FairFX Group Plc
Annual Report and Consolidated
Financial Statements
For the year ended 31 December 2017
Contents
Directors and advisors
Strategic report
Corporate governance report
Directors’ report
Audit committee report
Directors’ remuneration report
Directors’ responsibilities statement
Independent auditor’s report
Consolidated statement of comprehensive income
Consolidated and Company statement of financial position
3
4 - 9
10 - 12
14 -15
17 - 19
20 - 21
22
24 -29
30
31
Consolidated and Company statement of changes in equity
32 -33
Consolidated statement of cash flows
Company statement of cash flows
34
35
Notes to the consolidated financial statements
36 - 67
2 > Annual Report 2017
Directors & Advisors
Directors:
J Pearson (Chairman)
I A I Strafford – Taylor (Chief Executive Officer)
A Chowdhury
R M Head
Company Secretary:
A Quirke
Registered Number:
08922461 (England and Wales)
Registered Office:
Bankers:
Auditor:
Solicitors:
Nominated Advisor and
Broker:
3rd Floor Thames House
Vintners’ Place
68 Upper Thames Street
London
EC4V 3BJ
England
Barclays Bank Plc
11th Floor, 1 Churchill Place
Canary Wharf
London
E14 5HP
England
KPMG LLP
One Snowhill
Snow Hill Queensway
Birmingham
West Midlands
B4 6GH
England
Bates Wells & Braithwaite London LLP
10 Queen Street Place
London
EC4R 1BE
England
Cenkos Securities Plc
6.7.8 Tokenhouse Yard
London
EC2R 7AS
England
Annual Report 2017 > 3
Strategic report – Chairman’s Statement
About FairFX
FairFX is a leading challenger brand in banking and payments
that disintermediates the incumbent banks with a superior
user experience and low-cost operating model. Our business
enables personal and business customers to make easy,
low-cost multi-currency payments in a broad range of
currencies and across a range of products all via one integrated
system. The FairFX platform facilitates payments either direct
to Bank Accounts or at 32 million merchants and over 1 million
ATM’s in a broad range of countries globally via Mobile apps,
the Internet, SMS, wire transfer and MasterCard/VISA
debit cards.
FairFX provides banking and payment services to both
personal and business customers through four channels:
Currency Cards, Physical Currency, International Payments
and Bank Accounts. The Currency Card and Physical Currency
offerings facilitate multiple overseas payments at points of
sale and ATM’s whereas the International Payments channel
supports wire transfer foreign exchange transactions direct to
Bank Accounts. For Corporates, FairFX has a market-leading
business-expenses solution based around its corporate
prepaid platform and card. This service can yield significant
savings on a Corporate’s expenses and procurement through
better controls and improved transparency, and streamline
the downstream administrative processes, thus saving costs.
Through the acquisition of CardOneBanking in August 2017,
FairFX now has the capability to offer retail and business
bank accounts with all the functionality you would expect
from a bank, namely faster payments, BACs, direct debits,
international payments and a debit card.
Chairman’s statement
2017 was a transformational year for FairFX and marked a
step-change in delivering on the Group’s strategy, with a major
acquisition having been completed, over £1 billion of turnover
generated and achieving profitability for the first time since
its admission to AIM. As a Group, turnover is measured by the
gross value of currency transactions sold (as reported in the
statutory income statement) plus the gross value of customer
funds deposited into banking services bank accounts. Having
acquired Q Money Limited in January, which brought with it an
e-money licence, FairFX has set a course to evolve its currency
payments platform and develop its capabilities as a digital
banking services provider, with an emphasis on the SME sector.
The acquisition of CardOneBanking, in August 2017,
has enabled the Group to fast-track its digital banking plans
and the successful integration has seen CardOneBanking’s
4 > Annual Report 2017
The Group’s continual
focus on improving
its offering and user
experience has been
integral to its success
to date.
digital banking technology incorporated into the Group with
planned synergies already being realised.
In order to finance the acquisition of CardOneBanking and
provide additional growth capital for the enlarged Group, we
completed a placing and open offer to raise net proceeds
of £26 million (after costs directly attributable to the share
issuance). This was the Group’s largest fundraise to date
and the high level of investor demand received is a major
endorsement of FairFX’s success, its growth ambitions and
the strength of the management team. We are pleased with
the support of both new and existing shareholders during
this process and we look forward to a long and successful
relationship with them.
The Group’s core businesses have continued to perform well,
with Currency Card and International Payments turnover up
17.9% and 19.5% respectively. The Group has also made
further investment in its technology and platform functionality
to improve user experience and facilitate repeat business and
cross-selling. Significant enhancements were made in the year
to both Corporate and Retail offerings across all platforms,
namely web, mobile-responsive web-usage and app. Further
development of user experience will remain a key theme
for 2018 as we extract more efficiency from our functionally-
rich platform.
As the business continues to scale and data protection
issues increase in importance to the market and regulators,
the Board believes that it is vital to continue to proactively
insource more of its supply chain, thereby removing
intermediaries, increasing the quality of services offered,
optimising risk, and enabling greater control of processes and,
in turn, improving gross margins. Our recent acquisition of City
Forex in early 2018 demonstrates just one manifestation of this
strategy, with City Forex being a partner to FairFX since 2007
and providing the Group’s Travel Currency service. While it is
immediately earnings enhancing, the acquisition also increases
economies of scale and adds product innovation through City
Forex’s proprietary platform, which also adds functionality
to the existing FairFX platform. The acquisition also brings
an opportunity to cross-sell FairFX’s products to City Forex’s
customers, particularly FairFX’s Corporate Expenses Card
and Platform.
The Group’s continual focus on improving its offering and
user experience has been integral to its success to date. As a
challenger brand in a rapidly evolving sector, FairFX recognises
the importance of delivering a service which fits with the
changing needs of consumers and businesses in order to stay
ahead of the competition and retain its customers. As such the
Directors believe the Group is in a strong position to execute
its ongoing strategy to grow its customer base, broaden its
customer offering and further establish itself in the digital
banking sector.
£1.1 billion
turnover generated
17.9%increase in Currency Card turnover
19.5%increase in International
Payments turnover
£26 million
net proceeds raised
Acquisitions
CardOneBanking and City Forex
John Pearson
Non-Executive Chairman
22 April 2018
Annual Report 2017 > 5
Strategic report – Chief Executive’s Statement
Trading performance
I am pleased to report on the Group’s significant achievements
during its financial year ended 31 December 2017 (“FY 2017”).
We had another successful year with strong turnover and
revenue growth coupled with a move into full year profitability
for the first time since the admission of the Group to AIM.
The results demonstrate how the stated strategy of the Group,
namely adding scale and efficiency coupled with product
innovation focused on SME digital banking, are bearing fruit.
The focus of the Group’s activity in the year and the significant
achievements made all fit within these two key themes.
FairFX Group completed the acquisitions of two businesses
during the year; Q-Money and CardOneBanking. Q-Money,
acquired in January, was the first step towards adding a digital
banking capability to the Group and brought with it an existing
e-money licence, as well as significant expertise in payments
and banking. The Group then completed the acquisition of
CardOneBanking in August, which transformed the digital-
banking services the Group could offer. Accordingly, the
Group’s 2017 results reflect both the performance of the
core FairFX business lines, which performed strongly, plus the
additional activity of Banking.
Group turnover rose 40.5% to in excess of £1.1 billion (2016:
£0.8 billion), generating an adjusted EBITDA of £1.0 million
(2016: loss £1.5 million). Within the total turnover, like-for-like
(excluding acquired business activity post acquisition) turnover
from core foreign exchange services was £936.6 million, up
17.3% (2016: £798.3 million). Banking turnover, generated
from the CardOneBanking acquisition, contributed £184.9
million representing trading for the period since the acquisition
completed in August 2017.
Within the non-banking turnover of £936.6 million, growth
was evenly spread across our products with Prepaid Currency
Cards and Travel Cash up 14.5% to £402.9 million (2016:
£351.8 million) and International Payments, comprising Dealing
and FairPay, up 19.5% to £533.7 million (2016: £446.5 million).
Within Prepaid Currency Cards and Travel Cash, the Corporate
Expenses Platform, which enables businesses to better control
their expenses and procurement, continued its strong year-
on-year growth trend, up 60.6% on the previous year to £130.3
million. On the Retail consumer side, the prepaid card showed
modest growth, rising 2.2% to £224.9 million whilst Travel Cash
fell by 5.8% to £47.7 million. The performance on cards within
Retail is encouraging when measured against the high level of
6 > Annual Report 2017
We look forward to
delivering further
growth and increased
profitability in the
coming year and
continuing to build
shareholder value.
competition in this space and we will be launching additional
features in 2018 which should further boost growth.
The performance in Travel Cash was partly due to reducing
the amount we were prepared to pay to acquire a customer
to fit within our policy, implemented in 2017, to cap cost per
acquisition (CPA) for all of our products at less than or equal to
the year 1 value of a customer. The acquisition of City Forex,
in early 2018, will ensure that we can look at improving our
margins in the cash space to drive growth.
gross profit from core foreign exchange services was up 39%
at £10.4 million (2016: £7.5 million). Gross profit from Banking
was £1.5 million representing the result post the acquisition of
CardOneBanking in late August. Group gross profit is stated
after the deduction of direct costs which rose by 29.3% to
£3.5 million (2016: £2.7 million). As direct costs increased
proportionately less than revenues, gross profit margin
improved to 77.2% (2016: 73.5%) showing that the focus on
costs in the year is bearing fruit and this trend is expected to
continue into 2018.
The Group’s push into the corporate market can be
demonstrated by the growth of corporate turnover as % of
total turnover. For FY 2017, corporate turnover was 52.3%
(2016: 45.5%) of total turnover, an increase of 15.1%.
Revenue for the year rose 51.7% to £15.5 million (2016: £10.2
million) with revenue margin improving to 1.38% (2016: 1.28%),
demonstrating that the Company can deliver sustainable top
line growth whilst more than maintaining margins. Within the
total revenue number, like-for-like revenue from core foreign
exchange services was up 33% at £13.6 million (2016: £10.2
million) with growth driven by International Payments up 35.3%
to £5.1 million and Currency Cards up 33.4% to £8.1 million.
Revenue from Banking was £1.9 million representing the result
post the acquisition of CardOneBanking in late August.
Gross profit for FY 2017 was £11.9 million (2016: £7.5 million),
up 59.8% on 2016. Within the total gross profit, like-for-like
Group overheads increased to £11.4 million during FY 2017, an
increase of 28.4%. Excluding £1.5 million of overheads incurred
post-acquisition by CardOneBanking and Q-Money, overheads
on a like-for-like basis grew by 11.1% as the Group continues
to invest for growth, most notably in adding talent into design,
product management and development.
As illustrated in the table below, adjusted EBITDA (earnings
before interest, tax, depreciation and amortisation charges,
acquisition-related expenses, share-based payments and
foreign exchange gains and losses) was £1.0 million (2016: £1.5
million loss). This significant improvement is a result of the top
line growth whilst maintaining revenue margins and controlling
direct costs and overheads. The Company is therefore
optimally geared to take further advantage of top line growth
by enjoying the economies of scale on payment processing
that comes with higher transaction volume without significant
increase in overheads.
Adjusted EBITDA/PBT Calculation
Statutory Net Profit / (Loss)
Amortisation of acquisition intangibles
Other amortisation charges
Depreciation costs
Tax Credit
EBITDA
Acquisition-related costs
Share-based payments
Foreign exchange loss / (gain)
Adjusted EBITDA
Other amortisation charges
Depreciation costs
Adjusted PBT
2017
£
447,136
220,325
792
51,727
(217,687)
502,293
269,769
112,961
68,186
953,208
(792)
(51,727)
900,690
2016
£
(1,440,190)
–
–
53,423
–
(1,386,767)
–
1,001
(119,507)
(1,505,273)
(53,423)
(1,558,696)
Annual Report 2017 > 7
Adjusted PBT (profit before tax, acquisition-related expenses,
amortisation of acquisition intangibles, share-based payments
and exchange rate gain or losses) for the Group was £0.9
million (2016: loss £1.6 million). Unadjusted PBT for 2017 was
£0.2 million (2016: loss £1.4 million), an improvement of 116%
and again illustrates the huge strides the Group has made over
the year.
The Group tax charge for the year was a credit of £217,687,
comprising a £27,179 current tax credit for group tax relief and
a deferred tax credit of £190,508 on share based payments.
Profit after tax was £0.4 million (2016: loss £1.4 million) after
adjusting for the current and deferred tax credits in 2017.
The net cash position of the Group at 31st December 2017
was £52.0 million, comprising £34.2 million of client funds and
£17.8 million of available cash. Accordingly, the Group has
sufficient cash resources to continue implementing its
growth strategy.
People
A key component for the success of the Group is to attract
and retain talented people and this will continue to be a focus
going forward. During the period, Ben Wynn was appointed as
Chief Product and Marketing Officer, bringing with him over 18
years’ experience of building, promoting and scaling advanced
products across mobile, digital and marketing landscapes.
