Effective money management
Corporate and retail
FairFX Group Plc | Annual Report 2018
Page Title at start:Content Section at start: Content Section at start:
FairFX is a leading payment services provider to the retail and corporate segments of
the UK market. A key differentiator for the Group is the breadth of products that we
can offer, comprising physical cash, prepaid travel solutions, a corporate expense
management platform, international payments and, most recently, a bank-grade
current account offering. We are also unique in offering this across both app-based and
web-based platforms that work on all devices.
A service which fits with the
changing needs of consumers
and businesses:
User-centric
offering
Low-cost
operating
model
Innovative
products
We build all of our
technology with the
consumer in mind
We are a high growth,
profitable business
Expanding portfolio of
differentiated products
and services
Page Title at start:Content Section at start: 2018 highlights
Turnover
+111%
£2.3bn
Revenue
+69%
£26m
Gross profit
+72%
£20.5m
EBITDA adjusted
+687%
£7.5m
Strategic Report
About FairFX Group
Strategic Report
01 About FairFX Group
02 At a Glance
04 Chairman and Chief Executive Officer’s
Statement
08 Strategy
12 People and Culture
14 Risks
Governance Report
18 Board of Directors
20 Corporate Governance Report
22 Directors’ Report
23 Audit Committee Report
25 Directors’ Remuneration Report
27 Statement of Directors’ Responsibilities in
Respect of the Annual Report and the Financial
Statements
Financial Statements
28 Independent Auditor’s Report to the members
of FairFX Group Plc
35 Consolidated Statement
of Comprehensive Income
36 Consolidated and Company Statement of
Financial Position
37 Consolidated and Company Statement
of Changes in Equity
38 Consolidated Statement of Cash Flows
39 Company Statement of Cash Flows
40 Notes to the Financial Statements
67 Directors and Advisers
Discover more online
fairfxplc.com
FairFX Annual Report 2018 01
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Page Title at start:Content Section at start:
At a Glance
AT A GLANCE
Growing our customer base,
broadening our offering and
further establishing ourselves
in the digital banking sector.
About FairFX Group
FairFX is a leading challenger brand in banking and payments
that disintermediates the incumbent banks with a superior
customer experience and low-cost operating model.
Our products enable personal and business customers to make
easy, low-cost payments both domestically and in a broad range
of currencies via one integrated system. The FairFX platform
facilitates payments either direct to Current Accounts or at 35
million merchants via mobile apps, the Internet, SMS, wire transfer
and Mastercard/VISA debit cards.
FairFX provides money movement services to both personal
and business customers through four channels: Currency Cards,
Travel Cash, Corporate Expenses International Payments and
Current Accounts. The Currency Card and Travel Cash offerings
facilitate overseas payments at points of sale and ATMs whereas
the International Payments channel supports wire transfer
foreign exchange transactions direct to Current Accounts. For
corporates, FairFX has a market-leading Expenses solution based
around its corporate platform and prepaid card. This service
can yield significant savings on expenses and procurement both
domestically and overseas, through better controls and improved
transparency. The platform also streamlines the administrative
processes and integrates into accounting software, thus saving
costs. The FairFX Group offers retail and business Current
Accounts with functionality such as faster payments, BACS,
CHAPS, direct debits, international payments and debit cards.
2011
2012
FairFX becomes the first
UK currency specialist to
release a mobile
banking app.
2007
2010
FairFX is founded with
the aim of giving FX
consumers a better deal
using technology.
We start offering Prepaid
Currency Cards to UK
consumers.
We introduce Prepaid
Corporate Expenses
Cards, providing a
simple and flexible
expense solution that
enables companies to
stay on top of business
spending.
FairPay launches,
offering a fully
automated online
money transfer solution
for the general public,
at business level
exchange rates.
02 FairFX Annual Report 2018
Page Title at start:Content Section at start: We believe
You get more out of life when you get more out of
your money.
Our goal
To create a world where managing money is as intuitive as
simple addition, so everyone can get more out of life.
What we do
We create financial services that outperform by using the
power of customer-centric ingenuity.
2014
2015
The Group becomes
an AIM-listed company
on the London Stock
Exchange.
FairFX sponsors the
Formula 1 on Sky
Sports.
1 million
customers
2017
2018
The FairFX Group adds
to its offering by
acquiring
CardOneBanking in
Chester, a digital
banking services
provider to small
businesses and retail
consumers.
The Group acquires City
Forex, which provides
International Payments
and Travel Currency
to both business and
consumers through its
proprietary platform and
its three central London
based branches
respectively.
In 2018, the FairFX Group surpasses
the 1 million customer mark.
FairFX Annual Report 2018 03
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Chairman and Chief Executive Officer’s
statement
CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S STATEMENT
We are delighted to report a year of
strong performance in line with our
strategy, combined with further
investment in technology to support
future growth.
Trading performance
2018 was a milestone year for FairFX: our turnover for the year
more than doubled to exceed £2 billion, and in August we passed
the 1 million customer mark. Turnover – measured by the gross
value of currency transactions sold, plus the gross value of
customer funds deposited into Current Accounts – reached £2.37
billion, in line with our expectations and represented an increase
of 111% on the prior year (2017: £1.12 billion). Excluding the effect
of the acquisitions of City Forex in February 2018, turnover grew
by 55.0%.
Group revenue increased by 68.8% to £26.1 million (2017: £15.5
million). On a like for like basis (excluding the effect of the acquired
City Forex) the increase was 39.4% to £21.5 million. The
percentage growth in revenues was lower than the corresponding
growth in turnover, as a key part of the growth stemmed from
International Payments (increase of 69%) and Corporate
Expenses (increase of 31%), which have lower revenue margins
than Currency Cards. Revenue growth overall was underpinned
by the Group adding 315,000 new UK-domiciled customers
during 2018, bringing the total to over 1 million.
Gross profit grew by 72% to £20.5 million (2017: £11.9 million) a
higher percentage growth than the revenue line. Excluding the
City Forex acquisition in February, gross profit was £16.8 million
(an increase of 40.4%). This reflects margin enhancements
delivered by the success of our strategy of supply chain
rationalisation and improved management of direct costs, which
is continuing into 2019. Accordingly, operating expenses
increased by only 40% relative to the previous year, materially
lower than the percentage increase in revenues.
04 FairFX Annual Report 2018
Ian Strafford-Taylor
Chief Executive Officer
Page Title at start:Content Section at start: Chairman and Chief Executive Officer’s
statement
Adjusted EBITDA/PBT Calculation
2018
£
2017
£
2,617,666
447,136
Statutory Net Profit
Amortisation of
acquisition intangibles
Other amortisation charges
Depreciation costs
Tax credit
EBITDA
Acquisition-related costs
Share-based payments
Foreign exchange loss
Development costs (2)
Restructuring costs (3)
Marketing rebrand (4)
Recruitment costs (5)
Adjusted EBITDA
794,959
523,690
200,123
(538,343)
3,598,095
297,484
53,765
20,274
1,404,962
1,048,119
590,034
499,617
7,512,350
220,325
792
51,727
(217,687)
502,293
269,769
112,961
68,186
–
–
–
–
953,209
(792)
(51,727)
Other amortisation charges
Depreciation costs
(523,690)
(200,123)
Adjusted PBT
6,788,537
900,690
(1) Acquisition-related costs relate to the acquisition of subsidiaries (note 12) during
the year. These include due diligence services, accounting services, legal services
and stamp duty.
(2) Development costs relate to incremental, non-recurring staff costs incurred to
support the substantial software development undertaken in the year.
(3) Restructuring costs relate to one-off non-recurring costs incurred including
property reorganisation, staff costs and costs to cancel contracts (no longer
required by the Group as a result of acquisition of subsidiaries).
(4) Marketing rebrand costs relate to the one-off non-recurring costs attributable to
the Group rebranding. These consist of consultant services, legal services and staff
costs.
(5) Recruitment costs relate to one-off costs incurred in the significant scaling up the
Group’s workforce.
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Adjusted EBITDA was £7.5 million for the 12-month period (2017:
£1.0 million) an increase of 687%. The growth in EBITDA reflects
the operational gearing that the Group now has with a significant
retention of revenue growth flowing down to profits.
The statutory PBT of £2.1 million (2017: £0.2 million) is a
significant uplift on the prior year and follows a similar theme,
deriving from tremendous growth in revenue both organically
and through acquisition whilst driving down supply chain costs
and removing duplication where appropriate from overheads.
Similarly, the adjusted PBT of £6.8 million (2017: £0.9 million)
demonstrates our operational gearing and ability to take
advantage of further growth without needing to add significantly
to overheads. Basic earnings per share increased to £1.68 (2017:
0.37p) as a result of the significant increase in profitability.
John Pearson
Chairman
FairFX Annual Report 2018 05
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CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S STATEMENT continued
Management has presented adjusted EBITDA and adjusted
PBT because it monitors these performance measures at a
consolidated level and it believes that they are more relevant to an
understanding of the Group’s sustainable financial performance
than statutory profit figures. Adjusted EBITDA and adjusted PBT
are calculated by adjusting statutory net profit as disclosed in the
table below. Adjusted EBITDA and adjusted PBT are not defined
performance measures in IFRS. The Group’s definition of adjusted
EBITDA and adjusted PBT may not be comparable with similarly
titled performance measures and disclosures by other entities.
we recognised in 2017 that one of the core strategies for our
future success and growth was to invest more in our platform
and products. Therefore, in keeping with our peers and within
guidelines of accounting practice we are now adopting the same
policy of capitalisation of investment into internally generated
software which can then be depreciated over the asset-life of the
products and platforms that we create. In 2018 this amounted to
£5.2 million of the total of £6.4 million of capital expenditure,
which represents the combined investment across the whole
Group.
Overall, the Group balance sheet remains healthy, with net assets
of £38.3 million (2017: £35.0 million). Non-current assets rose to
£30.1 million (2017: £18.3 million) which is due to the combination
of fair value accounting on the acquisition of City Forex, where
intangible assets and goodwill totalled £5.0 million, and the
significant increase in capital expenditure of £6.4 million (2017:
£0.3 million). As a FinTech business, the Group has been investing
in its platforms and infrastructure since its inception. Due to the
substantial growth, acquisitions of two new businesses in two
years (each with different technology stacks) and increased
competition in the markets in which we operate we have
significantly increased investment into technology in 2018 and
will continue to do so. As we have communicated previously,
The Group’s cash position at year-end was £7.9 million (2017:
£17.8 million – re-stated from £52.0 million by de-recognising
cash held on behalf of customers) at the end of 2018. The
Directors believe that this reporting of cash and cash equivalents
gives a more informed view of the Group’s cash position. The
de-recognition of the cash held on behalf of customers also
impacted the corresponding liability and so trade and other
payables in 2017 was re-stated from £38.6 million to £4.4 million.
With regards to the decrease in cash year on year, this was due
primarily to the acquisition of City Forex for £6.0 million cash, an
increase in capital expenditure described above and an increase
in collateral requirements with financial institutions in the supply
chain to £1.6 million (2017: £0.9 million).
We will continue to expand our offering
to corporates during 2019: we have a
strong development pipeline of new
functionality and improved customer
experience
06 FairFX Annual Report 2018
Page Title at start:Content Section at start: External market trends
Our performance in 2018 is particularly commendable
considering the challenges in the external market and this has
demonstrated the strength and durability of the Group. On the
consumer side, Currency Cards were impacted by the
exceptionally hot summer in the UK, which suppressed demand
for overseas holidays. The sustained weakness of sterling in the
context of the ongoing uncertainty in relation to Brexit also
presented headwinds. In addition, there was strong competition
in the retail market space from challenger brands offering
discounted pricing to attract customer numbers. Despite these
factors, performance for our retail products has held its own and
with the investments made in the customer experience and back
end operations, the Currency Cards products are well placed for
the future as we have seen in 2019 to date.
Business customer growth continues to be strong, underpinned
by the continuing strength of our Corporate Expenses platform.
This is a core, differentiating product for the Group and gives us
an “entry product” into corporates from which we can sell other
services, such as international payments and banking services.
We will continue to expand our offering to corporates during 2019
and have a strong development pipeline of new functionality and
improved customer experience.
Q Money and CardOneBanking
acquisitions were completed in 2017,
City Forex was completed in 2018
FairFX Annual Report 2018 07
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Strategy
CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S STATEMENT continued
Strategy
The current business strategy
took shape in 2017, when we
recognised the need to invest
more into our technology and
prepare the business for the
next phase of its growth. This
investment was targeted to
achieve three key components
of the overall strategy, namely
differentiation, efficiency
and scale.
08 FairFX Annual Report 2018
Page Title at start:Content Section at start: Differentiation
A key differentiating factor for the Group is the breadth of
products that we can offer, comprising physical cash, prepaid
travel solutions, a corporate expense management platform,
international payments and, most recently, a bank-grade
current account offering. We are also unique in offering this
across both app-based and web-based platforms that work on
all devices.
Lastly, but crucially, we allow customers to “self-serve” but
also to speak directly to FairFX experts if they want to transact
with human interaction. This broad offering is underpinned
by a technology platform that is much deeper than those of
our competitors in terms of direct integration to underlying
payment schemes. This gives us both operational and
economic advantages which widen our differentiation. Our
strategy has been to consolidate this already unique offering
and augment it further by converging the products with the
objective of a group-wide unified view of a customer combined
with seamless customer experience for the customers
to access any or all of the products via one user journey.
We have made great strides in this area in 2018 and will be
deploying more functionality that fits this strategy in 2019.
In addition, two years ago, concurrent with our commitment to
invest more into our technology, we recognised we needed to
differentiate FairFX from the increasing competition in the form of
so-called challenger brands. A key part of this was the recognition
that we needed to broaden our product suite to reduce our
reliance of the foreign exchange sector, and the success of this
strategy is reflected in the proportion of revenues derived from
non-FX activities for the 2018 financial year, which reached 33%,
compared to 22% in 2017 and 10% in 2016.
The acquisition of an e-money licence in 2017 was our
first step towards increasing diversification in earnings by
becoming a digital banking services provider. Subsequently,
acquiring CardOneBanking in August of that year accelerated
our plans in the sector. We identified that banking in general
for the Corporate market, but particularly in relation to SMEs,
was still heavily under-served by the mainstream banks.
