on
profit
before
tax
is
due
to
changes
in
the
carrying
amount
of
monetary
assets
and
liabilities
denominated
in
U.S.
dollar
and
euro
when
thesecurrencies
are
not
functional
currencies
of
the
respective
Group
subsidiary.
The
Group’s
exposure
to
foreign
currency
changes
for
all
other
currencies
is
notmaterial.



change in US Dollar

Effect on profit before tax






(in
RUB
millions)
2016


+20%


655



(20%)


(655)
2015


+40%


2,558



(13%)


(831)



change in Euro

Effect on profitbefore tax






(in
RUB
millions)
2016


+20%


40



(20%)


(40)
2015


+40%


639



(15%)


(223)
Liquidity risk and capital managementWe
use
cash
from
shareholders’
contributions,
have
sufficient
cash
and
do
not
have
any
significant
outstanding
debt
other
than
interbank
debt
with
shortmaturities
(classified
as
due
to
banks).
Deposits
received
from
agents
are
also
due
on
demand,
but
are
usually
offset
against
future
payments
processed
throughagents.
We
expect
that
agent’s
deposits
will
continue
to
be
offset
against
future
payments
and
not
be
called
by
the
agents.
Amounts
due
to
customers
and
amountsdue
to
banks
and
trade
and
other
payables
are
due
on
demand.The
macroeconomic
slowdown
in
Russia,
caused
among
other
things
by
falling
oil
prices
and
the
economic
sanctions
regime,
which
effectively
limitedaccess
to
liquidity
of
key
Russian
banks
led
to
liquidity
shortage
in
the
markets
in
which
we
operate.
As
a
consequence,
banks
and
entities
in
Russia
substantiallydecreased
credit
limits
in
their
everyday
operations.
Management
noted
that
our
merchants
and
partners
started,
since
the
end
of
2014,
requesting
from
us
largercollaterals
to
hedge
their
risks.
We
were
able
to
manage
these
new
requirements
to
date,
though
the
liquidity
shortage
in
the
market
may
further
exacerbate
andconsequently
it
may
have
further
negative
effects
on
our
operations
which
cannot
be
now
reliably
estimated.According
to
CBR
requirements,
bank’s
capital
calculated
based
on
CBR
instructions
should
be
not
less
than
8%
of
its
risk-adjusted
assets.
As
ofDecember
31,
2016,
Qiwi
Bank
JSC’s
and
Rapida
LTD’s
capital
ratio
comprised
27%
(2015
–
14%)
and
19%
(2015
–
20%)
respectively,
thereby
exceeding
therequired
level.
We
monitor
the
fulfillment
of
requirements
on
a
daily
basis
and
send
the
reports
to
CBR
on
a
monthly
basis.
During
the
year
ended
December
31,2016
and
2015
Qiwi
Bank
and
Rapida
LTD
met
the
capital
adequacy
requirements.We
manage
our
capital
structure
and
make
adjustments
to
it,
in
light
of
changes
in
economic
conditions.
Capital
includes
share
capital,
share
premium,additional
paid-in
capital,
other
reserves
and
translation
reserve.
To
maintain
or
adjust
the
capital
structure,
we
may
make
dividend
payments
to
shareholders,return
capital
to
shareholders
or
issue
new
shares.
Currently,
we
require
capital
to
finance
our
growth,
but
we
generate
sufficient
cash
from
our
operations.
Thetable
below
summarizes
the
maturity
profile
of
our
financial
liabilities
based
on
contractual
undiscounted
payments.



Total


Due: On demand


Withina year


More thana year



(in
RUB
millions)
Trade
and
other
payables


16,328



16,328



—





—


Amounts
due
to
customers
and
amounts
due
to
banks


2,342



2,342



—





—






















Total as of December 31, 2016

 18,670 

 18,670 

 —   

 —   






















Total


Due: On demand


Withina year


More thana year



(in
RUB
millions)
Trade
and
other
payables


15,295



15,295



—





—


Amounts
due
to
customers
and
amounts
due
to
banks


2,243



2,243



—





—






















Total as of December 31, 2015

 17,538 

 17,538 

 —   

 —   



















Credit riskFinancial
assets,
which
potentially
subject
us
and
our
subsidiaries
and
associates
to
credit
risk,
consist
principally
of
trade
receivables,
loans
receivableissued,
cash
and
short-term
investments.
We
sell
services
on
a
prepayment
basis
or
ensure
that
our
receivables
are
from
customers
with
87Table of Contentsan
appropriate
credit
history
–
large
merchants
and
agents
with
sufficient
and
appropriate
credit
history.
Our
receivables
from
merchants
and
others,
except
foragents,
are
generally
non-interest-bearing
and
do
not
require
collateral.
Receivables
from
agents
are
interest-bearing
and
unsecured.
We
hold
cash
primarily
withreputable
Russian
and
international
banks,
including
the
Central
Bank
of
Russia,
which
management
considers
having
minimal
risk
of
default,
although
creditratings
of
Russian
and
Kazakh
banks
are
generally
lower
than
those
banks
in
more
developed
markets.
Short-term
investments
include
fixed-rate
debt
instrumentsissued
by
the
top
Russian
banks.The
carrying
amount
of
accounts
receivable,
net
of
allowance
for
impairment
of
receivables,
represents
the
maximum
amount
exposed
to
credit
risk
for
thistype
of
receivables.
The
table
below
demonstrates
the
largest
counterparties’
balances
as
a
percentage
of
respective
totals:



Trade and other receivables
Concentration of credit risks by main counterparties, % from total amount

As of December 31,2014

As of December 31,2015

As of December 31,2016
Top
5


36%


48%


60%
Others


64%


52%


40%
Collection
of
receivables
may
be
influenced
by
economic
factors.
Management
believes
that
there
is
no
significant
risk
of
loss
to
us
beyond
the
allowancealready
recorded.
ITEM 12.Description of Securities Other Than Equity Securities
A.Debt Securities.Not
applicable.
B.Warrants and Rights.Not
applicable.
C.Other Securities.Not
applicable.
D.American Depositary Shares.Fees and Expenses
Persons depositing or withdrawing class B shares or ADS holders must pay:

For:U.S.$5.00
(or
less)
per
100
ADSs
(or
portion
of
100
ADSs)

U.S.$0.05
(or
less)
per
ADS
A
fee
equivalent
to
the
fee
that
would
be
payable
if
securities
distributed
to
you
hadbeen
class
B
shares
and
the
class
B
shares
had
been
deposited
for
issuance
of
ADSs
U.S.$0.05
(or
less)
per
ADSs
per
calendar
year

•



Issuance
of
ADSs,
including
issuances
resulting
from
a
distribution
ofclass
B
shares
or
rights
or
other
property
•



Cancellation
of
ADSs
for
the
purpose
of
withdrawal,
including
if
thedeposit
agreement
terminates
•



Any
cash
distribution
to
ADS
holders
•



Distribution
of
securities
distributed
to
holders
of
deposited
securitieswhich
are
distributed
by
the
depositary
to
ADS
holders
•



Depositary
services
Registration
or
transfer
fees
Expenses
of
the
depositary
Taxes
and
other
governmental
charges
the
depositary
or
the
custodian
have
to
payon
any
ADS
or
share
underlying
an
ADS,
for
example,
stock
transfer
taxes,
stampduty
or
withholding
taxes
Any
charges
incurred
by
the
depositary
or
its
agents
for
servicing
the
depositedsecurities


•



Transfer
and
registration
of
class
B
shares
on
our
share
register
to
orfrom
the
name
of
the
depositary
or
its
agent
when
you
deposit
orwithdraw
class
B
shares
•



Cable,
telex
and
facsimile
transmissions
(when
expressly
provided
inthe
deposit
agreement)
•



converting
foreign
currency
to
U.S.
dollars
•



As
necessary

•



As
necessary
88Table of ContentsThe
depositary
collects
its
fees
for
delivery
and
surrender
of
ADSs
directly
from
investors
depositing
class
B
shares
or
surrendering
ADSs
for
the
purpose
ofwithdrawal
or
from
intermediaries
acting
for
them.
The
depositary
collects
fees
for
making
distributions
to
investors
by
deducting
those
fees
from
the
amountsdistributed
or
by
selling
a
portion
of
distributable
property
to
pay
the
fees.
The
depositary
may
collect
its
annual
fee
for
depositary
services
by
deduction
from
cashdistributions
or
by
directly
billing
investors
or
by
charging
the
book-entry
system
accounts
of
participants
acting
for
them.
The
depositary
may
generally
refuse
toprovide
fee-based
services
until
its
fees
for
these
services
are
paid.From
time
to
time,
the
depositary
may
make
payments
to
us
to
reimburse
and/or
class
B
share
revenue
from
the
fees
collected
from
ADS
holders,
or
waivefees
and
expenses
for
services
provided,
generally
relating
to
costs
and
expenses
arising
out
of
establishment
and
maintenance
of
the
ADS
program.
In
performingits
duties
under
the
deposit
agreement,
the
depositary
may
use
brokers,
dealers
or
other
service
providers
that
are
affiliates
of
the
depositary
and
that
may
earn
orshare
fees
or
commissions.Payment of TaxesYou
will
be
responsible
for
any
taxes
or
other
governmental
charges
payable
on
your
ADSs
or
on
the
deposited
securities
represented
by
any
of
your
ADSs.The
depositary
may
refuse
to
register
any
transfer
of
your
ADSs
or
allow
you
to
withdraw
the
deposited
securities
represented
by
your
ADSs
until
such
taxes
orother
charges
are
paid.
It
may
apply
payments
owed
to
you
or
sell
deposited
securities
represented
by
your
ADSs
to
pay
any
taxes
owed
and
you
will
remain
liablefor
any
deficiency.
If
the
depositary
sells
deposited
securities,
it
will,
if
appropriate,
reduce
the
number
of
ADSs
to
reflect
the
sale
and
pay
to
ADS
holders
anyproceeds,
or
send
to
ADS
holders
any
property,
remaining
after
it
has
paid
the
taxes.PART II
ITEM 13.Defaults, Dividend Arrearages and DelinquenciesNone.
ITEM 14.Material Modifications to the Rights of Security Holders and Use of ProceedsNone.
ITEM 15.Controls and ProceduresEvaluation of Disclosure Controls and ProceduresThe
company’s
management,
with
the
participation
of
the
company’s
chief
executive
officer
and
chief
financial
officer,
evaluated
the
effectiveness
of
thecompany’s
disclosure
controls
and
procedures
as
of
December
31,
2016.
The
term
“disclosure
controls
and
procedures,”
as
defined
in
Rules
13a-15(e)
and
15d-15(e)
under
the
Exchange
Act,
means
controls
and
other
procedures
of
a
company
that
are
designed
to
ensure
that
information
required
to
be
disclosed
by
acompany
in
the
reports
that
it
files
or
submits
under
the
Exchange
Act
is
recorded,
processed,
summarized
and
reported,
within
the
time
periods
specified
in
theSEC’s
rules
and
forms.
Disclosure
controls
and
procedures
include,
without
limitation,
controls
and
procedures
designed
to
ensure
that
information
required
to
bedisclosed
by
a
company
in
the
reports
that
it
files
or
submits
under
the
Exchange
Act
is
accumulated
and
communicated
to
the
company’s
management,
includingits
principal
executive
and
principal
financial
officers,
as
appropriate
to
allow
timely
decisions
regarding
required
disclosure.
Management
recognizes
that
anycontrols
and
procedures,
no
matter
how
well
designed
and
operated,
can
provide
only
reasonable
assurance
of
achieving
their
objectives
and
managementnecessarily
applies
its
judgment
in
evaluating
the
cost-benefit
relationship
of
possible
controls
and
procedures.
Based
on
the
evaluation
of
the
company’s
disclosurecontrols
and
procedures
as
of
December
31,
2016,
the
company’s
chief
executive
officer
and
chief
financial
officer
concluded
that,
as
of
such
date,
the
company’sdisclosure
controls
and
procedures
were
effective
to
allow
timely
decisions
regarding
required
disclosure.Management’s Report on Internal Control over Financial ReportingOur
management
is
responsible
for
establishing
and
maintaining
adequate
“internal
control
over
financial
reporting,”
as
defined
in
Rules
13a-15(f)
and
15d-15(f)
under
the
Exchange
Act.
This
rule
defines
internal
control
over
financial
reporting
as
a
process
designed
by,
or
under
the
supervision
of,
a
company’s
chiefexecutive
officer
and
chief
financial
officer
and
effected
by
our
board
of
directors,
management
and
other
personnel,
to
provide
reasonable
assurance
regarding
thereliability
of
financial
reporting
and
the
preparation
of
financial
statements
for
external
purposes
in
accordance
with
generally
accepted
accounting
principles
andincludes
those
policies
and
procedures
that
(1)
pertain
to
the
maintenance
of
records
that,
in
reasonable
detail,
accurately
and
fairly
reflect
the
transactions
anddispositions
of
the
assets
of
the
company;
(2)
provide
reasonable
assurance
that
transactions
are
recorded
as
necessary
to
permit
preparation
of
financial
statementsin
accordance
with
generally
accepted
accounting
principles,
and
that
receipts
and
expenditures
of
the
company
are
being
made
only
in
accordance
withauthorizations
of
management
and
directors
of
the
company;
and
(3)
provide
reasonable
assurance
regarding
prevention
or
timely
detection
of
unauthorizedacquisition,
use,
or
disposition
of
the
company’s
assets
that
could
have
a
material
effect
on
the
financial
statements.Management
assessed
the
design
and
operating
effectiveness
of
our
internal
control
over
financial
reporting
as
of
December
31,
2016.
This
assessment
wasperformed
under
the
direction
and
supervision
of
our
chief
executive
officer
and
chief
financial
officer,
and
based
on
criteria
89Table of Contentsestablished
in
Internal
Control—Integrated
Framework
(2013)
issued
by
the
Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission.
Based
on
thatevaluation,
management
concluded
that
as
of
December
31,
2016,
our
internal
control
over
financial
reporting
was
effective.The
effectiveness
of
our
internal
control
over
financial
reporting
as
of
December
31,
2016
has
been
audited
by
Ernst
&
Young
LLC,
our
independentregistered
public
accounting
firm.
Their
report
may
be
found
below:Report of Independent Registered Public Accounting FirmThe
Board
of
Directors
and
Shareholders
of
Qiwi
plc
and
subsidiariesWe
have
audited
Qiwi
plc
and
subsidiaries’
internal
control
over
financial
reporting
as
of
December
31,
2016,
based
on
criteria
established
in
InternalControl—Integrated
Framework
issued
by
the
Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission
(2013
framework)
(the
COSO
criteria).
Qiwiplc’s
management
is
responsible
for
maintaining
effective
internal
control
over
financial
reporting,
and
for
its
assessment
of
the
effectiveness
of
internal
controlover
financial
reporting
included
in
the
accompanying
Management’s
Report
on
Internal
Control
over
Financial
Reporting.
Our
responsibility
is
to
express
anopinion
on
the
company’s
internal
control
over
financial
reporting
based
on
our
audit.We
conducted
our
audit
in
accordance
with
the
standards
of
the
Public
Company
Accounting
Oversight
Board
(United
States).
Those
standards
require
thatwe
plan
and
perform
the
audit
to
obtain
reasonable
assurance
about
whether
effective
internal
control
over
financial
reporting
was
maintained
in
all
materialrespects.
Our
audit
included
obtaining
an
understanding
of
internal
control
over
financial
reporting
assessing
the
risk
that
a
material
weakness
exists,
testing
andevaluating
the
design
and
operating
effectiveness
of
internal
control
based
on
the
assessed
risk,
and
performing
such
other
procedures
as
we
considered
necessaryin
the
circumstances.
We
believe
that
our
audit
provides
a
reasonable
basis
for
our
opinion.A
company’s
internal
control
over
financial
reporting
is
a
process
designed
to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reportingand
the
preparation
of
financial
statements
for
external
purposes
in
accordance
with
International
Financial
Reporting
Standards
(IFRS).
A
company’s
internalcontrol
over
financial
reporting
includes
those
policies
and
procedures
that
(1)
pertain
to
the
maintenance
of
records
that,
in
reasonable
detail,
accurately
and
fairlyreflect
the
transactions
and
dispositions
of
the
assets
of
the
company;
(2)
provide
reasonable
assurance
that
transactions
are
recorded
as
necessary
to
permitpreparation
of
financial
statements
in
accordance
with
IFRS,
and
that
receipts
and
expenditures
of
the
company
are
being
made
only
in
accordance
withauthorizations
of
management
and
directors
of
the
company;
and
(3)
provide
reasonable
assurance
regarding
prevention
or
timely
detection
of
unauthorizedacquisition,
use,
or
disposition
of
the
company’s
assets
that
could
have
a
material
effect
on
the
financial
statements.Because
of
its
inherent
limitations,
internal
control
over
financial
reporting
may
not
prevent
or
detect
misstatements.
Also,
projections
of
any
evaluation
ofeffectiveness
to
future
periods
are
subject
to
the
risk
that
controls
may
become
inadequate
because
of
changes
in
conditions,
or
that
the
degree
of
compliance
withthe
policies
or
procedures
may
deteriorate.In
our
opinion,
Qiwi
plc
and
subsidiaries
maintained,
in
all
material
respects,
effective
internal
control
over
financial
reporting
as
of
December
31,
2016,based
on
the
COSO
criteria.We
also
have
audited,
in
accordance
with
the
standards
of
the
Public
Company
Accounting
Oversight
Board
(United
States),
the
consolidated
statement
offinancial
position
of
Qiwi
plc
as
of
December
31,
2016
and
2015,
and
the
related
consolidated
statements
of
comprehensive
income,
consolidated
statements
ofchanges
in
equity
and
consolidated
cash
flow
statements
for
each
of
the
three
years
in
the
period
ended
December
31,
2016
and
our
report
dated
March
22,
2017expressed
an
unqualified
opinion
thereon./s/
Ernst
&
Young
LLCMoscow,
RussiaMarch
22,
2017Changes in Internal Control over Financial ReportingThere
have
been
no
changes
in
internal
control
over
financial
reporting
occurred
during
the
year
ended
December
31,
2016
with
respect
to
our
operationsthat
has
materially
affected,
or
is
reasonably
likely
to
materially
affect,
our
internal
control
over
financial
reporting.
ITEM 16.[RESERVED]
ITEM 16A.Audit Committee Financial ExpertOur
board
of
directors
has
determined
that
Mr.
Marcus
Rhodes
is
an
“audit
committee
financial
expert”
as
defined
in
Item
16A
of
Form
20-F
under
theExchange
Act.
Our
board
of
directors
has
also
determined
that
Mr.
Rhodes
satisfies
the
“independence”
requirements
set
forth
in
Rule
10A-3
under
the
ExchangeAct.
90Table of ContentsITEM 16B.Code of EthicsWe
have
adopted
a
Code
of
Ethics
and
Business
Conduct
that
applies
to
all
our
employees,
officers
and
directors,
including
our
chief
executive
officer
andour
chief
financial
officer
and
our
principal
accounting
officer.
Our
Code
of
Ethics
and
Business
Conduct
is
available
on
our
website
athttp://investor.qiwi.com/documents.cfm.
ITEM 16C.Principal Accountant Fees and ServicesThe
following
table
sets
forth
the
aggregate
fees
by
categories
specified
below
in
connection
with
certain
professional
services
rendered
by
Ernst
&
Young,our
principal
external
auditors,
for
the
periods
indicated.



For the year ended December 31,



2015


2016



(in
RUB
millions)
Audit
Fees


58



44
Audit
Related
Fees


40



—


Tax
Fees


5



4
All
Other
Fees


12



4
Total

 115 

 52 Audit FeesAudit
fees
for
2015
and
2016
are
the
aggregate
fees
billed
for
the
audit
of
our
consolidated
financial
statements
and
other
audit
or
interim
review
servicesprovided
in
connection
with
statutory
and
regulatory
filings
or
engagements.Audit-Related FeesAudit-related
fees
in
2015
were
related
to
professional
services
rendered
in
connection
with
preparation
of
pro
forma
financial
information
(the
Acquisitionof
CIHRUS
(Contact
and
Rapida
business)).
There
were
no
audit-related
fees
incurred
in
2016.Tax FeesTax
fees
in
2015
and
2016
were
related
to
tax
compliance
and
tax
planning
services.All Other FeesAll
other
fees
in
2015
and
2016
relate
to
services
in
connection
with
corporate
compliance
matters.Pre-Approval Policies and ProceduresAll
audit
and
non-audit
services
provided
by
our
independent
auditors
must
be
pre-approved
by
our
audit
committee.
ITEM 16D.Exemptions from the Listing Standards for Audit CommitteesNone.
ITEM 16E.Purchases of Equity Securities by the Issuer and Affiliated PurchasersNone.
ITEM 16F.Change in Registrant’s Certifying AccountantNone.
ITEM 16G.Corporate GovernanceOur
corporate
affairs
are
governed
by
our
memorandum
and
articles
of
association
and
the
provisions
of
applicable
Cyprus
law,
including
the
CompaniesLaw
and
common
law.
The
Companies
Law
differs
from
laws
applicable
to
U.S.
corporations
and
their
shareholders.
The
following
table
provides
a
comparisonbetween
certain
statutory
provisions
of
the
Companies
Law
(together
with
the
provisions
of
our
articles
of
association)
and
the
Delaware
General
Corporation
Lawrelating
to
shareholders’
rights.
91Table of ContentsCyprus

DelawareShareholder Meetings


May
be
held
at
such
time
or
place
as
specified
in
the
relevant
notice
given
inaccordance
with
the
Companies
Law
and
articles
of
association
by
the
board
ofdirectors
if
a
general
meeting
is
called
by
the
board
or
by
shareholders
if
called
bysuch
shareholders
in
accordance
with
the
Companies
Law.

Annual
shareholder
meetings
are
typically
held
at
such
time
or
place
asdesignated
in
the
certificate
of
incorporation
or
the
bylaws.
A
specialmeeting
of
shareholders
may
be
called
by
the
board
of
directors
or
by
anyother
person
authorized
in
the
certificate
of
incorporation
or
bylaws.May
be
held
in
or
outside
Cyprus.

May
be
held
inside
or
outside
Delaware.Whenever
shareholders
are
required
to
take
any
action
at
a
meeting,
a
writtennotice
of
the
meeting
shall
be
given
which
shall
state
the
place,
the
date
and
thehour
of
the
meeting
as
well
as
the
agenda
of
the
meeting,
and
the
means
of
remotecommunication,
if
any.

Whenever
shareholders
are
required
to
take
any
action
at
a
meeting,
awritten
notice
of
the
meeting
shall
be
given
which
shall
state
the
place,
ifany,
date
and
hour
of
the
meeting,
and
the
means
of
remote
communication,if
any.Shareholder’s Voting Rights

Any
person
authorized
to
vote
at
a
general
meeting
may
authorize
another
personor
persons
to
act
for
him
by
proxy.

Any
person
authorized
to
vote
may
authorize
another
person
or
persons
toact
for
him
by
proxy.The
articles
of
association
shall
specify
the
number
of
the
shareholders
to
constitutea
quorum.
Further
to
the
Companies
Law,
three
members
personally
present
shallbe
a
quorum
unless
the
articles
of
association
of
the
company
do
not
make
otherprovision
to
this
effect.
Further
to
our
articles
of
association
the
quorum
shall
be50.01%
of
the
voting
rights
attached
to
our
issued
shares
present
and
voting
inperson
or
by
proxy
at
a
duly
convened
general
meeting.

The
certificate
of
incorporation
or
bylaws
may
specify
the
number
toconstitute
a
quorum,
but
in
no
event
shall
a
quorum
consist
of
less
than
onethird
of
the
shares
entitled
to
vote
at
the
meeting.
In
the
absence
of
suchspecification,
the
majority
of
the
shares
entitled
to
vote,
present
in
person
orrepresented
by
proxy,
shall
constitute
a
quorum
at
a
meeting
of
shareholders.When
the
share
capital
is
divided
into
different
classes
of
shares
separate
votingtakes
place
for
each
class
of
shares
the
rights
of
which
are
effected
by
the
change.In
accordance
with
the
Companies
Law,
the
decision
is
passed
by
a
majority
of
twothirds
of
the
votes
corresponding
either
to
the
represented
securities
or
to
therepresented
issued
share
capital
if
less
than
half
of
the
issued
share
capital
isrepresented
and
a
simple
majority
of
at
least
half
of
the
issued
share
capital
isrepresented.
Under
our
articles
of
association,
the
decision
is
passed
by
a
resolutionof
seventy
five
per
cent
vote
of
the
holders
of
the
shares
of
the
relevant
class,
withthe
sanction
of
a
special
resolution
of
a
general
meeting
of
our
shareholders.

Generally,
a
certificate
of
incorporation
may
be
amended
by
the
approval
ofshareholders
holding
a
majority
of
the
outstanding
shares
entitled
to
vote
onthe
amendment.
Shareholders
generally
have
the
right
to
amend
thecorporation’s
bylaws,
but
the
certificate
of
incorporation
may
instead
conferthis
right
on
the
directors
of
the
corporation.
Except
as
provided
in
thecertificate
of
incorporation,
changes
in
the
rights
of
shareholders
as
set
forthin
the
certificate
of
incorporation
require
approval
of
a
majority
of
itsshareholders.The
articles
of
association
may
provide
for
cumulative
voting.

Cumulative
voting
is
not
permitted
unless
explicitly
allowed
in
thecertificate
of
incorporation.
Directors


Under
the
Companies
Law
the
board
must
consist
of
at
least
two
members.

Board
must
consist
of
at
least
one
member.Under
the
articles
of
association,
the
board
shall
consist
of
up
to
seven
directors.
Achange
in
the
number
of
directors
shall
be
determined
by
the
general
meeting
of
theshareholders.

Number
of
board
members
shall
be
fixed
by
the
bylaws,
unless
thecertificate
of
incorporation
fixes
the
number
of
directors,
in
which
case
achange
in
the
number
shall
be
made
only
by
amendment
of
the
certificate
ofincorporation.Under
the
Companies
Law,
directors
can
be
appointed
by
either
the
generalmeeting
of
shareholders
or
board
of
directors.
Our
articles
of
association
providefor
a
specific
procedure
of
electing
directors.

Unless
otherwise
specified
in
the
certificate
of
incorporation
or
bylaws,directors
are
elected
by
a
plurality
of
the
votes
of
the
shares
entitled
to
voteon
the
election
of
directors.Under
the
Companies
Law,
directors
can
be
removed
by
an
ordinary
resolution
ofthe
general
meeting
of
shareholders.
In
addition,
our
articles
of
association
providethat
if
the
board
of
directors
exercises
its
right
to
appoint
a
director
to
fill
a
vacancyon
the
board,
members
representing
10.01%
of
the
voting
rights
attached
to
ourissued
shares
may,
subject
to
following
a
specific
procedure,
terminate
theappointment
of
the
board.

Barring
certain
exceptions,
any
director
or
the
entire
board
of
directors
maybe
removed,
with
or
without
cause,
by
the
holders
of
a
majority,
or
in
somecases
the
supermajority,
of
the
shares
entitled
to
vote
at
an
election
ofdirectors.As
a
foreign
private
issuer,
we
have
elected
to
follow
Cyprus
corporate
governancepractices,
which,
unlike
the
applicable
Nasdaq
requirements
for
domestic
issuers,do
not
require
the
majority
of
directors
to
be
independent.
Under
the
CompaniesLaw,
directors
do
not
have
to
be
independent.
Further
to
the
articles
of
association,the
Board
shall
contain
not
less
than
three
independent
directors.

Directors
do
not
have
to
be
independent.Fiduciary Duties


Directors
and
officers
must
act
in
good
faith,
with
the
care
of
a
prudent
person,
and
in
the
best
interest
of
the
company.

Directors
have
a
duty
of
care
and
a
duty
of
loyalty
to
the
corporation
and
its
shareholders.
The
duty
of
care
requires
that
a
director
acts
in
92Table of Contents


good
faith,
with
the
care
of
a
prudent
person,
and
in
the
best
interest
of
the
corporation.
The
duty
of
loyalty
requires
that
a
director
acts
in
a
manner
he
reasonably
believes
to
be
in
the
best
interests
of
the
corporation.Directors
and
officers
must
refrain
from
self-dealing,
usurping
corporateopportunities
and
receiving
improper
personal
benefits.

Directors
and
officers
must
refrain
from
self-dealing,
usurping
corporateopportunities
and
receiving
improper
personal
benefits,
and
ensure
that
thebest
interest
of
the
corporation
and
its
shareholders
take
precedence
over
anyinterest
possessed
by
a
director
or
officer
and
not
shared
by
the
shareholdersgenerally.
Contracts
or
transactions
in
which
one
or
more
of
thecorporation’s
directors
has
an
interest
are
allowed
assuming
(a)
theshareholders
or
the
board
of
directors
must
approve
in
good
faith
any
suchcontract
or
transaction
after
full
disclosure
of
the
material
facts
or
(b)
thecontract
or
transaction
must
have
been
“fair”
as
to
the
corporation
at
thetime
it
was
approved.Under
the
Companies
Law,
the
directors
have
to
declare
the
nature
of
their
interest(either
direct
or
indirect)
in
transactions
at
a
meeting
of
the
directors
of
thecompany.
Under
our
articles
of
association,
directors
have
no
right
to
vote
on
amatter
in
which
they
have
an
interest
even
if
the
director
has
disclosed
any
interestsin
the
transaction.

Directors
may
vote
on
a
matter
in
which
they
have
an
interest
so
long
as
thedirector
has
disclosed
any
interests
in
the
transaction
Actions by Written Consent


A
unanimous
written
resolution
of
all
directors
will
be
as
valid
as
if
it
had
beenpassed
at
a
duly
convened
and
held
meeting
of
the
board
of
directors.

A
written
consent
of
the
directors
must
be
unanimous
to
take
effectA
unanimous
written
resolution
of
all
shareholders
will
be
as
valid
as
if
it
had
beenpassed
at
a
duly
convened
and
held
general
meeting.

Unless
otherwise
provided
in
the
certificate
of
incorporation,
any
action
tobe
taken
at
any
shareholder
meeting
may
be
taken
by
written
consent
of
theholders
of
outstanding
stock
having
not
less
than
the
minimum
number
ofvotes
that
would
be
necessary
to
take
that
action
at
a
meeting
at
which
allshareholders
entitled
to
vote
were
present
and
voted.Business Combinations


Dissolution
of
the
company,
assuming
it
is
solvent,
requires
a
resolution
of
theboard
of
directors
and
a
special
resolution
of
the
general
meeting.
Sale,
lease
orexchange
of
assets
require
a
resolution
of
the
board
of
directors.

