Home Credit Slovakia, a.s.
Financial Statements for the year ended 31 December 2016
Translated from the Slovak original Home Credit Slovakia, a.s. Financial Statements for the year ended 31 December 2016
Contents
Independent Auditor’s Report 3
Statement of Financial Position 6
Statement of Comprehensive Income 7
Statement of Changes in Equity 8
Statement of Cash Flows 9
Notes to the Financial Statements 10
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Home Credit Slovakia, a.s. Statement of Comprehensive Income for the year ended 31 December 2016
2016 2015 Note TEUR TEUR
Interest income 14 12,286 9,309 Interest expense 14 (1,177) (1,072)
Net interest income 11,109 8,237
Fee and commission income 15 4,933 5,501 Fee and commission expense 16 (6,932) (6,966)
Net fee and commission expense (1,999) (1,465)
Other operating income 17 10,159 20,697
Operating income 19,269 27,469
Impairment losses 18 (4,139) (3,550) General administrative expenses 19 (16,764) (17,144)
Operating expenses (20,903) (20,694)
Profit before tax (1,634) 6,775
Income tax expense 20 (256) (2,129)
Net (loss)/profit for the year (1,890) 4,646
Total comprehensive income for the year (1,890) 4,646
- 7 - Home Credit Slovakia, a.s. Statement of Changes in Equity for the year ended 31 December 2016
Statutory Share Share reserve Retained capital premium fund earnings Total TEUR TEUR TEUR TEUR TEUR
Balance as at 1 January 2016 18,821 - 3,765 6,181 28,767
Dividends to shareholders - - - (4,000) (4,000)
Net loss for the year - - - (1,890) (1,890)
Total comprehensive income - - - (1,890) (1,890) for the year
Total changes - - - (5,890) (5,890)
Balance as at 31 December 2016 18,821 - 3,765 291 22,877
Statutory Share Share reserve Retained capital premium fund earnings Total TEUR TEUR TEUR TEUR TEUR
Balance as at 1 January 2015 18,821 - 3,765 5,535 28,121
Dividends to shareholders - - - (4,000) (4,000)
Net profit for the year - - - 4,646 4,646
Total comprehensive income - - - 4,646 4,646 for the year
Total changes - - - 646 646
Balance as at 31 December 2015 18,821 - 3,765 6,181 28,767
- 8 - Home Credit Slovakia, a.s. Statement of Cash Flows for the year ended 31 December 2016
2016 2015 Note TEUR TEUR Operating activities (Loss)/profit before tax (1,634) 6,775 Adjustments for: Impairment losses 18 4,139 3,550 Interest expense 14 1,177 1,072 Depreciation and amortization 19 388 393 Net gain on disposal of property, equipment and intangible assets (36) (32)
Net operating cash flow before changes in working capital 4,034 11,758
Change in loans to customers (11,633) (14,937) Change in other assets 2,567 3,660 Change in other liabilities 2,237 1,747
Cash flows from operations (2,795) 2,228
Interest paid (1,078) (1,054) Income tax received/(paid) (3,058) 2,818
Cash flows from operating activities (6,931) 3,992
Investing activities Proceeds from sale of property, equipment and intangible assets 39 33 Acquisition of property, equipment and intangible assets (178) (442)
Cash flows from investing activities (139) (409)
Financing activities Dividends paid to shareholders (4,000) (4,000) Proceeds from banks and other financial institutions 386,453 309,087 Repayment of amounts due to banks and other financial institutions (370,762) (309,294)
Cash flows from financing activities 11,691 (4,207)
Net increase/(decrease) in cash and cash equivalents 4,621 (624)
Cash and cash equivalents at 1 January 6,680 7,304
Cash and cash equivalents at 31 December 5 11,301 6,680
- 9 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016 1. Description of the Company Home Credit Slovakia, a.s. (the “Company”) was established on 27 August 1999 and incorporated on 27 October 1999. The Company’s identification number (IČO) is 36234176, tax identification number (DIČ) is 2020170218 and VAT identification number (IČ DPH) is SK2020170218.
During 2016 the Company had on average 253 employees, out of these 33 managing employees (2015: 268 employees, out of these 34 managing employees).
Registered office
Home Credit Slovakia, a.s. Teplická 7434/147 921 22 Piešťany Slovak Republic
Shareholders Country of incorporation Ownership interest (%) 2016 2015
Home Credit B.V. Netherlands 100.00 100.00
The consolidated financial statements of Home Credit B.V. are available at the shareholder’s registered office, Strawinskylaan 933, 1077XX Amsterdam, Netherlands.
The consolidated financial statements of the ultimate controlling entity PPF Group N.V. are available at its registered office, Strawinskylaan 933, 1077XX Amsterdam, Netherlands.
Board of Directors Supervisory Board David Bystrzycki Chairman Pavel Rozehnal Chairman (since August), Luděk Jírů Member Member (until August) Zdeněk Šperka Member Miroslav Zborovský Member David Minol Member (since August) Erich Čomor Chairman (until August)
Principal activities
The principal activity of the Company is the provision of consumer financing to private individual customers in the Slovak Republic. The major source of financing for the Company’s consumer lending activities are onward sales of originated loan receivables and loan participations (refer to Note 6).
