QIWI
Annual Report 2018

Plain-text annual report

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 SECURITIESEXCHANGE ACT OF 1934Or ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the fiscal year ended December 31, 2018Or ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934Or ☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934Commission 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, 2nd floorP.C. 1087, Nicosia, Cyprus(Address of principal executive offices)Varvara Kiseleva+ 357 2265-3390ir@qiwi.comKennedy 12, Kennedy Business Centre, 2nd 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 ordinaryshare, having a nominal value EUR 0.0005 per share The NASDAQ Stock Market LLCClass B ordinary shares, having a nominal value ofEUR 0.0005 per share* *Not registered for trading, but exist 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 theannual report.As of December 31, 2018, 13,833,419 Class A ordinary shares, par value EUR 0.0005 per share and 48,879,556 Class B ordinary shares, parvalue EUR 0.0005 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 the Securities 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 of1934 during 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 suchfiling requirements for the past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submitsuch files). Yes ☒ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growthcompany. See definition of “large accelerated filer, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Emerging growth company ☐If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant haselected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant toSection 13(a) of the Exchange Act ☐ †The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its AccountingStandards Codification after April 5, 2012.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 haselected to follow: 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 ExchangeAct). 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 SecuritiesExchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐ Table of ContentsTABLE OF CONTENTSPART 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 7 C. Reasons for the Offer and Use of Proceeds 7 D. Risk Factors 7 ITEM 4. Information on the Company 40 A. History and Development of the Company 40 B. Business Overview 40 C. Organizational Structure 58 D. Property, Plants and Equipment 58 ITEM 4A. Unresolved Staff Comments 58 ITEM 5. Operating and Financial Review and Prospects 58 A. Operating Results 58 B. Liquidity and Capital Resources 76 C. Research and Development, Patents and Licenses, etc. 78 D. Trend Information 78 E. Off-balance Sheet Arrangements 78 F. Tabular Disclosure of Contractual Obligations 78 G. Safe Harbor 78 ITEM 6. Directors, Senior Management and Employees 79 A. Directors and Senior Management 79 B. Compensation 80 C. Board Practices 82 D. Employees 83 E. Share Ownership 84 ITEM 7. Major Shareholders and Related Party Transactions 84 A. Major Shareholders 84 B. Related Party Transactions 85 1Table of Contents C. Interests of Experts and Counsel 86 ITEM 8. Financial Information 86 A. Consolidated Financial Statements and Other Financial Information 86 B. Significant Changes 87 ITEM 9. The Offer and Listing 87 A. Offer and Listing Details 87 B. Plan of Distribution 87 C. Markets 87 D. Selling Shareholders 87 E. Dilution 87 F. Expenses of the Issue 87 ITEM 10. Additional Information 87 A. Share Capital 87 B. Memorandum and Articles of Association 88 C. Material Contracts 92 D. Exchange Controls 92 E. Taxation 92 F. Dividends and Paying Agents 104 G. Statements by Experts 104 H. Documents on Display 104 I. Subsidiary Information 104 ITEM 11. Quantitative and Qualitative Disclosures About Market Risk 104 ITEM 12. Description of Securities Other Than Equity Securities 106 A. Debt Securities 106 B. Warrants and Rights 106 C. Other Securities 106 D. American Depositary Shares 107 PART II ITEM 13. Defaults, Dividend Arrearages and Delinquencies 107 ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 107 ITEM 15. Controls and Procedures 108 ITEM 16. [RESERVED] 109 ITEM 16A. Audit Committee Financial Expert 109 ITEM 16B. Code of Ethics 109 ITEM 16C. Principal Accountant Fees and Services 110 ITEM 16D. Exemptions from the Listing Standards for Audit Committees 110 ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 110 ITEM 16F. Change in Registrant’s Certifying Accountant 110 ITEM 16G. Corporate Governance 110 ITEM 16H. Mine Safety Disclosure 111 PART III ITEM 17. Financial Statements 111 ITEM 18. Financial Statements 111 ITEM 19. Exhibits 111 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 lookingstatements are made under the “safe-harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. Some of these forward lookingstatements can be identified by 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 relatingto: • our goals and strategies; • our ability to grow our payment volumes; • our ability to maintain and grow the size of our physical and virtual distribution; • our ability to increase our market share in our key payment market verticals and segments; • our ability to successfully introduce new products and services, including our payment-by-installment card SOVEST, Rocketbank orTochka multi-bank platform; • our ability to successfully execute our business strategy, including in respect of SOVEST, Rocketbank and Tochka, and our ability torecoup our investments made in such businesses; • our ability to maintain our relationships with our merchants, agents and partners; • the expected growth of 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; • 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 basedon our beliefs, assumptions and expectations of future performance, taking into account the information currently available to us. These statements areonly predictions based upon our current expectations and projections about future events. There are important factors that could cause our actualresults, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed orimplied by the forward-looking statements. 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 topublicly update or revise 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 financialand other data together with the information in Item 5 “Operating and Financial Review and Prospects” and Item 3.D “Risk Factors” and ourconsolidated financial statements and the related notes included elsewhere in this annual report. Our consolidated financial statements have beenprepared in accordance with the International Financial Reporting Standards as published by the International Accounting Standards Board. 3Table of ContentsThe following tables also contain translations of ruble amounts into U.S. dollars for amounts presented as of December 31, 2018 and for the yearended December 31, 2018. These translations are solely for convenience of the reader and were calculated at the rate of RUB 69.4706 per U.S. $1.00,which is equal to the official exchange rate quoted by the Central Bank of the Russian Federation, or CBR, on December 31, 2018. Year ended December 31, 2014* 2015* 2016 2017 2018 RUB RUB RUB RUB RUB U.S.$ (in millions, except per share data) Consolidated Statement of Comprehensive Income Data: Revenue 14,718 17,717 17,880 20,897 30,610 441 Cost of revenue (7,273) (8,695) (8,646) (9,763) (15,129) (218) Selling, general and administrative expenses (2,931) (3,107) (3,208) (6,023) (9,671) (139) Depreciation and amortization (353) (689) (796) (796) (864) (12) Credit loss expense* (151) (362) (215) (220) (474) (7) Impairment of intangible assets — — (878) (104) (23) (0) Profit from operations 4,010 4,864 4,137 3,991 4,449 64 Other income and expenses, net (39) (61) (79) (41) (227) (3) Foreign exchange gain 3,359 (1) 2,801 (1) 1,040 (1) 257 (1) 1,311 (1) 19 Foreign exchange loss (1,428) (1) (1,360) (1) (1,963) (1) (373) (1) (1,049) (1) (15) Interest income and expenses, net (40) (93) (28) 6 17 0 Profit before tax 5,862 6,151 3,107 3,840 4,501 65 Income tax expense (894) (877) (618) (698) (875) (13) Net profit 4,968 5,274 2,489 3,142 3,626 52 Attributable to: Equity holders of the parent 5,024 5,187 2,474 3,114 3,584 51 Non-controlling interests (56) 87 15 28 42 1 Weighted average number of shares Basic 53 58 60 61 61 61 Diluted 54 58 61 61 62 62 Earnings per share Basic 94.09 89.72 40.91 51.25 58.56 0.84 Diluted 92.73 89.49 40.79 50.92 58.06 0.84 Dividends declared per share RUB 53.46 11.56 79.92 36.22 — n/a U.S.$ 0.95 0.25 1.16 0.62 — n/a *Credit loss expense for the years ended December 31, 2014 through 2017 was separated from Selling, General and Administrative expenses forcomparative purposes as a result of the adoption of IFRS 9. As of December 31, 2014 2015 2016 2017 2018 RUB RUB RUB RUB RUB U.S.$ (in millions) Consolidated Balance Sheet Data: Cash and cash equivalents 17,080 19,363 18,997 18,406 40,966 590 Total current assets 25,036 27,015 27,205 31,094 58,371 840 Total assets 30,050 41,577 39,674 45,059 73,023 1,051 Total equity 8,334 22,436 19,969 21,157 25,706 370 Total debt 43 3 0 0 0 0 Total liabilities 21,716 19,141 19,705 23,902 47,317 681 Total equity and liabilities 30,050 41,577 39,674 45,059 73,023 1,051 *The amounts shown here may immaterially differ from the amounts shown in the Annual Report on Form 20-F for the year ended December 31, 2015due to rounding adjustments. 4Table of Contents Year ended December 31, 2014 2015 2016 2017 2018 RUB RUB RUB RUB RUB U.S.$ (in millions, except as otherwise indicated) Other Financial and Operating Data: Adjusted net revenue (1) 8,836 10,228 10,611 13,193 19,657 283 Payment Services segment net revenue 8,807 10,198 10,583 12,580 16,497 237 Adjusted EBITDA (1) 4,818 5,640 6,035 5,185 5,948 86 Adjusted net profit (1) 3,496 4,142 4,714 4,054 4,137 60 Payment Services segment payment volume (in billions) (2) 645 860 847 911 1,138 16 Active kiosks and terminals (units) (3) 181,148 172,269 162,173 152,525 143,690 n/a Active Qiwi Wallet accounts (at period end, in millions) (4) 17.2 16.1 17.2 20.1 20.8 n/a Payment services segment net revenue yield (5) 1.37% 1.19% 1.25% 1.38% 1.45% n/a Consumer Financial Services segment payment volume (in billions)(6) — — — 3.3 15.9 0.2 (1)See “—Non-IFRS Financial Measures” for how we define and calculate adjusted net revenue, adjusted EBITDA, and adjusted net profit asnon-IFRS financial measures and reconciliations of these measures to revenue, in the case of adjusted net revenue, and net profit, in the case ofadjusted EBITDA and adjusted net profit.(2)Payment Services segment payment volume consists of the amounts paid by our customers to merchants or transferred to other customers lessintra-group eliminations in our Payment Services segment.(3)We measure the numbers of our kiosks and terminals on a daily basis, with only those kiosks and terminals being taken into calculation throughwhich at least one payment has been processed during the day, which we refer to as active kiosks and terminals. The period end numbers of ourkiosks and terminals are calculated as an average of the amount of active kiosks and terminals for the last 30 days of the respective reportingperiod.(4)Number of active Qiwi Wallet accounts is defined as the number of wallets through which at least one payment has been made or that have beenloaded or reloaded in the 12 months preceding the end of the relevant reporting period.(5)Payment Services segment net revenue yield is defined as Payment Services segment net revenue divided by Payment Services payment segmentvolume.(6)Consumer Financial Services segment payment volume consists of the transaction amounts paid by SOVEST card customers to merchants offlineand online (including, but not limited to the partner-merchants) or withdrawn through ATMs less the amount returned for correspondingreimbursements.Non-IFRS Financial MeasuresWe present adjusted net revenue, adjusted EBITDA and adjusted net profit, each of which are non-IFRS financial measures. You should notconsider these non-IFRS financial measures as substitutes for or superior to revenue, in the case of adjusted net revenue, or net profit, in the case ofadjusted EBITDA and adjusted net profit, each prepared in accordance with IFRS. Furthermore, because these non-IFRS financial measures are notdetermined in accordance with IFRS, they are susceptible to varying calculations and may not be comparable to other similarly titled measurespresented by other companies. We encourage investors and others to review our financial information in its entirety and not rely on a single financialmeasure.Adjusted net revenueAdjusted net revenue is calculated by subtracting cost of revenue from revenue and adding back payroll and related taxes. Adjusted net revenueis a key measure used by management to observe our operational profitability since it reflects our portion of the revenue net of fees that we passthrough, primarily to our agents and other reload channels providers. In addition, under IFRS, most types of fees are presented on a gross basis whereascertain 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 back payroll and related taxes because, although they are an essential part of the services weprovide to our clients, these expenses are not directly linked to payment volume. Nevertheless, payroll and related taxes represent an important portionof our operating costs and affects liquidity and financial performance. For the periods presented in this Annual Report Adjusted Net Revenue is equalto Total Segment Net Revenue.The following table reconciles adjusted net revenue to revenue. Year ended December 31, 2014* 2015* 2016 2017 2018 RUB RUB RUB RUB RUB U.S.$ (in millions) Revenue 14,718 17,717 17,880 20,897 30,610 441 Minus: Cost of revenue (exclusive of depreciation and amortization) (7,273) (8,695) (8,646) (9,763) (15,129) (218) Plus: Payroll and related taxes 1,391 1,206 1,377 2,059 4,176 60 Adjusted net revenue 8,836 10,228 10,611 13,193 19,657 283 *The amounts shown here may immaterially differ from the amounts shown in the Annual Report on Form 20-F for the year ended December 31, 2015due to rounding adjustments. 5Table of ContentsAdjusted EBITDAAdjusted EBITDA is defined as net profit before income tax expense, interest expense, interest income and depreciation and amortization, asfurther adjusted for share of loss of associates, impairment of investment in associates, foreign exchange gain and loss, other expenses, other income,loss on disposal of subsidiaries, income from depositary, offering expenses, share-based payment expenses and impairment of intangible assetsrecorded on acquisitions. We present adjusted EBITDA as a supplemental performance measure because we believe that it facilitates operatingperformance comparisons from period to period and company to company by backing out potential differences caused by variations in capitalstructures (affecting interest expenses, net), changes in foreign exchange rates that impact financial asset and liabilities denominated in currenciesother than our functional currency (affecting foreign exchange loss/gain, net), tax positions (such as the impact on periods or companies of changes ineffective 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 acquired in the business combinations), and certain one-time income and expenses (affectingother income, offering expenses, loss on disposal of subsidiaries and income from depository). Adjusted EBITDA also excludes other expenses, share inlosses of associates and impairment of investment in associates because we believe it is helpful to view the performance of our business excluding theimpact of entities that we do not control, and because our share of the net income (loss) of the associate and other expenses includes items that havebeen excluded from adjusted EBITDA (such as finance expenses, net, tax on income and depreciation and amortization). Because adjusted EBITDAfacilitates internal comparisons of operating performance on a more consistent basis, we also use adjusted EBITDA in measuring our performancerelative 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 andamortized may have to be replaced in the future; and • adjusted EBITDA does not include share-based payments. Year ended December 31, 2014 2015 2016 2017 2018 RUB RUB RUB RUB RUB U.S.$ (in millions) Net Profit 4,968 5,274 2,489 3,142 3,626 52 adjusted for: Depreciation and amortization 353 689 796 796 864 12 Other income and expenses, net 39 61 79 41 227 3 Foreign exchange gain (3,359) (1) (2,801) (1) (1,040) (1) (257) (1) (1,311) (1) (19) Foreign exchange loss 1,428(1) 1,360(1) 1,963(1) 373(1) 1,049(1) 15 Interest income and expense, net 40 93 28 (6) (17) (0) Income tax expenses 894 877 618 698 875 13 Offering expenses 32 — — — — — Share-based payment expenses 422 88 224 398 635 9 Impairment of intangible assets recorded on acquisitions — — 878 — — — Adjusted EBITDA 4,818 5,640 6,035 5,185 5,948 86 Adjusted net profitAdjusted net profit is defined as net profit excluding amortization of fair value adjustments, loss on disposals of subsidiaries, share-basedpayment expenses, offering expenses, impairment of goodwill and intangible assets acquired in the business combinations, income from depositary,foreign exchange gain on June 2014 offering proceeds and the effects of taxation on those excluded items. Adjusted net profit is a key measure used bymanagement to observe the operational profitability of the company. We believe adjusted net profit is useful to an investor in evaluating our operatingperformance because it measures a company’s operating performance without the effect of non-recurring items or items that are not core to ouroperations. For example, loss on disposals, the effects of deferred taxation on excluded items and offering expenses do not represent the core operationsof the business, and amortization of fair value adjustments and share-based payments expenses do not have a substantial cash effect. Nevertheless, suchgains and losses can affect our financial performance. For the periods presented in this Annual Report Adjusted Net Profit is equal to Total Segment NetProfit. 6Table of ContentsThe following table reconciles adjusted net profit to net profit. Year ended December 31, 2014 2015 2016 2017 2018 RUB RUB RUB RUB RUB U.S.$ (in millions) Net profit 4,968 5,274 2,489 3,142 3,626 52 Impairment of intangible assets recorded on acquisitions — — 878 — — — Amortization of fair value adjustments 74 270 396 344 369 6 (Gain)/loss on disposals of subsidiaries — 38 10 — — — Offering expenses 32 — — — — — Income from depositary (2) (38) — — — — — Share-based payment expenses 422 88 224 398 635 9 Effect of taxation of the above items (15) (52) (258) (66) (60) (1) Foreign Exchange loss/(gain) on June 2014 offering proceeds (1) (1,947) (1,476) 975 236 (433) (6) Adjusted net profit 3,496 4,142 4,714 4,054 4,137 60 (1)Foreign exchange gain on June 2014 offering proceeds, as presented in the reconciliation of net profit to adjusted net profit differs from theforeign exchange loss/(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 former relates solely to foreign currency changes resulting from the funds received in connection with our offering ofADSs 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 inour financial statements for the years ended December 31, 2014 and December 31, 2015. B.Capitalization and Indebtedness.Not applicable. C.Reasons for the Offer and Use of Proceeds.Not applicable. D.Risk FactorsIn conducting our business, we face many risks that may interfere with our business objectives. Some of these risks relate to our operationalprocesses, while others relate to our business environment. It is important to understand the nature of these risks. If any of the following risks actuallyoccurs, it may materially harm our business, results of operations or financial condition.Risks Relating to Our Business and IndustryThe financial services industry is highly competitive, and we have a vast number of competitors that are larger and have greater financial and otherresources.The financial services industry in which we operate with our payment services and other financial services that we provide is highlycompetitive, and our ability to compete effectively is therefore of paramount importance. In all countries where we operate, we face competition from avariety of financial and non-financial business groups. These competitors include retail banks, non-traditional payment service providers (such asretailers and mobile network operators, or MNOs), electronic payment system operators, as well as other companies which provide various forms ofbanking and payment solutions or services, including electronic payments, payment processing services, consumer lending and other services.Competitors in our industry seek to differentiate themselves by features and functionalities such as speed, convenience, network size, accessibility,safety, reliability and price, among others. A significant number of our competitors have greater financial, technological and marketing resources thanwe have, operate robust networks and are highly regarded by consumers.Our key competitors in Russia are retail banks, particularly those with a focus on well-developed electronic payment solutions, includingSberbank, Russia’s largest retail bank that is majority-owned by the Russian state, Alfa-Bank, one of the leading privately owned Russian retail banks,both of which have electronic banking solutions and large retail networks, and Tinkoff Bank, which positions itself as a specialized bank specificallyfocused on innovative online retail financial services. Sberbank, for example, has long adhered to the strategy of innovation in the financial andpayments space and has been focusing on the promotion of alternative banking channels, such as kiosks, internet banking and mobile banking.Sberbank is the market leader of the Russian payments market, and has access to significant financial resources and has an extensive nationwidenetwork of branches. It is also the largest processor of utility bill payments, which constitute a significant portion of overall consumer spending in ourindustry. It actively develops its online payment services capabilities, including through its online and mobile banking platform Sberbank Online andthrough Yandex.Money, one of the major electronic payment service providers in Russia that it operates in a joint venture with Yandex, a leadingRussian diversified technology company. These factors give Sberbank a substantial competitive advantage over us in the payments business as well asany other financial services businesses that we pursue or may pursue. Additionally, Sberbank is pursuing a strategy to transform itself into ane-commerce ecosystem based on open source software. In furtherance 7Table of Contentsof this strategy, in April 2018 Sberbank announced together with Yandex that they have completed the formation of a joint venture based on theYandex.Market platform where they intend to combine the technological capabilities of Yandex and the infrastructure and technologies of Sberbank todevelop a leading B2C (business-to-consumer) e-commerce ecosystem. While the e-commerce platform created by this joint venture is still being rolledout, this deal could result in a substantial shift in the competitive landscape of the Russian physical e-commerce market to the detriment of ourposition, market share and growth potential in this category of payments. The recently announced joint venture between Mail.ru Group, AlibabaGroup, Megafon and RDIF to create a largest social commerce platform in Russia and the Commonwealth of Independent States (“CIS”) based onAliExpress Russia and Pandao platforms, could have a similar effect. Our other major competitors in the banking industry include Alfa-Bank, a majorretail bank that combines a strong competitive position in the traditional retail banking sector with a focus on developing innovative financial andpayments solutions, and Tinkoff Bank, which is a provider of online retail financial services operating in Russia through a high-tech branchlessplatform. Numerous other Russian banks are also actively pursuing the electronic payments business and developing various consumer paymentsolutions.The competition in the digital money transfer services space is also further intensifying as key market players including retail banksdevelop and digitalize their products. Recently the Central Bank of Russia in cooperation with other banks established an instant payment systemwhich is designed to enable instantaneous money transfers between accounts at different banks with the only piece of identification needed for atransfer being the person’s cell phone number. All banks doing business in Russia can and will likely be obliged to connect to this system (which QiwiBank has already done) for doing peer-to-peer money transfers. It may prove difficult for our digital money remittance solutions to compete with suchsystem on the basis of convenience, price, or otherwise. There can also be no assurance that the CBR will not impose an upper fee limit for transferswithin such system that will be lower than the currently prevailing fee rates and thereby drive down the entire market for money remittance fees.Our competitors in the payments business also include non-traditional payment service providers that engage in payment services as anon-core business. In particular, we compete with the Russian Federal State Unitary Enterprise Postal Service, or Russian Post, which offers certainpayment services. Russian Post’s geographical penetration is at least as dispersed as our physical distribution network (i.e. our kiosks and terminals). Italso co-owns, in a joint-venture with the Russian state-controlled VTB Bank, the full-service commercial bank Pochta Bank. As a state-sponsoredinstitution, we believe that it is able to provide payment services at significantly lower prices than we are able to match profitably. We also facecompetition from other non-traditional payment service providers that have substantial financial resources, such as brick-and-mortar and onlineretailers (such as Alibaba and its financial services subsidiary Ant Financial which operates the AliPay payment system), and MNOs, in particular theRussian “Big Three” MNOs, MegaFon, VimpelCom and MTS, as well as their closest competitor Rostelekom, all of which have various paymentsolutions of their own. In addition, non-traditional payment service providers also include social networks such as Mail.ru Group’s VK, which isdeveloping its own payment solution VKPay and smartphone manufacturers such as Samsung and Apple. New competitors may penetrate the Russianelectronic payment market as well, including established international players such as MoneyGram or Google.Globally and in Russia, there is a steady influx of new fintech businesses looking to challenge and disrupt the payments and financialservices industry. These include so-called “challenger banks” such as Starling, Monzo, N26, Revolut, Atom and Tandem, who develop various digitalbanking and financial services and compete with various aspects of our services offering (none of the aforementioned companies has penetrated theRussian market as of the date hereof, although we have entered into agreements with Revolut contemplating the development of its business in Russiathrough the QIWI open API ecosystem). Since the financial services industry is susceptible to disruption, new categories of non-traditional financialservice providers may emerge in the future that may be difficult to currently anticipate. See “– If we cannot keep pace with rapid developments andchange in our industry and provide new services to our clients, or if any of the new products we roll out are unsuccessful, the use of our services coulddecline, and we could experience a decline in revenue and an inability to recoup costs”.We also compete against some directly comparable businesses, such as electronic payment system operators (primarily Yandex.Money,WebMoney and PayPal) and kiosk and terminal operators, including Cyberplat, Compay and Elecsnet.In recent years, we have started expanding our product portfolio beyond our traditional payment services business to include other types offinancial services. These new projects include our payment-by-installments SOVEST card project that we launched in 2016, Tochka, a digital bankingservice focused on offering a broad range of services to small and medium businesses (SMEs), and Rocketbank, a digital banking service offering debitcards and deposits to retail customers. In connection with each of these projects, we face intense competition from commercial and retail banks. Inparticular, SOVEST competes with commercial banks that operate unsecured retail consumer lending programs, such as Sovkombank, HomeCredit,Tinkoff and Alfa Bank, all of which have equivalent or similar products including pay-by-installment projects, which are a direct competition, creditcard programs or POS loan solutions. Tochka and Rocketbank are online and mobile banking services that digitalize traditional banking services(general banking (and add-on) services for SMEs in case of Tochka and debit cards and deposits in case of Rocketbank) and compete primarily on thebasis of enhanced user experience, price and add-on features, and are therefore exposed to competition from any banking institutions, particularlythose that are focused on developing convenient online and mobile solutions such as Sberbank, Alfa Bank and Tinkoff. Such banking institutionsoften have more established businesses in consumer lending and other banking services similar to those offered by Tochka and Rocketbank,respectively. While we seek to differentiate SOVEST, Tochka and Rocketbank from the competition, there cannot be any assurance that we will besuccessful in doing so due to the number of the competitors and their level of sophistication. We have also recently placed some focus on the so-calledsharing economy/ B2B2C segment, whereby we provide different complex payment and payout solutions to diverse businesses, such as payments totaxi drivers by taxi companies or payments to property holders by companies like Airbnb as well as on the self-employed market, where we providedifferent payment and acquiring-like solutions to self-employed individuals. These products are similar in nature to a salary program and certain otherproducts at a traditional retail bank, thereby exposing us to competition from all banks that offer such services, particularly if they are similarly focusedon convenience of on-boarding and use as well as customizable and user-friendly interfaces. 8Table of ContentsIn 2016, we became one of the two payment services providers that are able to accept electronic bets on behalf of sports betting companiesin Russia. Under amendments to the Russian betting laws introduced in 2014, in order to engage in sports betting, 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 anInteractive Bets Accounting Center (TSUPIS) set up by a credit organization together with a self-regulated association of bookmakers. Accordingly, in2016 QIWI Bank established a TSUPIS together with one of the self -regulated associations of bookmakers in order to be able to accept such paymentsand started acting as a platform for acceptance of interactive bets in favor of the members of the self-regulated organization of bookmakers. Processingpayments for betting merchants represents a significant portion of our revenues and also generally carries higher margins than processing payments tomerchants in most of the other market verticals we serve. Furthermore, gains received by our consumers from betting into their Qiwi Wallet accountsrepresents one of the significant reload sources for Qiwi Wallet accounts. If other banks or payment service providers were to enter this market, thepayment volume, revenue and margins of our Payment Services business, as well as overall usage of Qiwi Wallet, could be materially adverselyaffected.Any increase in competition by other market participants, or any shift of customer preferences in their favor due to any real or perceivedadvantages of their products, could result in a loss of consumers and harm to our payment volume, revenue and margins. As major commercial andretail banks increase their online and virtual presence and come up with increasingly sophisticated products directly competing with our corecompetencies, our competitive position could be severely undermined, resulting in reduced demand for our products, both with respect to our paymentservices business and the other financial services projects that we are pursuing. If we are unable to compete successfully for consumers, agents,merchants or other partners (including new corporate clients such the clients of Tochka or the businesses that use our B2B2C services as describedabove), our business, financial condition and results of operations could be materially adversely affected.Our continued growth depends on our ability to maintain or increase our payment services average net revenue yield.One of the key measures we use to assess the performance of our payment services business is payment average adjusted net revenue yield,which we calculate by dividing payment adjusted net revenue by the total payment volume of the transactions we process. Our payment averageadjusted net revenue yield may be affected by a number of factors, including increased competition, pressure from merchants and/or agents, changes inregulation and acquisitions. We have experienced declines in our payment average adjusted net revenue yield for certain merchant categories in thepast, in particular for our Telecom merchants where the merchant fees were sharply reduced by the Big Three MNOs, who have been seeking to reducecosts, and may continue to do so in the future. We have also experienced, to a lesser extent, the declines of our net revenue yield in the moneyremittance and certain categories of e-commerce market verticals. For example, in 2015, our average adjusted net revenue yield declined following theacquisition of the Contact money transfer system (“Contact”) and the Rapida payment processing system (“Rapida”) businesses, both of which hadbeen operating with a significantly lower average net revenue yield than QIWI (excluding Contact and Rapida) during 2015. Our payment averageadjusted net revenue yield may be further compressed in connection with the introduction of the recently established instant money transfer system(see “– The financial services industry is highly competitive, and we have a vast number of competitors that are larger and have greater financial andother resources”). The introduction and extensive utilization of this service, especially if the maximum commission limits are imposed by the CBR,can lead to a shift of part of our digital money remittance volumes within our ecosystem: from our card-to-card money transfer service to the instantmoney transfer system. This may lead to a decline in average commission in the money remittance market vertical and thus be dilutive to our paymentaverage adjusted net revenue yield. In order to maintain our competitiveness, we must continue to ensure that our payment processing system providesa more convenient and attractive option for merchants, customers and partners than alternative systems that may not require payment of a processingfee. Retail banks and various payment service providers are constantly developing low to zero-commission payment channels for their consumers. Toattract consumers, we also offer certain services on a commission-free basis, such as most peer-to-peer transfers within Qiwi Wallet and certain paymentsin e-commerce. Despite our efforts, consumers may still choose to use other payment service providers, even if those providers do not offer theconvenience that we do, because they charge lower fees. In addition, because merchants, partners and agents are able to switch between differentpayment service providers, we may face additional pressure to reduce the fees we charge due to increased competition from other payment serviceproviders.Our payment average adjusted net revenue yield is also impacted by the cost to us of consumers reloading their Qiwi Wallet accounts. Wemake available to our consumers a large variety of methods to reload the Qiwi Wallet accounts, including, among others, bank cards and accounts,mobile phone balances, kiosks and terminals and ATMs. Customers can also receive different payouts or money transfers to their wallets. The top upmethods have different cost implications for us and such cost implications can change for different channels overtime. For example, on payments madethrough the kiosks and terminals owned by our agents, we historically have paid lower fees for reloading the Qiwi Wallet than on most payments madefrom bank cards, as well as certain other channels. However, recently kiosks became a relatively more expensive top up channel for us. Additionally,since we provide payment processing services to merchants in the sports betting industry, betting gains received by our consumers into their QiwiWallet accounts also represent an important and cost-efficient source of Qiwi Wallets reloads, which could decline if our presence as a paymentprovider in the sports betting market diminishes for any reason. Should the relative weight of these reload channels in our total mix decline, this couldput a negative pressure on our yields. We currently do not attempt to direct consumer preferences towards any particular reload methods. If reloadmethods that come at a higher cost to us were to constitute a larger proportion of our overall reload channels mix, our margins could be adverselyaffected, which could have a material adverse effect on our business, financial condition and results of operations.Our payment services segment net revenue yield, which we calculate by dividing payment services segment net revenue by the totalpayment volume of the transactions we process, is affected by changes in our payment average adjusted net revenue yield and by our ability togenerate revenue from payment-related value added services, as well as passive revenue such as interest income on the wallet balances we hold andrevenue from fees for inactive accounts and unclaimed payments. If we are not able to generate such additional revenues for any reasons includingregulatory restrictions (see “– We are subject to extensive government regulation”), intensified competition or other reasons outside of our control, ourfinancial condition and results of operation could be materially negatively affected. 9Table of ContentsIf payment average adjusted net revenue yield or payment services segment net revenue declines as a result of any of these or other factors,we will have to offset the financial impact of such decline by increasing our payment volume, through the development and enhancement of value-added services or the development of new services and products. We cannot assure you that we will be able to increase our payment volumes or thatany new services we introduce or new products we develop will be profitable. If we are unable to offset the decline in our payment average adjusted netrevenue yield resulting from this and other factors, our business, financial condition and results of operations could be materially adversely affected.If 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 weroll out are unsuccessful, the use of our services could decline, and we could experience a decline in revenue and an inability to recoup costs.The financial services industry in which we operate is characterized by rapid technological change, new product and service introductions,evolving industry standards, changing customer needs and the entrance of more established market players seeking to expand into these businesses. Inorder to remain competitive, we continually seek to expand the services we offer and to develop new projects. These projects carry risks, such as delaysin delivery, performance problems, lack of customer acceptance, failure to adequately assess the potential revenues and budget the expenses of aproject and the amount of investment required by it, failure to anticipate potential pitfalls and issues, and misjudgment of a need for a particularproduct by the intended customer base, among other things. In our industry, these risks are acute. Any delay in the delivery of new services or thefailure to differentiate our services or to accurately predict and address market demand could render our services less desirable, or even obsolete, toconsumers, merchants or partners, and hurt our future prospects. For example, if alternative payment and credit mechanisms become widely available,thereby substituting our current products and services, and we do not develop and offer similar alternative payment and credit mechanisms successfullyand on a timely basis, our business and its prospects could be adversely affected. At the same time, if a new product we roll out or acquire fails toperform as anticipated, this could similarly adversely affect our business, financial position and results of operations. Since we position ourselves as aprovider of next generation payment and financial services, many of these new products are based on business models that are unproven and areessentially start-ups launched to test a hypothesis based on various assumptions regarding consumer behavior patterns and demands. Theseassumptions may ultimately prove wrong and we may not be able to convert these hypotheses into sustainable businesses and recoup our investmentsmade in such businesses. This is particularly applicable to the SOVEST project, for which few equivalents exist in Russia or internationally. Itsbusiness model currently continues to evolve, while the project is operating at a loss. Rocketbank is similarly currently at the stage of proving itsbusiness model and monetization potential, and we may ultimately not be successful in converting the idea underlying its model into a profitablebusiness or platform to engage new consumers towards our other more profitable products or extend the life cycle and product penetration of ourexisting clients. There can be no assurance that either SOVEST or Rocketbank will be able to outgrow these respective stages of their development,prove their respective business cases and ever become profitable. Both SOVEST and Rocketbank may turn out to be based on business models that areunsustainable either at a unit level or at scale, to the extent that we would have to recognize our investments in them (which have been and are likelyin the foreseeable to continue to be) substantial, as a sunk cost. Although Tochka is more of an established operation with a business model that hasproved itself, we may face challenges with further developing its product offering or expanding the scope of its operations due to constraints imposedby the terms of our equity associate, co-owned by Otkritie, that now holds the Tochka business, or by any regulatory hurdles. For example, AML andKYC requirements and regulations all across the banking industry, and in the small and medium enterprises (“SME”) end-market especially, areconstantly evolving and may generally lack widely accepted principals, may often be relatively nonadoptive or difficult to observe and may be subjectto varying interpretations by different market participants and regulatory bodies. Hence, we may not be able from time to time to onboard new clientsat a targeted pace even if such small and medium-sized businesses are entirely legitimate, or we may be subject to fines, penalties or operationalrestrictions if any of the appropriate regulatory bodies interprets industry practices or regulations differently from us or if such interpretations changesover time. If any such restrictions or fines were imposed or if we are not able to onboard clients with a projected pace for any of the above reasons orotherwise, our business, financial condition and results of operations could be materially adversely affected.We may be unable to recover the costs we have incurred in developing, rolling out, implementing and marketing new products andservices. Our development efforts could result in increased costs and we could also experience a loss in business that could reduce our earnings orcould cause a loss of revenue if promised new services are not timely delivered to our clients, are not able to compete effectively with those of ourcompetitors or do not perform as anticipated. As we enter markets that are new for us with our new products and services offerings, we face additionaloperational, regulatory and other risks that we may not be able to adequately address due to our lack of experience in such markets and the associatedrisks.We have already incurred and expect to continue to incur significant costs in connection with the roll-out and operations of our newprojects that we may not be able to offset by associated income, at least for a certain period of time. SOVEST in particular is a cash-intensive project forus, since we have to invest in the development and marketing of a project with a model that is novel to the market as well as use our own funds toprovide funding to our customers to make purchases from the merchants with the use of SOVEST cards; if it does not yield the expected results, it mayresult in a substantial sunk cost for us. See also “–Our business is exposed to counterparty and credit risks” and “–Our operations may be constrainedif we cannot attract or service future debt financing.” As we are seeking to convert SOVEST into a multi-bank platform to transfer the credit portfolioto partner banks and thereby enable a more rapid and efficient scaling of the project, we may not be able to structure the economics of such partnershipin a manner that ensures adequate returns for us or the partner banks. If this was to happen, we could either suffer diminished returns or lose our bankingpartners, or we may not be able to reach agreement on sharing the economics with our prospective partners altogether, in which case we would have toforego the development of the SOVEST multi-bank platform and bear the entirety of the SOVEST credit portfolio, credit risks and funding costs on ourown. Moreover, if this or any other risks were to materialize such that we would have to substantially modify or scale down the SOVEST project, wemay face a substantial increase in the cost of risk that we may not be able to manage and thus may suffer additional losses. Further developing themulti-bank model that Tochka currently operates under also may present challenges, since we do not control the management of Tochka pursuant toour arrangements with Otkritie and the 10Table of ContentsTochka founders. The anticipated returns of Tochka may fail to be achieved due to the failure of Otkritie Bank to perform under its obligations to us,which it assumed in connection with our agreements in respect of Tochka, or any conflict between us and Otkritie with respect to the development ofTochka; see “–We may not be able to complete or integrate successfully any potential future acquisitions, partnerships or joint ventures.”We also actively develop other new products, services and technologies, including in the areas of blockchain and cryptoprocessing. If ourefforts in connection with any of such research and development initiatives do not pay off as expected, this will result in the loss of our investmentboth 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 orundertake different research and development initiatives. If our investments in start-up companies or research and development initiatives do not yieldthe 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, orif our new initiatives do not yield the expected results, our business, financial condition and results of operations could be materially adverselyaffected.We are subject to the economic risk and business cycles of our merchants, partners and agents and the overall level of consumer spending.The financial services industry depends heavily on the overall level of consumer spending, which affects each of our operating segments.We are exposed to general economic conditions that affect consumer confidence, consumer spending, consumer discretionary income or changes inconsumer purchasing habits. Economic factors such as employment levels, business conditions, energy and fuel costs, interest rates, inflation rate andthe strength of the ruble against foreign currencies (in particular the U.S. dollar) could reduce consumer spending or change consumer purchasinghabits. A reduction in the amount of consumer spending could result in a decrease in our revenue and profits. If our merchants or partners make fewersales of their products and services using our services or consumers spend less money per transaction, the volume of payments our Payment servicessegment processes will decline, resulting in lower revenue. A further weakening in the economy could have a negative impact on our merchants, aswell as consumers who purchase products and services using our payment processing systems, which could, in turn, negatively impact our business,financial condition and results of operations, particularly if the recessionary environment disproportionately affects some of the market segments thatrepresent a larger portion of our payment processing volume. In addition, these factors could force some of our merchants and/or agents to liquidatetheir operations or go bankrupt, or could cause our agents to reduce the number of their locations or hours of operation, resulting in reducedconvenience of our service. Similarly, deteriorating economy and reduced consumer spending may translate into a decline in number of transactionswith, or average ticket of, our SOVEST cards and may also affect the creditworthiness of customers, which could result in increased credit risk (see “–Our business is exposed to counterparty and credit risks”). Tochka is also exposed to the negative repercussions of the economic slowdown since itsbusiness depends on the general level of entrepreneurial activity, which tends to be lower during such periods, while Rocketbank’s debit cards andretail deposits business has a direct correlation with consumer spending levels and earning power. 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 EasternUkraine, the deterioration of Russia’s relationships with many Western countries, the economic and financial sanctions imposed in connection withthese events on certain Russian companies and individuals, as well as against entire sectors of Russian economy, by the U.S., EU, Canada and othercountries, a steep decline in oil prices, a record weakening of the Russian ruble against the U.S. dollar, a lack of access to financing for Russian issuers,capital flight and a general climate of political and economic uncertainty, among other factors. (See “– Economic instability in Russia could have anadverse effect on our business” and “– The situation in Ukraine and the U.S., EU and other sanctions that have been imposed could adversely impactour operations and financial condition”). The Russian economy contracted in both 2015 and in 2016, although it returned to modest growth in 2017and 2018. During 2014-2016, the population’s purchasing power decreased due to the weakening of the ruble, basic necessities such as food productsand utilities became more expensive, and consumer confidence declined significantly, according to the Russian Consumer Confidence Overall Indexreported by Rosstat. According to Rosstat, inflation was 11.4% in 2014 and 12.9% in 2015 (although it relatively stabilized in 2016 at 5.4% and thenfurther declined to 2.5% in 2017, before increasing again to 4.2% in 2018, which exceeded the targets set by the government), while real disposableincome has been declining for five years in a row as of the end of 2018 with 0.2% decline in 2018 according to Ministry of Economic Developmentdata. Against this backdrop, household consumption decreased in 2015 versus 2014, although it subsequently rebound somewhat in absolute terms,according to Rosstat. Nevertheless, consumer spending generally remains cautious and consumer confidence is far from its peaks. A further decline inreal disposable income and consumer purchasing power is expected in connection with the recent increase of VAT in Russia effective as of thebeginning of 2019. A prolonged economic slowdown in Russia could have a significant negative effect on consumer spending in Russia 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 certain types of money remittances and financial servicescategories. Further adverse changes in economic conditions in Russia could adversely impact our future revenues and profits and cause a materialadverse effect on our business, financial condition and results of operations. 11Table of ContentsIf customer and merchant confidence in our business deteriorates, our business, financial condition and results of operations could be adverselyaffected.Our business is built on customers’ and merchants’ confidence in our brands, as well as our ability to provide fast, reliable paymentservices, including electronic payment and payment processing services, and other financial services. The strength of our brands and reputation are ofparamount importance to us. A number of factors could adversely affect customer confidence in our brands, many of which are beyond our control, andcould have an adverse impact on our results of operations. 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 to some extent dependent on our agents, merchants and partners to which we license our products to maintain thereputation of our brands. Despite the measures that we put in place to ensure their compliance with our performance standards, our lack of control overtheir operations may result in the low quality of service of a particular counterparty being attributed to our brands, negatively affecting our overallreputation. For example, our agents are able to charge consumers fees for the use of the kiosks and terminals operated by them, in addition to the feescharged by us, and we mostly do not cap or otherwise control the level of such fees levied by our agents on consumers. We can provide no assurancethat our agents will not raise these fees to a level that will adversely affect the popularity of our products among consumers. We also might determineto cap this type of fee to protect the strength of our brand and thereby lose some of our agents and points of physical presence. Furthermore, negativepublicity surrounding any assertion that our agents, merchants and/or partners are implicated in fraudulent transactions, irrespective of the accuracy ofsuch publicity or its connection with our current operations or business, could harm our reputation.Any event that hurts any of our brands and reputation as a reliable financial services provider could have a material adverse effect on ourbusiness, financial condition and results of operations.Qiwi Bank 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.Qiwi Bank is central to the operation of all of our key business segments as it provides issuing, acquiring and deposit settlement functionswithin our group, serves as the issuing bank for our payment-by-installment SOVEST cards and Rocketbank cards, and is the banking institutionbehind Tochka’s banking services offering (along with our partner Otkritie Bank). In June 2015, we acquired Rapida LTD, a non-banking creditorganization, from Otkritie Investment Cyprus Limited, or Otkritie. Rapida LTD was merged into Qiwi Bank in 2017.All banks and non-banking credit organizations operating in Russia are subject to extensive regulation and supervision. Requirementsimposed by regulators, including capital adequacy, liquidity reserves, prudential ratios, loss provisions and other regulatory requirements are designedto ensure the integrity of the financial markets and to protect consumers and other third parties with whom a bank deals. These regulations may limitour activities, and may increase our costs of doing business, or require us to seek additional capital in order to comply with applicable capitaladequacy or liquidity requirements. Existing laws and regulations could be amended, the manner in which laws and regulations are enforced orinterpreted could change and new laws or regulations could be adopted. Russian banks also have extensive reporting obligations, including, withoutlimitation, disclosure of financial statements, various operational indicators, and affiliates and persons who exercise (direct or indirect) influence overthe decisions taken by the management bodies of the bank. The CBR may at any time conduct full or selective audits of any bank’s filings and mayinspect all of its books and records.Both Qiwi Bank and Rapida LTD have been the subject of CBR investigations in the past that have uncovered various violations anddeficiencies in relation to, among other things, reporting requirements, anti-money laundering, cybersecurity, compliance with applicable electronicpayments thresholds requirements and other issues which we believe we have generally rectified. In the course of 2018, Qiwi Bank underwent a majorscheduled audit by the CBR as part of its ongoing supervisory process, which resulted in CBR identifying a number of violations and imposing certainsanctions on us. The measures that the CBR has so far imposed on us in response have not had a significant impact on our operations and have beenmostly lifted. We believe that we have remedied the violations and taken appropriate measures to ensure that we will not be in breach of suchrequirements going forward. However, there can be no assurance that additional sanctions will not be imposed on us as a result of such or any otherfindings and that we will not come under greater CBR scrutiny in connection with any perceived deficiencies in our past conduct, or that any currentlyplanned or future inspections will not result in discovery of any significant or minor additional violations of various banking regulations, and whatsanctions the CBR would choose to employ against us if this were to happen. Any such sanctions could have a material adverse effect on our business,financial condition and results of operations.Moreover, the scrutiny can be expected to increase in connection with our involvement in the SOVEST, Tochka and Rocketbank projectsas they have extended the scope of traditional commercial and retail bank services that Qiwi Bank is providing. Additionally, some of our new projectsrequire significant funding and therefore put certain pressure on the ability of Qiwi Bank to comply with applicable capital requirements and otherprudential ratios, while through other projects we are engaged in managing substantial amounts of consumer’s funds. Any breach of applicableregulations could expose us to potential liability, including fines, prohibition to carry out certain transactions for a period of up to six months (or morein the event of repeated violations), the introduction of temporary administration by the CBR and in certain instances the revocation of our bankinglicense. Revocation of Qiwi Bank’s banking license would significantly hinder our ability to process payments, and would result in a decrease of ourprofitability, damage our reputation and could cause other regulators to increase their scrutiny of our activities. If Qiwi Bank’s banking license isrevoked, we would effectively be unable to provide most of our services. For these reasons, any material breach of laws and regulations by Qiwi Bankor the revocation of its banking licenses could have a material adverse effect on our business, financial condition and results of operations. 12Table of ContentsRecent developments in the Russian banking sector (see “–The banking system in Russia remains underdeveloped”) have put increasingpressure on Qiwi Bank, and have also impacted, and we expect may continue to impact, our business in a number of other ways, including a decrease inconsumer lending from most large and medium sized banks, resulting in less loan repayments through our network and therefore reduced fees as well asa decrease of Contact’s network of partner banks through which it operates and corresponding decline in the reach of its network and thus moneyremittance volumes. All of these factors could materially adversely affect our business, 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.A substantial part of the Russian population continues to rely on cash payments, rather than credit and debit card payments or electronicbanking. Our business developed as a network of kiosks and terminals allowing consumers to use physical currency for online payments, and our corecompetitive edge at the time was our ability to offer consumers that primarily used cash as means of payment access to online payments through ourkiosks and terminals simultaneously offering merchants access to a large pool of customers that use cash. While we have since largely outgrown thatmodel, our kiosks and terminals network remains a significant part of our infrastructure as a reload and client acquisition channel for Qiwi Wallet. Webelieve therefore that the usage of Qiwi Wallet and hence our volumes, revenues and the profitability of our payment services segment continues todepend to some extent on the use of cash as a means of payment and the reach of our kiosks and terminals network. Over time, the prevalence of cashpayments is declining as a greater percentage of the population in emerging markets is adopting credit and debit card payments and electronicbanking, and our kiosks and terminals network is decreasing. Unless we can successfully differentiate ourselves from competition in the payments andfinancial services market through other features and functionalities beyond providing a pathway to online payments for consumers who continue torely on cash through our kiosks and terminals network, and the access to this consumer segment for merchants and partners, the shift from cashpayments to credit and debit card payments and electronic banking could reduce our market share and payment volumes and may have a materialadverse 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 feesimposed by the agents (see “–If customer and merchant confidence in our business deteriorates, our business, financial condition and results ofoperations could be adversely affected”), and development of alternative payment channels. Based on available data, we believe that the overallnumber of and the use of kiosks declined substantially in 2015 versus prior years and continues to decline slightly. The decline in 2015 was a result,among other things, of enhanced scrutiny by the CBR over the compliance by the agents with legislation that requires them to remit their proceeds tospecial accounts (see “- Regulation – Regulation of Payment Services”). Through reducing the size of our network, this has adversely affected theavailability and convenience of our services to consumers, including the convenience of use of Qiwi Wallet, for which historically kiosks andterminals have been the most popular reload channel. We have since observed that these developments had the effect of making the use of our kiosksand terminals generally more expensive or less convenient for the consumers. These developments also temporarily increased the cost to us ofconsumers reloading their Qiwi Wallet accounts, since historically our kiosks and terminals have been the most popular reload channel (see “– Ourcontinued growth depends on our ability to maintain or increase our average payment net revenue yield”). There can be no assurance that thisnegative impact will not continue going forward as increased regulatory pressures put more agents out of business and deter new ones from entering it.Other statutory requirements that could have a similar effect on our business if fully enforced are the amendments to the Federal Law of the RussianFederation No. 54-FZ “On the use of cash registers in cash payments and (or) settlements with the use of payment cards”, dated May 22, 2003 (asamended). In particular, the law mandates that all kiosks (subject to certain exceptions) should be equipped with new or modernized cash registers.There can be no assurance that our agents are and will continue to be fully in compliance with these requirements, which could cause a furtherreduction of our kiosk network. Moreover, failure to comply with such enhanced control measures by us or our agents could result in the CBRimposing fines or restrictions on our activities (see “–Qiwi Bank and other Russian banks and credit organizations operate in a highly regulatedenvironment, and increased regulator scrutiny could have an adverse effect on our business, financial condition and results of operations”). All ofthese factors could have a material adverse effect on our business, financial condition and results of operations.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 are subject to a variety of regulations aimed at preventing money laundering and financing criminal activity and terrorism, financial servicesregulations, payment services regulations, consumer protection laws, currency control regulations, advertising laws, betting laws and privacy and dataprotection laws and therefore experience periodic investigations by various regulatory authorities in connection with the same, which may sometimesresult in monetary or other sanctions being imposed on us. Further, these laws and regulations vary significantly from country to country. Many ofthese laws and regulations are constantly evolving, and are often unclear and inconsistent with other applicable laws and regulations, including acrossvarious jurisdictions, making compliance challenging and increasing our related operating costs and legal risks. If local authorities in Russia or othercountries choose to enforce specific interpretations of the applicable legislation that differ from ours, we may be found to be in violation and subject topenalties or other liabilities. This could also limit our ability to provide some of our services going forward and may increase our cost of doingbusiness.Changes in our industry are rapid, and new products that we develop may become subject to government regulation undoing the benefitswe expect to derive from such products. In some jurisdictions where we operate, there is currently little or virtually no legislation addressing electronicpayments, and no assurance can be made that if such legislation is adopted it will be beneficial to our business. With respect to countries that do havean established regulatory framework for the types of services that we provide, no assurance can be given that the relevant legislation will not beamended to the detriment of our business, including due to the lobbying efforts undertaken by or on behalf of our competitors. For instance, if anyrestrictions including complete prohibition, ban of specific reload methods or various quantitative caps 13Table of Contentsare imposed on the use or reloads of anonymous e-wallets, it could have a significant negative impact on our business. From time to time, suchproposals are being raised by various officials. For example, pursuant to the draft amendments to the Russian anti-money laundering legislationcurrently considered by the State Duma, anonymous users will not be able to withdraw cash from their prepaid cards. In addition, in early 2018 it wasreported that the CBR, Rosfinmonitoring and the Ministry of Finance are actively discussing new proposed legislation that would ban the use ofanonymous e-wallets completely or at least prohibit the reloading of such e-wallets other than from a bank account. We could also be significantlyadversely affected if legislators prohibit, or otherwise regulate to our disadvantage, the treatment of fees that we charge on inactive accounts for theircontinued maintenance and unclaimed payments, which represents a significant revenue stream for us. Such initiatives are currently being discussed,but have not yet been formally proposed by legislators.In December 2018, another proposed development in the area of e-payments in Russia has been submitted for consideration to the RussianState Duma and subsequently approved in the first reading in March 2019. The proposed amendments to the Russian National Payment System Lawwould toughen control over the activities of foreign payment systems and foreign electronic payment services in Russia. Foreign payment servicesproviders would essentially be prohibited from offering their services to consumers that are Russian residents and would have to localize theiroperations in order to continue servicing such consumers. If these amendments become law, we would have to make changes to our establishedpractices of working with international merchants and payment aggregators, which could have a significant negative impact on our business, inparticular in the e-commerce space. Additionally, these developments could cause us to lose the business of other international payment servicesproviders for which we serve as the conduit to the Russian market to the extent they do not choose to localize their Russian operations.Generally, Russian lawmakers and enforcement agencies have recently demonstrated increased scrutiny in matters relating to cyberspaceand e-payments, as borne out in the enhanced enforcement activities in the kiosk market, the de-anonymization of e-payments and various otherinitiatives aimed at increasing state control over online activities.Furthermore, recently there has been increased public attention and heightened legislation and regulations regarding money launderingand terrorist financing. We sometimes have to make significant judgment calls in applying anti-money laundering legislation and risk being found innon-compliance with it, particularly in relation to its mandatory client identification requirements, if, for example, we process payments made by ourconsumers from their Qiwi Wallet accounts for amounts in excess of the thresholds imposed by anti-money laundering legislation or for certain types ofmerchants without the required client identification. Although we use all methods available for client identification in all our projects and believe ourpractices in this regard are in compliance with legal requirements and in line with market practice (see “—Know-your-client requirements establishedby Russian anti-money laundering legislation may adversely impact our transaction volumes”), the Russian regulators may view us as beingnon-compliant and impose fines and other sanctions on us. There can also be no assurance that the mandatory client identification requirements underthe anti-money laundering legislation will not change further in a manner adverse to our business, for example, through making the identificationprocess more burdensome or through lowering the thresholds for transactions which non-identified customers or customers that only underwent thesimplified identification process can perform (see “Regulation”), which could result in lower payment volumes for us. For instance, there have alreadybeen proposals from certain government officials to ban payments by unidentified consumers altogether. On December 31, 2017, a new law came intoforce prescribing that the CBR may limit the number of bank accounts opened in aggregate in any number of banks to a client that has only beenidentified remotely, the amount of credit that may be provided to such customer, or the number of transactions such customer may perform within amonth. Any further adverse change to these requirements could have a substantial negative effect on our business.Risks associated with applying anti-money laundering legislation may be further exacerbated for us in connection with our new projects,particularly Tochka, that is focused on servicing small and medium sized business entities. Tochka is providing services to legal entities, whichexecute a significant number of transactions that are under scrutinized control of the regulatory authorities. Thus, the complexity of transactions andclients that we serve and consequently the number of suspicious transactions has materially increased exposing us to extensive ongoing control of theregulator. See also “–Know-your-client requirements established by Russian anti-money laundering legislation may adversely impact our transactionvolumes.”Certain sanctions relating to the ongoing hostility between Russian and Ukraine, and Russian countersanctions instituted in response,directly target payment services providers such as ourselves. In November 2016, the National Bank of Ukraine banned several Russian paymentservices providers from the Ukrainian market. In response, in April 2017, a law was enacted in Russia prohibiting certain types of money remittancefrom Russia to countries that have introduced sanctions against Russian payment systems (which, to our knowledge, so far only include Ukraine).Moreover, in May 2018, Qiwi Bank, one of our key subsidiaries, was added to the list of sanctioned entities by the Ukrainian government. While wehave not experienced any substantial operational difficulties in connection with this so far, there can be no assurance as to what effect the impositionof sanctions on us by Ukraine might have in the future, or what further adverse actions the government of Ukraine might take against us. Anydetermination by a relevant regulator that we have not complied with the spirit or text of any such sanctions or regulations, or even any statements tothat effect, may have a material adverse effect on our business, financial condition and results of operations, as well as the price of our ADSs. WhileUkraine remains the only country so far to introduce sanctions of this type, there can be no assurance that additional sanctions affecting the paymentsbusiness will not be imposed by regulators in other countries in which we operate.Tax legislation regarding electronic payments and other online services keeps evolving. In July 2016, a bill was signed into law in Russiamaking online services subject to VAT at the location of the customer, which would require any foreign companies selling certain online services inRussia to register as taxpayers in Russia and pay VAT on Russian sales (see—“VAT on digital services in Russia”). The new law also requirescompanies providing settlement services on behalf of the foreign merchants to act as tax agents and withdraw and remit to the tax authorities theapplicable VAT. If we are found to have any obligations under this law or not be in compliance with such obligations or if the authorities choose toenforce specific interpretations of the applicable legislation that differ from ours, we could face significant adverse tax consequences. We could alsoexperience a reduction in volumes from our foreign merchants as they cease or downsize their sales to Russia in the light of the new regulation. 14Table of ContentsThe regulatory framework around electronic payments and other financial services that we offer is in a state of development in most of thecountries in which we operate. For example, on January 1, 2017, the Regulatory Framework for Stored Values and Electronic Payment Systems cameinto force in the United Arab Emirates. It introduced a mandatory licensing and related compliance regime for certain electronic payment serviceproviders and established a one-year transitional period for existing digital payment services providers to take appropriate measures to comply with thenew rules. In case of failure to do so payment services provider may be mandated to cease provision of such services. Moreover, any individual orentity providing (or representing themselves as capable of providing) digital payment services without the appropriate license or authorization will besubject to administrative penalties. Implementing legislation and clarifications still remain to be adopted, and we are still assessing the applicabilityand potential impact of the new legislation on our business. If our position on our status under the Regulatory Framework is different from that of theUAE regulator or if we are unable to comply with the mandatory licensing if it is deemed applicable to us, it could have a material adverse effect on ourbusiness, financial condition and results of operations. Effective January 1, 2018, the United Arab Emirates introduced a value added tax at a rate of5% for certain types of services (while other types of services are subject to a zero tax rate or benefit from exemptions). Although currently we do notexpect to be affected materially by this new law, there can be no assurance that we will not be materially affected by it in the future. Any materialchanges in the applicable legislation, its interpretation by the relevant authorities or their enforcement practice could increase our tax burdensubstantially and thus reduce our margins.Further, since the end of 2014 our subsidiary in Kazakhstan is subject to local financial monitoring legislation that imposes certain clientidentification requirements on us. In connection with this legislation, we had to restructure our operations in Kazakhstan to make our Kazakhsubsidiary the operator of our payment system in the country in 2015. As the anti-money laundering legislation in Kazakhstan is still relatively nascentand undeveloped, we may face various difficulties when implementing such 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 thecountry. Moreover, the Law of the Republic of Kazakhstan No. 11-VI “On Payments and Payment Systems”, dated July 26, 2016, that came into forcein September 2016 introduced a more comprehensive regulatory regime for the payments market in general and brought the Kazakh legislation more inline with the international standards. Since the position of the local regulator in relation to the enforcement of this legislation is not yet clear andestablished, we may be found in violation of applicable laws and regulations and be subject to penalties or other liabilities.Due to the international nature of our business we are exposed to changes in legislation throughout the world. As an example, we may beimpacted by the March 2019 resolution by the Council of the European Union to include the United Arab Emirates into its list of non-cooperative taxjurisdictions, since one of subsidiaries is set up in the UAE. We are still assessing the potential effect that this development may have on ouroperations.Subsequent legislation and regulation and interpretations thereof, litigation, court rulings, or other events could expose us to increasedcosts, liability and reputational damage that could have a material adverse effect on our business, financial condition and results of operations.We derive a substantial portion of our revenues from merchants in the betting industry.We provide payment processing services to a number of merchants in the betting industry. Processing payments to such merchants constitutedapproximately 6.9%, 9.5% and 15.5% of our payment services segment payment volume for the years ended December 31, 2016, 2017 and 2018respectively. These volumes are included in our E-commerce market vertical. Processing payments for this category of merchants generally carrieshigher margins then processing payments to merchants in most other market verticals that we serve and corresponds to a significant part of ourrevenues. We also provide winning repayment services to such merchants including processing of winnings to banking cards that is included in ourMoney Remittances market vertical and repayment of winnings to QIWI Wallets that is not included in our payment volume. Moreover, the repaymentof winnings by such merchants to the customers’ QIWI Wallets serves as an important and economically beneficial reload channel and new customeracquisition tool, contributing to the sustainability and attractiveness of our ecosystem. Our operating results will continue to depend on merchants inthe betting industry and their use of our services for the foreseeable future. The betting industry is subject to extensive and actively developingregulation in Russia, as well as increasing government scrutiny. Under amendments to the Russian betting laws introduced in 2014 (see “Regulation”),in order to engage in the betting industry, a bookmaker has to become a member 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 Bets Accounting Center (TSUPIS) set up by a credit organization togetherwith a self-regulated association of bookmakers. In 2016 QIWI Bank established a TSUPIS together with one of the self -regulated associations ofbookmakers in order to be able to accept such payments. If any of our merchants engaged in the betting industry is not able or willing to comply withthe Russian betting legislation or if they decide to cease their operations in Russia for regulatory reasons or otherwise or shift to another paymentprocessor (TSUPIS), we would have to discontinue servicing them and would lose associated volumes and income. Moreover, if we are found to be innon-compliance with any of the requirements of the applicable legislation, we could not only become subject to fines and other sanctions, but couldalso have to discontinue to process transactions that are deemed to be in breach of the applicable rules and as a result lose associated revenue streams.Effective January 1, 2018, relevant legislation has been supplemented with the concept of government blacklisting of betting merchants that havebeen found to be in violation or allegedly are not in compliance with applicable Russian laws, and the requirement for credit institutions to block anypayments to such blacklisted merchants. We have already experienced a number of instances where certain providers have been blacklisted and weobserve that this trend is gaining momentum and further blacklistings are likely. Any of these developments may result in the contraction of thebetting sector or our share in this market and therefore adversely affect the revenues, margins and payment net revenue yield of our E-commerce marketvertical and overall Payment Services segment as well as decrease the attractiveness of our ecosystem to some of our consumers and consequentlyoverall negatively affect consumer engagement with our services. Furthermore, if any of our merchants engaged in the betting industry are blacklisted,our subsidiaries, which process the payments for betting merchants may be found to be in violation of the relevant laws, whether due tomisinterpretation of applicable requirements, failure to take timely action, or for any other reason, and could become so blacklisted as well, whichcould substantially hinder our operations. 15Table of ContentsWe may also be subject to reputational risks associated with being involved in the betting business through offering our payments servicesto betting merchants. For example, in July 2016, we were served with notices from Roskomnadzor, the Russian state agency responsible, among otherthings, for overseeing the media and Internet, stating that we had breached Russian laws on public distribution of information about gambling, sinceour website contained links to services offered by certain betting operators which were allegedly not in compliance with the Russian bettinglegislation. We have complied with the prescriptions contained in the notices. However, there can be no assurance that further violations will not occurin the future as we service a wide variety of merchants and depend on their compliance 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 by blocking our website or imposing fines or other sanctions.Furthermore, we could face similar difficulties in other jurisdictions since online betting is an area of intense focus by regulators in many of thecountries in which we operate. If we have to terminate our relationships with any of our major merchants in the betting industry, whether for regulatoryor reputational reasons or otherwise, and are unable to replace this business, if our current terms of doing business with any of these merchants becomessignificantly less favorable, or if we face adverse regulatory consequences associated with servicing such merchants, our business, financial conditionand results of operations may be materially adversely affected.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 ventureson an on-going basis, some of which may be material. At any time, including currently, we may be engaged in discussions or negotiations or diligenceevaluations with respect to possible acquisitions, partnerships or joint ventures or may have entered into non-binding documents in relation to suchtransactions. As part of our strategy, we intend to continue our disciplined approach to identifying, executing and integrating strategic acquisitions,partnerships and joint ventures.Potential future acquisitions, partnerships and joint ventures may pose significant risks to our existing operations if we acquire businessesthat prove not to be a good fit for our organization, fail to perform the necessary due diligence on the relevant targets, overestimate their anticipatedcontribution to our business, overvalue them or fail to successfully integrate them. These projects would place additional demands on our managerial,operational, financial and other resources, create operational complexity requiring additional personnel and other resources as well as enhancedcontrol procedures. In addition, we may not be able to successfully finance or integrate any businesses, services or technologies that we acquire or withwhich we form a partnership or joint venture. Furthermore, the integration of any acquisition may divert management’s time and resources from ourmain business and disrupt our operations. Moreover, even if we were successful in integrating newly acquired assets, expected synergies or cost savingsmay not materialize, resulting in lower than expected benefits to us from such transactions. We may spend time and money on projects that fail toperform in line with our expectations or require financing in excess of what we were budgeting at the time of the acquisition. Additionally, whenmaking acquisitions it may not be possible for us to conduct a detailed investigation of the nature of the assets being acquired due to, for instance, timeconstraints in making the decision and other factors. We may become responsible for additional liabilities or obligations not foreseen at the time of anacquisition. In addition, in connection with any acquisitions, we must comply with various antitrust requirements. It is possible that perceived or actualviolations of these requirements could give rise to regulatory enforcement action or result in us not receiving all necessary approvals in order tocomplete a desired acquisition. To the extent we pay the purchase price of any acquisition in cash, it would reduce our cash reserves, and to the extentthe purchase price is paid with our stock, it could be dilutive to our stockholders. To the extent we pay the purchase price with proceeds from theincurrence of debt, it would increase our level of indebtedness and could negatively affect our liquidity and restrict our operations. Our competitorsmay be willing or able to pay more than us for acquisitions, which may cause us to lose certain acquisitions that we would otherwise desire tocomplete. We may also face counterparty and credit risks in connection with acquisitions, partnerships and joint ventures in the event ourcounterparties fail to perform their obligations.Some of these risks have materialized or may materialize in connection with our August 2017 acquisition of Tochka and Rocketbankassets from Otkritie Bank, one of the largest shareholders of our company. The acquisition of Tochka and Rocketbank assets was a complex dealinvolving a series of transactions to acquire the brands, software and hardware of both businesses, as well as a number of operational agreements withOtkritie Bank. We subsequently reached an agreement with Otkritie Bank and the founders of Tochka to operate Tochka together through a jointly-owned company that we account for as an equity associate on the basis of a multi-bank model where customers can choose the servicing bank fromamong our own Qiwi Bank and Otkritie Bank. Although JSC Tochka started to operate Tochka multi-banking platform from February 1, 2019, certainaspects of this arrangement still remain to be finalized as of the date of this annual report. Furthermore, under the terms of the relevant documentation,all key shareholder decisions with respect to Tochka are to be made by a unanimous vote of the JV partners, and Otkritie has the right to buy out ourshare in Tochka together with the share of the founders of Tochka or separately in the event of a deadlock, while neither we nor the founders of Tochkaenjoy a similar right. This potentially exposes us to various risks relating to conflicts with Otkritie or the founders of Tochka as our JV counterpartiesin JSC Tochka. In the event Otkritie changes its strategy with respect to Tochka, pursues a different development strategy, or experiences financial orother difficulties or if our or Otkrities’ relations with the founders or management of JSC Tochka deteriorates or in case of the inability of founders andmanagement to run the business for any reasons outside of our control, this could have a material adverse effect on the operations of Tochka andconsequently the ultimate success or failure of this transaction from our perspective. Certain aspects of the Rocketbank acquisition also remain to befinalized as of the date of this annual report, since some of Rocketbank’s business processes still by necessity run through Otkritie Bank, and as suchwe have to rely on Otkritie Bank to some extent to operate Rocketbank’s business. All of the above has resulted and may result in the future in us notbeing able to realize the full anticipated benefit of these acquisitions so far. 16Table of ContentsAll of the above risks 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 andscope of our business. In light of the fact that we are a highly regulated business that processes large volumes of payments, we need to have enhancedprocesses, procedures and controls in order to provide reasonable assurance that we are operating in compliance with applicable regulatoryrequirements. Given that we store and/or transmit sensitive data of our customers, we have ultimate liability to our customers for our failure to protectthis data. As discussed in more detail below, we have experienced breaches of our cybersecurity in the past, and future breaches resulting inunauthorized disclosure of data are possible (see - “Our services have been and may continue to be used for fraudulent, illegal or improper purposes,which could expose us to additional liability and harm our business.”). In addition, the Russian anti-money laundering laws to which we are subjectcontain numerous requirements with respect to identification of clients, and documentation and reporting of transactions subject to mandatory controland other suspicious transactions to the relevant authorities.Following our acquisition of Rapida LTD in 2015, we have had to devote additional resources to enhance the compliance function withinRapida LTD, which, at the time of our acquisition, was deficient in several areas. As of the date of this annual report, we continue to develop andintegrate certain control procedures with respect to our new projects SOVEST, Tochka and Rocketbank in order to maintain a comprehensive system ofcontrols and procedures across our business. There can be no assurance, however, that the measures we undertake will be sufficient to preventsignificant deficiencies in the compliance procedures and internal controls of our new projects. Moreover, we develop Tochka as an associate togetherwith Otkritie Bank (see - “We may not be able to complete or integrate successfully any potential future acquisitions, partnerships or joint ventures.”)and do not have the full control over operations and processes of JSC Tochka, which has an operational independence under respective agreements.Thus there can be no assurance that we will be able to implement and successfully execute all necessary control procedures in JCS Tochka. Our failureto implement and maintain effective internal control over financial reporting could result in errors in our financial statements that could lead to arestatement of our financial statements, cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reportedfinancial information, which may result in a decline in the market price of our ADSs.Among others, we are subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, which prohibits U.S. companies and theirintermediaries from bribing foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment, and otherlaws concerning our international operations. Similar legislation in other jurisdictions contains similar prohibitions, although varying in both scopeand jurisdiction. We have implemented policies and 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 theeffectiveness of any policies, procedures and internal controls, including the possibility of human error and the circumvention or overriding of thepolicies, procedures and internal controls. There can be no assurance that such policies or procedures or internal controls will work effectively at alltimes or protect us against liability under these or other laws for actions taken by our employees, distributors and other intermediaries with respect toour 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 customerfunds, as well as comply with applicable regulatory requirements. Any failure to manage consumer funds or to comply with applicable regulatoryrequirements could result in the imposition of fines, harm our reputation and significantly diminish use of our products. In addition, if we are not incompliance with anti-corruption laws and other laws governing the conduct of business with government entities and/or officials (including locallaws), we may be subject to criminal and civil penalties and other remedial measures, which could have an adverse impact on our business, financialcondition, results of operations and prospects.