Equals Money Annual Report 2014

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FY2014 Annual Report · Equals Money

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A N N UA L R E P O RT
And consolidated financial statements
for the year ended 31st December 2014.

3rd Floor, Vintners’ Place
68, Upper Thames Street
London, EC4V 3BJ

www.fairfx.com

Directors and Advisors

Directors:

J Pearson (Chairman)

I A I Strafford-Taylor (Chief Executive Officer)

A Chowdhury

N S Jeffery

J K Drummond (resigned 21st November 2014)

Company Secretary:

I A I Strafford-Taylor

Registered Number:

08922461 (England and Wales)

Registered Office:

3rd Floor Thames House

Vintners Place

68 Upper Thames Street

London

EC4V 3BJ

England

Bankers:

Barclays Bank PLC

7th Floor, United Kingdom House

180 Oxford Street

London

W1D 1EA

England

Auditor:

KPMG LLP

One Snowhill

Snow Hill Queensway

Birmingham

West Midlands

B4 6GH

England

Solicitors:

Berwin Leighton Paisner LLP

Adelaide House

London Bridge

London

EC4R 9HA

England

Nominated advisor and broker:

Cenkos Securities PLC

6.7.8 Tokenhouse Yard

London

EC2R 7AS

England

Contents

Directors and advisors
Strategic Report
Corporate governance statement
Directors’ report
Directors’ responsibilities statement
Independent Auditor’s Report
Consolidated statement of comprehensive income
Consolidated and company statement of financial position
Consolidated and company statement of changes in equity
Consolidated statement of cash flows
Company statement of cash flows
Notes to the consolidated financial statements

2
3-6
7
9-10
11
12
13
14
15
16
17
19-34

FAIRFX ANNUAL REPORT 2014

W W W.FAIRF X.COM

FAIRFX ANNUAL REPORT 2014

2Strategic Report for
the year ended 31
December 2014

Statement from the Chairman and
Chief Executive Officer

Overview
We are pleased to present the first full year results of FAIRFX GROUP PLC (“FAIRFX”),
following its admission to trading on AIM in August 2014. The year ended 31
December 2014 has been an important year for the Group - in addition to our
admission to AIM, FAIRFX has delivered record levels of new customers and revenue.
With strong growth in demand across both our consumer and business audiences in
2014 we are well placed to grow market share and revenue in the UK and to expand
to additional European markets in the year ahead.

Performance Highlights for 2014
• 47.4% increase in revenue to

£475.3m

• 86,397 new customers added to

the business

• 62% revenue growth to £213.7m
within money transfer and
deliverable FX execution products

• 36% increase in gross profit to

£3.8m

What we do
FAIRFX is a disruptive fintech company,
launched in 2007, operating principally
in the foreign exchange space. FAIRFX
concentrates on “deliverable” foreign
exchange (FX) which is the provision
of actual currency delivery rather
than FX trading. Unlike the FX trading

industry, which is at the cutting edge of
technology, the deliverable FX sector
is typically characterised by low-tech
solutions and poor transparency in both
private and corporate sectors. FAIRFX
was established to challenge that status
quo and deliver end-users better value
combined with improved service and
convenience. We do that by enabling
customers to transact seamlessly online
or via mobile for both travel money and
also money transfers. By employing the
best digital and mobile service solutions
we avoid the costs of a branch or retail
infrastructure – a saving we pass on to
our customers with better exchange rates.
The ethos of our business is to promote
clarity of pricing and to avoid hidden
charges. FAIRFX systems were built from
inception on the concept of peer-to-peer
(P2P) functionality and this will convey
further benefit to our customers as the
business rolls out internationally.

FAIRFX has 4 key products: Prepaid
Currency Cards usable worldwide for
purchases and cash withdrawals; a Travel
Cash service delivered via Royal Mail; a
bank-to-bank international money transfer
product; an employee travel expenses
solution for businesses. All FAIRFX
products are characterised by a simple
and fast online on-boarding process.

by pay-per-click (PPC) and affiliate
partnerships. Given the “sticky” nature
of the FAIRFX customers, the benefit of
this spend is expected accrue over many
years, particularly in the multi-pay FAIRFX
products, namely the prepaid currency
cards and travel cash where customers
typically re-use and repurchase the
products and services

The Group made a loss for the year of £2.8
million (2013: profit £0.1 million). This loss
was forecast as the Group invested in a
solid foundation for future growth. The
loss included an increase in marketing
spend, growth in headcount, costs of the
admission to AIM of £0.7m and the charge
for share options granted to incentivise
management and staff of £0.3 million.

FAIRFX offers its products to both private
and corporate clients and both customer
groups are expanding rapidly. Our business
principally earns its revenues from the
difference between the FX rate it transacts
with a customer and the rate at which it
covers this via the market or from another
customer via P2P. FAIRFX does not actively
trade an FX position and is not taking FX
risk; rather it is an execution service which
takes a spread based on the volume of FX
that passes through its products.

Business review
The biggest event in 2014 was the
successful listing of FAIRFX on AIM on 5th
August (Ticker: FFX). The principal purpose
of the listing was to raise funds in order to
expand the available budget for marketing
and accelerate market penetration across
consumers and businesses. FAIRFX Group
PLC. is the listed vehicle and owns 100%
of FAIRFX PLC., the operating company.
The initial listing was supplemented
by a secondary fund-raise in December
and hence the business is primed for
significant acceleration in 2015.

The Group had a very successful and
strong year of growth in 2014 with a
47.4% increase in revenue to £475.3
million (2013: £322.4 million). We added
86,397 new customers to the business
during 2014, a 46.6% increase on 2013,
bringing the total to 404,710 by the year
end (2013: 318,313). Strategically, the
Group continued on its pursuit of growth
and hence marketing expenditure grew
further to £1.8 million compared to £0.6
million for 2013. The increase reflected an
expansion of TV advertising augmented

Our growth in 2014 saw all lines of the
company moving forward strongly. The
single-pay products, namely FairPay
and Deliverable FX execution, advanced
particularly rapidly posting revenue
growth of 61.5% to £213.7 million (2013:
£132.3 million) and further significant
expansion is expected in 2015. The growth
in single-pay reflects the success of the
strategy of cross-selling these products to
the multi-pay customer base. Multi-pay
revenue, being prepaid cards and travel
cash, also saw strong growth of 37.7% to
£261.7 million (2013: £190.1 million).

Gross margin for 2014 was £3.8 million
(2013: £2.8 million), which comprised of
margin on currency transactions of £5.5
million (2013: £3.9 million) less transaction
costs of £0.3 million (2013: £0.2 million)
and other cost of sales, including all costs
associated with fulfilling the prepaid cards
of £1.4 million (2013: £0.9milion).

Another key area of investment in 2014
has been in headcount. By the end of
2014 we had 66 FAIRFX employees
compared with 41 a year previously.
Early 2015 has seen a bolstering of the
management team with the appointment
of a Chief Financial Officer (CFO) and
a Chief Commercial Officer (COO). The
overall headcount growth is expected
to be much less in percentage terms
in 2015 as the automated nature of
the FAIRFX business yields economies
of scale. The expansion of headcount
combined with the ending of the lease
on the previous premises occupied by
FAIRFX necessitated an office move in
May 2014 which we achieved seamlessly
in terms of customer experience.

Strategic review
FAIRFX, by the nature of its products, has a
relatively low margin on each transaction.
Accordingly, our key objective for the
business is to add customers and drive high
volume growth in revenue. The emphasis
since 2013 has been on exploiting our
digital early-mover advantage and
expanding marketing activity in order to
increase awareness of FAIRFX’s value and
service among customers of traditional
higher-cost providers such as the Banks,
Post Office and Bureau de Change at
airports. With relatively low awareness
levels around prepaid currency cards, there
is a significant opportunity to become a
leading category brand.

The Directors intend to increase marketing
spend over the next few years to further
accelerate customer acquisition. As a
marketing-led organization our activities
are focused on integrated campaigns
targeting travellers and holidaymakers,
using traditional advertising media in
combination with digital and mobile
performance marketing. The Directors
believe that the market has currently
reached an inflection point and is highly
receptive to FAIRFX’s customer-centric
products at this moment in time.

Against this backdrop, the investment in
people and systems development also
remain vital and ongoing to ensure we
have the capacity to deal with increased
activity. The Directors are confident
that the investment in this area in 2014
and indeed in 2015 to date sees FAIRFX
extremely well placed going forwards as a
robust business with excellent scalability.

