RNS Number : 1442X
ZAIM Credit Systems PLC
30 April 2021
 

Not for release or distribution, directly or indirectly, within, into or in the United States or to or for the account or benefit of persons in the United States, Australia, Canada, Japan or any other jurisdiction where such offer or sale would violate the relevant securities laws of such jurisdiction 

For Immediate Release

30 April 2021

Zaim Credit Systems Plc

("Zaim" or the "Group")

Audited financial results for the year ended 31 December 2020

Zaim Credit Systems plc (the 'Group' or 'Zaim'), the Russian focused fintech group, is pleased to announce its audited financial results for the year ended 31 December 2020.

 Key highlights

·      Group Net Profit for the second half of 2020 of £0.7m (1H 20 loss of £1.3m)

 

·      Adjusted EBIT profit for the second half of 2020 of £0.8m (1H 20 loss of £0.9m)

 

·      Adjusted EBIT loss for the year of £0.1m (FY 19 loss of £0.2m)

 

·      Achieving profitability in the second half of the year extremely encouraging given the backdrop of the COVID-19 restrictions

 

·      Rapid transition to a predominantly online business model underlines the resilience and adaptability of the Group which is now well placed to capitalise on further growth

 

·      Transition from offline-centered to online-centered business model mid-way through 2020 resulted in significantly lower fixed costs and higher scalability of the business

 

·      Total loans issued increased by 15% to £10.4m (FY19 £9.0m) in FY20 and by 52% from £4.1m in 1H20 to £6.3m in 2H20  

 

The growth experienced in 2H is robust, sustainable and expected to continue as it is a result of the revised business model to focus the Groups resources online

The rate of growth is expected to be stable as Zaim continues to take market share and not a result of any rebound from reduced business 1H or other short term result

 

·      Growth of the loans issued was driven by the sharp increase in the online business, which grew 16 fold from £0.3m in 2019 to £5m in 2020. This growth was especially notable in 2H20 vs. 1H20 after the successful transformation to a predominantly online business model, generating an increase in loans issued of 540% from £0.7m in 1H20 to £4.3m in 2H20

 

·      In December 2020, the online business represented 82% of total loans issued compared to 13% in March 2020 at the outset of COVID-19 and just 9% in December 2019

 

 

Financial highlights


FY 2020

 

FY 2019

2H 2020

1H 2020


£'000

£'000

£'000

£'000

Loans issued during the period

10,392

9,028

6,275

4,117

Interest income

4,857

3,941

2,112

2,745

Operating income

3,363

4,324

2,369

994

Net profit (loss)

(615)

(892)

720

(1,335)

Operating margin1

27.3%

41.2%

26.5%

28.8%

Adjusted EBIT2 for the period

(125)

(177)

808

(933)

 


As at 31 December 2020

As at 30 June 2020

As at 31 December 2019


£'000

£'000

£'000

Gross outstanding loans to customers

28,298

30,844

32,078

Total outstanding loans, measured at amortised cost

1,269

718

786

Cash and cash equivalents

641

810

1,583

 

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's 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 quite severely during March - June 2020 due to the Covid-19 pandemic and still to a slightly lesser extent for the remainder of 2020. 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.

During the quarantine period in the Q2 2020, the Group rapidly accelerated the shift in its business model to remote lending via the Internet, which resulted in a significant increase in access to our products without the need to visit our stores and at the same time decreasing the fixed costs base. The Group proceeded to optimise the physical store business, including the closure of loss-making outlets and moved forward focussing the majority of the Group's resource towards the online business. This was executed well and I am pleased with the results demonstrated by the profitability in the second half of 2020.

The Group experienced exceptional growth in lending volumes over the second half of 2020 and continues to see a large opportunity for our business to continue its current trajectory. I am both excited and optimistic about what the future holds for our Company and look forward to updating the market in the future."

 

A copy of the Report and Accounts will be available on the Company's website, www.zaimcreditsystemsplc.com/english and also from the National Storage Mechanism.

 

Enquiries:

Zaim Credit Systems Plc


Simon Retter

Siro Cicconi

 

Tel: +44 (0) 73 9377 9849

Alex Boreyko

 

Tel: +7 925 708 98 16

investors@zaimcreditsystemsplc.com

 

Beaumont Cornish Limited


Roland Cornish / James Biddle

Tel: +44 (0) 20 7628 3396



Optiva Securities Limited


Jeremy King / Vishal Balasingham

Tel: +44 (0) 20 3137 1902

 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 as it forms part of UK Domestic Law by virtue of the European Union (Withdrawal) Act 2018 ("UK MAR")

 

Chairman's Statement

 

Dear Shareholders,

It is hard to imagine our life now without digital or online services. Over the past several years, most of us have transferred traditional "real-life" activities online. Activities such as shopping, education, communication, entertainment, ordering delivery from a restaurant or meeting any other essential needs can now be undertaken exclusively online.

Quarantine measures undertaken by the governments of most countries during 2020 as a reaction to the COVID-19 pandemic accelerated this shift in many cases and generated substantial additional demand for online services. Despite this, many of these services are difficult or even impossible to access without an online banking presence or a bank card. At the same time as services and activities that can be undertaken online are rapidly expanding, many people are excluded from this "online world." This phenomenon is quite noticeable in Russia, where in 2020, 65% of the population did not have a bank deposit account and 85% did not have a credit card .

Traditional banks are reluctant to approve credit to a large percentage of Russian borrowers with poor or no credit history as well as those from less well-off sections of society. This creates a significant segment of the population that is excluded from the online world and the modern standard of living.

Zaim has always built its business on ethical principles. Our mission is to provide access to financial services in the age of the Internet to those people who are not eligible for mainstream financial services. With this mission in mind, several years ago, Zaim created the Zaim MasterCard, an inclusivity tool that can be easily issued and delivered to those who lack the "key" to the modern online world.

With our motto "fast and flawless," we help people efficiently resolve their temporary financial difficulties without the need for collateral or guarantors, with funds usually delivered within a few minutes. In order to provide our customers with a quick and easy way to borrow money on transparent terms, we set a very high standard in customer service and we give full training to every one of our employees. We strive to provide financial support to a whole sector of the Russian population that has been ignored by conventional banks. Our best-in-class technology offering enables Zaim to do this and maximise shareholder returns at the same time.

This market still has a great potential. Penetration of the microfinance industry in the Russian market is less than 2% of the adult population, while in some mature markets, it ranges between 5% and 10%. Russian household debt in September 2020 was only 21% of the Russian GDP compared to 89% in the UK and 78% in the USA . Over the past several years, the microfinance market has grown by about 25% per annum, with the majority of this growth driven by the online segment. In addition, online lending in Russia has been doubling year after year. During 2020, which was hopefully an exceptional year for uncertainty and general economic turmoil, the total balance of Russian microfinance loans grew by 18% to 249 billion rubles (ca. £2.5 billion) .

We used the COVID-19 restrictions and change in habits of individuals as an opportunity to significantly accelerate the online transformation of our business. At the beginning of the year, we had a dominant share of the market in the Moscow region where our existing outlet network was based, even having only a very small-scale online business at the time. By the end of the year, we found ourselves in the enviable position of being able to provide the majority of our loans via remote channels and we are now able to include the whole of the Russian population as our market. 

During the past few years, Zaim has been developing and executing a strategy of profitable growth whilst dealing with some significant headwinds. Zaim has successfully addressed the tightening of regulatory requirements experienced between 2016-2019, including a reduction in the maximum interest charges. In 2020, while our team focused on the implementation of our post-IPO strategy, COVID-19 emerged as a truly unforeseeable event but, once again, the team swiftly amended the strategy and ensured our prompt return to profitability and a leaner, more efficient and optimized business.

I would like to thank the management, employees, consultants and my fellow board members for their commitment and hard work in delivering these tremendous results and navigating the Group to a rapidly growing and profitable business in the second half of 2020.

We remain committed to strengthening our position as a leading Russian fintech company and will strive to keep delivering a fast and flawless solution to our customers.

 

Malcolm Groat

Chairman

29 April 2021

 

Chief Executive's Review

 

Dear fellow Stakeholders,

2020 became the year of great challenges not only for our company, but for the whole of humanity. I am extremely proud of our team that has successfully addressed these global challenges and turned a potential heavy threat to the business into an opportunity to increase growth and undertake an incredibly fast move to an online model. Our management has successfully navigated the difficulties connected with COVID-19 and its consequences as well as the tightening regulations in the microfinance field in Russia and has built a solid and reliable growth platform, generating significant profits in the second half of the year.

In the middle of 2019, the Russian financial regulator-the Central Bank of the Russian Federation-tightened restrictions for all operators in the microfinance market by reducing the maximum interest rate by 33%, in accordance to sector re-organization plan announced in 2016. The new rate is in line with international markets level. This lower interest rate affected us most significantly during 2020, the first full year of its impact, but despite this, the Group reported an increase in interest income of 23% during the year. This was driven by an increase in the amount of loans issued during the year to £10.4m (2019: £9.0m). During the year, it was observed that on average, customers held our loans for slightly longer (67 days; 2019: 52 days), predominantly due to the lower interest rates, resulting in an increased working capital requirement.

In 2020 we observed a significant threat to our business, as did a lot of other traditional businesses across the globe, with the emergence of the COVID-19 pandemic and associated restrictions imposed by governments. I am immensely proud of our team at all levels of the organisation who handled the situation in a calm, professional and conscientious manner and I would like to thank everybody for their great teamwork that has turned this significant risk into a successful opportunity to build our growing, profitable business.

Over the past 10 years, Zaim has developed a bespoke IT system that allows it to receive and repay loans remotely with an automated scoring process taking less than 10 minutes to approve or reject new applicants. 2020 saw the prioritization of the development of our online business and subsequent rapid expansion of lending volumes. At the same time, the physical outlet business was streamlined by reducing the number of outlets to 31 from 91 at the end of December 2020 and then to 27 as at 31 March 2021. As a result, the share of loans issued online dramatically increased from 9% in December 2019 to 82% in December 2020.

These swift and decisive actions resulted in an immediate improvement to the profitability of the Group with profits achieved on a quarterly basis in both Q3 and Q4 2020. While in the first half of 2020 the Group generated an adjusted EBIT loss of £0.9m, in the second half, it generated an adjusted EBIT profit of £0.8m, which is an impressive turnaround in performance.

This trend of strong growth in business volumes has continued during Q1 2021, with key performance indicators indicating healthy growth, and I look forward to providing more news in the Q1 trading update.

I am glad to note that the switch to an online-focused business model continues to outperform management's expectations and now that the platform has been successfully deployed and fine-tuned, our attention is turning to other business development opportunities and to further enhancements to our existing offerings. As part of this, the team is focusing on further improving the level of services, implementing new tools and, on top of this, we are glad to announce that we are releasing a mobile app. This gives us an opportunity to stay connected to our clients 24/7 and increase the potential for repeat business.

We are now ready to expand our portfolio of services and raise the fintech profile of the Group. Along with this, we are currently exploring opportunities with colleges and universities to create a mechanism for broadening access to financial services for people who are neglected by conventional providers. Once again, we confirm that the key words for our business are inclusivity and profitability.

I would like to thank the Directors and the management for navigating the successful return of the Group to net profitability. We are currently uniquely positioned to address market challenges and turn them into market opportunities with our consistent commitment to adding value and generating profitability for all of our stakeholders.

Siro Donato Cicconi

CEO

29 April 2021

 

Independent Auditor's Report to the Shareholders of Zaim Credit Systems plc

 

Opinion

 

We have audited the financial statements of Zaim Credit Systems plc (the 'parent company)' and its subsidiaries (the 'group') for the year ended 31 December 2020 which comprise the Consolidated Statement of Profit or Loss and Other Comprehensive Income, Consolidated and Company Statement of Financial Position, Consolidated and Company Statement of Changes in Equity, Consolidated and Company Statement of Cash Flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In our opinion:

·      the financial statements give a true and fair view of the state of the group's and of the parent company's affairs as at 31 December 2020 and of the group's loss for the year then ended;

·      the group and the parent company financial statements have been properly prepared in accordance with International accounting standards in conformity with the requirements of the Companies Act 2006; and

·      the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the group financial statements, Article 4 of the IAS Regulation.

Basis for opinion

 

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Conclusions relating to going concern

 

In auditing the financial statements, we have concluded that the director's use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Our evaluation of the directors' assessment of the entity's ability to continue to adopt the going concern basis of accounting included carrying out a risk assessment which covered the nature of the group, its business model and related risks including where relevant the impact of Coronavirus, the requirements of the applicable financial reporting framework and the system of internal control. We evaluated the directors' assessment of the group's ability to continue as a going concern, including challenging the underlying data and key assumptions used to make the assessment, and evaluated the directors' plans for future actions in relation to their going concern assessment.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's or group's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Key audit matters

 

Key audit matters are those matters that, in our professional judgment, were of most significance on our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

Risk

Our response to the risk

Our response and observation

Impact of COVID-19

There is a risk that the group may not be considered a going concern as a result of the impact of COVID-19 (Coronavirus).