Ben’s appointment augments the already experienced
Executive Committee of FairFX and he is driving positive
change throughout the organisation.
The acquisition of CardOneBanking in August of 2017
brought two major benefits to the Group in terms of people.
Firstly, we acquired excellent new talent, from its Chief
Executive Officer, Adam Rigler, his senior management team
and the wider workforce. Both Adam and the CardOneBanking
Chief Technology Officer, Andrew Phillips, are now part of the
Group’s Executive Committee. Secondly, the acquisition allows
the Group to widen its catchment area for recruitment as
CardOneBanking is based in Chester and we are increasingly
adding headcount where we can find the relevant talent,
irrespective of the location between London and Chester.
The net impact on Group average headcount from organic
growth and the CardOneBanking acquisition was an increase
from 66 to 101. The headcount total at the end of the year
was 153, which comprised of 77 within FairFX and 76 within
CardOneBanking.
There were no changes to the Board of Directors in 2017.
The Board remains committed to the success of the Group
and continues to value high standards of corporate
8 > Annual Report 2017
governance. During the year, Bob Head, Non-Executive
Director, was elected Chair of the Audit and Remuneration
Committees. Bob brings an immense wealth of experience
in corporate governance from his previous roles which will
help the Board further elevate the Group’s corporate
governance approach.
Strategy
As stated in our trading update released earlier this year,
the strategic focus for the Group lies in two key areas.
Firstly, to continue to achieve business efficiencies through
a combination of increasing scale, selective internalisation of
the supply chain and improved customer experience of our
products. An example of this is our recent acquisition of City
Forex which significantly increases the Group’s scale –
see Quarter 1 update below for details. Secondly, to continue
to roll out innovative new products with an emphasis on
banking services for businesses, thereby building on the
technology platform of CardOneBanking, which we acquired
in August 2017.
The business efficiency strategy has multiple strands to it:
•
•
•
•
gaining full membership status of Mastercard in December
2017 meant that the Group can now issue its own cards
and has selectively started to do so in 2018 as part of an
overall card issuance strategy;
increasing turnover of the Group means we can obtain
better commercial terms from partners;
selectively insourcing processes, reducing costs and
improving speed of deploying new products; and
investing in improving user experience across our
platforms and products making it easier to become a
customer and to transact.
The innovation strategy is focused on the provision of digital
banking services for the business consumer and thereby
brings together the complementary strengths of FairFX
and CardOneBanking. The first key step in this journey is
the Fair Everywhere multi-currency bank account product,
which is soon to launch in 2018. Fair Everywhere is targeted
on the business sector and more specifically, SMEs, offering
current accounts in multiple currencies. A pipeline of further
innovations in this space is planned for 2018 and beyond.
Finally, the Board will continue to evaluate accretive acquisition
opportunities, as appropriate, in line with the Group’s strategy
and in order to further strengthen the Group.
Quarter 1 update
The results for the first quarter 2018 are encouraging and
support our expectations for the full year. Turnover for the first
3 months of 2018 (including CardOneBanking and City Forex)
grew strongly and is up 125.9% on the prior year at £439.5
million (2017: £194.6 million). This growth has been driven by
International Payments which is up 98.5% at £212.9 million
(2017: £107.2 million) and Prepaid Currency Card turnover
which increased 11.2% to £82.6 million (2017: £74.3 million),
including corporate card volumes up 25.9% over prior year
to £34.0 million (2016: £27.0 million). On a like-for-like basis,
turnover from core foreign exchange services was up 31.6% to
£256.1 million (2017: £194.6 million).
Revenue (including CardOneBanking and City Forex) also grew
strongly in the first quarter of 2018 with an 85.3% increase to
£4.8 million (2017: £2.6 million). On a like-for-like basis, revenue
from core foreign exchange services increased 18.7% to £3.1
million (2017: £2.6 million). Total customer numbers continue
to expand rapidly with 26,909 new customers added in the first
quarter, bringing the total to 755,894.
Also during the period, the Group acquired City Forex for
£6 million in cash, completing the transaction in February.
City Forex has a substantial international payments and travel
currency business that is serviced through an innovative
proprietary system that processes both the Travel Currency
and International Payments businesses with a high degree of
automation. The system will be combined with FairFX’s existing
platform to yield further efficiencies for the Group as well as
increased capacity for growth. The opportunities for revenue
enhancement for the Group from cross-selling FairFX products
to City Forex customers are considerable, particularly for the
FairFX Corporate Expense Platform. In addition, FairFX will
utilise its existing infrastructure and marketing methodology to
engage with the City Forex customer base.
Outlook
Based on the Q1 2018 performance, partnered with planned
enhancements to further boost revenues and operational
efficiency, myself and the Board remain confident that trading
for the full year remains in line with market expectations.
We look forward to delivering further growth and increased
profitability in the coming year and continuing to build
shareholder value.
Ian Strafford - Taylor
Chief Executive Officer
22 April 2018
40.5% turnover growth
to £1.1 billion
51.7% revenue growth
to £15.5 million
59.8% gross profit growth
to £11.9 million (+39.1% on like for
like basis)
163.3% increase in
adjusted EBITDA
to £1.0 million
157.8% increase in
adjusted PBT
to £0.9 million
Milestone year of development
with substantial growth in scale and
diversification of operations
73,237 new customers added bringing
the total to 728,985
Acquisition of Q Money Limited in
January provided Group with e-money
license to diversify business
Oversubscribed fundraise of
£26 million (net of expenses) to
acquire digital banking provider,
CardOneBanking
Full MasterCard Membership granted,
providing path to simplify supply chain
Annual Report 2017 > 9
Corporate Governance report
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.
Director biographies
The FairFX Board is presently made up of the
following Directors:
John Pearson
Non-Executive Chairman
(date of appointment: 21 November 2014)
Committees: Audit Committee, Remuneration Committee
10 > Annual Report 2017
John has considerable experience in the digital, media
and broadcast industries. He was co-founder and CEO of
Virgin Radio for 13 years. He was also Chairman of Shazam
Entertainment, a smartphone-based music identification
service; co-founder of World Architecture News.com;
and a director of Ginger Media Group. John is also Chairman
of Imagen Video Asset Management and a Board Director of
Mirriad Advertising PLC.
Ian Strafford-Taylor
Chief Executive Officer
(date of appointment: 4 March 2014)
Ian is one of the Founders and has been a Director since
2007 and the Chief Executive Officer since 2012. He has
held a number of senior banking roles, including Business
Unit Controller and Head of International Securities Lending
at Morgan Stanley, where he worked from 1985 to 1992.
Following this, he moved to UBS where he worked for 13 years
as Managing Director and Global Head of Securities Borrowing
& Lending, Fixed Income Repo and Prime Brokerage. Ian is a
Chartered Accountant, qualifying with Arthur Andersen
in 1985.
Robert Head
Non-Executive Director
(date of appointment: 20 July 2016)
Committees: Audit Committee, Remuneration Committee
Robert has held a variety of management roles including
Regional Director for Old Mutual’s African interests,
the joint founder of egg.com and the first CEO of smile.co.uk.
His most recent roles were that of a Special Advisor to the
Commissioner of SARS (South African Revenue Service) and
prior to that CEO of Old Mutual’s Wealth Management Division.
He is currently acting Chief Financial Officer of South African
Airways. Robert is a qualified Chartered Accountant (ACA).
Ajay Chowdhury
Non-Executive Director
(date of appointment: 28 July 2014)
Committees: Audit Committee, Remuneration Committee
Ajay is an experienced company director with expertise in
digital media, digital retail, online and mobile industries. He is
Partner and Managing Director of BCG Digital Ventures and
was previously CEO of Seatwave Limited, an online ticket sales
marketing company, Executive Chairman of a multi-channel
marketing company, ComQi Group and Chairman of Shazam.
Ajay is also currently a Trustee of Historic Royal Palaces.
Role of the Board
For the first time, reports relating to the activities of the audit
committee and remuneration committee are included within
the Annual Report.
Effectiveness
The Board has reviewed the independence of the Chairman
and each of the Non-Executive Directors (“NEDs”) and
considers them to be independent in character and judgement,
with no relationships or circumstances that are likely to affect,
or could appear to affect, their judgement. The Board paid
particular attention to each of the NEDs having share options.
These were granted at a time when the company was not
profitable and needed to conserve cash flow. In the view of the
Board the options are neither material to each of the NEDs
nor the Company and each of the NEDs is very aware of their
obligations to all stakeholders.
The Company is committed to maintaining a healthy
dialogue between the Board and all of its shareholders to
enable shareholders to come to informed decisions about
the Company. The Chairman is generally available to
shareholders, and the AGM presents shareholders with an
additional opportunity to communicate with the Board.
The AGM is attended by the Board and is open to all the
Group’s shareholders.
At the Annual General Meeting held on June 6th 2017,
the proposed resolutions received the following proportion
of votes:
Adoption of 2016 Annual Report and Consolidated Financial Statements
Re-appointment of KPMG LLP as auditor to the Company and authority
for the Directors to set the auditors’ remuneration
Election and re-election of Directors
Authority to allot shares
Dis-application of pre-emption rights
In Favour
Opposed
Withheld
100%
100%
100%
100%
0%
0%
0%
0%
99.99%
0.1%
0%
0%
0%
0%
0%
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 2017 is as follows:
John Pearson
Ian Strafford-Taylor
Ajay Chowdhury
Robert Head
Board
9 Meetings
9
9
7
8
Audit
Committee
3 Meetings
Remuneration
Committee
2 Meetings
3
N/A
3
3
2
N/A
2
2
Annual Report 2017 > 11
Audit committee
Nomination committee
The audit committee is responsible for monitoring the integrity
of the Group’s financial statements, reviewing significant
financial reporting issues, reviewing the effectiveness of the
Group’s internal control and risk management systems and
overseeing the relationship with the external auditor (including
advising on their appointment, agreeing the scope of the
audit and reviewing the audit findings). The audit committee
comprises Robert Head, Ajay Chowdhury and John Pearson
and is chaired by Robert Head. The audit committee will meet
at least 3 times a year at appropriate times in the reporting and
audit cycle and otherwise as required. The audit committee
also meets regularly with the Group’s external auditor.
Remuneration committee
The remuneration committee is responsible for determining
and agreeing with the Board the framework for the
remuneration of the chairman, the executive Directors and
other designated senior executives and, within the terms
of the agreed framework, determining the total individual
remuneration packages of such persons including,
where appropriate, bonuses, incentive payments and
share options or other share awards. The remuneration of
non- executive Directors is a matter for the Board. No director
is involved in any decision as to his or her own remuneration.
The remuneration committee comprises Robert Head,
John Pearson and Ajay Chowdhury and is chaired by Robert
Head. The remuneration committee will meet at least twice
a year and otherwise as required.
The Board does not have a nomination committee. All matters
that would normally be dealt with by a nomination committee
are dealt with at the Board. The Board has agreed that a
nomination committee will be formed in 2018.
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 22 April 2018, and was
signed on its behalf by:
John Pearson
Non-Executive Chairman
12 > Annual Report 2017
Annual Report 2017 > 13
Directors’ report
The Directors present their annual report and consolidated
financial statements for the year ended 31 December 2017.
Financial reporting
The consolidated financial statements for the year ended 31
December 2017 are set out on pages 30 to 67 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 activities
The principal activities of the Group during the year were
to provide foreign exchange payment services and banking
services to both private clients and corporations through
prepaid currency cards, travel cash, international money
transfers and current accounts. FairFX Plc and Spectrum
Payment Services Limited are authorised by the Financial
Conduct Authority under the Payment Services Regulations
2009 for the provision of payment services and Q Money One
Limited is authorised by the Financial Conduct Authority under
the Electronic Money Regulations 2011 for the provision of
electronic money services.
The principal activity of the parent Company is as an
investment holding company of the FairFX companies.
of reverse acquisition under IFRS 3 “Business Combinations”
have been applied. The steps to restructure the Group had
the effect of FairFX Group Plc being inserted above FairFX (UK)
Limited. The holders of the share capital of FairFX (UK) Limited
were issued fifty shares in FairFX Group Plc for one share
held in FairFX (UK) Limited. The shares of the Company were
admitted to trading on AIM on 5th August 2014.
Post balance sheet event
On 20th February 2018, the Group acquired the entire ordinary
share capital of City Forex Limited. The initial consideration
payable for the acquisition was £5,250,000, paid from existing
cash. Further consideration of up to £750,000, payable from
existing cash may be payable on 31 October 2018 subject to
any completion accounts adjustment being applied and any
claims under the warranties and indemnities.
Dividends
The Directors do not recommend the payment of a dividend
for the year ended 31 December 2017 (2016: nil).
Directors
The following Directors have held office during the
financial year and up to the date of approval of these
financial statements.
