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For Immediate Release

10 September 2020

Zaim Credit Systems Plc

("Zaim" or the "Group")

Unaudited financial results for six months ended 30 June 2020

Zaim Credit Systems plc (the 'Group' or 'Zaim'), the Russian focused fintech group providing financial inclusion for those consumers who are not well served by mainstream lenders, announcing its unaudited financial results for six months ended 30 June 2020.

Key highlights

•             Interest income reduced by 26% from £3.7m to £2.8m due to:

o  The reduction in the maximum interest rate chargeable by 38% following regulator's decision from 1 July 2019, thereby reducing it from 1.6% to 1% per day

o  Partially offset by favourable growth in duration of loans by 40% from 48 to 67 days due to their increased affordability

o  The reduction in the amount funded by 16% due to the Covid-19 lockdown restrictions

•             Successful implementation of decisive actions in order to mitigate the consequences of Covid-19 outbreak in 2020:

o  Prioritizing safety for the employees and customers

o  Reducing number of retail stores from 92 to 32 by closing less efficient outlets and thus accelerating online transition and related costs savings months ahead of schedule

o  Implementing strict cost control measures

o  Focusing on online business model supported by bespoke IT system

•             Net adjusted loss of £933km reflects a period of unprecedented challenges for the group with the Covid-19 restrictions, regulatory changes and one-off restructuring costs but Board feel that, having weathered this and made the changes to the business as detailed herein, the group can now grow cashflow as a predominantly on-line business with a tight cost base and increased lending discipline

•             The online business is demonstrating impressive growth to record-high levels by the end of the period, with June demonstrating a 40% month on month growth.

•             Collection activities implemented on historic outstanding and fully impaired debts early in 1H 20 are expected to have a significant positive impact on cash flow in 2H 20.

•             One-off restructuring costs of £294k related to accelerated migration to online services; expected to see significantly improved operating margin in 2H 20 and beyond as a direct result of approximately £100k pcm of cost savings starting from July 20.

•             Cash of £810k as at 30 June 20, leaving the group well-funded to execute it strategy

Management expect significant improvement in cash flow from operating activities in 2H 20 due to recoveries in business volumes, impressive growth in Zaim's online loans business, and a meaningful reduction in the cost base as a result of business restructuring and optimization of the retail (store) network. 2H 20 cash flows are also expected to be improved as a result of significant additional cash streams from the repayment of historic debts as a result of collection activities initiated in 1H 20.

Business volumes are returning to pre-pandemic level with significantly lower fixed costs leaving the group well positioned to continue to scale up its online services.

Financial highlights

1 Operating margin is calculated as net operating cash flow (net cash received for the period (including collecting claims) less loans provided including insurances) divided by total loans provided including insurances
2 Adjusted EBIT is calculated by taking loss for the year adding back accrued interest, non-cash share-based payment charges, costs related to the IPO and one-off restructuring costs which are non-recurring.

Zaim CEO, Siro Cicconi commented:

"Following the successful completion of the IPO on November 4, 2019 the business was outperforming the internal growth plan and gaining very good momentum during the first two months of 2020. This was unfortunately impacted during March and April 2020 due to the Covid-19 pandemic and the associated restrictive measures applied by the Russian government and other countries around the globe. This posed a serious challenge for our management team and the whole business at every level and I would like to thank all of our employees, customers, consultants and the management team for their hard work and dedication through the difficult time.

As a first response, we have prioritised the health and safety of our employees and customers, implemented strict cost control and cash preservation measures in order to run the business at a break even position (from a cash flow point of view) whilst the full impact of the new operating environment on our business was better understood. This was executed successfully and allowed the change to a much stronger operating model to be implemented in record time.

As seen elsewhere in the world, lockdown measures have accelerated changes in Russian customers' habits and attitudes. As well as in all European countries, Russian citizens have strongly increased their migration from "physical" activities to "on-line" and we have seen this migration also in our client base especially in categories which were traditionally "reluctant" toward on line services.

