REG - ZAIM Credit Systems - Final Results
18/05/2022 07:00
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RNS Number : 8370L ZAIM Credit Systems PLC 18 May 2022
For Immediate Release
18 May 2022
Zaim Credit Systems Plc
("Zaim" or the "Group")
Audited financial results for the year ended 31 December 2021
Zaim Credit Systems plc (the 'Group' or 'Zaim'), the fintech group, is pleased
to announce its audited financial results for the year ended 31 December 2021.
Key highlights
· Total loans issued increased by 153% to £26.1m (2020: £10.3m)
· Loans issued online to grew by 4.9 times to £23.1m (2020: £4.8m)
· Zaim continued to gain market share in a rapidly growing sector (local
market portfolio increased by 32% in 2021 compared to 2020)
· Adjusted EBIT profit grew to £1,001k in 2021 (2020: loss of £125k)
· Group Net Profit of £683k in 2021 (2020: net loss of £615m)
· Cash and cash equivalents increased by 130% to £1,474k in 2021 (2020:
£641k)
· In December 2021 84.1 % of loans issued were via online channels, 9.2% via
the mobile application and 6.7% were issued via the retail network. This
compares to 9% issued online in 2019, 91% issued offline and 0% via the mobile
application (launched during 2021)
· Zaim achieved sustainable profitability combined with a rapid growth of the
business in line with its business plan
· Online-focused business model demonstrated the resilience and adaptability
of the Group which is now well placed to meet macroeconomic challenges and
capitalise on further growth
Financial highlights
2021 2020 Change
£'000 £'000 %
Loans issued during the period 26,084 10,290 153
Interest income 9,544 4,857 96
Staff costs 1,567 1,810 (13)
Operating expenses 2,623 2,116 24
Net profit / (loss) 683 (615) n/a
Adjusted EBIT1 for the period 1,001 (125) n/a
31 December 2021 31 December 2020 Change
£'000 £'000 %
Total outstanding loans measured at amortised cost 2,825 1,269 123
Cash and cash equivalents 1,474 641 130
Zaim's CEO, Siro Cicconi commented:
"I am pleased to announce very strong set of results of our business in 2021.
During the COVID-19 quarantine period in Q2 2020, the Group rapidly
accelerated the shift in its new business model towards remote lending via the
Internet, which resulted in a significant increase in access to our products
without the need to visit our stores and at the same time decreasing the fixed
cost base. The Group proceeded to optimise the physical store business,
including the closure of loss-making outlets and moved forward focusing the
majority of the Group's resource towards the online business.
In Q2 2021, the Group launched the new sales channel - its own branded mobile
application. This development not only allowed us to better understand our
customers, but became an important source of the new business: in December
2021, the share of loans issued via the mobile app reached 9.2%, exceeding the
share of loans issued via offline retail stores (6.7%). Total share of loans
issued online and via the mobile platform reached 93.3%, which signifies
completion of the transition towards online-centered business model.
This transition was executed well and I am pleased with the results,
demonstrated by the strong growth combined with a high profitability during
2021. We have significantly outgrown the market by increasing the value of the
loans issued by 153% in 2021 compared to 2020, while the local microloans
market increased only 32% year-on-year. What is more impressive that the
amount of loans issued online (both desktop and mobile platform grew by 4.9
times to o £23.1m (2020: £4.8m), while the online microloans portfolio in
the local microfinance market only doubled.
While it is impossible to predict the full consequences of the "special
military operation" of Russia in Ukraine, it is worth mentioning that the
Directors and the management of Zaim have a successful track record of
managing challenging situations by reacting swiftly and decisively. As an
example, developing and implementing the new strategy during COVID-19
restriction, our team had evolved Zaim from a traditional microfinance
organisation into a rapidly developing, and profitable fintech company.
I would like to cordially thank the management, employees, consultants and my
fellow board members for their hard work and dedication in delivering these
tremendous results and turning the company into a rapidly growing and
profitable business. I believe that the vast experience and dedication of the
Board and management team coupled with our low fixed cost highly scalable
business model will help us to run the business in a challenging economic
environment in the interests of all our stakeholders providing best in class
fast and flawless digital services."
A copy of the Report and Accounts will be available on the Company's
website, www. (http://www.zaimcreditsystemsplc.com/english)
zaimcreditsystemsplc (http://www.zaimcreditsystemsplc.com/english)
.com/english (http://www.zaimcreditsystemsplc.com/english) and also from the
National Storage Mechanism.
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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
Investor Relations: Flowcomms Ltd
Sasha Sethi Tel: +44 (0)7891 677441
sasha@flowcomms.com (mailto:sasha@flowcomms.com)
Adviser: Beaumont Cornish Limited
Roland Cornish / James Biddle Tel: +44 (0) 20 7628 3396
Optiva Securities Limited
Vishal Balasingham Tel: +44 (0) 20 3137 1902
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulations
(EU) No. 596/2014 ("MAR").
Chairman's Statement
Dear Shareholders,
Digital and online services are becoming increasingly important in our
everyday life. The trend of moving traditional activities online has been
around for a number of years and it was further accelerated by the COVID-19
pandemic and quarantine measures taken by the authorities of most countries in
2020 and 2021. Now a significant part of our lives - including shopping,
education, entertainment, and dining - has moved online.
Being able to access so many services through an "app" on your phone has
revolutionised consumer markets around the world, dramatically increasing the
ease, speed and range of transactions. Hundreds of millions of people are
benefiting. However, those who are left behind, who do not have online banking
facilities, are going to end up excluded from the new age, and their sense of
exclusion and actual exclusion may end up worse than before. One example of
how this works is freelancers or people with irregular income: they are
vulnerable and underserved by traditional financial services providers. Loans
available to such individuals are often subject to credit or income scoring
that penalises those who have variable incomes.
Seeing this large group of people being excluded from the modern online world,
we have set ourselves the mission to tackle problems experienced by
"unbankable" individuals and to provide them with access. For example, Zaim
has created the Zaim MasterCard, an inclusivity tool that can be easily issued
and delivered to those who lack the "key" to the modern online world.
In the middle of 2020, Zaim directors and management implemented an
online-focused strategy allowing customers to receive and repay their loans
online without physically attending our branches. By December 2021, 93% of our
loans were issued online, compared to only 13% in January 2020. This move
increased our addressable market beyond the Moscow region to include the rest
of Russia and it allowed "unbankable" individuals to receive their money in a
few minutes without leaving their homes. This strategy not only became a
perfect solution for the COVID-19 quarantine period, but also allowed Zaim
rapidly to scale up its business without significant increase in its cost
base, thereby driving profitable growth.
Another important product development and additional step for financial
inclusion was the launch of our Zaim-branded mobile application in Q2 2021.
This "app" allows people to receive and repay loans within minutes using only
mobile phones. This fintech service means we can help people efficiently
resolve their temporary financial difficulties without the need for collateral
or guarantors and with funds usually delivered within a few minutes.
Due to the successful implementation of its online-focused growth strategy
Zaim achieved impressive results in 2021. Zaim's loans issued grew by 153% to
£26.1 million, and net profit improved from a loss of £615,000 in 2020 to a
profit of £683,000 in 2021.
The market in Russia still has a great potential. Russian household debt in
September 2021 was only 22% of the Russian GDP compared to 88% in the UK and
79% in the USA(2). Total loans outstanding in the Russian market grew by over
31% to 328 billion rubles (c. £3.87 billion) as at 31 December 2021. Online
lending in Russia had doubled reaching 108.6 billion (c. £1.28 billion)
rubles as at 31 December 2021.
Let me now turn to recent events in Ukraine and their impact on Zaim. Firstly,
we recognize with horror the devastating impact on Ukrainians of the "special
military operation". The conflict has already brought difficulties for many
Russians and we expect those difficulties to mount. International sanctions
are targeting Russian-owned assets, wealthy people close to Vladimir Putin,
and Russian banks. Zaim is majority-owned by EU citizens, is unconnected with
the Russian government, and is not working with Russian banks. The business of
Zaim Express operates solely within Russia and therefore is not affected by
international restrictions on using the SWIFT international payment system.
Zaim Express continues to serve its clients in the normal course of business
with as yet no significant deviation in business performance. It is not
possible to foresee how events will unfold and the Company is closely
monitoring the situation and considering various scenarios. For the time and
whilst the Board establishes the position regarding the transfer of funds in
and out of Russia, the Board has decided to fund the Company and Zaim Express
from its respective existing cash resources; in this regard the Company
retains a balance of approximately £100,000 to meet its ongoing financial
liabilities.
In order to diversify and further develop its business, Zaim is currently
accelerating work to expand into nearby European countries and is actively
undertaking an assessment of jurisdictions in which to deploy its technology.
Zaim's management team has faced and overcome a significant number of
challenges during the last eleven years, emerging stronger. I hope we have
gained enough experience to weather this storm as well.
With this I would like cordially to thank our management, employees, and
consultants, and my fellow board members, for their hard work and dedication
in delivering these excellent results and for transforming the Company into a
rapidly growing and profitable business.
We remain committed to strengthening our position as a leading fintech company
and will strive to keep delivering a fast and flawless solution to all of our
customers.
Malcolm Groat
Chairman
17 May 2022
Chief Executive's Review
Dear fellow Stakeholders,
It is very hard talking about business in such unprecedented and difficult
times. The Russian "special military operation" in Ukraine launched on 24
February 2022 and subsequent sanctions imposed by US, UK and EU against Russia
changed our lives and economic reality in an unprecedented way. Our thoughts
and prayers are for the peaceful resolution of the conflict.
Zaim's business is currently under no direct influence of sanctions, though
long-term consequences of the recent geopolitical events for the Russian and
global economy are still unclear. We remain firmly committed to adhering to
all our duties to our stakeholders and customers. The Company's management
believes it is taking all necessary measures to maintain a sustainable
position and further develop the Company's business in the current
circumstances.
Over the past 11 years, Zaim has developed a bespoke IT system that allows it
to receive and repay loans remotely with an automated scoring process taking
less than 10 minutes to approve or reject new applicants. Our investment in
our proprietary platform and process delivered impressive results.
In the second quarter of 2021 Zaim had successfully launched its branded
mobile application for both Android and iOS devises. It allows customers to
receive and repay the loans in a minute using no more than their mobile
phones. The launch of the mobile application became an important milestone in
the path of increasing the Fintech content in our business model. In an ever
increasingly digital world this expansion of our online offering will bring
more people access to the financial products that many of us take for granted.
Mobile app became an important sales channel responsible for issuing 9.2% of
the loans in December 2021, which was higher than 6.7% of the loans issued via
the stores network. It reinforced customer loyalty and created the opportunity
to widen the knowledge of our clients, understand their needs, attitudes and
source information and data that will drive Zaim in the creation of next
generation services. It also became a significant platform for cross-selling
of additional products, promotions and discounts.
Our online-focused business strategy bear fruit driving impressive business
performance with six consecutive quarters of very strong profitable growth.
This strategy allows for lower fixed costs and faster growth that makes us
confident in the long-term development of our business.
As a result of above mentioned business developments we have significantly
outperformed a very fast-growing market: in 2021 Russian microfinance market
grew by 31.6% year-on-year(3), at the higher rate than in pre-COVID 2019,
whilst the amount of loans issued by Zaim Express increased by more than 2.5
times(4) to £26.1m.
Performance of our online business was the main driver for this growth: loans
issued online skyrocketed to £23.1m, which is 4.9 times higher than in 2020.
In this respect, we also dramatically outperformed the Russian market where
total portfolio of the microloans issued online doubled in 2021 compared to
2020. At the same time Zaim loans issued offline decreased by 47% to £2.9m
due to closure of stores and transition to online-focused business model. We
have decreased the number of offline stores from 30 as of 31 December 2020 to
26 as of 31 December 2021.
Interest income grew by 96% to £9.5m due to the higher amount of loans
issued. As Zaim issued 89% of loans via the internet in 2021 vs 47% in 2020,
rental costs have decreased by 67% to £220 thousand and staff costs have
decreased by 17% to £1.3m, at the same time advertising and marketing costs
increased by 263% to £979 thousand. Given 153% growth of the amount of loans
issued, the unit costs for issuing loans have decreased. The company plans to
further optimize the network operation, including abandoning unprofitable
sites, strengthening the Internet and mobile channels for attracting
customers.
As a result of dramatic growth in loans issued on the back of decreasing unit
costs Zaim business turned to profitability from a loss of £615,000 in 2020
to a profit of £683,000 in 2021.
The business continues to be cash-generative, which we are carefully
reinvesting in order to serve a wider base of clients with our online
business. We continued our investments in growth, being careful to maintain
cash generation and profitability.
In the first quarter of 2022 the effective demand remained strong and the
business volumes continued to grow. Strong fluctuation of exchange rate of
Ruble vs GBP and other currencies did not affect our business performance. It
is important to remark that such initial fluctuation seems to be, at the
moment, more than recovered as the current prevailing Ruble to GBP exchange
rate is higher than those observed pre-crisis. Given the operations are wholly
focussed on Russia at present, the ongoing performance should not be
influenced by foreign exchange rates.
The Directors and the management of Zaim have a successful track record of
turning crises into opportunities by reacting swiftly and decisively. The last
example of such pivot was the implementation of online-focused business
strategy and creating strong platform for the profitable growth amidst the
COVID-19 pandemics. As a result, our team had evolved Zaim from a traditional
microfinance organisation into a rapidly developing and profitable fintech
company.
I am confident that the vast experience and dedication of the Board and
management team coupled with our low fixed cost highly scalable business model
will help us to run the business in a challenging economic environment in the
interests of all our stakeholders providing best in class fast and flawless
digital services.
I would like to cordially thank our investors, employees and clients for their
support and dedication. We remain committed to adding value and generating
profitability for all of our stakeholders.
