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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Adalan Ventures Plc | LSE:ZAIM | London | Ordinary Share | GB00BMXTZ463 | ORD GBP0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 4.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Public Finance, Taxation | 53k | -10.92M | -0.2364 | -0.19 | 2.08M |
From Apr 2022 to Apr 2024
TIDMZAIM
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 GBP26.1m (2020: GBP10.3m)
-- Loans issued online to grew by 4.9 times to GBP23.1m (2020: GBP4.8m)
-- 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 GBP1,001k in 2021 (2020: loss of GBP125k)
-- Group Net Profit of GBP683k in 2021 (2020: net loss of GBP615m)
-- Cash and cash equivalents increased by 130% to GBP1,474k in 2021 (2020: GBP641k)
-- 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
Hot Features
Premium
2021 2020 Change
GBP'000 GBP'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
GBP'000 GBP'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 GBP23.1m (2020: GBP4.8m), 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. zaimcreditsystemsplc .com/english and also from the National Storage Mechanism.
Follow us on Twitter - @ZaimcreditSyst
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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
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 GBP26.1 million, and net profit improved from a loss of GBP615,000 in 2020 to a profit of GBP683,000 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. GBP3.87 billion) as at 31 December 2021. Online lending in Russia had doubled reaching 108.6 billion (c. GBP1.28 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 GBP100,000 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 GBP26.1m.
Performance of o ur online business was the main driver for this growth: loans issued online skyrocketed to GBP23.1m, 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 GBP2.9m 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 GBP 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 GBP220 thousand and staff costs have decreased by 17% to GBP 1.3m, at the same time advertising and marketing costs increased by 263% to GBP 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 bu siness turned to profi tability from a loss of GBP615,000 in 2020 to a profit of GBP683,000 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
(3) According to the Central Bank of Russia's publication " Microfinance market trends in 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 We read the Directors' assessment The disclosures in
group may not be considered of the risks and impacts of the financial statements
a going concern as a result COVID-19 and the Russian invasion adequately reflect
of the impact of COVID-19 of Ukraine on the business. the Directors' conclusions
(Coronavirus) and the We compared this assessment around the material
Russian invasion of Ukraine. to our own understanding of uncertainties in respect
the risks, and the nature of the Russian invasion
of the group's operations, 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 We understood the group's We did not identify
Given the extended credit process for estimating the any evidence of material
terms that were provided expected credit loss provision misstatement related
to customers, judgement under IFRS 9. Loans to customers to carrying value of
is required to establish were tested on a sample basis receivables. Management
how much of the loan receivables which included considering continue to apply an
balance is recoverable. the recoverability of the appropriate expected
There is a risk that management's balances post year end. Overdue credit loss provision.
judgements and estimates balances were discussed with
over recoverability are management and we assessed
inappropriate, when considering whether the accounting provision
the specific balances appropriately reflects the
and the requirements of facts and circumstances.
IFRS 9.
------------------------------------- --------------------------------
Risk of fraud in revenue
recognition We reviewed the group's revenue Revenue was recognised
There is a risk that revenue recognition policies and how in accordance with
is materially understated they are applied. Revenue the group's accounting
due to fraud. was then tested on a sample policy and we concluded
basis to confirm that transactions that no evidence of
have been appropriately recorded fraud or other understatement
in line with IFRS 15. was identified.
------------------------------------- --------------------------------
Risk that management
is able to override controls We examined journals posted We identified no evidence
Journals can be posted around the year end, specifically of management override
that significantly alter focusing on areas which are in respect of inappropriate
the financial statements. 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 GBP113,779 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 GBP85,334. 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 GBP5,689. 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
1, 4 73 ,
Cash and cash equivalents 5 909 640, 8 71
2,824 , 7
Loans to customers 6 1 7 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 25 1 ,2 97
5 , 343 ,
Total assets 028 2,465, 083
-------------------------------------------- ------- ------------- -------------
Liabilities
Loans received 9 1,304 ,6 80 735,646
Lease liabilities 7 533 ,6 83 347,216
