2 March 2023

Alfa Financial Software Holdings PLC

 

Full Year Report for the year ended 31 December 2022

 

Strong financial and operational performance,

record software delivery, Operating profit increases 20%

 

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 2022.

 

Financial summary:

 

Years ended 31 December

Results	2022	2021	Movement
£m, unless otherwise stated			%
Revenue	93.3	83.2	12%
Operating profit	29.6	24.7	20%
Profit before tax	28.9	23.8	21%
Earnings per share - basic (p)	8.24	6.49	27%
Earnings per share - diluted (p)	8.09	6.39	27%
Special Dividends paid in year (p)	6.5	10.0	(35)%
Special Dividend declared per share (p)	1.5	-	-
Proposed ordinary dividend (p)	1.2	1.1	9%
£m, unless otherwise stated	2022	2021	Movement %
Cash	18.7	23.1	(19)%

 

 

Key measures (1)	2022	2021	Movement
£m, unless otherwise stated			%
Revenue - constant currency	93.3	86.5	8%
Cash generated from operations	34.0	31.3	9%
Operating free cash flow conversion (%)	102%	114%	(13)%
Total Contract Value (TCV)	142.9	133.1	7%

 

^{(1) See definitions section for further information regarding calculation of measures not defined by IFRS.}

 

 

Financial highlights (vs 2021):

·      Revenue up 12% 

·      Operating profit up 20%

·      Subscription revenues up 17%

·      Continued strong free cash flow conversion over 100%

·      Robust balance sheet position with £19m of cash and no debt (excluding leases)

·      3.6m shares purchased during the year (£5.6m) for Treasury and EBT

·      Total dividends of £22.5m paid in the year

·      Special dividend of 1.5 pence (c£4.4m) declared

·      Proposed final ordinary dividend of 1.2 pence (£3.6m)

·      £100m returned to shareholders in dividends and special dividends since November 2020 

 

Strategic highlights

·      75% of revenues recurring in nature; either subscription revenues or services and software revenues with existing customers

·      Partner days up by 58% compared with 2021

·      Continued diversification of our customer base; Top five customers make up 35% of revenues in 2022 (2021: 37%, 2020: 48%, 2019: 61%) 

·      TCV up by 7% compared with 2021 to £143m 

·      Another record year of deliveries with 28 executed successfully in the year (2021: 27) 

·      Alfa Systems version 5.7 released

·      Record level of employee engagement, retention at 90%

·      Investors in People Gold status achieved

·      Highest rated listed company and highest rated software company in Newsweek's UK Most Loved Workplaces

 

 

Andrew Denton, Chief Executive Officer

 

"We have delivered a strong financial and operational performance in 2022 and we have made significant progress towards our strategic goals. We are particularly pleased with the quality of our revenues with 75% of our overall revenues being recurring in nature. We continued to invest in our class-leading product with Alfa Systems 5.7 being released during the year and we have had another record year of delivering for our customers. All of this along with the strength of our late-stage pipeline, the quality of our people and the demonstrable strength of our culture gives us great confidence in Alfa's prospects for 2023 and beyond."

 

 

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
Teneo	+44 (0)20 7353 4200
James Macey White Ed Cropley
Barclays	+44 (0)20 7623 2323
Robert Mayhew Tom McDonald
Investec	+44 (0)20 7597 4000
Patrick Robb Virginia Bull

 

Investor and analyst webcast

 

The Company will host a conference call today at 09:30am.  To obtain details for the conference call, please email [email protected].  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, alfasystems.com/investors.

 

Notes to Editors

 

Alfa has been delivering software systems and services to the global asset and automotive finance industry since 1990.  Our agile methodologies and specialised knowledge of asset and automotive finance enables the delivery of large software implementations and highly complex business change projects.  With an excellent delivery track record now into its fourth decade, 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 and automotive finance companies. 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. A cloud-native, 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 live in 37 countries.  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.  All statements other than statements of historical fact are 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 applicable law, Alfa disclaims any obligation or undertaking to update the forward-looking statements or to correct any inaccuracies therein, or to keep current any other information contained in the FYR. Accordingly, reliance should not be placed on any forward-looking statements.

 

 

CEO's REVIEW

 

Strong performance

2022 has seen progress across all areas of our business. We have continued to deliver successful implementations, supported by our scalable and reliable cloud-native hosting solution, at the same time as releasing significant enhancements to our software.  

We saw a strong financial performance in the year with revenues up 12% to £93.3m (2021: £83.2m) with growth across all of our revenue streams. On a constant currency basis revenue was up 8%. Operating profit growth was even stronger, up 20% to £29.6m (2021: £24.7m), with net costs up 9%. Cash conversion was robust at 102% and we finished the period with net cash of £18.7m, after paying dividends of £22.5m and spending £5.6m on the purchase of our own shares.

Total Contract Value ("TCV") grew 7% in the year to £143m (2021: £133m) and we have a strong pipeline giving us confidence in future growth.

We have continued to make good progress in diversifying our customer base and increasing our recurring revenues. Our top 5 customers contributed 35% of our revenues in 2022, compared with 37% in 2021, 48% in 2020 and 61% in 2019. We had 17 customers contributing revenues of more than £2m in the period, up from 14 in 2021, 10 in 2020 and 7 in 2019.  75% of our revenues are recurring in nature.

Recruitment picked up towards the end of the first half and into the second half, after a slower than planned hiring start to the year in a tight labour market. At 31 December 2022 we had a headcount of 441 (2021: 382) up 15%. Average headcount in the period of 420 (2021: 383) was a 10% increase on last year. Our strong pipeline and high level of recurring services revenues enabled us to remain chargeable throughout the year.  Our team retention remained high at 90% (2021: 87%) for the year. Also pleasing was our employee engagement, which is now at 84%, a record level.

 

Strategic progress

Alfa is a leading asset and automotive finance software company with global scale.  Our platform, Alfa Systems, is class-leading asset and automotive finance software supporting some of the world's largest and most innovative companies, some of whom have been with us for over 30 years, migrating in recent years onto our modern v5 version of the software.

We provide market-leading software to a huge and diverse end market.  Our opportunity to grow market share is enormous.

Our vision is to grow our company size naturally, but grow our impact rapidly - always retaining our underlying culture. Key to this is delivering more concurrent implementations of our world-class Alfa Systems more efficiently. We will have a big company impact, but a small company feel.

We have continued to make good progress in 2022, with the key achievements highlighted below.

 

Strong growth in Subscription

Subscription revenues are recurring in nature and arise from subscriptions for our software, cloud hosting and maintenance services.

Subscription revenues continued to grow strongly in the period, up 17% and now contributing 29% of our revenues.

We have a Cloud Hosting first, subscription-led approach to sales. Cloud Hosting gives us benefits in the speed of implementation for our customers as well as the reliability and flexibility of the service. Our hosting service also provides built-in tools, including automated monitoring, patching and scheduling. We anticipate that the majority of new customers will choose a hosted service with licence and maintenance added into their subscription.  We have thirteen customers using Alfa Cloud Hosting.

