6-K

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF A FOREIGN ISSUER

PURSUANT TO RULE 13A-16 OR 15D-16

OF THE SECURITIES EXCHANGE ACT OF 1934

For December 22, 2015

 

 

QIWI plc

 

 

12-14 Kennedy Ave.

Kennedy Business Centre, 2nd Floor, Office 203

1087 Nicosia Cyprus

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  x            Form 40-F  ¨

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ¨            No   x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

THIS REPORT ON FORM 6-K IS INCORPORATED BY REFERENCE IN THE REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-205489), THE REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-204728), THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-190918) OF QIWI PLC AND IN THE OUTSTANDING PROSPECTUS CONTAINED IN SUCH REGISTRATION STATEMENT.

 

 

 


EXHIBITS

 

23.1    Consent of Ernst & Young LLC
99.1    Audited consolidated financial statements of CIHRUS LLC as of and for the year ended December 31, 2014
99.2    Audited consolidated financial statements of Attenium LLC as of and for the year ended December 31, 2014
99.3    Unaudited interim condensed consolidated financial statements of CIHRUS LLC as of and for the three months ended March 31, 2015
99.4    Unaudited pro forma combined financial statements as of and for the three months ended March 31, 2015 and for the year ended December 31, 2014
99.5    “QIWI Publishes Historical Financial Statements and Pro Forma Financial Information in Connection with the Acquisition of Contact and Rapida” press release, dated December 22, 2015


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly organized.

 

  QIWI PLC (Registrant)
Date: December 22, 2015   By:  

/s/ Alexander Karavaev

    Alexander Karavaev
    Chief Financial Officer
EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-190918) and the Registration Statements on Form F-3 (Nos. 333-204728 and 333-205489) of our report dated December 18, 2015, relating to the financial statements of CIHRUS LLC for the year ended December 31, 2014, included as Exhibit 99.1 to this Report of a Foreign Private Issuer on Form 6-K of QIWI plc, and our report dated December 18, 2015, relating to the financial statements of Attenium LLC for the year ended December 31, 2014, included as Exhibit 99.2 to this Report of a Foreign Private Issuer on Form 6-K of QIWI plc.

 

/s/ Ernst & Young LLC

Moscow, Russia

December 22, 2015

EX-99.1
Table of Contents

Exhibit 99.1

CIHRUS LLC

Consolidated financial statements

For the year ended December 31, 2014


Table of Contents

CIHRUS LLC

Consolidated financial statements

for the year ended December 31, 2014

Content

 

Report of independent registered public accounting firm

     1   

Consolidated financial statements

  

Consolidated statement of financial position

     2   

Consolidated statement of comprehensive income

     3   

Consolidated statement of cash flows

     4   

Notes to consolidated financial statements

     5   


Table of Contents

Report of independent registered public accounting firm

The Participants of CIHRUS LLC

We have audited the accompanying consolidated statements of financial position of CIHRUS LLC as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, consolidated cash flow statements for each of the two years in the period ended December 31, 2014. These consolidated financial statements are the responsibility of CIHRUS LLC’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the CIHRUS LLC’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of CIHRUS LLC’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CIHRUS LLC as of December 31, 2014 and 2013, its financial performance and its cash flows for each of the two years in the period ended December 31, 2014, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

/s/ Ernst & Young LLC

December 18, 2015

Moscow, Russia


Table of Contents

CIHRUS LLC

Consolidated statement of financial position

As of December 31, 2014

(in thousands of Rubles)

 

     Notes      As of
January 1,
2013
     As of
December 31,
2013
     As of
December 31,
2014
 

Assets

           

Non-current assets

           

Property and equipment

     15         —           —           24,798   

Goodwill and other intangible assets

     16         7,047         2,026         5,411,623   

Deferred tax assets

     22         —           —           8,881   
     

 

 

    

 

 

    

 

 

 

Total non-current assets

        7,047         2,026         5,445,302   
     

 

 

    

 

 

    

 

 

 

Current assets

           

Trade and other receivables

     8         2,595         13,036         1,733,985   

Short-term financial assets

     9         —           63,396         4,076   

Prepaid income tax

        —           —           12,075   

Cash and cash equivalents

     10         12         636         5,269,560   

Short-term prepayments to agents

        —           —           184,401   

Other current assets

        —           —           1,631   
     

 

 

    

 

 

    

 

 

 

Total current assets

        2,607         77,068         7,205,728   
     

 

 

    

 

 

    

 

 

 

Total assets

        9,654         79,094         12,651,030   
     

 

 

    

 

 

    

 

 

 

Non-current liabilities

           

Deferred tax liabilities

     22         —           —           716,353   
     

 

 

    

 

 

    

 

 

 

Total non-current liabilities

        —           —           716,353   
     

 

 

    

 

 

    

 

 

 

Current liabilities

           

Net asset attributable to participants

     11, 25         200         56,953         4,878,191   

Short-term borrowings

     12, 25         3,267         15,714         777,000   

Trade and other payables

     13, 25         6,187         6,363         2,950,216   

Amounts due to customers and amounts due to banks

     14, 25         —           —           3,198,708   

Income tax payable

        —           —           114,713   

Deferred revenue

        —           —           5,016   

Financial guaranty

        —           —           9,339   

Other current liabilities

        —           64         1,494   
     

 

 

    

 

 

    

 

 

 

Total current liabilities

        9,654         79,094         11,934,677   
     

 

 

    

 

 

    

 

 

 

Total liabilities

        9,654         79,094         12,651,030   
     

 

 

    

 

 

    

 

 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

2


Table of Contents

CIHRUS LLC

Consolidated statement of comprehensive income

for the year ended December 31, 2014

(in thousands of Rubles)

 

            Year ended
December 31
 
     Notes      2013      2014  

Revenue

     17         60,485         2,288,673   

Operating costs and expenses:

     18         —           1,823,980   

Cost of revenue (exclusive of depreciation and amortization)

        

Selling, general and administrative expenses

     19         3,090         198,087   

Depreciation and amortization

     15, 16         1,551         113,074   
     

 

 

    

 

 

 

Profit from operations

        55,844         153,532   
     

 

 

    

 

 

 

Gain from disposal of subsidiary

     6         —           15,213   

Other income

     20         —           18,987   

Other expenses

        —           (310

Foreign exchange gain

        —           127,358   

Foreign exchange loss

        —           (156,593

Change in fair value of financial instruments

        —           (7,037

Interest income, net

        809         1,641   

Distributions to participants

     21         —           (319,545
     

 

 

    

 

 

 

Profit/(loss) before tax

        56,653         (166,754

Income tax expense

     22         —           (125,107
     

 

 

    

 

 

 

Net profit/(loss)

        56,653         (291,861
     

 

 

    

 

 

 

Attributable to:

        

- Participants of the parent

        56,653         (291,861
     

 

 

    

 

 

 

Total comprehensive income/(loss), net of tax effect of 0

        56,653         (291,861
     

 

 

    

 

 

 

Attributable to:

        

- Participants of the parent

        56,653         (291,861

The accompanying notes form an integral part of these consolidated financial statements.

 

3


Table of Contents

CIHRUS LLC

Consolidated statement of cash flows

for the year ended December 31, 2014

(in thousands of Rubles)

 

            Year ended
December 31
 
     Notes      2013     2014  

Cash flows from operating activities

       

Profit/(loss) before tax

        56,653        (166,754

Adjustments to reconcile profit before income tax to net cash flows generated from operating activities

       

Depreciation and amortization

        1,551        113,074   

Gain on disposal of intangible assets

        (404     —     

Interest income, net

     17         (809     (70,732

Change in fair value of financial instruments

        —          7,037   

Bad debt expense

     19         —          2,969   

Gain from disposal of subsidiary

     6         —          (15,213

Distributions to participants

     21         —          319,545   
     

 

 

   

 

 

 

Operating profit before changes in working capital

        56,991        189,926   

(Increase)/decrease in trade and other receivables

        (5,441     233,672   

Decrease in prepayments to agents

        —          205,479   

Increase in amounts due to customers and amounts due to banks

        —          2,158,859   

Increase in accounts payable and accruals

        176        (179,142
     

 

 

   

 

 

 

Cash generated from operations

        51,726        2,608,794   

Interest received

        1,058        113,247   

Interest paid

        (265     (42,658

Income tax paid

        —          (62,839
     

 

 

   

 

 

 

Net cash flow from operating activities

        52,519        2,616,544   
     

 

 

   

 

 

 

Cash flows from investing activities

       

Net cash flow on acquisition of businesses

     5         —          2,113,798   

Net cash flow on disposal of subsidiaries

     6         —          (3,532

Purchase of property and equipment

        —          (12,054

Purchase of intangible assets

        (1,125     (22,603

Loans issued

        (61,377     (295,649

Repayment of loans issued

        580        356,876   

Purchase of debt instruments

        (45,658     (2,300

Proceeds from sales of debt instruments

        43,058        9,879   
     

 

 

   

 

 

 

Net cash used in investing activities

        (64,522     2,144,415   
     

 

 

   

 

 

 

Cash flows from financing activities

       

Increase of net assets attributable to participants

     11         100        870,000   

Proceeds from borrowings

        25,000        139,081   

Repayment of borrowings

        (12,473     (207,795

Dividends paid to participants of the Group

     21         —          (293,321
     

 

 

   

 

 

 

Net cash generated from financing activities

        12,627        507,965   
     

 

 

   

 

 

 

Net increase in cash and cash equivalents

        624        5,268,924   

Cash and cash equivalents at the beginning of year

     10         12        636   
     

 

 

   

 

 

 

Cash and cash equivalents at the end of year

     10         636        5,269,560   
     

 

 

   

 

 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

4


Table of Contents

CIHRUS LLC

Notes to consolidated financial statements

for the year ended December 31, 2014

(in thousands of Rubles)

1. Corporate information and description of business

CIHRUS LLC (the Company) was registered on March 29, 2012 as a limited liability Company in Russian Federation under the Civil Code and Law of Limited Liability Companies. The registered office of the Company is Moscow, Aviamotornaya st, build 11/1. The consolidated financial statements of CIHRUS LLC and its subsidiaries for the year ended December 31, 2014 were authorized for issue by the Sole Shareholder of the Company on December 10, 2015.

CIHRUS LLC and its subsidiaries (collectively the “Group”) operate electronic online payment systems in Russia and maintain activity supporting processing of payments.

Otkritie Investments Holding is the parent of the Group as of December 31, 2014. Otkritie Holding JSC is the ultimate parent of the Group as of December 31, 2014. There is no individual who is the ultimate controlling party of the Group as of December 31, 2014. As of January 1, and December 31, 2013 Mr. Magomedov K.M. was the ultimate controlling party of the Company.

Information on the Company’s principal subsidiaries is disclosed in Note 6.

2.1 Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

For all periods up to and including the year ended December 31, 2013, the Company and its subsidiaries prepared its financial statements in accordance with local generally accepted accounting practice (Local GAAP). The Group did not prepare the consolidated financial statements under Local GAAP. These consolidated financial statements for the year ended December 31, 2014 are the first consolidated financial statements of the Group prepared in accordance with IFRS. Refer to Note 2.4 for information on how the Group adopted IFRS.

The consolidated financial statements are prepared on a historical cost basis. The consolidated financial statements are presented in Russian rubles (“RUB”) and all values are rounded to the nearest thousand (RUB (000)) except when otherwise indicated.

2.2 Basis of consolidation

The consolidated financial statements comprise the financial statements of CIHRUS LLC and its subsidiaries as of December 31 each year.

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.

Specifically, the Group controls an investee if and only if the Group has:

 

  Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee),

 

  Exposure, or rights, to variable returns from its involvement with the investee, and

 

  The ability to use its power over the investee to affect its returns.

 

5


Table of Contents

CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

2.2 Basis of consolidation (continued)

 

When the Group has less than a majority of the voting or similar rights of an 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.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. 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 statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

All intra-group balances, income, expenses and unrealized gains and losses resulting from intra-group transactions are eliminated in full, except for the foreign exchange gains and losses arising on intra-group balances.

Acquisitions from entities under common control

Business combinations arising from transfers of interests in entities that are under the control of the equity holder that controls the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative period presented or, if later, at the date that common control was established; for this purpose comparatives are revised. The assets and liabilities acquired are recognized at the carrying amounts recognized previously in the consolidated financial statements of the acquired entities. The net assets attributable to participants of the acquired entities are added to the Group’s net assets attributable to participants. Any cash or other contribution paid for the acquisition is recognized directly in net assets attributable to participants.

2.3 Summary of significant accounting policies

Set out below are the principal accounting policies used to prepare these consolidated financial statements:

2.3.1 Business combinations and goodwill

Business combinations other than under common control are accounted for using the acquisition method.

Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Group to the previous owners of the acquiree, and equity interests issued by the Group. Consideration transferred also includes the fair value of any contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in the business combination.

 

6


Table of Contents

CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.1 Business combinations and goodwill (continued)

 

If a business combination results in the termination of pre-existing relationships between the Group and the acquiree, then the Group identified any amounts that are not part of what the Group and the acquiree exchanged in the business combination. The Group recognizes as part of application the acquisition method only the consideration transferred for the acquiree and the assets acquired and liabilities assumed in the exchange for the acquiree.

If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognized in profit or loss. It is then considered in the determination of goodwill.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognized either in either profit or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of IAS 39, it is measured in accordance with the appropriate IFRS.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the re-assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquired are assigned to those units.

Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed in this circumstance is measured based on the relative values of the operation disposed and the portion of the cash-generating unit retained.

2.3.2 Foreign currency translation

The consolidated financial statements are presented in Russian rubles (RUB), which is the Company’s and its subsidiaries’ functional and presentation currency. Transactions in foreign currencies are initially recorded at the functional currency rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-measured at the functional currency rate of exchange at the reporting date. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as of the dates of the initial transactions.

 

7


Table of Contents

CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.2 Foreign currency translation (continued)

 

The exchange rates of the Russian ruble to each respective currency as of December 31, 2014, January 1 and December 31, 2013 were as follows:

 

Exchange rates at

   January 1,
2013
     December 31,
2013
     December 31,
2014
 

US Dollar

     30.3727         32.7292         56.2584   

Euro

     40.2286         44.9699         68.3427   

2.3.3 Property and equipment

Property and equipment are stated at cost less accumulated depreciation and any accumulated impairment in value. Expenditures for continuing repairs and maintenance are charged to the profit or loss as incurred.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income when the asset is derecognized.

Depreciation is calculated on property and equipment on a straight-line basis from the time the assets are available for use, over their estimated useful lives 2-7 years. The asset’s residual values, useful lives and depreciation methods are reviewed, and adjusted as appropriate, at each financial year end.

2.3.4 Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of other intangible assets acquired in a business combination is their fair value as of the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is recognized in the statement of comprehensive income when it is incurred.

Software development costs

Development expenditure on an individual project is recognized as an intangible asset when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the asset and the ability to measure reliably the expenditure during development.

Useful life and amortization of intangible assets

The useful lives of intangible assets are assessed as either finite or indefinite. Below is the summary of useful lives of intangible assets:

 

Customer and partnership base

   15 years

Software

   3-8 years

Licenses

   2-5 years*

Banking limited license

   indefinite

Trademarks and other rights

   6-10 years

 

* The terms of useful life could differ of those stated if it is directly stipulated by agreement

 

8


Table of Contents

CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.4 Intangible assets (continued)

 

Intangible assets with finite lives are amortized on a straight line basis over their useful economic lives or over the term stipulated by agreements and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life is reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statement of comprehensive income in the expense category consistent with the function of the intangible assets.

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of comprehensive income when the asset is derecognized.

2.3.5 Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset, other than Goodwill and intangible assets with indefinite useful life, may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used.

These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries, if applicable, or other available fair value indicators.

