For Immediate Release

18 January 2023

Zaim Credit Systems Plc

("Zaim" or the "Group")

Unaudited financial results for six months ended 30 June 2022 

Navigation through Challenging Times

Zaim Credit Systems plc (the 'Group' or 'Zaim'), announces its unaudited financial results for the six-month period ended 30 June 2022. A copy of the full interim results will be available on the Company's website.

Key H1 2022 Highlights of Group Performance (including Zaim Express)

•    Strong growth in the amount of overall loans issued for the H1 2022 period by 53% to £17.53m (H1 2021: £11.45m);

•    Mobile application launched in the second quarter of 2021 became an important sales channel with loans issued growing by 13 times to £2.05m (H1 2021: £0.16m)

•    Operating income grew by 11% to £2.2m (H1 2021: £1,98m)

•    Gross outstanding loans to customers increased by 73% to £63.18m (H1 2021: £36.47m)

•    Total outstanding loans, measured at amortised cost grew by 56% to £4,41m (H1 2021: £2,83m)

 Zaim CEO, Siro Cicconi commented:

" Zaim Express generated good results during the first half of 2022. During the period the amount of loans issued grew by 53% vs. the first half of 2021 on the back of 48% growth of loans issued online to £14.37m and loans issued via mobile application (launched in the Q2 2021), growing by 13 times to £2.05m. In the first half of 2022 82% of loans were issued online vs. 85% in the first half of 2021 and 12% were issued via mobile application vs. 1% in the first half of 2021. The share of loans issued offline decreased from 14% in the first half of 2021 to 6% in the first half of 2022. 

Nevertheless, interest income decreased by 7% from £4.25m to £3.94m. Operating income grew by 11% to £2.2m.

Gross outstanding loans to customers increased by 73% from £36.47m in the first half of 2021 to £63.18m in the first half of 2022. At the same time total outstanding loans, measured at amortised cost grew by 56% from £2.83m to £4.41m

Given the excellent progress made by the Zaim Express business in difficult conditions since 2020, I am very sad about the events that have taken place since the end of this reporting period that mean that the Company will not in the short term at least receive the cashflow benefits of this improved performance"

Financial highlights

This announcement contains inside information for the purposes of Article 7 of EU Regulation No. 596/2014, which forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018 (as amended).

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Zaim Сredit Systems plc

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

Zaim Сredit Systems plc        

Unaudited Interim Condensed Consolidated Statement of financial position as at

   Interim Condensed Statement of changes in shareholders' equity (Unaudited)  for the six months ended 30 June 2022 

Interim Condensed Statement of changes in shareholders' equity (Unaudited)  for the six months ended 30 June 2021

Unaudited Interim Condensed Consolidated Statement of Cash Flows

For the six months ended 30 June

Notes to the Financial information

1.     Activities of the Group. General information

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

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

The organizational structure of Group:

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

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

As at 30 June 2022, the man participant of the Company is Zaim Holdings SA (with share of votes 69.27%). The ultimate controlling party of the Group is an individual - Mr. Siro Donato Cicconi.

Subsidiary has 24 stores as at 30 June 2022 (31 December, 2021: 26 stores), from which it conducts business throughout the Russian Federation.

According to the review of the Central Bank of Russia of the MFO market in the 1st Q 2022, the volume of microloans issued in the first quarter fell by 8% to 175 billion rubles. Since the beginning of the year, the share of overdue microloans  (NPL90 +) has increased by 1.7 percentage points to 31.3%.  In the 1st Q 2022, there was a tendency to increase the indebtedness of borrowers of microfinance companies. The share of clients paying off 80% of their income for microloans increased from 47% to 52% in the first quarter of 2022. At the same time, the share of clients giving 30% of their income to pay off microloans decreased from 21% to 19%.

Experts expect some slowdown of the MFO market in 2022. Among the possible reasons:

- Tightening of the policy of the Central Bank аnd other legal restrictions

- Growth of competition

- Unstable financial situation of the borrower

The unstable economic situation of the country may lead to an increase in the demand for microloans, but due to the tightening of the risk policy and the updated scoring systems of microfinance companies, a low percentage of applications will receive a positive decision. An increase in the cost of attracting a borrower is expected, and this reduces the margin and the growth rate of the microcredit market.

The growth of the microfinance market may be due to an increase in the share of e-commerce and the introduction of new products. Experts believe that the growth of MFOs is possible, for example, due to the cooperation of microcredit companies with marketplaces, as it will lead to more reliable borrowers. In addition, microloans will be actively developed in the online segment.

Experts also believe that the pandemic not only did not damage microcredit, but, on the contrary, contributed to the consolidation of the market, the improvement of the quality of portfolios, and accelerated the transition to the online segment. Small companies disappear from the market, and the initiative passes to larger players who are able to attract investments, develop their own technological platforms, diversify their activities and interact with regulators.

During first half of year 2022 the business of the Group experienced new challenge, resulted in decrease of proceeds from collecting activity (due to moratorium for collecting activity introduced by the authorities after special operation at Ukrain). As a result, the cash position decreased that leads to decrease in amount issued, to keep cash balance. That influenced the profitability of the Group n 2nd Q 2022. At the current moment, Group are improving proceeds from collecting activity due to new court deals (released after the 1st April 2022, that are excluded from moratorium). That allows to increase amount issued and significantly improve profitability of  business.

The Group's perspective is to continue development of online strategy and focus on collecting activities.

2.  Basis of preparation

The condensed consolidated interim financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards and in accordance with International Accounting Standard 34 Interim Financial Reporting. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2020, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

The condensed consolidated interim financial statements set out above do not constitute statutory accounts within the meaning of the Companies Act 2006. They have been prepared on a going concern basis in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) as adopted by the European Union. Statutory financial statements for the year ended 31 December 2021 were approved by the Board of Directors on 17 May 2022 and delivered to the Registrar of Companies. The report of the auditors on those financial statements was unqualified.

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

Going concern

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

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

The Financial Statements have been prepared on a going concern basis. In 2022, the Group  continues to develop an online business model (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 continues 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.

The Directors consider that the Group has sufficient funds to undertake its operating activities for a period of at least the next 12 months including any additional expenditure required in relation to any adverse impacts from the Covid-19 Pandemic or situations with Russian-Ukrainian relations. The Group has cash reserves which are considered sufficient by the Directors to fund the Group's desired strategy of increasing the loan book both online and in the store. 

Risks and uncertainties

The Director continuously assesses and monitors the key risks of the business. The key risks that could affect Group's medium-term performance and the factors that mitigate those risks have not substantially changed from those set out in Group's 2021 Financial Information. The key financial risks are liquidity risk, interest rate risk.

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

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

Critical accounting estimates

The preparation of condensed consolidated interim financial information requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the end of the reporting period. Significant items subject to such estimates are set out in note 3 of Group's 2021 Financial Information. The nature and amounts of such estimates have not changed significantly during the interim period.

Currency

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

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

(a) Transactions and balances

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

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

(b) Group companies

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

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

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

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

3.  Significant accounting policies

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

The same accounting policies, presentation and methods of computation have been followed in these condensed consolidated interim financial information as were applied in the preparation of Group's Financial Information for the year ended 31 December 2021 (see Note 3).

4. Loans to customers

Below is analysis of movements in the ECL allowance during 1H 2022  (by type of loans specified in the first table of the Note), GBP:

Below is analysis of movements in the ECL allowance during 1H 2021 (by type of loans specified in the first table of the Note), GBP:

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

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

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

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

Following is the credit quality analysis of loans to customers as at 30 June 2022:

Following is the credit quality analysis of loans to customers as at 31 December 2021:

The ECL allowance for loans to customers recognized during the period is impacted by different factors.  Information on the assessment of expected credit losses is disclosed in Note 3 of Group's Financial Statements for the year 2020.

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

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

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

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

5.  Lease

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.

There was a significant decrease in the number of concluded lease agreements in the year 2020 due to reduced business activity because of Covid-19 pandemic (as a measure to prevent unprofitable business) and also because of  intentions of management to develop the new business-model - which supposes substantial share of online-loans.  In 1 half year 2022 there was no significant reduction of stores, only two of them were closed as the result of monitoring for unprofitableness

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

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

Group

6.  Interest income and interest expense

7. Operating expenses

Periodic Operating expenses

8.  Charter and Additional Capital

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

In 1 half year 2022, there was no changes in Share capital structure and amount

During 1 half year 2021, Group has completed an equity fundraise of £1,000,000 (gross) through the issue of 25,000,000 ordinary shares at a price of 4.0 pence per ordinary share.

The Fundraise has been undertaken by way of a placing of new ordinary shares of £0.01 par value in the share capital of the Group. The Fundraise is to provide additional capital for expansion of the loan portfolio and the development of new products.

        Additional capital

        Group                                                                                                                                                        Amount, £

9. Related party transactions

Transactions with parent company

Interest income                                                                                                                                                                                   7                                         7-

Interest expense                                                                                                         28                                  45