Final Results for the Year Ended 31 December 2022
16/05/2023 07:00
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RNS Number : 4868Z Cornerstone FS PLC 16 May 2023
Certain information contained within this Announcement is deemed by the
Company to constitute inside information as stipulated under the Market Abuse
Regulation (EU) No. 596/2014 ("MAR") as applied in the United Kingdom. Upon
publication of this Announcement, this information is now considered to be in
the public domain.
16 May 2023
Cornerstone FS Plc
("Cornerstone" or "the Company" or "the Group")
Final Results
Notice of AGM and Publication of Annual Report
Cornerstone FS Plc (AIM: CSFS), a foreign exchange and payments company
offering multi-currency accounts to businesses and individuals, announces its
final results for the year ended 31 December 2022. In addition, the Company
gives notices of its annual general meeting ("AGM") and publication of its
annual report and accounts, both of which are being posted on the Company's
website at: https://investors.cornerstonefs.com/document-centre/
(https://investors.cornerstonefs.com/document-centre/) .
Highlights
· Revenue increased 110% to £4.8m (2021: £2.3m)
· Gross margin improved to 60.9% (2021: 51.6%)
· Adjusted* EBITDA loss reduced to £0.9m (2021: £1.3m loss)
· Transacted payments totalling £584m (2021: £363m), up 61%
· Number of active customers increased by 38% to 803 (2021: 583)
· Acquired Capital Currencies, a well-established foreign exchange
broker, and Pangea FX, a specialist FX and treasury consultancy
· Expanded the Group's partnerships to increase the number of currencies,
countries and sectors that it services, and, post period, introduce new
products
· Entered an agreement to sell Avila House Ltd, a non-core subsidiary,
for £300k and licence the Group's platform to the buyer, which completed post
period
· Cash and cash equivalents at 31 December 2022 were £682k (31
December 2021: £348k)
* Excluding share-based compensation, transaction costs and depreciation &
amortisation charges (see the Financial Review for further detail)
James Hickman, CEO of Cornerstone, said:
"During 2022, Cornerstone continued to deliver on its strategy, improved
operationally and achieved a strong financial performance with revenues more
than doubling and an increase in gross margin. This growth was accelerated by
two acquisitions during the year, which also supported the completion of our
transition to a business that services customers directly. Through the
expansion of our offer, enhancement of our platform and strengthening of our
team, we took important actions to position Cornerstone for an even greater
2023.
"The strong trading momentum experienced in 2022 has been sustained into the
current year, and we remain on track for a significant increase in revenue for
full year 2023 and are optimistic in terms of adjusted EBITDA positivity. As a
result, and as we continue to broaden our partnership network and offer, we
remain confident in the future and look forward to reporting on our
progress."
Enquiries
Cornerstone FS Plc +44 (0)203 971 4865
James Hickman, Chief Executive Officer
Judy Happe, Chief Financial Officer
SPARK Advisory Partners Limited (Nomad) +44 (0)203 368 3550
Mark Brady, Adam Dawes
SP Angel Corporate Finance LLP (Broker) +44 (0)203 470 0470
Jeff Keating, Harry Davies-Ball
Gracechurch Group (Financial PR) +44 (0)204 582 3500
Harry Chathli, Claire Norbury
About Cornerstone FS Plc
Cornerstone FS Plc (AIM: CSFS) is a foreign exchange and payments company
offering multi-currency accounts to businesses and individuals. Headquartered
in the City of London, Cornerstone combines a proprietary technology platform
with a high level of personalised service to support clients with payments in
over 35 currencies in more than 100 countries. With a track record of over 12
years, Cornerstone has the expertise, experience and expanding global partner
network to be able to execute complex cross-border payments. It is fully
regulated by the Financial Conduct Authority as an Electronic Money
Institution. www.cornerstonefs.com (http://www.cornerstonefs.com)
Operational Review
The year to 31 December 2022 was a period of significant change, which has
continued into 2023, during which the Group implemented fundamental
improvements to its business. Cornerstone delivered a strong performance in
2022 and took actions to position the Group for an even greater 2023.
Two key milestones during the year were the acquisitions of Capital
Currencies, a well-established foreign exchange broker, and Pangea FX, a
specialist FX and treasury consultancy. Both businesses have made an excellent
contribution to Cornerstone. In particular, Capital Currencies boosted the
direct client base while Pangea FX brought two senior sales executives who
were made responsible for leading the sales function.
Since welcoming a new CEO, James Hickman, in September 2022, the Group's focus
has been on driving direct sales and fully commercialising the platform, while
maintaining control over costs. A key element of this was growing the sales
team, which started in September, beginning with the appointments from Pangea
FX, and has been strengthened thereafter and post year end. Cornerstone has
expanded - and continues to expand - its network of referral partners, which
consists of corporates that provide services to other businesses or high net
worth individuals ("HNWIs"), such as accountants or real estate agents, and
who recommend Cornerstone to their clients for currency transactions and
payments.
Multiple actions have been taken to commercialise the platform more fully by
enhancing and expanding the Group's offering - a key element of which is
increasing the number of counterparties. This also reflects the refocusing of
the strategy on developing the Group's own products and services as opposed to
seeking integrations with enterprise resource planning or accounting systems.
As described further below, the Group has:
· Increased the number of currencies, countries and sectors that it
services
· Introduced new products
· Upgraded the platform user interface and features
· Improved the transactional process
· Enhanced customer service
To further monetise the platform as well as realise the value of a non-core
asset, in December 2022 Cornerstone entered a share purchase agreement ("SPA")
for the sale of its subsidiary, Avila House Ltd. ("Avila"), to Aspire Commerce
Ltd. ("Aspire") as well as entering a software licensing agreement for Aspire
to licence the Group's platform. Upon completion of the SPA post year end, the
Group received £300k in cash and the licensing agreement, which is for a
period of 12 months, will generate a minimum of £290k. Cornerstone acquired
Avila in 2020 as it is registered with the Financial Conduct Authority ("FCA")
as a small electronic money institution, however, this more limited licence
was supplanted with the Group's primary operating subsidiary, Cornerstone
Payment Solutions, subsequently being approved by the FCA as an authorised
electronic money institution. This transaction with Aspire reflects the value
of an e-money registration as well as the Cornerstone platform.
To accelerate the transition to direct revenue, the Group also took the
strategic decision to offboard almost all its historic white label business -
only maintaining a small number of accounts that meet a particular
profitability threshold. This commenced towards the end of the year, but
primarily took place, and has been completed, in the current year.
Performance
For the year under review, Cornerstone delivered another twelve months of
significant growth in revenue to £4.8m (2021: £2.3m). This reflects a
substantial increase in revenue generated by clients that are served directly.
The proportion of total revenue that was accounted for by direct clients
increased to 78%, compared with 56% for the previous year, being £3.8m (2021:
£1.3m). Revenue generated through the Group's introducer network accounted
for 22% of total revenue (2021: 44%) and was £1.1m (2021: £1.0m).
By client type, there was an increase in revenue generated by both corporate
accounts and HNWIs. This includes particularly strong growth in revenue from
HNWIs, which was primarily due to the addition of the Asia team. As a result,
the proportion of total revenue accounted for by HNWIs increased to 53% (2021:
25%) with corporate accounts contributing 47% (2021: 75%). However, for the
majority of the HNWI revenue (and nearly exclusively for the Asia team's HNWI
revenue), whilst the underlying transaction is with an individual, the
relationship is via a corporate that provides services to the HNWI - and, as a
result, it is a recurring revenue stream. As noted above, the Group has been
successfully expanding this referral network.
Revenue continued to be generated from the provision of foreign exchange and
payments services in the form of spot and forward transactions, accounting for
92% and 8% of revenue respectively (2021: 89% and 11%).
During 2022, transactions were conducted between 58 different currency pairs
(2021: 42), with 86% of transactions being between various combinations of
Sterling, Euros and US Dollars (2021: 91%), reflecting an expansion of the
Group's payment capabilities.
During 2022, the Group transacted payments totalling £584m compared with
£363m in the previous year.
Enhancing our offer
A key focus has, and continues to be, the enhancement of the Group's offer,
primarily through growing its counterparty network to expand its product
capabilities. At the same time, internal development has been undertaken to
improve the Group's platform as well as its service provision.
Expanding our product
A core element of the Group's strategy is to establish a global payments
network that will enable Cornerstone customers to be able to pay in from, and
pay out to, any jurisdiction and via any payment method. While it is still
relatively early days, important steps have been taken in implementing this
strategy.
New counterparty partnerships have been established, which enables the Group
to broaden the number of currencies and countries where it can transact as
well as expanding the business sectors that it can serve. The Group can now
pay out to 70+ countries with 49 pay-out currencies and 32 pay-in currencies.
The Group has also made significant progress towards expanding its product
offering with regards to payment method. The Group expects to be able to
launch its first initiative later this year, which will be a very exciting
development for Cornerstone.
To be able to support customers with more of their business needs, the Group
has formed strategic partnerships with specialised and alternative lenders to
offer a range of funding solutions. In particular, the Group recently launched
a lending platform in partnership with Swoop Finance ("Swoop"), which enables
the Group to seamlessly refer customers to a lending partner that it has
pre-vetted to ensure that they can meet the customers' requirements. This
service increases the Group's value to its customers while it also receives
commission on referrals. It also enhances the Group's competitive offer to
potential customers who want to utilise Cornerstone's FX services (rather than
those of their traditional bank), but who are hesitant to move away from their
traditional bank as they require their lending facilities.
Enhancing our platform
During the year, internal development work continued to improve the platform
with a focus on user interface and user experience. Certain features have also
been added in response to customer feedback to ensure that the Group's
platform is tailored to customers' needs. These improvements and the
additional functionality, alongside new counterparty partnerships as noted
above, have also enabled Cornerstone to broaden the target customer base, such
as now being able to cater for businesses in further sectors.
Improving our service
Cornerstone is committed to continuously improving the service that it
provides to its customers. This includes developments to enhance the
automation in transactional processes to increase the speed of payments. The
Group has introduced new customer service systems to better track, and thereby
improve, response times to customer queries. It is also working on
enhancements to the onboarding process to make the transition to the Group's
platform as effortless as possible for new customers.
