FairFX Group Plc
Annual Report and Consolidated
Financial Statements
For the year ended
31st December 2016
2
Annual Report 2016
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
5
6
12
14
16
17
18
19
20
21
22
24
Annual Report 2016
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4
Annual Report 2016
Directors and Advisors
Directors:
Company Secretary:
Registered Number:
Registered Office:
Bankers:
Auditor:
Solicitors:
Nominated Advisor and roker:
J Pearson (Chairman)
I A I Strafford–Taylor (Chief Executive Officer)
A Chowdhury
R M Head
A Quirke
08922461 (England and Wales)
3rd Floor Thames House
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
England
Barclays Bank Plc
7th Floor, United Kingdom House
180 Oxford Street
London
W1D 1EA
England
KPMG LLP
One Snowhill
Snow Hill Queensway
Birmingham
West Midlands
B4 6GH
England
Berwin Leighton Paisner LLP
Adelaide House
London Bridge
London
EC4R 9HA
England
Cenkos Securities Plc
6.7.8 Tokenhouse Yard
London
EC2R 7AS
England
Annual Report 2016
5
Strategic report - Chairman’s Statement
We are pleased to present the full year results of FairFX Group PLC for
the year ended 31 December 2016. This has been another successful
year for the Group following its admission to AIM in 2014. We have been
extremely pleased with our performance and indeed with the results we
have seen throughout the year. The performance highlights for 2016 are
as follows:
•
27.4% increase in turnover (gross value of currency transactions
sold) to £798.3m
•
•
•
•
•
Revenue breaks £10m for first time, growing 27.9% to £10.2m
49.2% turnover growth to £446.5m within International Payments
24.1% turnover growth to £299.0m in Currency Cards
31.2% increase in gross profit to £7.5m
£1.4m loss before tax, a reduction of 58% compared to 2015 loss
of £3.4m
•
80,082 new customers added to the business
FairFX is an innovative FinTech payment services company, incorporated
in 2005 and launched to the public 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 retail and corporate
sectors. FairFX was established to challenge that status quo and
deliver end-users better value combined with improved transparency,
service and convenience. FairFX achieves this by enabling customers
to transact seamlessly online or via mobile for both travel money
solutions and International Payments. By employing high quality digital
and mobile service solutions FairFX avoids 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 into other
currency zones.
In contrast to 2015, where we clearly stated our strategy of focusing on
the retail card space and performing a customer land-grab, our 2016
strategy was 2-pronged. Firstly, to carry on our growth in the retail space
but secondly to increase focus on the corporate product. We see great
opportunity in the corporate space as the size of the market is greater
and there are less direct competitors. Also, because our corporate card
product is free to use in the UK, our universe of potential customers is all
UK corporate and not limited to those with overseas travel. Our results
prove the success of our approach as the retail side continues to grow
whilst the volumes through the Corporate platform have almost doubled.
6
Annual Report 2016
John Pearson
Non-Executive Chairman
The Group has developed
solid foundations over
recent years as a base
for future growth and we
continue to invest, in a
targeted fashion, in people
and systems development.
%
increase
27.4
in turnover to £798.3m
%
increase
in revenue from £7.9m to £10.2m
27.9
80,082
new customers added to the business
%
turnover growth
in International Payments to £446.5m
49.2
%
increase
31.2
in gross profit to £7.5m
in cards turnover growth to £299m 58.0
24.1
in loss before tax from £3.4m to £1.44m
%
reduction
%
increase
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 high-street banks,
Post Office and Bureaux de Change
at airports. We see a significant
opportunity to become a leading
category brand and for that reason
we have invested heavily in marketing
and building brand awareness. Given
the success of our strategy to date
we will continue to invest in targeted
and measured marketing over the
next few years to further accelerate
customer acquisition.
Consistent with our 2015 full year results
statement, FairFX sees opportunities for
smart, segmented cross-selling across its
products and this is a key component of
the Group’s growth strategy. We continue
to focus on initially acquiring customers,
both Retail and Corporate, in the multi-
payments space using the currency card
and physical travel money products.
Thereafter, the key is to cross-sell those
customers into our higher value, single-
payment products. To this end, we have
deployed technological developments
to reduce the friction of moving from
one FairFX product to another and
improved our data-mining capabilities
to be able to identify the optimal cross-
selling opportunities. The success of this
strategy can be seen in the 49% growth
in turnover within the International
Payments part of our business.
refine both our Retail and Corporate
platforms across desktop, mobile and
app. In the Corporate space specifically,
we continued to add functionality to the
platform and are widening the accessible
market for the product further up the
SME ladder.
The Group has developed solid
foundations over recent years as a base
for future growth and we continue to
invest, in a targeted fashion, in people
and systems development. A key
achievement in 2016 was completing the
management team beneath the Chief
Executive and we now have a wealth of
experience and managerial bandwidth
to tackle the wide range of initiatives we
have under way. Innovation and delivery
of new system solutions remain key to
our future success and it is important we
continue to develop new capabilities to
retain our competitive advantage. We
therefore continued to invest in R&D and
innovation to enhance all of our products
and services in 2016 as well as introducing
“agile” methodology to improve efficiency
of deployment of new technology. FairFX
is highly focused upon the ease of use of
its systems and products and is targeted
towards mobile functionality operating
across all platforms and devices. To
this end, during 2016, we continued to
The Directors are confident that FairFX
is extremely well placed to continue its
expansion with a robust business based
on excellent products and scalability.
John Pearson
Non-Executive Chairman
21 April 2017
Annual Report 2016
7
Strategic report - Chief Executive’s Statement
We are very pleased to report that the Group has had a successful
and strong year of growth in 2016 with turnover (gross value
of currency sold) up 27.4% to £798.3 million (2015: £626.8
million). The growth was broad-based across our products with
International Payments up 49.2% and Prepaid Currency Cards up
24.1%, but the standout performance was the volume through
our Corporate Platform, which grew by 98.2% on the previous
year. The Corporate Platform is the prepaid card expenses
management portal accessed by the corporate customers to
administer their prepaid cards issued to employees.
Revenue for the year was ahead of expectations and, importantly,
exceeded the £10 million barrier for the first time. Revenue grew
27.9% to £10.2 million from £7.97 million a year earlier. The fact
that revenue growth out-stripped turnover growth shows how
FairFX managed its margins very effectively in the year, and
continues to do so in 2017. Growth in revenue was broad-based,
driven by International Payments which grew 34.6% to £3.8 million
and Currency Cards which was up 29.1% to £6.0 million.
The Group continued its growth strategy by acquiring both retail
and corporate customers across the business lines via targeted
marketing in 2016. Total marketing expenditure accounted
for £3.3 million in the year, exactly the same figure as for 2015.
