Equals Money
Annual Report 2020

Plain-text annual report

Annual Report 2020 E Q U A L S G R O U P P L C A N N U A L R E P O R T 2 0 2 0 EQUALS GROUP PLC VINTNERS’ PLACE 68 UPPER THAMES STREET LONDON EC4V 3BJ WWW.EQUALSPLC.COM Equals Group PLC COMPANY INFORMATION 1 About Equals Group 2 3 4 5 Business developments Financial summary and highlights Directors and advisors History STRATEGIC REPORT 7 Chairman’s Statement 8-13 Chief Executive Officer’s Report 14-23 Chief Financial Officer’s Report 24-25 Compliance with Companies Act 2006, Section 172 Statement GOVERNANCE 27-29 Corporate governance report 30-40 ESG report 41-43 Report of the Audit Committee 44-45 Report of the Risk Committee 46-48 Directors’ remuneration report 49-51 Directors’ report 52 Statement of Directors’ responsibilities in respect of the annual report and financial statements 53-58 Independent Auditors’ report to the members of Equals Group PLC FINANCIAL STATEMENTS 60 Consolidated Statement of comprehensive income 61 62 63 64 Consolidated and Company Statement of financial position Consolidated and Company Statement of changes in equity Consolidated Statement of cash flows Company Statement of cash flows 65-93 Notes to the consolidated financial statements Subscribe to our investor alert service and receive all press releases, financial results and other key shareholder messages as soon as they become available. WWW.EQUALSPLC.COM Equals Group PLC About Equals Equals is a leading payments company offering SMEs a suite prepaid card, which yields significant cost savings via tighter of payments products across FX transactions, prepaid card control on expenses before they are incurred, coupled with solutions, Faster Payments and accounts into which receipts eliminating inefficient processes. Equals also offers business can be credited and payments made. The Group enables its and retail bank accounts with all the payments functionality personal and business customers to make easy, low-cost offered by banks, namely faster payments, BACs, direct debits, payments both domestically and in a broad range of currencies, international payments and a debit card. The Travel Money across a range of products, all via one integrated system. offerings (retail currency card and physical currency) represent Equals provides money movement services to both business cost-effective and secure methods for travelers to spend abroad. and personal customers through five inter-connected channels: Equals Group PLC (the “Company”) is a public limited liability International Payments; Corporate Expenses platform; Bank company incorporated in England and Wales and domiciled in Accounts; and Travel Money, comprising currency cards and physical currency. The International Payments channel supports wire transfer foreign exchange transactions direct to bank accounts. For corporates, Equals has a market-leading business expenses solution based around its corporate platform and the UK whose shares are admitted to 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”). Our Values: Make it happen; Succeed together; Be the customer; Go beyond 1 1 ANNUAL REPORT 2020 | STRATEGIC REPORTBusiness developments Highlights • B2B Payments agreement with HomeSend (a joint venture between MasterCard and eServeGlobal), via an API, utilising the Group’s outstanding FX capabilities in conjunction with its directly connected and settling status with the Faster Payments network; • • • • • Implementation of core payment partnership with Citi, supplementing existing arrangements with Barclays and Royal Bank of Scotland and providing additional functionality and improved ‘in-country’ settlement capabilities paving the way to straight-through processing (“STP”); Refined the Equals Go-To-Market strategy under the Equals umbrella to be Equals Money for B2B customers and FairFX for B2C customers; Launch of an all-new customer-facing international payments product: ‘Equals Pay’. This is a functionality-rich self-service platform that will help customer acquisition whilst increasing capacity and efficiency; Rebuild and rebrand of the B2C FairFX website and app to support a new multi-currency card offering; Acquisition of Effective FX, a predominantly B2B focused international payments business with over 200 corporate clients and strong B2B sales culture; • Implementation of: • • a new CRM system; a new customer services platform across the Group, fully integrated with both the new CRM and telephony solutions; and • a new compliance system to lower onboarding friction particularly for B2B customers. • Further investment into finance, compliance and regulatory capabilities. 2 EQUALS GROUP PLC Financial summary and highlights 2020 Financial Summary In £ millions Underlying transaction values - - B2B* B2C* Revenue - - B2B* B2C* Gross profit Capitalised internal software Separately reported items Adjusted EBITDA** R&D Credits Loss after taxation FY-2020 FY-2019 Restated Change 3,493 2,843 650 29.0 20.3 8.7 18.3 (4.4) (2.6) 1.2 1.4 (6.9) 2,888 2,156 731 30.9 18.5 12.4 20.6 (8.3) (3.4) 5.6 3.5 (5.4) +605 +687 -81 -1.9 +1.8 -3.7 -2.3 +3.9 +0.8 -4.4 -2.1 -1.5 FY-2020 Highlights • Successful refocus on business customers with B2B transactions up by 32% • • • International Payments: revenue increased by 46%; and its B2B segment revenue increased by 51% Total B2B revenues represented 70% (FY-2019: 56%) Non travel-money revenues increased by 18% to £26.6 million (FY-2019: £22.9 million) • Over 18,000 active unique B2B customers • Total underlying expenditure reduced by 18% from £30.6 million to £25.0 million • Cash break-even achieved in Q4-2020 • • • Further bolt-on acquisition of Effective FX in October 2020 Adjusted EBITDA of £1.2 million, ahead of market expectations and achieved against COVID-19 and Wirecard headwinds The 49% reduction in staff costs capitalised combined with COVID-19/Wirecard headwinds and single-year R&D tax relief led to loss after tax widening from £5.4million to £6.9 million * Transactions with business customers are reported as ‘B2B’ and transactions with retail customers reported as ‘B2C’, ** Adjusted EBITDA is defined as: earnings before depreciation, amortisation, impairment charges, share option charges, foreign exchange differences and separately reported items. Separately reported items are large, non-recurring items. 3 ANNUAL REPORT 2020 | STRATEGIC REPORT Directors and advisors The Board Advisors A R F HUGHES (Non-Executive Director appointed 1 March 2020 and appointed Chair from 1 July 2020) Registered Number 08922461 (England and Wales) I A I STRAFFORD–TAYLOR (Chief Executive Officer) R Q M COOPER (Chief Financial Officer) S A HERBERT (appointed 1 October 2020) J PEARSON (Non-Executive Director; resigned as Chair 30 June 2020, resigned 9 October 2020) R M HEAD (resigned 1 October 2020) A CHOWDHURY (resigned 29 July 2020) A QUIRKE Company Secretary 4 Registered Office 3rd Floor Thames House Vintners’ Place, 68 Upper Thames Street, London EC4V 3BJ, England Principal Bankers Barclays Bank PLC 1 Churchill Place, Canary Wharf, London E13 5BH, England Independent Auditors PricewaterhouseCoopers LLP No 1 Spinningfields 1 Hardman Square, Manchester M3 3EB, England Solicitors Browne Jacobson LLP 6 Bevis Marks, London EC3A 7BA, England Nominated Advisor and Broker Canaccord Genuity Limited 88 Wood Street, London EC2V 7QR, England Investor Relations Buchannan Communications Limited 107 Cheapside, London EC2V 6DN, England Registrar Link Group Unit 10, Central Square, 29 Wellington Street, Leeds LS1 4DL, England Telephone 0871 664 0300 EQUALS GROUP PLCHistory March 2021 Partnership with Tap Global to provide cyptocurrency liquidity October 2020 Acquisition of Effective FX November 2019 Acquisition of Casco Financial Services Limited September 2019 New five-year agreement with Mastercard August / September 2019 Capital raise and share placing for acquisitions, raising £14.5m net of expenses for expansion August 2019 Acquisition of Hermex FX July 2019 Banking partnership with Citi Commercial Bank June 2019 Rebrands group as Equals June 2019 Acquired credit broker licence February 2019 Becomes part of Bank of England’s Faster Payments Scheme 2018 Partnership with US bank Metropolitan Commercial Bank February 2018 Acquisition of City Forex August 2017 Acquisition of CardOneBanking January 2017 e-Money licence obtained via acquisition of Q-Money 2014 IPO on AIM 2013 Customer milestone, over 500,000 registered customers 2012 Launch of expense platform 2010 Launch of international payments platform 2007 Foundation of travel cash business 5 ANNUAL REPORT 2020 | STRATEGIC REPORTStrategic Report 6 EQUALS GROUP PLCChairman’s statement I joined the board in March 2020 and became Chair in October, Other than myself and the former Chair, there were a number after a handover period from my predecessor John Pearson of other changes to the board with Ajay Chowdhury leaving whom I thank for his diligence and assistance. in July and Bob Head leaving in October, both having helped The Group offers a range of payments services, including FX 2014. We are grateful for their contribution and wish them and faster payments, to businesses and individuals. It seeks to well in their other pursuits. Sian Herbert, a former partner in offer better service and ease of use than conventional providers PricewaterhouseCoopers joined as independent Non-Executive and overseen the Group’s development since the IPO in using its own IT platform. Director and Chair of the Audit and Risk Committees. We expect to announce further Non-Executive board appointments The Group had entered 2020 with its eye on aggressively in the near future. growing its revenue across multiple markets and beginning to trim back its engineering cost base. Then the COVID-19 The Group is acutely conscious of its role as a responsible pandemic, resulting in international and domestic restrictions employer, and I am proud to say we have a very diverse on movement, inevitably impacted both retail FX volumes and our corporate card product with its focus on the film workforce. As an office-based service business, our environmental footprint is low, but we remain mindful industry. of improvements that can be made. We have produced an environmental, social and governance (“ESG”) report Management immediately changed its priorities and focused on pages 30 to 40 which details the Group’s values and on cash preservation. Staff responded with alacrity to this, achievements in this field. and to the unexpected need to replace Wirecard AG and its subsidiaries (“Wirecard”) as a supplier in our payments Following the hard work of the senior management team to infrastructure. They protected and maintained customer streamline the business during 2020, we entered 2021 with a services throughout, without major disruption to our customers more efficient and more scalable operation. One that we hope and with business revenues up. Costs were reduced and the IT and intend will enable us to take advantage of a post-pandemic platform’s scalability improved. recovery. Despite the exceptional nature of 2020, the Group ended the year with a lower cost base, good net cash reserves and resilient revenues of £29 million, notably from the Group’s services to business customers. The Board has been very pleased with the Group’s fortitude, but sad to have had it proven by such challenging conditions. The performance details are in the Chief Financial Officer’s Report on pages 14 to 23. ALAN HUGHES Chair 7 April 2021 7 ANNUAL REPORT 2020 | STRATEGIC REPORTChief Executive Officer’s Report 21% Turnover (Transaction values) £3,493 million 6% Revenue £29.0 million 9% B2B revenues £20.3 million Cash break-even in Q4 2020 OUR ORIGINAL OBJECTIVES FOR 2020 The main objective of the Group for 2020 was to continue to grow rapidly with an increasing focus on its B2B customers and products. This growth would be achieved by harnessing the power of the payments infrastructure and connectivity put in place in 2019, and was to be further augmented during 2020, to drive increased volumes through international similar. It was a remarkable achievement by the Group’s staff, and demonstrated the robustness of the Group’s underlying platform, that a full migration of over 150,000 cards was achieved by end of October at which point the Group had, in just four months, moved to a superior platform with a better product and enhanced economics. payments, the Equals Spend card platform and the banking MARKETPLACE AND COMPETITIVE LANDSCAPE services platform. COVID-19 The World Health Organisation declared COVID-19 a global pandemic on 11 March 2020. The immediate impacts of this were a contraction in B2B trading in line with reduced economic activity and a virtual closure of the Group’s B2C travel money products. Due to the first lockdown being imposed, the Group immediately implemented our business continuity plan and seamlessly moved staff to work from home. The success of moving a complex payments business with strict security protocols and regulatory and compliance regulation to a remote working status proves the value of the investments in digital-services infrastructure we made in 2019. Concurrently, the Board accelerated a planned restructuring and re-sizing of the Group which yielded a significantly reduced cost base and headcount whilst positioning the business ideally for further B2B-led growth by relentless focus on the Group’s product roadmap, marketing strategies and cross-selling. The Group availed itself of the Government’s furlough scheme and drew down £2 million under the Coronavirus Business Interruption Loan Scheme (“CBILs”). WIRECARD The payments market overall is massive, comprising as it does, all the various payment mechanisms and customer bases. The Group is somewhat unique in that it spans UK banking services and payments, international payments and card- based payments solutions. Most competitors specialise in one of these segments but not all. In addition, the well-funded FinTech “unicorns” are still focussed on the B2C space with the over-riding key performance indicator of customer numbers, whereas the Group is firmly focussed on the B2B customer space. Despite the growth of FinTech, it remains the case that most of the customer payments activity still flows through the incumbent banks and it is winning business from these institutions that is the sales focus for the Group. To achieve this, the Group has assembled “bank-grade” payments connectivity overlaid with vastly superior user experience than the many incumbents. In addition, the Group’s products are set up so that they do not require B2B customers to change their banking provider, they just have to use the Group for the individual services that they require. Nevertheless, the role of London as a FinTech centre means that staff cost inflation is high and accordingly the Group is in the process of moving roles where possible to our Chester As reported in the Group’s interim results and widely reported facility and tapping into the great talent pool in the North- in the press, the demise of Wirecard (the biggest prepaid West of England. card issuer in the UK), affected the Group as the Group issued cards using Wirecard for all its B2C and some of its B2B programs. The net result was that the Group had to accelerate its development of a new multi-currency card platform, supporting both website and app, and to migrate its entire B2C customer base by the end of October 2020. This work and migration necessitated significant diversion of resources, mainly management and staff time, as well as the write-off of previously incurred costs of inventory and 8 Within International Payments, the Group has identified the SME segment of the B2B sector as the optimal target audience for its products and services. The Group’s “target” customer is an SME between 50-500 employees with domestic UK and overseas payment needs. Engineering, product and design resources are focused on providing solutions to this customer segment, however the Group’s products equally serve smaller and larger B2B customers. EQUALS GROUP PLCCHIEF EXECUTIVE OFFICER’S REPORT CONTINUED Other Achievements and product launches • • • • B2B Payments agreement with HomeSend (a joint venture between Mastercard and eServeGlobal) via an API, utilising the Group’s outstanding FX capabilities in conjunction with its directly connected and settling status with the Faster Payments network; Implementation of core payment partnership with Citi supplementing existing arrangements with Barclays and Royal Bank of Scotland and providing additional functionality and improved “in-country” settlement capabilities paving the way to straight- through-processing (“STP”); Refined the Equals Go-To-Market strategy under the Equals umbrella to be Equals Money for B2B customers and FairFX for B2C customers; Launch of an all-new customer-facing international payments product: “Equals Pay.” This is a functionality-rich self-service platform that will help customer acquisition whilst increasing capacity and efficiency; • Rebuild and rebrand of the B2C FairFX website and app to support a new multi-currency card offering; • Acquisition of Effective FX, a predominantly B2B focused international payments business with over 200 corporate clients and strong B2B sales culture; • Implementation of: • a new CRM system to improve both new customer acquisition and maximisation of revenue opportunities from existing client base; • a new customer services platform across the Group improving efficiency and productivity of the customer services team. The platform is fully integrated with both the new CRM and telephony solutions providing further opportunities for cross-selling and customer retention; • a new compliance system to lower onboarding friction particularly for B2B customers • Further investment into finance, compliance and regulatory capabilities. The regulatory burden in the payments industry is constantly increasing and the Group sees its capability here as a competitive advantage. 9 ANNUAL REPORT 2020 | STRATEGIC REPORTCHIEF EXECUTIVE OFFICER’S REPORT CONTINUED FINANCIAL PERFORMANCE Underlying transaction values The pivot towards B2B resulted in not only a 21% increase in overall transaction values to £3.5 billion, but also a 24% growth in H2-2020 over H1-2020. These overall increases however mask a significantly better performance in International Payments (up 52% compared with FY-2019 and up 25% in H2-2020 compared with H1-2020). Inevitably, the Corporate Spend platform and retail facing products saw decreased volumes with the opportunities for travel severely curtailed by COVID-19. Details of the transaction values are shown in Table 1 below: Table 1* £millions B2B H2-2020 H1-2020 FY-2020 FY-2019 Year-on-year change B2C H2-2020 H1-2020 FY-2020 FY-2019 Year-on-year change TOTALS H2-2020 H1-2020 FY-2020 FY-2019 Year-on-year change International Corporate Cash & retail Payments Expense cards Banking Services TOTAL 1,126 818 1,944 1,214 60% 191 237 428 348 23% 1,317 1,055 2,372 1,562 52% 123 93 216 271 (20%) – – – – 123 93 216 271 (20%) 7 12 19 68 (72%) 29 36 64 217 (70%) 35 48 83 285 (71%) 378 286 664 604 10% 80 78 158 166 (5%) 457 364 821 770 7% 1,633 1,209 2,843 2,157 32% 299 351 650 731 (11%) 1,933 1,560 3,493 2,888 21% * A detailed review of the underlying data has led to some minor re-profiling of H1 2020 and prior year disclosures Totals may not sum due to roundings. Percentages are calculated on the underlying figures before rounding. 10 EQUALS GROUP PLCCHIEF EXECUTIVE OFFICER’S REPORT CONTINUED Revenue and revenue margins Total revenue for the year was just shy of £29 million compared to the pre-COVID-19 environment revenue in FY-2019 of £31.0 million. Very encouragingly, revenue in H2-2020 rose by 10% over H1-2020 to £15.2 million. Table 2 below splits out the revenue by component and by half-year. The retail cash and card products have been combined in this analysis to show the impact of COVID-19 across these retail products. Table 2* £000’s B2B H2-2020 H1-2020 FY-2020 FY-2019 Year-on-year change % B2C H2-2020 H1-2020 FY-2020 FY-2019 Year-on-year change % TOTALS H2-2020 H1-2020 FY-2020 Business mix % H2-2020 v H1-2020 FY-2019 Business mix % Year-on-year change % International Corporate Cash & retail and other Payments Expense cards income Banking Services Rebates 7,373 6,242 13,615 9,000 51% 1,757 1,991 3,748 2,929 28% 9,130 8,233 17,363 60% 11% 11,929 39% 46% 1,765 1,310 3,075 3,976 (23%) – – – – – 1,765 1,310 3,075 11% 35% 3,976 13% (23%) 136 230 366 1,249 (71%) 774 1,229 2,003 6,840 (71%) 911 1,459 2,369 8% (38%) 8,089 26% (71%) 488 177 665 1,607 (59%) 287 89 376 10 3662% 776 266 1,042 4% 192% 1,617 5% (36%) TOTAL 11,047 9,241 20,288 18,545 9% 4,141 4,531 8,672 12,400 (30%) 15,188 13,772 28,960 10% 1,284 1,282 2,566 2,712 (5%) 1,322 1,222 2,544 2,621 (3%) 2,606 2,504 5,110 18% 4% 5,333 30,945 17% (4%) (6%) * A detailed review of the underlying data has led to some minor re-profiling of H1 2020 and prior year disclosures. Totals may not sum due to roundings. Percentages are calculated on the underlying figures before rounding. Revenue margins in International Payments were slightly softer at 73bp (FY-2019: 76bp), and in Banking at 31bp (FY-2019: 35bp). Close to 10% of trades were in forward FX (2019: 18%) at close to 100bp per trade. Cash break-even The resizing and restructuring of the business, which began in 2019, was greatly accelerated by the outbreak of COVID-19. It was the stated aim of the Board to get our cost run-rate low enough to achieve cash break-even within Q4-2020, even with the effects of the pandemic on revenues. The Group achieved this whilst continuing to invest in its product suite together with its sales and marketing capabilities, and the Board is proud to achieve this performance against the backdrop of the cash-burning Fintech competitor community. 11 ANNUAL REPORT 2020 | STRATEGIC REPORT CHIEF EXECUTIVE OFFICER’S REPORT CONTINUED Board composition After many years combined service, John Pearson, Robert Head, and Ajay Chowdhury stepped down from the Board this year and I thank them for their wise counsel and diligence. Alan Hughes joined the board as a Non-Executive Director in March and became Non-Executive Chairman on the date of the Group’s AGM at the end of June. Sian Herbert joined the Board as a Non-Executive and Head of the Audit and Risk Committees in October 2020. Under governance guidelines, both are considered to be Independent Non- Executive Directors. Product update Unified platform The clear focus for the Group in 2021, and beyond, is to continue to grow its B2B payments capabilities through the further development of the “Equals Money” proposition whilst ramping up the Group’s sales and marketing in this sector. Equals Money is the unified platform that incorporates the payments, cards and current account solutions that the Group can offer and ties directly into the strategic vision for the Group to simplify money movement. The work undertaken in 2019 and 2020 forms a key component of this proposition. Assembly of bank-grade security and connectivity, including the integration into the Faster Payments network and the implementation of the Citibank partnership to provide “local” settlement in over 40 countries, form the underlying scalable and secure platform for clearing payments efficiently. This backbone is overlaid by “better than banks” technology to provide customers with the products and platforms they need to make payments, both by account-to-account transfer and by cards, in easily accessible (via enhanced onboarding system) and simple to use applications. Investments made in 2020 into the Group’s customer services platform, telephony and the new CRM system mean that the Group can not only onboard the customer but also service them to the highest levels with human interaction. With this impressive capability now assembled, the twin priorities in 2021 are to further refine the platform whilst increasing the Group’s sales and marketing efforts to win more customers and grow revenues. Own-name IBANs A key component of further enhancing the platform is the ability to give customers “own-name” multi-currency IBAN numbers. This functionality enables the Group to give a customer one account into which all their international payment transactions can flow in and out seamlessly and rapidly. Even more importantly, the account being in the customer’s own name makes dealing with suppliers and customers much simpler and utilising the Group for this aspect of their business does not require them to change their main banking provider. Own-name IBANs was delivered on the scheduled date in the Group’s development roadmap for 2021. Linked cards Other product deployments in the first quarter of 2021 included the delivery of “Linked Cards” on the Group’s FairFX B2C card platform. This capability allows users to set up additional users on their account that can either share in the balance on the primary card or alternatively only receive funds via a push-transaction from the primary card. This functionality will enable the FairFX B2C cards to widen their use-case from only travel money applications to also provide pocket-money solutions for children of existing cardholders. Dealer platform In addition, further enhancements to the Group’s Equals Pay International Payments platform were delivered concurrently with the deployment of a new internal dealer platform, called “Exchange”, which integrates directly with the new CRM system. Major product developments for the rest of 2021 include – • further enhancements to the payment processing engine to enable complete STP, both inbound and outbound; • improvements to the Pay platform, specifically around forward contracts and bulk payments functionality; • additional card capabilities for both B2B and B2C including real-time payment authorisations by Equals, virtual cards, Apple Pay and Google Pay; • implementation of Group-wide omni-product transaction monitoring and risk systems, utilising machine-learning capabilities; and • the integration of Equals Money products into accountancy software provider offerings. 