Source - LSE Regulatory
RNS Number : 4868Z
Cornerstone FS PLC
16 May 2023
 

Certain information contained within this Announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 ("MAR") as applied in the United Kingdom. Upon publication of this Announcement, this information is now considered to be in the public domain.

 

16 May 2023

 

Cornerstone FS Plc

("Cornerstone" or "the Company" or "the Group")

 

Final Results

Notice of AGM and Publication of Annual Report

 

Cornerstone FS Plc (AIM: CSFS), a foreign exchange and payments company offering multi-currency accounts to businesses and individuals, announces its final results for the year ended 31 December 2022. In addition, the Company gives notices of its annual general meeting ("AGM") and publication of its annual report and accounts, both of which are being posted on the Company's website at: https://investors.cornerstonefs.com/document-centre/.

 

Highlights

·    Revenue increased 110% to £4.8m (2021: £2.3m)

·    Gross margin improved to 60.9% (2021: 51.6%)

·    Adjusted* EBITDA loss reduced to £0.9m (2021: £1.3m loss)

·    Transacted payments totalling £584m (2021: £363m), up 61%

·    Number of active customers increased by 38% to 803 (2021: 583)

·   Acquired Capital Currencies, a well-established foreign exchange broker, and Pangea FX, a specialist FX and treasury consultancy

·   Expanded the Group's partnerships to increase the number of currencies, countries and sectors that it services, and, post period, introduce new products

·   Entered an agreement to sell Avila House Ltd, a non-core subsidiary, for £300k and licence the Group's platform to the buyer, which completed post period

·     Cash and cash equivalents at 31 December 2022 were £682k (31 December 2021: £348k)

* Excluding share-based compensation, transaction costs and depreciation & amortisation charges (see the Financial Review for further detail)

 

James Hickman, CEO of Cornerstone, said:

 

"During 2022, Cornerstone continued to deliver on its strategy, improved operationally and achieved a strong financial performance with revenues more than doubling and an increase in gross margin. This growth was accelerated by two acquisitions during the year, which also supported the completion of our transition to a business that services customers directly. Through the expansion of our offer, enhancement of our platform and strengthening of our team, we took important actions to position Cornerstone for an even greater 2023.

 

"The strong trading momentum experienced in 2022 has been sustained into the current year, and we remain on track for a significant increase in revenue for full year 2023 and are optimistic in terms of adjusted EBITDA positivity. As a result, and as we continue to broaden our partnership network and offer, we remain confident in the future and look forward to reporting on our progress."   

 

 

 

Enquiries 

 

Cornerstone FS Plc 

+44 (0)203 971 4865 

James Hickman, Chief Executive Officer 

Judy Happe, Chief Financial Officer 




SPARK Advisory Partners Limited (Nomad) 

+44 (0)203 368 3550 

Mark Brady, Adam Dawes 




SP Angel Corporate Finance LLP (Broker) 

+44 (0)203 470 0470 

Jeff Keating, Harry Davies-Ball 




Gracechurch Group (Financial PR) 

+44 (0)204 582 3500 

Harry Chathli, Claire Norbury 


 

 

About Cornerstone FS Plc

 

Cornerstone FS Plc (AIM: CSFS) is a foreign exchange and payments company offering multi-currency accounts to businesses and individuals. Headquartered in the City of London, Cornerstone combines a proprietary technology platform with a high level of personalised service to support clients with payments in over 35 currencies in more than 100 countries. With a track record of over 12 years, Cornerstone has the expertise, experience and expanding global partner network to be able to execute complex cross-border payments. It is fully regulated by the Financial Conduct Authority as an Electronic Money Institution. www.cornerstonefs.com

 

 

Operational Review

 

The year to 31 December 2022 was a period of significant change, which has continued into 2023, during which the Group implemented fundamental improvements to its business. Cornerstone delivered a strong performance in 2022 and took actions to position the Group for an even greater 2023.

 

Two key milestones during the year were the acquisitions of Capital Currencies, a well-established foreign exchange broker, and Pangea FX, a specialist FX and treasury consultancy. Both businesses have made an excellent contribution to Cornerstone. In particular, Capital Currencies boosted the direct client base while Pangea FX brought two senior sales executives who were made responsible for leading the sales function. 

 

Since welcoming a new CEO, James Hickman, in September 2022, the Group's focus has been on driving direct sales and fully commercialising the platform, while maintaining control over costs. A key element of this was growing the sales team, which started in September, beginning with the appointments from Pangea FX, and has been strengthened thereafter and post year end. Cornerstone has expanded - and continues to expand - its network of referral partners, which consists of corporates that provide services to other businesses or high net worth individuals ("HNWIs"), such as accountants or real estate agents, and who recommend Cornerstone to their clients for currency transactions and payments. 

 

Multiple actions have been taken to commercialise the platform more fully by enhancing and expanding the Group's offering - a key element of which is increasing the number of counterparties. This also reflects the refocusing of the strategy on developing the Group's own products and services as opposed to seeking integrations with enterprise resource planning or accounting systems. As described further below, the Group has:

 

·   Increased the number of currencies, countries and sectors that it services

·   Introduced new products

·   Upgraded the platform user interface and features

·   Improved the transactional process

·   Enhanced customer service

 

To further monetise the platform as well as realise the value of a non-core asset, in December 2022 Cornerstone entered a share purchase agreement ("SPA") for the sale of its subsidiary, Avila House Ltd. ("Avila"), to Aspire Commerce Ltd. ("Aspire") as well as entering a software licensing agreement for Aspire to licence the Group's platform. Upon completion of the SPA post year end, the Group received £300k in cash and the licensing agreement, which is for a period of 12 months, will generate a minimum of £290k. Cornerstone acquired Avila in 2020 as it is registered with the Financial Conduct Authority ("FCA") as a small electronic money institution, however, this more limited licence was supplanted with the Group's primary operating subsidiary, Cornerstone Payment Solutions, subsequently being approved by the FCA as an authorised electronic money institution. This transaction with Aspire reflects the value of an e-money registration as well as the Cornerstone platform.

 

To accelerate the transition to direct revenue, the Group also took the strategic decision to offboard almost all its historic white label business - only maintaining a small number of accounts that meet a particular profitability threshold. This commenced towards the end of the year, but primarily took place, and has been completed, in the current year. 

 

Performance

 

For the year under review, Cornerstone delivered another twelve months of significant growth in revenue to £4.8m (2021: £2.3m). This reflects a substantial increase in revenue generated by clients that are served directly. The proportion of total revenue that was accounted for by direct clients increased to 78%, compared with 56% for the previous year, being £3.8m (2021: £1.3m). Revenue generated through the Group's introducer network accounted for 22% of total revenue (2021: 44%) and was £1.1m (2021: £1.0m).

 

By client type, there was an increase in revenue generated by both corporate accounts and HNWIs. This includes particularly strong growth in revenue from HNWIs, which was primarily due to the addition of the Asia team. As a result, the proportion of total revenue accounted for by HNWIs increased to 53% (2021: 25%) with corporate accounts contributing 47% (2021: 75%). However, for the majority of the HNWI revenue (and nearly exclusively for the Asia team's HNWI revenue), whilst the underlying transaction is with an individual, the relationship is via a corporate that provides services to the HNWI - and, as a result, it is a recurring revenue stream. As noted above, the Group has been successfully expanding this referral network.

 

Revenue continued to be generated from the provision of foreign exchange and payments services in the form of spot and forward transactions, accounting for 92% and 8% of revenue respectively (2021: 89% and 11%).

 

During 2022, transactions were conducted between 58 different currency pairs (2021: 42), with 86% of transactions being between various combinations of Sterling, Euros and US Dollars (2021: 91%), reflecting an expansion of the Group's payment capabilities.

