TIDMZAIM
RNS Number : 5336Y
ZAIM Credit Systems PLC
10 September 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
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securities laws of such jurisdiction
For Immediate Release
10 September 2020
Zaim Credit Systems Plc
("Zaim" or the "Group")
Unaudited financial results for six months ended 30 June
2020
Zaim Credit Systems plc (the 'Group' or 'Zaim'), the Russian
focused fintech group providing financial inclusion for those
consumers who are not well served by mainstream lenders, announcing
its unaudited financial results for six months ended 30 June
2020.
Key highlights
-- Interest income reduced by 26% from GBP3.7m to GBP2.8m due to:
o The reduction in the maximum interest rate chargeable by 38%
following regulator's decision from 1 July 2019, thereby reducing
it from 1.6% to 1% per day
o Partially offset by favourable growth in duration of loans by
40% from 48 to 67 days due to their increased affordability
o The reduction in the amount funded by 16% due to the Covid-19
lockdown restrictions
-- Successful implementation of decisive actions in order to
mitigate the consequences of Covid-19 outbreak in 2020:
o Prioritizing safety for the employees and customers
o Reducing number of retail stores from 92 to 32 by closing less
efficient outlets and thus accelerating online transition and
related costs savings months ahead of schedule
o Implementing strict cost control measures
o Focusing on online business model supported by bespoke IT
system
-- Net adjusted loss of GBP933km reflects a period of
unprecedented challenges for the group with the Covid-19
restrictions, regulatory changes and one-off restructuring costs
but Board feel that, having weathered this and made the changes to
the business as detailed herein, the group can now grow cashflow as
a predominantly on-line business with a tight cost base and
increased lending discipline
-- The online business is demonstrating impressive growth to
record-high levels by the end of the period, with June
demonstrating a 40% month on month growth.
-- Collection activities implemented on historic outstanding and
fully impaired debts early in 1H 20 are expected to have a
significant positive impact on cash flow in 2H 20.
-- One-off restructuring costs of GBP294k related to accelerated
migration to online services; expected to see significantly
improved operating margin in 2H 20 and beyond as a direct result of
approximately GBP100k pcm of cost savings starting from July
20.
-- Cash of GBP810k as at 30 June 20, leaving the group
well-funded to execute it strategy
Management expect significant improvement in cash flow from
operating activities in 2H 20 due to recoveries in business
volumes, impressive growth in Zaim's online loans business, and a
meaningful reduction in the cost base as a result of business
restructuring and optimization of the retail (store) network. 2H 20
cash flows are also expected to be improved as a result of
significant additional cash streams from the repayment of historic
debts as a result of collection activities initiated in 1H 20.
Business volumes are returning to pre-pandemic level with
significantly lower fixed costs leaving the group well positioned
to continue to scale up its online services.
Financial highlights
1H 2020 1H 2019
GBP'000 GBP'000
---------- --------
4 , 11
Amount funded during the period 7 4 , 877
---------- --------
Interest income 2,745 3,728
---------- --------
Operating income 994 1,897
---------- --------
Net loss (1 , 335) (553)
---------- --------
Operating margin(1) 28.8% 47.7%
---------- --------
Adjusted EBIT(2) for the period (933) (499)
---------- --------
June 30, December 31,
2020 2020
GBP'000 GBP'000
--------- -------------
Gross outstanding loans to customers 30,844 32,078
--------- -------------
Total outstanding loans, measured at amortised
cost 718 786
--------- -------------
Cash and cash equivalents 810 1,583
--------- -------------
1 Operating margin is calculated as net operating cash flow (net
cash received for the period (including collecting claims) less
loans provided including insurances) divided by total loans
provided including insurances
2 Adjusted EBIT is calculated by taking loss for the year adding
back accrued interest, non-cash share-based payment charges, costs
related to the IPO and one-off restructuring costs which are
non-recurring.
Zaim CEO, Siro Cicconi commented:
"Following the successful completion of the IPO on November 4,
2019 the business was outperforming the internal growth plan and
gaining very good momentum during the first two months of 2020.
This was unfortunately impacted during March and April 2020 due to
the Covid-19 pandemic and the associated restrictive measures
applied by the Russian government and other countries around the
globe. This posed a serious challenge for our management team and
the whole business at every level and I would like to thank all of
our employees, customers, consultants and the management team for
their hard work and dedication through the difficult time.