Given the success of our Corporate Card platform, itself
a predominantly non-FX product, we already had a strong
presence in that market segment and our announced strategy
was to develop better banking products for this customer
profile. A key step on that journey was the launch of the Fair
Everywhere business current account in June 2018, leveraging
our expertise in international payments and our new banking
capabilities. Fair Everywhere allows businesses to manage
their day-to-day banking and international money transfers
from a single current account to make global business banking
easier, faster and cheaper than with traditional providers.
In 2019, we will further enhance the customer experience
of our banking platforms and add functionality to support
larger corporate clients. In addition, we are exploring ways to
add lending to our proposition, by using credit supplied by a
third-party bank or credit provider direct to our customers
under a Credit Broker licence. As such we will not be incurring
any credit risk and the loans will not sit on our balance sheet.
We will also be adding further enhancements, both new
functionality and improved customer experience, to our
Corporate Expenses platform during 2019 to fuel its
continued growth. These measures will ensure that our
revenues from non-FX related activities will continue to grow
in 2019 and beyond.
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FairFX Annual Report 2018 09
Page Title at start:Content Section at start:
CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S STATEMENT continued
Efficiency
A core strand of our strategy centres on initiatives to generate
efficiencies, through increasing scale and bringing in-house
selective parts of the supply chain with the aim of reducing
our costs, enhancing quality, optimising risk and increasing
our speed to market for new products.
Increasing efficiency requires building additional capabilities into
our platforms and, as such, we have a dedicated platform
engineering team adding functionality across the Group
augmented by an API engineering team that provides the
communication layer between back-end and front-end
technologies and applications. An example of their success in
bringing processes in-house was the extensive project to achieve
access to real-time gross settlement (RTGS) accounts with the
Bank of England and concurrent direct membership of the Faster
Payments scheme, as announced in February 2019.
Gaining full membership status of Mastercard in December 2017
allowed us to issue our own cards rather than paying a third-party
provider. In practice, this takes time to fully implement without
extensive re-carding of current cards, but the process has begun
by moving CardoneBanking cards to self-issuance in 2018. The
ability to self-issue provides us with greater leverage over the
existing supply chains and we have utilised this, together with
continually streamlining the incumbent supply chain itself to
improve margins in the Group’s Corporate Expense platform and
anticipate that we will have completed this in Q2 2019.
Concurrently, we are improving the commercial arrangements we
have in all other product streams and as such we expect further
improvements in gross profit margins as the year progresses.
A key enabler for enhancing our efficiency was the acquisition
in February 2018 of City Forex, which had undertaken Travel
Cash operations for us since 2007 but also had a strong
international payments business. In addition to bringing further
scale in international payments and International Payments
and Travel Cash, the acquisition also enabled us to control the
entire supply chain for the Travel Cash service. City Forex has
three branches in central London (which currently continue
to operate under that brand) and a proprietary system for
processing both travel currency and international payments. The
Group has taken this platform (MTS) and invested in it further
by establishing an engineering team around it, such that it now
provides a front-to-back integrated solution for international
payments. The platform encompasses trade entry, settlements,
reconciliation and direct integration into a general ledger
which yield significant efficiencies and capacity for growth.
2018 saw continued investment in the CardOneBanking business
and platform, part of which came to fruition in February 2019, as
mentioned above, with RTGS and direct membership of the UK
Faster Payments Scheme (FPS). FPS is the fastest growing UK
payment system and the only real-time 24/7 service that is in
increasing demand from personal and business customers using
both desktop and mobile applications. The FPS membership
continues the Group strategy of streamlining the payment supply
chain and will deliver lower payment processing costs, improved
customer experience and facilitate product iteration. In addition,
our membership of SWIFT has further reduced our reliance on
third parties.
We are now able to offer retail and business Current Accounts
that include faster payments, BACS, direct debits, international
payments and a debit card, and can create IBANs for customers
with no other financial institution involved in the process, reducing
cost per transaction.
We are also looking to integrate our internal operations by
increasing the utilisation of our banking platform in Chester,
which over time will become our operational hub for back end
settlements to support all the card-based products and provide
banking services to the Group such as processing faster payments.
10 FairFX Annual Report 2018
Page Title at start:Content Section at start: Scale
A key goal in the payments industry is to maximise scale.
The greater the scale of the business you process the lower
the unit cost becomes and removal of sections of the supply
chain become economically viable. Scale can be achieved both
by organic growth and acquisitions.
To drive organic growth, one of our key strategies has been to
invest in improving the customer experience of all our products. In
the Corporate Platform this has manifested in us adding new
features including multi-card top-up, a receipt upload
functionality, VAT reporting and the ability to annotate expenses
on-the-go via the app. These product enhancements significantly
contributed to accelerated year-on-year growth rate of 31%. We
also added functionality to the City Forex platform to improve the
customer experience for international payments. Alongside our
product development efforts, we are mindful to retain the
element of human interaction in our customer support function.
This is a source of differentiation for the Group, and we are proud
that our high-quality customer service is recognised in our
consistently excellent 5-star TrustPilot rating. In relation to our
Currency Card product, the investment focus has been to
improve the underlying platforms in 2018 so that we can iterate
new products and improve customer experience quickly and
consistently in 2019 and beyond.
A key element of our organic growth strategy is our ongoing
work to identify and capitalise on the rich vein of cross-selling
opportunities we have within the Group following the combination
of three businesses in 18 months. We have established a
dedicated cross-sale team within the Group identifying the
key opportunities and implementing the necessary systems
and CRM to maximise the potential. We have also scaled up our
affiliate sales team and outbound sales efforts. Specifically,
in the SME space, with over with 0.6 million businesses set up
every year in the UK on average, there is promising growth
potential from providing existing and new SME customers
with current accounts, our business expenses solution and
other ancillary services. In contrast to traditional banks, our
lean cost base means that small businesses are an attractive
segment for us, and we can offer customers a superior user
experience at a lower cost due to our low-cost operating model.
To complement the measures above we have continued to
maintain our marketing spend in 2018. The mix of spend has
evolved to be less focussed on TV advertising and more in the
digital and social arenas. We maintain strict controls over the
ultimate cost per acquisition (CPA) of a customer to ensure
profitability. However, we have improved our knowledge of our
customer base over 2018 and have tailored our customer
messaging accordingly to improve not only customer acquisition
but also retention and re-activation. These measures, allied to
the improved cross-selling initiatives described above, helped
growth in 2018 and will drive future expansion in 2019.
To complement the organic growth initiatives outlined above,
we have also looked to extend our addressable market by
expanding our geographical presence. During the year we
upgraded our FairFX Ireland entity in preparation for a full-
service operation with an authorised payment institution (API)
status. Working to provide our full suite of services out of the
Irish subsidiary will have the added benefit of providing a natural
hedge for all the potential outcomes of the Brexit process. For
clarity, any outcome of Brexit, including a “no-deal” outcome,
would not impact the ability of the Group to operate as we do
currently because we are focussed on provision of services to
UK customers and are not utilising any passporting of
permissions within the EU at this time. At the end of 2018 we
also made a significant step towards being able to service
current demand from US citizens and businesses that we are not
able to transact. Constrained by regulatory permissions, we had
long been conscious of having to turn away transactions
involving US citizens and businesses and so we are delighted to
have entered a relationship with Metropolitan Commercial Bank,
headquartered in New York City. The commercial agreement is
expected to allow us to offer customers payment services
across the United States. We are looking forward to servicing
the latent demand for our services from US residents and
entities, and, in the longer term, to evaluating options to develop
a customer base in the United States in due course.
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FairFX Annual Report 2018 11
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People and culture
CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S STATEMENT continued
People and culture
We have grown from around 60 people 18 months ago to a team
of 218 in 2018. This reflects a number of factors including
organic growth, new businesses being brought into the Group
and significant investment in our platforms resulting in more
headcount in Engineering, Product and Design.
Accordingly, during the year we invested in the key area of People
Operations as we recognise how vital it is to have a working
environment that is welcoming and inclusive. Success in this area
yields an improved ability to hire and retain talent combined with
a more motivated workforce. As we have grown we have put in
place more formal processes covering people operations as a
whole. These include the recently introduced weekly ‘Highlights
sessions’ together with an open question forum to the Executive
team, and bi-annual ‘Basecamp’ sessions to communicate with
employees across the Group and “Career Camps” to help train
managers in the Group on how to get the best from their people.
In addition, we regularly monitor our employee engagement
and we were pleased to receive an employee satisfaction score
of 69.2% in our inaugural pulse survey in December and are
working on areas identified for improvement. During the year
we also formally articulated our core values (outlined across),
which underpin how we behave internally and do business.
12 FairFX Annual Report 2018
00 FairFX Annual Report
2018
Page Title at start:Content Section at start: Our values are combined with a fundamental element of our
culture, compliance. We have a rigorously tested set of
compliance and anti-money laundering rules, which are verified
as part of regular, voluntary, independent external audits.
Being granted settlement accounts with the Bank of England
and becoming a direct participant of the Faster Payments
Scheme (only the fourth non-bank to achieve this) are further
achievements that show the robustness of our systems and
processes.
Governance
Corporate governance is an important function of the Board
and the respective committees. During the year the Board
commissioned an external corporate governance advisor to
carry out a corporate governance risk assessment. The Board
is well advanced in implementing the advice of this assessment
to further enhance governance and expects to complete the
exercise by mid-2019.
In addition, during 2018 the Board adopted the Quoted
Companies Alliance (QCA) corporate governance code which
defines ten guiding principles to support the Group’s medium
to long-term success whilst simultaneously managing risks
and providing an underlying framework of commitment and
transparent communications with stakeholders. More details on
the adoption of the QCA code can be found on the Company’s
website (www.fairfxplc.com), and in the Corporate Governance
Report on page 20.
Our values
Make it happen
Add heart
Succeed together
Be brave
FairFX Annual Report 2018 13
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Risks
CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S STATEMENT continued
Risks
The Group Risk Committee is an internal committee responsible
for oversight of all aspects of risk management including
maintaining a risk register where risks are identified, evaluated
and where appropriate mitigations put in place. The actions of
the risk committee are a standing item on the Board agenda.
In the table below are highly rated risks and the controls in place
to mitigate them.
The Group currently does not yet 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 (for example, cyber security,
money laundering).
14 FairFX Annual Report 2018
Inherent Risk
Risk
Data integrity and security
Business Continuity/
Disaster Recovery
Fraud
Banking arrangements
and relationships
The Group faces
significant competition
Operational Liquidity
Failure of key suppliers
impacts performance
Macro environment including
impact of Brexit
IT platform re-build
Description of Risk
Control
Residual Risk
Losses from a cyber-attack or other
Æ Appointed a Chief Information Officer with responsibility for data security
associated malicious events
and data governance
Æ Setup a Security Council with Group wide participants to monitor all aspects
of security in the Group
Æ Regular penetration testing, training and awareness, system access
controls and encryption, physical security
Business disruption and potential
Æ Detailed Business Continuity Plan and Disaster Recovery Plan tailored to
business failure.
each entity
Æ Regular testing
Æ Increased adoption of cloud-based services (AWS)
Financial loss, reputational risk, potential
Æ Senior management awareness
to lose customers and reduce growth,
Æ Staff training
supplier chain risk
Æ Fraud reporting to risk committee
Æ Automated transaction monitoring
Æ Appropriate people in fraud roles to oversee and manage fraud risk
Æ Loss in one or more banking partners
Æ From February 2019, the Group became a direct member of Faster
could result in disruption and
eventual business failure.
Payments and have banking arrangements with the Bank of England which
mitigates the risk of losing agency banking services
Æ Loss of Agency Banking services
Æ Group expects to add further banking partners in 2019
A reduction to competitive advantage
Æ Engineering development to maintain research & development and
resulting in slower business growth and
innovation
ultimately financial loss.
Æ New products
Æ Improved customer experience to enhance usability of products – IT
development to maintain research & development and innovation
Æ Maintain relationship and traffic from key price comparison sites
Æ Quality of people in business
Æ Maintain company reputation
Æ Investment in Marketing and Product development
Æ Increased Investment in IT development
Æ Increased sales development
Æ Review of costs to ensure cost efficiency
Æ Ability to settle trades in the correct
Æ Operational monitoring through controls in trading platforms and strict
currencies as they fall due.
hedging policies and controls
Æ Incorrect hedging resulting in
Æ Automated hedging platform augmented by human oversight
cashflow needlessly being tied up
in foreign currency or overdrawn
accounts.
Æ FIX engine links to liquidity providers
Æ Daily reconciliations of FX positions
Loss of productivity, potential to lose
Carry out regular review of supplier performance and seek alternatives where
customers and reduce growth.
necessary.
Loss of revenue, operational resilience
Monitor key performance indicators, increased controls on expenditure and
large single expenditure commitments
Out of date technology which results in
Re-platform tech stacks in more modern computer language and move away
development delays
from on -premise solution to cloud
Page Title at start:Content Section at start: Inherent Risk
Risk
Data integrity and security
Business Continuity/
Disaster Recovery
Fraud
Banking arrangements
and relationships
The Group faces
significant competition
Operational Liquidity
Failure of key suppliers
impacts performance
Macro environment including
impact of Brexit
IT platform re-build
Description of Risk
Control
Residual Risk
Losses from a cyber-attack or other
associated malicious events
Æ Appointed a Chief Information Officer with responsibility for data security
and data governance
Business disruption and potential
business failure.
Financial loss, reputational risk, potential
to lose customers and reduce growth,
supplier chain risk
Æ Setup a Security Council with Group wide participants to monitor all aspects
of security in the Group
Æ Regular penetration testing, training and awareness, system access
controls and encryption, physical security
Æ Detailed Business Continuity Plan and Disaster Recovery Plan tailored to
each entity
Æ Regular testing
Æ Increased adoption of cloud-based services (AWS)
Æ Senior management awareness
Æ Staff training
Æ Fraud reporting to risk committee
Æ Automated transaction monitoring
Æ Appropriate people in fraud roles to oversee and manage fraud risk
Æ Loss in one or more banking partners
Æ From February 2019, the Group became a direct member of Faster
could result in disruption and
eventual business failure.
Æ Loss of Agency Banking services
Payments and have banking arrangements with the Bank of England which
mitigates the risk of losing agency banking services
Æ Group expects to add further banking partners in 2019
A reduction to competitive advantage
resulting in slower business growth and
ultimately financial loss.