1,2 8 4 ,
Other liabilities 10 312 823,830
3 , 122 ,6 1,906,6
Total liabilities 75 92
-------------------------------------------- ------- ------------- -----------
Equity
Charter capital 11 4,6 1 9,750 4,369,750
Shares to be issued Reserve 26 800 , 000 800 , 000
6,7 55 , 6
Additional capital 11, 2 5 28 6,078,128
Foreign currency translation reserve 11 4, 411 , 989 4, 3 90,225
2 2,9 64
Merger reserve 11, 26 2 2,9 64 ,800 ,800
Share options reserve 11 2 4 8 ,146 218 , 099
(3 7 , 579 (38, 262
Accumulated deficit 11 , 961 ) , 611 )
-------------------------------------------- ------- ------------- -----------
Total equity 2,220 , 353 558,391
-------------------------------------------- ------- ------------- -----------
5 , 343 ,0
Total liabilities and equity 28 2,465,083
-------------------------------------------- ------- ------------- -----------
Siro Donato Cicconi,
Chief Executive Officer
Simon James Retter,
Finance Director
17 May 202 2
Zaim Credit Systems plc
Company Statement of Financial Position as at 31 December 2021
(in British pounds sterling)
Company Registered number 11418575
Note 202 1 20 20
----------------------------- ---- ------------ ----------
Assets
Cash and cash equivalents 5 211 , 83 3 1 61 ,163
Other assets 8 130,076 126, 477
10 , 0 96
Investment in Subsidiary 1 10 , 438,409 ,089
10, 780 ,
Total assets 31 9 10,383,729
----------------------------- ---- ------------ ------------
Liabilities
Other liabilities 10 1 97 , 086 186,739
Total liabilities 1 97 , 086 186,739
----------------------------- ---- ------------ ----------
Equity
Charter capital 11 4,6 1 9,750 4,369,750
Shares to be issued Reserve 26 800 ,000 800 ,000
6,7 55 , 6
Additional capital 11 28 6,078,128
Share options reserve 12 248,146 218,099
(1 ,268
(1 ,840 , , 9 8 7
Accumulated deficit 292 ) )
----------------------------- ---- ------------ ----------
10, 583 ,
Total equity 232 10,196,990
----------------------------- ---- ------------ ----------
10, 7 8 0
Total liabilities and equity , 31 9 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 GBP57 1 , 3 0 5 (20 20 : GBP 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 202 2 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)
9 , 544
Interest income 13 , 013 4,857,496
(1 54 ,
Interest expenses 674 ) (12,8 35 )
( 15 ,2
Interest expense - lease liabilities 13 28 ) (92,442)
------------------------------------------- -------- ---------- -------------
9 , 374
Net interest income , 1 1 2 4,752,218
Allowance for ECL/impairment of loans ( 6 , 534,
to customers 6 ,8, 15 1 46 ) (1, 790, 718)
Net interest income after allowance 2, 83 9,
for ECL/impairment of loans to customers 966 2,961,501
Gains less losses from dealing in (189 ,127
foreign currency 14 20 , 943 )
2,160 ,
Other operating income 16 73 5 590,502
------------------------------------------- -------- ---------- -------------
5 , 0 2
Operating income 1 , 644 3,362,875
(1, 567
Staff costs 17 , 055 ) (1,810,443)
( 30 , 047
Charge for share based options 12 ) (51,216)
(2, 623
Operating expenses 18 , 04 5) (2, 11 5,735)
801 , 4
Profit / (l oss) before income tax 9 7 (614,519)
Income tax expense 19 (118,847) -
------------------------------------------- -------- ---------- -------------
6 82 ,
Net profit / (loss) 6 5 0 (61 4 ,519)
------------------------------------------- -------- ---------- -------------
Net other comprehensive income that
may be reclassified to profit or loss
Foreign exchange differences arising 21 , 7 6
on translation into presentation currency 4 (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)
Foreign
currency Share
Shares to translation Merger reserve options
be issued Additional reserve reserve Accumulated Total
Charter capital Reserve capital (FCTR ) deficit equity
-------------------------- ----------- ---------- ----------- ---------------- --------- ------------------ ---------
Balance at 31
December 2019 4,369,750 - 6,078,128 4,457,788 23 , 764 , 800 166,883 (37, 648 ,0 92 ) 1,189,258
---------------- --------- ----------- ---------- ----------- ---------------- --------- ------------------ ---------
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 20 20 4,369,750 800,000 6,078,128 4,390,225 22,964,800 218,099 (38, 262 , 6 1 1 ) 558,391
---------------- --------- ----------- ---------- ----------- ---------------- --------- ------------------ ---------
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 202
1 4,6 1 9,750 800,000 6,7 55 , 6 28 4, 411 , 989 22,964,800 248,146 (3 7 , 579 , 96 1) 2,220 ,3 53
--------------- ----------- --------- -------------- ------------ ------------ --------- ------------------ -----------
Zaim Credit Systems Group
Company Statement of Changes in Equity for the Year Ended 31 December 2021
(in British pounds sterling)
Shares to be
issued Additional Accumulated Share options Total
Charter capital Reserve capital deficit reserve equity
---------------- --------------- -------------- --------------- ----------------- -------------- -------------
Balance at 31
December 201 9 4,369,750 - 6,078,128 ( 692 , 987 ) 166,883 9,9 21 ,774
---------------- --------------- -------------- --------------- ----------------- -------------- -------------
Comprehensive
loss for 2020 - - - (576,000) - (576,000)
Contingent
consideration - 800 ,000 - - - 800,000
Share-based
payments - - - - 51,216 5 1,216
Balance at 31
December 2020 4,369,750 800,000 6,078,128 (1 ,268 , 9 8 7 ) 218,099 10 , 1 96,990