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 and money remittance transactions. A significant and growing portion of ourcustomers access our payment services through mobile devices. We may lose customers if we are not able to continue to meet our customers’ mobileand multi-screen experience expectations. The variety of technical and other configurations across different mobile devices and platforms increases thechallenges associated with this environment. In addition, a number of other companies with significant resources and a number of innovative startupshave introduced products and services focusing on mobile markets. Our ability to successfully address the challenges posed by the rapidly evolvingmarket for mobile transactions is crucial to our continued success, and any failure to continuously increase the volume of mobile transactions effectedthrough our platform could have a material adverse effect on our business, financial condition and results of operations.Our systems and our third party providers’ systems may fail due to factors beyond our control, which could interrupt our service, cause us to losebusiness and increase our costs.We depend on the efficient and uninterrupted operation of numerous systems, including our computer systems, software andtelecommunications networks, as well as the data centers that we lease from third parties. Our systems and operations, or those of our third partyproviders, could be exposed to damage or interruption from, among other things, fire, flood, natural disaster, power loss, telecommunications failure,vendor failure, unauthorized entry, improper operation and computer viruses. In addition, because all three of our data centers used for processingpayments are located in the city of Moscow, a catastrophic event affecting the city of Moscow may result in 17Table of Contentsthe loss of both data centers. Substantial property and equipment loss, and disruption in operations as well as any defects in our systems or those ofthird parties or other difficulties could expose us to liability and materially adversely impact our business, financial condition and results of operationsin all of our operating segments. In addition, any outage or disruptive efforts could 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 and costly 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 wehave ultimate liability to our customers for our failure to protect this data. We have experienced breaches of our security by hackers in the past, andbreaches could occur in the future. In such circumstances, our encryption of data and other protective measures have not prevented unauthorized accessand may not be sufficient to prevent future unauthorized access. For example, in January 2014 we discovered certain unauthorized activity in a numberof wallet accounts. Although we do not believe that any confidential customer account data was compromised as a result of the activity, we incurred aloss of RUB 88 million. Rapida LTD (prior to its merger with and into QIWI Bank) also experienced several security breaches prior to our acquisitionof the company. Any future breach of our system, including through employee fraud, may subject us to material losses or liability, including fines andclaims for unauthorized purchases with misappropriated credit or debit card information, identity theft, impersonation or other similar fraud claims. Amisuse of such data or a cybersecurity breach could harm our reputation and deter clients from using electronic payments as well as kiosks andterminals generally and any of our services specifically, increase our operating expenses in order to correct the breaches or failures, expose us touninsured liability, increase our risk of regulatory scrutiny, subject us to lawsuits, result in the imposition of material penalties and fines by stateauthorities and otherwise materially adversely affect our business, financial condition and results of operations.If we fail to comply with the applicable requirements of our agreements with major payment systems, they could seek to fine us, suspend us orterminate our registrations.Under our agreements with major payment systems, including Visa, MasterCard and MIR, both existing and any such agreements we mightenter into in the future, we are and will be required to comply with the terms of the relevant agreement and the generally applicable terms andconditions of the respective payment system based on the applicable laws of Russian Federation. If we do not comply with the terms of the agreementsor the rules of the relevant payment system, the relevant payment system could seek to fine us, suspend us or terminate the registrations that allow us toprocess transactions on its network. If we are in breach of the agreements or the relevant payment system otherwise terminates its agreements with us orterminates or suspends our participation, we may be unable to issue cards under its brand or process transactions made with the use of such cards, whichcould have a material adverse effect on our business. Any of these factors could have a material adverse effect on our reputation, as well as on ourbusiness, financial condition and results of operations.Customer complaints, actual or perceived failures of our customer service function or negative publicity about our customer service could materiallyadversely affect the attractiveness of our services.Customer complaints, actual or perceived failures of our customer service function or negative publicity about our customer service coulddiminish consumer confidence in, and the attractiveness of, our services. Breaches of our consumers’ privacy and our security systems could have thesame effect. We sometimes take measures to combat risks of fraud and breaches of privacy and security, such as freezing consumer funds or rejecting inopening an account, which could damage relations with our consumers. These measures heighten the need for prompt and attentive customer service toresolve irregularities and disputes. In addition, we have previously received negative media coverage regarding customer disputes. Moreover, some ofour products compete to a large extent on the basis of enhanced customer service and attention to customers, and are vulnerable to any customercomplaints or actual or perceived decline in service levels. Any failure on our part to continue to provide customers with the level of service they havecome to expect could harm our reputation significantly. Effective customer service requires significant personnel expense, and this expense, if notmanaged properly, could impact our profitability significantly. Any inability by us to manage or train our customer service representatives properlycould compromise our ability to handle customer complaints effectively. If we fail to provide customer service at the level our clients expect from us ordo not handle customer complaints effectively, our reputation may suffer and we may lose our customers’ confidence, which could have a materialadverse effect on our business, financial condition and results of operations.Our agreements with most of our counterparties, including our agents, merchants and other partners, do not include exclusivity clauses and may beterminated unilaterally at any time or at short notice.We normally do not include exclusivity clauses in our agreements with our counterparties, including our agents, merchants (apart from asmall number of SOVEST partner merchants), other partners and partner banks that participate in our multi-bank platforms. Accordingly, ourcounterparties usually do not have any restrictions on dealings with other providers and can switch from our payment processing system to another ordisconnect from our system or platform without significant investment. Additionally, due to mandatory provisions of Russian civil law, our agreementswith agents may be unilaterally terminated by the agents at any time, and our agreements with merchants and other counterparties may be unilaterallyterminated at a short prior notice. The termination of our contracts with existing agents, merchants or other partners, or a significant decline in theamount of business we do with them as a result of our contracts not having exclusivity clauses could have a material adverse effect on our business,financial condition and results of operations. 18Table of ContentsOur services have been and may continue to be used for fraudulent, illegal or improper purposes, which could expose us to additional liability andharm our business.Despite measures we have taken and continue to take, our services have been and may continue to be used for fraudulent, illegal orimproper purposes. These include use of our payment and other financial services in connection with fraudulent sales of goods or services, illicit salesof prescription medications or controlled substances, illegal online gambling, software and other intellectual property piracy, money laundering, bankfraud, terrorist financing, trafficking, and prohibited sales of restricted products.Criminals are using increasingly sophisticated methods to engage in illegal activities. It is possible that fraudulent, illegal or improper useof our services could increase in the future. Our risk management policies and procedures may not be fully effective to identify, monitor and managethese 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 inchargebacks or other liability could have a material adverse effect on our business, financial condition and results of operations. An increase infraudulent transactions or publicity regarding chargeback disputes could harm our reputation and reduce consumer confidence in the use of ourproducts and services. In addition, changes in law have increased the penalties for intermediaries providing payment services for certain illegalactivities and additional payments-related proposals are under active consideration by government authorities. Moreover, the perceived risk of the useof e-payments or other financial services to finance fraudulent, illegal or improper activities is causing the regulators to impose restrictions on theoperations of the providers of such services including payment systems that negatively affect regular compliant transactions and operations as well.See “– Know-your-client requirements established by Russian anti-money laundering legislation may adversely impact our transaction volumes” and“– If 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 productswe roll out are unsuccessful, the use of our services could decline, and we could experience a decline in revenue and an inability to recoup costs”.Any resulting claims could damage our reputation and any resulting liabilities (including the revocation of applicable banking licenses orsignificant fines), the loss of transaction volume, decline in the number of customers or increased costs could have a material adverse effect on ourbusiness, financial condition and results of operations.Our business is exposed to counterparty and credit risks.In our Payment Services segment, we seek to sell services on a prepayment basis or to ensure that our counterparties have low credit riskprofiles, such as large merchants and agents. Nevertheless, we are exposed to the risk of non-payment or other default under our contracts with ouragents and merchants. If we provide trade credit or loans to an agent and we are unable to collect loans or proceeds paid to the agent by its consumersdue to the agent’s insolvency, fraud or otherwise, we must nonetheless complete 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 from the agent, but could amount to the entire amount of consumerpayments 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 ofsuch merchants’ bankruptcy or otherwise. As of December 31, 2018, we had credit exposure to our agents of RUB 3,937 million and to our merchantsof RUB 3,657 million. Our receivables from merchants are generally unsecured and non-interest bearing, our receivables and loans from agents aregenerally interest-bearing and unsecured. Although we monitor the creditworthiness of our counterparties on an ongoing basis, there can be noassurance that the models and approaches we use to assess and monitor their creditworthiness will be sufficiently predictive, and we may be unable todetect and take steps to timely mitigate an increased credit risk.In our Consumer Financial Services segment, which is represented by our SOVEST installment card project, we are subject to risks relatedto the credit quality of loans to the customers who have outstanding credit on their SOVEST cards, in addition to the risks of credit exposure to themerchants who may owe us commission payments for short periods. As of December 31, 2018, we had credit exposure to the clients of the SOVESTproject of RUB 5,274 million. 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 loans and receivables. Inrecent years, Russia has experienced an increase in non-performing retail loans, and many of the banks that have been particularly active in this sectorhave faced difficulties (see “–We are subject to the economic risk and business cycles of our merchants and agents and the overall level of consumerspending” and “–The banking system in Russia remains underdeveloped).” While we have credit policies in place to manage this risk, the models,techniques and checks used by us to evaluate the creditworthiness of applicants for the SOVEST cards may not always present a complete and accuratepicture of each consumer’s financial condition or be able to accurately evaluate the impact of various changes, including changes in the Russianmacroeconomic situation, which could significantly and quickly alter a consumer’s financial condition. We have little experience addressing suchrisks, as we have not been active in the consumer lending market before the launch of the SOVEST project. We manage such risk by utilizing differentpredictive models based on consumer transaction behavior and restricting the card limits available to such individuals; however, due to our lack ofrelevant experience, our projections may prove incorrect. Additionally, we cannot always accurately ascertain what the current indebtedness of anyparticular current or potential customer may be as the credit bureau databases in Russia are still in a developmental stage. Additionally, we have noway 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 installment payments. As a result, we may not always be able to correctly evaluate the current financialcondition of each prospective customer and accurately determine the ability of our customers to pay us back the funds they have used. In addition, wedo not take any security for payments outstanding under the SOVEST cards. In the event of defaults by a significant number of our consumers, we maybe unable to recover all or a significant proportion of the balance of such outstanding amounts. As we are seeking to develop SOVEST as a multi-bankplatform to share the credit risk, we may not be able to structure the economics in a manner that ensures adequate returns for us and the partner banks,and could either suffer diminished returns or lose our banking partners. 19Table of ContentsIn addition to the above sources of credit risk, as of December 31, 2018, we had credit exposure to our counterparties in connection withour Qiwi Factoring business of RUB 1,559 million and in connection with financial and performance guarantees we provide to non-related parties,mostly our merchants (predominantly in betting space), in the amount of RUB 1,260 million.If we experience material defaults by our consumers, agents and/or merchants, our business, financial condition and results of operationscould be materially 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 Russiaare in local currencies and some of our assets and liabilities are in foreign currencies (see “— Quantitative and Qualitative Disclosures About MarketRisk – Foreign Exchange Risk”). Accordingly, our results of operations and assets and liabilities are exposed to fluctuations in exchange rates betweenthe ruble and such other currencies. Changes in currency exchange rates also affect the carrying value of assets on our consolidated statement offinancial position, which, depending on the statement of financial position classification of the relevant asset, can result in losses on our consolidatedstatement of financial position. In addition, because our earnings are primarily denominated in Russian rubles whereas our ADSs are quoted in U.S.dollar, currency exchange rate fluctuations between the Russian ruble and the U.S. dollar significantly affect the price of our ADSs.Over the past ten years, the Russian ruble has fluctuated dramatically against the U.S. dollar and the euro. Due to the economic sanctionsimposed on certain Russian companies and individuals by the US, EU, Canada and other countries, as well as the volatility in oil prices, high inflationand a sharp capital outflow from Russia, the Russian ruble has significantly depreciated against the U.S. dollar and euro since the beginning of 2014(see “–Economic instability in Russia could have an adverse effect on our business”). According to the CBR, from December 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 these currencies andremained relatively stable throughout 2017; however, depreciation of the Ruble resumed in 2018 when its value fell 21% against the U.S. dollar and15% against the euro, in each case from December 31, 2017 to December 31, 2018. It is likely that significant fluctuations will continue in the future.Further fluctuations of the ruble could have a material adverse effect on our business, financial condition, results of operations and the price of ourADSs.Regulatory authorities in Russia and Kazakhstan could determine that we hold a dominant position in our markets, and could impose limitations onour operational 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. Oneof the important questions is to identify and define the relevant market, in which the entity in question operates. There are numerous aspects to betaken into account, including interchangeability or substitutability of the products and/or services for the consumer, their pricing and intended use.Different approaches may be applied in this respect by anti-monopoly authorities and the participants of the market. Thus, the state authorities mayconclude that we hold a dominant position in one or more of the markets in which we operate. If they were to do so, this could result in limitations onour future acquisitions and a requirement that we pre-clear with the authorities any changes to our standard agreements with merchants and agents, aswell as any specially negotiated agreements with business partners. In addition, if we were to decline to conclude a contract with a third party thiscould, in certain circumstances, be regarded as abuse of a dominant market position. Any abuse of a dominant market position could lead toadministrative penalties and the imposition of a fine of up to 15% of our annual revenue for the previous year. These limitations if imposed may reduceour 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 proprietarytechnology. We also maintain patents for certain of our technologies. We customarily require our employees and independent contractors to executeconfidentiality agreements or otherwise to agree to keep our proprietary information confidential when their relationship with us begins. Typically, ouremployment contracts also include clauses requiring our employees to assign to us all of the inventions and intellectual property rights they developin the course of their employment and to agree not to disclose our confidential information. Nevertheless, others, including our competitors, mayindependently develop similar technology, duplicate our services or design around our intellectual property. Further, contractual arrangements maynot prevent unauthorized disclosure of our confidential information or ensure an adequate remedy in the event of any unauthorized disclosure of ourconfidential information. Because of the limited protection and enforcement of intellectual property rights in certain jurisdictions in which we operate,such as Russia and CIS countries, our intellectual property rights may not be as protected as they may be in more developed markets such as the UnitedStates. We may have to litigate to enforce or determine the scope or enforceability of our intellectual property rights (including trade secrets andknow-how), which could be expensive, could cause a diversion of resources and may not prove successful. The loss of intellectual property protectioncould harm our business and ability to compete and could result in costly redesign efforts, discontinuance of certain service offerings or othercompetitive harm. Additionally, we do not hold any patents for our business model or our business processes, in part because our ability to obtain themin 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 otherwiseviolate a third party’s intellectual property or proprietary rights. Such claims could include patent infringement, copyright infringement, trademarkinfringement, trade secret misappropriation or breach of licenses. In addition, while we seek to obtain copyright 20Table of Contentsregistration certificates for the critical software we develop, our rights to software obtained as works for hire might be potentially challenged by theemployees and former employees or developers of such software. We may not be able to successfully defend against such claims, which may result in alimitation on our ability to use the intellectual property subject to these claims and also might require us to redesign affected services, enter into costlysettlement or license agreements, pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or sellingcertain of our services. In such circumstances, if we cannot or do not license the infringed technology on reasonable terms or substitute similartechnology from another source, our revenue and earnings could be adversely impacted. Additionally, non-practicing entities had and may continue inthe future to acquire patents, make claims of patent infringement and attempt to extract settlements from companies in our industry. Even if we believethat such claims are without merit and successfully defend these claims, defending against such claims is time consuming and expensive and couldresult in the diversion of the time and attention of our management and employees.We 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 nowarranties on such code. Moreover, some open source software licenses require users who distribute open source software as part of their software topublicly disclose all or part of the source code to such software and/or make available any derivative works of the open source code on unfavorableterms or at no cost. The use of such open source code may ultimately require us to replace certain code used in our products, pay a royalty to use someopen source code or discontinue certain products. 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 countriesare not yet fully available or are not available on comparable or commercially acceptable terms. Accordingly, while we hold certain mandatory types ofinsurance policies in Russia, we do not currently maintain insurance coverage for business interruption, property damage or loss of key managementpersonnel as we have been unable to obtain these on commercially acceptable terms. We do not hold insurance policies to cover for any lossesresulting from counterparty and credit risks or fraudulent transactions. We also do not generally maintain separate funds or otherwise set aside reservesfor most types of business-related risks. Accordingly, our lack of insurance coverage or reserves with respect to business-related risks may expose us tosubstantial losses, which could materially adversely affect our business, 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 awide ranging set of expertise and intellectual capital. In order for us to compete and grow successfully, we must attract, recruit, retain and develop thenecessary personnel who can provide the needed expertise across the entire spectrum of our intellectual capital needs. This is particularly true withrespect to qualified and experienced software engineers and IT staff, who are highly sought after and are not in sufficient supply in Russia and in mostother markets in which we operate. The market for such personnel is highly competitive, and we may not succeed in recruiting additional personnel ormay fail to replace effectively current personnel who depart with qualified or effective successors. Our efforts to retain and develop personnel mayresult in significant additional expenses, which could adversely affect our profitability. We currently do not have a market standard long-termincentive plan due to the failure by our shareholders to approve the disapplication of pre-emptive rights (see “– Our ADS holders may not be able toexercise their pre-emptive rights in relation to future issuances of class B shares”), which restricts our ability to attract top talent who have come toexpect share-based compensation in an industry like ours. Since in Cyprus, where our Company is registered, there is no statutory carve-out frompre-emptive rights for issuances of shares to employees like in some other jurisdictions, any such disapplication has to be specifically approved byshareholders and renewed periodically. Such failure to approve disapplication of pre-emptive rights has rendered us unable to issue shares to ouremployees under our employee incentive plans, and has caused us to incur additional expenses due to the fact that we have to make cash payouts toemployees in lieu of issuing shares under an employee incentive plan. These developments could undermine our ability to retain and attractcompetitive talent because we are not able to adequately align employee interests with the long-term interests of our shareholders. For these and otherreasons, 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 couldhave a material 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 project and other new projects includingRocketbank project, and our operations and growth may be constrained if we cannot do so on favorable terms or at all. Our debt capacity depends uponour ability to maintain our operating performance at a certain level, which is subject to 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 operating activities is insufficient to service our debt, wecould be forced to take certain actions, including delaying or reducing capital or other expenditures or other actions, to restructure or refinance ourdebt; selling or mortgaging our assets or operations; or raising additional equity capital, which we might not be able to do on favorable terms, in atimely 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, couldhave a material adverse effect on our business, financial condition, and results of operations. Moreover, our inability to service our debt throughinternally generated cash flow or other sources of liquidity could put us in default of our obligations to creditors, which could trigger various defaultprovisions under our financings and thus have a material adverse effect on the business, financial condition, and results of operations. 21Table of ContentsWe have recently been experiencing, and may continue to experience, increasing challenges with conducting transactions denominated in U.S.dollars.We contract with some of our international merchants in U.S. dollars and other currencies such as Euros. Recently we started to encounterdifficulties in conducting such transactions, even with respect to our largest and most well-known international merchants, due to the refusal of anincreasing number of our U.S. relationship banks and the correspondent U.S. banks of our non-U.S. relationship banks to service U.S. dollar payments.A direct or correspondent relationship with a U.S. bank is necessary in order for any non-U.S. company to transact in U.S. dollars. Reasons we havebeen given to explain these changes in approach by our banks mainly referred to changes in internal know-your-customer procedures, limits on certaintypes of merchants and certain jurisdictions, and other internal policies, which we believe might be a result of the increasing negative sentimenttowards Russia on part of U.S. banks, among other factors (see—The situation in Ukraine and the U.S., EU and other sanctions that have been imposedin connection therewith could adversely impact our operations and financial condition), even with respect to transactions and relationships that donot present any potential violation of any applicable sanctions. Even though we still maintain a number of U.S. dollar accounts with various financialinstitutions, at the same time we are already conducting a portion of U.S. dollar transactions with our international merchants in other currencies,bearing additional currency conversion costs. No assurance can be given that such institutions or their respective correspondent banks in the U.S. willnot similarly refuse to process our transactions for similar reasons or otherwise, thereby further increasing the currency conversion costs that we have tobear or that our international merchants will agree to accept payments in any currency, but the U.S. dollar in the future. If we are not able to conducttransactions in U.S. dollars, we may bear significant currency conversion costs or lose some of our merchants who will not be willing to conducttransactions in currencies other than the U.S. dollars, and our business, financial condition and results of operations may be materially adverselyaffected. We can give no assurance that similar issues would not arise with respect to our transactions in other currencies, such as the Euro, which couldhave similarly adverse consequences for us.We may not be able to expand into new geographical markets, or develop our existing international operations successfully, which could limit ourability to grow and increase our profitability.Certain of our services are offered in countries beyond Russia, and we may look to further expand our geographical footprint if the rightopportunities appear. Our expansion into new geographical markets and further development of our international operations depend on our ability toapply our existing technology or to develop new applications to meet the particular needs of each local market or country. We may not have adequatefinancial, technological or personnel and management resources to develop effective and secure services or distribution channels that will satisfy thedemands of these markets. We may not be able to establish partnerships with any counterparties that we may need in order to strengthen ourinternational operations. If we fail to enter new markets or countries or to develop our international operations, we may not be able to continue to growour 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 to significant regulation, and our lack of familiarity with the regulatory landscape in new markets mayresult in us running into unanticipated problems or delays in obtaining the requisite regulatory approvals and licenses. We may not be able tosuccessfully expand in such markets due to our lack of experience. Moreover, we may not be able to execute our strategy in our existing internationaloperations successfully, which may result in additional losses or limit our growth prospects. In addition, expanding internationally subjects us to anumber 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 international operations may expose us to numerous and sometimes conflicting legal and regulatory requirements, andviolations or unfavorable interpretation by authorities of these regulations could harm our business. In particular, we are exposed to the risk of beingdeemed to have permanent establishment 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 international operations successfully, our business, financial condition andresults of operations could be materially adversely affected. 22Table of ContentsRisks 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 owns 85.0% of our class A shares and 0.7% of our class B shares, representing combinedapproximately 63.0% of the voting power of our issued share capital. As a result of this concentration of share ownership, Mr. Solonin has solediscretion over any matters submitted to our shareholders for approval that require a simple majority vote and has significant voting power on allmatters submitted to our shareholders for approval that require a qualified majority vote, including the power to veto them. Our articles of associationrequire the approval of no less than 75% of present and voting shareholders for matters such as amendments to the constitutional documents of ourcompany, dissolution or liquidation of our company, reducing the share capital, buying back shares and approving the total number of shares andclasses of shares to be reserved for issuance under any employee stock option plan or any other equity-based incentive compensation program of ourgroup. 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 giveyou the opportunity to realize a premium over then-prevailing market price of our shares. The interests of Mr. Solonin may not always coincide withthe interests of our other shareholders. This concentration of ownership may also adversely affect the price of our ADSs.The substantial share ownership position of Otkritie could be adverse to the interests of our minority shareholders.Otkritie Bank owns 43.8% of our class B shares, representing approximately 11.4% of the voting power of our issued share capital. WereMr. Solonin to sell down his stake in such a manner that his shares would convert into class B shares pursuant to our Articles of Association, votingpower of Otkritie Bank would increase accordingly. Moreover, since late 2017, Otkritie Bank has been owned by the CBR as a result of its financialrehabilitation. The liquidity of our ADSs has already significantly declined and could potentially further decline due to one large holder accumulatinga significant portion of the shares that formerly constituted free float. The interests of Otkritie Bank, particularly as a state-owned institution, may notalways coincide with the interests of our other shareholders. In particular, if Otkritie Bank or its controlling shareholder were to decide they are notinterested in continuing to hold this stake, whether due to the fact that it represents a non-core business for Otkritie Bank or otherwise, a sale of a stakeof the size could put significant downward pressure on the price of our ADSs. We also believe that due to the recent deterioration of relationshipsbetween Russia and the U.S. the fact that the CBR owns, albeit indirectly, a significant stake in our company may be perceived as a negative by certaininvestors. 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,sometimes referred to as cumulative voting, under which each shareholder has the right to cast as many votes as the voting rights attached to its sharesmultiplied by a number equal to the number of board seats to be filled by shareholders. As a result, our class A shareholders will have the ability toappoint, through the weighted voting set forth in our articles of association, at least a majority of the board of directors for the foreseeable future. Theinterests of our directors may therefore not be aligned with or be in the best interests of the holders of our ADSs.The rights of our shareholders are governed by Cyprus law and our articles of association, and differ in some important respects from the typicalrights of shareholders 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 ourshareholders and the responsibilities of members of our board of directors under Cyprus law and our articles of association are different than undersome of the U.S. state laws. For example, by law existing holders of shares in a Cypriot public company are entitled to pre-emptive rights on the issueof 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 ofassociation include other provisions, which differ from provisions typically included in the governing documents of most companies organized in theU.S.: • our board of directors can only take certain actions by means of a supermajority vote of 75% of its members, including approving ourannual budget and business plan, disposing of our interest in a subsidiary if such disposal results in a change of control over suchsubsidiary, issuing shares for consideration 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’sappointment, shareholders holding 10.01% of the voting rights of the company may terminate the appointment of all of the directors andinitiate reelection of the entire board of directors.As a result of the differences described above, our shareholders may have rights different to those generally available to shareholders ofcompanies organized under U.S. state laws and our board of directors may find it more difficult to approve certain actions. 23Table of ContentsAcquisitions of Russian entities are subject to pre-closing approval by multiple government authorities which exercise significant discretion as towhether a consent should be granted or not, and are regulated by a significant body of law which is often ambiguous and open to varyinginterpretations.Due to our ownership of Qiwi Bank, any transactions resulting in the acquisition of more than 50% of our voting power or the right tootherwise direct our business activities would become subject to preliminary approval by the CBR. In addition, any acquisition of more than 50% ofour voting power may also be subject to a preliminary approval by the Russian Federal Antimonopoly Service, or the FAS. Furthermore, Qiwi Bankholds encryption licenses which are necessary to conduct its operations, and by virtue of this may be deemed to be a “strategic enterprise” for thepurposes of the Federal Law of the Russian Federation No. 57-FZ “On the Procedure for Foreign Investments in Enterprises which are StrategicallyImportant for the State Defense and National Security”, dated April 29, 2008, as amended. In this case, any acquisition of control over our companywould require an approval of a specialized government commission, which is a relatively lengthy process that typically takes between three and sixmonths in practice (see “ - Regulation—Regulation of Strategic Investments”). These regulatory approval requirements may have the effect of making atakeover of our company more difficult or less attractive, and may prevent or delay a change of control, which could have a negative impact on theliquidity 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, couldbe deemed a beneficial shareholder of Qiwi Bank. This is different from the way other jurisdictions treat ADSs. As a result, the depositary may besubject to the approval requirements of the CBR, FAS and the government commission described above in the event an amount of our sharesrepresenting over 50% of our voting power is deposited in the ADS program. Accordingly, our ADS program may be subject to an effective limit of50% of our voting power, unless the depositary obtains FAS, CBR and potentially additional government commission approvals to increase itsownership 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 tosell their ADSs in the public markets, which in turn may impact 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 quotaon foreign ownership in the Russian banking industry, covering both Russian branches of international banks and foreign participation in the chartercapital of Russian banks, such as Qiwi Bank. In December 2015, a 50% quota on foreign ownership was introduced, subject to certain exemptions. Ifsuch quota is exceeded, a takeover of our company by a foreign purchaser may become impossible, which could limit, prevent or delay a change ofcontrol of our company and in turn could negatively impact 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 insteadof certain Nasdaq requirements.As a foreign private issuer whose ADSs are listed on Nasdaq, we are permitted in certain cases to, and do, follow Cyprus corporategovernance practices instead of the corresponding requirements of Nasdaq. A foreign private issuer that elects to follow a home country practiceinstead of Nasdaq requirements must submit to Nasdaq in advance a written statement from an independent counsel in such issuer’s home countrycertifying that the issuer’s practices are not prohibited by the home country’s laws. In addition, a foreign private issuer must disclose in its annualreports filed with the Securities and Exchange Commission any significant requirement that it does not follow and describe the home country practicefollowed instead of any such requirement. We follow Cyprus corporate governance practices with regard to the composition of our board of directorswhich, unlike the applicable Nasdaq rule for U.S. corporations, do not require that a majority of our directors be independent. Currently only three outof our seven directors are independent. We also do not have a compensation committee or a nominating committee comprised entirely of independentdirectors, and our independent directors do not meet in regular executive sessions. In addition, our board of directors has not made any determinationwhether it will comply with certain Nasdaq rules concerning shareholder approval prior to our taking certain company actions, including the issuanceof 20% or more of our then-outstanding share capital or voting power in connection with an acquisition, and our board of directors, in suchcircumstances, may instead determine to follow Cypriot law. Accordingly, our shareholders may not be afforded the same protection as provided underNasdaq 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 intime to be able to exercise their right to vote. Our ADS holders’ right to receive certain distributions may be limited in certain respects by the depositagreement.Except as set forth in the deposit agreement, holders of our ADSs are not able to exercise voting rights attaching to the class B sharesrepresented by our ADSs on an individual basis. Holders of our ADSs have to appoint the depositary or its nominee as their representative to exercisethe voting rights attaching to the class B shares represented by the ADSs. Upon receipt of voting instructions from an ADS holder, the depositary willvote the underlying class B shares in accordance with these instructions. Pursuant to our articles of association, we may convene an annualshareholders’ meeting or a shareholders’ meeting called for approval of matters requiring a 75% shareholder vote upon at least 45 days’ notice andupon at least 30 days’ notice for all other shareholders’ meetings. If we give timely 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 voting materials to you. We cannot assure our ADS holders that theywill receive the voting materials in time to instruct the depositary to vote the class B shares underlying their ADSs, and it is possible that our ADSholders, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote. Inaddition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out votinginstructions. 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 if the classB shares underlying your ADSs are not voted as requested. In addition, although our ADS holders may directly exercise their right to vote bywithdrawing the class B shares underlying their ADSs, they may not receive sufficient advance notice of an upcoming shareholders’ meeting towithdraw the class B shares underlying their ADSs to allow them to vote with respect to any specific matter. Furthermore, under the deposit agreement,the depositary has the right to restrict distributions to holders of the ADSs in the event that it is unlawful or impractical to make such distributions. Wehave no obligation to take any action to permit distributions to holders of our ADSs. As a result, holders of ADSs may not receive distributions madeby us. 24Table of ContentsRisks Relating to the Russian Federation and Other Markets in Which We OperateEmerging markets such as Russia are subject to greater risks than more developed markets, including significant legal, economic and political risks.Investors in emerging markets such as Russia should be aware that these markets are subject to greater risk than more developed markets,including in some cases significant legal, economic and political risks. Investors should also note that emerging economies are subject to rapid changeand that the information set out herein may become outdated relatively quickly. Accordingly, investors should exercise particular care in evaluatingthe risks involved and must decide for themselves whether, in light of those risks, their investment is appropriate. Generally, investment in emergingmarkets is only suitable for sophisticated investors who fully appreciate the significance of the risks involved, and investors are urged to consult withtheir own legal and financial advisors before making an investment in our ADSs.The situation in Ukraine and the U.S., EU and other sanctions that have been imposed in connection therewith could adversely impact ouroperations 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 lowpoint. Western countries protested when Crimea (which had been part of Ukraine since 1954) entered into the Russian Federation in March 2014 andhave complained that 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, Canadaand Australia) 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 orother 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 totravel bans. A number of Russian government officials, businessmen, banks and companies have been so designated. Another form these sanctionshave taken, with greater consequence for the Russian economy, is ‘sectoral’ sanctions with the basic consequence that several of Russia’s leadingbanks – including Gazprombank, Vnesheconombank, Bank of Moscow, Russian Agricultural Bank, VTB Bank, and Sberbank – cannot access Westerncapital (as EU and U.S. persons are prohibited from extending them debt financing in excess of 30 days or dealing in their new equity issuances andproviding related services); similar sectoral sanctions have been applied against several prominent Russian oil and gas and defense companies. OtherWestern sanctions have been imposed in respect of, among other things, Russian military defense entities, dual use technologies, sophisticatedoff-shore oil drilling technologies and doing business in Crimea.Certain sanctions, thus far only imposed by Ukraine, and Russian countersanctions instituted in response to such sanctions, directly targetpayment services providers such as ourselves (see “–We are subject to extensive government regulation”). There can be no assurance that additionalsanctions affecting the payments business will not be imposed by Russia or other countries in which we operate. While other current sanctions do nottarget us or the payments industry more generally, these sanctions have had and may continue to have the effect of damaging the Russian economy by,among other things, accelerating capital flight from Russia, weakening of the Russian ruble, exacerbating the negative investor sentiment towardsRussia and making it harder for Russian companies to access international financial markets for debt and equity financing. In addition, a number ofWestern businesses have curtailed or suspended activities in Russia or dealings with Russian counterparts for reputational reasons even thoughcurrently neither such activities nor dealings with their relevant Russian counterparts were proscribed by the sanctions. An expansion of the existing orintroduction of new sanctions, including those mentioned above, or sanctions specifically targeting us or our management or shareholders, or oursector generally, could result in our international customers, suppliers, shareholders and other business partners revising their relationship with us forcompliance, political, reputational or other reasons, which could affect our business.Some of our agents, merchants or Tochka’s SME clients, although mostly not incorporated in Crimea, may have operations there. Further,before the introduction of the corresponding sanctions we have had direct contacts with several Crimea banks that are registered as financial legalentities in Crimea, and currently such banks may continue to operate as our agents or merchants. On December 19, 2014, U.S. President Obama signedan executive order imposing comprehensive sanctions on the Crimea region. The EU has similarly introduced a broad set of sanctions through theCouncil Regulation (EU) 692/2014 as amended by Regulation (EU) 1351/2014. To date, we do not believe that any of the current sanctions as in forcelimit our ability to work with entities that may have operations in Crimea or operate in Crimea. Nevertheless, if we are deemed to be in violation of anysanctions currently in place or if any new or expanded sanctions are imposed on Russian businesses operating in Crimea by the U.S., EU, or othercountries, our business and results of operations may be materially adversely affected.In the ordinary course of our business, we may accept payments from consumers to or otherwise indirectly interact with certain entities thatare the targets of U.S. sanctions. We operate primarily within the Russian financial system and, accordingly, many of our customers have accounts atbanks in Russia. The U.S., EU and other countries have adopted a package of economic restrictive measures imposing certain sanctions on theoperations of various Russian banks, including VTB Bank and Gazprombank. Some of our subsidiaries hold bank accounts at the aforementionedbanks as well as have overdrafts and bank guarantees with VTB Bank. A number of Russian banks, including Bank Rossiya, SMP Bank,Investcapitalbank and Sobinbank have been designated by OFAC and are subject to U.S. economic sanctions. In addition, Tempbank was designateddue to its dealings with the Syrian government. U.S. sanctions may be extended to any person that U.S. authorities determine has materially assisted, orprovided financial, material, or technological support for, or goods or services to or in support of, any sanctioned individuals or entities. For example,we may be associated with U.S.-designated banks due to us accepting payments for them from consumers in the ordinary course of our business, eventhough we may not have any direct contract relationships with them. There can be no assurance that the U.S. Government would not view suchactivities as meeting the criteria for U.S. economic sanctions. 25Table of ContentsIn addition, because of the nature of our business, we do not generally identify our customers where there is no express requirement to doso under Russian anti-money laundering legislation. Therefore, we are not always able to screen them against the Specially Designated Nationals andBlocked Persons List published by OFAC and other sanctions lists.While we believe that our indirect interaction with sanctioned Russian banks and potential interaction with designated individuals, as wellas other interactions we may potentially have with entities and persons that may be subject to U.S. or EU economic and financial sanctions does notcontravene any law, our business and reputation could be adversely affected if the U.S. government were to designate us as a blocked party and extendsuch sanctions to us. The executive orders authorizing the U.S. sanctions provide that persons may be designated if, inter alia, they materially assist, orprovide financial, material, or technological support for goods or services to or in support of, blocked or designated parties. EU financial sanctionsprohibit 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 thosecircumstances, some U.S. or EU investors may decide for legal or reputational reasons to divest their holdings in us or not to purchase our securities inthe first place. We are aware of initiatives by U.S. governmental entities and U.S. institutional investors, such as pension funds, to adopt or consideradopting laws, regulations, or policies prohibiting transactions with or investment in, or requiring divestment from, entities doing business with certaincountries. There can be no assurance that the foregoing will not occur or that such occurrence 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 the Russian financial system and indirect interaction withsanctioned banks and potential interaction with designated individuals may adversely impact our reputation among investors. There is also a risk thatother entities with which we engage in business, or individuals or entities associated with them, are, or at any time in the future may become, subject tosanctions.In August 2017, the United States passed a Countering America’s Adversaries Through Sanctions Act (“CAATSA”), which significantlytightened ‘sectoral sanctions’ discussed above and introduced a host of new sanctions, including ‘secondary sanctions’ targeting non-U.S. persons ifthe U.S. President determines that any such person knowingly and materially violates, attempts to violate, conspires to violate or causes a violation of arestriction introduced under any relevant U.S. Russian sanctions legislation or facilitates a significant transaction or transactions for or on behalf of anyperson subject to U.S. Russian sanctions or his or her relatives. This legislation further restricts access of the sanctioned Russian banks and energycompanies to debt financing on international capital markets, and expands the application of sanctions in relation to the Russian energy sector.Furthermore, this legislation puts significant limitations on the U.S. President’s authority to ease sanctions and issue licensing actions with respect toRussia.In October 2017, the U.S. Department of State issued public guidance on implementation of CAATSA and the list of Russian defense andintelligence companies and institutions, ‘significant transactions’ with which may result in the imposition of sanctions on persons that engage in suchtransactions with these companies and institutions. The new legislation also widens the differences between the U.S. and EU sanctions against Russia.The EU recently extended its own sectoral sanctions until 31 July 2018 but has not adopted new, broader sanctions like those in the said U.S.legislation. Instead, some EU leaders have discussed possible ‘blocking’ or retaliatory measures in response to those U.S. secondary sanctions that mayadversely affect European companies.CAATSA also requires the U.S. Department of Treasury to issue reports on Russian senior political figures and oligarchs, Russian parastatalentities and illicit financing in Russia, presumably to determine whether other parties should be sanctioned. The first report was issued on 29 January2018 and lists 114 senior Russian political figures and 96 wealthy Russian businessmen (“Report”). The Report states, and the OFAC further clarified,that it is not a sanctions list, and the inclusion of individuals or entities in it, its appendices, or its annex does not and in no way should be interpretedto impose sanctions on those individuals or entities, and moreover, the inclusion of individuals or entities in the Report, its appendices, or its classifiedannexes does not, in and of itself, imply, give rise to, or create any other restrictions, prohibitions, or limitations on dealings with such persons by U.S.or non-U.S. persons. The inclusion on the unclassified list does not indicate that the U.S. Government has information about the individuals’involvement in malign activities. In April 2018, several major Russian businessmen (each of them a controlling shareholder of a vast number of diversebusinesses in Russia) who were mentioned in the Report became “designated nationals”, which had a significant adverse impact on the Russianeconomy in general and in particular the value of the Rouble. Any new sanctions imposed on the basis of the Report, may have a material adverseeffect on the Russian economy and lead to retaliatory sanctions from Russia.To date, no individual or entity within our group has been designated by either the United States or the EU as a specific target of theirrespective Ukraine related sanctions. No assurance can be given, however, that any such individual or entity will not be so designated in the future, orthat broader sanctions against Russia that affect our company, will not be imposed. In addition, no assurance can be given that any of our transactionswith third parties that are subject to the sanctions will not constitute ‘significant transactions’ for purposes of CAATSA. Non-compliance with the U.S.,EU and other sanctions programs applicable to us could expose us to significant fines and penalties and to enforcement measures, or result in the lossof clients, any which in turn could adversely impact our business, financial conditions, results of operations and prospects.The crisis in Ukraine is ongoing and could escalate. Were full-fledged hostilities to break out between Ukraine and Russia, they wouldlikely cause significant economic disruption and further calls from the Western countries for a comprehensive sanction regime that would seek tofurther isolate Russia from the world economy. Even the current level of ongoing civil insurrection in eastern Ukraine, if no resolution is forthcoming,may well lead to further strengthening and broadening of Ukraine-related sanctions. For example, there have been proposals to cut off Russia from theinternational SWIFT payment system, which would disrupt ordinary financial services in Russia and any cross-border trade. Other proposed sanctionsthat have not been enacted so far but could have a devastating effect on the Russian economy in general and our business, financial condition, resultsof operations and prospects in particular, include more comprehensive sanctions with respect to major Russian state-owned banks (including aprohibitions on U.S. dollar transactions) and other entities, prohibition on transactions 26Table of Contentsinvolving sovereign debt of Russia, and various other measures. 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 inUkraine and Crimea remains uncertain and we cannot predict how the Ukrainian crisis will unfold or the impact it will have on our business or resultsof operations. Additionally, relations between the US and Russia have recently become strained over a variety of other issues, which could result infurther sanctions against Russia or specific individuals, entities or economy sectors. See “– Deterioration of Russia’s relations with other countriescould negatively affect the Russian economy and those of the nearby regions”. Any or all of the above factors could have a material adverse effect onour business, financial condition, results of operations and prospects.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 “OnCombating the 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 a simplified procedure and fully identified. All these types of consumers face varying monetary andnon-monetary restrictions in terms of the transactions they may perform and electronic money account balances they may hold, with fully identifiedconsumers enjoying the most privileges. The key difference between the simplified and the full identification procedures is that the simplifiedidentification can be performed remotely. The remote identification requires the verification of certain data provided by consumers against publicdatabases. There can be no assurance that we will always be able to collect all necessary data to perform the identification procedure in full or that thedata the users provide us for the purposes of identification will not contain any mistakes or misstatements and will be correctly matched with theinformation available in the governmental databases. At the end of 2017, a new law was enacted enabling “full” identification performed remotely aswell, to the extent the relevant individual has previously undergone identification by an eligible credit institution and has consented for his data to beincluded in a database; however, as of the date of this annual report such identification method has not been fully developed either. Thus, currentsituation could cause us to be in violation of the identification requirements. In case we are forced not to use the simplified identification procedureuntil the databases are fully running or in case the identification requirements are further tightened, it could negatively affect the number of ourconsumers and, consequently, our volumes and revenues. Additionally, Russian anti-money laundering legislation is in a constant state ofdevelopment and is subject to varying interpretations. If we are found to be in non-compliance with any of its requirements, we could not only becomesubject to fines and other sanctions, but could also have to discontinue to process operations that are deemed to be in breach of the applicable rulesand lose associated revenue streams.Political 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,legislative and judicial authorities, which negatively impacted the business and investment climate in the Russian Federation. Over the past threedecades the course of political and other reforms has in some respects been uneven and the composition of the Russian Government has at times beenunstable. The Russian political system continues to be vulnerable to popular dissatisfaction, including dissatisfaction with the results of theprivatizations of the 1990s, as well as to demands for autonomy from certain religious, ethnic and regional groups.Future changes in the Russian Government, the State Duma or the presidency, major policy shifts or eventual lack of consensus betweenthe president, the Russian Government, Russia’s parliament and powerful economic groups could lead to political instability. Additionally, thepotential for political instability resulting from the worsening of the economic situation in Russia and deteriorating standards of living should not beunderestimated. Any such instability could negatively affect the economic and political environment in Russia, particularly in the short term. Shifts ingovernmental policy and regulation in the Russian Federation are less predictable than in many Western democracies and could disrupt or reversepolitical, economic and regulatory reforms. Any significant change in the Russian Government’s program of reform in Russia could lead to thedeterioration of Russia’s investment climate that might limit our ability to obtain financing in the international capital markets or otherwise have amaterial 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 investmentsin Russia more generally.The use of governmental power against particular companies or persons, for example, through the tax, environmental or prosecutorialauthorities, could adversely affect the Russian economic climate and, if directed against us, our senior management or our major shareholders, couldmaterially adversely affect our business, financial condition and results of operations. Russian authorities have recently challenged some Russiancompanies and prosecuted their executive officers and shareholders on the grounds of tax evasion and related charges. In some cases, the results of suchprosecutions and challenges have been significant claims against companies for unpaid taxes and the imposition of prison sentences on individuals.There has been speculation that in certain cases these challenges and prosecutions were intended to punish, and deter, opposition to the government orthe pursuit of disfavored political or economic agendas. There has also been speculation that certain environmental challenges brought recently byRussian authorities in the oil and gas as well as mining sectors have been targeted at specific Russian businesses under non-Russian control, with aview to bringing them under state control. More generally, some observers have noted that takeovers in recent years of major private sector companiesin the oil and gas, metals and manufacturing sectors by state-controlled companies following tax, environmental and other challenges may reflect ashift in official policy in favor of state control at the expense of individual or private ownership, at least where large and important enterprises areconcerned. 27Table of ContentsDeterioration 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 or othercountries. On several occasions, this has resulted in the deterioration of Russia’s relations with other members of the international community,including the United States and various countries in Europe. Many of these jurisdictions are home to financial institutions and corporations that aresignificant investors in Russia and whose investment strategies and decisions may be affected by such conflicts and by worsening relations betweenRussia and its immediate neighbors.For example, relations between Ukraine and Russia, as well as Georgia and Russia, have been strained over a variety of issues. OnMarch 21, 2014, President Putin signed legislation to recognize Crimea’s accession to, and status as part of, Russia. Since then, there has beencontinuing tensions between Russia and Ukraine, which were aggravated by the military conflict in Eastern Ukraine. Another recent point of tensionbetween Russia and Western governments has been the Russian role in the Syrian crisis and its military support for the government of Syria. The eventsin Ukraine, Crimea and Syria have prompted condemnation by members of the international community and have been strongly opposed by the EUand the United States, with a resulting material negative impact on the relationships between the EU, the United States and Russia. See “– The situationin Ukraine and the U.S., EU and other sanctions that have been imposed could adversely impact our operations and financial condition”. TheUkraine crisis, which started in late 2013 and remains unresolved, has brought additional tensions between Russia and Western countries (such as theU.S., UK and a number of EU countries), and new issues that adversely affect such relations may arise in the future. Other recent points of tensionbetween Russia and Western governments have included: the Russian role in the Syrian crisis and its military support for the government of Syria; thealleged involvement of the Russian government in the cyber-attacks aimed at disrupting the election process in the U.S.; the alleged involvement ofthe Russian intelligence service in an attempted poisoning of a Russian citizen in the UK; and the incident involving Ukrainian vessels near the KerchStrait in November 2018. All of the above have led to escalation of geopolitical tensions, and introduction or expansion of international sanctions orother countermeasures by Western countries against Russia, and may continue to do so in the future. In particular, in response to the alleged use byRussian intelligence services of chemical warfare on UK soil, in August 2018 the U.S. State Department imposed new sanctions on Russia under theChemical and Biological Weapons Control and Warfare Elimination Act of 1991 (the “CBW Act”). The initial round of sanctions under the CBW Actincludes, among other things, termination of sales of any defense articles and services and the prohibition on the export to Russia of certain nationalsecurity-sensitive goods and technology. If within three months after the initial determination made under the CBW Act, the U.S. President determinesthat certain conditions set out in the CBW Act are not met, further sanctions, including, among other things, a prohibition on U.S. financial institutionsto provide financing to the Russian state, additional bans on exports of goods and technologies and a possible suspension or revocation of theauthority of Russian state-owned or controlled air carriers to provide transportation to or from the U.S., may be introduced. The emergence of new orescalated tensions between Russia and neighboring states or other states could negatively affect the Russian economy. This, in turn, may result in ageneral 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 withsignificant operations in Russia, including our ADSs, and in our inability to raise debt or equity capital in the international capital markets, which mayaffect our ability to achieve the level 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 andincreased lawlessness. Organized crime, particularly property crimes in large metropolitan centers, has reportedly increased significantly since thedissolution of the Soviet Union. In addition, the Russian and international media have reported high levels of corruption in Russia. Press reports havealso described instances in which government officials have engaged in selective investigations and prosecutions to further the interest of thegovernment and individual officials or business groups. Although we adhere to a business ethics policy and internal compliance procedures tocounteract the effects of crime and corruption, instances of illegal activities, demands of corrupt officials, allegations that we or our management havebeen involved in corruption or illegal activities or biased articles and negative publicity could materially and adversely affect our business, financialcondition and results of operations.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 economiccrisis could have a negative effect on the scale and profitability of our business. Any of the following risks, which the Russian economy hasexperienced at various points in the past, may have or have already had a significant adverse effect on the economic climate in Russia and may burdenor 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; • 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; 28Table of Contents • 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.As Russia produces and exports large quantities of crude oil, natural gas, petroleum products and other commodities, the Russian economy isparticularly vulnerable to fluctuations in oil and gas prices as well as other commodities prices, which historically have been subject to significantvolatility over time, as illustrated by the recent decline in crude oil prices. Russian banks, and the Russian economy generally, were adversely affectedby the global financial crisis. In 2014 and 2015, Russia experienced an economic downturn characterized by substantial depreciation of its currency,sharp fluctuations of interest rates, a decline in disposable income, a steep decline in the value of shares traded on its stock exchanges, a materialincrease in the inflation rate, and a decline in the gross domestic product. In 2016-2017 some of those economic trends reversed or moderated, with oilprices increasing somewhat, inflation rates declining significantly and gross domestic product returning to modest growth. However, economicinstability resumed in 2018, with the Rouble depreciating significantly and inflation exceeding the government’s forecasts. There can be no assurancethat any measures adopted by the Russian government to mitigate the effect of any financial and economic crisis will result in a sustainable recovery ofthe Russian economy. Current macroeconomic challenges, low or negative economic growth in the United States, China, Japan and/or Europe andmarket 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 financialmarket sometimes result in an entire region or class of investments being disfavored by international investors—so-called “contagion effects”. Russiahas been adversely affected by contagion effects in the past, and it is possible that it will be similarly affected in the future by negative economic orfinancial developments in other countries. Economic volatility, or a future economic crisis, may undermine the confidence of investors in the Russianmarkets and the ability of Russian businesses to raise capital in international markets, which in turn could have a material adverse effect on the Russianeconomy and the Group’s results of operations, financial condition and prospects. In addition, any further declines in oil and gas prices or othercommodities pricing could disrupt the Russian economy and materially adversely affect our business, financial condition, results of operations andprospects.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 bankaccounts is subject to varying interpretation and inconsistent application. The 1998 financial crisis resulted in the bankruptcy and liquidation of manyRussian banks and almost entirely eliminated the developing market for commercial bank loans at that time. From April to July 2004, the Russianbanking sector experienced further serious turmoil. As a result of various market rumors and certain regulatory and liquidity problems, several privatelyowned Russian banks experienced liquidity problems 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 retail and corporate customers. Several of these privately owned Russian bankscollapsed or ceased or severely limited their operations. Russian banks owned or controlled by the government and foreign owned banks generallywere 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 hasthe mandate and authority to suspend banking licenses of insolvent banks, some insolvent banks still operate. Many Russian banks also do not meetinternational banking standards, and the transparency of the Russian banking sector in some respects still lags behind internationally accepted norms.Banking supervision is also often 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 interpretationscould lead to weakened capital adequacy and the insolvency of some banks. Prior to the onset of the 2008 global economic crisis, there had been arapid increase in lending by Russian banks, which many believe had been accompanied by a deterioration in the credit quality of the loan portfolio ofthose banks. In addition, a robust domestic corporate debt market was leading Russian banks to hold increasingly large amounts of Russian corporateruble bonds in their portfolios, which further deteriorated the risk profile of the assets of Russian banks. The global financial crisis of 2007-2008 hasled to the collapse or bailout of some Russian banks and to significant liquidity constraints for others. Profitability levels of most Russian banks havebeen adversely affected. Indeed, the global crisis has prompted the government to inject substantial funds into the banking system amid reports ofdifficulties among Russian banks and other financial institutions.In recent years, the CBR has considerably increased the intensity of its supervision and regulation of the Russian banking sector.Historically, the revocation of banking licenses by the CBR has been a relatively rare event mostly occurring to local banks with little assets and littleor no significance for the banking sector as a whole. Starting October 2013, however, the CBR has launched a campaign aimed at cleansing theRussian banking industry, revoking the licenses from an unusually high number of banks (including significant banks such as Ugra, Master-Bank,Investbank, ProBusinessBank, Svyaznoy Bank, Vneshprombank, Tatfondbank and others) on allegations of money 29Table of Contentslaundering, financial statements manipulation and other illegal activities, as well as inability of certain banks to discharge their financial obligations,which resulted in turmoil in the industry, instigated bank runs on a number of Russian credit institutions, and severely undermined the trust that theRussian population had with private banks. In addition, in the course of 2017 three of Russia’s largest private banks, Otkritie Bank, Binbank andPromsvyazbank, were all bailed out and taken over by the CBR through the newly established Banking Industry Consolidation Fund, since all of themwere allegedly unable to perform their obligations as they fell due for various reasons. License revocations have continued throughout 2018 and early2019, again with some major banks impacted. The private banking sector in Russia, always relatively minor compared to state players like Sberbankand VTB to begin with, has contracted severely as a result. This can be expected to result in reduced competition in the banking sector (while at thesame time putting alternative payment solution providers such as ourselves in the position of having to predominantly compete with the governmentitself), increased inflation and a general deterioration of the quality of the Russian banking industry. It could be expected that the difficulties currentlyfaced by the Russian economy could result in further collapses of Russian banks. With few exceptions (notably the state-owned banks), the Russianbanking system suffers from weak depositor confidence, high concentration of exposure to certain borrowers and their affiliates, poor credit quality ofborrowers and related party transactions. Current economic circumstances in Russia are putting stress on the Russian banking system. Combined withheightened interest rates – with the key interest rate of the CBR currently at 7.75% per annum (but 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. In addition, thesefactors could further tighten liquidity on the Russian market and add pressure onto the ruble.Our business is significantly affected by development in the Russian banking sector. First, we periodically hold funds in a number ofRussian banks and rely on guarantees given by those banks to enhance our liquidity. Increased uncertainty in the Russian banking sector exposes us toadditional counterparty risk and affects our liquidity. In addition, a significant portion of our revenue is derived from consumer payments in thebanking industry in our Financial Services market vertical. As a result, the bankruptcy or insolvency of one or more of these banks could adverselyaffect our business, financial condition and results of operations. The continuation or worsening of the banking crisis could decrease our transactionvolumes, while the bankruptcy or insolvency of any of the banks which hold our funds could prevent us from accessing our funds for several days. Allof these factors could have a material adverse effect on our business, financial condition 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 andsocial unrest could have political, social and economic consequences, such as increased support for a renewal of centralized authority; increasednationalism, with support for re-nationalization of property, or expropriation of or restrictions on foreign involvement in the economy of Russia; andincreased violence. Any of these could have an adverse 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, and could otherwise have a material adverse effect on its business, results of operations andfinancial 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 relativemovement of inflation and exchange rates significantly affects our results of operations. The effects of inflation could cause some of our costs to rise.Russia has experienced high 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 11.4% in 2014,12.9% in 2015, 5.4% in 2016, 2.5%in 2017 and 4.2% in 2018. Certain of our costs, such as salaries and rent, are affected by inflation in Russia. To the extent the inflation causes thesecosts 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 resultsof operations.Risks associated with the legal systems of the Russian Federation include, to varying degrees, inconsistencies between and among laws,presidential decrees, edicts and governmental and ministerial orders and resolutions; conflicting local, regional, and federal rules and regulations; thelack of judicial or administrative guidance regarding the interpretation of the applicable rules; the untested nature of the independence of the judiciaryand its immunity from political, social and commercial influences; the relative inexperience of jurists, judges and courts in interpreting recentlyenacted legislation and complex commercial arrangements; a high degree of unchecked discretion on the part of governmental authorities; allegedcorruption within the judiciary and governmental authorities; substantial gaps in the regulatory structure due to delays in or absence of implementingregulations; bankruptcy procedures that are not well-developed and are subject to abuse; and a lack of binding judicial precedent. All of theseweaknesses affect our ability to protect and enforce our legal rights, including rights under contracts, and to defend against claims by others. Inaddition, the merger of the Supreme Arbitration Court of the Russian Federation, which used to oversee business disputes, into the Supreme Court,which used to only handle criminal cases and civil lawsuits, is viewed by some as having further aggravated these issues.The Russian judicial system is not immune from economic and political influences. The Russian court system is understaffed andunderfunded, and the 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 usually consider judicial precedents in their decisions. Enforcement of court judgments can in practice be very difficultand time-consuming in Russia. Additionally, court claims are sometimes used in furtherance of political and commercial aims. All of these factors canmake judicial decisions in Russia difficult to predict and make effective redress problematic in certain instances. 30Table of ContentsThe relatively recent enactment of many laws, the lack of consensus about the scope, content and pace of political and economic reformand the rapid evolution 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 bureaucraticobstacles and corruption exist to varying degrees in each of the regions in which we operate, and these factors are likely to hinder our furtherdevelopment. These characteristics give rise to investment risks that do not exist in countries with more developed legal systems. The developingnature 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 orprior notice, and in a manner that is contrary to law or influenced by political or commercial considerations. Moreover, the Russian Government alsohas the power in certain circumstances, by regulation or government act, to interfere with the performance of, nullify or terminate contracts. Unlawful,selective or arbitrary governmental actions have reportedly included denial or withdrawal of licenses, sudden and unexpected tax audits, criminalprosecutions and civil actions. Federal and local government entities also appear to have used common defects in matters surrounding share issuancesand registration as pretexts for court claims and other demands to invalidate the issuances or registrations or to void transactions, seemingly forpolitical purposes. Moreover, selective, public criticism by Russian Government officials of Russian companies has in the past caused the price ofpublicly traded securities in such Russian companies to sharply decline, and there is no assurance that any such public criticism by RussianGovernment officials in the future will not have the same negative affect. Standard & Poor’s has expressed concerns that “Russian companies and theirinvestors can be subjected to government pressure through selective implementation of regulations and legislation that is either politically motivatedor triggered by competing business groups”. In this environment, our competitors could receive preferential treatment from the government, potentiallygiving them a competitive advantage. Unlawful, selective or arbitrary governmental action, if directed at our operations in Russia, could materially andadversely affect our business, financial condition and results of operations.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 notliable for that company’s obligations and risk only the loss of their investment. This may not be the case, however, when one company (the “effectiveparent”) is capable of making decisions for another (the “effective subsidiary”). Under certain circumstances, the effective parent bears joint and severalresponsibility for transactions concluded 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 subsidiarybecomes insolvent or bankrupt as a result of the action of an effective parent. In these instances, the other shareholders of the effective subsidiary mayclaim compensation for the effective subsidiary’s losses from the effective parent that causes the effective subsidiary to take action or fail to take actionknowing that such action or failure to take action would result in losses. We could be found to be the effective parent of our subsidiaries, in which casewe would become liable for their debts, which could 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 are 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 ofan emerging market, Kazakhstan does not possess a well-developed business, legal and regulatory infrastructure and has been subject to substantialpolitical, economic and social change. Our business in Kazakhstan is subject to Kazakhstan specific laws and regulations including with respect to tax,anti-corruption, and foreign exchange controls. Such laws are often rapidly changing and are unpredictable. In addition, we are exposed to foreigncurrency fluctuations between the Russian ruble and the Kazakh tenge, which could affect our financial position and our profitability. Our failure tomanage the risks associated with doing business in Kazakhstan could have a material adverse effect upon our results of operations.Risks Relating to TaxationGlobal anti-offshore measures may have adverse impact on our business, financial condition and results of operations.In 2013 OECD and G20 countries accepted that existing international tax rules create opportunities for base erosion and profit shifting,because these rules have been designed more than a century ago. Pursuing solutions for this problem, OECD and G20 countries adopted a 15-pointAction Plan to address base erosion and profit shifting. The BEPS package of measures represents the substantial renovation of the international taxrules. Once the new measures become applicable, it is expected that profits will be reported where the economic activities that generate them are carriedout and where value is created. 