The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs, to which the individual assets are allocated.

These budgets and forecast calculations generally cover a period of five years or longer, when management considers appropriate. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the last year.

Impairment losses of continuing operations are recognized in profit or loss in those expense categories consistent with the function of the impaired asset.

 

9


Table of Contents

CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.5 Impairment of non-financial assets (continued)

 

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount.

That increased amount cannot exceed the carrying amount that would have been determined, net of amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss. The following criteria are also applied in assessing impairment of specific assets:

Goodwill

Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating units, to which the goodwill relates. Where the recoverable amount of the cash-generating units is less than their carrying amount an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. The Group performs its annual impairment test of goodwill as of December 31.

Intangible assets

Intangible assets with indefinite useful lives are tested for impairment annually as of December 31, either individually or at the cash generating unit level, as appropriate and whenever events and circumstances indicate that an asset may be impaired.

2.3.6 Financial instruments — initial recognition and subsequent measurement

2.3.6.1 Financial assets

Initial recognition and measurement

Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate. When financial assets are recognized initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. All regular way purchases and sales of financial assets are recognized on the trade date, which is the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification:

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.

 

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Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.6 Financial instruments — initial recognition and subsequent measurement (continued)

 

Financial assets at fair value through profit and loss are carried in the statement of financial position at fair value with net changes in fair value recognized in “change in fair value of derivative financial assets”, “other gains” or “other losses” in the statement of comprehensive income.

Financial assets designated upon initial recognition at fair value through profit or loss are designated at their initial recognition date and only if the criteria under IAS 39 are satisfied.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, loans and receivables are carried at amortized cost using the effective interest rate method less any allowance for impairment. Gains and losses are recognized in profit or loss when the loans and receivables are derecognized or impaired, as well as through the amortization process.

Amortized cost is calculated taking into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate (EIR). The EIR amortization is included in interest income in the statement of comprehensive income. The losses arising from impairment are recognized in the statement of comprehensive income in finance costs for loans and in cost of sales or other operating expenses for receivables.

Derecognition of financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when:

 

  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 has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset.

In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

 

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Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.6 Financial instruments — initial recognition and subsequent measurement (continued)

 

2.3.6.2 Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Assets carried at amortized cost

For financial assets carried at amortized cost (such as loans and receivables), the Group first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss on assets carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through use of an allowance account. The amount of the loss is recognized in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. Any subsequent reversal of an impairment loss is recognized in profit or loss.

2.3.6.3 Financial liabilities

Initial recognition and measurement

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans, borrowings and financial guaranties, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.

Financial liabilities are recognized initially at fair value less, in the case of loans and borrowings, directly attributable transaction costs.

 

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Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.6 Financial instruments — initial recognition and subsequent measurement (continued)

 

The Group’s financial liabilities include net asset attributable to participants, trade and other payables, bank overdraft, loans, borrowings and financial guaranties.

Subsequent measurement

The measurement of financial liabilities depends on their classification as follows:

Net assets attributable to participants

According to Russian legislation participants have a right to demand from the Company to buy back their share in equity for cash or cash equivalents at any time. The obligation of the Company to buy back the share of participants recognized as a long term liability even this liability depends on the will of participants to exercise their right. The assessment of fair value of such liability can’t be reasonably done as there is no assurance whether participants shall exercise their right or not and at what moment. The Group recognized this liability in line ‘Net asset attributable to participants at carrying value of net assets of the Group.

Distributions to participants decrease net assets attributable to participants of Limited Liability Company and recognized as liability in the statement of financial position and as expense in the statement of comprehensive income if the decision regarding distributions was made before or as at the reporting date. If such distributions were authorized after the reporting date but before the date of financial statements issue this information disclosed in notes to financial statements. Distributions to participants of the Company are recognized in the statement of comprehensive income as finance costs.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that do not meet the hedge accounting criteria as defined by IAS 39.

Gains or losses on liabilities held for trading are recognized in profit or loss.

The Group has not designated any financial liabilities at fair value through profit or loss.

Loans, borrowings and financial guaranties

After initial recognition, interest bearing loans, borrowings and financial guaranties are subsequently measured at amortized cost using the effective interest rate method.

Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the amortization process.

 

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Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.6 Financial instruments — initial recognition and subsequent measurement (continued)

 

Derecognition of financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.

2.3.6.4 Offsetting financial assets and liabilities

Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if:

 

  There is a currently enforceable legal right to offset the recognized amounts; and

 

  There is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

The right of set-off:

 

  Must not be contingent on a future event; and

 

  Must be legally enforceable in all of the following circumstances:

 

  (i) the normal course of business;

 

  (ii) the event of default; and

 

  (iii) the event of insolvency or bankruptcy of the entity and all of the counterparties

2.3.6.5 Fair value of financial instruments

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.

For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include:

 

  Using recent arm’s length market transactions;

 

  Reference to the current fair value of another instrument that is substantially the same;

 

  A discounted cash flow analysis or other valuation models.

An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 26.

2.3.7 Cash and cash equivalents

Cash comprises cash at banks and in hand and short-term deposits with an original maturity of three months or less. All these items are included as a component of cash and cash equivalents for the purpose of the statement of financial position and statement of cash flows.

 

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Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.8 Employee benefits

2.3.8.1 Current employment benefits

Wages and salaries paid to employees are recognized as expenses in the current period. The Group also accrues expenses for future vacation payments.

2.3.8.2 Social contributions

Under provisions of the Russian legislation, social contributions include defined contributions to pension and other social funds of Russia and are calculated by the Group by the application of a regressive rate (from 30% to 10% in 2013 and 2014) to the annual gross remuneration of each employee. For the year ended December 31, 2014 defined contributions to pension fund of Russia of the Group amounted to 27,283 (2013 – nil).

2.3.9 Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain.

If the effect of discounting is material, provisions are determined by discounting the expected value of future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.

2.3.10 Income taxes

Current income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

Current income tax relating to items recognized in other comprehensive income is recognized in other comprehensive income.

Deferred income tax

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

 

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Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.10 Income taxes (continued)

 

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

2.3.11 Revenue and certain expenses recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenues and related cost of revenue from services are recognized in the period when services are rendered, regardless of when payment is made. Returns, incentives and rebates are recognized in the period in which the underlining sales are recognized as a reduction of sales revenue.

Payment processing fee revenues and related transaction costs

The Group earns a fee for processing payments initiated by the ultimate customers (“consumers”) to pay to merchants and service providers (“merchants”) or transfer money to other individuals. Payment processing fees are earned from consumers or merchants, or both. Consumers can make payments to various merchants or transfer the money through network of agents and banks participants of payment system or through the Group’s website or applications using a unique user login and password (e-payments). When consumer payments are made, the Group incurs payment costs to acquire payments payable to agents, banks-participants, mobile operators and other parties. The payment processing fee revenue and related receivable, as well as the transaction cost and the related payable, are recognized at the point when merchants or individual accept payments from consumers in the gross amount, including fees payable for payment acquisition. Payment processing fees and transaction costs are reported gross.

The Group generates revenue from the foreign currency conversion when payments are made in currencies different from the country of the consumer, mainly Russia. The Group recognizes the related revenues at the time of conversion in the amount of conversion commission representing the difference between the current Russian or relevant country Central Bank foreign currency exchange rate and the foreign currency exchange rate charged by the Group’s processing system.

Interest revenue from agents’ overdrafts

The Group charges interest on overdrafts to agents and includes them in revenue. Related revenues are recognized using the EIR method by applying the contractually agreed interest rates to the actual daily amounts outstanding balance of overdrafts.

 

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Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.11 Revenue and certain expenses recognition (continued)

 

Interest revenue

For all financial instruments measured at amortized cost, interest bearing financial assets classified as available for sale and financial instruments designated at fair value through profit or loss, interest income or expense is recorded using the EIR. The carrying amount of the financial asset or financial liability is adjusted if the Group revises its estimates of payments or receipts. Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Interest income from short- and long- term investments performed as part of the Group’s treasury function is classified as part of revenues, Interest income derived from loans issued to various third and related parties as part of other arrangements is classified as interest income.

Licensing fee and royalty

The Group charged Licensing fee and royalty for use its software and trademarks to operator of Contact payment system till October 2014 afterwards this revenue become intercompany (Note 5).

2.3.12 Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date, whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement.

Group as a lessee

Operating lease payments are recognized as an operating expense in the statement of comprehensive income on a straight-line basis over the lease term.

2.4 First-time adoption of IFRS

These financial statements, for the year ended December 31, 2014, are the first financial statements the Group has prepared in accordance with IFRS. For periods up to and including the year ended December 31, 2013, the Group’ companies prepared its financial statements in accordance with local generally accepted accounting principle (Local GAAP).

Accordingly, the Group has prepared financial statements which comply with IFRS applicable for periods ending on or after December 31, 2014, together with the comparative period data as at and for the year ended December 31, 2013, as described in the summary of significant accounting policies. In preparing these financial statements, the Group’s opening statement of financial position was prepared as at January 1, 2013, the Group’s date of transition to IFRS.

The Group did not apply any exemptions from the retrospective application of certain requirements under IFRS. The estimates at January 1, 2013 and at December 31, 2013 are consistent with those made for the same dates in accordance with local GAAP. The Group did not present reconciliations required by IFRS 1 in respect of equity, items of total comprehensive income and cash flows as it did not prepare consolidated financial statements under previous GAAP.

 

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Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

3. Significant accounting judgments, estimates and assumptions

The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the reporting dates and the reported amounts of revenues and expenses during the reporting periods. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

Significant judgments

In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognized in the consolidated financial statements:

Revenue recognition

Payment processing fees revenue and transaction costs

The Group exercised significant judgment in reaching a conclusion about its accounting policy for gross versus net reporting of payment processing fee revenues and related transaction costs. In particular, there are two major sources of payment processing fee revenues:

 

  Payment processing fees charged to consumers on payments collected through agents, mobile operators and other payment methods; and

 

  Payment processing fees charged to merchants.

Either one of the two types of payment processing fees above, or in some cases, both payment processing fees apply to a single consumer payment. Transaction costs relate to acquisition of payments by agents, mobile operators, international payment systems and some other parties, and the applicable fees, generally determined as a percentage of consumer payment, for each specific payment channel are on terms similar to those available to other market participants.

A merchants’ payment processing fee, when it is charged, is recorded gross of related transaction costs, because the Group (i) is the primary obligor as it undertakes to transfer the consumer payment to the merchant or other individual using its payment processing system; (ii) it negotiates and ultimately sets the fee receivable from a merchant or consumer, generally as a percentage of payments; and (iii) it bears credit risk in most of the cases, unless the payment is made from a deposit made with the Group.

A consumer payment processing fee, when it is charged on payments made by consumers through network of agents, is reported net of any transaction costs payable to or retained by agents. This is because, although the Group is the primary obligor, it does not have any discretion over the ultimate payment processing fee set by the agent to the consumer, does not have readily available information about gross fee, and is only exposed to the net amount of fee receivable from agents.

The total amounts of transaction costs reported gross for the years ended December 31, 2013 and 2014 are nil and 1,468,159 respectively.

Deferred tax assets

The utilization of deferred tax assets will depend on whether it is possible to generate sufficient taxable income against which the deductible temporary differences can be utilized. Various factors are used to assess the probability of the future utilization of deferred tax assets, including past operating results, operational plans, expiration of tax losses carried forward, and tax planning strategies. The carrying amount of deferred tax asset was 8,881 as of December 31, 2014 (December 31, 2013 – nil; January 1, 2013 – nil).

 

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Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

3. Significant accounting judgments, estimates and assumptions (continued)

 

Significant judgments (continued)

 

The unrecognized part relates to deferred tax assets which were not recorded because the Group does not expect to realize certain of its tax loss carry forwards in the foreseeable future due to history of losses. Further details on deferred taxes are disclosed in Note 22.

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

Impairment of loans and receivables

Management assesses an impairment of loans and receivables to account for estimated losses resulting from the inability of customers to make required payments. When evaluating the adequacy of an impairment of loans and receivables, management bases its estimates on the aging of accounts receivable balances and loans and historical write-off experience, customer credit worthiness and changes in customer payment terms. If the financial condition of customers were to deteriorate, actual write-offs might be higher than expected. As of December 31, 2014, the provision for impairment of loans and receivables was recorded amounting to 29,085 (December 31, 2013 – nil; January 1, 2013 – nil). Further details on deferred taxes are disclosed in Note 8.

Fair values of assets and liabilities acquired in business combinations

The Group recognizes separately, at the acquisition date, the identifiable assets, liabilities and contingent liabilities acquired or assumed in the business combination at their fair values, which involves estimates. Such estimates are based on valuation techniques, which require considerable judgment in forecasting future cash flows and developing other assumptions. When the amounts of fair values are significant, the Group hires third party appraisers to assist it in determining the related fair values.

Impairment of goodwill and indefinite-lived intangible assets

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset. In order to determine whether the goodwill and Indefinite-lived intangible assets are impaired, it is necessary to estimate the value in use of the cash-generating units to which the goodwill and Indefinite-lived intangible assets are allocated. The value in use calculation is based on a discounted cash flow (DCF) model. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit uses budget for the next five years and to choose a suitable discount rate in order to calculate the present value of those cash flows, and hence such estimates are subject to uncertainty. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to goodwill and other intangibles with indefinite useful lives recognized by the Group. Further details on impairment of goodwill and indefinite-lived intangible assets are disclosed in Note 16.

 

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Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

4. Standards issued by the IASB but not yet effective

Standards issued but not yet effective up to the date of issuance of the Company’s financial statements are listed below. This listing of standards and interpretations issued are those that the Company reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Company intends to adopt these standards when they become effective.

 

Standard

  

Content of change

  

Impact and effective date

IFRS 9 Financial Instruments    In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting.   

IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted.

 

The adoption of IFRS 9 will have an effect on the classification and measurement of the Company’s financial assets, but will likely have no impact on classification and measurements of financial liabilities. The adoption of IFRS 9 will have no impact on impairment and hedge accounting of financial assets and financial liabilities of the Company.

Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation    The amendments clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets.    The amendments are effective prospectively for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments are not expected to have any impact to the Group given that the Group has not used a revenue-based method to depreciate its non-current assets.
IFRS 15 Revenue from Contracts with customers    IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS.    Either a full or modified retrospective application is required for annual periods beginning on or after January 1, 2017 with early adoption permitted. The Group is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date.

Management of the Company has not completed the assessment of the impact of Standards and Interpretations not yet effective as of December 31, 2014 on the Company’s accounting policies.

 

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Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

4. Standards issued by the IASB but not yet effective (continued)

 

Annual improvements 2010-2012 Cycle

These improvements are effective from July 1, 2014 and have no a material impact on the Group. They include:

IFRS 3 Business Combinations

The amendment is applied prospectively and clarifies that all contingent consideration arrangements classified as liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of IFRS 9 (or IAS 39, as applicable).

IFRS 8 Operating Segments

The amendments are applied retrospectively and clarify that:

 

  An entity must disclose the judgements made by management in applying the aggregation criteria in paragraph 12 of IFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are ‘similar’.

 

  The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities.

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets

The amendment is applied retrospectively and clarifies in IAS 16 and IAS 38 that the asset may be revalued by reference to observable data on either the gross or the net carrying amount. In addition, the accumulated depreciation or amortization is the difference between the gross and carrying amounts of the asset.

IAS 24 Related Party Disclosures

The amendment is applied retrospectively and clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services.

Annual improvements 2011-2013 Cycle

These improvements are effective from July 1, 2014 and have no a material impact on the Group.