---------------- --------------- -------------- --------------- ----------------- -------------- -------------
Issue during the year 250,000 - 677,500 - - 927,500
Comprehensive loss for 202 1 - - - (57 1 , 3 0 5 ) - (57 1 , 3 0 5 )
Share-based payments - - - - 30,047 30 , 047
Balance at 31 December 2021 4,6 1 9,750 800,000 6,7 55 , 62 8 (1 ,840 , 292 ) 248,146 10 , 583 , 232
------------------------------ ----------- ------- ------------- --------------- ------- ---------------
Zaim Credit Systems plc
Consolidated Statement of Cash Flows for the
year ended 31 December 2021
(in British pounds sterling) 2021 20 20
---------------------------------------------------- ------------- -------------
Cash flows from operating activities
Interest received 7,578,606 4,219,635
Interest paid (340,811) (105,273)
( 11 , 886
Gains less losses from dealing in foreign currency ) (7, 460 )
2 ,233 ,
Other operating income 026 559,981
(1,5 82 ,
Staff costs 249 ) (1,854,393)
Operating expenses (2 , 263,521) ( 1, 226,365)
(55 , 613
Income tax paid ) -
Cash flows from/(used in) operating activities 5, 5 57
before changes in operating assets and liabilities ,5 52 1, 586,125
Net (increase)/decrease in operating assets
(6 , 0 8 ( 1,848,483
Loans to customers 3 , 920) )
112 , 5 6
Other assets 4 (109 ,06 3)
Net decrease in operating liabilities
Other liabilities 95 , 690 57 ,357
---------------------------------------------------- ------------- -------------
(318 , 11 (314 ,064
Net cash flows from operating activities 4 ) )
---------------------------------------------------- ------------- -------------
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
( 2 6 1 ,
Repayment of lease liabilities 555 ) (536,120)
1, 5 78 ,
Loans received 78 6 259,266
( 78 9, 393
Repayment of loans received ) (259,266)
Issue of ordinary shares (including share premium) 1,000,000 -
Share issue costs (72,500) -
---------------------------------------------------- ------------- -------------
1,455 , (536 ,120
Net cash flows from financing activities 337 )
---------------------------------------------------- ------------- -------------
Effect of exchange rate changes on cash and
cash equivalents (2 , 722) (91 ,696 )
833 , 03 (941 ,880
Net change in cash and cash equivalents 8 )
Cash and cash equivalents at the beginning of
the year 640 , 871 1 ,582 ,751
---------------------------------------------------- ------------- -------------
Cash and cash equivalents at the end of the 1,473 ,
year (Note 5) 909 640, 8 71
---------------------------------------------------- ------------- -------------
Zaim Credit Systems plc
Company Statement of Cash Flows for the year ended 31 December 2021
(in British pounds sterling)
202 1 20 20
---------------------------------------------------- ------------- ------------
Cash flows from operating activities
(57 1 , 3
Loss for the period 0 5 ) (576,000)
Correction for non-cash transaction (charge
for share options granted) 30 , 047 51,216
Cash flows from/(used in) operating activities ( 541 , ( 524 , 78
before changes in operating assets and liabilities 258 ) 4)
Adjustments for
( 3 ,5 99
Increase in trade and other receivables , VAT ) ( 5 8,355)
Increase in trade and other payables 10 ,3 47 24,073
( 559 ,0
Cash generated from operations ( 5 34,510) 6 6)
---------------------------------------------------- ------------- ------------
(5 34 , (559,0 66
Net cash flows used in operating activities 510 ) )
---------------------------------------------------- ------------- ------------
Cash flows from investing activities
( 342 , 3
Investment in Subsidiary 2 0 ) (590,426)
( 342 ,
Net cash flows from investing activities 3 2 0 ) (5 90 ,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)
Cash and cash equivalents at the beginning of
the year 1 6 1, 163 1 , 310,655
---------------------------------------------------- ------------- ------------
Cash and cash equivalents at the end of the 2 11, 83
year (Note 5) 3 161,163
---------------------------------------------------- ------------- ------------
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 (S ubsidiary), 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
----------------------- ------------------------- --------------- ---------------
Z aim-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 spe c ialists 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 reache d 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:
Inflation for
The year ended 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 202 1 , the Group has an accumulated deficit of GBP 3 7 , 579 , 961 (20 20 : GBP 3 8 , 262 , 611 ) , and incurred a net profit of GBP 682 ,650 during the year ended 31 December 2021 (20 20 : net loss GBP 614 ,5 1 9 ).
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 .
A mortised 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 202 1 2020
-------------------------------- -------- --------
Cash on hand 25 , 429 30,811
1,448 ,
Accounts with other banks 480 610,060
1,473
Total cash and cash equivalents , 909 640 ,871
-------------------------------- -------- --------
Company 202 1 2020
-------------------------------- -------- -------
21 1, 83
Accounts with other banks 3 161,163
21 1,
Total cash and cash equivalents 83 3 161,163
-------------------------------- -------- -------
As at 31 December 202 1 , the Group has 2 counterparties (20 20 : 2 counterparties) with balances exceeding 10% of total cash and cash equivalents in the amount of GBP 1,175,168 (20 20 : 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 202 1 .