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
I A I Strafford – Taylor
A Chowdhury
J Pearson
R M Head
14 > Annual Report 2017
Directors’ interests
The Directors who held office at 31 December 2017 held the following shares in the Company:
I A I Strafford - Taylor
Shareholding %
1.37%
Ordinary 1p shares
2017
2,127,750
The Directors held the following unexercised share options in the Company:
I A I Strafford - Taylor
A Chowdhury
J Pearson
R M Head
Auditor
Option price (£)
Number Granted
Date Granted
0.22
0.36
0.36
0.30
0.36
0.30
0.58
1.16
1.74
0.30
0.30
192,950
1,789,300
1,535,750
750,000
88,889
50,000
120,000
120,000
120,000
250,000
133,333
28/07/2014
28/07/2014
28/07/2014
28/09/2016
28/07/2014
28/09/2016
01/11/2014
01/11/2014
01/11/2014
28/09/2016
28/09/2016
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.
Disclosure of information to auditor
The directors who held office at the date of approval of this
Directors’ Report confirm that, so far as they are each aware,
there is no relevant audit information of which the company’s
auditor is unaware; and each director has taken all the steps
that they ought to have taken as a director to make themselves
aware of any relevant audit information and to establish that
the company’s auditors is aware of that information.
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 22 April
2018 and signed on its behalf by:
John Pearson
Non-Executive Chairman
Annual Report 2017 > 15
16 > Annual Report 2017
Audit Committee report
During the year, the audit committee focused on the
effectiveness of the controls across the Group, especially
as the Group expanded with the acquisitions listed in the
Chairman’s statement. Risk management is an area that the
committee will continue to focus on over the coming year.
Monitoring of the operational performance of the Group is an
area of ongoing review. The focus is on a number of key areas;
with the General Data Protection Regulation coming into
effect and various recent scandals, increased focus on data
governance within the Group is planned.
The Group currently does not operate a “three lines of
defence” model. Nor does it have a formal internal audit
department. Given the scale of the Group, the audit committee
believes this is acceptable now but needs to be kept under
review. The audit committee appointed various third parties to
give independent opinions on chosen topics that are regarded
as potentially higher risk.
Roles and responsibilities
The committee is appointed by the Board; their primary duties
are listed beneath the subheadings below, along with a brief
description of sub-tasks:
1.
Financial reporting
a.
b.
c.
d.
e.
consider the areas of risk and what is done to optimise these risks and ensure that these are
communicated to the auditors;
review significant financial reporting judgements and the application of accounting policies,
including compliance with the accounting standards;
ensure the integrity of the financial statements and their compliance with UK company law and
accounting regulations;
ensure the Annual Report and Accounts are fair, balanced and understandable and recommend
their approval to the Board;
monitor the integrity of announcements containing financial information
2.
Internal controls
a.
b.
monitor adequacy and effectiveness of the internal financial controls and processes, and
ensuring any shortcomings are rectified at the earliest opportunity;
where appropriate, ensure compliance with the UK Corporate Governance Code
3.
Risk management
a.
review and provide oversight of the processes by which risks are managed and optimised
4.
External audit
a.
b.
c.
d.
e.
manage the relationship with the Group’s external auditor;
monitor and review the independence and performance of the external auditor and
formally evaluate their effectiveness;
review the policy on non-audit services carried out by the external auditor, taking account of
relevant ethical guidance;
negotiate and approve the external auditor’s fee, the scope of the audit and the terms of
their engagement;
make recommendations to the Board for the appointment or reappointment of the external auditor
Annual Report 2017 > 17
Audit Committee report
Committee composition
The audit committee is currently comprised of the three
Non-Executive Directors. The members that served on the
committee during the year were John Pearson, Robert Head,
and Ajay Chowdhury. Other meeting attendees included
Andrew Walker and Dejan Randjelovic, both from KPMG,
Ian Strafford-Taylor, FairFX Chief Executive Officer,
Tony Quirke, FairFX Chief Financial Officer and company
secretary, and John Zablocki, FairFX Financial Controller.
The committee has given the opportunity for the various
attendees to have closed meetings without the other
attendees to debate any issues that may arise. This has not
proved necessary.
Committee activities during the year
Financial statements and business reports
•
•
Reviewed the 2016 Annual Report and Consolidated
Financial Statements, and recommended that both be
approved by the Board
Reviewed the projected 2017 Cash Flow statement as
prepared by the Chief Financial Officer; as a result, the
Board concluded the business could be considered to be
a going concern, and the financial statements could be
prepared as such
Risk management
•
Reviewed and debated the risk logs and the actions being
taken to optimise risks
• Considered what other risks should be considered by
the business which may not have been captured by the
risk logs
•
Informed external audit of risk areas the audit committee
viewed as being material to their audit approach
External audit
• Debated and agreed the external audit strategy
• Noted the adjusted and non-adjusted differences
and asked for any comments on the highlights memo
previously circulated to committee members
•
Acknowledged that the prepared financial statements
represented a true and fair view of the Group’s affairs,
were in accordance with IFRS and had been prepared in
accordance with the Companies Act 2006. Their enquiries
included regular management and KPI reporting,
analytical review and sign off on key control accounts
18 > Annual Report 2017
•
Reviewed progress in dealing with control issues raised by
the external auditors in their management letter
Other
• Confirmation that the external auditor as part of its role
as Group Auditor of the Group’s Consolidated Financial
Statements would be appointed to audit Spectrum
Financial Group Limited (“CardOneBanking”)
• Compliance with laws and regulation including
money laundering
Governance
The committee meets at least three times per year and
routinely meets with the external auditor without the Executive
Directors present. It is chaired by Robert Head, independent
Non-Executive Director, who is a chartered accountant with
recent and relevant financial experience. The Chairman
has frequent meetings with the external auditors to ensure
issues are being considered on a timely basis. The Group
Chief Financial Officer and Group Financial Controller work
closely with the committee Chairman to facilitate open
communication and regular information flow. Each committee
member brings a wealth of professional and practical
knowledge and experience which is relevant to the
Company’s industry.
Such abilities ensure that the committee functions with
competence and credibility. The committee receives regular
updates on changes to financial accounting standards and
reporting requirements, regulatory and governance changes
and developments around risk management, fraud prevention
and detection, and cyber security.
In its advisory capacity, the committee confirmed to the Board,
that based on its review of the Annual Report and Accounts
and internal controls that support the disclosures, the Annual
Report and Accounts, taken as a whole, are fair, balanced
and understandable, and provide the necessary information
for shareholders to assess the Company’s position and
performance, its business model and strategy.
Engagement of the external auditor and
tenure
KPMG was first appointed as external auditor in 2014.
KPMG is required to rotate the audit partner responsible for
the Group every five years and the current audit partner’s
term will end after the 2018 audit, expected sometime around
April 2019. The audit committee recommended that KPMG
be re-appointed as the Company’s auditor at the 2017 Annual
General Meeting, and this was approved with 100% of the
votes cast in favour. As a matter of course, KPMG are not
awarded any non-audit work; please refer to note 5 of the
financial statements for more details regarding the breakdown
of payments to the company auditor.
Auditor independence
At each meeting, the committee receives a summary of all
fees, audit and non-audit, payable to the external auditor.
A summary of fees paid to the external auditor is set out in
note 5 to the Accounts. The external auditor confirmed its
independence as auditor of the Company through written
confirmation to the Company.
thorough monitoring of the effectiveness of its internal
controls and risk management; they maintain a good
understanding of business performance, key areas of
judgement and decision-making processes within the Group.
Conflicts of interest
An annual review is undertaken, facilitated by the Company
Secretary, to identify any conflicts of interest that may impact
upon Board members’ independence. All identified conflicts
recorded on a register that is adopted by the Board.
Conflicted Directors are not able to attend meetings where
the conflicted matter is discussed and decisions are made.
It has been determined that none of the Directors had or have
an interest in any material contract relating to the business of
the Company or any of its subsidiary undertakings.
External audit effectiveness
Significant issues
The effectiveness of the external audit process is assessed
by the committee, which meets regularly throughout the
year with the audit partner and senior audit managers.
The committee believes that sufficient and appropriate
information is obtained to form an overall judgement of the
effectiveness of the external audit process. The external audit
effectiveness process findings from last year’s review were also
incorporated into the audit processes this year.
Risk management and internal controls
Further details of risk management and internal controls
are set out under note 19.2 of the consolidated
financial statements. The committee is dedicated to the
Significant issues and accounting judgements are identified by
the committee, the finance team, or through the external audit
process and are reviewed by the audit committee.
R M Head
Chair of the Audit Committee
Annual Report 2017 > 19
remuneration for the 2017 financial year, together with their
remuneration for the 2016 financial year, in each case before
deductions for income tax and national insurance contributions
(where relevant):
Total Remuneration
2017
482,586
50,000
60,386
50,000
Total Remuneration
2016
433,742
30,000
60,186
7,919
30,000
Directors’ Remuneration report
The Group has, for the first time, produced a report
concerning the activities of the remuneration committee.
The remuneration committee is currently comprised of the
three Non-Executive Directors. The members that served
on the committee during the year were John Pearson,
Robert Head, and Ajay Chowdhury. Other meeting attendees
included Ian Strafford-Taylor, FairFX Chief Executive Officer
(except during discussions regarding the CEO’s remuneration,
when he was excused from the proceedings of the meeting).
Remuneration outcomes for 2017
Base salary
The committee approved the increase of the Group Chief
Executive Officer’s salary by £20,000; this was agreed to be
appropriate due to performance, inflation and the increased
scale of the business.
Executive Directors
I A I Strafford – Taylor
Non-Executive Directors
A Chowdhury
J Pearson
R M Head
Annual bonus outcomes for the financial
year
The committee approved the bonus payment for 2016 to the
Group Chief Executive Officer.
Executive Directors
I A I Strafford – Taylor
Non-Executive Directors
Total remuneration
Single figure of total remuneration
The following tables provide details of the Directors’
A Chowdhury
J Pearson
R M Head
N Jeffery
20 > Annual Report 2017
Directors’ interest in long term incentive plan share options
Director award date
I A I Strafford – Taylor
Option price
(£)
Number
Granted
Date
Granted
Earliest Exercise
date
Latest exercise
date
28/07/2014
28/07/2014
28/07/2014
28/09/2016
28/09/2016
28/09/2016
A Chowdhury
28/07/2014
28/09/2016
28/09/2016
28/09/2016
J Pearson
01/11/2014
01/11/2014
01/11/2014
28/09/2016
28/09/2016
28/09/2016
R M Head
28/09/2016
28/09/2016
28/09/2016
0.22
0.36
0.36
0.30
0.30
0.30
0.36
0.30
0.30
0.30
0.58
1.16
1.74
0.30
0.30
0.30
0.30
0.30
0.30
192,950
1,789,300
1,535,750
250,000
250,000
250,000
88,889
16,667
16,667
16,667
120,000
120,000
120,000
83,333
83,333
83,333
44,444
44,444
44,444
Breakdown of executive bonus outcome as a percentage of maximum
Total Remuneration
Bonus outcome (% of max)
28/07/2014
28/07/2014
28/07/2014
28/09/2016
28/09/2016
28/09/2016
28/07/2014
28/09/2016
28/09/2016
28/09/2016
05/08/2016
03/11/2019
05/08/2016
03/11/2019
05/08/2016
03/11/2019
28/09/2017
27/09/2026
28/09/2018
27/09/2026
28/09/2019
27/09/2026
05/08/2016
03/11/2019
28/09/2017
27/09/2026
28/09/2018
27/09/2026
28/09/2019
27/09/2026
01/11/2014
01/11/2014
05/08/2016
03/11/2019
05/08/2016
03/11/2019
01/11/2014
05/08/2016
03/11/2019
28/09/2016
28/09/2016
28/09/2016
28/09/2016
28/09/2016
28/09/2016
2017
482,586
49
28/09/2017
27/09/2026
28/09/2018
27/09/2026
28/09/2019
27/09/2026
28/09/2017
27/09/2026
28/09/2018
27/09/2026
28/09/2019
27/09/2026
2016
433,742
47
R M Head
Chair of the Remuneration Committee
Annual Report 2017 > 21
Statement of Directors’ Responsibilities in Respect of the
Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report
and the Group and parent Company financial statements in
accordance with applicable law and regulations.
them to safeguard the assets of the Group and to prevent and
detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report and a Directors’
Report that complies with that law and those regulations.
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.
Ian Strafford - Taylor
Chief Executive Officer
22 April 2018
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 International Financial Reporting Standards as
adopted by the EU (IFRSs as adopted by the EU) and applicable
law and have elected to prepare the parent Company financial
statements on the same basis.
Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and parent
company and of their profit or loss for that period. In preparing
each of the Group and parent company financial statements,
the Directors are required to:
•
select suitable accounting policies and then apply
them consistently;
• make judgements and estimates that are reasonable,
relevant and reliable;
•
•
•
state whether they have been prepared in accordance with
IFRSs as adopted by the EU;
assess the Group and parent Company’s ability to continue
as a going concern, disclosing, as applicable, matters
related to going concern; and
use the going concern basis of accounting unless they
either intend to liquidate the Group or the parent Company
or to cease operations, or have no realistic alternative but
to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the parent Company and
enable them to ensure that its financial statements comply
with the Companies Act 2006. They are responsible for such
internal control as they determine are necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to
22 > Annual Report 2017
Annual Report 2017 > 23
Overview
Materiality:
group fi nancial
statements as a
whole
Coverage
£116,000 (2016:£60,000)
0.75% of group revenue (2016: 4.2% of
group loss before tax)
100% (2016: 100%) of Group
revenue
Risks of material misstatement
vs 2016
Recurring risks
Valuation of goodwill
Income recognition
Valuation of invest-
ments in subsidiaries
Event driven
Acquisition accounting
Independent Auditor’s report
to the members of FairFX Group Plc
1. Our opinion is unmodifi ed
We have audited the fi nancial statements of FairFX
Group Plc (“the Company”) for the year ended 31
December 2017 which comprise the consolidated
statement of comprehensive income, consolidated
and Company statement of fi nancial position,
consolidated and Company statement of changes in
equity and consolidated and Company statement of
cash fl ows, and the related notes, including the
accounting policies in note 3.
In our opinion:
•
the fi nancial statements give a true and fair view of the
state of the Group’s and of the parent Company’s
aff airs as at 31 December 2017 and of the Group’s
profi t for the year then ended;
•
•
•
the Group fi nancial statements have been properly
prepared in accordance with International Financial
Reporting Standards as adopted by the European
Union (IFRSs as adopted by the EU);
the parent Company fi nancial 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 fi nancial statements have been prepared in
accordance with the requirements of the Companies
Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable
law. Our responsibilities are described below. We have
fulfi lled our ethical responsibilities under, and we remain
independent of the Group in accordance with, UK ethical
requirements including the FRC Ethical Standard as applied
to listed entities. We believe that the audit evidence we
have obtained is a suffi cient and appropriate basis for
our opinion.
24 > Annual Report 2017
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most signifi cance in the audit of the fi nancial
statements and include the most signifi cant assessed risks of material misstatement (whether or not due to fraud) identifi ed
by us, including those which had the greatest eff ect on: the overall audit strategy; the allocation of resources in the audit;
and directing the eff orts of the engagement team. These matters were addressed in the context of our audit of the fi nancial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In
arriving at our audit opinion above, the key audit matters, in decreasing order of audit signifi cance, were as follows:
Acquisition accounting
Accounting treatment:
Our procedures included:
The risk
Our response
Refer to page 17 (Audit
Committee Report), page 39
(accounting policy) and page 54
(fi nancial disclosures).
The consideration paid for the
two acquisitions during the
year comprised a mix of cash,
shares and deferred/contingent
consideration. The Directors
were required to exercise
judgement in the calculation of the
contingent consideration, which
was settled in own shares, and
identifi cation and measurement of
intangible assets. The contingent
consideration is dependent
on the achievement of certain
performance obligations. Whilst
the contingent consideration was
not legally tied to employment,
there was a risk that it may be
linked to employment.
The Directors prepared the
acquisition balance sheets based
on estimates of the fair value of
assets and liabilities acquired. In
particular the Group exercised
judgment in selecting the most
appropriate valuation method for
the intangible assets acquired.
The valuation methods included
the use of forecast cash fl ows
which required the directors to
exercise judgment in determining
the expected cash fl ows from the
assets and the discount rates to
be applied. Other intangibles were
valued using the cost to recreate
methodology, which also required
estimation of cash fl ows.
• Our sector experience: For each acquisition, with
the involvement of valuation specialists, assessing
and challenging the results of the purchase
price allocation, including the identifi cation and
measurement of intangible assets acquired and the
fair value adjustments to assets and liabilities;
•
•
•
Test of details: Reading the acquisition agreements
and assessing whether the assets and liabilities
acquired and the form of the consideration paid/
payable refl ect the contractual terms;
Test of details: Challenging whether some or
all the contingent payments to the employee
shareholder of one of the acquirees represented
remuneration for their services as an employee
rather than purchase consideration by investigating
whether there was a direct relationship between
the likelihood of the contingent consideration
crystallising and the continued employment of the
shareholder;
Test of details: Testing the fair value of contingent
consideration by challenging the expectation of
achievement of performance obligations and the
discount rate applied;
• Our sector experience: Assessing the methodology
and the assumptions used to value intangibles
against our interpretation of the requirements of the
relevant accounting standards and our knowledge of
similar asset valuations; and
• Assessing transparency: Assessing the adequacy
of the Group’s disclosures in respect of the business
combinations.
Annual Report 2017 > 25
The risk
Our response
Goodwill
Forecast-based valuation
Our procedures included:
(£13.0 million;
2016: £nil)
Refer to page 17
(Audit Committee
Report), page 42
(accounting policy)
and page 53
(fi nancial
disclosures).
The calculation of the
recoverable amount of goodwill
is complex and subject to
inherent uncertainty as it relies
on key assumptions made by
the Directors. As the goodwill
is sensitive to changes in key
assumptions, there is the risk
that the goodwill will not
be recoverable.
• Our sector experience: Challenging the Directors’ identifi cation of
and allocation of goodwill to CGUs;
• Our sector experience: Evaluating, challenging, and testing the
Group’s assumptions used in the annual impairment review of
goodwill, in particular the forecast cash fl ows and the discount rate
applied;
• Historical comparison: Assessing the historical accuracy of
forecasting by the Directors;
•
Sensitivity analysis: Performing sensitivity analysis on the key
assumptions in the forecasts to assess if there are any reasonably
foreseeable circumstances in which impairment could occur; and
• Assessing transparency: Assessing the adequacy of the Group’s
disclosures about the impairment assessment.
Revenue
Income recognition:
Our procedures included:
(£15.5 million;
2016: £10.2
million)
Refer to page 17
(Audit Committee
Report), page 40
(accounting policy)
and page 47
(Revenue and
segmental analysis
disclosures).
Revenue from the Currency
Cards, FairPay, Dealing and
Central segments is derived from
the buying and selling of currency
at spot rates, and is recognised
as the diff erence between the
rate off ered to clients and the
rate the Group receives from its
liquidity providers. The exchange
rates used may be incorrect,
leading to a material under and
overstatements of revenue.
Revenue is derived across
5 product segments and
comprises a high volume of
relatively low value individual
transactions. Revenue may
not be completely recorded or
revenue may be recorded for
transactions in the incorrect
accounting period or that have
been subsequently cancelled.
Commercial arrangements
with third party providers of
Currency Cards, FairPay, Dealing,
Banking and Central diff er across
individual segments, such that
the Group may be acting as
principal or agent. An error
in the assessment of these
relationships may result in an
incorrect presentation of
the revenue.
In the Currency Cards segment:
• Data comparison: Reconciling system reports for the gross
value of currency transactions sold to daily statements from the
intermediary between the principal and the Group, and agreeing
contracted exchange rates to statements from the currency
provider for the gross value of currency transactions purchased;
In the International Payments segments:
•
•
•
Test of details: Selecting a substantive statistical sample of
FairPay and Dealing deals, and tracing the items to order details
and bank statements and agreeing contracted exchange rates
to statements from the currency providers for gross value of
currency transactions purchased;
Test of details: Reconciling payments per bank statements for
December 2017 to FairPay deals reports;
Test of details: Using computer assisted audit techniques to
identify gaps in thesequential numbering of Dealing trades;
In the Banking segment:
•
Expectation vs outcome: Developing an expectation of the
current year balance based on our view of the number of accounts
and relationships with revenue, including consideration of historical
data; and
In all segments:
• Our sector experience: Assessing whether the Group is acting as
an agent or principal by assessing the risks and responsibilities of
the Group.
26 > Annual Report 2017
Investments in subsidiaries
Low risk, high value
Our procedures included:
The risk
Our response
(£29.5 million; 2016: £11.2
million)
Refer to page 17 (Audit
Committee Report), page 43
(accounting policy) and page 54
(fi nancial disclosures).
The carrying amount of the
parent Company’s investments
in subsidiaries represents 69%
(2016: 100%) of the Company’s
total assets. Their recoverability
is not at a high risk of signifi cant
misstatement or subject to
signifi cant judgement. However,
due to their materiality in the
context of the parent Company
fi nancial statements, this is
considered to be the area that
had the greatest eff ect on our
overall parent Company audit.
• Our sector experience: Critically assessing the
existence of impairment indicators by examining
the current level of trading, including identifying any
indications of a downturn in activity, and by examining
the post year end management accounts;
•
Test of details: Comparing the carrying amount
of all investments with the relevant subsidiaries’
draft balance sheets, audited for Group reporting
purposes, to identify whether their net assets, being an
approximation of their minimum recoverable amount,
were in excess of their carrying amount, and for
acquisitions made during the year assessing whether
the goodwill recognised has been impaired; and
• Our sector experience: Comparing the market
capitalisation of the Group to the net assets of the
Group, which may indicate an impairment in the
carrying value of the Company’s subsidiaries.
3. Our application of materiality and an overview of the
scope of our audit
Materiality for the Group fi nancial statements as a whole
was set at £116,000 (2016: £60,000), determined with
reference to a benchmark of Group revenue (2016: Group
loss before tax), of which it represents 0.75% (2016: 4.2%).
We consider total revenue to be the most appropriate
benchmark as it provides a more stable measure year on
year than Group profi t before tax.
Materiality for the parent Company fi nancial statements as
a whole was set at £110,000 (2016: £60,000) by reference
to component materiality. This is lower than the materiality
we would otherwise have determined by reference to
assets, and represents 0.3% of the Company’s total assets
(2016: 0.5%).
We agreed to report to the Audit Committee any corrected
or uncorrected identifi ed misstatements exceeding
£5,000, in addition to other identifi ed misstatements that
warranted reporting on qualitative grounds.
Of the Group’s two (2016: one) reporting components, we
subjected two (2016: one) to full scope audits for Group
purposes. The components within the scope of our work
accounted for 100% (2016: 100%) of the Group revenue,
Group profi t before tax and Group total assets.
The work on both in-scope components (2016: one),
including the audit of the parent Company, was performed
by the Group team.
The Group team allocated component materialities which
ranged from £102,000 to £110,000 (2016: £60,000),
having regard to the mix of size and risk profi le of the
Group across the components.
4. We have nothing to report on going concern
We are required to report to you if we have concluded
that the use of the going concern basis of accounting
is inappropriate or there is an undisclosed material
Total revenue
£15.5m (2016:£10.2m)
Group Materiality
£116k (2016:£60k)
£116k
Whole �nancial
statements materiality
(2016: £60k)
£110k
Range of materiality at 2 components (£102k to £110k)
(2016: £60k)
Total revenue
Group materiality
£5k
Misstatements reported to the audit committee (2016: £3k)
Annual Report 2017 > 27
uncertainty that may cast signifi cant doubt over the use
of that basis for a period of at least twelve months from
the date of approval of the fi nancial statements. We have
nothing to report in these respects.
• we have not received all the information and
explanations we require for our audit.
We have nothing to report in these respects.
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page
22, the directors are responsible for: the preparation of
the fi nancial statements including being satisfi ed that
they give a true and fair view; such internal control as
they determine is necessary to enable the preparation
of fi nancial statements that are free from material
misstatement, whether due to fraud or error; assessing
the Group and parent Company’s ability to continue as a
going concern, disclosing, as applicable, matters related
to going concern; and using the going concern basis of
accounting unless they either intend to liquidate the Group
or the parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the fi nancial statements as a whole are free from
material misstatement, whether due to fraud or error, and
to issue our opinion in an auditor’s report. Reasonable
assurance is a high level of assurance, but does not
guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they
could reasonably be expected to infl uence the economic
decisions of users taken on the basis of the fi nancial
statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
5. We have nothing to report on the other information in
the Annual Report
The directors are responsible for the other information
presented in the Annual Report together with the fi nancial
statements. Our opinion on the fi nancial statements does
not cover the other information and, accordingly, we do
not express an audit opinion or, except as explicitly stated
below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and,
in doing so, consider whether, based on our fi nancial
statements audit work, the information therein is
materially misstated or inconsistent with the fi nancial
statements or our audit knowledge. Based solely on that
work we have not identifi ed material misstatements in the
other information.
Strategic report and directors’ report
Based solely on our work on the other information:
• we have not identifi ed material misstatements in the
strategic report and the directors’ report;
•
•
in our opinion the information given in those reports
for the fi nancial year is consistent with the fi nancial
statements; and
in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
6. We have nothing to report on the other matters on which
we are required to report by exception
Under the Companies Act 2006, we are required 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 fi nancial statements are not in
agreement with the accounting records and returns;
or
certain disclosures of directors’ remuneration
specifi ed by law are not made; or
28 > Annual Report 2017
8. The purpose of our audit work and to whom we owe our
responsibilities
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.
