Financial results for 2019
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 £1.6m as at the end of 2019
• The underlying operations performed better than expected during 2019, generating an adjusted EBIT loss of just £177k
• 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 |
|
|
£'000 |
£'000 |
|
Gross outstanding loans to customers |
32,078 |
29,187 |
|
Amount funded during year |
9,028 |
13,339 |
|
Total outstanding loans, measured at amortised cost |
786 |
640 |
|
Cash and cash equivalents |
1,583 |
455 |
|
Interest income |
3,941 |
10,226 |
|
Operating margin |
41 .2% |
46.5% |
|
Weighted average default rate at end of year |
8.1% |
22.0% |
|
Adjusted EBIT for the year |
(177) |
915 |
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 £2.61 billion). According to Expert RA , the amount of loans issued to the customers in 2019 was 412 billion Russian Roubles (approximately £5 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 1st 2019 and July 1st 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 31st 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 £32.1 million, growing by 10% compared to £29.2 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 £2.1 million (after costs of £500k) 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 Group may not be considered a going concern as a result of the impact of COVID-19 (Coronavirus). |
We read the Directors' assessment of the risks and impacts of COVID-19 on the business. We compared this assessment to our own understanding of the risks, and the nature of the Group's operations, products and customer base. We then conducted a review of going concern in respect of COVID-19 which included reviewing forecasts and current trading performance, and carrying out stress testing. The work undertaken considered a period of at least twelve months from the date of approving these financial statements. |
The disclosures in the financial statements adequately reflect the Directors' conclusions around the uncertainties and impact of COVID-19 and, that the going concern assumption remains appropriate. |
Recoverability of loans to customers Given the extended credit terms that were provided to customers, judgement is required to establish how much of the loan receivables balance is recoverable. There is a risk that management's judgements and estimates over recoverability are inappropriate, when considering the specific balances and the requirements of IFRS 9. |
We understood the Group's process for estimating the expected credit loss provision under IFRS 9. Loans to customers were tested on a sample basis which included considering the recoverability of the balances post year end. Overdue balanced were discussed with management and we assessed whether the accounting provision appropriately reflects the facts and circumstances. |
We did not identify any evidence of material misstatement related to carrying value of receivables. Management continue to apply an appropriate expected credit loss provision. |
Risk that acquisitions have been incorrectly accounted for The Company acquired Zaim Express LLC during the year by way of a reverse acquisition. There is a risk that the transaction was not correctly accounted for in line with IFRS. | We conducted a detailed review of the journals posted with regards to the reverse acquisition and the mechanism for preparing the consolidated financial statements. Work was also undertaken to determine if the transaction met the requirements to be considered a reverse acquisition. | The acquisition of Zaim Express LLC was correctly accounted for in accordance with IFRS. |
Risk of fraud in revenue recognition There is a risk that revenue is materially understated due to fraud. |
We reviewed the Group's revenue recognition policies and how they are applied. Revenue was then tested on a sample basis to confirm that transactions have been appropriately recorded in line with IFRS 15. |
Revenue was recognised in accordance with the Group's accounting policy and we concluded that no evidence of fraud or other understatement was identified. |
Risk that management is able to override controls Journals can be posted that significantly alter the financial statements. | We examined journals posted around the year end, specifically focusing on areas which are more easily manipulated.
| We identified no evidence of management override in respect of inappropriate manual journals recorded in any section of the financial statements. |
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be charged or influenced. We use materiality both in planning and in the scope of our audit work and in evaluating the results of our work.
We determine materiality for the Group to be £155,180 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 £7,759. 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 |
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|
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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 |
- |
|
|
Total assets |
|
10,084,44 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 |
- |
|
|
Accumulated deficit |
|
(526,104) |
(66 ,670 ) |
|
|
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 £ 626,317 (2018:£ 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) |
|
Costs of IPO |
18 |
( 369 , 146 ) |
- |
|
Deemed cost of listing |
26 |
( 150 , 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)
|
|
Charter capital |
Additional capital |
Foreign currency translation reserve (FCTR ) |
Merger reserve |
Accumulated deficit |
Total |
|
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)
|
|
Charter capital |
Additional capital |
Accumulated deficit |
Total |
|
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 before changes in operating assets and liabilities |
( 459 ,433) |
( 6 6 ,6 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 |
|
Cash generated from operations |
( 371 , 560 ) |
(60 ,000 ) |
|
Net cash flows used in operating activities |
(371,560) |
( 6 0 ,000 ) |
|
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:
|
The year ended |
Inflation for 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 |
||
|
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 сontractual 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 |
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 |
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:
|
Group and Company Issued and fully paid |
|
31 Dec., 2018 Number |
Amount , £ |
|
Ordinary shares of £0, 01 each |
|
6 , 000 , 000 |
60,000 |
|
|
|
|
|
|
|
|
6 ,000,000 |
60,000 |
For the year 2019 ( Ordinary shares issue of £0,01 each):
Group and Company Number Amount,£
|
Consideration shares (acquisition of Subsidiary) |
|
320 , 000 , 000 |
3 ,200 ,000 |
|
|
IPO |
|
104 ,000,000 |
1,040,000 |
|
|
Fee shares |
|
6 ,975,000 |
69,750 |
|
|
|
|
430 ,975,000 |
4 , 309,750 |
|
|
Group and Company Issued and fully paid |
|
31 Dec., 2019 Number |
Amount , £ |
|
|
Ordinary shares of £0, 01 each |
|
436 , 975 , 000 |
4,369,750 |
|
|
|
|
|
|
|
|
|
|
436 ,975,000 |
4,369,750 |
|
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 presentation currency |
Amount in RUB |
Exchange rate |
Amount in GBP |
|
29.12.2018 |
2,561,820,344 |
87.9659 |
29,122,880 |
|
Total additional capital at 31 December , 2018 |
|
29,122,880 |
|
As a result of 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,£
|
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
|
Group
|
|
Merger reserve |
Translation reserve |
||
|
At 1 January , 2018 |
|
- |
677,528 |
||
|
Merger reserve |
|
- |
|
||
|
Translation differences |
|
- |
3,820,203 |
||
|
At 31 December , 2018 |
|
- |
4,497, 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 |
|
|
|
(741,589) |
(66,670) |
|
|
Loss attributable to owners of the parent |
|||
|
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 |
|
|
|
(741,589) |
(66,670) |
|
|
Loss attributable to owners of the parent |
|||
|
Weighted average number of ordinary shares in issue outstanding for the effects of all dilutive potential ordinary shares |
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:
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.
