CSFS Cornerstone Fs Plc

Notes to the Financial Statements

For the year ended 31 December 2023

 

BAsis of preparation

 

Cornerstone FS plc (trading as Finseta) is a public limited company, incorporated and domiciled in England. The Company was admitted to AIM, London Stock Exchange's market for small and medium size growth companies, on 6 April 2021. The registered office of the Company is 14-18 Copthall Avenue, London, EC2R 7DJ. These consolidated financial statements comprise the Company and its subsidiaries (together referred to as the "Group"). The main activities of the Group are set out in the Strategic Report of the Company's annual report for the year ended 31 December 2023 (the "2023 Annual Report").

 

These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the United Kingdom ("IFRS") for the years ended 31 December 2022 and 31 December 2023, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared in sterling, which is the Group's presentation currency and the functional currency of each Group entity. They have been prepared using the historical cost convention except for the measurement of certain financial instruments.

 

The parent company accounts have also been prepared in accordance with IFRS (as adopted by the United Kingdom) and using the historical cost convention. The accounting policies set out below have been applied consistently to the parent company where applicable.

 

Monetary amounts in these financial statements are rounded to the nearest pound.

  

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. These estimates and assumptions are based upon management's knowledge and experience of the amounts, events or actions. Actual results may differ from such estimates.

 

The critical accounting estimates are considered to relate to the following:

 

Fair values of assets acquired in business combinations: The Group recognises the fair value of customer relationships acquired through business combinations reflecting discounted future cash flows from the acquired customers and incorporating an estimated rate of attrition of the customer base.

 

Deferred consideration: Total compensation for acquisitions includes an element of deferred consideration payable, subject to the revenue performance post-acquisition. Management use historical information and management forecasts to estimate a liability, using the discounted cashflow methodology, to derive a fair value of the deferred consideration payable.

 

Intangible assets: The Group recognises intangible assets in respect of software development costs. This recognition requires the use of estimates, judgements and assumptions in determining whether the carrying value of such assets is impaired at each year end.

 

Investments in subsidiary undertakings (Company financial statements only): The Company's statement of financial position includes investments stated at cost in its subsidiary undertakings. The continuing recognition at cost requires judgements and estimates including an assessment of whether the carrying value of such investments is impaired at each year end.

 

NEW AND REVISED STANDARDS AND INTERPRETATIONS IN ISSUE BUT NOT YET ADOPTED

 

At the date of authorisation of these financial statements, the Company has not yet adopted the following amendments to Standards and Interpretations that have been issued:

 

·      Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting Policies; and

·      Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates.

 

The Directors do not expect any material impact as a result of adopting the amendments listed above in the financial statements.

 

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiary undertakings. Entities are accounted for as subsidiary undertakings when the Group is exposed to or has rights to variable returns through its involvement with the entity and it has the ability to affect those returns through its power over the entity.

 

All subsidiary undertakings have an accounting reference date ended 31 December.

 

BUSINESS COMBINATIONS

The Group financial statements recognise business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

 

Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not re-measured and settlement is accounted for within equity. Otherwise, other contingent consideration is re-measured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

 

GOING CONCERN

 

During the year ended 31 December 2023, the Group made an adjusted EBITDA profit (excluding non-cash share-based compensation, depreciation & amortisation costs, non-recurring transaction costs, profit on the disposal of Avila House, operating income related to interest on client balances and IFRS 16 accounting adjustments) of £1,700,223 (2022: loss of £869,319). At 31 December 2023, the Group balance sheet showed a net asset position of £1,655,535 (2022: net liability of £89,901), including a negative profit and loss reserve of £8,307,787 (2022: £10,924,791), and a cash balance of £2,343,417 (2022: £682,346).

 

The Directors have prepared cash flow forecasts covering a period to 31 December 2026. The Directors have derived forecast assumptions that are their best estimate of the future development of the Group's business taking into account projected increase in revenues, continued investment in the development of the software platform and organic sales and marketing efforts.

 

The Directors have prepared various scenario planning forecasts alongside their best-estimate forecast assumptions, including a scenario in which sales growth falls below management expectations and various cash mitigation measures are implemented, which all indicate sufficient cash resources to continue to finance the Group's working capital requirements over the forecast period.

 

For these reasons, the Directors continue to adopt the going concern basis of accounting in preparing the Group's financial statements.

 

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

revenue

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 the Group's 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.

 

The Group derives revenue from the provision of foreign exchange and payment services. When a contract with a client is entered into, it immediately enters into a separate matched contract with its institutional counterparty.

 

Spot and forward revenue is recognised when a binding contract is entered into by a client and the rate is fixed and determined. Revenue represents the difference between the rate offered to clients and the rate received from its institutional counterparties.

 

INVESTMENTS

Investments in subsidiary undertakings are accounted for at cost less impairment.

 

FINANCIAL INSTRUMENTS

Financial assets and financial liabilities are recognised on the Group statement of financial position when the Group has become a party to the contractual provisions of the instrument.

 

Derivative financial instruments

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.

 

Trade, loan and other receivables

Trade and loan receivables are initially measured at their transaction price. Trade and loan receivables are held to collect the contractual cash flows which are solely payments of principal and interest. Therefore, these receivables are subsequently measured at amortised cost using the effective interest rate method. The Directors have considered the impact of discounting trade and loan receivables whose settlement may be deferred for lengthy periods and concluded that the impact would not be material.

 

An impairment loss is recognised for the expected credit losses on trade and loan receivables when there is an increased probability that the counterparty will be unable to settle an instrument's contractual cash flows on the contractual due dates, a reduction in the amounts expected to be recovered, or both.

 

Impairment losses and any subsequent reversals of impairment losses are adjusted against the carrying amount of the receivable and are recognised in profit or loss.

 

Trade payables

Trade payables are initially recognised at fair value and subsequently at amortised cost using the effective interest method.