Æ Engineering development to maintain research & development and
innovation
Æ New products
Æ Improved customer experience to enhance usability of products – IT
development to maintain research & development and innovation
Æ Maintain relationship and traffic from key price comparison sites
Æ Quality of people in business
Æ Maintain company reputation
Æ Investment in Marketing and Product development
Æ Increased Investment in IT development
Æ Increased sales development
Æ Review of costs to ensure cost efficiency
Æ Ability to settle trades in the correct
Æ Operational monitoring through controls in trading platforms and strict
currencies as they fall due.
Æ Incorrect hedging resulting in
cashflow needlessly being tied up
in foreign currency or overdrawn
accounts.
hedging policies and controls
Æ Automated hedging platform augmented by human oversight
Æ FIX engine links to liquidity providers
Æ Daily reconciliations of FX positions
Loss of productivity, potential to lose
customers and reduce growth.
Carry out regular review of supplier performance and seek alternatives where
necessary.
Loss of revenue, operational resilience
Monitor key performance indicators, increased controls on expenditure and
large single expenditure commitments
Out of date technology which results in
development delays
Re-platform tech stacks in more modern computer language and move away
from on -premise solution to cloud
FairFX Annual Report 2018 15
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CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S STATEMENT continued
Dividend
The Board does not recommend the payment of a dividend for
2018, since our capital allocation strategy at this stage is focused
entirely on investing in the business to achieve our growth and
efficiency objectives. However, the Board will continue to keep
this under review.
Brexit Assessment
Business Model
The Group provides financial services to its customers, so no
goods are supplied except for physical prepaid and debit card
stock. All the Group’s customers and primary suppliers are UK
based so there is no material impact on cross border supplies of
services or goods between the UK and the remaining members of
the European Union (EU) post the UK leaving the EU. The Group
holds regulatory licences that can be passported throughout the
EU. The right to passport the regulatory licences to the remaining
members of the European Union (EU) post the UK leaving the EU
may be lost.
Revenue
To date, all FairFX revenues are derived from customers based
in the UK. There is therefore no regulatory impact on the current
or near future revenue of FairFX due to the loss of regulatory
passporting permissions to the EU. Clearly, any negative macro-
economic effects of Brexit could impact the business, but the
Group has a robust operation and revenue stream and hence the
Board are confident in the prospects for the business regardless
of the outcome.
16 FairFX Annual Report 2018
Supply Chain
The Group does not import any goods from outside the UK and
all the critical suppliers of services are provided by UK based
suppliers. Therefore, no material impact is expected on the
Group post Brexit in any of the deal scenarios.
Staff
The workforce is comprised of less than 10% EU nationals and
with the UK government committing to providing right of work to
existing EU nationals, no material impact is expected in any of the
deal scenarios.
Macro-Economic Impact
The Group has stress tested the impact of various Brexit
scenarios on the Group’s 2019 business plans and concluded that
with appropriate mitigations, there are no material negative
impacts on the business model.
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Outlook
Our strong performance to date would not have been possible
without the hard work and dedication of the FairFX team, who
we wish to thank on behalf of the Board.
The acquisitions we made combined with the significant
investments into improved platforms and efficiency made in 2017
and 2018 have given the business a solid foundation upon which
to grow. We have a compelling proposition for our corporate and
retail customers, built on integrated services that are intuitive to
use and competitively priced, and we will continue our investment
programme to improve the customer experience and reinforce
the strengths of our business.
2019 has started well as demonstrated by the performance in Q1,
with turnover for the first 3 months of 2019 at £620.5 million
(2018: £467.2 million), an increase of 32.8%. Growth has been
driven by expansion in International Payments, up 37.9% to
£323.7 million (2018: £234.7 million), and our Corporate Expenses
platform, which climbed 36.5% to £46.6 million (2018: £34.1
million). Revenues have increased at an even faster pace, rising
43% to £7.0 million (2018: £4.9 million) demonstrating the success
of our supply chain rationalisation. The agreement of commercial
terms with Metropolitan Commercial Bank is expected to open
up promising opportunities in the US market to complement our
operations in the UK and drive further growth for the Group as the
year progresses.
Against this background, the Board is confident of achieving
expectations for the full year.
We are well capitalised, have a capable team and a clear strategy
to continue to create value for our stakeholders, and are excited
about the future.
.
John Pearson
Chairman
25 April 2019
Ian Strafford-Taylor
Chief Executive Officer
25 April 2019
FairFX Annual Report 2018 17
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Governance Report
Board of Directors
BOARD OF DIRECTORS
A strong and
dynamic board
John Pearson
Independent Non-Executive Chairman
(date of appointment: 21 November 2014)
Ian Strafford-Taylor
Chief Executive Officer
(date of appointment: 4 March 2014)
Committees:
Audit Committee, Remuneration Committee
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 is one of the Founders and has been a Director since 2007.
He has held several 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.
18 FairFX Annual Report 2018
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Robert Head
Independent Non-Executive Director
(date of appointment: 20 July 2016)
Ajay Chowdhury
Independent Non-Executive Director
(date of appointment: 28 July 2014)
Committees:
Audit Committee, Remuneration Committee
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 was recently acting
Chief Financial Officer of South African Airways. Robert is a
chartered accountant as we as an Associate of the Chartered
Insurance Institute and a Fellow of the Chartered Institute
of Bankers.
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.
FairFX Annual Report 2018 19
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Corporate Governance 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 Non-Executive Directors are each expected to dedicate
approximately 18 days per annum and otherwise such time
as required.
In addition to their general Board responsibilities, Non-Executive
Directors are encouraged to be involved in specific workshops or
meetings, in line with their individual areas of expertise. The Board
shall review annually the appropriateness and opportunity for
continuing professional development, whether formal or informal.
The Company is committed to maintaining a healthy
dialogue between the Board and all 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 5th, 2018, the
proposed resolutions received the following proportion of votes:
Adoption of 2017 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
Re-election of John Pearson
as a Director of the Company
Re-election of Ian Strafford-
Taylor as a Director of the
Company
Re-election of Ajay
Chowdhury as a Director of
the Company
Authority to allot shares
Dis-application of pre-
emption rights
In Favour
Opposed
Withheld
100.00%
0.00%
0.00%
99.92%
0.08%
0.00%
95.10%
0.02%
4.88%
99.99%
0.00%
0.01%
95.10%
2.28%
2.62%
99.91%
99.90%
0.08%
0.09%
0.01%
0.01%
CORPORATE GOVERNANCE REPORT
Dear Shareholders
As Chairman of the Board of Directors of FairFX, it is my
responsibility to ensure that FairFX has both sound corporate
governance and an effective Board. As Chairman of FairFX, my
responsibilities include leading the Board effectively, overseeing
the Company’s corporate governance model, and ensuring that
good information flows freely between Executives and Non-
Executives in a timely manner.
The Directors recognise the value and importance of high
standards of corporate governance and so the Board has adopted
the Quoted Companies Alliance Corporate Governance (QCA
Code) in line with the London Stock Exchange’s recent changes
to the AIM Rules, requiring all AIM-listed companies to adopt and
comply or explain non-compliance with a recognised corporate
governance code. The report follows the structure of these
guidelines and explains how we have applied the guidance.
We will provide annual updates on our compliance with the
QCA Code. The Board considers that the Group complies with
the QCA Code in all respects, and details of the Company’s
compliance can be found on the Company’s website.
The Board understands that application of the QCA Code
supports the Company’s medium to long-term success
whilst simultaneously managing risks and providing an
underlying framework of commitment and transparent
communications with stakeholders. FairFX is committed
to promoting a socially responsible corporate culture,
illustrated through its internal values and policies, as well
as external supplier and shareholder engagement.
FairFX seeks to constantly improve its corporate governance
practices, illustrated this year through the Company’s
formal adoption of the QCA Code and the formation of a
Nomination Committee.
QCA Principles
A description of the Company’s business model and strategy can
be found on page 8, and the key challenges in their execution
can be found on page 14.
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.
Role of the Board
Reports relating to the activities of the audit committee and
remuneration committee are included within the Annual Report.
20 FairFX Annual Report 2018
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Committee and a Nomination Committee and formally delegated
duties and responsibilities as described below. The attendance
record of each relevant Director at Board and committee
meetings during 2018 is as follows:
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.
Board
7 Meetings
Audit
Committee
3 Meetings
Remuneration
Committee
2 Meetings
Nomination
Committee
The audit committee report is included on page 23.
John Pearson
Ian Strafford-Taylor
Ajay Chowdhury
Robert Head
7
7
7
7
3
n/a
3
3
2
n/a
2
2
1
n/a
1
1
Anthony Quirke is the Company Secretary for FairFX. He is
responsible for ensuring that Board procedures are followed and
that the Company complies with all applicable rules, regulations
and obligations governing its operation, as well as helping the
Chairman maintain excellent standards of corporate governance.
ONE Advisory Limited also provides additional Company
Secretarial and Corporate Governance support, as well as
assistance with MAR compliance.
Culture
The Board is aware that the tone and culture set by the Board will
greatly impact all aspects of the Company as a whole and the way
that employees behave. A large part of the Company’s activities
are centred upon an open and respectful dialogue with
employees, suppliers and other stakeholders. Therefore, the
importance of sound ethical values and behaviours is crucial to
the ability of the Company to successfully achieve its corporate
objectives. The Board places great importance on this aspect of
corporate life and seeks to ensure that this flows through all that
the Company does. The Directors consider that at present the
Company has an open culture facilitating comprehensive dialogue
and feedback and enabling positive and constructive challenge.
This can be demonstrated through FairFX’s Group-wide values:
Make it happen; Add heart; Succeed together; and Be brave. The
values are in line with the Company’s business pillars and brand
values and will help guide the Company’s behaviour. These values
promote the healthy corporate ethos of effective communication
and encouraging an ‘ideas culture’. The Company believes such
values are important when it comes to creating a strong and
consistent internal culture, as well as being essential to driving the
Company’s overall success as a business. FairFX has undertaken
an employee engagement survey, which provided staff with the
opportunity to provide feedback on the values. The adoption of
these values, as well as the distribution of staff handbooks and
employee workshops, illustrate the Company’s commitment to
promoting a healthy corporate culture.
More information on the Company’s People and Culture can be
found on page 12.
Audit committee
The audit committee is responsible for monitoring the integrity of
the Group’s financial statements, reviewing significant financial
reporting issues, reviewing the effectiveness of the Group’s
internal control and risk management systems and overseeing
the relationship with the external auditor (including advising on
their appointment, agreeing the scope of the audit and reviewing
the audit findings). The audit committee comprises Robert Head,
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 remuneration committee report is included on page 25.
Nomination committee
In late 2018, the Board separated out the function of a nomination
committee from the Board agenda. The committee meet once
in 2018 to formulate the terms of reference and will meet at
least twice a year and otherwise as required. The nomination
committee comprises John Pearson, Robert Head and Ajay
Chowdhury and is chaired by John Pearson.
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 25 April 2019, and was signed
on its behalf by:
J Pearson
Chairman
FairFX Annual Report 2018 21
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Directors Report
Directors’ interests
The Directors who held office at 31 December 2018 held the
following shares in the Company:
Shareholding
%
Ordinary 1p shares
2018
I A I Strafford-Taylor
1.37%
2,127,750
The Directors held the following unexercised share options in
the Company:
Option
price (£)
Number
Granted
I A I Strafford-Taylor
A Chowdhury
J Pearson
R M Head
0.22
0.36
0.36
0.30
0.36
0.30
0.58
1.16
1.74
0.30
0.30
192,950
1,789,300
1,535,750
750,000
Date Granted
28/07/2014
28/07/2014
28/07/2014
28/09/2016
88,889
50,000
28/07/2014
28/09/2016
120,000
120,000
120,000
250,000
01/11/2014
01/11/2014
01/11/2014
28/09/2016
133,333
28/09/2016
Auditor
KPMG LLP have expressed their willingness to continue in office
as auditors and a resolution seeking to reappoint them will be
proposed at the forthcoming Annual General Meeting.
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 25 April 2019
and signed on its behalf by:
J Pearson
Chairman
DIRECTORS’ REPORT
The Directors’ present their annual report and consolidated
financial statements for the year ended 31 December 2018.
Financial reporting
The consolidated financial statements for the year ended
31 December 2018 are set out on pages 35 to 66 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 customers and corporations through prepaid
currency cards, travel cash, international money transfers and
current accounts. FairFX Plc, Spectrum Payment Services Limited
and City Forex Limited are authorised by the Financial Conduct
Authority under the Payment Services Regulations 2009 for
the provision of payment services and Fair Payments 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.
The Company was incorporated on 4 March 2014, and on 22 July
2014 acquired the entire shareholding of FairFX (UK) Limited
(previously named FairFX Group Limited) through a share for
share exchange. For the consolidated financial statements of the
Group, prepared under IFRS, the principles of reverse acquisition
under IFRS 3 Business Combinations have been applied. The steps
to restructure the Group had the effect of FairFX Group Plc being
inserted above FairFX (UK) Limited. The holders of the share
capital of FairFX (UK) Limited were issued fifty shares in FairFX
Group Plc for one share held in FairFX (UK) Limited. The shares of
the Company were admitted to trading on AIM on 5th August
2014
Post balance sheet event
On 27th March 2019, Warrants were exercised over 7,500,000
new ordinary shares for a consideration of £2,025,000. The
Warrants were issued to Crystal Amber Fund Limited (“Crystal
Amber”) in conjunction with the Company’s equity placing
announced in March 2016.
Dividends
The Directors do not recommend the payment of a dividend for
the year ended 31 December 2018 (2017: nil).
Directors
The following Directors have held office during the financial year
and up to the date of approval of these financial statements.
I A I Strafford-Taylor
A Chowdhury
J Pearson
R M Head
22 FairFX Annual Report 2018
Page Title at start:Content Section at start: 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 several 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 yet 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 (for example, cyber security,
money laundering).