Andrew Walker
(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
22 April 2018
Annual Report 2017 > 29
Consolidated Statement of Comprehensive Income
For the year ended 31 December
Gross value of currency transactions sold
Gross value of currency transactions purchased
Revenue on currency transactions
Banking revenue
Revenue
Direct costs
Gross profit
Administrative expenses (excluding acquisition expenses)
Acquisition expenses
Profit / (loss) before tax
Tax credit
Profit / (loss) and total comprehensive income for the year
Profit / (loss) per share
Basic
Diluted
Note
3.4
3.4
2017
£
2016
£
936,593,130
798,300,641
(923,028,865)
(788,105,667)
13,564,265
1,896,470
15,460,735
(3,525,676)
11,935,059
10,194,974
–
10,194,974
(2,725,788)
7,469,186
(11,435,841)
(8,909,376)
(269,769)
229,449
217,687
447,136
–
(1,440,190)
–
(1,440,190)
0.37
0.36
(1.49p)
(1.49p)
4
5
8
9
9
All income and expenses arise from continuing operations. There are no differences between the profit for the year and total
comprehensive income for the year, hence no Statement of Other Comprehensive Income is presented.
The notes on pages 36 to 67 form an integral part of these financial statements.
30 > Annual Report 2017
Consolidated and Company Statement of Financial Position
As at 31 December
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets and goodwill
Deferred tax asset
Investments
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Cash and cash equivalents
Group
2017
£
2016
£
137,580
75,258
17,649,128
511,912
–
–
–
–
Company
2017
2016
£
–
–
–
£
–
–
–
29,455,134
11,243,460
18,298,620
75,258
29,455,134
11,243,460
199,747
229,905
–
3,779,768
3,001,402
13,212,504
303,775
223,884
51,950,729
8,523,985
–
–
56,234,019
11,979,176
13,212,504
–
–
–
–
–
Note
10
11
8
12
13
14
18
15
TOTAL ASSETS
74,532,639
12,054,434
42,667,638
11,243,460
EQUITY AND LIABILITIES
Equity attributable to equity holders
Share capital
Share premium
Share based payment reserve
Merger reserve
Contingent consideration reserve
Retained deficit
Non-current liabilities
Deferred tax liability
Current liabilities
Trade and other payables
Deferred tax liability
Derivative financial liabilities
16
1,553,682
1,031,160
1,553,682
1,031,160
35,858,770
10,174,273
35,858,770
10,174,273
1,144,832
668,422
781,383
668,422
8,395,521
5,416,083
2,979,438
543,172
–
543,172
–
–
(12,450,546)
(12,897,682)
(1,123,092)
(883,933)
35,045,431
4,392,256
40,593,353
10,989,922
8
17
8
18
673,661
673,661
–
–
–
–
–
–
38,550,504
7,514,221
2,074,285
253,538
117,838
145,205
–
147,957
–
–
–
–
38,813,547
7,662,178
2,074,285
253,538
TOTAL EQUITY AND LIABILITIES
74,532,639
12,054,434
42,667,638
11,243,460
The notes on pages 36 to 67 form an integral part of these financial statements. The financial statements were approved and
authorised for issue by the Board on 22 April 2018 and were signed on its behalf by:
Ian Strafford - Taylor
Director
Company Registration number: 08922461
Annual Report 2017 > 31
Consolidated and Company Statement of Changes in Equity
For the year ended 31 December
Group
Share
capital
Share
premium
Share based
payment
Retained
deficit
Merger
reserve
At 1 January 2016
768,660
5,313,780
667,421
(11,457,492)
5,416,083
£
£
£
£
£
Loss for the year
–
–
Shares issued in year
262,500
4,860,493
–
–
Share based payment
charge
(note 20)
–
–
1,001
(1,440,190)
–
–
–
–
–
At 31 December 2016
1,031,160
10,174,273
668,422
(12,897,682)
5,416,083
Profit for the year
–
–
Shares issued in year
522,522
25,684,497
–
–
Share based payment
charge
(note 20)
Equity based
acquisition
consideration
–
–
–
–
476,410
–
447,136
–
–
–
–
2,979,438
–
–
Contingent
considera-
tion reserve
£
–
–
–
–
–
–
–
–
Total
£
708,452
(1,440,190)
5,122,993
1,001
4,392,256
447,136
29,186,457
476,410
543,172
543,172
At 31 December 2017
1,553,682
35,858,770
1,144,832 (12,450,546)
8,395,521
543,172
35,045,431
Company
Share
capital
Share
premium
Share based
payment
Retained
deficit
Merger
reserve
Contingent
considera-
tion reserve
At 1 January 2016
768,660
5,313,780
667,421
(883,933)
£
£
£
£
Loss for the year
Shares issued in
period
Share based payment
charge (note 20)
–
–
262,500
4,860,493
–
–
–
–
1,001
–
–
–
At 31 December 2016
1,031,160
10,174,273
668,422
(883,933)
Loss for the year
Shares issued in
period
Share based payment
charge (note 20)
Equity based
acquisition
consideration
–
–
522,522
25,684,497
–
–
–
–
–
–
112,961
–
(239,159)
–
–
–
2,979,438
–
–
At 31 December 2017
1,553,682
35,858,770
781,383
(1,123,092)
2,979,438
543,172
40,593,353
32 > Annual Report 2017
£
–
–
–
–
–
–
Total
£
5,865,928
–
5,122,993
1,001
10,989,922
(239,159)
29,186,457
112,961
£
–
–
–
–
–
–
–
–
543,172
543,172
The following describes the nature and purpose of each reserve within owners’ equity:
Share capital
Share premium
Share based payment
Retained deficit
Merger reserve
Contingent consideration reserve
Amount subscribed for shares at nominal value.
Amount subscribed for shares in excess of nominal value less directly attributable costs.
Fair value of share options granted to both Directors and employees.
Cumulative profit and losses are attributable to equity shareholders.
Arising on reverse acquisition from Group reorganisation.
Arising on equity based contingent consideration on acquisition of subsidiaries.
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 36 to 67 form an integral part of these financial statements.
Annual Report 2017 > 33
Consolidated Statement of Cash Flows
For the year ended 31 December
Group
Profit / (loss) for the year
447,136
(1,440,190)
Note
2017
£
2016
£
Cash flows from operating activities
Adjustments for:
Depreciation
Amortisation
Share based payment charge
(Increase) in trade and other receivables
(Increase) in derivative financial assets
(Increase) in deferred tax asset
Increase in trade and other payables
Increase in deferred tax liabilities
(Decrease) in derivative financial liabilities
(Increase) / decrease in inventories
Net cash inflow / (outflow) from operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment
Acquisition of intangibles
Acquisition of subsidiary, net of cash acquired
Investment in subsidiary undertaking
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Costs directly attributable to share issuance
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at end of the year
15
The notes on pages 36 to 67 form an integral part of these financial statements.
34 > Annual Report 2017
51,727
221,117
112,961
(697,755)
(79,891)
(511,912)
53,423
–
1,001
(1,036,399)
(108,173)
–
31,254,467
3,050,296
791,499
(2,752)
38,031
31,624,630
(83,266)
(193,757)
(12,827,261)
(1,255,748)
(14,360,032)
27,703,789
(1,541,641)
26,162,148
43,426,744
8,523,985
51,950,729
–
(551,284)
(134,811)
(166,137)
(47,927)
–
–
–
(47,927)
5,250,000
(127,007)
5,122,993
4,908,929
3,615,056
8,523,985
Company Statement of Cash Flows
For the year ended 31 December
Company
Loss for the period
Cash flows from operating activities
Adjustments for:
Share based payment charge
Decrease / (Increase) in trade and other receivables
Increase in trade and other payables
Net cash inflow / (outflow) from operating activities
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired
Investment in subsidiary undertaking
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Costs directly attributable to share issuance
Net cash from financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at end of the period
Note
2017
£
(239,159)
112,961
(13,212,504)
2,615,276
(10,723,426)
(12,827,261)
(2,611,461)
(15,438,722)
27,703,789
(1,541,641)
26,162,148
–
–
2016
£
–
1,001
4,624,571
234,038
4,859,610
–
(9,982,603)
(9,982,603)
5,250,000
(127,007)
5,122,993
–
–
The notes on pages 36 to 67 form an integral part of these financial statements.
Annual Report 2017 > 35
Notes to the Consolidated Financial Statements
For the year ended 31 December
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. These consolidated financial statements
comprise the Company and its subsidiaries (together referred to as the ‘Group’). The Group is primarily involved in providing
foreign currency and banking services via technology platforms offered on the internet.
The Company and Group’s consolidated financial statements for the year ended 31 December 2017 were authorised for
issue on 22 April 2018 and the Company and Group’s 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 2017.
Adoption of new and revised accounting standards and interpretations:
•
•
IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses (Amendments)
IAS 7 Disclosure Initiative
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 Company or have no
material effect on the financial statements of the Group and Company.
A. IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised.
It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13
Customer Loyalty Programmes.
It affects the timing of recognition of revenue items, but not generally the overall amount recognised. The standard will come
into force with effect from the Group’s financial statements for the year ending 31 December 2018.
A preliminary review exercise has taken place and the Group has concluded that the introduction of the new standard will not
have a material impact on its results or financial position.
B. IFRS 9 Financial Instruments
IFRS 9 Financial Instruments sets out requirements for recognising and measuring financial assets, financial liabilities and some
contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement.
The standard will come into force with effect from the Group’s financial statements for the year ending 31 December 2018.
(i) Classification – Financial assets
IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which
assets are managed and their cash flow characteristics. IFRS 9 contains three principal classification categories for financial
assets: measured at amortised cost, at fair value through other comprehensive income (FVOCI), or at fair value through profit
or loss. The changes from the classification under IAS 39 are not expected to be significant for the Group.
36 > Annual Report 2017
(ii) Impairment – Financial assets
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-looking ‘expected credit loss’ (ECL) model. This will require
considerable judgement about how changes in economic factors affect ECLs, which will be determined on a probability-
weighted basis.
The new impairment model will apply to financial assets measured at amortised cost or FVOCI, except for investments in
equity instruments, and to contract assets. Under IFRS 9, loss allowances will be measured on either of the following bases:
•
•
12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date;
and
lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.
Lifetime ECL measurement applies if the credit risk of a financial asset at the reporting date has increased significantly since
initial recognition and 12-month ECL measurement applies if it has not.
An entity may determine that a financial asset’s credit risk has not increased significantly if the asset has low credit risk at
the reporting date. However, lifetime ECL measurement always applies for trade receivables and contract assets without a
significant financing component.
Overall, the introduction of IFRS 9 is likely to result in companies carrying a larger provision balance and recognising losses
earlier. However, the profit and loss effect is broadly one of timing, with the same amount of provision per case ultimately
charged to profit.
The Group is in the process of assessing the impact of the new standard and does not believe that its financial assets are at
risk of material impairment losses in the scope of the IFRS 9 impairment model.
(iii) Classification – Financial liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities.
However, under IAS 39 all fair value changes of liabilities designated as at FVTPL are recognised in profit or loss, whereas
under IFRS 9 these fair value changes are generally presented as follows:
•
•
the amount of change in the fair value that is attributable to changes in the credit risk of the liability is presented in OCI;
and
the remaining amount of change in the fair value is presented in profit or loss.
The changes from the classification under IAS 39 are not expected to be significant for the Group.
C. IFRS 16 Leases
IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a
Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of
a Lease.
The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that
apply IFRS 15 at or before the date of initial application of IFRS 16.
IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a
right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make
lease payments. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting
remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases.
Annual Report 2017 > 37
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December
The Group has not yet completed its assessment of the potential impact on its consolidated financial statements. The actual
impact of applying IFRS 16 on the financial statements in the period of initial application will depend on future economic
conditions, including the Group’s borrowing rate at 1 January 2019, the composition of the Group’s lease portfolio at that
date, the Group’s latest assessment of whether it will exercise any lease renewal options and the extent to which the Group
chooses to use practical expedients and recognition exemptions.
So far, the most significant impact identified is that the Group will recognise new assets and liabilities for its operating
leases on office buildings. In addition, the nature of expenses related to those leases will now change as IFRS 16 replaces
the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on
lease liabilities.
D. Other standards
IFRS 2 Classification and Measurement of Share-based Payment Transactions (Amendments)
IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
IAS 40 Transfers of Investment Property
IFRIC 22 Foreign Currency Transactions and Advance Consideration
IFRIC 23 Uncertainty over Income Tax Treatments
IFRS 9 Prepayment Features with Negative Compensation
IAS 28 Long-term Interests in Associates and Joint Ventures
IFRS 17 Insurance Contracts
Effective Dates *
01 January 2018
01 January 2018
01 January 2018
01 January 2018
01 January 2019
01 January 2019
01 January 2019
01 January 2021
* The effective dates stated above are those given in the original IASB/IFRIC standards and interpretations. As the Group and
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 Company’s discretion to early adopt standards.
3. Basis of presentation and significant accounting policies
The principal accounting policies applied in the preparation of the Group and Company 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 and Group’s presentational currency.
IFRS requires management to make certain accounting estimates and to exercise judgement in the process of applying the
Company and Group’s accounting policies. These estimates are based on the Directors’ best knowledge and past experience
and are explained further in note 3.25.
In the opinion of the Directors, based on the Group’s budgets and financial projections, they have satisfied themselves that
38 > Annual Report 2017
the business is a going concern. The board has a reasonable expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future and therefore the accounts are prepared on a going concern basis.