31Table of ContentsThe Convention on Mutual Administrative Assistance in Tax Matters developed by the Council of Europe and the OECD in 1988 andamended by Protocol in 2010 is now signed by 127 jurisdictions (the Russian Federation, Cyprus, UAE are among the signatories). This Convention,by virtue of its Article 6, requires competent authorities of jurisdictions-signatories hereto to participate in the automatic exchange ofCountry-by-Country Reports and the automatic exchange of financial account information pursuant to the Common Reporting Standard (CRS). Inaddition, by virtue of Article 5 the Convention requires competent authorities of jurisdictions-signatories hereto to participate in the exchange ofinformation on request and, by virtue of Article 7, stipulates that such competent authorities should participate in spontaneous exchange ofinformation. The tax authorities (including, Russian, Cypriot and UAE tax authorities) already cooperate in terms of mutual administrative assistancein tax matters.On June 7, 2017 67 countries signed the the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosionand Profit Shifting (“MLI”) in order to implement treaty related measures. The Russian Federation, Cyprus, UAE are among the signatories, currentlythis instrument is being ratified on the domestic level. MLI already covers 87 jurisdictions and entered into force on July 1, 2018 for the first fivejurisdictions, which deposited their respective ratification instruments. It is expected that further countries will also join the Convention by signing ofMLI.Generally, new means for global exchange of financial information provide for much more transparency of international transactions. Dueto information exchange instruments the tax authorities are becoming much more efficient in combating tax avoidance.The implementation of global instruments means the application of such instruments by competent authorities on mutually agreedgrounds, however, there might be a risk that competent authorities of jurisdictions where our subsidiaries operate would apply newly introduced globaltransparency instruments inconsistently, which would lead to the imposition of additional taxes on us. For more details on the possible impact of thesemeasures, see sections below.Significant change of substance requirements in certain offshore jurisdictions may adversely impact our business.Following the global trend on increase of substance requirements in various jurisdictions, starting from 2019 traditional offshorejurisdictions implement legislation that requires companies registered in the relevant offshore jurisdiction to maintain actual substance on the territoryof such jurisdictions, which may include, amongst others, the qualified personnel, premises located in the particular jurisdiction, reasonable expensesto support daily operation of the company.We cannot exclude that we might be subject to additional costs and/or tax liabilities resulted from the said requirements, which could havea material adverse effect on our business, financial condition and results of operations.Weaknesses 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 notlimited to, profits tax, VAT, corporate property tax and social contributions. Tax laws, namely the Russian Tax Code, have been in force for a shortperiod relative to tax laws in more developed market economies, and the implementation of these tax laws is often unclear or inconsistent. Historically,the system of tax collection has been relatively ineffective, resulting in continual changes to the interpretation of existing laws. Although the qualityof Russian tax legislation has generally improved with the introduction of the first and second parts of the Russian Tax Code, the possibility exists thatRussia may impose arbitrary or onerous taxes and penalties in the future, which could adversely affect our business, financial condition and results ofoperations. A large number of changes have been made to various chapters of 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 sections of the Russian Tax Code relating to the aforementionedtaxes are comparatively new, interpretation of these regulations is often unclear or non-existent. Also, different interpretations of tax regulations existboth among and within government bodies at the federal, regional and local levels, which creates uncertainties and inconsistent enforcement. Thecurrent practice is that private clarifications to specific taxpayers’ queries with respect to particular situations issued by the Russian Ministry ofFinance 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 intheir interpretation of the tax legislation, which has led to an increased number of material tax assessments issued by them as a result of tax audits.Starting from January 1, 2019 tax authorities are entitled to claim documents (information) used for calculation and payment of taxes (other obligatorypayments) from the taxpayers’ auditors. In practice, the Russian tax authorities generally interpret the tax laws in ways that do not favor taxpayers, whooften have to resort to court proceedings against the Russian tax authorities to defend their position. In some instances, Russian tax authorities haveapplied new interpretations of tax laws retroactively. There is no established precedent or consistent court practice in respect of these issues.Furthermore, in the absence of binding precedent, court rulings on tax or other related matters by different courts relating to the same or similarcircumstances may also be inconsistent or contradictory.The Russian tax authorities are increasingly taking a “substance over form” approach. For example, starting from January 1, 2015 a numberof amendments have been made to the Russian tax legislation introducing, among others, the concepts of controlled foreign companies, corporate taxresidency and beneficial ownership (see also “Russian anti-offshore measures may have adverse impact on our business, financial condition and resultsof operations”). Due to the relative lack of court and administrative practice, no assurance can be currently given as to how these amendments will beapplied in practice, their potential interpretation by the tax authorities and the possible impact on us.In addition, on November 27, 2017 the Federal Law No. 340-FZ introducing country-by-country reporting (“CbCR”) requirements waspublished. The mandatory filing of CbCR is, in general, in line with the Organization for Economic Co-operation and Development (“OECD”)recommendations within the Base Erosion and Profit Shifting (“BEPS”) initiative. The law has taken effect on the date of its official publication, andits provisions apply to financial years starting in 2017 (except for the provisions regarding the national documentation). These amendments wouldrequire multinational corporate enterprise groups with consolidated revenues of over certain threshold to submit annual 32Table of ContentsCbCR, as well as certain other reporting forms detailing multinational corporate enterprises groups operations (locally and globally, respectively), aswell as transfer pricing methodologies applied to intra-group transactions. Thus, if we reach the reporting threshold in Russia (over RUB 50 billion), oralternatively in any other jurisdiction of our presence (e.g. in Cyprus, where the Decree issued by the Cyprus Minister of Finance on December 30,2016 introduced a mandatory CbCR for multinational enterprise groups generating consolidated annual turnover exceeding EUR 750 million) we maybe liable to submit relevant CbCR. It is unclear at the moment how the above measures will be applied in practice by the Russian tax authorities andcourts. We do not consider the Company to be subject to CbCR requirements. However, taking into consideration the possibility of furtherdevelopments in Russia as well as international legislation, we may become subject to the above requirements. It is important to note that the abovechanges and amendments to the Russian Tax Code introduced by the law do not replace already existing transfer pricing documentation requirements.Certain other changes were introduced to the Russian Tax Code over the recent years, namely temporary limit on the amount of loss carriedforward to be utilized to reduce taxable income (applicable for 2017-2020 inclusively); increase of late payment interest for overdue tax payments;changes to types of controlled transactions subject to transfer pricing rules, namely starting from 2017 any guarantees between Russian non-bankingorganizations, as well as interest-free loans between Russian related parties will not be treated as controlled transactions; further significant reductionof types of transactions subject to transfer pricing control starting from 2019 (for more details see “Russian transfer pricing legislation may requirepricing adjustments and impose additional tax liabilities with respect to all controlled transactions”), increase of the VAT rate to 20%, changes in theregulation concerning VAT on digital services, etc.The possibility exists that the Government may introduce additional tax-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 becomingpayable.On November 24, 2016, the OECD published the MLI which introduces new provisions to existing double tax treaties limiting the use oftax benefits provided thereof. For example, the reduced rate on dividends provided under a double tax treaty shall be denied if the conditions forholding equity interest or shares by the time of the dividend payout are met over less than a 365-day period. MLI also proposes taxing income fromgains upon alienation of shares (interests) of property-rich companies in the country where such property is situated if the immovable property valuethreshold is met at any time during the 365 days preceding the transaction and not at the time of the transaction itself. Thus, when determining taxconsequences several sources of legislation will now need to be considered, namely the domestic tax law, double tax treaties and MLI provisions,which have been adopted by states-parties to the relevant double tax treaty. To date the MLI has not been ratified by Russia. The draft law onratification of the MLI has been submitted to the Russian State Duma (the low chamber of the parliament). However, it is likely that the application ofthe double tax treaties, which Russia is a party to, i.a. the double tax treaty between Russia and Cyprus, will be significantly limited by the MLI.Further sections below include information about the application of double tax treaties with due regard to the current non-active status of the MLI inRussia.There can be no assurance that the Russian Tax Code will not be changed in the future in a manner adverse to the stability andpredictability of the tax system. These factors, together with the potential for state budget deficits, raise the risk of the imposition of additional taxes onus. The introduction of new taxes or amendments 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 required to make substantially larger tax payments in the future, which may adversely affect our business,financial condition and results of operations.Our 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, introducedthe concept of “a taxpayer acting in a bad faith” without clearly stipulating the criteria for it. Although this concept is not defined in Russian tax law, ithas 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 taxauthorities and courts often exercise significant discretion in interpreting this concept in a manner that is unfavorable to taxpayers.On October 12, 2006, the Plenum of the Higher Arbitrazh Court of the Russian Federation, or the Higher Arbitrazh Court, issued RulingNo. 53, formulating another concept known as the concept of an “unjustified tax benefit”. This concept is defined in the ruling mainly by reference tospecific examples of such tax benefits (e.g., tax benefits obtained as a result of a transaction that has no reasonable business purpose) which may lead todisallowance of their application. The tax authorities applied the “unjustified tax benefit” concept in a broad sense, not only combatting the abuse ofthe Russian tax law, but also disallowing benefits granted by double tax treaties. To date, in the cases where this concept has been applied, the courtshave ruled in favor of taxpayers that managed to demonstrate business rationale of the operations challenged by the Russian tax authorities.On July 19, 2017 a law introducing the concept of “unjustified tax benefit” into the Russian Tax Code was adopted. As opposed to thecourt-based version of the concept, currently there are two specific criteria that should be met simultaneously to entitle a taxpayer to reduce the taxbase or the amount of tax: (i) the main purpose of the transaction (operation) is not a non-payment (incomplete payment) and (or) offset (refund) of theamount of tax; and (ii) the obligation under the transaction (operation) is executed by a person who is a party to a contract entered into with thetaxpayer and / or a person to whom the obligation to execute a transaction (operation) was transferred under a contract or law.The Russian Tax Code specifically indicates that signing of primary documents by an unidentified or unauthorized person, violation bythe counterparty of tax legislation, the possibility to obtain the same result by a taxpayer by entering into other transactions not prohibited by lawcannot be considered in itself as a basis for recognizing the reduction of the tax base or the amount of tax unlawful. However, application of thesecriteria is still under consideration of the tax authorities, therefore, no assurance can be given that positions of taxpayers will not be challenged by theRussian tax authorities. 33Table of ContentsThe new version of the concept of “unjustified tax benefit” is applied starting from August 19, 2017, yet it may be applied to prior periodsif it benefits taxpayers. However, as of the date of this annual report, no assurance can be given that later the Russian tax authorities would not rely onthe court-based version of the concept or even both ones, which may result in a higher tax burden of taxpayers.In addition to the usual tax burden imposed on Russian taxpayers, these conditions complicate tax planning and related businessdecisions. This uncertainty could possibly expose our Group to significant fines and penalties and to enforcement measures, despite our best efforts atcompliance, and could result in 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 byRussian law to impose substantial fines and interest charges. Generally, taxpayers are subject to tax audits for a period of three calendar yearsimmediately preceding the year in which the decision to conduct the audit is taken. Nevertheless, in some cases the fact that a tax period has beenreviewed by the tax authorities does not prevent further review of that tax period, or any tax return applicable to that tax period. In addition, based onthe 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 thetaxpayer create insurmountable obstacles for the tax audit. Because none of the relevant terms is defined in Russian law, the tax authorities may havebroad discretion to argue that a taxpayer has “obstructed” or “hindered” or “created insurmountable obstacles” in respect of an audit, effectivelylinking any difficulty experienced in the course of their tax audit with obstruction by the taxpayer and use that as a basis to seek tax adjustments andpenalties beyond the three-year term. Therefore, the statute of limitations is not entirely effective. Tax audits may result in additional costs to ourGroup if the relevant tax authorities conclude that our Russian entities did not satisfy their tax obligations in any given year. Such audits may alsoimpose 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.The existing transfer pricing rules became effective from January 1, 2012. Under these rules the Russian tax authorities are allowed to maketransfer-pricing adjustments and impose additional tax liabilities in respect of certain types of transactions (“controlled” transactions). The list of the“controlled” transactions includes transactions with related parties (with several exceptions such as guarantees between Russian non-bankingorganizations and interest-free loans between Russian related parties) and certain types of cross border transactions. Starting from 2019 transactionsbetween Russian tax residents will be controlled only if the amount of income from the transactions between these parties within one year exceedsRUB 1 billion and one of the conditions stipulated in Article 105.14 of Russian Tax Code (e.g., the parties to the transaction apply different corporateincome tax rates) is met. Certain other transactions, such as foreign trade transactions in commodities traded on global exchanges, transactions withparties from blacklisted countries, transactions between related parties under participation of the independent intermediary, as well as transactionsbetween the Russian tax resident and foreign tax resident (related parties) remain under control in case the amount of income from transactions betweenthese parties within one year exceeds RUB 60 million threshold. The new rules apply to transactions, under which income (expenses) from suchcontrolled transactions are recognised after January 1, 2019. As a side effect, the Russian tax authorities who are entitled to perform tax audits ofRussian taxpayers with focus on compliance with existing transfer pricing legislation will no longer be involved in tax audit of transactions betweenRussian parties due to increased limits on transactions between Russian tax residents but they will be able to pay more attention to cross-bordertransactions.The burden of proving market prices, as well as keeping specific documentation, lies with the taxpayers. Major taxpayers are allowed toenter into advance pricing agreements to agree an appropriate transfer pricing methodology for certain period with the tax authorities; however, it isunclear how such agreements operate in practice as their content is not publically available. Special transfer pricing rules apply to transactions withsecurities and derivatives. It is currently difficult to evaluate what effect these provisions may have on us. Alternatively, the prices under ourtransactions that are not subject to transfer pricing control may be challenged under unjustified tax benefit concept. For more information see “Ourbusiness in Russia may be deemed to receive unjustified tax benefits”.It is 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 and lack of established practice of application of the Russian transfer pricing legislation the Russian tax authorities maychallenge the level of prices applied by the Group under the “controlled” transactions (including certain intercompany transactions) or challenge themethods used to prove prices applied by the Group, and as a result accrue additional tax liabilities. If additional taxes are assessed with respect to thesematters, they could have a material adverse effect on our business, financial condition and results of operations.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, anon-resident holder that is an individual may be subject to Russian tax in respect of such proceeds at a rate of 30% of the gain (such gain beingcomputed as the sales price less any available documented cost deduction, including the acquisition price of the ADSs and other documentedexpenses, 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 source proceeds subject to tax in Russia at the rate of 20% if more than 50% of our assetsconsist of immovable property in Russia. Relevant tax may be eliminated under any available double tax treaty relief, provided that the necessaryrequirements to qualify for the treaty relief and the appropriate administrative requirements under the Russian tax legislation have been met. Forexample, holders of ADSs that are eligible for the benefits of the United States-Russia double tax treaty should generally not be subject to tax in Russiaon any gain arising from the disposal of ADSs, provided that the gain is not attributable to a permanent 34Table of Contentsestablishment or a fixed base that is or was located in Russia and/or provided that no more than 50% of our assets consist of immovable propertysituated in Russia (as defined in the treaty). Because the determination of whether more than 50% of our assets consist of immovable property situatedin Russia is inherently factual and is made on an on-going basis, and because the relevant Russian legislation and regulations are not entirely clear,there can be no assurance that immovable property situated in Russia will not, from time to time, constitute more than 50% of our assets. If more than50% of our assets were to consist of immovable property situated in Russia, the benefits of the United States-Russia double tax treaty may not beavailable to an ADS holder (whether a legal entity or an individual). For more details, see “Russian Tax Considerations Relevant to the Purchase,Ownership and Disposal of the ADSs”.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 treatynetwork, 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 these amendments have been in effect since January 1, 2013. Additionally, the Protocol contained a clause on Article 13 of the Russia-Cyprusdouble tax treaty, under which 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 the property is located starting from January 1, 2017. Moreover, the MLI that is currently being ratified in Russiaand Cyprus may have a significant impact on application of the Russia-Cyprus double tax treaty, if relevant positions would be mutually agreed uponby Russia and Cyprus. For more information see “Weaknesses and changes in the Russian tax system could materially and adversely affect ourbusiness and the value of investments in Russia”.Adverse changes in, or the cancellation of, the Russia-Cyprus double tax treaty may significantly increase our tax burden and adverselyaffect our business, 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 in Cyprus for tax purposes if itsmanagement and control are exercised in Cyprus. The concept of “management and control” is not defined in the Cypriot tax legislation. For moredetails in relation to tax residency in Cyprus see “Item 10.E Taxation—Material Cypriot Tax Considerations—Tax residency of a company”. If we aredeemed not to be a tax resident in Cyprus, we may not be subject to the Cypriot tax regime other than in respect of Cyprus sourced income and we maybe subject to the tax regime of the country in which we are deemed to be a tax resident. Further, we would not be eligible for benefits under the doubletax treaties entered into between Cyprus and other countries.Under the Russian Tax Code, a foreign legal entity may be recognized as a Russian tax resident if such entity is in fact managed fromRussia. For more details in relation to tax residency in Russia see “Russian anti-offshore measures may have adverse impact on our business, financialcondition and results of operations”.The double tax treaty in force between Cyprus and Russia provides that a company shall be deemed to be a tax resident of the state inwhich the place of effective management of the company is situated. In case both states claim the tax residency of the company, the process ofdetermining the effective management will be achieved through the two states endeavoring to determine the place of effective management by mutualagreement having regard to all relevant factors.On June 7, 2017 Cyprus signed MLI, according to which, and upon ratification by Cyprus and its co-signatories, Cyprus will implement a series of taxtreaty measures to update the existing network of double tax treaties. Cyprus has adopted the minimum standards of the MLI and made full reservationson all other provisions of the MLI, including replacement of the “effective management” concept with the mutual agreement procedure between thejurisdictions of which the entity shall be deemed to be a resident.In addition, taking into account that the majority of our board of directors comprises tax residents or citizens of Russia, this may pose a riskthat we, even if we are managed and controlled from Cyprus and, therefore, being a tax resident in Cyprus, may be deemed to have a permanentestablishment in Russia or elsewhere. Such a permanent establishment could be subject to taxation of the jurisdiction of the permanent establishmenton the profits allocable to the permanent establishment. If we are tax resident in a jurisdiction outside of Cyprus or are deemed to have a permanentestablishment in Russia or elsewhere, our tax burden may increase significantly, which, in turn, may materially adversely affect our business, financialcondition and results of operations.Our subsidiaries may be deemed a tax resident outside of countries of their incorporation.Each jurisdiction has its own tax residency requirements. We believe that our subsidiaries do comply with tax residency requirements ofthe jurisdiction, where they are incorporated; however, there might be a risk that they may be deemed a tax resident outside of countries of theirincorporations.Moreover, the MLI provides that if there is a conflict of tax residency for the person (other than an individual) and competent authoritiesdo not come to an agreement on the relevant person, it shall not be entitled to any tax relief or exemption provided by the relevant double tax treatyexcept to the extent as may be agreed upon by the competent authorities. In the absence of relevant practice we could not exclude the risk that theremight be a conflict of tax residency for our subsidiaries resulting in significant increase of our tax burden, which may materially adversely affect ourbusiness, financial condition and results of operations. 35Table of ContentsDepending 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 passiveforeign investment 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 thebasis of a quarterly average) for the taxable year produce passive income or are held for the production of passive income, or (b) 75% or more of ourgross income for the taxable year is passive income. As a publicly traded foreign corporation we intend for this purpose to treat the aggregate fairmarket value of our gross assets as being equal to the aggregate value of our outstanding stock (“market capitalization”) plus the total amount of ourliabilities and to treat the excess of the fair market value of our assets over their book value as a nonpassive asset to the extent attributable to ournonpassive income. Because we currently hold, and expect to continue to hold, a substantial amount of cash and cash equivalents and other passiveassets used in our business, and because the value of our gross assets is likely to be determined in large part by reference to our market capitalizationsecurities, we would likely become a PFIC for a given taxable year if the market price of our ADSs were to decrease significantly. The application of thePFIC rules is subject to uncertainty in several respects, and we must make a separate determination after the close of each taxable year as to whether wewere a PFIC for such year. If we are a PFIC for any taxable year during which a U.S. investor held our ADSs or ordinary shares, the U.S. investor mightbe subject to increased U.S. federal income tax liability and to additional reporting obligations. We do not intend to provide the information necessaryfor the U.S. investor to make a qualified electing fund election with respect to our ADSs or ordinary shares. See “Taxation – United States FederalIncome Tax Considerations – Passive Foreign Investment Companies.”Our companies established outside of Russia may be exposed to taxation in Russia.Due to our international structure (see “Item 18. Financial Statements, Note 5. Consolidated subsidiaries), we are subject to permanentestablishment and transfer pricing risks in various jurisdictions in which we operate. We manage the related risks by looking at management functionsand risks in various countries and level of profits allocated to each subsidiary. If additional taxes are assessed with respect to these matters, they may bematerial.The Russian Tax Code contains the concept of a permanent establishment in Russia as means for taxing foreign legal entities, which carryon regular operational activities in Russia beyond preparatory and auxiliary activities. The Russian double tax treaties with other countries alsocontain a similar concept. If a foreign company is treated as having a permanent establishment in Russia, it would be subject to Russian taxation in amanner broadly similar to the taxation of a Russian legal entity, but only to the extent of the amount of the foreign company’s income that isattributable to the permanent establishment in Russia. However, the practical application of the concept of a permanent establishment under Russiandomestic law is not well developed and so foreign companies having even limited operations in Russia, which would not normally satisfy theconditions for creating a permanent establishment under international rules, may be at risk of being treated as having a permanent establishment inRussia and hence being exposed to Russian taxation. Furthermore, the Russian Tax Code contains attribution rules, which are not sufficientlydeveloped, 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 permanentestablishment in Russia may also lead to other adverse tax implications, including challenging a reduced withholding tax rate on dividends under anapplicable 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 authoritiesmay be seeking more actively to investigate and assert whether foreign entities of our Group operate through a permanent establishment in Russia. Anysuch taxes or penalties could 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 foreigncompanies, corporate tax residency and beneficial ownership (Federal Law No. 376-FZ was signed by the Russian President on November 24, 2014 (asamended) with its provisions applicable starting from January 1, 2015). Due to the lack of court and administrative practice, no assurance can becurrently given as to how these amendments will be applied in practice and their exact nature, their potential interpretation by the tax authorities andthe possible impact on us. We cannot rule out the possibility that, as a result of the introduction of changes to Russian tax legislation, certain of ourcompanies established outside Russia might be deemed to be Russian tax residents (especially when they fail to meet substance requirements in thecountries of their incorporation), subject to all applicable Russian taxes. For more details see risks described in “Russian anti-offshore measures mayhave 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 fordividends distributed 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%,although this tax rate may be reduced under an applicable double tax treaty. We intend to rely on the Russia-Cyprus double tax treaty. The tax treatyallows reduction of withholding income tax on dividends paid by a Russian company to a Cypriot company to 10% provided that the followingconditions are met: (i) the Cypriot company is a tax resident of Cyprus within the meaning of the tax treaty; (ii) the Cypriot company is the beneficialowner of the dividends; (iii) the dividends are not attributable to a permanent establishment of the Cypriot company in Russia; and (iv) the treatyclearance procedures are duly performed. This rate may be further reduced to 5% if the direct investment of the Cypriot company in a Russiansubsidiary paying the dividends is at least EUR100,000. Although we will seek to claim treaty protection, there is a risk that the applicability of thereduced rate of 5% or 10% may be challenged by Russian tax authorities. As a result, there can be no assurance that we would be able to avail ourselvesof the reduced withholding income tax rate in practice.Specifically, our Cypriot holding company may incur a 15% withholding income tax at source on dividend payments from Russiansubsidiaries if the treaty clearance procedures are not duly performed at the date when the dividend payment is made. In this case, we may seek to claimas 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 thatsuch taxes would be refunded in practice. Similar approach is applied to dividends received from Russian subsidiaries by the Company’s non-Russiansubsidiaries. 36Table of ContentsFurthermore, a number of amendments had been made to the Russian tax legislation introducing, amongst others, the concept of beneficialownership. Under this concept, double tax treaty benefits are only available to the recipient of income from Russian sources, if such recipient is thebeneficial owner of the relevant income. Foreign entities that do not qualify as beneficial owners may not claim double tax treaty relief even if they areresidents in a double tax treaty country. For these purposes, the beneficial owner is defined as a person holding directly, through its direct and/orindirect participation in other organizations or otherwise, the right to own, use or dispose of income, or the person on whose behalf another person isauthorized to use and/or dispose of such income. In order to determine whether a foreign entity is a beneficial owner of income, it is necessary to takeinto account the functions performed by such foreign entity, as well as the risks borne by it. Entities are not recognized as beneficial owners of incomeif they have limited authorities to use or dispose income received from Russian sources, perform agency or other similar functions in favour of thirdparties, 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 benefitsunder a double taxation treaty through structures which historically have benefited from double taxation treaty protection in Russia. This may be thecase if the recipient of the income is not recognized as its beneficial owner, look-through approach cannot be applied or is challenged by the taxauthorities. Recent court cases demonstrate that the Russian tax authorities actively challenge application of double tax treaty benefits retroactively(i.e. prior to concept of beneficial ownership was introduced in the Russian Tax Code) on the grounds that double tax treaties already includebeneficial ownership requirement to allow application of reduced tax rates or exemptions. In these cases the Russian tax authorities obtained relevantinformation by means of information exchange with the foreign tax authorities. The imposition of additional tax liabilities as a result of the applicationof this rule to transactions carried out by us may have a material adverse effect on our business, financial condition and results of operations (see “-Russian anti-offshore measures may have adverse impact on our business, financial condition and results of operations”).Russian anti-offshore measures may have adverse impact on our business, financial condition and results of operations.The Russian Federation, like a number of other countries in the world, is actively involved in introduction of measures against tax evasionthrough the use of low tax jurisdictions as well as aggressive tax planning structures. Starting from January 1, 2015, the Federal Law No. 376-FZ,introducing the concept of “controlled foreign companies” (the “CFC Rules”), the concept of “corporate tax residency” and the concept of “beneficialownership” into Russian tax legislation, came into force (with further amendments within 2016-2018). Moreover, Russia has entered into severalmultilateral agreements for the exchange of information between the tax authorities of different countries.Under the Russian CFC Rules, in certain circumstances, undistributed profits of foreign 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 entitiesand individuals) will be subject to taxation in Russia. The Russian CFC Rules are being constantly developed. A number of amendments to theRussian CFC Rules were made within 2015-2017 years. In the meantime, certain provisions of the Russian CFC Rules are still ambiguous and may besubject to arbitrary interpretation by the Russian tax authorities.Under the concept of “corporate tax residency” a foreign legal entity may be recognized as a Russian tax resident if: (i) its executivebody(ies) operates in respect of such company in Russia on regular basis (however, the activity of executive body will not be viewed as regular if it isinsignificant compared to the one in the other jurisdiction), or (ii) senior executive personnel of the company who are authorized to plan and controlactivities of the company and take responsibility over it basically carry out management of the company from Russia (i.e. make decisions or take anyother measures in respect of operational activities of the company that are within the competence of the company’s executive body). Provided that oneof the above conditions is met both in Russia and in other jurisdiction to the same extent, the place of management and control is defined as Russia,provided that one or more of the following is carried out in Russia: (i) bookkeeping and maintaining of management accounts (other than preparationand reporting of consolidated financial or management accounts, as well as analysis of operations of the foreign company), or (ii) company’s recordkeeping, or (iii) daily management of the company’s staff. When an entity is recognized as Russian tax resident it is obligated to register with theRussian tax authorities, calculate and pay Russian tax on its worldwide income and comply with other tax-related rules established for Russian entities.There is still an uncertainty as to how these criteria will be applied by the Russian tax authorities in practice.Under the Russian Tax Code, a beneficial owner is defined as a person holding directly, through its direct and/or indirect participation inother organizations or otherwise, the right to own, use or dispose of income, or the person on whose behalf another person is authorized to use and/ordispose of such income. When determining the beneficial owner, the functions of a foreign person that is claiming the application of reduced tax ratesunder an applicable double tax treaty and the risks that such person takes should be analyzed. In accordance with the provisions of the Russian TaxCode, the benefits of a double tax treaty will not apply if a foreign person claiming such benefits has limited powers to 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 orindirectly to another person who would not be entitled to the same benefits should it received the income in question directly from Russia. Startingfrom January 1, 2017, the Russian Tax Code requires a tax agent (i.e. the payer of income) (in addition to a certificate of tax residency) to obtain aconfirmation from the recipient of the income that it is the beneficial owner of the income. To date, there is still no approved or recommended format ofsuch confirmation letter. However, the court practice proves that in each case the tax authorities follow “the substance over form” approach whenconsidering the beneficial owner confirmations.The Russian Tax Code allows for a “look through” approach to withholding tax, i.e. double tax treaty benefits shall be still available to theactual beneficial owner of income coming from Russian sources in case the first recipient of such income does not satisfy beneficial ownership criteriaand, therefore, is not subject to double tax treaty relief. In this case the actual beneficial owner of such income may be entitled to double tax treatyrelief, subject to certain conditions stipulated in articles 7 and 312 of the Russian Tax Code, provided it is a tax resident of the jurisdiction, which has adouble tax treaty with Russia. If the actual beneficial owner is a Russian tax resident or is a resident of the jurisdiction with no double tax treaty withRussia in place, provisions of the Russian Tax Code shall apply. Before 2019 there was uncertainty, whether the “look through” approach could beapplied in relation to any type of income other than dividends. Since 2019 it is specifically allowed by the Russian Tax Code. 37Table of ContentsOn November 4, 2014 the Russian President signed Federal Law No. 325-FZ ratifying the multilateral Convention on MutualAdministrative Assistance in Tax Matters developed by the Council of Europe and the OECD, which the Russian Federation signed in 2011.Ratification of this Convention enables the Russian Federation starting from July 1, 2015 to receive tax information from all participating countrieswhich include, among others, a number of offshore jurisdictions (mutual disclosures to the participating countries are required). In particular, thisConvention provides for three types of tax information exchange between countries: exchange upon request, automated exchange and voluntary(ad-hoc) exchange. Moreover, the Convention offers such instruments as simultaneous tax audits (tax authorities can carry out an audit in theirrespective territories and then exchange data on the audited group of companies or persons connected with joint interests), as well as foreign tax audits(when a tax audit includes the work of foreign tax authorities). The Convention also foresees mutual assistance of states to collect taxes within theirrespective territories.It is currently unclear how the Russian tax authorities will interpret and apply the abovementioned tax concepts and what will be thepossible impact on us and our subsidiaries. In practice, over the last few years the tax authorities have actively applied and used all informationexchange instruments available to them. As to the beneficial ownership concept, in a number of recent court cases, the tax authorities successfullyapplied this concept retroactively in respect to payments made before 2015 (i.e. prior to the date when the Russian beneficial ownership concept havecome into force). Herewith, the tax authorities were unable to refer to the new 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 the OECD Model Tax Convention. Starting from 2015 the tax authoritiesmay refer to specific provision of the Russian Tax Code when they challenge the beneficial ownership of the recipient and charge additional tax.Moreover, as mentioned above, starting from 2017, obtaining a confirmation that the income recipient is its beneficial owner became an obligatoryprocedure (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.VAT on digital services in Russia.Starting from January 1, 2017, the new provisions of the Russian Tax Code introducing an obligation to pay Russian VAT on digital(electronically supplied) services in case such digital services are supplied (deemed to be supplied) to the individuals in Russia (“VAT law”) enteredinto force. Starting from January 1, 2019, the law also extends the obligation to register and pay VAT to foreign companies that provide electronicservices to legal entities and individual entrepreneurs in Russia. At the same time, buyers of such services are provided with the right to deduct VATfrom foreign sellers.Based on the new VAT law digital services shall be regarded as supplied at the place of the buyer’s location. The new rules establishspecial criteria to determine whether the buyers are located in Russia.Obligations to pay VAT on digital services supplied in Russia would depend on the way such services are provided. In particular, the VATlaw contains the following provisions: • If services are provided by foreign suppliers to Russian customers via Russian sales agents under agency (or other similar) agreements andsuch agents participate in settlements directly with customers, then such Russian agents would be obliged to act as tax agents, withholdand pay 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 therespective amounts of VAT; • If services are provided by foreign suppliers to Russian customers via foreign sales agents and such agents participate in settlementsdirectly with customers, then such foreign agents are obliged to register in Russia for VAT purposes and fulfil VAT obligations related todigital services. If services are provided via several foreign agents, then a foreign agent which performs settlements directly with customersis regarded as a tax agent which should be registered in Russia for VAT purposes and fulfil VAT obligations.These rules do not contain exact list of companies which should be regarded as tax agents for payment of VAT on digital services, butrather mention a broad list of intermediaries. However, based on the amendments introduced by the Federal Law No. 335-FZ dated November 27, 2017,starting from January 1, 2018 the national payment system operators specified in Federal Law No. 161-FZ “On the National Payment System” datedJune 27, 2017 and mobile operators are excluded from the list of tax agents in respect of activities involving cash settlements for digital services.Many provisions of VAT law are still ambiguous. It is currently unclear whether the foreign service provider registered in Russia for VATpurposes should pay VAT from other (non-digital) services VATable in Russia.In case we are considered to be a foreign sales agent participating in settlements directly with customers, we may be forced to comply withVAT law as a tax agent for payment of VAT on digital services. Such event together with further developments of VAT law could have a materialadverse effect on our business, financial condition and results of operations. 38Table of ContentsRisks 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 oradmission to 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 ordue to certain other events will result in that holder obtaining securities that are significantly less liquid than the ADSs and the price of those class Bshares may be discounted as a result 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 Nasdaqand Russian 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 prices of our ADSs on these two markets may differ due to these and other factors. The liquidity of trading in our ADSs on MOEX islimited. This may impair your ability to sell your ADSs on MOEX at the time you wish to sell them or at a price that you consider reasonable. Inaddition, trading of a small number of ADSs on that market could adversely impact the price of our ADSs significantly and could, in turn, impact theprice in the United States. ADSs are completely fungible between both markets. Any decrease in the trading price of our ADSs on one of these marketscould cause a decrease in the trading price of our ADSs on the other market. Additionally, as there is no direct trading or settlement between the twostock markets, the time required to move the ADSs from one market to another may vary and there is no certainty of when ADSs that are moved will beavailable 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 bothclass A shares and class B shares, in the market, the trading price of our ADSs could decline significantly. We cannot predict the effect, if any, thatfuture sales of these ADSs or ordinary shares or the availability of these ADSs or ordinary shares for sale will have on the market price of our ADSs. Asof the date of this annual report, we have outstanding 62,712,975 ordinary shares, including those represented by ADSs. Our shares that are notcurrently represented by ADSs could generally be added into our ADS program in relatively short order, subject to applicable securities lawsrestrictions. Our significant shareholders currently include Mr. Sergey Solonin (see “–The substantial share ownership position of our chief executiveofficer Sergey Solonin may limit your ability to influence corporate matters”) and Otkritie Bank (see “–The substantial share ownership position ofOtkritie could be adverse to the interests of our minority shareholders”). A significant sale of our securities by any of these holders or any other futureowner of a substantial stake in our company could have a detrimental effect on the trading price of our ADSs. 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 onthe market price of the ADSs.Investors in our ADSs may have limited recourse against us, our directors and executive officers because we conduct our operations outside theUnited States and 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 ofCyprus. Almost all of our current directors and senior officers reside outside the United States, principally in the Russian Federation. Substantially allof our assets and the assets of our current directors and executive officers are located outside the United States, principally in the Russian Federation.As a result, investors may not be able to effect service of process within the United States upon our company or its directors and executive officers or toenforce U.S. court judgments obtained against our company or its directors and executive officers in Russia, Cyprus or other jurisdictions outside theUnited States, including actions under the civil liability provisions of U.S. securities laws. In addition, it may be difficult for investors to enforce, inoriginal actions brought in courts in jurisdictions outside the United States, liabilities predicated upon US securities laws. There is no treaty betweenthe United States and the Russian Federation providing for reciprocal recognition and enforcement of foreign court judgments in civil and commercialmatters. These limitations may deprive investors of effective legal recourse for claims 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 ofshares in Cypriot public companies are entitled by law to pre-emptive rights on the issue of new shares in that company (provided that such shares arepaid in cash and the pre-emption rights have not been disapplied). Our ADS holders may not be able to exercise pre-emptive rights for class B sharesrepresented by ADSs unless applicable securities law requirements are adhered to or an exemption from such requirements is available. In the UnitedStates, we may be required to file a registration statement under the Securities Act to implement pre-emptive rights. We can give no assurance that anexemption from the registration requirements of the Securities Act would be available to enable U.S. holders of ADSs to exercise such pre-emptiverights 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 ADSholders may not be able to exercise their pre-emptive rights on future issuances of shares, and, as a result, their percentage ownership interest in uswould be reduced.In April 2013, our shareholders authorized the disapplication of pre-emptive rights for a period of five years from May 8, 2013, the date ofthe closing 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.Such disapplication has expired on May 8, 2018, and while we have solicited further disapplication by our shareholders, such disapplication has notbeen supported by our public shareholders so far. If no further disapplication of pre-emptive rights is approved by our shareholders, any of our shareissuances would be subject to the pre-emptive rights of our shareholders which some of our ADS holders may not be able to exercise due to the factorsdescribed above. At the same time, to the extent we attempt an offering of ADSs in the United States pursuant to the pre-emptive rights of ourshareholders, we may not be able to do so due to the fact that rights offerings are difficult to implement effectively under the current U.S. securitieslaws, and our ability to raise capital in the future may be compromised if we need to do so via a rights offering in the United States. 39Table of ContentsADS 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 forthem, under the terms of the deposit agreement. The intended effect of the trust is to ring-fence the class B shares in the hands of the depositary byconferring a property interest on ADS holders as beneficiaries. The interest of the ADS holders as beneficiaries in trust assets, which are the class Bshares, is indirect, in the sense that in the normal course they do not have any direct recourse to the class B shares nor do they have any direct right ofaction 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 ADSsgenerally when 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 anyrequirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason in accordancewith the terms of the deposit agreement. 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(previously known as OSMP CJSC and QIWI CJSC). The company operates under the Companies Law, related legislation, and common law of Cyprus.In 2007, we acquired, among other entities, CJSC E-port and LLC Qiwi Wallet, which were reorganized in the form of accession to JSC QIWI. In April2008, we launched the Qiwi brand, which gradually became the marketing name for our businesses. We changed our legal name to Qiwi Limited onSeptember 13, 2010, and subsequently to Qiwi plc upon going public on February 25, 2013.Our primary subsidiaries are QIWI Bank (JSC), or Qiwi Bank, JSC QIWI and QIWI Payments Services Provider Limited. JSC QIWI wasincorporated in Russia in January 2004, and QIWI Payments Services Provider Limited was incorporated in the United Arab Emirates in February 2011.In September 2010, we acquired Qiwi Bank from a group of our then-current shareholders. In June 2015, we acquired the Rapida paymentprocessing system and the Contact money transfer system from Otkritie Investment Cyprus Limited. In April 2017 Rapida LTD was merged into QiwiBank.In June 2018, QIWI, Otkritie Bank and Tochka management signed a partnership agreement to establish a new entity JCS Tochka to collectivelydevelop this businessTochka, a digital banking service focused on offering a broad range of services to small and medium businesses, as a multi-bankplatform. JCS Tochka commenced its business operations in February 2019.In July 2018, we acquired 100% of Rocketbank, a digital banking service offering debit cards and deposits to retail customers, from OtkritieBank. Rocketbank currently operates as a branch of Qiwi Bank JSC.Our principal executive office is located at Kennedy 12, Kennedy Business Centre, 2nd floor, P.C. 1087, Nicosia, Cyprus. Our telephone numberat this address is: +357-22-653390. Our registered office is at the same address.The SEC maintains an internet website that contains reports and other information about issuers, like us, that file electronically with the SEC.The address of that website is www.sec.gov. Our website address is www.qiwi.com. The information contained on, or that can be accessed through, ourwebsite is not part of, and is not incorporated into, this Annual Report. References herein to the company’s websites shall not be deemed to cause suchincorporation.For a description of our principal capital expenditures and divestitures for the three years ended December 31, 2018 and for those currently inprogress, see Item 5 “Operating and Financial Review and Prospects.”For a description of the rules and regulations under which we are governed, see Item 4 “Regulation.” B.Business OverviewWe are a leading provider of next generation payment and financial services in Russia and the CIS. We have an integrated proprietary networkthat enables payment services across online, mobile and physical channels as well as provides access to certain financial services that we offer to ourretail customer and B2B partners. We have deployed over 20.8 million virtual wallets, over 143,000 kiosks and terminals, and enabled merchants,customers and partners to accept and transfer over RUB 94 billion cash and electronic payments monthly connecting over 45 million consumers usingour network at least once a month (aggregating consumers across QIWI and Contact networks, without eliminating potential duplication). Ourconsumers and partners can use cash, stored value and other electronic payment methods in order to pay for goods and services or transfer money acrossvirtual or physical environments interchangeably, as well as employ our open API infrastructure and use our highly customizable, sophisticatedpayment solutions to serve their business or personal needs. We believe the complementary combination of our physical and virtual payment andfinancial services as well as our open infrastructure provides differentiated convenience to our 40Table of Contentsconsumers and creates a strong network effect that drives payment volume and scale across the business. Recently, we have started to offer financialservices, which we believe complement our well-developed payment infrastructure. With the launch of our payment-by-installment card, SOVEST, weentered a new consumer lending market. Through Tochka we expanded our offering for SME customers and individual entrepreneurs, whileRocketbank contributes to our retail value proposition enlarging the suite of services we offer through our ecosystem. We continue working on furtherbroadening the scope of services and use cases that we offer our customers and partners and aim to access the stages of the consumer life cycle we haveyet to penetrate. We believe that our leading market position, proprietary network and complementary services provide us with competitive advantagesthat have enabled us to generate strong growth and profitability.We operate in and target markets and segments that lack convenient digital solutions for customers and partners to pay or accept payments forgoods and services, transfer money or use other financial tools in online, mobile and physical environments or that are largely cash-based. We helpconsumers, merchants and partners connect more efficiently in these markets by providing an integrated network of virtual wallets, applications, openAPIs and physical distribution points as well as payment channels and methods that enable consumers to use differentiated funding sources to pay forany merchant or to other user in or outside our network or use other services quickly and securely through a variety of interfaces.Our platform and all our products provide simple and intuitive user interfaces, convenient access, quick on-boarding and best-in-class servicescombined with the reputation and trust associated with the QIWI group brands. In Russia and Kazakhstan, the QIWI brand is well known and ourdigital solutions as well as our kiosks and terminals provide unique access to an alternative payment infrastructure for our customers in those countries.We believe that the popularity and usage of our financial services in Russia is increasing and are well regarded by our customers. We distribute ourpayment services primarily through our virtual products, most notably QIWI Wallet, which enables consumers to access, make and receive paymentsthrough their computers or mobile devices. Our customers can seamlessly create an online account, or virtual wallet, with QIWI through a variety ofinterfaces where they can store money, deposited from cash or funded from other sources, such as cards, bank accounts, mobile phone balances ormoney transfers to make payments and purchases at any time or they can make cash payments directly through our physical distribution network. Ourservices also allow merchants in Russia and other markets, including leading MNOs, online service providers and retailers, financial institutions andutilities, to accept payments via our network, enabling them to attract more consumers, generate more sales and get paid faster and more easily. Ourpartners can use our infrastructure to create sophisticated payment and payout solutions and use a variety of payment and financial services we provideto services their operations. Our payment infrastructure offers diversity and flexibility that helps us deliver convenient solutions and satisfy the needsof a broad range of customers.Moreover, our payment solutions target a variety of use cases creating an ecosystem that can be used to meet the diverse needs of our customers.Such use cases include secure peer-to-peer and card-to-card money transfers for friends splitting lunch or self-employed people collecting money fortheir services; a light banking solution with a variety of upload channels; payment tools for the younger and underbanked population with easyon-boarding, wide acceptance and intuitive interfaces; unique payment tools for gamers and other specialized categories of users; and convenientsolutions for payment collection for large, small and very small merchants including customizable open API capabilities.We run our network and process our transactions using a proprietary, advanced technology platform that leverages the latest virtualization,analytics and security technologies to create a fast, highly reliable, secure and redundant system. We believe that the breadth and reach of our networkand product offering, along with the proprietary nature of our technology platform, differentiates us from our competitors and allows us to effectivelymanage and update our services and realize significant operating leverage with growth in volumes and diversification of our product offering.Our payment services business historically has been and continues to be a major part of our operations and currently generates most of ourrevenues. We are constantly striving to diversify our product offering and range of services with certain new projects contributing to our paymentservices business and others aimed at penetrating new areas of the financial services market. As part of our strategic move into digital financial servicesat the end of 2016, we have launched our payment-by-installment card, SOVEST, with which we have entered the consumer lending market. Followingthe development of SOVEST, establishment of JCS Tochka and acquisition of the Rocketbank business, we revised our organizational structure tobetter reflect our operational and management strategy as well as the expansion of our business operations, including the broadening of our productsand services, by distinguishing four key operating segments in addition to a Corporate and Other category, as set out below: • Payment Services segment, which encompasses our virtual distribution services, including QIWI Wallet and other QIWI applications,payment channels and methods; physical distribution, including our kiosks, terminals and other retail points of service, Contact MoneyRemittance System; and our merchant focused services, such as QIWI Cashier or acquiring services; • Consumer Financial Services segment, which encompasses our consumer lending business SOVEST; • Small and Medium Businesses segment, which encompasses operations of the Tochka multi-banking platform which is focused on offeringa broad range of services for small and medium enterprises; • Rocketbank segment, which encompasses Rocketbank, a digital banking service offering debit cards and deposits to retail customers, and • Corporate and Other category, which encompasses expenses associated with the corporate operations of QIWI Group as well as our R&D,projects and emerging business models that we are testing.Payment ServicesPayment services historically have been and continue to be our key business and core area of expertise. We are offering our customers a uniquepayment processing infrastructure with easy on-boarding and diverse functionality that works seamlessly across virtual and physical channels and awide range of accessible, intuitive digital services. We are aiming to develop a secure and convenient multi-use case platform that would allow ourcustomers and partners to satisfy a full range of their transactional and financial needs. 41Table of ContentsOur Payment NetworkConsumers and partners access our payment network through two primary channels: 1) virtual distribution, represented by our online productsand APIs that we operate primarily under the Qiwi Wallet brand, and 2) our physical distribution, represented by our kiosks and terminals. These twochannels are highly synergetic, creating a self-reinforcing network that we believe has been key for the continuing success of our business.In 2016, 2017 and 2018, we processed RUB 847 billion, RUB 911 billion, and RUB 1,138 billion in payments, respectively.Virtual DistributionOverviewWe have a variety of virtual distribution channels that we operate primarily under the Qiwi Wallet brand. Qiwi Wallet is an online and mobilepayment processing and money transfer system that we offer in Russia and Kazakhstan that allows customers to pay for the products and services of ourmerchants, and to perform peer-to-peer money transfers using a virtual wallet, which effectively replaces a physical wallet in an online and mobileenvironment. A virtual wallet enables its holder to make online purchases and payments through a convenient, secure and intuitive online or mobileinterface with multiple payment methods. Qiwi Wallet accounts can be linked to virtual or physical Visa prepaid cards that can be used to makepurchases at any merchant that accepts Visa worldwide. It also allows our customers and partners to create and use highly customizable payment andpayout solutions built on our infrastructure that cover a wide variety of business and personal needs. We believe Qiwi Wallet is one of the leadingvirtual wallets in Russia.Prior to November 2017, Qiwi Wallet was branded as Visa Qiwi Wallet pursuant to our 5-year Framework Agreement with Visa. Following thetermination of our Framework agreement, we re-branded Visa QIWI Wallet to QIWI Wallet. We continue to work with Visa under Qiwi Bank’s otheragreements (which are consistent with those Visa has entered into with other banks in Russia), issue Visa prepaid cards and provide our customers withaccess to Visa Direct card-to-card transfer services.We also operate the Qiwi Wallet brand in certain jurisdictions outside of Russia, predominantly in Kazakhstan.In 2016, 2017 and 2018, we had 17.2 million, 20.1 million and 20.8 million active virtual wallets registered with our system as of year-end,respectively.Apart from the broad functionality of our core Qiwi Wallet product, we offer our consumers certain additional products and applications thatcomplement or enhance our main value proposition. Such products include for example Qiwi Bonus, which offers discounts, cash-backs and loyaltyprograms from our merchants; Qiwi Transfer, which offers all our money remittance capabilities in a specifically dedicated interface; Qiwi Investor,which provides convenient access to financial markets, Qiwi Money Box, Qiwi Fundl and others.We also offer our merchants and partners a number of solutions that can complement and improve our basic payment acceptance capabilities.Such products include Qiwi Cashier, which allows merchants to connact Qiwi Wallet directly to their checkout page and manage their account with usonline; acquiring services that enable merchants to get a one stop payment acceptance solution with the majority of means of payments, payment ofdelivery services and certain other infrastructural solutions like Interactive Bets Accounting Center (TSUPIS) for betting merchants; or driver payoutsolutions for taxi companies and aggregators that allow our partners to access high quality digital payment services without extra costs or technicaldifficulties.Moreover, recently we began to offer our customers an open API (Application Programming Interface) for customizing the interface of QiwiWallet so they can use it more conveniently for collecting and accepting payments.We believe that our ability to leverage our technological platform and create convenient infrastructural solutions demanded by our partners andcustomers is a defining feature of our network, which has allowed us to expand our business and penetrate new niches that will fuel our growth goingforward.Our Virtual WalletWith Qiwi Wallet, consumers can create an online account, referred to as a virtual wallet, in which they can store money, whether deposited incash or funded from a variety of sources such as mobile phone balances, bank accounts, credit or debit cards, or money transfers (including winningrepayments and other merchant reloads and peer-to-peer transfers), that can be used to make payments, purchases, peer-to-peer transfers or to remitmoney. To register a virtual wallet, a consumer only needs to have a mobile phone number to which the account is linked (see Item 3D Risk Factors – “Know-your-client requirements established by Russian anti-money laundering legislation may adversely impact our transaction volumes.”)The account loading process is simple and intuitive regardless of the interface that the consumer uses to access Qiwi Wallet, whether it is our ownwebsite, through a mobile application, the screen of a kiosk, or the virtual banking service of the consumer’s bank. Normally, a consumer just needs toenter the unique identification 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 process of making a payment through Qiwi Wallet may vary slightly depending on the interface, we believe it is intuitive. 42Table of ContentsWe believe that a key part of our service offering is consumer convenience and ease of use. Qiwi Wallet is available through a variety ofinterfaces, including mobile applications, its own website, touch-screens of our kiosks, merchant websites, and SMS/USSD (whereby a payment is madeby sending an SMS message to a specified phone number). An increasing percentage of consumers are accessing Qiwi Wallet through our mobileapplications rather than through our own website (which was historically the most popular Qiwi Wallet interface), or our kiosk network. Nevertheless,kiosks remain an important channel by which consumers load and reload their Qiwi Wallet accounts, which we believe highlights the synergiesbetween our physical and virtual distribution networks and will continue to support the sustainability of our business.We offer downloadable Qiwi Wallet applications for the most popular mobile and digital platforms and devices, including Apple iPhone andiPad, Android and Microsoft Windows Phone. We also support major mobile operating systems: iOS, Android and Windows phone. We believe thatthese efforts are a vital part of our overall strategy and serve to increase our consumer base.How Our Virtual Wallet WorksPayments made through Qiwi Wallet can be categorized into push payments and pull payments. A push payment is a payment initiated by theconsumer from a Qiwi Wallet interface. Typical push payments include money remittance transactions, utility payments or mobile top-ups. Afterentering Qiwi Wallet through one of its secure interfaces, a consumer is required to select the name of the merchant from a drop-down list or using thesearch function, and then to type in the payment amount. Consumers are not subject to a fee when making most payments through Qiwi Wallet.Additionally, consumers are able to link their bank cards to their Qiwi Wallet accounts to make online payments without divulging their bank carddetails on merchant websites, decreasing the perceived risk of fraud associated with online payments. Payouts to Qiwi Wallets made by the partners andmerchants we serve are also mostly push payments. A pull payment is a payment initiated by the consumer from a merchant interface, typically amerchant website through which the consumer makes a purchase. Typical pull payment include for example payments to e-commerce merchants.During the check-out process at a merchant website, the consumer chooses Qiwi Wallet as a payment method and is re-directed to a Qiwi Wallet webpage. Next, if the consumer is already registered with Qiwi Wallet, he or she is prompted to enter his or her mobile phone number to which his or herQiwi Wallet account is linked and his or her Qiwi Wallet password. If the consumer is not yet registered with Qiwi Wallet, our system automaticallygenerates a virtual wallet for him or her once the mobile phone number is entered. A registered Qiwi Wallet user is then required to select a source offunds to be used, including the prepaid balance of the Qiwi Wallet account, a bank card previously linked to the Qiwi Wallet account, or his or hermobile phone account. The consumer may also select a deferred payment option, whereby our system generates an electronic invoice from themerchant to the consumer, which is stored in the consumer’s virtual wallet and can be paid at a later stage. After a payment option is chosen, theconsumer is required to confirm the transaction, following which funds are withdrawn from the source the consumer has selected and transmitted to themerchant. The only option available to consumers who did not have a Qiwi Wallet account previously is the deferred payment option. Once theconsumer loads his or her newly registered virtual wallet or links a bank card to it, the invoice can be confirmed and paid, after which the transaction iscompleted.Our Reload ChannelsQiwi Wallet accounts can be reloaded through virtually any payment method available on the market, including making cash deposits at any ofour kiosks or terminals or third party kiosks and terminals, via bank cards and accounts, mobile phone balances, online banking and retail or throughpeer-to-peer wallet transfers. Qiwi Wallet benefits in particular from access to our own network of kiosks and terminals, which is the largest cash reloadnetwork in Russia. In certain cases Qiwi Wallet accounts can be uploaded by our merchants or partners, for example when the betting merchants arepaying out gains to our users, taxi companies are making payouts to taxi drivers or when micro-financial organizations are issuing loans to the walletaccounts. This reload channel is becoming consistently more important for us as we develop different infrastructural solutions based on our services,creating an ecosystem that is able to satisfy a wider range of payment and financial service needs of our customers. We believe that by offering theconvenience of reloading through a variety of sources, we increase the likelihood of consumers using Qiwi Wallet as well as the other services that weoffer.Qiwi branded kiosks and terminals historically have been the primary means by which consumers reload their Qiwi Wallet accounts. In 2015 thepercentage of reloads made through bank cards, mobile phone balances and directly from bank accounts was less than 15% of total reloads, increasingto more than 25% in 2016. In 2017 and 2018 we have seen a further increase in the proportion of non-cash reload channels as well as the growing shareof top ups through different payout mechanisms. As of the end of 2018, the share of such top up surpassed 50% of the total reloads following thedecline in the number of our kiosks and third party kiosks on the market (see “Item 3.D Risk Factors—Risks Relating to Our Business and Industry—adecline 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”) anddiversification of our payment infrastructure and product offering and an overall market trend towards the digitalization of payments. 43Table of ContentsOur International Virtual WalletsAs of December 31, 2018, the vast majority of active Qiwi Wallet accounts were based in Russia. We also have a limited number of electronicwallets in Kazakhstan.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 aVisa card without having to open a bank account or credit line, eliminating the perceived risk in our markets of fraud associated with traditional creditand debit cards. Our QIWI Visa Plastic Card is a physical card that can be used to make purchases online or in a physical retail environment through aPOS terminal from any merchant that accepts Visa branded cards. Qiwi Visa Plastic Cards are linked to the balance of a consumer’s Qiwi Wallet and canserve as another extension of QIWI Wallet in to the physical environment, such cards can be ordered through a Qiwi Wallet. We believe that the VisaQiwi Plastic Card notably complements our online capabilities and offers customers a significantly wider range of use cases such as a full scope lightbanking services including cash and electronic reloads, intuitive online interfaces, all types of payments and remittances and cash withdrawals fromparticipating ATMs.Qiwi Visa co-branded cards are issued by Qiwi Bank pursuant to an agreement with Visa International Service Association. Under the agreement,Qiwi Bank is authorized to issue Visa-branded prepaid cards within Russia, and to offer and perform Visa Direct transactions in and between Russia,Kazakhstan, Uzbekistan, Georgia, Tajikistan and other CIS countries, using Visa’s electronic payments processing network to deliver transferred funds.In 2015, we also launched a Visa payWave contactless payment capability in Qiwi Wallet based on host card emulation technology. This feature,available 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 inany equipped offline location with the balance of his or her Qiwi Wallet, without issuing a plastic card.We have also launched Android Pay capabilities and are currently developing capabilities for ApplePay and GooglePay. We believe that offeringour customers the latest technological solutions is pivotal for the development and continues growth of our business.Physical distributionOverviewOur physical distribution comprises approximately 110,000 kiosks and approximately 34,000 terminals (including various interfaces at physicalpoints of service) that are assembled and sold by third party manufacturers. These kiosks and terminals run our proprietary software, which provides thecustomized interfaces that display our broad range of payment services and provides the connectivity to our processing platform. These capabilitieshelp connect consumers and merchants and enable them to conduct commercial transactions, such as bill payments and purchases, or upload ourvirtual distribution services or SOVEST cards at thousands of convenient locations.In 2016, 2017 and 2018 we had approximately 113, 109 and 110 thousand kiosks and 49, 43 and 34 thousand terminals in our network as ofyear-end, respectively.We have deployed our network of kiosks and terminals using a proprietary agent model. Under this model, our kiosks are assembled by thirdparty manufacturers using our proprietary specifications and are then purchased by over 5,700 agents who are responsible for placing, operating andservicing the kiosks in high-traffic and convenient retail locations. In addition, an agent-owned point of sale terminal, computer, laptop or mobilephone can serve as a QIWI terminal once our proprietary software is installed on it, which allows the agent to process consumer payments to merchantsthrough our system.Our Kiosks and TerminalsA kiosk is a stand-alone computer terminal with a touch screen and specialized hardware and software, which enables consumers to make cashpayments to merchants or upload Qiwi Wallet. Each kiosk is connected to our network using a dedicated SIM card or via internet and is equipped witha cash acceptor, a printing device and a transaction recording device. Kiosks are relatively easy and inexpensive to install and are equipped withspecialized software that monitors the condition of the kiosk and its components. A kiosk is also relatively simple to assemble, and we generally havenot encountered any significant issues in relation to underproduction or shortage of kiosks. There are 21 base models of kiosk available on the Russianmarket.In addition to kiosks, our network includes approximately 34,000 terminals at various retail locations, including a number of major Russianretail chains such as Svyaznoy and Euroset. We provide these businesses with access to our network through our proprietary software and process thepayments made by their customers.Our kiosks and terminals are typically owned by our agents, except in limited circumstances when we enter new markets or develop newsolutions where we may own a number of kiosks or terminals. We believe this ownership structure has allowed us to build a large network in arelatively short period of time. The agents purchase, install, operate and service the kiosks and terminals themselves; we provide them with ourplatform and technical solutions, help them comply with reporting requirements and provide them with various forms of support and incentives.Historically, we have signed rental agreements with large retail networks including Magnit, X5 Retail Group and Dixy to further sublease thoselocations to our agents. We believe it is important to provide our agents with comprehensive support in order to ensure quality of service and a uniquecompetitive 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 datanecessary for the merchant to identify the consumer. For instance, this may be the consumer’s mobile phone number or details on the consumer’s utilitybill. The consumer inserts money into a cash acceptor, which automatically recognizes the value of the banknotes. Once the 44Table of Contentsnecessary amount of money has been inserted, the consumer presses a button to confirm that he or she wishes to complete the transaction, and thesoftware installed on the kiosk sends an instruction to our processing system to transmit a corresponding amount to the merchant and to withdraw itfrom the agent’s or consumer’s account. The kiosk then prints a receipt confirming that payment has been made. The interface of a kiosk is highlyintuitive to facilitate a convenient user experience with the entire transaction process normally taking no more than a few minutes. A transaction ismostly automated and usually performed in three or four easy steps, so that the user is only required to input a minimum of information. When makinga payment through a terminal, a consumer gives the same information (merchant name, amount of transaction and account identifying data) to a cashierat a cash desk, who processes it on a computer or a mobile phone using specialized software.Our AgentsOur agent base includes more than 5,700 agents who own kiosks and terminals and are responsible for placing, operating and servicing them inhigh-traffic, convenient retail locations. Most of our agents are small to mid-sized businesses, which we believe provides them with insight into localmarket dynamics. For many of our agents, the business of kiosk and terminal ownership is a full-time occupation, while some view it as an ancillaryservice that increases consumer traffic in their outlets or provides additional convenience to consumers. We do not consider ourselves to be materiallydependent on any of our agents.Our agents determine the consumer fee for a number of services, mainly in the Telecom market vertical, while we may limit it and set, ifapplicable, consumer commissions for services of other categories of merchants. Moreover, we are in a position to cap these fees depending on ourmarketing actions or merchant’s request. When the fee payable by the consumers is absent or capped, we normally award the agents with an increasedportion of merchant fees.Our International Kiosks and TerminalsAlmost our entire physical distribution network is currently located in Russia and Kazakhstan. There is also a limited number of kiosks inMoldova, Romania and Belarus.MerchantsAs of December 31, 2018, we had approximately 12,400 merchants active on a monthly basis in our system. Our merchants are vendors,including online retailers and service providers, betting companies, banks, money remittance companies, mobile network operators and utilities.Consumers can access our larger merchants through hyperlink icons placed directly on kiosk screens. Other merchants can be easily accessed throughQiwi Wallet and, since any of our kiosks can be used as an interface to register a Qiwi Wallet account or to access an existing one, the merchantoffering is effectively the same for all our payment services interfaces. In addition, Qiwi Wallet accounts can be linked to virtual or physical Visaprepaid cards that can be used to make purchases at any merchant that accept Visa worldwide. We regularly add new merchants to our alreadyextensive merchant list with the aim of creating a “one-stop shopping” experience for our consumers.Our merchants fall into five broad verticals, according to the nature of the products and services they provide to the consumers: E-commerce,Money Remittance, Financial Services, Telecom and Other. The following table shows the payment volume, payment adjusted net revenue and thepayment average net revenue yield for each of these payment verticals. For the year ended 31 December, 2016 2017 2018 2018 RUB RUB RUB USD Payment Services segment key operating metrics Payment volume (in billions) 847.0 911.1 1,138.1 16.4 E-commerce 143.8 167.9 263.4 3.8 Financial services 263.3 238.7 250.6 3.6 Money remittances 184.1 277.2 405.9 5.8 Telecom 198.6 170.7 172.1 2.5 Other 57.2 56.6 46.1 0.7 Payment adjusted net revenue (in millions) 8,510 10,509 14,370 207 E-commerce 3,992 5,347 8,243 119 Financial services 1,378 1,227 1,126 16 Money remittances 1,963 2,902 3,961 57 Telecom 881 757 775 11 Other 295 276 265 4 Payment average adjusted net revenue yield (in %) 1.00% 1.15% 1.26% 1.26% E-commerce 2.78% 3.18% 3.13% 3.13% Financial services 0.52% 0.51% 0.45% 0.45% Money remittances 1.07% 1.05% 0.98% 0.98% Telecom 0.44% 0.44% 0.45% 0.45% Other 0.52% 0.49% 0.57% 0.57% 45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,including betting (mostly sports betting) merchants (see – Item 3.D Risk Factors,—“We derive a substantial portion of our revenues from merchants inthe betting industry”), online game developers such as Wargaming and Mail.ru, large international e-commerce merchants such as AliExpress, JD.comand eBay, local e-commerce merchants and social networks such as Vkontakte and Odnoklassniki. We also accept payments on behalf of tickets andtravel companies, software producers, coupon websites, and numerous other merchants. The share of betting merchants has increased significantly withthe launch of TSUPIS in the end of 2016. TSUPIS allows us to service betting companies in Russian, processing electronic bets and winnings on theirbehalf. Our payment solutions provide e-commerce merchants with an opportunity to accept payments in a fast and reliable manner, increasing theirconsumer base and attractiveness of their services. Our Qiwi Wallet provides the customers of such businesses with a convenient, fast and securepayment option to make online purchases and top up their personal accounts, while our kiosk and terminal network offers an attractive offline interfaceto the online services of our e-commerce merchants.Financial Services. Financial Services includes primarily banks, micro-finance organizations and insurance companies. As of December 31,2018, we accepted payments on behalf of over 220 banks, including most major Russian retail banks such as Sberbank, VTB, Alfa-Bank, TinkoffCredit Systems, Russian Standard Bank, Home Credit Bank, Raiffeisen Bank and others. Based on information available from public sources, webelieve our kiosk and terminal network is larger than the ATM network of any major bank, and, as a result, we are able to provide banks with the abilityto reach a larger market through our 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 and Post of Russia. In June 2015, we acquired the Contact money transfer system, one of the largest operators on the Russian money transfermarket. From August 2010, we offer our consumers Visa Direct and MasterCard Money Send services, which allow a Qiwi Wallet accountholder toreload the account of a Visa or MasterCard bank card with a few clicks on our website, in a mobile application, or a kiosk touch-screen, with the onlyinformation required being the number of the recipient card. Since 2015, we started offering our users similar services for China Union Pay bank cards.Such services constitute a significant proportion of our Money Remittances category and represent our focus use-cases. Starting from the end of 2016,we also include certain types of peer-to-peer transactions, for which we charge commission on our consumers, in our Money Remittance marketvertical. Such peer-to-peer transactions mostly represent use-cases connected to payment, light banking and collection of proceeds (alike acquiring)services we provide to self-employed customers.Telecom. Telecom merchants include various telecommunication service providers, such as MNOs, internet services providers, pay televisionchannels and public utilities. MNOs, in particular the three largest operators in Russia, have historically represented a large portion of our merchantbase, though in terms of net revenues their relative importance have decreased significantly following the diversification of our business. For the yearsended December 31, 2016, 2017 and 2018, the Big Three MNOs accounted for 15%, 12% and 8% of our payment volume, respectively. Their share inour transaction volume has fallen over the last three years due to the expansion of our merchant base and the increased use of our payment systems bythe consumers for purposes other than mobile phone account reloading, as well as the decrease of our kiosk network that affected the Telecom categorythe most.Other. Our Other category includes all other merchants to which we offer our payment processing services. These includes a broad range ofmerchants in utilities and other government payments as well as charity organizations.While we already have considerable penetration in certain markets that we service, there are numerous additional markets and niches where we seeopportunities to add new merchants, develop our relationships with existing merchants, increase product penetration and grow our business. Ourprimary focus areas in this respect are the self-employed market, which is rapidly developing, has significant potential towards digitalization and lacksconvenient, easy to use technological solutions and market for servicing evolving sharing economy businesses, where customization, broad suite ofcompatible services, convenience and speed are key. Moreover, we see increasing potential in developing and growing our secure peer-to-peerpayment and our open API infrastructures, which we believe offer customers and partners convenient, intuitive and reliable tool to transfer and collectmoney as well as serve as a valuable consumer acquisition channel for us.Retail Financial Services (SOVEST and Rocketbank)Our Consumer Financial Services (CFS) segment currently includes our payment by installment card SOVEST that we launched at the end of2016. Our Rocketbank (RB) segment includes Rocketbank, a digital banking service offering debit cards and deposits to retail customers that we haveacquired form Otkritie Bank. Both SOVEST and Rocketbank are offering digital financial products and services to retail consumers. We are aiming tofurther develop our suite of services and offer our existing and potential consumers a broader range of new generation digital financial services. Webelieve that developing a diversified product portfolio of retail financial services can create significant synergies with our payment business,extending the life cycle of our clients and creating complimentary use cases.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-byinstallments card system in Russia developed to help consumers to get easy and transparent access to funds to purchase a wide range of goods andservices. SOVEST is a technological IT-driven service that can be accessed by customers through a web site or a mobile application 46Table of Contentswith convenient and intuitive interfaces. Consumers can order and use SOVEST cards to make payments with our partner merchants both offline andonline within the card’s limit and then top up the balance of the card to repay the funds they used in equal installments or at once. If the balance istopped up in a timely manner and there are no delays of repayments during the installment period, no interest or fee is charged on the consumer. Bydefault SOVEST cards can only be used with merchants that have enrolled in the program, however users have an opportunity to purchase certainadditional features to extend the usability of their cards including, for example, extended installment period, opportunity to purchase goods andservices from merchants outside of the partner network and limited cash withdrawals.We target a wide and diversified client base across Russia including banked customers with established credit history as well as those who havenever used credit services before. While we receive a significant number of applications, our advanced technological platform and proprietary scoringmodels allow us to efficiently screen such applications and we believe we will be able to maintain certain projected levels of credit risk. A significantpart of our scoring procedures is done automatically within second after the customer submits his or her application. We aim to make the onboardingprocess as easy and convenient as possible while maintaining a high level of risk assessment practices. We offer our customers a credit limit as small asRUB 5,000 and up to RUB 300,000 depending on his or her scoring and increase, decrease or freeze the outstanding limits based on the patterns thatthe user exhibits. At the moment, we are developing and testing SOVEST multi-bank model where we will be onboarding clients to and issuingSOVEST cards for several partner-banks that will originate corresponding loans, while we will focus on client acquisition, IT infrastructure, merchantrelations and marketing. As of the date of this annual report SOVEST cards are issued primarily by Qiwi Bank, thus Qiwi Bank serves as a main lenderand bears the majority of the credit risk on outstanding loans as well as by AkBars bank as part of the SOVEST multi-bank model.We distribute SOVEST cards throughout Russia through all major channels typically used for distribution of digital financial services includingthe internet, telesales, direct sales agents (DSA) and financial brokers including companies specializing on the distribution of third party financialservices and large retailers. We are constantly reviewing and improving our distribution strategies to enlarge our distribution network and optimize ourclient acquisition costs. We are currently receiving over 400,000 SOVEST card applications per months and as of the date of this annual report haveissued over 800,000 SOVEST cards.We generate our revenues through three main sources: in the form of commissions payable to us by merchants that accept SOVEST cards in returnfor enabling consumers to receive better access to their products, additional sales volumes and higher average checks; in the form of a fixed feespayable to us by customers for purchasing additional value added options such as, for example, extended installment period; and in the form of anacquiring commission (interchange fee). As of the date of this annual report, we have more than 50,000 offline and online partner-merchant locations inthe major consumer categories including consumer electronics, tickets, travelling and entertainment, fashion, jewelry and apparel, furniture, food retailand restaurants. We believe that having a broad network of partner-merchant in all major consumer categories significantly improves the usability ofthe pay-by-installment card products. The length of the installment that we grant for each purchase depends mostly on the type of merchant and thelevel of commission he pays us, and the installment period can be between 1 and 12 months. We also offer our clients from time to time certain benefitssuch as cash-backs or extended installment periods.For the year ended December 31, 2018 Consumer Financial Services segment payment volume reached RUB 15.9 billion. The carrying amountof loans issued under SOVEST project was equal to RUB 5.3 billion and the outstanding credit limits including credit limits not yet activatedamounted to RUB 30.1 billion as of December 31, 2018.We believe that installment card products especially combined with the multi-bank value proposition can significantly change the currentfinancial services market. We see significant potential in SOVEST due to its convenience and apparent attractiveness to customers. We aim to furtherdevelop SOVEST, optimize our IT, distribution and scoring capabilities, focus on developing new generation intuitive digital tools within the productand adding new features. We are also testing SOVEST multi-bank platform as we believe that it may allow us to concentrate on our key areas ofexpertise, optimize credit exposure and certain other parameters of the business model including, for example cost of funding and underpin a faster andmore robust scaling of the project. As of the date of this annual report we have issued several thousand cards under the multi-bank pilot with AkBarsBank and will continue to assess the user behavior as well as financial and operating results of this pilot in order to evaluate the scalability andefficiency of such model.RocketbankRocketbank is one of the first Russian fully remote digital banking services focused on young and tech-savvy audience, digitized spenders andtravelers sensitive to service level, product friendliness and end-to-end engagement. Rocketbank offers its clients the following suite of servicesthrough convenient mobile only channels: debit cards, payments and transfers, loyalty program, saving accounts etc. Rocketbank is primarily famousfor its unique content-based marketing and client support capabilities as well as know-hows in attracting and servicing its target audience.We have acquired 100% of Rocketbank business form Otkritie Bank in July 2018 and by the date of this annual report has fully finalized theprocess of transferring Rocketbank clients and processes to Qiwi Bank, where Rocketbank operates as a branch.As of December 31, 2018 Rocketbank had over 280,000 active users (defined as doing at least two transactions per months or holding a balanceof not less than RUB 5,000) and close to RUB 12 billion consumer balances on current accounts and deposits.We are currently developing the strategy for Rocketbank assessing the market and testing certain hypothesis regarding consumer behavior. Webelieve that the product has unique capabilities and market potential and aim to provide the updated strategy for Rocketbank business by the end ofthis year. 47Table of ContentsSmall and Medium EnterprisesWe develop our small and medium enterprises segment through a multi-bank platform Tochka. JSC Tochka is our equity associate that weestablished together with Otkritie Bank and Tochka management team in June 2018 following a series of transactions and extensive negotiations; JSCTochka started its operations on February 1, 2019. (see Item 3D Risk Factors – “ We may not be able to complete or integrate successfully any potentialfuture acquisitions, partnerships or joint ventures.”). QIWI and Otkritie Bank split the economic interest proportionally with 45% each, while 10% willbe attributed to Tochka management. JSC Tochka functions as a technological partner and service provider for banks – members of the multibankplatform. Currently Tochka serves Otkritie Bank and Qiwi Bank. Before JCS Tochka was launched, QIWI Bank was servicing all respective clients inOtkritie Bank and Qiwi Bank. We do not bear any credit risk as a part of our participation in JCS Tochka.Tochka offers its clients, who are primarily digital-ready small and medium entrepreneurs and sole traders, a broad range of services includinground-the-clock cash and settlement services, account management, cross-border transactions and currency conversion, merchant acquiring and valueadded services such as payroll payment processing, simplified accounting and tax services and certain others. Tochka is a well-known for its level ofservices as well as for creating value for its customers and has been recognized as the best mobile and internet bank for entrepreneurs by Markswebb for4 last consecutive years and has the NPS for full year 2018 of 61% according to TSN research.Tochka has a highly efficient and robust business model with attractive unit economics, it generates most of its revenues from three different andequally important streams: service subscription fees, interest income and sales of value added services to its clients. We believe that Tochka isuniquely positioned on the market through its diversified digital product offering, multi-bank proposition, unique consumer service and recognizedbrand and has potential to significantly increase its market share in the targeted segments.As of December 31, 2018, Tochka had approximately RUB 29 billion in customer balances and had over 270,000 clients.Corporate and OtherThe Corporate and Other category includes expenses associated with the corporate operations of QIWI Group as well as some of our research anddevelopment initiatives, projects and emerging businesses that we are currently testing (see Item 3D Risk Factors – “If we cannot keep pace with rapiddevelopments and change in our industry and provide new services to our clients, or if any of the new products we roll out are unsuccessful, the use ofour services could decline, and we could experience a decline in revenue and an inability to recoup costs.”)Apart from corporate expenses as of December 31, 2018 this category includes primarily:QIWI Blockchain Technologies, our subsidiary focused on the development of certain blockchain solutions for internal and external purposes;QIWI Box, a self-pick-up parcel lockers project that allows agents to buy, install and connect compact self-pick-up delivery boxes to their kiosksand further use our network to offer customers additional logistics services;QIWI Factoring, a service that offers factoring solutions primarily to small and medium enterprises;Flocktory, SaaS platform for customer lifecycle management and personalization focused primarily on the development of automated marketingsolutions for the e-commerce, financial, media and travel industries, based on data collection and analysis and;Other projects, including venture projects, which are individually insignificant.We believe that our long-term growth depends on our ability to innovate our existing solutions as well as develop and roll out new businessmodels and technological products, thus testing such models and ideas, although inheritably risky, is important for the growth of our business.Qiwi BankIn September 2010, we acquired Qiwi Bank (which is licensed as a bank in the Russian Federation) to serve as a platform for our Qiwi Walletbusiness. When a consumer deposits cash into his or her Qiwi Wallet account, Qiwi Bank issues a virtual prepaid card to a consumer. Qiwi Bank alsoissues plastic cards to Qiwi Wallet customers. Funds received by Qiwi Bank from customers loading and reloading their Qiwi Wallet accounts are heldon Qiwi Bank’s account. Qiwi Bank does not pay interest on Qiwi Wallet accounts.In June 2015, we acquired Rapida LTD, a licensed non-banking credit organization and Contact Money Transfer System. In April 2017, RapidaLTD was merged into Qiwi Bank and it became the operator of the Contact Money Remittance System.In November 2016, following the changes in legislation governing the betting business in Russia, Qiwi Bank, together with one of the self-regulated association of bookmakers, established an Interactive Bets Accounting Center (TSUPIS) and began acting as a platform for acceptance ofinteractive bets in favor of the members of the self-regulated organization of bookmakers (see “—Risk Factors – We are subject to extensivegovernment regulation; We derive a substantial portion of our revenues from merchants in the betting industry”).Further, at the end of 2016, Qiwi Bank started to serve as an issuing and lending bank for our pay-by-installment card project SOVEST. In 2017,Qiwi Bank started to serve as a settlement bank for Tochka multi-bank platform (for the description of Tochka activities see Item 4. B Small andMedium Enterprises) maintaining and servicing accounts of Tochka clients opened with Qiwi Bank. We have also started to develop certain projectsrelating to electronic bank guarantees services, these projects are currently individually insignificant. 