As a first response, we have prioritised the health and safety
of our employees and customers, implemented strict cost control and
cash preservation measures in order to run the business at a break
even position (from a cash flow point of view) whilst the full
impact of the new operating environment on our business was better
understood. This was executed successfully and allowed the change
to a much stronger operating model to be implemented in record
time.
As seen elsewhere in the world, lockdown measures have
accelerated changes in Russian customers' habits and attitudes. As
well as in all European countries, Russian citizens have strongly
increased their migration from "physical" activities to "on-line"
and we have seen this migration also in our client base especially
in categories which were traditionally "reluctant" toward on line
services.
Our team have utilised their depth of knowledge of our market
and products to rapidly predict this evolution and after a process
of detailed analysis swift action was taken aimed to maximize
profitability and returns for investors and all stakeholders.
We began the period with a relatively large network of physical
stores, but as a direct result of the continued strategy of the
optimization of the business model, we are closing our weakest
performing stores and redirecting customers towards our online
product offering. We have therefore reduced the number of stores
from 92 outlets as at December 31, 2019 to 32 outlets as at June
30, 2020, considered the optimum number of physical stores to
continue servicing the needs of our customers, maintain the
experience and know-now and at the same time maximizing
profitability.
At the same time we have accelerated Online business development
and focused resources that would have otherwise been deployed in
the physical stores. Zaim has significantly improved its online
platform, allowing customers to receive and repay loans via the
internet or by phone in minutes without leaving their homes, which
is an important option in the era of social distancing.
These restructuring measures were undertaken towards the end of
the 1H 20 so one off restructuring costs are included within the
results for the period, with significant improvements in financial
performance expected to be reflected in the Group's costs and
financial performance starting from the second half of 2020.
As expected, the business is seeing very strong growth in its
online lending activity - an increase from GBP110k per month in
January to GBP173k in June 20 representing growth of 57%. At 30
June 20 Online lending accounted for over 26% of loans issued and
we expect this to increase further as the Online growth continues
to accelerate".
Change in the interest rate
On July 01, 2019 the Russian market regulator, the Central Bank
of Russia, capped the maximum interest rate at 365% per annum with
a Maximum Recovery Rate of 200%. Interest rates on Zaim products
reduced accordingly by 38% from 1.6% per day in 1H 2019 to 1% per
day in 1H 2020.
The reduction of interest rates has made microloans more
affordable to our customers and led to a favourable increase in the
average duration of the loans by 40% - from 48 days to 67 days,
which has partially compensated any decrease in interest
income.
COVID-19 prevention measures taken in Moscow and the Moscow
region in March-June 2020 led to a reduction in the total amount
funded by 16% - to GBP4.1 m in 2H 20 from GBP4.9 m in 1H 19.
The combination of the above-mentioned factors led to a 26%
decrease in the interest income from GBP3.7 m in 1H 19 to GBP2.8 m
in 1H 20.
Collection
In 1H 20 Zaim began actively collecting loans in default that
were issued before December 31, 2019, a heavily automated
court-based approach. As a part of this collection process, Zaim
received a large number of positive outcomes (based on court
decisions), which has led to the reclassification of fully impaired
loans as at 31 December 2019. The net result of the
reclassification is a GBP6k charge to the income statement,
comprising a reduction in the portfolio of GBP974k (previously
accrued interest) and release of the expected credit loss of
GBP968k (the loans carried a near 100% credit provision).
The adjustment to the allowance of GBP968k is recognized in
expected credit loss in the income statement and the adjustment to
the portfolio of loans of GBP974k was recognised as Other operating
loss.
Restructuring costs
In 1H 20 Zaim recorded one-off restructuring costs of GBP294k.
This included additional staff costs of GBP45k during 1H 2020
caused by the reduction of number of employees as well as hiring of
additional staff with fixed-term contracts, who were engaged in
collection activities post court decisions. This is expected to
result in a saving of approximately GBP100k per month to the
group's operating costs.
Additional non-recurring operational costs during 1H 20 were
caused by collecting activity (which aimed to collect bad debts in
the portfolio as of December 31, 2019) - comprising State Duty (
GBP 208k) and Postal Services ( GBP37k ). The main portion of
proceeds from these collection activities is expected to be
received by the Group in the second half of 2020 and is already
showing promising results.