Group Accounts with other banks Total --------------------------------------------------- --------------------------- ------------ Minimum credit risk 1,448,48 0 1,448,48 0 Total cash and cash equivalents, less cash on hand 1,448 , 48 0 1,448 , 48 0 --------------------------------------------------- --------------------------- ------------ Company Accounts with other banks Total --------------------------------------------------- --------------------------- ------------ Minimum credit risk 21 1 ,833 21 1 ,833 Total cash and cash equivalents, less cash on hand 21 1, 83 3 21 1, 83 3 --------------------------------------------------- --------------------------- ------------
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 , 29 4 1,448 , 48 0 Total 107,883 103,950 39,353 1,197 , 29 4 1,448 , 48 0 -------------------------- ----------------- ---------- -------- ------------------- ------------ Company Fitch A+ Fitch BB+ S&P BBB- No rating assigned Total -------------------------- ----------------- ---------- --------- ------------------- ----------- Accounts with other banks 107,883 103 , 950 - - 2 11, 83 3 Total 107,883 103,950 - - 2 11, 83 3 -------------------------- ----------------- ---------- --------- ------------------- -----------
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 6 1 0 ,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 202 1 20 20
------------------------------------------- --------- ------------
36 , 469
Loans to customers , 024 28,298,290
(33 , 644
Less: ECL allowance , 307) (27,028,977)
------------------------------------------- --------- ------------
2 , 824
Total loans to customers at amortised cost , 717 1,269,313
------------------------------------------- --------- ------------
Company 202 1 20 20
------------------------------------------- ----- -----
Loans to customers - -
Less: ECL allowance - -
------------------------------------------- ----- -----
Total loans to customers at amortised cost - -
------------------------------------------- ----- -----
Below is analysis of movements in the ECL allowance during 202 1 (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 20 21 201,494 589,300 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 20 21 416,703 1,009,944 32,217,660 33,644,307 -------------------------- ------------- ----------- ----------- -------------
Analysis of movements in the ECL allowance during 20 20 is as follows:
Group Stage 1 Stage 2 Stage 3 Total -------------------------- ---------- ---------- ----------- ----------- ECL allowance as at 1 January 20 20 128,028 288,985 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 26 , 238 27 , 028 December 20 20 201 , 494 589 , 300 , 183 , 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 202 1 :
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 20 20 :
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 :
Group Real Estate Total ----------------------------------------- ------------ ---------- As at 1 January 202 1 297,925 297,925 Depreciation charge (220,267) (220,267) M odifications and remeasurement 474,131 474,131 D erecognition (15,105) (15,105) Effect of translation into presentation currency 3,026 3,026 ----------------------------------------- ------------ ---------- As at 31 December 202 1 539,709 539,709 ----------------------------------------- ------------ ---------- Group Real Estate Total -------------------------------------------------- ------------ ------------ As at 1 January 2020 2,549,233 2,549,233 Depreciation charge (661,165) (661,165) M odifications and remeasurement (248,309) (248,309) D erecognition (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 202 1 347,216 347,216
Interest expense on lease liabilities 15,228 15,228
Lease payments (276,786) (276,786)
4 62 ,30
M odifications and remeasurement 462,30 5 5
(16,5 96
D erecognition (16,5 96 ) )
Effect of translation into presentation
currency 2 ,316 2 ,316
----------------------------------------- ------------ ----------
As at 31 December 202 1 533,683 533,683
----------------------------------------- ------------ ----------
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) M odifications and remeasurement (248,309) (248,309) D erecognition (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 20 20
------------------------------------- -------- --------
Other financial assets
Other loans issued to parent company 275 ,565 4 5 ,745
Settlements for rendered services 129,859 26,448
------------------------------------- -------- --------
Total other financial assets 405,424 72,193
------------------------------------- -------- --------
Group 202 1 20 20
--------------------------------- --------- --------
Other non-financial assets
Lease prepayments 2 4 ,062 23,062
Settlements with suppliers 29 , 614 35,211
5 , 40
Taxes other than income tax 0 110,980
Other receivables 12 , 049 32,0 0 1
( 2 0 ,9 ( 22,149
Less: impairment allowance 71) )
--------------------------------- --------- --------
Total other non-financial assets 5 0 , 154 179,104
--------------------------------- --------- --------
455 , 5
Total other assets 7 9 251,297
--------------------------------- --------- --------
Company 2021 20 20
-------------------------------------- ------- --------
Other financial assets
130 , 0
Other loans issued to related parties 76 45 , 745
Less: impairment allowance - -
-------------------------------------- ------- --------
130 ,
Total other financial assets 0 76 45 , 745
-------------------------------------- ------- --------
Company 2021 20 20
--------------------------------- ----- ---------
Other non-financial assets
Taxes other than income tax - 80 , 732
Less: impairment allowance - -
--------------------------------- ----- ---------
Total other non-financial assets - 80 , 732
--------------------------------- ----- ---------
130 ,
Total other assets 076 126 , 477
--------------------------------- ----- ---------
Analysis of movements in the impairment allowance for non-financial assets during 202 1 is presented below:
Group Non-financial assets Total ------------------------------------------------------------- -------------------- --------- Impairment allowance for other assets as at 1 January 2021 22,149 22,149 Impairment allowance charge during 20 2 1 (1 , 160) (1 , 160) Effect of translation into presentation currency ( 18 ) ( 18 ) Impairment allowance for other assets as at 31 December 2021 20,971 20,971 ------------------------------------------------------------- -------------------- ---------
Analysis of movements in the impairment allowance for non-financial assets during 20 20 is presented below:
Group Non-financial assets Total ------------------------------------------------------------- -------------------- ----------- Impairment allowance for other assets as at 1 January 2020 15,932 15,932 Impairment allowance charge during 20 20 9 , 972 9 , 972 Effect of translation into presentation currency ( 3 , 754 ) ( 3 , 754 ) Impairment allowance for other assets as at 31 December 2020 22,149 22,149 ------------------------------------------------------------- -------------------- -----------
The Group has no collateral for impaired assets recognised within other assets.
9. Loans Received
Group 202 1 20 20 ------------------------ --------- ------- 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 20 20
------------------------------------------- -------- -------
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
1 ,2
8 4 ,3
Total other liabilities 12 823,830
------------------------------------------- -------- -------
Company 2021 2020
------------------------------------------- ------- ---------
Other financial liabilities
Payables 112,057 119,057
Other 27 27
Other non-financial liabilities
Payables to employees and payroll related 67, 65
taxes 85,002 5
Total other liabilities 197,086 1 8 6,739
------------------------------------------- ------- ---------
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 .
D uring 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 GBP4,369,750. 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
Group and Company 2018 Amount
Issued and fully paid Number , GBP
----------------------------------- ---------- -------
6 , 000
Ordinary shares of GBP0, 01 each , 000 60,000
6 ,000,000 60,000
----------------------------------- ---------- -------
For the year 2019 ( Ordinary shares issue of GBP0.01 each):
Group and Company Number Amount, GBP
320 , 000 3 ,200
Consideration shares (acquisition of Subsidiary) , 000 ,000
IPO 104 ,000,000 1,040,000
Fee shares 6 ,975,000 69,750
430 ,975,000 4 , 309,750
--------------------------------------------------- -------------- -----------
31 Dec
Group and Company 2019 Amount
Issued and fully paid Number , GBP
---------------------------------------------------- ------------- -----------
436 , 975
Ordinary shares of GBP0 . 01 each , 000 4,369,750
436 ,975,000 4,369,750
--------------------------------------------------- -------------- -----------
T here 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 GBP1,000,000 (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 GBP0.01 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 Group Amount Issued and fully paid Number , GBP ------------------------------------ ------------ --------- As at 31 Dec., 2020 436 , 975 Ordinary shares of GBP0.01 each , 000 4,369,750 Issue of ordinary shares In 1H 2021 25,000,000 250,000 As at 31 Dece mber, 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 - GBP29,122,880.
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 Amount in Exchange
presentation currency RUB rate Amount in GBP
------------------------ --------- --------------
29.12.2018 2,561,820,344 87.9659 29,122,880
Total additional capital at
31 December , 2018 29,122,880
---------------------------------------- --------- --------------
As a result of 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 GBP6,078,128.
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, GBP
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 ---------------------------------------------- -----------
T here 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 GBP1,000,000 (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 GBP0.01 par value in the share capital of the Group .
Group
Amount, GBP
As at 1 January 2021 6,078,128 Premium arising on issue of ordinary shares in 1H 2021 750,000 Issue costs (72,500) As at 31 Dec e mber 2021 6 , 755,628 ---------------------------------------------- -----------
Other reserves
Shares Share
to be option
issued Merger reserve Translation
Group Reserve reserve reserve
------------------------- ---- ---------- ------------- ---------- ------------
As at 31 December 2019 - 23 ,764,800 166,883 4,457,788
-------------------------- -------------- ------------- ---------- ------------
800 ,
Contingent consideration 000 - - -
Merger reserve - (800,000) - -
Share based payments - - 51,216 -
Translation differences - - - (67,563)
22 ,
As at 31 December 2020 800,000 9 64,800 218,099 4,390,225
------------------------------- ---------- ------------- ---------- ------------
Merger reserve - - - -
30 ,
Share based payments - - 047 -
21, 7
Translation differences - - - 6 4
22 , 2 4
As at 31 December 2021 800,000 9 64,800 8, 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
------------------------------------------- ------------------------ -------------------
Profit attributable to owners of the
parent 801,497 ( 614 ,519)
Weighted average number of ordinary 450, 125 ,
shares in issue 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
-------------------------------------------------- ------------------------- -------------------
Profit attributable to owners of the
parent 801,497 (614,519)
Weighted average number of ordinary
shares in issue outstanding for the
effects of all dilutive potential ordinary
shares 493,775,685 436,975,000
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.
Weighted
N umber exercise
of options& price
warrants 2020,
Group 2020 GBP
--------------------------------- ------------ ---------
Outstanding at 1 January 2020 40 ,650,000 2 .50
Granted 3,000,000 -
Forfeited - -
2. 5
Outstanding at 3 1 December 2020 43,650,000 0
2. 5
Exercisable at 31 December 2020 34,200,000 0
--------------------------------- ------------ ---------
There was no issue of new options in 2021.
Weighted
N umber exercise
of options& price
warrants 2021,
Group 2021 GBP
--------------------------------- ------------ ---------
Outstanding at 1 January 2021 43 ,650,000 2 .50
Granted - -
Forfeited - -
2. 5
Outstanding at 3 1 December 2021 43,650,000 0
2. 5
Exercisable at 31 December 2021 42,150,000 0
--------------------------------- ------------ ---------
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:
2020
Group and Company 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 0 .7 2 penc
date
24 Oct 20 2
Expiry date 5
Options granted 3, 00 0,000
Volatility 30%
Dividend yield Nil
Option life 5 year
Annual risk free interest rate 2 . 83%
------------------------------------------------ ------------
13. Interest Income and Expense
Group 202 1 20 20
-------------------------------------- ---------- ---------
Interest income
9 , 528
Loans to customers , 856 4,857,496
Other loans issued to related parties 15 , 157 -
9 , 54
Total interest income 4,013 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 20 20 ---------------------------------------------- --------- --------- Gain/loss on revaluation of financial assets (181 , and liabilities 23 , 961 466) Realised gain/ (loss) from foreign exchange transactions (3 , 019) (7 , 661) Total gains less losses from dealing in 20 , foreign currency 943 (189,127) ---------------------------------------------- --------- ---------
15. Allowance for Expected Credit Losses / Impairment of Other Assets
Group Note 2021 20 20
------------------------------------------- ---- ----------- -------
1 , 780
Loans to customers 6 6 ,53 5,306 , 746
Other assets 8 (1,160) 9 , 972
Total allowance for expected credit losses 1 , 790
/ impairment of other assets 6,534,146 , 718
------------------------------------------- ---- ----------- -------
16. Other Operating Income
Group 202 1 20 20
----------------------------------------------------- --------- --------
253 ,
Agent's fee 1,124,626 889
Information services 898,296 51 , 867
158 ,
Fines received under loan agreements 96,472 32 2
Effect of revaluation as a result of use of lease
options 13,735 -
Financial result from derecognition of lease assets 126 ,
and liabilities 4, 9 64 091
2 2 ,64
Other income 2 333
2,16
0 ,73 590 ,
Total other operating income 5 502
----------------------------------------------------- --------- --------
17. Staff Costs
Group 20 21 20 20
----------------------- ---------- -------
1 ,24 9 1 , 429
Salary ,155 , 920
380 ,
Payroll related taxes 3 17,899 523
1 , 810
Total staff costs 1 ,567,055 , 443
----------------------- ---------- -------
18. Operating Expenses
Group 202 1 20 20
------------------------------------- ------- ---------
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
2, 623
Total operating expenses , 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 202 1 2020
--------------------------------------------------- ---------- ------------
801, 4 9 (614, 5 19
IFRS loss before taxation 7 )
Theoretical tax charge at the applicable statutory ( 1 60 ,
rate 2 9 9) 122,904
Non-deductible expenses and other differences 31 , 189 29 , 521
) Unrecognised deferred tax asset 10 , 263 (152 ,4 25)
Income tax expense for the year (118,847) -
--------------------------------------------------- ---------- ------------
The Company has a potential deferred tax asset of GBP 337,744 (2020: GBP153,847) 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.
