Adalan Ventures Regulatory News (ZAIM)

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For Immediate Release

30 April 2021

Zaim Credit Systems Plc

("Zaim" or the "Group")

Audited financial results for the year ended 31 December 2020

Zaim Credit Systems plc (the 'Group' or 'Zaim'), the Russian focused fintech group, is pleased to announce its audited financial results for the year ended 31 December 2020.

 Key highlights

· Group Net Profit for the second half of 2020 of £0.7m (1H 20 loss of £1.3m)

· Adjusted EBIT profit for the second half of 2020 of £0.8m (1H 20 loss of £0.9m)

· Adjusted EBIT loss for the year of £0.1m (FY 19 loss of £0.2m)

· Achieving profitability in the second half of the year extremely encouraging given the backdrop of the COVID-19 restrictions

· Rapid transition to a predominantly online business model underlines the resilience and adaptability of the Group which is now well placed to capitalise on further growth

· Transition from offline-centered to online-centered business model mid-way through 2020 resulted in significantly lower fixed costs and higher scalability of the business

· Total loans issued increased by 15% to £10.4m (FY19 £9.0m) in FY20 and by 52% from £4.1m in 1H20 to £6.3m in 2H20

o The growth experienced in 2H is robust, sustainable and expected to continue as it is a result of the revised business model to focus the Groups resources online

o The rate of growth is expected to be stable as Zaim continues to take market share and not a result of any rebound from reduced business 1H or other short term result

· Growth of the loans issued was driven by the sharp increase in the online business, which grew 16 fold from £0.3m in 2019 to £5m in 2020. This growth was especially notable in 2H20 vs. 1H20 after the successful transformation to a predominantly online business model, generating an increase in loans issued of 540% from £0.7m in 1H20 to £4.3m in 2H20

· In December 2020, the online business represented 82% of total loans issued compared to 13% in March 2020 at the outset of COVID-19 and just 9% in December 2019

Financial highlights

1 Operating margin is calculated as net operating cash flow (net cash received for the period (including collecting claims) less loans provided including insurances) divided by total loans provided including insurances2 Adjusted EBIT is calculated by taking loss for the year adding back accrued interest, non-cash share-based payment charges, costs related to the IPO and one-off restructuring costs which are non-recurring.

Zaim's CEO, Siro Cicconi commented:

"Following the successful completion of the IPO on November 4, 2019 the business was outperforming the internal growth plan and gaining very good momentum during the first two months of 2020. This was unfortunately impacted quite severely during March - June 2020 due to the Covid-19 pandemic and still to a slightly lesser extent for the remainder of 2020. This posed a serious challenge for our management team and the whole business at every level and I would like to thank all of our employees, customers, consultants and the management team for their hard work and dedication through the difficult time.

During the quarantine period in the Q2 2020, the Group rapidly accelerated the shift in its business model to remote lending via the Internet, which resulted in a significant increase in access to our products without the need to visit our stores and at the same time decreasing the fixed costs base. The Group proceeded to optimise the physical store business, including the closure of loss-making outlets and moved forward focussing the majority of the Group's resource towards the online business. This was executed well and I am pleased with the results demonstrated by the profitability in the second half of 2020.

The Group experienced exceptional growth in lending volumes over the second half of 2020 and continues to see a large opportunity for our business to continue its current trajectory. I am both excited and optimistic about what the future holds for our Company and look forward to updating the market in the future."

A copy of the Report and Accounts will be available on the Company's website, www.zaimcreditsystemsplc.com/english and also from the National Storage Mechanism.

Enquiries:

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 as it forms part of UK Domestic Law by virtue of the European Union (Withdrawal) Act 2018 ("UK MAR")

Chairman's Statement

Dear Shareholders,

It is hard to imagine our life now without digital or online services. Over the past several years, most of us have transferred traditional "real-life" activities online. Activities such as shopping, education, communication, entertainment, ordering delivery from a restaurant or meeting any other essential needs can now be undertaken exclusively online.

Quarantine measures undertaken by the governments of most countries during 2020 as a reaction to the COVID-19 pandemic accelerated this shift in many cases and generated substantial additional demand for online services. Despite this, many of these services are difficult or even impossible to access without an online banking presence or a bank card. At the same time as services and activities that can be undertaken online are rapidly expanding, many people are excluded from this "online world." This phenomenon is quite noticeable in Russia, where in 2020, 65% of the population did not have a bank deposit account and 85% did not have a credit card .

Traditional banks are reluctant to approve credit to a large percentage of Russian borrowers with poor or no credit history as well as those from less well-off sections of society. This creates a significant segment of the population that is excluded from the online world and the modern standard of living.

Zaim has always built its business on ethical principles. Our mission is to provide access to financial services in the age of the Internet to those people who are not eligible for mainstream financial services. With this mission in mind, several years ago, Zaim created the Zaim MasterCard, an inclusivity tool that can be easily issued and delivered to those who lack the "key" to the modern online world.

With our motto "fast and flawless," we help people efficiently resolve their temporary financial difficulties without the need for collateral or guarantors, with funds usually delivered within a few minutes. In order to provide our customers with a quick and easy way to borrow money on transparent terms, we set a very high standard in customer service and we give full training to every one of our employees. We strive to provide financial support to a whole sector of the Russian population that has been ignored by conventional banks. Our best-in-class technology offering enables Zaim to do this and maximise shareholder returns at the same time.

This market still has a great potential. Penetration of the microfinance industry in the Russian market is less than 2% of the adult population, while in some mature markets, it ranges between 5% and 10%. Russian household debt in September 2020 was only 21% of the Russian GDP compared to 89% in the UK and 78% in the USA . Over the past several years, the microfinance market has grown by about 25% per annum, with the majority of this growth driven by the online segment. In addition, online lending in Russia has been doubling year after year. During 2020, which was hopefully an exceptional year for uncertainty and general economic turmoil, the total balance of Russian microfinance loans grew by 18% to 249 billion rubles (ca. £2.5 billion) .

We used the COVID-19 restrictions and change in habits of individuals as an opportunity to significantly accelerate the online transformation of our business. At the beginning of the year, we had a dominant share of the market in the Moscow region where our existing outlet network was based, even having only a very small-scale online business at the time. By the end of the year, we found ourselves in the enviable position of being able to provide the majority of our loans via remote channels and we are now able to include the whole of the Russian population as our market.

During the past few years, Zaim has been developing and executing a strategy of profitable growth whilst dealing with some significant headwinds. Zaim has successfully addressed the tightening of regulatory requirements experienced between 2016-2019, including a reduction in the maximum interest charges. In 2020, while our team focused on the implementation of our post-IPO strategy, COVID-19 emerged as a truly unforeseeable event but, once again, the team swiftly amended the strategy and ensured our prompt return to profitability and a leaner, more efficient and optimized business.

I would like to thank the management, employees, consultants and my fellow board members for their commitment and hard work in delivering these tremendous results and navigating the Group to a rapidly growing and profitable business in the second half of 2020.

We remain committed to strengthening our position as a leading Russian fintech company and will strive to keep delivering a fast and flawless solution to our customers.

Malcolm Groat

Chairman

29 April 2021

Chief Executive's Review

Dear fellow Stakeholders,

2020 became the year of great challenges not only for our company, but for the whole of humanity. I am extremely proud of our team that has successfully addressed these global challenges and turned a potential heavy threat to the business into an opportunity to increase growth and undertake an incredibly fast move to an online model. Our management has successfully navigated the difficulties connected with COVID-19 and its consequences as well as the tightening regulations in the microfinance field in Russia and has built a solid and reliable growth platform, generating significant profits in the second half of the year.

In the middle of 2019, the Russian financial regulator-the Central Bank of the Russian Federation-tightened restrictions for all operators in the microfinance market by reducing the maximum interest rate by 33%, in accordance to sector re-organization plan announced in 2016. The new rate is in line with international markets level. This lower interest rate affected us most significantly during 2020, the first full year of its impact, but despite this, the Group reported an increase in interest income of 23% during the year. This was driven by an increase in the amount of loans issued during the year to £10.4m (2019: £9.0m). During the year, it was observed that on average, customers held our loans for slightly longer (67 days; 2019: 52 days), predominantly due to the lower interest rates, resulting in an increased working capital requirement.

In 2020 we observed a significant threat to our business, as did a lot of other traditional businesses across the globe, with the emergence of the COVID-19 pandemic and associated restrictions imposed by governments. I am immensely proud of our team at all levels of the organisation who handled the situation in a calm, professional and conscientious manner and I would like to thank everybody for their great teamwork that has turned this significant risk into a successful opportunity to build our growing, profitable business.

Over the past 10 years, Zaim has developed a bespoke IT system that allows it to receive and repay loans remotely with an automated scoring process taking less than 10 minutes to approve or reject new applicants. 2020 saw the prioritization of the development of our online business and subsequent rapid expansion of lending volumes. At the same time, the physical outlet business was streamlined by reducing the number of outlets to 31 from 91 at the end of December 2020 and then to 27 as at 31 March 2021. As a result, the share of loans issued online dramatically increased from 9% in December 2019 to 82% in December 2020.

These swift and decisive actions resulted in an immediate improvement to the profitability of the Group with profits achieved on a quarterly basis in both Q3 and Q4 2020. While in the first half of 2020 the Group generated an adjusted EBIT loss of £0.9m, in the second half, it generated an adjusted EBIT profit of £0.8m, which is an impressive turnaround in performance.

This trend of strong growth in business volumes has continued during Q1 2021, with key performance indicators indicating healthy growth, and I look forward to providing more news in the Q1 trading update.

I am glad to note that the switch to an online-focused business model continues to outperform management's expectations and now that the platform has been successfully deployed and fine-tuned, our attention is turning to other business development opportunities and to further enhancements to our existing offerings. As part of this, the team is focusing on further improving the level of services, implementing new tools and, on top of this, we are glad to announce that we are releasing a mobile app. This gives us an opportunity to stay connected to our clients 24/7 and increase the potential for repeat business.

We are now ready to expand our portfolio of services and raise the fintech profile of the Group. Along with this, we are currently exploring opportunities with colleges and universities to create a mechanism for broadening access to financial services for people who are neglected by conventional providers. Once again, we confirm that the key words for our business are inclusivity and profitability.

I would like to thank the Directors and the management for navigating the successful return of the Group to net profitability. We are currently uniquely positioned to address market challenges and turn them into market opportunities with our consistent commitment to adding value and generating profitability for all of our stakeholders.

Siro Donato Cicconi

CEO

29 April 2021

Independent Auditor's Report to the Shareholders of Zaim Credit Systems plc

Opinion

We have audited the financial statements of Zaim Credit Systems plc (the 'parent company)' and its subsidiaries (the 'group') for the year ended 31 December 2020 which comprise the Consolidated Statement of Profit or Loss and Other Comprehensive Income, Consolidated and Company Statement of Financial Position, Consolidated and Company Statement of Changes in Equity, Consolidated and Company Statement of Cash Flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In our opinion:

· the financial statements give a true and fair view of the state of the group's and of the parent company's affairs as at 31 December 2020 and of the group's loss for the year then ended;

· the group and the parent company financial statements have been properly prepared in accordance with International accounting standards in conformity with the requirements of the Companies Act 2006; and

· the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the group financial statements, Article 4 of the IAS Regulation.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the director's use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Our evaluation of the directors' assessment of the entity's ability to continue to adopt the going concern basis of accounting included carrying out a risk assessment which covered the nature of the group, its business model and related risks including where relevant the impact of Coronavirus, the requirements of the applicable financial reporting framework and the system of internal control. We evaluated the directors' assessment of the group's ability to continue as a going concern, including challenging the underlying data and key assumptions used to make the assessment, and evaluated the directors' plans for future actions in relation to their going concern assessment.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's or group's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance on our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Our application of materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be charged or influenced. We use materiality both in planning and in the scope of our audit work and in evaluating the results of our work.

We determine materiality for the group and the parent company to be £96,983 and this financial benchmark, which has been used throughout the audit, was determined by way of a standard formula being applied to key financial results and balances presented in the financial statements. Where considered relevant the materiality is adjusted to suit the specific risk profile of the group.

Performance materiality is the application of materiality at the individual account or balance level set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. Performance materiality for both the group and the parent company was set at 75% of the above materiality levels, which equates to £72,737. We agreed with the audit committee that we would report to the committee all individual audit differences identified during the course of our audit in excess of £4,849. We also agreed to report differences below these thresholds that, in our view warranted reporting on qualitative grounds.

An overview of the scope of our audit

Our group audit was scoped by obtaining an understanding of the group and its environment, including the group's system of internal control, and assessing the risks of material misstatement in the financial statements at the group level.

Whilst Zaim Credit Systems plc is a company registered in England & Wales and its head office is located in the UK, the group's principal operations are located in Russia. In approaching the audit, we considered how the group is organised and managed. We assessed the activities of the group as being the issuance of microfinance loans to Russian individuals.

Our group audit scope focused on the group's principal operating subsidiary, being Zaim Express LLC, which was subject to a full scope audit together with the parent company. Shipleys LLP performed the audit of the parent company and BDO Unicon Aktsionernoe Obshchevstvo performed the audit of the Russian component.

The group audit team was actively involved in the direction of the audit and specific audit procedures performed by the component auditor along with the consideration of findings and determination of conclusions drawn. As part of our audit strategy, we issued group audit engagement instructions and discussed the instructions with the component auditor. A senior member of the group audit team met with the component auditor and local management performed a review of the component audit files and we discussed the audit findings with the component auditor.

Other Information

The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the other information include where we conclude that:

· Fair, balanced and understandable - the statement given by the directors that the y consider the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the groups' position and performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or

· Audit committee reporting  - the section describing the work of the audit committee does not appropriately address matters communicated by us to the audit committee; or

We have nothing to report in respect of these matters.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

· the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

· the strategic report and the directors' report have been prepared in accordance with applicable legal requirements

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

· adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

· the parent company financial statements and the part of the directors' remuneration report to be audited are not in agreement with the accounting records and returns; or

· certain disclosures of directors' remuneration specified by law are not made; or

· we have not received all the information and explanations we require for our audit.

Responsibilities of directors

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditor's Responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. Our approach was as follows:

· We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined the most significant are those that relate to the reporting framework (IFRS, the Companies Act 2006) and the relevant tax compliance regulations in the jurisdictions in which the group operates.

· We understood how Zaim Credit Systems plc is complying with those frameworks by making enquiries on management, the Company Secretary, and those responsible for legal and compliance procedures. We corroborated our enquiries through our review of board minutes, papers provided to the Audit Committee, discussion with the Audit Committee and any correspondence received from regulatory bodies.

· We assessed the susceptibility of the group's financial statements to material misstatement, including how fraud might occur by enquiring with management and the Audit Committee during the planning and execution phase of our audit. We considered the programs and controls that the group has established to address risks identified, or that otherwise prevent, deter and detect fraud and how senior management monitors those programs and controls. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk including revenue recognition as discussed above. These procedures included testing manual journals and were designed to provide reasonable assurance that the financial statements were free from fraud or error.

· Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations identified in the paragraphs above. Our procedures involved journal entry testing, with a focus on manual journals and journals indicating large or unusual transactions based on our understanding of the business; enquiries of the Company Secretary and management; and focused testing, as referred to in the key audit matters section above.

Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Other matters which we are required to address

We were initially appointed by the board on 23 October 2019 to audit the financial statements for the period ending 31 December 2018. Our total uninterrupted period of engagement is 3 years, covering the periods ending 31 December 2018 to 31 December 2020.

The non-audit services prohibited by the FRC's Ethical Standard were not provided to the group or the parent company and we remain independent of the group and the parent company in conducting our audit.

Our audit opinion is consistent with the additional report to the audit committee.

Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

BENJAMIN BIDNELL

For and on behalf of SHIPLEYS LLP, Chartered Accountants and Statutory Auditor

10 Orange Street, Haymarket, London, WC2H 7DQ

29 April 2021

29 April 2021

Company Registered number 11418575

The above Company Statement of Financial Position should be read in conjunction with the accompanying notes, the loss for the period was £576,000 (2019: £626,317). As permitted by section 408 of the Companies Act 2006, the statement of comprehensive income of the Parent Company is not presented as part of these Financial Statements.

The Financial Statements were authorised for issue by the Board of Directors on 29 April 2021 and were signed on its behalf

Earnings per share 11

Basic, profit for the year attributable to

ordinary equity holders of the parent 0.14p 0.77p

Diluted, profit for the year attributable to

ordinary equity holders of the parent 0.14p 0.77p

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 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 parent Company's employees (directors) is as follows:

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:

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:

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

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.

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

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:

Below is the credit quality analysis of cash and cash equivalents as at 31 December 2019 in accordance with ratings from international agencies:

6. Loans to Customers

Below is analysis of movements in the ECL allowance during 2020 (by type of loans specified in the first table of the Note):

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

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:

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

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:

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

Group

Group

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

Analysis of movements in the impairment allowance for non-financial assets during 2020 is presented below:

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

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

9. Loans Received

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.

10. Other Liabilities

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:

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

Group and Company Number Amount, £

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

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

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, £