2020	2019
Cash flows from operating activities
Loss for the period	(576,000)	(626,317)
Correction for non-cash transaction (charge for share options granted)	51,216	166,883
Cash flows from/(used in) operating activities before changes in operating assets and liabilities	(524,784)	(459,433)
Adjustments for
Increase in trade and other receivables, VAT	(58,355)	(8,122)
Increase in trade and other payables	24,073	95,995
Cash generated from operations	(559,066)	(371,560)
Net cash flows used in operating activities	(559,066)	(371,560)
Cash flows from investing activities
Investment in Subsidiary	(590,426)	(705,663)
Net cash flows from investing activities	(590,426)	(705,663)
Cash flows from financing activities
Issue of ordinary shares (including share premium)	-	2,716,449
Share issue costs	-	(328,570)
Net cash flows from financing activities	-	2,387,878
Net change in cash and cash equivalents	(1,149,492)	1,310,655
Cash and cash equivalents at the beginning of the year	1,310,655	-
Cash and cash equivalents at the end of the year (Note 5)	161,163	1,310,655

 

1. Principal Activities of the Group

The principal activity of Zaim Credit Systems plc ("the Company") and its subsidiary Zaim-Express, LLC (together "the Group") is the issuance of microloans to individuals (retail customers). The Company was incorporated as Agana Holdings Plc and registered in England and Wales on 15 June 2018 as a public limited company with company registration number 11418575 and LEI, 213800Z4MI9KSZA2VW72 and on 22 July 2019 the Company changed its name to Zaim Credit Systems Plc.

On 18 September 2019 the Company acquired the entire issued share capital of Zaim-Express LLC. The Company is now the holding company of a Russian based financial services company Zaim-Express LLC (Subsidiary), so the main function of the Company is to provide holding company services and undertake management of their listed activities on the stock exchange. These business combinations in 2019 was stated in consolidated financial statements as reverse acquisitions under IFRS 3.

The organisational structure of Group:

				The share votes of the Company
The name of Subsidiary	Country of registration			31.12.2020	31.12.2019
Zaim-Express LLC	Russia			100%	100%

 

The Subsidiary's principal activity is the issuance of microloans through its network of branches in Russian cities (mainly - in Moscow and the Moscow region, St. Petersburg). The Subsidiary was entered in the state register of microfinance organisations on 29 August 2011, registration number 2110177000440. The Subsidiary's assets and liabilities are located in the Russian Federation. The average number of Subsidiary's employees is as follows:

The average number of Subsidiary's employees, by groups				2020		2019
Central office				47		42
Call center				22		23
Other specialists				143		208
Total average number of employees				212		273

 

The average number of parent Company's employees (directors) is as follows:

The average number of parent Company's employees		2020	2019
Directors		5	3

As at 31 December 2020, the main shareholder of the Company is Zaim Holdings SA (with a 73.23% equity holding; 31 December 2019  - 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.

Due to the consequences of the coronavirus pandemic in 2020, Russia faced the forced introduction of quarantine measures, the closure of enterprises and borders, and a sharp collapse in oil prices. At the same time, the economic downturn was not so large-scale as in a number of other states. Experts believe that this is primarily the result of timely state support measures for businesses and the population. In addition, 2020 saw the Central Bank rate plunge to a record-low, significant fluctuations in exchange rates and surging demand in the real estate market. The collapse in oil prices that occurred in the spring had a negative impact on national budget revenues and the dynamics of the national currency. At the same time, the pandemic did not result in any fundamental adverse changes in the Russian economy.

In the second half of 2020, as the restrictive measures imposed due to the pandemic were lifted and eco-nomic activity recovered, the consumer credit market -experienced an upturn, and microfinance volumes returned to the levels of the start of the year. Most of the MFI offices that were closed in the spring have resumed their work. In the context of restrictive measures that were introduced in April-May 2020 due to the deterioration- of the pandemic situation, online sales channels and customer interaction began- to play a special role in ensuring the continuity of MFI activities. Remote service channels will remain relevant in the future due to the pandemic and the continuing measures of social distancing. An accelerated transition to online- service may have a long-term effect and promote faster implementation of remote- service channels.

In general, the global and Russian economies are in the state of high uncertainty due to new lockdowns, but governments, central banks and businesses have already gained useful experience in dealing with the pandemic. The results of economic development in the 3rd and 4th quarters of 2020 in Russia and other countries showed potential for rapid recovery in the case of a declining epidemic threat. The financial system has demonstrated a fairly high degree of sustainability. According to the Central Bank of Russia, in the future, the risks associated with the solvency of the corporate sector will gradually become the highest on the agenda.

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 2020, the CBR's key rate was 4.25% (31 December 2019: 6.25%).

The future economic development of the Russian Federation is largely dependent upon the effectiveness of economic measures, financial mechanisms and monetary policies adopted by the Government, together with tax, regulatory, and political developments.

Inflation

The Russian economy experiences relatively high levels of inflation. The inflation indices for the last five years are given in the table below:

The year ended	Inflation for the period
31 December 2020	4.9%
31 December 2019	3.0%
31 December 2018	4.3%
31 December 2017	2.1%
31 December 2016	5.4%

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 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
31 December 2016	60.6569	63.8111	74.5595

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

These consolidated financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs). The Group maintains its records in compliance with the applicable legislation of the United Kingdom. These financial statements have been prepared on the basis of those accounting records and adjusted as necessary in order to comply, in all material respects, with IFRSs.

