Equals Money
Annual Report 2022

Plain-text annual report

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 2 www.equalsplc.com Annual Report 2022 EQUALS GROUP PLC THIRD FLOOR, THAMES HOUSE VINTNERS PLACE 68 UPPER THAMES STREET LONDON, EC4V 3BJ 5 Year Trading History Additional unaudited information Turnover Revenue Gross Profit Profit after tax Cash 2018 2,369 26.1 17.5 2.6 7.9 2019 2,888 30.9 20.6 (5.4) 11.3 2020 3,493 29.0 18.3 (6.9) 10.0 2021 6,529 44.1 24.2 (2.3) 13.1 2022 9,216 69.7 33.7 3.6 15.0 Equals Group PLC Contents COMPANY INFORMATION About Equals Group 1 2 3 4 Directors and Advisors Financial Summary and Highlights History STRATEGIC REPORT 6 7 Chairman’s Statement Chief Executive Officer’s Report 12 Chief Financial Officer’s Report 20 Statement on Section 172, Companies Act 2006 GOVERNANCE 23 Report on Corporate Governance 28 ESG Report 36 Report of the Audit Committee 39 Report of the Risk Committee 42 Directors’ Remuneration Report 49 Directors’ Report 52 53 Statement of Directors’ Responsibilities in Respect of the Annual Report and Financial Statements Independent Auditors’ Report to the Members of Equals Group Plc FINANCIAL STATEMENTS 60 Consolidated Statement of Comprehensive Income 61 Consolidated and Company Statements of Financial Position 62 Consolidated and Company Statements of Changes in Equity 63 Consolidated Statement of Cash Flows 64 Company Statement of Cash Flows 65 Notes to the Consolidated Financial Statements IBC 5 Year Trading History 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 Group Equals develops and sells scalable payment platforms to enable organisations to move and easily manage their money flows through its payment and card products. Its core brands are: Equals Money an international, domestic and card payment platform comprising the “Spend” and “Pay” products for ‘just-in-time” expenditure needs of our customers who range from Hollywood studios to dynamic start-ups and fast growing businesses. Equals Money Solutions an enterprise scale-up of the Equals Money platform serving large corporates and financial institutions with complex payments needs. Equals Connect a white label platform serving smaller FX providers. FairFX a travel card and international payment product covering the needs of high-net-worth individuals, international holidaymakers, and their families. CardOneMoney UK focused product to meet the needs of small business and individuals for everyday account processes, allowing them to run their payments, direct debits, and cards via their account. Equals Group PLC (the “Company”) is a public limited liability company incorporated in England and Wales and domiciled in the UK whose shares are admitted to AIM, a market operated by The London Stock Exchange. In addition to be regulated on AIM, various group companies are regulated by FCA and HMRC . Through one group company, the Group has access to real-time settlement accounts with the Bank of England and is a member of the UK Faster Payments Scheme, meaning customers can transfer and receive funds with immediate effect. The European Payments Council has accepted a group company to belong to “SEPA” – the “instant” fund transfer mechanism for the Euro zone. Membership of SEPA allows Equals customers to receive instant Euro credits to their own-name multi-currency IBAN and instantly send Euro payments to other SEPA scheme members. These connections, complimented with SWIFT, allow the group to provide a true multi-currency account to its customers. These consolidated financial statements comprise the Company and its subsidiaries (together referred to as the ‘Group’). They were approved by the Board after stock market trading hours on 24 March 2023. 11 Directors and Advisors Directors ALAN R F HUGHES (Non-Executive Director and Chair) IAN A I STRAFFORD–TAYLOR (Chief Executive Officer) RICHARD Q M COOPER (Chief Financial Officer) SIAN A HERBERT (Non-Executive Director) CHRISTOPHER J BONES (Non-Executive Director) Company Secretary ONE ADVISORY LIMITED (appointed 1 August 2021) 2 Advisors Registered Number 08922461 (England and Wales) Registered Office Third Floor, Thames House Vintners Place, 68 Upper Thames Street, London, EC4V 3BJ Principal Bankers Barclays Bank PLC 1 Church Hill Place, Canary Wharf, 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3 Financial Summary and Highlights FY-2022 Financial Summary Underlying transaction values Underlying transaction volumes Revenue Adjusted EBITDA2 Profit / (Loss) after taxation Memo: Separately reported items (below Adjusted EBITDA) Basic EPS Adjusted diluted EPS3 Diluted EPS Financial Highlights • Transaction flow increased 41% to £9.2 billion (FY-2021: £6.5 billion) • Revenue increased by 58% to £69.7 million (FY-2021: £44.1 million) • Adjusted EBITDA2 increased 81% to £12.1 million (FY-2021: £6.7 million) • Year-end cash increased 15% to £15.0 million (FY-2021: £13.1 million) FY-2022 £ millions FY-2021 £ millions Change1 9,216 69.7 12.1 3.6 0.2 1.80p 3.03p 1.73p 6,529 44.1 6.7 (2.3) +41% +58% +81% 0.7 - 76% (1.35)p 0.02p (1.35)p Q1 FY-2023 Trading update and Outlook • Revenue in Q1-2023 up to 24 March 2023 reached £20.2 million, up from £13.2 million in the same period in 2022, an increase of 54%. • Revenues per working day so far in Q1-2023 were £342k, an increase of 52% over £225k per day in Q1-2022 and 13% higher than £302k per day achieved in Q4-2022 • Share purchase agreement entered for Oonex SA, Belgian regulated payment processor, conditional on regulatory approval into • Acquisition of Hamer & Hamer, UK regulated FX broker, conditional on regulatory approval • Cash position has increased to £18.0 million, equal to 10 pence per share, as at 21 March 2023 Notes 1 Based on underlying, not rounded, figures. 2 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 of a material nature, non-recurring items. 3 The measure of profit for this ratio has been adjusted to form Adjusted EPS. The add-back adjustments consist of share option charges, amortisation of acquired intangibles, exceptional items, acquisition costs and tax impacts on these items thereon. 3 3 STRATEGIC REPORTANNUAL REPORT 2021EQUALS GROUP PLC History March 2023 Acquisition of Oonex SA (Subject to regulatory approval) November 2019 Acquisition of Casco Financial Services Limited August / September 2019 Capital raise and share placing for acquisitions, raising £14.5m net of expenses for expansion July 2019 Banking partnership with Citi Commercial Bank February 2019 Becomes part of Bank of England’s Faster Payments Scheme February 2018 Acquisition of City Forex January 2017 e-Money licence obtained via acquisition of Q-Money 2013 Customer milestone, over 500,000 registered customers 2010 Launch of international payments platform 4 4 January 2023 Acquisition of Roqqett Ltd September 2019 New five-year agreement with Mastercard August 2019 Acquisition of Hermex FX June 2019 The Group rebrands to become Equals Group 2018 Partnership with US bank Metropolitan Commercial Bank August 2017 Acquisition of CardOneBanking 2014 IPO on AIM 2012 Launch of expense platform 2007 Foundation of travel cash business Strategic report 55 Chairman’s Statement I am pleased to report another record year for your Company with a 41% growth in the value of transactions, 58% growth in revenue, 81% growth in adjusted EBITDA, and 234% growth in Basic EPS. The growth in services to businesses is the source of this. PEOPLE Developments in the Group’s platform continued apace, The Group has made significant additions to its sales, marketing including the ability to offer customers direct links with and onboarding teams in the year. The longer-term incentive major international payment schemes, principally, the Bank plans put in place in Q4-2021 were echoed in Q4-2022 and of England’s “Faster Payments” and the EU’s “SEPA” for the fastest possible payments. Equals offers customers fast and should provide significant incentives both to employees and senior staff below the board level. These plans link rewards simple access to their payments combined with the benefit with financial success and cannot pay-out until after five years. of a tailored and highly competitive and personal payment service. The benefits of our investment in our platform and In response to high inflation, the Group made two “cost of the closer links we’ve established into international payments living” awards during the year to all employees (other than the platforms are evident in our current trading volumes. executive directors). The Group continues to seek grow both organically and through The Board is grateful to, and appreciative of, our staff and acquisition – ensuring the value of changes is accretive. To this executive team for the considerable progress of the Group. end, the Group acquired the minority of the interest it did not own in Equals Connect Limited on 30 September 2022 and announced the acquisition of an open-banking platform, Roqqett Limited, on 28 November 2022 – the latter completing on 6 January 2023. The Board was unchanged in 2022, it benefits from a considerable range of experience ranging from finance, banking, risk assessment, regulatory, people management and, above all commercial experience gained through many years and a variety of companies and institutions. ESG The Group has a diverse workforce and remains highly conscious of its role as a responsible employer. Our office-based service business, has a low environmental footprint, but we remain mindful of improvements that can be made. Like others, in the last two years we’ve learnt the value of flexible remote working, for employees and for the Group. We have produced an environmental, social and governance (“ESG”) report which details the Group’s values and progress. ECONOMIC ENVIRONMENT The Group is not immune to the uncertain and volatile economic conditions, but the broadness of our product set, the robustness of our platforms and the skills of our staff give us confidence in our ability to continue to grow and increase the financial returns to shareholders and service to more customers. ALAN HUGHES Chairman 24 March 2023 6 STRATEGIC REPORTEQUALS GROUP PLCChief Executive Officer’s Report 2022 Management’s objective for FY-2022 was to continue its trajectory of strong growth of transaction volumes, revenues, and profits, focused on the B2B customer segment with Equals Money being targeted at the SME base and Equals Solutions at larger corporate opportunities. We significantly surpassed our expectations in the year by continuing to invest in our technology platform, payments infrastructure, licences and connectivity whilst concurrently delivering our growth agenda. The headline financial performance in the full year included: • • • Transactions executed on the Group’s platforms increased 41% to £9.2 billion (FY-2021: £6.5 billion) Revenue increased 58% to £69.7 million (FY-2021: £44.1 million) Adjusted EBITDA increased 81% to £12.1 million (FY-2021: £6.7 million) A detailed financial analysis is presented in the Report of the Chief Financial Officer which follows this statement. SUMMARY OF FY-2022 PERFORMANCE The financial results reflect significant investments made over several years in creating a robust platform comprising international and domestic payments, card payments and banking services underpinned by exceptional technology and direct connections to multiple payment networks. Further investments were made in FY-2022 in compliance, onboarding and user experience such that the rich functionality of the platform is easily accessible to current and potential customers. Successful pivot resulting in operational gearing The results reflect two concurrent pivots: from B2C to B2B and, from being a product-led business to becoming more platform driven. The breakdown of revenues from different customer groupings reflects the B2B shift with the percentage of revenues coming from consumers and small businesses falling from 28% in FY-2021 to 24% in FY-2022. Concurrently, the percentage of revenues derived from large corporates increased from 12% in FY-2021 to 23% in FY-2022, reflecting the growth and potential of the Equals Solutions offering. Processed transaction volumes grew 41% to £9.2 billion (FY- 2021: £6.5 billion), reflecting the Group’s successful growth strategy and the scalability of the platform we have built,, which has ample capacity to process even higher volumes. Over the year, revenues grew faster than transaction volumes, up 58% to £69.7 million (FY-2021: £44.1 million), which demonstrates the success of the Group’s focus on high-margin business lines. Breaking down growth trends further, the ‘core’ products within Equals Money grew strongly and were augmented by a very strong uptake of Equals Solutions. Within the ‘core’ category, International Payments grew 33% to £34.4 million (FY-2021: £25.9 million) and Card-based revenues grew 45% to £12.5 million (FY-2021: £8.6 million). Equals Solutions revenues grew by 333% to £15.6 million (FY-2021: £3.6 million). This growth resulted in rapid profit growth, with Adjusted EBITDA up 81% to £12.1 million (FY-2021: £6.7 million) and demonstrated the operational gearing. In addition, the Group’s operations are strongly cash generative, opening up opportunities to add scale via acquisitions as we look to further broaden functionalities and/or regulatory licences. In October 2022, for example, the Group acquired the remaining minority interest in Equals Connect for £3.3 million (over three years), the white-label international payments platform to smaller Foreign Exchange Brokers, enabling Equals to broaden its reach and homogenise it with our existing platform. Growth with control The overall strategy of the Group is to grow revenues and profits by increasing the volumes of transactions processed via its platform whilst concurrently minimising risk. Accordingly, investment into finance, operations, compliance, and risk functions is a key focus. Whilst payments businesses in general will always incur some operational risk, especially in ‘daylight exposure’ before transactions are settled, the Group seeks to minimise or mitigate risks wherever possible. Therefore, all foreign exchange transactions with customers are automatically matched with a liquidity provider and funds are never released until inbound funds have been received. Further, although the Group does offer forward contracts to its customers, its deposit and mark-to-market policies ensure that Equals runs immaterial risk in this area. Recent times have seen an increased focus from Regulators and Banks on anti-money laundering (‘AML’) and compliance standards. Equals welcomes the raising of standards in this area as we view our compliance controls and governance, backed up by a Group-wide emphasis on compliance culture facilitated by regular training for all employees, to be a competitive advantage. The Group has continued to invest in this area both in terms of headcount, with over 10% of the workforce focused on compliance and risk, and in technology using outsourced platforms to automate compliance tasks such as ‘know your customer’ and other checks. In addition, given increasing transaction volumes, the Group invested into 7 STRATEGIC REPORTANNUAL REPORT 2022CHIEF EXECUTIVE OFFICER’S REPORT CONTINUED a new transaction monitoring system, called Featurespace, employee reached £260k; an increase of 50% over the prior which is a state-of-the-art real-time machine-learning platform year. used by many leading banks and financial institutions. The first phase of the deployment is already live, and the platform will The Group appointed Tom Kiddle as its Chief Commercial be rolled-out across the Group during FY-2023. Officer in June 2022 and has made significant further investment in its growth agenda by upgrading our teams in In product and engineering, the Group’s customer-facing sales, sales operations, and marketing. product developments are built with the involvement of all areas of the business to ensure Equals creates end-to-end Highlights include: -: applications that support internal operational efficiency. Further, the technical roadmaps for FY-2022 and FY-2023 both include many workstreams that improve internal efficiency and control, not just outward facing product rollouts. In addition, Equals will look to use external tooling and software, where appropriate, so the Group’s engineering teams can focus on building in the areas where we can add value. – Sales – appointed a Group Sales Director, implemented forecast and opportunity pipeline measurement and cadence, increased regional sales, increased experience and expertise across sales functions, hired three Equals Solutions sales specialists with technical payments backgrounds and commenced a regular sales training process. The engineering, product and design teams achieved a very – Partnership sales – appointed Head of Partnerships, high cadence in FY-2022 with multiple code releases per week expanded team, implemented new process and procedure and significant progress in the platform. Highlights included: for onboarding partners, refined strategy to focus on wider – Equals Money – new web and mobile applications, customer interface to configure people and teams, flexible account settings and multiple accounts on a single login; – Equals Solutions – significant improvements in reporting and statements. Customer-facing API integrations made available. Direct payments into sub-accounts; partnerships in key verticals of wealth management, estate agents and IFAs and introduced white label option for partners. – Marketing – refined KPIs, systems and measurement processes, appointed new Head of Digital, refreshed PR agency, radically improved digital lead quality, refined website and introduced dynamic split testing, improved – Card Platform – delivery of self-issued cards supporting 20 SEO scoring, and introduced customer lifecycle analysis to currencies, both prepaid and debit. Physical or virtual cards identify key intervention points. usable on Apple Pay, Google Pay and Samsung Pay; – Sales operations – appointed sales operations lead and a – Connectivity – SEPA CT and SEPA Instant. Automated fund HubSpot expert, implemented a QA team to smooth the management with Bank of England settlement account; path of leads through the wider organisation, delivered – Infrastructure – database migrations to the cloud via Amazon Web Services (‘AWS’), significant advances in internal tooling; and significant changes to HubSpot reporting capabilities giving real time access to marketing and sales performance. While the Group continues to seek efficiencies and has a – Reconciliation – automation of inbound funds reconciliation, strong cost-control culture, the Group is growing rapidly and advances in auto-reconciliation via Kani, automated profit has opportunities to continue this trajectory. Accordingly, the sell-backs to GBP. SUSTAINED INVESTMENT IN PEOPLE The Group’s employees continue to be its greatest strength and we are delighted to have a diverse workforce and are total headcount of the Group is now more than 300 people, and we are continuing to hire talent, mainly into growth areas of sales, marketing, onboarding and compliance. MARKETPLACE AND COMPETITIVE LANDSCAPE proud to train and promote from within as well as seek fresh Global payments is a multi-trillion dollar market that remains talent from elsewhere. We continue to invest in our people function and have implemented a much-enhanced appraisal a complex and constantly evolving space, comprising various payment mechanisms from cash, cards, account-to- programme during the year which forms the basis for salary account transfers, and other methodologies across physical, reviews and compensation. The Group has had a high level internet and mobile interfaces. Against this background, of retention amongst key employees. Implementation of a many of the settlement rails, particularly on a cross-border Company-wide share ownership plan (‘SIP’) combined with basis, are antiquated with little investment. The advent of an LTIP for management has been well received. Revenue per crypto currencies brought with it the concept of settlement 8 STRATEGIC REPORTEQUALS GROUP PLCCHIEF EXECUTIVE OFFICER’S REPORT CONTINUED via blockchain technologies, and this has been a factor in navigate the complexities of payments via dedicated account ushering more focus on existing payment infrastructures and management teams. working to improve the speed and reliability of settlements in fiat currencies. The Group therefore differentiates itself by harnessing the best of these two competitor groups, namely the trust and heritage This is the backdrop to the Group’s sustained investment of the incumbent banks combined with the technological over several years that has enabled Equals to develop a innovation of the Fintechs. Accordingly, Equals will continue to unique proposition; the Group provides both account-to- invest in its platform, connectivity, and payment rails to remain account transfers and card payment capabilities, overlaid on one step ahead and its success to-date in doing so is reflected infrastructure giving bank-grade connectivity and security in the Group’s FY-2022 results. on superior customer interfaces that can be consumed by customers directly via the platform, on a white-label basis, or via an API technical interface. The flexibility the Group can support and the channels by which this can be consumed by customers is a key differentiator. Within Equals B2B focus, the Group targets two major segments, SMEs, via Equals Money, and larger corporates, via Equals Solutions. Both offer a single platform comprising own-name, multi-currency IBAN current accounts, account-to-account transfers, and card products for both domestic and international transactions. Competition and differentiation Competition falls into two major categories, the incumbent banks and the fintech ‘disruptors’. The majority of payment volumes flow through the former, therefore targeting LOOKING FORWARD – FROM PRODUCT TO PLATFORM Management anticipates that FY-2023 will be the year where the various strands of investment into engineering and connectivity come together into the overall platform offering. At the centre of the Group is Equals Core, the division that holds all the technology, payment rails, direct connections, operations, compliance, and regulatory licences. Equals Core powers everything that the Group does via one technology stack which serves all customers via the same API’s and is built for scale. Equals Core ultimately has four distribution channels: its customer base is key focus for the Group’s product 1. Equals Group itself via its product offering – Equals Money, development and its sales and marketing activities. Fintechs Equals Solutions, FairFX & CardOne Money; tend to market one silo of what Equals provides as an overall platform (e.g. current accounts, cards, and international 2. Customers who consume Equals Core via API; payments) and are often B2C focused. Further, they typically 3. White-label customers who consume Equals Core with operate ‘self-serve’ platforms in contrast to the Group’s their own brand being shown to their end customers, who provision of human assistance in supporting customers they acquire via their own sales and marketing; and 9 STRATEGIC REPORTANNUAL REPORT 2022CHIEF EXECUTIVE OFFICER’S REPORT CONTINUED 4. Those who consume some but not all of Equals Core’s – Automation of outbound payments via SWIFT, services via API. FasterPayments, SEPA Equals currently has customers utilising the first three levels – Full white-label of Equals Money outlined above and will be able to offer the fourth level during – Final migration of legacy products to Equals Core the course of FY-2023. The direction of travel for the Group is to further build out the capabilities of all four of these distribution – Automated bulk payments channels in the current financial year and beyond. – Straight-through-processing (‘STP’) Further differentiation The Group is constantly looking to add functionality that can further differentiate Equals. The current platforms allow B2B customers to have global collection accounts and to pay out funds locally in over 40 countries but lack the full range of capabilities to assist customers in receiving payments from their customers, both B2B and B2C. In January 2023, Equals completed its acquisition of Roqqett Limited (‘Roqqett’), an open banking platform. Roqqett will enable Equals’ customers to acquire payments from its customers using open banking ESG Equals wholeheartedly embraces ESG initiatives and takes Equality, Diversity, and Inclusivity (‘EDI’) extremely seriously. Our EDI strategy, which covers not only employees but also customers, includes an internal EDI network populated with elected representatives and regular employee surveys. This is a key objective for all Executive Committee members and forms part of their appraisals. rather than traditional methods of debit or credit cards. The Q1-2023 TRADING AND OUTLOOK Roqqett platform fits perfectly with the Equals Core technology FY-2023 has started exceptionally well with revenue in Q1- and the first integration milestone of putting Roqqett in the 2023 up to 24 March 2023 reaching £20.2 million, up from process flow for FairFX was completed in Q1-2023. This £13.2 million in the same period in 2022, an increase of 54%. acquisition allows Equals to offer an ‘end-to-end’ solution Revenues per working day so far in Q1-2023 were £342k, an to its B2B customers from the point at which their customer increase of 52% over £225k per day in Q1-2022 and 13% transacts all the way through to disbursements internationally higher than £302k per day achieved in Q4-2022. or domestically. In a similar vein, the Group is looking at the ability to accept card-based payments for its customers, so- Strong B2B revenue growth continues with all product lines called merchant acquiring. M&A The Group continues to assess M&A opportunities in three progressing well. Equals Solutions, which contributed £15.6 million of revenues in FY-2022, has already contributed £6.0 million in FY-2023 to-date and is expected to continue to grow strongly as the Group adds new functionality to its payments main areas, which are not mutually exclusive. Firstly, to platform during the year. acquire profitable businesses that can easily be added to the platform and provide scale. Secondly, to acquire value-add functionality complementary to our offering. Lastly, to expand in a regulatory sense via the acquisition of licences and access to overseas markets. Other notable achievements in Q1-2023 to-date include: – Completion of the acquisition of Roqqett following FCA approval and completing a key technical milestone by having the platform live on the FairFX platform for inbound Accordingly, the product and development roadmap for FY- payments. 