At Alfa, we pride ourselves on the security and rigour of our development, deployment and management processes, particularly in our Alfa Cloud Hosting service. Our customers are able to rely on our ISO 27001, ISO 27018 and SSAE18 SOC 2 Type II certifications and reports to maintain their confidence in our offerings. In 2022, we added SSAE18 SOC 1 to our audit schedule, and can now offer a SOC 1 Type I report to our hosting customers. This provides customers and their financial auditors with an even greater level of confidence in our services as well as easing their own audit burden. During the year we have continued to build skills and capacity in our Information Security team to ensure that we continue to maintain the highest standards of security.

 

Developing our industry leading Software

Software revenues arise from the sale of perpetual licences and development work for new and existing customers.

Our strategy is to continue to develop our software, to ensure that we meet and exceed customer and market needs as they evolve and as the regulatory and commercial environment continues to change.  We believe we have the industry leading software, due to the functionality, capability and usability that has been developed over many years along with the modern technology it is based on. We continue to invest to maintain that lead.

In the year we again achieved a record number of deliveries, with twenty-eight upgrades or new customer go-lives.

We release an upgrade every four weeks and periodically we release a major new version of Alfa Systems with step change functional and technical advancement. In Q3 2022 we released version 5.7. This included an updated user interface with improvements to our already best in class user experience and enhanced credit decisioning capability.  Version 5.7 also improved Alfa's ability to manage configuration for multiple jurisdictions and white-label relationships in a single instance, consolidating our leading position in multi-country, multi-channel implementations.  In addition, this release has added functionality for allocating revenues across individual assets which is particularly important for equipment lessors, and also for billing arrangements unrelated to assets which adds to Alfa's already extensive support for financial product innovation.

We have strengthened our Markets and Products team, which uses in-house expertise as well as feedback from customers and the wider market to plan our roadmap for further investment in our software.

In 2022 we announced a partnership with Tomorrow's Journey to create the only end-to-end enterprise solution for subscription and usage-based mobility. This is the first of what we anticipate will be many ecosystem partnerships for Alfa Systems.

Overall software revenue was up 20% on last year. Development days, including those upgrading from older versions of Alfa Systems to v5, were strongly up on last year. We are particularly happy when an existing Alfa customer upgrades an older version of Alfa to Alfa Systems v5. This shows the strength of customer belief in Alfa.

 

High quality Services and growing partnerships

Services revenues arise mainly from a regular stream of non-development work we do for existing customers and also work on implementations for new customers.

Overall Services revenues were up 8% on the prior period. We have continued to deliver a very high level of work to both new and existing customers. Of the Services revenues, 68% were with existing customers, adding to ongoing recurring revenues.

We had two customers successfully go live in the year, both of which were minimum viable product go-lives leveraging Alfa Start as an accelerator. We also started work on a first implementation in Mexico for an existing customer.

As we continue to execute our strategy and move towards a higher level of operational gearing and efficiency in our business, a greater proportion of our time was spent on software development which has contributed to increasing Software revenues.

Increasing our access to skilled delivery partners is a key element of our strategy for increasing the number of implementations we can deliver. In the period we have continued to make strong progress with a 58% increase in partner chargeable days over the same period last year. In Europe we added ITDS, as an augmentation partner to our already successful partner programme. We also made good progress in the year with US partnering, alongside continuing to expand our existing European partner programme. We are supporting one of our European partners in setting up in the US and we have signed a partnering agreement with a new US partner. Work commenced with our new US partner at the end of 2022. 

 

Alfa iQ - building products

We continue to work through a variety of use cases with new and existing clients where advanced machine learning techniques can provide value and positively impact our customers' financial performance. With our first paying customers announced in Q1 2022, we have now built the foundation of our credit scoring solutions with tooling for decisioning, training, analytics and explainability ready for deployment.

 

Strong engagement with our people

We continue to focus on recruiting and retaining the best people in our industries, and so we were delighted to be awarded Investors in People Gold status. We were also ranked the highest rated listed company and the highest rated software company in Newsweek's UK Most Loved Workplaces. This reflected our own internal surveys where we achieved a record score for employee engagement. 

Our team charters, developed collaboratively by individual teams, have been successfully implemented and new smart working patterns have been established. These have evolved as the year has progressed with an increase in in-person internal meetings across the business which has greatly helped to strengthen our people connections, particularly with those who have been recruited since the lockdown. We see the benefits of hybrid working, balancing in-person collaboration with more flexible working patterns for our teams continuing into the future and this has enabled us to assign the lease on one floor of our London office to reduce our ongoing costs.

We have made good progress with our smart hub in Portugal. We expect to be able to extend this model to other locations in the future to give us access to talent pools outside our principal engineering centre in London which will help mitigate the impact of the increasing cost of acquiring development skills.

 

Capital return - £100m returned to shareholders through dividends since IPO

We remain a strongly cash generative business and continue to generate more cash than we need for our growth plans. We employ three mechanisms for returning this excess cash to shareholders. Firstly, we have a regular dividend, which we intend to grow progressively as our profits grow, in line with our stated dividend policy. We paid the 2021 final dividend of 1.1p or £3.3m in June 2022. Secondly, we have a share buyback programme that we launched in January 2022. We bought 2.8m shares at an aggregate cost of £4.7m in the year. Finally, we return any excess cash after funding the regular dividend and the share buyback programme through special dividends.

In 2022 we paid total dividends of 7.6p per share or £22.5m.  Even after these dividends and the share buyback programme, we finished the period with a strong balance sheet with net cash of £18.7m, and we expect further strong cash generation in 2023. As a consequence, the Board is proposing a final dividend of 1.2 pence per share, 9% up on last year (2021: 1.1 pence per share), with an ex-dividend date of 25 May 2023, a record date of 26 May 2023 and a payment date of 26 June 2023. In addition, the Board has decided to declare a special dividend of 1.5 pence per share, with an ex-dividend date of 13 April 2023, a record date of 14 April 2023 and a payment date of 9 May 2023. Together these dividends will amount to a total payment of c£8.0m, which in aggregate will take total dividends as a public company to c£108m.

 

Steady market conditions

The macro-economic outlook is uncertain at the moment.  Alfa Systems software is now operational in 37 countries; across automotive finance, equipment finance, wholesale finance and commercial lending markets; for OEMs, banks and independents; and across all asset classes. The breadth and diversity of Alfa's business interests help to insulate us from uncertainty in individual geographies and sectors of our target market.

Along with Alfa's operating diversity providing insulation against the current uncertainty, the market itself provides protection. The asset and automotive finance market is a more secure form of lending and it has a history of gaining market share in uncertain times compared with non-asset backed lending markets.  In addition, the need for software is not associated with new business alone, large players in our market will have significant extant portfolios to manage whether they are writing new business or not and these portfolios will be subject to the same drivers of technical change as growing businesses. Regulatory change, digitalisation and the growing need for flexibility continue to drive customers to review their systems, particularly those still running on legacy platforms, and they will continue to select flexible modern systems. 

