Exhibit 99.2

 

Moore Kazakhstan
3rd floor, Business Centre Centro D,
Kayym Mukhamedkhanova str. 5, Astana
T +7 7172 799904

E info@moore.kz

kazakhstan.moore-global.com

 

25 June 2024

 

Director of

Prime Source LLP

Eugene Sherbinin

 

Dear Mr. Sherbinin,

 

We hereby consent to the inclusion of our Auditors’ Reports, dated 13 May 2024 and 7 June 2023, on the combined financial statements of Prime Source LLP, Prime Source Innovation LLP, Prime Source Analytic Systems LLP, InFin IT Solution LLP and Digitalism LLP, companies registered under the laws of the Republic of Kazakhstan, which comprise the combined statements of financial position as at 31 December 2023 and 31 December 2022 respectively, the combined statements of profit or loss and other comprehensive income, the combined statements of cash flows of and the combined statements of changes in equity for the years then ended, and notes to the combined financial statements, including a summary of significant accounting policies, respectively, in Genius Group Ltd’s Form 6-K. We also consent to application of such reports to the financial information in the Report in Genius Group Ltd’s Form 6-K, when such financial information is read in conjunction with the combined financial statements referred to our reports.

 

Sincerely,

 

Serik Kozhikenov

Partner

 

An independent member firm of Moore Global Network

Limited – members in principal cities throughout the world

 

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Prime Source Group

 

Combined financial statements

 

for the year ended 31 December 2023

prepared in accordance with IFRSs

Almaty 2024

 

 

 

 

CONTENTS

 

Independent auditors’ report  
   
Combined financial statements  
   
Combined statement of profit or loss and other comprehensive income 1
Combined statement of financial position 2
Combined statement of cash flows 3
Combined statement of changes in equity 4

 

Notes to the combined financial statements and significant accounting policies  
     
1. General information 5
2. Basis of preparation 5
3. Revenues 7
4. Cost of sales 7
5. Administrative expenses 7
6. Other operating income and expenses 8
7. Finance income and costs 8
8. Income tax 8
9. Intangible assets 9
10. Property, plant and equipment 10
11. Advances paid and other current assets 10
12. Trade and other receivables 10
13. Cash 10
14. Equity 11
15. Leases 11
16. Borrowings 12
17. Other taxes payable 13
18. Trade and other payables 13
19. Contract liabilities 13
20. Reconciliation of profit before taxation to cash flows from operating activities 13
21. Financial instruments and financial risk management objectives and policies 14
22. Commitments and contingencies 16
23. Related party disclosures 17
24. Significant accounting policies 18
25. Events after the reporting period 22

 

 

 

 

Moore Kazakhstan

3rd floor, Business Centre Centro D,

Kayym Mukhamedkhanova str. 5, Astana

T +7 7172 799904

E info@moore.kz

kazakhstan.moore-global.com

 

INDEPENDENT AUDITORS’ REPORT

 

To: Owners of Prime Source Group

 

Opinion

 

We have audited the accompanying combined financial statements of Prime Source LLP, Prime Source Innovation LLP, Prime Source Analytic Systems LLP, InFin IT Solution LLP and Digitalism LLP, companies registered under the laws of the Republic of Kazakhstan (hereinafter – the “Prime Source Group”, or the “Group”), which comprise the combined statement of financial position as at 31 December 2023, the combined statement of profit or loss and other comprehensive income, the combined statement of cash flows of and the combined statement of changes in equity for the year then ended, and notes to the combined financial statements, including a summary of significant accounting policies.

 

In our opinion, the accompanying combined financial statements present fairly, in all material respects, the combined financial position of the Group as at 31 December 2023 and its combined financial performance and its combined cash flows for the year then ended in accordance with International Financial Reporting Standards (hereinafter – “IFRSs”).

 

Basis for Opinion

 

We conducted our audit in accordance with International Standards on Auditing (hereinafter – “ISAs”). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Combined Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (hereinafter – “IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code, together with the ethical requirements that are relevant to our audit of the financial statements in the Republic of Kazakhstan and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Emphasis of Matter – Basis of Preparation

 

We draw attention to note 2(d) of the combined financial statements, which describes their basis of preparation. Our opinion is not modified in respect of this matter.

 

Responsibilities of Management and Those Charged with Governance for the Combined Financial Statements

 

Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of combined financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the combined financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

 

Those charged with governance are responsible for overseeing the Group’s combined financial reporting process.

 

Auditors’ Responsibilities for the Audit of the Combined Financial Statements

 

Our objectives are to obtain reasonable assurance about whether the combined financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.

 

An independent member firm of Moore Global Network

Limited – members in principal cities throughout the world

 

Page 1 of 2

 

 

 

Auditors’ Responsibilities for the Audit of the Combined Financial Statements, continued

 

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these combined financial statements.

 

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

Identify and assess the risks of material misstatement of the combined financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

 

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the combined financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

 

Evaluate the overall presentation, structure and content of the combined financial statements, including the disclosures, and whether the combined financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the combined financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

Approve

 

Serik Kozhikenov

 

Chief Executive

 

Engagement partner

 

Certified Auditor

 

Republic of Kazakhstan

 

No. 0000557 dated 24 December 2003

 

13 May 2024

 

Moore Kazakhstan LLP

 

Nikolai Slavianinov

 

Concurrent engagement partner

 

Certified Public Accountant


USA Oregon

 

No. 10018 dated 20 August 2001

 

General licence No. 23023540 for audit activity issued 27 October 2023 by the Ministry of Finance of the Republic of Kazakhstan

 

Page 2 of 2

 

 

Prime Source Group

Combined statement of profit or loss and other comprehensive income

for the year ended 31 December 2023

 

KZT’000  Note  2023   2022 
Revenues  3   23,618,659    9,204,444 
Cost of sales  4   (19,925,686)   (7,191,034)
Gross profit      3,692,973    2,013,410 
Administrative expenses  5   (998,138)   (817,811)
Other operating income  6(a)   8,515    56,872 
Other operating expenses  6(b)   (6,975)   (33,266)
Impairment losses  12   (6,862)   (59,392)
Operating profit      2,689,513    1,159,813 
Finance income  7(a)   30,913    21,146 
Finance costs  7(b)   (187,386)   (142,396)
Foreign exchange loss      (17,196)   (50,153)
Profit before taxation      2,515,844    988,410 
Income tax expense  8(a)   (199,124)   (169,099)
Profit for the year      2,316,720    819,311 
Other comprehensive income for the year           
Total comprehensive income for the year      2,316,720    819,311 

 

These combined financial statements have been approved for issue on 13 May 2024 and signed on behalf of the Group’s management by:

 

Eugene Sherbinin

 

Director

 

Prime Source Group

 

Natalie Tahtova

 

Chief accountant

 

Prime Source Group

 

1

 

 

Prime Source Group

Combined statement of financial position

as at 31 December 2023

 

KZT’000  Note  2023   2022 
ASSETS             
Non-current assets             
Intangible assets  9   3,175,077    2,850,872 
Property, plant and equipment  10   24,732    38,742 
Right-of-use assets  15(a)   68,064    82,399 
Deferred tax asset  8(b)   32,253    111,603 
       3,300,126    3,083,616 
Current assets             
Advances paid and other current assets  11   1,615,502    1,005,817 
Corporate income tax prepaid      25,154     
Trade and other receivables  12   1,585,578    1,689,948 
Cash  13   3,130,106    343,376 
       6,356,340    3,039,141 
TOTAL ASSETS      9,656,466    6,122,757 
EQUITY AND LIABILITIES             
Equity             
Invested capital  14(a)   353,520    353,640 
Additional paid in capital  14(b)   54,206    54,206 
Retained earnings      4,541,968    2,225,248 
       4,949,694    2,633,094 
Non-current liabilities             
Lease liabilities  15(b)   42,836    69,138 
Deferred tax liability  8(b)   119,774     
       162,610    69,138 
Current liabilities             
Lease liabilities  15(b)   48,040    39,149 
Borrowings  16   1,772,791    1,207,316 
Other taxes payable  17   156,634    276,876 
Trade and other payables  18   1,571,229    799,311 
Contract liabilities  19   995,468    1,097,873 
       4,544,162    3,420,525 
TOTAL LIABILITIES      4,706,772    3,489,663 
TOTAL EQUITY AND LIABILITIES      9,656,466    6,122,757 

 

2

 

 

Prime Source Group

Combined statement of cash flows

for the year ended 31 December 2023

 

KZT’000  Note  2023   2022 
OPERATING ACTIVITIES             
Cash receipts from customers      25,372,559    15,057,031 
Cash paid to employees      (3,241,181)   (2,718,638)
Other taxes paid      (1,243,559)   (1,247,422)
Cash paid to suppliers      (17,600,221)   (11,686,108)
Cash flows from operations before interest and income tax paid  20   3,287,598    (595,137)
Interest paid  15(b),16   (151,756)   (111,378)
Income tax paid      (25,154)   (19,085)
Net cash from (used in) operating activities      3,110,688    (725,600)
              
INVESTING ACTIVITIES             
Investments into intangible assets  9   (840,867)   (866,882)
Purchases of property, plant and equipment  10   (8,693)   (26,192)
Loans repaid          28,225 
Interest received      30,913    6,428 
Net cash used in investing activities      (818,647)   (858,421)
              
FINANCING ACTIVITIES             
Contributions to charter capital  14(a)       352,975 
Proceeds from borrowings  16   3,791,745    2,561,900 
Repayment of borrowings  16   (3,261,900)   (1,997,250)
Lease payments  15(b)   (35,827)   (16,642)
Net cash from financing activities      494,018    900,983 
              
Net increase (decrease) in cash      2,786,059    (683,038)
Effect of exchange rate changes on cash      671    (7,931)
Cash at the beginning of the year      343,376    1,034,345 
Cash at the end of the year  13   3,130,106    343,376 

 

Non-cash transactions

 

KZT’000  Note  2023   2022 
Offset of loans issued against trade payables          453,405 
Recognition of discount on loans issued          252 
Recognition of lease assets and liabilities  15   18,416    34,335 
Recognition of discount on borrowings  16       47,940 

 

3

 

 

Prime Source Group

Combined statement of changes in equity

for the year ended 31 December 2023

 

KZT’000  Note  Invested capital   Additional paid in capital   Retained earnings   Total 
At 1 January 2022      665    15,854    1,405,937    1,422,456 
Profit for the year              819,311    819,311 
Discounting loans received from related party,
less income tax
  16,8(b)       38,352        38,352 
Contributions into charter capital  14(a)   352,975            352,975 
At 31 December 2022      353,640    54,206    2,225,248    2,633,094 
Profit for the year              2,316,720    2,316,720 
Amendment      (120)           (120)
At 31 December 2023      353,520    54,206    4,541,968    4,949,694 

 

4

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

1.General information

 

(a)Organisation and operation

 

Prime Source LLP, Prime Source Innovation LLP, Prime Source Analytic Systems LLP, InFin IT Solution LLP and Digitalism LLP (hereinafter – the “Group” or “Prime Source Group”) is a group of entities incorporated in Kazakhstan. Refer to note 14 for the list of all the Group’s entities. Their intermediate holding company is FB Prime Source Acquisition LLC a company incorporated in Delaware, USA. The ultimate parent undertaking is LZG International, Inc., a public company incorporated in Florida, USA which is traded on the OTCQB market.

 

The Group’s entities are registered and located at 22/5 Kazhymukan str., Almaty, 050059, Kazakhstan.

 

The Group deals in software development, implementation of technological solutions, management and IT consulting. The Group provides businesses with the latest innovations in robotisation and business process management, system integration, data management, risk management, analysis and forecasting. Based on its own R&D department, it implements unique projects for the Kazakhstan market in the following areas: big data, machine learning, artificial intelligence, blockchain.

 

As at 31 December 2023, the Group had 307 employees (2022: 473 employees).

 

(b)Kazakhstan business environment

 

The Group’s operations are primarily located in Kazakhstan. Consequently, the Group is exposed to country risk being the economic, political and social risks inherent in doing business in Kazakhstan. These risks include matters arising from the policies of the government, economic conditions, imposition or changes to taxes and regulations, foreign exchange fluctuations and the enforceability of contract rights.

 

The financial statements include management’s estimates of Kazakhstan economic conditions and their impact on the results and financial position of the Group. Actual economic conditions can differ from those estimates.

 

2.Basis of preparation

 

(a)Statement of compliance

 

These combined financial statements have been prepared in accordance with International Financial Reporting Standards (hereinafter – “IFRSs”) as issued by the International Accounting Standards Board (hereinafter – “IASB”) and interpretations issued by the International Financial Reporting Interpretations Committee (hereinafter – “IFRIC”) of the IASB.