2023 reflects our continued investment into Equals Core with – Sale of the legacy travel-cash banknote business and key deliverables being:- – Implementation of new transaction monitoring platform – Featurespace – Multi-currency corporate cards advantage) in USA (first-mover – Further integration of Roqqett accompanying Bureau-de-Change. This enables the Group to focus more on its core B2B activity. – Acquisition, subject to FCA approval, of Hamer & Hamer, a B2B International Payments business with revenues of approximately £1.5 million per annum. – Acquisition, subject to approval by National Bank of Belgium (‘NBB’) of Oonex, a Brussels-based merchant acquiring – Further investment into information security and becoming business. This gives the Group access to customers across ISO27001 compliant 10 Europe as well as new banking partners and Belgium prefixed IBANs to augment the Group’s current GB-prefixed STRATEGIC REPORTEQUALS GROUP PLCCHIEF EXECUTIVE OFFICER’S REPORT CONTINUED IBANs, which widens the use cases for our Equals Money and Equals Solutions platforms. The outlook for the business, as a result of our sustained and continuing investments, is strong and the Group’s addressable market is now significantly greater. Equals has created a payments platform comprising international and domestic payments, card payments and banking services underpinned by exceptional technology and direct connections to multiple payment networks. Finally, given the current customer base is largely within the UK, the growth opportunities of geographical expansion are considerable. Accordingly, the Board looks forward to the future with much confidence. IAN STRAFFORD-TAYLOR Chief Executive Officer 24 March 2023 11 STRATEGIC REPORTANNUAL REPORT 2022Chief Financial Officer’s Report I present my review and financial analysis for the year ended 31 December 2022. Table 1: Income and Expense account Revenue (tables 3, 4) Gross Profits (table 5) Less: Marketing Contribution Staff costs Property and office cost IT and telephone costs Professional Fees Compliance Fees Travel and other expenses Adjusted EBITDA Less: Share option expense Less: Acquisition costs and exceptional items EBITDA IFRS 16 Depreciation (table 6) Other depreciation (table 6) Amortisation of acquired intangibles (table 7) Other amortisation (table 7) Contingent consideration cost Impairment of the Bureau operations FY-2022 FY-2021 £ millions £ millions 69.7 44.1 33.7 (1.9) 31.8 (14.4) (0.9) (2.0) (1.2) (0.7) (0.4) 12.1 (0.9) (0.2) 11.0 (0.8) (0.4) (1.3) (4.4) (0.3) – (7.2) 24.2* (1.3) 22.9 (11.9) (0.8) (1.7) (1.2) (0.4)* (0.2) 6.7 (0.3) (0.7) 5.7 (0.9) (0.5) (1.3) (4.5) (0.1) (1.6) (8.9) EBIT 3.8 (3.2) Lease interest Foreign exchange differences Contingent consideration finance charges PROFIT / (LOSS) BEFORE TAXATION Corporate and deferred taxation R&D tax credits receivable PROFIT / (LOSS) FOR THE YEAR (0.2) (0.1) (0.1) (0.4) 3.4 0.1 – 0.1 3.6 (0.2) (0.1) (0.3) (0.6) (3.8) 1.1 0.4 1.5 (2.3) * With effect from 1 January 2021, certain compliance and onboarding costs which had been included in cost of sales, are now shown within compliance costs. For 2021, which has not been restated, these costs amounted to £255k. When the changes are presented as a bridge, the standout facts are the increase in revenue leading to increased contribution (gross profits less marketing costs), offset by higher labour costs, both through planned increases in staff resources and responding to labour market pressures. Other cost increases were also a mix of inflation pressures, but also decisions taken to upskill and upscale resources for a rapidly growing business. 12 STRATEGIC REPORTEQUALS GROUP PLCCHIEF FINANCIAL OFFICER’S REPORT CONTINUED TABLE 2 – Adjusted EBITDA bridge from FY-2021 to FY-2022 (in £’000s) FY-2021 Adjusted EBITDA Add: 39% uplift in contribution FY-2022 Less: 21% increase in staff costs, reflecting higher planned headcount along with pay adjustments averaging 8% 19% increase in IT and communications, taking into account of increased web hosting charges. 18% increase in professional and compliance costs, much of which is attributable to increased compliance investment Increase in travel and entertaining costs Increase in property utility and insurance costs and with taking back legacy office lease FY-2022 Adjusted EBITDA Uplift over FY-2021 % uplift over FY-2021 6,713 8,873 (2,488) (324) (296) (247) (111) 12,120 5,407 81% Revenue A split of revenues by both customer group and platform, clearly shows both the strong and growing emergence of Solutions and very significant migration away from the legacy travel products. All product lines and all verticals saw significant increases in revenue in the year. The table below shows the revenue by both CGU and customer types. Table 3: Revenue by customer type Consumer and small business Corporates Large enterprises Sub-total 4.5 5.1 6.1 – 1.0 16.7 12.5 14.9 7.5 – – – 22.4 18.7 – – – 15.7 – 15.7 5.1 19.4 12.5 6.1 15.7 1.0 54.7 36.4 White- label 15.0 – – – – 15.0 7.7 TOTAL FY-2022 TOTAL FY-2021 % change 34.4 12.5 6.1 15.7 1.0 69.7 44.1 25.9 8.7 5.6 3.6 0.3 44.1 32.8% 43.7% 9.0% 336.1% 233% 58.0% Revenue in £ millions International payments Cards Banking Solutions Travel cash Total, FY-2022 Total, FY-2021 % Change* FY-2022 to FY-2021 +33% +20% >207% +51% +94% +58% +58% * based on underlying figures Continuing the analysis which was presented at the 2022 interims, we disclose below, revenue per half year period. The well publicised political uncertainty saw many clients “bring-forward” activity into Q3 from the usual Q4 trading. 13 STRATEGIC REPORTANNUAL REPORT 2022CHIEF FINANCIAL OFFICER’S REPORT CONTINUED TABLE 4 – Revenue by half-year Revenue in £ millions Solutions White- Label Other International Payments Cards (Retail and Corporate) Banking Bureau H1-2021 H2-2021 FY-2021 % of total H1-2022 H2-2022 FY-2022 % of total 0.3 3.3 3.6 8% 6.2 9.4 15.6 22% 2.4 5.4 7.7 18% 7.2 7.8 15.0 22% 7.5 10.7 18.2 41% 9.1 10.3 19.4 28% 3.9 4.8 8.6 2.8 2.7 5.6 20% 13% 5.6 6.9 12.5 18% 2.8 3.3 6.1 9% 0.1 0.3 0.3 1% 0.5 0.5 1.0 1% Revenue per day in £000’s 136.3 210.7 174.3 255.1 301.4 278.7 Total 16.9 27.2 44.1 100% 31.4 38.3 69.7 100% 2022 vs 2021 333% 95% 7% 45% 9% 233% 58% 60% Gross profits The gross profit margins have also improved – and continue to improve. These, over the last four half-year periods are shown below: TABLE 5 – Gross profit margin by half-year H1-2021 H2-2021 FY-2021 H1-2022 H2-2022 FY-2022 White- Label Other International Payments Cards (Retail and Corporate) 16% 12% 14% 12% 14% 13% 65% 58% 61% 59% 56% 57% 71% 69% 70% 61% 65% 63% Solutions 37% 47% 46% 46% 50% 48% Banking Bureau 75% 76% 76% 76% 78% 77% 72% 68% 69% 48% 42% 45% Total 61% 51% 55% 47% 59% 48% Marketing, branding and contribution The Group has accelerated its marketing plans after pausing this during FY-2020 and FY-2021 when Covid posed greater uncertainties. Expenditure has been incurred on additional ad campaigns, pay-per-click, exhibitions and similar events including those in the USA where the Group noticed considerable interest in it’s Spend platform and the Group’s ability to sell this through its partnership with Metropolitan Commercial Bank. Staff costs Staff costs, gross of capitalisation and exceptional items, were £18.6 million in FY-2022 against £15.6 million in FY-2021. These costs were offset by £4.2 million of capitalised internal software (FY-2021: £3.0 million), which included £1.4 million on contractors (FY-2021: £0.5 million). The amounts capitalised represent 22% of gross staff costs, increased from 19% in 2021 largely due to inflation impacting contractor costs. Headcount numbers have moved from 255 as at 31 December 2021 to 285 as at 31 December 2022. Professional fees and Compliance costs Owing to an increasing cross-industry compliance burden, the Group has chosen to report compliance and similar costs separate to other professional fees. Such costs, including onboarding systems, have risen due to a combination of greater business activity and the Group’s desire to fast-track business applications but not at the expense of quality. Professional fees have risen in line with trends widely reported in the national press, most notably the cost of the audit. 14 STRATEGIC REPORTEQUALS GROUP PLCCHIEF FINANCIAL OFFICER’S REPORT CONTINUED Property, insurance and office costs Renegotiation of office leases has led to lower passing rents which benefit the Group’s cashflows but not the EBITDA as such rents are accounted for under IFRS-16. Utility, rates, and insurance charges have however risen by an aggregate of 35% from FY-2021 to FY-2022, although much of this is associated with re-occupying a floor in Vintners Place which had previously been vacated during the Covid pandemic. Exceptional items There were no exceptional costs in FY-2022. In FY-2021, £0.7 million had been incurred in the restructuring of a layer of senior management. Acquisition costs The Group acquired the remainder of the Non-Controlling Interest of Equals Connect Ltd on 30 September 2022. On 28 November the Group announced that it was acquiring an open banking platform through the acquisition of Roqqett Limited. Professional fees incurred in FY-2022 on acquisitions amounted to £164k. Depreciation Tangible fixed assets are depreciated over the anticipated useful life with a maximum of 60 months (other than leasehold improvements which is a maximum of 120 months). Table 6: Depreciation IFRS 16 depreciation Other depreciation FY-2022 £’000s FY-2021 £’000s 822 389 1,211 931 467 1,398 £’000s 668 375 1,043 Based upon the expenditure incurred to 31 December 2022, the depreciation charges for those assets in FY-2023 will be: IFRS 16 depreciation Other depreciation Amortisation Intangible assets acquired on acquisition are amortised over their estimated useful lives, with a maximum of 60 months for brands and a maximum of 108 months for customer relationships. The charge to amortisation for the year can be analysed as follows: Table 7: Components of amortisation charges Amortisation charge arising from the capitalisation of internally developed software in the following years: 2018 and earlier 2019 2020 2021 2022 Amortisation charge for other intangibles Amortisation of acquired intangibles Total amortisation charge FY-2022 £’000s FY-2021 £’000s 916 1,661 893 576 388 4,435 291 4,726 1,282 6,008 1,303 1,661 893 287 – 4,144 357 4,501 1,311 5,812 15 STRATEGIC REPORTANNUAL REPORT 2022CHIEF FINANCIAL OFFICER’S REPORT CONTINUED Based upon expenditure to 31 December 2022, the amortisation charges for FY-2023 are expected to be: Internally developed software Other intangible assets Acquired intangibles £’000 4,953 267 984 6,205 Operating result The Group made a profit before taxation of £3.4 million for the year, compared to a loss of £3.8 million for FY-2021. Taxation, incorporating R&D credits The Group has recognised a net tax credit of £135k (FY-2021: £1,555k) of which £nil (H1-2021: £398k) relates to an R&D tax credit repayment. 2021 R&D tax credit repayment was received in full in H2-2022. Table 8: Balance sheet This table shows a compressed “balance sheet” for the Group. Internally generated software – cost Internally generated software – accumulated amortisation Other non-current assets (other than deferred tax) IFRS 16 assets, less IFRS 16 liabilities Liquidity (per Table 11) Trade debtors and accrued income R&D rebates Prepayments Deposits and sundry debtors Inventory of card stock Accounts payable Affiliate commissions PAYE, staff commissions etc. Other accruals and other creditors Earn-out balances due (Table 9) Implied interest thereon Net corporation and deferred tax Net value of forward contracts* 31.12.2022 £’000s 31.12.2021 £’000s 26,001 (13,411) 12,590 18,558 (830) 30,318 14,321 4,244 – 1,345 1,019 292 (2,069) (2,563) (2,506) (1,938) 12,145 (2,025) – (2,025) 1,639 827 441 21,402 (8,976) 12,426 19,791 (388) 31,829 10,739 3,638 398 998 329 168 (1,549) (1,945) (1,884) (1,349) 9,543 (1,683) 63 (1,620) 888 511 (221) NET SHAREHOLDER FUNDS 42,904 41,151 At the date of signing of these financial statements, the Company has distributable reserves of £1,411k. This is equivalent to £0.0078 pence per share. * The gross value of the forwards book at 31st December 2022 was £253.3 million (31st December 2021: £170.1 million) 16 STRATEGIC REPORTEQUALS GROUP PLCCHIEF FINANCIAL OFFICER’S REPORT CONTINUED Earn-outs The table below shows the financial position relating to acquisitions in and after 2019, including Roqqett Limited which was completed before the signing of these financial statements but does not appear on the FY-2022 Balance Sheet. However, post the signing of the Share Purchase Agreement, funds were advanced to Roqqett Limited to ensure they were able to meet their regulatory obligations. The table below shows the financial position relating to these acquisitions. TABLE 9 – Earnouts Hermex Casco Effective Roqqett Limited 09.08.2019 19.11.2019 15.10.2020 06.01.2023 Acquisition date Acquisition price booked at acquisition Earn outs paid by 31.12.2020 Revaluation of asset based on performance Gross outstanding at 31.12.2020 Paid during 2021 Further change in consideration Gross Outstanding at 31.12.2021 Paid during 2022 Purchase of the remainder of the NCI Initial consideration paid by 31.12.2022 Gross Outstanding at 31.12.2022 Loan in advance of acquisition (FY-2022) Paid during Q1-2023 Due in remainder of FY-023 Due in FY-2024 Maximum consideration Total consideration £’000s 2,000 (2,000) – – – – – – – – – – – – – 2,000 2,000 £’000s 2,236 (1,733) 793 1,296 (741) 46 601 (601) 2,955 (930) 2,025 – – 1,560 465 6,655 6,075 £’000s – – – – – – – – – – – 830 170 £’000s 1,575 (125) – 1,450 (368) – 1,082 (1,082) – – – – – – – 1,250 2,810 1,575 1,575 2,250 2,250 Total £’000s 5,811 (3,858) 793 2,746 (1,109) 46 1,683 (1,683) 2,955 (930) 2,025 830 170 465 12,480 11,900 Share capital The number of shares in issue at 1 January 2022 was 179,341,807. This increased in the year through the exercise of 666,666 share options and 704,000 shares at nominal value were issued pursuant to the 2021 SIP, thus the number of shares outstanding at 31 December 2022 was 180,712,473. A further 747,488 shares at nominal value were issued pursuant to the 2022 SIP and admitted to trading on AIM on 25 January 2023, resulting in a total number of shares in issue at the date of signing of the Financial Statements of 181,459,961. Share options At 1 January 2022, the Company had 13,107,800 options outstanding. 666,666 of these were exercised in 2022, 16,000 were cancelled and 250,576 lapsed. On 14 December 2022, the Company announced Discretionary Share Incentive Plans over 3,966,500 shares. Thus, at the date of signing of these financial statements, there were 16,141,058 options, representing 8.9% of the issued share capital and 8.6% of the enlarged share capital. The cost of external advice for these schemes amounted to £46k in the year (FY-2021: £84k) 17 STRATEGIC REPORTANNUAL REPORT 2022CHIEF FINANCIAL OFFICER’S REPORT CONTINUED Earnings per share Earnings per share are reported/calculated in accordance with IAS 33. For non-diluted, the result after tax is divided by the average number of shares in issue in the year. The average number of shares were 180,304,802 (FY-2021: 178,959,402). The calculation of diluted EPS is based on the result after tax divided by the number of actual shares in issue (above) plus the number of options where the fair value exceeds the weighted average share price in the year. The fair value of options is measured using Black-Scholes and Monte-Carlo. It should be noted that in accordance with Accounting Standards, this calculation is based on fair value, not the difference between the market price at the end of the year or the weighted average price and the exercise price. The weighted average price was 84 pence (FY-2021: 49 pence), the number of options exceeding the fair value was 7,278,986 (FY-2021: 3,553,681). The basic and diluted EPS are shown below: Profit/(loss) per share in pence Basic Basic FY-2022 FY-2021 Diluted FY-2022 Diluted FY-2021 1.80 (1.35) 1.73 (1.35) Adjusted earnings and adjusted EPS We have observed that the analyst community prepares EPS calculations on a number of different bases. To try and harmonise these we have prepared below a basis which hopefully offers consistency: P&L YTD Attributable to owners of Equals Group PLC Add back: - Share option charges - Amortisation of acquired intangibles. - Exceptional items* - Acquisition costs - Tax impacts thereon* Adjusted earnings *Tax impacts thereon are associated to Exceptional items and Acquisition costs. The resulting earnings per share are shown below FY-2022 £’000s 3,236 FY-2021 £’000s (2,425) 970 1,282 – 164 31 5,683 356 1,302 671 – 128 32 Adjusted profit per share in pence Basic Basic FY-2022 FY-2021 3.15 0.02 Diluted FY-202 3.03 Diluted FY-2021 0.02 18 STRATEGIC REPORTEQUALS GROUP PLCCHIEF FINANCIAL OFFICER’S REPORT CONTINUED CASH STATEMENT The movement in the cash position is shown in the table below: Table 10: Cashflow Adjusted EBITDA R&D tax credits received Lease payments (principal and interest) Acquisition costs and Exceptional items Internally developed software capitalised for R&D: – Staff – IT Costs Purchase of other intangible assets less disposals (Non-R&D) Purchase of other non-current assets Movement in working capital Funds from exercise of share options Earn-outs and acquisitions Loan made to of acquisition of Roqqett Limited External funding repaid (CBILS) NET CASHFLOWS Balance at 1st January Balance at 31st December Cash per share Table 11: Liquidity Cash at bank Balances with liquidity providers Pre-funded balances with card provider Gross liquid resources Customer balances not subject to safeguarding CBILS loan Net position FY-2022 £’000s 12,120 400 (969) (164) FY-2021 £’000s 6,713 1,367 (1,080) (671) (4,191) (3,028) (408) (445) (271) 1,147 7,219 193 (2,614) (830) (2,028) 1,940 13,104 15,044 (301) (532) (78) 1,571 3,960 220 (1,108) – – 3,072 10,032 13,104 8.3 pence 7.3 pence FY-2022 £’000s 15,044 1,950 1,491 18,485 (4,165) – (4,165) FY-2021 £’000s 13,104 1,675 1,615 16,394 (3,655) (2,000) (5,655) 14,320 10,739 The Group has its principal banking and deposit arrangements with Barclays, NatWest, Citibank and Blackrock. RICHARD COOPER Chief Financial Officer 24 March 2023 19 STRATEGIC REPORTANNUAL REPORT 2022Statement on Section 172 of the Companies Acts 2006 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 they consider, 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 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. Relevant board engagement with key stakeholders is detailed in the corporate governance report. 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 for their invoices once 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, 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 ongoing 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. 20 STRATEGIC REPORTEQUALS GROUP PLCSTATEMENT ON SECTION 172 OF THE COMPANIES ACTS 2006 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 5 to 19 was approved and authorised for issue by the Board after stock market trading hours on 24 March 2023, and was signed on its behalf by: IAN STRAFFORD-TAYLOR Chief Executive Officer 21 STRATEGIC REPORTANNUAL REPORT 2022Governance 22 22 Report on Corporate Governance for the year ended 31 December 2022 OVERVIEW • Financial statements and annual reports As Chairman of the Board of Directors of Equals Group PLC • Governance statements (“Equals”, “we”, “the Company”, “the Board”, or “the Group” as the context requires), it is my responsibility to ensure that Equals has sound governance and an effective Board. This responsibility includes leading the Board and overseeing • Details of directors and advisors. BOARD OF DIRECTORS the Group’s corporate governance. Good and timely The Board is responsible for the overall management of the Group information flows between Executives and Non-Executives including the formulation and approval of the Group’s long-term with interactions that are both supportive and challenging are objectives and strategy, the approval of budgets, the oversight essential to this. of the Group’s operations, the maintenance of sound internal control and risk management systems and the implementation The goals the Group pursues are to create value for of Group strategy, policies, and plans. Whilst the Board may shareholders and customers, to monitor and improve our delegate specific responsibilities, there is a formal schedule of environmental and societal impacts and to adhere to good corporate governance. matters specifically reserved for decision by the Board; such reserved matters include, amongst other things, approval of GOVERNANCE CODE AND COMPLIANCE Equals has adopted the Quoted Companies Alliance Corporate Governance Code (“QCA Code”) in line with the London Stock significant capital expenditure, material business contracts and major corporate transactions. The Board meets formally on a regular basis to review performance. Exchange’s AIM Rules. This Statement, in conjunction with the DIRECTORS Chairman’s Corporate Governance Statement published on The Equals Board is presently made up of five Directors. The our website, follows the ten-point structure of the QCA Code experience and skills of each director is set out below. and describes how we have applied the Code. The Group will provide updates not less than annually. The Board is confident that the current mix of skills and competencies amongst the Board aligns well with the The Board considers that the Group complies with the QCA Company’s strategic priorities over the medium- to long-term Code so far as it is practicable having regard to the size, nature but this position will continue to be kept under review. and current stage of development of the Group. The Board recognises that even where the Group may not fully comply Alan Hughes – Chair and Independent Non-Executive Director with a principle or general provisions of the Code, it uses the Code as a benchmark in assessing its corporate governance Date of appointment: 1 March 2020 Committees: Nominations (Chair), Remuneration, Risk standards. Where the Group does not fully comply, it gives reasons for this. Equals pursues a customer-driven, socially and environmentally responsible culture illustrated through its internal values and policies and its supplier and shareholder engagements. Equals believes that application of the QCA Code supports the Group’s medium to long-term success whilst simultaneously managing risks and providing an underlying framework of commitment and transparent communications with stakeholders. The Group’s Investor Relations website (equalsplc.com) contains all documents required by AIM rule 26, notably: Alan has 35 years of experience with HSBC, becoming General Manager on the UK Executive board. He was also CEO of FirstDirect Bank where he introduced its digital services, and, introduced significant product innovation. He has had several non-executive roles, currently he is Chair of Unity Trust Bank plc and Chair of Mitsubishi HC Capital UK plc. He has taught banking and lectured at Warwick and Oxford Universities on service and innovation. He was Pro-Chancellor and deputy Chair of Council at Loughborough University. He has an MBA from Henley, is a Fellow of the Chartered Institute of Bankers, a Fellow of the Royal Society for Arts, Manufactures and Commerces and holds an Honorary Doctorate from • The Articles and Memorandum of Association Loughborough University. • Admission document 23 ANNUAL REPORT 