Actions such as these, which stem from one of the Group's core values of
always putting customers first, mean that the Group is well prepared for the
introduction of the FCA's Consumer Duty regulation later this year, which sets
higher and clearer standards for consumer protection across financial
services. This also goes together with the Group's steadfast commitment to
regulatory compliance and transparency. The Group has always adhered to the
highest standards in this respect and its governance has been strengthened
with the new additions to the Board, in particular with John Burns bringing
substantial experience in regulation and compliance in the payments industry.
Financial Review
Revenue for the 12 months to 31 December 2022 increased by 110% to £4.8m
compared with £2.3m for the previous year. This reflects strong underlying
growth, driven by the revenue generated by clients that the Group serves
directly, as well as the contribution from Capital Currencies and Pangea FX,
which were acquired during the year.
As a result of the increased contribution to revenue from clients that are
served directly, gross margin improved substantially to 60.9% in 2022 (2021:
51.6%). The improvement in gross margin combined with the increased revenue
enabled the Group to achieve significant growth in gross profit to £2.9m
(2021: £1.2m).
Operating expenses were £8.6m in 2022 compared with £5.4m for the previous
year. This primarily reflects movements of:
• £1.9m increase in share-based (non-cash) compensation to £4.3m
(2021: £2.3m), which predominantly relates to share-based incentivisation for
the Asia team and the General Manager APAC and Middle East;
• £1.6m increase in other administrative expenses to £4.2m (2021:
£2.6m); and partly offset by
• £0.3m decline in transaction costs related to the Company's IPO and
its acquisition strategy.
In the second half of the year, the Company reached an agreement with Robert
O'Brien, the General Manager APAC and Middle East, and the Asia team to vary
the terms of their incentivisation agreement, as a result of performance being
ahead of expectations. As a result of the agreed settlement, the Group
recognised an accelerated charge for the year ended 31 December 2022 such that
the full value of the total charge estimated upon initial recognition of
£6.1m has been cumulatively expensed (£4.3m for the year ended 31 December
2022 and £1.8m for the year ended 31 December 2021). Accordingly, there is no
further share-based compensation to be recognised in future periods in respect
of Mr. O'Brien and the Asia team.
The £1.6m increase in other administrative expenses included a £862k
increase in staff-related costs (excluding share-based compensation) primarily
reflecting the additional hires made from mid-2021 onwards, including the
headcount acquired with Capital Currencies and Pangea FX in 2022. Depreciation
and amortisation costs increased by £249k, including £90k related to the
amortisation of the value attributed to the customer base acquired through the
acquisitions of Capital Currencies and Pangea FX. Rental and IT costs
increased by £230k largely owing to rent discounts realised during the
COVID-19 restrictions in 2021 and the increased office space in 2022 to cater
to the expanded workforce. Legal and professional fees increased by £142k due
to the Company becoming public part way through the comparative period (6
April 2021).
Net finance expenses were £133k (2021: net finance income of £1,262). This
primarily reflects acquisition-related adjustments as well as loan note
interest, partially offset by an increase in other interest.
Loss before tax was £5.8m for 2022 (2021: £4.2m loss), which primarily
reflects the greater operating expenses. Loss per ordinary share on a basic
and diluted basis was 17.26 pence (2021: 21.24 pence loss), which reflects an
increase in the weighted average number of ordinary shares in issue to
32,506,335 (2021: 19,317,407).
Excluding share-based compensation, transaction costs and depreciation &
amortisation charges, the Group's adjusted operating expenses (consisting of
administrative expenses) as a proportion of revenue improved to 79% (2021:
107%). As a result, the Group's adjusted EBITDA loss was reduced to £0.9m
(2021: £1.3m).
As at 31 December 2022, the Group had cash and cash equivalents of £682k (31
December 2021: £348k). This followed the raising, during the year, of:
• gross proceeds of £870k via the placing of, and subscription for,
new ordinary shares, which was partly used to fund the initial £586k cash
consideration for the acquisition of Capital Currencies; and
• a total of approximately £1.1m through the placing of new ordinary
shares (£860k) and the issue of a convertible loan note (£225k).
The loan note was issued to one investor who also took shares up to the
maximum amount allowed before obtaining FCA approval (9.9% of the Company's
issued share capital). Application for FCA approval was made during the year
and the loan note was converted automatically into shares on approval being
received in February 2023.
Outlook
The strong trading momentum experienced in 2022 has been sustained into the
current year and, as previously announced, increased during Q1 2023 resulting
in a better-than-expected revenue performance for the first quarter. This also
included Cornerstone achieving its first, unaudited, quarter of being EBITDA
positive (on an adjusted basis).
While trading in Q2 2023 has reverted from exceptionally high to the
originally budgeted levels of growth, the Group remains on track for a
significant increase in revenue for full year 2023 over 2022 and is optimistic
in terms of adjusted EBITDA positivity. This reflects the advancement being
made across the business and as the Group realises the benefits of the
enhancements made to its operations and offer towards the end of 2022 and to
date in 2023.
The Board is also pleased to have completed the sale of Avila, which, along
with the licensing agreement with Aspire, will support the Group's cash
position. In addition, post year end certain incentivisation and settlement
arrangements were varied with Robert O'Brien, General Manager APAC
and Middle East, and Craig Strong, Director of Capital Currencies (see note
20), which has also been immediately beneficial to the business.
As a result, and as Cornerstone continues to broaden its partnership network
and offer, the Board remains confident in the future and looks forward to
reporting on the Group's progress.
Notice of AGM and Publication of Annual Report
The Company gives notice that its AGM will be held at 11.00am BST on 20 June
2023 at the office of Gracechurch Group, 48 Gracechurch Street, London, EC3V
0EJ.
The Notice of AGM and form of proxy, along with the Company's annual report
and accounts for the year ended 31 December 2022, are being posted to
shareholders and are available on the Company's website at:
https://investors.cornerstonefs.com/document-centre/
(https://investors.cornerstonefs.com/document-centre/) .
Group Statement of Comprehensive Income
For the year ended 31 December 2022
2022 2021
Notes £ £
REVENUE 1 4,821,996 2,301,172
Cost of sales (1,885,503) (1,113,995)
GROSS PROFIT 2,936,493 1,187,177
ADMINISTRATIVE EXPENSES 2
Share-based compensation 15 (4,284,039) (2,338,495)
Further adjustments to adjusted EBITDA (see below) (500,529) (554,902)
Other administrative expenses (3,805,812) (2,469,575)
TOTAL ADMINISTRATIVE EXPENSES (8,590,380) (5,362,972)
Adjusted EBITDA loss (869,319) (1,282,398)
Stated after the add back of:
- share-based compensation 15 4,284,039 2,338,495
- transaction costs 99,365 402,515
- amortisation of intangible assets 386,542 148,094
- depreciation of property, plant and equipment 14,622 4,293
LOSS from operations 2 (5,653,887) (4,175,795)
Finance and other income 3 37,947 1,622
Finance costs 3 (171,257) (360)
LOSS BEFORE TAX (5,787,197) (4,174,533)
Income tax credit 6 175,365 70,764
________ ________
LOSS FOR THE YEAR (5,611,832) (4,103,769)
TOTAL COMPREHENSIVE LOSS FOR THE YEAR (5,611,832) (4,103,769)
Loss per ordinary share - basic & diluted (pence) 7 (17.26) (21.24)
_______ _______
All amounts are derived from continuing operations.
The Notes to the Financial Statements form an integral part of these financial
statements.
Group and Company Statement of Financial Position
As at 31 December 2022
Group Group Company Company
31 December 2022 31 December 2021 31 December 31 December
2022 2021
Notes £ £ £ £
assets
NON-CURRENT ASSETS
Intangible assets 8 2,315,637 577,447 611,507 484,927
Tangible assets 10 39,677 21,542 - -
Investments 11 - - 8,017,622 6,349,758
_______ _______ _______ _______
2,355,314 598,989 8,629,129 6,834,685
CURRENT ASSETS
Trade and other receivables 12 1,339,110 493,244 700,720 248,996
Cash and cash equivalents 682,346 348,102 495,627 139,579
_______ _______ _______ _______
2,021,456 841,346 1,196,347 388,575
_______ _______ _______ _______
total assets 4,376,770 1,440,335 9,825,476 7,223,260
_______ _______ _______ _______
equity and liabilities
equity
Share capital 15 480,362 202,776 480,362 202,776
Share premium 5,496,829 3,074,355 5,496,829 3,074,355
Share-based payment reserve 1,489,765 2,392,710 1,489,765 2,392,710
Deferred consideration reserve 950,920 - 950,920 -
Merger relief reserve 5,557,645 5,557,645 5,557,645 5,557,645
Reverse acquisition reserve (3,140,631) (3,140,631) - -
Retained earnings (10,924,791) (7,828,230) (8,365,764) (4,907,402)
_______ _______ _______ _______
TOTAL EQUITY (89,901) 258,625 5,609,757 6,320,084
_______ _______ _______ _______
LIAIBILITIES
NON-CURRENT LIABILITIES
Loan notes 13 2,172,578 - 2,172,578 -
Deferred tax 6 99,816 - - -
_______ _______ _______ _______
2,272,394 - 2,172,578 903,176
CURRENT LIABILITIES
Trade and other payables 14 1,969,277 1,181,710 1,818,141 903,176
Loan notes 13 225,000 - 225,000 -
_______ _______ _______ _______
2,194,277 1,181,710 2,043,141 903,176
_______ _______ _______ _______
TOTAL EQUITY AND LIABILITIES 4,376,770 1,440,335 9,825,476 7,223,260
_______ _______ _______ _______
A separate profit and loss account for the Parent company is omitted from the
Group's financial statements by virtue of section 408 of the Companies Act
2006. The Company loss for the year ended 31 December 2022 was (£5,973,633)
(year ended 31 December 2021: loss of (£3,823,651)).
The financial statements were approved by the Board of Directors and
authorised for issue on 15 May 2023 and are signed on its behalf by:
James Hickman
Chief Executive Officer
The Notes to the Financial Statements form an integral part of these financial
statements.