 

(b)Going concern

 

These combined financial statements have been prepared on a going concern basis.

 

Management believes that the Group’s stable profitability and access to debt funding are sufficient to meet the Group’s anticipated cash flow requirements. After making appropriate enquiries, and having considered the outlook of product pricing, production levels, debt repayments and capital expenditure commitments and assessing reasonably possible adverse operational impacts such as lower prices, increased operational and capital expenditure costs, management has reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis of accounting in preparing the combined financial statements.

 

(c)Basis of accounting

 

The combined financial statements have been prepared on a historical cost basis.

 

(d)Basis of combination

 

The combined financial statements set out the Group’s financial position as at 31 December 2023 and the Group’s financial performance for the year ended 31 December 2023. The Group does not form a separate legal group of legal entities in all years presented. The Group’s entities are the enterprises under common control of FB Prime Source Acquisition LLC. Control exists when the Group has the power, directly or indirectly, to direct those activities of an enterprise that most significantly affect the returns the Group earns from its involvement with the enterprise.

 

5

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

2.Basis of preparation, continued

 

The financial statements of the Group’s entities are prepared for the same reporting year, using consistent accounting policies. All intercompany balances and transactions, including unrealised profits arising from intragroup transactions, have been eliminated in full. Unrealised losses are eliminated in the same way as unrealised gains except that they are only eliminated to the extent that there is no evidence of impairment.

 

(e)Functional and presentation currency

 

The national currency of the Republic of Kazakhstan is the Kazakhstan tenge (hereinafter – “tenge” or “KZT”), which is the functional currency of the Group’s entities and the currency in which these combined financial statements are presented. All financial information presented in tenge has been rounded to the nearest thousand (hereinafter – “KZT’000” or “KZT thousand”).

 

(f)Adoption of standards and interpretations

 

In preparing the financial statements, the Group has applied the following standards and amendments effective from 1 January 2023:

 

  IFRS 17 “Insurance Contracts”;
  Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12);
  International Tax Reform – Pillar Two Model Rules (Amendments to IAS 12);
  Definition of Accounting Estimates (Amendments to IAS 8);
  Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2).

 

The standards and amendments listed above did not have a material impact on the Group’s financial statements.

 

(g)New standards and interpretations not yet adopted

 

The Group has not early adopted new standards, interpretations or amendments that were issued but are not yet entered into force, and their requirements have not been considered when preparing the financial statements. These standards and interpretations are not expected to have a material impact on these financial statements.

 

(h)Use of estimates and judgments

 

The Group’s management has made a number of judgments, estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with IFRSs. Judgements are based on management’s best knowledge of the relevant facts and circumstances having regard to prior experience, but actual results may differ from the amounts included in the financial statements. Actual results may differ from those estimates.

 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

 

In particular, information about significant areas of estimation uncertainty and critical judgments made by management for preparation of these financial statements is described in the following notes below. However, management does not expect a significant risk of a material change to the carrying value of the assets and liabilities of the Group affected by these factors in the next 12 months, within a reasonably possible range, unless described otherwise.

 

  Note 3 – Revenues. Management made estimates in relation to revenue recognised over time by measuring the progress towards complete satisfaction of that performance obligation;
  Note 8 – Income tax. Management made estimates in relation to the level of taxes payable which may then be audited by the tax authorities and timing of realisation of temporary differences;
  Note 9 – Intangible assets. Estimates were made in relation to the useful lives of assets;
  Note 10 – Property, plant and equipment. Estimates were made in relation to the useful lives of assets;
  Note 11 – Advances paid and other current assets. Management made estimates in relation to recoverability of assets;
  Note 12 – Trade and other receivables. Management made estimates in relation to the allowance for expected credit losses;
  Note 15 – Leases. Estimates were made in determining the lease term of contracts with renewal option and incremental borrowing rates;
  Note 16 – Borrowings. Management made estimates in relation to fair value of borrowings based on market interest rates for loans;
  Note 21 – Financial risk management objectives and policies. Fair value analysis is based on estimated future cash flows and discount rates;
  Note 22 – Commitments and contingencies. These require management to make estimates as to amounts payable and to determine the likelihood of cash outflows in the future.

 

6

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

3.Revenues

 

KZT’000  2023   2022 
Revenues by products          
Development, implementation and maintenance of software   12,113,272    7,724,702 
Sale of licences purchased from third parties   11,505,387    1,479,742 
    23,618,659    9,204,444 
Timing of revenue recognition          
Over time   12,113,272    7,724,702 
At a point in time   11,505,387    1,479,742 
    23,618,659    9,204,444 
Contract assets and liabilities          
Contract assets   1,137,624    1,062,858 
Contract liabilities   (995,468)   (1,097,873)

 

The Group concludes with the customers fixed-priced contracts. All the Group’s customers are located in Kazakhstan and work mainly in finance sector. The Group recognises revenue from the satisfaction of the performance obligation within less than one year, except for KZT 13,632 thousand to be recognized in 2025.

 

4.Cost of sales

 

KZT’000  2023   2022 
Development, implementation and maintenance of software   8,800,728    5,962,589 
Cost of licences purchased from third parties   11,124,958    1,228,445 
    19,925,686    7,191,034 

 

Cost of sales comprises:

 

  Salaries and payroll taxes in the amount of KZT 2,857,354 thousand (2022: KZT 2,953,261 thousand);
  Depreciation and amortisation in the amount of KZT 520,751 thousand (2022: KZT 222,481 thousand).

 

5.Administrative expenses

 

KZT’000  2023   2022 
Salaries and payroll taxes   384,665    323,346 
Professional services   170,330    120,214 
Representation expenses   82,860    56,326 
Business travel   73,943    32,957 
Taxes and payments to the budget   52,010    102,056 
Depreciation and amortisation   44,581    14,986 
Levies and charges   38,986    6,755 
Rent   29,073    6,376 
Stationery   25,833    21,155 
Technical support and maintenance services   4,293    221 
Membership fee   2,557     
Postage and courier costs   1,135    1,264 
Subscriptions and software license   1,046    462 
Write-off of VAT not accepted for offset   120    19,414 
Other   86,706    112,279 
    998,138    817,811 
7

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

6.Other operating income and expenses

 

(a)Other operating income

 

KZT’000  2023   2022 
Assets received free of charge   7,170    15,116 
Payables written off   1,345    41,756 
    8,515    56,872 

 

(b)Other operating expenses

 

KZT’000  2023   2022 
Loss on disposal of property plant and equipment   6,956    18,436 
Receivables written off   19    14,830 
    6,975    33,266 

 

7.Finance income and costs

 

(a)Finance income

 

KZT’000  2023   2022 
Interest income   30,913    8,956 
Unwinding of discount on loans issued       12,190 
    30,913    21,146 

 

(b)Finance costs

 

KZT’000  2023   2022 
Interest expense on borrowings   157,465    99,532 
Unwinding of discount on interest-free loans from related party   16,685    31,255 
Interest expense on finance leases   13,236    11,357 
Recognition of discount on loans issued       252 
    187,386    142,396 

 

8.Income tax

 

(a)Income tax expense

 

The major components of income tax expense are as follows:

 

KZT’000  2023   2022 
Corporate income tax        
Origination and reversal of temporary differences   199,124    169,099 
Income tax expense   199,124    169,099 

 

A reconciliation of income tax expense applicable to accounting profit before tax at the statutory rate to income tax expense at the effective tax rate is as follows:

 

KZT’000  2023   2022 
Profit before taxation   2,515,844    988,410 
Income tax rate   20.0%   20.0%
At statutory income tax rate   503,169    197,682 
Tax relief within tax preferences   (763,899)   (198,822)
Unrecognised tax losses within tax preferences   420,068    95,040 
Non-deductible expenses   39,786    75,199 
Income tax expense   199,124    169,099 
Effective income tax rate   7.9%   17.1%

 

8

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

8.Income tax, continued

 

(b)Deferred tax liability

 

The amounts of deferred tax assets (liabilities) are as follows:

 

KZT’000  2023   2022 
Property, plant and equipment   (147,591)   (72,156)
Contract assets   21,094    8,681 
Lease assets and liabilities   4,410    5,166 
Trade and other receivables   26,256    22,206 
Borrowings       (3,337)
Trade and other payables   7,407    2,443 
Tax losses carried forward   903    148,600 
    (87,521)   111,603 
Deferred tax asset   32,253    111,603 
Deferred tax liability   (119,774)    
    (87,521)   111,603 

 

Movement in deferred tax (liability) asset is as follows:

 

KZT’000  2023   2022 
At 1 January   111,603    290,290 
Charged to profit or loss   (199,124)   (169,099)
Recognised in additional paid-in capital       (9,588)
At 31 December   (87,521)   111,603 

 

Some of the Group’s entities are registered in the territories of innovative technology parks, the participants of which have a number of tax preferences, including exemption from corporate income tax. In the reporting years, these entities reduced taxes and did not recognise assets and liabilities, exercising this right.

 

9.Intangible assets

 

KZT’000  2023   2022 
Cost          
At 1 January   3,477,226    2,610,344 
Additions   840,867    866,882 
At 31 December   4,318,093    3,477,226 
Amortisation          
At 1 January   626,354    433,334 
Amortisation charge   516,662    193,020 
At 31 December   1,143,016    626,354 
Net book value          
At 31 December   3,175,077    2,850,872 

 

The Group’s intangible assets represent software development for implementation of advanced technological solutions. The costs incurred during the development phase of the internal project were capitalised to the cost of the assets.

 

9

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

10.Property, plant and equipment

 

KZT’000  2023   2022 
Cost          
At 1 January   109,413    114,158 
Additions   8,693    26,192 
Disposals   (13,006)   (30,937)
At 31 December   105,100    109,413 
Depreciation          
At 1 January   70,671    61,924 
Depreciation charge   15,919    21,248 
Disposals   (6,222)   (12,501)
At 31 December   80,368    70,671 
Net book value          
At 31 December   24,732    38,742 

 

11.Advances paid and other current assets

 

KZT’000  2023   2022 
Advances paid for goods and services   1,534,408    954,208 
VAT reclaimable   38,587    1,682 
Deferred expenses   5,063    7,500 
Other   37,444    42,427 
    1,615,502    1,005,817 

 

12.Trade and other receivables

 

KZT’000  2023   2022 
Contract assets   1,137,624    1,062,858 
Trade receivables from third parties   579,441    760,754 
Receivables from employees   11,638    2,599 
    1,728,703    1,826,211 
Allowance for expected credit losses   (143,125)   (136,263)
    1,585,578    1,689,948 

 

Movement in the allowance for expected credit losses is as follows:

 

KZT’000  2023   2022 
At 1 January   136,263    98,848 
Accrued   6,862    59,392 
Written off       (21,977)
At 31 December   143,125    136,263 

 

13.Cash

 

KZT’000  2023   2022 
Cash deposits with maturities of less than three months   2,349,778    400 
Cash at bank   778,825    337,930 
Petty cash   1,503    5,046 
    3,130,106    343,376 

 

10

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

14.Equity

 

(a)Invested capital

 

Invested equity comprises charter capital of the Group’s entities as follows:

 

KZT’000  2023   2022 
Prime Source LLP   353,087    353,087 
Prime Source Innovation LLP   100    100 
Prime Source Analytic Systems LLP   147    147 
InFin IT Solution LLP   120    240 
Digitalism LLP   120    120 
Elimination   (54)   (54)
    353,520    353,640 

 

In 2022, the Group received contribution into charter capital of the Group’s entities in the amount of KZT 352,975 thousand.

 

(b)Additional paid in capital

 

Prior to 2023, the Group received interest free loans from its related party (see note 16) that were recognised at net present value of expected repayment. The discount net of income tax in the amount of KZT 54,206 thousand was recognised as additional paid in capital.

 

(c)Dividends

 

In 2023 and 2022, the Group neither declared nor paid dividend.

 

15.Leases

 

The Group leases office premises. Rental contracts are typically made for fixed periods of equal of less than 12 months but have extension options. The lease contracts do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be subleased or used as security for borrowing purposes.

 

The lease liabilities for these properties were calculated as the present value of the outstanding rentals, using incremental borrowing rates of 11.7-16.1%.

 

The Group considered practical expedients and does not recognise right-of-use assets or lease liabilities for leases which have low value or short-term leases within 12 months of the date of initial application. The payments associated with these leases which are charged directly to the profit or loss on a straight-line basis over the lease term (see note 5).