 

Equity instruments

Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

 

Financial liabilities

Financial liabilities are classified according to the substance of the contractual arrangements entered into. An instrument will be classified as a financial liability when there is a contractual obligation to deliver cash or another financial asset to another enterprise.

 

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

 

For the purposes of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of any outstanding bank overdraft that is integral to the Group's cash management.

 

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill on acquisition of subsidiaries is separately disclosed in note 9.

 

Goodwill is not amortised; it is recognised as an asset, allocated to cash generating units for the purpose of impairment testing and reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss and is not subsequently reversed.

 

other INTANGIBLE aSSETS

An intangible asset, which is an identifiable non-monetary asset without physical substance, is recognised to the extent that it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably. The asset is deemed to be identifiable when it is separable or when it arises from contractual or other legal rights.

 

Amortisation is charged on a straight-line basis through the profit or loss within administrative expenses. The rates applicable, which represent the Directors' best estimate of the useful economic life, are as follows:

 

Customer relationships                       - 5 years

Internally developed software          - 3 years

Software costs                                      - 3 years

Other intangible assets                       - 3 years

 

Trademarks are recognised as intangible assets and are expected to generate future economic benefits in perpetuity. Trademarks are not amortised. They are allocated to a cash generating unit and tested for impairment annually.

 

property, plant and equipment

All property, plant and equipment is initially recorded at cost and is subsequently measured at cost less accumulated depreciation and any recognised impairment loss.

 

Depreciation, which is charged through the profit or loss within administrative expenses, is provided at rates calculated to write off the cost less residual value of each asset over its expected useful life, as follows:

 

Computer equipment                                - 25% straight line

Leasehold improvements                          - in line with the term of the underlying leased asset

 

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

 

LEASES

The Group as lessee

The Group assesses whether a contract is, or contains, a lease at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (determined to be those with an initial discounted total obligation of less than £5,000). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

 

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If that rate cannot be readily determined, the Group uses its incremental borrowing rate.

 

The incremental borrowing rate depends on the term, currency and start date of the lease and is determined based on a series of inputs including: the risk-free rate based on government bond rates; a country-specific risk adjustment; a credit risk adjustment based on bond yields; and an entity-specific adjustment when the risk profile of the entity that enters into the lease is different to that of the Group and the lease does not benefit from a guarantee from the Group.

 

Lease payments included in the measurement of the lease liability comprise:

 

·      Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable

·      Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date

·      The amount expected to be payable by the lessee under residual value guarantees

·      The exercise price of purchase options, if the lessee is reasonably certain to exercise the options

·      Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease

 

The lease liability is presented as a separate line in the consolidated statement of financial position.

 

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

 

·      The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate

·      The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used)

·      A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification

 

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

 

Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories.

 

Right-of-use assets are depreciated over the shorter period of lease term and useful life of the right-of-use asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

 

The right-of-use assets are presented as a separate line in the consolidated balance sheet.

 

The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the "Impairment of property, plant and equipment and intangible assets excluding goodwill" policy.

 

Variable rents that do not depend on an index or rate are not included in the measurement the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included in the line "Administrative expenses" in profit or loss.

 

As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Group has not used this practical expedient. For contracts that contain a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.

 

Rent free concessions granted during the COVID-19 pandemic have been credited to the income statement in the year they were granted, with a resulting reduction in the lease obligation.

 

The Group as lessor

The Group enters into lease agreements as a lessor for some of its property included within its right-of-use assets.

 

Leases for which the Group is a lessor are classified as finance or operating leases. Whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee, the contract is classified as a finance lease. All other leases are classified as operating leases.

 

When the Group is an intermediate lessor, it accounts for the head lease and the sub-lease as two separate contracts. The sub-lease is classified as a finance or operating lease by reference to the right-of-use asset arising from the head lease.

 

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.

 

Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group's net investment in the leases. Finance lease income is allocated to accounting periods to reflect a constant periodic rate of return on the Group's net investment outstanding in respect of the leases.

 

Subsequent to initial recognition, the Group regularly reviews the estimated unguaranteed residual value and applies the impairment requirements of IFRS 9, recognising an allowance for expected credit losses on the lease receivables.

 

Finance lease income is calculated with reference to the gross carrying amount of the lease receivables, except for credit-impaired financial assets for which interest income is calculated with reference to their amortised cost (i.e. after a deduction of the loss allowance).

 

When a contract includes both lease and non-lease components, the Group applies IFRS 15 to allocate the consideration under the contract to each component.

 

PROVISIONS

Provisions are recognised when the Group has a present obligation as a result of a past event which it is probable will result in an outflow of economic benefits that can be reliably estimated.

 

SHARE CAPITAL

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in share premium as a deduction from the proceeds.

 

SHARE-BASED COMPENSATION

Where share options are awarded to employees, the fair value of the options at the date of grant is charged to the income statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted.

 

As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition.

 

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the income statement over the remaining vesting period. Where equity instruments are granted to persons other than employees, the income statement is charged with fair value of goods and services received.

 

Cancelled or settled options are accounted for as an acceleration of vesting and the amount that would have been recognised over the remaining vesting period is recognised immediately.

 

The proceeds received net of any attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

 

Fair value is measured by use of the Black-Scholes pricing model which is considered by management to be the most appropriate method of valuation.

 

employee benefits

The Group operates a defined contribution pension scheme. The pension costs charged in the financial statements represent the contribution payable by the Group during the year.

 

The costs of short-term employee benefits are recognised as a liability and an expense in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service.

 

TAXATION

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. Current income tax relating to items recognised directly in equity or other comprehensive income is recognised in equity and not in the consolidated statement of comprehensive income.

 

Deferred income tax is provided on all temporary differences at the reporting date arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

 

Deferred tax assets have been recognised in respect of the Group's tax losses carried forward.

 

Research and Development tax credits are recognised as receivables when they have been submitted to HMRC. The amount recognised is based on the expected value of the credit.

