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As filed with the Securities and Exchange Commission on October 8, 2021.

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

DELIMOBIL HOLDING S.A.

(Exact name of Registrant as specified in its charter)

 

Grand Duchy of Luxembourg   7389   Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

10, rue C.M. Spoo

L-2546, Luxembourg

Grand Duchy of Luxembourg

+352 26 97 63 04

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

C T Corporation System

28 Liberty Street

New York,

New York 10005

(212) 894-8940

(Name, address, including zip code, and telephone number, including area code, of agent for service)

With copies to:

 

David I. Gottlieb, Esq.

Cleary Gottlieb Steen &
Hamilton LLP

2 London Wall Place

London EC2Y 5AU

United Kingdom

+44 20 7614 2200

 

Yulia A. Solomakhina

Cleary Gottlieb Steen &
Hamilton LLC

Paveletskaya Square 2/3
Moscow, Russia, 115054

+7 495 660 8500

 

Claire-Marie Darnand

Stibbe Avocats

6, rue Jean Monnet

2180 Luxembourg

Luxembourg

+352 26 61 81 00

 

Pranav L. Trivedi, Esq.

Skadden, Arps, Slate,
Meagher & Flom (UK)
LLP

40 Bank Street, Canary
Wharf

London E14 5DS

United Kingdom

+44 20 7519 7000

 

Ryan J. Dzierniejko

Skadden, Arps, Slate,
Meagher & Flom LLP

One Manhattan West

New York, NY 10001

United States

+1 (212) 735-3000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. Emerging growth company  ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities to be Registered(1)  

Proposed Maximum
Aggregate Offering
Price(2)(3)

 

Amount of
Registration Fee(4)

Ordinary shares, par value of €0.01

  $100,000,000   $9,270

 

 

(1)

American depositary shares, or ADSs, issuable upon deposit of the ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333-            ). Each ADS represents              ordinary shares.

(2)

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(3)

Includes the aggregate offering price of additional ordinary shares represented by ADSs that may be acquired by the underwriters if the underwriters’ option to purchase additional ADSs is exercised.

(4)

Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as amended, based on an estimate of the proposed maximum aggregate offering price.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED                 , 2021

PRELIMINARY PROSPECTUS

DELIMOBIL HOLDING S.A.

            American Depositary Shares

Representing                  Ordinary Shares

$                per ADS

This is the initial public offering of American Depositary Shares, or ADSs, representing ordinary shares of Delimobil Holding S.A., a public limited liability company (société anonyme) incorporated under the laws of Luxembourg. Each ADS will represent                ordinary shares. We are offering                  ADSs.

Prior to this offering, there has been no public market for the ADSs. The estimated initial public offering price per ADS will be between $                 and $                . We intend to apply to have the ADSs listed on the New York Stock Exchange (“NYSE”) in the United States under the symbol “DMOB.”

We are and will continue to be a “controlled company” within the meaning of the NYSE corporate governance rules due to the fact upon completion of this offering that our controlling shareholder, Mikro Kapital Group SARL, as well as (i) all its direct and indirect subsidiaries, (ii) special purpose vehicles managed by such direct and indirect subsidiaries and (iii) equity investments of such special purpose vehicles (together “Mikro Kapital Group”), will control approximately                 % of the voting power of our ordinary shares. As a “controlled company”, we are permitted to elect to rely on certain exemptions from corporate governance rules. See “Management—Controlled Company Exemption.”

We are both an “emerging growth company” and a “foreign private issuer” as defined under the U.S. federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements. See “Prospectus Summary—Implications of Being an Emerging Growth Company and a Foreign Private Issuer.”

Investing in the ADSs involves risks. See “Risk Factors” beginning on page 24.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

    

Per ADS

      

Total

 

Initial public offering price

   $                          $                    

Underwriting discounts and commissions(1)

   $                          $                    

Proceeds to us (before expenses)

   $                          $                    

 

(1)

We have agreed to reimburse the underwriters for certain expenses in connection with this offering. See “Underwriting.”

The underwriters have a 30-day option to purchase up to an aggregate of                 additional ADSs from us at the initial public offering price, less the underwriting discounts and commissions.

The underwriters expect to deliver the ADSs to purchasers on or about                  , 2021.

 

 

 

BofA Securities   Citigroup   VTB Capital
Banco Santander  

RenCap

  SberCIB

 

 

Prospectus dated                 , 2021


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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

     iv  

MARKET AND INDUSTRY DATA

     vii  

TRADEMARKS

     viii  

PROSPECTUS SUMMARY

     1  

THE OFFERING

     17  

SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

     19  

RISK FACTORS

     24  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     77  

USE OF PROCEEDS

     79  

DIVIDEND POLICY

     80  

CAPITALIZATION

     81  

DILUTION

     82  

SELECTED COMBINED AND CONSOLIDATED FINANCIAL AND OPERATING DATA

     84  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     89  

INDUSTRY

     126  

BUSINESS

     143  

REGULATION

     174  

MANAGEMENT

     181  

PRINCIPAL SHAREHOLDERS

     192  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     194  

DESCRIPTION OF SHARE CAPITAL AND ARTICLES OF ASSOCIATION

     198  

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

     215  

SHARES AND AMERICAN DEPOSITARY SHARES ELIGIBLE FOR FUTURE SALE

     224  

TAX CONSIDERATIONS

     226  

UNDERWRITING

     245  

EXPENSES OF THE OFFERING

     254  

LEGAL MATTERS

     255  

EXPERTS

     256  

ENFORCEABILITY OF CIVIL LIABILITIES

     257  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     260  

 

 

Neither we nor the underwriters have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared, and neither we nor the underwriters take responsibility for, or can provide any assurance as to the reliability of, any other information others may give you. We and the underwriters are not making an offer to sell, or seeking offers to buy, these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date, regardless of the time of delivery of this prospectus or of any sale of the ADSs.

For investors outside the United States: Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction, other than the United States, where action for that purpose is required. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the ADSs and the distribution of this prospectus outside the United States.

We are incorporated in Luxembourg, and a majority of our outstanding securities are owned by non-U.S. residents. Under the rules of the United States Securities and Exchange Commission, or the SEC, we

 

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are currently eligible for treatment as a “foreign private issuer.” As a foreign private issuer, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic registrants whose securities are registered under the Securities Exchange Act of 1934, as amended.

 

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ABOUT THIS PROSPECTUS

Except where the context otherwise requires or where otherwise indicated, all references in this prospectus to “Delimobil Holding” or the “issuer” are to Delimobil Holding S.A., a Luxembourg public limited liability company (société anonyme) registered with the Luxembourg Register of Commerce and Companies under number B 250892; and to “Delimobil,” the “Company,” “we,” “us,” “our” or similar terms refer to Delimobil Holding together with its consolidated subsidiaries as a consolidated entity.

All references in this prospectus to the “Companies” are to Carsharing Russia LLC, Anytime LLC and Smart Mobility Management LLC (“SMM LLC”), our consolidated subsidiaries, all of which are Russian limited liability companies LOGO ; and to the “Group” are to Delimobil Holding and the Companies on a combined and consolidated basis.

All references in this prospectus to “Russia” are to the Russian Federation; to “Luxembourg” are to the Grand Duchy of Luxembourg; and to the “EU” are to the European Union.

All references in this prospectus to “RUB,” “rubles” or “P” are to Russian rubles, the official currency of Russia; to “USD,” “dollar” or “$” are to U.S. dollars; and to “EUR,” “euro” or “” are to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the treaty establishing the European Community, as amended.

All references in this prospectus to the “Commission” or to the “SEC” are to the United States Securities and Exchange Commission; to the “Exchange Act” are to the U.S. Securities Exchange Act of 1934, as amended; and to the “Securities Act” are to the U.S. Securities Act of 1933, as amended.

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Financial Information

Our audited combined and consolidated financial statements for the years ended December 31, 2020 and 2019 are included in this prospectus, and reflect the combined and consolidated financial information of the Companies, our Russian subsidiaries through which our business is operated. Our audited combined and consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), and audited in accordance with the standards established by Public Company Accounting Oversight Board (“PCAOB”). Our unaudited interim condensed combined and consolidated financial statements for the six months ended June 30, 2021 and 2020 have been prepared in accordance with IAS 34, “Interim Financial Reporting,” as issued by the IASB. None of our financial statements were prepared in accordance with generally accepted accounting principles of the United States (“U.S. GAAP”). References in this prospectus to “our financial statements” are to our audited combined and consolidated financial statements for the years ended December 31, 2020 and 2019, and the related notes thereto, and to our unaudited interim condensed combined and consolidated financial statements for the six months ended June 30, 2021 and 2020, and the related notes thereto, included elsewhere in this prospectus.

Delimobil Holding, the company offering the ADSs in this prospectus, was incorporated on January 18, 2021, as a public limited liability company (société anonyme) under the laws of Luxembourg. Its subsidiary, Carsharing Russia LLC, through which the principal business of Delimobil Holding is conducted, has operated since 2015. Until the contribution of the equity interests in the Companies, Delimobil Holding had not commenced operations. Following this offering, Delimobil Holding will begin reporting consolidated financial information to shareholders. Our fiscal year ends on December 31 of each year. References to 2020 are to the fiscal year ended December 31, 2020, and references to 2019 are to the fiscal year ended December 31, 2019.

The financial information presented in this prospectus should be read in conjunction with our financial statements, including the related notes, and the section of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Use of Non-IFRS Financial Measures

Certain parts of this prospectus contain non-IFRS financial measures, specifically Adjusted Gross Profit/(Loss), Adjusted Gross Profit/(Loss) Margin, Adjusted EBITDA and Adjusted EBITDA Margin. The most directly comparable IFRS measure for Adjusted Gross Profit/(Loss) and Adjusted Gross Profit/(Loss) Margin is gross profit/(loss). The most directly comparable IFRS measure for Adjusted EBITDA and Adjusted EBITDA Margin is loss for the period. We define:

 

   

Adjusted Gross Profit/(Loss) as gross profit/(loss) adjusted for: (i) compulsory civil liability insurance proceeds, (ii) expected credit losses of trade receivables and (iii) following the adoption of our phantom share plan (the “Phantom Share Plan”), share-based remuneration;

 

   

Adjusted Gross Profit/(Loss) Margin as Adjusted Gross Profit/(Loss) divided by revenue expressed as a percentage;

 

   

Adjusted EBITDA as loss for the period adjusted for: (i) income tax benefit, (ii) finance costs, (iii) finance income, (iv) impairment of a right-of-use asset, (v) VAT write-off, (vi) loss on lease terminations, (vii) impairment of property, plant and equipment, (viii) (gain)/loss on disposal of property, plant and equipment, net, (ix) reversal of an impairment loss on a right-of-use asset, (x) subsidies received, (xi) insurance compensation received for damage of vehicles, (xii) reversal of impairment loss on property, plant and equipment, (xiii) depreciation of property, plant and equipment, (xiv) amortization of intangible assets, (xv) depreciation of right-of-use assets and (xvi) following the adoption of our Phantom Share Plan, share-based remuneration; and

 

   

Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue expressed as a percentage.

 

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The non-IFRS financial measures included in this prospectus are unaudited supplementary measures that are not required by or presented in accordance with IFRS or any other generally accepted accounting principles. See “Selected Combined and Consolidated Financial and Operating Data” for a reconciliation of these non-IFRS measures to the most directly comparable IFRS measures as set forth in the combined and consolidated financial statements.

Prospective investors should not consider them as: (a) an alternative to gross profit/(loss), operating profit or net profit as determined in accordance with IFRS or other generally accepted accounting principles, or as measures of operating performance; or (b) an alternative to any other measures of performance under IFRS or other generally accepted accounting principles.

These measures are used by our management to monitor the underlying performance of the business and our operations. However, not all companies calculate these measures in an identical manner and, therefore, our presentation may not be comparable with similar measures used by other companies. As a result, prospective investors should not place undue reliance on this data.

Rounding

Certain figures and some percentages included in this prospectus have been subject to rounding adjustments. Accordingly, the totals included in certain tables contained in this prospectus may not correspond to the arithmetic aggregation of the figures or percentages that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

Key Operating and Financial Metrics

Throughout this prospectus, we provide a number of key operating and financial metrics used by our management and often used by competitors in our industry. We use different key operating and financial metrics for our two different operating segments, Delimobil and Anytime Prime. These and other key performance indicators are discussed in more detail in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial and Operating Metrics.” We define certain terms used in this prospectus as follows:

Delimobil Segment

 

   

EoP Fleet means the total number of vehicles in our car sharing fleet at the end of a given period.

 

   

Weighted Average Fleet represents the average number of vehicles that constituted our car sharing fleet in a given period, calculated as the sum of the number of days each vehicle was part of our fleet divided by the number of calendar days in the given period.

 

   

Total Trips is the total number of trips completed by customers using our car sharing fleet in a given period. A trip lasts from the moment a customer books a vehicle until the moment the customer signals the completion of their journey on the Delimobil app.

 

   

Monthly Active Users (MAU) is the total number of unique customers who completed at least one trip per month using our car sharing fleet calculated as an average over the reporting period.

 

   

Total Minutes Sold is the total number of minutes that customers were charged for using our car sharing service in a given period.

 

   

Revenue for Car Sharing is the total amount of revenue generated from our car sharing service in a given period, in line with Note 32 to our audited combined and consolidated financial statements and with Note 30 to our unaudited interim condensed combined and consolidated financial statements.

 

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Revenue per Weighted Average Fleet is revenue generated from our car sharing service divided by Weighted Average Fleet in a given period.

 

   

Revenue per Minute is revenue generated from our car sharing service divided by Total Minutes Sold in a given period.

Anytime Prime Segment

 

   

EoP Fleet means the total number of vehicles in our long-term rental fleet at the end of a given period.

 

   

Weighted Average Fleet represents the average number of vehicles that constituted our long-term rental fleet in a given period, calculated as the sum of the number of days each vehicle was part of our fleet divided by the number of calendar days in the given period.

 

   

Total Rental Days is the total number of rental days completed by customers for use of a vehicle in our long-term rental fleet in a given period. A rental day lasts from the moment a customer books the vehicle until the moment the customer signals the completion of their journey on the Anytime Prime app. As we only began to collect data on rental days from April 2019 as part of our strategic decision to focus on long-term rentals in the Anytime Prime segment, for the year ended December 31, 2019, Total Rental Days relates only to the period from April to December 2019.

 

   

Revenue for Long-Term Rentals is the total amount of revenue generated from our long-term rental service in a given period, in line with Note 32 to our audited combined and consolidated financial statements and with Note 30 to our unaudited interim condensed combined and consolidated financial statements. Revenue for Long-Term Rentals does not include any car sharing revenue recorded in the Anytime Prime segment for the year ended December 31, 2019.

 

   

Revenue per Rental Day is revenue generated from our long-term rental service divided by Total Rental Days in a given period.

 

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MARKET AND INDUSTRY DATA

The industry, market and competitive position data included in this prospectus is derived from our own internal estimates and research, our management’s understanding of our business and the market in which we operate, as well as from publicly available information, including information of the Russian Federal State Statistics Service (“Rosstat”), the Moscow Department of Transport, the International Monetary Fund (“IMF”), industry and general publications and research, surveys and studies conducted by third parties, such as Frost & Sullivan Ltd. (“Frost & Sullivan”).

There are a number of studies that address either specific market segments, or regional markets, within our industry. However, given the rapid changes in our industry and the markets in which we operate, no industry research that is generally available covers some of the car sharing market trends we view as key to understanding our industry and our place in it worldwide and, in particular, in Russia. We believe that it is important that we maintain as broad a view on industry developments as possible. To assist us in formulating our business plan and in anticipation of this offering, we commissioned Frost & Sullivan in 2021 to provide an independent view of the car sharing landscape in Russia including an overview of macroeconomic indicators of Russia, the evolution of Russia’s public and private transportation markets size, shared mobility and car sharing markets size and an analysis of its underlying trends over time, relevant demographics, peer countries benchmarks, COVID-19 impact and potential growth factors, as well as an assessment of key competitors and evaluation of their and our market position. Frost & Sullivan produced a research report titled “Industry Report on the Russian Car Sharing Market” dated July 15, 2021. In connection with the preparation of Frost & Sullivan’s report, we furnished to Frost & Sullivan certain of our historical information and market competitive data. In preparation of the report, Frost & Sullivan conducted research including a customer survey, a study of a broad range of secondary sources including other market reports, association and trade press publications, other databases and other sources. We use the data contained in Frost & Sullivan’s report to assist us in describing the nature of our industry and our position in it. Such information is included in this prospectus in reliance on Frost & Sullivan’s authority as an expert in such matters. See “Experts.”

Due to the evolving nature of our industry and competitors, we believe that it is difficult for any market participant, including us, to provide precise data on the market or our industry. Industry publications and forecasts generally state that the information they contain has been obtained from sources believed to be reliable. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. Although we are not aware of any misstatements regarding the industry data that we present in this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus.

Some market data and statistical information contained in this prospectus are also based on management’s estimates and calculations, which are derived from our review and interpretation of the independent sources, our internal market and brand research and our knowledge of our industry. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. The forward-looking information obtained from these sources is subject to the same qualifications and uncertainties as other forward looking statements in this prospectus.

 

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TRADEMARKS

We have proprietary rights to certain trademarks used in this prospectus that are important to our business, many of which are registered under applicable intellectual property laws.

Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the “®” or “” symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent possible under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. Except where expressly indicated, we do not intend our use or display of other companies’ trademarks, trade names or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. Each trademark, trade name or service mark of any other company appearing in this prospectus is the property of its respective owner.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before deciding to invest in the ADSs. You should read the entire prospectus carefully, including the “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections as well as our financial statements and the related notes thereto before making an investment decision.

Our Mission

To foster human connection by placing fast, easy and affordable mobility at the heart of it. Let’s share the future together.

Overview

We are a leading shared mobility provider in Russia, offering convenient, affordable and sustainable transportation alternatives supported by an advanced technology framework. Founded in 2015, we were a pioneer in the Russian car sharing industry and created the standard for car sharing services on the Russian market. We have developed through both organic growth and strategic acquisitions to become a leading car sharing operator in Russia, in terms of geographic presence, fleet size, number of trips in Moscow and revenue growth, as well as a first-mover in car subscription services. Our MAU increased from 270 thousand for the year ended December 31, 2019 to 461 thousand for the nine months ended September 30, 2021, which we believe was the combined result of our fleet growth, competitive customer proposition (including a user rating system with gamification and loyalty triggers, operations across 11 cities and smart churn prevention activities) and strong brand awareness.

We operate in the Russian shared mobility market under two principal business lines: free-floating car sharing under our brand “Delimobil” and car subscription for long-term rentals under our brand “Anytime Prime.” Delimobil was ranked first in top-of-mind and brand awareness among Russian car sharing providers in December 2020, according to brand health tracking research done by Tiburon Brand Health Research. Each brand has its own separate fleet of vehicles that caters to the needs of our customers. As of September 30, 2021, Delimobil’s car sharing fleet comprised almost 18,000 vehicles across 11 cities in Russia and Anytime Prime’s long-term car rental fleet consisted of almost 600 vehicles. Delimobil’s car sharing fleet is composed mostly of economy class vehicles, including VW Polo, Fiat, Hyundai Solaris, Renault Kaptur and Kia Rio. Anytime Prime’s long-term rental fleet is composed of premium class and luxury vehicles, including top-of-the-line models from Mercedes-Benz, BMW and Porsche, enabling customers to enjoy a high-quality driving experience. Delimobil’s and Anytime Prime’s fleets are available to individual (“B2C”) and corporate (“B2B”) customers.

Our mobility offerings are supported by our advanced technology framework. We have two mobile apps for customers, our Delimobil and Anytime Prime apps, through which customers can sign up, view, select and book a vehicle as well as pay for their trip or rental. The number of registered users on our Delimobil and Anytime Prime apps has increased by 78%, from 4 million registered users as of December 31, 2019 to 7.1 million registered users as of September 30, 2021. We also rely on our proprietary data analytics technology to assess traffic, car demand and driving behavior, which we use to feed our pricing models and to continually improve the user experience of our customers.

A key differentiator of our business is our robust offline capabilities, which we offer through Smart Mobility Management (“SMM”), our fleet management infrastructure. We engage approximately 600 personnel, including full- and part-time employees as well as contractors, who provide repair and maintenance and tire, washing and refueling services for our vehicles to help ensure that our fleet is consistently in excellent condition


 

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and operating at maximum capacity. We have also developed Guido, a separate fleet management platform with a web application and mobile app for our operational personnel to use, that enables us to process and allocate servicing-related tasks for optimum efficiency.

In response to the COVID-19 pandemic, we promptly undertook a number of measures aimed at optimizing costs and increasing financial stability. These measures included the launch of our delivery service to capture increased delivery needs during the pandemic-related lockdown in 2020 when our core business operations were almost completely suspended from April 13 to June 10, 2020. After the lockdown, we continued with our delivery service and now regard this service not only as an additional source of revenue but also as a way to optimize fleet usage when our vehicles are not employed for car sharing.

We grew our total revenue from RUB 2,245 million for the six months ended June 30, 2020 to RUB 4,930 million for the six months ended June 30, 2021, representing a period-over-period growth of 120%. We grew our total revenue from RUB 5,012 million for the year ended December 31, 2019 to RUB 6,449 million for the year ended December 31, 2020, representing a year-over-year growth of 29%. For the six months ended June 30, 2021, we had a gross profit/(loss) of RUB 1,021 million and an Adjusted Gross Profit/(Loss) of RUB 1,115 million, compared to a gross profit/(loss) of RUB (521) million and an Adjusted Gross Profit/(Loss) of RUB (502) million for the six months ended June 30, 2020. For the year ended December 31, 2020, we had a gross profit/(loss) of RUB 72 million and Adjusted Gross Profit/(Loss) of RUB 163 million, compared to a gross profit/(loss) of RUB (476) million and an Adjusted Gross Profit/(Loss) of RUB (441) million for the year ended December 31, 2019. For the six months ended June 30, 2021, we generated a loss for the period of RUB 1,070 million and an Adjusted EBITDA gain of RUB 785 million, compared to a loss for the period of RUB 2,296 million and an Adjusted EBITDA loss of RUB 605 million for the six months ended June 30, 2020. For the year ended December 31, 2020, we generated a loss for the period of RUB 3,056 million and Adjusted EBITDA loss of RUB 286 million, compared to a loss for the period of RUB 3,573 million and Adjusted EBITDA loss of RUB 1,055 million, for the year ended December 31, 2019. See “Selected Combined and Consolidated Financial and Operating Data—Non-IFRS Measures” for more information and for reconciliations of Adjusted Gross Profit/(Loss) to gross profit/(loss) and Adjusted EBITDA to loss for the period, the most directly comparable financial measures calculated and presented in accordance with IFRS.

Our results of operations for the six months ended June 30, 2020 were materially affected by the COVID-19 pandemic, as we suspended our car sharing and long-term rental services from April 13 to June 10, 2020 in compliance with mobility restrictions put in place by the Russian government. Despite these restrictions, our business proved resilient during this uncertain period, and partially as a result of the measures we undertook at the time, we experienced revenue growth of 29% for the year ended December 31, 2020, when compared to the year ended December 31, 2019. For further discussion on the impact of the COVID-19 pandemic, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Performance—Impact of the COVID-19 Pandemic.”

Our Industry

Russia Macroeconomic Overview

Russia is the world’s ninth most populous country, with 146.2 million inhabitants as of December 31, 2020. According to Rosstat, the country had an urbanization rate, or the percentage of people living in cities compared to people living in rural areas, of nearly 75% as of January 1, 2021. In 2020, Russia’s economy was the sixth largest globally and the second largest in Europe in terms of total nominal gross domestic product (“GDP”) based on purchasing power parity (“PPP”), according to the IMF. GDP per capita PPP was $26,450 in Russia in 2020.

With an estimated 123 million users, the Russian internet user base is Europe’s largest and the world’s sixth largest, according to Frost & Sullivan estimates. As of December 31, 2020, the country had an internet


 

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penetration rate, or the share of active internet users (people who use the internet at least once per month) as a percentage of the total population, of 84% and a smartphone penetration rate, or the share of active smartphone users (usage frequency of at least once a month) as a percentage of the total population, of 69%, according to Rosstat. Ongoing telecommunication infrastructure expansion is expected to push internet penetration to over 90% and smartphone penetration to approximately 80% by 2025, according to Frost & Sullivan estimates.

Together, these factors—large population, high urbanization, robust economy and digital readiness—are expected to drive disruption in on-demand, online-based shared mobility services, including car sharing and ride hailing. For example, most public transportation users, especially younger users, reveal a growing preference for digital platforms that offer on-demand services rather than physical cards or ticket-based services. Additionally, according to the United Nations Department of Economic and Social Affairs, the number of people aged 15 to 24 years in Russia is expected to increase 29% by 2030, compared to 8% in the United Kingdom, 4% in France and 0.01% in China. This has positive implications for shared mobility whose market value increased by approximately 4% in 2020, despite pandemic-related mobility restrictions, according to Frost & Sullivan.

Technology disruption in transportation has led to the emergence of new, online-based shared mobility services, such as ride hailing and car sharing, on top of existing methods of transportation. We define our market opportunity by reference to the Russian total addressable market (“TAM”) that we believe we can address over the long term. Our TAM consists of the aggregate value of the personal car market (limited to cars in cities with populations of over 100,000 people), the public city transportation market (limited to public transportation trips (excluding airlines) undertaken by passengers with driving licenses in cities with populations of over 100,000 people), the shared mobility market (ride-hailing, car sharing and long-term car rental markets) and the corporate car market (both leased and non-leased). Therefore, our TAM includes personal and corporate cars, shared mobility services (i.e., taxis and car sharing) and all modes of public transportation. According to Frost & Sullivan, our TAM totaled RUB 7.8 trillion (approximately $110 billion) in 2020 and is projected to increase at a compound annual growth rate (“CAGR”) of 7.8%, reaching RUB 11.4 trillion in 2025.

This increase is expected to be driven by growing demand, rising consumer incomes, shifting passenger preference for different modes of mobility, government mandates for sustainability and institutional support, according to Frost & Sullivan. Between 2017 and 2019, the Russian transportation market value grew consistently at a CAGR of 7.6%. In 2020, the market increased by more than 5%, despite the negative impact of the COVID-19 pandemic. Frost & Sullivan estimates that the total transportation market accounted for approximately 9% of Russia’s real GDP in 2020. The market is expected to further accelerate in 2021, growing to RUB 8.6 trillion.

Russian Car Sharing Market

Car sharing services in Russia are characterized by vehicles undertaking one-way, free-floating trips offered predominantly on a per-minute rental basis and usually in a pre-defined service coverage area. As of September 2020, the average travel time for a car sharing trip in Moscow was about 33 minutes, with an average trip distance of 12 km, according to the Moscow Department of Transport.

Russia had more than 20 car sharing operators with a total fleet of almost 45,300 vehicles and presence in 26 cities as of December 31, 2020. Car sharing services are now available in all Russian federal districts with the exception of the North Caucasus and Far Eastern federal districts, according to Russian Automotive Market Research.

The launch of Anytime (which was later rebranded by us as Anytime Prime) in 2012 in Moscow marked the start of Russia’s car sharing market. After a period of slow growth, the market picked up momentum with the introduction of the Moscow Car Sharing Project in 2015. Since 2017, the Moscow government has been providing certain subsidies to car sharing operators. For example, in 2020, annual parking permit costs were around RUB


 

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26,700 for car sharing operators in Moscow, which represented more than a 90% discount relative to those for personal car owners. Additionally, the Moscow government provided taxi and car sharing operators with subsidies of approximately RUB 300 million and RUB 280 million in 2020 and 2021 year-to-date, respectively.

Moscow accounted for over 80% of Russia’s car sharing fleet in 2018, according to Frost & Sullivan. In 2019, its share fell to 66% due to strong adoption of car sharing services in other cities with over one million inhabitants, including St. Petersburg, Novosibirsk, Yekaterinburg, Kazan, Nizhny Novgorod, Samara and Rostov-on-Don.

With over 25,000 vehicles, Moscow has the world’s largest car sharing fleet, while St. Petersburg ranks fifth with 9,560 vehicles. According to Frost & Sullivan, the car sharing fleet size in Moscow is expected to grow from 25,000 vehicles in 2020 to more than 49,000 vehicles by 2025. The car sharing fleet size in St. Petersburg is also expected to grow during the same period, from approximately 9,600 vehicles to more than 16,000 vehicles, on the back of growing popularity of car sharing, rising fuel prices and the costs associated with car ownership.

Furthermore, according to Frost & Sullivan, in 2020, car sharing penetration among Russian drivers between the ages of 18 and 60 with a valid driver’s license was only 5.3% in cities with more than 500,000 inhabitants and 22% in Moscow. Frost & Sullivan forecasts that by 2025, 21% of eligible drivers1 in such cities and almost 50% of people eligible to drive in Moscow and St. Petersburg will become car sharing users, indicating significant growth potential for the Russian car sharing market.

Our Strengths

Large and Rapidly Growing Car Sharing Market in Russia

Russia is one of the world’s leading car sharing markets, according to Frost & Sullivan. Additionally, among cities worldwide, Moscow is the global leader in car sharing in terms of fleet size, with an estimated 25,000 vehicles as of the end of 2020, which is 20% larger than the fleet size of Tokyo, the next largest market.

Despite the strong and established presence of car sharing in Russia, there is still significant room for growth, with the overall mobility market, which also includes public transportation, taxis and ride hailing and personal and corporate car use, remaining much larger. In 2020, car sharing represented 0.3% of the total transportation gross merchandise value (“GMV”) in Russia, while over 70% of the estimated RUB 7.8 trillion market GMV remained allocated to personal cars. According to a report by Frost & Sullivan, the overall shared mobility market is estimated to reach approximately RUB 1,250 billion by 2025.

There are a number of key factors which support the recent and future growth of the car sharing market.

 

   

Attractive Cost and Value Proposition

 

   

When compared to other shared mobility options, car sharing comes closest to an ownership experience but without additional costs related to depreciation, fuel, insurance and maintenance. Russia’s cost of capital, combined with relatively high car prices, makes it challenging for certain segments of the population to own a personal car. Our mobility services allow customers to focus on the things that matter, providing cars on demand without the related hassle and many of the costs of car ownership.

 

   

Untapped Regional Opportunity

 

   

Car sharing is expected to gain significance in cities with over 500,000 inhabitants, relatively low income levels and ineffective public transportation networks. Cost considerations will play

 

1 

Population over 18 years with driving licenses.


 

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a major role in the expected shift from personal car use to car sharing in these cities. We expect that a younger car sharing fleet, compared to the older age of personal cars in use, will further attract users by offering a better driving experience in terms of performance, comfort and safety.

 

   

The growth of car sharing in these cities is expected to result in improved unit economics, which we believe is reflected by the growth of our car sharing operations in, for example, Novosibirsk and Yekaterinburg. In both cities, the increase in the size of our car sharing fleet corresponded with the following unit economics improvements:

 

   

In Novosibirsk, the increase in our car sharing fleet from approximately 90 to 460 vehicles between August 2019 and August 2021 corresponded with a 34% increase in revenue per car per day;2 and

 

   

In Yekaterinburg, the increase in our car sharing fleet from approximately 240 to 570 vehicles over the same period corresponded with a 45% increase in revenue per car per day.2

 

   

Infrastructure Readiness

 

   

Organic growth of car sharing in cities will be heavily influenced by smartphone and internet penetration. Rising internet penetration and smartphone adoption rates are poised to drive a greater uptake of app-based mobility services such as car sharing.

 

   

Institutional Support

 

   

Government subsidies for the car sharing industry have catalyzed growth in several cities. Government support, particularly during the initial stages of operations, will be instrumental to the expansion of car sharing services in other regions. Car sharing provides an opportunity for governments to deal with issues such as parking, space management and congestion.

 

   

Urbanization

 

   

Russia has 38 cities with populations of over 500,000 people, which is, for example, more than in the United States, and 133 cities with populations between 100,000 and 500,000 people, providing a strong basis for future growth. Migration and urbanization impact such cities in multiple ways, including (i) leading to congestion, inadequate parking space and an overstrained public transportation infrastructure and (ii) expanding the geographical limits of a city as housing requirements increase. Consequently, there is a growing need for more efficient and economic transportation options. Car sharing is well-positioned to offer such a sustainable transportation alternative.

 

   

Congestion

 

   

Consistent increases in the total number of cars on the road is one of the key factors behind high congestion levels. Car sharing can effectively minimize congestion levels by reducing the number of vehicles on the road. The Moscow Department of Transport estimated that as of March 2021, car sharing resulted in 250,000 fewer cars on roads per day in Moscow.

 

   

New Business Models and User Base

 

   

New business models such as long-term car rentals and vehicle subscription are expected to drive the car sharing market in three ways: (i) by improving vehicle utilization; (ii) by

 

2 

Revenue per car per day has been derived from Revenue for Car Sharing for the respective city.


 

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expanding the existing user base; and (iii) by diversifying revenue streams for car sharing operators. Long-term car rentals are typically full-day rentals which can be used for both intra- and inter-city trips. Under a vehicle subscription model, vehicles from a wide range of brands and models can be rented for up to 18 months continuously with no requirement of credible financial history. Rental fees under this subscription model typically account for insurance, repairs and tire services.

Market Leader Advantage in a Market with Significant Barriers to Entry

For any new player entering the car sharing market in Russia, there are a number of meaningful hurdles. We have determined five key barriers to entry that any potential new market player would need to address in order to compete with us, as Delimobil has all critical components in place—which we believe are difficult to replicate:

 

   

Large Fleet and Customer Base Requirement

 

   

While the car sharing market offers significant growth potential, opportunities for new entrants and smaller incumbents are limited, since market success is largely determined by the ability to achieve high car density to provide customers with quicker access to vehicles. Furthermore, established operators have a wide customer base that is essential for optimal fleet utilization. New entrants would be required to acquire a large customer base, establish a brand name and gain customer loyalty, which would take significant time and investment.

 

   

Capital Intensive Market

 

   

The car sharing market requires significant investments into fleet, operations, maintenance and technology. Access to finance and low-cost capital is crucial to scale up an operator’s business. New entrants would be dependent on their ability to obtain such financing and low-cost capital in order to effectively compete with established players.

 

   

Advanced Technology Solutions

 

   

The need for advanced technological capabilities represents an increasingly significant barrier to entry. Car sharing operators require technology to achieve competitive differentiation and to mitigate risks such as reckless driving and vehicle damage. New technological platforms are improving efficiency, safety and security of car sharing systems. The need to make simultaneous investments into both technology and fleet expansion would put significant pressure on the ability of new operators to enter the market, gain scale and/or reach profitability.

 

   

Need for Offline Service Infrastructure

 

   

Enhancing efficiency and reducing downtime through fleet management, maintenance and repair have become vital for car sharing operators. In order to reduce downtime, operators are investing in fleet rebalancing capabilities and aftermarket services such as maintenance, repairs, cleaning and insurance. The development of a similar ecosystem that results in profitability would require investment of significant operational, financial and time resources for new entrants.

 

   

Strategic Partnerships with OEMs and Leasing Companies

 

   

Partnerships are a prerequisite to ensure cost-effective access to a wide range of high quality vehicles. For car sharing operators, this is critical for achieving financial stability. Established


 

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operators have been able to develop long-standing relationships with Original Equipment Manufacturers (“OEMs”) and leasing companies that we believe may be difficult for new market entrants to replicate in light of their limited history of operations.

Leading Car Sharing Service in Russia with Widest Presence in Regions

Delimobil’s presence across a wide range of Russian regions is one of our key differentiators when compared to our competitors. Since our launch in Moscow in 2015, we have expanded to an additional 10 cities, including most recently to Kazan and Rostov-on-Don. Currently, our total operational reach covers more than 25% of the Russian urban population (based on Rosstat data). Our rivals, BelkaCar, Yandex.Drive and CityDrive, operate in five, four and three cities, respectively. With almost 18,000 cars in our fleet as of September 30, 2021, we capture approximately one-third of the Russian car sharing market, according to Frost & Sullivan. In Moscow, we have become the leader in the market by number of trips, achieving a market share of approximately 44% as of August 2021, according to the Moscow Transportation Department.

Given our wide geographic presence, we also have the flexibility to relocate cars between cities and benefit from a wide range of options of where to relocate cars, which increases our business efficiency and resilience to the possible shortfalls of limiting our vehicles to specific locations. This proved critical to our performance during the lockdown in Moscow in response to the COVID-19 pandemic, as we were able to mitigate the sharp decline in customer demand in Moscow by relocating a portion of our fleet to cities with less strict mobility restrictions in place. Under this relocation campaign, we moved 2,435 cars from Moscow to the regions during the period of March to May 2020. Moreover, we have a wide range of options of where to transfer our cars after three years of operating in Moscow, where the local regulator gives special parking permits for car sharing vehicles only during the first three years of their use and for cars not older than one year when first used. We continually monitor the situation in the cities in which we operate and can quickly relocate cars from lower-demand to higher-demand areas.

Delimobil’s wide regional presence is also in high demand among our clients, especially given international travel restrictions and the growing interest in domestic tourism, which differentiates us from our competitors. We believe that our experience and track record of successful regional expansion will support our further growth in the Russian regions and already positions us strongly to capture additional market opportunities.

Shared Mobility Platform for Seamless User Experience, Driven by the Mobile App

Delimobil’s full customer proposition is delivered through its mobile app, facilitating a simple and seamless user experience by taking customers through each step of the process. The simplicity and speed by which customers can book and then drive our cars, a process which consists of locating the car, booking the car, checking its condition, renting and driving, is a core element of our customer experience. There are a number of elements that make up Delimobil’s differentiated customer proposition:

 

   

High availability and convenience driven by a large optimized fleet

 

   

Delimobil has a large fleet with almost 18,000 cars, allowing for high availability and accessibility for customers looking to travel via car sharing. Across Moscow, the average travel time on foot for customers to reach the car they booked is approximately 5 minutes.

 

   

Superior Car Quality

 

   

Delimobil’s cars offer a consistently strong, high quality service—supported by the in-house operations of SMM, which carry out repair and maintenance, car washing and refueling services.


 

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Superior Value Proposition

 

   

Unlike most public transportation and car rental services, Delimobil offers 24/7 availability with the same level of safety and around-the-clock service. Customers are able to access Delimobil’s cars at any time, unconstrained by schedules, timetables and car rental offices. After an easy and fast online onboarding process, customers are also able to use our vehicles for whatever duration they require – from minutes to multiple days. Customers are able to benefit from the comfort of having exclusive use of a car, choosing from a wide selection of makes and models, with the flexibility to leave it at any available parking space.

 

   

User Rating-based Transparent Smart Pricing

 

   

Delimobil offers smart-pricing, which dynamically reflects a number of factors including a customer’s driving profile as well as the supply and demand of vehicles at a particular location and time of day. For example, disciplined drivers can receive up to a 40% discount on the price of their trip. Delimobil’s pricing approach is both transparent and cost effective, and it captures essentially all of the customer’s costs in one easy-to-comprehend figure.

 

   

Broadest coverage area

 

   

With the largest coverage area of any Russian competitor of approximately 1 million square kilometers, according to the Company’s estimates, Delimobil provides the greatest access to its customers to travel across the country. This also supports customers’ ability to take trips of any length, from across the city to across the country.

 

   

Strong Independent Brand

 

   

Delimobil ranked first in top-of-mind and brand awareness among Russian car sharing providers in December 2020, according to brand health tracking research done by Tiburon Brand Health Research. Our strong brand allows us to build a deep connection between our brand and our customers, helping us to drive further growth of MAU and to improve customer loyalty and engagement.