 

We read the Directors' assessment of the risks and impacts of COVID-19 on the business. We compared this assessment to our own understanding of the risks, and the nature of the group's operations, products and customer base. We then conducted a review of going concern in respect of COVID-19 which included reviewing forecasts and current trading performance, and carrying out stress testing. The work undertaken considered a period of at least twelve months from the date of approving these financial statements.

 

The disclosures in the financial statements adequately reflect the Directors' conclusions around the uncertainties and impact of COVID-19 and, that the going concern assumption remains appropriate.

Recoverability of loans to customers

Given the extended credit terms that were provided to customers, judgement is required to establish how much of the loan receivables balance is recoverable. There is a risk that management's judgements and estimates over recoverability are inappropriate, when considering the specific balances and the requirements of IFRS 9.

 

We understood the group's process for estimating the expected credit loss provision under IFRS 9. Loans to customers were tested on a sample basis which included considering the recoverability of the balances post year end. Overdue balances were discussed with management and we assessed whether the accounting provision appropriately reflects the facts and circumstances.

 

We did not identify any evidence of material misstatement related to carrying value of receivables. Management continue to apply an appropriate expected credit loss provision.

Risk of fraud in revenue recognition

There is a risk that revenue is materially understated due to fraud.

 

We reviewed the group's revenue recognition policies and how they are applied. Revenue was then tested on a sample basis to confirm that transactions have been appropriately recorded in line with IFRS 15.

 

Revenue was recognised in accordance with the group's accounting policy and we concluded that no evidence of fraud or other understatement was identified.

Risk that management is able to override controls

Journals can be posted that significantly alter the financial statements.

 

We examined journals posted around the year end, specifically focusing on areas which are more easily manipulated.

 

 

We identified no evidence of management override in respect of inappropriate manual journals recorded in any section of the financial statements.

 

Our application of materiality

 

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be charged or influenced. We use materiality both in planning and in the scope of our audit work and in evaluating the results of our work.

We determine materiality for the group and the parent company to be £96,983 and this financial benchmark, which has been used throughout the audit, was determined by way of a standard formula being applied to key financial results and balances presented in the financial statements. Where considered relevant the materiality is adjusted to suit the specific risk profile of the group.

Performance materiality is the application of materiality at the individual account or balance level set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. Performance materiality for both the group and the parent company was set at 75% of the above materiality levels, which equates to £72,737. We agreed with the audit committee that we would report to the committee all individual audit differences identified during the course of our audit in excess of £4,849. We also agreed to report differences below these thresholds that, in our view warranted reporting on qualitative grounds.

 

An overview of the scope of our audit

 

Our group audit was scoped by obtaining an understanding of the group and its environment, including the group's system of internal control, and assessing the risks of material misstatement in the financial statements at the group level.

Whilst Zaim Credit Systems plc is a company registered in England & Wales and its head office is located in the UK, the group's principal operations are located in Russia. In approaching the audit, we considered how the group is organised and managed. We assessed the activities of the group as being the issuance of microfinance loans to Russian individuals.

Our group audit scope focused on the group's principal operating subsidiary, being Zaim Express LLC, which was subject to a full scope audit together with the parent company. Shipleys LLP performed the audit of the parent company and BDO Unicon Aktsionernoe Obshchevstvo performed the audit of the Russian component.

The group audit team was actively involved in the direction of the audit and specific audit procedures performed by the component auditor along with the consideration of findings and determination of conclusions drawn. As part of our audit strategy, we issued group audit engagement instructions and discussed the instructions with the component auditor. A senior member of the group audit team met with the component auditor and local management performed a review of the component audit files and we discussed the audit findings with the component auditor.

Other Information

 

The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other information include where we conclude that:

·      Fair, balanced and understandable - the statement given by the directors that the y consider the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the groups' position and performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or

·      Audit committee reporting  - the section describing the work of the audit committee does not appropriately address matters communicated by us to the audit committee; or

We have nothing to report in respect of these matters.

Opinions on other matters prescribed by the Companies Act 2006

 

In our opinion the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

·      the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

·      the strategic report and the directors' report have been prepared in accordance with applicable legal requirements

 

Matters on which we are required to report by exception

 

In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

·      adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

·      the parent company financial statements and the part of the directors' remuneration report to be audited are not in agreement with the accounting records and returns; or

·      certain disclosures of directors' remuneration specified by law are not made; or

·      we have not received all the information and explanations we require for our audit.

 

Responsibilities of directors

 

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditor's Responsibilities for the audit of the financial statements

 

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. Our approach was as follows:

·      We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined the most significant are those that relate to the reporting framework (IFRS, the Companies Act 2006) and the relevant tax compliance regulations in the jurisdictions in which the group operates.

·      We understood how Zaim Credit Systems plc is complying with those frameworks by making enquiries on management, the Company Secretary, and those responsible for legal and compliance procedures. We corroborated our enquiries through our review of board minutes, papers provided to the Audit Committee, discussion with the Audit Committee and any correspondence received from regulatory bodies.

·      We assessed the susceptibility of the group's financial statements to material misstatement, including how fraud might occur by enquiring with management and the Audit Committee during the planning and execution phase of our audit. We considered the programs and controls that the group has established to address risks identified, or that otherwise prevent, deter and detect fraud and how senior management monitors those programs and controls. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk including revenue recognition as discussed above. These procedures included testing manual journals and were designed to provide reasonable assurance that the financial statements were free from fraud or error.

·      Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations identified in the paragraphs above. Our procedures involved journal entry testing, with a focus on manual journals and journals indicating large or unusual transactions based on our understanding of the business; enquiries of the Company Secretary and management; and focused testing, as referred to in the key audit matters section above.

Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Other matters which we are required to address

We were initially appointed by the board on 23 October 2019 to audit the financial statements for the period ending 31 December 2018. Our total uninterrupted period of engagement is 3 years, covering the periods ending 31 December 2018 to 31 December 2020.

The non-audit services prohibited by the FRC's Ethical Standard were not provided to the group or the parent company and we remain independent of the group and the parent company in conducting our audit.

Our audit opinion is consistent with the additional report to the audit committee.

Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

 

BENJAMIN BIDNELL

For and on behalf of SHIPLEYS LLP, Chartered Accountants and Statutory Auditor

10 Orange Street, Haymarket, London, WC2H 7DQ

29 April 2021

 

Zaim Credit Systems plc

Consolidated Statement of Financial Position as at 31 December 2020

(in British pounds sterling)

Company Registered number 11418575

 

 

Note

2020

2019

 





 

Assets




 

Cash and cash equivalents

5

640,871

1,582,751

Loans to customers

6

1,269,313

786,346

Property and equipment


5,677

11,967

Right-of- use assets under lease agreements

7

297,925

2,549,233

Other assets

8

251,297

222,117

Total assets


2,465,083

5,152,414





 

Liabilities




 

Loans received

9

735,646

742,603

 

Lease liabilities

7

347,216

2,555,648

 

Other liabilities

10

823,830

664,905

 

Total liabilities


1,906,692

3,963,156

 





 

 

Equity




 

Charter capital

11

4,369,750

4,369,750

 

Shares to be issued Reserve

26

800,000

-

 

Additional capital

11,25

6,078,128

6,078,128

 

Foreign currency translation reserve

11

4,390,225

4,457,788

 

Merger reserve

11, 26

22,964,800

23,764,800

 

Share options reserve

11

218,099

166,883

 

Accumulated deficit

11

(38,262,611)

(37,648,092)

 

Total equity


558,391

1,189,258

 

Total liabilities and equity


2,465,083

5,152,414

 

 

 

Siro Donato Cicconi,

Chief Executive Officer



 

 

Simon James Retter,

Finance Director



 

29 April 2021

 

 

 


Zaim Credit Systems plc

Company Statement of Financial Position as at 31 December 2020

(in British pounds sterling)

 

Company Registered number 11418575

 


Note

2020

2019

 





 

Assets




 

Cash and cash equivalents

5

161,163

1,310,655

Other assets

8

126,477

68,122

Investment in Subsidiary

1

10,096,089

8,705,663

Total assets


10,383,729

10,084,440





 

Liabilities




 

Other liabilities

10

186,739

162,666

 

Total liabilities


186,739

162,666

 





 

 

Equity




 

Charter capital

11

4,369,750

4,369,750

 

Shares to be issued Reserve

26

800,000

-

 

Additional capital

11

6,078,128

6,078,128

 

Share options reserve

12

218,099

166,883

 

Accumulated deficit


(1,268,987)

(692,987)

 

Total equity


10,196,990

9,921,774

 

Total liabilities and equity


10,383,729

10,084,440

 

 

 

The above Company Statement of Financial Position should be read in conjunction with the accompanying notes, the loss for the period was £576,000 (2019: £626,317). As permitted by section 408 of the Companies Act 2006, the statement of comprehensive income of the Parent Company is not presented as part of these Financial Statements.

The Financial Statements were authorised for issue by the Board of  Directors on 29 April 2021 and were signed on its behalf

 

 

Siro Donato Cicconi,

Chief Executive Officer



 

 

 

Simon James Retter,

Finance Director



 

 

 



 


Zaim Credit Systems Group

Consolidated Statement of Profit or Loss and Other Comprehensive Income for the Year Ended 31 December 2020

(in British pounds sterling)

 

Note

2020

2019





Interest income

13

4,857,496

3,940,747

Interest expenses


(12,835)

(28,018)

Interest expense - lease liabilities

13

(92,442)

(243,281)

Net interest income


4,752,218

3,669,448





Allowance for ECL/impairment of loans to customers

6,8,15

(1,790,718)

(231,681)

Net interest income after allowance for ECL/impairment of loans to customers


2,961,501

3,437,767

Gains less losses from dealing in foreign currency

14

(189,127)

95,497

Other operating income

16

590,502

790,554

Operating income


3,362,875

4,323,818





Staff costs

17

(1,810,443)

(2,006,265)

Charge for share based options

12

(51,216)

(166,883)

Operating expenses

18

(2,115,735)

(2,523,112)

Costs of IPO

18

-

(369,146)

Deemed cost of listing

26

-

(150,000)

Loss before income tax


(614,519)

(891,589)

 

Income tax expense

19

-

-

Net loss


(614,519)

(891,589)





Net other comprehensive income that may be reclassified to profit or loss




Foreign exchange differences arising on translation into presentation currency


(67,563)

(39,942)

Total comprehensive expense


(682,083)

(931,531)

 

 

 

Earnings per share                                                                      11  

Basic, profit for the year attributable to

ordinary equity holders of the parent                                                                0.14p                         0.77p   

 

Diluted, profit for the year attributable to

ordinary equity holders of the parent                                                                0.14p                         0.77p


Zaim Credit Systems Group

Consolidated Statement of Changes in Equity for the Year Ended 31 December 2020

(in British pounds sterling)

 


Charter capital

 

 

 

Shares to be issued Reserve

Additional capital

Foreign  currency translation reserve (FCTR)

 

 

  

Merger                       reserve

 

 

Share options reserve

Accumulated deficit

 Total
equity

Balance at 31 December 2018

2,492,363

 

 

-

29,122,880

4,497,731

 

            -

 

                 -

(36,689,833)

(576,859)

 

Reverse acquisition in 2019

1,877,387

 

 

-

(23,044,752)

-

 

23,764,800

 

-

(66,670)

2,530,765

Comprehensive loss for 2019

-

 

-

-

 (39,942)

               -


(891,589)

(931,531)

Share-based payments






166,883

-

166,883

Balance at 31 December 2019

4,369,750

-

6,078,128

4,457,788

 

23,764,800

 

166,883

(37,648,092)

1,189,258

 

Comprehensive loss for 2020

-


-

 (67,563)

               -

-

(614,519)

(682,083)

Contingent consideration

-

 

800,000

-

-

 

(800,000)



-

Share-based payments






51,216

-

51,216

Balance at 31 December 2020

4,369,750

 

800,000

  6,078,128

4,390,225

 

22,964,800

 

218,099

(38,262,611)

558,391

 

Zaim Credit Systems Group

Company   Statement of Changes in Equity for the Year Ended 31 December 2020

(in British pounds sterling)

 

 

 


Charter capital

 

Shares to be issued Reserve

Additional capital

Accumulated deficit

Share options reserve

 Total
equity

Balance at 31 December 2018

60,000

-

-

(66,670)


(6,670)

 

Issue during the year

4,309,750

 

-

6,406,699

-

 

-

10,716,449

Expenses on issue of shares

-

-

(328,570)