 

During 2022, the Group transacted payments totalling £584m compared with £363m in the previous year.

 

Enhancing our offer

 

A key focus has, and continues to be, the enhancement of the Group's offer, primarily through growing its counterparty network to expand its product capabilities. At the same time, internal development has been undertaken to improve the Group's platform as well as its service provision.

 

Expanding our product

 

A core element of the Group's strategy is to establish a global payments network that will enable Cornerstone customers to be able to pay in from, and pay out to, any jurisdiction and via any payment method. While it is still relatively early days, important steps have been taken in implementing this strategy.

 

New counterparty partnerships have been established, which enables the Group to broaden the number of currencies and countries where it can transact as well as expanding the business sectors that it can serve. The Group can now pay out to 70+ countries with 49 pay-out currencies and 32 pay-in currencies.

The Group has also made significant progress towards expanding its product offering with regards to payment method. The Group expects to be able to launch its first initiative later this year, which will be a very exciting development for Cornerstone.

 

To be able to support customers with more of their business needs, the Group has formed strategic partnerships with specialised and alternative lenders to offer a range of funding solutions. In particular, the Group recently launched a lending platform in partnership with Swoop Finance ("Swoop"), which enables the Group to seamlessly refer customers to a lending partner that it has pre-vetted to ensure that they can meet the customers' requirements. This service increases the Group's value to its customers while it also receives commission on referrals. It also enhances the Group's competitive offer to potential customers who want to utilise Cornerstone's FX services (rather than those of their traditional bank), but who are hesitant to move away from their traditional bank as they require their lending facilities.  

 

Enhancing our platform

 

During the year, internal development work continued to improve the platform with a focus on user interface and user experience. Certain features have also been added in response to customer feedback to ensure that the Group's platform is tailored to customers' needs. These improvements and the additional functionality, alongside new counterparty partnerships as noted above, have also enabled Cornerstone to broaden the target customer base, such as now being able to cater for businesses in further sectors.

 

Improving our service

 

Cornerstone is committed to continuously improving the service that it provides to its customers. This includes developments to enhance the automation in transactional processes to increase the speed of payments. The Group has introduced new customer service systems to better track, and thereby improve, response times to customer queries. It is also working on enhancements to the onboarding process to make the transition to the Group's platform as effortless as possible for new customers.     

 

Actions such as these, which stem from one of the Group's core values of always putting customers first, mean that the Group is well prepared for the introduction of the FCA's Consumer Duty regulation later this year, which sets higher and clearer standards for consumer protection across financial services. This also goes together with the Group's steadfast commitment to regulatory compliance and transparency. The Group has always adhered to the highest standards in this respect and its governance has been strengthened with the new additions to the Board, in particular with John Burns bringing substantial experience in regulation and compliance in the payments industry.

 

Financial Review

 

Revenue for the 12 months to 31 December 2022 increased by 110% to £4.8m compared with £2.3m for the previous year. This reflects strong underlying growth, driven by the revenue generated by clients that the Group serves directly, as well as the contribution from Capital Currencies and Pangea FX, which were acquired during the year.

 

As a result of the increased contribution to revenue from clients that are served directly, gross margin improved substantially to 60.9% in 2022 (2021: 51.6%). The improvement in gross margin combined with the increased revenue enabled the Group to achieve significant growth in gross profit to £2.9m (2021: £1.2m).

 

Operating expenses were £8.6m in 2022 compared with £5.4m for the previous year. This primarily reflects movements of:

 

•    £1.9m increase in share-based (non-cash) compensation to £4.3m (2021: £2.3m), which predominantly relates to share-based incentivisation for the Asia team and the General Manager APAC and Middle East;

•    £1.6m increase in other administrative expenses to £4.2m (2021: £2.6m); and partly offset by

•    £0.3m decline in transaction costs related to the Company's IPO and its acquisition strategy.

 

In the second half of the year, the Company reached an agreement with Robert O'Brien, the General Manager APAC and Middle East, and the Asia team to vary the terms of their incentivisation agreement, as a result of performance being ahead of expectations. As a result of the agreed settlement, the Group recognised an accelerated charge for the year ended 31 December 2022 such that the full value of the total charge estimated upon initial recognition of £6.1m has been cumulatively expensed (£4.3m for the year ended 31 December 2022 and £1.8m for the year ended 31 December 2021). Accordingly, there is no further share-based compensation to be recognised in future periods in respect of Mr. O'Brien and the Asia team.

 

The £1.6m increase in other administrative expenses included a £862k increase in staff-related costs (excluding share-based compensation) primarily reflecting the additional hires made from mid-2021 onwards, including the headcount acquired with Capital Currencies and Pangea FX in 2022. Depreciation and amortisation costs increased by £249k, including £90k related to the amortisation of the value attributed to the customer base acquired through the acquisitions of Capital Currencies and Pangea FX. Rental and IT costs increased by £230k largely owing to rent discounts realised during the COVID-19 restrictions in 2021 and the increased office space in 2022 to cater to the expanded workforce. Legal and professional fees increased by £142k due to the Company becoming public part way through the comparative period (6 April 2021).

 

Net finance expenses were £133k (2021: net finance income of £1,262). This primarily reflects acquisition-related adjustments as well as loan note interest, partially offset by an increase in other interest.

 

Loss before tax was £5.8m for 2022 (2021: £4.2m loss), which primarily reflects the greater operating expenses. Loss per ordinary share on a basic and diluted basis was 17.26 pence (2021: 21.24 pence loss), which reflects an increase in the weighted average number of ordinary shares in issue to 32,506,335 (2021: 19,317,407).

 

Excluding share-based compensation, transaction costs and depreciation & amortisation charges, the Group's adjusted operating expenses (consisting of administrative expenses) as a proportion of revenue improved to 79% (2021: 107%). As a result, the Group's adjusted EBITDA loss was reduced to £0.9m (2021: £1.3m).

 

As at 31 December 2022, the Group had cash and cash equivalents of £682k (31 December 2021: £348k). This followed the raising, during the year, of:

 

•    gross proceeds of £870k via the placing of, and subscription for, new ordinary shares, which was partly used to fund the initial £586k cash consideration for the acquisition of Capital Currencies; and

•    a total of approximately £1.1m through the placing of new ordinary shares (£860k) and the issue of a convertible loan note (£225k).

 

The loan note was issued to one investor who also took shares up to the maximum amount allowed before obtaining FCA approval (9.9% of the Company's issued share capital). Application for FCA approval was made during the year and the loan note was converted automatically into shares on approval being received in February 2023.

 

Outlook

 

The strong trading momentum experienced in 2022 has been sustained into the current year and, as previously announced, increased during Q1 2023 resulting in a better-than-expected revenue performance for the first quarter. This also included Cornerstone achieving its first, unaudited, quarter of being EBITDA positive (on an adjusted basis).

 

While trading in Q2 2023 has reverted from exceptionally high to the originally budgeted levels of growth, the Group remains on track for a significant increase in revenue for full year 2023 over 2022 and is optimistic in terms of adjusted EBITDA positivity. This reflects the advancement being made across the business and as the Group realises the benefits of the enhancements made to its operations and offer towards the end of 2022 and to date in 2023.

 

The Board is also pleased to have completed the sale of Avila, which, along with the licensing agreement with Aspire, will support the Group's cash position. In addition, post year end certain incentivisation and settlement arrangements were varied with Robert O'Brien, General Manager APAC and Middle East, and Craig Strong, Director of Capital Currencies (see note 20), which has also been immediately beneficial to the business.      

 

As a result, and as Cornerstone continues to broaden its partnership network and offer, the Board remains confident in the future and looks forward to reporting on the Group's progress.   