 

   

Large Fleet with a Wide Variety of High Quality Cars

 

   

Car density is a key driver of the success of our business model. We have consistently adhered to our strategy, even during the peak of the COVID-19 outbreak in 2020. Due to our strong relationship with OEMs, we were able to maintain supply of new vehicles to support our fleet growth. As a result, our EoP Fleet grew almost three times more than the market average. We provide access to a large fleet, with a wide range of high quality cars—ranging from VW Polos to Mini Coopers and BMWs. The quality of our cars, supported by our strong offline service infrastructure, helps ensure a strong customer experience for every trip taken. Although our fleet is composed of four classes of vehicles—economy, comfort, premium and vans—our business strategy is focused on economy class models, targeting the largest audience in Russia. As of September 30, 2021 economy class models accounted for 84% of our fleet, with comfort class models, premium class models and vans accounting for 11%, 4% and 1% of our fleet, respectively.


 

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Comprehensive Technology Stack Driving Operations and Efficiency

Delimobil’s operations are supported by a powerful, data driven technology platform. This platform not only supports a seamless customer experience through our mobile app, but it also bolsters our fleet management, pricing and innovation. The cloud-based platform is highly scalable, and it is maintained and optimized by a dedicated team of approximately 80 highly qualified engineers. Our comprehensive platform supports and powers all elements of our operations, with three core aspects of the technology.

 

   

In-vehicle technology. Our entire car sharing fleet is equipped with Internet of Things (“IoT”) devices, which have been optimized for each car model, to collect real-time data on driving behavior and car telemetry which feeds into our pricing and customer rating models as well as Guido, our fleet management software, so we can ensure that our fleet is consistently in excellent condition and operating at maximum capacity.

 

   

Data analytics technology. We developed our platform to analyze the big data we collect from various sources, such as IoT devices installed in our cars, customer feedback (via call center or in-app functionality) and our fleet maintenance software (Guido and enterprise resource planning (“ERP”)). Its algorithms and other business intelligence tools are the backbone of our operations.

 

   

Fleet management technology. To support SMM, our fleet management infrastructure, we have developed Guido, our fleet management technology platform which our operational personnel access through our operational personnel-only mobile app. As of August 31, 2021, the Guido app had over 500 daily active users, or the total number of unique users who completed at least one work order for a car in our fleet per day calculated as an average over the reporting period, and, as of September 30, 2021, processed approximately 11,000 work orders per day covering over 30 different types of vehicle services, including repair and maintenance and tire, washing and refueling services.

To provide support for our technology platform, we have data systems capable of supporting 5TB of telemetry data per year, and we use third-party cloud computing services and maintain a data center in partnership with large IT companies such as Dataline and Rostelecom in order to scale up our technology-based services to meet spikes in usage. In September 2021, we processed an average of 398,000 requests per minute from users of our platform.

Strong In-House Fleet Management and Operations Infrastructure

Our own in-house fleet management infrastructure, SMM, is one of the main differentiators of our business model versus other car sharing companies in Russia. We have our own capabilities to repair and maintain, wash and refuel our cars. Out of the three main capabilities of SMM, only refueling is performed on a proprietary basis by some of our competitors, while repair and maintenance, including tire services, and car washing are outsourced by our competitors to multiple third-party providers, according to market sources.

SMM enables us to reduce car idle time, thereby maintaining car uptime (i.e., availability for booking by customers) at up to a 90% level. In addition, our fleet management infrastructure helps us ensure a consistent quality of car maintenance across our fleet, simplifies the roll-out of vehicles in new cities and allows us to provide timely support to our customers in case of road accidents.

Based on our internal estimates, SMM is the largest proprietary car fleet management operator in Russia and we believe that there are no independent car service providers that could provide the full range of SMM’s services at the scale needed to support our fleet. SMM has operations in Moscow, St. Petersburg and


 

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Yekaterinburg, engages third-party providers in other regions and services almost 18,000 cars. SMM’s operations engage over 600 personnel, including full- and part-time employees as well as contractors as of September 30, 2021, and its facilities have a total area of approximately 25.7 thousand square meters.

To support SMM, we have developed Guido, a separate fleet management technology platform with a web application and mobile app for our operational personnel to use. It collects, stores and instantly analyzes the data on each car’s servicing history, including technical inspections, repairs, spare parts and costs. Guido enables us to provide customers with high-quality cars while keeping the maintenance costs at an optimal level.

Rapid Growth and Progress towards Profitability

We have grown rapidly since inception, with a 29% growth in revenue for the year ended December 31, 2020, outpacing the growth of the total car sharing market in Russia by 11%, according to Frost & Sullivan. We believe our growth in 2020 also demonstrates the resilience of our business model despite the COVID-19 headwinds. We believe that our business model provides a substantial degree of protection from economic volatility as car sharing has proven to be a more favorable mobility option than ride hailing and private car ownership from a usage costs perspective. This is the main idea behind Delimobil’s focus on the mass-market mobility segment: our car fleet composition is skewed towards economy and comfort class models. We believe that our growth is underpinned by a predictable and loyal customer base, as well as our ability to increase monetization per user through price revisions. For our car sharing service, we increased Revenue per Minute by 28% over the years ended December 31, 2019 and 2020 and by 24% between the year ended December 31, 2020 and the six months ended June 30, 2021. See “Management’s Discussion and Analysis of Financial Condition And Results–Key Operating and Financial Metrics” for more information on Revenue per Minute.

Our business has also experienced increasing customer engagement, which we attribute to the high-quality user experience and diverse offering of vehicles and pricing methods we offer to customers through our platform. For our car sharing service, we measure customer engagement by monitoring customer cohorts, which we define as a group of customers who took their first trip in a given period, in two ways: (i) by assessing the retention of a specific customer cohort from one period to another and (ii) by calculating the frequency of usage of our service by a specific customer cohort during a given period. See Management’s Discussion and Analysis of Financial Condition and Results—Key Factors Affecting Our Performance—Growth” for more information on how we measure retention rate. In addition, the customers we retain tend to use our car sharing services with increasing frequency and the number of days between each trip booked tends to decrease. As the graph below shows, in 2020, 80% of customers who booked a first trip went on to book a second and 88% of customers who booked a fourth trip went on to book a fifth. For the same period, there was a decrease in the number of days between each trip booked from 1.7 days between the first and second trip to 1.3 days between the fourth and fifth trip. We believe this decrease in number of days between each trip booked is a strong indicator of customer engagement. This in turn links strongly to increased spending: for example, our 2019 customer cohort spent on average 73% more in their second month of usage and 59% more in 2020. Eventually, these factors create a powerful network effect: the more our customers use our services, the more they enjoy it, stay with us and spend


 

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with us. This also creates a powerful brand impact as engaged users act as a free and very natural source of “word of mouth” marketing.

 

LOGO

(1) All data for car sharing services only. Days between trips based on the median customer. Data for 2020.

Source: Company data

Our disruptive business model and strong execution has helped us improve performance. For example, we generated a gross profit/(loss) of RUB 1,021 million and an Adjusted Gross Profit/(Loss) of RUB 1,115 million for the six months ended June 30, 2021, compared to a gross profit/(loss) of RUB (521) million and an Adjusted Gross Profit/(Loss) of RUB (502) million for the six months ended June 30, 2020. We also demonstrated a 20 percentage point improvement in Adjusted Gross Profit/(Loss) Margin between the year ended December 31, 2020 and the six months ended June 30, 2021. We reached a break-even point in 2020 due to cost of revenue optimization efforts and the ability to generate revenue at a higher rate than costs. As we scaled our operations, we were able to decrease sales and marketing expenses as well as general and administrative expenses as a percentage of revenue and improved Adjusted EBITDA Margin by 17 percentage points between the years ended December 31, 2019 and 2020 and by 20 percentage points between the year ended December 31, 2020 and the six months ended June 30, 2021 despite restrictions and limitations caused by the COVID-19 pandemic. The most directly comparable IFRS measure for Adjusted EBITDA Margin, which is derived from Adjusted EBITDA, is loss for the period. See “Selected Combined and Consolidated Financial and Operating Data” for a reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin to loss for the period. We believe that we have further significant upside in performance as we continue to grow our market share and revenue base, considering the high operating leverage embedded in our business model.

As we continue to scale up our business, we believe that these factors, among others, will continue to positively impact our operations and drive improvement in results and unit economics.

Experienced Management Team and Dedicated Founders are Key to our Success

Delimobil benefits from a highly experienced and motivated management team, with a strong track record of success. Our management team has relevant industry experience in some of Russia’s and Europe’s


 

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largest and most established companies. This covers companies across a range of relevant sectors, including tech-driven internet platforms like Ozon, consumer-facing names like Procter & Gamble and transport and mobility companies like Scania. Through the leadership and management of the team, Delimobil was able to achieve a revenue increase of 29% for the year ended December 31, 2020, despite the COVID-19 pandemic and the resulting lockdowns. Moreover, through efficient planning and expert guidance we were able to concurrently increase our Adjusted EBITDA Margin by 17 percentage points between December 31, 2019 and 2020. For the six months ended June 30, 2021, we achieved a revenue increase of 120% compared to the same period of 2020, and an increase in Adjusted EBITDA Margin by 43 percentage points over the same period. The most directly comparable IFRS measure for Adjusted EBITDA Margin, which is derived from Adjusted EBITDA, is loss for the period. See “Selected Combined and Consolidated Financial and Operating Data” for a reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin to loss for the period.

Our management team has a wide range of complementary skill sets and has gained meaningful experience serving in and leading some of the well established companies. The combination of their international expertise and knowledge of the local mobility market has allowed us to build and grow a leading platform that delivers for our customers.

Our Growth Strategy

Our growth strategy is based on the following four pillars: regional expansion in Russia, further growth in major cities, offering of SMM services to third parties and further development of subscription services.

To facilitate implementation of our growth strategy, we aim to continue expanding our car sharing and long-term car rental fleets and to increase their uptime by improving our operating efficiency with smart fleet management. In addition, we plan to pursue additional marketing efforts to maintain high awareness of and further strengthen our brand. We also expect to further enhance our customer experience by introducing new features, meeting the needs of new target audiences and updating our mobile applications. Moreover, as we upgrade our dynamic pricing algorithms, we expect that higher average revenue per user (“ARPU”) will also drive growth across our geographical presence. See “Management’s Discussion and Analysis of Financial Condition and Results—Key Factors Affecting our Performance—Growth—Customers Base” for more information on ARPU.

Regional Expansion

We aim to have an operating car fleet in all Russian cities with populations exceeding 500,000 people in the long term. According to Rosstat, there are 38 such cities in Russia, which would provide for a total population coverage of approximately 48 million people. Delimobil is well-positioned to achieve this target considering its significant track record of regional expansion. Delimobil has operational presence in 11 Russian cities as of September 30, 2021, ahead of competitors BelkaCar, Yandex.Drive and CityDrive, which are present in only five, four and three cities, respectively, according to Frost & Sullivan. We believe that we can leverage our scalable in-house fleet management infrastructure, large fleet size and flexibility to promptly relocate cars in order to roll out operations in new cities.

We also plan to further grow our business in all regional cities in which we currently operate, as Russian regional markets remain significantly under-penetrated. According to Frost & Sullivan, the level of car sharing penetration in cities with populations exceeding 500,000 (excluding Moscow and St. Petersburg) and among Russian drivers between the ages of 18 and 60 years with a valid driver’s license was only 5.3% in 2020, a figure which is expected to rise to 21.4% by 2025. In addition, we are also promoting inter-city travel via car sharing to capitalize on expanding domestic tourism in Russia, and we already have a roadmap of IT developments to tailor our services for such purpose.


 

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Further Growth in Major Cities

We believe that Delimobil has substantial room for continued growth in Moscow and St. Petersburg. Frost & Sullivan forecasts that 50% of people eligible to drive in Moscow and St. Petersburg will become car sharing users by 2025, compared to 22.3% and 12.9% in 2020 in Moscow and St. Petersburg, respectively.

We expect to continue leveraging our well-recognized brand, our deep knowledge and expertise of operating in these cities and our established approach to car location and utilization to pursue further growth in these cities. In particular, we expect to focus on targeting new audiences such as the younger population of 18 to 24 years and the middle-aged population of 50 years and older.

Further Development of Subscription Services

While continuing to develop and expand our car sharing service, which is our primary offering, we also expect to scale up our vehicle subscription model for our long-term rental service in Anytime Prime and to introduce a similar subscription model to our car sharing business in Delimobil. We also plan to further develop our B2B car sharing offerings. Anytime Prime provides a revenue stream based on longer-term relationships as customers can book cars for a period ranging from one day to one year. The car fleet available to Anytime Prime users consists of almost 600 cars as of September 30, 2021. Our long-term rental service also provides further up-selling opportunities, shifting the focus of our revenue model from fleet size to the size of our customer base. Furthermore, Anytime Prime targets a different customer audience, with a focus on the premium segment, and has only a minor overlap with Delimobil, which is more focused on the mass market. At the same time, we are testing subscription services on car sharing for Delimobil’s mass market audience. Our corporate B2B car sharing service, launched in May 2019, allows us to capture enterprise clients.

SMM Services to Third Parties

We are also currently evaluating opportunities for new product launches. For example, we are exploring the opportunity to offer our SMM capabilities to third parties, including consumers and enterprises, since our fleet maintenance operations feature a streamlined process and significant economies of scale which are not available to smaller companies.

International Expansion

In addition to the four strategy pillars described above, we consider the potential to enter into foreign markets as an additional long-term growth opportunity rather than a short-term goal. We are contemplating the opportunity to develop a franchising model in order to extend our international presence.

Moreover, in August 2021, we entered into call option agreements with one of our shareholders under common control of our ultimate controlling party that will provide us with the option to purchase all or substantially all of the shares of D-Mobility Czech Republic s.r.o., Carsharing Club LLC and D-Mobility Kazakhstan LLC, which operate car sharing businesses in the Czech Republic, Belarus and Kazakhstan, respectively, under a similar business model as ours. The exercise of the call options is subject to approval by our board of directors and would be exercisable from January 1, 2023 until July 1, 2023. For further information on these transactions, see “Certain Relationships and Related Party Transactions—Option Agreements.”

Risk Factors

Investing in the ADSs involves risks. You should carefully consider the risks described in “Risk Factors” before making a decision to invest in the ADSs. If any of these risks actually occurs, our business,


 

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financial condition or results of operations could be materially and adversely affected. In such case, the trading price of the ADSs would likely decline, and you may lose all or part of your investment. The following is a summary of some of the principal risks we face:

 

   

the continuing impact of the COVID-19 pandemic on demand for our service and the effects of regulations of car sharing enacted to mitigate the pandemic;

 

   

significant competition in our markets;

 

   

any ability to effectively manage our growth;

 

   

our lack of historical profitability and risks in achieving profitability in the future;

 

   

our ability to effectively manage our technology platform;

 

   

our ability to maintain and enhance our brand;

 

   

our ability to successfully manage the size, effectiveness and resale of our fleet;

 

   

our ability to maintain favorable terms of insurance for our fleet;

 

   

our ability to attract and retain key personnel and IT specialists;

 

   

our ability to successfully manage and continually advance technology used in our business;

 

   

global political and economic stability;

 

   

ongoing development of the Russian legal system and developing legal framework governing car sharing in Russia;

 

   

our ability to successfully remediate the significant deficiencies in our internal control over financial reporting and our ability to establish and maintain an effective system of internal control over financial reporting;

 

   

the ability of our controlling shareholder to exert significant control over us, and its interests conflicting with those of the holders of the ADSs; and

 

   

as a foreign private issuer and a “controlled company”, we are exempt from a number of rules under the U.S. securities laws and the NYSE corporate governance rules and are permitted to file less information with the SEC than U.S. companies, which may limit the information available to holders of the ADSs.

Corporate Information

Delimobil Holding S.A. is a public limited liability company (société anonyme) organized and incorporated under the laws of Luxembourg on January 18, 2021. Our registered office is located at 10, rue C.M. Spoo, L-2546 Luxembourg, Grand Duchy of Luxembourg, and we are registered with the Luxembourg Register of Commerce and Companies under number B250892. Our telephone number at this address is +352 26 97 63 04. Our main office outside of Luxembourg is located at 27 Elektrozavodskaya St., Moscow, Russia. Our website is https://delimobil.com/. We have included our website address in this prospectus solely for informational purposes. None of the information available on our website is incorporated in this prospectus, and it should not be relied upon in making a decision to invest in the ADSs.


 

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Implications of Being an Emerging Growth Company and a Foreign Private Issuer

We qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012, as amended, or JOBS Act. An emerging growth company may take advantage of specified exemptions from various requirements that are otherwise applicable generally to U.S. public companies. These exemptions include:

 

   

the ability to present more limited financial data, including presenting only two years of audited financial statements and only two years of selected financial data in the registration statement on Form F-1, of which this prospectus is a part;

 

   

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”);

 

   

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (“PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

 

   

not being required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,”  “say-on-frequency” and “say-on-golden parachutes;” and

 

   

not being required to disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the completion of this offering or such earlier time that we are no longer an emerging growth company. As a result, we do not know if some investors will find the ADSs less attractive. The result may be a less active trading market for the ADSs, and the price of the ADSs may become more volatile.

We will remain an emerging growth company until the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion; (ii) the last day of the fiscal year following the fifth anniversary of the date of this offering; (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of the ADSs that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter; or (iv) the date on which we have issued more than $1 billion in non-convertible debt securities during any three-year period. Upon consummation of this offering, we will report under the Exchange Act as a non-U.S. company with “foreign private issuer” status. As a foreign private issuer, we may take advantage of certain provisions under the NYSE rules that allow us to follow Luxembourg law for certain corporate governance matters. Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:

 

   

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 

   

the sections of the Exchange Act requiring insiders to file public reports of their ADS ownership and trading activities and liability for insiders who profit from trades made in a short period of time;


 

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the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events; and

 

   

Regulation Fair Disclosure, or Regulation FD, which regulates selective disclosures of material information by issuers.

Foreign private issuers, like emerging growth companies, also are exempt from certain more stringent executive compensation disclosure rules. Thus, if we remain a foreign private issuer, even if we no longer qualify as an emerging growth company, we will continue to be exempt from the more stringent compensation disclosures required of public companies that are neither an emerging growth company nor a foreign private issuer.

Status as a "Controlled Company"

We are also a “controlled company”. Upon the completion of this offering, Mikro Kapital Group will continue to own 76,395,311 ordinary shares, representing         % of the voting power of our issued and outstanding shares (or          ordinary shares representing         % of the voting power of our issued and outstanding shares if the underwriters exercise their option to purchase additional ADSs in full). As a result, we will remain a “controlled company” within the meaning of the NYSE corporate governance requirements and are therefore eligible for, and, in the event we no longer qualify as a foreign private issuer, we intend to rely on, certain exemptions from the corporate governance requirements of the NYSE. See “Management—Controlled Company Exemption.”


 

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THE OFFERING

 

Issuer

Delimobil Holding S.A.

 

ADSs offered by us

                 ADSs, each ADS representing                 ordinary shares.

 

Option to purchase additional ADSs

We have granted the underwriters an option, for a period of 30 days after the date of this prospectus, to purchase up to                  additional ADSs from us, each ADS representing                 additional ordinary shares.

 

ADSs to be outstanding immediately after this offering

                 ADSs (or                  ADSs if the underwriters exercise their option to purchase additional ADSs from us in full), each ADS representing                 ordinary shares.

 

Ordinary shares to be outstanding after this offering

                 ordinary shares (or                  ordinary shares if the underwriters exercise their option to purchase additional ADSs from us in full).

 

American Depositary Shares

The underwriters will deliver the ADSs representing our ordinary shares. Each ADS, which may be evidenced by an American Depositary Receipt, or ADR, represents an ownership interest in                  of our ordinary shares. As an ADS holder, we will not treat you as one of our shareholders. The depositary, The Bank of New York Mellon, will be the holder of the ordinary shares underlying your ADSs.

 

 You will have ADS holder rights as provided in the deposit agreement. Under the deposit agreement, you may only vote the ordinary shares underlying your ADSs by giving instructions to the depositary. The depositary will pay you the cash dividends or other distributions, if any, it receives on our ordinary shares after deducting its fees and expenses and applicable withholding taxes. You may need to pay a fee for certain services, as provided in the deposit agreement.

 

  You are entitled to the delivery of the ordinary shares underlying your ADSs upon the surrender of such ADSs, the payment of applicable fees and expenses and the satisfaction of applicable conditions set forth in the deposit agreement.

 

  To better understand the terms of the ADSs, you should carefully read “Description of American Depositary Shares.” We also encourage you to read the deposit agreement, the form of which is attached as an exhibit to the registration statement of which this prospectus forms a part. We are offering ADSs so that our company can be quoted on the NYSE and investors will be able to trade our securities and receive dividends on them in U.S. dollars.

 

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Depositary

The Bank of New York Mellon.

 

Use of proceeds

We estimate that the net proceeds to us from this offering will be approximately $                 million, assuming an initial public offering price of per ADS of $                 , which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us (or approximately $                 million if the underwriters exercise their option to purchase additional ADSs from us in full).

 

  We intend to use the net proceeds from this offering for business development, repayment of our shareholder debt in full and other corporate purposes, including potential international expansion. See “Use of Proceeds.”

 

Dividend policy

We do not anticipate paying any dividends on our ordinary shares in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. See “Dividend Policy.”

 

Risk factors

See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in the ADSs.

 

Listing

We intend to apply to list the ADSs on the NYSE under the symbol “DMOB.” On                  , 2021, we also obtained the approval of the Moscow Exchange (“MOEX”) in relation to admission of the ADSs to trading on MOEX under the symbol “DMOB.” The ADSs may not start trading on MOEX earlier than the time at which the ADSs start trading on the NYSE. No assurance can be given that we will be able to maintain such listing.

Unless otherwise indicated, all information in this prospectus assumes or gives effect to:

 

   

the conversion of all outstanding convertible preferred shares held by Nevsky Property Finance Ltd. (“Nevsky Property”), an affiliate of VTB Capital plc (“VTB”), into ordinary shares;

 

   

no exercise by the underwriters of their option to purchase up to                 additional ADSs; and

 

   

an initial public offering price of $                per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus.


 

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SUMMARY COMBINED AND CONSOLIDATED FINANCIAL AND OPERATING DATA

The following tables present our summary combined and consolidated financial and operating data for each of the periods and dates indicated below.

The summary combined and consolidated financial data for the six months ended June 30, 2021 and 2020 have been derived from our unaudited interim condensed combined and consolidated financial statements. The summary combined and consolidated financial data for the years ended December 31, 2020 and 2019 have been derived from our audited combined and consolidated financial statements. You should read the summary combined and consolidated financial data in conjunction with our financial statements included elsewhere in this prospectus. Our unaudited interim condensed combined and consolidated financial statements have been prepared in accordance with IAS 34, as issued by the IASB, and our audited combined and consolidated financial statements have been prepared in accordance with IFRS, as issued by the IASB.

We also present in the tables below certain non-IFRS and other operating metrics used by our management to evaluate, monitor and manage our business. None of these terms are measures of financial performance under IFRS, as issued by the IASB, and therefore they should not be considered to be alternatives to our IFRS results.

The results of operations presented in this prospectus are not necessarily indicative of any future results of operations or performance. The information summarized below should be read in conjunction with “Presentation of Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements, and the related notes thereto, included elsewhere in this prospectus.

Summary Combined and Consolidated Statements of Profit or Loss and Other Comprehensive Income

 

     Six months ended
June 30,
     Year ended
December 31,
 
     2021      2020      2020      2019  
     RUB million      RUB million  

Revenue

     4,930        2,245        6,449        5,012  

Cost of revenue

     (3,909      (2,766      (6,377      (5,488
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit/(loss)

     1,021        (521      72        (476

Sales and marketing expenses

     (276      (158      (436      (445

General and administrative expenses

     (795      (484      (1,100      (983

Other income

     155        76        716        176  

Other expenses

     (49      (26      (178      (425

Finance income

     90        16        15         

Finance costs

     (1,105      (1,681      (2,564      (1,997
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss before income tax

     (959      (2,778      (3,475      (4,150

Income tax (expense)/benefit

     (111      482        419        577  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss for the period

     (1,070      (2,296      (3,056      (3,573

Loss attributable to equity holders of the Company/Companies(1)

     (1,085      (2,296      (3,067      (3,573

Profit attributable to non-controlling interests

     15               11         

Other comprehensive income

           

Amounts that may not be reclassified in the future to profit or loss

           

Gain on revaluation of right-of-use assets and property, plant and equipment, net of income tax

     (8             1,356        64  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive loss for the period

     (1,078      (2,296      (1,700      (3,509

Total comprehensive loss attributable to equity holders of the Companies(1)

     (1,093      (2,296      (1,711      (3,509

Total comprehensive profit attributable to non-controlling interests

     15               11         

Net loss per share

           

Basic and diluted, in RUB

     (19                     

Weighted-average shares used to compute net loss per share attributable to equity holders of the Company/Companies

           

Basic and diluted

     57,469,939                       

 

(1) 

For the six months ended June 30, 2021, “Company” refers to Delimobil Holding S.A., and for the six months ended June 30, 2020 and for the years ended December 31, 2020 and 2019, “Companies” refers to Carsharing Russia LLC, Anytime LLC and SMM LLC, our three material subsidiaries. Delimobil Holding S.A. was incorporated on January 18, 2021.


 

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Summary Combined and Consolidated Statements of Financial Position

 

     As at June 30,      As at December 31,  
     2021      2020      2019  
     RUB million      RUB million  

Total non-current assets

     13,919        12,191        8,174  

Total current assets

     5,675        1,473        1,386  
  

 

 

    

 

 

    

 

 

 

Total assets

     19,594        13,664        9,560  
  

 

 

    

 

 

    

 

 

 

Total equity

     (2,464      (2,294      (659

Total non-current liabilities

     10,364        5,039        5,544  

Total current liabilities

     11,694        10,919        4,675  
  

 

 

    

 

 

    

 

 

 

Total liabilities

     22,058        15,958        10,219  

Summary Combined and Consolidated Statements of Cash Flows

 

     Six months ended
June 30,
     Year ended
December 31,
 
     2021      2020      2020      2019  
     RUB million      RUB million  

Net cash flows generated from / (used in) operating activities

     940        (814      (106      (1,418

Net cash flows (used in) / generated from investing activities

     (151      (263      (388      16  

Net cash flows generated from financing activities

     3,422        1,212        483        1,364  

Effects of exchange rate changes on the balance of cash held in foreign currencies

     (2      27        26        (28

Cash and cash equivalents at the beginning of the year

     117        102        102        168  

Cash and cash equivalents at the end of the year

     4,326        264        117        102  

Non-IFRS Financial Measures

We collect and analyze operating and financial data to evaluate the health of our business and assess our performance. In addition to revenue, loss for the period and other results under IFRS, we use Adjusted Gross Profit/(Loss), Adjusted Gross Profit/(Loss) Margin, Adjusted EBITDA and Adjusted EBITDA Margin to evaluate our business. The most directly comparable IFRS measure for Adjusted Gross Profit/(Loss) and Adjusted Gross Profit/(Loss) Margin is gross profit/(loss). The most directly comparable IFRS measure for Adjusted EBITDA and Adjusted EBITDA Margin is loss for the period. We have included these non-IFRS financial measures in this prospectus because they are key measures used by our management to evaluate our operating performance. Accordingly, we believe that these non-IFRS financial measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team. Our calculation of these non-IFRS financial measures may differ from similarly-titled non-IFRS measures, if any, reported by our peer companies. These non-IFRS financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with IFRS.


 

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     Six months ended
June 30,
     Year ended
December 31,
 
     2021      2020      2020      2019  
     RUB million      RUB million  

Adjusted Gross Profit/(Loss)

     1,115        (502)        163        (441

Adjusted Gross Profit/(Loss) Margin

     23%        (22%)        3%        (9%

Adjusted EBITDA

     785        (605)        (286      (1,055

Adjusted EBITDA Margin

     16%        (27%)        (4%      (21%

We define Adjusted Gross Profit/(Loss) as gross profit/(loss) adjusted for: (i) compulsory civil liability insurance proceeds, (ii) expected credit losses of trade receivables and (iii) following the adoption of our Phantom Share Plan, share-based remuneration. We define Adjusted Gross Profit/(Loss) Margin as Adjusted Gross Profit/(Loss) divided by revenue expressed as a percentage. We have included Adjusted Gross Profit/(Loss) in this prospectus because it is an important metric used by our management to measure the efficiency of our operations. We have included Adjusted Gross Profit/(Loss) Margin in this prospectus because it reflects the dynamics of improving our operational efficiency by showing to what extent any improvement is due to revenue growth or scalability of fixed direct production costs. Adjusted Gross Profit/(Loss) is higher than gross profit/(loss) in all reported periods. Adjusted Gross Profit/(Loss) and Adjusted Gross Profit/(Loss) Margin have limitations as financial measures and should not be considered in isolation, or as an alternative to, or substitute for, an analysis of our results reported in accordance with IFRS.

The following table presents a reconciliation of Adjusted Gross Profit/(Loss) to gross profit/(loss) the most directly comparable IFRS financial measure, for the periods indicated:

 

     Six months ended
June 30,
     Year ended
December 31,
 
     2021      2020      2020      2019  
     RUB million      RUB million  

Gross Profit / (Loss)

     1,021        (521      72        (476

Compulsory civil liability insurance proceeds

     123        53        163        106  

Expected credit losses of trade receivables

     (31      (34      (72      (71

Share-based remuneration

     2                       
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted Gross Profit / (Loss)

     1,115        (502      163        (441

Divided by

           

Revenue

     4,930        2,245        6,449        5,012  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted Gross Profit / (Loss) Margin

     23%        (22%      3%        (9%

We define Adjusted EBITDA as loss for the period adjusted for: (i) income tax benefit, (ii) finance costs, (iii) finance income, (iv) impairment of a right-of-use asset, (v) VAT write-off, (vi) loss on lease terminations, (vii) impairment of property, plant and equipment, (viii) (gain)/loss on disposal of property, plant and equipment, net, (ix) reversal of an impairment loss on a right-of-use asset, (x) subsidies received, (xi) insurance compensation received for damage of vehicles, (xii) reversal of impairment loss on property, plant and equipment, (xiii) depreciation of property, plant and equipment, (xiv) amortization of intangible assets, (xv) depreciation of right-of-use assets and (xvi) following adoption of our Phantom Share Plan, share-based remuneration. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue expressed as a percentage. We have included Adjusted EBITDA in this prospectus because it is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in


 

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calculating Adjusted EBITDA facilitates operating performance comparability across reporting periods by removing the effect of non-cash expenses and non-operating expense/(income). We have included Adjusted EBITDA Margin in this prospectus because it is an important means of comparing our operating performance to our total generated revenue. Adjusted EBITDA is higher than loss for the period in all reported periods. Adjusted EBITDA and Adjusted EBITDA Margin have limitations as financial measures and should not be considered in isolation, or as an alternative to, or substitute for, our results as reported in accordance with IFRS.

The following table presents a reconciliation of Adjusted EBITDA to loss for the period, the most directly comparable IFRS financial measure, for the periods indicated:

 

     Six months ended
June 30,
    Year ended
December 31,
 
     2021     2020     2020     2019  
     RUB million     RUB million
 

Loss for the period

     (1,070     (2,296     (3,056     (3,573

Income tax benefit

     111       (482     (419     (577

Finance costs

     1,105       1,681       2,564       1,997  

Finance income

     (90     (16     (15      

Impairment of a right-of-use asset

     32       21       60       361  

VAT write-off

           1       39       8  

Loss on lease terminations

                 31       3  

Impairment of property, plant and equipment

                       12  

(Gain)/loss on disposal of property, plant and equipment, net

     2       1       (2     9  

Reversal of an impairment loss on a right-of-use asset

                 (304      

Subsidies received

                 (182     (42

Insurance compensation received for damage of vehicles

     (11     (8     (12      

Reversal of impairment loss on property, plant and equipment

                 (9      

Depreciation of property, plant and equipment

     41       13       33       13  

Amortization of intangible assets

     60       27       68       12  

Depreciation of right-of-use assets

     557       453       918       722  

Share-based remuneration

     48                    
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     785       (605     (286     (1,055
  

 

 

   

 

 

   

 

 

   

 

 

 

Divided by

        

Revenue

     4,930       2,245       6,449       5,012  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA Margin

     16%       (27%     (4%     (21%

Key Performance Indicators

We monitor several operating and financial metrics to evaluate the growth of our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. We rely on different operating and financial metrics for our two operating segments, Delimobil and Anytime Prime, given the different nature of the services provided.

For the Delimobil segment:

 

   

EoP Fleet means the total number of vehicles in our car sharing fleet at the end of a given period.

 

   

Weighted Average Fleet represents the average number of vehicles that constituted our car sharing fleet in a given period, calculated as the sum of the number of days each vehicle was part of our fleet divided by the number of calendar days in the given period.


 

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Total Trips is the total number of trips completed by customers using our car sharing fleet in a given period. A trip lasts from the moment a customer books a vehicle until the moment the customer signals the completion of their journey on the Delimobil app.

 

   

Monthly Active Users (MAU) is the total number of unique customers who completed at least one trip per month using our car sharing fleet calculated as an average over the reporting period.

 

   

Total Minutes Sold is the total number of minutes that customers were charged for using our car sharing service in a given period.

 

   

Revenue for Car Sharing is the total amount of revenue generated from our car sharing service in a given period, in line with Note 32 to our audited combined and consolidated financial statements and with Note 30 to our unaudited interim condensed combined and consolidated financial statements.

 

   

Revenue per Weighted Average Fleet is revenue generated from our car sharing service divided by Weighted Average Fleet in a given period.

 

   

Revenue per Minute is revenue generated from our car sharing service divided by Total Minutes Sold in a given period.

For the Anytime Prime segment:

 

   

EoP Fleet means the total number of vehicles in our long-term rental fleet at the end of a given period.

 

   

Weighted Average Fleet represents the average number of vehicles that constituted our long-term rental fleet in a given period, calculated as the sum of the number of days each vehicle was part of our fleet divided by the number of calendar days in the given period.

 

   

Total Rental Days is the total number of rental days completed by customers for use of a vehicle in our long-term rental fleet in a given period. A rental day lasts from the moment a customer books the vehicle until the moment the customer signals the completion of their journey on the Anytime Prime app. As we only began to collect data on rental days from April 2019 as part of our strategic decision to focus on long-term rentals in the Anytime Prime segment, for the year ended December 31, 2019, Total Rental Days relates only to the period from April to December 2019.

 

   

Revenue for Long-Term Rentals is the total amount of revenue generated from our long-term rental service in a given period, in line with Note 32 to our audited combined and consolidated financial statements and with Note 30 to our unaudited interim condensed combined and consolidated financial statements. Revenue for Long-Term Rentals does not include any car sharing revenue recorded in the Anytime Prime segment for the year ended December 31, 2019.

 

   

Revenue per Rental Day is revenue generated from our long-term rental service divided by Total Rental Days in a given period.


 

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RISK FACTORS

An investment in the ADSs involves a high degree of risk. You should carefully consider the risks and uncertainty described below, together with all of the other information in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements, and the related notes thereto, before deciding to invest in the ADSs. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. The trading price and value of the ADSs could decline due to any of these risks, and you may lose all or part of your investment.

Risks Relating to our Business

The novel coronavirus, or COVID-19, pandemic and the impact of actions to mitigate the pandemic have materially adversely impacted and could continue to materially adversely impact our business, financial condition and results of operations.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. In an attempt to limit the spread of the virus, various countries, including Russia, implemented governmental restrictions, such as declarations of states of emergency, school and business closings, quarantines, “shelter at home” orders, restrictions on travel, limitations on social or public gatherings, and other social distancing measures which have, and may continue to have, a material adverse impact on our business and operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Key Factors Affecting Our Performance—Impact of COVID-19 Pandemic.” In particular, for the year ended December 31, 2020, we experienced a number of negative impacts as a result of the COVID-19 pandemic, including the following:

 

   

Demand: during the second quarter of 2020, and to a lesser extent the remainder of 2020, there was reduced demand for our shared mobility offerings, particularly in the Moscow and St. Petersburg regions of Russia. A significant amount of the demand in large metropolitan areas for our shared mobility offerings is derived from workers’ commute, which was severely impacted due to shelter at home orders and remote working. See “—Our business is subject to geographical risks and if our operations in large metropolitan areas are negatively affected, our operating results would be adversely impacted.”

 

   

Regulation: from April 13, 2020 to June 10, 2020, car sharing services were prohibited in Moscow, St. Petersburg and several other Russian cities in which we operate, which adversely impacted our ability to generate revenue. In the Krasnodar region, COVID-19 restrictions on short-term car rentals (the “Krasnodar Regulations”) have not been lifted as of the date of this prospectus. As such, we have adapted our operations to comply with the Krasnodar Regulations by increasing our minimum car rental term to 24 hours or longer. The possibility of further COVID-19 restrictions in the Krasnodar region, as well as the possibility that the Russian Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing (“Rospotrebnadzor”) in the Krasnodar region will enforce the Krasnodar Regulations differently, remains. Additionally, if the effects of the COVID-19 pandemic worsen, there is a possibility of a prohibition on car sharing services similar to the prohibition from April 13, 2020 to June 10, 2020. Further, as a result of the COVID-19 pandemic, we asked that all employees who are able to do so work remotely, and while we have since re-opened certain offices, it is possible that continued widespread remote work arrangements could have a negative impact on our operations. In particular, our ability to conduct necessary maintenance and repairs of our fleet of cars could be impacted, as it is not possible for our workers to carry out such maintenance and repair remotely. If a natural disaster, power outage, connectivity issue, or other event occurred that impacted our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of

 

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time. The increase in remote working may also result in privacy, cybersecurity and fraud risks. Additionally, there is the potential of further regulations on car sharing services as a result of the ongoing COVID-19 pandemic, which could adversely impact our ability to generate revenue in the future.

In response to the economic challenges and uncertainty resulting from the COVID-19 pandemic and its impact on our business, we implemented a 20% salary reduction from May to June 2020, and a 10% salary reduction from July to September 2020, for all employees. By implementing salary reductions, we were able to avoid any major reduction in our workforce. However, no assurance can be given that we will be able to avoid workforce reductions as a result of the COVID-19 pandemic in the future. We have responded to the COVID-19 pandemic by launching new, or expanding or amending existing, services and features, such as extended rental periods and daily promotion prices to meet the adjusted needs of our customers and expanded rental zones to encourage domestic tourism; by implementing certain changes to the pricing models of our offerings such as a general increase in our pricing plan rates; by launching delivery services to help food and tech retailers meet increased demand for home deliveries; and by offering 70% discounts for our customers when they use our services to travel to vaccination centers. We have also introduced additional health and safety measures on an expedited basis, such as enhanced sanitation and disinfection of our fleet. We have also undertaken a number of measures aimed at optimizing costs by, among other things, restructuring terms of repayment of certain lease liabilities. We may not be able to keep pace with shifting trends as we respond to unpredictable changes in the evolution of the pandemic and the measures taken to reduce the spread of the virus. Our understanding of applicable privacy, consumer protection and other legal and regulatory requirements, as well as the latest guidance from regulatory authorities in connection with the COVID-19 pandemic may be subject to legal or regulatory challenge, particularly as regulatory guidance evolves in response to future developments. For example, in the region of Nizhny Novgorod in April 2020, regulatory authorities unexpectedly banned the use of car sharing services from April 17, 2020 to May 11, 2020 and subsequently introduced measures limiting our services to daily leases, thus impacting our operations, until August 5, 2020, at which point we relaunched our regular pricing plan options. In addition, our launch of new, or expansion of existing, services, features, or health and safety requirements in response to COVID-19 may heighten other risks described in this “Risk Factors” section. These challenges could result in fines or other enforcement measures that could adversely impact our financial results or operations.