FAIRFX ANNUAL REPORT 2014

W W W.FAIRF X.COM

FAIRFX ANNUAL REPORT 2014

4Smart, segmented cross selling opportunities
exist throughout the Group’s offerings and are
key to FAIRFX’s growth strategy. To date, we
have focused on growing numbers of consumers
in the multi-payments space using the currency
card and physical travel money products. The
Group is building on existing relationships with
multi-pay customers with the aim of offering
them the convenience of our higher value, single-
payment products as well. Investment by FAIRFX
into analysis of the most efficient methods of
cross selling and identification of the customers
most receptive to this is ongoing and the process
continues to become more personalized
and sophisticated.

We continued to invest significantly in R&D and
innovation to enhance all of our products and
services across 2014. FAIRFX is highly focused
upon the ease of use of its systems and products
and is targeted towards mobile functionality.
The FAIRFX App, available on both iOS and
Android, is a good example of this and is
constantly being enhanced.

The board
On creation of the new Group entity in March
2014, a new Board of Directors was set up with the
appointment of Jason Drummond as Chairman and
Ian Strafford-Taylor as Chief Executive Officer. Mr.
Drummond is one of the Founders and has been a
Director since 2005. Mr. Strafford-Taylor is also one
of the Founders and has been a Director since 2007.

In July 2014, in preparation for the admission to
AIM, Nicholas Jeffery and Ajay Chowdhury were
appointed as Non-Executive Directors. Both
Mr. Jeffery and Mr. Chowdhury have substantial
experience in the digital retail, online and mobile
industries. Mr. Jeffery is Group Enterprise Director
and Executive Board Director at Vodafone and Mr.
Chowdhury is Partner and Managing Director of
BCG Digital Ventures and was previously CEO of
Seatwave, CEO and Executive Chairman of ComQi
and Chairman of Shazam. In November 2014,
Mr. Drummond stepped down from the role of
Chairman to focus on other business interests and
John Pearson was appointed. We would like to
thank Mr. Drummond for the enormous contribution
he has made to FAIRFX over the years and
continues to make as a shareholder. Mr. Pearson
has considerable experience in the digital, media
and broadcast industries. Most significantly, he was
co-founder and CEO of Virgin Radio for 13 years
and Chairman of Shazam Entertainment for 8 years
and this background is extremely relevant to the
marketing-led growth phase that FAIRFX is
now undergoing.

The Board is committed to the success of the Group,
ensuring it is conducted in accordance with the
highest levels of corporate governance. We look
forward to reporting on the Group’s continued
growth and development.

Future outlook
The proceeds from the AIM listing and secondary
fundraise in December have provided the Group
with funds to continue its growth strategy. This
will be achieved principally through increased
customer-centric marketing activity and further agile
development of our technology platform and digital
services. We will also seek to maximize cross-selling
opportunities and to target international expansion
to increase the Group share of the multi-currency
payments market.

Given the Group has now received its EEA-wide
licence, initial expansion of operations overseas will
be focused on Europe with the intention of launching
in Ireland as a first location during 2015.
Expansion to markets further afield will also
be considered and in some markets growth
by acquisition is a possibility depending on
appropriate opportunities.

In the core UK market, 2015 will see an extension
of the marketing-led growth strategy that has
been proven in both 2014 and 2013. Utilizing
the proceeds since the AIM listing, the marketing
investment will increase further and therefore
we expect 2015 to be another year of strong
expansion of the key indicators of customers and
revenue. FAIRFX is also targeting increased growth
in its corporate client base and will be investing
further in its Corporate Expenses Management
products accordingly.

The business benefits from strong customer
loyalty and high levels of reuse and repurchase.
We will focus on continually improving service to
the customer base in 2015 by focusing on further
improving mobile usability and functionality.
FAIRFX is set to launch an App for the new Apple
Watch to adapt to our customers’ changing
needs and we will explore geo-location services
and mobile wallets to enhance users’ experience
of its iOS and Android apps. FAIRFX customers
will also be able to receive multi-currency
inbound payments through the creation of a
payment ecosystem.

Since the year ended 31 December 2014, FAIRFX’s
results to 24 March 2015 have continued the
strong growth trajectory of 2014 with all product
lines expanding rapidly. It should be noted that
this growth has been achieved before the planned
expansion of marketing activity which will come
into effect later in the year, to coincide with the
seasonal peak of our business, and will further
boost growth.

Current trading to 24th March 2015 shows
revenues as a whole up 90% to £143.1 million
(£75.1 million in the equivalent period of 2014)
with revenue in multi-pay product lines up 66%
to £69.5 million (£41.8 million in the equivalent
period of 2014) whilst the single pay offering
increased by 121% to £73.6 million (£33.3 million
in the equivalent period of 2014).

Customer numbers are also expanding rapidly
with 21,515 retail customers added so far in 2015
to bring the total to 426,225. This represents
66% growth over the equivalent period in
2014 when 12,960 customers were added. The
current expansion of the business will be further
supported by the planned integrated marketing
campaigns across the key holiday travel periods in
2015. The key focus here will be on above-the-line
marketing campaigns including TV advertising and
sponsorship of the Formula One Channel on
Sky Sports.

In addition, we have had considerable success
in expanding our affiliate programme following
a good performance in 2014 and have recently
signed agreements with Jet2.com, Hotelplan,
Laterooms.com and Trinity Mirror.

The Group has also continued to strengthen
and refine its compliance procedures and as a
validation of this we are delighted to announce
that we were granted additional permissions by
the FCA under the Authorised Payment Institution
regulations in February 2015. The granting of these
permissions allows FAIRFX to offer our customers
improved protection of their funds in comparison
with many of our competitors. The Group will
continue to further enhance compliance processes
as we continue the lengthy process of application for
an eMoney licence, which we hope to complete later
in the year.

Principal risks and uncertainties
The directors have reviewed the risks and
uncertainties facing the group and consider the key
risk to be financial risk. The group’s overall risk
management programme focuses on maximising the
financial assets of the group and minimising financial
liabilities whilst not engaging in speculation.

Credit risk
The group’s receivables amounts to £7.9 million
(2013: £9.0 million). The receivables include an
amount of £7.3 million (2013: £8.5 million) of trade
receivables. The directors are of the opinion that
all these amounts are recoverable and the group
has no significant credit risk.

Liquidity risk
The group monitors rolling forecast of the group’s
liquidity requirements to ensure it has sufficient
cash to meet its operational cash requirements.

The group has substantial cash reserves amounting
to approximately £4.1 million (2013: £2.0 million).

The group’s payables due within one year amount
to £10.4 million (2013: £10.4 million). The directors
do not foresee any problems in the group being
able to meet its obligations.

In conclusion
FAIRFX has had a strong year in 2014 and, since
joining AIM, we have made further steps to
enhance growth and become a marketing-led
business with an agile-based technology platform.
Against this backdrop of growth we have enhanced
the management team of the business and
improved controls and Compliance and as such the
company is built on very solid foundations and is
built for scale as we look to the future.

We look forward to delivering further growth
in the coming year and continuing to meet the
expectations of all of our stakeholders.

The Chairman and Chief Executive Officer’s
Statement was approved and authorised for issue
by the Board on 30 March 2015 and was signed on
its behalf by:

J Pearson
Chairman

I A I Strafford-Taylor
Chief Executive Officer

Performance Highlights for 2014

47.4%

increase in revenue to

£475.3m

+62%

in revenue growth to
£213.7m for money
transfer and FX
execution products

+36%

in gross profit
to £3.8m

86,397

new customers
added to the
business

FAIRFX ANNUAL REPORT 2014

W W W.FAIRF X.COM

FAIRFX ANNUAL REPORT 2014

6
“The purpose of good corporate
governance is to ensure that
the company is managed in
an efficient, effective and
entrepreneurial manner for the
benefit of all shareholders over the
longer term.”

Corporate governance
statement for the year
ended 31 December 2014

Statement of compliance
The directors recognise the value and importance
of high standards of corporate governance.
Accordingly, whilst the UK Corporate Governance
Code does not apply to AIM companies, the
directors have regards to the requirements of
the UK Corporate Governance Code to the extent
they consider appropriate in light of the group’s
size, stage of development and resources. The
Board also proposes, so far as practicable, to follow
the recommendations set out in the corporate
governance guidelines for smaller quoted companies
published by the Quoted Companies Alliance.

The corporate governance guidelines were
devised by the Quoted Companies Alliance,
in consultation with a number of significant
institutional small company investors, as an
alternative corporate governance code applicable
to AIM companies. An alternative code was
proposed because the Quoted Companies Alliance
considers the UK Corporate Governance Code to
be inapplicable for many AIM companies. The
corporate governance guidelines state that:
‘‘The purpose of good corporate governance is to
ensure that the company is managed in an efficient,
effective and entrepreneurial manner for the benefit
of all shareholders over the longer term’’.