- 10 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016 2. Basis of preparation These individual financial statements constitute financial statements for statutory purposes and comply with Section 17(a) of the Slovak Act on Accounting No. 431/2002, as amended.
The statutory financial statements for the year ended 31 December 2015 were approved by the General Meeting on 29 February 2016. (a) Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), as adopted by the European Union. (b) Basis of measurement The financial statements are prepared on the historical cost basis. The Company does not hold or issue financial instruments at fair value through profit or loss or financial instruments classified as available- for-sale which would be otherwise measured at fair value. Other financial assets and liabilities and non- financial assets and liabilities which are measured at historical cost are stated at amortized cost or historical cost, as appropriate, net of any relevant impairment. (c) Presentation and functional currency These financial statements are presented in euro (EUR), which is the Company’s functional currency and reporting currency. Financial information presented in EUR has been rounded to the nearest thousand (TEUR). (d) Use of estimates and judgments The preparation of financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of the judgments about the carrying values of assets and liabilities that cannot readily be determined from other sources. The actual values may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised and in any future years affected.
In particular, information about a significant area of estimation uncertainty, impairment recognition for financial assets, and critical judgments made by management in this area is provided in Note 3c (iv), Note 3c (vi), Note 3f and Note 6.
- 11 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016 3. Significant accounting policies
The following significant accounting policies have been consistently applied in the preparation of the financial statements.
(a) Foreign currency transactions A foreign currency transaction is a transaction that is denominated in or requires settlement in a currency other than the functional currency. The functional currency is the currency of the primary economic environment in which an entity operates. For initial recognition purposes, a foreign currency transaction is translated into the functional currency using the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the end of the reporting period are translated to EUR at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated to EUR at the foreign exchange rate ruling at the date of the transaction. Foreign exchange differences arising on retranslation are recognized in profit or loss. (b) Cash and cash equivalents The Company considers cash in hand, current accounts and balances with banks and other financial institutions due within three months to be cash and cash equivalents. (c) Financial assets and liabilities (i) Classification The Company classifies all of its financial assets as Loans to customers. Loans to customers are non- derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those that the Company intends to sell immediately or in the near term or those that the Company upon initial recognition designates as at fair value through profit or loss.
The Company does not hold or issue financial instruments at fair value through profit or loss, held-to- maturity investments nor financial instruments classified as available-for-sale. (ii) Recognition Financial assets and liabilities are recognized in the statement of financial position when the Company becomes a party to the contractual provisions of the instrument. (iii) Measurement A financial asset or liability is initially measured at its fair value. The fair value measurement is increased in case of a financial asset or liability not at fair value through profit or loss by transaction costs that are directly attributable to the acquisition or issue of the financial asset or liability.
Subsequent to initial recognition, loans and receivables are measured at amortized cost less impairment losses. All financial liabilities are measured at amortized cost.
Amortized cost is calculated using the effective interest method. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortized based on the effective interest rate of the instrument. (iv) Amortized cost measurement principles The amortized cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization, using the effective interest method, of any difference between the initial amount recognized and the maturity amount, net of any relevant impairment. (v) Gains and losses on subsequent measurement For financial assets and liabilities carried at amortized cost, a gain or loss is recognized in the statement of comprehensive income as an income/expense when the financial asset or liability is derecognized or impaired, and through the amortization process.
- 12 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016 3. Significant accounting policies (continued) (vi) Identification and measurement of impairment Financial assets not carried at fair value consist principally of loans, balances with financial institutions and other receivables (“loans and receivables”).
The Company assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired on a regular basis. Financial assets are impaired when objective evidence, such significant financial difficulty of the borrower or default or delinquency by a borrower, demonstrates that a loss event has occurred after the initial recognition of the assets, and that the loss event has an impact on the future cash flows of the asset that can be estimated reliably.
The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial assets, whether significant or not, it includes the assets in a group of financial assets with similar risk characteristics and collectively assesses them for impairment. Financial 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 a financial asset has been incurred, the amount of the loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows, including amounts recoverable from guarantees and collateral discounted at the financial asset’s original effective interest rate. Contractual cash flows and historical loss experience adjusted on the basis of relevant observable data that reflect current economic conditions provide the basis for estimating expected cash flows. Short-term financial assets are not discounted.
The collective allowance for groups of homogeneous loans is established using statistical methods such as roll rate methodology and Markov models. Both models use statistical analysis of historical data on delinquency to estimate the amount of loss. Management applies judgement to ensure that the estimate of loss arrived at on the basis of historical information is appropriately adjusted to reflect the economic conditions and product mix at the reporting date. Roll rates and loss rates are regularly benchmarked against actual loss experience. In assessing the need for collective loss allowance, management considers factors such as credit quality, portfolio size, concentrations and economic factors. To estimate the required allowance, assumptions are made to define how inherent losses are modelled and to determine the required input parameters, based on historical experience and current economic conditions. The accuracy of the allowance depends on the model assumptions and parameters used in determining the collective allowance.
In some cases the observable data required to estimate the amount of an impairment loss on a financial asset may be limited or no longer fully relevant under current circumstances. This may be the case when a borrower is in financial difficulties and there is little available historical data relating to similar borrowers. In such cases, the Company uses its experience and judgment to estimate the amount of any impairment loss.