Cash position
Cash and cash equivalents decreased by GBP773k from GBP1,583k to
GBP810k. Of this amount GBP294k represent one-off restructuring
costs. Covid-19 pandemic restriction measures lead to a reduction
of interest collection of GBP154k. Following the easing of Covid-19
related restrictions management expects a significant improvement
in the cash flow from operating activities in the 2H 20 due to
recoveries in business volumes, impressive growth in Zaim's online
loans business, and a significant reduction in cost base as a
result of business restructuring and optimization of the retail
(store) network. 2H 20 cash flows are also expected to be
significantly improved as a result of additional cash generated
from the delayed effect of collection activities initiated in 1H
20.
Enquiries:
Zaim Credit Systems 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
Zaim Credit Systems Group
Unaudited Interim Condensed Financial Statements in accordance
with International Financial Reporting Standards
30 June 2020
Zaim redit Systems Group
Interim Condensed Consolidated Statement of profit or loss and
Other Comprehensive Income for the six months ended 30 June
Six months Six months
ended 30 ended 30
June 2020 June 2019
Unaudited Unaudited
Notes GBP'000 GBP'000
------------------------------------------- ----- ---------- ----------
Interest income 6 2,745 3,728
Interest expense 6 (9) (54)
Interest expense - lease 6 (82) -
------------------------------------------- ----- ---------- ----------
Net interest income 2,654 3,674
Allowance for ECL/impairment of loans
to customers 4 ( 717 ) ( 1,840 )
------------------------------------------- ----- ---------- ----------
Net interest income after allowance
for ECL/impairment of loans to customers 1,938 1,834
Gains less losses from dealing in
foreign currency (96) 86
Other operating income / loss 7 (848) (23)
------------------------------------------- ----- ---------- ----------
Operating income 994 1,897
Charge for share options granted (27) -
Staff costs (965) (1,007)
Operating expenses 8 (1,053) (1,112)
Restructuring costs 9 (294) -
IPO related costs - (331)
------------------------------------------- ----- ---------- ----------
Loss before income tax (1 , 345) (553)
Income tax expense 11 -
------------------------------------------- ----- ---------- ----------
Net loss (1 , 335) (553)
Net other comprehensive income that
may be reclassified to profit or loss
Foreign exchange differences arising
on translation into presentation currency (19) -
Total comprehensive loss (1 , 353) (553)
------------------------------------------- ----- ---------- ----------
Zaim redit Systems Group
Interim Condensed Consolidated Statement of financial position
as at
30 June 31 December
2020 2019
Unaudited Audited
Notes GBP'000 GBP'000
-------------------------- ----- ---------- -----------
Assets:
Cash and cash equivalents 810 1,583
Loans to customers 4 718 786
Property and equipment 9 12
Right-of-use assets 5 698 2,549
Other assets 204 222
-------------------------- ----- ---------- -----------
Total Assets 2,439 5,152
-------------------------- ----- ---------- -----------
Liabilities
Loans received 1,073 743
Lease liabilities 5 765 2 , 556
Other liabilities 738 665
-------------------------- ----- ---------- -----------
Total liabilities 2,575 3 , 963
-------------------------- ----- ---------- -----------
Equity
Capital and reserves:
Charter capital 4,370 4,370
Additional capital 6,078 6,078
Accumulated deficit ( 38,639 ) (37 , 331)
Merger reserve 1 23,615 23,615
Translation reserve 4,439 4,458
Total equity ( 137 ) 1,189
----------------------------- ---------- ----------
Total liabilities and equity 2 , 439 5,152
----------------------------- ---------- ----------
Interim Condensed Statement of changes in shareholders' equity
(Unaudited) for the six months ended 30 June 2020 (unaudited)
Additional Foreign currency Merger Accumulated Total
Charter capital capital translation reserve (FCTR reserve Deficit Equity
GBP'000 GBP'000 ) GBP'000 GBP'000 GBP'000
--------------------------- --------------- ---------- ------------------------- -------- ------------ ---------
Balance as at 1 January
2020 4,370 6,078 4,458 23,615 (37,331) 1 , 189
--------------------------- --------------- ---------- ------------------------- -------- ------------ ---------
Comprehensive loss for the
period - - (19) (1,335) (1,353)
Share-based payments - - - - 27 27
--------------------------- --------------- ---------- ------------------------- -------- ------------ ---------
Balance as at 30 June
2020 4,370 6,078 4,439 23,615 (38,639) (137)
--------------------------- --------------- ---------- ------------------------- -------- ------------ ---------
Interim Condensed Statement of changes in shareholders' equity
(Unaudited) for the six months ended 30 June 2019 (unaudited)
Additional Translation Reserve Merger Accumulated Total
Charter capital capital GBP'000 reserve Deficit Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- --------------- ---------- ------------------- -------- ----------- ---------