The asset and automotive finance software market remains robust and demand for technology modernisation continues. With our functional, flexible, modern, cloud-native system, we are extremely well positioned to capitalise on that demand.

 

Strong pipeline

With market drivers and the competitive landscape pushing customers to review their systems, we remain confident in our ability to demonstrate the strength, flexibility and modernity of our own software as well as the quality of our people. We have a strong late-stage pipeline and we remain confident in our ability to convert most of these into wins. We also continue to see activity coming into the early-stage pipeline which gives us the confidence that our target markets remain robust at this time.  These prospects are additive to our TCV and will provide additional support for our revenues in 2023 and 2024.

 

Outlook

We have delivered an excellent financial and operational performance in 2022. This performance alongside the strategic progress we have made, the confidence we have in the quality of our people, the strength of the intellectual property in our software and our late-stage pipeline give us great confidence in Alfa's prospects for 2023 and beyond.

 

FINANCIAL REVIEW

 

Financial Results

			Movement
£m	2022	2021	%
Revenue	93.3	83.2	12%
Operating profit	29.6	24.7	20%
Profit before tax	28.9	23.8	21%
Taxation	(4.4)	(4.6)	(4)%
Profit for the period	24.5	19.2	28%
Basic EPS	8.24p	6.49p	27%
Diluted EPS	8.09p	6.39p	27%

 

Revenues increased by 12% or £10.1m to £93.3m in the twelve months ended 31 December 2022 (2021: £83.2m). Growth at constant currency was 8%.

Operating profit increased by £4.9m to £29.6m (2021: £24.7m), due to the £10.1m increase in revenues, partially offset by £5.2m increase in expenses, principally due to a £5.7m increase in staff and partner employment costs. This included salary costs up 11% with average headcount up 10% along with £1.0m increase in partner costs. This was partially offset by a gain on a lease assignment of £0.6m and transaction FX gains of £1.1m.

Net finance costs which relate to lease expenses of £0.6m (2021: £0.8m) resulted in profit before tax of £28.9m (2021: £23.8m). The Effective Tax Rate ("ETR") for 2022 is 15.2% (2021: 19.3%) due to some favourable prior year items, including R&D tax credits. The resulting profit for the period was £24.5m (2021: £19.2m).

 

Revenue

Revenue - by type	2022	2021	Movement
£m			%
Subscription	27.4	23.5	17%
Software	16.3	13.6	20%
Services	49.6	46.1	8%
Total revenue	93.3	83.2	12%

 

Subscription revenues

Overall Subscription revenues increased 17% to £27.4m (2021: £23.5m). The increase was driven by a 15% increase in maintenance revenues boosted by a 28% increase in hosting revenues, principally due to v4 customers moving onto hosting for their v5 implementations, along with two new customers, one which has gone live and one which is in the implementation phase.

 

Software revenues

Software revenues of £16.3m were up £2.7m or 20% on last year (2021: £13.6m) on the back of strong development revenues for both existing and new customers, which were up 64% on last year. In 2022 we saw a continuation of upgrades to v5 from older versions of the software, which generally do not attract additional licence payments, except where customers purchase additional modules. Customised licence revenues were up 13% on last year due to the extra development days. One-off licence fees in the year were £0.4m; down £1.7m on the £2.1m in 2021.

 

Services revenues

Services revenues increased overall by 8% to £49.6m (2021: £46.1m) at actual exchange rates. Implementation revenues for new customers were down 16% as more of our team was focused on work for v5 upgrades. As a consequence, we saw services work for existing customers increase by 25%. The ongoing services work for existing customers, including v5 upgrades, was 68% of overall services revenue in the year.

 

Total Contract Value (TCV) 

TCV - by stream
£m				2022	2021	Movement %
Subscription				93.3	85.8	9%
Software				20.1	14.9	35%
Services				29.5	32.4	(9)%
Total TCV				142.9	133.1	7%

 

Total contract value (TCV) increased over last year by 7% to £142.9m reflecting net new contracts signed in the year. Subscription TCV has increased 9% driven by an increase in the number of customers and the significant growth in our hosting business. There was also a 35% increase in Software TCV, principally from an increase in contracted development work. Services TCV of £29.5m was down 9% versus this time last year due to the timing of the signing of statements of work.

 

TCV - by type for next 12 months
£m				2022	2021	Movement %
Subscription				30.1	26.9	12%
Software				10.2	6.7	52%
Services				24.7	26.2	(6)%
Total TCV				65.0	59.8	9%

 

Of the TCV at 31 December 2022, £65.0m (31 Dec 2021: £59.8m) is anticipated to convert into revenue within the next 12 months, assuming contracts continue as expected and are not cancelled or delayed. This includes £10.2m (2021: £6.7m) of Software revenues, £30.1m (2021: £26.9m) of Subscription revenues and £24.7m (2021: £26.2m) of Services revenues.

 

Operating profit

The Group's operating profit increased strongly, up by 20% or £4.9m, to £29.6m (2021: £24.7m) primarily reflecting the £10.1m increase in revenues, partially offset by an increase in the Group's cost base as we continued to invest in the business, and through increased headcount and partner costs.

Headcount numbers were up 15% in 2022 at 441 (2021: 382), however following the slower recruitment at the start of the year average headcount was up 10% to 420 (2021: 383). Our staff retention rate in 2022 was strong at 90% (2021: 87%). 

Expenses - net	2022	2021	Movement
£m			%
Cost of sales	33.4	29.0	15%
Sales, general and administrative expenses	31.0	30.0	3%
Other income	(0.7)	(0.5)	40%
Total expenses - net	63.7	58.5	9%

 

Cost of sales increased by £4.4m to £33.4m (2021: £29.0m) due to the growth in the business with higher salary costs from the increase in customer facing headcount along with increased hosting costs and partner costs where days were up 41% over last year.

Sales, general and administrative (SG&A) expenses increased by £1.0m to £31.0m in the year (2021: £30.0m).  This included increased salary costs through higher headcount.  In addition Profit Share Pay increased to £3.5m (2021: £3.1m) and share-based payment charges increased to £1.8m (2021: £1.5m). Travel and conference costs were up £0.9m versus prior year, due to a pick-up in travel in the second half as activity started to return post Covid lockdowns.

Two gains, totalling £1.6m offset the increases noted above. Firstly, a gain of £0.5m on a lease assignment. A lasting impact of Covid has been the introduction of our smart working policy which prompted a review of the space that we need in our London office. We concluded that we did not need all the space, and so we assigned the remaining part of the lease on one floor, which crystalised a book gain as the related lease liability was in excess of the right to use asset value. There has also been a favourable increase in foreign currency differences of £1.3m, which moved from a loss of £0.2m in 2021 to a gain of £1.1m in 2022. 

 

Finance costs

Net finance costs which relate to leases of £0.6m (2021: £0.8m) reduced slightly due to the assignment of part of the London office space noted above. The Group has no external bank borrowings.