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. consider the areas of risk and what is done to optimise these
risks and ensure that these are communicated to the auditors
b. review significant financial reporting judgements and the
application of accounting policies, including compliance with
the accounting standards;
c. ensure the integrity of the financial statements and their
compliance with UK company law and accounting regulations;
d. ensure the Annual Report and Accounts are fair, balanced and
understandable and recommend their approval to the Board;
e. monitor the integrity of announcements containing financial
information
2 Internal controls
a. monitor adequacy and effectiveness of the internal financial
controls and processes, and ensuring any shortcomings are
rectified at the earliest opportunity;
b. 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. manage the relationship with the Group’s external auditor;
b. monitor and review the independence and performance of the
external auditor and formally evaluate their effectiveness;
c. review the policy on non-audit services carried out by the
external auditor, taking account of relevant ethical guidance;
d. negotiate and approve the external auditor’s fee, the scope of
the audit and the terms of their engagement;
e. make recommendations to the Board for the appointment or
reappointment of the external auditor
Page Title at start:
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, Melissa Phiri and Dejan Randjelovic, from KPMG, Ian
Strafford-Taylor, Group Chief Executive Officer, Tony Quirke,
Group Chief Financial Officer and Company secretary, and John
Zablocki, Group 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 2017 Annual Report and Consolidated Financial
Statements, and recommended that both be approved by
the Board
• Reviewed the projected 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 debated
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
• Review progress in dealing with control issues raised by the
external auditors in their management letter
• Reviewed and approved the Letter of Representation sent by
the Company to the external auditors
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 all trading entities as
is required for a UK Listed Group
• Compliance with laws and regulation including money
laundering
FairFX Annual Report 2018 23
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External audit effectiveness
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. One matter that the
committee keeps under review is the mix of substantive and
control testing by the auditors. The most cost-effective
audit is mainly a substantive audit. The committee keeps this
under review as its preference from a control perspective
is that the external audit should use control testing.
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 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.
Significant issues
Significant issues and accounting judgements (refer to note 3.24)
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
AUDIT COMMITTEE REPORT continued
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. The external auditor identified an inadvertent breach
of independence by an individual unaware of their holding of an
impermissible investment in the Group; the breach was deemed
to have been immaterial and, as the breach was immediately
corrected, that no further action would be required.
24 FairFX Annual Report 2018
Page Title at start:Content Section at start: Directors’ Remuneration Report
DIRECTORS’ REMUNERATION REPORT
The Group 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 2018
Base salary
The committee approved the increase of the Group Chief Executive Officer’s salary from 1 January 2018 by £12,500 (1 April 2017:
£20,000); this was agreed to be appropriate due to performance, inflation and the increased scale of the business.
Annual bonus outcomes for the financial year
No bonus payment has been issued for 2018 to the Group Chief Executive Officer.
Total remuneration
Single figure of total remuneration
The following tables provide details of the Directors’ remuneration for the 2018 financial year, together with their remuneration for the
2017 financial year, in each case before deductions for income tax and national insurance contributions (where relevant):
Executive Directors
I A I Strafford-Taylor
Non-Executive Directors
A Chowdhury
J Pearson
R M Head
Executive Directors
I A I Strafford-Taylor
Non-Executive Directors
A Chowdhury
J Pearson
R M Head
Gross
Salary
2018
262,500
40,000
60,000
40,000
Gross
Salary
2017*
Bonus
2018
Employer
Pension
2018
Total
Remuneration
2018
-
-
-
-
703
-
703
-
263,203
40,000
60,703
40,000
Bonus
2017
Employer
Pension
2017
Total
Remuneration
2017
245,000
237,200
40,000*
60,000
40,000*
-
-
-
386
-
386
-
482,586
40,000
60,386
40,000
* The 2017 gross salary payable to A Chowdhury and R M Head have been restated from £50,000 to £40,000 to reflect their annual gross salary taken in 2017. The restatement is to correct the
prior year error of disclosing the gross salary incurred, which differed from gross salaries taken due to the timing and accrual of remuneration payments in prior years.
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FairFX Annual Report 2018 25
Page Title at start:Content Section at start:
DIRECTORS’ REMUNERATION REPORT continued
Directors’ interest in long term incentive plan share options
Director award date
I A I Strafford-Taylor
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
Option price (
£)
Number
Granted
Date
Granted
Earliest
Exercise date
Latest
exercise date
0.22
0.36
0.36
0.3
0.3
0.3
0.36
0.3
0.3
0.3
0.58
1.16
1.74
0.3
0.3
0.3
0.3
0.3
0.3
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
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
01/11/2014
01/11/2014
01/11/2014
28/09/2016
28/09/2016
28/09/2016
05/08/2016
05/08/2016
05/08/2016
28/09/2017
28/09/2018
28/09/2019
05/08/2016
28/09/2017
28/09/2018
28/09/2019
05/08/2016
05/08/2016
05/08/2016
28/09/2017
28/09/2018
28/09/2019
28/09/2016
28/09/2016
28/09/2016
28/09/2017
28/09/2018
28/09/2019
03/11/2019
03/11/2019
03/11/2019
27/09/2026
27/09/2026
27/09/2026
03/11/2019
27/09/2026
27/09/2026
27/09/2026
03/11/2019
03/11/2019
03/11/2019
27/09/2026
27/09/2026
27/09/2026
27/09/2026
27/09/2026
27/09/2026
Breakdown of executive bonus outcome as a percentage of maximum
Total Remuneration
Bonus outcome (% of max)
R M Head
Chair of the Remuneration Committee
2018
2017
263,203
482,586
–
49
26 FairFX Annual Report 2018
Page Title at start:Content Section at start:
Statement of Directors’ Responsibilities in
respect of the Annual Report and the
Financial Statements
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.
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.
I A I Strafford-Taylor
Chief Executive Officer
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 is 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 them to safeguard
the assets of the Group and to prevent and detect fraud and
other irregularities.
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FairFX Annual Report 2018 27
Page Title at start:Content Section at start:
Financial Statements Independent Auditor’s report to the members of
FairFX Group
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF FAIRFX GROUP PLC
1. Our opinion is unmodified
We have audited the financial statements of FairFX Group plc (“the Company”) for the year ended 31 December 2018 which comprise
the consolidated statement of comprehensive income, consolidated and Company statement of financial position, consolidated and
Company statement of changes in equity and consolidated and Company statement of cash flows, and the related notes, including the
accounting policies in note 3.
In our opinion:
— the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 December
2018 and of the Group’s profit for the year then ended;
— the Group financial 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 financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as
applied in accordance with the provisions of the Companies Act 2006; and
— the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
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 fulfilled 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 sufficient and appropriate basis for our opinion.
Overview
Materiality:
Group financial tatements as a whole
Coverage
Key audit matters
Recurring risks
Event driven
Revenue
Valuation of goodwill
Investment in subsidiaries
New: Capitalisation of development costs
Acquisition accounting
New: Brexit uncertainties
£195,000 (2017:£116,000)
0.75% of Group revenue (2017:
0.75% of Group revenue)
100% (2017: 100%) of
Group revenue
vs 2017
28 FairFX Annual Report 2018
Page Title at start:Content Section at start: Independent Auditor’s report to the members of
FairFX Group
2. Key audit matters: including our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us,
including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the
efforts of the engagement team. These matters were addressed in the context of our audit of the financial 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, were as follows:
The risk
Our response
Brexit uncertainties
Refer to page 9 (Strategic
Report),
page 17 (Audit Committee
Report),
page 39 (financial
statements disclosures)
Unprecedented levels of uncertainty
All audits assess and challenge the reasonableness
of estimates, in particular as described in the key
audit matters below including (i) accounting for
acquisition of City Forex Ltd (ii) considering the
carrying value of goodwill and (iii) capitalisation of
software development cost, and related disclosures
and the appropriateness of the going concern basis
of preparation of the financial statements. All of
these depend on assessments of the future
economic environment and the Group’s future
prospects and performance. In addition, we are
required to consider the other information
presented in the Annual Report including the
principal risks disclosure and the strategic report
and to consider the directors’ statement that the
annual report and financial statements taken as a
whole is fair, balanced and understandable and
provides the information necessary for
shareholders to assess the Group’s position and
performance, business model and strategy.
Brexit is one of the most significant economic
events for the UK and at the date of this report its
effects are subject to unprecedented levels of
uncertainty of outcomes, with the full range of
possible effects unknown.
We developed a standardised firm-wide approach to the
consideration of the uncertainties arising from Brexit in
planning and performing our audits. Our procedures included:
Our Brexit knowledge:
We considered directors’ assessment of Brexitrelated sources
of risk for the Group’s business and financial resources
compared with our own understanding of the risks. We
considered the directors plans to take action to mitigate
the risks.
Sensitivity analysis:
When addressing the accounting for acquisition of City Forex
Ltd, the carrying value of goodwill and the capitalisation of
software development costs and other areas that depend on
forecasts we compared the directors’ analysis to our
assessment of the full range of reasonably possible scenarios
resulting from Brexit uncertainty and, where forecasts
cash-flows are required to be discounted, considered
adjustments to discount rates for the level of remaining
uncertainty.
Assessing transparency:
As well as assessing individual disclosures as part of our
procedures over the accounting for acquisition of City Forex
Ltd, the carrying value of goodwill and capitalisation of
software development costs, we considered all of the Brexit
related disclosures together, including those in the strategic
report, comparing the overall picture against our
understanding of the risks. However, no audit should be
expected to predict the unknowable factors or all possible
future implications for a company and this is particularly the
case in relation to Brexit.
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FairFX Annual Report 2018 29
Page Title at start:Content Section at start:
INDEPENDENT AUDITOR’S REPORT continued
Revenue
(£26.1 million;2017: £15.5
million)
Refer to page 41
(accounting policy) and
page 48 (Revenue and
segmental analysis
disclosures).
The risk
Data capture and processing errors:
Revenue from the Group is derived from four
products, namely Currency Cards, International
payments, Travel cash and Banking. It is recognised
as the difference between the rate offered to clients
and the rate the Group receives from its liquidity
providers. The exchange rates used may be
incorrect, leading to a material under or
overstatements of revenue. For the Banking
product, revenue is derived from monthly fees and
transaction based charges which are high volume
but low value in nature. Revenue may not be
completely recorded or recorded in the incorrect
accounting period.
Following the acquisition of City Forex,
management have migrated the Wholesale
activities from IsCT to MTS, a proprietary operating
system owned and developed by City Forex. Certain
activities such as refunds, cancelled orders and
profit share arrangements which were previously
processed as manual adjustments to revenue for
Currency Cards, Travel cash and International
payments in the Admin system have also been
migrated to MTS. The volume and value of these
types of transactions has been increasing during
the year, up to the point of migration.
In the migration processes referred to above due to
the lack of adequate controls over these processes
there is a risk that transactions and historic records
may not be migrated accurately and completely
resulting in the possible misstatement of revenue.
Commercial arrangements with third party
providers of Currency Cards, FairPay, Dealing and
Banking differ 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.
Our response
Our procedures included:
Test of details:
For a sample of Currency Cards deals, we traced the items to
order details and bank statements and compared contracted
exchange rates to statements from the currency providers for
gross value of currency transactions purchased. For currency
card loading fees we have agreed the total revenue to third
party monthly statements.
Test of details:
For a sample of FairPay and Dealing deals, we traced the items
to order details and bank statements and compared
contracted exchange rates to statements from the currency
providers for gross value of currency transactions purchased.
We also traced the sell rates to order details from the
customer, and traced the amounts received from the
customers to the bank statements.
Test of details:
We have traced all monthly fees revenue to the bank
statements. For transaction based charges we have checked
and traced to total revenue to third party statements.
Test of details:
For a sample of Travel cash exchange transactions we traced
the items to customer acknowledged receipts. For each
sample, we checked the appropriateness of the applied
foreign exchange rate for cost of sales by recalculating the
rate using the exchange rates obtained directly from the
liquidity providers.
Test of details:
We obtained the list of all sales transactions from pre-
migration and post-migration systems and agreed the listing
to trial balance. We also obtained independent listing of all
transactions with liquidity providers and compared this to the
transaction listing provided by the directors to assess the
completeness of revenue.
Test of details:
For a sample of revenue transactions we tested the inclusion
of the Currency Cards, International payments, Travel cash
and Banking transactions in 2018 rather than 2019 and vice
versa.
Accounting analysis:
We assessed whether the Group is acting as an agent or
principal by assessing the risks and responsibilities of the
Group in all five segments.
30 FairFX Annual Report 2018
Page Title at start:Content Section at start: Capitalisation of software
development costs
(2018: £5.2 million; 2017:
£nil)) Refer to page 44
(accounting policy) and
page 59 (financial
statement disclosures).
The risk
Our response
Accounting application:
Our procedures included:
FairFX Group rolled out a programme to improve,
enhance and develop new functionalities of its IT
systems. Certain staff costs in connection with their
programme have been capitalised.
Accounting analysis:
We have tested capitalisation of the development costs
against the requirements of the relevant accounting
standards.
Time spent by contractors , IT staff and non-
managerial employees on developing the systems is
captured through timesheets.
Tests of detail:
On a sample basis we have agreed the employee costs
capitalised to payroll information or contracts.
Due to a lack of adequate controls over the
capitalisation of development costs, there is a risk
that the costs could be inappropriately and
incorrectly capitalised (i.e. not meeting the criteria
of the relevant accounting standards).
Time spent by non IT staff and executives is
allocated based on the Directors judgement. This
includes a risk of error or fraud because of the
judgement involved in the allocation of the time
spend by non IT staff and executives to the projects.
Acquisition accounting
Refer to page 4 (Strategic
Report), page 44
(accounting policy) and
page 63 (financial
disclosures).
Subjective valuation:
During the year ended 31 December 2018, the
Group acquired a 100% equity interest in City Forex
Ltd for a total consideration of £9.2 million. The fair
values of identifiable net assets acquired on the
date of acquisition amounted to £5.3 million and
goodwill arising from the acquisition amounted to
£3.9 million.
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 flows which
required the directors to exercise judgment in
determining the expected cash flows from the
assets and the discount rates to be applied.
There is a risk that this is not accounted for in
accordance the relevant accounting standards
resulting in inappropriate under or over valuation of
amortisable intangibles, with consequent impacts
on goodwill. Further, there is a risk that accounting
policies and methodologies are not aligned across
the Group.
Tests of detail:
On sample basis, we have checked the time recorded on the
IT development programme to the time recording system and
contractor invoices.
Tests of detail:
We critically evaluated the Group’s assessment of the
economic benefits expected from the development costs
capitalised by evaluating the expected cash flows.
Tests of detail:
We assessed non IT and Executive expenditure and whether it
was of administrative nature and therefore did not meet the
capitalisation criteria per the relevant the accounting
standards.
Assessing transparency:
We assessed the adequacy of disclosures in accordance with
the relevant accounting standards.
Our procedures included:
Our sector experience:
We benchmarked the discount rates against peers in the
same industry.
Test of details:
We read the acquisition agreements and assessed whether
the assets and liabilities acquired reflect the contractual
terms.