Our team have utilised their depth of knowledge of our market and products to rapidly predict this evolution and after a process of detailed analysis swift action was taken aimed to maximize profitability and returns for investors and all stakeholders.

We began the period with a relatively large network of physical stores, but as a direct result of the continued strategy of the optimization of the business model, we are closing our weakest performing stores and redirecting customers towards our online product offering. We have therefore reduced the number of stores from 92 outlets as at December 31, 2019 to 32 outlets as at June 30, 2020, considered the optimum number of physical stores to continue servicing the needs of our customers, maintain the experience and know-now and at the same time maximizing profitability.

At the same time we have accelerated Online business development and focused resources that would have otherwise been deployed in the physical stores. Zaim has significantly improved its online platform, allowing customers to receive and repay loans via the internet or by phone in minutes without leaving their homes, which is an important option in the era of social distancing.

These restructuring measures were undertaken towards the end of the 1H 20 so one off restructuring costs are included within the results for the period, with significant improvements in financial performance expected to be reflected in the Group's costs and financial performance starting from the second half of 2020.

As expected, the business is seeing very strong growth in its online lending activity - an increase from £110k per month in January to £173k in June 20 representing growth of 57%. At 30 June 20 Online lending accounted for over 26% of loans issued and we expect this to increase further as the Online growth continues to accelerate".

Change in the interest rate

On July 01, 2019 the Russian market regulator, the Central Bank of Russia, capped the maximum interest rate at 365% per annum with a Maximum Recovery Rate of 200%. Interest rates on Zaim products reduced accordingly by 38% from 1.6% per day in 1H 2019 to 1% per day in 1H 2020.

The reduction of interest rates has made microloans more affordable to our customers and led to a favourable increase in the average duration of the loans by 40% - from 48 days to 67 days, which has partially compensated any decrease in interest income.

COVID-19 prevention measures taken in Moscow and the Moscow region in March-June 2020 led to a reduction in the total amount funded by 16% - to £4.1 m in 2H 20 from £4.9 m in 1H 19.

The combination of the above-mentioned factors led to a 26% decrease in the interest income from £3.7 m in 1H 19 to £2.8 m in 1H 20.

Collection

In 1H 20 Zaim began actively collecting loans in default that were issued before December 31, 2019, a heavily automated court-based approach. As a part of this collection process, Zaim received a large number of positive outcomes (based on court decisions), which has led to the reclassification of fully impaired loans as at 31 December 2019. The net result of the reclassification is a £6k charge to the income statement, comprising a reduction in the portfolio of £974k (previously accrued interest) and release of the expected credit loss of £968k (the loans carried a near 100% credit provision).

The adjustment to the allowance of £968k is recognized in expected credit loss in the income statement and the adjustment to the portfolio of loans of £974k was recognised as Other operating loss.

Restructuring costs

In 1H 20 Zaim recorded one-off restructuring costs of £294k. This included additional staff costs of £45k during 1H 2020 caused by the reduction of number of employees as well as hiring of additional staff with fixed-term contracts, who were engaged in collection activities post court decisions. This is expected to result in a saving of approximately £100k per month to the group's operating costs.

Additional non-recurring operational costs during 1H 20 were caused by collecting activity (which aimed to collect bad debts in the portfolio as of December 31, 2019) - comprising State Duty (£208k) and Postal Services (£37k). The main portion of proceeds from these collection activities is expected to be received by the Group in the second half of 2020 and is already showing promising results.

Cash position

Cash and cash equivalents decreased by £773k from £1,583k to £810k. Of this amount £294k represent one-off restructuring costs. Covid-19 pandemic restriction measures lead to a reduction of interest collection of £154k. Following the easing of Covid-19 related restrictions management expects a significant improvement in the cash flow from operating activities in the 2H 20 due to recoveries in business volumes, impressive growth in Zaim's online loans business, and a significant reduction in cost base as a result of business restructuring and optimization of the retail (store) network. 2H 20 cash flows are also expected to be significantly improved as a result of additional cash generated from the delayed effect of collection activities initiated in 1H 20.