The COVID-19 pandemic has materially adversely affected our financial results for 2020 and may materially adversely impact our financial results for subsequent periods, which has required and may continue to require significant actions in response, including, but not limited to, the ones described above, all in an effort to mitigate such impacts. While restrictions on car sharing services have been lifted, with the exception of the Krasnodar region, there is no assurance that they will not be reintroduced in one or more of the markets in which we operate. COVID-19 has had and continues to have repercussions across regional and global economies and financial markets, including Russia. To address a surge in COVID-19 cases in the spring and summer of 2021, Russian authorities introduced additional restrictive measures to combat the spread of the virus. For example, at restaurants and cafes in Moscow, customers were required to scan a QR code to prove they had been fully vaccinated, had obtained a negative PCR test in the previous 72 hours or had recovered from COVID-19, in order to dine. This restrictive measure temporarily decreased demand for our shared mobility offerings. While these restrictions were lifted in July 2021, if they were to return or if the QR code system were to be extended to car sharing services, it could lead to a significant decrease in bookings and a corresponding decrease in revenue, which would have a material adverse effect on our business.

In light of the evolving nature of COVID-19 and the uncertainty it has produced around the world, we do not believe it is possible to predict with precision the pandemic’s cumulative and ultimate impact on our future business operations, liquidity, financial condition, and results of operations. While demand for our shared mobility offerings has fully rebounded to pre-COVID-19 levels in 2021, we cannot predict the extent of the impact of the pandemic on our business and financial results, which will depend largely on future developments, including the duration of the spread of the outbreak and any future “waves” or resurgences of the outbreak or variants of the virus, both globally and within Russia, the impact on capital and financial markets, foreign

 

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currency exchange and governmental or regulatory orders that impact our business, all of which are highly uncertain and cannot be predicted. Although the Russian Ministry of Health has already approved three vaccines for COVID-19 as of the date of this prospectus and other countries have also approved vaccines, we cannot currently predict the timing of widespread adoption of vaccines against COVID-19 in Russia or internationally, nor their potential impact on our lines of business.

In addition, we cannot predict the impact the COVID-19 pandemic will have on our business partners, and we may be materially adversely impacted as a result of the adverse impact our business partners suffer. For example, there is a worldwide shortage of semiconductors, exacerbated by the COVID-19 pandemic, which may cause our business partners to have difficulty providing us with vehicles in the future. Additionally, concerns over the economic impact of the COVID-19 pandemic have caused extreme volatility in financial markets, which may adversely impact the price of the ADSs and our ability to access capital markets. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section. Any of the foregoing factors, or other cascading effects of the pandemic that are not currently foreseeable, could materially adversely impact our business, financial performance and condition, and results of operations.

The mobility industry is highly competitive, with well-established and low-cost alternatives that have been available for decades, low switching costs, and well-capitalized competitors in nearly every major geographic region. If we are not able to compete effectively in this industry, our business and results of operation could be materially adversely impacted.

Our platform provides offerings in the mobility industry, and the market in which we compete is highly fragmented. We face significant competition in the mobility industry from existing, well-established and low-cost alternatives, and in the future we expect to face competition from new market entrants. In addition, within each of these markets, the cost to switch between products is low. Customers have a propensity to shift to the lowest-cost or highest-quality provider. Our shared mobility offerings compete with personal vehicle ownership and usage, which accounts for the majority of passenger kilometers in the markets that we serve, based on “Industry Report on the Russian Car Sharing Market,” Frost & Sullivan’s research report, and traditional transportation services, including taxicab companies, taxi-hailing services, car rental services and other car services. In addition, public transportation can be a superior substitute to our shared mobility offerings and, in many cases, in particular in large metropolitan areas, offers a faster and lower-cost travel option. We also compete with ride-hailing companies, including Yandex.Taxi, CityMobil and Gett Taxi, as well as regional ride-hailing companies, other car sharing companies, including Yandex.Drive, BelkaCar and CityDrive, and with existing long-term car subscription services, such as KiaMobility and Hyundai Mobility. We may also face new competitors given the increasing use of car sharing, such as, but not limited to, original equipment manufacturers if they elect to launch their own mobility programs or car subscription programs launched in the future by companies that currently have leasing programs, such as Sber and VTB Bank. As international competitors continue to expand, in the future they may compete with us both in markets in which we currently operate and markets into which we expand our services.

To differentiate ourselves from our competitors and continue to retain and attract customers to our platform, we continually invest in the development of new products, offerings and features that add value for customers. For example, we are continually improving our dynamic pricing model and tweaking our subscription options to meet customers preferences, as well as introducing an option for customers to participate in the car selection process to be made available in the near-future. Developing and delivering these new or upgraded products, offerings and features is costly, and the success of such new products, offerings and features depends on several factors, including the timely completion, introduction and market acceptance of such products, offerings and features. Moreover, any such new or upgraded products, offerings or features may not work as intended or may not provide intended value to customers. If we are unable to continue to develop new or upgraded products, offerings and features, or if customers do not perceive value in such new or upgraded products, offerings or features, customers may choose not to use our platform, and our business, financial condition and results of operations could be materially adversely affected.

 

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As we and our competitors introduce new products and offerings, and as existing products evolve, we expect to become subject to additional competition. In addition, our competitors may adopt certain of our product features, or may adopt innovations that customers value more highly than ours, which would render our products less attractive or reduce our ability to differentiate our products. Increased competition could result in, among other things, a reduction of the revenue we generate from the use of our services, the number of customers, the frequency of use of our services, and our margins.

Many of our competitors are well-capitalized and offer discounted services, incentives, and promotions, innovative products and offerings, and alternative pricing models, which may be more attractive to customers than those that we offer. Further, some of our current or potential competitors have, and may in the future continue to have, greater resources and access to larger customer bases in the geographic markets in which we operate. In addition, our competitors in other Russian regions in which we operate may enjoy substantial competitive advantages such as greater brand recognition, longer operating histories, larger eco-systems of products and services, larger marketing budgets and more supportive regulatory regimes. As a result, such competitors may be able to respond more quickly and effectively than us to new or changing opportunities, technologies, customer preferences, regulations or standards, which may render our products or offerings less attractive. In addition, future competitors may share in the effective benefit of any regulatory or governmental approvals and litigation victories we may achieve without having to incur the costs we have incurred to obtain such benefits.

For all of these reasons, we may not be able to compete successfully against our current and future competitors. Our inability to compete effectively would have an adverse effect on, or otherwise harm, our business, financial condition and operating results.

The car sharing market is still in relatively early stages of growth, and if our growth slows more significantly than we currently expect, we may not be able to achieve profitability and our financial results would be adversely affected.

The car sharing market has grown rapidly, but it is still relatively new, and it is uncertain to what extent market acceptance will continue to grow. Our success will depend to a substantial extent on the willingness of people to widely adopt our car sharing offerings, or any of our future offerings, as well as on our ability to continuously improve our product offering and develop the underlying technology and platform. Our revenue growth rates may slow in the future. We believe that our growth depends on a number of factors, including the duration and severity of the COVID-19 pandemic, and our ability to:

 

   

grow supply of our shared mobility offerings and services;

 

   

increase existing customer activity on our platform and acquire additional customers;

 

   

maintain the offerings currently available to our customers and obtain and subsequently maintain a sufficient number of parking locations in new markets as we expand our offerings;

 

   

continue to introduce our shared mobility offerings and services to new markets and to select suitable markets, penetrate suburban areas and increase the number of rides taken on our platform outside metropolitan areas;

 

   

expand our business and increase our market share and category position;

 

   

compete with the products and offerings of, and pricing and incentives offered by, our competitors;

 

   

develop new products, offerings and technologies;

 

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reduce the costs of our car sharing and long-term rental offerings to better compete with personal vehicle ownership and usage and other low-cost alternatives like public transportation, which in many cases can be faster or cheaper than any other form of transportation;

 

   

cooperate with the authorities to maintain and enhance existing local regulations in key markets where we operate; and

 

   

begin operations in key Russian regions in which we could be limited by local regulations.

We may not successfully accomplish any of these objectives. A softening of customer demand, whether caused by changes in the preferences of customers, failure to maintain our brand, changes in global economies, competition or other factors, may result in decreased revenue or growth and our financial results would be adversely impacted.

Our business may not continue to grow at historical levels and may suffer if we do not successfully manage our current and potential future growth.

We have grown significantly and rapidly in recent years, and we intend to continue to expand the scope and geographic reach of our platform. Our revenue grew from RUB 2,245 million for the six months ended June 30, 2020 to RUB 4,930 million for the six months ended June 30, 2021, and from RUB 5,012 million for the year ended December 31, 2019 to RUB 6,449 million for the year ended December 31, 2020. Our business may not continue to grow at historical levels, which could adversely affect its prospects. Our significant and rapid growth has placed, and we expect it to continue to place, significant demands on our management, human resources department and our administrative, operational and financial infrastructure.

Our success in managing our growth will depend, to a significant degree, on the ability of our executive officers and other members of senior management to run our business effectively. In particular, our key personnel will be required to manage any potential rapid fleet expansion and guide the launch and expansion of our services in new cities, all while fulfilling their duty to manage day to day operations of the business across the various Russian regions in which we currently operate. If our executive officers and other members of senior management do not have the propensity to simultaneously manage both our current and potential future growth, there may be a material adverse effect on our financial condition and results of operations.

Additionally, our success in managing our growth will depend, to a significant degree, upon our ability to both hire and maintain an adequate number of qualified information technology workers, engineers, marketing specialists and other specialized workers. Workers with the requisite skill sets that we require in conjunction with our expansion are in high demand and short supply in Russia. If we are not able to attract and retain a sufficient number of such employees, there may be a material adverse effect on our financial condition and results of operations.

Our success also depends on our ability to improve and develop our financial, operational and management information systems, controls and procedures, our ability to obtain a sufficient car fleet on favorable terms to meet customer demand and our ability to borrow adequate funds to finance rapid growth, all of which are important factors in successfully managing current and potential future growth. Certain of our offerings, such as our Anytime Prime subscription service and our B2B delivery services, may experience faster growth than others, which could make our overall operational growth more difficult to manage. In addition, in order to manage our future growth we will need to successfully adapt our existing systems and introduce new systems, expand, train and manage our employees and improve and expand our marketing capabilities.

In order to successfully manage our current and potential future growth, we will need to maintain our current level of service to customers while rapidly hiring and training new employees to work in call centers, car maintenance service locations and other locations necessary to our operations. We also will need to rapidly acquire or lease appropriate premises in appropriate locations in order to continue scaling up our operations, which may be challenging in certain of our markets such as Moscow and St. Petersburg. If we are not able to hire and effectively train enough employees and acquire or lease additional operation centers, there may be a material adverse effect on our financial condition and results of operations.

 

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If we are unable to properly and prudently manage our operations as they grow, or if the quality of our platform or support deteriorates due to mismanagement, our brand name and reputation could be severely harmed. Our inability to manage our future growth as a result of any of the factors described above could materially adversely affect our business, financial condition and results of operations.

We have incurred significant losses since inception and are likely to continue to incur losses in the near term as we continue to invest in order to grow, and it is possible we may not achieve profitability.

We have incurred significant losses since inception. We incurred total cumulative loss of RUB 2,296 million and RUB 1,070 million for the six months ended June 30, 2020 and 2021, respectively, and RUB 3,573 million and RUB 3,056 million for the years ended December 31, 2019 and 2020, respectively. We will need to generate and sustain increased revenue levels and decrease the proportionate amount of expenses in future periods to achieve profitability in Russia and in future markets in which we may operate, and even if we do, we may not be able to maintain or increase profitability. We anticipate that we will continue to incur losses in the near term as a result of expected increases in our operating expenses, as we continue to invest in order to increase our fleet and the number of customers using our platform through incentives, discounts and promotions; expand within existing or into new markets; increase our research and development expenses; expand marketing channels and operations; hire additional employees; and add new products and offerings to our platform, as well as in connection with legal, accounting and other administrative expenses related to operating as a public company. These efforts may prove more expensive than we anticipate, and we may not succeed in increasing our revenue sufficiently to offset these expenses. Our revenue growth may slow down or our revenue may decline for a number of other reasons, including reduced demand for our services, increased competition, a decrease in the growth or size of the car sharing market or any failure to capitalize on growth opportunities.

Many of our efforts to generate revenue are new and unproven, and any failure to adequately increase revenue or contain the related costs could prevent us from attaining or increasing profitability or otherwise result in suboptimal economics for us. As we expand our offerings to additional cities, our offerings in these cities may be less profitable than the markets in which we currently operate. As such, we may not be able to achieve or maintain profitability in the near term, in accordance with our expectations, or at all.

We currently rely on a small number of third-party service providers to host a significant portion of our platform, and any interruptions or delays in services from these third parties or our inability to obtain or maintain third-party technology could impair the delivery of our offerings and harm our business.

We use a combination of third-party cloud computing services and one data center in Moscow. We do not control the physical operation of our third-party service providers. These third-party operations and our data center may experience break-ins, computer viruses, denial-of-service attacks, sabotage, acts of vandalism and other misconduct. These facilities may also be vulnerable to damage or interruption from power loss, telecommunications failures, fires, floods, earthquakes, hurricanes, tornadoes and similar events. Our systems do not provide complete redundancy of data storage or processing, and as a result, the occurrence of any such event or other unanticipated problems may result in our inability to serve data reliably or require us to migrate our data to either a new on-premise data center or cloud computing service. This could be time consuming and costly and may result in the loss of data, which could significantly interrupt the provision of our products and offerings and harm our reputation and brand. We may not be able to easily switch to another cloud computing service or data center provider in the event of any disruptions or interference to the services we use, and even if we do, other cloud and data center providers are subject to the same risks. Interruptions in the delivery of our offerings may reduce our revenue and reduce use of our platform by customers. Our business and operating results may be harmed if current and potential customers believe our platform is unreliable. In addition, if we are unable to scale our data storage and computational capacity sufficiently or on commercially reasonable terms, our ability to innovate and introduce new products on our platform may be delayed or compromised, which could have a material adverse effect on our business, financial condition and results of operations.

In addition, we incorporate technology from third parties into our platform. We cannot be certain that our licensors are not infringing the intellectual property rights of others or that the suppliers and licensors have

 

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sufficient rights to the technology in Russia. Some of our license agreements may be terminated by our licensors with prior contractually agreed notice. If we are unable to obtain or maintain rights to any of this technology because of intellectual property infringement claims brought by third parties against our suppliers and licensors or against us, or if we are unable to continue to obtain the technology or enter into new agreements on commercially reasonable terms, our ability to develop our platform containing that technology could be severely limited and our business could be harmed. Additionally, if we are unable to obtain necessary technology from third parties, we may be forced to acquire or develop alternate technology, which may require significant time and effort and may be of lower quality or performance standards. This would limit and delay our ability to provide new or competitive offerings and increase our costs. If alternate technology cannot be obtained or developed, we may not be able to offer certain functionality as part of our offerings, which could adversely affect our business, financial condition and results of operations.

Our platform is dependent upon technology, and any undetected errors could adversely affect our business.

Our platform is a complex system composed of many interoperating components and incorporates software that is highly complex. Our business is dependent upon our ability to prevent system interruption on our platform. Our software, including open source software that is incorporated into our code, may now or in the future contain undetected errors, bugs or vulnerabilities. Some errors in our software code may only be discovered after the code has been released. Bugs in our software, third-party software including open source software that is incorporated into our code, misconfigurations of our systems and unintended interactions between systems could result in our failure to comply with certain reporting obligations, or could cause downtime that would impact the availability of our service to customers. We have from time to time found defects or errors in our system and may discover additional defects in the future that could result in platform unavailability or system disruption. In addition, we have experienced outages on our platform due to circumstances within our control, such as outages due to software limitations. Our release of new software in the past has inadvertently caused, and may in the future cause, interruptions in the availability or functionality of our platform. Any errors, bugs or vulnerabilities discovered in our code or systems after release could result in an interruption in the availability of our platform or a negative experience for customers and could also result in negative publicity and unfavorable media coverage, damage to our reputation, loss of customers, loss of revenue or liability for damages, regulatory inquiries or other proceedings, any of which could adversely affect our business and financial results.

Our business depends heavily on insurance coverage for our fleet and on other types of insurance for additional risks related to our business. If insurance carriers change the terms of such insurance in a manner not favorable to us, if we are required to purchase additional insurance for other aspects of our business, or if we fail to comply with regulations governing insurance coverage, our business could be harmed.

We use third-party liability insurance for our car sharing services, meaning damages to third parties are covered when our customer is at fault, which includes coverage for automobile collisions of up to RUB 400,000 and bodily injury of up to RUB 500,000. Any costs above this amount will be passed on to our at-fault customer. Customers have an option when booking with us to choose a fractionally more expensive pricing plan which provides full coverage to the customer in the event of an accident if the customer is not at fault and the third party’s insurance provider is not seeking payment exceeding RUB 400,000. We bear the costs resulting from damage to our own cars, with the exception of theft and total loss of the car, which are fully insured.

We rely on a limited number of insurance providers, and should such providers discontinue or increase the cost of coverage, we cannot guarantee that we would be able to secure replacement coverage on reasonable terms or at all. In addition to insurance related to our products to cover automotive risks described above, we maintain voluntary health insurance coverage for our employees. If our insurance carriers change the terms of our policies in a manner unfavorable to us or our customers, our insurance costs could increase. Further, if the insurance coverage we maintain is not adequate to cover losses that occur, we could be liable for significant additional costs.

 

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Our cars may be damaged or stolen while they are being used by customers, and an increase of theft losses covered by insurance could result in increasing insurance premiums. We may be subject to claims of significant liability based on traffic accidents, personal injuries, deaths, property damages or other incidents that are claimed to have been caused by customers who use our car sharing services through our platform. As we expand to include more offerings on our platform, our insurance needs will likely extend to those additional offerings. As a result, our automobile liability and general liability insurance policies and insurance contracted by customers may not cover all potential claims related to traffic accidents, personal injuries, deaths, property damages or other incidents that are claimed to have been caused by customers, and may not be adequate to indemnify us for all liability that we could face. Even if these claims do not result in liability, we could incur significant costs in investigating and defending against them. If insurers become insolvent, they may not be able to pay otherwise valid claims in a timely manner or at all. If we are subject to claims of liability relating to the acts of customers using our platform, we may be subject to negative publicity and incur additional expenses, which could harm our business, financial condition and operating results.

In addition, we are subject to local laws, rules and regulations relating to insurance coverage which could result in proceedings or actions against us by governmental entities or others. Any failure, or perceived failure, by us to comply with local laws, rules and regulations or contractual obligations relating to insurance coverage could result in proceedings or actions against us by governmental entities or others. These lawsuits, proceedings, or actions may subject us to significant penalties and negative publicity, require us to increase our insurance coverage, require us to amend our insurance policy disclosure, increase our costs and disrupt our business.

We cannot assure you that we will not be exposed to uninsured liability at levels in excess of our historical levels resulting from multiple payouts or otherwise, that liabilities in respect of existing or future claims will not exceed the level of our insurance or reserves, that we will have sufficient capital available to pay any uninsured claims or that insurance with unaffiliated carriers will continue to be available to us on economically reasonable terms or at all. We also may choose not to insure against all risks we face. Therefore, should an uninsured loss or a loss in excess of our insured limits occur, we would lose the capital invested in, and the anticipated revenue from, the affected assets, which could have a material adverse effect on our business, financial condition and results of operations.

We do not have and may be unable to obtain sufficient insurance to protect ourselves from business risks.

The insurance industry in Russia relative to that in other jurisdictions is not as mature, and accessibility to many forms of insurance coverage common in other jurisdictions is limited. We currently maintain insurance coverage for automobile collisions, physical damage and uninsured and underinsured drivers, but do not maintain insurance coverage for our servers or business interruption risks. Until we obtain adequate insurance coverage for our servers or business interruption risks, there is a risk of irrecoverable loss or destruction of certain assets, and our business, prospects, financial condition and results of operations could be materially and adversely affected.

Negative publicity could affect our business.

Negative publicity in which we or our shareholders are named may adversely affect our reputation, irrespective of its truth or otherwise or its connection with our current operations or business. There is a tendency among the local and international press to generate, from time to time, speculative reports that contain allegations of criminal conduct or corruption on the part of Russian companies, their shareholders or individuals within Russian companies, irrespective of whether those allegations have any basis in fact. In addition, the Russian press and other media have been, from time to time, suspected of publishing biased articles and reports in return for payment. Any negative publicity, even if not directly related to us or our shareholders, may affect our reputation, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

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If we are unable to attract or maintain a critical mass of customers, whether as a result of competition or other factors, our financial condition and results of operation would be materially adversely impacted.

Our success in each geographic market depends on our ability to maintain or increase our network scale in that geographic market by attracting customers to our platform. The number of customers on our platform could materially decline or fluctuate as a result of a number of factors, including, among other things, the low switching costs between competitor platforms or services, dissatisfaction with our brand, reputation, operation of our platform, selection of our fleet of cars, pricing model (including potential reductions in incentives or other aspects of our pricing strategy), technical problems experienced by relevant third parties such as our main customer promotional channels, advertising offices or traffic police, public preference for other forms of transportation, passage or enforcement of local laws limiting our products and offerings and dissatisfaction with our services and offerings in general. In particular, if we are unable to provide high-quality support to customers or respond to reported incidents, including safety incidents, in a timely and acceptable manner, our ability to attract and retain customers could be adversely affected.

Our business benefits from strong brands. Failure to maintain and enhance our brands, or to maintain effective customer service, may result in customer complaints and materially adversely affect our business, financial condition and result of operations.

We believe that the brand identity that we have developed through the strength of our technology, our customer focus, our independence from political considerations and our ability to deliver mobility solutions has significantly contributed to the success of our business. We also believe that maintaining and enhancing the Delimobil and Anytime Prime brands, including through continued significant marketing efforts, is critical to expanding our base of customers and other business partners. Despite conducting a number of brand promotion and recognition activities from time to time, we cannot assure you that these activities will be successful in the future or that we will be able to achieve the brand promotion effects that we expect. In addition, our competitors may increase the intensity of their marketing campaigns, which may force us to increase our advertising spend to maintain our brand awareness. If our brand is harmed or we are forced to increase our marketing expenses, our business, financial condition and results of operations could be materially adversely affected.

In the event that our brand is subject to persistent and material negative publicity, complaints from customers, or exposure as a result of our own actions or as a result of events outside of our control, such as our inability to attract customers, to protect private information of our customers against security breaches, any undetected errors, defects or bugs in software underlying our products and services or disruption in our IT systems, the value of our brand and our customer traffic could decline.

To maintain good customer relations, we need prompt and reliable customer service to resolve irregularities and disputes. Effective customer service requires significant personnel expense and investment in developing programs and technology infrastructure to help customer service representatives carry out their functions. These expenses, if not managed properly, could significantly impact our ability to achieve and maintain profitability. Failure to manage or train our customer service representatives properly could compromise our ability to handle customer complaints effectively. If we do not handle customer complaints effectively, our reputation may suffer and we may lose our customers’ confidence.

Further, as our car fleet includes a number of international brand names, we rely on their reputation and brand image, and any harm to the reputation and brand image of these brand names may also have a material adverse effect on our business, results of operations and financial condition.

Our marketing efforts to help grow our business may not be effective.

Promoting awareness of our offerings is important to our ability to grow our business and to attract new customers and can be costly. We believe that much of the growth in our customer base is attributable to our paid

 

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marketing initiatives. Our marketing efforts currently include referrals, affiliate programs, free or discount trials, partnerships, display advertising, in-app traffic campaigns, television, billboards, radio, video, content, direct mail, social media, email, hiring and classified advertisement websites, mobile “push” communications, search engine optimization and keyword search campaigns. Our marketing initiatives may become increasingly expensive and generating a meaningful return on those initiatives may be difficult. Even if we successfully increase revenue as a result of our paid marketing efforts, it may not offset the additional marketing expenses we incur.

If our marketing efforts are not successful in promoting awareness of our offerings or attracting new customers, or if we are not able to cost-effectively manage our advertising and marketing expenses, our results of operations could be adversely affected. If our marketing efforts are successful in increasing awareness of our offerings, this could also lead to increased public scrutiny of our business and increase the likelihood of third parties bringing legal proceedings against us. Any of the foregoing risks could harm our business, financial condition and results of operations.

In addition, from time to time in the past we have executed, and may in the future execute, advertisement contracts with celebrities to promote our sites and brands in marketing campaigns. Harm to those celebrities’ reputations, even if not associated with our brands, could also harm our brand image and result in a material decrease in our revenue, which could have a material adverse effect on our business, results of operations and financial condition.

We have in the past lowered, and may continue to lower in less established markets, booking fees or service fees, and we have in the past offered, and may continue to offer in less established markets, significant customer incentives, discounts and promotions, which may materially adversely affect our financial performance.

To remain competitive in certain markets and generate network scale and liquidity, we have in the past lowered, and may in the future continue to lower in less established markets, booking fees or service fees, and we have offered, and expect to continue to offer in less established markets, significant customer incentives, discounts and promotions. In larger markets in which we have been operating for several years, such as Moscow and St. Petersburg, we do not currently anticipate continued implementation of material price reductions and significant customer incentives, discounts and promotions. However, in other regions, particularly in cities to which we have recently expanded our services, we face particularly intense competition, and may not have a leading market position, which may result in us choosing to provide additional customer incentives, discounts and promotions that we offer in those geographic markets and regions. Additionally, we may offer customer incentives, discounts or promotions in order to penetrate new markets or in conjunction with the trials of new services we are considering expanding to additional markets. We rely on our advanced pricing prediction technology in allocating our investments in customer incentives, discounts and promotions, and we monitor the results of our offerings daily in order to react quickly to market conditions. However, we cannot assure you that offering such incentives, discounts and promotions will be successful. Customer incentives, discounts, promotions and reductions in booking fees and our service fees have affected, and will continue to affect, our financial performance.

Additionally, as part of our dynamic pricing strategy, we rely on a pricing model to calculate individual rates that customers pay per booking, based on customer usage, penalties (such as traffic violations) and driving score, and we may in the future modify our pricing model and strategies. Our dynamic pricing model may result in lower or higher rates for customers, depending on the various factors described above. As our pricing model continues to develop, we may change our approach to using incentives, discounts and promotions. We cannot assure you that our pricing model or strategies will be successful in attracting customers or otherwise generate expected bookings, and incentives, discounts and promotions may be a permanent part of our pricing model. If our pricing model or strategy is not effective, our business, financial condition and results of operations would be materially adversely affected.

 

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The loss of any of our board members, management team or key personnel, or a failure to attract, retain and motivate qualified personnel, may have a material adverse effect on our business, financial condition and results of operations.

Our success depends in large part upon the continued service of our board members and management team, many of whom have a level of experience and local knowledge that would be difficult to replace. The unexpected departure of any of them from our group could have a material adverse effect on our business, financial condition and results of operations, and there can be no assurance that we will be able to attract or retain suitable replacements for such personnel in a timely manner or at all.

As discussed in “Management – Legal Investigations Related to our Board of Directors,” one of our directors, Matteo Renzi, is currently the subject of ongoing investigations by the offices of the public prosecutor of the cities of Florence and Rome. In the event of an adverse outcome to these investigations, Mr. Renzi could be required to step down from his position as a board member of Delimobil Holding S.A. Further, any negative public opinion relating to the allegations forming the basis of these investigations, or regarding of any future legal outcome, may affect our brand and reputation and therefore may have an adverse impact on our business in the future. For more information, see “Management – Legal Investigations Related to our Board of Directors.”

Our success also depends upon the continued service of our technical personnel, as well as our continued ability to attract, retain and motivate operational managers and other highly qualified engineering, programming, technical, marketing, customer support, financial and managerial personnel. Although we attempt to structure employee compensation packages in a manner consistent with the evolving standards of the markets in which we operate and to provide incentives, including equity-based awards under our recently introduced employee incentive plans, to remain with our company, we cannot guarantee that we will be able to retain our key employees. Additionally, as a result of COVID-19, we implemented a 20% salary reduction from May to June 2020 and a 10% salary reduction from July to September 2020 for all employees. While we do not currently anticipate the need for another salary reduction, there can be no assurance that another salary reduction or similar measure taken in the future will not result in the loss of key employees. If any member of our senior management team or other key personnel should leave our group, our ability to successfully operate our business and execute our business strategy could be impaired. We may also have to incur significant costs in identifying, hiring, training and retaining replacements for departing employees. In particular, the competition for software engineers and qualified personnel who are familiar with the internet industry in Russia is intense, both from within Russia and from competitors abroad hiring software engineers and qualified personnel to relocate to other markets. We may encounter difficulty in hiring and/or retaining highly talented software engineers to develop and maintain our services. Similarly, we may encounter difficulty in hiring and/or retaining highly talented operational and marketing managers who are knowledgeable in our industry and are capable of adapting to the rapidly developing car sharing industry in Russia. There is also significant competition for personnel who are knowledgeable about the accounting and legal requirements related to a NYSE listing, and we may encounter difficulty in hiring and/or retaining appropriate financial staff needed to enable us to continue to comply with the internal control requirements under the Sarbanes-Oxley Act and related regulations.

Any inability to successfully retain key employees and manage our personnel needs may have a material adverse effect on our business, financial condition and results of operations.

Our business requires intensive long-term capital to finance renewal of our fleet and implement our growth strategy; if we are unable to accurately estimate future levels of demand and adjust the number, location and mix of vehicles used in our fleet accordingly, our results of operations, financial condition, liquidity and cash flows could suffer.

Both the implementation of our growth strategy and our competitiveness depend on our ability to make investments, renew and expand our fleet. Our ability to finance fleet replacement depends, in turn, on our operating performance and our ability to obtain funding. We are unable to predict whether we will be able to

 

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obtain sufficient financing to fund our capital expenditure and to finance our expansion strategy at acceptable costs, as a result either of adverse macroeconomic conditions, our performance or other external factors, which could in turn adversely affect our growth strategy. Failure to renew our fleet may cause our business to become less competitive.

As fleet growth is key to our business and future development, any factors affecting our ability to acquire additional vehicles could have a negative impact on our results. For example, the current global shortage of semi-conductors, which are critical to the manufacturing of new vehicles, has postponed the production of some new vehicles both in Russia and worldwide. This postponement in production could impede our ability to grow our fleet at scale, which could in turn adversely affect our revenue. While we believe that OEMs, by including their vehicles in our fleet, generally benefit from exposure to our large customer base and would need to overcome a large number of barriers to enter the car sharing market, there is the possibility that OEMs could elect to invest in their own mobility operations and therefore decide not supply us with vehicles on as favorable terms and volume.

Our vehicle purchase strategies can be affected by commercial, economic, market and other conditions. For example, certain vehicle manufacturers have occasionally utilized strategies to reduce sales to the vehicle rental industry, which can negatively affect our ability to obtain vehicles on competitive terms and conditions. Ruble depreciation may also result in vehicle price increases. Consequently, there is no guarantee that we can purchase a sufficient number of vehicles at competitive prices and on competitive terms and conditions. Manufacturers of vehicles are also facing a shortage of microprocessors and other digital devices used to control engines and transmissions as a result of the recent global semiconductor chip shortage, which may affect the availability of vehicles being produced. If we are unable to obtain a sufficient supply of vehicles, or if we obtain less favorable pricing and other terms during the acquisition of vehicles and are unable to recover from the increased costs, our results of operations, financial condition, liquidity and cash flows may be materially adversely affected.

Vehicle costs represent our largest expense. Accordingly, our business is dependent upon the ability of our management to accurately estimate future levels of rental activity and customer preferences with respect to the mix of vehicles used in our car sharing operations and the location of those vehicles. In addition, the timely delivery of the cars with no delays is critical to efficient fleet management. If we are unable to purchase a sufficient number of vehicles, or the right types of vehicles, or if vehicles are not delivered to us on a timely basis, to meet customer demand, we may lose revenue or market share to our competitors. If we purchase too many vehicles, our vehicle utilization could be adversely affected and we may not be able to dispose of excess vehicles in a timely and cost-effective manner. For example, in early 2020, due to the COVID-19 pandemic, we experienced significant excess in our vehicle supply due to the lockdown of our business activity and subsequent reduced demand. Our failure to utilize a flexible and systematic process for fleet management that accurately estimates future levels of rental activity and determines the appropriate mix of vehicles used in our rental operations may result in obsolescence and excessive aging of our fleet, the inability to sell fleet at adequate prices, sub-optimal fleet utilization, increased fleet costs, lower customer satisfaction, sub-optimal fleet sizing, lost or missing fleet assets, reduced margins and cash flows and other unfavorable consequences, which may materially adversely affect our results of operations, financial condition, liquidity and cash flows.

The successful operation of our business depends upon the performance and reliability of internet, mobile and other infrastructures that are not under our control.

Our business depends on the availability, performance and reliability of internet, mobile and other infrastructures that are not under our control. This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security for providing reliable internet services. Disruptions in internet access, infrastructure, GPS or GLONASS signals or the failure of telecommunications network operators to provide us with the bandwidth we need to provide our products and offerings have interfered, and could continue to interfere, with the speed and availability of our platform, functionality of maps and our ability to process

 

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customer payments. If our platform is unavailable when customers attempt to access it, or if our platform does not load as quickly as customers expect, those customers may not return to our platform as often in the future, or at all, and may use our competitors’ products or offerings more often. In addition, we have no control over the costs of the services provided by national telecommunications operators. If mobile internet access fees or other charges to internet users increase, customer traffic may decrease, which may in turn cause our revenue to significantly decrease.

As our data centers and all of our backup centers are located in Moscow, we are heavily reliant on Russia’s internet infrastructure to operate our business. Since these centers are located, along with the office of our key operating subsidiary, in Moscow, our operations may also be negatively impacted by disruptions to the power grid, telecommunication failures, sabotage, vandalism, terrorist attacks, extreme weather as a result of climate change, natural disasters, such as fires or floods, or other events affecting the Moscow region. The occurrence of an unanticipated problem, such as a power outage, telecommunications delay or failure, security breaches, computer viruses or any other issues with the infrastructure in Russia more generally could result in delays or interruptions to our products, offerings and platform, as well as business interruptions for us and customers.

Furthermore, we depend on hardware and software suppliers for prompt delivery, installation and service of servers and other equipment to deliver our services. Public health concerns or epidemics, such as the COVID-19 pandemic, may affect the production capabilities of our suppliers, and resulting quarantines or closures could further disrupt our supply chain.

In 2019, the Federal Law No. 90-FZ dated May 1, 2019 (the “Sovereign Internet Law”) was adopted. The Sovereign Internet Law introduced tighter regulation of Russian internet providers. In particular, it requires internet providers to install Russian-origin equipment for countering certain cybersecurity threats, to take part in practical trainings arranged by Russian authorities and to provide necessary assistance to the Russian investigative authorities. While the Sovereign Internet Law is not directly applicable to us, it could reduce the speed of data transfer, which could result in interruptions and delays of our online services and thereby affect our operations.

If we experience security or privacy breaches or other unauthorized or improper access to, use of, disclosure of, alteration of or destruction of our proprietary or confidential data, employee data or platform user data, we may face loss of revenue, harm to our brand, business disruption and significant liabilities.

We collect, use and process a variety of personal data, such as email addresses, mobile phone numbers, profile photos, location information, drivers’ license numbers, passport details of customers, sensitive personal data entrusted to us by customers, employees and job candidates, as well as route/destination information. In addition, we collect data regarding a customer’s age, immigration status, driving styles and convictions to inform our pricing algorithms and permit access to our vehicles. As such, we may be a target of data security attacks by third parties. Any failure to prevent or mitigate security breaches or improper access to, or use, acquisition, disclosure, alteration or destruction of, any such data could result in significant liability and a material loss of revenue resulting from the adverse impact on our reputation and brand, a diminished ability to retain or attract new customers, and disruption to our business. We rely on third-party service providers to host or otherwise process some of our data and that of our customers, as well as to provide data that is used in determining our pricing algorithms, and any failure by such third parties to prevent or mitigate security breaches or improper access to, or use, acquisition, disclosure, alteration or destruction of, such information could have similar adverse consequences for us.

Because the techniques used to obtain unauthorized access to, disable or degrade services or sabotage systems change frequently and are often unrecognizable until launched against a target (for example, ransomware software), we may be unable to anticipate these techniques and implement adequate preventative measures. Our servers and platform may be vulnerable to computer viruses or physical or electronic break-ins that our security measures may not detect. Individuals able to circumvent our security measures may misappropriate confidential, proprietary or personal information held by or on behalf of us, disrupt our operations, damage our computers or

 

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otherwise damage our business. In addition, we may need to expend significant resources to protect against security breaches or mitigate the impact of any such breaches, including potential liability that may not be limited to the amounts covered by our insurance.

Security breaches could also expose us to liability under Russian (as well as other jurisdictions’) laws and regulations and increase the risk of litigation and governmental investigation. Therefore, our results of operations and financial condition may be materially adversely affected if we suffer a security breach.

Our results may be affected by errors in determining the residual value of our fleet because of failures in the calculations of estimated effective depreciation in our fleet.

The pricing of our car sharing offerings takes into consideration the estimated value of future sales of our vehicles in the used car market and, accordingly, the effective depreciation (i.e., the cost of acquisition of each vehicle minus the price at which we can potentially sell the vehicle after six years, or the liquidation value) of our fleet. If the liquidation value determined by us at the time of the sale of the car is not accurate, or the resale car market shifts in a way that we do not anticipate, there could be a material adverse effect on our financial condition. Additionally, overestimating the effective depreciation of our vehicles may cause us to increase prices above those of our competitors in order to ensure that we are able to recover effective depreciation costs, which may reduce our competitiveness. Alternatively, underestimating the effective depreciation of our cars may lead us to reduce our prices, which may cause a reduction in our operating margin upon the sale of cars in the used car market. In either case, our businesses, financial condition and results of operations may be negatively affected by inaccurate estimates of effective depreciation. This risk is heightened by the ongoing COVID-19 pandemic, which already led to factory shutdowns of manufacturers worldwide, and makes it more difficult to make a reasonable plan for our fleet needs and to predict availability of vehicles.

Our customer growth and engagement on mobile devices depend upon effective operation with mobile operating systems, networks and standards that we do not control.

Mobile devices are increasingly used to access the internet and mobility offerings. Our customers access our platform through mobile devices. Tailoring our products and services to such devices requires particular expertise and the expenditure of significant resources. There is no guarantee that popular mobile devices will continue to support our platform or that mobile device users will use our platform rather than competing products. Our ability to deliver a high-quality mobile user experience is dependent on the interoperability of our platform with popular mobile operating systems, technologies, networks and standards that we do not control, such as Android and iOS, and any changes in such systems, technologies, networks and standards that degrade the functionality or availability of our apps or give preferential treatment to competitors could adversely affect our platform’s usage on mobile devices. If mobile device producers intentionally or inadvertently limit access to information we use to operate our platform, our ability to track the usage of such information and to run marketing campaigns in a cost effective manner may be adversely affected. We may not be successful in developing relationships with key participants in the mobile industry or in developing features that operate effectively with these technologies, systems, networks or standards. In the event that it is more difficult for our customers to access and use our platform on their mobile devices, customers find our mobile offering does not effectively meet their needs, algorithms developed by mobile operating systems or our competitors prioritize the offerings of our competitors, our competitors develop products and services that are perceived to operate more effectively on mobile devices, or our customers choose not to access or use our platform on their mobile devices or use mobile products that do not offer access to our platform, our customer growth and customer engagement could be adversely impacted.

