Delfin Group

Quarterly Report • Aug 31, 2016

SIA "ExpressCredit"

UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE PERIOD 01.01.2016.-30.06.2016.

PREPARED IN ACCORDANCE WITH THE INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ADOPTED BY EU Translation from Latvian

TABLE OF CONTENTS

Information on the Group	3 - 4
Statement of management's responsibility	5
Management report	6
Profit or loss account	7
Balance sheet	8
Statement of changes in equity	9
Cash flow statement	10
Notes	11 – 22

Information on the Company

Name of the Company	ExpressCredit SIA
Legal status of the Company	Limited liability company
Number, place and date of registration	40103252854 Commercial Registry Riga, 12 October 2009
Operations as classified by NACE classification code system	NACE2 64.92 Other credit granting
Address	Raunas street 44 k-1, Riga, LV-1039 Latvia
Names and addresses of shareholders (from 30.10.2013)	Lombards 24.lv, SIA (till 05.05.2015. Express Holdings, SIA) (51.00% - till 18.06.2015, 67.55% from 18.06.2015 till 23.12.2015, 65.86% from 23.12.2015), Raunas street 44k-1, Riga, Latvia
	AE Consulting, SIA (24.50% till 18.06.2015, 32.45% - from 18.06.2015 – 23.12.2015, 31.64% - from 23.12.2015), Posma street 2, Riga, Latvia
	Private individuals (2.5% - from 23.12.2015)
Names and positions of Board members	Agris Evertovskis - Chairman of the Board Kristaps Bergmanis - Member of the Board Didzis Admidins - Member of the Board
Names and positions of Council members	Ieva Judinska-Bandeniece – Chairperson of the Council Uldis Judinskis - Deputy Chairman of the Council Ramona Tiltina - Member of the Council
Financial period	1 January - 30 June 2016
Name and address of the auditor	SIA Potapoviča un Andersone Certified Auditors' Company Licence Nr. 99 Ūdens Street 12-45, Riga, LV-1007 Latvia
	Responsible Certified Auditor Kristīne Potapoviča Certificate No. 99

Information on the Subsidiaries

Subsidiary	SIA ExpressInkasso (parent company interest in subsidiary – 100%)
Date of acquisition of the subsidiary	22.10.2010
Number, place and date of registration of the subsidiary	40103211998; Riga, 27 January 2009
Address of the subsidiary	Raunas Street 44 k-1; Riga, LV 1039, Latvia
Operations as classified by NACE classification code system of the subsidiary	66.1 Financial support services except insurance and pension accrual
Subsidiary	SIA Banknote (till 30.04.2015 – SIA Rīgas pilsētas lombards) (parent company interest in subsidiary – 100%)
Date of acquisition of the subsidiary	23.02.2015
Number, place and date of registration of the subsidiary	40003040217, Riga, 06 December 1991
Address of the subsidiary	Raunas Street 44 k-1; Riga, LV 1039, Latvia (till 30.04.2015 – Kalēju street 18/20, Riga)
Operations as classified by NACE classification code system of the subsidiary	64.92 Other financing services
Subsidiary	SIA EC Finance (parent company interest in subsidiary – 100%)
Date of acquisition of the subsidiary	01.12.2015
Number, place and date of registration of the subsidiary Address of the subsidiary	40103950614, Riga, 01 December 2015
	Raunas Street 44 k-1; Riga, LV 1039, Latvia
Operations as classified by NACE classification code system of the subsidiary	64.20 Activities of holding companies

Statement of management`s responsibility

The management of SIA "ExpressCredit" group is responsible for the preparation of the consolidated financial statements.

Based on the information available to the Board of the parent company of the Group, the financial statements are prepared on the basis of the relevant primary documents and statements in accordance with International Financial Reporting Standards as adopted by the European Union and present a true and fair view of the Group's assets, liabilities and financial position as at 30 June 2016 and its profit and cash flows for the period from 1 January to 30 June 2016.

The management of the parent company confirms that the accounting policies and management estimates have been applied consistently and appropriately. The management of the parent company confirms that the consolidated financial statements have been prepared on the basis of the principles of prudence and going concern.

The management of the parent company confirms that is responsible for maintaining proper accounting records and for monitoring, controlling and safeguarding the Group's assets. The management of the parent company is responsible for detecting and preventing errors, irregularities and/or deliberate data manipulation. The management of the parent company is responsible for ensuring that the Group operates in compliance with the laws of the Republic of Latvia.

The management report presents fairly the Group's business development and operational performance.

Agris Evertovskis Chairman of the Board Kristaps Bergmanis Member of the Board Didzis Ādmīdiņš Member of the Board

Management report

Operations of the Group's parent company and Group during the reporting period form 1 January to 30 June 2016 have been as planned. Total revenues of the Group for the period decreased by 20.9 % with respect to period from 1 January to 30 June 2015 and reached 7.34 million EUR. Accordingly the cost base for the period from 1 January to 30 June 2015 in comparison to 1 January to 30 June 2015 have decreased by 13.9%.

2016 first half year Group's income structure was as follows: regular lending against pledges (pledge secured loans and sale of pledged assets subsequent to loan repayment default) – 57% (2015 first half: 49%), non-secured loans – 42% (2015 first half: 51%) and other income – 1% (2015 first half: 1%).

Due to implementation of the chosen business strategy, the following financial ratios were achieved in 2016 first half year:

Position	EUR	Increase / (decrease) % with respect to 31/12/2016
Net loan portfolio, the Group	8.7	33.8
Assets, Group	13.6	27.1
Net profit, Group	0.3	(80.0)

Branches

In the period form 1 January to 30 June 2015 the Group continued the work on development of the branch network, loan volume increase, and IT system development. As at 30 June 2016 the Group had 96 branches in 40 cities in Latvia (31.12.2015 - 96 branches in 40 cities).