Profit for the period

Profit after taxation increased by £5.3m, or 28%, to £24.5m in 2022 (2021: £19.2m).  The Effective Tax Rate ("ETR") for 2022 is 15.2% (2021: 19.3%), which benefited from £1.3m of prior year items, with the major component of this being due to R&D tax credits.

Earnings per share

Basic earnings per share increased by 27% to 8.24 pence in 2022 (2021: 6.49 pence). Diluted earnings per share also increased by 27% to 8.09 pence (2021: 6.39 pence).

Cash flow

Cash (including the effect of exchange rate changes) decreased by £4.4m to £18.7m at 31 December 2022, from £23.1m at 31 December 2021. This decrease has been driven by strong cash generation from operations, offset by the payment of special and regular dividends of £22.5m (2021: £32.7m) and purchases of own shares for the Employee Benefit Trust and through the share buyback programme of £5.6m (2021: £4.6m).

Operating free cash flow conversion
£m				2022	2021
Cash generated from operations				34.0	31.3
Adjusted for:
Capital expenditure				(2.3)	(1.3)
Principal element of the lease payments in respect of IFRS 16				(1.6)	(1.9)
Operating free cash flow				30.1	28.1
Operating profit				29.6	24.7
Operating free cash flow conversion				102%	114%

 

The Group's Operating Free Cash Flow Conversion (FCF) of 102% (2021: 114%) was below the very strong performance last year and closer to our 100% conversion expectation as we move to a subscription model.

In addition to the cash generated from operations of £34.0m, the Group incurred £2.3m on capital expenditure (2021: £1.3m) and made net tax payments of £6.2m (2021: £3.8m). Tax payments increased on last year as we moved into the HMRC large company tax category, with all estimated tax paid within the year.

In the year, net cash outflows of £29.7m (2021: £39.2m) from financing activities related to the principal element of lease payments of £1.6m (2021: £1.9m) and purchase of own shares of £5.6m (2021: £4.6m). The biggest cash outflow related to dividends, with ordinary dividends of £3.3m (2021: £3.0m) paid in year along with Special Dividends of £19.2m (2021: £29.7m). Since November 2020, total dividends of £100m have been paid.

 

Balance sheet

In the year the two significant movements in the balance sheet have been the movement in cash explained above, and a reduction in the lease assets of £7.3m and lease liabilities of £7.8m principally due to assigning a lease on one floor of the London office.  

Other balance sheet movements were as follows:

Current assets at year end were £39.0m (2021: £39.6m). Trade receivables grew on the back of the growth in the business to £8.9m (2021: £6.0m) however they continue to remain well controlled with total receivables of only £0.1m (2021: £0.7m) more than 30 days overdue. Provision for impairment remains nil (2021: £nil).

Accrued income increased slightly in the year to £6.5m (2021: £6.3m) with prepayments increasing to £4.5m (2021: £3.2m) due to the inclusion of deferred costs (offset by a related increase in deferred licence contract liabilities).

Current liabilities of £25.6m (2021: £24.0m) were up £1.6m. Trade payables and other payables were largely unchanged at £9.5m (2021: £9.3m). Contract liabilities increased by £3.8m to £14.8m (2021: £11.0m) with deferred licence liabilities increasing £3.3m to £8.6m (2021: £5.3m) due to an increase in the material right related to customised licence implementations, along with an increase in deferred maintenance liabilities up £0.5m to £6.2m (2021: £5.7m) from growth in the business.

Non-current liabilities reduced significantly, down £7.7m to £8.9m (2021: £16.6m) due to a reduction in lease liabilities to £8.0m (2021: £15.2m) with provisions decreasing to £0.9m (2021: £1.4m).

 

Capital allocation and distributions

The Group has had strong cash generation over a number of years and we expect this to continue. The Group's capital allocation policy takes into consideration the need to continue to invest in our people and technology whilst maintaining strong liquidity at the same time.

The first post IPO dividends were paid in November 2020 and in January 2022 we also announced a share buyback programme of up to £18m over the following 18 months.

The Board intends to progressively increase the ordinary dividend as the Group grows, whilst ensuring that we retain a strong balance sheet.

For 2022 we are proposing a dividend of 1.2 pence per share, amounting to £3.6m with an ex-dividend date of 25 May 2023. In addition we have declared a special dividend of 1.5 pence per share amounting to c£4.4m with an ex-dividend date of 13 April 2023.

 

Related parties

Details about related party transactions are disclosed in note 32.

 

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, 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 over future economic conditions, 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, other than the continuation of the share buyback programme.

 

Duncan Magrath

Chief Financial Officer

1 March 2023

 

 

DEFINITIONS

Constant currency

When the Company believes it would be helpful for understanding trends in its business, the Company provides percentage increases or decreases in its revenues to eliminate the effect of changes in currency values.  When trend information is expressed herein "in constant currencies", the comparative results are derived by re-calculating comparative non-GBP denominated revenues using the average exchange rates of the comparable months in the current reporting period.

 

Operating free cash flow (FCF) conversion

Operating FCF conversion is calculated as cash from operations, less capital expenditures and the principal element of lease payments, as a percentage of operating profit.  Operating FCF is calculated as follows:

£m	2022	2021
Cash generated from operations	34.0	31.3
Capital expenditure	(2.3)	(1.3)
Principal element of lease payments	(1.6)	(1.9)
Operating FCF generated	30.1	28.1
Operating profit	29.6	24.7
Operating FCF Conversion	102%	114%

 

Total contracted value (TCV)

Total contracted value ("TCV") - TCV is calculated by analysing future contracted revenue based on the following components:

(i) an assumption of three years of Subscription payments (including maintenance, Cloud Hosting and subscription licence) assuming these services continued as planned (actual contract length varies by customer); 

(ii) the estimated remaining time to complete Services and Software deliverables within contracted software implementations, and recognise deferred licence amounts (which may not all be under a signed statement of work).

(iii) Pre-implementation and ongoing Services and Software work which is contracted under a statement of work.  As TCV is a reflection of future revenues, forward looking exchange rates are used for the conversion into GBP.  The exchange rates used for the TCV calculation are as follows:

 

Exchange rates used for TCV	H2 2022	H1 2022	H2 2021
USD	1.25	1.30	1.38
Euro	1.18	1.16	1.17

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME

£m	Note	2022	2021
Continuing operations
Revenue	5	93.3	83.2
Cost of sales		(33.4)	(29.0)
Gross profit		59.9	54.2
Sales, general and administrative expenses		(31.0)	(30.0)
Other income		0.7	0.5
Operating profit	6	29.6	24.7
Share of net loss of joint venture	19	(0.1)	(0.1)
Profit before net finance costs and tax		29.5	24.6
Finance income	10	-	-
Finance expense	10	(0.6)	(0.8)
Profit before taxation		28.9	23.8
Taxation	11	(4.4)	(4.6)
Profit for the financial year		24.5	19.2
Other comprehensive income:
Items that may be reclassified to profit or loss:
Exchange differences on translation of foreign operations	27	0.4	(0.1)
Other comprehensive income/(loss) net of tax		0.4	(0.1)
Total comprehensive income for the year		24.9	19.1
Earnings per share (in pence) for profit attributable to the ordinary equity holders of the Company
Basic	12	8.24	6.49
Diluted	12	8.09	6.39

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

£m	Note	2022	2021
Assets
Non-current assets
Goodwill	14	24.7	24.7
Other intangible assets	15	2.9	2.4
Property, plant and equipment	16	1.0	0.8
Right-of-use assets	17	7.1	14.4
Deferred tax assets	18	1.6	1.8
Interests in joint venture	19	0.2	0.3
Total non-current assets		37.5	44.4
Current assets
Trade receivables	20	8.9	6.0
Accrued income	21	6.5	6.3
Prepayments	21	4.5	3.2
Other receivables	21	0.2	1.0
Corporation tax recoverable	21	0.2	-
Cash and cash equivalents	22	18.7	23.1
Total current assets		39.0	39.6
Total assets		76.5	84.0
Liabilities and equity
Current liabilities
Trade and other payables	23	9.5	9.3
Corporation tax	23	-	1.8
Lease liabilities	24	1.3	1.9
Contract liabilities	23	14.8	11.0
Total current liabilities		25.6	24.0
Non-current liabilities
Lease liabilities	24	8.0	15.2
Provisions for other liabilities	25	0.9	1.4
Total non-current liabilities		8.9	16.6
Total liabilities		34.5	40.6
Capital and reserves
Share capital	26	0.3	0.3
Translation reserve	27	0.4	-
Own shares	28	(7.5)	(3.4)
Retained earnings		48.8	46.5
Total equity		42.0	43.4
Total liabilities and equity		76.5	84.0

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

 

 

Andrew Denton (Chief Executive Officer)                      Duncan Magrath (Chief Financial Officer)

Alfa Financial Software Holdings PLC - Registered number 10713517

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

£m	Note	Share capital	Own shares	Translation reserve	Retained earnings	Equity attributable to owners of the parent
Balance as at 1 January 2021		0.3	-	0.1	59.8	60.2
Profit for the financial year		-	-	-	19.2	19.2
Other comprehensive loss		-	-	(0.1)	-	(0.1)
Total comprehensive income for the year		-	-	(0.1)	19.2	19.1
Transactions with owners in their capacity as owners:
Equity-settled share-based payment schemes	29	-	-	-	1.1	1.1
Equity-settled share-based payment schemes - deferred tax impact	18	-	-	-	0.3	0.3
Dividends	31	-	-	-	(32.7)	(32.7)
Own shares distributed	28	-	1.2	-	(1.2)	-
Own shares acquired	28	-	(4.6)	-	-	(4.6)
Balance as at 31 December 2021		0.3	(3.4)	-	46.5	43.4
Profit for the financial year		-	-	-	24.5	24.5
Other comprehensive income		-	-	0.4	-	0.4
Total comprehensive income for the year		-	-	0.4	24.5	24.9
Transactions with owners in their capacity as owners:
Equity-settled share-based payment schemes	29	-	-	-	1.5	1.5
Equity-settled share-based payment schemes - deferred tax impact	18	-	-	-	0.1	0.1
Dividends	31	-	-	-	(22.5)	(22.5)
Own shares distributed	28	-	1.5	-	(1.3)	0.2
Own shares acquired	28	-	(5.6)	-	-	(5.6)
Balance as at 31 December 2022		0.3	(7.5)	0.4	48.8	42.0

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

 

CONSOLIDATED STATEMENT OF CASH FLOWS

£m	Note	2022	2021
Cash flows from operating activities
Profit before tax		28.9	23.8
Net finance costs		0.6	0.8
Share of net loss from joint venture		0.1	0.1
Operating profit		29.6	24.7
Adjustments:
Depreciation	6/16/17	2.2	2.3
Amortisation	6/15	0.8	0.8
Share-based payment charge	29	1.8	1.5
Net gain on disposal of assets		(0.3)	-
Movement in provisions	25	(0.5)	-
Movement in working capital:
Movement in contract liabilities	23	3.8	4.1
Movement in trade and other receivables	20/21	(3.6)	(2.8)
Movement in trade and other payables (excluding contract liabilities)	23	0.2	0.7
Cash generated from operations		34.0	31.3
Interest element on lease payments	10/24	(0.6)	(0.8)
Income taxes paid		(6.2)	(3.8)
Net cash generated from operating activities		27.2	26.7
Cash flows from investing activities
Purchases of property, plant and equipment	16	(0.7)	(0.3)
Purchases of computer software	15	(0.1)	(0.1)
Payments for internally developed software	15	(1.5)	(0.9)
Net cash used in investing activities		(2.3)	(1.3)
Cash flows from financing activities
Dividends paid to Company shareholders		(22.5)	(32.7)
Principal element on lease payments	24	(1.6)	(1.9)
Purchase of own shares	28	(5.6)	(4.6)
Cash used in financing activities		(29.7)	(39.2)
Net decrease in cash		(4.8)	(13.8)
Cash and cash equivalents at the beginning of the year	22	23.1	37.0
Effect of foreign exchange rate changes on cash and cash equivalents		0.4	(0.1)
Cash and cash equivalents at the end of the year	22	18.7	23.1

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 2022

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 venture, and are presented to the nearest million unless otherwise stated.

The principal activity of the Group is to provide software solutions and consultancy services to the auto and equipment finance industry in the United Kingdom, United States of America, Europe and Australasia.

 

1.1        Basis of preparation

 

Statement of Compliance

The preliminary results for the year ended 31 December 2022 are prepared in accordance with UK adopted International Accounting Standards (IAS) and interpretations by the IFRS Interpretations Committee applicable to companies reporting under UK adopted IFRS. They do not include all the information required for full annual statements and should be read in conjunction with the 2022 Annual Report.  The accounting policies adopted in this preliminary announcement are consistent with the Annual Report for the year ended 31 December 2022.

The financial information has been extracted from the financial statements for the year ended 31 December 2022, which have been approved by the Board of Directors on 1 March 2023. They have been reported on by the Group's auditors and will be delivered to the Registrar of Companies in due course. The report of the auditors was (i) unqualified,

(ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006. 

The comparative figures for the financial year 31 December 2021 have been extracted from the Group's statutory accounts for that financial year. The Board of Directors approved the 2021 Group financial statements on 8 March 2022, and they have been delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The financial information contained in this announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.

Compliance with IFRS

The consolidated financial statements of the Group have been prepared in accordance with UK-adopted international accounting standards and Company Law.

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, 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 over future economic conditions, 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

In the current year, the Group has applied a number of amendments to IFRS Accounting Standards issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2022. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements. The amendments relevant to the Group are:

Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and Annual Improvements 2018-2020 (All issued 14 May 2020, effective from 1 January 2022).