Going concern

These consolidated financial statements reflect the Group management's current assessment of the impact of the Russian business environment on the operations and the financial position of the Group. The future economic direction of the Russian Federation is largely dependent upon the effectiveness of measures undertaken by the RF Government and other factors, including regulatory and political developments which are beyond the Group's control. The Group's management cannot predict what impact these factors 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 2020, the Group has an accumulated deficit of GBP 38,262,611 (2019: GBP 37,648,092), and incurred a net loss of GBP 614,519 during the year ended 31 December 2020 (2019: GBP 891,589).

The Group's business activities together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement and Chief Executive Review . 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. In 2020, the Group changed its business model to one of remote lending via the Internet, which resulted in a significant decrease in fixed lease and staff costs and a decrease in the share of lending costs within total expenses. The Group is planning to optimise the network operation, including removal of loss-making outlets and enhancement of the Internet channel to attract customers.

The Group is actively collecting overdue debts, inter alia, through legal action. Despite temporary suspension of judicial and enforcement proceedings during the COVID-19 pandemic, the proceeds from the loans of Stage 3 in 2020 increased by 87% compared to 2019.

The CBR sets the minimum mandatory liquidity ratio at over 70%. The Subsidiary meets the mandatory liquidity ratio: as at 31 December 2020 - 153.74% (unaudited) and as at 31 December 2019 - 132.89% (un- 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 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

The revised standards presented below became mandatory for the Group since 1 January 2020, but had no material impact on the Group:

For the reporting periods beginning on or after 1 January 2020, the amendments to the standards presented below shall be effective:

·           Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors - Definition of Material

·           Amendments to IFRS 3 Business Combinations - Definition of a Business;

·           Amendments to References to the Conceptual Framework in IFRS Standards;

·           Amendments to IFRS 9 "Financial Instruments", IAS 39 "Financial Instruments: Recognition and Measurement" and IFRS 7 "Financial Instruments: Disclosures" (issued on 26 September 2019) that provide temporary relief from specific hedge accounting requirements to hedging relationships directly affected by the IBOR reform.

The above amendments to the standards had no material impact on the financial statements.

The IASB issued a number of standards and amendments to them that will become effective in the next reporting  periods and will not be early applied by the Group. The most significant ones are as follows:

·           Amendments to IFRS 16 Leases - Covid-19-Related Rent Concessions (effective for annual periods beginning on or after 1 June 2020);

·           Interest Rate Benchmark Reform and its Effects on Financial Reporting - Phase 2 (effective on 1 January 2021);

·           Annual Improvements to IFRSs - 2018-2020 cycle of amendments (effective on 1 January 2022);

·           Amendments to IAS 16 Property, Plant and Equipment - Proceeds before Intended Use (effective on 1 January 2022);

·           Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets - Onerous Contracts - Cost of Fulfilling a Contract (effective on 1 January 2022);

·           IFRS 17 Insurance Contracts (effective on 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 on 1 January 2023);

Unless otherwise described above, the new standards and interpretations are not expected to significantly impact the Group's financial statements.

4. Summary of Significant Accounting Policies

Fair value measurement

The fair value is the price that would be received when selling an asset, or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique.

All assets and liabilities for which a fair value is recognised or disclosed are categorised within the fair value hierarchy, described as below, based on the lowest level input that is significant to the fair value measurement as a whole:

-  Level 1 - quoted market prices in an active market (that are unadjusted) for identical assets or liabilities;

-    Level 2 - valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable;

-    Level 3 - valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are remeasured in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between the Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained below (Note 23).

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, current accounts and deposits with banks with original maturity of three months or less. Cash and cash equivalents are stated at amortised cost in the statement of financial position.

 

Financial instruments

Key measurement terms

Depending on their classification, financial instruments are carried at fair value or amortised cost, as described below.

Fair value is the price that would be received when selling an asset, or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Fair value is the current bid price for financial assets or current ask price for financial liabilities.

Amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, and for financial assets, adjusted for any loss allowance.

The gross carrying amount of a financial asset is the amortised cost of a financial asset, before adjusting for any expected credit loss allowance.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating or recognising the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the financial asset or financial liability to the gross carrying amount of the financial asset or to the amortised cost of a financial liability. When calculating the effective interest rate, the Group shall estimate cash flows considering all contractual terms of the financial instrument but shall not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. There is a presumption that the cash flows and the expected life of a group of similar financial instruments can be estimated reliably. However, in those rare cases when it is not possible to estimate reliably the cash flows or the expected life of a financial instrument, the Group shall use the contractual cash flows over the full contractual term of the financial instrument.

Initial recognition of financial instruments

The Group recognises financial assets and financial liabilities in its statement of financial position when it becomes a party to the contractual obligations of the respective financial instrument. The regular way the purchase and sale of the financial assets and liabilities is recognised is by using settlement date accounting.

Classification and measurement of financial instruments

The Group classifies financial assets into the following categories:

-      financial assets at fair value through profit or loss;

-      financial assets at fair value through other comprehensive income;

-      financial assets measured at amortised cost.

 

Classification and subsequent measurement of debt financial assets depends on:

 

1) the business model used by the Group to manage the asset; and

2) characteristics of cash flows on the asset.

 

The business model is determined for a group of assets (on a portfolio basis) based on all relevant evidence of activities that the Group intends to undertake to achieve the objectives set out for the portfolio available as at the measurement date.

Loans to customers meeting the SPPI criterion are held for the purpose of collecting contractual cash flows and are carried at amortised cost.

 

Reclassifications

 

Financial assets are not reclassified after initial recognition unless the Group has changed its business model for managing financial assets.

 

Financial liabilities are not reclassified after initial recognition.