48Table of ContentsBy the end of 2018, the majority of operations and processes of Rocketbank (for the description of Rocketbank activities see Item 4. BRocketbank), including maintenance of consumer accounts and issuance of Rocketbank debit cards were transitioned to Qiwi Bank following ouracquisition of Rocketbank business form Otkritie Bank.Qiwi Bank also maintains a small number of accounts for our employees, officers and directors, agents and certain related parties and issues bankguarantees to some of our merchants.See also “—Regulation” for a brief description of the regulatory regime applicable to Qiwi Bank.Our Technology PlatformOur services are based an advanced, microservice, proprietary high-performing technology platform. All of our key technology has beendeveloped in-house. Qiwi Core Processing System is the main platform, which provides the functionality of both microprocessing and more classicalcard payments and transfers. Due utilization of our own unified application building system, QIWI Platform, most of the company’s products (such asQiwi Wallet, SOVEST, Qiwi Kassa etc) use the common platform Qiwi Core Processing System. This processing system has a connection to VisaNetand MasterCard Direct as principal members of both payment systems, allowing us to perform independent acquiring and issue corresponding cards.We obtained VisaNet Processor status in July 2014, as a part of our relationship with Visa, this effectively allows us to process Visa transactionson behalf of other Visa member banks. Our processing system also implements the functionality of accepting payments using push and pull methods,internal currency conversion, cross-border remittances and a full set of API solutions for both customers and merchants.Our main products are Qiwi Wallet and several other applications that enables customers to pay online easily and quickly to thousands ofmerchants and services, using either mobile, web, kiosk or other interfaces. We also operate a network of kiosks, the principal software under which isour proprietary application called Maratl, which enables payment acceptance, billing and processing connectivity.Hardware supporting our solutions and products is located in three leased data centers in different parts of Moscow, all of them are Payment CardIndustry Data Security Standard (PCI DSS) certified. We use the Qiwi Private Cloud technology for the unification of our development process.Technology platformQIWI Private Cloud solution is a combination of hardware and core infrastructure platform for all company services that employs multiple geodistributed datacenter sites. Each of sites is a separate platform capable of maintaining the performance of all systems independently. To ensure stablecommunication between the sites, a multi-triangle dedicated communication system comprised of duplicated fiber-optic communication lines has beenimplemented. Such architecture conforms to the principle of double fault tolerance, which means that up to two communication channels can bedamaged without affecting the stability of the whole system. All of our data centers are functioning in an active-active mode and are linked to QiwiPrivate Cloud, each of them capable of handling twice the usual traffic. This allows us to employ a distributed storage network and maintain protectionagainst attacks like Distributed Denial of Service attack (DDOS).QIWI also has a telecom operator license in Russia (#135744) for data transmission and has a flexibility to partner directly with the leadingtelecom operators to obtain more favorable tariffs, manage connections and traffic routing. We have inbound and outbound connection points at eachof our Data Center. Our office has the same connections as any other data center and together they form a multi core network so we are able to routeincoming and outgoing traffic inside between four points. This secures significant flexibility and durability of our system.ArchitectureQIWI is using cutting edge microservices architecture based on the containers, proprietary management system and software defined network andinfrastructure. It includes more than 300 microservices out of which more than 100 have their own databases. This ecosystem has a potential to handlemore than 20 independent teams continuously making changes to their respective products.Using this kind of architecture allows us to achieve short time-to-market in IT development. We are able to handle over 50 releases every day,and this is almost an unattainable number for many banks at the moment.In addition to server-side technologies, we also deploy payment client-side technologies, including kiosk software such as Maratl—a cuttingedge software that employs, among others, such technological features as code-obfuscation and strong 3-layer proprietary cryptographic networkprotocols. This security features enable kiosks and terminals to connect with any open communication network as the data flow is strongly protected.The kiosks are not connected to each other, thus reducing any network risks. Kiosk infrastructure including hardware, software and the network as awhole are certified with Payment Application Data Security Standard (PA DSS). 49Table of ContentsInformation securityWe have a robust transaction intelligence system designed to trace and prevent suspicious transactions inside our payment network. In the vastmajority of cases, fraud through Qiwi Wallet is attributable to scams rather than to a security system failure. We also employ a certified 3- D securesystem similar to those adopted by other major payment networks and banks. We have established a sophisticated system of security monitoringutilizing the Security Information and Event Management system (SIEM) and Security Operations Center (SOC), each of which are operating andsupported continuously. Our critical internal resources are protected with an advanced intrusion prevention system (IPS); all applications are protectedwith a web application firewall (WAF) set up in a blocking mode, ensuring that all unauthorized or ambiguous activities are prohibited. Moreover, wehave an in-house forensic lab that assesses any potentially harmful events.Our relationships with major payment systems, such as Visa and MasterCard, impose stringent security requirements on us to protect the data ofour consumers. Under the terms of such agreements, we are under an obligation to be compliant with appropriate security standards and to undergoperiodic assessments to certify such compliance.Development approachOur development approach is based on the following values: productivity, predictability, quality and responsiveness. We organize ourselves as acluster of independent cross-functional teams capable of full lifecycle value delivery. Self-organization principles that we apply provide us with theability of quickly relocate development forces in accordance with the business needs. Technical excellence and engineering practices we use result inhigh quality built in our products.Data analysis, AI/MLIn 2018, QIWI completed the development of the Big Data cluster based on Hadoop that meets the requirements of PCI DSS. The company haslaunched a new business department, QIWI Data, which goal is to build a unified corporate platform for working with data and analytics, machinelearning technologies and data monetization. We plan to use such technologies in projects related to predictive analytics, cross-sales and marketingcommunications. A platform for machine learning was also deployed using the latest approaches, including Natural language processing and graphicsprocessing unit (GPU) computingSales and MarketingWe run separate marketing and advertising strategies for our key projects including QIWI Wallet and related services, SOVEST and Rocketbank.We have a dedicated team of sales and marketing personnel for each of our key projects who seek to expand our network of merchants and agents,attract and maintain consumers, build our brands and promote our products. Our marketing programs includes advertising campaigns as well as otherpromotional activities, such as joint loyalty programs with our merchants and partners.Brand AwarenessWe currently operate a number of widely known brands including primarily QIWI, SOVEST and Rocketbank.We believe that the QIWI brand is a household name in Russia. According to Ipsos Comcom, “QIWI” is the most recognized Russian electronicpayments brand with prompted brand awareness of 83% among people paying online in Russia.In addition, we believe that in our sector, maintaining a social media presence is important to sustain brand awareness. As a result, we have adedicated team of people who regularly interact with customers and wider audience through our Facebook, Vkontakte, Odnoklassniki, Instagram,YouTube and Twitter accounts. We also use social networks to seek feedback from our consumers in order to improve our business. As part ofmaintaining our brand image, we have employees available to respond to agent and merchant concerns and to handle consumer issues as well as adedicated consumer support center.As part of our branding strategy and in order to attract younger generations, we run a QIWI Finteen program – an educational program for schoolchildren aimed at promoting financial literacy. We also actively advertise to gamers and cybersports fans by running a QIWI Team Play cybersportplatform. We believe that such activities while benefitting and educating participants, help us promote our brand among younger users and attract newcustomers. Further, one of the key focuses of our brand development for 2019 is building a strong brand positioning in B2B and self-employedsegments to support our B2B2C and self-employed strategy. We position ourselves as provider of sophisticated innovative payment and financialsolutions and services in fintech space for both B2C and B2B customers. We believe that such positioning will encourage our existing and prospectivepartners and customers to use our services as a preferred payment and financial solutions to satisfy a broad range of their financial needs and willsupport the development and launch of highly customizable projects together with diversified range of businesses.We launched our new installment card project SOVEST in November 2016. At that time, we focused mainly on building a new market category,rather than only on creating a brand or a product as no installment card products existed on the Russian market before. In 2017 we concentrated oneducating the customers, explaining how the product worked and what were its main advantages. It took us over a year and four TV campaigns to reacha maximum 66% prompted (24% unprompted) brand recognition level in Moscow (according to Brand Tracking (Tiburon Research)).In 2018 we continued building brand recognition campaign and increased our unprompted annual average brand recognition level to 24% (67%unprompted) with a maximum of 32% (80% prompted) during TV campaign in March. In December 2018 we tested an OLV (online video) campaignfor both existing and prospective customers, which resulted in a 15.6% brand awareness increase (best in class) and 131% brand interest increase. Ourfirst TV campaign of 2019 resulted in 29% unprompted brand awareness. We will continue to rely on a mix of both TV and online campaigns duringthis year with the aim to further increase our annual average unprompted brand awareness. 50Table of ContentsRocketbank, which we acquired in 2018, has historically been and continues to be a brand focused on generation “Z” and “Y” customers(generation “Y” or millennials include people born between 1980 and 1994, generation “Z” includes people born between 1995 and 2012), who areyoung and tech savvy. Rocketbank has developed and currently employs a proprietary content-based approach to marketing that is focused oncreating an entertaining content that will stimulate existing and prospective users to increase their engagement with Rocketbank products such asthrough gamified promo-campaigns.Tochka, which we develop through our associate JSC Tochka together with Otkritie Bank, is an established and highly acclaimed brand, wellknown for the quality of the services it provides to the small and medium entrepreneurs.In 2019, we continue to optimize and develop our brand strategy, collecting and analyzing available data as well as adopting a more targetedapproach, focusing mostly on the technically advanced B2B partners in key niches and well as population in big cities including self-employedcustomers.Advertising and Promotional ActivitiesBecause we maintain a widespread and visible kiosk network, third-party advertising has not historically been as important to maintain brandawareness. We maintain a relatively low advertising profile for our key payment services, mostly employing Internet advertising to promote QiwiWallet.In addition, we engage in promotional campaigns together with our merchants, in which merchants offer discounts to their customers who makepayments through our network.This year in regards of our SOVEST project, we concentrated both on promoting the core product and selling the added options. We alsoimproved direct communications with existing customers explaining what the key changes to the product were and why those changes wereadvantageous for them. In 2019, we pursue two key strategies – for those who do not have SOVEST card (“Get the card”) or prospective customers andfor our current customers (“You have the card, use it”). On top of this, we aim to launch a new, unique SOVEST loyalty program, which would besimilar to an online game where a customer is rewarded for actions he takes: cash-back programs, free or discounted paid value added options andspecial offers from our main partners. This new loyalty program will serve as a hub that will link all activities and promotions for SOVEST.CompetitionThe most significant competitive factors in our business are speed, convenience, network size, accessibility, loyalty programs, reliabilityand price. Our competitors include retail banks, non-traditional payment services providers (such as retailers, social networks and MNOs), traditionalkiosk and terminal operators and, electronic payment system operators and other companies that provide various forms of financial and paymentservices, including electronic payments and payment processing services. Competitors in our industry seek to differentiate themselves by features andfunctionalities such as speed, convenience, network size, accessibility, safety, reliability and price, among others. A significant number of ourcompetitors have greater financial, technological and marketing resources than we have, operate robust networks and are highly regarded byconsumers.Our key competitors in Russia are retail banks, particularly those with a focus on well-developed electronic payment solutions, includingSberbank, Russia’s largest retail bank that is majority-owned by the Russian state, Alfa-Bank, one of the leading privately owned Russian retail banks,both of which have electronic banking solutions and large retail networks, and Tinkoff Bank, which positions itself as a specialized bank specificallyfocused on innovative online retail financial services. Sberbank, for example, has long adhered to the strategy of innovation in the financial andpayments space and has been focusing on the promotion of alternative banking channels, such as kiosks, internet banking and mobile banking.Sberbank is the market leader of the Russian payments market, and has access to significant financial resources and has an extensive nationwidenetwork of branches. It is also the largest processor of utility bill payments, which constitute a significant portion of overall consumer spending in ourindustry. It actively develops its online payment services capabilities, including through its online and mobile banking platform Sberbank Online andthrough Yandex.Money, one of the major electronic payment service providers in Russia that it operates in a joint venture with Yandex, a leadingRussian diversified technology company. These factors give Sberbank a substantial competitive advantage over us in the payments business as well asany other financial services businesses that we pursue or may pursue. Additionally, Sberbank is pursuing a strategy to transform itself into ane-commerce ecosystem based on open source software. In furtherance of this strategy, in April 2018 Sberbank announced together with Yandex thatthey have completed the formation of a joint venture based on the Yandex.Market platform where they intend to combine the technologicalcapabilities of Yandex and the infrastructure and technologies of Sberbank to develop a leading B2C (business-to-consumer) e-commerce ecosystem.While the e-commerce platform created by this joint venture is still being rolled out, this deal could result in a substantial shift in the competitivelandscape of the Russian physical e-commerce market to the detriment of our position, market share and growth potential in this category of payments.The recently announced joint venture between Mail.ru Group, Alibaba Group, Megafon and RDIF to create a largest social commerce platform inRussia and the Commonwealth of Independent States (“CIS”) based on AliExpress Russia and Pandao platforms, could have a similar effect. Our othermajor competitors in the banking industry include Alfa-Bank, a major retail bank that combines a strong competitive position in the traditional retailbanking sector with a focus on developing innovative financial and payments solutions, and Tinkoff Bank, which is a provider of online retailfinancial services operating in Russia through a high-tech branchless platform. Numerous other Russian banks are also actively pursuing the electronicpayments business and developing various consumer payment solutions. 51Table of ContentsThe competition in the digital money transfer services space is also further intensifying as key market players including retail banksdevelop and digitalize their products. Recently the Central Bank of Russia in cooperation with other banks established an instant payment systemwhich is designed to enable instantaneous money transfers between accounts at different banks with the only piece of identification needed for atransfer being the person’s cell phone number. All banks doing business in Russia can and will likely be obliged to connect to this system (which QiwiBank has already done) for doing peer-to-peer money transfers.The competition in the digital money transfer services space is also further intensifying as key market players including retail banksdevelop and digitalize their products. Moreover, recently Central bank of Russia in cooperation with other banks established instant payment system.All banks doing business in Russia can and will likely be obliged to connect to this system (which Qiwi Bank has already done) for doing peer-to-peermoney transfers and the system will enable instantaneous money transfers between banks respective clients’ accounts with the only piece ofidentification needed for a transfer being the person’s cell phone number.Our competitors in the payments business also include non-traditional payment service providers that engage in payment services as anon-core business. In particular, we compete with the Russian Federal State Unitary Enterprise Postal Service, or Russian Post, which offers certainpayment services. Russian Post’s geographical penetration is at least as dispersed as our physical distribution network (i.e. our kiosks and terminals). Italso co-owns, in a joint-venture with the Russian state-controlled VTB Bank, the full-service commercial bank Pochta Bank. As a state-sponsoredinstitution, we believe that it is able to provide payment services at significantly lower prices than we are able to match profitably. We also facecompetition from other non-traditional payment service providers that have substantial financial resources, such as brick-and-mortar and onlineretailers (such as Alibaba and its financial services subsidiary Ant Financial which operates the AliPay payment system), and MNOs, in particular theRussian “Big Three” MNOs, MegaFon, VimpelCom and MTS, as well as their closest competitor Rostelekom, all of which have various paymentsolutions of their own. In addition, non-traditional payment service providers also include social networks such as Mail.ru Group’s VK, which isdeveloping its own payment solution VKPay and smartphone manufacturers such as Samsung and Apple. New competitors may penetrate the Russianelectronic payment market as well, including established international players such as MoneyGram or Google.Globally and in Russia, there is a steady influx of new fintech businesses looking to challenge and disrupt the payments and financialservices industry. These include so-called “challenger banks” such as Starling, Monzo, N26, Revolut, Atom and Tandem, who develop various digitalbanking and financial services and compete with various aspects of our services offering (none of the aforementioned companies has penetrated theRussian market as of the date hereof, although we have entered into agreements with Revolut contemplating the development of its business in Russiathrough the QIWI open API ecosystem). Since the financial services industry is susceptible to disruption, new categories of non-traditional financialservice providers may emerge in the future that may be difficult to currently anticipate.We also compete against some directly comparable businesses, such as electronic payment system operators (primarily Yandex.Money,WebMoney and PayPal) and kiosk and terminal operators, including Cyberplat, Compay and Elecsnet.In recent years, we have started expanding our product portfolio beyond our traditional payment services business to include other types offinancial services. These new projects include our payment-by-installments SOVEST card project that we launched in 2016, Tochka, a digital bankingservice focused on offering a broad range of services to small and medium businesses (SMEs), and Rocketbank, a digital banking service offering debitcards and deposits to retail customers. In connection with each of these projects, we face intense competition from commercial and retail banks. Inparticular, SOVEST competes with commercial banks that operate unsecured retail consumer lending programs, such as Sovkombank, HomeCredit,Tinkoff and Alfa Bank, all of which have equivalent or similar products including pay-by-installment projects, which are a direct competition, creditcard programs or POS loan solutions. Tochka and Rocketbank are online and mobile banking services that digitalize traditional banking services(general banking (and add-on) services for SMEs in case of Tochka and debit cards and deposits in case of Rocketbank) and compete primarily on thebasis of enhanced user experience, price and add-on features, and are therefore exposed to competition from any banking institutions, particularlythose that are focused on developing convenient online and mobile solutions such as Sberbank, Alfa Bank and Tinkoff. Such banking institutionsoften have more established businesses in consumer lending and other banking services similar to those offered by Tochka and Rocketbank,respectively.We have also recently placed some focus on the so-called sharing economy/ B2B2C segment, whereby we provide different complexpayment and payout solutions to diverse businesses, such as payments to taxi drivers by taxi companies or payments to property holders by companieslike Airbnb as well as on the self-employed market, where we provide different payment and acquiring-like solutions to self-employed individuals.These products are similar in nature to a salary program and certain other products at a traditional retail bank, thereby exposing us to competition fromall banks that offer such services, particularly if they are similarly focused on convenience of on-boarding and use as well as customizable and user-friendly interfaces.Intellectual PropertyOur intellectual property rights are important to our business. We rely primarily on a combination of contract provisions, copyrights, trademarks,patents and trade secrets to protect our proprietary technology and other intellectual property. 52Table of ContentsOur in-house know-how is an important element of our intellectual property. Our key software has been either developed in-house by ouremployees or acquired from the third parties. Accordingly, we seek to enter into confidentiality agreements and incorporate copyright assignmentclause into employment contracts with our employees and to enter into confidentiality and copyright assignment agreements with the third parties,inter alia with the external developers, and we rigorously control access to our proprietary technology. We also hold copyrights for softwareapplications, such as “Qiwi Wallet Processing System”, “Qiwi Distribution Processing System”, “Maratl” and “Qiwi Kassir”, “Sovest ProcessingSystem” and “Sovest Mobile application”, “Contact Processing System”, “Rapida Processing System”, “Universal Payment Gateway Server” and acomplex of Rocket Software. We have obtained copyright registrations for some of our software in Russia, Brazil and in the United States.QIWI and Contact money transfer system’s logotypes are registered trademarks in Russia and several other countries, including CIS countries.Rapida, SOVEST and Rocketbank logotypes are also registered trademarks in Russia. However, a number of applications for registration of our brandand logotypes are still pending.EmployeesThe following table sets out the average number of employees for the years ended December 31, 2016, 2017 and 2018 by function. For the year ended31 December, 2016 2017 2018 Qiwi Group Front Office 382 855 2,177 Back Office 569 751 1,267 IT Personnel 384 396 750 Total 1,335 2,002 4,194 Historically we used payroll available number of employees methodology to calculate and report our headcount. We believe that suchmethodology was best suited for our payment services business. However, our new segments and projects that differ significantly from our paymentservices business in some important HR aspects, including the fact that headcount has grown rapidly during the last couple of years and as of the end of2018 represent a material part of our business. Thus, starting from 2018 management took the decision to switch to the average number of employeesmethodology. Such change will allow us to better reflect the headcount of our new projects, match the Russian market standards and will be closer tothe FTE (full time employee) methodology used by international peer group companies. For comparability purposes the data above is presented usingthe new methodology and may differ from the data presented in the previous annual reports.Our management structure is currently a mix among business functions and business units. Function managers are focused on centralizedfunctions such as finance, strategy, legal, compliance and certain other functions, while business unit managers oversee the operations of the respectivebusiness units for which they are responsible. As of December 31 2018, we had four distinct key business units in accordance with the structure of ourreporting segments: Payment Services, Consumer Financial Services, Small and Medium Enterprises and Rocketbank. The vast majority of ouremployees are located in Russia including Moscow and Ekaterinburg, where Tochka headquarters are located.Significant headcount growth in 2017 and 2018 was driven by three main factors: (i) continued hiring of personnel engaged in the SOVESTproject, including front (mostly direct sales agents) and back office personnel with the total number of employees increasing from 28 in 2016 to 443 in2017 and 1,035 in 2018; (ii) launch and development of the Tochka project whereas a number of employees joined QIWI to work on establishing amulti-bank platform and running Tochka business with the total number of employees increasing from nil in 2016 to 396 in 2017 and 1,438 in 2018;and (iii) acquisition of Rocketbank with the following transfer of over 400 of its employees to Qiwi Bank during the year ended December 31, 2018.We place a high value on technological innovation and compete aggressively for talent. We strive to hire the best software engineers, as well astalented sales, marketing and financial and administrative staff. We seek to create a dynamic, fulfilling work environment, encouraging participation,creativity, the exchange 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 and financial services, anti-moneylaundering, data protection and information security. Qiwi Bank is 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 variousbusiness models that payment services providers pursue are regulated differently.Virtual wallet operations are legally considered cashless transfers with the use of bank cards. For regulatory purposes, when a Qiwi Walletaccount is reloaded, the accountholder is issued one or several virtual prepaid cards, depending on the amount of the reload. While the accountholderagrees to the issuance of the cards through accepting a public offer, he or she is not explicitly provided with details of each card. From a consumer’sperspective, the amount of the reload is simply transferred to an account of a digital wallet, whereas legally it becomes stored value of a virtual prepaidcard. Prepaid cards are regulated as “electronic means of payment” under the Federal Law of the Russian Federation No. 161-FZ “On the NationalPayment System”, dated June 27, 2011, as amended, or the “Payment System Law”. 53Table of ContentsThe Payment System Law classifies electronic means of payment into personalized and non-personalized, depending on whether they allow foridentification of the payer for the purposes of the Federal Law of the Russian Federation No. 115-FZ “On Combating the Legalization (Laundering) ofCriminally Obtained Income and Funding of Terrorism”, dated August 7, 2001, as amended, or the “Anti-Money Laundering Law”. Any electronicmoney transfers are subject to thresholds on remaining electronic money balances, which amount to RUB 600,000 for personalized means of paymentand RUB 15,000 for non-personalized means of payment (or RUB 60,000 if the holder underwent a simplified identification procedure). The totalmonthly turnover for each non-personalized means of payment cannot exceed RUB 40,000 (or RUB 200,000 if the holder underwent a simplifiedidentification procedure). There are no limitations on the total monthly turnover for fully identified consumers (see—“The Anti-Money LaunderingLaw”).The CBR is the agency commissioned with supervision of compliance with the provisions of the Payment System Law. As such, it is entitled tosuspend the activities of market participants regulated by the Payment System Law in the event of violations and impose administrative liability on theoffenders.As part of operating our agent model, Qiwi Bank has contracts with the bank payment agents, whose principal function is to accept cash for thepurpose of Qiwi Wallet uploads through kiosks, terminals and other physical points of service. In accordance with the Payment System Law, Qiwi Bankis responsible for the supervision of compliance of such bank payment agents and sub-agents with the provisions of the corresponding Russianlegislation, in particular their compliance with the regulation of payment services, anti-money laundering, data protection, and use of cash registerslegislation. Starting from January 2019 the credit institutions shall also file with the CBR various statistical data and information about the bankpayment agents on a quarterly basis. The submitted information should be publicly available.JSC QIWI, as operator of our kiosk network, is deemed to be a payment agent in accordance with the Federal Law of the Russian FederationNo. 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” is inapplicable to electronic payments and thus does not regulate our 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,or otherwise. 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 bythem. 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 ofdepositing funds received from the customers and from the payment agent, respectively. All funds received by a payment agent need to be depositedinto such specialized accounts.Although currently, in respect of monitoring the activities of the payment agents, the CBR authority is limited to collection, systematization andanalysis of industry data, the CBR activities may have indirect impact on payment agents. For instance, in April 2015 the CBR issuedrecommendations to credit institutions to enhance their scrutiny over compliance by the payment agents with legislation that requires them to remittheir proceeds to special accounts, which resulted in a decline in 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 and for legal purposes is set up and regulated as apayment system. It provides funds transfer services without opening a bank account to individuals and legal entities in Russia, CIS and Europeancountries, the USA, Canada, Israel, Vietnam, Turkey, UAE, RSA, India, Thailand, New Zealand and Singapore. It also allows its clients to reload cardsof international payment systems such as MasterCard, Visa and UnionPay. In accordance with the decision of the CBR, the Contact money transfersystem has the status of a nationally significant payment system.Pursuant to the Payment System Law, a payment system is a group of organizations, including the payment system operator, paymentinfrastructure service providers (including operational, payment clearing and settlement centers) and payment system participants (which in most casesare credit institutions), which cooperate in order to transfer funds under the payment system regulations.The payment system operator has a key role in a payment system. Since April 27, 2017, Qiwi Bank has been the operator of Contact moneytransfer system and its operational, payment clearing and settlement center.The payment system operator determines the payment system regulations which the payment system participants adhere to. The Contact moneytransfer system regulations are in full compliance with the current Russian legislation. The CBR is the agency that supervises and oversees paymentsystems. 54Table of ContentsTSUPIS RegulationAs part of our business, we service merchants that provide betting services. The regulatory framework with respect to betting in the RussianFederation is set by the Federal Law of the Russian Federation No. 244-FZ “On State Regulation of Organization and Conducting Games of Chanceand on Introducing Changes to Some Legislative Acts of the Russian Federation”, dated December 29, 2006, as amended, or the “Betting Law”.In order to engage in the betting business, a bookmaker has to become a member of a self-regulated organization of bookmakers and abide by itsrules, and any and all interactive bets may be only accepted through an Interactive Bets Accounting Center (TSUPIS) set up by a credit organizationtogether with a self-regulated association of bookmakers. The core functions of a TSUPIS are as follows: (i) to accept interactive bets in favor of themembers of the self-regulated organization; (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 the information 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 ofBookmakers” in 2016.Consumer Lending RegulationIn November 2016 QIWI launched a new payment-by-installments card project called SOVEST. The consumer lending activities in Russia aremainly regulated by the Federal Law of Russian Federation No. 353-FZ “On Consumer Credits (Loans)” dated December 21, 2013, as amended, or the“Consumer Credit Law”. The law imposes a range of restrictions on the lender, including interest rate limitations, prohibition to increase the interestrate 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 variousfacilities and methods in full compliance with the Russian legislation.Banking RegulationQiwi Bank is a “credit institution” and is accordingly subject to the following financial services-related laws and regulations:The Federal Law of the Russian Federation No. 395-1 “On Banks and Banking Activity”, dated December 2, 1990, as amended, or the “BankingLaw”, is the main law regulating the Russian banking sector. Among other things, it defines credit institutions, sets forth the list of banking operationsand other transactions that credit institutions may engage in, and establishes the framework for the registration and licensing of credit institutions aswell as the regulation of banking activity by the CBR.The Banking Law provides for a list of the so-called “banking operations” that cannot be conducted without an appropriate license from theCBR, including, among others, accepting deposits, opening and maintaining bank accounts, performing money transfers from and to bank accounts ofclients, and performing money (including electronic money) transfers without opening a bank account (other than postal transfers), etc. The latter typeof banking operations is the only one that Qiwi Bank pursues as a main line of our payment services business, although Qiwi Bank is also entitled toaccept deposits from individuals and legal entities, invest the funds received in the form of deposits, maintain accounts for individuals and legalentities and perform settlements through their bank accounts, perform teller and cash collection services, sell and purchase currency and issue bankguarantees. In accordance with the recent amendments to the Banking Law, Russian banks are divided into two categories: banks with a basic licenseand banks with a universal license. The key differences are the range of permitted banking operations, the requirements to net worth (capital),prudential ratios the banks should comply with, the information to be disclosed and the ability to have subsidiaries abroad. Pursuant to this newclassification, Qiwi Bank holds a universal license.Capital and Reserve RequirementsThe Banking Law and legislative acts promulgated thereunder establish minimum charter capital, capital base and various reserve requirementsfor credit institutions, which Qiwi Bank is in compliance with. The reserve requirements of the CBR negatively impact Qiwi Bank’s ability todistribute its profit to the 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 loanlosses, which may include losses from investments in securities, funds held in correspondent accounts at other banks, contingent liabilities and othertransactions.Qiwi Bank maintains certain provisions for losses from loans, default by counterparties, impairment of assets and liability increases, and is incompliance with applicable legislation. 55Table of ContentsPrudential RatiosCBR establishes and periodically amends mandatory prudential ratios for banks. Key mandatory economic ratios that banks must observe on adaily basis and periodically report to the CBR include capital adequacy ratio, instant liquidity ratio, current liquidity ratio, long-term liquidity ratio,maximum exposure to a single borrower or a group of affiliated borrowers, maximum exposure to major credit risks, maximum amount of loans, bankguarantees and sureties extended by the bank to its participants (shareholders), aggregate amount of exposure to the bank’s insiders, and ratio for theuse of the bank’s capital base to acquire shares (participation interests) in other legal entities. Failure to comply with the prudential ratios may lead tonegative consequences for the bank, including revocation of its banking license.As of December 31, 2018, prudential ratios of Qiwi Bank were in excess of the minimum thresholds imposed by the CBR.Reporting RequirementsA substantial amount of routine reporting has to be performed by credit institutions on a regular and non-regular basis, including disclosure offinancial statements, various operational indicators, affiliates and persons who exercise (directly or indirectly) influence over the decisions taken bythe management bodies of the credit institution. The CBR may at any time conduct full or selective audits of any credit institution’s filings and mayinspect all of its books and records.Additionally, banking holdings such as ourselves (i.e., groups of legal entities in which one legal entity that is not a credit institution, directly orindirectly, controls decisions of the management bodies of a credit institution within such groups, such as Qiwi Bank) must regularly disclose theirconsolidated financial statements and provide to CBR certain additional information regarding the business operations and financial condition of thegroup in order for the CBR to assess their risks.Factoring RegulationIn June 2018, Qiwi Processing started providing factoring services in Russia. The regulatory framework with respect to factoring is mainly set bythe Civil Code of the Russian Federation.Pursuant to the civil code of the Russian Federation factoring is a series of related financial transactions under which one party (a client)undertakes to assign monetary claims against a third party (a debtor) to another party (a financial agent/factor) and pay for the services of the latter, andthe financial agent undertakes to perform at least two of the following functions in relation to the assigned claims: (i) to finance the client (includingloans or advance payment) on account of receivables assigned to the factor; (ii) to maintain accounts relating to the client’s receivables; (iii) toexercise rights relating to the receivables (in particular, collect payments from the debtors, settle the obligations etc.); (iv) to exercise rights underagreements securing performance of obligations by the debtors. QIWI Processing as a financial agent/factor performs all the aforementioned functionsas may be required from time to time.QIWI Processing as a financial agent/factor is deemed to be a financial service provider. Thus, it is subject to the Anti-Money Laundering Law(see—“The Anti-Money Laundering Law”).Bank Guarantee Transactions RegulationIn 2018 Qiwi Bank started actively issuing guarantees for SMEs in accordance with the Federal Law of Russian Federation No. 223-FZ “OnPurchasing Goods, Work, and Services by Certain Types of Legal Entities”, dated July 18, 2011, as amended, and the Federal Law of RussianFederation No. 44-FZ “On the Contract System for State and Municipal Procurement of Goods, Work, and Services”, dated April 5, 2013, as amended.Pursuant to the Civil Code of the Russian Federation a bank guarantee is an irrevocable commitment by a bank to pay a specified sum in theevent that the party requesting the guarantee fails to perform the liability secured by the document. A guarantee is a commitment independent of theliability under the principal debt or the agreement between the creditor and the primary debtor. By issuing a guarantee, a bank commits to pay uponfirst demand, provided all the conditions stipulated in this guarantee are met. For issuing a guarantee the bank charges a commission from the partyrequesting it.Qiwi Bank is included in the list of banks that meet established requirements for an acceptance of bank guarantees for tax purposes, maintainedby the Ministry of Finance of the Russian Federation.The Anti-Money Laundering LawIn Russia, the companies performing transactions with funds and other assets (so called financial services providers) shall comply with nationalanti-money laundering and counter-terrorist financing legislation, as well as requirements of the Foreign Account Tax Compliance Act (FATCA) andthe Common Reporting Standard (CRS). Usually, financial services providers in Russia also follow the best international practices in this sphere, suchas recommendations of the Financial Action Task Force, or the FATF. The Federal Financial Monitoring Service, or Rosfinmonitoring, is the agencycommissioned with supervision of compliance with the provisions of the Anti-Money Laundering Law.Under the Anti-Money Laundering Law, the main obligations of a financial services provider are as follows:1) to elaborate internal control rules and programs for anti-money laundering and counter-terrorism financing purposes and control theirimplementation, and to designate an officer responsible for compliance of these rules and programs with the Russian legislation; 56Table of Contents2) to conduct internal and external trainings of the staff in the anti-money laundering and counter-terrorism 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 a resident in a country included in the FATF “black lists” or usesa bank account maintained in such country, to take reasonable measures for identifying clients that are politically exposed persons (domestic orforeign) and clients that pose high money laundering or financing terrorism risks, and 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 are known to participate in extremist or terrorist activities orto spread weapons of mass destruction and report to the Rosfinmonitoring on such taken actions, and not less than once every three months to inspectwhether there are clients whose funds or other assets were or shall be frozen/blocked and provide the Rosfinmonitoring with the results of suchinspections;7) to suspend or to restrict the performance of certain operations on the ground set forth by the anti-money laundering and counter-terrorismfinancing legislation;8) to provide the Rosfinmonitoring on its request with information on clients, their operations and beneficial owners;9) to identify such clients, their representatives and/or beneficial owners, to take reasonable measures for detecting and identifying beneficialowners, to update the information on such clients on a regular basis, and to determine a procedure for cooperating with the persons assigned to performidentification.Financial services providers are generally required to identify their clients, whether legal entities and individuals. However, certain transactionsof physical persons are exempt from the identification requirements under the Anti-Money Laundering Law, unless officers of a financial serviceprovider suspect that such operation is carried out to legalize funds received from illegal activities, to finance terrorism or to spread weapons of massdestruction. Money transfers by individuals not exceeding RUB 15,000 are generally exempt from the identification requirement, but peer-to-peertransfer 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 simplifiedidentification can be performed remotely. However, the simplified identification process is still not well defined and the public databases that suchremote identification is supposed to be based on are still not entirely operational, which could cause us to be in violation of the identificationrequirements. The identification requirements of the Anti-Money Laundering Law pertain to all clients and their transactions subject to certainexclusions and limitations.Since mid-2018, in order to block potentially fraudulent transactions, credit institutions have to use anti-fraud criteria, elaborated both by CBRand in-house. Credit institutions are also prescribed to follow certain protocol for combatting the unauthorised transactions and to report all such casesto the CBR which maintains a national fraud database.Privacy 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 FederationNo. 152-FZ “On Personal Data”, dated July 27, 2006, as amended, or the Personal Data Law. The Personal Data Law, among other things, requires thatan individual must consent to the processing (i.e. any action or combination of actions performed with or without the use of technology on personaldata, 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 consentbefore such data is processed. Generally, the Personal Data Law does not require the consent to be in writing but requires it to be in any form that, froman evidential perspective, sufficiently attests to the fact that it has been obtained.However, the consent must be in writing in certain cases, including: (i) where the processing relates to special categories of personal data(regarding the individual’s race, nationality, political views, religion, philosophical beliefs, health conditions or intimate information); (ii) where theprocessing of personal data relates to any physiological and biological characteristics of the individual which can help to establish his or her identity(such as, for example, biometric personal data); (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 offormal requirements and must be signed by holographic or electronic signature.Subject to certain limited exemptions, the recording, systematization, accumulation, storage, adjustment (update, alteration), retrieval of personaldata of citizens of the Russian Federation is required to be performed through a database located in the territory of the Russian Federation. All our datacenters used to store such personal data are located in the Russian Federation. 57Table of ContentsIn May 2018, the General Data Protection Regulation (EU), a set of data protection rules for all companies operating in the European Union,wherever they are based, came into force. It has fundamentally changed the way businesses handle personal data, strengthening the protection ofpersonal data and the rights of the individual.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 orindirect control over a company holding an encryption license requires prior approval of a specialized governmental commission. The approvalprocess usually takes between three and six months. Qiwi Bank holds encryption licenses, which are necessary to conduct its operations, and by virtueof this may be deemed to be 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 or indirectly, more than 50% of the total number of votes attributable to the voting shares comprising the share capital of such strategicenterprise. Where the purchaser is a foreign state, foreign governmental organization, international organization or entity controlled by a foreigngovernment, or international organization, 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 or a foreign government or international organization are prohibited from owning more than 50% of thevoting power of a strategic enterprise. Failure to obtain the required governmental approval prior to an acquisition would render the acquisition nulland void.The Strategic Enterprise Law is not clear on how to interpret “indirect” control over a strategic enterprise and in what circumstances anacquisition of shares in the holding company of a strategic enterprise would represent an “indirect” acquisition of shares in the latter and,consequently, require approval of the specialized governmental commission. Although the view can be taken that an “indirect” acquisition takes placeif a foreign investor acquires over 50% of the shares in the holding company of a strategic enterprise or otherwise obtains control over the holdingcompany, there is no assurance that Russian state authorities would not interpret it differently and apply a lower threshold to the acquisition of suchholding company. C.Organizational StructureQIWI plc is a holding company that operates through its subsidiaries. Our major operating subsidiaries, each of which is a wholly ownedsubsidiary, are QIWI Bank (JSC) (which is 99.9% owned by QIWI), QIWI JSC, QIWI Payments Services Provider Ltd.See Exhibit 8.1 for a list of our subsidiaries. D.Property, Plants and Equipment.We currently lease a total of over 12,700 square meters in Moscow and other regions across Russia as well as in Kazakhstan, Cyprus and otherjurisdictions where we operate, primarily for the purpose of office space. 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 includedelsewhere in this annual report. Certain statements in this section are “forward-looking statements” and are subject to risks and uncertainties, whichmay cause actual results to differ materially from those expressed or implied by such forward-looking statements. Please see “Special Note RegardingForward-Looking Statements” and “Risk Factors” for more information. A.Operating ResultsOverviewWe are a leading provider of next generation payment and financial services in Russia and the CIS. We have an integrated proprietary networkthat enables payment services across online, mobile and physical channels and provides access to certain financial services that we offer to ourcustomers, merchants and partners. We operate in and target markets and segments that lack convenient digital solutions for customers and partners topay or accept payments for goods and services, transfer money or use other financial tools in online, mobile and physical environments or that arelargely cash-based.We distribute our payment services online through our virtual Qiwi Wallet and other Qiwi Wallet infrastructure-based solutions, which enableconsumers to make payments, transfer and receive funds through their computers or mobile devices, while funding their accounts through a variety ofsources. We have also built a physical network of over 143,000 kiosks and terminals using a proprietary agent model. We further develop a number ofdigital financial services targeting retail customers, like SOVEST installment card or Rocketbank or sole traders and small businesses, like Tochkamulti-banking platform. 58Table of ContentsOur primary source of revenue is fees we receive from processing payments made by consumers to merchants or other customers or by merchantsor partners to users, which we refer to as payment processing fees, typically based on a percentage of the size of the transactions processed, which werefer to as payment volume. We refer to payment processing fees that are paid to us by merchants for collecting payments on their behalf or forprocessing payouts as “merchant fees” and to payment processing fees that are paid by our consumers directly to us or transmitted to us by our agentsas “consumer fees”. If the transactions are made in cash through our kiosks and terminals, we typically pass on a portion of the merchant fees to ouragents.We also generate merchant fees based on a percentage of the size of the transactions that we process through operations of our SOVEST project,where we provide our consumers with the opportunity to buy goods and services from partner merchants on credit and repay their debt in equalinstallment payments. We generate consumer fees when customers pay us for buying value added options to increase the functionality of their SOVESTcards such as prolonged installment period. Further, throughout 2018 we generated revenue from servicing Tochka clients with accounts in OtkritieBank under the information and technology services agreement between Qiwi Bank and Otkritie Bank. We also generate revenue from commissions wecharge for servicing the clients of Tochka, who have accounts with QIWI Bank.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, 2016, 2017 and 2018. Year ended December 31, 2016 2017 2018 (in RUB millions) Total Adjusted Net Revenue (1) 10,611 13,193 19,657 Payment Services Segment Net Revenue(1) 10,583 12,580 16,497 Adjusted EBITDA (1) 6,035 5,185 5,948 Adjusted Net Profit (1) 4,714 4,054 4,137 (1)See “Selected Consolidated Financial and Other Data — Non-IFRS Financial Measures” for how we define and calculate adjusted net revenue,adjusted EBITDA, and adjusted net profit as non-IFRS financial measures and reconciliations of these measures to revenue, in the case ofadjusted net revenue, and net 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, 2016, 2017 and 2018. Year ended December 31, 2016 2017 2018 (in RUB millions, unless otherwise indicated) Payment Services Segment Payment Volume 846,980 911,095 1,138,149 Active Qiwi Wallet accounts (at period end, in millions) (1) 17.2 20.1 20.8 Active kiosks and terminals (units) (2) 162,173 152,525 143,690 Payment Services Segment Net Revenue Yield (3) 1.25% 1.38% 1.45% Consumer Financial Services Segment Payment Volume (4) — 3,304 15,945 (1)Number of active Qiwi Wallet accounts is defined as the number of wallets through which at least one payment has been made or that have beenloaded or reloaded in the 12 months preceding the end of the relevant reporting period.(2)We measure the numbers of our kiosks and terminals on a daily basis, with only those kiosks and terminals being taken into calculation throughwhich at least one payment has been processed during the day, which we refer to as active kiosks and terminals. The period end numbers of ourkiosks and terminals are calculated as an average of the amount of active kiosks and terminals for the last 30 days of the respective reportingperiod.(3)Payment Services segment net revenue yield is defined as Payment Services segment net revenue divided by Payment Services segment paymentvolume.(4)Consumer Financial Services segment payment volume consists of the transaction amounts made by SOVEST card customers to merchantsoffline and online (including, but not limited to the partner-merchants) or withdrawn through ATMs less the amount of correspondingreimbursements.Payment volume. Payment Services segment payment volume as well as Consumer Financial Services segment payment volume provides ameasure of the overall size and growth of the corresponding businesses, and increasing our payment volumes is essential to growing our profitability.Payment Services segment payment volumes have increased by 24.9% in 2018 as compared to 2017, reaching RUB 1,138 billion for the year endedDecember 31, 2018 mainly as a result of the growth in E-commerce and Money Remittance market verticals where we are best suited to leverage ourpayment infrastructure by providing our customers with convenient solutions. Payment Services segment payment volumes have increased by 7.6% in2017 as compared to 2016, reaching RUB 911 billion for the year ended December 31, 2017 mainly driven 59Table of Contentsby positive trends in the same key verticals of our business – the E-commerce market vertical fueled by growth of digital entertainment services and theMoney Remittances market vertical. Consumer Financial Services segment payment volume increased by over 380% in 2018 as compared to 2017reaching RUB 16 billion as of December 2018 mainly driven by the roll out of the SOVEST project. The following factors may have a significantimpact on the payment volumes and therefore our revenue: • Russian economy. We carry out our operations primarily in Russia. Macroeconomic conditions in Russia significantly impact the volumeof payments made by our consumers. During periods of economic growth, overall consumer spending tends to increase along with rises inwealth, and during economic downturns, consumer spending tends to correspondingly decline. For example, in 2016 we have experiencednegative pressure on our payment volumes resulting largely from general economic downturn and decreasing real wages and disposableincome of our customers as well as other market specific factors affecting some of our categories of merchants. • 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 demand for technological payment solutions, the number of potential merchants forwhich we can offer payment services and the potential number of our users. However, the rapid development of bank card transactions inonline as well as development of online banking services could hinder the growth in alternative payment methods. • Consumer adoption. We have actively sought new merchants to offer consumers more payment choices when using our products anddeveloped certain solutions and technological capabilities to widen the scope of services that we offer for merchants, partners andcustomers. We believe that growth of our infrastructure and suite of services we offer as well as merchant and partner network will lead tomore consumers using our payment and financial services more frequently. In addition, we actively encourage consumers to use multipleproducts, distribution channels and interfaces, in particular, for users of our kiosks and terminals network to create a Qiwi Wallet accountand use it for wider range of purposes such as, for example, recurring and non-recurring payments, money transfers or as a paymentcollection tool. We also encourage our merchants and partners to use variety of our complimentary solutions and promote users of ourpayment services to adopt the financial services products that we offer, such as SOVEST, Rocketbank or Tochka. We believe that thesynergies offered within our ecosystem and between our payment and financial services will help enhance consumer adoption of ourservices in the future, extend the life-cycle of our customers, decrease churn and create a more attractive and complete range of use casesand consumer journeys. • 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 one of the principal forms of payment in Russia, and, as a result, a significant share of our payment volumescontinues to be cash-based. We expect cash payments to continue to be an important means of payment in Russia and to sustain demandfor use of our kiosks and terminals in the near future. If the use of cash as a mean of payment declines in Russia, it may negatively impactour financial results, although we increasingly focus on offering our clients primarily digital solutions.Number of active Qiwi Wallet accounts. Number of active wallets represents the number of wallets through which at least one payment has beenmade or which has been loaded in the 12 months preceding the end of the relevant reporting period. Number of active wallets is a measure of oursuccess in penetrating the market and expanding our customer base. Our strategy is primarily focused on quality of Qiwi Wallet usage and we believewe are able to leverage our large, active base of over 45 million consumers who use our network at least once a month, our technological expertise andour brand recognition to drive the adoption and usage of the Qiwi Wallet.Number of active kiosks and terminals. We measure the numbers of our kiosks and terminals on a daily basis, with only those kiosks andterminals being taken into calculation through which at least one payment has been processed during the day, which we refer to as active kiosks andterminals. The period end numbers of our kiosks and terminals are calculated as an average of the amount of active kiosks and terminals for the last 30days of the respective reporting period. From December 31, 2017 to December 31, 2018, our number of kiosks increased from 109,000 to 110,000 andthe number of terminals decreased from 43,000 to 34,000. Our kiosks and terminals can be found next to convenience stores, in train stations, postoffices, retail stores and airport terminals in all major urban cities as well as many small and rural towns that lack large bank branches and otherfinancial infrastructure. While the number of our kiosks and terminals is generally decreasing as market evolves towards higher share of digitalpayments, we believe that our physical distribution network remains an important part of our infrastructure, and we maintain or even slightly increaseour market share.Payment Services segment net revenue yield. We calculate Payment Services segment net revenue yield by dividing Payment Services segmentnet revenue by Payment Services segment payment volume. Payment Services segment net revenue yield provides a measure of our ability to generatenet revenue per unit of volume we process. Payment Services segment net revenue yield was 1.25%, 1.38% and 1.45% in 2016, 2017, and 2018,respectively. In 2018, Payment Services segment net revenue yield increased by 7 bps in comparison to 2017 primarily as a result of an increase in theshare of payment volumes associated with higher revenue generating transactions such as e-commerce and certain types of money remittance paymentsslightly offset by the decrease in yield in most key market verticals. The following factors have influenced Payment Services segment net revenueyield: • 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 and financial services, have declined as a percentage of total PaymentServices segment payment volume. 60Table of Contents • In the past, we have experienced a decline in average net revenue yields derived from large merchants such as for example MNOs sincethey have a substantial bargaining power over the payment channels they use including our infrastructure. We expect that the average netrevenue yields will be declining in certain verticals such as E-Commerce if merchants in these verticals continue to gain scale andaccordingly bargaining power or Money Remittances vertical if lower yielding products offered as part our infrastructure gain larger share. • Our Payment Services segment net revenue yield depends on the level and mix of merchant commissions as well as the level of the reloadcosts we have. Such costs depend on the commissions charged to us by our partners and agents for the wallet reload as well as on the mix ofsuch channels. If the consumer preferences shift between different reload methods or if any channel becomes more expensive to us (as wehave experienced in 2015 in relation to our kiosk network) or less expensive to us, our Payment Services segment net revenue yield maydecrease or increase respectively.Sources of RevenueOur primary source of revenue is payment processing fees. In addition, we derive revenue from cash and settlement services (including revenuefrom the information and technology services agreement between Qiwi Bank and Otkritie Bank), interest income, revenue from fees for inactiveaccounts and unclaimed payments, revenue from our installment cards project SOVEST (interest income and other income) and other revenue.Payment processing fees. Payment processing fees constitute the substantial majority of our revenue and comprise of fees charged for processingpayments typically based on a percentage of the total volume of each payment. A majority of our payment processing fees are merchant fees andconsumer fees. If the payment is made through our physical distribution network, we typically pass on a portion of the merchants fees to our agents. Incertain situations, we may not receive any merchant fees, for example, when a merchant is a government body. We generally recognize merchant feesgross at the point when merchants accept or sends payments from or to 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 Qiwi Wallet as well as most revenue fromconsumer fees charged through our kiosks and terminals gross at the point when the consumer makes a payment. Additionally we generate foreigncurrency conversion revenue when the transactions are made in currencies that different from the currency of the balance used, mainly Russian Rubles.We recognize related revenues at the time of the conversion in the amount of conversion commission representing the difference between the currentRussian or relevant country Central Bank foreign currency exchange rate and the foreign currency exchange rate charged by the our processing system.Other sources of revenue. In addition to payment processing fees, we generate revenue from various other sources, including SOVEST merchantcommission fees charged for payments made using the SOVEST payment-by-installment card with the merchants (classified as interest income) andSOVEST consumer fees charged for purchasing value added options (classified mostly as interest income), cash and settlement services (representingrevenue from different types services, including maintenance of current and special guarantee deposit accounts that we provide to individuals andlegal entities including our agents and SME clients), interest income (representing revenue from interest earned on cash deposits with financialinstitutions, and short- and long-term investments performed as a part of our treasury operations) revenue from rent of space for kiosks (representingrevenue from rent obtained for subleasing retail space for kiosks to our agents net of the rental payments we make to retail shop owners to allow agentsto install kiosks on their premises under lease arrangements) and other revenue (representing revenue primarily generated from operations such assoftware licensing for our processing system to third parties). Additionally, we earn revenues from fees for inactive accounts and unclaimed payments,writing down leftover balances or unclaimed payments when our customers do not use their wallets or do not claim their payments respectively forprolonged periods of time so that their wallets are deemed to be inactive.Operating ExpensesCosts of revenue (exclusive of depreciation and amortization)Transaction costs. When payments are made through our physical distribution network, we incur transaction costs to our agents, which representthe amount of fees we pass through to agents for use of their kiosks and terminals. Additionally, we incur reload and transaction costs when QiwiWallet consumers reload their wallets or make certain types of payments through their wallets for goods and services offered by our merchantsincluding acquiring costs payable to agents, bank-participants, mobile operators, international payment systems and other parties.Payroll and related taxes. Payroll and related taxes represents salaries and benefits paid to employees, primarily IT and operating servicesemployees, 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 SMS and voice messageexpenses (SMS notification), call center expenses (payment to call center provider for the number of the calls serviced), settlement and cash servicesexpenses primarily relating to Tochka and Rocketbank operations, interest expenses (representing interest we pay on the deposits of individuals inRocketbank) and other expenses (including SOVEST and Rocketbank expenses consisting primarily of cards production costs). 61Table of ContentsSelling, general and administrative expensesSelling, general and administrative expenses consists primarily of compensation to employees, related taxes and other personnel expenses for oursenior management, finance, legal and other administrative staff; advertising, client acquisition and related expenses, tax expenses (except of incomeand payroll relates taxes), advisory and audit services, rent of premises and related utility expenses, IT related services, net loss / (gain) from initialrecognition of loans issued above/below market rates 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 estimateduseful lives. Intangible assets are amortized on a straight-line basis over their useful economic lives, unless the useful life is indefinite. We do notamortize intangible assets with indefinite useful lives, but we test these assets for impairment annually, either individually or at the cash-generatingunit level.Credit loss expenseCredit loss expense represent impairment losses for financial assets accounted for using a forward-looking expected credit loss (ECL) approach inaccordance with requirements of the IFRS 9 adopted by the Group starting from January 1, 2018 (prior accounted under IAS 39). ECLs are calculated asa difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive. Theadoption of the ECL approach resulted in increases in impairment allowances on the Group’s financial assets.Impairment of intangible assetsFor the purpose of the impairment testing of other intangible assets Company estimates the recoverable amounts as the higher of the value in useor the fair value less costs to sell of an individual asset or Cash Generated Unit (CGU) such asset relates to. For the years ended December 31, 2018 and2017 impairment of intangible assets was RUB 23 million and RUB 104 million respectively, mainly relating to the impairment of New Terminal CGU(New Terminal is a project focus on developing of a new generation of kiosks). For the year ended December 31, 2016 the impairment of intangibleassets was RUB 878 million, the main part of which related to intangible assets allocated to Payment Services CGU (customer relationships andtrademarks identified and recognized upon acquisition of Rapida and Contact).Other Income and Expense ItemsOther income and expenses netOther income in 2018, 2017 and 2016 included a variety of individually insignificant or one-off items. Other expenses in 2018, 2017 and 2016primarily consisted of the discounts recognized on loans issued at rates lower than market rate, income from bank guarantees and tax penalties.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 thefunctional currency rate of exchange at the reporting date. The amount of foreign exchange gain and loss for the reporting period is directly related tocurrency rates fluctuations.Interest income and expenses netInterest income represents primarily interest on non-banking loans issued. Interest expense primarily represents interest expense accrued on bankguarantees obtained by the Company.Income tax expenseIncome tax expense represents current and deferred income taxes with respect to our earnings in the countries in which we operate. Deferred taxalso includes taxes on earnings of our foreign subsidiaries that have not been remitted to us to the extent applicable and will be taxed in Cyprus onceremitted.Critical accounting policies and significant estimatesThe preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates andassumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the reporting dates and thereported amounts of revenues and expenses during the reporting periods. However, uncertainty about these assumptions and estimates could result inoutcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. The most 62Table of Contentssignificant judgments relate to the recognition of revenue and functional currency. The most significant estimates and assumptions relate todetermination of the fair values of assets acquired and liabilities assumed in business combinations, impairment of intangible assets and goodwill,recoverability of deferred tax assets, impairment of loans and receivables, measurement of costs associated with share based payments and uncertainposition over risk assessment. We have based our estimates on historical experience and on various other assumptions that we believe to be reasonableunder the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readilyapparent from other sources. Actual results may materially 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 arehighly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accountingestimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. We believe that the followingcritical accounting policies are the most sensitive and require more significant estimates and assumptions used in the preparation of our consolidatedfinancial statements. You should read the following descriptions of critical accounting policies, judgments and estimates in conjunction with ourconsolidated financial statements and other disclosures included in this annual report.Revenue recognitionWe recognize revenue from contracts with customers when control of the services is transferred to the customer at an amount that reflects theconsideration to which the Group expects to be entitled in exchange for those services. We have generally concluded that it is the principal in ourrevenue arrangements because we typically control the services before transferring them to the customer. Revenues and related cost of revenue fromservices are recognized in the period when services are rendered, regardless of when payment is made.All performance obligations are either satisfied at a point of time or over time. In the former case they represent a separate instantaneous service,in the latter – a series of distinct services that are substantially the same and that have the same pattern of transfer to the customers. Such performanceobligations are invoiced at least monthly. Progress of performance obligations satisfied over time is measured by output method. We recognize most ofthe revenue at a point of time.Contract price is allocated separately to each performance obligation. There are generally no variable amounts affecting consideration by themoment such consideration is recognized as revenue. In the unusual situation when the variability exists, we make estimates of amount to berecognized based on the appropriate budgets and models. Consideration from customers does not have any non-cash component. Considerationpayable to a customer is accounted as a reduction of the transaction price and, therefore, of revenue. Consideration from customers is normally receivedwithin a few months and never in more than a year. Consequently, we believe that it contains no significant financing component.Within some components of our business, we pay remuneration to the employees and third parties for attracting customers. The costs which areincremental to acquisition of new customers are further analyzed for recoverability. Generally, this expenditure is not expected to be reimbursed byfuture incomes and is not capitalized as costs to obtain a contract.Payment processing fee revenues and related transaction costsPayment processing fee revenues include the following types: • fees for processing of consumer payment (consumer fee and merchant fee); and • conversion fees.We earn a fee for processing payments initiated by the individuals (consumers) to pay to merchants and service providers or transfer money toother individuals. Payment processing fees are earned from consumers or merchants, or both. Consumers can make payments to various merchantsthrough kiosks or bank-participants of payment system or through our website or applications using a unique user login and password. Kiosks areusually owned by third parties or agents. When consumer payment is processed, we may incur transaction costs to acquire payments payable to agents,bank-participants, mobile operators, international payment systems and other parties. The payment processing fee revenue and related receivable, aswell as the transaction cost and the related payable, are recognized at the point when merchants or individuals accept payments from consumers in thegross amount, including fees payable for payment acquisition. Payment processing fees and transaction costs are reported gross. Any fees from agentsand other service providers are recorded as reduction of transactions costs unless the fee relates to distinct service rendered by us.The Group generates revenue from the foreign currency conversion when payments are made in currencies different from the country of theconsumer, mainly Russia. The Group recognizes the related revenues at the time of conversion in the amount of conversion commission representingthe difference between the current Russian or relevant country Central Bank foreign currency exchange rate and the foreign currency exchange ratecharged by the Group’s processing system.Cash and settlement servicesWe charge a fee for managing current bank accounts and deposits of individuals and legal entities, including guarantee deposits from agentsplaced with the bank to cover consumer payments they accept. Related revenue is recorded as services are rendered or as transactions are processed. 63Table of ContentsOther revenuesOther revenues include revenues from commissions charged for consumer financial services, advertising activities, guarantee commissions andsome other minor activities.Loyalty programOur Rocketbank project has a loyalty program, which allows customers to accumulate loyalty points that are accrued as percentage of purchasesmade using bank cards and can be used to reimburse future purchases. Revenue is therefore decreased by the nominal value of points awarded tocustomers during the period multiplied by the probability of their subsequent realization.Recognition of interest income and interest expenseFor all financial instruments measured at amortized cost, interest bearing financial assets classified as available for sale and financial instrumentsdesignated at fair value through profit or loss, interest income or expense is recorded using the EIR method. The EIR (and therefore, the amortised costof the asset) is calculated by taking into account any discount or premium on acquisition, fees and costs that are an integral part of the EIR of thefinancial instrument.We calculate interest income by applying the EIR to the gross carrying amount of financial assets other than credit-impaired assets. When afinancial asset becomes credit-impaired and is, therefore, regarded as ‘Stage 3’, the Bank calculates interest income by applying the effective interestrate to the net amortised cost of the financial asset. If the financial assets restore and is no longer credit-impaired, the Bank reverts to calculatinginterest income on a gross basis.Interest income from bank loans and short-term and long-term investments performed as part of our 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 receipts of both types of interest are included into interest received in the statement of cash flows.Interest expense from bank borrowings intended to attract funds for reinvestment 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 interestexpense not as part of cost of revenue. Cash disbursements of both types of interest are included into interest paid in the statement of cash flows.We also exercise significant judgment in reaching a conclusion about our accounting policy the following matters concerning revenue: • Standard applicable to revenue from the SOVEST project; and • Recognition of revenue from inactive accounts and unclaimed payments.The SOVEST project implies offering interest free loans to individuals for the purchases made with installment cards plus various optionsconnected to the use of these cards. It brings revenues in the form of commissions from merchants and card-holders as well as interchange fee from thepayment system. We exercise significant judgment in determining which of these commissions fall within the scope of IFRS 9 or IFRS 15. Theresulting conclusion depends mainly on whether a commission can be linked to a specific lending arrangement or not.Further, we stipulate in our public offers the term during which a customer who failed to identify correctly the recipient of his transfer can returnto correct the identification details or claim money back. If the customer does not return, the whole amount of transfer is appropriated by us in theperiod of specified time in public offer. Similarly, we charge a daily commission on the balance of wallets that remained inactive during the periodindicated in the public offer. We believe that including these rules into its public offers gives us appropriate legal rights to recognize thedistinguishment of customer liabilities and, therefore, recognize these amounts as revenue.Functional currencyEach entity in the Group determines its own functional currency, depending on the economic environment it operates in, and items included inthe financial statements of each entity are measured using that functional currency.Recognition of control, joint control, or significant influence over entitiesIn assessing business combination we analyze all the relevant terms and conditions of management of the acquired or newly established entitiesand exercise judgment in deciding whether we have control, joint control, or significant influence over them. As a result certain acquisitions where ourshare is over 50% may not be recognized as consolidated subsidiaries and vice versa.Acquisition of business in the form of separate assetsIn 2018 we completed acquisition of Rocketbank business that does not represent a separate legal entity. The acquisition was made through acombination of contracts on purchase of major non-current assets, transfer of employees etc. Since the assets and other resources have been acquired inorder to operate them as a business, these transactions were accounted for using the acquisition method as a single transaction. The acquisition datewas the date when we obtained control over the last key element of the business. All the cash amounts paid by us under any of the contracts related tothe acquisition were treated as consideration. 64Table of ContentsFair 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 businesscombination at their fair values, which involves estimates. Such estimates are based on valuation techniques, which require considerable judgment inforecasting future cash flows and developing other assumptions.Fair value of assets transferred in non-monetary transactionsDuring the reporting period we were engaged in a transaction to establish JSC Tochka. In this process, we invested a number of assets into thenewly established entity (fixed assets, intangible assets, promissory notes). Fair value of promissory notes is deemed equal to their nominal valuebecause they can be instantly exchanged for cash. Fair value of fixed assets and intangible assets is deemed equal to their carrying amount becausethese assets had been purchased not long ago from an unrelated party.Impairment of goodwill and intangible assetsWe determine the following material CGUs: SOVEST, Payment services, Postomatnye Tekhnologii, Tochka, Rocketbank and Flocktory. For thepurpose of goodwill impairment test, we estimate the recoverable amounts of Payment services CGU as fair value less costs of disposal on the basis ofquoted 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 assetswith definite useful life impairment, when indicators of impairment are noted, we estimate the recoverable amounts as higher of value in use or fairvalue less costs to sell of an individual asset or the CGU to which this asset relates.Impairment of investments in associates and joint venturesOur investments in associate and joint venture are generally designated as separate CGUs. The recoverable amount of these CGUs is determinedbased on a value in use calculation using appropriate financial models.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 deductibletemporary differences can be utilized. Various factors are used to assess the probability of the future utilization of deferred tax assets, including pastoperating results, operational plans, expiration of tax losses carried forward, and tax planning strategies.Certain portion of deferred tax assets was not recorded because we do not expect to realize certain of our tax loss carry forwards in the foreseeablefuture due to the history of losses.Fair value of loans issuedWe measure loans issued at amortized cost using effective interest rate (EIR) method. EIR is assumed to be equal to loan market rates which aredefined on market participants statistic available to us.Impairment of financial assetsFor impairment of loans and receivables, we use a forward-looking expected credit loss (ECL) approach.We record an allowance for ECLs for all loans and other debt financial assets not held at FVPL. The ECL allowance is based on the credit lossesexpected to arise over the life of the asset (the lifetime expected credit loss or LTECL), unless there has been no significant increase in credit risk sinceorigination, in which case, the allowance is based on the 12 months’ expected credit loss (12mECL). The 12mECL is the portion of LTECL thatrepresents the ECLs that result from default events on a financial instrument that are possible within the 12 months after the reporting date. BothLTECL and 12mECL are calculated on either an individual basis or a collective basis, depending on the nature of the underlying portfolio of financialinstruments.ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Groupexpects to receive. The shortfall is then discounted at an approximation to the asset’s original effective interest rate. The mechanics of the ECLcalculations are outlined below and the key elements are as follows: PDThe Probability of Default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain timeover the assessed period, if the facility has not been previously derecognised and is still in the portfolio. EADThe Exposure at Default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after thereporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdowns on committedfacilities, and accrued interest from missed payments. 