They include:

IFRS 3 Business Combinations

The amendment is applied prospectively and clarifies for the scope exceptions within IFRS 3 that:

 

  Joint arrangements, not just joint ventures, are outside the scope of IFRS 3

 

  This scope exception applies only to the accounting in the financial statements of the joint arrangement itself

IFRS 13 Fair Value Measurement

The amendment is applied prospectively and clarifies that the portfolio exception in IFRS 13 can be applied not only to financial assets and financial liabilities, but also to other contracts within the scope of IFRS 9 (or IAS 39, as applicable).

 

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Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

5. Acquisitions

Rapida

On October 28, 2014, the Company acquired 99.999% interest in the Attenium LLC from their common parent, Otkrytie Holding JSC for 870,000 paid in cash. This acquisition was treated as business combination under common control. The Company was acquired by Otkrytie Holding JSC on June 30, 2014, while Attenium LLC and its subsidiaries were acquired by the Otkrytie Holding JSC on June 28, 2013.

The Company applied pooling of interest method to account for that acquisition. Assets and liabilities of Attenium LLC and its subsidiaries: Gikor LLC, Rapida LTD, Processingovyi Tsentr Rapida LLC altogether operated as Rapida payment processing system (further Rapida) were included in these consolidated financial statements starting from June 30, 2014 based on their carrying amounts in the consolidated financial statements of Otkrytie Holding JSC at that date. Income and expenses generated by Attemium LLC and its subsidiaries also were included into the Group’s income and expenses from that date, after taking into account effect of inter-company elimination. The purpose of the acquisition was to develop business related to payment system.

The carrying amounts of the identifiable assets and liabilities as of the date of business combination were:

 

     Carrying
value
 

Net assets acquired:

  

Property and equipment

     10,843   

Intangible assets

     1,336,308   

Deferred tax asset

     11,586   

Long-term prepayment to agents

     95,755   

Trade and other receivables

     1,860,034   

Cash and cash equivalents

     2,245,615   

Other current assets

     4,364   

Short-term prepayment to agents

     295,756   

Deferred tax liability

     (264,960

Short-term borrowings

     (830,000

Trade and other payables

     (2,271,675

Income tax payable

     (68,170

Amounts due to customers and amounts due to banks

     (1,039,849

Other current liabilities

     (3,124
  

 

 

 

Total identifiable net assets at fair value

     1,382,483   
  

 

 

 

Consideration paid by the Company

     870,000   
  

 

 

 

Increase in net asset attributable to participants due to pooling of interest (Note 11)

     512,483   
  

 

 

 

Cash flow on acquisition:

  

Cash acquired upon pooling of interest

     2,245,615   

Cash paid

     (870,000
  

 

 

 

Net cash flow on acquisition

     1,375,615   
  

 

 

 

Increase in net assets of the Group as result of business combination was recognized as part of net assets attributable to participants.

 

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CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

5. Acquisitions (continued)

 

Contact

In October 2014, the Group obtained control over the Contact payment system as a result of the technological transfer of the Contact payment system to the software and hardware platform of the Group’s subsidiary LTD Rapida. Contact is not a separate legal entity but satisfies definition of the business according to IFRS 3. The acquisition has been accounted for using the acquisition method.

The purpose of this acquisition was to develop business related to the payment system.

The fair values of the identifiable assets and liabilities as of the date of acquisition were:

 

     Fair value  

Net assets acquired:

  

Property and equipment

     27,575   

Intangible assets

     2,363,419   

Trade and other receivables

     88,955   

Cash and cash equivalents

     780,639   

Other current assets

     5,920   

Deferred tax liability

     (426,235

Trade and other payables

     (860,631
  

 

 

 

Total identifiable net assets at fair value

     1,979,642   
  

 

 

 

Consideration paid by the Company

     42,457   

Consideration paid by the Parent presented as Increase in net assets attributable to participants (Note 11)

     3,730,616   
  

 

 

 

Total consideration

     3,773,073   
  

 

 

 

Goodwill arising on acquisition

     1,793,431   
  

 

 

 

Cash flow on acquisition:

  

Cash acquired upon business combination

     780,639   

Cash paid

     (42,457
  

 

 

 

Net cash flow on acquisition

     738,182   
  

 

 

 

The consideration amounted to 3,730,616 was paid by Otkritie holding JSC, an ultimate parent of the Company and was recognized at the Group’s level as increase in the net assets attributable to participants. The gross amount of trade and other receivables is the same as their fair value.

Goodwill in the amount of 1,793,431 relates to the potential synergies with the existing operations of the Group. The Group determined the fair value of Contact client and partnership base and Trademarks and recognized them as intangible assets in amount of 2,363,419. Deferred tax liability arose in relation to these intangible assets in the amount of 426,235 due to their tax base of 232,246.

From the date of acquisition through December 31, 2014, Contact contributed 823,011 of revenue and 100,476 to the net income of the Group. The management cannot reliably asses what the Group revenue and the net income would have been if the acquisition had taken place at the beginning of 2014.

 

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Table of Contents

CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

6. Consolidated subsidiaries

The consolidated IFRS financial statements include the assets, liabilities and financial results of the Company and its subsidiaries. The subsidiaries are listed below:

 

          Effective ownership interest  

Subsidiary

  

Main activity

   As of
January 1, 
2013
     As of
December 31, 
2013
     As of
December 31, 
2014
 

Gikor LLC (Russia)

   Payment processing services      —           —           99,999

Processingovyi Tsentr Rapida LLC (Russia)

   Payment processing services      —           —           99,999

Rapida LTD (Russia)

   Maintenance of electronic payment systems      —           —           99,999

Attenium LLC (Russia)

   Sub holding company      —           —           99,999

On December 26, 2014 the Company entered into the agreement to sell its entire share in Contact Tsentr LLC which was acquired in October 2014 as part of Contact payment system. It stipulates loss of control over this entity as of date of the agreement. Since December 26, 2014 Contact Tsentr LLC was deconsolidated from the Group’s financial statements.

The gain from disposal was calculated as the differences between:

 

(i) the fair value of the consideration received

 

(ii) and the carrying value of net assets disposed of, as of the date of the transaction.

 

     2014  

Cash consideration receivable

     56,253   

Net assets derecognized on disposal

     (41,040
  

 

 

 

Gain on disposal of subsidiary

     15,213   
  

 

 

 

Gain on disposal of subsidiary is neutral for tax purposes as it is calculated and paid on standalone basis and it is amounted to nil.

The amount of the assets and liabilities in the subsidiary over which control is lost, summarized by each major category is presented below:

 

Property and equipment

     18,764   

Trade and other receivables

     16,460   

Cash and cash equivalents

     3,532   

Other current assets

     5,919   

Trade and other payables

     (3,635
  

 

 

 

Net assets derecognized on disposal

     41,040   
  

 

 

 

 

24


Table of Contents

CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

7. Operating segments

In reviewing the operational performance of the Group and allocating resources, the chief operating decision maker of the Group (CODM), who is the board of directors of the Group, reviews selected items of each segment’s statement of comprehensive income.

Management reporting is based on the local GAAP and differs from IFRS. It does not include certain IFRS adjustments which are not analyzed by the chief operating decision maker in assessing the core operating performance of the business. Such adjustments affect such major areas as business combinations, fair value adjustments and amortization thereof, as well as nonrecurring items.

The financial data is presented on a combined basis for all key subsidiaries representing each segment added together forming the segment revenue, operating expenses, profit before tax. The Group measures the performance of its operating segments by monitoring: revenue, segment net revenue and profit before tax. Segment net revenue is a measure of profitability defined as the segment revenues less segment direct costs, which include the same items as the “Cost of revenue (exclusive of depreciation and amortization)” as reported in the Group’s consolidated statement of comprehensive income, except for payroll costs. Payroll costs are excluded because, although required to maintain the Group’s distribution network, they are not linked to payment volume. The Group does not monitor balances of assets and liabilities by segments as CODM consider they have no impact on decision making.

The Group has identified its operating segments based on the types of products and services the Group offers. The Group has identified the following reportable segments:

 

  Rapida, which generates revenue from the payment systems, offered though the Group’s network of agents in Russia.

 

  Contact, which generates revenue from the money remittance services provided to individuals through Contact payment system.

 

  Corporate and other, which generates revenue from limited activities of the Group related to corporate back-office operations, such as the licensing of software and trademarks to subsidiaries.

The segments’ statement of comprehensive income for the years ended December 31, 2014, as presented to the CODM is presented below:

 

     Rapida     Contact     Corporate 
and other
    Eliminations     Total  

Segment revenue

     1,368,442        823,011        137,943        (40,723     2,288,673   

Segment Cost of revenue

     (1,119,521     (600,191     —          40,723        (1,678,989
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment net revenue

     248,921        222,820        137,943        —          609,684   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Payroll and related taxes

     (143,225     (35,177     (68,913     —          (247,315

Overheads

     (52,033     (23,351     (20,379     —          (95,763

Depreciation and amortization

     (7,212     (12,559     (3,565     —          (23,336

Other income/(Expenses)

     10,402        (26,138     (218     —          (15,954
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment profit before tax

     56,853        125,595        44,868        —          227,316   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

7. Operating segments (continued)

The segments’ statement of comprehensive income for the years ended December 31, 2013, as presented to the CODM is presented below:

 

     Rapida      Contact      Corporate
and other
 

Segment revenue

     —           —           60,485   

Segment Cost of revenue

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Segment net revenue

     —           —           60,485   
  

 

 

    

 

 

    

 

 

 

Overheads

     —           —           (3,090

Depreciation and amortization

     —           —           (1,551

Other income

     —           —           809   
  

 

 

    

 

 

    

 

 

 

Segment profit before tax

     —           —           56,653   
  

 

 

    

 

 

    

 

 

 

Segment net revenue, as presented to the CODM, for the years ended December 31, 2013 and 2014 is calculated by subtraction cost of revenue (exclusive of depreciation and amortization) from revenue and adding back payroll and related taxes as presented in table below:

 

     2013      2014  

Revenue under IFRS

     60,485         2,288,673   

Cost of revenue (exclusive of depreciation and amortization)

     —           (1,823,980

Payroll and related taxes

     —           144,991   
  

 

 

    

 

 

 

Total segment net revenue, as presented to CODM

     60,485         609,684   
  

 

 

    

 

 

 

A reconciliation of segment profit before tax to IFRS consolidated profit before tax of the Group, as presented to the CODM, for the years ended December 31, 2013 and 2014 is presented below:

 

     2013      2014  

Consolidated profit/(loss) before tax under IFRS

     56,653         (166,754

Gain from disposal of subsidiary

     —           (15,213

Amortization of fair value adjustments to intangible assets recorded on acquisitions

     —           89,738   

Distributions to participants

     —           319,545   
  

 

 

    

 

 

 

Total segment profit before tax, as presented to CODM

     56,653         227,316   
  

 

 

    

 

 

 

Geographic information

Revenues from external customers are derived from Russia and CIS. Revenue is recognized according to merchants’ place for Rapida segment and according to customer base for Contact segment.

The principal country of major operations of all legal entities within the Group is Russia. Therefore the Group allocates all its non-current assets stated in statement of financial positions in Russia.

The Group does not have any single external customer: consumer or merchant amounting to 10% or greater of Group’s revenue for the years ended December 31, 2014. During the year ended December 31, 2013 the Company had only two customers as related parties (Note 25).

 

26


Table of Contents

CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

8. Trade and other receivables

As of December 31, 2014, trade and other receivables consisted of the following:

 

     Total as of
December 31,
2014
     Provision for
impairment of
receivables
     Net as of
December 31,
2014
 

Cash receivable from agents

     1,536,080         (21,463      1,514,617   

Payment processing fees receivable

     55,125         (7,065      48,060   

Deposits issued to merchants

     85,000         —           85,000   

Advances issued to vendors

     29,369         (484      28,885   

Other receivables and advances

     57,496         (73      57,423   
  

 

 

    

 

 

    

 

 

 

Total trade and other receivables

     1,763,070         (29,085      1,733,985   
  

 

 

    

 

 

    

 

 

 

As of December 31, 2013, trade and other receivables consisted of the following:

 

     Total as of
December 31,
2013
     Provision for
impairment of
receivables
     Net as of
December 31,
2013
 

Advances issued to vendors

     3,527         —           3,527   

Other receivables and advances

     9,509         —           9,509   
  

 

 

    

 

 

    

 

 

 

Total trade and other receivables

     13,036         —           13,036   
  

 

 

    

 

 

    

 

 

 

As of January 1, 2013, trade and other receivables consisted of the following:

 

     Total as of
January 1,
2013
     Provision
for
impairment
of
receivables
     Net as of
January 1,
2013
 

Other receivables and advances

     2,595         —           2,595   
  

 

 

    

 

 

    

 

 

 

Total trade and other receivables

     2,595         —           2,595   
  

 

 

    

 

 

    

 

 

 

Trade receivables aged but not impaired as of December 31, 2014 are presented below:

 

            Ageing of receivables (days)  

As of December 31, 2014

   Total      <30      30-60      60-90      90-180      180-360      >360  

Cash receivable from agents

     1,514,617         1,512,489         1,156         971         —           1         —     

Payment processing fees receivable

     48,060         46,634         433         987         6         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total trade and other receivables

     1,562,677         1,559,123         1,589         1,958         6         1         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

For the year ended December 31, 2014, the provision for impairment of receivables movement was the following:

 

     Provision for
impairment of
receivables as
of December 31,
2013
     Additions due
to pooling of
interest
(Note 5)
     (Charge)/
reversal for
the year
     Provision for
impairment
of receivables as
of December 31,
2014
 

Cash receivable from agents

     —           (25,338      3,875         (21,463

Payment processing fees receivable from merchants

     —           —           (7,065      (7,065

Advances issued to vendors

     —           (514      30         (484

Other receivables and advances

     —           (264      191         (73
  

 

 

    

 

 

    

 

 

    

 

 

 

Total trade and other receivables

     —           (26,116      (2,969      (29,085
  

 

 

    

 

 

    

 

 

    

 

 

 

 

27


Table of Contents

CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

8. Trade and other receivables (continued)

Receivables are non-interest bearing and credit terms generally do not exceed 30 days. There is no requirement for collateral to receive credit. Interest of 10%-36% per annum is accrued on overdrafts granted to some agents.

9. Short term financial assets

As of December 31, 2014, January 1 and December 31, 2013, short term financial assets consisted of the following:

 

     As of
January 1,
2013
     As of
December 31,
2013
     As of
December 31,
2014
 

Loans to legal entities*

     —           60,796         1,739   

Loans to individuals

     —           —           2,337   

Promissory notes

     —           2,600         —     
  

 

 

    

 

 

    

 

 

 

Total short term financial assets

     —           63,396         4,076   
  

 

 

    

 

 

    

 

 

 

 

* During the year 2013 the Company issued two loans to unrelated parties in amounts of 14,696 payable within one year bearing EIR of 10% and in amounts of 46,100 payable within one year bearing EIR of 11%. Both loans were repaid during the year 2014.

10. Cash and cash equivalents

As of December 31, 2014, January 1 and December 31, 2013, cash and cash equivalents consisted of the following:

 

     As of
January 1,
2013
     As of
December 31,
2013
     As of
December 31,
2014
 

Correspondent accounts with Central Bank of Russian Federation (CB RF)

     —           —           900,850   

Correspondent accounts with other banks

     —           —           2,363,834   

Short-term CB RF deposits

     —           —           2,000,000   

RUB denominated cash with banks and on hand

     12         636         4,876   
  

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

     12         636         5,269,560   
  

 

 

    

 

 

    

 

 

 

Cash and short-term investments are placed in financial institutions or financial instruments, which are considered at the time of deposit to have minimal risk of default.

11. Net asset attributable to participants

Below is the table of ownership of the Company

 

     As of
January 1,
2013
    As of
December 31,
2013
    As of
December 31,
2014
 

Mr. Magomedov K.M.