12 EQUALS GROUP PLCCHIEF EXECUTIVE OFFICER’S REPORT CONTINUED Sales and marketing In conjunction with the developments listed above, the Group will be accelerating its sales and marketing efforts, particularly in the B2B space. A root-and-branch review of the Group’s sales effort was completed in March 2021 and the recommendations from that will be implemented during the remainder of the year. In keeping with Equals Money being the combination of the Group’s Payments, Cards and Banking products, the new sales force will be selling the combined product suite. This will involve a combination of re-training, recruitment, and incentive plans to drive cross-selling and the investment in the new CRM system is vital to the success of this effort. As the Group has seen in recent years, hastened even further by the collapse of Wirecard in June 2020, the compliance and regulatory oversight of payment institutions is increasing significantly. The Group has always been at the forefront of compliance practice and views this increased focus as a competitive opportunity, as many smaller companies will not be able to meet the standards required. Accordingly, the Board continues to look for accretive acquisitions where the compliance overhead for the company can be removed and bring their business onto the Group’s superior platform and thereby free them to concentrate on growing their revenues. Overall, whilst the COVID-19 pandemic is by no means over, especially its ongoing effects on international travel, the Group are seeing consistent turnover increases in International Payments and the Corporate Spend platform. The Board envisages further growth across the Equals Money product suite as enhanced product capabilities combine with the Group’s sales and marketing initiatives. In addition, incremental enhancements to the Group’s operational systems and payments connections will yield further capacity for scale and efficiencies. Current trading and future prospects From this time last year, the Group has cut its headcount by around 25% and reduced its monthly costs by around £400,000. Revenue during the continuing COVID-19 lockdown of Q1-2021 was above £8 million against the pre-COVID-19 Q1-2020 revenue of £8.1 million. On an annualised run-rate basis, revenue per head is now £120k pa (Q1-2020: £90k), a productivity increase of a third. In addition, incremental additions to the Group’s operational systems and payments connections will yield further capacity for scale and efficiencies. Capital markets day On 6th May 2021, the Group will host its first ever Capital Markets Day. This is an opportunity for the Group to showcase its people, current products and capabilities and the sales and development roadmaps. This will enable investors to gain a deeper understanding of the business and an insight into the future strategic direction of the Group. Employees Finally, a review of FY-2020 and the prospects of the Group would not be complete without a word about our employees. We have always had an employee base that was dedicated, hardworking and loyal but the pandemic really emphasised the strength of our people. They have shown both diligence and fortitude through the year, accepting salary sacrifices during lockdown whilst seeing many of their colleagues either on furlough or leaving the Group permanently as we downsized. We have emerged from the challenges of 2020 with a fantastic, cohesive and motivated group of people who are collectively driving the business forward. I am tremendously grateful to all of them, individually and collectively, for everything they did in the year and are continuing to deliver in 2021. IAN STRAFFORD-TAYLOR Chief Executive Officer 7 April 2021 13 ANNUAL REPORT 2020 | STRATEGIC REPORTChief Financial Officer’s Report PART A: INTRODUCTION To aid readers of these financial statements, the Group has chosen to present the primary statements in an alternative format and explain the major movements to the prior year along with issues of accounting impact and judgement. Totals may not sum due to rounding. Percentages are calculating on underlying figures before rounding. As a result of the strategic pivot from B2C towards B2B, this review starts with a “dashboard” look at the business performance and then takes readers through a granular examination of the income stream and cost dynamics. This is shown below in Table 3, which is net of Separately Reported Items (see note G). Table 3 B2B METRICS Number of active accounts x Transactions per day x Average transaction size x Average margin (in bps) = Revenues per day x working days in period = Revenue Add: B2C REVENUE TOTAL REVENUE x Contribution margin = CONTRIBUTION Payments Cards Banking Rebates and similar TOTAL 4.4k 0.2k £32k 70 £54k 8.9k 1.3k £0.6k 160 £12k 4.9k 2.1k 40 £10k £76k £13.6m £3.1m £2.6m £1.0m £20.3m + £8.7m £29.0m 59% £17.1m £(15.9)m £1.2m Less: Gross costs (excluding separately identified items) % booked through income statement ADJUSTED EBITDA £(23.6)m 67% → A detailed review of the underlying data has led to some minor reprofiling of H1-2020 and prior year disclosures. Totals may not sum due to rounding. Percentages are calculated on the underlying figures before rounding. The Group reacted quickly to the COVID-19 pandemic, the effect of which had a dramatic impact on revenues. The Group immediately accelerated its re-sizing program which involved reducing costs in all areas of the business, without jeopardising its product roll-out program. Adjusted EBITDA fell by £4.4 million from £5.6 million to £1.2 million. The three principal reasons for this reduction were: • Reduction in revenue, translating into a reduction in contribution of £1.8 million • £3.8 million reduction in the amount of staff costs capitalised, offset by: • a reduction in staff and other costs of £1.2 million, resulting in a net increase in costs taken to the P&L of £2.6 million 14 EQUALS GROUP PLCCHIEF FINANCIAL OFFICER’S REPORT CONTINUED PART B: INCOME AND EXPENSE ACCOUNT INCOME AND EXPENSE ACCOUNT AND ITS COMPONENTS: Table 4 – Income and Expenditure account and notes In £000’s Revenue Less: Variable costs Gross profit Marketing Contribution Staff costs IT & telephone Professional fees Property and office costs Travel Bad debt provisions Other costs Net other costs *Adjusted EBITDA Separately reported items: COVID-19 related costs Wirecard related costs (non-cash) Management exceptional items Acquisition costs Share option charges Ratio Ratio Note H1-2020 H2-2020 FY-2020 FY-2019 13,772 (5,034) 8,738 63.4% (799) 7,939 57.6% (5,458) (549) (641) (437) (157) – (25) (7,267) 672 15,188 (5,636) 9,552 62.9% (407) 9,145 60.2% (6,103) (750) (788) (556) (76) (357) (23) 28,960 (10,670) 18,290 63.2% (1,206) 17,084 59.0% (11,561) (1,299) (1,429) (993) (233) (357) (48) 30,945 (10,378) 20,567 66.5% (2,037) 18,530 59.9% (9,801) (878) (959) (803) (451) – (62) (8,653) 492 (15,920) 1,164 (12,954) 5,576 A B B C D E F L G (445) (530) – (1,119) (540) – (1,564) (1,070) – (975) (1,659) (2,634) – – (3,423) (3,423) H – (130) (130) (478) (195) (249) (444) (123) EBITDA L (498) (1,546) (2,044) 1,552 * Adjusted EBITDA is defined as earnings before: interest, depreciation, amortisation, impairment charges, share option charges, foreign exchange differences and separately reported items. A detailed review of the underlying data has led to some minor reprofiling of H1-2020 and prior year disclosures. Totals may not sum due to rounding. Percentages are calculated based on the underlying, rather than table, data. 15 ANNUAL REPORT 2020 | STRATEGIC REPORTCHIEF FINANCIAL OFFICER’S REPORT CONTINUED NOTE A – REVENUE COVID-19 had a more significant impact on the revenues from retail-facing products, resulting in total revenue being softer at £29.0 million (2019: £31.0 million). The most significant changes were: • B2B revenues surged to 70% of the total (FY-2019: 56%). • International payments revenue increased by 46% and within that B2B revenues increased by 51%. • Revenue from Equals Connect, the Group’s white-label platform grew rapidly with £0.9 million earned in H1-2020 and £1.5 million earned in H2-2020. • Revenues from non travel-money products increased by 18% to £26.6 million (FY-2019: £22.9 million). • Whilst revenue from the Corporate Expense platform contracted by 23% from FY-2019, growth resumed in H2-2020 by 35%. • Retail cards and travel cash, the B2C exposed travel products, inevitably contracted compared to FY-2019 and H2-2020 was lower than H1-2020. • FY-2019 revenue benefited from rebates of £1.6 million including some one-offs. FY-2020 rebate revenues were £1.0 million. NOTE B – GROSS PROFITS AND CONTRIBUTION There is an interaction between direct costs (which includes variable revenue-share arrangements) and marketing expenditure. The Group’s marketing department review the effectiveness of CPA arrangements (shown within direct costs) and marketing costs and move expenditure to the more efficient cost silo. Marketing costs, net of separately reported items, are shown below: Table 5: Marketing costs £000’s Gross costs Less: Separately reported items Net costs H1–2020 H2–2020 FY–2020 FY–2019 799 – 799 407 – 407 1,206 – 1,206 4,090 (2,053) 2,037 Contribution margin was virtually unchanged at 59% (2019: 60%). Excluding Equals Connect, the Group’s white label platform, the underlying margin on International Payments was 70% in FY-2020 (FY-2019: 68%), The white-label business (Equals Connect) acquired in November 2019 contributed £0.6 million of contribution in FY-2020 (FY-2019: £0.05 million), with a contribution margin of 26%. Contribution, and contribution margins are shown below: Table 6: Contribution £000’s Revenue Variable costs Marketing Contribution 2020 % Contribution 2019 % 16 International Payments Banking Cards and cash FY–2020 FY–2019 17,363 5,110 6,487 28,960 30,945 (6,469) (1,356) (2,845) – (607) (599) (6,469) (1,963) (3,444) 10,894 63% 8,391 70% 3,147 62% 3,356 63% 3,043 47% 6,783 50% (10,670) (1,206) (11,876) 17,084 59% 18,530 60% (10,378) (2,037) (12,415) 18,530 60% EQUALS GROUP PLCCHIEF FINANCIAL OFFICER’S REPORT CONTINUED NOTE C – STAFF COSTS Staff and Directors took a 20% salary reduction for three months in H1-2020, and 10% for two months in H2-2020. The total financial value of the sacrifices made by staff was around £1.0 million – and equates to a 7% cut in staff salaries in the year. The underlying monthly run-rate of payroll costs reduced from £1.4 million in January 2020 to £1.2 million in December 2020. It has subsequently fallen further to just above £0.9 million, although it is expected to rise marginally above that level in 2021. Table 7 – Staff costs £000’s Gross costs less Furlough credit Less: Capitalised internal software Less: Acquisition costs Less: Separately identified items – COVID-19 Less: Separately identified items - other Net staff costs H1-2020 H2-2020 FY-2020 FY-2019 8,366 (324) 8,042 (2,241) – (343) – 9,159 (222) 8,937 (1,761) (83) (990) – 17,525 (546) 16,979 (4,002) (83) (1,333) 5,458 6,103 (11,561) 18,497 – 18,497 (7,801) (160) – (735) (9,801) Staff numbers reduced from 331 In January 2020 to 272 in December 2020 and 257 in January 2021. A redundancy and exit programme was launched early in 2020 and resulted in £1.3 million of associated costs. The Group availed itself of the Government’s furlough scheme with up to 72 employees being placed on furlough during the lockdown. Part of the reduction in headcount was associated with the completion of a number of projects. The demise of Wirecard and the subsequent card migration diverted resources away from capital projects. NOTE D – IT AND TELEPHONE In the last three months of 2019, a number of decisions were taken to invest more in the security network, system resilience, and other IT tools and subscriptions required for the execution of the product roadmap. The full cost of this, together with increased hosting costs came through in 2020 leading to an increase in costs. These investments allowed the Group’s employees to seamlessly work from home during the pandemic in a secure and compliant environment. Table 8 £000’s Gross costs Less: capitalised Net IT & telephone H1-2020 H2-2020 FY-2020 FY-2019 759 (210) 549 959 (209) 750 1,718 (419) 1,299 1,180 (302) 878 NOTE E – PROFESSIONAL FEES There are two streams of professional fees which were material, but not treated as separately reported items: a. Additional regulatory, but routine external audit costs of a subsidiary £125k.* b. marketing consulting fees, £200k As reported in the interims, the Group expects compliance costs to remain high for the foreseeable future. One consequence of the COVID-19 pandemic was that the 2019 audit suffered delays as remote working was not entirely conducive to the verification process and there was a significant cost over-run of £160k but this shown as a separately reported item. * S166 FSMA 2000 17 ANNUAL REPORT 2020 | STRATEGIC REPORTCHIEF FINANCIAL OFFICER’S REPORT CONTINUED Table 9 £000’s Gross costs Less: acquisition costs Less: Separately identified items Net professional fees H1-2020 H2-2020 FY-2020 FY-2019 743 – (102) 641 949 (48) (114) 788 1,692 (48) (216) 1,429 1,601 (318) (324) 959 NOTE F – PROPERTY AND OFFICE COSTS The Group has property commitments in Chester for offices, and in London for both offices and retail outlets. Two retail outlets have been shuttered and exited. Table 10 £000’s Gross costs Less: Separately identified items Less: Capitalised internal software Less: IFRS16 adjustment Net property and office related costs H1-2020 H2-2020 FY-2020 FY-2019 997 – (45) (515) 437 1,104 – – (548) 556 2,101 – (45) (1,063) 993 2,310 (151) (204) (1,152) 803 NOTE G – SEPARATELY REPORTED ITEMS With the demise of Wirecard AG and its UK operating subsidiary, the Group has made provisions of £652k against card-stock and prepaid issuance costs (normally amortised over three years). The Group’s action plan to downsize with the onset of COVID-19 resulted in costs of £1.6 million split largely between staffing costs of £1.3 million, and additional professional fees – mainly audit over-run costs. The Group’s recognition of the costs associated with these two events was tracked on an individual-by-individual basis to ensure charges were correctly recorded as either operational or COVID-19 related. Table 11 £000’s Cash-based costs - COVID-19 Staff costs Professional fees Other costs Total, COVID-19 Cash-based costs – Wirecard Staff costs Professional fees Transaction charges Total Cash-based costs Provisions and write-offs - Wirecard Card stocks written off Rebranding Corporate reorganisation Litigation and similar Total, separately reported items Split between: COVID-19 costs Wirecard Other 18 H1-2020 H2-2020 FY-2020 FY-2019 343 102 – 445 – – – – 445 530 – – – – 975 445 530 – 975 979 102 38 1,119 11 12 395 418 1,322 204 38 1,564 11 12 395 418 1,537 1,982 122 652 – – – – – – – – 1,659 2,634 1,119 540 – 1,659 1,564 1,070 – 2,634 – – – – – – – – 2,724 579 120 3,423 3,423 – – 3,423 3,423 EQUALS GROUP PLCCHIEF FINANCIAL OFFICER’S REPORT CONTINUED NOTE H – ACQUISITION COSTS In October 2020, the Group acquired the trade and assets of Effective FX for £125k as an up-front payment and further performance related earn-outs over three years. Acquisition costs of £130k were incurred and charged to the P&L account. NOTE J – IMPAIRMENT REVIEW Despite the COVID-19 pandemic, no further impairment was judged in any of the Cash Generating Units. NOTE K – DEPRECIATION AND AMORTISATION Depreciation for the period was £0.5 million for tangible fixed assets (FY-2019: £0.4 million) and £0.9 million for “right-to-use” assets (2019: £0.9 million). Amortisation of acquired intangibles was £1.2 million for the year (FY-2019: £0.9 million). Amortisation of other assets, principally capitalised software, was £3.1 million (FY-2019: £1.8 million) NOTE L – RECONCILIATION BETWEEN ADJUSTED EBITDA AND LOSS BEFORE TAXATION Table 12 £000’s Revenue Direct costs Gross profits Marketing Contribution Staff costs Property IT and Telephone Professional fees Travel and subsidence Other expenditure FX differences Depreciation Contingent consideration Amortisation Interest Loss before taxation NOTE M – TAX Separately reported items Note G Acquisition costs Note H – – – – – – – – – – Adjusted EBITDA 28,960 (10,671) 18,289 (1,206) 17,083 Share options – – Result before tax 28,960 (10,671) 18,289 (1,206) 17,083 (11,561) (1,333) (82) (444) (13,420) (993) (1,299) (1,428) (233) (405) 1,164 – – (216) – (1,085) (2,634) – – (48) – – – – – (130) (444) (993) (1,299) (1,692) (233) (1,490) (2,044) (199) (1,427) (637) (4,347) (392) (9,046) An accrual has been made for £1,367k of R&D credits. £2,535k of R&D accruals at 31 December 2019 were received in 2020. With £1,367k of R&D tax accruals for 2020, the “net” cost of the staff costs capitalised drops from £4,002k to £2,635k or 66% in the pound. 19 ANNUAL REPORT 2020 | STRATEGIC REPORTCHIEF FINANCIAL OFFICER’S REPORT CONTINUED Table 13 £’000 R&D tax credits Deferred tax credit/(charge) Total tax credit 2020 1,371 738 2,109 2019 3,514 (927) 2,587 The Group has £16.9 million of tax losses available to be offset against future taxable profits. Note N – Loss per share Loss per share Adjusted loss per share* * Adjusted EPS is before separately reported items and acquisition costs. Basic 2020 (3.87)p (2.33)p Diluted 2020 (3.87)p (2.33)p Basic 2019 (3.20)p (86)p Diluted 2019 (3.12)p (84)p 20 EQUALS GROUP PLCCHIEF FINANCIAL OFFICER’S REPORT CONTINUED Part C Cash flow The table below aggregates the movements across Bank and Liquidity providers: Table 14 £000’s Adjusted EBITDA (table 4) Less: IFRS 16 Leases impact Less: acquisition costs Less: separately reported items cash based Less: Internally capitalised software Less: Purchase of other intangibles Less: Purchase of property, plant, equipment Cashflows before working capital, acquisitions and external funding (Less) / add: Working capital movement* Cash for acquisitions/ earn-outs External funding R&D credits received during the year Cash raised from equity issues Cash raised from share options Draw-down of CBILs NET CASH FLOWS Balance at 1 January Balance at 31 December Comprising: Cash at bank Cash in hand in bureaux Regulatory deposits Add: Balances with liquidity providers Less: Customer deposit margins and similar** Less: CBILs Shares in issue Amount per share FY-2020 FY-2020 FY-2019 FY-2019 Movement 1,164 5,576 (4,412) (1,063) (130) (1,982) (4,465) (65) (160) 2,539 – – 2,000 9,658 22 352 5,695 (4,900) (3,175) (4,690) (6,701) (1,485) (8,186) (825) 4,539 (4,472) 13,299 8,827 10,032 795 (2,000) 8,827 178,602,918 4.9 pence (1,152) (478) (3,423) (8,307) (806) (1,452) 1,068 15,749 130 – 10,451 462 352 3,717 (1,683) (5,053) 1,878 (10,565) (10,042) 402 (9,640) (3,325) 5,875 3,341 (1,887) 1,454 2,500 16,947 (12,408) 3,982 9,317 13,299 (8,454) 3,982 (4,472) 11,265 (1,233) 2,034 – 13,299 178,602,918 7.4 pence (1,239) (2,000) (4,472) – * Includes movements in balances with liquidity providers and customer deposit margins. ** Balances which fall outside the FCA safeguarding regime and hence are “on” balance sheet. 21 ANNUAL REPORT 2020 | STRATEGIC REPORTCHIEF FINANCIAL OFFICER’S REPORT CONTINUED Part D Balance sheet The Group was able to avail itself of the Government’s COVID-19 support package through the draw-down of £2 million through the Coronavirus Business Interruption Loan Scheme (“CBILs”). The loan carries no interest for the first 12 months and can be repaid at any time during this period. This loan provides a working capital buffer against any customer debt failure or to expand – principally by being able to offer more forward FX business at competitive rates. At 31.12.2020 At 31.12.2019 On Balance sheet Off balance sheet** (memo only) On Balance sheet Off Balance sheet (memo only) Movement Table 15 £000’s Gross Cash resources Less: Customer balances* Less: CBILs loan Cash per cashflow (table 14) Other current assets and liabilities Card stock and other inventories Accrued income Trade debtors Other debtors Prepayments Accrued R&D credit Retention and deferred consideration Accrued expenses Trade creditors PAYE and VAT Other creditors Cash resources, less other current assets and liabilities 15,727 (4,900) (2,000) 8,827 194 419 2,443 168 860 1,367 5,451 (1,662) (2,271) (2,510) (766) – (7,209) 7,069 Fixed Assets (other than “right to use”) 36,496 IFRS16 (Right to use assets less lease liabilities) Derivative financial assets (net) Deferred tax, (net) (346) (30) (547) 96,110 (96,110) – – – – – – – – – – – – – – – – – 14,982 (1,683) – 13,299 264 1,726 1,450 360 1,466 2,535 7,801 (1,110) (1,786) (2,495) (624) (155) (6,170) 14,930 35,297 (294) 372 (788) 52,441 (52,441) – – – – – – – – – – – – – – – – – – – – – (4,472) (2,350) (1,039) (7,861) 1,199 (52) (402) 241 (6,875) Shareholders’ funds 42,642 49,517 * on-balance sheet balances are not required to be safeguarded. ** Off balance sheet items comprise balances held in client accounts. 22 EQUALS GROUP PLCCHIEF FINANCIAL OFFICER’S REPORT CONTINUED Internally capitalised software The Group continues its investment in product development and has capitalised a further £4.5 million (FY-2019: £8.3 million) of which £4.0 million (FY-2019: £7.8 million) was staff costs. Off balance-sheet funds The rapid expansion of the B2B side of the business has led to an 83% increase in funds either safeguarded or segregated by regulatory subsidies of the Group. Other balance sheet items The Group has accrued £1.25 million for R&D credits (FY-2019: £2.5 million). During 2020, the Group received the £2.5 million of R&D credits accrued in 2019. Non-Controlling Interest Of the £6.9 million loss for the period, £18k relates to the Non-Controlling Interest of the Equals Connect business acquired in 2019. RICHARD COOPER Chief Financial Officer, 7 April 2021 23 ANNUAL REPORT 2020 | STRATEGIC REPORTCompliance with Companies Act 2006, Section 172 Statement Under Section 172 of the Companies Act 2006, a director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company* for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to: (a) the likely consequences of any decision in the long term; (b) the interests of the Company’s employees; (c) the need to foster the Company’s business relationships with suppliers, customers and others; (d) the impact of the Company’s operations on the community and the environment; (e) the desirability of the Company maintaining a reputation for high standards of business conduct; and (f) the need to act fairly as between members of the company. *The Directors consider that references to the Company extend to both the Company and the Group. The Group’s stakeholders include, but are not limited to, its employees; suppliers; customers; regulators; and investors. The Board endeavours to achieve and maintain a reputation for high standards of conduct amongst its stakeholders which it regards as crucial in its ability to successfully achieve its corporate objectives. During the development of the Group’s strategies and decision making processes, the Board will consider its stakeholders and their interests. The differing interests of stakeholders require the Board to assess and manage the impact of its policies in a fair and balanced manner to the benefit of its stakeholders as a whole. The Board considers below these different stakeholder groups, their material issues and how the Group engages with them. EMPLOYEES The employees are one of the greatest assets to the Group. Their interests, which include training and development; a safe environment to work; diversity and inclusion; fair pay and benefits; reward and recognition are a high priority. On a day-to- day basis, Directors engage directly with employees promoting an open, non-hierarchical culture, in which employees have an active contribution to the Group’s success. Fortnightly “All Hands” meetings, Group updates and staff feedback questionnaires are performed, and the Board will actively reflect on these when making decisions. Regular management training, internship programmes, personal development and performance reviews all contribute to the development of staff. SUPPLIERS Supplier interests include fair trading, payment terms and working towards building a successful relationship. The Group will regularly review its supplier payments and performance alongside its monitoring of its performance. All suppliers, particularly low value suppliers are paid promptly on their invoices being validated by the approved personnel in the Group. The Group has processes in place in order to combat modern slavery in the business and its supply chains, and details of these can be found in the published Modern Slavery Statement at https://www.equalsPLC.com/content/investors/corporate-governance CUSTOMERS Customers are interested in successful product availability and usage; fair pricing and adherence to regulations. The Group wants to achieve the highest level of customer service and will regularly review feedback and reviews it receives from its customers. The Group operates under an open and transparent pricing model with its customers. REGULATORS AND COMPLIANCE The Group holds licences with the Financial Conduct Authority and HMRC and must adhere to the regulatory requirements of these licences. The Group ensures that staff have sufficient knowledge and regular training if necessary to ensure that these regulations are met. All staff receive the relevant Anti-Bribery and Anti-Money Laundering training as the nature of the business may result in a higher risk of money laundering. Procedures and communications are in place to ensure that staff are able to comply with Anti-Money Laundering should there ever be a case. 24 EQUALS GROUP PLCCOMPLIANCE WITH COMPANIES ACT 2006, SECTION 172 STATEMENT CONTINUED INVESTORS Investors expect to be informed of the financial performance and developments of the Group. This is done by holding regular trading updates; planned investor programmes; publication of the annual and interim reports and press releases. All shareholders are invited to attend the Annual General Meeting where they are able to raise questions to the Board. The Executive Directors will attend meetings with investors and analysts. The Strategic Report on pages 6 to 25 was approved and authorised for issue by the Board on 7 April 2021, and was signed on its behalf by: IAN STRAFFORD-TAYLOR Chief Executive Officer 25 ANNUAL REPORT 2020 | STRATEGIC REPORTGovernance 26 26 EQUALS GROUP PLCReport on Corporate Governance for the year ended 31 December 2020 The Group is dedicated to maintaining a high level of Alan had 35 years with HSBC, rising to its UK executive corporate governance and the responsibilities of the Chair board as General Manager. One of his HSBC roles was CEO include leading the Board in an effective manner, overseeing of FirstDirect Bank where he introduced its digital services, the Company’s corporate governance model, and ensuring introduced significant product innovation, and quadrupled that good information flows freely between Executives and its size and returns. He was responsible for all HSBC UK’s Non-Executives in a timely manner. products, pricing and marketing. His non-executive roles have The Board has adopted the Quoted Companies Alliance and Non-Executive Director of NewDay Cards and of Capital Corporate Governance (QCA Code) in line with the London One Bank. He is currently Chairman of Unity Trust Bank PLC Stock Exchange’s AIM Rules, requiring all AIM-listed and Senior Independent Director of Hitachi Capital (UK) PLC. companies to adopt and comply or explain non-compliance He has an MBA from Henley and is a Fellow of the Chartered included Chairman of RateSetter, the Peer-to-Peer platform, with a recognised corporate governance code. This report Institute of Bankers. 