Balance as at 1 January 2019 2,446 29,046 6,002 - (38,070) (576)
---------------------------------- --------------- ---------- ------------------- -------- ----------- ---------
Correction of error from the
prior years - - - - 347 347
Retranslation of foreign
operations - - (55) - - (55)
Net loss for the period - - - - (553) (553)
---------------------------------- --------------- ---------- ------------------- -------- ----------- ---------
Balance as at 30 June 2019 2,446 29,046 5,947 - (38,276) (837)
---------------------------------- --------------- ---------- ------------------- -------- ----------- ---------
Interim Condensed Consolidated Statement of Cash Flows
For the six months ended 30 June
Six months Six months
ended 30 ended 30
June 2020 June 2019
Unaudited Unaudited
GBP'000 GBP'000
---------------------------------------------------- ---------- ----------
Cash flows from operating activities
Interest received 1 , 721 2 , 663
Interest paid (i ncluding lease) (87) (4)
Gains less losses from dealing in foreign currency (13) (88)
Other operating income 82 23
Staff costs (1,050) (1,018)
Operating expenses (458) (1,443)
Cash flows from/(used in) operating activities
before changes in operating assets and liabilities 195 135
Net (increase)/decrease in operating assets
Loans to customers (645) (287)
Other assets (11) (186)
Net decrease in operating liabilities
Other liabilities (66) (6)
---------------------------------------------------- ---------- ----------
Net cash flows from operating activities (527) (344)
---------------------------------------------------- ---------- ----------
Cash flows from investing activities
Purchases of property and equipment - -
Net cash flows from investing activities - -
---------------------------------------------------- ---------- ----------
Cash flows from financing activities
Lease repayment (496) -
Proceeds from loans received 275 183
Repayment of loans received - (130)
Net cash flows from financing activities (221) 53
---------------------------------------------------- ---------- ----------
Effect of exchange rate changes on cash and
cash equivalents (24) 7
---------------------------------------------------- ---------- ----------
Net change in cash and cash equivalents (773) (284)
Cash and cash equivalents at the beginning of
the year 1 , 583 488
---------------------------------------------------- ---------- ----------
Cash and cash equivalents at the end of the
period 810 204
---------------------------------------------------- ---------- ----------
Notes to the Financial information
1. Activities of the Group. General information
The principal activity of Zaim Credit Systems plc ("the
Company") and its subsidiary Zaim-Express, LLC (together "the
Group") is issuance of microloans to individuals (retail
customers). The Company was incorporated as Agana Holdings Plc and
registered in England and Wales on 15 June 2018 as a public limited
company with company registration number 11418575 and LEI,
213800Z4MI9KSZA2VW72 and on 22 July 2019 the Company changed its
name to Zaim Credit Systems Plc
On 18 September 2019 the Company acquired the entire issued
share capital of Zaim-Express LLC. The Company is now the holding
company of a Russian based financial services company Zaim-Express
LLC (Subsidiary), so main function of the Company is to provide
holding company services and undertake management of the listed
activities on the stock exchange. These business combination in
2019 was stated in consolidated financial statements as reverse
acquisitions under IFRS 3 and the prior period comparative figures
presented (six months 2019) are those of the legal acquiree Zaim
Express LLC.
The organizational structure of Group:
The share votes of the Company
--------------------------------
The name of Subsidiary Country of registration 30. 06 .2020 31. 12 .2019
----------------------- ------------------------- --------------- ---------------
Z aim-Express LLC Russia 100% 100%
The Subsidiary's principle activity is the issuance of
microloans through the network of its branches in Russian cities
(Moscow and St. Petersburg). The Subsidiary was entered in the
state register of microfinance organisations on 29 August 2011,
registration number 2110177000440. The Subsidiary's assets and
liabilities are located in the Russian Federation. The average
number of Subsidiary's employees is as follows:
The average number of Subsidiary's employees Six months , Six months ,
2020 2019
----------------------------------------------- --- ------------- -------------
Total average number of employees 252 286
The average number of parent Company's employees (directors) is
as follows:
The average number of parent Company's employees Six months , Six months ,
2020 2019
------------------------------------------------- --- ------------- -------------
Directors 5 2
As at 30 June 2020, the man shareholder of the Company is Zaim
Holdings SA (with a 73,23% interest). The ultimate controlling
party of the Group is an individual - Mr. Siro Donato Cicconi.