Board of Directors
The Board is responsible for the overall
management of the group including the
formulation and approval of the group’s long
term objectives and strategy, the approval of
budgets, the oversight of the group’s operations,
the maintenance of sound internal control and
risk management systems and the implementation
of group strategy, policies and plans. Whilst the
Board may delegate specific responsibilities,
there is a formal schedule of matters specifically
reserved for decision by the Board; such
reserved matters include, amongst other things,
approval of significant capital expenditure,
material business contracts and major corporate
transactions. The Board meets formally on a
regular basis to review performance.

The Board has established an audit committee and
a remuneration committee and formally delegated
duties and responsibilities as described as follows.

Audit committee
The audit committee is responsible for monitoring
the integrity of the group’s financial statements,
reviewing significant financial reporting issues,
reviewing the effectiveness of the group’s
internal control and risk management systems
and overseeing the relationship with the external

auditor (including advising on their appointment,
agreeing the scope of the audit and reviewing the
audit findings). The audit committee comprises Ajay
Chowdhury and John Pearson and is chaired by Ajay
Chowdhury. The audit committee has met twice
following admission up to the date of this report
and will meet at least 3 times a year at appropriate
times in the reporting and audit cycle and otherwise
as required. The audit committee also meets
regularly with the company’s external auditor.

Remuneration committee
The remuneration committee is responsible for
determining and agreeing with the Board the
framework for the remuneration of the chairman,
the executive directors and other designated
senior executives and, within the terms of the
agreed framework, determining the total individual
remuneration packages of such persons including,
where appropriate, bonuses, incentive payments
and share options or other share awards. The
remuneration of non- executive directors is a
matter for the Board. No director is involved in any
decision as to his or her own remuneration.

The remuneration committee comprises John
Pearson and Nicholas Jeffery and is chaired by
Nicholas Jeffery. The remuneration committee has
met once since admission and will meet at least 3
times a year and otherwise as required.

Share dealing code
The company has adopted, with effect from
Admission, a share dealing code for directors and
applicable employees of the group for the purpose
of ensuring compliance by such persons with the
provisions of the AIM Rules relating to dealings in
the company’s securities (including, in particular,
dealing during close periods in accordance with
Rule 21 of the AIM Rules). The directors consider
that this share dealing code is appropriate for a
company whose shares are admitted to trading
on AIM. The company will take proper steps to
ensure compliance by the directors and applicable
employees of the group with the terms of the share
dealing code and the relevant provisions of the
AIM Rules (including Rule 21).

The Corporate Governance Statement was approved
and authorised for issue by the Board on 30 March
2015 and was signed on its behalf by:

I A I Strafford-Taylor

Chief Executive Officer

FAIRFX ANNUAL REPORT 2014

W W W.FAIRF X.COM

FAIRFX ANNUAL REPORT 2014

Directors’ Report for the year
ended 31 December 2014

The directors’ present
their annual report and
consolidated financial
statements for the year
ended 31 December 2014.

Financial reporting
The consolidated financial statements
for the year ended 31 December 2014
are set out on pages 13 to 34 for FAIRFX
Group PLC. These have been prepared in
accordance with the group’s accounting
policies under International Financial
Reporting Standards (IFRS) as adopted
by the European Union.

Principal activity
The principal activity of the
group during the year was that of
a dedicated provider of foreign
exchange payment services to both
private clients and corporations
through prepaid currency cards,
travel cash and international money
transfers. The group’s trading entity
FAIRFX PLC is authorised by the
Financial Conduct Authority under the
Payment Services Regulations 2009
for the provision of payment services.

The principal activity of the company
is focussed on share ownership of the
FAIRFX companies.

The company was incorporated on
4 March 2014, and on 22 July 2014
acquired the entire shareholding
of FAIRFX (UK) Limited (previously
named FAIRFX Group Limited) through
a share for share exchange. For the
consolidated financial statements of
the group, prepared under IFRS, the
principles of reverse acquisition under
IFRS 3 “Business Combinations” have
been applied. The steps to restructure
the group had the effect of FAIRFX
Group PLC being inserted above
FAIRFX (UK) Limited. The holders
of the share capital of FAIRFX (UK)
Limited were issued fifty shares in
FAIRFX Group PLC for one share held
in FAIRFX (UK) Limited. The shares of
the company were admitted to trading
on AIM on 5th August 2014.

Post balance sheet event
There have been no material post
balance sheet events that would
require disclosure or adjustments to
these financial statements.

Dividends
The directors do not recommend the
payment of a dividend for the year
ended 31 December 2014.

Payments to creditors
The policy of the group is to settle
supplier invoices within the terms
and conditions of trade agreed with
individual suppliers.

Auditor
KPMG LLP were appointed auditor
to the company and in accordance
with section 485 of the Companies
Act 2006, a resolution proposing that
they be re-appointed will be put at a
General Meeting.

Going concern
The financial statements have been
prepared on a going concern basis.
The group has reported a net loss for
the year of £2.8 million, in line with
forecasts, as it invested some of the
funds raised following its admission
to AIM in August 2014 in marketing
and other resources to drive growth.
The Group will continue to invest in
growth in the foreseeable future and
the Directors therefore believe that the
group will likely make a loss for the year
ended 31 December 2015, in line with
stated strategy, and are budgeting as
such. Further information in relation to
the group’s business activities is set out
in the Strategic Report section of this
report on pages 3 to 6.

Based on the company and group’s
budgets and financial projections,
the Directors are satisfied that the
business is clearly a going concern. This
assessment is based on whether there
is sufficient liquidity and financing
to support the business, the post
balance sheet trading of the Group,
the regulatory environment and the
effectiveness of risk management
policies. Based on their assessment,
the Directors have a reasonable
expectation that the company and
group has adequate resources to
continue in operational existence for
the foreseeable future and therefore
the accounts are prepared on a going
concern basis.

The Directors’ Report was approved by
the Board on 30 March 2015 and signed
on its behalf by:

I A I Strafford-Taylor
Chief Executive Officer

“The shares of the company were
admitted to trading on AIM on 5th
August 2014.”

Directors

The following directors have held office during the accounting period:

J K Drummond (appointed 4 March 2014 and resigned 21 November 2014)

I A I Strafford -Taylor (appointed 4 March 2014)

A Chowdhury (appointed 28 July 2014)

N S Jeffery (appointed 28 July 2014)

J Pearson (appointed 21 November 2014)

Director’s Interests
The directors who held office at 31 December 2014 held the following shares in the company

Ordinary 1p shares

Shareholding %

2014

I A I Strafford - Taylor

3.0%

2,127,750

The directors held the following unexercised share options in the company:

I A I Strafford-Taylor

A Chowdhury

N S Jeffery

J Pearson

Option
price (£)

0.22

0.36

0.58

1.16

1.74

Number
Granted

192,950

1,789,300

1,535,750

88,889

120,000

Date
Granted

28/07/2014

01/11/2014

FAIRFX ANNUAL REPORT 2014

Directors’ responsibilities
statement for the year
ended 31 December 2014

Independent Auditor’s Report
to the members of FAIRFX
Group PLC

The directors are responsible for preparing the Annual Report & Consolidated Financial
Statements, the Strategic Report, the Directors’ Report and the consolidated financial statements
in accordance with applicable law and regulations.

Company law requires the directors to prepare group and parent company financial statements for each
financial year. As required by the AIM Rules of the London Stock Exchange they are required to prepare the
group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have
elected to prepare the parent company financial statements on the same basis.

Under company law the directors must not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the group and parent company and of their profit or
loss for that period. In preparing each of the group and parent company financial statements, the directors
are required to:

•

select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent; and

•

state whether they have been prepared in accordance with IFRSs as adopted by the EU.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of
the parent company and enable them to ensure that its financial statements comply with the Companies Act
2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the
assets of the group and to prevent and detect fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information
included on the company’s website. Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.

We have audited the financial statements of FAIRFX Group PLC for the year ended 31 December
2014 set out on pages 13 to 34 The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted
by the EU and, as regards the parent company financial statements, as applied in accordance with
the provisions of the Companies Act 2006.

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s mem-
bers those matters we are required to state to them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company
and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and
auditor
As explained more fully in the Directors’
Responsibilities Statement set out on page 11, the
directors are responsible for the preparation of the
financial statements and for being satisfied that
they give a true and fair view. Our responsibility is
to audit, and express an opinion on, the financial
statements in accordance with applicable law
and International Standards on Auditing (UK and
Ireland). Those standards require us to comply
with the Auditing Practices Board’s Ethical
Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial
statements is provided on the Financial Reporting
Council’s website at
www.frc.org.uk/auditscopeukprivate.