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 Ian Strafford-Taylor - Chief Executive Officer (date of appointment: 4 March 2014) that the Group complies with the QCA Code in all respects, Committee: Nomination Committee 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. Equals continues to be committed to promoting a socially responsible corporate culture, illustrated through its internal values and policies, as well as external supplier and shareholder engagement. 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. DIRECTORS The Equals Board is presently made up of four Directors. The two Non-Executive Directors are deemed to be “independent”. Alan Hughes – Chairman and Independent Non-Executive Director (date of appointment: 1 March 2020) Committees: Chair of Nomination Committee, Interim Chair of Remuneration Committee, member of Audit Committee and Risk Committee A Founder and a Director of the Group since 2007. Ian has held a number of senior banking roles, including Business Unit Controller and Head of International Securities Lending at Morgan Stanley, where he worked from 1985 to 1992. Following this, Mr. Strafford-Taylor 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. Richard Cooper – Chief Financial Officer (date of appointment: 14 October 2019) Richard has extensive public market and growth company experience. He was the CFO of GVC Holdings PLC (now Entain plc), one of the world’s largest sports betting and gaming groups, from 2008 to 2017. Whilst at GVC, Richard played a key role in the implementation of the company’s acquisition strategy during that period, together with its move from AIM to the premium segment of the London Stock Exchange’s Main Market. Richard, a Chartered Accountant, is also the Chairman and Non-Executive Director of VR Education Holdings PLC, a technology focused education company admitted to AIM. Sian Herbert – Independent Non-Executive Director (date of appointment: 1 October 2020) Committees: Chair of Audit Committee, Chair of Risk Committee and member of Remuneration and Nominations Committee Sian Herbert has had an extensive City career spanning 35 years within audit, financial crime, risk and regulation, focusing on the financial services and technology sectors. She gained 25 years’ experience at PricewaterhouseCoopers LLP (‘PwC’), including fifteen years as a partner within the forensic services group, becoming an established expert in financial services, e-money and payment services, advising on financial crime, risk, regulatory change and the impact of technology. 27 ANNUAL REPORT 2020 | GOVERNANCEREPORT ON CORPORATE GOVERNANCE CONTINUED As well as being a member of the ICAEW, Sian is also a In addition to their general Board responsibilities, Non- Member of the Hong Kong Society of Accountants. She is Executive Directors are encouraged to be involved in currently a Non-Executive Director of HBL Bank UK Limited. specific workshops or meetings, in line with their individual 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. As at 31 December 2020 no NED holds any share options in the Company. The Non-Executive Directors are each expected to dedicate approximately 18 days per annum and otherwise such time as required. areas of expertise. The Board shall review annually the appropriateness and opportunity for continuing professional development, whether formal or informal. The Group 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 30 June 2020, the proposed resolutions received the following proportion of votes: Ordinary resolutions: Re-election of Robert Head Re-election of Richard Cooper Re-election of Alan Hughes Authority to allot shares Special resolution: Authority to allot shares In Favour Opposed Withheld 94.1% 99.9% 99.9% 99.9% 5.80% 0.00% 0.00% 0.10% 0.10% 0.10% 0.10% 0.00% 99.9% 0.10% 0.00% The Company held a General Meeting held on 29 July 2020, with the proposed resolutions being passed: Adoption of 2019 Annual Report and Consolidated Financial Statements Re-appointment of PricewaterhouseCoopers LLP as auditor to the Company In Favour Opposed Withheld 87.8% 100.0% 8.2% 0% 4.0% 0% The Board has established four committees: Audit, Risk, Remuneration and Nominations and formally delegated duties and responsibilities as described below. The attendance record of each relevant Director at Board and committee meetings during 2020 is as follows: Alan Hughes John Pearson Ian Strafford-Taylor Ajay Chowdhury Robert Head Richard Cooper Sian Herbert Board 11 Meetings Audit and Risk Committee 2 Meetings Remuneration Committee 2 Meetings Nomination Committee 2 Meetings 11 10 11 4 11 11 2 3 3 N/A 1 3 N/A 2 2 2 N/A – 1 N/A – 2 1 2 1 – – 1 Anthony Quirke is the Company Secretary and 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 Market Abuse Regulations (“MAR”) compliance. 28 EQUALS GROUP PLCREPORT ON CORPORATE GOVERNANCE CONTINUED CULTURE REMUNERATION COMMITTEE The Board recognises the importance it has in setting the tone, The Remuneration Committee is responsible for determining culture and behaviour of the Group and promotes an open and agreeing with the Board the framework for the and respectful dialogue with employees, suppliers and other remuneration of the Chairman, the executive Directors and stakeholders. The importance of sound ethical values and other designated senior executives and, within the terms behaviours is crucial to the ability to successfully achieve the of the agreed framework, determining the total individual corporate objectives, and the Board places great importance on remuneration packages of such persons including, where this aspect of corporate life, seeking to ensure that this flows appropriate, bonuses, incentive payments and share options across the Group. The Group’s values: Make it happen; Succeed together; Be the customer; and Go beyond are at the forefront of promoting this culture and are in line with the business pillars and brand values to help guide the Group’s behaviour. These values promote the healthy corporate ethos of effective communication and encourage an ‘ideas culture’. The Group believes such values are important 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 currently comprises the two Non-Executive Directors and is chaired by Sian Herbert. The Remuneration Committee report is included on pages 46 in creating a strong and consistent internal culture, as well as to 48. being essential to driving the overall success as a business. Staff are actively encouraged to provide feedback on many areas surrounding the business activities and initiative, and fortnightly Group-wide meetings are held to promote an open and honest dialogue across the Group. 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, ensuring NOMINATION COMMITTEE The Nomination Committee is responsible for developing and maintaining an effective and rigorous procedure for making recommendations on the appointments and re-appointments to the Board. The Nomination Committee currently comprises the Non-Executive Directors and the Chief Executive, and is chaired by Alan Hughes. SHARE DEALING CODE that processes are put in place to manage risk inherent in the The Company has adopted, with effect from Admission, a business, and overseeing the relationship with the external share dealing code for Directors and applicable employees auditor (including advising on their appointment, agreeing of the Group for the purpose of ensuring compliance by the scope of the audit and reviewing the audit findings). The such persons with the provisions of the AIM Rules relating to Audit Committee is chaired by Sian Herbert and includes dealings in the Company’s securities (including, in particular, Non-Executive Director Alan Hughes. The Audit Committee meets at least 3 times a year, including at appropriate times dealing during close periods in accordance with Rule 21 of the AIM Rules). The Directors consider that this share in the reporting and audit cycle to consider audit matters and dealing code is appropriate for a company whose shares otherwise to focus on risk matters. The Audit Committee also are admitted to trading on AIM. The Company takes proper meets regularly with the Group’s external auditor. steps to ensure compliance by the Directors and applicable The report of the Audit Committee is included on pages 41 to 43. RISK COMMITTEE employees of the Group with the terms of the share dealing code and the relevant provisions of the AIM Rules (including Rule 21). The Risk Committee is responsible for maintaining the Group’s The Corporate Governance Report was approved and risk register and evaluating the risks included in it. The Risk authorised for issue by the Board on 7 April 2021, and was Committee is Chaired by Sian Herbert and meets not less than signed on its behalf by: four times a year. The Chief Operations Officer, not a board member, is responsible for day-to-day risk management and compliance and is the prime contact for regulatory bodies that have supervisory roles for the Group. Other executives and staff are part of this Committee. The report of the Risk Committee is included on pages 44 and 45. ALAN HUGHES Chair 29 ANNUAL REPORT 2020 | GOVERNANCEESG: CEO Letter Dear Stakeholder, I recognise the central role our colleagues play and the value of having a talented and motivated workforce to deliver our strategy: their professionalism and commitment to not only support and maintain our “be the customer” approach, one of our values, but to support one another through a very challenging year. Responding to employee feedback and recognising contributions to making the Group a better business are, therefore, principal areas of focus for the Group. We engage with our employees through numerous channels, which has never been more important than in this past year, and, have ensured that regular contact is maintained throughout the pandemic. The founding of our “Inclusive Network” came in response to the drive by employees to further prioritise diversity and inclusion throughout the Group, and we are committed to fostering a supportive Group culture. We also implemented an awards programme for our Company Values, for individuals to be nominated monthly on the basis of their achievements against these values. Customer engagement has always been a key part of our offering, as we know our customers still value being able to pick up the phone and talk to someone – and that is true now, more than ever. We are therefore committed to delivering the highest quality of support. We have multiple channels through which customers can contact us and we provide comprehensive training for our employees, enabling them to efficiently and effectively respond to any and all queries. Our high Trustpilot scores speak to the hard work and responsiveness of our customer services team, and we are proud to have such a high rate of satisfaction from customers. Data security remains a key priority for our business and we make every effort to ensure our data and that of our customers’ is kept safe and secure. We have robust governance structures and rigorous cybersecurity processes in place, provide annual training for employees on best practice in data security, and have ensured that while employees working remotely have been equipped with technology to keep customer data secure. In 2020, efforts have been made across the business to make sure we are procuring sustainable products and services wherever possible, and we have initiatives underway to further reduce our impact, including addressing our energy sources and consumption. DUTY TO PROMOTE THE SUCCESS OF THE COMPANY (1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to— (a) the likely consequences of any decision in the long term, (b) the interests of the company’s employees, (c) (d) (e) (f) the need to foster the company’s business relationships with suppliers, customers and others, the impact of the company’s operations on the community and the environment, the desirability of the company maintaining a reputation for high standards of business conduct, and the need to act fairly as between members of the company. (2) Where, or to the extent that the purposes of the company consist of, or include, purposes other than the benefit of its members, subsection (1) has effect as if the reference to promoting the success of the company for the benefit of its members were to achieving those purposes. (3) The duty imposed by this section has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company. The Group wishes to go beyond these obligations and has embarked upon a journey to become a B-Corp certified business. Certified B Corporations demonstrate that they consider the social and environmental impact of their business in all their operations and meet certain performance and accountability standards. We are currently in the process of completing our B Impact Assessment and we look forward to updating our stakeholders on our progress in due course. The full ESG report is included below on pages 31 to 40. Whilst we have included a s172 report in this annual report, it is apposite to cite the first three subsections: IAN STRAFFORD-TAYLOR Chief Executive Officer 30 EQUALS GROUP PLC ESG: Vision and mission statements Values The culture of the Group is focused on how we interact with each other, our customers and other stakeholders critical to our success. Our culture helps us achieve our business objectives. Our culture is defined by four carefully chosen values: • Make it happen; • Succeed together; • Be the customer; and, • Go beyond. These values guide our day-to-day behaviour and drive our decision-making at all levels. The values are easy to understand – and yet fundamentally important. They express our shared beliefs to form the basis for a high-performing culture that can help maximize the full potential of Equals. Make it happen Succeed together Do the right things, We are one team Be the customer We walk in our Go beyond If we all went that do them right and own and with common customers’ shoes and extra mile, just think the outcome goals. When we work we always strive to how far we could go together we can achieve more make our customers’ lives simpler All our values are underpinned by the hashtag - #Own-the-Outcome - this to encourage all staff to take responsibility to follow through on the values. We know that our corporate success is predicated upon the successful engagement with and growth of our talented workforce to ensure they are prepared to support and delight our customers. Through careful investment in our people and infrastructure, we are building a trusted technology-led financial services business. 31 ANNUAL REPORT 2020 | STRATEGIC REPORTESG: Material issues Area of focus Relevance Activities during the year Carbon emissions All companies must consider their GHG emissions and, even as an office-based operation, the Group is working to reduce its carbon emissions. • Using an environmental waste management service • Reduced the office size • Incentivising employee use of green modes of transport – Company vehicles can only be electric or hybrid • Switching to renewable energy providers Responsible procurement The Group is committed to minimising its environmental impact by ensuring it procures sustainably and reduces unnecessary waste. It also seeks to ensure fair payment terms with all suppliers. • Targeting ‘paper-free’ offices by 2023 • Review of procurement due diligence processes, including gathering of relevant ESG materials from suppliers Nurturing our talent Our people are integral to the Group’s operations and we want to ensure they feel motivated in their work and are able to develop their skills. • Enhanced training and development programmes Employee engagement, diversity and inclusion In order to have an engaged workforce that knows their interests are recognised, it is important that we promote a supportive and inclusive working environment and Group culture. • Established “Inclusive Network” • “Own The Outcome” Awards • Employee engagement survey Protecting our customers The Group holds licenses with the Financial Conduct Authority and HMRC and must adhere to the regulatory requirements of these. Transparent practices We must ensure that we are transparent and fair in the delivery of our services and the disclosure of our fees. • Project21 - Socio-economic initiative to give school children in Stratford work experience in FinTech • Anti-Bribery and Anti-Money Laundering training • Treating our customers fairly policy • Vulnerable Customers Policy • Open and transparent pricing model s e c i t c a r p e b a n a t s u S l i l e p o e p r u O s r e m o t s u c r u O y Privacy and data security t i r u c e s a t a D As a consumer finance company, data security is a key priority for the Group as we must protect our customers’ data and minimise the risk of data breaches. • Rigorous oversight of data security • Regular IT infrastructure penetration tests • Third party data security compliance testing Governance Our shareholders must see evidence of our strong ESG risk management and governance oversight. Business ethics Across the Group, employees and management must demonstrate ethical behaviour in all operations. e c n a n r e v o G • Cybersecurity training • Weekly IT security meetings • Adoption of and compliance with the Quoted Companies Alliance Corporate Governance Code • Ongoing training to raise awareness and understanding of Employee Handbook and Code of Conduct, and of amendments as appropriate Risk management To combat any significant disruptions, the Group • 6 Risk and Audit Committee meetings during must have robust systems in place to ensure continued business operation and efficiency, as well as strict regulatory compliance. Equals leadership team are responsible for the allocation of capital across the business to support its strategic ambitions and return value to all stakeholders the year • Business Continuity & Disaster Recovery Procedure • Board and frequent ExCo meetings • investment into business segments business strategy i c Disciplined m o n o c E 32 EQUALS GROUP PLC ESG: Stakeholder Engagement In accordance with Section 172 of the Companies Act 2006, (see pages 24 to 25), the Group has disclosed how it operates to promote the interests of its stakeholder groups, including Employees, Customers, Suppliers, Regulators, and Shareholders. By engaging with these groups, Equals is not only accountable to its stakeholders, but also gains a wide range of perspectives on the direction of the business that can help drive progress. The Board considers all matters raised by stakeholders in a fair and balanced manner that ensures benefit is seen for all and the business is positively impacted. Why we engage Material issues How we engage Our employees are integral to the business. We endeavour to attract and retain talented individuals and create an environment in which people feel motivated and engaged, supported and rewarded. Nurturing our talent Employee engagement, diversity and inclusion We maintain a non-hierarchical culture, in which all employees can contribute to the Group’s success. We directly engage with employees through Weekly “All Hands” meetings, Group updates and staff feedback questionnaires. Management training and performance reviews also provide opportunities to check in with staff and track their development. At Equals we want to deliver the highest quality service to our customers. We engage with our customers regularly by eliciting feedback and reviews to ensure that customers are satisfied with the service and to enable us to implement any improvements. We advocate productive and open relationships with our suppliers, in order to ensure the continued efficiency of our business. It is important that we maintain open and transparent communications with regulators, as the Group must adhere to regulatory requirements of the Financial Conduct Authority and HMRC We recognise our responsibility to keep our shareholders informed of the Group’s performance. We therefore engage regularly and openly with our shareholders, enabling them to fulfil their role as stewards and to monitor the direction of the business. Privacy and data security Selling practices and product labelling Risk management We issue customer surveys and gather net promoter score data. Customers are also able to provide feedback and leave reviews on our Trustpilot page and engage with us through our social media channels, Facebook and Twitter. Responsible procurement Business ethics Governance For new suppliers, we engage in a range of checks, from data protection to in-depth assessment, and share our expectations for supply chain compliance. We monitor performance on an ongoing basis and regularly review supplier payments. Risk management Regulatory compliance team Governance Business ethics Governance Business ethics Risk management Disciplined business Strategy External Compliance advisors Terms of Reference for all committees Strong Governance structure Annual audits We keep our shareholders informed through holding regular trading updates; planned investor programmes; publication of the annual and interim reports and press releases. Shareholders can raise questions at the Annual General Meeting and in meetings with the Executive Directors. s e e y o p m E l s r e m o t s u C s r e i l p p u S s r o t a u g e R l l s r e d o h e r a h S 33 ANNUAL REPORT 2020 | STRATEGIC REPORTESG: Our People ‘Succeed together’: at Equals we recognise the central role of people to our business. We are committed to maintaining a diverse and engaged workforce and promoting the training and development of our employees. EMPLOYEE ENGAGEMENT TRAINING AND DEVELOPMENT To improve the ease of our onboarding process, new employees can onboard themselves through our online portal, Bamboo. New employees receive on the job training, and we offer ongoing training to employees for core job responsibilities. We support the progression and development of our employees: we have a policy to encourage internal promotions, we facilitate external professional training opportunities, and we subsidise educational opportunities for employees. We are continuing to develop our management training programme, and we currently provide ongoing feedback and performance evaluation. HEALTH, SAFETY AND WELLBEING We promote the health and wellbeing of our staff through a number of initiatives. Both full-time and part-time employees are eligible for the life insurance and private supplemental health insurance that the Company offers. Employees also have access to an Employee Assistance Programme and counselling service, and we advocate and offer incentives for employee participation in wellness programmes. We offer a Cycle to Work scheme which, while also reducing the carbon emissions from travel, promotes the health and wellbeing of our staff. Our Health & Safety Policy sets out our commitment and the objectives we aspire to in managing health and safety and we expect all employees to act in accordance with its guidelines. GIVING BACK In considering our societal impact, we want to give our employees the opportunity to get involved. We support employees in their endeavours, matching individual people’s charitable donations and allowing the workforce to select charities that will receive the Company’s donations. Our Corporate Social Responsibility (CSR) programme was launched in 2020 and gave young people from underprivileged backgrounds the opportunity to gain work experience within different parts of the business. In 2021, Equals will formalise this programme through the verification of its inaugural CSR policy, enabling employees to volunteer within working hours and offer their time and expertise for the benefit of local voluntary and community groups. Our Company Values set out the way that we wish to conduct business and engage with our stakeholders. During the year, we engaged with the business to review, refresh and roll out these values to ensure they are fit for purpose and truly reflect our principles. By providing a clear point of reference, our values shape our interactions, and we are encouraged by the way that they are being embedded throughout the organisation. We have been impressed by how our employees have accordingly adopted the values and in recognition of this we established an awards programme – the Own the Outcome Awards (“OTO”) – which are held monthly. Individuals are nominated on the basis of their achievements against a particular value. We aim to foster a supportive working environment in which our employees feel engaged, motivated and valued for their contributions. We shall be conducting an annual employee engagement survey to provide the opportunity for our staff to give feedback or voice concerns. In 2021 we have established an employee forum – acting as a sounding board for the Executive Committee and the people teams to focus on employee related matters, corporate social responsibility and ESG. DIVERSITY AND INCLUSION “Creating a place that inspires diversity of thought, innovation and an inclusive sense of belonging” – Inclusive Network objective At Equals we endeavour to maintain a diverse and inclusive workforce. We are committed to being an equal opportunity employer; we do neither discriminate on the basis of gender identity, race, ethnicity, disability, nor other demographic factors and we ensure our facilities are accessible for individuals with physical disabilities. Our Executive Committee is responsible for diversity, equity and inclusion across the Group, and we have programmes in place to provide training and support for individuals from underrepresented groups. In response to the internal drive by employees in promoting this matter, the Company founded an Inclusive Network. This forum, whose members encapsulate all locations and teams, meets regularly to discuss measures to improve performance on the nominated topics of mental health, diversity of culture, and gender. To further embed this culture of inclusivity, in 2020 Equals endorsed the introduction of diversity and inclusion training for managers. 