Risk management

The Group is not exposed to significant foreign exchange rate risk because basic transaction currency is euro. Significant amount of funding of the Group consist of fixed coupon rate bonds, so that the Group is not significantly exposed to variable interest rate risk. Accurate application of the prudent strategies chosen has allowed the Group to successfully manage its financial risks, particularly the liquidity and credit risk. The group is subject to the legal environment change and regulatory risks that may affect the interest charges in the segment non-bank regular lending against pledges and non-secured loans.

Post balance sheet events

There are no subsequent events since the last date of the reporting year, which would have a significant effect on the financial position of the Company as at 30 June 2016.

Future prospects

In 2016 the new regulations came in force that reduced the interest rates for the unsecured loans. In the segment of Group's operations the legislation has limited the maximum of interest and penalty charges at the level lower than previously. In 2016 second half year the Group plans to strengthen its market leadership and improve the branch network. Operational data and trends suggest that turnover and profit figures will be better in the second half of 2016 than the first half of year of 2016. The Company plans to finish the year with a result lower than results for the year 2015.

Agris Evertovskis Chairman of the Board Kristaps Bergmanis Member of the Board Didzis Ādmīdiņš Member of the Board

Profit or loss account for the half year ended 30 June 2016

	01.01.2016.- 30.06.2016. EUR	01.01.2015.- 30.06.2015. EUR
Net sales	2 398 301	4 064 765
Cost of sales	(1 998 605)	(3 108 772)
Interest income and similar income	4 554 603	4 868 028
Interest expenses and similar expenses	(600 913)	(599 278)
Gross profit	4 353 386	5 224 743
Selling expenses	(2 348 605)	(2 803 681)
Administrative expenses	(1 039 412)	(1 070 880)
Other operating income	389 274	349 739
Other operating expenses	(935 954)	(401 774)
Profit before taxes	418 689	1 298 147
Corporate income tax for the reporting year Deferred tax	(83 960)	(285 914)
Current year's profit	334 729	1 012 233
Earnings per share	0.78	2.37

Notes on pages from 11 to 22 are integral part of these financial statements.

Agris Evertovskis Chairman of the Board Kristaps Bergmanis Member of the Board Didzis Ādmīdiņš Member of the Board

Balance sheet as at 30 June 2016

	Notes	30.06.2016.	31.12.2015.
Assets		EUR	EUR
Long term investments
Fixed assets and intangible assets	1	526 962	643 796
Loans and receivables	4	1 441 586	545 068
Loans to shareholders and
management	2	898 832	875 267
Participating interest in subsidiaries		-	-
Deferred tax asset		143 605	143 605
Total long-term investments:		3 010 985	2 207 736
Current assets
Finished goods and goods for sale	3	1 708 918	1 138 410
Loans and receivables	4	7 762 198	6 455 956
Receivables from affiliated
companies		236 026	105 855
Other debtors		160 374	297 436
Deferred expenses		37 600	35 163
Cash and bank		690 341	493 591
Total current assets:		10 595 457	8 526 411
Total assets		13 606 442	10 734 147
Liabilities Shareholders' funds: Share capital Prior years' retained earnings Current year's profit		426 861 1 900 168 334 729	426 861 387 704 1 512 464
Total shareholders' funds:		2 661 758	2 327 029
Creditors:
Long-term creditors:
Bonds issued	5	4 996 232	5 489 648
Other borrowings Total long-term creditors:	6	1 445 624 6 441 856	666 741 6 156 389
Short-term creditors:
Bonds issued	5	1 017 035	1 016 271
Other borrowings	6	2 868 801	384 846
Accounts payable to affiliated
companies		175	18 985
Trade creditors and accrued
liabilities Taxes and social insurance		616 817	681 271
Total short-term creditors:	7	- 4 502 828	149 356 2 250 729
Total liabilities and shareholders'
funds		13 606 442	10 734 147

Notes on pages from 11 to 22 are integral part of these financial statements.

Agris Evertovskis Chairman of the Board Kristaps Bergmanis Member of the Board Didzis Ādmīdiņš Member of the Board

Statement of changes in equity of the Group for the period from 1 January to 30 June 2016

	Share capital	Prior years' retained	Current year's profit	Total
	EUR	earnings EUR	EUR	EUR
As at 31 December 2014	426 861	295 703	1 401 563	2 124 127
Dividends paid	-	(1 309 562)	-	(1 309 562)
Profit transfer	-	1 401 563	(1 401 563)	-
Profit for the year	-		1 512 464	1 512 464
As at 31 December 2015	426 861	387 704	1 512 464	2 327 029
Dividends paid	-	-	-	-
Profit transfer	-	1 512 464	(1 512 464)	-
Profit for the year	-	-	334 729	334 729
As at 30 June 2016	426 861	1 900 168	334 729	2 661 758

Notes on pages from 11 to 22 are integral part of these financial statements.

Cash flow statement for the period from 1 January to 30 June 2016

	30.06.2016.	30.06.2015.
	EUR	EUR
Cash flow from operating activities
Profit before extraordinary items and taxes	418 689	1 298 147
Adjustments for:
a) fixed assets depreciation
	98 615	121 407
b) accruals and provisions (except for
provisions for bad debts)	65 173	100 154
c) write-off of provisions	(78 452)	-
d) cessation results	1 451 394	(29 560)
e) interest income	(4 389 399)	(4 868 028)
f) interest and similar expense
	600 913	585 183
g)( profit)/ loss on fixed assets disposal	-	(1 347)
h) other adjustments	-	290 418
Loss before adjustments of working
capital and short-term liabilities	(1 833 067)	(2 503 626)
Adjustments for:
a) (increase)/ decrease in consumer
loans issued (core business) and other	(2 065 698)	83 738
debtors
b) stock increase	(675 365)	(618 533)
c) trade creditors' (decrease)/ increase	(32 580)	578 156
Gross cash flow from operating activities	(4 606 710)	(2 460 265)
Corporate income tax payments	(151 206)	(153 494)
Interest income	4 336 633	4 742 385
Interest paid*	(601 040)	(540 235)
Net cash flow from operating activities	(1 022 323)	1 588 391
Cash flow from investing activities
Acquisition of affiliated or associated
companies shares or parts	-	(310 852)
Acquisition of fixed assets and intangibles	(67 175)	(480 995)
Proceeds from sales of fixed assets and
intangibles	65	5 843
Loans issued/repaid (other than core
business of the Company) (net)	(1 969 886)	(531 387)
Net cash flow from investing activities	(2 036 996)	(1 317 391)
Cash flow from financing activities
Loans received and bonds issued (net)	2 235 866	-
Redemption of bonds	(500 000)	(500 000)
Loans repaid	911 278	182 900
Finance lease payments	(27 179)	(21 923)
Dividends paid	-	-
Net cash flow from financing activities	2 619 965	(339 023)
Net cash flow of the reporting year	(439 354)	(68 023)
Cash and cash equivalents at the
beginning of the reporting year	1 129 695	1 197 718
Cash and cash equivalents at the end of	690 341	1 129 695
reporting year

