TIDMALFA
RNS Number : 1005T
Alfa Financial Software Hldgs PLC
23 March 2021
23 March 2021
Alfa Financial Software Holdings PLC
2020 Full Year Report
Developing Momentum
Alfa Financial Software Holdings PLC ("Alfa" or the "Company"),
a leading developer of software for the asset finance industry,
today publishes its audited results for the twelve months ended 31
December 2020.
Financial highlights:
Years ended 31 December
Results 2020 2019 Movement
GBPm, unless otherwise stated %
------------------------------- ------------ ------------ ---------
Revenue 78.9 64.5 22%
Operating profit 23.9 13.7 74%
Profit before tax 23.2 13.0 78%
Earnings per share - basic
(pence) 6.93 3.50 98%
Earnings per share - diluted
(pence) 6.79 3.41 99%
Special Dividend paid (15p 44.2 -
per share) -
Cash 37.0 58.8 (37)%
Proposed ordinary dividend 1.0p -
(p) -
Key measures (1) 2020 2019 Movement
GBPm, unless otherwise stated %
------------------------------------- ------ ----- ---------
Revenue - constant currency 78.9 64.4 22%
Operating profit - constant
currency 23.9 13.8 73%
Operating free cash flow conversion
(%) 114% 138% (17)%
Total Contract Value (TCV) 112.9 80.5 40%
(1) See definitions section for further information regarding
calculation of measures not defined by IFRS.
Financial highlights:
-- Revenue and profit significantly ahead of original
expectations for 2020 and significantly ahead of last year
-- Revenue and profit slightly ahead of most recent trading update
-- Revenues included one-off licence income of GBP5.6m (2019:
GBP5.5m), so underlying revenues are GBP73.3m (2019: GBP59.0m)
-- TCV up 40% year on year to GBP112.9m as a result of good wins and successful go-lives
-- Robust balance sheet position with GBP37m of cash and no debt
-- Special dividend of 15 pence per share paid in November 2020 (GBP44.2m)
-- Commencement of regular dividend, proposed 1.0p per share for Full Year 2020
-- No employees furloughed, and no government funds accessed
Operational Highlights:
-- Six new customers won, with total number of customers
increased from 26 to 32 as sales momentum picked up during the
year
-- Covid-19 disruption minimised; high performance delivery,
strong support for our customers from our people and product
-- Strong culture maintained through pandemic with engagement scores improved
-- Continuing to invest in people and product for future growth
-- Good growth in Cloud Hosting and maintenance, improving recurring revenues
-- Tech leadership through Alfa iQ launch
Outlook:
We currently expect 2021 revenues to be in line with 2020
underlying revenues on a constant currency basis. We will continue
to invest for the future by growing our team further to enable us
to convert our sizeable late stage pipeline. In addition
profitability will be further impacted as some travel and marketing
expenses rebuild as lockdowns ease. We continue to believe in our
strategy of attracting the best people and investing in our product
to support our long term ambitions.
Andrew Denton, Chief Executive Officer
"I reflect on 2020 as being a difficult year for many people,
but a year in which Alfa made real progress in developing momentum
for future success. We delivered for our customers, continued to
improve our digitally-enabled world class software and strengthened
and supported our internal and external communities, whilst
continuing to grow both revenues and our order book.
On behalf of myself and the rest of the Board, I would like to
thank all of our people for their dedication and commitment in
difficult circumstances. They have supported each other and our
customers and delivered a strong 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 09:00 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 Full Year Report (FYR) 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
FYR 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.
Definitions
Constant currency - we provide percentage increases or decreases
in revenue and operating profit to eliminate the effect of changes
in currency values as we believe it is helpful to the understanding
of underlying trends in the business. When trend information is
expressed herein 'in constant currencies', the comparative results
are derived by re-calculating non-pound sterling denominated
revenue and/or expenses using the average monthly exchange rates of
this year and applying them to the comparative year's results,
excluding gains or losses on derivative financial instruments. The
average rates are as shown in note 1.4 to the financial
statements.
Operating free cash flow conversion - is calculated as cash from
operations, less capital expenditures, less the principal element
of lease payments in respect of IFRS16 (applied for the first time
in the year ended 31 December 2019). Operating free cash flow
conversion represents Operating free cash flow generated as a
proportion of Operating profit.
Total contract value (TCV) - is calculated by analysing future
contract revenue based on the following components: (i) 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); (ii) 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 (iii) ODS work
which is contracted under a statement of work. Given this KPI is
forward looking, in calculating the TCV we have used the budget
2021 exchange rates. These budget rates are set out below:
USD - 1.29
EUR - 1.11
AUD - 1.84
NZD - 1.96
CEO'S REVIEW
Strong financial and operational performance
2020 has been a volatile year from an economic and societal
perspective. However, one thing which has remained constant
throughout the year is the resilience and strength of our people
and their consistent delivery to our customers, which has been
largely unaffected by the events around us.
The year 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, the flexibility of our systems and the dedication
of our people.
We engaged with our customers throughout the year to ensure we
understood 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 the
cancellation of a newly won contract with a US Auto customer.
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 into
our client-facing teams, and invest in our technology. Towards the
end of Q2 and into Q3 we saw customers recommit to plans and a
number of customers look to upgrade from Alfa Version 4 to Version
5. We also saw an increase in interest from potential new
customers. This was triggered in part by remote working
highlighting the need for a digital technology.
We exited 2020 with a strong late stage pipeline, and with a
renewal of interest in digital transformation from potential
customers particularly in relation to our Alfa Start proposition
and our Cloud Hosting services with 24/7 support.
We showed progress across all areas of the business, but with
particularly strong growth in ODS and maintenance revenues. ODS
revenues were boosted by pre-implementation work, along with post
go-live support for a number of large customers. Maintenance
revenues benefited from our growing customer base along with strong
growth in our Cloud Hosting revenues. As a consequence, we have
seen a strong financial performance with revenues up 22% on the
prior year at GBP78.9m (2019: GBP64.5m).
We have increased the total number of customers from 26 at the
end of last year to 32 at the end of 2020, and this has helped to
continue to diversify our customer base. The Top 5 customers
accounted for 48% of revenues in the period, down from 61% in 2019.
We had ten customers contributing revenues of more than GBP2m in
the period, up from seven last year. Average headcount for the
period was 341 (2019: 313) which along with the pay increases
awarded last year drove higher salary costs but this was partially
offset by reduced expenditure on travel, conferences, and marketing
resulting in an overall increase in Operating profit of GBP10.2m to
GBP23.9m (2019: GBP13.7m).
Increasing our technology advantage
Alfa Systems is a market leading, digitally enabled platform,
with functionality that we believe is unrivalled on a modern
technology stack. This is enabled by continued investment and the
quality of our engineers and subject matter experts.
During 2020 we continued to invest in Alfa Systems, and launched
Version 5.6 which included a comprehensive redesign of the user
experience along with many other features, enhancements and
technical innovations.
Alfa Systems' new "Mercury" user interface enables users to
complete their daily tasks with ease in an environment that is
fresh, clean and uncluttered. The new interface draws on end-user
experience and Design Thinking to give users a more 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 deliver new functionality;
-- Usage-based billing, a pay-per-mile mobility solution that
allows end customers to be billed only for the distance travelled
by using real-time data collected 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 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 Cloud Hosted entry level version of the 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 only been within the reach of larger, more
established operators. This 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. It can
also be used as an accelerator for all implementations, cutting the
time to get even large scale customers live using a Minimum Viable
Product approach.
In the first half of 2020 we successfully went live with an Alfa
Start implementation for Hampshire Trust Bank in the UK, delivering
within 19 weeks.
We have continued to refine the Alfa Start package, and during
the year, Alfa Start was formally launched for the US Auto Finance
sector, where we are building on our long-established experience of
working with market leading companies in that market. In October we
announced that we had achieved a successful go-live for a US
Automotive Manufacturer, our first Alfa Start for a US Auto
customer, in under 23 weeks. We have an implementation underway for
another UK Equipment customer, due to go-live in Q1 2021.
Cloud Hosting growing
Cloud Hosting is becoming an increasingly important part of our
business. It not only provides a predictable, accretive revenue
stream for us and a great service for our customers, but also
allows us to provide environments quickly to enable projects to get
started.
During the year we announced four new contract wins for our
Cloud Hosting solution. These were with a major South African bank
to support a multi-phase implementation, a leading UK provider of
auto finance solutions and two UK equipment finance companies. One
of the UK Equipment finance companies was an existing customer that
is upgrading from Version 4 to Version 5 as well as moving to our
Cloud Hosting solution.
We now host a total of ten customers. Two of these are in
pre-implementation, four are in implementation projects, and four
are in live production. Monthly revenues grew from GBP0.1m per
month in January 2020 to GBP0.4m per month by the end of the
year.
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 a leading international professional services firm and at the
end of the year we agreed a global partnership agreement with
another international professional services firm which took our
total number of implementation partners to six. These agreements
will help us to accelerate our ability to deliver Alfa to customers
who want the operational and financial advantages that Alfa Systems
can bring.
During 2020 partners worked with us across six different
projects with customers in four different countries, and since the
year end we have partners now working on an additional project.
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 auto and equipment finance
industries. We believe that this has the potential to be
transformational for our customers in how they use and understand
data to make better decisions and improve their performance.
Alfa iQ is working on three engagements already, understanding
data and exploring potential options for development.
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 impact
revenues in 2022.
As Alfa iQ meets the definition of a joint venture as per IFRS
11, all profits and losses made by Alfa iQ will be equity method
accounted for in line with IAS 28.
In September 2020 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.
Board evolution and governance
In the first half of 2020, 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. I am delighted with the Board and leadership team we
have assembled and I am enjoying working with them, albeit remotely
at the moment.
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 on 10 May
2021.
Strong engagement with our people
In response to Covid-19, we did not furlough any staff, have not
taken any government support through the pandemic, and provided
funds to support home working. We proactively moved to remote
working in advance of government-imposed lockdowns, and our offices
generally remained closed through the year. Where safe to do so and
where allowed under local rules, we reopened offices for those who
wished to return to an office environment. Where needed we have
supported home schooling by providing time off. We currently do not
expect full scale office working to return before September 2021 at
the earliest and are considering what our working model will be
once the impact of the pandemic has eased.
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 both our annual global conference and global Christmas meeting
remotely, and we have continued to encourage feedback through
regular company meetings, and engagement surveys. We also held live
video meetings where the whole Company can ask questions of the
senior management and, on one occasion, the Non-Executive Directors
as well.
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, and
continued to improve through 2020.
We recognise that the Covid-19 pandemic has imposed many
difficulties on our people, but they have tackled them with great
commitment so we would like to thank them for all their efforts
this year and we are confident that they will continue to do so as
the situation develops.
Making a positive impact
One of our core values is "Making a positive impact" and I am
delighted that despite the challenges of 2020, we have continued to
live this value throughout the organisation and we have made
exceptional progress in the year.
We have been more focused in our environmental and social
efforts using four of the United Nations Sustainable Development
Goals to help direct our work. The four goals we chose to work with
initially are: Quality Education, Gender Equality, Climate Action
and Partnerships.
We have provided the environment to help the formation and
growth of new communities within Alfa, for example, the growth of
the Women's Community and the formation of the Alfa for Racial
Equity Group. These communities and others have organised many
social talks and events for us to engage the company and support
wellbeing. Externally we have highlighted important issues by using
our corporate voice to support and champion bodies such as the
Black British Network, Stonewall and the Women's Association and we
have supported our supply chain through a difficult year.
Special Dividend and initiation of regular dividend payments
We remain a strongly cash generative business and have excess
capital for our present and predicted needs.
Having carefully considered both our short and medium term
requirements including a number of downside scenarios, the Board
decided to declare a Special Dividend of 15 pence per share which
was paid 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 amounted to a total return of capital to shareholders of
GBP44.2m.
We continue to be cash generative, and our cash balance was
GBP37.0m at the year end, even after the payment of the special
dividend.
Looking forward, we believe that Alfa will continue to be able
to sustainably support investment in growth and its technology
through organic means. Therefore, the Board has concluded that it
would be appropriate to start a regular program of dividends,
starting with an initial dividend of 1.0 pence per share for the
full year ended 31 December 2020. The Board intends to
progressively increase the dividend as the company grows, whilst
ensuring that we retain a strong 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. We saw greater resilience in the US than the UK and
Europe although there were reductions in new lending in all regions
in the first half of the year, but with significant improvement in
the second half. The medium term resilience in the auto and
equipment finance market means that in the related software market,
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. We do however expect that the pandemic is
accelerating opportunities from those businesses that have found
their systems have not been flexible enough to cope with remote
working, changes in regulation, and the need quickly to reschedule
payments. These organisations are now looking to digital
technologies to improve operational efficiencies and transform
their business.
Good pipeline development in target markets
2020 was a successful year for pipeline development in our core
target markets of US Auto, US Equipment, European multinational and
the UK. Continuing to be successful in these core markets, reduces
new customer development efforts, and therefore allows us to
deliver more implementations more quickly.
We are also becoming a leading supplier for global brands. For
some customers we increasingly support them across multiple
continents, and we can provide a seamless joined up approach that
few of our competitors can rival. Lifting and shifting a product
from country to country allows us to go faster and is in line with
our vision of delivering more concurrent implementations.
We define our early stage and mid stage pipeline as prospects
where there is active engagement through either a product demo or
responding to an RFI (Request for Information). Our late stage
pipeline includes prospects where we are at the workshop stage or
where the work has been won subject to completion of contracts.
During the first half of the 2020 we saw a reduction in our
early and mid stage pipeline, partly as a result of good progress
of opportunities into the later stage of the pipeline but also
because of an absence of lead activity which we believe was a
result of the impact of Covid-19 on customers' appetite for
initiating large new systems projects.
The second half saw a return of new prospects and we see the
early-stage pipeline largely back to the levels of last year
end.
The late stage pipeline from the beginning of the year developed
well with five opportunities progressing to signed contracts,
offset by one small project being cancelled, and one large project
which did not progress beyond pre-implementation work. With the
good flow through to the late stage pipeline, we have ten
opportunities with final negotiations/discussions underway.
Outlook
During 2020 we have started to build real momentum in the
business despite the impacts of the pandemic. We have continued to
develop our product, we have recruited more implementors and
engineers, we have successfully delivered five Go-Lives, and we
have started to get real traction with our Cloud Hosted solution.
This combined with a cash generative business model and a very
strong balance sheet means that we have the structures and
resources in place that would enable us to see further revenue
growth in 2021 if the pipeline converts
The nature of our current business model is that whilst we have
good visibility for the next six months, contractual cover reduces
thereafter and so, whilst positive about our prospects, in the
current environment we remain cautious in setting expectations.
Consequently, we currently expect 2021 revenues to be in line with
2020 underlying revenues on a constant currency basis. We will
continue to invest for the future by growing our team further to
enable us to convert our sizeable late stage pipeline. In addition
profitability will be further impacted as some travel and marketing
expenses rebuild as lockdowns ease. 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
We started 2020 expecting to see a drop in both revenue and
profit compared with 2019 as a result of the economic uncertainty.
However, as the year progressed our expectations for the full year
increased. Through a number of trading updates issued in the second
half of the year we highlighted the increasing expectations for
full year revenue and profit. Our final result is ahead of our 17th
December 2020 trading update principally due to the licence fee
revenue recognition in respect of a five year contract extension
that was agreed towards the end of the year and which was confirmed
in a trading update on 26 February 2021. Overall the results show
strong growth over FY19.
Revenues increased by GBP14.4m to GBP78.9m in the twelve months
ended 31 December 2020 (2019: GBP64.5m) with increases across all
revenue streams, but with particularly strong growth in ongoing
development & services (ODS) revenues, up 38% to GBP32.4m and
maintenance which was up 29% to GBP19.2m. ODS revenues increased as
a result of work with pre-implementation customers, along with
increases in post-go live support work for some of our key
customers. In 2020 ODS revenue benefited from GBP5.6m of one-off
licence revenues associated with a five year contract extension.
This was almost exactly matched by the GBP5.5m one-off licence
revenues recorded in 2019. Maintenance revenues increased in 2020
due to increased levels of hosting activity, inflationary increases
and a higher volume of contracts being supported for certain
customers.
Operating profit increased by GBP10.2m to GBP23.9m (2019:
GBP13.7m), due to the GBP14.4m increase in revenues, partially
offset by a GBP4.1m increase in expenses, of which GBP3.2m was as a
result of an increase in research and product development expenses,
GBP2.5m was as a result of an increase in SG&A expenses, net of
a GBP1.6m decrease in implementation and support expenses.
Net finance expense of GBP(0.7)m (2019: GBP(0.7)m) resulted in
profit before tax of GBP23.3m (2019: GBP13.0m) and with an
effective tax rate of 12.4% (2019: 21.7%) the resulting profit for
the period was GBP20.4m (2019: GBP10.2m).
Software implementation revenues
Software implementation revenues increased by GBP1.2m, or by 5%,
to GBP27.3m in 2020 (2019: GBP26.1m), reflecting the six ongoing
implementation projects from the end of 2019 and three additional
projects that were commenced during 2020. One of these continuing
projects was our first Alfa Start implementation which was
completed and moved to the ODS revenue category during the period.
Of the three additional projects that commenced during 2020, one
was a customer who signed a contract but then cancelled before
significant activity was underway as a result of the pandemic, one
related to a customer who had previously put their implementation
project on hold during 2018 and one was our second Alfa Start
implementation. As such, the Group has seven ongoing implementation
projects as at 31 December 2020.
One of the projects classified as ongoing as at end of 2020
completed its pre implementation phase in October 2019. This
customer contributed GBP6.7m to ongoing software implementation
revenue in 2020 (2019: GBP1.2m). Revenue from the remaining
implementation projects, classified as ongoing as at the end of
2020, contributed GBP18.2m in 2020, a decrease of GBP5.6m compared
with GBP23.8m in 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 category at this time. This decrease was then partially
offset by write-backs of licence revenues in the prior year. These
write backs resulted from the deferral of certain go-lives dates
and the establishment of material right to use liability,
reflecting discounts of the right to use renewal payments customers
will be required to make in future years.
During the year one implementation project that had previously
been paused in 2018 restarted and contributed turnover of GBP1.3m
in 2020 (2019: GBP(0.2)m).
Revenue from the implementation projects that were completed or
cancelled in the period contributed GBP1.0m (2019: GBP1.3m). The
ongoing revenue from these projects has moved to the ODS category
following implementation completion.
ODS revenues
ODS revenues increased by 38% or GBP8.9m to GBP32.4m in 2020
(2019: GBP23.5m). This significant increase was the result of:
-- An increase in revenue from customers from pre-implementation
work of GBP1.4m. During H1 2020 the Group had three customers who
were undertaking pre-implementation work. One of these moved to
implementation during the first half but as previously noted was
subsequently cancelled due to the economic uncertainty at the time.
In the second half of 2020 we mutually agreed with one customer to
bring the project to an end due to differing views on contractual
terms. The third contract moved into implementation in early 2021.
During H2 2020, three new pre-implementation projects
commenced.
-- An increase of GBP4.0m due to new ODS customers. This
includes revenue from those customers who on completing their
implementation project, or one phase of their implementation
project, transitioned to the ODS category during the period.
-- An increase of GBP3.4m of revenue from ongoing ODS customers
resulting from the current mix of ODS project in 2020 compared to
the prior year. In particular several key customers have ongoing
ODS specific projects to either upgrade from v4 to v5 of the Alfa
Systems or expand the use of Alfa to new geographical regions.
-- An increase in one-off licence revenues of GBP0.1m. In 2019
we recorded GBP5.5m of one-off licence revenue due to GBP1.6m
received when a customer exceeded their current licence band, and
GBP3.9m due to the extension of a previously terminated contract.
In 2020 this same customer chose to extend for a further five years
through to October 2025. This resulted in GBP5.6m of additional
licence revenue which was recognised in 2020 on agreement of the
five year extension.
Maintenance revenues
Maintenance revenues increased by GBP4.3m, or by 29% to GBP19.2m
in 2020 (2019: GBP14.9m). This increase was partly due to
inflationary annual maintenance price rises, a higher volume of
contracts being supported for certain customers and an increased
number of customer utilising the Group's relatively new Cloud
Hosting offering. The Group's hosting revenue is included within
the maintenance revenue category.
TCV
Total contract value (TCV) at 31 December 2020, is GBP112.9m (30
June 2020: GBP96.4m, 31 December 2019: GBP80.5m). Implementation
TCV has remained relatively stable compared to H1 2020 due to the
further completion of ongoing software implementation projects
which has been almost completely offset by the addition of a new
software implementation project that commenced in January 2021. ODS
TCV has increased compared to H1 2020 as a result of a number of
new statements of work being contracted prior to 31 December 2020.
The largest movement compared to H1 2020 has been to the
maintenance TCV which is principally due to the maintenance element
of the new five year contract extension referred to above, and more
of our clients moving to a Cloud Hosted solution, (we have included
three years' worth of the maintenance, from the five year extension
contract, and of planned hosting revenues within the maintenance
TCV figure). Of the GBP112.9m total TCV at 31 December 2020,
GBP52.5m is anticipated to convert into revenue within the next 12
months, assuming contracts continue as expected and are not
cancelled or delayed. This includes GBP17.6m of software
implementation revenues, GBP12.2m of ODS revenues and GBP22.7m of
maintenance and hosting revenues.
Operating profit
The Group's operating profit increased by GBP10.2m, or 75%, to
GBP23.9m in 2020 (2019: GBP13.7m) primarily reflecting the GBP14.4m
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. The Group's operating profit on a constant currency basis
increased by 73%.
Headcount numbers as at 31 December 2020 were 360 (2019: 316),
and our staff retention rate has been 93% over the 12 months to
that date.
Operating costs
Implementation and support (I&S) expenses have decreased by
9%, to GBP15.3m (2019: GBP16.9m). I&S expenses predominantly
comprise personnel costs, travel and partner costs, with the total
of these contributing 88% of the total I&S expenses (2019:
87%). In the year the average software implementation headcount
decreased by 6, to 102 employees (2019: 108 employees). In
addition, 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 was
partially offset by the increase in partner costs of GBP1.5m during
2020, reflecting the Group's focus on delivering on its strategic
objectives of utilising partners. In 2020 we deployed partners on
six of our customer projects, including pre-implementation,
implementation and v4 to v5 upgrade projects.
Research and product development (R&PD) expenses increased
by GBP3.2m, or 21%, to GBP18.9m (2019: GBP15.7m). 86% of R&PD
expenses are personnel costs (2019: 84%) and the average number of
people in the team increased in the year by 22 to 156 employees
(2019: 134 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 2020 a total of GBP0.7m (2019: GBP1.1m) of development
costs were capitalised. The key amounts capitalised related to
GBP0.3m 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
in the year by GBP2.5m to GBP21.3m (2019: GBP18.8m). This included
increased salary costs through strengthening some of the support
functions; increases in the share-based payment charges in 2020 to
GBP1.3m (2019: GBP0.6m) in relation to LTIPs granted in May 2018,
November 2019 and June 2020; and increased amortisation costs of
GBP0.8m (2019: GBP0.4m) 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 GBP0.8m, which moved from a loss of GBP(0.3)m in
2019 to a gain of GBP0.5m in 2020.
Overall in 2021 we expect to continue to increase our headcount,
to see some bounce back in the circa GBP2m reduction in cost that
resulted from the Covid-19 lockdown, and also some increased IT
hosting costs as this business grows.
Finance costs
Net finance costs of GBP(0.7)m (2019: GBP(0.7)m) remained
relatively unchanged. Income on cash balances remained low given
the current low interest rate environment.
Profit for the period
Profit after taxation increased by GBP10.2m, or 100%, to
GBP20.4m in 2020 (2019: GBP10.2m). The effective tax rate decreased
to 12.4% in 2020 against the effective tax rate for the 2019 year
end (2019 21.7%) primarily due to Research & Development tax
credits arising in respect of the 2018 and 2019 claims. These
claims were finalised during 2020.
Earnings per share
Basic earnings per share increased by 98% to 6.93 pence in 2020
(2019: 3.50 pence). Diluted earnings per share increased by 99% to
6.79 pence (2019: 3.41 pence).
Cash flow
Net cash (including the effect of exchange rate changes)
decreased by GBP21.8m to GBP37.0m at 31 December 2020, from
GBP58.8m at 31 December 2019. The most significant impact was the
payment of the special dividend of GBP44.2m on 6 November 2020.
This more than offset the increase driven by cash generated from
operations of GBP30.1m. In 2020 we received GBP3.6m of one-off
licence revenue items recognised during FY19 along with GBP4.5m
from the five year contract extension which was behind revenue
recognition by GBP1.4m. Continued focus on cash management by the
Group saw net change in working capital of GBP2.9m. Taken together,
the Group's Operating Free Cash Flow Conversion (FCF) was 114%
(2019: 138%).
In addition to the cash generated from operations of GBP30.1m,
the Group incurred GBP1.0m on capital expenditure (2019: GBP2.1m),
provided funding of GBP0.4m to its newly set up joint venture, Alfa
iQ, and made tax payments of GBP3.8m (2019: GBP4.1m) during the
period. The Group has no external bank borrowings.
In 2020 there were net cash outflows of GBP45.9m (2019: GBP1.6m)
from financing activities related to the principal element of lease
payments and the 15 pence per share special dividend, amounting to
GBP44.2m which was paid on 6 November 2020. No ordinary dividends
were paid during the year.
Operating free cash flow conversion
GBPm 2020 2019
------------------------------------- ------ ---------------------
Cash generated from operations 30.1 22.5
Adjusted for:
Capital expenditure (1.0) (2.1)
Principal element of the lease
payments in respect of IFRS
16 (1.7) (1.6)
Operating free cash flow 27.4 18.9
Operating profit 23.9 13.7
Operating free cash flow conversion 114% 138%
Balance sheet
The significant movements in the Group's balance sheet, aside
from the cash balance which is described above, from 31 December
2019 to 31 December 2020 are detailed below.
The trade and other receivables balance decreased by GBP0.2 to
GBP13.7m (2019: GBP13.9m). At the end of 2019 there had been some
delays in invoicing overseas customers and a higher accrued income
balance as a result of GBP3.6 from non-recurring revenue items.
Both of these issues were resolved in 2020 and the cash collected.
This improvement was offset by the impact of the overall increase
in revenue during 2020 and the increase in accrued income of
GBP1.4m from the five year right to use and maintenance extension
contract.
The trade and other payables balance increased by GBP2.2m to
GBP8.1m (2019: GBP5.9m) principally due to an increase in the sales
tax payable, including VAT and the overseas equivalents, of GBP0.8m
(largely as a result of increased customer invoicing activity in
the last two months of 2020 compared to the same months in the
prior year), an increase in the holiday pay accrual of GBP0.3m
reflecting the impact of fewer holidays being taken during the year
as a result of the pandemic and an increase in the bonus accrual of
GBP1.7m
Contract liabilities have decreased by GBP1.6m to GBP7.0m (2019:
GBP8.6m) with a decrease in the deferred software implementation
contract liabilities of GBP2.6m, reflecting work progressing on the
current software implementation projects, being offset by a GBP1.0m
increase in deferred maintenance liabilities, reflecting the higher
maintenance revenues charged in the year.
Capital allocation and distributions
Alfa seeks to deliver high-quality visible earnings, future
earnings growth and maintain a strong balance sheet. The Group's
capital allocation policy includes the following elements aimed at
supporting the achievement of strategic objectives:
-- Reinvestment in people and technology; and
-- Maintaining strong liquidity.
Having reviewed the strategy of the business and the resources
required to support its growth, the Directors concluded that there
was excess capital in the Group and paid a special dividend
amounting to GBP44.2m in 2020 (2019: nil). Looking forwards the
business continues to be cash generative with a healthy net cash
balance and as a consequence the Directors concluded it was
appropriate to start a regular dividend program, commencing with
proposing a final dividend of 1.0 pence per share for the 2020 full
year, which will be paid in July 2021. The Board intends to
progressively increase the dividend as the Group grows, whilst
ensuring that we retain a strong balance sheet.
In making investment decisions regarding our people, the
Directors considered the Group's financial performance and position
as well as investor and analyst feedback; dialogue and feedback
from employees, covering employee engagement and retention rates;
requirements for training and professional development; and
appropriate reward structures in the context of the current labour
market. The allocation of capital towards our people will support
the Group in achieving its strategic objective to maintain a
high-performance organisation with a culture of continuous
improvement.
In making investment decisions to develop our technology, the
Directors considered the Group's financial performance and
position; the feedback and requirements of customers; the
operational efficiency of the existing technology; and the efficacy
and expected return on investment of certain development and
enhancement work. The allocation of capital to technological
development will support the delivery of our strategic objectives
to grow market share, to extend our best in class digital agenda,
and to promote and grow value and develop resilience.
Related party transactions
The ultimate parent undertaking is CHP Software and Consulting
Limited (the 'Parent'). There was no trading between the Group and
the Parent. There were no balances outstanding from, or to, the
Parent at 31 December 2020 and 31 December 2019.
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 continue to
operate for a period of not less than 12 months from the date of
approval of these financial statements.
The going concern assessment 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, 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 continued
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 financial
statements.
Subsequent events
There have been no reportable subsequent events since the
balance sheet date.
Duncan Magrath
Chief Financial Officer
22 March 2021
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARED 31 DECEMBER
2020
The consolidated financial statements for the year ended 31
December 2020 have been prepared in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006 and International Financial Reporting Standards
(IFRSs) as adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union. The financial information contained
in this announcement does not constitute statutory accounts as
defined in Section 434 of the Companies Act 2006. The financial
information has been extracted from the financial statements for
the year ended 31 December 2020, which have been approved by the
Board of Directors and on which the auditors have reported without
qualification. The financial statements will be delivered to the
Registrar of Companies after the Annual General Meeting. The
financial statements for the year ended 31 December 2019, upon
which the auditors reported without qualification, have been
delivered to the Registrar of Companies. The audit report did not
contain anything to which the auditors drew attention by way of
emphasis and that the audit reports did not contain any statement
under section 498(2) or (3) of the Companies Act 2006.
Consolidated statement of profit or loss and comprehensive
income
GBP'000s Note 2020 2019
------------------------------------------------------- ---- -------- --------
Continuing operations
------------------------------------------------------ ----- -------- --------
Revenue 5 78,870 64,480
------------------------------------------------------- ---- -------- --------
Implementation and support expenses 6 (15,302) (16,894)
------------------------------------------------------- ---- -------- --------
Research and product development expenses 6 (18,901) (15,662)
------------------------------------------------------- ---- -------- --------
Sales, general and administrative expenses 6 (21,249) (18,792)
------------------------------------------------------- ---- -------- --------
Other operating income 528 577
------------------------------------------------------- ---- -------- --------
Operating profit 23,946 13,709
------------------------------------------------------- ---- -------- --------
Share of net loss of joint ventures 19 (15) -
------------------------------------------------------- ---- -------- --------
Profit before net finance costs and tax 23,931 13,709
------------------------------------------------------- ---- -------- --------
Finance income 10 109 143
------------------------------------------------------- ---- -------- --------
Finance expense 10 (800) (852)
------------------------------------------------------- ---- -------- --------
Profit before taxation 23,240 13,000
------------------------------------------------------- ---- -------- --------
Taxation 11 (2,871) (2,818)
------------------------------------------------------- ---- -------- --------
Profit for the financial year 20,369 10,182
------------------------------------------------------- ---- -------- --------
Other comprehensive income:
------------------------------------------------------- ---- -------- --------
Exchange differences on translation of foreign
operations 27 65 (350)
------------------------------------------------------- ---- -------- --------
Other comprehensive income net of tax 65 (350)
------------------------------------------------------- ---- -------- --------
Total comprehensive income for the year 20,434 9,832
------------------------------------------------------- ---- -------- --------
Earnings per share (in pence) for profit attributable
to the ordinary equity holders of the Company
------------------------------------------------------- ---- -------- --------
Basic 12 6.93 3.50
------------------------------------------------------- ---- -------- --------
Diluted 12 6.79 3.41
------------------------------------------------------- ---- -------- --------
Weighted average no. of shares (m) - basic 12 293.8 290.6
------------------------------------------------------- ---- -------- --------
Weighted average no. of shares (m) - diluted 12 300.1 298.8
------------------------------------------------------- ---- -------- --------
The above consolidated statement of profit or loss and
comprehensive income should be read in conjunction with the
accompanying notes.
Consolidated statement of financial position
GBP'000s Note 2020 2019
----------------------------------------------- ----- ------ --------
Assets
----------------------------------------------- ----- ------ --------
Non-current assets
----------------------------------------------- ----- ------ --------
Goodwill 14 24,737 24,737
----------------------------------------------- ----- ------ --------
Other intangible assets 15 2,153 2,255
----------------------------------------------- ----- ------ --------
Property, plant and equipment 16 885 1,166
----------------------------------------------- ----- ------ --------
Right-of-use assets 17 14,841 16,402
----------------------------------------------- ----- ------ --------
Deferred tax assets 18 1,794 596
----------------------------------------------- ----- ------ --------
Interests in joint ventures 19 394 -
----------------------------------------------- ----- ------ --------
Total non-current assets 44,804 45,156
----------------------------------------------- ----- ------ --------
Current assets
----------------------------------------------- ----- ------ --------
Trade receivables 20 5,812 4,050
----------------------------------------------- ----- ------ --------
Accrued income 21 4,992 7,214
----------------------------------------------- ----- ------ --------
Prepayments 21 2,065 1,613
----------------------------------------------- ----- ------ --------
Other receivables 21 799 1,020
----------------------------------------------- ----- ------ --------
Cash and cash equivalents 22 37,020 58,839
----------------------------------------------- ----- ------ --------
Total current assets 50,688 72,736
----------------------------------------------- ----- ------ --------
Total assets 95,492 117,892
----------------------------------------------- ----- ------ --------
Liabilities and equity
----------------------------------------------- ----- ------ --------
Current liabilities
----------------------------------------------- ----- ------ --------
Trade and other payables 23 8,120 5,884
----------------------------------------------- ----- ------ --------
Corporation tax 23 1,266 1,355
----------------------------------------------- ----- ------ --------
Lease liabilities 24 1,701 1,672
----------------------------------------------- ----- ------ --------
Contract liabilities - software implementation 23/32 1,947 4,581
----------------------------------------------- ----- ------ --------
Contract liabilities - deferred maintenance 23/32 5,047 4,060
----------------------------------------------- ----- ------ --------
Total current liabilities 18,081 17,552
----------------------------------------------- ----- ------ --------
Non-current liabilities
----------------------------------------------- ----- ------ --------
Lease liabilities 24 15,790 17,330
----------------------------------------------- ----- ------ --------
Provisions for other liabilities 25 1,392 667
----------------------------------------------- ----- ------ --------
Total non-current liabilities 17,182 17,997
----------------------------------------------- ----- ------ --------
Total liabilities 35,263 35,549
----------------------------------------------- ----- ------ --------
Capital and reserves
----------------------------------------------- ----- ------ --------
Share capital 26 300 300
----------------------------------------------- ----- ------ --------
Translation reserve 27 91 26
----------------------------------------------- ----- ------ --------
Retained earnings 59,838 82,017
----------------------------------------------- ----- ------ --------
Total equity 60,229 82,343
----------------------------------------------- ----- ------ --------
Total liabilities and equity 95,492 117,892
----------------------------------------------- ----- ------ --------
The above consolidated statement of financial position should be
read in conjunction with the accompanying notes.
The consolidated financial statements were approved and
authorised for issue by the Board of Directors on 22 March 2021 and
signed on its behalf.
Andrew Denton Duncan Magrath
Chief Executive Officer Chief Financial Officer
Alfa Financial Software Holdings PLC - Registered number
10713517
Consolidated statement of changes in equity
Equity
attributable
to owners
Translation Retained of the
GBP'000s Note Share capital reserve earnings parent
------------------------------------- ---- ------------- ----------- --------- -------------
Balance as at 1 January 2019 300 376 72,239 72,915
------------------------------------- ---- ------------- ----------- --------- -------------
Effect of initial application of
IFRS 16 - - (1,459) (1,459)
------------------------------------- ---- ------------- ----------- --------- -------------
Deferred tax impact of initial
application of IFRS 16 - - 419 419
------------------------------------- ---- ------------- ----------- --------- -------------
Adjusted balance at 1 January 2019 300 376 71,199 71,875
------------------------------------- ---- ------------- ----------- --------- -------------
Profit for the financial year - - 10,182 10,182
------------------------------------- ---- ------------- ----------- --------- -------------
Other comprehensive expense - (350) - (350)
------------------------------------- ---- ------------- ----------- --------- -------------
Total comprehensive (expense)/income
for the year - (350) 10,182 9,832
------------------------------------- ---- ------------- ----------- --------- -------------
Equity-settled share-based payment
schemes 28 - - 636 636
------------------------------------- ---- ------------- ----------- --------- -------------
Balance as at 31 December 2019 300 26 82,017 82,343
------------------------------------- ---- ------------- ----------- --------- -------------
Profit for the financial year - - 20,369 20,369
------------------------------------- ---- ------------- ----------- --------- -------------
Other comprehensive income - 65 - 65
------------------------------------- ---- ------------- ----------- --------- -------------
Total comprehensive income for
the year - 65 20,369 20,434
------------------------------------- ---- ------------- ----------- --------- -------------
Equity-settled share-based payment
schemes 28 - - 1,321 1,321
------------------------------------- ---- ------------- ----------- --------- -------------
Equity-settled share-based payment
schemes - deferred tax impact 18 - - 369 369
------------------------------------- ---- ------------- ----------- --------- -------------
Dividends 30 - - (44,238) (44,238)
------------------------------------- ---- ------------- ----------- --------- -------------
Balance as at 31 December 2020 300 91 59,838 60,229
------------------------------------- ---- ------------- ----------- --------- -------------
The above consolidated statement of changes in equity should be
read in conjunction with the accompanying notes.
Consolidated statement of cash flows
GBP'000s Note 2020 2019
------------------------------------------------- ------- -------- -------
Cash flows from operating activities
------------------------------------------------- ------- -------- -------
Profit before tax 23,240 13,000
------------------------------------------------- ------- -------- -------
Net finance costs 691 709
------------------------------------------------- ------- -------- -------
Share of net loss from joint venture 15 -
------------------------------------------------- ------- -------- -------
Operating profit 23,946 13,709
------------------------------------------------- ------- -------- -------
Adjustments:
------------------------------------------------- ------- -------- -------
Depreciation 6/16/17 2,253 2,388
------------------------------------------------- ------- -------- -------
Amortisation 6/15 842 428
------------------------------------------------- ------- -------- -------
Share-based payment charge 28 1,515 724
------------------------------------------------- ------- -------- -------
Loss on disposal of assets 61 -
------------------------------------------------- ------- -------- -------
Movement in provisions 25 532 515
------------------------------------------------- ------- -------- -------
Movement in contract liabilities 23 (1,945) 3,110
------------------------------------------------- ------- -------- -------
Movement in working capital:
------------------------------------------------- ------- -------- -------
Movement in trade and other receivables 20 646 2,532
------------------------------------------------- ------- -------- -------
Movement in trade and other payables (excluding
contract liabilities) 23 2,249 (858)
------------------------------------------------- ------- -------- -------
Cash generated from operations 30,099 22,548
------------------------------------------------- ------- -------- -------
Interest element on lease payments 10/24 (787) (852)
------------------------------------------------- ------- -------- -------
Other interest paid 19 (13) -
------------------------------------------------- ------- -------- -------
Income taxes paid 11 (3,757) (4,074)
------------------------------------------------- ------- -------- -------
Net cash generated from operating activities 25,542 17,622
------------------------------------------------- ------- -------- -------
Cash flows from investing activities
------------------------------------------------- ------- -------- -------
Purchases of property, plant and equipment 16 (240) (376)
------------------------------------------------- ------- -------- -------
Purchases of computer software 15 (117) (565)
------------------------------------------------- ------- -------- -------
Payments for internally developed software 15 (650) (1,135)
------------------------------------------------- ------- -------- -------
Investment in joint venture 19 (336) -
------------------------------------------------- ------- -------- -------
Loan to joint venture 19 (64) -
------------------------------------------------- ------- -------- -------
Interest received 10 109 143
------------------------------------------------- ------- -------- -------
Net cash used in investing activities (1,298) (1,933)
------------------------------------------------- ------- -------- -------
Cash flows from financing activities
------------------------------------------------- ------- -------- -------
Dividends paid to Company shareholders (44,238) -
------------------------------------------------- ------- -------- -------
Principal element on lease payments 24 (1,700) (1,610)
------------------------------------------------- ------- -------- -------
Cash used in financing activities (45,938) (1,610)
------------------------------------------------- ------- -------- -------
Net (decrease)/increase in cash (21,694) 14,079
------------------------------------------------- ------- -------- -------
Cash and cash equivalents at the beginning of
the year 22 58,839 44,922
------------------------------------------------- ------- -------- -------
Effect of foreign exchange rate changes on cash
and cash equivalents (125) (162)
------------------------------------------------- ------- -------- -------
Cash and cash equivalents at the end of the year 22 37,020 58,839
------------------------------------------------- ------- -------- -------
The above consolidated statement of cash flows should be read in
conjunction with the accompanying notes.
Notes to the consolidated financial statements for the year
ended 31 December 2020
1 . Summary of significant accounting policies
This note provides a list of the significant accounting policies
adopted in the preparation of these consolidated financial
statements. These policies have been consistently applied to all
the years presented, unless otherwise stated. The financial
statements are for the Group, consisting of Alfa Financial Software
Holdings PLC (Alfa or the Company), its subsidiaries and joint
operation and are presented to the nearest thousand.
The principal activity of 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
Australasia.
1.1 Basis of preparation
Compliance with IFRS
The consolidated financial statements of the Group have been
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European
Union.
Historical cost convention
The consolidated financial statements have been prepared under
the historical cost convention, other than the revaluation of
financial assets and financial liabilities recorded at fair value
through profit or loss.
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 continue to
operate for a period of not less than 12 months from the date of
these financial statements.
The going concern assessment 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, 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 continued
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 financial
statements.
New and amended standards adopted by the Group
Effective for periods commencing on or after 1 January 2020:
-- Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate
Benchmark Reform (issued on 26 September 2019)
-- Amendments to IAS 1 and IAS 8: Definition of Material (issued
on 31 October 2018)
-- Amendments to References to the Conceptual Framework in IFRS
Standards (issued on 29 March 2018)
-- Amendments to IFRS 3 Business Combinations (issued on 22
October 2018)
The above standards have been endorsed by both the EU and the UK
(from 1 January 2021). EU-IFRS at 31 December 2020 were adopted for
use within the UK by Regulation 4 of Statutory Instrument 2019/685.
The adoption of the above standards had no material impact.
New standards, amendments and interpretations not yet
adopted
Effective for periods commencing on or after 1 June 2020:
-- Amendments to IFRS 16 Leases: Covid 19-Related Rent
Concessions
EU-IFRS at 31 December 2020 were adopted for use within the UK
by Regulation 4 of Statutory Instrument 2019/685. The adoption of
this standard is not expected to have a material impact.
1.2 Group structure
Basis of consolidation
Subsidiaries are all entities over which the Group has control.
The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over
the entity. Subsidiaries are fully consolidated from the date on
which control is transferred to the Group.
Unless otherwise stated, subsidiaries have share capital
consisting solely of ordinary shares, and the proportion of
ownership interests held equals the voting rights held by the
Group. The country of incorporation or registration is also each
subsidiary's principal place of business.
All intra-Group transactions, balances, income and expenses are
eliminated on consolidation. All subsidiaries have a 31 December
year end.
Joint arrangements
A joint arrangement is a contractual arrangement whereby the
Group and other parties undertake an economic activity that is
subject to joint control; that is, when the relevant activities
that significantly affect the investee's returns require the
unanimous consent of the parties sharing control.
Joint control is the contractually agreed sharing of control of
an arrangement, and exists only when decisions about the activities
that significantly affect the arrangement's returns require the
unanimous consent of the parties sharing control. Judgement is
required in determining this classification through an evaluation
of the facts and circumstances arising from each individual
arrangement. Joint arrangements are classified as either joint
operations or joint ventures based on the rights and obligations of
the parties to the arrangement. In joint operations, the parties
have rights to the assets and obligations for the liabilities
relating to the arrangement, whereas in joint ventures, the parties
have rights to the net assets of the arrangement.
Alfa only has one joint venture, namely Alfa iQ, which was
formed in May 2020. The investment in the joint venture is
accounted for using the equity method. The Group's share of the
joint venture's net profit/ (loss) is based on its most recent
financial statement drawn up to the Group's balance sheet date. The
total carrying value of investment in joint venture represents the
cost of the investment, including loans which form part of the net
investment in the joint venture, plus the share of post-acquisition
retained earnings and any other movements in reserves less any
impairment in the value of the investment.
The carrying values of joint ventures are reviewed on a regular
basis and if there is objective evidence that an impairment in
value has occurred as a result of one or more events during the
period, the investment is impaired. The Group's share of the joint
venture's losses in excess of its interest in that joint venture is
not recognised to the extent that the Group has incurred legal or
constructive obligations or made payments on behalf of the joint
venture. Unrealised gains arising from transactions with joint
ventures are eliminated against the investment to the extent of the
Group's interest in the investee. Unrealised losses are eliminated
in the same way, but only to the extent that there is no evidence
of impairment.
Loans to the joint venture are measured at fair value on initial
recognition, and subsequently carried at amorised cost. Any surplus
between the nominal and fair value of the loan is recognised as an
investment in the joint venture.
1.3 Segment reporting
Operating and reporting segments are reported in a manner
consistent with the internal reporting provided to the Chief
Operating Decision Maker (CODM). The Group's Chief Executive
Officer (CEO), who is responsible for allocating resources and
assessing performance, has been identified as the CODM.
The CODM regularly reviews the Group's operating results in
order to assess performance and to allocate resources. 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 is choosing to present
revenue segmentation by type of project and a consolidated
Operating Profit measure, as presented to the CODM, along with the
required entity wide disclosure.
The Group discloses revenue split by type of project being
Software implementation, Ongoing development and services (ODS) and
Maintenance.
a. Software implementation project revenue - An implementation
process contains three types of billing streams, being licence fee,
fees in relation to implementation tasks and fees for additional
development. Software implementation projects can take from a few
months to several years depending on the complexity of the
implementation and the size of customer.
The licence element is generally invoiced and collected at the
beginning of the project and the licence amount is banded by the
number of geographies, modules taken by the customer and the number
of contracts or agreements to be written and managed on Alfa
Systems.
Implementation and development fees are invoiced monthly in
arrears based on a daily rate basis.
b. ODS revenue represents the ongoing development and services
efforts which are either ad hoc projects with existing customers or
relate to development or services delivered after a new
implementation. The services can be: pre-implientation work;
support following an implementation; further development for
customer specific functionality; or change management assistance.
Such services are generally provided on a shorter contractual
term.
c. Maintenance revenue is primarily invoiced periodically in
advance. Maintenance amounts are linked to the volumes of contracts
or agreements being written through Alfa Systems and therefore
increase if the customer's portfolio increases. Certain of the
Group's customers have maintenance invoiced on a monthly basis.
Maintenance revenue also includes any revenue generated from the
Group's Cloud Hosting activities which are invoiced on a monthly
basis.
See note 1.5 for details of our revenue recognition accounting
policy and note 2 for the critical accounting judgements and
estimates in relation to revenue recognition.
1.4 Foreign currency translation
Functional currency
Items included in the consolidated financial statements of each
of the Group's subsidiaries are measured using their functional
currency. The functional currency of the parent and each subsidiary
is the currency of the primary economic environment in which the
entity operates. See applicable exchange rates used in 2020
below:
2020 2019
---- ---------------- ----------------
Closing Average Closing Average
---- ------- ------- ------- -------
USD 1.37 1.28 1.32 1.28
---- ------- ------- ------- -------
EUR 1.11 1.13 1.18 1.14
---- ------- ------- ------- -------
NZD 1.89 1.98 1.96 1.94
---- ------- ------- ------- -------
AUD 1.77 1.86 1.88 1.84
---- ------- ------- ------- -------
Presentation currency
The consolidated financial statements are presented in pounds
sterling. Alfa's functional and presentation currency is pounds
sterling.
Group companies
The results and financial position of foreign operations (none
of which has the currency of a hyperinflationary economy) that have
a functional currency different from the presentation currency are
translated into the presentation currency as follows:
-- Assets and liabilities for each consolidated statement of
financial position presented are translated at the closing rate at
the date of that consolidated statement of financial position;
-- Income and expenses for each statement of profit or loss and
statement of comprehensive income are translated at average
exchange rates (unless this is not a reasonable approximation of
the cumulative effect of the rates prevailing on the transaction
dates, in which case income and expenses are translated at the
dates of the transactions); and
-- All resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the
translation of any net investment in foreign entities are
recognised in other comprehensive income. When a foreign operation
is sold the associated exchange differences are reclassified to
profit or loss, as part of the gain or loss on sale.
Foreign currency transactions
Transactions in foreign currencies are translated into the
respective functional currencies using the exchange rates
prevailing at the dates of the transactions. Foreign exchange
differences arising from the settlement of such transactions and
from the translation at the reporting date of monetary assets and
liabilities denominated in foreign currencies are recognised in
profit or loss. See applicable exchange rates used by the Group
above.
1.5 Revenue recognition
The Group derives revenue from the following sources:
i Software implementation revenue which includes software
licences, software development and other software implementation
services;
ii Ongoing development and support services; and
iii Software maintenance (help desk and other support services) and Cloud Hosting services.
The Group provides the right to use, software development
services, core implementation services and ongoing support of its
product, Alfa Systems. The Group's contractual arrangements contain
multiple deliverables or services, such as the development or
customisation of the software to the customer's requirements,
implementation services such as migration of data and testing and
certain project management services.
Alfa assesses whether there are distinct performance obligations
at the start of each contract and throughout the performance of the
implementation, development and services projects and maintenance
period. These performance obligations are laid out below. Any one
contract may include a single performance obligation or a
combination of those listed below:
a. Software implementation services
Where implementation services are considered to be distinct,
i.e. when relatively straightforward, do not require additional
development services and could be performed by an external third
party, the implementation services are accounted for as a separate
performance obligation from any development services. The
transaction price is allocated to each performance obligation based
on the stand-alone selling prices, derived from day rates and is
recognised over time based on the effort incurred, limited to the
amount to which Alfa has a right to payment.
b. Development services
The second performance obligation is the granting of a right to
use Alfa Systems, which includes the delivery of the related
software licence and any development efforts which change the
underlying code. The total revenue attributable to this performance
obligation is estimated at the outset of the relevant software
implementation project and recognised as the effort is expended, on
a percentage of completion basis, limited to the amount to which
Alfa has the right to payment. A percentage-of-completion basis has
been used because customers obtain the ability to benefit from the
product from the start of the implementation project, the
development or customisation of the asset has no alternative use to
the Group; and the customer is entitled to the benefits of the
efforts as at the date the efforts are delivered, so recognition
over time is appropriate.
Development services are valued using the residual value method
as there are no stand-alone selling prices which are observable as
each project is customised.
c. Option over the right to use Alfa Systems
In the event that customers have to pay periodic maintenance
fees in order to keep using Alfa Systems, a component of these
future maintenance fees is attributable to the right to use the
software. In these circumstances the licence granted by Alfa is
considered to renew in future periods. There may be a material
right in respect of discounts in future periods. In order to
ascribe a value to this option management initially determine the
periodic value of the development services during the software
implementation period and estimate the remaining expected customer
life.
The value of this option is built up from the start of the
implementation project in line with the percentage of completion of
development efforts described in 1.5(b) above. Following the
completion of the implementation project, the value of this option
is recognised evenly over the expected remaining customer life.
d. Periodic right to use Alfa Systems
This represents the proportion of the annual maintenance fee
which relates to the periodic option to renew the right to use Alfa
Systems. If there is the right of clawback of the annual right to
use, such amounts are recognised throughout the annual period. If
there is no right of clawback, then the annual right to use amount
is recognised in full when there is a right of collection.
e. Periodic maintenance amounts
This represents the stand-alone selling price of the ongoing
support or maintenance of Alfa Systems which is recognised
throughout the period over which the services are delivered.
f. Subscription amounts
Certain of the Group's implementation and service contracts
include a subscription payment mechanism. This represents a monthly
fee charged to the customer covering the following performance
obligations; the provision of monthly hosting services; the monthly
periodic right to use Alfa Systems and the provision of monthly
maintenance services (when this becomes applicable to the
customer). The monthly payments are recognised as revenue in the
period to which they relate. This reflects the underlying
performance obligations of the Group and termination rights of the
customer.
g. One-off revenue amounts
From time to time, the Group is entitled to receive one-off
licence revenue from its customers as they increase the number of
contracts on their version of Alfa Systems. Additionally, there are
times when catch-up periodic maintenance amounts are entitled to be
received by the Group, also as a result of the increased number of
contracts. Generally this revenue is recognised at the point in
time it is invoiced, or becomes contractually payable, reflecting
the fact that the Group has no remaining performance obligations to
satisfy.
Variable consideration
Certain of the Group's licence fees are receivable at the point
where the number of contracts held on Alfa Systems exceeds a
certain contract band. If these licence revenues relate to
customers who already have a live instance of the software, they
are recognised at the point in time in which the licence becomes
receivable. When these software licences are associated with an
implementation project and the customisation of the software,
management applies judgement as to when to include these amounts
within the associated percentage of completion calculation. In line
with IFRS 15, these amounts are recognised as revenue at the point
in time that it is highly probable that the amounts would not be
reversed.
Capitalised sales incentive costs
The Group incentivises its sale force for securing sales. In
line with IFRS 15, these costs are capitalised and are amortised in
line with the percentage of completion of the software
implementation project.
1.6 Operating expenses
Operating expenses include items such as personnel costs
(including training and recruitment), cost of software not
capitalised, research and development costs and other
infrastructure expenses. These items have been grouped into the
following categories for disclosure purposes:
-- Implementation and support expenses - Such expenses relate to
the remuneration of personnel assigned to software implementation
support, in addition to project-related travel and accommodation
expenses and an appropriate portion of relevant overheads.
-- Research and product development expenses - The Group invests
a substantial part of its time in research and product development
work in relation to the enhancement of its product platform and
capabilities. Research and product development work is charged to
the customer where it is linked to specific customer projects, such
as initial software implementations or customisation of the
software to the customer's requirements. The Group's research and
product development costs include remuneration costs and an
appropriate portion of relevant overheads.
Internally generated research and product development costs only
qualify for capitalisation if the Group can demonstrate all of the
criteria explained in note 1.14, where capitalised development
costs are disclosed as internally generated intangible assets. If
the criteria are not met, such expenditure is recognised as an
expense in the period in which it is incurred. The Group continues
to assess the eligibility of development costs for capitalisation
on a project by project basis.
-- Sales, general and administrative expenses include all the
residual operating costs.
1.7 Income tax
Taxation expense for the year comprises current and deferred tax
recognised in the reporting period. Tax is recognised in profit and
loss, except to the extent that it relates to items recognised in
other comprehensive income or directly in equity. Current or
deferred taxation assets and liabilities are not discounted.
Current tax
The current income tax charge is calculated on the basis of the
tax laws enacted or substantively enacted at the reporting date in
the countries where the Group and its subsidiaries operate and
generate 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 Group's
consolidated financial statements. However, the deferred income tax
is not accounted for if it arises from initial recognition of an
asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither
accounting nor taxable profit or loss. Deferred income tax is
determined using tax rates (and laws) that have been enacted or
substantively enacted by the reporting 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 to the extent that it
is probable that future taxable profits 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 taxable entity or different taxable
entities where there is an intention to settle the balances on a
net basis.
1.8 Leases
Alfa enters into lease contracts in respect of various
properties and motor vehicles. These rental contracts are typically
made for fixed periods of two to 10 years, and sometimes have
extension options. Lease terms are negotiated on an individual
basis and contain a wide range of different terms and conditions.
In accordance with IFRS 16, leases are recognised as a right-of-use
asset with a corresponding liability, at the date at which the
leased asset is available for use by Alfa. These assets and
liabilities are initially measured on a present value basis (as set
out in more detail below), with each subsequent lease payment
allocated between the liability and finance cost. The finance cost
is charged to profit or loss over the lease period to produce a
constant periodic rate of interest on the remaining balance of the
liability for each period. The right-of-use asset is depreciated
over the shorter of the asset's useful life and the lease term on a
straight-line basis.
Alfa 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
fewer) and leases of low-value assets. For these leases, the Group
recognises the lease payments as an 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.
Lease liabilities
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. If this rate
cannot be readily determined, the Group uses its incremental
borrowing rate.
Lease payments included in the measurement of the lease
liability comprise:
-- Fixed lease payments (including in substance fixed payments),
less any lease incentives;
-- 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
-- Penalties for terminating the lease, if the lease term
reflects the exercise of an option to terminate the lease.
The lease liability is presented in separate lines, split
between current and non-current liabilities, in the consolidated
statement of financial position. It 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 re-measures 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 change in the
assessment of exercise of a purchase option, in which case the
lease liability is re-measured 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 these cases, the lease liability is re-measured by
discounting the revised lease payments, using the initial 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); and
-- A lease contract is modified and the lease modification is
not accounted for as a separate lease, in which case the lease
liability is re-measured by discounting the revised lease payments
using a revised discount rate.
Right-of-use assets
The right -- of -- use assets comprise:
-- The initial measurement of the corresponding lease
liability;
-- Lease payments made at, or before, the commencement day;
-- Any initial direct costs; and
-- Restoration cost.
The right -- of -- use assets are presented as a separate line
in the consolidated statement of financial position.
The right-of-use assets are subsequently measured at cost less
accumulated depreciation and impairment losses (if applicable).
They are depreciated from the commencement date of the lease and
over the shorter period of the lease term and useful life of the
underlying asset. If a lease transfers ownership of the underlying
asset, or the cost of the right -- of -- use asset reflects an
expectation that the Group will exercise a purchase option, the
related right -- of -- use asset is depreciated over the useful
life of the underlying asset. Currently, the Group does not have
any leases that include a purchase option, or transfer ownership of
the underlying asset.
Whenever the Group incurs an obligation for costs to dismantle
and remove a leased asset, restore the site on which it is located,
or restore the underlying asset to the condition required by the
terms and conditions of the lease, a provision is recognised and
measured under IAS 37.
Extension options (or periods after termination options) are
only included in the lease term if the lease is reasonably certain
to be extended (or not terminated). The assessment is reviewed if a
significant event or a significant change in circumstances occurs
which affects this assessment and that is within the control of the
lessee. During the current financial period, there have been no
changes in such assessments.
Variable rents that do not depend on an index, or rate, are not
included in the measurement of the lease liability and the right --
of -- use asset. The related payments are recognised as an expense
in the period in which the event or condition that triggers those
payments occurs and are included as an expense in the consolidated
statement of profit or loss and comprehensive income.
1.9 Impairment of assets
Goodwill is tested annually for impairment. The carrying amount
is allocated to the cash-generating unit (CGU) that is expected to
benefit from investment and which represents the lowest level at
which the goodwill is monitored for internal management purposes.
The carrying value of the CGU is then compared to the higher of its
fair value less costs of disposal and its value in use. Any
impairment attributed to the goodwill is recognised immediately as
an expense and is not subsequently reversed.
Other assets are tested for impairment whenever events or
changes in circumstances indicate that the carrying amount might
not be recoverable. An impairment loss is recognised for the amount
by which the asset's carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset's fair
value less costs of disposal and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest levels for
which there are separately identifiable cash inflows which are
largely independent of the cash inflows from other assets or groups
of assets (cash-generating units). Non-financial assets other than
goodwill that suffered an impairment are reviewed for possible
reversal of the impairment at the end of each reporting period.
1.10 Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand as
well as short-term deposits with original maturities of three
months or less.
Recognition and de-recognition
1.11 Financial assets
Financial assets are recognised in the statement of financial
position when the Group becomes party to the contractual provision
of the instrument.
Financial assets are derecognised when the contractual rights to
the cash flows from the financial asset expire, or when the
financial asset and substantially all the risks and rewards are
transferred.
Classification and initial measurement of financial assets
Except for those trade receivables that do not contain a
significant financing component and are measured at the transaction
price in accordance with IFRS 15, all financial assets are
initially measured at fair value adjusted for transaction costs
(where applicable). Financial assets, other than those designated
and effective as hedging instruments, are classified into the
following categories:
-- Amortised cost;
-- Fair value through profit or loss (FVTPL); and
-- Fair value through other comprehensive income (FVOCI).
In the periods presented, the Group does not have any financial
assets categorised as FVTPL or FVOCI. The classification is
determined by both:
-- The entity's business model for managing the financial asset;
and
-- The contractual cash flow characteristics of the financial
asset.
All income and expenses relating to financial assets that are
recognised in profit or loss are presented within finance costs,
finance income or other financial items, except for impairment of
trade receivables which is presented within sales, general and
administrative expenses.
Subsequent measurement of financial assets
Financial assets at amortised cost
Financial assets are measured at amortised cost if the assets
meet the following conditions (and are not designated as
FVTPL):
-- They are held within a business model whose objective is to
hold the financial assets and collect their contractual cash flows;
and
-- The contractual terms of the financial assets give rise to
cash flows that are solely payments of principal and interest on
the principal amount outstanding.
After initial recognition, these are measured at amortised cost
using the effective interest method. Discounting is omitted where
the effect of discounting is immaterial. The Group's trade and most
other receivables (notes 20 and 21) and cash and cash equivalents
(note 22) fall into this category of financial instruments.
Impairment of financial assets
Under IFRS 9 the requirements are to use forward-looking
information to recognise expected credit losses - the 'expected
credit loss (ECL) model'. The Group considers a broad range of
information when assessing credit risk and measuring expected
credit losses, including past events, current conditions,
reasonable and supportable forecasts that affect the expected
collectability of the future cash flows of the instrument.
In applying this forward-looking approach, a distinction is made
between:
-- Financial instruments that have not deteriorated
significantly in credit quality since initial recognition or that
have low credit risk ('Stage 1'); and
-- Financial instruments that have deteriorated significantly in
credit quality since initial recognition and whose credit risk is
not low ('Stage 2').
-- 'Stage 3' would cover financial assets that have objective
evidence of impairment at the reporting date.
'12-month expected credit losses' are recognised for the first
category while 'lifetime expected credit losses' are recognised for
the second and third categories.
1.12 Trade receivables
Trade receivables are amounts due from customers for licences
sold or services performed in the ordinary course of business. They
are generally due for settlement within 30 days of the invoice date
and are therefore all classified as current. Trade receivables are
recognised initially at fair value and subsequently measured at
amortised cost using the effective interest method, less provision
for impairment. An impairment loss is recognised when there is
objective evidence that the Group will not be able to collect all
amounts due according to the original terms of the receivable. The
Group considers information developed internally or obtained from
external sources that indicates that a debtor is unlikely to pay
its creditors, including the Group, in full (without taking into
account any collateral held by the Group) as an indication that a
financial asset is not recoverable.
The Group has applied the simplified approach to measuring
expected credit losses, which uses a lifetime expected loss
allowance. To measure the expected credit losses, trade receivables
have been grouped based on days overdue.. The expected impairment
loss is recognised in the consolidated statement of profit or loss
and comprehensive income within other expenses and subsequent
recoveries are credited to the same account previously used to
recognise the impairment charge. During the current and prior
period the result of the above was immaterial and no impairment
loss has been recognised.
The maximum exposure to credit risk at the reporting date is the
carrying value of each class of receivable mentioned above. The
credit qualities of these receivables are periodically assessed by
reference to external credit ratings (if available) or to
historical information about their default rates. The Group does
not hold any collateral as security.
As the total carrying amount of the current portion of the trade
and other receivables is due within the next 12 months after the
reporting date, the impact of applying the effective interest
method is not significant and, therefore, the carrying amount
equals the contractual amount or the fair value initially
recognised.
1.13 Property, plant and equipment
Property, plant and equipment is stated at historical cost less
accumulated depreciation. Historical cost includes expenditure that
is directly attributable to the acquisition of the item.
Depreciation on assets is calculated using the straight-line method
to allocate their cost over their estimated useful lives, as
follows:
Fixtures and fittings: 3-10 years
IT equipment: 2-5 years
Motor vehicles: 10 years
The assets' residual values and useful lives are reviewed and
adjusted if necessary at each reporting date. An asset's carrying
amount is written down immediately to its recoverable amount if the
asset's carrying amount is greater than its estimated recoverable
amount. Repairs and maintenance are charged to the consolidated
statement of profit or loss and comprehensive income as incurred.
Any gains or losses on disposals are recognised within 'Sales,
general and administrative expenses' in the consolidated statement
of profit or loss and comprehensive income unless otherwise
specified.
Property, plant and equipment are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is
recognised for the amount by which the asset's carrying amount
exceeds its recoverable amount, which is the higher of an asset's
fair value less costs to sell and value in use. For the purpose of
assessing impairment, assets are grouped at the lowest levels for
which there are separately identifiable cash flows.
1.14 Goodwill and other intangible assets
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 liabilities and contingent liabilities
assumed.
The Group assesses whether goodwill has suffered any impairment
on an annual basis in accordance with the accounting policy stated
in note 1.9 above. There is one CGU, being the Group, as its
geographical operations do not have separate or distinct cash
inflows. The recoverable amount of goodwill has been determined
based on value-in-use calculations using cash flow projections from
financial budgets and forecasts.
Budgeted cash flow projections are based on the expectation of
signing new customers in the Group's sales pipeline as well as
ongoing implementation projects or ODS projects with existing
customers. Budgeted gross margin is based on historical evidence
and the expectations of market development and efficiency leverage.
Management believes that any reasonable change in any of the key
assumptions on which the recoverable amount is based would not
cause the reported carrying amount to exceed the recoverable amount
of the CGU. The discount rate used reflects the Group's pre-tax
weighted average cost of capital (WACC), as adjusted for region
specific risks and other factors as required by IFRS.
Intangible assets
Internally generated product development costs only qualify for
capitalisation if the Group can demonstrate all of the
following:
-- The technical feasibility of completing the intangible asset
so that it will be available for use or sale, its intention to
complete the intangible asset and use or sell it;
-- Its ability to use or sell the intangible asset; including
how the intangible asset will generate probable future economic
benefits;
-- The existence of a market or, if it is to be used internally,
the usefulness of the intangible asset;
-- The availability of adequate technical, financial and other
resources to complete the development and to use or sell the
intangible asset; and
-- Its ability to measure reliably the expenditure attributable
to the intangible asset during development.
Generally, commercial viability of new products, modules or
capabilities is not proven until all high-risk development issues
have been resolved through testing of the specific development.
Development expenditure incurred on minor or major upgrades, or
other changes in software functionality, does not satisfy the
criteria, where it is considered that the product is not
substantially new in its design or functional characteristics. Such
expenditure is therefore recognised as an expense. See note 15 for
disclosure of development costs which have met the criteria of IAS
38. The Group continues to assess the eligibility of development
costs for capitalisation on a project-by-project basis.
Externally acquired intangible assets are initially recorded at
historical cost. Historical cost includes expenditure that is
directly attributable to the acquisition of the item.
The Group amortises intangible assets with a limited useful
life, using the straight-line method over the following
periods:
Computer software: licence period or 10 years as applicable
Internally generated software: 3-5 years
Research and development which does not meet the criteria set
out above is recognised as an expense as incurred. Development
costs previously recognised as an expense are not recognised as an
asset in subsequent periods.
1.15 Trade and other payables
Trade payables are obligations to pay for goods or services
which have been acquired in the ordinary course of business from
suppliers. Trade payables are recognised initially at fair value
and subsequently measured at amortised costs using the effective
interest rate method. As the total carrying amount is due within
the next 12 months from the reporting date, the impact of applying
the effective interest method is not significant and, therefore,
the carrying amount equals the contractual amount or the fair value
initially recognised.
The Group's financial liabilities include trade and other
payables and lease liabilities. Financial liabilities are initially
measured at fair value, and, where applicable, adjusted for
transaction costs unless the Group designated a financial liability
at fair value through profit or loss. Subsequently, financial
liabilities are measured at amortised cost using the effective
interest method. All interest-related charges and, if applicable,
changes in an instrument's fair value that are reported in profit
or loss are included within finance costs or finance income. The
Group derecognises financial liabilities when, and only when, the
Group's obligations are discharged, cancelled or expired.
Trade and other payables and lease liabilities are classified as
current liabilities if payment is due within one year or less. If
not, they are presented as non-current liabilities.
1.16 Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is more
likely than not that an outflow of resources will be required to
settle the obligation and a reliable estimate of the amount can be
made. When the effect of the discounting is material, provisions
are measured at the present value of the expenditures expected to
be required to settle the obligation.
1.17 Employee benefits
The Group provides a range of benefits to employees, including
paid holiday arrangements and defined contribution pension
plans.
Short-term benefits
Short-term benefits, including health cover and other similar
non-monetary benefits, are recognised as an expense in the period
in which the service is received.
Post-employment benefits
The Group operates various defined contribution plans for its
employees. A defined contribution plan is a pension plan where the
Group pays fixed contributions into a separate independent entity.
The Group has no legal or constructive obligation to pay further
contributions if the fund does not hold sufficient assets to pay
all employees the benefits relating to the employee's service in
the current and prior periods.
Employee share scheme expense
The Group makes equity-settled share-based payments to certain
employees, which are measured at fair value at the date of grant
and expensed on a straight-line basis over the vesting period,
based on the Group's estimate of shares that will eventually vest.
For those share schemes with market-related vesting conditions, the
fair value is determined using the Monte Carlo model at the grant
date. For share options issued with EPS (non-market) performance
vesting conditions, the fair value of the underlying vehicle is
equal to the grant date share price discounted by the expected
dividend yield to reflect the lack of dividend accrual over the
vesting period. For all other share awards, those with pure
employment conditions attached, the fair value is determined by
reference to the market value of the shares at the grant date. For
all share schemes with non-market vesting conditions, the
likelihood of vesting has been taken into account when determining
the relevant charge. Vesting assumptions are reviewed during each
reporting period to ensure they reflect current expectations.
1.18 Equity
Ordinary shares
Ordinary shares are classified as equity. There are no
restrictions on the distribution of capital and the repayment of
capital.
Cumulative translation reserve
Exchange differences arising on translation of the foreign
controlled entities are recognised in Other Comprehensive Income
and accumulated in a separate reserve within equity. The cumulative
amount would be reclassified to profit or loss if the entity was
disposed of.
1.19 Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of Alfa by the weighted average
number of ordinary shares outstanding during the year.
Diluted earnings per share
Diluted earnings per share includes the ordinary shares which
are held in an employee trust on behalf of employees. These shares
are treated as having a potentially dilutive effect as these shares
have service and performance conditions attaching to them. Should
the service conditions not be met, the shares will be forfeited.
The shares have no right to voting or to dividends while held in
trust.
2. Critical accounting judgements, estimates and assumptions
The preparation of financial statements requires the use of
accounting estimates which, by definition, will seldom equal the
actual results. Management also needs to exercise judgement in
applying the Group's accounting policies.
This note provides an overview of the areas that involved a
higher degree of judgement or complexity, and of items which are
more likely to be materially adjusted in future periods due to
estimates and assumptions turning out to be wrong. Detailed
information about each of these estimates and judgements is
included in other notes, together with information about the basis
of calculation for each affected line item in the financial
statements.
2.1 Critical judgements in applying the Group's accounting
policies
Revenue recognition - Assessing performance obligations
The Group is required to make an assessment as to whether the
implementation process, which includes licence, implementation and
development revenue streams as well as any maintenance fees during
this phase, forms one or a number of performance obligations. In
addition, the Group is also required to make an assessment as to
whether each contract contains an expectation to deliver multiple
separate instances of the customised licence which may form
separate groups of distinct performance obligations. In doing the
above, the Group assesses each software implementation contract as
to whether the underlying software requires significant
modification or customisation by the Group in order to meet the
customer's requirements before Alfa Systems can be utilised by the
customer. Therefore judgement is required in determining which
efforts relate to the implementation process and which efforts
could be determined to be development services which change or
enhance the underlying code. In making this judgement, the Group
assesses the contractual terms and the original project plan for
the implementation but also uses historical evidence of what
constitutes core implementation work.
Revenue recognition - One-off revenue contract
During the year the Group entered into a new one-off five-year
contract with a customer to renew its software licence and
maintenance agreements. The Group has identified that this one-off
contract contained two distinct separate performance obligations,
being the right for the customer to use the software and the
ongoing maintenance and support. Both of these performance
obligations relate to the five-year period the contract covers. The
key judgements applied by management are in the allocation of the
five-year contract value to each of the two performance obligations
outlined above. A detailed assessment of the expected costs and
margin of the support and maintenance over the five-year period was
carried out along with an assessment of a typical right to use
licence payment. Management then assessed the difference between
the total contract value and fair value of the two performance
obligations as a premium. The premium has been allocated between
the two performance obligations based on their relative proportion
of the stand-alone selling prices. As a result of the process
outlined above, GBP5.6m was recognised upfront as the licence
component, reflecting the non-cancellable nature of the contract,
with the balance of the contract for maintenance recognised over
the life of the contract.
Internally generated software development - Assessing whether a
project meets criteria of IAS 38
The Group is required to make an assessment of each ongoing
project in order to determine at what stage a project meets the
criteria outlined in the Group's accounting policies. Such
assessment may, in certain circumstances, require significant
judgement. In making this judgement, the Group evaluates, amongst
other factors, the stage at which technical feasibility has been
achieved, management's intention to complete and use or sell the
product, the likelihood of success, the availability of technical
and financial resources to complete the development phase and
management's ability to measure reliably the expenditure
attributable to the project. Research and product development
expenditure incurred on minor or major upgrades, or other changes
in software functionality, does not satisfy the criteria where it
is considered that the product is not substantially new in its
design or functional characteristics. Such expenditure is therefore
recognised as an expense.
2.2 Key sources of estimation uncertainty
Revenue recognition - Assigning a stand-alone selling price for
implementation services day rates
The Group assesses the value of the implementation services
delivered by assessing the effective day rate for an implementation
contract, taking into account all revenue streams from
implementation contracts against day rates of similar projects in
the same geographies. If the stand-alone selling price in relation
to the implementation day rate increased by 5%, this would result
in a cumulative increase to revenue of GBP0.8m in 2020. As this
increase in the implementation day rate estimate will not impact
the overall transaction price of the individual implementation
contracts, it is expected that this increase of GBP0.8m would
reverse in future periods as the implementation contracts ongoing
as at 31 December 2020 complete.
2.3 Other sources of estimation uncertainty
Revenue recognition - Percentage of completion estimate
The Group estimates the number of days required to complete the
relevant software customisation effort at the outset of each
project and on an ongoing basis including at each consolidated
statement of financial position date. Estimates of total project
days required for a relevant project are based on historical
evidence of past implementations, knowledge of the customer's
systems being replaced and scope of customisation being requested.
The Group applies the percentage-of-completion method when
calculating development services revenue and updates estimates at
each quarter end accordingly. At 31 December 2020, if the Group's
estimates of development days to complete increased by 20% in
relation to ongoing software implementation projects, this would
result in development services revenue decreasing by GBP0.1m in
2020.
3. Financial risk management
In common with all other businesses, the Group is exposed to
risks that arise from its use of financial instruments. This note
describes the Group's objectives, policies and processes for
managing those risks and the methods used to measure them. Further
quantitative information in respect of these risks is presented
throughout these financial statements.
Exposure arising
Area from Measurement Management
---------------------- ------------------------- --------------------- -----------------------
Market risk - foreign Contracted revenue Cash flow forecasting Natural hedging
exchange and costs denominated from localised cost
in a currency other base and prompt
than the entity's conversion of foreign
functional currency; currency cash balances
and into pound sterling
Monetary assets and
liabilities denominated
in a currency other
than the entity's
functional currency.
---------------------- ------------------------- --------------------- -----------------------
Credit risk - cash Cash and cash equivalents Credit ratings Diversification
balances of bank deposits
---------------------- ------------------------- --------------------- -----------------------
Credit risk - customer Trade receivables Ageing analysis Credit checks and
receivables and accrued income Credit ratings contractual payment
terms
---------------------- ------------------------- --------------------- -----------------------
Liquidity Cash and cash equivalents Cash flow forecasting Collection of up-front
licence fees, ageing
analysis of customer
receivables
---------------------- ------------------------- --------------------- -----------------------
The Group's overall risk management policy focuses on the
unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group's financial performance. The
Group has used financial instruments to hedge certain risk
exposures in the past. Risk management is carried out by the
finance function under policies approved by the Chief Financial
Officer. The finance function identifies, evaluates and mitigates
financial risks when deemed necessary.
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 and maintain an optimal capital structure.
3.1 Foreign exchange risk
The Group operates internationally and is exposed to foreign
exchange risks arising from various currencies, primarily with
respect to those described below. Revenue is predominantly
denominated in pounds sterling and US dollars. Operating costs are
influenced by the currencies of the countries where the Group's
subsidiaries are based and pounds sterling and the US dollars are
the currencies in which most operating costs are denominated.
The split by currency in relation to trade receivables is set
out in note 20.
The Group's exposure to foreign currency risk in relation to
revenue is set out in note 5.
The Group has not entered into or utilised any form of hedging
against foreign currency exposure during the current or prior
period, nor does the Group have any outstanding commercial foreign
exchange contracts at 31 December 2020 or 31 December 2019.
A 10% movement in the USD GBP exchange rate in the year ended 31
December 2020 would have impacted revenue and operating profit
(excluding share-based payments) by 4% and 9% respectively.
3.2 Credit risk
a. Credit risk related to transactions with financial institutions
Credit risk with financial institutions is managed by the
Group's finance function in accordance with a Board approved
policy. Management is not aware of any significant risks associated
with financial institutions as a result of cash and cash
equivalents deposits (including short-term investments) and
financial derivative transactions.
b. Credit risks related to customer trade receivables
Significant financial difficulties of the debtor, probability
that the debtor will enter bankruptcy or financial reorganisation,
change of strategy and default or delinquency in payments are
considered indicators that a trade receivable could be impaired.
Given the complexity, the size and the length of certain software
implementation of related projects, a delay in the settlement of an
open trade receivable does not necessarily constitute objective
evidence that the trade receivable is impaired.
The Group's customer base predominantly consists of large
financial institutions that are financially sound. The
responsibility for customer credit risk management rests with
management of the Group. Payment terms are set in accordance with
practices in the different geographies and end-markets served,
typically being 30 days from the date of the invoice. Trade
receivables are actively monitored and managed. Collection risk is
mitigated through the use of upfront payments of licences and
maintenance. Historically, there has been a de minimis level of
customer default as a result of the long history of dealing with
the Group's customer base and an active credit monitoring function.
Where applicable, credit limits may be established based on
internal or external rating criteria, which take into account such
factors as the financial condition of the customers, their credit
history and the risk associated with their industry segment.
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all trade receivables and accrued income. To measure
the expected credit losses, trade receivables and accrued income
have been grouped based on shared credit risk characteristics and
the days past due. The accrued income relates to unbilled work in
progress and has substantially the same risk characteristics as the
trade receivables for the same types of contracts, other than where
the Group has collected upfront payments in the form of licence
fees at the start of a software implementation contract. The Group
has therefore concluded that the expected loss rates for trade
receivables are less than the loss rates for the accrued
income.
The expected loss rates of trade receivables are based on the
payment profiles of customer invoices over a period of 36 months
before 31 December 2020 or 31 December 2019 respectively and the
corresponding historical credit losses experienced within this
period. The historical loss rates would then be adjusted to reflect
current or forward-looking information in relation to any
macroeconomic factors affecting the ability of the customers to
settle the receivables.
The Group has not identified any current factors or
forward-looking information which would be relevant to the
historical loss rates as all trade receivables have been collected
in the past 24 months. Therefore on this basis, the loss allowance
as at 31 December 2020 and 31 December 2019 was immaterial for both
trade receivables and accrued income.
See note 20 - Trade receivables for the ageing of trade
receivables and significant customer credit risk exposure.
3.3 Liquidity risk
The Group's principal objective when managing capital is to
safeguard the Group's ability to continue as a going concern, so
that it can continue to provide returns for shareholders and
benefits for other stakeholders.
The capital structure of the Group consists of cash and cash
equivalents (note 22) and equity attributable to equity holders of
the parent.
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due.
The Group manages its exposure to liquidity risk through short
and long-term forecasts and by seeking to align the maturity
profiles of its financial assets with its financial liabilities.
The Group's policy is to maintain an adequate level of liquidity to
meet its liabilities expected to be settled in the short or near
term, under both normal and stressed conditions.
The following table details the remaining contractual maturity
of the Group's financial liabilities. The amounts disclosed in the
table are the contractual undiscounted cash flows.
31 December 2020
--------------------------- -------- ------------------------------------------------
Between Between Between
Carrying Less than 6 to 12 1 to 2 2 to 5 More than
GBP'000s value 6 months months years years 5 years
--------------------------- -------- --------- -------- ------- ------- ---------
Trade and other payables 5,576 5,576 - - - -
--------------------------- -------- --------- -------- ------- ------- ---------
Lease liabilities - future
lease payments 21,081 1,228 1,191 2,364 6,889 9,409
--------------------------- -------- --------- -------- ------- ------- ---------
31 December 2019
--------------------------- -------- ------------------------------------------------
Between Between Between
Carrying Less than 6 to 12 1 to 2 2 to 5 More than
GBP'000s value 6 months months years years 5 years
--------------------------- -------- --------- -------- ------- ------- ---------
Trade and other payables 4,087 4,087 - - - -
--------------------------- -------- --------- -------- ------- ------- ---------
Lease liabilities - future
lease payments 23,369 1,236 1,221 2,358 6,867 11,687
--------------------------- -------- --------- -------- ------- ------- ---------
4. Segments and principal activities
4.1 Revenue by type
The Group assesses revenue by type of project, being Software
implementation, ODS and Maintenance, as summarised below:
GBP'000s 2020 2019
------------------------ ------ ------
Software implementation 27,328 26,128
------------------------ ------ ------
ODS 32,363 23,460
------------------------ ------ ------
Maintenance 19,179 14,892
------------------------ ------ ------
Total revenue 78,870 64,480
------------------------ ------ ------
4.2 Operating profit
The following tables reconciles profit for the period
attributable to equity holders to Operating Profit for the periods
presented:
GBP'000s 2020 2019
------------------------------ ------ ------
Profit for the year 20,369 10,182
------------------------------ ------ ------
Adjusted for:
------------------------------ ------ ------
Net income from joint venture 15 -
------------------------------ ------ ------
Taxation 2,871 2,818
------------------------------ ------ ------
Finance income (109) (143)
------------------------------ ------ ------
Finance expense 800 852
------------------------------ ------ ------
Operating profit 23,946 13,709
------------------------------ ------ ------
4.3 Non-current assets geographical information
Non-current assets attributable to each geographical market:
GBP'000s 2020 2019
------------------------- ------ ------
UK 43,960 44,276
------------------------- ------ ------
USA 661 220
------------------------- ------ ------
Rest of World 183 64
------------------------- ------ ------
Total non-current assets 44,804 44,560
------------------------- ------ ------
Revenue by geographical market is contained within note 5.3.
5. Revenue from contracts with customers
5.1 Customer concentration
Customers with revenue accounting for more than 10% of total
revenue in the current year are as follows:
GBP'000s 2020 2019
----------- ---- ----
Customer A 12% 20%
----------- ---- ----
Customer B 10% 9%
----------- ---- ----
Customer C 10% 5%
----------- ---- ----
See note 20 for outstanding trade receivables from those
customers with revenue accounting for more than 10% of total
revenue.
5.2 Timing of revenue
The Group derives revenue from the transfer of goods and
services over time and at a point in time as follows:
2020 Software Total
GBP'000s implementation ODS Maintenance revenue
---------------------------------------- --------------- ------- ----------- --------
At a point in time - time and materials - 24,450 - 24,450
---------------------------------------- --------------- ------- ----------- --------
At a point in time - fixed price 420 5,688 617 6,725
---------------------------------------- --------------- ------- ----------- --------
Over time - time and materials 26,770 - - 26,770
---------------------------------------- --------------- ------- ----------- --------
Over time - fixed price 138 2,225 18,562 20,925
---------------------------------------- --------------- ------- ----------- --------
Total revenue 27,328 32,363 19,179 78,870
---------------------------------------- --------------- ------- ----------- --------
2019 Software Total
GBP'000s implementation ODS Maintenance revenue
---------------------------------------- --------------- ------ ----------- --------
At a point in time - time and materials - 17,926 - 17,926
---------------------------------------- --------------- ------ ----------- --------
At a point in time - fixed price - 5,534 - 5,534
---------------------------------------- --------------- ------ ----------- --------
Over time - time and materials 26,033 - - 26,033
---------------------------------------- --------------- ------ ----------- --------
Over time - fixed price 95 - 14,892 14,987
---------------------------------------- --------------- ------ ----------- --------
Total revenue 26,128 23,460 14,892 64,480
---------------------------------------- --------------- ------ ----------- --------
All goods and services are sold directly to the customers.
5.3 Revenue geographical information
Revenue attributable to each geographical market based on where
the licence is sold or the service provided is as follows:
GBP'000s 2020 2019
-------------- ------- ------
USA 29,176 28,087
-------------- ------- ------
UK 25,780 18,618
-------------- ------- ------
Rest of EMEA 21,308 16,043
-------------- ------- ------
Rest of World 2,606 1,732
-------------- ------- ------
Total revenue 78,870 64,480
-------------- ------- ------
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, GBP3m of revenues generated from South
Africa have been reallocated from Rest of World to Rest of EMEA
(excluding UK) for 2019.
5.4 Revenue by currency
Revenue by contractual currency is as follows:
GBP'000s 2020 2019
-------------- ------- ------
GBP 33,405 21,644
-------------- ------- ------
USD 30,222 29,398
-------------- ------- ------
Euro 12,636 9,429
-------------- ------- ------
Other 2,607 4,009
-------------- ------- ------
Total revenue 78,870 64,480
-------------- ------- ------
5.5 Liabilities from contracts with customers
GBP'000s 2020 2019
----------------------------------------------- ----- -----
Contract liabilities - software implementation 1,947 4,581
----------------------------------------------- ----- -----
Contract liabilities - deferred maintenance 5,047 4,060
----------------------------------------------- ----- -----
Total contract liabilities 6,994 8,641
----------------------------------------------- ----- -----
Contract liabilities -software implementation
The majority of the Group's software implementation customers
are invoiced an upfront perpetual software licence at the
commencement of the implementation project. Customers generally
require additional development efforts over the life of the
implementation project in order to customise the underlying code
within Alfa Systems. Together these two elements form the Group's
development services performance obligation. The fair value of this
performance obligation is determined using the residual method as
set out in note 1.5b and this fair value is recognised as the
development effort is expended, on a percentage of completion
basis.
As such the software implementation contract liability balance
as at 31 December 2020 represents any amounts received in advance
for the development service performance obligation being satisfied
(including any unrecognised software licence amounts that were
received upfront). Additionally, where an option over the right to
use Alfa Systems in the future exists, the value of this is also
included within the software implementation contract liability.
This material right value is increased over the life of the
implementation project in line with the percentage of completion of
the development efforts and then released on a straight line basis
over the expected remaining customer life post completion of the
implementation project.
The software implementation contract liability balance will
increase during the year as a result of:
-- any new upfront software licence payments;
-- any write back in previously recognised revenue as a result
of project extensions or re-plans; and
-- any additional material right balances that are added during
the year.
The software implementation contract liability balance will
decrease during the year as a results of:
-- increasing percentage of completion of development efforts;
and
-- any release of material right balances following the
completion of the implementation project.
Contract liabilities - deferred maintenance
The majority of the Group's customers are invoiced annually in
advance for the maintenance and support service provided by the
Group. As such, the deferred maintenance contract liability balance
will increase during the year as a result of billing and invoices
becoming due, and will decrease as the Group satisfies its
associated performance obligations. The deferred maintenance
contract liability balance as at 31 December 2020 therefore
represents the Group's unsatisfied period maintenance performance
obligation for which the revenue has been invoiced in advance.
5.6 Unsatisfied Performance Obligations
As outlined in section 2.1, during the current year, the Group
entered into a new one-off five-year contract with a customer to
renew its software licence and maintenance agreements. The total
amount of the contract price from this non-cancellable contract
that relates to the performance obligations that are unsatisfied at
31 December 2020 is GBP10.6m (2019: GBP nil). We expect to
recognise GBP2.2m in each of the next four financial years and then
the remaining GBP1.8m in the final financial year of the contract,
being 2025.
In addition, the Group has unsatisfied or partially satisfied
performance obligations at 31 December 2020 that relate to the
licence customisation for those customers that have ongoing
implementation projects, or implementation projects that commenced
in early 2021 and for which contracts were agreed prior to 31
December 2020. This performance obligation includes the delivery of
the related software licence and any development efforts which will
change the underlying code. Linked to certain of these ongoing and
future projects, and also to certain implementation projects
completed during 2020, the Group also has unsatisfied or partially
satisfied performance obligations at 31 December 2020 that relate
to the option over the right to use Alfa Systems, and in particular
any material right in respect of discounts to be received by
customer in future periods.
The above includes certain amounts recognised as contract
liabilities or accrued income. The transaction price allocated to
these unsatisfied or partially satisfied performance obligations as
at 31 December 2020 is GBP9.0m (2019: GBP10.0m). This amount is
expected to be recognised over the remaining life of the
implementation projects, in respect of the licence and development
efforts, and over the expected customer life (following the
completion of the implementation project) in respect of the option
over the right to use Alfa Systems.
These unsatisfied or partially satisfied performance obligations
are based on management's best judgement and maybe impacted in the
future by a number of factors including:
-- any possible contract modifications,
-- currency fluctuations;
-- external market factors; and
-- changes to the overall forecast project plan including the
overall life of the implementation project and any required
development efforts.
It should be noted that these remaining performance obligations
are not fully contracted as at 31 December 2020.
The Group applies the practical expedient in paragraph 121 of
IFRS 15 and does not disclosure information about the unsatisfied
performance obligations that have original expected durations of
one year or less. This includes those performance obligations
linked to our ODS and maintenance revenue.
The Group also applies the practical expedient in paragraph B16
of IFRS 15 and does not disclose the amount of the transaction
price allocated to the unsatisfied contract performance obligations
where consideration will be received directly corresponding to the
value of the performance obligation in the future and this
consideration aligns to the value received to date for the
corresponding performance obligation. This includes those
performance obligations linked to our software implementation
services.
6. Operating profit
The following items have been included in arriving at operating
profit:
GBP'000s 2020 2019
------------------------------------------------ ------- -------
Personnel costs 38,202 33,246
------------------------------------------------ ------- -------
Partner costs 1,820 355
------------------------------------------------ ------- -------
Training and recruitment 659 1,027
------------------------------------------------ ------- -------
Other personnel-related expenses 1,547 2,075
------------------------------------------------ ------- -------
Advertising, sponsorship and marketing expenses 578 569
------------------------------------------------ ------- -------
Depreciation and amortisation (note 15,16,17) 3,095 2,816
------------------------------------------------ ------- -------
Property costs 1,457 1,449
------------------------------------------------ ------- -------
Travel costs 573 2,349
------------------------------------------------ ------- -------
IT expenses 2,320 1,594
------------------------------------------------ ------- -------
Professional advisor costs 3,601 4,082
------------------------------------------------ ------- -------
Insurance 304 232
------------------------------------------------ ------- -------
Foreign currency differences (514) 269
------------------------------------------------ ------- -------
Employee share schemes (note 28) 1,321 636
------------------------------------------------ ------- -------
Other 489 649
------------------------------------------------ ------- -------
A further split by nature is set out below:
GBP'000s 2020 2019
--------------------------------------------- ------- -------
Personnel costs 11,144 12,033
--------------------------------------------- ------- -------
Partner costs 1,820 355
--------------------------------------------- ------- -------
Training and recruitment 200 365
--------------------------------------------- ------- -------
Other personnel-related expenses 469 738
--------------------------------------------- ------- -------
Travel costs 573 2,349
--------------------------------------------- ------- -------
IT expenses 654 522
--------------------------------------------- ------- -------
Overhead allocation including property costs 442 532
--------------------------------------------- ------- -------
Implementation and support expenses 15,302 16,894
--------------------------------------------- ------- -------
GBP'000s 2020 2019
--------------------------------------------- ------- -------
Personnel costs 16,233 13,104
--------------------------------------------- ------- -------
Training and recruitment 302 433
--------------------------------------------- ------- -------
Other personnel-related expenses 710 875
--------------------------------------------- ------- -------
IT expenses 990 619
--------------------------------------------- ------- -------
Overhead allocation including property costs 666 631
--------------------------------------------- ------- -------
Research and product development expenses 18,901 15,662
--------------------------------------------- ------- -------
GBP'000s 2020 2019
------------------------------------------------ ------- -------
Personnel costs 10,825 8,109
------------------------------------------------ ------- -------
Training and recruitment 157 229
------------------------------------------------ ------- -------
Other personnel-related expenses 368 462
------------------------------------------------ ------- -------
Advertising, sponsorship and marketing expenses 578 569
------------------------------------------------ ------- -------
Professional advisor costs 3,601 4,082
------------------------------------------------ ------- -------
Insurance 304 232
------------------------------------------------ ------- -------
Depreciation 2,253 2,388
------------------------------------------------ ------- -------
Amortisation 842 428
------------------------------------------------ ------- -------
Foreign currency differences (514) 269
------------------------------------------------ ------- -------
Employee share schemes 1,321 636
------------------------------------------------ ------- -------
Other office costs 453 587
------------------------------------------------ ------- -------
IT expenses 676 453
------------------------------------------------ ------- -------
Overhead allocation including property costs 385 348
------------------------------------------------ ------- -------
Sales, general and administrative expense 21,249 18,792
------------------------------------------------ ------- -------
To better reflect the nature and function of certain expenses,
management has made changes to the classification and allocation of
expense line items; comparative figures have also been reclassified
accordingly. The main figures, which were previously reported in
2019, affected by this reclassification were: Salary cost; Partner
costs; Secondment cost; and the Contractor costs. The impact on the
totals, previously reported in 2019, was a decrease of
Implementation and support expenses of GBP1,209k with an increase
in both Research and product development cost and Sales, general
and administrative expenses of GBP473k and GBP737k respectfully.
These changes have had no impact on the total expenses or the
profit before tax that was disclosed in 2019.
7. Personnel costs
GBP'000s 2020 2019
---------------------------------------- ------- ------
Wages, salaries and short-term benefits 32,790 28,072
---------------------------------------- ------- ------
Training and recruitment 659 1,027
---------------------------------------- ------- ------
Social security 3,632 3,517
---------------------------------------- ------- ------
Post-employment benefits 2,894 2,676
---------------------------------------- ------- ------
Other employee expenses 433 1,054
---------------------------------------- ------- ------
Employee share schemes 1,321 636
---------------------------------------- ------- ------
Total personnel costs 41,729 36,983
---------------------------------------- ------- ------
To better reflect the nature of certain expenses, management has
made changes to the classification and allocation of expense line
items; comparative figures have also been reclassified correctly.
The main figures, which had been previously reported in 2019,
affected by this reclassification were: wages, salaries and
short-term benefits which increased by GBP0.4m, social security
which decreased by GBP0.5m, post-employee benefits which have
increased by GBP0.1m and other personnel costs which have decreased
by GBP0.5m. Overall the total personnel costs disclosed for 2019
have decreased by GBP0.5m due to partner costs being classified
separately, with the other movement reflecting reclassifications
within the individual lines referred to above. These changes have
had no impact on the total expenses or the profit before tax that
was disclosed in 2019.
Average monthly number of people employed (including
Executive Directors) 2020 2019
----------------------------------------------------- ---- ----
UK 255 236
----------------------------------------------------- ---- ----
USA 66 61
----------------------------------------------------- ---- ----
Rest of World 20 16
----------------------------------------------------- ---- ----
Total average monthly number of people employed 341 313
----------------------------------------------------- ---- ----
Average monthly number of people employed (including
Executive Directors) 2020 2019
----------------------------------------------------- ---- ----
Software implementation 102 108
----------------------------------------------------- ---- ----
Research and product development 156 134
----------------------------------------------------- ---- ----
Sales, general and administrative 83 71
----------------------------------------------------- ---- ----
Total average monthly number of people employed 341 313
----------------------------------------------------- ---- ----
8. Key management
Key management compensation (including Directors):
GBP'000s 2020 2019
---------------------------------------- ------ -----
Wages, salaries and short-term benefits 2,560 2,428
---------------------------------------- ------ -----
Social security 250 223
---------------------------------------- ------ -----
Post-employment benefits 77 61
---------------------------------------- ------ -----
Share-based payments 213 19
---------------------------------------- ------ -----
Total key management compensation 3,100 2,731
---------------------------------------- ------ -----
Key management personnel consists of the Company Leadership Team
and the directors. Directors' remuneration is detailed in the
Remuneration report.
9. Auditor's remuneration
The Group obtained the following services from the Group's
auditor as detailed below:
GBP'000s 2020 2019
----------------------------------------------- ---- ----
Deloitte LLP
----------------------------------------------- ---- ----
Audit of the consolidated financial statements - 165
----------------------------------------------- ---- ----
Audit fees relating to prior year 96 48
----------------------------------------------- ---- ----
Audit of subsidiaries - 150
----------------------------------------------- ---- ----
RSM UK Audit LLP
----------------------------------------------- ---- ----
Audit of the consolidated financial statements 170 -
----------------------------------------------- ---- ----
Audit of subsidiaries 150 -
----------------------------------------------- ---- ----
Total audit fees 416 363
----------------------------------------------- ---- ----
Audit-related assurance fees
----------------------------------------------- ---- ----
Deloitte LLP 48 135
----------------------------------------------- ---- ----
RSM UK Audit LLP 75 -
----------------------------------------------- ---- ----
Total assurance fees 539 498
----------------------------------------------- ---- ----
Non-audit services - -
----------------------------------------------- ---- ----
Total audit and non-audit-related services 539 498
----------------------------------------------- ---- ----
10. Finance income and expense
GBP'000s 2020 2019
---------------------------------------------------- ---- ----
Finance income
---------------------------------------------------- ---- ----
Interest income on cash or short-term bank deposits 109 143
----------------------------------------------------- ---- ----
GBP'000s Note 2020 2019
---------------------------- ---- ----- -----
Finance expense
---------------------------- ---- ----- -----
Interest on lease liability 24 (787) (852)
---------------------------- ---- ----- -----
Other interest expense (13) -
---------------------------- ---- ----- -----
Total finance expense (800) (852)
---------------------------- ---- ----- -----
11. Income tax expense
Analysis of charge for the year
GBP'000s 2020 2019
------------------------------------------------------ ------- -----
Current tax
------------------------------------------------------ ------- -----
Current tax on profit for the year 4,528 2,159
------------------------------------------------------ ------- -----
Adjustment in respect of prior years (1,399) (23)
------------------------------------------------------ ------- -----
Foreign tax on profit of subsidiaries for the current
year 586 851
------------------------------------------------------ ------- -----
Current tax 3,715 2,987
------------------------------------------------------ ------- -----
Deferred tax
------------------------------------------------------ ------- -----
Origination and reversal of temporary differences (325) (189)
------------------------------------------------------ ------- -----
Adjustment in respect of prior years (520) -
------------------------------------------------------ ------- -----
Effect of changes in tax rates 1 20
------------------------------------------------------ ------- -----
Deferred tax (844) (169)
------------------------------------------------------ ------- -----
Total tax charge in the year 2,871 2,818
------------------------------------------------------ ------- -----
The effective tax rate for the year is lower (2019: higher) than
the standard rate of corporation tax in the UK. The effective tax
rate for the year ended 31 December 2020 was 12.4% (2019: 21.7%).
The effective tax rate for the year benefits from favourable
adjustments in respect to prior years totalling GBP1,919k (2019:
GBP23k), predominately due to UK R&D tax claims submitted in
respect to 2018 and 2019. Excluding the impact of adjustments in
respect to prior years, the effective tax rate for the year was
20.6% (2019: 21.9%). The overall tax charge for the year is
reconciled as follows:
Analysis of charge for the year
GBP'000s 2020 2019
-------------------------------------------------------- ------- ------
Profit on ordinary activities before taxation 23,240 13,000
-------------------------------------------------------- ------- ------
Profit on ordinary activities at the standard rate of
corporation tax - 19% 4,415 2,470
-------------------------------------------------------- ------- ------
Tax effects of:
-------------------------------------------------------- ------- ------
Effect of different tax rates of subsidiaries operating
in other jurisdictions 181 274
-------------------------------------------------------- ------- ------
Expenses not deductible for tax purposes 56 260
-------------------------------------------------------- ------- ------
Income not taxable for tax purposes - (1)
-------------------------------------------------------- ------- ------
Share-based payments 18 (152)
-------------------------------------------------------- ------- ------
Adjustment in respect of prior years (1,919) (23)
-------------------------------------------------------- ------- ------
Impact of tax rate changes 1 20
-------------------------------------------------------- ------- ------
Other 119 (30)
-------------------------------------------------------- ------- ------
Total tax charge for the year 2,871 2,818
-------------------------------------------------------- ------- ------
12. Earnings per share
2020 2019
--------------------------------------------------------- ------------ -----------
Profit attributable to equity holders of Alfa (GBP'000s) 20,369 10,182
--------------------------------------------------------- ------------ -----------
Weighted average number of shares outstanding during
the year 293,824,145 290,554,694
--------------------------------------------------------- ------------ -----------
Basic earnings per share (pence per share) 6.93 3.50
--------------------------------------------------------- ------------ -----------
Weighted average number of shares outstanding including
potentially dilutive shares 300,069,048 298,812,270
--------------------------------------------------------- ------------ -----------
Diluted earnings per share (pence per share) 6.79 3.41
--------------------------------------------------------- ------------ -----------
The weighted average number of ordinary shares in issue excludes
6,175,855 shares held by employee benefit trust. The diluted number
of ordinary shares outstanding, including share awards, is
calculated on the assumption of conversion of all 6,139,161
potentially dilutive ordinary shares.
13. Financial assets and liabilities
GBP'000s Note 2020 2019
----------------------------------------- ---- ------- -------
Finance assets
----------------------------------------- ---- ------- -------
Financial assets at amortised cost:
----------------------------------------- ---- ------- -------
Trade receivables 20 5,812 4,050
----------------------------------------- ---- ------- -------
Other financial assets at amortised cost 21 5,791 8,234
----------------------------------------- ---- ------- -------
Cash and cash equivalents 22 37,020 58,839
----------------------------------------- ---- ------- -------
48,623 71,123
----------------------------------------- ---- ------- -------
Finance liabilities
----------------------------------------- ---- ------- -------
Financial liabilities at amortised cost:
----------------------------------------- ---- ------- -------
Trade and other payables 23 5,576 4,087
----------------------------------------- ---- ------- -------
Lease liabilities 24 17,491 19,002
----------------------------------------- ---- ------- -------
23,067 23,089
----------------------------------------- ---- ------- -------
14. Goodwill
GBP'000s 2020 2019
--------------- ------ ------
Cost
--------------- ------ ------
At 1 January 24,737 24,737
--------------- ------ ------
At 31 December 24,737 24,737
--------------- ------ ------
The recoverable amount of goodwill has been determined based on
value-in-use calculations using cash flow projections from
financial budgets and forecasts for a five-year period using a
discount rate of 11% (2019: 12%). Cash flows beyond these periods
have been extrapolated using a steady 2% (2019: 2%) average growth
rate. This growth rate does not exceed the long-term average growth
rate for the markets in which the Group operates. Management
believes that any reasonable change in any of the key assumptions
on which the recoverable amount is based would not cause the
reported carrying amount to exceed the recoverable amount of the
CGU.
15. Other intangible assets
Internally
Computer generated
GBP'000s software software Total
---------------------- --------- ---------- -----
Cost
---------------------- --------- ---------- -----
At 1 January 2019 1,049 407 1,456
---------------------- --------- ---------- -----
Additions 345 1,135 1,480
---------------------- --------- ---------- -----
At 31 December 2019 1,394 1,542 2,936
---------------------- --------- ---------- -----
Amortisation
---------------------- --------- ---------- -----
At 1 January 2019 253 - 253
---------------------- --------- ---------- -----
Charge for the year 275 153 428
---------------------- --------- ---------- -----
At 31 December 2019 528 153 681
---------------------- --------- ---------- -----
Net book value
---------------------- --------- ---------- -----
At 31 December 2019 866 1,389 2,255
---------------------- --------- ---------- -----
Cost
---------------------- --------- ---------- -----
At 1 January 2020 1,394 1,542 2,936
---------------------- --------- ---------- -----
Additions 117 650 767
---------------------- --------- ---------- -----
Disposals (56) - (56)
---------------------- --------- ---------- -----
At 31 December 2020 1,455 2,192 3,647
---------------------- --------- ---------- -----
Amortisation
---------------------- --------- ---------- -----
At 1 January 2020 528 153 681
---------------------- --------- ---------- -----
Charge for the period 321 521 842
---------------------- --------- ---------- -----
Disposals (29) - (29)
---------------------- --------- ---------- -----
At 31 December 2020 820 674 1,494
---------------------- --------- ---------- -----
Net book value
---------------------- --------- ---------- -----
At 31 December 2020 635 1,518 2,153
---------------------- --------- ---------- -----
Significant movement in other intangible assets
During 2020, Alfa developed new internally generated software at
a cost of GBP0.65m. This software will be amortised over three to
five years.
The total research and product development expense for the
period was GBP18.9m (2019: GBP15.2m), and there were GBP0.5m
capitalised personnel costs in the year (2019: GBP1.1m) and
GBP0.15m of capitalised external agency costs (2019: GBP0.1m).
16. Property, plant and equipment
Fixtures
GBP'000s and 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 December 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 December 2019 654 2,575 40 3,269
-------------------- ------------- ------------ -------------- ------
Net book value
-------------------- ------------- ------------ -------------- ------
At 31 December 2019 564 602 - 1,166
-------------------- ------------- ------------ -------------- ------
Cost
-------------------- ------------- ------------ -------------- ------
At 1 January 2020 1,218 3,177 40 4,435
-------------------- ------------- ------------ -------------- ------
Additions 38 202 - 240
-------------------- ------------- ------------ -------------- ------
Disposals (50) (84) (40) (174)
-------------------- ------------- ------------ -------------- ------
Foreign exchange (4) (13) - (17)
-------------------- ------------- ------------ -------------- ------
At 31 December 2020 1,202 3,282 - 4,484
-------------------- ------------- ------------ -------------- ------
Depreciation
-------------------- ------------- ------------ -------------- ------
At 1 January 2020 654 2,575 40 3,269
-------------------- ------------- ------------ -------------- ------
Charge for the year 114 394 - 508
-------------------- ------------- ------------ -------------- ------
Disposals (45) (75) (40) (160)
-------------------- ------------- ------------ -------------- ------
Foreign exchange (4) (14) - (18)
-------------------- ------------- ------------ -------------- ------
At 31 December 2020 719 2,880 - 3,599
-------------------- ------------- ------------ -------------- ------
Net book value
-------------------- ------------- ------------ -------------- ------
At 31 December 2020 483 402 - 885
-------------------- ------------- ------------ -------------- ------
17. Right-of-use assets
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 January 2019 - - -
-------------------- -------------- -------- ------
Charge for the year 67 1,648 1,715
-------------------- -------------- -------- ------
At 31 December 2019 67 1,648 1,715
-------------------- -------------- -------- ------
Net book value
-------------------- -------------- -------- ------
At 31 December 2019 145 16,257 16,402
-------------------- -------------- -------- ------
Cost
-------------------- -------------- -------- ------
At 1 January 2020 212 17,905 18,117
-------------------- -------------- -------- ------
Additions 127 91 218
-------------------- -------------- -------- ------
Disposals (73) (62) (135)
-------------------- -------------- -------- ------
Foreign exchange 7 (9) (2)
-------------------- -------------- -------- ------
At 31 December 2020 273 17,925 18,198
-------------------- -------------- -------- ------
Depreciation
-------------------- -------------- -------- ------
At 1 January 2020 67 1,648 1,715
-------------------- -------------- -------- ------
Charge for the year 97 1,648 1,745
-------------------- -------------- -------- ------
Disposals (53) (48) (101)
-------------------- -------------- -------- ------
Foreign exchange - (2) (2)
-------------------- -------------- -------- ------
At 31 December 2020 111 3,246 3,357
-------------------- -------------- -------- ------
Net book value
-------------------- -------------- -------- ------
At 31 December 2020 162 14,679 14,841
-------------------- -------------- -------- ------
The Group recognised the following amounts in the consolidated
statement of profit or loss and comprehensive income in relation to
leases under IFRS 16:
GBP'000 2020 2019
---------------------------- ------- -------
Depreciation (1,745) (1,715)
---------------------------- ------- -------
Interest expense (787) (852)
---------------------------- ------- -------
Short -- term lease expense (209) (242)
---------------------------- ------- -------
Low -- value lease expense - -
---------------------------- ------- -------
Sub-lease rentals
One of the leased properties is sub-leased to tenants under
long-term operating leases, with rentals payable quarterly. Minimum
lease payments receivable on these sub-leases of property are as
follows:
GBP'000s 2020 2019
----------------------------------------------- ---- ----
Within one year 427 427
----------------------------------------------- ---- ----
Later than one year but not later than 5 years 45 473
----------------------------------------------- ---- ----
Later than 5 years - -
----------------------------------------------- ---- ----
Total sub-lease payments receivable 472 900
----------------------------------------------- ---- ----
Income from sub-lease in the year 528 577
----------------------------------------------- ---- ----
18. Deferred income tax
The provision for deferred tax consists of the following
deferred tax assets/(liabilities) relating to accelerated capital
allowances and short-term timing differences in relation to unpaid
pensions accruals and share-based payments.
GBP'000s 2020 2019
------------------------------------------------------ ----- ----
Balance as at 1 January 596 8
------------------------------------------------------ ----- ----
Adjustments in respect of prior period 520 419
------------------------------------------------------ ----- ----
Deferred income taxes recognised in the consolidated
statement of profit or loss and comprehensive income 325 169
------------------------------------------------------ ----- ----
Share-based payments recognised in reserves 369 -
------------------------------------------------------ ----- ----
Foreign exchange movements (16) -
------------------------------------------------------ ----- ----
Balance as at 31 December 1,794 596
------------------------------------------------------ ----- ----
Consisting of:
------------------------------------------------------ ----- ----
Depreciation in excess of capital allowances (88) 359
------------------------------------------------------ ----- ----
Other timing differences 1,882 237
------------------------------------------------------ ----- ----
Balance as at 31 December 1,794 596
------------------------------------------------------ ----- ----
Deferred income tax liabilities have not been recognised for the
withholding tax and other taxes that would be payable on the
unremitted earnings of certain subsidiaries as the Group is able to
control the timing of these temporary differences and it is
probable that they will not reverse in the foreseeable future.
Unremitted earnings totalled GBP3.1m at 31 December 2020 (2019:
GBP8.9m).
19. Interests in joint venture
At the beginning of May 2020, the Group formed Alfa iQ, a joint
venture established to greatly enhance Alfa's ability to develop
artificial intelligence solutions for the asset finance and auto
finance industries. The joint venture was set up 51:49 between Alfa
and Bitfount, a company founded by Blaise Thomson. The financial
and operating activities of the Group's joint venture are jointly
controlled by the participating shareholders. The participating
shareholders have rights to the net assets of the joint venture
through their equity shareholdings.
The interest in the joint venture consists of part investment
and part loan to joint venture accounted for as set out in note
1.2.
Investment
GBP'000s 2020 2019
--------------------------------------- ---- ----
Carrying amount as at 6 May 2020 336 -
--------------------------------------- ---- ----
Share of net loss from joint ventures (15) -
--------------------------------------- ---- ----
Carrying amount as at 31 December 2020 321 -
--------------------------------------- ---- ----
Loan to joint venture
GBP'000s 2020 2019
--------------------------------------- ---- ----
Carrying amount as at 6 May 2020 64 -
--------------------------------------- ---- ----
Interest 9 -
--------------------------------------- ---- ----
Carrying amount as at 31 December 2020 73 -
--------------------------------------- ---- ----
The total loss from interest in joint ventures is GBP15k (2019:
GBP nil) and the total interest in the joint venture is GBP394k
(2019: GBP nil).
20. Trade receivables
GBP'000s 2020 2019
------------------------- ----- -----
Trade receivables 5,812 4,050
------------------------- ----- -----
Provision for impairment - -
------------------------- ----- -----
Trade receivables - net 5,812 4,050
------------------------- ----- -----
Ageing of trade receivables
----------------------------------------- ----- -----
Ageing of net trade receivables GBP'000s 2020 2019
----------------------------------------- ----- -----
Within agreed terms 5,592 3,398
----------------------------------------- ----- -----
Past due 1- 30 days 86 243
----------------------------------------- ----- -----
Past due 31-90 days - 152
----------------------------------------- ----- -----
Past due 91+ days 134 257
----------------------------------------- ----- -----
Trade receivables - net 5,812 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.
Currency of trade receivables
GBP'000s 2020 2019
------------------------ ----- -----
GBP 1,833 1,319
------------------------ ----- -----
USD 3,100 2,073
------------------------ ----- -----
Other 879 658
------------------------ ----- -----
Trade receivables - net 5,812 4,050
------------------------ ----- -----
Trade receivables due from significant customers
Customers with revenue accounting for more than 10% of total
revenue have outstanding trade receivables as follows:
GBP'000s 2020 2019
----------- ----- ----
Customer A 621 737
----------- ----- ----
Customer B 1,153 -
----------- ----- ----
Customer C - 434
----------- ----- ----
As at issuance of these financial statements, all amounts
relating to customers accounting for more than 10% of total revenue
had been collected.
Impairment and risk exposure
Information about the impairment of trade receivables and the
Group's exposure to market risk (specifically foreign currency
risk) and credit risk can be found in note 3.
21. Other receivables held at amortised cost
GBP'000s 2020 2019
----------------------------------------------- ----- -----
Accrued income 4,992 7,214
----------------------------------------------- ----- -----
Prepayments 2,065 1,613
----------------------------------------------- ----- -----
Other receivables 799 1,020
----------------------------------------------- ----- -----
Total other receivables held at amortised cost 7,856 9,847
----------------------------------------------- ----- -----
Accrued income represents fees earned but not yet invoiced at
the reporting date which has no right of offset with contract
liabilities - deferred licence amounts.
Accrued income decreased by GBP2.2m. The current year balance
represents unbilled work in progress in relation to our ODS
customers and GBP1.4m of one-off licence revenue items where there
is contractual agreement to invoice in 2020.
22. Cash and cash equivalents
GBP'000s 2020 2019
-------------------------- ------ ------
Cash at bank and in hand 37,020 58,839
-------------------------- ------ ------
Cash and cash equivalents 37,020 58,839
-------------------------- ------ ------
Currency of cash and cash equivalents
GBP'000s 2020 2019
-------------------------- ------ ------
GBP 28,468 48,222
-------------------------- ------ ------
USD 4,835 5,730
-------------------------- ------ ------
AUD 1,076 2,335
-------------------------- ------ ------
Euro 2,102 2,105
-------------------------- ------ ------
Other 539 447
-------------------------- ------ ------
Cash and cash equivalents 37,020 58,839
-------------------------- ------ ------
23. Current and non-current liabilities
GBP'000s 2020 2019
----------------------------------------------- -------- --------
Trade and other payables 8,120 5,884
----------------------------------------------- -------- --------
Corporation tax 1,266 1,355
----------------------------------------------- -------- --------
Contract liabilities - software implementation 1,947 4,581
----------------------------------------------- -------- --------
Contract liabilities - deferred maintenance 5,047 4,060
----------------------------------------------- -------- --------
Lease liabilities (note 24) 17,491 19,002
----------------------------------------------- -------- --------
Provisions for other liabilities 1,392 667
----------------------------------------------- -------- --------
Total current and non-current liabilities 35,263 35,549
----------------------------------------------- -------- --------
Less non-current portion (17,182) (17,997)
----------------------------------------------- -------- --------
Total current liabilities 18,081 17,552
----------------------------------------------- -------- --------
Trade and other payables includes amounts relating to other tax
and social security of GBP2.5m (2019: GBP1.8m).
24. Lease liabilities
The following table sets out the reconciliation of the lease
liability from 1 January to the amount disclosed at 31
December:
GBP'000s 2020 2019
------------------------------------------ ------- -------
Lease liabilities recognised at 1 January 19,002 20,480
------------------------------------------ ------- -------
Additions 203 132
------------------------------------------ ------- -------
Disposals (17) -
------------------------------------------ ------- -------
Interest charge 787 852
------------------------------------------ ------- -------
Payments made on lease liability (2,487) (2,462)
------------------------------------------ ------- -------
Foreign exchange 3 -
------------------------------------------ ------- -------
At 31 December 17,491 19,002
------------------------------------------ ------- -------
Additions to lease liabilities include extensions to existing
lease agreements.
Below is the maturity analysis of the lease liabilities:
GBP'000s 2020 2019
------------------------------- ------- -------
Non-current 15,790 17,330
------------------------------- ------- -------
Current 1,701 1,672
------------------------------- ------- -------
Total lease liabilities 17,491 19,002
------------------------------- ------- -------
No later than one year 2,419 2,456
------------------------------- ------- -------
Between one year and 5 years 9,253 9,226
------------------------------- ------- -------
Later than 5 years 9,409 11,687
------------------------------- ------- -------
Total future lease payments 21,081 23,369
------------------------------- ------- -------
Total future interest payments (3,590) (4,367)
------------------------------- ------- -------
Total lease liabilities 17,491 19,002
------------------------------- ------- -------
The group's net debt is made up of cash and cash equivalents and
lease liabilities. The movement during the year in lease
liabilities is set out above. Movements in cash and cash
equivalents are set out in the Cash flow statement.
25. Provision for other liabilities
GBP'000s
----------------------- -----
At 1 January 2019 152
----------------------- -----
Provided in the period 515
----------------------- -----
At 31 December 2019 667
----------------------- -----
Provided in the period 725
----------------------- -----
At 31 December 2020 1,392
----------------------- -----
Provisions for other liabilities comprise amounts for office
dilapidations, employer taxes on share-based payments and legal
costs.
26. Share capital
2020 2019
---------------------------- --------------------- ---------------------
Issued and fully paid Shares GBP'000s Shares GBP'000s
---------------------------- ----------- -------- ----------- --------
Ordinary shares - 0.1 pence 300,000,000 300 300,000,000 300
---------------------------- ----------- -------- ----------- --------
Balance as at 31 December 300,000,000 300 300,000,000 300
---------------------------- ----------- -------- ----------- --------
No additional shares have been issued or cancelled in the year
ended 31 December 2020.
27. Translation reserve
GBP'000s 2020 2019
------------------------------------- ---- -----
At 1 January 2020 26 376
------------------------------------- ---- -----
Currency translation of subsidiaries 65 (350)
------------------------------------- ---- -----
At 31 December 2020 91 26
------------------------------------- ---- -----
28. Share awards
The LTIP awards granted prior to 2020 are conditional on
employment only; 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 schemes and, as such,
no performance conditions are included in the fair value
calculations.
On 4 June 2020 the Group awarded an LTIP conditional on
performance conditions, 50% based on EPS performance (non-market
condition) and 50% on TSR (market condition) as well as three year
employment fulfilment. For those share schemes with market-related
vesting conditions, the fair value is determined using the Monte
Carlo model at the grant date. For share options issued with EPS
(non-market) performance vesting conditions, the fair value of the
underlying option is equal to the grant date share price discounted
by the expected dividend yield to reflect the lack of dividend
accrual over the vesting period. The following table lists the
inputs to the model used for the awards granted in the year ended
31 December 2020 based on information at the date of grant:
LTIP awards (granted in June) TSR element EPS element
------------------------------ ----------- -----------
Share price at date of grant 74.3p 74.3p
------------------------------ ----------- -----------
Award price 0p 0p
------------------------------ ----------- -----------
Volatility 69.2% -
------------------------------ ----------- -----------
Life of award 3 years 3 years
------------------------------ ----------- -----------
Risk free rate 0.02% -
------------------------------ ----------- -----------
Dividend yield 9.2% 9.2%
------------------------------ ----------- -----------
Fair value per award 40.1p 55.6p
------------------------------ ----------- -----------
All of these Company schemes, as well as any non-cyclical
awards, are equity-settled by award of ordinary shares.
The total share-based payment charge relating to Alfa Financial
Software Holdings PLC shares for the year is split as follows:
GBP'000s 2020 2019
----------------------------------------------------- ----- ----
Employee share schemes - value of services 1,321 636
----------------------------------------------------- ----- ----
Expense in relation to fair value of social security
liability on employee share schemes 194 88
----------------------------------------------------- ----- ----
Total cost of employee share schemes 1,515 724
----------------------------------------------------- ----- ----
The following table summarised the movements in the number in
nil cost share-based payment arrangements:
2020 2019
----------------------------------- ----------- -----------
Outstanding at 1 January 6,482,950 13,361,253
----------------------------------- ----------- -----------
Conditionally awarded in year 2,358,444 1,205,036
----------------------------------- ----------- -----------
Exercised (2,592,919) (4,206,093)
----------------------------------- ----------- -----------
Forfeited or expired in year (109,314) (3,877,246)
----------------------------------- ----------- -----------
Outstanding at 31 December 6,139,161 6,482,950
----------------------------------- ----------- -----------
Exercisable at the end of the year - -
----------------------------------- ----------- -----------
The outstanding share schemes are made up of the following:
Share options Share options
Exercise 31 December 31 December
Grant date Expiry date price 2020 2019
--------------- ----------------------- -------- ------------- -------------
4 annual tranches from
June 2014/2015 1 June 2018 0p 1,197,503 3,803,689
--------------- ----------------------- -------- ------------- -------------
June 2018 June 2021 0p 1,378,178 1,474,225
--------------- ----------------------- -------- ------------- -------------
November 2019 November 2022 0p 1,205,036 1,205,036
--------------- ----------------------- -------- ------------- -------------
June 2020 June 2023 0p 2,358,444 -
--------------- ----------------------- -------- ------------- -------------
29. Unrecognised items
29.1 Contingencies and commitments
The Group has no capital commitments, no material contingent
liabilities and no contingent assets.
29.2 Events occurring after the reporting period
There have been no reportable subsequent events.
30. DIVIDS
A special dividend of 15 pence per share was paid on 6 November
2020 amounting to GBP44.2m (2019: GBP nil).
Subject to approval at the Annual General Meeting on 10 May
2021, a 2020 dividend of 1.0 pence per share will be paid on 2 July
2021 to holders on the register on 11 June 2021. The ordinary
shares will be quoted ex-dividend on 10 June 2021.
31. Related parties
31.1 Controlling shareholder
The ultimate parent undertaking is CHP Software and Consulting
Limited (the 'Parent'), which is the parent undertaking of the
smallest and largest group in relation to these consolidated
financial statements. The ultimate controlling party is Andrew
Page.
31.2 Basis of consolidation
The principal subsidiaries and joint ventures of the Group and
the Group percentage of equity capital are set out below. All these
are consolidated within the Group's financial statements.
Registered address Principal Held by Held by Held by Held by
and country of activity Company Group Company Group
incorporation 2020 2020 2019 2019
------------------------ --------------------- -------------- -------- ------- -------- -------
Moor Place, 1
Fore Street Avenue,
Alfa Financial Software London, EC2Y 9DT, Holding
Group Limited UK company 100% 100% 100% 100%
------------------------ --------------------- -------------- -------- ------- -------- -------
Moor Place, 1
Fore Street Avenue,
Alfa Financial Software London, EC2Y 9DT, Software
Limited UK and services - 100% - 100%
------------------------ --------------------- -------------- -------- ------- -------- -------
350N Old Woodward
Alfa Financial Software Avenue, Birmingham, Software
Inc MI 48009, USA and services - 100% - 100%
------------------------ --------------------- -------------- -------- ------- -------- -------
Level 57 MLC Centre,
19-29 Martin Place,
Alfa Financial Software Sydney, NSW 2000,
Australia Pty Limited Australia Services - 100% - 100%
------------------------ --------------------- -------------- -------- ------- -------- -------
Level 1 Building
B, 600 Great South
Road, Greenlane,
Alfa Financial Software Auckland 1051,
NZ Limited New Zealand Services - 100% - 100%
------------------------ --------------------- -------------- -------- ------- -------- -------
Bockenkheimer
Landstraße
Alfa Financial Software 20, 60323 Frankfurt Software
GmbH am Main, Germany and services - 100% - 100%
------------------------ --------------------- -------------- -------- ------- -------- -------
Moor Place, 1
Fore Street Avenue,
London, EC2Y 9DT, Software
Alfa iQ UK and services - 51% - -
------------------------ --------------------- -------------- -------- ------- -------- -------
Alfa iQ was established in May 2020 - see note 19 for more
detail.
31.3 Transactions with related parties
See note 8 for further detail on monies paid to key management
(including Directors).
Dividends to the amount of GBP29.6m paid to the Parent (2019:
GBP nil).
Dividends of 15 pence per share were paid to all shareholders in
2020 (2019: GBP nil). Directors and other key management received
dividends based on their beneficial interest in the shares of the
Company.
The balances outstanding from the Parent at 31 December 2020 and
2019 were GBP nil and GBP nil respectively.
During the prior period, the Group made arms-length transactions
with Classic Technology Limited, a company in which the Chairman
holds an interest. These transactions amounted in 2019 to GBP0.04m
in relation to fees paid for rental of property. There were no
similar transactions undertaken during 2020.
During the period the Group invested GBP400,510 in Alfa IQ
consisting of: a capital contribution of GBP335,972; and an
interest-free loan fair valued at GBP64,538. At 31 December the
value of the investment is carried at GBP320,752 and the loan fair
valued at GBP73,525.
There were no other outstanding receivable balances from related
parties at the end of the reporting period.
32. Offsetting assets and liabilities
Assets and liabilities are offset and the net amount is reported
in the consolidated statement of financial position where Alfa
currently has a legally enforceable right to offset the recognised
amounts, and there is an intention to realise the asset and settle
the liability simultaneously.
The following table presents the recognised assets and
liabilities that are offset as at 31 December 2020 and 31 December
2019 in the consolidated statement of financial position.
31 December 2020 Gross Amounts Net amounts
GBP000's amounts offset presented
----------------------------------------------- -------- ------- -----------
Accrued income 12,548 (7,556) 4,992
----------------------------------------------- -------- ------- -----------
Contract liabilities - software implementation (9,503) 7,556 (1,947)
----------------------------------------------- -------- ------- -----------
31 December 2019 Gross Amounts Net amounts
GBP000's amounts offset presented
----------------------------------------------- -------- ------- -----------
Accrued income 15,763 (8,549) 7,214
----------------------------------------------- -------- ------- -----------
Contract liabilities - software implementation (13,130) 8,549 (4,581)
----------------------------------------------- -------- ------- -----------
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties which could have a
material impact on the long-term performance of Alfa Financial
Software Holdings PLC and its subsidiaries are set out in our 2019
Annual Report available on our website. No new risks were added in
2020 but four of those included into the 2019 Annual Report are no
longer considered to be principal risks and uncertainties and as
such have been removed in our 2020 Annual Report. These four risk
are set out below:
-- Failure to retain or increase market share in our strategic target markets;
-- Failure to deliver on our existing implementation or ODS business;
-- Failure to develop Alfa Systems to ensure it remains relevant
in the market, to lower the cost of development in the future and
to allow competitive technological and product development; and
-- Brexit and the uncertainty surrounding trading arrangements after the transition period.
--
DIRECTORS' RESPONSIBILITIES STATEMENT
The responsibility statement below has been prepared in
connection with the annual report and financial statements for the
year ended 31 December 2020. Certain parts thereof are not included
within this Preliminary Announcement. The Directors confirm that to
the best of their knowledge:
- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole ; and
- the strategic report, contained within the annual report and
financial statements for the year ended 31 December 2020, includes
a fair review of the development and performance of the business
and the position of the Company and the undertakings included in
the consolidation taken as a whole, together with a description of
the principal risks and uncertainties that they face .
This directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Alfa
Financial Software Holdings Plc websites. Legislation in the United
Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
This responsibility statement was approved by the Board of
Directors and is signed on its behalf by:
Andrew Denton
Chief Executive Officer
22 March 2021
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FR UUUWRANUOUAR
(END) Dow Jones Newswires
March 23, 2021 03:00 ET (07:00 GMT)
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