     75,61     75,61     —     

Contact International holding AG

     24,39     24,39     —     

Otkritie Investments Holding

     —          —          70

Status-A LLC

     —          —          30

 

28


Table of Contents

CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

11. Net asset attributable to participants (continued)

Net assets attributable to participants of the Company represent the current value of the Company’s net assets as at December 31.

Changes in net assets of the Company during the years ended 2013 and 2014 are presented in the table below:

 

Balance at January 1, 2013

     200   

Contribution from participants*

     100   

Net profit for the period

     56,653   
  

 

 

 

Balance at December 31, 2013

     56,953   

Net loss for the period

     (291,861

Contribution from participants

     870,000   

Increase due to pooling of interest (Note 5)

     512,483   

Contribution from participants (Note 5)

     3,730,616   
  

 

 

 

Balance at December 31, 2014

     4,878,191   
  

 

 

 

 

* During the year 2013 the Company increased its charter capital by 100.

12. Borrowings

As of December 31, 2014, January 1 and December 31, 2013, outstanding borrowings consisted of the following:

 

Short-term borrowings

   Effective
interest rate, %
  Maturity    As of
January 1,
2013
     As of
December 31,
2013
     As of
December 31,
2014
 

JSC Bank Finansovaya Corporatsiya Otkrytie

   RUONIA + 2%   Up to 90 days      —           —           627,000   

JSC Bank Finansovaya Corporatsiya Otkrytie

   15%   June 2015      —           —           150,000   

SMO Aliance LLC

   10%   May 2014      —           15,714         —     

Trastcom Development LLC

   10%   December 2013      3,267         —           —     
       

 

 

    

 

 

    

 

 

 
          3,267         15,714         777,000   
       

 

 

    

 

 

    

 

 

 

The overdraft facility from JSC Bank Finansovaya Corporatsiya Otkrytie appeared in consolidated financial statements after Rapida consolidation under common control (Note 5) with limit up to 800,000 and still uses it as at the reporting date. The purpose of this facility is to ensure payments to merchants with whom Group transacts. The tranches within the overdraft facility agreement are generally available for 30 calendar days. However, the tranches to ensure commitment to one of the Group’s major merchant are available for 90 calendar days. The interest rate for each tranche is set as RUONIA plus 2% per annum for the beginning of the operation day for corresponding operation period and is paid monthly.

 

29


Table of Contents

CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

13. Trade and other payables

As of December 31, 2014, January 1 and December 31, 2013, the Group’s accounts payable and other payables consisted of the following:

 

     As of
January 1,
2013
     As of
December 31,
2013
     As of
December 31,
2014
 

Payables to merchants

     —           —           1,586,282   

Unsettled money transfers

     —           —           843,211   

Deposits received from individual customers

     —           —           176,314   

Payment processing fees payable to agents

     —           —           148,256   

Accrued expenses

     —           —           153,287   

Payables to vendors

     6,187         6,363         12,567   

Other payables

     —           —           30,299   
  

 

 

    

 

 

    

 

 

 

Total trade and other payables

     6,187         6,363         2,950,216   
  

 

 

    

 

 

    

 

 

 

14. Amounts due to customers and amounts due to banks

As of December 31, 2014, January 1 and December 31, 2013, amounts due to customers and amounts due to banks consisted of the following:

 

     As of
January 1,
2013
     As of
December 31,
2013
     As of
December 31,
2014
 

Due to banks

     —           —           1,917,595   

Due to customers: legal entities

     —           —           1,281,113   
  

 

 

    

 

 

    

 

 

 

Total amounts due to customers and amounts due to banks

     —           —           3,198,708   
  

 

 

    

 

 

    

 

 

 

Amounts due to customers and amounts due to banks bear no interest and are due on demand.

15. Property and equipment

 

     Servers and
computer
equipment
 

Cost

  

Balance as of January 1, 2013

     —     
  

 

 

 

Balance as of December 31, 2013

     —     

Additions

     12,054   

Additions from pooling of interest (Note 5)

     36,740   

Additions from business combination (Note 5)

     27,575   

Disposals

     (22,077
  

 

 

 

Balance as of December 31, 2014

     54,292   
  

 

 

 

Accumulated amortization and Impairment:

  

Balance as of January 1, 2013

     —     
  

 

 

 

Balance as of December 31, 2013

     —     

Additions from pooling of interest (Note 5)

     (25,897

Charge for the year

     (6,910

Disposals

     3,313   
  

 

 

 

Balance as of December 31, 2014

     (29,494
  

 

 

 

Net book value

  

As of January 1, 2013

     —     
  

 

 

 

As of December 31, 2013

     —     
  

 

 

 

As of December 31, 2014

     24,798   
  

 

 

 

 

30


Table of Contents

CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

15. Property and equipment (continued)

As of December 31, 2014 the Group did not identify any indicators of property and equipment impairment.

16. Goodwill and other intangible assets

 

     Goodwill      licenses      Computer
Software
    Customer
and partner
relation-
ships
    Trademarks     Others      Total  

Cost

                 

Balance as of January 1, 2013

     —           —           6,127        —          187        733         7,047   

Additions

     —           —           —          —          176        949         1,125   

Disposals

     —           —           (6,127     —          —          —           (6,127
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance as of December 31, 2013

     —           —           —          —          363        1,682         2,045   

Additions

     —           —           16,007        —          —          6,596         22,603   

Additions from pooling of interest (Note 5)

     —           50,699         40,713        1,214,465        39,789        —           1,345,666   

Additions from business combination (Note 5)

     1,793,431         —           —          1,955,691        407,728        —           4,156,850   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance as of December 31, 2014

     1,793,431         50,699         56,720        3,170,156        447,880        8,278         5,527,164   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Accumulated amortization and Impairment:

                 

Balance as of January 1, 2013

     —           —           —          —          —          —           —     

Charge for the year

     —           —           (1,532     —          (19     —           (1,551

Disposals

     —           —           1,532        —          —          —           1,532   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance as of December 31, 2013

     —           —           —          —          (19     —           (19

Additions from pooling of interest (Note 5)

     —           —           (9,358     —          —          —           (9,358

Charge for the year

     —           —           (6,151     (76,069     (23,944     —           (106,164
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance as of December 31, 2014

     —           —           (15,509     (76,069     (23,963     —           (115,541
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net book value

                 

As of January 1, 2013

     —           —           6,127        —          187        733         7,047   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

As of December 31, 2013

     —           —           —          —          344        1,682         2,026   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

As of December 31, 2014

     1,793,431         50,699         41,211        3,094,087        423,917        8,278         5,411,623   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

As a result of a business combination that took place during the year 2014 the goodwill in the amount of 1,793,431 arose and was allocated to Contact cash generating unit (CGU).

As of December 31, 2014 the carrying amount of intangible assets with an indefinite useful life (banking limited license, which is expected to be renewed indefinitely) have a value of 50,699 (December 31, 2013 – 0; January 1, 2013 – 0).

The recoverable amount of CGU has been determined based on a value in use calculation using cash flow projections from financial model prepared by external appraiser covering a nine-year period (2015-2023). A nine-year period was used for projections, as the Group considers this time frame to be reasonably forecasted and the growth rate in the last four years of this period is expected to exceed the terminal growth rate. The pre-tax discount rate adjusted to risk specific applied to cash flow projections CGU is 19.7%. The growth rates applied to discounted terminal value projection in beyond the forecast period is 4.5%.

 

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CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

16. Goodwill and other intangible assets (continued)

As result of annual impairment test of CGU to which goodwill and intangible assets with indefinite useful lives were allocated, the Group did not identify any impairment as of December 31, 2014.

The calculation of value in use for these cash generating units is most sensitive to:

 

  Domestic money transfers market assumptions;

 

  The Group’s transaction volume and net revenue yields;

 

  Net profit margins;

 

  Terminal growth rates used to extrapolate cash flows beyond the budget period;

 

  Discount rates.

The values assigned to each of these parameters reflect past experience and expected changes over the timeframe. With regard to the assessment of value in use of CGU, management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the unit to materially exceed its recoverable amount.

17. Revenue

Revenue for the years ended December 31 was as follows:

 

     2013      2014  

Payment processing fees

     —           2,083,083   

Interest revenue

     —           111,287   

Licensing fee and royalty

     60,485         77,599   

Interest revenue from agent’s overdrafts

     —           12,841   

Other revenue

     —           3,863   
  

 

 

    

 

 

 

Total revenue

     60,485         2,288,673   
  

 

 

    

 

 

 

For the purposes of the consolidated statement of cash flows, “Interest expense, net” consists of the following:

 

     2013      2014  

Interest revenue as part of revenue

     —           (111,287

Interest expense as part of cost of revenue

     —           42,196   

Interest income, net

     (809      (1,641
  

 

 

    

 

 

 

Interest income, net (for the purposes of consolidated cash flow statement)

     (809      (70,732
  

 

 

    

 

 

 

18. Cost of revenue (exclusive of depreciation and amortization)

Cost of revenue (exclusive of depreciation and amortization) for the years ended December 31 was as follows:

 

     2013      2014  

Transaction costs

     —           1,468,159   

Payroll and related taxes

     —           144,991   

Interest expense

     —           42,196   

Other expenses

     —           168,634   
  

 

 

    

 

 

 

Total cost of revenue (exclusive of depreciation and amortization)

     —           1,823,980   
  

 

 

    

 

 

 

Other expenses for the year ended December 31, 2014 include loss due to the security breach of 164,876.

 

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CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

19. Selling, general and administrative expenses

Selling, general and administrative expenses for the years ended December 31 were as follows:

 

     2013      2014  

Payroll, related taxes and other personal expenses

     —           102,324   

Office maintenance expenses

     —           27,929   

Rent of premises and related utility expenses

     —           19,061   

Advertising and related expenses

     —           16,204   

Other tax expenses

     3,090         10,520   

Professional fees

     —           8,053   

Telecommunication and internet expenses

     —           7,075   

Bad debt expense

     —           2,969   

Other operating expenses

     —           3,952   
  

 

 

    

 

 

 

Total selling, general and administrative expenses

     3,090         198,087   
  

 

 

    

 

 

 

20. Other income

 

     2013      2014  

Gain from legal proceeding*

     —           18,766   

Other

     —           221   
  

 

 

    

 

 

 

Total other income

     —           18,987   
  

 

 

    

 

 

 

 

* The Group sued one of its counterparty for poorly rendered services and won the trial.

21. Dividends paid and proposed by subsidiary

Dividends are presented as expense in the statement of comprehensive income separately.

Dividends paid and proposed by the Group’s subsidiary before acquisition of it by the Company but after consolidation under common control to the participants of the subsidiary are presented below:

 

     2013      2014  

Proposed, declared and approved during the year:

     

Final dividend for 2014

     —           (293,321

Other distributions

     —           (26,224

Paid during the period:

     

Final dividend for 2014

     —           (293,321

Other distributions

     —           (26,224

Dividends payable as of December 31

     —           —     

22. Income tax

Starting from July 1, 2014, the Company is subject to a 20% corporate income tax applied to its income; prior to that the Company had profit tax exemption(applied simplified income tax regime). All other Group companies incorporated in Russian Federation and are subject to the corporate income tax at the standard rate of 20% applied to their taxable income.

 

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CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

22. Income tax (continued)

Deferred income tax assets and liabilities as of December 31, 2014, January 1 and December 31, 2013, relate to the following:

 

     Consolidated statement of financial
position as of
     Consolidated
profit or loss for
the year ended
 
     December 31,
2014
    December 31,
2013
     January 1,
2013
     2014     2013  

Intangible assets

     (673,241     —           —           17,947        —     

Trade and other payables

     (41,247     —           —           (49,207     —     

Trade and other receivables

     4,145        —           —           526        —     

Deferred revenue

     1,003        —           —           1,003        —     

Financial guaranty

     1,868        —           —           1,868        —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Net deferred income tax liability

     (707,472     —           —           (27,863     —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

including:

            

- deferred tax asset

     8,881        —           —          

- deferred tax liability

     (716,353     —           —          

 

     2013      2014  

Deferred income tax liability, net as of January 1

     —           —     

Effect of business combinations (Note 5)

     —           (679,609

Deferred tax expenses

     —           (27,863
  

 

 

    

 

 

 

Deferred income tax liability, net as of December 31

     —           (707,472
  

 

 

    

 

 

 

For the year ended December 31, income tax expense included:

 

     2013      2014  

Total tax expense

     

including:

     

- current income tax expense

     —           (97,244

- deferred tax expense

     —           (27,863
  

 

 

    

 

 

 

Income tax expense for the year

     —           (125,107
  

 

 

    

 

 

 

Theoretical and actual income tax expense is reconciled as follows:

 

     2013      2014  

Profit before tax

     56,653         (166,754
  

 

 

    

 

 

 

Theoretical income tax expense at the Company’s tax rate of 20% (Russia) (Tax exemption in 2013)

     —           33,351   

Increase resulting from the tax effect of:

     

Non-deductible expenses

     —           (35,753

Distributions to participants

     —           (63,909

Profit for the period with profit tax exemption

     —           2,473   

Effect of uncertain tax position

     —           (61,269
  

 

 

    

 

 

 

Total income tax expense

     —           (125,107
  

 

 

    

 

 

 

Non-deductible expenses comprised mainly from losses from security breach which are not allowed to be deducted from taxable income according to tax law

 

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CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

22. Income tax (continued)

The Company does not recognize a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries. The Group will not distribute the retained earnings of its subsidiaries at least during one year after acquisition afterwards the tax rate is nil for Russia. As of December 31, 2014 the aggregate amount of temporary differences associated with investments in subsidiaries, for which deferred tax liabilities have not been recognized is 482,410 (December 31, 2013 – nil; January 1,2013 – nil)

23. Commitments, contingencies and operating risks

Operating environment

Russia continues economic reforms and development of its legal, tax and regulatory frameworks as required by a market economy. The future stability of the Russian economy is largely dependent upon these reforms and developments and the effectiveness of economic, financial and monetary measures undertaken by the government.

Starting from the end of year 2014, the Russian economy has been negatively impacted by a significant drop in crude oil prices and a significant devaluation of the Russian Ruble, as well as sanctions imposed on Russia by several countries. In December 2014, the Ruble interest rates have increased significantly after the Central Bank of Russia raised its key rate to 17% (slightly decreased in the first quarter of 2015 to 14% and to 11.5% in the second quarter).The combination of the above resulted in reduced access to capital, a higher cost of capital, increased inflation and uncertainty regarding economic growth, which could negatively affect the Group’s future financial position, results of operations and business prospects. Management believes it is taking appropriate measures to support the sustainability of the Group’s business in the current circumstances.

In light of hardening geopolitical situation in the Ukraine, the United States of America and the European Union has adopted the package of economic restrictive measures imposing certain sanctions on operations of various Russian banks. Management is monitoring these developments in the current environment and taking actions where appropriate. These and any further possible negative developments in Ukraine could adversely impact results and financial position of the Group in a manner not currently determinable.

Taxation

The Company policy is to comply fully with applicable tax regulations in the jurisdictions in which its operations are subject to income taxes. The Company’s estimates of current income tax expense and liabilities are calculated assuming that all tax computations filed by the Company’s subsidiaries will be subject to a review or audit by the relevant tax authorities. The Company and the relevant tax authorities may have different interpretations of how regulations should be applied to actual transactions. Such uncertain tax positions are accounted for in accordance with IAS 12 Income Taxes or IAS 37 Provisions, Contingent Liabilities and Contingent Assets depending on the type of tax in question.

The Company records provisions for income taxes it estimates will ultimately be payable when the review or audits have been completed, including allowances for any interest and penalties which may become payable. For provisions for taxes other than income tax, the Company follows the general policy on provisions.

