TIDMEQLS
RNS Number : 7888Z
Equals Group PLC
23 September 2020
23 September 2020
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS DEFINED IN
ARTICLE 7 OF THE MARKET ABUSE REGULATION NO. 596/2014 ("MAR")
Equals Group plc
("Equals" or the "Group")
Interim Results
'Resilience against Covid-19 headwinds; revenues increased and
expenditure decreased in H1-2020'
Equals (AIM:EQLS) , the fast-growing B2B focused e-banking and
international payments group, announces its interim results for the
six months ended 30 June 2020 (the 'period' or 'H1-2020').
H1-2020 Financial Highlights
GBPmillions H1-2020 H1-2019 H2-2019
(restated**)
Underlying transaction values
- B2B 1,197 878 1,210
- B2C 363 378 421
-------- ------------- --------
GBP000's 1,560 1,256 1,631
Revenue
- B2B 9,021 6,852 10,442
- B2C 4,751 6,724 6,927
-------- ------------- --------
13,772 13,576 17,369
Gross profit 8,738 9,303 11,264
Adjusted EBITDA* 672 1,906 3,670
(Loss)/Profit after taxation (3,169) 445 (5,816)
-- Group revenue up to GBP13.8 million
-- B2B revenue increased year-on-year by 32% as the Group continues
its focus on SMEs
-- B2B now represents 66% of total revenue up from 50% in H1-2019
and 60% in H2-2019
-- Gross profit held firm, lower by only 6% despite disruption
caused by Covid-19
-- Gross expenditure lower by 26% on H2-2019 through cost reduction
exercises
-- Adjusted EBITDA(*) of GBP0.7 million
-- 46% reduction in loss after tax compared to prior six months,
resulting from lower capitalisation and fewer exceptionals
-- House funds GBP7.6 million as at 18 September 2020 (as reported
on 29 June 2020: GBP7.7 million)
Post period end Highlights
-- International Payments business resilient to-date in Q3-2020
at GBP3.8 million (GBP68k per day) compared to Q2 -2020: GBP3.5
million - (GBP58k per day)
-- Banking Services remain flat, but better than expected
-- Travel focused product lines continue to be impacted by Covid-19
travel restrictions and lack of consumer confidence
-- Corporate Expenses platform recovering to pre-Covid-19 levels
-- Revenue per day GBP114k in Q3-2020 to date versus GBP93k per
day in Q2-2020
Commenting on the Interim Results, Ian Strafford-Taylor, CEO of
Equals Group plc, said:
"We believe it is testament to the quality of the business and
the resilience of our B2B focused model that we are reporting both
an increase in revenue and decrease in underlying expenditure
against the headwinds posed by a combination of Covid-19 and the
changes forced upon the business as a result of the demise of
Wirecard.
"Our revenues continue to grow against this unprecedented
backdrop and we have not yet completed our exercise of cost savings
which will benefit the second half of the year. With a stable cash
position, we remain positive about our future prospects and
although we are conscious of the potential for further disruption
as a result of Covid-19, and indeed Brexit, we remain confident
about the outlook for the Group."
Analyst meeting
A conference call for analysts hosted by Ian Strafford-Taylor
(CEO) and Richard Cooper (CFO) will be held at 09.30am today, 23
September 2020. A copy of the Interim Results presentation is
available at the Group's website: http://www.equalsplc.com .
For retail investors, a n audio webcast of the conference call
with analysts will be available after 12pm today:
https://webcasting.buchanan.uk.com/broadcast/5f4e5332b14d87262643ddd2
Notes
* Adjusted EBITDA
Adjusted EBITDA is defined as earnings before: depreciation,
amortisation, impairment charges and share option charges.
Following shareholder observations at the time of the 2019 annual
results, adjusted EBITDA no longer includes R&D tax credits,
instead these are accounted for in the taxation line.
** Accounting clarification and restatement
Totals may not sum due to rounding. Percentages are calculating
on underlying figures before rounding. A detailed review of the
accounting policies and recognitions have led to some minor
re-profiling between the first and second halves of the year ending
31 December 2019. Where costs cannot be accurately attributed to
each segment, they have been allocated on the basis of revenue.
- Ends -
For more information, please contact:
Equals Group plc
Ian Strafford-Taylor, CEO Tel: +44 (0) 20 7778
Richard Cooper, CFO 9308
www.equalsplc.com
Cenkos Securities plc (Nominated Advisor
/ Joint Broker)
Max Hartley / Callum Davidson Tel: +44 (0) 20 7397
Nick Searle (Sales) 8900
Canaccord Genuity (Joint Broker)
Bobbie Hilliam / David Tyrell Tel: +44 (0) 20 7523
Alex Aylen (Sales) 8150
Buchanan (Financial Communications)
Henry Harrison-Topham / Steph Watson Tel: +44 (0) 20 7466
/ Toto Berger 5000
equals@buchanan.uk.com www.buchanan.uk.com
Notes to Editors:
Equals is a leading challenger brand in payments that
disintermediates the incumbent banks with a superior user
experience and low-cost operating model. The Group enables its
business and personal customers to make easy, low-cost payments
both domestically and in a broad range of currencies across a range
of products all via one integrated system.
Equals provides money movement services to both business and
personal customers through five inter-connected channels -
International Payments, Corporate Expenses platform, Current
Accounts and Travel Money (comprising currency cards and physical
currency). International Payments channel supports wire transfer
foreign exchange transactions direct to bank accounts. For
corporates, Equals has a market-leading business-expenses solution
based around its corporate platform and prepaid card which yields
significant cost savings via tighter control on expenses before
they are incurred coupled with eliminating inefficient processes.
Equals also offers business and retail bank accounts with all the
functionality offered by banks, namely faster payments, BACs,
direct debits, international payments and a debit card. The Travel
Money offerings (retail currency card and physical currency)
represent cost-effective and secure methods for travelers to spend
abroad.
Chief Executive Officer's Report
The Group entered 2020 with a clear aim to capitalise on the
developments in its product and brand undertaken over the previous
two years with a focus on B2B customers. The performance in Q1-2020
underlined the success of this strategy and the trajectory of the
Group at that time. However, in late March, Covid-19 rapidly
changed our priorities and the swift actions taken to ensure
everyone could work remotely bore immediate fruit. Existing plans
to 'right-size' the business were accelerated during this time and
should be fully completed by the end of 2020 without harming the
Group's future prospects and opportunities.
During lockdown, the Group availed itself of the Government's
Covid-19 assistance with up to 73 staff being placed on furlough.
The remaining staff, contractors and all directors cooperated by
taking a 20% reduction in salaries for the three months of Q2-2020.
Planned capital expenditure was also significantly lower at GBP0.2
million (including a replacement telephone system) from the GBP2.3
million incurred in FY-2019. This, combined with other tight
financial controls, has resulted in the Group's financial position
remaining robust, and as such, at the time of writing, the Group
had GBP7.6 million of free cash, and its monthly operational
cash-burn rate is getting close to zero.
In addition to the Covid-19 headwinds, towards the end of the
half-year the industry was confronted with the demise of Wirecard
AG, which caused issues for Wirecard's UK operating subsidiary and
one of the Group's counterparties. The Group already had
contingency plans to deal with an issuer problem of this nature
enabling it to tackle both the immediate effects and to accelerate
migration away from Wirecard. Moving away from Wirecard represents
a significant logistical and operational challenge, at the end of
which the Group will be much better placed in terms of reduced unit
cost and improved revenues from its card programmes. The successful
and rapid implementation of these contingency plans and the agility
of the Group in terms of both its systems and its people bodes well
for the future.
Other operational improvements made so far this year were:
-- Implementation of core payment partnership with Citi Group,
supplementing existing arrangements with Barclays and RBS and
providing additional functionality and improved settlement
capabilities paving the way to straight-through-processing
(STP);
-- Integration of a new compliance system to lower onboarding
friction, particularly for B2B customers;
-- Migration of customer-facing phone system to a superior functionality,
lower-cost and more robust cloud-based solution improving efficiency
of outbound sales and customer services functions;
-- Significant progress in the migration of cards from Wirecard
to new multi-currency B2B Equals Spend cards and B2C FairFX
cards, on target for full transition by end of October 2020;
and
-- Rebuild and rebrand of the B2C FairFX website and app to support
a new multi-currency card offering.
Financial Overview
A summary of the Group's underlying transaction values is shown
below:
Underlying transaction values
GBPmillions International Cards even Total Banking TOTAL
Payments FX Services
B2B
H1-2020 818 93 - 911 286 1,197
H1-2019 479 123 - 602 276 878
% Change on year +71% -25% - +51% +3% +36%
H2-2019 735 147 - 882 327 1,2109
B2C
H1-2020 237 29 19 285 78 363
H1-2019 158 79 59 296 82 378
% change on year +50% -63% -68% +4% -5% -4%
H2-2019 190 82 64 336 84 421
TOTALS
H1-2020 1,055 122 19 1,196 364 1,560
H1-2019 637 202 59 898 358 1,256
% change on year +65% -40% -68% +33% +1% +24%
H2-2019 925 229 64 1,218 411 1,631
Overall transaction values were up 24% on H1-2019 but down 4% on
H2-2019. However, in International Payments values were 65% higher
than H1-2019 and 14% higher than H2-2019 illustrating that the
focus on this division is paying off.
Revenues
International Cards Cash Total FX Banking TOTAL
Payments Services
H1-2020 8,233 2,642 393 11,268 2,504 13,772
H1-2019 4,818 5,074 1,148 11,040 2,536 13,576
% change on
year +71% -48% -66% +1% -1% +1%
H2-2019 7,111 6,220 1,241 14,572 2,797 17,369
H1-2020 - B2B 6,242 1,487 10 7,739 1,282 9,021
B2B% of total 76% 56% - 69% 51% 66%
-------------- ------ ------ --------- ---------- -------
H1-2019 - B2B 3,202 2,384 - 5,586 1,266 6,852
B2B% of total 66% 47% - 51% 50% 50%
-------------- ------ ------ --------- ---------- -------
H2-2019 - B2B 5,799 3,199 - 8,998 1,445 10,443
B2B% of total 81% 51% - 62% 52% 60%
-------------- ------ ------ --------- ---------- -------
The financial performance held up well in H1-2020. Group
revenues were GBP13.8 million (H1-2019: GBP13.6 million) with a
strong performance from International Payments in particular which
generated GBP8.2 million (H1-2019: GBP4.8 million). Banking
Services was consistent at GBP2.5 million. The Equals Spend B2B
expenses platform was hit by the pandemic with revenues for the
first half 38% lower than H1-2019 but recovering strongly in June
and beyond. Travel money products (cards and cash) were directly
impacted by the Covid-19 pandemic and revenues were 57% down on
H1-2019, again showing recovery towards the end of the period.
Gross profits at GBP8.7 million were slightly below H1-2019
(GBP9.3 million) reflecting the impact of Covid-19 on the cards
business where costs fell less than revenues due to fixed cost
elements. The completion of the Wirecard migration will improve
this position going forward and will also represent a lower-cost
operating model for the card offerings.
The combination of marketing expenditure and gross operational
expenditure was GBP11.5 million, 26% lower than H2-2019 (GBP15.6
million) and 7% lower than H1-2019 (GBP12.3 million), reflecting
the cost savings initiated in late 2019 and accelerated during the
period. The Group continued with its restructuring, taking its
headcount down from a high of 337 employees to 280. Further
reductions are planned before the end of FY-2020 as more
engineering deployments are completed in the next few months and
the Wirecard migration, to which the Group has allocated temporary
resource to enable a seamless experience for its customers, is
completed.
Without withholding supplier payments, the Group's free cash
position as reported on 29 June 2020 was GBP7.7 million. I am
pleased to report that as of Friday, 18 September 2020, the free
cash position was GBP7.6 million. The Group has a deferred PAYE
liability of GBP1.8 million and a settlement agreement has been
reached with HMRC over a period to 31 August 2021. The Group has
filed R&D tax credit claims for GBP2.3 million which will be
used, when received, to accelerate the payment of deferred PAYE.
This is a significantly more robust cash position than management
had originally forecasted when Covid-19 first struck and it enables
the Group to look forward with confidence.
Current Developments
The stated strategy of the Group - to focus on the B2B customer
base by providing simple, integrated payments solutions augmented
by market expertise to help SME's manage their multi-currency
exposure and domestic payment needs - is proving successful.
The Group has assembled a unique product set that combines its
FX heritage, systems and access via licences and permissions with
our excellent settlements capabilities and card platforms thereby
allowing SMEs access to sophisticated, bank-grade treasury
functions to execute quick, cheap, complex and secure spot and
forward foreign exchange contracts. The key for the Group going
forwards is to further refine the Sales and Marketing strategy to
grow customer numbers whilst continuing to improve the product
offering.
Accordingly, the 'Go-To-Market' ('GTM') approach for SMEs (B2B)
and consumers (B2C) has been sharpened with the Equals Money brand
to be used for B2B and the newly refreshed FairFX brand for B2C.
Both brands now operate on the same underlying payments
infrastructure increasing operational efficiency and enabling the
Group to leverage the combination of its historic customer base and
the acquired assets of CityForex, Hermex, Casco and CardOneBanking
into a clear holistic proposition for B2B customers whilst
simultaneously maximising the B2C proposition under the FairFX
brand.
The Sales and Marketing approach has been radically refined,
with focus on SMEs with currency needs and utilising data-science
to improve the complete funnel of customer acquisition from lead
sourcing/qualification through to sign up and on-boarding. Removing
friction in all these areas is a clear goal. In addition, utilising
the Equals Spend B2B platform as a route in to SMEs rather than
solely targeting foreign exchange represents a clear advantage to
the Group in the sales cycle. To underpin this process, CRM is
vital and therefore the Group is undertaking a CRM upgrade project,
a new supplier has been identified and the data architecture work
has commenced. Completion of this project is scheduled for early
2021 but benefits to customer acquisition will accrue throughout
the implementation phase during 2020 and the Group anticipates
significant improvements for FY-2021 as a result of this
investment. Upon completion, the CRM platform will yield an
enhanced and operational leads-management solution plus a fully
integrated customer management tool for account managers/dealers
that will enable better cross-selling, stronger conversion as well
as more sales time spent selling.
In International Payments, the upgraded self-service tool for
B2B, namely Equals FX, including full forward-contract
functionality, will allow Equals dealers to focus on larger client
opportunities and further develop business with existing customers,
as well as enabling the sales team to win more business from
competitors via the increased functionality to offer the B2B
customer base.
The Group has also undertaken a core account infrastructure
project whereby the Banking Services platform becomes the key
system underpinning all Group products. This platform will allow
24/7 instant deposits in GBP direct into unique accounts per
customer and the ability to hold up to 35 currencies through the
new relationship with Citi and the implementation, already
completed, of GB Multicurrency IBANs. This will enable the Group to
serve new B2B customer segments, notably marketplace/international
e-commerce sellers and e-invoicing platforms, as well as better
serve the current Spend and International Payments customers.
The migration away from Wirecard as an Issuer, combined with the
extension of self-issuing for Equals' own Banking Services
proposition, allows the Group to offer both pre-paid and debit card
solutions. This ability to offer a choice between pre-paid and
debit will dramatically enhance the current Equals Spend
proposition enabling the platform to diversify away from pure
expense management into the multinational purchasing card use case.
It will also facilitate a step-change in CFO/Card Controller ease
of use, therefore allowing the Group to gain market share in this
poorly served segment.
The strength of the underlying infrastructure at Equals now
allows the Group to provide its platforms to other financial
services companies, a B2B2B proposition, via APIs. In line with
this, the Equals Money website will be re-launched in October 2020.