-

-

(328,570)

Comprehensive loss for 2019

-

-

-

(626,317)

-

(626,317)

Share-based payments

-

-

-

-

166,883

166,883

Balance at 31 December 2019

4,369,750

-

6,078,128

(692,987)

166,883

9,921,774

    

    

Comprehensive loss for 2020

-

-

-

(576,000)

-

(576,000)

Contingent consideration

-

800,000

-

-

-

800,000

Share-based payments

-

-

-

-

51,216

51,216

Balance at 31 December 2020

4,369,750

800,000

6,078,128

(1,268,987)

218,099

10,196,990

 

 

 

 

 


Zaim Credit Systems plc

Consolidated Statement of Cash Flows for the year ended 31 December 2020

(in British pounds sterling)

 

 

2020

2019




Cash flows from operating activities



Interest received

4,219,635

2,332,339

Interest paid

(105,273)

(400,142)

Gains less losses from dealing in foreign currency

(7,460)

(9,448)

Other operating income

559,981

198,600

Staff costs

(1,854,393)

(2,005,236)

Operating expenses

(1,226,365)

(1,440,487)

Cash flows from/(used in) operating activities before changes in operating assets and liabilities

1,586,125

(1,324,373)




Net (increase)/decrease in operating assets



Loans to customers

(1,848,483)

1,259,013

Other assets

(109,063)

4,126

 

Net decrease in operating liabilities



Other liabilities

57,357

162,957

Net cash flows from operating activities

(314,064)

101,723

 

Cash flows from investing activities



Purchases of property and equipment

-

(2,130)

Net cash flows from investing activities

-

(2,130)







Cash flows from financing activities



Repayment of lease liabilities

(536,120)

(1,389,284)

Loans received

259,266

653,530

Repayment of loans received

(259,266)

(653,530)

Issue of ordinary shares (including share premium)

-

2,716,449

Share issue costs

-

(328,570)

Net cash flows from financing activities

(536,120)

998,594

Effect of exchange rate changes on cash and cash equivalents

(91,696)

30,015

Net change in cash and cash equivalents

(941,880)

1,128,202

 

Cash and cash equivalents at the beginning of the year

1,582,751

454,549

Cash and cash equivalents at the end of the year (Note 5)

640,871

1,582,751

 

 




 

Zaim Credit Systems plc

Company Statement of Cash Flows for the year ended 31 December 2020

(in British pounds sterling)

 


2020

2019




Cash flows from operating activities



Loss for the period

(576,000)

(626,317)

Correction for non-cash transaction (charge for share options granted)

51,216

166,883

Cash flows from/(used in) operating activities before changes in operating assets and liabilities

(524,784)

(459,433)




Adjustments for



Increase in trade and other receivables, VAT

(58,355)

(8,122)

Increase in trade and other payables

24,073

95,995

Cash generated from operations

 

(559,066)

 

(371,560)

 

Net cash flows used in operating activities

(559,066)

(371,560)

 

Cash flows from investing activities



Investment in Subsidiary

(590,426)

(705,663)

Net cash flows from investing activities

(590,426)

(705,663)







Cash flows from financing activities



Issue of ordinary shares (including share premium)

-

2,716,449

Share issue costs

-

(328,570)

Net cash flows from financing activities

-

2,387,878




Net change in cash and cash equivalents

(1,149,492)

1,310,655

 

Cash and cash equivalents at the beginning of the year

1,310,655

-

Cash and cash equivalents at the end of the year (Note 5)

161,163

1,310,655

 

1. Principal Activities of the Group

The principal activity of Zaim Credit Systems plc ("the Company") and its subsidiary Zaim-Express, LLC (together "the Group") is the 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 the main function of the Company is to provide holding company services and undertake management of their listed activities on the stock exchange. These business combinations in 2019 was stated in consolidated financial statements as reverse acquisitions under IFRS 3.

The organisational structure of Group:




The share votes of the Company

The name of Subsidiary

Country of registration


31.12.2020

31.12.2019

  Zaim-Express LLC

Russia


100%

100%

 

The Subsidiary's principal activity is the issuance of microloans through its network of branches in Russian cities (mainly - in Moscow and the Moscow region, 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 Subsidiary's employees, by groups


2020

2019

Central office


47

42

Call center


22

23

Other specialists


143

208

Total average number of employees


212

273

 

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

The average number of parent Company's employees


2020

2019

Directors


5

3

As at 31 December 2020, the main shareholder of the Company is Zaim Holdings SA (with a 73.23% equity holding; 31 December 2019  - with a 73.23%  equity holding). The ultimate controlling party of the Group is an individual - Mr. Siro Donato Cicconi (Director).

2. Operating Environment of the Group

General

 

The economy of the Russian Federation continues to demonstrate certain characteristics of an emerging market. They include, in particular, inconvertibility of the Russian rouble in most countries outside of Russia and relatively high inflation. The current Russian tax, currency and customs legislation is subject to various interpretations and frequent changes. The country's economy depends on oil and gas prices. Russia continues to develop the legal, tax and administrative infrastructure to meet the market economy requirements. The economic reforms implemented by the government are aimed at modernisation of the Russian economy, development of high-tech production, improvement of labour productivity and competitiveness of the Russian products on the global market.

Due to the consequences of the coronavirus pandemic in 2020, Russia faced the forced introduction of quarantine measures, the closure of enterprises and borders, and a sharp collapse in oil prices. At the same time, the economic downturn was not so large-scale as in a number of other states. Experts believe that this is primarily the result of timely state support measures for businesses and the population. In addition, 2020 saw the Central Bank rate plunge to a record-low, significant fluctuations in exchange rates and surging demand in the real estate market. The collapse in oil prices that occurred in the spring had a negative impact on national budget revenues and the dynamics of the national currency. At the same time, the pandemic did not result in any fundamental adverse changes in the Russian economy.

In the second half of 2020, as the restrictive measures imposed due to the pandemic were lifted and eco-nomic activity recovered, the consumer credit market -experienced an upturn, and microfinance volumes returned to the levels of the start of the year. Most of the MFI offices that were closed in the spring have resumed their work. In the context of restrictive measures that were introduced in April-May 2020 due to the deterioration- of the pandemic situation, online sales channels and customer interaction began- to play a special role in ensuring the continuity of MFI activities. Remote service channels will remain relevant in the future due to the pandemic and the continuing measures of social distancing. An accelerated transition to online- service may have a long-term effect and promote faster implementation of remote- service channels.

In general, the global and Russian economies are in the state of high uncertainty due to new lockdowns, but governments, central banks and businesses have already gained useful experience in dealing with the pandemic. The results of economic development in the 3rd and 4th quarters of 2020 in Russia and other countries showed potential for rapid recovery in the case of a declining epidemic threat. The financial system has demonstrated a fairly high degree of sustainability. According to the Central Bank of Russia, in the future, the risks associated with the solvency of the corporate sector will gradually become the highest on the agenda.

During the quarantine period, the Group changed its business model to one of remote lending via the Internet. All operations necessary for the performance of this activity were carried out by the employees remotely, which allowed the Group to maintain regularity and continuity of business processes. Based on the analysis conducted, the Group's management believes that the expected recession will not have any significant negative impact on the Group's financial performance in the short term. The management of the Group believes it is taking all the necessary measures to support the sustainability and further development of the Group's business operations in these circumstances.

As at 31 December 2020, the CBR's key rate was 4.25% (31 December 2019: 6.25%).

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.

Inflation

The Russian economy experiences relatively high levels of inflation. The inflation indices for the last five years are given in the table below:

The year ended

 Inflation for the period



31 December 2020

4.9%

31 December 2019

3.0%

31 December 2018

4.3%

31 December 2017

2.1%

31 December 2016

5.4%

Foreign exchange transactions

Foreign currencies, especially the US Dollar, Euro, and British pound sterling play a significant role in determining economic parameters of many economic transactions carried out in Russia. The table below shows the CBR exchange rates of RUB relative to USD and EUR:

Date

 USD

 EUR

GBP





31 December 2020

73.8757

90.6824

100.0425

31 December 2019

61.9057

69.3406

81.146

31 December 2018

69.4706

79.4605

88.2832

31 December 2017

57.6002

68.8668

77.6739

31 December 2016

60.6569

63.8111

74.5595

Management takes all necessary measures to ensure the sustainability of the Group's operations. However, the future impact of the current economic situation is difficult to predict and management's current expectations and estimates may differ from actual results.

For the purpose of estimating expected credit losses, the Group uses forward-looking information, including projections of macroeconomic variables. The Group takes these forecasts into account when providing its best estimate of outcomes. However, as with any economic forecast, the projections and likelihoods of their occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different from those projected. Note 6 provides additional information on how the Group incorporates forward-looking information in its expected credit loss models.

 

Functional and presentation currency

The functional currency is the currency that mainly influences sales prices for goods and services (this will often be the currency in which sales prices for goods and services are denominated and settled) and which mainly influences labour, material and other costs of providing goods or services (this will often be the currency in which such costs are denominated and settled). The Group's functional currency is the Russian rouble.

The presentation currency is the currency in which financial statements are presented.

The consolidated financial statements are presented in British pounds sterling. The reasons why the functional currency differs from the presentation currency are the consolidation of Subsidiary's financial statements with the parent Company accounts which have been presented in GBP and investors' interests.

3. Basis of Presentation

 General principles

These consolidated financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs). The Group maintains its records in compliance with the applicable legislation of the United Kingdom. These financial statements have been prepared on the basis of those accounting records and adjusted as necessary in order to comply, in all material respects, with IFRSs.

Going concern

These consolidated financial statements reflect the Group management's current assessment of the impact of the Russian business environment on the operations and the financial position of the Group. The future economic direction of the Russian Federation is largely dependent upon the effectiveness of measures undertaken by the RF Government and other factors, including regulatory and political developments which are beyond the Group's control. The Group's management cannot predict what impact these factors will have on the Group's financial position in future. As a result, adjustments related to this risk have not been included in the accompanying financial statements.

As at 31 December 2020, the Group has an accumulated deficit of GBP 38,262,611 (2019: GBP 37,648,092), and incurred a net loss of GBP 614,519 during the year ended 31 December 2020 (2019: GBP 891,589).

The Group's business activities together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement and Chief Executive Review . In addition note 3 to the Financial Statements includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and its exposure to credit and liquidity risk.

The Financial Statements have been prepared on a going concern basis. In 2020, the Group changed its business model to one of remote lending via the Internet, which resulted in a significant decrease in fixed lease and staff costs and a decrease in the share of lending costs within total expenses. The Group is planning to optimise the network operation, including removal of loss-making outlets and enhancement of the Internet channel to attract customers.

The Group is actively collecting overdue debts, inter alia, through legal action. Despite temporary suspension of judicial and enforcement proceedings during the COVID-19 pandemic, the proceeds from the loans of Stage 3 in 2020 increased by 87% compared to 2019.

The CBR sets the minimum mandatory liquidity ratio at over 70%. The Subsidiary meets the mandatory liquidity ratio: as at 31 December 2020 - 153.74% (unaudited) and as at 31 December 2019 - 132.89% (un- audited).

As a result of considerations noted above, the Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing these Financial Statements.

 

Basis of consolidation and business acquisitions

On 18 September 2019 Company acquired the entire issued share capital of Zaim-Express (LLC) by way of a share for share exchange. The transaction was treated as a reverse acquisition and was accounted for using the merger accounting method as the entities were under common control before and after the acquisition.

 

A Subsidiary is an entity controlled by the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

The Group considers all relevant facts and circumstances in assessing 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.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income, and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

 

Other than for the acquisition of the Subsidiary as noted above, the Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred, and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values as at the acquisition date. Acquisition-related costs are expensed as incurred unless they result from the issuance of shares, in which case they are offset against the premium on those shares within equity.

 

If an acquisition is achieved in stages, the acquisition date carrying the value of the acquirer's previously held equity interest in the acquiree is remeasured to its fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or a liability is recognised in accordance with IFRS9 either in profit or loss or as a change in other comprehensive income. The unwinding of the discount on contingent consideration liabilities is recognised as a finance charge within profit or loss. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

 

The excess of the consideration transferred and the fair value as at the acquisition date of any previous equity interest in the acquiree over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in profit or loss.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

Investments in subsidiaries are accounted for at cost less impairment.

 

Subsidiaries and Acquisitions

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is recognised where an investor is expected, or has rights, to variable returns from its investment with the investee, and has the ability to affect these returns through its power over the investee. Based on the circumstances of the acquisition an assessment will be made as to whether the acquisition represents an acquisition of an asset or the acquisition of business. In the event of a business acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair value at the date of acquisition.  Any excess of the cost of the acquisition over the fair values of the identifiable net assets acquired is recognised as a "fair value" adjustment. 