Completion
of
a
merger,
consolidation,
or
the
sale,
lease
or
exchange
ofsubstantially
all
of
a
corporation’s
assets
or
dissolution
requires
approval
bythe
board
of
directors
and
by
a
majority
(unless
the
certificate
ofincorporation
requires
a
higher
percentage)
of
outstanding
stock
of
thecorporation
entitled
to
vote.Completion
of
a
merger
or
consolidation
requires
a
resolution
of
the
board
ofdirectors
and
a
special
resolution
of
the
general
meeting.
The
directors
draw
upwritten
report
explaining
and
justifying
the
draft
terms
of
merger
from
a
legal
andeconomic
aspect
and,
in
particular,
the
share
exchange
ratio.

Business
combinations
with
interested
shareholders
require
a
specialshareholder
vote.Depending
on
the
form
of
a
relevant
combination
it
requires
a
board
of
directors’resolution
at
which
the
directors
related
to
interested
shareholders
have
no
right
tovote
and/or
a
special
resolution
of
the
general
meeting
at
which
the
interestedshareholders
would
not
be
precluded
from
voting.

Shareholder’s Derivative Actions


A
derivative
action
is
a
representative
action
brought
by
a
shareholder
to
enforce
aright
vested
in
the
company.
In
any
derivative
suit
instituted
by
a
shareholder
of
acompany,
it
shall
be
averred
in
the
statement
of
complaint
that
the
plaintiff
was
ashareholder
of
the
company
at
the
time
of
the
transaction
of
which
he
complains
orthat
such
shareholder’s
stock
thereafter
devolved
upon
such
shareholder
byoperation
of
law.
The
plaintiff
obtains
no
benefit
thereby
directly.

A
shareholder
may
bring
a
derivative
action
on
behalf
of
the
corporation
toenforce
the
rights
of
the
corporation.
In
any
derivative
suit
instituted
by
ashareholder
of
a
corporation,
it
shall
be
averred
in
the
complaint
that
theplaintiff
was
a
shareholder
of
the
corporation
at
the
time
of
the
transaction
ofwhich
he
complains
or
that
such
shareholder’s
stock
thereafter
devolvedupon
such
shareholder
by
operation
of
law.

The
complaint
shall
set
forth
with
particularity
the
efforts
of
the
plaintiff
toobtain
the
action
by
the
board
or
the
reasons
for
not
making
such
effort.

Such
action
shall
not
be
dismissed
or
compromised
without
the
approval
ofthe
Chancery
Court.
93Table of Contents

If
we
were
a
Delaware
corporation,
a
shareholder
whose
shares
were
cancelled
in
connection
with
our
dissolution,
would
not
be
able
to
bring
a
derivative
action
against
us
after
the
class
B
shares
have
been
cancelled.Exemptions From Nasdaq Corporate Governance RequirementsThe
Nasdaq
Marketplace
Rules,
or
the
Nasdaq
Rules,
provide
that
foreign
private
issuers
may
follow
home
country
practice
in
lieu
of
the
corporategovernance
requirements
of
the
Nasdaq
Stock
Market
LLC,
subject
to
certain
exceptions
and
requirements
and
except
to
the
extent
that
such
exemptions
would
becontrary
to
U.S.
federal
securities
laws
and
regulations.
The
significant
differences
between
our
corporate
governance
practices
and
those
followed
by
U.S.companies
under
the
Nasdaq
Listing
Rules
are
summarized
as
follows:

•
We
follow
home
country
practice
that
permits
our
board
of
directors
to
consist
of
less
than
a
majority
of
independent
directors,
in
lieu
of
complyingwith
Rule
5605(b)(1)
of
the
Nasdaq
Rules
that
requires
that
the
board
of
directors
consist
of
a
majority
of
independent
directors.
Currently,
fourmembers
of
our
board
of
directors
that
comprises
seven
members
are
independent
with
the
meaning
of
the
Nasdaq
Listing
Rules.

•
We
follow
home
country
practice
that
permits
our
board
of
directors
not
to
implement
a
nominations
committee
or
for
directors
to
be
nominated
by
amajority
of
our
independent
directors,
in
lieu
of
complying
with
Rule
5605(e)
of
the
Nasdaq
Rules
that
requires
the
implementation
of
a
nominationscommittee
or
the
nomination
of
directors
by
a
majority
of
the
independent
directors.
Subject
to
the
rights
of
shareholders
under
Cyprus
law
tonominate
directors
to
our
board,
the
methodology
by
which
directors
are
nominated
to
our
board
is
as
set
forth
in
“Board
of
Directors
Appointment
ofDirectors.”

•
We
follow
home
country
practice
that
permits
us
not
to
hold
regular
executive
sessions
where
only
independent
directors
are
present,
in
lieu
ofcomplying
with
Rule
5605(b)(2)
of
the
Nasdaq
Rules
that
requires
that
regular
executive
sessions
are
held
where
only
independent
directors
arepresent.
We
do
not
hold
regular
executive
sessions.

•
We
follow
home
country
practice
that
permits
our
compensation
committee
to
not
consist
entirely
of
independent
directors,
in
lieu
of
complying
withRule
5605(d)
(1)
of
the
Nasdaq
Rules
that
requires
that
the
board
of
directors
have
a
compensation
committee
consisting
of
entirely
independentdirectors.
In
addition,
although
our
compensation
committee
charter
provides
that
the
compensation
committee
may,
in
its
sole
discretion,
retain
acompensation
consultant,
our
compensation
committee
charter
does
not
include
all
enumerated
matters
concerning
retention
of
compensationconsultants
as
set
forth
in
Rule
5605(d)(3)
of
the
Nasdaq
Rules.

•
We
follow
home
country
practice
that
permits
the
board
of
directors,
without
shareholder
approval,
to
establish
or
materially
amend
any
equitycompensation
arrangements,
in
lieu
of
complying
with
Rule
5635(b)
of
the
Nasdaq
Rules
that
requires
that
our
shareholders
approve
the
establishmentor
any
material
amendments
to
any
equity
compensation
arrangements.

•
Our
board
of
directors
has
not
made
any
determination
with
respect
to
the
Company’s
intention
to
follow
Rule
5635(a),
(b),
and
(d)
of
the
NasdaqRules,
relating
to
matters
requiring
shareholder
approval.
Cypriot
law
and
our
articles
of
association
permit
us,
with
approval
of
our
board
of
directorsand
without
shareholder
approval,
to
take
the
following
actions:

•
Acquiring
the
stock
or
assets
of
another
company,
where
such
acquisition
results
in
the
issuance
of
20%
or
more
of
our
outstanding
sharecapital
or
voting
power,
in
contrast
to
Rule
5635(a)
of
the
Nasdaq
Rules,
which
would
require
shareholder
approval
in
order
to
enter
into
suchacquisition.

•
Entering
into
any
transaction
which
may
result
in
a
person,
or
group
of
persons
acting
together,
holding
more
than
20%
of
our
outstandingshare
capital
or
voting
power.
Such
transactions
may
be
considered
a
change
of
control
under
Rule
5635(b)
of
the
Nasdaq
Rules,
requiringshareholder
approval.
Notwithstanding
the
above,
Cypriot
law
would
not
permit
us
to
enter
into
any
reorganization,
merger
or
consolidationwithout
shareholder
approval.

•
Entering
into
any
transaction
other
than
a
public
offering
involving
the
sale,
issuance
or
potential
issuance
by
the
company
of
shares
(orsecurities
convertible
into
or
exercisable
for
shares)
equal
to
20%
or
more
of
the
outstanding
share
capital
of
the
Company
or
20%
or
more
ofthe
voting
power
outstanding
before
the
issuance
for
less
than
the
greater
of
book
or
market
value
of
the
stock,
in
contrast
to
Rule
5635(d),which
would
require
shareholder
approval
for
such
issuance
of
shares
(or
securities
convertible
into
or
exercisable
for
shares).Please
see
also
“—Rights
Attaching
to
Shares—Issue
of
Shares
and
Pre-emptive
Rights”
for
restrictions
on
the
issuance
of
shares.We
are
not
permitted
to
opt
out
of
the
requirement
that
we
maintain
an
audit
committee
that
consists
entirely
of
independent
directors
and
we
currentlycomply
with
Rule
5605(c)
of
the
Nasdaq
Rules
with
respect
to
audit
committee
composition
and
practices.
ITEM 16H.Mine Safety DisclosureNot
applicable.
94Table of ContentsPART III
ITEM 17.Financial StatementsWe
have
responded
to
Item
18
in
lieu
of
responding
to
this
item.
ITEM 18.Financial StatementsPlease
refer
to
the
financial
statements
beginning
on
page
F-1.
ITEM 19.ExhibitsIndex to Exhibits
ExhibitNumber

Description of Document

1.1

Articles
of
Association
of
QIWI
plc
(incorporated
by
reference
to
Exhibit
3.1
to
QIWI
plc’s
Registration
Statement
on
Form
F-1,
File
No.
333-187579,
filed
on
April
30,
2015)

2.1

Form
of
Registrant’s
American
Depositary
Receipt
(included
in
Exhibit
2.3)

2.2

Specimen
Certificate
for
Class
B
Shares
of
the
Registrant
(incorporated
by
reference
to
Exhibit
4.2
to
QIWI
plc’s
Registration
Statement
on
Form
F-1/A,
File
No.
333-187579,
filed
on
April
19,
2013)

2.3

Form
of
Deposit
Agreement
among
the
Registrant,
the
Depositary
and
Owners
and
Beneficial
Owners
of
the
American
Depositary
Shares
issuedthereunder
(incorporated
by
reference
to
Exhibit
4.3
to
QIWI
plc’s
Registration
Statement
on
Form
F-1/A,
File
No.
333-187579,
filed
on
April
19,2013)

2.4

Form
of
Amended
and
Restated
Registration
Rights
Agreement
among
Saldivar
Investments
Limited,
Sergey
A.
Solonin,
Palmway
HoldingsLimited,
Antana
International
Corporation,
Andrey
N.
Romanenko,
Dargle
International
Limited,
Igor
N.
Mikhailov,
Bralvo
Limited,
E1
Limited,Mail.ru
Group
Limited
and
Mitsui
&
Co.,
Ltd.,
and
QIWI
plc.
(incorporated
by
reference
to
Exhibit
4.5
to
QIWI
plc’s
Registration
Statement
onForm
F-1,
File
No.
333-191221,
filed
on
September
30,
2013)

8.1

Subsidiaries
of
the
Registrant10.1

Subscription
Agreement,
dated
May
14,
2015,
by
and
among
QIWI
plc,
Otkritie
Investments
Cyprus
Limited
and
Otkritie
Holding
JSC(incorporated
by
reference
to
Exhibit
10.1
to
QIWI
plc’s
Annual
Report
on
Form
20-F,
File
No.
001-35893,
filed
on
March
15,
2016)12.1

Rule
13a-14(a)/15d-14(a)
Certification
of
Chief
Executive
Officer12.2

Rule
13a-14(a)/15d-14(a)
Certification
of
Chief
Financial
Officer13.1

Certification
of
Chief
Executive
Officer
and
Chief
Financial
Officer
pursuant
to
18
U.S.C.
Section
1350,
as
adopted
pursuant
to
Section
906
of
theSarbanes-Oxley
Act
of
200215.1

Consent
of
Ernst
&
Young
LLC
95Table of ContentsSIGNATURESThe
registrant
hereby
certifies
that
it
meets
all
of
the
requirements
for
filing
on
Form
20-F
and
that
it
has
duly
caused
and
authorized
the
undersigned
to
signthis
registration
statement
on
its
behalf.
QIWI
PLCBy:
/s/
Sergey
SoloninName:
Sergey
SoloninTitle:
Chief
Executive
OfficerDate:
March
22,
2017Table of ContentsINDEX TO THE CONSOLIDATED FINANCIAL STATEMENTSQIWI plcConsolidated financial statementsfor the year ended December 31, 2016
Report
of
independent
registered
public
accounting
firm


F-2
Consolidated
financial
statements

Consolidated
statements
of
financial
position
as
of
December

31,
2015
and
2016


F-3
Consolidated
statements
of
comprehensive
income
for
the
years
ended
December
31,
2014,
2015
and
2016


F-4
Consolidated
statements
of
cash
flows
for
the
years
ended
December

31,
2014,
2015
and
2016


F-5
Consolidated
statements
of
changes
in
equity
for
the
years
ended
December
31,
2014,
2015
and
2016


F-6
Notes
to
consolidated
financial
statements


F-9

F-1Table of ContentsReport
of
Independent
Registered
Public
Accounting
FirmThe
Board
of
Directors
and
Shareholders
of
Qiwi
plcWe
have
audited
the
accompanying
consolidated
statement
of
financial
position
of
Qiwi
plc
as
of
December
31,
2016
and
2015,
and
the
related
consolidatedstatements
of
comprehensive
income,
consolidated
statement
of
changes
in
equity
and
consolidated
cash
flow
statements
for
each
of
the
three
years
in
the
periodended
December
31,
2016.
These
financial
statements
are
the
responsibility
of
the
Company’s
management.
Our
responsibility
is
to
express
an
opinion
on
thesefinancial
statements
based
on
our
audits.We
conducted
our
audits
in
accordance
with
the
standards
of
the
Public
Company
Accounting
Oversight
Board
(United
States).
Those
standards
require
that
weplan
and
perform
the
audit
to
obtain
reasonable
assurance
about
whether
the
financial
statements
are
free
of
material
misstatement.
An
audit
includes
examining,
ona
test
basis,
evidence
supporting
the
amounts
and
disclosures
in
the
financial
statements.
An
audit
also
includes
assessing
the
accounting
principles
used
andsignificant
estimates
made
by
management,
as
well
as
evaluating
the
overall
financial
statement
presentation.
We
believe
that
our
audits
provide
a
reasonable
basisfor
our
opinion.In
our
opinion,
the
financial
statements
referred
to
above
present
fairly,
in
all
material
respects,
the
consolidated
financial
position
of
Qiwi
plc
at
December
31,2016
and
2015,
and
the
consolidated
results
of
its
operations
and
its
cash
flows
for
each
of
the
three
years
in
the
period
ended
December
31,
2016,
in
conformitywith
International
Financial
Reporting
Standards
(IFRS).We
also
have
audited,
in
accordance
with
the
standards
of
the
Public
Company
Accounting
Oversight
Board
(United
States),
Qiwi
plc’s
internal
control
overfinancial
reporting
as
of
December
31,
2016,
based
on
criteria
established
in
Internal
Control-Integrated
Framework
issued
by
the
Committee
of
SponsoringOrganizations
of
the
Treadway
Commission
(2013
framework)
and
our
report
dated
March
22,
2017
expressed
an
unqualified
opinion
thereon./s/
Ernst
&
Young
LLCMarch
22,
2017Moscow,
Russia
F-2Table of ContentsQIWI
plcConsolidated
statement
of
financial
positionAs
of
December
31,
2016(in millions of Rubles)



Notes


As of December 31,2015


As of December 31,2016
Assets





Non-current assets





Property
and
equipment


10



366



593
Goodwill
and
other
intangible
assets


11,
12



12,254



11,022
Long-term
debt
instruments


28



1,563



399
Long-term
loans


28



23



120
Other
non-current
assets




52



40
Deferred
tax
assets


24



304



270












Total non-current assets



 14,562 

 12,444 











Current assets





Trade
and
other
receivables


13



5,092



5,679
Short-term
loans




340



19
Short-term
debt
instruments


28



1,338



1,772
Prepaid
income
tax




97



77
VAT
and
other
taxes
receivable




26



22
Cash
and
cash
equivalents


14



19,363



18,997
Other
current
assets


15



759



639












Total current assets



 27,015 

 27,205 











Assets
of
disposal
group
classified
as
held
for
sale


7



—





25












Total assets



 41,577 

 39,674 











Equity and liabilities





Equity attributable to equity holders of the parent





Share
capital


16



1



1
Additional
paid-in
capital




1,876



1,876
Share
premium


16



12,068



12,068
Other
reserve




840



1,064
Retained
earnings




7,177



4,808
Translation
reserve




461



131












Total equity attributable to equity holders of the parent



 22,423 

 19,948 Non-controlling
interest




13



21












Total equity



 22,436 

 19,969 











Non-current liabilities





Other
non-current
liabilities




3



2
Deferred
tax
liabilities


24



1,138



851












Total non-current liabilities



 1,141 

 853 











Current liabilities





Trade
and
other
payables


18



15,295



16,328
Amounts
due
to
customers
and
amounts
due
to
banks


19



2,243



2,342
Income
tax
payable




334



68
VAT
and
other
taxes
payable




119



102
Other
current
liabilities




9



10












Total current liabilities



 18,000 

 18,850 











Liabilities
directly
associated
with
the
assets
of
a
disposal
group
classified
as
held
for
sale


7



—





2












Total equity and liabilities



 41,577 

 39,674 












F-3Table of ContentsQIWI
plcConsolidated
statement
of
comprehensive
incomefor
the
year
ended
December
31,
2016(in millions of Rubles, except per share data)






Year ended December 31



Notes

2014

2015

2016
Revenue

20


14,718


17,717


17,880
Operating
costs
and
expenses:Cost
of
revenue
(exclusive
of
depreciation
and
amortization)

21


7,273


8,695


8,646
Selling,
general
and
administrative
expenses

22


3,082


3,469


3,423
Depreciation
and
amortization

10,
11


353


689


796
Impairment
of
intangible
assets

11,
12


—




—




878















Profit from operations



 4,010 
 4,864 
 4,137 














Loss
on
disposal
of
subsidiaries

7


—




(38)


(10)
Other
income




42


20


7
Other
expenses




(30)


(43)


(76)
Foreign
exchange
gain

27


3,359


2,801


1,040
Foreign
exchange
loss

27


(1,428)


(1,360)


(1,963)
Share
of
loss
of
associates




(26)


—




—


Impairment
of
investment
in
associates




(25)


—




—


Interest
income




2


16


36
Interest
expense




(42)


(109)


(64)















Profit before tax



 5,862 
 6,151 
 3,107 Income
tax
expense

24


(894)


(877)


(618)















Net profit



 4,968 
 5,274 
 2,489 














Attributable to:





Equity
holders
of
the
parent




5,024


5,187


2,474
Non-controlling
interests




(56)


87


15
Other comprehensive income





Other comprehensive income to be reclassified to profit or loss in subsequent periods:





Exchange
differences
on
translation
of
foreign
operations





Differences arising during the year




105


231


(330)
Accumulated exchange differences reclassified to earnings upon disposal of foreign operations




—




56


—

















Total comprehensive income, net of tax effect of nil



 5,073 
 5,561 
 2,159 














Attributable to:





Equity
holders
of
the
parent




5,218


5,443


2,144
Non-controlling
interests




(145)


118


15
Earnings per share:



Basic,
profit
attributable
to
ordinary
equity
holders
of
the
parent

9


94.09


89.72


40.91
Diluted,
profit
attributable
to
ordinary
equity
holders
of
the
parent

9


92.73


89.49


40.79

F-4Table of ContentsQIWI
plcConsolidated
statement
of
cash
flowsfor
the
year
ended
December
31,
2016(in millions of Rubles)







Year ended December 31



Notes


2014

2015

2016
Cash flows from operating activities





Profit before tax



 5,862 
 6,151 
 3,107 Adjustments to reconcile profit before tax to net cash flows (used in) /generated from operating activities





Depreciation
and
amortization


10,
11



353


689


796
Impairment
of
investment
in
associates




25


—




—


Foreign
exchange
loss/(gain),
net




(1,931)


(1,441)


923
Interest
income,
net


20



(413)


(559)


(834)
Bad
debt
expense




151


362


215
Share
of
loss
of
associates




26


—




—


Share-based
payments


29



422


88


224
Impairment
of
intangible
assets


12



—




—




878
Other




19


36


80















Operating profit before changes in working capital



 4,514 
 5,326 
 5,389 (Increase)/decrease
in
trade
and
other
receivables




(2,745)


2,248


(709)
(Increase)/decrease
in
other
assets




(233)


129


(127)
Increase
in
amounts
due
to
customers
and
amounts
due
to
banks




170


409


90
Increase/(decrease)
in
trade
and
other
payables




3,622


(8,883)


1,020
Loans
(issued)/repaid
from
banking
operations




(35)


40


—

















Cash (used in)/generated from operations



 5,293 
 (731) 
 5,663 Interest
received




491


716


858
Interest
paid




(29)


(181)


(101)
Income
tax
paid




(1,000)


(811)


(877)















Net cash flow (used in)/generated from operating activities



 4,755 
 (1,007) 
 5,543 














Cash flows (used in)/generated from investing activities





Cash
acquired
upon
/(used
in)
business
combination




—




3,181


(10)
Payment
for
assignment
of
loans




(91)


—




—


Net
cash
inflow/(outflow)
on
disposal
of
subsidiaries


7



—




(57)


—


Purchase
of
property
and
equipment




(294)


(88)


(388)
Purchase
of
intangible
assets




(218)


(222)


(298)
Loans
issued




(60)


(780)


(675)
Repayment
of
loans
issued




49


458


774
Purchase
of
debt
instruments




(2,553)


(982)


(549)
Proceeds
from
settlement
of
debt
instruments




1,591


2,045


1,326
Other




(26)


1


—

















Net cash (used in)/generated from investing activities



 (1,602) 
 3,556 
 180 














Cash flows (used in)/generated from financing activities





Issue
of
share
capital




3,044


—




—


Proceeds
from
borrowings




72


58


2
Repayment
of
borrowings




(1)


(1,252)


(4)
Dividends
paid
to
owners
of
the
Group


23



(2,941)


(699)


(4,628)
Other




5


—




(7)
Net cash (used in)/generated from financing activities



 179 
 (1,893) 
 (4,637) Effect
of
exchange
rate
changes
on
cash
and
cash
equivalents




2,126


1,612


(1,428)















Net increase/(decrease) in cash and cash equivalents



 5,458 
 2,268 
 (342) 














Cash and cash equivalents at the beginning of year



 11,637 
 17,095 
 19,363 














Cash and cash equivalents at the end of year



 17,095 
 19,363 
 19,021 















F-5Table of ContentsQIWI
plcConsolidated
statement
of
changes
in
equityfor
the
year
ended
December
31,
2016(in millions of Rubles, except per share data)



Notes


Attributable to equity holders of the parent

Non-controllinginterests

Total equity




Share capital


Additionalpaid-in capital






Other reserves


Retainedearnings

Translationreserve

Total






Number of shares issued and outstanding


Amount




Share premium








Balance as ofDecember 31, 2015



 60,418,601 

 1 

 1,876 

 12,068 

 840 

 7,177 
 461 
 22,423 
 13 
 22,436 















































Profit
for
the
year




—





—





—





—





—





2,474


—




2,474


15


2,489
Exchange
differences
ontranslation
of
foreignoperations




—





—





—





—





—





—




(330)


(330)


—




(330)
















































Total comprehensiveincome



 —   

 —   

 —   

 —   

 —   

 2,474 
 (330) 
 2,144 
 15 
 2,159 















































Share-based
payments


29



—





—





—





—





224



—




—




224


—




224
Exercise
of
options


16



178,433



—





—





—





—





—




—




—




—




—


Dividends
(80
per
share)


23



—





—





—





—





—





(4,843)


—




(4,843)


—




(4,843)
Dividends
to
non-controlling
interest




—





—





—





—





—





—




—




—




(7)


(7)
















































Balance as ofDecember 31, 2016



 60,597,034 

 1 

 1,876 

 12,068 

 1,064 

 4,808 
 131 
 19,948 
 21 
 19,969 

















































F-6Table of ContentsQIWI
plcConsolidated
statement
of
changes
in
equityfor
the
year
ended
December
31,
2016(in millions of Rubles, except per share data)



Notes


Attributable to equity holders of the parent

Non-controllinginterests

Total equity




Share capital


Additionalpaid-in capital






Other reserves

Retainedearnings

Translationreserve


Total






Number of shares issued and outstanding


Amount




Share premium








Balance as of December 31,2014



 54,505,998 

 1 

 1,876 

 3,044 

 764 
 2,684 
 205 

 8,574 
 (240) 
 8,334 















































Profit
for
the
year




—





—





—





—





—




5,187


—





5,187


87


5,274
Exchange
differences
ontranslation
of
foreignoperations




—





—





—





—





—




—




256



256


31


287
















































Total comprehensiveincome



 —   

 —   

 —   

 —   

 —   
 5,187 
 256 

 5,443 
 118 
 5,561 















































Issue
of
share
capital


16



5,593,041



—





—





9,024



—




—




—





9,024


—




9,024
Share-based
payments


29



—





—





—





—





88


—




—





88


—




88
Exercise
of
options


16



319,562



—





—





—





—




—




—





—




—




—


Increase
of
ownership
insubsidiaries




—





—





—





—





(12)


—




—





(12)


49


37
Disposal
of
subsidiaries


7



—





—





—





—





—




—




—





—




86


86
Dividends
(11.5
per
share)


23



—





—





—





—





—




(694)


—





(694)


—




(694)
















































Balance as of December 31,2015



 60,418,601 

 1 

 1,876 

 12,068 

 840 
 7,177 
 461 

 22,423 
 13 
 22,436 
















































F-7Table of ContentsQIWI
plcConsolidated
statement
of
changes
in
equityfor
the
year
ended
December
31,
2016(in millions of Rubles, except per share data)



Notes


Attributable to equity holders of the parent










Share capital


Additionalpaid-in capital






Other reserves


Retainedearnings

Translationreserve


Total

Non- controllinginterests

Total equity




Number of shares issued and outstanding


Amount




Share premium









Balance as of December 31, 2013



 52,118,794 

 1 

 1,876 

 —   

 337 

 574 
 11 

 2,799 
 (95) 
 2,704 
















































Profit
(loss)
for
the
year




—





—





—





—





—





5,024


—





5,024


(56)


4,968
Exchange
differences
on
translationof
foreign
operations




—





—





—





—





—





—




194



194


(89)


105

















































Total comprehensive income



 —   

 —   

 —   

 —   

 —   

 5,024 
 194 

 5,218 
 (145) 
 5,073 
















































Issue
of
share
capital




2,292,330



—





—





3,044



—





—




—





3,044


—




3,044
Share-based
payments


29



—





—





—





—





422



—




—





422


—




422
Exercise
of
options




94,874



—





—





—





5



—




—





5


—




5
Dividends
(53.46
per
share)


23



—





—





—





—





—





(2,914)


—





(2,914)


—




(2,914)
Dividends
to
non-controllinginterest




—





—





—





—





—





—




—





—




(2)


(2)
Other
changes
in
equity




—





—





—





—





—





—




—





—




2


2

















































Balance as of December 31, 2014



 54,505,998 

 1 

 1,876 

 3,044 

 764 

 2,684 
 205 

 8,574 
 (240) 
 8,334 

















































F-8Table of ContentsQIWI
plcNotes
to
consolidated
financial
statementsfor
the
year
ended
December
31,
2016(in millions of Rubles, except per share data)
1.Corporate information and description of businessQIWI
plc
(hereinafter
“the
Company”)
was
registered
on
February
26,
2007
as
a
limited
liability
Company
OE
Investment
in
Cyprus
under
the
Cyprus
CompaniesLaw,
Cap.
113.
The
registered
office
of
the
Company
is
Kennedy
12,
Kennedy
Business
Centre,
2nd
Floor,
P.C.1087,
Nicosia,
Cyprus.
On
September
13,
2010
thedirectors
of
the
Company
resolved
to
change
the
name
of
the
Company
from
OE
Investments
Limited
to
QIWI
Limited.
On
February
25,
2013
the
directors
of
theCompany
resolved
to
change
the
legal
form
of
the
Company
from
QIWI
Limited
to
QIWI
plc.
The
consolidated
financial
statements
of
QIWI
plc
and
itssubsidiaries
for
the
year
ended
December
31,
2016
were
authorized
for
issue
by
Board
of
Directors
on
March
15,
2017.QIWI
plc
and
its
subsidiaries
(collectively
the
“Group”)
operate
electronic
online
payment
systems
primarily
in
Russia,
Kazakhstan,
Moldova,
Belarus,
Romania,United
Arab
Emirates
(UAE)
and
other
countries
and
maintain
banking
activity
supporting
processing
of
payments.
At
the
end
of
the
year
2016
the
Group
enteredto
the
market
of
uncollateralized
consumer
lending.The
Company
was
founded
as
a
holding
company
as
a
part
of
the
business
combination
transaction
in
which
ZAO
Ob’edinennya
Sistema
Momentalnykh
Platezheyand
ZAO
e-port
Groups
of
entities
were
brought
together
by
way
of
contribution
to
the
Company.
The
transaction
was
accounted
for
as
a
business
combination
inwhich
ZAO
Ob’edinennya
Sistema
Momentalnykh
Platezhey
was
identified
as
the
acquirer.The
Company’
American
Depositary
Securities
(ADS)
have
been
listed
on
Nasdaq
since
May
3,
2013
and
have
been
admitted
to
trading
on
MOEX
since
May
20,2013.
Prior
to
that
time,
there
was
no
public
market
for
the
Company’
ADSs
or
ordinary
shares.
Subsequently,
the
Company
placed
its
ADSs
on
October
3,
2013and
on
June
20,
2014.Sergey
Solonin
is
the
ultimate
controlling
party
of
the
Group
as
of
December
31,
2016.Saldivar
Investments
Limited
is
the
parent
of
the
Group
as
of
December
31,
2016.Information
on
the
Company’s
principal
subsidiaries
is
disclosed
in
Note
6.
2.Principles underlying preparation of consolidated financial statements
2.1Basis of preparationThe
consolidated
financial
statements
are
prepared
on
a
historical
cost
basis.
The
consolidated
financial
statements
are
presented
in
Russian
rubles
(“RUB”)
and
allvalues
are
rounded
to
the
nearest
million
(RUB
(000,000))
except
when
otherwise
indicated.The
Group’s
subsidiaries
maintain
and
prepare
their
accounting
records
and
prepare
their
statutory
accounting
reports
in
accordance
with
domestic
accountinglegislation.
Standalone
financial
statements
of
subsidiaries
are
prepared
in
their
respective
functional
currencies
(see
Note
3.3
below).
F-9Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
2.Principles underlying preparation of consolidated financial statements (continued)
2.1Basis of preparation (continued)
In
accordance
with
European
regulation
No.
1606/2002
dated
July
19,
2002,
the
2016
consolidated
financial
statements
have
been
prepared
in
accordance
with
theInternational
Financial
Reporting
Standards
(IFRSs)
as
endorsed
by
the
European
Union
(available
on
the
websitehttp://ec.europa.eu/internal_market/accounting/ias/
index_en.htm).
Comparative
figures
are
presented
for
2015
and
2014
compiled
using
the
same
basis
ofpreparation.
For
the
reported
periods,
there
are
no
differences
as
applies
to
the
Group
between
the
accounting
standards
and
interpretations
endorsed
by
theEuropean
Union
and
the
standards
and
interpretations
published
by
the
International
Accounting
Standards
Board
(IASB).
Consequently,
the
Group
accounts
areprepared
in
accordance
with
the
IFRS
standards
and
interpretations,
as
published
by
the
IASB.
These
consolidated
financial
statements
are
based
on
the
underlyingaccounting
records
appropriately
adjusted
and
reclassified
for
fair
presentation
in
accordance
with
IFRS.
IFRS
adjustments
include
and
affect
but
not
limited
tosuch
major
areas
as
consolidation,
revenue
recognition,
accruals,
deferred
taxation,
fair
value
adjustments,
business
combinations
and
impairment.
2.2Basis of consolidationThe
consolidated
financial
statements
comprise
the
financial
statements
of
QIWI
plc
and
its
subsidiaries
as
of
December
31
each
year.Control
is
achieved
when
the
Group
is
exposed,
or
has
rights,
to
variable
returns
from
its
involvement
with
the
investee
and
has
the
ability
to
affect
those
returnsthrough
its
power
over
the
investee.Specifically,
the
Group
controls
an
investee
if
and
only
if
the
Group
has:

•
Power
over
the
investee
(i.e.
existing
rights
that
give
it
the
current
ability
to
direct
the
relevant
activities
of
the
investee),

•
Exposure,
or
rights,
to
variable
returns
from
its
involvement
with
the
investee,
and

•
The
ability
to
use
its
power
over
the
investee
to
affect
its
returns.
F-10Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
2.Principles underlying preparation of consolidated financial statements (continued)
2.2Basis of consolidation (continued)
When
the
Group
has
less
than
a
majority
of
the
voting
or
similar
rights
of
an
investee,
the
Group
considers
all
relevant
facts
and
circumstances
in
assessing
whetherit
has
power
over
an
investee,
including:

•
The
contractual
arrangement
with
the
other
vote
holders
of
the
investee.