Mikro Kapital Group, our controlling shareholder, has the ability to exert significant influence over us, and its interests conflict with those of the holders of the ADSs.

Mikro Kapital Group will continue to hold a substantial interest in Delimobil. Accordingly, Mikro Kapital Group will be able to exercise significant influence over matters relating to us, including, but not limited to, decisions on amendment of the charters, proposed substantial sale of assets or other major corporate transactions, election of the members of our board of directors, appointment of our executive officers, declaration

 

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of dividends and the determination of our corporate policies. The interests of Mikro Kapital Group may also differ from the interests of other holders of the ADSs, and Mikro Kapital Group may take actions that its public shareholders, including holders of the ADSs, do not view as beneficial or as maximizing value for them, including actions such as:

 

   

delaying, defending or preventing a change of control, even at a per-share price that is in excess of the then-current price of the ADSs;

 

   

impeding a merger, consolidation, takeover or other business combination involving us, even at a per-share price that is in excess of the then-current price of the ADSs;

 

   

forcing a merger, consolidation, takeover or other business combination involving us that increase the amount of indebtedness or outstanding ordinary shares, or the sale of revenue-generating assets;

 

   

discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, even at a per-share price that is in excess of the then-current price of the ADSs; or

 

   

causing us to enter into other transactions or agreements that are not in the best interests of all shareholders, including holders of the ADSs.

On the other hand, a loss of voting control by Mikro Kapital Group could materially affect the direction of our company. In either case, as a result, the market price of our ADSs may be adversely affected.

We have engaged in and will continue to engage in ordinary course commercial dealings with our controlling shareholder.

In the ordinary course of business, we have commercial dealings with companies controlled by Mikro Kapital Group. Our commercial dealings with such related parties are conducted on an arm’s length basis. Notwithstanding the foregoing, transactions with related parties pose the risk of Delimobil entering into transactions on terms less favorable than could be obtained in arm’s length transactions with unrelated parties. If any such risk materializes, it could have a material adverse effect on our business, financial condition, results of operations, prospects and the trading price of the ADSs. See “Certain Relationships and Related Party Transactions” for more information on our commercial dealings with Mikro Kapital Group.

We may not be able to sell our vehicles at their actual residual value upon completion of their respective holding periods, which could materially adversely affect our results of operations, financial condition, liquidity and cash flows.

Our average holding period for a vehicle is six years. When holding periods for vehicles end, our policy is to sell our used vehicles through various sales channels in the used vehicle market, including auctions, dealer direct sales, wholesale lots, retail lots and, in the future, possibly on our own platform. When we sell our used vehicles, we may oversaturate the market, particularly beginning in the third quarter of 2024 when we will begin selling used vehicles in large monthly lots due to the completion of our first significant six year cycle of vehicle leases we signed in 2018. Doing so could result in driving down the selling price and cause the estimated net amount realized upon disposition of a vehicle to be less than its residual value at such time. Any decrease in the sale price of our used vehicles could result in a substantial loss on the sale of such vehicles, which could materially adversely affect our results of operations, financial condition, liquidity and cash flows (see “—Our results may be affected by errors in pricing because of failures in the calculations of estimated effective depreciation in our fleet”). We diversify our portfolio of vehicle models to avoid a significant concentration and subsequent sale of any one model of vehicle, and also seek to distribute our vehicle models in a geographically proportional manner to minimize the possibility of oversaturating any one local market. The market for used vehicles is subject to economic factors, such as demand, customer interests, pricing of new car models, fuel costs and other general economic conditions and may not produce stable vehicle prices in the future.

We are subject to payment-related risks.

We accept payments using a variety of methods, including credit card, debit card and customer invoicing for B2B clients. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs.

 

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We rely on third parties to provide certain payment methods and payment processing services, including the processing of credit cards and debit cards. In each case, our business could be disrupted if these third parties become unwilling or unable to provide these services to us, or if the services are offered on less favorable terms in the future.

In the past, we have experienced fraudulent payment activities on our platform, such as linking customer accounts to payment cards or bank accounts that do not contain funds. While to date these activities have not had a material effect on our business, we may continue to experience these fraudulent activities in the future. Although we have implemented various measures to detect and reduce the occurrence of fraudulent payment activities on our platform, there can be no assurance that such measures will be effective in combating fraudulent transactions or improving overall satisfaction among customers.

We could also be subject to payment card association operating rules, such as the Payment Card Industry Data Security Standard, which includes data security rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it costly, difficult or impossible for us to comply. Failure to comply with these rules or requirements, as well as any breach, compromise or failure to otherwise detect or prevent fraudulent activity involving our data security systems, could result in us being liable for banks’ costs for issuing cards, subject to fines and higher transaction fees and the loss of the ability to accept credit and debit card payments from our customers or facilitate other types of online payments, and our business and results of operations could be materially adversely affected.

We may use open source code in a manner that could be harmful to our business.

We use open source code, which is subject to licensing, in connection with our technology and services. Original developers of open source code do not provide warranties for the use of their source code. The use of such open source code may ultimately require us to replace certain code used in our platform, pay a royalty to use certain open source code, discontinue certain features of our platform or share our code infected with open source software freely pursuant to the terms of an open source software license. As a result, the use of open source code could have a material adverse effect on our business, prospects, financial condition and results of operations.

To continue our operations and continue using open source code, we may need to run open source software audits. Such audits may be expensive and may unveil vulnerabilities in our software code or our approach to using open source software.

Cybersecurity attacks, computer malware, viruses, spamming and phishing attacks could harm our reputation, business and operating results.

We rely heavily on information technology systems across our operations. Our information technology systems, including mobile and online platforms and mobile payment systems, administrative functions such as human resources, payroll, accounting, and internal and external communications, and the information technology systems of our third-party business partners and service providers contain proprietary or confidential information related to business and personal data, such as email addresses, mobile phone numbers, profile photos, location information, drivers’ license numbers, passport details of customers, route/destination information and other sensitive personal data entrusted to us by customers, employees and job candidates. Cybersecurity attacks, computer malware, viruses, spamming and phishing attacks have become more prevalent, have occurred on our systems in the past and may occur on our systems in the future. While we apply a number of security measures to prevent and minimize possible damage, cybersecurity threats are constantly evolving and employing more sophisticated attack techniques. Our detection capabilities may not be sufficient to prevent or detect a sophisticated cybersecurity attacker, such as a nation state using a zero day exploit or unknown malware. Breaches of our facilities, network, or data security could disrupt the security of our systems and platforms; impair our ability to protect data; compromise confidential or technical business information, harming our reputation or competitive position; result in theft or misuse of our intellectual property or other assets; require us to allocate more resources to improve technologies; or otherwise adversely affect our reputation, business and operating results.

 

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Various other factors may also cause system failures, including power outages, catastrophic events, inadequate or ineffective redundancy, issues with upgrading or creating new systems or platforms, flaws in third-party software or services, errors by our employees or third-party service providers or breaches in the security of these systems or platforms. For example, third parties may attempt to fraudulently induce employees or customers to disclose information to gain access to our data or the data of customers. If our incident response, disaster recovery, and business continuity plans do not resolve these issues in an effective manner, they could result in adverse impacts to our business operations and our financial results. Although we have developed, and continue to develop, systems and processes that are designed to protect our data and that of customers, and to prevent data loss, undesirable activities on our platform and security breaches, we cannot guarantee that such measures will provide absolute security. Our efforts on this front may be unsuccessful as a result of, for example, software bugs or other technical malfunctions; employee, contractor, or vendor error or malfeasance; government surveillance; or other threats that evolve, and we may incur significant costs in protecting against or remediating cybersecurity attacks. Any actual or perceived failure to maintain the performance, reliability, security and availability of our products, offerings and technical infrastructure to the satisfaction of customers and certain regulators would likely harm our reputation and result in loss of revenue from the adverse impact to our reputation and brand, disruption to our business and our decreased ability to attract and retain customers.

If customers engage in, or are subject to, criminal, violent, inappropriate or dangerous activity that results in major safety incidents, our ability to attract and retain customers may be harmed, which could have an adverse impact on our reputation, business, financial condition and operating results.

Though we employ a number of security techniques, such as automatic customer identification, verification, monitoring, scoring and analysis, we are not able to control or predict the actions of customers and third parties, either during their use of our platform or otherwise, and we may be unable to protect or provide a safe environment for customers or third parties as a result of certain actions by customers or third parties. Such actions may result in injuries, property damage or loss of life for customers and third parties, or business interruption, brand and reputational damage or significant liabilities for us. Although we administer certain qualification processes for our customers, including a process to check the validity of customers’ identification and drivers’ licenses and a mandatory quiz within the app that certain customers, as determined by an algorithm, must pass for bookings between 11:00 pm and 5:00 am designed to test for intoxication and fatigue in order to start the engine of their vehicle, these qualification processes may not expose all potentially relevant information or intoxication. In addition, we do not independently test customers’ driving skills. Consequently, we may receive complaints from third parties, as well as actual or threatened legal action against us related to customer conduct.

In addition, if customers, or individuals from organized criminal groups impersonating our standard customers, engage in criminal activity, misconduct or inappropriate conduct or use our platform or our vehicles as a conduit for criminal activity, we may receive negative press coverage or be hampered by the relevant authorities, which would adversely impact our brand, reputation and business. If other criminal, inappropriate or other negative incidents occur due to the conduct of customers or third parties, our ability to attract customers may be harmed, and our business and financial results could be adversely affected.

Public reports of safety information, including information about safety incidents reportedly occurring on or related to our platform generated by third parties such as media or regulators, may adversely impact our business and financial results. Further, we may be subject to claims of significant liability based on traffic accidents, deaths, injuries or other incidents that are caused by customers while using our platform. We depend on our customers to inspect vehicles prior to driving in order to identify any potential damage or safety concern with the vehicle, and our auto liability and general liability insurance policies may not cover all potential claims to which we are exposed and may not be adequate to indemnify us for all liability. As we expand our products and offerings, this insurance risk will grow (see “—Our business depends heavily on insurance coverage for our fleet and on other types of insurance for additional risks related to our business. If insurance carriers change the terms of such insurance in a manner not favorable to us, if we are required to purchase additional insurance for other aspects of our business, or if we fail to comply with regulations governing insurance coverage, our

 

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business could be harmed”). These incidents may subject us to liability and negative publicity, which would increase our operating costs and adversely affect our business and operating results. Even if these claims do not result in liability, we will incur significant costs in investigating and defending against them.

We have substantial debt and may incur additional debt, which could adversely affect our financial condition, our ability to service our debt, our ability to obtain financing in the future and our ability to react to changes in our business.

As at June 30, 2021, we had an aggregate amount of debt outstanding of approximately RUB 22,058 million, which is primarily composed of vehicle lease liabilities of Carsharing Russia LLC and Anytime LLC with several third parties, borrowings received from related parties and a private placement of convertible preferred and ordinary shares to Nevsky Property, an affiliate of VTB, which for accounting purposes is treated as a financial liability of RUB 5,428 million. Following the closing of the offering, the only remaining financial liability associated with the private placement to Nevsky Property pertains to the provisions providing for a certain minimum return to Nevsky Property in certain cases, which survives the closing. The fair value of the liability associated with the other terms of the private placement will be reclassified as equity. For further information on the accounting treatment of this transaction, see “Certain Relationships and Related Party Transactions—Pre-IPO Shareholders’ Agreement” and Note 20, Equity and Loss per Share, to the interim condensed combined and consolidated financial statements. Our substantial debt could have certain adverse consequences to us. For example, it could:

 

   

make it more difficult for us to satisfy our obligations to the lease companies acting as lenders, resulting in possible defaults on and acceleration of such indebtedness;

 

   

require us to dedicate a substantial portion of our cash flows from operations to make payments on our debt, which would reduce the availability of our cash flows from operations to fund working capital, capital expenditures or other general corporate purposes;

 

   

increase our vulnerability to general adverse economic and industry conditions, including interest rate fluctuations, because some of our lessors have the right to change amounts payable under the lease agreements and payment schedules in the event of, among other occurrences, a change in the interest rate of the Central Bank of the Russian Federation;

 

   

place us at a competitive disadvantage to our competitors with proportionately less debt or comparable debt at more favorable interest rates;

 

   

limit our ability to refinance our existing indebtedness or borrow additional funds in the future;

 

   

limit our flexibility in planning for, or reacting to, changing conditions in our business; and

 

   

limit our ability to react to competitive pressures, or make it difficult for us to carry out capital spending that is necessary or important to our growth strategy.

Additionally, with the exception of certain vehicle lease agreements in 2021, related parties guarantee our obligations under our vehicle lease agreements which allows us to secure more favorable leasing terms. If our related parties do not guarantee our obligations in the future, we may not be able to continue to obtain leasing terms comparable to or more favorable than our existing leasing terms. Any of the foregoing impacts of our substantial indebtedness could have a material adverse effect on our business, financial condition and results of operations. Upon the completion of this offering, we intend to repay all outstanding debt to related parties.

Further, we rely significantly on asset-based financing to purchase vehicles. If we are unable to refinance or replace our existing asset-based financing or continue to finance new vehicle acquisitions through asset-based financing on favorable terms, on a timely basis, or at all, then our costs of financing could increase significantly and have a material adverse effect on our liquidity, interest costs, financial condition, cash flows and results of operations.

 

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Our asset-based financing capacity could be decreased, our financing costs and interest rates could be increased, or our future access to the financial markets could be limited, as a result of risks and contingencies, many of which are beyond our control, including: (i) the acceptance by credit markets of the structures and structural risks associated with our asset-backed and asset-based financing arrangements; (ii) third parties requiring changes in the terms and structure of our asset-backed or asset-based financing arrangements, including increased credit enhancement or required cash collateral and/or other liquid reserves; (iii) growth of the key rate of the Central Bank of the Russian Federation; (iv) the insolvency or deterioration of the financial condition of one or more of our principal vehicle manufacturers; or (v) changes in laws or regulations that negatively affect any of our asset-backed or asset-based financing arrangements.

Any reduction in the value of certain revenue earning vehicles could effectively increase our vehicle costs, adversely affect our ability to achieve and maintain profitability and potentially lead to decreased borrowing base availability in certain of our asset-based vehicle financing facilities due to the credit enhancement requirements for such facilities, which could increase if market values for vehicles decrease below net book values for those vehicles.

Certain events, including defaults by us in the performance of covenants set forth in the agreements governing certain vehicle debt, could result in the occurrence of a liquidation event with the passage of time or immediately pursuant to which the creditors of the affected asset-based financing arrangement would be permitted to require the sale of the assets collateralizing that debt. Failure by us to have proper financing and debt management processes may result in cash shortfalls and liquidity problems, emergency financing at high interest rates, violations of debt covenants, and an inability to execute strategic initiatives, which may affect our liquidity and our ability to maintain sufficient levels of revenue earning vehicles to meet customer demands and could trigger cross-defaults under certain of our other financing arrangements.

Our ability to make scheduled payments on our indebtedness or to refinance or renew our obligations under our debt agreements will depend on our financial and operating performance, which, in turn, will be subject to prevailing economic and competitive conditions and to the financial and business risk factors we face as described in this section, many of which may be beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures or planned vehicle leasing or acquisitions, sell vehicles or other assets, seek to obtain additional equity capital or restructure our indebtedness. In the future, our cash flows and capital resources may not be sufficient for payments of interest on and principal of our debt, and such alternative measures may not be successful and may not permit us to meet scheduled debt service obligations. In the absence of such operating results and resources, we may be required to dispose of material assets to meet our debt service obligations, including our vehicles. We may not be able to consummate those sales, or, if we do, we will not control the timing of the sales or whether the proceeds that we realize will be adequate to meet debt service obligations when due.

We will require additional capital to support the growth of our business, and this capital might not be available on reasonable terms or at all.

To continue to effectively compete, we will require additional funds to support the growth of our business and allow us to invest in new products, offerings and markets. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders may suffer significant dilution, and any new equity securities we issue may have rights, preferences and privileges superior to those of existing stockholders. Any debt financing we secure in the future could contain restrictive covenants relating to our ability to incur additional indebtedness and other financial and operational matters that make it more difficult for us to obtain additional capital with which to pursue business opportunities. Additionally, because we are currently a loss-making company and have significant debt, we are unlikely to be able to obtain bank loans at market rates, and we may not be able to obtain additional financing on favorable terms, if at all.

 

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Currently, we are dependent upon financing from our controlling shareholder, Mikro Kapital Group, for our capital needs required to grow our business. We also currently lease office space, warehouses and other facilities from Mikro Kapital Group, and we may initially continue to be dependent upon Mikro Kapital Group as we transition to operating as a public company. If we are unable to obtain adequate financing or financing on terms satisfactory to us when required, or to replace these transition services, our ability to continue to support our business growth and to respond to business challenges and competition may be significantly limited.

We may pursue strategic acquisitions, which could result in operational challenges, and the failure of an acquisition or investment to produce the anticipated results or the inability to fully integrate an acquired company could have an adverse impact on our business, results of operation and financial condition.

Historically, we have primarily grown organically but also through strategic acquisitions. We may decide to enter into strategic partnerships or to acquire complementary businesses or technologies in order to expand our operations, products and services and to adjust our business portfolio in response to changing market conditions. The success of acquisitions or investments is based on our ability to make accurate assumptions regarding the valuation of these operations, growth potential, integration and other factors related to the respective businesses. We cannot assure you that our acquisitions or investments will produce the results that we expect at the time we enter into or complete a given transaction. Such acquisitions and investments can be time-consuming and costly, could create unforeseen operational challenges and expenditures or may not meet our expectations. Furthermore, we may not be able to successfully integrate operations that we acquire, including their personnel, financial systems, distribution or operating procedures. In addition, challenges that we may face in the integration of the acquired businesses include diverting significant management attention and financial resources from our other operations and disrupting our ongoing business, unforeseen or undisclosed liabilities and integration costs, retaining key senior management and key sales and marketing personnel of the acquired operations and entry into unfamiliar markets. As part of our growth strategy, we may consider expanding our operations outside of Russia. For example, we have entered into call option agreements with D-Mobility Worldwide A.s., which is part of the Mikro Kapital Group, that will provide us with the option, subject to approval by our board of directors, to purchase in 2023 all or substantially all the shares in car sharing companies operating in the Czech Republic, Belarus and Kazakhstan. However, there is no assurance that we will be able to exercise these call options or succeed in developing our operations in these or other markets outside of Russia due to limited knowledge of operating and regulatory environments, as well as customer preferences in these markets. In addition, our success in expanding outside of Russia will depend on political, economic and social stability in the relevant markets. Our inability to adapt to the particularities of such markets could result in higher costs and affect profitability in these markets. If we fail to successfully integrate acquisitions, our business, results of operation and financial condition could suffer. In addition, the integration of any acquired business and its financial results may adversely affect our business, operating results and financial condition.

Risks Relating to our Industry

Increases in fuel, vehicle, leasing, maintenance or other costs, or significant delay or sustained interruption in vehicle supply, have adversely affected, and could continue to adversely affect our business, financial condition and operating results.

Factors such as inflation, foreign exchange rate fluctuations, increased fuel prices, and increased vehicle purchase price, leasing or maintenance costs may increase the costs incurred by us when building our fleet and providing car sharing services on our platform. We manage these factors by requiring suppliers to provide competitive bids against one another to supply services, fuel and other goods to us and, through our subsidiary Prolive+, purchasing fuel from multiple sources with a view of obtaining low prices. However, many of the factors affecting these costs, such as border closures or logistical delays, are beyond our control, and we may not always be able to pass on any increases in such costs on to our customers to remain competitive in the markets in which we operate. A significant increase in these costs could have a material adverse effect on our business, financial condition and results of operations.

 

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In addition, disruptions in the production of vehicles and parts or microelectronics used in our fleet have caused and may continue to cause a reduction in supply, and an increase in the cost, of vehicles or parts. Substantial increases in the costs, or a significant delay or sustained interruption in, the supply of fleet vehicles or vehicle parts could adversely affect our ability to maintain our vehicle fleet, negatively affecting our revenue and increasing our operating expenses. For example, based on our revenue for the six months ended June 30, 2021, we estimate that we could lose up to RUB 44 thousand in revenue per month for every vehicle not added to our fleet due to supply delays or interruptions. Further, if we cannot acquire vehicles or parts from previous suppliers, this could result in additional operating expenses as we may not be able to enter into agreements with new suppliers on as favorable terms as is currently the case.

We may experience significant fluctuations in our operating results.

Our operating results may vary significantly and are not necessarily an indication of future performance. These fluctuations may be a result of a variety of factors, some of which are beyond our control. In particular, we experience seasonal fluctuations in our financial results. For car sharing, we typically generate higher revenue in our second and third quarters compared to other quarters due in part to the summer season encouraging increased travel. We then typically experience a gradual decline in usage of our platform until experiencing an uptick in December associated with the holiday season, particularly New Year’s Eve. We typically generate lower revenue in our first quarter compared to other quarters, due in part to a decrease in demand driven by adverse weather conditions that deter customers from leaving their homes. Our first quarter is particularly susceptible to variance in revenue due to the practical effects of adverse weather conditions such as snow and extreme cold in the event of a heavier winter season. We have typically experienced lower quarter-over-quarter growth in car sharing in the first quarter.

Our growth has made, and may in the future make, seasonal fluctuations difficult to detect. We expect these seasonal trends to become more pronounced over time as our growth slows. Other seasonal trends may develop or these existing seasonal trends may become more extreme, which could contribute to fluctuations in our operating results. In addition to seasonality, our operating results may fluctuate as a result of factors including our ability to attract and retain new customers, increased competition in the markets in which we operate, our ability to expand our operations in new and existing markets, our ability to maintain an adequate growth rate and effectively manage that growth, our ability to keep pace with technological changes in the industries in which we operate, changes in governmental or other regulations affecting our business, harm to our brand or reputation and other risks described elsewhere in these risk factors. As such, we may not accurately forecast our operating results. We base our expense levels and investment plans on estimates. A portion of our expenses and investments are fixed, and we may not be able to adjust our spending quickly enough if our revenue is less than expected, resulting in losses that exceed our expectations. If we are unable to achieve profits, the price of the ADSs could be adversely affected, and investors may lose some or all of the value of their investment.

Our business is subject to geographical risks and if our operations in large metropolitan areas are negatively affected, our operating results would be adversely impacted.

We experience greater competition in large metropolitan areas than we do in other markets in which we operate, which has led us to offer significant customer incentives, discounts and promotions in these large metropolitan areas. As a result of our geographic concentration, our business and financial results are susceptible to economic, social, weather and regulatory conditions or other circumstances in each of these large metropolitan areas. Outbreaks of contagious diseases or other viruses, such as COVID-19, could lead to a sustained decline in the desirability of living, working and congregating in metropolitan areas in which we operate. Any short-term or long-term shifts in the travel patterns of customers away from metropolitan areas, due to health concerns regarding epidemics or pandemics such as COVID-19, could have an adverse impact on our Gross Bookings from these areas. An economic downturn, increased competition or regulatory obstacles in any of these key metropolitan areas would adversely affect our business, financial condition and results of operations to a much greater degree than would the occurrence of such events in other areas. In addition, any changes to local laws or

 

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regulations within these key metropolitan areas that affect our ability to operate or increase our operating expenses in these markets could have an adverse effect on our business. For example, we currently benefit from the car sharing incentives introduced by regulations issued by the Moscow, Kazan and Tula municipal authorities, which allow our cars to be parked by customers at designated parking locations across Moscow, Kazan and Tula, with up to a 90% discount to parking fees charged to us, provided our cars comply with certain requirements (see “Regulation”). Although we do not currently anticipate any change to these incentives, as there have been recent statements from local transportation authorities acknowledging the value of car sharing as an improvement over private car use in the context of better parking space management, and we believe we have the ability to relocate our vehicles to other regions in order to manage the adverse effect of any such change to local laws and regulations if the local authorities change their stated policy in relation to car sharing, and if these parking regulations were to be revoked, we may have to increase our prices, our fleet may not be utilized as effectively and our business and results of operation may be adversely impacted.

We expect that we will continue to face challenges in penetrating lower-density localities and suburban areas adjacent to cities in which we operate, where our network is smaller and less developed, the cost of personal vehicle ownership is lower and personal vehicle ownership is more convenient. If we are not successful in penetrating lower-density localities and suburban areas adjacent to cities in which we operate, generating profits from providing our services there, or if we are unable to operate in certain key metropolitan areas in the future due to a change in the level of support from local authorities or approach to parking permits in the context of car sharing, our ability to serve what we consider to be our total addressable market would be limited, and our business, financial condition and results of operations would be materially adversely affected.

We are making substantial investments in new offerings and improving technologies and expect to increase such investments in the future. We may not ever realize any expected benefits from our investments or improve our technology infrastructures, which could materially adversely affect our business, results of operation and financial condition.

We have made substantial investments to develop new offerings and technologies, and we intend to continue investing significant resources to develop new technologies, tools, features, services, products and offerings. We are continually upgrading our technology to provide improved performance, increased scale and better integration among our shared mobility offerings and value-added services. For example, we have invested and are continuing to invest significant resources into the development of our platform in order to ensure and provide a seamless customer experience, deep data capabilities, dynamic smart pricing, instant Know Your Customer (“KYC”) processes in terms of registration and verification and customer scoring. We are also investing in the creation of a private cloud server, and we expect to continue investing resources to develop these and other offerings. If we do not spend our development budget efficiently or effectively on commercially successful and innovative technologies, we may not realize the expected benefits of our strategy. Our initiatives may not perform as expected, which could reduce the return on our investments in this area. If we are unable to efficiently develop new technologies or offerings, or if we do so at a slower pace or at a higher cost, or if our technology is less capable relative to our competitors, our business, financial condition and results of operations could be materially adversely affected.

Additionally, the automotive industry is increasingly focused on the development of advanced driver assistance technologies, with the goal of developing and introducing a commercially-viable, fully automated driving experience. The high development cost of active safety and autonomous driving technologies may result in a higher risk of exposure to the success of new or disruptive technologies different than those being deployed by us. Adopting new technologies, upgrading our mobile app and website infrastructure and maintaining and improving our technology infrastructure require significant investments of time and resources, including adding new hardware, updating software, recruiting and training new engineering personnel and maintaining existing engineering personnel in a competitive market for their skillset. Adverse consequences for the failure to do so may include unanticipated system disruptions, security breaches, computer virus attacks, slower response times, impaired quality of experiences for our customers and delays in reporting accurate operating and financial

 

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information. If we experience problems with the functionality and effectiveness of our software or platforms, or are unable to maintain and improve our technology infrastructure to handle our business needs and ensure a consistent and acceptable level of service for our customers, our business, financial condition and results of operations, as well as our reputation, could be materially adversely affected.

Because our new initiatives also have a high degree of risk, as each involves nascent industries and unproven business strategies and technologies with which we have limited or no prior development or operating experience, they may involve claims and liabilities, expenses, regulatory challenges and other risks, some of which we cannot currently anticipate. There can be no assurance that customer demand for such initiatives will exist or be sustained at the levels that we anticipate, or that any of these initiatives will gain sufficient traction or market acceptance to generate sufficient revenue to offset any new expenses or liabilities associated with these new investments. It is also possible that products and offerings developed by others will render our products and offerings noncompetitive or obsolete. Further, our development efforts with respect to new products, offerings and technologies could distract management from current operations, and will divert capital and other resources from our more established offerings and technologies. Even if we are successful in developing new offerings or technologies, regulatory authorities may subject us to new rules or restrictions in response to our innovations that could increase our expenses or prevent us from successfully commercializing new products, offerings or technologies.

The impact of economic conditions, including the resulting effect on discretionary customer spending, may harm our business and operating results.

Our performance is subject to economic conditions and their impact on levels of discretionary customer spending. Some of the factors that have an impact on discretionary customer spending include general economic conditions, unemployment, customer debt, reductions in net worth, residential real estate and mortgage markets, taxation, energy prices, interest rates, customer confidence and other macroeconomic factors. Customer preferences tend to shift to lower-cost alternatives during recessionary periods and other periods in which disposable income is adversely affected. In such circumstances, although some customers may turn to our offerings more frequently to avoid more expensive mobility options such as taxis or private car ownership, others may choose to forego our offerings for public transportation alternatives or may reduce total kilometers traveled as economic activity decreases. Additionally, during such periods, we may need to offer additional discounts or promotions to stimulate customer spending and remain competitive. Such shifts in customer behavior or price may harm our business, financial condition and results of operations.

Risks Relating to our Intellectual Property

We may not be able to prevent others from unauthorized use of our intellectual property rights, which may adversely affect our competitive position, our business, financial condition and results of operations.

Our intellectual property includes the content of our website, mobile applications, domain names, software (including proprietary software), firmware, registered, applied-for and unregistered trademarks, service marks, trade dress, trade names, trademark applications, registered and applied-for copyrights and unregistered copyrights, know-how, processes and inventions (whether or not patentable). We believe that our intellectual property is essential to our business and affords us a competitive advantage in the markets in which we operate. If we do not adequately protect our intellectual property, our brand and reputation may be harmed, our offerings may be devalued and our ability to compete effectively may be impaired.

To protect our intellectual property, we rely on a combination of copyright, trademark and trade secret laws, contractual provisions, end-user policies and disclosure restrictions. Upon discovery of potential infringement of our intellectual property, we promptly take action to protect our rights as appropriate. We also enter into confidentiality agreements and invention assignment agreements with our employees and consultants and seek to control access to, and distribution of, our proprietary information in a commercially prudent manner.

 

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The protection and enforcement of intellectual property rights in Russia and other markets in which we operate, however, may not be as effective as that in the United States or Western Europe, and the efforts we have taken to protect our intellectual property may not be sufficient or effective. For example, effective intellectual property protection may not be available in every country in which we currently or in the future will operate, or third parties may already have pre-existing competing registrations or applications.

In addition, it may be possible for other parties to copy or reverse-engineer our products and offerings or obtain and use the content of our websites without authorization. Further, we may be unable to prevent competitors from acquiring domain names, trademarks or service marks that are similar to, infringe upon or diminish the value of our domain names, trademarks, service marks or other proprietary rights. Moreover, our trade secrets may be compromised by third parties or our employees, which could cause us to lose the competitive advantage derived from the compromised trade secrets. Further, we may be unable to detect infringement of our intellectual property rights, and even if we detect such violations and decide to enforce our intellectual property rights, we may not be successful, and may incur significant expenses in connection with such efforts. In addition, any such enforcement efforts may be time consuming and may divert management’s attention. In some situations, we may decide to bring intellectual property actions outside of Russia or other countries in which we operate, in which case we could be subject to additional risk as to the result of the proceedings, the amount of damages that we could be awarded and/or collect, as well as potential currency risk. Further, any enforcement efforts may result in a ruling that our intellectual property rights are unenforceable or invalid.

Any failure to protect or any loss of our intellectual property may have an adverse effect on our ability to compete and may adversely affect our business, financial condition and results of operations.

We may be subject to intellectual property infringement claims, which are costly to defend, could result in significant damage awards, and could limit our ability to operate or to provide certain content or use certain technologies in the future.

Companies in the internet and technology industries, and other patent and trademark holders, including “non-practicing entities,” seeking to profit from royalties in connection with grants of licenses or seeking to obtain injunctions, own large numbers of patents and other intellectual property, and frequently enter into litigation based on allegations of infringement or other violations of intellectual property. We may in the future receive notices that claim we have misappropriated, misused or infringed upon other parties’ intellectual property rights.

Furthermore, a number of internet, technology, media and patent-holding companies own or are actively developing patents covering internet-related technologies that are similar to the ones we use, as well as a variety of online business models and methods. We believe that these parties will continue to take steps to protect these technologies, including, but not limited to, seeking patent protection in certain jurisdictions. As a result, disputes regarding the ownership of technologies and rights associated with online activities are likely to arise in the future. In addition, use of open-source software is often subject to compliance with certain license terms, which we may inadvertently breach.

Any intellectual property claim against us, regardless of merit, could be time consuming and expensive to settle or litigate, could divert our management’s attention and other resources, and could hurt goodwill associated with our brand. Our efforts to defend these claims may be unsuccessful. These claims may also subject us to significant liability for damages and may result in us not being able to use technology, content, branding, or business methods found to be in violation of another party’s rights. We may have to seek a license for the technology, which may not be available on commercially reasonable terms or at all, and may significantly increase our operating expenses. We may be required to develop an alternative non-infringing technology, which may require significant effort, expense and time to develop. Further, certain adverse outcomes of such proceedings could adversely affect our ability to offer certain services or products or compete effectively in existing or future businesses.

 

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We may be subject to claims from our current or former employees, as well as contractors, for copyright, trade secret and patent-related matters, which are costly to defend and which could adversely affect our business, financial condition and results of operations.

The software, databases, algorithms, images, patentable intellectual property, trade secrets and know-how that we use for the operation of our services were generally developed, invented or created by our former or current employees or contractors during the course of their employment with us within the scope of their job functions or under the relevant contractor’s agreement, as the case may be. As a matter of Russian law, we are deemed to have acquired copyright and related rights, as well as rights to file patent applications with respect to such products, and have the intellectual property rights required for their further use and disposal subject to compliance with certain requirements set out in the Civil Code of Russia. We believe that we have appropriately followed such requirements, but they are defined in a broad and ambiguous manner and their precise application has never been definitively determined by the Russian courts. Therefore, former or current employees or contractors could claim the right to additional compensation for their works for hire and/or patentable results, in addition to their employment compensation, as well as challenge the transfer of intellectual property rights over the products developed by them or with their contribution. We may not prevail in any such action, and any successful claim, although unlikely to be material, could adversely affect our business and results of operations.

Risks Relating to Legal and Regulatory Matters

Changes to any existing car sharing regulations, or the enactment of regulations with more stringent requirements for the operation of car sharing services, could affect our business, financial condition and results of operations.

There are no car sharing regulations at the federal level in Russia. However, certain proposals to introduce a regulatory framework for the car sharing industry have been publicly announced by the State Duma members in recent years. Such proposals, if adopted, could significantly and materially harm our business, financial condition and results of operations by restricting or limiting how we operate our business, increasing our operating costs and decreasing our number of customers. We cannot predict whether or when such proposals may be adopted.

In larger cities, local governments have adopted and may adopt in the future regulations providing incentives for or regulating the operations of companies that develop shared mobility schemes, including companies of the car sharing industry. For example, the Moscow Government issued Decree No. 405-PP on August 31, 2011 (as amended on June 14, 2018) the (“Moscow Decree”) on urban support for taxi and car sharing services in the city of Moscow, which, among other incentives, allows car sharing companies to acquire preferential parking permits in the capital, provided certain requirements and service standards are met. Furthermore, under the Moscow Decree, the Moscow government may subsidize leasing or loan payments for companies that acquire passenger cars with the purpose of providing car sharing services by reimbursing part of the interest payment costs borne by such companies with resources from the city budget. In addition, if the Moscow Decree were to be revoked, or amended such that car sharing companies could no longer acquire preferential parking permits in the capital, there could be a material adverse impact on our business, financial condition and results of operations. The loss of preferential parking permits would impact all players in the Russian car sharing market in Moscow and all companies would likely increase prices to compensate. As a result of increased prices, we could lose customers and our fleet utilization could decrease. For further information, see “Regulation.”

Additionally, Moscow currently requires that all cars used for car sharing be no older than one year in order to obtain discounted parking privileges. Once parking privileges for a car are obtained, they are valid for three years. We navigate this requirement by deploying new vehicles to Moscow and redistributing cars to other regions when they become three years old. Any changes to Moscow’s existing car sharing regulations, or the

 

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enactment of similar requirements in other regions, could impact our car distribution cycle and have a material adverse effect on our business, financial condition and results of operations.

Failure to comply with existing laws and regulations or to obtain all approvals, authorizations and permits, or the findings of government inspections or increased governmental regulation of our operations, could result in a disruption in our business and substantial additional compliance costs and sanctions.

Our operations and properties are subject to regulation by various government entities and agencies in connection with obtaining and renewing authorizations, approvals and permits, as well as with ongoing compliance with existing laws, regulations and standards. Regulatory authorities exercise considerable discretion in matters of enforcement and interpretation of applicable laws, regulations and standards, the issuance and renewal of authorizations, approvals and permits and in monitoring licensees’ compliance with the terms thereof. Russian authorities have the right to, and frequently do, conduct periodic inspections of our operations and properties throughout the year. Any such future inspections may conclude that we or our subsidiaries have violated laws, decrees or regulations, and we may be unable to refute such conclusions or remedy the violations. For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of the COVID-19 Pandemic.

Our failure to comply with existing laws and regulations applicable to us or to obtain all approvals, authorizations and permits, or the findings of government inspections, including the data protection authorities and labor inspection services, may result in the imposition of civil and administrative fines or penalties or more severe sanctions, including the suspension, amendment or termination of our authorizations, approvals and permits, requirements that we cease certain of our business activities, or criminal and administrative penalties applicable to our officers. Moreover, an agreement or transaction entered into in violation of law may be invalidated and/or unwound by a court decision. Any such decisions, requirements or sanctions, or any increase in governmental regulation of our operations, could result in a disruption of our business and substantial additional compliance costs, and our business, financial condition and results of operations could be materially adversely affected.

We are subject to regulation regarding the processing and retention of personal and other data, which may impose additional obligations on us, limit our flexibility or harm our reputation with customers.

We collect, process, store and transmit large amounts of data, including confidential, sensitive, proprietary, business and personal information, in the course of our business. The effectiveness of our technology and our ability to offer our products and services to customers depends on the collection, storage and use of data concerning customer activity, including personally identifying or other sensitive data. Although we have developed systems and processes designed to protect customer and employee information and prevent and mitigate the impact of data breaches and other fraudulent activities (whether directly through us or indirectly through our customers), such measures cannot guarantee the security of such data and may be circumvented or fail to operate as intended.

For example, there are certain statutory requirements for collection and processing of biometric personal data that will enter into force on January 1, 2022, pursuant to Federal Law No. 479-FZ dated December 29, 2020, “On amendments to certain legislative acts of the Russian Federation,” as amended (“Federal Law No. 479-FZ”), and there are currently three draft governmental decrees implementing the statutory requirements in various stages of the legislative process. If passed into law in their current forms, the draft decrees collectively provide that car sharing operators may collect biometric data for the purpose of identifying drivers and creating their own commercial biometric systems (“CBSs”). However, in order for companies to process biometric data, they would be required to obtain accreditation and, at a minimum: have at least RUB 50 million or RUB 500 million (depending on the type of accreditation) in own funds; obtain a cryptographic license; maintain in-person collection of biometric personal data; transfer and store the biometric personal data in the Unified Biometric

 

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System (the “UBS”); and authenticate customers via their biometric identifiers only through the UBS or using own CBSs in permitted cases. It is currently unclear how these requirements would be applied to companies that process biometric personal data in which foreign ownership exceeds 49%.

We expect the three draft governmental decrees to undergo numerous amendments before they become law. However, if Federal Law No. 479-FZ, in conjunction with the implementing regulations, is construed to attribute the Company´s method of customer identification based on the technology of comparing geometric depersonalized models of faces as collecting and processing of biometric personal data, the new requirements could result in us having to undertake significant restructuring and adapt certain business processes to meet the new requirements. This could, in turn, create both one-time and ongoing administrative and operational expenses, including expenses for accreditation and creation of our own CBS, or charges for the use of the services of the UBS, which could have an adverse effect on our business. Currently, there are no specific sanctions for violation of the above requirements. However, liability may arise on a general basis for violation of the procedure for processing personal data (currently a fine of RUB 100,000 for the first occurrence of unlawful processing and RUB 300,000 for each subsequent violation). In the case of a violation of the established requirements by an accredited person, processing activities may be suspended by an order of the Russian authorities. However, no assurance can be given that currently effective sanctions will not be amended to provide for more severe liability following the adoption of the decrees. For further information, see “Regulation—Privacy and Personal Data Protection Regulation.”

In order to process an individual’s personal data, we must obtain the individual’s consent. This consent may be revoked at any time and, if revoked, the relevant personal data must be deleted. Subject to several exemptions, processors of personal data, including ourselves, must register as personal data operators with the Federal Service for Supervision of Communications, Information Technology and Mass Media, or Roskomnadzor, the Russian competent regulatory authority for data protection. Roskomnadzor, among its other functions, ensures compliance with the data protection legislation and conducts scheduled and unscheduled audits to ensure such compliance, maintains the registers of personal data operators, infringers of personal data processing requirements and blocked websites, and initiates legal proceedings in case of violations and if required, the imposition of fines or other penalties. The cross-border transfer of personal data is allowed pursuant to Russian law, subject to consent of the individual. However, with the growing concerns of governments around the world with data privacy and security, rules and regulations governing processing, use, transfer (including cross-border) and other handling of data may change as a result of changes in policies, for state security or other reasons. These changes may require us to handle data differently, which could result in additional costs to us, or otherwise materially adversely affect our operations. We will be subject to inspections by Roskomnadzor in the future, and if such inspections result in the determination that companies in our group fail to comply with the applicable data protection legislation, we could experience financial and reputational losses and could be restricted from providing certain types of services until we comply with the requirements.

Furthermore, we use cookies and other widespread technologies that assist us in improving the customer experience and personalization of our products and services that ultimately benefit both our customers and advertisers through behavioral targeting. There is no clarity as to whether our practices are compliant with the requirements of applicable data protection legislation in Russia and abroad, and such laws could be interpreted and applied in a manner that is not consistent with our current data protection practices.

Companies are also required to store all personal data of Russian customers in databases located inside Russia. Compliance with the requirements provided in this legislation may be practically difficult, require significant efforts and resources, lead to legal liability in other jurisdictions and limit functionality of our services. Compliance with these requirements may also limit our ability to compete with other companies located in other jurisdictions that do not require mandatory local storage of personal data related to their customers and that may elect not to comply with such requirements in Russia.

 

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Due to the nature of the services we offer, we may also be subject to data protection laws of other jurisdictions, especially laws regulating the cross-border transfer of personal data, which may require significant compliance efforts and could result in liability for violations in other jurisdictions. For example, the EU’s General Data Protection Regulation (“GDPR”) came into force in May 2018. As of the date of the prospectus, we have not yet completed our assessment of the extent of applicability of the GDPR to our operations. We have only modest operations in Luxembourg and therefore our exposure under the GDPR should be limited. However, if we fail to interpret all the requirements of the GDPR in accordance with the official interpretation, we may be held liable for noncompliance. The GDPR applies extraterritorially and imposes stringent requirements for controllers and processors of personal data. Such requirements include appropriate assessments of the risks relating to our personal data processing, appropriate technical and organizational measures to guard against security incidents, higher consent standards to process personal data, robust disclosures regarding the use of personal data, strengthened individual data rights, data breach requirements, limitations on data retention, strengthened requirements for special categories of personal data and pseudonymized (i.e., key-coded) data, and additional obligations for contracting with service providers that may process personal data. The GDPR further provides that EU member states may institute additional laws and regulations impacting the processing of personal data, including (i) special categories of personal data (e.g., racial or ethnic origin, political opinions, and religious or philosophical beliefs) and (ii) profiling of individuals and automated individual decision-making. Such additional laws and regulations could limit our ability to use and share personal or other data, thereby increasing our costs and harming our business and financial condition. Non-compliance with the GDPR (including any non-compliance by any acquired business) is subject to significant penalties and injunctions against the processing of personal data (including possible fines of up to the greater of 20 million euros and 4% of our global annual turnover for the preceding financial year for the most serious violations). In addition to the foregoing, a breach of the GDPR could result in regulatory investigations, reputational damage, orders to cease or change the way we are processing the personal data, enforcement notices, and/or assessment notices (for a compulsory audit).

Such data protection laws, rules and regulations are complex and their interpretation is rapidly evolving, making implementation and enforcement, and thus compliance requirements, ambiguous, uncertain and potentially inconsistent. There can be no guarantee that our current data protection practices will be deemed sufficient under applicable laws or remain sufficient due to new regulatory requirements or technological developments. Compliance with such laws may require changes to our data collection, use, transfer, disclosure and other processing and certain other related business practices and may thereby increase compliance costs. Additionally, any failure or perceived failure by us to comply with privacy and data protection policies, notices, laws, rules, orders and regulations could result in proceedings or actions against us by individuals, consumer rights groups, governmental entities or agencies or others. We could incur significant costs investigating and defending such claims and, if found liable, significant damages. Further, these proceedings and any subsequent adverse outcomes may subject us to significant penalties and negative publicity. If any of these events were to occur, our business could be significantly disrupted and our financial results could be materially adversely affected.

Adverse litigation judgments or settlements resulting from legal proceedings in which we may be involved could expose us to monetary damages or limit our ability to operate our business.

We have in the past been, are currently, and may in the future become involved in private actions, collective actions, investigations, and various other legal proceedings by consumers, employees, commercial partners, competitors or government agencies, among others. We are subject to litigation relating to various matters including taxes, antitrust, intellectual property infringement, privacy, unfair competition, safety practices, and employment and human resources practices. For example, we were recently involved in litigation relating to compliance with consumer protection legislation with Rospotrebnadzor, where Rospotrebnadzor of the Sverdlovsk region claimed that certain provisions in our agreements with customers allowing for direct debit of their bank accounts violate consumer protection laws by not allowing a customer to agree with our assessment of a direct debit in certain cases where a customer is required to pay a penalty or damages to us. The most recent decision by the Commercial (Arbitrazh) Court of the Sverdlovsk Region, which has not yet entered into force, confirmed the legitimacy of our approach. However, the decision has also resulted in the necessity of amending some of our other business processes. For example, as a result of the decision we will now be required to accept cash for our services

 

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as an alternative payment method, reduce repayment periods for erroneously debited amounts to customers from 30 days to 10 days and reduce certain possible contractual fines. This will require us to adapt the terms and conditions of agreements with customers. However, if the decision is appealed by Rospotrebnadzor and its appeal is successful, we could face further administrative fines or be obliged to further amend our agreements with customers in the Sverdlovsk region to reflect Rospotrebnadzor’s position, and we could be required to apply the same approach in all of our other operating regions. This could lead to a decrease in the collection of damages and service fees or significantly delay recovery of such amounts by us, which could have a material adverse effect on our business and results of operations.

While we believe we have complied with all laws and should not be required to pay any fees or suffer other legal consequence, the results of any such litigation, investigations, and legal proceedings are inherently unpredictable and expensive. After we become a publicly listed company with a higher profile and in the future through any expansion of our cross-border business, we may face additional exposure to claims and lawsuits inside and outside Russia. Any claims against us, whether meritorious or not, could be time consuming, costly and harmful to our reputation, and could require significant amounts of management time and corporate resources. If any of these legal proceedings were to be determined adversely to us, or we were to enter into a settlement arrangement, we could be exposed to monetary damages or be forced to change the way in which we operate our business, which could have a material adverse effect on our business, financial condition and operating results.

When possible we include arbitration provisions in our terms of service with commercial entities or in agreements. These provisions are intended to streamline the litigation process for all parties involved, as arbitration can in some cases be faster and less costly than litigating disputes in court. However, arbitration may become more costly for us, or the volume of arbitrations may increase and become burdensome. To minimize these risks, we have in the past and may in the future voluntarily limit our use of arbitration provisions, or we may be required to do so, in any legal or regulatory proceeding, either of which could increase our litigation costs and exposure in respect of such proceedings.

Competition laws may result in certain limitations being imposed on our activities, which may affect our business.

Russian Federal Law No. 135-FZ “On Protection of Competition,” dated July 26, 2006, as amended (the “Competition Law”), generally prohibits any concerted action, agreement or coordination of business activity that results or may result in, among other matters: (i) establishing or maintaining pricing plans, discounts, extra charges and/or margins; (ii) coordination of auctions and tenders; (iii) division of a market by territory, volume of sales or purchases, types of goods, customers or suppliers; (iv) reduction or termination of goods production; or (v) refusal to enter into contracts with certain buyers, such as customers. In addition, concerted actions are prohibited if they result or may result in restriction of competition by way of, among others: (i) imposing unfavorable contractual terms upon a counterparty or not related to the subject matter of agreement, (ii) establishing different prices for the same goods without economical, technological or other justification or (iii) creating barriers to entering or exiting a market.

Courts inconsistently interpret these concepts of concerted actions or coordination of business activity. As a result, there is significant uncertainty as to what actions may be viewed as violations of the Competition Law. In a number of cases, Russian courts found concerted actions where market participants acted in a similar way within the same period of time, although, arguably, there were legitimate economic reasons for such behavior, and the behavior was not aimed at restricting competition. While we are not aware of any allegation that we have violated the Competition Law, there is a risk that we may be found to have violated the law if our market behavior towards our customers or suppliers is viewed as being similar to the behavior of our competitors and perceived by the Russian Federal Antimonopoly Service (“FAS”) as restricting competition. Such broad interpretations of the Competition Law may result in the FAS imposing substantial limitations on our activities, may limit our operational flexibility and may result in civil, administrative or criminal liability.

 

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The FAS, which has the power to investigate perceived violations of the Competition Law, has been reviewing the marketing, sales and supply strategies of major participants in the Russian retail industry in recent years and bringing charges against certain market participants alleging concerted actions in violation of the Competition Law. If our activities are found to have violated the Competition Law, we could be subject to penalties or ordered to change our business operations in a manner that increases costs or reduces revenue and profit margin. For example, to determine pricing for our car sharing service, we currently use smart algorithms that adjust prices charged to customers to account for the effects of supply and demand, resulting in an increase in prices charged during high-demand periods, such as during holidays or in harsh weather conditions. Given our substantial market share in the Russian car sharing market, if we were to be considered by the FAS to be holding a dominant market position, any pricing determined in such manner which significantly exceeds the cost of service or otherwise differs from pricing determined under normal market conditions could be recognized as violating anti-monopoly legislation. Additionally, we could be prohibited from entering into contracts with parties on unequal conditions or charged with refusing to enter into contracts without justification. Despite our best efforts to comply with the Competition Law, there can be no assurance that the FAS will not inspect our activities in the future and find us liable for breaches of the Competition Law. Should this happen, it could have a material adverse effect on our business and financial results.

Environmental laws and regulations and the costs of complying with them, or any liability or obligation imposed under them, could materially adversely affect our results of operations, financial condition, liquidity and cash flows.

We are subject to Russian environmental laws and regulations in connection with our operations, including with respect to the ownership and operation of tanks for the storage of petroleum products, such as gasoline, diesel fuel and motor and used oils. Compliance with existing or future environmental laws and regulations may require material expenditures by us or otherwise have a material adverse effect on our financial condition, results of operations, liquidity or cash flows.

Legislative and regulatory authorities in Russia have considered, and will likely continue to consider, numerous measures related to climate change and greenhouse gas emissions. Should rules establishing limitations on greenhouse gas emissions or rules imposing fees on entities deemed to be responsible for greenhouse gas emissions become effective, demand for our services could be affected, our vehicle and/or other costs could increase, and our business could be adversely affected.

Risks Relating to the Russian Federation

Investing in securities of issuers with assets in emerging markets, such as Russia, generally involves a higher degree of risk than investments in securities of issuers from more developed countries and carries risks that are not typically associated with investing in more mature markets.

Emerging markets such as Russia are subject to greater risks than more developed markets, including significant legal, economic, tax and political risks. Investors in emerging markets should be aware that these markets are subject to greater risk and should note that emerging economies such as the economies of Russia are subject to rapid change and that the information set out herein may become outdated relatively quickly.

Financial or economic crises, whether global or limited to a single large emerging market country, tend to adversely affect prices in equity markets of most or all emerging market countries, as investors move their money to more stable, developed markets. Over the past few years, the Russian equity markets have been highly volatile, principally due to the impact of the global economic slowdown resulting from various factors, including the European sovereign debt crisis, the slowdown in Chinese economic growth and the dramatic fall in oil prices, as well as deteriorating conditions of the Russian economy. As has happened in the past, financial problems such as significant ruble depreciation, capital outflows and a deterioration in other leading economic indicators or an increase in the perceived risks associated with investing in emerging economies due to, among other things,

 

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geopolitical disputes and imposition of certain trade and economic sanctions in connection therewith, could hinder foreign investment in Russia and adversely affect the Russian economy. In addition, during such times, businesses that operate in emerging markets can face severe liquidity constraints as funding sources are withdrawn. As we operate in emerging markets, we may be exposed to any one or a combination of these risks, and our business, financial condition and results of operations could be materially adversely affected.

Political risks could adversely affect the value of investments in Russia.

While the political situation in Russia has been relatively stable since 2000, future policy and regulation may be less predictable than in more stable markets. Any future political instability could result in a worsening overall economic situation, including capital flight and a slowdown of investment and business activity. In addition, any change in the Russian government or its programs or lack of consensus between the Russian president, the Russian government, the Russian Parliament and powerful political, social, religious, regional, economic or ethnic groups could lead to political instability and a deterioration in Russia’s investment climate that might limit our ability to obtain financing in the international capital markets, and our business, financial condition and results of operations could be materially adversely affected.

According to some commentators, politically motivated actions, including claims brought by the Russian authorities and state-owned companies against several major Russian companies, as well as cases of confiscation or renationalization of assets, have called into question the security and enforceability of property and contractual rights, progress of the free market and political reforms, the independence of the judiciary and the certainty of legislation. This has, in turn, resulted in significant fluctuations in the market price of Russian securities and has had a negative impact on foreign investments in the Russian economy, over and above the general market turmoil more recently. Any similar actions by the Russian authorities which result in a further negative effect on investor confidence in Russia’s business and legal environment could have a further material adverse effect on the Russian securities market and prices of Russian securities or securities issued or backed by Russian entities, including the ADSs. Russia is a federative state consisting of “subjects.” The Russian Constitution reserves some governmental powers for the Russian government, some for the subjects and some for areas of joint competence. In addition, eight “federal districts” (federal’nye okruga), which are overseen by a plenipotentiary representative of the Russian president, supplement the country’s federal system. The delineation of authority among and within the subjects is, in many instances, unclear and contested, particularly with respect to the division of tax revenues and authority over regulatory matters. Subjects have enacted conflicting laws in areas such as privatization, land ownership and licensing. For these reasons, the Russian political system is vulnerable to tension and conflict between federal, subject and local authorities. This tension creates uncertainties in the operating environment in Russia, which may prevent businesses from carrying out their strategy effectively.

In addition, ethnic, religious, historical and other divisions have on occasion given rise to tensions and, in certain cases, military conflict. Moreover, various acts of terrorism have been committed within Russia. The risks associated with these events or potential events could materially and adversely affect the investment environment and overall customer and entrepreneurial confidence in Russia, which could materially adversely affect our business, financial condition and results of operations.

Although no entity in the Company group is currently a sanctioned person, sanctions imposed by the United States, the European Union, the United Kingdom, and other states in relation to Russia may have a material adverse effect on the Company’s business, financial condition, results of operations and liquidity.

The United States, the European Union, the United Kingdom and certain other countries have imposed economic sanctions on certain Russian and Ukrainian persons and entities, as well as on the territory of Crimea and Sevastopol. In particular, the United States has imposed (i) sanctions that block the property of certain designated persons and entities, (ii) “sectoral sanctions” that prohibit certain types of transactions with specified companies operating in the Russian energy, financial and defense sectors and (iii) comprehensive sanctions that

 

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prohibit virtually all investments into, imports from, and exports to, the territory of Crimea and Sevastopol. Entities owned 50% or more (directly or indirectly), in the aggregate, by sanctioned persons or entities are also sanctioned. The United States has also imposed additional sanctions pursuant to a number of different pieces of legislation, including under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991. These resulting prohibitions and restrictions generally apply to nationals of the countries imposing such sanctions and to nationals of other countries to the extent they act within the jurisdiction of the country imposing the sanctions and may, particularly in the case of U.S. sanctions, have extraterritorial effect. Most of the Company’s entities are neither U.S. persons nor EU persons, and therefore are subject to these sanctions prohibitions and restrictions only to the extent their dealings are subject to U.S. or EU jurisdiction. However, the Company does include some entities incorporated within the European Union, and the United States takes a broad view of its jurisdiction. Accordingly, there can be no assurance that compliance issues under U.S. and/or EU sanctions laws and regulations will not arise with respect to the Group or its personnel.

The U.S. law also authorizes the imposition of so-called “secondary” sanctions which involve the imposition of a range of sanctions against non-U.S. entities engaging in, among other activities, targeted activities involving Russia, certain sectors of the Russian economy or sanctioned persons outside of U.S. jurisdiction. While the actual imposition of U.S. secondary sanctions requires affirmative action by the U.S. administration and is thus in practice discretionary, potential sanctions can be as severe as designation for blocking sanctions, which involves the complete blocking of all transactions and property of the blocked person or entity within U.S. jurisdiction, including U.S. dollar and securities clearing transactions.

No individual or entity within the Company, its subsidiaries or affiliates is currently designated under U.S. or EU sanctions. However, U.S. sanctions authorize designation of or, in some cases, the imposition of secondary sanctions on, any person that engages in sanctionable conduct or materially assists, sponsors or provides financial, material or technological support for, or goods or services to or in support of, sanctioned persons as well as persons engaged in targeted activities. In the ordinary course of business, the Company, like many major Russian company groups, may enter into contracts, have commercial relationships or otherwise engage in activities with persons and entities that are or may become subject to U.S. and EU sanctions, including, for example, Russian financial institutions subject to U.S. sectoral sanctions. Although the Company does not believe that such activities would result in the imposition of sanctions on the Company, it can give no assurance that it, any of its subsidiaries, individuals holding positions in the Company and its direct and indirect shareholders and controlling persons will not be affected by future sanctions designations or secondary sanctions.

If the Company becomes subject to U.S. or EU sanctions, such sanctions will likely have a material adverse impact on its business, access to international financial markets, results of operations, financial condition and prospects. Moreover, investors subject to the jurisdiction of an applicable sanctions regime may become restricted in their ability to hold, deal in, or receive dividends with respect to, the ADSs subject to this offering, which could make the ADSs partially or completely illiquid and have a material adverse effect on their market value.

The future scope and application of U.S., EU and U.K. sanctions in relation to Russia is impossible to predict and may be materially affected by international and domestic political developments. U.S. sanctions, for example, may be materially affected by the adoption of new legislation requiring the imposition of additional sanctions on Russia. Similarly, EU sanctions on Russia (which are time-limited and subject to periodic renewal) may continue to be extended and could also change in scope or application as a result of political developments.

Geopolitical conflict and uncertainty in neighboring and other countries may have material adverse effects on the Company’s business, financial condition, results of operations or prospects.

Over the past several years, Russia has been involved in conflicts, both economic and military, involving neighboring and more distant countries. On several occasions, this has resulted in the deterioration of Russia’s relations with other members of the international community, including the United States, the United

 

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Kingdom and various countries in Europe. Many of these jurisdictions are home to financial institutions and corporations that are significant investors in Russia and whose investment strategies and decisions may be affected by such conflicts and by worsening relations between Russia and its immediate neighbors and other countries. Geopolitical conflict and uncertainty could have material adverse effects on the Company’s business, financial condition and results of operations.

Economic instability in Russia could adversely affect our business.

Since the dissolution of the Soviet Union in 1991, the economy of Russia has experienced periods of considerable instability and has been subject to abrupt downturns. From 2000 until the first half of 2008, Russia experienced rapid growth in its gross domestic product (“GDP”), higher tax collections and increased stability of the ruble, providing some degree of economic soundness. However, the Russian economy was adversely affected by the global economic crisis that began in the second half of 2008. While the international situation stabilized to a certain extent in the 2010s, the Russian economy began to experience a new slowdown in 2014 due to the introduction of sanctions against Russia and the decline of oil prices, which resulted in a decline in GDP of 2.0% in 2015. This led to a reduction in the disposable income of the general population, a crisis of bank liquidity and a significant depreciation of the Russian ruble against the U.S. dollar and euro.

As Russia produces and exports large quantities of crude oil, natural gas, metal products and other commodities, its economy is particularly vulnerable to fluctuations in the prices of commodities on the global market. In particular, the Brent crude oil price suffered a significant decrease during 2014 and 2015. The Brent crude oil price declined from $115.19 per barrel on June 19, 2014 to $36.80 per barrel on December 31, 2015. In recent years, the Brent crude oil price has continued to be volatile with $67.77 per barrel on December 31, 2019 and $51.22 per barrel on December 31, 2020, following a sharp fall to $19.64 per barrel on April 21, 2020, its lowest trading price in decades, mostly as a consequence of the steep decline in global petroleum demand in the first half of 2020 led by responses to the COVID-19 pandemic.

There is no assurance that a financial downturn or future economic downturn in Russia would not lead to decreased demand for our services and decreased revenue or negatively affect our liquidity and ability to finance our operations or would not otherwise materially adversely affect our business, financial condition and results of operations.

Inflation may increase our costs and exert downward pressure on our operating margins.

The Russian economy has generally been characterized by high rates of inflation in recent years. According to Rosstat, the consumer price index (end of period, year-over-year) in Russia stood at 4.3%, 3.0% and 4.9% in 2018, 2019 and 2020, respectively. Because substantially all of our operations are in Russia, our costs are sensitive to increases in prices in Russia. We may not be able to offset the increase in such costs with an increase in prices for our services. An increase in our costs as a result of high rates of inflation could adversely impact our operating margin, and materially adversely affect our business, financial condition and results of operations.

Social instability could increase support for renewed centralized authority, nationalism or violence and could materially adversely affect our operations.

A decrease in the price of oil, as well as increased unemployment rates, the inability of the government and many private enterprises to pay full salaries on a regular basis and the inability of salaries and benefits generally to keep pace with the rapidly increasing cost of living have led in the past, and could lead in the future, to labor and social unrest in the markets in which we operate. Labor and social unrest may have political, social and economic consequences, such as increased support for a renewal of centralized authority, increased nationalism, including restrictions on foreign involvement in the Russian economy, increased risk of damage to our fleet and decreased demand as a result of potential protests, unrest and increased violence. An occurrence of

 

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any of the foregoing events could restrict our operations and lead to the loss of revenue, and our business, financial condition and results of operations could be materially and adversely affected.

Crime and corruption could disrupt our ability to conduct our business and thus, materially adversely affect our operations.

The political and economic changes in recent years in Russia have resulted in significant changes in governmental authority. In addition, the local and international media and international organizations have reported significant levels of corruption, including the bribing of officials for the purpose of initiating investigations by government agencies. Media reports have also described instances in which government officials engaged in selective actions to further the commercial interests of certain government officials or certain companies or individuals. Additionally, some members of the media have published disparaging articles in return for payment. We are also exposed to the potential depredations of organized or other crime.

We are exposed to the risk of inadvertently violating anti-corruption laws, anti-money laundering laws and other similar laws and regulations.

We are exposed to the risk of inadvertently violating anti-corruption laws, anti-money laundering laws and other similar laws and regulations. As of the closing of the offering, we will have updated policies and procedures designed to assist with compliance with applicable laws and regulations, and upon becoming a public company in the United States, we will be subject to the U.S. Foreign Corrupt Practices Act of 1977 (“FCPA”). The FCPA prohibits providing, offering, promising or authorizing, directly or indirectly, anything of value to government officials, political parties or political candidates for the purposes of obtaining or retaining business or securing any improper business advantage.

As of the closing of the offering, we will have and maintain updated internal compliance policies and procedures, but we cannot provide any assurance that these policies and procedures will be strictly followed at all times and that they will effectively detect and prevent all violations of the applicable laws and every instance of fraud, money laundering, bribery and corruption. We also cannot provide any assurance that potential violations of our internal compliance procedures will be uncovered through our procedures or that violations of the applicable anti-bribery or money laundering laws, including the FCPA, will not occur. We have internal audit, security and other procedures in place, which are designed to prevent instances of fraud, money laundering, bribery and corruption. However, despite these controls and procedures, there can be no assurance that through these and other procedures we use we will timely and effectively catch any violations of our internal compliance procedures or any violations of laws, including those related to fraud, money laundering, bribery and corruption.

Moreover, we will have updated our internal anti-money laundering and sanctions compliance policies only recently, and there can be no assurance that there were no violations prior to that or that our employees have sufficient experience to follow such policies properly. We are thus exposed to potential civil or criminal penalties or associated investigations under the relevant applicable laws which may, if not successfully avoided or defended, have an adverse impact on our business, prospects, financial condition or results of operations. Similarly, actual findings or mere allegations of such violations could negatively impact our reputation and limit our future business opportunities, which may cause our reputation, financial condition and results of operations to be materially and adversely affected.

 

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Weaknesses relating to the legal system and legislation in Russia create an uncertain environment for investment and business activity, which could have a material adverse effect on our business and the value of the ADSs.

Russia is still developing the legal framework required to support the market economy. The following risks relating to this legal system create uncertainties with respect to the legal and business decisions that we make, many of which do not exist in countries with more developed market economies:

 

   

inconsistencies between and among the constitution, federal and regional laws and subordinate legislation (presidential decrees and governmental, ministerial and local orders, decisions and resolutions) and other acts;

 

   

the limited judicial and administrative guidance on interpreting certain legislation as well as conflicting interpretations of supreme general jurisdiction and arbitrazh courts;

 

   

the novelty of certain aspects of legislation;

 

   

the possibility of undue influence on or manipulation of judges and the judicial system;

 

   

a high degree of discretion on the part of governmental authorities, which could result in arbitrary actions such as suspension or termination of our business or operations;

 

   

the possibility of rapid change in the current legislation, which could create ambiguities in interpretation and potential non-compliance; and

 

   

bankruptcy and liquidation procedures that can be subject to potential abuse.

In addition, legislation in Russia often contemplates implementing regulations that have not yet been promulgated, leaving substantial gaps in the regulatory infrastructure. Any of these weaknesses could affect our ability to enforce our rights under our contracts, permits and other authorizations, or to defend ourselves against claims by others. Moreover, it is possible that regulators, judicial authorities or third parties may challenge our internal procedures and bylaws, as well as our compliance with applicable laws, decrees and regulations.

Selective or arbitrary government action could have a material adverse effect on our business, financial condition or results of operations.

Governmental authorities in Russia have a high degree of discretion and, at times, act selectively or arbitrarily, without hearing or prior notice, and sometimes in a manner that is inconsistent with legislation or influenced by political or commercial considerations.

Selective or arbitrary governmental actions have reportedly included the denial or withdrawal of licenses, sudden and unexpected tax audits and claims, criminal prosecutions and civil actions. Federal and local government entities have also used ordinary defects in matters surrounding share issuances and registration as pretexts for court claims and other demands to invalidate such issuances and registrations or to void transactions. Moreover, the government also has the power in certain circumstances, by regulation or government acts, to interfere with the performance of operations of private companies.

In addition, the Russian tax authorities have brought tax evasion claims relating to Russian companies’ use of tax-optimization schemes, and press reports have speculated that these enforcement actions have been selective. Selective or arbitrary government action could be directed at us, and our business, financial condition and results of operations could be materially adversely affected.

 

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Russian companies can be forced into liquidation on the basis of formal non-compliance with certain applicable legal requirements.

Certain provisions of Russian law may allow government authorities to seek a court order for the liquidation of a Russian legal entity on the basis of its formal non-compliance with certain requirements during formation, reorganization or operation. For example, under Russian corporate law, if the net assets of a Russian limited liability company calculated on the basis of Russian accounting standards are lower than its charter capital as at the end of its second or any subsequent financial year, the company must either decrease its charter capital or be placed in liquidation. If the company fails to comply with these requirements, governmental or local authorities can seek the involuntary liquidation of such company in court, and the company’s creditors will have the right to accelerate their claims or demand early performance of the company’s obligations as well as demand compensation of any damages.

For the year ended December 31, 2020, our Russian subsidiaries had negative net assets, which was primarily due to our intra-group funding cycle. The existence of negative assets may not accurately reflect the actual ability to pay debts as they fall due. Many Russian companies have negative net assets due to very low historical asset values reflected on their Russian accounting standards balance sheets; however, their solvency is not otherwise adversely affected by such negative net assets. Courts have, on rare occasions, ordered the involuntary liquidation of a company for having net assets less than the minimum charter capital required by law, even if the company had continued to fulfill its obligations and had net assets in excess of the minimum charter capital at the time of liquidation.

If involuntary liquidation were to occur in relation to our Russian subsidiaries, it could lead to significant negative consequences to our business and financial condition.

Shareholder liability under Russian corporate law could cause us to become liable for the obligations of our subsidiaries.

Russian law generally provides that shareholders in a Russian joint-stock company or participants in a limited liability company are not liable for that company’s obligations and risk only the loss of their investment. This may not be the case, however, when one legal entity is capable of determining decisions made by another entity. The legal entity capable of determining such decisions is called the effective parent entity (osnovnoye obshchestvo). The legal entity whose decisions are capable of being so determined is called the effective subsidiary entity (docherneye obshchestvo). The effective parent bears joint and several liability for transactions concluded by the effective subsidiary in carrying out business decisions if:

 

   

the effective parent gives binding directions to the effective subsidiary or provides consent to the relevant transactions entered into by the subsidiary; and

 

   

the right of the effective parent to give binding instructions is based on its share in the subsidiary’s capital, or is set out in a contract between such entities or stems from other circumstances.

In addition, under Russian law, an effective parent is secondarily liable for an effective subsidiary’s debts if an effective subsidiary becomes insolvent or bankrupt as a result of the action of an effective parent. In these instances, the other shareholders of the effective subsidiary may claim compensation for the effective subsidiary’s losses from the effective parent that causes the effective subsidiary to take action or fail to take action knowing that such action or failure to take action could result in losses. We could be found to be the effective parent of our subsidiaries, in which case we could become liable for their debts, and our business, financial condition and results of operations could be materially and adversely affected.

 

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Risks Relating to Tax Matters

The Russian taxation system is relatively underdeveloped.

The Russian Government is continually reforming the tax system by redrafting parts of the Tax Code of the Russian Federation (the “Russian Tax Code”). Since January 1, 2009, the corporate profits tax rate has been 20%. From January 1, 2021, personal income tax from most types of income earned by individuals who are tax residents of Russia is levied at progressive scale of rates. In particular, annual income up to RUB 5 million is subject to tax at the rate of 13% and annual income of more than RUB 5 million at 15%. Since January 1, 2019, the general rate of VAT has been 20%.

Russian tax laws, regulations and court practice are subject to frequent change, varying interpretations and inconsistent and selective enforcement. In accordance with the Constitution of the Russian Federation, laws that introduce new taxes or worsen a taxpayer’s position cannot be applied retrospectively. Nonetheless, there have been several instances when such laws have been introduced and applied retrospectively.

The Russian government regularly reforms portions of the Russian Tax Code, resulting in frequent changes to both the text of existing tax laws and the dominant interpretation of such tax laws. As a result, there can be no assurance that the current tax rates will not be increased, that new taxes will not be introduced and that additional sources of revenue, income or profit will not be subject to new taxes, charges or similar fees in the future. There can also be no assurance that the Russian Tax Code will not be changed in the future in a manner adverse to the stability and predictability of the tax system. These conditions complicate tax forecasting and related business decisions. The consequent uncertainties could also expose us to significant fines and penalties and potentially severe enforcement measures despite our best efforts at compliance, and could result in a greater than expected tax burden. This, in turn, could have a material adverse effect on our business, results of operations, financial condition and prospects.

In October 2006, the Plenum of the Supreme Arbitrazh Court of the Russian Federation issued a resolution concerning judicial practice with respect to unjustified tax benefits. The resolution provides that where the true economic intent of business operations is inconsistent with the manner in which it has been taken into account for tax purposes, a tax benefit may be deemed to be unjustified. As a result, a tax benefit cannot be regarded as a separate business objective. On the other hand, the fact that the same economic result might have been obtained with a lesser tax benefit accruing to the taxpayer does not constitute grounds for declaring a tax benefit to be unjustified. Moreover, there are no rules and little case law applicable to distinguishing between lawful tax optimization and tax avoidance or evasion. The above Arbitrazh Court approach was to a certain extent further implemented in Article 54.1 of the Russian Tax Code and became effective on August 19, 2017.

Under these provisions, a taxpayer is not able to reduce the tax base and/or the amount of tax payable by misrepresenting information regarding economic events or the objects of taxation which are required to be disclosed in a taxpayer’s tax and/or accounting records or tax statements. As a result of these rules, it is possible that despite our best efforts to comply with Russian tax laws and regulations, certain transactions and our activities that have not been challenged in the past may be challenged in the future, resulting in a greater than expected tax burden, exposure to significant fines and penalties and potentially severe enforcement measures for us.

Recent developments show that the Russian tax authorities are scrutinizing various tax planning and mitigation techniques used by taxpayers, including international tax planning. In particular, Russia introduced “controlled foreign companies” rules, the concept of “tax residency for an organization” and the concept of “beneficial ownership,” and it is increasingly engaged in the international exchange of tax and financial information, including through country-by-country reporting standards and common reporting standards developed and approved by the Organization for Economic Co-operation and Development (the “OECD”).

 

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In 2017, Russia signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”) implementing a series of tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance. While Russia ratified the MLI on October 1, 2019, it will only come into effect after special conditions reflected in article 35 of the MLI are met. In particular, both Russia and the relevant double tax treaty (“DTT”) partner country are required to exchange notices and deliver a notice to the OECD, affirming completion of national MLI adoption legislative procedures. Russia notified the OECD on the completion of internal procedures for the entry into effect of the provisions of the MLI on November 26, 2020. The MLI became enforceable in Russia on January 1, 2021.

In December 2020, the President of Russia executed federal laws amending DTTs with Cyprus and Luxembourg. Amendments introduced by the protocols with Cyprus entered into force on January 1, 2021. On December 28, 2020, the draft law amending the DTT with Malta was registered with the lower house of the Russian Parliament. It is expected that the amendments to the DTT with Malta and Luxembourg will enter into force on January 1, 2022.

In accordance with the final versions of the above protocols, the 5% withholding tax rate on dividends will remain only for certain categories of income recipients, such as insurance companies and pension funds, some listed public companies, and governmental authorities.

The Russian Ministry of Finance is working to renegotiate provisions of certain other DTTs. The Russian Ministry of Finance has announced that DTTs with Hong Kong, Singapore and Switzerland could be revised, and, in September 2021, it announced that revisions to the DTT with Switzerland had been initiated. There is the possibility that additional DTTs will be renegotiated by the Russian Ministry of Finance in the future. Russia unilaterally terminated the DTT with the Netherlands and consequences of the denunciation should likely take effect not earlier than January 1, 2022.

Furthermore, Russian tax legislation is consistently becoming more sophisticated. It is possible that new revenue-raising measures could be introduced. Although it is unclear how any new measures would operate, the introduction of such measures may affect the overall tax efficiency and may result in significant additional taxes becoming payable. No assurance can be given that no additional tax exposures will arise for us.

All the aforesaid evolving tax conditions create tax risks in Russia that are greater than the tax risks typically found in countries with more developed taxation, legislative and judicial systems. These tax risks impose additional burdens and costs on our operations, including our management resources.

There can be no assurance that we would not be required to make substantially larger tax payments in the future and that certain our transactions and activities that have not been challenged in the past will not be challenged in the future, resulting in a greater than expected tax burden. These risks and uncertainties complicate tax planning as well as related business decisions, and could possibly expose our subsidiaries to significant fines, penalties and enforcement measures, despite our best efforts at compliance, and could result in a greater than expected tax burden.

Changes to the DTT between Russia and Luxembourg could increase our tax burden by creating difficulties in obtaining lower rates of Russian withholding tax on dividends distributed from our Russian subsidiaries.

In 2020, the Russian President announced significant changes to Russian tax laws, and the Russian Government was directed to revise Russian DTTs which are often used for tax planning so as to increase withholding tax rates up to 15% for Russian-sourced dividend and interest income or, if negotiations are unsuccessful, to terminate the treaties. Consequently, on November 6, 2020, Luxembourg and Russia signed a protocol amending the existing Russia-Luxembourg DTT to increase the maximum withholding tax rates in relation to (i) dividends, from 5% to 15% and (ii) interest, from 0% to 15%. The new rates will come into force on January 1, 2022.

According to the amended Russia-Luxembourg DTT, the reduced 5% rate of withholding tax applicable to dividends and interests may nevertheless apply if the recipient company simultaneously (i) is the beneficial

 

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owner; (ii) has its shares listed on a registered stock exchange with at least 15% of its voting shares are in free float; and (iii) directly holds (during at least 365 days including the day of dividend payment) more than 15% of the capital stock of the Russian company paying dividends. Furthermore, interests derived from Russian listed bonds or from listed Euro-bonds issued by a Russian company and paid to a Luxembourg entity (being the beneficial owner of such income) may still be exempted from a withholding tax in Russia.

Any further amendments to the Russia-Luxembourg DTT or its renunciation by Russia may adversely affect the taxation of dividend distributions from our Russian subsidiaries and, consequently, our business and financial condition.

According to unofficial clarifications of the Russian Ministry of Finance (No 03-08-05/36927 and No 03-08-05/36932 dated May 14, 2021) a “registered stock exchange” for the purposes of the DTT between Cyprus and Russia is any registered stock exchange established and regulated as such by the laws of any of the contracting states. A similar approach could be applied to the DTT between Luxembourg and Russia. Thus, in case the ADSs are at any point in time de-listed from the NYSE, no assurance can be given that any DTT benefits provided by the DTT between Luxembourg and Russia could be applied, which may adversely affect the taxation of dividend distributions from us.

Further, the Russian Tax Code explicitly requires that in order to enjoy the benefits under an applicable DTT, the person claiming such benefits must be the beneficial owner of the relevant income. In addition to a tax residence certificate, the Russian Tax Code requires confirmation from the recipient of the income that it is the beneficial owner of the income. Russian tax law provides neither the form of such confirmation nor a list of documents that can demonstrate the beneficial owner status of the recipient with respect to the received income. In recent years, the Russian tax authorities started to challenge structures involving the payments outside of Russia, and in most cases, Russian courts tend to support the tax authorities’ position. Thus, there can be no assurance that treaty relief at source will be available in practice, should the income recipient be unable to document its beneficial ownership status to the satisfaction of Russian authorities.

Payment of dividends (if any) on the ADSs may be subject to Russian tax

Payment of dividends by the Company to a Holder (as defined in “Tax Considerations—Russian Tax Considerations”) that is an individual or a legal entity is generally subject to tax in the jurisdiction where such Holder is a tax resident (see “Tax Considerations—Russian Tax Considerations”).

Holders should consult their own tax advisers with respect to the tax consequences of the receipt of dividend income in respect of the ADSs.