Siro Donato Cicconi
CEO
17 May 2022
(1) Adjusted EBIT is calculated by taking profit (loss) for the year adding
back accrued interest and non-cash share-based payment charges and one-off
restructuring costs which are non-recurring
(2) According to the Bank for International Settlements
(https://ru.theglobaleconomy.com/rankings/household_debt_gdp/)
(3) According to the Central Bank of Russia's publication "Microfinance market
trends in 2021 (https://cbr.ru/analytics/microfinance/mfo/mmt_2021/) ", growth
of the portfolio of microloans in 2021 was 31.6% compared to 2020
(4) Loans issued by Zaim Express in 2021 increased by 153% vs. 2020
Independent Auditor's Report to the Shareholders of Zaim Credit Systems plc
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 2021 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 UK-adopted International Accounting
Standards. 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 2021 and of
the group's profit for the year then ended;
· the group and the parent company financial statements have been
properly prepared in accordance with International accounting standards in
conformity with the requirements of the Companies Act 2006; and
· the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006; and, as regards the group financial
statements, Article 4 of the IAS Regulation.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's Responsibilities for the
Audit of the Financial Statements section of our report. We are independent of
the group and the parent company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK,
including the FRC's Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty relating to going concern
In forming our opinion on the financial statements, which is not modified, we
have considered the adequacy of the disclosure made in note 3 to the financial
statements concerning the Company and Group's ability to continue as a going
concern. The conditions described in note 3 in respect of the Russian "special
military operation" in Ukraine indicate the existence of material
uncertainties which may cast doubt about the Company and Group's ability to
continue as a going concern. The financial statements do not include the
adjustments that would result if the Company and Group was unable to continue
as a going concern.
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
Going concern
There is a risk that the group may not be considered a going concern as a We read the Directors' assessment of the risks and impacts of COVID-19 and the The disclosures in the financial statements adequately reflect the Directors'
result of the impact of COVID-19 (Coronavirus) and the Russian invasion of Russian invasion of Ukraine on the business. We compared this assessment to conclusions around the material uncertainties in respect of the Russian
Ukraine. our own understanding of the risks, and the nature of the group's operations, invasion of Ukraine.
products and customer base. We then conducted a review of going concern in
respect of these two factors which included reviewing forecasts and current
trading performance, and carrying out stress testing. The work undertaken
considered a period of at least twelve months from the date of approving these
financial statements.
Recoverability of loans to customers
Given the extended credit terms that were provided to customers, judgement is We understood the group's process for estimating the expected credit loss We did not identify any evidence of material misstatement related to carrying
required to establish how much of the loan receivables balance is recoverable. provision under IFRS 9. Loans to customers were tested on a sample basis which value of receivables. Management continue to apply an appropriate expected
There is a risk that management's judgements and estimates over recoverability included considering the recoverability of the balances post year end. Overdue credit loss provision.
are inappropriate, when considering the specific balances and the requirements balances were discussed with management and we assessed whether the accounting
of IFRS 9. provision appropriately reflects the facts and circumstances.
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 recognised in accordance with the group's accounting policy and we
Revenue was then tested on a sample basis to confirm that transactions have concluded that no evidence of fraud or other understatement was identified.
been appropriately recorded in line with IFRS 15.
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 We identified no evidence of management override in respect of inappropriate
areas which are more easily manipulated. manual journals recorded in any section of the financial statements.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial
statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be charged or influenced. We use materiality both
in planning and in the scope of our audit work and in evaluating the results
of our work.
We determine materiality for the group and the parent company to be £113,779
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, being the key performance
indicators of turnover and profit before tax. Where considered relevant the
materiality is adjusted to suit the specific risk profile of the group.
Performance materiality is the application of materiality at the individual
account or balance level set at an amount to reduce to an appropriately low
level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality. Performance materiality for both the group
and the parent company was set at 75% of the above materiality levels, which
equates to £85,334. 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 £5,689. 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 set out
on page 40, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and
for such internal control as the directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error. In preparing the financial
statements, the directors are responsible for assessing the company's ability
to continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease operations, or
have no realistic alternative but to do so.
Auditor's Responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. Our approach was as follows:
· We obtained an understanding of the legal and regulatory frameworks
that are applicable to the group and determined the most significant are those
that relate to the reporting framework (UK-adopted International Accounting
Standards, the Companies Act 2006) and the relevant tax compliance regulations
in the jurisdictions in which the group operates.
· We understood how Zaim Credit Systems plc is complying with those
frameworks by making enquiries on management, the Company Secretary, and those
responsible for legal and compliance procedures. We corroborated our enquiries
through our review of board minutes, papers provided to the Audit Committee,
discussion with the Audit Committee and any correspondence received from
regulatory bodies.
· We assessed the susceptibility of the group's financial statements to
material misstatement, including how fraud might occur by enquiring with
management and the Audit Committee during the planning and execution phase of
our audit. We considered the programs and controls that the group has
established to address risks identified, or that otherwise prevent, deter and
detect fraud and how senior management monitors those programs and controls.
Where the risk was considered to be higher, we performed audit procedures to
address each identified fraud risk including revenue recognition as discussed
above. These procedures included testing manual journals and were designed to
provide reasonable assurance that the financial statements were free from
fraud or error.
· Based on this understanding we designed our audit procedures to
identify non-compliance with such laws and regulations identified in the
paragraphs above. Our procedures involved journal entry testing, with a focus
on manual journals and journals indicating large or unusual transactions based
on our understanding of the business; enquiries of the Company Secretary and
management; and focused testing, as referred to in the key audit matters
section above.
Our audit procedures were designed to respond to risks of material
misstatement in the financial statements, recognising that the risk of not
detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery, misrepresentations or through collusion.
There are inherent limitations in the audit procedures performed and the
further removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less likely we are
to become aware of it.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part
of our auditor's report.
Other matters which we are required to address
We were initially appointed by the board on 23 October 2019 to audit the
financial statements for the period ending 31 December 2018. Our total
uninterrupted period of engagement is 4 years, covering the periods ending 31
December 2018 to 31 December 2021.
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
17 May 2022
Zaim Credit Systems plc
Consolidated Statement of Financial Position as at 31 December 2021
(in British pounds sterling)
Assets
Cash and cash equivalents 5 1,473,909 640,871
Loans to customers 6 2,824,717 1,269,313
Property and equipment 20,319 5,677
Right-of- use assets under lease agreements 7 539,709 297,925
Intangible assets 28,795 _
Other assets 8 455,579 251,297
Total assets 5,343,028 2,465,083
Liabilities
Loans received 9 1,304,680 735,646
Lease liabilities 7 533,683 347,216
Other liabilities 10 1,284,312 823,830
Total liabilities 3,122,675 1,906,692
Equity
Charter capital 11 4,619,750 4,369,750
Shares to be issued Reserve 26 800,000 800,000
Additional capital 11,25 6,755,628 6,078,128
Foreign currency translation reserve 11 4,411,989 4,390,225
Merger reserve 11, 26 22,964,800 22,964,800
Share options reserve 11 248,146 218,099
Accumulated deficit 11 (37,579,961) (38,262,611)
Total equity 2,220,353 558,391
Total liabilities and equity 5,343,028 2,465,083
Siro Donato Cicconi,
Chief Executive Officer
Simon James Retter,
Finance Director
17 May 2022
Zaim Credit Systems plc
Company Statement of Financial Position as at 31 December 2021
(in British pounds sterling)
Company Registered number 11418575
Note 2021 2020
Assets
Cash and cash equivalents 5 211,833 161,163
Other assets 8 130,076 126,477
Investment in Subsidiary 1 10,438,409 10,096,089
Total assets 10,780,319 10,383,729
Liabilities
Other liabilities 10 197,086 186,739
Total liabilities 197,086 186,739
Equity
Charter capital 11 4,619,750 4,369,750
Shares to be issued Reserve 26 800,000 800,000
Additional capital 11 6,755,628 6,078,128
Share options reserve 12 248,146 218,099
Accumulated deficit (1,840,292) (1,268,987)
Total equity 10,583,232 10,196,990
Total liabilities and equity 10,780,319 10,383,729
The above Company Statement of Financial Position should be read in
conjunction with the accompanying notes, the loss for the period was £571,305
(2020: £576,000). 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 17 May 2022 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 2021
(in British pounds sterling)
Interest income 13 9,544,013 4,857,496
Interest expenses (154,674) (12,835)
Interest expense - lease liabilities 13 (15,228) (92,442)
Net interest income 9,374,112 4,752,218
Allowance for ECL/impairment of loans to customers 6,8,15 (6,534,146) (1,790,718)
Net interest income after allowance for ECL/impairment of loans to customers 2,839,966 2,961,501
Gains less losses from dealing in foreign currency 14 20,943 (189,127)
Other operating income 16 2,160,735 590,502
Operating income 5,021,644 3,362,875
Staff costs 17 (1,567,055) (1,810,443)
Charge for share based options 12 (30,047) (51,216)
Operating expenses 18 (2,623,045) (2,115,735)
Profit / (loss) before income tax 801,497 (614,519)
19 (118,847) -
Income tax expense
Net profit / (loss) 682,650 (614,519)
Net other comprehensive income that may be reclassified to profit or loss
Foreign exchange differences arising on translation into presentation currency 21,764 (67,563)
Total comprehensive expense 704,415 (682,083)
Earnings per
share
11
Basic, profit/loss for the year attributable to
ordinary equity holders of the parent
0.18p
0.14p
Diluted, profit/loss for the year attributable to
ordinary equity holders of the
parent
0.16p 0.14
Zaim Credit Systems Group
Consolidated Statement of Changes in Equity for the Year Ended 31 December
2021
(in British pounds sterling)
Charter capital Additional capital Foreign currency translation reserve (FCTR) Accumulated deficit Total
equity
Share options reserve
Shares to be issued Reserve Merger reserve
Balance at 31 December 2019 4,369,750 6,078,128 4,457,788 (37,648,092) 1,189,258
166,883
- 23,764,800
Comprehensive loss for 2020 - - (67,563) (614,519) (682,083)
- - -
Contingent consideration - - - - -
800,000 (800,000) -
Share-based payments - - - - 51,216
- - 51,216
Balance at 31 December 2020 4,369,750 6,078,128 4,390,225 (38,262,611) 558,391
800,000 22,964,800 218,099
Issue of odinary shares 250,000 - 677,500 - - - - 927,500
Comprehensive Income for 2021 - - 21,764 682,650 704,415
- - -
Share-based payments - - - - - 30,047 - 30,047
Balance at 31 December 2021 4,619,750 6,755,628 4,411,989 (37,579,961) 2,220,353
800,000 22,964,800 248,146
Zaim Credit Systems Group
Company Statement of Changes in Equity for the Year Ended 31 December 2021
(in British pounds sterling)
Charter capital Additional capital Accumulated deficit Total
equity
Shares to be issued Reserve
Share options reserve
Balance at 31 December 2019 4,369,750 - 6,078,128 (692,987) 166,883 9,921,774
- - (576,000) (576,000)
Comprehensive loss for 2020 - -
Contingent consideration - 800,000 - - - 800,000
Share-based payments - - - - 51,216 51,216
Balance at 31 December 2020 4,369,750 800,000 6,078,128 (1,268,987) 218,099 10,196,990
Issue during the year 250,000 - 677,500 - - 927,500
Comprehensive loss for 2021 - - - (571,305) - (571,305)
Share-based payments - - - - 30,047 30,047
Balance at 31 December 2021 4,619,750 800,000 6,755,628 (1,840,292) 248,146 10,583,232
Zaim Credit Systems plc 2021 2020
Consolidated Statement of Cash Flows for the year ended 31 December 2021
(in British pounds sterling)
Cash flows from operating activities
Interest received 7,578,606 4,219,635
Interest paid (340,811) (105,273)
Gains less losses from dealing in foreign currency (11,886) (7,460)
Other operating income 2,233,026 559,981
Staff costs (1,582,249) (1,854,393)
Operating expenses (2,263,521) (1,226,365)
Income tax paid (55,613) -
Cash flows from/(used in) operating activities before changes in operating 5,557,552 1,586,125
assets and liabilities
Net (increase)/decrease in operating assets
Loans to customers (6,083,920) (1,848,483)
Other assets 112,564 (109,063)
Net decrease in operating liabilities
Other liabilities 95,690 57,357
Net cash flows from operating activities (318,114) (314,064)
Cash flows from investing activities
Other loans issued (254,702) -
Purchases of property and equipment and intangible assets (46,762) -
Net cash flows from investing activities (301,463) -
Cash flows from financing activities
Repayment of lease liabilities (261,555) (536,120)
Loans received 1,578,786 259,266
Repayment of loans received (789,393) (259,266)
Issue of ordinary shares (including share premium) 1,000,000 -
Share issue costs (72,500) -
Net cash flows from financing activities 1,455,337 (536,120)
Effect of exchange rate changes on cash and cash equivalents (2,722) (91,696)
Net change in cash and cash equivalents 833,038 (941,880)
640,871 1,582,751
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year (Note 5) 1,473,909 640,871
Zaim Credit Systems plc
Company Statement of Cash Flows for the year ended 31 December 2021
(in British pounds sterling)
2021 2020
Cash flows from operating activities
Loss for the period (571,305) (576,000)
Correction for non-cash transaction (charge for share options granted) 30,047 51,216
Cash flows from/(used in) operating activities before changes in operating (541,258) (524,784)
assets and liabilities
Adjustments for
Increase in trade and other receivables, VAT (3,599) (58,355)
Increase in trade and other payables 10,347 24,073
Cash generated from operations
(534,510) (559,066)
(534,510) (559,066)
Net cash flows used in operating activities
Cash flows from investing activities
Investment in Subsidiary (342,320) (590,426)
Net cash flows from investing activities (342,320) (590,426)
Cash flows from financing activities
Issue of ordinary shares (including share premium) 1,000,000 -
Share issue costs (72,500) -
Net cash flows from financing activities 927,500 -
Net change in cash and cash equivalents 50,670 (1,149,492)
161,163 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) 211,833 161,163
1. Principal Activities of the Group
The principal activity of Zaim Credit Systems plc ("the Company") and its
subsidiary Zaim-Express, LLC (together "the Group") is the issuance of
microloans to individuals (retail customers). The Company was incorporated as
Agana Holdings Plc and registered in England and Wales on 15 June 2018 as a
public limited company with company registration number 11418575 and LEI,
213800Z4MI9KSZA2VW72 and on 22 July 2019 the Company changed its name to Zaim
Credit Systems Plc.