•
Rights
arising
from
other
contractual
arrangements.

•
The
Group’s
voting
rights
and
potential
voting
rights.The
Group
re-assesses
whether
or
not
it
controls
an
investee
if
facts
and
circumstances
indicate
that
there
are
changes
to
one
or
more
of
the
three
elements
ofcontrol.
Consolidation
of
a
subsidiary
begins
when
the
Group
obtains
control
over
the
subsidiary
and
ceases
when
the
Group
losses
control
of
the
subsidiary.Assets,
liabilities,
income
and
expenses
of
a
subsidiary
acquired
or
disposed
of
during
the
year
are
included
in
the
statement
of
comprehensive
income
from
thedate
the
Group
gains
control
until
the
date
the
Group
ceases
to
control
the
subsidiary.
The
financial
statements
of
the
subsidiaries
are
prepared
for
the
samereporting
period
as
the
parent
company,
using
consistent
accounting
policies.All
intra-group
balances,
income,
expenses
and
unrealized
gains
and
losses
resulting
from
intra-group
transactions
are
eliminated
in
full,
except
for
the
foreignexchange
gains
and
losses
arising
on
intra-group
loans.Profit
or
loss
and
each
component
of
other
comprehensive
income
(OCI)
are
attributed
to
the
equity
holders
of
the
parent
of
the
Group
and
to
the
non-controllinginterests,
even
if
this
results
in
the
non-controlling
interests
having
a
deficit
balance.
When
necessary,
adjustments
are
made
to
the
financial
statements
ofsubsidiaries
to
bring
their
accounting
policies
into
line
with
the
Group’s
accounting
policies.A
change
in
the
ownership
interest
of
a
subsidiary,
without
a
loss
of
control,
is
accounted
for
as
an
equity
transaction.
If
the
Group
loses
control
over
a
subsidiary,it:

•
Derecognises
the
assets
(including
goodwill)
and
liabilities
of
the
subsidiary.

•
Derecognises
the
carrying
amount
of
any
non-controlling
interests,
including
any
components
of
other
comprehensive
income
attributable
to
them.

•
Recognises
the
fair
value
of
the
consideration
received.

•
Recognises
the
fair
value
of
any
investment
retained.

•
Recognises
any
surplus
or
deficit
in
profit
or
loss.

•
Reclassifies
to
profit
or
loss
or
retained
earnings,
as
appropriate,
the
amounts
previously
recognized
in
OCI
as
would
be
required
if
the
Group
had
directlydisposed
of
the
related
assets
or
liabilities.
F-11Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
2.Principles underlying preparation of consolidated financial statements (continued)
2.3Changes in accounting policiesThe
accounting
policies
adopted
in
the
preparation
of
the
consolidated
financial
statements
are
consistent
with
those
followed
in
the
preparation
of
the
Group’sannual
financial
statements
for
the
year
ended
December
31,
2015,
except
for
the
adoption
of
the
new
and
amended
IFRS
and
IFRIC
interpretations
as
of
January
1,2016.
The
Group
has
not
early
adopted
any
other
standard,
interpretation
or
amendment
that
has
been
issued
but
is
not
yet
effective.Although
these
new
standards
and
amendments
apply
for
the
first
time
in
2016,
they
do
not
have
a
material
impact
on
the
annual
consolidated
financial
statementsof
the
Group.
The
nature
and
the
impact
of
each
new
standard
or
amendment
that
could
have
any
potential
effect
on
the
Group’s
financial
statements
are
describedbelow:Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and AmortisationThe
amendments
are
applied
prospectively
and
clarify
the
principle
in
IAS
16
and
IAS
38
that
revenue
reflects
a
pattern
of
economic
benefits
that
are
generatedfrom
operating
a
business
(of
which
the
asset
is
part)
rather
than
the
economic
benefits
that
are
consumed
through
use
of
the
asset.
As
a
result,
a
revenue-basedmethod
cannot
be
used
to
depreciate
property,
plant
and
equipment
and
may
only
be
used
in
very
limited
circumstances
to
amortize
intangible
assets.Annual improvements 2012-2014 CycleThese
improvements
are
effective
from
January
1,
2016
and
the
Group
has
applied
these
amendments
for
the
first
time
in
these
consolidated
financial
statements.They
include:IFRS 5  Non-current Assets Held for Sale and Discontinued OperationsAssets
(or
disposal
groups)
are
generally
disposed
of
either
through
sale
or
distribution
to
owners.
The
amendment
clarifies
that
changing
from
one
of
thesedisposal
methods
to
the
other
would
not
be
considered
a
new
plan
of
disposal,
rather
it
is
a
continuation
of
the
original
plan.
There
is,
therefore,
no
interruption
ofthe
application
of
the
requirements
in
IFRS
5.
This
amendment
must
be
applied
prospectively.IFRS 7  Financial Instruments: Disclosures-
Servicing
contracts.
The
amendment
clarifies
that
a
servicing
contract
that
includes
a
fee
can
constitute
continuing
involvement
in
a
financial
asset.
An
entitymust
assess
the
nature
of
the
fee
and
the
arrangement
against
the
guidance
for
continuing
involvement
in
IFRS
7
in
order
to
assess
whether
the
disclosures
arerequired.
The
assessment
of
which
servicing
contracts
constitute
continuing
involvement
must
be
done
retrospectively.
However,
the
required
disclosures
wouldnot
need
to
be
provided
for
any
period
beginning
before
the
annual
period
in
which
the
entity
first
applies
the
amendments.-
Applicability
of
the
amendments
to
IFRS
7
to
condensed
interim
financial
statements.
The
amendment
clarifies
that
the
offsetting
disclosure
requirements
do
notapply
to
condensed
interim
financial
statements,
unless
such
disclosures
provide
a
significant
update
to
the
information
reported
in
the
most
recent
annual
report.This
amendment
must
be
applied
retrospectively.
F-12Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
2.Principles underlying preparation of consolidated financial statements (continued)
2.3Changes in accounting policies (continued)
IAS 19  Employee BenefitsThe
amendment
clarifies
that
market
depth
of
high
quality
corporate
bonds
is
assessed
based
on
the
currency
in
which
the
obligation
is
denominated,
rather
than
thecountry
where
the
obligation
is
located.
When
there
is
no
deep
market
for
high
quality
corporate
bonds
in
that
currency,
government
bond
rates
must
be
used.
Thisamendment
must
be
applied
prospectively.These
abovementioned
improvements
and
amendments
do
not
have
any
impact
on
the
Group.Amendments to IAS 1 Disclosure InitiativeThe
amendments
are
applied
prospectively
and
clarify
existing
IAS
1
requirements.
The
amendments
clarify:

•
The
materiality
requirements
in
IAS
1.

•
That
specific
line
items
in
the
statement(s)
of
profit
or
loss
and
OCI
and
the
statement
of
financial
position
may
be
disaggregated.

•
That
entities
have
flexibility
as
to
the
order
in
which
they
present
the
notes
to
financial
statements.

•
That
the
share
of
OCI
of
associates
and
joint
ventures
accounted
for
using
the
equity
method
must
be
presented
in
aggregate
as
a
single
line
item,
andclassified
between
those
items
that
will
or
will
not
be
subsequently
reclassified
to
profit
or
loss.Furthermore,
the
amendments
clarify
the
requirements
that
apply
when
additional
subtotals
are
presented
in
the
statement
of
financial
position
and
the
statement(s)of
profit
or
loss
and
OCI.
F-13Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
2.4.Standards issued but not yet effectiveStandards
issued
but
not
yet
effective
up
to
the
date
of
issuance
of
the
Group’s
financial
statements
including
adopted
by
IASB
but
not
yet
endorsed
in
EU
arelisted
below.
This
listing
of
standards
and
interpretations
issued
are
those
that
the
Company
reasonably
expects
to
have
an
impact
on
disclosures,
financial
positionor
performance
when
applied
at
a
future
date.
The
Group
intends
to
adopt
these
standards
when
they
become
effective.
Standard

Content of change

Impact and effective dateIFRS 9 FinancialInstruments(Endorsed by EU)

In
July
2014,
the
IASB
issued
the
final
version
of
IFRS
9
FinancialInstruments
which
reflects
all
phases
of
the
financial
instrumentsproject
and
replaces
IAS
39
Financial
Instruments:
Recognition
andMeasurement
and
all
previous
versions
of
IFRS
9.
The
standardintroduces
new
requirements
for
classification
and
measurement,impairment,
and
hedge
accounting.

IFRS
9
is
effective
for
annual
periods
beginning
on
or
after
January
1,
2018,
with
early
application
permitted.
The
Group
is
currently
assessing
the
impact
of
IFRS
9
and
plans
to
adopt
the
new
standard
on
the
required
effective
date.IFRS 15 Revenuefrom
Contracts
withcustomers(Endorsed
by
EU)and
clarification
toIFRS 15(Not endorsed by EU)

IFRS
15
was
issued
in
May
2014
and
establishes
a
new
five-stepmodel
that
will
apply
to
revenue
arising
from
contracts
withcustomers.
Under
IFRS
15
revenue
is
recognized
at
an
amount
thatreflects
the
consideration
to
which
an
entity
expects
to
be
entitled
inexchange
for
transferring
goods
or
services
to
a
customer.
Theprinciples
in
IFRS
15
provide
a
more
structured
approach
tomeasuring
and
recognizing
revenue.
The
new
revenue
standard
isapplicable
to
all
entities
and
will
supersede
all
current
revenuerecognition
requirements
under
IFRS.

Either
a
full
or
modified
retrospective
application
is
required
for
annual
periodsbeginning
on
or
afterJanuary
1,
2018,
with
early
adoption
permitted.
The
Group
is
currently
assessing
the
impact
of
IFRS
15
and
plans
to
adopt
the
new
standard
on
the
required
effective
date.
The
Group
does
not
expect
that
the
timing
of
revenue
recognition
will
be
changed.
The
Group
preliminary
considers
that
implementation
of
IFRS
15
may
affect
gross
versus
net
revenue
presentation
depending
on
results
of
analysis
of
“principal”
versus
“agent”
considerations
applied
for
the
Group’s
operations.IFRS
16
Leases(Not endorsed by EU)

IFRS
16
was
issued
in
January
2016
and
sets
out
the
principles
thatboth
parties
to
a
contract,
i.e.
the
customer
(‘lessee’)
and
the
supplier(‘lessor’),
apply
to
provide
relevant
information
about
leases
in
amanner
that
faithfully
represents
those
transactions.
Under
IFRS
16
alessee
is
required
to
recognize
assets
and
liabilities
arising
from
alease.
The
new
standard
is
applicable
to
all
lease
and
subleasecontracts
except
for
leases
of
certain
types
of
intangibles
and
someother
specific
assets
and
will
supersede
all
current
requirements
forlease
recognition
and
disclosure
under
IFRS.

IFRS
16
is
effective
for
annual
periods
beginning
on
or
after
January
1,
2019.
Earlier
application
is
permitted
for
entities
that
apply
IFRS
15
at
or
before
the
date
of
initial
application
of
IFRS
16.
The
Group
is
currently
assessing
the
impact
of
IFRS
16
and
plans
to
adopt
the
new
standard
on
the
required
effective
date.
F-14Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
2.Principles underlying preparation of consolidated financial statements (continued)
2.4Standards issued but not yet effective (continued)
Standard

Content of change

Impact and effective dateAmendments toIAS 12
Income
Taxes:Recognition
ofDeferred
TaxAssets
forUnrealizedLosses(Not endorsed byEU)

The
amendments
to
IAS
12
clarify
the
accounting
for
deferred
tax
assetsfor
unrealised
losses
on
debt
instruments
measured
at
fair
value.
Theclarifications
refer
to
accounting
for
deferred
tax
assets
when
an
entity:
•



has
deductible
temporary
differences
relating
to
unrealised
losses
on
debt
instruments
that
are
classified
as
available-for-sale
financials
assets
and
measured
at
fair
value;
•



is
not
allowed
to
deduct
unrealised
losses
for
tax
purposes;
•



has
the
ability
and
intention
to
hold
the
debt
instruments
until
the
unrealised
loss
reverses;
and
•



has
insufficient
taxable
temporary
differences
and
no
other
probable
taxable
profits
against
which
the
entity
can
utilise
those
deductible
temporary
differences.

These
amendments
must
be
applied
retrospectively
and
areeffective
for
annual
periods
beginning
on
or
after
January
1,
2017,with
early
adoption
permitted.
These
amendments
are
not
expectedto
have
any
impact
on
the
Group
as
there
is
no
debt
instrumentsmeasured
at
fair
value.Amendments toIFRS 2
Classification
andMeasurement
ofShare-basedPayment(Not endorsed byEU)

The
amendments
to
IFRS
2
Share-based
Payment
address
three
mainareas:
•



the
effects
of
vesting
conditions
on
the
measurement
of
a
cash-settled
share-based
payment
transaction;
•



the
classification
of
a
share-based
payment
transaction
with
net
settlement
features
for
withholding
tax
obligations;
•



and
accounting
where
a
modification
to
the
terms
and
conditions
of
a
share-based
payment
transaction
changes
its
classification
from
cash
settled
to
equity
settled.

On
adoption,
entities
are
required
to
apply
the
amendments
withoutrestating
prior
periods,
but
retrospective
application
is
permitted
ifelected
for
all
three
amendments
and
other
criteria
are
met.
Theamendments
areeffective
for
annual
periods
beginning
on
or
after
January
1,
2018,with
early
application
permitted.
These
amendments
are
notexpected
to
have
any
impact
on
the
Group
as
there
is
no
cash-settled
share-based
transactions.Amendments toIAS 7
DisclosureInitiative(Not endorsed byEU)

The
amendments
to
IAS
7
come
with
the
objective
that
entities
shallprovide
disclosures
that
enable
users
of
financial
statements
to
evaluatechanges
in
liabilities
arising
from
financing
activities,
including
bothchanges
arising
from
cash
flows
and
non-cash
changes.
According
to
theamendments
an
entity
shall
disclose
the
following
changes
in
liabilitiesarising
from
financing
activities:
•



changes
from
financing
cash
flows;
•



changes
arising
from
obtaining
or
losing
control
of
subsidiaries
orother
businesses;
•



the
effect
of
changes
in
foreign
exchange
rates;
•



changes
in
fair
values;
and
•



other
changes.

These
amendments
are
effective
for
annual
periods
beginning
on
orafter
January
1,
2017,
with
early
adoption
permitted.
The
Groupdoes
not
expect
a
significant
impact
on
its
financial
statements
onapplying
the
amendments
to
IAS
7.
F-15Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
2.Principles underlying preparation of consolidated financial statements (continued)
2.4Standards issued but not yet effective (continued)
Standard

Content of change

Impact and effective dateIFRIC 22Foreign
CurrencyTransactions
andAdvanceConsideration(Not endorsedby EU)

IFRIC
22
provides
requirements
about
which
exchange
rate
to
use
inreporting
foreign
currency
transactions
(such
as
revenue
transactions)when
payment
is
made
or
received
in
advance.

IFRIC
22
is
effective
for
annual
periods
beginning
on
or
afterJanuary
1,
2018,
with
early
adoption
permitted.The
Group
is
currently
assessing
the
impact
of
IFRIC
22
and
plansto
adopt
it
on
the
required
effective
date.Amendments toIFRS 12Disclosure
ofInterests
in
OtherEntities(Not endorsedby EU)

Annual Improvements 2014-2016
The
issue
states
that
the
disclosure
requirements
in
IFRS
12
apply
toan
entity’s
interests
in
other
entities
when
those
interests
are
classifiedas
held
for
sale
or
discontinued
operations
in
accordance
with
IFRS
5Non-current
Assets
Held
for
Sale
or
Discontinued
Operations.

These
amendments
are
effective
for
annual
periods
beginning
onor
after
January
1,
2017,
with
early
adoption
permitted.
The
Groupdoes
not
expect
a
significant
impact
on
its
financial
statements
onapplying
the
amendments
to
IFRS
12.Amendments to IAS28Investments
inAssociates
andJoint
Ventures(Not endorsedby EU)

Annual Improvements 2014-2016
The
issue
clarified
that
an
entity
has
an
investment-by-investmentchoice
for
measuring
investees
at
fair
value
in
accordance
with
IAS28
if
it
owns
these
investees
directly
or
indirectly
through
a
venturecapital
organisation,
or
a
mutual
fund,
unit
trust
or
similar
entitiesincluding
investment
linked
insurance
funds.

These
amendments
are
effective
for
annual
periods
beginning
onor
after
January
1,
2018,
with
early
adoption
permitted.
The
Groupdoes
not
expect
a
significant
impact
on
its
financial
statements
onapplying
the
amendments
to
IAS
28.The
management
of
the
Company
has
not
completed
the
assessment
of
the
impact
of
Standards
and
Interpretations
not
yet
effective
as
of
December
31,
2016
on
theCompany’s
accounting
policies.
F-16Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
3.Summary of significant accounting policiesSet
out
below
are
the
principal
accounting
policies
used
to
prepare
these
consolidated
financial
statements:
3.1Business combinations and goodwillBusiness
combinations
are
accounted
for
using
the
acquisition
method.Consideration
transferred
includes
the
fair
values
of
the
assets
transferred,
liabilities
incurred
by
the
Group
to
the
previous
owners
of
the
acquiree,
and
equityinterests
issued
by
the
Group.
Consideration
transferred
also
includes
the
fair
value
of
any
contingent
consideration
and
share-based
payment
awards
of
theacquiree
that
are
replaced
mandatorily
in
the
business
combination.If
a
business
combination
results
in
the
termination
of
pre-existing
relationships
between
the
Group
and
the
acquiree,
then
the
Group
identifies
any
amounts
that
arenot
part
of
what
the
Group
and
the
acquiree
exchanged
in
the
business
combination.
The
Group
recognizes
as
part
of
applying
the
acquisition
method,
only
theconsideration
transferred
for
the
acquiree
and
the
assets
acquired
and
liabilities
assumed
in
the
exchange
for
the
acquiree.If
the
business
combination
is
achieved
in
stages,
any
previously
held
equity
interest
is
re-measured
at
its
acquisition
date
fair
value
and
any
resulting
gain
or
loss
isrecognized
in
profit
or
loss.
It
is
then
considered
in
the
determination
of
goodwill.Any
contingent
consideration
to
be
transferred
by
the
acquirer
will
be
recognized
at
fair
value
at
the
acquisition
date.
Subsequently,
contingent
considerationclassified
as
an
asset
or
liability,
is
measured
at
fair
value
with
changes
in
fair
value
recognized
in
profit
or
loss.
Contingent
consideration
that
is
classified
as
equityis
not
re-measured
and
subsequent
settlement
is
accounted
for
within
equity.The
Group
measures
any
non-controlling
interest
at
its
proportionate
interest
in
the
identifiable
net
assets
of
the
acquiree.Goodwill
is
initially
measured
at
cost,
being
the
excess
of
the
aggregate
of
the
consideration
transferred
and
the
amount
recognized
for
non-controlling
interests,and
any
previous
interest
held,
over
the
net
identifiable
assets
acquired
and
liabilities
assumed.
If
the
fair
value
of
the
net
assets
acquired
is
in
excess
of
theaggregate
consideration
transferred,
the
Group
re-assesses
whether
it
has
correctly
identified
all
of
the
assets
acquired
and
all
of
the
liabilities
assumed
and
reviewsthe
procedures
used
to
measure
the
amounts
to
be
recognized
at
the
acquisition
date.
If
the
re-assessment
still
results
in
an
excess
of
the
fair
value
of
net
assetsacquired
over
the
aggregate
consideration
transferred,
then
the
gain
is
recognized
in
profit
or
loss.
F-17Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
3.Summary of significant accounting policies (continued)
3.1Business combinations and goodwill (continued)
After
initial
recognition,
goodwill
is
measured
at
cost
less
any
accumulated
impairment
losses.
For
the
purpose
of
impairment
testing,
goodwill
acquired
in
abusiness
combination
is,
from
the
acquisition
date,
allocated
to
each
of
the
Group’s
cash
generating
units
that
are
expected
to
benefit
from
the
synergies
of
thecombination,
irrespective
of
whether
other
assets
or
liabilities
of
the
acquired
entity
are
assigned
to
those
units.Where
goodwill
has
been
allocated
to
a
cash-generating
unit
and
certain
operation
within
that
unit
is
disposed
of,
the
goodwill
associated
with
the
operationdisposed
of
is
included
in
the
carrying
amount
of
the
operation
when
determining
the
gain
or
loss
on
disposal
of
the
operation.
Goodwill
disposed
in
thiscircumstance
is
measured
based
on
the
relative
values
of
the
operation
disposed
and
the
portion
of
the
cash-generating
unit
retained.
3.2Investments in associatesThe
Group’s
investment
in
its
associate
is
accounted
for
using
the
equity
method.
An
associate
is
an
entity
in
which
the
Group
has
significant
influence.Under
the
equity
method,
the
investment
in
the
associate
is
carried
on
the
statement
of
financial
position
at
cost
plus
post
acquisition
changes
in
the
Group’s
shareof
net
assets
of
the
associate.
Goodwill
relating
to
the
associate
is
included
in
the
carrying
amount
of
the
investment
and
is
neither
amortized
nor
individually
testedfor
impairment.The
statement
of
comprehensive
income
reflects
the
Group’s
share
of
the
results
of
operations
of
the
associate.
When
there
has
been
a
change
recognized
directlyin
the
equity
of
the
associate,
the
Group
recognizes
its
share
of
any
changes
and
discloses
this,
when
applicable,
in
the
statement
of
changes
in
equity.
Unrealizedgains
and
losses
resulting
from
transactions
between
the
Group
and
the
associate
are
eliminated
to
the
extent
of
the
interest
in
the
associate.The
Group’s
share
of
profit
of
an
associate
is
shown
on
the
face
of
the
statement
of
comprehensive
income.
This
is
the
profit
attributable
to
equity
holders
of
theassociate
and,
therefore,
is
profit
after
tax
and
non-controlling
interests
in
the
subsidiaries
of
the
associate.The
financial
statements
of
the
associates
are
prepared
for
the
same
reporting
period
as
the
Group.
When
necessary,
adjustments
are
made
to
bring
the
accountingpolicies
in
line
with
those
of
the
Group.After
application
of
the
equity
method,
the
Group
determines
whether
it
is
necessary
to
recognize
an
additional
impairment
loss
on
its
investment
in
its
associates.The
Group
determines
at
each
reporting
date
whether
there
is
any
objective
evidence
that
the
investment
in
the
associate
is
impaired.
If
this
is
the
case,
the
Groupcalculates
the
amount
of
impairment
as
the
difference
between
the
recoverable
amount
of
an
investment
in
associate
and
its
carrying
value
and
recognizes
anyrespective
loss
in
the
statement
of
comprehensive
income.Upon
loss
of
significant
influence
over
the
associate,
the
Group
measures
and
recognizes
any
retaining
investment
at
its
fair
value.
Any
difference
between
thecarrying
amount
of
the
associate
upon
loss
of
significant
influence
and
the
fair
value
of
the
retained
investment
and
proceeds
from
disposal
is
recognized
in
profitor
loss.
F-18Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
3.Summary of significant accounting policies (continued)
3.3Foreign currency translationThe
consolidated
financial
statements
are
presented
in
Russian
rubles
(RUB),
which
is
the
Company’s
functional
and
the
Group’s
presentation
currency.
Eachentity
in
the
Group
determines
its
own
functional
currency,
depending
on
what
the
underlying
economic
environment
is,
and
items
included
in
the
financialstatements
of
each
entity
are
measured
using
that
functional
currency.
Transactions
in
foreign
currencies
are
initially
recorded
in
the
functional
currency
at
thefunctional
currency
rate
at
the
date
of
the
transaction.
Monetary
assets
and
liabilities
denominated
in
foreign
currencies
are
re-measured
in
to
the
functionalcurrency
at
the
functional
currency
rate
of
exchange
at
the
reporting
date.
All
differences
are
taken
to
profit
or
loss.
Non-monetary
items
that
are
measured
in
termsof
historical
cost
in
a
foreign
currency
are
translated
using
the
exchange
rates
as
of
the
dates
of
the
initial
transactions.Non-monetary
items
measured
at
fair
value
in
a
foreign
currency
are
translated
using
the
exchange
rates
at
the
date
when
the
fair
value
is
determined.
The
gain
orloss
arising
on
retranslation
of
non-monetary
items
is
treated
in
line
with
the
recognition
of
gain
or
loss
on
change
in
fair
value
of
the
item
(i.e.,
translationdifferences
on
items
whose
fair
value
gain
or
loss
is
recognized
in
other
comprehensive
income
or
profit
or
loss
is
also
recognized
in
other
comprehensive
incomeor
profit
or
loss,
respectively).The
functional
currency
of
the
foreign
operations
is
generally
the
respective
local
currency
–
US
Dollar
(U.S.$),
Euro
(€),
Kazakhstan
tenge
(KZT),
Belarussianruble
(BYR),
Moldovan
leu
(MDL)
and
New
Romanian
leu
(RON).As
of
the
reporting
date,
the
assets
and
liabilities
of
these
operations
are
translated
into
the
presentation
currency
of
the
Group
(the
Russian
Ruble)
at
the
rate
ofexchange
at
the
reporting
date
and
their
statements
of
comprehensive
income
are
translated
at
the
average
exchange
rates
for
the
year
or
exchange
rates
prevailingon
the
date
of
specific
transactions.
The
exchange
differences
arising
on
the
translation
are
recognized
in
other
comprehensive
income.
On
disposal
of
a
foreignentity,
the
deferred
cumulative
amount
recognized
in
equity
relating
to
that
particular
foreign
operation
is
reclassified
to
the
profit
or
loss.The
exchange
rates
of
the
Russian
ruble
to
each
respective
currency
as
of
December
31,
2016
and
2015
were
as
follows:



Average exchange rates for the year ended December 31,


Exchange rates at December 31,



2015


2016


2015


2016
US
Dollar


60.9579



67.0349



72.8827



60.6569
Euro


67.7767



74.2310



79.6972



63.8111
Kazakhstan
Tenge
(100)


28.3287



19.5980



21.5165



18.1637
Belarussian
Ruble
(10,000)


38.1300



33.7165



38.9476



30.9474
Moldovan
Leu
(10)


32.5365



33.6961



37.0621



30.5269
New
Romanian
Leu


15.2495



16.5315



17.5672



14.0722
The
currencies
listed
above
are
not
a
fully
convertible
outside
the
territories
of
countries
of
their
operations.
Related
official
exchange
rates
are
determined
daily
bythe
Central
Bank
of
the
Russian
Federation
(further
CBR).
Market
rates
may
differ
from
the
official
rates
but
the
differences
are,
generally,
within
narrowparameters
monitored
by
the
respective
Central
Banks.
The
translation
of
assets
and
liabilities
denominated
in
the
currencies
listed
above
into
RUB
for
thepurposes
of
these
financial
statements
does
not
indicate
that
the
Group
could
realize
or
settle,
in
RUB,
the
reported
values
of
these
assets
and
liabilities.
Likewise,
itdoes
not
indicate
that
the
Group
could
return
or
distribute
the
reported
RUB
value
of
capital
and
retained
earnings
to
its
shareholders.
F-19Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
3.Summary of significant accounting policies (continued)
3.4Property and equipment
3.4.1Cost of property and equipmentProperty
and
equipment
are
stated
at
cost
less
accumulated
depreciation
and
any
accumulated
impairment
loss.
Expenditures
for
continuing
repairs
andmaintenance
are
charged
to
the
profit
or
loss
as
incurred.
3.4.2Depreciation and useful livesDepreciation
is
calculated
on
property
and
equipment
on
a
straight-line
basis
from
the
time
the
assets
are
available
for
use,
over
their
estimated
useful
lives
asfollows:
Processing
servers
and
engineering
equipment