Test of details:
We evaluated the appropriateness of the acquisition
accounting against the requirements of the relevant
accounting standards. We tested the appropriateness of the
amounts recorded by agreeing these to the Sale and Purchase
agreement and underlying calculations supported by
documentary evidence as appropriate.
Test of details:
We evaluated the valuation methodology used by the Group.
This included assessing the intangible assets acquired, and
the basis of their valuation.
Test of details:
We assessed the key assumptions used in the value in use
model including the discount rate, cash flows and their growth
rates. This involved recalculating the discount rates and
performing sensitivity analysis on discount rates and cash flows
and their growth. We also evaluated management ability to
forecast by comparing previous years budgets to actual results.
Assessing transparency:
We assessed the adequacy of the Group’s disclosures in
respect of the business combinations in Note 12 to the
financial statements.
FairFX Annual Report 2018 31
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INDEPENDENT AUDITOR’S REPORT continued
The risk
Goodwill
(£16.9 million; 2017:£13.0m)
Refer to page 47
(accounting policy) and
page 61 (financial
disclosures).
Forecast-based valuation
The calculation of the recoverable amount of
goodwill is subject to inherent uncertainty as it relies
on key assumptions made by the Directorsin
relation to the allocation of goodwill to CGUs,
forecast cash flows, the growth rate in forecast and
terminal periods and discount rates used in each
CGU,
The effect of these matters is that, as part of our
risk assessment, we determined that the carrying
amount of goodwill has a high degree of estimation
uncertainty, with a potential range of reasonable
outcomes greater than our materiality for the
financial statements as a whole. The financial
statements note 11 discloses the sensitivity
analysis on the impairment test of the goodwill
carrying value.
Investments in
subsidiaries
(£39.6 million; 2017:
£29.5 million)
Refer to page 44
(accounting policy)
and page 63 (financial
disclosures)..
Low risk, high value
The carrying amount of the parent Company’s
investments in subsidiaries represents 89% (2017:
69%) of the Company’s total assets. Their
recoverability is not at a high risk of significant
misstatement or subject to significant judgement.
However, due to their materiality in the context of
the parent Company financial statements, this is
considered to be the area that had the greatest
effect on our overall parent Company audit.
Our response
Our procedures included:
Our sector experience:
We challenged the Directors’ identification of and allocation of
goodwill and other assets acquired to CGUs based on our
understanding of the business.
Test of details:
We evaluated, challenged, and tested the Group’s
assumptions used in the annual impairment review of
goodwill, in particular the forecast cash flows and the discount
rate applied.
Historical comparison:
We assessed the historical accuracy of forecasting by the
Directors.
Sensitivity analysis:
We performed sensitivity analysis on the key assumptions in
the forecasts to assess if there are any reasonably
foreseeable circumstances in which impairment could occur.
Assessing transparency:
We assessed the adequacy of the Group’s disclosures about
the impairment assessment in note 11 in the financial
statements.
Our procedures included:
Our sector experience:
We critically assessed 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:
We compared 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.
Our sector experience:
We compared 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.
32 FairFX Annual Report 2018
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3. Our application of materiality and an overview of the
scope of our audit
Materiality for the Group financial statements as a whole was set
at £195,000(2017: £116,000), determined with reference to a
benchmark of Group revenue (2017: Group revenue), of which it
represents 0.75% (2017: 0.75%).
We consider revenue to be the most appropriate benchmark
because the benchmark is more stable and reflective of the
Group’s financial performance during the period.
Materiality for the parent Company financial statements as a
whole was set at £153,000 (2017:£110,000) by reference to
component materiality. This is lower than the materiality we would
otherwise have determined by reference to assets of parent
company.
We agreed to report to the Audit Committee any corrected or
uncorrected identified misstatements exceeding £9,750, in
addition to other identified misstatements that warranted
reporting on qualitative grounds.
Of the Group’s two (2017: two) reporting components (Cards and
Payments component and Banking component), we subjected
two (2017: two) to full scope audits for Group purposes. The
components within the scope of our work accounted for 100%
(2017: 100%) of the Group revenue, Group profit before tax and
Group total assets.The work on both in-scope components
(2017: two), including the audit of the parent company, was
performed by the Group team.The Group team allocated
component materialities which ranged from £32,000 to
£153,000(2017:£102,000 to £110,000), having regard to the mix
of size and risk profile of the Group across the components.
*Group revenue
£26.1m (2017: £15.5m
Group Materiality
£195k (2017: £116k)
£195k
Whole financial
statements materiality
(2017: £116k)
£153k
Range of materiality at 2
components (£32k to £153k)
(2017: £102 - 110k)
£10k
Misstatements reported to
the audit committee £10k
(2017: £5k)
Total profit before tax
Group materiality
*Based on actual Group revenue figures
4. We have nothing to report on going concern
The Directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the
Company or the Group or to cease its operations, and as they
have concluded that the Company’s and the Group’s financial
position means that this is realistic. They have also concluded that
there are no material uncertainties that could have cast
significant doubt over its ability to continue as a going concern for
at least a year from the date of approval of the financial
statements (“the going concern period”).
Our responsibility is to conclude on the appropriateness of the
Directors’ conclusions and, had there been a material uncertainty
related to going concern, to make reference to that in this audit
report. However, as we cannot predict all future events or
conditions and as subsequent events may result in outcomes that
are inconsistent with judgements that were reasonable at the
time they were made, the absence of reference to a material
uncertainty in this auditor’s report is not a guarantee that the
Group and Company will continue in operation.
In our evaluation of the Directors’ conclusions, we considered the
inherent risks to the Group’s and Company’s business model,
including the impact of Brexit, and analysed how those risks might
affect the Company’s financial resources or ability to continue
operations over the going concern period. We evaluated those
risks and concluded that they were not significant enough to
require us to perform additional audit procedures.
Based on this work, we are required to report to you if we have
anything material to add or draw attention to in relation to the
directors’ statement to the financial statements on the use of the
going concern basis of accounting with no material uncertainties
that may cast significant doubt over the Group and Company’s
use of that basis for a period of at least twelve months from the
date of approval of the financial statements. We have nothing to
report in these respects, and we did not identify going concern as
a key audit matter
5. We have nothing to report on the other information
in the Annual Report and accounts
The directors are responsible for the other information presented
in the Annual Report together with the financial statements. Our
opinion on the financial 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 financial statements audit work,
the information therein is materially misstated or inconsistent
with the financial statements or our audit knowledge. Based solely
on that work we have not identified material misstatements in the
other information.
Strategic report and directors’ report
Based solely on our work on the other information:
— we have not identified material misstatements in the strategic
report and the directors’ report;
— in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
— in our opinion those reports have been prepared in accordance
with the Companies Act 2006.
FairFX Annual Report 2018 33
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INDEPENDENT AUDITOR’S REPORT continued
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 financial statements are not in
agreement with the accounting records and returns ;or
— certain disclosures of directors’ remuneration specified by law
are not made ;or
— we have not received all the information and explanations we
require for ouraudit.We have nothing to report in these
respects.
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 and the terms of our engagement by the company. 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 the further matters we are
required to state to them in accordance with the terms agreed
with the company, 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
25 April 2019
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 16 the
directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial 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 financial statements as a whole are free from material
misstatement, whether due to fraud, other irregularities, 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, other irregularities or error and are
considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of
users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities
34 FairFX Annual Report 2018
Page Title at start:Content Section at start: Consolidated Statement of
Comprehensive Income
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 before tax
Tax credit
Profit and total comprehensive income for the year
Earnings per share
Basic
Diluted
Note
2018
£
2017
£
3.4
3.4
1,783,710,215
(1,763,246,570)
936,593,130
(923,028,865)
20,463,645
5,628,747
26,092,392
(5,605,961)
20,486,431
(18,109,624)
(297,484)
2,079,323
538,343
2,617,666
13,564,265
1,896,470
15,460,735
(3,525,676)
11,935,059
(11,435,841)
(269,769)
229,449
217,687
447,136
1.68p
1.64p
0.37p
0.36p
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 40 to 66 form an integral part of these financial statements.
FairFX Annual Report 2018 35
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CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION
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
Deferred tax asset
Derivative financial assets
Cash and cash equivalents
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity attributable to equity holders
Share capital
Share premium
Share based payment reserve
Merger reserve
Contingent consideration reserve
Retained earnings/(deficit)
Non-current liabilities
Deferred tax liability
Current liabilities
Trade and other payables
Deferred tax liability
Derivative financial liabilities
Group
Note
2018
£
2017 (Restated*)
£
Company
2018
£
2017
£
10
11
8
12
13
14
8
18
15
16
941,826
27,107,873
2,035,728
–
137,580
17,649,128
511,912
–
–
–
–
38,725,451
–
–
–
29,455,134
30,085,427
18,298,620
38,725,451
29,455,134
286,713
7,150,750
859,914
1,181,892
7,860,368
199,747
3,779,768
–
303,775
17,803,063
–
4,907,704
–
–
–
–
13,212,504
–
–
–
17,339,637
22,086,353
4,907,704
13,212,504
47,425,064
40,384,973
43,633,155
42,667,638
1,553,682
35,858,770
1,748,105
8,395,521
543,172
(9,832,880)
1,553,682
35,858,770
1,144,832
8,395,521
543,172
(12,450,546)
1,553,682
35,858,770
835,148
2,979,438
543,172
240,954
1,553,682
35,858,770
781,383
2,979,438
543,172
(1,123,092)
38,266,370
35,045,431
42,011,164
40,593,353
8
1,543,894
1,543,894
673,661
673,661
–
–
–
–
17
8
18
6,679,131
356,713
578,956
7,614,800
4,402,838
117,838
145,205
4,665,881
1,621,991
–
–
1,621,991
2,074,285
–
–
2,074,285
TOTAL EQUITY AND LIABILITIES
47,425,064
40,384,973
43,633,155
42,667,638
* Refer to note 3.1
The notes on pages 40 to 66 form an integral part of these financial statements.
The financial statements were approved and authorised for issue by the Board on 25 April 2019 and were signed on its behalf by:
I A I Strafford-Taylor
Director
Company Registration number: 08922461
36 FairFX Annual Report 2018
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Consolidated and Company Statement
of Financial Position
Consolidated and Company Statement
of Changes in Equity
CONSOLIDATED AND COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2018
Group
Share
capital
£
Share
premium
£
Share based
payment
£
Retained
earnings/
(deficit)
£
Merger
reserve
£
Contingent
consideration
reserve
£
At 1 January 2017
1,031,160
10,174,273
668,422
(12,897,682)
5,416,083
Profit for the year
Shares issued in year
Share based payment
charge (note 20)
Equity based acquisition
consideration
–
522,522
–
25,684,497
–
–
447,136
–
–
2,979,438
–
–
–
–
476,410
–
–
–
–
–
Total
£
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
Profit for the year
Share based payment
charge (note 20)
–
–
–
–
–
2,617,666
603,273
–
–
–
–
–
2,617,666
603,273
At 31 December 2018
1,553,682
35,858,770
1,748,105
(9,832,880)
8,395,521
543,172
38,266,370
Company
Share
capital
£
Share
premium
£
Share based
payment
£
Retained
earnings/
(deficit)
£
At 1 January 2017
1,031,160
10,174,273
668,422
(883,933)
Merger
reserve
£
–
Loss for the year
Shares issued in period
Share based payment
charge (note 20)
Equity based acquisition
consideration
–
522,522
–
25,684,497
–
–
(239,159)
–
–
2,979,438
–
–
–
–
112,961
–
–
–
–
–
Contingent
consideration
reserve
£
–
–
–
–
Total
£
10,989,922
(239,159)
29,186,457
112,961
543,172
543,172
At 31 December 2017
1,553,682
35,858,770
781,383
(1,123,092)
2,979,438
543,172
40,593,353
Profit for the year
Share based payment
charge (note 20)
–
–
–
–
–
1,364,046
53,765
–
–
–
–
–
1,364,046
53,765
At 31 December 2018
1,553,682
35,858,770
835,148
240,954
2,979,438
543,172
42,011,164
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 40 to 66 form an integral part of these financial statements
FairFX Annual Report 2018 37
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CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER
Group
Profit for the year
Cash flows from operating activities
Adjustments for:
Depreciation
Amortisation
Share based payment charge
Increase in deferred tax asset on share-based payment
(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
Increase/(decrease) in derivative financial liabilities
(Increase)/decrease in inventories
Net cash inflow 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
Consolidated Statement of Cash Flows
Note
2018
£
2017 (Restated*)
£
2,617,666
447,136
200,123
1,318,649
53,765
549,508
(1,551,213)
(878,117)
(2,383,730)
1,899,118
878,369
433,751
(86,966)
51,727
221,117
112,961
-
(697,755)
(79,891)
(511,912)
2,128,893
791,499
(2,752)
38,031
3,050,923
2,499,054
(670,827)
(5,758,957)
(6,563,834)
–
(83,266)
(193,757)
(12,827,261)
(1,255,748)
(12,993,618)
(14,360,032)
–
–
–
27,703,789
(1,541,641)
26,162,148
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at end of the year
(9,942,695)
17,803,063
14,301,170
3,501,893**
15
7,860,368
17,803,063
* Refer to note 3.1
** This balance was previously reported as £8,523,985 however this has been adjusted by £5,022,092 and restated to £3,501,893.
The notes on pages 40 to 66 form an integral part of these financial statements.
38 FairFX Annual Report 2018
Page Title at start:Content Section at start: Consolidated Statement of Cash Flows
Company Statement of Cash Flows
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER
Company
Profit/(loss) for the period
Cash flows from operating activities
Adjustments for:
Share based payment charge
(Increase) in trade and other receivables
(Decrease)/increase in trade and other payables
Net cash inflow/(outflow) from operating activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at end of the period
2018
£
2017 (Restated*)
£
1,364,046
(239,159)
53,765
(965,517)
(452,294)
112,961
(2,489,078)
2,615,276
–
–
–
–
–
–
*
Prior year cash flows from investing and financial activities have been restated to Nil and disclosed as cash flows from operating activities. This restatement has occurred due to the fact the
Company does not have a bank account and all cash flow activities are funded by its subsidiaries.
The notes on pages 40 to 66 form an integral part of these financial statements.
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Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
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 a financial technology (fintech) provider, primarily providing
foreign currency and banking services. In addition, the Group has a Bureau de Change retail network in the City of London.