Group Statement of Changes in Equity
For the year ended 31 December 2022
Share capital Share premium Share-based payment reserve Deferred consideration reserve Merger relief reserve Reverse acquisition reserve Retained earnings Total
£ £ £ £ £ £ £ £
Balance at 1 January 2021 165,887 951,422 54,215 - 5,557,645 (3,140,631) (3,724,461) (135,923)
Issue of shares 36,889 2,208,447 - - - - - 2,245,336
Costs of raising equity - (85,514) - - - - - (85,514)
Share-based payments (note 15) - - 2,338,495 - - - - 2,338,495
Loss and total comprehensive income for the year - - - - - - (4,103,769) (4,103,769)
_______ _______ _______ _______ _______ _______ _______ _______
Balance at 31 December 2021 202,776 3,074,355 2,392,710 - 5,557,645 (3,140,631) (7,828,230) 258,625
Issue of shares 210,423 1,905,234 - - - - - 2,115,657
Costs of raising equity - (87,310) - - - - - (87,310)
Share-based payments (note 15) - - 4,284,039 - - - - 4,284,039
Settlement of equity-based incentives 67,163 604,550 (5,186,984) - - - 2,515,271 (2,000,000)
Deferred equity-based consideration - - - 950,920 - - - 950,920
Loss and total comprehensive income for the year - - - - - - (5,611,832) (5,611,832)
_______ _______ _______ _______ _______ _______ _______ _______
Balance at 31 December 2022 480,362 5,496,829 1,489,765 950,920 5,557,645 (3,140,631) (10,924,791) (89,901)
_______ _______ _______ _______ _______ _______ _______ _______
The Notes to the Financial Statements form an integral part of these financial
statements.
Company Statement of Changes in Equity
For the year ended 31 December 2022
Share capital Share premium Share-based payment reserve Deferred consideration reserve Merger relief reserve Retained earnings Total
£ £ £ £ £ £ £
Balance at 1 January 2021 165,887 951,422 54,215 - 5,557,645 (1,083,751) 5,645,418
Issue of shares 36,889 2,208,447 - - - - 2,245,336
Costs of raising equity - (85,514) - - - - (85,514)
Share-based payments (note 15) - - 2,338,495 - - - 2,338,495
Loss and total comprehensive income for the year - - - - - (3,823,651) (3,823,651)
_______ _______ _______ _______ _______ _______ _______
Balance at 31 December 2021 202,776 3,074,355 2,392,710 - 5,557,645 (4,907,402) 6,320,084
Issue of shares 210,423 1,905,234 - - - - 2,115,657
Costs of raising equity - (87,310) - - - - (87,310)
Share-based payments (note 15) - - 4,284,039 - - - 4,284,039
Settlement of equity-based incentives 67,163 604,550 (5,186,984) - - 2,515,271 (2,000,000)
Deferred equity-based consideration - - - 950,920 - - 950,920
Loss and total comprehensive income for the year - - - - - (5,973,633) (5,973,633)
_______ _______ _______ _______ _______ _______ _______
Balance at 31 December 2022 480,362 5,496,829 1,489,765 950,920 5,557,645 (8,365,764) 5,609,757
_______ _______ _______ _______ _______ _______ _______
The Notes to the Financial Statements form an integral part of these financial
statements.
Group and Company Cash Flow Statement
For the year ended 31 December 2022
Group Group Company Company
Year ended Year ended Year ended Year ended
31 December 2022 31 December 2021 31 December 2022 31 December
2021
£ £ £ £
Notes
Loss before (5,787,197) (4,174,533) (6,131,818) (3,890,085)
tax
Adjustments to reconcile profit before tax to cash generated from operating
activities:
Finance income 3 (37,947) (1,622) - -
Finance costs 3 171,257 360 162,757 -
Equity-settled share-based payment 32,595 - 32,595 -
Share-based compensation 15 4,284,039 2,338,495 4,284,039 2,338,495
Depreciation and amortisation 8 & 10 401,164 152,386 296,133 145,920
Increase in accrued income, trade and other receivables (845,866) (54,577) (451,724) (141,678)
12
Increase in trade and other payables 14 757,250 682,374 896,573 559,196
_______ _______ _________ _______
Cash used in operations (1,024,705) (1,057,117) (911,445) (988,152)
Income tax received 6 158,188 70,764 158,188 66,434
_______ _______ _________ _______
Cash used in operating activities (866,517) (986,353) (753,257) (921,718)
Investing activities
Acquisition of property, plant and equipment 10 (17,198) (17,371) - -
Acquisition of intangible assets 8 (422,713) (404,568) (422,713) (404,569)
Acquisition of subsidiary, net of cash acquired 9 (552,128) - - -
Investment in Group companies 11 - - (631,335) (201,985)
_______ _______ _________ _______
Cash used in investment activities (992,039) (421,939) (1,054,048) (606,554)
Financing activities
Shares issued (net of costs) 15 1,992,694 1,571,457 1,992,694 1,571,457
Loans received 13 225,000 - 225,000 -
Interest and similar income 3 37,947 1,622 - -
Interest and similar charges 3 (62,841) (360) (54,341) -
_______ _______ __________ _______
Cash generated from financing activities 2,192,800 1,572,719 2,163,353 1,571,457
Increase in cash and cash equivalents 334,244 164,427 356,048 43,185
Opening cash and cash equivalents 348,102 183,675 139,579 96,394
_______ _______ ________ _______
Closing cash and cash equivalents 682,346 348,102 495,627 139,579
===================== ===================== ===================== =====================
The Notes to the Financial Statements form an integral part of these financial
statements.
Notes to the Financial Statements
For the year ended 31 December 2022
BAsis of preparation
Cornerstone FS plc is a public limited company, incorporated and domiciled in
England. The Company was admitted to AIM, London Stock Exchange's market for
small and medium size growth companies, on 6 April 2021. The registered office
of the Company is The Old Rectory, Addington, Buckingham, England, MK18 2JR,
and its principal business address is 75 King William Street, London EC4N 7BE.
The main activities are set out in the Strategic Report of the Company's
annual report and accounts for the year ended 31 December 2022.
These financial statements have been prepared in accordance with International
Financial Reporting Standards as adopted by the United Kingdom ("IFRS") for
the years ended 31 December 2021 and 31 December 2022, and with those parts of
the Companies Act 2006 applicable to companies reporting under IFRS. The
financial statements have been prepared in sterling, which is the Group's
presentation currency and the functional currency of each Group entity. They
have been prepared using the historical cost convention except for the
measurement of certain financial instruments.
The parent company accounts have also been prepared in accordance with IFRS
(as adopted by the United Kingdom) and using the historical cost convention.
The accounting policies set out below have been applied consistently to the
parent company where applicable.
Monetary amounts in these financial statements are rounded to the nearest
pound.
The preparation of financial statements in conformity with IFRS requires the
use of estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting year. These estimates
and assumptions are based upon management's knowledge and experience of the
amounts, events or actions. Actual results may differ from such estimates.
The critical accounting estimates are considered to relate to the following:
Fair values of assets acquired in business combinations: The Group recognises
the fair value of customer relationships acquired through business
combinations reflecting discounted future cash flows from the acquired
customers and incorporating an estimated rate of attrition of the customer
base.
Deferred consideration: Total compensation for acquisitions includes an
element of deferred consideration payable, subject to the revenue performance
post-acquisition. Management use historical information and management
forecasts to estimate a liability, using the discounted cashflow methodology,
to derive a fair value of the deferred consideration payable.
Intangible assets: The Group recognises intangible assets in respect of
software development costs. This recognition requires the use of estimates,
judgements and assumptions in determining whether the carrying value of such
assets is impaired at each year end.
Investments in subsidiary undertakings (Company financial statements only):
The Company's Statement of Financial Position includes investments stated at
cost in its subsidiary undertakings. The continuing recognition at cost
requires judgements and estimates including an assessment of whether the
carrying value of such investments is impaired at each year end.
NEW STANDARDS AND INTERPRETATIONS
As of the date of approval of these financial statements, the following
Standards and Interpretations which have not been applied in these financial
statements were in issue but not yet effective:
· IFRS 17 Insurance Contracts (effective for periods commencing 1
January 2023)
· Amendments to IAS 1, presentation of financial statements on
classification of liabilities (effective for periods commencing on or after 1
January 2023)
· Amendments to IAS 8 - definition of accounting estimates
(effective for periods commencing 1 January 2023)
The Directors anticipate that the adoption of these Standards and
Interpretations in future periods will have no material impact on the
financial statements of the Group. The Group does not intend to apply any of
these pronouncements early.
IMPACT OF NEW INTERNATIONAL REPORTING STANDARDS, AMENDMENTS AND
INTERPRETATIONS
The following Standards and Interpretations have been considered and applied
in these financial statements:
· COVID-19-Related Rent Concessions beyond 30 June 2021 - Amendment
to IFRS 16
· Onerous Contracts - Cost of Fulfilling a Contract (Amendments to
IAS 37)
· Property, Plant and Equipment: Proceeds before Intended Use
(Amendments to IAS 16)
There has been no material impact on the financial statements as a result of
adopting these Standards and Interpretations.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and its subsidiary undertakings. Entities are accounted for as
subsidiary undertakings when the Group is exposed to or has rights to variable
returns through its involvement with the entity and it has the ability to
affect those returns through its power over the entity.
Details of subsidiary undertakings and % shareholding:
Cornerstone Payment Solutions Ltd -
100% owned by the Company
Cornerstone - Middle East FZCO
- 100% owned by the Company
Avila House
Limited
- 100% owned by Cornerstone Payment Solutions Ltd
Capital Currencies Limited
- 100% owned by the Company
Pangea FX
Limited
- 100% owned by the Company
All subsidiary undertakings have an accounting reference date ended 31
December.
On 23 December 2022, the Company announced the agreement of the sale of Avila
House Limited to Aspire Commerce Ltd. Avila House remained under the control
of the Group until the sale completed on 26 April 2023 following receipt of
regulatory approval from the Financial Conduct Authority ("FCA").