The mix changed slightly with a higher weighting of the direct-
response TV advert as we did not repeat our sponsorship of the
Sky Sports F1 channel, although we are doing this again in 2017.
The Group’s operational performance was demonstrated
in the period leading up to Brexit and its aftermath. This was
the busiest in the Company’s history in terms of volumes
of business transacted. Whilst many competitors ceased
accepting transactions for some or all of this period, FairFX
remained fully operational throughout. This serves to
demonstrate the robustness of the Company’s systems and
the scalability of the business. It is unclear what the long term
impact of the vote on the macro economy will be but in the
period since the referendum FX volumes have remained strong
so we remain confident in our forecasts.
In technological development, we continue to reap the rewards
of our decision to move to an “agile” IT project management
methodology in 2015, which transformed our productivity
in terms of deployments in 2016 across both our Retail and
Corporate platforms. IT developments in 2016 focused
on improving user experience (UX) across all devices with
consequent improvements in both new customers and
transactions. We have a clear roadmap for our IT development
for 2017 with new products and functionality.
In Data Analysis, FairFX did a thorough overhaul of all its
capabilities in 2016. This started with a major exercise to stitch
together the digital activity (using Google Analytics – GA) of
the business with the transactional side that is captured in our
database. This involved extensive re-tagging of the website and
a lot of remedial work to cleanse data such that we now have
accurate numbers from which to work. The outputs of this work
Ian Strafford-Taylor
Chief Executive Officer
We look forward to
delivering further growth
in the coming year and
continuing to meet the
expectations of all of
our stakeholders.
8
Annual Report 2016
have been many-fold but include better understanding of lifetime
values (LTV) by product, cost per acquisition (CPA) by marketing
channel and also the ability to segment our customer base and
serve them appropriate targeted marketing materials. The data
also shines a light on the worth of our current customer base so
we now have improved techniques for re-activation and retention
which will yield further improvements in performance in 2017.
The single-pay products, namely International Payments,
under the banners of FairPay and Dealing, performed extremely
strongly in 2016 posting turnover growth of 49.2% to £446.5
million (2015: £299.2 million). With improvements in our data-
driven cross-selling, combined with the further strengthening
of our sales and dealing teams, with a particular emphasis on
signing up more affiliates to generate inbound leads, we expect
to continue our expansion in 2017 and this has already been
borne out in the first quarter.
Multi-pay turnover, being prepaid currency cards and travel
cash, also grew in 2016, increasing by 6.7% to £349.6 million
(2015: £327.6 million). Within the multi-pay product group there
was strong growth in prepaid cards of 24.1% to £299.0 million,
whereas the cash-in-the-post product contracted by 41.6%
to £50.6 million. The better data analysis referred to above
allowed us to calculate exactly what cash customers were worth,
including the benefits of cross-selling, and hence we altered our
pricing to widen our spreads with the knowledge that volumes
would decline but would be more than offset by an increase in
margin. This proved to be the case and the cash product is now
performing well on a CPA compared to LTV basis, and showing
growth so far in 2017.
Turnover through the Corporate Platform grew particularly
strongly in the year registering growth of 98.2% to £80.5 million
(2015: £40.6 million) and this growth flowed down to revenue
which grew 86.2% in the year to £0.8 million. This growth reflects
the success of putting more resources into developing the FairFX
products and functionality in this sector.
Gross profit for 2016 was £7.5 million, ahead of expectation,
and showed growth of 31.2% over the 2015 result of £5.7
million. Gross profit was after the deduction of direct costs of
£2.7 million, up 19.6% (2015: £2.3 million). Costs are a key focus
for 2017 as changes in legislation regarding Interchange have
increased costs of acquiring debit card payments. FairFX has
various initiatives which will mitigate these effects and provide
us with a competitive advantage.
Overall, the Group made a loss for the year of £1.4 million (2015:
loss £3.4 million) which was slightly better than expectations.
The Group traded profitably in the final quarter of 2016 which
reinforces the Group’s target of profitability for the year ending 31
December 2017.
The net cash position of the Group at 31st December 2016 was
£8.5 million which included £5.0 million of customer funds, leaving
a free cash position for the Group of £3.5 million. Accordingly, the
Group has ample cash resources to continue its growth.
People
We continued to selectively invest in talent in 2016, however
our operational efficiency meant that average headcount was
almost the same as last year at 66 (2015: 65) despite turnover
growing by 27.4%. Of particular note, the senior management
team has now been completed and we now have broader
experience and vastly improved bandwidth to cope with all the
initiatives planned for 2017 and beyond. The business now has
critical mass and operational gearing so large-scale increases
in headcount are not needed as the Group expands.
There was one change to the Board of Directors in 2016
with Robert (Bob) Michael Head joining the Board in July as
a non-executive, replacing Nick Jeffery. Bob brings a wealth
of experience in online banking as joint founder of egg.
com and the first CEO of smile.co.uk as well as an excellent
background in governance and is a very strong addition to
the Board. The Board remains 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.
Strategy
Our strategy for 2017 and beyond falls into 4 distinct categories:
1. Retail
2. Corporate
3.
Infrastructure
4. E-money licence advances
On the Retail side of the business, FairFX will continue to
focus on growth via the combination of marketing and
technological development, but this will be more targeted
than in previous years given the investment in enhancing
our data mining capabilities in 2016. We currently have over
600,000 retail customers and the focus going forward will be
not only on adding new customers but also maximizing the
revenues from the existing client base. Specific initiatives
include reactivation and retention programmes and
identifying the optimal products to cross-sell by individual
(next best action), all of which should improve turnover and
revenues. We are also launching a multi-currency version of
the retail card (many currencies on one plastic) and a virtual
card, both of which will extend the usage of the product and
widen the audience. We have also enhanced the International
Payments offering so that the online capability (FairPay)
is easier to use and covers a wider range of amounts by
lowering the minimum transaction size. We see significant
potential for growth in FairPay by making it more accessible.
Lastly, we will be further improving the user experience
Annual Report 2016
9
Strategic report - Chief Executive’s Statement
(UX) from becoming a customer
right through to transaction and then
customer retention on both desktop
and mobile.
On the Corporate side of the business,
the strategy is multi-faceted. On the
Corporate card platform, our offering
is free to use in the UK and as such
competes directly with Amex and
Barclaycard. However, there is no real
competitor in the prepaid space and so
we see excellent potential for growth.
We will access this by continuing
our programme of improving both
the functionality and usability of the
platform, across all devices, whilst
widening the scope of customers
we will look to serve. We will do this
by making the platform usable for
businesses from one employee to
thousands whereas before we focused
on businesses in the range of 10-200
employees. Furthermore, as with our
retail offering, we will also be deploying
a multi-currency version of the
corporate card. We will also enhance
the overall platform offering to cover
all the payment needs for a corporate
ranging from payments, both domestic
and international, as well as cards and
expense management.