34 EQUALS GROUP PLCESG: OUR PEOPLE CONTINUED COVID-19 RESPONSE In line with government guidance, we moved the majority of our staff to remote working in March 2020. Supported by our Business Continuity & Disaster Recovery Procedure and the prior work of our digital services team in setting up virtual environments, the change was efficient and smooth for our employees. We want our employees to feel comfortable and safe and therefore have continued to encourage flexible working so that staff who would prefer to work from home feel supported in doing so. To safeguard the wellbeing of our staff we have stayed in regular contact via email, managers have made themselves available to their teams on Zoom, and we facilitated 1-to-1s with individuals who needed support. As employees were able to begin coming back into the office, we implemented extensive health and safety procedures to ensure the safety of our staff. We have a risk assessment in place that is reviewed every two weeks. Throughout the office we have floor markings and signs to reinforce social distancing practices, and we have provided tissues, hand sanitiser and PPE. Staff must wear masks when they leave their workstations, doors are kept open, and our cleaning staff maintain a strict routine to ensure the office remains a safe environment for our essential employees to operate in. As a result of the pandemic, the management team had to make a number of difficult decisions over the course of the year, and this included reducing our headcount in response to immediate challenges faced by the business. Equals remains very mindful of the contributions of our employees and is incredibly grateful for employees’ response during this time and their ability to adapt to the changing circumstances. Our focus continues to be on supporting our employees and providing them with the necessary tools and training to meet the evolving requirements of their everyday roles. Metric Employees by employment type - Number of full-time employees - Number of part-time employees - Number of temporary employees Diversity and inclusion - Number of women at board level - Number of women in workforce - Percentage of women in workforce - Number of people of ethnic minority at board level - Number of people of ethnic minority in workforce Employee engagement (%) Employees internally promoted (%) Retention rate (%) Employees paid a national living wage (%) 2020 2019 268 9 8 1 78 29% 0 320 10 6 0 94 29% 1 13 declared (not compulsory to complete) 65-80 11.5% 82 100 unknown unknown 4.3% unavailable 100 35 ANNUAL REPORT 2020 | STRATEGIC REPORT ESG: Our Customers ‘Be the customer’: this company value encapsulates the Group’s approach, as we want our customers to feel valued and supported every time they contact us. Our focus is on delivering the highest quality service and encouraging innovative thinking in order to resolve any issues that arise. COMMUNICATION AND INNOVATION TRAINING AND DEVELOPMENT Cultivating an experienced and informed team in Customer Services is key to the seamless operation of our business. We provide extensive training for our employees, covering all subjects from completing a change of address, to detecting fraudulent activity. As part of the on-boarding process for new employees we have a one-day to one-year tracker through which we log all the new procedures they have learnt in order to track their development. If a change is implemented in an existing process, training policies are immediately updated, and guides for all processes are available on the Group portal. If there are any difficulties, we provide repeat training sessions to ensure that our staff feel confident in their work. Due to the rigorous training and deep understanding that the Customer Services team must develop, the staff have a strong foundation in understanding the operation of Equals, enabling upward mobility in the business. SAFEGUARDING OUR CUSTOMERS To safeguard our customers against unfair treatment, we are committed to being transparent about our services. Details of our fees our available on our website and included in our FAQs. Furthermore, our Customer Services team are trained on fraud detection and compliance with Anti-Money Laundering (AML). In addition to an annual AML test, we endeavour to update the team on risk every six months. Controls are in place in the system to recognise and flag unusual activity, including customers who are potentially being scammed. A member of the team will contact the customer to query the activity, and raise anything suspicious with the Compliance team, who will then consider further action as necessary. To ensure effective, responsive communication with our customers, we maintain three key channels for receiving queries: phone calls, email and live chat. We have a target in place to ensure that customers wait no more than 30 seconds before their call is answered and email queries will be responded to within the working day. We continue to improve the effectiveness of our processes, including the installation of a new phone system which enables the team to take their phone calls at home and to tag each call with the appropriate query type to support tracking of issues. We have also fully integrated live chat into our approach, as it enables faster response times from the team. RESPONDING TO FEEDBACK In addition to our three key channels, we also receive feedback through our Trust Pilot and app review pages, and we reach out to all customers who express dissatisfaction to see if we can improve their experience. Messages to our social media pages – Twitter and Facebook – are filtered into our ticketing system, so that the team can stay on top of all feedback provided. Moreover, we elicit feedback from our customers directly, issuing surveys and gathering NPS data following interactions with the team to gauge their satisfaction with the service. Some of our outreach programmes were postponed during 2020 as we adjusted to our new operating size and environments, but we have/intend to reinstate them for 2021. We are very proud of our high customer satisfaction scores, with the vast majority of customers reporting a positive experience with our Customer Service team. Both FairFX and Equals Connect are also rated as ‘Excellent’ on Trustpilot. IMPROVING OUR SERVICE As well as maintaining high responsiveness, we are committed to implementing improvements as a result of feedback. We categorise all the queries we receive, so that we can track issues as they arise, and thereby identify any topics that are repeatedly mentioned. In such instances, we consider whether a fix can be implemented to improve customer service. We work closely with our Product Engineers and Design Team, and any matters that fall within their remit are forwarded to them for their consideration. 36 EQUALS GROUP PLCESG: OUR CUSTOMERS CONTINUED Case study In 2020, due to the cessation of Wirecard, we moved our pre-paid customers to a new card. This was a huge undertaking, as we were reaching out to customers who had joined us as far back as 2007. We had over 150 colleagues across all areas of the business helping to triage the customer base that needed immediate help. Our Customer Services team worked hard to respond to all queries and keep our customers informed of the changes. Live chat was prioritised above phone calls, allowing staff to increase the number of customers they could respond to on a daily basis. While this change was challenging, we were able to deliver an upgrade for our customers, moving to a card with expanded and improved features. To ease the transition, we designed a simple process whereby customers could approve the switch through clicking a button on an email, and we followed up with reminder emails. Despite the decrease in travel in 2020, the uptake of the new card was very successful, and we will continue to support former customers should they want to reactivate their accounts in the future. Metric Satisfaction Survey - My issue has been fully resolved (%) - Based on this support experience I would recommend this product to a friend (%) - The agent was knowledgeable and helpful (%) 2020 90 88 91 - Overall how satisfied were you with the support provided by our Customer Service Team (%) 86 – Extremely Satisfied or Mostly Satisfied Trust Pilot Scores - FairFX - Equals Connect Training - Number of hours of customer services training available Calls - Calls answered within 30 second target (%) 4.6 – ‘Excellent’ 4.9 – ‘Excellent’ 25+ hours 80 37 ANNUAL REPORT 2020 | STRATEGIC REPORT ESG: Data Security ‘Make it happen’: At Equals, data security is a top priority. Our exemplary cybersecurity record has not been achieved by chance but by design, as we strive to maintain the highest standards in cybersecurity and data privacy throughout the Group, with robust governance structures and policies in place. OVERSIGHT OF IT AND DATA SECURITY There are three key committees that oversee the effective governance of data security across the Group; Security Council, Architecture Council, and Technical Risk Committee. These committees oversee, among other matters, the security, design and risk associated with our systems, and are all accountable to the Group Board. Security Council Architecture Council Technical Risk Committee Chair: Chief Product Officer Chair: Head of Architecture Chair: Head of Infrastructure Purpose: Purpose: Purpose: • Evaluate security threats to the group, • To review architectural Sign Off • sign off new technical decisions or requests • To maintain a technical risk register • To feed risks up to the Group Risk system changes, • To discuss new architectural changes Committee • sign off new third party integrations, • To review practices and standards • ensure compliance with relevant • To create architectural control for regulations, auditing purposes • To risk assess and discuss the outcome for changes to the status quo • maintain certifications as required (such as PCI), • organise and evaluate penetration testing, • maintain DR & BCP plans, • write appropriate group policy on security Equals has a comprehensive series of IT and data security policies and procedures in place to ensure that we operate securely and safeguard our customers’ data. • Cloud Storage Usage Policy • Computer Usage Policy • Data Classification Policy • Data Protection Impact Assessment Procedure • Data Protection Policy • Data Retention Policy • Instant Messaging Policy • Password Policy • Business Continuity & Disaster Recovery Procedure While we currently store some data in on-site servers, we are moving towards having all data stored by external data centres. SUPPLY CHAIN COMPLIANCE We engage with third parties for a number of operations. Whenever we engage a new supplier, we run data protection checks, and if the supplier is providing a core service, we conduct an in-depth assessment and the organisation is incorporated into our Business Continuity & Disaster Recovery Procedure, for which the Security Council has sign off. CYBERSECURITY To minimise risk in relation to cyber-attacks, we have a number of procedures in place, including two-factor authentication which is mandatory across the business. Employees must complete cybersecurity training annually, and in 2020 this training focussed heavily upon the risks around working from home. All our systems undergo a penetration test at least once a year and we conduct targeted penetration tests for new systems and following major changes. We also carry out vulnerability scanning every month. 38 EQUALS GROUP PLCESG: DATA SECURITY CONTINUED WORKING FROM HOME AND IMPROVING TECHNOLOGY As a result of our Business Continuity & Disaster Recovery Procedure, we were able to facilitate a smooth transition to working from home for our employees. We had previously set up virtual environments and secure working systems for remote working, and our ‘cloud first’ approach makes data security easier. Prior to the pandemic, we introduced a new cloud-based phone system that could be run from any location. Metric Number of data breaches Employees completed cybersecurity training (%) The new phone system contained expanded features including improved topic tracking and more efficient call transferring capabilities. Our ticketing system also facilitates smooth communications for the customer services team. 2020 0 90% 2019 0 90% 39 ANNUAL REPORT 2020 | STRATEGIC REPORTESG: Sustainable Practices ‘Go beyond’: While we recognise that as an office-based Group our environmental impact is minimal, we endeavour to embed sustainable practices throughout our business and engage in responsible procurement. In our Chester offices, we have a number of sustainable objectives. Foremost, we will be transferring to a ‘green contract’, which will not only guarantee 100% of our energy used comes from renewable sources but will also represent a cost-saving for the Group. At these offices we employ an environmental waste service that separates all recycling and burns waste to feed energy back into the National Grid. We are also launching a Group-wide initiative to become a paper-free Group. Our finance department is working to minimise paper statements and have invoices sent electronically, our development team is exploring moving our customers completely online in their interactions with Equals, and all departments are considering ways in which they can reduce their paper usage. To ensure responsible procurement and supply chain management our Compliance department is developing a due diligence questionnaire for new suppliers that will include a section relating to environmental impact and green accreditations. To reduce waste as well as supporting the local communities in which we are based, the Group donates all unused or retired devices to a local organisation to be cleaned or refurbished and then given to local schools and underprivileged families. As well as incentivising environmentally friendly travel to work through our Cycle to Work scheme, our offices have bike storage and electric vehicle charging points, and we our encouraging remote working where possible. In London, we have reduced the size of our office space, supporting employees to work remotely whilst also minimising the impact of operations. The building is managed by CBRE – please visit their website for more information on their management of properties: https://www.cbre.co.uk/. Metric Chester office Energy use - Total energy use from 01.01.2020 – 31/12/2020 (KwH) Paper use - Number of sheets of headed paper ordered - Number of sheets of copier paper ordered London office Paper use 2020 2019 75,100 20,000 25,000 n/a 40,000 152,500 - Number of sheets of paper ordered 3,000 45,000 GOVERNANCE ESG Risk Management is integrated into the way Equals operates. In 2020 the CFO established a Project Committee to address our ESG strategy and reporting. Both the Audit and Risk Committees put a great deal of focus on cyber-security and the Security Council, Architecture Council, and Technical and Risk Committee all ensure effective management of data security. Each operating subsidiary holds quarterly board meetings on which the standing agenda items include: • Commercial matters • Financial performance • Risk evaluation • Compliance issues and developments • People issues • Customer interaction and complaints 40 We continue to strengthen our ESG management systems where we feel improvements can be implemented. The Group is in the process of formalising its Inclusive Network and CSR Programme to ascertain full compliance and disclosure, and the incoming Head of Risk & Compliance will have a remit that includes ensuring ESG considerations flow across all areas of the business. We are developing a Risk Appetite Statement which will outline our approach to risk including geographic locations and industry types that we would exclude on the basis of high-risk exposure. Equals expects all its employees to act in accordance with the highest standards in business ethics. Our Employee Handbook sets out the Group’s key procedures, rules and policies, including ethical conduct, compliance, anti-bribery, whistleblowing, insider information, data protection and health and safety. New joiners are introduced to our Code of Ethics immediately upon arrival, and employees and managers are given ongoing instruction on compliance with the Code. Any amendments that are made are communicated in a timely manner. There were no reported incidents in respect of any company policies during 2020. EQUALS GROUP PLCReport of the Audit Committee for the year ended 31 December 2020 The Company’s Audit Committee has responsibility for all e. monitor the integrity of announcements containing subsidiaries in the Group. financial information. In the period since the last report, the Committee focused on the effectiveness of the controls across the Group, especially 2. Internal controls a. monitor adequacy and effectiveness of the internal as the Group expanded with the acquisitions listed in the financial controls and processes, and ensuring any Report of the Chairman. Integrity of reporting and risk shortcomings are rectified at the earliest opportunity; monitoring is a key 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. b. where appropriate, ensure compliance with the Quoted Companies Alliance Corporate Governance (QCA Code). 3. Risk management a. review and provide oversight of the processes by which risks are managed and optimised by the Risk Committee 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). The Group has well-resourced compliance and risk operations but given its size does not have an internal 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 audit function. effectiveness; COMMITTEE COMPOSITION The Audit Committee is chaired by Sian Herbert and includes Non-Executive Director Alan Hughes. Other meeting attendees during the year included previous Non-Executive Directors, members of the external audit team, Ian Strafford- Taylor, CEO; Richard Cooper, CFO; and other members of the finance team. The Committee has given the opportunity for the various attendees to have closed meetings without the 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. other attendees to debate any issues that may arise. COMMITTEE ACTIVITIES DURING THE YEAR 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 external auditor; Financial statements and business reports • • Reviewed the 2019 Annual Report and Consolidated Financial Statements, and recommended that both be approved by the Board; Reviewed the projected cash flow forecasts and sensitivity analyses as prepared by the Chief Financial Officer; as a result, the Committee concluded the business should be considered a going concern, and the financial statements should be prepared as such. b. review significant financial reporting judgements and the application of accounting policies, including compliance with the accounting standards; EXTERNAL AUDIT • Debated and agreed the external audit strategy; c. ensure the integrity of the financial statements and their compliance with UK company law and accounting regulations; d. ensure the Annual Report and financial statements are fair, balanced and understandable, and recommend their approval to the Board; • 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 issued by the International 41 ANNUAL REPORT 2020 | GOVERNANCE REPORT OF THE AUDIT COMMITTEE CONTINUED Accounting Standards Board (IASB) and as adopted by the European Union and had been prepared in accordance with the Companies Act 2006. Their enquiries covered regular management and KPI reporting, analytical review and sign off on key control accounts; ENGAGEMENT OF THE EXTERNAL AUDITOR AND TENURE An audit tender process was run in 2019 resulting in PricewaterhouseCoopers LLP being appointed as external auditor. As a matter of course, PwC are not awarded any • Reviewed progress in dealing with control issues raised by non-audit work; please refer to note 5 of the financial the external auditors in their management letter; statements for more details regarding the breakdown of • Reviewed and approved the Letter of Representation sent by the Company to the external auditors. payments to the Group auditor. AUDITOR INDEPENDENCE OTHER • Compliance with laws and regulations including money laundering. GOVERNANCE The Committee meets at least three times per year and routinely meets with the external auditor without the Executive Directors present. It is chaired by Sian Herbert, an independent Non-Executive Director, who is a chartered accountant with recent and relevant financial experience. The Chair has frequent meetings with the external auditors to ensure issues are being considered on a timely basis. The Chief Financial Officer and other members of the finance team work closely with the Committee Chair to facilitate open communication and regular information flow. The Committee members bring 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 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 financial statements. The external auditor confirmed its independence as auditor of the Group through written confirmation to the Group. 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 currently a substantive audit. The Committee keeps this under review as its preference competence and credibility. The Committee receives regular from a control perspective is that the external audit should 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 financial statements and internal controls that support the disclosures, the Annual Report and financial statements, 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. use control testing to get a better view of the control environment. RISK MANAGEMENT AND INTERNAL CONTROLS Further details of risk management and internal controls are set out under note 21.2 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. 42 EQUALS GROUP PLCREPORT OF THE AUDIT COMMITTEE CONTINUED CONFLICTS OF INTEREST POST YEAR END ACTIVITIES An annual review is undertaken, facilitated by the Company The Audit Committee has continued the above activities in Secretary, to identify any conflicts of interest that may 2021. The most material issues have been: 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 • The 2020 Annual Report and Consolidated Financial Statements, and the Committee has recommended that both be approved by the Board; has been determined that none of the Directors had or have an interest in any material contract relating to the business • A review of the Cash Flow forecasts statement as overseen by the Chief Financial Officer. of the Company or any of its subsidiary undertakings. SIGNIFICANT ISSUES Significant issues and accounting judgements (refer to note 3.26) are identified by the Committee, the finance team, or through the external audit process and are reviewed by the Audit Committee. SIAN HERBERT Chair of the Audit Committee 7 April 2021 43 ANNUAL REPORT 2020 | GOVERNANCEReport of the Risk Committee for the year ended 31 December 2020 From January 2021, the Board of the Company established a Risk Committee separate from the Audit Committee, but chaired by the Chair of the Audit Committee and which reports to the Board. It also comprises of at least one other Non-Executive Board member. The meetings are attended by both the CEO and CFO. An executive below Board level, the COO, who is internally responsible for risk and compliance also attends. Subsidiary undertakings hold Board meetings not less than every quarter and risk is a standard item on their agenda. Minutes of subsidiary meetings are included in the Board packs of Equals Group plc. The Risk Committee, along with the Executive Directors, is responsible for the identification, assessment, management and monitoring of all risks of the Group. A risk register is maintained which scorecards those risks identified and the appropriate policies and procedures to mitigate those risks. Below is a summary of the risks which the Committee believe are highly rated and the controls put in place to mitigate them. Risk Description of Risk Control Data integrity and security • Losses from a cyber-attack or • Appointed a Chief Information Officer with responsibility for other associated malicious events data security and data governance • Loss of revenue • Reputational risk • Setup a Security Council with Group wide participants to monitor all aspects of security in the Group • Regular penetration testing, training and awareness, system access controls and encryption, physical security Business Continuity/ Disaster Recovery Business disruption and potential business failure • Detailed Business Continuity Plan and Disaster Recovery Plan tailored to each entity Fraud Financial loss, reputational risk, potential to lose customers and reduce growth, supplier chain risk • Regular testing • Increased adoption of cloud-based services (AWS) • Senior management awareness • Staff training • Fraud reporting to Risk Committee • Automated transaction monitoring • Appropriate people in fraud roles to oversee and manage risk Banking arrangements and relationships • Loss in one or more banking partners could result in disruption and eventual business failure • Loss of Agency Banking services • From February 2019, the Group became a direct member of Faster Payments and have banking arrangements with the Bank of England which mitigates the risk of losing agency banking services The Group faces significant competition A reduction to competitive advantage resulting in slower business growth and ultimately financial loss • Group partnered with Citi Commercial Bank in July 2019 and entered 5 year agreement with Mastercard in September 2019 • Engineering development to maintain research & development and innovation • New products • Improved CX to enhance usability of products - IT development to maintain research & development and innovation • Maintain relationship and traffic from key price comparison sites • Quality of people in business • Maintain the Group’s reputation • Investment in marketing and product development • Increased investment in IT development • Increased sales development • Review of costs to ensure cost