3.2 Basis of consolidation
On 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 effect of this reorganisation was to insert
one new company into the Group, a new holding Company, FairFX Group Plc.
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.
Business combinations
The Group accounts for business combinations using the acquisition method when control is transferred to the Group.
The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired.
Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss
immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such
amounts are generally recognised in profit or loss.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent
consideration that meets the definition of a financial instrument is classified as equity, then it is no re-measured and
settlement is accounted for within equity. Otherwise, other contingent consideration is re-measured at fair value at each
reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.
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.
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 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
Annual Report 2017 > 39
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December
related notes of the 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 presentational
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 into the presentational currency at
the exchange 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 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.
3.5 Income recognition
(i) Deliverable FX trades (international payments)
Revenue is recognised when a binding contract is entered into by a client and the margin is fixed and determined.
The revenue, represented by the margin, is the difference between the rate offered to clients and the rate the Group receives
from its liquidity providers.
(ii) Currency cards
There are two distinct revenue streams, FX card load orders and transaction-based charges. Revenue on FX card load
orders onto non-GBP currency cards is recognised when a binding order is entered into by a customer, the margin is fixed
and determined and the foreign currency has been loaded onto their currency card. The revenue, represented by the margin,
is the difference between the rate offered to clients and the rate the Group receives from its liquidity providers.
The transaction-based charges are recognised at the time the transaction is entered into by the customer and deducted
from the customer’s account.
(iii) Banking operations
There are two distinct revenue streams, account residency charges and transaction-based charges. The account residency
charge is due monthly and the revenue is recognised when the monthly service has been provided and it is probable that
payment will be received. The transaction-based charges are recognised at the time the transaction is entered into by the
customer and deducted from the customer’s account.
For currency cards, international payments (fairpay and dealing) and banking segments, the Group is acting as principal and
as such, customer cash is shown on the balance sheet, with a corresponding liability to the customer. For the remaining
segments, the Group is acting in the capacity as an agent of a third party, and as such, customer cash is not recognised on the
face of the balance sheet. Any cash held on behalf of customers is segregated from operational cash and safeguarded in
accordance with our regulatory obligation.
3.6 Interest expense recognition
Interest expense is recognised as interest accrues, using the effective interest method, on the net carrying amount of the
financial liability.
3.7 Pension Costs
The Group operates a defined contribution pension scheme and outsources the administration of the pension scheme to a
third party. The Group contributes to the pension scheme in line with Auto-enrolment obligations as defined in the Pensions
40 > Annual Report 2017
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 payroll.
3.8 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 20.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in
which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become
fully entitled to the award (‘the vesting date’). The cumulative expense recognised for equity settled transactions at each
reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate
of the number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents the
movement in cumulative expense recognised as at the beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon
a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that
all other performance and/or service conditions are satisfied. Where the terms of an equity-settled award are modified, the
minimum expense recognised is the expense as if the terms had not been modified. An additional expense is recognised for
any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to
the employee as measured at the date of modification. Where an equity settled award is cancelled, it is treated as if it had
vested on the date of cancellation, and any expense not yet recognised for the award is 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.
3.9 Research and development
Research costs are expensed as incurred. Expenditure on IT software and development is recognised as an intangible asset
when the Group 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 2017 > 41
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December
3.10 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.
3.11 Taxation
The tax expense comprises current and deferred tax.
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. Deferred tax is not recognised for:
–
temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination
and that affects neither accounting nor taxable profit or loss;
temporary differences related to investments in subsidiaries to the extent that the Group is able to control the timing of
the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and
taxable temporary differences arising on the initial recognition of goodwill.
–
–
The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at
the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using
tax rates enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and
they relate to taxes levied by the same tax authority on the same taxable entity, or on different 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 Intangible assets and goodwill
(i) Recognition and measurement
Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.
Development expenditure is capitalised only if the expenditure can be measured reliably, the product or process is technically
and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to
complete development and to use or sell the asset. Otherwise, it is recognised in profit or loss as incurred. Subsequent to
initial recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated
impairment losses. Expenditure on research activities is recognised in profit or loss as incurred.
Other intangible assets, including customer relationships, patents and trademarks that are acquired by the Group and have
finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses.
(ii) Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to
which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit
or loss as incurred.
42 > Annual Report 2017
(ii) Amortisation
Amortisation is calculated to write off the cost of intangible assets less their estimated residual values using the straight-line
method over their estimated useful lives, and is generally recognised in profit or loss. Goodwill is not amortised.
The estimated useful lives for current and comparative periods are as follows:
Customer relationships
Brands
Trademarks, licences, patented and non-patented technology
6 years
5 years
3-10 years
Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
3.14 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.
Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss. 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
33-50%
20%
10%
3.15 Investments in subsidiaries
Investment in subsidiary undertakings are stated at cost less impairment in value.
3.16 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.
There are no currency amounts loaded on stock of prepaid currency cards.
3.17 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 receivable 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 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.
Annual Report 2017 > 43
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December
3.18 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.
3.19 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.
3.20 Cash and cash equivalents
These include cash in hand and deposits held at call with banks. Any cash held on behalf of customers is segregated from
operational cash and safeguarded in accordance with our regulatory obligations.
3.21 Trade and other payables
These arise principally from monies held on behalf of customers from banking operations 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.
3.22 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.
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.
3.23 Leases
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.
3.24 Impairment
Non-derivative financial assets
Financial assets not classified as at FVTPL, including an interest in an equity-accounted investee, are assessed at each
44 > Annual Report 2017
reporting date to determine whether there is objective evidence of impairment.
Objective evidence that financial assets are impaired includes:
•
•
•
•
•
•
default or delinquency by a debtor;
restructuring of an amount due to the Group on terms that the Group would not consider otherwise;
indications that a debtor or issuer will enter bankruptcy;
adverse changes in the payment status of borrowers or issuers;
the disappearance of an active market for a security because of financial difficulties; or
observable data indicating that there is a measurable decrease in the expected cash flows from a Group of
financial assets.
Financial assets at amortised cost
The Group considers evidence of impairment for these assets at both an individual asset and a collective level.
All individually significant assets are individually assessed for impairment. Those found not to be impaired are then collectively
assessed for any impairment that has been incurred but not yet individually identified. Assets that are not individually
significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with
similar risk characteristics. In assessing collective impairment, the Group uses historical information on the timing of
recoveries and the amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that
the actual losses are likely to be greater or lesser than suggested by historical trends.
An impairment loss is calculated as the difference between an asset’s carrying amount and the present value of the estimated
future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected
in an allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant
amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related
objectively to an event occurring after the impairment was recognised, then the previously recognised impairment loss is
reversed through profit or loss.
Non-financial assets
At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than inventories and
deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s
recoverable amount is estimated. Goodwill is tested annually for impairment.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of other assets or CGUs. Goodwill arising from a business
combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination. The
recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based
on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset or CGU. The Group’s CGU’s for
impairment testing are defined in note 11.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment
losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the
CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent
that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation
or amortisation, if no impairment loss had been recognised.
Annual Report 2017 > 45
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December
3.25 Judgements and estimates
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 accounting estimates and
assumptions regarding the future that may have a risk of giving rise to a material adjustment to the carrying values of assets
and liabilities within the next financial year. The judgements, assumptions and estimates 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 20. 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
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).
Measurement of fair values of derivative financial assets and liabilities
The Group’s accounting policies and disclosures require measurement of fair values with regard to derivative financial assets
and liabilities. The fair value of forward exchange contracts is determined using quoted forward exchange rates at the
reporting date.
Measurement of contingent consideration
Contingent consideration is measured at fair valued using probability weighted cash flows. The valuation model considers the
present value of the expected future payments. The expected payment is determined by considering the possible scenarios,
the amount to be paid under each scenario and the probability of each scenario.
The Directors also made the following judgments in the treatment of contingent consideration:
•
•
That the contingent consideration in connection with acquisitions is not linked with the continuing employment of the
employee shareholders of the acquires and therefore not treated as remuneration
That the conditions for contingent consideration are not linked and hence the contingent consideration is accounted for
within equity at completion and is not re-measured thereafter.
Measurement of fair values of subsidiaries acquired:
The valuation techniques used for measuring the fair value of material assets acquired were as follows:
(a) E-money licence - Q-Money acquisition
The e-money licence was valued using the current cost to recreate approach. This approach values an intangible asset at the
cost that would be incurred in re-creating the asset – either though restoration (creating an identical asset) or replacement
(creating a similar asset).
The valuation method used an estimate of the cost of staff members’ time to prepare, submit and manage an authorisation
process, specialist regulatory consultancy costs, the cost of external contractors and a minimum initial capital required by
Electronic Money Regulations 2011. The estimate was based on management’s experience.
46 > Annual Report 2017
(b) Banking platform and Brand names – Spectrum acquisition
The banking platform and brand names were valued using the relief from royalty approach. The relief-from-royalty method
considers the discounted estimated royalty payments that are expected to be avoided as a result of the patents or
trademarks being owned.
A royalty rate of 6.00% was used for the purpose of the valuation of the banking platform. The discount factor applied in the
valuation of banking platform was 12.25%, comprising of the weighted average cost of capital (WACC). The most sensitive
factor was the royalty rate used.
A royalty rate of 1.00% was used for the purpose of the valuation of the brand names. The discount factor applied was 12.75%
being the (WACC) together with a margin of 0.50%. The most sensitive factor was the royalty rate used.
(c) Customer Relationships – Spectrum acquisition
Customer relationships were valued using a multi-period excess earnings approach. The multi-period excess earnings
method considers the present value of net cash flows expected to be generated by the customer relationships, by excluding
any cash flows related to contributory assets.
The life of the customer relationships was established through estimated attrition rates. The attrition rates used in the
valuation of customer relationships were as follows:
• Corporate customers
Retail customers
•
33%
31%
The contributory assets charges were calculated on the basis of an aggregated rate of all contributory assets as an average
percentage of revenue over the financial projection period covering the years ending 31 December 2017 to 2024.
The discount factor applied in the customer relationships valuation was 13.25%, being the weighted average cost of capital
(WACC) together with a margin of 1.00%.
(d) Impairment of goodwill
The assumptions used in the impairment test for goodwill are disclosed in note 11.
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, Banking and Central (which includes travel cash, overheads and corporate costs).
The revenue is wholly derived from within the UK.
The banking segment was added in the current year to manage the activity of the Q Money Limited (QML) and Spectrum
Financial Group Limited (SFG) businesses acquired in 2017.
The Group has changed its allocation of revenue between the Central and Currency Cards segments in the year ended
31 December 2017 to more accurately reflect the segment to which the revenue relates. For consistency, the prior year
comparative balances have been restated below. This restatement did not result in any impact on the total prior year revenue
or loss.
Annual Report 2017 > 47
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December
2017
Group
Segment revenue
Direct costs
Administrative expenses
Acquisition costs
Currency
Cards
International Payments
Banking
Central
Total
FairPay
Dealing
£
£
£
£
£
£
8,124,165
786,828
4,321,612
1,896,470
331,660
15,460,735
–
–
–
–
–
–
–
–
–
(347,886)
(3,177,790)
(3,525,676)
(1,346,062)
(10,089,779)
(11,435,841)
–
(269,769)
(269,769)
Profit / (loss) before tax
8,124,165
786,828
4,321,612
202,522
(13,205,678)
229,449
–
–
–
–
–
–
–
–
–
–
–
–
74,532,639
74,532,639
(39,487,208)
(39,487,208)
35,045,431
35,045,431
Currency
Cards
International Payments
Banking
Central
Total
Total assets
Total liabilities
Total net assets
2016
Group
Segment revenue
Direct costs
Administrative expenses
FairPay
Dealing
£
£
£
6,089,477
773,823
3,002,024
–
–
–
–
–
–
Profit / (loss) before tax
6,089,477
773,823
3,002,024
Total assets
Total liabilities
Total net assets
–
–
–
–
–
–
–
–
–
5. Profit / (loss) before tax - Group
Profit / (loss) before tax is stated after charging the following:-
Operating lease – property
Depreciation of plant and equipment and fixtures and fittings
Amortisation of intangibles
Net foreign currency differences
Research and development costs
Research and development tax credit
48 > Annual Report 2017
£
–
–
–
–
–
–
–
£
£
329,650
10,194,974
(2,725,788)
(2,725,788)
(8,909,376)
(8,909,376)
(11,305,514)
(1,440,190)
12,054,434
12,054,434
(7,662,178)
(7,662,178)
4,392,256
4,392,256
2017
£
392,377
51,727
221,117
68,186
1,265,388
(301,032)
2016
£
271,487
53,423
–
(119,507)
902,643
(220,020)
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
2017
£
70,000
40,000
110,000
–
–
–
–
2016
£
40,000
40,000
80,000
–
–
–
–
110,000
80,000
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 20.