Zaim Express has 32 stores as at 30 June 2020 (31 December,
2019: 92 stores), from which it conducts business throughout the
Russian Federation. During first half of the year 2020, in the 2Q
of 2020, there was reduction of stores due to reduced business
activity because of Covid-19 pandemic (as a measure to prevent
unprofitable business) and also because of intentions of management
to develop the new business-model - which supposes substantial
share of online-loans.
The additional costs due to the dismissal of employees (because
of Covid-19 pandemic) and collecting activity (which aimed to
collect bed debts in the portfolio as of December 31, 2019) were
stated separately (like one-off operational costs) in Group
Consolidated Statement of profit or loss and Other Comprehensive
Income and has additional disclosure in notes 8 and 9 Staff costs
and Operating expenses.
2. Basis of preparation
The condensed consolidated interim financial statements have
been prepared using accounting policies consistent with
International Financial Reporting Standards and in accordance with
International Accounting Standard 34 Interim Financial Reporting.
The condensed interim financial statements should be read in
conjunction with the annual financial statements for the year ended
31 December 2019, which have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union.
The condensed consolidated interim financial statements set out
above do not constitute statutory accounts within the meaning of
the Companies Act 2006. They have been prepared on a going concern
basis in accordance with the recognition and measurement criteria
of International Financial Reporting Standards (IFRS) as adopted by
the European Union. Statutory financial statements for the year
ended 31 December 2019 were approved by the Board of Directors on
16 June 2020 and delivered to the Registrar of Companies. The
report of the auditors on those financial statements was
unqualified.
The condensed consolidated interim financial statements of the
Company have not been audited or reviewed by the Company's auditor,
Shipley's LLP.
Going concern
This financial information reflects Group's management's current
assessment of the impact of the Russian business environment on the
operations and the financial position of Group. The future economic
direction of the Russian Federation is largely dependent upon the
effectiveness of measures undertaken by the Russian Federation
Government and other factors, including regulatory and political
developments which are beyond Group's control. Group's management
cannot predict what impact these factors can have on Group's
financial position in future. This financial information was
prepared on a going concern assumption.
The above factors in conjunction with continuing economic and
political changes taking place in the Russian Federation indicate
that a material uncertainty exists that may cast significant doubt
on Group's ability to continue as a going concern. This ability
depends on future events, including achieving the level of the
loans to customers portfolio sufficient to incur costs and earn
profits and the ability and willingness of Group's sole participant
to continue with financial assistance to Group.
The Financial Statements have been prepared on a going concern
basis. The Directors consider that the Group has sufficient funds
to undertake its operating activities for a period of at least the
next 12 months including any additional expenditure required in
relation to any adverse impacts from the Covid-19 Pandemic. The
Group has cash reserves which are considered sufficient by the
Directors to fund the Group's desired strategy of increasing the
loan book both online and in the store.
Risks and uncertainties
The Director continuously assesses and monitors the key risks of
the business. The key risks that could affect Group's medium-term
performance and the factors that mitigate those risks have not
substantially changed from those set out in Group's 2019 Financial
Information. The key financial risks are liquidity risk, interest
rate risk.
The economy of the Russian Federation continues to display
certain characteristics of an emerging market. These
characteristics include, in particular, inconvertibility of the
national currency in most countries outside of Russia and
relatively high inflation rates. The current Russian tax, currency
and customs legislation is subject to varying interpretations and
frequent changes. The country's economy depends on movements of oil
and gas prices.
The future economic development of the Russian Federation is
largely dependent upon the effectiveness of economic measures,
financial mechanisms and monetary policies adopted by the
Government, together with tax, regulatory, and political
developments.
Critical accounting estimates
The preparation of condensed consolidated interim financial
information requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the end of the
reporting period. Significant items subject to such estimates are
set out in note 3 of Group's 2019 Financial Information. The nature
and amounts of such estimates have not changed significantly during
the interim period.
Currency
The GBP was chosen as the presentation currency of the
consolidated financial information, as the shareholders of Group
use information prepared in GBP to make decisions and evaluate the
financial results of Group.
For the purpose of presenting the consolidated financial
information, the financial results and balance sheet items of
Subsidiary are translated into the presentation currency of Group
in accordance with the requirements of International Accounting
Standard IAS 21 "Effect of Changes in Foreign Exchange Rates" as
follows:
(a) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions or valuation where such items are re-measured. Foreign
exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies
are recognised in profit or loss.