If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in profit or loss. In the event of an asset acquisition, assets and liabilities are assigned a carrying amount based on relative fair value.

 

The results of subsidiaries acquired or disposed of during the year are included in the statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies into line with those used by the Group.

 

Contingent consideration as a result of business acquisitions is included in the cost at its acquisition date assessed value and, in the case of contingent consideration classified as a financial liability, remeasured subsequently through profit and loss.

Critical Accounting Estimates and Judgments in Applying Accounting Policies

The Group makes estimates and assumptions that affect the amounts recognised in the financial statements and the carrying amounts of assets and liabilities in the next financial year. Judgements that have the most significant effect on the amounts recognised in the financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities in the next financial year include:

Fair value of financial instruments

Information on the fair value of financial instruments measured on the basis of assumptions that use observable market prices is disclosed in Note 23.

ECL measurement

Calculation and measurement of ECLs is an area of significant judgement and involves methodology, models and data inputs. The methodology used by the Group for assessment of expected credit losses is disclosed in Note 6. The following components of ECL calculation have a major impact on the allowance for ECLs: default definition, significant increase in credit risk (SICR), probability of default (PD), exposure at default (EAD), loss given default (LGD), macro-models and scenario analysis for impaired loans. The Group regularly reviews and validates models and inputs to the models to reduce any differences between expected credit loss estimates and actual credit loss experience.

Significant increase in credit risk (SICR)

In order to determine whether there has been a significant increase in credit risk, the Group compares the risk of a default occurring over the expected life of a financial instrument at the reporting date with the risk of default at the date of initial recognition. IFRS 9 requires an assessment of relative increases in credit risk rather than the identification of a specific level of credit risk at the reporting date.  In this assessment, the Group considers a range of indicators, including behavioural indicators based on historical information as well as reasonable and supportable forward-looking information available without undue cost and effort. The most significant judgments include identifying behavioural indicators of increases in credit risk prior to default and incorporating appropriate forward-looking information into the assessment, either at an individual instrument, or on a portfolio level. 

Due to the coronavirus pandemic, the Group updated the prospective information used in the models intended for the assessment of expected credit losses and reassessed the Probability of default during the 12 months for adequate reflection of the uncertainties caused by the decrease in market prices and the spread of the COVID-19 pandemic, taking into account:

 

-      GDP drop and decline in income of individuals due to restricted economic activity;

-      state support measures;

-      real wage level;

-      real disposable income of the population.

 

Determining business model and applying SPPI test

In determining the appropriate measurement category for debt financial instruments, the Group applies two approaches: a business model assessment for managing the assets and the SPPI test based on contractual cash flow characteristics on initial recognition to determine whether they are solely payments of principal and interest. The business model assessment is performed at a certain level of aggregation and the Group will need to apply judgement to determine the level at which the business model condition is applied.

 

The assessment of the SPPI criterion performed on initial recognition of financial assets involves the use of significant estimates in quantitative testing and requires considerable judgement in determining  whether quantitative testing is required, what scenarios are reasonably possible and should be considered, and in interpreting the outcomes of quantitative testing (i.e. determining what represents a significant difference in cash flows).

Substantial modification of financial assets

When the contractual terms of financial assets are modified (e.g. renegotiated), the Group assesses whether the modification is substantial and should result in derecognition of the original asset and recognition of a new asset at fair value. This assessment is based primarily on qualitative factors described in the relevant accounting policy and requires significant judgment.

Recognition of a deferred tax asset

The recognised deferred tax asset represents the amount of income tax that can be offset against future income taxes and is recognised in the statement of financial position. A deferred tax asset is recognized only to the extent that realisation of the related tax benefit is probable. The future taxable profits and the amount of tax benefits that are probable in the future are based on medium-term forecasts prepared by management.

Changes in accounting policies

The revised standards presented below became mandatory for the Group since 1 January 2020, but had no material impact on the Group:

For the reporting periods beginning on or after 1 January 2020, the amendments to the standards presented below shall be effective:

·           Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors - Definition of Material

·           Amendments to IFRS 3 Business Combinations - Definition of a Business;

·           Amendments to References to the Conceptual Framework in IFRS Standards;

·           Amendments to IFRS 9 "Financial Instruments", IAS 39 "Financial Instruments: Recognition and Measurement" and IFRS 7 "Financial Instruments: Disclosures" (issued on 26 September 2019) that provide temporary relief from specific hedge accounting requirements to hedging relationships directly affected by the IBOR reform.

The above amendments to the standards had no material impact on the financial statements.

The IASB issued a number of standards and amendments to them that will become effective in the next reporting  periods and will not be early applied by the Group. The most significant ones are as follows:

·           Amendments to IFRS 16 Leases - Covid-19-Related Rent Concessions (effective for annual periods beginning on or after 1 June 2020);

·           Interest Rate Benchmark Reform and its Effects on Financial Reporting - Phase 2 (effective on 1 January 2021);

·           Annual Improvements to IFRSs - 2018-2020 cycle of amendments (effective on 1 January 2022);

·           Amendments to IAS 16 Property, Plant and Equipment - Proceeds before Intended Use (effective on 1 January 2022);

·           Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets - Onerous Contracts - Cost of Fulfilling a Contract (effective on 1 January 2022);

·           IFRS 17 Insurance Contracts (effective on 1 January 2023);

·           Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors - Classification of Liabilities as Current or Non-Current (effective on 1 January 2023);

Unless otherwise described above, the new standards and interpretations are not expected to significantly impact the Group's financial statements.

4. Summary of Significant Accounting Policies

Fair value measurement

The fair value is the price that would be received when selling an asset, or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique.

All assets and liabilities for which a fair value is recognised or disclosed are categorised within the fair value hierarchy, described as below, based on the lowest level input that is significant to the fair value measurement as a whole:

-  Level 1 - quoted market prices in an active market (that are unadjusted) for identical assets or liabilities;

-    Level 2 - valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable;

-    Level 3 - valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are remeasured in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between the Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained below (Note 23).

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, current accounts and deposits with banks with original maturity of three months or less. Cash and cash equivalents are stated at amortised cost in the statement of financial position.

 

Financial instruments

Key measurement terms

Depending on their classification, financial instruments are carried at fair value or amortised cost, as described below.

Fair value is the price that would be received when selling an asset, or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Fair value is the current bid price for financial assets or current ask price for financial liabilities.

Amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, and for financial assets, adjusted for any loss allowance.

The gross carrying amount of a financial asset is the amortised cost of a financial asset, before adjusting for any expected credit loss allowance.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating or recognising the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the financial asset or financial liability to the gross carrying amount of the financial asset or to the amortised cost of a financial liability. When calculating the effective interest rate, the Group shall estimate cash flows considering all contractual terms of the financial instrument but shall not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. There is a presumption that the cash flows and the expected life of a group of similar financial instruments can be estimated reliably. However, in those rare cases when it is not possible to estimate reliably the cash flows or the expected life of a financial instrument, the Group shall use the contractual cash flows over the full contractual term of the financial instrument.

Initial recognition of financial instruments

The Group recognises financial assets and financial liabilities in its statement of financial position when it becomes a party to the contractual obligations of the respective financial instrument. The regular way the purchase and sale of the financial assets and liabilities is recognised is by using settlement date accounting.

Classification and measurement of financial instruments

The Group classifies financial assets into the following categories:

-      financial assets at fair value through profit or loss;

-      financial assets at fair value through other comprehensive income;

-      financial assets measured at amortised cost.

 

Classification and subsequent measurement of debt financial assets depends on:

 

1) the business model used by the Group to manage the asset; and

2) characteristics of cash flows on the asset.

 

The business model is determined for a group of assets (on a portfolio basis) based on all relevant evidence of activities that the Group intends to undertake to achieve the objectives set out for the portfolio available as at the measurement date.

Loans to customers meeting the SPPI criterion are held for the purpose of collecting contractual cash flows and are carried at amortised cost.

 

Reclassifications

 

Financial assets are not reclassified after initial recognition unless the Group has changed its business model for managing financial assets.

 

Financial liabilities are not reclassified after initial recognition.

Derecognition

A financial asset is derecognised where:

·      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 retained the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party;

·      the Group either has transferred substantially all the risks and rewards of the asset or has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset. If the transferee has no practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the transfer, the entity has retained control.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

 

Loans to customers

Based on cash flow characteristics, the Group classifies loans and advances to customers into the measurement category:

1)       at amortised cost: loans held to collect contractual cash flows, if these cash flows are SPPI and are not classified at fair value through profit or loss, are measured at amortised cost;

Loans to customers are recorded when cash is advanced to borrowers. Impairment of loans at amortised cost or at FVOCI is assessed using a forward-looking ECL model. The Group does not acquire loans from third parties.

Impairment of financial assets: ECL allowance

The Group assesses, on a forward-looking basis, the ECL for debt instruments measured at amortised cost and FVOCI and for the exposures arising from credit related commitments and financial guarantee contracts. The Group measures ECL and recognises credit loss allowances at each reporting date. The measurement of ECL reflects:

(i)         an unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes,

(ii)        time value of money, and

(iii)       all reasonable and supportable information that is available without undue cost and effort at the reporting date about past events, current conditions and forecasts of future economic conditions.

Debt instruments measured at amortised cost are presented in the statement of financial position net of the ECL allowance.

 

The Group applies a three-stage model for impairment, based on changes in credit quality since initial recognition, in accordance with IFRS 9.

 

1)   A financial instrument that is not credit-impaired on initial recognition is classified into Stage 1. Financial assets in Stage 1 have their ECL measured at an amount equal to the portion of lifetime ECL that results from default events possible within the next 12 months (12m ECL).

 

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 is measured based on a lifetime basis  (lifetime ECL). Refer to Note 3 for a description of how the Group determines when a SICR has occurred.

 

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. Assets that are more than 60 days past due are considered to be defaulted.

For financial assets that are purchased or originated credit-impaired (POCI assets), the ECL is always measured as a lifetime ECL.

Note 6 provides information about inputs, assumptions and estimation techniques used in measuring ECL, including an explanation of how the Group incorporates forward-looking information in the ECL models.

Modification of financial assets

Sometimes the Group reviews or otherwise modifies the contractual terms of financial assets. The Group estimates that the modification of contractual cash flows is significant taking into account, among other factors: the existence of new contractual terms that indicate a significant change in interest rates, which have a significant effect on the credit risk associated with the asset, a significant extension of the loan term in cases where the borrower is in financial difficulty.

If the modified terms significantly differ so that the rights to cash flows from the original asset are deemed expired, the Group derecognizes the original financial asset and recognizes the new asset at fair value. The date of renegotiation is considered to be the date of initial recognition for impairment calculation purposes, including determination of whether credit risk has increased significantly. The Group also evaluates the compliance of the new loan with the criterion of making payments solely against principal and interest. In situations where the renegotiation was caused by the debtor's financial difficulties and inability to make the originally agreed payments, the Group assesses whether the modified loan is considered impaired on initial recognition. The difference in the carrying amount is recognised in profit or loss.

If the conditions of the modified asset do not differ significantly, the modification does not result in derecognition. The Group restates its gross carrying amount based on revised cash flows by discounting the modified cash flows at the original effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impaired financial assets) and recognises a gain or loss on modification in profit or loss.

 

Loans received

Loans received include loans received from the participant and are carried at amortised cost.

Property and equipment

Property and equipment are stated at cost, less accumulated depreciation and impairment allowance.

At the end of the reporting period the Group assesses whether there is any indication of impairment of property and equipment. If such an indication exists, the Group estimates the recoverable amount, which is determined as the higher of an asset's fair value less costs to sell or its value in use. Where the carrying amount of property and equipment is greater than their estimated recoverable amount, it is written down to their recoverable amount and the difference is charged as impairment loss to the statement of profit or loss and other comprehensive income.

Gains and losses on disposal of property and equipment are determined by reference to their carrying amount and recorded as operating expenses in the statement of profit or loss and other comprehensive income.

Repairs and maintenance are charged to the statement of profit or loss and other comprehensive income when the expense is incurred.

Depreciation

Depreciation of an asset begins when it is available for use. Depreciation is charged on a straight-line basis over the following useful lives of the assets:

·      Equipment - 2- 7 years.

 

Lease

The Group classifies its lease agreements as finance or operating leases.

The right-of-use asset and the lease liability are recognized by the lessee at the lease commencement date.

The original cost of the right-of-use asset includes the following:

·      the amount of the initial measurement of the lease liability;

·      lease payments at or before the lease commencement date less any

lease incentives received;

·      any initial direct costs incurred by the Group; and

·      an estimate of costs to be incurred by the lessee in dismantling, removing, restoring the site or restoring the underlying asset to the condition required by terms of the lease, unless those costs are incurred to produce inventories.

The right-of-use asset shall be amortised on a straight-line basis over the shorter of the asset's useful life and the lease term.

At the lease commencement date, the Group measures the lease liability at the present value of the lease payments that have not yet been made at that date. Lease payments shall be discounted using the interest rate implicit in the lease if that rate can be easily determined. If such rate cannot be easily determined, the Group uses the incremental borrowing rate at the lease commencement date.

If finance lease agreements provide for lease extension options, the Group plans to use these options for 3 years.

At the lease commencement date,  lease payments that are included in the measurement of the lease liability consist of the following payments for the right to use the underlying asset during the lease term that have not yet been made at the lease commencement date:

·      fixed payments (including in-substance fixed payments) less any lease incentives receivable;

·      variable lease payments that depend on an index or rate, initially measured using an index or a rate as at the lease commencement date;

·      the amounts expected to be payable by the lessee under the residual value guarantees;

·      the exercise price of a purchase option that the lessee is reasonably certain to exercise; and

·      payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.

After initial recognition, the right-of-use assets related to property, plant and equipment shall be measured by the Group using the historical cost model less accumulated depreciation and accumulated impairment losses.

A right-of-use asset shall be assessed for impairment at the end of each reporting year in accordance with IAS 36 Impairment of Assets.

After initial recognition, the lease liability shall be increased by the amount of accrued interest and decreased by the amount of lease payments paid.

The carrying amount of the lease liability shall be remeasured, if there is a change in future lease payments resulting from changes in an index or a rate, there is a change in the amounts expected to be payable under a residual value guarantee, or, as appropriate, there is a change in the assessment of whether it is reasonably certain that the purchase option or the lease extension option will be exercised, or that the lease termination option will not be exercised. The lease liability shall be remeasured to reflect changes in lease payments.

When determining the lease term, the following periods shall be considered, as well as the Group's management's assessment of the probability that lease extension options and lease termination options will be exercised:

·      the non-cancellable period of  lease not subject to early termination;

·      periods covered by an extension option if exercise of that option by the lessee is reasonably certain;

·      periods covered by a termination option if the lessee is reasonably certain not to exercise that option.

As at the reporting date, right-of-use assets are disclosed in the "Right-of-use assets" line item of the statement of financial position. Lease liabilities are disclosed in the "Lease liabilities" line item of the statement of financial position. Finance costs are disclosed in the "Interest expense - lease liabilities" line item of the statement of profit or loss and other comprehensive income to provide a fixed periodic interest rate on the remaining lease liability for each period. Depreciation of right-of-use assets is disclosed in the "Operating expenses" line item in the statement of profit or loss and other comprehensive income. The cash outflow on the lease interest repaid is disclosed in the "Cash from operating activities" section of the statement of cash flows, and the amount of cash paid to repay the principal is disclosed in the "Cash from financing activities" section of the statement of cash flows.

Operating lease - the Group as lessee

A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. The underlying asset is classified as a low-value asset based on professional judgement.

Payments for short-term leases and low-value asset leases are recognised as expenses on a straight-line basis over the lease term and included into operating expenses in the statement of profit or loss and other comprehensive income. A short-term lease has a lease term of 12 months or less. Low-value assets represent leased property with the value not exceeding the value limit determined by the Group's accounting policy.

Lease payments under short-term leases or leases where the underlying asset is of low value are recognized as an expense over the lease term.

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources embodying future economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

Taxation

The income tax charge/recovery comprises current tax and deferred tax and is recorded in the statement of profit or loss and other comprehensive income. Income tax expense is recorded in the financial statements in accordance with the applicable legislation of the Russian Federation. Current tax is calculated on the basis of the estimated taxable profit for the year, using the tax rates enacted during the reporting period.

Current tax is the amount expected to be paid to or recovered from the taxation authorities in respect of taxable profits or losses for the current or prior periods. Tax amounts are based on estimates if financial statements are authorised prior to filing relevant tax returns.

Deferred income tax is provided using the balance sheet liability method for tax losses carried forward and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial statement purposes. 

 

Income and expense recognition

Interest income and expenses are recorded in the statement of profit or loss and other comprehensive income for all debt instruments on an accrual basis using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the financial instrument to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all commissions and fees paid or received by the parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts.

When loans become doubtful of collection, they are written down to their recoverable amounts and interest income is thereafter recognised based on the rate of interest that was used to discount the future cash flows for the purpose of measuring the recoverable amount.

 

Employee benefits and social insurance contributions

The Group pays social insurance contributions predominantly in the Russian Federation. Social insurance contributions are recorded on an accrual basis and comprise contributions to the Russian Federation state pension, social insurance, and obligatory medical insurance funds in respect of the Group's employees. The Group does not have pension arrangements separate from the state pension system of the Russian Federation. Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid annual leaves and paid sick leaves, bonuses and non-monetary benefits are accrued as the Group's employees render the related service.

 

Foreign currency

(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 the 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.

5. Cash and Cash Equivalents

Group

2020

2019




Cash on hand

30,811

84,098

Accounts with other banks

610,060

1,498,653

Total cash and cash equivalents

640,871

1,582,751

 

Company

2020

2019




Cash on hand

-

-

Accounts with other banks

161,163

1,310,655

Total cash and cash equivalents

161,163

1,310,655

As at 31 December 2020, the Group has 2 counterparties (2019: 2 counterparties) with balances exceeding 10% of total cash and cash equivalents in the amount of GBP 524,431 (2019: GBP 1,310,655).

The table below presents the credit quality analysis of cash and cash equivalents based on credit risk levels as at 31 December 2020.

Group

Accounts with other  banks

Total




Minimum credit risk

610,060

610,060

Total cash and cash equivalents, less cash on hand

610,060

610,060

 

Company

 

Accounts with other  banks

 

Total




Minimum credit risk

161,163

161,163

Total cash and cash equivalents, less cash on hand

161,163

161,163

 

The table below presents the credit quality analysis of cash and cash equivalents based on credit risk levels as at 31 December 2019.

Group

Accounts with other RF banks

Total




Minimum credit risk

1,498,653

1,498,653

Total cash and cash equivalents, less cash on hand

1,498,653

1,498,653

Company

Accounts with other RF banks

Total




Minimum credit risk

1,310,655

1,310,655

Total cash and cash equivalents, less cash on hand

1,310,655

1,310,655

 

For the purpose of assessing expected credit losses, cash and cash equivalent balances are included in Stage 1. The expected credit losses on these balances represent insignificant amounts, therefore, the Group does not create an ECL allowance for cash and cash equivalents.

 

Below is the credit quality analysis of cash and cash equivalents as at 31 December 2020 in accordance with ratings of international agencies:

Group

         Fitch A+

Fitch BB 

 S&P from BB- to BB+

No rating assigned

Total

Accounts with other banks

54,936

-

-

555,124

610,060

Total

54,936

-

-

555,124

610,060

 

 

Company

         Fitch A+

Fitch BB 

 S&P from BB- to BB+

No rating assigned

Total

Accounts with other banks

54,936

-

-

106,227

161,163

Total

54,936

-

-

106,227

 161,163

 

Below is the credit quality analysis of cash and cash equivalents as at 31 December 2019 in accordance with ratings from international agencies:

Group

         Fitch A+

Fitch BB 

 S&P from BB- to BB+

No rating assigned

Total

Accounts with other banks

528,551

782,104

93,047

94,951

1,498,653

Total

528,551

782,104

93,047

94,951

1,498,653

 

 

Company

         Fitch A+

Fitch BB 

 S&P from BB- to BB+

No rating assigned

Total

Accounts with other banks

528,551

782,104

-

-

1,310,655

Total

528,551

782,104

-

-

 1,310,655

 

6. Loans to Customers

Group

2020

2019

 

Loans to customers

28,298,290

32,078,150

Less:  ECL allowance

(27,028,977)

(31,291,804)

Total loans to customers at amortised cost

1,269,313  

786,346

 

Company

2020

2019

 

Loans to customers

-

-

Less:  ECL allowance

-

-

Total loans to customers at amortised cost

-

-

 

Below is analysis of movements in the ECL allowance during 2020 (by type of loans specified in the first table of the Note):

Group

Stage 1

Stage 2

Stage 3

Total






ECL allowance as at 1 January 2020

128,028

288,985

30,874,790

31,291,804

Assets recognised for the period

697,907

-

-

697,907

Assets derecognised or collected

 

 

(47,273)

 

 

(33,654)

 

 

(629,075)

 

 

(710,002)

Transfers to Stage 2

(189,937)

189,937

-

-

Transfers to Stage 3

(355,164)

(187,618)

542,782

-

Net loss on  ECL allowance charge/(reversal)

-

414,887

1,377,954

1,792,841

Effect of exchange rate differences

(32,067)

(83,237)

(5,928,268)

(6,043,572)

ECL allowance as at  31 December 2020

201,494

589,300

26,238,183

27,028,977

Analysis of movements in the ECL allowance during 2019 is as follows:

 

Group

Stage 1

Stage 2

Stage 3

Total






ECL allowance as at 1 January 2019

139,800

424,712

27,982,210

28,546,722

Assets recognised for the period

687,271

-

-

687,271

Assets derecognised or collected

(95,125)

(102,217)

(842,085)

(1,039,427)

Transfers to Stage 2

(206,503)

206,503

-

-

Transfers to Stage 3

(409,279)

(326,329)

735,608

-

Net loss on  ECL allowance charge/(reversal)


52,065

530,141

582,206

Effect of exchange rate differences

11,864

34,252

2,468,916

2,515,032

ECL allowance as at  31 December 2019

128,028

288,985

30,874,790

31,291,804

 

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 increases (or decreases) in credit exposure or impairment during the period and subsequent increases (or decreases) 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 the 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 the 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 31 December 2020:

 

 Group

Stage 1

Stage 2

Stage 3

Total






Loans to customers





Minimum credit risk

1,222,507

-

-

1,222,507

Low credit risk

-

177,117

-

177,117

Moderate credit risk

-

388,723

-

388,723

High credit risk

-

271,760

-

271,760

Defaulted assets

-

-

26,238,183

26,238,183

Total loans to customers before allowance

1,222,507

837,600

26,238,183

28,298,290

ECL allowance

(201,494)

(589,300)

(26,238,183)

(27,028,977)

Total loans to customers after ECL allowance

1,021,012

248,300

-

1,269,313

 

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

 

 Group

Stage 1

Stage 2

Stage 3

Total






Loans to customers





Minimum credit risk

568,567


-

568,567

Low credit risk

-

374,288

-

374,288

Moderate credit risk

-

164,962

-

164,962

High credit risk

-

95,507

-

95,507

Defaulted assets

-


30,874,826

30,874,826

Total loans to customers before allowance

568,567

634,757

30,874,826

32,078,150

ECL allowance

(128,028)

(288,986)

(30,874,790)

(31,291,804)

Total loans to customers after ECL allowance

440,539

345,771

36

786,346

 

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.

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.

7. Lease

The Group has agreements for lease of premises.

The Group did not apply a simplified approach to recognise lease modifications allowed due to the COVID-19 pandemic.

 

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

 

 Group

Real Estate

Total




As at 1 January 2020

2,549,233

2,549,233

Depreciation charge

(661,165)

(661,165)

Modifications and remeasurement

(248,309)

(248,309)

Derecognition

(1,003,208)

(1,003,208)

Effect of translation into presentation currency

(338,626)

(338,626)

As at 31 December 2020

297,925

297,925

 

 Group

Real Estate

Total




As at 1 January 2019

3,407,065

3,407,065

Additions

112,021

112,021

Depreciation charge

(1,248,758)

(1,248,758)

Effect of translation into presentation currency

278,905

278,905

As at 31 December 2019

2,549,233

2,549,233

 

 

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

Group

 Lease liabilities

Real Estate

Total




As at 1 January 2020

2,555,648

2,555,648

Interest expense on lease liabilities

92,442

92,442

Lease payments

(628,563)

(628,563)

Modifications and remeasurement

(248,309)

(248,309)

Derecognition

(1,080,605)

(1,080,605)

Effect of translation into presentation currency

(343,397)

(343,397)

As at 31 December 2020

347,216

347,216

 

Group

 Lease liabilities

Real Estate

Total




As at 1 January 2019

3,325,625

3,325,625

Additions

108,875

108,875

Interest expense on lease liabilities

243,281

243,281

Lease payments

(1,395,580)

(1,395,580)

Effect of translation into presentation currency

273,447

273,447

As at 31 December 2019

2,555,648

2,555,648

The Group exercises options to extend signed lease agreements for at least 3 years given the ongoing profitability of the loan outlet (in the ordinary course of business). During the current period, the Group exercised lease termination options. There were no early termination penalties under these agreements.

 

8. Other Assets

Group

2020

2019




Other non-financial assets



Lease prepayments

23,062

16,603

Settlements with suppliers

35,211

29,440

Taxes other than income tax

110,980

139,069

Other receivables

104,193

52,937

Less: impairment allowance

(22,149)

(15,932)

Total other non-financial assets

251,297

222,117

Total other assets

251,297

222,117

 

 

Company

2020

2019




Other non-financial assets



Settlements with suppliers

-

-

Taxes other than income tax

80,732

68,122

Other receivables

45,745

-

Less: impairment allowance

-

-

Total other non-financial assets

126,477

68,122

Total other assets

126,477

68,122

 

Analysis of movements in the impairment allowance for non-financial assets during 2020 is presented below:

Group

Non-financial assets

Total

 

Impairment allowance for other assets as at 1 January 2020

15,932

15,932

 

Impairment allowance charge during 2020

9,972

9,972

Effect of translation into presentation currency

(3,754)

(3,754)

Impairment allowance for other assets as at 31 December
2020

22,149

22,149

 

Analysis of movements in the impairment allowance for non-financial assets during 2019 is presented below:

 

Group

Non-financial assets

Total

 

Impairment allowance for other assets as at 1 January 2019

13,117

13,117

 

Impairment allowance charge during 2019

1,631

1,631

Effect of translation into presentation currency

1,184

1,184

Impairment allowance for other assets as at 31 December
2019

15,932

15,932

The Group has no collateral for impaired assets recognised within other assets.

9. Loans Received

Group

2020

2019




Loan from related party

735,646

742,603

Total loans received

735,646

742,603

On 31 December 2020, the Group entered into an agreement amending the loan terms - coming into effect from January 2021, the interest rate on the above loan is set at 13.42 % per annum, and the loan repayment period is extended until 31 December 2023.

Company

2020

2019




Loan from related party

-

-

Total loans received

                               -

-

 

10. Other Liabilities

Group


2020

2019

 

Other financial liabilities




Payables


326,692

200,618

Other settlements with customers on loan's agreements


200,019

97,322

Other


7,195

16,732

 

Other non-financial liabilities




Taxes other than income tax


26,412

16,982

Provision for unused vacations


104,353

144,024

Payables to employees and payroll related taxes


159,159

189,227

Total other liabilities


823,830

664,905

 

Company


2020

2019

 

Other financial liabilities




Payables


119,057

126,057

Other


27

27

 

Other non-financial liabilities




Payables to employees and payroll related taxes


67,655

36,582

Total other liabilities


186,739

162,666

 

11. Charter and Additional Capital, Other reserves. Earnings per share 

As at 31 December 2018, the Charter capital states the amount of Share capital of the Subsidiary - the authorised capital represents the contribution made by the sole participant of the Subsidiary.

During 2019 the reverse acquisition was stated in the consolidated financial statements, as a result, the Charter capital as at 31 December 2019 states the Share capital of the legal parent Company, totalling £4,369,750. All the shares issued have equal voting rights.

Below is a reconciliation of the movement in the legal parent Company Share capital during 2019:

 

 

Group and Company

Issued and fully paid


31 Dec 2018

Number

  Amount, £

 

Ordinary shares of £0,01 each


6,000,000

60,000







6,000,000

60,000

For the year 2019 (Ordinary shares issue of £0.01 each):                                        

Group and Company                                                                                                               Number      Amount, £

 

Consideration shares (acquisition of Subsidiary)


320,000,000

3,200,000

IPO


104,000,000

1,040,000

Fee shares


6,975,000

69,750



   430,975,000

4,309,750

             

Group and Company

Issued and fully paid


31 Dec  2019

Number

  Amount, £

 

Ordinary shares of £0.01 each


436,975,000

4,369,750







436,975,000

4,369,750

 

There are no changes in the structure and amount of the share capital during 2020.

 

             

Group and Company

Issued and fully paid


31 Dec  2020

Number

  Amount, £

 

Ordinary shares of £0.01 each


436,975,000

4,369,750







436,975,000

4,369,750

 

As at 31 December 2018 the amount of Additional capital stated in the agreement on in-kind contribution (debt on the loan) of the Subsidiary was - £29,122,880.

Amounts of Additional capital as at 31 December 2018 were restated as at the date of the agreement on in-kind contribution (debt on the loan). 

Group

Date of exchange rate for translation to  presentation currency

Amount in RUB

Exchange rate

Amount in GBP

29.12.2018

2,561,820,344

87.9659

29,122,880

       Total additional capital at

                31 December, 2018


29,122,880

As a result of the reverse acquisition, which was stated in the consolidated financial statements in 2019, the Additional capital as at 31 December 2019  of the legal parent Company was £6,078,128.

Below there is reconciliation of movement in Additional capital (share premium) of legal parent Company during 2019:

For the year 2019:

Group and Company                                                                                                                                  Amount, £

 

As at 1 January 2019



-

Premium arising on issue of ordinary shares



6,406,699

Issue costs



(328,570)

As at 31 December 2019



6,078,128

There are no changes in the structure and amount of additional capital during 2020.

 

Group and Company                                                                                                                                  Amount, £

 

Share premium (with consideration of issue costs)



6,078,128

As at 31 December 2020



6,078,128

 

Other reserves

 

 

Group

 


 

 

Shares to be issued Reserve

Merger

reserve

 

 

Share option reserve

  Translation    reserve

 

As at 1 January 2019


 

-

-

 

-

4,497,731

Merger reserve


-

23,764,800



Share based payments


-


166,883


Translation differences


-

-

-

(39,942)

As at 31 December 2019


-

23,764,800

166,883

4,457,788

 

 






Contingent consideration


800,000




Merger reserve


-

(800,000)

-

-

Share based payments


-


51,216


Translation differences


-

-

-

(67,563)

As at 31 December 2020


800,000

22,964,800

218,099

4,390,225

 

The merger and foreign currency translation reserve as at 31 December 2019 arose on consolidation as a result of merger accounting for the acquisition of the entire issued share capital of the Subsidiary during 2019 and represents the difference between the value of the share capital issued for the acquisition of the Subsidiary and investments made in the Subsidiary and that of the acquired share capital of the Subsidiary.

Share options reserve - this reserve represents cumulative share-based payment expense for the Group's share option schemes. See Note 12 Share-based payments.

Shares to be issued Reserve  - this reserve represents shares to be issues in respect of contingent consideration, see note 26 Business Combination for further details.

Currency translation differences relate to the translation of the Subsidiary that have a functional currency different from the presentation currency (refer note 2). Movements in the translation reserve are linked to the changes in the value of the Russian Ruble against the Pound Sterling: the business of the Group is located in Russian Federation, and the Subsidiary's functional currency is the Russian Ruble, which had substantial volatility against Sterling during the year.

Accumulated deficit represents retained earnings.

Earnings per share.  The basic loss per share of 0.14p loss per share (2019 loss per share: 0.77p) is calculated by dividing the loss attributable to owners of the parent by the weighted average number of ordinary shares in issue during the year.

 Group

2020

2019


                     (614,519)

                     (891,589)

Loss attributable to owners of the parent

Weighted average number of ordinary shares in issue

         436,975,000

      115,689,178




The basic and diluted loss per share for the years ended 31 December 2020 and 31 December 2019 are the same as the current year result was a loss, the options and warrants outstanding would be anti-dilutive.  Therefore, the dilutive loss per share is considered the same as the basic loss per shares.

 

 

 

 Group

2020

2019

 


                     (614,519)

                     (891,589)

 

Loss attributable to owners of the parent

 

Weighted average number of ordinary shares in issue outstanding for the effects of all dilutive potential ordinary shares

 

         436,975,000

        

115,689,178

 

 

12. Share-based payments

 

In October 2019, a total of 32,250,000 options were issued to certain directors, senior management and other advisers in recognition of the work undertaken for Zaim prior to the IPO. In addition the Company issued a total of 13,600,000 warrants to advisers in relation to the funds raised at the time of the IPO. All the options were issued with an exercise price of 2.5 pence per share and expire after 5 years from the date of issue. 17,200,000 of the options vest immediately and have no employment related conditions, the remaining 15,050,000 vest over 1-2 years from the date of issue and, should the individual end their employment, the options either expire immediately or are valid for a further 6 months (depending on the circumstances of the departure of the individual).   All the warrants have a contractual term of 3 years from the date of issue, have no performance related terms attached and have a strike price of 2.5 pence per share.

 

In addition to the options noted above as set out in the prospectus at the time of the IPO the Directors have the discretion to issue a further 10,750,000 options to key employees and consultants of the Group as an incentivising tool to retain key individuals. As at the date of this report these have not been issued and have therefore not been included in the calculations. Neither the Company nor the Group has any legal or constructive obligation to settle or repurchase the options in cash.

Movements on number of share options and their related exercise price are as follows:

 

Group

Number of options& warrants

2019

 

Weighted exercise price

2019, £

 

Outstanding at 1 January 2019

-

-

Granted

40,650,000

2.50

Forfeited

-

-

Outstanding at 31 December 2019

40,650,000

2.50

Exercisable at 31 December 2019

25,600,000

2.50

 

On 24 September 2020, 2,000,000 options were issued to Paul Auger a non-executive director of the company at a price of 2.7p. The options vest equally over one year from the date of grant and express after 5 years. 

 

On 26 November 2020, 1,000,000 options were issued to an employee of the Group at a price of 2.7p. The options vest equally over 2 years from the date of the grant and express after 5 years. 

 

Group

Number of options& warrants

2020

 

Weighted exercise price

2020, £

 

Outstanding at 1 January 2020

40,650,000

2.50

Granted

3,000,000

-

Forfeited

-

-

Outstanding at 31 December 2020

43,650,000

2.50

Exercisable at 31 December 2020

34,200,000

2.50

 

 

The options & warrants outstanding at 31 December 2020 had a weighted average remaining contractual life of 3.8 years.

 

 

The fair value of the share options and warrants was determined using the Black-Scholes valuation model.

 

The parameters used are detailed below.

 

 

 

 

For the year 2019:

 

Group and Company


2019

options

 

Date of Grant


 

29 Oct 2019

Weighted average share price


2.50 pence

Weighted average exercise price


2.50 pence

Weighted average fair value at the measurement date


0.57 penc

Expiry date


29 Oct 2024

Options granted


40,650,000

Volatility


20%

Dividend yield


Nil

Option life


5 year

Annual risk free interest rate


2.83%

 

 

For the year 2020:

 

Group and Company


2020

Options

 

Date of Grant


 

29 Oct 2019

Weighted average share price


2.60 pence

Weighted average exercise price


2.70 pence

Weighted average fair value at the measurement date


0.78 penc

Expiry date


29 Oct 2024

Options granted


40,650,000

Volatility


30%

Dividend yield


Nil

Option life


5 year

Annual risk free interest rate


2.83%

 

 



 

13. Interest Income and Expense

 

Group

2020

2019

 

Interest income



Loans to customers

4,857,496

3,940,747

Total interest income

4,857,496

3,940,747

 

Interest expense



Loans received

(12,836)

(28,018)

Lease liabilities

(92,442)

(243,281)

Total interest expense

(105,277)

(271,299)

Net interest income

4,752,218

3,669,448

 

 

14. Gains less Losses from Dealing in Foreign Currency

Group


2020

2019





Gain/loss on revaluation of financial assets and liabilities


(181,466)

102,327

Realised gain/ (loss) from foreign exchange transactions


(7,661)

(6,830)

Total gains less losses from dealing in foreign currency


(189,127)

95,497

 

15. Allowance for Expected Credit Losses / Impairment of Other Assets

Group

Note

2020

2019





Loans to customers

6

1,780,746

230,050

Other assets

8

9,972

1,631

Total allowance for expected credit losses / impairment of other assets


1,790,718

231,681

16. Other Operating Income

Group


2020

2019





Agent's fee


253,889

150,036

Fines received under loan agreements


158,322

34,846

Financial result from derecognition of lease assets and liabilities


126,091


Taxes other than income tax


-

591,965

Other income


52,200

13,707

Total other operating income


590,502

790,554

17. Staff Costs

Group


2020

2019





Salary


1,429,920

1,722,792

Payroll related taxes


380,523

283,473

Total staff costs


1,810,443

2,006,265

 

18. Operating Expenses

Group


2020

2019

Depreciation of right-of-use assets


661,165

1,248,759

State duty


283,523

23,036

Advertising and marketing


269,304

25,736

Investor Relations


181,456

-

Consulting services


209,828

851,223

Communication


98,172

87,83

Postal services


91,328

38,491

Banking services


87,558

43,246

Rental expenses


66,434

257,639

Material expenses


33,920

3,412

Security


22,023

42,594

Office equipment


-

17,274

Repairs


-

2,038

Representative and travel expenses


-

81,250

Other expenses


111,025

169,730

Total operating expenses


2,115,735

2,892,258

19. Income Tax

As at 31 December 2020 and 31 December 2019, the Group has no current income tax expense. The current income tax rate applicable to the majority of the Group's profit is 20% (2019: 20%).

A reconciliation between the theoretical and the actual taxation charge is provided below.

Group

2020

2019

 

IFRS loss before taxation

 

(614,519)

 

(891,589)

Theoretical tax charge at the applicable statutory rate

122,904

178,318

Non-deductible expenses and other differences

29,521

(19,132)

)Unrecognised deferred tax asset

(152,425)

(159,186)

Income tax expense for the year

-

-

 

The Company has a potential deferred tax asset of £153,847 (2019: £56,987) as a result of trade losses to be offset against future profits, should they arise.

Differences between IFRS and statutory taxation regulations of the Russian Federation give rise to certain temporary differences between the carrying amount of certain assets and liabilities for financial statement purposes and for the Group's income tax purposes.

 

 


2019

Effect of exchange rate differences

Change recognised in profit and loss

2020

 

Tax effect of deductible temporary differences





Loans to customers

91,779

(15,500)

(24,565)

51,714

Other assets

24,891

(3,749)

(12,752)

8,390

Intangible assets

-

(1,234)

16,521

15,287

Lease liabilities

511,130

(68,680)

(373,007)

69,443

Other liabilities

9,716

(1,199)

(8,517)

-

Tax loss

3,882,681

(734,761)

182,082

3,330, 002

Deferred tax assets

4,520,197

(825,123)

(220,238)

3,474, 836

 

Tax effect of taxable temporary differences





Other liabilities

-

803

(10,745)

(9,942)

Property and equipment

(1,857)

287

871

(700)

Right-of-use assets under lease agreements

(509,846)

 

67,725

 

382,536

 

(59,585)

Gross deferred tax liabilities

(511,703)

 

68,815

 

372,663

 

(70,227)

Total net deferred tax asset

4,008,494

(756,310)

152,425

3,404,608

Unrecognised tax assets

(4,008,494)

756,310

(152,425)

(3,404,608)

Recognised tax liabilities


-

-

-

 

 

Group

2018

Change recognised in profit and loss

Effect of exchange rate differences

2019

 

Tax effect of deductible temporary differences





Loans to customers

97,301

(13,827)

8,305

91,779

Other assets

42,397

(20,854)

3,348

24,891

Lease liabilities

-

501,961

9,169

511,130

Other liabilities

54,654

(48,853)

3,915

9,716

Tax loss carried forwards

3,342,776

241,480

298,425

3,882,681

Deferred tax assets

3,537,128

659,907

323,162

4,520,197

 

Tax effect of taxable temporary differences





Property and equipment

(1,688)

(20)

(149)

(1,857)

Right-of-use assets under lease agreements


(500,701)

(9,145)

(509,846)

Gross deferred tax liabilities

(1,688)

Total net deferred tax asset

3,535,440

159,186

313,868

4,008,494

Unrecognised tax assets

(3,535,440)

(159,186)

(313,868)

(4,008,494)

Recognised tax liabilities

-

-

-

-

 

 

20. Risk Management

The risk management function within the Group is carried out in respect of financial risks (credit, market, currency, liquidity and interest rate), operational, and legal risks. The primary objectives of the financial risk management function are to establish risk limits and then ensure that exposure to risks stays within these limits. The assessment of exposure to risks also serves as a basis for optimal distribution of risk-adjusted capital, transaction pricing and business performance assessment. The operational and legal risk management functions are intended to ensure proper functioning of internal policies and procedures to minimise operational and legal risks.

Credit risk 

The Group assumes a credit risk, namely the risk that a counterparty will fail to meet its debt obligations within the specified period. The Group has developed policies and procedures for the management of credit exposures (both for recognised financial assets and unrecognised contractual commitments), including requirements for establishment and monitoring of the loan portfolio concentration limits.

The credit policy establishes:

procedures for review and approval of loan applications,

methodology for assessment of the borrowers' solvency,

credit documentation requirements,

procedures for the ongoing monitoring of loans and other credit exposures.

The Group continuously monitors the status of individual loans and regularly reassesses the creditworthiness of its customers. The review is based on the most recent loan delinquency statistics.

The Group applies the expected credit loss model for the purpose of provisioning for financial debt instruments, the key principle of which is timely reflection of deterioration or improvement in the credit quality of debt financial instruments based on current and forward-looking information.

The amount of the ECL recognised as a credit loss allowance depends on the extent of credit quality deterioration since initial recognition of a debt financial instrument.

Credit risk classification system. Each level of credit risk is assigned a certain degree of solvency, using a single scoring system:

minimum credit risk - high credit quality with low expected credit risk, debt is not past due;

low credit risk - sufficient credit quality with average credit risk, debt is prolonged and not past due;

moderate credit risk - average credit quality with satisfactory credit risk, the debt is from 1 to 30 days past due;

high credit risk - low credit quality with unsatisfactory credit risk, high probability of default, the debt is from 31 to 60 days past due;

default - assets that meet the definition of default, the debt is more than 60 days past due.

Expected credit losses on financial assets that are not impaired are usually measured on the basis of default risk over one or two different time periods, depending on whether there has been a significant increase in the borrower's credit risk since initial recognition.

The Group performs collective assessment of loans to individuals. This approach provides for the aggregation of the portfolio into homogeneous segments based on specific information about borrowers, such as delinquent loans, historic data on prior period losses and forward-looking macroeconomic information.

Collective assessment principles: for assessing risk stages and estimating ECL on a collective basis, the Group combines its loans into segments based on shared credit risk characteristics, so that exposure within a grouping has a homogeneous pattern.

 

Market risk 

The Group assumes a market risk. Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises currency risk, interest rate risk and other price risks. Market risk arises from open positions in interest rates, currency and equity financial instruments which are exposed to general and specific market movements and changes in the volatility levels of market prices.

The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

Currency risk

Currency risk is the risk that the fair value or the future cash flows of a financial instrument will fluctuate because of changes in foreign currency exchange rates.

The Group accepts the risk of effect of foreign currency exchange rate fluctuations on its financial position and cash flows. Currency risk arises when the existing or prospective assets in foreign currencies are greater or lower than the existing or prospective liabilities in the same currencies. The Group's management controls the exposure to currency risk on a regular basis.

The table below provides the analysis of the Group's currency risk as at 31 December 2020.

 

Group

RUB

GBP

EUR

Total






Assets





Cash and cash equivalents

479,708

161,095

68

640,871

Loans to customers

1,269,313

-

-

1,269,313

Property and equipment

5,676

-

-

5,676

Right-of-use assets under lease agreements

297,925

-

-

297,925

Other assets

124,821

126,477

-

251,298

Total assets

2,177,443

287,571

68

2,465,083






Liabilities





Loans received

-

-

735,646

735,646

Lease liabilities

347,216

-

-

347,216

Other liabilities

637,091

186,739

-

823,830

Total liabilities

984,307

186,739

735,646

1,906,692

Net balance sheet position

1,193,136

100,832

(735,578)

558,391

 

The table below provides the analysis of the Group's currency risk as at 31 December 2019.

Group

RUB

USD

GBP

EUR

Total







Assets






Cash and cash equivalents

271,229

867

1,310,393

263

1,582,751

Loans to customers

786,346

-

-

-

786,346

Property and equipment

11,967

-

-

-

11,967

Right-of-use assets under lease agreements

2,549,233

-

-

-

2,549,233

Other assets

150,525

-

68,122

3,470

222,117

Total assets

3,769,300

867

1,378,514

3,733

5,152,414







Liabilities






Loans received

-

-

-

742,603

742,603

Lease liabilities

2,555,648

-

-

-

2,555,648

Other liabilities

499,077

-

162,666

3,162

664,905

Total liabilities

3,054,725

-

162,666

745,765

3,963,156

Net balance sheet position

714,575

867

1,215,849

(742,032)

1,189,258

 

The table below presents a change in the financial result and equity due to possible fluctuations of exchange rates used at the end of the reporting period if all other conditions remain unchanged. Reasonable exchange rate changes for each currency were projected on the basis of historical information on maximum daily exchange rate fluctuations in December 2020.

 


31 December 2020

Group

Effect on

profit or loss before taxation

Effect on
equity




EUR appreciation by 20%

(147,129)

(117,703)

EUR depreciation by 20%

147,129

117,703

 

The table below presents a change in the financial result and equity due to possible fluctuations of exchange rates used at the end of the reporting period if all other conditions remain unchanged. Reasonable exchange rate changes for each currency were projected on the basis of historical information on maximum daily exchange rate fluctuations in December 2019.


31 December 2019

Group

Effect on

profit or loss before taxation

Effect on
equity




EUR appreciation by 10%

(74,229)

(59,383)

EUR depreciation by 10%

74,229

59,383

 

Liquidity risk

 

Liquidity risk arises when the maturity of assets and liabilities do not match. The Group does not accumulate cash resources to meet all liabilities mentioned above, as based on the existing practice it is possible to forecast with a sufficient degree of certainty the required level of cash funds necessary to meet the above obligations.

To manage its liquidity, the Group is required to analyse the level of liquid assets needed to settle the liabilities when they mature, provide access to various sources of financing, draw up plans to solve the problems with financing, and exercise control over the compliance of the liquidity ratios with the statutory laws and regulations.

The CBR sets and monitors liquidity requirements for microfinance organisations. The Group calculates the liquidity ratio in accordance with Instruction No. 5114-U of the Central Bank of the Russian Federation "On establishment of economic standards for a microloan company attracting loan funds from individuals, including individual entrepreneurs who are founders (participants, shareholders), and (or) legal entities" dated 2 April 2019. As at 31 December 2020 and 31 December 2019, the minimum liquidity ratio was 70%. The Group provides the territorial CBR division that supervises its activities with information on mandatory liquidity ratios in accordance with the set format on a quarterly basis as at the first day of each month. Also, if the liquidity ratio values approach the limit set by the CBR, this information is communicated to the Group's management. The Group complies with the liquidity ratio as at 31 December 2020 (unaudited) and as at 31 December 2019 (unaudited).

The table below shows the maturity profile of financial liabilities as at 31 December 2020:

 


On demand and less than 1 month

1 to
3 months

From
3 months to 6 months

From
6 months to 1 year

From
1 to 3 years

Total








Liabilities







Loans received

-

51,582

77,373

154,745

618,982

902,682

Lease liabilities

-

83,486

86,451

161,569

31,707

363,213

Other liabilities

533,909

-

-

-

-

533,909

Total potential future payments under financial liabilities

533,909

 

135,068

163,824

316,314

650,689

1,799,804

 

 

The table below shows the maturity profile of financial liabilities as at 31 December 2019:

 

Group

On demand and less than 1 month

1 to
3 months

From
3 months to 6 months

From
6 months to 12 years

From
1 to 3 years

Total








Liabilities







Loans received

742,603

-

-

-

-

742,603

Lease liabilities

396,064

396,064

787,925

3,069,025

4,649,078

Other liabilities

351,253

-

-

-

-

351,253

Total potential future payments under financial liabilities

1,093,856

396,064

396,064

787,925

3,069,025

5,742,934

The Group does not use the above undiscounted amounts in the maturity analysis to monitor the liquidity profile. Instead, the Group monitors the expected maturity limits that are shown in the table below as at 31 December 2020:

 


On demand and less than 1 month

From 1 to 3 months

From 3 to 6 months

From 6 months to 1 year

More than 1 year

Overdue

No stated maturity

Total










Assets









Cash and cash equivalents

 

640,871

 

-

 

-

 

-

 

-

 

-

 

-

 

640,871

Loans to customers

1,168,937

-

-

-

-

100,376

-

1,269,313

Property and equipment

-

-

-

-

-

-

5,676

5,676

Right-of-use assets under lease agreements

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

297,925

 

 

297,925

Other assets

156,712

29

415

862

162

-

93,118

251,297

Total assets

1,966,520

29

415

862

162

100,376

396,720

2,465,084










Liabilities









Loans received

-

27,345

54,270

113,642

540,389

-

-

735,646

Lease liabilities

-

77,397

81,779

157,129

30,911

-

-

347,216

Other liabilities

719,477

-

-

-

-

-

104,353

823,830

Total liabilities

719,477

104,742

136,049

270,771

571,300

-

104,353

1,906,692

Net liquidity gap as at 31 December 2020

1,247,043

(104,713)

(135,634)

(269,909)

(571,138)

100,376

292,367

558,391

Cumulative liquidity gap as at 31 December 2020

1,247,043

1,142,329

1,006,695

736,787

165,648

266,024

558,391


 

The table below present the maturity profile of assets and liabilities as at 31 December 2019:

 

Group

On demand and less than 1 month

From 1 to 3 months

From 3 to 6 months

From 6 to 12 months

More than 1 year

Overdue

No stated maturity

Total










Assets









Cash and cash equivalents

1,582,751

-

-

-

-

-

-

1,582,751

Loans to customers

786,346

-

-

-

-

-


786,346

Property and equipment

-

-

-

-

-

-

11,967

11,967

Right-of-use assets under lease agreements

-

-

-

-

-

-

2,549,233

2,549,233

Other assets

131,938

-

-

2,218

-

12,649

75,312

222,117

Total assets

2,501,035

-

-

2,218

-

12,649

2,636,512

5,152,414










Liabilities









Loans received

742,603

-

-

-

-

-

-

742,603

Lease liabilities


227,558

352,680

725,218

1,250,193

-

-

2,555,648

Other liabilities

520,880

-

-

-

-

-

144,025

664,905

Total liabilities

1,263,483

227,558

352,680

725,218

1,250,193

-

144,025

3,963,157

Net liquidity gap at 31 December 2019

1,237,552

(227,557)

(352,680)

(723,000)

(1,250,193)

12,649

2,492,487

1,189,257

Cumulative liquidity gap as at 31 December 2019

1,237,552

1,009,995

657,315

(65,685)

(1,315,878)

(1,303,229)

1,189,257


 

Interest rate risk

 

The Group assumes the risk associated with the effects of fluctuations in market interest rates on its financial position and cash flows. Interest margins may increase as a result of such changes but may also decrease or create losses in the event of unexpected movements in interest rates.