2017
Headcount
101
2017
£
5,354,654
567,279
23,028
5,944,961
2016
Headcount
66
2016
£
3,587,934
417,660
10,008
4,015,602
Annual Report 2017 > 49
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December
7. Directors’ remuneration
2017
£
2016
£
Emoluments
642,973
571,871
The total amount payable to the highest paid director in respect of emoluments was £482,586 (2016: £433,742).
The total amount payable to all Directors in the consolidated Group was £1,302,782 (2016: £682,057).
There were pension payments of £773 (2016: £402) in the year. Further information regarding share options is given in
note 20.
8. Taxation
Group
Current tax (credit)
Release of DTL acquired on business combinations
Recognition of previously unrecognised deductible temporary
differences
Deferred tax (credit)
Total tax (credit)
2017
£
(27,179)
(42,046)
(148,462)
(190,508)
(217,687)
2016
£
–
–
–
–
–
Factors affecting tax charge for the period
The charge for the year can be reconciled to the profit / (loss) per the consolidated statement of comprehensive income
as follows:
2017
£
2016
£
Profit / (loss) before taxation: Continuing operations
229,449
(1,440,190)
Taxation at the UK corporation rate tax of 19.25% (2016: 20%)
44,169
(288,038)
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
Effect of tax at marginal rate
Deferred tax on equity settled share based payments
Total tax credit for the year
50 > Annual Report 2017
–
–
(188,376)
47,986
6,211
(959)
(126,718)
(217,687)
672
200
66,344
8,447
212,375
–
–
–
Movement in deferred tax balances
Group
2017
Intangibles
Equity settled share
based payments
Deferred tax assets
(liabilities)
Group
2016
Deferred tax assets
(liabilities)
Group
Non-current deferred tax asset
Current deferred tax liability
Non-current deferred tax liability
Total deferred tax liability
Net balance
at 1 January
£
–
–
–
Acquired
in business
combination
£
(833,545)
Recognised
to equity
Recognised
to profit or
loss
Balance
at 31
December
Deferred tax
asset
Deferred tax
liability
£
–
£
£
42,046
(791,499)
£
–
£
(791,499)
–
363,450
148,462
511,912
511,912
–
(833,545)
363,450
190,508
(279,587)
511,912
(791,499)
Net balance
at 1 January
Acquired
in business
combination
Recognised
to equity
Recognised
to profit or
loss
Balance
at 31
December
Deferred tax
asset
Deferred tax
liability
£
–
£
–
£
–
£
–
£
–
£
–
2017
£
511,912
(117,838)
(673,661)
(791,499)
£
–
2016
£
–
–
–
–
Based on the valuation of acquisition intangibles and enacted UK corporation tax rates the Group has acquired deferred
tax liabilities of £833,545 in relation to its acquisition of Spectrum Financial Group Limited and Q Money Limited (note 12).
The deferred tax will be released to the income statement as the underlying intangible assets are amortised or otherwise
recognised via impairment in profit or loss. The deferred tax liability released to the income statement in the year was
£42,046. Future changes in the standard rate of corporation tax have been reflected in the carrying value of the deferred
tax liability.
During the year the Group recognised a £511,912 deferred tax asset in relation to unexercised share options. Of this amount
£148,463 was recognised in the current year’s tax expense and £363,449 was recognised to equity.
The Group has estimated losses of £9,271,636 (2016: £9,126,793) available for carry forward against future trading profits.
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. The Group has an unrecognised deferred tax asset of £1,761,611 (2016: £1,825,359) 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.
Annual Report 2017 > 51
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December
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 2017 was 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. Profit / loss per share
Basic profit / loss per share
The calculation of basic profit or loss per share has been based on the profit or loss attributable to ordinary shareholders
and weighted average number of ordinary shares outstanding. The profit after tax attributable to ordinary shareholders is
£447,136 (2016: £1,440,190 loss) and the weighted average number of shares in issue for the period is 121,876,571
(2016: 96,732,842).
Diluted profit / loss per share
The calculation of diluted earnings per share has been based on the profit or 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 profit after tax attributable to ordinary shareholders is £447,136 (2016: £1,440,190 loss) and the weighted
average number of shares is 124,855,331 (2016: 96,732,842).
10. Property, plant and equipment
Plant and machinery
Fixtures and fittings
Leasehold
improvements
£
282,034
77,105
27,021
386,160
239,867
45,039
284,906
101,254
42,167
£
16,721
6,161
3,762
26,644
11,457
2,723
14,180
12,464
5,264
£
39,651
–
–
39,651
11,824
3,965
15,789
23,862
27,827
Total
£
338,406
83,266
30,783
452,455
263,148
51,727
314,875
137,580
75,258
Group
Cost
At 1 January 2017
Additions
Acquisitions through
business combinations
At 31 December 2017
Depreciation
At 1 January 2017
Charge for the year
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
52 > Annual Report 2017
11. Intangible assets and goodwill
Group
Goodwill
Cost
At 1 January 2017
Additions
Acquisitions through
business combinations
Trademarks,
licences,
patented and
non-patented
technology
£
–
50,000
Customer
relationships
Brands
Under
construction
Total
£
–
–
£
–
–
£
–
£
–
143,757
193,757
£
–
–
12,962,509
2,626,979
1,794,000
293,000
–
17,676,488
At 31 December 2017
12,962,509
2,676,979
1,794,000
293,000
143,757
17,870,245
Amortisation
At 1 January 2017
Charge for the year
At 31 December 2017
Net book value
–
–
–
–
101,917
101,917
–
99,667
99,667
–
19,533
19,533
–
–
–
–
221,117
221,117
At 31 December 2017
12,962,508
2,575,062
1,694,333
273,467
143,757
17,649,128
At 31 December 2016
–
–
–
–
–
–
The intangibles under construction balance consists of costs incurred on software development projects that were not
completed before the end of the reporting period.
Goodwill
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected
to benefit from that business combination.
Goodwill was acquired as part of the Q Money Limited (QML) and Spectrum Financial Group Limited (SFG) acquisitions in
2017. Following the respective acquisitions, the businesses of QML and SFG have operated as a single business. Accordingly,
they have been treated as a single “banking CGU” for the purpose of impairment testing. This represent the lowest level at
which goodwill is monitored for internal management purposes. The Group tests goodwill annually for impairment or more
frequently if there are indications that goodwill might be impaired.
The recoverable amount of the banking CGU is determined as the higher of fair value less cost of disposal and value in use.
The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected
changes to collections and direct costs during the forecast period.
Management estimates discount rates using pre-tax rate that reflects the current market assessment of the time value of
money and the specific risks associated with the asset for which the future cash flow estimates have not been adjusted. The
rate used to discount the forecast cash flows for the banking CGU’s are based upon the CGU’s weighted average cost of
capital (“WACC”) of 15.64%.
Annual Report 2017 > 53
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December
The Group prepared cash flow forecasts derived from the most recent detailed financial budgets approved by management
for the next six years. For the purpose of the value in use calculation the management forecasts were extrapolated into
perpetuity using a growth rate of 2.2%, representing the expected long-run rate of inflation in the UK. The forecasts assume
growth rates in acquisitions which in turn drive the forecast collections and cost figures. The Group used budgets for the
next six years (rather than five) as they believe the expected long-run rate of inflation in the UK does not reflect the expected
growth rate.
The Group has conducted a sensitivity analysis on the impairment test of the CGU’s carrying value. Based on the value in use
a reduction of revenue each year of 25.6% would result in an impairment at 31 December 2017. An increase in the WACC
to greater than 20% would result in an impairment at 31 December 2017. Based on the sensitivity analyses, the Group has
determined that there are no reasonably possible changes to the key assumptions which would result in the carrying value of
the CGU exceeding its carrying value at 31 December 2017.
12. 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
2017
£
11,243,460
18,211,674
29,455,134
2016
£
1,260,857
9,982,603
11,243,460
–
–
29,455,134
11,243,460
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.
54 > Annual Report 2017
Holdings of more than 20%
The Company holds the share capital (both directly and indirectly) of the following companies:
Country of registration
or incorporation
Class
Shares Held
Subsidiary Undertaking
FairFX (UK) Limited
FairFX Plc
England and Wales
England and Wales
FairFX Corporate Limited *
England and Wales
FairFX Wholesale Limited *
England and Wales
FairFS Limited *
England and Wales
Fair Foreign Exchange Ireland
Limited *
Ireland
Q Money Limited
Q Technology Limited*
Q Money One Limited*
England and Wales
England and Wales
England and Wales
Spectrum Financial Group Limited
England and Wales
Spectrum Card Services Limited*
England and Wales
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Spectrum Payment Services
Limited*
England and Wales
Ordinary
Red 88 Limited Co*
England and Wales
Ordinary
%
100
100
100
100
100
100
100
100
100
100
100
100
100
Dormant
Trading
Dormant
Dormant
Dormant
Dormant
Trading
Dormant
Trading
Trading
Trading
Trading
Dormant
*Share capital held indirectly
The registered office address of all subsidiary undertakings is 3rd Floor Thames House, Vintners’ Place, 68 Upper Thames
Street, London, EC4V 3BJ, England.
Acquisition of subsidiaries
See accounting policy in note 3.2.
(i) Q Money Limited (“Q Money Group”)
On 19 January 2017, the Group acquired the entire ordinary share capital of Q Money Limited. Q Money Limited has two
wholly owned subsidiaries (Q Money One Limited and Q Technology Limited).
Acquiring the Q Money Group and its E-money licence allows the Group to launch a card via a MasterCard Prepaid Issuing
Licence and to enhance the Group’s payment infrastructure through direct membership of other payment networks.
Q Money gained a Mastercard Issuing Licence in December 2017 and so, where appropriate, Group prepaid card
programmes will be bought in-house to deliver significant cost savings.
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 contingent consideration of up to £825,000 is 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 (fixed market share price
at acquisition date). Should the share price increase, actual consideration paid would increase.
In order to ensure that the contingent consideration was measured at fair value, adjustments in relation to probability factors
and time value of money were made as appropriate. The contingent consideration performance milestones are split into
three tranches. The probability used to fair value trance one and two of £250,000 each was 50% in 12 months, 20% in 18
Annual Report 2017 > 55
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December
months and 30% not payable at all. The probability used to fair value tranche three of £325,000 was 50% in 30 months, 20%
in 36 months and 30% not payable at all. The fair value of all the tranches was determined by discounting the consideration by
an after tax cost of debt of 3.62%. The fair value of contingent consideration recognised was £543,172, which was made up of
£168,036 for both tranche one and two and £207,100 for tranche three.
For the period post acquisition to 31 December 2017, Q Money Group incurred a loss after tax of £20,522. This loss includes
a £11,109 charge for intercompany loan interest payable to the parent Company, which eliminates on Group consolidation. If
the acquisition occurred on the 1 January 2017 the loss after tax contributed to the Group would have been £18,975.
The acquisition date fair value of consideration transferred was calculated as follows:
Cash
Share consideration
Contingent consideration
Total consideration transferred
The recognised amounts of assets acquired and liabilities assumed at the date of acquisition were as follows:
E-money licence
Cash
(ii) Spectrum Financial Group Limited (“CardOneBanking”)
Trade and other receivables
Trade and other payables
Deferred tax liabilities
Total identifiable new assets acquired
£
110,000
314,999
543,172
968,171
£
233,000
335
350,000
(354,079)
(41,105)
188,151
The valuation techniques used for measuring the fair value of the E-money licence are covered in note 3.25(ii)(a). Based on the
valuation of the E-money licence and enacted UK corporation tax rates a deferred tax liability of £41,105 was recognised as a
result of the identified intangible asset.
Goodwill arising from the acquisition has been recognised as follows.
Consideration transferred
Fair value of identifiable net assets
Goodwill
£
968,171
188,151
780,020
Goodwill comprises the value of expected synergies arising from the acquisition and additional value attributed by the acquirer
in relation to the future expected cash flows, which is not separately recognised. None of the goodwill recognised is expected
to be deductible for income tax purposes.
56 > Annual Report 2017
(ii) Spectrum Financial Group Limited (“CardOneBanking”)
On 25 August 2017, the Group acquired the entire ordinary share capital of Spectrum Financial Group Limited.
Spectrum Financial Group Limited has three wholly owned subsidiaries (Spectrum Card Services Limited, Spectrum Payment
Services Limited and Red 88 Limited). Acquiring CardOneBanking provided the Group with access to key components of
digital banking technology and payment infrastructure connectivity allowing the Group to fast track its push into offering
digital banking services to the small to medium sized enterprise market. In addition, with the acquisition the Group will be able
to achieve greater scale and turnover, buyer-specific synergies and cross selling opportunities.
The initial consideration payable for the Acquisition was £15,000,000, satisfied by £12,817,501 payable in cash (raised
during the 24 August 2017 share issue) and by the issue of 3,762,930 new ordinary shares of 1p each in the Company (the
“Initial Consideration Shares”) at an issue price of 58p (fixed market share price at start of the share capital raise), equating
to £2,182,499. As per the Companies Act 2006, section 612, for any shares issued as part of an acquisition merger relief is
obtained with the difference between the market price of the shares and the nominal value of the shares taken to a merger
reserve. The market price for the Group’s shares on the date of acquisition was 72p resulting in the Group recording additional
share consideration of £526,810. Further consideration after working capital adjustments of £1,602,730 was paid in cash on
the 10 November 2017 using the acquired cash available in CardOneBanking.