 

(a)Right-of-use assets

 

KZT’000  2023   2022 
Cost          
At 1 January   129,901    100,653 
Additions       34,335 
Change in estimates   18,416     
Disposals       (5,087)
At 31 December   148,317    129,901 
Amortisation          
At 1 January   47,502    29,390 
Amortisation charge   32,751    23,199 
Disposals       (5,087)
At 31 December   80,253    47,502 
Net book value          
At 31 December   68,064    82,399 

 

11

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

15.Leases, continued

 

(b)Lease liabilities

 

KZT’000  2023   2022 
At 1 January   108,287    90,594 
Additions       34,335 
Change in estimates   18,416     
Interest accrued   13,236    11,357 
Interest paid   (13,236)   (11,357)
Payments   (35,827)   (16,642)
At 31 December   90,876    108,287 
Non-current   42,836    69,138 
Current   48,040    39,149 

 

16.Borrowings

 

KZT’000  Maturity  Interest rate  Currency of denomination  2023   2022 
Bank loans  2024  20.7%-21.3%  KZT   1,640,000     
Loans received from related party  2024  interest free  KZT   111,408    1,207,316 
Interest payable            21,383     
             1,772,791    1,207,316 

 

Interest free loans from related party

 

Loans are interest free short-term loans received from the former owner to finance working capital. The loans are short-term, interest free, unsecured and denominated in Kazakhstan tenge. The imputed interest cost on the loans was determined at the rates of 16.2-18.9%. In 2022 the discount at the initial recognition of the loan was recognised directly in equity as additional paid in capital in the amount of KZT 47,940 thousand net of tax of KZT 9,588 thousand.

 

Bank loans

 

In 2023, the Group entered into a revolving credit line agreement with Al Hilal Islamic Bank JSC at a fixed interest rate of 16.5%. The credit line is intended to replenish working capital, and is calculated until March 2026. As part of this agreement, during 2023, the Group received a loan in the total amount of KZT 1,880,000 thousand, maturing until to 12 months. During 2023, the Group fully repaid the loans.

 

In 2023, the Group opened credit lines agreement at Bereke Bank JSC for refinancing of liabilities at Al Hilal Islamic Bank JSC at the date of refinancing, further development within the limit - working capital replenishment. In 2023, loans were received for the replenishment of working capital in the amount of KZT 1,640,000 thousand, maturing until to 12 months, the interest rate of 20.7%- 21.3%.

 

Movement in borrowings

 

KZT’000  2023   2022 
Nominal loan and interest balances          
At 1 January   1,224,001    659,840 
Proceeds from borrowing   3,791,745    2,561,900 
Repayment of borrowings   (3,261,900)   (1,997,250)
Interest accrued   157,465    99,532 
Interest paid   (138,520)   (100,021)
At 31 December   1,772,791    1,224,001 
Discount          
At 1 January   (16,685)    
Recognition of discount       (47,940)
Unwinding of discount   16,685    31,255 
At 31 December       (16,685)
Book value          
At 31 December   1,772,791    1,207,316 

 

12

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

17.Other taxes payable

 

KZT’000  2023   2022 
Value added tax   50,964    201,388 
Personal income tax   28,963    16,912 
Social tax   28,785    8,313 
Pension payments   27,613    36,848 
Social insurance   20,309    13,410 
Other taxes       5 
    156,634    276,876 

 

18.Trade and other payables

 

KZT’000  2023   2022 
Trade payables   1,307,419    505,389 
Salaries and related payables   218,298    226,578 
Salaries non-staff employees   45,512    67,135 
Other payables       209 
    1,571,229    799,311 

 

19.Contract liabilities

 

KZT’000  2023   2022 
Advances received for custom development   827,213    834,363 
Advances received under licenses   160,254    256,867 
Advances received for technical support   8,001    6,643 
    995,468    1,097,873 

 

20.Reconciliation of profit before taxation to cash flows from operating activities

 

KZT’000  Note   2023   2022 
Profit before taxation        2,515,844    988,410 
Adjustments for:               
Finance income   7(a)   (30,913)   (21,146)
Finance costs   7(b)   187,386    142,396 
Depreciation and amortisation   4,5    565,332    237,467 
Impairment losses   12    6,862    59,392 
Loss on disposal of property, plant and equipment   6(b)   6,956    18,436 
Unrealised foreign exchange (gain) loss        (963)   44,331 
Operating cash flows before changes in working capital        3,250,504    1,469,286 
Increase in prepayments and other current assets        (609,685)   (693,079)
Decrease (increase) in trade and other receivables        97,508    (527,948)
(Decrease) increase in other taxes payable        (120,242)   18,412 
Increase (decrease) in trade and other payables        771,918    (867,368)
(Decrease) increase in contract liabilities        (102,405)   5,560 
Cash flows from operations before interest and income tax paid        3,287,598    (595,137)

 

13

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

21.Financial instruments and financial risk management objectives and policies

 

(a)Overview

 

The Group has exposure to the following risks from its use of financial instruments:

 

  credit risk;
  liquidity risk;
  market risk.

 

Management of the Group has overall responsibility for the establishment and oversight of the Group’s risk management framework.

 

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, 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.

 

Management oversees compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.

 

(b)Categories and fair values of financial assets and financial liabilities

 

Categories of financial assets and financial liabilities

 

KZT’000  Note  2023   2022 
Financial assets at amortised costs              
Trade and other receivables   12   1,585,578    1,689,948 
Cash   13   3,130,106    343,376 
        4,715,684    2,033,324 
Financial liabilities at amortised cost              
Lease liabilities   15(b)   (90,876)   (108,287)
Borrowings   16   (1,772,791)   (1,207,316)
Trade and other payables   18   (1,571,229)   (799,311)
        (3,434,896)   (2,114,914)

 

Fair values

 

The fair values of each category of financial asset and liability are not materially different from their carrying values as presented.

 

(c)Credit risk

 

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. This risk arises mainly from the Group’s contract assets, trade receivables and cash.

 

The carrying value of financial assets represents the maximum credit risk exposure. The maximum exposure to credit risk at 31 December was:

 

KZT’000  2023   2022 
Trade and other receivables   1,585,578    1,689,948 
Cash (less petty cash)   3,128,603    342,976 
    4,714,181    2,032,924 

 

Trade receivables

 

The Group’s exposure to credit risk is influenced by the individual characteristics of each customer. These trade receivables relate to customers that make payment in instalments. The Group regularly monitors its exposure to bad debts in order to minimise this exposure.

 

The Group’s exposure to credit risk relates entirely to Kazakhstan customers.

 

14

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

21.Financial instruments and financial risk management objectives and policies, continued

 

The Group creates an allowance for impairment of trade receivables, which represents its estimate of expected credit losses. The ageing of trade receivables at 31 December was:

 

KZT’000  Gross  

Expected

loss rate

   Impairment 
2023               
Not past due   1,346,770    1%   13,023 
Past due 91-180 days   87,962    8%   7,343 
More than 270 days   293,971    42%   122,759 
    1,728,703    8%   143,125 
2022               
Not past due   1,650,693    1%   12,601 
Past due 91-180 days   143,879    64%   92,023 
More than 270 days   31,639    100%   31,639 
    1,826,211    7%   136,263 

 

Cash

 

Credit risk related to cash is monitored by management in accordance with the policies of the Group. Free funds are held with the most reliable banks in Kazakhstan with ratings of Moody’s from “BB-” to “BB+”. The purpose of this policy is to reduce concentration of credit risk and minimise possible financial loss due to banks’ failure to meet their contractual obligations.

 

(d)Liquidity risk

 

The Group manages liquidity risk by monitoring forecast cash flows and ensuring continuity of funding and flexibility through the use of loans and purchases on credit.

 

Maturity of financial liabilities

 

The table below provides an analysis of the Group’s financial liabilities to be settled on a gross basis by relevant maturity groups from the balance sheet date to the contractual settlement date:

 

KZT’000  Less than 3 months   3 to 12 months  

1 to 5

years

   Total 
2023                    
Lease liabilities   12,798    38,394    51,192    102,384 
Borrowings       1,894,849        1,894,849 
Trade and other payables   1,571,229            1,571,229 
    1,584,027    1,933,243    51,192    3,568,462 
2022                    
Lease liabilities   10,477    31,431    88,377    130,285 
Borrowings       1,224,001        1,224,001 
Trade and other payables   799,311            799,311 
    809,788    1,255,432    88,377    2,153,597 

 

Borrowings include expected future interest payments calculated on the basis of interest rates effective on the balance sheet date. Lease liabilities are presented on an undiscounted gross basis.

 

(e)Price risk

 

The Group is not exposed to market risk as it concludes contracts without price change adjustment for goods and services after their sale.

 

(f)Interest rate risk

 

At the reporting dates the Group is not exposed to interest rate risk as there are no financial instruments with floating interest rates.

 

15

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

21.Financial instruments and financial risk management objectives and policies, continued

 

(g)Currency risk

 

The Group is subject to currency risk exposure when performing transactions in currencies other than its functional currency.

 

The Group’s exposure to foreign currency risk was as follows:

 

KZT’000  KZT   USD   RUB   Total 
2023                    
Trade and other receivables   1,530,213    55,365        1,585,578 
Cash   2,611,043    519,063        3,130,106 
Lease liabilities   (90,876)           (90,876)
Borrowings   (1,772,791)           (1,772,791)
Trade and other payables   (918,134)   (515,972)   (137,123)   (1,571,229)
    1,359,455    58,456    (137,123)   1,280,788 
2022                    
Trade and other receivables   1,689,948            1,689,948 
Cash   343,376            343,376 
Lease liabilities   (108,287)           (108,287)
Borrowings   (1,207,316)           (1,207,316)
Trade and other payables   (593,488)   (188,086)   (17,737)   (799,311)
    124,233    (188,086)   (17,737)   (81,590)

 

Financial instruments denominated in tenge are not exposed to foreign currency risk and are provided for reconciliation of total amounts.

 

Sensitivity analysis

 

A 10% weakening of tenge against the following currencies as at 31 December would have decreased (increase) net income by the amounts shown below. This analysis assumes that all other variables remain constant.

 

KZT’000  2023   2022 
USD   4,676    (15,047)
RUB   (10,970)   (1,419)

 

A 10% strengthening of tenge against the above currencies as at 31 December would have had an equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

 

(h)Capital management

 

The overriding objectives of the Group’s capital management policy are to safeguard and support the business as a going concern and to maintain an optimal capital structure with a view to maximising returns to owners and benefits to other stakeholders by reducing the Group’s cost of capital. The Group’s overall policy remains unchanged from 2022.

 

22.Commitments and contingencies

 

(a)Kazakhstan’s taxation contingencies

 

Inherent uncertainties in interpreting tax legislation

 

The Group is subject to uncertainties relating to the determination of its tax liabilities. Kazakhstan tax legislation and practice are in a state of continuous development and, therefore, are subject to varying interpretations and changes which may be applied retrospectively.

 

Management interpretations of such legislation in applying it to business transactions of the Group may be challenged by the relevant tax authorities and, as a result, the Group may be claimed for additional tax payments, including fines, penalties and interest charges that could have a material adverse effect on the Group’s financial position and results of operations.

 

Period for additional tax assessments

 

Tax authorities in Kazakhstan have the right to raise additional tax assessments for three or five years after the end of the relevant tax period, depending on the taxpayer category or tax period. In certain cases, as determined by the tax legislation, the terms could be extended for three years.

 

16

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

22. Commitments and contingencies, continued

 

Possible additional tax liabilities

 

Management believes that the Group is in compliance with the tax laws and any contractual terms entered into that relate to tax which affect its operations and that, consequently, no additional tax liabilities will arise. However, due to the reasons set out above, the risk remains that the relevant tax authorities may take a differing position with regard to the interpretation of contractual provisions or tax law.

 

The resulting effect of this matter is that additional tax liabilities may arise. However, due to the range of uncertainties described above in assessing any potential additional tax liabilities, it is not practicable for management to estimate the financial effect in terms of the amount of additional tax liabilities, if any, together with any associated penalties and charges for which the Group may be liable.

 

(b)Insurance

 

The insurance industry in Kazakhstan is in a developing stage and many forms of insurance protection common in other parts of the world are not yet generally available. Available insurance programs may not provide full coverage in the event of a major loss.

 

(c)Legal commitments

 

In the ordinary course of business, the Group is subject to legal actions and complaints. Management believes that the ultimate liability, if any, arising from such actions or complaints will not have a materially adverse effect on the financial condition or results of operations of the Group. As at 31 December 2023, the Group was not involved in any significant legal proceedings.

