| Significant Accounting Policies | 2. SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) on a going concern basis (note 2.2). The consolidated financial statements have been prepared on a historical cost basis, except for circumstances where IFRS requires other basis of accounting (e.g. fair value). 2.2 Going concern basis of accounting As of December 31, 2021, the Group had cash, cash equivalents and short-term bank deposits of 125,991 (2020: 103,724) and net current assets of 42,650 (2020: 64,597). The trading of the Company’s ADSs on NASDAQ Global Select Market was suspended on February 28, 2022 and remained suspended throughout the period to and including March 8, 2022. Under the conditions of the Company’s U Due to, among other things, uncertainty around the impact of the restrictions under the recently enacted Russian capital control and protection measures on the ability to transfer cash funds from the Group’s Russian subsidiaries to the Company, there is a risk that the Company will not have sufficient liquidity available at the relevant time to fund the payments required for the redemption if all or a significant number of the bondholders choose to exercise their redemption right. A failure to timely pay the amounts due under the redemption would result in an event of default under the terms of the Bonds and may trigger a potential cross-default on other Group’s liabilities. If the Group provided to the Company the liquidity necessary to fund the early redemption in the absence of new restrictions, such a redemption would result in a significant reduction in the amount of liquidity available to fund operations and would have a significant effect on our operations and growth outlook. The Company has entered into discussions with an ad hoc group of holders of the Bonds and their advisers in connection with a proposed consensual restructuring by the Company of its financial indebtedness under the Bonds following the ‘Delisting Event’ and aims to be in a position to enter into a standstill agreement with a significant number of holders of the Bonds in the near term with a view to continue such discussions and to reach an agreement on the long term restructuring of the Bonds within the current financial year. Further, in response to the current economic challenges (note 31), the Group’s management revisited its budget and liquidity plan to re-focus its operations on improvement of efficiency and reduction of needs for additional funding. Currently, the Company continues to operate as usual. As of March 31, 2022, the Group had approximately 92,500 in cash and cash equivalents and short-term bank deposits available to support operational needs and settle financial obligations. The Company’s liquidity is mostly held in deposits in Russia. Subject to the foregoing, the Group’s management believe that, based on the current budget and operating plan, the existing cash and cash equivalents and short-term deposits, are sufficient to meet the Group’s anticipated cash needs to finance capital expenditures and operating expenses dedicated to business expansion for at least the next twelve months. Although the Group management believes that the Group has sufficient cash and cash equivalents to cover the capital expenditures, operating expenses and working capital needs in the ordinary course of business and to continue to expand the Group’s business, the Group may, from time to time, explore additional financing sources. Therefore, the Group’s management believes that the Group will retain its ability to continue as a going concern in the foreseeable future. However, based on the Group’s history of operating losses, the expectation of continued operating loss in 2022, and the need to fund the operations and invest in development of the Group’s business with the liquidity accumulated by the Group, management have concluded there is a material uncertainty about the Company’s ability to continue as a going concern within one year from the date of these consolidated financial statements related to the outcome of the negotiations with the bondholders regarding the terms of the Bond restructuring. The Group’s consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Group will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. 2.3 Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at December 31, 2021. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:
• power over the investee;
• exposure, or rights, to variable returns from its involvement with the investee;
• the ability to use its power to affect its returns. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. If the Group loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognized in profit or loss. Any investment retained is recognized at fair value. 2. 4 During 2021, the Group changed the presentation of line items in the consolidated statement of financial position to improve presentation: advances for non-current assets were included in the “Property, plant and equipment” line item; individually immaterial line items “Prepaid income tax”, “Advances and prepaid expenses”, and “Other current assets” in the statement of financial position were combined in one line “Other non-financial assets”. The prior year comparative information was adjusted to reflect the presentation adopted in 2021. 2. 5 The Group applied for the first-time certain standards and amendments, which are effective for annual periods beginning on or after January 1, 2021. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR). The amendments include the following practical expedients:
• A practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as changes to a floating interest rate, equivalent to a movement in a market rate of interest;
• Permit changes required by IBOR reform to be made to hedge designations and hedge documentation without the hedging relationship being discontinued;
• Provide temporary relief to entities from having to meet the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component. These amendments had no impact on the consolidated financial statements of the Group as the Group does not have debt instruments with floating rates linked to the IBOR. Covid-19-Related Rent Concessions beyond 30 June 2021 Amendments to IFRS 16 On May 28, 2020, the IASB issued Covid-19-Related Leases Covid-19 Covid-19 Covid-19 The amendment was intended to apply until June 30, 2021, but as the impact of the Covid-19 However, the Group has not received Covid-19-related The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective. The following amended standards and interpretations are not expected to have a significant impact on the Group’s consolidated financial statements:
• IFRS 17 Insurance Contracts (effective date – January 1, 2023);
• Amendments to IFRS 17(effective date – January 1, 2023);
• Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2 (effective date – January 1, 2023);
• Definition of Accounting Estimate – Amendments to IAS 8 (effective date – January 1, 2023);
• Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction – Amendments to IAS 12 Income taxes (effective date – January 1, 2023);
• Sale or Contribution of Assets between an Investor and its Associate or Joint Venture – Amendments to IFRS 10 and IAS 28 (Effective date – optional);
• Reference to the Conceptual Framework – Amendments to IFRS 3 (effective date – January 1, 2022);
• Property, Plant and Equipment: Proceeds before Intended Use – Amendments to IAS 16 (effective date – January 1, 2022);
• Onerous Contracts – Costs of Fulfilling a Contract – Amendments to IAS 37 (effective date – January 1, 2022);
• IFRS 1 First-time Adoption of International Financial Reporting Standards – Subsidiary as a first-time adopter (effective date – January 1, 2022);
• IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial liabilities (effective date – January 1, 2022);
• IAS 41 Agriculture – Taxation in fair value measurements (effective date – January 1, 2022);
• IFRS 16 Leases, Illustrative Example 13(effective date – January 1, 2022). In January 2020, the International Accounting Standard Board (“IASB”) issued amendments to IAS 1 Presentation of Financial Statements to specify the requirements for classifying liabilities as current or non-current, effective for annual reporting periods beginning on or after January 1, 2023. The Company is currently evaluating the impact that amendments will have on the consolidated financial statements. 2. 6 a) Business combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling The Group determines that it has acquired a business when the acquired set of activities and assets include an input and a substantive process that together significantly contribute to the ability to create outputs. The acquired process is considered substantive if it is critical to the ability to continue producing outputs, and the inputs acquired include an organised workforce with the necessary skills, knowledge, or experience to perform that process or it significantly contributes to the ability to continue producing outputs and is considered unique or scarce or cannot be replaced without significant cost, effort, or delay in the ability to continue producing outputs. The Group elects on a transaction-by-transaction b) Investments in associates An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. The Group’s investments in associates are accounted for using the equity method. Under the equity method, an investment in an associate is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate since the acquisition date. Dividends received or receivable from an associate reduce the carrying amount of the investments in associates. Goodwill relating to the associate is included in the carrying amount of the investment and is not tested for impairment separately. The consolidated statement of profit or loss and other comprehensive income reflects the Group’s share of the results of operations of the associate. When there has been a change recognized directly in the equity of the associate, the Group recognizes its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealized gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate, the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. After application of the equity method, the Group determines whether it is necessary to recognize an impairment loss on its investment in its associate. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, and then recognizes the loss within “Share of profit / (loss) of an associate” in the consolidated statement of profit or loss and other comprehensive income. Upon loss of significant influence over the associate, the Group measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss. c) Foreign currencies The Group’s consolidated financial statements are presented in Russian Rubles (“RUB”), which is also the parent company’s functional currency. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. The functional currency of Russian operating subsidiaries, which account for the significant majority of our operations, is the Russian ruble. The functional currency of the Group’s operating subsidiaries in Belarus and Kazahstan is their respective local currency. The Group determines the functional currency based on combination of factors and consider the primary economic environment in which these companies operate, and the related currency, in which they generate and expend its cash flows. Transactions in foreign currencies are initially recorded by the Group’s subsidiaries in their functional currency at exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into functional currency at exchange rates prevailing at the reporting date. Differences arising on settlement or translation of monetary items are recognized within “Foreign currency exchange gain / (loss), net”, in the consolidated statement of profit and loss and other comprehensive income. Non-monetary Non-monetary The RUB is not a fully convertible currency outside Russia. Within the Russian Federation, official exchange rates are determined by the Central Bank of the Russian Federation. d) Revenue from contracts with customers The Group evaluates whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions based on a determination of whether it is a principal in providing a good or a service to a customer (a principal controls the goods or services before they are transferred to customers) or whether it is an agent of another entity. When the Group is primarily responsible for fulfilling the promise to provide the specified good or service, bears an inventory risk, has discretion in establishing prices, or has several but not all of these indicators, it is a principal in the arrangement and recognizes revenues on a gross basis. When the Group’s performance obligation is to arrange for the provision of the specified good or service by another party, revenues are recorded on a net basis. Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. i. Revenue from sales of goods The Group recognizes revenue from sales of goods on a gross basis as the Group controls goods before the goods are transferred to a customer. Payment for the purchased goods is generally made either before delivery or upon delivery. Revenue is recognized at the point in time when control of the promised goods is transferred to customers which generally occurs upon delivery to the customers. The Group recognizes revenue net of return allowances when the goods are delivered to customers. Delivery of goods to customers, who place their orders for goods online through the Group’s website and mobile app, is not separately identifiable from sales of goods, and the Group accounts for sales of goods and delivery services to its customers as a single performance obligation. ii. Right of return For certain categories of goods customers have a right to return these goods within a specified period. Return allowances, which reduce revenues from sales of goods, are estimated based on historical experiences. For goods that are expected to be returned from the customers, the Group recognizes a refund liability (included in Accrued expenses in the consolidated statement of financial position). The liability is measured at the amount the Group ultimately expects it will have to return to the customer. A right of return asset (included in Inventories in the consolidated statement of financial position) and corresponding adjustment to cost of sales are also recognized for the right to recover products from the customers. iii. Financing component in revenue arrangements The Group has a service (“Ozon Installment”) that allows customers to pay for goods in installments generally over a six-month iv. Loyalty program The Group has loyalty points programs (Ozon Points, Ozon Premium Points, Ozon Card, Ozon Rubles) which allow customers to accumulate points in connection with purchase of goods or services on the Group’s marketplace platform that can be redeemed against future purchases, subject to a certain threshold. The loyalty points give rise to a separate performance obligation as they provide a material right to the customer. A portion of the transaction price is allocated to the loyalty points awarded to customers based on a stand-alone selling price of points and recognized as deferred revenue (contract liability) in the consolidated statement of financial position. Deferred revenue is recognized as revenue when loyalty points are redeemed, expire or the likelihood of the customer redeeming the points becomes remote. When estimating the stand-alone selling price of the loyalty points, the Group considers the likelihood that the customer will redeem the points. The Group updates its estimates of the points that will be redeemed on a quarterly basis and any adjustments to the deferred revenue balance are charged against revenue. Generally, the deferred revenue related to loyalty programs is recognized within one year after the reporting date. v. Gift certificates The Group sells gift certificates which can be redeemed to purchase products sold on the Group’s website ozon.ru or mobile app. The cash collected from the sales of gift certificates is initially recorded as deferred revenue (contract liability) in the consolidated statement of financial position and subsequently recognized as revenue upon the sales of the respective products through redemption of gift certificates. Revenue from redeemed gift certificates is included in Revenue from sales of goods (note 4). Revenue from unredeemed gift certificates is recognized over the expected customer redemption period (usually 12 months) and included in service revenue. vi. Premium subscription In 2019, the Group launched an Ozon Premium program (“Ozon Premium”), a subscription-based service which provides customers with free delivery, additional discounts and other benefits. The cash collected from the sales of Ozon Premium is initially recorded as deferred revenue (contract liability) in the consolidated statement of financial position and subsequently recognized as revenues over the subscription period (1, 6 or 12 months). Revenue from Ozon Premium is included in service revenue. vii. Marketplace commission The Group offers a marketplace platform that enables sellers to sell their products through the Group’s website and use the Group’s logistics infrastructure to deliver products to the end-customer. end-customer Revenue from additional services to sellers such as product utilization charges, additional fulfillment and logistics services, charges for convenient payment options are recognized upon fulfillment of the respective performance obligations which generally matches the invoicing pattern. viii. Advertising revenue The Group’s advertising services allow customers to place advertisements in particular areas of the Group’s websites at fixed or variable prices (cost per click or cost per view). Advertising revenue is recognized evenly over the period in which the advertisement is displayed or based on the number of views or clicks, when the advertisement has been displayed. Payment is generally due within 30 to 60 days from providing advertising services. ix. Travel services Revenue from travel services consists of commission fees and ticketing fees charged from the travel supplier and/or traveler for the sale of airline and railway tickets, and hotel bookings through the Group’s website and app. The Group acts as the agent in these transactions, passing reservations booked by the traveler to the relevant travel provider. Commission fees and ticketing fees are recognized upon booking of airline and railway transactions or hotel reservations as the Group has no significant post-delivery obligations. e) Leases Right-of-use The Group recognizes right-of-use Right-of-use right-of-use
Fulfillment and sorting centers 3-10
Office premises 2-7
Pick-up 3