Effect Change recognised
of exchange in profit
2020 rate differences and loss 2021
------------------------------------- ----------- ------------------ ------------------ -------------
Tax effect of deductible temporary
differences
( 30,089
Loans to customers 51 , 714 ( 394 ) ) 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 - - - -
3 , 330 ( 2,208
Tax loss , 002 ) 38,844 3,366,638
------------------------------------- ----------- ------------------ ------------------ -------------
3 , 474 ( 2,135
D eferred tax assets , 8 3 6 ) 46,220 3,518,921
------------------------------------- ----------- ------------------ ------------------ -------------
Tax effect of taxable temporary
differences
( 8 , 906 (18,9
Other liabilities (9,942) (113) ) 61 )
Property and equipment (700) 2 175 (523)
Right-of-use assets under lease ( 47, 7
agreements (59,585) ( 605 ) 5 2) (107,942)
( 716 ( 56,483 (127,42
Gross deferred tax liabilities (70,227) ) ) 6 )
(2, 851
Total net deferred tax asset 3,404,608 ) (10,263) 3,391,495
------------------------------------- ----------- ------------------ ------------------ -------------
Unrecognised tax assets (3,404,608) 2,851 10,263 ( 3,391,495)
------------------------------------- ----------- ------------------ ------------------ -------------
Recognised tax liabilities - - - -
------------------------------------- ----------- ------------------ ------------------ -------------
Effect Change recognised
of exchange in profit
2019 rate differences and loss 2020
---------------------------------- --------- ------------------ ------------------ ------------
Tax effect of deductible
temporary differences
( 15 , ( 24 , 565
Loans to customers 91 , 779 500 ) ) 51 , 714
( 3 , 749 ( 12 , 752
Other assets 24 , 891 ) ) 8 , 390
( 1 , 234
Intangible assets - ) 16 , 521 15 , 287
511 , ( 68 , ( 373 ,
Lease liabilities 130 680 ) 007 ) 69 , 443
( 1 , 199 ( 8 , 517
Other liabilities 9 , 716 ) ) -
3 , 882 ( 734 , 3 , 330
Tax loss , 681 761 ) 182 , 082 , 002
---------------------------------- --------- ------------------ ------------------ ------------
3 , 474
4 , 520 ( 825 (220 , , 8 3
D eferred tax assets , 197 , 123 ) 2 38 ) 6
---------------------------------- --------- ------------------ ------------------ ------------
Tax effect of taxable temporary
differences
( 10,745
Other liabilities - 803 ) (9 , 942)
Property and equipment (1 , 857) 28 7 871 (700)
Right-of-use assets under (509 , (59 ,
lease agreements 846) 67 , 725 382 , 536 585)
(511 (70 ,
Gross deferred tax liabilities , 703) 68 , 815 372 , 663 227)
4 , 008 (756 ,
Total net deferred tax asset , 494 310) 152 , 425 3 , 404,608
---------------------------------- --------- ------------------ ------------------ ------------
(4 , (3 ,
008 , 756 , (152 , 404,608
Unrecognised tax assets 494) 310 4 2 5 ) )
---------------------------------- --------- ------------------ ------------------ ------------
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
1 85 1 71 ,
Cash and cash equivalents 1,116,787 ,9 61 161 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
275 ,
Other assets 180,013 - 5 6 5 455,579
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
640,8
Cash and cash equivalents 479,708 161,095 68 71
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
251, 29
Other assets 124,821 126,477 - 8
2,4 6
Total assets 2,177,443 287,571 68 5,083
--------------------------------- --------- -------- --------- ---------
Liabilities
Loans received - - 735,646 735,646
Lease liabilities 347,216 - - 347,216
Other liabilities 637,091 186,739 - 823,830
1,9 06
Total liabilities 984,307 186,739 735,646 ,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 202 1 .
31 December 202 1
------------------------------------
Effect on
profit or loss before Effect on
Group taxation equity
----------------- ---------------------- ------------
EUR appreciation
by 2 0% ( 98 ,9 10 ) (7 9 , 128 )
EUR depreciation
by 20% 98 ,9 10 7 9 , 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
---------------------------------
Effect on
profit or loss before Effect on
Group taxation equity
----------------- ---------------------- ---------
EUR appreciation
by 2 0% (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. 5 114 -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 202 1 :
From From
On demand From 6 months 1 to
and less 1 to 3 months to 1 3 years
than 1 month 3 months to 6 months year Total
-------------------------- ------------- --------- ------------ --------- --------- ----------
Liabilities
44 3, 7 86, 1, 3 77
Loans received 4,230 71,720 71,720 268 5 9 3 ,5 31
112 ,69 383,37 63 4 ,
Lease liabilities - 71,417 67, 169 0 5 650
Other liabilities 824,650 - - - - 824,650
-------------------------- ------------- --------- ------------ --------- --------- ----------
Total potential future
payments under financial 13 8 555,
liabilities 828,880 143,136 ,8 89 9 57 1,169,968 2 ,836,831
-------------------------- ------------- --------- ------------ --------- --------- ----------
The table below shows the maturity profile of financial liabilities as at 31 December 2020:
On demand From From
and less From 6 months 1 to
than 1 1 to 3 months to 1 3 years
month 3 months to 6 months year Total
-------------------------- --------- --------- ------------ --------- -------- -------
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 1, 799
liabilities 533,909 135,068 163,824 316,314 650,689 , 804
-------------------------- --------- --------- ------------ --------- -------- -------
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 202 1 :
On demand No stated
and less From From From More maturity
than 1 to 3 to 6 months than 1
1 month 3 months 6 months to 1 year year Overdue Total
--------------------- --------- --------- --------- ---------- ------- ------- --------- ---------
Assets
Cash and cash 1 ,473 1,473
equivalents , 909 - - - - - - , 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
309 , 455 ,
Other assets 643 79 750 1,656 134,434 - 9,017 579
4,3
75 ,8 5, 343
Total assets 17 79 750 1,656 134,434 232,452 597,840 , 028
--------------------- --------- --------- --------- ---------- ------- ------- --------- ---------
Liabilities