Gains and losses on purchase and sale of foreign currency are
determined as a difference between the selling price and the
carrying amount at the date of the transaction.
(b) Group companies
The results and financial position of all the Group's entities
that have a functional currency different from the presentation
currency are translated into the presentation currency as
follows:
1. assets and liabilities for each statement of financial
position presented are translated at the closing rate at the date
of that statement of financial position;
2. each component of profit or loss is translated at average
exchange rates during the accounting period (unless this average is
not a reasonable approximation of the cumulative effect of the
rates prevailing on the transaction dates, in which case income and
expenses are translated at the dates of the transactions); and
3. all resulting exchange differences are recognised in other
comprehensive income
3. Significant accounting policies
The condensed consolidated interim financial information have
been prepared under the historical cost convention as modified by
the revaluation of certain of the subsidiaries' assets and
liabilities to fair value for consolidation purposes.
The same accounting policies, presentation and methods of
computation have been followed in these condensed consolidated
interim financial information as were applied in the preparation of
Group's Financial Information for the year ended 31 December 2019
(see Note 3).
IFRS 16
IFRS 16 Leases (issued on 13 January 2016 and effective for
annual periods beginning on or after 1 January 2019).
IFRS 16 Leases supersedes IAS 17 Leases, IFRIC 4 Determining
whether an Arrangement contains a Lease, SIC 15 Operating
Leases-Incentives and SIC 27 Evaluating the Substance of
Transactions Involving the Legal Form of a Lease. The new standard
sets out the principles for the recognition, measurement,
presentation and disclosure of leases. All leases result in the
lessee obtaining the right to use an asset at the start of the
lease and, if lease payments are made over time, also obtaining
financing.
The Group applied IFRS 16 using a modified retrospective
approach. Right-of-use assets were recorded in an amount equal to
the lease liabilities adjusted for the amount of prepaid or accrued
operating lease payments under these lease agreements recorded in
the prior periods. Lease liabilities were measured at the present
value of the remaining lease payments discounted at the incremental
borrowing rates (IBR) as at 1 January 2019. The date of initial
application is 1 January 2019. The Group applied a modified
retrospective approach without restatement of the comparative
information. For further details refer to Note 3 of Group's
Financial Information for the year ended 31 December 2019
4. Loans to customers
Six months
ended 30
June 2020
Unaudited 31 December
GBP'000 , 2019
--------------------------------------------- ---------- -----------
Loans to customers 30,844 32 , 078
Less: allowance for ECL /impairment of loans (31 , 292
to customers (30,126) )
--------------------------------------------- ---------- -----------
Total loans to customers at amortised cost 718 786
--------------------------------------------- ---------- -----------
Below is analysis of movements in the ECL allowance during
1H2020 (by type of loans specified in the first table of the Note),
GBP:
Stage 1 Stage 2 Stage 3 Total
-------------------------- --------- ------- --------- ---------
GBP'000 GBP'000 GBP'000 GBP'000
ECL allowance as at
31 December 2019 128 289 30 , 875 31 , 292
Assets recognized for
the period 1 , 319 - - 1 , 319
Assets derecognized
or collected (51) (25) (1 , 126) (1 , 202)
Transfers to Stage
2 (136) 136 - -
Transfers to Stage
3 (1 , 150) (196) 1 , 346 -
Net loss on ECL allowance
charge/(reversal) 122 476 598
Translation into GBP (8 ) (17) (1 , 857) (1 , 882)
ECL allowance as at
30 June 2020 103 309 29 , 714 30 , 126
-------------------------- --------- ------- --------- ---------
During 2020, active work has been done to collect loans issued
before December 31, 2019, a large number of court decisions were
received, which were reflected in the management system, which led
to the clarification of the amount of interest income recognized in
the portfolio as of December 31, 2019 (it leads to a decrease in
the portfolio by GBP974k), and, since these loans had almost 100%
reserve as of December 31, 2019, this decrease in the portfolio was
accompanied by a similar recovery of recognized reserves (GBP968k).