efficiency 44 EQUALS GROUP PLCREPORT OF THE RISK COMMITTEE CONTINUED Risk Description of Risk Control Operational liquidity • Ability to settle trades in the • Operational monitoring through controls in trading platforms correct currencies as they fall due and strict hedging policies and controls • Incorrect hedging resulting in • Automated hedging platform augmented by human cashflow needlessly being tied up in foreign currency or overdrawn accounts oversight • FIX engine links to liquidity providers • Daily reconciliations of FX positions Failure of key suppliers impacts performance Loss of productivity, potential to lose customers and reduce growth. Carry out regular review of supplier performance and seek alternatives where necessary Macro environment including impact of Brexit IT platform re-build 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-premises solution to cloud Liquidity Unable to meet liabilities as they fall due • Weekly reporting of prior week cash movements • Regular cashflow forecasts run with sensitivities • Longer term budgets and forecasts Regulatory compliance • Emerging regulations and • Review and update Group policies and procedures. adherence to existing regulations • Non-compliance: fines; sanctions; prison and reputational risk • Review of new statutes and financial regulation. • Annual regulatory audits by expert third parties. • Annual staff training. Governance • Lack of Board oversight leading • Regular Board and Committee meetings to failure to fulfil legal and regulatory responsibilities BREXIT Brexit results in both an opportunity and a threat. An opportunity to provide greater FX solutions to customers, but a threat due to possible reduction in international trade. The Risk Committee regularly reviews the impact of Brexit. COVID-19 The pandemic posed an existential risk to the business through customer inactivity and staff sickness. Mercifully, the incidence of sickness was very low. Staff were able to self-isolate and continue to work from home as to mitigate the disruption risk the Group had well prepared plans to cope with this eventuality. In terms of the economic shock to the business, the Group took the following actions: • Immediately identified the business areas vulnerable (mainly retail travel products); • Placed affected staff on Furlough via the Governments scheme; • Prepared a submission for the CBILs loan scheme; • Rolled-out a restructuring plan prepared by the CEO and CFO; and • Identified customers who might be at risk of default and contacted them immediately. No material default occurred due to COVID-19. The Group continues to evaluate the threats from the ongoing pandemic. SIAN HERBERT Chair of the Risk Committee 7 April 2021 45 ANNUAL REPORT 2020 | GOVERNANCEDirectors’ remuneration report for the year ended 31 December 2020 The Remuneration Committee presents its report on The base salaries of the CEO and the CFO were unchanged Directors’ remuneration for the year ended 31 December in 2020, at £275,000 (2019: £275,000) and £250,000 (2019: 2020. The disclosures comply with the requirements of £250,000) respectively. Both participated in the periodic the Companies Act 2006, the Group’s adopted Corporate voluntary pay cuts during the year as mentioned above. Governance Code - the Quoted Companies Alliance Code - There was no change to base salary of the Non-Executive and applicable AIM Rules. Directors during the year. They too participated fully in the voluntary pay cuts. Membership of the Committee during the year comprised: Robert Head, Chair from 1st January to 30th June (resigned 1 October 2020) John Pearson, Chair from 1st July to 30th September (resigned 9 October 2020) Alan Hughes, interim Chair from 1st October 2020 Sian Herbert - appointed 1st October 2020 Executive Directors are invited to attend. No attendee or member is present for discussion of their own remuneration. SHORT TERM INCENTIVES – ANNUAL BONUSES All bonuses and conditional bonuses, whether the conditions have been made or not, have, from 2020 onwards, been accrued. CEO BONUS In relation to the 2019 financial year, a bonus of £247,500 was awarded during 2020. £165,000 was paid during 2020 and REMUNERATION POLICY £82,500 was paid in 2021. The Group policy is for potential total remuneration to be at the median levels for companies of similar size, complexity and growth aspirations for all roles; for any variable remuneration to be subject to performance criteria; and for financial and other performance measures and goals to be objective, measurable and clear. Equals seeks to encourage and reward value created as well as pay for work done, as is appropriate for a growing firm. To this end, we want staff to share an interest in the value of The CEO is entitled to a bonus of £275,000 in relation to 2020 should all performance conditions be met. At the date of signing these financial statements, 50% of the conditions have been met and £137,500 is immediately payable. The second tranche of £137,500 is deferred and is conditional on evidence that the actions taken during 2020 have resulted in the strength of the Group’s performance continuing. The full amount of the bonus has been accrued. the firm by means of share-based, performance-linked, long- CFO BONUS The CFO was awarded and paid a bonus of 60% of his base salary, £150,000 during 2020 based upon the significant improvements in reporting that he implemented. A further £40,000, awarded as a pension contribution, was paid in April 2021 in relation to other achievements in 2020. This has been accrued in full. term incentives that track shareholder value and good ESG practices over time. Independent Non-Executive Directors are encouraged to hold shares but do not qualify for share options or incentives. The Remuneration Policy is reviewed annually to align with the Group’s development and shareholder expectations. 2020 REMUNERATION As outlined in the Strategic Report, 2020 was an unexpectedly difficult year for many of our people personally and challenging to address successfully the turbulence in our markets. The Group’s plans and priorities had to change quickly and they did so in response. All staff and Directors took voluntary pay cuts for two periods during the year and use was made of the Government furlough scheme in parts of our business. The Group constantly monitors salary levels across similar enterprises and reacts where necessary to upward salary pressures. 46 EQUALS GROUP PLCDIRECTORS’ REMUNERATION REPORT CONTINUED TOTAL REMUNERATION PAID The following tables provide details of Directors’ remuneration paid during 2020 and 2019 financial years before deductions for income tax and national insurance contributions (where relevant). Year ended 31 December 2020 Paid during the year Executive Directors Ian Strafford-Taylor Richard Cooper Sub-total - executives Non-Executive Directors A Chowdhury (resigned 29 July 2020) J Pearson (resigned 9 October 2020) R M Head (resigned 1 October 2020) A R F Hughes (appointed 1 March 2020) S A Herbert (appointed 1 October 2020) Gross Salary £ Bonus £ Employer Pension £ Total Remuneration Paid £ Benefits £ 254,477 231,145 485,622 21,333 56,943 32,750 56,359 18,734 165,000 150,000 315,000 – – – – – 3,503 3,503 7,006 – 2,675 – – – 2,681 2,773 5,454 – – – – – 425,661 387,421 813,082 21,333 59,618 32,750 56,359 18,734 Total remuneration paid 671,741 315,000 9,681 5,454 1,001,876 Gross Salary £ Bonus £ Employer Pension £ Total Remuneration Paid £ Benefits £ Year ended 31 December 2019 Paid during the year Executive Directors Ian Strafford-Taylor Richard Cooper (appointed 14 October 2019) Sub-total - executives Non-Executive Directors 271,144 272,500 55,128 – 326,272 272,500 1,919 – 1,919 – 1,919 – 3,838 856 546,419 55,128 856 601,547 50,000 76,188 55,000 856 782,735 A Chowdhury (resigned 29 July 2020) J Pearson (resigned 9 October 2020) R M Head (resigned 1 October 2020) 50,000 74,269 55,000 – – – Total remuneration paid 505,541 272,500 LONG-TERM SHARE-BASED INCENTIVES LTIP LTIP awards will typically vest over a three-year period with annual performance criteria and then be subject to holding periods. For awards granted to Executive Directors which vest, 50% of the net shares taken (after payment of tax and NIC) must be held for a minimum period of one year. In 2020 executives have been granted performance-based share options shown in the table below. These were to maintain their incentive and were adjusted with the help of shareholder feedback. 47 ANNUAL REPORT 2020 | GOVERNANCEDIRECTORS’ REMUNERATION REPORT CONTINUED Directors’ interests in long term incentive plan share options as at 31 December 2020 was: Director award date Ian Strafford – Taylor 28/07/2014 28/07/2014 28/07/2014 28/09/2016 28/09/2016 28/09/2016 01/09/2020 01/09/2020 01/09/2020 Richard Cooper 01/09/2020 01/09/2020 01/09/2020 Option price (£) Number Granted Date Granted Earliest Exercise date Latest exercise date 0.22 0.36 0.36 0.30 0.30 0.30 0.29 0.29 0.29 0.29 0.29 0.29 192,950 28/07/2014 05/08/2016 03/11/2022 1,789,300 28/07/2014 05/08/2016 03/11/2022 1,535,750 28/07/2014 05/08/2016 03/11/2022 250,000 250,000 250,000 666,667 666,667 666,666 333,333 333,333 333,334 7,268,000 28/09/2016 28/09/2017 27/09/2026 28/09/2016 28/09/2018 27/09/2026 28/09/2016 28/09/2019 27/09/2026 01/09/2020 30/04/2021 01/09/2030 01/09/2020 30/04/2022 01/09/2030 01/09/2020 30/04/2023 01/09/2030 01/09/2020 30/04/2021 01/09/2030 01/09/2020 30/04/2022 01/09/2030 01/09/2020 30/04/2023 01/09/2030 ALAN HUGHES Interim Chair of the Remuneration Committee 7 April 2021 48 EQUALS GROUP PLC Directors’ report for the year ended 31 December 2020 Equals Group PLC is a company limited by shares. The Equals is an equal opportunity employer. It does not Directors present their annual report and audited discriminate on the basis of disability, gender reassignment, consolidated financial statements for the year ended marriage and civil partnership, pregnancy and maternity, 31 December 2020. FINANCIAL REPORTING The consolidated financial statements of Equals Group PLC for the year ended 31 December 2020 are set out on pages 60 to 93. These have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006. race, sexual orientation, religion or belief, sex or age. It ensures that this is upheld in regard to hiring, continuing employment and training, career development and promotion. Further details of the Group’s relationship with its employees can be found in the Section 172 statement on pages 24 and 25 and in the ESG report on pages 30 to 40. 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. Major trading subsidiaries FairFX PLC, Spectrum Payment Services Limited and Equals Connect Limited are authorised by the Financial Conduct Authority under the Payment Services Regulations 2009 for the provision of payment services and Fair Payments Limited RELATIONSHIPS WITH SUPPLIERS AND, CUSTOMERS AND OTHERS The Group recognises that strong relationships with customers and fair dealings with its suppliers are key to its success as a business. Further details of how this is applied in practice can be found in the Section 172 statement in the Strategic Report on pages 24 and 25. DIVIDENDS The Directors do not recommend the payment of a dividend for the year ended 31 December 2020 (2019: nil). is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 for the provision of DIRECTORS electronic money services. The principal activity of the Company is as an investment holding company for the Equals Group of companies. KEY PERFORMANCE INDICATORS The Strategic Report set out on pages 6 to 25 provides key performance indicators and an assessment of the Group’s financial performance throughout the year. RELATIONSHIP WITH EMPLOYEES The Group operates transparently with its employees and holds fortnightly Group wide “All Hands” with the purpose of keeping employees up to date with Group business and its developments. These also offer staff the opportunity to present their viewpoints and are in addition to regular departmental updates. The Board believes this helps create a common awareness and goals across the Group to help it achieve its strategies. 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 R Q M Cooper A Chowdhury (resigned 30 June 2020) J Pearson (resigned 20 October 2020) R M Head (resigned 1 October 2020) A R F Hughes (appointed 1 March 2020) S A Herbert (appointed 1 October 2020) DIRECTORS’ INTERESTS The Directors who held office at 31 December 2020 held the following shares in the Company as at that date: Shareholding % Ordinary 1p shares 2020 I A I Strafford - Taylor 1.22% 2,177,750 R Q M Cooper A R F Hughes S A Herbert 0.05% 0.02% 0.02% 89,000 34,000 33,000 49 ANNUAL REPORT 2020 | GOVERNANCEDIRECTORS’ REPORT CONTINUED The Directors who held office at 31 December 2020 held the following unexercised share options in the Company as at that date: Option price (£) 0.22 0.36 Number Granted Date Granted 192,950 28/07/2014 1,789,300 28/07/2014 0.36 1,535,750 28/07/2014 0.30 0.29 0.29 750,000 28/09/2016 2,000,000 01/09/2020 1,000,000 01/09/2020 I A I Strafford - Taylor R Q M Cooper RESEARCH AND DEVELOPMENT The Group has continued its investment in research and development throughout the year. A review of the work undertaken can be found in the Chief Executive’s Report on pages 8 to 13 RISK AND RISK MANAGEMENT The Group is exposed to various financial and operational risks. Further details of these, including processes put in place to mitigate these risks, are disclosed in the Risk Committee Report on pages 44 to 45 and note 21 of the financial statements. INDEMNITY INSURANCE INDEPENDENT AUDITORS Under section 487(2) of the Companies Act 2006, PricewaterhouseCoopers LLP will be deemed to have been reappointed as auditor 28 days after the financial statements are sent to members or 28 days after the latest date prescribed for filing the accounts with the registrar, whichever is earlier. 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 auditors are 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 are aware of that information. POST BALANCE SHEET EVENTS On 1 January 2021, the UK Brexit transition period ended and the UK was therefore no longer a member of the European Union (EU) single market and customs union. As a consequence of this and with no separate agreement on the provision of financial services post this period, the Group lost its regulatory passporting rights to carry payment services in the EU under the Payment Services Directive. The Group is considering alternative access arrangements to the EU. FUTURE DEVELOPMENT The Group’s business activities, together with the factors likely to affect its future development and position, are set out in the Strategic Report on pages 6 to 25. The Company maintains a directors and officers liability insurance policy in respect of any legal costs that may be incurred against the Directors in dealing with any legal claims or investigations. The policy was in place throughout the year and up to the date of approval of the financial statements. CAPITAL STRUCTURE Details of the Group’s authorised and issued share capital, together with details of the movement therein, are set out in note 16 to the financial statements. This includes the rights and obligations attaching to shares. There are no restrictions on the transfer of the Company’s shares. Details of Directors and major shareholders (that hold greater than 3.0%) are set out below: Name No. of Ordinary Shares held Percentage of issued capital Crystal Amber Fund Limited 45,889,497 Pembar Limited Jo Hambro Capital Management Stephen Heath Schroders Funds Hargreaves Lansdown Christian Levett ENVIRONMENT 24,889,833 12,000,000 8,648,341 8,520,000 7,589,414 7,069,344 25.69% 13.94% 6.72% 4.84% 4.77% 4.25% 3.96% The Directors believe the Group’s greenhouse gas emissions are minimal and largely limited to its offices. As such, carbon dioxide emission data has not been collected or disclosed under the UK Companies Act 2006. Further information on environmental matters can be found in the ESG report on pages 30 to 40. 50 EQUALS GROUP PLCDIRECTORS’ REPORT CONTINUED 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. Management has sensitised its base case, assumed certain business lines might be discontinued and examined the truncating of product development expenditure. The Group is satisfied with the adequacy of its cash position. Further details of post balance sheet trading and position can be found in the Chairman’s Statement on page 7. The Directors’ Report was approved by the Board on 7 April 2021 and signed on its behalf by: IAN STRAFFORD-TAYLOR Chief Executive Officer 51 ANNUAL REPORT 2020 | GOVERNANCEStatement of Directors’ Responsibilities in Respect of the Annual Report and the Financial Statements for the year ended 31 December 2020 The Directors are responsible for preparing the Annual Report and the Group and Company financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006. 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 Company and of their profit or loss for that period. In preparing each of the Group and 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 that international accounting standards in conformity with the requirements of the Companies Act 2006 have been followed, subject to any material departures disclosed and explained in the financial statements; The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and 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 Company and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report and a Directors’ Report that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. assess the Group and Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and IAN STRAFFORD-TAYLOR Chief Executive Officer use the going concern basis of accounting unless they either intend to liquidate the Group or the Company or to cease operations or have no realistic alternative but to do so. • • • • • 52 EQUALS GROUP PLCIndependent auditors’ report to the members of Equals Group PLC REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS OPINION BASIS FOR OPINION In our opinion, Equals Group Plc’s Group financial statements We conducted our audit in accordance with International and Company financial statements (the “financial statements”): Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. • • give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2020 and of the Group’s loss and the Group’s and Company’s cash flows for the year then ended; have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; and • have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report, which comprise: consolidated and Company statements of financial position as at 31 December 2020; the consolidated statement of comprehensive income, the consolidated and Company statements of cash flows, and the consolidated and Company statements of changes in equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. OUR AUDIT APPROACH Overview • • • Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. The Group comprises multiple subsidiary entities in the UK. Most of the Group’s accounting systems are centralised in the corporate head office located in London. Our overall audit approach considered each subsidiary entity’s contribution to the Group’s financial reporting balances. • Capitalisation of IT development costs (Group). • Carrying value of goodwill (Group and Company). • Considering the impact of COVID-19 (Group and Company). • Overall Group materiality: £241,660 (2019: £225,000) based on 1% of average revenue over the last three years. • Overall Company materiality: £22,485 (2019: £19,000) based on 1% of expenses. • Performance materiality: £181,245 (Group) and £16,864 (Company). The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. 53 ANNUAL REPORT 2020 | GOVERNANCEINDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF EQUALS GROUP PLC CONTINUED Capability of the audit in detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined in the Auditors’ responsibilities for the audit of the financial statements section, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations related to breaches of UK regulatory rules, primarily those governed by the Financial Conduct Authority (FCA), and we considered the extent to which • Reading and evaluating key correspondence with the Financial Conduct Authority in relation to compliance with laws and regulations; • Designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing. There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. non-compliance might have a material effect on the financial statements. We also considered those laws and regulations Key audit matters that have a direct impact on the preparation of the financial Key audit matters are those matters that, in the auditors’ statements such as the Companies Act 2006. We evaluated professional judgement, were of most significance in the audit management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to increase revenue, and management bias in accounting of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts estimates and judgemental areas of the financial statements of the engagement team. These matters, and any comments we such as goodwill and capitalization of IT development costs. make on the results of our procedures thereon, were addressed Audit procedures performed by the engagement team included: 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. • • Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations; Reviewing relevant meeting minutes including those of the Board; This is not a complete list of all risks identified by our audit. The key audit matters below are consistent with last year. Key audit matter How our audit addressed the key audit matter Capitalisation of IT development costs (Group) The Group’s disclosures are given in note 10. Management’s accounting policies are detailed on pages 67 and 68. Management’s judgements in application of accounting policy and critical estimates are disclosed on page 70. During the year, £4.5 million of costs were capitalised across the Group’s subsidiaries. The determination of costs, particularly salaries and other personnel related costs, that meet the criteria in IAS 38 Intangible Assets to be capitalised is subjective. The Group’s estimates included determining the extent of time spent by employees performing IT and non-IT roles in developmental activities and whether all costs were directly attributable to the relevant projects. Our testing of capitalised internally generated intangible assets included: • • • • We obtained an understanding of the Group’s IT project plans including the nature and feasibility of key projects and activities performed. We determined the likelihood of the projects delivering sufficient future economic benefits. We obtained a breakdown of capitalised IT development costs and agreed this to the general ledger. We agreed a sample of IT development cost additions to supporting documentation and tested that the costs met the criteria for capitalisation within IAS 38. • We recalculated the amounts capitalised and tested the reliability of data used within the calculation. Based on the procedures performed and evidence obtained, we found management’s conclusions to be appropriate. 54 EQUALS GROUP PLCINDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF EQUALS GROUP PLC CONTINUED Key audit matter How our audit addressed the key audit matter Carrying value of goodwill (Group and Company) The Group’s disclosures are given in note 10. Management’s accounting policies are detailed on pages 67 and 68. Management’s judgements in application of accounting policies and critical estimates are disclosed on page 70. The Group has £15.1 million goodwill on the balance sheet at 31 December 2020 (£14.3 million at 31 December 2019). An impairment test was performed by management, with supporting sensitivity analysis, using the higher of value in use (‘VIU’) and fair value less cost to sell. Management predominantly used VIU in its impairment tests, unless it believed that fair value less cost to sell would result in a higher recoverable amount for any cash generating unit (“CGU”). Management’s analysis showed that for each CGU the recoverable amount was higher than the carrying value, and so no impairment was recorded. The methodology applied by management is dependent on various assumptions, both short term and long term in nature. These assumptions, which are subject to estimation uncertainty, are derived from a combination of management’s judgement, experts engaged by management and market data. The significant assumptions that we focused our audit on were those with greater levels of management judgement and for which variations had the most significant impact on the recoverable amount. Specifically, these included valuation multiples used, forecast revenue and costs and discount rates. Our testing of the carrying value of goodwill included: • • • • • • We assessed the Directors’ identification and allocation of goodwill and other assets to CGUs based on our understanding of the business; We evaluated, challenged, and agreed to supporting evidence where available the Group’s assumptions used in the annual impairment review, in particular the valuation multiples, forecast cash flows and the discount rate applied; We specifically considered the impact of the COVID-19 pandemic on the achievability of management’s forecasts; We considered the skills, experience and independence of management’s experts used; We used our own experts to support the audit team in challenging certain assumptions used by management; and We tested the mathematical accuracy of the calculations used to estimate the recoverable amounts for each CGU. Based on the procedures performed and evidence obtained, we found management’s conclusions to be appropriate. Considering the impact of COVID-19 (Group and Company) The directors’ disclosures demonstrating how the pandemic gives rise to a risk for the Group is given on page 45. Management’s going concern considerations relating to the impact of COVID-19 have been assessed on pages 51 and 65. The Group and the Company operates in the UK which has been impacted by the global pandemic of COVID-19. The pandemic has been disruptive to financial markets and normal patterns of human behaviour. The impact on the UK and global economy is expected to continue throughout 2021. In response, the UK and other governments, and the Bank of England, have announced measures, such as lowering the base rate and providing financial support to businesses, designed to limit the resulting adverse impacts on the economy. The Directors’ have specifically considered the impact on the annual accounts as it gives rise to greater levels of uncertainty in the following areas: • The going concern assessment of the Group and Company; and • The carrying value of goodwill. In doing so, management has made assumptions that are critical to the outcome of these considerations. We discussed the impact of COVID-19 on the Group and Company’s accounts and operations with the Audit Committee during the year. Our planning and execution of the audit has given specific consideration to the impact of COVID-19. This included adopting a different basis for determining materiality to take account of the volatility in results. We considered the impact of COVID-19 on the Group’s control environment and where necessary made relevant changes to our audit approach. We also adapted our own working practices to remote working and ensured we gathered appropriate audit evidence. The impact of COVID-19 on the most significant accounting estimate and our audit is in relation to the carrying value of goodwill as reported in the relevant Key Audit Matter in this opinion. We have assessed management’s going concern assessment and findings are included in the section ‘Conclusions relating to going concern’ later in this opinion. This included consideration of the future. As a result of these procedures, we concluded that the impact of COVID-19 has been appropriately evaluated and reflected in the preparation of these financial statements. 