The Group is exposed to interest rate risk primarily as a result of its lending activities at fixed interest rates, in amounts and for periods which differ from those of fixed interest rate borrowings (Loans to customers as at 31 December 2020: 1,269,313 and as at 31 December 2019: 786,346 British pounds sterling). In practice, interest rates are usually set for short periods. In addition, interest rates recorded in both asset and liability contracts are often revised by mutual agreement in accordance with current market conditions. In 2019 the maximum daily interest rate was limited to 1.5% per day in the first half of the year and 1% the second half of 2019.

Also, the Group's lease liabilities are exposed to interest rate risk (as at 31 December 2020: 347,216 and as at 31 December 2019: 2,555,648 British pounds sterling).

Other assets and liabilities are not exposed to interest rate risk.

 

21. Capital management

The Group's objectives when managing capital are to comply with the capital requirements set by the Central Bank of Russia, as the main area of business of the Group is in the Russian Federation, and to ensure the Group's ability to continue as a going concern and  maintain a capital base at the level necessary to achieve the capital adequacy ratio of 5% in accordance with the CBR requirements. 

The Group provides the territorial division of the CBR supervising its operations with information on the mandatory capital adequacy ratio in accordance with the established format quarterly as at the first day of each month.

The statutory requirements for own funds (equity) as at 31 December 2020 are set at one million roubles. The Group is in compliance with the above requirements.

22. Contingencies

Litigations. In the ordinary course of business, the Group is subject to legal actions and complaints. Management believes that the ultimate liability, if any, arising from such actions or complaints will not have a material adverse effect on the Group's financial condition or the results of its future operations.

Tax legislation. As the main business of Group is in Russia, Russian tax legislation is subject to varying interpretations, and changes, which can occur frequently. Management's interpretation of such legislation as applied to the transactions and activities of the Group's companies may be challenged by the relevant regional or federal authorities. Current trends in the Russian Federation suggest that the tax authorities are taking a more assertive position in their interpretation of the legislation and assessments. As a result, tax authorities may challenge transactions and accounting methods for which they have not previously challenged. As a result, significant additional taxes, penalties, and fines may be assessed.

As at 31 December 2020, management believes that its interpretation of the relevant legislation is appropriate and the Group's tax, currency and customs positions will be sustained by the regulatory authorities. Management believes that the Group has accrued all relevant taxes.

Operating lease commitments. In the course of its business, the Group enters into a number of lease agreements. These agreements are not irrevocable. The minimum future lease payments under operating leases where the Group is the lessee are presented below:

 

Group

31 December 2020

31 December 2019

 Less than 1 year

 

-

 

66,434

Total operating lease commitments

-

66,434

 

23. Fair Value of Financial Instruments

A quoted market price in an active market is the best evidence of fair value. As no readily available market exists for the major part of the Group's financial instruments, their fair value is based on current economic conditions and the specific risks attributable to the instrument. The estimates presented below are not necessarily indicative of the amounts the Group could realise in a market exchange from the sale of its full holdings of a particular instrument.

Below is the estimated fair value of the Group's financial instruments as at 31 December 2020 and
31 December 2019:


2020

2019

Group

Carrying value

Fair value

Carrying value

Fair value

 

Financial assets





Cash

640,871

640,871

1,582,751

1,582,751

Loans to customers

1,269,313

1,269,313

786,346

786,346






Financial liabilities





Loans received

735,646

735,646

742,603

742,603

Other liabilities

533,907

533,907

351,253

351,253

The Group uses the following methods and assumptions to estimate the fair value of these financial instruments:

Cash and cash equivalents. The estimated fair value of cash and cash equivalents does not differ from their carrying amounts due to the nature of these financial instruments.

Loans to customers. Loans to customers are reported net of impairment allowance. The estimated fair value of loans to customers represents the discounted amount of estimated future cash flows expected to be received. To determine fair value, expected cash flows are discounted at current market rates (the interest rate on loans in 2020 was 1%, and in 2019 - from 1.5% to 1%).

Loans received. The fair value of other fixed interest-bearing borrowed funds is based on discounted cash flows using interest rates for instruments with similar maturity and in similar currency. The lending rates are equal to the market rates.

To present information on the fair value hierarchy of financial instruments as required by IFRS 13 Fair Value Measurement, the management of the Group assigns the above financial assets and liabilities as at 31 December 2019 and 31 December 2018, excluding cash and cash equivalents (Level 1 = GBP 640,871 at 31 December 2020 and GBP 1,582,751 at 31 December 2019) to Level 3 of the fair value hierarchy of inputs.

24. Reconciliation of Classes of Financial Instruments with Measurement Categories

In accordance with IFRS 9 "Financial Instruments", the Group classifies its financial assets and liabilities into the following categories: (a) financial assets at fair value through profit or loss; (b) financial assets at fair value through other comprehensive income; and (c) financial assets at amortised cost.

At the same time, in accordance with the requirements of IFRS 7 "Financial Instruments: Disclosures", the Group discloses various classes of financial instruments.

As at 31 December 2020 and 31 December 2019, all financial assets and liabilities of the Group are classified as financial assets and liabilities measured at amortised cost.

25. Related Party Transactions

For the purposes of these consolidated financial statements, parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial or operational decisions as defined by IAS 24 Related Party Disclosures. In considering each possible related party relationship, attention is directed to the economic substance of the relationship, not merely the legal form.

In the normal course of business, the Group enters into transactions with its sole participant and directors. These transactions include settlements, payment of remuneration to employees, and loan draw downs. According to the Group's policy, the terms of related party transactions are equivalent to those prevailing in arm's length transactions.

The outstanding balances at the year end and liability transactions with related parties for 2019 are as follows:

 

Transactions with party under common ultimate control

2020

2019




Loans received (balance)

735,646

742,603

 

No interest was accrued in 2020 and 2019 (see Note 9 Loans received).

As at 31 December 2020 and at 31 December 2019, the balance on loans received represents the obligation to pay interest on the loan, which was forgiven in 2018.

 

Transactions with ultimate beneficiary

2020

2019




Loan to beneficiary

(55,559)


Loan offset

                        55,559


Services rendered

-

206,718

 

 

Transactions with parent company

2020

2019




Loan issued

45,411

-

Interest income

                              334

-




Total balance as at 31  December, 2020                                                                          45,745                            -

For the year ended 31 December 2020, the total remuneration of key management personnel of the Subsidiary was GBP 274,281, including social insurance contributions of GBP 44,106 (2019: GBP 267,128, including social insurance contributions of GBP 39,765). The Group does not provide key management personnel with post-employment and employment termination benefits. The remuneration of the Board of Directors of the Group for the year 2020 was as follows: 

 

Below is the summary of remuneration for each Director for 2020:


Salary, £, for the year 2020

Bonus for the year 2020

Shares held

Stock options

Malcolm Groat

25,000

-

0

Siro Donato Cicconi

100,000

35,000

320,000,000

10,750,000

Vladimir Golovko

124,361

3,500

0

Simon James Retter

60,000

21,000

3,600,000

6,450,000

Paul James Auger

20,000

-

0

2,000,000

The social insurance contributions, paid by the Company for the year 2020 on remuneration, was £17,388.

Out of pocket expenses totalling £78,055 were incurred by Siro Donato Cicconi in 2019 and as at 31 December 2020 £48,055 remained payable (as at 31 December 2019£78,055).

26. Business combination 

 

On 19 September 2019 Zaim Credit Systems plc (Parent Company) became the legal parent of Zaim Express LLC (Subsidiary) by way of reverse acquisition. The cost of the acquisition is deemed to have been incurred by Zaim Express LLC, the legal subsidiary, in the form of equity instruments issued to the owners of the legal parent. This acquisition has been accounted for as a reverse acquisition as described in Note 3, Basis of Preparation.

 

The fair value of the shares in Zaim Express LLC have been determined from the admission price of the Zaim Credit Systems plc shares on re-admission to trading on the LSE for 2.5 pence per share. The value of the consideration shares was £8,000,000. The fair value of the notional number of equity instruments that the legal subsidiary would have had to have issued to the legal parent to give the owners of the legal parent the same percentage ownership in the combined entity is 1.84 per cent of the market value of the shares after issues, being £150,000. The difference between the notional consideration paid by Zaim Credit Systems plc for Zaim Express LLC and the Zaim Credit Systems plc net assets acquired of £nil has been charged to the Consolidated Statement of Comprehensive Income as a deemed cost of the listing amounting to £150,000 with a corresponding entry to the reverse acquisition reserve.

Details of net assets acquired and the deemed cost of the listing were as follows:

 

 

 

     £

Consideration effectively received            150,000

 

Less net asset required:

 

Cash and cash equivalents                           52,055

Debtors and prepayments                            11,982

Current liabilities                                      (64,037)

 

Total net asset required:                                    -

 

Deemed cost of listing                                150,000

 

 

The terms of the share purchase agreement between the Company and Zaim Express LLC were as followsthere are certain circumstances under which deferred contingent consideration might become payable. Should the Company record a monthly EBITDA figure in accordance with IFRS of £200k per month for a continuous period of four months and there be no reasonable expectation that this should fall below this level for a further period of six months then a further 16,000,000 new ordinary shares in the Company shall become payable.  Additional consideration of 16,000,000 shares over and above that already mentioned shall become payable should the Company record a monthly EBITDA figure of £350k per calendar month with the same continuous period clause as noted above. At the IPO price per share these deferred contingent considerations would have a value of £400k each for a combined value of £800k. It has been considered by the Directors at this time that, in light of the Covid-19 pandemic it remains difficult to predict if and when this might occur. This combined with the current low probability of these milestones being met in the current environment, meant that no fair value has been calculated for such deferred considerations.

 

Under the terms of the share purchase agreement between the Com-pany and Zaim Express LLC (Subsidiary) there are certain circumstances under which deferred contingent consideration might become payable. Should the Company record a monthly EBITDA figure in accordance with IFRS of £200k per month for a continuous period of four months and there be no reasonable expectation that this should fall below this level for a further period of six months then a further 16,000,000 new ordinary shares in the Company shall become payable. Addition-al consideration of 16,000,000 over and above that already mentioned shall become payable should the Company record a monthly EBITDA figure of £350k per calendar month with the same continuous period clause as noted above. At the IPO price per share these deferred contingent considerations would have a value of £400k each for a combined £800k in value. It has been considered by the Directors that given the improvement in outlook for the business that this additional consideration is likely to become payable in the near future and therefore a reserve of shares to be issued has been recognised and associated increase in carrying value of the investment in Zaim Express LLC (Subsidiary) as a result of this consideration.

 

 

 

27. Auditor's remuneration

 



    31.12.20


31.12.19

Audit

£

£

Fees payable to the company's auditor for the audit of the annual parent company and consolidated accounts


        40 000


     40 000

Fees payable to the company's auditor for other services provided to the company and its subsidiaries:


              -  


          -  

The audit of the company's subsidiaries under legislative requirements


          -


       -

Total audit


        40 000


     40 000

 

 

 

28. Events after the Reporting Period

Currently the Group does not consider the impact of COVID-19 to be significant to the business going forward.

On 6th April 2021, Zaim Express LLC, the Groups wholly owned Subsidiary, entered into an agreement for an unsecured loan of RUB 50M for a period until September 2022 with an interest rate of 15% per annum.

There are not considered to be any other events after the reporting date.

 

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