On 18 September 2019 the Company acquired the entire issued share capital of
Zaim-Express LLC. The Company is now the holding company of a Russian based
financial services company Zaim-Express LLC (Subsidiary), so the main function
of the Company is to provide holding company services and undertake management
of their listed activities on the stock exchange. These business combinations
in 2019 was stated in consolidated financial statements as reverse
acquisitions under IFRS 3.
The organisational structure of Group:
The share votes of the Company
The name of Subsidiary Country of registration 31.12.2021 31.12.2020
Zaim-Express LLC Russia 100% 100%
The Subsidiary's principal activity is the issuance of microloans through its
network of branches in Russian cities (mainly - in Moscow and the Moscow
region, St. Petersburg). The Subsidiary was entered in the state register of
microfinance organisations on 29 August 2011, registration number
2110177000440. The Subsidiary's assets and liabilities are located in the
Russian Federation. The average number of Subsidiary's employees is as
follows:
The average number of Subsidiary's employees, by groups 2021 2020
Central office 54 47
Call center 14 22
Other specialists 70 143
Total average number of employees 138 212
The average number of parent Company's employees (directors) is as follows:
The average number of parent Company's employees 2021 2020
Directors 5 5
As at 31 December 2021, the main shareholder of the Company is Zaim Holdings
SA (with a 69.27% equity holding; 31 December 2020 - with a 73.23% equity
holding). The ultimate controlling party of the Group is an individual - Mr.
Siro Donato Cicconi (Director).
2. Operating Environment of the Group
General
The economy of the Russian Federation continues to demonstrate certain
characteristics of an emerging market. They include, in particular,
inconvertibility of the Russian rouble in most countries outside of Russia and
relatively high inflation. The current Russian tax, currency and customs
legislation is subject to various interpretations and frequent changes. The
country's economy depends on oil and gas prices. Russia continues to develop
the legal, tax and administrative infrastructure to meet the market economy
requirements. The economic reforms implemented by the government are aimed at
modernisation of the Russian economy, development of high-tech production,
improvement of labour productivity and competitiveness of the Russian products
on the global market.
After a difficult 2020, when the issuance of microloans decreased
significantly against the background of coronavirus restrictions and
quarantine measures, the market began to show recovery dynamics. According to
the Central Bank, the total portfolio grew by 7% in the second quarter of
2021, which already corresponds to the average growth rate of the pre-pandemic
2019.
Market digitalisation and the growing popularity of the online segment of
microloans has become an important trend. According to the Central Bank's
estimates, over the past year, the share of credit agreements concluded
remotely increased in the quarter in the total number of contracts to 71%. The
number of companies that now use online lending channels has also grown
significantly.
As for the overdue debt on microloans, the situation as a whole can be called
stable. The rate of arrears with long delays in payments reached to 27.8% in
the second quarter of 2021. This is significantly lower than it was in
mid-2020 and close to the results of the pre-pandemic 2019
During the quarantine period, the Group changed its business model to one of
remote lending via the Internet. All operations necessary for the performance
of this activity were carried out by the employees remotely, which allowed the
Group to maintain regularity and continuity of business processes. Based on
the analysis conducted, the Group's management believes that the expected
recession will not have any significant negative impact on the Group's
financial performance in the short term. The management of the Group believes
it is taking all the necessary measures to support the sustainability and
further development of the Group's business operations in these circumstances.
As at 31 December 2021, the CBR's key rate was 8.50% (31 December 2020:
4.25%).
The future economic development of the Russian Federation is largely dependent
upon the effectiveness of economic measures, financial mechanisms and monetary
policies adopted by the Government, together with tax, regulatory, and
political developments.
Inflation
The Russian economy experiences relatively high levels of inflation. The
inflation indices for the last five years are given in the table below:
The year ended Inflation for the period
31 December 2021 8.39%
31 December 2020 4.9%
31 December 2019 3.0%
31 December 2018 4.3%
31 December 2017 2.1%
Foreign exchange transactions
Foreign currencies, especially the US Dollar, Euro, and British pound sterling
play a significant role in determining economic parameters of many economic
transactions carried out in Russia. The table below shows the CBR exchange
rates of RUB relative to USD and EUR:
Date USD EUR GBP
31 December 2021 74.2926 84.0695 100.0573
31 December 2020 73.8757 90.6824 100.0425
31 December 2019 61.9057 69.3406 81.146
31 December 2018 69.4706 79.4605 88.2832
31 December 2017 57.6002 68.8668 77.6739
Management takes all necessary measures to ensure the sustainability of the
Group's operations. However, the future impact of the current economic
situation is difficult to predict and management's current expectations and
estimates may differ from actual results.
For the purpose of estimating expected credit losses, the Group uses
forward-looking information, including projections of macroeconomic variables.
The Group takes these forecasts into account when providing its best estimate
of outcomes. However, as with any economic forecast, the projections and
likelihoods of their occurrence are subject to a high degree of inherent
uncertainty and therefore the actual outcomes may be significantly different
from those projected. Note 6 provides additional information on how the Group
incorporates forward-looking information in its expected credit loss models.
Functional and presentation currency
The functional currency is the currency that mainly influences sales prices
for goods and services (this will often be the currency in which sales prices
for goods and services are denominated and settled) and which mainly
influences labour, material and other costs of providing goods or services
(this will often be the currency in which such costs are denominated and
settled). The Group's functional currency is the Russian rouble.
The presentation currency is the currency in which financial statements are
presented.
The consolidated financial statements are presented in British pounds
sterling. The reasons why the functional currency differs from the
presentation currency are the consolidation of Subsidiary's financial
statements with the parent Company accounts which have been presented in GBP
and investors' interests.
3. Basis of Presentation
General principles
The consolidated financial statements of the Group are prepared in accordance
with UK-adoped International Accounting Standards. 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 UK-adopted International Accounting Standards.
On 1 January 2021, IFRS as adopted by the European Union at that date was
brought into UK law and became UK-adopted International Accounting Standards,
with future changes being subject to endorsement by the UK Endorsement Board.
The Company transitioned to UK-adopted International Accounting Standards in
its consolidated financial statements on 1 January 2021. This change
constitutes a change in accounting framework. However, there is no impact on
recognition, measurement or disclosure in the period reported as a result of
the change in framework
Going concern
These consolidated financial statements reflect the Group management's current
assessment of the impact of the Russian business environment on the operations
and the financial position of the Group. The future economic direction of the
Russian Federation is largely dependent upon the effectiveness of measures
undertaken by the RF Government and other factors, including regulatory and
political developments which are beyond the Group's control. The Group's
management cannot predict what impact these factors will have on the Group's
financial position in future. As a result, adjustments related to this risk
have not been included in the accompanying financial statements.
As at 31 December 2021, the Group has an accumulated deficit of GBP 37,579,961
(2020: GBP 38,262,611), and incurred a net profit of GBP 682,650 during the
year ended 31 December 2021 (2020: net loss GBP 614,519).
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 on page 4 and Chief Executive Review on page 6. 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 have prepared cash flow forecasts for the 12 months from the date of
signing of these Financial Statements. There exists uncertainty as to the
future impact of the COVID-19 pandemic as well as the potential impact on the
Group from any sanctions that might be imposed as a result of the EU, USA and
UK regarding the "special military operation" currently underway in Ukraine.
Both of these have been considered as part of the Group's adoption of the
going concern basis. The Board considers the pandemic has not materially
and/or adversely affected the prospects of the business as of the date of this
report, although any future impact, should further waves of the pandemic occur
and further measures be implemented, remains hard to quantify.
Whilst it is the current view of the Directors that the sanctions in place
within Russia do not materially impact the Group, it is a very fast moving
situation with sanctions changing rapidly and therefore there remains a risk
to the business predominantly around the access of banks not linked to the
Russian state and businesses not linked to the state operating in Russia
maintaining access to the international banking system and specifically SWIFT
as well as any capital controls within Russia as a result of the potentially
deteriorating economic situation driven by the sanctions. Both access to SWIFT
and potential and current capital controls could restrict the ability of
Subsidiary to remit dividends and management fees to the parent Company,
therefore creating a material risk to the ability of the Company to continue
as a going concern. The Group has minimised this risk by reducing expenditure
to allow time for the situation to normalise, however should these set of
circumstances continue for an extended period of time then the group would
have to find alternative sources of finance to fund the ongoing expenditure
within the parent Company.
The Directors formed a judgement at the time of approving the Consolidated
Financial Statements that although the operating Subsidiary is operating
profitably and generating free cash there exists a material uncertainty
regarding the Company's ability to operate as a going concern. The Directors
have plans to mitigate such risk including obtaining alternative sources of
capital and have a reasonable expectation that these plans would be successful
and therefore continue to adopt the going concern basis in preparing the
Consolidated Financial Statements.
The CBR sets the minimum mandatory liquidity ratio at over 70%. The Subsidiary
meets the mandatory liquidity ratio: as of 31 December 2021, 181.89% (not
audited) and 31 December 2020, 153.74% (not audited).
As a result of considerations noted above, the Directors have a reasonable
expectation that the Group and Company have adequate resources to continue in
operational existence for the foreseeable future. Thus, they continue to adopt
the going concern basis of accounting in preparing these Consolidated
Financial Statements.
Basis of consolidation and business acquisitions
On 18 September 2019 Company acquired the entire issued share capital of
Zaim-Express (LLC) by way of a share for share exchange. The transaction was
treated as a reverse acquisition and was accounted for using the merger
accounting method as the entities were under common control before and after
the acquisition.
A Subsidiary is an entity controlled by the Group. Control is achieved when
the Group is exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns through its
power over the investee.
The Group considers all relevant facts and circumstances in assessing whether
it has power over an investee, including:
- The contractual arrangement with the other vote holders of the
investee.
- Rights arising from other contractual arrangements.
- The Group's voting rights and potential voting rights.
Consolidation of a subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the subsidiary. Assets,
liabilities, income, and expenses of a subsidiary acquired or disposed of
during the year are included in the consolidated financial statements from the
date the Group gains control until the date the Group ceases to control the
subsidiary.
Other than for the acquisition of the Subsidiary as noted above, the Group
uses the acquisition method of accounting to account for business
combinations. The consideration transferred for the acquisition of a
subsidiary is the fair value of the assets transferred, the liabilities
incurred, and the equity interests issued by the Group. The consideration
transferred includes the fair value of any asset or liability resulting from a
contingent consideration arrangement. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination are
measured initially at their fair values as at the acquisition date.
Acquisition-related costs are expensed as incurred unless they result from the
issuance of shares, in which case they are offset against the premium on those
shares within equity.
If an acquisition is achieved in stages, the acquisition date carrying the
value of the acquirer's previously held equity interest in the acquiree is
remeasured to its fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the Group is recognised at
fair value at the acquisition date. Subsequent changes to the fair value of
the contingent consideration that is deemed to be an asset or a liability is
recognised in accordance with IFRS9 either in profit or loss or as a change in
other comprehensive income. The unwinding of the discount on contingent
consideration liabilities is recognised as a finance charge within profit or
loss. Contingent consideration that is classified as equity is not remeasured,
and its subsequent settlement is accounted for within equity.
The excess of the consideration transferred and the fair value as at the
acquisition date of any previous equity interest in the acquiree over the fair
value of the Group's share of the identifiable net assets acquired is recorded
as goodwill. If this is less than the fair value of the net assets of the
subsidiary acquired in the case of a bargain purchase, the difference is
recognised directly in profit or loss.
Inter-company transactions, balances and unrealised gains on transactions
between Group companies are eliminated. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the policies
adopted by the Group.
Investments in subsidiaries are accounted for at cost less impairment.
Subsidiaries and Acquisitions
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries) made up
to 31 December each year. Control is recognised where an investor is expected,
or has rights, to variable returns from its investment with the investee, and
has the ability to affect these returns through its power over the investee.
Based on the circumstances of the acquisition an assessment will be made as to
whether the acquisition represents an acquisition of an asset or the
acquisition of business. In the event of a business acquisition, the assets,
liabilities and contingent liabilities of a subsidiary are measured at their
fair value at the date of acquisition. Any excess of the cost of the
acquisition over the fair values of the identifiable net assets acquired is
recognised as a "fair value" adjustment.
If the cost of the acquisition is less than the fair value of the net assets
of the subsidiary acquired, the difference is recognised directly in profit or
loss. In the event of an asset acquisition, assets and liabilities are
assigned a carrying amount based on relative fair value.
The results of subsidiaries acquired or disposed of during the year are
included in the statement of comprehensive income from the effective date of
acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies into line with those used by the
Group.
Contingent consideration as a result of business acquisitions is included in
the cost at its acquisition date assessed value and, in the case of contingent
consideration classified as a financial liability, remeasured subsequently
through profit and loss.
Critical Accounting Estimates and Judgments in Applying Accounting Policies
The Group makes estimates and assumptions that affect the amounts recognised
in the financial statements and the carrying amounts of assets and liabilities
in the next financial year. Judgements that have the most significant effect
on the amounts recognised in the financial statements and estimates that can
cause a significant adjustment to the carrying amount of assets and
liabilities in the next financial year include:
Fair value of financial instruments
Information on the fair value of financial instruments measured on the basis
of assumptions that use observable market prices is disclosed in Note 23.
ECL measurement
Calculation and measurement of ECLs is an area of significant judgement and
involves methodology, models and data inputs. The methodology used by the
Group for assessment of expected credit losses is disclosed in Note 6. The
following components of ECL calculation have a major impact on the allowance
for ECLs: default definition, significant increase in credit risk (SICR),
probability of default (PD), exposure at default (EAD), loss given default
(LGD), macro-models and scenario analysis for impaired loans. The Group
regularly reviews and validates models and inputs to the models to reduce any
differences between expected credit loss estimates and actual credit loss
experience.
Significant increase in credit risk (SICR)
In order to determine whether there has been a significant increase in credit
risk, the Group compares the risk of a default occurring over the expected
life of a financial instrument at the reporting date with the risk of default
at the date of initial recognition. IFRS 9 requires an assessment of relative
increases in credit risk rather than the identification of a specific level of
credit risk at the reporting date. In this assessment, the Group considers a
range of indicators, including behavioural indicators based on historical
information as well as reasonable and supportable forward-looking information
available without undue cost and effort. The most significant judgments
include identifying behavioural indicators of increases in credit risk prior
to default and incorporating appropriate forward-looking information into the
assessment, either at an individual instrument, or on a portfolio level.
Due to the coronavirus pandemic, the Group updated the prospective information
used in the models intended for the assessment of expected credit losses and
reassessed the Probability of default during the 12 months for adequate
reflection of the uncertainties caused by the decrease in market prices and
the spread of the COVID-19 pandemic, taking into account:
- GDP drop and decline in income of individuals due to restricted
economic activity;
- state support measures;
- real wage level;
- real disposable income of the population.
Determining business model and applying SPPI test
In determining the appropriate measurement category for debt financial
instruments, the Group applies two approaches: a business model assessment for
managing the assets and the SPPI test based on contractual cash flow
characteristics on initial recognition to determine whether they are solely
payments of principal and interest. The business model assessment is performed
at a certain level of aggregation and the Group will need to apply judgement
to determine the level at which the business model condition is applied.
The assessment of the SPPI criterion performed on initial recognition of
financial assets involves the use of significant estimates in quantitative
testing and requires considerable judgement in determining whether
quantitative testing is required, what scenarios are reasonably possible and
should be considered, and in interpreting the outcomes of quantitative testing
(i.e. determining what represents a significant difference in cash flows).
Substantial modification of financial assets
When the contractual terms of financial assets are modified (e.g.
renegotiated), the Group assesses whether the modification is substantial and
should result in derecognition of the original asset and recognition of a new
asset at fair value. This assessment is based primarily on qualitative factors
described in the relevant accounting policy and requires significant judgment.
Recognition of a deferred tax asset
The recognised deferred tax asset represents the amount of income tax that can
be offset against future income taxes and is recognised in the statement of
financial position. A deferred tax asset is recognized only to the extent that
realisation of the related tax benefit is probable. The future taxable profits
and the amount of tax benefits that are probable in the future are based on
medium-term forecasts prepared by management.
Changes in accounting policies
For accounting periods beginning on or after 1 January 2021, the following
amendments to the standards have entered into force:
• Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 - Interest Rate
Benchmark Reform - Phase 2;
• Amendments to IFRS 16 Leases - Covid-19-Related Rent Concessions beyond
30 June 2021.
These amendments to the standards did not have a significant impact on the
financial statements.
The IASB has issued a number of standards and amendments to standards that
will be effective in future reporting periods and are not early adopted by the
Company. The most significant of them are the following:
· Amendments to IFRS 16 Leases - COVID-19-Related Rent Concessions
(effective for annual periods beginning on or after 1 June 2020);
· IBOR Reform and its Effects on Financial Reporting - Phase 2
(effective 1 January 2021);
· Annual improvements to IFRSs - 2018-2020 Cycle (effective 1
January 2022);
· Amendments to IAS 16 Property, Plant and Equipment - Proceeds
before Intended Use (effective 1 January 2022);
· Amendments to IAS 37 Provisions, Contingent Liabilities and
Contingent Assets - Onerous Contracts - Cost of Fulfilling a Contract
(effective 1 January 2022);
· IFRS 17 Insurance Contracts (effective 1 January 2023);
Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors - Classification of
Liabilities as Current or Non-Current (effective 1 January 2023).
Unless otherwise described above, the new standards and interpretations are
not expected to significantly impact the Group's financial statements.
4. Summary of Significant Accounting Policies
Fair value measurement
The fair value is the price that would be received when selling an asset, or
paid to transfer a liability in an orderly transaction in the principal (or
most advantageous) market at the measurement date under current market
conditions (i.e. an exit price) regardless of whether that price is directly
observable or estimated using another valuation technique.
All assets and liabilities for which a fair value is recognised or disclosed
are categorised within the fair value hierarchy, described as below, based on
the lowest level input that is significant to the fair value measurement as a
whole:
- Level 1 - quoted market prices in an active market (that are unadjusted)
for identical assets or liabilities;
- Level 2 - valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly
observable;
- Level 3 - valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable.
For assets and liabilities that are remeasured in the financial statements at
fair value on a recurring basis, the Group determines whether transfers have
occurred between the Levels in the hierarchy by re-assessing categorisation
(based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of
assets and liabilities on the basis of the nature, characteristics and risks
of the asset or liability and the level of the fair value hierarchy as
explained below (Note 23).
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, current accounts and deposits
with banks with original maturity of three months or less. Cash and cash
equivalents are stated at amortised cost in the statement of financial
position.
Financial instruments
Key measurement terms
Depending on their classification, financial instruments are carried at fair
value or amortised cost, as described below.
Fair value is the price that would be received when selling an asset, or paid
to transfer a liability in an orderly transaction between market participants
at the measurement date. Fair value measurement assumes that the transaction
to sell the asset or transfer the liability takes place in the principal
market for the asset or liability or, in the absence of a principal market,
the most advantageous market for the asset or liability. Fair value is the
current bid price for financial assets or current ask price for financial
liabilities.
Amortised cost is the amount at which the financial asset or financial
liability is measured at initial recognition minus principal repayments, plus
or minus the cumulative amortisation using the effective interest method of
any difference between that initial amount and the maturity amount, and for
financial assets, adjusted for any loss allowance.
The gross carrying amount of a financial asset is the amortised cost of a
financial asset, before adjusting for any expected credit loss allowance.
The effective interest method is a method of calculating the amortised cost of
a financial asset or a financial liability and of allocating or recognising
the interest income or interest expense over the relevant period. The
effective interest rate is the rate that exactly discounts estimated future
cash payments or receipts over the expected life of the financial asset or
financial liability to the gross carrying amount of the financial asset or to
the amortised cost of a financial liability. When calculating the effective
interest rate, the Group shall estimate cash flows considering all contractual
terms of the financial instrument but shall not consider future credit losses.
The calculation includes all fees and points paid or received between parties
to the contract that are an integral part of the effective interest rate,
transaction costs, and all other premiums or discounts. There is a presumption
that the cash flows and the expected life of a group of similar financial
instruments can be estimated reliably. However, in those rare cases when it is
not possible to estimate reliably the cash flows or the expected life of a
financial instrument, the Group shall use the contractual cash flows over the
full contractual term of the financial instrument.
Initial recognition of financial instruments
The Group recognises financial assets and financial liabilities in its
statement of financial position when it becomes a party to the contractual
obligations of the respective financial instrument. The regular way the
purchase and sale of the financial assets and liabilities is recognised is by
using settlement date accounting.
Classification and measurement of financial instruments
The Group classifies financial assets into the following categories:
- financial assets at fair value through profit or loss;
- financial assets at fair value through other comprehensive income;
- financial assets measured at amortised cost.
Classification and subsequent measurement of debt financial assets depends on:
1) the business model used by the Group to manage the asset; and
2) characteristics of cash flows on the asset.
The business model is determined for a group of assets (on a portfolio basis)
based on all relevant evidence of activities that the Group intends to
undertake to achieve the objectives set out for the portfolio available as at
the measurement date.
Loans to customers meeting the SPPI criterion are held for the purpose of
collecting contractual cash flows and are carried at amortised cost.
Reclassifications
Financial assets are not reclassified after initial recognition unless the
Group has changed its business model for managing financial assets.
Financial liabilities are not reclassified after initial recognition.
Derecognition
A financial asset is derecognised where:
· the rights to receive cash flows from the asset have expired;
· the Group has transferred its rights to receive cash flows from
the asset, or retained the right to receive cash flows from the asset, but has
assumed an obligation to pay them in full without material delay to a third
party;
· the Group either has transferred substantially all the risks and
rewards of the asset or has neither transferred nor retained substantially all
the risks and rewards of the asset but has transferred control of the asset.
If the transferee has no practical ability to sell the asset in its entirety
to an unrelated third party without needing to impose additional restrictions
on the transfer, the entity has retained control.
A financial liability is derecognised when the obligation under the liability
is discharged or cancelled or expires.
Loans to customers and other loans issued
Based on cash flow characteristics, the Group classifies loans and advances to
customers and other loans issued into the measurement category:
1) at amortised cost: loans held to collect contractual cash flows, if
these cash flows are SPPI and are not classified at fair value through profit
or loss, are measured at amortised cost;
Loans to customers are recorded when cash is advanced to borrowers. Impairment
of loans at amortised cost or at FVOCI is assessed using a forward-looking ECL
model. The Group does not acquire loans from third parties.
Impairment of financial assets: ECL allowance
The Group assesses, on a forward-looking basis, the ECL for debt instruments
measured at amortised cost and FVOCI and for the exposures arising from credit
related commitments and financial guarantee contracts. The Group measures ECL
and recognises credit loss allowances at each reporting date. The measurement
of ECL reflects:
(i) an unbiased and probability weighted amount that is
determined by evaluating a range of possible outcomes,
(ii) time value of money, and
(iii) all reasonable and supportable information that is available
without undue cost and effort at the reporting date about past events, current
conditions and forecasts of future economic conditions.
Debt instruments measured at amortised cost are presented in the statement of
financial position net of the ECL allowance.
The Group applies a three-stage model for impairment, based on changes in
credit quality since initial recognition, in accordance with IFRS 9.
1) A financial instrument that is not credit-impaired on initial recognition
is classified into Stage 1. Financial assets in Stage 1 have their ECL
measured at an amount equal to the portion of lifetime ECL that results from
default events possible within the next 12 months (12m ECL).
2) If the Group identifies a significant increase in credit risk (SICR)
since initial recognition, the asset is transferred to Stage 2 and its ECL is
measured based on a lifetime basis (lifetime ECL). Refer to Note 3 for a
description of how the Group determines when a SICR has occurred.
3) If the Group determines that a financial asset is credit-impaired, the
asset is transferred to Stage 3 and its ECL is measured as a lifetime ECL.
Assets that are more than 60 days past due are considered to be defaulted.
For financial assets that are purchased or originated credit-impaired (POCI
assets), the ECL is always measured as a lifetime ECL.
Note 6 provides information about inputs, assumptions and estimation
techniques used in measuring ECL, including an explanation of how the Group
incorporates forward-looking information in the ECL models.
Modification of financial assets
Sometimes the Group reviews or otherwise modifies the contractual terms of
financial assets. The Group estimates that the modification of contractual
cash flows is significant taking into account, among other factors: the
existence of new contractual terms that indicate a significant change in
interest rates, which have a significant effect on the credit risk associated
with the asset, a significant extension of the loan term in cases where the
borrower is in financial difficulty.
If the modified terms significantly differ so that the rights to cash flows
from the original asset are deemed expired, the Group derecognizes the
original financial asset and recognizes the new asset at fair value. The date
of renegotiation is considered to be the date of initial recognition for
impairment calculation purposes, including determination of whether credit
risk has increased significantly. The Group also evaluates the compliance of
the new loan with the criterion of making payments solely against principal
and interest. In situations where the renegotiation was caused by the debtor's
financial difficulties and inability to make the originally agreed payments,
the Group assesses whether the modified loan is considered impaired on initial
recognition. The difference in the carrying amount is recognised in profit or
loss.
If the conditions of the modified asset do not differ significantly, the
modification does not result in derecognition. The Group restates its gross
carrying amount based on revised cash flows by discounting the modified cash
flows at the original effective interest rate (or credit-adjusted effective
interest rate for purchased or originated credit-impaired financial assets)
and recognises a gain or loss on modification in profit or loss.
Loans received
Loans received include loans received from the participant and are carried at
amortised cost.
Property and equipment
Property and equipment are stated at cost, less accumulated depreciation and
impairment allowance.
At the end of the reporting period the Group assesses whether there is any
indication of impairment of property and equipment. If such an indication
exists, the Group estimates the recoverable amount, which is determined as the
higher of an asset's fair value less costs to sell or its value in use. Where
the carrying amount of property and equipment is greater than their estimated
recoverable amount, it is written down to their recoverable amount and the
difference is charged as impairment loss to the statement of profit or loss
and other comprehensive income.
Gains and losses on disposal of property and equipment are determined by
reference to their carrying amount and recorded as operating expenses in the
statement of profit or loss and other comprehensive income.
Repairs and maintenance are charged to the statement of profit or loss and
other comprehensive income when the expense is incurred.
Depreciation
Depreciation of an asset begins when it is available for use. Depreciation is
charged on a straight-line basis over the following useful lives of the
assets:
· Equipment - 2- 7 years.
Lease
The Group classifies its lease agreements as finance or operating leases.
The right-of-use asset and the lease liability are recognized by the lessee at
the lease commencement date.
The original cost of the right-of-use asset includes the following:
· the amount of the initial measurement of the lease liability;
· lease payments at or before the lease commencement date less any
lease incentives received;
· any initial direct costs incurred by the Group; and
· an estimate of costs to be incurred by the lessee in dismantling,
removing, restoring the site or restoring the underlying asset to the
condition required by terms of the lease, unless those costs are incurred to
produce inventories.
The right-of-use asset shall be amortised on a straight-line basis over the
shorter of the asset's useful life and the lease term.
At the lease commencement date, the Group measures the lease liability at the
present value of the lease payments that have not yet been made at that date.
Lease payments shall be discounted using the interest rate implicit in the
lease if that rate can be easily determined. If such rate cannot be easily
determined, the Group uses the incremental borrowing rate at the lease
commencement date.
If finance lease agreements provide for lease extension options, the Group
plans to use these options for 3 years.
At the lease commencement date, lease payments that are included in the
measurement of the lease liability consist of the following payments for the
right to use the underlying asset during the lease term that have not yet been
made at the lease commencement date:
· fixed payments (including in-substance fixed payments) less any
lease incentives receivable;
· variable lease payments that depend on an index or rate,
initially measured using an index or a rate as at the lease commencement date;
· the amounts expected to be payable by the lessee under the
residual value guarantees;
· the exercise price of a purchase option that the lessee is
reasonably certain to exercise; and
· payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising an option to terminate the lease.
After initial recognition, the right-of-use assets related to property, plant
and equipment shall be measured by the Group using the historical cost model
less accumulated depreciation and accumulated impairment losses.
A right-of-use asset shall be assessed for impairment at the end of each
reporting year in accordance with IAS 36 Impairment of Assets.
After initial recognition, the lease liability shall be increased by the
amount of accrued interest and decreased by the amount of lease payments paid.
The carrying amount of the lease liability shall be remeasured, if there is a
change in future lease payments resulting from changes in an index or a rate,
there is a change in the amounts expected to be payable under a residual value
guarantee, or, as appropriate, there is a change in the assessment of whether
it is reasonably certain that the purchase option or the lease extension
option will be exercised, or that the lease termination option will not be
exercised. The lease liability shall be remeasured to reflect changes in lease
payments.
When determining the lease term, the following periods shall be considered, as
well as the Group's management's assessment of the probability that lease
extension options and lease termination options will be exercised:
· the non-cancellable period of lease not subject to early
termination;
· periods covered by an extension option if exercise of that option
by the lessee is reasonably certain;
· periods covered by a termination option if the lessee is
reasonably certain not to exercise that option.
As at the reporting date, right-of-use assets are disclosed in the
"Right-of-use assets" line item of the statement of financial position. Lease
liabilities are disclosed in the "Lease liabilities" line item of the
statement of financial position. Finance costs are disclosed in the "Interest
expense - lease liabilities" line item of the statement of profit or loss and
other comprehensive income to provide a fixed periodic interest rate on the
remaining lease liability for each period. Depreciation of right-of-use assets
is disclosed in the "Operating expenses" line item in the statement of profit
or loss and other comprehensive income. The cash outflow on the lease interest
repaid is disclosed in the "Cash from operating activities" section of the
statement of cash flows, and the amount of cash paid to repay the principal is
disclosed in the "Cash from financing activities" section of the statement of
cash flows.
Operating lease - the Group as lessee
A lease is classified as an operating lease if it does not transfer
substantially all the risks and rewards incidental to ownership. The
underlying asset is classified as a low-value asset based on professional
judgement.
Payments for short-term leases and low-value asset leases are recognised as
expenses on a straight-line basis over the lease term and included into
operating expenses in the statement of profit or loss and other comprehensive
income. A short-term lease has a lease term of 12 months or less. Low-value
assets represent leased property with the value not exceeding the value limit
determined by the Group's accounting policy.
Lease payments under short-term leases or leases where the underlying asset is
of low value are recognized as an expense over the lease term.
Provisions
Provisions are recognised when the Group has a present legal or constructive
obligation as a result of past events, and it is probable that an outflow of
resources embodying future economic benefits will be required to settle the
obligation, and a reliable estimate of the amount of the obligation can be
made.
Taxation
The income tax charge/recovery comprises current tax and deferred tax and is
recorded in the statement of profit or loss and other comprehensive income.
Income tax expense is recorded in the financial statements in accordance with
the applicable legislation of the Russian Federation. Current tax is
calculated on the basis of the estimated taxable profit for the year, using
the tax rates enacted during the reporting period.
Current tax is the amount expected to be paid to or recovered from the
taxation authorities in respect of taxable profits or losses for the current
or prior periods. Tax amounts are based on estimates if financial statements
are authorised prior to filing relevant tax returns.
Deferred income tax is provided using the balance sheet liability method for
tax losses carried forward and temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts for financial
statement purposes.
Income and expense recognition
Interest income and expenses are recorded in the statement of profit or loss
and other comprehensive income for all debt instruments on an accrual basis
using the effective interest method. The effective interest method is a method
of calculating the amortised cost of a financial asset or a financial
liability and of allocating the interest income or interest expense over the
relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments or receipts over the expected life of
the financial instrument to the net carrying amount of the financial asset or
financial liability. When calculating the effective interest rate, the Group
estimates cash flows considering all contractual terms of the financial
instrument but does not consider future credit losses. The calculation
includes all commissions and fees paid or received by the parties to the
contract that are an integral part of the effective interest rate, transaction
costs, and all other premiums or discounts.
When loans become doubtful of collection, they are written down to their
recoverable amounts and interest income is thereafter recognised based on the
rate of interest that was used to discount the future cash flows for the
purpose of measuring the recoverable amount.
Employee benefits and social insurance contributions
The Group pays social insurance contributions predominantly in the Russian
Federation. Social insurance contributions are recorded on an accrual basis
and comprise contributions to the Russian Federation state pension, social
insurance, and obligatory medical insurance funds in respect of the Group's
employees. The Group does not have pension arrangements separate from the
state pension system of the Russian Federation. Wages, salaries, contributions
to the Russian Federation state pension and social insurance funds, paid
annual leaves and paid sick leaves, bonuses and non-monetary benefits are
accrued as the Group's employees render the related service.
Foreign currency
(a) Transactions and balances
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions or
valuation where such items are re-measured. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in profit or loss.
Gains and losses on purchase and sale of foreign currency are determined as a
difference between the selling price and the carrying amount at the date of
the transaction.
(b) Group companies
The results and financial position of all the Group's entities that have a
functional currency different from the presentation currency are translated
into the presentation currency as follows:
1. assets and liabilities for each statement of financial position presented
are translated at the closing rate at the date of the statement of financial
position; 2. each component of profit or loss is translated at average
exchange rates during the accounting period (unless this average is not a
reasonable approximation of the cumulative effect of the rates prevailing on
the transaction dates, in which case income and expenses are translated at the
dates of the transactions); and 3. all resulting exchange differences are
recognised in other comprehensive income.
5. Cash and Cash Equivalents
Group 2021 2020
Cash on hand 25,429 30,811
Accounts with other banks 1,448,480 610,060
Total cash and cash equivalents 1,473,909 640,871
Company 2021 2020
Accounts with other banks 211,833 161,163
Total cash and cash equivalents 211,833 161,163
As at 31 December 2021, the Group has 2 counterparties (2020: 2
counterparties) with balances exceeding 10% of total cash and cash equivalents
in the amount of GBP 1,175,168 (2020: GBP 524,431).
The table below presents the credit quality analysis of cash and cash
equivalents based on credit risk levels as at 31 December 2021.
Group Accounts with other banks Total
Minimum credit risk 1,448,480 1,448,480
Total cash and cash equivalents, less cash on hand 1,448,480 1,448,480
Company Accounts with other banks Total
Minimum credit risk 211,833 211,833
Total cash and cash equivalents, less cash on hand 211,833 211,833
The table below presents the credit quality analysis of cash and cash
equivalents based on credit risk levels as at 31 December 2020.
Group Accounts with other RF banks Total
Minimum credit risk 610,060 610,060
Total cash and cash equivalents, less cash on hand 610,060 610,060
Company Accounts with other RF banks Total
Minimum credit risk 161,163 161,163
Total cash and cash equivalents, less cash on hand 161,163 161,163
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 2021 in accordance with ratings of international agencies:
Group Fitch A+ Fitch BB+ S&P BBB- No rating assigned Total
Accounts with other banks 107,883 103,950 39,353 1,197,294 1,448,480
Total 107,883 103,950 39,353 1,197,294 1,448,480
Company Fitch A+ Fitch BB+ S&P BBB- No rating assigned Total
Accounts with other banks 107,883 103,950 - - 211,833
Total 107,883 103,950 - - 211,833
Below is the credit quality analysis of cash and cash equivalents as at 31
December 2020 in accordance with ratings from international agencies:
Group Fitch A+ Fitch BB S&P from BB- to BB+ No rating assigned Total
Accounts with other banks 54,936 - - 555,124 610,060
Total 54,936 - - 555,124 610,060
Company Fitch A+ Fitch BB S&P from BB- to BB+ No rating assigned Total
Accounts with other banks 54,936 - - 106,227 161,163
Total 54,936 - - 106,227 161,163
6. Loans to Customers
Group 2021 2020
36,469,024 28,298,290
Loans to customers
Less: ECL allowance (33,644,307) (27,028,977)
Total loans to customers at amortised cost 2,824,717 1,269,313
Company 2021 2020
- -
Loans to customers
Less: ECL allowance - -
Total loans to customers at amortised cost - -
Below is analysis of movements in the ECL allowance during 2021 (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 2021 201,494 589,300 26,238,183 27,028,977
Assets recognised for the period 5,559,270 - - 5,559,270
Assets derecognised or collected
(3,885,890) (179,317) (998,466) (5,063,672)
Transfers to Stage 2 (323,372) 323,372 - -
Transfers to Stage 3 (1,153,409) (402,417) 1,555,826 -
Net loss on ECL allowance charge/(reversal) 15,908 673,753 5,350,048 6,039,709
Effect of exchange rate differences 2,702 5,253 72,068 80,024
ECL allowance as at 31 December 2021 416,703 1,009,944 32,217,660 33,644,307
Analysis of movements in the ECL allowance during 2020 is as follows:
Group Stage 1 Stage 2 Stage 3 Total
ECL allowance as at 1 January 2020 128,028 288,985 30,874,790 31,291,804
Assets recognised for the period 697,907 - - 697,907
Assets derecognised or collected
(47,273) (33,654) (629,075) (710,002)
Transfers to Stage 2 (189,937) 189,937 - -
Transfers to Stage 3 (355,164) (187,618) 542,782 -
Net loss on ECL allowance charge/(reversal) - 414,887 1,377,954 1,792,841
Effect of exchange rate differences (32,067) (83,237) (5,928,268) (6,043,572)
ECL allowance as at 31 December 2020 201,494 589,300 26,238,183 27,028,977
The ECL allowance for loans and advances to customers recognised during the
period is impacted by various factors. The table below describes the main
changes:
· transfers between Stages 1 and 2 and Stage 3 due to
significant increases (or decreases) in credit exposure or impairment during
the period and subsequent increases (or decreases) in the estimated ECL level:
for 12 months or over the entire period;
· accrual of additional allowances for new financial
instruments recognised during the period, as well as reduction in the
allowance as a result of derecognition of financial instruments during the
period;
· impact on ECL estimation due to changes in model assumptions,
including changes in the probability of default, EAD and LGD during the period
resulting from regular updating of the model inputs.
Following is the credit quality analysis of loans to customers as at 31
December 2021:
Group Stage 1 Stage 2 Stage 3 Total
Loans to customers
Minimum credit risk 2,424,558 - - 2,424,558
Low credit risk - 134,596 - 134,596
Moderate credit risk - 994,691 - 994,691
High credit risk - 697,520 - 697,520
Defaulted assets - - 32,217,660 32,217,660
Total loans to customers before allowance 2,424,558 1,826,807 32,217,660 36,469,024
ECL allowance (416,703) (1,009,944) (32,217,660) (33,644,307)
Total loans to customers after ECL allowance 2,007,855 816,863 - 2,824,717
Following is the credit quality analysis of loans to customers as at 31
December 2020:
Group Stage 1 Stage 2 Stage 3 Total
Loans to customers
Minimum credit risk 1,222,507 - - 1,222,507
Low credit risk - 177,117 - 177,117
Moderate credit risk - 388,723 - 388,723
High credit risk - 271,760 - 271,760
Defaulted assets - - 26,238,183 26,238,183
Total loans to customers before allowance 1,222,507 837,600 26,238,183 28,298,290
ECL allowance (201,494) (589,300) (26,238,183) (27,028,977)
Total loans to customers after ECL allowance 1,021,012 248,300 - 1,269,313
The ECL allowance for loans to customers recognized during the period is
impacted by different factors. Information on the assessment of expected
credit losses is disclosed in Note 3.
The Group uses the following approach to measurement of expected credit
losses:
· portfolio-based measurement: internal ratings are assigned
individually, but the same credit risk parameters (e.g. PD, LGD) are applied
to similar credit risk ratings and homogeneous credit portfolio segments in
the process of ELC estimation.
This approach provides for aggregation of the portfolio into homogeneous
segments on the basis of specific information on borrowers, such as delinquent
loans, historic data on prior period losses and forward-looking macroeconomic
information.
The amounts of loans recognised as "past due" represent the entire balance of
such loans rather than the overdue amounts of individual payments.
7. Lease
The Group has agreements for lease of premises.
The Group did not apply a simplified approach to recognise lease modifications
allowed due to the COVID-19 pandemic.
The carrying amount of right-of- use assets and its movements during the
period are presented below:
Real Estate Total
Group
As at 1 January 2021 297,925 297,925
Depreciation charge (220,267) (220,267)
Modifications and remeasurement 474,131 474,131
Derecognition (15,105) (15,105)
Effect of translation into presentation currency 3,026 3,026
As at 31 December 2021 539,709 539,709
Real Estate Total
Group
As at 1 January 2020 2,549,233 2,549,233
Depreciation charge (661,165) (661,165)
Modifications and remeasurement (248,309) (248,309)
Derecognition (1,003,208) (1,003,208)
Effect of translation into presentation currency (338,626) (338,626)
As at 31 December 2020 297,925 297,925
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 2021 347,216 347,216
Interest expense on lease liabilities 15,228 15,228
Lease payments (276,786) (276,786)
Modifications and remeasurement 462,305 462,305
Derecognition (16,596) (16,596)
Effect of translation into presentation currency 2,316 2,316
As at 31 December 2021 533,683 533,683
Group
Lease liabilities Real Estate Total
As at 1 January 2020 2,555,648 2,555,648
Interest expense on lease liabilities 92,442 92,442
Lease payments (628,563) (628,563)
Modifications and remeasurement (248,309) (248,309)
Derecognition (1,080,605) (1,080,605)
Effect of translation into presentation currency (343,397) (343,397)
As at 31 December 2020 347,216 347,216
The Group exercises options to extend signed lease agreements for at least 3
years given the ongoing profitability of the loan outlet (in the ordinary
course of business). During the current period, the Group exercised lease
termination options. There were no early termination penalties under these
agreements.
8. Other Assets
Group 2021 2020
Other financial assets
Other loans issued to parent company 275,565 45,745
Settlements for rendered services 129,859 26,448
Total other financial assets 405,424 72,193
Group 2021 2020
Other non-financial assets
Lease prepayments 24,062 23,062
Settlements with suppliers 29,614 35,211
Taxes other than income tax 5,400 110,980
Other receivables 12,049 32,001
Less: impairment allowance (20,971) (22,149)
Total other non-financial assets 50,154 179,104
Total other assets 455,579 251,297
Company 2021 2020
Other financial assets
Other loans issued to related parties 130,076 45,745
Less: impairment allowance - -
Total other financial assets 130,076 45,745
Company 2021 2020
Other non-financial assets
Taxes other than income tax - 80,732
Less: impairment allowance - -
Total other non-financial assets - 80,732
Total other assets 130,076 126,477
Analysis of movements in the impairment allowance for non-financial assets
during 2021 is presented below:
Group Non-financial assets Total
22,149 22,149
Impairment allowance for other assets as at 1 January 2021
(1,160) (1,160)
Impairment allowance charge during 2021
Effect of translation into presentation currency (18) (18)
Impairment allowance for other assets as at 31 December 20,971 20,971
2021
Analysis of movements in the impairment allowance for non-financial assets
during 2020 is presented below:
Group Non-financial assets Total
15,932 15,932
Impairment allowance for other assets as at 1 January 2020
9,972 9,972
Impairment allowance charge during 2020
Effect of translation into presentation currency (3,754) (3,754)
Impairment allowance for other assets as at 31 December 22,149 22,149
2020
The Group has no collateral for impaired assets recognised within other
assets.
9. Loans Received
Group 2021 2020
Bank loans 803,772 -
Loan from related party 500,908 735,646
Total loans received 1,304,680 735,646
Company 2021 2020
Bank loan - -
Loan from related party - -
Total loans received - -
On December 31, 2020, the Group entered into an agreement changing the terms
of the loan - starting from January 2021, interest is accrued on the specified
debt at a rate of 13.42% per annum and the maturity of the specified debt is
prolonged until 31.12.2023.
In 2021, the Group attracted short-term funds in rubles - under loan
agreements with JSC NOKSSBANK at a rate of 15% per annum.
The following is a reconciliation between the movements in loans received and
issued and cash flows generated from financing activities.
Loans attracted
As at 31 December 2019 742,603
Changes in financial flows
Loan received 259,266
Repayment of loans (259,266)
Loan offset (55,417)
Interest accrued 12,835
Interest paid (12,835)
Foreign exchange differences 199,489
Effect of translation into presentation currency (151,029)
As at 31 December 2020 735,646
Changes in financial flows
Loan received 1,578,786
Repayment of loans (789,393)
Interest accrued 154,674
Interest paid (325,578)
Foreign exchange differences (56,570)
Effect of translation into presentation currency 7,116
As at 31 December 2021 1,304,680
10. Other Liabilities
Group 2021 2020
Other financial liabilities
Payables 437,712 326,692
Other settlements with customers on loan's agreements 376,693 200,019
Other 10,245 7,195
Other non-financial liabilities
Taxes other than income tax 87,724 26,412
Income tax 63,237 -
Provision for unused vacations 122,447 104,353
Payables to employees and payroll related taxes 186,253 159,159
Total other liabilities 1,284,312 823,830
Company 2021 2020
Other financial liabilities
Payables 112,057 119,057
Other 27 27
Other non-financial liabilities
Payables to employees and payroll related taxes 85,002 67,655
Total other liabilities 197,086 186,739
11. Charter and Additional Capital, Other reserves. Earnings per share
As at 31 December 2018, the Charter capital states the amount of Share capital
of the Subsidiary - the authorised capital represents the contribution made by
the sole participant of the Subsidiary.
During 2019 the reverse acquisition was stated in the consolidated financial
statements, as a result, the Charter capital as at 31 December 2019 states the
Share capital of the legal parent Company, totalling £4,369,750. All the
shares issued have equal voting rights.
Below is a reconciliation of the movement in the legal parent Company Share
capital during 2019:
31 Dec 2018 Amount, £
Number
Group and Company
Issued and fully paid
6,000,000 60,000
Ordinary shares of £0,01 each
6,000,000 60,000
For the year 2019 (Ordinary shares issue of £0.01
each):
Group and
Company
Number Amount, £
320,000,000 3,200,000
Consideration shares (acquisition of Subsidiary)
IPO 104,000,000 1,040,000
Fee shares 6,975,000 69,750
430,975,000 4,309,750
31 Dec 2019 Amount, £
Group and Company Number
Issued and fully paid
436,975,000 4,369,750
Ordinary shares of £0.01 each
436,975,000 4,369,750
There are no changes in the structure and amount of the share capital during
2020.
During the first half of 2021, Group has completed an equity fundraise of
£1,000,000 (gross) through the issue of 25,000,000 ordinary shares at a price
of 4.0 pence per ordinary share.
The Fundraise has been undertaken by way of a placing of new ordinary shares
of £0.01 par value in the share capital of the Group. The Fundraise is to
provide additional capital for expansion of the loan portfolio and the
development of new products.
Charter capital Amount, £
Group Number
Issued and fully paid
As at 31 Dec., 2020 436,975,000 4,369,750
Ordinary shares of £0.01 each
Issue of ordinary shares In 1H 2021 25,000,000 250,000
As at 31 December, 2021 461,975,000 4,619,750
Additional capital
As at 31 December 2018 the amount of Additional capital stated in the
agreement on in-kind contribution (debt on the loan) of the Subsidiary was -
£29,122,880.
Amounts of Additional capital as at 31 December 2018 were restated as at the
date of the agreement on in-kind contribution (debt on the loan).
Group
Date of exchange rate for translation to presentation currency Amount in RUB Exchange rate Amount in GBP
29.12.2018 2,561,820,344 87.9659 29,122,880
Total additional capital at 29,122,880
31 December, 2018
As a result of the reverse acquisition, which was stated in the consolidated
financial statements in 2019, the Additional capital as at 31 December 2019 of
the legal parent Company was £6,078,128.
Below there is reconciliation of movement in Additional capital (share
premium) of legal parent Company during 2019:
For the year 2019:
Group and Company
Amount, £
-
As at 1 January 2019
Premium arising on issue of ordinary shares 6,406,699
Issue costs (328,570)
As at 31 December 2019 6,078,128
There are no changes in the structure and amount of additional capital during
2020.
During the first half of 2021, Group has completed an equity fundraise of
£1,000,000 (gross) through the issue of 25,000,000 ordinary shares at a price
of 4.0 pence per ordinary share.
The Fundraise has been undertaken by way of a placing of new ordinary shares
of £0.01 par value in the share capital of the Group.
Group
Amount, £
6,078,128
As at 1 January 2021
Premium arising on issue of ordinary shares in 1H 2021 750,000
Issue costs (72,500)
As at 31 December 2021 6,755,628
Other reserves
Merger Translation reserve
reserve
Group Shares to be issued Reserve Share option reserve
As at 31 December 2019 - 23,764,800 166,883 4,457,788
Contingent consideration 800,000 - - -
Merger reserve - (800,000) - -
Share based payments - - 51,216 -
Translation differences - - - (67,563)
As at 31 December 2020 800,000 22,964,800 218,099 4,390,225
Merger reserve - - - -
Share based payments - - 30,047 -
Translation differences - - - 21,764
As at 31 December 2021 800,000 22,964,800 248,146 4,411,989
The merger reserve as at 31 December 2019 arose on consolidation as a result
of merger accounting for the acquisition of the entire issued share capital of
the Subsidiary during 2019 and represents the difference between the value of
the share capital issued for the acquisition of the Subsidiary and investments
made in the Subsidiary and that of the acquired share capital of the
Subsidiary.
Share options reserve - this reserve represents cumulative share-based payment
expense for the Group's share option schemes. See Note 12 Share-based
payments.
Shares to be issued Reserve - this reserve represents shares to be issues in
respect of contingent consideration, see note 26 Business Combination for
further details.
Currency translation differences relate to the translation of the Subsidiary
that have a functional currency different from the presentation currency
(refer note 2). Movements in the translation reserve are linked to the changes
in the value of the Russian Ruble against the Pound Sterling: the business of
the Group is located in Russian Federation, and the Subsidiary's functional
currency is the Russian Ruble, which had substantial volatility against
Sterling during the year.
Accumulated deficit represents retained earnings.
Earnings per share. The basic earnings per share of 0.18p (2020 loss per
share: 0.14p) is calculated by dividing the profit / loss attributable to
owners of the parent by the weighted average number of ordinary shares in
issue during the year.
Group 2021 2020
801,497 (614,519)
Profit attributable to owners of the parent
Weighted average number of ordinary shares in issue 450,125,685 436,975,000
The diluted earnings per share for the years ended 31 December 2021 are 0.16p.
The diluted earnings per share is calculated by diving the profit attributable
to owners of the parent by weighted average number of ordinary shares in issue
outstanding for the effects of all dilutive potential ordinary shares.
The basic and diluted loss per share for the years ended 31 December 2020 are
the same as the year 2020 result was a loss, the options and warrants
outstanding would be anti-dilutive. Therefore, the dilutive loss per share
for the year 2020 is considered the same as the basic loss per shares.
Group 2021 2020
801,497 (614,519)
Profit attributable to owners of the parent
Weighted average number of ordinary shares in issue outstanding for the 493,775,685 436,975,000
effects of all dilutive potential ordinary shares
12. Share-based payments
In October 2019, a total of 32,250,000 options were issued to certain
directors, senior management and other advisers in recognition of the work
undertaken for Zaim prior to the IPO. In addition the Company issued a total
of 13,600,000 warrants to advisers in relation to the funds raised at the time
of the IPO. All the options were issued with an exercise price of 2.5 pence
per share and expire after 5 years from the date of issue. 17,200,000 of the
options vest immediately and have no employment related conditions, the
remaining 15,050,000 vest over 1-2 years from the date of issue and, should
the individual end their employment, the options either expire immediately or
are valid for a further 6 months (depending on the circumstances of the
departure of the individual). All the warrants have a contractual term of
3 years from the date of issue, have no performance related terms attached and
have a strike price of 2.5 pence per share.
In addition to the options noted above as set out in the prospectus at the
time of the IPO the Directors have the discretion to issue a further
10,750,000 options to key employees and consultants of the Group as an
incentivising tool to retain key individuals. As at the date of this report
these have not been issued and have therefore not been included in the
calculations. Neither the Company nor the Group has any legal or constructive
obligation to settle or repurchase the options in cash.
Movements on number of share options and their related exercise price are as
follows:
On 24 September 2020, 2,000,000 options were issued to Paul Auger a
non-executive director of the company at a price of 2.7p. The options vest
equally over one year from the date of grant and express after 5 years.
On 26 November 2020, 1,000,000 options were issued to an employee of the Group
at a price of 2.7p. The options vest equally over 2 years from the date of the
grant and express after 5 years.
Group Number of options& warrants
2020 Weighted exercise price
2020, £
40,650,000 2.50
Outstanding at 1 January 2020
Granted 3,000,000 -
Forfeited - -
Outstanding at 31 December 2020 43,650,000 2.50
Exercisable at 31 December 2020 34,200,000 2.50
There was no issue of new options in 2021.
Group Number of options& warrants
2021 Weighted exercise price
2021, £
43,650,000 2.50
Outstanding at 1 January 2021
Granted - -
Forfeited - -
Outstanding at 31 December 2021 43,650,000 2.50
Exercisable at 31 December 2021 42,150,000 2.50
The options & warrants outstanding at 31 December 2021 had a weighted
average remaining contractual life of 2.8 years.
The fair value of the share options and warrants was determined using the
Black-Scholes valuation model.
The parameters used are detailed below.
For the year 2020:
Group and Company 2020
Options
Date of Grant 24 Oct 2020
Weighted average share price 2.575 pence
Weighted average exercise price 2.70 pence
Weighted average fair value at the measurement date 0.72 penc
Expiry date 24 Oct 2025
Options granted 3,000,000
Volatility 30%
Dividend yield Nil
Option life 5 year
Annual risk free interest rate 2.83%
There was no issue of new options in 2021.
Group Number of options& warrants
2021 Weighted exercise price
2021, £
43,650,000 2.50
Outstanding at 1 January 2021
Granted - -
Forfeited - -
Outstanding at 31 December 2021 43,650,000 2.50
Exercisable at 31 December 2021 42,150,000 2.50
The options & warrants outstanding at 31 December 2021 had a weighted
average remaining contractual life of 2.8 years.
The fair value of the share options and warrants was determined using the
Black-Scholes valuation model.
The parameters used are detailed below.
For the year 2020:
Group and Company 2020
Options
Date of Grant 24 Oct 2020
Weighted average share price 2.575 pence
Weighted average exercise price 2.70 pence
Weighted average fair value at the measurement date 0.72 penc
Expiry date 24 Oct 2025
Options granted 3,000,000
Volatility 30%
Dividend yield Nil
Option life 5 year
Annual risk free interest rate 2.83%
13. Interest Income and Expense
2021 2020
Group
Interest income
Loans to customers 9,528,856 4,857,496
Other loans issued to related parties 15,157 -
Total interest income 9,544,013 4,857,496
Interest expense
Loans received (154,674) (12,836)
Lease liabilities (15,228) (92,442)
Total interest expense (169,902) (105,277)
Net interest income 9,374,112 4,752,218
14. Gains less Losses from Dealing in Foreign Currency
Group 2021 2020
Gain/loss on revaluation of financial assets and liabilities 23,961 (181,466)
Realised gain/ (loss) from foreign exchange transactions (3,019) (7,661)
Total gains less losses from dealing in foreign currency 20,943 (189,127)
15. Allowance for Expected Credit Losses / Impairment of Other Assets
Group Note 2021 2020
Loans to customers 6 6,535,306 1,780,746
Other assets 8 (1,160) 9,972
Total allowance for expected credit losses / impairment of other assets 6,534,146 1,790,718
16. Other Operating Income
Group 2021 2020
Agent's fee 1,124,626 253,889
Information services 898,296 51,867
Fines received under loan agreements 96,472 158,322
Effect of revaluation as a result of use of lease options 13,735 -
Financial result from derecognition of lease assets and liabilities 4,964 126,091
Other income 22,642 333
Total other operating income 2,160,735 590,502
17. Staff Costs
Group 2021 2020
Salary 1,249,155 1,429,920
Payroll related taxes 317,899 380,523
Total staff costs 1,567,055 1,810,443
18. Operating Expenses
Group 2021 2020
Advertising and marketing 978,716 269,304
Consulting services 321,754 209,828
Depreciation of right-of-use assets 220,267 661,165
State duty 202,523 283,523
Communication 170,990 98,172
Banking services 153,485 87,558
Postal services 125,043 91,328
Investor Relations 91,642 181,456
Writing off VAT 70,583 -
Rental expenses 28,493 66,434
Material expenses 21,683 33,920
Security 9,555 22,023
Other expenses 228,311 111,025
Total operating expenses 2,623,045 2,115,735
19. Income Tax
In 2021, the Group received taxable profit (as at 31 December 2020, the
Company has no current income tax expenses). The current income tax rate
applicable to the majority of the Group's profit is 20% (2020: 20%).
A reconciliation between the theoretical and the actual taxation charge is
provided below.
Group 2021 2020
IFRS loss before taxation 801,497 (614,519)
Theoretical tax charge at the applicable statutory rate (160,299) 122,904
Non-deductible expenses and other differences 31,189 29,521
)Unrecognised deferred tax asset 10,263 (152,425)
Income tax expense for the year (118,847) -
The Company has a potential deferred tax asset of £337,744 (2020: £153,847)
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.
2020 Effect of exchange rate differences Change recognised in profit and loss 2021
Tax effect of deductible temporary differences
Loans to customers 51,714 (394) (30,089) 21,230
Other assets 8,390 14 1,173 9,577
Intangible assets 15,287 (9) (537) 14,740
Lease liabilities 69,443 463 36,830 106,737
Other liabilities - - - -
Tax loss 3,330,002 (2,208) 38,844 3,366,638
Deferred tax assets 3,474, 836 (2,135) 46,220 3,518,921
Tax effect of taxable temporary differences
Other liabilities (9,942) (113) (8,906) (18,961)
Property and equipment (700) 2 175 (523)
Right-of-use assets under lease agreements
(59,585) (605) (47,752) (107,942)
Gross deferred tax liabilities
(70,227) (716) (56,483) (127,426)
Total net deferred tax asset 3,404,608 (2,851) (10,263) 3,391,495
Unrecognised tax assets (3,404,608) 2,851 10,263 (3,391,495)
Recognised tax liabilities - - - -
2019 Effect of exchange rate differences Change recognised in profit and loss 2020
Tax effect of deductible temporary differences
Loans to customers 91,779 (15,500) (24,565) 51,714
Other assets 24,891 (3,749) (12,752) 8,390
Intangible assets - (1,234) 16,521 15,287
Lease liabilities 511,130 (68,680) (373,007) 69,443
Other liabilities 9,716 (1,199) (8,517) -
Tax loss 3,882,681 (734,761) 182,082 3,330, 002
Deferred tax assets 4,520,197 (825,123) (220,238) 3,474, 836
Tax effect of taxable temporary differences
Other liabilities - 803 (10,745) (9,942)
Property and equipment (1,857) 287 871 (700)
Right-of-use assets under lease agreements (509,846)
67,725 382,536 (59,585)
Gross deferred tax liabilities (511,703)
68,815 372,663 (70,227)
Total net deferred tax asset 4,008,494 (756,310) 152,425 3,404,608
Unrecognised tax assets (4,008,494) 756,310 (152,425) (3,404,608)
Recognised tax liabilities - - - -
20. Risk Management
The risk management function within the Group is carried out in respect of
financial risks (credit, market, currency, liquidity and interest rate),
operational, and legal risks. The primary objectives of the financial risk
management function are to establish risk limits and then ensure that exposure
to risks stays within these limits. The assessment of exposure to risks also
serves as a basis for optimal distribution of risk-adjusted capital,
transaction pricing and business performance assessment. The operational and
legal risk management functions are intended to ensure proper functioning of
internal policies and procedures to minimise operational and legal risks.
Credit risk
The Group assumes a credit risk, namely the risk that a counterparty will fail
to meet its debt obligations within the specified period. The Group has
developed policies and procedures for the management of credit exposures (both
for recognised financial assets and unrecognised contractual commitments),
including requirements for establishment and monitoring of the loan portfolio
concentration limits.
The credit policy establishes:
· procedures for review and approval of loan applications,
· methodology for assessment of the borrowers' solvency,
· credit documentation requirements,
· procedures for the ongoing monitoring of loans and other
credit exposures.
The Group continuously monitors the status of individual loans and regularly
reassesses the creditworthiness of its customers. The review is based on the
most recent loan delinquency statistics.
The Group applies the expected credit loss model for the purpose of
provisioning for financial debt instruments, the key principle of which is
timely reflection of deterioration or improvement in the credit quality of
debt financial instruments based on current and forward-looking information.
The amount of the ECL recognised as a credit loss allowance depends on the
extent of credit quality deterioration since initial recognition of a debt
financial instrument.
Credit risk classification system. Each level of credit risk is assigned a
certain degree of solvency, using a single scoring system:
· minimum credit risk - high credit quality with low expected
credit risk, debt is not past due;
· low credit risk - sufficient credit quality with average
credit risk, debt is prolonged and not past due;
· moderate credit risk - average credit quality with
satisfactory credit risk, the debt is from 1 to 30 days past due;
· high credit risk - low credit quality with unsatisfactory
credit risk, high probability of default, the debt is from 31 to 60 days past
due;
· default - assets that meet the definition of default, the
debt is more than 60 days past due.
Expected credit losses on financial assets that are not impaired are usually
measured on the basis of default risk over one or two different time periods,
depending on whether there has been a significant increase in the borrower's
credit risk since initial recognition.
The Group performs collective assessment of loans to individuals. This
approach provides for the aggregation of the portfolio into homogeneous
segments based on specific information about borrowers, such as delinquent
loans, historic data on prior period losses and forward-looking macroeconomic
information.
Collective assessment principles: for assessing risk stages and estimating ECL
on a collective basis, the Group combines its loans into segments based on
shared credit risk characteristics, so that exposure within a grouping has a
homogeneous pattern.
Market risk
The Group assumes a market risk. Market risk is the risk that the fair value
or future cash flows of a financial instrument will fluctuate because of
changes in market prices. Market risk comprises currency risk, interest rate
risk and other price risks. Market risk arises from open positions in interest
rates, currency and equity financial instruments which are exposed to general
and specific market movements and changes in the volatility levels of market
prices.
The objective of market risk management is to manage and control market risk
exposures within acceptable parameters, while optimising the return on risk.
Currency risk
Currency risk is the risk that the fair value or the future cash flows of a
financial instrument will fluctuate because of changes in foreign currency
exchange rates.
The Group accepts the risk of effect of foreign currency exchange rate
fluctuations on its financial position and cash flows. Currency risk arises
when the existing or prospective assets in foreign currencies are greater or
lower than the existing or prospective liabilities in the same currencies. The
Group's management controls the exposure to currency risk on a regular basis.
The table below provides the analysis of the Group's currency risk as at 31
December 2021.
Group RUB GBP EUR Total
Assets
Cash and cash equivalents 1,116,787 185,961 171,161 1,473,909
Loans to customers 2,824,717 - - 2,824,717
Property and equipment 20,319 - - 20,319
Right-of-use assets under lease agreements 539,709 - - 539,709
Intangible assets 28,795 - - 28,795
Other assets 180,013 - 275,565 455,579
Total assets 4,710,341 185,961 446,726 5,343,028
Liabilities
Loans received 803,772 - 500,908 1,304,680
Lease liabilities 533,683 - - 533,683
Other liabilities 1,087,226 197,086 - 1,284,312
Total liabilities 2,424,681 197,086 500,908 3,122,675
Net balance sheet position 2,285,661 (11,125) (54,182) 2,220,354
The table below provides the analysis of the Group's currency risk as at 31
December 2020.
Group RUB GBP EUR Total
Assets
Cash and cash equivalents 479,708 161,095 68 640,871
Loans to customers 1,269,313 - - 1,269,313
Property and equipment 5,676 - - 5,676
Right-of-use assets under lease agreements 297,925 - - 297,925
Other assets 124,821 126,477 - 251,298
Total assets 2,177,443 287,571 68 2,465,083
Liabilities
Loans received - - 735,646 735,646
Lease liabilities 347,216 - - 347,216
Other liabilities 637,091 186,739 - 823,830
Total liabilities 984,307 186,739 735,646 1,906,692
Net balance sheet position 1,193,136 100,832 (735,578) 558,391
The table below presents a change in the financial result and equity due to
possible fluctuations of exchange rates used at the end of the reporting
period if all other conditions remain unchanged. Reasonable exchange rate
changes for each currency were projected on the basis of historical
information on maximum daily exchange rate fluctuations in December 2021.
31 December 2021
Group Effect on Effect on
equity
profit or loss before taxation
EUR appreciation by 20% (98,910) (79,128)
EUR depreciation by 20% 98,910 79,128
The table below presents a change in the financial result and equity due to
possible fluctuations of exchange rates used at the end of the reporting
period if all other conditions remain unchanged. Reasonable exchange rate
changes for each currency were projected on the basis of historical
information on maximum daily exchange rate fluctuations in December 2020.
31 December 2020
Group Effect on Effect on
equity
profit or loss before taxation
EUR appreciation by 20% (147,129) (117,703)
EUR depreciation by 20% 147,129 117,703
Liquidity risk
Liquidity risk arises when the maturity of assets and liabilities do not
match. The Group does not accumulate cash resources to meet all liabilities
mentioned above, as based on the existing practice it is possible to forecast
with a sufficient degree of certainty the required level of cash funds
necessary to meet the above obligations.
To manage its liquidity, the Group is required to analyse the level of liquid
assets needed to settle the liabilities when they mature, provide access to
various sources of financing, draw up plans to solve the problems with
financing, and exercise control over the compliance of the liquidity ratios
with the statutory laws and regulations.
The CBR sets and monitors liquidity requirements for microfinance
organisations. The Group calculates the liquidity ratio in accordance with
Instruction No. 5114-U of the Central Bank of the Russian Federation "On
establishment of economic standards for a microloan company attracting loan
funds from individuals, including individual entrepreneurs who are founders
(participants, shareholders), and (or) legal entities" dated 2 April 2019. As
at 31 December 2021 and 31 December 2020, the minimum liquidity ratio was 70%.
The Group provides the territorial CBR division that supervises its activities
with information on mandatory liquidity ratios in accordance with the set
format on a quarterly basis as at the first day of each month. Also, if the
liquidity ratio values approach the limit set by the CBR, this information is
communicated to the Group's management. The Group complies with the liquidity
ratio as at 31 December 2021 (unaudited) and as at 31 December 2020
(unaudited).