65Table of ContentsLGDThe Loss Given Default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference betweenthe contractual cash flows due and those that the lender would expect to receive, including from the realisation of any collateral. It is usuallyexpressed as a percentage of the EAD.For other financial assets (i.e., cash in banks, loans and debt instruments) and financial liabilities (i.e., financial guaranties and credit relatedcommitments) we have established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument’s credit riskhas increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financialinstrument.In all cases, we consider that there has been a significant increase in credit risk when contractual payments are more than 30 days past due. Weconsider a financial asset in default when contractual payment are 90 days past due (except for particular sort of Trade and other receivables of 60days). However, in certain cases, we may also consider a financial asset to be in default when internal or external information indicates that we areunlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by us.For Trade and other receivables, we have applied the standard’s simplified approach and have calculated ECLs based on lifetime expected creditlosses. We have established a provision matrix that is based on our historical credit loss experience, adjusted for forward-looking factors specific to thedebtors and the economic environment.For instalment card loans and its undrawn credit commitments ELC calculation we use internal historical instalment card loans loss ratesstatistics for assessment of probabilities of default. The loss given default is an estimate of the loss arising in the case where a default occurs at a giventime and is based on internal statistics.Uncertain position over risk assessmentWe disclosed possible and accrued probable risks in respect on currency, customs, tax and other regulatory positions. Our management estimatesthe amount of risk based on its interpretation of the relevant legislation, in accordance with the current industry practice and in conformity with itsestimation of probability, which require considerable judgment.Measurement of costs associated with share-based paymentsAs of December 31, 2018 we had two outstanding equity-based compensation programs: 2012 Employee Stock Option Plan (ESOP) and 2015Restricted Stock Units Plan (RSU Plan). We estimate fair value of ESOP that are expected to vest using the Black-Scholes-Merton option pricing modeland RSUs that are expected to vest using the binominal pricing model and recognize the share-based payment expense by rate over the requisiteservice period applicable to each option-vesting tranche. 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 2017: n/a Year 2014: U.S. $ 34.09 - 37.89 Year 2018: n/a Year 2017: U.S. $ 23.94 Exercise basis Shares SharesExpiration date December 2020 December 2022Vesting period Up to 4 years Three vesting during up to 2 yearsExpected volatility (%) 28 – 49.85 44.43 – 64.02Risk free interest rate (%) 0.29 – 3.85 2.89 – 4.34Dividend yield (%) 0 – 5.03 0 – 5.70Other major terms The options are not transferrable The units are not transferrableAll 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 PlanThe expected life of the option represents the period during which our option awards are expected to be outstanding. The expected life of eachoption tranche was based on the simplified method outlined in Staff Accounting Bulletin No. 107, Share-Based Compensation. This method is also inline with the requirements of IFRS 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 forour shares) we estimated the volatility of our shares based on the historical volatility of peer group companies over a period which approximates ourexpected life of option awards, and for the RSU we used the historical three year volatility of our publicly reports share price. 66Table of ContentsWe based the risk-free interest rate that we use in the ESOP model on the implied yield currently available on the US treasury bonds, adjusted fora country risk premium, with a remaining term approximating the expected life of the option award being valued; for the RSU model we based the risk-free interest rate on Russian Eurobonds yield curve with a maturity of five 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 initialpublic offering. In light of that expectation, we used an expected dividend yield of zero in our option pricing model for option awards granted in theyear ended December 31, 2012. In April 2013, our board of directors subsequently reconsidered this determination, and we currently expect that wewill pay dividends from time to time in the future. Any determination regarding the amount of future dividends will depend on a range of factors,including the availability of distributable profits, our liquidity and financial position, our strategic plans and growth initiatives, restrictions imposedby our financing arrangements, tax considerations, planned acquisitions, and other relevant factors. Up until September 2017, we have used dividendyield of 5.03% based on the dividends paid previously. Since, taking into consideration the current dividend policy for dividend distribution in thenear term, we have been using a dividend yield of zero. Since the fourth quarter 2018 we have started to use dividend yield of 5.70% and we areplanning to use this yield further until one is specified.We determined the amount of share-based compensation expense based on awards that we ultimately expect to vest, taking into accountestimated forfeitures. IFRS requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeituresdiffer from those estimates. To properly attribute compensation expense, we are required to estimate pre-vesting forfeitures at the time of grant andrevise those estimates in subsequent periods if actual forfeitures differ from those estimates. The forfeiture rate used in valuation models granted duringthe year 2018, 2017 and 2016 are from 11.35% to 16%, 9% and 15% respectively. It is based on historical data and current expectations and is notnecessarily indicative of forfeiture patterns that may occur.Because there had been no public market for our shares prior to our initial public offering, with the assistance of an independent valuation firm,we determined the fair value of our shares on the basis of valuations of our company using 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 closingmarket price of its traded shares.Results of OperationsSet out below are our consolidated statements of operations data for the years ended December 31, 2016, 2017 and 2018: Years ended December 31, 2016 2017 2018 (in RUB millions) Revenue, including 17,880 20,897 30,610 Payment processing fees 14,999 17,265 23,694 Interest revenue calculated using the effective interest rate 899 1,052 1,854 Fees from inactive accounts and unclaimed payments 1,290 1,310 1,419 Other revenue 692 1,270 3,643 Operating costs and expenses, including (13,743) (16,906) (26,161) Cost of revenue (exclusive of depreciation and amortization) (8,646) (9,763) (15,129) Selling, general and administrative expenses (3,208) (6,023) (9,671) Depreciation and amortization (796) (796) (864) Credit loss expense (215) (220) (474) Impairment of intangible assets and goodwill (878) (104) (23) Profit from operations 4,137 3,991 4,449 Other income and expenses, net (79) (41) (227) Foreign exchange gain 1,040 257 1,311 Foreign exchange loss (1,963) (373) (1,049) Interest income and expenses, net (28) 6 17 Profit before tax 3,107 3,840 4,501 Income tax expense (618) (698) (875) Net profit 2,489 3,142 3,626 Attributable to: Equity holders of the parent 2,474 3,114 3,584 Non-controlling interests 15 28 42 67Table of ContentsSet out below are our consolidated statements of operations data for the years ended December 31, 2016, 2017 and 2018 as a percentage of totalrevenue: Years ended December 31, 2016 2017 2018 (as a percentage of revenue) Revenue, including 100.0 100.0 100.0 Payment processing fees 83.9 82.6 77.4 Interest revenue calculated using the effective interest rate 5.0 5.0 6.1 Fees from inactive accounts and unclaimed payments 7.2 6.3 4.6 Other revenue 3.9 6.1 11.9 Operating costs and expenses, including (76.9) (80.9) (85.5) Cost of revenue (exclusive of depreciation and amortization) (48.4) (46.7) (49.4) Selling, general and administrative expenses (17.9) (28.8) (31.6) Depreciation and amortization (4.5) (3.8) (2.8) Credit loss expense (1.2) (1.1) (1.5) Impairment of intangible assets recorded on acquisitions (4.9) (0.5) (0.1) Profit from operations 23.1 19.1 14.5 Other income and expenses, net (0.4) (0.2) (0.7) Foreign exchange gain 5.8 1.2 4.3 Foreign exchange loss (11.0) (1.8) (3.4) Interest income and expenses, net (0.2) 0.0 0.1 Profit before tax 17.4 18.4 14.7 Income tax expense (3.5) (3.3) (2.9) Net profit 13.9 15.0 11.8 Attributable to: Equity holders of the parent 13.8 14.9 11.7 Non-controlling interests 0.1 0.1 0.1 Year ended December 31, 2018 compared to year ended December 31, 2017RevenueSet out below are our revenues, by source, for the year December 31, 2017 and 2018, and as a percentage of total revenue: Year ended December 31, 2017 2017 2018 2018 (in RUBmillions) (% ofrevenue) (in RUBmillions) (% ofrevenue) Revenue 20,897 100.0 30,610 100.0 Commission and other revenue, including Payment processing fees 17,265 82.6 23,694 77.4 Cash and settlement services fees 670 3.2 3,017 9.9 Other revenue 600 2.9 626 2.0 Interest revenue and related charges, including: Interest revenue calculated using the effective interest rate 1,052 5.0 1,854 6.1 Fees from inactive accounts and unclaimed payments 1,310 6.3 1,419 4.6 Revenue for the year ended December 31, 2018 was RUB 30,610 million, an increase of 46%, or RUB 9,713 million, compared to the sameperiod in 2017. This increase was primarily driven by an increase in commission and other revenue. Payment processing fees for the year endedDecember 31, 2018 were RUB 23,694 million, an increase of 37%, or RUB 6,429 million, compared to the same period in 2017. The increase inpayment processing fees resulted primarily from volume growth in such categories as E-commerce (mainly as a result of an increase in volumes ofdigital entertainment, primarily betting, merchants) and Money Remittance (as a result of the implementation of our B2B2C and self employedstrategy underpinned by secular trends towards the digitalization of payments as well as expansion of our classical Money Remittances businessthrough new distribution contacts) and an increase in average payment net revenue yield due to shift in payment volume mix towards higher yieldingpayment categories, such as E-commerce (primarily digital entertainment) and Money Remittance as opposed to lower yielding payment categoriessuch as Telecom and Financial Services.The number of active Qiwi Wallet consumers increased to 20.8 million as of December 31, 2018 from 20.1 million as of December 31, 2017. Theincrease resulted mainly from the implementation of our B2B2C strategy and merchant driven adoption of our services. The number of our kiosks andterminals decreased, with 143,690 active kiosks and terminals as of December 31, 2018 compared to 152,525 as of December 31, 2017, primarily as aresult of the underlying market dynamics further described in “Item 3.D. Risk Factors—Risks Related to Our Business and Industry—a decline in theuse 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.” 68Table of ContentsRevenue from cash and settlement services fees for the year ended December 31, 2018 was RUB 3,017 million, an increase of 350%, or RUB2,347 million, compared to the same period in 2017. This increase was primarily driven by the revenue receiver on information technology serviceagreement with Otkritie Bank pursuant to the launch of Tochka multi-bank project in 2017.Other revenue for the year ended December 31, 2018 was RUB 626 million, an increase of 4%, or RUB 26 million, compared with the sameperiod in 2017. The increase was mainly driven by the growth of the SOVEST project revenue recognized as other revenue (mostly commissions forcertain consumer value added options), which increased by RUB 218 million as compared to the same period in the prior year to reach RUB358 million for the year ended December 31, 2018 offset by the decline in other individually insignificant items.Interest revenue calculated using the effective interest rate was RUB 1,854 million, an increase of 76%, or RUB 802 million, compared to thesame period in 2017. The growth was primarily related to the increase in the SOVEST project revenues (interest income recognized on SOVEST loans)as well as by the increase in interest income earned on funds deposited by Qiwi Bank with CBR and other banks (due to larger amount of fundsdeposited in 2018).Fees for inactive accounts and unclaimed payments increased by 8%, or RUB 109 million, from RUB 1,310 million in 2017 to RUB1,419 million in 2018.Operating expensesSet out below are the primary components of our operating expenses for the year ended December 31, 2017 and 2018, and as a percentage of totalrevenue: Year ended December 31, 2017 2017 2018 2018 (in RUBmillions) (% ofrevenue) (in RUBmillions) (% ofrevenue) Cost of revenue (exclusive of depreciation and amortization) (9,763) (46.7) (15,129) (49.4) Transaction costs (6,756) (32.3) (9,324) (30.5) Payroll and related taxes (2,059) (9.9) (4,176) (13.6) Ancillary expenses (948) (4.5) (1,629) (5.3) Selling, general and administrative expenses (6,023) (28.8) (9,671) (31.6) Depreciation and amortization (796) (3.8) (864) (2.8) Cost of revenue (exclusive of depreciation and amortization)Cost of revenue (exclusive of depreciation and amortization) for the year ended December 31, 2018 was RUB 15,129 million, an increase of 55%,or RUB 5,366 million, compared to the same period in 2017. Transaction costs increased by 38% or RUB 2,568 million from RUB 6,756 million toRUB 9,324 million for the year ended December 31, 2018 as compared to the same period in 2017. The increase primarily resulted from growth oftransaction costs such as different types of payment processing commissions charged by third party providers including banks and payment systemsdriven primarily by higher volumes as well as increase in certain tariffs.Payroll and related taxes for the year ended December 31, 2018 were RUB 4,176 million, an increase of 103%, or RUB 2,117 million, comparedto the same period in 2017, primarily due to (i) hiring of new employees in connection with launch and development of the new projects including thedevelopment of the Tochka multi-bank platform (in the amount of RUB 865 million), the transfer and launch of the Rocketbank project in Qiwi Bank(in the amount of RUB 320 million) and the scaling of the SOVEST project (in the amount of RUB 190 million), and increase in corresponding socialinsurance contributions (in the amount of RUB 415 million); (ii) increase in salaries and bonus payments for existing employees aimed at matching theaverage market level in the amount of RUB 228 million; (iii) an increase in share-based payment expenses (resulting from new grants under the 2015RSU Plan) in the amount of RUB 99 million for the year ended December 31, 2018.Ancillary expenses for the year ended December 31, 2018 were RUB 1,629 million, an increase of 72%, or RUB 681 million, compared to thesame period in 2017. The increase in ancillary expenses was mainly due to an increase in SMS and voice messages expenses by RUB 171 million in2018 compared to 2017 mostly related to the SOVEST project and an increase in tariffs; increase in cash and settlement services and finance expensesby RUB 315 million and RUB 143 million, respectively, in 2018 compared to 2017; increase in card production and other expenses attributable to theSOVEST project by RUB 75 million in 2018; offset partially by a decrease in the cost of rent of space for kiosks, call center and other expenses, whichare shown net for 2018. 69Table of ContentsSegment Net RevenueThe following table presents net revenue by reportable segment (see “Item 4.B. Business Overview” for more information about our reportablesegments) for the periods indicated: Year ended December 31, 2017(1) 2018 (in RUBmillions) (in RUBmillions) Payment Services 12,580 16,497 Consumer Financial Services 9 385 Small and Medium Enterprises 578 2,916 Rocketbank (5) (263) Corporate and Other 31 122 Total Segment Net Revenue(1) 13,193 19,657 (1)The presentation for the year ended December 31, 2017 was adjusted to reflect current reportable segment structure for convenience purposes(2)For the periods indicated above Total Segment Net Revenue is equal to Total Adjusted Net Revenue. See “Selected Consolidated Financial andOther Data — Non-IFRS Financial Measures” for how we define and calculate adjusted net revenue, adjusted EBITDA, and adjusted net profit asnon-IFRS financial measures and reconciliations of these measures to revenue, in the case of adjusted net revenue, and net profit, in the case ofadjusted EBITDA and adjusted net profit.Segment net revenue attributable to the Payment Services segment increased by RUB 3,917 million, or 31%, in 2018 compared to the sameperiod in 2017. The growth in this segment’s net revenue was mainly due to an increase in payment processing fees and interest revenue calculatedusing the effective interest rate partially offset by a decrease in other revenue and an increase in transaction costs. Payment processing fees increased by37% or by RUB 6,429 million compared to the same period of 2017 in line with volume growth, which was primarily driven by E-commerce andMoney Remittances market verticals underpinned also by a shift of the volume mix towards higher yielding market verticals, such as E-commerce.Transaction costs increased by 38% or by RUB 2,568 million, in line with the increase in payment processing fees. Interest revenue increased by 26%or by RUB 272 million compared to 2017. The increase in interest revenue resulted primarily from larger deposits Qiwi Bank placed with CBR andother banks in 2018. Fees for inactive accounts and unclaimed payments increased by 8%, or RUB 109 million, from RUB 1,310 million in 2017 toRUB 1,419 million in 2018. Other revenue net decreased by 93% or by RUB 330 million compared to 2017 due to an increase in SMS costs as well asa decrease in revenue from overdrafts provided to agents and advertising revenue net. Payment Services segment net revenue accounted for 84% oftotal adjusted net revenue in 2018.Segment net revenue attributable to the Consumer Financial Services segment increased by RUB 376 million in 2018 compared to the sameperiod in 2017. The increase in Consumer Financial Services segment net revenue resulted mostly from the introduction of the consumer paid valueadded options starting from the mid-2018 as well as from scaling of the SOVEST project and its volume growth. Consumer Financial Services segmentnet revenues accounted for approximately 2% of total adjusted net revenue in 2018.Segment net revenue attributable to the Small and Medium Enterprise segment increased by RUB 2,338 million in 2018 compared to the sameperiod in 2017. The growth in net revenue was preliminary driven by the growth in revenue from informational and technology services and otheragreements with Otkritie Bank, which were operated throughout twelve months for the year ended 31 December 2018 as compared to approximatelyfour months for the year ended December 31, 2017. The growth in revenue from informational and technology services and other agreements withOtkritie Bank was driven largely by the increase in the number of Tochka customers and corresponding expansion of the Tochka business. Small andMedium Enterprise Services segment net revenue accounted for approximately 14.8% of total adjusted net revenue in 2018.Segment net revenue attributable to the Rocketbank segment decreased by RUB 258 million in 2018 compared to the same period in 2017. Netrevenue was negative due to costs incurred in connection with the operations of Rocketbank after the completion of the transfer of Rocketbanks’customers and loyalty program to Qiwi Bank following Rocketbank acquisition. Rocketbank segment net revenues contributed approximatelynegative 1.3% to total adjusted net revenue in 2018.Net revenues attributable to the Corporate and Other category increased by RUB 91 million in 2018 compared to same period in 2017. Thegrowth in net revenue was preliminary driven by the growth in interest revenue and was driven by the growth of Qiwi Factoring business. Corporateand Other category net revenue accounted for approximately 0.6% of total adjusted net revenue in 2018.Selling, general and administrative expensesSelling, general and administrative expenses for the year ended December 31, 2018 were RUB 9,671 million, an increase of 61%, or RUB3,648 million, as compared to the same period in 2017. This increase resulted primarily from the growth in compensation to employees, related taxesand other personnel expenses by 60% or by RUB 1,345 million from RUB 2,227 million in 2017 to RUB 3,572 million in 2018. The increase wasmainly driven by the development of the operations of the Tochka multi-bank project and launch of the Rocketbank project in QIWI, growth of theSOVEST team and an increase in share-based payment expenses due to new grants under the 2015 RSU Plan. Other significant expense items in 2018included advertising, client acquisition and related expenses, which increased by 83%, or RUB 1,075 million, from RUB 1,294 million in 2017 toRUB 2,369 million in 2018, mostly due to client acquisition and advertising campaigns related to the new projects, more specifically SOVEST andTochka. The main drivers of the expense growth (i.e. development of the SOVEST and Tochka projects and transfer of Rocketbank project to QIWI)also effected most of other selling, general and administrative expenses items including rent of premises and related utility expenses, which increasedby RUB 252 million or 64%, tax expenses (excluding income and payroll relates taxes), which increased by RUB 283 million or 70%, advisory andaudit services, which increased by RUB 228 million or 53% and other expenses, which increased by and RUB 194 million or 19%. 70Table of ContentsDepreciation and amortizationDepreciation and amortization for the year ended December 31, 2018 was RUB 864 million, an increase of 8.5%, or RUB 68 million, compared tothe same period in 2017. The amortization of intangible assets decreased as a result of the termination of depreciation of the license allocated toPayments Services CGU, which became fully amortized in 2017. The depreciation of fixed assets increased due to the acquisition of the ITinfrastructure equipment for payment processing services and depreciation of processing servers and office equipment purchased in connection withthe Tochka and the Rocketbank deals in the end of 2017.Credit loss expenseCredit loss expense for the year ended December 31, 2018 was RUB 474 million, an increase of 115%, or RUB 254 million, compared to thesame period in 2017. The increase was mostly related to the growth of the SOVEST loans portfolio and adoption of IFRS 9 that has fundamentallychanged the Group’s assessment of credit risk of financial assets by replacing IAS 39’s incurred loss approach with a forward-looking expected creditloss (ECL) approach. The overall increase in credit loss expense related to SOVEST project was RUB 250 million driven by the combination of factorsdescribed above.Other non-operating gains and lossesOther income and expensesOther expenses, net for the year ended December 31, 2018 was RUB 227 million, an increase of 454%, or RUB 186 million, compared to thesame period in 2017. The increase was mainly driven by (i) expenses related to the associate and joint venture transactions of RUB 132 million, whichincluded loss on the set up of associate, compensation of expenses from associate and share in gain/loss from associate and joint venture and(ii) change in fair value of financial instruments amounting to RUB 86 million loss.Foreign exchange gainForeign exchange gain for the year ended December 31, 2018 was RUB 1,311 million, an increase of RUB 1,054 million, compared to the sameperiod in 2017. The increase of foreign exchange gain primarily resulted from a revaluation of cash balances and guarantee payments denominated inUS dollars following the appreciation of the US dollar against the Russian ruble and higher volatility as compared to 2017.Foreign exchange lossForeign exchange loss for the year ended December 31, 2018 was RUB 1,049 million, an increase of RUB 676 million, compared to the sameperiod in 2017 mainly due to significant volatility of U.S. dollar against the Russian ruble in 2018.Income taxIncome tax for the year ended December 31, 2018 amounted to RUB 875 million, an increase of 25%, or RUB 177 million as compared to thesame period in 2017, resulting from the increase in profit before tax. Our effective tax rate in 2018 was 19.4%, an increase of 126 bps compared to thesame period in 2017, as a result of higher share of profits coming from a higher tax jurisdictions.Segment Net ProfitThe following table presents our net profit by reportable segment for the periods indicated: Year ended December 31, 2017(1) 2018 (in RUBmillions) (in RUBmillions) Payment Services 7,543 9,529 Consumer Financial Services (2,164) (2,618) Small and Medium Enterprises (171) (776) Rocketbank (311) (1,061) Corporate and Other (843) (937) Total Segment Net Profit(2) 4,054 4,137 (1)The presentation for the year ended December 31, 2017 was adjusted to reflect current reportable segment structure for convenience purposes.(2)For the periods indicated above Total Segment Net Profit is equal to Total Adjusted Net Profit. See “Selected Consolidated Financial and OtherData — Non-IFRS Financial Measures” for how we define and calculate adjusted net revenue, adjusted EBITDA, and adjusted net profit asnon-IFRS financial measures and reconciliations of these measures to revenue, in the case of adjusted net revenue, and net profit, in the case ofadjusted EBITDA and adjusted net profit. 71Table of ContentsSegment net profit attributable to the Payment Services segment increased by RUB 1,986 million, or 26% in 2018 compared to the same periodin 2017. The increase was primarily driven by the growth of the respective segment net revenue offset slightly by a growth in compensation toemployees and related taxes and income tax expenses.Segment net loss attributable to the Consumer Financial Services segment increased by RUB 454 million, or 21% in 2018 compared to the sameperiod in 2017. The increase in segment net loss was mainly driven by the growth of compensation to employees, related taxes and other personnelexpenses (both in cost of revenue and in selling, general and administrative expenses) and increase of credit loss expenses due to scaling of theSOVEST project.Segment net loss attributable to the Small and Medium Enterprise segment increased by RUB 605 million in 2018 compared to the same periodin 2017. These increase in net loss was mostly driven by the growth of compensation to employees, related taxes and other personnel expenses (both incost of revenue and in selling, general and administrative expenses), advertising and related expenses (due to an advertising campaign held in 2018),rent of premises and related utility expenses, office maintenance expenses, tax expenses, loss on set up of the associate and share of loss of associateattributable to the development of the Tochka multi-bank project that was partially offset by Net Revenue growth of the segment.Segment net loss attributable to the Rocketbank segment increased by RUB 750 million in 2018 compared to the same period in 2017. The maincontributing factors were compensation to employees, related taxes and other personnel expenses (both in cost of revenue and in selling, general andadministrative expenses) and other selling, general and administrative expenses resulting from the acquisition of Rocketbank in July 2018 andconsecutive transfer of its operations to Qiwi Bank.Net loss attributable to the Corporate and Other category increased by RUB 94 million, or 11% in 2018 compared to the same period in 2017.The increase mostly related to selling, general and administrative expenses, compensation to employees, related taxes and other personnel expenses.Year ended December 31, 2017 compared to year ended December 31, 2016RevenueSet out below are our revenues, by source, for the year December 31, 2016 and 2017, and as a percentage of total revenue: Year ended December 31, 2016* 2016* 2017 2017 (in RUBmillions) (% ofrevenue) (in RUBmillions) (% ofrevenue) Revenue 17,880 100.0 20,897 100.0 Commission and other revenue, including Payment processing fees 14,999 83.9 17,265 82.6 Cash and settlement services fees 130 0.7 670 3.2 Other revenue 562 3.2 600 2.9 Interest revenue and related charges, including: Interest revenue calculated using the effective interest rate 899 5.0 1,052 5.0 Fees from inactive accounts and unclaimed payments 1,290 7.2 1,310 6.3 *Certain types of revenues in the amount of RUB 18 million were reclassified from Interest revenue calculated using the effective interest rate toOther revenue in this Annual Report, thus certain numbers differ immaterially from numbers presented in the Annual Report for the years endedDecember 31, 2016 and December 31, 2017Revenue for the year ended December 31, 2017 was RUB 20,897 million, an increase of 17%, or RUB 3,017 million, compared to the sameperiod in 2016. This increase was primarily driven by an increase in commission and other revenue. The payment processing fees for the year endedDecember 31, 2017 were RUB 17,265 million, an increase of 15%, or RUB 2,266 million, compared to the same period in 2016. The increase inpayment processing fees resulted primarily from volume growth in such categories as Money Remittance (mainly due to growth in card to card andcommission peer to peer transfers) and E-commerce (mainly as a result of rise of TSUPIS volumes) and an increase in average payment net revenueyield 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 and Financial Services. The growth in payment processing fees was partially offset by a decrease inpayment volumes in Telecom and Financial Services verticals.The number of active Qiwi Wallets increased to 20.1 million as of December 31, 2017 from 17.2 million as of December 31, 2016. The increaseresulted mainly from merchant driven adoption of our services. The number of our kiosks and terminals decreased, with 152,525 active kiosks andterminals as of December 31, 2017 compared to 162,173 as of December 31, 2016, primarily as a result of the underlying market dynamics furtherdescribed 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 inthe use of kiosks and terminals may result in a reduced demand for our services.” 72Table of ContentsRevenue from cash and settlement services fees for the year ended December 31, 2017 was RUB 670 million, an increase of 415%, or RUB540 million, compared to the same period in 2016. This increase was primarily driven by the revenue accrued on information technology serviceagreement with Otkritie Bank pursuant to the launch of Tochka project in 2017.Other revenue for the year ended December 31, 2017 was RUB 600 million, an increase of 7%, or RUB 38 million, compared to the same periodin 2016, due to multidirectional changes of items forming the other revenue, primarily revenue of Sovest project and advertising revenue. Other itemsare insignificant individually.Interest revenue calculated using the effective interest rate that consists primarily of interest on bank deposits and interest on government bondsfor the year ended December 31, 2017 was RUB 1,052 million, an increase of 17%, or RUB 153 million, compared to the same period in 2016. Thisgrowth was primarily related to an increase in interest income on deposits placed by Qiwi Bank with CBR, resulting from a larger amount of fundsdeposited in 2017.Fees for inactive accounts and unclaimed payments increased by 2%, or RUB 20 million, from RUB 1,290 million in 2016 to RUB 1,310 millionin 2017. The increase in fees from inactive accounts and unclaimed payments was due to an increase in number of idle wallets.Operating expensesSet out below are the primary components of our operating expenses for the year ended December 31, 2016 and 2017, and as a percentage of totalrevenue: Year ended December 31, 2016 2016 2017 2017 (in RUBmillions) (% ofrevenue) (in RUBmillions) (% ofrevenue) Cost of revenue (exclusive of depreciation and amortization) (8,646) (48.4) (9,763) (46.7) Transaction costs (6,490) (36.3) (6,756) (32.3) Payroll and related taxes (1,377) (7.7) (2,059) (9.9) Ancillary expenses (779) (4.4) (948) (4.5) Selling, general and administrative expenses (3,208) (17.9) (6,023) (28.8) Depreciation and amortization (796) (4.5) (796) (3.8) Cost of revenue (exclusive of depreciation and amortization)Cost of revenue (exclusive of depreciation and amortization) for the year ended December 31, 2017 was RUB 9,763 million, an increase of 13%,or RUB 1,117 million, compared to the same period in 2016. Transaction costs increased by 4% or RUB 266 million from RUB 6,490 million to RUB6,756 million for the year ended December 31, 2017 as compared to the same period in 2016. The increase primarily resulted from growth of certaincosts such as information technology costs as a result of higher turnovers in some of the market verticals, as well as a shift in the composition of walletreload channels.Payroll and related taxes for the year ended December 31, 2017 were RUB 2,059 million, an increase of 50%, or RUB 682 million, compared tothe same period in 2016, primarily due to (i) increase in salaries and bonus payments to newly-hired employees relating to the development of certainprojects including the roll out of the SOVEST project and launch of the Tochka project as well as the increase in corresponding insurancecontributions, (ii) performance based incentive bonuses paid to personnel in December 2017 and (iii) an increase in share-based payment expenses(resulting from new grants under the 2015 RSU Plan).Ancillary expenses for the year ended December 31, 2017 were RUB 948 million, an increase of 22%, or RUB 169 million, compared to the sameperiod in 2016. The increase in ancillary expenses was mainly due to an increase in SMS and voice messages expenses by RUB 52 million in 2017compared to 2016, due to higher quantity of messages sent, mostly related to the SOVEST project and an increase in tariffs; increase in card productionand other expenses attributable to the SOVEST project by RUB 49 million in 2017; and an increase in the cost of rent of space for kiosks by RUB47 million, resulting mainly from new rent agreements signed at the end of 2016 and in May 2017.Segment Net RevenueThe following table presents net revenue by reportable segment for the periods indicated: Year ended December 31, 2016(1) 2017(2) (in RUBmillions) (in RUBmillions) Payment Services 10,583 12,580 Consumer Financial Services (3) 9 Small and Medium Enterprises — 578 Rocketbank — (5) Corporate and Other 31 31 Total Segment Net Revenue(2) 10,611 13,193 (1)The presentation for the year ended December 31, 2016 and December 31, 2017 was adjusted to reflect current reportable segment structure forconvenience purposes. 73Table of Contents(2)For the periods indicated above Total Segment Net Revenue is equal to Total Adjusted Net Revenue. See “Selected Consolidated Financial andOther Data — Non-IFRS Financial Measures” for how we define and calculate adjusted net revenue, adjusted EBITDA, and adjusted net profit asnon-IFRS financial measures and reconciliations of these measures to revenue, in the case of adjusted net revenue, and net profit, in the case ofadjusted EBITDA and adjusted net profit.Segment net revenue attributable to the Payment Services segment increased by RUB 1,997 million, or 19%, in 2017 compared to the sameperiod in 2016. The growth in this segment’s net revenue was mainly due to an increase in payment processing fees, interest revenue calculated usingthe effective interest rate and fees from inactive accounts and unclaimed payments that was partially offset by decrease in cash and settlement servicesfees, other revenue and increase in transaction costs. Payment processing fees increased by 15% or by RUB 2,266 million compared to the same periodof 2016 in line with the volume growth additionally underpinned by a shift towards market verticals with higher average net revenue yield, suchas E-commerce. Interest revenue increased by 20% or by RUB 177 million compared to 2016. This increase was primarily related to an increase ininterest income on deposits placed by QIWI Bank with the CBR as a result of larger amounts of deposits placed in 2017. Cash and settlement servicesdecreased by 55% or by RUB 71 million compared to 2016 as a result of smaller number of agents and a decrease in the number of kiosks. Otherrevenue decreased by 19% or by RUB 106 million compared to 2016 mainly related to decrease in advertising revenue (decrease of activities) andinterest revenue from agent’s overdrafts (decrease in the overall number of agents and kiosks) that was partially offset by increase in revenue from rentof space for kiosks (due to new counterparties). Fees for inactive accounts and unclaimed payments increased by 2%, or RUB 20 million, from RUB1,290 million in 2016 to RUB 1,310 million in 2017. Transaction costs increased by 4% or by RUB 266 million. Payment Services segment netrevenue accounted for approximately 95.4% of total adjusted net revenue in 2017.Segment net revenue attributable to the Consumer Financial Services segment increased by RUB 12 million compared to the same period in2016. Consumer Financial Services segment net revenue consists mostly of commission revenue from partner merchant received for transactions madeby our customers using the payment-by-installments card SOVEST. Consumer Financial Services segment net revenue accounted for approximately0.1% of total adjusted net revenue in 2017.Segment net revenue attributable to the Small and Medium Enterprises Segment for the year ended December 31, 2017 was RUB 578 million.SME segment net revenue is primarily composed of revenue from cash and settlement services (which includes mostly Tochka revenues on informationand technology service agreements with Otkritie Bank for providing services to Tochka clients that have their accounts with Otkritie Bank). SMEsegment net revenue accounted for approximately 4.4% of total adjusted net revenue in 2017.Segment net revenue attributable to the Rocketbank segment for the year ended December 31, 2017 was RUB 5 million and consisted mostly ofdirect costs related to the production of cards.Net revenue attributable to the Corporate and Other category has not changed in 2017 compared to the same period in 2016. Corporate and Othercategory net revenue accounted for approximately 0.2% of total adjusted net revenue in 2017.Selling, general and administrative expensesSelling, general and administrative expenses for the year ended December 31, 2017 were RUB 6,023 million, an increase of 88%, or RUB2,815 million, compared to the same period in 2016. This increase resulted primarily from the growth in advertising, client acquisition and relatedexpenses by RUB 1,129 million from RUB 165 million in 2016 to RUB 1,294 million in 2017. The increase was mainly driven by the launch and rollout of the SOVEST project, including the start of its advertising campaign that involved different media channels and significant growth in thedistribution of instalment cards. Other significant expense items in 2017 included compensation to employees, related taxes and other personnelexpenses, which increased by 32%, or RUB 545 million, from RUB 1,682 million in 2016 to RUB 2,227 million in 2017, mostly due to expensesincurred in connection with the launch of the Tochka project, growth of the SOVEST team and an increase in share-based payment expenses due tonew grants under the 2015 RSU Plan. The increase in other expenses by RUB 672 million from RUB 363 million in 2016 to RUB 1,035 million in2017 primarily resulted from the expenses incurred in connection with the acquisition of assets of Tochka and Rocketbank from Otkritie in the amountof RUB 350 million. These main drivers of the expense growth (i.e. roll out of the SOVEST project and launch of the Tochka project) effected almostall other selling, general and administrative expenses items including tax expenses, excluding income and payroll relates taxes, advisory and auditservices, office maintenance expenses and postage, and couriers expenses as a part of other expenses.Depreciation and amortizationDepreciation and amortization for the year ended December 31, 2017 was RUB 796 million. The total amount has not changed compared to thesame period in 2016; however, there were certain changes in the depreciation and amortization structure. The amortization of intangible assetsdecreased as a result of the impairment of customer relationships and trademarks allocated to Payments Services Cash Generating Unit (CGU) at the endof 2016. The decrease in amortization was offset by the increase in depreciation of fixed assets due to the acquisition of the IT infrastructure equipmentnecessary for our payment processing services and capitalized leasehold improvements of our new office building throughout 2017. 74Table of ContentsCredit loss expenseCredit loss expense for the year ended December 31, 2017 was RUB 220 million, an increase of 2%, or RUB 5 million, compared to the same period in2017. The changes are insignificant.Other non-operating gains and lossesOther income and expensesOther expenses, net for the year ended December 31, 2017 was RUB 41 million, a decrease of 48%, or RUB 38 million, compared to the sameperiod in 2016. The decrease was mainly due to changes in other income and expenses items that are insignificant individually.Foreign exchange gainForeign exchange gain for the year ended December 31, 2017 was RUB 257 million, a decrease of RUB 783 million, compared to the sameperiod in 2016. The decrease of foreign exchange gain was primarily a result of a revaluation recorded on US dollar funds received from our June 2014public offering resulting from the appreciation of the U.S. dollar against the Russian ruble and significantly lower volatility as compared to 2016.Foreign exchange lossForeign exchange loss for the year ended December 31, 2017 was RUB 373 million, a decrease of RUB 1,590 million, compared to the sameperiod in 2016 mainly as result of the depreciation of the U.S. dollar against the Russian ruble and significantly lower volatility as compared to 2016.Interest income and expensesInterest income, net for the year ended December 31, 2017 was RUB 6 million, an increase of 121%, or RUB 34 million, compared to the sameperiod in 2016. This increase mainly resulted from the termination of several bank guarantees in 2016.Income taxIncome tax for the year ended December 31, 2017 amounted to RUB 698 million, an increase by 13%, or RUB 80 million, compared to the sameperiod in 2016, resulting from the increase in profit before tax. Our effective tax rate in 2017 was 18.2%, a decrease of 1.7 bps compared to the sameperiod in 2016, due to a change in the structure of profit before tax that was affected by higher share of profits in a low tax jurisdiction.Segment Net ProfitThe following table presents our net profit by reportable segment for the periods indicated: Year ended December 31, 2016(1) 2017(1) (in RUBmillions) (in RUBmillions) Payment Services 5,612 7,543 Consumer Financial Services (219) (2,164) SME — (171) Rocketbank — (311) Corporate and Other (679) (843) Total Segment Net Profit(2) 4,714 4,054 (1)The presentation for the year ended December 31, 2016 and December 31, 2017 was adjusted to reflect current reportable segment structure forconvenience purposes.(2)For the periods indicated above Total Segment Net Profit is equal to Total Adjusted Net Profit. See “Selected Consolidated Financial and OtherData — Non-IFRS Financial Measures” for how we define and calculate adjusted net revenue, adjusted EBITDA, and adjusted net profit asnon-IFRS financial measures and reconciliations of these measures to revenue, in the case of adjusted net revenue, and net profit, in the case ofadjusted EBITDA and adjusted net profit.Segment net profit attributable to the Payment Services segment increased by RUB 1,931 million, or 34% in 2017 compared to the same periodin 2016. The increase was primarily a result of the growth of segment net revenue supported by the decrease in selling, general and administrativeexpenses (including credit loss expense, compensation to employees, related taxes and other personnel expenses) attributed to this segment achievedby enhanced operating efficiency. 75Table of ContentsSegment net loss attributable to the Consumer Financial Services segment was RUB 2,164 million in 2017 compared to RUB 219 million in theprior year. These expenses are related to the launch, roll out and operations of the SOVEST project and include primarily compensation to employees,related taxes and other personnel expenses, advertising and marketing expenses, consumer acquisition expenses and bad debt expenses.Segment net loss attributable to the SME segment was RUB 171 million in 2017. These expenses are mostly related by compensation toemployees, related taxes and other personnel expenses incurred in connection with the launch of Tochka project.Segment net loss attributable to Rocketbank segment was RUB 311 million in 2017 and resulted from the development of the Rocketbankproject. It mostly related to the increase in rent of premises and related utility expenses, compensation to employees, related taxes and other personnelexpenses.Net loss attributable to the Corporate and Other category increased by RUB 164 million, or 24% in 2017 compared to the same period in 2016.The increase was primarily driven by expenses related to corporate back-office operations of QIWI Group. The increase was partially offset by adecrease in allowance recognized on loans given to ventures in 2017. B.Liquidity and capital resourcesOur principal sources of liquidity are cash and cash equivalents (including deposits and current accounts of Tochka and Rocketbank customersas well as Qiwi Wallet balances), cash receivable from our SOVEST pay-by-installment card customers, cash receivable from agents, deposits issued tomerchants and revenues generated from our operations.Our balance of cash and cash equivalents as of December 31, 2018 was RUB 40,966 million compared to RUB 18,406 million as of December 31,2017 and RUB 18,997 million as of December 31, 2016. Cash and cash equivalents comprise predominantly of cash at banks and short-term depositswith an original maturity of three months or less. The significant increase in cash and cash equivalents throughout 2018 was caused primarily by theacquisition of Rocketbank and transfer of its customer accounts to Qiwi Bank as well as increase in accounts of Tochka customers and revenuesgenerated from our operations.In 2017 the Company received a guarantee and secured it by a cash deposit of USD 2.5 million until July 31, 2019.Our principal needs for liquidity have been, and will likely continue to be, customer accounts and amounts due to banks, payables to merchants,money remittances and e-wallets accounts payable, deposits received from agents and other working capital items, capital expenditures andacquisitions. We believe that our liquidity is sufficient to meet our current obligation as well as for financing our short- and midterm needs. Such needsmay include, but are not limited to funding in full the growth of the credit portfolio of the SOVEST project in the event we are not able or willing toscale SOVEST on a multi-banking model. In such case we expect to fund the outstanding credit portfolio primarily by our accumulated cash and partlyby the account balances and deposits of Tochka and Rocketbank customers. Shall our view in respect of Rocketbank and Tochka change or shall theirability to attract customers’ funds deteriorate we may seek to raise additional liquidity (through the capital or debt markets or through bank financing)in order to fund the expansion of the SOVEST project or finance the developments of the SOVEST or Rocketbank projects as well as other potentialprojects.As of December 31, 2018, customer accounts and amounts due to banks, payables to merchants, money remittances and e-wallets accountspayable, deposits received from agents, were RUB 43,457 million, compared to RUB 21,310 million as of December 31, 2017 and RUB 17,462 millionas of December 31, 2016. The growth in customer accounts and amounts due to banks was primarily driven by the transfer of Rocketbank operations toQiwi Bank and development of the Tochka multi-bank project. The increase in payables to merchants and deposits received from agents was primarilydue to volume growth in our payment services business. The increase in money remittances and e-wallets accounts payable resulted from growth in thenumber of active Qiwi Wallets and our payment volumes.An important part of our credit risk management and payment settlement strategy relies on cash we receive from agents in advance for paymentsmade through the kiosks. When a payment is made through a kiosk, we offset these deposits against the payments we make to the merchant. For certainagents with whom we have long and reliable relationships, we provide limited credit support in the form of overdrafts for payment processing.Similarly, some of our merchants (primarily the Big Three MNOs and payment systems including Visa and MasterCard) request that we make depositswith them in relation to payments processed through our system. Whenever a customer makes a payment to a merchant with whom we have made adeposit, that payment gets offset against the deposit held with the respective merchant.As of December 31, 2018 cash receivable from agents and deposits issued to merchants were RUB 6,896 million, compared to RUB 8,146 million as ofDecember 31, 2017 and RUB 5,313 million as of December 31, 2016. The decline in deposits issued to merchants predominantly resulted from partialsubstitution of deposits with bank guarantees in 2018. This decline was underpinned by the decline in cash receivable from agents for the year endedDecember 31, 2018 as compared to year ended December 31, 2017 that was driven by the decrease of payment volumes processed by our agents due togeneral trend towards the decreasing share of cash payments in the economy.Capital ExpendituresOur capital expenditures primarily relate to the acquisition of IT equipment for our processing systems and the acquisition of the software that weuse in operations. Capital expenditures for the year ended December 31, 2018 were RUB 995 million and included: (i) RUB 463 million related to theacquisition of the processing servers and engineering equipment; (ii) RUB 279 million related to the acquisition of computer software; (iii) RUB146 million related to additions of computers, office and other equipment, (iv) RUB 81 million related to the construction in progress and (v) RUB26 million related to other intangible assets. 76Table of ContentsFor the year ended December 31, 2017 our capital expenditures were RUB 794 million (including mainly assets acquired for the purpose oflaunching the Tochka project and developing the Rocketbank project amounting to RUB 358 million) and primarily consisted of: (i) RUB 293 millionrelated to construction in progress; (ii) RUB 244 million related to the acquisition of computer software; (iii) RUB 196 million related to theacquisition of processing servers and engineering equipment; and (iv) RUB 61 million related to additions of computers, office and other equipment.For the year ended December 31, 2016 our capital expenditures were RUB 680 and included: (i) RUB 182 million related to the acquisition ofcomputer software; (ii) RUB 113 million related to the acquisition of processing servers and engineering equipment; (iii) RUB 102 million related toleasehold improvements; (iv) RUB 61 million related to prepayments for the acquisition of computer software; (v) RUB 49 million related to internaldevelopment of R&D projects and (vi) RUB 173 million related to other capital expenditures including the acquisition of office equipment,construction in progress and other equipment.As of December 31, 2018 we had no material capital expenditure commitments.Cash FlowThe following table summarizes our cash flows for the years ended December 31, 2016, 2017 and 2018: December 31, 2016 2017 2018 (in RUB millions) Net cash flow generated from operating activities 5,543 3,560 22,645 Net cash flow (used in)/generated investing activities 180 (1,653) (1,325) Net cash flow used in financing activities (4,637) (2,160) (29) Effect of exchange rates on cash and cash equivalents (1,428) (333) 1,240 Net increase/(decrease) in cash and cash equivalents (342) (586) 22,531 Cash and cash equivalents at the beginning of the period 19,363 19,021 18,435 Cash and cash equivalents at the end of the period 19,021 18,435 40,966 Cash flows from operating activitiesNet cash generated from operating activities for the year ended December 31, 2018 was RUB 22,645 million, compared to RUB 3,560 million forthe same period in 2017. This sharp increase in net cash flow from operating activities is a result of changes in working capital, primarily an increase incustomer accounts and amounts due to banks, change in trade and other payables and decrease in trade and other receivables; that was partially offsetby the increase of the amount of loans issued from banking operations (as a result of scaling of the SOVEST project). The increase in customer accountsand amounts due to banks was related mostly to the transfer of Rocketbank clients and corresponding balances in the amount of RUB 12 billion toQiwi Bank that took place throughout second half of 2018, as well as increase in the number of Tochka users in Qiwi Bank during the year endedDecember 31, 2018 as compared to the year ended December 31, 2017. The increase in trade and other payables and decrease in trade and otherreceivables resulted from multiple factors, including an increase in volumes of the payment services business and transfer of Rocketbank project toQiwi Bank in 2018.Net cash generated from operating activities for the year ended December 31, 2017 was RUB 3,560 million, compared to RUB 5,543 million forthe same period in 2016. The decrease in net cash flow from operating activities was a result of changes in working capital, primarily an increase inloans issued from banking operations. A significant increase in loans issued from banking operations is related mostly to the launch of the SOVESTproject and corresponding marketing activities that took place in 2017, in order to promote the adoption and usage of the product.Cash flows from investing activitiesNet cash flow used in investing activities for the year ended December 31, 2018 was RUB 1,325 million, compared to RUB 1,653 million for thesame period in 2017. This reduction in net cash outflow was primarily driven by net cash used in acquisition of a joint venture (Flocktory Ltd)amounting to RUB 813 million in 2017 compared to RUB 21 million in 2018. There were no comparable payouts during 2018. The absence ofsignificant outflow on business combination in 2017 was partially offset by increase of investment in government bonds and loans issued that tookplace in 2017 and amounted to nil in 2018.Net cash flow used in investing activities for the year ended December 31, 2017 was RUB 1,653 million, compared to net cash flow generatedfrom investing activities of RUB 180 million for the same period in 2016. The decrease in net cash flow was primarily driven by net cash used inacquisition of a joint venture (Flocktory Ltd) amounting to RUB 813 million in 2017, compared to RUB 10 million of net cash used in a businesscombination in 2016, and the purchase of fixed and intangible assets in 2017 related to the Tochka and the Rocketbank projects. 77Table of ContentsCash flows used in financing activitiesNet cash used in financing activities for the year ended December 31, 2018 was RUB 29 million, compared to RUB 2,160 million for the sameperiod in 2017. The decrease in net cash used in financing activities was primarily due to suspension of the dividends payments throughout the year.Net cash used in financing activities for the year ended December 31, 2017 was RUB 2,160 million, compared to RUB 4,637 million for the sameperiod in 2016. The decrease in net cash used in financing activities was primarily due to smaller amount of dividends distributed to shareholders in2017 compared to 2016.BorrowingsDuring the year ended December 31, 2018 the Group had available overdraft credit facilities with an overall credit limit of RUB 1,460 million,with maturity of up to June 2020, and interest rates of up to 30% per annum. The balance payable under these credit lines as of December 31, 2018 wasnil. Some of these agreements stipulated the right of a lender to increase the interest rate in case the covenants are violated. C.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 theyear ended December 31, 2018 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity orcapital resources, or that would cause the disclosed financial information to be not indicative of future operating results or financial conditions. E.Off-balance sheet arrangementsGuarantees issuedAs part of our operations we issue financial guaranties to non-related parties for a term of up to five years at market rate. The amount of guarantiesissued as of December 31, 2018 was RUB 1,260 million, up from RUB 74 million as of December 31, 2017. The growth of the amount of bankguarantees outstanding resulted from the development of our project focused on providing bank guarantees to different legal entities primarily smalland medium enterprises. F.Tabular disclosure of contractual obligationsThe following table sets forth our contractual obligations as of December 31, 2018: Total less thanone year one tothree years three tofive years morethan fiveyears (in RUB millions) Operating lease obligations 1,242 449 444 181 168 Unused limits on instalment card loans including credit limits not yet activated* 30,062 30,062 — — — Total contractual obligations 31,304 30,511 444 181 168 *The primary purpose of these instruments is to ensure that funds are available to customers as required. Commitments to extend credit representunused portions of both activated and not activated by the customers of instalment card loans. Commitments to extend credit are contingent uponcustomers firstly activating their credit limits and further maintaining specific credit standards. G.Safe harborSee “Special Note Regarding - Forward Looking Statements” on page 1 of this annual report. 78Table of ContentsITEM 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 55 Director, Chairman of the BoardSergey Solonin 45 Director, Chief Executive OfficerMarcus Rhodes 57 Independent DirectorRohinton Minoo Kalifa 57 Independent DirectorOsama Bedier 43 Independent DirectorNadiya Cherkasova 47 DirectorVeniamin Polyantsev 38 DirectorAndrey Protopopov 37 Head of IT and ProductAlexander Karavaev 43 Chief Financial OfficerBiographiesBoris 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 anentrepreneur with over 20 years of experience in the payment services industry. During his career, he held top roles in Russian banks. Mr. Kim is one ofthe co-founders of the e-port payment system and served as its chief executive officer from November 2004 until September 2007 and from September2007 until February 2010 was an advisor to the chief executive officer of e-port. From 2007 until 2012 Mr. Kim was the head of the payment networksand banking instruments committee at the Russian E-Market Participants National Association. From 2017 until 2018 Mr. Kim was an executivedirector at Association for Development of Financial Technologies. Mr. Kim graduated from Lomonosov Moscow State University in 1985 with adegree in chemistry, Russian Institute of Finance and Economics in 1996 with a degree in finance, Moscow State Law Academy in 2000 with a degreein law and Lomonosov Moscow State University in 2004 and in 2007 with a degree in psychology and a degree in philosophy respectively. He holds aCandidate of Sciences Degree in Chemistry (Lomonosov Moscow State University, 1989).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 an entrepreneur and has over 15 years of experience in the payment services and banking industries. He is one of the co-founders ofQIWI and held key executive roles within QIWI Group. Mr. Solonin is currently a member of the board of directors of Qiwi Bank and FLOCKTORYLTD and a General Director of QIWI JSC. He is also a co-director of the FinNet working group within the framework of the National TechnologyInitiative since September 2016, a General Director and a member of the Supervisory Board of Association for Development of Financial Technologiessince January 2017, a member of the board of directors of “AlfaStrakhovanie” PLC since June 2017, a member of the Investment Committee of VentureFund of Skolkovo — IT I since June 2017 and a member of the Expert Committee of Vnesheconombank since October 2017. Mr. Solonin graduatedfrom Distance-Learning Institute of Finance and Economics (now part of Financial University under the Government of the Russian Federation) in1996 with a degree in economics.Marcus Rhodes. Mr. Marcus Rhodes has served as our director since May 2013. He is also an independent director and chairman of the auditcommittee for PhosAgro (since May 2011) and for Rustranscom PLC (since September 2018). From May 2014 to May 2017 Mr. Rhodes was anindependent director and chairman of the audit committee for Zoltav Resources, from February 2009 to May 2016 an independent director andchairman of the audit committee for Cherkizovo Group, from September 2009 to June 2015 for Tethys Petroleum, from July 2008 to June 2011 forWimm-Bill-Dann Foods and from November 2009 to June 2011 for Rusagro Group. Mr. Rhodes was an audit partner for Ernst & Young from 2002until 2008. Prior to that, he was an audit partner for Arthur Andersen from 1998 until 2002. He qualified as a chartered accountant in 1986 and is amember of the Institute of Accountants in England & Wales (ICAEW). Mr. Rhodes graduated with a BA (Hons) from Loughborough University in 1982with a degree in economics and social history.Rohinton Minoo Kalifa. Mr. Ron Kalifa has served as our director since June 2014. He is Vice Chairman and Executive Director of Worldpaysince April 2013, having previously been CEO of the organization for over 10 years. Prior to this Mr. Kalifa held senior executive roles within theRoyal Bank of Scotland Group and NatWest. He also sits on the boards of Transport for London , England and Wales Cricket T20 Board and UKFinance. Mr. Kalifa was awarded an OBE in the Queen’s New Year 2018 Honours List for services to financial services and technology. Mr. Kalifastudied Executive Education at Harvard Business School.Osama Bedier. Mr. Osama Bedier has served as our director since June 2014. Mr. Bedier is the founder of Poynt Co. and serves as its chiefexecutive officer. Prior to setting up Poynt, he founded and led Wallet & Payments at Google for two and a half years starting January 2011. Prior toGoogle, Mr. Bedier spent 8 years running product development at PayPal starting from April 2003. He has also held engineering leadership roles sincethe introduction of the web at organizations such as eBay, Gateway Computers and AT&T wireless.Nadiya Cherkasova. Ms. Nadiya Cherkasova has served as our director since June 2018. During her career Ms. Nadiya Cherkasova held toppositions at Inkombank, KMB Bank, Trust Bank and VTB 24. Since January 2018 Ms. Nadiya Cherkasova is a member of the Management Board of“Bank Otkritie Financial Corporation” (Public Joint-Stock Company). Ms. Cherkasova earned a degree in economics from Nizhny Novgorod StateUniversity, followed by a degree from the International Moscow Finance and Banking School, as well as she held internships with South Shore Bank(USA), the EBRD (Austria) and the IIMD (Germany).Veniamin Polyantsev. Mr. Veniamin Polyantsev has served as our director since June 2018. Mr. Veniamin Polyantsev is a member of theManagement Board of “Bank Otkritie Financial Corporation” (Public Joint-Stock Company) since January 2018. Prior to this he held top positions atCitibank, Alfa Bank, Russian Standard Bank, KIT Finance Investment Bank, TransCreditBank and VTB 24. Mr. Veniamin Polyantsev graduated fromthe Russian State Humanitarian University in 2002 with a joint degree in engineering and in economics. 79Table of ContentsAndrey Protopopov. Mr. Andrey Protopopov has served as our head of IT and product since June 2015. before this he served as head of productmanagement from September 2013 to June 2015. Mr. Protopopov has over 12 years of commercial and product managing experience. Before joiningQIWI, Mr. Protopopov worked at Procter & Gamble for 12 years, holding numerous positions in market strategy and planning as well as businessdevelopment. Mr. Protopopov graduated from Novosibisrsk State University in 2004 with a masters degree in mathematics.Alexander Karavaev. Mr. Alexander Karavaev has served as our chief financial officer since July 2013. In February 2019, Mr. Karavaev notifiedthe Company that he would be leaving the Company on May 16, 2019 to accept a top management position at a privately held development company.Mr. Karavaev has 20 years of experience in finance and accounting. From August 2012 to July 2013, Mr. Karavaev served as our chief operatingofficer. Before joining us, from November 2008 until September 2011 Mr. Karavaev was a chief financial officer of Mail.ru. He also previously servedas a nominee director for Mail.ru on our board of directors. Previously, Mr. Karavaev was a chief financial officer of Akado Group (a subsidiary ofRenova Holding) between March 2008 and October 2008 and a deputy chief financial officer at Renova between May 2007 and October 2008. He wasalso vice president of development of financial systems at SUAL Holding from December 2003 until May 2007. Mr. Karavaev started his career at theaudit department of Arthur Andersen in July 1997 and after moving to Ernst & Young in May 2001 worked at the audit and business consultingdepartments until December 2003. Mr. Karavaev graduated with honors from Siberian Aerospace Academy in 1998 with a degree in economics,majoring in management and strategic planning. Concurrently, between September 1996 and October 1997, he attended the University Passau inGermany, studying strategic planning. 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 ourshareholders, our board of directors determines the compensation of our chief executive officer (which power has been delegated to the compensationcommittee). The compensation of our other executive officers is determined by our chief executive officer while our board of directors approvescorporate key performance indicators (“cKPI”) and total bonus pool for those executive officers. In case of underperformance of KPIs, a right to make afinal decision on bonus pool distribution is left to the Board.For the year ended December 31, 2018, the aggregate remuneration paid (comprising salary, discretionary bonuses, share-based payments andother short-term benefits) to our directors and executive officers was RUB 161 million. No amounts in respect of pensions, retirement or similar benefitshave been accrued in any of the periods presented in this annual report. None of our non-executive directors and independent director appointees has aservice contract with us that provides for benefits upon termination of office.Our key management as well as certain other senior managers participate in a bonus program of the Company that is subject to performance ofcorporate KPIs that are approved by the Board of Directors. The cKPIs for 2018 include payment services segment net revenue, payment servicessegment expenses / payment services segment net revenue, payment services segment payment volume and assistance to CFS segment and otherstrategic projects (assessed by CEO). The cKPIs for 2019 vary depending on the reporting segment and may include for each manager of the respectivesegment: payment volume, net revenue, selling, general and administrative expenses / net revenue, achievement of target business unit economicsparameters (for Consumer Financial Services segment only) for the relevant reporting segment or the Group level. Each manager has at least three KPIswith an equal split of weigh between cKPIs. Bonus shall be allocated on an annual basis subject to performance of the cKPIs according to the formulaapproved by the Board of Directors. Bonus allocation shall take place upon approval of the annual consolidated financial statements of the Companyby the Board of Directors.2012 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, anequity-based incentive compensation plan intended to help align the interests of our management and others with those of our shareholders. Certainamendments were introduced to the 2012 Plan in 2013 and 2015 and 2017. Under the 2012 Plan, we may grant options to purchase our class B sharesto employees and service providers in connection with their provision of services to us or our subsidiaries. A maximum of 3,640,000 of our class Bshares, or 7% of our entire issued and outstanding share capital as of the date immediately preceding our initial public offering, are reserved forissuance under the 2012 Plan, subject to equitable adjustment in the event 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 suchdate in accordance with their terms.Administration. Our board of directors administers 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 awards under the 2012 Plan.Our board of directors also has the authority to make all necessary or appropriate interpretations of 2012 Plan terms. The participants of the 2012 Planare also selected by our Board.Option Terms Generally. Options granted under the 2012 Plan permit the holder of the option to purchase our class B shares once such optionsare vested and exercisable, at a purchase price per share determined by our board of directors and specified in the option grant. Grants of options underthe 2012 Plan following the initial public offering have a purchase price per share not less than the average closing price of our class B shares on theprincipal exchange, on which such shares are then traded for the ten business days immediately preceding the date of grant. Options granted under the2012 Plan cannot be sold, pledged or disposed of in any manner without our prior written consent. 80Table of ContentsOther Information. Shares subject to options which are cancelled or forfeited without being exercised will be returned to the 2012 Plan and willbe available for subsequent option grants under the 2012 Plan. Any material amendment to the 2012 Plan (such as the addition of more class B sharesto the pool of shares available under the 2012 Plan) or the adoption of a new equity compensation plan is subject to approval in compliance withapplicable Cypriot law.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. Underthe 2015 Plan, we may grant the restricted stock units (“RSUs”) to employees, officers and contractors with their provision of services to us or oursubsidiaries. A maximum of shares equal to 7 percent of the aggregate number of class A and class B shares issued and outstanding from time to timeare reserved for issuance under the 2015 Plan, subject to equitable adjustment in the event of certain corporate transactions, such as a stock split orrecapitalization. The 2015 Plan is scheduled to expire on December 31, 2022.Administration. Our board of directors administers the 2015 Plan, including determining the vesting schedule, term of the award and making allnecessary or appropriate interpretations of the terms of the 2015 Plan. The participants of the 2015 Plan are selected by our chief executive officer andthe list of top-30 participants of each grant shall be approved by our board. Our chief executive officer and members of the board are eligible to receivethe RSUs subject to the approval by the relevant corporate body of the Company.Terms and Conditions Generally. The recipients of the RSUs have no dividend, voting, or any other rights as a stockholder of the Company.Upon vesting of the RSUs, the participants will receive class B shares free of all restrictions. RSUs that have not become vested as of the date oftermination of the participant’s employment or service shall be forfeited upon such termination. Except for transfers resulting from the laws of descentand distribution, no RSUs granted under the 2015 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 offurther awards under the 2015 Plan. Any material amendment to the 2015 Plan (such as the addition of more class B shares to the pool of sharesavailable under the 2015 Plan) or the adoption of a new equity compensation plan is subject to approval in compliance with applicable Cypriot law.2017 Employee Stock Option PlanIn December 2017, our shareholders approved an Employee Stock Option Plan, or the 2017 Plan, an equity-based incentive compensation planintended to help align the interests of our management and others with those of our shareholders. Under the 2017 Plan, we were entitled to grantoptions to purchase our class B shares to employees and service providers in connection with their provision of services to us or our subsidiaries. Amaximum of shares equal to 10 percent of the aggregate number of class A and class B shares issued and outstanding from time to time were reservedfor issuance under the 2017 Plan, subject to equitable adjustment in the event of certain corporate transactions, such as a stock split or recapitalization.On March 14, 2019 the 2017 Plan was terminated by the board of directors with immediate effect.QIWI Employees TrustIn April 2018, QIWI plc established QIWI Employees Trust. Our class B shares reserved for the existing long-term incentive plans were issued andallotted to that trust. QIWI Employees Trust holds those shares in favor of the participants of the long-term incentive plans and is eligible to transferthem to such participants at their request subject to the vesting schedule.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 25,2019: Optionplan Grant Date Number ofClass B SharesUnderlyingVestedOptions (#)Exercisable Number ofClass B SharesUnderlyingUnvestedOptions (#)Unexercisable OptionExercisePrice ($) Option ExpirationDate Alexander Karavaev RSU Plan August 12, 2016 6,166 — n/a December 31, 2022 RSU Plan November 9, 2017 5,000 5,000 n/a December 31, 2022 RSU Plan August 14, 2018 5,967 11,933 n/a December 31, 2022 Andrey Protopopov ESOP November 15, 2013 51,000 — 41.2380 December 31, 2020 RSU Plan November 9, 2017 — 5,266 n/a December 31, 2022 RSU Plan August 14, 2018 — 13,067 n/a December 31, 2022 81Table of ContentsC.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 theshareholders (subject to certain exemptions), including not less than three directors who shall be independent directors (see also “Description of ShareCapital—Board of Directors”). The primary responsibility of our board of directors is to oversee the operations of our company, and to supervise thepolicies of senior management and the affairs of our company. The term for the directors serving on our board of directors at the time of the annualreport will expire at the annual general meeting of shareholders to be held in 2018. Our directors shall be elected at each subsequent annual generalmeeting of shareholders. Our articles of association provide that we 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 thisannual report, cannot be deemed to be an independent director, and each other director will qualify as independent only if our board of directorsaffirmatively determines that the director has no material relationship with us, either directly or as a partner, shareholder or officer of an organizationthat has a relationship with us. Ownership of a significant amount of our shares, by itself, does not constitute a material relationship. Our articles ofassociation provide that any elected director may be qualified as an independent director if such director meets certain criteria under the NasdaqListing Rules. Accordingly, our board of directors has affirmatively determined that Mr. Marcus Rhodes, Mr. Ron Kalifa and Mr. Osama Bedier areeach 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 strategycommittee. We have adopted a charter for each of these committees. Each committee’s members and functions are as follows.Audit Committee. Our audit committee consists of Messrs. Bedier, Kalifa and Rhodes. Mr. Rhodes is the chairman of the audit committee and ourboard of directors has determined that Mr. Rhodes qualifies as an “audit committee financial expert,” as defined under Nasdaq Listing Rules and therules and regulations of the Exchange Act. Messrs. Bedier, Kalifa and Rhodes are each an independent director in accordance with the Nasdaq ListingRules.The purpose of the audit committee is to assist our board of directors with its oversight responsibilities regarding: (a) the integrity of our financialstatements, (b) our compliance with legal and regulatory requirements, (c) the independent auditor’s qualifications, independence and performance and(d) the performance of our internal audit function and independent auditor.Our 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 beperformed by the independent registered public accounting firm; • reviewing with our 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 controldeficiencies; and • meeting separately and periodically with management and our independent registered public accounting firm.Compensation Committee. Our compensation committee consists of Messrs. Bedier, Cherkasova and Kalifa. Mr. Kalifa is the chairman of thecompensation committee. Messrs. Bedier and Kalifa are independent directors in accordance with the Nasdaq Listing Rules, whereas Ms. NadiyaCherkasova is a non-independent director. We follow Cyprus law which does not require companies to have a compensation committee made upentirely of independent directors. None of the members of our compensation committee is an officer or employee of our company.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, Kalifa and Polyantsev. Mr. Bedier is the chairman of the strategycommittee. Our strategy committee has a key role in defining our strategic goals and objectives, advises our board of directors on the implementationof our strategic goals and objectives and oversees their implementation. 82Table of ContentsCode 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 andBusiness Conduct is intended to promote honest and ethical conduct, full and accurate reporting, and compliance with laws as well as other matters. Acopy of the Code of Ethics and Business Conduct is available on our website: https://investor.qiwi.com/corporate-governance/documents.Directors’ DutiesUnder Cyprus law, our directors owe fiduciary duties both under common law and statute, including a statutory duty and common law duty to acthonestly, in good faith and in what the director believes are the best interests of the company. When exercising powers or performing duties as adirector, the director is required to exercise the care, diligence and skill that a responsible director would exercise in the same circumstances taking intoaccount, without limitation, the nature of the company, the nature of the decision and the position of the director and the nature of the responsibilitiesundertaken by him. The directors are required to exercise their powers for a proper purpose and must not act or agree to the company acting in a mannerthat contravenes our articles of association or Cyprus law.Employment AgreementsWe have entered into employment agreements with each of our executive officers. Each of these contains standard terms and conditions incompliance with Russian labor law. The terms of these employment agreements include, among other things, duration, remuneration, the treatment ofconfidential 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 laborlaw if, among other things, one of our executive officers commits serious breach of duties, is guilty of any gross misconduct in connection with thehandling of money or valuables, or takes an erroneous decision that leads to the improper use of, or causes damage to, our property. In addition,Russian labor law and employment agreements of some of our executive officers contain certain additional provisions whereby we may terminate theiremployment agreements if such officers are dismissed 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 executiveofficer also agrees to comply with all material applicable laws and regulations related to his or her responsibilities at our company as well as allmaterial corporate and business policies and procedures of our company.Limitation 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 anylosses or liabilities which they may sustain or incur in or about the execution of their duties including liability incurred in defending any proceedings,whether civil or criminal, 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 uspursuant to the foregoing provisions, in the opinion of the U.S. Securities and Exchange Commission such indemnification is against public policy asexpressed in the Securities 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. Theeconomic interests through these holdings may give rise to a conflict of interest between their duties owed to us and their private interests. Forexample, it could cause them to pursue short-term gains in respect of those private interests instead of acting in our best interest. Other than thepotential conflicts of interest described in the footnotes to the table in “Principal and Selling Shareholders”, we are not aware of any other potentialconflicts of interest between any duties owed by members of our board of directors or our executive officers to us and their private interests and/or otherduties.Under our articles of association and Cyprus Law, a director who is in any way, directly or indirectly, interested in a contract or proposed contractwith us must 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 anycontract or arrangement 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 countedfor purposes of determining 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 forinvestments or business, and each of them has a range of business relationships outside the context of their relationship with us that could influencetheir decisions in the future. D.Employees.See Item 4.B “Business overview—Employees.” 83Table of ContentsE.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 executiveofficers.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 25, 2019, 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 beneficiallyowned by a person 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 exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included inthe computation of the percentage ownership of any other person.The calculations in the table below are based on 13,833,419 class A shares and 48,879,556 class B shares outstanding as of March 25, 2019,which comprise our entire issued and outstanding share capital as of that date. Class A ordinary shares have ten votes per share, and Class B shares haveone vote per share.Currently, none of our ordinary shares are held by U.S. holders. Total Class AShares TotalClass BShares Total %of IssuedClass AShares Total %of IssuedClass BShares Total % ofVotesat a GeneralMeeting Directors and Executive Officers: Sergey Solonin (8) 11,756,822 350,000 85.0 * 64.6 Boris Kim 1,218,894 92,543 8.8 * 6.6 Marcus Rhodes — 500 — * — Osama Bedier — — — — — Rohinton Minoo Kalifa — — — — — Nadiya Cherkasova — — — — — Veniamin Polyantsev — — — — — Andrey Protopopov (1)(3) — 69,333 — * * Alexander Karavaev (2)(3) — 34,066 — * * All directors and executive officers as a group Principal Shareholders: Sergey Solonin (8) 11,756,822 350,000 85.0 * 64.6 Boris Kim 1,218,894 92,543 8.8 * 6.6 Mitsui & Co., Ltd. (4) 857,701 857,702 6.2 1.8 5.0 Public Joint-Stock Company «Bank Otkritie Financial Corporation» (5) — 21,426,733 — 43.8 11.4 Melqart Asset Management (UK) Ltd.(6) 3,650,038 — 7.5 1.9 Platinum Investment Management Limited (7) 2,113,485 — 4.5 1.1 *Represents less than 1%.(1)Reflects options to purchase 51,000 class B shares that have already vested and the right to receive 18,333 class B shares that are currentlyunvested.(2)Including the right to receive 17,133 class B shares that are currently vested, but not exercised and 16,933 class B shares that are currentlyunvested. 84Table of Contents(3)Calculated as percentage of the issued share capital assuming the exercise of all vested options and restricted stock units held by the participants.(4)Mitsui & Co., Ltd. is a widely-held public corporation the shares of which are traded on the Tokyo, Nagoya, Sapporo, and Fukuoka stockexchanges. The address of such entity is 1-3, Marunouchi 1-Chome, Chiyoda-ku, Tokyo, 100-8631, Japan.(5)Based solely on the Schedule 13-D filed by Public Joint-Stock Company «Bank Otkritie Financial Corporation» with the Securities andExchange Commission on June 8, 2018.(6)Based solely on the Schedule 13-G filed by Melqart Asset Management (UK) Ltd. with the Securities and Exchange Commission on February 14,2019.(7)Based solely on the Schedule 13-G filed by Platinum Investment Management Limited with the Securities and Exchange Commission onFebruary 19, 2019.(8)Based solely on the Schedule 13-D filed by Sergey Solonin with the Securities and Exchange Commission on October 11, 2018. B.Related Party Transactions.Bank Accounts and DepositsQiwi Bank maintains accounts and deposits of various affiliates of our directors, executive officers and shareholders in the ordinary course of itsbusiness amounting to RUB 172 million as of December 31, 2018 (including accounts of Otkritie Bank of RUB 120 million). We believe that all of theagreements pertaining to such accounts and deposits are entered into on arm’s length terms and do not deviate in any material aspect from the termsthat we would use in similar contracts with non-related parties.Agreements with Bank OtkritiePursuant to our diversified business relations with one of our significant shareholders Bank Otkritie we have entered into a number of agreementswith Bank Otkritie including, but not limited to:Acquisition of Tochka AssetsOn August 18, 2017, QIWI, as purchaser, entered into an agreement on sale and purchase of the software of Tochka with Bank Otkritie, as seller.The purchase price for the software amounted to RUB 88 million. The transaction closed on October 20, 2017. The agreement included customaryrepresentations, warranties and covenants for a transaction of this type.On August 18, 2017, QIWI, as purchaser, entered into an agreement on sale and purchase of the trademarks “Tochka” with Bank Otkritie, asseller. The purchase price for the trademarks amounted to RUB 235 million. The agreement included customary representations, warranties andcovenants for a transaction of this type. The transaction has never been closed. On September 11, 2018, QIWI and Bank Otkritie entered intotermination agreement in respect of the above transaction. Bank Otkritie has issued promissory notes to QIWI for the amount of the purchase price. Thetrademark “Tochka” remains with Bank Otkritie and will be transferred to JSC Tochka in exchange for the aforementioned promissory notes.Information Technology Services AgreementsOn August 22, 2017, QIWI Bank entered into an information technology services agreement with Bank Otkritie providing for information andtechnology services rendered by Qiwi Bank to Bank Otkritie in connection with the cash and settlement services provided by Bank Otkritie to Tochkaclients holding their accounts therein. The agreement was terminated with effect on February 1, 2019. Total amount of consideration received by QIWIBank for the services rendered under that information technology services agreement was RUB 1,859 million.On February 1, 2019 QIWI Bank entered into the new information technology services agreement with JSC Tochka providing for informationand technology services rendered by JSC Tochka to QIWI Bank in connection with cash and settlement services provided by Qiwi Bank to Tochkaclients holding their accounts therein. The consideration to be received by JSC Tochka for the services rendered to QIWI Bank will be calculatedmonthly based on operational performance of the Tochka branch of Qiwi Bank. Otkritie Bank has entered into a similar contract with JSC Tochka. 85Table of ContentsCooperation AgreementOn June 7, 2018, the Company, QIWI Bank, Bank Otkritie and Catalytic People Ltd., representing the management team of Tochka, entered intoa cooperation agreement providing for the establishment of JSC Tochka and the transfer of assets attributable to the operations of the Tochka businessto JSC Tochka, in order to develop the Tochka multi-bank platform and operate the Tochka business. Pursuant to the cooperation agreement, QIWIholds 40% in the share capital of JSC Tochka, Bank Otkritie holds 50%+1 in the share capital of JSC Tochka and Catalytic People Ltd. holds 10%-1share in the share capital of JSC Tochka. At the same time, QIWI and Bank Otkritie received 45% of economic interest (both in dividend and in capitalgain) and 50% in investment to be made into JSC Tochka. The parties agreed to contribute and/or transfer all of the assets held by each of them,including Tochka software, trademark, website, certain specified indebtedness and cash investments required to develop the multi-bank platform toJSC Tochka. The Parties have also agreed to enter into a shareholders agreement on the terms and conditions as were attached to the cooperationagreement.Shareholders AgreementOn August 8, 2018 QIWI, Bank Otkritie and Catalytic People Ltd. entered into a shareholders agreement in respect of JSC Tochka providing forrules on supervisory board composition, shareholders’ and supervisory board reserved matters list, deadlock resolution procedure as well as terms andconditions of a call option provided to Bank Otkritie and put options provided to QIWI and Catalytic People Ltd. Pursuant to the shareholdersagreement, Bank Otkritie has three seats in the supervisory board of JSC Tochka and each of QIWI and Catalytic People Ltd. have one seat in thesupervisory board of JSC Tochka. The majority of the key matters, such as decisions on strategy, business plan, budget, dividend distributions, andappointment of the general director of JSC Tochka require a unanimous vote of either all members of the supervisory board or the shareholders. In theinstance of a deadlock (i) Bank Otkritie may exercise a call option to acquire the respective JSC Tochka shares of QIWI and/or Catalytic People Ltd.and (ii) QIWI and/or Catalytic People Ltd. may exercise a put option to sell their respective JSC Tochka shares to Bank Otkritie. The price of the calloption or a put option will be determined by the independent appraisal by one of the “Big4” accounting firms. The agreement also includes lock upprovision for shareholders of JSC Tochka valid until August 8, 2021. Customary right of first refusal, drag along right and tag along right are alsoprovided under the shareholders agreement. In addition, the agreement includes a customary change of control clause in the event of a change ofcontrol of QIWI and Catalytic People Ltd.Rocketbank AcquisitionOn August 18, 2017, QIWI, as purchaser, entered into agreements for sale and purchase of the software and intellectual property to acquire the“Rocketbank” brand with Bank Otkritie, as seller. The total purchase price for the software and intellectual property amounted to RUB 250 million.The transaction in respect of the “Rocketbank” brand closed on December 7, 2017 and in respect of the Rocketbank software on September 20, 2018.The agreement included customary representations, warranties and covenants for a transaction of this type.Rocketbank Loyalty ProgramOn July 25, 2017, QIWI Bank and Bank Otkritie entered into an assignment agreement in respect of the Rocketbank loyalty program for thepurpose of transferring Rocketbank loyalty program to Bank Qiwi. Under this program, Qiwi Bank (and prior to that Bank Otkritie) issues bonuses inthe form of rocketrubles to clients of Rocketbank. Rocketbank clients can further subject to certain conditions exchange those bonuses to Russianrubles at the exchange rate set by Qiwi Bank as the operator of the loyalty program. On July 25, 2018 Bank Otkritie assigned the indebtedness underRocketbank loyalty program in the amount of RUB 519 million to QIWI Bank for a consideration of RUB 367 million to be paid to QIWI Bank ininstalments.Although the cooperation between QIWI and Bank Otkritie in respect of Tochka multi-bank platform and potentially other projects in paymentor financial services is significant to our business results and operations, each of the aforementioned agreements is individually immaterial. Foradditional information on these agreements and our relationship with Bank Otkritie, please see Part III, Item 18. Financial Statement, Note 6.Employment Agreements and Share OptionsSee “Management – Employment Agreements” and “Management – Employee Stock Option Plan.” C.Interests of Experts and Counsel.Not applicable. ITEM 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 notbeen in the recent past, subject to any legal, arbitration or government proceedings (including proceedings pending or threatened) that we believe willhave a material impact on our business, financial condition and results of operations. 