55 ANNUAL REPORT 2020 | GOVERNANCEINDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF EQUALS GROUP PLC CONTINUED How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. Within the Group’s main consolidation and financial reporting system, the consolidated financial statements are a consolidation of subsidiary entities. In establishing the overall approach to the Group audit, we scoped our work using the balances included in the consolidation. We determined the type of work that needed to be performed over the subsidiary entities by us, as the Group engagement team. As a result of our scoping, we determined that an audit of the complete financial information of FairFx plc, Spectrum Payment Services Limited and Equals Connect Limited was necessary, owing to their financial significance. All audit work over these subsidiary entities was performed by the Group engagement team. We then considered the significance of other reporting units in relation to primary statement account balances. In doing this we also considered the presence of any significant audit risks and other qualitative factors. For the remainder, the risk of material misstatement was mitigated through Group audit procedures including subsidiary level analytical review procedures. Certain Group-level account balances, including goodwill, were audited by the Group engagement team. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall materiality How we determined it Rationale for benchmark applied Financial statements – Group Financial statements – Company £241,660 (2019: £225,000). £22,485 (2019: £19,000). 1% of average revenue over the last three years 1% of expenses The Company is a holding Company. Expenses are the primary measure of performance and therefore have been used to determine materiality. The Group is very focused on expansion through acquisition and organic growth. Revenue has been determined to be a key measure of financial performance for the Group and therefore has been used to determine materiality. Whilst revenue is still considered to be the most suitable benchmark, we used a three year average to eliminate the volatility introduced by COVID-19. For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £76,000 and £181,000. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% of overall materiality, amounting to £181,245 for the Group financial statements and £16,864 for the Company financial statements. 56 EQUALS GROUP PLCINDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF EQUALS GROUP PLC CONTINUED In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls - and concluded that an amount in the middle of our normal range was appropriate. We agreed with those charged with governance that we would report to them misstatements identified during our audit above £12,083 (Group audit) (2019: £11,300) and £1,124 (Company audit) (2019: £1,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Conclusions relating to going concern Our evaluation of the Directors’ assessment of the Group’s and the Company’s ability to continue to adopt the going concern basis of accounting included: • • • We used our knowledge of the Group, its industry and the general economic environment in which it operates to identify the inherent risks in its business model and analysed how those risks might affect the Group’s and Company’s financial resources or ability to continue operations over the going concern period; We considered whether these risks could plausibly affect the liquidity or profitability in the going concern period by comparing severe, but plausible downside scenarios that could arise from these risks individually and collectively against the level of available financial resources indicated by the Group and Company’s financial forecasts We considered whether the going concern disclosure in note 3.1 to the financial statements gives a full and accurate description of the Directors’ assessment of going concern, including the identified risks, dependencies, and related sensitivities. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below. Strategic Report and Directors’ Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’ Report for the year ended 31 December 2020 is Based on the work we have performed, we have not identified consistent with the financial statements and has been prepared any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on in accordance with applicable legal requirements. the Group’s and the Company’s ability to continue as a going In light of the knowledge and understanding of the Group and concern for a period of at least twelve months from when the Company and their environment obtained in the course of the financial statements are authorised for issue. audit, we did not identify any material misstatements in the In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group’s and the Company’s ability to continue as a going concern. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. Strategic report and Directors’ Report. Responsibilities for the financial statements and the audit Responsibilities of the Directors for the financial statements As explained more fully in the Statement of Directors’ responsibilities in respect of the annual report and financial statements, the Directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair 57 ANNUAL REPORT 2020 | GOVERNANCEINDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF EQUALS GROUP PLC CONTINUED view. The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, OTHER REQUIRED REPORTING Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: • • • • we have not obtained all the information and explanations we require for our audit; or adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or certain disclosures of Directors’ remuneration specified by law are not made; or the Company financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. DANIEL BRYDON (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Manchester 7 April 2021 whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the 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 the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www. frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 58 EQUALS GROUP PLCFinancial statements 59 ANNUAL REPORT 2019 | GOVERNANCEConsolidated Statement of Comprehensive Income for the year ended 31 December Gross value of currency transactions sold*1 Gross value of banking deposit transactions Revenue on currency transactions Banking revenue Revenue Direct costs Gross profit Administrative expenses Amortisation charge Impairment charge Acquisition expenses Total operating expenses Operating loss Finance costs Loss before tax Tax credit Loss after tax` Attributable to: Owners of Equals Group PLC Non-controlling interest Other comprehensive income: Exchange differences arising on translation of foreign operations Total comprehensive loss for the year Loss per share Basic Diluted Note 3.4 3.4 4 5 10 10 5j 6 7 7 2020 £ 2019 £ 2,671,244,658 2,117,459,669 821,426,227 769,446,473 23,849,449 5,110,180 28,959,629 (10,670,263) 18,289,366 (22,466,835) (4,346,682) – (130,433) 25,611,521 5,333,203 30,944,724 (10,378,265) 20,566,459 (20,123,517) (2,830,587) (4,858,898) (478,476) (26,943,950) (28,291,478) (8,654,584) (7,725,019) (391,813) (9,046,397) 2,109,055 (6,937,342) (6,919,650) (17,692) (233,564) (7,958,583) 2,586,885 (5,371,698) (5,342,074) (29,624) 6,246 – (6,931,096) (5,371,698) (3.87)p (3.87)p (3.20)p (3.12)p *1Gross value of currency transactions sold and banking deposit transactions are a non-GAAP measure and represent the gross value of currency transactions sold to customers and banking deposits made by customers. See Note 3.4 for more guidance. All income and expenses arise from continuing operations. The notes on pages 65 to 93 form an integral part of these financial statements. 60 EQUALS GROUP PLCConsolidated and Company Statement of Financial Position as at 31 December ASSETS Non-current assets Property, plant and equipment Right of use assets Intangible assets and goodwill Deferred tax assets Investments Current assets Inventories Trade and other receivables 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 Other reserves Retained (deficit)/earnings Equity attributable to owners of Equals Group PLC Non-controlling interest Non-current liabilities Borrowings Lease liabilities Deferred tax liabilities Current liabilities Trade and other payables Lease liabilities Derivative financial liabilities TOTAL EQUITY AND LIABILITIES Note Group 2020 £ 2019 £ Company 2020 £ 2019 £ 8 9 10 6 11 13 14 20 15 16 17 18 9 6 19 9 20 1,645,635 6,061,346 34,849,927 3,192,585 – 45,749,493 194,091 10,953,438 3,019,247 10,032,178 24,198,954 69,948,447 1,786,029 53,003,077 1,401,886 8,608,867 (22,258,531) 42,541,328 101,134 42,642,462 2,000,000 5,509,382 3,739,960 11,249,342 12,109,220 897,266 3,050,157 16,056,643 69,948,447 1,972,818 6,948,876 33,324,137 2,438,859 – 44,684,690 263,971 11,347,749 4,560,780 11,265,266 27,437,766 72,122,456 1,786,029 53,003,077 1,345,234 8,602,621 (15,338,881) 49,398,080 118,826 49,516,906 – 6,431,578 3,226,586 9,658,164 7,947,364 811,628 4,188,394 12,947,386 72,122,456 – – – 743,613 61,706,671 62,450,284 – 274,222 – – 274,222 62,724,506 1,786,029 53,003,077 1,401,886 3,186,538 1,530,421 60,907,951 – 60,907,951 – – – – – – – 238,369 38,892,060 39,130,429 – 20,138,017 – – 20,138,017 59,268,446 1,786,029 53,003,077 957,757 3,186,538 (1,624,991) 57,308,410 – 57,308,410 – – – – 1,816,555 – – 1,816,555 1,960,036 – – 1,960,036 62,724,506 59,268,446 The notes on pages 65 to 93 form an integral part of these financial statements. The financial statements on pages 60 to 93 were approved by the Board of Directors on 7 April 2021 and were signed on its behalf by: Richard Cooper Director, Chief Financial Officer Company Registration number: 08922461 61 ANNUAL REPORT 2020 | FINANCIAL STATEMENTSConsolidated and Company Statement of Changes in Equity for the year ended 31 December Group Called up share capital Share premium Share-based payment Accumulated losses Total attributable to owners of Equals Group PLC Other reserves (note 17) Non- controlling interest £ £ £ £ £ £ £ Attributable to the owners of Equals Group PLC Total equity £ At 1 January 2019 1,553,682 35,858,770 1,748,105 (9,832,880) 8,938,693 38,266,370 – 38,266,370 Acquisition of subsidiary with non-controlling interest Loss for the year and total comprehensive expense Share-based payment charge (note 22) Movement in deferred tax on share-based payment reserve – – – – – – – – – – – (5,342,074) 122,609 (525,480) – – – – – – – 148,450 148,450 (5,342,074) (29,624) (5,371,698) 122,609 (525,480) – – – 122,609 (525,480) 16,876,655 Shares issued in year At 31 December 2019 Loss for the year Other comprehensive income: Items that will not be reclassified subsequently to profit or loss: Exchange differences arising on translation of foreign operations Other items: Share-based payment charge (note 22) Movement in deferred tax on share-based payment reserve 232,347 17,144,307 – (163,927) (336,072) 16,876,655 1,786,029 53,003,077 1,345,234 (15,338,881) 8,602,621 49,398,080 118,826 49,516,906 – – – – – – – – – (6,919,650) – (6,919,650) (17,692) (6,937,342) – 444,129 (387,477) – – – 6,246 6,246 – – 444,129 (387,477) – – – 6,246 444,129 (387,477) At 31 December 2020 1,786,029 53,003,077 1,401,886 (22,258,531) 8,608,867 42,541,328 101,134 42,642,462 Company Called up share capital Share premium Share-based payment Retained earnings / accumulated losses Total attributable to owners of Equals Group PLC Other reserves (note 17) Non- controlling interest £ £ £ £ £ £ At 1 January 2019 1,553,682 35,858,770 835,148 240,954 3,522,610 42,011,164 Loss for the year and total comprehensive expense – – Shares issued in the year 232,347 17,144,307 – – (1,702,018) – (1,702,018) (163,927) (336,072) 16,876,655 Share-based payment charge (note 22) – – 122,609 – – 122,609 At 31 December 2019 1,786,029 53,003,077 957,757 (1,624,991) 3,186,538 57,308,410 Profit for the year and total comprehensive income Share-based payment charge (note 22) – – – – – 3,155,412 444,129 – – – 3,155,412 444,129 At 31 December 2020 1,786,029 53,003,077 1,401,886 1,530,421 3,186,538 60,907,951 £ – – – – – – – – Total equity £ 42,011,164 (1,702,018) 16,876,655 122,609 57,308,410 3,155,412 444,129 60,907,951 The following describes the nature and purpose of each reserve within owners’ equity: Share capital Share premium Amount subscribed for shares at nominal value. Amount subscribed for shares in excess of nominal value less directly attributable costs. Share-based payment reserve Proportion of the fair value of share options granted relating to services rendered up to the balance sheet date Retained deficit Cumulative profit and losses attributable to equity shareholders. Other reserves comprise: Merger reserve Arising on reverse acquisition from Group reorganisation. Contingent consideration reserve Arising on equity based contingent consideration on acquisition of subsidiaries. Foreign currency reserve Arising on translation of foreign operations The notes on pages 65 to 93 form an integral part of these financial statements. 62 EQUALS GROUP PLCConsolidated Statement of Cash flows for the year ended 31 December Group Note 2020 £ 2019 £ (8,654,584) (7,725,019) Operating loss for the year Cash flows from operating activities Adjustments for: Depreciation Amortisation Impairment Share-based payment charge Increase in trade and other receivables Decrease / (Increase) in derivative financial assets Increase in trade and other payables (Decrease) / Increase in derivative financial liabilities Decrease in inventories Net cash inflow Tax receipts 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 Net cash used in investing activities Cash flows from financing activities New borrowings Principal elements of lease payments Interest paid on finance lease Interest paid Proceeds from issuance of ordinary shares Costs directly attributable to share issuance Net cash inflow from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at end of the year The notes on pages 65 to 93 form an integral part of these financial statements. 5 10 5 20 13 8 10 12 18 9 9 15 1,427,368 4,346,682 – 444,129 (401,045) 1,541,533 3,051,193 (1,510,626) 69,880 314,530 2,538,873 2,853,403 (159,834) (4,530,470) (255,433) (4,945,737) 2,000,000 (891,167) (222,193) (27,394) – – 859,246 (1,233,088) 11,265,266 10,032,178 1,347,872 2,830,587 4,858,898 122,609 (1,859,253) (3,378,888) 2,943,227 3,609,438 22,742 2,772,213 – 2,772,213 (1,460,870) (11,679,597) (2,226,153) (15,366,620) – (643,786) (233,564) – 17,748,353 (871,698) 15,999,305 3,404,898 7,860,368 11,265,266 63 ANNUAL REPORT 2020 | FINANCIAL STATEMENTSCompany Statement of Cash flows for the year ended 31 December Company Profit / (loss) before tax Cash flows from operating activities Adjustments for: Increase in trade and other receivables (Decrease) / increase in trade and other payables Net cash outflow from operating activities Cash flows from financing activities Proceeds from issuance of shares Costs directly attributable to share issuance Net cash inflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at end of the year At 31 December the Company held no bank accounts. The notes on pages 65 to 93 form an integral part of these financial statements. 2020 £ 2019 £ 2,650,167 (1,940,387) (2,506,686) (143,481) – – – – – – – (15,230,313) 294,045 (16,876,655) 17,748,353 (871,698) 16,876,655 – – – 64 EQUALS GROUP PLCNotes to the Consolidated Financial Statements for the year ended 31 December 2020 1. GENERAL INFORMATION The Company is a public company limited by shares and incorporated in England and Wales and domiciled in the UK and whose shares are admitted to 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 2020 were authorised for issue on 7 April 2021 and the Company and Group’s statement of financial position signed by Richard Cooper on behalf of the Board. 2. NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS TO PUBLISHED STANDARDS New and revised accounting standards and interpretations adopted, none of which had any material impact to the Group: • Amendments to References to Conceptual Framework in IFRS Standards • Definition of Material (Amendments to IAS 1 and IAS 8) • Definition of a Business (Amendments to IFRS 3) • COVID-19-Related Rent Concessions – Amendment to IFRS 16 New standards, amendments and interpretations issued but not yet effective, none of which is expected to have a material impact on the Group: • • • Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) (effective 1 January 2021) Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) (effective 1 January 2022) Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16) (effective 1 January 2022) • IFRS 17 Insurance Contracts (effective date of 1 January 2023) • Classification of Liabilities as Current or Non-current (Amendments to IAS 1) (effective date of 1 January 2023) 3. BASIS OF PREPARATION 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 preparation These financial statements are prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 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 3.26. 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 the 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 twhe effectiveness of risk management policies. Management has sensitised its base case, assumed certain business lines might be discontinued and examined the truncating of product development expenditure. 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 financial statements are prepared on a going concern basis. 3.2 Basis of consolidation The consolidated financial statements comprise the financial statements of all Group subsidiaries at 31 December each year using consistent accounting policies. Business combinations The Group financial statements 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. Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, 65 ANNUAL REPORT 2020 | FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements for the year ended 31 December 2020 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. A non-controlling interest is recognised, representing the interests of minority shareholders in subsidiaries not wholly owned by the Group. have not been fully satisfied. How the Group recognises revenue for its significant revenue streams is described below. Currency Cards A contract is identified when it is approved by relevant parties and when the card is issued to the customer. Performance obligations and transaction prices are set out in the contract. Revenue from provision of card services is recognised over period in which they are provided. Transactions eliminated on consolidation Intra-group balances and transactions and any unrealised income and expenses arising from intra-group transactions, are eliminated. ATM transaction and out-of-currency variable fees are constrained to the amount not expected to be reversed. Variable revenue is recognised at the point at which it is unlikely to be reversed, typically the transaction date. 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. International Payments and Travel Cash This service relates to the facility to buy and sell currency. A contract is identified when a payment is approved by the Group and the customer. Performance obligations and transaction prices are set out in the contract. Revenue is recognised on the transaction date. 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 the gross value of banking transactions The gross value of currency transactions sold represent the gross value of currency transactions undertaken with customers by the Group, where the net is reported as revenue. The gross value of banking transactions represents client money deposits by customers. These values are a non-GAAP measure and therefore disclosed as additional information in the consolidated statement of comprehensive income. 3.5 Revenue recognition The Group applies IFRS 15 Revenue from Contracts with Customers for the recognition of revenue. IFRS 15 established a comprehensive framework for determining whether, how much and when revenue is recognised. It affects the timing and recognition of revenue items, but not generally the overall amount recognised. The performance obligations of all revenue streams are satisfied on the transaction date or by the provision of the service for the period described in the contract. Revenue is not recognised where there is evidence to suggest that customers do not have the ability or intention to pay. The Group does not have any contracts with customers where the performance obligations 66 Banking This service relates to the provision of bank account services. A contract is identified when a customer enters an agreement with the Group for a Cardone Banking account. Performance obligations and transaction prices are set out in the contract. Monthly account fees are recognised during the month the account is provided. ATM transaction and out-of-currency variable fees are recognised up to the amount not expected to be reversed. Variable revenue is recognised at the point at which it is unlikely to be reversed, typically the transaction date. 3.6 Accounting for government grants The Group recognises government grants once it has satisfied itself that it is compliant with the relevant conditions and the grant will be received. Grant income is recognised in profit or loss on a systematic basis and in line with the recognition of the expenses that the grants are intended to compensate, and is offset against related expenditure. 3.7 Pension costs The Group operates a defined contribution pension scheme and outsources the administration of the pension scheme to a third party. The Group contributes to the pension scheme in line with Auto-enrolment obligations as defined in the Pensions Act 2008 and passes on the employer and employee contributions to the pension scheme administrator on a monthly basis. The employer contributions are recognised as they occur through the payroll. 3.8 Share-based payments Employees (including Directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions). In situations where equity instruments are issued and some or all of the services received by the entity as consideration cannot be specifically identified, they EQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 CONTINUED 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 22. 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 in the previous paragraph. The dilutive effect of outstanding options is reflected as additional share dilution on the computation of earnings per share. Where the Company grants options over its own shares to the employees of its subsidiaries it recognises, in its individual financial statements, an increase in the cost of investment in its subsidiaries equivalent to the equity settled share-based payment charge recognised. 3.9 Research and development Research costs are expensed as incurred. Expenditure on IT software and development is recognised as an intangible asset only if the expenditure can be measured reliably, 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 to use or sell the asset. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses. 3.10 Treatment of research and development tax credits Research and development tax credits are treated as taxation credits as defined under IAS12 Income Taxes with a credit recorded in the year to which the claim relates. 3.11 Taxation The tax expense comprises current and deferred tax and R&D tax credits. 3.12 Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: - - temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; temporary differences related to investments in subsidiaries to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and - taxable temporary differences arising on the initial recognition of goodwill. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities but they intend to settle current tax liabilities and assets on a net basis, or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 3.13 Intangible assets and goodwill (i) Recognition and measurement Goodwill arising on business combinations 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. 67 ANNUAL REPORT 2020 | FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements for the year ended 31 December 2020 Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses. Separately acquired trademarks and licences are shown at historical cost less accumulated impairment losses. Other intangible assets, including customer relationships, patents and trademarks acquired in a business combination are recognised at fair value at the acquisition date. They have a finite useful life and are subsequently carried at cost less accumulated amortisation and 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. (iii) 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. 