The table below shows the maturity profile of financial liabilities as at 31
December 2021:
On demand and less than 1 month 1 to From From From Total
3 months
3 months to 6 months
6 months to 1 year
1 to 3 years
Liabilities
Loans received 4,230 71,720 71,720 443,268 786,593 1,377,531
Lease liabilities - 71,417 67,169 112,690 383,375 634,650
Other liabilities 824,650 - - - - 824,650
Total potential future payments under financial liabilities 828,880 138,889 555,957 1,169,968 2,836,831
143,136
The table below shows the maturity profile of financial liabilities as at 31
December 2020:
On demand and less than 1 month 1 to From From From Total
3 months
3 months to 6 months
6 months to 1 year
1 to 3 years
Liabilities
Loans received - 51,582 77,373 154,745 618,982 902,682
Lease liabilities - 83,486 86,451 161,569 31,707 363,213
Other liabilities 533,909 - - - - 533,909
Total potential future payments under financial liabilities 533,909 163,824 316,314 650,689 1,799,804
135,068
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 2021:
On demand and less than 1 month From 1 to 3 months From 3 to 6 months From 6 months to 1 year More than 1 year Overdue No stated maturity Total
Assets
Cash and cash equivalents
1,473,909 - - - - - - 1,473,909
Loans to customers 2,592,265 - - - - 232,452 - 2,824,717
Property and equipment - - - - - - 20,319 20,319
Right-of-use assets under lease agreements - - - - - - 539,709 539,709
Intangible assets - - - - - - 28,795 28,795
Other assets 309,643 79 750 1,656 134,434 - 9,017 455,579
Total assets 4,375,817 79 750 1,656 134,434 232,452 597,840 5,343,028
Liabilities
Loans received 137,183 40,954 42,208 388,383 695,953 - - 1,304,680
Lease liabilities - 63,615 57,402 82,026 330,640 - - 533,683
Other liabilities 1,161,864 - - - - - 122,447 1,284,312
Total liabilities 1,299,047 104,568 99,610 470,409 1,026,592 - 122,447 3,122,675
Net liquidity gap as at 31 December 2021 3,076,770 (104,489) (98,860) (468,754) (892,158) 232,452 475,393 2,220,354
Cumulative liquidity gap as at 31 December 2021 3,076,770 2,972,281 2,873,421 2,404,667 1,512,509, 1,744,961 2,220,354
The table below present the maturity profile of assets and liabilities as at
31 December 2020:
On demand and less than 1 month From 1 to 3 months From 3 to 6 months From 6 months to 1 year More than 1 year Overdue No stated maturity Total
Assets
Cash and cash equivalents
640,871 - - - - - - 640,871
Loans to customers 1,168,937 - - - - 100,376 - 1,269,313
Property and equipment - - - - - - 5,676 5,676
Right-of-use assets under lease agreements
- - - - - - 297,925 297,925
Other assets 156,712 29 415 862 162 - 93,118 251,297
Total assets 1,966,520 29 415 862 162 100,376 396,720 2,465,084
Liabilities
Loans received - 27,345 54,270 113,642 540,389 - - 735,646
Lease liabilities - 77,397 81,779 157,129 30,911 - - 347,216
Other liabilities 719,477 - - - - - 104,353 823,830
Total liabilities 719,477 104,742 136,049 270,771 571,300 - 104,353 1,906,692
Net liquidity gap as at 31 December 2020 1,247,043 (104,713) (135,634) (269,909) (571,138) 100,376 292,367 558,391
Cumulative liquidity gap as at 31 December 2020 1,247,043 1,142,329 1,006,695 736,787 165,648 266,024 558,391
Interest rate risk
The Group assumes the risk associated with the effects of fluctuations in
market interest rates on its financial position and cash flows. Interest
margins may increase as a result of such changes but may also decrease or
create losses in the event of unexpected movements in interest rates.
The Group is exposed to interest rate risk primarily as a result of its
lending activities at fixed interest rates, in amounts and for periods which
differ from those of fixed interest rate borrowings (Loans to customers as at
31 December 2021: 2,824,717 and as at 31 December 2020: 1,269,313 British
pounds sterling and Other loans issued as at 31 December 2021: 275,565 and
as at 31 December 2020: 45,745 British pounds sterling ). In practice,
interest rates for Loans to customers are usually set for short periods. In
addition, interest rates recorded in both asset and liability contracts are
often revised by mutual agreement in accordance with current market
conditions. In 2021 the maximum daily interest rate for Loans to customers was
limited to 1% per day (in 2020 - to 1% per day).
Also, the Group's lease liabilities are exposed to interest rate risk (as at
31 December 2021: 533,683 and as at 31 December 2020: 347,216 British pounds
sterling) and loans received are exposed to interest rate risk (as at 31
December 2021:1,304,680 British pounds sterling and as at 31 December 2020
there are no such liabilities)
Other assets and liabilities are not exposed to interest rate risk.
21. Capital management
The Group's objectives when managing capital are to comply with the capital
requirements set by the Central Bank of Russia, as the main area of business
of the Group is in the Russian Federation, and to ensure the Group's ability
to continue as a going concern and maintain a capital base at the level
necessary to achieve the capital adequacy ratio of 5% in accordance with the
CBR requirements.
The Group provides the territorial division of the CBR supervising its
operations with information on the mandatory capital adequacy ratio in
accordance with the established format quarterly as at the first day of each
month.
The statutory requirements for own funds (equity) as at 31 December 2021 are
set at two million roubles (as at 31 December 2020 are set at one million
roubles). The Group is in compliance with the above requirements.
22. Contingencies
Litigations. In the ordinary course of business, the Group is subject to legal
actions and complaints. Management believes that the ultimate liability, if
any, arising from such actions or complaints will not have a material adverse
effect on the Group's financial condition or the results of its future
operations.
Tax legislation. As the main business of Group is in Russia, Russian tax
legislation is subject to varying interpretations, and changes, which can
occur frequently. Management's interpretation of such legislation as applied
to the transactions and activities of the Group's companies may be challenged
by the relevant regional or federal authorities. Current trends in the Russian
Federation suggest that the tax authorities are taking a more assertive
position in their interpretation of the legislation and assessments. As a
result, tax authorities may challenge transactions and accounting methods for
which they have not previously challenged. As a result, significant additional
taxes, penalties, and fines may be assessed.
As at 31 December 2021, 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. As at
31 December 2021 and at 31 December 2020
the Group has no Operating lease commitments.
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 2021 and
31 December 2020:
2021 2020
Group Carrying value Fair value Carrying value Fair value
Financial assets
Cash 1,473,909 1,473,909 640,871 640,871
Loans to customers 2,824,717 2,824,717 1,269,313 1,269,313
Other assets (loans issued to parent company) 275,565 275,565 45,745 45,745
Financial liabilities
Loans received 1,304,680 1,304,680 735,646 735,646
Other liabilities 824,650 824,650 533,907 533,907
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 and loans issued to parent company. Loans to customers and
loans issued to parent company are reported net of impairment allowance. The
estimated fair value of loans to customers and other loans issued represents
the discounted amount of estimated future cash flows expected to be received.
To determine fair value, expected cash flows are discounted at current market
rates (the interest rate on loans to customers in 2021 was 1% (2020 - 1%), the
interest rate on the loans issued to parent company was 8.7% and 3% in 2021
(3% in 2020).
Loans received. The fair value of other fixed interest-bearing borrowed funds
is based on discounted cash flows using interest rates for instruments with
similar maturity and in similar currency. The lending rates are equal to the
market rates.
To present information on the fair value hierarchy of financial instruments as
required by IFRS 13 Fair Value Measurement, the management of the Group
assigns the above financial assets and liabilities as at 31 December 2021 and
31 December 2020, excluding cash and cash equivalents (Level 1 = GBP 1,473,909
at 31 December 2021 and GBP 640,871 at 31 December 2020) to Level 3 of the
fair value hierarchy of inputs.
24. Reconciliation of Classes of Financial Instruments with Measurement Categories
In accordance with IFRS 9 "Financial Instruments", the Group classifies its
financial assets and liabilities into the following categories: (a) financial
assets at fair value through profit or loss; (b) financial assets at fair
value through other comprehensive income; and (c) financial assets at
amortised cost.
At the same time, in accordance with the requirements of IFRS 7 "Financial
Instruments: Disclosures", the Group discloses various classes of financial
instruments.
As at 31 December 2021 and 31 December 2020, all financial assets and
liabilities of the Group are classified as financial assets and liabilities
measured at amortised cost.
25. Related Party Transactions
For the purposes of these consolidated financial statements, parties are
considered to be related if one party has the ability to control or exercise
significant influence over the other party in making financial or operational
decisions as defined by IAS 24 Related Party Disclosures. In considering each
possible related party relationship, attention is directed to the economic
substance of the relationship, not merely the legal form.
In the normal course of business, the Group enters into transactions with its
sole participant and directors. These transactions include settlements,
payment of remuneration to employees, and loan draw downs. According to the
Group's policy, the terms of related party transactions are equivalent to
those prevailing in arm's length transactions.
The outstanding balances at the year end and liability transactions with
related parties for 2021 are as follows:
Transactions with ultimate beneficiary 2021 2020
Loan to beneficiary - (55,559)
Loan offset - 55,559
Transactions with parent company
Other loan issued
As at 31 December 2019 -
Changes in financial flows
Loan issuance 45,411
Accrued interest 334
As at 31 December 2020 45,745
Changes in financial flows
Loan issuance 254,702
Loan repayment (25,194)
Accrued interest 15,157
Exchange rate differences (16,691)
Impact of conversion into reporting currency 1,847
As at 31 December 2021 275,565
Loans received
As at 31 December 2019 742,603
Changes in financial flows
Offset of loan claims (55,417)
Exchange rate differences 199,489
Impact of conversion into reporting currency (151,029)
As at 31 December 2020 735,646
Changes in financial flows
Accrued interest 84,225
Interest paid (259,305)
Exchange rate differences (56,570)
Impact of conversion into reporting currency (3,087)
As at 31 December 2021 500,908
No interest was accrued on loan received in 2020. As at 31 December 2020 and
at 31 December 2019, the balance on loans received represents the obligation
to pay interest on the loan, which was forgiven in 2018. On December 31, 2020,
the Group entered into an agreement changing the terms of the loan - starting
from January 2021, interest is accrued on the specified debt at a rate of
13.42% per annum and the maturity of the specified debt is prolonged until 31
December, 2023.
For the year ended 31 December 2020, the total remuneration of key management
personnel of the Subsidiary was GBP 304,677, including insurance premiums of
GBP 47,392 (2020: GBP 274,281, including insurance premiums of GBP 44,106).
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 2021 was as follows:
Below is the summary of remuneration for each Director for 2021:
Salary, £, for the year 2021 Bonus for the year 2021 Shares held Stock options
Malcolm Groat 25,000 4,000 0 2,150,000
Siro Donato Cicconi 100,000 35,000 320,000,000 10,750,000
Vladimir Golovko 141,038 3,500 0 8,600,000
Simon James Retter 60,000 21,000 4,900,000 6,450,000
Paul James Auger 20,000 4,000 0 2,000,000
The social insurance contributions, paid by the Company for the year 2021 on
remuneration, was £17,388 (2020 - £17,388).
Out of pocket expenses totalling £78,055 were incurred by Siro Donato Cicconi
in 2019 and as at 31 December 2021 £48,055 remained payable (as at 31
December 2020: £48,055).
26. Business combination
On 19 September 2019 Zaim Credit Systems plc (Parent Company) became the legal
parent of Zaim Express LLC (Subsidiary) by way of reverse acquisition. The
cost of the acquisition is deemed to have been incurred by Zaim Express LLC,
the legal subsidiary, in the form of equity instruments issued to the owners
of the legal parent. This acquisition has been accounted for as a reverse
acquisition as described in Note 3, Basis of Preparation.
The fair value of the shares in Zaim Express LLC have been determined from the
admission price of the Zaim Credit Systems plc shares on re-admission to
trading on the LSE for 2.5 pence per share. The value of the consideration
shares was £8,000,000. The fair value of the notional number of equity
instruments that the legal subsidiary would have had to have issued to the
legal parent to give the owners of the legal parent the same percentage
ownership in the combined entity is 1.84 per cent of the market value of the
shares after issues, being £150,000. The difference between the notional
consideration paid by Zaim Credit Systems plc for Zaim Express LLC and the
Zaim Credit Systems plc net assets acquired of £nil has been charged to the
Consolidated Statement of Comprehensive Income as a deemed cost of the listing
amounting to £150,000 with a corresponding entry to the reverse acquisition
reserve.
Details of net assets acquired and the deemed cost of the listing were as
follows:
£
Consideration effectively received 150,000
Less net asset required:
Cash and cash equivalents
52,055
Debtors and prepayments
11,982
Current
liabilities
(64,037)
Total net asset
required:
-
Deemed cost of listing
150,000
The terms of the share purchase agreement between the Company and Zaim Express
LLC were as follows: 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 shares over and above that already
mentioned shall become payable should the Company record a monthly EBITDA
figure of £350k per calendar month with the same continuous period clause as
noted above. At the IPO price per share these deferred contingent
considerations would have a value of £400k each for a combined value of
£800k. It has been considered by the Directors at this time that, in light of
the Covid-19 pandemic it remains difficult to predict if and when this might
occur. This combined with the current low probability of these milestones
being met in the current environment, meant that no fair value has been
calculated for such deferred considerations.
Under the terms of the share purchase agreement between the Com-pany and Zaim
Express LLC (Subsidiary) there are certain circumstances under which deferred
contingent consideration might become payable. Should the Company record a
monthly EBITDA figure in accordance with IFRS of £200k per month for a
continuous period of four months and there be no reasonable expectation that
this should fall below this level for a further period of six months then a
further 16,000,000 new ordinary shares in the Company shall become payable.
Addition-al consideration of 16,000,000 over and above that already mentioned
shall become payable should the Company record a monthly EBITDA figure of
£350k per calendar month with the same continuous period clause as noted
above. At the IPO price per share these deferred contingent considerations
would have a value of £400k each for a combined £800k in value. It has been
considered by the Directors that given the improvement in outlook for the
business that this additional consideration is likely to become payable in the
near future and therefore a reserve of shares to be issued has been recognised
and associated increase in carrying value of the investment in Zaim Express
LLC (Subsidiary) as a result of this consideration.
27. Auditor's remuneration
31.12.21 31.12.20
Audit £ £
Fees payable to the company's auditor for the audit of the annual parent 40,000 40,000
company and consolidated accounts
Fees payable to the company's auditor for other services provided to the - -
company and its subsidiaries:
The audit of the company's subsidiaries under legislative requirements - -
Total audit 40,000 40,000
28. Events after the Reporting Period
Since February 2022, there has been an increase in geopolitical tensions,
which created significant risks for the Russian economy and led to significant
fluctuations in exchange rates and a decrease in the value of the Russian
assets in financial markets. Taking into account the information available at
the moment, the possible impact of these events both on the economy of the
Russian Federation as a whole and on its individual industries is not readily
predictable. As a result, there is no possibility of estimating the financial
impact of these events on the Company's activities with a sufficient degree of
reliability in the short term. The Company is closely monitoring the
development of the situation to make an alternative assessment of its
strategic and operational intentions and plans in the event of any indicators
of a negative impact on its activities.
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