For Infrastructure, FairFX has now
reached a scale at which it has the
critical mass needed to make it cost-
effective to insource some parts
of its supply chain. We have already
started optimising the economics
of our prepaid card product, which
will continue during 2017, and have
active work streams in several areas.
Insourcing benefits FairFX not only
in terms of reducing costs, but it also
enables quicker development of new
products. Insourcing also leads to a
reduction in operational risk with fewer
participants in the chain, meaning
programme management is more
efficient. In addition, we are adding
additional banking partners in 2017
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Annual Report 2016
so we are not reliant on one partner.
Overall, the theme on infrastructure
is to have multiple supply and to
utilize intelligent switching software,
such that our transactions are
routed via the most efficient and
cost-effective channels.
Regarding the E-money licence we
acquired in early 2017, this enables
FairFX to hold electronic balances on
behalf of its customers. This opens up
a whole range of possibilities for the
Group in terms of both the products
we can offer and also the payments
systems we can directly interface with.
We will be selectively using the benefits
of the licence in 2017 and beyond
with an initial focus on enabling our
customers to place and hold funds with
us across a range of currencies and
thereby create a FairFX eco-system
within which we can move funds
without incurring banking charges. In
addition, the E-money licence allows
us to provide digital banking to our
customers, with a FairFX sort code
and bank account numbers supported
by full-service banking facilities with
the exception of paying interest or
extending credit. We see particular
potential for this in the Corporate SME
space where customers are poorly
served by the incumbent Banks. Finally,
the E-money licence allows us to
become our own Issuer of our prepaid
cards and accordingly we will examine
the costs and benefits of this in 2017.
Quarter 1 2017 Update
The results for the first quarter 2017
are encouraging and underpin our
expectations for the full year. Turnover
grew strongly and is up 32.9% at
£194.3 million (2016: £146.2 million)
and is broad based with all product
lines advancing. Within this number,
International Payments turnover is up
27.9% at £107.2 million (2016: £83.6
million) and prepaid currency card
turnover increased 42.7% to £74.6
million (2016: £52.3 million), including
corporate card volumes up 103.3%
over prior year to £27.1 million (2016:
£13.3 million). Revenue also grew
strongly in the first quarter with a
33.1% increase to £2.6 million (2016:
£1.9 million).
Customer numbers continue to expand
rapidly with 15,070 new customers
added in the first quarter, bringing
the total to 603,262. Within the new
retail customer numbers, the strategic
focus on acquiring card customers
rather than those for the lower margin
cash product can be seen given that
12,602 cards were sold in the first
quarter, with a discernable increase in
momentum as the quarter progressed.
The current expansion of the business
will be further supported by the
planned targeted marketing campaigns
throughout 2017 including the
sponsorship of Sky Sports’ coverage of
Formula 1, which will run from March to
November. Having analysed the effects
of this sponsorship in 2015 we can see
that it delivers excellent results in terms
of both customer numbers and cost of
acquisition across both our retail and
corporate product lines.
The first quarter of 2017 was also
notable for the completion of a
transaction to acquire the business
of Q Money. The acquisition provides
FairFX not only with an e-money
licence, as described above, but
also the springboard to launch new
products into the corporate space
utilizing the know-how of the Q money
team. Please refer to note 23 of the
financial statements for more details.
Outlook
Based on the performance and
further progress made in Q1 2017,
the Group remains in line with market
expectations for the full 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 its financial assets and
minimising financial liabilities whilst
not engaging in speculation.
Credit risk
The Group’s receivables amount to
£3.0 million (2015: £2.0 million).
The receivables include an amount
of £1.9 million (2015: £1.0 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 cash reserves
amounting to £8.5 million (2015: £3.6
million) which includes customer
traded funds of £5.0 million (2015:
£2.9 million).
The Group’s payables due within one
year amount to £7.7 million (2015:
£5.2 million). The directors do not
foresee any problems in the group
being able to meet its obligations.
Market risk
Market risk arises from the Group’s
use of foreign currency (see 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 2016, the Group
is not sensitive to movements in the
strength of Sterling as no material
foreign currency balances are held.
Fair value risk
Derivative financial assets and
liabilities are measured at fair
value. The Group does not include
a fair value of other financial
assets and liabilities as the
carrying amount is a reasonable
approximation of fair value.
In Conclusion
We look forward to delivering further
growth in the coming year and
continuing to meet the expectations
of all of our stakeholders.
Ian Strafford-Taylor
Chief Executive Officer
21 April 2017
Annual Report 2016
11
Corporate governance statement
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 regard 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 will follow, so far as
practicable, 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 below. The attendance record
of each relevant Director at Board and committee meetings
during 2016 is as follows:
John Pearson
Ian Strafford-Taylor
Ajay Chowdhury
Nick Jeffery (resigned 20 July 2016)
Robert Head (appointed 20th July 2016)
Board
Audit
Committee
Remuneration
Committee
9 Meetings
2 Meetings
2 Meetings
9
9
6
3
3
2
n/a
2
n/a
1
2
n/a
1
1
n/a
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 via a
Risk Committee which reports into the Audit Committee 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 Robert Head, Ajay Chowdhury and John Pearson and is chaired by Robert Head. The audit committee has met
twice during the year and will meet at least twice a year in future 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.
12
Annual Report 2016
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
Ajay Chowdhury and is chaired by Ajay Chowdhury.
The remuneration committee has met twice during the year
and will continue to meet at least twice a year in future 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 21 April 2017 and was
signed on its behalf by:
I A I Strafford-Taylor
Chief Executive Officer
Annual Report 2016
13
Directors’ report
The directors’ present their annual report and consolidated
financial statements for the year ended 31 December 2016.
Financial reporting
The consolidated financial statements for the year ended
31 December 2016 are set out on pages 18 to 46 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.
Post balance sheet event
On 19th January 2017, the Group acquired the entire
ordinary share capital of Q Money Limited. The initial
consideration payable for the Acquisition is £425,000, to
be satisfied by £110,000 payable from existing cash and by
the issue of 724,136 new ordinary shares of 1p each in the
Company (the “Initial Consideration Shares”) at an issue
price of 43.5p. Further consideration of up to £825,000 may
be payable to Q Money over the next 3 years, subject to the
achievement of certain performance milestones, and will be
satisfied by the issue of new ordinary shares of 1p each in the
Company at an issue price of 43.5p.
Dividends
The directors do not recommend the payment of a dividend
for the year ended 31 December 2016 (2015: nil).
The principal activity of the company is focussed on share
ownership of the FairFX companies.
Directors
The following directors have held office during the financial
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.
year and up to the date of approval of these financial
statements.