The Company and Group’s consolidated financial statements for the year ended 31 December 2018 were authorised for issue on
25 April 2019 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 2018.
Adoption of new and revised accounting standards and interpretations:
•
•
•
•
IFRS 2 Classification and Measurement of Shared-based Payment Transactions (Amendments)
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
IFRIC 22 Foreign Currency Transactions and Advance Consideration
The adoption of the new applicable standards has not had a significant impact on the financial reporting of the Group. Additional
disclosures have been provided regarding the application of IFRS 15 (see A) and IFRS 9 (see B).
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.
A detailed review exercise has taken place and the Group has concluded that the introduction of the new standard will not result in any
changes to the Group’s accounting policies on revenue recognition.
The Group has adopted IFRS 15 using the cumulative effect method (without practical expedients), with the effect of initially applying
this standard recognised at the date of initial application (i.e. 1 January 2018). Accordingly, the information presented for 2017 has not
been restated – i.e. it is presented, as previously reported, under IAS 18, IAS 11 and related interpretations. Additionally, the disclosure
requirements in IFRS 15 have not generally been applied to comparative information.
The Group has reviewed income from Deliverable FX trades, Currency cards and Banking operations and concluded that the
implementation of IFRS 15 has not result in any changes to the Group’s accounting policies on revenue recognition.
B. IFRS 9 Financial Instruments
IFRS 9 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.
As a result of the adoption of IFRS 9, the Group has adopted consequential amendments to IAS 1 Presentation of Financial Statements,
which require impairment of financial assets to be presented in a separate line item in the statement of profit or loss and OCI.
Previously, the Group’s approach was to include the impairment of trade receivables in other expenses. As there were no impairment
losses reported in the statement of profit or loss and OCI for the year ended 31 December 2017, there is no requirement to reclassify
any impairment losses recognised under IAS 39, from ‘other expenses’ to ‘impairment loss on trade’. Impairment losses on other
financial assets are presented under ‘finance costs’, similar to the presentation under IAS 39, and not presented separately in the
statement of profit or loss and OCI due to materiality considerations.
Additionally, the Group has adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures that are applied to
disclosures about 2018 but have not been generally applied to comparative information.
(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.
40 FairFX Annual Report 2018
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2. New standards, amendments and interpretations to published standards continued
(ii) 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 transition had no impact on the classification and measurement of financial assets and liabilities.
(iii) Impairment – Financial instruments
The Group’s financial instruments measured at amortised cost falling within the scope of the standard are (i) trade and other
receivables, (ii) cash and cash equivalents and (iii) trade and other payables.
The Group’s financial instruments held at fair value through profit and loss are (i) Derivative financial assets – forward foreign exchange
contracts and (ii) Derivative financial liabilities – Forward foreign exchange contracts.
(iv) Impairment – Financial Assets
IFRS 9 offers two approaches for measuring and recognising the loss allowance:
General approach: grades Financial Assets into three stages according to their credit quality. The general approach should be applied
for all financial assets subject to impairment, except for trade receivables or contract assets (IFRS 15) without significant financing
component for these assets simplified approach should be applied.
Simplified approach: no need to determine the stage of a financial asset, because a loss allowance is recognised always at a lifetime
expected credit loss.
Financial assets, measured at amortised cost, are assessed for the expected credit loss using the simplified approach.
Standards issued but not yet effective
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 yet 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.
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.
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.
The Group is evaluating the following two transition options:
Retrospective application with the cumulative effect of initially applying IFRS 16 recognised in equity by recognising the lease liability at
the date of initial application and:
• Option a. Measuring the right of use asset as if IFRS 16 had always been applied using the discount rate
• Option b. Measuring the right of use asset being equal to the lease liability.
The choice of transition approach will impact on the Group’s net assets and income statement following adoption.
The results below set out the indicative impact on the date of initial implementation (1 January 2019), the year ended
31 December 2019 and end of the first period of implementation (31 December 2019) for the two transition options explained above at
uniform discount rate of 15% (£’000s):
Right of Use Asset: 01/01/2019
Lease Liability: 01/01/2019
Retained Earnings: 01/01/2019
The Directors are to decide during the year on the appropriate option to adopt.
Option a
Option b
1,934
(2,113)
(179)
2,113
(2,113)
0
FairFX Annual Report 2018 41
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D. Other standards
IFRIC 23 Uncertainty over Income Tax Treatments
Prepayment Features with Negative Compensation (Amendments to IFRS 9)
Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)
Plan Amendment, Curtailment or Settlement (Amendments to IAS 19)
Annual Improvements to IFRS Standards 2015-2017 Cycle – various standards
Amendments to References to Conceptual Framework in IFRS Standards
IFRS 17 Insurance Contracts
Effective Dates *
01 January 2019
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 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”) and AIM Regulations. 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 3.24.
Prior year adjustment
Customer cash is held in the Group’s Current Accounts and principally represents funds held in CardOneBanking payment accounts or
funds credited for the purposes of International Payments. The Group has considered the accounting for cash held on behalf of
customers. In previous years, cash held on behalf of customers has been recognised on balance sheet, with an equal liability to the
customer.
During the year, the Directors received legal advice in connection with the risks and rewards to the Group that arise from the holding of
customer money and has concluded that the risks and rewards are principally vested with the customer. As a result, the Group no
longer accounts for customer cash as an asset and, similarly, no longer holds a liability to the customer. The Directors also concluded
that the risks and rewards were substantially the same in prior periods and have adjusted the prior year financial statements of the
Group accordingly. The impact on the Group’s financial statements in the prior year was as follows:
2017
Group
Statement of financial position
Cash and cash equivalents
Trade and other payables
Statement of cash flows
(Decrease)/increase in trade and other payables
Net cash (outflow)/inflow from operating activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at end of the year
42 FairFX Annual Report 2018
As Stated
£
Effect of
restatement
£
Restated
£
51,950,729
(38,550,504)
(34,147,666)
34,147,666
17,803,063
(4,402,838)
31,254,467
31,624,628
43,426,744
8,523,985
51,950,729
(29,125,574)
(29,125,574)
(29,125,574)
(5,022,092)
(34,147,666)
2,128,893
2,499,054
14,301,170
3,501,893
17,803,063
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedFOR THE YEAR ENDED 31 DECEMBER 2018Page Title at start:Content Section at start: 3 Basis of presentation and significant accounting policies continued
2016
Group
Statement of financial position
Cash and cash equivalents
Trade and other payables
Statement of cash flows
(Decrease)/increase in trade and other payables
Net cash (outflow)/inflow from operating activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at end of the year
As Stated
£
Effect of
restatement
£
Restated
£
8,523,985
(7,514,221)
(5,022,092)
5,022,092
3,501,893
(2,492,129)
3,050,296
(166,137)
4,908,929
3,615,056
8,523,985
(2,144,578)
(2,144,578)
(2,144,578)
(2,877,514)
(5,022,092)
905,718
(2,310,715)
2,764,351
737,542
3,501,893
There was no impact on the financial statements of the Company for the prior year.
Going Concern
Details of the Group’s business activities, results, cash flows and resources, together with the risks it faces and other factors likely to
affect its future development, performance and position are set out in the strategic report. Certain Group companies are regulated by
Financial Conduct Authority and perform annual capital adequacy assessments. Consideration was given to 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. Furthermore, in March 2019, the Group received £2 million in equity through the exercise of
share warrants. The Board therefore 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 restructure impacted a number of current year and comparative primary
financial statements and notes. The effect of this reorganisation was to insert one new company into the Group, a new holding
Company, FairFX Group Plc.
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 not re-measured and settlement is accounted for within
equity. Otherwise, other contingent consideration is re-measured at fair value at each reporting date and subsequent changes in the
fair value of the contingent consideration are recognised in profit or loss.
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Page Title at start:Content Section at start:
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 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
The implementation of IFRS 15 has not result in any changes to the Group’s accounting policies on revenue recognition (note 2).
(i) Deliverable FX trades (international payments and travel cash including currency exchange bureaus)
Revenue is recognised when a binding contract is entered into by a customer and the margin is fixed and determined. The revenue,
represented by the margin, is the difference between the rate offered to customers 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 customers 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.
3.6 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 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.
3.7 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.
44 FairFX Annual Report 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedFOR THE YEAR ENDED 31 DECEMBER 2018Page Title at start:Content Section at start: 3 Basis of presentation and significant accounting policies continued
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.
3.8 Research and development
Research costs are expensed as incurred. Expenditure on IT software and development is recognised as an intangible asset only if the
expenditure can be measured reliably, the when the intangible asset is technically and commercially feasible, future economic benefits
are probable and the Group intends to and has sufficient resources to complete development and sell the asset. Subsequent to initial
recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses.
3.9 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 to compensate the Group for expenses incurred therefore they are
credited against administration expenses on a systemic basis in the periods in which the expenses are recognised, or if the expenditure
has been recognised as an intangible asset on a systemic basis over the useful life of the asset.
3.10 Taxation
The tax expense comprises current and deferred tax.
3.11 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.
FairFX Annual Report 2018 45
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3.12 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.
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.
(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
6-9 years
5 years
3-10 years
Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
3.13 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
20 – 50%
20%
10 – 25%
3.14 Investments in subsidiaries
Investment in subsidiary undertakings are stated at cost less impairment in value.
3.15 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.
3.16 Trade and other receivables
Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing
components, when they are recognised at fair value. The Group holds the trade receivables with the objective to collect the
contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method. Details
about the Group’s impairment policies and the calculation of the loss allowance are provided in note 3.23.
3.17 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.
46 FairFX Annual Report 2018
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3 Basis of presentation and significant accounting policies continued
3.18 Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount 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.
3.19 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. During the year, the Directors received legal advice in connection
with the risks and rewards to the Group that arise from the holding of customer money and has concluded that the risks and rewards
are principally vested with the customers. As a result, the Group no longer accounts for customer cash in the Group’s financial
statements. The Directors also concluded that the risks and rewards were substantially the same in prior periods and have adjusted
the prior year financial statements of the Group accordingly (note 3.1).
3.20 Trade and other payables
These are initially recognised at fair value and then carried at amortised cost using the effective interest method. During the year, the
Directors received legal advice in connection with the risks and rewards to the Group that arise from the holding of customer money
and has concluded that the risks and rewards are principally vested with the customers. As a result, the Group no longer accounts for
customer cash and the associated customer liability in the Group’s financial statements. The Directors also concluded that the risks
and rewards were substantially the same in prior periods and have adjusted the prior year financial statements of the Group accordingly
(note 3.1).
3.21 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.
3.22 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.
IFRS 16 Leases is applicable from the financial year commencing on 1 January 2019. The Group will be adopting the standard and the
transition options and impacts have been explaining further in Note 2(C).
3.23 Impairment
A. Non-derivative financial assets
Policy applicable from 1 January 2018
IFRS 9 offers two approaches for measuring and recognising the loss allowance: General and Simplified. General approach should be
applied for all financial assets subject to impairment, except for trade receivables or contract assets (IFRS 15) without significant
financing component for these assets simplified approach should be applied.
The Group’s financial instruments measured at amortised cost falling within the scope of the standard are (i) trade and other
receivables and (ii) cash and cash equivalents. While cash and cash equivalents are also subject to the impairment requirements of IFRS
9, the identified impairment loss was immaterial.
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Trade and other receivables
The Group applies the IFRS 9 simplified approach – no need to determine the stage of a financial asset, because a loss allowance is
recognised always at a lifetime expected credit loss.
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.
Policy applicable before 1 January 2018
Financial assets not classified as at FVTPL, including an interest in an equity-accounted investee, are assessed at each reporting date
to determine whether there is objective evidence of impairment.
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;
Objective evidence that financial assets are impaired includes:
• default or delinquency by a debtor;
•
•
• adverse changes in the payment status of borrowers or issuers;
•
• observable data indicating that there is a measurable decrease in the expected cash flows from a Group of financial assets.
the disappearance of an active market for a security because of financial difficulties; or
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.
B. 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.
48 FairFX Annual Report 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedFOR THE YEAR ENDED 31 DECEMBER 2018Page Title at start:Content Section at start: 3 Basis of presentation and significant accounting policies continued
3.24 Judgements and estimates
The preparation of the Group’s consolidated financial statements requires management to make estimates, judgements and
assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and
expenses. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.
A. Judgements
The judgements made in applying the Group’s account policies that have the most significant effect on the amounts recognised in the
financial statements were as follows:
(i) Technology development intangibles
Development costs are capitalised based on management’s judgements that the project is technologically and economically feasible,
the asset is expected to generate future net cash inflows and a successful outcome is probable in accordance with IAS 38 Intangible
Assets. For staff not required to complete project timesheets and not solely working in IT development or other related development
project teams, management applies judgements relating to the percentage of staff costs directly attributable to the development of
internally generated technology intangibles – ranging between 10-100%. The total cost capitalised in the year for staff who were not
required to complete timesheets was £1,675,003, which represents 29% of their total annual staff costs.
B. Assumptions and estimation uncertainties
The assumptions and estimation uncertainties at the end of the financial year that have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities in the next financial year were as follows:
(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) Deferred tax assets
The Group has made estimates in relation of the availability of future taxable profits against which deductible temporary differences
and tax losses carried forward can be utilised as set out in note 8.
(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
Measurement of fair values of subsidiaries acquired:
The valuation techniques used for measuring the fair value of material assets acquired were as follows:
(a) Brand names – City Forex Limited acquisition
The 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
0.007% was used for the purpose of the valuation of the brand names. The discount factor applied in the valuation of the brand names
was 17%, comprising of the weighted average cost of capital (WACC). The most sensitive factor was the royalty rate used.
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(b) Customer relationships – City Forex Limited 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. An attrition
rate of 21% was used in the valuation of customer relationships. 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 8
months to 31 October 2019 and 12 month annual periods to 31 October 2025. The discount factor applied in the customer
relationships valuation was 17%, comprising of the weighted average cost of capital (WACC).
(c) MTS Platform – City Forex Limited acquisition
The MTS platform was 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
0.03% was used for the purpose of the valuation of the MTS platform. The discount factor applied in the valuation of the MTS platform
was 17%, comprising of the weighted average cost of capital (WACC). The most sensitive factor was the royalty rate used.
(d) 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.
(e) 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.
(f) 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%.
(g) Impairment of goodwill
The assumptions and estimates 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
support strategic decisions. The Board review financial information on revenue for the following segments: Currency Cards,
International Payments, Travel Cash, Banking and Central (which includes overheads and corporate costs). Revenue is wholly derived
from UK based customers.