All impairment losses in respect of financial assets are recognized as an expense in the statement of comprehensive income and are only reversed if a subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognized. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount of the asset that would have been determined, net of amortization, if no impairment loss had been recognized.
The Company writes off a loan or a receivable, either partially or in full, and any related allowance for impairment losses, when the Company determines that there is no realistic prospect of recovery.
- 13 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016 3. Significant accounting policies (continued) (vii) Derecognition The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized separately as asset or liability.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. (viii) Offsetting Financial assets and liabilities are set off and the net amount presented in the statement of financial position when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a group of similar transactions. (d) Intangible assets (i) Software and other intangible assets Intangible assets, which are acquired by the Company, are stated at cost less accumulated amortization and accumulated impairment losses (refer to Note 3(f) below). (ii) Amortization Amortization is charged to the statement of comprehensive income on a straight-line basis over the estimated useful lives of intangible assets. Intangible assets are amortized from the date the asset is available for use. The amortization methods, useful lives and residual values, if not insignificant, are reassessed annually. If a material technical improvement is made to an asset during the year, its useful life and residual value are reassessed at the time the technical improvement is recognized. The estimated useful lives are as follows:
Software 4 years Other intangible assets 4 years (e) Property and equipment (i) Owned assets Items of property and equipment are stated at cost less accumulated depreciation (refer below) and accumulated impairment losses (refer to Note 3(f) below). Cost includes expenditures that are directly attributable to the acquisition of the asset.
Where an item of property and equipment comprises major components having varying useful lives, they are accounted for as separate items of property and equipment. (ii) Leased assets Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation (refer below) and accumulated impairment losses (refer to Note 3(f) below).
Property and equipment used by the Company under operating leases, whereby the risks and benefits relating to ownership of the assets remain with the lessor, are not recorded in the Company’s statement of financial position. Payments made under operating leases to the lessor are charged to the statement of comprehensive income over the period of the lease.
- 14 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016 3. Significant accounting policies (continued) (iii) Subsequent expenditure Expenditure incurred to replace a component of an item of property and equipment that is accounted for separately, including major inspection and overhaul expenditure, is capitalized. Other subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property and equipment and its cost can be measured reliably. All other expenditure is recognized in the statement of comprehensive income as an expense as incurred. (iv) Depreciation Depreciation is charged to the statement of comprehensive income on a straight line basis over the estimated useful lives of the individual assets. Leased assets are depreciated over the shorter of the lease term and their useful lives. Property and equipment are depreciated from the date the asset is available for use. The depreciation methods, useful lives and residual values, if not insignificant, are reassessed annually. If a material technical improvement is made to an asset during the year, its useful life and a residual value is reassessed at the time a technical improvement is recognized. The estimated useful lives are as follows:
Computers and equipment 2 – 4 years Vehicles 4 years (f) Impairment of non-financial assets The carrying amounts of the Company’s non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated.
The recoverable amount of non-financial assets is the greater of their fair value less costs to sell and value in use. 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. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
An impairment loss is recognized when the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.
All impairment losses in respect of non -financial assets are recognized as an expense in the statement of comprehensive income and reversed only if there has been a change in the estimates used to determine the recoverable amount. Any impairment loss reversed is only reversed to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. (g) Provisions A provision is recognized in the statement of financial position if, as a result of a past event, the Company has a present or legal obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and, where appropriate, the risks specific to the liability. (h) Other payables Accounts payable arise when the Company has a contractual obligation to deliver cash or another financial asset. Accounts payable are measured at amortized cost, which is normally equal to their nominal or repayment value.
- 15 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016 3. Significant accounting policies (continued) (i) Share capital and statutory reserve fund Share capital represents the nominal value of shares issued by the Company.
Dividends to shareholders are recognized as a liability provided they are declared before the end of the reporting period. Dividends declared after the end of the reporting period are not recognized as a liability but are disclosed in the notes.
The statutory reserve fund represents a fund required by the Slovak Commercial Code to cover future adverse financial conditions. The Company is obliged to contribute an amount to the fund each year which is not less than 10% of its annual net profit (calculated in accordance with Slovak accounting regulations) until the aggregate amount reaches a minimum level equal to 20% of the issued share capital. The statutory reserve fund is not readily distributable to shareholders. (j) Interest income and expense Interest income and expense are recognized in the statement of comprehensive income using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. The effective interest rate is established on initial recognition and is not revised subsequently.
The calculation of the effective interest rate includes all fees and amounts paid or received, transaction costs, and all discounts or premiums that are an integral part of the effective interest rate. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability.
The Company estimates the accrued client’s bonuses to POS and cash loans (see Note 12) using the analysis of historical information on delinquency of repayments. The accrued client’s bonuses are recognized and disclosed as a liability to clients and a related expense is deducted from the interest income.
(k) Fee and commission income and expenses Fee and commission income and expenses that are integral to the effective interest rate of a financial asset or liability are included in the calculation of the effective interest rate.
Other fee and commission income and expense relate mainly to transaction and service fees paid, which are expensed as the services are received. (l) Penalty fees Penalty income is recognized in the statement of comprehensive income when the penalty is charged to a customer, taking into account its collectability.