 

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

 

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

The Group makes estimates and assumptions concerning the future. The resulting accounting judgements will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

 

IMPAIRMENT

At each accounting reference date, the Group reviews the carrying amounts of its intangibles, property, plant & equipment and investments to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).

 

Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

 

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are 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 for which the estimates of future cash flows have not been adjusted.

 

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

 

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried in at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

 

DEFERRED CONSIDERATION

Total compensation for acquisitions includes an element of deferred consideration payable, subject to the revenue performance post-acquisition. Management use historical information and management forecasts to estimate a liability, using the discounted cashflow methodology, to derive a fair value of the deferred consideration payable.

 

SHARE-BASED COMPENSATION

The fair value of share-based awards is measured using the Black-Scholes model which inherently makes use of significant estimates and assumptions concerning the future applied by the Directors. Such estimates and judgements include the expected life of the options and the number of employees that will achieve the vesting conditions. Further details of the share option scheme are given in note 19.

 

ALTERNATIVE PERFORMANCE MEASURES

 

The Group uses the alternative performance measure of adjusted EBITDA. This measure is not defined under IFRS, nor is it a measure of financial performance under IFRS.

 

This measure is sometimes used by investors to evaluate a company's operational performance with a long-term view towards adding shareholder value. This measure should not be considered an alternative, but instead supplementary, to profit/(loss) from operations and any other measure of performance derived in accordance with IFRS.

 

Alternative performance measures do not have generally accepted principles for governing calculations and may vary from company to company. As such, the adjusted EBITDA quoted within the Group statement of comprehensive income should not be used as a basis for comparison of the Group's performance with other companies.

 

ADJUSTED EBITDA

The Group uses adjusted EBITDA, defined as profit/(loss) from operations, adding back share-based compensation, transaction costs associated with the Group's acquisitions, depreciation & amortisation charge, profit on the disposal of Avila House, operating income related to interest on client balances and IFRS 16 accounting transactions. 

 

1              revenue and SEGMENTAL REPORTING

 

                 All of the Group's revenue arises from its activities within the UK (although a proportion of revenue is derived from customers incorporated or residing outside of the UK). Management considers there to be only one operating segment within the business based on the way the business is organised and the way results are reported internally.

                

Revenue is as follows:

 

	Group	Group
	Year ended 31 December 2023	Year ended 31 December 2022
	£	£
	_______	_______
Total revenue	9,649,233	4,821,996
	_______	_______

 

2             PROFIT/(LOSS) FROM OPERATIONS

 

	Group	Group
	Year ended 31 December 2023	Year ended 31 December 2022
	£	£
Profit/(loss) from operations is stated after charging/(crediting):
Share-based compensation	333,061	4,284,039
Transaction costs	4,500	99,365
Expensed software development costs	58,792	86,941
Depreciation of property, plant and equipment	15,883	14,622
Depreciation of right-of-use assets	72,409	-
Amortisation of intangible assets	533,649	386,541
Profit on disposal of subsidiary	(207,480)	-
Short-term (2018 IAS 17 operating) lease rentals	-	252,308
	_______	_______

 

Amounts payable to the Group's auditor in respect of both audit and non-audit services:

 

	Year ended 31 December 2023	Year ended 31 December 2022
	£	£
Audit Services
-   Statutory audit	41,000	40,000
Other Services
The auditing of accounts of associates of the Company pursuant to legislation:
-   Audit of subsidiaries and its associates	45,000	49,450
	-------------------------	-------------------------
	86,000	89,450
	=========================	=========================

 

 

3              OTHER OPERATING INCOME

	Year ended 31 December 2023	Year ended 31 December 2022
	£	£
Interest receivable from client cash balances	350,143	30,647
	-------------------------	------------------------

 

Other operating income represents interest generated from client cash balances. The recent changes to the interest rate environment have meant that these accounts can be interest bearing, whilst maintaining the safeguarding requirements. Under the terms of the Group's Electronic Money Licence, the Group is not able to pass any of the interest earned back to the clients.

 

Whilst the increased interest stream is a positive boost for the Group and a natural by-product of its increasingly diversified product offering, the Group is mindful that aspects of its dynamics are driven by macroeconomics beyond its control. The Group has therefore chosen to recognise interest income on client balances as 'other operating income', and not revenue on the face of the statement of comprehensive income.  For the same reason, interest income has been excluded from the presentation of adjusted EBITDA.

 

In 2022, interest on client cash balances was included in interest receivable. The comparatives figures have been amended for comparison purposes.

 

Interest earned on the Group's own cash is recognised within 'finance and other income' in the consolidated statement of comprehensive income.

 

 

4      INTEREST AND SIMILAR ITEMS

 

	Year ended 31 December 2023	Year ended 31 December 2022
	£	£
Total finance and other income
Bank interest receivable	21,363	18
	=========================	=========================
Total finance costs
(Release)/unwinding of discount	(56,459)	108,416
Loan note interest	130,306	53,500
Other interest payable and charges	483	2,059
Interest on lease liabilities (note 17)	16,305	-
	-------------------------	-------------------------
	90,635	163,975
	=========================	=========================

 

 

5      EMPLOYEES

 

The average monthly numbers of employees in the Group (including the Directors) during the year was made up as follows (the Company has no employees other than the Directors):

 

	Year ended 31 December 2023	Year ended 31 December 2022
	Number	Number
Directors	6	7
Employees	28	27
	_______	_______
	34	34
	_______	_______
Employment costs	Year ended 31 December 2023	Year ended 31 December 2022
	£	£
Wages and salaries	2,349,642	1,977,588
Social security costs	206,636	251,010
Pension costs	71,408	49,200
Share-based compensation	219,068	4,155,094
	_______	_______
	2,846,754	6,432,892
	_______	_______

 

remuneration of key management personnel

 

The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate. Further information about the remuneration of the individual directors is provided in the Directors' Remuneration Report of the 2023 Annual Report.