In 2018 the Group made some changes to its segment reporting to align with how the Board assess segment performance and
support strategic decisions. Following the acquisition of City Forex, the Board of Directors considered that to appropriately assess
the performance of the business (including the significant travel cash business acquired), the internal reporting structure should
change so that Travel Cash was reported as a separate revenue segment. Furthermore, the Board agreed that the international
payments sub-segments of Fairpay and Dealing should be combined under one segment called International Payments in line
with how the Board assesses performance and reviews decisions about the segment. For consistency, the prior year comparative
balances have been restated below. This restatement did not result in any impact on the total prior year comparatives.
50 FairFX Annual Report 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedFOR THE YEAR ENDED 31 DECEMBER 2018Page Title at start:Content Section at start:
4. Revenue and segmental analysis continued
IFRS 15 requires the presentation of disaggregated revenue from contracts with customers into categories that depict how the nature,
amount, timing and uncertainty of revenue and cash flows are affects by economic factors. The Group has assessed that the
disaggregation of revenue by operating segments is appropriate in meeting this disclosure requirement as this is the information
regularly reviewed by the Board, to evaluate the financial performance of the Group.
Group
2018
Segment revenue
Direct costs
Administrative expenses
Acquisition costs
Profit/(loss) before tax
Total assets
Total liabilities
Total net assets
Group
2017
Segment revenue
Direct costs
Administrative expenses
Acquisition costs
Profit/(loss) before tax
Total assets – restated (note 3.1)
Total liabilities – restated (note 3.1)
Total net assets
5. Profit before tax – Group
Currency
Cards
£
International
Payments
£
Travel
Cash
£
Banking
£
Central
£
Total
£
9,996,890
–
–
–
8,389,851
–
–
–
2,076,904
–
–
–
5,628,747
(1,257,901)
(3,132,003)
–
–
(4,348,060)
(14,977,621)
(297,484)
26,092,392
(5,605,961)
(18,109,624)
(297,484)
9,996,890
8,389,851
2,076,904
1,238,843
(19,623,165)
2,079,323
–
–
–
–
–
–
Currency
Cards
£
International
Payments
£
–
–
–
Travel
Cash
£
–
–
–
47,425,064
(9,158,694)
47,425,064
(9,158,694)
38,266,370
38,266,370
Banking
£
Central
£
Total
£
8,124,165
–
–
–
5,108,440
–
–
–
8,124,165
5,108,440
331,660
–
–
–
331,660
1,896,470
(347,886)
(1,346,062)
–
–
(3,177,790)
(10,089,779)
(269,769)
15,460,735
(3,525,676)
(11,435,841)
(269,769)
202,522
(13,537,338)
229,449
–
–
–
–
–
–
–
–
–
–
–
–
40,384,973
(5,339,542)
40,384,973
(5,339,542)
35,045,431
35,045,431
Profit before tax is stated after charging the following:-
Operating leases – property
Operating leases – car
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
During the year, the Group recognised all of its development costs as intangible assets.
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
Additional audit fees payable for the prior year audit of subsidiaries
Total audit fees
2018
£
2017
£
910,947
40,317
200,123
1,318,649
20,274
–
(311,156)
392,377
–
51,727
221,117
68,186
1,265,388
(301,032)
2018
£
2017
£
32,000
138,000
28,500
198,500
70,000
40,000
110,000
The above audit fee is payable solely to the Group’s current auditor, KPMG LLP. There were no non-audit fees during the current and
preceding year. These amounts are shown exclusive of VAT.
FairFX Annual Report 2018 51
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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
2018
Headcount
2017
Headcount
218
101
2018
£
2017
£
7,518,190
758,375
63,253
5,354,654
567,279
23,028
8,339,818
5,944,961
Employee costs are exclusive of £2,819,567 (2017: Nil) reported within internally generated software intangibles. This comprised the
portion of 59 employee costs, which related to the time invested to development of internally generated technology intangibles.
Further information regarding share options is given in note 20.
7. Company – Directors’ remuneration
Executive Directors
I A I Strafford-Taylor
Executive Directors
I A I Strafford-Taylor
Gross
Salary
2018
Bonus
2018
Employer
Pension
2018
Total
Remuneration
2018
262,500
–
703
263,203
Gross
Salary
2017
Bonus
2017
Employer
Pension
2017
Total
Remuneration
(Restated*)
2017
245,000
237,200
386
482,586
*
The Company has restated 2017 Directors remuneration to remove £160,386 of non-executive Directors total remuneration. Non-executive Directors remuneration is disclosed in the
Directors’ remuneration report.
The total amount payable to Directors when including Directors of all the subsidiaries in the consolidated Group was £964,318 (2017:
£1,142,396*). This included pension payments of £4,918 (2017: £772) in the year. Further information regarding share options is given
in note 20.
8. Taxation
Group
Current year tax credit
Changes in tax estimates related to prior years
Changes in tax estimates in pre-acquisition accounts of businesses acquired during the year
Current tax expense/(credit)
Origination and reversal of temporary differences
Recognition of previously unrecognised deductible temporary differences
Deferred tax credit
Total tax credit
2018
£
–
32,544
384,966
417,510
2017
£
(27,179)
–
–
(27,179)
(1,063,420)
107,567
(955,853)
(42,046)
(148,462)
(190,508)
(538,343)
(217,687)
52 FairFX Annual Report 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedFOR THE YEAR ENDED 31 DECEMBER 2018Page Title at start:Content Section at start: 8. Taxation continued
Factors affecting tax charge for the period
The charge for the year can be reconciled to the profit per the consolidated statement of comprehensive income as follows:
Profit before taxation: Continuing operations
Taxation at the UK corporation rate tax of 19.00% (2017: 19.25%)
Expenses not deductible for tax purposes
Tax losses for which no deferred tax asset utilised
Recognition of deferred tax on previously unrecognised temporary differences
Effect of tax at marginal rate
Deferred tax on equity settled share-based payments
Adjustments to tax liability in respect of previous accounting period
Recognition of deferred tax on previously unrecognised carry forward tax losses
Net impact of R&D tax credit claim
2018
£
2017
£
2,079,323
229,449
395,071
78,274
(567)
1,109,588
–
–
32,544
(1,607,394)
(545,859)
44,169
47,986
6,211
–
(959)
(126,718)
–
–
(188,376)
(538,343)
(217,687)
Total tax expense/(credit) for the year
Movement in deferred tax balances
Group
2018
Intangibles
Property plant and equipment
Equity settled share based payments
Unutilised tax losses
Other
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
£
(791,499)
–
511,912
–
–
(199,308)
(31,431)
–
–
–
–
–
549,508
–
–
(770,085)
(107,567)
10,215
1,607,394
215,896
(1,760,892)
(138,998)
1,071,635
1,607,394
215,896
–
717
1,071,635
1,607,394
215,896
(1,760,892)
(139,715)
–
–
–
Deferred tax assets/ (liabilities)
(279,587)
(230,739)
549,508
955,853
995,035
2,895,642
(1,900,607)
Group
2017
Intangible
Equity settled share based payments
Deferred tax assets/ (liabilities)
Group
Current deferred tax asset
Non-current deferred tax asset
Total 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
£
Recognised
to equity
£
Recognised to
profit or loss
£
Balance at
31 December
£
Deferred tax
asset
£
Deferred tax
liability
£
–
–
–
(833,545)
–
–
363,450
42,046
148,462
(791,499)
511,912
–
511,912
(791,499)
–
(833,545)
363,450
190,508
(279,587)
511,912
(791,499)
2018
£
859,914
2,035,728
2,895,642
2017
£
–
511,912
511,912
(356,713)
(1,543,894)
(117,838)
(673,661)
(1,900,607)
(791,499)
Based on the valuation of acquisition intangibles and enacted UK corporation tax rates, the Group has acquired deferred tax liabilities of
£199,308 in relation to its acquisition of City Forex Limited (note 11) during the year ended 31 December 2018. 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. In the year ended 31 December 2017, the Group also acquired deferred tax liabilities of £833,545 in relation to its acquisition
of Spectrum Financial Group Limited and Q Money Limited. The net deferred tax released to the income statement in the year ended
31 December 2018 in relation to the three acquisitions was a charge of £151,042. Future changes in the standard rate of corporation tax
have been reflected in the carrying value of the deferred tax liability.
FairFX Annual Report 2018 53
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The Group recognised a £921,127 deferred tax liability in relation to technological intangibles assets, which are subject to claims made
under the Small or Medium-sized Enterprise (SME) R&D tax relief scheme. Deferred research and development tax credits recognised
on a systemic bases over the useful lives of intangible assets have resulted in a deferred tax asset of £215,896. During the year, the
Group has recognised a £559,723 deferred tax asset in relation to unexercised share options. Of this amount, £10,215 was recognised
in the current year’s tax expense and £549,508 was recognised in equity.
The Group has estimated tax losses of £9,268,652 (2017: £9,271,636) 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 is taken at such point recovery is
reasonably certain, which the Group considered on a three-year forecast horizon. During the year, the Group recognised a deferred tax
asset of £1,607,394 in relation to carry forward losses expected to be used by 2021. The Group has an unrecognised deferred tax asset
of nil (2017: £1,761,611) in respect of the tax losses that can be carried forward against future taxable income for the period between
one year and an indefinite period of time. The £32,544 change in tax estimates related to prior years was a result of subsidiaries in the
Group not being able to utilise Group tax relief that had been included in the 2017 year-end tax calculations.
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 a later year. Therefore, the standard rate of corporation tax applicable to
the Group for the year ended 31 December 2018 was 19.0%. The rate in the year ending 31 December 2019 is 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. Earnings per share
Basic earnings 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 £2,617,666 (2017:
£447,136) and the weighted average number of shares in issue for the period is 155,368,259 (2017: 121,876,571).
Diluted earnings 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 £2,617,666 (2017: £447,136) and the weighted average number of shares is 159,916,115
(2017: 124,855,331).
Plant and
machinery
£
Fixtures and
fittings
£
Leasehold
improvements
£
386,160
205,677
144,878
736,715
284,906
142,365
427,271
26,644
120,427
–
147,071
14,180
6,156
20,336
Total
£
452,455
670,827
333,542
39,651
344,723
188,664
573,038
1,456,824
15,789
51,602
67,391
314,875
200,123
514,998
309,444
126,735
505,647
941,826
10. Property, plant and equipment
Group
Cost
At 1 January 2018
Additions
Acquisitions through business combinations
At 31 December 2018
Depreciation
At 1 January 2018
Charge for the year
At 31 December 2018
Net book value
At 31 December 2018
54 FairFX Annual Report 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedFOR THE YEAR ENDED 31 DECEMBER 2018Page Title at start:Content Section at start: Plant and
machinery
£
Fixtures and
fittings
£
Leasehold
improvements
£
282,034
77,105
27,021
386,160
239,867
45,039
284,906
16,721
6,161
3,762
26,644
11,457
2,723
14,180
39,651
–
–
39,651
11,824
3,965
15,789
Total
£
338,406
83,266
30,783
452,455
263,148
51,727
314,875
101,254
12,464
23,862
137,580
10. Property, plant and equipment continued
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
11. Intangible assets and goodwill
Group
Cost
At 1 January 2018
Reclassifications
Additions
Acquisitions through business
combinations
Trademarks,
licences, patented
and non-patented
technology
£
Goodwill
£
Customer
relationships
£
Brands
£
Under
construction
£
Total
£
12,962,509
–
–
3,897,437
2,676,979
143,757
4,711,006
796,000
1,794,000
–
–
163,000
293,000
–
–
162,000
143,757
(143,757)
1,047,951
–
17,870,245
–
5,758,957
5,018,437
At 31 December 2018
16,859,946
8,327,742
1,957,000
455,000
1,047,951
28,647,639
Amortisation
At 1 January 2018
Charge for the year
At 31 December 2018
Net book value
At 31 December 2018
Group
Cost
At 1 January 2017
Additions
Acquisitions through business
combinations
–
–
–
101,917
918,956
1,020,873
99,667
314,093
413,760
19,533
85,600
105,133
–
–
–
221,117
1,318,649
1,539,766
16,859,946
7,306,869
1,543,240
349,867
1,047,951
27,107,873
Trademarks,
licences, patented
and non-patented
technology
£
Goodwill
£
Customer
relationships
£
Brands
£
Under
construction
£
Total
£
–
–
12,962,509
–
50,000
2,626,979
–
–
1,794,000
–
–
293,000
–
143,757
–
–
193,757
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
At 31 December 2017
–
–
–
–
101,917
101,917
–
99,667
99,667
–
19,533
19,533
–
–
–
–
221,117
221,117
12,962,509
2,575,062
1,694,333
273,467
143,757
17,649,128
FairFX Annual Report 2018 55
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The intangibles under construction balance consists of costs incurred on software development projects that were not completed
before the end of the reporting period. IAS 36 Impairment of Assets requires that intangible assets that are not available for use are
required to be tested for impairment at least on an annual basis. The balance at reporting date relates to additions made during the
reporting period, which will be tested annually for impairment during the 2019 calendar year.
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. Impairment testing of goodwill that was recognised in a business combination is required by
IAS 36 to be performed on an annual basis or whenever indicators of impairment exist. Where goodwill has been allocated to a cash-
generating unit (“CGU”) that CGU is tested for impairment to determine whether the carrying amount of the CGU may not be
recoverable. The Group has carried out the impairment review of goodwill recognised in the following CGUs as required by IAS 36:
• Banking
•
• Travel Cash
International Payments
This represents the lowest level at which goodwill is monitored for internal management purposes.
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 are based upon the CGU’s weighted average cost of capital (WACC). The WACC for the CGUs were Banking:
16.07% (2017: 13.76%), International Payments:16.05% and Travel cash: 16.12%.
The Group prepared cash flow forecasts derived from the most recent detailed financial budgets approved by management for the
next five years. For the purpose of the value in use calculation the management forecasts were extrapolated into perpetuity using
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 has conducted a sensitivity analysis on the impairment test of the CGU’s carrying value. Based on the value in use, each
CGU would require the following reduction of revenue each year to result in an impairment at 31 December 2018:
• Banking
•
• Travel Cash
International Payments
7.7%
53.8%
51.9%
The following WACC would result in an impairment at 31 December 2018:
• Banking
•
• Travel Cash
International Payments
17.7%
63.5%
62.5%
Based on the sensitivity analyses, the Group has determined that for International Payments and Travel Cash 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 2018. For Banking a change in the WACC of over 10% would result in an impairment. Therefore, management’s view is
that the change required in the WACC is a significant increase and so conclude that the Banking CGU does not require impairment.