 

23.Related party disclosures

 

Related parties include the following:

 

Key executives;

 

Former owner;

 

Other related parties.

 

(a)Management remuneration

 

Rewards received by key executives are included in personnel costs of administrative expenses (see note 5) amounted to KZT 66,504 thousand (2022: KZT 20,000 thousand).

 

(b)Transactions with related parties

 

In addition, loans received from a former owner (note 16) the Group had the following transactions and balances with the related parties:

 

KZT’000  2023   2022 
Due from related parties   201,030    200,800 
Due to related parties   (300,000)   (300,000)
Sales to related parties       354,699 

 

No allowance is held against the amounts owed by related parties at 31 December 2023 and 2022. The impairment losses in relation to amounts owed by related parties was nil for the year (2022: nil).

 

(c)Terms and conditions of transaction with related parties

 

Prices for related party transactions are determined by the parties on an ongoing basis depending on the nature of the transaction.

 

17

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

24.Significant accounting policies

 

The following significant accounting policies have been consistently applied in the preparation of the combined financial statements.

 

(a)Foreign currency transactions

 

Transactions in foreign currencies are translated to the functional currency of the Group at the exchange rate ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency at the exchange ruling rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate ruling at the date when their fair value was determined. Foreign currency differences arising on retranslation at the exchange rate on the date of the transaction as well as those from retranslation of monetary assets and liabilities at the reporting date are recognised in profit or loss.

 

The following exchange rates were used in preparing the combined financial statements:

 

   2023   2022 
   Year-end   Average   Year-end   Average 
US dollar   454.56    456.31    462.65    460.48 
Russian rouble   5.06    5.40    6.43    6.96 

 

(b)Property, plant and equipment

 

Recognition and measurement

 

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses.

 

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

 

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

 

Any gain (loss) on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and is recognised net within other income (other expenses) in profit or loss.

 

Subsequent costs

 

The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced component is recorded as a disposal. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

 

Depreciation

 

Depreciation is charged to profit or loss on a straight-line basis over the estimated useful life of the individual asset to its estimated residual value. The expected remaining useful lives are as follows:

 

  office equipment 3-4 years;

 

  other 3-7 years.

 

Useful lives and residual values of property, plant and equipment are analysed at each reporting date.

 

(c)Intangible assets

 

Intangible assets relate largely to software, which are developed by the Group and which have finite useful lives, are stated at cost (which comprises mainly salaries and payroll taxes of the Group’s programmers) less accumulated amortisation and impairment losses.

 

Amortisation

 

Amortisation of intangible assets, which have expected useful lives of 5 to 7 years, is computed under the straight-line method over the estimated useful lives of the assets.

 

18

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

24.Significant accounting policies, continued

 

(d)Impairment

 

The carrying amounts of non-current assets are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. If there are indicators of impairment, an exercise is undertaken to determine whether the carrying values are in excess of their recoverable amount. Such review is undertaken on an asset-by-asset basis, except where such assets do not generate cash flows independent of other assets, in which case the review is undertaken at the cash-generating unit level.

 

If the carrying amount of an asset or its cash-generating unit exceeds the recoverable amount, a provision is recorded to reflect the asset or cash-generating unit at the lower amount. Impairment losses are recognised in profit or loss.

 

Calculation of recoverable amount

 

The recoverable amount of assets is the greater of their value in use and fair value less costs to sell. 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. The Group’s cash-generating units are the smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

 

Reversals of impairment

 

A previously recognised impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

 

(e)Accounts receivable

 

Accounts receivable are normally recognised at their nominal value less any expected credit loss and do not generally carry any interest. Expected credit losses are recognised in an allowance account if recoverable. Otherwise, the carrying amount of accounts receivable is written off.

 

Accounting policies for accounts receivable are provided in the Financial instruments section.

 

(f)Cash

 

Cash comprise cash at bank which is available on demand and subject to insignificant risk of changes in value and petty cash.

 

(g)Leases

 

The Group as lessee

 

The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases and leases of low value assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease.

 

The lease liability is initially measured at the present value of the lease payments, discounted by using the incremental borrowing rate. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability and by reducing the carrying amount to reflect the lease payments made. Also, the Group remeasures the lease liability to reflect a lease contract modification.

 

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

 

Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs.

 

For contracts that contain a lease component and one or more additional non-lease components, the Group does not separate non-lease components, and accounts for any lease and associated non-lease components as a single arrangement.

 

(h)Borrowings

 

Borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, borrowings are subsequently measured at amortised cost using the effective interest method.

 

19

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

24.Significant accounting policies, continued

 

(i)Retirement employee benefits

 

The Group does not have any pension arrangements separate from the state pension system of the Republic of Kazakhstan, which requires current contributions by the employer and employee calculated as a percentage of current gross salary payments.

 

(j)Revenues

 

At contract inception, the Group assesses the goods or services (assets) promised in a contract with a customer and identifies as a performance obligation each promise to transfer to the customer either an asset that is distinct or a series of distinct assets that are substantially the same and that have the same pattern of transfer to the customer.

 

Sale of goods

 

Sale of goods is recognised when control of the products has transferred. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and the customer has accepted the products in accordance with the sales contract or the acceptance provisions have lapsed.

 

A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.

 

Sale of services

 

Revenue from rendering services is recognised in the accounting period in which the services are rendered.

 

Revenue from rendering services is recognised over time if any of the following criteria are met:

 

  the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs;

 

  the Group’s performance creates or enhances an asset (for example, work in progress) that the customer controls as the asset is created or enhanced; or

 

  the Group’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

 

In all other cases Revenue from rendering services is recognised at a point in time.

 

Financing components

 

There are no contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the transaction prices are not adjusted for the time value of money.

 

(k)Finance Income

 

Finance income comprises interest income on funds invested and foreign exchange gains. Interest income is recognised as it accrues, calculated in accordance with the effective interest rate method.

 

(l)Borrowing costs

 

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur.

 

(m)Income tax

 

Income tax for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items charged or credited directly to equity, in which case it is recognised in equity.

 

Current tax expense is the expected tax payable on the taxable income for the year and any adjustment to tax payable in respect of previous years.

 

Deferred tax is determined using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes, and the amounts used for taxation purposes.

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

 

Deferred tax asset is recognised only to the extent that it is probable to receive taxable income in future, which can be utilised against this asset. The amount of deferred tax assets are reduced to the extent that it is not probable that appropriate tax savings would be used.

 

20

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

24. Significant accounting policies, continued

 

Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

 

(n)Financial instruments

 

The Group recognises financial assets and liabilities on its balance sheet when it becomes a party to the contractual provisions of the instrument.

 

Financial assets

 

Classification and initial measurement

 

Financial assets within the scope of IFRS 9 are classified as financial assets at amortised cost, fair value through profit or loss or fair value through other comprehensive income. The Group determines this classification at initial recognition depending on the business model for managing the financial asset and the contractual terms of the cash flows.

 

Financial assets are classified and measured at amortised cost or fair value through other comprehensive income if the related cash flows are ‘solely payments of principal and interest’ on the principal amount outstanding. Financial assets with cash flows that are not ‘solely payments of principal and interest’ are classified and measured at fair value through profit or loss, irrespective of the business model.

 

At initial recognition financial assets are measured at fair value being the consideration received plus directly attributable transaction costs. Any gain or loss at initial recognition is recognised in the statement of profit or loss.

 

Subsequent measurement

 

Financial assets held for the collection of contractual cash flows that are solely payments of principal and interest (and classified as amortised cost) are subsequently measured at amortised cost using the effective interest rate method (“EIR”). Amortised cost is calculated by taking into account any discount or premium and fees or costs on acquisition. Unwinding of the difference between nominal and amortised values is included in finance income in the statement of profit or loss.

 

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss.

 

Derecognition

 

A financial asset is derecognised when the Group loses control over the contractual rights that comprise that asset. This occurs when the rights are realised, expire or are surrendered.

 

Impairment of financial assets

 

The Group assesses on a forward-looking basis the expected credit losses that might arise on financial assets measured at amortised cost. This assessment considers the probability of a default event occurring that could result in the expected cash flows due from a counterparty falling short of those contractually agreed.

 

Expected credit losses are estimated for default events possible over the lifetime of a financial asset measured at amortised cost. However, where the financial asset is not a trade receivable measured at amortised cost and there have been no significant increases in that financial asset’s credit risk since initial recognition, expected credit losses are estimated for default events possible within 12 months of the reporting date.

 

Financial liabilities

 

Classification and initial measurement

 

Financial liabilities within the scope of IFRS 9 are classified as financial liabilities at amortised cost or fair value through profit or loss. The Group determines the classification of its financial liabilities at initial recognition.

 

At initial recognition financial liabilities are measured at fair value being the consideration given. Financial liabilities at amortised cost additionally include directly attributable transaction costs.

 

Subsequent measurement

 

Trade and other payables and other financial liabilities are subsequently measured at amortised cost using the EIR method after initial recognition. Amortised cost is calculated by taking into account any discount or premium and fees or costs on acquisition. Unwinding of the difference between nominal and amortised values is included in finance costs in the statement of profit or loss.

 

Financial liabilities measured at fair value through profit or loss are carried on the statement of financial position at fair value with subsequent changes recognised in finance costs in the statement of profit or loss.

 

21

 

 

Prime Source Group

Notes to the combined financial statements

for the year ended 31 December 2023

 

24.Significant accounting policies, continued

 

Derecognition

 

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

 

Offsetting of financial instruments

 

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position when there is an enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

 

Fair value of financial instruments

 

At each reporting date, the fair value of financial instruments that are traded in active markets is determined by reference to quoted market prices, without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis or other valuation models.

 

25.Events after the reporting period

 

Obtaining bank loan

 

In April 2024, the Group, under the existing credit line with Bereke Bank JSC, repaid the debt in the amount of 1,173,333 thousand tenge and entered into new bank loan agreements to replenish working capital. As part of this agreement, in April 2024, the Group received a loan in the total amount of 1,174,000 thousand tenge, with a repayment period until April 2025 with an interest rate of 20.7% - 21.3%.

 

22

 

 

Prime Source Group

Combined financial statements

for the years ended 31 December 2022, 2021 and 2020

prepared in accordance with IFRSs

 

Almaty 2023

 

 

 

 

Prime Source Group

 

CONTENTS  
     
Independent auditors’ report  
   
Combined financial statements  
   
Combined statement of profit or loss and other comprehensive income 1
   
Combined statement of financial position 2
   
Combined statement of cash flows 3
   
Combined statement of changes in equity 4
   
Notes to the combined financial statements and significant accounting policies 5
   
1. General information 5
2. Basis of preparation 5
3. Revenues 8
4. Cost of sales 8
5. Administrative expenses 9
6. Other operating income and expenses 10
7. Finance income and costs 10
8. Income tax 11
9. Intangible assets 12
10. Property, plant and equipment 13
11. Loans receivable 13
12. Advances paid and other current assets 14
13. Trade and other receivables 14
14. Cash 15
15. Equity 15
16. Leases 16
17. Borrowings 17
18. Other taxes payable 18
19. Trade and other payables 18
20. Contract liabilities 18
21. Reconciliation of profit before taxation to cash flows from operating activities 19
22. Financial instruments and financial risk management objectives and policies 19
23. Commitments and contingencies 24
24. Related party disclosures 25
25. Significant accounting policies 27
26. Events after the reporting period 32

 

 

 

 

Moore Kazakhstan
2nd floor, 1A, Business Centre Nurly-Tau
5 al-Farabi Av., Almaty,
Kazakhstan, 050059
T +7 727 266 99 04
E info@moore.kz
kazakhstan.moore-global.com

 

INDEPENDENT AUDITORS’ REPORT

 

To: Owners of Prime Source Group

 

Opinion

 

We have audited the accompanying combined financial statements of Prime Source Group (hereinafter – the “Group”), which comprise the combined statement of financial position as at 31 December 2022, 2021 and 2020, and the combined statement of profit or loss and other comprehensive income, combined statement of changes in equity and combined statement of cash flows for the years then ended, and notes to the combined financial statements, including a summary of significant accounting policies.

 

In our opinion, the accompanying combined financial statements present fairly, in all material respects, the combined financial position of the Group as at 31 December 2022, 2021 and 2020 and its combined financial performance and its combined cash flows for the years then ended in accordance with International Financial Reporting Standards (hereinafter – “IFRSs”).