* Interest costs are included in the cash flow in coordination with the profit and loss account classification thus providing a more precise reflection of operating cash flow. Comparative figures have been accordingly reclassified.

Notes on pages from 11 to 22 are integral part of these financial statements.

Notes

Accounting policies

(a) Basis of preparation

These financial statements have been prepared based on the accounting policies and measurement principles as set out below.

These financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). The financial statements are prepared based on historic cost method. In cases when reclassification not affecting prior year profit and equity is made, the relevant explanations are provided in the notes to the financial statements.

The preparation of financial statements in accordance with IFRS requires the use of significant estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the information on contingent assets and liabilities at the balance sheet date and the revenues and costs for the reporting period. Although these estimates are based on the information available to the management regarding the current events and actions, the actual results may differ from the estimates used. Critical assumptions and judgements are described in the relevant sections of the Notes to the financial statements.

The following new and amended IFRS and interpretations come into force in 2015, but do not apply to the Company's operations and have no impact on these financial statements:

Amendments to IAS 19 "Employee benefits plans" regarding defined benefit plans (effective for annual periods beginning on or after 1 July 2014, endorsed by EU for annual periods beginning on or after 1 February 2015).

Annual improvements 2012 (effective for annual periods beginning on or after 1 July 2014, by EU for annual periods beginning on or after 1 February 2015). These amendments include changes that affect 6 standards:

• IFRS 2 "Share-based payment"
• IFRS 3 "Business Combinations"
• IFRS 8 "Operating segments"
• IAS 16 "Property, plant and equipment" and IAS 38 "Intangible assets"
• IAS 24 "Related party disclosures"

Annual improvements 2013 (effective for annual periods beginning on or after 1 July 2014, endorsed by EU for annual periods beginning on or after 1 January 2015). The amendments include changes that affect 3 standards:

• IFRS 3 "Business combinations"
• IFRS 13 "Fair value measurement" and

• IAS 40 "Investment property"

A number of new standards and interpretations have been published and come into force on financial periods beginning on or after 1 January 2016, and do not relate to the Company's operations or are not endorsed by the European Union:

IFRS 14 "Regulatory deferral accounts" (effective for annual periods beginning on or after 1 January 2016, not yet endorsed in the EU)

Amendment to IFRS 11 "Joint arrangements" on acquisition of an interest in a joint operation (effective for annual periods beginning on or after 1 January 2016, not yet endorsed in the EU)

Amendments to IAS 16 "Property, plant and equipment" and IAS 41 "Agriculture" regarding bearer plants (effective for annual periods beginning on or after 1 January 2016, not yet endorsed in the EU)

Amendment to IAS 16 "Property, plant and equipment" and IAS 38 "Intangible assets" on depreciation and amortisation (effective for annual periods beginning on or after 1 January 2016, not yet endorsed in the EU)

Amendments to IAS 27 "Separate financial statements" on the equity method (effective for annual periods beginning on or after 1 January 2016, not yet endorsed in the EU)

Amendments to IFRS 10 "Consolidated financial statements" and IAS 28 "Investments in associates and joint ventures" (effective for annual periods beginning on or after 1 January 2016, not yet endorsed in the EU)

Amendments to IAS 1 "Presentation of financial statements" regarding disclosure initiative effective for annual periods beginning on or after 1 January 2016, not yet endorsed in the EU)

Annual improvements 2014 (effective for annual periods beginning on or after 1 January 2016, not yet endorsed in the EU). The amendments include changes that affect 4 standards:

• IFRS 5 "Non-current assets held for sale and discontinued operations"

• IFRS 7 "Financial instruments: Disclosures" with consequential amendments to IFRS 1
• IAS 19 "Employee benefits"
• IAS 34 "Interim financial reporting"

IFRS 15 "Revenue from contracts with customers" (effective for annual periods beginning on or after 1 January 2018, not yet endorsed in the EU)

IFRS 9 "Financial instruments" (effective for annual periods beginning on or after 1 January 2018, not yet endorsed in the EU)

There are no other new or revised standards or interpretations that are not yet effective that would be expected to have a material impact on the Company.

Notes (continued)

Accounting policies (continued)

(b) Accounting principles applied

The items in the financial statements have been measured based on the following accounting principles:

• a) It is assumed that the company will continue as a going concern;
• b) The measurement methods applied in the previous reporting year have been used;
• c) The measurement of the items has been performed prudently meeting the following criteria:
  • Only profits accruing up to the balance sheet date have been included in the report;
  • All possible contingencies and losses arising in the reporting year or the previous year have been recognised, even if they became known in the period between the balance sheet date and the issuance of the annual report;
  • All impairment and depreciation charges have been calculated and recognised irrespectively of whether the company has operated profitably or not during the reporting year;
• d) All income and expenses relating to the accounting year irrespective of the date of the payments made or the dates of receipt or payment of invoices have been recognised. Revenues are matched with expenses in the reporting year.
• e) Assets and liabilities are presented at their gross amounts;
• f) The opening balances of the reporting period reconcile with the closing balances of the previous reporting period;
• g) All items which may materially affect the assessment or decision-making of the users of the financial statements are presented, immaterial items have been aggregated and their breakdown is presented in the Notes;
• h) Business transactions are presented based on their economic substance rather than their legal form.