86Table of ContentsDividend PolicyIn the medium to long term, we aim to distribute all excess cash to our shareholders in the form of dividends.Management has determined to provide increased transparency and visibility of our dividend distribution practices for the benefit of itsshareholders. As a result, we aim to provide dividend guidance specifying a target dividend payout ratio range for the next financial year, which will bereviewed and adjusted on an annual basis. We aim to announce this dividend payout ratio range each year together with the annual guidance for theperiod covering next four quarters.For the year ending December 31, 2019, we aim to distribute between 65% to 85% of our annual adjusted net profit. The board of directorsreserves the right to distribute dividends on a quarterly basis, and individual quarterly payouts may fall outside of the above-mentioned dividendpayout ratio range.This statement is a general declaration of intention and the actual declaration of dividends will require corporate action at the relevant time bythe board of directors or by the general meeting of the Company’s shareholders, as the case may be, and will depend on the precise circumstancesprevailing at that time, including the present or future business needs of the Company. Shareholders and potential investors should not treat thisstatement 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 makedistributions if the distribution would reduce our shareholders’ equity below the sum of the issued share capital, including any share premium, and thereserves.As a holding company, the level of our income and our ability to pay dividends depends primarily upon the receipt of dividends and otherdistributions from our subsidiaries. The payment of dividends by our subsidiaries is contingent upon the sufficiency of their earnings, cash flows,regulatory capital requirements, and distributable profits. B.Significant ChangesExcept as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidatedfinancial statements 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 MOEXsince May 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 no public market for our ADSs or our ordinary shares. 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. 87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. The objects for which we are established are to assist incarrying on the business of a variety of entities, both public and private, with no restriction as to type, industry, legal form, or services provided. Weaim to engage and train professional, technical, and other staff, retain such staff internally for the benefit of our Company, or allocate the aforesaidpersonnel or their services to those requiring such services and assistance. We are empowered to purchase or otherwise acquire all or any part or interestin the business and liabilities of other entities that we determine will be of benefit to us and our shareholders. We are additionally authorized to borrow,raise money or secure obligations in on such terms as we see fit, to issue any type of securities, both secured or unsecured (and upon such terms aspriority or otherwise), and to invest moneys not immediately required, other than towards our shares. We may enter into any arrangement for workingjointly with any other company, partnership or person, provided the joint work is in furtherance of our business or our interests and generally do allsuch other things as may appear to be incidental or conductive to the attainment of our objects.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 classB shares, each of which carries one vote at shareholders’ general meetings.Convening Shareholders’ MeetingsAn annual general meeting must be held not more than 15 months after the prior annual general meeting, and at least one annual general meetingmust be held in each calendar year.Our board of directors, at its discretion, may convene an extraordinary general meeting. Extraordinary general meetings must also be convenedby the board of directors at the request of shareholders holding in aggregate at the date of the deposit of the requisition either (a) not less than 10% ofour outstanding share capital 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 sowithin 21 days from the date of the deposit of the requisition notice, such requisitioning shareholders, or any of them representing more than one halfof the total voting rights of all of them, may themselves convene an extraordinary general meeting, but any meeting so convened may not be held afterthe expiration of 3 months from the date that is 21 days from 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 requiresa special resolution, which means a resolution passed by a majority of not less than 75% of the voting rights attached to our issued shares present andvoting at a duly convened and quorate general meeting, must be called with no less than 45 days’ written notice or such longer notice as is required bythe Companies Law (not counting the day in which it was served or deemed to be served and the date for which it is given). Other shareholders’ generalmeetings must be called with 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 entitledto receive notice of attend and vote at such General Meeting, which is fixed by the Board and is not more than 60 days and not less than 45 days priorto an Annual General Meeting, or a General Meeting called for the passing of a Special Resolution, or for the election of Directors, and not more than45 days and not less than 30 days prior to any other General Meeting. A notice convening a shareholders’ general meeting must be sent to each of theshareholders, provided that the accidental failure to give notice of a meeting to, or the non-receipt of notice of a meeting by, any person entitled toreceive notice will invalidate the proceedings at that meeting to which such notice refers in the event that a shareholder holding not less than 5% ofour outstanding share capital is not in attendance 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 ashareholders’ general meeting will consist of shareholders representing 50.01% of the voting rights attached to our issued shares, whether present inperson 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 anyparticular general meeting duly convened and quorate, unless our articles of association and the Companies Law specify differently. It is within thepowers of the shareholders to have a resolution executed in writing by all shareholders and in such event no meeting needs to take place or notice to begiven.Reserved MattersOur articles of association provide for special majorities for resolutions concerning, among other things, the following matters (for so long asclass A shares are in issue and outstanding): (i) any variance to the rights attached to any class of shares requires approval of the holders of 75% of theshares of the affected class, passed at a separate meeting of the holders of the shares of the relevant class, as well as a special 88Table of Contentsresolution of the general meeting; and (ii) approval of the total number of shares and classes of shares to be reserved for issuance under any of our orour subsidiaries’ employee stock option plan or any other equity-based incentive compensation program requires approval of a majority of not lessthan 75% of the voting rights attached to all issued shares present and voting at a duly convened and quorate general meeting.Board 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 foreignprivate issuer, we have elected to follow Cyprus corporate governance practices, which, unlike the applicable Nasdaq requirements for domesticissuers, do not require the majority 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 be two separate sets of voting procedures, one with respect to the non-independent directors and one with respect to the independentdirectors; (ii) at each such procedure the shareholders shall have the number of votes provided by the articles of association for the election ofnon-independent directors and independent directors respectively and (iii) the voting procedure in respect of the minimum number of independentdirectors, 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 ourboard of directors not less than 30 days prior to any general meeting at which the non-independent directors are scheduled to be appointed. The boardshall screen all submitted nominations for compliance with the provisions of our articles of association following which it shall compile and circulate afinal slate of nominees to be voted on at the general meeting to all the shareholders entitled to attend and vote at the relevant general meeting at least15 days prior to the scheduled date thereof.Except as set out below, the non-independent directors are appointed by shareholder weighted voting, under which each shareholder has theright to cast among one or more nominees as many votes as the voting rights attached to its shares multiplied by a number equal to the number ofnon-independent directors to be appointed. Non-independent directors are appointed as follows: (1) the term of office of the non-independent directorsshall be for a period from the date of the annual general meeting at which they were elected until the following annual general meeting; (2) all thenon-independent directors shall retire from office at each annual general meeting; (3) all retiring non-independent directors shall be eligible forre-election; and (4) the vacated position may be filled at the meeting at which the non-independent directors retire by electing another individualnominated to the office of non-independent director by any of the board, any shareholder or group of shareholders by serving a notice at least 30 daysprior to such general meeting, and in default the retiring non-independent director shall, if offering himself for re-election and if he has been sonominated by the board, be deemed to have been re-elected, unless at such meeting it is expressly resolved not to fill such vacated position or unless aresolution 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 byshareholder weighted 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 each independent director shall be for a period from the date of the annual meeting at which such independent director has beenduly elected and qualified until the following annual general meeting; (2) all the independent directors shall retire from office at each annual generalmeeting; (3) all retiring independent directors shall be eligible for re-election; and (4) the vacated position may be filled at the meeting at which theindependent directors retire by electing another individual nominated by any of the board, a shareholder or a group of shareholders by serving a noticeat least 30 days prior to such general meeting, and in default the retiring independent director shall, if offering himself for re-election and if he has beenso 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 or unlessa 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-independentdirectors for compliance with independence criteria within the meaning of the Nasdaq Listing Rules. In case the board determines that anynon-independent director meets the criteria, 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 votingrights attached to our issued shares in relation to exercise by the board of directors of its right to appoint a director to fill a vacancy on the board, theboard will remain in office only to summon a general meeting for purposes of (1) terminating the entire board pursuant to a request of the requestingshareholders and (2) appointing new non-independent directors, and new independent directors. If, for any reason, the number of directors falls belowthe number fixed by the articles of association as the necessary quorum for board meetings and the vacant positions are not filled as per the aboveprocedure within 21 days, the remaining directors may remain in office only to convene a general meeting, at which all directors must retire and newdirectors will be appointed 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 oneindependent director is received (for so long as class A shares are in issue and are outstanding). 89Table of ContentsRemoval of DirectorsUnder Cyprus law, notwithstanding any provision in our articles of association, a director may be removed by an ordinary resolution of thegeneral shareholders’ meeting. Such general shareholders’ meeting must be convened with at least 30 days’ notice. The office of any of the directorsshall be vacated if, among other things, the director (a) becomes bankrupt or makes any arrangement or composition with his or her creditors generally;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 ofdirectors exercises 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 ourarticles of association, a shareholder or a group of shareholders holding at least 10.01% of the voting rights attached to our issued shares may terminatethe appointment of the entire board of directors. See also “—Appointment of Directors.”Powers 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 thefollowing: (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 astransactions involving sale or disposition of any interest in any group company (other than QIWI plc) or all or substantially all of the assetsof 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 anyoperation over certain thresholds as set out in our articles of association; (d)any merger, consolidation, amalgamation, conversion, reorganization, scheme of arrangement, dissolution or liquidation involving anygroup company (other than QIWI plc); (e)entry into (whether by renewal or otherwise) any agreement or transaction with a related party except for: (1) transactions in the ordinarycourse of business (as defined in our articles of association) on an arm’s length basis, (2) intra-group transactions, (3) transactions at a priceless than U.S.$50,000 (if the price can be determined at the 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 generalmeeting approving 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 Ashares are issued and outstanding, the quorum necessary for a meeting of our board of directors to be validly convened is a simple majority of the totalnumber 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 ahigher majority and/or affirmative vote of any independent directors is required on a particular matter. The chairman does not have a second or castingvote in case of a tie. A resolution consented to in writing, signed or approved by all directors will be as valid as if it had been passed at a meeting of ourboard of directors or a committee when signed by all 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 herinterest at the meeting of the board of directors and shall not vote on such contract or arrangement, nor shall he be counted in the quorum present at themeeting.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 chargeand responsible 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 ofdirectors thinks fit, and, subject to the terms of any agreement entered into in any particular case, his appointment may be terminated by our board ofdirectors at any time as provided in our articles of association. The term of appointment for our chief executive officer shall be for a period from thedate of his appointment until the first meeting 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 ourshareholders; 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 areat the disposal of our board of directors, which may allot or otherwise dispose of any unissued shares as it may decide. All new shares and/or othersecurities giving right to the purchase of our shares or which are convertible into our shares must be offered before their 90Table of Contentsissue to our shareholders on a pro rata basis. If the new securities are of the same class as existing shares, the offer must first be made on a pro rata basisto the shareholders of the relevant class and, if any such new securities are not taken up by those shareholders, an offer to purchase the excess will bemade to all other shareholders on a pro rata basis (provided that such pre-emption rights have not been removed). On May 8, 2018 the disapplication ofpre-emptive rights in connection with the issues of up to an additional 52,000,000 class B shares, including in the form of ADSs, previously authorizedby our shareholders, has expired and since then any issuance and allotment of class B shares by the Company for cash consideration is subject topre-emptive rights.Conversion. At the irrevocable request of any class A shareholder, all or part of the class A shares held by such shareholder will convert into classB 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 paripassu in all respects with 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 classA shares which are transferred by a holder, except in circumstances permitted under our articles of association, shall, immediately upon such transfer, beautomatically converted into class B shares; (2) all class A shares held by a shareholder will be automatically converted into class B shares on theoccurrence of a change of control (as defined in our articles of association) of that class A shareholder; and (3) all class A shares will be automaticallyconverted into class B shares in the event that the aggregate number of class A shares constitute less than 10% of the aggregate number of class A andclass 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 ormore of the transferor’s directly or indirectly controlled affiliates (as defined in our articles of association); (2) 10% or more of the total number of classA shares in issue are transferred as a single transaction or a series of related transactions by a shareholder or a group of shareholders; (3) the transfer is toone or more 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 Ashareholder at the time of Listing. In the case of (2) above the transfer of A shares is permitted if: (a) it is approved in writing by the shareholdersholding in aggregate at least 75% of the total number of class A shares in issue; or (b) the shareholder (or a group of shareholders) transferring class Ashares has (or have) offered such shares to the other then existing shareholders holding class A shares in accordance with the procedure set out in thearticles 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 nodividend will be paid 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. Theboard of directors may also, without establishing a reserve, carry forward to the next year any profits it may think prudent not to distribute as adividend. The class A shares and the class B shares have the right to an equal share in any dividend or other distribution we pay. Please see “DividendPolicy” 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 in specie or kind all or part of our assets among the shareholders; and (ii) vest the whole or any part of such assets in trustees for the benefit ofthe contributories as the liquidator shall think fit, but so that no shareholder is compelled to accept any shares or other securities with any attachedliability.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 thetransferor will 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 outabove and in our articles of association, shareholders are entitled to transfer all or any of their shares by instrument of transfer in writing in any usual orcommon 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 thecompany, except that 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 sharesor depositary receipts of a Cypriot company even if such an acquisition confers on such person control over us if neither the shares nor depositaryreceipts are listed on a regulated market in the European Economic Area (EEA). Neither our shares nor depositary receipts are listed on a regulatedmarket 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 atakeover bid for all 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 theshares concerned, the offeror can upon the same terms acquire the shares of shareholders who have not accepted the offer, unless such persons canpersuade the Cypriot courts not to permit the acquisition. If the offeror company already holds more than 10%, in value of the shares concerned,additional requirements need to be met before the minority can be squeezed out. If the company making the takeover bid acquires sufficient shares toaggregate, together with those which it already holds, more than 90%, then, within one month of the date the bidder holds more than 90%, it must givenotice of the fact to the remaining shareholders and such shareholders may, within three months of receiving such notice, require the offeror companyto acquire their shares and the offeror company shall be bound to do so upon the same terms on which the shares were acquired or on such other termsas may be agreed between them or upon such terms as the court may order. 91Table of ContentsC.Material Contracts.None. 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 basedupon laws, regulations, decrees, rulings, income tax conventions (treaties), administrative practice and judicial decisions in effect at the date of thisannual report. Legislative, judicial or administrative changes or interpretations may, however, be forthcoming that could alter or modify the statementsand conclusions set forth herein. Any such 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 legal opinion or to address all tax aspects that may be relevant to a holder of the ADSs. Each prospective holderis urged to consult its own tax adviser as to the particular tax consequences to such holder of the ownership and disposition of the ADSs, including theapplicability and effect of any other tax laws or tax treaties, of pending 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 ConsiderationsCyprus Tax residency of a companyIn 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 no definition in the Cyprus Income Tax Law as to what constitutes management and control however it is understood that the concept of“central management and control” followed by the Cyprus tax authorities is in line with such concepts applied in other common law countries and as ithas developed through case law. The concept refers to the highest level at which the business of the company is controlled and the policy decisions ofthe directors are taken. This place is usually where the shareholders and/or the board of directors meet and take key management and commercialdecisions.In 2016 the Cyprus tax authorities have issued a questionnaire for tax residency certificate indicating information that needs to be provided by acompany when obtaining Cyprus tax residency certificate, including the following questions: (i) whether the company is incorporated in Cyprus and isa tax resident only in Cyprus; (ii) whether the majority of the Board of Directors meetings take place in Cyprus; (iii) whether the Board of Directorsexercise control management and make key management and commercial decisions necessary for a company’s operations and general policies;(iv) whether Board of Directors’ minutes are prepared and kept in Cyprus; (v) whether the majority of the Board of Directors are Cyprus tax residents;(vi) whether shareholders’ meetings take place in Cyprus; (vii) whether the company issued any General Power of Attorney; etc. Depending on theanswers to the above questionnaire the Cyprus tax authorities may or may not issue 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 our board ofdirectors is comprised of non-Cyprus tax residents and a number of other factors which may be treated as not fully in line with the abovementionedrequirements, our tax residency in Cyprus may be challenged.Moreover, we may be deemed to be a tax resident outside of Cyprus, for further details see risk factor Item 3.D “Risk Factors – Risks Related toTaxation – We may be deemed to be a tax resident outside of Cyprus.”Cyprus Tax residency of an individualWith respect to the individual holders of our ADSs, such holder may be considered to be a tax resident in Cyprus in any one calendar year (whichcorresponds to a period from January 1 to December 31) if such holder is physically present in Cyprus for a period exceeding in aggregate more than183 days in that one calendar year.Furthermore, on January 1, 2017 an amendment to the Income Tax Law entered into force introducing a second tax resident test – the “60 dayrule” – for the purposes of determining Cyprus tax residency for individuals. An individual is considered as a tax resident in Cyprus, if he/she satisfieseither the current “183 day rule” or the “60 day rule” for the relevant tax year (coinciding with calendar year). The “60 day rule” applies to anindividual who in the relevant tax year: • does not reside in any other single state for a period exceeding 183 days in aggregate, and • resides in Cyprus for at least 60 days within the tax year, and • carries on any business in Cyprus and/or is employed in Cyprus and/or holds an office at a person tax resident in Cyprus at any time duringthe tax year, and • maintains a permanent residence in Cyprus either owned or rented by the individual. 92Table of ContentsAn individual is considered to be domiciled in Cyprus for the purposes of Special Contribution for the Defence Fund if he/she has a domicile oforigin in Cyprus per the Wills and Succession Law (with certain exceptions) or if he/she has been a tax resident in Cyprus for at least 17 out of the 20tax years immediately prior to the tax year of assessment.Holders of ADSs must consult their own tax advisors on their tax residency status and their tax liabilities arising from holding and/or disposal ofthe ADSs in their tax residency jurisdictions.Taxation of Cyprus Resident CompanyA company which is considered as a resident of Cyprus for tax purposes is subject to corporate income tax in Cyprus on its income accrued andderived from all chargeable sources in Cyprus and abroad, worldwide income, taking into account certain exemptions. The rate of corporate income taxin Cyprus is 12.5% as of January 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 thefollowing types of income arising from sources in Cyprus: trading profits of a permanent establishment situated in Cyprus (i.e. fixed base from which abusiness is carried on), profit from the sale of trade goodwill in Cyprus and rental income from property situated in Cyprus.Tax resident Cyprus companies are subject to Special Contribution for the Defence which may be imposed on its dividend income, “passive”interest income and rental income according to the provisions of the Special Contribution for the Defence of the Republic Law N.117(I)/2002, asamended (See provisions of sections “Material Cypriot Tax Considerations – “Taxation of Dividend Income”, “Deemed Dividends Distribution” and“Taxation of Interest Income”).Taxation of Dividend IncomeDividend income (whether received from Cyprus tax resident or non-tax resident Cyprus companies) is exempt from Corporate Income Tax inCyprus.Dividend income received from Cyprus resident companies is exempt from the Cypriot Special Contribution for the Defence Fund in Cyprus. Therate of Special Contribution for the Defence in Cyprus is 17% as from January 1, 2014 onwards.Dividend income received from non-Cyprus resident companies is exempt from the Cypriot Special Contribution for the Defence in Cyprusprovided that either (i) not more than 50% of the foreign paying company and/or permanent establishment’s activities result directly or indirectly ininvestment (“passive”) income, or (ii) the foreign tax burden suffered on income of the foreign company and/or permanent establishment paying thedividends is not significantly lower than the tax burden payable in Cyprus (currently interpreted 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 theyear in which the profits were generated are subject to Special Contribution for the Defence at applicable rate. Dividend income which emanatesdirectly or indirectly out of such dividends on which Special Contribution for the Defence was previously suffered is exempt.If the participation exemption for the Cypriot Contribution for the Defence does not apply, dividends receivable from non-Cyprus residentcompanies are taxed at a rate of 17%. Foreign tax paid or withheld on dividend income received by the Cyprus tax resident company can be creditedagainst Cypriot tax payable on the same income provided proof of payment can be furnished.New provisions were incorporated effectively from January 1, 2016 in the Cyprus tax legislation in order to be harmonized with the EuropeanDirective 2011/96/EU and related amending directives. These provisions involve the introduction of anti-hybrid and general anti-avoidance measuresin relation to the distribution of profits from a subsidiary to a parent company within the European Union. These new provisions apply only betweenEU companies.The anti-hybrid provision introduced provides that to the extent where the profits which are distributed from a subsidiary company to its Cyprusparent company are deductible from the taxable income of the subsidiary company, Cyprus is required to tax such profits. The respective profits aresubject to taxation at the rate of 12.5% in accordance with the provisions of the Income Tax Law and are not considered as dividends for SpecialContribution for Defence Fund purposes.The general anti-avoidance measures introduced provides that where dividend is received from a company which is a tax resident of another EUmember state (level of holding is not relevant) and where it is considered that there is abuse (i.e. arrangement or series of arrangements that do notreflect economic reality), a credit will not be granted against the Cypriot tax liability for the foreign tax withheld on the profits of the company payingthe dividend and of each sub-subsidiary from which the dividend originates.Under Cyprus legislation no withholding tax on dividends shall be paid to non-residents of Cyprus. The dividend will be paid free of any tax tothe shareholder who will be taxed according to the laws of his country of residence or domicile. Holders of ADSs must consult their own tax advisorson the consequences of their residence or domicile in relation to the taxes applied to the payment of dividends. 93Table of ContentsDeemed 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 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 thisamount as dividend. Special Contribution for the Defence will be payable on such deemed dividend to the extent that the shareholders for deemeddividend distribution purposes are Cyprus tax residents and domiciled in Cyprus. In respect of profits of years of assessment after 2012 onwards theSpecial Contribution for the Defence rate is 17%. The amount of this deemed dividend distribution is reduced by any actual dividend paid out of theprofits 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 SpecialContribution 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 residentin Cyprus to the extent that these profits are indirectly apportioned to shareholders who are ultimately not Cyprus tax residents.Further to the above and in view of the provisions of Tax Technical Circular 2016/8, any profits of a Cyprus tax resident company imputeddirectly or indirectly to shareholders who are Cyprus tax resident but not domiciled in Cyprus should be exempt from Special Contribution for theDefence Fund.In case of our individual ultimate shareholder(s) is/are considered to be a Cyprus tax resident and domiciled in Cyprus and no actual dividend isever paid out of the relevant profits, we may be subject to the Special contribution of the Defence. Imposition of this tax could have a material adverseeffect on our business, financial condition and results of operations.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 immovableproperty situated in Cyprus including gains from the disposal of shares in companies which own immovable property in Cyprus (either directly orindirectly), and such shares are not listed in any recognized stock exchange.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 the Defence Fund law on the treatment of holders of ADSs with respect to SpecialContribution for the Defence on dividends nor is there any specific guidance issued by the Cypriot tax authorities on the point. We are of the view thatholders of ADSs will be subject to the same treatment as holders of shares with respect to the liability of Special Contribution for the Defence Fund andincome tax on dividends and, therefore, the provision of sections “Taxation of Dividend Income” and “Deemed Dividend Distributions” above wouldapply equally to the holders of ADSs. Non-Cyprus tax resident holders of ADSs must also consult with their own tax advisors on the tax liabilitiesarising from ADSs distributions.Non-Cyprus tax resident holders of ADSs must also consult with their own tax advisors on the tax liabilities arising from ADSs distributions.Taxation of income and gainsGains from the disposal of ADSsIn 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 securities of companies or other legal persons, incorporated under a law in the Republic of Cyprus or abroad andrights. Therefore, Company’s securities (ADSs) may constitute “titles” based on the understanding that they represent the Company’s shares.Any gain from disposal by a Cyprus tax resident company/individual of titles shall be exempt from corporate income tax irrespective of thetrading nature of the gain, the number of shares held or the holding period and shall not be subject to the Cypriot Special Contribution for the Defence.Such gains are also outside of the scope of capital gains tax provided that the company whose shares are disposed of does not own any immovableproperty situated in Cyprus or such shares are listed in any recognized stock exchange.If the ADSs are considered by the Cyprus tax authorities not qualifying as “titles”, any gain on disposal of ADSs by a Cyprus tax residentcompany will be subject to corporate income tax at the rate of 12,5% and personal income tax at the progressive rates of 0%—35% in cases of a gainon disposal by a Cyprus tax resident individual.Gains from Intellectual Property (“IP”)Under Cyprus IP box regime (came into force in 2012) an 80% deduction is allowed from the net profit received from the use or disposal of IPrights. In case a loss is resulting from the said activities, only 20% of the resulting loss can be offset against income from other sources or carriedforward to be offset against income of subsequent tax years. That provision has a retroactive effect in respect to IP acquired or developed beforeJanuary 2012 (i.e. IPs acquired or developed before January 2012 qualify for the IP Box regime). 94Table of ContentsSince July 1, 2016 a new IP Box regime is available in Cyprus, fully aligned with the OECD/G20 Base Erosion and Profit Shifting (“BEPS”)Action 5 report. Under the new Cyprus IP Box, Cyprus IP companies can achieve an effective tax rate of 2.5% (or less) on qualifying profits earned fromexploiting qualifying IP. Non-qualifying incomes are taxable at an effective tax rate of 12.5% (or less).Tax treatment of the Foreign exchange differencesAs of January 1, 2015 Cyprus tax laws provide for all foreign exchange differences to be tax neutral from a Cyprus income tax perspective (i.e.gains are not taxable/losses are not tax deductible) with the exception of forex gains/losses arising from trading in forex which remaintaxable/deductible. Regarding trading in forex, which remains subject to tax, the tax payers may irrevocably elect whether to be taxed only uponrealization of forex rather than on 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” (subject to corporate income tax) or “passive” (subject to Special Contribution for the Defence Fund). Interest income which consists ofinterest which has been derived by a company which is a tax resident of Cyprus in the ordinary course of its business and/or interest income closelyconnected with the ordinary course of its business may be treated as active and hence will be subject to corporate income tax at the rate of 12.5%, afterthe deduction of any allowable business expenses. The Special Contribution for the Defence Fund shall not apply to such income. Any other interestincome (i.e. of “passive” nature), to the contrary, will be subject to the Special Contribution for the Defence Fund at the rate of 30% on the grossamount of interest, corporate income tax shall not apply.Specifically, interest income arising from provision of loans to related or associated parties should be generally considered as income arisingfrom activities closely connected with the ordinary course of business and should, as such, be exempt from Special Contribution for the Defence Fundand only be subject to corporate income tax, see provisions of section “Arm’s length principle”.Withholding taxes on interestNo withholding taxes shall apply in Cyprus on interest paid by the company, which is a tax resident in Cyprus, to a non-Cyprus tax residentlenders (both corporations and individuals).Moreover, no withholding tax shall apply in Cyprus on interest paid by the company, which is a tax resident in Cyprus, to Cyprus tax residentlenders when the interest is considered as interest accruing from their ordinary course of business or interest income closely connected with theordinary 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 connectedwith the ordinary course of business by the company, which is a tax resident in Cyprus, to Cyprus tax resident lenders (both corporations andindividuals) shall be subject to Special Contribution for the Defence Fund at the rate of 30%, whereby the company may be required to withhold suchtax from the interest. Depending on the facts and circumstances of the case, the company may not need to act as the withholding agent.Tax deductibility of expenses, including interest expenseThe general principle of the Cyprus income tax law is that an expense may be deducted in case it is incurred wholly and exclusively for theproduction 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 tothe production of income which is exempt from corporate income tax such as dividend income and profits/ gains on sale of securities. According tothat tax circular (i) any expenditure that can be directly or indirectly attributed to income, that is exempt from tax, is not deductible for corporateincome tax purposes and cannot be set-off against other (taxable) sources of income; and (ii) any expenditure that is attributable to both taxable andexempt income (i.e. general overheads) should be apportioned based on a gross revenue ratio or based on an asset ratio. The taxpayer should select themost appropriate method 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 of the tax residency status of the subsidiary) shall be deductible for Cypriot tax purposes. This would apply provided that the assets of thesubsidiary do not include assets not used in the business. However, in case the subsidiary possesses such assets, the deductibility of interest at the levelof the holding company is limited only to the amount relevant to assets, used in the business.Furthermore, notional interest deduction is available starting from January 1, 2015 (See provisions of section “Material Cypriot TaxConsiderations – Notional Interest Deduction”).According to the provisions of EU Anti-Tax Avoidance Directive (“ATAD”) which was approved by the EU Commission in 2016, and should betransposed into Cyprus domestic law it is expected that Interest Limitations Rules will be introduced and come into force in Cyprus as from January 1,2019 in compliance with the ATAD Directive (See provisions of section “Material Cypriot Tax Considerations – EU Anti-Tax Avoidance Directive(“ATAD”)”). 95Table of ContentsNotional Interest DeductionEffectively from January 1, 2015, Cyprus tax legislation provides for Notional Interest Deduction (NID) under which the Cyprus companies thathave issued additional share capital starting from January 1, 2015 and afterwards will have the benefit of a notional interest that will be deducted fromtheir taxable income for each tax year. 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: New Equity x NID rate.“New equity” is considered to consist of paid-up share capital of any class (ordinary, preference, redeemable, convertible shares), paid in cash orin kind, and share premium which have been issued and settled as from January 1, 2015 and that is available for the period during which the newequity 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 thecountry where the funds are employed plus a 3.0% premium, subject to a minimum amount which is the yield on the 10-year Cyprus government bondplus the 3.0% premium. The NID deduction cannot exceed 80% of the taxable profit as calculated before NID. A scheduling approach is expected to befollowed – it is applied by reference to the taxable profits that are generated from assets/activities that are financed by the “new equity” on which theNID is calculated as per the Tax Technical Circular issued by the Cyprus tax authorities.Arm’s length principleThe arm’s length principle in the Cyprus income tax law requires that all transactions between related parties should be carried out on the at anarm’s length basis, being at fair values and on normal commercial terms.More specifically, under the arm’s length principle, where conditions are made or imposed upon the commercial or financial relations of tworelated parties which differ from those which would have been made between independent parties, any profits which would have accrued to one of theparty had the two parties been independent, but have not so accrued, may be included in the profits of that party and taxed accordingly. Theamendment to the income tax law, effective as of January 1, 2015, extends the arm’s length principle by introducing the possibility of, in cases wheretwo related Cyprus tax residents transact and the Cyprus tax authorities make an upward arm’s length adjustment to one of them, effecting acorresponding downwards adjustment to the other one.On June 30, 2017 the Cyprus tax authorities issued a tax technical circular (Circular) providing guidance for the tax treatment of intra-groupfinancing transactions (IGFTs). The Circular effective as from July 1, 2017 closely follows the application of the arm’s length principle of the OECDTransfer Pricing Guidelines and it applies for all relevant existing and future IGFTs. In this respect, the remuneration on all IGFTs should be supportedby a transfer pricing study in order to be accepted by the Cyprus tax authorities.IGFTs for the purposes of the Circular are defined as (i) any activity relating to granting of loans or cash advances to related companies that is orshould be remunerated by interest; and (ii) such activity is financed by financial means and instruments, such as debentures, private loans, cashadvances and bank loans.The Circular requires that the transfer pricing study should be prepared by independent experts and will have to be based on the relevant OECDstandards for the purposes of (i) describing (delineating) the IGFT by performing a comparability analysis based on the functional and risk profile ofthe company; and (ii) determining the applicable arm’s length remuneration by performing an economic analysis.Under certain conditions and assuming minimum substance requirements, taxpayers carrying out a purely intermediary intra-group financingactivity may opt for the application of a Simplification Measure (resulting in a minimum 2% after-tax return on assets, meaning circa minimum 2.285%pre-tax return on assets).There are no specific transfer pricing rules or any transfer pricing documentation requirements in the Cyprus tax laws in respect to any otherrelated party transactions. However, it is anticipated that new requirements for preparation of transfer pricing documentation for tax years 2019 onwardapplicable to Cyprus tax resident companies or Cyprus permanent establishments will be introduced in Cyprus in line with BEPS Action 13: TransferPricing Documentation and Country-by-Country Reporting.We cannot exclude that the 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 could have a material adverse effect on ourbusiness, financial conditions and results of operations.Stamp dutyCyprus levies a stamp duty on contracts that relate to any property situated in Cyprus or any matter or thing which is performed or done inCyprus.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 ofEUR 20,000 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 underlyingasset.A liability to stamp duty may arise on acquisition of Cyprus shares and such stamp duty would be payable where the shares acquisitiondocuments are executed in Cyprus or later brought into Cyprus as the company’s shares may be considered as Cypriot property. 96Table of ContentsCapital dutyCapital duty has been abolished by the Council of Ministers with effective date as from December 18, 2018. As a result no capital duty is payableto the Registrar of Companies in respect of the registered authorized share capital of a Cypriot company upon its incorporation and upon itssubsequent increases thereon, other than minimal flat registration fees payable to the Registrar of Companies.Base Erosion and Profit Shifting (“BEPS”) Action PlanThe recommendations of the BEPS Plan led by the Organization for Economic Cooperation and Development (“OECD”) contains action pointsaimed to tackle concerns over base erosion and profit shifting by addressing perceived flaws in international tax rules such as tax avoidance, improvethe coherence of international tax rules and ensure a more transparent tax environment.Cyprus is not a member of the OECD but follows the OECD and EU relevant initiatives. As an EU member state Cyprus adopts and applies therelevant EU Directives.In short, the EU Anti-Tax Avoidance Directive (the provisions of which are outlined below) will be adopted and tackles measures of Actions 2, 3and 4 of the BEPS Plan.EU Anti-Tax Avoidance Directive (“ATAD”)It is anticipated that Cyprus will transpose into the local tax legislation the provisions of the ATAD.Provisions regarding interest limitation, controlled foreign companies and general anti abuse rules are expected to be introduced and take effectfrom January 1, 2019. Provisions regarding anti hybrid rules and exit taxation in accordance with the ATAD are expected to be introduced and beeffective as from January 1, 2020 and/or January 1, 2022 for anti hybrid rules.An overview of the expected provisions to be effective in Cyprus as from January 1, 2019 is set out below.The details and exact provisions of the Cyprus local legislation of the ATAD is anticipated to be passed into law by the Parliament in the courseof this year with an effective date January 1, 2019.Interest limitation ruleInterest costs that would otherwise be deductible under the current Cyprus tax law will only be deductible up to 30% of the taxpayer’s adjusted taxableprofit before interest tax, depreciation and amortization (i.e. taxable EBITDA) of the company. This rule is expected to apply to the amount ofexceeding deductible interest expense (i.e. amount by which deductible interest expense exceeds the taxable interest income). A safe-harbor threshold,loan grandfathering provisions and exemptions are expected to apply.Controlled Foreign Company (CFC) rule:CFCs are expected to be defined as: (i)foreign companies that are directly or indirectly held by Cyprus tax residents with at least 50% controlling interest or exempt foreignPermanent Establishments (PEs) of a Cyprus company and (ii)the foreign tax rate, at which their profits are taxed, is at least 50% lower than the effective tax rate in Cyprus.Cyprus has opted for adopting the ATAD Model B approach, which is based on the arm’s length principle (i.e. significant functions are performed inCyprus in respect of the company in the low-tax jurisdiction). Model B approach provides that non-distributed income of the CFC arising fromnon-genuine arrangements which have been put in place for the essential purpose of obtaining a tax advantage shall be included in the tax base of theCyprus tax resident shareholder.Certain exemptions are expected to apply.General Anti-Abuse Rule (GAAR):The GAAR will allow the Cyprus tax authorities to ignore the non-genuine arrangements where (one of) the main purpose(s) is to obtain a taxadvantage that defeats the object or purpose of the relevant provision. Arrangements are regarded as non-genuine to the extent they are not put in placefor valid commercial reasons which reflect economic reality. 97Table of ContentsEU Directive on Administrative Cooperation 6 (“DAC 6”)On May 25, 2018 the Economic and Financial Affairs Council (ECOFIN) formally adopted the Council Directive amending Directive2011/16/EU on administrative cooperation in the field of taxation as regards mandatory automatic exchange of information in the field of taxation inrelation to reportable cross-border arrangements in order to disclose potentially aggressive tax planning arrangements.The Directive applies to cross-border arrangements concerning either more than one Member State or a Member State and a third country and setsa two-step disclosure obligation for such arrangements. First by disclosure of the arrangement to the national authorities by those obliged to report andsecond by automatic exchange of reported information between the national tax authorities of the Member States.Member States must transpose the Directive into their national laws and regulations by December 31, 2019 and the first automatic exchange ofinformation should be communicated among Member States by October 31, 2020.The rules of the Directive are already effective as from June 25, 2018 and any legally reportable cross-border arrangements starting from theeffective date must be disclosed by August 31, 2020.The cross-border arrangements are reportable if:(1) one of the “hallmarks” of the Directive is met, and(2) avoiding tax is one of the main benefits of the scheme (“main benefit” test).Some of the “hallmarks” can make a transaction reportable without meeting the main benefit test.The reporting obligation of the arrangements falls on the service providers and other intermediaries, however, in certain cases the obligation toreport applies to the taxpayers taking part in the cross-border arrangements themselves.It is expected that failing to comply with the provisions of DAC 6, a taxpayer may potentially incur penalties and it is up to the Member States toimplement an appropriate penalty system to ensure the DAC 6 is complied with.Country by Country reportingOn May 26, 2017 a Decree was issued by the Cyprus Ministry of Finance, which outlines the Country by Country (CbC) reporting requirementsfor multinational enterprise groups generating consolidated annual turnover exceeding 750 million euros (MNE Group).As per the Decree, a CbC report filing obligation arises in Cyprus for a Cyprus tax resident entity that is the ultimate parent entity (UPE) of anMNE Group or has been designated by the MNE Group as the sole substitute of the UPE (under the “surrogate parent” mechanism).MNE Groups need to disclose on their CbC report the following data for each tax jurisdiction in which they operate: (i) the amount of revenue,profit before tax, and corporate taxes paid and accrued; (ii) capital, retained earnings and tangible assets, together with the number of employees;(iii) identification of each entity within the group doing business in a particular tax jurisdiction, with a broad indication of its economic activity.The format of the CbC report is consistent with the template published by the OECD.Furthermore, each Cyprus tax resident constituent entity of an MNE Group should notify, on an annual basis, the Cyprus tax authorities if it isthe reporting entity of the MNE Group (i.e. the UPE or surrogate parent). In the case where the entity is not the reporting entity, then it should alsonotify the Cyprus tax authorities of the details and tax residency of the reporting entity of the Group.We do not consider the company to be subject to CbC reporting requirements. However, taking into the consideration the possibility of furtherdevelopments in Cyprus as well as international legislation, we may become subject to the above requirements.With reference to the above section “Material Cypriot Tax Considerations” we cannot exclude the possibility that we might be subject to additionaltax liabilities in case the respective Cyprus tax authorities apply different rulings to the transactions carried out by us or in our respect, which couldhave a material adverse effect on our business, 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 anddisposition of our ADSs or ordinary shares. The discussion is not a complete analysis or listing of all of the possible tax consequences and does notaddress all tax considerations that may be relevant to investors in light of their particular circumstances. Special rules that are not discussed in thegeneral descriptions below may also apply. In particular, the description of U.S. federal income tax consequences deals only with U.S. Holders that ownour ADSs or ordinary shares as capital assets. In addition, the description of U.S. federal income tax consequences does not address the tax treatment ofspecial classes of U.S. Holders, such as banks and other financial institutions, insurance companies, persons holding our ADSs or shares as part of a“straddle,” “hedge,” “appreciated financial position,” “conversion transaction” or other risk reduction strategy, U.S. expatriates, persons liable foralternative minimum tax, Medicare tax, brokers or dealers in securities or currencies, 98Table of Contentsholders whose “functional currency” is not the U.S. dollar, regulated investment companies, real estate investment trusts, partnerships (or any entitytreated as a partnership for U.S. federal income tax purposes) and other pass-through entities, traders in securities who have elected the mark-to-marketmethod of accounting for their securities, individual retirement accounts or other tax-deferred accounts, holders who acquired shares pursuant to theexercise of an employee stock option or right or otherwise as compensation, tax-exempt entities, and investors who own directly, indirectly throughcertain non-U.S. entities, or constructively 10% or more of the voting power or value of our aggregate shares outstanding. The following discussiondoes 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 thanthose 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 legislativehistory, Treasury regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. InternalRevenue Service, or the 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 the IRS will not disagree with or will not challenge any of the conclusions reached and described herein. The discussionis also based, in part, on representations by the depositary and assumes that each obligation under the depositary agreement and any related agreementwill 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 orthe District of 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 have the 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 applicable Treasury 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 treatmentof such partnership and each partner will generally depend on the status and the activities of the partnership and the partner. Partnerships that hold ourADSs or ordinary shares, and partners in such partnerships, should consult their tax advisers regarding the U.S. federal, state and local and non-U.S. taxconsequences applicable to them 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 theunderlying ordinary 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 tothe ordinary shares underlying our ADSs, including the full amount of any Cypriot withholding tax thereon, will be a dividend for U.S. federal incometax purposes includible in the gross income of a U.S. Holder to the extent paid out of our current or accumulated earnings and profits (as determined forU.S. federal income tax purposes). Such dividends will not be eligible for the dividends received deduction allowed to corporations. Because we do notintend to maintain calculations of our earnings and profits on the basis of U.S. federal income tax principles, U.S. Holders should expect that anydistribution paid will generally be reported to them as a “dividend” for U.S. federal income tax purposes. Dividends received by individuals and othernon-corporate U.S. Holders of our ADSs that are traded on Nasdaq will be eligible for beneficial rates of taxation provided we are not a PFIC during theyear in which the dividend is paid or the prior taxable year and certain other requirements, including stock holding period requirements, are satisfiedby the recipient. U.S. Holders should consult their tax advisors regarding the application of the relevant rules to their particular circumstances.Dividends 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 thedividend. The amount of any dividend income paid in a foreign currency will be the U.S. dollar amount calculated by reference to the exchange rate ineffect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on thedate of receipt, U.S. holders should not be required to recognize foreign currency gain or loss in respect of dividend income. A U.S. Holder may haveforeign currency gain or loss if the dividend 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 forU.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 theamount realized from such sale or disposition and the U.S. Holder’s adjusted tax basis in such ADSs or ordinary shares, in each 99Table of Contentscase, as determined in U.S. dollars. Such capital gain or loss 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, such ADSs 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 grossamount of the proceeds before deduction of the Russian tax. See “—Russian Tax Considerations Relevant to the Purchase, Ownership and Dispositionof the ADSs” for a description of when a disposition may be subject to taxation by Russia. Because a U.S. Holder’s gain from the sale or otherdisposition of ADSs or ordinary shares will generally be U.S. source gain, a U.S. Holder may be unable to claim a credit against its U.S. federal taxliability for any Russian tax on gains. In lieu of claiming a foreign tax credit, a U.S. Holder may elect to deduct foreign taxes, including the Russiantax, in computing taxable income, subject to generally applicable limitations under U.S. law. U.S. Holders should consult their tax advisers as towhether any Russian tax on gains may be creditable against U.S. federal income 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 taxpurposes, 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 assuch holder’s tax basis 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, ifeither (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 basis of a quarterly average) produce or are held for the production of passive income. For this purpose, cash is categorized as apassive asset and our unbooked intangibles will be taken into account and generally treated as non-passive assets. We will be treated as owning ourproportionate share of the assets and earning our 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, 2018. We do not anticipate being a PFIC for our current taxableyear, 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. BecausePFIC 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 aPFIC, for example, if based on changes to our business and assets and the potential application of technical regulations in the PFIC rules regardingcertain banking activities. Furthermore, it is possible that the IRS may challenge our valuation of our goodwill and other unbooked intangibles, whichmay 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 besubject to an increased amount of taxes and an interest charge, characterization of any gain from the sale or exchange of our ADSs or ordinary shares asordinary income, and other disadvantageous tax treatment with respect to our ADSs or ordinary shares unless the U.S. Holder may make amark-to-market election (as described below). Further, if we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs orordinary 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) ofthe shares of each such non-U.S. subsidiary classified 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 regarding the 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-marketelection may be 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 minimis quantities, on at least 15 days during each calendar quarter, but may not be made with respect to our ordinary shares as theyare not marketable stock. We anticipate that 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 marketvalue of our ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as a loss the excess, if any, of the adjustedtax basis of our ADSs over the fair market value of such ADSs held at the end of the taxable year, but only to the extent of the net amount previouslyincluded in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in our ADSs would be adjusted to reflect any incomeor loss resulting from the mark-to-market election. In addition, any gain such U.S. Holder recognizes upon the sale or other disposition of our ADSs willbe treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of the net amount previously included in income as aresult 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 and suchcorporation 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 anyperiod that such 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 whichwe were classified as a PFIC and continues to hold such ADSs (or any portion thereof) and has not previously made a mark-to-market election, and whois considering making a mark-to-market election, special tax rules may apply relating to purging the PFIC taint of such ADSs. Because amark-to-market election cannot be made for any lower tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules withrespect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income taxpurposes. 100Table of ContentsWe 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, if available, 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 orordinary shares 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 beneficialownership of the ADSs or ordinary shares, if such ADSs or ordinary shares are not held on his or her behalf by a financial institution. This law alsoimposes penalties if an individual U.S. Holder is required to submit such information to the IRS and fails to do so. U.S. Holders should consult their taxadvisors regarding application of the information 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 isbased on the laws of the Russian Federation in effect on the date of this annual report. All of the foregoing is subject to change (possibly on aretroactive basis) and varying interpretations which may be inconsistent or contradictory.The summary does not seek to address the applicability of, and procedures in relation to, Russian regional and local taxes. Nor does the summaryseek to address the availability of double tax treaty relief, and it should be noted that there may be practical difficulties involved in claiming reliefunder an applicable double tax treaty. Prospective holders should consult their own tax advisors regarding the tax consequences of investing in theADSs and no representations with respect to the Russian tax consequences of purchasing, owning or disposal of the ADSs to any particular holder ismade hereby.GeneralFor the purposes of this section, a “resident holder” means a holder of ADSs who is:An ADSs holder that is a legal entity or an organization which 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 (forthe purposes of application of such double tax treaty); • a foreign legal entity or organization recognized as a Russian tax resident based on Russian domestic law (see “Russian anti-offshoremeasures may have adverse impact on our business, financial condition and results of operations”); • a foreign legal entity or organization which holds and/ or disposes ADSs through its permanent establishment in Russia; • 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 periodcomprised of 12 consecutive months (with certain available exceptions). The interpretation of this definition by the Russian Ministry ofFinance states that, for tax withholding purposes, an individual’s tax residence status should be determined on the date of the actualincome payment (based on the number of days in Russia in the 12-month period preceding the date of the payment). Given that the taxresidency status of an individual may change, an individual’s final tax liability in the Russian Federation for any reporting calendar yearshould be determined based on the number of days spent in Russia in such calendar year, and may require a reassessment.For the purposes of this section, a “non-resident holder” is a holder of ADSs who does not fall under the definition of a resident holder above(including any legal entity or organization or individual).Russian tax residency rules may be affected by an applicable double tax treaty. ADSs holders should consult their own tax advisors on their taxstatus 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 Bshares underlying the ADSs. 101Table of ContentsLegal 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 otherincome realized on the sale, exchange or other disposal of the ADSs unless more than 50% of our assets consist of immovable property situated inRussia. Otherwise, it is possible that any proceeds from sale, exchange or other disposal of ADSs may be regarded as Russian source income receivedby non-resident holders that are legal entities or organizations, subject to Russian income tax at a rate of 20%. Because the determination of whethermore than 50% of our assets consist of immovable property situated in Russia is inherently factual and is made on an on-going basis, there can be noassurance that immovable property situated in Russia will not, from time to time, constitute more than 50% of our assets, and therefore, theabovementioned proceed may potentially be taxable at a rate of 20%. The above tax may be reduced or eliminated under an applicable double taxtreaty, provided that the recipient of the income is its beneficial owner, such income is not attributable to a permanent establishment in Russia, thenecessary requirements to qualify for the treaty relief and the appropriate 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 thesale, exchange or 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 other disposal of ADSs, provided that the proceeds of such sale, exchange or disposal are not received from a source within Russia.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 thatthe proceeds from a sale, exchange or other disposal of ADSs are deemed to be received from a source within Russia, a non-resident holder that is anindividual 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 andbrokers’ fees), subject to any available double tax treaty relief, provided that the necessary requirements to qualify for the treaty relief and theappropriate administrative requirements under the Russian tax legislation have been met. For example, holders of ADSs that are eligible for the benefitsof the United States-Russia double tax treaty should generally not be subject to tax in Russia on any gain arising from the disposal of ADSs, providedthat the gain is not attributable to disposal of shares in a Russian “property-rich companies” (company with more than 50% of its assets consisting ofimmovable property situated in Russia, as defined in the treaty). Because the determination of whether more than 50% of our assets consist ofimmovable property situated in Russia is inherently factual and is made on an on-going basis, and because the relevant Russian legislation andregulations are not entirely clear, there can be no assurance that immovable property situated in Russia will not, from time to time, constitute more than50% of our assets. If more than 50% of our assets were to consist of immovable property situated in Russia, the benefits of the United States-Russiadouble tax treaty may not be available to an ADS holder.According to Russian tax legislation, income received from a sale, exchange or other disposal of the ADSs should be treated as having beenreceived from a Russian source if such sale, exchange or other disposal occurs in Russia. Russian tax law gives no clear indication as to how to identifythe source of income received 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 been received from a Russian source. In the absence of any guidance as to what should be considered as sale, exchange orother disposal of securities “in Russia”, the Russian tax authorities may apply various criteria in order to determine the source of the sale or otherdisposal, including looking at the place of conclusion of the transaction, the location of the issuer or other similar criteria. There is no assurance,therefore, that the proceeds received by non-resident holders – individuals from a sale, exchange or other disposal of the ADSs will not become subjectto tax in Russia.The tax may be withheld at the source from payment only if the individual acts via a professional intermediary that is registered for the taxpurposes in Russia (such as trustee, dealer, broker or other intermediary acting to the benefit of the individual holder), otherwise the non-residentholder – individual shall be liable to file a tax return and pay the tax due to the Russian budget.Additionally, acquisition of the ADSs by a non-resident holder who is an individual may constitute a taxable event pursuant to provisions of theRussian Tax Code relating to the material benefit (deemed income) received by individuals as a result of acquisition of securities. If the acquisitionprice of the ADSs is below the lower margin of fair market value calculated under a specific procedure for the determination of market prices ofsecurities for tax purposes, the difference may be subject to the Russian personal income tax at a rate of 30% (arguably, this would be subject toreduction 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 areindividuals will depend on whether this income would be assessed as received from Russian or non-Russian sources. Although Russian tax legislationdoes not contain any provisions on how the related material benefit should be sourced, the tax authorities may infer that such income should beconsidered as Russian source income if the ADSs are purchased “in Russia”. In the absence of any additional guidance as to what should be consideredas a purchase of securities “in Russia”, the Russian tax authorities may apply various criteria in order to determine the source of the related materialbenefit, including looking at the place of conclusion of the acquisition transaction, the location of the issuer or other similar criteria. There is noassurance, therefore, that proceeds received by non-resident holders – individuals from a sale, exchange, redemption or other disposal of the ADSs willnot 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 from acquisition,sale, exchange or other disposal of the ADSs and the receipt of the proceeds from source within Russia in their respect. 102Table of ContentsDouble 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) maybe reduced or eliminated in accordance with the provisions of a double tax treaty. Advance treaty relief should be available for those eligible, subjectto the requirements of the laws of Russia. In order for a non-resident holder to benefit from the applicable double tax treaty, documentary evidence isrequired to confirm the applicability of the double tax treaty for which benefits are claimed. Currently, a non-resident holder is required to provide atax residence confirmation issued by the competent tax authority of the relevant treaty country (duly apostilled or legalized, translated into Russianand notarized). The tax residency confirmation needs to be renewed on an annual basis, and provided before the first payment of income in eachcalendar year. For a non-resident holder that is a legal entity or organization this should be a tax residency certificate for the relevant year.Starting from January 1, 2016, a non-resident holder who is an individual willing to obtain the advance double tax treaty relief at source shouldconfirm to a tax agent that he or she is tax resident in a relevant foreign jurisdiction having a double tax treaty with Russia by providing the tax agentwith (i) a passport of a foreign resident, or (ii) another document envisaged by an applicable federal law or recognized as a personal identity documentof a foreign resident in accordance with the double tax treaty, and (iii) upon request of the tax agent, a tax residency certificate for the relevant yearissued by the competent authorities of his or her country of residence for tax purposes. A notarized Russian translation of the certificate is required. Theabove provisions are intended to provide a tax agent with the opportunity of applying reduced (or zero) withholding tax rates under an applicabledouble tax treaty at source. To date, the Russian tax authorities do not generally make additional claims for confirmation of tax residency. However,due to the lack of available practice there is some uncertainty as to how they will be applied by the Russian tax authorities.In addition, in order to benefit from the applicable double tax treaty, the person claiming such benefits must be the beneficial owner of therelevant income. Starting from January 1, 2017, under the Russian Tax Code, in addition to a certificate of tax residency, the tax agent is obliged torequire a confirmation from the non-resident holder or legal entity that it is the beneficial owner of the relevant income. As of the date of this annualreport, the form of such confirmation is not set by the Russian Tax Code. Current clarifications of the Russian Ministry of Finance and Federal TaxService guidance generally describe the information that is necessary to confirm the beneficial ownership of income, yet they do not set the preciseform for the above confirmation. The Russian tax authorities try to extend this requirement retrospectively (for details see “Russian anti-offshoremeasures may have adverse impact on our business, financial condition and results of operations”).Non-resident holders should consult their own tax advisors regarding possible tax treaty relief and procedures for obtaining such relief withrespect to any Russian taxes imposed on any payments received with respect to 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 ofthe tax withheld 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 otherdocuments, a duly apostilled or legalized, notarized Russian translation of the certificate of tax residence issued by the competent tax authority of therelevant treaty country at the time 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.Such documentation, in practice, may not be explicitly required by the Russian Tax Code. Obtaining a refund of Russian tax withheld may be a timeconsuming process and can involve considerable practicable difficulties, depending to a large extent on the position of the local tax inspectorates.If 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 anddocuments confirming the right for a refund under the Russian Tax Code to the tax agent. Starting from January 1, 2016, a claim for a refund anddocuments confirming the right for a refund under the Russian Tax Code can be filed within three years following the tax period in which the tax waswithheld. In case there is no tax agent on the date of receipt by the individual of confirmation of its tax residence status in a relevant foreignjurisdiction having an applicable double tax treaty with Russia, the individual can file a claim for a refund and documents confirming the right for arefund 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 paymentsreceived with respect 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 theADSs, including any distributions on ADSs, 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. 103Table of ContentsF.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 tofile reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscalyear, which is December 31. Copies of reports and other information, when so filed, may be inspected without charge and may be obtained atprescribed rates at the public reference facilities maintained by the Securities and Exchange Commission at 100 F Street, N.E., Room 1580,Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the Commission at1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other informationregarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules underthe Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholdersare exempt from the reporting and short-swing profit recovery provisions contained in Section 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.Our management reviews and approves policies for managing each of the risks 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 of financial position and/or cash flows. Foreign currency denominated assets and liabilities give rise to foreign exchange exposure.As a result of our June 2014 secondary public offering, the Company increased its issued share capital by 2,292,330 class B shares and receivedU.S. $ 88,942,404, of which approximately U.S. $ 30 million remains at the disposal of the Company as of December 31, 2018 after these funds werepartly used for mergers and acquisitions (M&A) and certain operational needs that relate to the ordinary course of business. The major part of theseproceeds is accounted for as other short-term bank deposits in cash and cash equivalents as of December 31, 2018, 2017 and 2016. Due to theappreciation of U.S. dollar rate against the ruble during 2018, and depreciation of the U.S. dollar against the ruble in 2017 and 2016, we recordedforeign exchange gain in the amount of RUB 433 million and foreign exchange loss in the amount of RUB 236 million and RUB 975 million for theseperiods respectively. We intend to use the remaining proceeds for settlement of the U.S. $ denominated obligations if such obligations arise in lieu ofour M&A activity or for capital expenditures in the normal course of business in the future.Foreign currency sensitivityThe following tables demonstrate the sensitivity to a reasonably possible change in U.S. dollar and euro exchange rates against Russian ruble,with all other variables held constant. The impact on profit before tax is due to changes in the carrying amount of monetary assets and liabilitiesdenominated in U.S. dollar and euro when these currencies are not functional currencies of the respective Group subsidiary. Our exposure to foreigncurrency changes for all other currencies is immaterial. change in USDollar Effect on profitbefore tax (in RUB millions) 2018 +14% 329 -14% (329) 2017 +11% 83 (11%) (83) change inEuro Effect on profitbefore tax (in RUB millions) 2018 +14% 196 -14% (196) 2017 +12.5% 36 (12.5%) (36) 104Table of ContentsLiquidity risk and capital managementWe use cash from shareholders’ contributions, have sufficient cash and do not have any significant outstanding debt other than interbank debtwith short maturities (classified as due to banks). Deposits received from our consumers and agents are also primarily due on demand, but are usuallyeither secured by cash at hand (in case of customers’ deposits) or offset against future payments processed through agents. We expect that we willcontinue to have sufficient liquid resources to settle all customer accounts and deposits, amounts due to banks and trade and other payables that aredue on demand as well as that agent’s deposits will continue to be offset against future payments and not be called by the agents.Since 2014 Russian economy has been going through a period of macroeconomic slowdown and liquidity shortage in a number of markets(including those in which we operate), caused among other things by falling oil prices, ruble devaluation and the economic sanctions regime. Banksand other entities in Russia decreased credit limits in their everyday operations and we have noted that our merchants and partners also started and incertain cases continued to request from us larger collaterals to hedge their risks. We were able to manage these conditions and requirements to date,though the liquidity shortage in the market if exacerbated 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 certain portion of its risk-adjustedassets. As of December 31, 2018, Qiwi Bank JSC’s capital ratio is above the minimal level required of 8%. We monitor the fulfillment of requirementson a daily basis and send the reports to CBR on a monthly basis. During the years ended December 31, 2018 and 2017 Qiwi Bank JSC met the capitaladequacy requirements.We manage our capital structure and make adjustments to it, in light of changes in economic conditions. Our capital includes share capital, sharepremium, additional paid-in capital, other reserves and translation reserve. To maintain or adjust the capital structure, we may make dividend paymentsto shareholders or issue new shares. Currently, we require capital to finance our growth, but we generate sufficient cash from our operations. The tablebelow 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 27,499 27,499 — — Customer accounts and amounts due to banks 18,105 16,002 1,866 237Total as of December 31, 2018 45,604 43,501 1,866 237 Total Due:On demand Withina year More thana year (in RUB millions) Trade and other payables 19,599 19,599 — — Customer accounts and amounts due to banks 3,182 3,071 111 — Total as of December 31, 2017 22,781 22,670 111 — Credit riskOur financial assets, which potentially subject us and our subsidiaries and associates to credit risk, consist principally of trade receivables, loansissued, cash and short-term investments. We sell services on a prepayment basis or ensure that our receivables are from customers with an appropriatecredit history – large merchants and agents with sufficient and appropriate credit history. Our receivables from merchants and others, except for agents,are generally non-interest-bearing and do not require collateral. Receivables from agents are interest-bearing and unsecured. We hold cash primarilywith reputable Russian and international banks, including the Central Bank of Russia, which management considers having minimal risk of default,although credit ratings of Russian and Kazakh banks are generally lower than those banks in more developed markets. Short-term investments includefixed-rate debt instruments issued by the Russian Government.An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates arebased on days past due for groupings of various customer segments with similar loss patterns. The carrying amount of accounts receivable, net ofallowance for impairment of receivables, represents the maximum amount exposed to the credit risk for this type of receivables. 105Table of ContentsSet out below is the information about the credit risk exposure on our trade and other receivables (except for advances issued) using a provisionmatrix: December 31, 2018 Days past due Current and<30 days 30-60 days 61-90 days >91 days Total Expected credit loss rate 0.26% 3% 36% 98% Exposure at default 7,672 96 22 331 8,121 Expected credit loss (20) (3) (8) (323) (354) We evaluate the concentration of risk with respect to trade and other receivables as low, as its customers are located in several jurisdictions andindustries and operate in largely independent markets. The table below demonstrates the largest counterparties’ balances as a percentage of respectivetotals: Trade and other receivables Concentration of credit risks by main counterparties,% from total amount As ofDecember 31,2016 As ofDecember 31,2017 As ofDecember 31,2018 Top 5 counterparties 60% 47% 40% Others 40% 53% 60% We are also exposed to substantial credit risk through our payment-by-installment card project SOVEST, where Qiwi Bank JSC serves as a lenderand bears substantially all credit risk on outstanding loans. When granting loans on SOVEST cards, we use automated scoring solvency models andevaluate individually each application for the probability of fraud and social default. We use the information from the major credit bureaus as well ascertain other data including the evaluation of the potential effects of changes in macroeconomic conditions and regional affiliation of the applicant inorder to approve or reject the application. We can then use manual verification for determining the credit limit for the approved applicants. We runadvanced forward-looking models that are based on the analysis of the transactional behavior of individual customers in order to predict and stimulateusage as well as prevent fraud, and we use a migration matrix approach for calculation of the loan loss provisions.As of December 31, 2018 the amount of total loans issued (net of expected credit loss allowance) was equal to RUB 5,274 million up from RUB1,690 as of December 31, 2017, the corresponding amount of provisions for loan impairment was RUB 822 million as compared with RUB 222 millionas compared to the same period in the prior year (see “ – Item 5. A. Operating results” for more details on the dynamics). The amount of credit lossexpense for the year ended December 31, 2018 RUB 499 million. A loan is considered overdue when the borrower fails to make any payment dueunder the loan at the reporting date and an overdue amount is recognized as the aggregate amount of all amounts due from the borrower under therespective loan agreement including accrued interest and commissions in any. For the purposes of our internal credit risk assessment, we consider allloans with a principal and/or interest payment that is more than 90 days overdue as “non-performing”.We distribute our installment cards to customers on a federal scale, across all regions of Russia. Our target audience includes Russian citizenswith permanent registration and aged 18 to 70 years. We also use a variety of distribution channels and strategies to obtain clients and thereforebelieve that our credit risk is broadly diversified.The management established a credit committee that develops and approves general principles for lending and takes special measures to mitigatecredit risk such as reduction of the credit limits for unreliable clients, diversification of methods of work with overdue borrowers and more advancedscoring models for the new borrowers.In addition to the above sources of credit risk, as of December 31, 2018, we had credit exposure to our counterparties in connection with our QiwiFactoring business of RUB 1,559 million and in connection with financial and performance guarantees we provide to non-related parties, mostly ourmerchants (predominantly in betting space) in the amount of RUB 1,260 million. 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. 106Table of ContentsD.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) •  Issuance of ADSs, including issuances resulting from adistribution of class B shares or rights or other property •  Cancellation of ADSs for the purpose of withdrawal,including if the deposit agreement terminatesU.S.$0.05 (or less) per ADS •  Any cash distribution to ADS holdersA fee equivalent to the fee that would be payable if securities distributed toyou had been class B shares and the class B shares had been deposited forissuance of ADSs •  Distribution of securities distributed to holders of depositedsecurities which are distributed by the depositary to ADSholdersU.S.$0.05 (or less) per ADSs per calendar year •  Depositary servicesRegistration or transfer fees •  Transfer and registration of class B shares on our shareregister to or from the name of the depositary or its agentwhen you deposit or withdraw class B sharesExpenses of the depositary •  Cable, telex and facsimile transmissions (when expresslyprovided in the deposit agreement) •  Converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian haveto pay on any ADS or share underlying an ADS, for example, stock transfertaxes, stamp duty or withholding taxes •  As necessaryAny charges incurred by the depositary or its agents for servicing thedeposited securities •  As necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing class B shares or surrendering ADSs for thepurpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those feesfrom the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositaryservices by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting forthem. The depositary may generally refuse to provide 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 waive fees and expenses for services provided, generally relating to costs and expenses arising out of establishment and maintenance of the ADSprogram. In performing its duties under the deposit agreement, the depositary may use brokers, dealers or other service providers that are affiliates ofthe depositary and that may earn or share 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 ofyour ADSs. The depositary may refuse to register any transfer of your ADSs or allow you to withdraw the deposited securities represented by your ADSsuntil such taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented by your ADSs to pay any taxesowed and you will remain liable for any deficiency. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs toreflect the sale and pay to ADS holders any proceeds, 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. 107Table of ContentsITEM 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 theeffectiveness of the company’s disclosure controls and procedures as of December 31, 2018. The term “disclosure controls and procedures,” as definedin 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 thatinformation required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarizedand reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controlsand procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Actis accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate toallow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the company’s disclosure controls and procedures as ofDecember 31, 2018, the company’s chief executive officer and chief financial officer concluded that, as of such date, the company’s disclosure controlsand 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 Rules13a-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 thesupervision of, a company’s chief executive officer and chief financial officer and effected by our board of directors, management and other personnel,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 and includes those policies and procedures that (1) pertain to the maintenance of recordsthat, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurancethat transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluationof effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with policies and procedures may deteriorate.Management excluded Rocketbank from its assessment of internal controls over financial reporting as of December 31, 2018, because the Groupobtained a control over Rocketbank on July 25, 2018. Rocketbank is included in the 2018 consolidated financial statements and constitute RUB180 million revenues and RUB 818 million net loss from the acquisition date to December 31, 2018.Management assessed the design and operating effectiveness of our internal control over financial reporting as of December 31, 2018. Thisassessment was performed under the direction and supervision of our chief executive officer and chief financial officer, and used the criteria establishedin 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, 2018, our internal control over financial reporting was effective.The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by Ernst & Young LLC, ourindependent registered public accounting firm. Their report may be found below:Report of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of Qiwi plcOpinion on Internal Control over Financial ReportingWe have audited Qiwi plc’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Inour opinion, Qiwi plc (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,based on the COSO criteria.As indicated in the accompanying Management’s report on Internal Control over Financial Reporting, management’s assessment of andconclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Rocketbank, which is included inthe 2018 consolidated financial statements of the Company and constituted RUB 180 million of revenues and RUB 818 million of net loss, from theacquisition date to December 31, 2018. Our audit of internal control over financial reporting of the Company also did not include an evaluation of theinternal control over financial reporting of Rocketbank. 