 

		Year ended 31 December 2023	Year ended 31 December 2022
		£	£
Salaries and fees		559,310	794,712
Bonus		175,981	43,044
Share-based compensation charge/(credit)		152,495	(125,443)
Social security costs		103,472	123,024
		_______	_______
		991,258	835,337
		_______	_______
		Number	Number
Number of Directors to whom retirement benefits are accruing under a defined contribution scheme		3	3
		_______	_______

 

 

		Year ended 31 December 2023	Year ended 31 December 2022
		£	£
	The remuneration in respect of the highest paid Director was:
	Salaries and fees	170,360	140,000
	Bonus	119,981	31,360
	Share-based compensation charge	103,629	30,173
	Pension and other benefits	12,379	7,046
		_______	_______
		406,349	208,579
		_______	_______

 

During the year, no (2022: nil) Directors exercised any (2022: nil) share options.

 

6               Pension costs

 

The Group operates a defined contribution pension scheme. The scheme and its assets are held by independent managers. The pension charge represents contributions due from the Group and amounted to £71,408 (2022: £49,200). At 31 December 2023 contributions of £20,130 remained outstanding and are included within other payables (2022: £59,054).

 

7               taxation

 

The tax on the loss on ordinary activities for the period was as follows:

 

	Group	Group
	Year ended 31 December 2023	Year ended 31 December 2022
	£	£
	_______	_______
Current Tax:
Current tax credit	(45,489)	(158,188)
Deferred tax credit	(797,679)	(17,177)
	_______	_______
Income tax credit	(843,168)	(175,365)
	_______	_______
	Group	Group
	Year ended 31 December 2023	Year ended 31 December 2022
	£	£
Profit/(loss) before taxation	1,290,685	(5,787,197)
	_______	_______
Profit/(loss) multiplied by main rate of corporation tax in the UK of 23.52% (2022: 19%)	303,569	(1,099,567)
Effects of:
Surrender of tax losses for research & development tax credit refund	(45,489)	(158,188)
Expenses not deductible for tax purposes	65,575	29,261
Income not taxable	(122,176)	-
Share-based payments	78,335	814,037
Tax rate changes	(17,550)	-
Other adjustments in period	(2,520)	48,648
Unutilised tax losses	-	190,444
Utilisation of tax losses	(377,472)	-
Recognition of deferred tax asset in respect of tax losses	(725,440)	-
	_______	_______
Income tax credit	(843,168)	(175,365)
	_______	_______

 

As at 31 December 2023, the Group had tax losses carried forward of £3,272,638 (31 December 2022: £5,013,429).

 

The Group has recognised a deferred tax asset of £697,864 in respect of the Group's tax losses. They are expected to be utilised within the year ending 31 December 2024 and 31 December 2025.

 

The standard rate of corporation tax increased from 19% to 25%, with effect from 1 April 2023. The blended rate of corporation tax applicable for the year ended 31 December 2023 was therefore 23.52% (2022: 19%). 

 

 

 

 

 

 

 

 

 

 

 

 

 

8               earnings PER SHARE

 

	Year ended 31 December 2023	Year ended 31 December 2022
	£	£
Statutory profit/(loss)	2,133,853	(5,611,832)
Weighted average number of shares used in basic EPS	56,613,145	32,506,335
Effect of dilutive share options	161,510	-
Weighted average number of shares used in diluted EPS	56,774,655	32,506,335
Earnings/(loss) per share (pence)
Statutory total earnings/(loss) per share
Basic	3.77	(17.26)
Diluted	3.76	(17.26)

 

In the prior year, the loss incurred by the Group means that the effect of any outstanding warrants and options would be considered anti-dilutive and is ignored for the purposes of the loss per share calculation.

 

9             GROUP INTANGIBLE ASSETS

 

	Goodwill	Customer relationships	Internally developed software	Software costs	Trademarks	Other	Total
	£	£	£	£	£	£	£
COST
At 1 January 2023	1,086,262	615,756	1,070,198	15,611	-	92,520	2,880,347
Additions	-	-	444,899	-	46,114	-	491,013
Measurement period adjustment	(665,962)	-	-	-	-	-	(665,962)
Disposal	-	-	-	-	-	(92,520)	(92,520)
	_______	_______	_______	_______	_______	_______	_______
At 31 December 2023	420,300	615,756	1,515,097	15,611	46,114	-	2,612,878
AMORTISATION
At 1 January 2023	-	90,408	458,691	15,611	-	-	564,710
Charge for the period	-	123,151	410,498	-	-	-	533,649
	_______	_______	_______	_______	_______	_______	_______
At 31 December 2023	-	213,559	869,189	15,611	-	-	1,098,359
NET BOOK VALUE
At 31 December 2023	420,300	402,197	645,908	-	46,114	-	1,514,519
	_______	_______	_______	_______	_______	_______	_______
At 31 December 2022	1,086,262	525,348	611,507	-	-	92,520	2,315,637
	_______	_______	_______	_______	_______	_______	_______

 

Other intangible assets comprise regulatory licences that are held at cost and are not amortised.

 

On 18 March 2023, the Group agreed a variation of the deferred consideration payments for its 2022 acquisition of Capital Currencies Ltd. A measurement period adjustment of £665,962 has been recognised by the Group as a reduction in goodwill with a corresponding reduction in contingent deferred consideration, which is due to be settled in cash.

 

The estimated deferred consideration of £228,499 has been included in liabilities (see note 18).