- 16 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016 3. Significant accounting policies (continued) (m) Operating lease payments Payments made under operating leases are recognized in the statement of comprehensive income on a straight-line basis over the term of the lease. Granted lease incentives are recognized as an integral part of the total lease expense. (n) Pensions The Government of the Slovak Republic and private funds with no connection to the Company are responsible for providing pensions and retirement benefits to the Company’s employees. A regular contribution linked to the employees’ salaries is made by the Company to the Government to fund the national pension plans. Payments under these pension schemes are charged as expenses as they are incurred. (o) Taxation Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognized as expense/income except to the extent that it relates to items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit and temporary differences related to investments in subsidiaries, branches and associates where the parent is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the temporary differences, unused tax losses and credits can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
- 17 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016 3. Significant accounting policies (continued) (p) New standards and interpretations not yet adopted A number of new Standards, amendments to Standards and Interpretations are not yet effective as at 31 December 2016, and have not been applied in preparing these financial statements. Out of these pronouncements, potentially the ones below will have an impact on the Company’s operations.
IFRS 9 Financial Instruments (effective from 1 January 2018) replaces IAS 39, Financial Instruments: Recognition and Measurement. The standard deals with classification and measurement of financial assets and liabilities, related impairment and hedged accounting. There is an exception for a fair value hedge of an interest rate exposure of a portfolio of financial assets or financial liabilities where entities have choice to apply the hedge accounting requirements of IFRS 9 or continue to apply the existing hedge accounting requirements in IAS 39 for all hedge accounting. Although the permissible measurement bases for financial assets – amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit and loss (FVTPL) – are similar to IAS 39, the criteria for classification into the appropriate measurement category are significantly different. A financial asset would be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset’s contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets would be measured at fair value. The standard eliminates the existing IAS 39 categories of held to maturity, available for sale and loans and receivables.
The impairment model in IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ model, which means that a loss event will no longer need to occur before an impairment allowance is recognised. It is generally expected that the new expected credit loss model under IFRS 9 might accelerate the recognition of impairment losses and lead to higher impairment allowances at the date of initial application.
The Company is currently running a group-wide project aimed at thorough analysis and subsequent implementation of the new standard. Business model test and cash flow characteristics test need to be performed by the Company to assess the nature of its business. Further, with the new standard the incurred loss model will be replaced by the expected credit loss model. Upon initial recognition as at 1 January 2018 the effect of changes in the impairment of financial assets will be recognized against equity accounts. Due to complexity of the resulting changes and ongoing implementation, the impact of the initial adoption is currently not quantifiable.
IFRS 16 Leases (effective from 1 January 2019) supersedes IAS 17 Leases and related interpretations. The Standard eliminates the current dual accounting model for lessees and instead requires companies to bring most leases on-balance sheet under a single model, eliminating the distinction between operating and finance leases. Under IFRS 16, a contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. For such contracts, the new model requires a lessee to recognise a right-of-use asset and a lease liability. The right-of-use asset is depreciated and the liability accrues interest. This will result in a front-loaded pattern of expense for most leases, even when the lessee pays constant annual rentals. The Company is in the process of assessing of the potential impact of the standard pronouncements.
- 18 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016 4. Financial risk management The Company has exposure to the following risks:
• credit risk • liquidity risk • market risks • operational risks.
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits set. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations. Regular audits of particular departments and processes are undertaken by Internal Audit.
(a) Credit risk Credit risk is the risk of financial loss occurring as a result of default by a borrower or counterparty on their obligation to the Company. The majority of the Company’s exposure to credit risk arises in connection with the provision of consumer financing to private individual customers, which is the Company’s principal business. The Company classifies the loans to individual customers into several classes where the significant ones are revolving loans, cash loans, point-of-sale (”POS”) loans and car loans. As the Company’s loan portfolio consists mainly of a large volume of loans with relatively low outstanding amounts, it does not currently comprise any significant individual items.
The Board of Directors has delegated responsibility for the management of credit risk to the Credit Risk Department, which is responsible for oversight of the Company’s credit risk, including:
• Formulating credit policies in cooperation with business departments; • Establishing the authorization structure for the approval and renewal of credit facilities; • Reviewing and assessing credit risk; • Limiting concentrations of credit exposures; • Developing and maintaining the Company’s risk scoring; • Reviewing compliance of business units with agreed exposure limits; • Providing advice, guidance and specialist skills to business departments to promote best practice throughout the Company in the management of credit risk.
Exposure to credit risk The carrying amount of loans and advances represents the maximum accounting loss that would be recognized at the balance sheet date if counterparties failed to perform completely as contracted and any collateral or security proved to be of no value. The amount therefore greatly exceeds expected losses. Refer also to Notes 6 and 10 for details on outstanding unpaid sold receivable from related parties and to Note 21 for outstanding loan commitments that may impact credit risk analysis.
