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For Immediate Release

10 September 2020

Zaim Credit Systems Plc

("Zaim" or the "Group")

Second quarter 2020 trading update

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, announces a post period end trading update from its wholly owned subsidiary, Zaim-Express LLC, ('Zaim-Express') in respect of the second quarter of financial year ended 31 Dec 20.

Highlights

•     Zaim operations continued throughout the "lockdown" period via physical stores as well as through its online presence which was scaled up significantly during the period

•     Business volumes predictably affected by implementation of Covid-19 related restrictions, but resilience of the business has been impressive  

•     Amount funded decreased by 36.4% compared to Q1 20, mainly due to "self-isolation" restrictions and economic uncertainty resulting in lower customer borrowing, ended the period with record growth and volumes of total lending approaching pre lockdown levels

•     Weighted average default rate increased from 8.1% in Q4 19 to 13.8% in Q1 20

·    Partially due to more aggressive marketing of Zaim loans in January and February 20 increasing the proportion of loans made to new customers

·    Payment discipline largely maintained with trends towards some customers slightly delaying repayments rather than incurring defaults

•     Both business levels and default rates performed significantly better than management's revised expectations for the year, set at the commencement of the Covid-19 outbreak.

•     Number of retail stores reduced significantly through closing of less efficient outlets thus accelerating online transition and related costs savings months ahead of schedule

•     As of 9 June 20, the authorities in Moscow lifted the majority of the Covid-19 related restriction, with the subsequent further lifting of restrictions in July 20

•     July 2020 saw continued positive business performance and increase in demand driven by record continued growth in the online business

·    Q3 expected to see continuation of business recovery driven mainly by strong growth in the online segment combined with slight improvements in the default rates as a result of continued advancements to the credit scoring process

Siro Cicconi, CEO commented:

"The Covid-19 outbreak became the key challenge for us in 2020 and the main source of uncertainty for Russia and global economies. We realigned our business plans quickly to conform to the new reality. The wellbeing of our customers and colleagues is a top priority for us and I have been very pleased with how we have adapted our business practices to ensure that we continue to safely support our customers.

As many of the restrictions in the areas where we operate have now effectively lifted and business volumes are gradually returning to normal levels, I am pleased to note that we have successfully navigated this challenging environment while improving business efficiency and developing a faster and more efficient online business model.

We worked on increasing the efficiency of our operations and optimized our retail network by reducing the number of stores from 92 as at March 31, 2020 to 32 stores by June 30, 2020. This reduces our fixed costs significantly and increases our flexibility going forward. At the same time, we are putting increasing efforts into development of our online business, for instance in improving the user experience and increasing our on-line marketing budget.

We are confident that the group is going to benefit from this strategy regardless of the future development of the Covid-19 pandemic situation, as the online segment of the microfinance market is growing at an impressive rate and we have a competitive advantage via our online platform and bespoke IT system."

Update on Covid-19 situation in Russia

During the first half of 2020, the Russian authorities took a number of steps aimed at containing the spread of Covid-19, including an international travel ban, social distancing initiatives and a holiday period in Russia from 30 March to 11 May. Though many of the business were closed during this period, Zaim continued operating via its physical stores as well as through its online presence.

In March and April 2020 Zaim had proactively implemented strict health and safety policies specifically tailored to Covid-19 prevention, including working from home for the head office staff and taking all necessary disinfection measures in the stores, such as using hand sanitizers, medical masks and more frequent cleaning of the customer area. The clients are permitted to enter the shop in compliance with the social distancing prescriptions or one at a time.

The majority of Covid-19 related restrictions were lifted on 9 June with the gradual opening of restaurants, dental clinics, museums and fitness clubs later in the month. As of July 2020, most coronavirus restrictions are lifted with some monitoring measures and social distancing guidelines still in place.

Predictably, the socially restrictive measures decreased business activities and this combined with economic uncertainty have impacted Zaim's business, more notably in the physical store segment. Customer behaviour changed with more time spent at home combined with a corresponding reduction in monthly expenditures, led to a reduction in business levels during April, however this started to recover in May and June and ended the period with strong growth.

Impressively there does not however appear to have been a significant deterioration in loan performance with generally good payment discipline observed. 

Second quarter 2020 trading update

The amount funded and the weighted average default rate are the key metrics for monitoring the performance of the business. The table below presents these two metrics for 2019 and the first two quarters of 2020, except for weighted average default rate that will become available after the end of Q3 2020:

Zaim-Express saw a 36.4% decrease in the amount funded in Q2 20 compared to Q1 20 mainly due to the "self-isolation" restrictions and economic uncertainty resulting in lower lending activities of our customers.

The weighted average default rate increased from 8.1% in Q4 19 to 13.8% in Q1 20. This was predominantly due to the more aggressive marketing of Zaim loans in January and February 20, increasing the proportion of loans made to new customers from around 11% in Q4 2019 to 18% in Q1 20. New customers usually carry higher risk of default than repeat customers.

In addition to the higher ratio of new customers, the impact of coronavirus pandemic has reduced some customer's ability to repay loans. However, we do not see significant deterioration of payment discipline with some customers are slightly delaying repayments without incurring defaults.

Zaim has continued to improve its credit scoring system and expects to continue to see the benefits of this over the coming months.

Dynamics of the loan book

New loans volumes were negatively affected by the lockdown measures and economic uncertainty in Q2 20 with a 48% decrease in April vs. March (£437k vs. £840k), this was followed by a subsequent partial recovery in May and June of in excess of 20% per month. The online segment showed significant positive momentum growing by 44% to set record-high monthly issuance in June 2020.

Amounts funded in each of the months of the second quarter of 20 are set out in the following table:

Increasing operational efficiency

With the first signs of coronavirus pandemic and economic uncertainty Zaim enacted a series of measures to reduce the cost base of its physical store business, achieved by negotiating rent reductions with landlords as well as salary reductions for staff.

Management focused the strategy on optimising the business model and ensuring maximum return to the shareholders. The shift in strategy is centered around accelerating the focus from a high fixed cost, offline business model to a more flexible and scalable online operation, reducing administrative costs, speeding up the collecting process and issuance optimisation.

Focus on online development

As part of its growth strategy, Zaim has developed a convenient online platform, allowing customers to receive and repay loans via the internet or by phone in less than 10 minutes without leaving their homes, which is an important option in the era of social distancing caused by the pandemic. We can also deliver our Zaim MasterCard debit card to our clients and provide the loans through these cards. We are currently accelerating the online development in order to capture the growth in this segment.

Offline network optimisation

As a direct result of the acceleration in our online strategy, action has been taken to close the weakest performing stores and shifting more business via our online business model. We have therefore reduced the number of stores from 92 outlets as at March 31, to 32 outlets as at June 30.

Recent trading & Outlook

Post period end, the business has continued its positive momentum and observed a continued increase in demand. As can be expected, a significant driver of the overall growth of the business is the online segment which continues to impress and perform better than management's expectations, with July posting another record month.

In Q3 we expect to a see a continuation of the business recovery driven mainly by the strong growth in the online segment combined with slight improvements in the default rates as a result of continued advancements to the credit scoring process.

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