Enquiries:

Zaim Credit Systems Group

Unaudited Interim Condensed Financial Statements in accordance with International Financial Reporting Standards

30 June 2020

Zaim Сredit Systems Group

Interim Condensed Consolidated Statement of profit or loss and Other Comprehensive Income for the six months ended 30 June

Zaim Сredit Systems Group        

Interim Condensed Consolidated Statement of financial position as at

   Interim Condensed Statement of changes in shareholders' equity (Unaudited)  for the six months ended 30 June 2020  (unaudited)

Interim Condensed Statement of changes in shareholders' equity (Unaudited)  for the six months ended 30 June 2019 (unaudited)

Interim Condensed Consolidated Statement of Cash Flows

For the six months ended 30 June

Notes to the Financial information

1.     Activities of the Group. General information

The principal activity of Zaim Credit Systems plc ("the Company") and its subsidiary Zaim-Express, LLC (together "the Group") is issuance of microloans to individuals (retail customers). The Company was incorporated as Agana Holdings Plc and registered in England and Wales on 15 June 2018 as a public limited company with company registration number 11418575 and LEI, 213800Z4MI9KSZA2VW72 and on 22 July 2019 the Company changed its name to Zaim Credit Systems Plc

On 18 September 2019 the Company acquired the entire issued share capital of Zaim-Express LLC. The Company is now the holding company of a Russian based financial services company Zaim-Express LLC (Subsidiary), so main function of the Company is to provide holding company services and undertake management of the listed activities on the stock exchange. These business combination in 2019 was stated in consolidated financial statements as reverse acquisitions under IFRS 3 and the prior period comparative figures presented (six months 2019) are those of the legal acquiree Zaim Express LLC.

The organizational structure of Group:

The Subsidiary's principle activity is the issuance of microloans through the network of its branches in Russian cities (Moscow and St. Petersburg). The Subsidiary was entered in the state register of microfinance organisations on 29 August 2011, registration number 2110177000440. The Subsidiary's  assets and liabilities are located in the Russian Federation. The average number of Subsidiary's employees is as follows:

The average number of parent Company's employees (directors) is as follows:

As at 30 June 2020, the man shareholder of the Company is Zaim Holdings SA (with a 73,23% interest). The ultimate controlling party of the Group is an individual - Mr. Siro Donato Cicconi.

Zaim Express has 32 stores as at 30 June 2020 (31 December, 2019: 92 stores), from which it conducts business throughout the Russian Federation.  During first half of the year 2020, in the 2Q of 2020,  there was reduction of stores  due to reduced business activity because of Covid-19 pandemic (as a measure to prevent unprofitable business) and also because of  intentions of management to develop the new business-model - which supposes substantial share of online-loans. 

The additional costs due to the dismissal of employees (because of Covid-19 pandemic) and collecting activity (which aimed to collect bed debts in the portfolio as of December 31, 2019)  were stated separately (like one-off operational costs) in Group Consolidated Statement of profit or loss and Other Comprehensive Income  and has additional disclosure in notes  8  and 9  Staff costs and Operating expenses.

2.  Basis of preparation

The condensed consolidated interim financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards and in accordance with International Accounting Standard 34 Interim Financial Reporting. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2019, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

The condensed consolidated interim financial statements set out above do not constitute statutory accounts within the meaning of the Companies Act 2006. They have been prepared on a going concern basis in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) as adopted by the European Union. Statutory financial statements for the year ended 31 December 2019 were approved by the Board of Directors on 16 June 2020 and delivered to the Registrar of Companies. The report of the auditors on those financial statements was unqualified.

The condensed consolidated interim financial statements of the Company have not been audited or reviewed by the Company's auditor, Shipley's LLP.

Going concern

This financial information reflects Group's management's current assessment of the impact of the Russian business environment on the operations and the financial position of Group. The future economic direction of the Russian Federation is largely dependent upon the effectiveness of measures undertaken by the Russian Federation Government and other factors, including regulatory and political developments which are beyond Group's control. Group's management cannot predict what impact these factors can have on Group's financial position in future. This financial information was prepared on a going concern assumption.