    

Notice of AGM and Publication of Annual Report

 

The Company gives notice that its AGM will be held at 11.00am BST on 20 June 2023 at the office of Gracechurch Group, 48 Gracechurch Street, London, EC3V 0EJ.

 

The Notice of AGM and form of proxy, along with the Company's annual report and accounts for the year ended 31 December 2022, are being posted to shareholders and are available on the Company's website at: https://investors.cornerstonefs.com/document-centre/.



 

Group Statement of Comprehensive Income

For the year ended 31 December 2022

 


 

2022

 2021

 


Notes

£ 

£ 





REVENUE

1

4,821,996

2,301,172

Cost of sales


(1,885,503)

(1,113,995)





GROSS PROFIT


2,936,493

1,187,177


 



ADMINISTRATIVE EXPENSES

2



Share-based compensation

15

(4,284,039)

(2,338,495)

Further adjustments to adjusted EBITDA (see below)


(500,529)

(554,902)

Other administrative expenses


(3,805,812)

(2,469,575)





TOTAL ADMINISTRATIVE EXPENSES


(8,590,380)

(5,362,972)





Adjusted EBITDA loss


(869,319)

(1,282,398)

Stated after the add back of:




- share-based compensation

15

4,284,039

2,338,495

- transaction costs


99,365

402,515

- amortisation of intangible assets


386,542

148,094

- depreciation of property, plant and equipment


14,622

4,293





LOSS from operations

2

(5,653,887)

(4,175,795)





Finance and other income

3

37,947

1,622

Finance costs

3

(171,257)

(360)





LOSS BEFORE TAX


(5,787,197)

(4,174,533)





Income tax credit

6

175,365

70,764



 ________

 ________

LOSS FOR THE YEAR


(5,611,832)

(4,103,769)





TOTAL COMPREHENSIVE LOSS FOR THE YEAR

(5,611,832)

(4,103,769)





Loss per ordinary share - basic & diluted (pence)

7

(17.26)

(21.24)



 _______

 _______






 

 

All amounts are derived from continuing operations.

 

The Notes to the Financial Statements form an integral part of these financial statements.



 

Group and Company Statement of Financial Position

As at 31 December 2022

 


 

Group 

Group

Company

Company


 

31 December 2022

31 December 2021

31 December

2022

31 December

2021


Notes

£ 

£ 

£

£

assets






NON-CURRENT ASSETS






Intangible assets

8

2,315,637

577,447

611,507

484,927

Tangible assets

10

39,677

21,542

-

-

Investments

11

-

-

8,017,622

6,349,758



 _______

 _______

 _______

 _______



2,355,314

598,989

8,629,129

6,834,685

CURRENT ASSETS






Trade and other receivables

12

1,339,110

493,244

700,720

248,996

Cash and cash equivalents


682,346

348,102

495,627

139,579



 _______

 _______

 _______

 _______



2,021,456

841,346

1,196,347

388,575



 _______

 _______

 _______

 _______

total assets


4,376,770

1,440,335

9,825,476

7,223,260



 _______

 _______

 _______

 _______

equity and liabilities






equity






Share capital

15

480,362

202,776

480,362

202,776

Share premium


5,496,829

3,074,355

5,496,829

3,074,355

Share-based payment reserve


1,489,765

2,392,710

1,489,765

2,392,710

Deferred consideration reserve


950,920

-

950,920

-

Merger relief reserve


5,557,645

5,557,645

5,557,645

5,557,645

Reverse acquisition reserve


(3,140,631)

(3,140,631)

-

-

Retained earnings


(10,924,791)

(7,828,230)

(8,365,764)

(4,907,402)



 _______

 _______

 _______

 _______

TOTAL EQUITY

 

(89,901)

258,625

5,609,757

6,320,084


 

 _______

 _______

 _______

 _______

LIAIBILITIES

 





NON-CURRENT LIABILITIES






Loan notes

13

2,172,578

-

2,172,578

-

Deferred tax

6

99,816

-

-

-



 _______

 _______

 _______

 _______



2,272,394

-

2,172,578

903,176

CURRENT LIABILITIES






Trade and other payables

14

1,969,277

1,181,710

1,818,141

903,176

Loan notes

13

225,000

-

225,000

-



 _______

 _______

 _______

 _______



2,194,277

1,181,710

2,043,141

903,176



 _______

 _______

 _______

 _______

TOTAL EQUITY AND LIABILITIES


4,376,770

1,440,335

9,825,476

7,223,260



 _______

 _______

 _______

 _______







A separate profit and loss account for the Parent company is omitted from the Group's financial statements by virtue of section 408 of the Companies Act 2006. The Company loss for the year ended 31 December 2022 was (£5,973,633) (year ended 31 December 2021: loss of (£3,823,651)).

 

The financial statements were approved by the Board of Directors and authorised for issue on 15 May 2023 and are signed on its behalf by:

 

 

James Hickman

Chief Executive Officer

 

The Notes to the Financial Statements form an integral part of these financial statements.

Group Statement of Changes in Equity

For the year ended 31 December 2022

 

Share capital

Share premium

Share-based payment reserve

Deferred consideration reserve

Merger relief reserve

Reverse acquisition reserve

Retained earnings

Total


£

£

£

£

£

£

£

£










Balance at 1 January 2021

165,887

951,422

54,215

-

5,557,645

(3,140,631)

(3,724,461)

(135,923)










Issue of shares

36,889

2,208,447

-

-

-

-

-

2,245,336

Costs of raising equity

-

(85,514)

-

-

-

-

-

(85,514)

Share-based payments (note 15)

-

-

2,338,495

-

-

-

-

2,338,495

Loss and total comprehensive income for the year

-

-

-

-

-

-

(4,103,769)

(4,103,769)


_______

_______

_______

_______

_______

_______

_______

_______

Balance at 31 December 2021

202,776

3,074,355

2,392,710

-

5,557,645

(3,140,631)

(7,828,230)

258,625










Issue of shares

210,423

1,905,234

-

-

-

-

-

2,115,657

Costs of raising equity

-

(87,310)

-

-

-

-

-

(87,310)

Share-based payments (note 15)

-

-

4,284,039

-

-

-

-

4,284,039

Settlement of equity-based incentives

67,163

604,550

(5,186,984)

-

-

-

2,515,271

(2,000,000)

Deferred equity-based consideration

-

-

-

950,920

-

-

-

950,920

Loss and total comprehensive income for the year

-

-

-

-

-

-

(5,611,832)

(5,611,832)


 _______

 _______

_______

_______

_______

_______

_______

_______

Balance at 31 December 2022

480,362

5,496,829

1,489,765

950,920

5,557,645

(3,140,631)

(10,924,791)

(89,901)


 _______

 _______

_______

_______

_______

_______

_______

_______































 

The Notes to the Financial Statements form an integral part of these financial statements.



 

Company Statement of Changes in Equity

For the year ended 31 December 2022

 

Share capital

Share premium

Share-based payment reserve

Deferred consideration reserve

Merger relief reserve

Retained earnings

Total


£

£

£

£

£

£

£









Balance at 1 January 2021

165,887

951,422

54,215

-

5,557,645

(1,083,751)

5,645,418









Issue of shares

36,889

2,208,447

-

-

-

-

2,245,336

Costs of raising equity

-

(85,514)

-

-

-

-

(85,514)

Share-based payments (note 15)

-

-

2,338,495

-

-

-

2,338,495

Loss and total comprehensive income for the year

-

-

-

-

-

(3,823,651)

(3,823,651)


_______

_______

_______

_______

_______

_______

_______

Balance at 31 December 2021

202,776

3,074,355

2,392,710

-

5,557,645

(4,907,402)

6,320,084









Issue of shares

210,423

1,905,234

-

-

-

-

2,115,657

Costs of raising equity

-

(87,310)

-

-

-

-

(87,310)

Share-based payments (note 15)

-

-

4,284,039

-

-

-

4,284,039

Settlement of equity-based incentives

67,163

604,550

(5,186,984)

-

-

2,515,271

(2,000,000)

Deferred equity-based consideration

-

-

-

950,920

-

-

950,920

Loss and total comprehensive income for the year

-

-

-

-

-

(5,973,633)

(5,973,633)


 _______

 _______

_______

_______

_______

_______

_______

Balance at 31 December 2022

480,362

5,496,829

1,489,765

950,920

5,557,645

(8,365,764)

5,609,757


 _______

 _______

_______

_______

_______

_______

_______








 








 












The Notes to the Financial Statements form an integral part of these financial statements.