108Table of ContentsWe also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theconsolidated statement of financial position of the Company as of December 31, 2018 and 2017, the related consolidated statements of comprehensiveincome, changes in equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and our report datedMarch 28, 2019 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over FinancialReporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a publicaccounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federalsecurities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting policy. A company’sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could havea 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 anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate./s/ Ernst & Young LLCMoscow, RussiaMarch 28, 2019Changes in Internal Control over Financial ReportingThere have been no changes in our internal control over financial reporting identified in connection with an evaluation thereof that occurredduring the period covered by this Annual Report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internalcontrol 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-Funder the Exchange Act. Our board of directors has also determined that Mr. Rhodes satisfies the “independence” requirements set forth in Rule 10A-3under the Exchange Act. ITEM 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 executiveofficer and our chief financial officer and our principal accounting officer. Our Code of Ethics and Business Conduct is available on our website athttps://investor.qiwi.com/corporate-governance/documents. 109Table of ContentsITEM 16C.Principal Accountant Fees and ServicesThe following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered byErnst & Young, our principal external auditors, for the periods indicated. For the year ended December 31, 2017 2018 (in RUB millions) Audit Fees 44 46 Tax Fees 4 4 All Other Fees 8 4 Total 56 54 Audit FeesAudit fees for 2017 and 2018 are the aggregate fees billed for the audit of our consolidated financial statements and other audit or interim reviewservices provided in connection with statutory and regulatory filings or engagements.Audit-Related FeesThere were no audit-related fees incurred in 2017 and 2018.Tax FeesTax fees in 2017 and 2018 were related to tax compliance and tax planning services.All Other FeesAll other fees in 2017 and 2018 relate to services in connection with corporate compliance matters as well as staff training and developmentcosts.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 theCompanies Law and common law. The Companies Law differs from laws applicable to U.S. corporations and their shareholders.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 thecorporate governance requirements of the Nasdaq Stock Market LLC, subject to certain exceptions and requirements and except to the extent that suchexemptions would be contrary to U.S. federal securities laws and regulations. The significant differences between our corporate governance practicesand 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 ofcomplying with Rule 5605(b)(1) of the Nasdaq Rules that requires that the board of directors consist of a majority of independent directors.Currently, three members of our board of directors out of the total seven members are independent with the meaning of the Nasdaq ListingRules. • We follow home country practice that permits our board of directors not to implement a nominations committee or for directors to benominated by a majority of our independent directors, in lieu of complying with Rule 5605(e) of the Nasdaq Rules that requires theimplementation of a nominations committee or the nomination of directors by a majority of the independent directors. Subject to the rightsof shareholders under Cyprus law to nominate directors to our board, the methodology by which directors are nominated to our board is asset forth in “Board of Directors Appointment of Directors.” 110Table of Contents • We follow home country practice that permits us not to hold regular executive sessions where only independent directors are present, inlieu of complying with Rule 5605(b)(2) of the Nasdaq Rules that requires that regular executive sessions are held where only independentdirectors are present. 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 ofcomplying with Rule 5605(d) (1) of the Nasdaq Rules that requires that the board of directors have a compensation committee consisting ofentirely independent directors. In addition, although our compensation committee charter provides that the compensation committee may,in its sole discretion, retain a compensation consultant, our compensation committee charter does not include all enumerated mattersconcerning retention of compensation consultants 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 anyequity compensation arrangements, in lieu of complying with Rule 5635(b) of the Nasdaq Rules that requires that our shareholders approvethe establishment or 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 theNasdaq Rules, relating to matters requiring shareholder approval. Cypriot law and our articles of association permit us, with approval of ourboard of directors and without shareholder approval, to take the following actions: • Acquire the stock or assets of another company, where such acquisition results in the issuance of 20% or more of our outstandingshare capital or voting power, in contrast to Rule 5635(a) of the Nasdaq Rules, which would require shareholder approval in orderto enter into such an acquisition. • Enter into any transaction that may result in a person, or group of persons acting together, holding more than 20% of ouroutstanding share capital or voting power. Such transaction may be considered a change of control under Rule 5635(b) of theNasdaq Rules, requiring shareholder approval. Notwithstanding the above, Cypriot law would not permit us to enter into anyreorganization, merger or consolidation without shareholder approval. • Enter into any transaction other than a public offering involving the sale, issuance or potential issuance by the company of shares(or securities convertible into or exercisable for shares) equal to 20% or more of the outstanding share capital of the Company or20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock, incontrast to Rule 5635(d), which would require shareholder approval for such issuance of shares (or securities convertible into orexercisable 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 wecurrently comply with Rule 5605(c) of the Nasdaq Rules with respect to audit committee composition and practices. ITEM 16H.Mine Safety DisclosureNot applicable.PART 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 1.1 to QIWI plc’s Annual Report on Form 20-F, filed on March28, 2018) 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 Statementon Form F-1/A, File No. 333-187579, filed on April 19, 2013) 111Table of Contents 2.3 Form of Deposit Agreement among the Registrant, the Depositary and Owners and Beneficial Owners of the American Depositary Sharesissued thereunder (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, PalmwayHoldings Limited, Antana International Corporation, Andrey N. Romanenko, Dargle International Limited, Igor N. Mikhailov, BralvoLimited, E1 Limited, Mail.ru Group Limited and Mitsui & Co., Ltd., and QIWI plc. (incorporated by reference to Exhibit 4.5 to QIWIplc’s Registration Statement on Form F-1, File No. 333-191221, filed on September 30, 2013) 8.1 Subsidiaries of the Registrant12.1 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 toSection 906 of the Sarbanes-Oxley Act of 200215.1 Consent of Ernst & Young LLC101.INS XBRL Instance Document101.SCH XBRL Taxonomy Extension Schema Document101.CAL XBRL Taxonomy Extension Calculation Linkbase Document101.DEF XBRL Taxonomy Extension Definition Linkbase Document101.LAB XBRL Taxonomy Extension Label Linkbase Document101.PRE XBRL Taxonomy Extension Presentation Linkbase Document 112Table of ContentsINDEX TO THE CONSOLIDATED FINANCIAL STATEMENTSQIWI plcConsolidated financial statementsfor the year ended December 31, 2018 Report of independent registered public accounting firm F-2 Consolidated financial statements Consolidated statement of financial position as of December 31, 2017 and 2018 F-3 Consolidated statement of comprehensive income for the years ended December 31, 2016, 2017 and 2018 F-4 Consolidated statement of cash flows for the years ended December 31, 2016, 2017 and 2018 F-5 Consolidated statement of changes in equity for the years ended December 31, 2016, 2017 and 2018 F-6 Notes to consolidated financial statements F-9 F-1Table of ContentsReport of independent registered public accounting firmOpinion on the Financial StatementsWe have audited the accompanying consolidated statement of financial position of QIWI plc (the “Company”) as of December 31, 2018 and 2017,the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the three years in the period endedDecember 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidatedfinancial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of itsoperations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with International Financial ReportingStandards as issued by the International Accounting Standards Board.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sinternal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 28, 2019 expressed anunqualified opinion thereon.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sfinancial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respectto the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits includedperforming procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing proceduresthat respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financialstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluatingthe overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ Ernts and Young LLCWe have served as the Company’s auditor since 2008Moscow, RussiaMarch 28, 2019 F-2Table of ContentsQIWI plcConsolidated statement of financial positionAs of December 31, 2018(in millions of Rubles) Notes As ofDecember 31,2017 As ofDecember 31,2018 Assets Non-current assets Property and equipment 9 724 1,074 Goodwill and other intangible assets 10, 11, 10,807 10,846 Investments in associates 20 — 812 Investments in joint ventures 21 832 836 Long-term debt instruments 31 1,100 497 Long-term loans 12, 31 164 230 Other non-current assets 64 110 Deferred tax assets 27 245 157 Total non-current assets 13,936 14,562 Current assets Trade and other receivables 13 9,648 8,042 Short-term loans 12 1,691 6,890 Short-term debt instruments 31 704 1,432 Prepaid income tax 187 112 Other current assets 15 458 929 Cash and cash equivalents 14 18,406 40,966 Total current assets 31,094 58,371 Assets of disposal group classified as held for sale 29 90 Total assets 45,059 73,023 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 1,462 2,097 Retained earnings 5,715 9,091 Translation reserve (2) 513 Total equity attributable to equity holders of the parent 21,120 25,646 Non-controlling interests 37 60 Total equity 21,157 25,706 Non-current liabilities Long-term Customer accounts 19 — 237 Other non-current liabilities 10 1 Deferred tax liabilities 27 826 743 Total non-current liabilities 836 981 Current liabilities Trade and other payables 18 19,599 27,499 Customer accounts and amounts due to banks 19 3,182 17,868 VAT and other taxes payable 198 428 Income tax payable 32 10 Other current liabilities 15 51 531 Total current liabilities 23,062 46,336 Liabilities directly associated with the assets of a disposal group classified as held for sale 4 — Total equity and liabilities 45,059 73,023 The accompanying notes form an integral part of these consolidated financial statements. F-3Table of ContentsQIWI plcConsolidated statement of comprehensive incomefor the year ended December 31, 2018(in millions of Rubles, except per share data) Year ended December 31 Notes 2016* 2017* 2018 Revenue: 17,880 20,897 30,610 Payment processing fees 14,999 17,265 23,694 Interest revenue calculated using the effective interest rate 22 899 1,052 1,854 Fees from inactive accounts and unclaimed payments 1,290 1,310 1,419 Other revenue 22 692 1,270 3,643 Operating costs and expenses: (13,743) (16,906) (26,161) Cost of revenue (exclusive of depreciation and amortization) 23 (8,646) (9,763) (15,129) Selling, general and administrative expenses 24 (3,208) (6,023) (9,671) Depreciation and amortization 9, 10 (796) (796) (864) Credit loss expense* 12, 13, 14, 28 (215) (220) (474) Impairment of intangible assets 10, 11 (878) (104) (23) Profit from operations 4,137 3,991 4,449 Other income and expenses, net 25 (79) (41) (227) Foreign exchange gain 30 1,040 257 1,311 Foreign exchange loss 30 (1,963) (373) (1,049) Interest income and expenses, net (28) 6 17 Profit before tax 3,107 3,840 4,501 Income tax expense 27 (618) (698) (875) Net profit 2,489 3,142 3,626 Attributable to: Equity holders of the parent 2,474 3,114 3,584 Non-controlling interests 15 28 42 Other comprehensive income Other comprehensive income to be reclassified to profit or loss in subsequent periods: Exchange differences on translation of foreign operations (330) (133) 525 Total comprehensive income, net of tax effect of nil 2,159 3,009 4,151 Attributable to: Equity holders of the parent 2,144 2,981 4,099 Non-controlling interests 15 28 52 Earnings per share: Basic, profit attributable to ordinary equity holders of the parent 8 40.91 51.25 58.56 Diluted, profit attributable to ordinary equity holders of the parent 8 40.79 50.92 58.06 *Credit loss expense for the years 2016 and 2017 were separated from of Selling, general and administrative expenses as a result of adoption of IFRS9 for comparative purposes.The accompanying notes form an integral part of these consolidated financial statements. F-4Table of ContentsQIWI plcConsolidated statement of cash flowsfor the year ended December 31, 2018(in millions of Rubles) Year ended December 31 Notes 2016 2017 2018 Cash flows from operating activities Profit before tax 3,107 3,840 4,501 Adjustments to reconcile profit before tax to net cash flows generated from operating activities Depreciation and amortization 9, 10 796 796 864 Foreign exchange loss/(gain), net 923 116 (262) Interest income, net 22 (834) (1,016) (1,782) Credit loss expense 12, 13, 14, 28 215 220 474 Share-based payments 32 224 398 635 Impairment of intangible assets 10, 11 878 104 23 Loss from initial recognition 24 — — 143 Other 80 46 417 Operating profit before changes in working capital 5,389 4,504 5,013 (Increase)/decrease in trade and other receivables (709) (3,683) 1,127 (Increase)/decrease in other assets (127) 150 (529) Increase in customer accounts and amounts due to banks 90 898 14,601 Increase in trade and other payables 1,020 3,414 7,347 Loans issued from banking operations — (1,888) (5,827) Cash flows generated from operations 5,663 3,395 21,732 Interest received 858 1,048 1,795 Interest paid (101) (70) (113) Income tax paid (877) (813) (769) Net cash flow generated from operating activities 5,543 3,560 22,645 Cash flows (used in)/generated from investing activities Acquisition of joint control company 6 — (813) (21) Cash received upon /(used in) business combination 6 (10) (321) 138 Purchase of property and equipment (388) (292) (736) Purchase of intangible assets (298) (566) (385) Loans issued (675) (376) (187) Repayment of loans issued 774 316 4 Purchase of debt instruments (549) (1,376) (810) Proceeds from settlement of debt instruments 1,326 1,775 672 Net cash (used in)/generated from investing activities 180 (1,653) (1,325) Cash flows (used in)/generated from financing activities Proceeds from borrowings 2 — — Repayment of borrowings (4) — — Dividends paid to owners of the Group 26 (4,628) (2,148) — Dividends paid to non-controlling shareholders (7) (12) (29) Net cash used in financing activities (4,637) (2,160) (29) Effect of exchange rate changes on cash and cash equivalents (1,428) (333) 1,240 Net increase/(decrease) in cash and cash equivalents (342) (586) 22,531 Cash and cash equivalents at the beginning of year 14* 19,363 19,021 18,435 Cash and cash equivalents at the end of year 14* 19,021 18,435 40,966 *Cash and cash equivalents at the end of year 2016 and 2017 do not reconcile to Note 14 by 24 and 29 respectively, due to the amount of cashclassified as part of assets held for sale as of December 31, 2016 and 2017.The accompanying notes form an integral part of these consolidated financial statements. F-5Table of ContentsQIWI plcConsolidated statement of changes in equityfor the year ended December 31, 2018(in millions of Rubles, except per share data) Notes Attributable to equity holders of the parent Non-controllinginterests Totalequity Share capital Additionalpaid-incapital Sharepremium Otherreserves Retainedearnings Translationreserve Total Number ofsharesoutstanding Amount Balance as of December 31, 2017 60,932,654 1 1,876 12,068 1,462 5,715 (2) 21,120 37 21,157 Impact of adopting IFRS 9 2.3(e) — — — — — (208) — (208) — (208) Balance as of January 1, 2018 60,932,654 1 1,876 12,068 1,462 5,507 (2) 20,912 37 20,949 Profit for the year — — — — — 3,584 — 3,584 42 3,626 Exchange differences on translationof foreign operations — — — — — — 515 515 10 525 Total comprehensive income — — — — — 3,584 515 4,099 52 4,151 Share-based payments 32 — — — — 635 — — 635 — 635 Exercise of options 16 518,859 — — — — — — — — — Dividends to non-controllinginterests — — — — — — — — (29) (29) Balance as of December 31, 2018 61,451,513 1 1,876 12,068 2,097 9,091 513 25,646 60 25,706 The accompanying notes form an integral part of these consolidated financial statements. F-6Table of ContentsQIWI plcConsolidated statement of changes in equityfor the year ended December 31, 2018(in millions of Rubles, except per share data) Notes Attributable to equity holders of the parent Non-controllinginterests Totalequity Share capital Additionalpaid-incapital Otherreserves Retainedearnings Translationreserve Total Numberof sharesoutstanding Amount Sharepremium Balance as of December 31, 2016 60,597,034 1 1,876 12,068 1,064 4,808 131 19,948 21 19,969 Profit for the year — — — — — 3,114 — 3,114 28 3,142 Exchange differences on translation offoreign operations — — — — — — (133) (133) — (133) Total comprehensive income — — — — — 3,114 (133) 2,981 28 3,009 Share-based payments 32 — — — — 398 — — 398 — 398 Exercise of options 16 335,620 — — — — — — — — — Dividends (36 RUR per share) 26 — — — — — (2,207) — (2,207) — (2,207) Dividends to non-controlling interests — — — — — — — — (12) (12) Balance as of December 31, 2017 60,932,654 1 1,876 12,068 1,462 5,715 (2) 21,120 37 21,157 The accompanying notes form an integral part of these consolidated financial statements. F-7Table of ContentsQIWI plcConsolidated statement of changes in equityfor the year ended December 31, 2018(in millions of Rubles, except per share data) Notes Attributable to equity holders of the parent Non-controllinginterests Totalequity Share capital Additionalpaid-incapital Otherreserves Retainedearnings Translationreserve Total Numberof sharesoutstanding Amount Sharepremium Balance as of December 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 on translation offoreign operations — — — — — — (330) (330) — (330) Total comprehensive income — — — — — 2,474 (330) 2,144 15 2,159 Share-based payments 32 — — — — 224 — — 224 — 224 Exercise of options 16 178,433 — — — — — — — — — Dividends (80 RUR per share) 26 — — — — — (4,843) — (4,843) — (4,843) Dividends to non-controlling interests — — — — — — — — (7) (7) Balance as of December 31, 2016 60,597,034 1 1,876 12,068 1,064 4,808 131 19,948 21 19,969 The accompanying notes form an integral part of these consolidated financial statements. F-8Table of ContentsQIWI plcNotes to consolidated financial statementsfor the year ended December 31, 2018(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 CyprusCompanies Law, Cap. 113. The registered office of the Company is Kennedy 12, Kennedy Business Centre, 2nd Floor, P.C.1087, Nicosia, Cyprus. OnSeptember 13, 2010 the directors of the Company resolved to change the name of the Company from OE Investments Limited to QIWI Limited. OnFebruary 25, 2013 the directors of the Company resolved to change the legal form of the Company from QIWI Limited to QIWI plc. The consolidatedfinancial statements of QIWI plc and its subsidiaries for the year ended December 31, 2018 were authorized for issue by Board of Directors onMarch 14, 2019.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 provide consumer and small and medium enterprises (SME) financial services.The Company was founded as a holding company as a part of the business combination transaction in which ZAO Ob’edinennya SistemaMomentalnykh Platezhey and ZAO e-port Group of entities were brought together by way of contribution to the Company. The transaction wasaccounted for as a business combination in which 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 MOEXsince May 20, 2013. Prior to that time, there was no public market for the Company’ ADSs or ordinary shares. Subsequently, the Company closed twofollow-on offerings of its ADSs on October 3, 2013 and on June 20, 2014.Sergey Solonin is the ultimate controlling shareholder of the Group as of December 31, 2018.Information on the Company’s principal subsidiaries is disclosed in Note 5. 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 all values 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 domesticaccounting legislation. 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) The Group accounts are prepared in accordance with the IFRS standards and interpretations, as published by the IASB. These consolidated financialstatements are based on the underlying accounting records appropriately adjusted and reclassified for fair presentation in accordance with IFRS. IFRSadjustments include and affect but not limited to such major areas as consolidation, revenue recognition, accruals, deferred taxation, fair valueadjustments, 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 affectthose returns through 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.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 inassessing whether it 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.- 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) 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 threeelements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group losses controlof the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement ofcomprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. The financial statements of thesubsidiaries are prepared for the same reporting 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 theforeign exchange 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 thenon-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to thefinancial statements of subsidiaries 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 asubsidiary, 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 attributableto 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 theGroup had directly disposed 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 theGroup’s annual financial statements for the year ended December 31, 2017, except for the adoption of the new and amended IFRS and IFRICinterpretations as of January 1, 2018. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is notyet effective.The Group applies IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers for the first time in 2018. The nature and effectof changes to the Group’s financial statements as a result of adopting these standards are disclosed below.Several other amendments and interpretations are applied for the first time in 2018, but do not have an impact on the consolidated financial statementsof the Group.IFRS 9 Financial InstrumentsIFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or afterJanuary 1, 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; andhedge accounting.The Group applied IFRS 9 prospectively, with the initial application date of January 1, 2018 without adjusting the comparative information for theprior periods.(a) Classification and measurementUnder IFRS 9, all debt financial assets that do not meet a “solely payment of principal and interest” (SPPI) criterion, are classified as accounted at fairvalue through profit or loss (FVPL). Under this criterion, debt instruments that do not correspond to a “basic lending arrangement”, such as instrumentscontaining embedded conversion options or “non-recourse” loans, are measured at FVPL. For debt financial assets that meet the SPPI criterion,classification at initial recognition is determined based on the business model, under which these instruments are managed: • Instruments that are managed on a “hold to collect” basis are measured at amortised cost; • Instruments that are managed on a “hold to collect and for sale” basis are measured at fair value through other comprehensive income(FVOCI); • Instruments that are managed on other basis, including trading financial assets, will be measured at FVPL.Equity financial assets are required to be classified at initial recognition as FVPL unless an irrevocable designation is made to classify the instrumentas FVOCI. For equity investments classified as FVOCI, all realised and unrealised gains and losses, except for dividend income, are recognised in othercomprehensive income with no subsequent reclassification to profit and loss.The classification of financial liabilities remains largely unchanged from the current IAS 39 requirements. Derivatives will continue to be measured atFVPL. Embedded derivatives are no longer separated from a host financial asset. 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) The IFRS 9 had no impact on the Group’s balance sheet or equity on applying the classification requirements. The accounting for the Group’s financialassets and liabilities remains largely the same as it was under IAS 39. The Group continues measuring at fair value all financial assets currently held atfair value (FVPL). The Group analysed the contractual cash flow characteristics of cash at banks, debt securities, loans and trade receivables andconcluded that they meet the criteria for amortised cost measurement under IFRS 9. Therefore, reclassification for these instruments was not required.(b) ImpairmentThe adoption of IFRS 9 has fundamentally changed the Group’s accounting for impairment losses for financial assets by replacing IAS 39’s incurredloss approach with a forward-looking expected credit loss (ECL) approach.IFRS 9 requires the Group to record an allowance for ECLs for all loans and other debt financial assets not held at FVPL. The ECL allowance is basedon the credit losses expected to arise over the life of the asset (the lifetime expected credit loss or LTECL), unless there has been no significant increasein credit risk since origination, in which case, the allowance is based on the 12 months’ expected credit loss (12mECL). The 12mECL is the portion ofLTECL that represent the ECLs that result from default events on a financial instrument that are possible within the 12 months after the reporting date.Both LTECL and 12mECL are calculated on either an individual basis or a collective basis, depending on the nature of the underlying portfolio offinancial instruments.ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expectsto receive. The shortfall is then discounted at an approximation to the asset’s original effective interest rate. The mechanics of the ECL calculations areoutlined below and the key elements are as follows: • PD The Probability of Default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain timeover the assessed period, if the facility has not been previously derecognised and is still in the portfolio.• EAD The Exposure at Default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure afterthe reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdowns oncommitted facilities, and accrued interest from missed payments.• LGD The Loss Given Default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the differencebetween the contractual cash flows due and those that the lender would expect to receive, including from the realisation of any collateral. Itis usually expressed as a percentage of the EAD.For other financial assets (i.e., cash in banks, loans and debt instruments) and financial liabilities (i.e., financial guaranties and credit relatedcommitments) the Group has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument’scredit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of thefinancial instrument. F-13Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 2.Principles underlying preparation of consolidated financial statements (continued) 2.3Changes in accounting policies (continued) In all cases, the Group considers that there has been a significant increase in credit risk when contractual payments are more than 30 days past due. TheGroup considers a financial asset in default when contractual payment are 90 days past due (except for particular sort of Trade and other receivables of60 days). However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates thatthe Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group.For Trade and other receivables, the Group has applied the standard’s simplified approach and has calculated ECLs based on lifetime expected creditlosses. The Group has established a provision matrix that is based on the Group’s historical credit loss experience, adjusted for forward-looking factorsspecific to the debtors and the economic environment.For instalment card loans and its undrawn credit commitments ELC calculation the Group uses internal historical instalment card loans loss ratesstatistics for assessment of probabilities of default. The loss given default is an estimate of the loss arising in the case where a default occurs at a giventime and is based on internal statistics.The adoption of the ECL requirements of IFRS 9 resulted in increases in impairment allowances of the Group’s financial assets. The increase inallowance resulted in adjustment to Retained earnings. The statement of financial position as at December 31, 2017 was restated for the amountpresented in the table below (see clause (e)).(c) Hedge accountingThe Group does not use hedge accounting in its financial statements.(d) Other adjustmentsIn addition to the adjustments described above, on adoption of IFRS 9, other items of the primary financial statements such as deferred taxes andretained earnings were also adjusted. F-14Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 2.Principles underlying preparation of consolidated financial statements (continued) 2.3Changes in accounting policies (continued) (e) Effect of transition to IFRS 9Impact of adopting IFRS 9 on the statement of financial position (increase/(decrease)) as at December 31, 2017: Adjustments Amount Assets Trade and other receivables (b) (33) Loans issued (b) (108) Debt instruments (b) (5) Deferred tax assets (d) 49 Total assets (97) Liabilities Other current liabilities (b) 111 Total Liabilities 111 Net impact on equity, Including (208) Retained earnings (b), (d) (208) The reconciliations for the opening loss provision allowances under IAS 39 and provisionsfor loan commitments and financial guarantee contracts in accordance with IAS 37 Provisions Contingent Liabilities and Contingent Assets to theExpected Credit Losses (ECL) allowances under IFRS 9 are disclosed in the table below: Loan loss provisionunder IAS 39/IAS 37as of December 31, 2017 Remeasurement ECLs underIFRS 9 as ofJanuary 1, 2018 Impairment allowance for: Debt instruments — (5) (5) Trade and other receivables (545) (33) (578) Loans issued (321) (108) (429) Undrawn credit commitments — (111) (111) (866) (257) (1,123) F-15Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 2.Principles underlying preparation of consolidated financial statements (continued) 2.3Changes in accounting policies (continued) IFRS 15 Revenue from Contracts with CustomersIFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and applies to all revenue arising from contracts withcustomers, unless those contracts are in the scope of other standards. The new standard establishes a five-step model to account for revenue arising fromcontracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled inexchange for transferring goods or services to a customer.The standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying each step ofthe model to contracts with their customers. The standard also specifies the accounting for the incremental costs of obtaining a contract and the costsdirectly related to fulfilling a contract.The Group analysed all aspects and requirements of IFRS 15 and noted no impact on its operations accounting or financial statements. The Groupadopted IFRS 15 using the full retrospective method of adoption.IFRIC 22 Foreign Currency Transactions and Advance ConsiderationThe Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it)on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date onwhich an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiplepayments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. ThisInterpretation had no impact on the Group’s consolidated financial statements.Amendments to IAS 28 Investments in Associates and Joint VenturesThe amendments clarify that an entity that is a venture capital organisation, or other qualifying entity, may elect, at initial recognition on aninvestment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss. If an entity, that is notitself an investment entity, has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equitymethod, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate’s orjoint venture’s interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at the later of the date onwhich:(a) the investment entity associate or joint venture is initially recognised;(b) the associate or joint venture becomes an investment entity; and(c) the investment entity associate or joint venture first becomes a parent.These amendments had no impact on the Group’s consolidated financial statements. F-16Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 2.Principles underlying preparation of consolidated financial statements (continued) 2.4Standards issued but not yet effectiveIFRS 16—LeasesIFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 OperatingLeases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for therecognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet modelsimilar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets(e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee willrecognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term(i.e., the right-of-use assets). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense onthe right-of-use assets.Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in futurelease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of theremeasurement of the lease liability as an adjustment to the right-of-use assets.Lessor accounting under IFRS 16 is substantially unchanged from legacy accounting under IAS 17. Lessors will continue to classify all leases usingthe same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17.IFRS 16 is effective for annual periods beginning on or after January 1, 2019. Early application is permitted, but not before an entity applies IFRS 15.A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisionspermit certain reliefs. The Group will apply IFRS 16 for the periods beginning on January 1, 2019 using modified retrospective approach.Most contracts where the Group acts as a lessee (except for long-term contract for offise premises lease), fall under the recognition exemption for beingshort-term leases. The Group will not recognize either assets or liabilities for them and will continue recognize expenditure arising from them asexpenses on rent of premises and related utility expenses (within selling, general, and administrative expenses) as they are incurred.Accounting of several long-term contracts of lease of office premises where the Group acts as a lessee, will have a material effect on the consolidatedfinancial statements of the Group. This effect will result from recognition of lease liabilities and right-of-use assets and from derecognition of accountspayable related to these contracts.Lease liabilities will be recognized at the date of initial application at the present value of the remaining lease payments discounted using the Group’sincremental borrowing rate at the date of initial application. F-17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) Right-of use assets will be recognized at an amount equal to the lease liability adjusted by the amount of any prepaid or accrued lease paymentsrelating to that lease recognized in the statement of financial position immediately before the date of initial application. No impairment will be accruedon right-of-use assets as at the date of initial application.The accumulated balance of accounts payable representing rent expenses recognized but not paid under some contracts as at the transition date will bewritten off to retained earnings of prior periods at the date of initial application.The provisional Impact of adopting IFRS 16 on the statement of financial position (increase/ (decrease)) as at January 1, 2019: Amount Assets Property and equipment (Right-of-use assets) 1,088 Other non-current assets (Advances issued (long-term)) (9) Trade and other receivables (Advances issued (short-term)) (3) Deferred tax assets (29) Total assets 1,047 Liabilities Long-term portion of lease liabilities 702 Short-term portion of lease liabilities 360 Trade and other payables (Other payables) (132) Total Liabilities 930 Net impact on equity, Including 117 Retained earnings 117 The following other new pronouncements are not expected to have any material impact on the Group when adopted: • Long-term Interests in Associates and Joint Ventures – Amendments to IAS 28 (issued on October 12, 2017 and effective for annual periodsbeginning on or after January 1, 2019). • Annual Improvements to IFRSs 2015-2017 cycle—Amendments to IFRS 3, IFRS 11, IAS 12, IAS 23 (issued on December 12, 2017 andeffective for annual periods beginning on or after January 1, 2019). • Prepayment Features with Negative Compensation – Amendments to IFRS 9 (issued on October 12, 2017 and effective for annual periodsbeginning on or after January 1, 2019). • Amendments to References to the Conceptual Framework in IFRS Standards (issued on March 29, 2018 and effective for annual periodsbeginning on or after January 1, 2020). • Amendments to IAS 1 and IAS 8: Definition of Material (issued on October 31, 2018 and effective for annual periods beginning on or afterJanuary 1, 2020). • Amendment to IFRS 3 Business Combinations (issued on October 22, 2018 and effective for annual periods beginning on or after January 1,2020). • IFRIC Interpretation 23 Uncertainty over Income Tax Treatment (issued on June, 2017 and effective for annual periods beginning on orafter January 1, 2019). F-18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, andequity interests issued by the Group. Consideration transferred also includes the fair value of any contingent consideration and share-based paymentawards of the acquiree 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 anyamounts that are not part of what the Group and the acquiree exchanged in the business combination. The Group recognizes as part of applying theacquisition method, only the consideration 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 resultinggain or loss is recognized 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, contingentconsideration classified as an asset or liability, is measured at fair value with changes in fair value recognized in profit or loss. Contingentconsideration that is classified as equity is 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-controllinginterests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is inexcess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of theliabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the re-assessment still results inan excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized in profit or loss. F-19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, goodwillacquired in a business combination is, from the acquisition date, allocated of the Group’s cash generating units that are expected to benefit from thesynergies of the combination, 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 theoperation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwilldisposed in this circumstance is measured based on the relative values of the operation disposed and the portion of the cash-generating unit retained. 3.2Investments in associates and joint venturesThe Group’s investment in its associate and joint ventures are accounted for using the equity method. An associate is an entity in which the Group hassignificant influence. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. unanimous consent ofthe parties) have rights to the net assets of the arrangement.Under the equity method, the investment in the associate or joint venture is carried on the statement of financial position at cost plus post acquisitionchanges in the Group’s share of net assets of the associate/joint venture. Goodwill relating to the associate/joint venture is included in the carryingamount of the investment and is neither amortized nor individually tested for impairment.The statement of comprehensive income reflects the Group’s share of the results of operations of the associate/joint venture. When there has been achange recognized directly in the equity of the investment, the Group recognizes its share of any changes and discloses this, when applicable, in thestatement of changes in equity. Unrealized gains and losses resulting from transactions between the Group and the associate/joint venture areeliminated to the extent of the interest in it.The Group’s share of profit of an associate/joint venture is shown on the face of the statement of comprehensive income or in the notes. This is theprofit attributable to equity holders of the associate/joint venture and, therefore, is profit after tax and non-controlling interests in the subsidiaries ofthe associate/joint venture.The financial statements of the associates/joint ventures are prepared for the same reporting period as the Group. When necessary, adjustments are madeto bring the accounting policies 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 itsassociates/joint ventures. The Group determines at each reporting date whether there is any objective evidence that the investment in theassociate/joint venture is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amountof an investment in associate/joint venture and its carrying value and recognizes any respective loss in the statement of comprehensive income.Upon loss of significant influence over the associate/joint venture, the Group measures and recognizes any retaining investment at its fair value. Anydifference between the carrying amount of the associate/joint venture upon loss of significant influence and the fair value of the retained investmentand proceeds from disposal is recognized in profit or loss. F-20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 presentationcurrency. Each entity in the Group determines its own functional currency, depending on what the underlying economic environment is, and itemsincluded in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recordedin the functional currency at the functional currency rate at the date of the transaction. Monetary assets and liabilities denominated in foreigncurrencies are re-measured in to the functional currency at the functional currency rate of exchange at the reporting date. All differences are taken toprofit or loss. They are shown separately for each Group company but netted by major types of monetary assets and liabilities. Non-monetary items thatare measured in terms of 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 or loss 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., translation differences on items whose fair value gain or loss is recognized in other comprehensive income or profit or loss is also recognized inother comprehensive income or 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),Belarussian ruble (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) atthe rate of exchange at the reporting date and their statements of comprehensive income are translated at the average exchange rates for the year orexchange rates prevailing on the date of specific transactions. The exchange differences arising on the translation are recognized in othercomprehensive income. On disposal of a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreignoperation is reclassified to the profit or loss.The exchange rates of the Russian ruble to each respective currency as of December 31, 2018 and 2017 were as follows: Average exchange rates forthe year ended December 31, Exchange rates atDecember 31, 2017 2018 2017 2018 US Dollar 58.3529 62.7078 57.6002 69.4706 Euro 65.9014 73.9384 68.8668 79.4605 Kazakhstan Tenge (100) 17.8959 18.1717 17.3184 18.0570 Belarussian Ruble 30.2125 30.7630 29.1013 32.0732 Moldovan Leu (10) 31.6871 37.3239 33.6548 40.9084 New Romanian Leu 14.4216 15.8887 14.7822 17.0501 The currencies listed above are not a fully convertible outside the territories of countries of their operations. Related official exchange rates aredetermined daily by the Central Bank of the Russian Federation (further CBR). Market rates may differ from the official rates but the differences are,generally, within narrow parameters monitored by the respective Central Banks. The translation of assets and liabilities denominated in the currencieslisted above into RUB for the purposes of these financial statements does not indicate that the Group could realize or settle, in RUB, the reportedvalues of these assets and liabilities. Likewise, it does not indicate that the Group could return or distribute the reported RUB value of capital andretained earnings to its shareholders. F-21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 usefullives as follows: Processing servers and engineering equipment 3-10 years Computers and office equipment 3-5 years Other equipment 2-20 years Useful lives of leasehold improvements of leased office premises included in engineering equipment and other equipment are determined at the lowerbetween the useful 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 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 accumulatedamortization and accumulated 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 anyaccumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset isavailable for use. It is amortized over the period of expected generation of future benefits, generally 3-5 years. During the period of development, theasset 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 ofcompleting the intangible 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 assetwill generate future economic benefits, the availability of resources to complete the asset and the ability to measure reliably the expenditure duringdevelopment. 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 isregarded by the entity as having an indefinite useful life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to theperiod over which the asset is expected to generate net cash inflows for the entity. F-22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 anindication that the intangible asset may be impaired. Below is the summary of useful lives of intangible assets: Customer relationships and contract rights 4-15 years Computer Software 3-10 years Bank license indefinite Trademarks and other intangible assets 3-11 years Amortization periods and methods for intangible assets with finite useful lives are reviewed at least at each financial year-end. Changes in the expecteduseful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortizationperiod or method, as appropriate, 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 unitlevel. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. Indefinite-livedintangible assets include the acquired licenses for banking operations. It is considered indefinite-lived as the related license is expected to be renewedindefinitely.Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carryingamount of the asset 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 usefullife, may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’srecoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in useand is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets orgroups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to itsrecoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate thatreflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, anappropriate valuation model is used.These calculations are corroborated by valuation multiples, quoted share prices for publicly traded analogues, if applicable, or other available fairvalue indicators.The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s cashgenerating units (CGU), to which the individual assets are allocated. F-23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, along-term growth 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 impairedasset.For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognizedimpairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount. Apreviously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amountsince the last impairment loss was recognized. If that is the 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 beenrecognized for the asset in prior years. Such reversal is recognized in profit or loss. The following criteria are also applied in assessing impairment ofspecific assets:GoodwillGoodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired. Impairment is determined forgoodwill by assessing the recoverable amount of the cash-generating units, to which the goodwill relates. Where the recoverable amount of the cash-generating units is less than their carrying amount an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed infuture periods. The Group performs its annual impairment test of goodwill as of December 31 and whenever certain events and circumstances indicatethat its carrying value may be impaired.Intangible assets with indefinite useful lifeIntangible assets with indefinite useful life are tested for impairment annually as of December 31, either individually or at the cash generating unitlevel, as appropriate and whenever events and circumstances indicate that an asset may be impaired. 3.7Financial assets 3.7.1Initial recognition and measurementFinancial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI),and fair value through profit or loss.The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’sbusiness model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which theGroup has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fairvalue through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group hasapplied the practical expedient are measured at the transaction price determined under IFRS 15. F-24Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 3.Summary of significant accounting policies (continued) 3.7Financial assets (continued) In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are ‘solelypayments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at aninstrument level.The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The businessmodel determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. 3.7.2Subsequent measurementFor purposes of subsequent measurement, financial assets are classified in four categories: • Financial assets at amortised cost • Financial assets at fair value through OCI with recycling of cumulative gains and losses • Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition • Financial assets at fair value through profit or lossFinancial assets at amortised costThis category is the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met: • The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows, And • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest onthe principal amount outstanding.Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and lossesare recognised in profit or loss when the asset is derecognised, modified or impaired.The Group’s financial assets at amortised cost includes debt instruments, trade and other receivables and loans issued.Financial assets at fair value through profit or lossFinancial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fairvalue through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading ifthey are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classifiedas held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely payments ofprincipal and interest are classified and measured at fair value through profit or loss, irrespective of the business model.Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair valuerecognised in the profit or loss section of statement of comprehensive income. F-25Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 3.Summary of significant accounting policies (continued) 3.7Financial assets (continued) The Group’s financial assets at fair value through profit or loss includes few loans issued that did not pass SPPI test.Financial assets at fair value through OCIThe Group’s has no financial assets at fair value through OCI with recycling or with no recycling of cumulative gains and losses upon derecognition. 3.7.3Impairment—credit loss allowance for ECLThe Group assesses and recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss.The measurement of ECL reflects: • an unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes; • the time value of money; and • all reasonable and supportable information that is available without undue cost and effort at the end of each reporting period about pastevents, current conditions and forecasts of future economic conditions.Debt instruments measured at AC are presented in the consolidated statement of financial position net of the allowance for ECL.For loan commitments (where those components can be separated from the loan), a separate provision for ECL is recognised as other financialliabilities as part of accounts payable in the consolidated statement of financial position. For debt instruments at FVOCI, an allowance for ECL isrecognised in profit or loss and it affects fair value gains or losses recognised in OCI rather than the carrying amount of those instruments. F-26Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 3.Summary of significant accounting policies (continued) 3.7Financial assets (continued) The Group applies a “three stage” model for impairment in accordance with IFRS 9, based on changes in credit quality since initial recognition: 1.A financial instrument that is not credit-impaired on initial recognition is classified in Stage 1. Financial assets in Stage 1 have their ECLmeasured at an amount equal to the portion of lifetime ECL that results from default events possible within the next 12 months (12 monthECL). 2.If the Group identifies a significant increase in credit risk (“SICR”) since initial recognition, the asset is transferred to Stage 2 and its ECL ismeasured based on ECL on a lifetime basis (lifetime ECL). 3.If the Group determines that a financial asset is credit-impaired, the asset is transferred to Stage 3 and its ECL is measured as a lifetime ECL.For financial assets that are credit-impaired on purchase or at origination, the ECL is always measured at a lifetime ECL. Note 31 provides informationabout inputs, assumptions and estimation techniques used in measuring ECL, including an explanation of how the Group incorporates forward-lookinginformation in the ECL models. 3.7.4DerecognitionA 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 fullwithout material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all therisks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but hastransferred 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 transferrednor retained 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’scontinuing involvement 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 therights and obligations 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 theasset and the maximum amount of consideration that the Group could be required to repay. F-27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 are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or asderivatives designated as hedging instruments in an effective hedge, as appropriate.All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributabletransaction costs.The Group’s financial liabilities include trade and other payables, bank overdraft, financial guarantees, undrawn loan commitments, customer accountsand amounts due to banks. 3.8.2Subsequent measurementThe measurement of financial liabilities depends on their classification, as described below: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 initialrecognition as at fair value through profit or loss. The Group has no such instruments.Loans and depositsThis is the category most relevant to the Group. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortisedcost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIRamortisation process.Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. TheEIR amortisation is included as finance costs in the profit or loss section of statement of comprehensive income.Financial guaranteesSubsequent to initial recognition, the Group’s liability under each guarantee is measured at the higher of the amount initially recognised lesscumulative amortisation recognised in the income statement, and an ECL allowance. The premium received is recognised in the income statement inCommissions and other revenue on a straight line basis over the life of the guarantee.Undrawn loan commitmentsUndrawn loan commitments are commitments under which, over the duration of the commitment, the Group is required to provide a loan withpre-specified terms to the customer. Similar to financial guarantee contracts, under IAS 39, a provision was made if they were an onerous contract but,from January 1, 2018, these contracts are in the scope of the ECL requirements. F-28Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 3.Summary of significant accounting policies (continued) 3.8Financial liabilities (continued) 3.8.3DerecognitionA financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liabilityis replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such anexchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in therespective carrying amounts is recognized in profit or loss.In accordance with terms and conditions of use of e-wallet accounts and system rules, the Group charges a fee on 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. 3.8.4Offsetting 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 acomponent of cash 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 paymentsand short-term employee bonuses. 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 arecalculated by the Group by the application of a regressive rate (from 30% to 15% in 2018, 2017 and 2016) to the annual gross remuneration of eachemployee. For the year ended December 31, 2018 defined contributions to pension fund of Russia of the Group amounted to 886 (2017 – 473; 2016 –315). F-29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 ofresources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to bereimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtuallycertain.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 reflectscurrent market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increasein the provision due to the passage of time is recognized as an interest expense.Performance guaranteesPerformance guarantees are contracts that provide compensation if another party fails to perform a contractual obligation. Performance guarantees areinitially recognized at their fair value, which is usually equal to the amount of fees received. This amount is amortised on a straight line basis over thelife of the contract. Performance guarantees do not transfer credit risk. The risk under performance guarantee contracts is the possibility that the failureto perform the contractual obligation by another party occurs. 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 taxyear, are deemed to have distributed as dividends 70% of these profits. A special contribution for the defence fund of the Republic of Cyprus is leviedat the 17% rate for 2016, 2017, 2018 and thereafter will be payable on such deemed dividends distribution. Profits that are attributable to shareholderswho are not tax resident of Cyprus and own shares in the Company either directly and/or indirectly at the end of two years from the end of the tax yearto which the profits relate, are exempted. The amount of deemed distribution is reduced by any actual dividends paid out of the profits of the relevantyear at any time. This special contribution for defence is payable by the Company for the account of the shareholders.The Company’s ultimate shareholder as of December 31, 2018 is non-Cypriot tax resident and as such the Cypriot deemed dividend distribution rulesare not applicable.Dividend incomeDividends received from a non-resident (foreign) company are exempt from the levy of defence contribution if either the dividend paying companyderives at least 50% of its income directly or indirectly from activities which do not lead to investment income (“active versus passive investmentincome test” is met) or the foreign tax burden on the profit to be distributed as dividend has not been substantially lower than the Cypriot corporateincome tax rate (i.e. lower than 6.25%) at the 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 other thaninvesting activities. F-30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 thetaxation authorities. 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 purposesand the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets orliabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating toinvestments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is notrecognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected tobe applied to temporary differences when they reverse, based on the 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 incometaxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assetson a net basis or their tax assets 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 futuretaxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extentthat it is no longer probable that the related tax benefit will be realized. F-31Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 3.Summary of significant accounting policies (continued) 3.14Revenue from contracts with customers and transaction cost recognitionRevenue from contracts with customers is recognized when control of the services are transferred to the customer at an amount that reflects theconsideration to which the Group expects to be entitled in exchange for those services. The Group has generally concluded that it is the principal in itsrevenue arrangements because it typically controls the services before transferring them to the customer. Revenues and related cost of revenue fromservices are recognized in the period when services are rendered, regardless of when payment is made.All performance obligations are either satisfied at a point of time or over time. In the former case they represent a separate instantaneous service, in thelatter – a series of distinct services that are substantially the same and that have the same pattern of transfer to the customers. Such performanceobligations are invoiced at least monthly. Progress of performance obligations satisfied over time is measured by output method. The Group recognizesmost of the revenue at a point of time.Contract price is allocated separately to each performance obligation. There are generally no variable amounts affecting consideration by the momentsuch consideration is recognized as revenue. In the rare cases when the variability exists, the Group makes estimate of amount to be recognized basingon appropriate budgets and models. Consideration from customers does not have any non-cash component. Consideration payable to a customer isaccounted as a reduction of the transaction price and,therefore, of revenue. Consideration from customers is normally received within a few months andnever in more than a year. Consequently, the Group believes it contains no significant financing component.Within some components of its business, the Group pays remuneration to the employees and third parties for attracting customers. The costs which areincremental to acquisition of new customers are further analysed for recoverability. Generally, this expenditure is not expected to be reimbursed byfuture incomes and is not capitalized as costs to obtain a contract.Payment processing fee revenues and related transaction costsPayment processing fee revenues include the following types: • fees for processing of consumer payment (consumer fee and merchant fee), • conversion fees.The Group earns a fee for processing payments initiated by the individuals (“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 tovarious merchants through kiosks or network of agents and bank-participants of payment system or through the Group’s website or applications using aunique user login and password (e-payments). Payment kiosks are owned by third parties – cash collection agents (“agents”). When consumer paymentis processed, the Group may incur transaction costs to acquire payments payable to agents, bank-participants, mobile operators, international paymentsystems and other parties. The payment processing fee revenue and related receivable, as well as the transaction cost and the related payable, arerecognized at the point when merchants or individuals accept payments from consumers in the gross amount, including fees payable for paymentacquisition. Payment processing fees and transaction costs are reported gross. Any fees from agents and other service providers are recorded asreduction of transactions costs unless the fee relates to distinct service rendered by the Group. F-32Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 3.Summary of significant accounting policies (continued) 3.14Revenue from contracts with customers and transaction cost recognition (continued) The Group generates revenue from the foreign currency conversion when payments are made in currencies different from the country of the consumer,mainly Russia. The Group recognizes the related revenues at the time of conversion in the amount of conversion commission representing thedifference between the current Russian or relevant country Central Bank foreign currency exchange rate and the foreign currency exchange ratecharged by the Group’s processing system.Cash and settlement servicesThe Group charges a fee for managing current bank accounts and deposits of individuals and legal entities, including guarantee deposits from agentsplaced with the bank to cover consumer payments they accept. Related revenue is recorded as services are rendered or as transactions are processed.Other revenuesOther revenues include revenues from commissions charged for consumer financial services, advertising activities, guarantee commissions and someother minor activities.Loyalty programmeThe Group’s component engaged in banking services to retail customers has a loyalty programme, which allows customers to accumulate loyaltypoints that are accrued as percentage of purchases made using bank cards and can be used to reimburse future purchases. Revenue is thereforedecreased by the nominal value of points awarded to customers during the period multiplied by the probability of their subsequent realization. 3.15.Recognition of interest income and interest expenseFor all financial instruments measured at amortized cost, interest bearing financial assets classified as available for sale and financial instrumentsdesignated at fair value through profit or loss, interest income or expense is recorded using the EIR method. The EIR (and therefore, the amortised costof the asset) is calculated by taking into account any discount or premium on acquisition, fees and costs that are an integral part of the EIR of thefinancial instrument.The Group calculates interest income by applying the EIR to the gross carrying amount of financial assets other than credit-impaired assets. When afinancial asset becomes credit-impaired and is, therefore, regarded as ‘Stage 3’, the Bank calculates interest income by applying the effective interestrate to the net amortised cost of the financial asset. If the financial assets restore and is no longer credit-impaired, the Bank reverts to calculatinginterest income on a gross basis.Interest income from bank loans and short-term 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 receipts of both types of interest are included into interest received in the statement of cash flows. F-33Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 3.Summary of significant accounting policies (continued) 3.15Recognition of interest income and interest expense (continued) Interest expense from bank borrowings intended to attract funds for reinvestment is classified as part of cost of revenue. Interest expense derived fromborrowings attracted from various third parties as part of other arrangements and interest expense from bank guaranties is classified as interest expensenot as part of cost of revenue. Cash disbursements of both types of interest are included into interest paid in the statement of cash flows. 3.16Share-based paymentsEmployees of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equityinstruments (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 theperformance and/or service conditions are fulfilled. The cumulative expense recognized for equity-settled transactions at each reporting date until thevesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that willultimately vest. The statement of comprehensive income expense or credit for a period represents the movement in cumulative expense recognized asof the beginning and end of that period and is recognized 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 marketor non-vesting condition. These are treated as vested irrespective of whether or not the market or non-vesting condition is satisfied, provided that allother performance and/or service 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 termsnot been modified, if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fairvalue of the share-based payment 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 isrecognized immediately. 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 is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled andnew awards are treated as if they were a modification 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, 2018, 2017 and 2016 can only be settled in shares, that is why they are accounted for asequity-settled transactions. F-34Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 3.Summary of significant accounting policies (continued) 3.17LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date, whether fulfillmentof the arrangement 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 notexplicitly specified in an 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. Initialdirect costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on thesame basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned. 3.18Non-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-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a sale transactionrather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is availablefor immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as acompleted sale within one year from the date of classification.In the statement of comprehensive income, income and expenses from discontinued operations are reported separately from income and expenses fromcontinuing operations, 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 thataffect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the reporting dates and the reported amounts ofrevenues and expenses during the reporting periods. However, uncertainty about these assumptions and estimates could result in outcomes that requirea material adjustment to the carrying amount of the asset or liability affected in future periods. F-35Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 4.Significant accounting judgments, estimates and assumptions (continued) Significant judgmentsRevenue recognitionRevenue from SOVEST project – applicable standardsSOVEST project implies offering interest free loans to individuals for the purchases made with installment cards plus various options connected to theuse of these cards. It brings revenues in the form of commissions from merchants and card-holders as well as interchange fee from the payment system.The Group exercises significant judgment in determining which of these commissions fall within the scope of IFRS 9 or IFRS 15. The resultingconclusion depends mainly on whether a commission can be linked to a specific lending arrangement or not.Revenue from inactive accounts and unclaimed paymentsThe Group stipulates in its public offers the term during which a customer who failed to identify correctly the recipient of his transfer can return tocorrect the identification details or claim money back. If the customer does not return, the whole amount of transfer is appropriated by the Group in theperiod of specified time in public offer. Similarly, the Group charges a daily commission on the balance of wallets that remained inactive during theperiod indicated in the public offer. The Group believes that including these rules into its public offers gives it appropriate legal rights to recognize thedistinguishment of customer liabilities and, therefore, record related gain as revenue.Functional currencyEach entity in the Group determines its own functional currency, depending on the economic environment it operates in, and items included in thefinancial statements of each entity are measured using that functional currency.Recognition of control, joint control, or significant influence over entitiesIn assessing business combination we analyse all the relevant terms and conditions of management of the acquired or newly established entities andexercise judgment in deciding whether the Group has control, joint control, or significant influence over them. As a result certain acquisitions wherethe Group’s share is over 50% may not be recognized as consolidated subsidiaries and vice versa. See Note 6 for details.Acquisition of business in the form of separate assetsIn 2018 the Group completed acquisition of Rocketbank business that does not represent a separate legal entity. The acquisition was made through acombination of contracts on purchase of major non-current assets, transfer of employees etc. Since the assets and other resources have been acquired inorder to operate them as a business, these transactions were accounted for using the acquisition method as a single transaction. The acquisition datewas the date when the Group obtained control over the last key element of the business. All the cash amounts paid by the Group under any of thecontracts related to the acquisition were treated as consideration. See Note 6 for details. F-36Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 4.Significant accounting judgments, estimates and assumptions (continued) 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; • Fair value of assets transferred in non-monetary transactions; • Useful life of property, equipment and Intangible assets • Impairment of intangible assets, goodwill, investments in associates and joint ventures; • Recoverability of deferred tax assets; • Fair value of loans issued; • Impairment of loans and receivables; • Measurement of cost associated with share-based payments; • Uncertain position over risk assessment;Actual results could materially differ from those estimates. The key assumptions concerning the future events and other key sources of estimationuncertainty at the reporting date that have a significant risk of a material adjustment to the carrying amounts of assets and liabilities within the nextfinancial year are discussed below: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 thebusiness combination at their fair values, which involves estimates. Such estimates are based on valuation techniques, which require considerablejudgment in forecasting future cash flows and developing other assumptions.Fair value of assets transferred in non-monetary transactionsThe Group was engaged in a transaction of establishment of JSC Tochka during the reporting period. In this process, the Group invested a number ofassets into the newly established entity (fixed assets, intangible assets, promissory notes). Fair value of promissory notes is deemed equal to theirnominal value because they can be instantly exchanged for cash. Fair value of fixed assets and intangible assets is deemed equal to their carryingamount because these assets had been purchased not long ago from a unrelated party.Impairment of goodwill and intangible assetsThe Group determines the following material CGUs: SOVEST, Payment services, Postomatnye Tekhnologii, Tochka, Rocketbank and Flocktory. Forthe purpose of goodwill impairment test, the Group estimates the recoverable amounts of Payment services CGU as fair value less costs of disposal onthe basis of quoted prices of Company’s ordinary shares. See also Note 11 below for details. For the purpose of intangible assets with indefinite usefullife impairment test, the Group estimates the recoverable amounts of each asset as fair value less costs of disposal on the basis of comparative methodand cost approach. For the purpose of intangible assets with definite useful life impairment, when indicators of impairment are noted, the Groupestimates the recoverable amounts as higher of value in use or fair value less costs to sell of an individual asset or the CGU to which this asset relates.Impairment of investments in associates and joint venturesGroup’s investments in significant associates and joint ventures are generally designated as separate CGUs. The recoverable amount of these CGUs isdetermined based on a value in use calculation using appropriate financial models. See Note 11 for details. F-37Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 4.Significant accounting judgments, estimates and assumptions (continued) Significant 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 deductibletemporary differences can be utilized. Various factors are used to assess the probability of the future utilization of deferred tax assets, including pastoperating 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 theforeseeable future due to history of losses. Further details on deferred taxes are disclosed in Note 27.Fair value of loans issuedThe Group measures loans issued at amortized cost using effective interest rate (EIR) method. EIR is assumed to be equal to loan market rates which aredefined on market participants statistic available to the Group.ECL measurementThe Group applied statements for impairment of IFRS 9 starting the year 2018 as change in accounting policy and disclosed it in the Note 2.3.Further details on provision for impairment of loans and receivables are disclosed in Notes 12, 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 32below for more details.Management estimates the fair value of stock options at the date of grant using the Black-Scholes-Merton pricing model and its restricted stock unitsusing the Binominal model. The option pricing models were originally developed for use in estimating the fair value of traded options, which havedifferent characteristics than the stock options granted by the Company and its subsidiaries, associates and joint ventures. The models are alsosensitive to changes in the subjective assumptions, which can materially affect the fair value estimate. These subjective assumptions include theexpected life of the options, expected volatility, risk-free interest rates, expected dividend yield, the fair value of the underlying shares. The amount ofexpense is also sensitive to the number of awards, which are expected to vest, taking into account estimated forfeitures. Below is the discussion of eachof these estimates: F-38Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 4.Significant accounting judgments, estimates and assumptions (continued) Significant estimates and assumptions (continued) 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 theshares. Therefore, the Company used the expected term as the average between the vesting and contractual term of each option tranche for stock optionplan.Expected volatilityDue to a relatively short period of historical market data, QIWI’s share price volatility for options valuation was defined based on the historicalvolatility of peer group companies over a period, which approximates the expected life of option tranches.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 aremaining term approximating the expected life of the option award being valued.Expected dividend yieldThe Group set an dividend yield based on historical payout and best management’s expectation for dividends distribution.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 basisof valuations arrived at by employing the “income approach” valuation methodology. Since May 2013 QIWI plc is a public company and the fairvalue of its shares defined by reference 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 ofzero. Subsequently, the actual forfeiture rate is higher, the actual amount of related expense will become lower. F-39Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 4.Significant accounting judgments, estimates and assumptions (continued) Significant estimates and assumptions (continued) 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 indicativeof future trends, 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 aremaining term approximating the expected life of the option award being valued.Expected dividend yieldThe Group set an dividend yield based on historical payout and best management’s expectation for dividends distribution.Fair value of the underlying sharesThe fair value of shares defined by reference to closing market price of the Group’s traded shares.Estimated forfeituresThe forfeiture rate for RSUs granted during the period is 11-16%. It is based on historical data and current expectations and is not necessarilyindicative of forfeiture patterns that may occur.Uncertain position over risk assessmentThe Group disclosed possible and accrued probable risks in respect on currency, customs, tax and other regulatory positions. Management estimatesthe amount of risk based on its interpretation of the relevant legislation, in accordance with the current industry practice and in conformity with itsestimation of probability, which require considerable judgment. F-40Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 5.Consolidated subsidiariesThe consolidated IFRS financial statements include the assets, liabilities and financial results of the Company and its subsidiaries. The subsidiaries arelisted below: Ownership interest Subsidiary Main activity As ofDecember 31,2017 As ofDecember 31,2018 JSC QIWI (Russia) Operation of electronic payment kiosks 100% 100% QIWI Bank JSC (Russia) Maintenance of electronic paymentsystems, money transfer, consumerand SME financial services 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 (Romania) Operation of electronic payment kiosks 100% 100% QIWI WALLET EUROPE SIA (Latvia) Operation of on-line payments 100% 100% QIWI Retail LLC (Russia)* Sublease of space for electronicpayment kiosks 100% — QIWI Management Services FZ-LLC (UAE) Management services 100% 100% Attenium LLC (Russia) Management services 100% 100% Postomatnye Tekhnologii LLC (Russia) Logistic 100% 100% Future Pay LLC (Russia) Operation of on-line payments 100% 100% Qiwi Blockchain Technologies LLC (Russia) Software development 100% 100% QIWI Shtrikh LLC (Russia) On-line cashbox production 51% 51% QIWI Platform LLC (Russia) Software development 100% 100% QIWI Processing LLC (Russia) Software development 100% 100% Joint ventures (Note 6, Note 21) Flocktory Ltd (Cyprus) Holding company 82% 82% Flocktory Spain S.L. (Spain) SaaS platform for customer lifecyclemanagement and personalization 82% 82% FreeAtLast LLC (Russia) SaaS platform for customer lifecyclemanagement and personalization 82% 82% Associate (Note 6, Note 20) JSC Tochka (Russia) Digital services for banks — 40% *QIWI Retail LLC was liquidated during the year 2018. F-41Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 6.Acquisitions and business combinations2018RocketbankIn July 2018, the Group obtained control over Rocketbank business, which does not represent a separate legal entity and will operate under thebanking license of QIWI bank . Rocketbank is primarily focused on consumer financial services. The transaction was structured as an acquisition ofassets combined with hiring of Rocketbank employees by the Group. The acquisition has been accounted for using the acquisition method.Pre-existing relationships between the Group and Rocketbank were not significant.Consideration paid for Rocketbank business comprises only of cash in the amount of 183.The fair value of the identifiable assets and liabilities as of the date of acquisition was: Fair value Net assets acquired: Property and equipment 113 Intangible assets 393 Deferred tax asset 3 Other liabilities (419) Total identifiable net assets at fair value 90 Consideration paid 183 Goodwill arising on acquisition 93 Goodwill in the amount of 93 relates to qualified workforce and is equal to the difference between fair value of net assets acquired in the businessacquisition and the consideration paid. Goodwill was allocated to CGU Rocketbank. The Group determined the fair value of Rocketbank software,trademarks, client base and recognized as intangible assets as 393. The Group also obtained a liability regarding loyalty program of the acquired clientbase in the amount of 419. The Group received a compensation in the amount of 321 from seller for loyalty program liability transferred which wasincluded as decrease of consideration paid. None of the goodwill recognised is expected to be deductible for income tax purposes.Revenue of Rocketbank business from the acquisition date to the reporting date amounted to 180 and the net loss was 818. If Rocketbank business hadbeen part of the Group from the beginning of the year, the Group’s revenue through to the reporting date would have amounted to 31,016 and net profitto 2,266. Analysis of cash flows on acquisition for 2018: Amount Cash paid to the seller for non-current assets (83) Cash paid to the top-management of Rocketbank (100) Cash received from the seller 321 Total cash received upon business combination in the year 2018 138 Cash paid to the seller purchases of non-current assets of Rocketbank in the year 2017 was 321. F-42Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 6.Acquisitions and business combinations (continued) JSC TochkaIn June 2018, the Group, Bank Financial Corporation Otkritie and Tochka management signed a cooperation agreement to establish a new entity todevelop the Tochka project together as a multi-banking platform. In July 2018 new entity JSC Tochka was created. Tochka is a digital banking servicefocused on offering a broad range of services to small and medium businesses. The capital structure of the new entity is as follows: Otkritie Bank has50% + 1 share, QIWI—40% and Tochka management has 10%—1 share, while dividends and potential capital gains are distributed as follows: QIWIand Otkritie Bank to receive 45% each and 10% will be attributed to Tochka management. QIWI Group assesses its share in the new entity at 45%(according to its share in dividends and potential capital gains). Otkritie can impose its decisions by forcefully acquiring the shares of other partners incase of deadlocks, so the Group believes it only has significant influence over JSC Tochka. The Group recognizes this investment as an associate andhas been accounted for it under the equity method. As part of the transaction Bank Financial Corporation Otkritie, Tochka management and the Groupagreed to each contribute their assets to the new entity, including software, hardware and cash financing.The structure of the Group contribution was the following: Non-monetary assets 125 Monetary assets* 992 Total contribution 1,117 *No cash was paid during 2018.No significant additional contributions are expected to be made in the next periods.The fair value of assets contributed to JSC Tochka was: Fair value Property and equipment 47 Intangible assets 88 Cash, accounts receivable and promissory notes 1,753 Total contributions 1,888 Group’s share (45%) 850 Contribution of the Group 1,117 Loss on set up of associate (267) The loss in the amount of 267 relates to disproportional contribution of assets by the Group as compared to other shareholders and is equal to thedifference between the fair value of the obtained share in the JSC Tochka’s assets and Group contribution made. F-43Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 6.Acquisitions and business combinations (continued) 2017FLOCKTORYOn March 22, 2017, the Group acquired 82% stake in Flocktory Ltd, non-public company, operating in Russia and Spain. Flocktory Ltd operatesthrough its subsidiaries Flocktory Spain S.L. and FreeAtLast LLC (Russia). The Flocktory’s business is primarily focused on the development ofautomated marketing solutions for the e-commerce, financial, media and travel industries, which are based on data collection and analysis andsubstantively represents SaaS platform for customer lifecycle management and personalization.According to the shareholders’ agreement and Flocktory articles of association, decisions on relevant activities require unanimous consent of allshareholders. Thus, since the date of acquisition the Group has exercised a joint control over Flocktory Ltd and recognized it as a joint ventureaccounted for under equity method. Pre-existing relationships between the Group and Flocktory group were not significant.QIWI entered into call and put option agreements with respect to the remaining 18% stake in Flocktory Ltd. Put option provides right to minorityshareholders to sell their remaining shares in Flocktory to QIWI after the acquisition date. Put option becomes exercisable after one year from theacquisition date for 50% of minority shares, after year and a half from acquisition for 25% of minority shares and after two years form acquisition—remaining 25%.The consideration was made by the following: Cash consideration paid 794 Cash payable for Flocktory’s stock option plan cancelation* 37 Total purchase consideration transferred 831 *Based on the share purchase agreement (SPA) Qiwi plc is obliged to offer to employee stock option plan (ESOP) participants of Flocktory Ltd cashconsideration for cancellation of 504 ESOP rights, 259 of which were cancelled at the date of acquisition (March 22, 2017), 120 offered forcancellation – at March 22, 2018, and 125 to be offered for cancellation at March 22, 2019.The fair value of the identifiable assets and liabilities as of the date of acquisition was: Fair value Net assets acquired: Property and equipment 1 Intangible assets 720 Accounts receivable 26 Cash and cash equivalents 55 Trade and other payables (21) Other liabilities (1) Total identifiable net assets at fair value 780 Group’s share of net assets (82%) 639 Goodwill arising on acquisition 192 Goodwill related to the joint venture amounted to 192 and is included in the carrying amount of the investment in joint venture. F-44Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 7.Operating segmentsIn reviewing the operational performance of the Group and allocating resources, the chief operating decision maker of the Group (CODM), who is theCroup’s CEO and its ultimate controlling shareholder, 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 CEO responsibilities 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 total bonus pool for those executive officers. In case of underperformance of corporate KPIs a right to make a final decision onbonus pool distribution is left with the BOD; • The CEO is actively involved in the operations of the Group and regularly chairs meetings on key projects of the Group; and • The CEO regularly reviews the financial and operational reports of the Group. These reports primarily include segment net revenue,segment profit before tax and segment net profit for the Group as well as certain operational data.The financial data is presented on a combined basis for all key subsidiaries, joint ventures and associates representing the segment net revenue,segment profit before tax and segment net profit. The Group measures the performance of its operating segments by monitoring: segment net revenue,segment profit before tax and segment net profit. Segment net revenue is a measure of profitability defined as the segment revenues less segment directcosts, which include the same items as the “Cost of revenue (exclusive of depreciation and amortization)” as reported in the Group’s consolidatedstatement of comprehensive income, except for payroll costs. Payroll costs are excluded because, although required to maintain the Group’s operations,they are not linked to volume. The Group does not monitor balances of assets and liabilities by segments as CODM considers they have no impact ondecision-making.The Group has identified its operating segments based on the types of products and services the Group offers. Before January 1, 2018, the Groupreported two segments: Payment Services (PS) and Consumer Financial Services (CFS). Since 2018, the Group additionally discloses: Small andMedium Enterprises (SME) segment and Rocketbank segment. In 2018, the Group completed the deal related to acquisition of Rocketbank and startedto invest in new business activities which resulted in Rocketbank segment becoming significant. As a result, starting 2018, CODM reviews segment netrevenue, segment profit before tax and segment net profit separately for each of the following reportable segments: Payment Services, ConsumerFinancial Services, Small and Medium Enterprises and Rocketbank: • Payment Services (PS), operating segment that generates revenue through operations of our payment processing system offered to ourcustomers through a diverse range of channels and interfaces; • Consumer Financial Services (CFS), operating segment that generates revenue through financial services rendered to individuals, currentlypresented by Sovest installment card project; • Small and Medium Enterprises (SME), operating segment that generates revenue through offering a broad range of services to small andmedium businesses. • Rocketbank (RB), operating segment that generates revenue through digital banking service offering debit cards and deposits to retailcustomers.For the purpose of management reporting, expenses related to corporate back-office operations were not allocated to any operating segment and arepresented separately to CODM. Results of other operating segments and corporate expenses are included in Corporate and Other (CO) category for thepurpose of segment reporting. F-45Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 7.Operating segments (continued) Management reporting is different from IFRS, because it does not include certain IFRS adjustments, which are not analyzed by the CODM in assessingthe operating performance of the business. The adjustments affect such major areas as deferred taxation, share-based payments, foreign exchangegain/(loss) from revaluation of cash proceeds received from secondary public offering, effect from disposal of subsidiaries and fair value adjustments,such as amortization and impairment.The segments’ statement of comprehensive income for the year ended December 31, 2018, as presented to the CODM are presented below: 2018 PS CFS SME RB CO Total Revenue 26,649 558 3,045 180 178 30,610 Segment net revenue 16,497 385 2,916 (263) 122 19,657 Segment profit/(loss) before tax 11,552 (3,281) (898) (1,327) (974) 5,072 Segment net profit/(loss) 9,529 (2,618) (776) (1,061) (937) 4,137 The segments’ statement of comprehensive income for the year ended December 31, 2017, as presented to the CODM are presented below: 2017* PS CFS SME RB CO Total Revenue 20,133 105 611 — 48 20,897 Segment net revenue 12,580 9 578 (5) 31 13,193 Segment profit/(loss) before tax 8,795 (2,704) (190) (323) (760) 4,818 Segment net profit/(loss) 7,543 (2,164) (171) (311) (843) 4,054 The segments’ statement of comprehensive income for the year ended December 31, 2016, as presented to the CODM are presented below: 2016* PS CFS CO Total Revenue 17,846 1 33 17,880 Segment net revenue 10,583 (3) 31 10,611 Segment profit/(loss) before tax 6,454 (259) (605) 5,590 Segment net profit/(loss) 5,612 (219) (679) 4,714 *For comparative purposes 2016 and 2017 segment information is presented in 2018 format. F-46Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 7.Operating segments (continued) Segment net revenue, as presented to the CODM, for the years ended December 31, 2016, 2017 and 2018 is calculated by subtracting cost of revenue(exclusive of depreciation and amortization) from revenue and adding back payroll and related taxes as presented in the table below: 2016 2017 2018 Revenue under IFRS 17,880 20,897 30,610 Cost of revenue (exclusive of depreciation and amortization) (8,646) (9,763) (15,129) Payroll and related taxes 1,377 2,059 4,176 Total segment net revenue, as presented to CODM 10,611 13,193 19,657 A reconciliation of segment profit before tax as presented to the CODM to IFRS consolidated profit before tax of the Group, for the years endedDecember 31, 2016, 2017 and 2018 is presented below: 2016 2017 2018 Consolidated profit before tax under IFRS 3,107 3,840 4,501 Amortization of fair value adjustments recorded on business combinations 396 344 369 Share-based payments 224 398 635 Foreign exchange loss/(gain) from revaluation of cash proceeds received from secondary public offering (Note 30) 975 236 (433) Impairment of intangible assets recorded on acquisitions 878 — — Loss on disposal of subsidiaries, net 10 — — Total segment profit before tax, as presented to CODM 5,590 4,818 5,072 A reconciliation of segment net profit as presented to the CODM to IFRS consolidated net profit of the Group, for the years ended December 31, 2016,2017 and 2018 is presented below: 2016 2017 2018 Consolidated net profit under IFRS 2,489 3,142 3,626 Amortization of fair value adjustments recorded on business combinations 396 344 369 Share-based payments 224 398 635 Foreign exchange loss/(gain) from revaluation of cash proceeds received from secondary public offering (Note 30) 975 236 (433) Impairment of intangible assets recorded on acquisitions 878 — — Loss on disposal of subsidiaries, net 10 — — Effect from taxation of the above items (258) (66) (60) Total segment net profit, as presented to CODM 4,714 4,054 4,137 F-47Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 7.Operating segments (continued) Geographic informationRevenues from external customers are presented below: 2016 2017 2018 Russia 13,274 15,556 22,693 Other CIS 1,099 1,098 1,393 EU 807 989 2,353 Other 2,700 3,254 4,171 Total revenue per consolidated statement of comprehensive income 17,880 20,897 30,610 Revenue is recognized according to merchants’ geographic place. The majority of the Group’s non-current assets is located in Russia.The Group does not have any single external customer amounting to 10% or greater of the Group’s revenue for the years ended December 31, 2018,2017 and 2016. 