Derecognition

A financial asset is derecognised where:

·      the rights to receive cash flows from the asset have expired;

·      the Group has transferred its rights to receive cash flows from the asset, or retained the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party;

·      the Group either has transferred substantially all the risks and rewards of the asset or has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset. If the transferee has no practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the transfer, the entity has retained control.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

 

Loans to customers

Based on cash flow characteristics, the Group classifies loans and advances to customers into the measurement category:

1)       at amortised cost: loans held to collect contractual cash flows, if these cash flows are SPPI and are not classified 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	2020	2019
Cash on hand	30,811	84,098
Accounts with other banks	610,060	1,498,653
Total cash and cash equivalents	640,871	1,582,751

 

Company	2020	2019
Cash on hand	-	-
Accounts with other banks	161,163	1,310,655
Total cash and cash equivalents	161,163	1,310,655

As at 31 December 2020, the Group has 2 counterparties (2019: 2 counterparties) with balances exceeding 10% of total cash and cash equivalents in the amount of GBP 524,431 (2019: GBP 1,310,655).

The table below presents the credit quality analysis of cash and cash equivalents based on credit risk levels as at 31 December 2020.

Group	Accounts with other  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  banks	Total
Minimum credit risk	161,163	161,163
Total cash and cash equivalents, less cash on hand	161,163	161,163

 

The table below presents the credit quality analysis of cash and cash equivalents based on credit risk levels as at 31 December 2019.

Group	Accounts with other RF banks	Total
Minimum credit risk	1,498,653	1,498,653
Total cash and cash equivalents, less cash on hand	1,498,653	1,498,653
Company	Accounts with other RF banks	Total
Minimum credit risk	1,310,655	1,310,655
Total cash and cash equivalents, less cash on hand	1,310,655	1,310,655

 

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 2020 in accordance with ratings of international agencies:

Group	Fitch A+	Fitch BB	S&P from BB- to BB+	No rating assigned	Total
Accounts with other banks	54,936	-	-	555,124	610,060
Total	54,936	-	-	555,124	610,060

 

 

Company	Fitch A+	Fitch BB	S&P from BB- to BB+	No rating assigned	Total
Accounts with other banks	54,936	-	-	106,227	161,163
Total	54,936	-	-	106,227	161,163

 

Below is the credit quality analysis of cash and cash equivalents as at 31 December 2019 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	528,551	782,104	93,047	94,951	1,498,653
Total	528,551	782,104	93,047	94,951	1,498,653

 

 

Company	Fitch A+	Fitch BB	S&P from BB- to BB+	No rating assigned	Total
Accounts with other banks	528,551	782,104	-	-	1,310,655
Total	528,551	782,104	-	-	1,310,655

 

6. Loans to Customers

Group	2020	2019
Loans to customers	28,298,290	32,078,150
Less:  ECL allowance	(27,028,977)	(31,291,804)
Total loans to customers at amortised cost	1,269,313	786,346

 

Company	2020	2019
Loans to customers	-	-
Less:  ECL allowance	-	-
Total loans to customers at amortised cost	-	-

 

Below is analysis of movements in the ECL allowance during 2020 (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 2020	128,028	288,985	30,874,790	31,291,804
Assets recognised for the period	697,907	-	-	697,907
Assets derecognised or collected	(47,273)	(33,654)	(629,075)	(710,002)
Transfers to Stage 2	(189,937)	189,937	-	-
Transfers to Stage 3	(355,164)	(187,618)	542,782	-
Net loss on  ECL allowance charge/(reversal)	-	414,887	1,377,954	1,792,841
Effect of exchange rate differences	(32,067)	(83,237)	(5,928,268)	(6,043,572)
ECL allowance as at  31 December 2020	201,494	589,300	26,238,183	27,028,977

Analysis of movements in the ECL allowance during 2019 is as follows:

 

Group	Stage 1	Stage 2	Stage 3	Total
ECL allowance as at 1 January 2019	139,800	424,712	27,982,210	28,546,722
Assets recognised for the period	687,271	-	-	687,271
Assets derecognised or collected	(95,125)	(102,217)	(842,085)	(1,039,427)
Transfers to Stage 2	(206,503)	206,503	-	-
Transfers to Stage 3	(409,279)	(326,329)	735,608	-
Net loss on  ECL allowance charge/(reversal)		52,065	530,141	582,206
Effect of exchange rate differences	11,864	34,252	2,468,916	2,515,032
ECL allowance as at  31 December 2019	128,028	288,985	30,874,790	31,291,804

 

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 2020:

 

Group	Stage 1	Stage 2	Stage 3	Total
Loans to customers
Minimum credit risk	1,222,507	-	-	1,222,507
Low credit risk	-	177,117	-	177,117
Moderate credit risk	-	388,723	-	388,723
High credit risk	-	271,760	-	271,760
Defaulted assets	-	-	26,238,183	26,238,183
Total loans to customers before allowance	1,222,507	837,600	26,238,183	28,298,290
ECL allowance	(201,494)	(589,300)	(26,238,183)	(27,028,977)
Total loans to customers after ECL allowance	1,021,012	248,300	-	1,269,313

 

Following is the credit quality analysis of loans to customers as at 31 December 2019:

 

Group	Stage 1	Stage 2	Stage 3	Total
Loans to customers
Minimum credit risk	568,567		-	568,567
Low credit risk	-	374,288	-	374,288
Moderate credit risk	-	164,962	-	164,962
High credit risk	-	95,507	-	95,507
Defaulted assets	-		30,874,826	30,874,826
Total loans to customers before allowance	568,567	634,757	30,874,826	32,078,150
ECL allowance	(128,028)	(288,986)	(30,874,790)	(31,291,804)
Total loans to customers after ECL allowance	440,539	345,771	36	786,346

 

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 2020	2,549,233	2,549,233
Depreciation charge	(661,165)	(661,165)
Modifications and remeasurement	(248,309)	(248,309)
Derecognition	(1,003,208)	(1,003,208)
Effect of translation into presentation currency	(338,626)	(338,626)
As at 31 December 2020	297,925	297,925