 

Company INTANGIBLE ASSETS

	Internally developed software	Trademarks	Total
	£	£	£
COST
At 1 January 2023	1,070,198	-	1,070,198
Additions	444,899	46,114	491,013
At 31 December 2023	1,515,097	46,114	1,561,211
AMORTISATION
At 1 January 2023	458,691	-	458,691
Charge for the period	410,498	-	410,498
	_______	_______	_______
At 31 December 2023	869,189	-	869,189
NET BOOK VALUE
At 31 December 2023	645,908	46,114	692,022
At 31 December 2022	611,507	-	611,507
	_______	_______	_______

 

10                  RIGHT-OF-USE ASSETS

 

Leasehold Property	2023
	£
COST
At 1 January 2023	-
Additions	868,907
	_______
At 31 December 2023	868,907
AMORTISATION
At 1 January 2023	-
Charge for the period	72,409
	_______
At 31 December 2023	72,409
NET BOOK VALUE
At 31 December 2023	796,498
	_______

 

 

11           GROUP property, plant and equipment

 

	Computer equipment	Leasehold improvements	Total
	£	£	£
COST
At 1 January 2023	51,220	14,583	65,803
Additions	11,081	-	11,081
Disposals	(976)	-	(976)
	_______	_______	_______
At 31 December 2023	61,325	14,583	75,908
AMORTISATION
At 1 January 2023	19,779	6,347	26,126
Charge for the period	12,340	3,543	15,883
Disposal	(457)	-	(457)
	_______	_______	_______
At 31 December 2023	31,662	9,890	41,552
NET BOOK VALUE
At 31 December 2023	29,663	4,693	34,356
	_______	_______	_______
At 31 December 2022	31,441	8,236	39,677
	_______	_______	_______

 

 

 

 

 

 

 

12           deferred tax

 

The Group recognised the following movements in deferred tax:

 

	Acquired intangibles	Fixed asset and other temporary differences	Tax losses	Total
	£	£	£	£
At 1 January 2022	-	-	-	-
Charge in the year	(99,816)	-	-	(99,816)
Liability at 31 December 2022	(99,816)	-	-	(99,816)
(Charge)/credit in the year	(733)	(19,748)	818,161	797,680
(Liability)/asset at 31 December 2023	(100,549)	(19,748)	818,161	697,864
	_______	_______	_______	_______
			Current	302,609
			Non-current	395,255

 

The Company recognised the following movements in deferred tax:

 

	Fixed asset and other temporary differences	Tax losses	Total
	£	£	£
At 1 January 2022 and 31 December 2022	-	-	-
(Charge)/credit in the year	(17,516)	625,084	607,568
(Liability)/asset at 31 December 2023	(17,516)	625,084	607,568
	_______	_______	_______
		Current	-
		Non-current	607,568

 

13           investments

 

	Investments in Subsidiaries £
Cost or Valuation At 1 January 2023 Remeasurement of deferred consideration		8,017,622 (665,962)
		7,351,660
Net Book Value At 31 December 2023		7,351,660
At 31 December 2022		8,017,622

 

During the year ended 31 December 2023, the Company remeasured the deferred consideration payable in respect of its 2022 acquisition of Capital Currencies Ltd. The remeasurement followed a variation to the original terms as follows:

 

·      The first tranche of the earn-out consideration is now assessable on revenue performance for the year ending 31 January 2024 and the second tranche is assessable on revenue performance for the year ending 31 January 2025 - both representing an extension of one year.

·      The Company now has the option, at its discretion, to satisfy one or both of the earn-out payments in cash as opposed to one half of the first tranche being payable in ordinary shares and the other half in convertible loan notes and the second tranche to be payable in ordinary shares. Accordingly, the Company has recognised the estimated deferred consideration as a liability payable in cash.

 

Shares in subsidiary and associate undertakings are stated at cost. As at 31 December 2023, the Company owned the following principal subsidiaries, which are included in the consolidated accounts:

Subsidiary	Principal Activity	Country of Incorporation	Registered Office	Percentage of Ownership
Finseta Payment Solutions Limited*	Foreign Exchange and Payment Services	Northern Ireland	14-18 Copthall Avenue, London, England, EC2R 7DJ	100 per cent.
Cornerstone - Middle East FZCO	Consultancy	United Arab Emirates	Dubai Silicon Oasis, DDP, Building A2, Dubai, United Arab Emirates	100 per cent.
Capital Currencies Limited	Authorised Payment Institution	England and Wales	14-18 Copthall Avenue, London, England, EC2R 7DJ	100 per cent.
Pangea FX Limited	Foreign Exchange White Label	England and Wales	14-18 Copthall Avenue, London, England, EC2R 7DJ	100 per cent.
Finseta Payments Corp	Foreign Exchange and Payment Services	Canada	5577 153A street, Suite 207, Surrey BC, V3S 5K7, Canada	100 per cent.

* During the year, the subsidiary was named Cornerstone Payment Solutions Ltd. The change of name to Finseta Payment Solutions Limited became effective 24 April 2024.

 

On 20 September 2023, the Company entered into a sale and purchase agreement to sell Capital Currencies Ltd, which is subject to the approval of the FCA. As at the year end, the only asset held in Capital Currencies Ltd is an API licence with a £nil net book value (2022: £nil).

 

On 12 December 2023, the Group incorporated a new Canadian entity, Finseta Payments Corp.

 

Finseta Payment Solutions Limited disposed of its 100% shareholding in Avila House Ltd on 26 April 2023.

 

14           current trade and other receivables

 

	Group 31 December 2023	Group 31 December 2022	Company 31 December 2023	Company 31 December 2022
	£	£	£	£
Trade receivables	347,491	221,669	-	-
Prepayments and accrued income	152,281	131,010	19,142	39,465
Derivative financial assets at fair value	340,241	635,473	-	-
Other receivables	147,536	53,062	53,264	-
Amounts due from Group undertakings	-	-	458,421	363,359
Taxes and social security	372,092	297,896	372,092	297,896
	_______	_______	_______	_______
	1,359,641	1,339,110	902,919	700,720
	_______	_______	_______	_______

 

For the year ended 31 December 2023, £nil was recorded as a bad debt expense (31 December 2022: £nil).

 

15            loan notes                                                                                                                                                                    

 

	Group	Group	Company	Company
	31 December 2023	31 December 2022	31 December 2023	31 December 2022
	£	£	£	£
CURRENT
Convertible loan notes	-	225,000	-	225,000
Loan notes	172,578	-	172,578	-
	_______	_______	_______	_______
NON-CURRENT
Loan notes	2,000,000	2,172,578	2,000,000	2,172,578
	_______	_______	_______	_______

 

On 3 February 2023, the current convertible loan note of £225,000, issued pursuant to the Company's fundraising on 5 August 2022, was converted to 3,461,538 ordinary shares at a price of £0.065 for Mr. Horrocks to take his shareholding in the Company above 10%.

 

The non-convertible loan notes comprise £2,000,000 issued to Robert O'Brien (repayable on 31 July 2026) and £172,578 of deferred consideration in relation to the acquisition of Pangea FX Limited (repayable on 31 August 2024). Both loan notes have a 6% coupon rate payable quarterly in arrears. The Pangea FX Limited loan note is payable contingent upon achieving future revenue targets over a period of two years from the acquisition date. Based on current and forecast performance of Pangea FX, it has been assumed that the loan note will be paid in full.

 

16            current trade and other payables

 

	Group	Group	Company	Company
	31 December 2023	31 December 2022	31 December 2023	31 December 2022
	£	£	£	£
Trade payables	248,493	362,035	87,339	162,128
Derivative financial liabilities at fair value	279,097	563,676	-	-
Other tax and social security	480,612	515,750	2,298	50,640
Other payables and accruals	874,569	527,816	298,720	179,818
Amount due to Group undertakings	-	-	2,642,978	1,425,555
	_______	_______	_______	_______
	1,882,771	1,969,277	3,031,335	1,818,141
	_______	_______	_______	_______

17           lEASE LIABILITIES

 

	Group	Group
Leasehold Property	31 December 2023	31 December 2022
	£	£
At 1 January 2023	-	-
Additions	868,907	-
Finance costs	16,305	-
Payments	(61,613)	-
Lease accruals	(16,687)	-
	_______	_______
At 31 December 2023	806,912	-
	_______	_______
Current	263,357	-
Non-Current	543,555	-
Incremental borrowing rate	7.97%	-

 

Maturity analysis

 

	Group	Group
Contractual undiscounted cash flows	31 December 2023	31 December  2022
	£	£
Less than one year	316,332	-
One to five years	583,053	-
More than five years	-	-
	_______	_______
Total undiscounted lease liabilities at 31 December 2023	899,385	-
	_______	_______

 

 

18           deferred consideration

 

	Group
Contractual undiscounted cash flows	31 December 2023
	£
At 1 January 2023	-
Transferred from deferred consideration reserve	228,499
At 31 December 2023	_______
	228,499
	_______
Current	117,176
Non-current	111,323
	_______

 

 

19           Share capital AND Reserves

 

Allotted, called up and fully paid
	Ordinary shares	Share capital
	No.	£
Ordinary shares of £0.01 each as at 1 January 2023	48,036,199	480,362
Issue of new shares of £0.01	9,380,902	93,809
	_______	_______
Ordinary shares of £0.01 each at 31 December 2023	57,417,101	574,171
	_______	_______

 

At 31 December 2023 share subscriptions of £nil remained unpaid (31 December 2022: £nil).

 

The following changes in the share capital of the Company have taken place in year ended 31 December 2023:

 

·      On 13 January 2023, 806,182 ordinary shares were issued at a price of £0.06501 settling the share-based remuneration for former non-executive board members and the company secretary in respect of the year ended 31 December 2021

·      On 3 February 2023, 5,113,182 ordinary shares were issued at a price of £0.100 being the final equity settlement with Robert O'Brien related to his share-based incentivisation agreement and following receipt of approval from the FCA for Mr. O'Brien to take his shareholding in the Company above 10%

·      On 3 February 2023, 3,461,538 ordinary shares were issued at a price of £0.065 upon conversion of a loan note held by Mark Horrocks and following receipt of approval from the FCA for Mr. Horrocks to take his shareholding in the Company above 10%

 

All ordinary shares are equally eligible to receive dividends and the repayment of capital and represent equal votes at meetings of shareholders.

 

The following describes the nature and purpose of each reserve within owner's equity:

Share capital: Amount subscribed for shares at nominal value.

Share premium: Amount subscribed for share capital in excess of nominal value, less costs of share issue.

Share-based payment reserve: The share-based payment reserve comprises the cumulative expense representing the extent to which the vesting period of warrants and share options has passed and management's best estimate of the achievement or otherwise of non-market conditions and the number of equity instruments that will ultimately vest.

Deferred consideration reserve: Reflects equity-based contingent consideration on the acquisition of subsidiaries.

Merger relief reserve: Effect on equity of the consideration shares issued over their nominal value.

Reverse acquisition reserve: Effect on equity of the reverse acquisition of Finseta Payment Solutions Limited.

Retained losses: Cumulative realised profits less cumulative realised losses and distributions made, attributable to the equity shareholders of the Company.

 

Options

 

The Company operates an Enterprise Management Incentive ("EMI") Scheme equity-settled share-based remuneration scheme for employees. 

 

Under the scheme the options are exercisable at any time. The options are also exercisable in the event of a change of control. If the option holder's employment within the Group is terminated, other than for gross misconduct, any options vested may be exercised within 90 days of such termination (12 months in the case of the option holder's death), otherwise the options lapse five years after the date of grant. The options also lapse, inter alia, if the option holder is adjudged bankrupt or proposes a voluntary arrangement or other scheme in relation to his/her debts.

 

	31 December 2023		31 December 2022
	Number	Weighted average exercise price	Number	Weighted average exercise price
		£		£
Outstanding at the beginning of the year	1,706,331	0.24	1,599,480	0.50
Granted during the year	3,919,180	0.13	1,893,454	0.23
Forfeited/waived during the year	(767,775)	(0.40)	(1,786,603)	(0.46)
	_______	_______	_______	_______
Total outstanding	4,857,736	0.13	1,706,331	0.24
	_______	_______	_______	_______
Total exercisable	1,357,674	0.11	184,535	0.50
	_______	_______	_______	_______

 

The Black-Scholes model was used for calculating the cost of options. The model inputs for each of the options issued were:

GRANT DATE	8 March 2022	8 March 2022	8 March 2022	1 September 2022	13 January 2023	13 January 2023	16 November 2023	16 November 2023
Exercise price (pence)	36.2	61.0	26.5	10.0	10.0	20.0	12.0	10.0
Share price at grant date (pence)	16.5	16.5	16.5	9.0	8.0	8.0	12.0	12.0
Risk free rate	2.1%	2.1%	2.1%	2.7%	2.7%	2.7%	4.2%	4.2%
Expected volatility	90.1%	90.1%	90.1%	129.5%	129.5%	129.5%	119.8%	119.8%
Contractual life (years)	5	5	5	5	5	5	5	5

 

 

The expected volatility reflects the assumption that historical volatility of comparable quoted companies is indicative of future trends, which may not necessarily be the actual outcome.

 

The weighted average contractual life of the options is five years (2022: five years).

 

No options were exercised during the year (2022: nil).

 

The Group's share-based compensation charge for the year ended 31 December 2023 of £333,061 (2022: £4,284.039) consists of £113,993 in relation to warrants granted in the Company (2022: £128,943), £219,065 in respect of options granted in the Company (2022: charge of £222,577), £nil in respect of equity-settled share-based payments related to the non-executive Board member's service agreements (2022: £36,836) and £nil of other share-based compensation (2022: £4,340,837).

 

                No warrants were granted in the year (2022: none).

 

20           Related party transactions

 

Details of key management compensation are included in note 5. Key management are considered to be the Directors of the Group. 

 

Transactions with subsidiaries

During the year, the Company and Finseta Payment Solutions Limited entered into various transactions with each other including software development charges, licences fees and working capital support. The net balance of transactions between the companies are held on an interest-free inter-Group loan, which has no terms for repayment. At the year end, the Company owed £2,620,559 (2022: £1,404,408) to Finseta Payment Solutions Limited.

 

During the year, the Company also provided working capital support to Cornerstone - Middle East FZCO and Capital Currencies Ltd. The net balance of transactions between the companies are held on an interest-free intra-Group loan, which has no terms for repayment. At the year end, Cornerstone - Middle East FZCO owed the Company £92,319 (2022: £60,500) and Capital Currencies Ltd owed the Company £35,899 (2022: £43,242).

 

Other related parties

 

On 3 February 2023 the Company issued shares to Robert O'Brien, General Manager APAC and Middle East and largest shareholder in the Company, as disclosed in notes 15 and 19. On 8 March 2023 the Company and Mr. O'Brien's agreed to extend the repayment date of his non-convertible interest-bearing loan note in the sum of £2,000,000, as disclosed in note 15, by one year to 31 July 2026. On the same date Mr. O'Brien agreed to vary and extend certain elements of his compensation package, decreasing his commission share on certain established revenue streams and increasing his share of the profitability of the Dubai office.

 

The transaction with Mark Horrocks, a significant shareholder in the Company, is disclosed in notes 15 and 19.

 

As at 31 December 2023, an amount of £8,750 was due from Terry Everson, a former director of Finseta Payment Solutions Limited and a shareholder in the Company (31 December 2022: £8,750).

 

21            FINANCIAL INSTRUMENTS

 

                FINANCIAL ASSETS

 

	Group	Group	Company	Company
	31 December 2023	31 December 2022	31 December 2023	31 December 2022
	£	£	£	£
DERIVATIVE FINANCIAL ASSETS
Foreign currency forward contracts with customers	253,663	504,106	-	-
Foreign currency forward contracts with institutional counterparty	86,578	131,367	-	-
	_______	_______	_______	_______
	340,241	635,473	-	-
Cash and cash equivalents	2,343,417	682,346	14,553	495,627
Trade receivables	347,491	221,669	-	-
Other receivables	254,328	184,072	485,338	402,824
	_______	_______	_______	_______
	3,285,477	1,723,560	499,891	898,451
	_______	_______	_______	_______

 

FINANCIAL LIABILITIES

 

	Group	Group	Company	Company
	31 December 2023	31 December 2022	31 December 2023	31 December 2022
	£	£	£	£
DERIVATIVE FINANCIAL LIABILITIES
Foreign currency forward contracts with customers	61,367	165,156	-	-
Foreign currency forward contracts with institutional counterparty	217,730	398,520	-	-
	_______	_______	_______	_______
	279,097	563,676	-	-
Trade payables	248,493	362,035	87,339	162,128
Other payables	874,569	527,816	2,941,698	1,605,373
Loan notes	2,172,578	2,397,578	2,172,578	2,397,578
	_______	_______	_______	_______
	3,574,737	3,851,105	5,201,615	4,165,079
	_______	_______	_______	_______

 

All financial assets and liabilities have contractual maturity of less than one year with the exception of loan notes of £2,172,578 (2022: £2,172,578).

 

Derivative financial assets and liabilities

 

                Derivative financial assets not designated as hedging instruments

 

	31 December 2023		31 December 2022
	Fair Value	Notional Principal	Fair Value	Notional Principal
	£	£	£	£
Foreign currency forward contracts with customers	253,663	8,546,025	504,106	9,042,956
Foreign currency forward contracts with institutional counterparty	86,578	3,799,202	131,367	3,377,597
	_______	_______	_______	_______
	340,241	12,345,227	635,473	12,420,553
	_______	_______	_______	_______

 

                Derivative financial liabilities not designated as hedging instruments

 

	31 December 2023		31 December 2022
	Fair Value	Notional Principal	Fair Value	Notional Principal
	£	£	£	£
Foreign currency forward contracts with customers	61,367	2,928,816	165,156	3,337,362
Foreign currency forward contracts with institutional counterparty	217,730	7,912,698	398,520	8,715,534
	_______	_______	_______	_______
	279,097	10,841,514	563,676	12,052,896
	_______	_______	_______	_______

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Foreign currency forward contracts are measured at fair value on a recurring basis.