The adjustment to the allowance in the amount of GBP968k is
recognized in charge for allowance In PL (like derecognized assets
in Stage 3), and the adjustment to the portfolio of loans in the
amount of GBP974k were recognized in Other operating income / loss
(see Note 7 Other operating income / loss)
Below is analysis of movements in the ECL allowance during
1H2019 (by type of loans specified in the first table of the Note),
GBP:
Stage 1 Stage 2 Stage 3 Total
-------------------------- ------- ------- ------- -------
GBP'000 GBP'000 GBP'000 GBP'000
ECL allowance as at
31 December 2018 150 455 29,999 30,604
Assets recognized for
the period 913 - - 913
Assets derecognized
or collected ( 83 ) ( 78 ) ( 281 ) ( 442 )
Transfers to Stage 2 ( 1 ) 1 - -
Transfers to Stage 3 ( 217 ) ( 518 ) 735 -
Net loss on ECL allowance
charge/(reversal) 155 132 1,029 1,316
Translation into GBP 2 7 1,023 1,032
ECL allowance as at
30 June 2019 112 346 32,965 33,423
-------------------------- ------- ------- ------- -------
The ECL allowance for loans and advances to customers recognised
during the period is impacted by various factors. The table below
describes the main changes:
-- transfers between Stages 1 and 2 and Stage 3 due to
significant increase (or decrease) in credit exposure or impairment
during the period and subsequent increase (or decrease) in the
estimated ECL level: for 12 months or over the entire period;
-- accrual of additional allowances for new financial
instruments recognised during the period, as well as reduction in
allowance as a result of derecognition of financial instruments
during the period;
-- impact on ECL estimation due to changes in model assumptions,
including changes in probability of default, EAD and LGD during the
period resulting from regular updating of the model inputs.
Following is the credit quality analysis of loans to customers
as at 30 June 2020:
Stage 1 Stage 2 Stage 3 Total
--------------------------------------------- ------------ ----------- ----------- ---------------
GBP'000 GBP'000 GBP'000 GBP'000
Loans to customers
Minimum credit risk 556 - - 556
Low credit risk 248 - 248
Moderate credit risk 174 - 174
High credit risk 152 - 152
Default - 29 , 714 29 , 714
Total loans to customers before allowance 556 574 29 , 714 30 , 844
--------------------------------------------- ------------ ----------- ----------- ---------------
ECL allowance (103) (309) (29 , 714) (30 , 126)
--------------------------------------------- ------------ ----------- ----------- ---------------
Total loans to customers after ECL allowance 453 265 - 718
--------------------------------------------- ------------ ----------- ----------- ---------------
Following is the credit quality analysis of loans to customers
as at 31 December 2019:
Stage 1 Stage 2 Stage 3 Total
--------------------------------------------- ----------- ----------- ---------------- ----------------
GBP'000 GBP'000 GBP'000 GBP'000
Loans to customers
Minimum credit risk 569 - 569
Low credit risk - 374 - 374
Moderate credit risk - 165 - 165
High credit risk - 96 - 96
Default - - 30 , 875 30 , 875
Total loans to customers before allowance 569 635 30 , 875 32 , 078
--------------------------------------------- ----------- ----------- ---------------- ----------------
ECL allowance (128) (289) (30 , 875) (31 , 292)
--------------------------------------------- ----------- ----------- ---------------- ----------------
Total loans to customers after ECL allowance 441 346 0 786
--------------------------------------------- ----------- ----------- ---------------- ----------------
The ECL allowance for loans to customers recognized during the
period is impacted by different factors. Information on the
assessment of expected credit losses is disclosed in Note 3 of
Group's Financial Statements for the year 2019.
The Group uses the following approach to measurement of expected
credit losses:
-- portfolio-based measurement: internal ratings are assigned
individually, but the same credit risk parameters (e.g. PD, LGD)
are applied to similar credit risk ratings and homogeneous credit
portfolio segments in the process of ELC estimation.
This approach provides for aggregation of the portfolio into
homogeneous segments on the basis of specific information on
borrowers, such as delinquent loans, historic data on prior period
losses and forward-looking macroeconomic information.
The amounts of loans recognised as "past due" represent the
entire balance of such loans rather than the overdue amounts of
individual payments.