 



Group and Company Cash Flow Statement

For the year ended 31 December 2022

 

   


Group 

Group

Company

Company



 

Year ended

31 December 2022 

 

Year ended

31 December 2021

 

Year ended

31 December 2022 

 

Year ended

31 December

2021 



£ 

£

£ 

£ 


Notes





Loss before tax                                                    


(5,787,197)

(4,174,533)

(6,131,818)

(3,890,085)

Adjustments to reconcile profit before tax to cash generated from operating activities:






Finance income

3

(37,947)

(1,622)

-

-

Finance costs

3

171,257

360

162,757

-

Equity-settled share-based payment


32,595

-

32,595

-

Share-based compensation

15

4,284,039

2,338,495

4,284,039

2,338,495

Depreciation and amortisation

8 & 10

401,164

152,386

296,133

145,920

Increase in accrued income, trade and other receivables

 

12

(845,866)

(54,577)

(451,724)

(141,678)

Increase in trade and other payables

14

757,250

682,374

896,573

559,196



_______

 _______

_________

 _______

Cash used in operations


(1,024,705)

(1,057,117)

(911,445)

(988,152)

 

 

 




Income tax received

6

158,188

70,764

158,188

66,434



 _______

 _______

_________

 _______

Cash used in operating activities


(866,517)

(986,353)

(753,257)

(921,718)







Investing activities






Acquisition of property, plant and equipment

10

(17,198)

(17,371)

-

-

Acquisition of intangible assets

8

(422,713)

(404,568)

(422,713)

(404,569)

Acquisition of subsidiary, net of cash acquired

9

(552,128)

-

-

-

Investment in Group companies

11

-

-

(631,335)

(201,985)



 _______

 _______

_________

 _______

Cash used in investment activities


(992,039)

(421,939)

(1,054,048)

(606,554)

 






Financing activities






Shares issued (net of costs)

15

1,992,694

1,571,457

1,992,694

1,571,457

Loans received

13

225,000

-

225,000

-

Interest and similar income

3

37,947

1,622

-

-

Interest and similar charges

3

(62,841)

(360)

(54,341)

-



_______

_______

__________

 _______

Cash generated from financing activities


2,192,800

1,572,719

2,163,353

1,571,457







Increase in cash and cash equivalents


334,244

164,427

356,048

43,185







Opening cash and cash equivalents


348,102

183,675

139,579

96,394



 _______

 _______

________

 _______

Closing cash and cash equivalents


682,346

348,102

495,627

139,579



=====================

=====================

=====================

=====================

 

The Notes to the Financial Statements form an integral part of these financial statements.

 



 

Notes to the Financial Statements

For the year ended 31 December 2022

 

BAsis of preparation

 

Cornerstone FS plc 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 The Old Rectory, Addington, Buckingham, England, MK18 2JR, and its principal business address is 75 King William Street, London EC4N 7BE. The main activities are set out in the Strategic Report of the Company's annual report and accounts for the year ended 31 December 2022.

 

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 2021 and 31 December 2022, 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 STANDARDS AND INTERPRETATIONS

As of the date of approval of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:

 

·      IFRS 17 Insurance Contracts (effective for periods commencing 1 January 2023)

·      Amendments to IAS 1, presentation of financial statements on classification of liabilities (effective for periods commencing on or after 1 January 2023)

·      Amendments to IAS 8 - definition of accounting estimates (effective for periods commencing 1 January 2023)

 

The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group. The Group does not intend to apply any of these pronouncements early.

 

IMPACT OF NEW INTERNATIONAL REPORTING STANDARDS, AMENDMENTS AND INTERPRETATIONS

The following Standards and Interpretations have been considered and applied in these financial statements:

 

·      COVID-19-Related Rent Concessions beyond 30 June 2021 - Amendment to IFRS 16

·      Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)

·      Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)

 

There has been no material impact on the financial statements as a result of adopting these Standards and Interpretations.

 

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.

 

Details of subsidiary undertakings and % shareholding:

Cornerstone Payment Solutions Ltd       -               100% owned by the Company

Cornerstone - Middle East FZCO            -               100% owned by the Company

Avila House Limited                               -               100% owned by Cornerstone Payment Solutions Ltd

Capital Currencies Limited                     -               100% owned by the Company

Pangea FX Limited                                  -               100% owned by the Company

 

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

 

On 23 December 2022, the Company announced the agreement of the sale of Avila House Limited to Aspire Commerce Ltd. Avila House remained under the control of the Group until the sale completed on 26 April 2023 following receipt of regulatory approval from the Financial Conduct Authority ("FCA").

 

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 2022, the Group made an adjusted EBITDA loss (excluding non-cash share-based compensation, depreciation & amortisation costs and non-recurring transactions costs) of £869,319. At 31 December 2022 the Group balance sheet showed a net liabilities position of £89,901, including a negative profit and loss reserve of £10,924,791, and a cash balance of £682,346. Post year-end, the Group's balance sheet has strengthened with the conversion of a £225,000 loan note to equity on 6 February 2023 following receipt of permission from the FCA for a shareholder to increase their shareholding beyond 9.9% of the issued share capital of the Company. Further, the Group received proceeds of £300,000 on 26 April 2023 following the completion of the sale of Avila House Limited.

 

Although the Group has historically generated losses, the trading position of the Group has continued to improve since the year-end with a strong focus on cost control combined with strong revenue growth. As a result, the Group expects to begin generating a cash inflow before financing activities during 2023. 

 

The Directors have prepared cash flow forecasts covering a period to 31 December 2024. 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 which 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 (no charge in the first period of ownership)

 

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.

 

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 not been recognised in respect of the Group's tax losses carried forward.

 

Research and Development tax credits are not recognised as receivables until the claims have been submitted and agreed by HMRC.

 

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 15.

 

ALTERNATIVE PERFORMANCE MEASURES

 

The Group uses the alternative performance measure of adjusted EBITDA/(EBITDA loss). 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/(EBITDA loss) 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.

 

During the year ended 31 December 2022, the Group adopted adjusted EBITDA as an alternative performance measure having made reference to underlying profit/(loss) from operations in prior periods. The Group adopted the new alternative performance measure in order to more closely align with competitors, financial analyst coverage and the Group's own guidance.

 

ADJUSTED EBITDA/(EBITDA LOSS)

The Group uses adjusted EBITDA/(EBITDA loss), defined as profit/(loss) from operations, adding back share-based compensation, transaction costs associated with the Group's acquisition strategy and depreciation & amortisation charge.

 

The adjusted EBITDA loss is reconciled back to the loss from operations within the Group Statement of Comprehensive Income.