 

Group	Real Estate	Total
As at 1 January 2019	3,407,065	3,407,065
Additions	112,021	112,021
Depreciation charge	(1,248,758)	(1,248,758)
Effect of translation into presentation currency	278,905	278,905
As at 31 December 2019	2,549,233	2,549,233

 

 

The carrying amounts of lease liabilities and their movements during the period are set out below:

Group

Lease liabilities	Real Estate	Total
As at 1 January 2020	2,555,648	2,555,648
Interest expense on lease liabilities	92,442	92,442
Lease payments	(628,563)	(628,563)
Modifications and remeasurement	(248,309)	(248,309)
Derecognition	(1,080,605)	(1,080,605)
Effect of translation into presentation currency	(343,397)	(343,397)
As at 31 December 2020	347,216	347,216

 

Group

Lease liabilities	Real Estate	Total
As at 1 January 2019	3,325,625	3,325,625
Additions	108,875	108,875
Interest expense on lease liabilities	243,281	243,281
Lease payments	(1,395,580)	(1,395,580)
Effect of translation into presentation currency	273,447	273,447
As at 31 December 2019	2,555,648	2,555,648

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	2020	2019
Other non-financial assets
Lease prepayments	23,062	16,603
Settlements with suppliers	35,211	29,440
Taxes other than income tax	110,980	139,069
Other receivables	104,193	52,937
Less: impairment allowance	(22,149)	(15,932)
Total other non-financial assets	251,297	222,117
Total other assets	251,297	222,117

 

 

Company	2020	2019
Other non-financial assets
Settlements with suppliers	-	-
Taxes other than income tax	80,732	68,122
Other receivables	45,745	-
Less: impairment allowance	-	-
Total other non-financial assets	126,477	68,122
Total other assets	126,477	68,122

 

Analysis of movements in the impairment allowance for non-financial assets during 2020 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 2020	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

 

Analysis of movements in the impairment allowance for non-financial assets during 2019 is presented below:

 

Group	Non-financial assets	Total
Impairment allowance for other assets as at 1 January 2019	13,117	13,117
Impairment allowance charge during 2019	1,631	1,631
Effect of translation into presentation currency	1,184	1,184
Impairment allowance for other assets as at 31 December 2019	15,932	15,932

The Group has no collateral for impaired assets recognised within other assets.

9. Loans Received

Group	2020	2019
Loan from related party	735,646	742,603
Total loans received	735,646	742,603

On 31 December 2020, the Group entered into an agreement amending the loan terms - coming into effect from January 2021, the interest rate on the above loan is set at 13.42 % per annum, and the loan repayment period is extended until 31 December 2023.

Company	2020	2019
Loan from related party	-	-
Total loans received	-	-

 

10. Other Liabilities

Group		2020	2019
Other financial liabilities
Payables		326,692	200,618
Other settlements with customers on loan's agreements		200,019	97,322
Other		7,195	16,732
Other non-financial liabilities
Taxes other than income tax		26,412	16,982
Provision for unused vacations		104,353	144,024
Payables to employees and payroll related taxes		159,159	189,227
Total other liabilities		823,830	664,905

 

Company		2020	2019
Other financial liabilities
Payables		119,057	126,057
Other		27	27
Other non-financial liabilities
Payables to employees and payroll related taxes		67,655	36,582
Total other liabilities		186,739	162,666

 

11. Charter and Additional Capital, Other reserves. Earnings per share 

As at 31 December 2018, the Charter capital states the amount of Share capital of the Subsidiary - the authorised capital represents the contribution made by the sole participant of the Subsidiary.

During 2019 the reverse acquisition was stated in the consolidated financial statements, as a result, the Charter capital as at 31 December 2019 states the Share capital of the legal parent Company, totalling £4,369,750. All the shares issued have equal voting rights.

Below is a reconciliation of the movement in the legal parent Company Share capital during 2019:

Group and Company Issued and fully paid		31 Dec 2018 Number	Amount, £
Ordinary shares of £0,01 each		6,000,000	60,000
		6,000,000	60,000

For the year 2019 (Ordinary shares issue of £0.01 each):                                        

Group and Company                                                                                                               Number      Amount, £

Consideration shares (acquisition of Subsidiary)		320,000,000		3,200,000
IPO		104,000,000		1,040,000
Fee shares		6,975,000		69,750
		430,975,000		4,309,750
Group and Company Issued and fully paid			31 Dec  2019 Number	Amount, £
Ordinary shares of £0.01 each		436,975,000		4,369,750
		436,975,000		4,369,750

 

There are no changes in the structure and amount of the share capital during 2020.

 

Group and Company Issued and fully paid			31 Dec  2020 Number	Amount, £
Ordinary shares of £0.01 each		436,975,000		4,369,750
		436,975,000		4,369,750

 

As at 31 December 2018 the amount of Additional capital stated in the agreement on in-kind contribution (debt on the loan) of the Subsidiary was - £29,122,880.

Amounts of Additional capital as at 31 December 2018 were restated as at the date of the agreement on in-kind contribution (debt on the loan). 

Group

Date of exchange rate for translation to  presentation currency	Amount in RUB	Exchange rate	Amount in GBP
29.12.2018	2,561,820,344	87.9659	29,122,880
Total additional capital at                 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 £6,078,128.

Below there is reconciliation of movement in Additional capital (share premium) of legal parent Company during 2019:

For the year 2019:

Group and Company                                                                                                                                  Amount, £

As at 1 January 2019			-
Premium arising on issue of ordinary shares			6,406,699
Issue costs			(328,570)
As at 31 December 2019			6,078,128

There are no changes in the structure and amount of additional capital during 2020.

 

Group and Company                                                                                                                                  Amount, £

Share premium (with consideration of issue costs)			6,078,128
As at 31 December 2020			6,078,128

 

Other reserves

Group				Shares to be issued Reserve		Merger reserve		Share option reserve		Translation    reserve
As at 1 January 2019				-		-	-		4,497,731
Merger reserve		-			23,764,800
Share based payments		-					166,883
Translation differences		-			-		-		(39,942)
As at 31 December 2019		-			23,764,800		166,883		4,457,788
Contingent consideration				800,000
Merger reserve				-		(800,000)	-		-
Share based payments				-			51,216
Translation differences				-		-	-		(67,563)
As at 31 December 2020				800,000		22,964,800	218,099		4,390,225

 

The merger and foreign currency translation reserve as at 31 December 2019 arose on consolidation as a result of merger accounting for the acquisition of the entire issued share capital of 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 loss per share of 0.14p loss per share (2019 loss per share: 0.77p) is calculated by dividing the loss attributable to owners of the parent by the weighted average number of ordinary shares in issue during the year.

Group	2020		2019
		(614,519)	(891,589)
Loss attributable to owners of the parent
Weighted average number of ordinary shares in issue		436,975,000	115,689,178

The basic and diluted loss per share for the years ended 31 December 2020 and 31 December 2019 are the same as the current year result was a loss, the options and warrants outstanding would be anti-dilutive.  Therefore, the dilutive loss per share is considered the same as the basic loss per shares.

 

 

 

Group	2020		2019
		(614,519)	(891,589)
Loss attributable to owners of the parent
Weighted average number of ordinary shares in issue outstanding for the effects of all dilutive potential ordinary shares		436,975,000	115,689,178
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:   Group Number of options& warrants 2019   Weighted exercise price 2019, £   Outstanding at 1 January 2019 - - Granted 40,650,000 2.50 Forfeited - - Outstanding at 31 December 2019 40,650,000 2.50 Exercisable at 31 December 2019 25,600,000 2.50   On 24 September 2020, 2,000,000 options were issued to Paul Auger a non-executive director of the company at a price of 2.7p. The options vest equally over one year from the date of grant and express after 5 years.    On 26 November 2020, 1,000,000 options were issued to an employee of the Group at a price of 2.7p. The options vest equally over 2 years from the date of the grant and express after 5 years.    Group Number of options& warrants 2020   Weighted exercise price 2020, £   Outstanding at 1 January 2020 40,650,000 2.50 Granted 3,000,000 - Forfeited - - Outstanding at 31 December 2020 43,650,000 2.50 Exercisable at 31 December 2020 34,200,000 2.50     The options & warrants outstanding at 31 December 2020 had a weighted average remaining contractual life of 3.8 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 2019:   Group and Company 2019 options   Date of Grant   29 Oct 2019 Weighted average share price 2.50 pence Weighted average exercise price 2.50 pence Weighted average fair value at the measurement date 0.57 penc Expiry date 29 Oct 2024 Options granted 40,650,000 Volatility 20% Dividend yield Nil Option life 5 year Annual risk free interest rate 2.83%     For the year 2020:   Group and Company 2020 Options   Date of Grant   29 Oct 2019 Weighted average share price 2.60 pence Weighted average exercise price 2.70 pence Weighted average fair value at the measurement date 0.78 penc Expiry date 29 Oct 2024 Options granted 40,650,000 Volatility 30% Dividend yield Nil Option life 5 year Annual risk free interest rate 2.83%

 

13. Interest Income and Expense

Group	2020	2019
Interest income
Loans to customers	4,857,496	3,940,747
Total interest income	4,857,496	3,940,747
Interest expense
Loans received	(12,836)	(28,018)
Lease liabilities	(92,442)	(243,281)
Total interest expense	(105,277)	(271,299)
Net interest income	4,752,218	3,669,448

 

 

14. Gains less Losses from Dealing in Foreign Currency

Group		2020	2019
Gain/loss on revaluation of financial assets and liabilities		(181,466)	102,327
Realised gain/ (loss) from foreign exchange transactions		(7,661)	(6,830)
Total gains less losses from dealing in foreign currency		(189,127)	95,497

 

15. Allowance for Expected Credit Losses / Impairment of Other Assets

Group	Note	2020	2019
Loans to customers	6	1,780,746	230,050
Other assets	8	9,972	1,631
Total allowance for expected credit losses / impairment of other assets		1,790,718	231,681

16. Other Operating Income

Group		2020	2019
Agent's fee		253,889	150,036
Fines received under loan agreements		158,322	34,846
Financial result from derecognition of lease assets and liabilities		126,091
Taxes other than income tax		-	591,965
Other income		52,200	13,707
Total other operating income		590,502	790,554

17. Staff Costs

Group		2020	2019
Salary		1,429,920	1,722,792
Payroll related taxes		380,523	283,473
Total staff costs		1,810,443	2,006,265

 

18. Operating Expenses

Group		2020	2019
Depreciation of right-of-use assets		661,165	1,248,759
State duty		283,523	23,036
Advertising and marketing		269,304	25,736
Investor Relations		181,456	-
Consulting services		209,828	851,223
Communication		98,172	87,83
Postal services		91,328	38,491
Banking services		87,558	43,246
Rental expenses		66,434	257,639
Material expenses		33,920	3,412
Security		22,023	42,594
Office equipment		-	17,274
Repairs		-	2,038
Representative and travel expenses		-	81,250
Other expenses		111,025	169,730
Total operating expenses		2,115,735	2,892,258

19. Income Tax

As at 31 December 2020 and 31 December 2019, the Group has no current income tax expense. The current income tax rate applicable to the majority of the Group's profit is 20% (2019: 20%).

A reconciliation between the theoretical and the actual taxation charge is provided below.

Group	2020	2019
IFRS loss before taxation	(614,519)	(891,589)
Theoretical tax charge at the applicable statutory rate	122,904	178,318
Non-deductible expenses and other differences	29,521	(19,132)
)Unrecognised deferred tax asset	(152,425)	(159,186)
Income tax expense for the year	-	-

 

The Company has a potential deferred tax asset of £153,847 (2019: £56,987) as a result of trade losses to be offset against future profits, should they arise.

Differences between IFRS and statutory taxation regulations of the Russian Federation give rise to certain temporary differences between the carrying amount of certain assets and liabilities for financial statement purposes and for the Group's income tax purposes.

 

 

	2019	Effect of exchange rate differences	Change recognised in profit and loss		2020
Tax effect of deductible temporary differences
Loans to customers	91,779	(15,500)		(24,565)	51,714
Other assets	24,891	(3,749)		(12,752)	8,390
Intangible assets	-	(1,234)		16,521	15,287
Lease liabilities	511,130	(68,680)		(373,007)	69,443
Other liabilities	9,716	(1,199)		(8,517)	-
Tax loss	3,882,681	(734,761)		182,082	3,330, 002
Deferred tax assets	4,520,197	(825,123)		(220,238)	3,474, 836
Tax effect of taxable temporary differences
Other liabilities	-	803		(10,745)	(9,942)
Property and equipment	(1,857)	287		871	(700)
Right-of-use assets under lease agreements	(509,846)	67,725		382,536	(59,585)
Gross deferred tax liabilities	(511,703)	68,815		372,663	(70,227)
Total net deferred tax asset	4,008,494	(756,310)		152,425	3,404,608
Unrecognised tax assets	(4,008,494)	756,310		(152,425)	(3,404,608)
Recognised tax liabilities		-		-	-

 

 

Group	2018	Change recognised in profit and loss	Effect of exchange rate differences	2019
Tax effect of deductible temporary differences
Loans to customers	97,301	(13,827)	8,305	91,779
Other assets	42,397	(20,854)	3,348	24,891
Lease liabilities	-	501,961	9,169	511,130
Other liabilities	54,654	(48,853)	3,915	9,716
Tax loss carried forwards	3,342,776	241,480	298,425	3,882,681
Deferred tax assets	3,537,128	659,907	323,162	4,520,197
Tax effect of taxable temporary differences
Property and equipment	(1,688)	(20)	(149)	(1,857)
Right-of-use assets under lease agreements		(500,701)	(9,145)	(509,846)
Gross deferred tax liabilities	(1,688)	(500,721)	(9,294)	(511,703)
Total net deferred tax asset	3,535,440	159,186	313,868	4,008,494
Unrecognised tax assets	(3,535,440)	(159,186)	(313,868)	(4,008,494)
Recognised tax liabilities	-	-	-	-

 

 

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 2020.

 

Group	RUB	GBP	EUR	Total
Assets
Cash and cash equivalents	479,708	161,095	68	640,871
Loans to customers	1,269,313	-	-	1,269,313
Property and equipment	5,676	-	-	5,676
Right-of-use assets under lease agreements	297,925	-	-	297,925
Other assets	124,821	126,477	-	251,298
Total assets	2,177,443	287,571	68	2,465,083
Liabilities
Loans received	-	-	735,646	735,646
Lease liabilities	347,216	-	-	347,216
Other liabilities	637,091	186,739	-	823,830
Total liabilities	984,307	186,739	735,646	1,906,692
Net balance sheet position	1,193,136	100,832	(735,578)	558,391

 

The table below provides the analysis of the Group's currency risk as at 31 December 2019.

Group	RUB	USD	GBP	EUR	Total
Assets
Cash and cash equivalents	271,229	867	1,310,393	263	1,582,751
Loans to customers	786,346	-	-	-	786,346
Property and equipment	11,967	-	-	-	11,967
Right-of-use assets under lease agreements	2,549,233	-	-	-	2,549,233
Other assets	150,525	-	68,122	3,470	222,117
Total assets	3,769,300	867	1,378,514	3,733	5,152,414
Liabilities
Loans received	-	-	-	742,603	742,603
Lease liabilities	2,555,648	-	-	-	2,555,648
Other liabilities	499,077	-	162,666	3,162	664,905
Total liabilities	3,054,725	-	162,666	745,765	3,963,156
Net balance sheet position	714,575	867	1,215,849	(742,032)	1,189,258

 

The table below presents a change in the financial result and equity due to possible fluctuations of exchange rates used at the end of the reporting period if all other conditions remain unchanged. Reasonable exchange rate changes for each currency were projected on the basis of historical information on maximum daily exchange rate fluctuations in December 2020.

 

	31 December 2020
Group	Effect on profit or loss before taxation	Effect on equity
EUR appreciation by 20%	(147,129)	(117,703)
EUR depreciation by 20%	147,129	117,703

 

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 2019.

	31 December 2019
Group	Effect on profit or loss before taxation	Effect on equity
EUR appreciation by 10%	(74,229)	(59,383)
EUR depreciation by 10%	74,229	59,383

 

Liquidity risk

 

Liquidity risk arises when the maturity of assets and liabilities do not match. The Group does not accumulate cash resources to meet all liabilities mentioned above, as based on the existing practice it is possible to forecast with a sufficient degree of certainty the required level of cash funds necessary to meet the above obligations.

To manage its liquidity, the Group is required to analyse the level of liquid assets needed to settle the liabilities when they mature, provide access to various sources of financing, draw up plans to solve the problems with financing, and exercise control over the compliance of the liquidity ratios with the statutory laws and regulations.