BUSINESS COMBINATIONS
The Group financial statements recognise business combinations using the
acquisition method when control is transferred to the Group. The consideration
transferred in the acquisition is generally measured at fair value, as are the
identifiable net assets acquired. Any goodwill that arises is tested annually
for impairment. Any gain on a bargain purchase is recognised in profit or loss
immediately. Transaction costs are expensed as incurred, except if related to
the issue of debt or equity securities. The consideration transferred does not
include amounts related to the settlement of pre-existing relationships. Such
amounts are generally recognised in profit or loss.
Any contingent consideration is measured at fair value at the date of
acquisition. If an obligation to pay contingent consideration that meets the
definition of a financial instrument is classified as equity, then it is not
re-measured and settlement is accounted for within equity. Otherwise, other
contingent consideration is re-measured at fair value at each reporting date
and subsequent changes in the fair value of the contingent consideration are
recognised in profit or loss.
GOING CONCERN
During the year ended 31 December 2022, the Group made an adjusted EBITDA loss
(excluding non-cash share-based compensation, depreciation & amortisation
costs and non-recurring transactions costs) of £869,319. At 31 December 2022
the Group balance sheet showed a net liabilities position of £89,901,
including a negative profit and loss reserve of £10,924,791, and a cash
balance of £682,346. Post year-end, the Group's balance sheet has
strengthened with the conversion of a £225,000 loan note to equity on 6
February 2023 following receipt of permission from the FCA for a shareholder
to increase their shareholding beyond 9.9% of the issued share capital of the
Company. Further, the Group received proceeds of £300,000 on 26 April 2023
following the completion of the sale of Avila House Limited.
Although the Group has historically generated losses, the trading position of
the Group has continued to improve since the year-end with a strong focus on
cost control combined with strong revenue growth. As a result, the Group
expects to begin generating a cash inflow before financing activities during
2023.
The Directors have prepared cash flow forecasts covering a period to 31
December 2024. The Directors have derived forecast assumptions that are their
best estimate of the future development of the Group's business taking into
account projected increase in revenues, continued investment in the
development of the software platform and organic sales and marketing efforts.
The Directors have prepared various scenario planning forecasts alongside
their best-estimate forecast assumptions, including a scenario in which sales
growth falls below management expectations and various cash mitigation
measures are implemented, which all indicate sufficient cash resources to
continue to finance the Group's working capital requirements over the forecast
period.
For these reasons, the Directors continue to adopt the going concern basis of
accounting in preparing the Group's financial statements.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
revenue
The Group applies IFRS 15 Revenue from Contracts with Customers for the
recognition of revenue. IFRS 15 established a comprehensive framework for
determining whether, how much and when revenue is recognised. It affects the
timing and recognition of revenue items, but not generally the overall amount
recognised.
The performance obligations of the Group's revenue streams are satisfied on
the transaction date or by the provision of the service for the period
described in the contract. Revenue is not recognised where there is evidence
to suggest that customers do not have the ability or intention to pay. The
Group does not have any contracts with customers where the performance
obligations have not been fully satisfied.
The Group derives revenue from the provision of foreign exchange and payment
services. When a contract with a client is entered into, it immediately enters
into a separate matched contract with its institutional counterparty.
Spot and forward revenue is recognised when a binding contract is entered into
by a client and the rate is fixed and determined. Revenue represents the
difference between the rate offered to clients and the rate received from its
institutional counterparties.
INVESTMENTS
Investments in subsidiary undertakings are accounted for at cost less
impairment.
FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised on the Group
Statement of Financial Position when the Group has become a party to the
contractual provisions of the instrument.
Derivative financial instruments
Derivative financial assets and liabilities are carried as assets when their
fair value is positive and as liabilities when their fair value is negative.
Changes in the fair value of derivatives are included in the income statement.
The Group's derivative financial assets and liabilities at fair value through
profit or loss comprise solely of forward foreign exchange contracts.
Trade, loan and other receivables
Trade and loan receivables are initially measured at their transaction price.
Trade and loan receivables are held to collect the contractual cash flows
which are solely payments of principal and interest. Therefore, these
receivables are subsequently measured at amortised cost using the effective
interest rate method. The Directors have considered the impact of discounting
trade and loan receivables whose settlement may be deferred for lengthy
periods and concluded that the impact would not be material.
An impairment loss is recognised for the expected credit losses on trade and
loan receivables when there is an increased probability that the counterparty
will be unable to settle an instrument's contractual cash flows on the
contractual due dates, a reduction in the amounts expected to be recovered, or
both.
Impairment losses and any subsequent reversals of impairment losses are
adjusted against the carrying amount of the receivable and are recognised in
profit or loss.
Trade payables
Trade payables are initially recognised at fair value and subsequently at
amortised cost using the effective interest method.
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds received,
net of direct issue costs.
Financial liabilities
Financial liabilities are classified according to the substance of the
contractual arrangements entered into. An instrument will be classified as a
financial liability when there is a contractual obligation to deliver cash or
another financial asset to another enterprise.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, deposits held at call with
banks and other short-term highly liquid investments with original maturities
of three months or less.
For the purposes of the Cash Flow Statement, cash and cash equivalents consist
of cash and cash equivalents as defined above, net of any outstanding bank
overdraft which is integral to the Group's cash management.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the Group's interest in the fair value of the identifiable
assets and liabilities of a subsidiary, associate or jointly controlled entity
at the date of acquisition. Goodwill on acquisition of subsidiaries is
separately disclosed in note 9.
Goodwill is not amortised; it is recognised as an asset, allocated to cash
generating units for the purpose of impairment testing and reviewed for
impairment at least annually. Any impairment is recognised immediately in
profit or loss and is not subsequently reversed.
other INTANGIBLE aSSETS
An intangible asset, which is an identifiable non-monetary asset without
physical substance, is recognised to the extent that it is probable that the
expected future economic benefits attributable to the asset will flow to the
Group and that its cost can be measured reliably. The asset is deemed to be
identifiable when it is separable or when it arises from contractual or other
legal rights.
Amortisation is charged on a straight-line basis through the profit or loss
within administrative expenses. The rates applicable, which represent the
Directors' best estimate of the useful economic life, are as follows:
Customer relationships - 5
years
Internally developed software - 3 years
Software costs - 3
years
Other intangible assets - 3
years (no charge in the first period of ownership)
property, plant and equipment
All property, plant and equipment is initially recorded at cost and is
subsequently measured at cost less accumulated depreciation and any recognised
impairment loss.
Depreciation, which is charged through the profit or loss within
administrative expenses, is provided at rates calculated to write off the cost
less residual value of each asset over its expected useful life, as follows:
Computer equipment
- 25%
straight line
Leasehold improvements
- in line with the
term of the underlying leased asset
The gain or loss arising on the disposal or retirement of an asset is
determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in profit or loss.
PROVISIONS
Provisions are recognised when the Group has a present obligation as a result
of a past event which it is probable will result in an outflow of economic
benefits that can be reliably estimated.
SHARE CAPITAL
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares are shown in share premium as a
deduction from the proceeds.
SHARE-BASED COMPENSATION
Where share options are awarded to employees, the fair value of the options at
the date of grant is charged to the income statement over the vesting period.
Non-market vesting conditions are taken into account by adjusting the number
of equity instruments expected to vest at each balance sheet date so that,
ultimately, the cumulative amount recognised over the vesting period is based
on the number of options that eventually vest. Market vesting conditions are
factored into the fair value of the options granted.
As long as all other vesting conditions are satisfied, a charge is made
irrespective of whether the market vesting conditions are satisfied. The
cumulative expense is not adjusted for failure to achieve a market vesting
condition.
Where the terms and conditions of options are modified before they vest, the
increase in the fair value of the options, measured immediately before and
after the modification, is also charged to the income statement over the
remaining vesting period. Where equity instruments are granted to persons
other than employees, the income statement is charged with fair value of goods
and services received.
Cancelled or settled options are accounted for as an acceleration of vesting
and the amount that would have been recognised over the remaining vesting
period is recognised immediately.
The proceeds received net of any attributable transaction costs are credited
to share capital (nominal value) and share premium when the options are
exercised.
Fair value is measured by use of the Black-Scholes pricing model which is
considered by management to be the most appropriate method of valuation.
employee benefits
The Group operates a defined contribution pension scheme. The pension costs
charged in the financial statements represent the contribution payable by the
Group during the year.
The costs of short-term employee benefits are recognised as a liability and an
expense in the period the related service is rendered at the undiscounted
amount of the benefits expected to be paid in exchange for that service.
TAXATION
Current income tax assets and liabilities are measured at the amount expected
to be recovered from or paid to the taxation authorities. The tax rates and
tax laws used to compute the amount are those that are enacted or
substantively enacted at the reporting date. Current income tax relating to
items recognised directly in equity or other comprehensive income is
recognised in equity and not in the consolidated statement of comprehensive
income.
Deferred income tax is provided on all temporary differences at the reporting
date arising between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes. Deferred tax assets and
liabilities are offset when the Group has a legally enforceable right to
offset current tax assets and liabilities and the deferred tax assets and
liabilities relate to taxes levied by the same tax authority.
Deferred tax assets have not been recognised in respect of the Group's tax
losses carried forward.
Research and Development tax credits are not recognised as receivables until
the claims have been submitted and agreed by HMRC.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting
accounting judgements will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below.
IMPAIRMENT
At each accounting reference date, the Group reviews the carrying amounts of
its intangibles, property, plant & equipment and investments to determine
whether there is any indication that those assets have suffered an impairment
loss. If any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss (if any).
Where the asset does not generate cash flows that are independent from other
assets, the Group estimates the recoverable amount of the cash-generating unit
to which the asset belongs. An intangible asset with an indefinite useful life
is tested for impairment annually and whenever there is an indication that the
asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated
to be less than its carrying amount, the carrying amount of the asset (or
cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised immediately in profit or loss, unless the relevant asset is
carried at a revalued amount, in which case the impairment loss is treated as
a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (or cash-generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss
been recognised for the asset (or cash-generating unit) in prior years. A
reversal of an impairment loss is recognised immediately in profit or loss,
unless the relevant asset is carried in at a revalued amount, in which case
the reversal of the impairment loss is treated as a revaluation increase.