2022GOVERNANCEREPORT ON CORPORATE GOVERNANCE CONTINUED IAN STRAFFORD-TAYLOR Chief Executive Officer Date of appointment: 4 March 2014 Committees: Nominations PROFESSOR CHRISTOPHER BONES Independent Non-Executive Director Date of appointment: 9 April 2021 Committees: Remuneration (Chair); Audit, Risk, Nominations. A Founder and a Director of the Group since 2007. Ian has Chris has held senior executive positions at major companies held a number of senior banking roles, including Business including Diageo and Cadbury. He was also Principal/Executive Unit Controller and Head of International Securities Lending Dean of the Henley Business School from 2004-2010. Chris at Morgan Stanley, where he worked from 1985 to 1992. co-founded Good Growth Ltd (‘Good Growth’), a successful Following this, Ian moved to UBS where he worked for 13 years e-commerce consulting business whose clients include Diageo, as Managing Director and Global Head of Securities Borrowing Kraft Heinz, WH Smith, Pets at Home, ITV, Boohoo, Channel 4, and & Lending, Fixed Income Repo and Prime Brokerage. Ian is a others. Good Growth has grown into a successful SME powering Chartered Accountant, qualifying with Arthur Andersen in 1985. rapid digitally-fuelled growth in both B2C and B2B businesses RICHARD COOPER Chief Financial Officer Date of appointment: 14 October 2019 Committees: none 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 a non-executive director of two other companies on AIM: Non-Executive Chairman of Engage XR Holdings PLC, a technology-focused education company, and Chair of the across Europe and North America and he brings this experience to the Board in support of Equals’ growth. Chris sold his shares in Good Growth in 2021 and now has a solely non-executive career. He is chair of the Remuneration Committee for Equals Group PLC. His other roles are that of Chair of the Chartered Institute of Legal Executives and as a Non-Executive Director of The Pipeline, a specialist consultancy and training organisation focusing on the development of women and managers from ethnic minority communities into executive leadership positions in business, public and third sector organisations. He is also a non-executive director of the Glasgow Colleges Regional Board. Chris was awarded an honorary doctorate from Aberdeen University, from which he holds his undergraduate degree. BOARD INDEPENDENCE AND TIME COMMITMENT Audit Committee of Insig AI plc, a machine learning business The Board has reviewed the independence of the Chairman focused on ESG for the fund management industry. and each of the Non-Executive Directors (“NEDs”) and SIAN HERBERT Independent Non-Executive Director Date of appointment: 1 October 2020 Committees: Audit (Chair); Risk Nominations (Chair); Remuneration, 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 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 2022, no NED holds any share options in the Company. The Non-Executive Directors are each expected to dedicate approximately 18 days per annum towards their duties and otherwise such time as required. gained 25 years’ experience at PricewaterhouseCoopers LLP BOARD EFFECTIVENESS (“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. As well as being a member of the ICAEW, Sian is also a Member of the Hong Kong Society of Accountants. She has recently been appointed to the Board of Mitsubishi HC Capital UK PLC as the Audit and Risk Committee Chairs. All Directors are expected to keep their skill-set up-to-date, and the Company provides a number of opportunities for Board members to access development opportunities. The Company Secretary provides periodic briefings to the Board throughout the year on developments in corporate governance and regulatory matters, and new Directors are provided with a tailored induction. Non-Executive Directors are encouraged to be involved in specific workshops or meetings, in line with their individual areas of expertise. The Board shall review annually the appropriateness and opportunity for continuing professional development, whether formal or informal. 24 EQUALS GROUP PLCGOVERNANCEREPORT ON CORPORATE GOVERNANCE CONTINUED The Companies believes that an effective board is one which The Group’s values are: delivers financial value for its shareholders along with other values and integrity for other stakeholders - customers, suppliers, communities, and colleagues. In 2022, the Board took forward the outcomes of the formal annual Board evaluation • Make it happen; • Succeed together; • Be the customer; and process undertaken in 2021, with a view to ensuring continued • Go beyond improvements in all aspects of the Board’s operations. The areas covered in the evaluation were: Board relationships, Board Skills & Governance, Board Processes Committees of the Board, and Priorities for Change. The Chairman also meets at least once annually with each of the Non-Executive Directors to discuss each Director’s contributions to Board meetings. The Board intends to continue its approach toward periodic board evaluation in 2023 and beyond. These values promote the healthy corporate ethos of effective communication and encourage an ‘ideas culture’. The Group believes such values are important in creating a strong and consistent internal culture, as well as 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. CULTURE The Board recognises the importance it has in setting the tone, SHAREHOLDER ENGAGEMENT culture and behaviour of the Group and promotes an open and respectful dialogue with employees, suppliers and other stakeholders. The importance of sound ethical values and behaviours is crucial to the ability to successfully achieve the corporate objectives, and the Board places great importance on this aspect of corporate life, seeking to ensure that this flows across the Group. 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. 25 ANNUAL REPORT 2022GOVERNANCEREPORT ON CORPORATE GOVERNANCE CONTINUED At the Annual General Meeting held on 17 May 2022, the proposed resolutions received the following proportion of votes: Ordinary resolutions: Adoption of 2021 Annual Report and Consolidated Financial Statements Re-appointment of PriceWaterhouseCoopers LLP as auditor to the Company Authority to allot shares Special resolution: Disapplication of pre-emption rights * a vote withheld is not a vote “in law” and is not counted in the calculation of the votes cast. In favour Opposed Withheld* 99.98 99.95 99.99 97.73 0.02 0.05 0.01 2.27 0.00% 0.00% 0.00% 0.00% The Board has established four committees to which it has formally delegated duties and responsibilities. The four committees are: • Audit • Risk • Remuneration • Nominations The attendance record of each relevant director at board level and committee meetings during 2022 is as follows (quorum was achieved for all meetings). Below committee attendance records represent those of committee members only, with other directors attending by invitation but not specifically included: Number of meetings in the year Alan Hughes Ian Strafford-Taylor Richard Cooper Christopher Bones Sian Herbert Board 91 9/9 9/9 9/9 9/9 9/9 Audit Committee Remuneration Committee Nomination Committee Risk Committee 3 3/3 3/3 6 6/6 6/6 6/6 2 2/2 2/2 2/2 2/2 4 4/4 4/4 4/4 [1] Four additional Board or Board Committee meetings were held throughout the reporting period. Canaccord Genuity Limited (“CGL”) are appointed as Nominated Advisor, a position required under the rules of AIM support the Company to comply with the rules of AIM and the Market Abuse Regulations. Browne Jacobson, solicitors, have served the Group for a number of years, and have dialogue as and when required with the Chairman, Chief Executive Officer and other executives of the Group. One Advisory Limited (“ONE”) was appointed as Company Secretary to the Company on 1 August 2021. ONE are responsible for ensuring that Board procedures are followed and supporting the Company to comply with applicable rules, regulations and obligations governing its operation, as well as helping the Chairman maintain excellent standards of corporate governance. 26 EQUALS GROUP PLCGOVERNANCEREPORT ON CORPORATE GOVERNANCE CONTINUED AUDIT COMMITTEE NOMINATION COMMITTEE The Audit Committee is responsible for monitoring the integrity The Nomination Committee is responsible for developing and of the Group’s financial statements, reviewing significant maintaining an effective and rigorous procedure for making financial reporting issues, reviewing the effectiveness of recommendations on the appointments and re-appointments the Group’s internal control and risk management systems, to the Board. The Nomination Committee currently comprises ensuring that processes are put in place to manage risk the Non-Executive Directors and the Chief Executive and inherent in the business, and overseeing the relationship with is chaired by Alan Hughes. The Committee meets at least the external auditor (including advising on their appointment, once a year. agreeing the scope of the audit and reviewing the audit findings). The Audit Committee is chaired by Sian Herbert and includes Non-Executive Director Chris Bones. The Audit Committee meets at least 3 times a year, including at appropriate times in the reporting and audit cycle to consider audit matters and otherwise to focus on risk matters. The Audit Committee also meets regularly with the Group’s external auditor. The report of the Audit Committee is included on pages 36 to 38. RISK COMMITTEE SHARE DEALING CODE The Company has a share dealing code for Directors and applicable employees of the Group for the purpose of ensuring compliance by such persons with the provisions of the AIM Rules relating to dealings in the Company’s securities (including, in particular, dealing, during close periods in accordance with Rule 21 of the AIM Rules). The Directors consider that this share dealing code is appropriate for a company whose shares are admitted to trading on AIM. The Company takes proper steps to ensure compliance by the The Risk Committee is responsible for maintaining the Group’s Directors and applicable employees of the Group with the risk register and evaluating the risks included in it. The Risk terms of the share dealing code and the relevant provisions of Committee comprises all Non-Executive Directors and is the AIM Rules (including Rule 21). chaired by Sian Herbert and meets not less than four times a year. The Chief Operations Officer, not a board member, is The Corporate Governance Report was approved and responsible for day-to-day risk management and compliance authorised for issue by the Board after stock market trading and is the prime contact for regulatory bodies that have hours on 24 March 2023, and was signed on its behalf by: ALAN HUGHES Chair supervisory roles for the Group. The report of the Risk Committee is included on pages 39 to 41. REMUNERATION COMMITTEE The Remuneration Committee is responsible for determining and agreeing with the Board the framework for the remuneration of the Chairman, the Executive Directors, and other designated senior executives and, within the terms of the agreed framework, determining the total individual remuneration packages of such persons including, where appropriate, bonuses, incentive payments and share options or other share awards. The remuneration of Non- Executive Directors is a matter for the Board. No Director is involved in any decision as to his or her own remuneration. The Remuneration Committee currently comprises two Non-Executive Directors and is chaired by Christopher Bones. The Committee meets at least twice a year. The Remuneration Committee report is included on pages 42 to 48. 27 ANNUAL REPORT 2022GOVERNANCEESG Report This report provides stakeholders with a guide to the way in which Equals deals with the three core tenets of ESG, namely: Environmental Social Governance This Annual Report has already dealt with governance in detail in its report on Corporate Governance on pages 23 to 27, however there are some other aspects which are reported in the Governance section below. 1. CORPORATE CULTURE Underpinning everything the Group does – and seeks to do – is its culture and values. The core elements of this are articulated below: • Make it happen: We will own the outcome and execute flawlessly against our plans. We need to deliver our part and influence others to deliver theirs. • Succeed together: We must pull in the same direction and bring out the best in each other. We need to communicate effectively and adapt together • Be the customer: We should always be asking ourselves if what we’re doing is making our customers’ lives easier and helping them get more for their money. • Go beyond: We need to care for ourselves and each other and push ourselves to excel. Every day is a new chance to grow and develop ourselves as well as those around us. 28 EQUALS GROUP PLCGOVERNANCEESG REPORT CONTINUED 2. ESG – THE ENVIRONMENTAL DIMENSION An Employee Carbon Emissions Survey was conducted in 2021 The Group has two offices; London and Chester. The London office in Vintners Place building is managed in accordance with the landlord, CBRE’s, sustainability policy which champions recycling and low-emission practices. Vintners Place has an extensive and secure bicycle store and employees are encouraged to commute this way if they can do so safely. The Chester office, has a number of initiatives aimed at reducing negative environmental impacts. In 2021 energy provider was changed to guarantee that 100% of energy comes from renewable sources – and this also represented a cost-saving for the business. An environmental waste service that separates all our recycling and burns waste to feed energy back into the grid is used. The Group has a Cycle to Work scheme in place to help those employees who which to participate in it. A number of employees are provided with a Company car. All such vehicles must either by fully electric or hybrid, and, at Chester, there are electric charging points for these vehicles. A paper-free initiative was started in 2020, identifying where the use of paper can be eliminated. The quantity of copier paper ordered continues to be modest. The ongoing partnership with Wales Recycles has enabled the Group to donate unused or retired devices to be wiped or refurbished and then given to local schools and underprivileged members of the community. A similar scheme has been launched for the London office. to calculate the average carbon footprint of employees whilst at work. This has allowed the Group to offset the individual carbon footprints for the entire workforce. Whilst pleased with this outcome, the next step is to assess where energy use and carbon emissions across the business can be reduced. Responsible procurement The environmental impact of the Group’s supply chain is another important consideration. Since 2021 a new due diligence procedure was introduced to incorporates ESG criteria; questions address suppliers’ own sustainability programmes, whether they screen environmental and social impacts, and how they engage with and determine the interests of their key stakeholders. With the exception of staff, the next most significant area of expenditure remains third party IT and communication supplies, followed by costs incurred by other service industries such as law, accounting, and compliance advisory firms. As part of the Group’s upcoming assessment into reduction strategies, the practices of suppliers are reviewed. Giving back to the community In considering societal impact, the Group wishes to give employees the opportunity to get involved and support is provided to employees in their endeavours, making a number of charitable donations and allowing the workforce to select charities that will receive the Company’s donations. Part of the forward-looking strategy is to formalise the Corporate Social Responsibility (CSR) programme, to enable employees to volunteer within working hours and offer their time and expertise for the benefit of local voluntary and community groups. IMPACT ON THE GROUP Total employee carbon footprint offset Number of devices donated CHESTER OFFICE Energy use - Total energy use (KwH) Paper use 2022 491 tonnes –* 2021 346 tonnes 15 2020 n/a – 41,062** 42,875 n/a - Number of sheets of headed paper ordered - Number of sheets of copier paper ordered 30,000 6,500 40,000 7,000 40,000 25,000 LONDON Paper use - Number of sheets of paper ordered 37,500 25,000 3,000 * No devices were donated in 2022 as a result of replacing old desktops with new laptops for certain employees, 2023 shall see an increase in devices donated. ** Direct measurement basis used. Vintners place not included as a result of limitations of any allocation methodology, due to shared office space 29 ANNUAL REPORT 2022GOVERNANCEESG REPORT CONTINUED 3. ESG – THE SOCIAL DIMENSION Engaging with our stakeholders helps the continued success of our business; stakeholders provide different perspectives and expertise that can drive innovation and support our strategic direction and financial performance. We engage regularly with • Flexible working • Visa sponsorship • Mental health support our stakeholders, through both direct communications and our • Healthcare and life assurance schemes. reporting, which we ensure accurately reflect the performance of the business. We also appreciate that each stakeholder group has different interests and concerns, and we therefore Employee communication The Group has a strong ethos of employee communication tailor our method of engagement with each appropriately. with “All Hands” being held every two weeks; Monthly Own 3.1 EMPLOYEES We are passionate on making Equals a rewarding place to The Outcome (OTO) awards; annual OTO Awards ceremony and strategy presentation from the CEO; use of our internal communications platform; and Base Camp days celebrating work and to foster attraction and retention of employees by developing our recruitment practices, offering more achievements and outlining strategy. To take advantage of Zoom, many departments themselves hold weekly “all-in” opportunities for growth and progression, and sharpening our sessions to discuss progress, initiatives and problems. focus on equality, diversity and inclusion (EDI) to ensure we are accessing the broadest pools of talent. In doing so this has resulted in a motivated workforce that feels more connected EDI Ensuring that equality, diversity and inclusion considerations than ever to the business and its success. are embedded within all facets of our business is a key priority. The recent initiatives introduced by the Group include: pleased to introduce pronouns on our internal communications In 2021 we developed a new EDI strategy, and we were very • • • • Ex-gratia bonus schemes to help employees with cost of living – two awards were made in 2022, All-employee Share Incentive Plans; grants were announced in both 2021 and 2022 giving eligible employees up to 7976 shares in the Company to vest over a four year period, Key-employee LTIP programme which identified around 40 key staff below board level and that granted 4,245,000 share options over two years up to 44 employees, The Group has a referral program which allows employees (below the level of executive) to financially benefit from direct employee introductions and hence avoid paying recruitment fees externally, platform, to allow our employees to indicate their preferred pronouns. We conducted a review of our recruitment practices and now include an EDI statement in all job advertisements for the Group. This also supports our ambition to access diverse pools of talented candidates and demonstrate that we are an employer that can support the employees in different circumstances with flexible working practices. Contractors The Group regularly uses contractors in the UK and overseas to assist chiefly with engineering projects. These people are regarded as part of the Equals family and are offered the same working conditions and communication systems as regular employees. The table below provides as summary of the number of staff within the Group based on the average for the financial year: EMPLOYEES 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 from ethnic minorities at Board level - Number of people from ethnic minorities in workforce Employees paid a national living wage (%) 30 2022 2021 2020 255 13 0 1 97 36% 0 242 12 9 1 85 32% 0 268 9 8 1 78 29% 0 32 (declared, not compulsory to complete) 15 (declared, not compulsory to complete) 13 (declared, not compulsory to complete) 100% 100% 100% EQUALS GROUP PLCGOVERNANCE ESG REPORT CONTINUED 3.3 CUSTOMERS The Group prides itself on providing a high level of customer accessibility to the training modules and enabling us to monitor rates of completion and send reminders to employees service. We don’t get it right all the time, but we aim to! when necessary. At the heart of this is our initial and ongoing engagement with In addition to our three key communication channels, we also our customers to enable us to understand their requirements receive customer feedback through our Trust Pilot and app and maintain clear and transparent communication with them. review pages, and we reach out to all customers who express To this end, we have adopted the following approach: dissatisfaction to see if we can improve their experience. We • Created one centralised customer identity management system (Hubspot) • Robust customer complaints process • Logging dissatisfactions to drive improvements • Have a Treating Customer Fairly policy, and conduct training • Responding to customer feedback and implementing quick fixes • Three channels for customer services • 2 weeks of training for new starters in customers services and ongoing training for all customer services staff are very proud that both FairFX and Equals Connect are rated as ‘Excellent’ on Trustpilot. 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. We have a robust complaints process in place. Following receipt of a complaint, our key objective is to resolve the issue within three business days and send a summary resolution to the customer. In the event of an issue not being resolved within that time period, the Complaints Executive is brought into both investigate and to advise the customer on the timescale for resolution, to ensure the customer remains informed. We are very proud that our Customer Services Team continues to close • System for flagging suspicious activity 100% of all complaints and that, in 2021, over 85% of complaints In addition, we have an obligation to identify and protect we identify a complaint that we feel has not been dealt with vulnerable customers. To this end we have: • Increased awareness for customer vulnerability across the entire Group effectively, we conduct a root cause analysis and the Complaints Executive will feedback to the team and provide guidance on where the process could have been improved. across the Group were closed out within 35 business days. If • Rewritten the Vulnerability Policy Concurrently, we log dissatisfactions. Whilst these are not • Put together customer vulnerability training and delivered to customer-facing senior managers complaints, tracking all feedback from customers can drive improvements across the business, as we can identify if In order to be accessible and responsive to our customers, we and then implement a change to improve our service. Our maintain three key channels for receiving queries: dedicated AIM channel provides another medium through an issue (albeit a very small issue) is repeatedly arising • phone calls, • email • live chat. which both employees and customers can feedback with suggestions. These are reviewed regularly, with an assessment of the resources available to make immediate changes and discussion with the Product Team as to what can be achieved. We have a target in place to ensure that customers wait no There are fortnightly meetings with Customer Services more than 30 seconds before their call is answered and email Managers, chaired by the Complaints Executive, in which all queries will be responded to within the working day, and utilise ongoing complaints, feedback from completed investigations, live chat to enable even faster responses from the team. and necessary changes to internal processes are discussed. Conduct and reputation risk indicators, including complaints, To ensure our Customer Services Team are best placed Trustpilot reviews, and vulnerability, are fed back on a quarterly to provide the support required, we provide 2 weeks of training for all new employees, followed by ongoing training basis to the Subsidiary Board meetings, and information is also provided to the Group Risk Committee. including support when they begin receiving customer phone calls. Additionally, all customer services employees receive An important innovation to our processes has been the Anti-Money Laundering (AML) and cybersecurity training, creation of one central customer identity in our Customer and in 2022 we have also completed vulnerable customer integration of our online training platform, training. The Relationship Management (CRM) system. By centralising this customer information, we aim to improve customers’ internal Meta Compliance, will support this programme, increasing data lifecycle. 31 ANNUAL REPORT 2022GOVERNANCEESG REPORT CONTINUED Safeguarding our customers To ensure the continued protection of our customers we and addressing the value at which payments must be checked before they are processed. The process of updating all our maintain transparent, fair practices and update processes existing policies and procedures is ongoing, as we want to to make sure they are fit for purpose. Our Treating Customer ensure all are in line with Group expectations. Fairly (TCF) Policy, developed in line with the Financial Conduct Authority’s (FCA) Principles, encapsulates the best practice we Details of our fees are available on our websites and included expect of our employees at all levels of the business, and this in our FAQs. In addition to providing annual AML training, is reinforced through our TCF training. there are controls in place in the system to recognise and flag unusual activity, including customers who are potentially being Since 2021 we introduced a new policy on the processing of scammed. A member of the team will raise anything suspicious Faster Payments to strengthen security, including updating the with the Anti-Fraud Manager, who will then consider further personal identifying information we ask for from customers action as necessary. Feedback from customers CUSTOMERS Trust Pilot scores - FairFX - Card One Money - Equals Connect Training - Number of hours of customer services training available Calls - Calls answered within 30 second target (%) Percentage of complaints closed (%) FairFX Spectrum Payment Services Fair Payments Limited Equals Connect Percentage complaints closed in less than 35 business days (%) FairFX Spectrum Payment Services Fair Payments Limited Equals Connect 2022 4.4 4.4 4.7 2021 4.6 4.6 4.9 2020 4.6 – Excellent 4.6 4.9 – Excellent 25+ hours 25+ hours 25+ hours 80% 2022 100% 100% 100% 100% 95% 91% 93% 80% 80% 2021 100% 100% 100% no complaints 87% 85% 92% no complaints 80% 2020 100% 100% 100% no complaints 60% 67% 72% no complaints 32 EQUALS GROUP PLCGOVERNANCE ESG REPORT CONTINUED 3.4 SUPPLIERS The key issues for us with suppliers are: • Their integrity • The reliability • Their governance and business ethics Many of our suppliers have been with us for a number of years and hence we have built up a good understanding of them and their values. For all new significant suppliers, we ask them to complete a due-diligence questionnaire and annually review the supplier. 3.5 REGULATORS Equals endeavours to have an open dialogue with every one of its regulators. We constantly seek demonstrate our high standards of governance and business ethics, this may range from telephone and email communication, the prompt and professional responses to queries they may have, and the timely submission of all scheduled returns (examples: corporation tax, vat, P60’s compliance returns). 3.6 BANKS AND LIQUIDITY PROVIDERS Equals has banking relationships with a number of banks and liquidity providers. We are in regular – often daily – contact with these and at all times adhere to the rules and customs imposed on us by these banks. The principal banking/liquidity partners we have include: Citibank, Barclays, NatWest, Crown Agents Bank, Blackrock, Valitor, Suden and Velocity. 3.7 SHAREHOLDERS AND THE ANALYST COMMUNITY Shares in Equals Group PLC are publicly traded on London’s AIM. Under AIM rules we are obliged to have a NOMinated ADvisor (“NOMAD”) and broker with whom we work closely on all AIM and MAR (Market Abuse Regulations) matters. The broker is the prime interface with our shareholders. In 2022, in addition to the Annual and Interim results, Equals released four trading updates. At the final and interim results, the Executive directors present the results to investors and handle regular analyst calls. Our investor presentations and audio-casts are included in our Investor Relations website, the link to which is here: https://www.equalsplc.com/content/ Subsidiaries of the Group have licences from a variety of investors/results-and-reports regulators and these are updated on our investor relations website, the link to which section is: https://www.equalsplc.com/ content/company/our-permissions 33 ANNUAL REPORT 2022GOVERNANCEESG REPORT CONTINUED 4. ESG – THE GOVERNANCE DIMENSION matters. The Security Council, Architecture Council and To execute our strategy flawlessly we maintain strong governance practices. These practices are streamlined and harmonised across the Group. Our full Report on Corporate Governance is on pages 23 to 27. 4.1 IT and data security As a financial services business, IT and data security is critical; we endeavour to continually improve our cybersecurity procedures and have focussed upon increasing security awareness among our colleagues. Central to cybersecurity for the business is having robust oversight and effective governance. The importance of IT and data security is driven from the very top of the business, with CEO recognition and direct involvement in cybersecurity Technical Risk Committee oversee, among other matters, the security design and risk associated with our systems and are all accountable to the Group Board. There are strong lines of communication between the Executive Team and the Security and Architecture Councils, with regularly scheduled meetings and dedicated channels on the internal communications platform allowing a continual flow of information. There is ever-present Executive and senior management participation at the Technical Risk Committee, which facilitates appropriate communications upwards within the business when required. To support the secure operation of our IT systems, there are a comprehensive series of security policies and procedures in place1, and employees are updated on any material changes to the policies. 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 • To review architectural sign off • To maintain a technical risk register group, requests • To feed risks up to the Group Risk • sign off new technical decisions or • To discuss new architectural Committee system changes, changes • 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 Cybersecurity encompasses oversight of all manner of security matters including ensuring Payment Card Industry 4.2 Continuous improvement IT and data security practices are constantly improved, as we (PCI) compliance, annual targeted penetration testing, and react to developments and implement adjustments to existing monthly vulnerability scanning. We conduct an annual audit systems and procedures to facilitate efficiencies. In the past of our existing technology suppliers to ensure that they are year, we undertook a number of such actions. The appointment still meeting the required standards. Whenever we engage and retention of a Cybersecurity Manager in 2021, solidifies a new supplier, we run data protection checks, and if the the seriousness with which we approach IT and data security, supplier is providing a core service, we conduct an in-depth assessment and the organisation is incorporated into our and highlights our drive to make security a way of life rather than an add-on to the working day. Business Continuity & Disaster Recovery Procedure, for which the Security Council has signed off. Policies and procedures for IT and data security: 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. 1 34 EQUALS GROUP PLCGOVERNANCEESG REPORT CONTINUED Since 2021, we commenced the process to achieve ISO 27001 approach all data security scenarios from the perspective certification. The Chief Technology Officer (CTO) is the that no employee is necessarily secure. We have two-factor Executive Sponsor of the initiative, and it is being driven by authentication for all systems that contain customer data. the Cybersecurity Manager. The gap analysis day took place Where an employee must use a personal device for work, we in October, conducted by our external certifying approver, with require the use of remote sessions to ensure that information the objective to become accredited within 2023. cannot be exported. Customers are also kept informed of To ensure that concerns flagged are dealt with effectively of external parties accessing their data whilst posing as an the information we will ask from them, to mitigate the risk and efficiently, employees that raise an issue are now invited employee of Equals. to attend the Security Council meetings which means that the issue is articulated to the Council first-hand. We will also simplify the issue identification and information sharing 4.4 Risk management We increased the capabilities within the risk management side process to enable ease of use and understanding. of the business. Fundamental to this has been the onboarding As internal employee actions pose the greatest risk to IT and of our new Group Head of Risk and Compliance, who has restructured the risk and compliance framework to ensure that data security, the overarching objective is to raise awareness it underpins business operations and supports our financial for cybersecurity across the Group. We have begun targeted objectives. There is a Risk Committee for each operating phishing campaigns on our own staff to improve awareness subsidiary undertaking. There is a Change Council, comprising and reduce the risk of employees clicking through on of senior members of staff, which receives suggested changes suspicious emails. All employees must complete annual security awareness, general cyber and data security, GDPR and AML training. With the integration of our new online training platform, Meta and advise on the potential governance, operational, and customer impacts before further investment is approved. 4.5 Governance and business ethics We continue to strengthen our internal governance and ensure Compliance, we can monitor levels of training completion, and we are conducting business correctly even when we are not push out reminders via email and our internal communications being scrutinised. We have created a conduct policy, rolled- platform. We will be introducing security awareness training out in 2022 alongside a wider conduct framework. Using our as part of our onboarding process for new employees. Meta new online training platform, “Meta Compliance+, we are also Compliance will also enable the setting of KPIs to measure able to deliver compliance and ethics training easily. ongoing performance, as well as monthly mini-training sessions on different IT and data privacy topics. We have established better feedback loops and our internal 4.3 Privacy of customer data We handle sensitive customer information, thus our data knowledge sharing has greatly improved. As a result of our continued harmonisation efforts, we are now better placed as a business for innovation and improvement of the privacy practices are of paramount importance, and we customer experience. OUR GOVERNANCE Number of data breaches Employees completed Meta Compliance Security Awareness training (%) Employees completed Meta Compliance* Anti-Money Laundering training (%) Employees completed Meta Compliance* GDPR training (%) 2022 – 98.3% 97.2% 95.3% 2021 – 95.6% 98.1% 74.6% 2020 – 90% – – 35 ANNUAL REPORT 2022GOVERNANCEReport of the Audit Committee for the year ended 31 December 2022 This report covers the following areas: The Committee is appointed by the Board; in their primary 1. Membership of the Audit Committee (“the Committee”) duties are listed beneath the subheadings below, along with a brief description of sub-tasks: 2. Responsibilities of the Committee 3. Activities of the Committee during the year 4. Governance 5. External Auditor and independence thereof 6. Risk Management and Internal Control 7. Conflicts of interest 8. Significant issues 9. Events after 31 December 2022 2.1 Financial reporting a. consider the areas of financial reporting risk and what is done to optimise these risks and ensure that these are communicated to the external auditor; b. review significant financial reporting judgements and the application of accounting policies, including compliance with the accounting standards; c. oversee the integrity of the financial statements and their compliance with UK company law and accounting regulations; 1. MEMBERSHIP OF THE AUDIT COMMITTEE The Audit Committee is chaired by Sian Herbert and includes Non-Executive Director Christopher Bones. Other meeting d. ensure the Annual Report and financial statements are fair, balanced and understandable, and recommend their approval to the Board; attendees during the year included members of the external e. monitor the integrity of announcements containing financial audit team, Chairman and Non-Executive Director Alan information. Hughes, Ian Strafford-Taylor, CEO; Richard Cooper, CFO; and other members of the finance team. 2. RESPONSIBILITIES OF THE AUDIT COMMITTEE The Audit Committee (“the Committee”) has responsibility for 2.2 Internal controls a. monitor adequacy and effectiveness of the internal financial controls and processes, and ensure any material shortcomings are rectified at the earliest opportunity; Equals Group PLC and all subsidiaries in the Group. b. where appropriate, ensure compliance with UK Corporate In the period since the last report, the Committee continued to focus on the effectiveness of the controls across the Group both within the ambit of the finance department and other departments, including but not limited to Risk, Compliance, Operations and Human Resources. The integrity of reporting and risk 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 including a continued focus on data governance, regulatory compliance and operational resilience. Governance Code, Quoted Company’s Alliance Code, Information Commissioner’s Office, HMRC and the Financial Conduct Authority’s relevant regulatory framework. 2.3 Risk management a. review and provide oversight of the processes by which risks are identified, evaluated, managed and optimised by the Risk Committee. 2.4 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 The Audit Committee appointed various third parties to give effectiveness; independent opinions on chosen topics that are regarded c. review the policy on non-audit services carried out by the as potentially higher risk (for example, cyber security, money laundering and safeguarding). The Group has well-resourced compliance and risk operations but given its size does not consider it necessary to have an internal audit function, using external auditor, taking account of relevant ethical guidance; d. review, consider and approve the external auditor’s fee, the scope of the audit and the terms of their engagement; external parties when considered appropriate. Non-statutory e. make recommendations to the Board for the appointment audits of subsidiaries for the purpose of FCA safeguarding or reappointment of the external auditor. obligations are conducted by a separate audit firm, Azets. 36 EQUALS GROUP PLCGOVERNANCEREPORT OF THE AUDIT COMMITTEE CONTINUED 3. COMMITTEE ACTIVITIES DURING THE YEAR Such abilities ensure that the Committee functions with The principal activities which the Committee undertook within the year were as follows: 3.1 Financial statements and business reports • Reviewed the 2021 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. 3.2 External audit • Debated and agreed the external audit strategy; • • • • Noted the adjusted and non-adjusted differences and debated the highlights memo previously circulated to Committee members; Acknowledged that the prepared financial statements represented a true and fair view of the Group’s affairs, were in accordance with IFRS issued by the International 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; Reviewed any control issues raised by the external auditors in their management letter and monitored progress thereon; Reviewed and approved the Letter of Representation sent by the Company to the external auditors. 3.3 Other • Oversees the compliance with laws and regulations including money laundering including working with the Compliance department and external counsel to verify the Group’s position on any contentious matters. 4. GOVERNANCE The Committee meets at least three times per year and routinely meets with the external auditor without the Executive competence and credibility. The Committee receives regular updates on changes to financial accounting standards and reporting requirements, regulatory and governance changes and developments around risk management, fraud prevention and detection, and cyber security. In its advisory capacity, the Committee confirmed to the Board, that, based on its review of the Annual Report and 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. 5. EXTERNAL AUDITOR AND INDEPENDENCE PricewaterhouseCoopers LLP was appointed as an external auditor following an audit tender process in 2019. As a matter of course, PwC is not awarded any non-audit work; please refer to note 5 of the financial statements for more details regarding the breakdown of payments to the Group auditor. The Committee agrees the budget for the audit with the auditor and receives a summary of all audit fees 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 currently remains a “substantive audit.” Directors present. It is chaired by Sian Herbert, an independent The Committee keeps this under review. Non-Executive Director, who is a Chartered Accountant with recent and relevant financial experience. The Chair has 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. 6. RISK MANAGEMENT AND INTERNAL CONTROL 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. 37 ANNUAL REPORT 2022GOVERNANCE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 from a control perspective is that the external audit should use control testing to get a better view of the control environment. REPORT OF THE AUDIT COMMITTEE CONTINUED Risk management and internal controls 7. CONFLICTS OF INTEREST Conflicts of interest 8. SIGNIFICANT ISSUES 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. Significant issues and accounting note 3.26, “judgements and estimates”) are identified by the An annual review is undertaken, facilitated by the Company Secretary, to identify any conflicts of interest that may impact upon Board members’ independence. All identified conflicts are recorded on a register that is adopted by the Board. Conflicted Directors are not able to attend meetings where the conflicted matter is discussed, and decisions are made. It has been determined that none of the Directors had or have an interest in any material contract relating to the business of the Company or any of its subsidiary undertakings. Committee, the finance team, or through the external audit judgements (refer to process and are reviewed by the Audit Committee. Significant issues 9. EVENTS AFTER 31 DECEMBER 2022 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. The Audit Committee has continued the above activities in 2023, focusing on: Post year end • The 2022 Annual Report and Consolidated Financial Statements, and the Committee has recommended that The Audit Committee has continued the above activities in 2022. Focusing on: both be approved by the Board; • The 2021 Annual Report and Consolidated Financial Statements, and the Committee has recommended that both be approved by • • A review of the Cash Flow forecast statement as overseen by the Chief Financial Officer. the Board; A review of the Cash Flow forecast as overseen by the Chief Financial Officer. SIAN HERBERT Chair of the Audit Committee Sian Herbert Chair of the Audit Committee 29 March 2022 24 March 2023 An annual review is undertaken, facilitated by the Company Secretary, to identify any conflicts of interest that may impact upon Board members’ independence. All identified conflicts are recorded on a register that is adopted by the Board. Conflicted Directors are not able to attend meetings where the conflicted matter is discussed, and decisions are made. It has been determined that none of the Directors had or have an interest in any material contract relating to the business of the Company or any of its subsidiary undertakings. 38 EQUALS GROUP PLCGOVERNANCE Report of the Risk Committee for the year ended 31 December 2022 PURPOSE AND COMPOSITION The CEO continues to hold the prime responsibility for the identification, assessment, management and monitoring of risks to the Group, but to assist and to bring external expertise a board-level Risk Committee was formed on 1st January 2021 The Committee consists of the full board of directors plus the Chief Operational Officer (‘COO”), who is not a member of the board. The COO has day-to-day responsibility for risk and compliance. By invitation other employees of the Group, including the Director of Trading, the Head of Risk and Compliance. Formal papers are prepared for each meeting. These include a review of the individual Risk Committees of each regulated subsidiary company whose meetings are held every quarter. A risk register is maintained which scorecards those risks identified and the appropriate policies and procedures to mitigate those risks. A risk appetite statement has been developed and approved. Below is a summary of the risks which the Committee believe are highly rated and the controls put in place to mitigate them. Risk Position risk Description of Risk Control / Mitigation A forward foreign exchange contract is partially completed exposing the Company to volatile exchange rate movements. The trading system does not allow trades to be completed without a matching entry with a liquidity provider. More than 95% of trades are booked via an API. Client default on an out of the money forward position Volatile currency markets make a client’s margined position significantly out of the money The trading team have data feeds which constantly monitor the positions. All trades over £3 million require senior manager approval and all trades over £10 million require the approval of the CEO. The operations team provide “out of the money” reports at least once a day and independently advise both the trading team and the Executive directors of any margin calls to be made. 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 • Introduced new comprehensive training modules through Meta Compliance covering Cyber/ Security Risk and Data Protection. 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 of the above plan • 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 39 ANNUAL REPORT 2022GOVERNANCEREPORT OF THE RISK COMMITTEE CONTINUED Risk Description of Risk Control / Mitigation 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 Key person absence The CEO or other key persons become ill, or incapacitated • Group partnered with Citi Commercial Bank in July 2019 and entered 5-year agreement with Mastercard in September 2019 • In April 2021 the group launched the connected BIC (Swift) that allows the group to open own named IBANs for the benefit of collecting and allocating funds efficiently. • 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 • Development of the Solutions line creating significant revenue opportunities. The Group does not have silo management, and there are overlaps in skills between Executives. The Group is examining the feasibility of “key-man” cover for the CEO. 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 Loss of revenue, operational resilience Monitor key performance indicators, increased controls on expenditure and large single expenditure commitments IT platform re-build 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 to failure to fulfil legal and regulatory responsibilities • Regular Board and Committee meetings 40 EQUALS GROUP PLCGOVERNANCE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 from a control perspective is that the external audit should 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. REPORT OF THE RISK COMMITTEE CONTINUED Conflicts of interest An annual review is undertaken, facilitated by the Company Secretary, to identify any conflicts of interest that may impact upon Board members’ independence. All identified conflicts are recorded on a register that is adopted by the Board. Conflicted Directors are not able to attend meetings where the conflicted matter is discussed, and decisions are made. It has been determined that none of the Directors had or have an interest in any material contract relating to the business of the Company or any of its subsidiary undertakings. COVID-19 The Group continues to evaluate the threats from more new variants of COVID-19 affecting the ability of key staff to be working. Significant issues RUSSIAN INVASION OF UKRAINE AND OTHER SANCTIONED COUNTRIES 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. The business has taken all actions to ensure full compliance with the sanctions and actions implemented in response to the Russian invasion of Ukraine. The impact of this to the group is not material and accounts that have had historical exposure Post year end continued to be reviewed. The Audit Committee has continued the above activities in 2022. Focusing on: Certain other countries (such as Iran) are on sanction lists. The Groups data monitoring tools search for links to these countries • The 2021 Annual Report and Consolidated Financial Statements, and the Committee has recommended that both be approved by and red-flag any issues which are immediately relayed up to the CEO. • A review of the Cash Flow forecast statement as overseen by the Chief Financial Officer. the Board; SIAN HERBERT Chair of the Risk Committee Sian Herbert Chair of the Audit Committee 29 March 2022 24 March 2023 41 ANNUAL REPORT 2022GOVERNANCE Directors’ Remuneration Report for the year ended 31 December 2022 This report for the year ended 31 December 2022 complies of working or terms of reference over the period of this report with the requirements of the Companies Act 2006, the save that Ms Shona Kerfoot, People Director, attends meetings Group’s adopted Corporate Governance Code - the Quoted to provide staff support. Companies Alliance Code - and applicable AIM Rules. This report covers the following areas; 1. Membership of the Remuneration Committee 2. Responsibilities of the Remuneration Committee 3. Remuneration Policy 4. Remuneration for 2022 5. Remuneration for 2023 6. Long-term incentives 7. Service agreements and similar 8. Professional fees incurred by the Committee 1. MEMBERSHIP OF THE REMUNERATION COMMITTEE Membership of the Remuneration Committee (“Committee”) comprises: • • • Christopher Bones, Independent Non-Executive Director, Committee Chair since 1 May 2021 Alan Hughes, Independent Non-Executive Director, on committee since 1 October 2020 Sian Herbert, Independent Non-Executive Director, on committee since 1 October 2020 Executive Directors are invited to contribute, and the CEO may be invited to attend. No attendee or member is present for discussion of their own remuneration or for matters that may have a bearing on their remuneration. 2. RESPONSIBILITIES OF THE REMUNERATION COMMITTEE The Committee is responsible for: • • Setting remuneration policy and remuneration for the Executive Directors of the Company and remuneration policy and governance of awards under that policy for senior executives and employees earning over £100,000pa Oversight of remuneration policy for the whole Group and its adherence to group values and the principles established in the policy laid out below As part of the overall review of Board effectiveness the performance of this and other committees is considered and reviewed. No material changes have been made to its ways 42 3. REMUNERATION POLICY 3.1 Overall Policy The Group’s overall policy remains one underpinned by the need to attract and retain the key skills and capabilities throughout the organisation that will deliver our strategy, particularly in strategic leadership, commercial, product and engineering capabilities alongside the financial and compliance expertise to meet both our operational and regulatory requirements. Core to this is the belief that better than average performance should result in higher than average rewards and that these should incentivise a longer-term perspective to reflect that of our shareholders; as such for Executive Directors and other senior executives there are long-term incentives as well as annual ones alongside a competitive salary. The core reward principle is that the potential for total remuneration should, for all roles, be at median to upper levels for companies of a similar size, complexity and growth aspirations with better than average performance achieving upper median levels. To reinforce this, the Committee established some key principles to ensure that shareholders are confident that performance-based rewards: • incentivise growth in revenue, and earnings per share and, • encourage behaviours that support our ESG principles and company values; these are: o o o Ensure a competitive balance in the remuneration mix between salary and pay ‘at risk’, with this element being related to performance over both the short and longer- term; Ensure that short-term cash incentives are linked to stretching performance measures; and Align more remuneration at every the shareholder financial interest through share-based remuneration. level to The Committee procured specialist advice through the appointment of remuneration advisers H2glenfern Ltd to ensure that decisions made going forward on Executive and Non-Executive Director remuneration are properly informed with robust data. H2glenfern is a member of the UK Remuneration Consultants Group (RCG) and has confirmed that it complies with the RCG Code. H2glenfern has no other relationship with the Company and the Committee is satisfied EQUALS GROUP PLCGOVERNANCEDIRECTORS’ REMUNERATION REPORT CONTINUED that the advice it receives is independent and objective. The Committee instructed H2glenfern to carry out benchmarking for executive and non-executive remuneration during Q4 2022. This part of the report sets out the remuneration policy with regard to the Executive Directors (“EDs”). The policy on each element of remuneration and how it operates is detailed in the table: Elements of Remuneration Element Base salary Link to remuneration policy To attract and retain individuals of the experience and calibre required to achieve our strategic goals and in whom shareholders can have confidence. EDs salaries are reviewed annually on 1 April. Application of policy Maximum opportunity Performance metric Salary reviews are conducted vs. business performance including ESG aspects. Using an externally recommended ‘peer group’ of similar listed companies in our sector and others with common core capabilities and product offering we establish a range that reflects our policy position. The benchmarking provides a range for both roles from the median to Upper Quartile and we will reflect the business performance outcome in agreeing any salary increase. Annual Bonus To incentivise performance and to align the interests of EDs and shareholders over the short to medium terms. The scale of the bonus is set through the peer group benchmarking exercise to ensure a competitive annual reward. The parameters, performance criteria, weightings and targets are ordinarily set at the start of each financial year. Payments are made in cash following completion of the annual audit and subject to the Committee’s assessment of performance against targets and other matters it deems relevant. Awards are subject to malus and clawback provisions. The CEO has a maximum bonus opportunity of 140% of salary; the CFO has a maximum of 120%. Performance measures may include financial, non- financial, personal and strategic objectives. The salaries used are those as at the end of the financial year. Performance criteria and weightings may be changed from year to year. At present, the performance targets are based on Revenue and Adjusted EBITDA which is considered by the committee to be the Group’s key financial performance metric. 43 ANNUAL REPORT 2022GOVERNANCEDIRECTORS’ REMUNERATION REPORT CONTINUED Element Long Term Incentive Plan Link to remuneration policy Application of policy Maximum opportunity Performance metric Performance measures are CAGR in revenue over the vesting period and the annual achievement of an internally set EPS target ahead of market expectations for each of the three years of the vesting period. The award reflects practices in the median to upper quartile of our peer group. The plan sets a normal maximum of 100% of the base rate of salary and lays down that the committee may exceptionally grant up to 200% of the base rate of salary at the time of the award. To incentivise performance and to align the interests of EDs and shareholders over the long term. EDs are eligible to receive awards under the Long Term Incentive Plan at the discretion of the Committee. Awards are granted as conditional awards which vest after three years subject to the meeting of objective performance conditions specified at award. Awards are subject to malus and clawback provisions. An additional holding period of two years post vesting is applied to awards made to the EDs. All employee shareholding plan Pensions Benefits Non-Executive Remuneration To encourage all employees to make a long-term investment in the Company’s shares in a tax efficient way. To attract and retain individuals of the experience and calibre required to achieve our strategic goals and in whom shareholders can have confidence. To attract and retain individuals of the experience and calibre required to achieve our strategic goals and in whom shareholders can have confidence. To provide fees appropriate to time commitments and responsibilities of each role. The EDs and enrolled in the plan as it covers all employees. Complies with the HMRC regulations for Share Incentive Plans. None The EDs are eligible for the Group Workplace Pension Plan. None None The EDs are eligible for the Group Workplace Pension Plan. None None The EDs are eligible for the Group Workplace Pension Plan. None The Group Board is guided by the general increase for the broader employee population and takes into account relevant market movements. 44 EQUALS GROUP PLCGOVERNANCEDIRECTORS’ REMUNERATION REPORT CONTINUED 3.2 Malus and clawback Both Annual Bonus and Long-Term Incentive Plan awards are subject to malus and clawback provisions. Reasons for malus and clawback being applied would include material misstatement in audited results, discovery of errors or inaccuracies in the assessment of any performance condition, fraud or gross misconduct, events or behaviour which lead to the censure of the Group by a regulatory authority or have a may leave is determined by the Remuneration Committee in accordance with the rules of any applicable scheme. 3.6 Non-executive Directors’ letters of appointment The Non-executive Directors do not have service contracts but instead have letters of appointment dated as follows: Alan Hughes Sian Herbert 1 July 2020 1 October 2020 significant detrimental impact on the reputation of the Group. Christopher Bones 9 April 2021 3.3 Remuneration of employees below the Group All of which contain a three-month notice period. Board 3.7 Consideration of new Executive Directors or senior Employees below the Group Board receive base salary, executives benefits, annual bonus, and senior executives are invited to participate in the Long Term Incentive plan. Pay and conditions throughout the Group are taken into consideration when setting remuneration policy. The Committee does not consult other employees when setting executive remuneration. 3.4 Shareholder consultation The Committee’s policy is to consult with major shareholders in respect of significant decisions on executive remuneration. The Chair of the Remuneration Committee is available for contact with investors concerning the Company’s approach to remuneration. 3.5 Executive Directors’ service contracts and payments for loss of office The Executive Directors have rolling service contracts, Ian Strafford Taylor’s commencing 1st August 2014 (continuous service from 1st August 2006), Richard Cooper’s commencing 14th October 2019. but a fixed period of 12 months’ notice of termination for Ian Strafford Taylor and of six months’ notice of termination for Richard Cooper. Our approach to remuneration in each of the circumstances in which an Executive Director 4.1 Table of total remuneration for 2022 and 2021 When recruiting or promoting any senior executive, we seek to apply consistent policies on fixed and variable remuneration components in line with the remuneration policy set out above. This helps to ensure that any new Executive Directors or senior executive is on the same remuneration footing as existing Executive Directors or senior executives respectively, while still taking into account the skill and experience of the individual, the market rate for a candidate of that experience and the importance of securing the relevant individual. 4. ANNUAL REMUNERATION REPORT FOR 2022 Salaries were reviewed and adjusted in line with both the significant performance ahead of expectations in 2021 and available market data. In addition, the date for the annual review of salary for Richard Cooper was moved to align with that of the CEO in 2023 to 1 April. Bonus payments as reported below were linked directly to the performance against revenue growth and achievement against goals set for Adjusted EBITDA – both of which were significantly ahead of internal goals and external expectations. There were no increases in fees to Non-Executive Directors for 2022. Executive Directors Ian Strafford-Taylor Richard Cooper 2021 Comparative Non-Executive Directors* Alan Hughes Sian Herbert Christopher Bones 2021 Comparative Total, 2022 Total, 2021 Gross salary and fees Benefits Table 4.2 Bonuses* Table 4.3 Total 2021 337,500 285,000 622,500 539,356 80,000 65,000 55,000 200,000 185,052 822,500 724,408 36,757 26,374 63,131 43,097 – – – – – 63,131 43,097 435,542 287,683 723,225 560,459 – – – – – 723,225 560,459 809,799 599,057 1,408,856 1,142,912 80,000 65,000 55,000 200,000 185,052 1,608,856 1,327,964 651,966 490,936 1,142,912 80,000 65,000 40,052 185,082 *Numbers above are represented on an accrual basis. The most significant difference to on a cash basis is in relation to bonuses. See note 5b for further details of cash basis. 45 ANNUAL REPORT 2022GOVERNANCE DIRECTORS’ REMUNERATION REPORT CONTINUED 4.2 Table of benefits for 2022 and 2021 Executive Directors Ian Strafford-Taylor Richard Cooper 2021 Comparative 4.3 Table of bonuses for 2022 and 2021 Executive Directors Ian Strafford-Taylor Richard Cooper 2021 Comparative Pension Healthcare Car/car allowance Total 2021 3,522 3,522 7,044 7,030 6,279 6,279 12,558 6,990 26,956 16,573 43,529 29,077 36,757 26,374 63,131 43,097 24,631 18,466 43,097 Performance related Covid reimbursement Total 2021 420,000 273,600 693,600 550,000 15,542 14,083 29,625 10,459 435,542 287,683 723,225 560,459 335,792 224,667 560,459 Bonuses, as a percentage of adjusted EBITDA before bonuses equated to 5.5% (2021: 7.7%) 5. 2023 REMUNERATION As indicated above there has been a review of the base salaries for the Executive Directors for 2023 vs a peer group of comparator companies the results of which are shown below: CEO Salary of £350,000 raised to £400,000 from 1 April 2023 CFO Salary of £285,000 raised to £300,000 from 1 April 2023 For the 2023 financial year, both the CEO and CFO have the opportunity to earn up to 140% and 120% of their salaries respectively. The bonus criteria are associated with achievement of targets set for revenue growth and Adjusted EBITDA as in 2022. Payments in excess of 100% for the CEO and 80% for the CFO are linked to levels of performance significantly ahead of market expectations. None of this bonus entitlement will be payable before the publication of the audited financial statements for 2023. The 2023 financial statements will however accrue whatever award the Remuneration Committee decide on. 6. LONG TERM INCENTIVES The Group launched new share-based incentive plans in 2021 and has made additional grants in 2022. These plans were announced to the stock market on 18 October 2021 and 14 December 2022. All employees All employees with a length of service of 12 months or more are able to participate in the Share Incentive Plan. This plan has a vesting period of three years, in line with HMRC guidelines. Key Staff This plan supports the retention of key talent and only vests should the recipient be in employment a full three years after the award. Recipients are all subject to a further two-year holding period. Grants made in 2021 were subject to no performance conditions whereas grants made in 2022 are subject to performance conditions. Executive Directors The grants are performance related and only vest should the recipient be in employment a full three years after the award. Recipients are all subject to a further two-year holding. The nature of this award reduces dilution for shareholders and provides the Committee with the opportunity to model the potential cash award on vesting based on publicly available market forecasts and to aim for these to be no more than 100% of total remuneration should forecasts be exceeded by a significant amount although the Committee has discretion in this area. The Remuneration Committee resolved to extend the option exercise period of certain options granted at IPO in 2014 to ensure alignment with the standard ten-year option period. Such change was announced to the Stock Exchange on 31 October 2022. 46 EQUALS GROUP PLCGOVERNANCE DIRECTORS’ REMUNERATION REPORT CONTINUED Summary of grants made in 2022 and 2021 Date of award Date shares issued into trust 2022 Number of options/share awards 14.12.2022 25.01.2023 2022 Number of recipients 2021 Number of options/share awards 18.10.2021 20.04.2022 2021 Number of recipients Executive directors’ performance-based plan Key-staff retention plan Share incentive plan TOTAL 1,012,500 2,170,000 747,488 3,929,988 2 44 188 1,250,000 2,415,000 704,000 4,369,000 2 36 176 Of the LTIP awards made in 2021, a total of 170,576 lapsed through employees leaving the Group by 31 December 2022. Of the SIP awards made in 2021, a total of 80,000 lapsed through employees leaving the Group, but, remain in Trust. Directors’ interest in share options, including the LTIP and SIP at 31 December 2022 were: Director award date SHARE OPTIONS 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 SHARE INCENTIVE PLAN (“SIP”) Ian Strafford-Taylor 18/10/2021 14/12/2022 Richard Cooper 18/10/2021 14/12/2022 LONG TERM INCENTIVE PLAN (“LTIP”) Ian Strafford-Taylor 18/10/2021 14/12/2022 Richard Cooper 18/10/2021 14/12/2022 Totals Ian Strafford-Taylor Richard Cooper Option price (£) Number Granted Date of Grant Earliest Exercise date Latest exercise date 192,950 0.22 1,789,300 0.36 1,535,750 0.36 250,000 0.30 250,000 0.30 0.30 250,000 0.29 666,667 0.29 666,667 0.29 666,666 6,268,000 0.29 333,334 6,601,334 0.01 4,000 3,976 0.01 7,976 0.01 4,000 3,976 0.01 7,976 0.01 750,000 637,500 0.01 1,387,500 0.01 0.01 500,000 375,000 875,000 2,262,500 7,663,476 1,216,310 8,879,786 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 05/08/2016 05/08/2016 05/08/2016 28/09/2017 28/09/2018 28/09/2019 30/04/2021 30/04/2022 30/04/2023 28/07/2024 28/07/2024 28/07/2024 27/09/2026 27/09/2026 27/09/2026 01/09/2030 01/09/2030 01/09/2030 01/09/2020 30/04/2023 01/09/2030 07/01/2022 20/01/2023 07/01/2025 20/01/2026 07/01/2032 20/01/2023 07/01/2022 20/01/2023 07/01/2025 20/01/2026 07/01/2032 20/01/2023 18/10/2021 14/12/2022 18/10/2024 14/12/2025 18/10/2031 14/12/2032 18/10/2021 14/12/2022 18/10/2024 14/12/2025 18/10/2031 14/12/2032 47 ANNUAL REPORT 2022GOVERNANCEDIRECTORS’ REMUNERATION REPORT CONTINUED As well as the principles above, the vesting criteria for the 2021 and 2022 awards include a minimum share-price threshold above the price on the date of grant; the eventual amount awarded from the grant made will be driven by revenue growth, growth in active B2B customers and performance against EPS targets. In addition, the final award will be assessed against progress against a range of ESG matters including the effectiveness of our compliance operations. Options vested by 24 March 2022 Of the total of 7,663,476 share incentives for Ian Strafford- Taylor 6,268,000 had vested by 24 March 2023, through the approval of these financial statements leaving, 1,395,476 unvested at that date. Of the total of 1,216,310 share incentives for Richard Cooper 333,334 had vested by 24 March 2023, through the approval of these financial statements leaving, 882,976 unvested at that date. At the date of this report, the equity awards made to Ian Strafford-Taylor and Richard Cooper were equal to 4.09% and 0.65% of the fully diluted share capital. Option numbers used for EPS The calculation of diluted EPS and diluted adjusted EPS ignores any dilution if the result attributable to owners of Equals Group PLC is a statutory loss. The number to be used for 2022 is 187,583,788(2021: 178,959,402). 7. PROFESSIONAL FEES INCURRED BY THE RE- MUNERATION COMMITTEE During 2022 the cost (including irrecoverable VAT) of advice taken by the Remuneration Committee in the year amounted to £23,250 (2021: £84,490). This advice relates to share incentive awards, share-based remuneration and remuneration comparative report. In addition, the manager of the shares platform, “Global Shares” invoiced the Company for a total of £18,000 for the administration of their platform and administration of the SIP and LTIP in 2022 (2021: £nil). PROFESSOR CHRISTOPHER BONES Chair of the Remuneration Committee 24 March 2023 48 EQUALS GROUP PLCGOVERNANCEDirectors’ Report for the year ended 31 December 2022 Equals Group PLC is a company limited by shares. The Directors present their annual report and audited consolidated financial statements for the year ended 31 December 2022. FINANCIAL REPORTING The consolidated financial statements of Equals Group PLC for the year ended 31 December 2022 are set out on pages 59 to 94. These have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. PRINCIPAL ACTIVITIES The principal activities of the Group during the year were to provide payment processing and banking-style services and to both private customers and corporations through prepaid currency cards, travel cash, international money transfers and current accounts. Its trading subsidiaries have various degrees of regulation as shown below: Company number Company name (and date of name change in 2022) Previous name 05539698 Equals Money plc (13.09.2022) FairFx plc 06268340 Equals Money UK Limited (26.09.2022) Spectrum Payment Services Limited 07131446 Equals Connect Limited 09558664 Fair Payments Limited 12330839 Roqqett Limited FCA permissions Authorised Payment institution under Payment Service Regulations, 2009 Authorised Payment institution under Payment Service Regulations, 2009 Authorised Payment institution under Payment Service Regulations, 2009 Authorised E-Money institution under the Electronic Money Regulations 2011 Authorised Payment institution under Payment Service Regulations, 2009 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 5 to 19 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. Equals is an equal opportunity employer. It does not discriminate on the basis of disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, 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 Groups relationship with its employees can be found in the Section 172 statement on page 20 and in the ESG report on page 30. RELATIONSHIPS WITH SUPPLIERS, 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 page 20. DIVIDENDS The Directors do not recommend the payment of a dividend for the year ended 31 December 2022 (2021: Nil). At 31 December 2022 the Company had distributable reserves of £(89)k (31 December £931k). 49 ANNUAL REPORT 2022GOVERNANCEDIRECTORS’ REPORT CONTINUED DIRECTORS 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 major shareholders (that hold greater than 3.0%) as at 31/12/2022 are set out below: Name Pembar Limited Threadneedle Asset Management Schroders Funds Hargreaves Lansdown Chelverton Asset Management JP Morgan Asset Management Interactive Investor (EO) Stephen Heath Christian Levett AJ Bell, stockbrokers (EO) ENVIRONMENT No. of Ordinary Shares held Percentage of issued capital 24,265,744 13.42% 22,605,405 19,866,978 13,320,211 12.51% 11.00% 7.37% 9,900,000 5.32% 9,628,032 8,346,223 7,358,341 7,069,344 6,069,111 5.32% 4.61% 4.07% 3.93% 3.35% Carbon dioxide emission data has been collected for 2022 and disclosed within the ESG report. This along with further information on environmental matters can be found in the ESG report on pages 28 to 35. RESEARCH AND DEVELOPMENT 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 R F Hughes S A Herbert C J Bones DIRECTORS’ INTERESTS The Directors who held office at 31 December 2022 held the following shares in the Company as at that date: I A I Strafford-Taylor R Q M Cooper S A Herbert A R F Hughes C J Bones Ordinary 1p Shareholding % 1.22% 0.47% 0.04% 0.03% 0.003% shares 2022 2,200,250 850,000 77,800 46,000 4,500 The Directors who held office at 31 December 2022 held the following unexercised share options in the Company as at that date: Option price (£) Number Granted Date Granted 192,950 28/07/2014 1,789,300 28/07/2014 1,535,750 28/07/2014 750,000 28/09/2016 2,000,000 01/09/2020 I A I Strafford-Taylor R Q M Cooper 0.22 0.36 0.36 0.30 0.29 0.01 0.01 0.01 0.01 0.29 0.01 0.01 0.01 0.01 750,000 18/10/2021 The Group has continued its investment in research and 4,000 07/01/2022 development throughout the year. A review of the work 637,500 14/12/2022 undertaken can be found in the Chief Executive’s Report on 3,976 20/01/2023* pages 7 to 11. 333,334 01/09/2020 500,000 18/10/2021 RISK AND RISK MANAGEMENT 4,000 07/01/2022 375,000 14/12/2022 The Group is exposed to various financial and operational risks. Further details of these, including processes put in place 3,976 21/01/2023* to mitigate these risks, are disclosed in the Risk Committee *Per IFRS 2, service period for the 2022 SIP commences before the grant date and thus the share are disclosed in the year which participants are made aware of the grant conditions which in this case was the announcement date on 14th December 2022. INDEMNITY INSURANCE 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. Report on pages 39 to 41 and note 21 of the financial statements. 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 financial statements with the registrar, whichever is earlier. 50 EQUALS GROUP PLCGOVERNANCEDIRECTORS’ REPORT CONTINUED DISCLOSURE OF INFORMATION TO AUDITOR GOING CONCERN The Directors who held office at the date of approval of this Based on the Group’s budgets and financial projections, the Directors’ report confirm that, so far as they are each aware, Directors are satisfied that the business is a going concern and there is no relevant audit information of which the Company’s therefore the financial statements have been prepared on a auditors are unaware; and each Director has taken all the steps going concern basis. This assessment is based on whether there that they ought to have taken as a Director to make themselves is sufficient liquidity and financing to support the business, the aware of any relevant audit information and to establish that post balance sheet trading of the Group, the regulatory the Company’s auditors are aware of that information. environment, and the effectiveness of risk management POST BALANCE SHEET EVENTS On 6 January 2023, the Group completed the acquisition of Roqqett Limited, an open-banking platform, for a total consideration of up to £2,250k. This acquisition was initially announced on 28 November 2022, the acquisition was conditional upon regulatory approval from the Financial Conduct Authority (FCA) which was received on 6 January 2023. During the year ended 2022, the Group entered into a loan agreement with Roqqett Limited for a principal amount of £830K (2021: Nil) as shown in note 14. The loan was unsecured and does not bear interest. The terms of the loan required that the principal to be converted towards the payment to acquire Roqqett Limited upon regulatory approval from the Financial Conduct Authority (FCA) which was received on 6 January 2023. On 14 March 2023, the Group sold the Travel Cash CGU for an initial £250k with a further £100k subject to certain conditions being met to Currency Exchange Corporation Ltd. The carrying value of the assets disposed off were £128k shown in note 4 and consisted of right of use and intangible assets. On the 24 March 2023 after stock trading hours, the Group signed a share purchase agreement for the acquisition of Oonex S.A. an authorised payment institution regulated by the National Bank of Belgium to enable the provision of Equals products into the EEA for consideration of 5 million shares in Equals Group PLC. The acquisition is conditional upon regulatory approval from the National Bank of Belgium. On the 24 March 2023 after stock trading hours, the Group signed a share purchase agreement for the acquisition of Hamer and Hamer Limited an authorised payment institution regulated by the FCA for an initial consideration of £1.5 million and deferred consideration capped at £2.7 million based on performance over a three-year period. The acquisition is conditional upon regulatory approval from the FCA. 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 5 to 19. 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 6. The Directors’ Report was approved by the Board after stock market trading hours on 24 March 2023 and signed on its behalf by: IAN STRAFFORD-TAYLOR Chief Executive Officer 24 March 2023 51 ANNUAL REPORT 2022GOVERNANCEStatement of Directors’ Responsibilities in Respect of the Annual Report and the Financial Statements for the year ended 31 December 2022 The directors are responsible for safeguarding the assets of the group and parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are also responsible for keeping adequate accounting records that are sufficient to show and explain the group’s and parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and parent company and enable them to ensure that the financial statements comply with the Companies Act 2006. The directors are responsible for the maintenance and integrity of the parent company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors’ confirmations The directors consider that the Equals Group PLC annual report for the year ended 31 December 2022 and financial statements,, fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s and parent company’s position and performance, business model and strategy. taken as a whole, is IAN STRAFFORD-TAYLOR Chief Executive Officer 24 March 2023 Statement of directors’ responsibilities in respect of the financial statements The directors are responsible for preparing the Equals Group PLC annual report for the year ended 31 December 2022 and the financial statements in accordance with applicable law and regulation. Company law requires the directors to prepare financial statements for each financial year. Under that law, the directors have prepared the group and the parent company financial statements in accordance with UK-adopted international accounting standards. Under company law, directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of the profit or loss of the group for that period. In preparing the financial statements, the directors are required to: • • • • select suitable accounting policies and then apply them consistently; state whether applicable UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; make judgements and accounting estimates that are reasonable and prudent; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and parent company will continue in business. 52 EQUALS GROUP PLCGOVERNANCE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 2022 and of the group’s profit and the group’s and company’s cash flows for the year then ended; have been properly prepared in accordance with UK- adopted international accounting standards as applied in accordance with the provisions 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 2022; 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 parent) • Overall group materiality: 696,822 (2021: 440,914) based on 1% of total revenue. • Overall company materiality: 654,103 (2021: 440,914) based on 1% of total assets. • Performance materiality: 522,616 (2021: 330,686) (group) and 490,577 (2021: 330,686) (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 2022GOVERNANCEINDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF EQUALS GROUP PLC CONTINUED Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit 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 of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 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) We performed the following audit procedures over the The Group’s disclosures are provided in Note 10 ‘Intangible assets and goodwill’ and the related accounting policies applied are detailed in Note 3.13. Management’s judgements in the application of the accounting policy is disclosed in Note 3.26(i). The Group capitalises, as intangible assets, certain expenditure on the development of systems and infrastructure designed to support its business strategy. Determining whether expenditure qualifies for capitalisation requires judgement and the total expenditure capitalised in the financial year ended 31 December 2022 amounts to £5.1m (£3.6m during the financial year ended 31 December 2021). The carrying value of software assets was £14.8m at the end of the period (£15.0m at 31 December 2021). When capitalising costs, management determines whether it is probable that expected future economic benefits are attributable to the asset, the cost or value can be reliably measured, and the nature of expenditure qualifies for capitalisation under the accounting standards. Additionally, 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. capitalised IT development costs: • • • • We evaluated the design of key controls around the capitalisation of internally generated intangible assets. For a sample of projects to which costs have been capitalised, we obtained and evaluated management’s assessment of the nature, feasibility and probably economic benefit expected from the intangible assets. We obtained a breakdown of the capitalised IT development costs and evaluated whether the nature of expenses meet the criteria in IAS 38 Intangible Assets to be capitalised. For a sample of IT development cost capitalised, we obtained supporting documentation to corroborate the value and the nature of the expenditure and assessed whether it met the criteria for capitalisation. • We recalculated the amounts capitalised and tested the reliability of data used within the calculation. With respect to the IT development costs capitalised during the current financial period we found them to be reasonable and materially compliant with the requirements of IAS 38 Intangible Assets based on the procedures performed and evidence obtained. 54 EQUALS GROUP PLCGOVERNANCE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 parent) The Group’s disclosures are provided in Note 10 ‘Intangible assets and goodwill’ and the related accounting policies applied are detailed in Note 3.13. Management’s judgements in the application of the accounting policy is disclosed in Note We performed the managements’ impairment assessment: following audit procedures over • We evaluated the design of key controls over the annual assessment of the recoverable amount and impairment testing in respect to the goodwill balances. 3.26B. The Group has £13.5m of goodwill on the balance sheet • at 31 December 2022 (£13.5m at 31 December 2021). Management uses an expert to help them perform an impairment test, with supporting sensitivity analysis, using the higher of value in use (‘VIU’) and fair value less cost to sell. The recoverable amount of each cash generating unit (‘CGU’) was determined using the VIU model. Based on the results of the impairment test performed, management concluded that no impairment charge is required as the recoverable amount exceeded the carrying value of the CGUs. 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 forecast revenue, costs, the terminal growth rate and discount rates. • • • • • • • We evaluated managements’ identification and allocation of goodwill and other assets to CGUs based on our understanding of the business; We obtained managements’ impairment assessment calculations and agreed the forecast cash flows to the latest approved board plans. Evaluated the key assumptions in the forecasts, and evaluated the evidence provided to corroborate them with a focus on revenue growth and costs. We assessed the competence of management’s expert and read their report provided to management We challenged the appropriateness of the discount rates applied by evaluating the reasonability of key assumptions made by management’s experts through obtaining supporting evidence and corroborating inputs available in the market. Assessed whether the cash flows included in the model were in accordance with the relevant accounting standard; Assessed the sensitivity of the VIU to reasonable variations in significant assumptions; 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 reasonable and appropriate. 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. 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 Equals Money PLC, Fair Payments Limited, Equals Money UK 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. The impact of climate risk on our audit As part of our audit we made enquiries of management to understand the extent of the potential impact of climate risk on the group’s and company’s financial statements, and we remained alert when performing our audit procedures for any indicators of the impact of climate risk. Our procedures did not identify any material impact as a result of climate risk on the group’s and company’s financial statements. 55 ANNUAL REPORT 2022GOVERNANCEINDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF EQUALS GROUP PLC CONTINUED 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 696,822 (2021: 440,914). How we determined it 1% of total revenue 654,103 (2021: 440,914). 1% of total assets Financial statements – Group Financial statements – Company Rationale for benchmark The Group is very focused on expansion The entity’s assets predominantly consist of applied through acquisition and organic growth. investments in their subsidiaries and are a Revenue has been determined to be a key benchmark for financial statement users to measure of financial performance for the Group measure the entity’s scale and how they operate and therefore has been used to determine their business. Total assets has been determined materiality. to be a key measure and has been used to determine materiality. 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 £3,856 to £696,822. 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% (2021: 75%) of overall materiality, amounting to £522,616 (2021: £330,686) for the group financial statements and £490,577 (2021: £330,686) for the company financial statements. 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 at the upper end 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 £34,841 (group audit) (2021: £22,046) and £32,705 (company audit) (2021: £22,046) 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 assessed and challenged key assumptions used by directors in their determination of going concern of the Group and Company; We used our knowledge of the Group and Company, 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. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s and the company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. 56 EQUALS GROUP PLCGOVERNANCEINDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF EQUALS GROUP PLC CONTINUED In auditing the financial statements, we have concluded that audit, we did not identify any material misstatements in the the directors’ use of the going concern basis of accounting in Strategic report and Directors’ Report. 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. 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 2022 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the group and company and their environment obtained in the course of the 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 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, 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. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, 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 the Financial Conduct Authority’s (‘FCA’) regulations, Alternative Investments Market (‘AIM’) Listing Rules, Anti-Money Laundering legislation and UK tax legislation, and we considered the extent to which non- 57 ANNUAL REPORT 2022GOVERNANCEINDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF EQUALS GROUP PLC CONTINUED compliance might have a material effect on the financial statements. We also considered those laws and regulations Use of this report This report, including the opinions, has been prepared for and that have a direct impact on the financial statements such only for the company’s members as a body in accordance as the Companies Act 2006. We evaluated management’s with Chapter 3 of Part 16 of the Companies Act 2006 and for incentives and opportunities for fraudulent manipulation no other purpose. We do not, in giving these opinions, accept of the financial statements (including the risk of override of or assume responsibility for any other purpose or to any other controls), and determined that the principal risks were related person to whom this report is shown or into whose hands it to posting inappropriate journal entries to misstate revenue may come save where expressly agreed by our prior consent or reduce costs through incorrect capitalisation, creation of in writing. fictitious transactions to hide losses or to improve financial performance, and management bias in accounting estimates. Audit procedures performed by the engagement team included: • • • • Obtaining confirmations from third parties to confirm the existence of a sample of transactions and balances; and Identifying and testing journal entries meeting specific fraud criteria, including those posted with certain descriptions, posted and approved by the same individual, backdated journals or posted by infrequent and unexpected users. Review of correspondence with and reports to the regulators, including the FCA; Challenging assumptions and judgements made by management in their significant accounting estimates, in particular in relation to capitalisation of costs to internally generated intangible assets and the impairment of goodwill and intangible assets (see related key audit matters above); 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. There are inherent limitations in the audit procedures 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 London 24 March 2023 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. 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. 58 EQUALS GROUP PLCGOVERNANCEFinancial statements 59 Consolidated Statement of Comprehensive Income for the year ended 31 December 2022 Revenue on currency transactions Banking revenue Revenue Transaction and commission costs Gross profit Administrative expenses Depreciation charge Amortisation charge Impairment charge Acquisition expenses*1 Note 4 5 8/9 10 10 2022 £’000 63,541 6,141 69,682 (36,027) 33,655 (22,576) (1,211) (6,008) – (164) 2021 £’000 38,424 5,667 44,091 (20,071) 24,020 (18,499) (1,398) (5,812) (1,638) – Total operating expenses (29,959) (27,347) Adjusted EBITDA*2 Operating profit/(loss) Finance costs Profit/(loss) before tax Tax credit Profit/(loss) after tax Attributable to: Owners of Equals Group PLC Non-controlling interest Total comprehensive income/(loss) for the year Attributable to: Owners of Equals Group PLC Non-controlling interest Earnings/(loss) per share Basic Diluted 12,120 3,696 (280) 3,416 135 3,551 3,237 314 3,551 3,237 314 1.80p 1.73p 6,713 (3,327) (490) (3,817) 1,555 (2,262) (2,424) 162 (2,262) (2,424) 162 (1.35)p (1.35)p 6 7 7 *1 Acquisition costs represents and includes costs pursuant to acquisitions. *2 Adjusted EBITDA is not a GAAP measure and represents operating loss before share option charges, depreciation, amortisation and separately identifiable items (exceptional items). All income and expenses arise from continuing operations. The notes on pages 65 to 94 form an integral part of these financial statements. 60 FINANCIAL STATEMENTSEQUALS GROUP PLCConsolidated and Company Statements of Financial Position as at 31 December 2022 Note Group 2022 £’000 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 Current tax assets 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 Accumulated losses/Retained earnings Company loss in the year Equity attributable to owners of Equals Group PLC Non-controlling interest Non-current liabilities Borrowings Lease liabilities Current liabilities Borrowings Trade and other payables Current tax liabilities Lease liabilities Derivative financial liabilities TOTAL EQUITY AND LIABILITIES 8 9 10 6 11 13 14 6 20 15 16 17 18 9 18 19 6 9 20 1,139 3,367 30,008 1,831 – 36,345 292 10,274 – 5,616 15,044 31,226 67,571 1,807 53,405 3,231 8,609 (24,148) – 42,904 – 42,901 – 3,417 3,417 – 15,489 192 780 4,789 21,250 67,571 2021 £’000 1,257 4,874 30,960 949 – 38,040 168 8,256 397 2,593 13,104 24,518 62,558 1,793 53,218 1,858 8,609 (24,590) – 40,888 263 41,151 1,600 4,484 6,084 400 12,002 61 778 2,082 15,323 62,558 Company 2022 £’000 – – – 1,368 62,902 64,270 – 1,159 – – – 1,159 65,429 1,807 53,405 2,397 3,187 1,038 (1,127) 60,707 – 60,707 – – – – 4,722 – – – 4,722 65,429 2021 £’000 – – – 1,163 61,978 63,141 – 339 – – – 339 63,480 1,793 53,218 1,580 3,187 1,623 (692) 60,709 – 60,709 – – – – 2,771 – – – 2,771 63,480 The notes on pages 65 to 94 form an integral part of these financial statements. The financial statements on pages 59 to 64 were approved by the Board of Directors after stock market trading hours on 24 March 2023 and were signed on its behalf by: Richard Cooper Director, Chief Financial Officer Company Registration number: 08922461 61 FINANCIAL STATEMENTSANNUAL REPORT 2022Consolidated and Company Statements of Changes in Equity for the year ended 31 December 2022 Total equity £’000 42,642 (2,262) 271 – 222 278 41,151 3,551 (3,479) 924 – 201 556 42,904 Total equity £’000 60,908 (692) 271 – 222 60,709 (1,127) 924 – 201 Called up share capital £’000 Share premium £’000 Share-based payment £’000 1,786 53,003 1,402 Group At 1 January 2021 (Loss) / profit for the year Share-based payment charge (note 22) Share options exercised in year Shares issued in year Movement in deferred tax on share-based payment reserve At 31 December 2021 Profit for the year Acquisition of the remaining NCI (note 12) Share-based payment charge (note 22) Share options exercised in year Shares issued in year Movement in deferred tax on share-based payment reserve – – – 7 – – – – 215 – 1,793 53,218 – – – – 14 – – – – – 187 – Accumulated losses / retained earnings £’000 (22,259) (2,424) – 93 – – Other reserves (note 17) £’000 8,609 – – – – – (24,590) 8,609 3,237 (2,902) – 107 – – – – – – – – Total attributable to owners of Equals Group PLC £’000 42,541 (2,424) 271 – 222 278 40,888 3,237 (2,902) 924 – 201 556 (24,148) 8,609 42,904 Non- controlling interest £’000 101 162 – – – – 263 314 (577) – – – – – – 271 (93) – 278 1,858 – – 924 (107) – 556 3,231 At 31 December 2022 1,807 53,405 Company At 1 January 2021 Loss for the year Share-based payment charge (note 22) Share options exercised in year Shares issued in year At 31 December 2021 Loss for the year Share-based payment charge (note 22) Share options exercised in year Shares issued in year At 31 December 2022 Called up share capital £’000 Share premium £’000 Share-based payment £’000 1,786 53,003 1,402 – – – 7 – – – 215 – 271 (93) – 1,793 53,218 1,580 – – – 14 – – – 187 – 924 (107) – Accumulated losses / retained earnings £’000 1,530 (692) – 93 – 931 (1,127) – 107 – Other reserves (note 17) £’000 3,187 – – – – 3,187 – – – – 1,807 53,405 2,397 (89) 3,187 60,707 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 Accumulated losses Other reserves comprise: Cumulative profit and losses attributable to equity shareholders. 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 94 form an integral part of these financial statements. 62 FINANCIAL STATEMENTSEQUALS GROUP PLCConsolidated Statement of Cash Flows for the year ended 31 December 2022 Group Profit/(Loss) before tax Cash flows from operating activities Adjustments for: Depreciation Amortisation Impairment Share-based payment charge (Increase)/decrease in trade and other receivables*1 Increase/(decrease) in trade and other payables*2 (Increase)/decrease in derivative financial assets Increase/(decrease) in derivative financial liabilities (Increase)/decrease in inventories Finance Costs Net cash inflow Tax receipts Tax paid Net cash inflow from operating activities Cash flows from investing activities Acquisition of property, plant and equipment Acquisition of intangibles Net cash used in investing activities Cash flows from financing activities Repayment of borrowings Principal elements of lease payments Interest paid on finance lease Interest paid Acquisition of the remaining non-controlling interest Proceeds from issuance of ordinary shares Net cash outflow 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 Note 5 10 5 20 13 8 10 18 9 9 15 2022 £’000 3,416 1,211 6,008 – 924 (9,920) 9,707 (3,023) 2,707 (124) 280 11,186 400 (61) 11,525 (271) (5,056) (5,327) (2,000) (837) (169) (47) (1,405) 200 (4,258) 1,940 13,104 15,044 2021 £’000 (3,817) 1,398 5,812 1,638 272 3,614 (2,688) 426 (968) 26 490 6,203 1,367 – 7,570 (78) (3,560) (3,638) – (872) (194) (14) – 220 (860) 3,072 10,032 13,104 *1 The movement in the deferred and current tax assets and the right-of use asset balances (excluding the depreciation charge) is included within the movement in trade and other receivables. *2 The movement in the deferred and current tax liabilities and the lease liability balances is included within the movement in trade and other payables. The notes on pages 65 to 94 form an integral part of these financial statements. 63 FINANCIAL STATEMENTSANNUAL REPORT 2022Company Statement of Cash Flows for the year ended 31 December 2022 Company Loss before tax Cash flows from operating activities Adjustments for: Increase in trade and other receivables*1 Increase in trade and other payables*2 Finance costs Net cash outflow from operating activities Cash flows from financing activities Interest paid Acquisition of the remaining non-controlling interest Proceeds from issuance of ordinary shares 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 2022 £’000 (1,332) (1,024) 3,086 3 733 (3) (930) 200 (733) – – – 2021 £’000 (1,111) (63) 954 6 (214) (6) – 220 214 – – – *1 The movement in the deferred and current tax assets and the right-of use asset balances (excluding the depreciation charge) is included within the movement in trade and other receivables. *2 The movement in the deferred and current tax liabilities and the lease liability balances is included within the movement in trade and other payables. The notes on pages 65 to 94 form an integral part of these financial statements. 