 

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CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

23. Commitments, contingencies and operating risks (continued)

Taxation (continued)

Russian tax, currency and customs legislation is subject to varying interpretations, and changes, which can occur frequently. Management’s interpretation of such legislation as applied to the transactions and activity of the Group may be challenged by the relevant regional and federal authorities. Recent events within Russia which are discussed below suggest that the tax authorities are taking a more assertive position in its interpretation of the legislation and assessments and as a result, it is possible that transactions and activities that have not been challenged in the past may be challenged.

Government regulation of the electronic payment systems

In Russia the legislation on e-payments is not yet mature and is developing, and no assurance can be made that if such legislation is changed or the new legislation adopted it will be beneficial to the Group’s business. From time to time, the Group may also be subject to the investigations in the area of anti-money laundering by the regulatory authorities. In addition, the Group generally disputes them in the normal course of business, and expects to be able to resolve such disputes in Group’s favor. In addition, there is a lot of uncertainty regarding future legislation on taxation of e-payments, including in respect of the place of taxation. Subsequent legislation and regulation and interpretations thereof, litigation, court rulings, or other events could expose the Group to increased costs, liability and reputational damage that could have a material adverse effect on the Group’s business, financial condition and results of operations.

Risk of cybersecurity breach

The Company stores and/or transmits sensitive data, such as credit or debit card numbers and mobile phone numbers, and the Company has ultimate liability to its consumers for the failure to protect this data. The Company has experienced breaches of its security by hackers in the past, and breaches could occur in the future. In such circumstances, the encryption of data and other protective measures have not prevented unauthorized access and may not be sufficient to prevent future unauthorized access. However, any future breach of the system, including through employee fraud, may subject the Company to material losses or liability, payables to other payment systems, fines and claims for unauthorized purchases with misappropriated credit or debit card information, identity theft, impersonation or other similar fraud claims. In addition, misuse of such sensitive data or a cybersecurity breach could result in claims, regulatory scrutiny and other negative consequences.

Risks assessment

The Group’s management believes that its interpretation of the relevant legislation is appropriate and is in accordance with the current industry practice and that the Group’s currency, customs, tax and other regulatory positions will be sustained. However, the interpretations of the relevant authorities could differ and the maximum effect of additional losses on these consolidated financial statements, if the authorities were successful in enforcing their different interpretations, could be significant, and amount up to 38,000 as of December 31, 2014.

Insurance policies

The Group holds no insurance policies in relation to its assets, operations, or in respect of public liability or other insurable risks. There are no significant physical assets to insure. Management has considered the possibility of insurance of business interruption in Russia, but the cost of it outweighs the benefits in management’s view.

 

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CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

23. Commitments, contingencies and operating risks (continued)

Operating lease commitments

The Group has commercial lease agreements of office buildings. The leases have an average life of between one and three years. Total lease expense for the twelve months ended December 31, 2014 amounted 19,061 (2013 — nil).

Future minimum lease rentals under non-cancellable operating lease commitments for office premises as of December 31, are as follows:

 

     2012      2013      2014  

Within one year

     —           —           8,571   

After one year but not more than five years

     —           —           2,331   

24. Balances and transactions with related parties

The following table sets forth the total amount of transactions entered into with related parties for the relevant financial year and balances with related parties as of the end of the relevant years:

 

Category of related party

   Amounts owed
by related
parties*
     Amounts owed
to related
parties*
     Cash due
from related
party
     Cash due
to related
party
 

As of December 31, 2014

           

Key management personnel of the entity or its parent, incl.:

           

Short-term benefits (A)

     —           19,274         —           —     

Other operations

     2,337         —           —           —     

Entities under common control with the Group:

           

Companies of Otkritie Group (B) (Note11)

     2,272         791,475         1,053,597         332,036   

Entity with the parent that has significant influence over the Group:

           

Russlavbank

     20,473         67,685         1,069,393         581,309   

Contact International Holding AG

     56,253         —           —           —     

Other related parties

     —           —           —           104,657   

As of December 31, 2013

           

Entity with the parent that has significant influence over the Group:

           

Contact International Holding AG

     1,233         —           —           —     

 

* The amounts are classified as trade receivables and trade and loan payables, respectively.

 

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CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

24. Balances and transactions with related parties (continued)

There were no balances with related parties as of January 1, and December 31, 2013.

 

Category of related party

   Revenue and
other income
from related
parties
     Cost of
revenue to
related
parties
     Operating
expenses
and other
purchases
 

The year ended December 31, 2014

        

Key management personnel of the entity or its parent, incl.:

        

Short-term benefits (A)

     —           —           18,840   

Entities under common control with the Group:

        

Companies of Otkritie Group (B)

     65,501         57,885         7,037   

Entity with the parent that has significant influence over the Group:

        

Russlavbank

     80,423         48,973         13,080   

Contact International Holding AG

     27,918         —           5,000   

Other related parties

     42,710         —           —     

The year ended December 31, 2013

        

Entity with the parent that has significant influence over the Group:

        

Russlavbank

     57,199         —           —     

Contact International Holding AG

     8,286         —           —     

Related parties mostly include transactions that are described below:

 

(A) Short-term benefits of key management comprise cash remuneration of the key management.

 

(B) Entities under common control with the Group since June, 2014 represent the group of banks under control of Otkritie Group that all are Russian residents which act as both merchants and agents for the Group and hold its correspondent accounts in LTD Rapida as participants of Contact payment system and LTD Rapida holds its current accounts in these banks, and they charge interest income on those balances to LTD Rapida at the rate of RUONIA.

Terms and conditions of transactions with related parties

The sales to and purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at the year-end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended December 31, 2014, the Group has not recorded any impairment of receivables relating to amounts owed by related parties (2013: Nil).

The above stated balances and transactions have been entered into on terms as described above and are not secured, nor bear interest except that disclosed above and in Note 11.

 

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CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

25. Risk management

The main risks that could adversely affect the Group’s financial assets, liabilities or future cash flows are interest rate risk, foreign exchange risk, liquidity and capital management’s risks and credit risk. Management reviews and agrees policies for managing each of the risks which are summarized below.

Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The Group’s income and operating cash flows are substantially independent of changes in market interest rates, because it has interest-bearing assets and liabilities with floating interest rate which neutralized each other.

Liquidity risk and capital management

The Group uses debt from related party banks with short maturity, has sufficient cash and does not have any significant outstanding long term debt. Amounts due to customers and amounts due to banks are due on demand, but are usually offset against future payments processed through agents. The Group expects that Amounts due to customers and amounts due to banks will continue to be offset against future payments and not be called by the agents.

Rapida LTD is a non-bank credit entity. According to CB RF requirements, a non-bank credit entity’s capital calculated based on Russian accounting standards should be not less than 10% of its risk-adjusted assets. As of December 31, 2014, LTD Rapida’s capital comprised 14% (2013 – 20%) thereby exceeding the required level. LTD Rapida monitors the fulfillment of requirements on a daily basis and sends the report to CB RF on a monthly basis. During the years 2014 and 2013 LTD Rapida met the capital adequacy requirements set by instruction of the CB RF.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. Capital includes net asset attributable to participants. To maintain or adjust the capital structure, the Group may make dividend payments to participants, return capital to participants or issue new shares. Currently, the Group requires capital to finance its growth, but it generates sufficient cash from its operations. The table below summarizes the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments.

 

            Due:  
     Total      On
demand
     Within a
year
     More than
a year
 

Net asset attributable to participants

     4,878,191         —           4,878,191         —     

Short-term borrowings

     777,000         —           777,000         —     

Trade and other payables

     2,950,216         2,950,216         —           —     

Amounts due to customers and amounts due to banks

     3,198,708         3,198,708         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total as of December 31, 2014

     11,804,115         6,148,924         5,655,191         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

            Due:  
     Total      On
demand
     Within a year      More than
a year
 

Net asset attributable to participants

     56,953         —           56,953         —     

Short-term borrowings

     15,714         —           15,714         —     

Trade and other payables

     6,363         6,363         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total as of December 31, 2013

     79,030         6,363         72,667         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

25. Risk management (continued)

Liquidity risk and capital management (continued)

 

            Due:  
     Total      On demand      Within a year      More than
a year
 

Net asset attributable to participants

     200         —           200         —     

Short-term borrowings

     3,267         —           3,267         —     

Trade and other payables

     6,187         6,187         —           —     

Total as of January 1, 2013

     9,654         6,187         3,467         —     

Credit risk

Financial assets, which potentially subject the Group and its subsidiaries to credit risk, consist principally of trade receivables, loans receivable issued, cash and short-term investments. The Group sells services on a prepayment basis or ensures that its receivables are from customers with an appropriate credit history —   large merchants and agents with sufficient and appropriate credit history. The Group’s receivables from merchants and others, except for agents, are generally non-interest-bearing and do not require collateral. Receivables and loans from agents are interest-bearing and unsecured. The Group holds cash primarily with reputable Russian and international banks, including CB RF, which management considers having minimal risk of default, although credit ratings of Russian banks are generally lower than those of the banks in more developed markets.

The carrying amount of accounts receivable, net of allowance for impairment of receivables, represents the maximum amount exposed to credit risk for this type of receivables (Note 15). The table below demonstrates the largest counterparties’ balances and revenues, as a percentage of respective totals:

 

     Trade and other receivables     Revenue  
     As of
January 1,
2013
     As of
December 31,
2013
    As of
December 31,
2014
    2013     2014  

Concentration of credit risks by main counterparties, % from total amount

           

Top 5

     —           100     1     100     15

Others

     —           —          99     —          85

Collection of receivables could be influenced by economic factors; management believes that there is no significant risk of loss to the Group beyond the allowance already recorded.

26. Financial instruments

The Group’s principal financial instruments consisted of loans receivable, trade and other receivables, trade and other payables, cash and cash equivalents, net asset attributable to participants and borrowings. The Group has various other financial assets and liabilities which arise directly from its operations. During the year, the Group did not undertake trading in financial instruments.

Cash and cash equivalents, accounts receivable and payable, net asset attributable to participants, financial guaranties, other current assets and liabilities approximate their carrying amount largely due to short-term maturities of these instruments.

 

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CIHRUS LLC

Notes to consolidated financial statements (continued)

(in thousands of Rubles)

 

26. Financial instruments (continued)

The Group uses the following IFRS hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

 

  Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities;

 

  Level 2: Other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly;

 

  Level 3: Techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data.

There were no transfers between Level 1 and Level 2 fair value measurements during the period, and no transfers into or out of Level 3 fair value measurements during the year ended December 31, 2014.

27. Events after the reporting date

Rapida LTD issues

On May 20, 2015 the Bank of Russia finished a scheduled thematic inspection of Rapida LTD, during which have been revealed various breaches of Federal Law No. 115-FZ of August 7, 2011 On Countering the Legalization (Laundering) of Criminally Obtained Incomes and the Financing of Terrorism, Federal Law No. 161-FZ of June 27, 2011 On the National Payment System, Regulation of the Central Bank of Russia No. 283-P of March 20, 2006 on the Procedure of Forming Reserves for Possible Losses by Credit Organizations and others. As a result, the Bank of Russia prescribed to rectify the detected violations and imposed a range of restrictions on the operations of Rapida LTD for the period of six months started from June 4, 2015, that could have negative impact on payment volume. As at the date of authorization of these financial statements all restrictions were prolonged for the next six months.

Overdraft facility

On October 30, 2015, the Group prolonged the overdraft facility with JSC Bank Finansovaya Corporatsiya Otkrytie with limit up to 600,000 till the end of the year 2017 with the same terms and conditions.

Russlavbank

Since November 6, 2015, the Group decided to stop using Russlavbank as the settlement bank for Contact payment system. This decision has no effect on financial statements for three months ended March 31, 2015 and thereafter. As at this date the amounts due to and from Russlavbank are not significant.

Change of the parent of the Company

On June 2015, Otkritie Investments Holding sold its stake to QIWI plc.

Reorganization of the Company

CIHRUS LLC is planned to be reorganized and merged with JSC QIWI in accordance to the decision of sole participant of CIHRUS LLC dated 8 December 2015.

 

41

EX-99.2

Exhibit 99.2

Attenium LLC

Consolidated financial statements

for the year ended December 31, 2014


Attenium LLC

Consolidated financial statements

for the year ended December 31, 2014

Content

 

Report of independent registered public accounting firm

     1   

Consolidated financial statements

  

Consolidated statement of financial position

     2   

Consolidated statement of comprehensive income

     3   

Consolidated statement of cash flows

     4   

Notes to the consolidated financial statements

     5   


Report of independent registered public accounting firm

The Participants of Attenium LLC

We have audited the accompanying consolidated statements of financial position of Attenium LLC as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, consolidated cash flow statements for each of the two years in the period ended December 31, 2014. These consolidated financial statements are the responsibility of Attenium LLC’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of Attenium LLC’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Attenium LLC’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Attenium LLC as of December 31, 2014 and 2013, its financial performance and its cash flows for each of the two years in the period ended December 31, 2014, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

/s/ Ernst & Young LLC

December 18, 2015

Moscow, Russia


Attenium LLC

Consolidated statement of financial position

As of December 31, 2014

(in thousands of rubles)

 

     Notes      As of
January 1,
2013
     As of
December 31,
2013
     As of
December 31,
2014
 

Assets

           

Non-current assets

           

Property and equipment

     14         8,279         9,809         24,507   

Goodwill and other intangible assets

     15         8,898         9,430         3,740,494   

Long-term loans

     25         —           1,510         —     

Long-term prepayments to agents

        75,249         184,401         —     

Deferred tax assets

     21         5,076         10,715         8,880   
     

 

 

    

 

 

    

 

 

 

Total non-current assets

        97,502         215,865         3,773,881   
     

 

 

    

 

 

    

 

 

 

Current assets

           

Trade and other receivables

     8         1,550,198         618,761         1,677,219   

Short-term loans

        —           2,237         4,076   

Prepaid income tax

        4,523         10,070         8,305   

Cash and cash equivalents

     9         1,809,452         3,023,443         5,266,890   

Short-term prepayments to agents

        224,751         390,848         184,401   

Other current assets

        435         353         1,390   
     

 

 

    

 

 

    

 

 

 

Total current assets

        3,589,359         4,045,712         7,142,281   
     

 

 

    

 

 

    

 

 

 

Total assets

        3,686,861         4,261,577         10,916,162   
     

 

 

    

 

 

    

 

 

 

Non-current liabilities

           

Net assets attributable to participants

     10, 24, 25         187,628         299,747         3,428,998   

Deferred tax liabilities

     21         —           —           427,736   
     

 

 

    

 

 

    

 

 

 

Total non-current liabilities

        187,628         299,747         3,856,734   
     

 

 

    

 

 

    

 

 

 

Current liabilities

           

Short-term borrowings

     11, 23, 24         250,321         556,000         777,000   

Trade and other payables

     12, 24         2,531,315         1,229,610         2,953,186   

Amounts due to customers and amounts due to banks

     13, 24         709,800         2,144,508         3,198,708   

Income tax payable

        5,671         30,848         114,700   

Deferred revenue

        —           —           5,016   

Financial guaranty

        —           —           9,339   

Other current liabilities

        2,126         864         1,479   
     

 

 

    

 

 

    

 

 

 

Total current liabilities

        3,499,233         3,961,830         7,059,428   
     

 

 

    

 

 

    

 

 

 

Total liabilities

        3,686,861         4,261,577         10,916,162   
     

 

 

    

 

 

    

 

 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

2


Attenium LLC

Consolidated statement of comprehensive income

for the year ended December 31, 2014

(in thousands of rubles)

 

            Year ended December 31,  
     Notes      2013     2014  

Revenue

     16         2,321,835        3,425,782   

Operating costs and expenses:

       

Cost of revenue (exclusive of depreciation and amortization)

     17         1,958,676        2,858,710   

Selling, general and administrative expenses

     18         149,084        239,382   

Depreciation and amortization

     14, 15         8,874        45,221   
     

 

 

   

 

 

 

Profit from operations

        205,201        282,469   

Other income

     19         1,822        19,567   

Other expenses

        (157     (232

Foreign exchange gain

        1,059        127,419   

Foreign exchange loss

        (1,019     (156,620

Change in fair value of financial instruments

        —          (7,037

Interest income, net

     16         184        1,208   

Distributions to participants

     20         —          (293,321
     

 

 

   

 

 

 

Profit before tax

        207,090        (26,547

Income tax expense

     21         (94,971     (202,186
     

 

 

   

 

 

 

Net profit/(loss)

        112,119        (228,733
     

 

 

   

 

 

 

Attributable to:

       

Participants of the parent

        112,119        (228,733
     

 

 

   

 

 

 

Total comprehensive income/(loss), net of tax effect of 0

        112,119        (228,733
     

 

 

   

 

 

 

Attributable to:

       

Participants of the parent

        112,119        (228,733

The accompanying notes form an integral part of these consolidated financial statements.