 

There are three levels of fair value hierarchy:

·    Level 1 - the fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period.

·    Level 2 - valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

·    Level 3 - valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

 

Foreign currency forward contracts with customers generally require immediate settlement on the maturity date of the individual contract and fall into level 2 of the fair value hierarchy above. 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). The fair value of forward foreign exchange contracts is measured using observable forward exchange rates for contracts with a similar maturity at the reporting date.

 

The net loss on financial assets at fair value through profit or loss for year ended 31 December 2023 was £58,116 (2022: net gain of £3,300).

 

 

Financial instruments - risk management

 

Financial assets primarily comprise trade and other receivables, cash and cash equivalents and derivative financial assets. Financial liabilities comprise trade and other payables, shareholder loans and derivative financial liabilities. The main risks arising from financial instruments are market risk (including foreign currency risk and interest rate risk), liquidity risk, credit risk and counterparty risk.

 

Market risk

 

Market risk for the Group comprises foreign exchange risk and interest rate risk. The Group operates as a riskless matched principal broker for deliverable non-speculative spot and forward foreign currency transactions, with each trade with its clients matched with an identical trade with an institutional counterparty. Therefore, foreign exchange risk is mitigated through the matching of foreign currency assets and liabilities between clients and institutional counterparties which move in parity.

 

The Group's cash balances are primarily held in Pound Sterling and the Group does not hold significant cash balances in foreign currencies.

 

Interest rate risk affects the Group to the extent that it implicitly impacts the price of foreign currency forward contracts. However, this risk is mitigated in the same way as foreign currency risk.

 

Liquidity risk

 

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group has extensive controls to ensure that it has sufficient cash or working capital to meet its cash requirements to mitigate this risk.

 

As per the 'Going Concern' section above, the Directors have prepared a cash flow forecast taking into account a projected increase in revenues and continued investment in the development of the Group's platform and organic sales & marketing efforts and the inherent risks and uncertainties facing the Group's business to assess the Group's working capital requirements. The Board reviews cash flow projections on a regular basis and has authority controls in place so as not to commit to material expenditure without being satisfied that sufficient funding is available to the Group.

 

The Group also has systems in place to monitor the margin requirements of its clients and its margin requirement with the institutional counterparty for the back-to-back foreign currency forward contract on a real-time basis and request any necessary top up payment from the clients. The Group also has the right to close any position if no margin is given.

 

Credit risk

 

Credit risk is the risk that clients do not meet their contractual obligations in respect of the currency spot and forward contracts, which leads to a financial loss. All customers are subject to credit verification checks. Approximately 90% of the Group's trades are spot currency contracts, which are required to be settled within two working days. For forward currency contracts, as noted above, clients are required to provide margin that mitigates credit exposure. Trade limits are applied to all clients. The Group has systems to monitor trade limits and collateral requirements on a real-time basis. The Group does not have any significant concentration of exposures within its client base.

 

Counterparty risk

 

Each trade between a client and the Group is matched with an identified trade with Velocity Trade International ("Velocity"), which is a global foreign exchange liquidity and trade provider that provides pricing, execution and settlement services for the Group.

 

The Group also has brokerage accounts with alternative institutional counterparties and could transact with them instead if Velocity is unable to provide liquidity.

 

Management of settled and open trades are conducted via Currency Cloud, the GV (formerly Google Ventures) backed global payments and FX platform, and Banking Circle. Client funds are safeguarded with Banking Circle in line with the Group's requirements under the Electronic Money Regulations 2011 for additional protection and to reduce counterparty risk.

 

 

22           CAPITAL MANAGEMENT

 

The capital structure of the business consists of cash and cash equivalents, debt and equity. Equity comprises share capital, share premium and retained losses and is equal to the amount shown as 'Equity' in the balance sheet. The Group's current objectives when maintaining capital are to:

 

·  safeguard the Group's ability to operate as a going concern so that it can continue to pursue its growth plans;

·   provide a reasonable expectation of future returns to shareholders; and

·   maintain adequate financial flexibility to preserve its ability to meet financial obligations, both current and long term.

 

The Group sets the amount of capital it requires in proportion to risk. The Group manages its capital structure and adjusts it in the light of changes in economic conditions and the risk characteristics of underlying assets.

 

The Company is subject to the following externally imposed capital requirements:

·   as a public limited company, the Company is required to have a minimum issued share capital of £50,000.

 

Finseta Payment Solutions Limited, a wholly-owned subsidiary of the Company, is subject to the following capital requirement under the Electronic Money Regulations 2011:

·    2% of the average outstanding e-money issued by the Electronic Money Institution (based on a 6-month rolling average), or the initial capital requirement of €350,000, whichever is the higher.

 

Capital Currencies Ltd, a wholly-owned subsidiary of the Company, is subject to the following capital requirement under the Payment Service Regulations 2017:

·   either 10% of fixed overheads for the preceding year or the initial capital requirement of €20,000, whichever is the higher.

 

Finseta Payment Solutions Limited and Capital Currencies Ltd complied with the above requirements for all periods during the year ended 31 December 2023.

 

23           EVENTS AFTER THE REPORTING DATE

 

On 22 February 2024, the Company granted 470,000 options to staff members over ordinary shares of 1 penny each in the capital of the Company. All options are intended to qualify as Enterprise Management Incentive options pursuant to the Income Tax (Earnings and Pensions) Act 2003.