Interim Results

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.

27 September 2021

Cornerstone FS plc

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

Interim Results

Cornerstone FS plc (AIM: CSFS), the cloud-based provider of international payment, currency risk management and electronic account services to SMEs, announces its unaudited interim results for the six months ended 30 June 2021.

Highlights*

· Admitted to trading on AIM and raised gross proceeds of £2.7m through the placing of ordinary shares and convertible loan note facilities

· Total revenue of £837k (H2 2020: £792k; H1 2020: £872k)

· Gross margin improved to 38.1% (H2 2020: 33.1%; H1 2020: 26.8%)

· Significant growth in revenue generated by direct clients both sequentially and compared with the prior period

· Onboarded 209 new clients (H2 2020: 195; H1 2020: 133)

· Strong strategic progress post period:

o Appointed a new team to market the Group's services to businesses located in Asia that support high net worth individuals ("HNWIs") invest in the UK

o Received Authorised e-Money Institution approval to enable expansion of service offering

o As also announced today, the Group has expanded into the Middle East with the opening of an office in Dubai

* While the consolidated financial information has been issued in the name of Cornerstone FS plc, the legal parent, it represents in substance the continuation of the financial information of the legal subsidiary, FXPress Payment Services Ltd ("FXPress"). As such, the prior-period comparatives represent the results of FXPress only.

Julian Wheatland, Chief Executive Officer of Cornerstone, said:

"This was a milestone period for Cornerstone as we became a public company following our IPO in April. Since then, we have already taken important steps in the execution of our strategy with the appointment of our Asia team and, in particular, with the establishment of our office in Dubai under the leadership of Robert O'Brien. The Directors believe these actions will drive growth in our revenue and be profit enhancing.

"We continue to experience increased momentum in trading volumes, particularly among our direct business, and we believe we are on track to deliver revenue growth and gross margin improvement for the full year. Looking further ahead, the Board continues to actively pursue expansion opportunities and we remain confident of delivering transformational growth via acquisition in the near-term. We look forward to reporting on our progress."

Enquiries

About Cornerstone FS plc

Cornerstone FS plc is a payments focused fintech business that makes managing currency simple for SMEs. It provides international payment, currency risk management and electronic account services using a proprietary cloud-based multi-currency payments platform. These services are delivered directly and via white label partners on a SaaS basis to UK-based SMEs that engage in international trade. Cornerstone also serves some high-net worth individual clients.

Headquartered in the City of London, UK, Cornerstone is listed on AIM under the trading symbol 'CSFS'. For more information, please visit www.cornerstonefs.com.

Operational Review

In the six-month period to 30 June 2021, total trading volumes increased and almost reached pre-pandemic levels. While there was a reduction in business from the Group's white label partners, the Group achieved, in line with its stated strategy, significant growth in business from clients that it services directly, which carries a higher margin.

Cornerstone achieved a fundamental milestone during the period with its IPO on AIM, which raised £2.7m. The IPO is a key element in the Group's strategy to grow the business through acquisition and team hires as well as continuing development of its own highly scalable, cloud-based software platform. The Group commenced pursuing expansion opportunities following the IPO, which resulted, post period, with the appointment of a new team that will grow direct business and, as also announced today, the establishment of an office in Dubai. The foundations of the business were further strengthened with the Group's primary operating subsidiary, FXPress, becoming an Authorised e-Money Institution as approved post period by the Financial Conduct Authority ("FCA").

Performance

During the first half of 2021, trading volumes increased following the contraction, particularly in the second half of 2020, due to the impact of COVID-19. As a result, the Group delivered growth in revenue on a sequential basis to £837k (H2 2020: £792k) and a near-return to pre-pandemic levels (H1 2020: £872k).

The majority of this revenue continued to be generated by clients the Group serves on a white label basis. However, there was a significant increase in revenue generated by clients the Group serves directly, which accounted for a larger proportion of total revenue. Direct revenue grew by 151% sequentially and 128% over the same period of the prior year to £231k (H2 2020: £92k; H1 2020: £101k), and accounted for 28% of total revenue (H2 2020: 12%; H1 2020: 12%). Revenue generated through the Group's introducer network (which is primarily white label partners but also introducer brokers) was £606k and accounted for 72% of total revenue (H2 2020: £700k and 88%; H1 2020: £771k and 88%).

By client type, corporate accounts generated £700k in the first half of 2021 (H2 2020: £674k; H1 2020: £823k), accounting for 84% (H2 2020: 85%; H1 2020: 94%) of total revenue. HNWIs generated £137k for the period (H2 2020: £118k; H1 2020: £49k), accounting for 16% of total revenue (H2 2020: 15%; H1 2020: 6%). During the period, 209 new clients were onboarded (H2 2020: 195; H1 2020: 133).

Spot trades accounted for 95% of transactions (H2 2020: 93%; H1 2020: 95%) and 83% of revenue (H2 2020: 82%; H1 2020: 91%), and forward currency contracts accounted for 5% of transactions (H2 2020: 7%; H1 2020: 5%) and 17% of revenue (H2 2020: 18%; H1 2020: 9%). The difference between the volume of transactions and proportion of revenue reflects the higher levels of commission charged on forward transactions.

During the first half of 2021, the Group conducted transactions between 33 different currency pairs (H2 2020: 44; H1 2020: 46), with 90% of transactions being between various combinations of Sterling, Euros and US Dollars (H2 2020: 89%; H1 2020: 87%).

In total, payments worth £199m were transacted through the FXPress platform in first half of 2021 (H2 2020: £164m; H1 2020: £298m).

Strategic Execution

Cornerstone successfully executed on its strategy during the first half of the year, in particular with its IPO on AIM in April 2021. The Company's IPO is a key element in its strategy to grow the business through acquisition and team hires as well as continuing development of its own highly scalable, cloud-based software platform.

The Group has actively commenced pursuing expansion opportunities and took the first step since the IPO in executing on its strategy with the appointment of a new team to market the Group's services to businesses located in Asia, with a primary focus on firms supporting HNWIs acquiring real estate in the UK. This is a large and growing market opportunity, which has been accelerated by the pandemic. The new team, which is based in London, joined the Group from Vorto Trading Ltd ("Vorto"), which is the Group's largest white label partner. The appointment is expected to deliver a substantial increase in the Group's revenue and be profit enhancing.

This move has been strengthened with the establishment, as also announced today, of an office in Dubai to market the Group's services to foreign investors in Dubai and particularly to Asian investors acquiring real estate in the Emirate. The new office will be led by Robert O'Brien who has joined Cornerstone from Vorto. At present, the Group will not be undertaking regulated financial activity in Dubai.

Product Offering Enhancement

During the period, the Group continued its ongoing programme of development to enhance its product and service offering. In particular, the Group worked on an update to its app, which is expected to be released in the second half of the year. Post period end, the Group achieved a key milestone with its primary operating subsidiary, FXPress, receiving approval from the FCA to become an Authorised Electronic Money Institution ("AEMI"). This will enable the Group to expand its product offering. As an AEMI, the Group can issue electronic money and allow clients to leave money on account - and it supplants the more limited licence the Group holds in Avila House as a Small EMI, which is restricted to holding an overall e-money balance that does not exceed an average of €5m. In addition, this new authorisation will allow the Group to develop further technology-enabled products and services that take advantage of the UK's Open Banking Initiative.

Financial Review

While the consolidated financial information has been issued in the name of Cornerstone FS plc, the legal parent, it represents in substance the continuation of the financial information of the legal subsidiary, FXPress. As such, the prior-period comparatives represent the results of FXPress only. The results of Cornerstone have been added to the Group financials from 9 September 2020. The results of Avila House are consolidated within FXPress for the period following the acquisition on 19 October 2020. See 'General information and basis of preparation' in the notes to the financial statements for further information.

The Group's revenue for the six months to 30 June 2021 was £837k reflecting sequential growth of 6% (H2 2020: £792k) and a near return to the level of revenue generated in the first half of 2020 (H1 2020: £872k), which was a period largely unaffected by the pandemic.

By product, revenue was generated entirely from the provision of foreign exchange and payments services in the form of spot and forward trades, accounting for 83% and 17% of revenue respectively (H2 2020: 82% and 18%; H1 2020: 91% and 9%).

As noted above, sales generated from the Group's introducer network (for revenue by origin), which primarily comprises revenue originating via white label partners and also introducer brokers, and sales from corporate clients for revenue by client type continued to account for the majority of revenue. However, there was a significant increase in the contribution to revenue from direct business, reflecting strong growth in that area.

Gross margin for the first half of 2021 was 38.1% (H2 2020: 33.1%; H1 2020: 26.8%) with the significant improvement due to the increased contribution to revenue from direct customers.

The improvement in gross margin enabled the Group to achieve strong growth in gross profit compared with the first half of the prior year despite the lower revenue, with gross profit for the period of £319k (H1 2020: £234k). However, this was offset by increased administration expenses associated with the Company's IPO and other public company requirements. Total administrative expenses for the first half of 2021 were £1.5m compared with £776k for the first half of the prior year.

The Group recognised a loss before tax of £1.2m for the first half of 2021 compared with £542k for the earlier period, which primarily reflects the greater administrative expenses. Loss per ordinary share on a basic and diluted basis was 6.49 pence (H1 2020: 4.03 pence), due to the increased loss.

As at 30 June 2021, the Group had cash and cash equivalents of £951k (31 December 2020: £184k; 30 June 2020: £226k). This followed the raising of gross proceeds of £2.2m via a placing of new ordinary shares and £450k via convertible loan note facilities as part of the IPO. The convertible loan note facilities have not been drawn-down by the Group.

Outlook

The increased momentum in trading volumes that was experienced in the first half of the year has continued into the second half and the Group remains confident of delivering revenue growth for full year 2021 compared with 2020. With the appointment of the Asia team and the establishment of the Dubai office under Robert O'Brien, the Group expects a significant increase in revenue from customers that it services directly, which will account for a greater proportion of total revenue. Accordingly, the Group expects to deliver substantial improvement in gross margin for the full year.

Looking further ahead, the Board continues to actively pursue expansion opportunities and remains confident of delivering transformational growth via acquisition in the near-term. The Board looks forward to reporting on the Group's progress.

Cornerstone FS PLC

Consolidated Statement of Comprehensive Income

Cornerstone FS PLC

Consolidated Statement of Financial Position

Cornerstone FS PLC

Consolidated Statement of Changes in Equity

Cornerstone FS PLC

Consolidated Cash Flow Statement

Cornerstone FS plc

Notes to the financial statements

1. General information and basis of preparation

Cornerstone FS Plc is a public limited company, incorporated and domiciled in England. The Company was admitted to AIM, London Stock Exchange's market for small and medium size growth companies on 6 April 2021. The registered office of the Company is The Old Rectory, Addington, Buckingham, England, MK18 2JR, and its principal business address is 1 Poultry, London, EC2R 8EJ. Cornerstone FS plc is a payments focused fintech business that makes managing currency simple for SMEs. It provides international payment, currency risk management and electronic account services using a proprietary cloud-based multi-currency payments platform. These services are delivered directly and via white label partners on a SaaS basis to UK-based SMEs that engage in international trade. Cornerstone also serves some high-net worth individual clients.

The consolidated financial information contained within these financial statements is unaudited and does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. While the financial figures included in this interim report have been prepared in accordance with IFRS applicable to interim periods, this interim report does not contain sufficient information to constitute an interim financial report as defined in IAS 34. Financial information for the year ended 31 December 2020 has been extracted from the audited financial statements for that year. The accounting policies applied by the Group in this consolidated interim financial report are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2020.

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

Details of subsidiary undertakings and % shareholding:

FXPress Payment Services Ltd - 100% owned by the Company

Avila House Limited - 100% owned by FXPress Payment Services Ltd

CS Commercial Limited - 100% owned by the Company

Cornerstone EBT Trustee Limited - 100% owned by the Company

Although the consolidated financial information has been issued in the name of Cornerstone FS Group Plc, the legal parent, for the 6-month period ended 30 June 2020 it represents in substance continuation of the financial information of the primary legal subsidiary, FXPress Payment Services Ltd.

The assets and liabilities of the primary legal subsidiary are recognised and measured in the consolidated financial statements at the pre-combination carrying amounts and not re-stated at fair value.

The retained earnings and reserves balances recognised in the consolidated financial statements reflect the retained earnings and other reserves of the primary legal subsidiary immediately before the business combination and the results for the six-month period ended 30 June 2020 are those of the primary legal subsidiary only.

Going concern

During the period ended 30 June 2021, the Group made a loss of £1,190,370. Combined with the strengthening of the Group's balance sheet following the Company's admission to AIM, as at 30 June 2021 the Group's Statement of Financial Position showed a net asset position of £1,067,860.

The Directors believe, having considered all available information, including the cash resources currently available to the Group (including £450,000 of un-drawn convertible loan notes) and its pipeline of corporate development activities, that the Group will have sufficient funds to meet its expected committed and contractual expenditure for the foreseeable future. Thus, the Directors continue to adopt the going concern basis of accounting in preparing the interim financial report for the period ended 30 June 2021.

2. Revenue

All of the Group's revenue arises from activities within the UK. Management considers there to be only one operating segment within the business based on the way the business is organised and the way results are reported internally.

Revenue is as follows:

3. Loss from operations

4. Loss per share

The loss per share of 6.49p is based upon the loss of £1,190,370 (six-months to June 2020: loss of £542,401) and the weighted average number of ordinary shares in issue for the period of 18,337,246 (30 June 2020: 13,454,453).

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

5. Share capital

Warrants

On 6 April 2021 the Company granted 63,114 warrants with an exercise price of £0.61 and a term of 2 years to the Company's broker Peterhouse Capital Limited, in connection with the Company's IPO and representing 5% of the number of shares issued to Peterhouse Capital Limited's investors om IPO.

The warrants were estimated to have a grant date fair value of £0.27 per warrant using the Black-Scholes valuation model. The principal inputs into the model were:

Share price at grant date - £0.61

Risk-free rate - 0.8%

Expected Volatility - 80.6%

Contractual life - 2 years.

On 26 February 2021, 24,326 warrant were exercised at a price of £0.407 each.

As at 30 June 20201 1,817,248 warrants in the Company remained unexercised at a weighted average exercise price of £0.42.

Share-based compensation charge

The Group share-based compensation charge for the period ended 30 June 2021 of £234,329 consists of £7,102 in relation to the accelerated share-based payment charges in respect of the exercised warrants, £66,505 in relation to other warrants granted in Cornerstone and £160,722 in respect of Cornerstone share options granted on 2 December 2020. There have been no share options issued or exercised during the period ended 30 June 2021.

6. Intangible assets

Other intangible assets comprise regulatory licenses which are not amortised.

7. Trade and other receivables

8. Trade and other payables

9. Related party transactions

A balance of £50,000 was due to LGEC Capital Partners LLP as at 30 June 2021 (30 June 2020: £nil), of which Gareth Edwards is a Designated Member.

Terry Everson, a director of FXPress Payment Services Ltd and a significant shareholder in Cornerstone, was paid consulting fees of £1,250 in the period ended 30 June 2021 via Hazelwood Financial Ltd, a company of which he is a director and significant shareholder (period ended 30 June 2020: £35,000). As at 30 June 2021 £1,250 remained outstanding to Hazelwood Financial Ltd (30 June 2020: £nil). As at 30 June 2021, a loan of £10,000 made by the Group to Terry Everson remained unpaid (30 June 2020: £10,000).

10. Events after the reporting date

On 27 September the Company announced the appointment of Robert O'Brien as General Manager APAC and Middle East. As part of his remuneration package over the first two years he will be entitled to receive share-based incentivisation based on a multiple of revenue generation and contribution to profit. This will be measured at the end of both years. In the first year, any new ordinary shares earned under this incentivisation plan would be issued at the lower of the IPO Placing Price (61 pence per share) or the average closing price of Cornerstone shares for the 20 business days prior to issue. In the second year, any new ordinary shares earned under this incentivisation plan would be issued at the average closing price of Cornerstone shares for the 20 business days prior to issue.