3.14 Property, plant and equipment All property, plant and equipment is 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 3-5 years 3-5 years 10 years 3.15 Investments in subsidiaries Investments in subsidiary undertakings are stated at cost less impairment in value. 3.16 Inventories Inventories comprise of stock of plastic payment 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 the stock of cards. 68 3.17 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 3.24. 3.18 Derivative financial assets and liabilities Derivative financial assets and liabilities are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Changes in the fair value of derivatives are included in the income statement. The Group’s derivative financial assets and liabilities at fair value through profit or loss comprise solely of forward foreign exchange contracts. 3.19 Offsetting of financial instruments Financial assets and financial liabilities are offset and the net 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. 3.20 Cash and cash equivalents These include cash in hand and deposits held at call with banks. Any cash held on behalf of customers is segregated from operational cash and safeguarded in accordance with our regulatory obligations. The risks and rewards to the Group that arise from the holding of customer money are principally vested with the customers. As a result, the Group does not account for customer cash in the Group’s financial statements. 3.21 Trade and other payables These are initially recognised at fair value and then carried at amortised cost using the effective interest method. The Group does not account for customer cash and the associated customer liability in the Group’s financial statements, as the risks and rewards that arise are principally vested with the customers. 3.22 Provisions excluding those under IFRS 9 (see note 3.24) 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 EQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 CONTINUED of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the consolidated statement of financial position date. 3.23 Leases At inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16. Contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non-lease components based on their relative stand- alone prices. However, for leases of real estate for which the Group is a lessee, it has elected not to separate lease and non- lease components and instead accounts for these as a single lease component. The Group recognises a right of use asset and a corresponding liability at the date at which the leased asset is available for use. Lease liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the fixed payments (including in-substance fixed payments), less any lease incentives receivable. Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the lessee’s incremental borrowing rate, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right of use asset in a similar economic environment with similar terms, security and conditions. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Right of use assets are measured at cost comprising the following: • the amount of the initial measurement of lease liability; • any lease payments made at or before the commencement date less any lease incentives received; • any initial direct costs. Right of use assets are depreciated using the straight-line basis over the lease term at a rate between 10-25%. The Group applies the following practical expedients permitted by the standard: • • excluding short term leases (less than 12 months) and low- value items (less than £3,775) exercising extension options where the contract contains a provision. There are no variable payment terms in current leases. 3.24 Impairment A. Non-derivative financial assets 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. Trade and other receivables The Group applies the IFRS 9 simplified approach. The Group does not track changes in credit risk, instead the Group recognised a loss allowance based on a lifetime expected credit loss at each reporting date. 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 of disposal (“FVLCOD”). 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. FVLCOD is the price that would be received to sell an asset or CGU in an orderly transaction between market participants at the measurement date, less any incremental costs directly attributable to the disposal of an asset or CGU, excluding finance costs and income tax expense. The Group’s CGU’s for impairment testing are defined in note 10. 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. 69 ANNUAL REPORT 2020 | FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements for the year ended 31 December 2020 3.25 Director’s remuneration From 2020, the Group have adopted accrual accounting for the recognition of annual bonuses to Executive Directors, with bonuses being accrued in the year to which they relate, provided in management’s opinion it seems more certain than not that any award dependent on the fulfilment of performance criteria will, in fact, be met. Previously bonuses were recognised in the year they were awarded. See note 5b for further details. 3.26 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 accounting 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. Management judgement is required to determine the useful economic lives of these assets and uses market and technological knowledge in determining these. (ii) IFRS 16 Leases – lease term and extension options In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). All extension options in offices leases have been included in the lease liability. (iii) IFRS 16 Leases – incremental borrowing rate To determine the incremental borrowing rate, the Group uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by the Group which do not have recent third-party financing, and makes adjustments specific to the lease; inflation, country risk premium, financing spread level of indebtedness and asset specific risk. 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: Impairment of goodwill and intangibles The Group assesses goodwill annually for impairment. The assumptions and estimates used in the impairment test for goodwill including the sensitivity testing are disclosed in note 10. Valuation of share options The Group fair values share options on date of grant using the Black-Scholes model. Further details on the use of fair value can be found in note 3.27 Measurement of fair values and note 22 Share options. Valuation of derivative instruments The Group enters into foreign exchange forward positions with clients which it offsets against foreign exchange forward positions with various financial institutions, earning a margin in the process. Open positions are fair valued at the balance sheet date using Bloomberg forward rates for all major currencies. Deferred consideration Total compensation for acquisitions may include an element of deferred consideration payable, subject to the fulfilment of certain conditions post-acquisition. Where this is the case, management use historical information and management forecasts to estimate a liability, using the discounted cash- flow methodology, to derive a fair value of the deferred consideration payable. This estimate is revised at each reporting date to reflect latest current and expected outcomes. 3.27 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). 70 EQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 CONTINUED 4. REVENUE AND SEGMENTAL ANALYSIS Segment results are reported to the Board of Directors (being the chief operating decision maker) to assess both performance and support strategic decisions. The Board reviews 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 primarily derived from UK based customers. 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 affected 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 Year ended 31 December 2020 Currency Cards £ International Payments £ Travel Cash £ Banking £ Central £ Total £ Segment revenue 5,856,180 17,241,091 630,156 5,110,180 122,022 28,959,629 Direct costs Gross profit Administrative expenses Amortisation charge Acquisition expenses Finance costs (2,946,536) (6,176,228) (274,064) (1,356,074) 82,639 (10,670,263) 2,909,644 11,064,863 356,092 3,754,106 204,661 18,289,366 – – – – – – – – – – – – – – – – (22,466,835) (22,466,835) (4,346,682) (4,346,682) (130,433) (130,433) (391,813) (391,813) Profit / (loss) before tax 2,909,644 11,064,863 356,092 3,754,106 (27,131,102) (9,046,397) Total assets Total liabilities Total net assets – – – – – – – – – 4,398,909 65,549,538 69,948,447 (1,754,754) (25,551,231) (27,305,985) 2,644,155 39,998,307 42,642,462 Group Year ended 31 December 2019 Currency Cards £ International Payments £ Travel Cash £ Banking £ Central £ Total £ Segment revenue 11,293,815 11,928,662 2,389,044 5,333,203 (4,391,599) (3,537,900) (1,043,047) (1,405,719) 6,902,216 8,390,762 1,345,997 3,927,484 – – – 30,944,724 (10,378,265) 20,566,459 – – – – – – – – – – – – – – – (20,123,517) (20,123,517) (2,830,587) (2,830,587) (4,858,898) – (4,858,898) – – (478,476) (478,476) (233,564) (233,564) Profit / (loss) before tax 6,902,216 8,390,762 1,345,997 (931,414) (23,666,144) (7,958,583) Total assets Total liabilities Total net assets – – – – – – – – – 5,077,618 67,044,838 72,122,456 (1,926,658) (20,678,892) (22,605,550) 3,150,960 46,365,946 49,516,906 71 Direct costs Gross profit Administrative expenses Amortisation charge Impairment charge Acquisition expenses Finance costs ANNUAL REPORT 2020 | FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements for the year ended 31 December 2020 5. OPERATING LOSS Operating Loss is stated after charging the following operating expenses: Note 5a 5c 5d 5f 5g 5g 9 8 5h 5j 5j Staff costs (net of expenditure capitalised) IT and telephone cost (net of expenditure capitalised) Other professional fees Marketing costs Property and office costs (net of expenditure capitalised) Travel and subsistence Other Sub-total, cash-based expenses Write-off of card stocks Bad debt expense Depreciation of right of use assets Depreciation of property, plant and equipment Contingent consideration Share option charge Foreign exchange loss Sub-total, non cash-based costs Total administrative expenses Amortisation charge Impairment charge Acquisition costs – staff costs Acquisition costs – professional fees Total operating expenses 5A STAFF COSTS Number of employees The average monthly number of employees (including Directors) was: Administrative staff Number of staff at the balance sheet date 72 2020 £ 2019 £ 12,894,185 10,695,174 1,298,634 1,644,755 1,205,738 992,748 233,231 401,479 877,597 1,283,166 4,089,772 1,015,832 452,041 9,744 18,670,770 18,423,326 574,953 513,355 940,350 487,018 637,383 444,129 198,877 3,796,065 – – 917,993 429,879 – 122,609 229,710 1,700,191 22,466,835 20,123,517 4,346,682 – 82,841 47,592 2,830,587 4,858,898 160,401 318,075 26,943,950 28,291,478 2020 Headcount 311 272 2019 Headcount 283 331 EQUALS GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 CONTINUED 5. OPERATING LOSS (CONTINUED) Employee costs Cost of Staff on payrolls Cost of contractors and consultants Gross costs Less: categorised in direct costs Less: re-categorised as acquisition costs Less: reported within internally generated software intangibles Wages and salaries Social security costs Pension costs Less: categorised in direct costs Employee furlough government grant received Recruiting, training, benefits and similar* Total** *Includes a provision for untaken leave as consequence of COVID-19 2020 £ 18,827,069 651,244 19,478,313 (2,499,703) 16,978,610 (82,841) (4,001,584) 12,894,185 2019 £ 17,182,355 3,268,020 20,450,375 (1,794,200) 18,656,175 (160,401) (7,800,600) 10,695,174 2020 £ 2019 £ 12,723,859 10,142,897 1,360,301 664,132 (2,499,703) 12,248,589 (545,562) 11,703,027 1,191,158 12,894,185 1,013,974 482,250 (1,794,036) 9,845,085 – 9,845,085 850,089 10,695,174 **Includes £1,333,000 (2019: £735,000) of expenditure identified by the Directors as separately identifiable items*** ***Separately identifiable items are large, one-off items identified by management. 5B DIRECTORS’ REMUNERATION Company All bonuses and conditional bonuses, whether the conditions have been made or not, have, from 2020 onwards, been accrued. CEO bonus In relation to the 2019 financial year, a bonus of £247,500 was awarded during 2020. £165,000 was paid during 2020 and £82,500 was paid in 2021. The CEO is entitled to a bonus of £275,000 in relation to 2020 should all performance conditions be met. At the date of signing these financial statements, 50% of the conditions have been met and £137,500 is immediately payable. The second tranche of £137,500 is deferred and is conditional on evidence that the actions taken during 2020 have resulted in the strength of the Group’s performance continuing. The full amount of the bonus has been accrued. CFO bonus The CFO was awarded and paid a bonus of 60% of his base salary, £150,000 during 2020 based upon the significant improvements in reporting that he implemented. A further £40,000, awarded as a pension contribution, was paid in April 2021 in relation to other achievements in 2020. This has been accrued in full, 73 ANNUAL REPORT 2020 | FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements for the year ended 31 December 2020 5. OPERATING LOSS (CONTINUED) Year ended 31 December 2020 Gross Salary £ Bonus £ Employer Pension £ Total Remuneration Paid £ Benefits £ Paid during the year Executive Directors Ian Strafford-Taylor Richard Cooper Sub-total - executives Non-Executive Directors A Chowdhury (resigned 29 July 2020) J Pearson (resigned 9 October 2020) R M Head (resigned 1 October 2020) A R F Hughes (appointed 1 March 2020) S A Herbert (appointed 1 October 2020) 254,477 231,145 485,622 21,333 56,943 32,750 56,359 18,734 165,000 150,000 315,000 – – – – – 3,503 3,503 7,006 – 2,675 – – – 2,681 2,773 5,454 – – – – – 425,661 387,421 813,082 21,333 59,618 32,750 56,359 18,734 Total remuneration paid 671,741 315,000 9,681 5,454 1,001,876 Gross Salary £ Bonus £ Employer Pension £ Total Remuneration Paid £ Benefits £ Year ended 31 December 2019 Paid during the year Executive Directors Ian Strafford-Taylor 271,144 272,500 Richard Cooper (appointed 14 October 2019) 55,128 – Sub-total - executives Non-Executive Directors A Chowdhury (resigned 29 July 2020) J Pearson (resigned 9 October 2020) R M Head (resigned 1 October 2020) 326,272 272,500 50,000 74,269 55,000 – – – 1,919 – 1,919 – 1,919 – 856 546,419 55,128 856 601,547 50,000 76,188 55,000 Total remuneration paid 505,541 272,500 3,838 856 782,735 Group The total amount paid during 2020 to executive Directors when including executive Directors of all the subsidiaries in the consolidated Group was £1,773,370 (2019: £1,694,395). This included pension payments of £25,410 (2019: £10,511). Details of CEO and CFO bonuses accrued during the year but not paid are given in the Company disclosures above. Information about Directors’ share options is given in note 22. 5C IT AND TELEPHONE Underlying expenditure Capitalised costs Total 74 2020 £ 1,717,216 (418,582) 1,298,634 2019 £ 1,180,100 (302,503) 877,597 EQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 CONTINUED 5. OPERATING LOSS (CONTINUED) 5D PROFESSIONAL FEES Underlying expenditure Acquisition costs Total* 2020 £ 1,692,347 (47,592) 1,644,755 2019 £ 1,601,241 (318,075) 1,283,166 *Includes £216,770 (2019: £324,000) of expenditure identified by the Directors as separately identifiable items. 5E AUDIT FEES Included in professional fees above are amounts charged by the Group’s auditors as follows: Statutory audit fees Fees payable for the statutory audit of the Group Additional statutory audit fees payable for the prior year audit – to PwC LLP / KPMG LLP Total audit fees 2020 £ 2019 £ 255,000 223,200 120,000 375,000 96,000 319,200 There were no non-audit fees during the current and preceding year. These amounts are shown exclusive of VAT. 5F PROPERTY AND OFFICE COSTS Underlying expenditure Capitalised costs Depreciation of right of use assets Lease finance expense Total property costs Note 9 9 5G WRITE-OFF OF CARD STOCKS AND BAD DEBTS INCURRED Card stock write-off Bad debts 2020 £ 2,200,607 (45,316) (940,350) (222,193) 992,748 2020 £ 574,953 513,355 2019 £ 2,370,953 (203,654) (917,993) (233,564) 1,015,832 2019 £ – – The demise of Wirecard AG led to the Group having to re-card all its customers on the Wirecard programme and, allied to this, were amounts due to the Group which, in the view of the Directors, is likely to be irrecoverable. 5H CONTINGENT CONSIDERATION Contingent consideration represents the fair value of additional consideration estimated in respect of the acquisition of Casco Financial Services Limited (renamed to Equals Connect Limited) in November 2019. This additional consideration payable is the result of revenues being in excess of forecasts at the time of acquisition. 75 ANNUAL REPORT 2020 | FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements for the year ended 31 December 2020 5. OPERATING LOSS (CONTINUED) 5J ACQUISITION EXPENSES Professional fees Staff costs Total acquisition expenses Note 5d 5a 2020 £ 47,592 82,841 130,433 2019 £ 318,075 160,401 478,476 Costs incurred in 2020 were in relation to the acquisition of Effective FX in October 2020. Costs incurred in 2019 were in relation to the acquisition of Hermex FX in August 2019 and Casco FX in November 2019. 6. TAXATION The Group’s taxation charge or credit is the composite of: 1. Corporation tax credit arising on losses in the financial year 2. R&D tax credits received or receivable on development expenditure (which is debited to the Balance Sheet) 3. Deferred taxation arising on temporary and permanent timing differences and losses carried forward, to the extent that the Company believes these to be recoverable from future profits. At 31 December 2020, the Group had tax losses available to be offset against future taxable profits of £16,879,616 (2019: £11,273,645). The losses can be carried forward indefinitely and have no expiry date. Additional to corporate taxation, the Group paid the following taxation costs during the year: a. Employers National Insurance contributions - £1,751,511 b. irrecoverable VAT - £1,052,716 Group R&D credit – current year R&D credit – prior year Changes in tax estimates related to prior years Changes in tax estimates in pre-acquisition accounts of businesses acquired during the year Current tax credit Origination and reversal of temporary differences Recognition of previously unrecognised deductible temporary differences Deferred tax (credit) / charge Total tax credit 2020 £ 2019 £ (1,346,747) (3,478,997) (24,476) – – (1,371,223) (564,158) (173,674) (737,832) – (25,000) (10,487) (3,514,484) 868,016 59,583 927,599 (2,109,055) (2,586,885) 76 EQUALS GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 CONTINUED 6. TAXATION (CONTINUED) Factors affecting tax credit for the year The credit for the year can be reconciled to the loss per the consolidated statement of comprehensive income as follows: Loss before taxation: Continuing operations Taxation at the UK corporation rate tax of 19.0% (2019: 19.0%) Net permanent differences between tax and accounting Tax losses for which no deferred tax asset utilised Adjustments to tax liability in respect of previous accounting period Adjustments to R&D tax credits in respect of previous accounting period Net impact of R&D tax credit claim Adjustment for overprovision of tax liabilities in companies acquired during the year Remeasure of deferred tax asset on carry forward losses Effect of change in tax rates Utilisation of tax losses Total tax credit for the year Movement in deferred tax balances 2020 £ (9,046,397) (1,718,815) 379,754 – – (24,476) (658,009) – (173,674) 98,430 (12,265) 2019 £ (7,958,583) (1,512,131) 958,443 16,669 (25,000) – (2,073,962) (10,487) 59,583 – – (2,109,055) (2,586,885) 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 £ Group 2020 Intangibles (2,955,107) (110,000) (414,429) (3,479,536) (3,479,536) Property plant and equipment Equity settled share- based payments (270,953) 550,296 Unutilised tax losses 1,888,037 Other – 10,530 (260,423) (260,423) (387,477) (148,407) 14,412 14,412 1,290,137 3,178,174 3,178,174 Deferred tax assets/ (liabilities) (787,727) (110,000) (387,477) 737,831 (547,373) 3,192,586 (3,739,959) 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 £ Group 2019 Intangibles (1,760,892) (329,683) Property plant and equipment Equity settled share- based payments (138,998) 1,071,635 Unutilised tax losses 1,607,394 Other 215,896 – – – – – – (864,532) (2,955,107) – (2,955,107) (131,955) (270,953) 526 (271,479) (525,480) 4,141 550,296 550,296 – – 280,643 1,888,037 1,888,037 (215,896) – – – – – Deferred tax assets/ (liabilities) 995,035 (329,683) (525,480) (927,599) (787,727) 2,438,859 (3,226,586) 77 ANNUAL REPORT 2020 | FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements for the year ended 31 December 2020 6. TAXATION (CONTINUED) The standard rate of corporation tax applicable to the Group for the year ended 31 December 2020 was 19.0%. The Government has indicated that the rate of corporation tax may be increased to 25% with effect from 1 April 2023. Should legislation increasing the rate to 25% be substantively enacted, any timing differences which exist at that point would reverse at 25% rather than 19% and deferred tax balances would be revalued accordingly. The estimated impact of this is an increase in deferred tax recoverable of £474,538. Assumptions and estimation uncertainties The Group has recorded a £3,178,174 (2019: £1,888,037) deferred tax asset in relation to carried forward tax losses and has a further £28,953 (2019: £nil) deferred tax asset unrecognised. 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 the recovery is reasonably certain. The Group has concluded that the deferred assets will be recoverable using estimated future taxable income based on a five-year forecast horizon. 7 LOSS 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 loss after tax attributable to ordinary shareholders of the Group is £6,919,650 (2019: £5,342,074) and the weighted average number of shares in issue for the period is 178,602,918 (2019: 167,096,081). 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 weighted average number of dilutive shares is 178,602,918 (2019: 171,327,405). Loss per share Basic 2020 (3.87)p Diluted 2020 (3.87)p Basic 2019 (3.20)p 8 PROPERTY, PLANT AND EQUIPMENT Diluted 2019 (3.12)p Total £ 2,917,695 159,835 3,077,530 944,877 487,018 1,431,895 Plant and machinery £ Fixtures and fittings £ Leasehold improvements £ 1,209,649 85,119 1,294,768 626,156 274,599 900,755 448,919 15,139 464,058 91,058 89,828 180,886 1,259,127 59,577 1,318,704 227,663 122,591 350,254 394,013 283,172 968,450 1,645,635 Group Cost At 1 January 2020 Additions At 31 December 2020 Depreciation At 1 January 2020 Charge for the year At 31 December 2020 Net book value At 31 December 2020 78 EQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 CONTINUED 8 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) Group Cost At 1 January 2019 Additions Acquisitions through business combinations Plant and machinery £ Fixtures and fittings £ 736,715 464,437 8,497 147,071 301,848 – Leasehold improvements £ 573,038 686,089 – Total £ 1,456,824 1,452,374 8,497 At 31 December 2019 1,209,649 448,919 1,259,127 2,917,695 Depreciation At 1 January 2019 Charge for the year At 31 December 2019 Net book value At 31 December 2019 9 LEASES Group Right of use assets At 1 January 2020 Additions to right of use assets Modifications to leases Depreciation charge for the year At 31 December 2020 Lease liabilities At 1 January 2020 Additions to lease liabilities Lease finance expenses Modification to leases* Payments At 31 December 2020 Current lease liabilities Non-current lease liabilities 427,271 198,885 626,156 20,336 70,722 91,058 67,391 160,272 227,663 514,998 429,879 944,877 583,493 357,861 1,031,464 1,972,818 Vehicles £ 53,375 40,982 – (43,057) 51,300 Property £ 6,895,501 89,721 (77,883) (897,293) 6,010,046 Total £ 6,948,876 130,703 (77,883) (940,350) 6,061,346 Total £ 7,243,206 130,702 222,193 (76,093) (1,113,360) 6,406,648 897,266 5,509,382 6,406,648 * Modification to lease assets and lease liabilities relates to a negotiated future early termination of a property lease. 79 ANNUAL REPORT 2020 | FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements for the year ended 31 December 2020 9 LEASES (CONTINUED) Net lease liability 2020 £ 345,302 (i) Amounts recognised in the consolidated statement of comprehensive income Group Depreciation charge for right of use assets Lease finance expenses Lease termination expense Modification of lease terms – net impact Expense relating to short-term and low value items leases Property £ 897,293 220,343 – 1,790 78,107 Vehicles £ 43,057 1,850 – – Total 2020 £ 940,350 222,193 – 1,790 78,107 2019 £ 294,330 Total 2019 £ 917,993 228,438 5,126 – 133,511 Included within expenses relating to low value assets, which are below the de-minimis level, are amounts relating to IT equipment (printer and photocopiers etc) and property costs (fridges, microwaves etc). The total cash outflow for leases in 2020 was £1,113,360 (2019: £877,350) including for principal and interest. 10 INTANGIBLE ASSETS AND GOODWILL 1,197,533 44,907 1,242,440 1,285,068 Trademarks, licences, patented and non-patented technology Customer relationships £ £ Goodwill £ Brands £ Under construction £ Total £ 14,349,796 16,814,787 4,066,023 455,000 2,008,884 37,694,490 – – 932,621 3,977,761 – – 756,000 – 586,002 – – – (932,621) 552,709 – – 4,530,470 1,342,002 Group Cost At 1 January 2020 Reclassifications Additions Acquisitions through business combinations At 31 December 2020 15,105,796 21,725,169 4,652,025 455,000 1,628,972 43,566,962 – – – 3,225,293 3,730,080 6,955,373 948,927 525,602 1,474,529 196,133 91,000 287,133 – – – 4,370,353 4,346,682 8,717,035 15,105,796 14,769,796 3,177,496 167,867 1,628,972 34,849,927 Amortisation At 1 January 2020 Charge for the year At 31 December 2020 Net book value At 31 December 2020 80 EQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 CONTINUED 10 INTANGIBLE ASSETS AND GOODWILL (CONTINUED) Trademarks, licences, patented and non-patented technology Customer relationships £ £ Goodwill £ Brands £ Under construction £ Total £ 16,859,946 8,327,742 1,957,000 455,000 1,047,951 28,647,639 – – 524,162 7,627,992 – – 2,348,748 334,891 2,109,023 – – – (524,162) 1,485,095 – – 9,113,087 4,792,662 Group Cost At 1 January 2019 Reclassifications Additions Acquisitions through business combinations At 31 December 2019 19,208,694 16,814,787 4,066,023 455,000 2,008,884 42,553,388 Amortisation At 1 January 2019 Charge for the year At 31 December 2019 Impairment – – – 1,020,873 2,204,420 3,225,293 413,760 535,167 948,927 105,133 91,000 196,133 – – – 1,539,766 2,830,587 4,370,353 Impairment for the year* 4,858,898 – – – – 4,858,898 Net book value At 31 December 2019 14,349,796 13,589,494 3,117,096 258,867 2,008,884 33,324,137 * The impairment charge in 2019 relates to the Banking CGU. Included within additions to ‘assets under construction’ and ‘trademarks, licenses, patented and non-patented technology’ is £4,465,481 (2019: £8,306,757) for internally generated software. 