Opinion on financial statements

In our opinion:

•

the financial statements give a true and fair
view of the state of the group’s and of the
parent company’s affairs as at 31 December
2014 and of the group’s loss for the year then
ended;

the group financial statements have been
properly prepared in accordance with IFRSs as
adopted by the EU;

the parent company financial statements have
been properly prepared in accordance with
IFRSs as adopted by the EU and as applied in
accordance with the provisions of the Companies
Act 2006; and

the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006.

Opinion on other matter prescribed by the
Companies Act 2006
In our opinion the information given in the Strategic
Report and the Directors’ Report for the financial
year for which the financial statements are prepared
is consistent with the financial statements.

Matters on which we are required to report by
exception
We have nothing to report in respect of the
following matters where the Companies Act 2006
requires us to report to you if, in our opinion:

•

adequate accounting records have not been
kept by the parent company, or returns
adequate for our audit have not been received
from branches not visited by us; or

the parent company financial statements are
not in agreement with the accounting records
and returns; or

certain disclosures of directors’ remuneration
specified by law are not made; or

• we have not received all the information and
explanations we require for our audit.

Andrew Walker (Senior Statutory Auditor) for and
on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
30 March 2015

FAIRFX ANNUAL REPORT 2014

W W W.FAIRF X.COM

FAIRFX ANNUAL REPORT 2014

Consolidated statement of
comprehensive income for the
year ended 31 December 2014

Consolidated and company
statement of financial position
as at 31 December 2014

Gross value of currency transactions sold

Gross value of currency transactions purchased

Margin on currency transactions

Direct costs

Gross margin

Administrative expenses

AIM Listing expenses

(Loss)/profit before tax and from operations

Tax expense

(Loss)/profit for the year

(Loss)/profit per share

Basic

Diluted

Note

2014

2013

475,345,811

322,384,612

(469,864,995)

(318,454,399)

5,480,816

(1,666,109)

3,814,707

(5,966,697)

(678,056)

(2,830,046)

3,930,213

(1,157,263)

2,772,950

(2,643,689)

129,261

ASSETS

Non-current assets

Property, plant and equipment

Investments

Current assets

Inventories

Trade and other receivables

Cash and cash equivalents

TOTAL ASSETS

(2,830,046)

129,261

Group

Company

2014

112,759

161,149

7,899,101

4,085,137

2013

2014

34,152

76,281

9,035,474

2,006,288

884,969

2,943,621

12,145,387

11,118,043

2,943,621

12,258,146

11,152,195

3,828,590

704,758

3,522,752

279,136

5,416,083

(8,062,094)

1,860,635

614,743

5,416,083

(5,232,048)

798,778

334,882

10,062,629

10,397,511

446,510

9,906,907

10,353,417

704,758

3,522,752

279,136

(699,056)

3,807,590

21,000

Note

EQUITY AND LIABILITIES

Equity attributable to Equity holders

Share capital

Share premium

Share based payment reserve

Merger reserve

Retained deficit

Total equity

Current Liabilities

Borrowings

Trade and other payables

All amounts relate to continuing activities.

The notes on pages 19 to 34 form an integral part of these financial statements.

(4.41p)

0.21p

FAIRFX ANNUAL REPORT 2014

W W W.FAIRF X.COM

FAIRFX ANNUAL REPORT 2014

TOTAL EQUITY AND LIABILITIES

12,258,146

11,152,195

3,828,590

The notes on pages 19 to 34 form an integral part of these financial statements.

The financial statements were approved and authorised for issue by the Board on 30 March 2015 and were signed on its
behalf by:

I A I Strafford-Taylor
Director

Company Registration number: 08922461

Consolidated and company statement
of changes in equity for the year
ended 31 December 2014

Consolidated statement of
cash flows for the year ended
31 December 2014

Share capital

Share
premium

Share based
payment

Retained
deficit

Merger
reserve

Group

Total

Note

2014

2013

Group

Balance as at 1
January 2013

Profit for the year

Balance as at 31
December 2013

Share based
payment charge

Balance as at 31
December 2014

Company

Share based
payment charge

Balance as at 31
December 2014

614,743

(5,361,309)

5,416,083

669,517

129,261

(5,232,048)

5,416,083

798,778

(2,830,046)

3,612,767

279,136

Loss for the year

Shares issued in year

90,015

3,522,752

279,136

704,758

3,522,752

279,136

(8,062,094)

5,416,083

1,860,635

Share
capital

Share
premium

Share based
payment

Loss for the period

Shares issued in period

704,758

3,522,752

279,136

Retained
deficit

(699,056)

Merger
reserve

Total

(699,056)

4,227,510

279,136

3,807,590

704,758

3,522,752

279,136

(699,056)

The following describes the nature and purpose of each reserve within owners’ equity:

(Loss)/profit for the year

(2,830,046)

129,261

Cash flows from operating activities

Adjustments for:

Depreciation

Share based payment charge

Decrease/(increase) in trade and other receivables

Decrease in borrowings

Increase in trade and other payables

Increase in inventories

55,537

279,136

23,558

1,136,373

(5,820,644)

(111,628)

155,722

(84,868)

5,361,910

(3,643)

Net cash flow used by operating activities

(1,399,774)

(309,558)

Cash flows from investing activities

Acquisition of property, plant and equipment

(134,144)

(20,100)

Net cash used in investing activities

(134,144)

(20,100)

Cash flows from financing activities

Proceeds from issuance of ordinary shares

Costs directly attributable to share issuance

Net cash from financing activities

4,161,104

(548,337)

3,612,767

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at the beginning of the year

2,078,849

2,006,288

(329,658)

2,335,946

Share capital

Share premium

Amount subscribed for shares at nominal value.

Cash and cash equivalents at end of the year

4,085,137

2,006,288

Amount subscribed for shares in excess of nominal value less costs directly attributable to the Initial Public
Offer of the company’s share.

Share based payment

Fair value of share options granted to both directors and employees.

Retained deficit

Merger reserve

Cumulative profit and losses are attributable to equity shareholders.

Arising on reverse acquisition from group reorganisation.

Under the principles of reverse acquisition accounting, the group is presented as if FAIRFX Group PLC as if it had always owned the
FAIRFX (UK) Limited group. The comparative and current period consolidated reserves of the group are adjusted to reflect the statu-
tory share capital and merger reserve of FAIRFX Group PLC as if it had always existed.

The notes on pages 19 to 34 form an integral part of these financial statements.

FAIRFX ANNUAL REPORT 2014

W W W.FAIRF X.COM

FAIRFX ANNUAL REPORT 2014

Company statement of
cash flows for the period
ended 31 December 2014

Company

Note

Loss for the period

Cash flows from operating activities

Adjustments for:

Share based payment charge

Increase in trade and other receivables

Increase in trade and other payables

Net cash flow used by operating activities

Cash flows from investing activities

Acquisition of subsidiary undertaking

Net cash used in investing activities

Cash flows from financing activities

Proceeds from issuance of ordinary shares

Costs directly attributable to share issuance

Net cash from financing activities

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at end of the period

2014

(699,056)

279,136

(2,943,621)

21,000

(3,342,541)

(270,225)

4,161,104

(548,338)

3,612,766

The notes on pages 19 to 34 form an integral part of these financial statements.

FAIRFX ANNUAL REPORT 2014

W W W.FAIRF X.COM

FAIRFX ANNUAL REPORT 2014

Notes to the consolidated financial
statements for the year ended
31 December 2014

1. General information

FAIRFX Group PLC (the “company”) is a limited liability company incorporated and domiciled in
England and Wales and whose shares are quoted on AIM, a market operated by The London Stock
Exchange. The group’s principal activity is that of selling of foreign currency via technology
platforms offered on the internet.

The company and group’s consolidated financial statements for the year ended 31 December 2014
were authorised for issue on 30 March 2015 and the consolidated and company statement of
financial position signed by I A I Strafford-Taylor on behalf of the board.

2. New standards, amendments and interpretations to published standards

The Group applied all applicable IFRS standards and all applicable interpretations published by
the International Accounting Standards Board (IASB) and its International Financial Reporting
Interpretations Committee (IFRIC) for the period beginning 1 January 2014.

Adoption of new and revised accounting standards and interpretations:

•

IFRS 10 Consolidated Financial Statements (Amendment). This standard builds on existing
principles by identifying the concept of control as the determining factor in whether an entity
should be included within the consolidated financial statements.

IFRS 11 Joint Arrangements (Amendment).
This standard provides for a more realistic reflection of joint arrangements by focusing on the
rights and obligations of the arrangement, rather than its legal form.

IFRS 12 Disclosure of Interests in Other Entities (Amendment). This standard includes
the disclosure requirements for all forms of interests in other entities, including joint
arrangements, associates, special purpose vehicles and other off-balance sheet vehicles.