 

Basis for Opinion

 

We conducted our audit in accordance with International Standards on Auditing (hereinafter – “ISAs”). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Combined Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (hereinafter – “IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code, together with the ethical requirements that are relevant to our audit of the financial statements in the Republic of Kazakhstan and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Emphasis of Matter – Basis of Preparation

 

We draw attention to note 2(d) of the combined financial statements, which describes their basis of preparation. Our opinion is not modified in respect of this matter.

 

Responsibilities of Management and Those Charged with Governance for the Combined Financial Statements

 

Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of combined financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the combined financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

 

Those charged with governance are responsible for overseeing the Group’s combined financial reporting process.

 

 Page 1 of 2
  
 An independent member firm of Moore Global Network Limited – members in principal cities throughout the world

 

 

 

Auditors’ Responsibilities for the Audit of the Combined Financial Statements

 

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

 

Auditors’ Responsibilities for the Audit of the Combined Financial Statements, continued

 

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

 

Identify and assess the risks of material misstatement of the combined financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

 

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the combined financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

 

Evaluate the overall presentation, structure and content of the combined financial statements, including the disclosures, and whether the combined financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the combined financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

Approve

 

     

Vasily Nikitin

Managing partner

Moore Kazakhstan LLP

7 June 2023

 

Serik Kozhikenov

Audit partner

Auditor, audit certificate No. 0000557

dated 24 December 2003

 

General licence No. 22011362 for audit activity issued 16 June 2022 by the Ministry of Finance of the Republic of Kazakhstan

 

 Page 2 of 2

 

 

Prime Source Group

Combined statement of profit or loss and other comprehensive income

for the years ended 31 December 2022, 2021 and 2020

 

KZT’000  Note   2022   2021   2020 
Revenues   3    9,204,444    11,125,645    6,393,020 
Cost of sales   4    (7,191,034)   (9,660,545)   (5,446,114)
Gross profit        2,013,410    1,465,100    946,906 
Administrative expenses   5    (817,811)   (675,940)   (477,258)
Other operating income   6(a)   56,872    43,307    4,282 
Other operating expenses   6(b)   (33,266)   (10,869)   (5,351)
Impairment losses   13    (59,392)   (63,608)   (26,427)
Operating profit        1,159,813    757,990    442,152 
Finance income   7(a)   21,146    52,831    39,332 
Finance costs   7(b)   (142,396)   (56,643)   (54,235)
Foreign exchange (loss) gain        (50,153)   3,030    (36,081)
Profit before taxation        988,410    757,208    391,168 
Income tax (expense) recovery   8(a)   (169,099)   339,744    (28,086)
Profit for the year        819,311    1,096,952    363,082 
Other comprehensive income                 
Total comprehensive income for the year        819,311    1,096,952    363,082 

 

These combined financial statements have been approved for issue on 7 June 2023 and signed on behalf of the Group’s management by:

 

     

Evgeniy Shcherbinin

Director

Prime Source Group

 

Natalia Tahtova

Chief accountant

Prime Source Group

 

The notes on pages 5 to 23 are an integral part of these combined financial statements

 

1

 

 

Prime Source Group

Combined statement of financial position

as at 31 December 2022, 2021 and 2020

 

KZT’000  Note   2022   2021   2020 
ASSETS                
Non-current assets                    
Intangible assets   9    2,850,872    2,177,010    1,473,473 
Property, plant and equipment   10    38,742    52,234    81,360 
Right-of-use assets   16(a)   82,399    71,263    85,582 
Loans receivable   11            427,693 
Deferred tax asset   8(b)   111,603    290,290    5,255 
         3,083,616    2,590,797    2,073,363 
Current assets                    
Loans receivable   11        503,564     
Advances paid and other current assets   12    1,005,817    312,738    147,083 
Trade and other receivables   13    1,689,948    1,221,392    595,769 
Cash   14    343,376    1,034,345    913,595 
         3,039,141    3,072,039    1,656,447 
TOTAL ASSETS        6,122,757    5,662,836    3,729,810 
EQUITY AND LIABILITIES                    
Equity                    
Invested capital   15(a)   353,640    665    665 
Additional paid in capital   15(b)   54,206    15,854    13,827 
Retained earnings        2,225,248    1,405,937    308,985 
         2,633,094    1,422,456    323,477 
Non-current liabilities                    
Lease liabilities   16(b)   69,138    67,439    78,305 
Deferred tax liability   8(b)           73,030 
         69,138    67,439    151,335 
Current liabilities                    
Lease liabilities   16(b)   39,149    23,155    13,883 
Borrowings   17    1,207,316    659,840    243,333 
Income tax payable            19,085    3,490 
Other taxes payable   18    276,876    258,464    363,793 
Trade and other payables   19    799,311    2,120,084    2,042,823 
Contract liabilities   20    1,097,873    1,092,313    587,676 
         3,420,525    4,172,941    3,254,998 
TOTAL LIABILITIES        3,489,663    4,240,380    3,406,333 
TOTAL EQUITY AND LIABILITIES        6,122,757    5,662,836    3,729,810 

 

The notes on pages 5 to 23 are an integral part of these combined financial statements

 

2

 

 

Prime Source Group

Combined statement of cash flows

for the years ended 31 December 2022, 2021 and 2020

 

KZT’000  Note   2022   2021   2022 
OPERATING ACTIVITIES                    
Cash receipts from customers        15,057,031    16,030,895    9,860,879 
Cash paid to employees        (2,718,638)   (2,356,815)   (2,439,314)
Other taxes paid        (1,247,422)   (1,212,683)   (962,548)
Cash paid to suppliers        (11,686,108)   (11,825,484)   (5,300,120)
Cash flows from operations before interest and income tax paid   21    (595,137)   635,913    1,158,897 
Interest paid   16(b),17   (111,378)   (49,208)   (31,462)
Income tax paid        (19,085)   (3,233)   (17,988)
Net cash (used in) from operating activities        (725,600)   583,472    1,109,447 
                     
INVESTING ACTIVITIES                    
Investments into intangible assets   9    (866,882)   (838,260)   (777,001)
Purchases of property, plant and equipment   10    (26,192)   (14,113)   (39,881)
Loans issued   11        (79,977)   (127,989)
Loans repaid   11    28,225    57,276    35,014 
Interest received        6,428    6,331    12,880 
Net cash used in investing activities        (858,421)   (868,743)   (896,977)
                     
FINANCING ACTIVITIES                    
Contributions to charter capital   15(a)   352,975        144 
Proceeds from borrowings   17    2,561,900    2,638,640    1,067,654 
Repayment of borrowings   17    (1,997,250)   (2,222,133)   (824,321)
Lease payments   16(b)   (16,642)   (6,681)   (15,608)
Net cash from financing activities        900,983    409,826    227,869 
                     
Net (decrease) increase in cash        (683,038)   124,555    440,339 
Effect of exchange rate changes on cash        (7,931)   (3,805)   (11,230)
Cash at the beginning of the year        1,034,345    913,595    484,486 
Cash at the end of the year   14    343,376    1,034,345    913,595 

 

Non-cash transactions

 

KZT’000  Note   2022   2021   2021 
Offset of loans issued against trade payables   11    453,405         
Recognition of discount on loans issued   11    252    4,901    12,937 
Recognition of lease assets and liabilities   16    34,335    5,087    95,566 
Recognition of discount on borrowings   17    47,940    2,534    9,836 

 

The notes on pages 5 to 23 are an integral part of these combined financial statements

 

3

 

 

Prime Source Group

Combined statement of changes in equity

for the years ended 31 December 2022, 2021 and 2020

 

KZT’000  Note   Invested capital   Additional paid in capital   Retained earnings   Total 
At 1 January 2020        521    5,958    (54,097)   (47,618)
Profit for the year                363,082    363,082 
Discounting loans received from former owner, less income tax   17,8(b)       7,869        7,869 
Contributions into charter capital   15(a)   144            144 
At 31 December 2020        665    13,827    308,985    323,477 
Profit for the year                1,096,952    1,096,952 
Discounting loans received from former owner,  less income tax   17,8(b)       2,027        2,027 
At 31 December 2021        665    15,854    1,405,937    1,422,456 
Profit for the year                819,311    819,311 
Discounting loans received from former owner, less income tax   17,8(b)       38,352        38,352 
Contributions into charter capital   15(a)   352,975            352,975 
At 31 December 2022        353,640    54,206    2,225,248    2,633,094 

 

The notes on pages 5 to 23 are an integral part of these combined financial statements

 

4

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

General information

 

(a) Organisation and operation

 

Prime Source Group (hereinafter – the “Group”) is a group of entities incorporated in Kazakhstan. Refer to note 15 for the list of all the Group’s entities. Their nearest parent is FB Prime Source Acquisition LLC a company incorporated in Delaware, USA. The ultimate parent undertaking is LZG International, Inc., a public company incorporated in Florida, USA which is traded on the OTCQB market.

 

The Group’s entities are registered and located at 22/5 Kazhymukan str., Almaty, 050059, Kazakhstan.

 

The Group deals in software development, implementation of technological solutions, management and IT consulting. The Group provides businesses with the latest innovations in robotisation and business process management, system integration, data management, risk management, analysis and forecasting. Based on its own R&D department, it implements unique projects for the Kazakhstan market in the following areas: big data, machine learning, artificial intelligence, blockchain.

 

As at 31 December 2022, the Group had 473 employees (2021: 433 employees; 2020: 414 employees).

 

(b) Kazakhstan business environment

 

The Group’s operations are primarily located in Kazakhstan. Consequently, the Group is exposed to country risk being the economic, political and social risks inherent in doing business in Kazakhstan. These risks include matters arising from the policies of the government, economic conditions, imposition or changes to taxes and regulations, foreign exchange fluctuations and the enforceability of contract rights.

 

The financial statements include management’s estimates of Kazakhstan economic conditions and their impact on the results and financial position of the Group. Actual economic conditions can differ from those estimates.

 

Basis of preparation

 

(a) Statement of compliance

 

These combined financial statements have been prepared in accordance with International Financial Reporting Standards (hereinafter – “IFRSs”) as issued by the International Accounting Standards Board (hereinafter – “IASB”) and interpretations issued by the International Financial Reporting Interpretations Committee (hereinafter – “IFRIC”) of the IASB.

 

(b) Going concern

 

These combined financial statements have been prepared on a going concern basis.

 

Management believes that the Group’s stable profitability and access to debt funding are sufficient to meet the Group’s anticipated cash flow requirements. After making appropriate enquiries, and having considered the outlook of product pricing, production levels, debt repayments and capital expenditure commitments and assessing reasonably possible adverse operational impacts such as lower prices, increased operational and capital expenditure costs, management has reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis of accounting in preparing the combined financial statements.

 

(c) Basis of accounting

 

The combined financial statements have been prepared on a historical cost basis.

 

5

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

(d) Basis of combination

 

The combined financial statements set out the Group’s financial position as at 31 December 2022, 2021 and 2020 and the Group’s financial performance for the years then ended.

 

The Group does not form a separate legal group of legal entities in all years presented. The Group’s entities are the enterprises under common control of FB Prime Source Acquisition LLC. Control exists when the Group has the power, directly or indirectly, to direct those activities of an enterprise that most significantly affect the returns the Group earns from its involvement with the enterprise.

 

The financial statements of the Group’s entities are prepared for the same reporting year as the Company, using consistent accounting policies. All intercompany balances and transactions, including unrealised profits arising from intragroup transactions, have been eliminated in full. Unrealised losses are eliminated in the same way as unrealised gains except that they are only eliminated to the extent that there is no evidence of impairment.

 

2. Basis of preparation, continued

 

(e) Functional and presentation currency

 

The national currency of the Republic of Kazakhstan is the Kazakhstan tenge (hereinafter – “tenge” or “KZT”), which is the functional currency of the Group’s entities and the currency in which these combined financial statements are presented. All financial information presented in tenge has been rounded to the nearest thousand (hereinafter – “KZT’000” or “KZT thousand”).

 

(f) Adoption of standards and interpretations

 

In preparing the financial statements, the Group has applied the following standards and amendments effective from 1 January 2022:

 

Reference to the Conceptual Framework (Amendments to IFRS 3);

 

COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16);

 

Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);

 

Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37);

 

Annual Improvements (2018-2020 Cycle).

 

The standards and amendments listed above did not have a material impact on the Group’s financial statements.

 

(g) New standards and interpretations not yet adopted

 

The Group has not early adopted new standards, interpretations or amendments that were issued but are not yet entered into force, and their requirements have not been considered when preparing the financial statements. These standards and interpretations are not expected to have a material impact on these financial statements.