64 FINANCIAL STATEMENTSEQUALS GROUP PLCNotes to the Consolidated Financial Statements for the year ended 31 December 2022 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 trading on AIM, a market operated by The London Stock Exchange. These consolidated financial statements comprise the Company and its subsidiaries (together referred to as the ‘Group’). The Group is a financial technology (“fintech”) provider, primarily providing foreign currency and banking services. In addition, the Group had, until 14 March 2023, 1 (2021: 2) outlets as part of its Bureau de Change retail network in the City of London. The Company and Group’s consolidated financial statements for the year ended 31 December 2022 were authorised for issue after stock market trading hours on 24 Mar 2023 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 Company and Group: 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 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 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. COVID-19-Related Rent Concessions beyond 30 June 2021 – Amendment to IFRS 16 Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) 3.2 Basis of consolidation The consolidated financial statements comprise the financial statements of all Group subsidiaries as at 31 December each year using consistent accounting policies. • • • Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16) New standards, amendments and interpretations issued but not yet effective or early adopted, none of which is expected to have a material impact on the Company and Group: • 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) Definition of Accounting Estimates (Amendments to IAS 8) (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 UK-adopted 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. 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 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, 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 65 FINANCIAL STATEMENTSANNUAL REPORT 2022NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 3 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) How the Group recognises revenue for its significant revenue streams is described below. 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. Transactions eliminated on consolidation Intra-group balances and transactions and any unrealised income and expenses arising from intra-group transactions are eliminated. On publishing the Company financial statements here, together with the Group financial statements, the Company is taking advantage of exemption in section 408 of the Companies Act 2006 not to present the individual income statement and related notes of the Company which form part of these approved financial statements. 3.3 Foreign currency In preparing these financial statements, transactions in currencies other than the Company and Group’s presentational currency (“foreign currencies”) are recorded at the rates of exchange prevailing on the dates of the transaction. At each statement of financial position date, monetary items in foreign currencies are translated into the presentational currency at the exchange rate prevailing at statement of financial position date. Exchange differences arising on the settlements of monetary items and on the retranslation of monetary items are included in the consolidated statement of comprehensive income for the year. 3.4 Gross value of currency transactions sold and 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 have not been fully satisfied. 66 Currency Cards – Retail and Corporate 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 the period in which they are provided. 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. 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 for both spot and forward transactions. 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 may 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 are measured as the difference between fair value of the share-based payment and the fair value of any FINANCIAL STATEMENTSEQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 3 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) identifiable 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 recognition of goodwill. temporary differences arising on the initial 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 67 FINANCIAL STATEMENTSANNUAL REPORT 2022NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 3 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) asset. Otherwise, it is recognised in profit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses. 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- 68 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. 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. FINANCIAL STATEMENTSEQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 3 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the consolidated statement of financial position date. 3.23 Leases 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. The general approach should be applied for all financial assets subject to impairment, except for trade receivables or contract assets (IFRS 15) without significant financing component, for these assets simplified approach should be applied. 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, by recognising a loss allowance based on a lifetime expected credit loss (“ECL”) 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 69 FINANCIAL STATEMENTSANNUAL REPORT 2022NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 3 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. 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. requires management 3.26 Judgements and estimates the Group’s consolidated financial The preparation of statements 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: that the project (i) Technology development intangibles Development costs are capitalised based on management’s judgements 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. is (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 office 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 70 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: (i) 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. (ii) Valuation of share options The Group fair values share options on date of grant using the Black-Scholes and Monte-Carlo models. Further details on the use of fair value can be found in note 3.27 Measurement of fair values and note 22 Share options. (iii) Valuation of derivative instruments The Group enters into foreign exchange forward positions with clients which it matches 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. for acquisitions may (iv) Deferred consideration Total compensation 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). FINANCIAL STATEMENTSEQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 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 (both personal and corporate), International Payments, Solutions, 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 2022 Segment revenue Transaction and commission costs Gross profit Administrative expenses Depreciation charge Amortisation charge Impairment charge Acquisition expenses Finance costs Profit/(loss) before tax Current assets Non-current assets Total liabilities Total net assets Currency Cards £’000 International Payments £’000 Solutions £’000 12,539 (4,618) 7,921 34,357 (21,362) 12,995 15,636 (8,089) 7,547 – – – – – – 7,921 – 5,341 – 5,341 – – – – – – – – – – – – 12,995 7,547 – 17,975 – 17,975 – – – – Travel Cash £’000 1,009 (553) 456 – – – – – – 456 – 128 – 128 Banking £’000 Central £’000 Total £’000 6,141 (1,405) 4,736 – – – – – – 4,736 2,343 4,372 (2,287) 4,428 – – – (22,576) (1,211) (6,008) – (164) (280) (30,239) 28,883 8,529 (22,380) 15,032 69,682 (36,027) 33,655 (22,576) (1,211) (6,008) – (164) (280) 3,416 31,226 36,345 (24,667) 42,904 71 FINANCIAL STATEMENTSANNUAL REPORT 2022NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 4 REVENUE AND SEGMENTAL ANALYSIS (CONTINUED) Group Year ended 31 December 2021 Segment revenue Transaction and commission costs Gross profit Administrative expenses Depreciation charge Amortisation charge Impairment charge Acquisition expenses Finance costs Profit/(loss) before tax Current assets Non-current assets Total liabilities Total net assets Currency Cards £’000 International Payments £’000 Solutions £’000 8,642 (2,616) 6,026 25,882 (13,911) 11,971 3,554 (1,888) 1,666 – – – – – – 6,026 – 6,602 – 6,602 – – – – – – 11,971 – 18,258 – 18,258 Travel Cash £’000 346 (101) 245 – – – (1,638) – – – – – – – – 1,666 (1,393) – – – – – 600 – 600 5 OPERATING PROFIT/(LOSS) Operating profit/(loss) is stated after charging the following operating expenses: Note 5a 5c 5d 5f 5h 9 8 Staff costs (net of expenditure capitalised) IT and telephone cost (net of expenditure capitalised) Other professional fees Compliance costs Marketing costs Property and office costs (net of expenditure capitalised) Travel and subsistence Other share option related costs Other Sub-total, cash-based expenses Contingent consideration Share option charge Foreign exchange loss Other Sub-total, non cash-based costs Total administrative expenses Depreciation of right of use assets Depreciation of property, plant and equipment Amortisation charge Impairment charge Acquisition costs Total operating expenses 72 Banking £’000 Central £’000 Total £’000 5,667 (1,555) 4,112 – – – – – – 4,112 – 11,631 (1,744) 9,887 – – – (18,499) (1,398) (5,812) – – (490) (26,199) 24,518 949 (19,663) 5,804 2022 £’000 14,406 2,012 1,201 683 1,858 932 440 46 3 21,581 – 924 71 – 995 22,576 822 389 6,008 – 164 29,959 44,091 (20,071) 24,020 (18,499) (1,398) (5,812) (1,638) – (490) (3,817) 24,518 38,040 (21,407) 41,151 2021 £’000 12,550 1,800 883 449 1,171 822 300 84 3 18,062 46 272 119 – 437 18,499 931 467 5,812 1,638 – 27,347 FINANCIAL STATEMENTSEQUALS GROUP PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 5 OPERATING PROFIT/(LOSS) (CONTINUED) 5A STAFF COSTS Number of employees The number of employees (including Directors) was: Administrative staff – monthly average for the year Number of staff at the balance sheet date All employees are employed by the subsidiaries of Equals Group PLC. Employee costs Cost of staff on payrolls Cost of contractors and consultants Gross costs Less: categorised in transaction and commission costs Less: reported within internally generated software intangibles Wages and salaries Social security costs Pension costs Less: categorised in transaction and commission costs Employee furlough government grant received Recruiting, training, benefits and similar Total* 2022 Headcount 268 285 2021 Headcount 255 255 2022 £’000 20,990 1,471 22,461 (3,864) 18,597 (4,191) 14,406 2022 £’000 14,812 1,769 597 17,178 (3,864) 13,314 – 13,314 1,092 14,406 2021 £’000 18,074 656 18,730 (3,152) 15,578 (3,028) 12,550 2021 £’000 12,883 1,437 566 14,886 (3,152) 11,734 (34) 11,700 850 12,550 *includes £nil (2021: £628k) of expenditure identified by the Directors as separately identifiable items. Separately identifiable items are large, one-off items identified by management. 73 FINANCIAL STATEMENTSANNUAL REPORT 2022NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 5 OPERATING PROFIT/(LOSS) (CONTINUED) 5B DIRECTORS’ REMUNERATION Company All bonuses and conditional bonuses, whether the conditions have been made or not, have, from 2022 onwards, been accrued. CEO bonus In relation to the 2021 financial year, a bonus of £330k was paid during 2022. The CEO is entitled to a bonus of £420k in relation to 2022 should all performance conditions be met. At the date of signing these financial statements, 100% of the conditions have been met and £420k is immediately payable. The full amount of the bonus together with associated national insurance contributions has been accrued. CFO bonus In relation to the 2021 financial year, a bonus of £220k was awarded during 2022. £160k of this was paid as a bonus and £60k paid as a pension contribution. The CFO is entitled to a bonus of £273.6k in relation to 2022 should all performance conditions be met. At the date of signing these financial statements, 100% of the conditions have been met and £273.6k is immediately payable. The full amount of the bonus together with associated national insurance contributions has been accrued. Year ended 31 December 2022 Gross Salary £’000 Bonus £’000 Employer Pension £’000 Total Remuneration Paid £’000 Benefits £’000 350 304 654 82 65 55 856 330 160 490 – – – 490 4 64 68 – – – 68 33 23 56 – – – 56 717 551 1,268 82 65 55 1,470 Gross Salary £’000 Bonus £’000 Employer Pension £’000 Total Remuneration Paid £’000 Benefits £’000 297 252 549 81 66 40 736 358 – 358 – – – 358 3 44 47 – – – 47 21 15 36 – – – 36 679 311 990 81 66 40 1,177 Paid during the year Ian Strafford-Taylor Richard Cooper Sub-total - executives Non-Executive Directors A R F Hughes S Herbert C Bones Total remuneration paid Year ended 31 December 2021 Paid during the year Ian Strafford-Taylor Richard Cooper Sub-total - executives Non-Executive Directors A R F Hughes S Herbert C Bones (appointed 9 April 2021) Total remuneration paid 74 FINANCIAL STATEMENTSEQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 5 OPERATING PROFIT/(LOSS) (CONTINUED) The above tables have been prepared on a cash paid basis for 2022, whereas the remuneration committee report will be shown on an accrual basis to detail out the bonuses accrued as at 31 December 2022. Highest Paid Director Gross Salary Average wage per employee Gross Salary 2022 £’000 350 2022 £’000 55 2021 £’000 297 2021 £’000 51 Group The total amount paid during 2022 to Executive Directors, when including Executive Directors of all the subsidiaries in the consolidated Group, was £3,466k (2021: £2,893k). This included pension payments of £105k (2021: £82k). 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 IT and telephone costs Capitalised costs Total IT and telephone costs included in administrative expenses 5D PROFESSIONAL FEES Professional fees Total professional fees included in administrative expenses* 2022 £’000 2,420 (408) 2,012 2022 £’000 1,201 1,201 2021 £’000 2,101 (301) 1,800 2021 £’000 883 883 *includes £nil (2021: £3k) 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 are shown exclusive if VAT are as follows: Statutory audit fees Fees payable for the statutory audit of the Group Total audit fees There were no non-audit fees during the current and preceding year. 2022 £’000 350 350 2021 £’000 303 303 75 FINANCIAL STATEMENTSANNUAL REPORT 2022NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 5 OPERATING PROFIT/(LOSS) (CONTINUED) 5F PROPERTY AND OFFICE COSTS Property costs IFRS 16 property adjustment lease payments and finance costs (note 9) Total property costs included in administrative expenses 5G CONTINGENT CONSIDERATION 2022 £’000 1,695 (763) 932 2021 £’000 1,823 (1,001) 822 Contingent consideration represents the fair value of additional consideration estimated in respect of the acquisitions of Casco Financial Services Limited (renamed to Equals Connect Limited) in November 2019 and Effective FX Limited intellectual property rights in October 2020. This additional consideration payable is the result of revenues being in excess of forecasts at the time of acquisition. 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 taxable profits. At 31 December 2022, the Group had tax losses available to be offset against future taxable profits of £17,632k (2021: £17,186k). 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 - £2,145k (2021: £1,724k) b. Irrecoverable VAT - £1,584k (2021: £1,127k). Group R&D credit – current year Corporation tax charge Current tax charge/(credit) Origination and reversal of temporary differences Recognition of previously unrecognised deductible temporary differences Deferred tax credit Total tax credit 2022 £’000 – 192 192 (203) (124) (327) (135) 2021 £’000 (398) 61 (337) (997) (221) (1,218) (1,555) 76 FINANCIAL STATEMENTSEQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 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: Profit/(loss) before taxation: Continuing operations Taxation at the UK corporation rate tax of 19.0% (2021: 19.0%) Net permanent differences between tax and accounting Net impact of R&D tax credit claim 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 2022 £’000 3,416 649 78 (655) (124) – (83) (135) 2021 £’000 (3,817) (725) 112 (535) (221) (121) (65) (1,555) Net balance at 1 January £’000 Acquired in business combination £’000 Recognised to equity £’000 Recognised to profit or loss £’000 Net balance at 31 December £’000 Deferred tax asset £’000 Deferred tax liability £’000 (3,546) (196) 673 4,018 949 – – – – – – – 556 – 556 (137) (3,683) (43) (239) 216 290 327 1,445 4,308 1,831 – – 1,445 4,308 (3,683) (239) – – 5,753 (3,922) Net balance at 1 January £’000 Acquired in business combination £’000 Recognised to equity £’000 Recognised to profit or loss £’000 Net balance at 31 December £’000 Deferred tax asset £’000 Deferred tax liability £’000 (3,480) (260) 15 3,178 (547) – – – – – – – 278 – 278 (66) (3,546) 64 380 840 (196) 673 4,018 – – 673 4,018 (3,546) (196) – – 1,218 949 4,691 (3,742) Group 2022 Intangibles Property plant and equipment Equity settled share- based payments Unutilised tax losses Deferred tax (liabilities)/assets Group 2021 Intangibles Property plant and equipment Equity settled share- based payments Unutilised tax losses Deferred tax (liabilities)/assets The standard rate of corporation tax applicable to the Group for the year ended 31 December 2022 was 19.0%. The rate in the year ending 31 December 2023 will be 23.5%. The Government has confirmed that the rate of corporation tax will be increased to 25% with effect from 1 April 2023. Deferred tax assets and liabilities have been recognised at the substantively enacted rate. The effect of the change in tax rate has been calculated on deferred tax. 77 FINANCIAL STATEMENTSANNUAL REPORT 2022NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 6 TAXATION (CONTINUED) Assumptions and estimation uncertainties The Group has recorded a £4,308k (2021: £4,018k) deferred tax asset in relation to brought forward and carried forward tax losses and has a further £nil (2021: £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 approved board budget for 2023 and 5-year forecast horizon. The Group has recorded a £1,445k (2021: £673k) deferred tax asset in relation to share option awards outstanding at the year-end. Deferred tax assets are recognised for share options when the share options have intrinsic value that could be deductible for tax purposes, this is classed as share options in-the-money at the year-end. 7 PROFIT/(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 profit/(loss) after tax attributable to ordinary shareholders of the Group is £3,236k (2021: £2,424k Loss) and the weighted average number of shares for the period was 180,583,788 (2021: 178,959,402). Diluted earnings per share The calculation of diluted earnings per share has been based on the loss attributable to ordinary shareholders and weighted average number of ordinary shares outstanding, after adjustment for the effects of all dilutive potential ordinary shares. The weighted average number of dilutive shares is 187,611,447 (2021: 178,959,402). Profit / (loss) per share Basic 2022 1.80p Diluted 2022 1.73p Basic 2021 (1.35)p Diluted 2021 (1.35)p Adjusted earnings per share The calculation of adjusted earnings per share has been based on the analyst community calculations, which takes profit or loss attributable to ordinary shareholders and excludes share option charges, amortisation on acquired intangibles, exceptional items, acquisition costs and tax on these items, and weighted average number of ordinary shares. The adjusted earnings after tax to ordinary shareholders of the Group is £5,683k* (2021: £32k) and the weighted average number of shares and diluted shares are as above. Adjusted profit per share Basic 2022 3.15p Diluted 2022 3.03p Basic 2021 0.02p Diluted 2021 0.02p * See page 18 in the CFO report for detailed adjusted earnings calculation. 78 FINANCIAL STATEMENTSEQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 8 PROPERTY, PLANT AND EQUIPMENT Group Cost At 1 January 2022 Additions At 31 December 2022 Accumulated Depreciation At 1 January 2022 Charge for the year At 31 December 2022 Net book value At 31 December 2022 Group Cost At 1 January 2021 Additions At 31 December 2021 Accumulated Depreciation At 1 January 2021 Charge for the year At 31 December 2021 Net book value At 31 December 2021 Plant and machinery £’000 Fixtures and fittings £’000 Leasehold improvements £’000 1,363 227 1,590 1,133 180 1,313 277 464 22 486 270 90 360 126 1,329 22 1,351 496 119 615 736 Plant and machinery £’000 Fixtures and fittings £’000 Leasehold improvements £’000 1,295 68 1,363 901 232 1,133 230 464 – 464 181 89 270 194 1,319 10 1,329 350 146 496 833 Total £’000 3,156 271 3,427 1,899 389 2,288 1,139 Total £’000 3,078 78 3,156 1,432 467 1,899 1,257 79 FINANCIAL STATEMENTSANNUAL REPORT 2022NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 9 LEASES Group Right of use assets At 1 January 2021 Additions to right of use assets Modifications to leases Depreciation charge for the year At 31 December 2021 Additions to right of use assets Modifications to leases Depreciation charge for the year At 31 December 2022 Lease liabilities At 1 January 2021 Additions to lease liabilities Lease finance expenses Modification to leases* Payments At 31 December 2021 Additions to lease liabilities Lease finance expenses Modification to leases* Credit notes Payments At 31 December 2022 Current lease liabilities Non-current lease liabilities Vehicles £’000 51 338 – (122) 267 157 (61) (170) 193 Vehicles £’000 49 338 8 – (138) 257 157 10 (51) – (191) 182 114 68 182 Property £’000 6,010 – (594) (809) 4,607 4 (784) (653) 3,174 Property £’000 6,357 – 186 (616) (922) 5,005 – 159 (808) 473 (814) 4,015 666 3,349 4,015 Total £’000 6,061 338 (594) (931) 4,874 161 (845) (823) 3,367 Total £’000 6,406 338 194 (616) (1,060) 5,262 157 169 (859) 473 (1,005) 4,197 780 3,417 4,197 * Modifications to lease assets and lease liabilities relate to a negotiated early termination of a Bureau property lease, early termination of a vehicle and modifications to a current lease for the main London office property lease. 2022 £’000 830 2021 £’000 388 Net lease liability 80 FINANCIAL STATEMENTSEQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 9 LEASES (CONTINUED) (i) Amounts recognised in the consolidated statement of comprehensive income Group Depreciation charge for right of use assets Lease finance expenses Modification of lease terms – net impact Expense relating to short-term and low value items leases Property £’000 653 Vehicles £’000 170 10 10 – 159 (24) 67 855 Total 2022 £’000 823 169 (14) 67 Property £’000 809 Vehicles £’000 122 186 (22) 66 8 – – Total 2021 £’000 931 194 (22) 66 190 1,045 1,039 130 1,169 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 2022 was £1,005k (2021: £1,060k) including for principal and interest. 10 INTANGIBLE ASSETS AND GOODWILL Group Cost At 1 January 2022 Reclassifications Additions Disposals At 31 December 2022 Amortisation At 1 January 2022 Charge for the year Disposals At 31 December 2022 Impairment Impairment for the year Net book value At 31 December 2022 Trademarks, licences, patented and non-patented technology Customer relationships £’000 £’000 Brands £’000 Goodwill £’000 13,468 – – – 13,468 – – – – – 26,253 214 4,321 (205) 30,583 11,935 5,196 (13) 17,118 4,652 – – – 4,652 2,216 741 – 2,957 – – 13,468 13,465 1,695 455 – – – 455 378 71 – 449 – 6 Under construction £’000 661 (214) 927 – 1,374 – – – – – Total £’000 45,489 – 5,248 (205) 50,532 14,529 6,008 (13) 20,524 – 1,374 30,008 81 FINANCIAL STATEMENTSANNUAL REPORT 2022NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 10 INTANGIBLE ASSETS AND GOODWILL (CONTINUED) Trademarks, licences, patented and non-patented technology Customer relationships £’000 £’000 21,725 1,629 2,899 26,253 6,955 4,980 11,935 4,652 – – 4,652 1,475 741 2,216 Goodwill £’000 15,106 – – 15,106 – – – 1,638 – – 13,468 14,318 2,436 Brands £’000 455 – – 455 287 91 378 – 77 Under construction £’000 1,629 (1,629) 661 661 – – – – Total £’000 43,567 – 3,560 47,127 8,717 5,812 14,529 1,638 661 30,960 Group Cost At 1 January 2021 Reclassifications Additions At 31 December 2021 Amortisation At 1 January 2021 Charge for the year At 31 December 2021 Impairment Impairment for the year* Net book value At 31 December 2021 * The impairment charge in 2021 relates to the Travel Cash CGU. Included within additions to ‘assets under construction’ and ‘trademarks, licenses, patented and non-patented technology’ is £4,599k (2021: £3,329k) 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 2022 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) 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: 16.15% (2021: 14.56%) and International Payments: 14.30% (2021: 12.34%). The increase in discount factors is a function of both, increased in the interest rate environment impacting the risk-free rate and volatility within comparable company share prices impacting the cost of equity calculation. 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 a growth rate of 3% (2021: 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. 