New standards, amendments and interpretations not yet adopted

At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRS Standards that have been issued but are not yet effective:

·    Amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction;

·    Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates;

·    Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Disclosure of Accounting policies;  and

·    Amendments to IFRS 10 and IAS 28 - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture.

We are currently in the process of determining if the adoption of the Standards listed above will have a material impact on the financial statements of the Group.

 

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.

The Group exercises control over the employee benefit trust because it is exposed to, and has a right to, variable returns from this trust and is able to use its power over the trust to affect those returns. The trust is therefore consolidated by the Group.

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 the 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 amortised 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 splits revenue by type of activity but reports operating results on a consolidated basis, as presented to the CODM, along with the required entity wide disclosure.

The Group discloses revenue split by type of activity being Subscription, Software and Services.

a.  Subscription revenues include recurring revenues paid on a monthly or annual basis, including subscription licence revenues, maintenance and cloud hosting.

b.  Software revenues include revenues from the recognition of customised licence revenue, one-off licence fees and any development revenues.

c.  Services revenues are revenues from any work done for customers including pre-implementation, implementation work, and ongoing services, but excludes any revenue from development work which is disclosed in Software.

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 2022 and 2021 below:

	2022		2021
	Closing	Average	Closing	Average
USD	1.21	1.24	1.35	1.38
EUR	1.13	1.17	1.19	1.16
NZD	1.90	1.95	1.98	1.95
AUD	1.77	1.78	1.86	1.83

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 by type of activity being Subscription, Software and Services (as disclosed in note 1.3).

i    Subscription revenue which includes the periodic rights to use Alfa Systems, periodic maintenance, subscription (including cloud hosting) and one-off revenue relating to catch-up periodic maintenance;

ii   Software revenue which includes development revenue (part of the customised licence revenue), options over the right to use Alfa Systems, and one-off licence fees; and

iii  Services revenue which includes software implementation 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:

1.5.1    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.

When a customer is in the process of implementing the software, the transaction price is allocated to this based on the stand-alone selling prices (derived from standard day rates) and is recognised over time based on the effort incurred, limited to the amount to which Alfa has a right to payment. Over time recognition is considered appropriate as customers simultaneously receive and consume the benefits provided. For customers under the Group's subscription based contracts that are undergoing implementation, revenue for software implementation services is deemed to be distinct from any other performance obligation and is recognised based on a percentage of completion basis.

When the type of services provided are ongoing services, the transaction price is deemed to be the actual day rate, and revenue is recognised at a point in time as the service is provided.

1.5.2    Development services and licence services (the customised licence)

Another 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.

During the initial phase of implementing the software, 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 of revenue to which Alfa has the right to payment. See note 5.6 for the accounting policy for variable consideration. 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 is tailored to the customer's specific requirements; 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.

Revenue attributable to development services is valued using the residual value method as there are no stand-alone selling prices which are observable as each project is customised. For customers under the Group's subscription based contracts that are undergoing implementation, revenue for development services is deemed to be distinct from any other performance obligation and is recognised based on a percentage of completion basis.

Once the customer is already using the software and the services provided are ongoing development, the transaction price is deemed to be the actual day rate and revenue is recognised at a point in time as the development service is provided.

1.5.3    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 annualise the value of the customised licence performance obligation and compare it to the annual right to use software performance obligation post go live.

The value of this option is built up from the start of the implementation project in line with the percentage-of-completion of development revenue described in 1.5.2 above. Following the completion of the implementation project, the value of this option is recognised evenly over the expected remaining customer life.

1.5.4    Periodic right to use Alfa Systems

When a customer pays its maintenance fee annually, this performance obligation represents the proportion of this 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.

When a customer pays for its maintenance fee as part of a subscription contract (see section 1.5.6 below), it will not be treated as a separate performance obligation (and will instead be part of the subscription amount).

1.5.5    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.

1.5.6    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 one or more of 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.

1.5.7    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.

Capitalised sales incentive costs

The Group incentivises its sales 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.

Costs to fulfil contracts

The Group has recognised an asset in relation to employee costs to fulfil its long-term development contracts (as disclosed in note 21). These costs relate directly to the contracts, generate or enhance resources to be used to satisfy performance obligations in the future and are expected to be recovered. This asset is presented within prepayments in the Statement of Financial Position. These costs are amortised within cost of sales in line with the percentage of completion of the development 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:

Cost of sales - This includes salaries and other direct costs associated with satisfying customer contracts and for developing software.

Sales, general and administrative expenses - This includes 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 2 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 non-financial 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.

 

1.11     Financial assets

 

Recognition and de-recognition

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.

 

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 sales, general and administrative 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

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 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.

Commercial viability of new products, modules or capabilities is generally not proven until the major 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 for recognition. 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

Amortisation is presented within sales, general and administrative expenses.

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 or (where they have an exercise price) by using the Black Scholes model. 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 foreign subsidiaries 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.

Own shares

Own shares represent the shares of the parent company Alfa Financial Software Holdings PLC that are either held by the employee benefit trust, or acquired by the Group as part of its share buyback programme (see note 28).

Own shares are recorded at cost and deducted from equity.

 

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 (excluding own shares held).

Diluted earnings per share

Diluted earnings per share is calculated in line with the basic earnings per share calculation above except that the weighted average number of shares includes all potentially dilutive options granted by the reporting date as if those options had been exercised on the first day of the accounting period or the date of the grant, if later. 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 customised licence and implementation revenue streams as well as any maintenance fees during this phase, forms one or a number of performance obligations. Since the residual value method is used for the customised licence revenue (as explained in note 1.5), the estimation of fair value of implementation revenue will impact the contract consideration assigned to the customised licence.

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.

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 (if at all) 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 - Estimates feeding through to the customised licence

The customised licence and its associated material right are both impacted by the following estimates:

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;

Estimating the appropriate life of customer relationship: the Group calculates the material right deferral of the customised licence based on the total customer relationship life. This is also the time over which the material right will be spread; and

Determining the split of maintenance amount between support efforts and right to use: the Group must estimate what percentage of the total maintenance fee relates to the customised licence.

A change to the stand-alone selling price for implementation services to the effective day rate, or an increase in expected customer life by a year,  or a 10% variance in the split of maintenance amount between support efforts and right to use, results in an impact on revenue for the year of up to an increase / decrease of £0.1m.

 

2.3 Other sources of estimation uncertainty

 

Revenue recognition - Number of forecast implementation and development days

The Group estimates the number of days required to complete the relevant implementation work and 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 implementation and development services revenue and updates estimates at each quarter end accordingly. Therefore, a significant movement in total planned days would result in volatility in implementation and customised licence revenue.

 

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.