 

(h) Use of estimates and judgments

 

The Group’s management has made a number of judgments, estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with IFRSs. Judgements are based on management’s best knowledge of the relevant facts and circumstances having regard to prior experience, but actual results may differ from the amounts included in the financial statements. Actual results may differ from those estimates.

 

6

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

 

In particular, information about significant areas of estimation uncertainty and critical judgments made by management for preparation of these financial statements is described in the following notes below. However, management does not expect a significant risk of a material change to the Company’s carrying value of the assets and liabilities affected by these factors in the next 12 months, within a reasonably possible range, unless described otherwise.

 

Note 3 – Revenues. Management made estimates in relation to revenue recognised over time by measuring the progress towards complete satisfaction of that performance obligation;

 

Note 8 – Income tax. Management made estimates in relation to the level of taxes payable which may then be audited by the tax authorities and timing of realisation of temporary differences;

 

Note 9 – Intangible assets. Estimates were made in relation to the useful lives of assets;

 

Note 10 – Property, plant and equipment. Estimates were made in relation to the useful lives of assets;

 

Note 11 – Loans receivable. Management made estimates in relation to fair value of borrowings based on market interest rates for loans and the allowance for expected credit losses;

 

Note 12 – Advances paid and other current assets. Management made estimates in relation to recoverability of assets;

 

Note 13 – Trade and other receivables. Management made estimates in relation to the allowance for expected credit losses;

 

Note 16 – Lease. Estimates were made in determining the lease term of contracts with renewal option and incremental borrowing rates;

 

Note 17 – Borrowings. Management made estimates in relation to fair value of borrowings based on market interest rates for loans;

 

Note 22 – Financial risk management objectives and policies. Fair value analysis is based on estimated future cash flows and discount rates;

 

Note 23 – Commitments and contingencies. These require management to make estimates as to amounts payable and to determine the likelihood of cash outflows in the future.

 

7

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

Revenues

 

KZT’000  2022   2021   2020 
Revenues by products               
Development, implementation and maintenance of software   7,724,702    5,381,013    4,842,202 
Sale of licences purchased from third parties   1,479,742    5,744,632    1,550,818 
    9,204,444    11,125,645    6,393,020 
Timing of revenue recognition               
Over time   7,724,702    8,174,757    4,842,202 
At a point in time   1,479,742    2,950,888    1,550,818 
    9,204,444    11,125,645    6,393,020 
Contract assets and liabilities               
Contract assets   1,062,858    617,890    34,705 
Contract liabilities   (1,373,109)   (845,257)   (359,620)
    (310,251)   (227,367)   (324,915)

 

Cost of sales

 

KZT’000  2022   2021   2020 
Development, implementation and maintenance of software   5,962,589    4,625,112    4,301,327 
Cost of licences purchased from third parties   1,228,445    5,035,433    1,144,787 
    7,191,034    9,660,545    5,446,114 

 

Cost of sales comprises:

 

Salaries and payroll taxes in the amount of KZT 2,953,261 thousand (2021: KZT 2,120,570 thousand; 2020: KZT 1,727,486 thousand);

 

Depreciation and amortisation in the amount of KZT 222,481 thousand (2021: KZT 176,498 thousand; 2020: 157,205 thousand).

 

8

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

Administrative expenses

 

KZT’000  2022   2021   2020 
Salaries and payroll taxes   323,346    355,630    288,399 
Professional services   120,214    65,497    50,482 
Taxes and payments to the budget   102,056    70,777    22,203 
Representation expenses   56,326    74,428     
Business travel   32,957    17,461    15,394 
Stationery   21,155    13,575    21,678 
Write-off of VAT not accepted for offset   19,414    5,234    5,073 
Depreciation and amortisation   14,986    10,005    13,240 
Levies and charges   6,755    11,910     
Rent   6,376    7,832    (1,014)
Postage and courier costs   1,264    1,070    1,129 
Subscriptions and software license   462    1,102    2,598 
Technical support and maintenance services   221    321    5,007 
Membership fee       2,427    4,823 
Other   112,279    38,671    48,246 
    817,811    675,940    477,258 

 

9

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

Other operating income and expenses

 

(a) Other operating income

 

KZT’000  2022   2021   2020 
Payables written off   41,756    32,363    1,226 
Assets received free of charge   15,116    10,944    3,056 
    56,872    43,307    4,282 

 

(b) Other operating expenses

 

KZT’000  2022   2021   2020 
Receivables written off   14,830    4     
Loss on disposal of property plant and equipment   18,436    10,865    5,351 
    33,266    10,869    5,351 

 

Finance income and costs

 

(a) Finance income

 

KZT’000  2022   2021   2020 
Interest income   8,956    17,344    12,880 
Unwinding of discount on loans issued   12,190    35,487    26,452 
    21,146    52,831    39,332 

 

(b) Finance costs

 

KZT’000  2022   2021   2021 
Interest expense on borrowings   99,532    38,687    24,533 
Unwinding of discount on interest-free loans from former owner   31,255    2,534    9,836 
Interest expense on finance leases   11,357    10,521    6,929 
Recognition of discount on loans issued   252    4,901    12,937 
    142,396    56,643    54,235 

 

10

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

Income tax

 

(a) Income tax expense (recovery)

 

The major components of income tax expense (recovery) are as follows:

 

KZT’000  2022   2021   2020 
Corporate income tax       18,828    18,060 
Origination and reversal of temporary differences   169,099    (358,572)   10,026 
Income tax expense (recovery)   169,099    (339,744)   28,086 

 

A reconciliation of income tax expense (recovery) applicable to accounting profit before tax at the statutory rate to income tax expense at the effective tax rate is as follows:

 

KZT’000  2022   2021   2020 
Profit before taxation   988,410    757,208    391,168 
Income tax rate   20.0%   20.0%   20.0%
At statutory income tax rate   197,682    151,442    78,234 
Tax relief within tax preferences   (198,822)   (344,125)   (18,969)
Unrecognised tax losses (income) within tax preferences   95,040    (212,149)   (79,431)
Non-deductible expenses   75,199    65,088    48,252 
Income tax expense (recovery)   169,099    (339,744)   28,086 
Effective income tax rate   17.1%   -44.9%   7.2%

 

8. Income tax, continued

 

(b) Deferred tax liability

 

The amounts of deferred tax assets (liabilities) are as follows:

 

KZT’000  2022   2021   2020 
Property, plant and equipment   (72,156)   (96,277)   (121,773)
Contract assets   8,681    55,422    36,602 
Lease assets and liabilities   5,166    3,871    1,321 
Loans issued   (3,337)        
Trade and other receivables   22,206    17,205    5,984 
Borrowings and grants       1,991    7,925 
Trade and other payables   2,443    1,538    2,166 
Tax losses carried forward   148,600    306,540     
    111,603    290,290    (67,775)
Deferred tax asset   111,603    290,290    5,255 
Deferred tax liability           (73,030)

 

11

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

Movement in deferred tax (liability) asset is as follows:

 

 

KZT’000  2022   2021   2021 
At 1 January   290,290    (67,775)   (55,782)
(Charged) credited to profit or loss   (169,099)   358,572    (10,026)
Recognised in additional paid-in capital   (9,588)   (507)   (1,967)
At 31 December   111,603    290,290    (67,775)

 

Some of the Group’s entities are registered in the territories of innovative technology parks, the participants of which have a number of tax preferences, including exemption from corporate income tax. In the reporting years, these entities reduced taxes and did not recognise assets and liabilities, exercising this right.

 

Intangible assets

 

KZT’000  2022   2021   2020 
Cost            
At 1 January   2,610,344    1,772,084    995,083 
Additions   866,882    838,260    777,001 
At 31 December   3,477,226    2,610,344    1,772,084 
Amortisation               
At 1 January   433,334    298,611    198,893 
Amortisation charge   193,020    134,723    99,718 
At 31 December   626,354    433,334    298,611 
Net book value               
At 31 December   2,850,872    2,177,010    1,473,473 

 

12

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

Property, plant and equipment

 

KZT’000  2022   2021   2020 
Cost            
At 1 January   114,158    123,200    137,723 
Additions   26,192    14,113    39,881 
Disposals   (30,937)   (23,155)   (54,404)
At 31 December   109,413    114,158    123,200 
Depreciation               
At 1 January   61,924    41,840    42,795 
Depreciation charge   21,248    32,374    48,098 
Disposals   (12,501)   (12,290)   (49,053)
At 31 December   70,671    61,924    41,840 
Net book value               
At 31 December   38,742    52,234    81,360 

 

Loans receivable

 

KZT’000  2022   2021   2020 
Loans issued to a related party       502,504    467,319 
Interest receivable       11,013     
        513,517    467,319 
Discount       (9,953)   (39,626)
Total       503,564    427,693 
Non-current           427,693 
Current       503,564     

 

From 2019 to 2022, the Group issued a number of loans to a related party. The loans are short-term, bore interest of 3%, unsecured and denominated in Russian roubles. The imputed interest cost on the loans was determined at the rates of 14.7% (2021: 8.2%; 2020: 7.8%). The discount at the initial recognition of the loans was recognised in profit or loss in the amount of KZT 252 thousand (2021: KZT 4,901 thousand; 2020: KZT 12,937 thousand). As at 31 December 2022 the loans are repaid in full.

 

13

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

Movement in the loans receivable

 

KZT’000  2022   2021   2020 
Nominal loan and interest balances               
At 1 January   513,517    467,319    408,832 
Loans issued       79,977    127,989 
Loans repaid   (28,225)   (57,276)   (35,014)
Interest accrued   2,528    11,013     
Non-cash offset   (453,405)        
Net exchange adjustment   (34,415)   12,484    (34,488)
At 31 December       513,517    467,319 
Discount               
At 1 January   (9,953)   (39,626)   (57,811)
Recognition of discount   (252)   (4,901)   (12,937)
Unwinding of discount   12,190    35,487    26,452 
Net exchange adjustment   (1,985)   (913)   4,670 
At 31 December       (9,953)   (39,626)
Book value               
At 31 December       503,564    427,693 

 

Advances paid and other current assets

 

KZT’000  2022   2021   2020 
Advances paid for goods and services   954,208    243,257    77,631 
Deferred expenses   7,500    294    1,314 
VAT reclaimable   1,682    33,849    42,614 
Other   42,427    35,338    25,524 
    1,005,817    312,738    147,083 

 

Trade and other receivables

 

KZT’000  2022   2021   2020 
Contract assets   1,062,858    617,890    34,705 
Trade receivables from third parties   760,754    696,981    559,739 
Receivables from employees   2,599    5,369    36,814 
    1,826,211    1,320,240    631,258 
Allowance for expected credit losses   (136,263)   (98,848)   (35,489)
    1,689,948    1,221,392    595,769 

 

14

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

13. Trade and other receivables, continued

 

Movement in the allowance for expected credit losses is as follows:

 

KZT’000  2022   2021   2020 
At 1 January   98,848    35,489    9,062 
Accrued   59,392    63,608    26,427 
Written off   (21,977)   (249)    
At 31 December   136,263    98,848    35,489 

 

Cash

 

KZT’000  2022   2021   2020 
Cash at bank   337,930    981,453    384,264 
Petty cash   5,046    52,492    53,131 
Cash deposits with maturities of less than three months   400    400    476,200 
    343,376    1,034,345    913,595 

 

Equity

 

(a) Invested capital

 

Invested equity comprises charter capital of the Group’s entities as follows:

 

KZT’000  2022   2021   2020 
Prime Source LLP   353,087    154    154 
Prime Source Innovation LLP   100    100    100 
Prime Source Analytic Systems LLP   147    105    105 
InFin IT Solution LLP   240    240    240 
Digitalism LLP   120    120    120 
Elimination   (54)   (54)   (54)
    353,640    665    665 

 

In 2022, the Group received contribution into charter capital of the Group’s entities in the amount of KZT 352,975 thousand (2021: nil; 2020: KZT 114 thousand).

 

15

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

(b) Additional paid in capital

 

The Group received interest free loans from its former owner (see note 17) that were recognised at net present value of expected repayment. The discount net of income tax in the amount of KZT 54,206 thousand (2021: KZT 15,854 thousand; 2020: KZT 13,827 thousand) was recognised as additional paid in capital.

 

Leases

 

The Group leases office premises. Rental contracts are typically made for fixed periods of equal of less than 12 months but have extension options. The lease contracts do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be subleased or used as security for borrowing purposes.

The lease liabilities for these properties were calculated as the present value of the outstanding rentals, using incremental borrowing rates of 11.7-16.1%.