Capital gains from the sale of ADSs may be subject to Russian income tax

The capital gain of a Non-Resident Holder—Legal Entity (as defined in Tax Considerations—Russian Tax Considerations”) from the sale or other disposal of the ADSs should not be subject to Russian withholding tax provided that (i) the ADSs qualify as securities traded on an organized securities market as defined in the Russian Tax Code or (ii) not more than 50% of the asset base of the Company directly or indirectly consists of immovable property located in Russia. While the Company believes this to be the case, there is a risk that a Russian tax withholding agent may not have sufficient information with respect to the Company’s asset base composition and may therefore seek to apply a 20% Russian withholding tax rate (or such other tax rate as may be effective at the time of such sale or other disposal) to the amount of consideration paid to, or capital gain realized by, a Non-Resident Holder – Legal Entity that sells or otherwise disposes of the ADSs.

Where the proceeds from the sale or other disposal of the ADSs are treated as received from a source within Russia by a Non-Resident Holder – Individual (as defined in “Tax Considerations —Russian Tax Considerations ”), Russian personal income tax at the rate of 30% (or such other tax rate as is effective at the time of such sale or other disposal) will apply to the gross amount of proceeds from the sale or other proceeds

 

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from the disposition of the ADSs less any available deduction of expenses incurred by the ADS holder (which includes the purchase price of the ADSs) subject to any available DTT relief.

The imposition or possibility of imposition of the above tax liabilities in Russia, as applicable, could adversely affect the value of the ADSs. In addition, while some ADS holders might be eligible for an exemption from or a reduction in Russian withholding tax under an applicable DTT, there is no assurance that such exemption or reduction will be available in practice.

Our Russian entities are subject to tax audits by the Russian tax authorities, which may result in additional tax liabilities.

Generally, taxpayers are subject to tax audits for a period of three calendar years immediately preceding the year in which the decision to carry out a tax audit was taken. In certain circumstances, repeated tax audits (i.e., audits with respect to the same taxes and periods) are possible. Generally, depending on the nature of the tax offense, the statute of limitations for a tax offense is either three years after the date on which the offense was committed or three years from the date following the end of the tax period during which the offense was committed. Nevertheless, according to the Russian Tax Code and based on current judicial interpretation, there may be cases where the statute of limitations for tax offences may extend beyond three years.

Tax audits or inspections may result in additional costs to us, in particular if the relevant tax authorities conclude that we did not satisfy its tax obligations in any given year. Tax audits may also impose additional burdens on us by diverting the attention of the management away from our business and operations.

We may be exposed to taxation in Russia if we are treated as having a Russian permanent establishment or as being Russian tax residents.

The Russian Tax Code contains the concept of a “permanent establishment,” whereby foreign legal entities that maintain a permanent establishment in Russia, (i.e., that carry on regular entrepreneurial activities in Russia beyond preparatory and auxiliary activities) are subject to Russian profits tax. Russia’s DTTs with a variety of other countries also contain a similar concept.

If a foreign company is treated as having a permanent establishment in Russia, it would be subject to Russian taxation in a manner broadly similar to the taxation of a Russian legal entity, but only to the extent of the amount of the foreign company’s income that is attributable to the permanent establishment in Russia. However, the practical application of the concept of a permanent establishment under Russian domestic law is relatively underdeveloped and even foreign companies with limited operations in Russia, which would not normally satisfy the conditions for creating a permanent establishment under foreign or DTT rules, may be at risk of being treated as having a permanent establishment in Russia and hence being exposed to Russian taxation. Furthermore, the Russian Tax Code contains attribution rules that are not sufficiently developed, creating a risk that Russian tax authorities might seek to assess Russian tax on the global income of a foreign company. Having a permanent establishment in Russia may also lead to other adverse tax implications, including the loss of a reduced withholding tax rate on dividends under an applicable DTT, the application of VAT and the imposition of property tax obligations. There is also a risk that penalties could be imposed by Russian tax authorities for failure to register a permanent establishment with the Russian tax authorities. Any such taxes or penalties could have a material adverse effect on our business, financial condition and results of operations.

Starting from January 1, 2015, tax residency rules for legal entities have been introduced in the Russian Tax Code. Based on the new rules, the following categories of legal entities should be viewed as Russian tax residents:

(a) Russian companies;

(b) foreign companies recognized as tax residents of Russia in accordance with DTTs, for the purposes of application of the treaty; and

 

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(c) foreign companies whose place of effective management is in Russia, unless provided otherwise by DTTs. Russia is recognized as a place of effective management of a company in the following cases:

i. its executive body conducts business in Russia on a regular basis, or

ii. its executive officers exercise the management of the company primarily from Russia (i.e., they are authorized to plan and control activities of the company, authorized to manage activities of the company and to be responsible for it).

If a foreign company is treated as a tax resident in Russia, it would be recognized as a taxpayer for Russian profits tax purposes.

Although the Company intends to conduct its affairs so that it is not treated as either having a permanent establishment or tax residence in Russia, no assurance can be given that it will not be treated either as having such permanent establishment in Russia or as being Russian tax resident for Russian tax purposes.

Russian transfer pricing rules may adversely affect the business of our Russian operations, financial condition and results of operations.

Certain transactions by the Company are subject to Russian transfer pricing rules. Russian transfer pricing legislation allows the Russian tax authorities to make transfer pricing adjustments and impose additional tax liabilities with respect to “controlled” transactions. The list of “controlled” transactions under the transfer pricing legislation includes transactions performed with related parties (excluding transactions between related parties that are located in Russia and apply the same corporate profits tax rate (i.e., 20%)) and certain types of cross-border transactions with unrelated parties. Legislation also shifts the burden of proving market prices from the Russian tax authorities to the taxpayer. Although Russian transfer pricing rules were modeled on the transfer pricing principles as developed by the OECD, there are some peculiarities as to how the OECD transfer pricing principles are reflected in the Russian rules. Special transfer pricing rules continue to apply to transactions with securities and derivatives.

Due to the uncertainties in the interpretation of the Russian transfer pricing legislation and undeveloped court practice, no assurance can be given that the Russian tax authorities will not challenge our transfer pricing transactions and/or require adjustments which could adversely affect our tax position. As a result, the Russian transfer pricing rules could have a material adverse effect on our business, results of operations, financial condition and prospects.

Russian thin capitalization rules and general interest deductibility rules allow for different interpretations, which may affect our business.

The Russian Tax Code provides for three main restrictions that limit the deductibility of expense for interest accruing on indebtedness: (i) that a loan is obtained, and indebtedness incurred, with proper economic reasoning (i.e., for a business purpose or justification); (ii) that the interest rate, if paid on controlled transactions, fits within certain interest rate ranges or “safe harbors,” unless third-party documentation is provided; and (iii) that the thin capitalization rules apply to “foreign controlled debt,” (i.e., indebtedness where a foreign direct or indirect shareholder or its affiliate act as a lender or a guarantor, and where a debtor’s debt-to-equity ratio exceeds 3:1, or 12.5:1 for banks and leasing companies). Interest on excess debt is non-deductible and treated as a dividend subject to withholding tax. The whole amount of non-deductible interest accrued on foreign controlled debt would be treated for tax purposes as a dividend if the balance-sheet equity or net asset value of the indebted taxpayer is negative. The statutorily defined scope of the foreign controlled debt was amended recently such that loans obtained from banks or Russian affiliates are, under certain conditions, excluded; at the same time, loans obtained from foreign affiliates are explicitly included unless they are directly linked to a listed bond issuance originating from the foreign affiliate itself.

 

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Our Russian intragroup operations may be affected by requalification of interest into a dividend, including by our inability to deduct interest, based on Russian thin capitalization rules if at any time the respective indebtedness qualifies as foreign controlled debt, or by the inability to deduct interest based on other reasons. See “Tax Considerations —Russian Tax Considerations” for further discussion of important Russian tax considerations.

Risks Relating to the ADSs and the Offering

The price of the ADSs may be volatile, and you may lose all or part of your investment.

The initial public offering price for the ADSs sold in this offering will be determined by negotiation between us and representatives of the underwriters. This price may not reflect the market price of the ADSs following this offering and the price of the ADSs may decline. In addition, the market price of the ADSs could be highly volatile and may fluctuate substantially as a result of many factors, including:

 

   

macroeconomic and geopolitical developments, including those specific to technology and mobility businesses in Russia, as well as the impact of the COVID-19 pandemic;

 

   

actual or anticipated fluctuations in our results of operations;

 

   

variance in our financial performance from the expectations of market analysts;

 

   

announcements by us or our competitors of significant business developments, acquisitions or expansion plans, changes in service provider relations;

 

   

our involvement in litigation;

 

   

market conditions in our industry;

 

   

changes in key personnel;

 

   

changes in the estimation of the future size and growth rate of our markets;

 

   

our sale of ADSs or other securities in the future; and

 

   

the trading volume of the ADSs.

In addition, the stock markets have experienced extreme price and volume fluctuations. Broad market and industry factors may materially harm the market price of the ADSs, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company. If we were involved in any similar litigation, we could incur substantial costs and our management’s attention and resources could be diverted.

There has been no prior public market for the ADSs, and an active trading market may not develop.

Prior to this offering, there has been no public market for the ADSs. An active trading market may not develop following the closing of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell the ADSs at the time you wish to sell them or at a price that you consider reasonable. An inactive market may also impair our ability to raise capital by selling ADSs.

 

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If we do not meet the expectations of equity research analysts, if they do not publish research or reports about our business or if they issue unfavorable commentary or downgrade the ADSs, the price of the ADSs could decline.

The trading market for the ADSs will rely in part on the research and reports that equity research analysts publish about us and our business. The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If our results of operations are below the estimates or expectations of public market analysts and investors, the price of the ADSs could decline. Moreover, the price of the ADSs could decline if one or more securities analysts downgrade the ADSs or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

We are eligible to be treated as an emerging growth company, as defined in the Securities Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make the ADSs less attractive to investors because we may rely on these exemptions.

We are eligible to be treated as an emerging growth company, as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including presenting only limited selected financial data and not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act (“Section 404”). As a result, our shareholders may not have access to certain information that they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including (i) if our total annual gross revenue exceeds $1.07 billion, (ii) if we issue more than $1 billion in non-convertible debt securities during any three-year period or (iii) if before that time we become a “large accelerated filer” under U.S. securities laws. We cannot predict if investors will find the ADSs less attractive because we may rely on these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and our share price may be more volatile.

We will be a foreign private issuer and, as a result, we will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.

Upon the closing of this offering, we will report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act and although we are subject to Luxembourg laws and regulations with regard to such matters, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information. In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year and U.S. domestic issuers that are large accelerated filers are required to file their annual report on Form 10-K within 60 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation FD, which is intended to prevent issuers from making selective disclosures of material information. As a result of all of the above, you may not have the same protections afforded to shareholders of a company that is not a foreign private issuer.

 

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We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

As discussed above, we are a foreign private issuer, and, therefore, we are not required to comply with some of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us on June 30, 2022. In the future, we would lose our foreign private issuer status if (i) more than 50% of our outstanding voting securities are owned by U.S. residents and (ii) a majority of our directors or executive officers are U.S. citizens or residents, or we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. If we lose our foreign private issuer status, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the listing rules of the NYSE. As a U.S. listed public company that is not a foreign private issuer, we would incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer.

As we are a foreign private issuer and “controlled company” and intend to follow certain home country corporate governance practices, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all NYSE corporate governance requirements.

As a foreign private issuer, we have the option to follow certain home country corporate governance practices rather than those of the NYSE, provided that we disclose the requirements we are not following and describe the home country practices we are following. We intend to rely on this “foreign private issuer exemption” with respect to (i) the NYSE rules for shareholder meeting quorums, (ii) the NYSE rules requiring shareholder approval and (iii) the NYSE rules requiring listed companies to have a majority of independent board members and that the compensation and nominating and governance committees consist entirely of independent directors. We may in the future elect to follow home country practices with regard to other matters. As a result, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all NYSE corporate governance requirements.

In the event we no longer qualify as a foreign private issuer, we intend to rely on the “controlled company” exemption under the NYSE corporate governance rules. A “controlled company” under the NYSE corporate governance rules is a company of which more than 50% of the voting power is held by an individual, group or another company. Following this offering, Mikro Kapital Group will continue to control a majority of the voting power of our outstanding ordinary shares, making us a “controlled company” within the meaning of the NYSE corporate governance rules. As a controlled company, we would be eligible to, and, in the event we no longer qualify as a foreign private issuer, we intend to, elect not to comply with certain of the NYSE corporate governance rules, including the requirement that a majority of directors on our board of directors be independent and the requirement that our nominating and corporate governance committee and compensation committee consist entirely of independent directors.

Accordingly, our shareholders will not have the same protection afforded to shareholders of companies that are subject to all of the NYSE corporate governance standards, and the ability of our independent directors to influence our business policies and affairs may be reduced.

The market price of the ADSs could be negatively affected by future sales of the ADSs.

After this offering, we will have                 ordinary shares and                ADSs outstanding. Sales by us or our shareholders of a substantial number of ordinary shares or ADSs in the public market following this

 

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offering, or the perception that these sales might occur, could cause the market price of the ADSs to decline or could impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities. Of our issued and outstanding shares, all the ADSs sold in this offering will be freely transferable, except for any shares acquired by our “affiliates,” as that term is defined in Rule 144 under the Securities Act.

We, our board members, executive officers and holders of substantially all of our outstanding shares have agreed, subject to limited exceptions, not to offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise dispose of, directly or indirectly, or enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the ADSs, ordinary shares or such other securities for a period of days after the date of this prospectus, subject to certain exceptions, without the prior written consent of BofA Securities, Inc., Citigroup Global Markets Inc. and VTB Capital plc as representatives of the underwriters. See “Underwriting” for further information on these restrictions.

You will experience immediate and substantial dilution in the net tangible book value of the ADSs you purchase in this offering.

The initial public offering price of the ADSs substantially exceeds the net tangible book value per share of the ADSs immediately after this offering. Therefore, if you purchase the ADSs in this offering, you will suffer, as of                , 2021, immediate dilution of $                per ADS (or $                per ADS if the underwriters exercise in full their option to purchase additional ADSs) in pro forma net tangible book value after giving effect to the automatic conversion of the 12 million convertible preferred shares held by Nevsky Property into ordinary shares on a one-to-one basis immediately prior to the completion of this offering, and the sale of                  ADSs in this offering at an assumed initial public offering price of $                per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus. If outstanding options to purchase the ADSs are exercised in the future, you will experience additional dilution. See “Dilution” for additional information.

We have broad discretion over the use of proceeds we receive in this offering and may not apply the proceeds in ways that increase the value of your investment.

Our management will have broad discretion in the application of the net proceeds from this offering and, as a result, you will have to rely upon the judgment of our management with respect to the use of these proceeds. Our management may spend a portion or all of the net proceeds in ways that not all shareholders approve of or that may not yield a favorable return. The failure by our management to apply these funds effectively could have an adverse effect on our business, financial condition and results of operations.

We do not expect to pay any dividends in the foreseeable future.

We have not paid any dividends during the years ended December 31, 2019 and 2020 and we do not anticipate paying any dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance operations and expand our business. Consequently, investors who purchase ADSs in this offering may be unable to realize a gain on their investment except by selling those ADSs after price appreciation, which may never occur.

To the extent that we decide to pay dividends in the future, any dividends or other distributions paid by us on the ordinary shares represented by ADSs will be subject to a Luxembourg withholding tax at a rate of 15.0%, unless an exemption or reduction in rate applies. The withholding tax must be withheld from the gross distribution and paid to the Luxembourg tax authorities. Under certain circumstances, it may be possible for us to make distributions as share capital reductions or share premium reimbursements, which would not be subject to withholding tax, but there are no assurances that we will be able to make such distributions in the future.

Our board of directors can decide to pay interim dividends in accordance with the provisions contained in the articles of association, and the general meeting of the shareholders can resolve on whether to pay annual

 

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dividends also in accordance with the articles of association. If our board of directors/general meeting of shareholders decides to pay interim/annual dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our board of directors/general meeting of shareholders may deem relevant. Luxembourg law imposes restrictions on our ability to declare and pay dividends. See “Dividend Policy” and “Description of Share Capital and Articles of Association” for additional information.

You may not receive distributions on the ordinary shares represented by your ADSs or any value for them if it is illegal or impractical to make them available to holders of ADSs.

The depositary has agreed to pay to you the cash dividends or other distributions it receives on our ordinary shares after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. We have no obligation to take any other action to permit the distribution to any holders of the ADSs or ordinary shares. This means that you may not receive the distributions we make on our ordinary shares or any value from them if it is illegal or impractical for us to make them available to you. These restrictions may have a material adverse effect on the value of your ADSs.

You may not be able to exercise your right to vote the ordinary shares underlying your ADSs.

Holders of ADSs may exercise voting rights with respect to the ordinary shares represented by the ADSs only in accordance with the provisions of the deposit agreement. The deposit agreement provides that, upon receipt of notice of any meeting of holders of our ordinary shares, including any general meeting of our shareholders, the depositary will, as soon as practicable thereafter, fix a record date for the determination of ADS holders who shall be entitled to give instructions for the exercise of voting rights. Upon timely receipt of notice from us, if we so request, the depositary shall distribute to the holders as of the record date (i) the notice of the meeting or solicitation of consent or proxy sent by us, (ii) a statement that such holder will be entitled to give the depositary instructions and (iii) a statement as to the manner in which instructions may be given by the holders.

You may instruct the depositary to vote the ordinary shares underlying your ADSs. Otherwise, you will not be able to exercise your right to vote unless you withdraw our ordinary shares underlying the ADSs you hold. However, you may not know about the meeting far enough in advance to withdraw those ordinary shares. The depositary, upon timely notice from us, if we so request, will notify you of the upcoming vote and arrange to deliver voting materials to you. We cannot guarantee that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the ordinary shares underlying your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote, and there may be nothing you can do if the ordinary shares underlying your ADSs are not voted as you requested.

Shareholders and ADS holders may not be able to exercise preemptive rights and, as a result, may experience substantial dilution upon future issuances of ordinary shares.

Under Luxembourg law, in the event of an issuance of ordinary shares, subject to certain exceptions, each shareholder will have a pro rata preferential subscription right in proportion to the aggregate nominal value of the ordinary shares held by such holder to the extent a capital increase would be done by way of contribution in cash or the issuance of shares by compensation of existing debt. In addition, the articles of association may grant such rights to shareholders in case of an in-kind contribution. These preferential subscription rights may be restricted or excluded by a resolution of the general meeting or by the board of directors, to the extent it has been authorized to restrict preemptive rights under an authorized capital system in the articles of association. This could cause existing shareholders and ADS holders to experience substantial dilution of their interest in us. If preferential subscription rights are available to shareholders, the depositary may make those rights available to

 

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ADS holders, but only if we so request. In the United States, we may be required to file a registration statement under the Securities Act to implement preemptive rights. We can give no assurances that an exemption from the registration requirements of the Securities Act would be available to enable U.S. holders of ordinary shares to exercise such preemptive rights and, if such exemption is available, we may not take the steps necessary to enable U.S. holders of ordinary shares to rely on it. Accordingly, you may not be able to exercise preemptive rights on future issuances of ordinary shares, and, as a result, your percentage ownership interest in us would be diluted. Furthermore, rights offerings are difficult to implement effectively under the current U.S. securities laws, and our ability to raise capital in the future may be compromised if we need to do so through a rights offering in the United States.

You may be subject to limitations on the transfer of your ADSs.

The ADSs, which may be evidenced by ADRs, are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of the ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of the deposit agreement, or for any other reason.

If we fail to implement and maintain an effective internal control over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud and investor confidence in our company and the market price of the ADSs may decline.

After the completion of this offering, as a public company, we will be subject to the Sarbanes-Oxley Act. Section 404(a) of the Sarbanes-Oxley Act requires that, starting with our annual report for the fiscal year ending December 31, 2022, management evaluate and determine the effectiveness of our internal control over financial reporting, report any material weaknesses in such internal controls and provide a management report on internal control over financial reporting. Although Section 404(b) of the Sarbanes-Oxley Act requires our Independent Registered Public Accounting Firm to issue an annual report that addresses the effectiveness of our internal control over financial reporting, we have opted to rely on the exemptions provided in the JOBS Act and, consequently, will not be required to comply with SEC rules that implement Section 404(b) until such time as we are no longer an “emerging growth company.” We could be an emerging growth company for up to five years. See “Prospectus Summary—Implications of Being an Emerging Growth Company and a Foreign Private Issuer.”

Furthermore, after the date we are no longer an emerging growth company, our Independent Registered Public Accounting Firm will only be required to attest to the effectiveness of our internal control over financial reporting depending on our market capitalization. Even if our management concludes that our internal controls over financial reporting are effective, our Independent Registered Public Accounting Firm may still decline to attest to our management’s assessment or may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, in connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. Failure to comply with Section 404 could subject us to regulatory scrutiny and sanctions, impair our ability to raise capital, cause investors to lose confidence in the accuracy and completeness of our financial reports and negatively affect the price of the ADSs.

Under the current rules of the SEC, starting with our annual report for the fiscal year ending December 31, 2022, we will be required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to assess the effectiveness of our internal controls. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we

 

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will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. We currently have limited accounting personnel, and we have begun the process of evaluating our accounting personnel staffing level and other matters related to our internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. Further, our testing may reveal deficiencies in our internal controls that are deemed to be material weaknesses and render our internal controls over financial reporting ineffective or may reveal significant deficiencies. If we fail to maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which could cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a negative impact on the trading price of the ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from NYSE, regulatory investigations and civil or criminal sanctions.

We have identified significant deficiencies in our internal control over financial reporting. These significant deficiencies in our internal control over financial reporting, if not remediated, could adversely affect the accuracy and timing of our financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of the ADSs may be materially and adversely affected.

Prior to this offering, we have experienced rapid growth as a private company such that our limited personnel in IT, accounting and other relevant departments may not have developed sufficiently advanced IT systems or other internal controls according to existing SEC guidance. Although we are not yet subject to the certification or attestation requirements of Section 404, in the course of preparing our financial statements for the years ended December 31, 2020 and 2019 in preparation for this offering, we identified significant deficiencies in our internal control over financial reporting. SEC guidance defines a significant deficiency as a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant’s financial reporting. SEC guidance defines a material weakness as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Because, as a private company, we were not yet subject to certification or attestation requirements of Section 404, we only conducted limited testing of our internal controls for the years ended December 31, 2020 and 2019. In our limited testing of our internal controls performed in preparation for this offering, we identified significant deficiencies related to financial reporting, specifically (i) the design, implementation and maintenance of an effective control environment with appropriate functions (including risk management and internal audit functions) as we did not have such corporate governance structure while operating as a private company in the years ended December 31, 2020 and 2019; (ii) the number of accounting personnel required for the review of accounting schedules and financial statements in order to adequately meet the reporting and compliance requirements as an SEC registrant; (iii) the sufficiency and effectiveness of controls over related party transactions and transactions involving manual inputs; and (iv) the sufficiency and effectiveness of controls over significant accounting estimates. In addition, we identified significant deficiencies related to general information technology controls, specifically: (v) insufficient controls over user access rights and segregation of duties within our information systems; and (vi) insufficient controls over service organizations.

Moreover, taking into account the immaturity of our business process controls, information technology general controls and other internal controls, we can provide no assurance that we will not in the future identify other significant deficiencies or material weaknesses related to controls over financial reporting as of and for the years ended December 31, 2020 and 2019 and for any future periods.

 

 

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To address the significant deficiencies related to financial reporting described above, in 2021 we developed and have begun a remediation plan that includes the following activities: (i) engaging a Big Four advisory/accounting firm (the “Accounting Advisor”) to assist us in designing and implementing improved internal processes and controls for our major business processes and financial reporting processes, as well as enhancing our governance policies and procedures; (ii) hiring additional accounting and finance personnel with expertise in preparation of financial statements in accordance with IFRS and, in addition, to support proper segregation of duties during preparation and review of combined and consolidated financial statements and disclosures; (iii) hiring additional personnel dedicated to carrying out regular independent monitoring of information technology general controls; (iv) establishing an access policy for our information systems; (v) improving controls over access rights management, including reviews of current access rights, user roles and access management procedures; and (vi) moving our financially critical services to the private cloud of another service organization and implementing periodic control procedures over administrative access, backup or/and other settings/information which will remain on the service organizations’ side.

We will not be able to fully remediate these significant deficiencies until these steps have been completed and have been operating effectively for a sufficient period of time. There can be no assurance that we will be successful in pursuing these measures, or that these measures will significantly improve or remediate the significant deficiencies described above.

We cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to significant deficiencies in our internal control over financial reporting or that they will prevent or avoid future significant deficiencies or material weaknesses. Our current controls and any new controls that we develop may become inadequate because of changes to conditions in our business. If we fail to remediate the significant deficiencies or to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results or report them within the timeframes required by law, our combined and consolidated financial statements may be restated, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of the ADSs could be materially and adversely affected, the ADSs may be suspended or delisted from the NYSE and our reputation, results of operations and financial condition may be adversely affected. Failure to comply with Section 404 could also potentially subject us to sanctions or investigations by the SEC or other regulatory authorities.

The requirements of being a public company may strain our resources and divert management time, which could make it difficult to manage our business.

As a public company with ADSs traded on an exchange located in the United States, we will become subject to a broader scope of laws, regulations and standards, including the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act, the listing requirements of the NYSE and other applicable securities rules and regulations and, therefore, potentially subject to a broader scope of fines and penalties under U.S. securities laws. Compliance with these rules and regulations will increase our legal, financial and other compliance costs and increase the demands on our legal, compliance and financial reporting personnel as well as our systems and other resources, particularly after we are no longer an emerging growth company. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure create uncertainty for public companies, increase legal and financial compliance costs and make some activities more time-consuming.

We are evaluating these rules and regulations and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may

 

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evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

The Exchange Act requires that we file annual and current reports with respect to our business, financial condition and results of operations. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures over our financial reporting. Furthermore, establishing the corporate infrastructure demanded of a public company may divert our management’s time and attention from implementing our growth strategy, which could prevent us from improving our business, financial condition and results of operations. We have made, and will continue to make, changes to our internal controls and procedures over our financial reporting and accounting systems to meet our reporting obligations as a public company. However, we have previously relied on experts and the measures we take may not be sufficient to satisfy our obligations as a public company. These additional obligations could have a material adverse effect on our business, financial condition, results of operations and cash flow.

Provisions of our amended and restated articles of association or Luxembourg corporate law might deter acquisition bids for us that might be considered favorable and prevent, delay or frustrate any attempt to replace or remove the members of our board.

Under Luxembourg law, certain limited protective measures are possible and permissible within the boundaries set by Luxembourg law and Luxembourg case law. Our governance arrangements include several provisions that may have the effect of making a takeover of our company more difficult or less attractive. In addition, certain provisions of our amended and restated articles of association may make it more difficult for a third party to acquire control of us or effect a change in our board. These provisions include the use of a fairly high authorized share capital with the authorization to the board of directors to suppress preferential subscription rights so that shares could be issued in its sole discretion to a third party which is not already a shareholder. They also include increasing the quorum and consent requirements for the replacement of members of the board of directors.

The rights of shareholders in companies subject to Luxembourg corporate law differ in material respects from the rights of shareholders of corporations incorporated in the United States.

Our corporate affairs are governed by our articles of association and by the laws governing public limited liability companies (société anonyme) organized under the laws of Luxembourg, as well as such other applicable local laws, rules and regulations. The Company has decided not to submit itself on a voluntary basis to the law of May 24, 2011 on the exercise of certain rights of shareholders at general meetings of listed companies (the “Law on General Meetings”), transposing into Luxembourg law the provisions of Directive 2007/36/EC of the European Parliament and of the Council of July 11, 2007 on the exercise of certain rights of shareholders in listed companies, which is mandatory for Luxembourg companies whose shares are listed on regulated markets within the European Union. The Law on General Meetings reserves certain rights to shareholders of a company that we, by not submitting to the law voluntarily, can instead assign to our board of directors. The rights of our shareholders and the responsibilities of our directors and officers under Luxembourg law are different from those applicable to a company incorporated in the United States. A Luxembourg public limited liability company is managed by a board of directors (conseil d’administration), which has the authority to take any decisions on behalf of the company that are not reserved by Luxembourg corporate law and/or the articles of association of such company to a shareholder vote. Such matters that are subject to the approval of a company’s shareholders under Luxembourg corporate law include:

 

  (i)

amending the articles of association of the company;

  (ii)

appointing and removing the directors of the company;

  (iii)

appointing the auditor of the company;

  (iv)

approving the annual accounts and allocation of the annual results; and

  (v)

approving mergers/demergers/migrations of the company.

 

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The current version of the articles of association of the Company do not contain any additional matters reserved to the shareholders.

There may be less publicly available information about us than is regularly published by or about U.S. domestic issuers. Also, Luxembourg regulations governing the securities of Luxembourg companies may not be as extensive as those in effect in the United States, and Luxembourg law and regulations in respect of corporate governance matters may not be as protective of non-controlling shareholders as corporation laws in the United States. Therefore, you may have more difficulty protecting your interests in connection with actions taken by us, our directors and executive officers or our principal shareholders than you would as a shareholder of a corporation incorporated in the United States.

Luxembourg insolvency laws may offer our shareholders less protection than they would have under U.S.

insolvency laws.

As a company organized under the laws of Luxembourg and with its registered office in Luxembourg, we are subject to Luxembourg insolvency laws in the event any insolvency proceedings are initiated against us, including Regulation (EU) 2015/848 of the European Parliament and of the Council of May 20, 2015 on insolvency proceedings, which forms part of Luxembourg law (the “EU Recast Insolvency Regulation”). The EU Recast Insolvency Regulation imposes conflict of law rules for insolvency proceedings concerning debtors based in the European Union with operations/assets in more than one member state, giving particular prominence to insolvency proceedings commenced in the member state in which a debtor has its center of main interests.

Should courts in another European country determine that the insolvency laws of that country apply to us in accordance with and subject to such EU regulations, the courts in that country could have jurisdiction over the insolvency proceedings initiated against us. Insolvency laws in Luxembourg or the relevant other European country, if any, may offer our shareholders less protection than they would have under U.S. insolvency laws and make it more difficult for them to retain or recover the same amount of value they may be able to realize in a bankruptcy proceeding brought under U.S. insolvency law. Pertinent differences between the Luxembourg insolvency procedure (faillite) and the U.S. insolvency laws (in particular Chapter 11 of the U.S. Bankruptcy Code (“Chapter 11”)), are, for example, that the conditions for adjudicating a company bankrupt in Luxembourg are explicitly established by Luxembourg law. The company must have ceased paying its creditors and must have lost its creditworthiness (i.e., it cannot obtain new financing), whereas Chapter 11 has no such mandatory requirements to commence a case. Furthermore, the aim of the Luxembourg bankruptcy procedure (faillite) is to realize the assets of the bankrupt company for the purpose of settling the company’s liabilities (to the maximum extent possible) — it is not possible for a bankrupt company in Luxembourg to emerge from bankruptcy by adopting a plan of reorganization that is approved by creditors and the court. In addition, while under Luxembourg law there is an automatic stay for individual proceedings of creditors against the bankrupt company, such automatic stay is not applicable to secured creditors holding security over moveable or immoveable assets because such pledged assets are not part of the bankruptcy estate. Thus, unlike under Chapter 11, a secured creditor benefitting from a pledge is not limited in its ability to enforce the security over the pledged assets regardless of the bankruptcy adjudication of the company. Differences in the legal regimes may mean that a Luxembourg bankruptcy procedure (faillite) may provide less flexibility regarding shareholder protection compared to a reorganization under Chapter 11.

ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

The deposit agreement governing the ADSs representing our ordinary shares provides that, to the fullest extent permitted by law, ADS holders, including purchasers in secondary transactions, waive the right to a jury trial for any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.

 

 

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If we or the depositary were to oppose a jury trial based on this waiver, the court would have to determine whether the waiver was enforceable based on the facts and circumstances of the case in accordance with applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, or by a federal or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this would be the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before investing in the ADSs.

If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us or the depositary. If a lawsuit is brought against us or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have, including outcomes that could be less favorable to the plaintiff(s) in any such action.

Nevertheless, if this jury trial waiver is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or the ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.

Holders and beneficial owners of ADSs cannot recover losses from us or the depositary if we or the depositary fail to meet our respective obligations under the deposit agreement unless we or the depositary are negligent or act in bad faith, or if the losses are caused by things for which we and the depositary are specifically exonerated.

The deposit agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability of the depositary. Under the deposit agreement, we and the depositary (i) are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith, and the depositary will not be a fiduciary or have any fiduciary duty to holders of ADSs; (ii) are not liable if we are or it is prevented or delayed by law or by events or circumstances beyond our or its ability to prevent or counteract with reasonable care or effort from performing our or its obligations under the deposit agreement; (iii) are not liable if we or it exercises discretion permitted under the deposit agreement; (iv) are not liable for the inability of any holder of ADSs to benefit from any distribution on deposited securities that is not made available to holders of ADSs under the terms of the deposit agreement, or for any special, consequential or punitive damages for any breach of the terms of the deposit agreement; (v) have no obligation to become involved in a lawsuit or other proceeding related to the ADSs or the deposit agreement on your behalf or on behalf of any other person; (vi) may rely upon any documents we believe or it believes in good faith to be genuine and to have been signed or presented by the proper person; and (vii) are not liable for the acts or omissions of any securities depository, clearing agency or settlement system. In addition, the depositary has no duty to make any determination or provide any information as to our tax status, or any liability for any tax consequences that may be incurred by ADS holders as a result of owning or holding ADSs or be liable for the inability or failure of an ADS holder to obtain the benefit of a foreign tax credit, reduced rate of withholding or refund of amounts withheld in respect of tax or any other tax benefit.

 

 

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We cannot assure you that it would be possible to effect service of process upon us within the United States or other jurisdictions outside Luxembourg, or to enforce against us or our officers and directors judgments obtained in the United States or other jurisdictions outside Luxembourg.

As we are a Luxembourg public limited liability company (société anonyme), it may be difficult for you to obtain or enforce judgments against us or our directors and executive officers in the United States. We are organized under the laws of Luxembourg. Most of our assets are located outside the United States. Furthermore, most of our directors and executive officers reside outside the United States and most of their assets are located outside the United States. Investors may find it difficult to effect service of process within the United States upon us or these persons or to enforce outside the United States judgments obtained against us or these persons in U.S. courts, including judgments in actions predicated upon the civil liability provisions of the U.S. federal securities laws. Likewise, it may also be difficult for an investor to enforce in U.S. courts judgments obtained against us or these persons in courts located in jurisdictions outside the United States, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. It may also be difficult for an investor to bring an original action in a Luxembourg court predicated upon the civil liability provisions of the U.S. federal securities laws against us or these persons.

Further, Luxembourg law only recognizes a shareholder’s right to bring a derivative action on behalf of a public limited liability company (société anonyme) in very limited circumstances. For example, an individual shareholder holding at least 10% of voting rights can bring legal action on behalf of the company against its management for misconduct and breach of Luxembourg law and the company’s articles of association. As there is no treaty in force on the reciprocal recognition and enforcement of judgments in civil and commercial matters between the United States and Luxembourg, courts in Luxembourg will not automatically recognize and enforce a final judgment rendered by a U.S. court, including judgments under the U.S. federal securities laws. The enforceability in Luxembourg courts of judgments entered by U.S. courts will depend upon the conditions set forth in the Luxembourg procedural code (i.e., section 678 of the Luxembourg New Code of Civil Procedure).

The United States and Russia currently do not have a treaty providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Consequently, a final judgment for payment or declaratory judgments given by a court in the United States, whether or not predicated solely upon U.S. federal securities laws, would not automatically be recognized or enforceable in Russia.

Based on the lack of a treaty as described above, U.S. investors may not be able to enforce against us, our directors and executive officers or certain experts named herein who are residents of or possessing assets in Russia, or other countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.

A listing on MOEX could impose additional administrative burdens on us and decrease the liquidity of trading in the ADSs on the NYSE.

On                , we obtained the approval of MOEX in relation to the listing and admission of the ADSs to trading on MOEX under the symbol “DMOB.” The ADSs may not start trading on MOEX earlier than the time at which the ADSs start trading on the NYSE. No assurance can be given that we will be able to maintain such listing. Any such listing may impose additional administrative burdens on us and may result in a reduction of the liquidity of trading in the ADSs on the NYSE.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains estimates and forward-looking statements, principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Dividend Policy,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These statements appear in a number of places in this prospectus and include statements regarding our intent, belief or current expectations, and those of our officers and employees, with respect to, among other things: (i) our future financial or operating performance; (ii) our growth strategy; (iii) future trends that may affect our business and results of operations; (iv) the impact of competition and applicable laws and regulations on our results; (v) planned capital investments; and (vi) our financial liquidity. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results and developments may be substantially different from the expectations described in the forward-looking statements for a number of reasons, many of which are not under our control, among them the activities of our competition, the future global economic situation, weather conditions, relevant market conditions, exchange rates, and operational and financial risks. The unexpected occurrence of one or more of the above-mentioned events may significantly change the results of our operations on which we have based our estimates and forward-looking statements.

The words “believe,” “will,” “may,” “may have,” “would,” “estimate,” “continues,” “anticipates,” “intends,” “plans,” “expects,” “budget,” “scheduled,” “forecasts” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements refer only to the date when they were made, and we and the underwriters do not undertake any obligation to update or revise any estimate or forward-looking statement due to new information, future events or otherwise, except as required by law. Estimates and forward-looking statements involve risks and uncertainties and do not guarantee future performance, as actual results or developments may be substantially different from the expectations described in the forward-looking statements.

Our estimates and forward-looking statements may be influenced by factors including, among others:

 

   

the continuing impact of the COVID-19 pandemic on demand for our services and the effects of regulations of car sharing enacted to mitigate the pandemic;

 

   

significant competition in our markets;

 

   

any ability to effectively manage our growth;

 

   

our lack of historical profitability and risks in achieving profitability in the future;

 

   

our ability to effectively manage our technology platform;

 

   

our ability to maintain and enhance our brand;

 

   

our ability to successfully manage the size, effectiveness and resale of our fleet;

 

   

our ability to maintain favorable terms of insurance for our fleet;

 

   

our ability to attract and retain key personnel and IT specialists;

 

   

our ability to successfully manage and continually advance technology used in our business;

 

   

global political and economic stability;

 

   

ongoing development of the Russian legal system and developing legal framework governing car sharing in Russia; and

 

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our ability to successfully remediate the significant deficiencies in our internal control over financial reporting and our ability to establish and maintain an effective system of internal control over financial reporting.

Many important factors, in addition to the factors described above and in other sections of this prospectus, could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from estimates or forward-looking statements. We qualify all of our estimates and forward-looking statements by these cautionary statements.

The estimates and forward-looking statements contained in this prospectus speak only as of the date of this prospectus. Except as required by applicable law, we undertake no obligation to publicly update or revise any estimates or forward-looking statements whether as a result of new information, future events or otherwise, or to reflect the occurrence of unanticipated events.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds of $             million, or $             million if the underwriters exercise their option to acquire additional ADSs from us in full, based upon an assumed initial public offering price of $             per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and estimated offering expenses payable by us.

Each $1.00 increase (decrease) in the assumed initial public offering price per ADS would increase (decrease) our net proceeds, after deducting the estimated underwriting discounts and commissions and expenses, by $             million, assuming that the number of ADSs offered by us, as set forth on the cover of this prospectus, remains the same. Each increase (decrease) of 1,000,000 ADSs in the number of ADSs offered by us would increase (decrease) our net proceeds, after deducting the estimated underwriting discounts and commissions and estimated expenses, by approximately $             million, assuming no change in the assumed initial public offering price per ADS. Expenses of this offering will be paid by us.

The principal purposes of this offering are to create a public market for the ADSs, facilitate access to the public equity markets and increase financial flexibility and our visibility in the marketplace. We intend to use the net proceeds from this offering for business development, repayment of our shareholder debt in full and other corporate purposes, including potential international expansion.