I A I Strafford-Taylor
A Chowdhury
N S Jeffery
(resigned 20th July 2016)
J Pearson
R M Head
(appointed 20th July 2016)
14
Annual Report 2016
Directors’ interests
The directors who held office at 31 December 2016 held the following shares in the company:
I A I Strafford-Taylor
Ordinary 1p shares
Shareholding %
2.1%
2016
2,127,750
The directors held the following unexercised share options in the company:
Option price (£)
I A I Strafford-Taylor
A Chowdhury
J Pearson
R M Head
0.22
0.36
0.36
0.30
0.36
0.30
0.58
1.16
1.74
0.30
0.30
Number
Granted
Date Granted
192,950
28/07/2014
1,789,300
28/07/2014
1,535,750
28/07/2014
750,000
28/09/2016
88,889
50,000
120,000
120,000
120,000
250,000
133,333
28/07/2014
28/09/2016
01/11/2014
01/11/2014
01/11/2014
28/09/2016
28/09/2016
Auditor
KPMG LLP have expressed their willingness to continue in office as auditors and a resolution seeking to reappoint them will be
proposed at the forthcoming Annual General Meeting.
Going concern
Based on the Group’s budgets and financial projections, the Directors are satisfied that the business is a going concern and
therefore the financial statements have been prepared on a going concern basis. 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.
The Directors’ Report was approved by the Board on 21 April 2017 and signed on its behalf by:
I A I Strafford-Taylor
Chief Executive Officer
Annual Report 2016
15
Directors’ responsibilities statement
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.
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.
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.
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.
Responsibility statement of the directors in respect of the
annual financial report
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;
•
•
state whether they have been prepared in accordance
with IFRSs as adopted by the EU; and
prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the Group
and the Parent Company will continue in business.
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
We confirm that to the best of our knowledge:
•
•
the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the company and the undertakings included in the
consolidation taken as a whole; and
the strategic report includes a fair review of the
development and performance of the business and the
position of the issuer and the undertakings included in the
consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face
In accordance with Section 418, each of the persons who are
directors at the time when this Directors’ report is approved
has confirmed that:
(a) so far as the Director is aware, there is no relevant audit
information of which the company’s auditor is unaware; and
(b) that the Director has taken all the steps that he ought to
have taken as a Director in order to be aware of any relevant
audit information and to establish that the company’s
auditor is aware of that information.
I A I Strafford-Taylor
Chief Executive Officer
16
Annual Report 2016
Independent auditor’s report
We have audited the financial statements of FairFX Group Plc
for the year ended 31 December 2016 set out on pages 18 to
46. 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 members 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 16 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 2016 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 and, as regards the group financial statements,
Article 4 of the IAS Regulation.
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 is consistent with the
financial statements.
Based solely on the work required to be undertaken in the
course of the audit of the financial statements and from reading
the Strategic report and the Directors’ report:
• we have not identified material misstatements in those
reports; and
•
in our opinion, those reports have been prepared in
accordance with the Companies Act 2006.
Matter 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
21April 2016
Annual Report 2016
17
Consolidated statement of comprehensive income
Gross value of currency transactions sold
Gross value of currency transactions purchased
2016
£
20151
£
798,300,641
626,827,807
(788,105,667)
(618,854,901)
Note
3.1.a
3.1.a
Revenue on currency transactions
4
10,194,974
7,972,906
Direct costs
Gross profit
Administrative expenses
Loss before tax and from operations
Tax expense
Loss for the year
Loss per share
Basic
Diluted
(2,725,788)
(2,278,845)
7,469,186
5,694,061
(8,909,376)
(9,089,459)
(1,440,190)
(3,395,398)
-
-
(1,440,190)
3,395,398)
(1.49p)
(1.49p)
(4.76p)
(4.76p)
5
8
9
9
All income and expenses arise from continuing operations. There are no differences between the loss for the year and total
comprehensive income for the year, hence no Statement of Other Comprehensive Income is presented.
The notes on pages 24 to 46 form an integral part of these financial statements.
1The 2015 Income Statement has been re-stated with certain revenue and cost lines reclassified. There is no impact on the overall loss for the year.
18
Annual Report 2016
Consolidated statement of comprehensive income
Consolidated and company statement of financial position
Group
2015
£
Company
2015
£
2016
£
2016
£
75,258
-
75,258
ASSETS
Non-current assets
Property, plant and equipment
Investments
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Cash and cash equivalents
Note
10
11
12
13
17
14
80,754
-
-
11,243,460
80,754
11,243,460
229,905
3,001,402
223,884
8,523,985
11,979,176
95,094
1,965,003
115,711
3,615,056
5,790,864
-
-
-
-
-
-
1,260,857
1,260,857
-
4,624,571
-
-
4,624,571
TOTAL ASSETS
12,054,434
5,871,618
11,243,460
5,885,428
EQUITY AND LIABILITIES
Equity attributable to Equity holders
Share capital
Share premium
15
1,031,160
768,660
1,031,160
768,660
10,174,273
5,313,780
10,174,273
5,313,780
Share based payment reserve
668,422
667,421
668,422
667,421
Merger reserve
Retained deficit
Total equity
Current Liabilities
Trade and other payables
Derivatives financial liabilities
5,416,083
5,416,083
-
(12,897,682)
(11,457,492)
(883,933)
4,392,256
708,452
10,989,922
-
(883,933)
5,865,928
16
17
7,514,221
4,463,925
253,538
147,957
699,241
-
7,662,178
5,163,166
253,538
19,500
-
19,500
TOTAL EQUITY AND LIABILITIES
12,054,434
5,871,618
11,243,460
5,885,428
The notes on pages 24 to 46 form an integral part of these financial statements.