- 19 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016 4. Financial risk management (continued) (a) Credit risk (continued) Loans to customers Note 2016 2015 TEUR TEUR Individually impaired Gross amount 1,665 1,475
Allowance for impairment 6 (514) (510)
Carrying amount 1,151 965
Not impaired 282 877
Carrying amount 1,433 1,842
Collectively impaired Gross amount 121,292 110,496 Current 39,997 34,901 Past due 1 – 90 days 2,822 2,728 Past due 91 – 360 days 2,849 2,170 Past due more than 360 days 75,624 70,697
Allowance for impairment 6 (78,114) (75,221)
Current (209) (2,681)
Past due 1 – 90 days (533) (722)
Past due 91 – 360 days (2,230) (1,577)
Past due more than 360 days (75,142) (70,241)
Carrying amount 43,178 35,275
Total carrying amount 6 44,611 37,117
Collateral is generally not required for customer loans. As at 31 December 2016 only car loans in gross amount of TEUR 16,528 (2015: TEUR 16,096) are secured by underlying motor vehicles.
(b) Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations from its financial liabilities.
The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and extraordinary conditions, without incurring unacceptable losses or risking to damage the Company’s reputation.
The Finance department collects information from other departments regarding the liquidity profile of their financial assets and liabilities and details of other projected cash flows arising from projected future business. A portfolio of short-term liquid assets is maintained to ensure sufficient liquidity, together with available overdraft facilities. The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions.
The Company raises funds using regular sales of receivables or loan participations, bank loans, inter- company loans and contributions by shareholders. Shareholder’s support is one of the most important aspects in the liquidity management of the Company. This enhances funding flexibility, limits dependence on bank financing and generally lowers the cost of funds.
- 20 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016 4. Financial risk management (continued) (b) Liquidity risk (continued) Exposure to liquidity risk The following table shows assets and liabilities by remaining contractual maturity dates.
2016 2015 TEUR Less than 1 to 3 3 months 1 to 5 More than No Less than 1 to 3 3 months 1 to 5 More than No 1 month months to 1 year years 5 years maturity Total 1 month months to 1 year years 5 years maturity Total
Cash and cash equivalents 11,301 - - - - - 11,301 6,680 - - - - - 6,680 Loans to customers 2,147 3,101 9,779 23,894 5,690 - 44,611 2,192 1,562 9,095 19,814 4,454 - 37,117 Current income tax receivable - - 1,938 - - - 1,938 ------Deferred tax assets - 21 7,089 (1,491) - - 5,619 - 32 6,540 (925) - - 5,647 Intangible assets - - - - - 286 286 - - - - - 314 314 Property and equipment - - - - - 492 492 - - - - - 677 677 Other assets 9,936 602 2,930 5,418 27 11 18,924 11,996 785 3,134 5,517 48 11 21,491
Total assets 23,384 3,724 21,736 27,821 5,717 789 83,171 20,868 2,379 18,769 24,406 4,502 1,002 71,926
Due to financial institutions - - 42,139 - - - 42,139 5,021 - 21,328 - - - 26,349 Current income tax liability ------892 - - - 892 Other liabilities 10,554 1,272 504 5,825 - - 18,155 10,475 1,049 1,310 3,084 - - 15,918
Total liabilities 10,554 1,272 42,643 5,825 - - 60,294 15,496 1,049 23,530 3,084 - - 43,159
Net position 12,830 2,452 (20,907) 21,996 5,717 789 22,877 5,372 1,330 (4,761) 21,322 4,502 1,002 28,767
The liquidity risk analysis is affected by outstanding contractual commitments to extend credit, which do not necessarily represent future cash requirements, as significant part of these commitments will be terminated or will expire without being drawn (refer to Note 21).
- 21 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016 4. Financial risk management (continued) (c) Market risk Market risk is the risk that changes in market prices, such as interest rates or foreign exchange rates will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters.
The Company does not maintain a trading portfolio. The majority of the Company’s exposure to market risk arises in connection with the funding of the Company’s operations, and to the extent the term structure of interest bearing assets differs from that of liabilities.
Exposure to interest rate risk The principal risk to which the Company is exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instrument because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for repricing bands. The Finance Department is the monitoring body for compliance with these limits. A summary of the Company’s interest rate gap position is provided below.
The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Company’s financial assets and liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are considered presume a 100 basis point parallel fall or rise in yield curves. In such case, the net interest income for the year ended 31 December 2016 would be approximately TEUR 300 higher/lower (the year ended 31 December 2015: TEUR 238). The above sensitivity analysis is based on amortized costs of assets and liabilities.
Exposure to foreign currency risk Foreign currency risk arises when the actual or forecast assets in a foreign currency are either greater or less than the liabilities in that currency. Foreign currency risk is managed principally through monitoring foreign currency mismatches in the structure of assets and liabilities. It is the Company’s policy to hedge such mismatches by derivative financial instruments to eliminate the foreign currency exposure. The Finance Department is the monitoring body for compliance with this rule.
The Company has not been exposed to significant foreign currency risk.
- 22 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016 4. Financial risk management (continued) (c) Market risk (continued) Interest rate gap position
2016 2015 TEUR Effective More Effective More interest Less than 3 to 12 1 to 2 2 to 5 than interest Less than 3 to 12 1 to 2 2 to 5 than rate 3 months months years years 5 years Total rate 3 months months years years 5 years Total Interest bearing financial assets
Cash and cash equivalents 0.01% 11,288 - - - - 11,288 0.1% 6,665 - - - - 6,665
Loans to customers, net* 17.6% 5,249 9,779 12,400 11,493 5,690 44,611 21.4% 3,754 9,095 9,089 10,725 4,454 37,117
Total interest bearing financial assets 16,537 9,779 12,400 11,493 5,690 55,899 10,419 9,095 9,089 10,725 4,454 43,782
Due to banks and other financial institutions 3.7% 17,049 25,090 - - - 42,139 4.2% 26,349 - - - - 26,349
Total interest bearing financial liabilities 17,049 25,090 - - - 42,139 26,349 - - - - 26,349
*The loans to customers bear interest at a fixed rate.
