29 March 2022
Aquis Exchange PLC
("Aquis", the "Company" or the "Group")
Final results for the year ended 31 December 2021
and
Board appointments
Pre-tax profit growth in excess of five times vs the prior year
Aquis Exchange PLC (AQX.L), the exchange services group, is pleased to announce its audited results for the year ended 31 December 2021.
Highlights:
| · | Revenue up 42% to £16.2 million (FY20: £11.4 million) |
| · | Pre-tax profit up 540% to £3.2 million (FY20: £0.5 million) |
| · | Profit after tax up 330% to £4.3 million (FY20: £1.0 million) |
| · | Basic EPS up 300% to 16p (FY20: 4p) |
| · | Cash and cash equivalents at 31 December 2021 of £14.0 million (31 December 2020: £12.3 million) |
| · | Membership of Aquis Exchange (AQX) grew to 39 (FY20: 33) and there was a 24% increase in the average monthly usage, in terms of chargeable orders (4Q 2021 vs 4Q 2020) |
| · | Market share of all pan-European trading at 5.2% in 4Q21 (4.7% 4Q20) reflecting a number of factors including significant market volatility, an industry-wide move to dark trading venues and client trading strategies |
| · | Overall share of available liquidity of 24%, the highest of any European MTF |
| · | Aquis Stock Exchange (AQSE) completed first year under new rule book, with a record 24 admissions completed during 2021 |
Post-period highlights:
| · | Encouraging start to current trading, with the Company's trading in line with expectations, notwithstanding continued macroeconomic uncertainty and high levels of market volatility |
| · | Agreed transferral of the business activities of UBS MTF, the non-displayed matching pool of UBS AG, to Aquis, as announced on 16 March 2022 |
| · | Fields Wicker-Miurin OBE and Dr. Ruth Wandhöfer appointed as independent Non-Executive Directors of the Company, and Richard Fisher appointed to the board and acting as Chief Financial Officer following the AGM |
| · | Completed the dual listing of the Company's shares on the Aquis Stock Exchange Growth Market today, a tangible demonstration of belief in the market |
Alasdair Haynes, Chief Executive Officer of Aquis, commented:
"I am delighted to be reporting such strong financial results today, with revenue up 42% and profit before tax increased in excess of five times from what we recorded in FY20. It is clear we have now transformed into a business with dependable revenues, generating significant profits, and with a very robust financial position. We have shown we are able to not only withstand periods of intense volatility and uncertainty, but to continue growing and investing throughout them. This gives us great confidence going forward.
Operationally, it has been an incredibly busy and fruitful year for the Group across all divisions, as we delivered the first year of Aquis Stock Exchange under its innovative new rulebook, harmonised data revenues across the business and made further progress against our 'cloud native exchange' plans in our Technologies business. This momentum has continued post-period end, with our dual listing on Aquis Stock Exchange, a reflection of our confidence in AQSE as a home for growth businesses. Most recently, in a milestone for the Group, we announced we would be assuming the business activities of UBS' dark pool. This development will be accretive for our business, expand our offering and provide access into a new part/segment of the market.
Looking forward, heightened volatility and uncertainty stemming from the wider geo-political environment is set to continue, but nonetheless, we remain focused on the execution of our growth strategy and delivering increased value for our stakeholders. Trading so far has been in line with market expectations and we approach the remainder of the year with a positive outlook."
An overview of the results from Alasdair Haynes, CEO, is available to view on this link:
The Group will be hosting webinars for analysts and retail investors today at 09.30 and 14.30 respectively.
If you would like to register for the analyst webinar, please contact aquis@almapr.co.uk . Investors who would like to attend the retail investor webinar can sign up to Investor Meet Company for free and add themselves to the meeting via https://www.investormeetcompany.com/aquis-exchange-plc/register-investor . Investors who have already registered will be automatically invited.
Enquiries:
| Aquis Exchange PLC | Tel: +44 (0)20 3597 6321 | |
| Alasdair Haynes, CEO |
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| Jonathan Clelland, CFO and COO Belinda Keheyan, Head of Marketing
| Tel: +44 (0)20 3597 6329 | |
| VSA Capital Limited (AQSE Corporate Adviser) | Tel: +44(0)20 3005 5000 | |
| Andrew Raca |
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| Pascal Wiese |
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| Liberum Capital Limited (Nominated Adviser and Broker) | Tel: +44 (0)20 3100 2000 | |
| Clayton Bush |
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| Chris Clarke |
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| Edward Thomas Kane Collings
Canaccord Genuity Limited (Joint Broker) Bobbie Hilliam Patrick Dolaghan
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Tel: +44 (0) 20 7523 8000 | |
| Alma PR (Financial PR Adviser) | Tel: +44 (0)20 3405 0209 | |
| Susie Hudson Kieran Breheny | aquis@almapr.co.uk | |
| Matthew Young |
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Notes to editors:
About Aquis Exchange PLC
Aquis Exchange PLC is an exchange services group, which operates pan-European cash equities trading businesses (Aquis Exchange), growth and regulated primary markets (Aquis Stock Exchange/AQSE) and develops/licenses exchange software to third parties (Aquis Technologies).
Aquis Exchange is authorised and regulated by the UK Financial Conduct Authority and France's Autorité des Marchés Financiers to operate Multilateral Trading Facility businesses in the UK/Switzerland and in EU27 respectively. Aquis operates lit order books and does not allow aggressive non-client proprietary trading, which has resulted in lower market impact and signalling risk on Aquis than other trading venues in Europe. According to independent studies, trades on Aquis are less likely to lead to price movement than on other lit markets. Aquis uses a subscription pricing model which works by charging users according to the message traffic they generate, rather than a percentage of the value of each stock that they trade.
Aquis Stock Exchange (AQSE) is a stock market providing primary and secondary markets for equity and debt products. It is authorised as a Recognised Investment Exchange, which allows it to operate a regulated listings venue. The AQSE Growth Market is divided into two segments 'Access' and 'Apex', with different levels of admission criteria. The Access market focuses on earlier stage growth companies, while Apex is the intended market for larger, more established businesses.
Aquis Technologies is the software and technology division of Aquis Exchange PLC. It creates and licenses cutting-edge, cost-effective matching engine and trade surveillance technology for banks, brokers, investment firms and exchanges.
Aquis Exchange PLC (AQX.L) is listed on the Alternative Investment Market of the LSE (AIM) market. For more information, please go to www.aquis.eu
Chair's Statement
Overview
This is my first official communication since being appointed Chair of Aquis Exchange PLC (AQX) with effect from 1st January 2022 and it is with great pleasure that I am able to report that the Group delivered significant increases in revenue and net profit before tax reflecting strong performances from each of the Group's 3 business activities. These results were particularly noteworthy given the continued COVID-19 challenges and the requirement to handle the impact of the UK's exit from the EU.
Overall Group net revenue increased by 42% from £11.4m to £16.2m and net profit before tax by in excess of 500% from £0.5m to £3.2m driven primarily by the pan-European secondary market trading activities and material increases in data revenues.
During 2021 we were able to recommence trading in Swiss shares, increase our overall pan-European secondary trading market share and manage the transition of a significant part of the secondary exchange trading business from the UK to France. Our aim is to further develop our presence in Europe and enhance client relationships within the EU 27 markets and this includes transferring Jonathan Clelland, Group CFO & COO to Paris where he has taken on the additional responsibility of CEO of Aquis Exchange Europe (AQEU).
We also significantly increased data revenue following the harmonisation of our offering and made material progress in our Technologies division whilst innovative changes to Aquis Stock Exchange (AQSE) increased liquidity and narrowed spreads which helped drive growth in new issues.
In addition, we continued to invest in all areas of our activities including the recruitment of David Stevens who has joined as Chief Revenue Officer (CRO) and Richard Fisher as Director of Finance (DoF), who subject to satisfactory completion of the regulatory due diligence and other processes currently under way, which are required under AIM Rules, and approval at the AGM in April 2022, will step up to take over the CFO responsibilities currently held by Jonathan Clelland.
We retained our flexible partial remote working environment demonstrating how important robust business continuity plans and effective working practices supported by a positive culture throughout the organisation is during a rapidly changing and challenging period.
We have also continued with the AQSE integration, the strengthening of the Paris office and continued to invest in our technology division making further significant progress with the target of creating exchange grade cloud platforms.
Board and Governance
The Aquis Exchange PLC Board ("the Board") continued to evolve in line with the Group's expansion and subsequent corporate governance requirements during the year. Niki Beattie retired as Chair on 31st December 2021 having served in that role for 9 years and I was appointed Chair in her place. I would like to formally thank and recognise Niki for all her hard work in helping Aquis to successfully reach this stage of its growth and evolution. Succession plans have also been established to cover other non-executive board members as they come towards the end of their nine-year tenure.
The Group consists of 3 regulated entities: AQX, AQEU and AQSE, which holds a UK Recognised Investment Exchange Licence (RIE), that allows it to offer primary listings as well as secondary markets trading. All three entities require appropriate independent Board governance.
Aquis complies with the FCA's Senior Management and Certification Regime (SM&CR), which ensures that the identified individuals; namely the Chair, CEO, CFO and Head of Regulation have clearly prescribed assigned governance responsibilities.
We are pleased to announce that Fields Wicker-Miurin and Ruth Wandhofer will join the Board of Aquis as independent non-executive directors, subject to satisfactory completion of the regulatory due diligence and other processes currently under way, which are required by the AIM Rules, and approval at the next AGM. Fields has a distinguished career with over 40 years' experience as an executive in financial services, a social entrepreneur focused on leadership, and a non-executive director and committee chair of the boards of both global companies and government departments. From 1994-7 she led the transformation of the London Stock Exchange (LSE) and the London equity markets while CFO and Strategy Director and from 2006-7 she was the only non-US member of the NASDAQ Technical Advisory Council. Fields was one of only 6 experts (and the only British one) advising the EU Parliament on financial services harmonisation in the lead-up to the Prospectus Directive. She currently serves as a non-executive director and member and chair of key committees of the main boards of BNP Paribas (the eurozone's largest bank) and Scor (the world's 4th largest reinsurance company) and is Deputy Chair of the Royal College of Art & Design. It is our intention, as part of our succession planning process, that Fields will take over the Senior Independent Director role from Richard Bennett.
Ruth has considerable financial services experience. Following a senior Executive career at Citi Bank she has served on a number of Boards as an Independent Non- Executive Director including the London Stock Exchange from 2018 to 2020 and currently Gresham Technologies Plc and Permanent TSB Plc in Ireland. At Aquis, Ruth will also sit on the ARCC and Aquis Europe subsidiary Board.
Danny Lopez joined the Board of AQSE as an independent Director during the year. Danny is the CEO of Glasswall Solutions, an award-winning cybersecurity firm that delivers unique protection against sophisticated cyber threats in files and documents through its ground-breaking technology. Danny is also an independent non-executive director of Innovate Finance, an independent industry body that champions the global FinTech community in the UK.
Culture, Stakeholder Engagement and Section 172 Duties
The Board continued its engagement with key stakeholders, particularly focusing on employees and shareholders. During the year I assumed responsibility as the appointed representative of the Board to liaise with employees. We also undertook our third annual employee engagement survey and once again overall feedback was very positive. In addition, the Chair and various members of the Board continued with a program to meet with key shareholders when possible either in person or remotely.
The Board discharged its Section 172 (1) duties in a number of ways, details of which are set out in the Annual Report and include significant time focusing on strategy for the Group, considering employees well-being during another very challenging year and undertaking training in particular in the area of risk assessment in order to improve the Board's effectiveness and maintain high standards of conduct.
Environment, Social and Corporate Responsibility
The Board is focussed on the Company's responsibility to both individually grow and operate on a sustainable basis and more importantly the wider role that we play as an exchange operator, in bringing issuers and investors together to create a sustainable ecosystem where capital flows and investment can occur. This offers us an opportunity to make a difference not only through our own actions but also by creating an environment for other companies and investors to make a difference.
From the outset Aquis has been committed to improving the efficiency of markets through transparency and innovation. In addition, we aim to stimulate growth in the economy by listening to the needs of issuers and creating a supportive, fair and low-cost environment for capital raisers to list instruments, particularly for innovative young companies. We are committed to educating and collaborating with these issuers about the expectations and benefits of creating and adhering to ESG policies.
We have already made progress with our ESG plans through integrating diversity objectives into our business plans and reducing our environmental impact, details of which are set out in the Strategic Report.
Our focus for the year ahead
All of the Aquis business lines are set for further profitable growth and we continue to invest for future growth.
We recently announced the initiative to assume the business activities of UBS MTF, the non-displayed matching pool, which we anticipate will be finalised in April 2022. This initiative represents a significant extension of the equities trading services Aquis offers its clients and will complement its existing suite of lit liquidity pools and range of order types. The pan-European secondary market trading activities remains the core of the Aquis Group and this initiative offers us the opportunity to expand our client offering. This decision recognises that in recent years there has been a change in the market's attitude towards, and increase in, the use of non-displayed liquidity pools.
Our Board will undergo further planned changes as the longer serving Non-Executive Directors retire from the Board, but with our on-going commitment to succession planning, we are confident of being able to maintain stability and continue to focus on ensuring the business delivers on its strategy across all the aspects of the business.
Glenn Collinson, Chair
Chief Executive's Report
The Aquis Group delivered material progress across all its business activities during 2021 building on the maiden profit of 2020 against a backdrop of continued challenging economic uncertainty.
The Group dealt comfortably with the requirement to continue to run the exchange platforms remotely during the periods of lockdown. It also managed to grow market share of the pan-European equities market, achieving 5.2% market share of all trading including auctions during 4Q21, compared to 4.7% during 4Q20.
Very strong growth from higher trading levels within Aquis Exchange was supplemented by growth in the technology and data divisions, together with the successful integration of AQSE following the acquisition in 2020. Our growth continues to be driven by the compelling nature of our subscription model and the strength of our industry-leading exchange software platform. We offer a faster and more reliable trading venue to all market participants compared to other international trading venues; the benefits of which are clearly now flowing through into improved financial results.
This resulted in the Group reporting a 42% growth in revenue to £16.2m (net of provisions) and a pre-tax profit of £3.2m in 2021, compared to a profit of £0.5m in 2020. This increase demonstrates the significant progress made during the last 12 months and provides the Group with the profitable platform to continue to invest and grow its principal business activities.
The Ukrainian conflict has resulted in extremely volatile market conditions and there is no certainty as to when this conflict will be resolved; however, at this stage, I do not believe this will have a material adverse effect on the Group. In addition, there remains some macro-economic uncertainty given the continued presence of COVID-19 and the lack of certainty of the full impact of Brexit; however, I believe that our strong team and technology platform should enable us to overcome these and future challenges.
Aquis Exchange
Over the period, the secondary market multilateral trading facility ("MTF") platforms operated by the Group in London and Paris delivered growth despite challenging economic and regulatory conditions. In March 2019, the Company had established a French subsidiary with full regulatory approval to operate an MTF covering the European Union, AQEU. The transition from London to Paris took place seamlessly in January 2021 with an uninterrupted service to all our clients.
The number of trading members grew from 33 to 39 and a number of members increased their activity levels, leading exchange revenue to increase by 26% to £9.8m.
Aquis Exchange's market share of all pan-European trading including auctions and dark pools strengthened to 6.0% 2Q21 before partially reversing to 5.2% 4Q21. This is compared to a market share of 4.7% 4Q20 and 1.8% at the time of the IPO in June 2018. The second half decrease reflected the more volatile trading conditions during 2H21 which resulted in an industry wide move from lit to dark pools of liquidity. However, overall volumes executed on the Aquis platforms during 2H21 were approximately the same as 1H21 and we are confident our lower toxicity and 24% liquidity will ultimately underpin long-term market growth. Our proposed acquisition of the UBS MTF activities will also add immediate market share, providing us with access to dark pool trading. Our Market at Close ("MaC") order type, launched in August 2019, made a material contribution to trading volumes on the platform and we anticipate it will grow further during 2022. As the MaC allows members to enter orders for matching on the Aquis platform at the closing price of the primary market, we now operate across a larger cross-section of all available trading.
Aquis Exchange offered clients the ability to trade in excess of 1,700 stocks and ETFs across 15 European Markets as at the end of December 2021. From the 4th February 2021 we were able to restart offering trading in the Swiss market following the UK / Swiss agreement at the beginning of 2021. Overall, the available liquidity, equal to approximately 24% of total pan-European equity liquidity should underpin future market share growth.
Brexit and COVID-19 continued to present challenges during the period, and it is very encouraging that we have delivered such strong growth despite these issues and further demonstrates the highly competitive nature of our exchange business. This performance during a very challenging period is reflective of the significant efforts by all the Aquis employees during long periods of remote working.
Aquis Technologies
In addition to the exchange business, Aquis licenses its leading exchange related technology to a variety of international financial services clients across different asset classes. Revenue from technology licensing in 2021 grew to £3.4m (net of provisions), reflecting the increasing interest in our high-calibre, in-house technology; however, revenue recognition remains lumpy and the timing of this accounting recognition difficult to predict.
Aquis Technologies continues to develop its technology platforms to support growth across different asset classes internationally and during the year made further progress in the plan to create a cloud native exchange.
Aquis Market Data
Data revenues increased 159% in 2021 to reach £2.3m as the Group implemented a harmonised data structure. Data is seen as a key pillar of the Aquis strategic plan, and we expect that it will continue to make a material contribution to the Group.
As demonstrated by the increased revenue, data is becoming a key contributor to the Group results; however, it may increase further in importance in the long-term if a consolidated tape for Europe is implemented. Introducing a consolidated tape for Equities in Europe should improve the quality and pricing of market data and lead to a fairer distribution of data fees across the various European trading venues. The Group is continually monitoring European Commission plans and market demand to introduce such a tape and is well placed to understand and grow the Group data activity as this market in Europe develops.
Aquis Stock Exchange (AQSE)
Following the acquisition of AQSE in March 2020 we successfully completed the technology migration, concluded a consultation period with industry participants in order to assess opportunities to enhance the market functionality and launched an innovative market making scheme, which has significantly enhanced liquidity and narrowed spreads of stocks. These innovations have supported the growth of AQSE including additional market makers, corporate advisers, brokers and 24 new issuers during the year an increase of approximately 30% compared to the number of companies at 31 December 2020. We have a strong pipeline of new companies and dual listed Aquis Exchange PLC with effect from 29 March 2022.
The acquisition of AQSE has provided us with the ability to operate a Recognised Investment Exchange (RIE) giving our business the same status as the large national exchanges in Europe and providing further resilience in the face of possible regulatory headwinds.
Underpinned by the Group's proven technology and a track record of transparency and innovation, we have already made material progress in building AQSE into a competitive and disruptive primary marketplace, particularly as MiFID II and the FCA Wholesale Markets Review continues to put the traditional business model of national exchanges under pressure. I believe that we have a unique opportunity to build a pan-European, technology-driven, listing exchange for growth companies, overcoming several issues faced by small and mid-cap market participants today.
Further Investment in Research and Development (R&D)
The Group continued to invest in R&D throughout 2021 and will do so in 2022 in order to maintain and enhance the quality of its technology and its ability to be able to deliver new products and platform enhancements to its clients. Our proven trading platform has been developed in-house and is based on proprietary technology, which does not rely on third party software suppliers. The effectiveness and reliability of our technology was demonstrated through our initial response to COVID-19 and the requirement to maintain a flexible semi-remote working environment and the transition of trading activities following Brexit both of which were achieved seamlessly. The quality of our technology underpins our Group strategy and is also one of the principal reasons for the growth in our technology licensing business.
I believe this structure and continued investment in R&D gives us a significant competitive advantage on functionality, price and ability to deliver. Aquis' nimble technology organisation ensures expeditious product development and, together with Aquis' further investment, will allow the Group to react quickly to dynamic market conditions. We intend to continue to work on further developments which will foster future growth.
Resources
During 2021 we continued to invest in personnel resources across a number of departments including the key hires of a Chief Revenue Officer (CRO) and Director of Finance (DoF) both of whom have joined the Executive Committee.
To deliver against our current planned or future initiatives we will where needed continue to further strengthen our team in particular in support of the sales and technology activities.
Outlook
Post year-end we announced the initiative to take over the UBS MTF dark pool activities which we anticipate will be finalised in April 2022. This is a very exciting initiative offering us the opportunity to expand our overall pan- European equities market offering and feedback from the clients has been very positive.
There remains some macro-economic uncertainty given the continued presence of COVID-19 and the lack of certainty of the full impact of Brexit; however, I believe that our strong team and technology platform should enable us to overcome these and future challenges. Our technology systems have dealt efficiently with significantly higher messaging volumes caused by increased volatility, and we continue to have an effective remote operating capability in place. Although it is difficult to forecast with any degree of certainty the effect of these events on the broader Group for the time being, I remain confident in our unique proposition and ready to achieve the next level of operational, financial and strategic success.
There has been an encouraging start to the current financial year and so far in 2022 trading continues in line with current market expectations.
We are already delivering on our vision of a transformation of primary markets for small and mid-cap stocks through Aquis Stock Exchange where we have a pipeline of 50-60 companies looking to IPO and expect the growth of the Exchange to continue at pace throughout FY22.
We continue to invest in our business to ensure that we maintain our ability to grow. This investment should support the aim of broadening and improving our market position through innovation and excellence. We will continue to promote the Aquis values of transparency, fairness and simplicity, enabling our end customers to get better performance and results.
Our principal aim in the future remains to deliver robust and sustainable returns for the benefit of shareholders and all our other stakeholders in the medium and long term and our highly capable and experienced management team remains focused on serving our clients as we grasp the opportunities ahead and, in particular, on delivering our shared goals, and our vision for transformation of primary markets for small and mid-cap stocks.
Alasdair Haynes
Chief Executive Officer
Strategic Report
Overview of the business
Aquis Exchange Plc ("Aquis" or "the Company"), is the principal operating company and the holding company of an exchange services group ("the Group") which operates three principal divisions: Aquis Exchange, Aquis Technologies and Aquis Stock Exchange.
· Aquis Exchange, a pan-European Multi-Lateral Trading Facility (MTF) operator that provides secondary market trading in pan-European stocks that are listed on other exchanges.
· Aquis Technologies provides exchange and regulatory technology to third parties.
· Aquis Stock Exchange Limited ("AQSE") is a Recognised Investment Exchange ("RIE"). It runs a primary market for small and medium size issuers and secondary market trading in those stocks.
The Company also has a French subsidiary, Aquis Exchange Europe SAS, ("AQEU"), an MTF established to enable European clients to continue to trade EU stocks, which provides secondary market trading in EU 27 stocks listed on other exchanges.
The Company and AQSE are regulated by the UK Financial Conduct Authority ("FCA"), while AQEU is regulated by the Autorité de Contrôle Prudentiel et de Resolution ("ACPR") and the Autorité des Marchés Financiers ("AMF").
Following the UK exit from the EU 99% of all EU continuous trading moved from the exchange business in London (AQXE) to AQEU on 4th January 2021. This move was handled seamlessly.
The Group has made significant progress in the development of its activities since the IPO in June 2018 and is well positioned to realise its primary objective which is to become the leading technology driven exchange services group and also to help drive improved transparency and fairness in the securities trading market through the introduction and enhancement of competition and innovation. With these guiding principles the Group's main focus is to:
· Capitalise on regulatory and technical shifts in market infrastructure by providing an exchange which offers deeper liquidity and transparency, higher quality execution for intermediaries and investors;
· Continue to increase the number of members of Aquis Exchange and associated trading volumes by providing a robust and innovative platform that responds to their needs;
· License its proven technology platform to third parties that require trading or market surveillance technology; and
· Positively address the current market issues of spread and liquidity in small and mid-cap trading through AQSE's RIE status
The trading platform for all Group entities is run on the same trading technology and all entities apply a unique subscription-based pricing model based on electronic messaging traffic and a lit market. This means that the dealing price prior to the trade is transparent to the whole market. This is in contrast to pricing on dark and grey markets, where price discovery is only available to the market post-trade.
AQXE and AQEU MTFs apply a non-aggressive trading model, which means that certain types of trading behaviour are not allowed, and it encourages more passive trades to rest in its order book. This creates greater depth of liquidity and less potential for information leakage or "toxicity" in the market. Independent studies have verified that Aquis' non-aggressive trading model has materially lower toxicity than its competitors, which reduces adverse price movements thereby lowering the implicit costs of trading for the end investor. This is a significant positive differentiating factor.
AQSE is focused on creating a primary market for growth company issuers and a secondary market for the trading of their stocks.
Clients and Competitive Landscape
The client base of all three entities consists, principally, of investment banks and brokers acting on behalf of institutions such as pension funds, asset managers and retail brokers to execute their orders and, in the case of AQSE, it includes the issuers who wish to raise capital on the platform.
The principal competitors to Aquis business are the incumbent national exchanges and other pan-European trading venues. In secondary markets they charge customers on a per transaction model to allow fully aggressive trading.
Since Aquis commenced trading it has increased its market share of EU secondary markets trading, which has grown to reach an average of 5.2% of the overall pan-European market of all trading including auctions and dark pools during 4Q21, an increase of 11% compared to the 4Q20 average of 4.7%. This business is well positioned to benefit from regulatory changes, which support transparent, low toxicity growth on "lit" markets as well as fairness and non-discriminatory behaviours. The regulatory trends and institutional support for greater transparency in European equities trading also support future business growth.
Aquis' matching engine and surveillance technology has been operating successfully for a number of years. It has been developed for multi-asset class trading and is attracting customers wishing to license the technology as the trading engine for a broad range of instruments. The Company's principal technology customers are new equity trading venues where the market is opening up to competition as well as exchanges specialising in digital assets, MTF operators across asset classes and market participants requiring real time market surveillance. Aquis delivered a proof of concept for cloud-based exchange technology in partnership with AWS and the Singapore Stock Exchange in 2020 and continues to see significant interest in this space. Competitors of the licensing business are other matching engine providers and surveillance software providers.
We are a strong supporter of the regulatory principles such as best execution and greater transparency for markets that have been introduced and we are committed to complying with market regulation. We believe that we are well placed to manage any regulatory divergence between the UK and EU given our robust and agile business model, our lean cost structure and our technology leadership.
The Board has established for the senior Executives clear financial and non-financial KPIs for the Group. For 2021 these were revenue, earnings before interest, taxation, depreciation and amortisation (EBITDA) , quality of technology, planning, sustainability and compliance with regulations and corporate governance. The Group has established financial and non-financial KPIs to allow clear performance measurement against the most important targets set by the Board. Financial KPIs represent 70% and non-financial 30%. The financial KPIs are based on target revenue and net profit before tax. The non-financial KPIs address strategy, resources, information and communication. Further details are given in the Remuneration Report.
Financial Review
It has been a year of very strong revenue growth during 2021. The breakdown of the principal revenue activities is as follows:
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| Group |
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| 2021 £ | 2020 £ | YoY Growth % |
| Revenue analysed by class of business |
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| Subscription fees | 9,766,046 | 7,738,284 | 26.2 |
| Licence fees | 4,404,606 | 2,319,700 | 89.9 |
| Issuer fees | 692,743 | 524,402 | 32.1 |
| Data vendor fees | 2,319,360 | 894,867 | 159.2 |
|
| 17,182,755 | 11,477,253 | 49.7 |
The Group generated EBITDA for the year of £4.3m compared to £1.5m in the previous year. The continued growth in profits during 2021 is primarily attributable to increased exchange revenue as members' subscriptions have risen as a result of increased trading levels, as well as increased revenue from data, technology licensing and issuer fees.
The trade receivables resulting from revenue from licensing technology contracts attract an IFRS 9 (impairment provision on the trade receivables arising from contract assets). This year the application of IFRS 9 has resulted in an impairment provision during the year of £972k (2020: £109k).
The profit before taxation for the 2021 financial year of £3.2m compares very favourably with the profit before taxation in 2020 of £0.5m. Profit after tax increased more than 300% to £4.3m and EPS (fully diluted) more than 400% to 15p per share. The profit before taxation is after applying amortisation charges to internally generated intangible assets, as well as depreciation and finance charges, which reflect the accounting treatment of leases under IFRS 16. In December 2021 Aquis signed a lease agreement for a new office and will move into this in Q2 2022, with the existing property lease maturing in May 2022. The lease liabilities arising are amortised over the life of the leases, attracting a finance expense charge amounting to £26k for 2021, whereas the right of use assets are depreciated on a straight-line basis over the life of the lease, attracting a depreciation charge of £149k for 2021. These costs are in line with the 2020 results.
The Group's cash and cash equivalents as at 31 December 2021 were £14.0m (2020: £12.3m) maintaining the Group's strong cash conversion rate.
Group investments, productivity and capital management
The Group has continued to invest in its technology offering, including the creation and enhancement of new order types, enhancements to the surveillance system and auction systems and further technical development to enable the move into different asset classes. In addition, the Group has made further investment in personnel resources as it continues to develop capability and brand awareness.
The Group is required to maintain sufficient capital to meet the regulatory obligations for all entities. These are calculated and updated annually. At 31 December 2021 the Company ICARA requirement amounted to £3.9m (2020: £3.2m). The individual entities of the Group meet the respective FCA and ACPR capital adequacy requirements with plenty of headroom for further investment in business operations.
The Board considers that its investments have contributed to the Group's ability to gain new clients, broaden its customer base and increase revenue. The Group recognises the importance of continuing to enhance productivity, and the commitment to future investment, both technically and in terms of resource training and development. The Group has established both short- and long-term incentive plans based on performance for all employees, which are set out in more detail in the Report of the Nomination & Remuneration Committee and aligns the employees' interests with the long-term strategic objectives of the Group.
In deciding its investment plans, Group management receive a detailed analysis of the exchange and client technical opportunities and related time requirements on a quarterly basis, and then determine the personnel and other resources that it wishes to allocate to these opportunities. This information also includes an estimate of the deployment cost.
Future development of the business
In order to support its long-term vision and in order to strategically position for continued growth, Aquis has invested significantly in its business differentiators, R&D in the technology platform, brand and personnel resources. The Group is cognisant of the importance of such investments to maintain innovation and strong quality delivery.
AQSE Acquisition
Following the acquisition of AQSE in March 2020, the Group has invested significant expense and resource into re-building the market presence and brand and has started to realise some of the anticipated synergies across the Group's exchange memberships, data offering and use of technology.
Stakeholder Management
The Group complies with the requirements prescribed by S172 of the Companies Act to disclose how the Company promotes its success for the benefit of all stakeholders.
The Board is acutely aware that the Group's long-term success and sustainable value creation is critically reliant on maintaining good relations with all stakeholders and ensuring that decisions are made after taking account of the principal stakeholders' interests. Specific stakeholder considerations undertaken by the Board this year included, but were not limited to, the Group's handling of the continued challenges posed by the COVID-19 pandemic and the Group's handling of Brexit.
In arriving at these decisions, the Board has assessed the likely consequences of any decision in the long term, the interests of the Group's employees, the need to foster the Group's business relationships with suppliers, customers and others, the impact of the Group's operations on the broader community, the desirability of the Group maintaining a reputation for high standards of business conduct, and the need to act fairly between shareholders of the Company.
Details on how Aquis and its Board engage with its principal stakeholders, are given below.
Clients
Management pro-actively gathers regular feedback from clients, both positive and negative, in order to understand their ever-evolving needs, identify any improvements that would result in better client outcomes or satisfaction and to foster good client relations. This is regularly fed to the Board at meetings or on an ad hoc basis, if required.
Shareholders
Executive Management meet with the key shareholders at appropriate times during the year and provide feedback to the Board.
Additionally, the Chair and other Non-Executive Directors continued, where possible, to engage with a subset of key shareholders through one-on-one meetings during the last quarter of 2021 to introduce the new Chair and to ensure that their views and opinions are clearly understood. Shareholders have been extremely appreciative of these meetings and feedback is provided to the Board in both written and verbal updates.
Employees
The Group promotes a positive and inclusive culture. Team meetings and Group briefings are held on a regular basis to ensure all personnel are informed of the Group's performance and key strategic objectives and goals. In addition, during the year Glenn Collinson took over the responsibility as the Board's nominated representative for employee engagement and facilitated meetings with employees so as to ensure that their voices are heard through an independent ear from the Board.
This was complemented by the annual employee engagement survey, which allowed employees to provide feedback in confidence. The Group first implemented the employee engagement survey in 2019 and results have been consistently positive. The Executive develops an action plan to address the key areas highlighted with particular emphasis on our core values and on investing further in employee training and career development.
Suppliers
The Group has identified key suppliers that include suppliers of office hardware and consumables, as well as suppliers such as liquidity providers and advisers such as auditors, brokers, recruitment agents, legal advisers and PR consultants. The Group seeks the independent and experienced view of its key advisers on various matters as and when required. Sometimes this is directly with the Board, or the Board will ensure that the Executive reports on advice provided to the Group when needed.
Regulators
The Group takes an open and co-operative approach with its regulators and positively embraces the FCA's 11 principles of business. The Group submits regular returns to the FCA, the ACPR and the AMF, and employees whose roles encompass compliance activities are encouraged to attend regular external presentations and workshops arranged by the regulators on topical issues, and also receive regular professional update training. All new and existing employees and advisers are made aware of the FCA, ACPR and AMF's principles of business, and undergo training required by finance professionals working at an equities exchange group. The Group arranges regular compliance assessments to provide assurance that the Group is meeting the requirements of the regulator.
During the year the Board undertook training, which covered reminders of Directors' duties in the UK and Europe with regards to the regulation and oversight of financial market infrastructures.
Compliance with Section 172 (1) of the Companies Act 2006
Section 172 of the Companies Act 2006 requires a Director of a company to act in the way he or she considers, in good faith, would most likely promote the success of the company for the benefit of its members as a whole. As such, Section 172 requires a Director to have regard, amongst other matters, to the:
· Likely consequences of any decisions in the long-term
· Interests of the Company's employees
· Need to foster the Company's business relationships with suppliers, customers and others
· Impact of the Company's operations on the community and environment
· Desirability of the company maintaining a reputation for high standards of business conduct
· Need to act fairly as between members of the company
We set out below some examples of how the Directors have had regard to the matters set out in Section 172(1) when discharging their Section 172 duty and the effect of that on certain of the decisions taken by them.
Board Effectiveness and High Standards of Business Conduct
The Board remains committed to high standards of corporate and regulatory governance. During the year we undertook training, which covered reminders of directors' duties under UK law, under the UK Corporate Governance Code and also under UK and European regulation with regards to the oversight of financial market infrastructures. Additionally, it explored how to improve the Group's cyber security risk management frameworks and became more informed about the policy-making environment for financial markets in Europe.
Consequences of Long-Term Decisions
Considerable time was spent focusing on the Group's strategy and challenging management to think about the longer-term impact of decisions, how those decisions were in line with the Group's values, the long-term sustainability of the Company and its subsidiaries and the desire to maintain its reputation. All Board members took part in focused risk management training in the year.
The Board has also undertaken succession planning both for the Executive and the Board. Niki Beattie reached her nine-year tenure as a director on 31st December 2021 when she ceased to be independent and stepped down as the Chair and as a Non-Executive Director. She was succeeded by Glenn Collinson. Two other NEDs are also coming towards the end of their nine-year tenure during the next 12-18 months when they will cease to be independent. The Board operates a skills matrix to map the requirements of the organisation against the current skills and composition of the Group Board and the skills and composition gaps that will be created as the Group evolves and directors move off the Board. This matrix is updated at least annually and was used effectively in the search for the latest additions to the Boards of both Aquis and AQSE.
During 2021, the Group recruited a new Chief Revenue Officer (CRO) and a new Director of Finance (DoF). Management plan to recruit additional employees, in particular in the technology area in the UK and France during 2022.
COVID-19 and The Interests of Employees
COVID-19 continued to present significant challenges for every firm including Aquis during 2021. The Board monitored the day-to-day operations, the business continuity plans and the employees' well-being carefully throughout the year. This continued as the various lockdowns unfolded and included considering work from home issues as well as the office environment for the periods between lockdowns.
The Board has also ensured engagement with employees through the engagement survey and the nomination of a Board representative to meet with employees when possible.
Our ESG journey
Our Purpose
In its role as a disruptor, Aquis' aim has always been to improve financial markets by maintaining the utmost transparency and least market toxicity for the benefit of the end investor. In this way it reduces both the explicit and implicit costs of trading that are borne by investors.
In addition, the Group is also focused on stimulating growth in the economy by listening to the needs of issuers and creating a supportive, fair and low-cost environment for capital raisers to list instruments, particularly for innovative growth companies while ensuring an appropriate balance of investor protection. Aquis also recognises the pivotal role it has to play in educating those issuers about ESG and how they can set and achieve goals and facilitating their disclosures to investors.
Our Culture, Diversity and Employee Well-being
The Group is committed to ethical business conduct and expects the highest standards of integrity to be followed by the Directors and all employees. The Aquis Group culture is underpinned by the following core values:
· Trust (integrity, competence and deliver what and when we say we will);
· Pro-activity (discipline and initiative);
· Openness (transparency);
· Excellence (through creativity and innovation);
· Collaboration (through positive, collegiate and free thinking); and
· Respect.
Despite a further increase in employee numbers in 2021 the Group has a relatively small resource base, and therefore has concentrated on recruiting personnel with a high degree of specialist skills. The Group provides on- going training and support with the aim of ensuring that personnel retain and enhance their technical skills and that employees feel that there is opportunity to develop within the Group.
The Group has a Diversity and Inclusion Policy that emphasises Aquis' desire to create a supportive and inclusive culture amongst the whole workforce. We believe it is in the best interests of the Company and the wider community to promote diversity and eliminate discrimination in the workplace. Our aim is to ensure that all employees and job applicants are given equal opportunity and that our organisation is representative of all sections of society. Each employee will be respected and valued and able to give their best as a result.
The policy reinforces our commitment to providing equality and fairness to all in our employment and not providing less favourable facilities or treatment on the grounds of age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, ethnic origin, colour, nationality, national origin, religion or belief, or sex and sexual orientation.
We are opposed to all forms of unlawful and unfair discrimination. All employees, management, agency, casual workers, and independent contractors no matter whether they are part-time, full-time, or temporary, will be treated fairly and with respect. When Aquis selects candidates for employment, promotion, training, or any other benefit, it will be on the basis of their aptitude and ability. All employees will be given help and encouragement to develop their full potential and utilise their unique talents. Therefore, the skills and resources of our organisation will be fully utilised, and we will maximise the efficiency of our whole workforce. Aquis' commitments are:
· To create an environment in which individual differences and the contributions of all team members are recognised and valued.
· To create a working environment that promotes dignity and respect for every employee.
· To not tolerate any form of intimidation, bullying, or harassment, and to discipline those that breach this policy.
· To make training, development, and progression opportunities available to all staff.
· To promote equality in the workplace, which Aquis believes is good management practice and makes sound business sense.
· To encourage anyone who feels they have been subject to discrimination to raise their concerns so we can apply corrective measures.
· To encourage employees to treat everyone with dignity and respect.
· To regularly review all our employment practices and procedures so that fairness is maintained at all times.
Aquis has implemented an equality, diversity and inclusion policy which has been communicated to all employees emphasising that they are obligated to comply with all its requirements and promote fairness in the workplace. The policy is also be drawn to the attention of agents, stakeholders, customers and job applicants. It is therefore very pleasing to report that gender and non-gender diversity strengthened further during the course of the year. It was also pleasing to see that through focused effort with external recruiters a more diverse selection of candidates made it through to the shortlists, at all levels of seniority and we believe our diversity and inclusion policies will have a positive impact on the successful execution of the Group strategy.
This year the Group has established aspirational 3-year diversity targets for the Board and for the employees. These targets have been established to underpin the importance the Board places on this issue and to provide clear guidance and focus on these aspirations. The Board has established a target to increase the overall female NED ratio. During 2021 the Board assessed the profiles and skill sets of the current Board Directors, including potential retirees during the next 3 years in order to help the Company meet its 3-year aspirational diversity targets.
The employee targets are set out below:
1. improve all diversity ratios
2. increase the management team diversity ratios
3. decrease the female / male seniority gender pay gap
4. include more comprehensive employee statistical analysis in the annual report
5. create a targeted diversity inclusive supplementary development program for employees who we believe have the potential to be promoted to Exco in the next 5 years
6. implement a more comprehensive mentoring system
In addition, the Group has established targets over the next three years (i.e. to 2025) where the aspirations are to:
· reduce the average seniority pay-gap by 12% from 37% to 25%.
· meet the Hampton Alexander Review target of at least 30% of board members being female
· have a gender pay (seniority) gap no worse than the UK Financial Services industry average
The flexible working policies which we implemented in 2020 have proved very successful. During the last quarter of 2021 we saw an increased desire for a partial return to work from a large % of our employees which we have supported whilst adhering to government recommended health guidelines.
The Group runs an annual anonymous employee survey and arranges regular meetings with the Board nominated employee representative. In addition, employees have regular one-to-one sessions with their immediate line manager and annual reviews where development plans are discussed to ensure individuals' objectives are aligned to the business strategy and to improve levels of employee engagement.
The Group has a commitment towards preventing slavery and human trafficking throughout our supply agreements: the Group complies with the Modern Slavery Act 2015 (MSA) and adopts a zero-tolerance approach towards slavery and human trafficking and expects all those in our supply chain (and contractors) to comply with the MSA.
Consumption and The Environment
The Directors endeavour to promote the consumption of resources in a manner that fosters the long-term sustainability of the business and the environment in which it operates and are conscious of the requirement to monitor these activities.
Although the Group has a small number of personnel and associated office space, it recognises that it contributes directly to carbon emissions through its consumption of energy, waste and water, through staff travel and, indirectly, through its consumption of supplies and equipment including office hardware.
During the year on average employees continued to work remotely for material periods due to the COVID-19 pandemic which contributed to reduced carbon emissions associated with employees commuting to the office and the Group remains committed to continuing to operate a flexible remote working structure which will continue to have an incidental beneficial effect on carbon emissions. In addition, the building electricity provider for the current Aquis office obtains energy from 100% renewable electricity and carbon neutral gas. Good progress has been made in the year with regard to the 2 data centres used by Aquis, and we are pleased to note that both are now powered by 100% renewable energy.
We have also continued progress on the target to deliver a cloud native exchange. While most major financial exchanges operate using physical data centres, the infrastructure required to run a trading environment is massive, costly and unfriendly to the environment because of the fact that servers must always be "on" and significant duplicative processing occurs. If trading firms could leverage all the benefits of running a cloud-based solution, the cost optimisation, scalability and resiliency would make a positive contribution to reducing the impact on the environment.
Governance
When Aquis listed in 2018, it voluntarily chose to follow the highest standards of corporate governance when it committed to adhering to the UK Corporate Governance Code and the Directors have implemented appropriate measures to comply, so far as practicable, with the Code.
Aquis and AQSE are directly authorised and regulated by the FCA and AQEU is regulated by the ACPR and the AMF. The Group fully complies with the relevant rules and guidelines in all respects and monitors that compliance throughout the year.
The Group's objective is to establish an open and cooperative relationship with all regulators, and it positively embraces the FCA's 11 principles of business. The Group submits regular returns to the FCA, and employees whose roles encompass compliance activities are encouraged to attend regular external presentations and workshops arranged by the FCA on topical issues, and also receive regular professional update training. All new and existing employees and advisers are made aware of the FCA's principles of business, and undergo training required by finance professionals working at an equities exchange group. The Group arranges regular compliance assessments to provide assurance that the Group is meeting the requirements of the regulator.
The wider community
Aquis has been involved in a number of charitable and community enhancing initiatives e.g. supporting the NHS and Help for Heroes throughout the year and employees have shown their desire to make a difference.
Knowledge Transfer Project
Aquis is proud to have started the partnership process with the University of Derby as part of a two-thirds government funded Knowledge Transfer Project ("KTP") that will involve industry-led research and development on Artificial Intelligence for trading platform surveillance alerts that will promote an efficient and accurate market abuse monitoring system.
Current surveillance systems are deterministic, handcrafted, generate a high percentage of false positive alerts and run a high risk of human fatigue and/or boredom. Consequently, market abuse events may often be missed when analysing a large number of false positives. As part of our mission to improve transparency in financial markets, this partnership will publish research papers on machine learning techniques that will mitigate human error in detecting fraudulent trading practices that harm the integrity of, and trust in, financial systems that are critical for the modern economy.
As part of our mandate to strive for innovation, we are excited for what the future holds for machine learning and artificial intelligence in the trading industry and are encouraged by the widespread support for this project.
Next Steps in Our ESG Journey
During the strategic planning process, we assessed a number of potential ESG initiatives Our short-term goal is to complete the assessment of the sustainability risk factors of the Group's day-to-day activities and translate them into a meaningful Group-wide ESG strategy that can be woven into our main strategic goals.
In addition, during 2022 we aim to:
· Develop a formal ESG policy
· Set formal short, medium and longer term non-financial goals on material ESG topics that are directly relevant to our business
· Introduce a first round of formal initiatives to reduce ESG impact and manage ESG risk
· Undertake an initial assessment of potential broader ESG initiatives that may have a positive impact on the wider community through the Group's role as a primary exchange
Principal risks and uncertainties
The identification and management of risk is an integral part of the execution of Aquis' strategic vision and operations. The below provides an overview of the principal risks facing the Group:
STRATEGIC RISKS
| Risk | Risk Description | Mitigation |
| Economic landscape | The effects of Ukraine, COVID-19 and Brexit on the global, European and UK economic conditions and the speed of recovery may negatively affect the Group's trading volumes resulting in lower revenues or increased costs. | Aquis derives revenues from both fee and contractual annuity-based streams, which is less impacted by cyclical market driven trends. The recent horrific events in Ukraine have caused immeasurable suffering and harm but are not expected to have a material adverse effect on the economic landscape nor on the Group's trading volumes. Whilst COVID-19 had a material negative effect on the economic landscape for many countries; the UK and European economies have made substantial recoveries during the last 18 months and overall total market volumes have remained strong Since Brexit pan-European trading has shifted almost 100% to the Group's MTF subsidiary in France, AQEU, that has full regulatory approval from the ACPR to allow the Group to continue to operate as an MTF. |
| Risk | Risk Description | Mitigation |
| Legal/Regulation | The Group operates highly regulated entities, including two MTFs and an RIE and is required to maintain sufficient regulatory capital and comply with all legal and regulatory requirements necessary to operate the Group's business. All three group entities hold regulatory licences and must hold their own capital. There is the risk that current regulation or future changes could have an adverse effect on the Group. Possible impacts may be (but are not limited to): • Sustained downturn in revenues could put the regulatory capital at risk; • One of the group entities could be subject to a fine or a lawsuit which may draw on the entities' finances • Change in regulation may increase costs for the Group or require unanticipated investments • Inability to meet regulatory requirements could result in a licence being withdrawn and prevent the Group entity from operating its core business In addition, changes in tax law may result in an increase in the overall tax burden of the Group which could have a materially adverse effect on the Group's business. | Senior management consistently monitor regulatory developments including the MifiD review and Wholesale Markets Review, which are discussed and actioned at Audit Risk and Compliance Committee (ARCC) meetings and engage regularly and directly with regulators including where appropriate formal responses to consultation documents. The Board reviews a quarterly dashboard that incorporates the Group's behaviour and statistics in relation to regulatory obligations. The Board also places considerable importance on having competent staff and advisors to help manage legal and regulatory risk. The Board considers regulators as key stakeholders and endeavours to maintain positive working relationships with the regulators for each group entity. Each member of the Group currently has sufficient excess regulatory capital to deal with any potential changes in regulation. Changes in regulation are usually accompanied by a period of consultation that allows market participants to provide feedback before changes are made and a further period to prepare for change once changes in regulation are determined. The Group consistently reviews the risks associated with possible changes in tax legislation. |
| Risk | Risk Description | Mitigation |
| Competition | The Group operates in a highly competitive global industry. The principal competitors to the trading business are the national exchanges, other pan-European MTFs / Recognised Investment Exchanges (RIEs) which currently charge customers on a per transaction model and accept both passive and aggressive market makers. These exchanges have significant market share and could move to copy Aquis' subscription fee model and/or differentiate between passive and aggressive trading. Other competitors to the exchange business are ad hoc OTC trading and Systematic Internalisers ("SIs") which operate off-exchange models and make money through spreads. New technologies such as distributed ledger technology are emerging but have yet to gain ground in trading, clearing custodian services and settlement of equities. | Aquis' competitive differentiation is underpinned by its subscription-based model and lack of aggressive trading. This is hard for incumbent exchanges to replicate without significantly impacting their own revenue models which have always been based on a per transaction basis and on charging significant data fees to participants who trade aggressively. Whilst the effects of competitor behaviour can never be fully mitigated, the Company has consistently increased its secondary market trading market share since it was formed. Senior management initiatives to reduce this risk include: consistent monitoring of competitor activity and, maintaining close customer relationships so as to understand their evolving needs, and the acquisition of a primary listing business thereby gaining RIE status. Following the change in the tick size regime for SIs in June 2021 their competitive advantage was removed, and their market share gains have decreased. As a disruptive firm, Aquis remains vigilant about changing technologies and how it might embrace them to further its business model. |
| Intellectual property and data protection | The Group is reliant on copyright, trade secret protection, database rights and confidentiality and licence agreements with its employees, clients and others to protect its intellectual property rights. The Group is subject to a number of laws relating to privacy and data protection, including the UK's Data Protection Act 1988 and the Privacy and Electronic Communications (EC Directive) Regulations 2003 and the EU General Data Protection Regulation (GDPR). | The Group has taken steps that are consistent with industry practice to reduce these risks by establishing controls to protect the confidentiality and integrity of customer information, and these controls are consistently reviewed for their effectiveness at quarterly ARCC meetings. |
OPERATIONAL RISKS
| Risk | Risk Description | Mitigation |
| Technology | The operation of the Group is critically reliant on the smooth and efficient functioning of technology. Technological failures would negatively affect clients and the Group's ability to deliver on performance obligations. It could also result in regulatory scrutiny or fines or requirements for further investment. Failure to protect Intellectual Property could mean that competitors gain access to Aquis' technology or make Aquis susceptible to external infiltration. These risks could adversely affect the firm's financial and competitive situation. | A defining feature of the Aquis business model is its high calibre, in-house technology. The technology was built and is maintained by highly skilled employees. Aquis actively seeks to retain the employees through flexible attractive working practices and remuneration policies and to continually enhance the technology to meet client requirements. The Group's key infrastructure, development and operational activities are prioritised accordingly, and resources are closely and consistently monitored and reviewed with the aim to ensure smooth functioning of technology at all times. Aquis technology is securely maintained to protect it from unauthorised access with full back up and version control if remediation is required. Aquis has system control features that are regularly tested to protect data and Intellectual Property (IP). The Group maintains a Disaster Recovery plan that encompasses input from all departments and is continuously monitored and reviewed by appropriately experienced individuals. The comprehensive back up and contingency plans in place are tested regularly. The Board reviews a quarterly dashboard that incorporates technology performance statistics and operational resilience. |
| Risk | Risk Description | Mitigation |
| COVID-19 | There remains a risk that the COVID-19 pandemic could still negatively impact personnel being able to operate the exchanges. There are also risks to clients, liquidity providers, suppliers, markets and the economy in general. It is possible that governments or regulators could impose extraordinary measures such as closures of the market for a prolonged period. Remote working practices across the industry may slow overall technology programs at client and supplier organisations which may have a longer- term impact on Aquis. This could manifest in new members not joining any of the Aquis entities in the anticipated timelines or slower adoption of new products developed by Aquis. | The Group continued to successfully operate a partial remote working plan throughout 2021 and this remains in place, with all staff demonstrating adaptive and flexible behaviours The processes that the Group has adopted are in accordance with UK and French government guidelines. This plan mitigated against and will continue to mitigate against potential resource shortages. The Group has demonstrated and is confident that it can operate the exchanges remotely for a prolonged period. The Group's clients and liquidity providers have also demonstrated that they can remotely manage their activities successfully. Key suppliers have also successfully adopted disaster recovery procedures. Equity markets were at times during 2021 very volatile, experiencing significantly higher than normal volumes. During these periods the Company did not experience any significant issues or delays and the system has proven that it has more than sufficient capacity to operate the market. Aquis is not overly reliant on new members to achieve its growth plans. The main source of anticipated growth in trading is from the increase in volumes of current customers. |
| Risk | Risk Description | Mitigation |
| Cyber security | The Group's networks and those of its third-party service providers may be vulnerable to security risks, cyber-attack or other leakage of sensitive data. Potential outcomes of such an attack might include outages of the market, possible attacks which seek to hold Aquis to ransom, unintended movements of the company finances or generally create reputational and financial risk. | The Board reviews a quarterly dashboard that incorporates cyber technology monitoring. Regular penetration tests are undertaken by a third party and a new employee cyber- training program was developed to address this issue. Internal exercises to alert employees to the possibility of phishing emails are held regularly. The MTF has "kill" switches in place which are intended to restrict clients if rogue behaviour is evidenced. The Group takes precautions to protect data in accordance with applicable laws. Extensive risk management protocols are adopted in the IT control framework so as to prevent, detect and respond proactively to cyber security attacks. The comprehensive back up and contingency plans in place are tested regularly. |
| Key management personnel and employees | The Group has a relatively low headcount and hence is exposed to key person risk. The Group's future development and prospects depend on its capacity to attract and retain key personnel. | The Group has established emergency staffing plans for Senior Executives. The N&RC reviews immediate and medium-term succession plans and the ARCC assesses key person risk. Aquis employs a number of strategies to ensure the Group is able to attract and retain a high calibre of talent. The Group employs a rigorous recruitment process and offers competitive salaries and benefits, whilst promoting a culture of diversity, high performance and inclusion from the top. The Group continues to demonstrate its ability to recruit high-quality individuals and is clearly viewed as a dynamic and attractive employer. |
| Risk | Risk Description | Mitigation |
| Client concentration | The nature of equity financial markets is that the majority of volumes are undertaken by a small pool of market participants. This risk has been increased as some of the smaller market participants have decided to route via larger banks that maintain direct exchange memberships. The Group revenue is therefore dependent on a concentrated number of customers and significant change to one customer's flow could negatively impact revenues. | The Company initially concentrated on connecting to large investment banks, brokers and is now broadening its client base to reduce client concentration but recognises that volumes from smaller participants are not likely in aggregate to be as large. The Company can offset some of the risk of industry concentration through the quality of the MTF exchange offering. The Company seeks to maintain positive relationships with all current and future members of its MTF exchange and to be vigilant for change at any client. The Group has diversified its business activities to include technology sales, data and market gateways and entering the primary exchange business following the acquisition of AQSE. |
| Risk | Risk Description | Mitigation |
| Liquidity provision concentration - Aquis | In most trading venues globally, there is considerable symbiosis between the venue and the liquidity providers on which the venues rely to make continuous prices and enhance liquidity. In Europe, where there is significant competition between a limited number of trading venues, the ability to attract significant liquidity to the venue is critical. The barriers to entry are even higher for new trading venues, which must build liquidity from scratch and differentiate themselves to attract and retain it. Market makers themselves have differing business models and trading strategies; as a result, they may be attracted to different types of venues depending on the value proposition. Aquis has a highly differentiated business model compared to the incumbent platforms, both dramatically reducing the cost of trading and also not permitting aggressive trading by market makers. This has been a driver of Aquis' success to date. The number of market makers that have trading models currently aligned with Aquis' business philosophy is even more concentrated than on the main markets. Therefore, Aquis has always relied heavily on a small number of key market makers to support liquidity and a wider group to supplement it. These market makers have not always been the same organisations and have changed over time. Nonetheless, it is a risk that if a key market maker decides to change its business model or philosophy it would cause a short-term disruption in the total liquidity provided and could impact Aquis' ability to differentiate itself through the prevention on non- aggressive trading flow. | This risk is mitigated internally through a number of actions including those set out below, and externally through the likely evolution of the structure of the European equity market. Internally, management are working to maintain a close relationship with all market makers to ensure that there continues to be positive synergies for all parties. Aquis is also actively seeking to continue to grow membership and diversify its liquidity providers. As Aquis' market share increases further, more natural liquidity should be attracted thus diluting the concentration risk away from a small number of liquidity providers to a broader set of investor flows. Externally, the market share growth that Aquis has achieved to date is a strong indication of the benefits to its members and liquidity providers and makes it likely that natural liquidity will continue to grow, making the Aquis marketplace deeper and more attractive for all counterparties. Additional liquidity providers are likely to follow over time as they should be incentivised to adapt or create new models that capitalise on Aquis' value proposition and interaction with a wider set of trading flows. The number of liquidity providers in European equity markets is still relatively small today, reflecting the continued need to invest in technology and regulatory oversight. However, as the effects of MiFID II, particularly with its mandate for best execution, continue to reduce competition in liquidity provision, the Group's low toxicity model and innovative offerings will continue to counter this risk |
| Risk | Risk Description | Mitigation |
| Liquidity Provision Concentration - AQSE | A relatively small, but growing, population of market makers support AQSE with similar risks to those identified above with regard to potential short-term impact if one were to change its business model or approach. | The AQSE Market Maker warrant scheme should ensure this risk is effectively countered on that Exchange. |
| Supplier risk | The Group is exposed to the failure of a key supplier. Examples include loss of data supplied to Aquis which is an important input into the trading platform. This may impact the ability to undertake market surveillance. | Aquis has back up plans in place for key suppliers and has agreed procedures and thresholds in place for managing this when necessary. |
FINANCIAL RISKS
The Group's current assets comprise cash and liquid resources including trade receivables arising directly from its operations. The main financial risks are capital, credit, liquidity and foreign currency risks. The Group actively manages the balance sheet and risks without the use of any financial derivatives.
The Group has materially increased its profits during 2021 demonstrating that it has been able to manage the strategic and operational risks; however future results could be negatively impacted if any of the risks outlined above were to occur. Financial risk management disclosures have been made in Note 6 of the Group Financial Statements accompanying this report.
Viability statement
The Directors have undertaken a detailed review of the Group's prospects, taking account of the Group's current position and principal underlying business risks and its prospects for the period 2022 - 2026. These include considering the impact during 2021 and potential future impact due to Ukraine, COVID-19 and Brexit. The Directors consider this to be an appropriate period considering the target business and revenue growth, and the objective to maintain and enhance profitability during this period.
The Group maintains a strong equity capital position which has been strengthened during 2021 as profitability has been enhanced. This result complemented by the Group achieving and in certain areas exceeding its goals and taking account of its ability to execute successfully its principal strategic objectives and operating goals during continued challenging circumstances, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.
This assessment has concentrated in particular on the key differentiating factors that the Group has established, the quality and resiliency of the Group's technology, the brand and market position, and the reputation and quality of the experience of its key personnel resources.
This Strategic Report was approved by the Board of Directors on 28 March 2022 and is signed on its behalf by:
Alasdair Haynes
CEO
Jonathan Clelland
CFO
Consolidated and Company Statement of Comprehensive Income
For the year ended 31 December 2021
|
|
| Group | Company | ||
|
| Notes
| 2021 £
| 2020 £
| 2021 £
| 2020 £
|
| Profit and loss |
|
|
|
|
|
| Revenue | 11 | 17,182,755 | 11,477,253 | 9,454,737 | 9,860,328 |
| Impairment charge | 12 | (972,161) | (100,174) | (972,161) | (97,760) |
| Operating expenses | 13 | (11,930,400) | (9,855,927) | (4,038,026) | (7,443,194) |
| Earnings before interest, taxation, depreciation and amortisation |
| 4,280,194 | 1,521,152 | 4,444,550 | 2,319,374 |
| Interest income | 15 | 444 | 14,632 | 444 | 14,632 |
| Depreciation and amortisation | 13 | (1,032,240) | (1,030,290) | (1,026,980) | (1,030,290) |
| Finance expense | 13 | (35,010) | (41,835) | (35,010) | (41,835) |
| Finance income | 13 | 8,835 | 6,736 | 8,835 | 6,736 |
| Profit before taxation |
| 3,222,223 | 470,395 | 3,391,839 | 1,268,616 |
| Income tax credit | 18 | - | 307,616 | - | 307,616 |
| Deferred tax | 17 | 1,088,543 | 203,717 | 1,088,543 | 203,717 |
| Profit for the year | 4,310,766 | 981,728 | 4,480,382 | 1,779,951 | |
|
Other comprehensive income |
|
76,899 |
(531) |
- |
- |
| Foreign exchange differences on translation of foreign operations | 32 | ||||
| Other comprehensive income/(loss) for the year | 76,899 | (531) | - | - | |
| Total comprehensive income for the year | 4,387,665 | 981,197 | 4,480,382 | 1,779,951 | |
|
Earnings per share (pence) |
|
|
|
|
|
| Basic |
|
|
|
|
|
| Ordinary shares | 19 | 16 | 4 | 16 | 7 |
| Diluted |
|
|
|
|
|
| Ordinary shares | 19 | 15 | 3 | 16 | 6 |
Consolidated and Company Statement of Financial Position
As at 31 December 2021
|
|
| Group | Company
| ||
|
| Notes
| 2021 £
| 2020 £
| 2021 £
| 2020 £
|
| Assets |
|
|
|
|
|
| Non-current assets |
|
|
|
|
|
| Goodwill | 16,20 | 83,481 | 83,481 | - | - |
| Intangible assets | 16 | 753,714 | 916,256 | 753,714 | 916,256 |
| Property, plant and equipment | 21 | 4,146,333 | 1,578,554 | 3,563,758 | 1,578,554 |
| Investment in subsidiaries | 22 | - | - | 6,884,202 | 6,484,202 |
| Investment in trust | 23 | - | - | 1,856,964 | 486,127 |
| Deferred tax asset | 17 | 1,292,260 | 203,717 | 1,292,260 | 203,717 |
| Trade and other receivables | 24 | 2,744,656 | 839,630 | 2,731,174 | 839,630 |
|
| 9,020,444 | 3,621,638 | 17,082,072 | 10,508,486 | |
| Current assets |
|
|
|
|
|
| Trade and other receivables | 24 | 3,768,947 | 2,924,067 | 4,372,554 | 2,943,368 |
| Cash and cash equivalents | 25 | 14,046,399 | 12,268,418 | 7,094,964 | 6,179,566 |
| Total assets | 26,835,790 | 18,814,123 | 28,549,589 | 19,631,420 | |
|
Liabilities |
|
3,783,587 |
2,810,710 |
3,196,516 |
2,292,106 |
| Current liabilities |
| ||||
| Trade and other payables and short term lease liabilities | 6, 26 | ||||
| Net current assets | 14,031,759 | 12,381,775 | 8,271,002 | 6,830,828 | |
|
Non-current liabilities |
|
3,422,744 |
995,081 |
2,915,920 |
995,081 |
| Lease liabilities | 27 | ||||
|
| 3,422,744 | 995,081 | 2,915,920 | 995,081 | |
| Total liabilities | 7,206,331 | 3,805,791 | 6,112,436 | 3,287,187 | |
| Net total assets | 19,629,460 | 15,008,332 | 22,437,153 | 16,344,234 | |
|
Equity |
|
|
|
|
|
| Called up share capital | 28 | 2,750,545 | 2,716,970 | 2,750,545 | 2,716,970 |
| Share premium account | 29 | 11,771,462 | 10,892,135 | 11,771,462 | 10,892,135 |
| Other reserves | 30 | 1,118,314 | 760,543 | 1,448,430 | 748,525 |
| Treasury shares | 31 | (1,526,835) | (489,625) | - | - |
| Retained earnings |
| 5,438,167 | 1,127,401 | 6,466,716 | 1,986,604 |
| Foreign currency translation reserve | 32 | 77,807 | 908 | - | - |
| Total equity | 19,629,460 | 15,008,332 | 22,437,153 | 16,344,234 | |
Consolidated Statement of Changes in Equity
For the year ended 31 December 2021
|
Group |
Notes |
Share Capital |
Share premium |
Other reserves |
Retained earnings |
Treasury Shares | Foreign Currency Translation Reserve |
Total |
| Balance at 1 January 2020 |
| 2,714,956 | 10,839,981 | 377,766 | 145,673 | (327,809) | 1,439 | 13,752,006 |
| Profit for the year |
|
|
|
| 981,728 |
|
| 981,728 |
| Foreign exchange differences on translation of foreign operations | 32 |
|
|
|
|
| (531) | (531) |
| Issue of new shares | 28,29 | 2,014 | 52,154 |
|
|
|
| 54,168 |
| Movement in share-based payment reserve | 30 |
|
| 382,777 |
|
|
| 382,777 |
| Movement in Treasury Shares | 31 |
|
|
|
| (161,816) |
| (161,816) |
| Balance at 31 December 2020 |
| 2,716,970 | 10,892,135 | 760,543 | 1,127,401 | (489,625) | 908 | 15,008,332 |
| Balance at 1 January 2021 | 2,716,970 | 10,892,135 | 760,543 | 1,127,401 | (489,625) | 908 | 15,008,332 | |
| Profit for the year |
| - | - | - | 4,310,766 |
| - | 4,310,766 |
| Foreign exchange differences on translation of foreign operations | 32 | - | - | - | - | - | 76,899 | 76,899 |
| Issue of new shares | 28,29 | 33,575 | 879,327 | - | - | - | - | 912,902 |
| Movement in share-based payment reserve | 30 | - | - | 357,771 | - | - | - | 357,771 |
| Movement in Treasury Shares | 31 | - | - | - | - | (1,037,210) |
| (1,037,210) |
| Balance at 31 December 2021 | 2,750,545 | 11,771,462 | 1,118,314 | 5,438,167 | (1,526,835) | 77,807 | 19,629,460 | |
Company Statement of Changes in Equity
For the year ended 31 December 2021
|
Company |
Notes | Share Capital | Share premium | Other reserves | Retained earnings |
Total |
| Balance at 1 January 2020 |
| 2,714,956 | 10,839,981 | 368,367 | 206,383 | 14,129,687 |
| Profit for the year |
| - | - | - | 1,779,951 | 1,779,951 |
| Issue of new shares | 28,29 | 2,014 | 52,154 | - | - | 54,168 |
| Movement in share-based payment reserve | 30 | - | - | 380,158 | - | 380,158 |
| Balance at 31 December 2020 |
| 2,716,970 | 10,892,135 | 748,525 | 1,986,334 | 16,343,964 |
| Balance at 1 January 2021 | 2,716,970 | 10,892,135 | 748,525 | 1,986,334 | 16,343,964 | |
| Profit for the year |
| - | - | - | 4,480,382 | 4,480,382 |
| Issue of new shares | 28,29 | 33,575 | 879,327 | - | - | 912,902 |
| Movement in share-based payment reserve | 30 | - | - | 699,905 | - | 699,904 |
| Balance at 31 December 2021 | 2,750,545 | 11,771,462 | 1,448,430 | 6,466,716 | 22,437,153 | |
Consolidated and Company Statement of Cash Flows
For the year ended 31 December 2021
|
|
| Group | Company | ||
|
| Notes | 2021 £
| 2020 £
| 2021 £
| 2020 £
|
| Cash flows from operating activities |
|
|
|
|
|
| Cash generated by operations | 33 | 3,157,517 | 2,129,563 | 2,748,346 | 2,228,339 |
| Tax refunded | 18 | — | 307,616 | — | 307,616 |
| Finance expense on lease liabilities | 27 | (26,175) | (35,099) | (26,175) | (35,099) |
| Net cash outflow from operating activities | 3,131,342 | 2,402,080 | 2,722,171 | 2,500,856 | |
|
Investing activities |
|
|
|
|
|
| Recognition of software development costs | 20 | (350,893) | (642,695) | (350,893) | (642,695) |
| Purchase of property, plant and equipment | 21 | (319,519) | (115,351) | (314,384) | (115,351) |
| Investment in subsidiaries |
| — | (259,400) | — | — |
| Capital injection into AQSE and Aquis Europe | 22 | — | — | (400,000) | (4,046,436) |
| Interest received | 13 | 444 | 14,632 | 444 | 14,632 |
| Net cash used in investing activities | (669,968) | (1,002,815) | (1,064,833) | (4,789,851) | |
|
Financing activities |
|
|
|
|
|
| Issue of new shares | 28,29 | 912,902 | 54,168 | 912,902 | 54,168 |
| Purchase of treasury shares | 31 | (1,100,000) | — | (1,100,000) | — |
| Principal portion of lease liability | 2,23 | (573,194) | (195,346) | (554,842) | (195,346) |
| Net cash generated from/(used in) financing activities | (760,292) | (141,178) | (741,940) | (141,178) | |
| Net increase/(decrease) in cash and cash equivalents |
| 1,701,082 | 1,258,088 | 915,398 | (2,430,173) |
| Cash and cash equivalents at the beginning of the year | 25 | 12,268,418 | 11,010,861 | 6,179,566 | 8,609,739 |
| Effect of exchange rate changes on cash and cash equivalents | 32 | 76,899 | (531) | — | — |
| Cash and cash equivalents at the end of the year | 25 | 14,046,399 | 12,268,418 | 7,094,964 | 6,179,566 |
Notes to the Financial Statements
1. SIGNIFICANT CHANGES IN THE REPORTING PERIOD
The following events and transactions had an impact on the financial position and performance of the Group and/or Company during the period:
Following the end of the Brexit transition arrangements, from 1 January 2022 Aquis Europe SAS, a 100% owned subsidiary of the Group earns that element of exchange revenue relating to EU27 stocks, with Aquis Exchange Plc (the Company) now recording only that element of exchange revenue relating to UK and Swiss stocks. There is no impact at a Group level.
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES
Company information
Aquis Exchange PLC is a public limited company which is incorporated and domiciled in the United Kingdom. Its registered office is located at Palladium House, 1-4 Argyll Street, London, W1F 7LD.
Accounting convention
The Group's consolidated and the Company's financial statements are prepared in accordance with UK-adopted international accounting standards and the Companies Act 2006.
The "requirements of the Companies Act 2006" here means accounts being prepared in accordance with "international accounting standards" as defined in section 474(1) of that Act.
The financial statements have been prepared on the historical cost basis.
The Group does not hold any financial instruments at fair value through profit or loss.
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
Going concern
At the time of approving the financial statements, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and thus continue to adopt the going concern basis of accounting in preparing the financial statements.
The Group has made an increased profit in 2021 against prior year and has substantial cash reserves and a strong balance sheet, due to high levels of investment within the Group. There has been a growth in revenue between the current year and comparative years. Additional revenue growth is projected for 2022, with profits forecasted for future years.
Coronavirus has continued to impact the global economy in 2021 and caused a significant amount of uncertainty. Whilst this has not hindered the business in a discernible way to date, which is evidenced by the revenue growth and profit generated during the year, there remains a risk that there may be a longer-term impact on revenues and/or costs and therefore the Directors continue to closely monitoring how the situation develops and are ready to address any negative impact on the business if necessary.
The end of 2020 marked the end of the transition period following the UK's departure from the EU, and a trade agreement was reached at the end of the year, which did not address financial services. While the agreement ended years of uncertainty regarding a no-deal Brexit, there are significant costs for the UK's financial services industry, and it
is anticipated there will be a long-lasting effect on the UK economy. With its European subsidiary and a well-planned and executed transition of EU securities trading, the Group has been well-positioned to respond quickly to the changes in legislation. However, it remains difficult to predict the overall impact of Brexit on the future trading landscape for both the financial services industry and the wider UK economy.
The Ukrainian conflict has resulted in extremely volatile market and there is no certainty as to when this conflict will be resolved, however at this stage, the Directors do not believe that this could have a material adverse effect on the group.
Taking the above into account in light of the Group's current position and principal risks as discussed in the Strategic Report section of this annual report, the Directors have assessed the prospects of the Group for the foreseeable future and there is no material uncertainty as to the Group's ability to continue to adopt the going concern basis of accounting in preparing the financial statements over a period of at least 12 months from the date of approval of these financial statements.
Consolidation
Group
The consolidated financial statements comprise the financial statements of the Company and its subsidiary companies with all inter-company balances and transactions eliminated.
Investments in subsidiary companies' shares, loans and other contributions are recognised at cost. These are reviewed for impairment when events indicate that the carrying amount may not be recoverable and are accounted for in the Company's financial statements at cost less accumulated impairment losses.
The results of Aquis Stock Exchange Limited and Aquis Exchange Europe SAS have been consolidated in the Group financial statements for the year ended 31 December 2021.
The Group consolidated financial statements also include treasury shares and cash held by two separate trusts ("the Trusts") that administers the Company's employee share incentive plan and also hold shares purchased by the Company in preparation for future settlement of employee share awards made to date. The Trusts have been consolidated based on the IFRS 10 criteria for control over the Trust being met:
The Trusts were established to (i) facilitate the acquisition and holding of shares under the Aquis Exchange PLC Share Incentive Plan and (ii) facilitate the acquisition and holding of shares under the Aquis Exchange PLC Restricted Share Plan.
The activities of the Trusts are limited by the agreements in place; and
The Trusts do not have any assets outside of the partnership share money received and the shares purchased. The use of any shares or cash that remain in the Trust funds once the trustee no longer holds any shares relating to the SIP or RSP, is directed by the company. The Trust itself has no rights to any dividends.
Accounting Policies
Revenue
Revenue comprises amounts derived from the provision of services which fall within the Company's ordinary activities, net of value added tax. It represents amounts receivable for subscription fees, the licensing of software, the provision of data to third-party vendors, and fees relating to listings on the Aquis Stock Exchange (AQSE), all of which are net of value added tax. Revenue is recognised once the performance obligations for each activity have been satisfied.
All the revenue streams are generated by contracts with customers and revenue is therefore recognised in accordance with IFRS 15.
Revenue from exchange subscription-based services is recognised in the accounting year in which the services are rendered, by reference to the ongoing contractual obligation to provide the services.
Revenue from licensing contracts is assessed for each contract and split into three performance obligations:
Project fees and maintenance fees which are recognised over time as the obligations are met; and
Licensing for which fees are considered a "right to use" licence under IFRS 15 and are therefore recognised at a point in time when control of the licence passes to the customer.
Revenue from the provision of data to third-party vendors is comprised of the annual fees paid by the redistributors, member firms and multi-media firms for access to real time and/or end of day data. An additional monthly fee is received based on the number of users the vendors provide the data to each month, variable based on usage for the prior month, is charged in arrears and is recognised in the month it is incurred.
Revenue from AQSE issuer fees is comprised of initial application and admission fees, annual fees, and further issue fees. Both application and admission fees are recognised monthly over the expected life of a company's admission. An
estimation is required to determine the length of time the securities will remain listed on the exchange, the details of which are set out below. Annual issuer fees relate to fees paid by issuers to maintain a listing on the exchange and are discussed below, while further issue fees relate to fees in respect of further issues by listed companies are recognised at the point in time they occur.
Annual issuer and data fees are paid by the customers in advance and are initially recognised as deferred revenue, then released over time as the performance obligation is fulfilled.
Estimated listing period for Aquis Stock Exchange securities
In recognising application and admission fees, the Company determines the expected length of time each new security will be listed on AQSE. The estimate is based on historical analysis of listing durations in respect of the companies listed on AQSE. The length of time a security remains listed incorporates significant uncertainty as it is based on factors outside the control of the Company and which are inherently difficult to predict.
Based on the available information and incorporating management's predictions, it is currently estimated that an average security will remain listed for a period of 9 years. Application and admission fees are recognised monthly over this period. It is estimated that a one year increase/ decrease in the deferral period would cause a £4,657 decrease /£5,821 increase in annual revenue released respectively. The estimated listing periods will be reassessed at each reporting date to ensure they reflect the best estimates of the Group.
Intangible assets other than goodwill
Internally developed intangible assets arising from the capitalisation of Research and Development expenditures are recognised in the financial statements when all of the following criteria are met:
The technical feasibility of completing the intangible asset so that it will be available for use or sale is established;
There is an intention to complete the intangible asset and use or sell it;
The Group has the ability to use or sell the intangible asset;
The existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset can be demonstrated;
Adequate technical, financial and other resources are available to complete the development and to use or sell the intangible asset; and
The Group has the ability to measure reliably the expenditure attributable to the intangible asset during its development.
Where the above criteria are not met, costs incurred in research and development are recognised in the Statement of Comprehensive Income as incurred.
Amortisation is recognised in order to write off the cost or valuation of the assets, less their residual values over their useful lives. The development of trading platforms has been amortised over 3 years on a straight-line basis reflecting management's estimate of the useful life of the technology, the rationale of which is discussed in Note 4.
Business Combination
Aquis Exchange PLC (the acquirer) purchased 100% of the shares of NEX Exchange Limited (which subsequently changed its name to Aquis Stock Exchange Limited (AQSE)) on 11 March 2020 (the acquisition date). Business combinations are recorded using the acquisition method. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Acquisition-related costs are expensed as incurred. The excess of the consideration transferred over the fair value of the net identifiable assets is recorded as goodwill.
Goodwill
In March 2020 the acquisition of AQSE gave rise to goodwill in the consolidated financial statements. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred over the net identifiable assets acquired and liabilities assumed. Goodwill is assessed for impairment annually. Note 20 provides further detail on the impairment assessment for goodwill as at 31 December 2021.
Property, plant and equipment (excluding right-of-use assets)
All property, plant and equipment are stated at historical cost less depreciation or impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent expenditure is included in the asset's carrying amount or is recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repair and maintenance costs are charged to the income statement during the financial period in which they are incurred.
Depreciation is recognised so as to write off the cost or valuation of assets, less their residual values, over their useful lives on the following basis:
Fixtures, fittings and equipment: 5 years straight line.
Computer equipment: 3 years straight line.
Impairment of tangible and intangible assets
At each reporting end date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Cash and cash equivalents
Cash and cash equivalents include cash at bank.
Financial assets
All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Financial assets are initially measured at fair value plus transaction costs and are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.
Classification of financial assets
Debt instruments that meet the following conditions are measured subsequently at amortised cost:
The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Trade and other receivables
Trade receivables are amounts due from customers for services performed in the ordinary course of business. Other receivables are defined as amounts due that are outside the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.
Contract assets
Contract assets are recognised for licensing fees recognised at inception of a licensing contract but not yet billed under IFRS 15. Contract assets are initially measured at fair value and subsequently measured at amortised cost and are stated net of any expected credit loss provision (ECL) recognised in accordance with IFRS 9, as detailed in Note 12. Contract assets are presented on the Statement of Financial Position as trade receivables. The right to consideration becomes unconditional once the customer has been billed.
Rent deposit asset
Under IFRS 16, a rent deposit is accounted for as a financial asset if:
The collateral provided to the lessor is not a payment relating to the right to use the underlying assets and hence is not a lease payment as defined;
The difference between the nominal amount and fair value of the rent deposit at the commencement date represents an additional lease payment which is prepaid and is included in initial carrying amount of the Right of Use (ROU) asset; and
The prepaid ROU portion is subsequently measured in terms of IFRS 16 i.e. is depreciated over the term of the lease. Further disclosures are provided in Note 27.
Impairment of financial assets
The Group has considered the impact of the application of an expected credit loss model when calculating impairment losses on current and non-current contract assets and other financial assets at amortised cost (presented within trade and other receivables). In applying IFRS 9 the Group must consider the probability of a default occurring over the contractual life of its trade receivables and contract asset balances on initial recognition of those assets. Note 12 details the Group's credit risk assessment procedures.
Financial liabilities
All financial liabilities are measured subsequently at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost of a financial liability.
In 2021 the Group did not hold any Financial liabilities beyond Trade and other payables, Accrued Expenses and the lease liabilities recognised under IFRS 16 as described in the "Leases" sub-section below.
Trade and other payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade and other payables are not interest bearing and are initially recognised at fair value.
Equity instruments
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are charged against the share premium account.
Earnings per share
The earnings per share (EPS) calculations are based on basic earnings per ordinary share as well as diluted earnings per ordinary share. The basic EPS is calculated by dividing the profit after tax of the Group by the weighted average number of ordinary shares that were in issue during the year. The diluted EPS takes into account the dilution effects which would arise on conversion of all outstanding share options and share awards under the Employee Share Incentive Plan.
Taxation
The tax expense/(credit) represents the sum of the tax currently payable/(repayable) and deferred tax.
An R&D tax credit is claimed annually from HMRC based on the employee costs involved in developing Aquis' systems and technology. It is recognised as a credit to the profit and loss in the year it is received.
Current tax
The current income tax charge/ (credit) is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the country where the company operates and generates taxable income. Management
periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised, or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future measurable taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Employee benefits
The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of inventories or non-current assets.
The cost of any unused holiday entitlement is recognised in the period in which the employee's services are received.
Termination benefits are recognised as an expense when the Group is demonstrably committed to terminate the employment of an employee or to provide termination benefits, as set out within IAS 19.
Retirement benefits
Pension obligations
The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
Share-based payments
EMI Options
Equity-settled share-based payments are measured at fair value at the date of grant by reference to the fair value of the equity instruments granted using the US Options Binomial model. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the estimate of shares that will eventually vest. A corresponding adjustment is made to equity.
When the terms and conditions of equity-settled share-based payments at the time they were granted are subsequently modified, the fair value of the share-based payment under the original terms and conditions and under the modified terms and conditions are both determined at the date of the modification. Any excess of the modified fair value over the original fair value is recognised over the remaining vesting period in addition to the grant date fair value of the original share-based payment. The share-based payment expense is adjusted if the modified fair value is less than the original fair value.
Cancellations or settlements (including those resulting from employee redundancies) are treated as an acceleration of vesting and the amount that would have been recognised over the remaining vesting period is recognised immediately.
Employee Share incentive plan
Shares purchased under the share incentive plan are recognised as share-based payments under IFRS 2. Partnership shares are purchased by employees and matching shares are those purchased by Aquis at a ratio of 2:1. The shares are held in a trust ("the Trust"), with matching shares required to be held for three years before being transferred to the employee. The fair value of both the partnership and matching shares are recognised in the share-based payment reserve. Partnership shares vest immediately while matching shares will vest over the three-year holding period. The market value of shares when they are purchased is assumed to approximate the fair value of the shares.
The cash transferred to the Trust is recognised as an investment in the Company's accounts. In line with IFRS 10 guidance, the Trust is consolidated in the Group accounts with the fair value of the shares held in the trust recognised as a debit entry within equity. This accounting treatment was initially adopted in 2020.
Restricted shares
Restricted shares are share based and will vest three years after the grant date subject to continued employment. Similar to share-based payments they are measured at fair value determined at the grant date using the Black Scholes model. The fair value is expensed on a straight-line basis over the vesting period, with the corresponding adjustment being made to reserves.
Leases
The Group assesses whether a contract is or contains a lease at inception of the contract. The Group recognises a right of use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. Lease payments included in the measurement of the lease liability comprise:
Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable;
Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
The amount expected to be payable by the lessee under residual value guarantees;
The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
The lease liability is presented as a separate line in the consolidated statement of financial position and is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently
measured at cost less accumulated depreciation and impairment losses. The right-of-use assets are included in property, plant and equipment in the consolidated statement of financial position and are depreciated over the term of the
lease. The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the 'Property, Plant and Equipment' policy. Variable rents that do not depend on an index or rate are not included in the measurement the lease liability and the right-of-use asset.
Foreign exchange
Functional and presentation currency
Items included in the financial statements of the Group are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The financial statements are presented in UK Pound Sterling (£), which is the Group's functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are recognised in profit or loss.
All foreign exchange gains and losses recognised in the income statement are presented net within 'operating expenses'.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in a foreign exchange translation reserve (attributed to non-controlling interests as appropriate).
On the disposal of a foreign operation (i.e. a disposal of the Group's entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation or a partial disposal of an interest in a joint arrangement or an associate that includes a foreign operation of which the retained interest becomes a financial asset), all of the exchange differences accumulated in a foreign exchange translation reserve in respect of that operation attributable to the owners of the Group are reclassified to profit or loss.
3. ADOPTION OF NEW AND REVISED STANDARDS AND CHANGES IN ACCOUNTING POLICIES New IFRS Standards that are effective for the current year
There were no new standards effective during the year ended 31 December 2021.
Standards which are in issue but not yet effective
At the date of authorisation of these financial statements, the following Standards and Interpretations, which have not yet been applied in these financial statements, were in issue. The Directors do not expect that the adoption of the Standards listed below will have any impact on the financial statements of the Group in future periods:
| IFRS 17 | Insurance Contracts |
| Amendments to IFRS 9, IAS 39 and IFRS 17 | Interest rate benchmark reform |
| Amendments to IFRS 3 | Definition of a business |
| Amendments to IAS 1 and IAS 8 | Definition of material |
| Amendment to IAS 12 | Income taxes |
| Amendment to IAS 16 | Property, plant and equipment |
| Amendment to IAS 37 | Provisions, contingent liabilities and contingent assets |
| Amendment to IAS 41 | Agriculture |
| IFRS 1 | First time adoption of IFRS |
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
In applying the Group's accounting policies, which are described in Note 2, the Directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. Management has shown these matters as judgements where they relate to a significant policy and the judgement has a material impact on the reported balance. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Critical judgements
The following are the critical judgements, apart from those involving estimations (which are presented separately below), that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in financial statements.
Judgements in relation to performance obligations
In making their judgement, the Directors considered the detailed criteria for the recognition of revenue set out in IFRS 15, and in particular, whether revenue is recognised at a point in time or over time. Following an assessment of the technology licensing contract portfolio, and the obligations that Aquis has under each contract, the Directors are satisfied that obligations contained therein be split into the following performance obligations, and that the revenue from each licensing contract should be assessed individually. The identified performance obligations and the timing of revenue recognition on delivering the licence contracts as follows:
Implementation/ project fees: these are upfront, non-refundable fees that a customer pays in order to obtain the user agreement. Even if the user acceptance certificate is never issued, the implementation fee cannot be reclaimed and so the revenue is guaranteed and can be recognised at the time of invoice as Aquis becomes unconditionally entitled to payment.
Licensing fees: The customer is liable to pay the monthly licensing fee from the date of signing the user acceptance agreement (contract inception date). At this point in time Aquis has fulfilled its promise to deliver the licence (i.e. the system has been deployed in the client's production environment) and this performance obligation is fulfilled.
Management uses judgement when assessing the recoverability of the licencing fees, and recognises them only when their collection is assumed to be highly probable. This assessment takes into consideration the current status of the client's business, including whether the exchange system is active with products/ securities added and members trading on it. The licensing fees are recognised at a point in time, which occurs after the contract is signed and once Aquis is satisfied that receiving the licencing fees is highly probable.
Maintenance fees: fees to maintain the system are recognised over the course of the licensing contract as Aquis fulfils its performance obligation to maintain the system. Management have estimated a fixed annual amount per contract, which reflects the time spent supporting the client's platform and upgrading the software in accordance with the contractual terms.
Changes in identification of performance obligations could impact the timing of revenue recognition for licensing contract assets and is thus a critical accounting judgement.
Capitalisation of internally generated intangible assets resulting from Research and Development
Internally generated Intangible assets are capitalised when, in management's judgement, the criteria for capitalisation under IAS 38 (listed in Note 2) have been met. The direct costs incurred in the research and development of Aquis' exchange platform and associated technology and systems are capitalised.
Management reviews the time spent by the development team in developing and maintaining the systems used internally by Aquis when determining the amount to be capitalised within each period.
Critical accounting estimates
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.
Estimating the useful life of intangible assets
The expected useful life of an intangible asset is estimated to be 3 years. In making this judgement management have taken into account product upgrade cycles, the pace of change of regulation as well as benchmarking against other companies with internal systems and technology research and development.
Expected credit loss of contract assets
An impairment for the expected credit loss of contract assets that arise as a result of applying IFRS 15 to licensing revenue is required under IFRS 9. This impairment is an accounting estimate which is calculated based on the Directors' best estimates of the probability of default and loss given default. The quantification of the assumptions and stresses for the year are disclosed in Note 12 of the financial statements.
In arriving at these estimates, the Directors have assessed the range of possible outcomes using reasonable and supportable forward-looking information, which is based on assumptions for the future movement of different economic drivers and how these drivers will affect each other.
Aquis' assessment of the credit risk associated with a licensing customer is conducted at inception of the contract (but before the user agreement is signed) and includes factors that are specific to the customer, general economic conditions and an assessment of both the current as well as the forecast direction of these conditions.
The credit risk assessment is conducted by means of a take-on assessment which comprises of a series of relevant criteria for a licensing contract that are scored according to the specific circumstances of the customer, with scores for each parameter typically ranging from 1-4. The assessment evaluates the following:
| · | Level of funding; |
| · | Regulatory approvals; |
| · | Market, industry and business model; |
| · | Macro-economic forecasts; |
| · | Corporate governance/ Group management; |
| · | Whether the client is revenue generating; |
| · | Level of client profitability; |
| · | Contract length and the associated range of economic scenarios therein; |
| · | Payment history; and |
| · | External credit ratings. |
The above assessment will determine the customer category upon inception of the contract, and the inputs to the expected credit loss model is determined thereon.
The credit risk assessment and associated inputs to the expected credit loss model (probability of default and loss given default) are critical assessments that could impact both the provision for expected credit losses as well as the movement in the provision reflected in the income statement.
Deferred tax asset
Deferred tax assets are recognised to the extent that their utilisation is probable. The utilisation of deferred tax assets will depend on whether it is possible to generate sufficient taxable income in the respective tax type and jurisdiction. A total net deferred tax asset of £1,292k is recognised in the current period, since profitability is expected to continue for at least the next 3 years. The deferred tax asset is calculated based on expected profitability over this period as Aquis is a high growth company and there is considerable uncertainty in estimating financial performance beyond this length of time.
Various factors are used to assess the probability of the future utilisation of deferred tax assets, including, operational plans and loss-carry forward periods. To reflect the uncertainty in the accuracy of business forecasts, the model uses modest growth rates and applies a probability weighting to each type of revenue. The impact of flexing the discount rates used by +2%/-2% for exchange and data revenue and by +5%/-5% for new licencing contracts would be +£272,100/-
£272,100, so that the deferred tax asset would be £1,604,493 in an upside scenario with lower probability discount rates or £1,060,274 in a downside scenario with higher probability discount rates.
Share-based payments
The US binomial model and Black Scholes model are used to estimate the value of the EMI options and the restricted shares. The resulting values are recognised straight-line over the vesting period as an expense, with the corresponding amounts recognised as equity in the balance sheet. The model requires the following inputs: grant date, exercise price, expiry, expected life of options, expected volatility, and the risk-free interest rate. The expected life and expected volatility require the use of estimates. Volatility is estimated based on the historical average for the available data up to the grant date, while the expected life of the options is based on management's judgement of when the options will be exercised, which is assumed to be an average of 5 years. No EMI options were granted during the year but management notes that a 5% decrease/increase in expected volatility leads to a +£41,732/-£42,347 variance in the 2021 expense. Similarly, for a 1 year increase/decrease in the expected life of the options, this would lead to a +£16,592/-£18,603 variance. Note 14 provides further disclosure on the amounts recognised in these financial statements.
5. CORPORATE INFORMATION
Aquis Exchange PLC (the 'Group') is licensed to operate a multilateral trading facility (MTF) enabling members to trade across fifteen European markets and to provide exchange software under licence.
6. FINANCIAL RISK MANAGEMENT
The Group seeks to protect its financial performance and the value of its business from exposure to adverse changes in capital commitments, as well as credit, liquidity and foreign exchange risks.
The Group's financial risk management approach is not speculative. The Group's Audit, Risk and Compliance Committee provides assurance that the governance and operational controls are effective to manage risks within the Board-approved risk appetite, supporting a robust Group risk management framework.
The Group's objectives when managing these risks are detailed below.
Capital risk management and capital commitments
| Risk Description | Risk management approach |
| There is a risk that Group entities may not maintain sufficient capital to meet their obligations. The Group comprises regulated entities. It considers that: Increases in the capital requirements of its regulated companies, or A scarcity of equity (driven by its own performance or financial market conditions) either separately or in combination are the principal risks to managing its capital. | The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern so that it can provide returns for shareholders and benefits for other stakeholders. The Group maintains a level of capital that is well in excess of regulatory requirements. Maintaining a strong capital structure is a key priority for the Group. If there was an erosion of capital for any reason the Group may issue new shares or sell assets to ensure capital adequacy requirements are met (referenced in table below). The Group continuously monitors its level of capital in order to ensure it remains compliant with regulatory capital requirements. Aquis reviews capital resources and requirements on a monthly basis. Proposed investment requirements, capital expenditure and potentially increasing capital resources through equity or debt issuance are assessed annually as part of the budgeting process, as well as on an ad-hoc basis as required. The Group supports both Aquis Europe and AQSE in maintaining capital adequacy, and holds sufficient capital to be able to inject capital into the businesses as and when required. |
The Return on Assets (ROA) is the amount of net profit/(loss) returned as a percentage of total assets.
ROA
|
Group | 2021 £ | 2020 £ |
| Profit for the year | 4,310,766 | 981,728 |
| Total assets as at 31 December | 26,875,790 | 18,814,123 |
| Return on assets (%) | 16% | 5% |
There was no capital expenditure contracted for at the end of the reporting year that had not been provided for.
Credit risk
| Risk Description | Risk management approach |
| The Group's credit risk relates to its customers being unable to meet their obligations to the Group either in part or in full. | The Directors make a judgement on the credit quality of the Group's customers based upon the customers' financial position, the recurring nature of billing and collection arrangements and, historically, a low incidence of default. Aquis' assessment of the credit risk associated with a licensing customer is conducted at inception of the contract (but before the user agreement is signed) and includes factors that are specific to the customer, general economic conditions and an assessment of both the current as well as the forecast direction of these conditions. Based on this assessment, the prospective customer is assigned to a customer category with an appropriate risk rating. Aquis has also considered the impact of the Coronavirus pandemic on credit risk by incorporating an assessment of how COVID-19 has affected the risk profile of each client, modifying risk ratings where necessary. Aquis' credit risk management processes are applied to all trade receivables and are calculated using a lifetime ECL method, as detailed in Note 12. |
Liquidity Risk
| Risk Description | Risk management approach |
| The Group's operations are exposed to liquidity risk to the extent that they are unable to meet their daily payment obligations. | The Group maintains sufficient liquid resources to meet its financial obligations as and when they become due in the ordinary course of business. Management monitors forecasts of the Group's cash flow quarterly through an assessment of cash resources that are in excess of regulatory capital requirements. The Group is solvent with net current assets in excess of £14.0 million (2020: £12.4 million), with the majority of the debtor's book (excluding contract assets as set out in Note 24) being short term in nature. The Group is also funded entirely by equity, with no external debt funding obligations to be met. |
The Group is not materially exposed to market risk including interest rate or foreign exchange risk.
The following tables detail the Group and Company's remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the discounted cash flows of financial liabilities based on the earliest date on which the Group or Company can be required to pay. There is no exposure to interest rate changes since the Group and Company have no external debt obligations, and the interest rate on the lease liability is the rate implicit in the lease and as such is not subject to change over the term of the lease.
| Group | 1 Year | 2-5 years | 5+ years | Total |
| 31 December 2021 |
|
|
|
|
| Trade and other payables | 3,575,350 | - | - | 3,575,350 |
| Lease Liabilities | 208,236 | 1,623,226 | 1,799,519 | 3,630,981 |
|
| 3,783,586 | 1,623,226 | 1,799,519 | 7,206,331 |
| 31 December 2020 |
|
|
|
|
| Trade and other payables | 2,616,097 | - | - | 2,616,097 |
| Lease Liabilities | 194,613 | 714,704 | 280,377 | 1,189,694 |
|
| 2,810,710 | 714,704 | 280,377 | 3,805,791 |
| Company | 1 Year | 2-5 years | 5+ years | Total |
| 31 December 2021 |
|
|
|
|
| Trade and other payables | 3,045,535 | - | - | 3,045,535 |
| Lease Liabilities | 150,981 | 1,376,301 | 1,539,620 | 3,066,902 |
|
| 3,196,516 | 1,376,301 | 1,539,620 | 6,112,437 |
| 31 December 2020 |
|
|
|
|
| Trade and other payables | 2,097,493 | - | - | 2,097,493 |
| Lease Liabilities | 194,613 | 714,704 | 280,377 | 1,189,694 |
|
| 2,292,106 | 714,704 | 280,377 | 3,287,187 |
The tables below have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group or Company can be required to pay.
| Group | 1 Year | 2-5 years | 5+ years | Total |
| 31 December 2021 |
|
|
|
|
| Trade and other payables | 3,575,350 | - | - | 3,575,350 |
| Lease Liabilities | 326,024 | 1,927,289 | 1,945,800 | 4,199,113 |
|
| 3,901,374 | 1,927,289 | 1,945,800 | 7,774,463 |
| 31 December 2020 |
|
|
|
|
| Trade and other payables | 2,616,097 | - | - | 2,616,097 |
| Lease Liabilities | 230,445 | 921,780 | 345,668 | 1,497,893 |
|
| 2,846,542 | 921,780 | 345,668 | 4,113,990 |
| Company | 1 Year | 2-5 years | 5+ years | Total |
| 31 December 2021 |
|
|
|
|
| Trade and other payables | 3,045,535 | - | - | 3,045,535 |
| Lease Liabilities | 254,264 | 1,640,250 | 1,676,700 | 3,571,212 |
|
| 3,299,799 | 1,640,250 | 1,676,700 | 6,616,747 |
| 31 December 2020 |
|
|
|
|
| Trade and other payables | 2,616,097 | - | - | 2,616,097 |
| Lease Liabilities | 230,445 | 921,780 | 345,668 | 1,497,893 |
|
| 2,846,542 | 921,780 | 345,668 | 4,113,990 |
Both the Group and the Company have no derivative financial liabilities.
| Risk Description | Risk management approach |
| The Group operates in the UK and Europe, with Sterling as its principal currency of operation. The Group companies invoice revenues and incur the majority expenses in GBP. A relatively small percentage of the overall Group's expenses are incurred in Euros in relation to the French subsidiary. As a result, foreign exchange risk arises mainly from the translation of the Group's foreign currency earnings, assets and liabilities into its reporting currency, Sterling. An immaterial amount of cash held by Aquis Exchange Europe SAS is held in a euro denominated bank account, with the remaining cash held in a Sterling denominated bank account, hedging the Group against foreign exchange fluctuations in cash and cash equivalents. Since the net asset value of the Aquis Exchange Europe SAS is predominately comprised of cash, there is negligible exposure to the Group of foreign exchange rate fluctuations.
| In order to mitigate the impact of unfavourable currency exchange rate movements on consolidated earnings and net assets, Aquis Exchange Europe SAS maintains the majority of its net assets (primarily comprising of regulatory cash) in a Sterling denominated bank account so as to minimise fluctuations in the GBP/EUR exchange rate on a consolidated basis. |
7. OPERATING SEGMENTS
The Aquis Group can be split into 3 operating segments, each offering multiple products and services and benefiting from Group synergies. The specific focus of these activities are:
1. Aquis Exchange - operator of MTF and related services. The Group operates two MTFs: Aquis Exchange (AQXE), which is UK regulated and Aquis Exchange Europe (AQEU), which is French regulated. Another revenue stream for this division is the provision of data services to third party vendors;
2. Aquis Stock Exchange (AQSE) - primary listings and trading business. Within this division is AQSE Main Market, AQSE Growth Market, AQSE Trading and the provision of data services;
3. Aquis Technologies - developer of exchange technology and services. The product offering includes Aquis Matching Engine, Aquis Market Surveillance, Aquis Market Gateway and related services including market surveillance and operations.
The Group has no discontinued operations.
Aquis Exchange PLC is the parent company and comprises AQXE and Aquis Technologies. It owns 100% of its two subsidiaries, AQEU and AQSE. Management monitors the Group's overall performance regularly using a set of established Key Performance Indicators including revenue, EBITDA and profit before taxation. When monitoring the performance of each operating segment individually, management examines the discrete financial information available which will normally include revenue and EBITDA for each division. In line with IFRS 8 the operating segments are reported separately as follows:
|
2021 |
AQXE & AQEU |
AQSE | Aquis Technologies |
Total |
| Revenue | 10,897,483 | 1,880,666 | 4,404,606 | 17,182,755 |
| Impairment Charge | - | - | (972,161) | (972,161) |
| Costs | (8,817,828) | (2,103,103) | (1,009,469) | (11,930,400) |
| Operating Profit/ (Loss) | 2,079,655 | (222,437) | 2,422,976 | 4,280,194 |
| Depn, amortisation and net interest | (1,057,971) | - | - | (1,057,971) |
| Profit/ (Loss) before taxation | 1,021,684 | (222,437) | 2,422,976 | 3,222,223 |
|
2020 |
AQXE & AQEU |
AQSE | Aquis Technologies |
Total |
| Revenue | 7,936,036 | 1,221,517 | 2,319,700 | 11,477,253 |
| Impairment Charge | (97,760) | (2,414) | - | (100,174) |
| Costs | (6,687,237) | (1,754,950) | (1,413,740) | (9,855,927) |
| Gross Profit/ (Loss) | 1,151,039 | (535,847) | 905,960 | 1,521,152 |
| Depn, amortisation and net interest | (1,050,757) | - | - | (1,050,757) |
| Profit before taxation | 100,282 | (535,847) | 905,960 | 470,395 |
The tables above represent the segment-level information that is monitored by the Chief Operating Decision Makers, which are the Chief Executive Officer and the Chief Financial Officer. All non-current assets are held centrally by Aquis Exchange PLC, apart from the lease liability for the Paris office. The geographical analysis of the non-current assets is as follows; UK: £6,565k, France: £583k and South Africa: £1,912k, Total: £9,060k. Gross revenue from 2 customers amounted to £3,785k (2020: £117k) arising from licence and maintenance fees. There are no other customers with revenue greater than 10% of total revenue for the Group.
8. EMPLOYEES
The monthly average number of persons (including Executive Directors) employed by the Group during the year was:
|
Group | 2021 Number | 2020 Number |
| Management | 2 | 2 |
| IT | 19 | 20 |
| Compliance and Surveillance | 10 | 8 |
| Operations | 9 | 6 |
| Business Development | 8 | 6 |
| Finance | 4 | 3 |
| Marketing | 2 | 1 |
|
| 54 | 46 |
The monthly average number of persons (including Executive Directors) employed by the Company during the year was:
|
Company | 2021 Number | 2020 Number |
| Management | 2 | 2 |
| IT | 18 | 19 |
| Compliance and Surveillance | 4 | 4 |
| Operations | 8 | 5 |
| Business Development | 5 | 4 |
| Finance | 3 | 2 |
| Marketing | 2 | 1 |
|
| 42 | 37 |
Their aggregate remuneration was comprised of:
|
Group | 2021 £ | 2020 £ |
| Salaries and wages | 6,129,802 | 4,573,007 |
| Social security costs | 815,822 | 718,885 |
| Other pension costs | 183,941 | 138,891 |
| Share based payments | 571,834 | 392,897 |
| Employee benefits | 165,617 | 148,992 |
|
| 7,867,016 | 5,972,673 |
|
Company | 2021 £ | 2020 £ |
| Salaries and wages | 4,605,033 | 3,535,759 |
| Social security costs | 560,051 | 519,061 |
| Other pension costs | 145,884 | 112,907 |
| Share based payments | 576,609 | 363,164 |
| Employee benefits | 165,357 | 148,633 |
|
| 6,052,934 | 4,679,524 |
9. RETIREMENT BENEFIT SCHEME
Defined contribution schemes
The Group operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the Company in an independently administered fund.
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
10. DIRECTORS REMUNERATION
Detail on Directors remuneration are included within the Directors Report (see page 30).
| 11. REVENUE |
| |||
|
An analysis of the Group's and Company's revenue is as follows: |
|
|
|
|
|
| Group |
| Company |
|
|
| 2021 £ | 2020 £ | 2021 £ | 2020 £ |
| Revenue analysed by class of business |
|
|
|
|
| Exchange fees | 9,766,046 | 7,738,284 | 3,476,206 | 7,111,000 |
| Licence fees | 4,404,606 | 2,319,700 | 4,404,606 | 2,319,700 |
| Data vendor fees | 2,319,360 | 894,867 | 1,573,925 | 429,628 |
| Issuer fees | 692,743 | 524,402 | - | - |
|
| 17,182,755 | 11,477,253 | 9,454,737 | 9,860,328 |
Revenues from customers by operating segment and class of business is as follows:
|
| Group | Company | ||
|
| 2021 £
| 2020 £
| 2021 £
| 2020 £
|
| Revenue analysed by operating segment and class of business |
|
|
|
|
| AQXE & AQEU |
|
|
|
|
| Exchange fees | 9,323,559 | 7,506,408 | 3,476,206 | 7,111,000 |
| Data vendor fees | 1,573,925 | 429,628 | 1,573,925 | 429,628 |
| AQSE |
|
|
|
|
| Exchange fees | 442,487 | 231,876 | - | - |
| Data vendor fees | 745,435 | 465,239 | - | - |
| Issuer fees | 692,743 | 524,403 | - | - |
| Aquis Technologies |
|
|
|
|
| Licence fees | 4,404,606 | 2,319,700 | 4,404,606 | 2,319,700 |
|
| 17,182,755 | 11,477,253 | 9,454,737 | 9,860,328 |
Revenues from customers attributable to the United Kingdom, Europe and the rest of the world is as follows:
|
|
| Group |
| Company |
|
| 2021 £ | 2020 £ | 2021 £ | 2020 £ |
| Revenue analysed by region |
|
|
|
|
| United Kingdom | 12,048,156 | 8,780,442 | 5,764,371 | 7,629,888 |
| Europe | 1,598,511 | 1,989,508 | 621,987 | 1,733,587 |
| Rest of the world (Africa/Americas/Asia) | 3,536,088 | 707,303 | 3,068,380 | 498,853 |
|
| 17,182,755 | 11,477,253 | 9,454,738 | 9,860,328 |
Exchange fees and data vendor fees:
Subscription fees and some data vendor fees are accounted for under IFRS 15 and are all recognised at point in time as they reflect variable revenue determined on a monthly basis.
In addition to the variable monthly fee some AQSE data vendors pay an annual fee for access to real time and/or end of day data, which is recognised over time as the performance obligation of providing data is fulfilled.
The Group begins to recognise monthly exchange fees, data vendor fees, and connectivity fees when the customer conformance test is satisfactorily concluded, and an acceptance certificate is issued. This is then verified by the customer starting to utilise the platform, which is the point in time that the Group determines that the customer has obtained control of the goods and services.
The Group determines the transaction price based primarily on the relative standalone prices. In the case of exchange, connectivity and data fees, invoices are raised monthly in arrears and there is no obligation for a refund, return or any other similar obligation. There is no variable consideration in any customer contracts, and the transaction price is allocated in full at a single point in time when the customer obtains control of the goods.
Licence fees:
Aquis Exchange PLC provides technology services under licence to clients. The services comprise the provision of an exchange platform and / or a surveillance system and may also include support services comprising basic infrastructure support or additional services. The duration of the licences varies between 1 and 6 years and will consist of an implementation fee, and, post implementation, a monthly licence fee for the duration of the contract. The monthly fees also cover system maintenance and system upgrades that typically occur every 12 - 18 months. The licensing contracts are accounted for under IFRS 15 and any corresponding contract assets are subject to IFRS 9 provisioning, as disclosed further in Note 12.
The revenue from licensing contracts with customers has been categorised reflecting the nature, amount, customer categorisation (see also Note 12), contract duration and uncertainty of revenue and cash flows. Revenue from licensing contracts is assessed for each contract and is recognised as and when each performance obligation is satisfied.
The Company determines the transaction price of the licensing contract based primarily on the competitive landscape. For licensing contracts, the Company has assessed the expected credit loss of each client individually. The transaction price is allocated according to the Group's obligations to the client over the course of licence period on the basis of the relative standalone selling price.
| Performance obligation (PO) | Recognition of revenue upon completion |
|
PO1: Implementation fees |
Implementation/ project fees are upfront, non-refundable fees that a customer pays in order to obtain the user agreement. Even if the user acceptance certificate is never issued, the implementation fee cannot be reclaimed and so the revenue is guaranteed and can be recognised at the time of invoice as Aquis becomes unconditionally entitled to payment.
|
|
PO2: Licencing fees
|
At a point in time upon signing the user acceptance agreement, as the Company has fulfilled its promise to deliver the licence (i.e. the system has been deployed in the client's production environment).
A corresponding contract asset (trade receivable) is recognised to reflect the customer's obligation to pay the monthly licensing fee over the remaining term of the contract. |
|
PO3: Maintenance fees |
Over the course of the licensing contract, as the performance obligation to maintain the system is settled and the customer benefits from using the system. |
The aggregate amount of the transaction price per customer category that has been allocated to the performance obligations for the year is as follows:
|
|
|
| 2021 |
|
|
| Group | £ | £ | £ | £ | £ |
| Category | 1 | 2 | 3 | 4 | Total |
| PO1 | - | - | - | - | - |
| PO2 | - | 3,788,615 |
| - | 3,788,615 |
| PO3 | - | 59,943 | 25,080 | - | 85,023 |
|
| - | 3,848,558 | 25,080 | - | 3,873,638 |
|
|
|
| 2020 |
|
|
| Group | £ | £ | £ | £ | £ |
| Category | 1 | 2 | 3 | 4 | Total |
| PO1 | 50,000 | - | - | - | 50,000 |
| PO2 | 1,201,755 | - | 451,440 | - | 1,653,195 |
| PO3 | 27,006 | 111,883 | 11,577 | 5,160 | 155,626 |
|
| 1,278,761 | 111,883 | 463,017 | 5,160 | 1,858,821 |
Customer risk category definitions: 1 - High, 2 - Moderately High, 3 - Moderately Low and 4 - Low
The licensing fees line item also includes connectivity fees for licensing contract customers that are recognised at a point in time as they reflect variable revenue determined on a monthly basis, and are underpinned by a separate agreement. These fees total £530k, (2020: £461k).
The resultant contract assets at year end are disclosed as per Note 24. In aggregate the total revenue that reflects future performance obligations and has yet to be recognised is £1,190k.
Issuer fees:
Issuer fees are accounted for under IFRS 15 and are recognised over time. They can be separated into the following categories:
Application and admission fees: These are charged upfront to prospective companies wishing to be admitted to AQSE. They are recognised monthly over the expected life of a company's admission. Deferred Revenue is shown as per Note 26.
Annual fees: These are fees paid annually by companies listed on AQSE. They are charged in advance and are recognised over the year.
Further issue fees: These are charged to companies already listed on AQSE wishing to issue further securities. In this case revenue is recognised at the point in time of the further issue.
12. IMPAIRMENT
IFRS 9 provisioning is applied to technology licensing contract assets and to other trade receivables based on management estimates of the collectability of contracts over their useful life, and which are re-assessed at each renewal. The Group applies a simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for trade receivables and contract assets and therefore the ECL for each contract is assessed on a lifetime basis rather than at each reporting date. As the simplified approach is adopted it is not necessary to consider the impact of a significant increase in credit risk.
The Group has two types of financial assets that are subject to the expected credit loss model:
Contract assets relating to technology licensing contracts (Company and Group)
Trade receivables relating to services provided by AQSE (Group)
The Group have concluded that the trade receivables and contract assets have different risk characteristics and therefore the expected credit loss rates for each type of asset are measured separately. Since they comprise a portfolio of only a small number of clients, contract assets have been assessed on a client-by-client basis while trade receivables have been grouped based on shared credit risk characteristics and the days past due. Further details on both methodologies can be found below.
|
| Group | Company | ||
|
| 2021 £
| 2020 £ | 2021 £
| 2020 £ |
| Balance of impairment provisions at 1 Jan 2021 | 526,271 | 410,841 | 508,601 | 410,841 |
| Trade receivable ECL Provision at 11 March 2020 | - | 15,256 | - | - |
| ECL write off | - | (9,236) | - | (9,236) |
| Expected credit loss /(reversal) | 972,161 | 109,410 | 972,161 | 106,998 |
| Balance of impairment provision | 1,498,432 | 526,271 | 1,480,762 | 508,601 |
|
|
|
|
|
|
|
| 2021 £
| 2020 £
| 2021 £
| 2020 £
|
| Contract Asset ECL provision | 1,480,762 | 508,601 | 1,480,762 | 508,601 |
| Trade receivable ECL provision | 17,183 | 17.670 | - | - |
| Other provisions | 487 | - | - | - |
| Balance of impairment provision | 1,498,432 | 526,271 | 1,480,762 | 508,601 |
During contract negotiation Aquis assesses the potential credit risk of a prospective client prior to committing to the contract. Aquis' assessment of the credit risk associated with a licensing customer is conducted at inception of the contract (but before the user agreement is signed) and includes factors that are specific to the customer, general economic conditions and an assessment of both the current as well as the forecast direction of these conditions. Based on this assessment, the prospective customer is assigned to a customer category with an appropriate risk rating.
A probability of default (PD) occurring during the lifetime of the contract ranging from 0-49% is applied to each client based on the assigned risk category. The model includes lifetime PD applied to each year of the contract, based on the assumption that the PD will reduce over time.
The credit risk of Aquis' technology clients ranges from those that are in infant start up stages (i.e. riskier) to those that are highly liquid and solvent conglomerates (little to no risk). As such, the Directors view the range of PD's for the portfolio
to be between 49% for those with the highest level of risk to 0% for those that are so near to a zero level of risk that the PD is zero in substance. The Directors are comfortable that the PD assigned is sufficiently accurate to reflect the elevated risk associated with each start up when considering the idiosyncratic circumstances and risk factors of each client. The Directors would not enter into any contract where the PD is deemed to be any higher than 49%.
The loss given default is also quantified on a customer-by-customer basis and is done through an assessment of the recovery rate the Directors anticipate will be applied to the customer in the event of liquidation. Currently the low number of technology clients allows Aquis to assess each contract individually on the appropriate credit risk category, and this
is determined based on several factors including any future macro-economic changes, the sensitivity to these potential changes and the impact that these may have on the recoverability of the outstanding debt.
The portfolio of technology contracts held by Aquis have PDs that have an observable relationship with time, i.e. the PD will decrease each year as the contract progresses. The credit risk of the contracts is directly linked to the success of the business and its ability to raise capital, which increases each year the company successfully continues in operation.
Although the full risk assessment is completed only at the start of the contract and at each renewal date, Aquis regularly assesses whether macro-economic factors could have a bearing on the success of the client and the recoverability of the outstanding debt.
The £1,480,762 expected credit loss provision for the year (2020: £508,601) has been calculated with reference to estimations based on the probability of default and a loss given default as described above, and has been analysed for each individual contract taking into account the nature, amount, customer categorisation, contract duration and uncertainty of revenue and cash flows.
As at 31 December 2021, the average contract duration for the portfolio of technology contracts is 2.7 years. The contracts are short-to-medium term in length and the ECL model incorporates the impact of a significant change in macroeconomic circumstances on the expected PD over the life of the contracts. The macroeconomic variables are based on 3-year average forecast rates for 2022-2024, which is an appropriate timescale based on the average contract duration. The baseline rates are defined using the rates forecast by the Monetary Policy Committee ("MPC"). The macroeconomic indicators used in the analysis are as follows:
| Macroeconomic Indicators 3 year average forecast | Downside % | Baseline % | Upside % |
| UK GDP | -3% | 1.6% | 5% |
| UK unemployment | 7% | 4.2% | 2% |
| UK CPI Inflation | 1.2% | 2.5% | 5.0% |
In order to quantify the impact of movement in credit losses that occur as a result of macro-economic developments, the Directors have flexed the probability of default associated with each client category in three scenarios: a baseline
scenario (maintaining the status quo, keeping each assessment criteria reflecting current client circumstances and forecast macroeconomic indicators), a downside scenario (prolonged recession), and an upside scenario (fast economic recovery).
The model incorporates all three possible outcomes by attaching a probability weighting to each scenario. The range of outcomes is detailed in the table below:
| Group and Company At 31 December 2021 | Downside £ | Baseline £ | Upside £ |
| Impairment provision | 1,682,547 | 1,480,762 | 1,281,452 |
| Impact on PD | 5% | 0% | -5% |
| Probability weighting | 25% | 50% | 25% |
Expected credit loss of Aquis Stock Exchange trade receivables
In line with IFRS 9 guidance, the Group has applied a simplified "Expected Credit Loss" (ECL) model on AQSE trade receivables. In doing so the Group has considered the probability of a default occurring over the contractual life of the financial asset on initial recognition of the asset. Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. When a trade receivable is determined to be uncollectible, it is written off against the provision account for trade receivables.
The simplified provision matrix is based on historic default rates over the expected life of the trade receivables and is adjusted for forward-looking estimates. The trade receivables balance is split into 8 separate categories depending on the age of each debt, ranging from 0 days past due to over 90 days past due. An appropriate estimation of the probability of default is applied to each category of debt, based on both historical default rates and expectations for the future.
The key assumptions in calculating the ECL for AQSE trade receivables are that the probability of default increases with the age of the debt and that the debts are homogenous, i.e. the credit risk assessment is based on age rather than by individual client. The expected loss rates are based on historical analysis of credit losses experienced since the acquisition and adjusted to reflect current and forward-looking information. AQSE trade receivables have been assessed to have a higher risk of impairment than the rest of the Group's trade receivables due to a number of older debts being identified and written off on acquisition.
Trade receivables have payment terms of 30 days from the date of billing. For debts older than 90 days, debts are assessed on a case-by-case basis and are written off if there is no reasonable expectation of recovery. During the year a total of £29,240 of trade receivables were written off relating to debts from companies that had ceased membership with AQSE. The contractual rights to cash flows from the financial assets were deemed to have expired.
The total loss allowance calculated by applying the expected loss rate to the trade receivables balance in each age bucket. The total portion of the ECL balance relating to AQSE trade receivables as at 31 December 2021 was £17,183 (2020: £17,670) which was comprised as follows:
|
Days past Due | 0 days | 1-29 days | 30-59 days | 60-89 days | 90-124 days | 125 - 149 days | 150-179 days | Over 180 days |
Total |
| Expected loss rate | 0.5% | 1% | 3% | 5% | 10% | 25% | 50% | 100% | N/A |
| Trade receivables | 83,947 | 19,650 | 11,405 | 5,200 | 3,200 | - | 1,200 | 15,044 | 139,646 |
| ECL Provision | 420 | 197 | 342 | 260 | 320 | - | 600 | 15,044 | 17,183 |
13. OPERATING EXPENSES
EBITDA is stated after charging:
|
| Group | Company | ||
| Operating Expenses
| 2021 £
| 2020 £
| 2021 £
| 2020 £
|
| Fees payable to the Company's auditor for the audit of the company's financial statements | 222,000 | 225,559 | 167,000 | 126,431 |
| Fees payable to the Company's auditor for the Client Asset audit | 7,500 | 6,300 | 7,500 | 6,300 |
| Share-based payments | 571,834 | 392,897 | 576,609 | 363,164 |
| Exchange loss/(gains) | - | 5,958 | - | 6,144 |
| Employee costs | 7,295,182 | 5,579,775 | 5,476,325 | 4,316,360 |
| Operating costs (Net of intercompany recharge) | 3,833,884 | 3,645,438 | (2,189,408) | 2,624,795 |
|
| 11,930,400 | 9,855,927 | 4,038,026 | 7,443,194 |
Other operating expenses comprise marketing fees, data centre and other service fees incurred in the ordinary course of business.
| Profit before taxation is stated after charging: |
| |||
|
| Group |
| Company |
|
|
Depreciation, amortisation and finance costs | 2021 £ | 2020 £ | 2021 £ | 2020 £ |
| Depreciation of property, plant and equipment | 518,806 | 550,620 | 513,546 | 550,620 |
| Amortisation of intangible assets | 513,434 | 479,670 | 513,434 | 479,670 |
|
| 1,032,240 | 1,030,290 | 1,026,980 | 1,030,290 |
| Net finance expense (Note 27) | 26,175 | 35,099 | 26,175 | 35,099 |
|
| 1,058,415 | 1,065,389 | 1,053,155 | 1,065,389 |
| Total expenses were as follows: |
| |||
|
| Group |
| Company |
|
|
| 2021 £ | 2020 £ | 2021 £ | 2020 £ |
| Total expenses | 12,988,815 | 10,921,316 | 5,091,181 | 8,508,583 |
14. SHARE-BASED PAYMENTS
|
|
| |||
|
| Group |
| Company |
|
|
| 2021 £ | 2020 £ | 2021 £ | 2020 £ |
| EMI options granted | 160,052 | 227,084 | 152,577 | 205,601 |
| Restricted share awards | 314,222 | 55,317 | 314,222 | 55,317 |
| Company Share Ownership Plan awards | 19,045 | - | 19,045 | - |
| Shares purchased under employee Share Incentive Plan | 78,515 | 110,496 | 90,765 | 102,243 |
|
| 571,834 | 392,897 | 576,609 | 363,164 |
Employee Share Incentive Plan
The share incentive plan is administered by Equiniti ("the Trust"). The Trust purchases shares in Aquis on the open market on behalf of employees that have elected to take part. The scheme allows employees to become shareholders in the Company in a tax efficient manner, with the Company purchasing two matching shares for every partnership purchased by the employee.
The terms of the matching shares include that they must be held by the Trust for three years before they can be transferred or sold, and the employee must remain employed with the Company throughout this period. The fair value of the matching shares purchased by the company are expensed over the three year vesting period. Management assumes that the cost of the shares is a close approximation of the fair value of the shares as the market price tends to be reflective of the discounted value of research analysts' medium-term projections.
|
| 2021 | 2020 |
| Employee Share incentive plan |
139,543 |
104,656 |
| Number of shares issued under the plan to participating employees |
EMI Share Options
There is one approved EMI scheme, which was initiated in June 2018 when the first options were granted. In April 2020 the second allotment approved in and deferred from November 2019 because Aquis was in a close period was made with a total of 740,250 options being granted. Options vest in 3 equal tranches, one, two and three years after grant. The options expire after 10 years.
Of the total number of options granted, 335,753 were exercised, none expired and 24,526 were forfeited during the year.
In accordance with IFRS 2, the Group has estimated the fair value of options using a US binomial option valuation model and spread the estimated value against the profit and loss account over the life of the vesting period.
The exercise price for the options granted on 14 June 2018 is £2.69 per share to be settled in cash at the date of exercise. The weighted average remaining contractual life of options outstanding at the end of the reporting period amounted to
5.5 months.
The US binomial model with an average expiry duration of 5 years, volatility of 24 and risk-free interest rate of 1.1067% was used to calculate the fair value of the options granted on 14 June 2018. All options are exercisable at a price of £2.69 and the weighted average expected life of the options is estimated to be 5 years.
The exercise price for the options granted on 16 April 2020 is £3.47 per share to be settled in cash at the date of exercise. The weighted average remaining contractual life of options outstanding at the end of the reporting period amounted to
2 years 3.5 months.
The US binomial model using an average expiry duration of 5 years, volatility of 20 and risk-free interest rate of 0.16% was used to calculate the fair value of the options granted on 16 April 2020. All options are exercisable at a price of £3.47 and the weighted average remaining expected life of the options is estimated to be 5 years.
|
| 2021 | 2021 | 2020 | 2020 |
| Details of the EMI scheme are as follows: | Number of Shares | Average Exercise Price (£) | Number of Shares | Average Exercise Price (£) |
| Outstanding at the beginning of the period | 1,297,421 | 3.15 | 560,407 | 2.69 |
| Granted during the period | - | - | 776,250 | 3.47 |
| Forfeited during the period | (24,526) | 3.07 | (19,099) | 3.34 |
| Exercised during the period | (335,753) | 2.70 | (20,137) | 2.69 |
| Expired during the period | - | - | - | - |
| Outstanding at the end of the period | 937,143 | 3.31 | 1,297,421 | 3.15 |
| Exercisable at the end of the period | 453,643 | 3.11 | 186,802 | 2.69 |
CSOP
The Group has implemented a CSOP employee option scheme in 2021. Initial grants amounting to 100,000 options at a grant price of £6.58 were made in April 2021. Options vest three years after grant and expire after 10 years.
Details of the CSOP scheme are as follows:
|
| Number of shares | Average Exercise Price (£) |
| · Outstanding at the beginning of the period | 0 | - |
| · Granted during the period | 100,000 | 6.85 |
| · Forfeited during the period | (4,195) | 6.85 |
| · Exercised during the period | 0 | - |
| · Expired during the period | 0 | - |
| · Outstanding at the end of the period | 95,805 | 6.85 |
| · Exercisable at the end of the period | 0 | - |
RSP
The Group implemented a RSP senior executive option scheme in 2020. Total grants made in April 2021 amounted to 88,320 options at a grant price of £6.85. Options vest three years after grant, with an additional held period of a further 2 years and expire after 10 years.
Details of the RSP scheme are as follows:
|
| 2021 | 2021 | 2020 | 2020 |
|
| Number of shares | Average Exercise Price (£) | Number of shares | Average Exercise Price (£) |
| · Outstanding at the beginning of the period | 140,448 | 3.64 | - | - |
| · Granted during the period | 88320 | 6.85 | 140,448 | 3.64 |
| · Forfeited during the period | - | - | - | - |
| · Exercised during the period | - | - | - | - |
| · Expired during the period | - | - | - | - |
| · Outstanding at the end of the period | 228,768 | 4.88 | 140,448 | 3.64 |
| · Exercisable at the end of the period | - | - | - | - |
15. INTEREST INCOME
|
| Group | Company | ||
| Interest Income
| 2021 £
| 2020 £
| 2021 £
| 2020 £
|
| Bank Deposits | 444 | 14,632 | 444 | 14,632 |
16. BUSINESS COMBINATION
Business acquisition
On 11 March 2020 Aquis Exchange PLC acquired 100% of the issued share capital of NEX Exchange Limited, a UK based Recognised Investment Exchange. It has since been rebranded as Aquis Stock Exchange (AQSE). The acquisition has broadened the Group's service offering, including the ability to offer companies wishing to go public a primary listing on its growth market. It complemented the existing exchange services of the Group and has enabled the Group to expand its strategic offering.
Details of the purchase consideration is as follows:
| Purchase consideration: | £ |
| Cash paid | 2,877,118 |
The assets and liabilities recognised as a result of the acquisition are as follows:
| Current assets: |
|
| Cash | 2,617,718 |
| Trade and other receivables | 653,390 |
| Current liabilities: |
|
| Trade and other payables | (477,471) |
| Add: Goodwill | 83,481 |
| Net assets arising on acquisition | 2,877,118 |
The assets acquired and liabilities assumed have been recognised at their fair values measured at the acquisition date. There were no intangible assets identified at the acquisition date.
There were no acquisitions in the year ending 31 December 2021.
17. DEFERRED TAX ASSET
A deferred tax asset of £1,292,260 relating to unused tax losses has been recognised in the current period. The losses are considered able to offset against the Company's taxable profits expected to arise in the next three accounting periods.
The assessment of future taxable profits involves a significant degree of estimation, which management have based on the latest budget for the Company approved by the Board which reflects the improvement trading performance largely due
to the continued expansion of the business as discussed in the Strategic Report. The preparation of the budget involves a rigorous review process by the Board, whereby each revenue stream and cost is scrutinised and challenged in detail so that the final version is considered to be an accurate and plausible representation of what is likely to be achieved in the period.
In calculating the deferred tax asset, management have applied a conservative approach by using probability adjusted revenues, applying lower probabilities to budgeted revenue from more uncertain sources such as large technology licencing contracts, with the effect of reducing estimated profits over the 3-year period from the original forecasts. The analysis predicts profitability is still achievable even when revenues are reduced to reflect this adjustment.
The deferred tax balance comprises temporary differences attributable to:
|
Group and Company | 2021 £ | 2020 £ |
| Deferred tax |
1,292,260 |
203,717 |
| Tax losses | ||
| Total deferred tax asset | 1,292,260 | 203,717 |
Movement in deferred tax balance:
|
Group and Company | 2021 £ | 2020 £ |
| Movements |
203,717 |
- |
| At 1 January | ||
| Origination and reversal of timing difference | 1,024,211 | 203,717 |
| Rate change | 64,332 | - |
| At 31 December | 1,292,260 | 203,717 |
The Group has combined losses of £48,125,182 (2020: £51,941,924) available for carry forward and to be used against future trading profits of the same trade in which they were generated. This is comprised of trading losses totalling
£47,944,397 generated in the UK by Aquis Exchange PLC and Aquis Stock Exchange Limited and losses totalling
£130,785 generated in France by Aquis Exchange Europe SAS.
The Company has estimated losses of £13,099,278 (2020: £17,043,108) available for carry forward against future trading profits.
18. INCOME TAX
|
| Group | Company | ||
| Current tax
| 2021 £
| 2020 £
| 2021 £
| 2020 £ |
| R&D tax credit | - | (307,616) | - | (307,616) |
The credit for 2020 can be reconciled to the loss per the income statement as follows:
|
| Group | Company | ||
|
| 2021 £
| 2020 £
| 2021 £
| 2020 £
|
| Profit for the year before taxation | 3,222,223 | 470,395 | 3,391,839 | 1,268,618 |
| Expected tax charge based on a corporation tax rate of 19.00% | 612,222 | 89,375 | 644,449 | 241,037 |
| Effect of expenses not deductible in determining taxable profit | 10,407 | 55,246 | 10,294 | 51,165 |
| Unutilised tax losses carried forward | 41,917 | 70,204 | - | - |
| Losses utilised against taxable profits | (735,805) | - | (732,782) | (77,377) |
| Deferred tax not recognised | 71,259 | - | 78,038 | - |
| Permanent capital allowances in excess of depreciation | - | 34,109 | - | 34,109 |
| Depreciation on assets not qualifying for tax allowances | - | 846 | - | 846 |
| Additional R&D allowance for qualifying expenditure | - | (247,000) | - | (247,000) |
| Non-trade loan relationship credits | - | (2,780) | - | (2,780) |
| Research and development tax credit | - | (307,616) | - | (307,616) |
| Taxation credit for the year | - | (307,616) | - | (307,616) |
19. EARNINGS PER SHARE
|
| Group | Company | ||
|
| 2021 | 2020 | 2021 | 2020 |
| Number of Shares |
|
|
|
|
| Weighted average number of ordinary shares for basic earnings per share | 27,339,947 | 27,164,230 | 27,339,947 | 27,164,230 |
| Weighted average number of ordinary shares for diluted earnings per share | 28,456,875 | 28,281,234 | 28,456,875 | 28,281,234 |
|
Earnings |
4,310,766 |
981,728 |
4,480,382 |
1,779,951 |
| Profit for the year from continued operations | ||||
|
Basic and diluted earnings per share (pence) |
16 |
4 |
16 |
7 |
| Basic earnings per ordinary share | ||||
| Diluted earnings per ordinary share | 15 | 3 | 16 | 6 |
Basic earnings per share is in respect of all activities of the Group and diluted earnings per share takes into account the dilution effects which would arise on conversion or vesting of all outstanding share options and share awards under the Employee Share Incentive Plan (SIP).
20. INTANGIBLE ASSETS
|
| Group Developed trading platforms |
Other Intangibles |
Group Goodwill | Total Intangible Assets Excl Goodwill |
| Cost |
|
|
|
|
| As at 01/01/2020 | 2,055,326 | - | - | 2,055,326 |
| Additions- internally generated | 642,695 | - | 83,481 | 642,695 |
| As at 31/12/2020 | 2,698,021 | - | 83,481 | 2,698,021 |
| Additions- internally generated/ acquired | 313,463 | 37,430 | - | 350,893 |
| As at 31/12/2021 | 3,011,484 | 37,430 | 83,481 | 3,048,915 |
|
Accumulated amortisation and impairment |
|
|
|
|
| As at 01/01/2020 | 1,302,096 | - | - | 1,302,096 |
| Charge for the year | 479,670 | - | - | 479,670 |
| As at 31/12/2020 | 1,781,766 | - | - | 1,781,766 |
| Charge for the year | 505,514 | 7,920 | - | 513,434 |
| As at 31/12/2021 | 2,287,280 | 7,920 | - | 2,295,200 |
|
Carrying amount |
|
|
|
|
| As at 31/12/2021 | 724,204 | 29,510 | 83,481 | 753,714 |
| As at 31/12/2020 | 916,256 | - | 83,481 | 916,256 |
All intangible assets within the Group are held by the Company.
Goodwill
On 11 March 2020 the Group acquired NEX Exchange Limited which resulted in recognition of goodwill of £83,481. The cash generating unit associated with the goodwill is determined to be the assets associated with the investment in AQSE.
The goodwill arising on consolidation represents the growth potential of the primary listings exchange and the synergies with the rest of the business. AQSE has no intangible assets.
Impairment tests for goodwill
Goodwill has been allocated for impairment testing purposes to a cash generating unit, being the net assets related to Aquis Stock Exchange.
The recoverable amounts of the cash generating unit has been determined based on a value-in-use calculation using discounted cash flow forecasts based on business plans prepared by management for a three-year period ending
31 December 2024, using an estimated terminal growth rate of 2%, and a pre-tax discount factor of 7.75%.
No impairment loss has been recognised during the year, as management believes the value in use of Aquis Stock Exchange is significantly higher than the carrying value and is unlikely to be materially impaired.
21. PROPERTY, PLANT AND EQUIPMENT
|
Group | Fixtures, fittings and equipment | Computer Equipment | Total Right of Use Asset |
Total |
| Cost |
|
|
|
|
| As at 31/12/2019 | 249,497 | 2,098,270 | 1,444,159 | 3,791,927 |
| Additions | 2,328 | 113,024 | - | 115,351 |
| As at 31/12/2020 | 251,825 | 2,211,295 | 1,444,159 | 3,907,278 |
| Additions | 72,636 | 246,885 | 3,758,437 | 4,077,958 |
| Disposals | - | (68,926) | (963,837) | (1,032,764) |
| As at 31/12/2021 | 324,461 | 2,389,254 | 4,238,759 | 6,952,474 |
|
Accumulated depreciation and impairment | ||||
| As at 31/12/2019 | 127,572 | 1,477,366 | 173,166 | 1,778,104 |
| Charge for the year | 50,492 | 326,962 | 173,166 | 550,620 |
| As at 31/12/2020 | 178,064 | 1,804,328 | 346,332 | 2,328,724 |
| Charge for the year | 51,938 | 312,092 | 154,748 | 518,779 |
| Disposals | - | (41,362) | - | (41,362) |
| As at 31/12/2021 | 230,002 | 2,075,058 | 501,080 | 2,806,141 |
|
Carrying amount |
|
|
|
|
| As at 31/12/2021 | 94,458 | 314,196 | 3,737,679 | 4,146,333 |
| As at 31/12/2020 | 73,761 | 406,966 | 1,097,827 | 1,578,553 |
|
Company | Fixtures, fittings and equipment | Computer Equipment | Total Right of Use Asset |
Total |
| Cost |
|
|
|
|
| As at 31/12/2019 | 249,497 | 2,098,270 | 1,444,159 | 3,791,927 |
| Additions | 2,328 | 113,024 | - | 115,351 |
| As at 31/12/2020 | 251,825 | 2,211,294 | 1,444,159 | 3,907,278 |
| Additions | 67,500 | 246,885 | 3,175,765 | 3,490,150 |
| Disposal | - | (68,926) | (963,837) | (1,032,764) |
| As at 31/12/2021 | 319,325 | 2,389,253 | 3,656,087 | 6,364,664 |
|
Accumulated depreciation and impairment | ||||
| As at 31/12/2019 | 127,572 | 1,477,366 | 173,166 | 1,778,104 |
| Charge for the year | 50,492 | 326,962 | 173,166 | 550,620 |
| As at 31/12/2020 | 178,064 | 1,804,328 | 346,332 | 2,328,724 |
| Charge for the year | 51,965 | 312,092 | 149,488 | 513,545 |
| Disposal | - | (41,362) | - | (41,362) |
| As at 31/12/2021 | 230,029 | 2,075,058 | 495,820 | 2,800,907 |
|
Carrying amount |
|
|
|
|
| As at 31/12/2021 | 89,296 | 314,195 | 3,160,267 | 3,563,758 |
| As at 31/12/2020 | 73,761 | 406,966 | 1,097,827 | 1,578,554 |
22. INVESTMENT IN SUBSIDIARIES
|
Company | 2021 £ | 2020 £ |
| Investment in subsidiaries | 6,884,202 | 6,484,202 |
Details of the Company's subsidiaries at 31 December 2021 are set out in the following table. The investments are measured using the equity method in Aquis Exchange PLC's standalone accounts.
|
Name of undertaking | Country of incorporation | Ownership interest (%) | Voting power held (%) | Name of business | Carrying amount 2021 | Carrying amount 2020 |
| Aquis Stock Exchange | UK | 100 | 100 | Recognised Investment Exchange | 3,677,118 | 3,277,118 |
| Aquis Exchange Europe SAS | France | 100 | 100 | European Equities Exchange | 3,207,084 | 3,207,084 |
The registered office of Aquis Exchange Europe SAS is 231 rue Saint Honoré, 75001 Paris, France. The registered office of Aquis Stock Exchange Limited is 77 Cornhill, London EC3V 3QQ, UK.
During the year Aquis Exchange PLC made capital contributions to Aquis Stock Exchange of £400,000.
Both investments were assessed for impairment at year end. Although Aquis Stock Exchange was loss-making in 2021, this performance was in line with expectations and is expected to reach profitability in 2022. Therefore, in line with IAS 36 guidance, no impairment provision has been recognised in Aquis Exchange PLC's financial statements. The following table summarises the movement in the carrying amounts of the subsidiaries during the year:
|
| Aquis Stock Exchange | Aquis Exchange Europe SAS |
| Carrying amount 2020 | 3,277,118 | 3,207,084 |
| Capital injection | 400,000 | - |
| Carrying amount 2021 | 3,677,118 | 3,207,084 |
23. INVESTMENT IN TRUSTS
The following table shows the total amount the Company has invested in the two Trusts in respect of the Share Incentive Plan and also the Restricted Share Plan as at the reporting date:
|
Company | 2021 £ | 2020 £ |
| Investment in Trusts | 1,856,964 | 486,127 |
24. TRADE RECEIVABLES, CONTRACT ASSETS AND OTHER RECEIVABLES
|
| Current | Non-current | Total | |||
| Group
| 2021 £
| 2020 £
| 2021 £
| 2020 £
| 2021 £
| 2020 £ |
| Trade receivables | 1,884,329 | 1,500,524 | - | - | 1,884,329 | 1,500,524 |
| Technology licence contract assets | 1,112,576 | 1,132,029 | 2,415,824 | 617,805 | 3,528,400 | 1,749,834 |
| Other receivables | 339,353 | 11,911 | 328,832 | 221,825 | 668,185 | 233,736 |
| Prepayments | 432,689 | 279,603 | - | - | 432,689 | 279,603 |
|
| 3,768,947 | 2,924,067 | 2,744,656 | 839,630 | 6,513,603 | 3,763,697 |
|
| Current | Non-current | Total | |||
| Company
| 2021 £
| 2020 £
| 2021 £
| 2020 £
| 2021 £
| 2020 £
|
| Trade receivables | 1,747,286 | 1,384,467 | - | - | 1,747,286 | 1,384,467 |
| Technology licence contract assets | 1,112,576 | 1,132,029 | 2,415,824 | 617,805 | 3,528,400 | 1,749,834 |
| Other receivables | 313,225 | 6,941 | 315,350 | 221,825 | 628,575 | 228,766 |
| Intercompany receivables | 804,406 | 177,266 | - | - | 804,406 | 177,266 |
| Prepayments | 395,061 | 242,665 | - | - | 395,061 | 242,665 |
|
| 4,372,554 | 2,943,368 | 2,731,174 | 839,630 | 7,103,728 | 3,782,998 |
The following details the trade receivables and contract assets that are stated net of any credit impairment provision, as set out previously in Note 12 in accordance with IFRS 9.
|
| Group | Company | ||
| Trade receivables
| 2021 £
| 2020 £
| 2021 £
| 2020 £ |
| Gross trade receivables | 1,930,498 | 1,540,230 | 1,747,286 | 1,406,505 |
| Gross contract assets | 5,009,162 | 2,236,397 | 5,009,162 | 2,236,397 |
| Expected credit loss provision | (1,526,931) | (526,271) | (1,480,762) | (508,601) |
| Trade receivables net of provisions | 5,412,729 | 3,250,357 | 5,275,686 | 3,134,300 |
| 25. CASH AND CASH EQUIVALENTS |
| ||
| Group |
| Company |
|
| 2021 | 2020 | 2021 | 2020 |
| £ | £ | £ | £ |
| Cash at bank | 14,046,399 | 12,268,418 | 7,094,964 | 6,179,566 |
Cash and cash equivalents are held with authorised counterparties of a high credit standing, in secured investments. Management does not expect any losses from non-performance by the counterparties holding cash and cash equivalents, and there are no material differences between their book and fair values.
Cash held by Aquis Exchange Europe SAS is predominantly held in a Sterling denominated bank account, hedging the Group against foreign exchange fluctuations in cash and cash equivalents of the subsidiary
26. TRADE AND OTHER PAYABLES AND SHORT TERM LEASE LIABILITIES
|
| Group | Company | ||
| Current
| 2021 £ | 2020 £
| 2021 £
| 2020 £
|
| Trade payables | 170,934 | 263,398 | 162,989 | 251,136 |
| Accruals | 1,811,168 | 1,524,793 | 1,564,785 | 1,301,073 |
| Deferred Revenue | 882,525 | 431,792 | 270,900 | 43,127 |
| Social security and other taxation | 506,638 | 426,745 | 494,107 | 242,588 |
| Intercompany payables | - | - | 552,754 | 454,182 |
| Other payables | 204,085 | 163,982 | - | - |
| Short term lease liabilities | 208,237 | - | 150,981 | - |
|
| 3,783,587 | 2,810,710 | 3,196,516 | 2,292,106 |
27. LEASES
Right of Use Assets
The right-of use asset was measured at the amount equal to the lease liability, plus prepaid lease payments (being the unamortised portion of the rent deposit asset). The right of use asset is depreciated over the term of the lease and was accounted for during the year ended 31 December 2021 as follows:
|
| Property £ |
| Carrying amount at 1 January 2020 | 1,270,993 |
| Depreciation for the year | (173,166) |
| Carrying amount at 31 December 2020 | 1,097,827 |
| Additions | 3,758,437 |
| Disposals | (963,837) |
| Depreciation for the year | (154,748) |
| Carrying amount at 31 December 2021 | 3,737,679 |
Rent deposit asset
The rent deposit asset (excluding the prepaid right of use portion which has been included in the calculation of the right of use asset above) is a financial asset measured at amortised cost and was accounted for during the year ended 31 December 2021 as follows:
|
| Rent deposit asset £ |
| Carrying amount at 1 January 2020 | 222,029 |
| Finance income on rent deposit asset for the year | 6,736 |
| Carrying amount at 31 December 2020 | 228,765 |
| Additions | 374,442 |
| Finance income on rent deposit asset for the year | 8,835 |
| Carrying amount at 31 December 2021 | 612,042 |
| Of which are: |
|
| Current | 283,212 |
| Non-current | 328,830 |
|
| 612,042 |
The non-current and current portions of the rent deposit asset are both included in 'Other Receivables' (Trade and Other Receivables) on the Statement of Financial Position.
Lease liability
The lease liability is calculated as the net present value of the fixed payments (including in-substance fixed payments), less any lease incentives receivable (e.g. any rent-free periods). The lease payments are discounted using the interest rate implicit in the lease. The lease liability is measured at amortised cost and was accounted for during the year ended 31 December 2021 as follows:
|
| Lease liability £ |
| Carrying amount at 1 January 2020 | 1,378,304 |
| Finance expense on lease liability for the year | 41,835 |
| Lease payments made during the year | (230,445) |
| Carrying amount at 31 December 2020 | 1,189,694 |
| Additions | 3,563,025 |
| Reduction in assumed lease liability | (926,303) |
| Finance expense on lease liability for the year | 35,010 |
| Lease payments made during the year | (230,445) |
| Carrying amount at 31 December 2021 | 3,630,981 |
| Of which are: |
|
| Current | 208,237 |
| Non-current | 3,422,744 |
|
| 3,630,981 |
The non-current and current portions of the lease liability are included in 'Lease liability' and 'Other Payables' (Trade and Other Payables) on the Statement of Financial Position respectively.
Net finance expense on leases
|
| 31-Dec-21 £ | 31-Dec-20 £ |
| Finance expense on lease liability | 35,010 | 41,835 |
| Finance income on rent deposit asset | (8,835) | (6,736) |
| Net finance expense relating to leases | 26,175 | 35,099 |
The finance income and finance expense arising from the Groups leasing activities as a lessee have been shown net where applicable as is permitted by IAS 32 where criteria for offsetting have been met.
Amounts recognised in profit and loss
|
| 31-Dec-21 £ | 31-Dec-20 £ |
| Depreciation expense on right-of-use assets | (149,488) | (173,166) |
| Finance expense on lease liability | (35,010) | (41,835) |
| Finance income on rent deposit asset | 8,835 | 6,736 |
| Short term lease expense | (37,568) | (25,726) |
| Net impact of leases on profit or loss | (213,231) | (233,991) |
The property leases (of which there are three) in which the Group is the lessee do not contain variable lease payment terms.
28. SHARE CAPITAL
|
Group and Company | 2021 £ | 2020 £ |
| Ordinary share capital |
|
|
| Issued and fully paid |
|
|
| 27,169,700 Ordinary shares of 10p each | 2,716,970 | 2,714,956 |
| Issue of 335,750 new shares | 33,575 | 2,014 |
|
| 2,750,545 | 2,716,970 |
29. SHARE PREMIUM ACCOUNT
|
Group and Company | 2021 £ | 2020 £ |
| At the beginning of the year | 10,892,135 | 10,839,981 |
| Issue of new shares | 879,327 | 52,153 |
| At the end of the year | 11,771,462 | 10,892,135 |
30. OTHER RESERVES
|
| Group | Company | ||
|
| 2021 £
| 2020 £
| 2021 £
| 2020 £
|
| Reserves relating to share-based payments | 1,118,314 | 760,543 | 1,448,430 | 748,525 |
The reserves relating to share-based payments reflects the cost recognised to date for the fair value of the approved Employee Share Plans estimated using the US binomial and Black Scholes option valuation models.
31. TREASURY SHARES
|
Group | 2021 £ | 2020 £ |
| At the beginning of the year | 489,625 | 318,410 |
| Purchase of additional shares | 1,211,907 | 199,459 |
| Shares vested or sold by trusts | (177,975) | (40,262) |
| Cash held by trusts | 3,278 | 12,018 |
| At the end of the year/period | 1,526,835 | 489,625 |
As at 31 December 2021 139,543 shares were held in the SIP Trust, and a further 150,000 shares held in the RSP/EMI Trust.
32. FOREIGN CURRENCY TRANSLATION RESERVE
In 2019 the Group established a Multilateral Trading Facility (MTF) in France through its subsidiary, Aquis Exchange Europe SAS. The translation of the European subsidiary' assets into Sterling, the functional currency of the Group, results in foreign exchange differences that have been recognised in Other Comprehensive Income and accumulated in a separate component of equity as illustrated below.
|
Group | 2021 £ | 2020 £ |
| At the beginning of the year | 908 | 1,439 |
| Foreign exchange differences on translation of foreign operations recognised in OCI | 76,899 | (531) |
| At the end of the year | 77,807 | 908 |
33. CASH GENERATED BY OPERATIONS
|
Group | 2021 £ | 2020 £ |
| Profit for the year after tax | 4,310,766 | 981,728 |
| Adjustments for: |
|
|
| Taxation credited | - | (307,616) |
| Deferred tax | (1,088,543) | (203,717) |
| Interest income | (444) | (14,632) |
| Amortisation and impairment of intangible assets | 505,514 | 479,670 |
| Depreciation and impairment of property, plant and equipment | 518,779 | 550,620 |
| Equity settled share based payment expense | 571,834 | 392,897 |
| Other gains/losses | 324,876 | 39,814 |
| Movement in working capital: |
|
|
| Increase in trade and other receivables | (2,749,906) | (1,100,337) |
| Increase in trade and other payables | 764,641 | 1,311,136 |
| Cash generated/ (absorbed) by operations | 3,157,517 | 2,129,563 |
|
Company | 2021 £ | 2020 £ |
| Profit for the year after tax | 4,480,382 | 1,779,951 |
| Adjustments for: |
|
|
| Tax credit | - | (307,616) |
| Deferred tax | (1,088,543) | (203,717) |
| Interest income | (444) | (14,632) |
| Amortisation and impairment of intangible assets | 513,434 | 479,670 |
| Depreciation and impairment of property, plant and equipment | 513,545 | 550,620 |
| Equity settled share based payment expense | 576,609 | 363,164 |
| Other gains/losses | 320,664 | (114,892) |
| Movement in working capital: |
|
|
| Increase in trade and other receivables | (3,320,730) | (1,128,488) |
| Increase in trade and other payables | 753,428 | 824,278 |
| Cash generated/ (absorbed) by operations | 2,748,346 | 2,228,339 |
34. RELATED PARTY TRANSACTIONS
Remuneration of key management personnel
The remuneration of the directors, who are key management personnel, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
|
Group | 2021 £ | 2020 £ |
| Salaries and other short term benefits | 797,788 | 761,709 |
| Share-based payments | 528,070 | 69,268 |
| Total | 1,325,858 | 830,977 |
During the year the Group has entered into, in the ordinary course of business, with other related parties. All transactions between Aquis Exchange PLC and its subsidiaries are eliminated on consolidation. There are no related party balances outstanding at Group level. Costs incurred by the Company on behalf of its subsidiary companies are recharged to these companies through a Management fee and service charge, which for 2021 represented a net recharge of £4,965k to Aquis Europe SAS and a net recharge of £494k to Aquis Stock Exchange Limited. The net cash payments in the year and balances outstanding at the year end were;
|
Group and Company | 2021 £000s Receipts and Payments | 2021 £000s Amounts owed from related parties | 2021 £000s Amounts owed to related parties |
| Aquis Stock Exchange Ltd | (82) | 390 | - |
| Aquis Europe SAS | 193 | 414 | 553 |
| Total | 111 | 804 | 553 |
|
Group and Company | 2020 £000s Receipts and Payments | 2020 £000s Amounts owed from related parties | 2020 £000s Amounts owed to related parties |
| Aquis Stock Exchange Ltd | 485 | 177 | - |
| Aquis Europe SAS | - | - | 54 |
| Total | 485 | 177 | 54 |
35. CONTROLLING PARTY
In the opinion of the Directors, there is no single overall controlling party.
No individual shareholder had a shareholding of 10% or above as at 31 December 2021.
36. EVENTS OCCURING AFTER THE REPORTING PERIOD
The Ukrainian conflict has resulted in extremely volatile market conditions and there is no certainty as to when this conflict will be resolved; however, at this stage, the Directors do not believe this could have a material adverse effect on the Group and consider this to be a non-adjusting post balance sheet event at 31.12.21.
The COVID-19 pandemic has continued to cause considerable health and economic uncertainty and significant market volatility and volumes. Notwithstanding the significant adverse effect this has had and may continue to have on the economy and whilst it is possible that this pandemic may result in further adverse effects on the Group at this stage the Directors do not believe that they will be material.
In March 2022 Aquis announced the intention, subject to contract, to assume the business activities of UBS MTF, the non-displayed matching pool of UBS AG.
Aquis announced during March 2022 of the intention to dual-list on Aquis Stock Exchange Limited whilst remaining listed on the AIM market of the London Stock Exchange.
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