Loans received 137,183 40,954 42,208 388,383 695,953 - - 1,304,680
3 30 ,
Lease liabilities - 63, 615 57, 402 82, 026 640 - - 533,683
1,161 1, 284
Other liabilities ,8 64 - - - - - 122,447 , 312
1, 299 1,026 3 , 122
Total liabilities , 047 104,568 99 ,610 470,409 ,592 - 122,447 , 675
--------------------- --------- --------- --------- ---------- ------- ------- --------- ---------
Net liquidity 3 ,
gap as at 31 076 , ( 104, ( 98,860 ( 468,754 (892 2, 220
December 2021 770 489) ) ) , 158) 232,452 475,393 ,3 54
--------------------- --------- --------- --------- ---------- ------- ------- --------- ---------
Cumulative liquidity 3 , 1, 512
gap as at 31 076 ,7 2, 972,2 2,8 , 509 1, 744 2, 220
December 2021 70 8 1 73,421 2, 404,667 , , 961 ,3 54
--------------------- --------- --------- --------- ---------- ------- ------- --------- ---------
The table below present the maturity profile of assets and liabilities as at 31 December 2020:
On demand No stated
and less From From From More maturity
than 1 to 3 to 6 months than 1
1 month 3 months 6 months to 1 year year Overdue Total
--------------------- --------- --------- ---------- ---------- --------- ------- --------- ---------
Assets
Cash and cash 640,8 640,8
equivalents 71 - - - - - - 71
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
156,7
Other assets 12 29 415 862 162 - 93,118 251,297
396,7
Total assets 1,966,520 29 415 862 162 100,376 20 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 1,247,04
December 2020 3 (104,713) (135,634) (269,909) (571,138) 100,376 292,367 558,391
--------------------- --------- --------- ---------- ---------- --------- ------- --------- ---------
Cumulative liquidity
gap as at 31 736,78
December 2020 1,247,043 1,142,329 1, 006,695 7 165,648 266,024 558,391
--------------------- --------- --------- ---------- ---------- --------- ------- --------- ---------
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 , 7 1 7 and as at 31 December 2020: 1,2 6 9 ,3 13 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. I n 20 21 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 , 21 6 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 202 1 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 20 20
--------------------- ---------------------
Carrying Carrying
Group value Fair value 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 compa n y) 275,565 275,565 45,745 45,745
Financial liabilities
1 ,304 1 ,304 ,6
Loans received ,6 80 80 735,646 735,646
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 l oans 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 , 4 73 , 909 at 31 December 202 1 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 202 1 and 31 December 20 20 , 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 20 21 are as follows:
Transactions with ultimate beneficiary 202 1 20 20 --------------------------------------- ----------------------------------- ------------- 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, GBP Bonus for Shares held Stock options
, for the the year
year 202 1 202 1
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 14 1 , 038 3,500 0 8,600,000
------------ ---------- ------------- --------------
Simon James
Retter 60,000 21,000 4 , 9 00,000 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 GBP17,388 (2020 - GBP17,388).
Out of pocket expenses totalling GBP78,055 were incurred by Siro Donato Cicconi in 2019 and as at 31 December 2021 GBP48,055 remained payable ( as at 31 December 2020 : GBP48,055 ) .
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 GBP8,000,000. The fair value of the notional number of equity instruments that the legal subsidiary would have had to have issued to the legal parent to give the owners of the legal parent the same percentage ownership in the combined entity is 1.84 per cent of the market value of the shares after issues, being GBP150,000. The difference between the notional consideration paid by Zaim Credit Systems plc for Zaim Express LLC and the Zaim Credit Systems plc net assets acquired of GBPnil has been charged to the Consolidated Statement of Comprehensive Income as a deemed cost of the listing amounting to GBP150,000 with a corresponding entry to the reverse acquisition reserve.
Details of net assets acquired and the deemed cost of the listing were as follows:
GBP
Consideration effectively received 150,000
Less net asset required:
Cash and cash equivalents 52,055 Debtors and prepayments 11,982 Current liabilities (64,037) Total net asset required: - Deemed cost of listing 150,000
T he 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 GBP200k per month for a continuous period of four months and there be no reasonable expectation that this should fall below this level for a further period of six months then a further 16,000,000 new ordinary shares in the Company shall become payable. Additional consideration of 16,000,000 shares over and above that already mentioned shall become payable should the Company record a monthly EBITDA figure of GBP350k per calendar month with the same continuous period clause as noted above. At the IPO price per share these deferred contingent considerations would have a value of GBP400k each for a combined value of GBP800k. 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, mean t 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 GBP200k per month for a continuous period of four months and there be no reasonable expectation that this should fall below this level for a further period of six months then a further 16,000,000 new ordinary shares in the Company shall become payable. 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 GBP350k per calendar month with the same continuous period clause as noted above. At the IPO price per share these deferred contingent considerations would have a value of GBP400k each for a combined GBP800k in value. It has been considered by the Directors 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 GBP GBP
Fees payable to the company's
auditor for the audit of the
annual parent company and consolidated
accounts 40,000 40,000
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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