The financial statements were approved and authorised for issue by the Board on 21 April 2017 and were signed on its behalf by:
I A I Strafford-Taylor
Director
Company Registration Number: 08922461
Annual Report 2016
19
Consolidated and company statement of changes in equity
Group
Share
capital
Share
premium
Share
based
payment
Retained
deficit
Merger
reserve
£
£
£
£
£
Total
£
At 1 January 2015
704,758
3,522,752
279,136
(8,062,094)
5,416,083
1,860,635
Loss for the year
Shares issued in year
Share based payment
charge (Note 19)
At 31 December 2015
Loss for the year
Shares issued in year
Share based payment
charge (Note 19)
At 31 December 2016
Company
-
63,902
-
-
1,791,028
-
-
(3,395,398)
-
-
388,285
-
-
-
-
(3,395,398)
1,854,930
388,285
768,660
5,313,780
667,421
(11,457,492)
5,416,083
708,452
-
262,500
-
4,860,493
-
-
(1,440,190)
-
-
-
(1,440,190)
5,122,993
-
-
1,001
-
-
1,001
1,031,160
10,174,273
668,422
(12,897,682)
5,416,083
4,392,256
Share
capital
Share
premium
Share
based
payment
Retained
deficit
Merger
reserve
Total
£
£
£
£
£
£
At 1 January 2015
704,758
3,522,752
279,136
(699,056)
Loss for the year
Shares issued in period
Share based payment
charge (Note 19)
At 31 December 2015
Loss for the period
Shares issued in period
Share based payment
charge (Note 19)
-
-
63,902
1,791,028
-
-
-
-
388,285
(184,877)
-
-
768,660
5,313,780
667,421
(883,933)
-
-
262,500
4,860,493
-
-
-
-
1,001
-
-
-
At 31 December 2016
1,031,160
10,174,273
668,422
(883,933)
-
-
-
-
-
-
-
-
-
3,807,590
(184,877)
1,854,930
388,285
5,865,928
-
5,122,993
1,001
10,989,922
The following describes the nature and purpose of each reserve within owners’ equity:
Share capital:
Amount subscribed for shares at nominal value.
Share premium:
Amount subscribed for shares in excess of nominal value less directly attributable costs
Share based payment:
Fair value of share options granted to both directors and employees.
Retained deficit:
Cumulative profit and losses are attributable to equity shareholders.
Merger reserve
Arising on reverse acquisition from group reorganisation.
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.
The notes on pages 24 to 46 form an integral part of these financial statements.
20
Annual Report 2016
Consolidated statement of cash flows
Group
Note
2016
£
2015
£
Loss for the year
(1,440,190)
(3,395,398)
Cash flows from operating activities
Adjustments for:
Depreciation
Share based payment charge
(Increase) in trade and other receivables
(Increase) in derivative financial assets
(Decrease) in borrowings
Increase in trade and other payables
(Decrease)/Increase in derivative financial liabilities
(Increase)/Decreasein inventories
53,423
1,001
(1,036,399)
(108,173)
-
3,050,296
(551,284)
(134,811)
55,165
388,285
(327,825)
(68,570)
(334,882)
616,078
699,241
66,055
Net cash flow used by operating activities
(166,137)
(2,301,851)
Cash flows from investing activities
Acquisition of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Costs directly attributable to share issuance
(47,927)
(47,927)
(23,160)
(23,160)
5,250,000
(127,007)
1,980,971
(126,041)
Net cash from financing activities
5,122,993
1,854,930
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at end of the year
14
4,908,929
3,615,056
8,523,985
(470,081)
4,085,137
3,615,056
The notes on pages 24 to 46 form an integral part of these financial statements.
Annual Report 2016
21
Company statement of cash flows
Company
Note
2016
Loss for the period
Cash flows from operating activities
Adjustments for:
Share based payment charge
Decrease/(Increase) in trade and other receivables
Iincrease/ Decrease in trade and other payables
£
-
2015
£
(184,877)
1,001
4,624,571
234,038
388,285
(1,680,950)
(1,500)
Net cash flow used by operating activities
4,859,610
(1,479,042)
Cash flows from investing activities
Investment in subsidiary undertaking
(9,982,603)
(375,888)
Net cash used in investing activities
(9,982,603)
(375,888)
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Costs directly attributable to share issuance
5,250,000
(127,007)
1,980,971
(126,041)
Net cash from financing activities
5,122,993
1,854,930
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at end of the period
-
-
-
-
The notes on pages 24 to 46 form an integral part of these financial statements.
22
Annual Report 2016
Annual Report 2016
23
Notes to the consolidated financial statements
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 2016 were authorised for issue
on 21 April 2017 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 year ended 31
December 2016.
Adoption of new and revised accounting standards and interpretations:
•
•
•
•
•
•
IFRS 14 Regulatory Deferral Accounts
IFRS 11 Accounting for acquisitions of interests in Joint Operations (Amendment)
IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets (Amendments)
IAS 27 Equity Method in Separate Financial Statements (Amendments)
IAS 1 Disclosure Initiative (Amendments)
IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investment In
Associates and Joint Ventures
The adoption of the new applicable standards has 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 with the exception of IFRS 16. The Company
holds an operating lease for the offices it occupies so expects the implementation of this standard to impact the financial
statements but the impact has yet to be assessed. The Audit Committee will in due course consider the implementation of
the standards below on the Group’s Financial Statements.
IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses (Amendments)
IAS 7 Disclosure initiative
IFRS 15 Revenue from Contracts with Customers
IFRS 9 Financial Instruments: Classification and Measurement
Effective Dates *
01 January 2017
01 January 2017
01 January 2018
01 January 2018
IFRS 2 Classification and Measurement of Share-based Payment Transactions (Amendments)
01 January 2018
IFRC 22 Foreign Currency Transactions and Advance Consideration
IFRS 16 Leases
01 January 2018
01 January 2019
* The effective dates stated above are those given in the original IASB/IFRIC standards and interpretations. As the group
and parent company prepares its 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 use 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.
24
Annual Report 2016
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 with the exception of derivative financial
instruments which are measured at fair value through profit
or loss.
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’ best
knowledge and past experience and are explained further in
note 3.21.
The Group has changed its allocation of various expenses
in the year ended 31 December 2016 to more accurately
reflect the nature of the expenses. For consistency, the
prior year comparative balances have been restated in the
Statement of Comprehensive Income. This restatement did
not result in any impact on the prior year loss.
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.
3.1.a Gross value of currency transactions sold
and purchased
The gross value of currency transactions sold and
purchased represent the gross value of currency
transactions undertaken with customers by the Group,
where the net is reported as Revenue. These values
are a non GAAP measure and therefore disclosed as
additional information in the consolidated statement of
comprehensive income.
3.2 Basis of consolidation
On 5th 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 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 2016 and are disclosed fully in note 15.
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” were
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.
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and
has the ability to affect those returns through its power
over the entity. In assessing control, the Group takes into
consideration potential voting rights. The acquisition date
is the date on which control is transferred to the acquirer.
The financial statements of subsidiaries are included in
the consolidated financial statements from the date that
control commences until the date that control ceases.
Annual Report 2016
25
Notes to the consolidated financial statements (continued)
Losses applicable to the non-controlling interests in a
subsidiary are allocated to the non-controlling interests
even if doing so causes the non-controlling interests to
have a deficit balance.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised
income and expenses arising from intra-group transactions,
are eliminated.
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 consolidated statement of
comprehensive income for the year.
3.4 Inventories
Inventories comprise of stock of prepaid currency cards not
yet distributed to customers. Inventories are valued at the
lower of cost and net realisable value. Cost is based on the
first-in first-out principle and includes expenditure incurred
in acquiring the inventories, production or conversion costs
and other costs in bringing them to their existing location
and condition.