 

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 2022

Year ended 31 December 2021


£

£





 _______

 _______

Total revenue

4,821,996

2,301,172


 _______

 _______

 

 


Group

Group


Year ended 31 December 2022

Year ended 31 December 2021

2              LOSS FROM OPERATIONS

£

£




Loss from operations is stated after charging:



Share-based compensation

4,284,039

2,338,495

Transaction costs

99,365

402,515

Expensed software development costs

86,941

97,556

Depreciation of property, plant and equipment

14,622

4,293

Amortisation of intangible assets

386,541

148,094

Short-term (2018 IAS 17 operating) lease rentals

252,308

86,434


 _______

 _______

 

 

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

 


Year ended 31 December 2022

Year ended 31 December 2021


£

£

Audit Services



-   Statutory audit

40,000

25,000

Other Services



Due diligence services

-

18,000

The auditing of accounts of associates of the Company pursuant to legislation:



-   Audit of subsidiaries and its associates

49,450

30,250


-------------------------

-------------------------


89,450

73,250


=========================

=========================

 



 

3              INTEREST AND SIMILAR ITEMS

 


Year ended 31 December 2022

Year ended 31 December 2021


£

£

Total finance and other income



Bank interest receivable

37,947

1,622


=========================

=========================




Total finance costs



Unwinding of discount

108,416

-

Loan note interest

53,500

-

Other interest payable and charges

9,341

360


-------------------------

-------------------------


171,257

300


=========================

=========================

 

4              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 2022

Year ended 31 December 2021


Number

Number




Directors

7

8

Employees

27

14


 _______

 _______


34

22


 _______

 _______

 

 



Employment costs

Year ended 31 December 2022

Year ended 31 December 2021


£

£




Wages and salaries

1,977,588

1,309,251

Social security costs

251,010

182,414

Pension costs

49,200

38,307

Share-based compensation                    

4,155,094

2,195,782


 _______

 _______


6,432,892

3,725,754


 _______

 _______



 

               

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 Company's annual report and accounts for the year ended 31 December 2022.

 


Year ended 31 December 2022

Year ended 31 December 2021


£

£




Salaries and fees

794,712

680,553

Bonus

43,044

76,800

Share-based compensation (credit) / charge

(125,443)

311,469

Social security costs

123,024

84,022


 _______

 _______


835,337

1,152,844


 _______

 _______


Number

Number of Directors to whom retirement benefits are accruing under a defined contribution scheme

3

3

 


 _______

 _______





        

        


Year ended 31 December 2022

Year ended 31 December 2021

 


£

£

 

 

The remuneration in respect of the highest paid Director was:



 




 

Salaries and fees

140,000

180,000

 

Bonus

31,360

43,200

 

Share-based compensation charge

30,173

177,000

 

Pension and other benefits

7,046

9,000

 


 _______

 _______

 


208,579

409,200

 


 _______

 _______

 









 

During the year, 1,348,867 options were forfeited by Julian Wheatland, a former director, leading to a share-based compensation credit for the year ended 31 December 2022 in respect of Mr. Wheatland of £192,452 (year ended 31 December 2021: share-based compensation charge of £177,000).

During the year, no (2021: nil) Directors exercised any (2021: nil) share options.

 

5               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 £49,200 (2021: £38,307). At 31 December 2022 contributions of £59,054 remained outstanding and are included within other payables (2021: £25,864).

 



 

 

6               taxation

 

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

 


Group

Group


Year ended 31 December 2022

Year ended 31 December 2021


£

£


 _______

 _______

Current Tax:



Current tax credit

(158,188)

(70,764)

Deferred tax credit

(17,177)

-


 _______

 _______

Income tax credit

(175,365)

(70,764)


 _______

 _______





Group

Group


Year ended 31 December 2022

Year ended 31 December 2021


£

£

Loss before taxation

(5,787,197)

(4,174,533)


 _______

 _______

Loss multiplied by main rate of corporation tax in the UK of 19% (2021: 19%)

(1,099,567)

(793,161)

Effects of:



Surrender of tax losses for research & development tax credit refund

(158,188)

(70,764)

Expenses not deductible for tax purposes

29,261

66,649

Share-based payments

814,037

444,314

Other adjustments in period

65,825

(702)

Tax losses carried forward

190,444

282,900


 _______

 _______

Current tax credit

(158,188)

(70,764)


 _______

 _______

 

As at 31 December 2022, the Group had prepared but not yet submitted a Research and Development tax credits reclaim, the estimated net benefit of which is approximately £135,000 During the year ended 31 December 2022, the Group received a Research and Development tax credit refund of £158,188 (2021: £70,764) in respect of its reclaim for the year ended 31 December 2021.

 

As at 31 December 2022, the Group had tax losses carried forward of £5,013,429 (31 December 2021: £4,147,682). Deferred tax has not been recognised in respect of these tax losses. The standard rate of corporation tax applicable to the Group for the year ended 31 December 2022 was 19%. The UK government has announced, with effect from 1 April 2023, an increase in the corporation tax main rate from 19% to 25% for companies with profits over £250,000 and the introduction of a small profits rate of 19% applicable to companies with profits of not more than £50,000, with marginal relief available for profits up to £250,000.

 

DEFERRED TAX

 

The Group recognised the following movement in deferred tax liabilities (year ended 31 December 2021: £nil):

 


Balance as at 1 January 2022

Acquired in business combination

Recognised

to profit or loss

Non-current balance as at 31 December 2022


£

£

£

£






Intangibles

-

116,993

(17,177)

99,816


 _______

 _______

 _______

 _______













Based on the valuation of acquisition intangibles and enacted UK corporation tax rates, during the year ended 31 December 2022 the Group has acquired deferred tax liabilities of £80,382 in relation to its acquisition of Capital Currencies Limited and £36,611 in relation to its acquisition of Pangea FX Limited (note 9). The deferred tax will be released to the income statement as the underlying intangible assets are amortised or otherwise recognised via impairment in profit or loss.

 

7               LOSS PER SHARE

 

The loss per share of 17.26p (2021: 21.24p) is based upon the loss of £5,611,832 (2021: loss of £4,103,769) and the weighted average number of ordinary shares in issue for the year of 32,506,335 (2021: 19,317,407).

 

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.

 

8              GROUP INTANGIBLE ASSETS


Goodwill

Customer relationships

Internally developed software

Software costs

Other

Total


£

£

£

£

£

£

COST







At 1 January 2022

-

-

647,485

15,611

92,520

755,616

Additions

-

-

422,713

-

-

422,713

Acquired through business combinations

1,086,262

615,756

-

-

-

1,702,018


 _______

 _______

 _______

 _______

 _______

 _______

At 31 December 2022

1,086,262

615,756

1,070,198

15,611

92,520

2,880,347








AMORTISATION







At 1 January 2022

-

-

162,558

15,611

-

178,169

Charge for the period

-

90,408

296,133

-

-

386,541


 _______

 _______

 _______

 _______

 _______

 _______

At 31 December 2022

-

90,408

458,691

15,611

-

564,710








NET BOOK VALUE







At 31 December 2022

1,086,262

525,348

611,507

-

92,520

2,315,637


 _______

 _______

 _______

 _______

 _______

 _______








At 31 December 2021

-

-

484,927

-

92,520

577,447


 _______

 _______

 _______

 _______

 _______

 _______

 

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

 

Company INTANGIBLE ASSETS


Internally developed software

Total


£

£

COST



At 1 January 2022

647,485

647,485

Additions

422,713

422,713


 _______

 _______

At 31 December 2022

1,070,198

1,070,198




AMORTISATION



At 1 January 2022

162,558

162,558

Charge for the period

296,133

296,133


 _______

 _______

At 31 December 2022

458,691

458,691




NET BOOK VALUE



At 31 December 2022

611,507

611,507


 _______

 _______

At 31 December 2021

484,927

484,927


 _______

 _______




9              BUSINESS COMBINATIONS

 

CAPITAL CURRENCIES LIMITED

The Group acquired 100% of the share capital of Capital Currencies Limited ("Capital Currencies") on 1 February 2022. Capital Currencies was a well-established foreign exchange broker located in Tunbridge Wells, specialising in the provision of currency exchange and international payments. Capital Currencies is authorised and regulated by the FCA as an authorised payment institution permitted to provide payment services.

The rationale for the acquisition was to expand Cornerstone's presence in its core target market and, in line with the Group's stated strategy, increase revenue generated by direct clients. By bringing Capital Currencies' clients onto Cornerstone's technology platform, the Group benefits from the rationalisation of payments to banking partners across the combined organisation as well as recognising other synergistic savings, such as in compliance costs and overheads.

The recognised value of assets acquired and liabilities assumed and the fair value of consideration at the date of acquisition were as follows:


£



Intangibles

423,064

Tangible fixed assets

14,584

Trade and other receivables

27,842

Cash acquired

58,351

Trade and other payables

(57,939)

Deferred tax provision

(80,382)



Net assets on acquisition

385,520

Goodwill on acquisition

1,043,319



Total consideration

1,428,839



Initial consideration - cash

586,335

Deferred contingent consideration

842,504



Total consideration

1,428,839

 

 


 

Goodwill comprises the value of expected synergies arising from the acquisition and additional value attributed by the acquirer in relation to the future expected cash flows, which is not separately recognised.

In determining the value of acquired customer relationships, forecast cash flows were discounted using a weighted average cost of capital ("WACC") of 13%. Based on the valuation of the intangibles and enacted UK corporation tax rates a deferred tax provision of £80,382 was recognised as a result of the identified intangible asset.

Deferred consideration related to the acquisition of Capital Currencies was agreed at acquisition as payable as follows:

·      On the first anniversary of completion, two times Capital Currencies' revenue for the 12-month period leading up to 31 January 2023, less the initial cash consideration already paid.

·      On the second anniversary of completion, three times Capital Currencies' revenue for the 12-month period leading up to 31 January 2024, less cumulative amounts already paid.

Deferred consideration has been assessed using historical information and management forecasts to estimate amounts payable which have been discounted at a WACC of 13%. 

As disclosed in note 20, on 18 March 2023, the Company announced it had agreed a variation of the above deferred consideration payments that postponed the above measurement and settlement periods by one calendar year in each instance and gave the Company the option to settle the deferred consideration in cash.  The discounted consideration shown above does not reflect the impact of this extension.

PANGEA FX LIMITED

The Group acquired 100% of the share capital of Pangea FX Limited ("Pangea") on 1 September 2022. Pangea FX is a specialist FX and treasury consultancy with a strategic focus on helping its clients control the impact currency volatility has on their business, primarily through providing a bespoke service to corporate clients in the UK.

The rationale for the acquisition was to accelerate the Group's growth through the addition of two experienced senior sales executives - the principals of Pangea - who are responsible for leading the Group's sales function in the UK and Dubai. The Group has also benefited from the migration of Pangea's existing client base to the Cornerstone platform as well as certain operational synergies such as from closing the Pangea operating base and relocating the employees to the Group's main office.

The recognised value of assets acquired and liabilities assumed and the fair value of consideration at the date of acquisition were as follows:


£



Intangibles

192,962

Tangible fixed assets

976

Trade and other receivables

30,737

Cash acquired

856

Trade and other payables

(12,568)

Deferred tax provision

(36,611)



Net assets on acquisition

176,081

Goodwill on acquisition

42,944



Total consideration

219,025



Initial consideration - cash

25,000

Payment to discharge Directors' loans

21,447

Loan notes (undiscounted)

172,578



Total consideration

219,025

 

 


 

Goodwill comprises the value of expected synergies arising from the acquisition and additional value attributed by the acquirer in relation to the future expected cash flows, which is not separately recognised.

In determining the value of the acquired customer relationships that comprise the intangible assets, forecast cash flows were discounted using a WACC of 13%. Based on the valuation of the intangibles and enacted UK corporation tax rates a deferred tax provision of £36,611 was recognised as a result of the identified intangible asset.

The payment of the loan note principal of £172,578 is contingent on achieving future revenue targets over a period of two years from the acquisition date. Based on current and forecast performance it has been assumed that the contingent consideration will be paid in full. A 6% coupon rate is payable on the loan note principal, quarterly in arears. As the loan note debt instrument is expected to be held to maturity, with the only related cash flows being the principal and interest, the loan note principal is shown without any time-value discount.               

 

 

 


 

 

 



 

10            GROUP property, plant and equipment


Computer equipment

Leasehold improvements

Total

 


£

£

£

 

COST




 

At 1 January 2022

33,046

-

33,046

 

Additions

17,198

-

17,198

 

Acquired through business combinations

976

14,583

15,559

 


 _______

 _______

 _______

 

At 31 December 2022

51,220

14,583

65,803

 





 

AMORTISATION




 

At 1 January 2022

11,504

-

11,504

 

Charge for the period

8,275

6,347

14,622

 


 _______

 _______

 _______

 

At 31 December 2022

19,779

6,347

26,126

 





 

NET BOOK VALUE




 

At 31 December 2022

31,441

8,236

39,677

 


 _______

 _______

 _______

 





 

At 31 December 2021

21,542

-

21,542

 


 _______

 _______

 _______

 

























11            investments


 

Investments in

Subsidiaries

£

Cost or Valuation

At 1 January 2022

Additions

 

 

6,349,758

1,667,864

 

 

8,017,622

 


Net Book Value

At 31 December 2022

 

8,017,622

 

At 31 December 2021

6,349,758




 

The Company's investment as at 31 December 2022 represents its investments in its direct subsidiaries of £6,367,773 in Cornerstone Payment Solutions Ltd (2021: £6,347,773), £1,428,839 in Capital Currencies (2021: £nil), £219,025 in Pangea FX Limited (2021: £nil) and £1,985 in Cornerstone - Middle East FZCO (2021: £1,985).

 

During the year ended 31 December 2022, the Company invested a further £20,000 in support of the increased regulatory capital requirements for Cornerstone Payment Solutions Ltd.

 

Further, as disclosed in note 9 investments in subsidiaries acquired in the year amounted to £1,428,839 in respect of Capital Currencies, which was acquired on 1 February 2022 (year-ended 31 December 2021: £nil) and £219,025 in respect of Pangea FX Limited (2021: £nil).

 

 



 

 

Shares in subsidiary and associate undertakings are stated at cost. As at 31 December 2022, Cornerstone FS plc owned the following principal subsidiaries, which are included in the consolidated accounts:

Subsidiary


Principal Activity

Country of Incorporation


Registered Office

Percentage of Ownership

Cornerstone Payment Solutions Ltd

Foreign Exchange
and Payment Services

Northern Ireland

1 Elmfield Avenue,
Warrenpoint, Newry,
Co. Down, BT34 3HQ

100 per cent.

Cornerstone - Middle East FZCO

Consultancy

United Arab Emirates

 

Dubai Silicon Oasis, DDP, Building A2, Dubai, United Arab Emirates

 

100 per cent.

Avila House Limited

E-money and Payment Services

England and Wales

The Old Rectory,
Addington,
Buckinghamshire,
MK18 2JR

100 per cent.

Capital Currencies Limited

Authorised Payment Institution

England and Wales

 

The Old Rectory, Addington,
Buckinghamshire,
MK18 2JR

100 per cent.

Pangea FX Limited

Foreign Exchange White Label

England and
Wales

 

The Old Rectory, Addington,
Buckinghamshire,
MK18 2JR

100 per cent.

 

 

CS Commercial Limited and Cornerstone EBT Trustee Limited, which were dormant and 100% owned by the Company, were both dissolved during the year.

 

 

 



 

12            current trade and other receivables

 


Group

31 December 2022

Group

31 December 2021

Company

31 December 2022

Company

31 December 2022


£

£

£

£






Trade receivables

221,669

-

-

-

Prepayments and accrued income

131,010

90,360

39,465

31,118

Derivative financial assets at fair value

635,473

322,710

-

-

Other receivables

53,062

42,525

-

10,000

Amounts due from Group undertakings

-

-

363,359

170,229

Taxes and social security

297,896

37,649

297,896

37,649


 _______

 _______

 _______

 _______


1,339,110

493,244

700,720

248,996


 _______

 _______

 _______

 _______

 

For the year ended 31 December 2022 £nil was recorded as a bad debt expense (31 December 2021: £nil).

 

As at 31 December 2022, the Group had a contingent asset in respect of Research and Development tax credits for which a reclaim had been prepared, but not yet submitted. The estimated net benefit of the claim is approximately £135,000(2021: £158,000) and has not been included in current receivables due to its contingent nature.

 

13             loan notes                                                                                                                                                                     

 


Group

Group

Company

Company


31 December 2022

31 December 2021

31 December 2022

31

December 2021


£

£

£

£

 

CURRENT





Convertible loan notes

225,000

-

225,000

-


 _______

 _______

 _______

 _______

 

NON-CURRENT





Loan notes

2,172,578

-

2,172,578

-


 _______

 _______

 _______

 _______

 

The current convertible loan note of £225,000 was issued pursuant to the Company's fundraising on 5 August 2022 to a placee pending approval from the FCA to allow the placee to increase their shareholding to over 10%. The FCA granted such approval and the loan note was converted into 3,461,538 new ordinary shares of one penny each at an exercise price of 6.5 pence per share on 6 February 2023 (see note 20).

 

The non-current non-convertible loan notes comprise £2,000,000 issued to Robert O'Brien (the "Robert O'Brien loan note") and £172,578 of deferred consideration in relation to the acquisition of Pangea FX Limited (see note 9). Both loan notes have a 6% coupon rate payable quarterly in arrears. The Robert O'Brien loan note was issued pursuant to a settlement of his share-incentivisation arrangement with the Company and was due for repayment on 31 July 2025. Post year end, the repayment date was varied to 31 July 2026. The Pangea FX Limited loan note is payable on 31 August 2024 contingent upon achieving future revenue targets over a period of two years from the acquisition date. Based on current and forecast performance it has been assumed that the loan notes will be paid in full.

 



 

14             current trade and other payables

 


Group

Group

Company

Company


31 December 2022

31 December 2021

31 December 2022

31

December 2021


£

£

£

£

 

Trade payables

362,035

346,255

162,128

212,561

Derivative financial liabilities at fair value

563,676

290,292

-

-

Other tax and social security

515,750

60,349

50,640

10,923

Other payables and accruals

527,816

484,814

179,818

244,033

Amount due to Group undertakings

-

-

1,425,555

435,659


 _______

 _______

 _______

 _______


1,969,277

1,181,710

1,818,141

903,176


 _______

 _______

 _______

 _______

 

15            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 2022

20,277,582

202,776

Issue of new shares of £0.01

27,758,617

277,586


 _______

 _______

Ordinary shares of £0.01 each at 31 December 2022

48,036,199

480,362


 _______

 _______




At 31 December 2022 share subscriptions of £nil remained unpaid (31 December 2021: £nil).

 

The following changes in the share capital of the Company have taken place in year ended 31 December 2022:

 

·      On 27 January 2022, 3,283,034 ordinary shares were issued at a price of £0.265 in connection with a placing and subscription

·      On 8 April 2022, 123,000 ordinary shares were issued at a price of £0.265 in consideration for investor relations services

·      On 5 August 2022, 13,230,765 ordinary shares were issued at a price of £0.065 in connection with a placing

·      On 5 August 2022, 6,386,818 ordinary shares were issued at a price of £0.100 being the equity element of a settlement with Robert O'Brien and his team related to their share-based incentivisation agreement

·      On 24 August 2022, 360,000 ordinary shares were issued at a price of £0.10025 in part settlement of the share-based remuneration for the non-executive board and company secretary in respect of the year ended 31 December 2021

·      On 7 October 2022, 4,375,000 ordinary shares were issued at a price of £0.008 upon conversion of a loan note

 

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 Cornerstone Payment Solutions Ltd.

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 2022

31 December 2021

 

Number

Weighted average exercise price

Number

Weighted average exercise price



£


£






Outstanding at the beginning of the year

1,599,480

0.50

1,599,480

0.50

Granted during the year

1,893,454

0.23

-

-

Forfeited/waived during the year

(1,786,603)

(0.46)

-

-


 _______

 _______

 _______

 _______

Total outstanding

1,706,331

0.24

1,599,480

0.50


 _______

 _______

 _______

 _______






Total exercisable

184,535

0.50

533,160

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






Exercise price (pence)

36.2

61.0

26.5

10.0

Share price at grant date (pence)

16.5

16.5

16.5

9.0






Risk free rate

2.1%

2.1%

2.1%

2.7%

Expected volatility

90.1%

90.1%

90.1%

129.5%

Contractual life (years)

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 (2021: five years).

No options were exercised during the current year (2021: nil).

The Group's share-based compensation charge for the year ended 31 December 2022 of £4,284,039 (2021: £2,338,495) consists of £128,943 in relation to warrants granted in Cornerstone (2021: £142,712), a net credit of £222,577 in respect of the Cornerstone options (2021: charge of £306,833), £36,836 in respect of equity settled share-based payments related to the non-executive Board member's service agreements (2021: £81,370) and £4,340,837 of other share-based compensation (2021: £1,807,580).

 



 

Other share-based compensation

 

On 27 September 2021 the Company announced the appointment of Robert O'Brien as General Manager APAC and Middle East. As part of his remuneration package over the first two years he and his team were entitled to receive share-based incentivisation based on a multiple of revenue generation and contribution to profit.

 

Upon initial recognition of the share-based incentivisation, the forecasted performance of Robert O'Brien and his team over the two-year period, resulted in an expected share-based compensation charge over the two-year period of £6,148,417 based on the share price at the grant date on 1 August 2021 of 29.5 pence per share.

 

On 4 August 2022, the Company announced the variation of the share incentive arrangement between the Company and Robert O'Brien and his team. The terms of the original incentivisation arrangements were varied such that 1) Mr. O'Brien was issued a loan note with a value of £2 million and carrying a coupon rate of 6%, repayable by the Company on 31 July 2025 (which was subsequently varied to be repayable on 31 July 2026); 2) Mr. O'Brien was issued and allotted 4,286,818 new ordinary shares at a price of 10p per share; 3) the three senior members of Mr. O'Brien's team were allotted and issued 2,100,000 new ordinary shares at a price of 10p per share; and 4) the issue of a further 5,113,182 new ordinary shares to Mr. O'Brien at a price of 10p per share following receipt from the FCA of permission for Mr. O'Brien to increase his holding to more than 9.9% of the issued share capital of the Company. As a result of the agreed settlement, the Company recognised an accelerated charge for the year ended 31 December 2022 such that the full value of the total charge estimated upon initial recognition of £6,148,417 has been cumulatively expensed (£4,340,837 for the year ended 31 December 2022 and £1,807,580 for the year ended 31 December 2021).

 

A transfer from the share-based payment reserve to the profit and loss reserve of £5,186,984 was recognised for the year ended 31 December 2022 reflecting the issue of the £2 million loan note, allotment of 6,386,818 new ordinary shares at a price of 10p per share to Robert O'Brien and his team (£3,153,950) and the issue of 329,492 shares at a price of 10.025 pence per share on 28 August 2022 in respect of equity-settled remuneration under the non-executive Board member's service agreements.