Vehicles 3-4 Right-of use assets are also subject to impairment. Refer to the accounting policies in section 2.5 (p) Impairment of long-lived assets. Lease liabilities At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses the incremental borrowing rate (IBR) at the lease commencement date if the interest rate implicit in the lease is not readily determinable. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a contract modification, including a change in the lease term, a change in the in-substance Leases of low-value The Group applies the lease of low-value low-value Sale and leaseback transactions In a sale and leaseback transaction, an entity (seller-lessee) sells an asset to another entity (buyer-lessor) who then leases it back to the seller-lessee. The Group applies the requirements of IFRS15, Revenue from Contracts with Customers If the transfer of an asset by the seller-lessee does not satisfy the requirements of IFRS 15, Revenue from Contracts with Customers Financial Instruments Security deposits At the commencement of a lease, the Group may be required to pay a security deposit to the lessor. As long as the deposit is a true deposit and not a prepaid lease payment, the deposit gives the lessee a right to receive the money back in cash from the lessor and is, therefore, a financial asset for the lessee and a financial liability for the lessor and is within the scope of IFRS 9 , Financial Instruments When the deposit earns interest below the market rate, the excess of the principal amount of the deposit over its fair value is accounted as a prepaid lease payment. The Group includes this amount in the cost of its right-of-use Interest on the deposit is accounted for using the effective interest method. Presentation in the consolidated statement of cash flows The Group classifies cash payments for the principal portion of lease liabilities within financing activities and cash payments for the interest portion of the lease liabilities within operating activities. f) Cost of sales Cost of sales consists of purchase price of consumer products, net of vendor’s rebates and subsidies, write-downs and losses of inventories, cost of travel services and costs of obtaining and fulfilling contracts with third-party sellers on the marketplace platform. Rebates and subsidies The Group periodically receives considerations from certain vendors, representing rebates for products sold and subsidies for the sales of the vendors’ products over a period of time. Vendor rebates typically depend on reaching minimum sales or purchase thresholds for a specified period, or on selling goods at a targeted discount (subsidized by vendor). The rebates are not sufficiently separable from the Group’s purchase of the vendors’ products and they do not represent a reimbursement of costs incurred by the Group to sell vendors’ products. The Group accounts for the rebates received from its vendors as a reduction to price of purchased goods and therefore the Group records such amounts as a reduction of cost of sales when such sales occur. When volume rebates can be reasonably estimated based on the Group’s past experiences, a portion of the rebates is recognized as the Group makes progress towards the target threshold. Subsidies are calculated based on the volume of products sold through the Group and are recorded as a reduction of cost of sales when the sales have been completed and the amount is determinable. g) Fulfillment and delivery expenses Fulfillment and delivery expenses consist of outbound shipping costs, packaging material costs, costs incurred in operating the Group’s fulfillment centers, sorting centers, customer service centers, pickup points, expenses related to payment processing, costs associated with use by these functions of facilities and equipment, such as depreciation expenses, as well as write-offs and losses of sellers’ inventory and other related costs. Fulfillment and delivery expenses also include amounts paid to employees and third parties that assist the Group in fulfillment, sorting, delivery and customer service operations. Fulfillment and delivery costs are expensed as incurred. h) Sales and marketing expenses Sales and marketing and commercial expenses consist primarily of advertising costs and related employee costs. The Group pays commissions to participants in the affiliates program when their customer referrals result in successful product sales and records such costs in sales and marketing expenses. Sales and marketing costs are expensed as incurred. i) Technology and content expenses Technology and content expenses include payroll and related expenses for employees involved in the research and development of new and existing products and services, development, design, and maintenance of the Group’s websites and mobile apps, and technology infrastructure costs. Technology and content expenses are expensed as incurred. j) General and administrative expenses General and administrative expenses consist of payroll and related expenses for employees involved in general corporate functions, including general and administrative expenses related to operation of marketplace platform. These expenses include payroll of accounting, finance, tax, legal and human relations functions; costs associated with use by these functions of facilities and equipment, such as depreciation expenses, rental and other general corporate related expenses. General and administrative costs are expensed as incurred. k) Share-based awards All of the Group’s share-based awards are equity-settled. Certain employees of the Group receive remuneration in the form of share-based compensation, whereby employees render services as consideration for equity instruments. The Group issues equity-settled share-based awards, including share options, share appreciation rights and restricted share units, and accounts for these awards in accordance with IFRS 2, Share-based payment . The cost of equity-settled share-based awards is measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant. That cost is recognized as an employee benefits expense, together with a corresponding increase in equity (equity-settled employee benefits reserves), over the period in which the service and, where applicable, the performance conditions are fulfilled (the vesting period). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit in the consolidated statement of profit or loss and other comprehensive income for a period represents the movement in cumulative expense recognized as at the beginning and end of that period. Market-based performance criteria are taken into account when determining the fair value at the date of grant. Non-market based performance criteria are taken into account when estimating the number of share-based awards expected to vest. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions. No expense is recognized for awards that do not ultimately vest because non-market performance and/or service conditions have not been met. Where awards include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. When the terms of an equity-settled award are modified to the employee’s benefit, the Company continues to recognize the grant date fair value of the award over the original vesting term. Further, from the modification date through the modified vesting date, the Company recognizes an additional expense for any modification that increases the total fair value of the share-based compensation transaction, or is otherwise beneficial to th |