The CBR sets and monitors liquidity requirements for microfinance organisations. The Group calculates the liquidity ratio in accordance with Instruction No. 5114-U of the Central Bank of the Russian Federation "On establishment of economic standards for a microloan company attracting loan funds from individuals, including individual entrepreneurs who are founders (participants, shareholders), and (or) legal entities" dated 2 April 2019. As at 31 December 2020 and 31 December 2019, 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 2020 (unaudited) and as at 31 December 2019 (unaudited).

The table below shows the maturity profile of financial liabilities as at 31 December 2020:

 

	On demand and less than 1 month	1 to 3 months	From 3 months to 6 months	From 6 months to 1 year	From 1 to 3 years	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 liabilities	533,909	135,068	163,824	316,314	650,689	1,799,804

 

 

The table below shows the maturity profile of financial liabilities as at 31 December 2019:

 

Group	On demand and less than 1 month	1 to 3 months	From 3 months to 6 months	From 6 months to 12 years	From 1 to 3 years	Total
Liabilities
Loans received	742,603	-	-	-	-	742,603
Lease liabilities	-	396,064	396,064	787,925	3,069,025	4,649,078
Other liabilities	351,253	-	-	-	-	351,253
Total potential future payments under financial liabilities	1,093,856	396,064	396,064	787,925	3,069,025	5,742,934

The 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 2020:

 

	On demand and less than 1 month	From 1 to 3 months	From 3 to 6 months	From 6 months to 1 year	More than 1 year	Overdue	No stated maturity	Total
Assets
Cash and cash equivalents	640,871	-	-	-	-	-	-	640,871
Loans to customers	1,168,937	-	-	-	-	100,376	-	1,269,313
Property and equipment	-	-	-	-	-	-	5,676	5,676
Right-of-use assets under lease agreements	-	-	-	-	-	-	297,925	297,925
Other assets	156,712	29	415	862	162	-	93,118	251,297
Total assets	1,966,520	29	415	862	162	100,376	396,720	2,465,084
Liabilities
Loans received	-	27,345	54,270	113,642	540,389	-	-	735,646
Lease liabilities	-	77,397	81,779	157,129	30,911	-	-	347,216
Other liabilities	719,477	-	-	-	-	-	104,353	823,830
Total liabilities	719,477	104,742	136,049	270,771	571,300	-	104,353	1,906,692
Net liquidity gap as at 31 December 2020	1,247,043	(104,713)	(135,634)	(269,909)	(571,138)	100,376	292,367	558,391
Cumulative liquidity gap as at 31 December 2020	1,247,043	1,142,329	1,006,695	736,787	165,648	266,024	558,391

 

The table below present the maturity profile of assets and liabilities as at 31 December 2019:

Group	On demand and less than 1 month	From 1 to 3 months	From 3 to 6 months	From 6 to 12 months	More than 1 year	Overdue	No stated maturity	Total
Assets
Cash and cash equivalents	1,582,751	-	-	-	-	-	-	1,582,751
Loans to customers	786,346	-	-	-	-	-		786,346
Property and equipment	-	-	-	-	-	-	11,967	11,967
Right-of-use assets under lease agreements	-	-	-	-	-	-	2,549,233	2,549,233
Other assets	131,938	-	-	2,218	-	12,649	75,312	222,117
Total assets	2,501,035	-	-	2,218	-	12,649	2,636,512	5,152,414
Liabilities
Loans received	742,603	-	-	-	-	-	-	742,603
Lease liabilities		227,558	352,680	725,218	1,250,193	-	-	2,555,648
Other liabilities	520,880	-	-	-	-	-	144,025	664,905
Total liabilities	1,263,483	227,558	352,680	725,218	1,250,193	-	144,025	3,963,157
Net liquidity gap at 31 December 2019	1,237,552	(227,557)	(352,680)	(723,000)	(1,250,193)	12,649	2,492,487	1,189,257
Cumulative liquidity gap as at 31 December 2019	1,237,552	1,009,995	657,315	(65,685)	(1,315,878)	(1,303,229)	1,189,257

 

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 2020: 1,269,313 and as at 31 December 2019: 786,346 British pounds sterling). In practice, interest rates are usually set for short periods. In addition, interest rates recorded in both asset and liability contracts are often revised by mutual agreement in accordance with current market conditions. In 2019 the maximum daily interest rate was limited to 1.5% per day in the first half of the year and 1% the second half of 2019.

Also, the Group's lease liabilities are exposed to interest rate risk (as at 31 December 2020: 347,216 and as at 31 December 2019: 2,555,648 British pounds sterling).

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 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 2020, management believes that its interpretation of the relevant legislation is appropriate and the Group's tax, currency and customs positions will be sustained by the regulatory authorities. Management believes that the Group has accrued all relevant taxes.

Operating lease commitments. In the course of its business, the Group enters into a number of lease agreements. These agreements are not irrevocable. The minimum future lease payments under operating leases where the Group is the lessee are presented below:

 

Group	31 December 2020	31 December 2019
Less than 1 year	-	66,434
Total operating lease commitments	-	66,434

 

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 2020 and
31 December 2019:

	2020		2019
Group	Carrying value	Fair value	Carrying value	Fair value
Financial assets
Cash	640,871	640,871	1,582,751	1,582,751
Loans to customers	1,269,313	1,269,313	786,346	786,346
Financial liabilities
Loans received	735,646	735,646	742,603	742,603
Other liabilities	533,907	533,907	351,253	351,253

The Group uses the following methods and assumptions to estimate the fair value of these financial instruments:

Cash and cash equivalents. The estimated fair value of cash and cash equivalents does not differ from their carrying amounts due to the nature of these financial instruments.