8.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 weightedaverage number 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 effectof any potential share exercise by the weighted average number of ordinary shares outstanding during the year plus the weighted average number ofordinary shares that would 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: 2016 2017 2018 Net profit attributable to ordinary equity holders of the parent for basicearnings 2,474 3,114 3,584 Weighted average number of ordinary shares for basic earnings per share 60,477,840 60,755,706 61,202,710 Effect of share-based payments 167,197 404,357 522,116 Weighted average number of ordinary shares for diluted earnings pershare 60,645,037 61,160,063 61,724,826 Earnings per share: Basic, profit attributable to ordinary equity holders of the parent 40.91 51.25 58.56 Diluted, profit attributable to ordinary equity holders of the parent 40.79 50.92 58.06 There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion ofthese financial statements. F-48Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 9.Property and equipment Processingservers andengineeringequipment Computersand officeequipment Otherequipment Constructionin progress(CIP) andAdvances forequipment Total Cost Balance as of December 31, 2016 695 91 162 81 1,029 Transfer between groups 77 1 — (78) — Additions 196 45 16 108 365 Disposals (146) (7) (4) — (157) Balance as of December 31, 2017 822 130 174 111 1,237 Transfer between groups 22 5 12 (39) — Additions 478 134 109 15 736 Additions from business combinations (Note 6) 82 22 9 (68) 45 Disposals* (65) (13) (109) — (187) Balance as of December 31, 2018 1,339 278 195 19 1,831 Accumulated depreciation and impairment: Balance as of December 31, 2016 (328) (61) (47) — (436) Depreciation charge (150) (21) (35) — (206) Disposals 122 6 1 — 129 Balance as of December 31, 2017 (356) (76) (81) — (513) Depreciation charge (192) (40) (52) — (284) Disposals 16 10 14 — 40 Balance as of December 31, 2018 (532) (106) (119) — (757) Net book value As of December 31, 2016 367 30 115 81 593 As of December 31, 2017 466 54 93 111 724 As of December 31, 2018 807 172 76 19 1,074 *Disposal in the year 2018 includes property and equipment that were classified as held for sale as of December 31, 2018 in the net book value of 90.As of December 31, 2018, the gross book value of fully depreciated assets is equal to 249 (2017 – 184). F-49Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 10. Intangible assets Cost: Goodwill Licenses ComputerSoftware Customerrelationships Trade marks Contractrights Advances forintangibles, CIPand others Total Balance as of December 31, 2016 6,285 284 910 5,338 216 295 112 13,440 Additions — — 244 — — — 240 484 Transfer between groups — — 54 — — — (54) — Disposals — (101) (125) (12) — (295) (99) (632) Balance as of December 31, 2017 6,285 183 1,083 5,326 216 — 199 13,292 Additions — — 279 — — — 106 385 Additions from business combinations(Note 6) 93 — 166 88 139 — (149) 337 Transfer between groups — — 31 — — — (31) — Disposals — — (205) — — — (19) (224) Balance as of December 31, 2018 6,378 183 1,354 5,414 355 — 106 13,790 Accumulated Amortization: Balance as of December 31, 2016 — (59) (436) (1,536) (90) (295) (2) (2,418) Amortization charge — (42) (220) (286) (36) — (6) (590) Impairment — — — (8) — — (96) (104) Disposals — 101 120 12 2 295 97 627 Balance as of December 31, 2017 — — (536) (1,818) (124) — (7) (2,485) Amortization charge — — (245) (289) (43) — (3) (580) Impairment — — (4) — — — (19) (23) Disposals — — 125 — — — 19 144 Balance as of December 31, 2018 — — (660) (2,107) (167) — (10) (2,944) Net book value As of December 31, 2016 6,285 225 474 3,802 126 — 110 11,022 As of December 31, 2017 6,285 183 547 3,508 92 — 192 10,807 As of December 31, 2018 6,378 183 694 3,307 188 — 96 10,846 As of December 31, 2018, the gross book value of fully amortized intangible assets is equal to 190 (2017 – 169). F-50Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 11.Impairment testing of goodwill and intangible assetsThe Group identified the following significant CGU’s: Payment Services, SOVEST, Tochka, Rocketbank, Postomatnye Tekhnologii and Flocktory. Asof December 31, 2018 the Goodwill is allocated to two of CGUs: Payment Services and Rocketbank and intangible assets with indefinite useful liferelates to four CGUs: Payment Services, SOVEST, Tochka, Rocketbank.An analysis and movement of net book value of goodwill and indefinite life licenses acquired through business combinations, as included in theintangible assets (Note 10), is as follows: Goodwill Indefinitelife license Total Payment services Rocketbank As of December 31, 2016 6,285 — 183 6,468 As of December 31, 2017 6,285 — 183 6,468 Addition (Note 6) — 93 — 93 As of December 31, 2018 6,285 93 183 6,561 The Group tests its goodwill and the intangible assets with indefinite useful life annually.GoodwillFor the purpose of goodwill impairment test of the Payment services CGU the Company estimated the recoverable amount as fair value less costs ofdisposal on the basis of quoted prices of the Company’s ordinary shares (Level 1). As a result of annual impairment test the Group did not identifyimpairment of Goodwill allocated to Payment services CGU as of December 31, 2017 and 2018.The recoverable amount of Rocketbank CGU has been determined based on a value in use calculation (Level 3) using cash flow projections fromfinancial budgets approved by senior management covering an five-year period (2019-2023). The pre-tax discount rate adjusted to risk specific appliedto cash flow projections of Rocketbank CGU is 21%. The growth rates applied to discounted terminal value projection in beyond the forecast period is4%.The calculation of value in use for this cash generating unit is sensitive to: • Number of new clients acquired, and its attrition rate; • Commission revenue per client; • Terminal growth rates used to extrapolate cash flows beyond the budget period; • Discount rates.With regard to the assessment of value in use of Rocketbank CGU, a rise in the discount rate to by 1.2% or a decrease in commission revenue per clientby 7.5% would result in impairment. Management believes that no reasonably possible change in any other key assumptions would cause the carryingvalue of the unit to materially exceed its recoverable amount.As a result of annual impairment test the Group did not identify any impairment of Goodwill allocated to Rocketbank CGU as of December 31, 2018. F-51Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 11.Impairment testing of goodwill and intangible assets (continued) Intangible assets with indefinite useful lifeAs of December 31, 2018, the carrying amount of intangible assets with an indefinite useful life (licenses for banking operations, which are expected tobe renewed indefinitely) is recognized with a value of 183 (2017—183). Intangible assets with an indefinite useful life were recorded by the Group atthe date of acquisition of QIWI Bank JSC.For the purpose of the impairment test of the intangible assets with indefinite useful life, the Company estimated the recoverable amounts of eachasset as fair value less costs of disposal on the basis of comparative method and cost approach (Level 3). Under the valuation using the comparativemethod the Group considered similar third-party’s transactions for acquisition of banks or bank organization that holds licenses identical to theGroup’s ones. Under the valuation using the cost approach the Group considered outflows required to meet the requirements for a minimum amount ofequity to be held by the bank or bank organization with licenses similar to the Group ones according to current legislation.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.The Group performed an annual impairment test of Qiwi Bank’s license as of December 31, 2018 and as of December 31, 2017, no impairment wasidentified. Reasonably possible changes in any valuation parameters would not result in impairment of intangible assets with indefinite useful life.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 fairvalue less costs 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 allocated to Rapida CGU (combined with Payment serviceCGU in 2017 after the completion of integration of Rapida business) and performed an impairment test of this CGU, which indicated an impairment asof the reporting date in the amount of 847. As of December 31, 2017 the Group identified the impairment indicators of New terminal CGU and impairedit fully by the amount of 89. As of December 31, 2018 the Group did not recognize any significant impairment of intangible assets. F-52Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 12.Long-term and short-term loans issuedAs of December 31, 2018, long-term and short-term loans issued consisted of the following: Total as ofDecember 31,2018 Expected creditloss allowance Net as ofDecember 31,2018 Long-term loans Loans to legal entities 235 (5) 230 Total long-term loans 235 (5) 230 Short-term loans Loans to individuals 30 — 30 Loans to legal entities 1,612 (26) 1,586 Instalment Card Loans 6,096 (822) 5,274 Total short-term loans 7,738 (848) 6,890 As of December 31, 2017, long-term and short-term loans consisted of the following: Total as ofDecember 31,2017 Provision forimpairment ofloans Net as ofDecember 31,2017 Long-term loans Loans to individuals 1 — 1 Loans to legal entities 166 (3) 163 Total long-term loans 167 (3) 164 Short-term loans Loans to financial institutions 3 (3) — Loans to legal entities 94 (93) 1 Instalment Card Loans 1,912 (222) 1,690 Total short-term loans 2,009 (318) 1,691 The amounts in the tables show the maximum exposure to credit risk regarding loans issued. The Group has no internal grading system of loans issuedfor credit risk rating grades analysis. Loans issued are not collateralized.An analysis of the changes in the ECL allowances due to changes in corresponding gross carrying amounts for the year ended December 31, 2018, wasthe following: Stage 1Collective Stage 2Collective Stage 3 Total ECL allowance under IFRS 9 as of January 1, 2018 (Note 2.3(e)) (175) (60) (194) (429) Changes because of financial instruments (originated or acquired)/derecognized duringthe reporting period (146) (44) (309) (499) Transfers between stages 105 (16) (89) — Amounts written off — — 75 75 ECL allowance under IFRS 9 as of December 31, 2018 (216) (120) (517) (853) F-53Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 12.Long-term and short-term loans issued (continued) The movement of provision for impairment of loans for 2017 was the following: Provision forimpairmentof loans as ofDecember 31,2016 (Charge)/reversal forthe year Utilisation Provision forimpairmentof loans as ofDecember 31,2017 Instalment Card Loans — (222) — (222) Loans to legal entities (113) 3 14 (96) Loans to financial institutions (3) — — (3) Total (116) (219) 14 (321) The movement of provision for impairment of loans for 2016 was the following: Provision forimpairmentof loans as ofDecember 31,2015 Chargefor the year Utilisation Provision forimpairmentof loans as ofDecember 31,2016 Loans to legal entities (199) (53) 139 (113) Loans to financial institutions (3) — — (3) Total (202) (53) 139 (116) 13.Trade and other receivablesAs of December 31, 2018, trade and other receivables consisted of the following: Total as ofDecember 31,2018 Expected credit lossallowance/Provision forimpairment Net as ofDecember 31,2018 Cash receivable from agents 4,207 (270) 3,937 Deposits issued to merchants 2,975 (16) 2,959 Commissions receivable 559 (21) 538 Advances issued 287 (12) 275 Other receivables 380 (47) 333 Total trade and other receivables 8,408 (366) 8,042 As of December 31, 2017, trade and other receivables consisted of the following: Total as ofDecember 31,2017 Provision forimpairment ofreceivables Net as ofDecember 31,2017 Cash receivable from agents 4,666 (426) 4,240 Deposits issued to merchants 3,919 (13) 3,906 Commissions receivable 827 (18) 809 Advances issued 240 (1) 239 Other receivables 541 (87) 454 Total trade and other receivables 10,193 (545) 9,648 The amounts in the tables show the maximum exposure to credit risk regarding Trade and other receivables. The Group has no internal grading systemof Trade and other receivables for credit risk rating grades analysis. F-54Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 13.Trade and other receivables (continued) An analysis of the changes in the ECL allowances due to changes in the corresponding gross carrying amounts for the year ended December 31, 2018,was the following: Total ECL allowance under IFRS 9 as of January 1, 2018 (Note 2.3(e)) (578) Changes because of financial instruments (originated or acquired)/ derecognized during thereporting period 5 Amounts written off 207 ECL allowance under IFRS 9 as of December 31, 2018 (366) For the year ended December 31, 2017, the provision for impairment of receivables movement was the following: Provision forimpairment ofreceivables asof December 31,2016 (Charge)/reversal forthe year Utilisation Provision forimpairment ofreceivables asof December 31,2017 Cash receivable from agents (659) 16 217 (426) Deposits issued to merchants (3) (11) 1 (13) Commissions receivable (7) (11) — (18) Advances issued (1) — — (1) Other receivables (109) 5 17 (87) Total trade and other receivables (779) (1) 235 (545) For the year ended December 31, 2016, the provision for impairment of receivables movement was the following: Provision forimpairment ofreceivables asof December 31,2015 Chargefor the year Utilisation Provision forimpairment ofreceivables asof December 31,2016 Cash receivable from agents (660) (125) 126 (659) Deposits issued to merchants (1) (2) — (3) Commissions receivable (21) (1) 15 (7) Advances issued (1) — — (1) Other receivables (111) (14) 16 (109) Total trade and other receivables (794) (142) 157 (779) Receivables are non-interest bearing, except for agent receivables bearing, generally, interest rate of 14%-36% per annum and credit terms generally donot exceed 30 days. There is no requirement for collateral for customer to receive credit. F-55Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 14.Cash and cash equivalentsAs of December 31, 2018 and 2017, cash and cash equivalents consisted of the following: As ofDecember 31,2017 As ofDecember 31,2018 Correspondent accounts with CBR 6,522 5,587 Cash with banks and on hand 4,063 13,119 Short-term CBR deposits 6,500 21,000 Other short-term bank deposits 1,322 1,267 Less: Allowance for ECL/impairment losses (1) (7) Total cash and cash equivalents 18,406 40,966 The amounts in the table show the maximum exposure to credit risk regarding cash and cash equivalents. The Group has no internal grading system ofcash and cash equivalents for credit risk rating grades analysis.Since 2017 the Company has the bank guarantee and secured it by a cash deposit of U.S.$ 2.5 mln until July 31, 2019. 15.Other current assets and other current liabilities 15.1Other current assetsAs of December 31, 2018 and 2017, other current assets consisted of the following: As ofDecember 31,2017 As ofDecember 31,2018 Reserves at CBR* 229 684 Prepaid expenses 99 156 VAT and other taxes receivable 51 12 Other 79 77 Total other current assets 458 929 *Banks are currently required to post mandatory reserves with the CBR to be held in non-interest bearing accounts. Starting from August 1, 2018,such mandatory reserves established by the CBR constitute 5% for liabilities in RUR and 7-8% for liabilities in foreign currency. The amount isexcluded from cash and cash equivalents for the purposes of cash flow statement and does not have a repayment date. 15.2Other current liabilitiesAs of December 31, 2018 and 2017, other current liabilities consisted of the following: As ofDecember 31,2017 As ofDecember 31,2018 Loyalty program liability — 473 Other 51 58 Total other current liabilities 51 531 F-56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 sharehas the right to 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 otherdistribution the Company pays and have nominal of EUR 0.0005 each. Authorised shares As ofDecember 31,2016 As ofDecember 31,2017 As ofDecember 31,2018 Thousands Thousands Thousands Ordinary Class A shares 133,017 131,778 131,333 Ordinary Class B shares 97,833 99,072 99,517 Total authorised shares 230,850 230,850 230,850 Issued and fully paid shares As ofDecember 31,2016 As ofDecember 31,2017 As ofDecember 31,2018 Thousands Thousands Thousands Ordinary Class A shares 15,517 14,278 13,833 Ordinary Class B shares 45,080 46,655 48,880 Total issued and fully paid shares 60,597 60,933 62,713 As of December 31, 2018 the Company owned 1,261 thousand treasury class B shares (December 31,2017—nil) that were issued and fully paid in 2018and retained by QIWI Employee trust (see Note 32.1) in order to settle future obligations on share-based payments.For the year ended December 31, 2018 and 2017 the movement of number of shares outstanding was the following: OrdinaryClass A shares OrdinaryClass B shares Numberof outstandingshares Thousands Thousands Thousands As of December 31, 2016 15,517 45,080 60,597 Transfer between classes (1,239) 1,239 — Increase of share capital due to exercise of options by employeesduring the year — 336 336 As of December 31, 2017 14,278 46,655 60,933 Transfer between classes (445) 445 — Increase of share capital due to exercise of options by employeesduring the year — 519 519 As of December 31, 2018 13,833 47,619 61,452 In case of liquidation, the Company’s assets remaining after settlement with creditors, payment of dividends and redemption of the par value of sharesis distributed among 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 settled share-based payments to employees, acquisitionsand disposals, as well as other operations with non-controlling interests in the subsidiaries without loss of control. F-57Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 17.BorrowingsDuring the year ended December 31, 2018 the Group had available overdraft credit facilities with an overall credit limit of 1,460, with maturity up toJune 2020, and interest rate of up to 30% per annum. The balance payable under these credit lines as of December 31, 2018 was nil. Some of theseagreements stipulated the right of a lender to increase the interest rate in case the covenants are violated. 18.Trade and other payablesAs of December 31, 2018 and 2017, the Group’s trade and other payables consisted of the following: As ofDecember 31,2017 As ofDecember 31,2018 Payables to merchants 9,178 13,942 Money remittances and e-wallets accounts payable 5,312 6,571 Deposits received from agents 3,638 4,839 Commissions payable 469 601 Accrued personnel expenses and related taxes 353 562 Provision for undrawn credit commitments (Note 28) — 84 Other payables 573 848 Other advances received 76 52 Total trade and other payables 19,599 27,499 19.Customer accounts and amounts due to banksAs of December 31, 2018 and 2017, customer accounts and amounts due to banks consisted of the following: As ofDecember 31,2017 As ofDecember 31,2018 Due to banks 1,390 1,391 Due to individuals 110 10,844 Due to legal entities 1,571 3,767 Term deposits 111 2,103 Total customer accounts and amounts due to banks 3,182 18,105 Including long-term deposits — 237 Customer accounts and amounts due to banks bear interest of up to 6%. F-58Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 20.Investment in associatesThe Group has a single associate: JSC Tochka (see Note 6).QIWI Group assesses its share in the new entity at 45% according to its share in dividends and potential capital gains. The Group’s interest in JSCTochka is accounted for using the equity method in the consolidated financial statements.The following table illustrates summarized financial information of the Group’s investment in JSC Tochka associate: As ofDecember 31,2018 Associates’ statement of financial position: Non-current assets 149 Current assets 1,836 including cash and cash equivalents 1,326 Current liabilities (183) including financial liabilities (183) Net assets 1,802 Carrying amount of investment in associates (45%) of net assets 812 Associate’ revenue and net income for the year ended December 31 was as follows: 2018 Revenue 4 Cost of revenues (3) Other income and expenses, net (85) including depreciation and amortization (1) Total net loss (84) Group’s share (45%) of total net loss (38) F-59Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 21.Investment in joint ventureThe Group has a single joint venture: Flocktory Ltd with subsidiaries (see Note 6). Three parties exercising joint control over this entity makeunanimous decisions on major issues, including distribution and payment of dividends.The Group’s interest in Flocktory joint venture is accounted for using the equity method in the consolidated financial statements.The following table illustrates summarized financial information of the Group’s investment in Flocktory joint venture: As ofDecember 31,2017 As ofDecember 31,2018 Joint venture companies’ statement of financial position: Non-current assets 666 598 Current assets 125 191 including cash and cash equivalents 80 144 Current liabilities (11) (20) including financial liabilities (9) (18) Net assets 780 769 Group’s share (82%) of net assets 640 631 Goodwill 192 205 Carrying amount of investment in joint venture company 832 836 Joint venture’ revenue and net income for the years ended December 31 was as follows: 2017 2018 Revenue 187 332 Cost of revenues (79) (142) Other income and expenses, net (107) (200) including depreciation and amortization (59) (79) Total net loss 1 (10) Group’s share (82%) of total net loss 1 (8) The Group did not identify any impairment indicators regarding its investment in Flocktory joint venture as at December 31, 2018 and December 31,2017. F-60Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 22.RevenueOther revenue for the years ended December 31 was as follows: 2016 2017 2018 Cash and settlement service fees 130 670 3,017 Other revenue 562 600 626 Total other revenue 692 1,270 3,643 For the purposes of consolidated cash flow statement, “Interest income, net” consists of the following: 2016 2017 2018 Interest revenue calculated using the effective interest rate (899) (1,052) (1,854) Interest expense classified as part of cost of revenue 37 42 89 Interest income from non-banking loans classified separately in the consolidated statement ofcomprehensive income (36) (35) (41) Interest expense from non-banking loans classified separately in the consolidated statement ofcomprehensive income 64 29 24 Interest income, net, for the purposes of consolidated cash flow statement (834) (1,016) (1,782) 23.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: 2016 2017 2018 Transaction costs 6,490 6,756 9,324 Payroll and related taxes 1,377 2,059 4,176 Other expenses 779 948 1,629 Total cost of revenue(exclusive of depreciation and amortization) 8,646 9,763 15,129 F-61Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 24.Selling, general and administrative expensesSelling, general and administrative expenses for the years ended December 31 were as follows: 2016 2017 2018 Compensation to employees, related taxes and other personnel expenses 1,682 2,227 3,572 Advertising, client acquisition and related expenses 165 1,294 2,369 Tax expenses, except income and payroll related taxes 175 407 690 Advisory and audit services 297 433 661 Rent of premises and related utility expenses 346 391 643 IT related services 180 236 364 Loss/(gain) from initial recognition, net — — 143 Other expenses 363 1,035 1,229 Total selling, general and administrative expenses 3,208 6,023 9,671 25.Other income and expensesOther income and expenses for the years ended December 31 was as follows: 2016 2017 2018 Loss on set up of associate (Note 6) — — (267) Compensation of expenses from an associate — — 181 Change in fair value of financial instruments — — (86) Share in loss of associates and joint ventures — — (46) Loss on disposal of subsidiaries (10) — — Other expenses (76) (71) (27) Other Income 7 30 18 Total other income and expenses, net (79) (41) (227) 26.Dividends paid and proposedDividends paid and proposed by the Group to the shareholders of the parent are presented below: 2016 2017 2018 Proposed, declared and approved during the year: 2018: nil(2017: Final dividend for 2016: U.S.$ 11,520,798, Interim dividend for 2017: U.S.$ 26,113,7882016: Final dividend for 2015: U.S.$ 30,210,153, Interim dividend for 2016: U.S.$ 39,943,003) 4,843 2,207 — Paid during the period*: 2018: nil(2017: Final dividend for 2016: U.S.$ 11,520,798, Interim dividend for 2017: U.S.$ 26,113,7882016: Final dividend for 2015: U.S.$ 30,210,153, Interim dividend for 2016: U.S.$ 39,943,003) 4,628 2,148 — Proposed for approval (not recognized as a liability as of December 31): 2018: nil2017: nil2016: Final dividend for 2016: U.S.$ 11,513,436 679 — — Dividends payable as of December 31 — — — *The difference between paid and declared dividends represents foreign exchange movement F-62Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 27.Income taxThe Company is incorporated in Cyprus under the Cyprus Companies Law, but the business activity of the Group and joint ventures is subject totaxation in multiple 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 gains tax is levied at a rate of 20% on profits from disposal of immovable property situated in Cyprus or of shares in companies which ownimmovable property situated in 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 companyderives at least 50% of its income directly or indirectly from activities which do not lead to investment income (“active versus passive investmentincome test” is met) or the foreign tax burden on the profit to be distributed as dividend has not been substantially lower than the Cypriot corporateincome tax rate (i.e. lower than 6.25%) at the level of the dividend paying company (“effective minimum foreign tax test” is met). The Company hasnot been subject to defence tax on dividends received from abroad as the dividend paying entities are engaged in operating 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 incomereceived from Russia government bonds and 20% applied to their other taxable income. Withholding tax of 15% is applied to any dividends paid outof Russia, reduced to as low as 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-63Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 27.Income tax (continued) Deferred income tax assets and liabilities as of December 31, 2018 and 2017, relate to the following: Consolidated statement offinancial position as ofDecember 31 Consolidated statement ofcomprehensive income for theyear ended 2018 2017 2018 2017 Intangible assets (678) (719) 59 65 Trade and other payables 181 166 (7) 36 Trade and other receivables 31 101 (74) (37) Loans issued 69 48 (2) 21 Taxes on unremitted earnings (253) (184) (69) (109) Other 64 7 36 24 Net deferred income tax asset/(liability) (586) (581) (57) — including: Deferred tax asset 157 245 Deferred tax liability (743) (826) 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: 2016 2017 2018 Deferred income tax asset/(liability), net as of January 1 (834) (581) (581) Impact of adopting IFRS 9 (Note 2.3(e)) — — 49 Effect of acquisitions of subsidiaries — — 3 Deferred tax benefit/(expense) 253 — (57) Deferred income tax asset/(liability), net as of December 31 (581) (581) (586) As of December 31, 2018 the Group does not intend to distribute a portion of its accumulated unremitted earnings in the amount of 3,212 (2017 –2,473). The amount of tax that the Group would pay to distribute them would be 161 (2017 – 124). Unremitted earnings include all earning that wererecognized by the Group’s subsidiaries and that are expected to be distributed to the holding company. F-64Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 27.Income tax (continued) For the year ended December 31 income tax expense included: 2016 2017 2018 Total tax expense Current income tax expense (871) (698) (818) Deferred tax benefit/(expense) 253 — (57) Income tax expense for the year (618) (698) (875) Theoretical and actual income tax expense is reconciled as follows: 2016 2017 2018 Profit before tax 3,107 3,840 4,501 Theoretical income tax expense at the domestic rate in each individual jurisdiction (278) (370) (479) (Increase)/decrease resulting from the tax effect of: Non-taxable income 39 12 70 Non-deductible expenses (269) (222) (388) Income tax associated with earnings of foreign subsidiaries (95) (109) (70) Unrecognized deferred tax assets (15) (9) (8) Total income tax expense (618) (698) (875) During the year ended December 31, 2018 the Group did not recognize deferred tax assets related to the tax loss carry forward in the amount of 8 (2017- 9, 2016 - 15) because the Group did not believe that the realization of the related deferred tax assets is probable. F-65Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 28.Commitments, contingencies and operating risksOperating environmentRussia’s economy has been facing significant challenges for the past few years due to the combined effect of the ongoing crisis in Eastern Ukraine, thedeterioration of Russia’s relationships with many Western countries, the economic and financial sanctions imposed in connection with these events oncertain Russian companies and individuals, as well as against entire sectors of Russian economy, by the U.S., EU, Canada and other countries, a steepdecline in oil prices, a record weakening of the Russian ruble against the U.S. dollar, a lack of access to financing for Russian issuers, capital flight anda general climate of political and economic uncertainty, among other factors. The Russian economy contracted both in 2015 and in 2016, although itreturned to modest growth in 2017 and 2018. During 2014-2016, the population’s purchasing power has decreased due to weakening of the ruble,basic necessities such as food products and utilities became more expensive. Against backdrop in inflation, household consumption decreased in 2015versus 2014, although it subsequently rebound somewhat in absolute terms. Nevertheless, consumer spending generally remains cautious andconsumer confidence is far from its peaks. A further decline in real disposable income and consumer purchasing power is expected in connection withthe recent increase of VAT in Russia effective as of the beginning of 2019. A prolonged economic slowdown in Russia could have a significantnegative effect on consumer spending in Russia and, accordingly, on the Group’s business. As a result of the challenging operating environment inRussia, the Group has experienced slower payment volume growth. Further adverse changes in economic conditions in Russia could adversely impactthe Group’s future revenues and profits and cause a material adverse effect on its business, financial condition and results of operations.Some of Group’s agents, merchants or Tochka’s SME clients, although mostly not incorporated in Crimea, may have operations there. Further, beforethe introduction of the corresponding sanctions the Group has had direct contacts with several Crimea banks that are registered as financial legalentities in Crimea, currently such banks may continue to operate as the Group’ agents or merchants. On December 19, 2014, U.S. President Obamasigned an executive order imposing comprehensive sanctions on the Crimea region. The EU has similarly introduced a broad set of sanctions throughthe Council Regulation (EU) 692/2014 as amended by Regulation (EU) 1351/2014. To date, management does not believe that any of the currentsanctions as in force limit the Group’ ability to work with entities that may have operations in Crimea or operate in Crimea. Nevertheless, if the theGroup is deemed to be in violation of any sanctions currently in place or if any new or expanded sanctions are imposed on Russian businessesoperating in Crimea by the U.S., EU, or other countries, the Group’s business and results of operations may be materially adversely affected. F-66Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 28.Commitments, contingencies and operating risks (continued) Operating environment (continued) In the ordinary course of the Group’s business, it may accept payments from consumers to or otherwise indirectly interact with certain entities that arethe targets of U.S. sanctions. The Group operates primarily within the Russian financial system and, accordingly, many of its customers have accountsat banks in Russia. The U.S., EU and other countries have adopted a package of economic restrictive measures imposing certain sanctions on theoperations of various Russian banks, including VTB Bank and Gazprombank. Some of the Group’s subsidiaries hold bank accounts at theaforementioned banks as well as have overdrafts and bank guarantees with VTB Bank. A number of Russian banks, including Bank Rossiya, SMPBank, Investcapitalbank and Sobinbank have been designated by OFAC and are subject to U.S. economic sanctions. In addition, Tempbank wasdesignated due to its dealings with the Syrian government. U.S. sanctions may be extended to any person that U.S. authorities determine has materiallyassisted, or provided financial, material, or technological support for, or goods or services to or in support of, any sanctioned individuals or entities. Forexample, the Group may be associated with U.S.- designated banks due to accepting payments for them from consumers in the ordinary course ofbusiness, even though the Group may not have any direct contract relationships with them. There can be no assurance that the U.S. Government wouldnot view such activities as meeting the criteria for U.S. economic sanctions.In addition, because of the nature of the Group’s business, management does not generally identify the Group’s customers where there is no expressrequirement to do so under Russian anti-money laundering legislation. Therefore, management is not always able to screen them against the SpeciallyDesignated Nationals and Blocked Persons List published by OFAC and other sanctions lists.While management believes that the Group’s indirect interaction with sanctioned Russian banks and potential interaction with designated individuals,as well as other interactions the Group may potentially have with entities and persons that may be subject to U.S. or EU economic and financialsanctions does not contravene any law, the Group’s business and reputation could be adversely affected if the U.S. government were to designate theGroup as a blocked party and extend such sanctions to it. The executive orders authorizing the U.S. sanctions provide that persons may be designatedif, inter alia, they materially assist, or provide financial, material, or technological support for goods or services to or in support of, blocked ordesignated parties. EU financial sanctions prohibit the direct and indirect making available of funds or economic resources to or for the benefit ofsanctioned parties. Investors may also be adversely affected if the Group is so designated, resulting in their investment in the Group’s securities beingprohibited or restricted. Furthermore, under those circumstances, some U.S. or EU investors may decide for legal or reputational reasons to divest theirholdings in the Group or not to purchase its securities in the first place. Management is aware of initiatives by U.S. governmental entities and U.S.institutional investors, such as pension funds, to adopt or consider adopting laws, regulations, or policies prohibiting transactions with or investmentin, 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 the Group’s share price. Even if the Group is not subjected to U.S. or other economic sanctions, itsparticipation in the Russian financial system and indirect interaction with sanctioned banks and potential interaction with designated individuals mayadversely impact the Group’s reputation among investors. There is also a risk that other entities with which the Group does engage in business, orindividuals or entities associated with them, are, or at any time in the future may become, subject to sanctions. F-67Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 28.Commitments, contingencies and operating risks (continued) Operating environment (continued) The Group contracts with some of international merchants in U.S. dollars and other currencies such as Euros. Recently it started to encounterdifficulties in conducting such transactions, even with respect to largest and most well-known international merchants, due to the refusal of anincreasing number of the Group’s U.S. relationship banks and the correspondent U.S. banks of the Group’s non-U.S. relationship banks to service U.S.dollar payments. A direct or correspondent relationship with a U.S. bank is necessary in order for any non-U.S. company to transact in U.S. dollars.Reasons the Group has been given to explain these changes in approach by the banks mainly referred to changes in internal know-your-customerprocedures, limits on certain types of merchants and certain jurisdictions, and other internal policies, which the management believes might be a resultof the increasing negative sentiment towards Russia on part of U.S. banks, among other factors, even with respect to transactions and relationships thatdo not present any potential violation of any applicable sanctions. Even though the Group still maintains a number of U.S. dollar accounts withvarious financial institutions, at the same time the Group is already conducting a portion of U.S. dollar transactions with international merchants inother currencies, bearing additional currency conversion costs. No assurance can be given that such institutions or their respective correspondent banksin the U.S. will not similarly refuse to process the Group’s transactions for similar reasons or otherwise, thereby further increasing the currencyconversion costs that the Group has to bear or that international merchants will agree to accept payments in any currency, but the U.S. dollar in thefuture. If the Group is not able to conduct transactions in U.S. dollars, it may bear significant currency conversion costs or lose some merchants whowill not be willing to conduct transactions in currencies other than the U.S. dollars, and the Group’s business, financial condition and results ofoperations may be materially adversely affected. Management can give no assurance that similar issues would not arise with respect to the Group’stransactions in other currencies, such as the Euro, which could have similarly adverse consequences. F-68Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 28.Commitments, contingencies and operating risks (continued) Operating environment (continued) 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 nosignificance for the banking sector as a whole. Starting October 2013, however, the CBR has launched a campaign aimed at cleansing the Russianbanking industry, revoking the licenses from an unusually high number of banks (including significant banks such as Ugra, Master-Bank, Investbank,ProBusinessBank, Svyaznoy Bank, Vneshprombank, Tatfondbank and others) on allegations of money laundering, financial statements manipulationand other illegal activities, as well as inability of certain banks to discharge their financial obligations, which resulted in turmoil in the industry,instigated bank runs on a number of Russian credit institutions, and severely undermined the trust that the Russian population had with private banks.In addition, in the course of 2017 three of Russia’s largest private banks, Otkritie Bank, Binbank and Promsvyazbank, were all bailed out and takenover by the CBR through the newly established Banking Industry Consolidation Fund, since all of them were allegedly unable to perform theirobligations as they fell due for various reasons. License revocations have continued throughout 2018 and early 2019, again with some major playersimpacted. The private banking sector in Russia, always relatively minor compared to state players like Sberbank and VTB to begin with, has contractedseverely as a result. This can be expected to result in reduced competition in the banking sector (while at the same time putting alternative paymentsolution providers such as itself in the position of having to predominantly compete with the government itself), increased inflation and a generaldeterioration of the quality of the Russian banking industry. It could be expected that the difficulties currently faced by the Russian economy couldresult in further collapses of Russian banks. With few exceptions (notably the state-owned banks), the Russian banking system suffers from weakdepositor confidence, high concentration of exposure to certain borrowers and their affiliates, poor credit quality of borrowers and related partytransactions. Current economic circumstances in Russia are putting stress on the Russian banking system. Combined with heightened interest rates –with the key interest rate of the CBR currently at 7.75% per annum (but rising as high as 17% over the course of 2014-2015) – these circumstancesdecrease the affordability of consumer credit, putting further pressure on overall consumer purchasing power. In addition, these factors could furthertighten liquidity on the Russian market and add pressure onto the ruble. F-69Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 28.Commitments, contingencies and operating risks (continued) Operating environment (continued) The Group provides payment processing services to a number of merchants in the betting industry. Processing payments to such merchants represents arelatively significant portion of the Group’s revenues. Processing such payments generally carries higher margins than processing payments tomerchants. Moreover, the repayment of winnings by such merchants to customers also serves as an important and economically beneficial Qiwi Walletreload channel and new customer acquisition tool, contributing to the sustainability and attractiveness of the Group’s ecosystem. The Group’soperating results will continue to depend on merchants in the betting industry and their use of the Group’s services for the foreseeable future. Thebetting industry is subject to extensive and actively developing regulation in Russia, as well as increasing government scrutiny. Under amendments tothe Russian betting laws introduced in 2014 (see “Regulation”), in order to engage in the betting industry, a bookmaker has to become a member of aself-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 aTSUPIS together with one of the self -regulated associations of bookmakers in order to be able to accept such payments. If any merchants engaged inthe betting industry are not able or willing to comply with the Russian betting legislation or if they decide to cease their operations in Russia forregulatory reasons or otherwise or shift to another payment processor (TSUPIS), the Group would have to discontinue servicing them and would loseassociated volumes and income. Moreover, if the Group is found to be in non-compliance with any of the requirements of the applicable legislation, itcould not only become subject to fines and other sanctions, but could also have to discontinue to process transactions that are deemed to be in breachof the applicable rules and as a result lose associated revenue streams. Effective January 1, 2018, relevant legislation has been supplemented with theconcept of government blacklisting of betting merchants that have been found to be in violation or allegedly are not in compliance with applicableRussian laws, and the requirement for credit institutions to block any payments to such blacklisted merchants. The Group has already experienced anumber of instances where certain providers have been blacklisted and management observes that this trend is gaining momentum and furtherblacklistings are likely. Any of these developments may result in the contraction of the betting sector or the Group’s share in this market and thereforeadversely affect the revenues, margins and payment net revenue yield of our E-commerce market vertical and overall Payment Services segment as wellas decrease the attractiveness of the Group’s ecosystem to some of the consumers and consequently overall negatively affect consumer engagementwith the Group’s services. Furthermore, if any of the merchants engaged in the betting industry are blacklisted, the Group’s subsidiaries, which processthe payments for betting merchants may be found to be in violation of the relevant laws, whether due to misinterpretation of applicable requirements,failure to take timely action, or for any other reason, and could become so blacklisted as well, which could substantially hinder the Group’s operations. F-70Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 28.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’s interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant regionaland federal authorities. Recent events within Russia and the CIS which are discussed below suggest that the tax authorities are taking a more assertiveposition in their interpretation of the legislation and assessments and as a result, it is possible that transactions and activities that have not beenchallenged in the past may be challenged in the future.The Company may encounter difficulties in obtaining lower rates of Russian withholding income tax envisaged by the Russia-Cyprus double taxtreaty for dividends distributed from Russia. Dividends paid by a Russian legal entity to a foreign legal entity are generally subject to Russianwithholding income tax at a rate of 15%, although this tax rate may be reduced under an applicable double tax treaty. The Company intends to rely onthe Russia-Cyprus double tax treaty. The tax treaty allows reduction of withholding income tax on dividends paid by a Russian company to a Cypriotcompany to 10% provided that the following conditions are met: (i) the Cypriot company is a tax resident of Cyprus within the meaning of the taxtreaty; (ii) the Cypriot company is the beneficial owner of the dividends; (iii) the dividends are not attributable to a permanent establishment of theCypriot company in Russia; and (iv) the treaty clearance procedures are duly performed. This rate may be further reduced to 5% if the direct investmentof the Cypriot company in a Russian subsidiary paying the dividends is at least EUR 100,000. Although the Group will seek to 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 can be noassurance that the Company would be able to avail itself of the reduced withholding income tax rate in practice.Specifically, Cypriot holding company may incur a 15% withholding income tax at source on dividend payments from Russian subsidiaries if thetreaty clearance procedures are not duly performed at the date when the dividend payment is made. In this case the Company may seek to claim as arefund the difference between the 15% tax withheld and the reduced rate of 10% or 5% as appropriate. However, there can be no assurance that suchtaxes would be refunded in practice. Similar approach is applied to dividends received from Russian subsidiaries by the Company’s non-Russiansubsidiaries.Furthermore, a number of amendments had been made to the Russian tax legislation introducing, amongst others, the concept of beneficial ownership.Under this concept, double tax treaty benefits are only available to the recipient of income from Russian sources, if such recipient is the beneficialowner of the relevant income. Foreign entities that do not qualify as beneficial owners may not claim double tax treaty relief even if they are residentsin 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 authorizedto use and/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 accountthe functions performed by such foreign entity, as well as the risks borne by it. Entities are not recognized as beneficial owners of income if they havelimited authorities to use or dispose income received from Russian sources, perform agency or other similar functions in favour of third parties, nottaking any risks or transfer such income (either partially or in full) to third parties that are not eligible to double tax treaty benefits. F-71Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 28.Commitments, contingencies and operating risks (continued) Taxation (continued) Introduction of the concept of beneficial ownership may result in the inability of the foreign companies within the 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 ifthe recipient of the income is not recognized as its beneficial owner, look-through approach cannot be applied or is challenged by the tax authorities.Recent court cases demonstrate that the Russian tax authorities actively challenge application of double tax treaty benefits retroactively (i.e. prior toconcept of beneficial ownership was introduced in the Russian Tax Code) on the grounds that double tax treaties already include beneficial ownershiprequirement to allow application of reduced tax rates or exemptions. In these cases the Russian tax authorities obtained relevant information by meansof information exchange with the foreign tax authorities. The imposition of additional tax liabilities as a result of the application of this rule totransactions carried out by the Group may have a material adverse effect on its business, financial condition and results of operations.In addition, on November 27, 2017 the Federal Law No. 340-FZ introducing country-by-country reporting (“CbCR”) requirements was published. Themandatory filing of CbCR is, in general, in line with the Organization for Economic Co-operation and Development (“OECD”) recommendationswithin the Base Erosion and Profit Shifting (“BEPS”) initiative. The law has taken effect on the date of its official publication, and its provisions applyto financial years starting in 2017 (except for the provisions regarding the national documentation). These amendments would require multinationalcorporate enterprise groups with consolidated revenues of over certain threshold to submit annual CbCR, as well as certain other reporting formsdetailing multinational corporate enterprises groups operations (locally and globally, respectively), as well as transfer pricing methodologies appliedto intra-group transactions. Thus, if the Group reaches the reporting threshold in Russia (over RUB 50 billion), or alternatively in any other jurisdictionof presence (e.g. in Cyprus, where the Decree issued by the Cyprus Minister of Finance on December 30, 2016 introduced a mandatory CbCR formultinational enterprise groups generating consolidated annual turnover exceeding EUR 750 million) the Group may be liable to submit relevantCbCR. It is unclear at the moment how the above measures will be applied in practice by the Russian tax authorities and courts. Management does notconsider the Company to be subject to CbCR requirements. However, taking into consideration the possibility of further developments in Russia aswell as international legislation, the Group may become subject to the above requirements. It is important to note that the above changes andamendments to the Russian Tax Code introduced by the law do not replace already existing transfer pricing documentation requirements.On November 24, 2016, the OECD published the multilateral instrument (“MLI”) which introduces new provisions to existing double tax treatieslimiting the use of tax benefits provided thereof. For example, the reduced rate on dividends provided under a double tax treaty shall be denied if theconditions for holding equity interest or shares by the time of the dividend payout are met over less than a 365-day period. Thus, when determining taxconsequences several sources of legislation will now need to be considered, namely the domestic tax law, double tax treaties and MLI provisions,which have been adopted by states-parties to the relevant double tax treaty. To date the MLI has not been ratified by Russia. The draft law onratification of the MLI has been submitted to the Russian State Duma (the low chamber of the parliament). However, it is likely that the application ofthe double tax treaties, which Russia is a party to, i.a. the double tax treaty between Russia and Cyprus, will be significantly limited by the MLI. F-72Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 28.Commitments, contingencies and operating risks (continued) Taxation (continued) Russian transfer pricing legislation may require pricing adjustments and impose additional tax liabilities with respect to all controlled transactions.The existing transfer pricing rules became effective from January 1, 2012. Under these rules the Russian tax authorities are allowed to make transfer-pricing adjustments and impose additional tax liabilities in respect of certain types of transactions (“controlled” transactions). The list of the“controlled” transactions includes transactions with related parties (with several exceptions such as guarantees between Russian non-bankingorganizations and interest-free loans between Russian related parties) and certain types of cross border transactions. Starting from 2019 transactionsbetween Russian tax residents will be controlled only if the amount of income from the transactions between these parties within one year exceedsRUB 1 billion and one of the conditions stipulated in Article 105.14 of Russian Tax Code (e.g., the parties to the transaction apply different corporateincome tax rates) is met. Certain other transactions, such as foreign trade transactions in commodities traded on global exchanges, transactions withparties from blacklisted countries, transactions between related parties under participation of the independent intermediary, as well as transactionsbetween the Russian tax resident and foreign tax resident (related parties) remain under control in case the amount of income from transactions betweenthese parties within one year exceeds RUB 60 million threshold;. The new rules apply to transactions, under which income (expenses) from suchcontrolled transactions are recognised after January 1, 2019. As a side effect, the Russian tax authorities who are entitled to perform tax audits ofRussian taxpayers with focus on compliance with existing transfer pricing legislation will no longer be involved in tax audit of transactions betweenRussian parties due to increased limits on transactions between Russian tax residents but they will be able to pay more attention to cross-bordertransactions.It is therefore possible that the Group entities may become subject to transfer pricing tax audits by tax authorities in the foreseeable future. Due to theuncertainty and lack of established practice of application of the Russian transfer pricing legislation the Russian tax authorities may challenge thelevel of prices applied by the Group under the “controlled” transactions (including certain intercompany transactions) or challenge the methods usedto prove prices applied by the Group, and as a result accrue additional tax liabilities. If additional taxes are assessed with respect to these matters, theycould have a material adverse effect on our business, financial condition and results of operations. F-73Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 28.Commitments, contingencies and operating risks (continued) Risk of cybersecurity breachThe Group stores and/or transmits sensitive data, such as credit or debit card numbers, mobile phone numbers and other identification data, and theCompany has ultimate liability to its customers for the failure to protect this data. The Company has experienced breaches of its security by hackers inthe past, and breaches could occur in the future. In such circumstances, the encryption of data and other protective measures have not preventedunauthorized access and may not be sufficient to prevent future unauthorized access. For example, in January 2014 the Group has discovered certainunauthorized activity in a number of wallet accounts. Although management does not believe that any confidential customer account data wascompromised as a result of the activity, the Company incurred a loss of RUB 88 million. Rapida LTD (prior to its merger with and into QIWI Bank) alsoexperienced several security breaches prior to acquisition of the company. Any future breach of the system, including through employee fraud, maysubject the Company to material losses or liability, including fines and claims for unauthorized purchases with misappropriated credit or debit cardinformation, identity theft, impersonation or other similar fraud claims. A misuse of such sensitive data or a cybersecurity breach could harm theGroup’s reputation and deter clients from using electronic payments as well as kiosks and terminals generally and any of the Group’s servicesspecifically, increase operating expenses in order to correct the breaches or failures, expose the Group to uninsured liability, increase risk of regulatoryscrutiny, subject the Group to lawsuits, result in the imposition of material penalties and fines by state authorities and otherwise materially adverselyaffect the Group’s business, financial condition and results of operations.Risk assessmentThe Group’s management believes that its interpretation of the relevant legislation is appropriate and is in accordance with the current industrypractice and that the Group’s currency, customs, tax and other regulatory positions will be sustained. However, the interpretations of the relevantauthorities could differ and the maximum effect of additional losses, if the authorities were successful in enforcing their different interpretations, couldbe significant, and amount up to RUB 2.7 billion that was assessed by the Group as of December 31, 2018 (RUB 2.5 billion as of December 31, 2017).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 nosignificant physical assets to insure. Management has considered the possibility of insurance of business interruption in Russia, but the cost of itoutweighs the benefits in management’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, arisingfrom such actions or complaints will not have a material adverse effect on the financial condition or the results of future operations of the Group. F-74Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 28.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 “OnCombating the 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 management distinguishes three types of consumers based on their level ofidentification, being anonymous, identified through a simplified procedure and fully identified. All these types of consumers face varying monetaryand non-monetary restrictions in terms of the transactions they may perform and electronic money account balances they may hold, with fullyidentified consumers enjoying the most privileges. The key difference between the simplified and the full identification procedures is that thesimplified identification can be performed remotely. The remote identification requires the verification of certain data provided by consumers againstpublic databases. Albeit the Group performs all necessary steps to collect data and performs the relevant identification procedures either personally orthrough such or additional public databases, the Group can not guarantee that it will be able to collect all necessary data to perform the identificationprocedure in full or that the data the users provide it for the purposes of identification will not contain any mistakes or misstatements and will becorrectly matched with the information available in the governmental databases. At the end of 2017, a new law was enacted enabling “full”identification performed remotely as well, to the extent the relevant individual has previously undergone identification by an eligible credit institutionand has consented for his data to be included in a database; however, as of the date of this annual report such identification method has not been fullydeveloped either. Thus, current situation could cause the Group to be in violation of the identification requirements. In case management is forced notto use the simplified identification procedure until the databases are fully running or in case the identification requirements are further tightened, itcould negatively affect the number of consumers and, consequently, volumes and revenues. Additionally, Russian anti-money laundering legislation isin a constant state of development and is subject to varying interpretations. If the Group is found to be in non-compliance with any of its requirements,it could not only become subject to fines and other sanctions, but could also have to discontinue to process operations that are deemed to be in breachof the applicable rules and lose associated revenue streams. F-75Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 28.Commitments, contingencies and operating risks (continued) Operating lease commitmentsThe Group has commercial lease agreements of office buildings. The leases have an average life of between one and seven years. Total lease expensefor the twelve months ended December 31, 2018 is for rent of office places 597 (2017 – 357).Future minimum lease rentals under non-cancellable operating lease commitments for office premises as of December 31, 2018 and December 31, 2017are as follows: As ofDecember 31,2017 As ofDecember 31,2018 Within one year 397 449 After one year but not more than five years 693 625 More than five years — 168 The Group is a party to a material contract of lease of office building, which gave origin to lease expenses in the amount of 154 in 2018 (154 in 2017)and creates commitments to charge further 307 of lease expenses, 154 of which shall be accrued within one year and 153 – after one year but no morethan two years. The contract was concluded on July 1, 2014 and terminates on December 31, 2020. The lease payment consists of three parts: basislease payment, reimbursement of operational expenses, and lease pay for parking places. All the three components gradually increase to the end of thecontract term. For the purposes of these financial statements, the payments are recognized as expenses on a straight-line basis over the lease term.Pledge of assetsAs of December 31, 2018 the Group pledged debt instruments (government bonds) with carrying amount of 1,445 (December 31, 2017 – 1,319) ascollateral for bank guarantee issued on Group’s behalf to its major partner and 484 (December 31, 2017 – 486) to CBR.Guarantees issuedThe Group issues financial and performance guaranties to non-related parties for the term up to five years at market rate. The amount of guarantiesissued as of December 31, 2018 is 1,260 (as of December 31, 2017 – 74). F-76Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 28.Commitments, contingencies and operating risks (continued) Credit related commitmentsThe primary purpose of these instruments is to ensure that funds are available to a customer as required. Commitments to extend credit representunused portions of credit limits of instalment card loans of both activated and not activated by the customers. Commitments to extend credit arecontingent upon customers firstly activating their credit limits and further maintaining specific credit standards. Outstanding credit limits are possibleto be used including credit limits not yet activated by the customers and related commitments are as follows: As ofDecember 31, 2017 As ofDecember 31, 2018 Unused limits on instalment card loans 8,603 30,062 An analysis of changes in the ECL allowances due to change in corresponding gross carrying amounts for the year ended December 31, 2018, was thefollowing: Total ECL allowance under IFRS 9 as of January 1, 2018 (Note 2.3 (e)) (111) Changes because of financial instruments (originated or acquired)/derecognized during the reporting period 27 Amounts written off — ECL allowance under IFRS 9 as of December 31, 2018 (84) The total outstanding contractual amount of unused limits on contingencies and commitments liability does not necessarily represent future cashrequirements, as these financial instruments may expire or terminate without being funded. In accordance with instalment card service conditions theGroup has a right to refuse the issuance, activation, reissuing or unblocking of an instalment card, and is providing an instalment card limit at its owndiscretion and without explaining its reasons. The Group also has a right to increase or decrease a credit card limit at any time without prior notice. F-77Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 29.Balances and transactions with related partiesCustomers accounts payable in the amount of 51 as of December 31, 2018 (December 31, 2017 – 97) comprise of cash held at bank account by relatedparties, including key management personnel and the companies under their control or control of their close family members.Amounts owed (accounts payable) to related parties comprising of 207 as of December 31, 2018 (December 31, 2017—18) mainly consist of thecontribution payable to the Group’s associate.Amounts owed (accounts receivable) by related parties comprising of 180 as of December 31, 2018 mainly consist of the compensation receivable fromthe Group’s associate.Benefits of key management and Board of Directors generally comprise of short-term benefits amounted to 120 during the year ended December 31,2018 (115- for the year 2017, 122—for the year 2016) and share-based payments amounted to 36 during the year ended December 31, 2018 (22—forthe year 2017, 14—for the year 2016).As of December 31, 2016 some of the overdraft facilities were guaranteed by the Group’s CEO. There are no such overdraft facilities as of December 31,2018 and December 31, 2017. 30.Risk managementThe main risks that could adversely affect the Group’s financial assets, liabilities or future cash flows are foreign exchange risk, liquidity and creditrisk. 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 of financial position and/or cash flows. Foreign currency denominated assets and liabilities give rise to foreign exchange exposure.During the last public offering, the Company increased its issued share capital and received approximately U.S. $89 mln, of which U.S. $30 mlnremained at the account of the Company as of December 31, 2018 after part of these funds was spent for merges and acquisitions (M&A) and certainoperational needs in the normal course of the business. The major part of these proceeds is accounted as other short-term bank deposits in cash and cashequivalents as of December 31, 2018 and as of December 31, 2017. Due to appreciation of U.S. $ rate against RUB for the year ended December 31,2018 and depreciation for the year ended December 31, 2017 the Group recorded foreign exchange gain in the amount of 433 and loss in the amount of236 respectively. The Group intends to use these funds for settlement of its U.S. $ denominated obligations that will arise from its M&A activity or forcapital expenditures in the normal course of business in the future. F-78Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 30.Risk management (continued) Foreign currency sensitivityThe following tables demonstrate the sensitivity to a reasonably possible change in US Dollar and Euro exchange rates against Ruble, with all othervariables held constant. The impact on the Group’s profit before tax is due to changes in the carrying amount of monetary assets and liabilitiesdenominated in US Dollar and Euro when these currencies are not functional currencies of the respective Group subsidiary. The Group’s exposure toforeign currency changes for all other currencies is not material. change in US Dollar Effect on profit before taxGain/(loss) 2018 +14% 329 -14% (329) 2017 +11% 83 -11% (83) change in Euro Effect on profit before taxGain/(loss) 2018 +14% 196 -14% (196) 2017 +12.5% 36 -12.5% (36) 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 debtwith short maturities (classified as due to banks). Deposits received from agents are also due on demand, but are usually offset against future paymentsprocessed through agents. The Group expects that agent’s deposits will continue to be offset against future payments and not be called by the agents.customer accounts and amounts due to banks, trade and other payables are due on demand.Since 2014 Russian economy has been going through a period of macroeconomic slowdown and liquidity shortage in a number of markets (includingthose in which the Group operates), caused among other things by falling oil prices, ruble devaluation and the economic sanctions regime. Banks andother entities in Russia decreased credit limits in their everyday operations and it was noted that the Group’s merchants and partners also started and incertain cases continued to request from the Group larger collaterals to hedge their risks. The Group was able to manage these conditions andrequirements to date, though the liquidity shortage in the market if exacerbated may have further negative effects on the Group’s operations, whichcannot be now reliably estimated.According to CBR requirements, a bank’s capital calculated based on CBR instruction should be not less than certain portion of its risk-adjustedassets. As of December 31, 2018, QIWI Bank JSC’s capital ratio is above the minimal level required of 8%. The Group monitor the fulfillment ofrequirements on a daily basis and send the reports to CBR on a monthly basis. During the years ended December 31, 2018 and 2017 QIWI Bank JSCmet the capital adequacy requirements. F-79Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 30.Risk management (continued) The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. Capital includes share capital, sharepremium, additional paid-in capital, other reserves and translation reserve. To maintain or adjust the capital structure, the Group may make dividendpayments to shareholders, return capital to shareholders or issue new shares. Currently, the Group requires capital to finance its growth, but it generatessufficient cash from its operations. The table below summarizes the maturity profile of the Company’s financial liabilities based on contractualundiscounted payments. Due: Total On demand Within a year More than ayear Trade and other payables (Note 18) 27,499 27,499 — — Customer accounts and amounts due to banks (Note 19) 18,105 16,002 1,866 237 Total as of December 31, 2018 45,604 43,501 1,866 237 Due: Total On demand Within a year More than ayear Trade and other payables (Note 18) 19,599 19,599 — — Customer accounts and amounts due to banks (Note 19) 3,182 3,071 111 — Total as of December 31, 2017 22,781 22,670 111 — Credit riskFinancial assets of the Group, which potentially subject us and our subsidiaries, joint ventures and associates to credit risk, consist principally of tradereceivables, loans issued, cash and short-term investments. The Group sells services on a prepayment basis or ensures that its receivables are fromcustomers with an appropriate credit history – large merchants and agents with sufficient and appropriate credit history. The Group’s receivables frommerchants and others, except for agents, are generally non-interest-bearing and do not require collateral. Receivables from agents are interest-bearingand unsecured. The Group holds cash primarily with reputable Russian and international banks, including CBR, which management considers havingminimal risk of default, although credit ratings of Russian and Kazakh banks are generally lower than those banks in more developed markets. Short-term investments include fixed-rate debt instruments issued by Russian Government.An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based ondays past due for groupings of various customer segments with similar loss patterns. The carrying amount of accounts receivable, net of allowance forimpairment of receivables, represents the maximum amount exposed to the credit risk for this type of receivables (Note 13).Set out below is the information about the credit risk exposure on the Group’s trade and other receivables (exept for advances issued) using a provisionmatrix: December 31, 2018 Days past due Current and<30 days 30-60 days 61-90 days >91 days Total Expected credit loss rate 0.26% 3% 36% 98% Exposure at default 7,672 96 22 331 8,121 Expected credit loss (20) (3) (8) (323) (354) F-80Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 30.Risk management (continued) The Group evaluates the concentration of risk with respect to trade and other receivables as low, as its customers are located in several jurisdictions andindustries and operate in largely independent markets. The table below demonstrates the largest counterparties’ balances, as a percentage of respectivetotals: Trade and other receivables Concentration of credit risks by main counterparties,% from total amount As of December 31,2017 As of December 31,2018 Top 5 counterparties 47% 40% Others 53% 60% The Group is also exposed to substantial credit risk through our payment-by-installment card project SOVEST, where Qiwi Bank JSC serves as a lenderand bears all credit risk on outstanding loans. When granting loans on SOVEST cards, the Group uses automated scoring solvency models and evaluateindividually each application for the probability of fraud and social default. It uses the information from the major credit bureaus as well as certainother data including the evaluation of the potential effects of changes in macroeconomic conditions and regional affiliation of the applicant in order toapprove or reject the application. Qiwi Bank can then use manual verification for determining the credit limit for the approved applicants. Qiwi Bankruns advanced forward-looking models that are based on the analysis of the transactional behavior of individual customers in order to predict andstimulate usage as well as prevent fraud, and Qiwi Bank uses a migration matrix approach for calculation of the loan loss provisions.Qiwi Bank distributes its installment cards to customers on a federal scale, across all regions of Russia. Our target audience includes Russian citizenswith the permanent registration and aged 18 to 70 years. Qiwi Bank also uses a variety of distribution channels and strategies to obtain clients andtherefore believe that its credit risk is broadly diversified.The management established a credit committee that develops and approves general principles for lending and takes special measures to mitigatecredit risk such as a reduction of the credit limits for unreliable clients and more advanced scoring models for the new borrowers. See Note 12 for thecarrying amount of loans issued and the maximum amount exposed to the credit risk for these type of assets. F-81Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 31.Financial instrumentsThe Group’s principal financial instruments consisted of loans receivable, trade and other receivables, customer accounts and amounts due to banks,trade and other payables, cash and cash equivalents, long and short-term debt instruments and reserves at CBR. The Group has various financial assetsand 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, 2018 and 2017 is presented by type of the financial instrument in the tablebelow: As of December 31, 2017* As of December 31, 2018 Carryingamount Fairvalue Carryingamount Fairvalue Financial assets Debt instruments AC 1,804 1,827 1,929 1,931 Long-term loans AC 164 164 159 159 Long-term loans FVPL — — 71 71 Total financial assets 1,968 1,991 2,159 2,161 * The balances of financial instruments as of December 31,2017 are classified under IFRS 9.Financial instruments used by the Group are included in one of the following categories: • AC – accounted at amortized cost; • FVPL – accounted at fair value through profit or loss.Carrying amounts of cash and cash equivalents, short-term loans issued, accounts receivable and payable, reserves at CBR and customer accounts andamounts due to banks approximate their fair values largely due to short-term maturities of these instruments.Debt instruments of the Group consist of RUB nominated government bonds with interest rate 6.4%—7.5% and maturity up to May 2020. All debtinstruments are pledged (Note 28).Long-term loans generally represent RUB nominated loans to Russian legal entities and have a maturity up to nine years. For the purpose of fair valuemeasurement of these loans the Group uses comparable marketable interest rate which is in range of 9-35%. F-82Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 31.Financial instruments (continued) The following table provides the fair value measurement hierarchy of the Group’s financial instruments to be accounted or disclosed at fair value: Fair value measurement using Quoted pricesin activemarkets Significantobservableinputs Significantunobservableinputs Date of valuation Total (Level 1) (Level 2) (Level 3) Assets accounted at fair value through profit or loss Long-term loans December 31, 2018 71 — — 71 Assets for which fair values are disclosed Debt instruments December 31, 2018 1,931 1,931 — — Long-term loans December 31, 2018 159 — — 159 Assets for which fair values are disclosed Debt instruments December 31, 2017 1,827 1,827 — — Long-term loans December 31, 2017 164 — — 164 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 theyear ended December 31, 2018.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 orindirectly; • Level 3: Techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data.Valuation methods and assumptionsThe fair value of the financial assets and liabilities are evaluated at the amount the instrument could be exchanged in a current transaction betweenwilling parties, other than in a forced or liquidation sale.Long-term fixed-rate loans issued and debt instruments are evaluated by the Group based on parameters such as interest rates, terms of maturity,specific country and industry risk factors and individual creditworthiness of the customer. F-83Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 32.Share-based payments32.1. Option plansAs of December 31, 2018, 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 Year 2017: n/a Year 2018: n/a Year 2017: U.S. $ 23.94 Exercise basis Shares SharesExpiration date December 2020 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 2015RSU Plan are to be determined by theCompany’s BOD or the CEO, if so resolved bythe BOD, acting as administrator of the PlanIn April 2018, QIWI plc established QIWI Employees Trust, which owns shares reserved for ESOP and RSU plans and transfers them to employees whoexercise their options. The Trust is not a legal entity and major decisions relating to its activities are determined by QIWI plc. In these financialstatements it is regarded as an extension of QIWI plc.32.2. Changes in outstanding optionsThe following table illustrates the movements in share options during the year ended December 31, 2018: As ofDecember 31,2017 Granted duringthe period Forfeitedduring theperiod Exercisedduring theperiod As ofDecember 31,2018 2012 ESOP 1,528,140 — (11,159) — 1,516,981 2015 RSU Plan 545,378 807,300 (20,800) (518,859) 813,019 Total 2,073,518 807,300 (31,959) (518,859) 2,330,000 As of December 31, 2018 the Company has 1,516,981 options outstanding, all of which are vested, and 813,019 RSUs outstanding, of which 126,067are vested and 686,952 are unvested.The weighted average price for share options exercised under RSU plan was nil. F-84Table of ContentsQIWI plcNotes to consolidated financial statements (continued) 32.Share based payments (continued) 32.3. Valuations of share-based paymentsThe valuation of all equity-settled options granted are summarized in the table below: Option plan/Grant date Numberofoptions/RSUs Dividendyield, % Volatility,% Risk-freeinterestrate, % Expec-ted term,years Weightedaverageshare price(U.S. $) Weightedaveragefair valueper option/RSU (U.S.$) Valuationmethod2012 ESOP 4,128,521 0-5.03% 28%-49.85% 0.29%-3.85% 2-4 28.10 7.14 Black-Scholes-Merton2015 RSU Plan 1,903,008 0-5.70% 44.43%-64.02% 2.89%-4.34% 0-2 15.15 14.47 BinominalThe forfeiture rate used in valuation models granted during the period is from 11.35 to 16%. It is based on historical data and current expectations andis not necessarily indicative 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 may not necessarily be the actual outcome. 32.4.Share-based payment expenseThe amount of expense arising from equity-settled share-based payment transactions for the year ended December 31, 2018 was 635 (2017 – 398, 2016– 224). F-85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 tosign this registration statement on its behalf. QIWI PLCBy: /s/ Sergey SoloninName: Sergey SoloninTitle: Chief Executive OfficerDate: March 28, 2019Exhibit 8.1 Subsidiary Main activity Jurisdiction ofincorporation Ownershipinterest as ofDecember 31,2018 JSC QIWI Operation of electronic payment kiosks Russia 100% QIWI Bank JSC Maintenance of electronic payment systems, moneytransfer, consumer and SME financial services 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 Romania 100% QIWI WALLET EUROPE SIA Operation of on-line payments Latvia 100% QIWI Retail LLC 1 Sublease of space for electronic payment kiosks Russia — QIWI Management Services FZ-LLC Management services UAE 100% Attenium LLC Management services Russia 100% Postomatnye Tekhnologii LLC Logistic Russia 100% Future Pay LLC Operation of on-line payments Russia 100% Qiwi Blockchain Technologies LLC Software development Russia 100% QIWI Shtrikh LLC On-line cashbox production Russia 51% QIWI Platform LLC Software development Russia 100% QIWI Processing LLC Software development Russia 100% Joint ventures Flocktory Ltd Holding company Cyprus 82% Flocktory Spain S.L. SaaS platform for customer lifecycle management andpersonalization Spain 82% FreeAtLast LLC SaaS platform for customer lifecycle management andpersonalization Russia 82% Associate JSC Tochka Digital services for banks Russia 40% 1The entity was liquidated during the year 2018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 thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, 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 inExchange Act Rules 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 ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others withinthose 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance 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 theeffectiveness of the 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 bythe annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financialreporting; and5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe company’s auditors 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 arereasonably likely to 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 internalcontrol over financial reporting. Date: March 28, 2019By: /s/ Sergey SoloninName: Sergey SoloninTitle: Chief Executive Officer 2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 thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, 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 inExchange Act Rules 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 ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others withinthose 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance 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 theeffectiveness of the 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 bythe annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financialreporting; and5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe company’s auditors 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 arereasonably likely to 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 internalcontrol over financial reporting. Date: March 28, 2019By: /s/ Alexander KaravaevName: Alexander KaravaevTitle: Chief Financial Officer 2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, 2018 as filedwith the U.S. Securities and Exchange Commission on the date hereof, Sergey Solonin, as Chief Executive Officer of the Company, and AlexanderKaravaev, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002, 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 28, 2019/s/ Alexander KaravaevName: Alexander KaravaevTitle: Chief Financial OfficerDate: March 28, 2019A 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 beretained by the 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 theSarbanes-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) pertaining to theAmended and Restated 2012 Employee Stock Option Plan and the 2015 Employee Restricted Stock Units Plan of Qiwi plc of our reports dated March28, 2019, with respect to the consolidated financial statements of QIWI plc and the effectiveness of internal control over financial reporting of QIWIplc, included in this Annual Report (Form 20-F) for the year ended December 31, 2018./s/ Ernts and Young LLCWe have served as the Company’s auditor since 2008Moscow, RussiaMarch 28, 2019

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