 

No warrants were granted in the year.

 

16            Related party transactions

 

Details of key management compensation are included in note 4. Key management are considered to be the Directors of the Group. 

 

Transactions with subsidiaries

During the year, the Company and Cornerstone Payment Solutions Ltd entered into various transactions with each other including software development charges, licenses 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 £1,404,408 (2021: £435,659) to Cornerstone Payment Solutions Ltd.

 

During the year, the Company also provided working capital support to Avila House Limited, Cornerstone - Middle East FZCO and Capital Currencies Limited. 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, Avila House Limited owed the Company £259,617 (2021: £150,041), Cornerstone - Middle East FZCO owed the Company £60,500 (2021: £20,188) and Capital Currencies Limited owed the Company £43,242 (2021: £nil).

 

Other related parties

All of the amounts below were in respect of the year ended 31 December 2022.

 

During the year ended 31 December 2022, the Group generated revenue of £1,617,467 under a referral agreement with Atlantic Partners Asia ("APA"), a significant shareholder in the Company (year ended 31 December 2021: £481,330). As at 31 December 2022, APA owed the Group £221,669 (31 December 2021: £nil).

 

As at 31 December 2022 an amount of £8,750 was due from Terry Everson, a director of Cornerstone Payment Solutions Ltd and a shareholder in Cornerstone (31 December 2021: £8,750).

 

On 28 September 2022 William Newton, a director and significant shareholder of the Company, assigned his un-drawn convertible loan note of £350,000 to APA.

 

During the year ended 31 December 2022, William Newton repaid a loan made by the Group to him of £10,000 (balance outstanding as at 31 December 2021: £10,000).

 

During the year ended 31 December 2022, the Group incurred charges of £45,000 (2021: £nil) under a computer services agreement with JF Technology (UK) Ltd of whom Stephen Flynn (a former Director of the Company and a significant shareholder) is a director and a majority shareholder. As at 31 December 2022 £18,000 was payable to JF Technology (UK) Ltd (balance outstanding as at 31 December 2021: £nil).

 

The transactions with Robert O'Brien are disclosed in notes 13, 15 and 20.

 

17             FINANCIAL INSTRUMENTS

 

                FINANCIAL ASSETS

 


Group

Group

Company

Company

 

31 December 2022

31 December 2021

31 December 2022

31

December 2021


£

£

£

£

DERIVATIVE FINANCIAL ASSETS





Foreign currency forward contracts with customers

504,106

359,077

-

-

Foreign currency forward contracts with institutional counterparty

131,367

33

-

-


 _______

 _______

 _______

 _______


635,473

359,110

-

-

Cash and cash equivalents

682,346

348,102

495,627

139,579

Trade receivables

221,669

-

-

-

Other receivables

184,072

132,885

402,824

211,347


 _______

 _______

 _______

 _______


1,723,560

840,097

       898,451

350,926


 _______

 _______

 _______

 _______

 

 

 

 







 

FINANCIAL LIABILITIES

 


Group

Group

Company

Company

 

31 December 2022

31 December 2021

31 December 2022

31

December 2021


£

£

£

£

DERIVATIVE FINANCIAL LIABILITIES





Foreign currency forward contracts with customers

165,156

290,292

-

-

Foreign currency forward contracts with institutional counterparty

398,520

-

-

-


 _______

 _______

 _______

 _______


563,676

290,292

-

-

Trade payables

362,035

346,255

162,128

212,561

Other payables

527,816

484,814

1,605,373

679,692

Loan notes

2,397,578

-

2,397,578

-


 _______

 _______

 _______

 _______


3,851,105

1,121,361

4,165,079

       892,253


 _______

 _______

 _______

 _______


 







 

All financial assets and liabilities have contractual maturity of less than one year with the exception of loan notes of £2,172,578 (2021: £nil).

 

 

 



 

Derivative financial assets and liabilities

 

                Derivative financial assets not designated as hedging instruments

 


31 December 2022

31 December 2021

 

Fair Value

Notional Principal

Fair Value

Notional Principal


£

£

£

£

Foreign currency forward contracts with customers

504,106

9,042,956

359,077

12,508,939

Foreign currency forward contracts with institutional counterparty

131,367

3,377,597

33

12,544


 _______

 _______

 _______

 _______


635,473

12,420,553

359,110

12,521,483


 _______

 _______

 _______

 _______


 







 

                Derivative financial liabilities not designated as hedging instruments

 


31 December 2022

31 December 2021

 

Fair Value

Notional Principal

Fair Value

Notional Principal


£

£

£

£

Foreign currency forward contracts with customers

165,156

3,337,362

290,292

9,874,438

Foreign currency forward contracts with institutional counterparty

398,520

8,715,534

-

-


 _______

 _______

 _______

 _______


563,676

12,052,896

290,292

9,874,438


 _______

 _______

 _______

 _______


 







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 gain on financial assets at fair value through profit or loss for year ended 31 December 2022 was £3,300 (2021: net loss of £29,661).

 

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 note 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.

 

18            Financial commitments

 

The Group is not considered to have any operating lease commitments. The offices utilised by the Group are serviced offices, which have a short notice period and therefore it has not been considered necessary to disclose these as an operating lease commitment.

 

19            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.

 

Cornerstone Payment Solutions Ltd, 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 Limited, 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.

 

Cornerstone Payment Solutions Ltd and Capital Currencies Limited complied with the above requirements for all periods during the year ended 31 December 2022.

 

20            EVENTS AFTER THE REPORTING DATE

 

Variation of Incentivisation and Settlement Arrangements

 

On 8 March 2023, the Company announced that it had agreed to vary certain incentivisation and settlement arrangements with Robert O'Brien, General Manager APAC and Middle East, and Craig Strong, Director of Capital Currencies.

 

The repayment date of Mr. O'Brien's £2 million loan note has been extended by one year such that it is now repayable by the Company on 31 July 2026.

 

The Company has agreed with Mr. Strong to vary the terms of the original earn-out consideration in respect of the Capital Currencies acquisition 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.

 

Other events after the reporting date

 

On 13 January 2023, the Company issued and allotted 806,182 new ordinary shares at a price of 6.501 pence per share to a Non-Executive Director, the Company Secretary and four former Non-executive Directors as part of their annual remuneration set out in the Company's admission document dated 26 March 2021.

 

On 13 January 2023, the Company granted options over ordinary shares of 1 penny each in the capital of the Company. James Hickman was granted 1,000,000 options at an exercise price of 10 pence per share and 1,000,000 options at an exercise price of 20 pence per share. Judy Happe was granted 550,000 options and Jordanna Curtis 200,000 both at an exercise price of 10 pence per share. In addition, the Company granted a further 299,180 options to other staff members.  All options are intended to qualify as Enterprise Management Incentive options pursuant to the Income Tax (Earnings and Pensions) Act 2003.

 

On 6 February 2023, the Company issued and allotted 8,574,720 new ordinary shares following receipt of permission from the FCA for Robert O'Brien and Mark Horrocks to increase their respective shareholdings beyond 9.9% of the issued share capital of the Company. The shares were issued at a price of 10 pence and 6.5 pence per share respectively. The shares issued to Mark Horrocks were for the conversion of a £225,000 loan note issued to him as part of the Company's fundraising announced on 5 August 2022.

 

On 26 April 2023, the Group completed the sale of Avila House Ltd to Aspire Commerce Ltd and received £300,000 in cash in consideration following the receipt of regulatory approval from the FCA.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
END
 
 
FR ZZGMKRKLGFZM
Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account. AJ Bell logo

Related Charts

Cornerstone Fs PLC (CSFS)

+0.07p (+0.17%)
delayed 07:51AM