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.

12 September 2023

Cornerstone FS plc

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

Interim Results

Significant revenue growth, maiden six-month period of profitability and cash generation

On track for FY 2023 to be significantly ahead of expectations  

Cornerstone FS plc (AIM: CSFS), a foreign exchange and payments solutions company offering multi-currency accounts to businesses and individuals through its proprietary technology platform, is pleased to announce its unaudited interim results for the six months ended 30 June 2023.

Financial Highlights

·    Revenue increased by 90% to £3.6m (H1 2022: £1.9m) through the continued expansion of the Group's payments capabilities and offering, and on-going investment in the sales function

·    Gross margin broadly stable at 61.0% (H1 2022: 61.7%)

·    Maiden half-year adjusted¹ EBITDA of £0.2m (H1 2022: £0.5m loss) driven by both revenue growth and careful management of the Group's cost base

·    Operating profit of £0.1m (H1 2022: £3.0m loss)

·    Profit before tax of £23k (H1 2022: £3.0m loss)

·    Cash generated from operations of £0.1m (H1 2022: cash used in operations of £0.1m)

·    Cash and cash equivalents increased to £816k at 30 June 2023 (31 December 2022: £682k)

Operational Highlights

·    Proportion of revenue accounted for by direct clients increased to 91% (H1 2022: 74%) reflecting the strategic decision to rationalise the majority of the historic white label business

·    Active customers² increased to 874 (period to 30 June 2022: 697)

·    New counterparty partnerships established to broaden the number of currencies and countries where the Group can transact - the Group can now pay out to over 150 countries in 58 currencies

·    Completed preparation for the introduction of the Consumer Duty regulation in July 2023

Current trading and outlook

·    The strong trading momentum experienced in the first half of the year has continued into the second half

·    With the continued advancements being made across the business and a clear focus on Cornerstone's strategic growth priorities, the Group now expects to report results for its full year 2023 significantly ahead of market expectations, including achieving its first full year of positive adjusted EBITDA   

·    The Board is confident that the Group's funding position is comfortable and sufficient to support its existing growth plans

James Hickman, CEO of Cornerstone, said:

"It has been an excellent six months for Cornerstone, delivering substantial revenue growth and achieving our first half-year period of profitability and operating cash generation. This has been driven by our enhanced sales efforts and focus on more fully commercialising our platform alongside important action to carefully manage our cost base as we grow.

"We have also continued to execute on our strategy to augment our capabilities by establishing further counterparty relationships and partnerships, and we're particularly excited about the progress we've made towards expanding our payment methods.

"With the strong trading momentum having continued into the second half of the year, and with the benefits from our operational improvements still coming through, we expect to report full year results significantly ahead of market expectations, representing substantial year-on-year growth as well as a maiden full year adjusted EBITDA.

"When combined with a large and supportive market backdrop, as global digital payment transaction values expand and the on-going shift of payment transactions away from banks to specialist firms continues, the Board has great confidence in the future of the Group."

¹ Adjusted to exclude share-based compensation and transaction costs of £0.2m and other operating income and profit on a disposal of a subsidiary of £0.4m (H1 2022: £2.3m and £nil)

² Calculated as customers who traded through Cornerstone in the 12 months to 30 June 2023

Enquiries 

About Cornerstone FS plc

Cornerstone FS plc (AIM: CSFS) is a foreign exchange and payments company offering multi-currency accounts and payment solutions 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 150 countries in 58 currencies. 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

Investor Presentation

James Hickman, CEO, and Judy Happe, CFO, will be presenting via Investor Meet Company on 12 September 2023 at 11.00am BST.

Questions can be submitted pre-event via the Investor Meet Company platform up until 9.00am BST the day before the meeting or at any time during the live presentation. 

Investors can sign up to Investor Meet Company for free and add to meet Cornerstone via: 

https://www.investormeetcompany.com/cornerstone-fs-plc/register-investor   

Operational Review

The six months to 30 June 2023 was a very strong period for the Group, with revenue increasing by 90% to £3.6m (H1 2022: £1.9m) and the Group achieving its maiden half-year profit and positive adjusted EBITDA. Importantly, the Group also delivered its first interim cash inflow from operating activities. This reflects the strategic and operational changes that were implemented during the second half of 2022 and which continued into the current period. The Group's focus has been on driving direct sales and fully commercialising the platform, while maintaining tight control over costs. Key elements of this have been growing the sales team and enhancing and expanding the Group's offering, particularly through increasing the number of counterparties to broaden the number of currencies and countries where it can transact, with the objective of increasing the number of active customers, through customer acquisition and retention, and value of payment transactions managed by the Group.

Performance

The Group delivered significant growth in revenue to £3.6m (H1 2022: £1.9m), reflective of a substantial increase in revenue generated by clients that the Group serves directly. The proportion of total revenue that was accounted for by direct clients was 91%, being £3.3m (H1 2022: £1.4m), compared with 74% in H1 2022. Revenue generated through the Group's white label partners accounted for total revenue of £319k (H1 2022: £501k). This is in line with the Group's strategic decision to manage down almost all its historic white label business - only maintaining a small number of accounts that meet appropriate profitability thresholds. This commenced towards the end of 2022, but primarily took place in the first half of the current year.

Active customers, calculated as customers who traded during the 12 months ending 30 June 2023, increased to 874 compared with 697 for the 12 months to 30 June 2022, as the Group has continued its strategy of investing in its sales team and payment capabilities.

By client type, there was an increase in revenue generated by both private clients (primarily high net worth individuals) and corporate accounts. Particularly strong growth was seen from private clients, with the proportion of total revenue accounted for by private clients increasing to 62% (H1 2022: 45%) with corporate accounts contributing 38% (H1 2022: 55%). However, for the majority of private client revenue, whilst the underlying transaction is with an individual, the relationship is via a corporate that provides services to the individual.

During the first half of 2023, transactions were conducted between 43 different currency pairs (H1 2022: 43), with 88% of transactions being between various combinations of Sterling, Euros and US Dollars (H1 2022: 86%).

Enhancing our offer

A key strategic focus is the enhancement of the Group's offer, primarily through growing its counterparty and partner network to expand its product capabilities. At the same time, internal technology development continues, to enhance 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 over 150 countries in 58 currencies.

To further support the expansion of its offer, the Group has established a new offering, Cornerstone Solutions, that will focus on providing solutions to clients that are harder to service, due to, for example, the sector in which they operate. This will allow the Group to leverage some of its competitive strengths - such as the high level of experienced, personalised service - and open access to a further cohort of potential clients.  

The Group has also made significant progress towards expanding its payment method offering and is at an advanced stage with a potential partner. The Group expects to be able to launch its first initiative in this respect during the first quarter of next year.

To be able to support customers with more of their business needs, the Group has also formed strategic partnerships with specialised and alternative lenders to offer a range of funding solutions. In particular, the Group 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 also providing 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.  

Improving our service

Cornerstone is committed to continuously improving the service that it provides to its customers. During the period, this included making enhancements to the user interface and user experience of the Group's platform. The Group is also continuing development work to increase the automation in transactional processes to increase the speed of payments as well as working on enhancements to the onboarding process.      

Actions such as these, which stem from one of the Group's core values of always putting customers first, meant that the Group was well prepared for the introduction of the Financial Conduct Authority's Consumer Duty regulation in July 2023. During the period, the Group undertook a review of its operations to ensure that it was fully compliant with the new regulation, which sets higher and clearer standards for consumer protection across financial services.

Financial Review

Revenue for the six months to 30 June 2023 increased by 90% to £3.6m compared with £1.9m for the first half of the previous year. This growth reflects the strategic and operational changes that were implemented during the second half of 2022 and which continued into the current period focusing on driving direct sales and fully commercialising the platform. The Group also benefited from full six-month contributions from Capital Currencies and Pangea FX, which were acquired in H1 2022 and H2 2022, respectively.

Gross margin for the first half of 2023 was 61.0% (H1 2022: 61.7%). Whilst the proportion of revenue derived from white label partners has declined to 9% (from 26% in H1 2022), the gross margin benefit of this was offset by a change in commission arrangements with Robert O'Brien, the General Manager APAC and Middle East, which were previously agreed at enhanced levels in 2023 compared with the prior year. As announced on 8 March 2023, Mr. O'Brien agreed to vary and extend certain elements of his compensation package, decreasing his commission share on certain established revenue streams and increasing his share of the profitability of the Dubai office. This was immediately beneficial for the Group and, as a result of this change, the Group generated stronger gross margin in the second quarter of 2023 compared with the first quarter.

As a result of gross margin remaining at a broadly consistent level, combined with the significant growth in revenue, gross profit increased by 88% to £2.2m (H1 2022: £1.2m).

Operating expenses were reduced to £2.2m in H1 2023 compared with £4.1m for the first half of the previous year. This primarily reflects a reduction of £2.1m in share-based (non-cash) compensation to £173k (H1 2022: £2.2m) following the Company reaching an agreement in H2 2022 with Mr. O'Brien and the Asia team to vary the terms of their incentivisation agreement pursuant to which they received £nil share-based compensation during the period (H1 2022: £2.1m). The Group also recognised a £0.2m profit during the period from the disposal of its subsidiary, Avila House Ltd. ("Avila House"), with the share purchase agreement having been entered in December 2022 and completed during the period under review. Together with the reduced share-based compensation, this more than offset the increase in other administrative expenses to £2.0m (H1 2022: £1.7m) and amortisation of intangible assets to £0.3m (H1 2022: £0.2m). The Group has maintained tight control over operating costs and the increase in other administrative expenses primarily relates to additional sales team hires and the impact of the acquisitions of Capital Currencies and Pangea FX. Amortisation was higher due to the acquired customer lists from the 2022 acquisitions, combined with the cumulative impact of internally developed software additions that have been capitalised since 2020 with an amortisation period of three years.

The Group generated other operating income of £0.2m (H1 2022: £nil) based on interest on client cash balances (see note 3 to the financial statements).

As a result of the increased gross profit and other operating income and reduced operating expenses, the Group generated a profit from operations of £0.1m compared with a loss from operations of £3.0m for the first half of 2022.

Net finance costs were £115k (H1 2022: £49k), which was primarily related to interest on loan notes due to Mr. O'Brien (principal balance of £2.0m) and in respect of the Pangea FX acquisition (principal balance of £0.2m), both of which have a fixed coupon rate of 6% p.a.

As a result, the Group generated a maiden profit before tax of £23k in the six-month period compared with a loss before tax of £3.0m for the first half of 2022. Earnings per share on a basic and diluted basis were 0.06 pence (H1 2022: loss of 13.05 pence per share), which was achieved despite an increase in the weighted average number of ordinary shares in issue to 55,791,324 (H1 2022: 23,143,117).

On an adjusted basis (to exclude share-based compensation and transaction costs, as well as the other operating income and profit from the disposal of Avila House), the Group generated a first half-year period of positive EBITDA of £0.2m, compared with an adjusted EBITDA loss of £0.6m for H1 2022. 

The Group was cash flow positive for the first six months of 2023. Cash generated by operating activities was £0.1m (H1 2022: £0.1m used in operating activities) based on the improved trading performance. Cash generated by investing activities was £85k (H1 2022: £0.8m used in investing activities) as the proceeds from the disposal of Avila House offset the acquisition of intangible assets, property, plant and equipment principally associated with the continued investment in developing the Group's proprietary platform. Cash from operating and investing activities more than offset cash used in financing activities, which consisted of £66k in interest and similar charges (H1 2022: £nil).

As a result, as of 30 June 2023, the Group had increased cash and cash equivalents of £816k (31 December 2022: £682k).

As announced on 8 March 2023, the Group agreed to further vary the incentivisation arrangement with Mr. O'Brien as well as the settlement arrangement with Craig Strong, Director of Capital Currencies. The repayment date of Mr. O'Brien's loan note has been extended to 31 July 2026 and the payment dates of Mr. Strong's earn-out consideration have both been extended by a year.

The Group's emerging adjusted EBITDA, and profit generation, together with its current cash balances give the Board confidence in the strength of the Company's balance sheet and is comfortable that the Group has sufficient resources to support its existing growth plans.

Outlook

The strong trading momentum that was experienced in the first half of the year has continued into the second half.

The strong growth being generated reflects the advancements being made across the business as the Group realises the benefits of the enhancements made to its operations and offering towards the end of 2022 and to date in 2023. With the continued strengthening of its sales team, and a clear focus on Cornerstone's strategic growth priorities, the Group expects this revenue trend to be sustained throughout the year.

As a result, and with the continued careful management of the cost base, the Group now expects to report results for its full year 2023 significantly ahead of market expectations, including achieving its first full year of positive adjusted EBITDA.