5. Lease
During the IH 2020 there was a significant decrease in the
number of concluded lease agreements due to reduced business
activity because of Covid-19 pandemic (as a measure to prevent
unprofitable business) and also because of intentions of management
to develop the new business-model - which supposes substantial
share of online-loans
The carrying amount of right-of- use assets and its movements
during the period are presented below:
Group Real Estate Total
----------------------------------------- ------------ -------
As at 1 January 2020 2 549 2 549
Additions - -
Disposals (982) (982)
Modification of lease terms (135) (135)
Depreciation charge (562) (562)
Effect of translation into presentation
currency (172) (172)
----------------------------------------- ------------ -------
As at 30 June 2020 698 698
----------------------------------------- ------------ -------
The carrying amounts of lease liabilities and their movements
during the period are set out below:
Group
Lease liabilities Real Estate Total
----------------------------------------- ------------ -----------
As at 1 January 2020 2 , 556 2 , 556
Additions - -
Disposals (1 , 069) (1 , 069)
Interest expense on lease liabilities 82 82
Modification of lease terms (135) (135)
Lease payments (496) (496)
Effect of translation into presentation
currency (172) (172)
----------------------------------------- ------------ -----------
As at 30 June 2020 765 765
----------------------------------------- ------------ -----------
6. Interest income and interest expense
Six months Six months
ended 30 ended 30
June 2020 June 2019
Unaudited Unaudited
GBP'000 GBP'000
----------------------- ---------- ----------
Interest income
Loans to customers 2,745 3,728
Total interest income 2,745 3,728
----------------------- ---------- ----------
Interest expense
Loans received (9) (54)
Lease (82) -
Total interest expense (91) (54)
Net interest income 2,654 3,674
----------------------- ---------- ----------
7. Other operating income / loss
During 2020, active work has been done to collect loans issued
before December 31, 2019, a large number of court decisions were
received, which were reflected in the management system, which led
to the clarification of the amount of interest income recognized in
the portfolio as of December 31, 2019 (it leads to a decrease in
the portfolio by GBP974k), Since these loans had almost 100%
reserve as of December 31, 2019, this decrease in the portfolio was
accompanied by a similar recovery of recognized reserves (GBP968k).
- see disclosure in Note 4 Loans to customers. The adjustment to
the allowance in the amount of GBP968k is recognized in charge for
allowance In PL, and the adjustment to the portfolio of loans in
the amount of GBP974k were recognized in Other operating income /
loss
Other operating income (including commission
for insurance) 126 -
Correction of loan's portfolio as at 31 December,
2019 (974)
Other operating expenses - (23)
-------------------------------------------------- ----- ----
Total other operating income / loss (848) (23)
-------------------------------------------------- ----- ----
8. Operating expenses
Periodic Operating expenses
Six months
ended
30 Six months
June ended 30
2020 June 2019
Unaudited Unaudited
GBP'000 GBP'000
----------------------------------- ---------- ----------
Deprecation of Right-of-use assets 562 -
Consulting services 128 4
Advertising and Marketing 73 7
Investor Relations 71 -
Rent 45 861
Communication 37 46
Banking services 36 38
Material expenses 17 -
Security 16 22
Postal Services 12 17
State Duty 0 11
Office Equipment 0 7
Other 56 99
Total periodic operating expenses 1,053 1,112
------------------------------------ ---------- ----------
9. Restructuring costs
There was additional staff costs during IH 2020 due to the
reduction in number of employees as a direct result of the shift
towards a more online based business model and reduction in number
of physical stores. In addition, there were additional costs due to
the hiring of additional staff with fixed-term contracts, which
were engaged in organizing the collection of the bad debt portfolio
as of 31 December 2019, based on court decisions. These additional
costs were stated separately in Consolidated Statement of profit or
loss and Other Comprehensive Income
Six months
ended
30 Six months
June ended 30
2020 June 2019
Unaudited Unaudited
GBP'000 GBP'000
----------------------------------- ----------------- -----------------------------
Staff costs (one-time), including: 33
Dismissal of personal -
Hiring of additional personal (for
collecting bed debt portfolio) 12 -
Total staff costs 45 -
----------------------------------- ----------------- -----------------------------
There was also additional non-periodic operational costs during
IH 2020 due to the collecting activity (which aimed to collect bad
debts in the portfolio as of December 31, 2019) - State Duty and
Postal Services, which were stated separately in Group Consolidated
Statement of profit or loss and Other Comprehensive Income, The
main results of this collection work are expected by the Group in
the second half of the year 2020.
Non-Periodic (One-time) Operating expenses
Six months
ended
30 Six months
June ended 30
2020 June 2019
Unaudited Unaudited
GBP'000 GBP'000
---------------------------------- ---------- ----------
State Duty 208 -
Postal Services 37 -
Total one-time operating expenses 245 -
----------------------------------- ---------- ----------
10. Related party transactions
There was no related party transactions in the reporting
period
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END
IR QKLFBBKLFBBB
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