The above factors in conjunction with continuing economic and political changes taking place in the Russian Federation indicate that a material uncertainty exists that may cast significant doubt on Group's ability to continue as a going concern. This ability depends on future events, including achieving the level of the loans to customers portfolio sufficient to incur costs and earn profits and the ability and willingness of Group's sole participant to continue with financial assistance to Group.

The Financial Statements have been prepared on a going concern basis. The Directors consider that the Group has sufficient funds to undertake its operating activities for a period of at least the next 12 months including any additional expenditure required in relation to any adverse impacts from the Covid-19 Pandemic. The Group has cash reserves which are considered sufficient by the Directors to fund the Group's desired strategy of increasing the loan book both online and in the store. 

Risks and uncertainties

The Director continuously assesses and monitors the key risks of the business. The key risks that could affect Group's medium-term performance and the factors that mitigate those risks have not substantially changed from those set out in Group's 2019 Financial Information. The key financial risks are liquidity risk, interest rate risk.

The economy of the Russian Federation continues to display certain characteristics of an emerging market. These characteristics include, in particular, inconvertibility of the national currency in most countries outside of Russia and relatively high inflation rates. The current Russian tax, currency and customs legislation is subject to varying interpretations and frequent changes. The country's economy depends on movements of oil and gas prices.

The future economic development of the Russian Federation is largely dependent upon the effectiveness of economic measures, financial mechanisms and monetary policies adopted by the Government, together with tax, regulatory, and political developments.

Critical accounting estimates

The preparation of condensed consolidated interim financial information requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the end of the reporting period. Significant items subject to such estimates are set out in note 3 of Group's 2019 Financial Information. The nature and amounts of such estimates have not changed significantly during the interim period.

Currency 

The GBP was chosen as the presentation currency of the consolidated financial information, as the shareholders of Group use information prepared in GBP to make decisions and evaluate the financial results of Group.

For the purpose of presenting the consolidated financial information, the financial results and balance sheet items of Subsidiary are translated into the presentation currency of Group in accordance with the requirements of International Accounting Standard IAS 21 "Effect of Changes in Foreign Exchange Rates" as follows:

(a) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where such items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

Gains and losses on purchase and sale of foreign currency are determined as a difference between the selling price and the carrying amount at the date of the transaction.

(b) Group companies

 The results and financial position of all the Group's entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

   1. assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;

   2. each component of profit or loss is translated at average exchange rates during the accounting period (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

   3.  all resulting exchange differences are recognised in other comprehensive income

3.  Significant accounting policies

The condensed consolidated interim financial information have been prepared under the historical cost convention as modified by the revaluation of certain of the subsidiaries' assets and liabilities to fair value for consolidation purposes.

The same accounting policies, presentation and methods of computation have been followed in these condensed consolidated interim financial information as were applied in the preparation of Group's Financial Information for the year ended 31 December 2019 (see Note 3).

IFRS 16

IFRS 16 Leases (issued on 13 January 2016 and effective for annual periods beginning on or after 1 January 2019).

IFRS 16 Leases supersedes  IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC 15 Operating Leases-Incentives and SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing.

The Group applied IFRS 16 using a modified retrospective approach. Right-of-use assets were recorded in an amount equal to the lease liabilities adjusted for the amount of prepaid or accrued operating lease payments under these lease agreements recorded in the prior periods. Lease liabilities were measured at the present value of the remaining lease payments discounted at the incremental borrowing rates (IBR) as at 1 January 2019. The date of initial application is 1 January 2019. The Group applied a modified retrospective approach without restatement of the comparative information.  For further details refer to Note 3 of Group's Financial Information for the year ended 31 December 2019

4. Loans to customers

Below is analysis of movements in the ECL allowance during 1H2020 (by type of loans specified in the first table of the Note), GBP:

During 2020, active work has been done to collect loans issued before December 31, 2019, a large number of court decisions were received, which were reflected in the management system, which led to the clarification of the amount of interest income recognized in the portfolio as of December 31, 2019 (it leads to a decrease in the portfolio by £974k), and, since these loans had almost 100% reserve as of December 31, 2019, this decrease in the portfolio was accompanied by a similar recovery of recognized reserves (£968k). The adjustment to the allowance in the amount of £968k is recognized in charge for allowance In PL (like derecognized assets in Stage 3), and the adjustment to the portfolio of loans in the amount of £974k were recognized in Other operating income / loss (see Note 7 Other operating income / loss)

Below is analysis of movements in the ECL allowance during 1H2019 (by type of loans specified in the first table of the Note), GBP:

The ECL allowance for loans and advances to customers recognised during the period is impacted by various factors. The table below describes the main changes:

·           transfers between Stages 1 and 2 and Stage 3  due to significant increase (or decrease) in credit exposure or impairment during the period and subsequent increase (or decrease) in the estimated ECL level: for 12 months or over the entire period;

·           accrual of additional allowances for new financial instruments recognised during the period, as well as reduction in allowance as a result of derecognition of financial instruments during the period;

·           impact on ECL estimation due to changes in model assumptions, including changes in probability of default, EAD and LGD during the period resulting from regular updating of the model inputs.

Following is the credit quality analysis of loans to customers as at 30 June 2020:

Following is the credit quality analysis of loans to customers as at 31 December 2019:

The ECL allowance for loans to customers recognized during the period is impacted by different factors.  Information on the assessment of expected credit losses is disclosed in Note 3 of Group's Financial Statements for the year 2019.

The Group uses the following approach to measurement of expected credit losses:

·      portfolio-based measurement: internal ratings are assigned individually, but the same credit risk parameters (e.g. PD, LGD) are applied to similar credit risk ratings and homogeneous credit portfolio segments in the process of ELC estimation.

This approach provides for aggregation of the portfolio into homogeneous segments on the basis of specific information on borrowers, such as delinquent loans, historic data on prior period losses and forward-looking macroeconomic information.

The amounts of loans recognised as "past due" represent the entire balance of such loans rather than the overdue amounts of individual payments.

5.  Lease

During the IH 2020 there was a significant decrease in the number of concluded lease agreements due to reduced business activity because of Covid-19 pandemic (as a measure to prevent unprofitable business) and also because of  intentions of management to develop the new business-model - which supposes substantial share of online-loans

The carrying amount of right-of- use assets and its movements during the period are presented below:

The carrying amounts of lease liabilities and their movements during the period are set out below:

Group

6.  Interest income and interest expense

7. Other operating income / loss

During 2020, active work has been done to collect loans issued before December 31, 2019, a large number of court decisions were received, which were reflected in the management system, which led to the clarification of the amount of interest income recognized in the portfolio as of December 31, 2019 (it leads to a decrease in the portfolio by £974k), Since these loans had almost 100% reserve as of December 31, 2019, this decrease in the portfolio was accompanied by a similar recovery of recognized reserves (£968k). - see disclosure in Note 4 Loans to customers. The adjustment to the allowance in the amount of £968k is recognized in charge for allowance In PL, and the adjustment to the portfolio of loans in the amount of £974k were recognized in Other operating income / loss

8. Operating expenses

Periodic Operating expenses

9. Restructuring costs

There was additional staff costs during IH 2020  due to the reduction in number of employees as a direct result of the shift towards a more online based business model and reduction in number of physical stores.  In addition, there were additional costs due to the hiring of additional staff with fixed-term contracts, which were engaged in organizing the collection of the bad debt portfolio as of  31 December 2019, based on court decisions. These additional costs were stated separately in Consolidated Statement of profit or loss and Other Comprehensive Income

There was also additional non-periodic operational costs during IH 2020  due to the collecting activity (which aimed to collect bad debts in the portfolio as of December 31, 2019)  - State Duty and Postal Services, which were stated separately  in Group Consolidated Statement of profit or loss and Other Comprehensive Income,  The main results of this collection work are expected by the Group in the second half of the year 2020.

Non-Periodic (One-time) Operating expenses

10. Related party transactions

There was no related party transactions in the reporting period