Asset and liability recognition is performed on historical cost basis. All financial assets and liabilities are classified as held to maturity or loans and receivables.

(c) Consolidation principles

The consolidated financial statements have been prepared under the cost method. The companies included in the consolidation are the Group's parent company and the subsidiaries in which the Group's parent company holds, directly or indirectly, more than a half of the voting rights, or the right to control their financial and operating policies is acquired otherwise. Where the Group owns more than a half of the share capital of another company without controlling the company, the respective company is not consolidated. The subsidiaries of the Group are consolidated from the moment the Group has taken over control, and the consolidation is terminated when the control cease to exist. Where the date of the share purchase agreement or the date of the decision of shareholders on making further investments is fundamentally different from the date of on which share ownership changes or the registration date as recorded in the Register) of Enterprises, the date of agreement shall be considered the date of the share purchase or the date of the investment, unless the agreement provides otherwise. The Group's all inter-company transactions and balances and unrealised profit on transactions between group companies are eliminated; unrealised losses are eliminated as well, except for the cases when the expenses are not recoverable. Where necessary, the accounting and measurement methods applied by the Group's subsidiaries have been changed to bring them in compliance with the Group's accounting and measurement methods.

In these statements the minority interest in the share capital of the Group's consolidated subsidiaries and their income statement have been presented separately.

(d) Recognition of revenue and expenses

- Net sales

Net revenue represents the total value of goods sold and services provided during the year net of value added tax.

- Interest income

The Company presents interest income in the section of the Profit and loss account prior to calculation of gross profit, as this income is related to the basic activities of the Company – charging interest for loans issued in return to pledge held as security or loans issued on other conditions. Interest income is recognised using accruals principle. Interest income is not recognised from the moment the recoverability of principal is considered doubtful. Penalty interest is recognised on a cash basis.

- Other income

Other income is recognised based on accruals principle.

- Penalties and similar income

Of collection exists, is recognised based on cash principle.

- Expenses

Expenses are recognised based on accruals principle in the period of origination, irrespective of the moment of payment. Expenses related to financing of loans is recognised in the period of liability origination and included in the profit and loss items "Interest and similar expenses".

(e) Foreign currency translation

(e1) Functional and presentation currency

Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The financial statement items are denominated in euro (EUR), which is the Company's functional and presentation currency.

(e2) Transactions and balances

All transactions in foreign currencies are translated into the functional currency using the exchange rates at the date of the respective transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement of the respective period. At the balance sheet date the rates set by the Bank of Latvia were:

30.06.2016. 31.12.2015.

1.08870 -

	EUR	EUR
1 USD	1.11020
1 GBP	0.82650	-

Notes (continued)

Accounting policies (continued)

(f) Financial instruments – key measurement terms

Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm's length transaction. Fair values of financial assets or liabilities, including derivative financial instruments in active markets are based on quoted market prices. If the market for a financial asset or liability is not active (and for unlisted securities) the Group establishes fair value by using valuation techniques. These include the use of discounted cash flow analysis, option pricing models and recent comparative transactions as appropriate and may require the application of management's judgement and estimates. Where, in the opinion of the Management, the fair values of financial assets and liabilities differ materially from their book values such fair values are separately disclosed in the notes to the accounts.

Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents (including employees acting as selling agents), advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs.

Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments plus accrued interest and for financial assets less any write-down for incurred impairment losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method. Accrued interest income and accrued interest expense including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any) are not presented separately and are included in the carrying values of related items on the balance sheet.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

(g) Offsetting of financial assets and liabilities

Financial assets and liabilities are offset and net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.

(h) Intangible assets and fixed assets

All intangible assets and fixed assets are initially measured at cost. Intangible assets and fixed assets are recorded at historic cost net of depreciation and permanent diminution in value. Depreciation or amortisation is calculated on a straight-line basis to write down each asset to its estimated residual value over its estimated useful life as follows:

	years
Buildings	20
Constructions	5
Intangibles	3 - 5
Other fixed assets	3 - 5
Low value inventory (worth over 71 EUR)	3

The residual values, remaining useful lives and methods of depreciation are reviewed and, if required, adjusted annually. Fixed asset and intangibles recognition is terminated in case of its liquidation or when no future benefits are expected in connection with the utilisation of the respective asset. Any profit or loss connected with the termination of recognition (calculated as difference between the disposal gains and net book value as at the moment of derecognition), is recognised in the profit or loss account in the period when derecognition occurs. Leasehold improvements are written down on a straight-line basis over the shorter of the estimated useful life of the leasehold improvement and the term of the lease. Current repairs and maintenance costs are charged to profit and loss account in the period when the respective costs are incurred.

Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the net fair value of share of equity acquired. The recognised goodwill is reassessed at least on an annual basis to make sure no permanent diminution in value has occurred. In case such diminution in value is identified, the diminution in value is recognised in the income statement of the respective year.

(i) Investments in the associated companies

In the financial statements the investments in associated companies are carried at equity method. Under this method the value of the investment at the balance sheet date comprises the value of the equity of the associated company corresponding to the share of investment and the book value of the positive goodwill arising at the acquisition of the investment.

At the year-end the amount of the reported item is increased or decreased by reference to the Company's share in the profit or loss of the associated company during the year (in the post-acquisition period), or other changes in equity, as well as by the reduction of the goodwill arising at acquisition to its recoverable amount. Unrealised profit on inter-company transactions is excluded. Profit distribution is presented in the year following the reporting year in which the shareholders adopt a decision on profit distribution.

Notes (continued)

Accounting policies (continued)

(j) Impairment of assets

Intangible assets which are not put into operation or which do not have a useful life are not amortised; their value is reviewed annually. The value of the assets subject to depreciation or amortisation is reviewed whenever any events or circumstances support that their carrying value may not be recoverable. Impairment losses are recognised in the amount representing the difference between the carrying value of the asset and its recoverable value. Recoverable amount is the higher of the respective asset's fair value less the costs to sell and the value in use. In order to determine impairment, assets are grouped based on the smallest group of assets that independently generates cash flow (cash generating units).

(k) Segments

A geographical segment provides products or services within a particular economic environment that is subject to other economic environments characterized by different risks and benefits. A business segment is a share of assets and operations, providing products and services that are subject to other business segments of different risks and benefits.

(l) Inventories

Inventories are stated at the lower of cost or market price. Inventories are measured using the weighted FIFO method. The Company assesses at each balance sheet date whether there is objective evidence that inventories are impaired and makes provisions for slowmoving or damaged inventories. Inventories loss is recognised in the period such loss is identified, writing off the relevant inventory values to the period profit and loss account.

(m) Seized assets

Collateral is repossessed following the foreclosure on loans that are in default. Seized assets are measured at the lower of cost or net realisable value and reported within "Inventories".

(n) Trade and other receivables

Accounts receivable comprise loans and other receivables (other debtors, advances and deposits) that are non-derivative financial assets with fixed or determinable payments. Loans are carried at amortised cost where cost is defined as the fair value of cash consideration given to originate those loans. All loans and receivables are recognised when cash is advanced to borrowers and derecognised on repayments. The Company has granted consumer loans to customers throughout its market area. The economic condition of the market area may have an impact on the borrowers' ability to repay their debts. Restructured loans are no longer considered to be past due unless the loan is past due according to the renegotiated terms.

From October 2015 SIA "ExpressCredit" has started issuance of pledged loans (except pledges in the form of golden and silver articles) with new lending conditions, that assume 10% commission in case of loan default and subsequent sale of the pledge, i.e., the revenues received by SIA "ExpressCredit" from the sale of the pledge, decreased by the VAT portion. The pledges are made available for sale after 30 days of default, however, they continue to hold the status of the pledge and the loan recipient has the rights to buy out the pledge before the sale. In the financial statements these pledges are classified as loans issued. In case a surplus originates upon a sale of the pledge and the related costs (loan issued, interest and penalties accrued, intermediary and holding commissions), the surplus is recognised as the liability of the company to the loan recipient. The liability expires, if the loan recipient does not claim the amount due within the 10 year term as defined in Article 1895 of the Civil Code. If the loan recipient has not claimed the surplus within the legally defined time limits, SIA "ExpressCredit" recognises the income. Such income is outside VAT legislation and is not VAT taxable.

The Company assesses at each balance sheet date whether there is objective evidence that loans are impaired. If any such evidence exists, the amount of the allowances for loan impairment is assessed as the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows including amounts recoverable from collateral discounted at the original effective interest rate. The assessment of the evidence for impairment and the determination of the amount of allowances for impairment or its reversal requires the application of management's judgement and estimates. Management's judgements and estimates consider relevant factors including but not limited to, the identification of non-performing loans (loan repayment schedule compliance), the estimated value of collateral (if taken) as well as other relevant factors affecting loan and recoverability and collateral values. These judgements and estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become known. The Management of the Company have made their best estimates of losses based on objective evidence of impairment and believe those estimates presented in the financial statements are reasonable in light of available information.

When loans cannot be recovered they are written off and charged against allowances for loan impairment losses. They are not written off until all the necessary legal procedures have been completed and the amount of the loss is finally determined.

The provision in the allowance account is reversed if the estimated recovery value exceeds the carrying amount.

Notes (continued)

Accounting policies (continued)

(n) Trade and other receivables (continued)

In accordance with the provisioning policy developed by the Company (for non-secured consumer loans with the term of repayment up to 2 years) provisions are made based on the payment delay analysis at following rates:

Days of delay	Provision made
0	0.3%
1-15	6%
16-30	18%
31-60	32%
61-90	42%
91-180	47%
181-360	67%
360-720	92%
721+	100%

Provisions for interest income debts is made in accordance with the policies set by the management of the Company. In accordance with the provisioning policy the Company calculates the provision required based on prior experience of loan volumes that turn out to be doubtful and the statistics of recoverability of such debts. The provision for interest accrued is made in accordance with the provisioning policies set by the management making sure that cash flows from interest receivable are excluded from cash flows used as the basis for principal recoverability testing.

The recoverability of other debtors, advances and deposits paid is valued on individual basis if there are any indications of net book value of the asset exceeding its recoverable amount.

(o) Finance lease

Where the property, plant and equipment are acquired under a finance lease arrangement and the Company takes over the related risks and rewards, the property, plant and equipment items are measured at the value at which they could be purchased for an immediate payment. Leasing interest is charged to the profit and loss in the period in which it arises.

(p) Operating leases

Company is a lessor

The type of lease in which the lessor retains a significant part of the risks and rewards pertaining to ownership, is classified as operating lease. Lease payments and prepayments for a lease (net of any financial incentives received from the lessor) are charged to the profit and loss under a straight-line method over the lease term.

(q) Taxes

The corporate income tax expense is included in the financial statements based on the management's calculations made in accordance with the requirements of Latvian tax legislation. Deferred tax is provided for using liability method on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The principal temporary differences arise from depreciation of property, plant and equipment at different rates and tax losses carried forward to the future taxation periods. Deferred tax assets are recognised only to the extent that recovery is probable.

(r) Provisions for unused annual leave

The amount of provision for unused annual leave is determined by multiplying the average daily pay of employees during the last 6 months by the number of accrued but unused annual leave days the end of the reporting year. The company separates the vacation provisions paid out till the date of annual report preparation and treats them as CIT deductible in the reporting period.

(s) Borrowings

Initially borrowings are recognised at the proceeds received net of transaction costs incurred. In subsequent periods, borrowings are stated at amortised cost which is determined using the effective interest method. The difference between the proceeds received, net of transaction costs and the redemption value of the borrowing is gradually recognized in the profit and loss account over the term of the borrowing.

(t) Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, balances of current accounts with banks and short-term deposits with a maturity term of up to 90 days.

(u) Payment of dividends

Dividends due to the shareholders are recognized in the financial statements as a liability in the period in which the shareholders approve the disbursement of dividends.

Notes (continued)

Accounting policies (continued)

(v) Financial risk management

(v1) Financial risk factors

The activities of the Company expose it to different financial risks:

(u1.1) foreign currency risk;

(u1.2) credit risk;

(u1.3) operational risk;

(u1.4) market risk;

(u1.5) liquidity risk;

(u1.6) cash flow and interest rate risk.

The Company's overall risk management is focused on the uncertainty of financial markets and aims to reduce its adverse effects on the Company's financial indicators. The Finance Director is responsible for risk management. The Finance Director identifies, assesses and seeks to find solutions to avoid financial risks acting in close cooperation with other structural units of the Company.

(v1.1) Foreign exchange risk

The Company operates mainly in the local market and its exposure to foreign exchange risk is low. With the current income-expense structure additional monitoring procedures for currency risk monitoring are not deemed necessary. No further risk prevention mechanisms are used on the account that the overall currency risk has been assessed as low.

(v1.2) Credit risk

The Company has a credit risk concentration based on its operational specifics – issuance of loans against pledge, as well as issuance of non-secured loans that is connected with an increased risk of asset recoverability. The risk may result in short-term liquidity problems and issues related to timely coverage of short-term liabilities. The Company's policies are developed in order to ensure maximum control procedures in the process of loan issuance, timely identification of bad and doubtful debts and adequate provisioning for potential loss.

(v1.3) Operational risk

Operational risk is a loss risk due to external factors namely (natural disasters, crimes, etc.) or internal ones (IT system crash, fraud, violation of laws or internal regulations, insufficient internal control). Operation of the Company carries a certain operational risk which can be managed using several methods including methods to identify, analyse, report and reduce the operational risk. Also self-assessment of the operational risk is carried out as well as systematic approval of new products is provided to ensure the compliance of the products and processes with the risk environment of the activity.

(v1.4) Market risk

The Company is exposed to market risks, basically related to the fluctuations of interest rates between the loans granted and funding received, as well as demand for the Company's services fluctuations. The Company attempts to limit market risks, adequately planning the expected cash flows, diversifying the product range and fixing funding resource interest rates.

(v1.5)Liquidity risk

The Company complies with the prudence principle in the management of its liquidity risk and maintains sufficient funds. The management of the Company has an oversight responsibility of the liquidity reserves and make current forecasts based on anticipated cash flows. Most of the Company's liabilities are short-term liabilities. The management is of the opinion that the Company will be able to secure sufficient liquidity by its operating activities, however, if required, the management of the Company is certain of financial support to be available from the owners of the Company.

(v1.6) Cash flow interest rate risk

As the Company has borrowings and finance lease obligations, the Company's cash flows related to financing costs to some extent depend on the changes in market rates of interest. The Company's interest payment related cash flows depend on the current market rates of interest. The risk of fluctuating interest rates is partly averted by the fact that a number of loans received have fixed interest rates set. Additional risk minimization measures are not taken because the available bank products do not provide an effective control of risks.

(v2) Accounting for derivative financial instruments

The Company does not actively use derivative financial instruments in its operations. Derivative financial instruments are initially recognized at fair value on the date of the contract, and are thereafter measured at fair value at the balance sheet date. Derivative financial instruments are carried as assets if their fair value is positive and as liabilities if fair value is negative. Any gains or losses arising due to the changes in the fair value of the derivative financial instrument are not classified hedges and are recognized directly in the profit and loss.

(v3) Fair value

The carrying value of financial assets and liabilities approximates their fair value. See also note (e).

Notes (continued)

Accounting policies (continued)

(v) Financial risk management (continued)

(v4) Management of the capital structure

In order to ensure the continuation of the Company's activities, while maximizing the return to stakeholders capital management, optimization of the debt and equity balance is performed. The Company's capital structure consists of borrowings from related persons, third party loans and loans from credit institutions and finance lease liabilities, cash and equity, comprising issued share capital, retained earnings and share premium. At year-end the ratios were as follows:

	Group	Group
	30.06.2016. EUR	31.12.2015. EUR
Loan and lease liabilities	10 295 993	7 557 506
Cash and bank	(690 341)	(493 591)
Net debts	9 605 652	7 063 915
Equity	2 661 758	2 327 029
Liabilities / equity ratio	3.87	3.25
Net liabilities / equity ratio	3.61	3.04

(w) Significant assumptions and estimates

The preparation of financial statements in accordance with International Financial Reporting Standards as adopted by the EU and Latvian law requires the management to rely on estimates and assumptions that affect the reported amounts of assets and liabilities and offbalance sheet assets and liabilities at the date of financial statements, as well as the revenues and expenses reporting in the reporting period. Actual results may differ from these estimates.

The following judgements and key assumptions concerning the future are critical, and other causes of inaccuracies in the calculations as at the date of financial statements, with a significant risk of causing a material change in the balance sheet value of assets and liabilities within the next financial year:

• The Company review the useful lives of its fixed assets at the end of each reporting period. The management makes estimates and uses assumptions with respect to the useful lives of fixed assets. These assumptions may change and the calculations may therefore change.
• The Company review the value of its fixed assets and intangible assets whenever any events or circumstances support that the carrying value may not be recoverable. Impairment loss is recognised in the amount equalling the difference between the carrying value of the asset and its recoverable value. Recoverable amount is the higher of an asset's fair value less the costs to sell and the value in use. The Company is of the view that considering the anticipated volumes of services no material adjustments due to impairment are required the asset values.
• In measuring inventories the management relies on its expertise, past experience, background information, and potential assumptions and possible future circumstances. In assessing the impairment of the value of inventories consideration is given to the possibility to sell the item of inventories and the net realisable value.
• The Company's management, based on estimates, makes provisions for the impairment of the value of receivables. The Company's management is of the opinion that the provisions for receivables presented in the financial statements accurately reflect the expected cash flows from these receivables and that these estimates have been made based on the best available information.
• The Company is composed with caution savings potential future payment obligations in cases where disputes the validity of such legal obligation, or there are legal disputes about the amount of such liabilities.

(x) Related parties

Related parties include the shareholders, members of the Board of the parent company of the Company, their close family members and companies in which the said persons have control or significant influence.

(y) Subsequent events

Post-period-end events that provide additional information about the Company's position at the balance sheet date (adjusting events) are reflected in the financial statements. Post-period-end events that are not adjusting events are disclosed in the notes when material.

(z) Contingencies

Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the financial statements but disclosed when an inflow of economic benefits is probable.

(aa) Earnings per share

Earnings per share are calculated by dividing the net profit or loss for the year attributable to the shareholders with the weighted-average number of shares outstanding during the year.

Notes (continued)

(1) Intangible and fixed assets of the Group

	Concessions, patents, trademarks and	Other fixed assets and inventory	Advances	Goodwill	Leasehold improvements	Total
	similar rights EUR	EUR	EUR	EUR	EUR	EUR
Cost
31.12.2015.	33 902	905 693	46 858	127 616	325 971	1 440 040
Additions	3 966	35 042	17 627		10 540	67 175
Disposals		(3 588)	-	(63 655)	-	(67 243)
30.06.2016.	37 868	937 147	64 485	63 961	336 511	1 436 972
Depreciation
31.12.2015	14 188	549 506	-	-	232 550	796 244
Charge for 2015	4 534	98 265	-	-	16 588	119 387
Disposals		(2 621)	-	-	-	(2 621)
30.06.2016.	18 722	645 150	-	-	249 138	913 010
Net book value
30.06.2016.	19 146	291 997	64 485	63 961	87 373	526 962
Net book value
31.12.2015	19 714	356 187	46 858	127 616	93 421	643 796

As at 30 June 2016 the residual value of the fixed assets acquired under the terms of financial lease was 195 234 euro (31.12.2015: 179 293 euro). The ownership of those fixed assets will be transferred to the Group only after settlement of all lease liabilities.

(2) The Group's loans to shareholders and management

	Loans to members EUR
Cost
31.12.2015.	875 267
Loans issued	246 265
Loan interest calculated	12 565
Loans repaid	(235 265)
30.06.2016.	898 832
Net book value as at 30.06.2016.	898 832
Net book value as at 31.12.2015.	875 267

Interest on borrowing is 2,91% per annum (calculated by Republic of Latvia Central Statistic weighted average interest rate) The loan maturity - 31 December 2017 (including the loan principal amount and accrued interest). The Company's management has assessed the recoverability of the loans and is convinced that a provision is not necessary. All loans are denominated in euro.

Notes (continued)

(3) Stock of the Parent company and the Group	30.06.2016. EUR	31.12.2015. EUR
Goods for sale and pledges taken over	1 669 891	1 155 443
Gold scrap	348 804	297 156
Gross value of stock Total	(309 777) 1 708 918	(314 189) 1 138 410
Provision for obsolete stock
	30.06.2016	31.12.2015
	EUR	EUR
Provisions for obsolete stock at the beginning of the year	314 189	162 451
Written-off	(142 310)	(635 893)
Additional provisions	137 898	787 631
Provisions for obsolete stock at the end of the year	309 777	314 189
(4) Loans and receivables
	30.06.2016.	31.12.2015.
	EUR	EUR
Long-term loans and receivables
Debtors for loans issued against pledge	98 563	156 022
Debtors for loans issued without pledge	1 343 023	389 046
Long-term loans and receivables, total	1 441 586	545 068
Short-term loans and receivables
Debtors for loans issued against pledge Debtors for loans issued without pledge	1 836 251 5 901 516	2 535 083 4 120 862
Interest accrued	445 378	510 551
Provisions for bad and doubtful trade debtors	(420 947)	(710 540)
Short-term loans and receivables, total	7 762 198	6 455 956

All loans are issued in euro.

Long term receivables for the loans issued don't exceed 5 years.

In 30 June 2016 were concluded contracts with SIA "ExpressInkasso" about cession of bad receivable amounts. The carrying value of the claim amount – EUR 1 202 890, the amount of compensation according to the independent evaluators' assessment – EUR 360 868. Loss from impairment of the issued loans within the Group were recognised in the current period. As at 14 June 2016 the subsidiary company SIA "ExpressInkasso" signed a contract with a third party for the bad receivable amounts cession. The carrying value of the claim in the subsidiary's balance sheet - EUR 235 827, the amount of compensation – EUR 231 698. Losses from this transactions were recognised in the current period.

The claims in amount of EUR 1 934 814 are secured by the value of the collateral. Claims against debtors for loans issued against pledge is secured by pledges, whose fair value is about 1.5 times higher than the carrying value, therefore provisions for overdue loans are not made. All pledges, for which loan payments are delayed, becomes the Group's property and are realized in the Group's stores.

Notes (continued)

(5) Bonds issued
	30.06.2016.	31.12.2015.
	EUR	EUR
Bonds issued	5 000 000	5 500 000
Bonds commission	(3 768)	(10 352)
Total long-term part of bonds issued	4 996 232	5 489 648
Bonds issued	1 000 000	1 000 000
Bonds commission	(14 839)	(18 182)
Interest accrued	31 874	34 453
Total short-term part of bonds issued	1 017 035	1 016 271
Bonds issued, total	6 000 000	6 500 000
Interest accrued, total	31 874	34 453
Bonds commission, total	(18 607)	(28 534)
Bonds issued net	6 013 267	6 505 919

As at the date of signing of the annual report the Parent company of the Group has registered secured bonds (ISIN LV0000801280) with the Latvia Central Depository on the following terms – number of financial instruments 5 000 with the nominal value of 500 euro, with the total nominal value of 2 500 000 euro. Coupon rate - 14%, coupon is paid once a month on the 25th date. The principal amount is repaid once in a quarter in the amount of 50 euro per bond. The maturity of the bonds – 25 November 2018. On 28 March 2014 the public quotation of the bonds with NASDAQ OMX Riga Baltic Securities list was started.

As at the date of signing of the annual report the Parent company of the Group has registered secured bonds (ISIN LV0000801322) with the Latvia Central Depository on the following terms – number of financial instruments 3 500 with the nominal value of 1000 euro, with the total nominal value of 3 500 000 euro. Coupon rate - 15%, coupon is paid once a month on the 25th date. The principal amount is to be repaid once in a quarter in the amount of 125 euro per bond starting 25 March 2019. The maturity of the bonds – 25 December 2020. On 14 April 2014 the public quotation of the bonds with NASDAQ OMX Riga Baltic Securities list was started.

The bonds are secured by the commercial pledge of the total assets and shares of the Group, as well as future components of these assets. The bonds are also secured by the financial pledge of the cash assets and financial instruments (if existent) of the Group held at AS "Reģionālā investīciju banka". The bond holders have the rights to recover their assets proportionately to their share of investment in case of pledge realisation if the parent company has breached the conditions of coupon payment or principal repayment.

The following pledge agreements with the total pledge value of EUR 6 million are concluded. The secured amount of each pledge – in the total value of the pledge amount:

• with the Parent company on 100% shares of SIA "EkspressInkasso";
• with a subsidiary SIA "EkspressInkasso" on aggregate movable property and future components of these assets;
• with the Parent company on aggregate movable property and future components of these assets. Leased vehicles are excluded from the pledge listing.

(6) Other borrowings

	30.06.2016.	31.12.2015.
	EUR	EUR
Long-term finance lease	142 637	166 741
Other long-term loans	1 302 987	500 000
Total other long-term loans	1 445 624	666 741
Short-term finance lease	52 597	54 846
Other short-term loans	2 816 204	330 000
Total other short-term loans	2 868 801	384 846
Total other loans	4 314 425	1 051 587

The Parent company has acquired fixed assets on finance lease. As at 30 June 2016 the interest rate was set as 3 M Euribor + 3-3.50%, 6M Euribor + 3-4.5%.

The Parent company has received loans from private individuals and legal entities. The interest is charged from 2,91% to 15% per year.

Notes (continued)

(7) Group's taxes and social insurance payments

	VAT	Corporate income					Real estate	Business risk charge	Social insurance	Payroll tax	Vehicles tax	Natural resource	Total**
	EUR	tax EUR	tax* EUR	EUR	EUR	EUR	EUR	tax EUR	EUR
Liabilities
31.12.2015.	21 396	-104 941	0	101	100 489	131 098	3 532	14	151 689
Charge for
2016	81 422	83 960	269	666	590 409	331 439	6 698	0	1 094 863
Penalties
calculated
for 2016	87	122	0	0	478	1 791	0	0	2 478
Paid in 2016	-94 954	-158 364	-269	-674	-594 534	-413 106	-7 022	-14	-1 268 937
Liabilities/ (overpaid)
30.06.2016.	7 951	-179 223	0	93	96 842	51 222	3 208	0	-19 907

* Real estate tax payments are performed also for the leased premises in Riga, Gogoļa Street.

**The amount of overpaid taxes are included into position of balance sheet named – Other debtors.

(8) Related party transactions

In the annual report there are presented only those related parties with whom have been transactions the reporting year or in the comparative period.

Related party	Transactions in half year of 2016	Transactions in half year of 2015
Parent company's owners
"Lombards24.lv", SIA (previously "Express Holdings", SIA), reg.
No.40103718685	X	N/A
"AE Consulting", SIA, reg. No. 40003870736	X	X
"Ebility", SIA, reg. No. 40103720891	N/A	X
Companies and individuals under common control or significant influence
Agris Evertovskis, p.c. 081084-10631	X	X
Edgars Bilinskis, p.c. 310782-10537	N/A	X
"Dotcom Enterprises", AS, reg. No. 40103684497	N/A	X
Subsidiary
"ExpressInkasso", SIA, reg. No. 40103211998	X	X
"Banknote", SIA, reg. No. 40003040217	X	X
"EC finance", SIA, reg. No. 40103950614	X	N/A
Other related companies
"Naudasklubs" SIA, reg. No. 40103303597	X	X
"A.Kredīts" SIA, reg. No. 40103501494	X	X
"ExpressCreditEesti'' OU, reg. No. 12344733	X	X
"Tigo.lv" SIA , reg. No. 40103653497	N/A	X
"PH investīcijas", SIA, reg. No. 42103057909	X	X
Didzis Ādmīdiņš, p.c. 051084-11569	X	X

All the transactions have been performed at market rates.

	01.01.2016.-	01.01.2015.-
Group's transactions with:	30.06.2016. EUR	30.06.2015. EUR
Owners of the parent company Loans issued Loan repayment received Interest received Services received	246 265 246 265 11 807 1918	904 189 1 102 637 28 815 2 310
Companies and individuals under common control or significant influence Loans issued Loan repayment received Interest received	70 500 14 500 208	36 900 31 400 360

Notes (continued)

	01.01.2016.- 30.06.2016. EUR	01.01.2015.- 30.06.2015. EUR
Group's transactions with:
Other related companies
Loans repaid	16 550	-
Loans issued	74 050	799 220
Loan repayment received	4 580	38 265
Interest paid	79	-
Interest received	1 451	8 749
Services received	42 257	39 831
Services delivered	420	6 020
Goods sold	-	160

(9) Guarantees issued

As at 30 June 2016 the Parent company has issued guarantees to the owners of the Company and other related companies for the purchase of cars under the terms of financial lease. The total amount guaranteed as at 30.06.2016. – EUR 195 234

(10) Subsequent events

There are no subsequent events since the last date of the reporting year, which would have a significant effect on the financial position of the Company as at 30 June 2016