IAS 32 Financial Instruments (Amendment). Presentation on assets and liabilities offsetting
(Amendment): This standard provides clarification on offsetting rules.

IAS 36 Impairment of Assets (Amendment). These amendments address disclosure of
information about the recoverable amount of impaired assets.

IAS 39 Novation of derivatives and continuation of hedge accounting (Amendment). These
amendments provide an exception to the requirement for the discontinuation of hedge
accounting in IAS 30.

IFRIC 21 Levies. Clarifies when to recognise a liability to pay a government levy that is
accounted for in accordance with IFRS 37.

The adoption of the new applicable standards have not had a significant impact on the financial
reporting of the Group.

The following standards and interpretations (and amendments thereto) have been issued by the IASB
and the IFRIC which are not yet effective and have not been adopted, many of which are either not
relevant to the group and parent company or have no material effect on the financial statements of the
group and parent company

IAS 19 Employee Benefits

IFRS 14 Regulatory Deferral Accounts

Effective Dates*

1 July 2014

1 January 2016

IFRS 11 Accounting for acquisitions of interests in Joint Operations (Amendment)

1 January 2016

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets (Amendments)

1 January 2016

IFRS 15 Revenue from Contracts with Customers

IFRS 9 Financial Instruments: Classification and Measurement

1 January 2017

1 January 2018

* The effective dates stated above are those given in the original IASB/IFRIC standards and
interpretations. As the group and parent company prepares it financial statements in accordance
with IFRS as adopted by the European Union (EU), the application of new standards and
interpretations will be subject to their having been endorsed for used in the EU via the EU
Endorsement mechanism. In the majority of cases this will result in an effective date consistent
with that given in the original standard of interpretation but the need for endorsement restricts the
group and parent company’s discretion to early adopt standards.

3. Basis of presentation and significant

accounting policies
The principal accounting policies applied in the
preparation of the group and parent company’s
financial statements are set out below. These policies
have been consistently applied to all the years
presented, unless otherwise stated.

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

3.1 Basis of presentation
These financial statements are prepared in
accordance with AIM Regulations, International
Financial Reporting Standards, International
Accounting Standards and Interpretations
(collectively IFRSs) issued by the International
Accounting Standards Board (IASB) as adopted by
the European Union (“adopted IFRSs”). The financial
statements are presented in sterling, the company’s
and group’s functional currency.

IFRS requires management to make certain critical
accounting estimates and to exercise judgement in
the process of applying the company’s and group’s
accounting policies. These estimates are based on
the directors’ and independent professional’s best
knowledge and past experience and are explained
further in note 3.20.

In the opinion of the directors, based on the group’s
budgets and financial projections, they have satisfied
themselves that the business is a going concern. The
board has a reasonable expectation that the group
has adequate resources to continue in operational
existence for the foreseeable future and therefore
the accounts are prepared on a going concern basis.

3.2 Basis of consolidation
On 5 August 2014, FAIRFX Group PLC listed
its shares on AIM, a market operated by The
London Stock Exchange. In preparation for the
Initial Public Offering (“IPO”) the group was
restructured. The restructure has impacted a
number of current year and comparative primary
financial statements and notes. The effect of this
reorganisation was to insert one new company
into the group, a new holding company, FAIRFX
Group PLC. The impact of the shares subscribed
from the “IPO” are included within the results
for the year ended 31 December 2014 and are
disclosed fully in note 14.

FAIRFX Group PLC acquired the entire share capital
of FAIRFX (UK) Limited (previously named FAIRFX
Group Limited) on 22 July 2014 through a share
for share exchange. For the consolidated financial
statements of the Group, prepared under IFRS,
the principles of reverse acquisition under IFRS 3
“Business Combinations” have been applied. The
steps to restructure the group had the effect of
FAIRFX Group PLC being inserted above FAIRFX
(UK) Limited. The holders of the share capital of
FAIRFX (UK) Limited were issued fifty shares in
FAIRFX Group PLC for one share held in FAIRFX
(UK) Limited. By applying the principles of reverse
acquisition accounting, the group is presented

as if FAIRFX Group PLC had always owned and
controlled the FAIRFX Group PLC had always owned
and controlled the FAIRFX group. Comparatives
have also been prepared on this basis. Accordingly,
the assets and liabilities of FAIRFX Group PLC
have been recognised at their historical carrying
amounts, the results for the periods prior to the
date the company legally obtained control have
been recognised and the financial information and
cash flows reflect those of the “former” FAIRFX (UK)
Limited group. The comparative and current year
consolidated revenue of the group are adjusted to
reflect the statutory share capital, share premium
and merger reserve of FAIRFX Group PLC as if it had
always existed.

On publishing the parent company financial
statements here, together with the group financial
statements, the company is taking advantage
of exemption in section 408 of the Companies
Act 2006 not to present the individual income
statement and related notes of the parent
company which form part of these approved
financial statements.

3.3 Foreign currency
In preparing these financial statements,
transactions in currencies other than the company
and group’s functional currency (foreign currencies)
are recorded at the rates of exchange prevailing on
the dates of the transaction. At each statement of
financial position date monetary items in foreign
currencies are translated at the rate prevailing at
statement of financial position date.

Exchange differences arising on the settlements
of monetary items and on the retranslation of
monetary items are included in the statement of
comprehensive income for the year.

3.4 Inventories
Inventories are valued at the lower of cost and
net realisable value on a first in first out basis.
Inventories comprise of stock of prepay and travel
cards not yet distributed to customers.

3.5 Trade and other receivables
Trade and other receivables are recognised initially
at fair value. Subsequent to initial recognition, they
are measured at amortised cost using the effective
interest method, less any provision for impairment
losses.

A provision for impairment of trade receivables
is established when there is objective evidence
that the Group will not be able to collect all
amounts due according to the original terms of
the receivables. Significant financial difficulties
of the debtor, probability that the debtor will
enter bankruptcy or financial reorganisation and
default or significant delinquency in payments are
considered indicators that the trade receivable
may be impaired. Impairment on trade receivables
is written off to the statement of comprehensive
income when it is recognised as being impaired.

Other receivables are recognised at fair value.

FAIRFX ANNUAL REPORT 2014

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FAIRFX ANNUAL REPORT 2014

3.6 Cash and cash equivalents
These include cash in hand and deposits held at
call with banks.

3.7 Trade and other payables
These are initially recognised at fair value
and then carried at amortised cost using the
effective interest method. These arise principally
from the receipt of goods and services.

3.8 Provisions
A provision is recognised in the statement of
financial position when the company and group
has a present legal or constructive obligation as
a result of a past event, and it is probable that
an outflow of economic benefits will be required
to settle the obligation. If the effect is material,
provisions are determined by discounting the
expected future cash flows at a pre-tax rate that
reflects the current market assessment of the
time value of money and, where appropriate, the
risks specific to the liability.

3.9 Taxation
The tax expense represents the sum of the tax
currently payable.

The tax currently payable is based on taxable
profit for the year. Taxable profit differs from
net profit as reported in the statement of
comprehensive income because it excludes
items of income or expense that are taxable or
deductible in other years and it further excludes
items that are never taxable or deductible. The
liability for current tax is calculated using tax
rates that have been enacted or substantively
enacted by the consolidated statement of
financial position date.

3.10 Deferred tax
Deferred tax is recognised in respect of
temporary differences between the carrying
amounts of assets and liabilities for financial
reporting purposes and the amounts used
for taxation purposes. Deferred tax is not
recognised for:

• temporary differences on the initial

recognition of assets or liabilities in a
transaction that is not a business combination
and that affects neither accounting nor
taxable profit or loss;

• temporary differences related to investments
in subsidiaries to the extent that the group is
able to control the timing of the reversal of
the temporary differences and it is probable
that they will not reverse in the foreseeable
future; and

• taxable temporary differences arising on the

initial recognition of goodwill.

The measurement of deferred tax reflects the
tax consequences that would follow the manner
in which the group expects, at the end of the
reporting period, to recover or settle the carrying
amount of its assets and liabilities.

Deferred tax is measured at the tax rates
that are expected to be applied to temporary
differences when they reverse, using tax
rates enacted or substantively enacted at the
reporting date.

Deferred tax assets and liabilities are offset
if there is a legally enforceable right to offset
current tax liabilities and assets, and they relate
to taxes levied by the same tax authority on the
same taxable entity, or on difference tax entities,
but they intend to settle current tax liabilities
and assets on a net basis or their tax assets and
liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused
tax losses, tax credits and deductible temporary
differences to the extent that it is probable that
future taxable profits will be available against
which they can be utilised. Deferred tax assets
are reviewed at each reporting date and are
reduced to the extent that it is no longer probable
that the related tax benefit will be realised.