 

The Group considered practical expedients and does not recognise right-of-use assets or lease liabilities for leases which have low value or short-term leases within 12 months of the date of initial application. The payments associated with these leases which are charged directly to the profit or loss on a straight-line basis over the lease term (see note 5).

 

16. Leases, continued

 

(a) Right-of-use assets

 

KZT’000  2022   2021   2020 
Cost               
At 1 January   100,653    95,566    23,484 
Additions   34,335    5,087    95,566 
Disposals   (5,087)       (23,484)
At 31 December   129,901    100,653    95,566 
Amortisation               
At 1 January   29,390    9,984    10,839 
Amortisation charge   23,199    19,406    22,629 
Disposals   (5,087)       (23,484)
At 31 December   47,502    29,390    9,984 
Net book value               
At 31 December   82,399    71,263    85,582 

 

16

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

(b) Lease liabilities

 

KZT’000  2022   2021   2020 
At 1 January   90,594    92,188    12,230 
Additions   34,335    5,087    95,566 
Interest accrued   11,357    10,521    6,929 
Interest paid   (11,357)   (10,521)   (6,929)
Payments   (16,642)   (6,681)   (15,608)
At 31 December   108,287    90,594    92,188 
Non-current   69,138    67,439    78,305 
Current   39,149    23,155    13,883 

 

Borrowings

 

KZT’000  Maturity   Interest rate  Currency  2022   2021   2020 
Loans received from former owner   2023   interest free  KZT   1,207,316         
Bank loans   2023   12.00%-14.75%  KZT       659,840    243,333 
Interest payable                       
               1,207,316    659,840    243,333 

 

Interest free loans from the former owner

 

From 2019 to 2022, the Group received a number of loans from the former owner to finance working capital. The loans are short-term, interest free, unsecured and denominated in Kazakhstan tenge. The imputed interest cost on the loans was determined at the rates of 16.2-18.9% (2021: 10.8%; 2020: 11.9-12.2%). The discount at the initial recognition of the loan was recognised directly in equity as additional paid in capital in the amount of KZT 47,940 thousand (2021: KZT 2,534 thousand; 2020: KZT 9,836 thousand) net of tax of KZT 9,588 thousand (2021: KZT 507 thousand; 2020: KZT 1,967 thousand).

 

Bank loans

 

In 2021 and 2020 the Group received loans from Kazakhstan banks to finance working capital. The loans bore interest of 12.0%-14.7% and were denominated in Kazakhstan tenge. As at 31 December 2022 the bank loans are repaid in full.

 

17

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

17. Borrowings, continued

 

Movement in borrowings

 

KZT’000  2022   2021   2020 
Nominal loan and interest balances               
At 1 January   659,840    243,333     
Proceeds from borrowing   2,561,900    2,638,640    1,067,654 
Repayment of borrowings   (1,997,250)   (2,222,133)   (824,321)
Interest accrued   99,532    38,687    24,533 
Interest paid   (100,021)   (38,687)   (24,533)
At 31 December   1,224,001    659,840    243,333 
Discount               
At 1 January            
Recognition of discount   (47,940)   (2,534)   (9,836)
Unwinding of discount   31,255    2,534    9,836 
At 31 December   (16,685)        
Book value               
At 31 December   1,207,316    659,840    243,333 

 

Other taxes payable

 

KZT’000  2022   2021   2020 
Value added tax   201,388    209,818    320,255 
Pension payments   36,848    26,788    22,484 
Personal income tax   16,912    7,331    12,235 
Social insurance   13,410    7,331     
Social tax   8,313    7,192    8,813 
Other taxes   5    4    6 
    276,876    258,464    363,793 

 

Trade and other payables

 

KZT’000  2022   2021   2020 
Trade payables   505,389    1,122,145    1,141,024 
Salaries and related payables   226,578    168,439    107,310 
Salaries non-staff employees   67,135    829,336    794,371 
Other payables   209    164    118 
    799,311    2,120,084    2,042,823 

 

Contract liabilities

 

KZT’000  2022   2021   2020 
Advances received for custom development   834,363    915,060    578,776 
Advances received under licenses   256,867         
Advances received for technical support   6,643    177,253    8,900 
    1,097,873    1,092,313    587,676 

 

18

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

Reconciliation of profit before taxation to cash flows from operating activities

 

KZT’000  Note  2022   2021   2020 
Profit before taxation      988,410    757,208    391,168 
Adjustments for:                  
Finance income  7(a)   (21,146)   (52,831)   (39,332)
Finance costs  7(b)   142,396    56,643    54,235 
Depreciation and amortisation  4,5   237,467    186,503    170,445 
Impairment losses  13   59,392    63,608    26,427 
Loss on disposal of property, plant and equipment   6(b)   18,436    10,865    5,351 
Unrealised foreign exchange loss (gain)      44,331    (7,766)   41,048 
Operating cash flows before changes in working capital      1,469,286    1,014,230    649,342 
Increase in prepayments and other current assets      (693,079)   (165,655)   (18,496)
Increase in trade and other receivables      (1,050,240)   (670,231)   (132,623)
Increase (decrease) in other taxes payable      18,412    (105,329)   (23,286)
(Decrease) increase in trade and other payables      (867,368)   77,261    626,677 
Increase in contract liabilities      527,852    485,637    57,283 
Cash flows from operations before interest and income tax paid      (595,137)   635,913    1,158,897 

 

Financial instruments and financial risk management objectives and policies

 

(a) Overview

 

The Group has exposure to the following risks from its use of financial instruments:

 

credit risk;

 

liquidity risk;

 

market risk.

 

Management of the Group has overall responsibility for the establishment and oversight of the Group’s risk management framework.

 

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, 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.

 

19

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

Management oversees compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.

 

(b) Categories and fair values of financial assets and financial liabilities

 

Categories of financial assets and financial liabilities

 

KZT’000  Note  2022   2021   2020 
Financial assets at amortised costs                  
Loans receivable  11       503,564    427,693 
Trade and other receivables  13   1,689,948    1,221,392    595,769 
Cash  14   343,376    1,034,345    913,595 
       2,033,324    2,759,301    1,937,057 
Financial liabilities at amortised cost                  
Lease liabilities  16(b)   (108,287)   (90,594)   (92,188)
Borrowings  17   (1,207,316)   (659,840)   (243,333)
Trade and other payables  19   (799,311)   (2,120,084)   (2,042,823)
       (2,114,914)   (2,870,518)   (2,378,344)

 

Fair values

 

The fair values of each category of financial asset and liability are not materially different from their carrying values as presented.

 

22. Financial risk management objectives and policies, continued

 

(c) Credit risk

 

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. This risk arises mainly from the Group’s loans receivable, contract assets, trade receivables and cash.

 

The carrying value of financial assets represents the maximum credit risk exposure. The maximum exposure to credit risk at 31 December was:

 

KZT’000  2022   2021   2020 
Loans receivable       503,564    427,693 
Trade and other receivables   1,689,948    1,221,392    595,769 
Cash (less petty cash)   338,330    981,853    860,464 
    2,028,278    2,706,809    1,883,926 

 

20

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

Loans receivable

 

The Group’s loans receivable are represented by receivables from employees. In making the decision to provide such loans, the Group performs an analysis to ensure that the overall credit exposure on these loans does not exceed the distributable reserves of the Group.

 

The Group’s exposure to credit risk relates entirely to Kazakhstan debtors.

 

The allowance for impairment of loans receivable is created at loan issuance. There are no arrears within loans receivable.

 

Trade receivables

 

The Group’s exposure to credit risk is influenced by the individual characteristics of each customer. These trade receivables relate to customers that make payment in instalments. The Group regularly monitors its exposure to bad debts in order to minimise this exposure.

 

The Group’s exposure to credit risk relates entirely to Kazakhstan customers.

 

The Group creates an allowance for impairment of trade receivables, which represents its estimate of expected credit losses. The ageing of trade receivables at 31 December was:

 

KZT’000  Gross   Expected
loss rate
   Impairment 
2022               
Not past due   1,650,693    1%   12,601 
Past due 91-180 days   143,879    64%   92,023 
More than 270 days   31,639    100%   31,639 
    1,826,211    7%   136,263 
2021               
Not past due   1,298,589    6%   77,197 
Past due 91-180 days       0%    
More than 270 days   21,651    100%   21,651 
    1,320,240    7%   98,848 
2020               
Not past due   631,258    6%   35,489 
Past due 91-180 days       0%    
More than 270 days       0%    
    631,258    6%   35,489 

 

21

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

Cash

 

Credit risk related to cash is monitored by management in accordance with the policies of the Group. Free funds are held with the most reliable banks in Kazakhstan with ratings of Moody’s from “BB-” to “BB+”. The purpose of this policy is to reduce concentration of credit risk and minimise possible financial loss due to banks’ failure to meet their contractual obligations.

 

22. Financial risk management objectives and policies, continued

 

(d) Liquidity risk

 

The Group manages liquidity risk by monitoring forecast cash flows and ensuring continuity of funding and flexibility through the use of loans and purchases on credit.

 

Maturity of financial liabilities

 

The table below provides an analysis of the Group’s financial liabilities to be settled on a gross basis by relevant maturity groups from the balance sheet date to the contractual settlement date:

 

KZT’000  Less than 3 months   3 to 12 months   1 to 5
years
   Total 
2022                    
Lease liabilities   10,477    31,431    88,377    130,285 
Borrowings       1,224,001        1,224,001 
Trade and other payables   799,311            799,311 
    809,788    1,255,432    88,377    2,153,597 
2021                    
Lease liabilities   810    24,172    89,230    114,212 
Borrowings       659,840        659,840 
Trade and other payables   2,120,084            2,120,084 
    2,120,894    684,012    89,230    2,894,136 
2020                    
Lease liabilities   5,827    8,643    111,243    125,713 
Borrowings       243,333        243,333 
Trade and other payables   2,042,823            2,042,823 
    2,048,650    251,976    111,243    2,411,869 

 

Borrowings include expected future interest payments calculated on the basis of interest rates effective on the balance sheet date. Lease liabilities are presented on an undiscounted gross basis.

 

(e) Price risk

 

The Group is not exposed to market risk as it concludes contracts without price change adjustment for goods and services after their sale.

 

22

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

(f) Interest rate risk

 

At the reporting dates the Group is not exposed to interest rate risk as there are no financial instruments with floating interest rates.

 

(g) Currency risk

 

The Group is subject to currency risk exposure when performing transactions in currencies other than its functional currency.

 

The Group’s exposure to foreign currency risk was as follows:

 

KZT’000  KZT   USD   RUB   Total 
2022                    
Trade and other receivables   1,689,948            1,689,948 
Cash   343,376            343,376 
Lease liabilities   (108,287)           (108,287)
Borrowings   (1,207,316)           (1,207,316)
Trade and other payables   (565,557)   (188,086)   (45,668)   (799,311)
    152,164    (188,086)   (45,668)   (81,590)

 

22. Financial risk management objectives and policies, continued

 

KZT’000  KZT   USD   RUB   Total 
2021                    
Loans receivable           503,564    503,564 
Trade and other receivables   1,221,392            1,221,392 
Cash   983,797    50,548        1,034,345 
Lease liabilities   (90,594)           (90,594)
Borrowings   (659,840)           (659,840)
Trade and other payables   (1,893,261)   (185,842)   (40,981)   (2,120,084)
    (438,506)   (135,294)   462,583    (111,217)
2020                    
Loans receivable           427,693    427,693 
Trade and other receivables   595,769            595,769 
Cash   888,253    24,415    927    913,595 
Lease liabilities   (92,188)           (92,188)
Borrowings   (243,333)           (243,333)
Trade and other payables   (1,975,528)   (25,884)   (41,411)   (2,042,823)
    (827,027)   (1,469)   387,209    (441,287)

 

23

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

Financial instruments denominated in tenge are not exposed to foreign currency risk and are provided for reconciliation of total amounts.

 

Sensitivity analysis

 

A 10% weakening of tenge against the following currencies as at 31 December would have increased (decreased) net profit by the amounts shown below. This analysis assumes that all other variables remain constant.

 

KZT’000  2022   2021   2020 
USD   (15,047)   (10,824)   (118)
RUB   (3,653)   37,007    30,977 

 

A 10% strengthening of tenge against the above currencies as at 31 December would have had an equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

 

(h) Capital management

 

The overriding objectives of the Group’s capital management policy are to safeguard and support the business as a going concern and to maintain an optimal capital structure with a view to maximising returns to owners and benefits to other stakeholders by reducing the Group’s cost of capital. The Group’s overall policy remains unchanged from 2020.