Our shareholder debt as at June 30, 2021 amounted to RUB 5,743 million, of which RUB 5,694 million (the “Assignment Amount”) resulted from the assignment by Mikro Kapital Group to the Company of loan receivables against Carsharing Russia LLC, Anytime LLC and SMM LLC (the “Shareholder Loans”). A significant majority of the Shareholder Loans was originated in 2020 and 2021, the proceeds of which we have used for general corporate purposes and to fund our business operations. The Shareholder Loans bear an annual interest rate of between 17% and 18%, and the Assignment Amount equals the amounts outstanding under the Shareholder Loans (principal and accrued interest) plus interest at a rate of 0.5% per annum above the base rate of the European Central Bank applied to the total amount outstanding under the Shareholder Loans (principal and accrued interest). The Assignment Amount will become immediately payable in full upon consummation of this offering. In addition to the Assignment Amount, the debt to the shareholder includes the loan received by Delimobil Holding S.A. under the Loan Agreement dated April 27, 2021 in the amount of RUB 49 million including accrued interest and denominated in Euros with an interest rate of 14%.

Other than what is set out above, we have not quantified or allocated any specific portion or range of the net proceeds to us for any particular purpose and we do not have any plans or commitments to enter into any material acquisitions or investments at this time. We will have broad discretion over how we use the net proceeds from this offering.

The amount and timing of our use of the proceeds for these purposes may vary significantly and will depend on a number of factors, including our future revenue and cash generated by operations and the other factors described in “Risk Factors.”

 

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DIVIDEND POLICY

We do not anticipate paying any cash dividends on our ordinary shares in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business.

To the extent we declare dividends in the future, we may pay those dividends in either euros or rubles. Except as otherwise described under “Description of American Depositary Shares,” cash dividends paid to the depositary in a currency other than U.S. dollars will be converted into U.S. dollars by the depositary and paid to holders of ADSs net of applicable fees and charges of, and expenses incurred by, the depositary and net of taxes withheld. As the value of the euro and ruble fluctuates continuously, a holder of the ADSs will be exposed to currency fluctuations generally and particularly between the date on which a dividend is declared and the date on which dividends are paid.

For a description of the legal and regulatory framework and the provisions of our articles of association related to the declaration and payment of dividends, see “Description of Share Capital and Articles of Association—Distributions.”

We are a holding company and have no material assets other than our ownership of shares in our subsidiaries. To the extent we pay a dividend or other distribution on our ordinary shares in the future, we will generally cause our operating subsidiaries to make distributions to us in an amount sufficient to cover any such dividends or distributions. Our subsidiaries’ ability to make distributions to us is subject to their capacity to generate sufficient earnings and cash flow, and may also be affected by statutory accounting and tax rules in Russia. As of the date of this prospectus, there are no material contractual restrictions on our subsidiaries’ ability to make distributions to us.

A Luxembourg withholding tax of 15% is generally due on dividends and similar distributions made by us to our shareholders. However, distributions on our ordinary shares that are sourced from a reduction of share capital or share premium are not subject to Luxembourg withholding tax provided that we do not have distributable reserves or profits in our standalone statutory accounts prepared under Luxembourg GAAP. See “Tax Considerations—Luxembourg Tax Considerations.”

There is no law, governmental decree or regulation in Luxembourg that would affect the remittance of dividends or other distributions by us to non-resident holders of our ordinary shares, other than withholding tax requirements. In certain limited circumstances, the implementation and administration of international financial sanctions may affect the remittance of dividends or other distributions. There are no specified procedures for non-resident holders to claim dividends or other distributions.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and total capitalization as of June 30, 2021, as follows:

 

   

on an actual basis; and

 

   

on an as adjusted basis to give effect to the conversion of the convertible preferred shares held by Nevsky Property into ordinary shares, which will not change or impact Delimobil Holding’s total and voting capital stock upon conversion, as conversion will be effected on a one-to-one share basis, and to reflect the issuance and sale of ADSs in this offering at the assumed initial public offering price of $                per ADS, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this information in conjunction with our unaudited interim condensed combined and consolidated financial statements and the related notes appearing at the end of this prospectus and “Use of Proceeds,” “Selected Combined and Consolidated Financial and Operating Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information contained in this prospectus.

 

    

As of June 30, 2021

 
    

Actual

   

As Adjusted(1)

 
     (in millions of RUB, except share
and per share amounts)
 

Cash and cash equivalents

     4,326                     
  

 

 

   

 

 

 

Borrowings, including current portion

     5,769    
  

 

 

   

 

 

 

Shareholders’ equity:

    

Share capital

    

Ordinary shares, EUR 0.01 par value, 100,000,000 shares authorized and outstanding on an actual basis;              shares authorized and outstanding on an as adjusted basis

     89    

Convertible preferred shares, EUR 0.01 par value, 12,000,000 shares authorized and outstanding on an actual basis; 0 shares authorized and outstanding on an as adjusted basis

     11    

Share premium

     44,584    

Revaluation reserve

     1,409    

Other reserves

     (5,495  

Accumulated loss

     (43,072  
  

 

 

   

 

 

 

Total equity attributable to shareholders of the Company

     (2,474  

Non-controlling interests

     10    
  

 

 

   

 

 

 

Total capitalization

     3,305                     
  

 

 

   

 

 

 

 

(1) 

A $1.00 increase or decrease in the assumed initial public offering price of $             per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the as adjusted amount of each of cash and cash equivalents, share premium, total equity and total capitalization by approximately $             million, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. An increase or decrease of 1,000,000 ADSs in the number of ADSs offered by us, as set forth on the cover page of this prospectus, would increase or decrease the as adjusted amount of each of cash and cash equivalents, share premium, total equity and total capitalization by approximately $             million, assuming no change in the assumed initial public offering price of $             per ADS, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions.

The table and calculations above are based on the number of ordinary shares outstanding as of June 30, 2021, and the “As Adjusted” column gives effect to the conversion of all of the convertible preferred shares held by Nevsky Property into ordinary shares and the sale of ADSs in this offering.

 

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DILUTION

If you invest in the ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and the as adjusted net tangible book value per ADS immediately following the consummation of this offering. Dilution results from the fact that the initial public offering price per ordinary share underlying the ADSs is substantially in excess of the net tangible book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.

As of June 30, 2021, we had a historical net tangible book deficit of RUB 2,850 million, corresponding to a net tangible book deficit of RUB 28.50 per ordinary share, or $                per ADS. Net tangible book deficit per share represents the amount of our total assets less our total liabilities, excluding goodwill and other intangible assets, divided by the total number of our ordinary shares outstanding.

After giving effect to (i) the automatic conversion of the 12 million convertible preferred shares held by Nevsky Property into ordinary shares on a one-to-one basis immediately prior to the completion of this offering, and (ii) the sale by us of                ADSs in this offering at the assumed initial public offering price of $                per ADS, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value at June 30, 2021 would have been approximately $                million, representing $                per share or $                per ADS. This represents an immediate increase in net tangible book value of $                per share or $                per ADS to existing shareholders and an immediate dilution in net tangible book value of $                per share or $                per ADS to new investors purchasing ADSs in this offering at the assumed initial public offering price. Dilution in net tangible book value per ADS to new investors is determined by subtracting pro forma as adjusted net tangible book value per ADS after this offering from the assumed initial public offering price per ADS paid by new investors.

The following table illustrates this dilution to new investors purchasing ADSs in the offering.

 

Assumed initial public offering price per ADS

      $                

Pro forma net tangible book value per share or per ADS after giving effect to the conversion of our convertible preferred shares into ordinary shares as of June 30, 2021

   $                   

Increase in pro forma net tangible book value per share or per ADS attributable to this offering

   $                   
  

 

 

    

Pro forma as adjusted net tangible book value per share or per ADS after giving effect to the conversion of our convertible preferred shares into ordinary shares and this offering

  

$

             

 

  
     

 

 

 

Dilution per ADS to new investors in this offering

      $                

If the underwriters exercise their option to purchase additional ADSs from us in full, our pro forma as adjusted net tangible book value after this offering would be $                per ADS, representing an immediate increase in pro forma as adjusted net tangible book value of $                 per ADS to existing shareholders and immediate dilution of $                per ADS in pro forma as adjusted net tangible book value per ADS to new investors purchasing ADSs in this offering, based on an assumed initial public offering price of $                per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus.

Each $1.00 increase (decrease) in the assumed initial public offering price of $                per ADS, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, respectively, would increase (decrease) the pro forma as adjusted net tangible book value after this offering by $                per ADS and the dilution per ADS to new investors in the offering by $                per ADS, assuming that the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same.

 

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The following table summarizes, on a pro forma basis as of June 30, 2021, the total number of ordinary shares purchased from us, the total consideration paid to us and the average price per share paid by the existing shareholders and by new investors purchasing ADSs in this offering:

 

     Ordinary Shares Purchased (including
those represented by ADSs)
     Total Consideration      Average Price per
Share (including
those represented
by ADSs
 
     Number      Percent      Amount in
thousands
     Percent  

Existing shareholders

              

New investors

                                                                 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

                         100%      $                      100%      $    

 

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SELECTED COMBINED AND CONSOLIDATED FINANCIAL AND OPERATING DATA

The following tables set forth our selected combined and consolidated financial and operating data for the periods indicated below.

The selected combined and consolidated financial and operating data should be read in conjunction with, and is qualified in its entirety by reference to, the section of this prospectus entitled Managements Discussion and Analysis of Financial Condition and Results of Operations and our financial statements, and the notes thereto, included elsewhere in this prospectus.

The selected combined and consolidated financial and operating data for the years ended December 31, 2020 and 2019 have been derived from our audited combined and consolidated financial statements, and the notes thereto, included elsewhere in this prospectus. We have prepared our combined and consolidated financial statements as at and for the years ended December 31, 2020 and 2019 in accordance with IFRS, as issued by the IASB. Please refer to Note 1 to the combined and consolidated financial statements for further information on Carsharing Russia LLC, Anytime Prime LLC and SMM LLC, the subsidiary companies whose operating results are included in our selected combined and consolidated financial and operating data below.

The selected combined and consolidated financial and operating data for the six months ended June 30, 2021 and 2020 have been derived from our unaudited interim condensed combined and consolidated financial statements, and the notes thereto, included elsewhere in this prospectus. The interim unaudited condensed combined and consolidated financial statements have been prepared in accordance with IAS 34, as issued by IASB. The results for any interim period are not necessarily indicative of the results that may be expected for the full year, and our historical results are not necessarily indicative of the results that should be expected in any future period.

Combined and Consolidated Statements of Profit or Loss and Other Comprehensive Income Data

 

    Six months ended
June 30,
    Year ended
December 31,
 
    2021     2020     2020     2019  
    RUB million     RUB million  

Revenue

    4,930       2,245       6,449       5,012  

Cost of revenue

    (3,909     (2,766     (6,377     (5,488
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit/(loss)

    1,021       (521     72       (476

Sales and marketing expenses

    (276     (158     (436     (445

General and administrative expenses

    (795     (484     (1,100     (983

Other income

    155       76       716       176  

Other expenses

    (49     (26     (178     (425

Finance income

    90       16       15        

Finance costs

    (1,105     (1,681     (2,564     (1,997
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax

    (959     (2,778     (3,475     (4,150

Income tax (expense)/benefit

    (111     482       419       577  
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss for the period

    (1,070     (2,296     (3,056     (3,573
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss attributable to the equity holders of the Company/Companies(1)

    (1,085     (2,296     (3,067     (3,573

Profit attributable to non-controlling interests

    15             11        
 

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

       

Amounts that may not be reclassified in the future to profit or loss

       

(Loss)/Gain on revaluation of right-of-use assets and property, plant and equipment, net of income tax

    (8           1,356       64  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss for the period

    (1,078     (2,296     (1,700     (3,509
 

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss attributable to equity holders of the Company/Companies(1)

    (1,093     (2,296     (1,711     (3,509

Total comprehensive profit attributable to non-controlling interests

    15             11        

Net loss per share

       

Basic and diluted, in RUB

    (19                  

Weighted-average shares used to compute net loss per share attributable to equity holders of the Company/Companies

       

Basic and diluted

    57,469,939                    

 

(1)

For the six months ended June 30, 2021, “Company” refers to Delimobil Holding S.A., and for the years ended December 31, 2020 and 2019 and for the six months ended June 30, 2020, “Companies” refers to Carsharing Russia LLC, Anytime LLC and SMM LLC, our three material subsidiaries. Delimobil Holding S.A. was incorporated on January 18, 2021.

 

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Selected Combined and Consolidated Statements of Financial Position Data

 

     As at June 30,      As at December 31,  
     2021      2020      2019  
     RUB million      RUB million  

Total non-current assets

     13,919        12,191        8,174  

Total current assets

     5,675        1,473        1,386  
  

 

 

    

 

 

    

 

 

 

Total assets

     19,594        13,664        9,560  

Total equity

     (2,464      (2,294      (659

Total non-current liabilities

     10,364        5,039        5,544  

Total current liabilities

     11,694        10,919        4,675  
  

 

 

    

 

 

    

 

 

 

Total liabilities

     22,058        15,958        10,219  

Selected Combined and Consolidated Statements of Cash Flows Data

 

     Six months ended
June 30,
    Year ended
December 31,
 
     2021     2020     2020     2019  
     RUB million     RUB million  

Net cash flows generated from / (used in) operating activities

     940       (814     (106     (1,418

Net cash flows (used in) / generated from investing activities

     (151     (263     (388     16  

Net cash flows generated from financing activities

     3,422       1,212       483       1,364  

Effects of exchange rate changes on the balance of cash held in foreign currencies

     (2     27       26       (28

Cash and cash equivalents at the beginning of the year

     117       102       102       168  

Cash and cash equivalents at the end of the year

     4,326       264       117       102  

Non-IFRS Measures

 

     Six months ended
June 30,
    Year ended
December 31,
 
     2021      2020     2020     2019  
     RUB million     RUB million
 

Adjusted Gross Profit/(Loss)(1)

     1,115        (502     163       (441

Adjusted Gross Profit/(Loss) Margin(2).

     23%        (22%     3%       (9%

Adjusted EBITDA(3)

     785        (605     (286     (1,055

Adjusted EBITDA Margin(4)

     16%        (27%     (4%     (21%

 

(1) 

We define Adjusted Gross Profit/(Loss) as gross profit/(loss) adjusted for: (i) compulsory civil liability insurance proceeds, (ii) expected credit losses of trade receivables and (iii) following the adoption of our Phantom Share Plan, share-based remuneration.

(2) 

We define Adjusted Gross Profit/(Loss) Margin as Adjusted Gross Profit/(Loss) divided by revenue expressed as a percentage.

(3)

We define Adjusted EBITDA as loss for the period adjusted for: (i) income tax benefit, (ii) finance costs, (iii) finance income, (iv) impairment of a right-of-use asset, (v) VAT write-off, (vi) loss on lease terminations, (vii) impairment of property, plant and equipment, (viii) (gain)/loss on disposal of property, plant and equipment, net, (ix) reversal of an impairment loss on an right-of-use asset, (x) subsidies received, (xi) insurance compensation received for damage of vehicles, (xii) reversal of impairment loss on property, plant and equipment, (xiii) depreciation of property, plant and equipment, (xiv) amortization of intangible assets, (xv) depreciation of right-of-use assets and (xvi) following the adoption of our Phantom Share Plan, share-based remuneration.

(4) 

We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue expressed as a percentage.

 

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Adjusted Gross Profit/(Loss) and Adjusted Gross Profit/(Loss) Margin

Adjusted Gross Profit/(Loss) and Adjusted Gross Profit/(Loss) Margin are supplemental non-IFRS measures of our operating performance that are not required by, or presented in accordance with, IFRS. We have included Adjusted Gross Profit/(Loss) in this prospectus because it is an important metric used by our management to measure the efficiency of our operations. We have included Adjusted Gross Profit/(Loss) Margin in this prospectus because it reflects the dynamics of improving our operational efficiency by showing to what extent any improvement is due to revenue growth or scalability of fixed direct production costs.

To calculate Adjusted Gross Profit/(Loss), we adjust gross profit/(loss) as calculated in accordance with IFRS to include compulsory civil liability insurance proceeds and exclude expected credit losses of trade receivables and share-based remuneration for the following reasons:

 

   

Compulsory civil liability proceeds, which we receive as a result of filing insurance claims for third-party damage to our vehicles, are similar in nature to the proceeds we receive from customers to cover damage to our vehicles, which are included in revenue. Accordingly, we consider it reasonable to include compulsory civil liability proceeds in assessing our operational efficiency;

 

   

Expected credit losses of trade receivables represent expected unrecoverable trade receivables arising subsequent to the recognition of revenue, so we consider it reasonable to deduct these losses in assessing our operational efficiency; and

 

   

The amount of share-based remuneration in any specific period may not directly correlate to the underlying performance of our business operations, so we consider it reasonable to exclude these expenses in assessing our operational efficiency.

Accordingly, we believe that Adjusted Gross Profit/(Loss) and Adjusted Gross Profit/(Loss) Margin provide investors with useful information to understand and evaluate our operating results in the same way as our management and board of directors.

Adjusted Gross Profit/(Loss) and Adjusted Gross Profit/(Loss) Margin, as well as gross profit/(loss) as calculated in accordance with IFRS, exclude significant items of expenses, including sales and marketing expenses, general and administrative expenses and other expenses that are not a direct function of the provision of our services and our finance costs. These expense items are an integral part of our business. Given these and other limitations, Adjusted Gross Profit/(Loss) and Adjusted Gross Profit/(Loss) Margin should not be considered in isolation, or as an alternative to, or a substitute for, an analysis of our results reported in accordance with IFRS.

We have provided a reconciliation below of Adjusted Gross Profit/(Loss) to gross profit/(loss), the most directly comparable IFRS financial measure.

 

     Six months ended
June 30,
    Year ended
December 31,
 
     2021     2020     2020     2019  
     RUB million     RUB million
 

Gross Profit / (Loss)

     1,021       (521     72       (476

Compulsory civil liability insurance proceeds

     123       53       163       106  

Expected credit losses of trade receivables

     (31     (34     (72     (71

Share-based remuneration

     2                    
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Gross Profit / (Loss)

     1,115       (502     163       (441

Divided by

        

Revenue

     4,930       2,245       6,449       5,012  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Gross Profit / (Loss) Margin

     23%       (22%     3%       (9%

 

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Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and Adjusted EBITDA Margin are supplemental non-IFRS measures of our operating performance that are not required by, or presented in accordance with, IFRS. We have included Adjusted EBITDA in this prospectus because it is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparability across reporting periods by removing the effect of non-cash expenses and non-operating expense/(income). We have included Adjusted EBITDA Margin in this prospectus because it is an important means of comparing our operating performance to our total generated revenue. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA Margin provide useful information to investors in understanding and evaluating our operating results in the same manner as our management and board of directors.

In calculating Adjusted EBITDA, we believe that it is useful to exclude non-cash expenses, such as impairment of a right-of-use asset, impairment of property, plant and equipment, reversal of an impairment loss on a right-of-use asset, reversal of impairment loss on property, plant and equipment, depreciation of property, plant and equipment, amortization of intangible assets and depreciation of right-of-use assets because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations. We believe it is useful to exclude income tax benefit, finance costs, finance income, VAT write-off, loss on lease terminations, (gain)/loss on disposal of property, plant and equipment, net, subsidies received and share-based remuneration as these items are not components of our core business operations. Adjusted EBITDA has limitations as a financial measure, and you should not consider it in isolation or as a substitute for loss for the period as a profit measure or other analysis of our results as reported under IFRS. Some of these limitations are:

 

   

Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

 

   

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; and

 

   

other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider Adjusted EBITDA and Adjusted EBITDA Margin alongside other financial performance measures, including various cash flows metrics, loss for the period and our other IFRS results.

 

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We have provided a reconciliation below of Adjusted EBITDA to loss for the period, the most directly comparable IFRS financial measure.

 

     Six months ended
June 30,
    Year ended
December 31,
 
     2021     2020     2020     2019  
     RUB million     RUB million
 

Loss for the period

     (1,070     (2,296     (3,056     (3,573

Income tax expense/(benefit)

     111       (482     (419     (577

Finance costs

     1,105       1,681       2,564       1,997  

Finance income

     (90     (16     (15      

Impairment of a right-of-use asset

     32       21       60       361  

VAT write-off

           1       39       8  

Loss on lease terminations

                 31       3  

Impairment of property, plant and equipment

                       12  

Loss/(gain) on disposal of property, plant and equipment, net

     2       1       (2     9  

Reversal of an impairment loss on a right-of-use asset

                 (304      

Subsidies received

                 (182     (42

Insurance compensation received for damage of vehicles

     (11     (8     (12      

Reversal of impairment loss on property, plant and equipment

                 (9      

Depreciation of property, plant and equipment

     41       13       33       13  

Amortization of intangible assets

     60       27       68       12  

Depreciation of right-of-use assets

     557       453       918       722  

Share-based remuneration

     48                    
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     785       (605     (286     (1,055

Divided by

        

Revenue

     4,930       2,245       6,449       5,012  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA Margin

     16%       (27%     (4%     (21%

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with “Selected Combined and Consolidated Financial and Operating Data” and our financial statements, and the notes thereto, included elsewhere in this prospectus. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Overview

We are a leading shared mobility provider in Russia, offering convenient, affordable and sustainable transportation alternatives supported by an advanced technology framework. Founded in 2015, we were a pioneer in the Russian car sharing industry and created the standard for car sharing services on the Russian market. We have developed through both organic growth and strategic acquisitions to become a leading car sharing operator in Russia, in terms of geographic presence, fleet size, number of trips in Moscow and revenue growth, as well as a first-mover in car subscription services. Our MAU increased from 270 thousand for the year ended December 31, 2019 to 461 thousand for the nine months ended September 30, 2021, which we believe was the combined result of our fleet growth, competitive customer proposition (including a user rating system with gamification and loyalty triggers, operations across 11 cities and smart churn prevention activities) and strong brand awareness.

We operate in the Russian shared mobility market under two principal business lines: free-floating car sharing under our brand “Delimobil” and car subscription for long-term rentals under our brand “Anytime Prime.” Delimobil was ranked first in top-of-mind and brand awareness among Russian car sharing providers in December 2020, according to brand health tracking research done by Tiburon Brand Health Research. Each brand has its own separate fleet of vehicles that caters to the needs of our customers. As of September 30, 2021, Delimobil’s car sharing fleet comprised almost 18,000 vehicles across 11 cities in Russia and Anytime Prime’s long-term car rental fleet consisted of almost 600 vehicles. Delimobil’s car sharing fleet is composed mostly of economy class vehicles, including VW Polo, Fiat, Hyundai Solaris, Renault Kaptur and Kia Rio. Anytime Prime’s long-term rental fleet is composed of premium class and luxury vehicles, including top-of-the-line models from Mercedes-Benz, BMW and Porsche, enabling customers to enjoy a high-quality driving experience. Delimobil’s and Anytime Prime’s fleets are available to B2C and B2B customers.

Our mobility offerings are supported by our advanced proprietary technology framework. We have two proprietary mobile apps for customers, our Delimobil and Anytime Prime apps, through which customers can sign up, view, select and book a vehicle as well as pay for their trip or rental. The number of registered users on our Delimobil and Anytime Prime apps has increased by 78%, from 4 million registered users as of December 31, 2019 to 7.1 million registered users as of September 30, 2021. We also rely on our proprietary data analytics technology to assess traffic, car demand and driving behavior, which we use to inform our pricing models and to constantly improve the user experience of our customers.

A key differentiator of our business is our robust offline capabilities, which we offer through Smart Mobility Management (“SMM”), our fleet management infrastructure. We engage approximately 600 personnel, including full- and part-time employees as well as contractors, who provide repair and maintenance and tire, washing and refueling services for our vehicles to ensure that our fleet is consistently in excellent condition and operating at maximum capacity. We have also developed Guido, a separate fleet management platform with a web application and mobile app for our operational personnel to use, that enables us to process and allocate servicing-related tasks for optimum efficiency.

 

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We grew our total revenue from RUB 2,245 million for the six months ended June 30, 2020 to RUB 4,930 million for the six months ended June 30, 2021, representing a period-over-period growth of 120%. We grew our total revenue from RUB 5,012 million for the year ended December 31, 2019 to RUB 6,449 million for the year ended December 31, 2020, representing a year-over-year growth of 29%. For the six months ended June 30, 2021, we had a gross profit/(loss) of RUB 1,021 million and an Adjusted Gross Profit/(Loss) of RUB 1,115 million, compared to a gross profit/(loss) of RUB (521) million and an Adjusted Gross Profit/(Loss) of RUB (502) million for the six months ended June 30, 2020. For the year ended December 31, 2020, we had a gross profit/(loss) of RUB 72 million and Adjusted Gross Profit/(Loss) of RUB 163 million, compared to a gross profit/(loss) of RUB (476) million and an Adjusted Gross Profit/(Loss) of RUB (441) million for the year ended December 31, 2019. For the six months ended June 30, 2021, we generated a loss for the period of RUB 1,070 million and an Adjusted EBITDA gain of RUB 785 million, compared to a loss for the period of RUB 2,296 million and an Adjusted EBITDA loss of RUB 605 million for the six months ended June 30, 2020. For the year ended December 31, 2020, we generated a loss for the period of RUB 3,056 million and Adjusted EBITDA loss of RUB 286 million, compared to a loss for the period of RUB 3,573 million and Adjusted EBITDA loss of RUB 1,055 million, for the year ended December 31, 2019. See Selected Combined and Consolidated Financial and Operating Data—Non-IFRS Measures for more information and for reconciliations of Adjusted Gross Profit/(Loss) to gross profit/(loss) and Adjusted EBITDA to loss for the period, the most directly comparable financial measures calculated and presented in accordance with IFRS.

Our results of operations for the six months ended June 30, 2020 were materially affected by the COVID-19 pandemic, as we suspended our car sharing and long-term rental services from April 13 to June 10, 2020 in compliance with mobility restrictions put in place by the Russian government. Despite these restrictions, our business proved resilient during this uncertain period, and partially as a result of the measures we undertook at the time, we experienced revenue growth of 29% for the year ended December 31, 2020, when compared to the year ended December 31, 2019. For further discussion on the impact of the COVID-19 pandemic, see “–Key Factors Affecting Our Performance–Impact of the COVID-19 Pandemic.

Segment Reporting

For management purposes, our business is organized into two principal operating segments:

 

   

Delimobil, which comprises our car sharing and delivery services; and

 

   

Anytime Prime, which consists of our long-term rental service.

Together, these segments account for virtually all of our total revenue for the periods under review and are thus our two reportable segments. Non-reportable sources of revenue for the six months ended June 30, 2021 amounted to RUB 12 million and included consulting services and car repair and maintenance provided, and sale of fuel and goods, such as tires and spare parts, to companies under common control of our ultimate controlling party. Non-reportable sources of revenue for the year ended December 31, 2020 amounted to RUB 2 million and included consulting services provided to companies under common control of our same ultimate controlling party. For the year ended December 31, 2019, non-reportable sources of revenue amounted to RUB 23 million and included income earned from the sale of used vehicles to third parties.

For our car sharing service, we generate revenue from the amount paid by customers to access and use our car sharing fleet. Our revenue is a function of the number of Total Minutes Sold and the applicable price per minute, determined by our dynamic pricing algorithms. Revenue from car sharing accounted for 83%, 82%, 83% and 88% of the total revenue of the Delimobil segment for the six months ended June 30, 2021 and 2020 and the years ended December 31, 2020 and 2019, respectively.

For our delivery service, a complementary service which we launched in 2020, we generate revenue from the fees we receive from retailers to pick up and deliver orders to their end customers. Our revenue is based

 

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on the number of delivered orders and the price per order. Revenue from delivery service accounted for 3% and 2% of the total revenue of the Delimobil segment for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively.

For our long-term rental service, we generate revenue from the amount paid by customers to access and use our long-term rental fleet. Our revenue is a function of the number of Total Rental Days and the Revenue per Rental Day.

The following table summarizes our revenue by segment for periods indicated.

 

     Six months ended
June 30,
     Year ended
December 31,
 
     2021      2020      2020      2019  
     RUB million      RUB million
 

Revenue:

           

Delimobil

     4,761        2,169        6,250        4,551  

Anytime Prime

     157        76        197        438  

Non-reportable

     12               2        23  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     4,930        2,245        6,449        5,012  
  

 

 

    

 

 

    

 

 

    

 

 

 

Key Operating and Financial Metrics

We monitor several operating and financial metrics to evaluate the growth of our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. We rely on different operating and financial metrics for our two operating segments given the different nature of the services provided.

Delimobil Segment

The following table sets forth our key operating and financial metrics for the Delimobil segment for the periods indicated. These metrics do not reflect the performance of our delivery service since it is an immaterial part of our business.

 

     Six months ended
June 30,
     Year ended
December 31,
 
     2021      2020      2020      2019  
    

RUB million

     RUB million  

Operating Metrics:

           

Weighted Average Fleet(1)

     14,750        12,227        12,612        7,453  

EoP Fleet(2)

     16,143        12,785        14,189        11,024  

Total Minutes Sold (in millions)(3)

     577        381        935        932  

MAU (in thousands)(4)

     419        271        330        270  

Total Trips (in thousands)(5)

     14,273        8,621        21,569        18,959  

Financial Metrics:

           

Revenue for Car Sharing (in RUB millions)(6)

     3,938        1,780        5,170        3,996  

Revenue per Weighted Average Fleet (in RUB thousand per vehicle)(7)

     267        146        410        536  

Revenue per Minute (in RUB)(8)

     6.8        4.7        5.5        4.3  

 

(1) 

Weighted Average Fleet represents the average number of vehicles that constituted our car sharing fleet in a given period, calculated as the sum of the number of days each vehicle was part of our fleet divided by the number of calendar days in the given period.

(2) 

EoP Fleet means the total number of vehicles in our car sharing fleet at the end of a given period.

(3) 

Total Minutes Sold is the total number of minutes that customers were charged for using our car sharing service in a given period.

 

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(4) 

Monthly Active Users (MAU) is the total number of unique customers who completed at least one trip per month using our car sharing fleet calculated as an average over the reporting period.

(5) 

Total Trips is the total number of trips completed by customers using our car sharing fleet in a given period. A trip lasts from the moment a customer books a vehicle until the moment the customer signals the completion of their journey on the Delimobil app.

(6) 

Revenue for Car Sharing is the total amount of revenue generated from our car sharing service in a given period, in line with Note 32 to our audited combined and consolidated financial statements and Note 30 to our unaudited interim condensed combined and consolidated financial statements.

(7) 

Revenue per Weighted Average Fleet is revenue generated from our car sharing service divided by Weighted Average Fleet in a given period.

(8) 

Revenue per Minute is revenue generated from our car sharing service divided by Total Minutes Sold in a given period.

Anytime Prime Segment

The following table sets forth our key operating and financial metrics for the Anytime Prime segment for the periods indicated.

 

     Six months ended
June 30,
     Year ended
December 31,
 
     2021      2020      2020      2019  
     RUB million
     RUB million  

Operating Metrics:

           

Weighted Average Fleet(1)

     338        287        285        245  

EoP Fleet(2)

     452        296        276        280  

Total Rental Days(3)

     46,051        25,732        57,731        32,056  

Financial Metrics:

           

Revenue for Long-Term Rentals (in RUB millions)(4)

     145        68        176        104  

Revenue per Rental Day (in RUB)(5)

     3,149        2,643        3,049        3,244  

 

(1)

Weighted Average Fleet represents the average number of vehicles that constituted our long-term rental fleet in a given period, calculated as the sum of the number of days each vehicle was part of our fleet divided by the number of calendar days in the given period.

(2) 

EoP Fleet means the total number of vehicles in our long-term rental fleet at the end of a given period.

(3) 

Total Rental Days is the total number of rental days completed by customers for use of a vehicle in our long-term rental fleet in a given period. A rental day lasts from the moment a customer books the vehicle until the moment the customer signals the completion of their journey on the Anytime Prime app. As we only began to collect data on rental days from April 2019 as part of our strategic decision to focus on long- term rentals in the Anytime Prime segment, for the year ended December 31, 2019, Total Rental Days relates only to the period from April to December 2019.

(4) 

Revenue for Long-Term Rentals is the total amount of revenue generated from our long-term rental service in a given period, in line with Note 32 to our audited combined and consolidated financial statements and Note 30 to our unaudited interim condensed combined and consolidated financial statements. Revenue for Long-Term Rentals does not include any car sharing revenue recorded in the Anytime Prime segment for the year ended December 31, 2019.

(5) 

Revenue per Rental Day is revenue generated from our long-term rental service divided by Total Rental Days in a given period.

We also monitor several non-IFRS financial metrics on a consolidated level. See “Selected Combined and Consolidated Financial and Operating Data—Non-IFRS Measures.”

Key Factors Affecting Our Performance

Our business and results of operations have been and will continue to be affected by a number of factors. We believe that the key factors affecting our business and results include the following.

 

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Growth

Fleet Growth

Our fleet, which is composed of car sharing and long-term rental vehicles, is at the center of our operations and has been key to our success and growth. Between 2018 and 2020, our car sharing fleet grew by 185%, from an EoP Fleet of 4,964 vehicles as of December 31, 2018 to an EoP Fleet of 14,189 vehicles as of December 31, 2020. As of June 30, 2021, the EoP Fleet of our car sharing service was 16,143 vehicles. The growth of our fleet has enabled us to increase density and proximity of cars to customers (on average approximately five minutes to the nearest car) and to expand our operations in both new and existing regions in Russia, and we believe that this growth has helped us achieve an increase in Total Trips for our car sharing service. For example, for the years ended December 31, 2019 and 2020, the number of Total Trips increased by 14%, from 18,959 thousand Trips to 21,569 thousand Trips. We have acquired the majority of our car sharing fleet, or 90% as of the end of June 2021, through financial lease agreements with private leasing companies (52%) and leasing companies of OEMs (48%) on terms that allow us to purchase the vehicles after three years of use.

As part of our fleet growth strategy, we plan to further expand our operations in Moscow and St. Petersburg, leveraging both our well-recognized brand and our extensive knowledge and expertise of operating in those cities, as well as in other Russian cities. As of September 30, 2021, we have an operational presence in 11 Russian cities, well ahead of our competitors, according to Frost & Sullivan, and our long-term aim is to have an operating car fleet in all Russian cities with populations exceeding 500,000 people. We also plan to enter foreign markets and have, for example, entered into call option agreements with one of our shareholders under common control of our ultimate controlling party that will provide us with the option, subject to approval by our board of directors, to purchase in 2023 all of substantially all of the shares in car sharing companies operating in the Czech Republic, Belarus and Kazakhstan. As such, we expect that fleet growth will continue to be a key factor for our business and revenue in the future.

As fleet growth is key to our business and future development, any factors affecting our ability to acquire additional vehicles could have a negative impact on our results. For example, the current global shortage of semi-conductors, which are critical to the manufacturing of new vehicles, has delayed the production of new vehicles in Russia and worldwide. This delay could impede our ability to grow our fleet at scale, which could in turn adversely affect our revenue. Moreover, there is the possibility that OEMs could elect to invest in their own mobility operations and therefore decide not to supply us with vehicles on as favorable terms as is currently the case. However, we believe that the likelihood of this occurring at scale is low, as we believe that OEMs, by including their vehicles in our fleet, benefit from exposure to our large customer base and would face significant barriers, in terms of logistics and technology, in attempting to enter the car sharing market in Russia.

Customer Base

Our business has benefited from a growing customer base in the periods under review. We attribute our success in attracting new customers to our strong brand image and brand recognition, with our Delimobil brand ranked first in top-of-mind and brand awareness among Russian car sharing providers as of December 2020, according to Tiburon Brand Health Research. The number of registered users on our platform increased by 78%, from 4 million registered users as of December 31, 2019 to 7.1 million registered users as of September 30, 2021. The growth of our customer base will continue to be a key factor for our business and financial results as we expand our offerings to new cities and customer cohorts, which means a group of customers who took their first trip during a given period. We believe there is significant potential for further growth, particularly for our car sharing service. According to Frost & Sullivan, in 2020, car sharing penetration among Russian drivers between the ages of 18 and 60 years with a valid driver’s license was only 5.3% in cities with populations exceeding 500,000 people and 22% in Moscow. Frost & Sullivan estimates that almost 50% of eligible drivers in Moscow and St. Petersburg and 21% of eligible drivers in cities with populations exceeding 500,000 people will become car sharing users by 2025.

 

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Our business has also experienced increasing customer engagement, which we attribute to the high-quality user experience and diverse offering of vehicles and pricing methods we offer to customers through our platform. For our car sharing service, we measure customer engagement by monitoring (i) the retention of a specific customer cohort from one period to another and (ii) the frequency of usage of our service by a specific customer cohort during a given period. The retention of a specific customer cohort from one period to another is measured as the percentage of users in that cohort who take at least one trip in the following period. The periods we track are on a monthly, semi-annual and annual basis. For example, the graph below illustrates the retention rate of our first-month customer cohorts in the second month of usage for the year ended December 31, 2020 and the six months ended June 30, 2021.

 

LOGO

Source: Company data

In addition, the customers that we retain tend to use our car sharing services with increasing frequency and the number of days between each trip booked tends to decrease. As the graph below illustrates, in 2020, 80% of customers who booked a first trip went on to book a second and 88% of customers who booked a fourth trip went on to book a fifth. For the same period, there was a decrease in number of days between each trip booked from 1.7 days between the first and second trip to 1.3 days between the fourth and fifth trip. We believe this decrease in number of days between each trip booked is a strong indicator of customer engagement. As retained customers take trips more frequently, our services increasingly become an integral part of their daily lives.

 

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LOGO

(1) All data for car sharing services only. Days between trips based on the median customer. Data for 2020.

Source: Company data

We believe that, over time, as our platform becomes more important to users, we benefit from their higher usage rates and higher average revenue per user (“ARPU”), which we calculate by dividing the revenue generated from users of our car sharing service for a given period by the total number of unique users of this service over the given period. For example, we have seen a 74% increase in ARPU from our 2020 customer cohort in the second month of usage and a 59% increase in ARPU from our 2019 customer cohort in their second year of usage in 2020. Going forward, we expect that increasing the engagement of customers, through further strengthening our user experience and smart retention marketing strategies and introducing new technologies to support our platform, will increase customer retention and usage rates, which would have a positive impact on our results of operations.

Leveraging our Growing Scale through Internal Operations Expertise

We are driven to maintain a leading position across our existing offerings and segments while continuing to scale our business to improve our margins. As we continue to scale upwards, we believe that the efficiency of our operations will continue to improve. The factors mentioned below are key drivers of this trend:

 

   

SMM, our fleet management infrastructure, differentiates us from other car sharing companies in Russia in that we use it to manage almost 18,000 vehicles from more than 15 different car makers so that we do not rely on outside parties for fleet maintenance and repair. As a result, we believe that we can put our fleet back into circulation faster than our competitors who rely on external counterparties. Further, we believe that having SMM as part of our internal operations helps ensure lower costs of operations. We expect SMM to enable us to improve efficiency, increase car availability and reduce repair and maintenance costs. For example, the cost of car repair and maintenance per Weighted Average Fleet decreased from RUB 207 thousand for the year ended December 31, 2019 to RUB 129 thousand for the year ended December 31, 2020, and while it increased by RUB 18 thousand between the six months ended June 30, 2020 and 2021, from RUB 52 thousand to RUB 70 thousand, this increase was reflective of the fact that the number of car repairs significantly decreased during the first half of 2020 as we were unable to operate our fleet to

 

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its full extent due to the lockdown restrictions of the COVID-19 pandemic. Additionally, the cost of car repair and maintenance as a percentage of revenue decreased by 6 and 8 percentage points, from 32% to 26% for the years ended December 31, 2019 and 2020 and from 29% to 21% for the six months ended June 30, 2020 and 2021.

 

   

As our fleet grows in number, vehicle density in the cities in which we operate increases, which positively affects the scalability of the logistics costs associated with washing, refueling and servicing our vehicles on location. While we expect our cost of revenue to increase as we continue to expand our business, we expect such expenses to decrease as cost of revenue per Weighted Average Fleet. For the years ended December 31, 2019 and 2020, cost of revenue per Weighted Average Fleet decreased by RUB 219 thousand, from RUB 713 thousand to RUB 494 thousand, and while it increased by RUB 38 thousand between the six months ended June 30, 2020 and 2021, from RUB 221 thousand to RUB 259 thousand, this increase was again attributable to the lockdown restrictions described above. As we continue to negotiate with our suppliers on the price of fuel and spare vehicle parts, to automate our operational processes and to introduce artificial intelligence algorithms to improve efficiency, we expect repair and maintenance and fueling costs, as a percentage of revenue, to decrease.

 

   

As we experience growth in organic traffic on our platform and an increase in the frequency with which customers use our services, we expect advertising and marketing costs to decrease as repeat customers and increased customer loyalty require less marketing engagement and expenses to support.

 

   

Our business has continued to enjoy economies of scale on a fixed cost basis due to the growth profile of our business across our Delimobil and Anytime Prime segments.

Our Ability to Maintain Effective Pricing

For our car sharing service, our principal offering, we offer dynamic pricing in which we use proprietary algorithms to determine the price we charge customers for their trip. For most regions in which we operate this service, the price charged to customers comprises (i) a fixed basic pricing component, which is a pre-set amount determined by factors such as car model, region and time of booking, (ii) a GEO pricing component, which is calculated by our algorithms to take into account supply and demand of vehicles within different pricing zones of a city and (iii) a customer rating pricing component, which is calculated by our algorithms to assess a customer’s individual rating based on factors such as frequency of use, driving experience, outstanding penalties and driving score. See Business—Our Business Operations—Our Pricing Models for more information on our price determination.

Our car sharing revenue is a function of Total Minutes Sold multiplied by the price per minute, which is primarily determined by our dynamic pricing. Accordingly, the price per minute offered to each customer is a significant factor affecting our revenue. For example, for the year ended December 31, 2020, revenue from car sharing services in the Delimobil segment increased by 29% compared to the year ended December 31, 2019, which was mostly driven by a RUB 1.2, or 28%, increase in Revenue per Minute, from RUB 4.3 for the year ended December 31, 2019 to RUB 5.5 for the year ended December 31, 2020, while Total Minutes Sold in 2020, which was affected by lockdown restrictions imposed in response to the COVID-19 pandemic in April to June, remained at the same level as 2019. The increase in Revenue per Minute was primarily a result of the following initiatives and factors:

 

   

Our decision to introduce customer scoring and rating to our price determination in October 2020;

 

   

Our decision to increase in large cities the pre-set amount for the fixed basic pricing component of our price determination;

 

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Our decision to change the methodology for calculating the fixed basic pricing component of our pricing determination by:

 

   

switching from full ruble increments (e.g., 3 rubles) to pricing with kopeks (e.g., 2.99 rubles), which enabled us to be more flexible with price management and to provide a greater variety of prices to customers for better retention;

 

   

adding different prices for different times of day (e.g., morning, evening and lunch time); and

 

   

implementing more price categories for different car models in our fleet.

 

   

Due to the impact of the COVID-19 pandemic, the demand for car sharing following the lifting of lockdown restrictions has increased and the market for our services has become more inelastic.

We do not expect this level of year-over-year increase in Revenue per Minute for future periods and the price increase during this period is not in line with historical price fluctuations, but rather a function of the changing dynamics of an early stage car sharing market in Russia. In 2018 and 2019, both Delimobil and, based on publicly available data, our competitors provided lower prices to customers in order to educate them about car sharing and entice them to use our services. By 2020, the car sharing market was more fully developed and market participants had a better understanding of the relevant unit economics. As such, following the lifting of lockdown restrictions, we were able to increase our prices.

Our strategy is to gradually increase our pricing to reflect annual rates of inflation and changes to our dynamic pricing methods and we do not anticipate that the lifting of COVID-19 restrictions will have any significant effect on our Revenue per Minute or pricing levels. Accordingly, management does not currently anticipate that Revenue per Minute will deviate materially from such factors described above.

Our Technology Platform and Ability to Innovate

Our data driven technology platform, which supports our operations not only through our mobile apps but also through our fleet management, pricing and innovation, is at the core of our operations. We have spent, and will continue to spend, significant resources on the development of our platform to provide a seamless user experience, deep data capabilities, dynamic smart pricing, instant KYC processes in terms of registration and verification and customer scoring. Our main expense in relation to the development of our platform relates to our engineering team, which develops our platform and mobile apps. For the six months ended June 30, 2021, our capitalized costs for internally developed software, including in-progress intangible assets, amounted to RUB 81 million, compared to RUB 61 million for the six months ended June 30, 2020, and our amortization costs amounted to RUB 55 million and RUB 22 million, respectively, for the same periods. These costs were attributable to the further development and improvement of our platform and mobile apps. For the year ended December 31, 2020, our capitalized costs for internally developed software, including in-progress intangible assets, amounted to RUB 131 million, compared to RUB 168 million for the year ended December 31, 2019, and our amortization costs amounted to RUB 58 million and RUB 7 million, respectively, for the same periods.

We capitalize our core development costs and amortize them over a ten-year period. Costs associated with the core development of our platform relate to costs that we incurred between the end of 2018 and July 2019 when we transferred the development of our platform and mobile apps from a third-party contractor to our in-house technology team and developed the basic functionality of our platform, which consists of managing our cars, customers, trips, customer payments and telematics data. The reprogramming of our platform was undertaken to address the rapid growth of our business and to further secure our technology infrastructure and software in the long term. We do not expect the basic functionality of our platform to become obsolete in the near future, so management has determined, based on the advice of IT product specialists in the case of telematics data, that its useful life lasts for ten years. Costs capitalized to develop the basic functionality of our platform, which depreciates over ten years, amounted in the aggregate to RUB 105 million for the years ended December 31, 2019 and 2020 and for the six months ended June 30, 2021. We capitalize all other development

 

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costs and amortize them over a two-year period. Other development costs relate to further developing our technology platform and specific product features, such as our dynamic pricing methods, and given the rapid pace of change in IT technologies, management has determined that the useful lives of these non-basic functionalities last for two years. This determination is reviewed each year to ensure that the method and period of assessment are consistent with the status of each non-current asset. For the six months ended June 30, 2021, we capitalized RUB 68 million in development costs for non-basic functionalities, compared to RUB 61 million for the six months ended June 30, 2020.

We will continue to invest in the development of our platform in order to improve efficiency of our operations. For example, we are in the process of developing fleet management solutions that use smart algorithms to process the distribution of car servicing tasks to our operational staff, and we have plans to leverage Bluetooth technology so that customers can connect to our vehicles through the Delimobil mobile app without any network connection to take advantage of domestic tourism opportunities across Russia. In light of our need to continue to develop our platform and mobile app capabilities, including investing in talent acquisition and retention of our engineering team, which is critical to the success of our business, we expect salary, related taxes and amortization costs to increase for the foreseeable future but with less developments that require capitalization and subsequent depreciation, and more developments aimed at maintaining the existing platform and IT infrastructure.

Expansion of Our Offerings

We intend to expand our business operations in terms of the services we offer in order to increase and diversify revenue channels and further engage our customers. As such, we plan to scale up our long-term rental services and B2B car sharing offerings and to explore the opportunity of offering our SMM capabilities to third parties, including customers and enterprises. While we expect our operating expenses to increase as we continue to expand our business, we expect such expenses to decrease as a percentage of revenue over time as we continue to streamline our business and benefit from economies of scale. We believe that our ability to successfully expand our business operations, both geographically and through our offerings, is paramount to our ability to achieve and maintain long-term profitability.

Regulations Impacting Our Offerings

Regulations that facilitate or limit our ability to provide our offerings in certain markets impact our financial performance. For example, our operations benefit from subsidies from the Moscow government in the form of compensating a portion of the interest expense we pay for our leases as part of the city’s wider initiative to provide financial support to car sharing companies. For the year ended December 31, 2020, we received government grants of RUB 182 million towards our lease payments, which had a positive effect on our results of operations. We were also able to acquire preferential discounted parking permits in Moscow, Kazan and Tula, which positively impacts our results of operations by reducing our cost of revenue. We are not currently dependent on subsidies for parking permits in other Russian regions as most parking in these regions is free. However, this favorable arrangement could change, and thereby increase our expenses, which we expect to occur in St. Petersburg, Rostov-on-Don, Nizhniy Novgorod and potentially other cities. Our results could also be affected by regulations that affect our operations. For example, one goal of Moscow transportation authorities is the integration of all forms of inter-city transportation into a single MAAS app. The platform includes all modes of public transportation as well as taxi services, car sharing and scooter sharing. The MAAS platform will enable operators across different modes of mobility to optimize trips and vehicle solutions. Car sharing operators are expected to join the unified MAAS platform. We believe integration with MAAS presents an opportunity for us to expand our market outreach and grow our customer base.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic has affected our business operations and financial results. In particular, the RUB 2,685 million, or 120%, increase in revenue over the six months ended June 30, 2021 and 2020 is partially attributable to the effects of the pandemic, the details of which are discussed below.

 

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As a result of the COVID-19 pandemic and the restrictions and other measures put in place by the Russian government from the end of March until June 2020, including the lockdown of almost all cities in which we operate, there was a nationwide period of business closure and temporary ban on car sharing and long-term rental activities. As these measures overlapped with our high season, we experienced a significant decrease in demand during this period. The graphs below illustrate this decrease in terms of Total Minutes Sold attributable to existing and new car sharing customers for the year ended December 31, 2020 and the six months ended June 30, 2021.

 

LOGO

 

LOGO

Source: Company data

In response to this changing business environment, we promptly undertook a number of measures aimed at optimizing costs and increasing financial stability. In particular, we restructured the repayment terms of certain lease liabilities, prolonged rentals and daily promotion rates to meet the changing needs of our customers, expanded rental zones to encourage domestic tourism, implemented certain changes to our pricing models, such as increasing our pricing plan rates, and launched a delivery service to capture increased delivery needs. After the lockdown, we continued with our delivery service, which generated RUB 148 million in revenue for the year ended December 31, 2020 and RUB 153 million in revenue in the six months ended June 30, 2021. Our business proved to be resilient despite the COVID-19 uncertainty, and partially as a result of the measures undertaken during this time, we managed to return our operations to pre-COVID-19 levels by August 2020 and experienced a year-over-year growth in revenue of 29% in 2020 compared to 2019.

 

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In addition to these measures, we received subsidies from the Russian Ministry of Industry and Trade for our Delimobil segment amounting to 25% of the value of vehicles acquired under lease agreements entered into during this time as part of the Russian government’s support program for industries affected by the COVID-19 pandemic. Under this program, we acquired 1,460 new vehicles for our Delimobil segment in October to November 2020, which, together with the more than 2,000 vehicles we acquired in the first quarter of 2020, before the outbreak of the COVID-19 pandemic, resulted in a 29% increase in the EoP Fleet of the Delimobil segment, from an EoP Fleet of 11,024 vehicles as of December 31, 2019 to an EoP Fleet of 14,189 vehicles as of December 31, 2020. Further, as restrictions on mobility began to ease across Russia, we saw an increase in usage of our car sharing service, as well as an increase in usage among new customers. Comparing the months of January through April 2020 to May through August 2020, the average share of Total Minutes Sold attributable to new car sharing customers increased by 4.4 percentage points, from 8.4% to 12%. We believe this increase reflects, to some extent, a shift in consumer attitude during the lockdown period, with more people viewing car sharing as a safer, in terms of sanitary condition, and more convenient alternative to public transportation. This uptick is also observable when compared to the 11% average share of Total Minutes Sold attributable to new customers for the entire reporting period of the years ended December 31, 2019 and 2020 and six months ended June 30, 2021. Due to the exceptional circumstances of the COVID-19 pandemic, we generally do not expect this rate of increase in the average share of new customer usage to continue in future periods.

While the COVID-19 pandemic restrictions on car sharing services have been lifted by Russian authorities, with the exception of the Krasnodar region, there can be no assurances that they will not be reintroduced in one or more of the markets in which we operate. For example, to address a surge in COVID-19 cases in the spring and summer of 2021, restrictions were put in place for restaurants and cafes in Moscow requiring customers to show a QR code proving full vaccination, a negative PCR test in the previous 72 hours or proof of recovery from COVID-19 in order to dine. These restrictive measures were lifted in July 2021. If similar restrictions were again implemented, they could lead to a reduction in the overall usage rate of our car sharing service as fewer customers would take trips to restaurants. Further, if such restrictions were extended to car sharing generally, it would adversely affect demand for our service, thereby decreasing our revenue.

We continue to closely monitor the impact of the COVID-19 pandemic on our business and results. The effect of COVID-19 on our operations is largely dependent on the duration of the pandemic and its impact on the global and Russian economies.

Tax Loss Carry Forward

The Companies, our Russian subsidiaries through which our business is operated, are subject to the standard rate of Russian income tax, which for the years ended December 31, 2019 and 2020 was 20%. Due to the nature of our business, both the Delimobil and Anytime Prime segments have generated losses since inception, so we have not paid income taxes. Under Russian tax laws, we are entitled to carry forward losses for an indefinite period and to offset our losses carried forward against future taxes of up to 50% of each year’s annual profit. For the six months ended June 30, 2021, we had a tax loss carry forward of RUB 1,531 million. If and when we begin to generate taxable income, we will be able to utilize our tax loss carry forward to offset future profit and thereby reduce future tax payments. The full realization of this tax benefit will depend predominantly on our ability to generate taxable income.

Other Factors

Seasonality

Our car sharing segment is affected by seasonality, which historically has resulted in an increase in Total Trips between the months of April and September, with a peak in July and August. The table below shows Total Trips per month from September 2020 to September 2021.

 

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LOGO

Note: Due to our rapid growth in 2018 and 2019 and the COVID-19 pandemic and consequential government restrictions, there is limited visibility of seasonality prior to September 2020.

Source: Company data

This busier season is primarily attributable to an increase in consumer appetite for outdoor activities and domestic travel during the warmer months of the year in Russia. We also experience a surge in Total Trips in the second half of December in connection with the increase in social activities and domestic travel, which for many customers includes trips to the airport, as a result of Christmas and New Year’s Eve festivities. While the historical effect of seasonality was dampened in 2020 as a result of the COVID-19 pandemic and resulting restrictive measures, we believe that our business will continue to demonstrate seasonal patterns in the future, and seasonality may impact comparability of financial results depending on the periods being compared.

Market Demand for Used Vehicles

Our business and financial results are also affected by market demand for used vehicles. The valuation of our fleet is calculated based on the fair market value of each vehicle and its mileage, so any increase or decrease in market demand or expected mileage at the moment of sale will impact our results. In addition, depreciation expense related to our fleet is adjusted annually as a result of the calculated valuation of our fleet. We also expect market demand to have a positive effect on any revenue generated from selling the vehicles that are currently in our car fleet on the secondary market. According to Frost & Sullivan, demand for used vehicles has been growing in Russia since 2017, with an estimated 5.8 million used vehicle sales in 2020, where the average age of vehicles sold was 13.9 years. As we plan to sell our vehicles, which we acquire new from leasing companies, after six years of use, we believe that we are well-positioned to sell the vehicles at favorable prices. We expect to begin selling vehicles from our current fleet at scale in 2024 and, from then on, to sell vehicles from our fleet on a monthly basis, six years after they were acquired.

Macroeconomic Factors

Other macroeconomic factors, such as inflation and exchange rate fluctuations, also affect our business and results. We can provide no assurance that the annual rate of inflation will not increase significantly in the future. Higher rates of inflation may accelerate increases in our operating expenses and capital expenditures and reduce the value and purchasing power of our ruble denominated assets, such as cash and cash equivalents. Changes in the value of the U.S. dollar or the euro compared with the Russian ruble can also impact our results

 

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by altering the price of fuel and of new vehicles, which, even if they are produced in Russia, are made of certain imported components. Foreign exchange rate fluctuations will particularly affect our Anytime Prime segment, as the majority of our long-term rental fleet consists of foreign-made vehicles. Additionally, changes in the key rate of the Central Bank of Russia can affect the interest rate under new leasing contracts, which depends on the key rate.

Components of Results of Operations

Revenue

Our revenue consists of revenue from our principal offerings, car sharing and long-term rentals. In addition, we generate revenue from other complementary services, such as our delivery service, as well as from the sale of used vehicles and other incidental customer fees.

Revenue generated from our offerings primarily consists of the fees paid by customers to use our services. For our car sharing service, we generate revenue from the fees paid by customers to access and use our car sharing service, which, with limited exceptions, they pay on completion of their trip. For our long-term rental service, we similarly generate revenue from customer fees paid to access and use our long-term rental service, but customers are charged at the commencement of their rental period. For our delivery service, a complementary offering, we generate revenue from the fees we charge to retailers to deliver orders to their end customers, which they pay on a monthly basis for orders delivered during the month.

Revenue from the sale of used vehicles relates to the proceeds gained from selling vehicles we owned, rather than leased, from which we generated RUB 23 million in revenue for the year ended December 31, 2019, when we first sold a batch of used vehicles from our car fleet. We expect to start selling our current fleet in 2024, six years after we acquired the vehicles through lease agreements and three years after we purchased the vehicles from leasing companies, after which point we plan to sell our vehicles on a monthly basis.

Other incidental customer fees primarily consist of fees paid by customers as compensation for violating traffic and speeding rules, damaging our vehicles and breaching certain terms and conditions underpinning our service offerings, which customers agree to when they sign up for the service. The fees are recognized as follows:

 

   

Fees paid by customers for violating traffic and speeding rules are reimbursements of the traffic fines we pay on behalf of customers, and we charge such fees to customers after we have paid the fine. When we pay the fine, payment is recognized as cost of revenue, and on receipt of payment from our customers, the fee is recognized as revenue.

 

   

Fees paid by customers for damaging our vehicles reflect the market cost for repairing the damage caused with limitations determined in accordance with our terms and conditions, and we charge such fees to customers once the market cost of repair is determined. Once the repair cost is incurred, we report it as cost of revenue, or as a provision as further described in Note 24 to the unaudited interim condensed combined and consolidated financial statements for the six months ended June 30, 2021 and Note 26 to our audited combined and consolidated financial statements for the year ended December 31, 2020. Once we receive the payment from the customer at fault, we report the payment as revenue.

 

   

Fees paid by customers for breaching our terms and conditions, for example by smoking in or mistreating our cars, are recognized as revenue on receipt of the fine we charge to customers. This fee is not directly offset by corresponding costs but may indirectly result in subsequent costs should a customer’s actions in breach of our terms and conditions result in damage to a vehicle, necessitating subsequent repair.

 

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For the year ended December 31, 2020 and subsequently, we report all revenue from our car sharing and delivery services, as well as incidental customer fees that relate specifically to our car sharing fleet, under the Delimobil segment. For the Anytime Prime segment, we primarily report revenue from our long-term rental service, as well as incidental customer fees that relate specifically to our long-term rental fleet.

Our revenue recognition policies are further discussed in Note 3 to our audited combined and consolidated financial statements included at the end of this prospectus.

Cost of revenue

Our cost of revenue consists primarily of car repair and maintenance costs, cost of fuel including refueling services, depreciation of right-of-use assets, salaries and social contributions, including share-based remuneration for our Phantom Share Plan, parking permits, costs of delivery services, amortization of intangible assets, depreciation of property, plant and equipment, expenses from the sale of used vehicles and other expenses.

Car repair and maintenance costs consist of expenses related to the repair and maintenance of our vehicles, ancillary maintenance expenses (e.g., car washing, the purchase and storage of new tires and current and seasonal mounting) and wages paid to private contractors who service our vehicles on an ad hoc basis.

Cost of fuel including refueling services consists, in addition to costs for fuel, of costs for the transportation of fuel to each vehicle in cases where vehicles are refueled at their respective locations.

Salaries and social contributions consist of salaries and social contributions for our repair and maintenance staff.

Expenses relating to parking permits consist of the duties we pay to the municipalities of Moscow, Kazan and Tula to be able to park our vehicles in public parking lots and spaces in these cities.

Depreciation of right-of-use assets consists primarily of depreciation of our leased car fleet, which as of June 30, 2021 consisted of 15,127 vehicles and as of December 31, 2020 consisted of 14,312 vehicles.

Costs of delivery services consist primarily of costs incurred in paying our couriers for delivering the products of retailers to their end customers.

Amortization of intangible assets consists primarily of amortization expenses associated with the engineering and product development of, and ongoing improvements to, our platform offerings, including the Delimobil app.

Depreciation of property, plant and equipment consists primarily of expenses related to our owned car fleet, which as of December 31, 2020 consisted of 135 vehicles, as well as IT equipment. As of June 30, 2021, our owned car fleet increased to 1,450 vehicles, of which 1,441 vehicles were in the Delimobil segment and 9 vehicles were in the Anytime Prime segment.

Expenses from the sale of used vehicles consist of residual value.

Other expenses consist primarily of costs related to insurance, fines for violation of traffic rules, acquiring fees, customer service expenses and expenses for car fleet relocation between regions.

We expect that cost of revenue will continue to increase in absolute terms for the foreseeable future as we continue to grow our car fleet and business operations in general. As the number of vehicles in our fleet and the use of our services increase, we expect related increases for car repair and maintenance costs, cost of fuel and

 

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refueling services, depreciation of right-of-use assets, insurance costs and other cost of revenue expenses. However, as a percentage of revenue, we expect that cost of revenue will decrease over time as a result of economies of scale and the greater efficiency we achieve from business growth.

Sales and marketing expenses

Our sales and marketing expenses consist of advertising and marketing expenses and salaries and social contributions, including share-based remuneration for our Phantom Share Plan, of our marketing staff. Advertising and marketing expenses can be broken down into online and offline marketing. The majority of our expenses are related to online marketing, which is focused on targeted advertisements and social media. Our online marketing efforts are designed either to entice potential customers to try our offerings for the first time or to retain customers who have a history of using our services but are not currently active users to return to our platform. Our advertising and marketing expenses also include offline marketing, which covers in-person events and physical advertisements, allowing us to reach potential customers that cannot be reached online and to increase our overall brand awareness. The salaries and social contributions are the costs incurred by our marketing department, including the salaries of our creative team. We plan to continue to invest in advertising and marketing to attract and retain customers on our platform and increase our brand awareness. We expect that sales and marketing expenses will continue to increase in absolute terms due to regional expansion, but decrease as a percentage of revenue as our business continues to scale upwards.

General and administrative expenses

Our general and administrative expenses primarily consist of salaries and social contributions, including share-based remuneration for our Phantom Share Plan, for our personnel involved in human resources, finance and information technology (aside from our engineering team tasked with further developing our mobile apps, whose salaries and social contributions are reported under cost of revenue), legal and administrative functions, the cost of information services and communication (primarily cost of data storage on our outsourced servers), audit and accounting fees, expected credit losses of trade receivables, depreciation of property, plant and equipment, amortization of intangible assets and other expenses, which comprise outside legal, consulting, and bank fees, office rent and related costs and debt collection service fees.

Following the completion of the offering, we expect to incur additional general and administrative expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and the listing standards of the NYSE, greater investor relations expenses and increased legal, audit and consulting fees. We also expect to increase the size of our general and administrative function to support the growth of our business and our increased compliance requirements. Therefore, we expect that our general and administrative expenses will increase in absolute terms in future periods and as a percentage of revenue in 2021 and 2022 due to costs related to this offering, but will decrease as a percentage of revenue in future periods as our business continues to scale.

Other income / (expenses)

Other income primarily consists of the reversal of an impairment loss on a right-of-use asset, subsidies received and insurance compensation arising from claims for third-party damage to our vehicles. Other expenses primarily consist of impairment of a right-of-use asset, VAT write-off and losses incurred on terminating lease agreements.

Impairment of a right-of-use asset, which relates specifically to the valuation of our leased car fleet, can be reported either as other income or as other expenses due to the following: if the carrying amount of a right-of-use asset decreases in a certain period as a result of a revaluation, the decrease is recognized and reported as other expenses; if the carrying amount of the right-of-use asset then increases in the following period as a result of revaluation, the increase is recognized and reported in other income as reversal of an impairment to

 

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the extent that it reverses the revaluation decrease of the same asset previously recognized in other expenses. As we calculate the value of our leased car fleet every year based on the fair market value of each vehicle, it is possible for the valuation of our fleet to increase or decrease, resulting in either an impairment reversal or impairment loss.

Subsidies received relate to the funding provided by the Moscow Department of Transport to cover part of the interest payable under our lease agreements, which amounted to RUB 182 million for the year ended December 31, 2020 and RUB 42 million for the year ended December 31, 2019. According to the terms of the subsidies, VAT on lease payments for which the subsidy was received is subject to recovery at the expense of the subsidy recipient. Therefore, we reported a VAT write-off RUB 37 million related to subsidies received in 2020 and 2019 and recognized for the year ended December 31, 2020. We did not receive any subsidies for the six months ended June 30, 2021 or 2020.

Losses incurred on terminating lease agreements consist of the costs associated with our decision to return, rather than buy out, vehicles supplied under operating lease agreements as part of our general strategy to acquire our fleet primarily through finance lease agreements.

Finance income / (costs)

Finance income primarily consists of interest earned on cash deposits, gain from change due to forex translation of financial instruments and foreign exchange rate gains. Finance costs primarily consist of interest expense for leases and borrowings, foreign exchange rate losses, expenses relating to lease modifications, costs associated with preferred shares offering and other financial expenses. Expenses relating to lease modifications consist primarily of the increase in interest payments under our lease agreements following the deferral of our lease payment obligations as a result of the COVID-19 pandemic. Other finance expenses consist primarily of provision and payments for taxes to be paid on borrowing costs.

We expect finance costs to continue to increase in absolute terms for the foreseeable future to the extent that we continue to see growth in our car fleet and business operations in general. This growth will entail new lease agreements and potentially the need for new borrowings, which will increase our interest expenses from leases and borrowings.

Taxation

The Companies, our Russian subsidiaries through which our business is operated, are subject to the standard rate of Russian income tax, which for the years ended December 31, 2019 and 2020 was 20%. Due to the nature of our business, the Delimobil and Anytime Prime segments have generated losses since inception, so we have not paid income taxes. We are entitled under Russian tax laws to carry forward any losses incurred for an indefinite period and to offset our losses carried forward against future taxes of up to 50% of each year’s annual profit. For the six months ended June 30, 2021, we had a tax loss carry forward totaling RUB 1,531 million and for the year ended December 31, 2020, we had a tax loss carry forward totaling RUB 1,524 million.

Results of Operations

The table below sets forth the results of operations for the six months ended June 30, 2021 and 2020 and the years ended December 31, 2020 and 2019.

 

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     Six months ended
June 30,
    Year ended
December 31,
 
     2021     2020     2020     2019  
    

RUB million

 

Revenue

     4,930       2,245       6,449       5,012  

Cost of revenue

     (3,909     (2,766     (6,377     (5,488
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit/(loss)

     1,021       (521     72       (476

Sales and marketing expenses

     (276     (158     (436     (445

General and administrative expenses

     (795     (484     (1,100     (983

Other income

     155       76       716       176  

Other expenses

     (49     (26     (178     (425

Finance income

     90       16       15        

Finance costs

     (1,105     (1,681     (2,564     (1,997
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax

     (959     (2,778     (3,475     (4,150

Income tax benefit

     (111     482       419       577  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss for the period

     (1,070     (2,296     (3,056     (3,573
  

 

 

   

 

 

   

 

 

   

 

 

 

Six months ended June 30, 2021 and 2020

Revenue

Revenue increased by RUB 2,685 million, or 120%, from RUB 2,245 million for the six months ended June 30, 2020, to RUB 4,930 million for the six months ended June 30, 2021.

The following table sets forth a breakdown of revenue by segment and type for the periods indicated.

 

     Six months ended
June 30,
 
     2021      2020  
     RUB million  

Revenue by segment:

  

Delimobil

     4,761        2,169  

Anytime Prime

     157        76  

Non-reportable

     12         
  

 

 

    

 

 

 

Total

     4,930        2,245  
  

 

 

    

 

 

 

Revenue by type:

  

Revenue from car sharing services

     3,938        1,780  

Other incidental customer fees

     682        356  

Revenue from delivery services

     153        41  

Revenue from long-term rental services

     145        68  

Revenue from used vehicles sales

             

Other revenue

     12         
  

 

 

    

 

 

 

Total

     4,930        2,245  
  

 

 

    

 

 

 

The increase in revenue was driven by a RUB 2,592 million, or 120%, increase in revenue from the Delimobil segment, from RUB 2,169 million for the six months ended June 30, 2020 to RUB 4,761 million for the six months ended June 30, 2021, and a RUB 81 million, or 107%, increase in revenue from the Anytime Prime segment, from RUB 76 million for the six months ended June 30, 2020 to RUB 157 million for the six months ended June 30, 2021.

The increase in revenue in the Delimobil segment was primarily the result of a RUB 2,158 million, or 121%, increase in revenue from our car sharing service, from RUB 1,780 million for the six months ended

 

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June 30, 2020 to RUB 3,938 million for the six months ended June 30, 2021; a RUB 322 million, or 93%, increase in other incidental customer fees attributable to the Delimobil segment, from RUB 348 million for the six months ended June 30, 2020 to RUB 670 million for the six months ended June 30, 2021; and a RUB 112 million, or 273%, increase in revenue generated from our delivery service, from RUB 41 million for the six months ended June 30, 2020 to RUB 153 million for the six months ended June 30, 2021.

The RUB 2,158 million increase in revenue from our car sharing service during the period under review was primarily attributable to (i) price growth through our client rating system implemented in October 2020 and our GEO dynamic pricing algorithm implemented in the first half of 2021, as Revenue per Minute grew by RUB 2.1, or 45%, from RUB 4.7 for the six months ended June 30, 2020 to RUB 6.8 for the six months ended June 30, 2021, (ii) growth of Weighted Average Fleet by 21% from 12,227 vehicles for the six months ended June 30, 2020 to 14,750 vehicles for the six month ended June 30, 2021, and (iii) growth of daily vehicle utilization from 3.9 hours per vehicle for six months ended June 30, 2020 to 4.4 hours per vehicle for the six months ended June 30, 2021. In addition, the increase in revenue from our car sharing services was also a result of the lockdown restrictions in April to June 2020, which meant our car sharing services operated two and a half months less time in the six months ended June 30, 2020, compared to the same period in 2021. Total Minutes Sold grew by 51%, from 381 million for the six months ended June 30, 2020 to 577 million for the six months ended June 30, 2021.

The RUB 322 million, or 93%, increase in other incidental customer fees attributable to the Delimobil segment was primarily due to an improvement in effectiveness of debt collection from customers with unpaid fees due to traffic violations, car damage or contractual breaches. The increase in other incidental customer fees was also a result of the April to June 2020 lockdown, during which our services were curtailed.

The increase in revenue in the Anytime Prime segment was primarily due to a RUB 77 million, or 113%, increase in revenue from long-term rentals, from RUB 68 million for the six months ended June 30, 2020 to RUB 145 million for the six months ended June 30, 2021, and a RUB 4 million, or 50%, increase in other incidental fees attributable to the Anytime Prime segment, from RUB 8 million for the six months ended June 30, 2020 to RUB 12 million for the six months ended June 30, 2021.

The RUB 77 million increase in revenue from our long-term rentals was primary attributable to (i) growth in total rental days by 79%, from 25,732 days for the six months ended June 30, 2020 to 46,051 days for the six months ended June 30, 2021, and (ii) growth of Revenue per Rental Day by 19%, from RUB 2,643 for the six months ended June 30, 2020 to RUB 3,149 for the six months ended June 30, 2021. In addition, the increase in revenue from our long-term rentals was a result of the lockdown, which prohibited the start of new rentals but allowed the completion of rentals started before the restrictions.

Cost of revenue

Cost of revenue increased by RUB 1,143 million, or 41%, from RUB 2,766 million for the six months ended June 30, 2020, to RUB 3,909 million for the six months ended June 30, 2021.

 

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The following table sets forth a breakdown of cost of revenue for the periods indicated.

 

     Six months ended
June 30,
 
     2021     2020  
    

RUB million

 

Car repair and maintenance

     (1,049     (651

Fuel (including re-fueling services)

     (866     (534

Depreciation of right-of-use assets

     (557     (453

Salaries and social contributions

     (288     (298

Parking permissions

     (174     (172

Delivery service

     (83     (22

Amortization of intangible assets

     (55     (23

Depreciation of property, plant and equipment

     (27     (5

Other

     (810     (608
  

 

 

   

 

 

 

Total

     (3,909     (2,766
  

 

 

   

 

 

 

The increase in cost of revenue was primarily driven by a RUB 398 million, or 61%, increase in car repair and maintenance costs, a RUB 332 million, or 62%, increase in costs for fuel (including re-fueling services), a RUB 104 million, or 23%, increase in depreciation of right-of-use assets and a RUB 202 million, or 33%, increase in other expenses, for the six months ended June 30, 2021, compared to the six months ended June 30, 2020.

The increase in car repair and maintenance costs as well as costs for fuel (including re-fueling services) was primarily due to the growth of our total leased car fleet, from 12,942 vehicles for the six months ended June 30, 2020 to 15,127 vehicles for the six months ended June 30, 2021. Growth in car repair and maintenance costs was partly attributable to the increase in total compensation paid to private contractors who service our vehicles on an ad hoc basis, as we engaged more contractors than additional full-time service staff to optimize business processes as as our operations have grown.

The increase in depreciation of right-of-use assets was also primarily related to the growth of our car fleet, as the increase in fleet size led to a corresponding rise in depreciation costs amounting to RUB 94 million for the six months ended June 30, 2021.

The increase in other expenses was primarily a result of (i) a RUB 182 million, or 101%, increase in insurance costs related to our car fleet, from RUB 181 million for the six months ended June 30, 2020 to RUB 363 million for the six months ended June 30, 2021, which was attributable to the growth of the car fleet and the continued gradual transfer of insurance payments from lease agreements recognized as initial cost of right-of-use assets to direct payments to insurance companies recognized as other expenses in cost of revenue, which first began in the second half of 2019, and (ii) a RUB 45 million increase in bank acquiring fees for the six months ended June 30, 2021, when compared to the same period in 2020, in line with revenue growth.

As a percentage of revenue, cost of revenue decreased from 123% for the six months ended June 30, 2020 to 79% for the six months ended June 30, 2021. The decrease in cost of revenue as a percentage of revenue was driven primarily by optimization of car repair and maintenance and fuel expenses, which decreased from 53% of revenue for the six months ended June 30, 2020 to 39% of revenue for the six months ended June 30, 2021, as well as lower salaries and social contributions as a percentage of revenue, which decreased from 13% for the six months ended June 30, 2020 to 6% for the six months ended June 30, 2021. This decrease in cost of revenue as a percentage of revenue resulted from our increased operating leverage and was partially affected by the government-mandated lockdown from April to June 2020 and COVID-19 related restrictions in the six months ended June 30, 2020.

Sales and marketing expenses

Sales and marketing expenses increased by RUB 118 million, or 75%, from RUB 158 million for the six months ended June 30, 2020, to RUB 276 million for the six months ended June 30, 2021.

 

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The following table sets forth a breakdown of sales and marketing expenses for the periods indicated.

 

     Six months ended
June 30,
 
     2021     2020  
    

RUB million

 

Advertising and marketing

     (261     (144

Salaries and social contributions

     (15     (14
  

 

 

   

 

 

 

Total

     (276     (158
  

 

 

   

 

 

 

The increase in sales and marketing expenses was primarily attributable to a RUB 117 million, or 81%, increase in advertising and marketing expenses for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, as we significantly decreased our advertising and marketing expenses in the comparable period of 2020 as a result of the government-mandated lockdown in April to June 2020 in response to the COVID-19 pandemic.

As a percentage of revenue, sales and marketing expenses decreased from 7% for the six months ended June 30, 2020, to 6% for the six months ended June 30, 2021.

General and administrative expenses

General and administrative expenses increased by RUB 311 million, or 64%, from RUB 484 million for the six months ended June 30, 2020, to RUB 795 million for the six months ended June 30, 2021.

The following table sets forth a breakdown of general and administrative expenses for the periods indicated.

 

     Six months
ended

June 30,
 
     2021     2020  
     RUB million  

Salaries and social contributions

     (463     (302

Information services and communication

     (94     (69

Expected credit losses of trade receivables

     (31     (34

Depreciation of property, plant and equipment

     (14     (8

Audit and accounting fees

     (23     (7

Amortization of intangible assets

     (5     (4

Other

     (165     (60
  

 

 

   

 

 

 

Total

     (795     (484
  

 

 

   

 

 

 

The increase in general and administrative expenses was primarily due to a RUB 161 million, or 53%, increase in salaries and social contributions, a RUB 25 million, or 36%, increase in information services and communication and a RUB 105 million, or 175%, increase in other costs for the six months ended June 30, 2021, compared to the six months ended June 30, 2020.

The increase in salaries and social contributions was primarily related to the increase in the number of human resources, legal and information technology staff employed, resulting in a wage indexation adjustment of RUB 115 million in the six months ended June 30, 2021, compared to the six months ended June 30, 2020, as well as the addition of share-based remuneration amounting to RUB 46 million following the implementation of our Phantom Share Plan at the end of June 2021. The increase in expenses relating to information services and communication was primarily attributable to data storage costs associated with our use of a third-party cloud

 

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computing service and outsourced data center. The increase in audit and accounting fees was primarily attributable to accruals of RUB 14 million for the audit of our combined and consolidated financial statements. The increase in other costs was primarily a result of a RUB 37 million increase in expenses to third party debt collection agencies for collection of customers’ outstanding payments due to us, from RUB 4 million for the six months ended June 30, 2020 to RUB 41 million for the six months ended June 30, 2021, as well as a RUB 17 million increase in rental payments, from RUB 26 million for the six months ended June 30, 2020 to RUB 43 million for the six months ended June 30, 2021, due to the relocation of one of our offices in June 2020.

As a percentage of revenue, general and administrative expenses decreased from 22% for the six months ended June 30, 2020, to 16% for the six months ended June 30, 2021. The decrease in general and administrative expenses as a percentage of revenue was driven predominantly by decreasing salaries and social contribution as a percentage of revenue, from 13% for the six months ended June 30, 2020 to 9% for the six months ended June 30, 2021. This was driven by our increased operating leverage as a result of the increasing scale of our business, and was partially affected by the government-mandated lockdown from April to June 2020 and COVID-19 related restrictions in the six months ended June 30, 2020.

Other income / (expenses)

Other income, net, increased by RUB 56 million, or 112%, from RUB 50 million for the six months ended June 30, 2020, to RUB 106 million for the six months ended June 30, 2021.

The following table sets forth a breakdown of other income, net, for the periods indicated.

 

     Six months ended
June 30,
 
     2021     2020  
    

RUB million

 

Other income:

  

Compulsory civil liability insurance proceeds

     123       53  

Insurance compensation received for damage of vehicles

     11       8  

Other

     21       15