82 FINANCIAL STATEMENTSEQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 10 INTANGIBLE ASSETS AND GOODWILL (CONTINUED) 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 in revenue Banking International Payments Group Increase in discount rate (WACC) Banking International Payments 2022 9.40% 10.84% 2022 6.45% 22.61% 2021 7.98% 37.77% 2021 5.74% 57.89% Based on the sensitivity analyses, the Group has determined that for Banking and International Payments there are no reasonable possible changes to the key assumptions which would result in the carrying value of the CGU exceeding its recoverable value at 31 December 2022. 11 INVESTMENTS Company – shares in subsidiary undertakings Cost At 1 January Other additions* At 31 December Net Book Value At 31 December 2022 £’000 61,978 924 62,902 2021 £’000 61,707 271 61,978 62,883 61,978 * Other additions relate to share based payment expense recognised in Equals Money Plc, as the parent Company Equals Group PLC has no payroll and therefore all employees are employed via subsidiaries. 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. Subsidiary undertakings The Company holds the share capital (both directly and indirectly) of the following companies: Subsidiary Undertaking Equals Money PLC Equals Money UK Limited Fair Payments Limited Equals Connect Limited* Equals Pay LLC City Forex Limited Fair Foreign Exchange Ireland Limited* * Share capital held indirectly Country of registration or incorporation England and Wales England and Wales England and Wales England and Wales United States of America England and Wales Ireland Class Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Shares held % 100 Trading 100 Trading 100 Trading 100 Trading 100 Trading 100 Dormant 100 Dormant The registered office address of subsidiary undertakings is Third Floor Thames House, Vintners Place, 68 Upper Thames Street, London, EC4V 3BJ. 83 FINANCIAL STATEMENTSANNUAL REPORT 2022NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 12 ACQUISITION On 30 September 2022, Equals through its subsidiary Equals Money Plc acquired the remaining 48% minority interest in Equals Connect Limited, a UK-based payment service provider, which is regulated by the FCA as an Authorised Payment Institution (API) for a maximum consideration of £3,430k. The initial consideration is £1,405k, which £475k of this being payable to cover the share of distributable reserves attributable to the minority shareholders. An additional £1,395k consideration is payable at certain dates, with a further £630k additional consideration dependant on certain targets and milestones being exceeded. As the Group had majority control at the start of the year of this subsidiary and the change in the parent’s ownership does not result in the parent losing control of the subsidiary, the total consideration has been treated as equity transactions and recognised against retained earnings as per IFRS 10. Contingent consideration – undiscounted maximum payments in cash 13 INVENTORIES Group Finished goods £’000 2,025 2021 £’000 168 2022 £’000 292 The Group’s inventories comprise of stock of cards. Included within transaction and commission costs is a charge relating to stock of £207k (2021: £177k) incurred in the ordinary course of business. 14 TRADE AND OTHER RECEIVABLES Current assets Trade receivables Amounts due from Group undertakings Other receivables Prepayments Accrued income Group 2022 £’000 3,434 – 4,684* 1,344 812 10,274 2021 £’000 3,176 – 3,620 998 462 8,256 Company 2022 £’000 – 192 830* 137 – 1,159 2021 £’000 – 192 – 147 – 339 * During the year ended 2022, the Group entered into a loan agreement with Roqqett Limited for a principal amount of £830K (2021: Nil). The loan is unsecured and does not bear interest. The terms of the loan require that the principal to be converted towards the payment to acquire Roqqett Limited upon regulatory approval from the Financial Conduct Authority (FCA) which was received on 6th January 2023. 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. Group – movement in expected credit loss (“ECL”) Cost Allowance for ECLs at 1 January Released during the period Allowance for ECLs at 31 December The ECL allowance for the Company is £nil (2021: £nil) 84 2022 £’000 95 (68) 27 2021 £’000 261 (166) 95 FINANCIAL STATEMENTSEQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 15 CASH AND CASH EQUIVALENTS Group Cash at bank 16 SHARE CAPITAL Group and Company Authorised, issued and fully paid-up capital B/fwd Exercised in year Issued in year C/fwd - 180,712,473 (2021: 179,341,807) ordinary shares of £0.01 each 2022 £’000 15,044 2022 £’000 1,793 7 7 1,807 17 OTHER RESERVES Group At 31 December 2020, 2021 and 2022 Company At 31 December 2020, 2021 and 2022 18 BORROWINGS Group Loan debenture Merger reserve £’000 Contingent consideration reserve £’000 Foreign currency reserve £’000 8,396 207 6 Merger reserve £’000 Contingent consideration reserve £’000 2,980 207 2022 £’000 – 2021 £’000 13,104 2021 £’000 1,786 7 – 1,793 Total £’000 8,609 Total £’000 3,187 2021 £’000 2,000 Under the Coronavirus Business Interruption Loan Scheme (CBILS) to further support working capital, the main trading subsidiary of the Company, Equals Money PLC, on 23 December 2020 entered into a £2,000k loan agreement with the Royal Bank of Scotland (RBS). Under the terms of the loan, there was 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 grant income received by the Group for 2021 representing twelve-month repayment holiday was £53k. The loan was 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 Equals Money PLC as security on the loan and that Equals Money PLC provides a debenture to the RBS for the value of the loan. Both of these requirements have been met. The loan has been fully repaid by 8 August 2022 and the debenture has been released. 85 FINANCIAL STATEMENTSANNUAL REPORT 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 19 TRADE AND OTHER PAYABLES Current liabilities Trade payables Amounts owing to Group undertakings Taxation and social security Other creditors Accruals and deferred income Group 2022 £’000 4,767 – 911 390 9,421 15,489 2021 £’000 3,583 – 666 27 7,726 12,002 Company 2022 £’000 70 3,980 – – 672 4,722 2021 £’000 124 2,102 – – 545 2,771 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 Foreign exchange forward contracts Total financial instruments at fair value 20.2 Derivative financial liabilities Financial liabilities at fair value through profit or loss Group Foreign exchange forward contracts Total financial instruments at fair value 21 FINANCIAL INSTRUMENTS Fair Value 2022 £’000 5,616 5,616 Fair Value 2022 £’000 4,789 4,789 Notional Principal 2022 £’000 253,300 253,300 Notional Principal 2022 £’000 147,360 147,360 Fair Value 2021 £’000 2,593 2,593 Fair Value 2021 £’000 2,082 2,082 Notional Principal 2021 £’000 170,083 170,083 Notional Principal 2021 £’000 150,202 150,202 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 86 2022 £’000 15,044 8,930 – (10,582) (4,197) 2021 £’000 13,104 7,258 (2,000) (7,968) (5,262) FINANCIAL STATEMENTSEQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 21 FINANCIAL INSTRUMENTS (CONTINUED) Financial instruments held at fair value through profit or loss Derivative financial assets – Forward foreign exchange contracts Derivative financial liabilities – Forward foreign exchange contracts 2022 £’000 5,616 (4,789) 2021 £’000 2,593 (2,082) 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 2022, the unrealised gain or loss recognised in the income statement on the fair value of financial instruments was a loss of £30k (2021: £93k loss). 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 banks and other financial institutions which are generally considered to be a low credit risk due to the financial strength of the counterparty. The cash balances exposure to credit risk is addressed further in tables 14 and 15 in the CFO report. The ageing of financial assets at the statement of financial position date is as follows: 2022 Group Trade and other receivables - gross Allowance for ECL Trade and other receivables - net Derivative financial assets 2021 Group Trade and other receivables - gross Allowance for ECL Trade and other receivables - net Derivative financial assets On demand £’000 8,903 27 8,930 556 On demand £’000 7,163 95 7,258 412 Between 1 and 3 months £’000 – – – 2,268 Between 1 and 3 months £’000 – – – 1,017 Between 3 and 12 months £’000 – – – 2,711 Between 3 and 12 months £’000 – – – 1,117 Over 1 year £’000 – – – 81 Over 1 year £’000 – – – 47 Total £’000 8,903 27 8,930 5,616 Total £’000 7,163 95 7,258 2,593 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. 87 FINANCIAL STATEMENTSANNUAL REPORT 2022NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 21 FINANCIAL INSTRUMENTS (CONTINUED) The table below analyses the Group’s gross undiscounted financial liabilities by their contractual maturity date. 2022 Group Borrowings Trade and other payables Derivative financial liabilities Lease liabilities 2021 Group Borrowings Trade and other payables Derivative financial liabilities Lease liabilities On demand and within 1 month £’000 – 10,582 453 65 On demand and within 1 month £’000 31 7,968 404 64 Between 1 and 3 months £’000 – – 2,276 130 Between 1 and 3 months £’000 63 – 836 134 Between 3 and 12 months £’000 – – 1,936 585 Between 3 and 12 months £’000 285 – 814 580 Over 1 year £’000 – – 124 3,417 Over 1 year £’000 1,621 – 28 4,484 Total £’000 – 10,582 4,789 4,197 Total £’000 2,000 7,968 2,082 5,262 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. 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 £160k (2021: £124k), 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. 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 2022 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 88 Measured at amortised cost £’000 Measured at fair value £’000 15,044 8,930 – 23,974 – 10,582 4,197 – 14,779 – – 5,616 5,616 – – – 4,789 4,789 Total £’000 15,044 8,930 5,616 29,590 – 10,582 4,197 4,789 19,568 FINANCIAL STATEMENTSEQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 21 FINANCIAL INSTRUMENTS (CONTINUED) 31 December 2021 Measured at amortised cost £’000 Measured at fair value £’000 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 13,104 7,258 – 20,362 2,000 8,063 5,262 – 15,325 – – 2,593 2,593 – – – 2,082 2,082 Total £’000 13,104 7,258 2,593 22,955 2,000 8,063 5,262 2,082 17,407 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 £50k. Equals Money PLC and Equals Connect Limited, wholly owned subsidiaries, 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 €25k, whichever is the higher. Equals Money UK Limited, a wholly owned subsidiary, is 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 €323k, whichever is the higher. Fair Payments Limited, a wholly owned subsidiary, is subject to the following capital requirement under the Electronic Money Regulations 2011: The Company is subject to the following externally imposed capital requirements: - capital at least equal to 2% of the average outstanding electronic money of the institution or €350k, whichever is the higher. The Group has complied with these requirements. 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 except for the new LTIP scheme offered to the Executive Directors in 2021 and all 2022 LTIP awards which have been calculated under the Monte Carlo pricing model as detailed below due to various performance conditions. 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. 89 FINANCIAL STATEMENTSANNUAL REPORT 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 22 SHARE OPTIONS (CONTINUED) During the year ended 31 December 2022, there were a number of share-based payment transactions within the Group. At 1 January 2022 Number 200,000 447,750 3,725,050 283,333 283,333 283,333 166,667 166,667 166,667 250,000 250,000 250,000 416,667 416,667 416,667 166,667 166,667 166,667 166,667 166,667 166,667 2,415,000 1,250,000 720,000 – – 13,107,800 Exercise price (£) 0.07 0.22 0.36 0.30 0.30 0.30 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 0.01 0.01 0.01 0.01 0.01 Cancelled/replaced Cancelled Number Granted Number Exercised Number Lapsed Number At 31 December 2022 Number – – – – – – – – - - – – – – – – – – – – – – – (16,000) – – (16,000) – – – – – – – – – – – – – – – – – – – – – – – – 3,182,500 784,000 3,966,500 – – – – – – – – – – – – – – – (166,667) (166,667) - (166,667) (166,667) – – – – – – (666,666) – – – – – – – – – – – – – – – – – – – – – (170,576) – (80,000) – – (250,576) 200,000 447,750 3,725,050 283,333 283,333 283,333 166,667 166,667 166,667 250,000 250,000 250,000 416,667 416,667 416,667 - - 166,667 - - 166,667 2,244,424 1,250,000 624,000 3,182,500 784,000 16,141,058 Date Granted 22/07/2014 22/07/2014 22/07/2014 28/09/2016 28/09/2016 28/09/2016 28/09/2019 28/09/2019 28/09/2019 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 18/10/2021 18/10/2021 07/01/2022* 14/12/2022 20/01/2023* Total number of options * Per IFRS 2, service period commences before the grant date and thus the shares are disclosed in the year which participants are made aware of the grant conditions and thus the expense is accrued at the date participants become aware of the grant condition. Which in the case of the 2022 SIP was 14 December 2022. In 2022 executives have been granted performance-based share options shown in the table below. At 1 January 2022 Number 8,526,000 4,581,800 13,107,800 Cancelled Number – (16,000) (16,000) Granted Number 1,020,500 2,946,000 3,966,500 Exercised Number (666,666) – (666,666) At 31 December 2022 Number 8,879,834 7,261,224 16,141,058 Lapsed Number – (250,576) (250,576) Executive Directors* Employees 90 FINANCIAL STATEMENTSEQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 22 SHARE OPTIONS (CONTINUED) Executive Directors* Non-Executive Directors who resigned in previous years* Employees At 1 January 2021 Number 7,268,000 748,887 1,821,469 9,838,356 Cancelled Number – – Granted Number 1,258,000 – Exercised Number – (388,887) Lapsed Number – (360,000) At 31 December 2021 Number 8,526,000 – – – 3,127,000 4,385,000 (350,002) (738,889) (16,667) (376,667) 4,581,800 13,107,800 * See Remuneration Committee report pages 42 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 2022, there were unexercised share options amounting to 8.93% (2021: 7.31%) of the Company’s total issued shares. Of the above options 8,880k (2021: 8,526k) have been granted to Directors of the Company (see Directors’ remuneration report pages 42 to 48), with an additional 2,421k (2021: 1,120k) having been granted to individuals who are, or have been during the year, Directors of wholly owned subsidiaries within the Group. The prior year financial statements disclosed that the fair value for 2021 long-term incentive awards of £1,250,000 share options to 2 Executive Directors was £0.16. This has been reviewed by management and should have been £0.80. There is no material impact on the prior year charge. The prior year financial statements disclosed the fair value of a new discretionary share incentive plan options as £0.62. However, this was the estimated future grant date fair value for the basis of the FY2021 charge, as in accordance with IFRS 2, the actual grant date was 7 January 2022. The grant date fair value has been updated to £0.68. In December 2022, Equals Group PLC extended share options over 4,372,800 shares which were originally granted in July 2014 to 2 Executive Directors. These had been due to lapse in November 2022 but this is now extended to July 2024. The options had already fully vested and there are no other changes to the terms. In December 2022, Equals Group PLC awarded new shares under their discretionary long-term incentive plan for 42 SLT members. A total of 2,170,000 share options were awarded under the plan to various SLT employees, which had a vesting period of three years. The options included vesting criteria of: a £0.80 Threshold share price, annual revenue CAGR targets, annual EPS targets and annual active customer growth targets. The shares will be awarded as ‘free shares’. The fair value of the options was 81p using the Monte-Carlo model and principals. In December 2022, Equals Group PLC awarded new shares under their discretionary long-term incentive plan for the 2 Executive Directors of the group. A total of 1,012,500 share options were awarded under the plan, which had a vesting period of three years. The options included vesting criteria of a £0.80 Threshold share price, annual revenue CAGR targets, annual EPS targets and annual active customer growth targets. The shares will be awarded as ‘free shares’ The fair value of the options was £0.81 using the Monte Carlo model and principals. In December 2022, Equals Group PLC awarded new shares under their discretionary share incentive plan. A total of 784,000 share options were awarded under the plan to various employees, which had a vesting period of three years from the grant date. The shares will be awarded as ‘free shares’. The estimated future grant date fair value for the basis of the FY2022 charge was £0.87, as in accordance with IFRS 2. The actual grant date was 20th January 2023 and the grant date fair value will be updated to £0.90 in FY2023. 91 FINANCIAL STATEMENTSANNUAL REPORT 2022NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 22 SHARE OPTIONS (CONTINUED) 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 Cancelled 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 2022 0.2397 Number of options 2022 13,107,800 Weighted average exercise price 2021 0.3805 Number of options 2021 9,838,356 0.0020 3,966,500 0.0100 4,385,000 – (0.0100) (0.2900) 0.1822 0.3706 (16,000) (250,576) (666,666) 16,141,058 7,056,134 – (1.1218) (0.3017) 0.2397 0.1793 – (376,667) (738,889) 13,107,800 6,556,133 The weighted average share price for the year was £0.84 (2021: £0.49). The fair values of share options in the relevant schemes 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 (£) Weighted average expected volatility Weighted average option life in years Weighted average risk-free rate Weighted average expected dividends Weighted average fair value of the options granted (£) At 1 January 2022 0.47 0.26 34.6% 6.2 0.71% None 0.28 Granted during year 0.69 – d 51.9% b 5.0 a 1.00% None 0.68 c The fair values of share options in the relevant schemes are calculated using a Monte Carlo 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 (£) Weighted average expected volatility Weighted average option life in years Weighted average risk-free rate Weighted average expected dividends Weighted average air value of the options granted (£) At 1 January 2022 0.63 – 52.0% 5.0 0.84% None 0.44 Granted during year 0.88 Nil d 50.1% b 5.0 a 3.27% c None 0.81 d a. Option life is an estimate of the average time expected between the issue of the options and exercise. This is calculated on each individual tranche of options issued and varies between 3 and 10 years. b. Expected volatility has been determined on the company share price for the same time frame as the average option life for that tranche, this varies between 21% and 52%. c. Risk Free rate is based on the UK gilt rate for a time period equal to the Option Life at the date of grant of the option. This varies between 0.1% and 3.3% d. A summary of the exercise price and fair value of the options granted is summarised below. If the fair value of the option was deemed to be nil it is marked accordingly. 92 FINANCIAL STATEMENTSEQUALS GROUP PLCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 22 SHARE OPTIONS (CONTINUED) 22/07/2014 22/07/2014 22/07/2014 28/09/2016 26/09/2019 01/09/2020 18/10/2021 18/10/2021 07/01/2022 14/12/2022 20/01/2023 Exercise price (£) 0.07 0.22 0.36 0.30 1.01 0.29 0.01 – 0.01 – 0.01 Fair Value (£) 0.28 0.20 0.12 0.13 0.39 0.16 0.62 0.44 0.68 0.81 0.87 For the options outstanding at 31 December 2022, the weighted average fair values and the weighted average remaining contractual lives (being the time period from 31 December 2022 until the lapse date of each option) are set out below: Historic Share Schemes Pre 2021 2021 Share Incentive Plan 2021 Long-term Incentive Plan - SLT 2021 Long-Term Incentive Plan - Exec 2022 Share Incentive Plan 2022 Long-Term Incentive Plan - SLT 2022 Long-Term Incentive Plan - Exec Weighted average fair value of options outstanding (£) 0.16 0.68 0.62 0.44 0.87 0.81 0.81 Weighted average remaining contractual life (years) 3.89 9.02 8.80 8.80 9.96 9.96 9.96 The charge expensed to the statement of comprehensive income is £924k (2021: £272k). During the year the Group recognised a £779k increase (2021: £658k increase) in deferred tax assets in relation to unexercised share options. Of this amount, £216k was recognised in the current year’s tax credit (2021: £380k tax credit) and £562k (2020: £278k) was taken to equity. 23 FINANCIAL COMMITMENTS The Group has no significant financial commitments not on balance sheet for 2022 and 2021 year-end. 24 RELATED PARTY TRANSACTIONS The related parties of the Group and related companies 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 2022 £’000 4,064 104 4,172 2021 £’000 3,587 88 3,675 93 FINANCIAL STATEMENTSANNUAL REPORT 2022NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 CONTINUED 24 RELATED PARTY TRANSACTIONS (CONTINUED) Key management personnel share-based payment expense for all existing and new share schemes: Share-based payment expense Company Intercompany transactions and balances with the rest of the Group: 31 December 2022 Balance sheet Equals Money PLC Fair Payments Limited Equals Money UK Limited Due from 2022 £’000 – 192 – 192 Due to 2022 £’000 (3,980) – – (3,980) 2022 £’000 (612) Due from 2021 £’000 – 192 – 192 2021 £’000 262 Due to 2021 £’000 (1,002) – (1,100) (2,102) 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 6th January 2023, the Group completed the acquisition of Roqqett Limited, an open-banking platform, for a total consideration of up to £2,250k. This acquisition was initially announced on 28 November 2022, the acquisition was conditional upon regulatory approval from the Financial Conduct Authority (FCA) which was received on 6th January 2023. During the year ended 2022, the Group entered into a loan agreement with Roqqett Limited for a principal amount of £830K (2021: Nil) as shown in note 14. The loan was unsecured and does not bear interest. The terms of the loan required that the principal to be converted towards the payment to acquire Roqqett Limited upon regulatory approval from the Financial Conduct Authority (FCA) which was received on 6th January 2023. On 14th March 2023, the Group sold the Travel Cash CGU for an initial £250k with a further £100k subject to certain conditions being met to Currency Exchange Corporation Ltd. The carrying value of the assets disposed off were £128k shown in note 4 and consisted of right of use and intangible assets. On the 24th March 2023 after stock trading hours, the Group signed a share purchase agreement for the acquisition of Oonex S.A. an authorised payment institution regulated by the National Bank of Belgium to enable the provision of Equals products into the EEA for consideration of 5 million shares in Equals Group PLC. The acquisition is conditional upon regulatory approval from the National Bank of Belgium. On the 24th March 2023 after stock trading hours, the Group signed a share purchase agreement for the acquisition of Hamer and Hamer Limited an authorised payment institution regulated by the FCA for an initial consideration of £1.5 million and deferred consideration capped at £2.7 million based on performance over a three-year period. The acquisition is conditional upon regulatory approval from the FCA. 94 FINANCIAL STATEMENTSEQUALS GROUP PLC5 Year Trading History Additional unaudited information Turnover Revenue Gross Profit Profit after tax Cash 2018 2,369 26.1 17.5 2.6 7.9 2019 2,888 30.9 20.6 (5.4) 11.3 2020 3,493 29.0 18.3 (6.9) 10.0 2021 6,529 44.1 24.2 (2.3) 13.1 2022 9,216 69.7 33.7 3.6 15.0 Equals Group PLC Contents COMPANY INFORMATION About Equals Group 1 2 3 4 Directors and Advisors Financial Summary and Highlights History STRATEGIC REPORT 6 7 Chairman’s Statement Chief Executive Officer’s Report 12 Chief Financial Officer’s Report 20 Statement on Section 172, Companies Act 2006 GOVERNANCE 23 Report on Corporate Governance 28 ESG Report 36 Report of the Audit Committee 39 Report of the Risk Committee 42 Directors’ Remuneration Report 49 Directors’ Report 52 53 Statement of Directors’ Responsibilities in Respect of the Annual Report and Financial Statements Independent Auditors’ Report to the Members of Equals Group Plc FINANCIAL STATEMENTS 60 Consolidated Statement of Comprehensive Income 61 Consolidated and Company Statements of Financial Position 62 Consolidated and Company Statements of Changes in Equity 63 Consolidated Statement of Cash Flows 64 Company Statement of Cash Flows 65 Notes to the Consolidated Financial Statements IBC 5 Year Trading History 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 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 2 www.equalsplc.com Annual Report 2022 EQUALS GROUP PLC THIRD FLOOR, THAMES HOUSE VINTNERS PLACE 68 UPPER THAMES STREET LONDON, EC4V 3BJ 

Continue reading text version or see original annual report in PDF format above