3.5 Trade and other receivables
Trade receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an
active market. Trade receivables include monies received
from customers executing deliverable FX trades. 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 the impairment of trade receivables is
recognised 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
26
Annual Report 2016
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.
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 arise principally from the receipt of goods and
services and deliverable FX trades to be settled in
accordance with instructions from customers.
These are initially recognised at fair value and then carried at
amortised cost using the effective interest method.
3.8 Derivative financial assets and liabilities
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.
3.9 Offsetting of financial instruments
Financial assets and financial liabilities are offset and the
net account reported in the statement of financial position
if, and only if, there is a currently enforceable legal right to
offset the recognised amounts and there is an intention to
settle on a net basis, or to realise the assets and settle the
liabilities simultaneously.
3.10 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.
3.11 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.
3.12 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.
•
•
•
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.
3.13 Pension costs
The Company operates a defined contribution
pension scheme and outsources the administration
of the pension scheme to a third party. The Company
contributes to the pension scheme in line with Auto-
enrolment obligations as defined in the Pensions
Act 2008 and passes on the employer and employee
contributions to the pension scheme administrator
on a monthly basis. The employer contributions are
recognised as they occur through the Company payroll.
3.14 Investments in subsidiaries
Investment in subsidiary undertakings are stated at
cost less impairment in value.
3.15 Income recognition
Revenue is recognised when a binding contract is
entered into by a client and the margin is fixed and
determined. The margin is the difference 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.
3.16 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.
Annual Report 2016
27
Notes to the consolidated financial statements (continued)
3.17 Treatment of research and development
tax credits
Research and development tax credits are treated as a
government grant as defined under IAS20 – Accounting
for Government Grants and Disclosure of Government
Assistance. The tax credit claim is based on research
and development activity carried on by staff and so
any claim received is netted against administration
expenses. The tax credit is recognised on receipt of
funds from the Government.
3.18 Interest expense recognition
Interest expense is recognised as interest accrues, using
the effective interest method, on the net carrying amount
of the financial liability.
3.19 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.
3.20 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 19.
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
28
Annual Report 2016
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 recognised 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.
3.21 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 term.
3.22 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 19. 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. The critical
estimate is the term of the share option to vest.
(ii) Measurement of fair values
The Group’s accounting policies and disclosures require
measurement of fair values with regard to Derivative
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).
The most crucial assumption is the interest rate used
to discount the future cash flows. A sensitivity analysis
was performed on the GBP LIBOR rate where the three
and six month rate was increased by 1%, The impact on
the income statement would be a credit to the income
statement of £17,852.
Annual Report 2016
29
Notes to the consolidated financial statements (continued)
4. Revenue and segmental analysis
Segment results are reported to the Board of Directors (being the chief operating decision maker) to assess both
performance and strategic decisions. The Board of Directors reviews financial information on revenue the following
segments: Currency cards, FairPay, Dealing and Central (which includes travel cash, overheads and corporate costs). The
revenue is wholly derived from within the UK.
2016
Currency Cards
International Payments
Central
Total
Segment revenue
Direct costs
Administrative expenses
Profit /(loss) before tax and
from operations
Total assets
Total liabilities
Total net assets
FairPay
Dealing
£
£
£
£
£
6,016,606
773,823
3,002,024
402,521
10,194,974
-
-
-
-
-
-
(2,725,788)
(2,725,788)
(8,909,376)
(8,909,376)
6,016,606
773,823
3,002,024
(11,232,643)
(1,440,190)
-
-
-
-
-
-
-
-
-
12,054,434
12,054,434
(7,662,178)
(7,662,178)
4,392,256
4,392,256
2015
Currency Cards
International Payments
Central
Total
Segment revenue
Direct costs
Administrative expenses
FairPay
Dealing
£
£
£
£
£
4,659,431
828,044
1,976,475
508,956
7,972,906
-
-
-
-
-
-
(2,278,845)
(2,278,845)
(9,089,459)
(9,089,459)
Loss before tax and from operations
4,659,431
828,044
1,976,475
(10,859,348)
(3,395,398)
Total assets
Total liabilities
Total net assets
-
-
-
-
-
-
-
-
-
5,871,618
5,871,618
(5,163,166)
(5,163,166)
708,452
708,452
30
Annual Report 2016
5. Loss before tax
Loss before tax 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
Research and 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
2016
£
271,487
53,423
(119,507)
902,643
(220,020)
2016
£
40,000
40,000
80,000
-
-
-
-
2015
£
258,790
55,165
151,822
714,847
(183,186)
2015
£
21,000
24,000
45,000
-
-
-
-
80,000
45,000
The above 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
Pension costs
Further information regarding share options is given in note 19.
2016
2015
Headcount
Headcount
66
65
2016
£
2015
£
3,587,934
3,101,177
417,660
10,008
351,254
-
4,015,602
3,452,431
Annual Report 2016
31
Notes to the consolidated financial statements (continued)
7. Directors’ remuneration
2016
£
2015
£
Emoluments
571,871
366,621
The total amount payable to the highest paid director in respect of emoluments was £433,742 (2015: £227,500)
The total amount payable to all Directors in the consolidated Group was £682,057 (2015: £468,288).
There were pension payments of £402 (2015: Nil) in the year. Further information regarding share options is given in note 19.
8. Taxation
Current year tax expenses
2016
2015
£
-
£
-
Factors affecting tax charge for the period
The charge for the year can be reconciled to the (loss) per the consolidated statement of comprehensive income as follows:
2016
£
2015
£
Loss before taxation: Continuing operations
(1,440,190)
(3,395,398)
Taxation at the UK corporation rate tax of 20% (2015: 20%)
(288,038)
(687,568)
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 for which no deferred tax asset utilised
Total tax for the year
672
200
66,344
8,447
6,626
78,628
92,349
9,882
212,375
500,083
-
-
32
Annual Report 2016
The group has estimated losses of £9,126,793 (2015: £8,612,311) 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 £1,825,359 (2015: £1,722,462) 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.
During the year ended 31 December 2013 the UK Government enacted provisions reducing the rate of corporation tax from
21.0% to 20.0% from 1 April 2015.
During the year ended 31 December 2015 the Government announced provisions further reducing the rate of corporation tax
to 19.0% with effect from 1 April 2017 and to 18.0% from 1 April 2020 which were substantially enacted during the year. The
tax rate applying from 1 April 2020 was further reduced to 17% during the year.
Therefore the standard rate of corporation tax applicable to the Group for the year ended 31 December 2016 was 20.0%, the
rate in the year ended 31 December 2017 is expected to be 19.25%, the rate in the years ending 31 December 2018 and 31
December 2019 are expected to be 19.0%, the rate in the year ending 31 December 2020 is expected to be 17.5% and the
rate in subsequent years is expected to be 17.0%
9. Loss per share
Basic loss per share
The calculation of basic loss per share has been based on the following loss attributable to ordinary shareholders and
weighted average number of ordinary shares outstanding. The loss after tax attributable to ordinary shareholders is
£1,440,190 (2015: £3,395,398 loss) and the weighted average number of shares in issue for the period is 96,732,842 (2015:
71,316,169).
Diluted loss per share
The calculation of diluted earnings per share has been based on the loss 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 £1,440,190 (2015: £3,395,398 loss) and the weighted average number of
shares is 96,732,842 (2015: 71,316,169).
Annual Report 2016
33
Notes to the consolidated financial statements (continued)
10. Property, plant and equipment
Group
Cost
Plant and
machinery
Fixtures
and fittings
Leasehold
improvements
£
£
£
Total
£
At 1 January 2016
236,196
14,632
39,651
290,479
Additions
At 31 December 2016
45,838
282,034
2,089
16,721
-
47,927
39,651
338,406
Depreciation
At 1 January 2016
192,436
9,430
7,859
209,725
Charge for the year
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
47,431
239,867
42,167
43,760
2,027
11,457
5,264
5,202
3,965
11,824
53,423
263,148
27,827
75,258
31,792
80,754
34
Annual Report 2016
11. Investments
Company - Shares in subsidiary undertakings
Cost
Additions
At 31 December
Provisions for diminution in value
At 31 December
Net Book Value
At 31 December
2016
£
1,260,857
9,982,603
2015
£
884,969
375,888
11,243,460
1,260,857
-
-
11,243,460
1,260,857
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:
Subsidiary Undertaking
FairFX (UK) Limited
FairFX Plc *
FairFX Corporate Limited *
FairFX Wholesale Limited *
FairFS Limited *
Country of registration
or incorporation
Shares Held
Class %
England and Wales
Ordinary
100 Trading
England and Wales
Ordinary
100 Trading
England and Wales
Ordinary
100 Dormant
England and Wales
Ordinary
100 Dormant
England and Wales
Ordinary
100 Dormant
Fair Foreign Exchange Ireland Limited *
Ireland
Ordinary
100 Dormant
* Share capital held indirectly
Annual Report 2016
35
Notes to the consolidated financial statements (continued)
12. Inventories
Group
2016
£
2015
£
Finished goods
229,905
95,094
The group’s inventories comprise stock of cards.
13. Trade and other receivables
Group
2015
£
2016
£
Trade receivables
1,922,977
1,046,473
Amounts due from group undertakings
-
-
Other receivables
768,285
811,977
Prepayments and accrued income
310,140
106,553
3,001,402
1,965,003
Company
2016
2015
£
-
-
-
-
-
£
-
4,624,571
-
-
4,624,571
Information about the Group’s exposure to credit and market risks, and impairment losses for trade and other
receivables is included in Note 18.2.
36
Annual Report 2016
14. Cash and cash equivalents
Group
Cash at bank
2016
£
2015
£
8,523,985
3,615,056
Included in cash and cash equivalents at 31 December 2016 was £5,022,092 of customer trading funds (2015: £2,877,514).
All the cash is held in the name of the trading company FairFX Plc.
15. Share capital
Group and Company
Authorised, issued and fully paid up capital
103,116,039 ordinary shares of £0.01 each
2016
£
2015
£
1,031,160
768,660
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 issue:
Date of Issue
No
Shares
Issued
Price
per
share
Gross value
of shares
issued
Nominal Value
of shares
issued
Cost
of share
issues
Share
Premium
29th March 2016
26,250,000
£0.20
£5,250,000
£0.01
£262,500
£4,860,493
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.
Annual Report 2016
37
Notes to the consolidated financial statements (continued)
16. Trade and other payables
Group
Company
2016
£
2015
£
Trade payables
6,803,255
3,950,139
£
-
2016
2015
Amounts owing to group
undertakings
Taxation and social security
Accruals and deferred income
-
-
234,038
130,368
580,598
115,918
397,868
-
19,500
7,514,221
4,463,925
253,538
Group
Company
2016
£
2015
£
2016
£
Current
7,514,221
4,463,925
253,538
£
-
-
-
19,500
19,500
2015
£
19,500
17. Derivative financial assets and financial liabilities
17.1 Derivative financial assets
Fair Value
Notional
Principal
Fair Value
2016
2016
2015
£
£
£
Notional
Principal
2015
£
Foreign exchange forward contracts
223,884
10,238,079
115,711
10,882,130
Total financial instruments at fair value
223,884
10,238,079
115,711
10,882,130
38
Annual Report 2016
17.2 Derivative financial liabilities
Financial liabilities at fair value through profit or loss
Fair Value
Notional
Principal
Fair Value
2016
2016
2015
£
£
£
Notional
Principal
2015
£
Foreign exchange forward contracts
147,957
10,169,959
699,241
11,385,381
Total financial instruments at fair value
147,957
10,169,959
699,241
11,385,381
18. 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.
18.1 Principal financial instruments
The principal financial instruments of the Group, from which financial instrument risk arises, are as follows:
Financial instruments held at amortised cost
Cash and cash equivalents
Trade and other payables
Trade and other receivables
Financial instruments held at fair value through profit or loss
Derivative financial assets – Forward foreign exchange contracts
Derivative financial liabilities – Forward foreign exchange contracts
2016
£
2015
£
8,523,985
3,615,056
(7,514,221)
(4,463,925)
3,001,402
1,965,003
2016
£
2015
£
223,884
(147,957)
115,711
(699,241)
Trade and other payables generally have a maturity of less than one month.
Forward foreign exchange contracts fall into level 2 of the fair value hierarchy as set out in note 3.21(ii) since 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).
Annual Report 2016
39
Notes to the consolidated financial statements (continued)
18.2 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 2016.
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 risks 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.
The ageing of financial assets at the statement of financial position date is as follows:
2016
Current
and not
impaired
Less than
3 months
overdue
4 to 6
months
overdue
Over 6
months
overdue
Individually
impaired
£
Trade and other receivables
3,001,402
Derivative financial assets
223,884
£
-
-
£
-
-
£
-
-
£
-
-
2015
Current
and not
impaired
Less than
3 months
overdue
4 to 6
months
overdue
Over 6
months
overdue
Individually
impaired
£
Trade and other receivables
1,965,003
Derivative financial assets
115,711
£
-
-
£
-
-
£
-
-
£
-
-
Total
£
3,001,402
223,884
Total
£
1,965,003
115,711
40
Annual Report 2016
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.
Further details of the risk management objectives and policies are disclosed in the principal risks and uncertainties section of
the Strategic Report.
The table below analyses the Group’s gross undiscounted financial liabilities by their contractual maturity date.