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 are tested annually for impairment during the 2020 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 - International Payments (including businesses of Hermex, Eiger, Equals Connect (previously Casco), the International Payments business of CFX and Effective) - Travel Cash (the Travel Cash business of CFX) This represents the lowest level at which goodwill is monitored for internal management purposes. 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: 11.70% (2019: 13.82%), International Payments: 10.08% (2019: 12.38%) and Travel Cash: 8.00% (2019: 9.96%). 81 ANNUAL REPORT 2020 | FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements for the year ended 31 December 2020 10 INTANGIBLE ASSETS AND GOODWILL (CONTINUED) 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% (2019: 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. The table below summarises the changes required and the key assumptions which would result in the recoverable value of each of the CGUs being equal to the respective carrying amounts: Group Decrease (increase) in revenue Banking International Payments Travel Cash Group Decrease (increase) in discount rate (WACC) Banking International Payments Travel Cash 2020 2019 1.71% 23.64% 12.32% (6.62%) 31.81% 15.15% 2020 2019 0.79% 20.30% 5.38% (3.05%) 42.92% 9.99% Based on the sensitivity analyses, the Group has determined that for Banking, 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 recoverable value at 31 December 2020 (2019: £4,858,898 impairment in Banking CGU). 11 INVESTMENTS Company – shares in subsidiary undertakings Cost At 1 January Capitalisation of loan to subsidiary Other additions At 31 December Net Book Value At 31 December 2020 £ 38,892,060 13,422,448 9,392,163 61,706,671 2019 £ 38,725,451 166,609 38,892,060 61,706,671 38,892,060 The additions for the year arise largely from Group restructuring activity during the year designed to yield administrative and accounting efficiencies and provide a more transparent structure for both customers and supply chains. The Group structure has been simplified, with fewer intermediate holding companies and the number of trading companies streamlined. As a result, the Group structure is now more closely aligned to the strategic vision for the Group. 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. 82 EQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 CONTINUED 11 INVESTMENTS (CONTINUED) Subsidiary undertakings The Company holds the share capital (both directly and indirectly) of the following companies: Subsidiary Undertaking FairFX PLC Spectrum Payment Services Limited Fair Payments Limited Equals Connect Limited* Equals Pay LLC City Forex Limited** FairFX (UK) Limited FairFX Group Limited* FairFX Wholesale Limited* FairFS Limited * Fair Foreign Exchange Ireland Limited* Q Money Limited Red 88 Limited Co* Spectrum Financial Group Limited Spectrum Card Services Limited** * Share capital held indirectly ** Ceased trading during the year Country of registration or incorporation Class England and Wales Ordinary England and Wales Ordinary England and Wales Ordinary England and Wales Ordinary United States of America Ordinary England and Wales Ordinary England and Wales Ordinary England and Wales Ordinary England and Wales Ordinary England and Wales Ordinary Ireland Ordinary England and Wales Ordinary England and Wales Ordinary England and Wales Ordinary England and Wales Ordinary Shares held % 100 100 100 52 100 100 100 100 100 100 100 100 100 100 100 Trading Trading Trading Trading Trading Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant Dormant The registered office address of subsidiary undertakings is 3rd Floor Thames House, Vintners’ Place, 68 Upper Thames Street, London, EC4V 3BJ, England. 12 ACQUISITION On 14 October 2020, Equals acquired business information and intellectual property rights from Effective FX Limited (“Effective”), a London-based international payments business servicing both corporate and private clients for a maximum consideration of £1,575,000. This payment is contingent on future net revenue targets over a period of three years from the acquisition date and is payable in quarterly instalments, in cash. Based on current and forecast performance it has been assumed that the contingent consideration will be paid in full, each quarter. The Group determined that the activities and assets acquired represent a business as defined under IFRS 3 Business Combinations and has accounted for the transaction accordingly. The acquisition was made in accordance with the Group’s strategy to consolidate smaller, attractive market participant and has been immediately earnings enhancing. In addition, the acquisition fits with one of the Group’s stated core strategies of extracting value from increasing economies of scale. The acquisition of Effective contributed £124,949 of revenue and £87,562 of profit before tax to the Group since its acquisition. The acquisition date fair value of consideration transferred was calculated as follows: Contingent consideration – undiscounted maximum payments in cash, payable in quarterly instalments over three years Contingent consideration discounted - fair value £ 1,575,000 1,232,000 83 ANNUAL REPORT 2020 | FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements for the year ended 31 December 2020 12 ACQUISITION (CONTINUED) The recognised amounts of assets acquired and liabilities recognised at the date of acquisition were as follows: Intangibles – customer relationships Deferred tax liabilities Total identifiable new assets acquired £ 586,002 (110,000) 476,002 Based on the valuation of the intangibles and enacted UK corporation tax rates a deferred tax liability of £110,000 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 new assets Goodwill £ 1,232,000 (476,000) 756,000 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 2020 £ 194,091 2019 £ 263,971 The Group’s inventories comprise of stock of cards. Included within cost of sales is a charge relating to stock of £470,261 (2019: £475,386) incurred in the ordinary course of business. There is a further charge arising in 2020 of £651,863 card write-offs relating to the cessation of activities of Wirecard AG and its subsidiaries, at that time a supplier of cards to the Group. 14 TRADE AND OTHER RECEIVABLES Current assets Trade receivables Amounts due from Group undertakings Other receivables Research and development tax credit Prepayments Accrued income Group 2020 £ 2019 £ 2,444,226 1,755,650 Company 2020 £ – 2019 £ – – 193,169 20,138,017 – 5,862,898 1,367,129 860,057 419,128 3,869,073 2,534,873 1,465,515 1,722,638 10,953,438 11,347,749 – – – 81,053 274,222 – – – – 20,138,017 Information about the Group’s exposure to market risk, credit risk and impairment losses for trade and other receivables is included in note 21. Amounts owed by group undertaking are unsecured, non-interest bearing and repayable on demand. 84 EQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 CONTINUED 14 TRADE AND OTHER RECEIVABLES (CONTINUED) Group – movement in expected credit loss (“ECL”) Cost Allowance for ECLs at 1 January Provided during the period Allowance for ECLs at 31 December The ECL allowance for the Company is £nil (2019: £nil) 15 CASH AND CASH EQUIVALENTS Group Cash at bank 16 SHARE CAPITAL Group and Company Authorised, issued and fully paid-up capital 2020 2019 £ – 261,244 261,244 £ – – – 2020 £ 2019 £ 10,032,178 11,265,266 2020 £ 2019 £ 178,602,918 (2019: 178,602,918) ordinary shares of £0.01 each 1,786,029 1,786,029 17 OTHER RESERVES Group At 1 January 2019 Shares issued in year At 31 December 2019 Merger reserve £ 8,395,521 – 8,395,521 Exchange differences arising on translation of foreign operations At 31 December 2020 – 8,395,521 Contingent consideration reserve £ Foreign currency reserve £ 543,172 (336,072) 207,100 – 207,100 – – – 6,246 6,246 Company At 1 January 2019 Shares issued in the year At 31 December 2019 and 31 December 2020 Merger reserve £ 2,979,438 – Contingent consideration reserve £ 543,172 (336,072) 2,979,438 207,100 Total £ 8,938,693 (336,072) 8,602,621 6,246 8,608,867 Total £ 3,522,610 (336,072) 3,186,538 85 ANNUAL REPORT 2020 | FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements for the year ended 31 December 2020 18 BORROWINGS Group Loan debenture 2020 £ 2,000,000 2019 £ – Under the Coronavirus Business Interruption Loan Scheme (CBILS) to further support working capital, the main trading subsidiary of the Company, FairFX plc, on 23 December 2020 entered into a £2,000,000 loan agreement with the Royal Bank of Scotland (RBS). Under the terms of the loan, there is an initial twelve month capital repayment holiday and the UK Government will pay the first 12 months of interest due. This is being recognised as a Government grant, with interest grant income received being offset against the loan interest due. At the current Bank Base rate, the estimated grant income receivable by the Group for 2021 representing twelve months repayment holiday will be £52,500. The loan is for a six year period at the Bank Base rate + 2.53% and may be repaid at any point without penalty. The loan agreement required that by 31 March 2021, Equals Group plc issued a guarantee to FairFX plc as security on the loan and that FairFX plc provided a debenture to the RBS for the value of the loan. Both of these requirements have been met. 19 TRADE AND OTHER PAYABLES Current liabilities Trade payables Group 2020 £ 2019 £ Company 2020 £ 2019 £ 4,171,625 5,470,931 137,698 214,492 Amounts owing to Group undertakings – – 1,215,521 1,371,544 Taxation and social security Accruals and deferred income 766,003 7,171,592 12,109,220 690,517 1,785,916 7,947,364 – 463,336 1,816,555 – 374,000 1,960,036 Amounts owed to group undertakings are unsecured, non-interest bearing and repayable on demand. 20 DERIVATIVE FINANCIAL ASSETS AND FINANCIAL LIABILITIES 20.1 Derivative financial assets Financial assets at fair value through profit or loss Group Fair Value 2020 £ Notional Principal 2020 £ Fair Value 2019 £ Notional Principal 2019 £ Foreign exchange forward contracts 3,019,247 137,305,683 4,560,780 102,026,342 Total financial instruments at fair value 3,019,247 137,305,683 4,560,780 102,026,342 20.2 Derivative financial liabilities Financial liabilities at fair value through profit or loss Group Fair Value 2020 £ Notional Principal 2020 £ Fair Value 2019 £ Notional Principal 2019 £ Foreign exchange forward contracts 3,050,157 135,643,652 4,188,394 100,830,215 Total financial instruments at fair value 3,050,157 135,643,652 4,188,394 100,830,215 86 EQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 CONTINUED 21 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. 21.1 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 receivables Borrowings Trade and other payables Lease liabilities Financial instruments held at fair value through profit or loss Derivative financial assets – Forward foreign exchange contracts Derivative financial liabilities – Forward foreign exchange contracts 2020 £ 10,032,178 8,726,252 (2,000,000) (6,443,213) (6,406,648) 2019 £ 11,265,266 9,882,234 – (7,947,364) (7,243,206) 2020 £ 2019 £ 3,019,247 (3,050,157) 4,560,780 (4,188,394) Trade and other payables generally have a maturity of less than one month. Forward foreign exchange contracts fall into level 2 of the fair value hierarchy as set out in note 3.27 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 2020, the unrealised gain or loss recognised in the income statement on the fair value of financial instruments was a gain of £30,907 (2019: £173,011). This was reported in administration costs in the statement of comprehensive income. 21.2 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 which are generally considered to be a low credit risk due to the financial strength of the counterparty. The ageing of financial assets at the statement of financial position date is as follows: 2020 Group On demand Between 1 and 3 months Between 3 and 12 months Over 1 year £ £ £ Trade and other receivables - gross 8,263,603 108,657 615,237 Allowance for ECL (261,244) Trade and other receivables - net 8,263,603 108,657 353,993 Derivative financial assets 1,013,660 649,590 1,246,357 109,640 3,019,247 87 Total £ 8,987,497 (261,244) 8,726,253 £ – – – ANNUAL REPORT 2020 | FINANCIAL STATEMENTS Notes to the Consolidated Financial Statements for the year ended 31 December 2020 21 FINANCIAL INSTRUMENTS (CONTINUED) 2019 Group On demand £ Trade and other receivables – gross and net 9,882,234 Between 1 and 3 months Between 3 and 12 months £ – £ - Derivative financial assets 584,684 803,948 3,172,148 Over 1 year £ – – Total £ 9,882,234 4,560,780 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. 2020 Group Borrowings Trade and other payables Derivative financial liabilities Lease liabilities 2019 Group Trade and other payables Derivative financial liabilities Lease liabilities On demand and within 1 month Between 1 and 3 months Between 3 and 12 months £ – 6,443,213 £ – – £ – – Over 1 year £ Total £ 2,000,000 2,000,000 – 6,443,213 1,018,895 667,269 1,250,768 113,225 3,050,157 96,469 148,629 652,167 5,509,383 6,406,648 On demand and within 1 month £ 7,947,364 Between 1 and 3 months Between 3 and 12 months £ – £ – 1,235,874 573,281 2,379,239 Over 1 year £ – – Total £ 7,947,364 4,188,394 210,927 163,828 436,873 6,431,578 7,243,206 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 and borrowings are subject to interest at a floating rate. No interest is payable on the borrowings until 2022 (see note 18). Foreign currency risk Foreign currency risk arises from having assets and liabilities in currencies other than sterling. The Group’s balance sheet includes foreign currency balances placed with card issuers and foreign currency settlement partners. The sterling equivalent of foreign currency balances with card providers at year end was 463,582 (2019: £562,671), which is primarily made up of USD and EUR. The Group’s foreign currency (FX) collateral with FX settlement partners is immaterial as collateral is primarily settled in sterling. The Group does not hold any material foreign currency cash at bank on its balance sheet. 88 EQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 CONTINUED 21 FINANCIAL INSTRUMENTS (CONTINUED) Financial instruments and fair value risk The following table shows the carrying amount of financial assets and financial liabilities. It does not include a fair value adjustment as the carrying amount is a reasonable approximation of fair value. 31 December 2020 Financial assets Cash and cash equivalents Trade and other receivables Derivative financial assets Financial liabilities Borrowings Trade and other payables Lease liabilities Derivative financial liabilities 31 December 2019 Financial assets Cash and cash equivalents Trade and other receivables Derivative financial assets Financial liabilities Trade and other payables Lease liabilities Derivative financial liabilities Measured at amortised cost £ Measured at fair value £ 10,032,178 8,726,252 – 18,758,430 2,000,000 6,443,213 6,406,648 – 14,849,861 – – 3,019,247 3,019,247 – – – 3,050,157 3,050,157 Measured at amortised cost £ Measured at fair value £ 11,265,266 9,882,234 – 21,147,500 7,947,364 7,243,206 – 15,190,570 – – 4,560,780 4,560,780 – – 4,188,394 4,188,394 Total £ 10,032,178 8,726,252 3,019,247 21,777,677 2,000,000 6,443,213 6,406,648 3,050,157 17,900,018 Total £ 11,265,266 9,882,234 4,560,780 25,708,280 7,947,364 7,243,206 4,188,394 19,378,964 All financial instruments measured at fair value are classified as level 2 financial instruments in the fair value hierarchy. 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 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 and Spectrum Payment Services Limited, both wholly owned subsidiaries, and Equals Connect Limited, a 51.8% partly owned subsidiary, are each subject to the following capital requirement under the Payment Service Regulations 2009. - either 10% of fixed overheads for the preceding year or the initial capital requirement of €20,000, whichever is the higher. Fair Payments Limited, a wholly owned subsidiary, is subject to the following capital requirement under the Electronic Money Regulations 2011: - capital at least equal to 2% of the average outstanding electronic money of the institution, or €350,000, whichever is the higher. The Group has complied with these requirements. 89 ANNUAL REPORT 2020 | FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements for the year ended 31 December 2020 22 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 2020, there were a number of share-based payment transactions within the Group. Cancelled/replaced At 1 January 2020 Cancelled Granted Exercised Lapsed At 31 December 2020 Exercise price (£) Number Number Number Number Number 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 1.01 1.01 1.01 1.01 1.01 1.01 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 200,000 447,750 3,813,939 120,000 120,000 120,000 433,333 433,333 433,333 100,000 100,000 100,000 16,667 16,667 16,667 416,667 416,667 416,667 166,667 166,667 166,667 – – – – – – – – – – – – – – – – – – – – – – – – – – – (250,000) (250,000) (250,000) (166,667) (166,667) (166,667) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 250,000 250,000 250,000 166,667 166,667 166,667 416,667 416,667 416,667 166,666 166,666 166,666 8,221,691 (1,250,000) 3,000,000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (44,445) (44,445) (44,445) – – – – – – – – – – – – – – – – – – – – – – – – 200,000 447,750 3,813,939 120,000 120,000 120,000 388,888 388,888 388,889 100,000 100,000 100,000 16,667 16,667 16,667 166,667 166,667 166,667 – – – 250,000 250,000 250,000 166,667 166,667 166,667 416,667 416,667 416,667 166,666 166,666 166,666 (133,335) 9,838,356 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 28/09/2019 28/09/2019 28/09/2019 14/10/2019 14/10/2019 14/10/2019 01/09/2020 01/09/2020 01/09/2020 01/09/2020 01/09/2020 01/09/2020 01/09/2020 01/09/2020 01/09/2020 01/09/2020 01/09/2020 01/09/2020 Total number of options 90 EQUALS GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 CONTINUED 22 SHARE OPTIONS (CONTINUED) In 2020 executives have been granted performance-based share options shown in the table below. Cancelled / replaced At 1 January 2020 Cancelled Granted Exercised Lapsed At 31 December 2020 Number Number Number Number Number Number Date Granted Exercise price (£) Executive Directors* 5,518,000 (1,250,000) 3,000,000 Non-Executive Directors who resigned during the year* 882,222 Employees 1,821,469 – – – – 8,221,691 (1,250,000) 3,000,000 – – – – – 7,268,000 (133,335) 748,887 – 1,821,469 (133,335) 9,838,356 * See Remuneration Committee report pages 46 to 48 for a list of current Directors’ share options. The above share options issued in Equals Group PLC have been granted to both Directors and employees of the Group. At 31 December 2020, there were unexercised share options amounting to 5.51% (2019: 4.60%) of the Company’s total issued shares. Of the above options 8,016,889 (2019: 6,400,222) have been granted to Directors of the Company (see Directors’ remuneration report pages 46 to 48), with an additional 1,271,467 (2019: 1,271,467) having been granted to individuals who are, or have been during the year, Directors of wholly owned subsidiaries within the Group. In September 2020, Equals Group Plc reduced the exercise price to £0.29 and increased the number of employee share options granted in September and October 2019 by 1,250,000 and 500,000 respectively. These were to maintain their incentive and were adjusted with the help of shareholder feedback. The fair value of the options at the date of the modification was determined to be £0.16. The incremental fair value of £0.09 will be recognised as an expense over the period from the modification date to the end of the extended vesting period. The expense for the original option grant will continue to be recognised as if the terms had not been modified. The fair value of the modified options was determined using the same models and principles as described above. Weighted average exercise price of options The number and weighted average exercise prices of share options are as follows: Outstanding at the beginning of the year Granted during the year Lapsed during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year Weighted average exercise price 2020 0.5081 0.2900 Number of options 2020 8,221,691 1,750,000 (0.2975) (133,335) – 0.3805 0.3899 – 9,838,356 6,505,023 Weighted average exercise price 2019 0.3709 0.9930 – 0.3499 0.5081 0.3707 Number of options 2019 6,805,023 1,800,002 – (383,334) 8,221,691 6,788,356 The weighted average share price for the year was £0.34 (2019: £1.03). 91 ANNUAL REPORT 2020 | FINANCIAL STATEMENTSNotes to the Consolidated Financial Statements for the year ended 31 December 2020 22 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 2020 Granted during year 0.6782 variable 38.0% 2.3 0.10% none variable 0.3382 variable a 46.9% b 9.7 0.32% 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 to £1.74. b. Expected volatility has been determined on the share price from date of admission up to 31 December in the year the options were granted. c. A summary of the fair value of the options granted is summarised in the table below. If the fair value of the option was deemed to be nil it is marked accordingly. 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 26/09/2019 14/10/2019 01/09/2020 Exercise price (£) Fair Value (£) 0.07 0.22 0.36 0.58 1.16 1.74 0.30 0.27 0.44 1.01 1.01 0.29 0.28 0.20 0.12 nil nil nil 0.13 0.11 0.20 0.39 0.31 0.16 The charge expensed to the statement of comprehensive income is £444,129 (2019: £122,609). During the year the Group recognised a £535,884 decrease (2019: £521,339) in deferred tax assets in relation to unexercised share options. Of this amount £148,407 was recognised in the current year’s tax credit (2019: £4,141 tax credit) and £387,477 (2019: £525,480) was taken to equity. 92 EQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 CONTINUED 23 FINANCIAL COMMITMENTS The Group has no significant financial commitments not on balance sheet at the year end. 24 RELATED PARTY TRANSACTIONS The related parties of the Group under IFRS are the Group’s key management personnel. Key Management Personnel Key management personnel are those responsible for controlling and directing the activities of the Group and comprise the Executive Directors, the Non-Executive Directors and members of the Executive. Key management personnel compensation paid during the year is as follows: Salaries, fees and other short-term employee benefits Post-employment benefits Company Intercompany transactions and balances with the rest of the Group: 2020 £ 2,706,833 36,726 2,743,559 31 December 2020 Balance sheet FairFX PLC Fair Payments Limited Spectrum Payment Services Limited Q Money Limited City Forex Limited FairFX (UK) Limited Spectrum Financial Services Group Income statement FairFX PLC Due from 2020 £ 839 192,330 – – – – – Due to 2020 £ Due from 2019 £ (757,562) 19,134,676 – (457,959) – – – – – – 540,729 455,224 – – 193,169 (1,215,521) 20,130,629 (1,381,232) Payable to Payable to 2020 £ 2019 £ 1,122,497 993,773 2019 £ 2,182,733 16,269 2,199,002 Due to 2019 £ – – – (9,688) – (471,555) (899,989) 25 ULTIMATE CONTROLLING PARTY The Directors consider Equals Group PLC to be the ultimate controlling party of the Group. 26 POST BALANCE SHEET EVENTS On 1 January 2021, the UK Brexit transition period ended and the UK was therefore no longer a member of the European Union (EU) single market and customs union. As a consequence of this and with no separate agreement on the provision of financial services post this period, the Group lost its regulatory passporting rights to carry payment services in the EU under the Payment Services Directive. The Group is considering alternative access arrangements to the EU. 93 ANNUAL REPORT 2020 | FINANCIAL STATEMENTS 5 year trading history Additional unaudited information Turnover Revenue Gross Profit PAT Cash 2016 £m 798 10.1 -1.4 -1.4 8.5 2017 £m 1,122 15.5 11.9 0.4 17.8 2018 £m 2,369 26.1 17.7 2.7 7.8 2019 £m 2,887 30.9 20.6 -5.4 11.3 2020 £m 3,493 29.0 18.3 -6.9 10.0 94 Designed and printed by Perivan EQUALS GROUP PLCEquals Group PLC COMPANY INFORMATION 1 About Equals Group 2 3 4 5 Business developments Financial summary and highlights Directors and advisors History STRATEGIC REPORT 7 Chairman’s Statement 8-13 Chief Executive Officer’s Report 14-23 Chief Financial Officer’s Report 24-25 Compliance with Companies Act 2006, Section 172 Statement GOVERNANCE 27-29 Corporate governance report 30-40 ESG report 41-43 Report of the Audit Committee 44-45 Report of the Risk Committee 46-48 Directors’ remuneration report 49-51 Directors’ report 52 Statement of Directors’ responsibilities in respect of the annual report and financial statements 53-58 Independent Auditors’ report to the members of Equals Group PLC FINANCIAL STATEMENTS 60 Consolidated Statement of comprehensive income 61 62 63 64 Consolidated and Company Statement of financial position Consolidated and Company Statement of changes in equity Consolidated Statement of cash flows Company Statement of cash flows 65-93 Notes to the consolidated financial statements Subscribe to our investor alert service and receive all press releases, financial results and other key shareholder messages as soon as they become available. WWW.EQUALSPLC.COM Annual Report 2020 E Q U A L S G R O U P P L C A N N U A L R E P O R T 2 0 2 0 EQUALS GROUP PLC VINTNERS’ PLACE 68 UPPER THAMES STREET LONDON EC4V 3BJ WWW.EQUALSPLC.COM 

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