 

Commitments and contingencies

 

(a) Kazakhstan’s taxation contingencies

 

Inherent uncertainties in interpreting tax legislation

 

The Group is subject to uncertainties relating to the determination of its tax liabilities. Kazakhstan tax legislation and practice are in a state of continuous development and, therefore, are subject to varying interpretations and changes which may be applied retrospectively.

 

Management interpretations of such legislation in applying it to business transactions of the Group may be challenged by the relevant tax authorities and, as a result, the Group may receive claims for additional tax payments, including fines, penalties and interest charges that could have a material adverse effect on the Group’s financial position and results of operations.

 

24

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

Period for additional tax assessments

 

Tax authorities in Kazakhstan have the right to raise additional tax assessments for three or five years after the end of the relevant tax period, depending on the taxpayer category or tax period. In certain cases, as determined by the tax legislation, the terms could be extended for three years.

 

23. Commitments and contingencies, continued

 

Possible additional tax liabilities

 

Management believes that the Group is in compliance with the tax laws and any contractual terms entered into that relate to tax which affect its operations and that, consequently, no additional tax liabilities will arise. However, due to the reasons set out above, the risk remains that the relevant tax authorities may take a differing position with regard to the interpretation of contractual provisions or tax law.

 

The resulting effect of this matter is that additional tax liabilities may arise. However, due to the range of uncertainties described above in assessing any potential additional tax liabilities, it is not practicable for management to estimate the financial effect in terms of the amount of additional tax liabilities, if any, together with any associated penalties and charges for which the Group may be liable.

 

(b) Insurance

 

The insurance industry in Kazakhstan is in a developing stage and many forms of insurance protection common in other parts of the world are not yet generally available. Available insurance programs may not provide full coverage in the event of a major loss.

 

(c) Legal commitments

 

In the ordinary course of business, the Group is subject to legal actions and complaints. Management believes that the ultimate liability, if any, arising from such actions or complaints will not have a materially adverse effect on the financial condition or results of operations of the Group. As at 31 December 2022, the Group was not involved in any significant legal proceedings.

 

Related party disclosures

 

Related parties include the following:

 

Key executives.

 

Former owner.

 

Other related parties.

 

(a) Management remuneration

 

Rewards received by key executives are included in personnel costs of administrative expenses (see note 5) amounted to KZT 20,000 thousand (2021: KZT 17,141 thousand; 2020: KZT 17,037 thousand).

 

25

 

 

(b) Transactions with related parties

 

In addition to loans issued to a related party (note 11) and loans received from a former owner (note 17) the Group had the following transactions and balances with the related parties:

 

KZT’000  Former
owner
   Other related parties   Total 
2022               
Due from related parties       200,800    200,800 
Due to related parties       (300,000)   (300,000)
Sales to related parties       354,699    354,699 
2021               
Due from related parties   788,420    16,150     
Due to related parties       (6,500)    
2020               
Due from related parties   788,420         
Due to related parties            

 

(c) Terms and conditions of transaction with related parties

 

Prices for related party transactions are determined by the parties on an ongoing basis depending on the nature of the transaction.

 

26

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

  

Significant accounting policies

 

The following significant accounting policies have been consistently applied in the preparation of the combined financial statements.

 

(a) Foreign currency transactions

 

Transactions in foreign currencies are translated to the functional currency of the Group at the exchange rate ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency at the exchange ruling rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate ruling at the date when their fair value was determined. Foreign currency differences arising on retranslation at the exchange rate on the date of the transaction as well as those from retranslation of monetary assets and liabilities at the reporting date are recognised in profit or loss.

 

The following exchange rates were used in preparing the combined financial statements:

 

   2022   2021   2020 
   Year-end   Average   Year-end   Average   Year-end   Average 
US dollar   462.65    460.48    431.67    426.03    420.71    412.95 
Russian rouble   6.43    6.96    5.77    5.79    5.65    5.73 

 

(b) Property, plant and equipment

 

Recognition and measurement

 

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses.

 

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

 

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

 

Any gain (loss) on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and is recognised net within other income (other expenses) in profit or loss.

 

Subsequent costs

 

The cost of replacing a component of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the component will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced component is recorded as a disposal. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

 

27

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

25. Significant accounting policies, continued

 

Depreciation

 

Depreciation is charged to profit or loss on a straight-line basis over the estimated useful life of the individual asset to its estimated residual value. The expected remaining useful lives are as follows:

 

office equipment 3-4 years;

 

other 3-7 years.

 

Useful lives and residual values of property, plant and equipment are analysed at each reporting date.

 

(c) Intangible assets

 

Intangible assets relate largely to software, which are developed by the Group and which have finite useful lives, are stated at cost (which comprises mainly salaries and payroll taxes of the Group’s programmers) less accumulated amortisation and impairment losses.

 

Amortisation

 

Amortisation of intangible assets, which have expected useful lives of 5 to 7 years, is computed under the straight-line method over the estimated useful lives of the assets.

  

(d) Impairment

 

The carrying amounts of non-current assets are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. If there are indicators of impairment, an exercise is undertaken to determine whether the carrying values are in excess of their recoverable amount. Such review is undertaken on an asset-by-asset basis, except where such assets do not generate cash flows independent of other assets, in which case the review is undertaken at the cash-generating unit level.

 

If the carrying amount of an asset or its cash-generating unit exceeds the recoverable amount, a provision is recorded to reflect the asset or cash-generating unit at the lower amount. Impairment losses are recognised in profit or loss.

 

Calculation of recoverable amount

 

The recoverable amount of assets is the greater of their value in use and fair value less costs to sell. 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. The Group’s cash-generating units are the smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

 

Reversals of impairment

 

A previously recognised impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

 

(e) Accounts receivable

 

Accounts receivable are normally recognised at their nominal value less any expected credit loss and do not generally carry any interest. Expected credit losses are recognised in an allowance account if recoverable. Otherwise, the carrying amount of accounts receivable is written off.

 

Accounting policies for accounts receivable are provided in the Financial instruments section.

 

28

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

25. Significant accounting policies, continued

 

(f) Cash

 

Cash comprise cash at bank which is available on demand and subject to insignificant risk of changes in value and petty cash.

 

(g) Leases

 

The Group as lessee

 

The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases and leases of low value assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease.

 

The lease liability is initially measured at the present value of the lease payments, discounted by using the incremental borrowing rate. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability and by reducing the carrying amount to reflect the lease payments made. Also, the Group remeasures the lease liability to reflect a lease contract modification.

 

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

 

Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs.

 

For contracts that contain a lease component and one or more additional non-lease components, the Group does not separate non-lease components, and accounts for any lease and associated non-lease components as a single arrangement.

  

(h) Borrowings

 

Borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, borrowings are subsequently measured at amortised cost using the effective interest method.

 

(i) Retirement employee benefits

 

The Group does not have any pension arrangements separate from the state pension system of the Republic of Kazakhstan, which requires current contributions by the employer and employee calculated as a percentage of current gross salary payments.

 

(j) Revenues

 

At contract inception, the Group assesses the goods or services (assets) promised in a contract with a customer and identifies as a performance obligation each promise to transfer to the customer either an asset that is distinct or a series of distinct assets that are substantially the same and that have the same pattern of transfer to the customer.

 

29

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

25. Significant accounting policies, continued

 

Sale of goods

 

Sale of goods is recognised when control of the products has transferred. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and the customer has accepted the products in accordance with the sales contract or the acceptance provisions have lapsed.

 

A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.

 

Sale of services

 

Revenue from rendering services is recognised in the accounting period in which the services are rendered.

 

Revenue from rendering services is recognised over time if any of the following criteria are met:

 

the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs;

 

the Group’s performance creates or enhances an asset (for example, work in progress) that the customer controls as the asset is created or enhanced; or

 

the Group’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

 

In all other cases Revenue from rendering services is recognised at a point in time.

 

Financing components

 

There are no contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the transaction prices are not adjusted for the time value of money.

 

(k) Finance Income

 

Finance income comprises interest income on funds invested and foreign exchange gains. Interest income is recognised as it accrues, calculated in accordance with the effective interest rate method.

 

(l) Borrowing costs

 

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur.

 

(m) Income tax

 

Income tax for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items charged or credited directly to equity, in which case it is recognised in equity.

 

Current tax expense is the expected tax payable on the taxable income for the year and any adjustment to tax payable in respect of previous years.

 

Deferred tax is determined using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes, and the amounts used for taxation purposes.

 

30

 

 

Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

25. Significant accounting policies, continued

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

 

Deferred tax asset is recognised only to the extent that it is probable to receive taxable income in future, which can be utilised against this asset. The amount of deferred tax assets are reduced to the extent that it is not probable that appropriate tax savings would be used.

 

Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

 

(n) Financial instruments

 

The Group recognises financial assets and liabilities on its balance sheet when it becomes a party to the contractual provisions of the instrument.

 

Financial assets

 

Classification and initial measurement

 

Financial assets within the scope of IFRS 9 are classified as financial assets at amortised cost, fair value through profit or loss or fair value through other comprehensive income. The Group determines this classification at initial recognition depending on the business model for managing the financial asset and the contractual terms of the cash flows.

 

Financial assets are classified and measured at amortised cost or fair value through other comprehensive income if the related cash flows are ‘solely payments of principal and interest’ on the principal amount outstanding. Financial assets with cash flows that are not ‘solely payments of principal and interest’ are classified and measured at fair value through profit or loss, irrespective of the business model.

 

At initial recognition financial assets are measured at fair value being the consideration received plus directly attributable transaction costs. Any gain or loss at initial recognition is recognised in the statement of profit or loss.

 

Subsequent measurement

 

Financial assets held for the collection of contractual cash flows that are solely payments of principal and interest (and classified as amortised cost) are subsequently measured at amortised cost using the effective interest rate method (“EIR”). Amortised cost is calculated by taking into account any discount or premium and fees or costs on acquisition. Unwinding of the difference between nominal and amortised values is included in finance income in the statement of profit or loss.

 

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss.

 

Derecognition

 

A financial asset is derecognised when the Group loses control over the contractual rights that comprise that asset. This occurs when the rights are realised, expire or are surrendered.

 

Impairment of financial assets

 

The Group assesses on a forward-looking basis the expected credit losses that might arise on financial assets measured at amortised cost. This assessment considers the probability of a default event occurring that could result in the expected cash flows due from a counterparty falling short of those contractually agreed.

 

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Prime Source Group

Notes to the combined financial statements

for the years ended 31 December 2022, 2021 and 2020

 

25. Significant accounting policies, continued

 

Expected credit losses are estimated for default events possible over the lifetime of a financial asset measured at amortised cost. However, where the financial asset is not a trade receivable measured at amortised cost and there have been no significant increases in that financial asset’s credit risk since initial recognition, expected credit losses are estimated for default events possible within 12 months of the reporting date.

 

Financial liabilities

 

Classification and initial measurement

 

Financial liabilities within the scope of IFRS 9 are classified as financial liabilities at amortised cost or fair value through profit or loss. The Group determines the classification of its financial liabilities at initial recognition.

 

At initial recognition financial liabilities are measured at fair value being the consideration given. Financial liabilities at amortised cost additionally include directly attributable transaction costs.

  

Subsequent measurement

 

Trade and other payables and other financial liabilities are subsequently measured at amortised cost using the EIR method after initial recognition. Amortised cost is calculated by taking into account any discount or premium and fees or costs on acquisition. Unwinding of the difference between nominal and amortised values is included in finance costs in the statement of profit or loss.

 

Financial liabilities measured at fair value through profit or loss are carried on the statement of financial position at fair value with subsequent changes recognised in finance costs in the statement of profit or loss.

 

Derecognition

 

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

 

Offsetting of financial instruments

 

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position when there is an enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

 

Fair value of financial instruments

 

At each reporting date, the fair value of financial instruments that are traded in active markets is determined by reference to quoted market prices, without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm’s length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis or other valuation models.

 

Events after the reporting period

 

Repayment of loans received from former owner

 

In January and February 2023, the Group fully repaid the loans received from the former owner, which described in note 17.

 

Attracting a bank loan

 

In March 2023, the Group entered into a revolving credit line with Al Hilal Islamic Bank JSC at a fixed interest rate of 16.5%. The credit line is intended to replenish working capital, and is calculated until March 2026. As part of this agreement, in March 2023, the Group received a loan in the amount of 940,000 thousand tenge, maturing until March 2024.

 

When entering into an agreement for a revolving credit line, the Group deposited the following collateral with the bank:

 

Cash flowing under contracts in the future;

 

Intangible assets of the Group in the form of intellectual property;

 

Trademark Prime Source.

 

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