- 23 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016
4. Financial risk management (continued) (d) Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Company’s operations and are faced by all business entities.
The Company’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Company’s reputation with overall cost-effectiveness and to avoid control procedures that restrict initiative and creativity.
The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management of the Company. This responsibility is supported by the development of standards for the management of operational risk in the following areas:
• requirements for appropriate segregation of duties, including the independent authorization of transactions; • requirements for the reconciliation and monitoring of transactions; • compliance with regulatory and other legal requirements; • documentation of controls and procedures; • requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified; • requirements for the reporting of operational losses and proposed remedial action; • development of contingency plans; • training and professional development; • ethical and business standards; • risk mitigation, including insurance where this is effective.
(e) Capital management The Company considers share capital, share premium, statutory reserve fund and retained earnings as its capital. The Company’s policy is to maintain an adequate capital base so as to maintain investor, creditor and market confidence, sustain future development of the business and meet the capital requirements related to its funding operations. There have been no material changes in the Company’s management of capital during the year.
The Company also maintains capital adequacy in compliance with local regulatory requirements as stated by Article 72 of the Slovak Act on Payment Services No. 492/2009, as amended. All requirements stated by the act were met during 2016.
(f) Fair values of financial instruments The Company has performed an assessment of the fair value of its financial instruments, as required by IFRS 13.
The Company’s estimates of fair values of its financial assets and liabilities are not materially different from their carrying values.
Fair value has been determined by discounting the relevant cash flows using current interest rates for similar instruments. Fair value estimates are based on judgments regarding future expected cash flows, current economic conditions, risk characteristics of various financial instruments and other factors.
- 24 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016
5. Cash and cash equivalents 2016 2015 TEUR TEUR
Cash in hand 13 15 Current accounts 11,288 6,665
11,301 6,680
6. Loans to customers 2016 2015 TEUR TEUR Gross amount Cash loan receivables 43,202 44,465 POS loan receivables 35,112 28,609 Revolving loan receivables 25,935 19,919 Car loan receivables 17,043 17,503 Loans to corporations 1,947 2,352
123,239 112,848
Collective allowances for impairment Cash loan receivables (33,282) (32,578) POS loan receivables (19,167) (17,440) Revolving loan receivables (17,058) (16,625) Car loan receivables (8,607) (8,578)
(78,114) (75,221)
Specific allowances for impairment on loans to corporations (514) (510)
(78,628) (75,731)
44,611 37,117
In 2012, the Company concluded the receivables sale agreement that provides for the sale of both present and future POS and cash loan receivables generated by the Company which meet predefined eligibility criteria. In 2013, the Company concluded the receivables sale agreement that provide for the sale of both present receivables and future receivables arising on certain nominated revolving loan accounts which meet predefined eligibility criteria. Further in 2013, the Company concluded the receivables sale agreement that provides for the sale of both present and future car loan receivables generated by the Company which meet predefined eligibility criteria. Following certain amendments in customer protection legislation in December 2015 sales of receivables have been substituted by sales of participations in respective receivables. Participations in the loan receivables are sold on a regular basis at a fixed price above their face value which is regularly negotiated between the parties on the arm’s-length basis. The receivables transferred under the participation agreements meet criteria for derecognition as required by IFRS and are derecognized as at the date of transfer.
During 2016, the revolving loan receivables in amount of TEUR 110,481 (2015: TEUR 106,908), POS and cash loans receivables in amount of TEUR 64,089 (2015: TEUR 71,748) and car loans receivables in amount of TEUR 18,393 (2015: TEUR 15,379) were sold to a related party either in the form of receivables assignment or loan participations.
- 25 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016
6. Loans to customers (continued)
2016 2015 Analysis of movements in allowances for impairment Note TEUR TEUR
Balance as at 1 January 75,731 73,737 Impairment losses recognized in the statement 18 4,139 3,550 of comprehensive income Net amount related to loans written off (1,242) (1,556)
Balance as at 31 December 78,628 75,731
The Company has estimated the impairment on loans to customers in accordance with the accounting policy described in Note 3c (vi). Changes in collection estimates could significantly affect the impairment losses recognized. For example, to the extent that the provisioning rates would increase/decrease by one percent in relative terms, the loan impairment as at 31 December 2016 would be approximately TEUR 256 higher/lower (31 December 2015: TEUR 59).