2016
On demand
and within
1 month
Between
1 and 3
months
Between
3 and 12
months
Over
1 year
Trade and other receivables
7,514,221
£
£
-
£
-
Derivative financial assets
18,959
57,292
71,706
£
-
-
2015
On demand
and within
1 month
Between
1 and 3
months
Between
3 and 12
months
Over
1 year
Trade and other receivables
4,463,925
£
£
-
£
-
Derivative financial assets
230,564
245,436
223,241
£
-
-
Total
£
7,514,221
147,957
Total
£
4,463,925
699,241
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 2016, the Group is not sensitive to movements in the strength of Sterling as no material foreign currency
balances are held.
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.
Annual Report 2016
41
Notes to the consolidated financial statements (continued)
31 December 2016
Financial assets not measured at fair value
Cash and cash equivalents
Trade and other receivables
Financial liabilities not measured at fair value
Trade and other payables
Loans and
Receivables
Other finan-
cial liabilities
£
£
Total
£
8,523,985
3,001,402
11,525,387
-
-
-
8,523,985
3,001,402
11,525,387
-
-
7,514,221
7,514,221
7,514,221
7,514,221
31 December 2016
Loans and
Receivables
Other finan-
cial liabilities
£
3,615,056
1,965,003
5,580,059
£
-
-
-
Total
£
3,615,056
1,965,003
5,580,059
-
-
(4,463,925)
(4,463,925)
(4,463,925)
(4,463,925)
Financial assets not measured at fair value
Cash and cash equivalents
Trade and other receivables
Financial liabilities not measured at fair value
Trade and other payables
42
Annual Report 2016
All financial instruments are classified as level 1 financial instruments in the fair value hierarchy, with the exception of Derivative
financial assets and liabilities 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.
FairFX PLC, a wholly owned subsidiary, is subject to the following externally imposed capital requirements:
•
as a company regulated by the Payment Service Regulations 2009, the company is required to maintain a capital
requirement of either 10% of fixed overheads for the preceding year or the initial capital requirement of €20,000,
whichever is the higher.
Other than below, since its incorporation, the parent company has complied with these requirements.
On 24th June 2016, FairFX notified the FCA pursuant to its duty under Regulation 32(1)(a)(i) of the Payment Services
Regulations 2009 (“PSRs”) that it had been in breach of the FCA’s capital requirements under Regulation 18(1) of the PSRs for
the period from August 2014 to 23rd June 2016. The breach arose as the net proceeds from share issues by FairFX Group plc
were used to make intra-group loans to FairFX Plc. FairFX Plc became aware in June 2016 that its understanding that capital
held by FairFX Group plc could properly be included in its calculation of “own funds” for those purposes, was open to question.
Viewed on a consolidated basis (as FairFX Plc then believed it was entitled to do), there would have been ample capital within
the group to meet FairFX Plc’s capital requirements. FairFX Plc and FairFX Group plc have taken prompt steps to capitalise
inter-company loans from FairFX Group plc to FairFX Plc in the amount of £9,982,603, with effect from 23rd June 2016 to
remedy the breach and as a result has substantial surplus capital above the FCA’s capital requirement.
19. 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 2016, there were a number of share based payment transactions within the group.
These movements are disclosed within the tables as follows
Annual Report 2016
43
Notes to the consolidated financial statements (continued)
At
1 January
2016
Granted
during year
Exercised
during year
Lapsed
during year
At
31 December
2016
Date Granted
Exercise price (£)
Number
Number
Number
Number
Number
22/07/2014
22/07/2014
22/07/2014
22/07/2014
22/07/2014
22/07/2014
28/09/2016
01/12/2016
0.07
0.22
0.36
0.58
1.16
1.74
0.30
0.27
200,000
447,750
4,352,828
120,000
120,000
120,000
-
-
-
-
-
-
-
1,383,333
-
300,000
-
-
-
200,000
-
447,750
-
(238,889)
4,113,939
-
-
-
-
-
-
120,000
-
120,000
-
120,000
-
1,383,333
-
300,000
Total Number of options
5,360,578
1,683,333
(238,889)
6,805,022
The above share options issued in FairFX Plc have been granted to both directors and employees of the group. At 31
December 2016, there were unexercised share options amounting to 6.6% of the company’s total issued shares. Of the
above options 5,150,222 (2015: 4,055,778) have been granted to directors of the company, with an additional 904,800 (2015
:854,800) having been granted to an individual who is director of a wholly owned subsidiary within the group.
44
Annual Report 2016
The fair values of share options are calculated using a Black-Scholes model. The fair value of a share award is based on the
share price at the date of the grant. Details of the inputs made into that model are disclosed in the table below.
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 (£)
At 1
January 2016
0.45
variable
21%
4.5
1.09%
none
variable
Granted during
the year
0.29
a
b
variable
36%
10
0.10%
none
variable
c
a. The weighted average exercise price varies dependent 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 31 December in the year the
options were granted
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 (£)
22/07/2014
22/07/2014
22/07/2014
22/07/2014
22/07/2014
22/07/2014
28/09/2016
01/12/2016
0.07
0.22
0.36
0.58
1.16
1.74
0.30
0.27
0.28
0.20
0.12
-
-
-
0.13
0.11
The total fair value of the options is £668,422 (2015: £667,421). The charge expensed to the statement of comprehensive
income is £1,001 (2015: £388,285).
Annual Report 2016
45
Notes to the consolidated financial statements (continued)
20. Financial commitments
As at 31 December 2016 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
2016
£
290,760
1,414,768
1,705,528
2015
£
189,537
-
189,537
The Group signed a lease on its office premises on 13th November 2016 at an annual rental of £290,760. The lease runs
until 12th November 2022
21. Related party transactions
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:-
2016
£
2015
£
Salaries, fees and other short term employee benefits
902,939
1,003,120
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 2016.
22. Ultimate controlling party
Pembar Limited holds a significant interest In FairFX Group Plc, albeit short of the level necessary 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.
23. Post balance sheet events
On 19th January 2017, the Group acquired the entire ordinary share capital of Q Money Limited. The initial consideration
payable for the Acquisition was £425,000, satisfied by £110,000 payable from existing cash and by the issue of 724,136
new ordinary shares of 1p each in the Company (the “Initial Consideration Shares”) at an issue price of 43.5p. Further
consideration of up to £825,000 may be payable to Q Money over the next 3 years, subject to the achievement of certain
performance milestones, and will be satisfied by the issue of new ordinary shares of 1p each in the Company at an issue price
of 43.5p.
46
Annual Report 2016
Notes
Annual Report 2016
47
3rd Floor, Vintners’ Place
68, Upper Thames Street
London, EC4V 3BJ
www.fairfx.com