DEFERRED CONSIDERATION
Total compensation for acquisitions includes an element of deferred
consideration payable, subject to the revenue performance post-acquisition.
Management use historical information and management forecasts to estimate a
liability, using the discounted cashflow methodology, to derive a fair value
of the deferred consideration payable.
SHARE-BASED COMPENSATION
The fair value of share-based awards is measured using the Black-Scholes model
which inherently makes use of significant estimates and assumptions concerning
the future applied by the Directors. Such estimates and judgements include the
expected life of the options and the number of employees that will achieve the
vesting conditions. Further details of the share option scheme are given in
note 15.
ALTERNATIVE PERFORMANCE MEASURES
The Group uses the alternative performance measure of adjusted EBITDA/(EBITDA
loss). This measure is not defined under IFRS, nor is it a measure of
financial performance under IFRS.
This measure is sometimes used by investors to evaluate a company's
operational performance with a long-term view towards adding shareholder
value. This measure should not be considered an alternative, but instead
supplementary, to profit/(loss) from operations and any other measure of
performance derived in accordance with IFRS.
Alternative performance measures do not have generally accepted principles for
governing calculations and may vary from company to company. As such, the
adjusted EBITDA/(EBITDA loss) quoted within the Group Statement of
Comprehensive Income should not be used as a basis for comparison of the
Group's performance with other companies.
During the year ended 31 December 2022, the Group adopted adjusted EBITDA as
an alternative performance measure having made reference to underlying
profit/(loss) from operations in prior periods. The Group adopted the new
alternative performance measure in order to more closely align with
competitors, financial analyst coverage and the Group's own guidance.
ADJUSTED EBITDA/(EBITDA LOSS)
The Group uses adjusted EBITDA/(EBITDA loss), defined as profit/(loss) from
operations, adding back share-based compensation, transaction costs associated
with the Group's acquisition strategy and depreciation & amortisation
charge.
The adjusted EBITDA loss is reconciled back to the loss from operations within
the Group Statement of Comprehensive Income.
1 revenue and SEGMENTAL REPORTING
All of the Group's revenue arises from its
activities within the UK (although a proportion of revenue is derived from
customers incorporated or residing outside of the UK). Management considers
there to be only one operating segment within the business based on the way
the business is organised and the way results are reported internally.
Revenue is as follows:
Group Group
Year ended 31 December 2022 Year ended 31 December 2021
£ £
_______ _______
Total revenue 4,821,996 2,301,172
_______ _______
Group Group
Year ended 31 December 2022 Year ended 31 December 2021
2 LOSS FROM OPERATIONS £ £
Loss from operations is stated after charging:
Share-based compensation 4,284,039 2,338,495
Transaction costs 99,365 402,515
Expensed software development costs 86,941 97,556
Depreciation of property, plant and equipment 14,622 4,293
Amortisation of intangible assets 386,541 148,094
Short-term (2018 IAS 17 operating) lease rentals 252,308 86,434
_______ _______
Amounts payable to the Group's auditor in respect of both audit and non-audit
services:
Year ended 31 December 2022 Year ended 31 December 2021
£ £
Audit Services
- Statutory audit 40,000 25,000
Other Services
Due diligence services - 18,000
The auditing of accounts of associates of the Company pursuant to legislation:
- Audit of subsidiaries and its associates 49,450 30,250
------------------------- -------------------------
89,450 73,250
========================= =========================
3 INTEREST AND SIMILAR ITEMS
Year ended 31 December 2022 Year ended 31 December 2021
£ £
Total finance and other income
Bank interest receivable 37,947 1,622
========================= =========================
Total finance costs
Unwinding of discount 108,416 -
Loan note interest 53,500 -
Other interest payable and charges 9,341 360
------------------------- -------------------------
171,257 300
========================= =========================
4 EMPLOYEES
The average monthly numbers of employees in the Group (including the
Directors) during the year was made up as follows (the Company has no
employees other than the Directors):
Year ended 31 December 2022 Year ended 31 December 2021
Number Number
Directors 7 8
Employees 27 14
_______ _______
34 22
_______ _______
Employment costs Year ended 31 December 2022 Year ended 31 December 2021
£ £
Wages and salaries 1,977,588 1,309,251
Social security costs 251,010 182,414
Pension costs 49,200 38,307
Share-based compensation 4,155,094 2,195,782
_______ _______
6,432,892 3,725,754
_______ _______
remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the
Group, is set out below in aggregate. Further information about the
remuneration of the individual directors is provided in the Directors'
Remuneration Report of the Company's annual report and accounts for the year
ended 31 December 2022.
Year ended 31 December 2022 Year ended 31 December 2021
£ £
Salaries and fees 794,712 680,553
Bonus 43,044 76,800
Share-based compensation (credit) / charge (125,443) 311,469
Social security costs 123,024 84,022
_______ _______
835,337 1,152,844
_______ _______
Number Number
Number of Directors to whom retirement benefits are accruing under a defined 3 3
contribution scheme
_______ _______
Year ended 31 December 2022 Year ended 31 December 2021
£ £
The remuneration in respect of the highest paid Director was:
Salaries and fees 140,000 180,000
Bonus 31,360 43,200
Share-based compensation charge 30,173 177,000
Pension and other benefits 7,046 9,000
_______ _______
208,579 409,200
_______ _______
During the year, 1,348,867 options were forfeited by Julian Wheatland, a
former director, leading to a share-based compensation credit for the year
ended 31 December 2022 in respect of Mr. Wheatland of £192,452 (year ended 31
December 2021: share-based compensation charge of £177,000).
During the year, no (2021: nil) Directors exercised any (2021: nil) share
options.
5 Pension costs
The Group operates a defined contribution pension scheme. The scheme and its
assets are held by independent managers. The pension charge represents
contributions due from the Group and amounted to £49,200 (2021: £38,307). At
31 December 2022 contributions of £59,054 remained outstanding and are
included within other payables (2021: £25,864).
6 taxation
The tax on the loss on ordinary activities for the period was as follows:
Group Group
Year ended 31 December 2022 Year ended 31 December 2021
£ £
_______ _______
Current Tax:
Current tax credit (158,188) (70,764)
Deferred tax credit (17,177) -
_______ _______
Income tax credit (175,365) (70,764)
_______ _______
Group Group
Year ended 31 December 2022 Year ended 31 December 2021
£ £
Loss before taxation (5,787,197) (4,174,533)
_______ _______
Loss multiplied by main rate of corporation tax in the UK of 19% (2021: 19%) (1,099,567) (793,161)
Effects of:
Surrender of tax losses for research & development tax credit refund (158,188) (70,764)
Expenses not deductible for tax purposes 29,261 66,649
Share-based payments 814,037 444,314
Other adjustments in period 65,825 (702)
Tax losses carried forward 190,444 282,900
_______ _______
Current tax credit (158,188) (70,764)
_______ _______
As at 31 December 2022, the Group had prepared but not yet submitted a
Research and Development tax credits reclaim, the estimated net benefit of
which is approximately £135,000 During the year ended 31 December 2022, the
Group received a Research and Development tax credit refund of £158,188
(2021: £70,764) in respect of its reclaim for the year ended 31 December
2021.
As at 31 December 2022, the Group had tax losses carried forward of
£5,013,429 (31 December 2021: £4,147,682). Deferred tax has not been
recognised in respect of these tax losses. The standard rate of corporation
tax applicable to the Group for the year ended 31 December 2022 was 19%. The
UK government has announced, with effect from 1 April 2023, an increase in the
corporation tax main rate from 19% to 25% for companies with profits over
£250,000 and the introduction of a small profits rate of 19% applicable to
companies with profits of not more than £50,000, with marginal relief
available for profits up to £250,000.
DEFERRED TAX
The Group recognised the following movement in deferred tax liabilities (year
ended 31 December 2021: £nil):
Balance as at 1 January 2022 Acquired in business combination Recognised Non-current balance as at 31 December 2022
to profit or loss
£ £ £ £
Intangibles - 116,993 (17,177) 99,816
_______ _______ _______ _______
Based on the valuation of acquisition intangibles and enacted UK corporation
tax rates, during the year ended 31 December 2022 the Group has acquired
deferred tax liabilities of £80,382 in relation to its acquisition of Capital
Currencies Limited and £36,611 in relation to its acquisition of Pangea FX
Limited (note 9). The deferred tax will be released to the income statement as
the underlying intangible assets are amortised or otherwise recognised via
impairment in profit or loss.
7 LOSS PER SHARE
The loss per share of 17.26p (2021: 21.24p) is based upon the loss of
£5,611,832 (2021: loss of £4,103,769) and the weighted average number of
ordinary shares in issue for the year of 32,506,335 (2021: 19,317,407).
The loss incurred by the Group means that the effect of any outstanding
warrants and options would be considered anti-dilutive and is ignored for the
purposes of the loss per share calculation.
8 GROUP INTANGIBLE ASSETS
Goodwill Customer relationships Internally developed software Software costs Other Total
£ £ £ £ £ £
COST
At 1 January 2022 - - 647,485 15,611 92,520 755,616
Additions - - 422,713 - - 422,713
Acquired through business combinations 1,086,262 615,756 - - - 1,702,018
_______ _______ _______ _______ _______ _______
At 31 December 2022 1,086,262 615,756 1,070,198 15,611 92,520 2,880,347
AMORTISATION
At 1 January 2022 - - 162,558 15,611 - 178,169
Charge for the period - 90,408 296,133 - - 386,541
_______ _______ _______ _______ _______ _______
At 31 December 2022 - 90,408 458,691 15,611 - 564,710
NET BOOK VALUE
At 31 December 2022 1,086,262 525,348 611,507 - 92,520 2,315,637
_______ _______ _______ _______ _______ _______
At 31 December 2021 - - 484,927 - 92,520 577,447
_______ _______ _______ _______ _______ _______
Other intangible assets comprise regulatory licenses held at cost and are not
amortised.
Company INTANGIBLE ASSETS
Internally developed software Total
£ £
COST
At 1 January 2022 647,485 647,485
Additions 422,713 422,713
_______ _______
At 31 December 2022 1,070,198 1,070,198
AMORTISATION
At 1 January 2022 162,558 162,558
Charge for the period 296,133 296,133
_______ _______
At 31 December 2022 458,691 458,691
NET BOOK VALUE
At 31 December 2022 611,507 611,507
_______ _______
At 31 December 2021 484,927 484,927
_______ _______
9 BUSINESS COMBINATIONS
CAPITAL CURRENCIES LIMITED
The Group acquired 100% of the share capital of Capital Currencies Limited
("Capital Currencies") on 1 February 2022. Capital Currencies was a
well-established foreign exchange broker located in Tunbridge Wells,
specialising in the provision of currency exchange and international payments.
Capital Currencies is authorised and regulated by the FCA as an authorised
payment institution permitted to provide payment services.
The rationale for the acquisition was to expand Cornerstone's presence in its
core target market and, in line with the Group's stated strategy, increase
revenue generated by direct clients. By bringing Capital Currencies' clients
onto Cornerstone's technology platform, the Group benefits from the
rationalisation of payments to banking partners across the combined
organisation as well as recognising other synergistic savings, such as in
compliance costs and overheads.
The recognised value of assets acquired and liabilities assumed and the fair
value of consideration at the date of acquisition were as follows:
£
Intangibles 423,064
Tangible fixed assets 14,584
Trade and other receivables 27,842
Cash acquired 58,351
Trade and other payables (57,939)
Deferred tax provision (80,382)
Net assets on acquisition 385,520
Goodwill on acquisition 1,043,319
Total consideration 1,428,839
Initial consideration - cash 586,335
Deferred contingent consideration 842,504
Total consideration 1,428,839
Goodwill comprises the value of expected synergies arising from the
acquisition and additional value attributed by the acquirer in relation to the
future expected cash flows, which is not separately recognised.
In determining the value of acquired customer relationships, forecast cash
flows were discounted using a weighted average cost of capital ("WACC") of
13%. Based on the valuation of the intangibles and enacted UK corporation tax
rates a deferred tax provision of £80,382 was recognised as a result of the
identified intangible asset.
Deferred consideration related to the acquisition of Capital Currencies was
agreed at acquisition as payable as follows:
· On the first anniversary of completion, two times Capital
Currencies' revenue for the 12-month period leading up to 31 January 2023,
less the initial cash consideration already paid.
· On the second anniversary of completion, three times Capital
Currencies' revenue for the 12-month period leading up to 31 January 2024,
less cumulative amounts already paid.
Deferred consideration has been assessed using historical information and
management forecasts to estimate amounts payable which have been discounted at
a WACC of 13%.
As disclosed in note 20, on 18 March 2023, the Company announced it had agreed
a variation of the above deferred consideration payments that postponed the
above measurement and settlement periods by one calendar year in each instance
and gave the Company the option to settle the deferred consideration in
cash. The discounted consideration shown above does not reflect the impact
of this extension.
PANGEA FX LIMITED
The Group acquired 100% of the share capital of Pangea FX Limited ("Pangea")
on 1 September 2022. Pangea FX is a specialist FX and treasury consultancy
with a strategic focus on helping its clients control the impact currency
volatility has on their business, primarily through providing a bespoke
service to corporate clients in the UK.
The rationale for the acquisition was to accelerate the Group's growth through
the addition of two experienced senior sales executives - the principals of
Pangea - who are responsible for leading the Group's sales function in the UK
and Dubai. The Group has also benefited from the migration of Pangea's
existing client base to the Cornerstone platform as well as certain
operational synergies such as from closing the Pangea operating base and
relocating the employees to the Group's main office.
The recognised value of assets acquired and liabilities assumed and the fair
value of consideration at the date of acquisition were as follows:
£
Intangibles 192,962
Tangible fixed assets 976
Trade and other receivables 30,737
Cash acquired 856
Trade and other payables (12,568)
Deferred tax provision (36,611)
Net assets on acquisition 176,081
Goodwill on acquisition 42,944
Total consideration 219,025
Initial consideration - cash 25,000
Payment to discharge Directors' loans 21,447
Loan notes (undiscounted) 172,578
Total consideration 219,025
Goodwill comprises the value of expected synergies arising from the
acquisition and additional value attributed by the acquirer in relation to the
future expected cash flows, which is not separately recognised.
In determining the value of the acquired customer relationships that comprise
the intangible assets, forecast cash flows were discounted using a WACC of
13%. Based on the valuation of the intangibles and enacted UK corporation tax
rates a deferred tax provision of £36,611 was recognised as a result of the
identified intangible asset.
The payment of the loan note principal of £172,578 is contingent on achieving
future revenue targets over a period of two years from the acquisition date.
Based on current and forecast performance it has been assumed that the
contingent consideration will be paid in full. A 6% coupon rate is payable on
the loan note principal, quarterly in arears. As the loan note debt instrument
is expected to be held to maturity, with the only related cash flows being the
principal and interest, the loan note principal is shown without any
time-value discount.
10 GROUP property, plant and equipment
Computer equipment Leasehold improvements Total
£ £ £
COST
At 1 January 2022 33,046 - 33,046
Additions 17,198 - 17,198
Acquired through business combinations 976 14,583 15,559
_______ _______ _______
At 31 December 2022 51,220 14,583 65,803
AMORTISATION
At 1 January 2022 11,504 - 11,504
Charge for the period 8,275 6,347 14,622
_______ _______ _______
At 31 December 2022 19,779 6,347 26,126
NET BOOK VALUE
At 31 December 2022 31,441 8,236 39,677
_______ _______ _______
At 31 December 2021 21,542 - 21,542
_______ _______ _______
11 investments
Investments in
Subsidiaries
£
Cost or Valuation
At 1 January 2022 6,349,758
Additions 1,667,864
8,017,622
Net Book Value
At 31 December 2022 8,017,622
At 31 December 2021 6,349,758
The Company's investment as at 31 December 2022 represents its investments in
its direct subsidiaries of £6,367,773 in Cornerstone Payment Solutions Ltd
(2021: £6,347,773), £1,428,839 in Capital Currencies (2021: £nil),
£219,025 in Pangea FX Limited (2021: £nil) and £1,985 in Cornerstone -
Middle East FZCO (2021: £1,985).
During the year ended 31 December 2022, the Company invested a further
£20,000 in support of the increased regulatory capital requirements for
Cornerstone Payment Solutions Ltd.
Further, as disclosed in note 9 investments in subsidiaries acquired in the
year amounted to £1,428,839 in respect of Capital Currencies, which was
acquired on 1 February 2022 (year-ended 31 December 2021: £nil) and £219,025
in respect of Pangea FX Limited (2021: £nil).
Shares in subsidiary and associate undertakings are stated at cost. As at 31
December 2022, Cornerstone FS plc owned the following principal subsidiaries,
which are included in the consolidated accounts:
Subsidiary Principal Activity Country of Incorporation Registered Office Percentage of Ownership
Cornerstone Payment Solutions Ltd Foreign Exchange Northern Ireland 1 Elmfield Avenue, 100 per cent.
and Payment Services
Warrenpoint, Newry,
Co. Down, BT34 3HQ
Cornerstone - Middle East FZCO Consultancy United Arab Emirates 100 per cent.
Dubai Silicon Oasis, DDP, Building A2, Dubai, United Arab Emirates
Avila House Limited E-money and Payment Services England and Wales The Old Rectory, 100 per cent.
Addington,
Buckinghamshire,
MK18 2JR
Capital Currencies Limited Authorised Payment Institution England and Wales 100 per cent.
The Old Rectory, Addington,
Buckinghamshire,
MK18 2JR
Pangea FX Limited Foreign Exchange White Label England and 100 per cent.
Wales
The Old Rectory, Addington,
Buckinghamshire,
MK18 2JR
CS Commercial Limited and Cornerstone EBT Trustee Limited, which were dormant
and 100% owned by the Company, were both dissolved during the year.
12 current trade and other receivables
Group Group Company Company
31 December 2022 31 December 2021 31 December 2022 31 December 2022
£ £ £ £
Trade receivables 221,669 - - -
Prepayments and accrued income 131,010 90,360 39,465 31,118
Derivative financial assets at fair value 635,473 322,710 - -
Other receivables 53,062 42,525 - 10,000
Amounts due from Group undertakings - - 363,359 170,229
Taxes and social security 297,896 37,649 297,896 37,649
_______ _______ _______ _______
1,339,110 493,244 700,720 248,996
_______ _______ _______ _______
For the year ended 31 December 2022 £nil was recorded as a bad debt expense
(31 December 2021: £nil).
As at 31 December 2022, the Group had a contingent asset in respect of
Research and Development tax credits for which a reclaim had been prepared,
but not yet submitted. The estimated net benefit of the claim is approximately
£135,000(2021: £158,000) and has not been included in current receivables
due to its contingent nature.
13 loan
notes
Group Group Company Company
31 December 2022 31 December 2021 31 December 2022 31
December 2021
£ £ £ £
CURRENT
Convertible loan notes 225,000 - 225,000 -
_______ _______ _______ _______
NON-CURRENT
Loan notes 2,172,578 - 2,172,578 -
_______ _______ _______ _______
The current convertible loan note of £225,000 was issued pursuant to the
Company's fundraising on 5 August 2022 to a placee pending approval from the
FCA to allow the placee to increase their shareholding to over 10%. The FCA
granted such approval and the loan note was converted into 3,461,538 new
ordinary shares of one penny each at an exercise price of 6.5 pence per share
on 6 February 2023 (see note 20).
The non-current non-convertible loan notes comprise £2,000,000 issued to
Robert O'Brien (the "Robert O'Brien loan note") and £172,578 of deferred
consideration in relation to the acquisition of Pangea FX Limited (see note
9). Both loan notes have a 6% coupon rate payable quarterly in arrears. The
Robert O'Brien loan note was issued pursuant to a settlement of his
share-incentivisation arrangement with the Company and was due for repayment
on 31 July 2025. Post year end, the repayment date was varied to 31 July 2026.
The Pangea FX Limited loan note is payable on 31 August 2024 contingent upon
achieving future revenue targets over a period of two years from the
acquisition date. Based on current and forecast performance it has been
assumed that the loan notes will be paid in full.
14 current trade and other payables
Group Group Company Company
31 December 2022 31 December 2021 31 December 2022 31
December 2021
£ £ £ £
362,035 346,255 162,128 212,561
Trade payables
Derivative financial liabilities at fair value 563,676 290,292 - -
Other tax and social security 515,750 60,349 50,640 10,923
Other payables and accruals 527,816 484,814 179,818 244,033
Amount due to Group undertakings - - 1,425,555 435,659
_______ _______ _______ _______
1,969,277 1,181,710 1,818,141 903,176
_______ _______ _______ _______
15 Share capital AND Reserves
Allotted, called up and fully paid
Ordinary shares Share capital
No. £
Ordinary shares of £0.01 each as at 1 January 2022 20,277,582 202,776
Issue of new shares of £0.01 27,758,617 277,586
_______ _______
Ordinary shares of £0.01 each at 31 December 2022 48,036,199 480,362
_______ _______
At 31 December 2022 share subscriptions of £nil remained unpaid (31 December
2021: £nil).
The following changes in the share capital of the Company have taken place in
year ended 31 December 2022:
· On 27 January 2022, 3,283,034 ordinary shares were issued at a
price of £0.265 in connection with a placing and subscription
· On 8 April 2022, 123,000 ordinary shares were issued at a price
of £0.265 in consideration for investor relations services
· On 5 August 2022, 13,230,765 ordinary shares were issued at a
price of £0.065 in connection with a placing
· On 5 August 2022, 6,386,818 ordinary shares were issued at a
price of £0.100 being the equity element of a settlement with Robert O'Brien
and his team related to their share-based incentivisation agreement
· On 24 August 2022, 360,000 ordinary shares were issued at a price
of £0.10025 in part settlement of the share-based remuneration for the
non-executive board and company secretary in respect of the year ended 31
December 2021
· On 7 October 2022, 4,375,000 ordinary shares were issued at a
price of £0.008 upon conversion of a loan note
All ordinary shares are equally eligible to receive dividends and the
repayment of capital and represent equal votes at meetings of shareholders.
The following describes the nature and purpose of each reserve within owner's
equity:
Share capital: Amount subscribed for shares at nominal value.
Share premium: Amount subscribed for share capital in excess of nominal value,
less costs of share issue.
Share-based payment reserve: The share-based payment reserve comprises the
cumulative expense representing the extent to which the vesting period of
warrants and share options has passed and management's best estimate of the
achievement or otherwise of non-market conditions and the number of equity
instruments that will ultimately vest.
Deferred consideration reserve: Reflects equity-based contingent consideration
on the acquisition of subsidiaries.
Merger relief reserve: Effect on equity of the consideration shares issued
over their nominal value.
Reverse acquisition reserve: Effect on equity of the reverse acquisition of
Cornerstone Payment Solutions Ltd.
Retained losses: Cumulative realised profits less cumulative realised losses
and distributions made, attributable to the equity shareholders of the
Company.
Options
The Company operates an Enterprise Management Incentive ("EMI") Scheme
equity-settled share-based remuneration scheme for employees.
Under the scheme the options are exercisable at any time. The options are also
exercisable in the event of a change of control. If the option holder's
employment within the Group is terminated, other than for gross misconduct,
any options vested may be exercised within 90 days of such termination (12
months in the case of the option holder's death), otherwise the options lapse
five years after the date of grant. The options also lapse, inter alia, if the
option holder is adjudged bankrupt or proposes a voluntary arrangement or
other scheme in relation to his/her debts.
31 December 2022 31 December 2021
Number Weighted average exercise price Number Weighted average exercise price
£ £
Outstanding at the beginning of the year 1,599,480 0.50 1,599,480 0.50
Granted during the year 1,893,454 0.23 - -
Forfeited/waived during the year (1,786,603) (0.46) - -
_______ _______ _______ _______
Total outstanding 1,706,331 0.24 1,599,480 0.50
_______ _______ _______ _______
Total exercisable 184,535 0.50 533,160 0.50
_______ _______ _______ _______
The Black-Scholes model was used for calculating the cost of options. The
model inputs for each of the options issued were:
GRANT DATE 8 March 2022 8 March 2022 8 March 2022 1 September 2022
Exercise price (pence) 36.2 61.0 26.5 10.0
Share price at grant date (pence) 16.5 16.5 16.5 9.0
Risk free rate 2.1% 2.1% 2.1% 2.7%
Expected volatility 90.1% 90.1% 90.1% 129.5%
Contractual life (years) 5 5 5 5
The expected volatility reflects the assumption that historical volatility of
comparable quoted companies is indicative of future trends, which may not
necessarily be the actual outcome.
The weighted average contractual life of the options is five years (2021: five
years).
No options were exercised during the current year (2021: nil).
The Group's share-based compensation charge for the year ended 31 December
2022 of £4,284,039 (2021: £2,338,495) consists of £128,943 in relation to
warrants granted in Cornerstone (2021: £142,712), a net credit of £222,577
in respect of the Cornerstone options (2021: charge of £306,833), £36,836 in
respect of equity settled share-based payments related to the non-executive
Board member's service agreements (2021: £81,370) and £4,340,837 of other
share-based compensation (2021: £1,807,580).
Other share-based compensation
On 27 September 2021 the Company announced the appointment of Robert O'Brien
as General Manager APAC and Middle East. As part of his remuneration package
over the first two years he and his team were entitled to receive share-based
incentivisation based on a multiple of revenue generation and contribution to
profit.
Upon initial recognition of the share-based incentivisation, the forecasted
performance of Robert O'Brien and his team over the two-year period, resulted
in an expected share-based compensation charge over the two-year period of
£6,148,417 based on the share price at the grant date on 1 August 2021 of
29.5 pence per share.
On 4 August 2022, the Company announced the variation of the share incentive
arrangement between the Company and Robert O'Brien and his team. The terms of
the original incentivisation arrangements were varied such that 1) Mr. O'Brien
was issued a loan note with a value of £2 million and carrying a coupon rate
of 6%, repayable by the Company on 31 July 2025 (which was subsequently varied
to be repayable on 31 July 2026); 2) Mr. O'Brien was issued and allotted
4,286,818 new ordinary shares at a price of 10p per share; 3) the three senior
members of Mr. O'Brien's team were allotted and issued 2,100,000 new ordinary
shares at a price of 10p per share; and 4) the issue of a further 5,113,182
new ordinary shares to Mr. O'Brien at a price of 10p per share following
receipt from the FCA of permission for Mr. O'Brien to increase his holding to
more than 9.9% of the issued share capital of the Company. As a result of the
agreed settlement, the Company recognised an accelerated charge for the year
ended 31 December 2022 such that the full value of the total charge estimated
upon initial recognition of £6,148,417 has been cumulatively expensed
(£4,340,837 for the year ended 31 December 2022 and £1,807,580 for the year
ended 31 December 2021).
A transfer from the share-based payment reserve to the profit and loss reserve
of £5,186,984 was recognised for the year ended 31 December 2022 reflecting
the issue of the £2 million loan note, allotment of 6,386,818 new ordinary
shares at a price of 10p per share to Robert O'Brien and his team
(£3,153,950) and the issue of 329,492 shares at a price of 10.025 pence per
share on 28 August 2022 in respect of equity-settled remuneration under the
non-executive Board member's service agreements.
No warrants were granted in the year.
16 Related party transactions
Details of key management compensation are included in note 4. Key management
are considered to be the Directors of the Group.
Transactions with subsidiaries
During the year, the Company and Cornerstone Payment Solutions Ltd entered
into various transactions with each other including software development
charges, licenses fees and working capital support. The net balance of
transactions between the companies are held on an interest-free inter-Group
loan which has no terms for repayment. At the year end, the Company owed
£1,404,408 (2021: £435,659) to Cornerstone Payment Solutions Ltd.
During the year, the Company also provided working capital support to Avila
House Limited, Cornerstone - Middle East FZCO and Capital Currencies Limited.
The net balance of transactions between the companies are held on an
interest-free intra-Group loan which has no terms for repayment. At the year
end, Avila House Limited owed the Company £259,617 (2021: £150,041),
Cornerstone - Middle East FZCO owed the Company £60,500 (2021: £20,188) and
Capital Currencies Limited owed the Company £43,242 (2021: £nil).
Other related parties
All of the amounts below were in respect of the year ended 31 December 2022.
During the year ended 31 December 2022, the Group generated revenue of
£1,617,467 under a referral agreement with Atlantic Partners Asia ("APA"), a
significant shareholder in the Company (year ended 31 December 2021:
£481,330). As at 31 December 2022, APA owed the Group £221,669 (31 December
2021: £nil).
As at 31 December 2022 an amount of £8,750 was due from Terry Everson, a
director of Cornerstone Payment Solutions Ltd and a shareholder in Cornerstone
(31 December 2021: £8,750).
On 28 September 2022 William Newton, a director and significant shareholder of
the Company, assigned his un-drawn convertible loan note of £350,000 to APA.
During the year ended 31 December 2022, William Newton repaid a loan made by
the Group to him of £10,000 (balance outstanding as at 31 December 2021:
£10,000).
During the year ended 31 December 2022, the Group incurred charges of £45,000
(2021: £nil) under a computer services agreement with JF Technology (UK) Ltd
of whom Stephen Flynn (a former Director of the Company and a significant
shareholder) is a director and a majority shareholder. As at 31 December 2022
£18,000 was payable to JF Technology (UK) Ltd (balance outstanding as at 31
December 2021: £nil).
The transactions with Robert O'Brien are disclosed in notes 13, 15 and 20.
17 FINANCIAL INSTRUMENTS
FINANCIAL ASSETS
Group Group Company Company
31 December 2022 31 December 2021 31 December 2022 31
December 2021
£ £ £ £
DERIVATIVE FINANCIAL ASSETS
Foreign currency forward contracts with customers 504,106 359,077 - -
Foreign currency forward contracts with institutional counterparty 131,367 33 - -
_______ _______ _______ _______
635,473 359,110 - -
Cash and cash equivalents 682,346 348,102 495,627 139,579
Trade receivables 221,669 - - -
Other receivables 184,072 132,885 402,824 211,347
_______ _______ _______ _______
1,723,560 840,097 898,451 350,926
_______ _______ _______ _______
FINANCIAL LIABILITIES
Group Group Company Company
31 December 2022 31 December 2021 31 December 2022 31
December 2021
£ £ £ £
DERIVATIVE FINANCIAL LIABILITIES
Foreign currency forward contracts with customers 165,156 290,292 - -
Foreign currency forward contracts with institutional counterparty 398,520 - - -
_______ _______ _______ _______
563,676 290,292 - -
Trade payables 362,035 346,255 162,128 212,561
Other payables 527,816 484,814 1,605,373 679,692
Loan notes 2,397,578 - 2,397,578 -
_______ _______ _______ _______
3,851,105 1,121,361 4,165,079 892,253
_______ _______ _______ _______
All financial assets and liabilities have contractual maturity of less than
one year with the exception of loan notes of £2,172,578 (2021: £nil).
Derivative financial assets and liabilities
Derivative financial assets not designated as
hedging instruments
31 December 2022 31 December 2021
Fair Value Notional Principal Fair Value Notional Principal
£ £ £ £
Foreign currency forward contracts with customers 504,106 9,042,956 359,077 12,508,939
Foreign currency forward contracts with institutional counterparty 131,367 3,377,597 33 12,544
_______ _______ _______ _______
635,473 12,420,553 359,110 12,521,483
_______ _______ _______ _______
Derivative financial liabilities not designated
as hedging instruments
31 December 2022 31 December 2021
Fair Value Notional Principal Fair Value Notional Principal
£ £ £ £
Foreign currency forward contracts with customers 165,156 3,337,362 290,292 9,874,438
Foreign currency forward contracts with institutional counterparty 398,520 8,715,534 - -
_______ _______ _______ _______
563,676 12,052,896 290,292 9,874,438
_______ _______ _______ _______
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. Foreign currency forward contracts are measured at fair
value on a recurring basis.
There are three levels of fair value hierarchy:
· Level 1 - the fair value of financial instruments traded in
active markets is based on quoted market prices at the end of the reporting
period.
· Level 2 - valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or indirectly
observable.
· Level 3 - valuation techniques for which the lowest level input
that is significant to the fair value measurement is unobservable.
Foreign currency forward contracts with customers generally require immediate
settlement on the maturity date of the individual contract and fall into level
2 of the fair value hierarchy above. Level 2 comprises those financial
instruments which can be valued using inputs other than quoted prices that are
observable for the asset or liability either directly (i.e., prices) or
indirectly (i.e., derived from prices). The fair value of forward foreign
exchange contracts is measured using observable forward exchange rates for
contracts with a similar maturity at the reporting date.
The net gain on financial assets at fair value through profit or loss for year
ended 31 December 2022 was £3,300 (2021: net loss of £29,661).
Financial instruments - risk management
Financial assets primarily comprise trade and other receivables, cash and cash
equivalents and derivative financial assets. Financial liabilities comprise
trade and other payables, shareholder loans and derivative financial
liabilities. The main risks arising from financial instruments are market risk
(including foreign currency risk and interest rate risk), liquidity risk,
credit risk and counterparty risk.
Market risk
Market risk for the Group comprises foreign exchange risk and interest rate
risk. The Group operates as a riskless matched principal broker for
deliverable non-speculative spot and forward foreign currency transactions,
with each trade with its clients matched with an identical trade with an
institutional counterparty. Therefore, foreign exchange risk is mitigated
through the matching of foreign currency assets and liabilities between
clients and institutional counterparties which move in parity.
The Group's cash balances are primarily held in Pound Sterling and the Group
does not hold significant cash balances in foreign currencies.
Interest rate risk affects the Group to the extent that it implicitly impacts
the price of foreign currency forward contracts. However, this risk is
mitigated in the same way as foreign currency risk.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due. The Group has extensive controls to
ensure that it has sufficient cash or working capital to meet its cash
requirements to mitigate this risk.
As per the Going Concern note above, the Directors have prepared a cash flow
forecast taking into account a projected increase in revenues and continued
investment in the development of the Group's platform and organic sales &
marketing efforts and the inherent risks and uncertainties facing the Group's
business to assess the Group's working capital requirements. The Board reviews
cash flow projections on a regular basis and has authority controls in place
so as not to commit to material expenditure without being satisfied that
sufficient funding is available to the Group.
The Group also has systems in place to monitor the margin requirements of its
clients and its margin requirement with the institutional counterparty for the
back-to-back foreign currency forward contract on a real-time basis and
request any necessary top up payment from the clients. The Group also has the
right to close any position if no margin is given.
Credit risk
Credit risk is the risk that clients do not meet their contractual obligations
in respect of the currency spot and forward contracts which leads to a
financial loss. All customers are subject to credit verification checks.
Approximately 90% of the Group's trades are spot currency contracts which are
required to be settled within two working days. For forward currency
contracts, as noted above, clients are required to provide margin that
mitigates credit exposure. Trade limits are applied to all clients. The Group
has systems to monitor trade limits and collateral requirements on a real-time
basis. The Group does not have any significant concentration of exposures
within its client base.
Counterparty risk
Each trade between a client and the Group is matched with an identified trade
with Velocity Trade International ("Velocity"), which is a global foreign
exchange liquidity and trade provider that provides pricing, execution and
settlement services for the Group.
The Group also has brokerage accounts with alternative institutional
counterparties and could transact with them instead if Velocity is unable to
provide liquidity.
Management of settled and open trades are conducted via Currency Cloud, the GV
(formerly Google Ventures) backed global payments and FX platform, and Banking
Circle. Client funds are safeguarded with Banking Circle in line with the
Group's requirements under the Electronic Money Regulations 2011 for
additional protection and to reduce counterparty risk.
18 Financial commitments
The Group is not considered to have any operating lease commitments. The
offices utilised by the Group are serviced offices, which have a short notice
period and therefore it has not been considered necessary to disclose these as
an operating lease commitment.
19 CAPITAL MANAGEMENT
The capital structure of the business consists of cash and cash equivalents,
debt and equity. Equity comprises share capital, share premium and retained
losses and is equal to the amount shown as 'Equity' in the balance sheet. The
Group's current objectives when maintaining capital are to:
• safeguard the Group's ability to operate as a going concern so
that it can continue to pursue its growth plans;
• provide a reasonable expectation of future returns to
shareholders; and
• maintain adequate financial flexibility to preserve its
ability to meet financial obligations, both current and long term.
The Group sets the amount of capital it requires in proportion to risk. The
Group manages its capital structure and adjusts it in the light of changes in
economic conditions and the risk characteristics of underlying assets.
The Company is subject to the following externally imposed capital
requirements:
· as a public limited company, the Company is required to have a
minimum issued share capital of £50,000.
Cornerstone Payment Solutions Ltd, a wholly-owned subsidiary of the Company,
is subject to the following capital requirement under the Electronic Money
Regulations 2011:
· 2% of the average outstanding e-money issued by the Electronic
Money Institution (based on a 6-month rolling average), or the initial capital
requirement of €350,000, whichever is the higher.
Capital Currencies Limited, a wholly-owned subsidiary of the Company, is
subject to the following capital requirement under the Payment Service
Regulations 2017:
· either 10% of fixed overheads for the preceding year or the
initial capital requirement of €20,000, whichever is the higher.
Cornerstone Payment Solutions Ltd and Capital Currencies Limited complied with
the above requirements for all periods during the year ended 31 December 2022.
20 EVENTS AFTER THE REPORTING DATE
Variation of Incentivisation and Settlement Arrangements
On 8 March 2023, the Company announced that it had agreed to vary certain
incentivisation and settlement arrangements with Robert O'Brien, General
Manager APAC and Middle East, and Craig Strong, Director of Capital
Currencies.
The repayment date of Mr. O'Brien's £2 million loan note has been extended by
one year such that it is now repayable by the Company on 31 July 2026.
The Company has agreed with Mr. Strong to vary the terms of the original
earn-out consideration in respect of the Capital Currencies acquisition as
follows:
· The first tranche of the earn-out consideration is now assessable
on revenue performance for the year ending 31 January 2024 and the second
tranche is assessable on revenue performance for the year ending 31 January
2025 - both representing an extension of one year.
· The Company now has the option, at its discretion, to satisfy one
or both of the earn-out payments in cash as opposed to one half of the first
tranche being payable in ordinary shares and the other half in convertible
loan notes and the second tranche to be payable in ordinary shares.
Other events after the reporting date
On 13 January 2023, the Company issued and allotted 806,182 new ordinary
shares at a price of 6.501 pence per share to a Non-Executive Director, the
Company Secretary and four former Non-executive Directors as part of their
annual remuneration set out in the Company's admission document dated 26 March
2021.
On 13 January 2023, the Company granted options over ordinary shares of 1
penny each in the capital of the Company. James Hickman was granted 1,000,000
options at an exercise price of 10 pence per share and 1,000,000 options at an
exercise price of 20 pence per share. Judy Happe was granted 550,000 options
and Jordanna Curtis 200,000 both at an exercise price of 10 pence per share.
In addition, the Company granted a further 299,180 options to other staff
members. All options are intended to qualify as Enterprise Management
Incentive options pursuant to the Income Tax (Earnings and Pensions) Act 2003.
On 6 February 2023, the Company issued and allotted 8,574,720 new ordinary
shares following receipt of permission from the FCA for Robert O'Brien and
Mark Horrocks to increase their respective shareholdings beyond 9.9% of the
issued share capital of the Company. The shares were issued at a price of 10
pence and 6.5 pence per share respectively. The shares issued to Mark Horrocks
were for the conversion of a £225,000 loan note issued to him as part of the
Company's fundraising announced on 5 August 2022.
On 26 April 2023, the Group completed the sale of Avila House Ltd to Aspire
Commerce Ltd and received £300,000 in cash in consideration following the
receipt of regulatory approval from the FCA.
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