7. Deferred tax assets and liabilities The Company’s applicable tax rate for deferred tax is 21% (2015: 22%). Deferred tax assets and liabilities are attributable to the following items:
Assets Liabilities Net 2016 2015 2016 2015 2016 2015 TEUR TEUR TEUR TEUR TEUR TEUR
Allowances for impairment on loans to customers 6,164 6,774 - - 6,164 6,774 Penalty income taxable after collection - - (2,054) (2,280) (2,054) (2,280) Other 1,526 1,185 (17) (32) 1,509 1,153
Deferred tax assets/(liabilities) 7,690 7,959 (2,071) (2,312) 5,619 5,647
Net deferred tax assets 5,619 5,647
8. Intangible assets Other 2016 intangible Software assets Total TEUR TEUR TEUR Acquisition cost Balance as at 1 January 2016 954 180 1,134 Additions 115 - 115 Disposals - (3) (3)
Balance as at 31 December 2016 1,069 177 1,246
Accumulated amortization Balance as at 1 January 2016 688 132 820 Amortization 124 16 140
Balance as at 31 December 2016 812 148 960
Carrying amount
as at 1 January 2016 266 48 314 as at 31 December 2016 257 29 286
- 26 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016
8. Intangible assets (continued) Other 2015 intangible Software assets Total TEUR TEUR TEUR Acquisition cost Balance as at 1 January 2015 824 141 965 Additions 130 39 169
Balance as at 31 December 2015 954 180 1,134
Accumulated amortization Balance as at 1 January 2015 558 117 675 Amortization 130 15 145
Balance as at 31 December 2015 688 132 820
Carrying amount
as at 1 January 2015 266 24 290 as at 31 December 2015 266 48 314
9. Property and equipment Tangible Computers assets not 2016 and yet put in Buildings equipment Vehicles use Total TEUR TEUR TEUR TEUR TEUR Acquisition cost Balance as at 1 January 2016 95 1,553 750 - 2,398 Additions - 49 14 - 63 Disposals - (51) (207) - (258)
Balance as at 31 December 2016 95 1,551 557 - 2,203
Accumulated depreciation Balance as at 1 January 2016 7 1,283 431 - 1,721 Depreciation 5 120 122 - 247 Disposals - (50) (207) - (257)
Balance as at 31 December 2016 12 1,353 346 - 1,711
Carrying amount
as at 1 January 2016 88 270 319 - 677 as at 31 December 2016 83 198 211 - 492
- 27 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016
9. Property and equipment (continued)
Tangible Computers assets not 2015 and yet put in Buildings equipment Vehicles use Total TEUR TEUR TEUR TEUR TEUR Acquisition cost Balance as at 1 January 2015 95 1,499 776 17 2,387 Additions - 131 142 - 273 Disposals - (77) (185) - (262) Transfers - - 17 (17) -
Balance as at 31 December 2015 95 1,553 750 - 2,398
Accumulated depreciation Balance as at 1 January 2015 2 1,242 490 - 1,734 Depreciation 5 118 125 - 248 Disposals - (77) (184) - (261)
Balance as at 31 December 2015 7 1,283 431 - 1,721
Carrying amount
as at 1 January 2015 93 257 286 17 653 as at 31 December 2015 88 270 319 - 677
10. Other assets 2016 2015 TEUR TEUR
Prepaid expenses 9,315 9,889 Outstanding selling price of receivables and participations 7,147 10,316 Accounts receivable 2,425 1,273 Other 37 13
18,924 21,491
11. Due to banks and other financial institutions 2016 2015 TEUR TEUR
Unsecured loans 42,139 23,540 Bank overdrafts - 2,809
42,139 26,349
- 28 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016
11. Due to banks and other financial institutions (continued) Unsecured loans Interest Final Amount outstanding rate maturity 2016 2015 TEUR TEUR
EURIBOR Term loan facility of TEUR 15,000 August 2018 15,061 10,009 + margin EURIBOR Term loan facility of TEUR 10,000 February 2017 10,031 - + margin EURIBOR Term loan facility of TEUR 10,000 November 2017 10,029 8,510 + margin
Term loan facility of TEUR 15,000 Fixed rate January 2017 7,018 -
EURIBOR Term loan facility of TEUR 10,000 January 2017 - 5,021 + margin
42,139 23,540
12. Other liabilities 2016 2015 TEUR TEUR
Due to customers 8,286 7 398 Accrued expenses 6,885 5 250 Settlements with suppliers 2,351 2 438 Accrued employee compensation 515 641 Other 118 191
18,155 15 918
Out of accrued expenses stated above the amount of TEUR 6,841 (2015: TEUR 4,901) represents accrued client’s bonuses dependent on timely repayment of respective POS and cash loans.
No liabilities were overdue as at 31 December 2016 or 31 December 2015.
13. Equity As at 31 December 2016 the issued share capital comprised 567 ordinary shares (31 December 2015: 567) with a nominal value of EUR 33,194 each. All issued shares have been fully paid and bear equal voting rights. The holders of shares are entitled to receive dividends when declared.
In February 2016 the sole shareholder approved the distribution of retained earnings in the form of a dividend in the amount of EUR 7,055 per each share, totaling to TEUR 4,000.