3.11 Investments in subsidiaries
Investment in subsidiaries undertakings are stated
at cost less impairment in value.

3.12 Income recognition
The gross value of currency transactions sold by
the group represents revenue. The gross value of
currency transactions purchased by the group and
direct costs represent cost of sales.

Revenue is recognised when a binding contract
is entered into by a client and the profit is fixed
and determined. The profit is the margin derived
between the rate offered to clients and the rate
the Company receives from its liquidity providers.
When the group enters into a contract for forward
delivery with a client it also enters into a separate
matched forward contract with its bankers. As
each trade is booked back to back with a liquidity
provider the margin is accounted for once the
binding contract is formed.

Where a contract for forward delivery is open as at
the year end, the balance of the contract due from
the client at the maturity date is included in trade
receivables and the corresponding liability with the
group’s bankers is included in trade payables.

3.13 Research and development
Research costs are expensed as incurred.
Expenditure on IT software and development
is recognised as an intangible asset when
the company can demonstrate: the technical
feasibility of completing the intangible asset
so that it will be available for use or sale, its
intention to complete and its ability to use
or sell the asset, how the asset will generate
future economic benefits, the availability of
resources to complete the asset and the ability
to measure reliably the expenditure
during development.

Following initial recognition of the development
expenditure as an asset, the cost model is
applied requiring the asset to be carried at
cost less any accumulated amortisation and
accumulated impairment losses. Amortisation of
the asset begins when development is complete
and the asset is available for use. It is amortised
over the period of expected future benefit.
During the period of development, the asset is
tested for impairment annually.

3.14 Interest expense recognition
Interest expense is recognised as interest
accrues, using the effective interest method, on
the net carrying amount of the financial liability.

3.15 Borrowings
Borrowings other than bank overdrafts are
recognised initially at fair value less attributable
transaction costs. Subsequent to initial
recognition, borrowings are stated at amortised
cost with any difference between the amount
initially recognised and redemption value being
recognised in the consolidated statement of
comprehensive income over the period of the
borrowings, using the effective interest method

3.16 Property, plant and equipment
Items of property, plant and equipment are
stated at cost of acquisition or production
cost less accumulated depreciation and
impairment losses.

Depreciation is charged so as to write off the
cost or valuation of assets over their estimated
useful lives, using the straight line method, on
the following basis:

Plant and equipment

Fixtures and fittings

Leasehold improvements

33%

20%

10%

A full year’s depreciation is charged in the year
of acquisition and none in the year of disposal.

3.17 Share-based payments
Employees (including directors) of the group
receive remuneration in the form of share-based
payment transactions, whereby employees
render services as consideration for equity
instruments (equity-settled transactions).
In situations where equity instruments are
issued and some or all of the goods or services
received by the entity as consideration cannot
be specifically identified, they are measured
as the difference between fair value of the
share-based payment and the fair value of
any identifiable goods or services received
at the grant date. The cost of equity-settled
transactions with employees, is measured by
reference to the fair value at the date on which
they are granted. The fair value is determined
using an appropriate pricing model, further
details of which are given in note 18.

The cost of equity-settled transactions is
recognised, together with a corresponding
increase in equity, over the period in which
the performance and/or service conditions
are fulfilled, ending on the date on which the
relevant employees become fully entitled to
the award (‘the vesting date’). The cumulative
expense recognised for equity settled
transactions at each reporting date until the
vesting date reflects the extent to which the
vesting period has expired and the group’s best
estimate of the number of equity instruments
that will ultimately vest. The profit or loss
charge or credit for a period represents the
movement in cumulative expense recognised as
at the beginning and end of that period.

No expense is recognised for awards that do
not ultimately vest, except for awards where
vesting is conditional upon a market condition,
which are treated as vesting irrespective of
whether or not the market condition is satisfied,
provided that all other performance and/or
service conditions are satisfied. Where the
terms of an equity-settled award are modified,
the minimum expense recognised is the
expense as if the terms had not been modified.
An additional expense is recognised for any
modification, which increases the total fair
value of the share-based payment arrangement,
or is otherwise beneficial to the employee as
measured at the date of modification. Where an
equity settled award is cancelled, it is treated
as if it had vested on the date of cancellation,
and any expense not yet recognised for the
award is recognized immediately. However, if
a new award is substituted for the cancelled
award, and designated as a replacement award
on the date that it is granted, the cancelled
and new awards are treated as if they were a
modification of the original award, as described
on the previous paragraph.

The dilutive effect of outstanding options is
reflected as additional share dilution on the
computation of earnings per share.

Where the company grants options over
its own shares to the employees of its
subsidiaries it recognises, in its individual
financial statements, an increase in the cost
of investment in its subsidiaries equivalent to
the equity settled share-based payment charge
recognised.

3.18 Leased assets
Where substantially all of the risks and rewards
incidental to ownership of a leased asset have
been transferred to the company and group (a
“finance lease”), the asset is treated as if it had
been purchased outright. The amount initially
recognised as an asset is the lower of the fair
value of the leased property and the present
value of the minimum lease payments payable
over the term of the lease. The corresponding
lease commitment is shown as a liability. Lease
payments are analysed between capital and
interest. The interest element is charged to
the statement of comprehensive income over
the period of the lease and is calculated so
that it represents a constant proportion of the
lease liability. The capital element reduces the
balance owed to the lessor.

Where substantially all of the risks and
rewards incidental to ownership are not
transferred to the company and group (an
“operating lease”), the total rentals payable
under the lease are charged to the statement
of comprehensive income on a straight-line
basis over the lease term. Benefits received
and receivable as an incentive to enter into an
operating lease are spread on a straight line
basis over the lease tem.

FAIRFX ANNUAL REPORT 2014

W W W.FAIRF X.COM

FAIRFX ANNUAL REPORT 2014

3.19 Critical judgements and estimations

Judgements
In the process of applying the group’s accounting
policies, management makes various judgements
which can significantly affect the amounts
recognised in the financial statements. They are
also required to use certain critical accounting
estimates and assumptions regarding the future
that may have a significant risk of giving rise to
a material adjustment to the carrying values of
assets and liabilities within the next financial
year. The critical judgements are considered to
be the following:

(i) Share based payments
In order to calculate the charge for share-based
compensation as required by IFRS 2, the Group
makes estimates principally relating to the
assumptions used in its option-pricing model
as set out in note 18. The accounting estimates
and assumptions relating to these share-based
payments would have no impact on the carrying
amounts of assets and liabilities within the
next annual reporting period but may impact
expenses and equity.

of the debtor, probability that the debtor will
enter bankruptcy or financial reorganisation and
default or significant delinquency in payments
are considered indicators that the trade
receivable may be impaired.

(iii) Measurement of fair values
A number of the group’s accounting policies
and disclosures require measurement of fair
values for financial assets and liabilities.
When measuring the fair value of an asset or a
liability, the Group uses observable market data
as far as possible. Fair values are categorised
into different levels in a fair value hierarchy
based on the inputs used in the valuation
techniques as follows:

•

Level 1: quoted prices (unadjusted) in active
markets for identical assets and liabilities.

Level 2: inputs other than quoted prices
included in Level 1 that are observable for
the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).

Level 3: inputs for the asset or liability that
are not based on observable market data
(unobservable inputs).

(ii) Impairment of trade receivables
The assessments undertaken in recognising
provisions and contingencies are made in
accordance with IAS 39. A provision for
impairment of trade receivables is established
when there is objective evidence that the
Group will not be able to collect all amounts
due according to the original terms of the
receivables. Significant financial difficulties

4. Revenue and segmental analysis

The revenue for the group is generated
through the provision of foreign currency
services and this is the sole operating
segment of the group. The revenue is wholly
derived from within the UK.

5. Operating loss

Operating loss is stated after charging
the following:-

Operating lease - property

Depreciation of plant and equipment and fixtures and fittings

Net foreign currency differences

Research & development costs

Amounts charged by the group’s auditor are as follows:-

Audit fees:-

Fees payable for the audit of the annual
report and financial statements

Fees payable for the audit of subsidiaries

Total audit fees

Other services:-

Taxation services

Corporate finance services

Other assurance services

Total non-audit fees

Total Fees

2014

135,486

55,537

41,490

514,976

2014

21,000

34,000

55,000

1,000

140,000

15,000

156,000

211,000

2013

75,436

23,558

59,766

234,193

2013

13,400

1,000

14,400

The 2013 audit fee payable was solely to the Group’s previous auditor, Gerald Edelman. The 2014
audit fee is payable solely to the Group’s current auditor, KPMG LLP. These amounts are shown
exclusive of VAT.

6. Staff costs

Number of employees

The average number of employees (including directors) during the year was:-

Administrative staff

Employee costs

Wages and salaries

Social security costs

2014

Number

2013

Number

2014

2,349,651

265,221

2013

1,359,930

149,050

2,614,872

1,508,980

There were no pension payments in respect of either year. Further information regarding
share options is given in note 18.

7. Directors’s remuneration

Emoluments

2014

2013

602,084

251,750

The total amount payable to the highest paid director in respect of emoluments was
£444,942 (2013: £177,500)

There were no pension payments in respect of either year. Further information regarding
shares options is given in note 18.

8. Taxation

Current year tax expenses

2014

2013

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Factors affecting tax charge for the period

The charge for the year can be reconciled to the (loss)/profit per the consolidated statement of
comprehensive income as follows:

9. Property, plant and equipment

Group

2014

2013

(Loss)/profit before taxation: Continuing operations

(2,830,046)

129,261

Taxation at the UK corporation rate tax of 21% (2013: 22%)

(594,310)

28,437

Capital allowances in arrears /(advance) of depreciation

Share based payments

Net impact of R&D tax credit claim

Expenses not deductible for tax purposes

Tax losses utilised

Tax losses for which no deferred tax asset utilised

Total tax for the year

(8,999)

58,619

25,489

8,700

510,501

365

5,670

(34,472)

The group has estimated losses of £7,315,029 (2013: £5,337,662) available for carry forward against
future trading profits. The company and group have incurred losses in the current year. Deferred tax
assets are recognised for tax losses carried forward to the extent that the realisation of the related tax
benefit through future taxable profits is considered more likely than not. The decision to recognise any
asset will be taken at such point recovery is reasonably certain, when the group returns to profitability.
The Group has an unrecognised deferred tax asset of £1,536,156 (2013: £1,174,286) in respect of losses
that can be carried forward against future taxable income for the period between one year and an
indefinite period of time.

The Finance Act 2013 was substantively enacted on 2 July 2013. This reduced the main rate of
corporation tax to 21% with effect from 1 April 2014 and 20% with effect from 1 April 2015.

Cost

At 1 January 2014

Additions

At 31 December 2014

Depreciation

At 1 January 2014

Charge for the year

At 31 December 2014

Net book value

At 31 December 2014

Plant and
machinery

Fixtures and
fittings

Leasehold
improvements

124,190

92,606

216,796

92,702

50,343

143,045

8,985

2,603

11,588

6,321

1,300

7,621

38,935

3,894

Total

133,175

134,144

267,319

99,023

55,537

154,560

73,751

3,967

35,041

112,759

At 31 December 2013

31,488

2,664

34,152

10. Investments

Company

Cost

Additions

At 31 December 2014

Provisions for diminution in value

At 31 December 2014

Net Book Value

At 31 December 2014

Shares in
subsidiary
undertakings

884,969

In the opinion of the directors the aggregate value of the company’s investment in subsidiary undertakings is not less
than the amount included in the statement of financial position.

Holdings of more than 20%
The company holds the share capital (both directly and indirectly) of the following companies:

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Subsidiary Undertaking

FAIRFX (UK) Limited

FAIRFX PLC *

FAIRFX Corporate Limited *

FAIRFX Wholesale Limited *

FAIRFX Limited *

* Share capital held indirectly

11. Inventories

Group

Finished goods

The group’s inventories comprise stock of cards.

12. Trade and other receivables

Trade receivables

Amounts due from group undertakings

Other receivables

Prepayments and accrued income

Country of registration
or incorporation

Shares Held

England and Wales

Class

Ordinary

100

Trading

Dormant

2014

2013

161,149

76,281

Group

Company

2014

2013

7,275,003

8,481,405

2014

460,492

163,606

2,943,621

348,043

206,026

7,899,101

9,035,474

2,943,621

14. Share capital

Group and Company

Authorised, issued and fully paid up capital

70,475,810 ordinary shares of £0.01 each

2014

2013

704,758

614,743

Under the principles of reverse acquisition accounting, the group is presented as if FAIRFX Group PLC had always owned the FAIRFX
(UK) Limited group. The comparative and current period consolidated reserves of the group are adjusted to reflect the statutory share
capital and merger reserve of FAIRFX Group PLC as if it had always existed.

During the year, the company made the following share issues:

Date of Issue

5 August 2014

26 November 2014

18 December 2014

Total

No Shares
Issued

Price
per share

Gross value of
shares issued

Nominal Value
of shares
issued

Costs of
share issues

Share
Premium

5,726,667

549,611

199,800

2,525,382

9,001,460

£0.45

£0.01

£0.57

£0.58

£2,577,000

£57,267

£446,602

£2,073,132

£5,496

£113,886

£5,496

£1,998

£111,888

£1,464,722

£25,254

£101,736

£1,337,732

£4,161,104

£90,015

£548,338

£3,522,752

In accordance with IAS 32 Financial Instruments: Presentation, costs incurred which are directly applicable to the raising of finance, are
offset against the share premium created upon the share issue.

The holders of the ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share
at meetings of the company.

15. Borrowings

Group

Director’s loan

Shareholder loan

2014

334,882

2013

111,628

334,882

446,510

Included in trade receivables is £6,261,923 (2013: £7,395,829) due from customers of open forward contracts as at the
year end.

Information about the Group’s exposure to credit and market risks, and impairment losses for trade and other
receivables, is included in Note 17.2.

Details of the Directors and Shareholder loans are included in Note 20 below.

13. Cash and cash equivalent

Group

Cash at bank

2014

2013

4,085,137

2,006,288

Included in cash and cash equivalents at 31 December 2015 was £2,054,109 of customer trading funds (2013:
£1,337,738).

All the cash is held in the name of the trading company FAIRFX PLC.

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16. Trade and other payables

Trade payables

Taxation and social security

Accruals and deferred income

Group

2014

9,447,609

88,165

526,855

2013

9,421,016

51,358

434,533

10,062,629

9,906,907

Company

2014

21,000

Group

2014

2013

Company

2014

Current

10,062,629

9,906,907

21,000

2013

17.2 Financial risk management objectives and policies

Credit risk
The group trades only with recognised, credit worthy customers. All customers who wish to trade on credit are
subject to credit verification checks. Customer balances are checked daily to ensure that the risk of exposure
to bad debts is minimised and margined accordingly. The group’s risk is the risk that financial loss arises from
the failure of a customer or counterparty to meet its obligations under a contract. The group had no significant
concentrations of risk with customers and counterparties at 31 December 2014.

The group’s exposure to credit related losses, in the event of non-performance by customers relates mostly to
wholesale business. The risk on wholesale business is minimal as group polices require new customers to be
reviewed for creditworthiness before standard payment and delivery terms and conditions are entered into.
Individual credit terms are set and monitored regularly.

The group’s cash balances are all held with major banking institutions. The majority of trade receivables are
due from credit worthy customers and or financial institutions and are automatically settled within a few
days of arising.

The credit risk from other financial contractual relationships, including other receivables, are not
considered material.

Where forward contracts are not fully settled by the maturity date, appropriate action is agreed with the
customer to roll forward the contract to a future date.

Liquidity risk
Management of liquidity risk is achieved by monitoring budgets and forecasts and actual cash flows and
available cash balances.

The daily settlement flows in respect of financial asset and liability, spot and swap contracts require adequate
liquidity which is provided through intra-day settlement facilities.

Included in trade payables is £6,214,782 (2013: £7,368,104) due to third parties of open forward contracts as at the
year end.

Further details of the risk management objectives and policies are disclosed in the Principal risks and
uncertainties section of the Strategic report.

17. Financial instruments

The Group’s financial instruments comprise cash and various items arising directly from its operations. The main
purpose of these financial instruments is to provide working capital for the Group. In common with other businesses,
the group is exposed to the risk that arises from its use of financial instruments. This note describes the group’s
objectives, policies and processes for managing those risks and the methods used to measure them. Further
quantitative information is found throughout these consolidated financial statements.

17.1 Principal financial instruments
The principal financial instruments of the group, from which financial instrument risk arises, are as follows:

Cash and cash equivalents

Borrowings

Trade and other payables

Trade and other receivables

2014

2013

4,085,137

2,006,288

(334,882)

(446,510)

(10,062,629)

(9,906,907)

7,899,101

9,035,474

Trade and other payables generally have short time to maturity. Current borrowings have a maturity date of 9
June 2016.

All of the group’s financial liabilities have a contractual maturity date of within one year from the 31
December 2014.

Market risk
Market risk arises from the group’s use of foreign currency. This is detailed below.

Interest rate risk
The group is subject to interest rate risk as its bank balances are subject to interest at a floating rate. Due to the
current low levels of borrowings, the group is not materially affected by changes in interest rates.