 

3


Attenium LLC

Consolidated statement of cash flows

for the year ended December 31, 2014

(in thousands of rubles)

 

            Year ended December 31,  
     Notes      2013     2014  

Cash flows from operating activities

       

Profit/(loss) before tax

        207,090        (26,547

Adjustments to reconcile profit before income tax to net cash flows generated from operating activities

       

Distributions to participants

        —          293,321   

Depreciation and amortization

        8,874        45,221   

Interest income, net

     16         (30,543     (87,616

Change in fair value of financial instruments

        —          7,037   

Bad debt expense

     18         13,794        15,282   
     

 

 

   

 

 

 

Operating profit before changes in working capital

        199,215        246,698   

(Increase)/decrease in trade and other receivables

        917,644        (998,937

(Increase)/decrease in prepayments to agents

        (275,167     389,811   

Increase in amounts due to customers and amounts due to banks

        1,434,708        1,054,200   

Increase/(decrease) in accounts payable and accruals

        (1,302,967     876,409   
     

 

 

   

 

 

 

Cash generated from operations

        973,433        1,568,181   

Interest received

        46,224        164,026   

Interest paid

        (16,174     (76,719

Income tax paid

        (80,981     (78,136
     

 

 

   

 

 

 

Net cash flow from operating activities

        922,502        1,577,352   
     

 

 

   

 

 

 

Cash flows from investing activities

       

Cash acquired upon business combination

     5         —          780,299   

Purchase of property and equipment

        (7,285     (21,493

Purchase of intangible assets

        (3,651     (20,368

Loans issued

        (4,575     (297,342

Repayment of loans issued

        1,000        297,320   
     

 

 

   

 

 

 

Net cash used in investing activities

        (14,511     738,416   
     

 

 

   

 

 

 

Cash flows from financing activities

       

Proceeds from borrowings

        606,000        616,000   

Repayment of borrowings

        (300,000     (395,000

Dividends paid to participants of the Group

     20         —          (293,321
     

 

 

   

 

 

 

Net cash (used in) / generated from financing activities

        306,000        (72,321
     

 

 

   

 

 

 

Net increase in cash and cash equivalents

        1,213,991        2,243,447   

Cash and cash equivalents at the beginning of year

     9         1,809,452        3,023,443   
     

 

 

   

 

 

 

Cash and cash equivalents at the end of year

     9         3,023,443        5,266,890   
     

 

 

   

 

 

 

The accompanying notes form an integral part of these consolidated financial statements.

 

4


Attenium LLC

Notes to the consolidated financial statements

for the year ended December 31, 2014

(in thousands of rubles)

1. Corporate information and description of business

Attenium LLC (the Company) was registered on November 10, 2005 as a limited liability Company in Russian Federation under the Civil Code and Law of Limited Liability Companies. The registered office of the Company is Moscow, Barrikadnaya st., build 8/5A. The consolidated financial statements of Attenium LLC and its subsidiaries for the year ended December 31, 2014 were authorized for issue by the Shareholders of the Company on December 10, 2015.

Attenium LLC and its subsidiaries (collectively the “Group”) operate electronic online payment systems in Russia and maintain activity supporting processing of payments.

CIHRUS LLC is the parent of the Group as of December 31, 2014. Otkritie Holding JSC is the ultimate parent of the Group as of December 31, 2014. There is no individual who is the ultimate controlling party of the Group as of December 31, 2014.

Information on the Company’s principal subsidiaries is disclosed in Note 6.

2.1 Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

For all periods up to and including the year ended December 31, 2013, the Company and its subsidiaries prepared its financial statements in accordance with local generally accepted accounting practice (Local GAAP). The Group did not prepare the consolidated financial statements under Local GAAP. These consolidated financial statements for the year ended December 31, 2014 are the first consolidated financial statements of the Group prepared in accordance with IFRS. Refer to Note 2.4 for information on how the Group adopted IFRS.

The consolidated financial statements are prepared on a historical cost basis. The consolidated financial statements are presented in Russian rubles (“RUB”) and all values are rounded to the nearest thousand (RUB (000)) except when otherwise indicated.

2.2 Basis of consolidation

The consolidated financial statements comprise the financial statements of Attenium LLC and its subsidiaries as of December 31 each year.

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.

Specifically, the Group controls an investee if and only if the Group has:

 

    Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

 

    Exposure, or rights, to variable returns from its involvement with the investee; and

 

    The ability to use its power over the investee to affect its returns.

 

5


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

2.2 Basis of consolidation (continued)

 

When the Group has less than a majority of the voting or similar rights of an 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.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. 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 statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

All intra-group balances, income, expenses and unrealized gains and losses resulting from intra-group transactions are eliminated in full, except for the foreign exchange gains and losses arising on intra-group balances.

2.3 Summary of significant accounting policies

Set out below are the principal accounting policies used to prepare these consolidated financial statements:

2.3.1 Business combinations and goodwill

Business combinations are accounted for using the acquisition method.

Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the Group to the previous owners of the acquiree, and equity interests issued by the Group. Consideration transferred also includes the fair value of any contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in the business combination.

If a business combination results in the termination of pre-existing relationships between the Group and the acquiree, then the Group identified any amounts that are not part of what the Group and the acquiree exchanged in the business combination. The Group recognizes as part of application the acquisition method only the consideration transferred for the acquiree and the assets acquired and liabilities assumed in the exchange for the acquiree.

If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognized in profit or loss. It is then considered in the determination of goodwill.

 

6


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.1 Business combinations and goodwill (continued)

 

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognized either in either profit or loss or as a change to other comprehensive income. If the contingent consideration is not within the scope of IAS 39, it is measured in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the re-assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquired are assigned to those units.

Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed in this circumstance is measured based on the relative values of the operation disposed and the portion of the cash-generating unit retained.

2.3.2 Foreign currency translation

The consolidated financial statements are presented in Russian rubles (RUB), which is the Company’s and its subsidiaries’ functional and presentation currency. Transactions in foreign currencies are initially recorded at the functional currency rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-measured at the functional currency rate of exchange at the reporting date. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as of the dates of the initial transactions.

The exchange rates of the Russian ruble to each respective currency as of December 31, 2014 and 2013 were as follows:

 

Exchange rates at

   January 1,
2013
     December 31,
2013
     December 31,
2014
 

US dollar

     30.3727         32.7292         56.2584   

Euro

     40.2286         44.9699         68.3427   

 

7


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.3 Property and equipment

Property and equipment are stated at cost less accumulated depreciation and any accumulated impairment in value. Expenditures for continuing repairs and maintenance are charged to the profit or loss as incurred.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income when the asset is derecognized.

Depreciation is calculated on property and equipment on a straight-line basis from the time the assets are available for use, over their estimated useful lives 2-7 years. The asset’s residual values, useful lives and depreciation methods are reviewed, and adjusted as appropriate, at each financial year end.

2.3.4 Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of other intangible assets acquired in a business combination is their fair value as of the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is recognized in the statement of comprehensive income when it is incurred.

Software development costs

Development expenditure on an individual project is recognized as an intangible asset when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the asset and the ability to measure reliably the expenditure during development.

Useful life and amortization of intangible assets

The useful lives of intangible assets are assessed as either finite or indefinite. The Group has no intangible assets with indefinite useful life. Below is the summary of useful lives of intangible assets:

 

Customer and partnership base

     15 years   

Software

     3-8 years   

Licenses

     2-5 years

Trademarks and other rights

     6-10 years   

 

* The terms of useful life could differ of those stated if it is directly stipulated by agreement.

 

8


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.4 Intangible assets (continued)

 

Intangible assets with finite lives are amortized on a straight line basis over their useful economic lives years or over the term stipulated by agreements and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life is reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statement of comprehensive income in the expense category consistent with the function of the intangible assets.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of comprehensive income when the asset is derecognized.

2.3.5 Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset, other than Goodwill, may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used.

These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries, if applicable, or other available fair value indicators.

The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs, to which the individual assets are allocated.

These budgets and forecast calculations generally cover a period of five years or longer, when management considers appropriate. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the last year.

Impairment losses of continuing operations are recognized in profit or loss in those expense categories consistent with the function of the impaired asset.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount.

 

9


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.5 Impairment of non-financial assets (continued)

 

That increased amount cannot exceed the carrying amount that would have been determined, net of amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss. The following criteria are also applied in assessing impairment of specific assets:

Goodwill

Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating units, to which the goodwill relates. Where the recoverable amount of the cash-generating units is less than their carrying amount an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. The Group performs its annual impairment test of goodwill as of December 31.

2.3.6 Financial instruments – initial recognition and subsequent measurement

2.3.6.1 Financial assets

Initial recognition and measurement

Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, or available-for-sale financial assets, as appropriate. When financial assets are recognized initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. All regular way purchases and sales of financial assets are recognized on the trade date, which is the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as described below:

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.

Financial assets at fair value through profit and loss are carried in the statement of financial position at fair value with net changes in fair value recognized in “change in fair value of derivative financial assets”, “other gains” or “other losses” in the statement of comprehensive income.

Financial assets designated upon initial recognition at fair value through profit or loss are designated at their initial recognition date and only if the criteria under IAS 39 are satisfied.

 

10


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.6 Financial instruments – initial recognition and subsequent measurement (continued)

 

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, loans and receivables are carried at amortized cost using the effective interest rate method less any allowance for impairment. Gains and losses are recognized in profit or loss when the loans and receivables are derecognized or impaired, as well as through the amortization process.

Amortized cost is calculated taking into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate (EIR). The EIR amortization is included in interest income in the statement of comprehensive income. The losses arising from impairment are recognized in the statement of comprehensive income in finance costs for loans and in cost of sales or other operating expenses for receivables.

Derecognition of financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when:

 

    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 has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset.

In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

2.3.6.2 Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

 

11


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.6 Financial instruments – initial recognition and subsequent measurement (continued)

 

Assets carried at amortized cost

For financial assets carried at amortized cost (such as loans and receivables), the Group first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss on assets carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through use of an allowance account. The amount of the loss is recognized in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. Any subsequent reversal of an impairment loss is recognized in profit or loss.

2.3.6.3 Financial liabilities

Initial recognition and measurement

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans, borrowings and financial guaranties, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.

Financial liabilities are recognized initially at fair value less, in the case of loans, borrowings and financial guaranties, directly attributable transaction costs.

The Group’s financial liabilities include net asset attributable to participants, trade and other payables, bank overdraft, loans and borrowings.

 

12


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.6 Financial instruments – initial recognition and subsequent measurement (continued)

 

Subsequent measurement

The measurement of financial liabilities depends on their classification as follows:

Net assets attributable to participants

According to Russian legislation participants of Limited Liability Company have a right to demand from the Company to buy back their share in equity for cash or cash equivalents at any time. The obligation of the Company to buy back the share of participants recognized as a long term liability even this liability depends on the will of participants to exercise their right. The assessment of fair value of such liability can’t be reasonably done as there is no assurance whether participants shall exercise their right or not and at what moment. The Group recognized this liability in line ‘Net asset attributable to participants’ at carrying value of net assets of the Group.

Distributions to participants decrease net assets attributable to participants and recognized as liability in the statement of financial position and as expense in the statement of comprehensive income if the decision regarding distributions was made before or as at the reporting date. If such distributions were authorized after the reporting date but before the date of financial statements issue this information disclosed in notes to financial statements. Distributions to participants of Attenium LLC are recognized in the statement of comprehensive income as finance costs.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that do not meet the hedge accounting criteria as defined by IAS 39.

Gains or losses on liabilities held for trading are recognized in profit or loss.

The Group has not designated any financial liabilities at fair value through profit or loss.

Loans, borrowings and financial guaranties

After initial recognition, interest bearing loans, borrowings and financial guaranties are subsequently measured at amortized cost using the effective interest rate method.

Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the amortization process.

Derecognition of financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.

 

13


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.6 Financial instruments – initial recognition and subsequent measurement (continued)

 

2.3.6.4 Offsetting financial assets and liabilities

Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if:

 

    There is a currently enforceable legal right to offset the recognized amounts; and

 

    There is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

The right of set-off:

 

    Must not be contingent on a future event; and

 

    Must be legally enforceable in all of the following circumstances:

 

  (i) the normal course of business;

 

  (ii) the event of default; and

 

  (iii) the event of insolvency or bankruptcy of the entity and all of the counterparties.

2.3.6.5 Fair value of financial instruments

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.

For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include:

 

    Using recent arm’s length market transactions;

 

    Reference to the current fair value of another instrument that is substantially the same;

 

    A discounted cash flow analysis or other valuation models.

An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 25.

2.3.7 Cash and cash equivalents

Cash comprises cash at banks and in hand and short-term deposits with an original maturity of three months or less. All these items are included as a component of cash and cash equivalents for the purpose of the statement of financial position and statement of cash flows.

2.3.8 Employee benefits

2.3.8.1 Current employment benefits

Wages and salaries paid to employees are recognized as expenses in the current period. The Group also accrues expenses for future vacation payments.

 

14


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.8 Employee benefits (continued)

 

2.3.8.2 Social contributions

Under provisions of the Russian legislation, social contributions include defined contributions to pension and other social funds of Russia and are calculated by the Group by the application of a regressive rate (from 30% to 10% in 2013 and 2014) to the annual gross remuneration of each employee. For the year ended December 31, 2014 defined contributions to pension fund of Russia of the Group amounted to 36,408 (2013 – 25,730).

2.3.9 Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain.

If the effect of discounting is material, provisions are determined by discounting the expected value of future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.

2.3.10 Income taxes

Current income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

Current income tax relating to items recognized in other comprehensive income is recognized in other comprehensive income.

Deferred income tax

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

 

15


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.10 Income taxes (continued)

 

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

2.3.11 Revenue and certain expenses recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenues and related cost of revenue from services are recognized in the period when services are rendered, regardless of when payment is made. Returns, incentives and rebates are recognized in the period in which the underlining sales are recognized as a reduction of sales revenue.

Payment processing fee revenues and related transaction costs

The Group earns a fee for processing payments initiated by the ultimate customers (“consumers”) to pay to merchants and service providers (“merchants”) or transfer money to other individuals. Payment processing fees are earned from consumers or merchants, or both. Consumers can make payments to various merchants or transfer the money through network of agents and banks participants of payment system or through the Group’s website or applications using a unique user login and password (e-payments). When consumer payments are made, the Group incurs payment costs to acquire payments payable to agents, banks-participants, mobile operators and other parties. The payment processing fee revenue and related receivable, as well as the transaction cost and the related payable, are recognized at the point when merchants or individual accept payments from consumers in the gross amount, including fees payable for payment acquisition. Payment processing fees and transaction costs are reported gross.

The Group generates revenue from the foreign currency conversion when payments are made in currencies different from the country of the consumer, mainly Russia. The Group recognizes the related revenues at the time of conversion in the amount of conversion commission representing the difference between the current Russian or relevant country Central Bank foreign currency exchange rate and the foreign currency exchange rate charged by the Group’s processing system.