- 29 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016
14. Interest income and interest expense 2016 2015 TEUR TEUR Interest income POS loan receivables 4,611 2,852 Cash loan receivables 3,298 3,378 Revolving loan receivables 2,782 1,448 Car loan receivables 1,521 1,563 Other 74 68
12,286 9,309
Interest expense Liabilities to banks and other financial institutions (1,177) (1,072)
(1,177) (1,072)
15. Fee and commission income 2016 2015 TEUR TEUR
Penalty fees 2,042 1,989 Customer payment processing and account maintenance 1,850 2,216 Cash transactions 605 861 Insurance commissions 436 435
4,933 5,501
16. Fee and commission expense 2016 2015 TEUR TEUR
Commissions to retailers 4,972 4,872 Payment processing and account maintenance 1,351 1,449 Cash transactions 609 645
6,932 6,966
17. Other operating income 2016 2015 TEUR TEUR
Gains on disposal of loan receivables or sale of loan participations 7,473 18,198 Fees for servicing of receivables 2,609 2,467 Other 77 32
10,159 20,697
- 30 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016
18. Impairment losses 2016 2015 TEUR TEUR
POS loan receivables 1,992 1,947 Cash loan receivables 1,229 1,011 Revolving loan receivables 791 604 Car loan receivables 123 (29) Loans to corporations 4 17
4,139 3,550
19. General administrative expenses 2016 2015 TEUR TEUR
Employee compensation 3,357 3,627 Payroll related taxes (including pension contributions) 1,038 1,159 Information technologies 3,860 3,365 Professional services 3,058 2,547 Telecommunication and postage 2,448 2,952 Advertising and marketing 1,694 2,131 Occupancy 473 481 Depreciation and amortization 388 393 Travel expenses 314 372 Other 134 117
16,764 17,144
Out of professional services stated above the amount of TEUR 84 (2015: TEUR 87) represents expenses for audit services:
2016 2015 TEUR TEUR
Statutory audit and group reporting 84 87
84 87
20. Income tax expense 2016 2015 TEUR TEUR
Corporate income tax for current year 44 1,798 Correction related to prior periods 184 77
Current tax expense 228 1,875 Deferred tax expense 28 254
Total income tax expense in the statement of comprehensive income 256 2,129
- 31 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016
20. Income tax expense (continued)
Reconciliation of effective tax rate 2016 2016 2015 2015 TEUR TEUR
Profit before tax (1,634) 6,775
Income tax using the domestic tax rate of 22% 359 22% (1,491) 22% (2015: 22%) Non-deductible costs Allowances for impairment on loans to -6% (91) 6% (376) customers Other non-deductible costs -20% (340) 3% (185) Corrections related to previous years -12% (184) 1% (77)
Total income tax expense -16% (256) 31% (2,129)
Many parts of Slovak tax legislation remain untested and there is uncertainty about the interpretation that the tax authorities may apply in a number of areas. The effect of this uncertainty cannot be quantified and will only be resolved as legislative precedents are set or when the official interpretations of the authorities are available.
21. Future commitments The Company has outstanding contractual commitments to extend credit. These commitments take the form of approved credit limits related to customer’s revolving loan accounts, POS loan facilities, cash loan facilities and car loan facilities. 2016 2015 TEUR TEUR
Revolving loan commitments 176,517 176,065 POS loan commitments 2,847 4,934 Cash loan commitments 522 1,543 Car loan commitments 216 321
180,102 182,863
The total outstanding contractual commitments to extend credit disclosed above do not necessarily represent future cash requirements, as many of these commitments will be terminated or will expire without being drawn.
22. Operating leases Leases as lessee Non-cancellable operating lease rentals are payable as follows: 2016 2015 TEUR TEUR
Less than one year 331 336 Between one and five years 377 717
708 1,053
The Company leases premises under operating leases. Lease payments are usually increased annually to reflect market rentals. None of the leases includes contingent rentals.
During the year ended 31 December 2016 TEUR 342 (the year ended 31 December 2015: TEUR 347) was recognized as an expense in the statement of comprehensive income in respect of operating leases.
- 32 - Home Credit Slovakia, a.s. Notes to the Financial Statements for the year ended 31 December 2016
23. Related party transactions The Company has a related party relationship with its ultimate parent company PPF Group N.V., its parent company Home Credit B.V. and their subsidiaries. (a) Transactions with the parent Amounts included in the statement of financial position in relation to transactions with the parent are as follows:
2016 2015 TEUR TEUR
Due to banks and other financial institutions 7,018 -
7,018 -
Amounts included in the statement of comprehensive income in relation to transactions with the parent are as follows:
2016 2015 TEUR TEUR
Interest income (18) -
(18) - (b) Transactions with fellow subsidiaries Amounts included in the statement of financial position in relation to transactions with fellow subsidiaries are as follows:
2016 2015 TEUR TEUR
Cash and cash equivalents 3,261 2,730 Other assets 14,025 15,982 Due to banks and other financial institutions - (5,021) Other liabilities (1,448) (1,078)
15,838 12,613
Amounts included in the statement of comprehensive income in relation to transactions with fellow subsidiaries are as follows:
2016 2015 TEUR TEUR
Interest income 2,877 1,121 Interest expense (142) (21) Fee and commission income 158 266 Fee and commission expense (110) (110) Other operating income 13,885 26,138 General administrative expenses (4,684) (3,924)
11,984 23,470 (c) Transactions with key management personnel Amounts included in the statement of comprehensive income in relation to transactions with members of key management are short-term benefits comprising salaries and bonuses in amount of TEUR 12 (2015: TEUR 63). This amount represents transactions with members of the Supervisory Board.
- 33 -