12. Investments
Company – Shares in subsidiary undertakings
Cost
Additions
At 31 December
Net Book Value
At 31 December
2018
£
2017
£
29,455,134
9,270,317
11,243,460
18,211,674
38,725,451
29,455,134
38,725,451
29,455,134
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.
56 FairFX Annual Report 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedFOR THE YEAR ENDED 31 DECEMBER 2018Page Title at start:Content Section at start:
12. Investments continued
Holdings of more than 20%
The Company holds the share capital (both directly and indirectly) of the following companies:
Subsidiary Undertaking
FairFX (UK) Limited
FairFX Plc
FairFX Corporate Limited *
FairFX Wholesale Limited *
FairFS Limited *
Fair Foreign Exchange Ireland Limited *
Q Money Limited
Fair Payments Limited (previously Q Money One Limited)*
Spectrum Financial Group Limited
Spectrum Card Services Limited*
Spectrum Payment Services Limited*
Red 88 Limited Co*
City Forex Limited
* Share capital held indirectly
Country of registration
or incorporation
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Ireland
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Class
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Shares Held
%
100 Dormant
100 Trading
100 Dormant
100 Dormant
100 Dormant
100 Dormant
100 Trading
100 Trading
100 Trading
100 Trading
100 Trading
100 Dormant
100 Trading
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) City Forex Limited
On 20 February 2018, the Group acquired the entire ordinary share capital of City Forex Limited. The acquisition has been immediately
earnings enhancing and enables the Group to extract increasing economies of scale and cross selling opportunities whilst adding
product innovation. By combining the existing FairFX platform with innovative proprietary systems owned by City Forex, the Group has
been able to yield further automation efficiencies as well as enable further capacity for growth.
The initial consideration payable for the acquisition was £6,000,000 payable in cash. Further adjusted consideration after working
capital adjustments of £3,216,552 was paid in cash. For the period post acquisition to 31 December 2018, City Forex Limited
contributed revenue of £4,714,023 and profit before tax of £929,712 to the Group’s results. If the acquisition occurred on the 1 January
2018 revenue of £5,322,531 and profit before tax of £946,801 would have been contributed to the Group’s results.
The acquisition date fair value of consideration transferred was calculated as follows:
Cash
Further consideration
Total consideration transferred
The recognised amounts of assets acquired and liabilities assumed at the date of acquisition were as follows:
Intangibles
Property, plant and equipment
Trade and other receivables
Cash
Trade and other payables
Deferred tax liabilities
Total identifiable new assets acquired
£
6,000,000
3,216,552
9,216,552
£
1,121,000
333,542
1,819,769
2,652,718
(377,175)
(230,739)
5,319,115
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The valuation techniques used for measuring the fair value of the intangibles are covered in note 3.24(ii). Based on the valuation of the
intangibles and enacted UK corporation tax rates a deferred tax liability of £199,308 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
£
9,216,552
5,319,115
3,897,437
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.
(ii) 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 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
Trade and other receivables
Trade and other payables
Deferred tax liabilities
Total identifiable new assets acquired
58 FairFX Annual Report 2018
£
110,000
314,999
543,172
968,171
£
233,000
335
350,000
(354,079)
(41,105)
188,151
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedFOR THE YEAR ENDED 31 DECEMBER 2018Page Title at start:Content Section at start: 12. Investments continued
The valuation techniques used for measuring the fair value of the E-money licence are covered in note 3.24(ii). 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.
(iii) 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 3.24(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.
FairFX Annual Report 2018 59
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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
Trade receivables
Amounts due from Group undertakings
Other receivables
Prepayments and accrued income
2018
£
2017
£
286,713
199,747
Group
2018
£
1,800,453
–
3,466,503
1,883,794
2017
£
2,419,594
–
515,063
845,111
Company
2018
£
2017
£
–
4,905,334
–
2,370
–
13,212,504
–
–
7,150,750
3,779,768
4,907,704
13,212,504
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
2018
£
2017 (Restated)
£
7,860,368
17,803,063
During the year, the Directors received legal advice in connection with the risks and rewards to the Group that arise from the holding of
customer money and has concluded that the risks and rewards are principally vested with the customers. As a result, the Group no
longer accounts for customer cash in the Group’s financial statements. The Directors also concluded that the risks and rewards were
substantially the same in prior periods and have adjusted the prior year financial statements of the Group accordingly (note 3.1).
16. Share capital
Group and Company
Authorised, issued and fully paid up capital
155,368,259 ordinary shares of £0.01 each
2018
£
2017
£
1,553,682
1,553,682
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.
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.
60 FairFX Annual Report 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedFOR THE YEAR ENDED 31 DECEMBER 2018Page Title at start:Content Section at start: 17. Trade and other payables
Trade payables
Amounts owing to Group undertakings
Taxation and social security
Accruals and deferred income
Deferred research and development tax credit (note 3.9)
Current
Group
2018
£
2017 (Restated)
£
Company
2018
£
3,840,175
–
529,980
1,172,683
1,136,293
2,840,845
–
383,446
1,178,547
–
125,467
1,355,524
–
141,000
–
2017
£
–
2,074,285
–
–
–
6,679,131
4,402,838
1,621,991
2,074,285
Group
2018
£
2017 (Restated)
£
Company
2018
£
2017
£
6,679,131
4,402,838
1,621,991
2,074,285
During the year, the Directors received legal advice in connection with the risks and rewards to the Group that arise from the holding of
customer money and has concluded that the risks and rewards are principally vested with the customers. As a result, the Group no
longer accounts for customer cash and the associated customer liability in the Group’s financial statements. The Directors also
concluded that the risks and rewards were substantially the same in prior periods and have adjusted the prior year financial statements
of the Group accordingly (note 3.1).
18. Derivative financial assets and financial liabilities
18.1 Derivative financial assets
Group
Foreign exchange forward contracts
Total financial instruments at fair value
18.2 Derivative financial liabilities
Financial liabilities at fair value through profit or loss
Group
Foreign exchange forward contracts
Total financial instruments at fair value
Fair Value
2018
£
Notional
Principal
2018
£
Fair Value
2017
£
Notional
Principal
2017
£
1,181,892
41,462,875
303,775
21,530,930
1,181,892
41,462,875
303,775
21,530,930
Fair Value
2018
£
Notional
Principal
2018
£
Fair Value
2017
£
Notional
Principal
2017
£
578,956
41,105,776
145,205
21,366,917
578,956
41,105,776
145,205
21,366,917
19. Financial instruments
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.
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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
* Refer to note 3.1
Trade and other payables generally have a maturity of less than one month.
2018
£
2017 (Restated*)
£
7,860,368
(6,679,131)
7,150,750
17,803,063
(4,402,838)
3,779,768
2018
£
2017
£
1,181,892
(578,956)
303,775
(145,205)
Forward foreign exchange contracts fall into level 2 of the fair value hierarchy as set out in note 3.24(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). In 2018, the unrealised gain or loss recognised in the income statement on
the fair value of financial instruments was a gain of £10,914 (2017: loss of £5,430). This was reported in administration costs in the
income statement.
19.2 Financial risk management objectives and policies
Credit risk
As required under IFRS 9, the Group analysed its trade debtors and split them into portfolios: bank and other financial institutions,
financial service providers and corporate customers. The Group has significant short term receivables and security collateral
arrangements with bank and other financial institutions and financial service providers, which have either settled post balance sheet
date or are considered negligible due to the financial strength of the counterparty. As such the impact of expected credit losses under
IFRS 9 have been assessed as minimal.
The ageing of financial assets at the statement of financial position date is as follows:
2018
Group
Trade and other receivables
Derivative financial assets
2017
Group
Trade and other receivables
Derivative financial assets
Current and
not impaired
£
7,150,750
219,991
Between
1 and 3 months
£
Between
3 and 12 months
£
–
341,492
–
620,409
Current and not
impaired
£
Between
1 and 3 months
£
Between
3 and 12 months
£
3,779,768
123,055
–
56,692
–
124,028
Over
1 year
£
–
–
Over
1 year
£
–
–
Individually
impaired
£
Total
£
–
–
7,150,750
1,181,892
Individually
impaired
£
Total
£
–
–
3,779,768
303,775
62 FairFX Annual Report 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continuedFOR THE YEAR ENDED 31 DECEMBER 2018Page Title at start:Content Section at start: 19. Financial instruments continued
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.
2018
Group
Trade and other payables
Derivative financial liabilities
2017
Group
On demand and
within 1 month
£
Between
1 and 3 months
£
Between
3 and 12 months
£
6,679,131
102,115
–
297,485
–
179,356
On demand and
within 1 month
£
Between
1 and 3 months
£
Between
3 and 12 months
£
Over
1 year
£
–
–
Over
1 year
£
Total
£
6,679,131
578,956
Total
£
Trade and other payables – restated*
Derivative financial liabilities
4,402,838
76,330
–
22,178
–
46,697
–
–
4,402,838
145,205
*Refer to note 3.1
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 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 2018, the Group is not
sensitive to movements in the strength of Sterling as no material foreign currency balances are held (2017: £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 2018
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
Financial
assets
£
Financial
liabilities
£
Total
£
7,860,368
7,150,750
15,011,118
–
–
–
7,860,368
7,150,750
15,011,118
–
–
6,679,131
6,679,131
6,679,131
6,679,131
FairFX Annual Report 2018 63
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31 December 2017
Financial assets not measured at fair value
Cash and cash equivalents – restated*
Trade and other receivables
Financial liabilities not measured at fair value
Trade and other payables – restated*
* Refer to note 3.1
Financial
assets
£
Financial
liabilities
£
Total
£
17,803,063
3,779,768
21,582,831
–
–
–
17,803,063
3,779,768
21,582,831
–
–
4,402,838
4,402,838
4,402,838
4,402,838
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.
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.
The parent Company has complied with these requirements.
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 2018, there were a number of share based payment transactions within the Group.
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
Total number of options
Exercise
price
(£)
At
1 January 2018
Number
Granted
during year
Number
Exercised
during year
Number
Lapsed
during year
Number
At 31 December
2018
Number
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
4,063,939
120,000
120,000
120,000
461,111
461,111
461,111
100,000
100,000
100,000
16,667
16,667
16,667
6,805,023
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
200,000
447,750
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
6,805,023
The above share options issued in FairFX Plc have been granted to both Directors and employees of the Group. At 31 December 2018,
there were unexercised share options amounting to 4.38% (2017: 4.38%) of the Company’s total issued shares. Of the above options
5,150,222 (2017: 5,150,222) have been granted to Directors of the Company (see Directors’ remuneration report), with an additional
1,504,800 (2017: 1,504,800) having been granted to an individual who is Director of a wholly owned subsidiary within the Group.
64 FairFX Annual Report 2018
FOR THE YEAR ENDED 31 DECEMBER 2018Page Title at start:Content Section at start: 20. Share options continued
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 2018
0.45
variable a
37.7% b
2.6
0.10%
none
variable c
a. The weighted average exercise price varies dependent upon the amount stipulated in the individual option deeds. The exercise price
ranges from £0.07 – £1.74. No shares were exercised in the year ending 31 December 2018.
b. Expected volatility has been determined on the share price from date of admission up to 31 December in the year the options
were granted.
c. A summary of the fair value of the options granted is summarised in the table below. If the fair value of the option was deemed to be
nil it is marked accordingly.
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
Exercise price
(£)
Fair Value
(£)
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 £835,148 (2017: £781,383). The charge expensed to the statement of comprehensive income is
£53,765 (2017: £112,961). During the year the Group recognised a £559,723 (2017: £511,912) deferred tax asset in relation to
unexercised share options. Of this amount £10,215 was recognised in the current year’s tax credit (2017: £148,463 tax expense) and
£549,508 (2017: £363,449) was recognised to equity.
21. Financial commitments
As at 31 December 2018 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
Not later than one year
Later than one year and not later than five years
Land and buildings
2018
£
2017
£
680,951
3,328,458
341,597
1,312,297
4,009,409
1,653,894
Vehicles
2018
£
41,674
56,029
97,703
2017
£
–
–
–
FairFX Annual Report 2018 65
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
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
Other related party transactions:
Currency transactions
Subsidiary
- Turnover
- Revenue – Travel Cash
- Revenue – Banking
Other
Subsidiary
- Dividends
- Cost recharges
- Loan and related interest
2018
£
2017
£
2,049,287
1,177,629
Transaction values for the year ended
Balance outstanding as at
2018
£
2017
£
2018
£
2017
£
30,778,744
202,409
34,680
–
–
–
–
57,302
34,680
–
–
–
Transaction values for the year ended
Balance outstanding as at
2018
£
2017
£
2018
£
2017
£
2,000,000
803,698
9,381
–
–
11,109
–
73,350
370,490
–
–
361,109
All related party transactions and balances are priced and settled on an arm’s length basis except for cost recharges, which are priced
and settled at original cost. The subsidiary loan and related interest relate to a loan between the Company and Q Money Limited, which
is secured by bank balances and shares in the Guarantor Q Money One Limited. None of the other balances are secured or guaranteed.
No expense has been recorded for bad or doubtful debts in respect of amounts owed to related parties in the current or prior year.
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 27th March 2019, Warrants were exercised over 7,500,000 new ordinary shares for a consideration of £2,025,000. The Warrants
were issued to Crystal Amber Fund Limited (“Crystal Amber”) in conjunction with the Company’s equity placing announced in
March 2016.
66 FairFX Annual Report 2018
Page Title at start:Content Section at start: DIRECTORS AND 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
Joint Broker:
Joint Broker:
3rd Floor
Vintners’ Place
68 Upper Thames Street
London
EC4V 3BJ
England
Barclays Bank Plc
1 Church Hill Place
Canary Wharf
E13 5BH
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
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
England
Directors and Advisors
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FairFX Annual Report 2018 67
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NOTES
68 FairFX Annual Report 2018
Page Title at start:Content Section at start: FSC LOGO TO
GO HERE
Page Title at start:Content Section at start: FAIRFX Group Plc
Vintners’ Place
68 Upper Thames Street
LONDON
EC4V 3BJ
Tel: +44 20 7778 9350
Page Title at start:Content Section at start: