Regulatory News

‘Significant revenue growth, record Adjusted EBITDA and strong balance sheet’

 Equals (AIM: EQLS), the fintech payments group focused on the Enterprise and SME marketplaces, announces its interim results for the six months ended 30 June 2023 (the ‘period’ or ‘H1-2023’) and an update on trading for 49 trading days for the period from 1 July 2023 to 8 September 2023 (‘Q3-2023’).

 

Highlights Chief Executive Officer’s Report Chief Financial Officer’s Review Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Consolidated Statement of Cash Flows

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 H1-2023: Financial Summary

	H1-2023 £ millions	H1-2022 £ millions	Change % **
Underlying transaction values	5,964	4,169	+43%
Revenue	45.0	31.4	+43%
Gross profit	23.6	14.9	+59%
Gross profit %	52.4%	47.4%
Adjusted EBITDA*	9.8	4.9	+102%
Operating profit	5.5	1.1
Profit after taxation	4.8	0.8
EPS (Basic, in pence)	2.64	0.38

 

Notes

* Adjusted EBITDA is defined as operating profit before: depreciation, amortisation, impairment charges and share option charges and items of an exceptional nature. EBITDA is defined as operating profit before depreciation and amortisation.
**Percentages are calculated based on underlying rather than rounded figures.

 

H1-2023: Financial Highlights

• Record transaction values, with revenues up 43% to £45.0 million (H1-2022: £31.4 million) including £13.6 million derived from the Solutions platform (H1-2022: £6.3 million)   
• Further improvements to gross profit margin, increasing to 52.4% from 47.4%
• Adjusted EBITDA* more than doubled to £9.8 million compared to same period last year (H1-2022: £4.9 million
• £17.9 million Cash at Bank up from £15.0 million at 31 December 2022 despite £2.9 million spent on acquisitions
• Basic EPS rising to 2.64 pence from 0.38 pence in H1-2022

H1-2023: Operational and Product Highlights

• Acquisition of Oonex, now called Equals Money Europe, providing EU market access 
• Acquisition of Roqqett, an open banking platform, completed and now integrated
• Automation of ‘payments out’ flows yielding increased efficiencies
• Further investments into Compliance and Risk functions
• API integration to Equals Platform deployed, opening new distribution channels

Q3-2023 Trading (1 July 2023 to 8 September 2023) and Outlook

• Year-to-date revenue of £63.6 million, 39% ahead of the same period in 2022
• Revenues per day of £370k, compared to £265k in the same period in 2022
• Robust pipeline in Solutions underpinning further growth
• FairFX B2C card product moved to Equals Core platform
• Equals Money Europe integration progressing on plan
• Continued strong cash generation
• Proposed capital reduction being announced today to put the Company in a position to pay dividends
• The Board intends to pay a maiden dividend of 1.5 pence in respect of the financial year ending 31 December 2023*

* Dividend payment subject to, inter alia, capital reduction, shareholder and court approvals.

 

Commenting on the Interim Results, Ian Strafford-Taylor, CEO of Equals Group plc, said:

“This is an outstanding set of results with record revenues combining with improved gross profit retention to yield enhanced profitability.  These results, coupled with our continued cash generation, enable us to announce our intention, conditional, inter alia, upon the completion of the proposed capital reduction, to pay our maiden dividend of 1.5 pence per share in respect of the financial year 2023, while continuing our growth strategy.  A further announcement will be made in due course following the conclusion of the capital reduction process.

“As well as strong financial performance, the Group completed its acquisition of Oonex SA (subsequently renamed Equals Money Europe), a Brussels-based payments services provider regulated by the National Bank of Belgium.  This acquisition enables Equals to widen its distribution and addressable markets and the integration of the business is proceeding according to plan.

“The first half of 2023 saw strong growth which has continued into Q3 despite an uncertain macroeconomic environment.  Given the current trading, and a robust sales pipeline, we look to the future with increased confidence, and we expect to be ahead of expectations for the full year.”

Analyst meeting

A conference call for analysts hosted by Ian Strafford-Taylor (CEO) and Richard Cooper (CFO) will be held today at 9.30am. A copy of the Interim Results presentation is available at the Group’s website: http://www.equalsplc.com

For retail investors, an audio webcast of the conference call with analysts will be available after 12pm today at: https://stream.buchanan.uk.com/broadcast/64fb2da384cbf5eec802cac9. In addition, as previously announced, the Company will also be presenting the Interim Results via the Investor Meet Company platform at 6pm today.  Please register at https://www.investormeetcompany.com/equals-group-plc/register-investor.

For more information, please contact:

 

Equals Group plc
Ian Strafford-Taylor, CEO Richard Cooper, CFO	Tel: +44 (0) 20 7778 9308 www.equalsplc.com
Canaccord Genuity (Nominated Adviser & Joint Broker)
Max Hartley / Harry Rees	Tel: +44 (0) 20 7523 8150
Peel Hunt LLP (Joint Broker)
Paul Shackleton / John Welch	Tel: +44 (0) 20 7418 8900
Buchanan (Financial Communications)
Henry Harrison-Topham / Stephanie Whitmore / Toto Berger [email protected]	Tel: +44 (0) 20 7466 5000 www.buchanan.uk.com

 

Chief Executive Officer’s Report

The vision for the Group continues to be the simplification of global money movement for business customers.  Equals achieves this through its B2B platforms, Equals Money being targeted at SME customers and Equals Solutions which targets larger corporate opportunities.  The Group’s growth potential is particularly strong given that the core building blocks of its platforms, namely own-name multi-currency IBANs and bank-grade connectivity and clearance, are highly complex and time consuming to replicate.  This ‘first mover’ advantage was achieved by the investments made in previous years and will be continuously enhanced by the developments planned in the Group’s technical roadmap combined with further investments into direct connectivity to payment networks.

The ambition of Equals has never just been to operate within the UK, and we were delighted to complete the acquisition of Oonex SA, (subsequently renamed Equals Money Europe SA) on 4 July 2023.  Through its regulation by the National Bank of Belgium and strong links to both a Belgian bank (KBC) and a Dutch bank (ING), this provides the Group with cross-EU reach for its products, particularly Equals Solutions, which has already exceeded management’s expectations in terms of revenue growth and profitability.

In the period we also further enhanced the Group’s product set via the acquisition of Roqqett Limited, an open-banking payments platform.  The acquisition allows Equals to span the entire payment cycle for its B2B customers by providing them with another method to get paid by their customers, be that B2B or B2C.  Roqqett has now been successfully integrated into the FairFX card checkout process and is being sold to external customers.

The investments made by the Group since 2018 have been instrumental in driving the current strong performance.  These investments fall into two major categories, namely internal product development and acquisitions.  Investment into internal product development remains vital to driving the business forward and we anticipate keeping our spend in this area at a consistent level going forwards.  As will be illustrated in more detail in the CFO Review which follows this Report, our investments into acquisitions have all been successfully integrated and highly accretive.

The attractiveness of Equals’ product set is illustrated by the growing volume of transactions and load values across the Group’s platform:

£ millions

	H1-2021	H2-2021	H1-2022	H2-2022	H1-2023
Transaction value	2,424	*4,011	4,163	5,053	5,964
% growth on half year	25%	65%	4%	21%	18%

*H2-2021 shown here excludes the £114 million from the one-off material trade announced on 28 October 2021.

This translates well to revenues which rose by 43% in H1-2023 to £45.0 million (H1-2022: £31.4 million).

Revenue by six-month period, in £ millions

 

	H1-2021	H2-2021	H1-2022	H2-2022	H1-2023
Medium enterprises	8.1	11.8	10.3	12.1	14.0
Consumer and small business	6.1	6.7	7.7	9.0	8.5
White-label	2.4	5.4	7.2	7.8	8.9
Large enterprises	0.3	1.8	6.2	9.4	13.6
Material trade	-	1.5	-	-	-
Total	16.9	27.2	31.4	38.3	45.0

 

Sales & Marketing

The composition of the Group’s Sales and Marketing teams has shifted over recent years reflecting Equals’ pivot from a B2C to a B2B focus.  B2B customer acquisition requires strong processes for lead generation and outbound sales augmented by high conversion websites and cost-effective digital marketing.  Equals has continued to strengthen its sales capability by recruitment of experienced professionals capable of consultative selling.  In addition, the Group has hired people with specific sector expertise as well as rolling out a regional sales model rather than solely basing in London.  In keeping with the same theme of ‘face-to-face’ sales, Equals has increased its presence at industry trade shows and has salespeople consistently travelling to meet customers.  The direct sales efforts are augmented by a sales operations team to ensure peak efficiency and conversion. Furthermore, given the roll-out of API connectivity in H1 2023, the Group now has dedicated resources within its Engineering team to onboard new customers.

Equals has significantly upgraded its approach to digital marketing with all the Group’s websites yielding increases in conversion and have rolled out new digital marketing collateral for the Group’s multi-currency IBAN products.  Equals’ recruitment of top-quality digital marketing professionals has transformed our capabilities across the website, SEO and PPC yielding improvements in customer acquisition and ability to optimise by channel using test and refine techniques.

Profitability

A 43% increase in revenues, improvement in gross profit margin, tight cost control in a tough labour market, combined to result in adjusted EBITDA doubling from £4.9 million in H1-2022 to £9.8 million in H1-2023.  A performance that as CEO, I am immensely proud of.

Dividend

Equals has today announced a proposed capital reduction to redeem around £25 million of its share premium account to create distributable reserves.  The proposed capital reduction is expected to be completed by mid Q4-2023.  The Board intends conditional, inter alia, upon the completion of the proposed capital reduction, to pay a maiden dividend of 1.5 pence per share in respect of the financial year 2023.  A further announcement will be made in due course following the conclusion of the capital reduction process.

Current trading and outlook

The Global macroeconomic environment continues to be challenging with high inflation, high interest rates, concerns over China’s economy and the conflict in Ukraine all affecting confidence and business activity.  Against this market backdrop, Equals continues to grow strongly because it has a product and capability suite that is hard to replicate.

In Q3 2023 to date, revenues continued to perform strongly reaching £63.6 million on a year-to-date basis as of 8 September 2023.  This is 39% ahead of the same period in 2022 and represents revenues per working day of £370k compared to £265k per day in the prior year.

Equals has increased its addressable market by adding the capability for customers to connect via API.  Whilst these customers take longer to on-board, due to the requirement to connect their systems directly to Equals Core, they are typically larger in size, and we expect to drive future revenue growth.  The current pipeline for new Solutions customers, both via direct login and API, is strong and with the new capabilities of Equals Money Europe, the Board believes that going forwards Equals is well positioned to further increase its addressable markets and distribution channels.

Given the strong current trading, and a robust sales pipeline, the Board looks to the future with increased confidence, and we expect to be ahead of expectations for the full year.

Ian Strafford-Taylor
Chief Executive Officer
12 September 2023

REVIEW OF THE CFO

Taking the financial information disclosed in the CEO’s Report one step further, I am pleased to present record Interim Results for the six months ended 30 June 2023.

Totals may not sum due to rounding. Percentages are calculating on underlying figures before rounding.  Where costs cannot be accurately attributed to each segment, they have been allocated on the basis of revenue.

 

TABLE 1: INCOME AND EXPENSE ACCOUNT

	H1-2023		H1-2022		H2-2022
	£ millions		£ millions		£ millions
Revenue (table 3)	45.0		31.4		38.3
Gross Profits (table 5)	23.6		14.9		18.8
Less: Marketing	(1.2)		(0.9)		(0.9)
Contribution	22.4		13.9		17.9
Staff costs	(9.2)		(6.6)		(7.8)
Property and office cost	(0.5)		(0.4)		(0.5)
IT and telephone costs	(1.4)		(0.9)		(1.1)
Professional Fees	(0.7)		(0.6)		(0.7)
Compliance Fees	(0.6)		(0.4)		(0.3)
Travel and other expenses	(0.3)		(0.2)		(0.3)
Adjusted EBITDA	9.8		4.9		7.2
Less:    Share option expense	(0.7)		(0.3)		(0.6)
Less:    Acquisition costs and exceptional items	0.0		0.0		(0.2)
EBITDA	9.1		4.6		6.4
IFRS 16 Depreciation (table 6)	(0.3)		(0.4)		(0.4)
Other depreciation (table 6)	(0.2)		(0.2)		(0.2)
Amortisation of acquired intangibles (table 7)	(0.7)		(0.6)		(0.6)
Other amortisation (table 7)	(2.5)		(2.2)		(2.2)
Contingent consideration credit / (cost)	0.2		0.0		(0.3)
	(3.5)		(3.5)		(3.7)
Gain on disposal of Travel Cash CGU	0.4		0.0		0.0
EBIT	5.9		1.1		2.7
Lease interest	(0.1)		(0.1)		(0.1)
Foreign exchange differences	0.0		0.0		(0.1)
Contingent consideration finance charges	0.0		(0.1)		0.0
	(0.1)		(0.2)		(0.2)
PROFIT BEFORE TAXATION	5.8		0.9		2.6
Corporate and deferred taxation	(1.0)		(0.1)		0.2
PROFIT FOR THE YEAR	4.8		0.8		2.8

 

TABLE 2 – ADJUSTED EBITDA BRIDGE FROM H1-2022 TO H1-2023 (in £’000s)

 

H1-2022 Adjusted EBITDA		4,852
Add:	61% uplift in contribution H1-2023	8,477
Less:	39% increase in staff costs, reflecting higher planned headcount (23% up from H1-2022), higher quality hires and salary increases (around 8%)	(2,574)
	47% increase in IT and communication costs - mainly hosting and telephone in line with transaction growth	(432)
	35% increase in professional and compliance costs for enhanced procedures and consultation, proactively ahead of requirements	(325)
	20% increase in property costs arising through service charge/utility inflation	(87)
	48% increase in travel and entertaining costs incurred through ambassadorial initiatives and industry awareness events	(86)
H1-2023 Adjusted EBITDA		9,825
Uplift over H1-2022		4,973
% uplift over H1-2022		102%

 

Revenue

TABLE 3 – REVENUE BY CUSTOMER TYPE, IN £ MILLIONS

The table below shows the revenue for the last five periods of six months, split by customer grouping and within than the type of business provided:

 

	H1-2021	H2-2021	H1-2022	H2-2022	H1-2023
International Payments	6.0	8.7	6.9	8.0	9.2
Cards	2.1	3.1	3.4	4.1	4.8
Medium enterprises	8.1	11.8	10.3	12.1	14.0
International Payments	1.4	1.9	2.1	2.4	1.9
Cards	1.7	1.7	2.3	2.8	2.4
Banking	2.9	2.8	2.8	3.3	4.1
Consumer and small business	6.0	6.4	7.2	8.5	8.4
White Label White-Label	2.4	5.4	7.2	7.8	8.9
Large enterprises (“Solutions”)	0.3	1.8	6.2	9.4	13.6
Material trade	-	1.5	-	-	-
Bureau de change	0.1	0.3	0.5	0.5	0.1
Total	16.9	27.2	31.4	38.3	45.0

 

COST OF SALES & GROSS PROFITS

Cost of sales comprises three principal component which are shown below.  The cost for staff commissions includes Employers National Insurance contributions.

 

TABLE 4 – COST OF SALES
	H1-2023		H1-2022		H2-2022
	£ millions		£ millions		£ millions
Affiliate commissions	14.6		10.7		13.1
Staff commissions	1.8		1.7		1.9
Transactions costs and similar*	5.0		4.1		4.5
Total	21.4		16.5		19.5

 

*Transaction costs, includes bank charges and similar, and, will, if applicable, include costs for any compensation associated with the FCA’s newly introduced Consumer Duty rules.

Gross profit margins differ between each business unit.  The mix of product (example: spot or forward FX) also influences the margin.  Margins continue to improve as the business mix changes, and, with increased ‘purchasing power’ the Group should be able to improve margins further but probably not higher than a full percentage point.

Gross profit ratios over the last five six-month periods are shown below:

 

Table 5 - GROSS PROFIT MARGIN OVER THE LAST FIVE SIX MONTH PERIODS

 

	H1-2021	H2-2021	H1-2022	H2-2022	H1-2023
International Payments	64%	54%	59%	51%	57%
Cards	71%	68%	59%	66%	65%
Medium enterprises	66%	58%	58%	56%	59%
International Payments	79%	74%	71%	71%	68%
Cards	71%	71%	61%	64%	58%
Banking	72%	71%	75%	79%	85%
Consumer, and small business	73%	72%	69%	72%	74%
White-Label	17%	11%	11%	13%	19%
Large enterprises (Solutions)	33%	44%	47%	50%	54%
Material trade	-	54%	-	-	-
Bureau de change	-	67%	40%	40%	-
Total	60%	51%	47%	49%	52%

 

Staff costs

Staff costs shown, exclude staff commissions which are included in cost of sales (see table 4).

Headcount numbers have moved from 285 as at 31 December 2022 to 323 as at 30 June 2023.

Performance related components, when combined with staff commissions included in cost of sales are, in the aggregate, around 25% of the total cost of staff.

The charge to the P&L was £9.2 million, up 39% on H1-2022 (£6.6 million) and 18% on H2-2022 (£7.8 million).

Gross of capitalisation of £2.4 million (H1-2022: £2.1 million), costs were £11.7 million in H1-2023 (£8.8 million in H1-2022).  The amounts capitalised represent 21% of gross staff costs, decrease from 23% in H1-2022 largely due to an increased headcount not directly attributable to development projects.

Capitalisation is now broadly in line with the amortisation charge relating to capitalised software.

 

Professional fees and Compliance costs

Owing to an increasing cross-industry compliance burden, the Group has chosen to report compliance and similar costs separate to other professional fees.  Such costs, including onboarding systems, have risen due to a combination of greater business activity and the Group’s desire to fast-track business applications proactive with regulation but not at the expense of quality.  Professional fees have risen in line with trends widely reported in the national press, most notably the provision for cost of the audit noting increased acquisition activity and implantation of enhanced systems

 

Depreciation

Tangible fixed assets are depreciated over the anticipated useful life with a maximum of 60 months (other than leasehold improvements which is a maximum of 120 months).

 

TABLE 6 – DEPRECIATION

	H1-2023		H1-2022
	£’000s		£’000s
IFRS 16 depreciation	332		445
Other depreciation	193		187
	525		632

 

Based upon the expenditure incurred to 31 December 2022, the total depreciation charges for assets in FY-2023 will be:

 

	£’000s
IFRS 16 depreciation	668
Other depreciation	375
	1,043

 

Amortisation

Intangible assets acquired on acquisition are amortised over their estimated useful lives, with a maximum of 60 months for brands and a maximum of 108 months for customer relationships. The charge to amortisation for the year can be analysed as follows:

 

TABLE 7 – COMPONENTS OF AMORTISATION CHARGES

 

	H1-2023 £’000s		H1-2022 £’000s
Amortisation charge arising from the capitalisation of internally developed software in the following years:
2018 and earlier	272		458
2019	831		831
2020	447		447
2021	288		267
2022	377		86
H1-2023	123		-
	2,338		2,089
Amortisation charge for other intangibles	141		128
	2,479		2,217
Amortisation of acquired intangibles	686		641
Total amortisation charge	3,165		2,858

 

Based upon expenditure to 31 December 2022, the total amortisation charges for FY-2023 are expected to be:

	£’000
Internally developed software	4,953
Other intangible assets	267
Acquired intangibles	984
	6,204

 

Operating result

The Group made a profit before taxation of £5.8 million in H1-2023, compared to £0.9 million in H1-2022.

Taxation, incorporating R&D credits

The Group has recognised a net tax charge of £1,031k (H1-2022: £37k) of which £nil (H1-2022: £40k) relates to an R&D tax credit repayment.

At 31 December 2022 the Group had utilisable tax losses of £17.6 million. The White-Label business, Equals Connect Ltd, is profitable and tax paying, as until 3 October 2022 its profits could not be offset against other group company losses. At 30 June 2023 it is estimated that the Group has utilisable tax losses of £13.5 million.

 

TABLE 8 – BALANCE SHEET

This table shows a compressed ‘balance sheet’ for the Group.  This splits-out (from the statutory disclosure) certain current assets arising from the acquisitions being made.

 

	30.06.2023		30.06.2022		31.12.2022
	£’000s		£’000s		£’000s
Internally generated software – cost	28,723		23,617		26,001
Internally generated software – accumulated amortisation	(15,749)		(11,065)		(13,411)
	12,974		12,552		12,590
Other non-current assets (other than ‘right to use’)	22,965		19,066		18,558
IFRS 16 assets, less IFRS 16 liabilities	(635)		(976)		(830)
	35,304		30,642		30,318
Liquidity (per Table 11)	16,621		12,825		14,321
Accrued Income and Trade Debtors	5,577		4,245		4,246
R&D rebates	-		438		-
Prepayments	1,627		1,411		1,345
Working Capital advances to Roqqett	-		-		830
Other Sundry Debtors	164		190		189
Inventory of card stock	237		148		292
Accounts payable	(2,616)		(2,308)		(2,070)
Affiliate commissions	(3,061)		(2,905)		(2,563)
PAYE and Vat	(849)		(652)		(816)
Staff commissions and accrued bonuses	(1,436)		(1,150)		(1,690)
Other accruals and other creditors	(2,050)		(1,442)		(1,938)
	14,214		10,800		12,145
Working Capital and prepaid advances to Oonex	1,248		-		-
Deferred consideration receivable arising from the disposal of the bureau de change	100		-		-
	15,562		10,800		12,145
Earn-out balances due (Table 9)	(4,605)		(303)		(2,025)
Net corporation and deferred tax	986		1,148		1,639
Net value of forward contracts	827		511		827
	(2,793)		1,356		441
NET SHAREHOLDER FUNDS	48,073		42,798		42,904

 

INVESTMENTS

The Group invests in its future in two principal ways: