TIDMALFA
RNS Number : 3588A
Alfa Financial Software Hldgs PLC
29 September 2020
29 September 2020
Alfa Financial Software Holdings PLC
2020 Half Year Report
Challenging conditions highlighting our qualities
Alfa Financial Software Holdings PLC ("Alfa" or the "Company"),
a leading developer of software for the asset finance industry,
today publishes its unaudited results for the six months ended 30
June 2020.
Financial highlights:
Results H1 2020 H1 2019 Movement
GBPm, unless otherwise stated Unaudited Unaudited %
------------------------------- ------------------ ------------ ---------
Revenue 38.2 30.9 24%
Operating profit 10.4 5.4 92%
Profit before tax 10.1 5.1 95%
Earnings per share - basic
(pence) 2.68 1.40 91%
Earnings per share - diluted
(pence) 2.62 1.35 94%
H1 2020 Unaudited 31 Dec 2019 Movement
GBPm, unless otherwise stated Audited %
------------------------------- ------------------ ------------ ---------
Cash 68.6 58.8 17%
Key measures (1) H1 2020 H1 2019 Movement
GBPm, unless otherwise stated Unaudited Unaudited %
------------------------------------- ---------- ---------- ---------
Revenue - constant currency 38.2 31.2 22%
Operating profit - constant
currency 10.4 5.6 86%
Operating free cash flow conversion
(%) 108% 211% (49)%
Total Contract Value (TCV) 96.4 70.1 38%
(1) See definitions section for further information regarding
calculation of measures not defined by IFRS.
Overview/Summary:
-- Revenue and profit significantly ahead of original expectations and last year
-- Covid-19 disruption minimised at this stage; high performance
delivery, with our people and product providing strong support for
our customers
-- Culture strong; engagement scores improved
-- Continuing to invest in people and product for future growth
-- Tech leadership through Alfa iQ launch
-- Robust balance sheet position with GBP69m of cash and no debt
-- Special dividend of 15 pence per share (GBP44m) declared
-- Strong progress in late stage pipeline, but limited contract
commitments for early stage projects
-- Underlying markets are resilient but not immune to current macro impacts
-- We expect 2020 to be 5% ahead of current revenue expectations
with the vast majority of this improvement also falling through to
EBIT, but remain cautious on 2021
Andrew Denton, Chief Executive Officer
"The qualities of our people and our product have been
highlighted in tackling the challenges that the Covid-19 pandemic
has posed.
We moved to remote working quickly and smoothly and without
interruption to our engineering or client project deliveries. The
first half of the year has seen four customers move into live
operation as well as an unprecedented level of product advances
which have made a major contribution to the recently released Alfa
Systems 5.6. We have also benefited in the first half from reduced
holidays taken by our people, which we expect to reverse in the
second half.
Our technology infrastructure has successfully supported our
customers' needs while working from home, and we have flexed to
ensure that we react to their changing priorities. Alfa Systems has
enabled customers quickly and efficiently to deal with the issues
created by Covid-19 such as payment holidays, forbearance and
government support such as automation for CBILS (Coronavirus
Business Interruption Loan Scheme) in the UK.
We have also launched our artificial intelligence joint venture,
Alfa iQ, which we expect to greatly enhance Alfa's ability to
develop artificial intelligence solutions for the asset finance and
auto finance industries. We are excited about the opportunities and
possibilities this will bring.
It is great to see that the dedication, skills and the effort of
our people in difficult circumstances has been reflected in a
strong first half financial performance."
Enquiries
Alfa Financial Software Holdings
PLC +44 (0)20 7588 1800
Andrew Denton, Chief Executive
Officer
Duncan Magrath, Chief Financial
Officer
Andrew Page, Executive Chairman
Tulchan Communications LLP +44 (0)20 7353 4200
James Macey White
Matt Low
Barclays +44 (0)20 7623 2323
Robert Mayhew
Edward Hill
Investec +44 (0)20 7597 4000
Patrick Robb
Sebastian Lawrence
Investor and analyst webcast
The Company will host a conference call today at 09:30 a.m. To
obtain details for the conference call, please email
alfa@tulchangroup.com .
Please dial in at least 10 minutes prior to the start time.
An archived webcast of the call will be available on the
Investors page of the Company's website,
https://investors.alfasystems.com/ .
Notes to Editors
Alfa has been delivering software systems and consultancy
services to the global asset and automotive finance industry since
1990. Our best practice methodologies and specialised knowledge of
asset finance facilitates delivery of large software
implementations and highly complex business change projects. With
an excellent delivery track record spanning three decades, Alfa's
experience and performance is unrivalled in the industry.
Alfa Systems, our class-leading technology platform, is at the
heart of some of the world's largest asset finance companies. Key
to the business case for each implementation is Alfa Systems'
ability to replace multiple customer systems with our single
platform. Alfa Systems supports both retail and corporate business
for auto, equipment, wholesale and dealer finance on a
multijurisdictional basis, including leases/loans, originations and
servicing. An end-to-end solution with integrated workflow and
automated processing using business rules, Alfa Systems provides
compelling solutions to asset finance companies.
Alfa Systems is currently used by customers or has live
implementations in 26 countries and Alfa has offices in Europe,
Australasia and North America. For more information, visit
www.alfasystems.com .
Forward-looking statements
This Half Year Report (HYR) has been prepared solely to provide
additional information to shareholders to assess the Group's
strategies and the potential for those strategies to succeed. The
HYR should not be relied on by any other party or for any other
purpose. This report contains certain forward-looking statements.
These include statements regarding Alfa's intentions, beliefs or
current expectations, and those of our officers, directors and
employees, concerning (without limitation), with respect to the
financial condition, results of operations, liquidity, prospects,
growth, strategies and businesses of Alfa. These statements and
forecasts involve known and unknown risks, uncertainty and
assumptions because they relate to events and depend upon
circumstances that will or may occur in the future and should
therefore be treated with caution. There are a number of factors
that could cause actual results or developments to differ
materially from those expressed or implied by these forward-looking
statements. These forward-looking statements are made only as at
the date of this announcement. Nothing in this announcement should
be construed as a profit forecast. Except as required by law, Alfa
has no obligation to update the forward-looking statements or to
correct any inaccuracies therein.
BUSINESS REVIEW
Strong financial performance despite Covid-19 challenges
2020 started with some encouraging signs from new contract
announcements, but was then overshadowed by the impact of the
Covid-19 pandemic. As part of our strong risk management processes
we implemented working from home for all employees in early March
in advance of government-imposed lockdowns. The switch to remote
working was accomplished smoothly and without disruption, across
all of our offices, reflecting the investments we had made in our
infrastructure, and the flexibility and dedication of our people
and systems.
We engaged with our customers throughout the period to
understand how the pandemic was impacting their ongoing business
and where relevant, their plans for implementing and developing
Alfa Systems. In the early stages of the crisis there was
inevitably a lot of uncertainty around these plans, including a
cancellation of a newly won US Auto customer, and whilst we were
cautious about the short term outlook for the business, we remained
confident in our medium to long term outlook and so continued with
our plans to grow the business, recruit more engineers and to keep
progressing our technology.
For the first six months of the year, we have managed the
challenges and uncertainties extremely successfully. We have flexed
our plans and reallocated our people to respond to changing
customer demands through active dialogue with our customers and
very active communication with our own people. Internally we have
held frequent planning meetings, identifying spare resources and
options for their deployment. In common with many companies, our
people have taken fewer holidays during lockdown and it is
therefore pleasing that we have still managed, largely, to allocate
most of them to chargeable work, and this has boosted our first
half revenues which we expect to reverse in the second half.
We had strong licence fee income after making good progress on
the implementation of some key projects during the period, in
contrast to the licence fee write-backs we saw in H1 2019. As a
consequence, we have seen a strong financial performance with
revenues up 24% on prior year at GBP38.2m (2019: GBP30.9m). We were
also pleased that we continued to reduce our dependency on key
customers, with the Top 5 customers accounting for 55% of revenues
in the period, down from 64% in H1 2019. We had ten customers
contributing revenues of more than GBP1m in the period, up from
seven last year. Average headcount for the period was 322 (2019:
310) which along with the pay increases awarded last year drove
higher salary costs but this was partially offset by reduced costs
of travel, conferences, and marketing resulting in an overall
increase in Operating profit up GBP5.0m to GBP10.4m (2019:
GBP5.4m).
Growing partnerships
A key component of our growth strategy is to develop strategic
alliances with selected partners. The partners increase our
operational capacity with flexible resource, and also enhance our
capacity to target new customers in both existing markets and
markets where we are not currently present.
In February 2020 we announced a global partnership agreement
with Accenture which took our total number of implementation
partners to five. The agreement establishes a basis for us to work
with Accenture's global Specialty Finance practice to collaborate
together on software implementation projects worldwide. This will
help us to accelerate our efforts to deliver Alfa to customers who
want the operational and financial advantages that Alfa Systems can
bring.
We continue to explore how we might further expand our partner
network, but we have slowed down the on-boarding of newly trained
partners during the Covid-19 pandemic uncertainty, focusing on
ensuring we had deployed all of our own resources.
During the first half of 2020 partners worked with us across
four different projects with customers in four different
countries.
Improving our technology platform
We have continued to invest in Alfa Systems, with a number of
key product development projects making good progress in the first
half, despite the uncertain economic climate.
Alfa Systems' new "Mercury" user interface enables users to
complete their daily tasks with ease in an environment that is even
more fresh, clean and uncluttered. The new interface draws on
end-user experience and Design Thinking to give users a positive
experience.
We have improved Alfa POSkit, our component-based toolbox for
building Point of Sale applications with maximum agility.
We have also continued to work on new functionality;
-- Usage-based billing, a pay-per mile solution that allows
customers to be billed only for the distance travelled by using
real-time data through telematics devices installed in each
vehicle
-- Cash accounts, a new product for wholesale funders that pays
interest on account balances, or uses the interest on account
balances to pay off the interest on a loan
-- New reference interest rates such as SONIA and SOFR to
support the move away from existing money market-based rates like
LIBOR.
We continue to invest in further modularisation for our
software. This initiative simplifies our code-base, which reduces
the cost of maintenance whilst also increasing speed of development
for new functionality and features. We are also investing in our
software development lifecycle by improving the tooling and
processes for making changes to the system, giving quicker
developer feedback from our extensive automated testing, and
ensuring that our development is more efficient.
Accelerating growth with Alfa Start
Alfa Start is our entry level version of the full Alfa Systems
platform. It uses a predefined, leading practice configuration and
process catalogue which allows any finance company to take full
advantage of the proven Alfa Systems platform, which until now has
been within reach only of larger, more established operators. The
optimised approach accelerates systems change, maximises value and
minimises risk, and enables lean businesses to automate and
innovate. Alfa Start customers can be in live production with their
new system in less than 20 weeks, quickly leveraging Alfa's
functionality and performance.
In the first half of 2020 we successfully went live with an Alfa
Start implementation for Hampshire Trust Bank in the UK, delivering
the implementation within 19 weeks.
Paul Bartley, managing director of the asset finance division at
Hampshire Trust Bank, said: "We are thrilled to be live with Alfa
Systems, following the Alfa Start methodology and exceptional Alfa
support enabling us to deliver in the shortest time possible."
We have continued to refine the Alfa Start package, and in
August 2020, Alfa Start was formally launched for the US Auto
Finance industry, where we are building on our long-established
experience of working with the top companies in the field.
Cloud Hosting growing
We expect that Cloud Hosting will become an increasingly
important part of our business.
During the period we announced two new contract wins for our
Cloud Hosting solution. One was with a major South African bank to
support a multi-phase implementation and the second with a leading
UK provider of auto finance solutions. We now host a total of eight
customers. Two of these are for temporary testing and support
environments to accelerate customers' implementations, four are in
implementation projects, and two are in live production.
Exploring opportunities in AI through Alfa iQ
In May we formed Alfa iQ, a 51:49 joint venture between Alfa and
Bitfount, a company founded by Blaise Thomson. The joint venture
structure allows Alfa iQ to address the widest possible market.
Blaise was a founder and CEO at VocalIQ, which was sold to Apple
in 2015. He then led the Apple Engineering office in Cambridge, UK
until he left in 2019 to start Bitfount. The joint venture has been
created to greatly enhance Alfa's ability to develop artificial
intelligence solutions for the asset finance and auto finance
industries. We believe that this has the potential to be
transformational for our customers and Alfa iQ's first customer
engagement has already started.
During 2021, Alfa iQ plans to build a decision support
architecture that is tightly integrated with business process
automation tooling and includes real-time, intelligent proactive
and reactive decision making as well as informed strategic decision
making.
This joint venture is at an early stage and is aiming to
generate meaningful revenue impact in 2022. All profits and losses
made through the joint venture will be equity method accounted for
in line with IFRS 11.
In September Alfa also published its second position paper on
artificial intelligence titled "Using Machine Learning in the
Wild". This paper describes two machine learning related projects
that Alfa engineers had pursued as part of Alfa's innovation
framework. It has interesting insights into the trade-offs between
adopting off-the-shelf approaches and building up models
internally, as well as showing how much can be done with a
relatively small investment.
Strengthened governance structure in place
In the first half two new Non-Executive Directors, Adrian
Chamberlain, and Charlotte de Metz, were appointed to the Board and
Duncan Magrath was appointed Chief Financial Officer. Below Board
level, the addition of Vicky Edwards as Chief People Officer
completed the Company Leadership Team which now comprises eight
people and blends deep Alfa experience with new external
expertise.
On 22 July 2020 we announced that as a result of a competitive
tender process we had appointed RSM UK Audit LLP ("RSM") as our new
auditor. To ensure that we can work with the widest range of
partners possible, Deloitte, our previous auditor, which is one of
the leading service providers to the global asset and automotive
finance market, was not considered as part of the tender process
for our audit. The appointment of RSM as auditor for the 2021
financial year will be subject to approval by shareholders at the
next Annual General Meeting of the Company to be held in 2021.
Strong engagement with our people
In response to Covid-19, we did not furlough any staff and
provided funds to support home working. We proactively moved to
remote working in advance of government-imposed lockdowns, and our
offices remained closed through the remainder of the first half.
Where safe to do so, we had reopened offices for those who wish to
return to an office environment, but we keep this position under
constant review in line with local government advice. We currently
do not expect full scale office working to return before the start
of next year.
Along with the Board and Company Leadership Team changes noted
above we have continued to invest in our people, both by continuing
to recruit but also committing time and effort to ensure we
maintain engagement despite the difficulties of remote working. We
held our annual global conference remotely, and we have continued
to encourage feedback through regular company meetings, and
engagement surveys. We recently held a live video meeting where the
whole Company was able to ask questions of the Board, including
NEDs, on any topic they considered important.
We continue to monitor the engagement of our people through our
bi-monthly Pulse Surveys. Through active communication to ensure
that our people understand our strategy, objectives and performance
and keeping them up to date with developments, our engagement
rating has consistently been above 70% since March 2020.
We recognise that Covid-19 pandemic has imposed many
difficulties on our people, but they have tackled them with great
commitment and we would like to thank them for all their efforts
this year so far and we are confident that they will continue to do
so as the situation develops.
Return of Capital recognising continuing strong cash generative
business
We remain a strongly cash generative business and clearly have
excess capital for our present and predicted needs. We believe we
can continue to grow our business largely through organic
means.
Having carefully considered both our short and medium term
requirements including a number of downside scenarios, the Board
has decided to declare a Special Dividend of 15 pence per share
payable on 6 November 2020 to shareholders on the register as at 16
October 2020 with the shares going ex-dividend on 15 October 2020.
This will amount to a total return of capital to shareholders of
GBP44m. Following payment of the Special Dividend we will remain in
a strong net cash position and will continue to manage the business
to ensure that we maintain a robust balance sheet.
Resilience of underlying asset finance market
The underlying asset finance market tends to be relatively
resilient in economic downturns, because it is a more secure form
of lending, meaning its share of the overall finance market tends
to increase. New business volumes in the US asset finance market
are down 1% year to date to July 2020, although in the UK they are
down 31% July year to date and in Europe 16% year to date to June
2020. The medium-term resilience means that big systems projects
that are underway tend not to get stopped, although projects can
look to save money in the short term which can change plans. The
biggest impact is that projects that have not yet started may be
put on hold which impacts our early stage pipeline.
Some signs of recovery in early stage pipeline but we remain
cautious
We define our early stage pipeline as prospects where there is
active engagement with a potential customer through either a demo
or responding to an RFI (Request for Information). At 30 June 2020
the number of prospects at this stage in the pipeline has halved
compared with a year ago. This is partly as a result of good
progress of opportunities into the later stage of the pipeline but
also an absence of lead activity which we believe is a result of
the impact of Covid-19 on customers' desire to think about
initiating large new systems projects. Due to this reduced lead
activity we remain cautious about the impact this may have on our
future revenues if this activity does not return.
Late stage pipeline has developed well
The late stage pipeline from the beginning of the year developed
well with two opportunities progressing to signed contracts and one
operating under a Letter of Engagement (LoE). This was offset by
one small project being cancelled, and one large project which did
not progress beyond the pre-implementation work. In addition nine
opportunities were added to the pipeline of which three have been
awarded subject to signing contractual terms, with the rest
continuing to progress.
Outlook
Following a strong performance in the first half, we have been
encouraged by our performance in August and September. Both our
work with existing clients and our late stage pipeline continues to
develop and we are confident in the outlook for full year 2020,
with revenues expected to be about 5% ahead of expectations,
flowing through to an increase in EBIT.
Looking forward to the longer term, the Board is positive about
the prospects of the group. Alfa is a market leader with an
established blue chip client list, a world class product portfolio
and structural growth drivers in its end markets. The cash
generative nature of the business model, and the very strong
balance sheet, means Alfa has more than sufficient resources to
continue to invest in growth. The Board believes it is therefore
appropriate to declare a special dividend. Post payment of the
dividend, Alfa will remain strongly net cash positive with all the
necessary resources to take the business forward.
While positive about the long term prospects, the shorter term
macro-economic uncertainty is well publicised and the Board believe
it is prudent to take a more cautious view for 2021. We continue to
believe in our strategy of attracting the best people and investing
in our product to support our long term ambitions.
FINANCIAL REVIEW
Financial Results
H1 2020 H1 2019 Movement
GBP'000s Unaudited Unaudited %
-------------------------------- ----------- ---------- ---------------------
Revenue 38,174 30,853 24%
Operating expenses -
net (27,787) (25,445) 9%
Share of results of associates
and joint ventures (1) - (100%)
--------------------------------- ---------- ---------- ---------------------
Operating profit 10,386 5,408 92%
Finance income 75 57 32%
Finance expense (408) (317) 29%
--------------------------------- ---------- ---------- ---------------------
Profit before tax 10,053 5,148 95%
--------------------------------- ---------- ---------- ---------------------
Taxation (2,222) (1,112) 100%
--------------------------------- ---------- ---------- ---------------------
Profit for the period 7,831 4,036 94%
--------------------------------- ---------- ---------- ---------------------
Revenues increased by GBP7.3m to GBP38.2m in the six months
ended 30 June 2020 (H1 2019: GBP30.9m) with increases across all
revenue streams, but with particularly strong growth in ongoing
development and services (ODS) revenues as a result of two
pre-implementation customers, along with some increases in post-go
live support for some of our key customers. Revenues in both our
software implementation and ODS segments were boosted by an
increase in chargeable days as a result of less holidays being
taken across the Group due to the impacts of Covid-19 which we
expect to reverse in the second half. The overall growth in revenue
was somewhat flattered by write back adjustments to licence revenue
in the prior half year period.
Operating profit increased by GBP5.0m to GBP10.4m (H1 2019:
GBP5.4m), due to the GBP7.3m increase in revenues, partially offset
by GBP2.3m increase in expenses, of which GBP1.5m was as a result
of an increase in research and product development expenses,
GBP0.9m was as a result of an increase in SG&A expenses, and
(GBP0.1m) was as a result of a decrease in implementation and
support expenses.
Net finance expense of GBP0.3m (H1 2019: GBP0.3m) resulted in
profit before tax of GBP10.1m (H1 2019: GBP5.1m) and with an
effective tax rate of 22.1% (H1 2019: 21.6%) the resulting profit
for the period was GBP7.8m (H1 2019: GBP4.0m).
Revenue
Revenue - by type H1 2020 H1 2019 Movement
GBP'000s Unaudited Unaudited %
------------------------- ---------- ---------- ---------------
Software implementation 16,194 14,439 12%
ODS 13,757 9,167 50%
Maintenance 8,223 7,247 13%
------------------------- ---------- ---------- ---------------
Total revenue 38,174 30,853 24%
------------------------- ---------- ---------- ---------------
Software implementation revenues increased by GBP1.8m, or by
12%, to GBP16.2m in H1 2020 (H1 2019: GBP14.4m), reflecting the six
ongoing implementation projects from the end of 2019 and two
additional projects that were commenced in H1 2020. One of our
continuing projects was our first Alfa Start implementation which
was completed and moved to the ODS revenue segment during the
period. Of the two additional projects that commenced in H1 2020,
one was a customer who signed a contract but then cancelled before
significant activity was underway as a result of the pandemic, and
the other related to a customer who had previously put their
implementation project on hold during 2018. As such, the Group has
six ongoing implementation projects as at 30
June 2020. The above compares with five implementation customers during H1 2019.
Of the six ongoing implementation projects at 30 June 2020, one
of these projects was new when compared to H1 2019 resulting from
the completion of the pre implementation phase in October 2019.
This customer contributed GBP3.6m in H1 2020 (H1 2019: nil).
Revenue from the remaining five ongoing implementation projects
at 30 June 2020 contributed GBP11.7m in H1 2020, a decrease of
GBP2.6m compared with GBP14.3m in H1 2019. This decrease is
primarily due to the fact that during 2019 the largest of these
ongoing implementation projects was running two phases
concurrently, however the larger of the two phases went live in
January 2020, and as a result moved to the ODS segment at this
time. This decrease was then partially offset by the following
factors that impacted the comparative H1 2019 revenues generated
from these five ongoing implementation projects:
-- H1 2019 saw the deferral of go-live dates on certain of these
projects which resulted in write-backs to our licence revenue;
and
-- The write back of certain amounts of its licence revenue in
order to establish a material right to use liability. This
liability reflects discounts in respect of the rights to use
renewal payments that customers will be required to pay in future
years. The value of the revenue written back in H1 2019 was
GBP2.8m, of which GBP1.9m related to those project classified as
ongoing during H1 2020.
Revenue from the implementation projects that were completed or
cancelled in the period contributed GBP0.9million.
ODS revenues increased by 50% or GBP4.6m to GBP13.8m in H1 2020
(H1 2019: GBP9.2m). This significant increase was the result
of:
-- An increase in revenue from customers who are currently in
the pre-implementation phase of GBP1.9m. During H1 2020 the Group
had three customers who were undertaking pre-definition work. One
of these moved to implementation during the period but as
previously noted was subsequently cancelled due to the current
economic uncertainty. The remaining two have continued to advance
through the six month period but after the period end we mutually
agreed with one customer to bring the project to an end due to
differing views on contractual terms.
-- An increase of GBP3.3m due to new ODS customers. This
includes revenue from those customers who on completing their
implementation project, or one phase of their implementation
project, transition to the ODS segment during the period. This also
includes revenue from one existing implementation customer who
procured additional services that were incremental to the services
associated with their main implementation project.
-- A slight decrease of GBP0.7m of revenue from ongoing ODS
customers resulting from the current mix of ODS project in H1 2020
compared to the prior half year.
Maintenance revenues increased by GBP1m, or by 13% from GBP7.2m
in H1 2020 to GBP8.2m in current six-month period. This increase
was partly due to inflationary annual maintenance price rises along
with an increased number of customer utilising the Group's
relatively new Cloud Hosting offering, all of which is currently
included within the maintenance revenue segment.
Total Contracted Value (TCV)
TCV - by type (unaudited) 2020 2019 2019
GBP'm H1 FY H1
--------------------------- ----- ----- -----
Software implementation 32.5 27.4 21.0
ODS 6.4 8.0 6.4
Maintenance 57.5 45.1 42.7
--------------------------- ----- ----- -----
Total TCV 96.4 80.5 70.1
--------------------------- ----- ----- -----
Total contracted value (TCV) - as defined in the definition
section of this HYR - at 30 June 2020, is GBP96.4m (31 December
2019: GBP80.5m, 30 June 2020: GBP70.1m). Implementation TCV has
increased due to the pipeline development during the period. ODS
TCV has reduced somewhat as we have seen a trend for shorter
contracted Statements of Work. There has however been a significant
increase in the Maintenance TCV principally due as a result of two
of our existing ODS customers moving to a Cloud Hosted solution,
along with another of our current implementation customers (we have
included three years' worth of planned hosting revenues within the
Maintenance TCV, consistent with the treatment of maintenance
revenues). Of the GBP96.4m total TCV at 30 June 2020, GBP43.4m is
anticipated to convert into revenue within the next 12 months,
assuming contracts continue as expected and are not cancelled or
delayed. This includes GBP18.1m of software implementation
revenues, GBP6.4m of ODS revenues and GBP18.9m of maintenance
revenues.
Operating profit
The Group's operating profit increased by GBP5.0m, or 92%, to
GBP10.4m in H1 2020 (H1 2019: GBP5.4m) primarily reflecting the
GBP7.3m increase in revenues, partially offset by an increase in
the Group's cost base as we continued to invest in the business,
through increased headcount and partner costs, offset by reductions
in travel, conference and marketing costs, as a consequence of the
pandemic lockdown. The Group's operating profit on a constant
currency basis increased by 86%.
Expenses - net H1 2020 H1 2019 Movement
GBP'000s Unaudited Unaudited %
-------------------------------------- ----------- ---------- ---------
Implementation and support expenses* 8,655 8,709 (1)%
Research and product development
expenses* 9,028 7,498 20%
Sales, general and administrative
expenses* 10,369 9,460 10%
Other income (265) (222) 19%
--------------------------------------- ---------- ---------- ---------
Total expenses - net 27,787 25,445 9%
--------------------------------------- ---------- ---------- ---------
*To better reflect the nature and function of certain expenses,
management has made changes to the classification and allocation of
expense line items. The comparative disclosures for the June 2019
reporting period have also been amended to reflect a fair base for
comparability. The main expense items affected by this
reclassification were salary costs and computer costs. In the
Consolidated Statement of Profit or Loss, where expenses are
disclosed by function, the main impact on the previous June 2019
disclosed figures are: an increase of GBP0.275m in Implementation
and support expenses; a decrease of GBP0.413m in Research and
product development expenses; and an increase of GBP0.138m in
Sales, general and administrative expenses. These changes have had
no impact on the total expenses or the profit before tax that were
disclosed at the end of June 2019.
Headcount numbers at 30 June 2020 were 340 (H1 2019: 304), and
our staff retention rate has been 85% over the 12 months to that
date.
Implementation and support (I&S) expenses have remained
relatively stable, decreasing by 1%, to GBP8.7m (H1 2019: GBP8.7m).
I&S expenses predominantly comprise personnel costs, travel and
partner costs, with the total of these contributing 88% of the
total I&S expenses. In the six months ended 30 June 2020,
average software implementation headcount decreased by 13, to 98
employees (H1 2019: 111 employees). In addition, as referred to
above the Group's travel costs also significantly decreased as our
project teams were not travelling due to the global pandemic, which
also resulted in some reduced customer billings. The corresponding
reduction in personnel related and travel costs were almost fully
offset by the increase in partner costs GBP1.4m during H1 2020,
reflecting the Group's focus on delivering on its strategic
objectives of utilising partners. In the six months ended 30 June
2020 we deployed partners on four of our customer projects.
Research and product development (R&PD) expenses increased
by GBP1.5m, or 20%, to GBP9.0m (H1 2019: GBP7.5m). 86% of R&PD
expenses are personnel costs and the average number of developers
increased in the six months ended 30 June 2020 by 17 to 147
employees (H1 2019: 130 employees). In addition to the increase in
the average headcount, the personnel related costs have also
increased due to the above inflationary pay rises that were awarded
in November 2019 as part of the Group's overall strategy to invest
in its people.
As in prior periods, our development efforts centred primarily
on customer project development. In addition to this customer
development, for which the amounts are expensed in the profit and
loss, during H1 2020 a total of GBP0.4m (H1 2019: GBP0.4m) of
development costs were capitalised. The key amounts capitalised
related to GBP0.2m in relation to enhancements of the Alfa user
interface and GBP0.1m in relation to the changes required to
prepare Alfa for the new interest rates such as SONIA and SOFR.
Sales, general and administrative (SG&A) expenses increased
by GBP0.9m to GBP10.4m in the six month period to 30 June 2020 (H1
2019: GBP9.5m). This included increased salary costs through
strengthening some of the support functions; increases in the
share-based payment charges in H1 2020 to GBP0.5m (H1 2019:
GBP0.4m) in relation to LTIPs granted in May 2018, October 2019 and
more recently in June 2020; and increased amortisation costs of
GBP0.4m (H1 2019: GBP0.2m) reflecting the higher amounts of
intangible assets capitalised over the past two years. These
increases have been partially offset by the decrease in foreign
currency differences of GBP0.4m, which moved from a loss of GBP0.1m
in H1 2019 to a gain of GBP0.4m in H1 2020.
Finance costs
Net finance costs of GBP0.3m (H1 2019: GBP0.3m) remained
relatively unchanged, with a small increase in finance costs due to
higher IFRS 16 interest costs in respect of the Group's lease
liabilities. Income on cash balances remained low given the current
low interest rate environment.
Profit for the period
Profit after taxation increased by GBP3.8m, or 95%, to GBP7.8m
in H1 2020 (H1 2019: GBP4.0m). The effective tax rate increased to
22.1% in H1 2020 against the effective tax rate for the 2019 year
end (FY 2019 21.7%, H1 2019: 21.6%) due to the increasing
proportion of the Group's profits being generated overseas,
principally in the US.
Earnings per share
Basic earnings per share increased by 91% to 2.68 pence in H1
2020 (H1 2019: 1.40 pence). Diluted earnings per share increased by
94% to 2.62 pence (H1 2019: 1.35 pence).
Cash flow
Net cash (including the effect of exchange rate changes)
increased by GBP9.8m to GBP68.6m at 30 June 2020, from GBP58.8m at
31 December 2019. This increase has been driven by cash generated
from operations as a result of annual maintenance payments received
in the period and the collection of GBP3.6m of contractual
non-recurring revenue items recognised during FY19 and continued
focus on cash management by the Group. This was partially offset by
delays in invoicing certain new overseas customers. These
outstanding amounts have all been subsequently collected post 30
June 2020. Taken together, this resulted in Group's Operating Free
Cash Flow Conversion (FCF) of 108% (H1 2019: 211%).
In addition to a decrease in cash generated from operations of
GBP0.5m, the Group incurred GBP0.6m on capital expenditure (H1
2019: GBP0.9m), provided funding of GBP0.4m to its newly set up
joint venture, Alfa iQ, and made tax payments of GBP1.4m (H1 2019:
GBP2.8m) during the period. The Group has no external bank
borrowings.
In the six months ended 30 June 2020, net cash outflows of
GBP0.8m (H1 2019: GBP0.9m) from financing activities related to the
principal element of lease payments. No ordinary dividends have
been paid in the six months ended 30 June 2020. The Board have
declared a 15 pence per share Special Dividend, amounting to
GBP44m, payable on 6 November 2020 with a record date of 16 October
2020 and an ex-dividend date of 15 October 2020.
Balance sheet
The significant movements in the Group's balance sheet, aside
from the cash balance which is described above, from 31 December
2019 and 30 June 2020 are detailed below.
The trade and other receivables balance increased by GBP6.1 to
GBP20.0m at 30 June 2020 (31 December 2019: GBP13.9m) as a result
of higher billings due to the overall increased revenue during H1
2020, certain annual maintenance invoices still outstanding at 30
June 2020 and delays in invoicing certain overseas customers. This
was partially offset by decreases in the accrued income balance as
a result of the collection of the GBP3.6m of the FY 2019
non-recurring revenue items that had been accrued for at 31
December 2019.
The trade and other payables balance increased by GBP2.8m to
GBP8.7m at 30 June 2020 (31 December 2019: GBP5.9m) principally due
to an increase of the sales tax payable, including VAT and the
overseas equivalents, of GBP2.7m (largely as a result of the annual
maintenance billing and delayed overseas invoicing during the
current sales tax periods), and an increase in the holiday pay
accrual of GBP0.8m reflecting the impact of fewer holidays being
taken during the six month period as a result of the pandemic.
Contract liabilities increased by GBP3.4m to GBP12.1m at 30 June
2020 (31 December 2019: GBP8.6m) reflecting the fact that the
majority of annual maintenance contracts run on a 1 May - 30 April
period and as such a larger proportion of the annual amount is
deferred at 30 June compared with 31 December. This increase in the
deferred maintenance contract liabilities is partially offset by a
decrease in the deferred licence contract liabilities as the
implementation projects, to which this relates, move further
towards being completed.
Subsequent events
In the period since 30 June 2020, there have been no material
subsequent events.
Related parties
Details about related parties transactions are disclosed in note
17.
PRINCIPAL RISKS AND UNCERTAINTIES
Principal risks and uncertainties which could have a material
impact on the long-term performance of Alfa Financial Software
Holdings PLC and its subsidiaries were set out in the Alfa
Financial Software Holdings PLC Annual Report for the year ended 31
December 2019, dated 23 April 2020, and remain valid at the date of
this report, except as noted below.
Those risks and uncertainties where at the date of this report
the impact continues to be assessed as "Critical" or where the
impact was "Major" where the probability of the event is assessed
as at least "Possible" were:
-- IT security and cyber risks - a targeted attack could
adversely affect our customers' or potential customers' perception
of Alfa Systems and could impact our ability to operate our
business;
-- High customer concentration - we have significant customer
concentration risk due to the size and duration of our software
implementation projects;
-- Brexit and the uncertainty surrounding trading conditions
after the transition period - beyond economic uncertainties, we
might find it difficult to recruit and retain staff from EU
countries, and there might be implications for our ability to
service customers;
-- Pandemic outbreak in Alfa and/or customer geographies - may
impact the health of our people, may continue to cause economic
disruption, and hinder the movement of our people to our offices or
those of the customer.
In addition to the disclosure in the 2019 Annual Report, and
particularly in the light of the Covid-19 pandemic, the following
additional risks are highlighted:
-- Increased risk from weakened early stage sales pipeline due
to Covid-19 - this may impact our ability to secure new business
from our existing or new customers thereby potentially adversely
impacting revenues during H2 2021 and FY 2022.
In the 2019 Annual Report this risk was assessed with an
"Unlikely" probability; this has since been reassessed to a
"Likely" probability:
-- Socio-economic and geo-political risk - potential impact from
Covid-19 on the macro-economic environment leading to global and
local recessions as well as the potential impacts of changes to US
economic and immigration policy.
UNAUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND
COMPREHENSIVE INCOME FOR THE SIX MONTHSED 30 JUNE 2020
H1 2020 H1 2019
GBP'000s Note Unaudited Unaudited
---------------------------------------- ----- ----------- -----------
Revenue 3 38,174 30,853
Implementation and support expenses(*) (8,655) (8,709)
Research and product development
expenses(*) (9,028) (7,498)
Sales, general and administrative
expenses(*) (10,369) (9,460)
Other operating income 265 222
Share of results of associates (1) -
and joint ventures
---------------------------------------- ----- ----------- -----------
Operating profit 4 10,386 5,408
Finance income 75 57
Finance costs (408) (317)
Profit before tax 10,053 5,148
Taxation 6 (2,222) (1,112)
---------------------------------------- ----- ----------- -----------
Profit for the period attributable
to owners of the parent 7,831 4,036
---------------------------------------- ----- ----------- -----------
Other comprehensive income
Items that may be subsequently
reclassified to profit or loss:
Foreign currency translation of
a foreign operation 810 88
---------------------------------------- ----- ----------- -----------
Total comprehensive income, net
of tax 810 88
---------------------------------------- ----- ----------- -----------
Total comprehensive income for
the period attributable to owners
of the parent 8,641 4,124
---------------------------------------- ----- ----------- -----------
Earnings per share (in pence)
Basic 7 2.68 1.40
Diluted 2.62 1.35
*To better reflect the nature and function of certain expenses,
management has made changes to the classification and allocation of
expense line items. The comparative disclosures for the June 2019
reporting period have also been amended to reflect a fair base for
comparability. The main expense items affected by this
reclassification were salary costs and computer costs. In the
Consolidated Statement of Profit or Loss, where expenses are
disclosed by function, the main impact on the previous June 2019
disclosed figures are: an increase of GBP0.275m in Implementation
and support expenses; a decrease of GBP0.413m in Research and
product development expenses; and an increase of GBP0.138m in
Sales, general and administrative expenses. These changes have had
no impact on the total expenses or the profit before tax that were
disclosed at the end of June 2019.
The consolidated statement of profit or loss and comprehensive
income should be read in conjunction with the accompanying
notes.
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30
JUNE 2020
30 June 31 Dec
2020 2019
GBP'000s Note Unaudited Audited
---------------------------------- ----- ----------- ---------
Assets
Non-current assets
Goodwill 8 24,737 24,737
Other intangible assets 9 2,271 2,255
Deferred tax assets 725 596
Right-of-use assets 10 15,607 16,402
Property, plant and equipment 11 1,059 1,166
Interests in joint ventures 399 -
Total non-current assets 44,798 45,156
---------------------------------- ----- ----------- ---------
Current assets
Trade and other receivables 12 19,993 13,897
Cash and cash equivalents 68,634 58,839
---------------------------------- ----- ----------- ---------
Total current assets 88,627 72,736
---------------------------------- ----- ----------- ---------
Total assets 133,425 117,892
---------------------------------- ----- ----------- ---------
Liabilities and equity
Current liabilities
Trade and other payables 13 8,681 5,884
Corporation tax 13 2,166 1,355
Lease liabilities 13 1,709 1,672
Contract liabilities 3d 12,058 8,641
Total current liabilities 24,614 17,552
---------------------------------- ----- ----------- ---------
Non-current liabilities
Provisions for other liabilities 758 667
Lease liabilities 14 16,530 17,330
Total non-current liabilities 17,288 17,997
---------------------------------- ----- ----------- ---------
Total liabilities 41,902 35,549
---------------------------------- ----- ----------- ---------
Capital and reserves
Share capital 300 300
Translation reserve 836 26
Retained earnings 90,387 82,017
---------------------------------- ----- ----------- ---------
Total equity 91,523 82,343
---------------------------------- ----- ----------- ---------
Total liabilities and equity 133,425 117,892
---------------------------------- ----- ----------- ---------
The consolidated statement of financial position should be read
in conjunction with the accompanying notes.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE
SIX MONTHSED 30 JUNE 2020
Equity
attributable
Share Translation Retained to owners
GBP'000s Notes capital reserve earnings of the parent
----------------------------- ------ --------- ------------ ---------- ---------------
Balance as at 1 January
2019 300 376 71,050 71,726
Profit for the financial
period - - 4,036 4,036
Other comprehensive income - 88 - 88
----------------------------- ------ --------- ------------ ---------- ---------------
Total comprehensive income
for the period - 88 4,036 4,124
Employee share schemes-
value of employee services 16 - - 417 417
----------------------------- ------ --------- ------------ ---------- ---------------
Balance as at 30 June
2019 300 464 75,503 76,267
----------------------------- ------ --------- ------------ ---------- ---------------
Balance as at 1 January
2020 300 26 82,017 82,343
Profit for the financial
period - - 7,831 7,831
Other comprehensive income - 810 - 810
----------------------------- ------ --------- ------------ ---------- ---------------
Total comprehensive income
for the period - 810 7,831 8,641
Employee share schemes-
value of employee services 16 - - 539 539
----------------------------- ------ --------- ------------ ---------- ---------------
Balance as at 30 June
2020 300 836 90,387 91,523
----------------------------- ------ --------- ------------ ---------- ---------------
The consolidated statement of changes in equity should be read
in conjunction with the accompanying notes.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX
MONTHSED 30 JUNE 2020
H1 2020 H1 2019
GBP'000s Note Unaudited Unaudited
------------------------------------------- ----- ----------- -----------
Operating profit 10,386 5,408
Adjustments:
Depreciation 1,153 1,230
Amortisation 384 203
Share based payment charge 539 475
Movement in provisions (309) (412)
Movement in contract liabilities 3,505 6,114
Movement in working capital:
Movement in trade and other receivables (6,219) (355)
Movement in trade and other payables
(excluding contract liabilities) 3,233 544
------------------------------------------- ----- ----------- -----------
Cash generated from operations 12,672 13,207
Interest paid (6) -
Interest element on lease payments (402) (317)
Income taxes paid (1,431) (2,752)
------------------------------------------- ----- ----------- -----------
Net cash generated from operating
activities 10,833 10,138
------------------------------------------- ----- ----------- -----------
Cash flows from investing activities
Purchases of property, plant and
equipment 11 (173) (112)
Purchase of computer software 9 (29) (397)
Payments for internally developed
software 9 (399) (382)
Loss of disposal of computer software
and property, plant and equipment 11 38 -
Interest received 75 57
Investment in joint venture (401) -
Net cash (used in) investing activities (889) (834)
------------------------------------------- ----- ----------- -----------
Cash flows from financing activities
Principal element of lease payments 14 (846) (907)
------------------------------------------- ----- ----------- -----------
Net cash (used in) financing activities (846) (907)
------------------------------------------- ----- ----------- -----------
Net increase in cash and cash equivalents 9,098 8,397
------------------------------------------- ----- ----------- -----------
Cash and cash equivalents at the
beginning of the period 58,839 44,922
------------------------------------------- ----- ----------- -----------
Effect of foreign exchange rate
changes on cash
and cash equivalents 697 (64)
------------------------------------------- ----- ----------- -----------
Cash and cash equivalents at the
end of the period 68,634 53,255
------------------------------------------- ----- ----------- -----------
The consolidated cash flow statement should be read in
conjunction with the accompanying notes.
Notes to the Condensed Consolidated Half Year Financial
Statements for the six months ended 30 June 2020
1. General information
Alfa Financial Software Holdings PLC ("Alfa" or the "Company")
is a public company limited by shares and is incorporated and
domiciled in England. Its registered office is at Moor Place, 1
Fore Street Avenue, London, EC2Y 9DT, United Kingdom. Alfa's
registration number is 10713517.
The principal activity of the Company and its subsidiaries (the
"Group") is to provide software solutions and consultancy services
to the asset finance industry in the United Kingdom, United States
of America, Europe and Asia Pacific.
These unaudited Half Year Financial Statements have been
approved for issue by the Board of Directors on 28 September 2020.
These Half Year Financial Statements have been reviewed but not
audited.
2. Accounting policies
2(a) Basis of preparation
The Half Year Financial Statements have been prepared in
accordance with IAS 34 "Half Year Financial Reporting" as adopted
by the European Union and the Disclosure and Transparency Rules of
the Financial Conduct Authority.
These Half Year Financial Statements do not comprise statutory
accounts within the meaning of section 434 of the Companies Act
2006. The Half Year financial report does not include all the notes
of the type normally included in an annual financial report.
Accordingly this report should be read in conjunction with the
annual report for the year ended 31 December 2019 (the "Annual
Financial Statements"), which has been prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union ("IFRS"), and any public announcements made by Alfa
during the Half Year reporting period. The Annual Financial
Statements constitute statutory accounts as defined in section 434
of the Companies Act 2006 and a copy these statutory accounts has
been delivered to the Registrar of Companies. The auditor's report
on the Annual Financial Statements was not qualified, did not
include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying the report and did
not contain statements under section 498(2) or (3) of the Companies
Act 2006.
The accounting policies adopted in the preparation of the Half
Year Financial Statements are consistent with those used to prepare
Alfa's consolidated financial statements for the year ended 31
December 2019 and the corresponding Half Year reporting period.
The preparation of the Half Year Financial Statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates. In preparing these Half
Year Financial Statements, the significant judgements made by
management in applying the Group's accounting policies and the key
sources of estimation uncertainty were the same as those that
applied to the consolidated Annual Financial Statements described
above.
The Half Year Financial Statements have been prepared on a going
concern basis, under the historical cost convention.
2(b) Going concern
The financial statements are prepared on the going concern
basis. The Group continues to be cash-generative and the Directors
believe that the Group has a resilient business model. The Group
meets its day-to-day working capital requirements through its cash
reserves generated from operating activities. The Group's forecasts
and projections, taking account of reasonably possible changes in
trading performance including the possible impacts of Covid-19,
show that the Group has sufficient cash reserves to operate for a
period of not less than 12 months.
The going concern assessment performed also includes downside
stress testing in line with FRC guidance which demonstrates that
even in the most extreme downside conditions considered reasonably
possible, given the existing level of cash held and the Special
Dividend of 15 pence per share declared by the Board, the Group
would continue to be able to meet its obligations as they fall due,
without the need for substantive mitigating actions.
On this basis, whilst it is acknowledged that there is a great
deal of uncertainty surrounding the future impacts of Covid-19, the
Directors consider it appropriate to continue to adopt the going
concern basis of accounting in preparing the interim financial
statements.
2(c) Changes in accounting policies
The Group has not adopted any new accounting standards in the
period. Other changes to accounting standards in the year had no
material impact.
2(d) Seasonality
The Group is not normally significantly influenced by
seasonality or cyclical fluctuation because the Group's revenues
from maintenance fees, implementation and ODS fees are relatively
consistent throughout the year. In 2020 however, the impact of the
Covid-19 pandemic has meant that many fewer days holiday have been
taken by our people in the first six months of the year, which we
expect them to take in the second half of the year. As a result
this led to an increased number of chargeable days being delivered
in the first half of 2020 compared to those expected in the second
half of the year, weighting revenues more to the first half in
2020. The Group's revenue is also influenced by the number and
maturity of software implementations during the period. Separately,
the Group's cash flows are subject to seasonal fluctuations because
(i) the Group invoices a large proportion of its customers for
maintenance annually in advance in the first six months of each
year, resulting in a higher inflow of cash receipts in the first
half of the Group's financial year in respect of maintenance
revenues and (ii) cash flows are impacted by the invoicing of
up-front licence fees at the commencement of an implementation.
2(e) Foreign currency
The following exchange rates were used in the financial
statements:
USD Euro
---- ---------------------------- ------- -------
Average rate 6 months to:
30 June 2020 1.2610 1.1446
30 June 2019 1.2940 1.1454
Closing rate:
30 June 2020 1.2327 1.0978
31 Dec 2019 1.3493 1.1263
3. Segment information and revenue from contracts with customers
Operating and reporting segments are reported in a manner
consistent with the internal reporting provided to the Chief
Operating Decision Maker ("CODM") and the 31 December 2019 annual
report. The CODM considers the business from a product perspective
and, therefore, recognises one operating and reporting segment,
being the sale of software and related services. The Group
therefore presents revenue segmentation by type of project and
consolidated earnings, as presented to the CODM, along with the
required entity wide disclosure.
3(a) Revenue by type
The Group assesses revenue by type of project, being software
implementations, ongoing development and services (ODS) and
maintenance, as summarised below:
H1 2020 H1 2019
GBP'000s Unaudited Unaudited
------------------------- ----------- -----------
Software implementation 16,194 14,439
ODS 13,757 9,167
Maintenance 8,223 7,247
------------------------- ----------- -----------
Total revenue 38,174 30,853
------------------------- ----------- -----------
3(b) Revenue geographical information
Revenue attributable to each geographical market based on where
the customer mainly utilises its instance of Alfa, or where the
service is rendered, is as follows:
H1 2020 H1 2019
GBP'000s Unaudited Unaudited
UK 8,658 7,982
US 15,763 14,068
Rest of EMEA (excl UK) 12,637 7,872
Rest of the World 1,116 931
------------------------ ----------- -----------
Total revenue 38,174 30,853
------------------------ ----------- -----------
Following an evaluation of the Group's geographical markets, and
to reflect the way in which these are managed internally, the Rest
of Europe (excluding UK) segment has been updated to Rest of EMEA
(excluding UK). As such, GBP0.8m of revenues generated from South
Africa have been reallocated from Rest of World to Rest of EMEA
(excluding UK) for H1 2019.
3(c) Revenue by currency
Revenue by contractual currency is as follows:
GBP'000s H1 2020 H1 2019
Unaudited Unaudited
--------------- ----------- -----------
GBP 12,607 8,981
USD 16,364 14,155
EUR 8,086 5,642
Other 1,117 2,075
--------------- ----------- -----------
Total revenue 38,174 30,853
--------------- ----------- -----------
3(d) Liabilities from contracts with customers
GBP'000s H1 2020 FY 2019
Unaudited Unaudited
--------------------------------------------- ----------- -----------
Contract liabilities - deferred licence 3,115 4,581
Contract liabilities - deferred maintenance 8,943 4,060
--------------------------------------------- ----------- -----------
Total contract liabilities 12,058 8,641
--------------------------------------------- ----------- -----------
3(e) Timing of revenue
Timing of revenue - the Group derives revenue from the transfer
of goods and services as follows over time and at a point in time
in the following revenue segments:
H1 2020 - GBP'000s Software implementation ODS Maintenance Total revenue
----------------------------------------- ------------------------ ------- ------------ --------------
At a point in time - time and materials - 11,627 - 11,627
At a point in time - fixed price 328 - - 328
Over time - time and materials 15,732 - - 15,732
Over time - fixed price 134 2,130 8,223 10,487
Total revenue 16,194 13,757 8,223 38,174
----------------------------------------- ------------------------ ------- ------------ --------------
H1 2019 - GBP'000s Software implementation ODS Maintenance Total revenue
----------------------------------------- ------------------------ ------ ------------ --------------
At a point in time - time and materials - 9,167 - 9,167
At a point in time - fixed price - - - -
Over time - time and materials 14,439 - - 14,439
Over time - fixed price - - 7,247 7,247
Total revenue 14,439 9,167 7,247 30,853
----------------------------------------- ------------------------ ------ ------------ --------------
4. Operating profit
The following items have been included in arriving at operating
profit and are split by nature in the tables below:
H1 2020 H1 2019
GBP'000s Unaudited Unaudited
--------------------------------------------- ----------- -----------
Personnel costs 5,626 6,378
Partner costs 1,463 62
Training and recruitment 133 141
Other personnel related expenses 243 384
Travel costs 550 1,237
IT expenses 421 223
Overhead allocation including office rental
costs 219 284
--------------------------------------------- ----------- -----------
Implementation and support expenses 8,655 8,709
--------------------------------------------- ----------- -----------
GBP'000s H1 2020 H1 2019
Unaudited Unaudited
--------------------------------------------- ----------- -----------
Personnel costs 7,790 6,290
Training and recruitment 200 166
Other personnel related expenses 365 450
IT expenses 345 261
Overhead allocation including office rental
costs 328 331
--------------------------------------------- ----------- -----------
Research and product development expenses 9,028 7,498
--------------------------------------------- ----------- -----------
H1 2020 H1 2019
GBP'000s Unaudited Unaudited
--------------------------------------------- ----------- -----------
Personnel costs 5,686 4,614
Training and recruitment 104 88
Other personnel related expenses 190 238
Advertising, sponsorship and marketing
expenses 266 233
Professional advisor costs 1,586 1,604
Insurance 141 105
Depreciation 1,153 1,230
Amortisation 384 203
Foreign currency differences (391) 46
Employee share schemes 539 417
Other office costs 234 300
IT expenses 279 198
Overhead allocation including office rental
costs 198 184
--------------------------------------------- ----------- -----------
Sales, general and administrative expense 10,369 9,460
--------------------------------------------- ----------- -----------
5. Employees and Directors
Average monthly number of people employed H1 2020 H1 2019
(including Directors) Unaudited Unaudited
------------------------------------------------- ----------- -----------
UK 239 233
US 63 60
Rest of the World 20 17
------------------------------------------------- ----------- -----------
Total average monthly number of people employed 322 310
------------------------------------------------- ----------- -----------
Average monthly number of people employed H1 2020 H1 2019
(including Directors) Unaudited Unaudited
------------------------------------------------- ----------- -----------
Software implementation 98 111
Research and product development 147 130
Sales, general and administrative 77 69
------------------------------------------------- ----------- -----------
Total average monthly number of people employed 322 310
------------------------------------------------- ----------- -----------
At 30 June 2020 the Group had 340 employees (30 June 2019:
304).
6. Income tax expense
Income tax expense is calculated on management's best estimate
of the full financial year expected tax rate, which is then
adjusted for discrete items occurring in the reporting period. The
income tax expense for the six month period ended 30 June 2020 was
GBP2.2m (H1 2019: GBP1.1m), representing an effective tax rate of
22.1% (H1 2019: 21.6%, FY 2019: 21.7%).
7. Earnings per share
H1 2020 H1 2019
Unaudited Unaudited
----------------------------------------------- ------------ ------------
Profit attributable to equity holders of
Alfa (GBP'000s) 7,831 4,036
Weighted average number of shares outstanding
during the period 292,713,984 288,773,893
Basic earnings per share (pence per share) 2.68 1.40
Weighted average number of shares outstanding
including potentially dilutive shares 299,114,686 300,000,000
Diluted earnings per share (pence per share) 2.62 1.35
----------------------------------------------- ------------ ------------
On 3 June 2020, the third tranche of the 2014 and 2015 employee
share options vested, with a total number of shares of 2,592,918
vesting and being released to the employees at this time. The
weighted average number of shares for the six months ended 30 June
2020 was 292,713,984.
Diluted EPS - For the periods presented, the ordinary shares
which are held in an employee trust on behalf of employees are
treated as having a potentially dilutive effect as these shares
have service conditions attaching to them. Should the service
conditions not be met, the shares will be forfeited. In addition, a
number of share options that were granted on 4 June 2020 have also
been treated as having a potentially dilutive effect as these are
conditional on performance conditions including EPS and TSR
performance. Management believe these performance conditions would
have been met at 30 June 2020 based on the thresholds set out in
conditions attached to these share options. The shares have no
right to voting or to dividends while held in trust or prior to
vesting.
8. Goodwill
Goodwill arose on the acquisition of subsidiaries in 2012 as
part of a group reorganisation and represents the excess of the
consideration transferred and the amount of any non-controlling
interest in the investment over the fair value of the identifiable
assets acquired and the liabilities and contingent liabilities
assumed.
We have assessed whether there are any indicators of possible
impairment of goodwill. Considering, in particular the fact that we
have experienced strong trading performance during the six month
period along with the carrying value of the assets for the Company
remaining significantly below the market capitalisation of the
Company, we found no indicators of possible impairment of goodwill.
As a consequence no formal goodwill impairment test has been
carried out.
9. Other intangible assets
Computer software Internally generated
GBP'000s software Total
-------------------------- ------------------ --------------------- ------
Cost
At 1 January 2019 1,049 407 1,456
Additions 345 1,135 1,480
At 31 Dec 2019 1,394 1,542 2,936
-------------------------- ------------------ --------------------- ------
Depreciation
At 1 January 2019 253 - 253
Charge for the year 275 153 428
------------------ --------------------- ------
At 31 Dec 2019 528 153 681
-------------------------- ------------------ --------------------- ------
Net book value
-------------------------- ------------------ --------------------- ------
At 31 Dec 2019 866 1,389 2,255
-------------------------- ------------------ --------------------- ------
Cost
At 1 January 2020 1,394 1,542 2,936
Additions 29 399 428
Disposals (57) - (57)
At 30 June 2020 1,366 1,941 3,307
-------------------------- ------------------ --------------------- ------
Depreciation
At 1 January 2020 528 153 681
Charge for the period 173 211 384
Elimination on disposals (29) - (29)
-------------------------- ------------------ --------------------- ------
At 30 June 2020 672 364 1,036
-------------------------- ------------------ --------------------- ------
Net book value
-------------------------- ------------------ --------------------- ------
At 30 June 2020 694 1,577 2,271
-------------------------- ------------------ --------------------- ------
10. Right-of-use lease assets
The following table sets out the reconciliation of the
right-of-use assets from the 1 January 2019 to the amount disclosed
at 30 June 2020.
GBP'000s Motor Vehicles Property Total
--------------------- --------------- --------- --------
Cost
At 1 January 2019 92 17,898 17,990
Additions 128 4 132
Foreign exchange (8) 3 (5)
--------------------- --------------- --------- --------
At 31 December 2019 212 17,905 18,117
--------------------- --------------- --------- --------
Depreciation
At 1 December 2019 - - -
Charge for the year (67) (1,648) (1,715)
At 31 December 2019 (67) (1,648) (1,715)
Net book value
--------------------- --------------- --------- --------
At 31 Dec 2019 145 16,257 16,402
--------------------- --------------- --------- --------
Cost
At 1 January 2020 212 17,905 18,117
Additions 78 - 78
Foreign exchange 10 5 15
--------------------- --------------- --------- --------
At 30 June 2020 300 17,910 18,210
--------------------- --------------- --------- --------
Depreciation
At 1 January 2020 (67) (1,648) (1,715)
Charge for the year (51) (826) (877)
Foreign exchange (5) (6) (11)
--------------------- --------------- --------- --------
At 30 June 2020 (123) (2,480) (2,603)
--------------------- --------------- --------- --------
Net book value
At 30 June 2020 177 15,430 15,607
--------------------- --------------- --------- --------
11. Property, plant and equipment
Fixtures and
GBP'000s fittings IT equipment Motor vehicles Total
------------------------ ------------- ------------- --------------- ------
Cost
At 1 January 2019 1,147 2,859 40 4,046
Additions 4 372 - 376
Foreign exchange 67 (54) - 13
------------------------ ------------- ------------- --------------- ------
At 31 Dec 2019 1,218 3,177 40 4,435
------------------------ ------------- ------------- --------------- ------
Depreciation
At 1 January 2019 522 2,030 39 2,591
Charge for the year 107 565 1 673
Foreign exchange 25 (20) - 5
------------------------ ------------- ------------- --------------- ------
At 31 Dec 2019 654 2,575 40 3,269
------------------------ ------------- ------------- --------------- ------
Net book value
------------------------ ------------- ------------- --------------- ------
At 31 Dec 2019 564 602 - 1,166
------------------------ ------------- ------------- --------------- ------
Cost
At 1 January 2020 1,218 3,177 40 4,435
Additions 37 136 - 173
Disposals (1) (40) (40) (81)
Foreign exchange 10 37 - 47
------------------------ ------------- ------------- --------------- ------
At 30 June 2020 1,264 3,310 - 4,574
Depreciation
At 1 January 2020 654 2,575 40 3,269
Charge for the period 55 221 - 276
Eliminated on disposal - (31) (40) (71)
Foreign exchange 10 31 - 41
------------------------ ------------- ------------- --------------- ------
At 30 June 2020 719 2,796 - 3,515
------------------------ ------------- ------------- --------------- ------
Net book value
------------------------ ------------- ------------- --------------- ------
At 30 June 2020 545 514 - 1,059
------------------------ ------------- ------------- --------------- ------
12. Trade and other receivables
The Group holds the following trade and other receivables:
GBP'000s H1 2020 FY 2019
Unaudited Audited
----------------------------------- ----------- ---------
Trade receivables 12,356 4,050
Other receivables 7,637 9,847
Total trade and other receivables 19,993 13,897
------------------------------------ ----------- ---------
Trade receivables
H1 2020 FY 2019
GBP'000s Unaudited Audited
-------------------------------------- ----------- ---------
Trade receivables 12,356 4,050
Provision for expected credit losses - -
-------------------------------------- ----------- ---------
Trade receivables - net 12,356 4,050
-------------------------------------- ----------- ---------
12 (a) Trade receivables ageing
H1 2020 FY 2019
Ageing of net trade receivables GBP'000s Unaudited Audited
------------------------------------------ ----------- ---------
Less than 30 days 9,756 3,641
Past due 31-90 days 279 152
Past due 91+ days 2,321 257
------------------------------------------ ----------- ---------
Trade receivables - net 12,356 4,050
------------------------------------------ ----------- ---------
The Group believes that the unimpaired amounts that are past due
are fully recoverable as there are no indicators of future
delinquency or potential litigation. At 31 August 2020, of the
GBP2.3m trade receivables past due 91+days at 30 June 2020, GBP2.3m
had been collected.
12 (b) Other receivables
GBP'000s H1 2020 FY 2019
Unaudited Audited
------------------------- ----------- ---------
Accrued income 5,023 7,214
Prepayments 1,507 1,613
Other receivables 1,107 1,020
Total other receivables 7,637 9,847
------------------------- ----------- ---------
Accrued income represents fees earned, but not invoiced, at the
reporting date, which have no right of offset with contract
liabilities - deferred licence amounts. Accrued income decreased by
GBP2.2m since last year-end due to the collection of certain
amounts relating to FY 19 contractual non-recurring revenue items
that had been accrued for at 31 December 2019. This decrease was
partially offset by the overall increase in revenue over the
corresponding six-month period.
The current year balance represents unbilled work in progress in
relation to our ODS customers. As at 31 August 2020, 94% of the
accrued income balance has been invoiced and 88% has been
received.
13. Current liabilities
H1 2020 FY 2019
GBP'000s Unaudited Audited
------------------------------------------------ ----------- ---------
Trade and other payables 8,681 5,884
Corporation tax 2,166 1,355
Lease liabilities 1,709 1,672
Contract liabilities - software implementation 3,115 4,581
Contract liabilities - deferred maintenance 8,943 4,060
Provisions for other liabilities 758 667
Total trade and other payables 25,372 18,219
Less: non-current portion (758) (667)
------------------------------------------------ ----------- ---------
Total current liabilities 24,614 17,552
------------------------------------------------ ----------- ---------
During the six months ended 30 June 2020, GBP0.1m licence fees
(H1 2019: nil) and GBP11.6m of annual maintenance fees were
invoiced (H1 2019: GBP12.5m). The annual maintenance invoicing
during H1 2020 resulted in an increase of GBP4.9m of the deferred
maintenance contracts liabilities compared to 31 December 2019.
14. Lease liability
The following table sets out the reconciliation of the lease
liabilities from the 1 January 2020 to the amount disclosed at 30
June 2020:
Motor
GBP'000s Vehicles Property Total
----------------------------------------------- ------------------ ----------- -----------------
Lease liabilities recognised at 1 January
2019 89 20,391 20,480
Additions 128 4 132
Interest charge 2 850 852
Payments made on lease liabilities (76) (2,386) (2,462)
----------------------------------------------- ------------------ ----------- -----------------
At 31 December 2019 143 18,859 19,002
----------------------------------------------- ------------------ ----------- -----------------
Additions 78 - 78
Interest charge 2 400 402
Payments made on lease liabilities (58) (1,190) (1,248)
Foreign exchange 1 4 5
----------------------------------------------- ------------------ ----------- -----------------
At 30 June 2020 166 18,073 18,239
----------------------------------------------- ------------------ ----------- -----------------
GBP'000s 2020 2019
---------------------------------------------- --- --------------------------- -----------------
Non-current liability 16,530 17,330
Current liability 1,709 1,672
----------------------------------------------- --------------------------- -----------------
At 30 June 2020 18,239 19,002
----------------------------------------------- --------------------------- -----------------
Maturity analysis: 2020 2019
---------------------------------------------- ------- ----------------------- -----------------
Not later than 1 year 1,709 1,671
Later than 1 year and not later than 5 years 6,937 8,682
Later than 5 years 9,593 8,649
----------------------------------------------- ------ ----------------------- -----------------
At 30 June 2020 18,239 19,002
----------------------------------------------- ------ ----------------------- -----------------
15. Financial and liquidity risk management
The Group's activities expose it to a variety of financial
risks: market risk (including currency risk and price risk), credit
risk and liquidity risk. The Half Year Financial Statements do not
include all financial risk management information and disclosures
required in the Annual Financial Statements; they should be read in
conjunction with the Annual Financial Statements. The
responsibility for risk management has remained with the Board and
there has been no changes to risk management policies since
year-end.
16. Share-based compensation
The fair value of the awards issued under the 2018 and 2019 LTIP
plans have been calculated using the grant date share price as a
proxy for fair value of the option adjusted for any dividends over
the period. There are no market or non-market performance
conditions attached to the option scheme and as such, no
performance conditions are included in the fair value
calculations.
The total number of the awards granted under the 2020 LTIP plans
on 4 June 2020 was 2.3m share options and the share based
compensation charge for the period from the issue date to 30 June
2020 is GBP0.3m (H1 2019: GBPnil). The awards are conditional on
performance conditions, 50% based on EPS performance (non-market
condition) and 50% on TSR (market condition).
17. Controlling party and related party transactions
The immediate and ultimate parent undertaking is CHP Software
and Consulting Limited, which is the parent undertaking of the
smallest and largest group in relation to these Half Year
consolidated financial statements. The ultimate controlling party
is Andrew Page. There was no trading between the Group and the
Parent.
In the six months ended 30 June 2020 there were no transactions
(H1 2019: GBPnil) and at 30 June 2020 there were no balances
outstanding from, or to, the parent (30 June 2019: nil).
Additionally, in the prior year an arms-length transaction with
Classic Technology Limited, a company in which the Chairman holds
an interest, was undertaken for the rental of property. This
arrangement ceased at the end of 2019 and as such there were no
transactions that occurred during the six month period to 30 June
2020 (H1 2019: GBP0.02 million) with no outstanding receivable
balances at the end of each reporting period.
18. Subsequent events
In the period since 30 June 2020 there have been no material
subsequent events.
19. Dividends
A Special Dividend of 15 pence per share has been declared
payable on 6 November 2020 amounting to GBP44m.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm that these condensed consolidated Half
Year financial statements (the 'Half Year Financial Statements')
have been prepared in accordance with International Accounting
Standard 34, 'Half Year Financial Reporting', as adopted by the
European Union and that the Half Year management report includes a
fair review of the information required by DTR 4.2.7 and DTR 4.2.8,
namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed Half Year
Financial Statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related-party transactions in the first six months
and any material changes in the related-party transactions
described in the last annual report.
The current directors of Alfa Financial Software Holdings PLC
are:
Andrew Page
Andrew Denton
Duncan Magrath (appointed 24 April 2020)
Matthew White
Steve Breach
Adrian Chamberlain (appointed 24 April 2020)
Charlotte de Metz (appointed 24 April 2020)
Chris Sullivan
By order of the Board
Duncan Magrath
Chief Financial Officer
28 September 2020
INDEPENT REVIEW REPORT TO ALFA FINANCIAL SOFTWARE HOLDINGS
PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2020 which comprises the consolidated
statement of profit or loss and comprehensive income, the
consolidated statement of financial position, the consolidated
statement of changes in equity, the consolidated statement of cash
flows and related notes 1 to 19. We have read the other information
contained in the half-yearly financial report and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of
financial statements.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing and presenting the half-yearly financial report in
accordance with the Disclosure and Transparency Rules of the United
Kingdom's Financial Services Authority.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards and International Financial Reporting
Interpretations Committee pronouncements as adopted by the European
Union. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with
International Accounting Standard 34, "Interim Financial Reporting"
as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34, "Interim Financial
Reporting" as adopted by the European Union, and the Disclosure and
Transparency Rules of the United Kingdom's Financial Services
Authority.
Use of our report
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board and for the purpose of the Disclosure and Transparency Rules
of the United Kingdom's Financial Services Authority. Our review
work has been undertaken so that we might state to the Company
those matters we are required to state to them in an independent
review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company, for our review work, for this
report, or for the conclusions we have formed.
RSM UK Audit LLP
Chartered Accountants
25 Farringdon Street
London
EC4A 4AB
28 September 2020
DEFINITIONS
Constant currency - When the Company believes it would be
helpful for understanding trends in its business, the Company
provides percentage increases or decreases in its revenues or
operating profit to eliminate the effect of changes in currency
values. When trend information is expressed herein "in constant
currencies", the comparative results are derived by re-calculating
comparative non-GBP denominated revenues and/or expenses using the
average exchange rates of the comparable months in the current
reporting period, excluding gains or losses on derivative financial
instruments. The material applicable rates are as follows:
Average exchange rates for the period H1 2020 H1 2019
--------------------------------------- -------- --------
USD 1.2610 1.2940
Euro 1.1446 1.1454
Ongoing development and services (ODS) - being one of the Alfa
revenue segments.
Operating free cash flow (FCF) conversion - Operating FCF
conversion is calculated as cash from operations, less capital
expenditures and the principal element of lease payments, as a
percentage of operating profit. Operating FCF is calculated as
follows:
H1 2020 H1 2019
Unaudited GBP'000s GBP'000s
------------------------------------- --------- ---------
Cash generated from operations 12,672 13,207
Capital expenditure (601) (891)
Principal element of lease payments (846) (907)
------------------------------------- --------- ---------
Operating FCF generated 11,225 11,409
Operating FCF Conversion 108% 211%
Total contracted value (TCV) - is calculated by analysing future
contracted revenue based on the following three components:
1) an assumption of three years of maintenance and Cloud Hosting
payments assuming these services continued as planned (actual
maintenance and Cloud Hosting contract length varies by
customer);
2) the estimated remaining time to complete any software
implementations and recognise deferred licence amounts (which may
not all be under a signed statement of work). Where licence is paid
on a monthly subscription it has been assumed to continue for three
years assuming these services continued as planned; and
3) ODS work which is contracted under a statement of work.
Adjusted Earnings, Adjusted EBIT and Adjusted EPS and Adjusted
diluted EPS - In the past, when applicable, the Company has used
these measures to adjust the profit for the period from continuing
operations attributable to equity holders of the Group, and the
profit from continuing operations before income taxes and finance
income / expenses, for IPO related expenses and pre-IPO share based
payments. These measures were used in order to allow management to
monitor the underlying performance of the business by excluding
items not considered by management to be reflective of the
underlying trading operations of the Group or adding items which
are reflective of the overall trading operations. During the year
ended 31 December 2019, and during the six months ended 30 June
2020, there were no IPO related expenses, pre-IPO share based
payments or other adjusting items incurred, although a revised
Adjusted Earnings and EBIT and EPS measure was defined which
adjusted for capitalised costs relating to internally generated
assets and the relevant amortisation costs on associated internally
generated assets. The Board has reviewed the usefulness of these
adjusted measures, and concluded that they do not aid understanding
of the accounts and have therefore decided to stop using them for
2020. As such Adjusted Earnings, Adjusted EBIT and Adjusted EPS,
and Adjusted diluted EPS have not been used in these Half Year
financial statements.
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END
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