TIDMZAIM
RNS Number : 1824P
ZAIM Credit Systems PLC
08 June 2020
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
08 June 2020
Zaim Credit Systems Plc
("Zaim" or the "Group")
Financial results for 2019
Zaim Credit Systems plc (the 'Group' or 'Zaim'), the Russian
focused fintech group providing financial inclusion for those
consumers who are not well served by mainstream lenders, is pleased
to announce its audited financial results for the year ended 31
December 2019.
Key highlights
-- Microfinance market is one of the fastest growing sectors of
Russian economy, with an average annual growth rate of
approximately 25%
-- Significant reduction of default rate from 22% as of December
2018 to 8.1% in December 2019 as a result of continual improvements
of the IT platform and scoring system
-- Decisive action taken to mitigate the consequences of Covid-19 outbreak in 2020:
o Adapting the business practices to ensure safety for the
employees and customers
o Strict cost control
o Keeping business at a financial and economic break-even level
on cash-flow basis.
-- Cash of GBP1.6m as at the end of 2019
-- The underlying operations performed better than expected
during 2019, generating an adjusted EBIT loss of just GBP177k
-- Significant improvements in the credit scoring system and
cost cutting ensured that the business performed well and was close
to breakeven on an operational level despite the lack of available
funding
Financial highlights
2019 2018
GBP'000 GBP'000
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Gross outstanding loans to customers 32,078 29,187
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Amount funded during year 9,028 13,339
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Total outstanding loans, measured at amortised
cost 786 640
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Cash and cash equivalents 1,583 455
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Interest income 3,941 10,226
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Operating margin 41 .2% 46.5%
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Weighted average default rate at end of
year 8.1% 22.0%
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Adjusted EBIT for the year (177) 915
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Performance in 2019
2019 represented a year of considerable changes within the
business with the recapitalisation of the group into an equity
funded Group, the successful IPO as well as the improvements in the
credit scoring system. Generally, trading during 2019 was hampered
by the lack of available liquidity compared with 2018, due to the
restructuring of the historic bonds and IPO in London taking place
later in the year than expected. The operating margin for 2019
reduced slightly to 41.2% compared to 46.5% during 2018, due to
lowering of the maximum interest rate charges prescribed by law
from 1.5% per day to 1% per day during the period, this was managed
well by Zaim by cost cutting and ensuring improved default rates.
It is a testament to the resilience of the Company that given such
structural changes to the market place, Zaim remained close to
breakeven.
Despite the lack of liquidity and relatively small value of the
loan book the business performed well and slightly better than
management and the market expectations. The defaults rates have
seen a steady improvement since the beginning of 2019 as a result
of continual technical improvements being implemented to the credit
scoring system and improved from 22% at the end of the 2018 to just
8.1% at the end of 2019.
Outlook for 2020
With available equity financing and the necessary investment
already having been made into the online platform, Zaim is now well
positioned to grow its business and capture the demand from its
target customer base. However, in 2020 due to the uncertainty
caused by Covid-19 pandemic, Zaim felt compelled to further
decreased the cost base and decided to reduce the loan amounts
issued in order to keep business at a financial and economic
break-even level on a cashflow basis for the period of "lockdown".
This has served to protect the Company from any potential
unexpected cash outflows and provides financial and operating
stability during these turbulent times. As of the end of May 20,
the lock down is beginning to be eased in Russia and we are seeing
demand increase accordingly. We are starting to again increase the
amount of loans to customers and consistent with trends observed
throughout the World, are seeing very strong growth in demand for
our online offering.
Timing of AGM
It is the intention of the Company to issues its notice of the
upcoming AGM along with the publication of the Annual Report in the
coming weeks with the AGM to be held during the middle of July in
London. A further announcement will be made in due course upon
posting of the materials.
Chief executive's review
Market Environment
The Russian microfinance market was one of the fastest growing
sectors of the economy, with an average annual growth rate of
approximately 25%. The online segment is growing much faster,
doubling in monetary volumes each year. As of the end of 2019,
according to the Central Bank of Russia (CBR) statistics , the
microloans portfolio was 212 billion Russian Roubles (approximately
GBP2.61 billion). According to Expert RA , the amount of loans
issued to the customers in 2019 was 412 billion Russian Roubles
(approximately GBP5 billion).
At the same time, the market remains underdeveloped and very
well positioned for further growth. According to the CBR , in 2018
only 34.6% of Russian adult working population had any kind of bank
deposit. Only 15% of Russian adults have credit cards and those are
primarily used for cash withdrawal. This is significantly below the
level of the developed and many developing countries and means that
a relatively high portion of the population are presently under
served by the traditional banking system and may require
microfinance services. Less than 2% of the Russian adult population
use such services, while in some other markets this percentage
ranges between 5% and 10%. Russian households' debt in 2019 was
also very low at 17% of GDP compared to 87% in the UK and 76% in
the US.
After the 2015 crisis, the CBR has overtaken the regulation and
oversight of the entire Financial Industry in the Russian
Federation. Within a few months of this, the CBR announced the
Micro Finance Sector Reforms plan and started its implementation.
As a result of this strong, steady and consistent action, which
lasted almost 4 years, the sector has been provided of a modern,
transparent, professional and high end Regulatory Framework. The
last step of the implementation was announced in 2018 and finalized
in 2 steps in February 1(st) 2019 and July 1(st) 2019 when yearly
rate cap, interest accrual cap and other parameters have been set
at the announced target levels.
Implementation of the reforms resulted in a significant increase
in transparency and professionalism and those that are non
compliant or not performing to the required standards have been
obliged to shut down. This has resulted in the overall number of
licenses reducing by more than a half in last 5 years. According to
the CBR statistics, the number of microcredit organisations
decreased from 4,200 as at 31 December 2014 to 1,774 as of 31
December 2019, representing a reduction of 57.8%.
We are proud to say that Zaim has internally processed all these
evolutions and immediately implemented and tested them within the
integrated system that has grown in parallel with the
regulations.
In several recent articles and statements the CBR officers have
declared that the Micro Finance Reform Plan has been implemented
and current framework has to be considered the final framework in
which to operate. This is a very positive sentiment for Zaim as a
stable regulatory environment is key to maximizing efficiency and
improving the quality of services we can provide our customers.
We believe that Zaim is uniquely positioned in a fast growing
market where tight regulation and strong oversight are operating a
natural selection of competitors.
Zaim Business Model
Since obtaining its official status in 2011, Zaim has developed
a bespoke IT system, created a distribution network and raised
capital to fund its loan book. Since that time Zaim has developed
its retail distribution outlets and, as of Dec 31(st) 2019 was
operating 92 sites located predominantly in Moscow and Moscow
Region and western Russia Capital cities. Zaim established branches
in close proximity to densely populated residential communities in
urban areas, as well as locations near to the transport
infrastructure of Moscow.
Zaim has also developed a pre-paid product with MasterCard -
"Zaim Express" card. The Company can transfer money online -
directly to Zaim Express cards, or to the customers own banking
cards or facility. Zaim's strategy is to further diversify its
offering taking advantage of the increasing availability of POS
devices and online purchases that facilitate card payments and the
proliferation of mobile devices and improved access to the
internet, which increase retail customer's ability to organise
their finances online. All these trends have been further amplified
by the "stay at home" approach taken by the authorities to contain
the spread of Covid-19 pandemic, driving demand for food and goods
delivery, educational, informational and recreational services.
Given the dramatic evolution of the regulatory framework which
occurred during 2015 - 2017, Zaim undertook a significant
restructuring of its financial and corporate structure. This
process has been implemented in parallel with a business model
evolution over 2017 and 2018. This restructuring was conceived with
the aim to get the existing liabilities arising from EER Master
Debenture Agreement compliant with required Capital Adequacy ratios
imposed by the CBR. This restructure was finalised at the end of
December 2018 with the contribution to equity of the liabilities
which was the preliminary step to the long path to IPO which
started in late November 18 and was originally planned to be
finalized in July 2019.
Zaim entered 2019 with a solid financial structure and with the
plan to raise funds to increase its loan book through IPO. Due to
the difficult environment of 2019 (Brexit, China/US sanctions, and
other disturbing events, 2019 has been the record low year for IPOs
on London Stock Exchange Standard Market and Zaim was the sole IPO
successfully finalized after April 2019) the IPO was successfully
completed in November 2019. This delay has caused a lack of funds
to support the growing demand of the business and a consequent
reduction of the business volumes during 2019. Loans issued are
lower than expected because of lack of funds, revenues are lower
than expected because of reduction of Loans funded and reduction of
rates. Despite the lower than anticipated levels of lending,
careful and accurate management action has resulted in several good
achievements for the year:
-- The default rate has continuously reduced from 22% as of
December 2018 to less than 5% in September 2019. This decrease is a
direct consequence of continual improvements of the IT platform and
scoring system. It is important to know that the default rate
increased slightly in the last quarter 2019 to 8.1% as a
consequence of the decision to accept new clients and accelerate
the growth. The default rate is strictly and constantly monitored
by Zaim management.
-- The operating cost structure has been carefully reorganised
and prepared for the expected growth of business subsequent to the
IPO whilst maintaining the same cost base.
The Company's loans to customers before ECL allowance as at 31
December 2019 was GBP32.1 million, growing by 10% compared to
GBP29.2 million in 2018. It is now one of the largest microfinance
companies in the Moscow region of Russia calculated by the annual
value of loans made. During our 8-year history, Zaim had provided
its clients with over 1 million loans.
After the successful IPO, Zaim received GBP2.1 million (after
costs of GBP500k) and is well positioned to increase lending
volumes and scale up its business. As sufficient investment has
already been made in Zaim's IT systems, the Company is able to cope
with a much larger volume of loans with only a small increase in
operational expenditure and benefit from the use of low cost
digital marketing. We believe that the Company should generate a
stable return on capital with an increasing loan book year-on-year
with Zaim's increased capital base going forward.
Recent Developments and Outlook
In the near term, the Group plans to expand its online offering
whilst maintaining its existing levels of funding via the existing
stores within Moscow and surrounding regions. The recent changes in
regulation enable Zaim to remotely identify new customers online.
We believe that this development has created an opportunity for the
Group to rapidly access a much larger target customer base.
The Covid-19 outbreak which started to effect Russia along with
most of the western economies in first quarter of 2020 has become
the key challenge for us and the main source of uncertainty for
Russia and global economies. We have promptly changed the Company
plans in order to properly face the new reality. Wellbeing of our
customers and colleagues is a top priority for us and I have been
very pleased by promptness and effective actions of the team in
adapting our business practices to ensure that we continue to
safely support our customers.
The long-term impact of Covid-19 on the Russian economy remains
largely uncertain. While we have solid experience in running our
business during crisis periods, we feel the current "lockdown"
period is new to us, and so we have decided to reduce the loan
amounts issued in order to keep business at a financial and
economic break-even level on cash-flow basis for the period of
"lockdown" i.e. no net funds is going to be introduced and existing
loans will fund new loans to be made. We believe this is manageable
given our reduced default levels and should protect the Company
from potential unexpected cash outflows.
In addition, Zaim has enacted a series of measures to reduce the
cost base of operating its physical stores, this has been achieved
by way of negotiating rent reductions with landlords as well as
salary reductions for staff. Together these measures are expected
to enable Zaim to navigate the current uncertainty and be well
positioned to capitalize on the expected rebound in business
opportunities once restrictions start to be eased.
Our strong capital and liquidity positions makes us confident in
the sustainability of the Company's operations and it is the
intention to re-start our growth plans as soon as we will have
clearer view of the situation. We believe that we will continue
growing our business due to the crucial nature of our services for
less well-off part of the society".
Siro Donato Cicconi
CEO
5 June 2020
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
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 2019 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 2019 and of the group's loss for the year then ended;
-- the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
-- the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European Union;
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 We read the Directors' assessment The disclosures in
Group may not be considered of the risks and impacts of the financial statements
a going concern as a result COVID-19 on the business. adequately reflect
of the impact of COVID-19 We compared this assessment the Directors' conclusions
(Coronavirus). to our own understanding of around the uncertainties
the risks, and the nature and impact of COVID-19
of the Group's operations, and, that the going
products and customer base. concern assumption
We then conducted a review remains appropriate.
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.
-------------------------------------- --------------------------------
Recoverability of loans
to customers We understood the Group's We did not identify
Given the extended credit process for estimating the any evidence of material
terms that were provided expected credit loss provision misstatement related
to customers, judgement under IFRS 9. Loans to customers to carrying value of
is required to establish were tested on a sample basis receivables. Management
how much of the loan receivables which included considering continue to apply an
balance is recoverable. the recoverability of the appropriate expected
There is a risk that management's balances post year end. Overdue credit loss provision.
judgements and estimates balanced were discussed with
over recoverability are management and we assessed
inappropriate, when considering whether the accounting provision
the specific balances appropriately reflects the
and the requirements of facts and circumstances.
IFRS 9.
-------------------------------------- --------------------------------
Risk that acquisitions We conducted a detailed review The acquisition of
have been incorrectly of the journals posted with Zaim Express LLC was
accounted for regards to the reverse acquisition correctly accounted
The Company acquired Zaim and the mechanism for preparing for in accordance with
Express LLC during the the consolidated financial IFRS.
year by way of a reverse statements. Work was also
acquisition. There is undertaken to determine if
a risk that the transaction the transaction met the requirements
was not correctly accounted to be considered a reverse
for in line with IFRS. acquisition.
-------------------------------------- --------------------------------
Risk of fraud in revenue
recognition We reviewed the Group's revenue Revenue was recognised
There is a risk that revenue recognition policies and how in accordance with
is materially understated they are applied. Revenue the Group's accounting
due to fraud. was then tested on a sample policy and we concluded
basis to confirm that transactions that no evidence of
have been appropriately recorded fraud or other understatement
in line with IFRS 15. was identified.
-------------------------------------- --------------------------------
Risk that management is We examined journals posted We identified no evidence
able to override controls around the year end, specifically of management override
Journals can be posted focusing on areas which are in respect of inappropriate
that significantly alter more easily manipulated. manual journals recorded
the financial statements. 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 to be GBP155,180 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 was set at 75% of the above materiality
levels. 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 GBP7,759. 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.
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.
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. Our
procedures involved journal entry testing, with a focus on manual
consolidation 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.
Other matters which we are required to address
We were appointed by the board on 21 February 2020 to audit the
financial statements for the period ending 31 December 2019. Our
total uninterrupted period of engagement is 2 years, covering the
periods ending 31 December 2018 to 31 December 2019.
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
5 June 2020
Zaim Credit Systems plc
Consolidated Statement of Financial Position as at 31 December
2019
(in British pounds sterling)
Company Registered number 11418575 Note 2019 2018
-------------------------------------------- ------- ------------- ------------
Assets
Cash and cash equivalents 5 1 , 582,751 454,549
Loans to customers 6 786,346 640,371
Property and equipment 11,967 13,559
Right-of- use assets under lease agreements 7 2,549,233 -
Other assets 8 222,117 229,126
Total assets 5,152,414 1,337,605
-------------------------------------------- ------- ------------- --------------
Liabilities
Loans received 9 742,603 908,293
Lease liabilities 7 2,555,648 -
Other liabilities 10 664,905 1,006,171
Total liabilities 3,963,156 1,914,464
-------------------------------------------- ------- ------------- ------------
Equity
Charter capital 11 4,369,750 2,492,363
Additional capital 11, 2 5 6,078,128 29,122,880
Foreign currency translation reserve 11 4,457,788 4,497,731
Merger reserve 11, 26 23 , 764 ,800 -
Accumulated deficit 11 (37,481,208) (36,689,833)
-------------------------------------------- ------- ------------- ------------
Total equity 1,189,258 (576,859)
-------------------------------------------- ------- ------------- ------------
Total liabilities and equity 5,152,414 1,337,605
-------------------------------------------- ------- ------------- ------------
Siro Donato Cicconi,
Chief Executive Officer
Simon James Retter,
Finance Director
5 June 2020
Zaim Credit Systems plc
Company Statement of Financial Position as at 31 December
2019
(in British pounds sterling)
Company Registered number 11418575
Note 2019 2018
----------------------------- ---- ----------- -----------------
Assets
Cash and cash equivalents 5 1 , 310,655 -
Other assets 8 68,122 60 ,000
Investment in Subsidiary 1 8,705 ,663 -
10,084,44
Total assets 0 60,600
----------------------------- ---- ----------- -------------------
Liabilities
Other liabilities 10 162,666 66,670
Total liabilities 162,666 66,670
----------------------------- ---- ----------- -----------------
Equity
Charter capital 11 4,369,750 60 ,000
Additional capital 11 6,078,128 -
(66 ,670
Accumulated deficit (526,104) )
----------------------------- ---- ----------- -----------------
Total equity 9,921,774 (6,670)
----------------------------- ---- ----------- -----------------
Total liabilities and equity 10,084,440 60,000
----------------------------- ---- ----------- -----------------
The above Company Statement of Financial Position should be read
in conjunction with the accompanying notes, loss for the period was
GBP 626,317 (2018:GBP 66,670). 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 5 June 2020 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 2019
(in British pounds sterling)
Note 2019 2018
------------------------------------------- -------- ----------- -----------
Interest income 13 3,940,747 10,226,071
Interest expenses (28,018) (2,460,874)
Interest expense - lease liabilities 13 (243,281) -
------------------------------------------- -------- ----------- -----------
Net interest income 3,669,448 7,765,197
Allowance for ECL/impairment of loans
to customers 6 ,8, 15 (231,681) (4,213,239)
Net interest income after allowance
for ECL/impairment of loans to customers 3,437,767 3,551,958
Gains less losses from dealing in
foreign currency 14 95,497 (822,620)
Other operating income 16 790,554 827,322
------------------------------------------- -------- ----------- -----------
Operating income 4,323,818 3,556,660
Staff costs 17 (2,006,265) (2,339,965)
Charge for share based options 12 (166,883) -
Operating expenses 18 (2,523,112) (2,762,326)
( 369 ,
Costs of IPO 18 146 ) -
( 150 ,
Deemed cost of listing 26 000 ) -
------------------------------------------- -------- ----------- -----------
Loss before income tax (891,589) (1,545,631)
Income tax expense 19 - -
------------------------------------------- -------- ----------- -----------
Net loss (891,589) (1,545,631)
------------------------------------------- -------- ----------- -----------
Net other comprehensive income that
may be reclassified to profit or loss
Foreign exchange differences arising
on translation into presentation currency (39,942) 3,820,203
------------------------------------------- -------- ----------- -----------
Total comprehensive expense (931,531) 2,274,572
------------------------------------------- -------- ----------- -----------
Zaim Credit Systems Group
Consolidated Statement of Changes in Equity for the Year Ended
31 December 2019
(in British pounds sterling)
Foreign
currency
Additional translation Merger reserve Accumulated Total
Charter capital capital reserve (FCTR ) deficit equity
---------------- --------------- ---------------- --------------- ---------------- ---------------- ------------
Balance at 31
December 2017 2,492,363 - 677,528 - (35,050,047) (31,880,156)
---------------- --------------- ---------------- --------------- ---------------- ---------------- ------------
Impact of
IFRS 9
adoption - - - (94,155) (94,155)
Balance at 1
January 2018
restated in
accordance
with IFRS 9 2,492,363 - 677,528 - (35,144,202) (31,974,311)
---------------- --------------- ---------------- --------------- ---------------- ---------------- ------------
Financial
assistance
from the
participant
(Note 11, 25) - 29,122,880 - - - 29,122,880
Comprehensive
loss for 2018 - - 3,820,203 - (1,545,631) 2,274,572
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 (37,481,208) 1,189,258
---------------- --------------- ---------------- --------------- ---------------- ---------------- ------------
Zaim Credit Systems Group
Company Statement of Changes in Equity for the Year Ended 31 December 2019
(in British pounds sterling)
Total
Charter capital Additional capital Accumulated deficit equity
----------------------------- --------------- ------------------ ------------------- -----------
Balance at 31 December 2017 - - - -
----------------------------- --------------- ------------------ ------------------- -----------
Company incorpora t ion 60 , 000 - - 60,000
Comprehensive loss for 2018 - - (66,670) 66,670
Balance at 31 December 2018 60 ,000 - (66,670) (6,670)
----------------------------- --------------- ------------------ ------------------- -----------
Issue during the year 4 ,309,7 50 6,406,699 - 10,716,449
Expenses on issue of shares - (328 ,570) - (328,570)
Comprehensive loss for 2019 - - (626,317) (626,31 7 )
Share-based payments - - 166 ,883 166,883
Balance at 31 December 2019 4,369,750 6,078,128 (526,104) 9,9 21 ,774
----------------------------- --------------- ------------------ ------------------- -----------
Zaim Credit Systems plc
Consolidated Statement of Cash Flows for the year ended 31
December 2019
(in British pounds sterling)
2019 2018
---------------------------------------------------- ------------- -----------
Cash flows from operating activities
Interest received 2,332,339 8,172,050
Interest paid (400,142) (2,174,103)
Gains less losses from dealing in foreign currency (9, 448 ) 3,314
Other operating income 198,600 12,109
Staff costs (2,005,236) (2,402,998)
Operating expenses ( 1, 440,487) (2,650,846)
Cash flows from/(used in) operating activities
before changes in operating assets and liabilities ( 1, 324,373) 959,526
Net (increase)/decrease in operating assets
Loans to customers 1,259,013 (1,833,502)
Other assets 4,126 23,930
Net decrease in operating liabilities
Other liabilities 1 62,957 (9,906)
---------------------------------------------------- ------------- -----------
Net cash flows from operating activities 101,723 (859,952)
---------------------------------------------------- ------------- -----------
Cash flows from investing activities
Proceeds from placements under fiduciary management
agreement - 5,193
Purchases of property and equipment (2,130) (3,733)
Net cash flows from investing activities (2,130) 1,460
---------------------------------------------------- ------------- -----------
Cash flows from financing activities
Repayment of lease liabilities (1,389,284) -
Loans received 653,530 944,725
Repayment of loans received (653,530) -
Issue of ordinary shares (includng share premium) 2,716,449 -
Share issue costs ( 328,570) -
---------------------------------------------------- ------------- -----------
Net cash flows from financing activities 998,594 944,725
---------------------------------------------------- ------------- -----------
Effect of exchange rate changes on cash and
cash equivalents 30,015 (89,264)
Net change in cash and cash equivalents 1,128,202 (3,031)
Cash and cash equivalents at the beginning of
the year 454,549 457,580
---------------------------------------------------- ------------- -----------
Cash and cash equivalents at the end of the
year (Note 5) 1,582,751 454,549
---------------------------------------------------- ------------- -----------
Zaim Credit Systems plc
Company Statement of Cash Flows for the year ended 31 December
2019
(in British pounds sterling)
2019 2018
---------------------------------------------------- ----------- ----------
Cash flows from operating activities
Loss for the period (626,317) ( 66 ,670)
Correction for non-cash transaction (charge
for share options granted) 166,883 -
Cash flows from/(used in) operating activities ( 6 6 ,6
before changes in operating assets and liabilities ( 459 ,433) 70)
Adjustments for
Increase in trade and other receivables , VAT (8,122) (60,000)
Increase in trade and other payables 95,995 6 6 ,670
( 371 , (60 ,000
Cash generated from operations 560 ) )
---------------------------------------------------- ----------- ----------
( 6 0 ,000
Net cash flows used in operating activities (371,560) )
---------------------------------------------------- ----------- ----------
Cash flows from investing activities
Investment in Subsidiary (705,663) -
Net cash flows from investing activities (705,663) -
---------------------------------------------------- ----------- ----------
Cash flows from financing activities
Issue of ordinary shares (includng share premium) 2,716,449 60,000
Share issue costs ( 328,570) -
---------------------------------------------------- ----------- ----------
Net cash flows from financing activities 2,38 7 ,878 60,000
---------------------------------------------------- ----------- ----------
Net change in cash and cash equivalents 1,310,655 -
Cash and cash equivalents at the beginning of
the year - -
---------------------------------------------------- ----------- ----------
Cash and cash equivalents at the end of the
year (Note 5) 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 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 (S ubsidiary), so main function of the Company is to provide
holding company services and undertake management of the listed
activities on the stock exchange. These business combination in
2019 was stated in consolidated financial statements as reverse
acquisitions under IFRS 3 and the prior year comparative figures
presented are those of the legal acquiree Zaim Express LLC.
The organizational structure of Group:
The share votes of the Company
--------------------------------
The name of Subsidiary Country of registration 31.12.201 9 31.12.201 8
----------------------- ------------------------- --------------- ---------------
Z aim-Express LLC Russia 100% -
The Subsidiary's principle activity is issuance of microloans
through the network of it's branches in Russian cities (including
Moscow and Moscow region, St. Petersburg, Volgograd, Samara, Orel,
Tula). 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 201 9 201 8
---------------------------------------------------------- ----- -----
Central office 42 50
Call center 23 35
Other spesialists 208 268
---------------------------------------------------------- ----- -----
Total average number of employees 273 353
The average number of parent Company's employees (directors) is
as follows:
The average number of parent Company's employees 201 9 201 8
-------------------------------------------------- ----- -----
Directors 3 2
As at 31 December 2019, the main participant of the Company is
Zaim Holdings SA (with a 73,23 % equity
holding). The ultimate controlling party of the Group is an individual - Mr. Siro Donato Cicconi.
2. Operating Environment of the Group
General
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.
As at 31 December 2019, the CBR's key rate was 6.25% (31
December 2018: 7.75%).
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:
Inflation for
The year ended the period
----------------- --------------
31 December 2019 3.0%
31 December 2018 4.3%
31 December 2017 2.1%
31 December 2016 5.4%
31 December 2015 12.9%
----------------- --------------
Foreign exchange transactions
Foreign currencies, especially the US Dollar and Euro, 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 2019 61.9057 69.3406 81.1460
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
31 December 2015 72.8827 79.6927 107.9830
----------------- ------- ------- ---------
Management takes all necessary measures to ensure sustainability
of the Bank'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.
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 consolidation of Subsidiary 's
financial statements with the parent Company accounts which have
been presented in GBP and investors interests. Comparatives for
2018 of Subsidiary have been also restated to GBP.
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 can have on the Group's financial position in future.
Adjustments related to this risk have not been included in the
accompanying financial statements
As at 31 December 2019, the Group has an accumulated deficit of
GBP 37,331,208 (2018: GBP 36,689,833) , and incurred a net loss of
GBP 741 , 589 during the year ended 31 December 2019 (2018: GBP
1,545,631 ).
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 on page
2; 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. The Directors consider that the Group has sufficient funds
to undertake its operating activities for a period of at least the
next 12 months including any additional expenditure required in
relation to any adverse impacts from the Covid-19 Pandemic. The
Group has cash reserves which are considered sufficient by the
Directors to fund the Group's desired strategy of increasing the
loan book both online and in the store.
The uncertainty as to the future impact of the Covid-19 pandemic
has been considered as part of the Group's adoption of the going
concern basis. In response to government instructions the Group's
offices in London and Moscow have been closed with staff working
from home, international travel has stopped and health and safety
initiatives have been implemented throughout the physical store
network which has remained open for business during this pandemic
as a result of financial services being classified as being
critical services for the population.
Whilst the board considers that the effect of Covid-19 on the
Group's financial results for 2019 are not affected , since the
year end the amount of funds advanced have been significantly lower
than expected due to a reduction in demand, coupled with prudent
measures adopted by the Directors to limit any cash advanced to the
receipts generated in any given month. The operations have
therefore been run on a break-even basis to protect the business
against any unforeseen credit losses due to the deteriorating
economic environment in Russia. The Board considers the pandemic
has not materially adversely affected the prospects of the business
as at the date of this report, although any future impact should
further waves of the pandemic occur and further measures
implemented, remains hard to quantify.
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.
The CBR sets the minimum mandatory liquidity ratio at over 70%
for Russian Federation. The Subsidiary meets the mandatory economic
liquidity ratio: as at 31 December 2019 - 132.89% and as at 31
December 2018 - 114.26%.
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.
Subsidiary is 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 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 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 value of the acquirer's previously held equity interest in
the acquiree is remeasured to 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 acquisition
date fair value 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 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
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 cost at its acquisition date assessed value and, in the
case of contingent consideration classified as a financial
liability, remeasured subsequently through the 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 within 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 within the next financial year include:
Fair value of financial instruments. Information on 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 implies
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 the major
impact
on allowance for ECLs: default definition, significant increase
in credit risk (SICR), probability of default (PD), exposure at
default (EAD), loss given default (LGD), macromodels 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.
Determining business model and applying SPPI test . In
determining the appropriate measurement category for debt financial
instruments, the Group applies two approaches : business model
assessment for managing the assets and the SPPI test based on
contractual cash flows 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
IFRS 16 Leases (issued on 13 January 2016 and effective for
annual periods beginning on or after 1 January 2019).
IFRS 16 Leases supersedes IAS 17 Leases, IFRIC 4 Determining
whether an Arrangement contains a Lease, SIC 15 Operating
Leases-Incentives and SIC 27 Evaluating the Substance of
Transactions Involving the Legal Form of a Lease. The new standard
sets out the principles for the recognition, measurement,
presentation and disclosure of leases. All leases result in the
lessee obtaining the right to use an asset at the start of the
lease and, if lease payments are made over time, also obtaining
financing.
The Group applied IFRS 16 using a modified retrospective
approach. Right-of-use assets were recorded in an amount equal to
the lease liabilities adjusted for the amount of prepaid or accrued
operating lease payments under these lease agreements recorded in
the prior periods. Lease liabilities were measured at the present
value of the remaining lease payments discounted at the incremental
borrowing rates (IBR) as at 1 January 2019. The date of initial
application is 1 January 2019. The Group applied a modified
retrospective approach without restatement of the comparative
information.
In applying IFRS 16 for the first time, the Group has used the
following practical expedients:
-- A single discount rate was applied to a portfolio of leases
with reasonably similar characteristics;
-- Leases ending within 12 months from the date of initial
application of the standard were reflected as short-term, even if
an initial lease term was more than 12 months;
-- Initial direct costs were excluded from measurement of the
right-of-use asset at the date of first application.
Reconciliation of lease liabilities as at 1 January 2019 and
operating lease liabilities as at 31 December 2018 is as
follows:
Group
Contractual obligations under operating lease
as at 31 December 2018 3,806,790
Discount rate as at 1 January 2019 7.95%
Discounted operating lease liabilities as at
1 January 2019
Effect of discounting (481,164)
Lease liabilities recognised as at 1 January
2019 3,325,625
------------------------------------------------------ ----------
Previously paid advances and non-returnable security
deposits 81,880
------------------------------------------------------ ----------
Right-of-use assets recognised as at 1 January
2019 3,407,065
------------------------------------------------------ ----------
Below are revised standards that became mandatory for the Group
since 1 January 2019, but had no material impact on the Group:
-- IFRIC 23 Uncertainty over Income Tax Treatments (issued on 7
June 2017 and effective for annual periods beginning on or after 1
January 2019 ).
-- Prepayment Features with Negative Compensation - Amendments
to IFRS 9 (issued on 12 October 2017 and effective for annual
periods beginning on or after 1 January 2019).
-- Long-term Interests in Associates and Joint Ventures -
Amendments to IAS 28 (issued on 12 October 2017 and effective for
annual periods beginning on or after 1 January 2019).
-- Annual Improvements to IFRSs 2015-2017 cycle - Amendments to
IFRS 3, IFRS 11, IAS 12 and IAS 23 (issued on 12 December 2017 and
effective for annual periods beginning on or after 1 January
2019).
-- Amendments to IAS 19 Plan Amendment, Curtailment or
Settlement (issued on 7 February 2018 and effective for annual
periods beginning on or after 1 January 2019).
Certain new standards and interpretations have been published
which are mandatory for the Group's annual periods beginning on or
after 1 January 2020 and which the Group has not early adopted.
The Revised Conceptual Framework for Financial Reporting (issued
on 29 March 2018 and effective for annual periods beginning on or
after 1 January 2020).
Definition of a business - Amendments to IFRS 3 (issued on 22
October 2018 and effective for acquisitions from the beginning of
annual reporting period beginning on or after 1 January 2020).
Definition of material - Amendments to IAS 1 and IAS 8 (issued
on 31 October 2018 and effective for annual periods beginning on or
after 1 January 2020).
Unless otherwise described above, the new standards and
interpretations are not expected to significantly impact the
Group's consolidated financial statements.
4. Summary of Significant Accounting Policies
Fair value measurement
Fair value is the price that would be received to sell 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 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 carried 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 .
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 as 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 allowance 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 ECL 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 .
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 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.
Operating lease - the Group as lessee
Leases of property under which the risks and rewards of
ownership are effectively retained with the lessor are classified
as operating leases. Lease payments under operating lease 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 .
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 loss carryforwards 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 expense 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
through 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 on
the territory of 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 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
5. Cash and Cash Equivalents
Group 2019 2018
-------------------------------- ----------- -------
Cash on hand 84,098 61,971
Accounts with other banks 1 , 498,653 392,578
Total cash and cash equivalents 1, 582,751 454,549
-------------------------------- ----------- -------
Company 2019 2018
-------------------------------- ----------- ----
Cash on hand - -
Accounts with other banks 1 , 310,655 -
Total cash and cash equivalents 1, 310,655 -
-------------------------------- ----------- ----
As at 31 December 2019, the Group has 2 counterparties (2018: 3
counterparties) with balances exceeding 10% of
total cash and cash equivalents in the amount of GBP 1 , 310 ,655 (2018: GBP 380,039).
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 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 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
--------------------------------------------------- --------------------------- -----------
The table below presents the credit quality analysis of cash and
cash equivalents based on credit risk levels as at 31 December
2018.
Group Accounts with other RF banks Total
--------------------------------------------------- ---------------------------- -------
Minimum credit risk 392,578 392,578
Total cash and cash equivalents, less cash on hand 392,578 392,578
--------------------------------------------------- ---------------------------- -------
Company Accounts with other RF banks Total
--------------------------------------------------- ---------------------------- -------
Minimum credit risk - -
Total cash and cash equivalents, less cash on hand - -
--------------------------------------------------- ---------------------------- -------
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 2019 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 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 2019 2018
------------------------------------------- ------------ ------------
Loans to customers 32,078,150 29,187,093
Less: ECL allowance (31,291,804) (28,546,722)
------------------------------------------- ------------ ------------
Total loans to customers at amortised cost 786,346 640,371
------------------------------------------- ------------ ------------
Company 2019 2018
------------------------------------------ ---- ----
Loans to customers - -
Less: ECL allowance - -
------------------------------------------ ---- ----
Total loans to customers at amortised cost - -
------------------------------------------ ---- ----
Below is analysis of movements in the ECL allowance during 2019
(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 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
-------------------------- --------- --------- ---------- -----------
Analysis of movements in the ECL allowance during 2018 is as
follows:
Group Stage 1 Stage 2 Stage 3 Total
-------------------------- ----------- --------- ----------- -----------
ECL allowance as at 1
January 2018 176,018 869,353 26,864,738 27,910,109
Assets recognised for
the period 3,394,615 3,394,615
Assets derecognised or
collected (13,066) (30,451) (126,006) (169,523)
Transfers to Stage 2 (443,898) 443,898 - -
Transfers to Stage 3 (2,953,565) (775,143) 3,728,708 -
Net loss on ECL allowance
charge/(reversal) - 2,369 987,992 990,361
Effect of exchange rate
differences (20,304) (85,312) (3,473,222) (3,578,840)
ECL allowance as at 31
December 2018 139,800 424,712 27,982,210 28,546,722
-------------------------- ----------- --------- ----------- -----------
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 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
--------------------------------------------- --------- --------- ------------- ------------
Following is the credit quality analysis of loans to customers
as at 31 December 2018:
Group Stage 1 Stage 2 Stage 3 Total
--------------------------------------------- --------- --------- ------------- ------------
Loans to customers
Minimum credit risk 516,270 - - 516,270
Low credit risk - 218,898 - 218,898
Moderate credit risk - 250,138 - 250,138
High credit risk - 219,577 219,577
Defaulted assets - - 27,982,210 27,982,210
Total loans to customers before allowance 516,270 688,613 27,982,210 29,187,093
--------------------------------------------- --------- --------- ------------- ------------
ECL allowance (139,800) (424,712) (27,982,210) (28,546,722)
--------------------------------------------- --------- --------- ------------- ------------
Total loans to customers after ECL allowance 376,470 263,901 - 640,371
--------------------------------------------- --------- --------- ------------- ------------
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, land, office
space and computer equipment. Prior to application of IFRS 16, the
Group (as a lessee) classified each lease as an operating lease at
the inception of the lease term. The Group had no finance lease
agreements. Leased assets under operating leases have not been
capitalised and payments under operating leases were recognised as
an expense in the statement of profit or loss and other
comprehensive income on a straight-line basis over the lease term.
Lease prepayments and accrued lease payments were recognised as
prepayments and accounts payable, respectively. Following the
adoption of IFRS 16, the Group applied a single approach to
recognising and measuring all leases except for short-term leases
and leases where the underlying asset is of low value. The standard
contains transitional requirements and provides for practical
expedients that have been used by the Group.
The carrying amount of right-of- use assets and its movements
during the period are presented below:
Discount rate 7.95%
Lease term 3 years
Group Real Estate Total
------------------------------------------------ ------------- ----------
Minimum operating lease ontractual obligations
at 1 January 2019 738,538 738,538
short-term leases not recognised under IFRS
16 (151,047) (151,047)
effect of renewal options that are reasonably
certain to be exercised 3,219,299 3,219,299
------------------------------------------------ ------------- ----------
Undiscounted lease payments 3,806,790 3,806,790
------------------------------------------------ ------------- ----------
effect of discounting at the IBR rate at
the date of initial application (481,165) (481,165)
------------------------------------------------ ------------- ----------
Lease liabilities at 1 January 2019 3,325,625 3,325,625
------------------------------------------------ ------------- ----------
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 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 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
-------------------------------------------------- ------------ ------------
8. Other Assets
Group 2019 2018
--------------------------------------------------- -------- --------
Other financial assets
Receivables under fiduciary management agreement - 510
--------------------------------------------------- -------- --------
Total other financial assets - 510
--------------------------------------------------- -------- --------
Other non-financial assets
Lease prepayments 16,603 145,124
Settlements with suppliers 29,440 21,873
Taxes other income tax 139,069 36,881
Other 52,937 37,856
Less: impairment allowance (15,932) (13,117)
--------------------------------------------------- -------- --------
Total other non-financial assets 222,117 228,617
--------------------------------------------------- -------- --------
Total other assets 222,117 229,126
--------------------------------------------------- -------- --------
Company 2019 2018
--------------------------------- ------ -------
Other financial assets - -
--------------------------------- ------ -------
Total other financial assets - -
--------------------------------- ------ -------
Other non-financial assets
Settlements with suppliers - -
Taxes other income tax 68,122 -
Other - 60 ,000
Less: impairment allowance - -
--------------------------------- ------ -------
Total other non-financial assets 68,122 60,000
--------------------------------- ------ -------
Total other assets 68,122 60,000
--------------------------------- ------ -------
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
------------------------------------------------------------- -------------------- ------
Analysis of movements in the impairment allowance for
non-financial assets during 2018 is presented below:
Group Non-financial assets Total
------------------------------------------------------------- -------------------- -------
Impairment allowance for other assets as at 1 January 2018 17,290 17,290
Reversal of impairment allowance during 2019 (2,214) (2,214)
Effect of translation into presentation currency (1,959) (1,959)
Impairment allowance for other assets as at 31 December
2018 13,117 13,117
------------------------------------------------------------- -------------------- -------
The Group has no collateral for impaired assets recognised
within other assets.
9. Loans Received
Group 2019 2018
------------------------ ------- -------
Loan from related party 742,603 908,293
Total loans received 742,603 908,293
------------------------ ------- -------
As at 31 December 2019 and 31 December 2018, loans received
represent outstanding interest on 1 loan at 8.7% per annum forgiven
by the ex-Subsidiary participant.
Company 2019 2018
----------------------- ------------------------------- ----
Loan from related party - -
Total loans received - -
----------------------- ------------------------------- ----
10. Other Liabilities
Group 2019 2018
------------------------------------------ ------- ---------
Other financial liabilities
Payables 200,618 62,515
Settlements with customers on penalties 97,322 90,040
Other 16,732 17,523
Other non-financial liabilities
Taxes other than income tax 16,982 562,814
Provision for unused vacations 144,024 165,104
Payables to employees and payroll related
taxes 189,227 108,175
Total other liabilities 664,905 1,006,171
------------------------------------------- ------- ---------
Company 2019 2018
------------------------------------------ ------- ------
Other financial liabilities
Payables 126,057 66,670
Other 27 -
Other non-financial liabilities
Payables to employees and payroll related
taxes 36,582 -
Total other liabilities 162,666 66,670
------------------------------------------- ------- ------
11. Charter and Additional Capital, Other reserves. Earnings per
share
As at December 31, 2018 the Charter capital states the amount of
Share capital of Subsidiary - the authorized capital represents the
contribution made by the sole participant of Subsidiary .
D uring 2019 the reverse acquisition was stated in consolidated
financial statements, as a result, the Charter capital as at
December, 31, 2019 states the Share capital of legal parent
Company, in amount of 4,369,750
British pounds sterling . All the shares issued have equal voting rights .
Below there is reconcilation of movement in legal parent Company
Share capital during 2019:
31 Dec.,
Group and Company 2018 Amount
Issued and fully paid Number , GBP
----------------------------------- ---------- -------
6 , 000
Ordinary shares of GBP0, 01 each , 000 60,000
6 ,000,000 60,000
----------------------------------- ---------- -------
For the year 2019 ( Ordinary shares issue of GBP0,01 each):
Group and Company Number Amount, GBP
320 , 000 3 ,200
Consideration shares (acquisition of Subsidiary) , 000 ,000
IPO 104 ,000,000 1,040,000
Fee shares 6 ,975,000 69,750
430 ,975,000 4 , 309,750
--------------------------------------------------- -------------- -----------
31 Dec.,
Group and Company 2019 Amount
Issued and fully paid Number , GBP
---------------------------------------------------- ------------- -----------
436 , 975
Ordinary shares of GBP0, 01 each , 000 4,369,750
436 ,975,000 4,369,750
--------------------------------------------------- -------------- -----------
As at December 31, 2018 the Additional capital states the amount
of the agreement on in-kind contribution (debt on the loan) from
the balance of Subsidiary - 29,122,880 British pounds sterling
Amounts of Additional capital as at December , 31 , 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 Exchange
presentation currency Amount in RUB 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 reverse acquisition , which was stated in
consolidated financial statements in 2019, the Additional capital
as at December, 31, 2019 states the share premium from participant
of legal parent Company, in amount of 6,078,128 British pounds
sterling .
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, GBP
As at January , 1, 2019 -
Premium arising on issue of ordinary shares 6,406,699
Issue costs (328,570)
As at December , 31, 2019 6 , 078,128
---------------------------------------------- -----------
Other reserves
Merger Translation
Group reserve reserve
------------------------ --- ----------- ------------
At 1 January , 2018 - 677,528
Merger reserve -
Translation differences - 3,820,203
4,497,
At 31 December , 2018 - 731
----------------------------- ----------- ------------
Merger reserve 23,764,800 -
Translation differences - (39,942)
At 31 December , 2019 23 ,764,800 4,457,788
----------------------------- ----------- ------------
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 Subsidiary during 2019 and represents the difference between the
value of the share capital issued for the acquisition of Subsidiary
and investments made in Subsidiary and that of the acquired share
capital of Subsidiary.
Currency translation differences relate to the translation of
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 are located
in Russian Federation, and Subsidiary functional currency is the
Russian Ruble, which has sufficient volatility against Sterling
during the year.
Accumulated deficit represents retained earnings.
Earnings per share . The basic loss per share of 0.64p loss per
share (2018 loss per share: 1.11p ) 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 2019 2018
------------------------------------------------ ----------------------- ----------
Loss attributable to owners of the parent (741,589) (66,670)
Weighted average number of ordinary
shares in issue 115,689,178 6,000,000
The diluted loss per share of 0.61p loss per share (2018 loss
per share: 1.11p ) 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 outstanding for the effects of all
dilutive potential ordinary shares. For the year 2018 there is no
difference between the basic and diluted earnings per share, as the
parent Company has no potential ordinary shares.
Group 2019 2018
-------------------------------------------------- -------------------------- ----------
Loss attributable to owners of the parent (741,589) (66,670)
Weighted average number of ordinary
shares in issue outstanding for the
effects of all dilutive potential ordinary
shares 122,148,630 6,000,000
12. Share-based payment
In October 2019 and related to the IPO of the Company, 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 of 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
cease 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 of the warrants have a contractual term
of 3 years from the date of issue and have no performance related
terms attached and 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 to
the Group as a tool to incentives and 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:
Weighted
N umber exercise
of options& price
warrants 2019,
Group 2019 GBP
---------------------------- ------------ ---------
Outstanding at 1 January - -
Granted 40,650,000 2,50
Forfeited - -
Outstanding at 3 1 December 40,650,000 2,50
Exercisable at 31 December 25,600,000 2,50
---------------------------- ------------ ---------
The options & warrants outstanding at 31 December 2019 had a weighted
average remaining contractual life of 4,6 years.
The fair value of the share options and warrants was determined
using the Black-Scholes valuation model.
The parameters used are detailed below.
2019
Group and Company options
----------------------------------------------- ------------
29 Oct., 20
Date of Grant 19
Weighted average share price 2,50 pence
Weighted average exercise price 2,50 pence
Weighted average fair value at the measurement 0 ,57 penc
date
29 Oct. , 20
Expiry date 24
Options granted 40 ,650,000
Volatility 20%
Dividend yield Nil
Option life 5 year
Annual risk free interest rate 2 ,83%
------------------------------------------------ ------------
13. Interest Income and Expense
Group 2019 2018
----------------------- --------- -----------
Interest income
Loans to customers 3,940,747 10,226,071
Total interest income 3,940,747 10,226,071
----------------------- --------- -----------
Interest expense
Loans received (28,018) (2,460,874)
Lease liabilities (243,281) -
Total interest expense (271,299) (2,460,874)
Net interest income 3,669,448 7,765,197
----------------------- --------- -----------
14. Gains less Losses from Dealing in Foreign Currency
Group 2019 2018
--------------------------------------------- ------ ---------
Gain/loss on revaluation of financial assets 102 ,
and liabilities 327 (825,934)
Realised gain/ (loss) from foreign exchange (6,830
transactions ) 3,314
Total gains less losses from dealing in
foreign currency 95,497 (822,620)
---------------------------------------------- ------ ---------
15. Allowance for Expected Credit Losses / Impairment of Other
Assets
Group Note 2019 2018
------------------------------------------- ---- ------- ---------
Loans to customers 6 230,050 4,215,453
Other assets 8 1,631 (2,214)
Total allowance for expected credit losses
/ impairment of other assets 231,681 4,213,239
------------------------------------------- ---- ------- ---------
16. Other Operating Income
Group 2019 2018
------------------------------------- ------- -------
Taxes other than income tax 591,965 815,201
Agent's fee 150,036 -
Fines received under loan agreements 34,846 -
Other income 13,707 12,121
Total other operating income 790,554 827,322
-------------------------------------- ------- -------
17. Staff Costs
Group 2019 2018
---------------------- --------- ---------
Salary 1,722,792 2,096,784
Payroll related taxes 283,473 243,181
Total staff costs 2,006,265 2,339,965
----------------------- --------- ---------
18. Operating Expenses
Group 2019 2018
------------------------------------ --------- ---------
Depreciation of right-of-use assets 1,248,759 -
Consulting services 851,223 115,165
Rental expenses 257,639 2,019,680
Communication 87,830 113,251
Representative and travel expenses 81,250 1,212
Banking services 43,246 60,915
Security 42,594 57,816
Postal services 38,491 48,567
13,09
Advertising and marketing 25,736 0
State duty 23,036 26,084
Office equipment 17,274 21,705
Material expenses 3,412 2,537
Repairs 2,038 1,855
Management expenses - 144
280 ,
Other expenses 169,730 304
Total operating expenses 2,892,258 2,762,325
------------------------------------- --------- ---------
19. Income Tax
As at 31 December 2019 and 31 December 2018, the Group has no
current income tax expense. The current income tax rate applicable
to the majority of the Group's profit is 20% (2018: 20%).
Reconciliation between the theoretical and the actual taxation
charge is provided below.
Group 2019 2018
--------------------------------------------------- --------- -------------
(741, 5
IFRS loss before taxation 89 ) (1,545,631)
Theoretical tax charge at the applicable statutory
rate 148,318 309,121
Non-deductible expenses and other differences 10,868 (280,081)
Unrecognised deferred tax asset (159,186) (29,040)
Income tax expense for the year - -
--------------------------------------------------- --------- -------------
The Company has a potential deferred tax asset of GBP56,987 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.
Change recognised Effect of
in profit exchange
Group 2018 and loss 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 carryforwards 3,342,776 241,480 298,425 3,882,681
------------------------------------- ----------- ------------------ ------------------ ------------
Net 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) (500,721) (9,294) (511,703)
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 - - - -
------------------------------------- ----------- ------------------ ------------------ ------------
Change
Impact recognised Effect
of IFRS in profit of exchange
Group 2017 9 and loss rate differences 2018
------------------------------- ----------- --------- ------------ ------------------ ------------
Tax effect of deductible
temporary differences
Loans to customers 49,785 41,970 39,007 (33,461) 97,301
Other assets 47,957 215 (5,775) 42,397
Loans received 606,626 (563,789) (42,837) -
Other liabilities 73,306 (10,398) (8,255) 54,654
Tax loss carryforwards 3,191,870 564,591 (413,684) 3,342,776
------------------------------- ----------- --------- ------------ ------------------ ------------
Net deferred tax assets 3,969,544 41,970 29,626 (504,012) 3,537,128
------------------------------- ----------- --------- ------------ ------------------ ------------
Tax effect of taxable
temporary differences
Property and equipment (1,287) - (586) 186 (1,688)
Gross deferred tax liabilities (1,287) - (586) 186 (1,688)
Total net deferred tax
asset 3,968,257 41,970 29,040 (503,826) 3,535,440
------------------------------- ----------- --------- ------------ ------------------ ------------
Unrecognised tax assets (3,968,257) (41,970) (29,040) 503,826 (3,535,440)
------------------------------- ----------- --------- ------------ ------------------ ------------
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 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 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 had 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 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
664,9
Other liabilities 499,077 - 162,666 3,162 05
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 provides the analysis of the Group's currency
risk as at 31 December 2018.
Group RUB USD EUR Total
--------------------------- --------- --- --------- ---------
Assets
Cash and cash equivalents 453,144 884 521 454,549
Loans to customers 640,371 - - 640,371
Property and equipment 13,559 - - 13,559
Other assets 229,126 - - 229,126
Total assets 1,336,200 884 521 1,337,605
--------------------------- --------- --- --------- ---------
Liabilities
Loans received - - 908,293 908,293
Other liabilities 1,006,171 - - 1,006,171
Total liabilities 1,006,171 - 908,293 1,914,464
--------------------------- --------- --- --------- ---------
Net balance sheet position 330,029 884 (907,772) (576,859)
--------------------------- --------- --- --------- ---------
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. Reasonably expected 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
---------------------------------
Effect on
profit or loss before Effect on
Group taxation equity
----------------- ---------------------- ---------
EUR appreciation
by 10% (74,229) (59,383)
EUR depreciation
by 10% 74,229 59,383
----------------- ---------------------- ---------
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. Reasonably expected exchange rate changes for each
currency were projected on the basis of historical information on
maximum daily exchange rate fluctuations in December 2018.
31 December 2018
---------------------------------
Effect on
profit or loss before Effect on
Group taxation equity
----------------------- ---------------------- ---------
EUR appreciation by 6% (54,466) (43,573)
EUR depreciation by 6% 54,466 43,573
----------------------- ---------------------- ---------
The risk was calculated only for cash balances in major
currencies other than the Group's functional currency.
The impact of movements in other currencies on the Group's
profit and equity is not significant.
Liquidity risk. Liquidity risk is defined as the risk when the
maturity of assets and liabilities does not match. The Group does
not accumulate cash resources to meet calls on 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 on their
maturity, provide access to various sources of financing, draw up
plans to solve the problems with financing and exercise control
over 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 Instruction No. 4384-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 24 May 2017. As at 31
December 2019 and 31 December 2018, the minimum liquidity ratio was
70%. The Group provides the territorial CBR division that
supervises its activities with information on mandatory liquidity
ratio in accordance with the set format on a quarterly basis as at
the first day of each month. Also, i f 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 2019 (unaudited) and as at 31 December
2018.
The table below shows the maturity profile of financial
liabilities as at 31 December 2019:
From From
On demand From 6 months 1 to
and less 1 to 3 months to 12 3 years
Group than 1 month 3 months to 6 months 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 table below shows the maturity profile of financial
liabilities as at 31 December 2018:
From
On demand From 6 months
and less 1 to 3 months to 12
Group than 1 month 3 months to 6 months years Total
-------------------------------- ------------- --------- ------------ --------- ---------
Liabilities
Loans received 908,293 908,293
Other liabilities 129,187 8,813 29,813 2,265 170,078
Total potential future payments
under financial liabilities 1,037,479 8,813 29,813 2,265 1,078,371
-------------------------------- ------------- --------- ------------ --------- ---------
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 2019:
On demand No stated
and less From From From 6 maturity
than 1 to 3 to to 12 More than
Group 1 month 3 months 6 months months 1 year Overdue 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 7 5 ,312 222,117
2,501,0
Total assets 35 - - 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 1 ,
2019 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 1 , (65,685 (1,315,878 (1,303,229
December 2019 237,552 1,009,995 657,315 ) ) ) 1 , 189,257
--------------------- --------- --------- --------- --------- ----------- ---------- ----------- ---------
The table below present the maturity profile of assets and
liabilities as at 31 December 2018:
On demand No stated
and less From From From 6 maturity
than 1 to 3 to to 12 More than
Group 1 month 3 months 6 months months 1 year Overdue Total
------------------ --------- --------- --------- --------- ----------- ------------ ----------- --------------
Assets
Cash and cash
equivalents 454,549 - - - - - - 454,549
Loans to customers 537,917 - - - - 102,454 - 640,371
Property and
equipment - - - - - - 13,559 13,559
Other assets 183,546 11,780 0 3,149 30,651 0 0 229,126
Total assets 1,176,012 11,780 0 3,149 30,651 102,454 13,559 1,337,605
------------------ --------- --------- --------- --------- ----------- ------------ ----------- --------------
Liabilities
Loans received 908,293 - - - - - - 908,293
Other liabilities 237,361 8,813 194,918 2,265 - - 562,814 1,006,171
Total liabilities 1,145,654 8,813 194,918 2,265 - - 562,814 1,914,464
------------------ --------- --------- --------- --------- ----------- ------------ ----------- --------------
Net liquidity
gap as at 31
December 2018 30,358 2,967 (194,918) 884 30,651 102,454 (549,255) (576,859)
Cumulative
liquidity
gap as at 31
December 2018 30,358 33,325 (161,593) (160,709) (130,058) (27,604) (576,859)
------------------ --------- --------- --------- --------- ----------- ------------ ----------- --------------
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 reduce 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 2019: 786,346 and
a s at 31 December 2018 : 640,371 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.
Also, in 2019 the maximum daily interest rate was limited to
1.5% per day in the first half of the year and 1% per day since the
second half of 2019.
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 place for business of Group is 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 Group is in compliance with the CBR's charter capital ratio
as at 31 December 2019 (unaudited) and 31 December 2018
(unaudited).
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 activity 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 2019, 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 2018
----------------------------------- ---------
Less than 1 year 738,538
Total operating lease commitments 738,538
----------------------------------- ---------
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 2019 and
31 December 2018:
2019 2018
-------------------- --------------------
Carrying Carrying
Group value Fair value value Fair value
Financial assets
1 ,582
Cash ,751 1,582,751 454,549 454,549
Loans to customers 786,346 786,346 640,371 640,371
Financial liabilities
Loans received 742,603 742,603 908,293 908,293
Other liabilities 351,253 351,253 170,078 170,078
---------------------- -------- ---------- -------- ----------
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.
Loans received. The fair value of other fixed interest-bearing
borrowed funds is based on discounted cash flows using interest
rates for debt instruments with similar maturity . The estimated
fair value of the Group's other borrowed funds approximates their
carrying value as these instruments do not have market quotations
and are attracted on special terms .
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 272,096 at 31 December
2019 and GBP 454,549 at 31 December 2018) to Level 3 of the fair
value hierarchy.
24. Reconciliation of Classes of Financial Instruments with
Measurement Categories
In accordance with IFRS 9 "Financial Instruments", the Group
classifies/alloys its financial assets 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 2019 and 31 December 2018, all financial
assets of the Group are classified as financial assets 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.
Until 18 September 2019 and as at 31 December 2018, the sole
participant of the Sub s idiary , owning the 100% interest , was
Eastern Europe Resources S. A., which, at 31 December 2019,
remained a related party to the Group (the party under common
control). The ultimate beneficiary is Mr. Siro Donato Cicconi.
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 2019 2018
------------------------------------------------------ ------- -------
Loans received (balance) 742,603 908,293
------------------------------------------------------ ------- -------
Transactions with party under common ultimate control 2019 2018
------------------------------------------------------ ---- ---------
Interest expense - 2,460,874
------------------------------------------------------ ---- ---------
No interest was accrued in 2019, in 2018 the interest rate on
the loan in Euros converted into additional capital is 8.6% per
annum.
As at 31 December 2019, the balance on loans received represents
the obligation to pay interest on the loan , which was forgiven .
In 2018 the Group received a non-repayable contribution from the
related party in the form of the loan forgiveness in the amount of
GBP 29,018,205 , which was stated as additional capital in
Subsidiary balance as at 31 December 2018 .
Transactions with ultimate beneficiary 2019 2018
--------------------------------------- ------- ------
Services rendered 206,718 42,214
--------------------------------------- ------- ------
For the year ended 31 December 2019, the total remuneration of
key management personnel of Subsidiary was GBP 267,128, including
social insurance contributions of GBP 39,765 (2018: GBP 223,977,
including social insurance contributions of GBP 33,597). 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 2019 was 36,582 GBP , including
social insurance contributions of GBP 2 ,415.
Below is the summary of remuneration for each Director for
2019:
Salary, GBP , Shares held Stock options
for the year 2019
Malcolm Groat 4,167 0 2,150,000
------------------- ------------ --------------
Siro Donato Cicconi 16,667 320,000,000 10,750,000
------------------- ------------ --------------
Vladimir Golovko 149,423 0 8,600,000
------------------- ------------ --------------
Simon James Retter 10,000 3,600,000 6,450,000
------------------- ------------ --------------
Paul James Auger 3,333 0 0
------------------- ------------ --------------
Out of pocket expenses totaling GBP78,055 (2018: GBPnil) were
incurred by Siro Donato Cicconi and remained payable as at 31
December 2019.
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 has 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 GBP8,000,000. 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 GBP150,000. 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 GBPnil has been charged to the Consolidated Statement
of Comprehensive Income as a deemed cost of listing amounting to
GBP150,000 with a corresponding entry to the reverse acquisition
reserve.
Details of net assets acquired and the deemed cost of listing
are as follows:
GBP
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
---------
Under the terms of the share purchase agreement between the
Company and Zaim Express LLC 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 GBP200k 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 over and above that already
mentioned shall become payable should the Company record a monthly
EBITDA figure of GBP350k 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
GBP400k each for a combined GBP800k in value. 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, means that
no fair value has been calculated for such deferred
considerations.
27. Events after the Reporting Period
The Russian authorities are taking steps aimed at containing the
spread of Covid-19, including a travel ban with other countries,
social distancing initiatives and a holiday period in Russia from
30 March to 11 May, Various quarantine measures in Moscow were
extended to June 14th 2020. The authorities have also enacted the
closure of non-essential businesses in Moscow and Moscow Region,
where Zaim's main operations are focused and announced a set of
economic measures and subsidies aimed to help affected business and
the population.
In line with the current official guidance and the rest of the
microfinance sector in Russia, Zaim continues operating via its
physical stores during the holiday, as it provides a critical
service supporting the primary needs of the Russian population as
well as through its online presence.
Prior to Government regulations in respect of Covid-19, Zaim had
proactively implemented strict health and safety policies
specifically tailored to Covid-19, including working from home for
the entire head office staff, taking all necessary disinfection
measures in our stores, such as using hand sanitizers, medical
masks and more frequent cleaning of the customer zone. The clients
can enter the shop in compliance with the social distancing
prescriptions or one at a time. We continue following all the
recommendations of local health authorities and the World Health
Organisation.
In April and May 2020 Zaim saw a significant decrease in demand,
leading to a significant decrease in the amount funded in April and
May 2020 compared to March 2020. This is a direct result of the
reduction in footfall throughout Moscow resulting from the measures
enacted regarding Covid-19.
It is difficult to foresee how long the current Government
measures in response to COVID-19 will be in place for or how
customers will behave once the restrictions are lifted. As such
Zaim is taking a prudent course of action by not seeking to grow
the loan book, in line with its previous strategy, beyond its
current level until the demand resumes and the ability of the
Company to accurately forecast future cashflows reliably returns.
As such it is the current strategy of Zaim to run its loan book on
a breakeven cash flow basis, that is to only lend out the funds
that are received from loans until more certainty of the wider
economic impact has been established. This has the aim of
protecting the Company from potential unexpected losses and
deterioration in liquidity due to delays or defaults in
collection.
In addition to restricting any new loans granted to the cash
inflows from existing customers, Zaim has enacted a series of
measures to reduce the cost base of operating its physical stores,
this has been achieved by way of negotiating rent reductions with
landlords as well as salary reductions for staff.
Together these measures are expected to enable Zaim to navigate
the current uncertainty and be well positioned to capitalize on the
expected rebound in business opportunities once restrictions start
to be eased.
Our strong capital and liquidity positions makes us confident in
the sustainability of the Company's operations and it is the
intention to re-start our growth plans as soon as we will have
clearer view of the situation.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EDLFBBQLXBBX
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June 08, 2020 02:00 ET (06:00 GMT)
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