Interest revenue from agents’ overdrafts

The Group charges interest on overdrafts to agents and includes them in revenue. Related revenues are recognized using the EIR method by applying the contractually agreed interest rates to the actual daily amounts outstanding balance of overdrafts.

 

16


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

2.3 Summary of significant accounting policies (continued)

 

2.3.11 Revenue and certain expenses recognition (continued)

 

Interest revenue

For all financial instruments measured at amortized cost, interest bearing financial assets classified as available for sale and financial instruments designated at fair value through profit or loss, interest income or expense is recorded using the EIR. The carrying amount of the financial asset or financial liability is adjusted if the Group revises its estimates of payments or receipts. Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Interest income from short- and long-term investments performed as part of the Group’s treasury function is classified as part of revenues, Interest income derived from loans issued to various third and related parties as part of other arrangements is classified as interest income.

2.3.12 Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date, whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement.

Group as a lessee

Operating lease payments are recognized as an operating expense in the statement of comprehensive income on a straight-line basis over the lease term.

2.4 First-time adoption of IFRS

These financial statements, for the year ended December 31, 2014, are the first financial statements the Group has prepared in accordance with IFRS. For periods up to and including the year ended December 31, 2013, the Group’ companies prepared its financial statements in accordance with local generally accepted accounting principle (Local GAAP).

Accordingly, the Group has prepared financial statements which comply with IFRS applicable for periods ending on or after December 31, 2014, together with the comparative period data as at and for the year ended December 31, 2013, as described in the summary of significant accounting policies. In preparing these financial statements, the Group’s opening statement of financial position was prepared as at January 1, 2013, the Group’s date of transition to IFRS. This note explains the exemptions that were used by the Group in preparation of the statement of financial position as at January 1, 2013.

Exemptions applied

IFRS 1 allows first-time adopters certain exemptions from the retrospective application of certain requirements under IFRS.

 

17


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

2.4 First-time adoption of IFRS (continued)

 

Exemptions applied (continued)

 

The Group has applied the following exemptions:

In accordance with its previous GAAP, the first-time adopter may not have consolidated a subsidiary acquired in a past business combination because the parent did not prepare consolidated financial statements. The first-time adopter shall adjust the carrying amounts of the subsidiary’s assets and liabilities to the amounts that IFRSs would require in the subsidiary’s statement of financial position. The deemed cost of goodwill equals the difference at the date of transition to IFRSs between:

 

    the parent’s interest in those adjusted carrying amounts; and

 

    the cost in the parent’s separate financial statements of its investment in the subsidiary.

The Group did not recognize the deemed goodwill on application of this exemption as net assets of subsidiaries consolidated exceed cost in the parent’s separate financial statements of its investment in the subsidiary.

Estimates

The estimates at January 1, 2013 and at December 31, 2013 are consistent with those made for the same dates in accordance with local GAAP apart from the following items where application of Local GAAP did not require estimation:

 

    Goodwill impairment;

 

    Impairment of loans and receivables;

 

    Calculation of fair value of financial assets and liabilities.

The estimates used by the Group to present these amounts in accordance with IFRS reflect conditions at January 1, 2013, the date of transition to IFRS and as of December 31, 2013.

Group reconciliation of financial positions, total comprehensive income and cash flows amounts per local GAAP to IFRS is not applicable as the Group did not prepare its consolidated financial statements according to local GAAP.

3. Significant accounting judgments, estimates and assumptions

The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the reporting dates and the reported amounts of revenues and expenses during the reporting periods. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

Significant judgments

In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognized in the consolidated financial statements:

 

18


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

3. Significant accounting judgments, estimates and assumptions (continued)

 

Significant judgments (continued)

 

Revenue recognition

Payment processing fees revenue and transaction costs

The Group exercised significant judgment in reaching a conclusion about its accounting policy for gross versus net reporting of payment processing fee revenues and related transaction costs. In particular, there are two major sources of payment processing fee revenues:

 

    Payment processing fees charged to consumers on payments collected through agents, mobile operators and other payment methods; and

 

    Payment processing fees charged to merchants.

Either one of the two types of payment processing fees above, or in some cases, both payment processing fees apply to a single consumer payment. Transaction costs relate to acquisition of payments by agents, mobile operators, international payment systems and some other parties, and the applicable fees, generally determined as a percentage of consumer payment, for each specific payment channel are on terms similar to those available to other market participants.

A merchants’ payment processing fee, when it is charged, is recorded gross of related transaction costs, because the Group (i) is the primary obligor as it undertakes to transfer the consumer payment to the merchant or other individual using its payment processing system; (ii) it negotiates and ultimately sets the fee receivable from a merchant or consumer, generally as a percentage of payments; and (iii) it bears credit risk in most of the cases, unless the payment is made from a deposit made with the Group.

A consumer payment processing fee, when it is charged on payments made by consumers through network of agents, is reported net of any transaction costs payable to or retained by agents. This is because, although the Group is the primary obligor, it does not have any discretion over the ultimate payment processing fee set by the agent to the consumer, does not have readily available information about gross fee, and is only exposed to the net amount of fee receivable from agents.

The total amounts of transaction costs reported gross for the years ended December 31, 2013 and 2014 are 1,797,013 and 2,382,668 respectively.

Deferred tax assets

The utilization of deferred tax assets will depend on whether it is possible to generate sufficient taxable income against which the deductible temporary differences can be utilized. Various factors are used to assess the probability of the future utilization of deferred tax assets, including past operating results, operational plans, expiration of tax losses carried forward, and tax planning strategies. The carrying amount of deferred tax asset was 8,880 as of December 31, 2014 (December 31, 2013 – 10,715; January 1, 2013 – 5,076).

The unrecognized part relates to deferred tax assets which were not recorded because the Group does not expect to realize certain of its tax loss carry forwards in the foreseeable future due to history of losses. Further details on deferred taxes are disclosed in Note 21.

 

19


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

3. Significant accounting judgments, estimates and assumptions (continued)

 

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

Impairment of loans and receivables

Management assesses an impairment of loans and receivables to account for estimated losses resulting from the inability of customers to make required payments. When evaluating the adequacy of an impairment of loans and receivables, management bases its estimates on the aging of accounts receivable balances and loans and historical write-off experience, customer credit worthiness and changes in customer payment terms. If the financial condition of customers were to deteriorate, actual write-offs might be higher than expected.

As of December 31, 2014, the provision for impairment of loans and receivables was recorded amounting to 29,085 (December 31, 2013 – 13,803; January 1, 2013 – 9). Further details on deferred taxes are disclosed in Note 8.

Fair values of assets and liabilities acquired in business combinations

The Group recognizes separately, at the acquisition date, the identifiable assets, liabilities and contingent liabilities acquired or assumed in the business combination at their fair values, which involves estimates. Such estimates are based on valuation techniques, which require considerable judgment in forecasting future cash flows and developing other assumptions. When the amounts of fair values are significant, the Group hires third party appraisers to assist it in determining the related fair values.

Impairment of goodwill

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset. In order to determine whether the goodwill is impaired, it is necessary to estimate the value in use of the cash-generating units to which the goodwill is allocated. The value in use calculation is based on a discounted cash flow (DCF) model. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit uses budget for the next five years and to choose a suitable discount rate in order to calculate the present value of those cash flows, and hence such estimates are subject to uncertainty. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to goodwill recognized by the Group. Further details on impairment of goodwill are disclosed in Note 15.

 

20


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

4. Standards issued by the IASB but not yet effective

Standards issued but not yet effective up to the date of issuance of the Company’s financial statements are listed below. This listing of standards and interpretations issued are those that the Company reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Company intends to adopt these standards when they become effective.

 

Standard

  

Content of change

  

Impact and effective date

IFRS 9 Financial Instruments

   In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting.   

IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted.

 

The adoption of IFRS 9 will have an effect on the classification and measurement of the Company’s financial assets, but will likely have no impact on classification and measurements of financial liabilities. The adoption of IFRS 9 will have no impact on impairment and hedge accounting of financial assets and financial liabilities of the Company.

Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation

   The amendments clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets.    The amendments are effective prospectively for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments are not expected to have any impact to the Group given that the Group has not used a revenue-based method to depreciate its non-current assets.

IFRS 15 Revenue from Contracts with Customers

   IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS.    Either a full or modified retrospective application is required for annual periods beginning on or after January 1, 2017 with early adoption permitted. The Group is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date.

Management of the Company has not completed the assessment of the impact of Standards and Interpretations not yet effective as of December 31, 2014 on the Company’s accounting policies.

 

21


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

4. Standards issued by the IASB but not yet effective (continued)

 

Annual improvements 2010-2012 Cycle

These improvements are effective from July 1, 2014 and have no a material impact on the Group. They include:

IFRS 3 Business Combinations

The amendment is applied prospectively and clarifies that all contingent consideration arrangements classified as liabilities (or assets) arising from a business combination should be subsequently measured at fair value through profit or loss whether or not they fall within the scope of IFRS 9 (or IAS 39, as applicable).

IFRS 8 Operating Segments

The amendments are applied retrospectively and clarify that:

 

    An entity must disclose the judgements made by management in applying the aggregation criteria in paragraph 12 of IFRS 8, including a brief description of operating segments that have been aggregated and the economic characteristics (e.g., sales and gross margins) used to assess whether the segments are ‘similar’;

 

    The reconciliation of segment assets to total assets is only required to be disclosed if the reconciliation is reported to the chief operating decision maker, similar to the required disclosure for segment liabilities.

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets

The amendment is applied retrospectively and clarifies in IAS 16 and IAS 38 that the asset may be revalued by reference to observable data on either the gross or the net carrying amount. In addition, the accumulated depreciation or amortization is the difference between the gross and carrying amounts of the asset.

IAS 24 Related Party Disclosures

The amendment is applied retrospectively and clarifies that a management entity (an entity that provides key management personnel services) is a related party subject to the related party disclosures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services.

Annual improvements 2011-2013 Cycle

These improvements are effective from July 1, 2014 and have no a material impact on the Group.

They include:

IFRS 3 Business Combinations

The amendment is applied prospectively and clarifies for the scope exceptions within IFRS 3 that:

 

    Joint arrangements, not just joint ventures, are outside the scope of IFRS 3;

 

    This scope exception applies only to the accounting in the financial statements of the joint arrangement itself.

 

22


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

4. Standards issued by the IASB but not yet effective (continued)

 

Annual improvements 2011-2013 Cycle (continued)

 

IFRS 13 Fair Value Measurement

The amendment is applied prospectively and clarifies that the portfolio exception in IFRS 13 can be applied not only to financial assets and financial liabilities, but also to other contracts within the scope of IFRS 9 (or IAS 39, as applicable).

5. Acquisitions

Contact

In October 2014, the Group obtained control over the Contact payment system as a result of the technological transfer of the Contact payment system to the software and hardware platform of the Group’s subsidiary LTD Rapida. Contact is not a separate legal entity but satisfies definition of the business according to IFRS 3. The acquisition has been accounted for using the acquisition method.

The purpose of this acquisition was to develop business related to the payment system.

The fair values of the identifiable assets and liabilities as of the date of acquisition were:

 

     Fair value  

Net assets acquired

  

Intangible assets

     1,955,691   

Trade and other receivables

     74,802   

Cash and cash equivalents

     780,299   

Deferred income tax liabilities

     (391,138

Trade and other payables

     (855,101
  

 

 

 

Total identifiable net assets at fair value

     1,564,553   

Increase in net asset attributable to participants due to acquisition (Note 10)

     3,357,984   
  

 

 

 

Goodwill arising on acquisition

     1,793,431   
  

 

 

 

The consideration amounted to 3,357,984 was paid by Otkritie Holding JSC, an ultimate parent of the Company and was recognized at the Group’s level as increase in the net assets attributable to participants line. The gross amount of trade and other receivables is the same as their fair value.

Goodwill in the amount of 1,793,431 relates to the potential synergies with the existing operations of the Group. The Group determined the fair value of Contact client and partnership base and recognized it as intangible assets in amount of 1,955,691. Deferred tax liability arose in relation to these intangible assets in the amount of 391,138 due to their tax base of nil.

From the date of acquisition through December 31, 2014, Contact contributed 823,011 of revenue and 120,965 to the net income of the Group. The management cannot reliably asses what the Group revenue and the net income would have been if the acquisition had taken place at the beginning of 2014.

 

23


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

6. Consolidated subsidiaries

The consolidated IFRS financial statements include the assets, liabilities and financial results of the Company and its subsidiaries. The subsidiaries are listed below:

 

          Effective ownership interest  

Subsidiary

  

Main activity

   As of
January 1,
2013
    As of
December 31,
2013
    As of
December 31,
2014
 

Gikor LLC (Russia)

   Payment processing services      100     100     100

Processingovyi Tsentr Rapida LLC (Russia)

   Payment processing services      100     100     100

Rapida LTD (Russia)

   Maintenance of electronic payment systems      100     100     100

7. Operating segments

In reviewing the operational performance of the Group and allocating resources, the chief operating decision maker of the Group (CODM), who is the board of directors of the Group, reviews selected items of each segment’s statement of comprehensive income.

Management reporting is based on local GAAP and differs from IFRS. It does not include certain IFRS adjustments which are not analyzed by the chief operating decision maker in assessing the core operating performance of the business. Such adjustments affect such major areas as business combinations, fair value adjustments and amortization thereof, as well as nonrecurring items.

The financial data is presented on a combined basis for all key subsidiaries representing each segment added together forming the segment revenue, operating expenses, profit before tax. The Group measures the performance of its operating segments by monitoring: revenue, segment net revenue and profit before tax. Segment net revenue is a measure of profitability defined as the segment revenues less segment direct costs, which include the same items as the “Cost of revenue (exclusive of depreciation and amortization)” as reported in the Group’s consolidated statement of comprehensive income, except for payroll costs. Payroll costs are excluded because, although required to maintain the Group’s distribution network, they are not linked to payment volume. The Group does not monitor balances of assets and liabilities by segments as CODM considers they have no impact on decision making.

The Group has identified its operating segments based on the types of products and services the Group offers. The Group has identified the following reportable segments:

 

    Rapida, which generates revenue from the payment systems, offered though the Group’s network of agents in Russia;

 

    Contact, which generates revenue from the money remittance services provided to individuals through Contact payment system.

 

24


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

7. Operating segments (continued)

 

The segments’ statement of comprehensive income for the years ended December 31, 2013 and 2014, as presented to the CODM is presented below:

 

     2013      2014  
     Rapida     Contact      Rapida     Contact     Total  

Segment revenue

     2,321,835        —           2,602,771        823,011        3,425,782   

Segment cost of revenue

     (1,831,071     —           (2,079,553     (600,191     (2,679,744
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Segment net revenue

     490,764        —           523,218        222,820        746,038   

Payroll and related taxes

     (205,968     —           (277,689     (32,033     (309,722

Overheads

     (70,721     —           (95,972     (12,654     (108,626

Depreciation and amortization

     (8,874     —           (12,599     (27     (12,626

Other income/(expenses)

     1,889        —           11,205        (26,900     (15,695
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Segment profit before tax

     207,090        —           148,163        151,206        299,369   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Segment net revenue, as presented to the CODM, for the years ended December 31, 2013 and 2014 is calculated by subtraction cost of revenue (exclusive of depreciation and amortization) from revenue and adding back payroll and related taxes as presented in table below:

 

     2013      2014  

Revenue under IFRS

     2,321,835         3,425,782   

Cost of revenue (exclusive of depreciation and amortization)

     (1,958,676      (2,858,710

Payroll and related taxes

     127,605         178,966   
  

 

 

    

 

 

 

Total segment net revenue, as presented to CODM

     490,764         746,038   
  

 

 

    

 

 

 

A reconciliation of segment profit before tax to IFRS consolidated profit before tax of the Group, as presented to the CODM, for the years ended December 31, 2013 and 2014 is presented below:

 

     2013      2014  

Consolidated profit/(loss) before tax under IFRS

     207,090         (26,547

Amortization of fair value adjustments to intangible assets recorded on acquisitions

     —           32,595   

Distributions to participants

     —           293,321   
  

 

 

    

 

 

 

Total segment profit before tax, as presented to CODM

     207,090         299,369   
  

 

 

    

 

 

 

Geographic information

Revenues from external customers are derived from Russia and CIS. Revenue is recognized according to merchants’ place for Rapida segment and according to customer base for Contact segment.

The principal country of major operations of all legal entities within the Group is Russia. Therefore the Group allocates all its non-current assets stated in statement of financial positions on Russia.

The Group does not have any single external customer: consumer or merchant amounting to 10% or greater of Group’s revenue for the years ended December 31, 2014 and December 31, 2013.

 

25


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

8. Trade and other receivables

As of December 31, 2014, trade and other receivables consisted of the following:

 

     Total as of
December 31,
2014
     Provision for
impairment of
receivables
     Net as of
December 31,
2014
 

Cash receivable from agents

     1,536,080         (21,463      1,514,617   

Deposits issued to merchants

     85,000         —           85,000   

Payment processing fees receivable

     55,125         (7,065      48,060   

Advances issued to vendors

     29,193         (484      28,709   

Other receivables and advances

     906         (73      833   
  

 

 

    

 

 

    

 

 

 

Total trade and other receivables

     1,706,304         (29,085      1,677,219   
  

 

 

    

 

 

    

 

 

 

As of December 31, 2013, trade and other receivables consisted of the following:

 

     Total as of
December 31,
2013
     Provision for
impairment of
receivables
     Net as of
December 31,
2013
 

Cash receivable from agents

     566,686         (13,803      552,883   

Payment processing fees receivable

     64,057         —           64,057   

Advances issued to vendors

     1,412         —           1,412   

Other receivables and advances

     409         —           409   
  

 

 

    

 

 

    

 

 

 

Total trade and other receivables

     632,564         (13,803      618,761   
  

 

 

    

 

 

    

 

 

 

As of January 1, 2013, trade and other receivables consisted of the following:

 

     Total as of
January 1,
2013
     Provision for
impairment of
receivables
     Net as of
January 1,
2013
 

Cash receivable from agents

     1,508,350         (9      1,508,341   

Payment processing fees receivable

     35,772         —           35,772   

Advances issued to vendors

     5,763         —           5,763   

Other receivables and advances

     322         —           322   
  

 

 

    

 

 

    

 

 

 

Total trade and other receivables

     1,550,207         (9      1,550,198   
  

 

 

    

 

 

    

 

 

 

Trade receivables aged but not impaired as of December 31, 2014 are presented below:

 

            Ageing of receivables (days)  

As of December 31, 2014

   Total      <30      30-60      60-90      90-180      180-360      >360  

Cash receivable from agents

     1,514,617         1,512,489         1,156         971         —           1         —     

Payment processing fees receivable

     48,060         46,634         433         987         6         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total trade and other receivables

     1,562,677         1,559,123         1,589         1,958         6         1         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

26


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

8. Trade and other receivables (continued)

 

Trade receivables aged but not impaired as of December 31, 2013 are presented below:

 

            Ageing of receivables (days)  

As of December 31, 2013

   Total      <30      30-60      60-90      90-180      180-360      >360  

Cash receivable from agents

     552,883         552,434         448         —           —           1         —     

Payment processing fees receivable

     64,057         52,140         6,433         5,484         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total trade and other receivables

     616,940         604,574         6,881         5,484         —           1         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Trade receivables aged but not impaired as of January 1, 2013 are presented below:

 

            Ageing of receivables (days)  

As of January 1, 2013

   Total      <30      30-60      60-90      90-180      180-360      >360  

Cash receivable from agents

     1,508,341         1,506,849         1,492         —           —           —           —     

Payment processing fees receivable

     35,772         30,256         5,076         440         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total trade and other receivables

     1,544,113         1,537,105         6,568         440         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

For the year ended December 31, 2014, the provision for impairment of receivables movement was the following:

 

     Provision for
impairment of

receivables as of
December 31,
2013
     Charge for
the year
     Provision for
impairment of

receivables as of
December 31,
2014
 

Cash receivable from agents

     (13,803      (7,660      (21,463

Payment processing fees receivable

     —           (7,065      (7,065

Other receivables and advances

     —           (557      (557
  

 

 

    

 

 

    

 

 

 

Total trade and other receivables

     (13,803      (15,282      (29,085
  

 

 

    

 

 

    

 

 

 

Receivables are non-interest bearing and credit terms generally do not exceed 30 days. There is no requirement for collateral to receive credit. Interest of 10%-36% per annum is accrued on overdrafts granted to some agents.

For the year ended December 31, 2013, the provision for impairment of receivables movement was the following:

 

     Provision for
impairment of

receivables as of
January 1,
2013
     Charge for
the year
     Provision for
impairment of

receivables as of
December 31,
2013
 

Cash receivable from agents

     (9      (13,794      (13,803
  

 

 

    

 

 

    

 

 

 

Total trade and other receivables

     (9      (13,794      (13,803
  

 

 

    

 

 

    

 

 

 

 

27


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

9. Cash and cash equivalents

As of December 31, 2014, January 1 and December 31, 2013, cash and cash equivalents consisted of the following:

 

     As of
January 1,
2013
     As of
December 31,
2013
     As of
December 31,
2014
 

Correspondent accounts with Central Bank of Russian Federation (CB RF)

     1,774,395         495,121         900,850   

Correspondent accounts with other banks

     25,903         726,932         2,363,834   

Short-term CB RF deposits

     —           1,800,000         2,000,000   

RUB denominated cash with banks and on hand

     9,154         1,390         2,206   
  

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

     1,809,452         3,023,443         5,266,890   
  

 

 

    

 

 

    

 

 

 

Cash and short-term investments are placed in financial institutions or financial instruments, which are considered at the time of deposit to have minimal risk of default.

10. Net asset attributable to participants

Below is the table of ownership of the Company.

 

     As of
January 1,
2013
    As of
December 31,
2013
    As of
December 31,
2014
 

Promgazkomplect LLC

     99.999     99.999     —     

NM-Garant LLC

     0.001     0.001     0.001

CIHRUS LLC

     —          —          99.999

Net assets attributable to participants of the Company represent the current value of the Company’s net assets as at December 31.

Changes in net assets of the Company during the years ended 2013 and 2014 are presented in the table below:

 

Balance at January 1, 2013

     187,628   

Net profit for the period

     112,119   
  

 

 

 

Balance at December 31, 2013

     299,747   

Net loss for the period

     (228,733

Contribution from participant (Note 5)

     3,357,984   
  

 

 

 

Balance at December 31, 2014

     3,428,998   
  

 

 

 

 

28


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

11. Borrowings

As of December 31, 2014, January 1 and December 31, 2013, outstanding borrowings consisted of the following:

 

Short-term borrowings

   Effective
interest rate,
%
    Maturity    As of
January 1,
2013
     As of
December 31,
2013
     As of
December 31,
2014
 

JSC Bank Finansovaya Corporatsiya Otkrytie

     RUONIA + 2   Up to 90 days      —           106,000         627,000   

JSC Bank Finansovaya Corporatsiya Otkrytie

     15   June 2015      —           450,000         150,000   

JSC Bank Finansovaya Corporatsiya Otkrytie

     10.95   May 2013      250,321         —           —     
       

 

 

    

 

 

    

 

 

 
          250,321         556,000         777,000   
       

 

 

    

 

 

    

 

 

 

On November 1, 2012 the Group entered into the overdraft facility with JSC Bank Finansovaya Corporatsiya Otkrytie with limit up to 800,000 and still uses it as at the reporting date. The purpose of this facility is to ensure payments to Group’s agents. The tranches within the overdraft facility agreement are generally available for 30 calendar days. However, the tranches to ensure commitment to one of the Group’s major merchant are available for 90 calendar days. The interest rate for each tranche is set as RUONIA plus 2% per annum for the beginning of the operation day for corresponding operation period and is paid monthly.

12. Trade and other payables

As of December 31, 2014, January 1 and December 31, 2013, the Group’s accounts payable and other payables consisted of the following:

 

     As of
January 1,
2013
     As of
December 31,
2013
     As of
December 31,
2014
 

Payables to merchants

     1,922,826         747,939         1,586,282   

Unsettled money transfers*

     —           —           843,211   

Deposits received from individual customers

     112,706         168,618         176,314   

Payment processing fees payable to agents

     206,622         173,035         148,256   

Accrued expenses

     25,318         43,735         153,287   

Other payables

     263,843         96,283         45,836   
  

 

 

    

 

 

    

 

 

 

Total trade and other payables

     2,531,315         1,229,610         2,953,186   
  

 

 

    

 

 

    

 

 

 

 

* Unsettled money transfers arose in financial statement of the Group after acquisition of CONTACT payment system and represent the obligation to remit money to individuals as of year-end.

 

29


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

13. Amounts due to customers and amounts due to banks

As of December 31, 2014, January 1 and December 31, 2013, amounts due to customers and amounts due to banks consisted of the following:

 

     As of
January 1,
2013
     As of
December 31,
2013
     As of
December 31,
2014
 

Due to banks

     429,602         1,063,369         1,917,595   

Due to customers: legal entities

     280,198         1,081,139         1,281,113   
  

 

 

    

 

 

    

 

 

 

Total amounts due to customers and amounts due to banks

     709,800         2,144,508         3,198,708   
  

 

 

    

 

 

    

 

 

 

Amounts due to customers and amounts due to banks bear no interest and are due on demand.

14. Property and equipment

 

     Servers and
computer
equipment
 

Cost

  

Balance as of January 1, 2013

     25,224   

Additions

     7,285   
  

 

 

 

Balance as of December 31, 2013

     32,509   

Additions

     21,493   
  

 

 

 

Balance as of December 31, 2014

     54,002   
  

 

 

 

Accumulated amortization and impairment

  

Balance as of January 1, 2013

     (16,945

Charge for the year

     (5,755
  

 

 

 

Balance as of December 31, 2013

     (22,700

Charge for the year

     (6,795
  

 

 

 

Balance as of December 31, 2014

     (29,495
  

 

 

 

Net book value

  

As of January 1, 2013

     8,279   
  

 

 

 

As of December 31, 2013

     9,809   
  

 

 

 

As of December 31, 2014

     24,507   
  

 

 

 

As of December 31, 2014 the Group did not identify any indicators of property and equipment impairment.

 

30


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

15. Goodwill and other intangible assets

 

     Goodwill      Computer
software
    Customer
and partner
relationships
    Others     Total  

Cost

           

Balance as of January 1, 2013

     —           13,737        —          —          13,737   

Additions

     —           3,651        —          —          3,651   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2013

     —           17,388        —          —          17,388   

Additions

     —           15,238        —          5,130        20,368   

Additions from business combination (Note 5)

     1,793,431         —          1,955,691        —          3,749,122   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2014

     1,793,431         32,626        1,955,691        5,130        3,786,878   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated amortization and Impairment

           

Balance as of January 1, 2013

     —           (4,839     —          —          (4,839

Charge for the year

     —           (3,119     —          —          (3,119
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2013

     —           (7,958     —          —          (7,958

Charge for the year

     —           (5,884     (32,393     (149     (38,426
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2014

     —           (13,842     (32,393     (149     (46,384
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net book value

           

As of January 1, 2013

     —           8,898        —          —          8,898   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

As of December 31, 2013

     —           9,430        —          —          9,430   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

As of December 31, 2014

     1,793,431         18,784        1,923,298        4,981        3,740,494   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

As a result of business combination that took place during the year 2014 the goodwill in amount of 1,793,431 arose and was allocated to Contact cash generating unit (CGU).

The recoverable amount of CGU has been determined based on a value in use calculation using cash flow projections from financial model prepared by external appraiser covering a nine-year period (2015-2023). A nine-year period was used for projections, as the Group considers this time frame to be reasonably forecasted and the growth rate in the last four years of this period is expected to exceed the terminal growth rate. The pre-tax discount rate adjusted to risk specific applied to cash flow projections CGU is 19.7%. The growth rates applied to discounted terminal value projection in beyond the forecast period is 4.5%.

As result of annual impairment test of CGU to which goodwill was allocated, the Group did not identify any impairment as of December 31, 2014.

The calculation of value in use for these cash generating units is most sensitive to:

 

    Domestic money transfers market assumptions;

 

    The Group’s transaction volume and net revenue yields;

 

    Net profit margins;

 

    Terminal growth rates used to extrapolate cash flows beyond the budget period;

 

    Discount rates.

 

31


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

15. Goodwill and other intangible assets (continued)

 

The values assigned to each of these parameters reflect past experience and expected changes over the timeframe. With regard to the assessment of value in use of CGU, management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the unit to materially exceed its recoverable amount.

16. Revenue

Revenue for the years ended December 31 was as follows:

 

     2013      2014  

Payment processing fees

     2,255,492         3,235,246   

Interest revenue

     46,212         163,035   

Interest revenue from agent’s overdrafts

     17,405         24,476   

Other revenue

     2,726         3,025   
  

 

 

    

 

 

 

Total revenue

     2,321,835         3,425,782   
  

 

 

    

 

 

 

For the purposes of the consolidated statement of cash flows, “Interest expense, net” consists of the following:

 

     2013      2014  

Interest revenue as part of revenue

     (46,212      (163,035

Interest expense as part of cost of revenue

     15,853         76,627   

Interest income, net

     (184      (1,208
  

 

 

    

 

 

 

Interest income, net (for the purposes of consolidated cash flow statement)

     (30,543      (87,616
  

 

 

    

 

 

 

17. Cost of revenue (exclusive of depreciation and amortization)

Cost of revenue (exclusive of depreciation and amortization) for the years ended December 31 was as follows:

 

     2013      2014  

Transaction costs

     1,797,013         2,382,668   

Payroll and related taxes

     127,605         178,966   

Interest expense

     15,853         76,627   

Other expenses

     18,205         220,449   
  

 

 

    

 

 

 

Total cost of revenue (exclusive of depreciation and amortization)

     1,958,676         2,858,710   
  

 

 

    

 

 

 

Other expenses for the year ended December 31, 2014 include loss due to the security breach of 164,876.

 

32


Attenium LLC

Notes to the consolidated financial statements (continued)

(in thousands of rubles)

 

18. Selling, general and administrative expenses

Selling, general and administrative expenses for the years ended December 31 were as follows:

 

     2013      2014  

Payroll, related taxes and other personal expenses

     78,970         130,756   

Office maintenance expenses

     20,211         32,922   

Bad debt expense

     13,794         15,282   

Advertising and related expenses

     12,088         25,414   

Telecommunication and internet expenses

     8,676         10,729   

Other tax expenses

     7,408         11,339   

Other operating expenses

     7,937         12,940   
  

 

 

    

 

 

 

Total selling, general and administrative expenses

     149,084         239,382   
  

 

 

    

 

 

 

19. Other income

 

     2013      2014  

Gain from legal proceeding*

     —           18,766   

Other

     1,822         801   
  

 

 

    

 

 

 

Total other income

     1,822         19,567   
  

 

 

    

 

 

 

 

* The Group sued one of its counterparty for poorly rendered services and won the trial.

20. Dividends paid and proposed

D ividends are presented as expense in the statement of comprehensive income separately.

Dividends paid and proposed by the Group to the participants are presented below:

 

     2013      2014  

Proposed, declared and approved during the year

     

Final dividend for 2014

     —           (293,321

Paid during the period