Area	Exposure arising from	Measurement	Management
Market risk - foreign exchange	Contracted revenue and costs denominated in a currency other than the entity's functional currency; and Monetary assets and liabilities denominated in a currency other than the entity's functional currency.	Cash flow forecasting and foreign exchange sensitivity	Natural hedging from localised cost base and prompt conversion of foreign currency cash balances into pound sterling Use of forward contracts to manage some of the foreign exchange risk
Credit risk - cash balances	Cash and cash equivalents	Credit ratings	Diversification of bank deposits
Credit risk - customer receivables	Trade receivables and accrued income	Ageing analysis Credit ratings	Credit checks and contractual payment terms
Liquidity	Cash and cash equivalents	Daily cash reporting	Cash forecasting and managing maturity of cash deposits

 

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 5.4.

The Group utilised forward contracts during the year to hedge against foreign currency exposure during the current year (2021: no hedging arrangement entered into). The Group does not have any outstanding commercial foreign exchange contracts at 31 December 2022 or 31 December 2021. No hedge accounting has been applied in the year.

A 10% increase in the USD:GBP exchange rate in the year ended 31 December 2022 would have increased revenue and profit by 4% and 8% respectively. Management believe that 10% is a reasonable sensitivity given historic exchange rate movement.

 

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 prompt submission of licence and maintenance invoices. 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 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 2022 or 31 December 2021 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 same approach is applied to both trade receivables and accrued income expected credit loss provisions.

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 2022 and 31 December 2021 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 2022
£m	Total	Less than 6 months	Between 6 to 12 months	Between 1 to 2 years	Between 2 to 5 years	More than 5 years
Trade and other payables	7.6	7.6	-	-	-	-
Lease liabilities - future lease payments	10.9	0.9	0.9	1.7	4.6	2.8

 

		31 December 2021
£m	Total	Less than 6 months	Between 6 to 12 months	Between 1 to 2 years	Between 2 to 5 years	More than 5 years
Trade and other payables	6.9	6.9	-	-	-	-
Lease liabilities - future lease payments	20.3	1.3	1.4	2.7	7.4	7.5

 

4.   Segments and principal activities

 

4.1 Revenue by stream

The Group assesses revenue by type of activity, being Subscription, Software and Services, as summarised below:

£m	2022	2021
Subscription	27.4	23.5
Software	16.3	13.6
Services	49.6	46.1
Total revenue	93.3	83.2

 

 

4.2 Operating profit

 

The following table reconciles profit for the period attributable to equity holders to Operating Profit for the periods presented:

£m	2022	2021
Profit for the year	24.5	19.2
Adjusted for:
Net loss from joint venture	0.1	0.1
Taxation	4.4	4.6
Finance expense	0.6	0.8
Operating profit	29.6	24.7

 

4.3 Non-current assets geographical information

 

Non-current assets attributable to each geographical market:

£m	2022	2021
UK	34.4	41.3
USA	1.2	0.8
Rest of World	0.3	0.5
Total non-current assets	35.9	42.6

Revenue by geographical market is contained within note 5.3. The table above excludes deferred tax assets for both 2021 and 2022.

 

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:

£m	2022	2021
Customer A	11%	10%

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 as follows over time and at a point in time in the following revenue segments:

2022 £m	Subscription	Software	Services	Total revenue
At a point in time - time and materials	-	8.9	33.1	42.0
At a point in time - fixed price	-	0.4	0.4	0.8
Over time - time and materials	-	6.1	16.1	22.2
Over time - fixed price	27.4	0.9	-	28.3
Total revenue	27.4	16.3	49.6	93.3

 

2021 £m	Subscription	Software	Services	Total revenue
At a point in time - time and materials	-	5.6	25.2	30.8
At a point in time - fixed price	-	2.1	-	2.1
Over time - time and materials	-	4.1	19.8	23.9
Over time - fixed price	23.5	1.8	1.1	26.4
Total revenue	23.5	13.6	46.1	83.2

All goods and services are sold directly to customers.

 

5.3 Revenue geographical information

 

Revenue attributable to each geographical market based on where the customer mainly utilises its instance of Alfa, or where the service is rendered, is as follows:

£m	2022	2021
UK	31.0	30.0
USA	33.6	28.9
Rest of EMEA (excl UK)	21.3	18.7
Rest of World	7.4	5.6
Total revenue	93.3	83.2

 

5.4 Revenue by currency

 

Revenue by contractual currency is as follows:

£m	2022	2021
GBP	39.0	35.9
USD	34.3	30.0
Euro	12.6	11.6
Other	7.4	5.7
Total revenue	93.3	83.2

 

5.5 Liabilities from contracts with customers

 

£m	2022	2021
Contract liabilities - deferred licence	8.6	5.3
Contract liabilities - deferred maintenance	6.2	5.7
Total contract liabilities	14.8	11.0

 

Contract liabilities - deferred licence

Where a customer purchases a perpetual software licence this is generally invoiced upfront 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 customised licence performance obligation. The fair value of this performance obligation is determined using the residual method as set out in note 1.5.2 and this fair value is recognised as the development effort is expended, on a percentage of completion basis.

As such the deferred licence contract liability balance as at 31 December 2022 and 31 December 2021 represents any amounts received in advance for the customised licence 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 deferred licence contract liability. The contract liability relating to the 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 deferred licence 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;

-     Decreasing percentage of completion of development efforts; and

-     Any additional material right balances that are added during the year.

The deferred licence contract liability balance will decrease during the year as a result 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 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 2022 and 31 December 2021 therefore represents the Group's unsatisfied period maintenance performance obligation for which the revenue has been invoiced in advance.

 

5.6 Unsatisfied performance obligations

 

During 2020, 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 2022 is £6.2m (2021: £8.4m). We expect to recognise £2.2m in each of the next two financial years and then the remaining £1.8m in the final financial year of the contract, being 2025.

In addition, the Group has unsatisfied or partially satisfied performance obligations at 31 December 2022 that relate to the licence customisation for those customers that have ongoing implementation projects. 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 2022, the Group also has unsatisfied or partially satisfied performance obligations at 31 December 2022 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. The transaction price allocated to these unsatisfied or partially satisfied performance obligations as at 31 December 2022 is £11.0m (2021: £11.1m). 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 may be 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.

The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about the unsatisfied performance obligations that have original expected durations of one year or less. This includes those performance obligations linked to ongoing services for all project types (i.e. subscription, software and services).

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.

The Group has variable consideration in the form of contract banding for its licence and maintenance volumes. It is included it in the transaction price only to the extent that it is highly probable that a significant reversal of revenue will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

 

6.   Operating profit

 

The following items have been included in arriving at operating profit in the table below:

£m	2022	2021
Research and development costs	2.2	1.6
Depreciation of property, plant and equipment	0.5	0.4
Depreciation of right-of-use lease assets	1.7	1.9
Amortisation of intangible assets	0.8	0.8
Foreign exchange (gain)/loss	(1.1)	0.2
Share-based payments (including social security contributions)	1.8	1.5

 

7.   Personnel related costs

 

£m	2022	2021
Wages and salaries	34.8	31.8
Social security contributions (on wages and salaries)	4.4	3.9
Pension costs	2.6	2.1
Profit share pay*	3.5	3.1
Share-based payments**	1.8	1.5
Total employment costs	47.1	42.4

*     Profit share pay refers to a pool of money (that equates to approximately 10% of the Group's pre-tax profits) which is shared amongst the employees, excluding Directors and some other senior managers, as a percentage of basic salary. The amount disclosed includes the related social security contributions.