For the period post acquisition to 31 December 2017, CardOneBanking contributed revenue of £1,896,470 and profit after
tax of £250,223 to the Group’s results. If the acquisition occurred on the 1 January 2017 revenue of £5,415,114 and profit
after tax of £725,872 would have been contributed to the Group’s results.
The acquisition date fair value of consideration transferred was calculated as follows:
Cash
Share consideration
Further cash consideration
Total consideration transferred
The recognised values of assets acquired and liabilities assumed at the date of acquisition were as follows:
Intangibles
Property, plant and equipment
Inventories
Trade and other receivables
Cash
Trade and other payables
Deferred tax liability
Total identifiable new assets acquired
£
12,817,501
2,709,310
1,602,730
17,129,541
£
4,480,979
30,783
7,873
80,610
1,702,635
(563,388)
(792,440)
4,947,052
The valuation techniques used for measuring the fair value of the intangibles are covered in note 3.25(ii). Based on the
valuation of the intangibles and enacted UK corporation tax rates a deferred tax liability of £792,440 was recognised as a result
of the identified intangible asset.
Annual Report 2017 > 57
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December
Goodwill arising from the acquisition has been recognised as follows.
Consideration transferred
Fair value of identifiable net assets
Goodwill
£
17,129,541
4,947,052
12,182,489
Goodwill comprises the value of expected synergies arising from the acquisition and additional value attributed by the acquirer
in relation to the future expected cash flows, which is not separately recognised. None of the goodwill recognised is expected
to be deductible for income tax purposes.
13. Inventories
Group
Finished goods
The Group’s inventories comprise stock of cards.
14. Trade and other receivables
2017
£
199,747
2016
£
229,905
Trade receivables
Amounts due from Group
undertakings
Other receivables
Prepayments and accrued
income
Group
Company
2017
£
2016
£
2,419,594
1,922,977
2017
£
–
–
515,063
845,111
–
13,212,504
768,285
310,140
–
–
3,779,768
3,001,402
13,212,504
2016
£
–
–
–
–
–
Information about the Group’s exposure to credit and market risks, and impairment losses for trade and other receivables is
included in note 19.2.
15. Cash and cash equivalents
Group
Cash at bank
2017
£
2016
£
51,950,729
8,523,985
Included in cash and cash equivalents at 31 December 2017 was £34,147,666 of customer funds (2016: £5,022,092).
58 > Annual Report 2017
16. Share capital
Group and Company
Authorised, issued and fully paid up capital
155,368,259 ordinary shares of £0.01 each
2017
£
2016
£
1,553,682
1,031,160
Under the principles of reverse acquisition accounting, the Group is presented as if FairFX Group Plc had always owned the
FairFX (UK) Limited Group. The comparative and current period consolidated reserves of the Group are adjusted to reflect
the statutory share capital and merger reserve of FairFX Group Plc as if it had always existed.
During the year, the Company made the following share issues:
Date of Issue
No Shares
Issued
Price per
share
Gross value
of shares
issued
19th January 2017
724,136
£0.435
£314,999
Nominal
Value of
shares
issued
£7,241
Costs of
share issue
Merger
Reserve
Share
Premium
–
£307,758
–
24th August 2017
47,765,154
£0.580 £27,703,789
£477,652
£1,541,641
– £25,684,497
24th August 2017
3,762,930
£0.720
£2,709,310
£37,629
–
£2,671,680
–
Total
52,252,220
£30,728,098
£522,522
£1,541,641
£2,979,438 £25,684,497
All of the shares issued on the 19th January 2017 were issued as consideration for Q Money Limited (note 12(i)). Of the shares
issued on 24th August 2017, 3,762,930 shares were issued as consideration for Spectrum Financial Group Limited (note
12(ii)). The remainder of shares were issued in cash.
As per the Companies Act 2006, section 612, for any shares issued as part of an acquisition merger relief is obtained with the
difference between the market price of the shares and the nominal value of the shares taken to a merger reserve. The market
price for the Group’s shares on the date of acquisition was 72p resulting in the Group recording additional share consideration
of £526,810. This amount was recognised in the movements in merger reserves in equity.
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 2017 > 59
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December
17. Trade and other payables
Trade payables
Amounts owing to Group
undertakings
Taxation and social security
Accruals and deferred income
Group
Company
2017
£
2016
£
36,988,512
6,803,255
2017
£
–
–
–
2,074,285
383,446
1,178,546
38,550,504
130,368
580,598
7,514,221
–
–
2,074,285
Group
Company
2017
£
2016
£
2017
£
Current
38,550,504
7,514,221
2,074,285
18. Derivative financial assets and financial liabilities
18.1 Derivative financial assets
2016
£
–
234,038
–
19,500
253,538
2016
£
253,538
Group
Fair Value
Notional Principal
Fair Value
Notional Principal
Foreign exchange forward contracts
Total financial instruments at fair value
2017
£
303,775
303,775
2017
£
21,530,930
21,530,930
2016
£
223,884
223,884
2016
£
10,238,079
10,238,079
18.2 Derivative financial liabilities
Financial liabilities at fair value through profit or loss
Group
Fair Value
Notional Principal
Fair Value
Notional Principal
Foreign exchange forward contracts
Total financial instruments at fair value
19. Financial instruments
2017
£
145,205
145,205
2017
£
21,366,917
21,366,917
2016
£
147,957
147,957
2016
£
10,169,959
10,169,959
The Group’s financial instruments comprise cash, foreign exchange forward contracts 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. The Group does not deal
in any financial instrument contracts for its own benefit. 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.
60 > Annual Report 2017
19.1 Principal financial instruments
The principal financial instruments of the Group, from which financial instrument risk arises, are as follows:
Group
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
Trade and other payables generally have a maturity of less than one month.
2017
£
51,950,729
(38,550,504)
3,779,768
2017
£
303,775
(145,205)
2016
£
8,523,985
(7,514,221)
3,001,402
2016
£
223,884
(147,957)
Forward foreign exchange contracts fall into level 2 of the fair value hierarchy as set out in note 3.25(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).
19.2 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 2017.
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.
Annual Report 2017 > 61
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December
The ageing of financial assets at the statement of financial position date is as follows:
2017
Group
Current and
not impaired
£
Trade and other receivables
3,779,768
Between
1 and 3
months
Between
3 and 12
months
£
–
£
–
Derivative financial assets
123,055
56,692
124,028
Over
1 year
Individually
impaired
£
–
–
£
–
–
2016
Group
Trade and other receivables
Derivative financial assets
Current and
not impaired
£
3,001,402
223,884
Between
1 and 3
months
Between
3 and 12
months
Over
1 year
Individually
impaired
£
–
–
£
–
–
£
–
–
£
–
–
Total
£
3,779,768
303,775
Total
£
3,001,402
223,884
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.
On demand
and within
1 month
£
38,550,504
Between
1 and 3
months
Between
3 and 12
months
£
–
£
–
76,330
22,178
46,697
On demand
and within
1 month
£
7,514,221
Between
1 and 3
months
Between
3 and 12
months
£
–
£
–
18,959
57,292
71,706
Over
1 year
£
–
–
Over
1 year
£
–
–
Total
£
38,550,504
145,205
Total
£
7,514,221
147,957
2017
Trade and other payables
Derivative financial liabilities
2016
Trade and other payables
Derivative financial liabilities
62 > Annual Report 2017
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. The Group has no of
borrowings so 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 liabilities. The
largest currency liabilities are created on entering into forward foreign currency transactions.
As at 31 December 2017, the Group is not sensitive to movements in the strength of Sterling as no material foreign currency
balances are held (2016: £nil).
Fair value risk
The following table shows the carrying amount of financial assets and financial liabilities. It does not include a fair value as the
carrying amount is a reasonable approximation of fair value.
31 December 2017
Loans and Receivables Other financial liabilities
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
£
51,950,729
3,779,768
55,730,497
£
–
–
–
–
–
38,550,504
38,550,504
31 December 2016
Loans and Receivables Other financial liabilities
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
£
8,523,985
3,001,402
11,525,387
£
–
–
–
–
–
7,514,221
7,514,221
Total
£
51,950,729
3,779,768
55,730,497
38,550,504
38,550,504
Total
£
8,523,985
3,001,402
11,525,387
7,514,221
7,514,221
All financial instruments are classified as level 3 financial instruments in the fair value hierarchy, with the exception of Derivative
financial assets and liabilities which are level 2 financial instruments.
Annual Report 2017 > 63
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December
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.
20. 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 2017, there were a number of share based payment transactions within the Group.
64 > Annual Report 2017
These movements are disclosed within the tables below:
Date
Granted
22/07/2014
22/07/2014
22/07/2014
22/07/2014
22/07/2014
22/07/2014
28/09/2016
28/09/2016
28/09/2016
01/12/2016
01/12/2016
01/12/2016
18/01/2017
18/01/2017
18/01/2017
At
1 January 2017
Granted during
year
Exercised
during year
Lapsed during
year
At
31 December
2017
Number
Number
Number
Number
Number
Exercise price
(£)
0.07
0.22
0.36
0.58
1.16
1.74
0.30
0.30
0.30
0.27
0.27
0.27
0.44
0.44
0.44
200,000
447,750
4,113,939
120,000
120,000
120,000
461,111
461,111
461,111
100,000
100,000
100,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,667
16,667
16,667
50,001
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
200,000
447,750
(50,000)
4,063,939
–
–
–
–
–
–
–
–
–
–
–
–
120,000
120,000
120,000
461,111
461,111
461,111
100,000
100,000
100,000
16,667
16,667
16,667
(50,000)
6,805,023
Total number of options
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 2017, there were unexercised share options amounting to 4.38% (2016: 6.60%) of the Company’s total
issued shares. Of the above options 5,150,222 (2016: 5,150,222) have been granted to Directors of the Company, with an
additional 1,504,800 (2016: 904,800) having been granted to an individual who is director of a wholly owned subsidiary
within the Group.
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 2017
Granted during year
0.39
variable
36.4%
5.3
0.10%
none
variable
0.62
variable
38.6%
9.1
0.10%
none
0.20
a
b
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. No shares were exercised in the year ending 31 December 2017.
Annual Report 2017 > 65
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December
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 to the right. 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
18/01/2017
0.07
0.22
0.36
0.58
1.16
1.74
0.30
0.27
0.44
0.28
0.20
0.12
–
–
–
0.13
0.11
0.20
The total fair value of the options is £781,383 (2016: £668,422). The charge expensed to the statement of comprehensive
income is £112,961 (2016: £1,001). During the year the Group recognised a £511,912 deferred tax asset in relation to
unexercised share options. Of this amount £148,463 was recognised in the current year’s tax expense and £363,449 was
recognised to equity.
21. Financial commitments
As at 31 December 2017 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
2017
£
341,597
1,312,297
1,653,894
2016
£
290,760
1,414,768
1,705,528
The Group signed a lease on its London office premises on 13th November 2016 at an annual rental of £290,760 (value added
tax (VAT) inclusive). The lease runs until 12th November 2022.
The Group’s lease on its Chester office premises expires on 17th April 2018. The Group is in the closing stages of negotiating
a new lease agreement to include a larger area of the existing premises. The lease is expected to take effect from 18 April
2018 at an annual VAT inclusive rental of £64,068 increasing to £76,882 in the second year and £89,695 in the third year. The
lease is expected to run until 17 April 2021.
66 > Annual Report 2017
22. Related party transactions
Key management personnel
Key management who are responsible for controlling and directing the activities of the Group comprise the executive
Directors, the Non-Executive Directors and senior management.
The key management compensation is as follows:-
Salaries, fees and other short-term employee benefits
2017
£
1,177,629
2016
£
902,939
A former Q Money Limited and a former Spectrum Financial Group Limited shareholder joined the key management
personnel when those businesses being respectively acquired.
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 2017.
23. Ultimate controlling party
Since 25 August 2017 no party has held a controlling interest in FairFX Group Plc and as such the Directors consider FairFX
Group Plc to be the ultimate controlling party.
24. Post balance sheet events
On 20th February 2018, the Group acquired the entire ordinary share capital of City Forex Limited. The initial consideration
payable for the acquisition was £5,250,000, paid from existing cash. Further consideration of up to £750,000, payable from
existing cash may be payable on 31 October 2018 subject to any completion accounts adjustment being applied and any
claims under the warranties and indemnities.
The initial accounting for the business combination is incomplete and as such the Group has not disclosure the fair value of
consideration transferred, the fair value of assets acquired and liabilities assumed or the goodwill arising from the acquisition.
The valuation techniques used for measuring the fair value of material assets acquired are yet to be determined.
Annual Report 2017 > 67
3rd Floor, Vintners’ Place
68, Upper Thames Street
London, EC4V 3BJ
www.fairfx.com