3-10
yearsComputers
and
office
equipment

3-5
yearsOther
equipment

2-20
yearsUseful
lives
of
leasehold
improvements
of
leased
office
premises
included
in
engineering
equipment
and
other
equipment
are
determined
at
the
lower
between
theuseful
live
of
the
asset
or
the
lease
term.The
asset’s
residual
values,
useful
lives
and
depreciation
methods
are
reviewed,
and
adjusted
as
appropriate,
at
each
financial
year-end.
3.5Intangible assets
3.5.1Software and other intangible assetsSoftware
and
other
intangible
assets
acquired
separately
are
measured
on
initial
recognition
at
cost.
The
cost
of
other
intangible
assets
acquired
in
a
businesscombination
is
their
fair
value
as
of
the
date
of
acquisition.
Following
initial
recognition,
intangible
assets
are
carried
at
cost
less
any
accumulated
amortization
andaccumulated
impairment
losses.Following
initial
recognition
of
the
development
expenditure
as
an
asset,
the
cost
model
is
applied
requiring
the
asset
to
be
carried
at
cost
less
any
accumulatedamortization
and
accumulated
impairment
losses.
Amortization
of
the
asset
begins
when
development
is
complete
and
the
asset
is
available
for
use.
It
is
amortizedover
the
period
of
expected
generation
of
future
benefits,
generally
3-5
years.
During
the
period
of
development,
the
asset
is
tested
for
impairment
annually.
3.5.2Software development costsDevelopment
expenditure
on
an
individual
project
is
recognized
as
an
intangible
asset
when
the
Group
can
demonstrate
the
technical
feasibility
of
completing
theintangible
asset
so
that
it
will
be
available
for
use
or
sale,
its
intention
to
complete
and
its
ability
to
use
or
sell
the
asset,
how
the
asset
will
generate
future
economicbenefits,
the
availability
of
resources
to
complete
the
asset
and
the
ability
to
measure
reliably
the
expenditure
during
development.
3.5.3Useful life and amortization of intangible assetsThe
Group
assesses
whether
the
useful
life
of
an
intangible
asset
is
finite
or
indefinite
and,
if
finite,
the
length
of
that
useful
life.
An
intangible
asset
is
regarded
bythe
entity
as
having
an
indefinite
useful
life
when,
based
on
an
analysis
of
all
of
the
relevant
factors,
there
is
no
foreseeable
limit
to
the
period
over
which
the
assetis
expected
to
generate
net
cash
inflows
for
the
entity.
F-20Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
3.Summary of significant accounting policies (continued)
3.5Intangible assets (continued)
Intangible
assets
with
finite
lives
are
amortized
on
a
straight-line
basis
over
the
useful
economic
lives
and
assessed
for
impairment
whenever
there
is
an
indicationthat
the
intangible
asset
may
be
impaired.
Below
is
the
summary
of
useful
lives
of
intangible
assets:
Customer
relationships
and
contract
rights

2-15
yearsComputer
Software

1-6
yearsBank
license
(Note
12)

indefiniteTrademarks
and
other
intangible
assets

2-5
yearsAmortization
periods
and
methods
for
intangible
assets
with
finite
useful
lives
are
reviewed
at
least
at
each
financial
year-end.
Changes
in
the
expected
useful
lifeor
the
expected
pattern
of
consumption
of
future
economic
benefits
embodied
in
the
asset
are
accounted
for
by
changing
the
amortization
period
or
method,
asappropriate,
and
treated
as
changes
in
accounting
estimates.Intangible
assets
with
indefinite
useful
lives
are
not
amortized,
but
are
tested
for
impairment
annually,
either
individually
or
at
the
cash-generating
unit
level.
Theassessment
of
indefinite
life
is
reviewed
annually
to
determine
whether
the
indefinite
life
continues
to
be
supportable.
Indefinite-lived
intangible
assets
include
theacquired
licenses
for
banking
operations.
It
is
considered
indefinite-lived
as
the
related
license
is
expected
to
be
renewed
indefinitely.Gains
or
losses
arising
from
derecognition
of
an
intangible
asset
are
measured
as
the
difference
between
the
net
disposal
proceeds
and
the
carrying
amount
of
theasset
and
are
recognized
in
the
statement
of
comprehensive
income
when
the
asset
is
derecognized.
3.6Impairment of non-financial assetsThe
Group
assesses
at
each
reporting
date
whether
there
is
an
indication
that
an
asset,
other
than
goodwill
and
intangible
assets
with
indefinite
useful
life,
may
beimpaired.
If
any
such
indication
exists,
or
when
annual
impairment
testing
for
an
asset
is
required,
the
Group
estimates
the
asset’s
recoverable
amount.
An
asset’srecoverable
amount
is
the
higher
of
an
asset’s
or
cash-generating
unit’s
fair
value
less
costs
to
sell
and
its
value
in
use
and
is
determined
for
an
individual
asset,unless
the
asset
does
not
generate
cash
inflows
that
are
largely
independent
of
those
from
other
assets
or
groups
of
assets.
Where
the
carrying
amount
of
an
assetexceeds
its
recoverable
amount,
the
asset
is
considered
impaired
and
is
written
down
to
its
recoverable
amount.
In
assessing
value
in
use,
the
estimated
future
cashflows
are
discounted
to
their
present
value
using
a
pre-tax
discount
rate
that
reflects
current
market
assessments
of
the
time
value
of
money
and
the
risks
specific
tothe
asset.
In
determining
fair
value
less
costs
to
sell,
an
appropriate
valuation
model
is
used.These
calculations
are
corroborated
by
valuation
multiples,
quoted
share
prices
for
publicly
traded
subsidiaries,
if
applicable,
or
other
available
fair
valueindicators.The
Group
bases
its
impairment
calculation
on
detailed
budgets
and
forecast
calculations,
which
are
prepared
separately
for
each
of
the
Group’s
cash
generatingunits
(CGU),
to
which
the
individual
assets
are
allocated.
F-21Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
3.Summary of significant accounting policies (continued)
3.6Impairment of non-financial assets (continued)
These
budgets
and
forecast
calculations
generally
cover
a
period
of
five
years
or
longer,
when
management
considers
appropriate.
For
longer
periods,
a
long-termgrowth
rate
is
calculated
and
applied
to
project
future
cash
flows
after
the
last
year.Impairment
losses
of
continuing
operations
are
recognized
in
profit
or
loss
in
those
expense
categories
consistent
with
the
function
of
the
impaired
asset.For
assets
excluding
goodwill,
an
assessment
is
made
at
each
reporting
date
as
to
whether
there
is
any
indication
that
previously
recognized
impairment
losses
mayno
longer
exist
or
may
have
decreased.
If
such
indication
exists,
the
Group
makes
an
estimate
of
recoverable
amount.
A
previously
recognized
impairment
loss
isreversed
only
if
there
has
been
a
change
in
the
estimates
used
to
determine
the
asset’s
recoverable
amount
since
the
last
impairment
loss
was
recognized.
If
that
isthe
case,
the
carrying
amount
of
the
asset
is
increased
to
its
recoverable
amount.That
increased
amount
cannot
exceed
the
carrying
amount
that
would
have
been
determined,
net
of
depreciation,
had
no
impairment
loss
been
recognized
for
theasset
in
prior
years.
Such
reversal
is
recognized
in
profit
or
loss.
The
following
criteria
are
also
applied
in
assessing
impairment
of
specific
assets:GoodwillGoodwill
is
tested
for
impairment
annually
and
when
circumstances
indicate
that
the
carrying
value
may
be
impaired.
Impairment
is
determined
for
goodwill
byassessing
the
recoverable
amount
of
the
cash-generating
units,
to
which
the
goodwill
relates.
Where
the
recoverable
amount
of
the
cash-generating
units
is
less
thantheir
carrying
amount
an
impairment
loss
is
recognized.
Impairment
losses
relating
to
goodwill
cannot
be
reversed
in
future
periods.
The
Group
performs
its
annualimpairment
test
of
goodwill
as
of
December
31
and
whenever
certain
events
and
circumstances
indicate
that
its
carrying
value
may
be
impaired.Intangible assetsIntangible
assets
with
indefinite
useful
lives
are
tested
for
impairment
annually
as
of
December
31,
either
individually
or
at
the
cash
generating
unit
level,
asappropriate
and
whenever
events
and
circumstances
indicate
that
an
asset
may
be
impaired.
3.7Financial assets
3.7.1Initial recognition and measurementFinancial
assets
within
the
scope
of
IAS
39
are
classified
as
financial
assets
at
fair
value
through
profit
or
loss,
loans
and
receivables,
held-to-maturity
investments,or
available-for-sale
(AFS)
financial
assets,
as
appropriate.
When
financial
assets
are
recognized
initially,
they
are
measured
at
fair
value,
plus,
in
the
case
ofinvestments
not
at
fair
value
through
profit
or
loss,
directly
attributable
transaction
costs.
The
Group
determines
the
classification
of
its
financial
assets
on
initialrecognition
and,
where
allowed
and
appropriate,
re-evaluates
this
designation
at
each
financial
year-end.
All
regular
way
purchases
and
sales
of
financial
assets
arerecognized
on
the
trade
date,
which
is
the
date
that
the
Group
commits
to
purchase
the
asset.
Regular
way
purchases
or
sales
are
purchases
or
sales
of
financialassets
that
require
delivery
of
assets
within
the
period
generally
established
by
regulation
or
convention
in
the
marketplace.
F-22Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
3.Summary of significant accounting policies (continued)
3.7Financial assets (continued)
3.7.2Subsequent measurementFinancial assets at fair value through profit or lossFinancial
assets
at
fair
value
through
profit
or
loss
include
financial
assets
held
for
trading
and
financial
assets
designated
upon
initial
recognition
at
fair
valuethrough
profit
or
loss.
Financial
assets
are
classified
as
held
for
trading
if
they
are
acquired
for
the
purpose
of
selling
or
repurchasing
in
the
near
term.Financial
assets
at
fair
value
through
profit
and
loss
are
carried
in
the
statement
of
financial
position
at
fair
value
with
net
changes
in
fair
value
recognized
in“change
in
fair
value
of
derivative
financial
assets”,
“other
gains”
or
“other
losses”
in
the
statement
of
comprehensive
income.Financial
assets
designated
upon
initial
recognition
at
fair
value
through
profit
or
loss
are
designated
at
their
initial
recognition
date
and
only
if
the
criteria
underIAS
39
are
satisfied.The
Group
has
not
designated
any
financial
assets
at
fair
value
through
profit
or
loss.Loans and receivablesLoans
and
receivables
are
non-derivative
financial
assets
with
fixed
or
determinable
payments
that
are
not
quoted
in
an
active
market.
After
initial
measurement,loans
and
receivables
are
carried
at
amortized
cost
using
the
effective
interest
rate
method
less
any
allowance
for
impairment.
Gains
and
losses
are
recognized
inprofit
or
loss
when
the
loans
and
receivables
are
derecognized
or
impaired,
as
well
as
through
the
amortization
process.Debt instrumentsDebt
instruments
and
financial
investments
are
non-derivative
financial
assets
with
fixed
or
determinable
payments
and
fixed
maturities,
which
the
Group
has
theintention
and
ability
to
hold
to
maturity.
After
initial
measurement,
held-to-maturity
financial
investments
are
subsequently
measured
at
amortized
cost
using
theeffective
interest
rate
(EIR),
less
impairment.If
the
Group
sold
or
reclassified
more
than
an
insignificant
amount
of
debt
instruments
before
maturity
(other
than
in
certain
specific
circumstances),
the
entirecategory
would
be
tainted
and
would
have
to
be
reclassified
as
available-for-sale.AFS financial assetsAFS
financial
assets
include
equity
investments.
Equity
investments
classified
as
AFS
are
those
that
are
neither
classified
as
held
for
trading
nor
designated
at
fairvalue
through
profit
or
loss.After
initial
measurement,
AFS
financial
assets
are
subsequently
measured
at
fair
value
with
unrealized
gains
or
losses
recognized
in
OCI
and
credited
in
the
AFSreserve
until
the
investment
is
derecognized,
at
which
time
the
cumulative
gain
or
loss
is
recognized
in
other
operating
income,
or
the
investment
is
determined
tobe
impaired,
when
the
cumulative
loss
is
reclassified
from
the
AFS
reserve
to
the
statement
of
profit
or
loss
in
finance
costs.
Interest
earned
whilst
holding
AFSfinancial
assets
is
reported
as
interest
income
using
the
EIR
method.
F-23Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
3.Summary of significant accounting policies (continued)
3.7Financial assets (continued)
Amortized costHeld-to-maturity
investments,
due
from
banks
and
loans
and
advances
to
customers
and
debt
issued,
other
funds
lent
and
loans
and
receivables
are
measured
atamortized
cost.
This
is
computed
using
the
EIR
method
less
any
allowance
for
impairment.
Amortized
cost
is
calculated
taking
into
account
any
premium
ordiscount
on
acquisition
and
includes
transaction
costs
and
fees
that
are
an
integral
part
of
the
effective
interest
rate.
The
EIR
amortization
is
included
in
interestincome
in
the
statement
of
comprehensive
income.
The
losses
arising
from
impairment
are
recognized
in
the
statement
of
comprehensive
income
in
finance
costsfor
loans
and
in
cost
of
sales
or
other
operating
expenses
for
receivables.
3.7.3Impairment and derecognition of financial assetsImpairmentThe
Group
assesses
at
each
reporting
date
whether
a
financial
asset
or
group
of
financial
assets
is
impaired.Assets carried at amortized costFor
financial
assets
carried
at
amortized
cost
(such
as
loans
and
receivables,
held-to-maturity
investments),
the
Group
first
assesses
individually
whether
objectiveevidence
of
impairment
exists
for
financial
assets
that
are
individually
significant,
or
collectively
for
financial
assets
that
are
not
individually
significant.
If
theGroup
determines
that
no
objective
evidence
of
impairment
exists
for
an
individually
assessed
financial
asset,
it
includes
the
asset
in
a
group
of
financial
assetswith
similar
credit
risk
characteristics
and
collectively
assesses
them
for
impairment.
Assets
that
are
individually
assessed
for
impairment
and
for
which
animpairment
loss
is,
or
continues
to
be,
recognized
are
not
included
in
a
collective
assessment
of
impairment.If
there
is
objective
evidence
that
an
impairment
loss
on
assets
carried
at
amortized
cost
has
been
incurred,
the
amount
of
the
loss
is
measured
as
the
differencebetween
the
asset’s
carrying
amount
and
the
present
value
of
estimated
future
cash
flows
(excluding
future
expected
credit
losses
that
have
not
been
incurred)discounted
at
the
financial
asset’s
original
effective
interest
rate
(i.e.
the
effective
interest
rate
computed
at
initial
recognition).
The
carrying
amount
of
the
asset
isreduced
through
use
of
an
allowance
account.
The
amount
of
the
loss
is
recognized
in
profit
or
loss.If,
in
a
subsequent
period,
the
amount
of
the
impairment
loss
decreases
and
the
decrease
can
be
related
objectively
to
an
event
occurring
after
the
impairment
wasrecognized,
the
previously
recognized
impairment
loss
is
reversed,
to
the
extent
that
the
carrying
value
of
the
asset
does
not
exceed
its
amortized
cost
at
the
reversaldate.
Any
subsequent
reversal
of
an
impairment
loss
is
recognized
in
profit
or
loss.In
relation
to
trade
receivables,
a
provision
for
impairment
is
made
when
there
is
objective
evidence
(such
as
the
probability
of
insolvency
or
significant
financialdifficulties
of
the
debtor)
that
the
Group
will
not
be
able
to
collect
all
of
the
amounts
due
under
the
original
terms
of
the
invoice.
The
carrying
amount
of
thereceivable
is
reduced
through
use
of
an
allowance
account.
Impaired
debts
are
derecognized
when
they
are
assessed
as
uncollectible.
F-24Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
3.Summary of significant accounting policies (continued)
3.7Financial assets (continued)
AFS financial assetsFor
AFS
financial
assets,
the
Group
assesses
at
each
reporting
date
whether
there
is
objective
evidence
that
an
investment
or
a
group
of
investments
is
impaired.In
the
case
of
equity
investments
classified
as
AFS,
objective
evidence
would
include
a
significant
or
prolonged
decline
in
the
fair
value
of
the
investment
below
itscost.
‘Significant’
is
evaluated
against
the
original
cost
of
the
investment
and
‘prolonged’
against
the
period
in
which
the
fair
value
has
been
below
its
original
cost.When
there
is
evidence
of
impairment,
the
cumulative
loss
–
measured
as
the
difference
between
the
acquisition
cost
and
the
current
fair
value,
less
any
impairmentloss
on
that
investment
previously
recognized
in
the
profit
or
loss
–
is
removed
from
OCI
and
recognized
in
the
profit
or
loss.
Impairment
losses
on
equityinvestments
are
not
reversed
through
profit
or
loss;
increases
in
their
fair
value
after
impairment
are
recognized
in
OCI.The
determination
of
what
is
‘significant’
or
‘prolonged’
requires
judgement.
In
making
this
judgement,
the
Group
evaluates,
among
other
factors,
the
duration
orextent
to
which
the
fair
value
of
an
investment
is
less
than
its
cost.DerecognitionA
financial
asset
(or,
where
applicable
a
part
of
a
financial
asset
or
part
of
a
group
of
similar
financial
assets)
is
derecognized
when:

•
The
rights
to
receive
cash
flows
from
the
asset
have
expired

•
The
Group
has
transferred
its
rights
to
receive
cash
flows
from
the
asset
or
has
assumed
an
obligation
to
pay
the
received
cash
flows
in
full
without
materialdelay
to
a
third
party
under
a
‘pass-through’
arrangement;
and
either
(a)
the
Group
has
transferred
substantially
all
the
risks
and
rewards
of
the
asset,
or(b)
the
Group
has
neither
transferred
nor
retained
substantially
all
the
risks
and
rewards
of
the
asset,
but
has
transferred
control
of
the
asset.When
the
Group
has
transferred
its
rights
to
receive
cash
flows
from
an
asset
or
has
entered
into
a
pass-through
arrangement,
and
has
neither
transferred
norretained
substantially
all
of
the
risks
and
rewards
of
the
asset
nor
transferred
control
of
the
asset,
the
asset
is
recognized
to
the
extent
of
the
Group’s
continuinginvolvement
in
the
asset.In
that
case,
the
Group
also
recognizes
an
associated
liability.
The
transferred
asset
and
the
associated
liability
are
measured
on
a
basis
that
reflects
the
rights
andobligations
that
the
Group
has
retained.Continuing
involvement
that
takes
the
form
of
a
guarantee
over
the
transferred
asset
is
measured
at
the
lower
of
the
original
carrying
amount
of
the
asset
and
themaximum
amount
of
consideration
that
the
Group
could
be
required
to
repay.
F-25Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
3.Summary of significant accounting policies (continued)
3.8Financial liabilities
3.8.1Initial recognition and measurementFinancial
liabilities
within
the
scope
of
IAS
39
are
classified
as
financial
liabilities
at
fair
value
through
profit
or
loss,
loans
and
borrowings,
or
as
derivativesdesignated
as
hedging
instruments
in
an
effective
hedge,
as
appropriate.
The
Group
determines
the
classification
of
its
financial
liabilities
at
initial
recognition.Financial
liabilities
are
recognized
initially
at
fair
value
less,
in
the
case
of
loans
and
borrowings,
directly
attributable
transaction
costs.The
Group’s
financial
liabilities
include
trade
and
other
payables,
bank
overdraft,
amounts
due
to
customers
and
amounts
due
to
banks.The
measurement
of
financial
liabilities
depends
on
their
classification
as
follows:Financial liabilities at fair value through profit or lossFinancial
liabilities
at
fair
value
through
profit
or
loss
include
financial
liabilities
held
for
trading
and
financial
liabilities
designated
upon
initial
recognition
at
fairvalue
through
profit
or
loss.Financial
liabilities
are
classified
as
held
for
trading
if
they
are
acquired
for
the
purpose
of
selling
in
the
near
term.
This
category
includes
derivative
financialinstruments
entered
into
by
the
Group
that
do
not
meet
the
hedge
accounting
criteria
as
defined
by
IAS
39.Gains
or
losses
on
liabilities
held
for
trading
are
recognized
in
profit
or
loss.The
Group
has
not
designated
any
financial
liabilities
at
fair
value
through
profit
or
loss.Loans, borrowing, amounts due to customers and amounts due to banks and payablesAfter
initial
recognition,
interest
bearing
loans,
borrowings
and
payables
are
subsequently
measured
at
amortized
cost
using
the
effective
interest
rate
method.Gains
and
losses
are
recognized
in
profit
or
loss
when
the
liabilities
are
derecognized
as
well
as
through
the
amortization
process.
3.8.2Derecognition of financial liabilitiesA
financial
liability
is
derecognized
when
the
obligation
under
the
liability
is
discharged
or
cancelled
or
expires.
Where
an
existing
financial
liability
is
replaced
byanother
from
the
same
lender
on
substantially
different
terms,
or
the
terms
of
an
existing
liability
are
substantially
modified,
such
an
exchange
or
modification
istreated
as
a
derecognition
of
the
original
liability
and
the
recognition
of
a
new
liability,
and
the
difference
in
the
respective
carrying
amounts
is
recognized
in
profitor
loss.
F-26Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
3.Summary of significant accounting policies (continued)
3.8Financial liabilities (continued)
3.8.3Offsetting financial assets and liabilitiesFinancial
assets
and
financial
liabilities
are
offset
and
the
net
amount
reported
in
the
consolidated
statement
of
financial
position
if,
and
only
if:

•
There
is
a
currently
enforceable
legal
right
to
offset
the
recognized
amounts;
and

•
There
is
an
intention
to
settle
on
a
net
basis,
or
to
realize
the
assets
and
settle
the
liabilities
simultaneously.The
right
of
set-off:

•
Must
not
be
contingent
on
a
future
event;
and

•
Must
be
legally
enforceable
in
all
of
the
following
circumstances:

(i)the
normal
course
of
business;

(ii)the
event
of
default;
and

(iii)the
event
of
insolvency
or
bankruptcy
of
the
entity
and
all
of
the
counterparties
3.9Cash and cash equivalentsCash
comprises
cash
at
banks
and
in
hand
and
short-term
deposits
with
an
original
maturity
of
three
months
or
less.
All
these
items
are
included
as
a
component
ofcash
and
cash
equivalents
for
the
purpose
of
the
statement
of
financial
position
and
statement
of
cash
flows.
3.10Employee benefits
3.10.1Short-term employee benefitsWages
and
salaries
paid
to
employees
are
recognized
as
expenses
in
the
current
period.
The
Group
also
accrues
expenses
for
future
vacation
payments.
3.10.2Social contributions and define contributions to pension fundUnder
provisions
of
the
Russian
legislation,
social
contributions
include
defined
contributions
to
pension
and
other
social
funds
of
Russia
and
are
calculated
by
theGroup
by
the
application
of
a
regressive
rate
(from
30%
to
10%
in
2016,
2015
and
2014)
to
the
annual
gross
remuneration
of
each
employee.
For
the
year
endedDecember
31,
2016
defined
contributions
to
pension
fund
of
Russia
of
the
Group
amounted
to
315
(2015
–
270;
2014
–
222).
F-27Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
3.Summary of significant accounting policies (continued)
3.11ProvisionsProvisions
are
recognized
when
the
Group
has
a
present
legal
or
constructive
obligation
as
a
result
of
past
events,
it
is
probable
that
an
outflow
of
resources
will
berequired
to
settle
the
obligation,
and
a
reliable
estimate
of
the
amount
can
be
made.
Where
the
Group
expects
a
provision
to
be
reimbursed,
for
example
under
aninsurance
contract,
the
reimbursement
is
recognized
as
a
separate
asset
but
only
when
the
reimbursement
is
virtually
certain.If
the
effect
of
discounting
is
material,
provisions
are
determined
by
discounting
the
expected
value
of
future
cash
flows
at
a
pre-tax
rate
that
reflects
current
marketassessments
of
the
time
value
of
money
and,
where
appropriate,
the
risks
specific
to
the
liability.
Where
discounting
is
used,
the
increase
in
the
provision
due
to
thepassage
of
time
is
recognized
as
an
interest
expense.
3.12Special contribution for defence of the Republic of CyprusDividend DistributionCyprus
entities
that
do
not
distribute
70%
of
their
profits
after
tax,
as
defined
by
the
relevant
tax
law,
within
two
years
after
the
end
of
the
relevant
tax
year,
aredeemed
to
have
distributed
as
dividends
70%
of
these
profits.
A
special
contribution
for
the
defence
fund
of
the
Republic
of
Cyprus
is
levied
at
the
17%
rate
for2014,
2015,
2016
and
thereafter
will
be
payable
on
such
deemed
dividends
distribution.
Profits
that
are
attributable
to
shareholders
who
are
not
tax
resident
ofCyprus
and
own
shares
in
the
Company
either
directly
and/or
indirectly
at
the
end
of
two
years
from
the
end
of
the
tax
year
to
which
the
profits
relate,
areexempted.
The
amount
of
deemed
distribution
is
reduced
by
any
actual
dividends
paid
out
of
the
profits
of
the
relevant
year
at
any
time.
This
special
contributionfor
defence
is
payable
by
the
Company
for
the
account
of
the
shareholders.The
Company’s
ultimate
shareholders
as
of
December
31,
2016
are
non-Cypriot
tax
residents
and
as
such
the
Cypriot
deemed
dividend
distribution
rules
are
notapplicable.Dividend incomeDividends
received
from
a
non-resident
(foreign)
company
are
exempt
from
the
levy
of
defence
contribution
if
either
the
dividend
paying
company
derives
at
least50%
of
its
income
directly
or
indirectly
from
activities
which
do
not
lead
to
investment
income
(“active
versus
passive
investment
income
test”
is
met)
or
theforeign
tax
burden
on
the
profit
to
be
distributed
as
dividend
has
not
been
substantially
lower
than
the
Cypriot
corporate
income
tax
rate
(i.e.
lower
than
6,25%)
atthe
level
of
the
dividend
paying
company
(“effective
minimum
foreign
tax
test”
is
met).The
Company
has
not
been
subject
to
defence
tax
on
dividends
received
from
abroad
as
the
dividend
paying
entities
are
engaged
in
trading
activities.
F-28Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
3.Summary of significant accounting policies (continued)
3.13Income taxesCurrent income taxCurrent
income
tax
assets
and
liabilities
for
the
current
and
prior
periods
are
measured
at
the
amount
expected
to
be
recovered
from
or
paid
to
the
taxationauthorities.
The
tax
rates
and
tax
laws
used
to
compute
the
amount
are
those
that
are
enacted
or
substantively
enacted
by
the
reporting
date.Current
income
tax
relating
to
items
recognized
in
other
comprehensive
income
is
recognized
in
other
comprehensive
income.Deferred income taxDeferred
tax
is
recognized
in
respect
of
temporary
differences
between
the
carrying
amounts
of
assets
and
liabilities
for
financial
reporting
purposes
and
theamounts
used
for
taxation
purposes.
Deferred
tax
is
not
recognized
for
the
following
temporary
differences:
the
initial
recognition
of
assets
or
liabilities
in
atransaction
that
is
not
a
business
combination
and
that
affects
neither
accounting
nor
taxable
profit
or
loss,
and
differences
relating
to
investments
in
subsidiaries
tothe
extent
that
it
is
probable
that
they
will
not
reverse
in
the
foreseeable
future.
In
addition,
deferred
tax
is
not
recognized
for
taxable
temporary
differences
arisingon
the
initial
recognition
of
goodwill.
Deferred
tax
is
measured
at
the
tax
rates
that
are
expected
to
be
applied
to
temporary
differences
when
they
reverse,
based
onthe
laws
that
have
been
enacted
or
substantively
enacted
by
the
reporting
date.Deferred
tax
assets
and
liabilities
are
offset
if
there
is
a
legally
enforceable
right
to
offset
current
tax
liabilities
and
assets,
and
they
relate
to
income
taxes
levied
bythe
same
tax
authority
on
the
same
taxable
entity,
or
on
different
tax
entities,
but
they
intend
to
settle
current
tax
liabilities
and
assets
on
a
net
basis
or
their
taxassets
and
liabilities
will
be
realized
simultaneously.A
deferred
tax
asset
is
recognized
for
unused
tax
losses,
tax
credits
and
deductible
temporary
differences,
to
the
extent
that
it
is
probable
that
future
taxable
profitswill
be
available
against
which
they
can
be
utilized.
Deferred
tax
assets
are
reviewed
at
each
reporting
date
and
are
reduced
to
the
extent
that
it
is
no
longerprobable
that
the
related
tax
benefit
will
be
realized.
F-29Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
3.Summary of significant accounting policies (continued)
3.14Revenue and certain expenses recognitionRevenue
is
recognized
to
the
extent
that
it
is
probable
that
the
economic
benefits
will
flow
to
the
Group
and
the
revenue
can
be
reliably
measured.
Revenues
andrelated
cost
of
revenue
from
services
are
recognized
in
the
period
when
services
are
rendered,
regardless
of
when
payment
is
made.Payment processing fee revenues and related transaction costsThe
Group
earns
a
fee
for
processing
payments
initiated
by
the
ultimate
customers
(“consumers”)
to
pay
to
merchants
and
service
providers
(“merchants”)
ortransfer
money
to
other
individuals.
Payment
processing
fees
are
earned
from
consumers
or
merchants,
or
both.
Consumers
can
make
payments
to
variousmerchants
through
kiosks
or
network
of
agents
and
banks
participants
of
payment
system
or
through
the
Group’s
website
or
applications
using
a
unique
user
loginand
password
(e-payments).
Payment
kiosks
are
owned
by
third
parties
–
cash
collection
agents
(“agents”).
When
consumer
payment
is
processed,
the
Group
mayincur
transaction
costs
to
acquire
payments
payable
to
agents,
banks-participants,
mobile
operators,
international
payment
systems
and
other
parties.
The
paymentprocessing
fee
revenue
and
related
receivable,
as
well
as
the
transaction
cost
and
the
related
payable,
are
recognized
at
the
point
when
merchants
or
individualsaccept
payments
from
consumers
in
the
gross
amount,
including
fees
payable
for
payment
acquisition.
Payment
processing
fees
and
transaction
costs
are
reportedgross,
except
for
the
consumer
fees
on
payments
collected
through
payment
kiosks,
which
is
recorded
in
the
net
amount
receivable
from
the
agents-owners
ofkiosks.
Visa
payment
processing
fee
revenues
and
related
transaction
costs
are
reported
net.In
accordance
with
terms
and
conditions
of
use
of
QIWI
system
rules
and
VISA
QIWI
Wallet
accounts,
the
Group
charges
a
fee
to
its
consumers
on
the
balance
ofunused
accounts
after
certain
period
of
inactivity
and
unclaimed
payments.
Such
fees
are
recorded
as
revenues
in
the
period
a
fee
is
charged.The
Group
generates
revenue
from
the
foreign
currency
conversion
when
payments
are
made
in
currencies
different
from
the
country
of
the
consumer,
mainlyRussia.
The
Group
recognizes
the
related
revenues
at
the
time
of
conversion
in
the
amount
of
conversion
commission
representing
the
difference
between
thecurrent
Russian
or
relevant
country
Central
Bank
foreign
currency
exchange
rate
and
the
foreign
currency
exchange
rate
charged
by
the
Group’s
processing
system.Revenue from advertising and advertising commissionsBanner
advertising
revenues
are
fixed
pursuant
to
contracts
with
customers,
generally
advertising
agencies,
and
are
recognized
monthly
based
on
agreed
amount
ofadvertising
that
were
displayed
on
electronic
payment
kiosks
owned
by
agents
in
fixed
by
agreement
period.
Revenue
from
customers
and
commissions
payable
toagents
for
the
use
of
kiosks
is
recognized
gross.Also
the
Group
generates
revenues
from
advertising
through
Short
Message
Service
(SMS)
through
delivery
of
advertising
messages
to
the
Group’s
consumerstogether
with
an
SMS
confirmation
of
payment
made.
The
Group
enters
into
agreements
with
advertising
agencies
and
recognizes
advertising
revenue
based
on
thenumber
of
SMS
delivered
to
end
consumers
at
the
time
of
delivery
of
the
respective
SMS.
F-30Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
3.Summary of significant accounting policies (continued)
3.14Revenue and certain expenses recognition (continued)
Interest revenue from agents’ overdraftsThe
Group
charges
interest
on
overdrafts
to
agents
and
includes
them
in
revenue.
Related
revenues
are
recognized
using
the
EIR
method
by
applying
thecontractually
agreed
interest
rates
to
the
actual
daily
amounts
outstanding
balance
of
overdrafts.Revenue and cost from rent of space for kiosksRevenue
from
rent
of
space
for
kiosks
represents
revenues
received
from
agents
for
sublease
of
space
rented
from
retail
shops
for
installation
of
the
agents’payment
kiosks.
Cost
of
rent
of
space
for
kiosks
represents
payments
to
retail
shops.The
agreements
for
the
lease
of
space
for
kiosks
from
the
retail
shops
and
the
agreements
for
the
sublease
of
space
for
kiosks
with
the
agents
are
based
on
a
fixedmonthly
lease
fee
per
one
kiosk
space.
Therefore,
both
lease
revenue
and
cost
from
rent
of
space
for
kiosks
are
recognized
on
a
straight-line
basis
over
the
leaseterm
for
each
kiosk
space.
Total
revenue
and
expense
for
a
reporting
period
is
equal
to
the
number
of
spaces
leased
multiplied
by
the
applicable
lease
revenue
andcost
per
single
space.Revenue from sale of kiosks and cost of kiosks soldThe
Group
sells
kiosks
to
Agents.
Revenue
and
cost
of
revenue
from
sales
of
kiosks
is
recognized
upon
delivery
of
kiosks
to
Agents.Interest revenue, interest income and interest expenseFor
all
financial
instruments
measured
at
amortized
cost,
interest
bearing
financial
assets
classified
as
available
for
sale
and
financial
instruments
designated
at
fairvalue
through
profit
or
loss,
interest
income
or
expense
is
recorded
using
the
EIR.
The
carrying
amount
of
the
financial
asset
or
financial
liability
is
adjusted
if
theGroup
revises
its
estimates
of
payments
or
receipts.
Once
the
recorded
value
of
a
financial
asset
or
a
group
of
similar
financial
assets
has
been
reduced
due
to
animpairment
loss,
interest
income
continues
to
be
recognized
using
the
rate
of
interest
used
to
discount
the
future
cash
flows
for
the
purpose
of
measuring
theimpairment
loss.
Interest
income
from
bank
loans
and
short-
and
long-term
investments
performed
as
part
of
the
Group’s
treasury
function
is
classified
as
part
ofrevenues,
Interest
income
derived
from
loans
issued
to
various
third
and
related
parties
as
part
of
other
arrangements
is
classified
as
interest
income.
Cash
receiptsof
both
types
of
interest
are
included
into
interest
received
in
the
statement
of
cash
flows.Interest
expense
from
bank
borrowings
intended
to
attract
funds
to
offer
them
as
agents’
overdrafts
is
classified
as
part
of
cost
of
revenue.
Interest
expense
derivedfrom
borrowings
attracted
from
various
third
parties
as
part
of
other
arrangements
and
interest
expense
from
bank
guaranties
is
classified
as
interest
expense
not
aspart
of
cost
of
revenue.
Cash
disbursements
of
both
types
of
interest
are
included
into
interest
paid
in
the
statement
of
cash
flows.Cash and settlement servicesThe
Group
charges
a
fee
for
managing
cash
and
deposits,
including
guarantee
deposits
from
agents
placed
with
the
bank
to
cover
consumer
payments
they
accept.Related
revenue
is
recorded
as
services
are
rendered
or
as
transactions
are
processed.
F-31Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
3.Summary of significant accounting policies (continued)
3.15Share-based paymentsEmployees
of
the
Group
receive
remuneration
in
the
form
of
share-based
payments,
whereby
employees
render
services
as
consideration
for
equity
instruments(equity-settled
transactions).The
cost
of
equity-settled
transactions
is
recognized,
together
with
a
corresponding
increase
in
other
reserves
in
equity,
over
the
period
in
which
the
performanceand/or
service
conditions
are
fulfilled.
The
cumulative
expense
recognized
for
equity-settled
transactions
at
each
reporting
date
until
the
vesting
date
reflects
theextent
to
which
the
vesting
period
has
expired
and
the
Group’s
best
estimate
of
the
number
of
equity
instruments
that
will
ultimately
vest.
The
statement
ofcomprehensive
income
expense
or
credit
for
a
period
represents
the
movement
in
cumulative
expense
recognized
as
of
the
beginning
and
end
of
that
period
and
isrecognized
in
compensation
to
employees
and
other
personnel
expenses.No
expense
is
recognized
for
awards
that
do
not
ultimately
vest,
except
for
equity-settled
transactions
for
which
vesting
is
conditional
upon
a
market
or
non-vestingcondition.
These
are
treated
as
vested
irrespective
of
whether
or
not
the
market
or
non-vesting
condition
is
satisfied,
provided
that
all
other
performance
and/orservice
conditions
are
satisfied.When
the
terms
of
an
equity-settled
award
are
modified,
the
minimum
expense
recognized
is
the
expense
that
would
have
been
incurred
had
the
terms
not
beenmodified,
if
the
original
terms
of
the
award
are
met.
An
additional
expense
is
recognized
for
any
modification
that
increases
the
total
fair
value
of
the
share-basedpayment
transaction,
or
is
otherwise
beneficial
to
the
employee
as
measured
at
the
date
of
modification.When
an
equity-settled
award
is
cancelled,
it
is
treated
as
if
it
vested
on
the
date
of
cancellation,
and
any
expense
not
yet
recognized
for
the
award
is
recognizedimmediately.
This
includes
any
award
where
non-vesting
conditions
within
the
control
of
either
the
entity
or
the
employee
are
not
met.
However,
if
a
new
award
issubstituted
for
the
cancelled
award,
and
designated
as
a
replacement
award
on
the
date
that
it
is
granted,
the
cancelled
and
new
awards
are
treated
as
if
they
were
amodification
of
the
original
award,
as
described
in
previous
paragraph.The
dilutive
effect
of
outstanding
options
is
reflected
as
additional
share
dilution
in
the
computation
of
diluted
earnings
per
share.The
option
awards
that
are
outstanding
as
of
December
31,
2016
and
2015
can
only
be
settled
in
shares,
which
is
why
they
are
accounted
for
as
equity-settledtransactions.
F-32Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
3.Summary of significant accounting policies (continued)
3.16LeasesThe
determination
of
whether
an
arrangement
is,
or
contains,
a
lease
is
based
on
the
substance
of
the
arrangement
at
inception
date,
whether
fulfillment
of
thearrangement
is
dependent
on
the
use
of
a
specific
asset
or
assets
or
the
arrangement
conveys
a
right
to
use
the
asset,
even
if
that
right
is
not
explicitly
specified
inan
arrangement.Group as a lesseeOperating
lease
payments
are
recognized
as
an
operating
expense
in
the
statement
of
comprehensive
income
on
a
straight-line
basis
over
the
lease
term.Group as a lessorLeases
in
which
the
Group
does
not
transfer
substantially
all
the
risks
and
benefits
of
ownership
of
an
asset
are
classified
as
operating
leases.
Initial
direct
costsincurred
in
negotiating
an
operating
lease
are
added
to
the
carrying
amount
of
the
leased
asset
and
recognized
over
the
lease
term
on
the
same
basis
as
rentalincome.
Contingent
rents
are
recognized
as
revenue
in
the
period
in
which
they
are
earned.
3.17Non-current assets held for sale and discontinued operationsNon-current
assets
and
disposal
groups
classified
as
held
for
sale
are
measured
at
the
lower
of
their
carrying
amount
and
fair
value
less
costs
to
sell.
Non-currentassets
and
disposal
groups
are
classified
as
held
for
sale
if
their
carrying
amounts
will
be
recovered
principally
through
a
sale
transaction
rather
than
throughcontinuing
use.
This
condition
is
regarded
as
met
only
when
the
sale
is
highly
probable
and
the
asset
or
disposal
group
is
available
for
immediate
sale
in
its
presentcondition.
Management
must
be
committed
to
the
sale,
which
should
be
expected
to
qualify
for
recognition
as
a
completed
sale
within
one
year
from
the
date
ofclassification.In
the
statement
of
comprehensive
income,
income
and
expenses
from
discontinued
operations
are
reported
separately
from
income
and
expenses
from
continuingoperations,
down
to
the
level
of
profit
after
taxes,
even
when
the
Group
retains
a
non-controlling
interest
in
the
subsidiary
after
the
sale.
The
resulting
profit
or
loss(after
taxes)
is
reported
separately
in
the
statement
of
comprehensive
income.Property
and
equipment
and
intangible
assets
once
classified
as
held
for
sale
are
not
depreciated
or
amortized.
4.Significant accounting judgments, estimates and assumptionsThe
preparation
of
consolidated
financial
statements
in
conformity
with
IFRS
requires
management
to
make
judgments,
estimates
and
assumptions
that
affect
thereported
amounts
of
assets
and
liabilities,
disclosures
of
contingent
assets
and
liabilities
at
the
reporting
dates
and
the
reported
amounts
of
revenues
and
expensesduring
the
reporting
periods.
However,
uncertainty
about
these
assumptions
and
estimates
could
result
in
outcomes
that
require
a
material
adjustment
to
thecarrying
amount
of
the
asset
or
liability
affected
in
future
periods.
F-33Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
4.Significant accounting judgments, estimates and assumptions (continued)
Significant judgmentsRevenue recognitionPayment processing fees revenue and transaction costsThe
Group
exercised
significant
judgment
in
reaching
a
conclusion
about
its
accounting
policy
for
gross
versus
net
reporting
of
payment
processing
fee
revenuesand
related
transaction
costs.
In
particular,
there
are
two
major
sources
of
payment
processing
fee
revenues:

•
Payment
processing
fees
charged
to
consumers
on
payments
collected
through
agents,
mobile
operators
and
other
payment
methods;
and

•
Payment
processing
fees
charged
to
merchants.Either
one
of
the
two
types
of
payment
processing
fees
above,
or
in
some
cases,
both
payment
processing
fees
apply
to
a
single
consumer
payment.
Transactioncosts
relate
to
acquisition
of
payments
by
agents,
mobile
operators,
international
payment
systems
and
some
other
parties,
and
the
applicable
fees,
generallydetermined
as
a
percentage
of
consumer
payment,
for
each
specific
payment
channel
are
on
terms
similar
to
those
available
to
other
market
participants.A
merchants’
payment
processing
fee,
when
charged,
is
recorded
gross
of
related
transaction
costs,
because
the
Group
(i)
is
the
primary
obligor
as
it
undertakes
totransfer
the
consumer
payment
to
the
merchant
or
other
individual
using
its
payment
processing
system;
(ii)
it
negotiates
and
ultimately
sets
the
fee
receivable
froma
merchant
or
consumer,
generally
as
a
percentage
of
payments;
and
(iii)
it
bears
credit
risk
in
most
of
the
cases,
unless
the
payment
is
made
from
a
deposit
madewith
the
Group.A
consumer
payment
processing
fee,
when
it
is
charged
on
payments
made
by
consumers
through
payment
kiosks,
is
reported
net
of
any
transaction
costs
payableto
or
retained
by
agents.
This
is
because,
although
the
Group
is
the
primary
obligor,
it
does
not
have
any
discretion
over
the
ultimate
payment
processing
fee
set
bythe
agent
to
the
consumer,
does
not
have
readily
available
information
about
gross
fee,
and
is
only
exposed
to
the
net
amount
of
fee
receivable
from
agents.A
consumer
payment
processing
fee
revenue
collected
through
mobile
operators
and
other
payment
methods
is
reported
gross
of
related
transaction
costs.
Suchpayments
are
made
by
consumers
through
the
Group’s
website
or
an
application
using
a
unique
user
login
and
password,
and
are
called
e-payments.
In
contrastwith
the
consumer
payment
processing
fee
revenue
collected
through
payment
kiosks,
the
Group,
being
a
primary
obligor
in
e-payment
transactions,
also
sets
theconsumer’s
payment
processing
fee,
generally
as
a
percentage
of
payment,
although
credit
risk
for
these
transactions
is
limited.
Thus,
the
Group
concluded
that
itsability
to
control
the
consumer
payment
processing
fee
for
e-payments
is
a
key
differentiator
from
the
consumer
payment
processing
fees
on
payments
collectedthrough
payment
kiosks.The
total
amounts
of
transaction
costs
reported
gross
for
the
years
ended
December
31,
2014,
2015
and
2016,
are
5,079,
6,300
and
6,490
respectively.Revenue from advertising and advertising commissionsThe
Group
concluded
that
it
needs
to
report
these
SMSs
advertising
revenues
gross
of
related
SMS
expenses.
The
conclusion
is
based
on
the
fact
that
the
Groupacts
a
principal
in
the
transaction,
because
it
is
ultimately
responsible
for
the
delivery
of
service,
has
discretion
over
a
choice
of
SMS
delivery
channel,
determinesthe
price
and
bears
credit
risk.
F-34Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
4.Significant accounting judgments, estimates and assumptions (continued)
Significant judgments (continued)
Revenue from cash and settlement servicesThe
Group
charges
a
fee
for
managing
special
guarantee
deposit
accounts
made
by
agents
to
cover
consumer
payments
they
accept.
Related
revenues
in
theamounts
of
757,
548
and
130
for
the
years
ended
December
31,
2014,
2015
and
2016,
are
reported
gross
of
transaction
costs
paid
to
the
same
agents
for
collectionof
consumer
payments,
because
these
revenues
relate
to
a
separate
service
having
distinct
value
to
agents
and
are
provided
at
their
discretion.Functional currencyEach
entity
in
the
Group
determines
its
own
functional
currency,
depending
on
the
economic
environment
it
operates
in,
and
items
included
in
the
financialstatements
of
each
entity
are
measured
using
that
functional
currency.Significant estimates and assumptionsSignificant
estimates
reflected
in
the
Company’s
financial
statements
include,
but
are
not
limited
to:

•
Fair
values
of
assets
and
liabilities
acquired
in
business
combinations;

•
Impairment
of
intangible
assets
and
goodwill;

•
Recoverability
of
deferred
tax
assets;

•
Impairment
of
loans
and
receivables;

•
Measurement
of
cost
associated
with
share-based
payments.Actual
results
could
materially
differ
from
those
estimates.
The
key
assumptions
concerning
the
future
events
and
other
key
sources
of
estimation
uncertainty
at
thereporting
date
that
have
a
significant
risk
of
a
material
adjustment
to
the
carrying
amounts
of
assets
and
liabilities
within
the
next
financial
year
are
discussedbelow:Fair values of assets and liabilities acquired in business combinationsThe
Group
recognizes
separately,
at
the
acquisition
date,
the
identifiable
assets,
liabilities
and
contingent
liabilities
acquired
or
assumed
in
the
businesscombination
at
their
fair
values,
which
involves
estimates.
Such
estimates
are
based
on
valuation
techniques,
which
require
considerable
judgment
in
forecastingfuture
cash
flows
and
developing
other
assumptions.
In
some
cases,
when
the
amounts
of
fair
values
are
significant,
the
Group
hires
third
party
appraisers
to
assistit
in
determining
the
related
fair
values.
See
also
Note
5
below
for
details.Impairment of goodwill and intangible assetsThe
Group
determines
the
following
CGUs:
JSC
QIWI,
Visa
QIWI
Wallet,
Rapida
LTD
and
considers
that
goodwill
relates
to
the
group
of
three
CGUs.
For
thepurpose
of
goodwill
impairment
test,
the
Group
estimates
the
recoverable
amounts
of
group
of
three
CGUs
as
fair
value
less
costs
of
disposal
on
the
basis
of
quotedprices
of
Company’s
ordinary
shares.
See
also
Note
12
below
for
details.
For
the
purpose
of
intangible
assets
with
indefinite
useful
life
impairment
test,
the
Groupestimates
the
recoverable
amounts
of
each
asset
as
fair
value
less
costs
of
disposal
on
the
basis
of
comparative
method
and
cost
approach.
For
the
purpose
ofintangible
assets
with
definite
useful
life
impairment,
when
indicators
of
impairment
are
noted,
the
Group
estimates
the
recoverable
amounts
as
higher
of
value
inuse
or
fair
value
less
costs
to
sell
of
an
individual
asset
or
the
CGU
to
which
this
asset
relates.
F-35Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
4.Significant accounting judgments, estimates and assumptions (continued)
Recoverability of deferred tax assetsThe
utilization
of
deferred
tax
assets
will
depend
on
whether
it
is
possible
to
generate
sufficient
taxable
income
against
which
the
deductible
temporary
differencescan
be
utilized.
Various
factors
are
used
to
assess
the
probability
of
the
future
utilization
of
deferred
tax
assets,
including
past
operating
results,
operational
plans,expiration
of
tax
losses
carried
forward,
and
tax
planning
strategies.Certain
portion
of
deferred
tax
assets
was
not
recorded
because
the
Group
does
not
expect
to
realize
certain
of
its
tax
loss
carry
forwards
in
the
foreseeable
futuredue
to
history
of
losses.
Further
details
on
deferred
taxes
are
disclosed
in
Note
24.Impairment of loans and receivablesManagement
assesses
an
impairment
of
loans
and
receivables
to
account
for
estimated
losses
resulting
from
the
inability
of
customers
to
make
required
payments.When
evaluating
the
adequacy
of
an
impairment
of
loans
and
receivables,
management
bases
its
estimates
on
the
aging
of
accounts
receivable
balances
and
loansand
historical
write-off
experience,
customer
credit
worthiness
and
changes
in
customer
payment
terms.
If
the
financial
condition
of
customers
were
to
deteriorate,actual
write-offs
might
be
higher
than
expected.
Further
details
on
provision
for
impairment
of
loans
and
receivables
are
disclosed
in
Note
13.Measurement of cost associated with share-based paymentsShare-based
payments
included
expenses
incurred
under
employee
stock
option
plan
(ESOP)
and
restricted
stock
unit
plan
(RSU).
See
also
Note
29
below
for
moredetails.Management
estimates
the
fair
value
of
stock
options
at
the
date
of
grant
using
the
Black-Scholes-Merton
pricing
model
and
its
restricted
stock
units
using
theBinominal
model.
The
option
pricing
models
were
originally
developed
for
use
in
estimating
the
fair
value
of
traded
options,
which
have
different
characteristicsthan
the
stock
options
granted
by
the
Company
and
its
subsidiaries
and
associates.
The
models
are
also
sensitive
to
changes
in
the
subjective
assumptions,
whichcan
materially
affect
the
fair
value
estimate.
These
subjective
assumptions
include
the
expected
life
of
the
options,
expected
volatility,
risk-free
interest
rates,expected
dividend
yield,
the
fair
value
of
the
underlying
shares.
The
amount
of
expense
is
also
sensitive
to
the
number
of
awards,
which
are
expected
to
vest,
takinginto
account
estimated
forfeitures.
Below
is
the
discussion
of
each
of
these
estimates:Assumptions used for ESOP valuationExpected lifeThe
Company
did
not
have
any
option
grants
in
the
past,
and
does
not
have
sufficient
history
to
determine
the
time
the
option
holders
will
hold
the
shares.Therefore,
the
Company
used
the
expected
term
as
the
average
between
the
vesting
and
contractual
term
of
each
option
tranche
for
stock
option
plan.Expected volatilityDue
to
a
relatively
short
period
of
historical
market
data,
QIWI’s
share
price
volatility
for
options
valuation
was
defined
based
on
the
historical
volatility
of
peergroup
companies
over
a
period,
which
approximates
the
expected
life
of
option
tranches.
F-36Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
4.Significant accounting judgments, estimates and assumptions (continued)
Measurement of cost associated with share -based payments (continued)
Risk-free interest ratesRisk-free
interest
rates
are
based
on
the
implied
yield
currently
available
in
the
US
treasury
bonds,
adjusted
for
a
country
risk
premium,
with
a
remaining
termapproximating
the
expected
life
of
the
option
award
being
valued.Expected dividend yieldAt
the
time
of
grant
in
2012
the
Group
had
no
plans
to
pay
cash
dividends,
and
the
Group
used
an
expected
dividend
yield
of
zero
in
its
option
pricing
model
foroption
awards
granted
in
2012.
Following
its
IPO
in
2013,
the
Group
started
to
pay
dividends
and
set
an
expected
dividend
yield
of
2.83%
based
on
post-IPOdividend
payments.Fair value of the underlying sharesPrior
to
May
2013
the
Company’s
ordinary
shares
were
not
publicly
traded.
Therefore,
it
estimated
the
fair
value
of
the
underlying
shares
on
the
basis
of
valuationsarrived
at
by
employing
the
“income
approach”
valuation
methodology.
Since
May
2013
QIWI
plc
is
a
public
company
and
the
fair
value
of
its
shares
defined
byreference
to
closing
market
price
of
its
traded
shares.Estimated forfeituresAs
of
the
dates
of
stock
options
grants
had
no
data
of
attrition
rate
among
key
personnel
and
management
resulted
in
an
estimated
forfeiture
rate
of
zero.Subsequently,
the
actual
forfeiture
rate
is
higher,
the
actual
amount
of
related
expense
will
become
lower.Assumptions used for RSU valuationExpected lifeThe
Company
used
the
expected
term
as
the
vesting
term
for
RSU
plan.Expected volatilityThe
expected
volatility
reflects
the
assumption
that
the
historical
QIWI’s
share
price
volatility
over
a
period
similar
to
the
life
of
the
RSUs
is
indicative
of
futuretrends,
which
may
not
necessarily
be
the
actual
outcome.Risk-free interest ratesRisk-free
interest
rates
are
based
on
the
implied
yield
currently
available
in
the
US
treasury
bonds,
adjusted
for
a
country
risk
premium,
with
a
remaining
termapproximating
the
expected
life
of
the
option
award
being
valued.Expected dividend yieldThe
Group
set
an
expected
dividend
yield
of
5.03%
based
on
historical
payout.Fair value of the underlying sharesThe
fair
value
of
shares
defined
by
reference
to
closing
market
price
of
the
Group’s
traded
shares.

F-37Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
4.Significant accounting judgments, estimates and assumptions (continued)
Measurement of cost associated with share-based payments (continued)
Estimated forfeituresThe
forfeiture
rate
for
RSUs
granted
during
the
period
is
15%.
It
is
based
on
historical
data
and
current
expectations
and
is
not
necessarily
indicative
of
forfeiturepatterns
that
may
occur.
5.Acquisitions of shares in subsidiaries2015CIHRUS LLCOn
June
2
and
June
30,
2015
the
Company
completed
the
linked
transaction
for
the
acquisition
of
70%
and
30%
of
an
unlisted
company,
CIHRUS
LLC
and
itssubsidiaries:
Attenium
LLC,
Gikor
LLC,
Rapida
LTD,
Processingovyi
Tsentr
Rapida
LLC
(further
CIHRUS
group).
The
main
activities
of
CIHRUS
group
are
theoperation
of
the
Contact
money
transfer
system
(“Contact”)
and
the
Rapida
payment
processing
system
(“Rapida”).
This
acquisition
increases
market
share
andcontributes
to
strengthening
the
Group’s
position
in
financial
services
and
money
remittance
market
verticals.
The
acquisition
has
been
accounted
for
using
theacquisition
method
as
one
transaction.
Pre-existing
relationships
between
the
Group
and
CIHRUS
group
were
not
significant.The
consideration
was
made
by
class
B
shares
of
the
Company:
Fair
value
of
3,915,129
class
B
shares
transferred
for
70%


6,411
Fair
value
of
1,677,912
class
B
shares
transferred
for
30%


2,613





Total purchase consideration transferred

 9,024 




The
fair
value
of
the
identifiable
assets
and
liabilities
as
of
the
date
of
acquisition
were:



Fair value
Net assets acquired:

Property
and
equipment


24
Intangible
assets


5,561
Deferred
tax
asset


53
Accounts
receivable


2,352
Cash
and
cash
equivalents


3,200
Prepaid
income
tax


51
Other
current
assets


563
Deferred
tax
liability


(1,090)
Short-term
borrowings


(1,246)
Trade
and
other
payables


(3,951)
Income
tax
payable


(300)
Amounts
due
to
customers
and
amounts
due
to
banks


(833)
Other
liabilities


(14)





Total identifiable net assets at fair value

 4,370 




Goodwill arising on acquisition

 4,654 





F-38Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
5.Acquisitions of shares in subsidiaries (continued)
Goodwill
in
the
amount
of
4,654
relates
to
potential
synergies
with
the
existing
operations.
The
Group
determined
the
fair
value
of
Rapida
LTD
license,
software,trademarks,
client
and
partnership
base
recognized
as
intangible
assets
as
5,561.
Deferred
tax
liabilities
arose
in
relation
to
these
intangible
assets
in
the
amount
of1,090
due
to
their
tax
base
of
nil.
As
of
June
2,
2015,
CIHRUS
group
had
gross
accounts
receivable,
in
the
amount
of
2,389
that
were
impaired
by
37.One
of
the
subsidiaries
of
CIHRUS
group
identified
tax
risks
and
the
unfavorable
outcome
of
most
of
them
is
assessed
as
possible,
but
others
are
considered
asprobable,
at
this
time.
The
share
purchase
agreement
commits
the
seller
to
unconditionally
and
irrevocably
indemnify
and
reimburse
in
full
all
direct
or
indirectlosses
incurred,
suffered
or
sustained
by
the
Company
in
respect
of
this
matter
during
the
three
years
from
the
date
of
the
agreement.
The
Company
made
aprovision
for
these
tax
risks,
both
probable
and
possible
(included
in
Income
tax
payable)
and
a
related
indemnification
asset
(included
in
Other
current
assets)
atfair
value
in
the
amount
of
300
in
the
net
assets
as
of
acquisition
date.Accounting
for
acquisition
of
CIHRUS
LLC
has
been
completed
during
the
year
2016
and
there
were
no
changes
to
provisional
values
of
identifiable
assets
andliabilities
recognized
as
of
acquisition
date.
In
December
2016
the
Group
sold
its
entire
share
in
Processingovyi
Tsentr
Rapida
LLC
(see
Note
7)
F-39Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
6.Consolidated subsidiariesThe
consolidated
IFRS
financial
statements
include
the
assets,
liabilities
and
financial
results
of
the
Company
and
its
subsidiaries.
The
subsidiaries
are
listed
below:






Ownership interest
Subsidiary

Main activity

As of December 31,2015

As of December 31,2016
JSC
QIWI
(Russia)

Operation
of
electronic
payment
kiosks


100%


100%
QIWI
Bank
JSC
(Russia)

Maintenance
of
electronic
payment
systems


100%


100%
QIWI
Payments
Services
Provider
Ltd
(UAE)

Operation
of
on-line
payments


100%


100%
QIWI
International
Payment
System
LLC
(USA)

Operation
of
electronic
payment
kiosks


100%


100%
Qiwi
Kazakhstan
LP
(Kazakhstan)

Operation
of
electronic
payment
kiosks


100%


100%
JLLC
OSMP
BEL
(Belarus)

Operation
of
electronic
payment
kiosks


51%


51%
QIWI-M
S.R.L.
(Moldova)

Operation
of
electronic
payment
kiosks


51%


51%
QIWI
ROMANIA
SRL

Operation
of
electronic
payment
kiosks


100%


100%
QIWI
WALLET
EUROPE
SIA
(Latvia)
(Note
7.2)

Operation
of
on-line
payments


100%


100%
QIWI
Retail
LLC
(Russia)

Sublease
of
space
for
electronic
payment
kiosks


100%


100%
QIWI
Management
Services
FZ-LLC
(UAE)

Management
services


100%


100%
CIHRUS
LLC
(Russia)

Management
services


100%


100%
Attenium
LLC
(Russia)

Management
services


100%


100%
Gikor
LLC
(Russia)
1

Operation
of
on-line
payments


100%


—


Processingovyi
Tsentr
Rapida
LLC
(Russia)
(Note
7.1)

Operation
of
on-line
payments


100%


—


Rapida
LTD
(Russia)

Operation
of
payment
processing
and
money
transfersettlement
systems


100%


100%
Analiticheskiy
Tcentr
LLC
(Russia)
2

Operation
of
on-line
payments


100%


—


Postomatnye
Tekhnologii
LLC
(Russia)
3

Logistic


—




100%
Future
Pay
LLC
(Russia)
4

Operation
of
on-line
payments


—




100%
Qiwi
Blockchain
Technologies
LLC
(Russia)
3

Development
of
Intangible
assets


—




100%

1The
entity
was
liquidated
during
the
year
2016.2

In
May
2016,
the
Group
sold
100%
of
Analiticheskiy
Tcentr
LLC
with
negligible
net
assets
for
insignificant
consideration.3

The
entities
were
incorporated
during
the
year
2016.4In
July
2016,
the
Group
acquired
100%
of
Future
Pay
LLC
for
a
cash
consideration
of
15.
F-40Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
7.Disposals of subsidiaries and Disposal Groups Held for Sale
7.1.Disposals of subsidiaries
2016Disposals of Processingovyi Tsentr Rapida LLCIn
December
2016
the
Group
entered
into
an
agreement
to
sell
its
entire
share
in
its
non-core
business
Processingovyi
Tsentr
Rapida
LLC
a
100%
subsidiary.
Sincethe
date
of
loss
of
control
Processingovyi
Tsentr
Rapida
LLC
was
deconsolidated
from
the
Group’s
financial
statements.The
loss
from
the
disposal
was
calculated
as
the
difference
between:
(i)The
fair
value
of
the
consideration
received
(ii)the
carrying
value
of
net
liabilities
disposed
of,
as
of
the
date
of
the
transaction
(iii)and
result
from
disposal
of
indemnity
asset
related
to
subsidiary
Net
liabilities
of
Processingovyi
Tsentr
Rapida
LLC
derecognized
on
disposal


230
Disposal
of
indemnity
asset
related
to
the
subsidiary
(Note
5)


(240)





Loss on disposal

 (10) 




Loss
on
disposal
of
Processingovyi
Tsentr
Rapida
LLC
is
neutral
for
tax
purposes.Below
are
the
assets
and
liabilities
of
Processingovyi
Tsentr
Rapida
LLC
as
of
date
of
disposal:



Processingovyi Tsentr Rapida LLC
Assets:

Other
current
assets


13





Total assets

 13 




Liabilities:

Income
tax
payable


240
Other
current
liabilities


3





Total liabilities

 243 





F-41Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
7.Disposals of subsidiaries and Disposal Groups Held for Sale (continued)
7.1.Disposals of subsidiaries (continued)
2015Disposal of CMT Engineering LLCOn
December
29,
2015
the
Company
entered
into
an
agreement
to
sell
its
entire
share
in
its
non-core
business
CMT
Engineering
LLC
a
100%
subsidiary.
Sincethat
date
CMT
Engineering
LLC
was
deconsolidated
from
the
Group’s
financial
statements.The
loss
from
the
disposal
was
calculated
as
the
difference
between:
(i)The
fair
value
of
the
consideration
received
(ii)plus
loan
receivable
from
the
former
subsidiary
at
its
fair
value
(iii)and
the
carrying
value
of
net
assets
disposed
of,
as
of
the
date
of
the
transaction.
Loan
receivable
recognized
from
disposal
of
subsidiary


30
Net
assets
of
CMT
Engineering
LLC
derecognized
on
disposal


(100)





Loss on disposal

 (70) 




Loss
on
disposal
of
CMT
Engineering
LLC
is
neutral
for
tax
purposes.Below
are
the
assets
and
liabilities
of
CMT
Engineering
LLC
as
of
the
date
of
disposal:



As of Date of disposal
Assets:

Non-current assets

Property
and
equipment


1
Deferred
tax
asset


1





Total non-current assets

 2 




Current assets

Trade
and
other
accounts
receivable


37
VAT
and
other
taxes
receivable


4
Cash
and
cash
equivalents


41
Other
current
assets


35





Total current assets

 117 




Total assets

 119 




Liabilities:

Current liabilities

Trade
and
other
payables


15
Other
current
liabilities


4





Total current liabilities

 19 




Total liabilities

 19 





F-42Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
7.Disposals of subsidiaries and Disposal Groups Held for Sale (continued)
7.1.Disposals of subsidiaries (continued)
Disposal of IT Billion LLC and QIWI USA LLCOn
May
1,
2015
the
Company
entered
into
an
agreement
to
sell
its
entire
share
in
IT
Billion
LLC
and
QIWI
USA
LLC.
The
agreement
stated
that
the
Companywill
lose
control
over
these
entities
as
of
the
date
of
the
agreement
but
legal
ownership
remained
with
the
Company
until
the
receipt
for
the
consideration
whichoccurred
on
July
13,
2015.
Since
May
1,
2015
IT
Billion
LLC
and
QIWI
USA
LLC
were
deconsolidated
from
the
Group’s
financial
statements.The
gain
from
disposal
was
calculated
as
the
differences
between:
(i)The
fair
value
of
the
consideration
received
(ii)and
the
carrying
value
of
net
assets
disposed
of,
as
of
the
date
of
the
transaction.
Net
liabilities
of
disposal
group
derecognized
on
disposal


174
Non-controlling
interest
of
disposal
group
derecognized
on
disposal


(86)
Recycling
of
translation
loss
upon
disposal


(56)





Gain on disposal of foreign operations

 32 




Gain
on
disposal
of
foreign
operations
is
neutral
for
tax
purposes.Below
are
the
assets
and
liabilities
of
IT
Billion
LLC
and
QIWI
USA
LLC
as
of
date
of
disposal:



As of Date of disposal
Assets:

Non-current assets

Property
and
equipment


11
Other
non-current
assets


20





Total non-current assets

 31 




Current assets

Trade
and
other
accounts
receivable


64
Cash
and
cash
equivalents


16
Other
current
assets


14





Total current assets

 94 




Total assets

 125 





Liabilities:

Non-current liabilities

Long-term
borrowings


270





Total non-current liabilities

 270 




Current liabilities

Trade
and
other
payables


25
Short-term
borrowings


1
VAT
and
other
taxes
payable


3





Total current liabilities

 29 




Total liabilities

 299 





F-43Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
7.Disposals of subsidiaries and Disposal Groups Held for Sale (continued)
7.2.Disposal Groups Held for Sale
Sale of QIWI WALLET EUROPE SIAIn
December
2016
the
BOD
of
the
Group
took
a
decision
to
sell
QIWI
WALLET
EUROPE
SIA.The
subsidiary
was
recognized
as
a
disposal
group
as
ofDecember
31,
2016.
Since
that
date
all
its
assets
and
liabilities
were
classified
as
held
for
sale.
No
impairment
was
recognized
upon
reclassification
of
thesubsidiary
as
a
disposal
group.
8.Operating segmentsIn
reviewing
the
operational
performance
of
the
Group
and
allocating
resources,
the
chief
operating
decision
maker
of
the
Group
(CODM),
who
is
the
Group’sCEO,
reviews
selected
items
of
segment’s
statement
of
comprehensive
income.In
determining
that
the
CODM
was
the
CEO,
the
Group
considered
the
aforementioned
roles
of
responsibilities
of
the
CEO
as
well
as
the
following
factors:

•
The
CEO
determines
compensation
of
our
other
executive
officers
while
board
of
directors
approves
corporate
key
performance
indicators
(KPIs)
and
totalbonus
pool
for
those
executive
officers.
In
case
of
underperformance
of
corporate
KPIs
a
right
to
make
a
final
decision
on
bonus
pool
distribution
is
left
withthe
Board;

•
The
CEO
is
actively
involved
in
the
day-to-day
operations
of
the
Company
and
regularly
chairs
meetings
on
key
projects
of
the
Company;
and

•
The
CEO
regularly
reviews
the
financial
and
operational
reports
of
the
Company.
These
reports
primarily
include
segment
net
revenue,
segment
profit
beforetax
and
segment
net
profit
for
the
Company
as
a
whole
as
well
as
certain
operational
data.The
CODM
considers
the
whole
Group
as
a
single
operating
reportable
segment.
The
financial
data
is
presented
on
a
combined
basis
for
all
key
subsidiaries
andassociates
representing
the
segment
net
revenue,
segment
profit
before
tax
and
segment
net
profit.
The
Group
measures
the
performance
of
its
operating
segment
bymonitoring:
segment
net
revenue,
segment
profit
before
tax
and
segment
net
profit.
Segment
net
revenue
is
a
measure
of
profitability
defined
as
the
segmentrevenues
less
segment
direct
costs,
which
include
the
same
items
as
the
“Cost
of
revenue
(exclusive
of
depreciation
and
amortization)”
as
reported
in
the
Group’sconsolidated
statement
of
comprehensive
income,
except
for
payroll
costs.
Payroll
costs
are
excluded
because,
although
required
to
maintain
the
Group’sdistribution
network,
they
are
not
linked
to
payment
volume.Management
reporting
is
different
from
IFRS,
because
it
does
not
include
certain
IFRS
adjustments
which
are
not
analyzed
by
the
chief
operating
decision
makerin
assessing
the
core
operating
performance
of
the
business.
The
adjustments
affect
such
major
areas
as
deferred
taxation,
offering
expenses,
income
fromdepositary,
share-based
payments,
foreign
exchange
gain/(loss)
from
revaluation
of
cash
proceeds
received
from
secondary
public
offering,
effect
from
disposal
ofsubsidiaries
and
fair
value
adjustments,
amortization
and
impairment
thereof,
as
well
as
non-recurring
items.
F-44Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
8.Operating segments (continued)
The
segments’
statement
of
comprehensive
income
for
the
years
ended
December
31,
2014,
2015
and
2016,
as
presented
to
the
CODM
are
presented
below:



2014


2015


2016
Segment net revenue

 8,836 

 10,228 

 10,611 














Segment
profit
before
tax


4,405



5,071



5,590















Segment net profit

 3,496 

 4,142 

 4,714 














Segment
net
revenue,
as
presented
to
the
CODM,
for
the
years
ended
December
31,
2014,
2015
and
2016
is
calculated
by
subtracting
cost
of
revenue
(exclusive
ofdepreciation
and
amortization)
from
revenue
and
adding
back
payroll
and
related
taxes
as
presented
in
the
table
below:



2014


2015


2016
Revenue under IFRS

 14,718 

 17,717 

 17,880 Cost
of
revenue
(exclusive
of
depreciation
and
amortization)


(7,273)



(8,695)



(8,646)
Compensation
to
employees
and
related
taxes


1,391



1,206



1,377















Total segment net revenue, as presented to CODM

 8,836 

 10,228 

 10,611 














A
reconciliation
of
segment
profit
before
tax
to
IFRS
consolidated
profit
before
tax
of
the
Group,
as
presented
to
the
CODM,
for
the
years
ended
December
31,2014,
2015
and
2016
is
presented
below:



2014


2015


2016
Consolidated profit before tax under IFRS

 5,862 

 6,151 

 3,107 Amortization
of
fair
value
adjustments
to
intangible
assets
recorded
on
acquisitions


74



270



396
Offering
expenses


32



—





—


Income
from
depositary


(38)



—





—


Share-based
payments


422



88



224
Impairment
of
intangible
assets
recorded
on
acquisitions


—





—





878
Foreign
exchange
gain/(loss)
from
revaluation
of
cash
proceeds
received
from
secondary
publicoffering


(1,947)



(1,476)



975
Loss
on
disposal
of
subsidiaries,
net


—





38



10















Total segment profit before tax, as presented to CODM

 4,405 

 5,071 

 5,590 















F-45Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
8.Operating segments (continued)
A
reconciliation
of
segment
net
profit
to
IFRS
consolidated
net
profit
of
the
Group,
as
presented
to
the
CODM,
for
the
years
ended
December
31,
2014,
2015
and2016
is
presented
below:



2014


2015


2016
Consolidated net profit under IFRS

 4,968 

 5,274 

 2,489 Amortization
of
fair
value
adjustments
to
intangible
assets
recorded
on
acquisitions


74



270



396
Offering
expenses


32



—





—


Income
from
depositary


(38)



—





—


Share-based
payments


422



88



224
Foreign
exchange
gain/(loss)
from
revaluation
of
cash
proceeds
received
from
secondary
publicoffering


(1,947)



(1,476)



975
Impairment
of
intangible
assets
recorded
on
acquisitions


—





—





878
Loss
on
disposal
of
subsidiaries,
net


—





38



10
Effect
from
taxation
of
the
above
items


(15)



(52)



(258)















Total segment net profit, as presented to CODM

 3,496 

 4,142 

 4,714 














Geographic informationRevenues
from
external
customers
are
presented
below:



2014


2015


2016
Russia


11,733



13,737



13,274
CIS


678



1,019



1,099
EU


474



566



807
Other


1,833



2,395



2,700















Total revenue per consolidated statement of comprehensive income

 14,718 

 17,717 

 17,880 














Revenue
is
recognized
according
to
merchants’
geographic
place.The
Group
does
not
have
any
single
external
customer
amounting
to
10%
or
greater
of
the
Group’s
revenue
for
the
year
ended
December
31,
2016,
2015
and
2014.The
majority
of
the
Group’s
non-current
assets
is
located
in
Russia.
F-46Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
9.Earnings per shareBasic
earnings
per
share
amounts
are
calculated
by
dividing
net
profit
for
the
year
attributable
to
ordinary
equity
holders
of
the
parent
by
the
weighted
averagenumber
of
ordinary
shares
outstanding
during
the
year.Diluted
earnings
per
share
amounts
are
calculated
by
dividing
the
net
profit
attributable
to
ordinary
equity
holders
of
the
parent
adjusted
for
the
effect
of
anypotential
share
exercise
by
the
weighted
average
number
of
ordinary
shares
outstanding
during
the
year
plus
the
weighted
average
number
of
ordinary
shares
thatwould
be
issued
on
conversion
of
all
the
dilutive
potential
ordinary
shares
into
ordinary
shares.The
following
reflects
the
income
and
share
data
used
in
basic
and
diluted
earnings
per
share
computations
for
the
years
ended
December
31:



Notes


2014


2015


2016
Net profit attributable to ordinary equity holders of the parent for basic earnings



 5,024 

 5,187 

 2,474 
















Weighted average number of ordinary shares for basic earnings per share



 53,396,324 

 57,819,164 

 60,477,840 Effect
of
share-based
payments




782,997



147,851



167,197

















Weighted average number of ordinary shares for diluted earnings per share



 54,179,321 

 57,967,015 

 60,645,037 
















Earnings per share:







Basic,
profit
attributable
to
ordinary
equity
holders
of
the
parent




94.09



89.72



40.91
Diluted,
profit
attributable
to
ordinary
equity
holders
of
the
parent




92.73



89.49



40.79
There
have
been
no
other
transactions
involving
ordinary
shares
or
potential
ordinary
shares
between
the
reporting
date
and
the
date
of
completion
of
thesefinancial
statements.
F-47Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
10.Property and equipment



Processing servers andengineeringequipment

Computersand office equipment

Other equipment

Constructionin progress (CIP) and Advances forequipment

Total
Cost





Balance as of December 31, 2014

 491 
 74 
 92 
 3 
 660 Transfer
between
groups


15


—




—




(15)


—


Additions


44


15


1


27


87
Additions
from
business
combinations


22


2


—




—




24
Disposals


(74)


(17)


(1)


—




(92)
Disposal
of
subsidiaries


—




(1)


—




—




(1)
Foreign
currency
translation


—




(2)


—




—




(2)





















Balance as of December 31, 2015

 498 
 71 
 92 
 15 
 676 




















Transfer
between
groups


11


—




—




(11)


—


Additions


215


19


76


78


388
Disposals


(27)


2


(6)


—




(31)
Foreign
currency
translation


(2)


(1)


—




(1)


(4)





















Balance as of December 31, 2016

 695 
 91 
 162 
 81 
 1,029 




















Accumulated depreciation and impairment:





Balance as of December 31, 2014

 (221) 
 (41) 
 (18) 
 —   

(280)
Depreciation
charge


(86)


(18)


(16)


—




(120)
Disposals


70


15


—




—




85
Foreign
currency
translation


3


2


—




—




5





















Balance as of December 31, 2015

 (234) 
 (42) 
 (34) 
 —   
 (310) 




















Depreciation
charge


(113)


(17)


(19)


—




(149)
Disposals


20


(3)


6


—




23
Foreign
currency
translation


(1)


1


—




—




—























Balance as of December 31, 2016

 (328) 
 (61) 
 (47) 
 —   
 (436) 




















Net book value





As of December 31, 2014

 270 
 33 
 74 
 3 
 380 




















As of December 31, 2015

 264 
 29 
 58 
 15 
 366 




















As of December 31, 2016

 367 
 30 
 115 
 81 
 593 




















As
of
December
31,
2016,
the
total
amount
of
fully
depreciated
assets
is
equal
to
141
(2015
–
129).
F-48Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
11.Intangible assets



Goodwill

Licenses

ComputerSoftware

Customer relationships

Trademarks

Contractrights

Advances for intangibles, CIPand others

Total
Cost:








Balance as of December 31, 2014

 1,637 
 183 
 542 
 170 

—



 295 
 95 
 2,922 Additions


—




—




221


—




—




—




5


226
Additions
from
business
combinations


4,653


101


106


5,156


216


—




3


10,235
Transfer
between
groups


—




—




86


—




—




—




(86)


—


Disposals


—




—




(57)


—




—




—




(6)


(63)

































Balance as of December 31, 2015

 6,290 
 284 
 898 
 5,326 
 216 
 295 
 11 
 13,320 
































Additions


—




—




182


—




—




—




110


292
Additions
from
business
combinations


—




—




—




12


—




—




—




12
Transfer
between
groups


—




—




3


—




—




—




(3)


—


Disposals


—




—




(173)


—




—




—




(6)


(179)

































Balance as of December 31, 2016

 6,290 
 284 
 910 
 5,338 
 216 
 295 
 112 
 13,445 
































Accumulated Amortization:








Balance as of December 31, 2014

 (5) 
 —   
 (228) 
 (170) 
 —   
 (148) 
 (4) 
 (555) Depreciation
charge


—




—




(196)


(201)


(23)


(147)


(2)


(569)
Disposals


—




—




56


—




—




—




2


58

































Balance as of December 31, 2015

 (5) 
 —   
 (368) 
 (371) 
 (23) 
 (295) 
 (4) 
 (1,066) 
































Depreciation
charge


—




(28)


(233)


(345)


(40)


—




(1)


(647)
Impairment


—




(31)


(8)


(820)


(27)


—




—




(886)
Disposals


—




—




173


—




—




—




3


176

































Balance as of December 31, 2016

 (5) 
 (59) 
 (436) 
 (1,536) 
 (90) 
 (295) 
 (2) 
 (2,423) 
































Net book value








As of December 31, 2014

 1,632 
 183 
 314 
 —   
 —   
 147 
 91 
 2,367 
































As of December 31, 2015

 6,285 
 284 
 530 
 4,955 
 193 
 —   
 7 
 12,254 
































As of December 31, 2016

 6,285 
 225 
 474 
 3,802 
 126 
 —   
 110 
 11,022 
































As
of
December
31,
2016,
the
total
amount
of
fully
amortized
intangible
assets
is
equal
to
109
(2015
–
227).
F-49Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
12.Impairment testing of goodwill and intangible assetsGoodwillThe
Group
determined
the
following
CGUs:
JSC
QIWI,
Visa
QIWI
Wallet,
Rapida
LTD
and
considers
goodwill
relates
to
the
group
of
three
CGUs.
As
ofDecember
31,
2016
the
carrying
amount
of
goodwill
was
equal
to
6,285
(2015
-
6,285
).
For
the
purpose
of
goodwill
impairment
test
the
Company
estimated
therecoverable
amounts
of
group
of
three
CGUs
as
fair
value
less
costs
of
disposal
on
the
basis
of
quoted
prices
of
the
Company’s
ordinary
shares
(Level
1).
As
aresult
of
annual
impairment
test
the
Group
did
not
identify
any
impairment
as
of
December
31,
2015
and
2016.Intangible assets with indefinite useful lifeAs
of
December
31,
2016,
the
carrying
amount
of
intangible
assets
with
an
indefinite
useful
life
(licenses
for
banking
operations,
which
are
expected
to
be
renewedindefinitely)
is
recognized
with
a
value
of
183
(2015
-
284).
Intangible
assets
with
an
indefinite
useful
life
are
recorded
by
the
Group
at
the
date
of
acquisition
ofQIWI
Bank
JSC
and
Rapida
LTD
on
September
24,
2010
and
June
2,
2015
respectively.For
the
purpose
of
the
impairment
test
of
the
intangible
assets
with
indefinite
useful
life,
the
Company
estimated
the
recoverable
amounts
of
each
asset
as
fair
valueless
costs
of
disposal
on
the
basis
of
comparative
method
and
cost
approach.
Under
the
valuation
using
the
comparative
method
the
Group
considered
similar
third-party’s
transactions
for
acquisition
of
banks
or
bank
organization
that
holds
licenses
identical
to
the
Group’s
ones.
Under
the
valuation
using
the
cost
approach
theGroup
considered
outflows
required
to
meet
the
requirements
for
a
minimum
amount
of
equity
to
be
held
by
the
bank
or
bank
organization
with
licenses
similar
tothe
Group
ones
according
to
current
legislation
(Level
3).The
key
assumption
used
in
fair
value
less
cost
of
disposal
calculations
is
expected
outflows
to
acquire
license
on
the
open
market.All
assumptions
are
determined
using
observable
market
data
and
publicly
available
information
of
the
cash
transactions
of
the
third-parties.In
October
2016
it
was
decided
to
merge
Rapida
LTD
to
QIWI
Bank
JSC,
since
that
date
Rapida’s
License
was
transferred
to
intangible
assets
with
definite
usefullife
category
and
the
useful
life
estimated
as
period
to
accession,
impairment
test
of
the
license
was
performed.
Based
on
the
result
of
the
test
the
Group
recognizedan
impairment
loss
in
the
amount
of
31.The
Group
also
performed
an
annual
impairment
test
of
Qiwi
Bank’s
license
as
of
December
31,
2016
and
Qiwi
Bank’s
and
Rapida
LTD’s
licenses
as
ofDecember
31,
2015,
but
no
impairment
was
identified.
Reasonably
possible
changes
in
any
valuation
parameters
would
not
result
in
impairment
of
intangible
assetswith
indefinite
useful
life.
F-50Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
12.Impairment testing of goodwill and intangible assets (continued)
An
analysis
and
movement
of
net
book
value
of
goodwill
and
indefinite
life
licenses
acquired
through
business
combinations,
as
included
in
the
intangible
assetsnote
(Note
11),
is
as
follows:



Total
As of December 31, 2014

 1,815 




Additions


4,754





As of December 31, 2015

 6,569 




Transfer
to
intangible
assets
with
definite
useful
life


(101)





As of December 31, 2016

 6,468 




Intangible assets with definite useful lifeFor
the
purpose
of
the
impairment
test
on
other
intangible
assets
the
Company
estimated
the
recoverable
amounts
as
the
higher
of
value
in
use
or
fair
value
lesscosts
to
sell
of
an
individual
asset
or
CGU
this
asset
relates.
As
of
December
31,
2016
the
Group
identified
the
impairment
indicators
of
intangible
assets
allocatedto
Rapida
LTD
CGU
due
to
the
overall
slowdown
of
the
Russian
economy
and
loss
of
number
of
partners
that
resulted
in
a
decrease
of
turnover
associated
to
thisparticular
CGU.
The
Group
performed
an
impairment
test
of
this
CGU
before
the
Goodwill
testing,
which
indicated
that
there
is
impairment
as
of
the
reporting
datein
the
amount
of
847.
As of December 31, 2016

Customer relationships


Trade marks


Total
Carrying
amount


4,611



153



4,764
Recoverable
amount


3,791



126



3,917















Impairment (Note 11)

 820 

 27 

 847 














The
recoverable
amount
of
Rapida
LTD
CGU
has
been
determined
based
on
a
value
in
use
calculation
using
updated
cash
flow
projections
that
accounted
declinesin
turnovers
from
financial
model
covering
a
five-year
period
(2017-2021).
The
pre-tax
discount
rate
adjusted
to
risk
specific
applied
to
cash
flow
projections
ofRapida
LTD
CGU
is
21%.
The
growth
rates
applied
to
discounted
terminal
value
projection
in
beyond
the
forecast
period
is
3%.The
calculation
of
value
in
use
for
this
cash
generating
unit
is
sensitive
to:

•
The
Rapida
LTD
CGU’s
payment
volume
and
net
revenue
yields;

•
Net
profit
margins;

•
Terminal
growth
rates
used
to
extrapolate
cash
flows
beyond
the
budget
period;

•
Discount
rates.The
values
assigned
to
each
of
these
parameters
reflect
past
experience
and
expected
changes
over
the
timeframe.
Below
is
the
analysis
of
recoverable
amount
tothe
most
sensitive
dimensions
used
in
the
model:



Discount rate


Terminal growth rate
+1%


(225)



130
-
1%


201



(117)











F-51Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
13.Trade and other receivablesAs
of
December
31,
2016,
trade
and
other
receivables
consisted
of
the
following:



Total as of December 31,2016


Provision for impairment ofreceivables


Net as of December 31,2016
Cash
receivable
from
agents


3,657



(659)



2,998
Deposits
issued
to
merchants


2,318



(3)



2,315
Payment
processing
fees
receivable


162



(7)



155
Receivables
for
advertising


45



(6)



39
Advances
issued


144



(1)



143
Rent
receivables


106



(95)



11
Other
receivables
and
advances


26



(8)



18















Total trade and other receivables

 6,458 

 (779) 

 5,679 














As
of
December
31,
2015,
trade
and
other
receivables
consisted
of
the
following:



Total as of December 31,2015


Provision for impairment ofreceivables


Net as of December 31,2015
Cash
receivable
from
agents


2,640



(660)



1,980
Deposits
issued
to
merchants


2,724



(1)



2,723
Payment
processing
fees
receivable


192



(21)



171
Receivables
for
advertising


101



(14)



87
Advances
issued


89



(1)



88
Rent
receivables


116



(95)



21
Other
receivables
and
advances


24



(2)



22















Total trade and other receivables

 5,886 

 (794) 

 5,092 














Trade
receivables
aged
but
not
impaired
as
of
December
31,
2016
are
presented
below:




Ageing of receivables (days)
As of December 31, 2016

Total


<30


30-60


60-90


90-180


180-360


>360
Cash
receivable
from
agents


2,998



2,568



423



1



3



1



2
Payment
processing
fees
receivable


155



141



10



1



2



1



—


Receivables
for
advertising


39



20



10



7



2



—





—


Rent
receivables


11



7



3



1



—





—





—





































Total trade and other receivables

 3,203 

 2,736 

 446 

 10 

 7 

 2 

 2 



































F-52Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
13.Trade and other receivables (continued)
Trade
receivables
aged
but
not
impaired
as
of
December
31,
2015
are
presented
below:




Ageing of receivables (days)
As of December 31, 2015

Total


<30


30-60


60-90


90-180


180-360


>360
Cash
receivable
from
agents


1,980



1,680



34



9



185



70



2
Payment
processing
fees
receivable


171



137



21



5



8



—





—


Receivables
for
advertising


87



37



20



21



6



3



—


Rent
receivables


21



9



5



2



5



—





—





































Total trade and other receivables

 2,259 

 1,863 

 80 

 37 

 204 

 73 

 2 


































For
the
year
ended
December
31,
2016,
the
provision
for
impairment
of
receivables
movement
was
the
following:



Provision for impairment of receivables as of December 31,2015


(Charge)/ reversal forthe year


Write off/ (recovery)


Provision for impairment of receivables as of December 31,2016
Cash
receivable
from
agents


(660)



(125)



126



(659)
Deposits
issued
to
merchants


(1)



(2)



—





(3)
Payment
processing
fees
receivable


(21)



(1)



15



(7)
Receivables
for
advertising


(14)



2



6



(6)
Advances
issued


(1)



—





—





(1)
Rent
receivables


(95)



(15)



15



(95)
Other
receivables
and
advances


(2)



(1)



(5)



(8)




















Total trade and other receivables

 (794) 

 (142) 

 157 

 (779) 



















For
the
year
ended
December
31,
2015,
the
provision
for
impairment
of
receivables
movement
was
the
following:



Provision for impairment of receivables as of December 31,2014


(Charge)/ reversal forthe year


Write off


Provision for impairment of receivables as of December 31,2015
Cash
receivable
from
agents


(506)



(204)



50



(660)
Deposits
issued
to
merchants


(6)



(1)



6



(1)
Payment
processing
fees
receivable


(3)



(19)



1



(21)
Receivables
for
advertising


(9)



(6)



1



(14)
Advances
issued


(2)



1



—





(1)
Rent
receivables


(29)



(70)



4



(95)
Other
receivables
and
advances


(9)



—





7



(2)




















Total trade and other receivables

 (564) 

 (299) 

 69 

 (794) 




















F-53Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
13.Trade and other receivables (continued)
For
the
year
ended
December
31,
2014,
the
provision
for
impairment
of
receivables
movement
was
the
following:



Provision for impairment of receivables as of December 31,2013


(Charge)/ reversal forthe year


Write off


Provision for impairment of receivables as of December 31,2014
Cash
receivable
from
agents


(448)



(80)



22



(506)
Deposits
issued
to
merchants


(6)



—





—





(6)
Payment
processing
fees
receivable


(2)



(1)



—





(3)
Receivables
for
advertising


(24)



2



13



(9)
Advances
issued


(1)



(1)



—





(2)
Rent
receivables


(6)



(24)



1



(29)
Other
receivables
and
advances


(4)



(6)



1



(9)




















Total trade and other receivables

 (491) 

 (110) 

 37 

 (564) 



















Receivables
are
non-interest
bearing,
except
for
agent
receivables
bearing
interest
rate
16%-42%
per
annum
and
credit
terms
generally
do
not
exceed
30
days.There
is
no
requirement
for
collateral
for
customer
to
receive
credit.
14.Cash and cash equivalentsAs
of
December
31,
2016
and
2015,
cash
and
cash
equivalents
consisted
of
the
following:



As of December 31,2015


As of December 31,2016
Correspondent
accounts
with
Central
Bank
of
Russia
(CBR)


6,642



1,877
Correspondent
accounts
with
other
banks


4,538



2,789
Short-term
CBR
deposits


2,100



9,201
Other
short-term
bank
deposits


5,540



3,857
RUB
denominated
cash
with
banks
and
on
hand


199



294
Other
currency
denominated
cash
with
banks
and
on
hand


344



979










Total cash and cash equivalents

 19,363 

 18,997 









Cash
and
short-term
investments
are
placed
in
financial
institutions
or
financial
instruments,
which
are
considered
to
have
minimal
risk
of
default
as
of
board
ofdirectors’
approval
of
these
financial
statements.
F-54Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
15.Other current assetsAs
of
December
31,
2016
and
2015,
other
current
assets
consisted
of
the
following:



As of December 31,2015


As of December 31,2016
Indemnification
asset
(Note
5)


300



60
Reserves
at
CBR*


238



312
Prepaid
expenses


204



204
Other


17



63










Total other current assets

 759 

 639 










*Banks
are
currently
required
to
post
mandatory
reserves
with
the
CBR
to
be
held
in
non-interest
bearing
accounts.
Starting
from
August
1,
2016,
suchmandatory
reserves
established
by
the
CBR
constitute
5%
for
liabilities
in
RUR
and
6-7%
for
liabilities
in
foreign
currency.
The
amount
is
excluded
fromcash
and
cash
equivalents
for
the
purposes
of
cash
flow
statement
and
does
not
have
a
repayment
date.
F-55Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
16.Share capital, additional paid-in capital, share premium and other reservesThe
Capital
of
the
Company
is
divided
by
two
classes.
Each
class
A
share
has
the
right
to
ten
votes
at
a
meeting
of
shareholders
and
each
class
B
share
has
the
rightto
one
vote
at
a
meeting
of
shareholders.
The
class
A
shares
and
the
class
B
shares
have
the
right
to
an
equal
share
in
any
dividend
or
other
distribution
theCompany
pays
and
have
nominal
of
EUR
0,0005
each.
Authorised shares

As of December 31,2014


As of December 31,2015


As of December 31,2016



Thousands


Thousands


Thousands
Ordinary
Class
A
shares


136,394



133,017



133,017
Ordinary
Class
B
shares


94,456



97,833



97,833















Total authorised shares

 230,850 

 230,850 

 230,850 















Issued and fully paid shares

As of December 31,2014


As of December 31,2015


As of December 31,2016



Thousands


Thousands


Thousands
Ordinary
Class
A
shares


18,894



15,517



15,517
Ordinary
Class
B
shares


35,612



44,902



45,080















Total issued and fully paid shares

 54,506 

 60,419 

 60,597 














For
the
year
ended
December
31,
2016
and
2015
the
share
capital
and
share
premium
movement
was
the
following:



Number of issued shares


Share capital


Share premium



Thousands








As of December 31, 2014

 54,506 

 1 

 3,044 Increase
of
share
capital
as
contribution
for
acquisition
thatoccurred
on
June
2,
2015
and
June
30,
2015
(Note
5)


5,593



—





9,024
Increase
of
share
capital
due
to
exercise
of
options
by
employeesduring
the
year


320



—





—

















As of December 31, 2015

 60,419 

 1 

 12,068 Increase
of
share
capital
due
to
exercise
of
options
by
employeesduring
the
year


178



—





—

















As of December 31, 2016

 60,597 

 1 

 12,068 














In
case
of
liquidation,
the
Company’s
assets
remaining
after
settlement
with
creditors,
payment
of
dividends
and
redemption
of
the
par
value
of
shares
is
distributedamong
the
ordinary
shareholders
proportionately
to
the
number
of
shares
owned.The
other
reserves
of
the
Group’s
equity
represent
the
financial
effects
from
changes
in
equity
of
associates,
equity
settled
share-based
payments
to
employees,acquisitions
and
disposals,
as
well
as
other
operations
with
non-controlling
interests
in
the
subsidiaries
without
loss
of
control.
F-56Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
17.BorrowingsDuring
the
year
ended
December
31,
2016
the
Group
used
overdraft
credit
facilities
with
an
overall
credit
limit
of
1,460,
with
maturity
from
November
2017
toAugust
2018,
and
interest
rate
up
to
30%
per
annum.
The
balance
payable
under
these
credit
lines
as
of
December
31,
2016
was
zero.
Some
of
these
agreementsstipulated
the
right
of
a
lender
to
increase
the
interest
rate
in
case
the
covenants
are
violated.
Some
of
the
overdraft
credit
facility
agreements
were
guaranteed
bythe
Group’s
CEO
in
previous
years.
18.Trade and other payablesAs
of
December
31,
2016
and
2015,
the
Group’s
accounts
payable
and
other
payables
consisted
of
the
following:



As of December 31,2015


As of December 31,2016
Payables
to
merchants


4,345



6,696
Deposits
received
from
agents


5,639



4,030
Deposits
received
from
individual
customers


3,704



3,961
Payment
processing
fees
payable
to
agents


572



504
Unsettled
money
remittances


379



433
Accrued
expenses


231



323
Payables
to
vendors


353



338
Payables
for
rent


42



24
Other
advances
received


30



19










Total trade and other payables

 15,295 

 16,328 










19.Amounts due to customers and amounts due to banksAs
of
December
31,
2016
and
2015,
amounts
due
to
customers
and
amounts
due
to
banks
consisted
of
the
following:



As of December 31,2015


As of December 31,2016
Due
to
banks


1,482



1,207
Due
to
customers:
individuals


40



34
Due
to
customers:
legal
entities


721



1,101










Total amounts due to customers and amounts due to banks

 2,243 

 2,342 









Amounts
due
to
customers
and
amounts
due
to
banks
bear
the
interest
up
to
1%
and
are
due
on
demand.
F-57Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
20.RevenueRevenue
for
the
years
ended
December
31
was
as
follows:



2014


2015


2016
Payment
processing
fees


12,250



14,935



16,289
Revenue
from
advertising


289



324



253
Interest
revenue
from
agent’s
overdrafts


174



298



121
Interest
revenue


453



731



899
Gain
from
currency
swaps


142



128



18
Revenue
from
rent
of
space
for
kiosks


323



289



132
Cash
and
settlement
services


768



557



130
Revenue
from
sale
of
kiosks


272



396



4
Other
revenue


47



59



34















Total revenue

 14,718 

 17,717 

 17,880 














For
the
purposes
of
consolidated
cash
flow
statement,
“Interest
income,
net”
consists
of
the
following:



2014


2015


2016
Interest
revenue


(453)



(731)



(899)
Interest
expense
classified
as
part
of
cost
of
revenue


—





79



37
Interest
income
from
non-banking
loans
classified
separately
in
the
consolidated
statement
ofcomprehensive
income


(2)



(16)



(36)
Interest
expense
from
non-banking
loans
classified
separately
in
the
consolidated
statement
ofcomprehensive
income


42



109



64















Interest income, net, for the purposes of consolidated cash flow statement

 (413) 

 (559) 

 (834) 















21.Cost of revenue (exclusive of depreciation and amortization)Cost
of
revenue
(exclusive
of
depreciation
and
amortization)
for
the
years
ended
December
31
was
as
follows:



2014


2015


2016
Transaction
costs


5,079



6,300



6,490
Compensation
to
employees,
related
taxes
and
other
personnel
expenses


1,391



1,206



1,377
Advertising
commissions


68



68



31
Cost
of
rent
of
space
for
kiosks


159



213



146
Cost
of
kiosks
sold


216



332



3
Other
expenses


360



576



599















Total cost of revenue (exclusive of depreciation and amortization)

 7,273 

 8,695 

 8,646 















F-58Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
22.Selling, general and administrative expensesSelling,
general
and
administrative
expenses
for
the
years
ended
December
31
were
as
follows:



2014


2015


2016
Compensation
to
employees,
related
taxes
and
other
personnel
expenses


1,349



1,511



1,682
Rent
of
premises
and
related
utility
expenses


242



338



346
Bad
debt
expense


151



362



215
Office
maintenance
expenses


236



310



345
Advertising
and
related
expenses


513



242



165
Professional
fees


174



213



202
Other
tax
expenses


103



155



175
Other
operating
expenses


314



338



293















Total selling, general and administrative expenses

 3,082 

 3,469 

 3,423 















2 3
.Dividends paid and proposedDividends
paid
and
proposed
by
the
Group
to
the
shareholders
of
the
parent
are
presented
below:



2014


2015


2016
Proposed, declared and approved during the year:





2016:
Final
dividend
for
2015:
U.S.$
30,210,153,
Interim
dividend
for
2016:
U.S.$
39,943,003(2015:
Interim
dividend
for
2015:
U.S.$
13,640,343;2014:
Final
dividend
for
2014:
U.S.$
16,700,349;
interim
dividend
for
2014:
U.S.$
60,921,362;).


2,914



694



4,843
Paid during the period:





2016:
Final
dividend
for
2015:
U.S.$
30,210,153,
Interim
dividend
for
2016:
U.S.$
39,943,003(2015:
Interim
dividend
for
2015:
U.S.$
13,640,343;(2014:
Final
dividend
for
2014:
U.S.$
16,700,349;
interim
dividend
for
2014:
U.S.$
60,921,362).


2,941



699



4,628
Proposed for approval (not recognized as a liability as of December 31):





2016:
Final
dividend
for
2016:
U.S.$
11,513,436
(Note
30)2015:
Final
dividend
for
2015:
U.S.$
30,209,301


—





2,237



679
Dividends payable as of December 31


—





—





—



F-59Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
24.Income taxThe
Company
is
incorporated
in
Cyprus
under
the
Cyprus
Companies
Law,
but
the
business
activity
of
the
Group
and
its
associates
is
subject
to
taxation
inmultiple
jurisdictions,
the
most
significant
of
which
include:CyprusThe
Company
is
subject
to
12.5%
corporate
income
tax
applied
to
its
worldwide
income.Gains
from
the
sale
of
securities/titles
(including
shares
of
companies)
either
in
Cyprus
or
abroad
are
exempt
from
corporate
income
tax
in
Cyprus.
Capital
gainstax
is
levied
at
a
rate
of
20%
on
profits
from
disposal
of
immovable
property
situated
in
Cyprus
or
of
shares
in
companies
which
own
immovable
property
situatedin
Cyprus
(unless
the
shares
are
listed
on
a
recognized
stock
exchange).Dividends
received
from
a
non-resident
(foreign)
company
are
exempt
from
the
levy
of
defence
contribution
if
either
the
dividend
paying
company
derives
at
least50%
of
its
income
directly
or
indirectly
from
activities
which
do
not
lead
to
investment
income
(“active
versus
passive
investment
income
test”
is
met)
or
theforeign
tax
burden
on
the
profit
to
be
distributed
as
dividend
has
not
been
substantially
lower
than
the
Cypriot
corporate
income
tax
rate
(i.e.
lower
than
6,25%)
atthe
level
of
the
dividend
paying
company
(“effective
minimum
foreign
tax
test”
is
met).
The
Company
has
not
been
subject
to
defence
tax
on
dividends
receivedfrom
abroad
as
the
dividend
paying
entities
are
engaged
in
trading
activities.The Russian FederationThe
Company’s
subsidiaries
incorporated
in
the
Russian
Federation
are
subject
to
corporate
income
tax
at
the
standard
rate
of
15%
applied
to
income
received
fromRussia
government
bonds
and
20%
applied
to
their
other
taxable
income.
Withholding
tax
of
15%
is
applied
to
any
dividends
paid
out
of
Russia,
reduced
to
as
lowas
5%
for
some
countries
(including
Cyprus),
with
which
Russia
has
double-taxation
treaties.KazakhstanThe
Company’s
subsidiary
incorporated
in
Kazakhstan
is
subject
to
corporate
income
tax
at
the
standard
rate
of
20%
applied
to
their
taxable
income.
F-60Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
24.Income tax (continued)
Deferred
income
tax
assets
and
liabilities
as
of
December
31,
2016
and
2015,
relate
to
the
following:



Consolidated statement of financial position as of December 31


Consolidated statement of profit or loss for the year ended



2016


2015


2016


2015
Intangible
assets


(784)



(1,049)



265



75
Trade
and
other
payables


130



121



9



(26)
Trade
and
other
receivables


138



158



(20)



36
Tax
loss
carry
forwards


—




—





—





(13)
Loans
issued


27



20



7



—


Taxes
on
unremitted
earnings


(75)



(94)



19



(70)
Other


(17)



10



(27)



(2)




















Net deferred income tax asset/(liability)

 (581) 

 (834) 

 253 

 —   



















including:







Deferred
tax
asset


270



304




Deferred
tax
liability


(851)



(1,138)




Deferred
tax
assets
and
liabilities
are
not
offset
because
they
do
not
relate
to
income
taxes
levied
by
the
same
tax
authority
on
the
same
taxable
entity.Reconciliation
of
deferred
income
tax
asset/(liability),
net:



2014


2015


2016
Deferred income tax asset/(liability), net as of January 1

126


203


(834)
Effect
of
acquisitions
of
subsidiaries


—





(1,037)



—


Deferred
tax
benefit


77



—





253















Deferred income tax asset/(liability), net as of December 31

 203 

 (834) 

 (581) 














As
of
December
31,
2016
the
Group
does
not
intend
to
distribute
a
portion
of
its
accumulated
undistributed
foreign
earnings
in
the
amount
of
2,690
(2015
–
1,768).The
amount
of
tax
that
the
Group
would
pay
to
distribute
them
would
be
149
(2015
–
98).
Unremitted
earnings
include
all
earning
that
were
recognized
by
theGroup’s
subsidiaries
and
that
are
expected
to
be
distributed
to
the
holding
company.
F-61Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
24.Income tax (continued)
For
the
year
ended
December
31
income
tax
expense
included:



2014


2015


2016
Total tax expense





Current
income
tax
expense


(971)



(877)



(871)
Deferred
tax
benefit


77



—





253















Income tax expense for the year

 (894) 

 (877) 

 (618) 














Since
the
year
2016
the
Group
changed
the
approach
for
reconciliation
theoretical
and
actual
income
tax
expense
from
«the
domestic
rate
of
tax
in
the
country
inwhich
the
entity
is
domiciled»
to
«the
domestic
rate
in
each
individual
jurisdiction»
as
it
may
be
more
meaningful
for
the
user
of
the
financial
statements.Theoretical
and
actual
income
tax
expense
is
reconciled
as
follows:



2014


2015


2016
Profit before tax

 5,862 

 6,151 

 3,107 Theoretical
income
tax
expense
at
the
domestic
rate
in
each
individual
jurisdiction


(828)



(802)



(278)
(Increase)/decrease resulting from the tax effect of:





Non-deductible
expenses


(172)



(105)



(269)
Non-taxable
income


254



200



39
Income
tax
associated
with
earnings
of
foreign
subsidiaries


(117)



(102)



(95)
Unrecognized
deferred
tax
assets


(31)



(68)



(15)















Total income tax expense

 (894) 

 (877) 

 (618) 














During
the
year
ended
December
31,
2016
the
Group
does
not
recognize
deferred
tax
assets
related
to
the
tax
loss
carry
forward
in
the
amount
of
15
(2015
–
68,2014
-
31)
because
the
Group
does
not
believe
that
the
realization
of
the
related
deferred
tax
assets
is
probable.Non-taxable
income
for
the
years
ended
December
31,
2015
and
2014
comprised
mainly
of
foreign
exchange
gain
from
revaluation
of
cash
proceeds
received
fromsecondary
public
offering
which
is
tax
neutral
according
to
the
appropriate
tax
law.
No
such
foreign
exchange
gain
occurred
for
the
years
ended
December
31,2016.
F-62Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
25.Commitments, contingencies and operating risksOperating environmentRussia
continues
economic
reforms
and
development
of
its
legal,
tax
and
regulatory
frameworks
as
required
by
a
market
economy.
The
future
stability
of
theRussian
economy
is
largely
dependent
upon
these
reforms
and
developments
and
the
effectiveness
of
economic,
financial
and
monetary
measures
undertaken
bythe
government.In
the
past
few
years,
the
Russian
economy
has
been
negatively
impacted
by
a
significant
drop
in
crude
oil
prices
and
a
significant
devaluation
of
the
RussianRuble,
as
well
as
restrictive
measures
imposed
against
the
Russian
Federation
by
several
countries.
The
combination
of
the
above
resulted
in
reduced
access
tocapital,
a
higher
cost
of
capital,
increased
inflation
and
uncertainty
regarding
economic
growth,
which
could
negatively
affect
the
Group’s
future
financial
position,results
of
operations
and
business
prospects.
Management
believes
it
is
taking
appropriate
measures
to
support
the
sustainability
of
the
Group’s
business
in
thecurrent
circumstances.In
addition,
following
the
accession
of
Crimea
to
Russia,
which
is
seen
by
the
EU
and
the
US
as
an
illegal
annexation
of
Crimea,
some
of
the
Group’s
agents,which
are
incorporated
elsewhere
in
Russia,
started
to
place
and
operate
QIWI
branded
kiosks
in
that
region.
Further,
the
Group
has
direct
contacts
with
severalCrimea
banks
that
are
registered
as
financial
legal
entities
in
Crimea
and
operate
as
the
Group’s
agents
or
merchants.
On
December
19,
2014,
U.S.
PresidentObama
signed
a
new
executive
order
imposing
comprehensive
sanctions
on
the
Crimea
region.
Almost
all
transactions
involving
a
U.S.
person
or
that
are
subject
toU.S.
jurisdiction
and
that
directly
or
indirectly
involve
an
individual
or
entity
in
Crimea
are
prohibited,
with
the
exception
of
certain
transactions
involving
certainagricultural
commodities,
medicine
and
medical
devices.
The
executive
order
also
permits
the
designation
of
persons
that
operate
in
Crimea,
leaders
of
entitiesoperating
in
Crimea,
entities
that
are
owned
or
controlled
by
a
person
that
is
designated
by
the
Office
of
Foreign
Assets
Control
(OFAC),
or
persons
that
providematerial
assistance
or
financial,
material,
or
technological
support
to
a
person
that
is
designated
by
OFAC.
The
EU
has
similarly
introduced
a
broad
set
of
sanctionsinter
alia:
an
investment
ban
prohibiting
to
acquire
new
or
extend
any
existing
participation
or
ownership
of
real
estate
located
in
Crimea
or
Sevastopol,
acquirenew
or
extend
any
existing
participation
or
ownership
or
control
of
an
entity
in
Crimea
or
Sevastopol,
provide
financing
to
an
entity
in
Crimea
or
Sevastopol,
createany
joint
venture
in
Crimea
or
Sevastopol
or
with
an
entity
in
Crimea
or
Sevastopol
or
provide
investment
services
directly
related
to
the
above
activities;
anembargo
on
certain
listed
goods
and
technology
that
are
suited
for
the
key
sectors
of
transport,
telecommunications,
energy
and
mining;
and
an
import
ban
ongoods
originating
from
Crimea
and
Sevastopol
and
on
financial
assistance
as
well
as
insurance
and
reinsurance
related
to
such
import.To
date,
the
management
does
not
believe
that
any
of
the
current
sanctions
as
in
force
limit
the
Group’s
ability
to
operate
in
Crimea.
Nevertheless,
any
new
orexpanded
sanctions
that
may
be
imposed
on
Russian
businesses
operating
in
Crimea
by
the
U.S.,
EU,
or
other
countries
may
materially
adversely
affect
the
Groupand
any
future
plans
the
Group
may
have
to
expand
in
that
region.
F-63Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
25.Commitments, contingencies and operating risks (continued)
Operating environment (continued)
In
light
of
the
hardening
geopolitical
situation
in
Ukraine,
the
United
States
of
America,
the
European
Union
and
other
countries
have
adopted
a
package
ofeconomic
restrictive
measures
imposing
certain
sanctions
on
the
operations
of
various
Russian
banks,
including
VTB
Bank
and
Gazprombank.
Some
subsidiariesof
the
Company
hold
bank
accounts
in
the
aforementioned
banks
as
well
as
have
overdrafts
and
bank
guarantees
in
VTB
Bank.
Management
is
monitoring
thesedevelopments
in
the
current
environment
and
taking
actions
where
appropriate.
These
and
any
further
possible
negative
developments
in
Ukraine
could
adverselyimpact
results
and
financial
position
of
the
Group
in
a
manner
not
currently
determinable.Further,
the
management
sees
several
risks
that
can
affect
the
stability
and
profitability
of
the
Group
offline
distribution
business.
Firstly,
the
overallmacroeconomic
conditions
adversely
affect
the
purchasing
power
of
Russian
population
as
high
inflation
combined
with
decreasing
real
wage
put
pressure
on
thedisposable
income,
thus
leading
to
the
overall
decrease
in
consumer
spending
and
in
turn
the
Group’s
payment
volumes.
Secondly,
the
agents’
economics
is
beingpressured
by
decreasing
commissions
(including
and
most
significantly
mobile
network
operators)
and
higher
customer
commission
sensitivity
combined
with
highrental
and
other
costs.Moreover,
CBR
has
been
recently
taking
steps
to
secure
the
quality
and
transparency
of
the
agents’
industry,
thus
imposing
some
additional
controls
andmonitoring
requirements
on
agents
through
the
banks.
As
agents
have
to
comply
with
more
requirements
and
handle
significantly
increasing
numbers
of
inquiriesfrom
the
banks
that
they
work
with,
additional
pressure
is
put
on
the
agents’
business
model
especially
for
smaller
players.
Although
the
Group’s
network
of
agentsremains
well
diversified
the
above-mentioned
changes
have
negatively
affected
the
size
of
Group’s
physical
distribution
in
Russia
and,
correspondingly,
pressuredits
financial
results.
The
Management
is
committed
to
make
its
best
effort
to
support
Group’s
agents
and
mitigate
negative
effects
of
the
discussed
marketconditions
however,
at
the
moment
they
cannot
be
sure
if
there
will
be
any
further
negative
impact
of
these
changes
in
the
mid-term.Recent
amendments
to
the
Russian
betting
legislation
introduced
a
more
comprehensive
regulatory
framework
in
this
area.
In
particular,
under
amendments
to
theRussian
betting
laws
introduced
in
2014,
in
order
to
engage
in
the
betting
business,
a
bookmaker
has
to
become
a
member
of
a
self-regulated
organization
ofbookmakers
and
abide
by
its
rules,
and
any
and
all
interactive
bets
may
be
only
accepted
through
an
Interactive
Bets
Accounting
Center
(TSUPIS)
set
up
by
acredit
organization
together
with
a
self-regulated
association
of
bookmakers.
In
2016
QIWI
Bank
established
a
TSUPIS
together
with
one
of
the
self-regulatedassociations
of
bookmakers
in
order
to
be
able
to
accept
such
payments.
If
any
of
the
Group’s
merchants
engaged
in
the
betting
business
is
not
able
or
willing
tocomply
with
the
Russian
betting
legislation
or
if
they
decide
to
cease
their
operations
in
Russia
for
regulatory
reasons
or
otherwise,
the
Group
would
have
todiscontinue
servicing
them
and
would
lose
the
associated
income.
Moreover,
if
the
Group
are
found
to
be
in
non-compliance
with
any
of
the
requirements
of
theapplicable
legislation,
it
could
not
only
become
subject
to
fines
and
other
sanctions,
but
could
also
have
to
discontinue
to
process
operations
that
are
deemed
to
bein
breach
of
the
applicable
rules
and
lose
associated
revenue
streams.
The
Group
may
also
be
subject
to
reputational
risks
associated
with
being
involved
in
thebetting
business
through
offering
its
payments
services
to
betting
merchants.
Furthermore,
the
Group
could
face
similar
difficulties
in
other
jurisdiction
since
onlinebetting
is
an
area
of
intense
focus
by
regulators
in
many
of
the
countries
in
which
it
operates.
F-64Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
25.Commitments, contingencies and operating risks (continued)
TaxationRussian
and
the
CIS’s
tax,
currency
and
customs
legislation
is
subject
to
varying
interpretations,
and
changes,
which
can
occur
frequently.
Management’sinterpretation
of
such
legislation
as
applied
to
the
transactions
and
activity
of
the
Group
may
be
challenged
by
the
relevant
regional
and
federal
authorities.
Recentevents
within
Russia
and
the
CIS
which
are
discussed
below
suggest
that
the
tax
authorities
are
taking
a
more
assertive
position
in
their
interpretation
of
thelegislation
and
assessments
and
as
a
result,
it
is
possible
that
transactions
and
activities
that
have
not
been
challenged
in
the
past
may
be
challenged.Due
to
its
international
structure,
the
Group
is
subject
to
transfer
pricing
and
permanent
establishment
risks
in
various
jurisdictions
it
operates
in.
Since
January,2012,
the
Russian
tax
authorities
have
the
right
to
apply
transfer
pricing
adjustments
and
impose
additional
tax
liabilities
in
respect
of
“controlled”
transactions,
ifthe
transaction
price
differs
from
the
market
price.
The
Russian
transfer
pricing
legislation
grants
taxpayers
the
right
to
justify
their
compliance
with
the
arm’slength
principle
at
prices
used
in
controlled
transactions
by
preparing
the
transfer
pricing
documentation.The
Group
manages
the
related
risks
by
looking
at
its
management
functions
and
risks
in
various
countries
and
level
of
profits
allocated
to
each
subsidiary.
The
listof
“controlled”
transactions
of
the
Group
includes
various
transactions
between
different
Russian
entities
as
well
as
certain
types
of
cross-border
transactions.
TheGroup
determines
its
tax
liabilities
arising
from
“controlled”
transactions
using
actual
transaction
prices.Currently
the
tax
authorities
perform
tax
audits
of
many
Russian
taxpayers
with
major
focus
on
compliance
with
new
transfer
pricing
legislation.
It
is
thereforepossible
that
the
Group
entities
may
become
subject
to
transfer
pricing
tax
audits
by
tax
authorities
in
the
near
future.
The
Russian
tax
authorities
may
challenge
thelevel
of
prices
applied
by
the
Group
under
the
“controlled”
transactions
(including
certain
intercompany
transactions)
and
accrue
additional
tax
liabilities.
Ifadditional
taxes
are
assessed
with
respect
to
these
matters,
they
may
be
material.
This
risk
may
increase
in
the
future
as
Russian
transfer
pricing
practice
develops.The
Management
believes
that
the
Group
is
able
to
prove
the
arms’
length
nature
of
prices
with
respect
to
the
“controlled”
transactions,
and
that
there
has
beenproper
reporting
to
the
Russian
tax
authorities,
supported
by
appropriate
available
transfer
pricing
documentation.Since
2015
significant
changes
to
the
Russian
tax
legislation
are
enacted
which
are
aimed
at
preventing
the
abuse
of
“offshore”
structures
(so-called
“de-offshorization”
legislation).
In
particular,
these
changes
include
the
definition
of
beneficiary
ownership,
tax
residence
of
legal
entities
by
the
place
of
actualcarrying
out
activities,
as
well
as
approach
to
taxation
of
controlled
foreign
companies.
It
is
currently
unclear
how
the
Russian
tax
authorities
will
interpret
andapply
the
new
tax
provisions
and
what
will
be
the
possible
impact
on
the
Group.
Therefore,
it
cannot
be
excluded
that
Group’s
companies
might
be
subject
toadditional
tax
liabilities
because
of
these
changes
being
introduced
and
applied
to
transactions
carried
out
by
them,
which
could
have
a
material
adverse
effect
onGroup’s
business,
financial
condition
and
results
of
operations.
The
Group’s
management
is
undertaking
all
necessary
and
required
measures
in
order
to
minimizethe
potential
negative
impact
of
the
“de-offshorization”
legislation.
F-65Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
25.Commitments, contingencies and operating risks (continued)
Risk of cybersecurity breachThe
Company
stores
and/or
transmits
sensitive
data,
such
as
credit
or
debit
card
numbers,
passport
details,
mobile
phone
numbers
and
other
identification
data,
andthe
Company
has
ultimate
liability
to
its
consumers
for
the
failure
to
protect
this
data.
The
Company
has
experienced
breaches
of
its
security
by
hackers
in
the
past,and
breaches
could
occur
in
the
future.
In
such
circumstances,
the
encryption
of
data
and
other
protective
measures
have
not
prevented
unauthorized
access
andmay
not
be
sufficient
to
prevent
future
unauthorized
access.
However,
any
future
breach
of
the
system,
including
through
employee
fraud,
may
subjectthe
Company
to
material
losses
or
liability,
payables
to
other
payment
systems,
fines
and
claims
for
unauthorized
purchases
with
misappropriated
credit
or
debitcard
information,
identity
theft,
impersonation
or
other
similar
fraud
claims.
In
addition,
misuse
of
such
sensitive
data
or
a
cybersecurity
breach
could
result
inclaims,
regulatory
scrutiny
and
other
negative
consequences.Risk assessmentThe
Group’s
management
believes
that
its
interpretation
of
the
relevant
legislation
is
appropriate
and
is
in
accordance
with
the
current
industry
practice
and
that
theGroup’s
currency,
customs,
tax
and
other
regulatory
positions
will
be
sustained.
However,
the
interpretations
of
the
relevant
authorities
could
differ
and
themaximum
effect
of
additional
losses
on
these
consolidated
financial
statements,
if
the
authorities
were
successful
in
enforcing
their
different
interpretations,
couldbe
significant,
and
amount
up
to
2,000
as
of
December
31,
2016.Insurance policiesThe
Group
holds
no
insurance
policies
in
relation
to
its
assets,
operations,
or
in
respect
of
public
liability
or
other
insurable
risks.
There
are
no
significant
physicalassets
to
insure.
Management
has
considered
the
possibility
of
insurance
of
business
interruption
in
Russia,
but
the
cost
of
it
outweighs
the
benefits
inmanagement’s
view.Legal proceedingsIn
the
ordinary
course
of
business,
the
Group
is
subject
to
legal
actions
and
complaints.
Management
believes
that
the
ultimate
liability,
if
any,
arising
from
suchactions
or
complaints
will
not
have
a
material
adverse
effect
on
the
financial
condition
or
the
results
of
future
operations
of
the
Group.
F-66Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
25.Commitments, contingencies and operating risks (continued)
Know-your-client requirements in RussiaThe
Group’s
business
is
currently
subject
to
know-your-client
requirements
established
by
Federal
Law
of
the
Russian
Federation
No.
115-FZ
“On
Combating
theLegalization
(Laundering)
of
Criminally
Obtained
Income
and
Funding
of
Terrorism”,
dated
August
7,
2001,
as
amended,
or
the
Anti-Money
Laundering
Law.Based
on
the
Anti-Money
Laundering
Law
management
distinguishes
three
types
of
consumers
based
on
their
level
of
identification,
being
anonymous,
identifiedthrough
a
simplified
procedure
and
fully
identified.
The
consumers
who
have
not
undergone
any
identification
procedure
are
qualified
as
anonymous
and
are
notallowed
to
contemplate
transactions
as
well
as
hold
an
electronic
money
account
balance
in
excess
of
RUB15,000.
The
consumers
who
have
undergone
simplifiedidentification
procedure
with
the
payment
services
provider
are
entitled
to
perform
electronic
money
transfers
in
excess
of
RUB15,000
provided
that
at
any
point
oftime
the
account
balance
of
electronic
money
does
not
exceed
RUB
60,000
and
the
total
amount
of
transactions
does
not
exceed
RUB
200,000
per
month.
Fullyidentified
consumers
are
entitled
to
perform
same
type
of
electronic
transfers
as
consumers
identified
through
a
simplified
procedure
but
with
increased
thresholdof
the
electronic
money
account
balance
of
RUB
600,000
and
no
limitations
for
the
total
transaction
amount
per
month.
The
key
difference
between
the
simplifiedand
the
full
identification
procedures
is
that
the
simplified
identification
can
be
performed
remotely.
The
remote
identification
requires
the
verification
of
certaindata
provided
by
consumers
against
public
databases.
Albeit
a
government
order
No.
630
dated
July
8,
2014,
was
enacted
providing
that
public
databases
shall
beset
up
by
specific
government
authorities
and
access
to
them
shall
be
granted
to
the
third
parties
authorized
to
carry
out
identification
of
consumers,
such
databasesare
not
yet
up
and
running
at
scale
and,
to
the
knowledge
of
the
Group,
there
is
no
work
in
progress
on
setting
up
such
databases.
Thus,
current
situation
couldcause
the
Group
to
be
in
violation
of
the
identification
requirements.
In
case
management
is
enforced
not
to
use
the
simplified
identification
procedure
until
thedatabases
are
fully
running,
it
could
negatively
affect
the
number
of
consumers
and,
consequently,
volumes
and
revenues.
F-67Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
25.Commitments, contingencies and operating risks (continued)
Operating lease commitmentsThe
Group
has
commercial
lease
agreements
of
office
buildings
and
kiosk
places.
The
leases
have
an
average
life
of
between
one
(for
kiosk
places)
and
four
(foroffice
buildings)
years.
Total
lease
expense
for
the
twelve
months
ended
December
31,
2016
is
for
rent
of
office
places
307
(2015
–
317)
and
for
kiosk
places
rent146
(2015
–
213).Future
minimum
lease
rentals
under
non-cancellable
operating
lease
commitments
for
office
premises
as
of
December
31,
2016
and
December
31,
2015
are
asfollows:



As of December 31,2015


As of December 31,2016
Within
one
year


292



244
After
one
year
but
not
more
than
four
years


797



583
More
than
four
years


—





—


The
Group
is
a
party
to
a
material
contract
of
lease
of
office
building,
which
gave
origin
to
lease
expenses
in
the
amount
of
172
in
2016
(199
in
2015)
and
createscommitments
to
charge
further
615
of
lease
expenses,
154
of
which
shall
be
accrued
within
one
year
and
461
–
after
one
year
but
no
more
than
five
years.
Thecontract
was
concluded
on
July
1,
2014
and
terminates
on
December
31,
2020.
The
lease
payment
consists
of
three
parts:
basis
lease
payment,
reimbursement
ofoperational
expenses,
and
lease
pay
for
parking
places.
All
the
three
components
gradually
increase
to
the
end
of
the
contract
term.
For
the
purposes
of
thesefinancial
statements,
the
payments
are
recognized
as
expenses
on
a
straight-line
basis
over
the
lease
term.Pledge of assetsAs
of
December
31,
2016
the
Group
pledged
debt
instruments
(government
bonds)
with
carrying
amount
of
1,687
(December
31,
2015
–
2,415)
as
collateral
forbank
guarantee
issued
on
Group’s
behalf
to
its
major
partner
and
484
(December
31,
2015
–
487)
as
coverage
for
supporting
its
short-term
overnight
credit
facilityat
CBR.Commitments to Mail.ru Group LimitedThe
Group
committed
to
purchase
of
advertising
services
from
Mail.ru
Group
Limited
affiliates
in
the
amount
of
260
during
three
years
starting
from
November2014.
Mail.ru
Group
Limited
makes
advertising
available
for
the
Group
on
the
standard
commercial
rates.
As
of
December
31,
2016
the
Group
spent
50
(2014
–50,
2015
–
nil,
2016
–nil)
on
advertising
under
this
agreement.
26.Balances and transactions with related partiesAmounts
due
to
customers
in
the
amount
of
27
as
of
December
31,
2016
(December
31,
2015
–
175)
comprise
of
cash
held
at
bank
account
by
related
parties,including
key
management
personnel
and
the
companies
under
their
control
or
control
of
their
close
family
members.Benefits
of
key
management
and
Board
of
Directors
generally
comprise
of
short-term
benefits
and
share-based
payments
during
the
year
ended
December
31,
2016and
amounted
to
136
(142
–
for
the
year
2015,
207
–
for
the
year
2014)
F-68Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
27.Risk management
The
main
risks
that
could
adversely
affect
the
Group’s
financial
assets,
liabilities
or
future
cash
flows
are
foreign
exchange
risk,
liquidity
and
credit
risk.Management
reviews
and
approves
policies
for
managing
each
of
the
risks
which
are
summarized
below.Foreign exchange riskForeign
exchange
risk
is
the
risk
that
fluctuations
in
exchange
rates
will
adversely
affect
items
in
the
Group’s
statement
of
comprehensive
income,
statement
offinancial
position
and/or
cash
flows.
Foreign
currency
denominated
assets
and
liabilities
give
rise
to
foreign
exchange
exposure.During
the
June
2014
secondary
public
offering,
the
Company
increased
its
issued
share
capital
by
2,292,330
class
B
shares
and
received
about
89
mln
U.S.
$.These
proceeds
less
certain
amounts
spent
for
ongoing
business
activities
are
accounted
as
deposits
in
other
currency
in
cash
and
cash
equivalents
as
ofDecember
31,
2016
and
2015.
Due
to
depreciation
of
U.S.
$
rate
against
RUB
for
the
year
2016
by
17%
and
appreciation
in
the
2015
by
30%
the
Group
recognizedforeign
exchange
loss
in
the
amount
of
975
and
gain
in
the
amount
of
1,476
respectively.
The
Group
intends
to
use
these
assets
for
general
corporate
purposesincluding
potential
acquisitions.Foreign currency sensitivityThe
following
tables
demonstrate
the
sensitivity
to
a
reasonably
possible
change
in
US
Dollar
and
Euro
exchange
rates
against
Ruble,
with
all
other
variables
heldconstant.
The
impact
on
the
Group’s
profit
before
tax
is
due
to
changes
in
the
carrying
amount
of
monetary
assets
and
liabilities
denominated
in
US
Dollar
andEuro
when
these
currencies
are
not
functional
currencies
of
the
respective
Group
subsidiary.
The
Group’s
exposure
to
foreign
currency
changes
for
all
othercurrencies
is
not
material.



change in US Dollar

Effect on profit before taxGain/(loss)
2016


+20%


655



-20%


(655)
2015


+40%


2,558



-13%


(831)




change in Euro

Effect on profit before taxGain/(loss)
2016


+20%


40



-20%


(40)
2015


+43%


639



-15%


(223)

F-69Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
27.Risk management (continued)
Liquidity risk and capital managementThe
Group
uses
cash
from
shareholders’
contributions,
has
sufficient
cash
and
does
not
have
any
significant
outstanding
debt
other
than
interbank
debt
with
shortmaturities
(classified
as
due
to
banks).
Deposits
received
from
agents
are
also
due
on
demand,
but
are
usually
offset
against
future
payments
processed
throughagents.
The
Group
expects
that
agent’s
deposits
will
continue
to
be
offset
against
future
payments
and
not
be
called
by
the
agents.
Amounts
due
to
customers
andamounts
due
to
banks
and
trade
and
other
payables
are
due
on
demand.The
macroeconomic
slowdown
in
Russia,
caused
among
other
things
by
low
oil
prices
and
sanctions
regime,
which
effectively
limited
access
to
liquidity
of
the
keyRussian
banks
led
to
liquidity
shortage
in
the
market
the
Group
operates.
This
exacerbated
the
liquidity
shortage
on
the
market.
As
a
consequence,
banks
andentities
in
Russia
substantially
decreased
credit
limits
in
their
everyday
operations.
Management
noted
that
the
Group’s
merchants
and
partners
started,
since
theend
of
2014,
requesting
from
the
Group
larger
collaterals
to
hedge
their
risks.
The
Group
was
able
to
manage
these
new
requirements
to
date,
though
the
liquidityshortage
in
the
market
may
further
exacerbate
and
consequently
it
may
have
further
negative
effects
on
Group’
operations
which
cannot
be
now
reliably
estimated.According
to
CBR
requirements,
a
bank’s
capital
calculated
based
on
CBR
instruction
should
be
not
less
than
8%
of
its
risk-adjusted
assets.
As
of
December
31,2016,
QIWI
Bank
JSC’s
and
Rapida
LTD’s
capital
ratio
comprised
27%
(2015
–
14%)
and
19%(2015
-
20%)
respectively,
thereby
exceeding
the
required
level.
These
subsidiaries
monitor
the
fulfillment
of
requirements
on
a
daily
basis
and
send
the
report
toCBR
on
a
monthly
basis.
During
the
years
ended
December
31,
2016
and
2015
QIWI
Bank
JSC
and
Rapida
LTD
met
the
capital
adequacy
requirements.The
Group
manages
its
capital
structure
and
makes
adjustments
to
it,
in
light
of
changes
in
economic
conditions.
Capital
includes
share
capital,
share
premium,additional
paid-in
capital,
other
reserves
and
translation
reserve.
To
maintain
or
adjust
the
capital
structure,
the
Group
may
make
dividend
payments
toshareholders,
return
capital
to
shareholders
or
issue
new
shares.
Currently,
the
Group
requires
capital
to
finance
its
growth,
but
it
generates
sufficient
cash
from
itsoperations.
The
table
below
summarizes
the
maturity
profile
of
the
Company’s
financial
liabilities
based
on
contractual
undiscounted
payments.







Due:



Total


On demand


Within a year


More than ayear
Trade
and
other
payables
(Note
18)


16,328



16,328



—





—


Amounts
due
to
customers
and
amounts
due
to
banks
(Note
19)


2,342



2,342



—





—






















Total as of December 31, 2016

 18,670 

 18,670 

 —   

 —   


























Due:



Total


On demand


Within a year


More than ayear
Trade
and
other
payables
(Note
18)


15,295



15,295



—





—


Amounts
due
to
customers
and
amounts
due
to
banks
(Note
19)


2,243



2,243



—





—






















Total as of December 31, 2015

 17,538 

 17,538 

 —   

 —   




















F-70Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
27.Risk management (continued)
Credit riskFinancial
assets,
which
potentially
subject
the
Group
and
its
subsidiaries
and
associates
to
credit
risk,
consist
principally
of
trade
receivables,
loans
receivableissued,
cash
and
short-term
investments.
The
Group
sells
services
on
a
prepayment
basis
or
ensures
that
its
receivables
are
from
customers
with
an
appropriatecredit
history
–
large
merchants
and
agents
with
sufficient
and
appropriate
credit
history.
The
Group’s
receivables
from
merchants
and
others,
except
for
agents,
aregenerally
non-interest-bearing
and
do
not
require
collateral.
Receivables
from
agents
are
interest-bearing
and
unsecured.
The
Group
holds
cash
primarily
withreputable
Russian
and
international
banks,
including
CBR,
which
management
considers
having
minimal
risk
of
default,
although
credit
ratings
of
Russian
andKazakh
banks
are
generally
lower
than
those
banks
in
more
developed
markets.
Short-term
investments
include
fixed-rate
debt
instruments
issued
by
the
topRussian
banks.The
carrying
amount
of
accounts
receivable,
net
of
allowance
for
impairment
of
receivables,
represents
the
maximum
amount
exposed
to
the
credit
risk
for
thistype
of
receivables
(Note
13).
The
table
below
demonstrates
the
largest
counterparties’
balances,
as
a
percentage
of
respective
totals:



Trade and other receivables


As of December 31,2015

As of December 31,2016
Concentration of credit risks by main counterparties, % fromtotal amount


Top
5
counterparties


48%


60%
Others


52%


40%
Collection
of
receivables
could
be
influenced
by
economic
factors.
Management
believes
that
there
is
no
significant
risk
of
recognition
of
additional
loss
to
theGroup
beyond
the
allowance
already
recorded.
F-71Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
28.Financial instrumentsThe
Group’s
principal
financial
instruments
consisted
of
loans
receivable,
trade
and
other
receivables,
trade
and
other
payables,
cash
and
cash
equivalents,
long
andshort-term
debt
instruments
and
borrowings.
The
Group
has
various
other
financial
assets
and
liabilities
which
arise
directly
from
its
operations.
During
the
year,the
Group
did
not
undertake
trading
in
financial
instruments.The
fair
value
of
the
Group’s
financial
instruments
as
of
December
31,
2016
and
2015
is
presented
by
type
of
the
financial
instrument
in
the
table
below:







As of December 31, 2015


As of December 31, 2016







Carrying amount


Fair value


Carrying amount


Fair value
Financial assets









Debt
instruments


HTM



2,901



2,922



2,171



2,195
Long-term
loans


LAR



23



23



120



120
Investments


AFS



18



18



—





—
























Total financial assets



 2,942 

 2,963 

 2,291 

 2,315 





















Financial
instruments
used
by
the
Group
are
included
in
one
of
the
following
categories:

•
LAR
–
loans
and
receivables;

•
AFS
–
available-for-sale
financial
assets;

•
HTM
–
held-to-maturity
financial
assets.Carrying
amounts
of
cash
and
cash
equivalents,
short-term
investments
and
accounts
receivable
and
payable,
other
current
assets
and
liabilities
approximate
theirfair
values
largely
due
to
short-term
maturities
of
these
instruments;Debt
instruments
of
the
Group
consist
of
RUB
nominated
government
bonds
with
interest
rate
7,4%
-
7,5%
and
maturity
up
to
March
2018.
All
debt
instrumentsare
pledged
(Note
25).Long-term
loans
generally
represent
loans
to
legal
entities
and
have
a
due
date
up
to
ten
years.
For
the
purpose
of
fair
value
measurement
of
these
loans
the
Groupuses
comparable
marketable
interest
rate
which
is
12%.
F-72Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
28.Financial instruments (continued)
The
following
table
provides
the
fair
value
measurement
hierarchy
of
the
Group’s
assets
and
liabilities:











Fair
value
measurement
using











Quoted
pricesin
active
markets


Significantobservableinputs


Significant
unobservableinputs



Date of valuation


Total


(Level 1)


(Level 2)


(Level 3)
Assets for which fair values are disclosed









Debt
instruments


December
31,
2016



2,195



2,195



—





—


Long-term
loans


December
31,
2016



120



—





—





120











Fair
value
measurement
using











Quoted
pricesin
active
markets


Significantobservableinputs


Significant
unobservableinputs
Assets for which fair values are disclosed

Date of valuation


Total


(Level 1)


(Level 2)


(Level 3)
Assets measured at fair value









Available-for-sale financial assets









Investments
(Unquoted
equity
shares)


December
31,
2015



18



—





—





18
Assets for which fair values are disclosed









Debt
instruments


December
31,
2015



2,922



2,922



—





—


Long-term
loans


December
31,
2015



23



—





—





23
There
were
no
transfers
between
Level
1
and
Level
2
fair
value
measurements
and
no
transfers
into
or
out
of
Level
3
fair
value
measurements
during
the
year
endedDecember
31,
2016.The
Group
uses
the
following
IFRS
hierarchy
for
determining
and
disclosing
the
fair
value
of
financial
instruments
by
valuation
technique:

•
Level
1:
Quoted
(unadjusted)
prices
in
active
markets
for
identical
assets
or
liabilities;

•
Level
2:
Other
techniques
for
which
all
inputs
that
have
a
significant
effect
on
the
recorded
fair
value
are
observable,
either
directly
or
indirectly;

•
Level
3:
Techniques
that
use
inputs
that
have
a
significant
effect
on
the
recorded
fair
value
that
are
not
based
on
observable
market
data.
F-73Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
28.Financial instruments (continued)
Valuation methods and assumptionsThe
fair
value
of
the
financial
assets
and
liabilities
included
at
the
amount
the
instrument
could
be
exchanged
in
a
current
transaction
between
willing
parties,
otherthan
in
a
forced
or
liquidation
sale.The
following
methods
and
assumptions
were
used
to
estimate
fair
values:
•
Fair
value
of
the
unquoted
ordinary
shares
has
been
estimated
using
a
DCF
model.
The
valuation
requires
management
to
make
certain
assumptions
aboutthe
model
inputs,
including
forecast
cash
flows,
the
discount
rate,
credit
risk
and
volatility.
The
probabilities
of
the
various
estimates
within
the
range
can
bereasonably
assessed
and
are
used
in
management’s
estimate
of
fair
value
for
these
unquoted
equity
investments.
•
Long-term
fixed-rate
loans
issued
are
evaluated
by
the
Group
based
on
parameters
such
as
interest
rates,
specific
country
risk
factors
and
individualcreditworthiness
of
the
customer.
F-74Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
29.Share-based payments
29.1.Option plansAs
of
December
31,
2016,
the
Group
has
the
following
outstanding
option
plans:



2012 Employee Stock Option Plan(ESOP)

2015 Restricted Stock Unit Plan(RSU Plan)Adoption date

October,
2012

July,
2015Type of shares

Class
B
shares

Class
B
sharesNumber of options or RSUs reserved

Up
to
7
%
of
total
amount
of
shares

Up
to
7
%
of
total
amount
of
sharesExercise price

Granted
during:

Granted
during:

Year
2012:
U.S.
$
13.65

Year
2016:
n/a

Year
2013:
U.S.
$
41.24
-
46.57



Year
2014:
U.S.
$
34.09
-
37.89

Exercise basis

Shares

SharesExpiration date

December
2017

December
2022Vesting period

Up
to
4
years

Three
vesting
during
up
to
2
yearsOther major terms

The
options
are
not
transferrable

-
The
units
are
not
transferrable



-
All
other
terms
of
the
units
under
2015
RSUPlan
are
to
be
determined
by
the
Company’sBoard
or
the
CEO,
if
so
resolved
by
the
Board,acting
as
administrator
of
the
Plan
29.2.Changes in outstanding optionsThe
following
table
illustrates
the
movements
in
share
options
during
the
year
ended
December
31,
2016:



As of December 31,2015


Granted duringthe period


Forfeited during theperiod

Exercised during theperiod

As of December 31,2016
2012
ESOP


2,219,932



—





(212,814)


(78,029)


1,929,089
2015
RSU
Plan


—





583,600



(1,867)


(167,698)


414,035























Total

 2,219,932 

 583,600 

 (214,681) 
 (245,727) 
 2,343,124 






















As
of
December
31,
2016
the
Company
has
1,929,089
options
outstanding,
all
of
which
are
vested,
and
414,035
RSUs
outstanding,
of
which
22,469
are
vested
and391,566
are
unvested.The
weighted
average
price
for
share
options
exercised
under
ESOP
during
the
reporting
period
was
U.S.
$13.65
and
exercised
under
RSU
plan
was
nill.
F-75Table of ContentsQIWI
plcNotes
to
consolidated
financial
statements
(continued)
29.Share based payments (continued)
29.3.Valuations of share-based paymentsThe
valuation
of
all
equity-settled
options
granted
are
summarized
in
the
table
below:
Option plan/Grant date

Number of options/ RSUs


Dividend yield, %

Volatility, %

Risk-free interest rate, %

Expec- ted term,years


Weighted average share price(U.S. $)


Weighted average fair value per option/RSU (U.S. $)


Valuation method
2012 ESOP


4,100,778



0-2.83%


28%-32.2%


0.29%-3.26%


2-4



28.12



7.14



Black-
Scholes-
Merton
2015 RSU Plan


583,600



5.03%


64.02%


2.99%


0-2



12.32



11.68



Binominal





































The
forfeiture
rate
used
in
valuation
models
granted
during
the
year
2016
is
15%.
It
is
based
on
historical
data
and
current
expectations
and
is
not
necessarilyindicative
of
forfeiture
patterns
that
may
occur.The
expected
volatility
reflects
the
assumption
that
the
historical
volatility
over
a
period
similar
to
the
life
of
the
options
is
indicative
of
future
trends,
which
maynot
necessarily
be
the
actual
outcome.
29.4.Share-based payment expenseThe
amount
of
expense
arising
from
equity-settled
share-based
payment
transactions
for
the
year
ended
December
31,
2016
was
224
(2015
–
88,
2014
–
422).
30.Events after the reporting dateDividends distributionOn
March
15,
2017,
the
Board
of
Directors
of
the
Company
approved
dividends
in
the
total
amount
of
U.S.$
11,513,436
(equivalent
of
679)
or
19
U.S.$
cents
pershare.Flocktory acquisitionOn
March
22,
2017,
the
Company
entered
into
a
share
purchase
agreement
to
acquire
80%
ownership
of
Flocktory
LTD,
a
SaaS
platform
for
customer
lifecyclemanagement.
Under
the
terms
of
the
Share
Purchase
Agreement,
the
Company
has
agreed
to
payRUB
833
million
in
exchange
for
80%
shares
of
Flocktory
LTD
on
a
fully
diluted
basis.
The
remaining
20%
of
capital
of
Flocktory
LTD
stays
with
the
foundersand
key
employees
of
the
acquiered
company.
The
management
is
in
process
of
assessing
the
fair
value
of
net
assets
of
the
Flocktory
LTD
and
the
effect
of
thisbusiness
combination
for
the
Group’s
financial
statements.Sale of subsidiariesIn
February
2017
the
Board
of
Directors
of
the
Company
authorized
the
management
to
sell
the
Company’s
shareholding
stakes
in
QIWI
Romania
S.R.L.,
JLLCOSMP
Belarus
and
QIWI-M
S.R.L.
until
the
end
of
2017.
F-76Exhibit 8.1
Subsidiary

Main activity

Jurisdiction of incorporation

Ownership interest as of December 31, 2016JSC
QIWI

Operation
of
electronic
payment
kiosks

Russia

100%QIWI
Bank
JSC

Maintenance
of
electronic
payment
systems

Russia

100%QIWI
Payments
Services
Provider
Ltd

Operation
of
on-line
payments

UAE

100%QIWI
International
Payment
System
LLC

Operation
of
electronic
payment
kiosks

USA

100%Qiwi
Kazakhstan
LP

Operation
of
electronic
payment
kiosks

Kazakhstan

100%JLLC
OSMP
BEL

Operation
of
electronic
payment
kiosks

Belarus

51%QIWI-M
S.R.L.

Operation
of
electronic
payment
kiosks

Moldova

51%QIWI
ROMANIA
SRL

Operation
of
electronic
payment
kiosks



100%QIWI
WALLET
EUROPE
SIA

Operation
of
on-line
payments

Latvia

100%QIWI
Retail
LLC

Sublease
of
space
for
electronic
payment
kiosks

Russia

100%QIWI
Management
Services
FZ-LLC

Management
services

UAE

100%CIHRUS
LLC

Management
services

Russia

100%Attenium
LLC

Management
services

Russia

100%Gikor
LLC
1

Operation
of
on-line
payments

Russia

—Processingovyi
Tsentr
Rapida
LLC
5

Operation
of
on-line
payments

Russia

—Rapida
LTD

Operation
of
payment
processing
and
money
transfersettlement
systems

Russia

100%Analiticheskiy
Tcentr
LLC
2

Operation
of
on-line
payments

Russia

—Postomatnye
Tekhnologii
LLC
3

Logistic

Russia

100%Future
Pay
LLC
4

Operation
of
on-line
payments

Russia

100%Qiwi
Blockchain
Technologies
LLC
3

Development
of
Intangible
assets

Russia

100%
1The
entity
was
liquidated
during
the
year
2016.2

In
May
2016,
the
Group
sold
100%
of
Analiticheskiy
Tcentr
LLC
with
negligible
net
assets
for
insignificant
consideration.3

The
entities
were
incorporated
during
the
year
2016.4In
July
2016,
the
Group
acquired
100%
of
Future
Pay
LLC
for
a
cash
consideration
of
15.5

In
December
2016,
the
Group
sold
100%
of
Processingovyi
Tsentr
Rapida
LLC
for
insignificant
consideration.Exhibit 12.1Certification of the Chief Executive OfficerI,
Sergey
Solonin,
certify
that:1.
I
have
reviewed
this
annual
report
on
Form
20-F
of
QIWI
plc;2.
Based
on
my
knowledge,
this
report
does
not
contain
any
untrue
statement
of
a
material
fact
or
omit
to
state
a
material
fact
necessary
to
make
the
statementsmade,
in
light
of
the
circumstances
under
which
such
statements
were
made,
not
misleading
with
respect
to
the
period
covered
by
this
report;3.
Based
on
my
knowledge,
the
financial
statements,
and
other
financial
information
included
in
this
report,
fairly
present
in
all
material
respects
the
financialcondition,
results
of
operations
and
cash
flows
of
the
company
as
of,
and
for,
the
periods
presented
in
this
report;4.
The
company’s
other
certifying
officer(s)
and
I
are
responsible
for
establishing
and
maintaining
disclosure
controls
and
procedures
(as
defined
in
Exchange
ActRules
13a-15(e)
and
15d-15(e))
and
internal
control
over
financial
reporting
(as
defined
in
Exchange
Act
Rules
13a-15(f)
and
15d-15(f))
for
the
company
and
have:

(a)Designed
such
disclosure
controls
and
procedures,
or
caused
such
disclosure
controls
and
procedures
to
be
designed
under
our
supervision,
to
ensurethat
material
information
relating
to
the
company,
including
its
consolidated
subsidiaries,
is
made
known
to
us
by
others
within
those
entities,particularly
during
the
period
in
which
this
report
is
being
prepared;

(b)Designed
such
internal
control
over
financial
reporting,
or
caused
such
internal
control
over
financial
reporting
to
be
designed
under
our
supervision,to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and
the
preparation
of
financial
statements
for
external
purposes
inaccordance
with
generally
accepted
accounting
principles;

(c)Evaluated
the
effectiveness
of
the
company’s
disclosure
controls
and
procedures
and
presented
in
this
report
our
conclusions
about
the
effectiveness
ofthe
disclosure
controls
and
procedures,
as
of
the
end
of
the
period
covered
by
this
report
based
on
such
evaluation;
and

(d)Disclosed
in
this
report
any
change
in
the
company’s
internal
control
over
financial
reporting
that
occurred
during
the
period
covered
by
the
annualreport
that
has
materially
affected,
or
is
reasonably
likely
to
materially
affect,
the
company’s
internal
control
over
financial
reporting;
and5.
The
company’s
other
certifying
officer(s)
and
I
have
disclosed,
based
on
our
most
recent
evaluation
of
internal
control
over
financial
reporting,
to
the
company’sauditors
and
the
audit
committee
of
the
company’s
board
of
directors
(or
persons
performing
the
equivalent
functions):

(a)All
significant
deficiencies
and
material
weaknesses
in
the
design
or
operation
of
internal
control
over
financial
reporting
which
are
reasonably
likelyto
adversely
affect
the
company’s
ability
to
record,
process,
summarize
and
report
financial
information;
and

(b)Any
fraud,
whether
or
not
material,
that
involves
management
or
other
employees
who
have
a
significant
role
in
the
company’s
internal
control
overfinancial
reporting.
Date:
March
22,
2017By:
/s/
Sergey
SoloninName:
Sergey
SoloninTitle:
Chief
Executive
OfficerExhibit 12.2Certification of the Chief Financial OfficerI,
Alexander
Karavaev,
certify
that:1.
I
have
reviewed
this
annual
report
on
Form
20-F
of
QIWI
plc;2.
Based
on
my
knowledge,
this
report
does
not
contain
any
untrue
statement
of
a
material
fact
or
omit
to
state
a
material
fact
necessary
to
make
the
statementsmade,
in
light
of
the
circumstances
under
which
such
statements
were
made,
not
misleading
with
respect
to
the
period
covered
by
this
report;3.
Based
on
my
knowledge,
the
financial
statements,
and
other
financial
information
included
in
this
report,
fairly
present
in
all
material
respects
the
financialcondition,
results
of
operations
and
cash
flows
of
the
company
as
of,
and
for,
the
periods
presented
in
this
report;4.
The
company’s
other
certifying
officer(s)
and
I
are
responsible
for
establishing
and
maintaining
disclosure
controls
and
procedures
(as
defined
in
Exchange
ActRules
13a-15(e)
and
15d-15(e))
and
internal
control
over
financial
reporting
(as
defined
in
Exchange
Act
Rules
13a-15(f)
and
15d-15(f))
for
the
company
and
have:

(a)Designed
such
disclosure
controls
and
procedures,
or
caused
such
disclosure
controls
and
procedures
to
be
designed
under
our
supervision,
to
ensurethat
material
information
relating
to
the
company,
including
its
consolidated
subsidiaries,
is
made
known
to
us
by
others
within
those
entities,particularly
during
the
period
in
which
this
report
is
being
prepared;

(b)Designed
such
internal
control
over
financial
reporting,
or
caused
such
internal
control
over
financial
reporting
to
be
designed
under
our
supervision,to
provide
reasonable
assurance
regarding
the
reliability
of
financial
reporting
and
the
preparation
of
financial
statements
for
external
purposes
inaccordance
with
generally
accepted
accounting
principles;

(c)Evaluated
the
effectiveness
of
the
company’s
disclosure
controls
and
procedures
and
presented
in
this
report
our
conclusions
about
the
effectiveness
ofthe
disclosure
controls
and
procedures,
as
of
the
end
of
the
period
covered
by
this
report
based
on
such
evaluation;
and

(d)Disclosed
in
this
report
any
change
in
the
company’s
internal
control
over
financial
reporting
that
occurred
during
the
period
covered
by
the
annualreport
that
has
materially
affected,
or
is
reasonably
likely
to
materially
affect,
the
company’s
internal
control
over
financial
reporting;
and5.
The
company’s
other
certifying
officer(s)
and
I
have
disclosed,
based
on
our
most
recent
evaluation
of
internal
control
over
financial
reporting,
to
the
company’sauditors
and
the
audit
committee
of
the
company’s
board
of
directors
(or
persons
performing
the
equivalent
functions):

(a)All
significant
deficiencies
and
material
weaknesses
in
the
design
or
operation
of
internal
control
over
financial
reporting
which
are
reasonably
likelyto
adversely
affect
the
company’s
ability
to
record,
process,
summarize
and
report
financial
information;
and

(b)Any
fraud,
whether
or
not
material,
that
involves
management
or
other
employees
who
have
a
significant
role
in
the
company’s
internal
control
overfinancial
reporting.
Date:
March
22,
2017By:
/s/
Alexander
KaravaevName:
Alexander
KaravaevTitle:
Chief
Financial
OfficerExhibit 13.1Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002In
connection
with
the
Annual
Report
on
Form
20-F
(the
“Report”)
of
QIWI
plc
(the
“Company”)
for
the
fiscal
year
ended
December
31,
2016
as
filed
with
theU.S.
Securities
and
Exchange
Commission
on
the
date
hereof,
Sergey
Solonin,
as
Chief
Executive
Officer
of
the
Company,
and
Alexander
Karavaev,
as
ChiefFinancial
Officer
of
the
Company,
each
hereby
certifies,
pursuant
to
18
U.S.C.
Section
1350,
as
adopted
pursuant
to
Section
906
of
the
Sarbanes-Oxley
Act
of2002,
that,
to
the
best
of
his
knowledge:
(1)The
Report
fully
complies
with
the
requirements
of
Section
13(a)
or
15(d)
of
the
Exchange
Act;
and
(2)The
information
contained
in
the
Report
fairly
presents,
in
all
material
respects,
the
financial
condition
and
results
of
operations
of
the
issuer.
/s/
Sergey
SoloninName:
Sergey
SoloninTitle:
Chief
Executive
OfficerDate:
March
22,
2017/s/
Alexander
KaravaevName:
Alexander
KaravaevTitle:
Chief
Financial
OfficerDate:
March
22,
2017A
signed
original
of
this
written
statement
required
by
Section
906
of
the
Sarbanes-Oxley
Act
of
2002
has
been
provided
to
the
Company
and
will
be
retained
bythe
Company
and
furnished
to
the
SEC
or
its
staff
upon
request.This
certification
accompanies
the
Report
pursuant
to
section
906
of
the
Sarbanes-Oxley
Act
of
2002
and
shall
not,
except
to
the
extent
required
by
the
Sarbanes-Oxley
Act
of
2002,
be
deemed
filed
by
the
Company
for
purposes
of
section
18
of
the
Securities
Exchange
Act
of
1934.Exhibit 15.1Consent of Independent Registered Public Accounting FirmWe
consent
to
the
incorporation
by
reference
in
the
Registration
Statements
(Form
S-8
No.
333-190918;
Form
S-8
No.
333-212441)
of
securities
to
be
offered
toemployees
in
employee
benefit
plans
of
Qiwi
plc
of
our
report
dated
March
22,
2017,
relating
to
the
financial
statements
of
QIWI
plc
and
the
effectiveness
ofinternal
control
over
financial
reporting
of
QIWI
plc,
included
in
this
Annual
Report
on
Form
20-F
of
QIWI
plc
for
the
year
ended
December
31,
2016.
/s/
Ernst
&
Young
LLCMoscow,
RussiaMarch
22,
2017