Foreign currency risk
The group’s balance sheet currency exposure is primarily managed by matching currency assets with currency
borrowings. The largest currency liabilities are created on entering into forward foreign currency transactions.

As at 31 December 2014, the group is not sensitive to movements in the strength of Sterling as no material
foreign currency balances are held.

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Fair value risk
The following table shows the carrying amount of financial assets and financial liabilities. It does not
include a fair value as the carrying amount is a reasonable approximation of fair value.

31 December 2014

Loans and
receivables

Other financial
liabilities

Financial assets not measured at fair value

Cash and cash equivalents

Trade and other receivables

Other forward exchange contracts

Financial liabilities not measured at fair value

Borrowings

Trade and other payables

Other forward exchange contracts

4,085,137

1,637,179

6,261,922

11,984,238

Financial assets not measured at fair value

Cash and cash equivalents

Trade and other receivables

Other forward exchange contracts

Financial liabilities not measured at fair value

Borrowings

Trade and other payables

Other forward exchange contracts

2,006,288

1,639,645

7,395,829

11,041,762

(334,882)

(3,847,847)

(6,214,782)

(446,510)

(2,538,803)

(7,368,104)

Total

4,085,137

1,637,179

6,261,922

11,984,238

(334,882)

(3,847,847)

(6,214,782)

Total

2,006,288

1,639,645

7,395,829

11,041,762

(446,510)

(2,538,803)

(7,368,104)

31 December 2013

Loans and
receivables

Other financial
liabilities

(10,397,511)

18. Share options

The group issues equity-settled share-based payments to certain directors and employees. Equity-settled
share based payments are measured at fair value (excluding the effect of non market-based vesting
conditions) at the date of grant. The fair value of options granted has been calculated with reference to the
Black-Scholes option pricing model. The fair value determined at the grant date of the equity-settled share-
based payments is expensed on a straight-line basis over the vesting period, based on the group’s estimate of
shares that will eventually vest and adjusted for the effect of non market-based vesting conditions.

During the year ended 31 December 2014, there were a number of share based payment transactions within
the group. These included an agreed cancellation of the share options in existence at the start of the year and
a subsequent granting of new options at various exercise prices. These movements are disclosed within the
tables below:

Historic options

Outstanding at 1 January

Cancelled during the year

Outstanding at 31 December

2014

Exercise
price (£)

0.10

2014

Number

142,228

(142,228)

2013

Exercise
price (£)

0.10

2013

Number

142,228

Historically, the group granted share options to its director and employees as well as external third parties.
At the start of the year there were 142,228 unexercised share options. Of these options 48,681 were granted
to two directors of the group. The directors consider that the fair value of the options was immaterial and
therefore no charge has been made in the statement of comprehensive income. The entirety of these options
were cancelled during the year.

Options issued during year

2014

Granted during the year

Exercise per
price (£)

0.07

0.22

0.36

0.58

1.16

1.74

Number

200,000

447,750

4,352,828

120,000

5,360,578

(10,353,417)

Outstanding at 31 December

All financial instruments are classified as level 1 financial instruments in the fair value hierarchy, with the
exception of Other forward exchange contracts and Borrowings which are level 2 financial instruments.

Capital management policy and procedures

The group’s capital management objectives are:

- to ensure that the group and company will be able to continue as a going concern; and

- to maximise the income and capital return to the company’s shareholders.

The parent 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; and

- as a company regulated by the Payment Service Regulations 2009, the company is required to main-
tain a capital requirement of either 10% of fixed overheads for the preceding year or the initial capital
requirement of €25,000, whichever is the higher.

Since its incorporation, the parent company has complied with these requirements, which are unchanged
since the previous year end.

The above share options issued in FAIRFX PLC have been granted to both directors and employees of the
group. At the year end, there were unexercised share options amounting to 8% of the company’s total issued
shares. Of the above options 4,055,778 have been granted to directors of the company, with an additional
854,800 having been granted to an individual who is director of a wholly owned subsidiary within the group.
All of the above options are exercisable one year following the company’s Admission to AIM and will lapse on
3 November 2019.

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The directors have valued the share options at date of grant using the Black Scholes pricing model. Details
of the inputs made into that model are disclosed in the table below

20. Related party transactions

Weighted average share price (£)

Weighted average exercise price (£)

Expected volatility

Expected option life in years

Risk-free rate

Expected dividends

Fair value of the options granted (£)

0.45

variable a

21% b

4.5

1.09%

none

variable

a. The weighted average exercise price varies dependant upon the amount stipulated in the individual

option deeds. The exercise price ranges from £0.07 - £1.74.

b. Expected volatility has been determined on the share price from date of admission up to 31st

December 2014.

c. A summary of the fair value of the options granted is summarised in the table below. If the fair value

of the option was deemed to be nil it is marked accordingly.

Exercise
price (£)

Fair Value
(£)

0.07

0.22

0.36

0.58

1.16

1.74

0.28

0.20

0.12

The total fair value of the options is £667,420. The charge incurred has been spread over the vesting
period, with £279,136 being expensed to the statement of comprehensive income for the year ended 31
December 2014.

The most significant assumption used when arriving at the valuation is volatility. A movement of 5% in this
assumption would have an income statement effect of approximately £60,000.

19. Financial commitments

As at 31 December 2014 the group had the following annual commitments under non-cancellable operating
leases. The total future value of the minimum lease payments is as follows:

Not later than one year

Later than one year and not later than five years

Land and buildings

2014

218,927

189,537

408,464

2013

27,875

The group took an assignment of the lease on its office premises on 6th May 2014. The lease runs until 12th
November 2016 at an annual rental of £148,688 and a service charge of £80,132. An incentive, paid by the
assignor on assignment of the lease of £100,000 is amortised over the remaining term of the lease.

Loans from related parties
Included within Current borrowings are amounts of £334,882 (2013: £334,882) due to Pembar Limited
and £nil (2013: £111,628) due to Jason Drummond. Pembar Limited is a company incorporated in British
Virgin Islands and is the controlling party of FAIRFX Group PLC. Jason Drummond was a director of the
company during the year. Each of the transactions was concluded at arm’s length. Details of the loans
are as follows:

•

The loan from Pembar Limited dated 9 June 2006 carries interest at a rate of 2% over the Bank of
England base rate and is repayable in full by 9 June 2016. The Company has undertaken to repay the
loans along with any relevant accrued interest by June 2016. The company may also choose, at its
discretion, to repay the loans in whole or in part at an earlier date. The lender has agreed to waive
the interest payable in respect of all previous years and the current period ended 31 December 2014.

The loan from Jason Drummond dated 9 June 2006 carried interest at a rate of 2% over Bank of
England base rate and was repayable in full by 9 June 2016. On 21st November, the company agreed
to repay the loan with accrued interest giving a total repayable of £113,886. Jason Drummond
agreed to subscribe for 199,800 ordinary shares of 1 penny each in the Company (“Ordinary Shares”)
at a price of 57 pence per Ordinary Share.

Key management personnel
Key management who are responsible for controlling and directing the activities of the group comprises
the executive Directors, the Non-executive Directors and senior management. The key management
compensation is as follows:-

2014

2013

Salaries, fees and other short term employee benefits

855,246

404,216

There are no other related party transactions which, as a single transaction or in their entirety, are or
may be material to the Company and have been entered into by the Company or any other member of the
Group during the year ended 31 December 2014.

21. Ultimate controlling party

Pembar Limited holds a significant interest In FAIRFX Group PLC, albeit short of necessary level to exert
control over the entity. However, there are individuals connected to the directors of Pembar Limited
through familial links who also have shareholdings in FAIRFX Group PLC. Consequently, it is the opinion
of the directors that Pembar Limited is the company’s immediate parent company.

The ultimate controlling party is The General Trust Company SA, an off-shore trust which wholly owns
Pembar Limited.

22. Loss per share

Basic loss per share
The calculation of basic loss per share has been based on the following loss / (profit) attributable to
ordinary shareholders and weighted average number of ordinary shares outstanding. The loss after tax
attributable to ordinary shareholders is £2,830,046 (2013: £129,261 profit) and the weighted average
number of shares in issue for the period is 64,128,356 (2013: 61,474,350).

Diluted loss per share
The calculation of diluted earnings per share has been based on the profit attributable to ordinary
shareholders and weighted average number of ordinary shares outstanding, after adjustment for the
effects of all dilutive potential ordinary shares. The loss after tax attributable to ordinary shareholders
is £2,830,046 (2013: £129,261 profit) and the weighted average number of shares is 64,128,356
(2013: 61,474,350).

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FAIRFX ANNUAL REPORT 2014