This will provide, as its first two modules, the Equals Connect
platform for other FX dealing companies wishing to operate on the
Group's infrastructure, and Equals Faster Payments under which the
Group leverages its in-house direct Faster Payments gateway to
third parties. The Group has a strong pipeline of demand for both
platforms and further roll-outs of underlying capabilities are
planned in the future. This strategy allows the Equals Group to
access market volumes in numerous ways, both directly and via
third-parties, which in turn increases the ability of the Group to
gain volume-based discounts and access.
Future plans and opportunities
-- B2B, and specifically SMEs, remains the priority for the Group
as it represents 66% of the US$230 billion revenue opportunity
of the global International Payments market. The focus being
on the provision of world-class technology combined with expert
personal service to serve customers with International and
Domestic Payments needs. External research forecasts continuing
growth in these markers with SME Accounts Payable, and Marketplace
pay-outs to SMEs expected to grow at 10% CAGR over the next
five years.
-- Development of non-GB IBAN facilities. Whilst the Group already
has GB-prefixed multi-currency IBANs, the ability to receive
foreign currency into non-GB prefixed IBANs is important to
better serve the SME marketplace customers who pay high fees
to marketplaces (such as Amazon) for automated currency transfers,
and compete with TransferWise and others targeting this space.
This project should be completed by the end of Q1-2021.
-- Highly targeted marketing of International Payments. Utilising
the Group's full range of products, the dealer service for
B2B customers providing market expertise and best execution,
Equals self-serve proposition covering spot and forward transactions
and the Group's Equals Connect platform catering to the B2B2B
market segment.
-- The delivery of a more sophisticated, easy to use suite of
currency risk-management tools. With the management of cash
flow remaining a top priority for SMEs, exacerbated by Covid-19
and post-Brexit challenges, tools for supply chain management
and Currency Risk Management, augmented by reliable efficient
and rapid payment systems will be paramount.
-- Further improvements to the B2B Equals Spend expenses platform.
Additional functionality to be added to widen the use case
from pure expense-management including Debit card capability
to draw on central funds leading to Equals to enter the 'purchasing
card' marketplace. In addition, increased integration of the
platform to accounting software providers.
-- B2C Currency Cards - Once the Wirecard migration is completed
by end-October 2020, the Group will have re-platformed to a
single multi-currency card and is able to operate this programme
at a significantly lower cost going forward, leveraging the
B2B payments infrastructure. The B2C target segment will remain
ABC1s with high levels of travel / foreign property and investments
and the Group will seek to leverage mutually beneficial partnerships
to access more specific target segments. The addition of 'Linked
Cards' enables meaningful new use cases for both domestic and
international use with a particular appeal for families with
children, nannies, home-help or elderly relatives. Discovery
work is underway to finalise the GTM for these segments.
Board composition
As the Group continues to evolve and plan for its next phase of
growth, there have been a number of changes to the Board, starting
with the recruitment of CFO, Richard Cooper in October 2019, who
has substantial experience in public markets.
Alan Hughes, an experienced banker, joined the Board in February
2020 and then took up the Chairmanship at the end of June with John
Pearson stepping down but remaining as a Non-Executive Director.
Ajay Chowdury stepped down from the Board on 29 July 2020 after
serving since 2014. On 15 September 2020, the Group announced that
Sian Herbert, a former partner with PwC, would be joining the Board
as a Non-Executive Director and Chair of the Audit & Risk
Committee with Bob Head who has served since July 2016 stepping
down on 1 October 2020. I am immensely grateful to Ajay and Bob for
their contribution and wise counsel over the years and pleased to
welcome Sian to our Board at the start of October 2020.
Employees
As with many companies, it has been an immensely challenging
time for the Group's employees. The whole business moved to remote
working from late March, and regrettably up to 73 employees were
placed on furlough, and as the business reduced its cost base, the
remaining employees and all directors took a 20% salary reduction
for a whole quarter. The Group's headcount has dropped from a peak
of 337 in January 2020 to 280 currently, with further reductions
coming before year-end as the Wirecard migration is completed. I am
very grateful for the incredible efforts that the Group's employees
have made as they have risen to the many challenges we have faced
in 2020 and pleased that we have an extremely motivated and united
team as we move forwards.
Outlook
Revenues have held up well during the financial year to date
with the inevitable Covid-19 related fall in April and May 2020.
Revenue per working day was GBP126k in Q1-2020, GBP82k in April and
May, GBP112k in June, and in the 62 working days from 1 July until
Friday 18 September, average revenue per day was GBP114k. As
referred to earlier, the Group's cash position was GBP7.6 million
compared to GBP7.7 million as reported on 29 June 2020. The Group
has some outstanding redundancy/leaver costs to cover in Q4-2020,
but operationally, management expects that the Group will be cash
break-even in Q4-2020 and then move into positive territory in
Q1-2021.
We believe it is testament to the quality of the business and
the resilience of our B2B focused model that we are reporting both
an increase in revenue and decrease in underlying expenditure
against the headwinds posed by a combination of Covid-19 and the
changes forced upon the business as a result of the demise of
Wirecard. Our revenues continue to grow against this unprecedented
backdrop and we have not yet completed our cost reductions which
will benefit the second half of the year. With a stable cash
position, we remain positive about our future prospects and
although we are conscious of the potential for further disruption
as a result of Covid-19, and indeed Brexit, we remain confident
about the outlook for the Group.
Ian Strafford-Taylor
Chief Executive Officer
23 September 2020
Chief Financial Officer's Report
The Group has chosen to present extracts from the primary
statements in an alternative format and explain the major movements
to the prior period or year along with issues of accounting impact
and judgement. The periods most relevant to the primary statements
have been presented, full period disclosures are made in the
Consolidated Interim Financial Statements. The report is in three
sections:
A - Income and Expenditure Account
B - Balance Sheet
C - Cash Flow
Transactions with business customers are reported as 'B2B' and
transactions with retail customers reported as 'B2C'.
Totals may not sum due to rounding. Percentages are calculating
on underlying figures before rounding. A detailed review of the
accounting policies and recognitions have led to some minor
re-profiling between the first and second halves of the year ending
31 December 2019. Where costs cannot be accurately attributed to
each segment, they have been allocated on the basis of revenue.
R&D tax credits are included in the charge to taxation, and
no longer to Adjusted EBITDA(*)
A: Income and Expenditure account and its notes
Table 1
H1-2020 H1-2019 H2-2019 FY-2019
In GBP000's
Revenue 13,772 13,576 17,369 30,945
Less: Variable costs (5,034) (4,273) (6,105) (10,378)
--------- --------- --------- ---------
Gross profit 8,738 9,303 11,264 20,567
--------- --------- --------- ---------
Less: Marketing (799) (1,421) (2,669) (4,090)
Add back: Rebranding
separately reported
items - 165 1,888 2,053
--------- --------- --------- ---------
(799) (1,256) (781) (2,037)
--------- --------- --------- ---------
Contribution 7,939 8,047 10,483 18,530
--------- --------- --------- ---------
Staff costs (8,366) (8,758) (9,739) (18,497)
Add: Furlough credit 324 - - -
--------- --------- --------- ---------
Net staff costs after
furlough credit (8,042) (8,758) (9,739) (18,497)
Less: Covid-19 and Wirecard 343 - - -
separately reported
items
Less: Other exceptional
items - - 895 895
Less: Capitalised internal
software 2,241 4,170 3,631 7,801
--------- --------- --------- ---------
Net staff costs (5,458) (4,588) (5,213) (9,801)
--------- --------- --------- ---------
Property and office
related costs (997) (1,060) (1,250) (2,310)
Less: Exceptional items - - 151 151
Less: Capitalised internal
software 45 - 204 204
Less: IFRS16 adjustment 515 580 572 1,152
--------- --------- --------- ---------
Net property and office
related costs (437) (480) (323) (803)
--------- --------- --------- ---------
IT & telephone (759) (396) (784) (1,180)
Less: capitalised 210 - 302 302
--------- --------- --------- ---------
Net IT & telephone (549) (396) (482) (878)
--------- --------- --------- ---------
Professional fees (743) (353) (930) (1,283)
Less: Exceptional items 102 - 324 324
--------- --------- --------- ---------
Net professional fees (641) (353) (606) (959)
--------- --------- --------- ---------
Travel (157) (200) (251) (451)
Other costs (25) (124) 62 (62)
Net other costs (182) (324) (189) (513)
--------- --------- --------- ---------
Memo: Costs (including
marketing) gross of
separately reported
items (11,522) (12,312) (15,561) (27,873)
Total net costs (including
marketing) (8,066) (7,397) (7,594) (14,991)
Adjusted EBITDA 672 1,906 3,670 5,576
--------- --------- --------- ---------
Covid-19 related staff (343) - - -
costs
Other Covid-19 related (102) - - -
costs
Wirecard stock provision (530) - - -
Acquisition costs - (23) (455) (478)
Management exceptional
items - (165) (3,258) (3,423)
------ ------ -------- --------
Sub-total (975) (188) (3,713) (3,901)
------ ------ -------- --------
Share option charges (195) (9) (114) (123)
EBITDA (498) 1,709 (157) 1,552
------ ------ -------- --------
(*) Adjusted EBITDA is defined as Earnings before: depreciation,
amortisation, impairment charges, share option charges, and
separately reported items.
Revenue
Revenue was GBP13.8 million (H1-2019: GBP13.6 million) for the
six months with International Payments contributing 60% totalling
GBP8.2 million (H1-2019: 35%, GBP4.8 million). The impact of
Covid-19 was keenly felt in both the Card businesses and the Cash
business, which, between them fell by 52% to GBP3.0 million
(H1-2019: GBP6.2 million), which was a better outcome than
management had expected.
Table 2 - Revenue
GBP000's
International Cards Cash Total FX Banking TOTAL
Payments Services
B2B
H1-2020 6,242 1,487 10 7,739 1,282 9,021
H1-2019 3,202 2,384 - 5,586 1,266 6,852
% Change on
year +95% -38% +100% +39% +1% +32%
H2-2019 5,799 3,199 - 8,998 1,444 10,442
B2C
H1-2020 1,991 1,155 383 3,529 1,222 4,751
H1-2019 1,616 2,690 1,148 5,454 1,270 6,724
% change on
year +23% -57% -67% -36% -4% -30%
H2-2019 1,312 3,021 1,241 5,574 1,353 6,927
TOTALS
H1-2020 8,233 2,642 393 11,268 2,504 13,772
H1-2019 4,818 5,074 1,148 11,040 2,536 13,576
% change on
year +71% -48% -66% +2% -1% +1%
H2-2019 7,111 6,220 1,241 14,572 2,797 17,369
B2B revenue rose by 32% to GBP9.0 million (H1-2019: GBP6.9
million) which more than offset the impact of Covid-19 on the Cards
and Cash businesses. Despite the challenging conditions and
historically low interest rates, revenue from Banking Services fell
by only 1% against the same period last year.
Gross profit
Gross profit margin held up well in International Payments and
Banking Services, but due to the credit in H1-2019 with zero cost
of sale card rebate income, gross profit on cards was significantly
reduced and this lowered the overall gross profit margin on cards
from 71% to 49%. The Group expects the sustainable gross profit
margin to be around 62%.
Table 3 - Gross profit
GBP000's
International Cards Cash Banking TOTAL
Payments Services
H1-2020
Gross profit 5,333 1,301 243 1,861 8,738
GP margin % 65% 49% 62% 74% 63%
H1-2019
Gross profit 3,081 3,639 743 1,840 9,303
GP margin % 64% 71% 65% 73% 69%
H2-2019
Gross profit 5,310 3,263 603 2,087 11,263
GP margin % 75% 52% 49% 75% 65%
Contribution
Contribution at GBP7.9 million was fractionally lower than in
H1-2019 (GBP8.0 million) on similar levels of revenue, reflecting
more targeted marketing expenditure.
Gross costs
Table 4 - Costs, gross of separately reported items
H1-2020 H1-2019 H2-2019 FY-2019
In GBP000's
Marketing 799 1,421 2,669 4,090
Staff 8,042 8,758 9,739 18,497
Property 997 1,060 1,250 2,310
IT & telephone 759 396 784 1,180
Professional fees 743 353 930 1,283
Other costs 182 324 189 513
-------- -------- -------- --------
11,522 12,312 15,561 27,873
-------- -------- -------- --------
Gross costs (i.e. including capital expenditure and exceptional
items) at GBP11.5 million were 7% lower than H1-2019 (GBP12.3
million) and 26% lower than H2-2019. Costs continue to be reduced
mainly through controlled headcount reductions as development
projects get delivered and efficiencies are delivered resulting in
some de-skilling.
Headcount
Headcount numbers have fallen from 337 in January 2020 to 296 in
August 2020. The Group anticipates headcount to drop below 280 by
year end. The Group availed itself of the Government's furlough
scheme with up to 72 employees being placed on furlough during
lockdown, but this is now down to 30. A number of employees have
been temporarily re-deployed to assist with the migration of
consumer and business cards from Wirecard following its demise in
late June 2020.
Professional fees
One consequence of the Covid-19 pandemic was that the 2019 audit
suffered delays as remote working was not entirely conducive to the
verification process and there was a significant cost over-run.
GBP102k relating to this has been expensed in 2020 but shown as a
separately reported item.
Property costs
The Group has property commitments in London for both offices
and retail outlets. Two retail outlets have been shuttered but the
Group retains the lease commitments and will consider providing for
these at 31 December 2020.
Amounts capitalised
GBP2.2 million of staff costs has been recognised as internally
developed software, representing 27% of the staff costs, down from
GBP4.2 million in H1-2019 (48%). A further GBP0.3 million of
intangible assets were acquired in the period.
Separately reported items
There is an accounting standards distinction between those items
of a one-off and material nature ('separately reported items') and
other items of materiality which management regard as exceptional
items. In the period under review, there are no 'exceptional items'
only 'separately reported items' as shown below:
Table 5: Separately reported items
In GBP000's H1-2020 H1-2019 H2-2019 FY-2019
Separately reported items
Staff restructuring costs associated 343 - - -
with Covid-19
Professional fees associated with 102 - -
Covid-19
Provision against Wirecard card 530 - - -
stock and pre-paid issuance costs
Acquisition costs - 23 455 478
-------- -------- -------- --------
975 23 455 478
-------- -------- -------- --------
Exceptional items are identified
by management
Rebranding - 165 2,559 2,724
Corporate reorganisation - - 579 579
Litigation and similar - - 120 120
-------- -------- -------- --------
- 165 3,258 3,423
-------- -------- -------- --------
975 188 3,713 3,901
-------- -------- -------- --------
With the demise of Wirecard AG and its UK operating subsidiary,
the Group has made a provision of GBP530k against card-stock and
prepaid issuance costs (normally amortised over three years). The
Group incurred GBP343k of staff restructuring costs in the period,
augmented by additional professional fees brought on by the
Covid-19 pandemic. Additional costs are anticipated to be incurred
in the H2-2020.
Adjusted EBITDA
Adjusted EBITDA now excludes R&D tax credits, GBP0.7 million
has been accrued within taxation, based on development spend in
H1-2020. The result for the period was a profit of GBP672k against
a pre-Covid-19 result in H1-2019 of GBP1.9 million. The principal
movements were attributable to a lower level of capitalisation of
internally developed software.
Table 6a -Reconciliation of adjusted EBITDA to loss after tax
H1-2020
GBP000's Operating Finance Tax Loss after
loss charges tax
2020
Adjusted EBITDA 672 - - 672
Separately reported
items (975) - - (975)
Other items:
IFRS 16 depreciation (465) - - (465)
IFRS 16 finance
costs - (110) - (110)
Other depreciation (203) - - (203)
Amortisation (2,058) - - (2,058)
Share option charges (195) - - (195)
FX and similar (13) - - (13)
---------- --------- ------ -----------
Result before
tax (3,237) (110) - (3,347)
Deferred tax - - (557) (557)
Other tax credit - - - -
R&D tax credit - - 734 734
---------- --------- ------ -----------
(3,237) (110) 177 (3,170)
---------- --------- ------ -----------
Table 6b -Reconciliation of adjusted EBITDA to profit after tax
H1-2019
GBP000's Operating Finance Tax Profit
profit charges after
tax
2019
Adjusted EBITDA 1,906 - - 1,906
Separately reported
items (23) (23)
Management exceptional
items (165) - - (165)
Other items:
IFRS 16 depreciation (431) - - (431)
IFRS 16 finance
costs - (148) - (148)
Other depreciation (184) - - (184)
Amortisation (1,117) - - (1,117)
Share option charges (9) - - (9)
FX and similar (7) - - (7)
---------- --------- ------ --------
Result before
taxation (30) (148) - (178)
Deferred taxation - - (536) (536)
Other tax credit - - 10 10
R&D tax credit - - 1,149 1,149
---------- --------- ------ --------
(30) (148) 623 445
---------- --------- ------ --------
Impairment review
Due to the uncertain outcome of Covid-19 on the asset values
carried at 30 June 2020, the Group has not been able to conclude at
this time whether any impairment will be recognised. A full review
will be carried out for the full year. It should be noted that a
GBPnil value was ascribed to the retail bureaux assets of City
Forex when it was acquired in 2018 and thus there would be nothing
to impair for these bureaux.
Depreciation and amortisation
Depreciation for the period remains relatively consistent at
GBP668k (H1-2019: GBP615k). Amortisation has increased to GBP2,058k
(H1-2019: GBP1,117k) as a result of projects being completed and
the assets available for use.
Operating result
The Group made an operating loss before taxation of GBP3.2
million for the period, compared to a loss of GBP7.7 million for
the whole of 2019.
Tax
The Group has recognised a net tax credit of GBP177k (H1-2019:
GBP623k) of which GBP734k (H1-2019: GBP1,149k) relates to an
R&D tax credit for the six months to 30 June 2020. The
reduction in R&D tax credit arises principally as a result of
less project expenditure incurred which is subsequently eligible
for R&D relief.
At the time of writing, the Group has submitted R&D claims
to HMRC for the 2019 financial year of GBP2.3 million.
The Group availed itself of postponing four months of PAYE
totalling GBP1.8 million but has now reached instalment agreements
with HMRC over a period of one year, to be accelerated on receipt
of the R&D claim above.
A bridge showing the changes between the earnings after tax from
H1-2019 through H2-2019 and into H1-2020 is shown below:
In GBP000's H1-2019 H2-2019 H1-2019
To to to H1-2020
H2-2019 H1-2020 combined
Profit/(loss) after taxation in
prior period of six months 445 (5,816) 445
--------- --------- ------------
(increase)/decrease in expenditure (3,614) 4,035 421
Decrease in the credit for internally
developed software (335) (1,549) (1,884)
(Increase)/decrease in expenditure
through the P&L account (3,949) 2,486 (1,463)
Increase/(decrease) in gross profits 1,961 (2,525) (564)
(Increase)/decrease in depreciation (119) 65 (54)
(Increase) in amortisation (596) (345) (941)
(increase)/decrease in impairments (4,859) 4,859 -
(increase) in share option charges (104) (82) (186)
Decrease/(increase) in finance
costs 63 (25) 38
Decrease/(increase) in deferred
tax charge 160 (191) (31)
Increase/(decrease) in R&D tax
credits 1,182 (1,596) (414)
--------- --------- ------------
(increase)/decrease in losses
in the period (6,261) 2,647 (3,614)
--------- --------- ------------
(Loss) after taxation in the period (5,816) (3,169) (3,169)
--------- --------- ------------
B: Balance sheet
At 30 June, the Group had Net Current Assets of GBP10.4 million
(30 June 2019: GBP7.9 million) and Cash at bank of GBP7.9 million
up on 30 June 2019 (GBP4.9 million) but lower than at 31 December
(GBP11.3 million).
Table 7 30 June 2020 31 December 2019
Unaudited Audited
In GBP000's On Off On Off
Balance Balance Balance Balance
sheet sheet sheet sheet
(memo (memo
only) only)
Fixed Assets 35,700 - 35,297 -
--------- --------- --------- ---------
Cash resources
Cash at bank and in hand
- free funds 7,556 - 10,913 -
Cash at bank and in hand
- regulatory deposits 352 67,795 352 52,441
7,908 67,795 11,265 52,441
Regulatory deposits with
liquidity providers 2,829 - 3,717 -
--------- --------- --------- ---------
Total Cash resources 10,737 67,795 14,982 52,441
--------- --------- --------- ---------
Other current assets and
liabilities
Card stock and other inventories 199 - 264 -
Trade and other debtors 2,226 - 3,374 -
Accrued income 1,914 - 1,723 -
Net derivative financial
assets 324 - 372 -
Accrued R&D credit 3,064 - 2,535 -
Trade payables, other
payables and accruals (4,375) - (5,665) -
Retention and deferred
consideration (703) - (1,211) -
Customer balances (908) (67,795) (1,071) (52,441)
--------- --------- --------- ---------
1,741 (67,795) 321 (52,441)
--------- --------- --------- ---------
Cash resources, less other
current assets and liabilities 8,996 - 14,661 -
--------- --------- --------- ---------
IFRS 16 Leases net balance (292) - (294) -
Deferred tax, net balance (1,758) - (788) -
Shareholders' funds 46,128 (67,795) 49,517 (52,441)
--------- --------- --------- ---------
Fixed assets
Additions of GBP120k include investment in a superior telephone
system which has enabled staff to work from home during the
Covid-19 outbreak.
Internally capitalised software
The Group continues its investment in product development and
has capitalised a further GBP2.5 million of which GBP2.2m was staff
costs.
Other balance sheet items
The Group has accrued a further GBP0.7 million for R&D
credits. GBP2.3 million remains outstanding but filed with HMRC, in
relation to previous periods and GBP0.2 million was received in
January 2020 in relation to previous periods.
Non-Controlling Interest
Of the GBP3.1 million loss for the period, GBP83k relates to the
Non-Controlling Interest of the Equals Connect business acquired in
2019.
C. Cash flow
The table below aggregates the movements across Bank and
Liquidity providers:
Table 8
GBP000's H1-2020 H1-2020 FY-2019 FY-2019
Restated Restated
Adjusted EBITDA (table 1) 672 5,576
Less: IFRS 16 Leases impact (514) (1,152)
Less: separately reported items
cash based (445) (3,423)
(Less) / add: Working capital
absorption and similar (785) 2,675
-------- ---------
(1,744) (1,900)
Less: Internally capitalised
software (2,496) (8,307)
Less: Purchase of other intangibles (50) (806)
Less: Purchase of property,
plant and equipment (119) (1,452)
-------- ---------
(2,665) (10,565)
Add: Cash raised from equity
issues - 15,749
Add: Cash raised from share
options - 130
-------- ---------
15,879
Less: Cash consideration for
acquisitions net of cash acquired - (3,325)
Less: Movement in deferred (508) -
consideration
NET CASH FLOWS (4,245) 5,665
Balance at 1 January 14,982 9,317
Balance at 30 June 10,737 14,982
------------ ------------
Comprising:
Cash at bank 7,292 10,451
Cash in hand in bureaux 264 462
Regulatory deposits 352 352
------------ ------------
7,908 11,265
Balances with liquidity providers 2,829 3,717
10,737 14,982
------------ ------------
Shares in issue 178,602,918 178,602,918
Amount per share 6.0 pence 8.4 pence
------------ ------------
The Group is fully focused on getting to operational cash
break-even by Q1-2021 and is on target to do so, subject of course,
to trading reaching Management's expectations and there not being a
further Covid-19 revenue impact.
Richard Cooper
Chief Financial Officer
23 September 2020
INTERIM CONSOLIDATED statement OF COMPREHENSIVE INCOME
FOR THE six month periodED 30 june 2020
Year end
31
Period end Period end December
30 June 2020 30 June 2019 2019
Unaudited Unaudited Audited
Restated*
Note GBP GBP GBP
Gross value of currency transactions
sold 1,196,192,070 898,749,690 2,117,459,669
--------------
Revenue on currency transactions 11,267,995 11,039,289 25,611,521
Banking revenue 2,504,295 2,536,905 5,333,203
-------------- -------------- --------------
Revenue 2 13,772,290 13,576,194 30,944,724
Direct costs (5,033,687) (4,273,329) (10,378,265)
-------------- -------------- --------------
Gross profit 8,738,603 9,302,865 20,566,459
Administrative expenses (8,941,822) (8,192,451) (20,123,517)
Amortisation charge (2,057,680) (1,117,424) (2,830,587)
Impairment charge - - (4,858,898)
Separately reported items 4 (975,309) (22,966) (478,476)
-------------- -------------- --------------
Total operating expenses (11,974,811) (9,332,841) (28,291,478)
Operating loss (3,236,208) (29,976) (7,725,019)
Finance costs (110,106) (148,247) (233,564)
-------------- -------------- --------------
Loss before tax (3,346,314) (178,223) (7,958,583)
Tax credit 5 177,150 622,797 2,586,885
-------------- -------------- --------------
(Loss) / profit and total
comprehensive (expense) /
income for the period / year (3,169,164) 444,574 (5,371,698)
============== ============== ==============
(Loss) / profit is attributable
to:
Owners of Equals Group Plc (3,086,079) 444,574 (5,342,074)
Non-controlling interest (83,085) - (29,624)
-------------- -------------- --------------
(3,169,164) 444,574 (5,371,698)
============== ============== ==============
(Loss) / Earnings per share
Basic (1.73) 0.28 (3.20)
Diluted (1.69) 0.27 (3.12)
============== ============== ==============
INTERIM CONSOLIDATED statement OF FINANCIAL POSITION
FOR THE six month periodED 30 june 2020
31
30 June 30 June December
2020 2019 2019
Unaudited Unaudited Audited
Restated*
GBP GBP GBP
ASSETS
Non-current assets
Property, plant and equipment 1,886,701 1,705,336 1,972,818
Right of use assets 6,486,755 6,619,677 6,948,876
Intangible assets and goodwill 33,812,812 30,817,014 33,324,137
Deferred tax assets 2,095,604 2,679,747 2,438,859
44,281,872 41,821,774 44,684,690
------------- ------------ -------------
Current assets
Inventories 198,891 285,569 263,971
Trade and other receivables 11,699,538 11,638,788 11,347,749
Derivative financial assets 2,475,857 2,600,695 4,560,780
Cash and cash equivalents 7,908,876 4,848,870 11,265,266
------------- ------------ -------------
22,283,162 19,373,922 27,437,766
------------- ------------ -------------
TOTAL ASSETS 66,565,034 61,195,696 72,122,456
============= ============ =============
EQUITY AND LIABILITIES
Equity attributable to equity
holders
Share capital 1,786,029 1,643,176 1,786,029
Share premium 53,003,077 38,397,151 53,003,077
Share based payment reserve 1,126,261 1,757,519 1,345,234
Merger reserve 8,395,521 8,395,521 8,395,521
Contingent consideration reserve 207,100 207,100 207,100
Translation reserve (297) - -
Retained deficit (18,424,960) (9,545,789) (15,338,881)
------------- ------------ -------------
Equity attributable to owners
of Equals Group Plc 46,092,731 40,854,678 49,398,080
Non-controlling interest 35,741 - 118,826
------------- ------------ -------------
46,128,472 40,854,678 49,516,906
------------- ------------ -------------
Non-current liabilities
Lease liabilities 6,120,063 6,673,019 6,431,578
Deferred tax liabilities 3,854,135 2,221,037 3,226,586
------------- ------------ -------------
9,974,198 8,894,056 9,658,164
------------- ------------ -------------
Current liabilities
Trade and other payables 7,652,284 8,636,747 7,947,364
Lease liabilities 659,107 209,180 811,628
Derivative financial liabilities 2,150,973 2,601,035 4,188,394
------------- ------------ -------------
10,462,364 11,446,962 12,947,386
------------- ------------ -------------
TOTAL EQUITY AND LIABILITIES 66,565,034 61,195,696 72,122,456
============= ============ =============
INTERIM CONSOLIDATEd STATEMENT OF changes in equity
For the SIX MONTH period ended 30 june 2020
Group Total
attributable
Share Retained Contingent to owners
Share Share based (deficit) Merger consideration Translation of Equals Non-controlling
capital premium payment / earnings reserve reserve Reserve Group Plc interest Total
Restated* Restated* Restated* Restated*
GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
At 1 January
2019 1,553,682 35,858,770 1,748,105 (9,832,880) 8,395,521 543,172 - 38,266,370 - 38,266,370
Profit for the
period and
total
comprehensive
income - - - 444,574 - - - 444,574 - 444,574
Shares issued
in the period 89,494 2,538,381 - (157,483) - (336,072) - 2,134,320 - 2,134,320
Share based
payment charge - - 9,414 - - - - 9,414 - 9,414
--------- ---------- --------- ------------ --------- ------------- ----------- ------------ --------------- -------------
At 30 June 2019
Restated* 1,643,176 38,397,151 1,757,519 (9,545,789) 8,395,521 207,100 - 40,854,678 40,854,678
Acquisition
of entity with
non-controlling
interest - - - - - - - - 148,450 148,450
Loss for the
period and
total
comprehensive
loss - - - (5,786,648) - - - (5,786,648) (29,624) (5,816,272)
Shares issued
in the period 142,853 14,605,926 - (6,444) - - - 14,742,335 - 14,742,335
Share based
payment charge - - 113,195 - - - - 113,195 - 113,195
Movement in
deferred tax
on share-based
payment charge - - (525,480) - - - - (525,480) - (525,480)
At 31 December
2019 1,786,029 53,003,077 1,345,234 (15,338,881) 8,395,521 207,100 - 49,398,080 118,826 49,516,906
INTERIM CONSOLIDATEd STATEMENT OF changes in equity
For the SIX MONTH period ended 30 june 2020
Group Total
attributable
Share Retained Contingent to owners
Share Share based (deficit) Merger consideration Translation of Equals Non-controlling
capital premium payment / earnings reserve reserve Reserve Group Plc interest Total
Restated* Restated* Restated* Restated*
GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP
At 1 January
2020 1,786,029 53,003,077 1,345,234 (15,338,881) 8,395,521 207,100 - 49,398,080 118,826 49,516,906
Loss for the
period and
total
comprehensive
loss - - - (3,086,079) - - - (3,086,079) (83,085) (3,169,164)
Translation
of foreign
subsidiary - - - - - (297) (297) - (297)
Share based
payment
charge - - 194,934 - - - - 194,934 - 194,934
Movement in
deferred tax
on
share-based
payment
charge - - (413,907) - - - - (413,907) - (413,907)
--------- ---------- --------- ------------ --------- ------------- ----------- ------------ --------------- -----------
At 30 June
2020 1,786,029 53,003,077 1,126,261 (18,424,960) 8,395,521 207,100 (297) 46,092,731 35,741 46,128,472
========= ========== ========= ============ ========= ============= =========== ============ =============== ===========
INTERIM Consolidated statement of cash flows
FOR THE SIX MONTH PERIODED 30 JUNE 2020
30 June 30 June 31 December
2020 2019 2019
Unaudited Unaudited Audited
Restated*
GBP GBP GBP
Operating Activities
(Loss) / profit for the period
/ year (3,169,164) 444,574 (5,371,698)
Adjustments for:
Interest on finance lease 110,106 (148,247) 233,564
Depreciation 667,866 614,663 1,347,872
Amortisation 2,057,680 1,117,424 2,830,587
Impairment - - 4,858,898
Foreign exchange differences
on translation of foreign subsidiary (298) - -
Share based payment charge 194,934 9,414 122,609
Decrease in deferred tax asset
on share-based payment (413,907) - (525,480)
Increase in trade and other
receivables (351,789) (4,488,038) (4,203,756)
Decrease / (increase) in derivative
financial assets 2,084,923 (1,418,803) (3,378,888)
Decrease in deferred tax asset 343,255 215,896 456,784
(Decrease) / increase in trade
and other payables (295,080) 1,957,615 1,443,563
Increase in deferred tax liabilities 627,549 320,430 1,325,978
(Decrease) / increase in derivative
financial liabilities (2,037,421) 2,022,079 3,609,438
Decrease in inventories 65,080 1,144 22,742
------------ ------------ ----------------
Net cash (used in) / from operating
activities (116,266) 648,151 2,772,213
Cash flows from investing activities
Acquisition of property, plant
and equipment (119,629) (946,826) (1,460,870)
Acquisition of intangibles (2,546,354) (4,826,565) (11,679,597)
Deferred consideration on acquisition
of subsidiary - (336,072) -
Acquisition of subsidiary,
net of cash acquired - - (2,226,153)
Net cash used in investing
activities (2,665,983) (6,109,463) (15,366,620)
Cash flows from financing activities
Principal elements of lease
payments (464,035) (20,578) (643,786)
Interest paid on finance lease (110,106) - (233,564)
Proceeds from issuance of ordinary
shares - 2,476,836 17,748,353
Costs directly attributable
to share issuance - (6,444) (871,698)
Net cash (used in) / from financing
activities (574,141) 2,449,814 15,999,305
Net (decrease) / increase in
cash and cash equivalents (3,356,390) (3,011,498) 3,404,898
Cash and cash equivalents at
the beginning of the period
/ year 11,265,266 7,860,368 7,860,368
------------ ------------ ----------------
Cash and cash equivalents at
end of the period / year 7,908,876 4,848,870 11,265,266
============ ============ ================
CONSOLIDATED NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIODED 30 JUNE 2020
1. Basis of preparation
The principal accounting policies applied in the preparation of
the Group and Interim Consolidated financial statements are set out
below. These policies have been consistently applied to all the
years presented, unless otherwise stated. The financial statements
have been prepared on a historical cost basis with the exception of
derivative financial instruments which are measured at fair value
through profit or loss.
These financial statements are prepared in accordance with
International Financial Reporting Standards, International
Accounting Standards and Interpretations (collectively IFRSs)
issued by the International Accounting Standards Board (IASB) as
adopted by the European Union ("adopted IFRSs") and AIM
Regulations. The financial statements are presented in sterling,
the Company and Group's presentational currency.
The unaudited consolidated Interim financial statements have
been prepared in accordance with the AIM rules and consistently
with the basis of accounting policies set out in the accounts of
the Group for the year ended 31 December 2019. The information set
out herein is abbreviated and does not constitute statutory
accounts within the meaning of Section 434 of the Companies Act
2006. These interim consolidated financial statements do not
include all disclosures which would be required in a complete set
of financial statements and should be read in conjunction with the
2019 Annual Report. The Group has not applied IAS 34 "Interim
Financial Reporting" (which is not mandatory for UK Groups) in the
preparation of this interim report.
The Company is a limited liability company incorporated and
domiciled in England and Wales and whose shares are quoted on AIM,
a market operated by The London Stock Exchange. The Group financial
statements are presented in pounds Sterling, which is the Group's
presentational currency.
a) Critical judgements and estimates
IFRS requires management to make certain accounting estimates
and to exercise judgement in the process of applying the Company
and Group's accounting policies. These estimates are based on the
Directors best knowledge and past experience. The existing critical
judgements and estimates set out in note 3.24 of the Group's annual
report for the year ended 31 December 2019 have been reviewed in
preparing these Interim consolidated financial statements, and in
particular surrounding the current Covid-19 situation, and the
Directors believe they remain relevant.
b) Restatements
The Group has made a number of restatements to the period end 30
June 2019 comparatives as detailed below, as a result of the of
certain re-analysis undertaken in the second half of 2019.
Presentational adjustment
During the year ended 31 December 2019, the Group performed an
analysis of cost drivers. This process resulted in management
determining that various costs disclosed as administrative expenses
in the prior year were directly linked to transactions generating
revenues. As a result, these costs have been restated as direct
costs in the H1-2019 comparatives. Staff costs have been
re-categorised from Admin costs to Direct costs for commissions
paid. Along with staff costs the following have also been
re-categorised bank charges, bad debts and marketing costs for
affiliate commissions paid and vouchers.
During the period ended 30 June 2019, the Group issued shares
which incurred a cost of GBP157,483. These had been deducted from
share premium. An adjustment has been made for the amount to
increase share premium and recognise a corresponding amount through
retained deficit in the period end 30 June 2019.
Restatement of revenue
During the year, Management reviewed the recognition of certain
revenue previously recognised within the six month period end 30
June 2019. After review, they believe certain revenue should have
been deferred to the following six month period. Revenue for the
six month period ended 30 June 2019 has therefore been restated by
GBP1,019,505 with a corresponding amount recognised as deferred
income on the Statement of Financial Position. Earnings per share
has been restated from basic EPS 0.92 pence to 0.28 pence.
Change in accounting policy
During the year ended 31 December 2019, the Group changed its
accounting policy for research and development tax credits (R&D
tax credit) which had previously been accounted for under IAS 20
Accounting for Government Grants and Disclosure of Government
Assistance. The Group believes that accounting for the R&D tax
credit is more appropriate under IAS 12 Income Taxes which better
reflects the substance and benefit of the credit. Under IAS 20
Accounting for Government Grants and Disclosure of Government
Assistance, the R&D tax credit, was deducted from
administration expenses on a systemic basis. Under IAS 12 Income
Taxes the R&D tax credit is included within tax credit /
expense in the year that the claim relates to.
A change in accounting policy requires a retrospective
adjustment and consequently the comparatives amounts have been
restated. In H1-2019 an adjustment of GBP1,148,635 has been
deducted from administrative costs and a corresponding amount
included within tax credit. There is no adjustment to earnings per
share or retained earnings.
Periods prior to 2019 which have been impacted by the
restatements are disclosed in the Group's Consolidated financial
statements for the year end 31 December 2019.
A summary of the restatements and their impact on the financial
statements is shown below.
30 June 2019 As Stated Presentational Restatement Change Restated
adjustment of Revenue in
accounting
policy
Consolidated Statement GBP GBP GBP GBP GBP
of Comprehensive
Income
Revenue 14,595,699 - (1,019,505) - 13,576,194
Direct Costs (2,534,403) (1,738,926) - - (4,273,329)
------------ ------------ ------------
Gross Profit 12,061,296 (1,738,926) (1,019,505) - 9,302,865
Administrative
expenses (8,782,742) 1,738,926 (1,148,635) (8,192,451)
Amortisation charge (1,117,424) - - (1,117,424)
Acquisition Expenses (22,966) - - - (22,966)
Finance costs (148,247) - - - (148,247)
------------ ------------ ------------
Profit before tax 1,989,917 (1,019,505) (1,148,635) (178,223)
Tax (expense) /
credit (525,838) - - 1,148,635 622,797
------------ --------------- ------------ ------------ ------------
Profit and total
comprehensive income
for the period 1,464,079 - (1,019,505) - 444,574
------------ --------------- ------------ ------------ ------------
As Stated Presentational Restatement Change in Restated
adjustment of Revenue accounting
policy
Consolidated Statement GBP GBP GBP GBP GBP
of Financial Position
Share Premium 38,239,668 157,483 - 38,397,151
Retained deficit (8,368,801) (157,483) (1,019,505) - (9,545,789)
Equity Attributable
to owners of Equals
Group Plc 41,874,186 - (1,019,505) 40,854,678
Current Liabilities
Trade and other
payables 7,617,240 - 1,019,505 - 8,636,747
Total Equity and
Liabilities 61,195,196 - - - 61,195,696
------------ --------------- ------------ ------------ ------------
As Stated Presentational Restatement Change Restated
adjustment of revenue in
accounting
policy
Consolidated Statement GBP GBP GBP GBP GBP
of Changes in Equity
Share premium 38,239,668 157,483 - - 38,397,151
Retained deficit (8,368,801) (157,483) (1,019,505) - (9,545,789)
Equity Attributable
to owners of Equals
Group Plc 41,874,186 - (1,019,505) - 40,854,678
------------ --------------- ------------ ------------ ------------
As Stated Presentational Restatement Change in Restated
adjustment of revenue Accounting
policy
Consolidated Statement
of Cash flows GBP GBP GBP GBP GBP
Operating Activities
Profit for the
period 1,464,079 - (1,019,505) - 444,574
Increase in trade
and other payables 938,110 - 1,019,505 - 1,957,615
Net cash generated
from operating
activities 648,151 - - - 648,151
---------- --------------- ------------ ----------- ----------
c) Going concern
The Board continues to closely monitor its performance and the
conditions surrounding Covid-19, as well as the more 'normal' risks
it faces which would affect its future performance and position.
The Board considers it has a reasonable expectation that it has
adequate resources to continue to operate for the foreseeable
future and therefore the financial statements are prepared on a
going concern basis.
2. Segmental Analysis
The segmental results were as follows:
Group Currency International Travel Banking Central Total
Cards Payments Cash Services
6 months GBP GBP GBP GBP GBP GBP
ended 30
June 2020
Segment
revenue 2,642,102 8,232,431 393,462 2,504,295 - 13,772,290
Direct costs (1,340,743) (2,899,006) (150,937) (643,001) - (5,033,687)
------------ -------------- ---------- ------------ ------------- -------------
Gross profit 1,301,359 5,333,425 242,525 1,861,294 - 8,738,603
Administrative
expenses - - - - (8,941,822) (8,941,822)
Amortisation - - - - (2,057,680) (2,057,680)
Separately
reported
items - - - - (975,309) (975,309)
Finance
costs - - - - (110,106) (110,106)
------------ -------------- ---------- ------------ ------------- -------------
Profit /
(loss) before
tax 724,642 5,833,277 251,668 1,929,016 (12,084,917) (3,346,314)
============ ============== ========== ============ ============= =============
Total assets - 5,713,844 60,851,190 66,565,034
Total liabilities - - - (2,087,345) (18,349,217) (20,436,562)
------------ -------------- ---------- ------------ ------------- -------------
Total net
assets - - - 3,626,499 42,501,973 46,128,472
============ ============== ========== ============ ============= =============
Group Currency International Travel Banking Central Total
Cards Payments Cash Services
6 months GBP GBP GBP GBP GBP GBP
ended 30
June 2019
Restated*
Segment
revenue 5,073,855 4,817,741 1,147,693 2,536,905 - 13,576,194
Direct costs (1,434,632) (1,736,923) (404,774) (697,000) - (4,273,329)
------------ -------------- ---------- ------------ ------------- -------------
Gross profit 3,639,223 3,080,818 742,919 1,839,905 - 9,302,865
Administrative
expenses - - - - (8,192,451) (8,192,451)
Amortisation - - - - (1,117,424) (1,117,424)
Separately
reported
items - - - - (22,966) (22,966)
Finance
costs - - - - (148,247) (148,247)
------------ -------------- ---------- ------------ ------------- -------------
Profit /
(loss) before
tax 3,639,223 3,080,818 742,919 1,839,905 (9,481,088) (178,223)
============ ============== ========== ============ ============= =============
Total assets - - - 4,941,683 56,254,013 61,195,696
Total liabilities - - - (1,736,279) (18,604,739) (20,341,018)
------------ -------------- ---------- ------------ ------------- -------------
Total net
assets - - - 3,205,404 37,649,274 40,854,678
============ ============== ========== ============ ============= =============
Group Currency International Travel Banking Central Total
Cards Payments Cash Services
12 months GBP GBP GBP GBP GBP GBP
ended 31
December
2019
Segment
revenue 11,293,815 11,928,662 2,389,044 5,333,203 - 30,944,724
Direct costs (4,391,599) (3,537,900) (1,043,047) (1,405,719) - (10,378,265)
------------ -------------- ------------ ------------ ------------- -------------
Gross profit 6,902,216 8,390,762 1,345,997 3,927,484 - 20,566,459
Administrative
expenses - - - - (20,123,517) (20,123,517)
Amortisation - - - - (2,830,587) (2,830,587)
Impairment
charge - - - (4,858,898) - (4,858,898)
Separately
reported
items - - - - (478,476) (478,476)
Finance
costs - - - - (233,564) (233,564)
------------ -------------- ------------ ------------ ------------- -------------
Profit /
(loss) before
tax 6,902,216 8,390,762 1,345,997 (931,414) (23,666,144) (7,958,583)
============ ============== ============ ============ ============= =============
Total assets - - - 5,077,618 67,044,838 72,122,456
Total liabilities - - - (1,926,658) (20,678,892) (22,605,550)
------------ -------------- ------------ ------------ ------------- -------------
Total net
assets - - - 3,150,960 46,365,946 49,516,906
============ ============== ============ ============ ============= =============
3. (Loss) / profit before tax
(Loss) / profit before tax is stated after charging /
(crediting) the following operating costs:-
12 months
6 months 6 months ended 31
ended 30 ended 30 December
June 2020 June 2019 2019
Unaudited Unaudited Audited
GBP GBP GBP
Marketing costs 799,100 1,420,853 4,089,772
Staff costs 5,456,339 4,588,459 10,695,174
Property and office costs 500,254 604,857 1,015,832
Audit fees 191,580 80,280 319,200
Other professional fees 449,513 272,789 963,966
IT and telephone cost 551,868 395,923 877,597
Travel and similar 157,081 198,426 452,041
Foreign exchange loss (38,078) 7,126 229,710
Share option charge 194,934 9,414 122,609
Bank charges 11,365 (339) 9,744
Depreciation of right of use assets 465,341 431,347 917,993
Depreciation of property, plant
and equipment 202,525 183,316 429,879
----------- ----------- ------------
Administrative costs 8,941,822 8,192,451 20,123,517
=========== =========== ============
4. Separately reported items
A breakdown of separately reported items included within the
Consolidated Statement of Comprehensive Income is shown below:
12 months
6 months 6 months ended 31
ended 30 ended 30 December
June 2020 June 2019 2019
Unaudited Unaudited Audited
GBP GBP GBP
Costs relating to Covid-19 445,555 - -
Wirecard 529,754 - -
Acquisition costs - 22,966 478,476
----------- ----------- ----------
975,309 22,966 478,476
=========== =========== ==========
5. Taxation
6 months 6 months 6 months
ended 30 ended 30 ended 30
June 2020 June 2019 June 2019
Unaudited Unaudited Audited
Restated*
GBP GBP GBP
Current year R&D credit (734,046) (1,148,635) (3,478,997)
Changes in tax estimates
related to prior years - - (25,000)
Changes in tax estimates
in pre-acquisition accounts
of businesses acquired during
the year - (10,488) (10,487)
----------- ------------ ------------
Current tax credit (734,046) (1,159,123) (3,514,484)
----------- ------------ ------------
Origination and reversal
of temporary differences 458,152 536,326 868,016
Recognition of previously
unrecognised deductible temporary
differences 98,743 - 59,583
----------- ------------ ------------
Deferred tax expense 556,895 536,326 927,599
----------- ------------ ------------
Total tax credit (177,151) (622,797) (2,586,885)
=========== ============ ============
*See note 1c
- ENDS -
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