|
|
|
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 and liabilities |
|
102 , 327 |
(825,934) |
|
Realised gain/ (loss) from foreign exchange transactions |
|
(6,830 ) |
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 |
|
Advertising and marketing |
|
25,736 |
13,09 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 |
|
Other expenses |
|
169,730 |
280 , 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 |
|
IFRS loss before taxation |
(741, 5 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 £56,987 as a result of trade losses to be offset against future profits, should they arise.
Differences between IFRS and statutory taxation regulations of the Russian Federation give rise to certain temporary differences between the carrying amount of certain assets and liabilities for financial statement purposes and for the Group's income tax purposes.
|
Group |
2018 |
Change recognised in profit and loss |
Effect of exchange rate differences |
2019 |
|
Tax effect of deductible temporary differences |
|
|
|
|
|
Loans to customers |
97,301 |
(13,827) |
8,305 |
91,779 |
|
Other assets |
42,397 |
(20,854) |
3,348 |
24,891 |
|
Lease liabilities |
- |
501,961 |
9,169 |
511,130 |
|
Other liabilities |
54,654 |
(48,853) |
3,915 |
9,716 |
|
Tax loss 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 |
- |
- |
- |
- |
|
Group |
2017 |
Impact of IFRS 9 |
Change recognised in profit and loss |
Effect of exchange 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 |
|
Other liabilities |
499,077 |
- |
162,666 |
3,162 |
664,9 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 |
|
|
Group |
Effect on profit or loss before taxation |
Effect on |
|
|
|
|
|
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 |
|
|
Group |
Effect on profit or loss before taxation |
Effect on |
|
|
|
|
|
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:
|
Group |
On demand and less than 1 month |
1 to |
From |
From |
From |
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:
|
Group |
On demand and less than 1 month |
1 to |
From |
From |
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:
|
Group |
On demand and less than 1 month |
From 1 to 3 months |
From 3 to 6 months |
From 6 to 12 months |
More than 1 year |
Overdue |
No stated maturity |
Total |
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
1,582,751 |
- |
- |
- |
- |
- |
- |
1,582,751 |
|
Loans to customers |
786,346 |
- |
- |
- |
- |
- |
|
786,346 |
|
Property and equipment |
- |
- |
- |
- |
- |
- |
11,967 |
11,967 |
|
Right-of-use assets under lease agreements |
- |
- |
- |
- |
- |
- |
2,549,233 |
2,549,233 |
|
Other assets |
131,938 |
- |
- |
2,218 |
- |
12,649 |
7 5 ,312 |
222,117 |
|
Total assets |
2,501,0 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 2019 |
1 , 237,552 |
(227,557) |
(352,680) |
(723,000) |
(1,250,193) |
12,649 |
2,492,487 |
1,189,257 |
|
Cumulative liquidity gap as at 31 December 2019 |
1 , 237,552 |
1,009,995 |
657,315 |
(65,685 ) |
(1,315,878 ) |
(1,303,229 ) |
1 , 189,257 |
|
The table below present the maturity profile of assets and liabilities as at 31 December 2018:
|
Group |
On demand and less than 1 month |
From 1 to 3 months |
From 3 to 6 months |
From 6 to 12 months |
More than 1 year |
Overdue |
No stated maturity |
Total |
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
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 |
||
|
Group |
Carrying value |
Fair value |
Carrying value |
Fair value |
|
Financial assets |
|
|
|
|
|
Cash |
1 ,582 ,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, £ , for the year 2019 |
Shares held |
Stock options |
|
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 £78,055 (2018: £nil) 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 £8,000,000. The fair value of the notional number of equity instruments that the legal subsidiary would have had to have issued to the legal parent to give the owners of the legal parent the same percentage ownership in the combined entity is 1.84 per cent of the market value of the shares after issues, being £150,000. The difference between the notional consideration paid by Zaim Credit Systems plc for Zaim Express LLC and the Zaim Credit Systems plc net assets acquired of £nil has been charged to the Consolidated Statement of Comprehensive Income as a deemed cost of listing amounting to £150,000 with a corresponding entry to the reverse acquisition reserve.
Details of net assets acquired and the deemed cost of listing are as follows:
|
|
£ |
|
Consideration effectively received |
150,000 |
|
Less net asset required: |
|
|
Cash and cash equivalents |
52,055 |
|
Debtors and prepayments |
11,982 |
|
Current liabilities |
(64,037) |
|
Total net asset required: |
|
|
Deemed cost of listing |
150,000 |
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 £200k per month for a continuous period of four months and there be no reasonable expectation that this should fall below this level for a further period of six months then a further 16,000,000 new ordinary shares in the Company shall become payable. Additional consideration of 16,000,000 over and above that already mentioned shall become payable should the Company record a monthly EBITDA figure of £350k per calendar month with the same continuous period clause as noted above. At the IPO price per share these deferred contingent considerations would have a value of £400k each for a combined £800k in value. It has been considered by the Directors 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.
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