Loans to customers. Loans to customers are reported net of impairment allowance. The estimated fair value of loans to customers represents the discounted amount of estimated future cash flows expected to be received. To determine fair value, expected cash flows are discounted at current market rates (the interest rate on loans in 2020 was 1%, and in 2019 - from 1.5% to 1%).

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 2019 and 31 December 2018, excluding cash and cash equivalents (Level 1 = GBP 640,871 at 31 December 2020 and GBP 1,582,751 at 31 December 2019) 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 2020 and 31 December 2019, 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 2019 are as follows:

 

Transactions with party under common ultimate control	2020	2019
Loans received (balance)	735,646	742,603

 

No interest was accrued in 2020 and 2019 (see Note 9 Loans received).

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.

 

Transactions with ultimate beneficiary	2020	2019
Loan to beneficiary	(55,559)
Loan offset	55,559
Services rendered	-	206,718

 

Transactions with parent company	2020	2019
Loan issued	45,411	-
Interest income	334	-

Total balance as at 31  December, 2020                                                                          45,745                            -

For the year ended 31 December 2020, the total remuneration of key management personnel of the Subsidiary was GBP 274,281, including social insurance contributions of GBP 44,106 (2019: GBP 267,128, including social insurance contributions of GBP 39,765). 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 2020 was as follows: 

 

Below is the summary of remuneration for each Director for 2020:

	Salary, £, for the year 2020	Bonus for the year 2020	Shares held	Stock options
Malcolm Groat	25,000	-	0	2,150,000
Siro Donato Cicconi	100,000	35,000	320,000,000	10,750,000
Vladimir Golovko	124,361	3,500	0	8,600,000
Simon James Retter	60,000	21,000	3,600,000	6,450,000
Paul James Auger	20,000	-	0	2,000,000

The social insurance contributions, paid by the Company for the year 2020 on remuneration, was £17,388.

Out of pocket expenses totalling £78,055 were incurred by Siro Donato Cicconi in 2019 and as at 31 December 2020 £48,055 remained payable (as at 31 December 2019:  £78,055).

26. Business combination 

 

On 19 September 2019 Zaim Credit Systems plc (Parent Company) became the legal parent of Zaim Express LLC (Subsidiary) by way of reverse acquisition. The cost of the acquisition is deemed to have been incurred by Zaim Express LLC, the legal subsidiary, in the form of equity instruments issued to the owners of the legal parent. This acquisition has been accounted for as a reverse acquisition as described in Note 3, Basis of Preparation.

 

The fair value of the shares in Zaim Express LLC have been determined from the admission price of the Zaim Credit Systems plc shares on re-admission to trading on the LSE for 2.5 pence per share. The value of the consideration shares was £8,000,000. The fair value of the notional number of equity instruments that the legal subsidiary would have had to have issued to the legal parent to give the owners of the legal parent the same percentage ownership in the combined entity is 1.84 per cent of the market value of the shares after issues, being £150,000. The difference between the notional consideration paid by Zaim Credit Systems plc for Zaim Express LLC and the Zaim Credit Systems plc net assets acquired of £nil has been charged to the Consolidated Statement of Comprehensive Income as a deemed cost of the listing amounting to £150,000 with a corresponding entry to the reverse acquisition reserve.

Details of net assets acquired and the deemed cost of the listing were as follows:

 

 

 

     £

Consideration effectively received            150,000

 

Less net asset required:

 

Cash and cash equivalents                           52,055

Debtors and prepayments                            11,982

Current liabilities                                      (64,037)

 

Total net asset required:                                    -

 

Deemed cost of listing                                150,000

 

 

The terms of the share purchase agreement between the Company and Zaim Express LLC were as follows:  there are certain circumstances under which deferred contingent consideration might become payable. Should the Company record a monthly EBITDA figure in accordance with IFRS of £200k per month for a continuous period of four months and there be no reasonable expectation that this should fall below this level for a further period of six months then a further 16,000,000 new ordinary shares in the Company shall become payable.  Additional consideration of 16,000,000 shares over and above that already mentioned shall become payable should the Company record a monthly EBITDA figure of £350k per calendar month with the same continuous period clause as noted above. At the IPO price per share these deferred contingent considerations would have a value of £400k each for a combined value of £800k. It has been considered by the Directors at this time that, in light of the Covid-19 pandemic it remains difficult to predict if and when this might occur. This combined with the current low probability of these milestones being met in the current environment, meant that no fair value has been calculated for such deferred considerations.

 

Under the terms of the share purchase agreement between the Com-pany and Zaim Express LLC (Subsidiary) there are certain circumstances under which deferred contingent consideration might become payable. Should the Company record a monthly EBITDA figure in accordance with IFRS of £200k per month for a continuous period of four months and there be no reasonable expectation that this should fall below this level for a further period of six months then a further 16,000,000 new ordinary shares in the Company shall become payable. Addition-al consideration of 16,000,000 over and above that already mentioned shall become payable should the Company record a monthly EBITDA figure of £350k per calendar month with the same continuous period clause as noted above. At the IPO price per share these deferred contingent considerations would have a value of £400k each for a combined £800k in value. It has been considered by the Directors that given the improvement in outlook for the business that this additional consideration is likely to become payable in the near future and therefore a reserve of shares to be issued has been recognised and associated increase in carrying value of the investment in Zaim Express LLC (Subsidiary) as a result of this consideration.

 

 

 

27. Auditor's remuneration

 

		31.12.20		31.12.19
Audit		£		£
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

Currently the Group does not consider the impact of COVID-19 to be significant to the business going forward.

On 6th April 2021, Zaim Express LLC, the Groups wholly owned Subsidiary, entered into an agreement for an unsecured loan of RUB 50M for a period until September 2022 with an interest rate of 15% per annum.

There are not considered to be any other events after the reporting date.