**   This includes the related social security contributions.

 

Average monthly number of people employed based on location of home office (including Executive Directors)	2022	2021
UK	307	282
USA	75	71
Rest of World	38	30
Total average monthly number of people employed	420	383

At 31 December 2022 the Group had 441 employees (2021: 382).

 

8.   Key management

 

Key management compensation (including Directors):

£m	2022	2021
Wages, salaries and short-term benefits	2.7	3.1
Social security contributions	0.3	0.4
Post-employment benefits	0.1	0.1
Share-based payments*	1.1	0.9
Total key management compensation	4.2	4.5

*     This includes the related social security contributions.

Key management personnel consist of the Company Leadership Team and the Executive and Non-Executive 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:

£m	2022	2021
Audit fees
RSM UK Audit LLP
Audit of the consolidated financial statements	0.2	0.2
Audit of subsidiaries	0.2	0.2
Total audit fees	0.4	0.4
Audit-related assurance fees
Review of interim financial report	0.1	0.1
Total audit-related assurance fees	0.1	0.1
Non-audit services	-	-
Total audit and non-audit-related services	0.5	0.5

 

 

10. Finance income and expense

 

£m	2022	2021
Finance income
Interest income on cash or short-term bank deposits	-	-

 

£m	Note	2022	2021
Finance expense
Interest on lease liabilities	24	(0.6)	(0.8)
Total finance expense		(0.6)	(0.8)

 

11. Income tax expense

 

Analysis of charge for the year

£m	2022	2021
Current tax:
Current tax on profit for the year	5.2	4.5
Adjustment in respect of prior years	(1.4)	(0.5)
Foreign tax on profit of subsidiaries for the current year	0.3	0.3
Current tax	4.1	4.3
Deferred tax:
Origination and reversal of temporary differences	0.2	(0.1)
Adjustment in respect of prior years	0.1	0.6
Effect of changes in tax rates	-	(0.2)
Deferred tax	0.3	0.3
Total tax charge in the year	4.4	4.6

 

The effective tax rate for the year is lower (2021: higher) than the standard rate of corporation tax in the UK. The effective tax rate for the year ended 31 December 2022 was 15.2% (2021: 19.3%). The effective tax rate for the year is impacted by favourable adjustments in respect to prior years totalling £1.3m (2021: unfavourable adjustment of £0.1m), due to the benefit of the UK R&D claim for 2021 of £0.9m and favourable adjustments in respect of prior year provisions of £0.4m (2021: increased tax costs for prior year of £0.2m, an adjustment in respect to deferred tax on share awards of £0.5m, less the benefit of the UK R&D claim for 2020 of £0.6m).  Given the changes in the UK R&D tax regime, the benefit to Alfa is expected to reduce in the future and as a consequence the effective tax rate will trend towards the UK statutory tax rate.

The overall tax charge for the year is reconciled as follows:

Analysis of charge for the year

£m	2022	2021
Profit on ordinary activities before taxation	28.9	23.8
Profit on ordinary activities at the standard rate of corporation tax - 19%	5.5	4.5
Tax effects of:
Effect of different tax rates of subsidiaries operating in other jurisdictions	0.1	0.1
Adjustment in respect of prior years	(1.3)	0.1
Impact of tax rate changes	-	(0.2)
Other	0.1	0.1
Total tax charge for the year	4.4	4.6

 

 

12. Earnings per share

 

	2022	2021
Profit attributable to equity holders of Alfa (£m)	24.5	19.2
Weighted average number of shares outstanding during the year	296,309,874	296,709,610
Basic earnings per share (pence per share)	8.24	6.49
Weighted average number of shares outstanding including potentially dilutive shares	302,038,789	301,505,177
Diluted earnings per share (pence per share)	8.09	6.39

 

The weighted average number of ordinary shares in issue excludes 3,690,126 (2021: 3,290,390) shares, being the weighted average number of shares held by the Group under the employee benefit trust and in Treasury as a result of the share buyback programme. The diluted number of ordinary shares outstanding, including share awards, is calculated on the assumption of conversion of all 5,728,914 (2021: 5,470,741) potentially dilutive ordinary shares. The increase in both Basic EPS and Diluted EPS in the current year is impacted by the Group's share buyback programme that commenced in 2022.

 

13. Financial assets and liabilities

 

£m	Note	2022	2021
Financial assets
Financial assets at amortised cost:
Trade receivables	20	8.9	6.0
Other financial assets at amortised cost	21	6.7	7.3
Cash and cash equivalents	22	18.7	23.1
Total financial assets		34.3	36.4
Financial liabilities
Financial liabilities at amortised cost:
Trade and other payables	23	7.6	6.9
Lease liabilities	24	9.3	17.1
Total financial liabilities		16.9	24.0

 

14. Goodwill

 

£m	2022	2021
Cost
At 1 January	24.7	24.7
At 31 December	24.7	24.7

 

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 pre-tax discount rate of 12.2% (2021: 11.0%) which is based on the CGU's weighted average cost of capital. Cash flows beyond these periods have been extrapolated using a steady 2.5% (2021: 2.0%) average growth rate which is reflective of management's best estimate at the time. 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

 

£m	Computer software	Internally generated software	Total
Cost
At 1 January 2021	1.5	2.2	3.7
Additions	0.1	0.9	1.0
At 31 December 2021	1.6	3.1	4.7
Amortisation
At 1 January 2021	0.8	0.7	1.5
Charge for the year	0.1	0.7	0.8
At 31 December 2021	0.9	1.4	2.3
Net book value
At 31 December 2021	0.7	1.7	2.4
Cost
At 1 January 2022	1.6	3.1	4.7
Additions	0.1	1.5	1.6
Disposals	-	(0.3)	(0.3)
At 31 December 2022	1.7	4.3	6.0
Amortisation
At 1 January 2022	0.9	1.4	2.3
Charge for the period	0.1	0.7	0.8
Disposals	-	-	-
At 31 December 2022	1.0	2.1	3.1
Net book value
At 31 December 2022	0.7	2.2	2.9

Significant movement in other intangible assets

During 2022, Alfa developed new internally generated software at a cost of £1.5m (2021: £0.9m). This software will be amortised over three to five years. The total research and product development expense for the period was £2.2m (2021: £1.6m).

 

16. Property, plant and equipment

 

£m	Fixtures and fittings	IT equipment	Total
Cost
At 1 January 2021	1.2	3.3	4.5
Additions	-	0.3	0.3
Disposals	-	(0.1)	(0.1)
At 31 December 2021	1.2	3.5	4.7
Depreciation
At 1 January 2021	0.7	2.9	3.6
Charge for the year	0.1	0.3	0.4
Disposals	-	(0.1)	(0.1)
At 31 December 2021	0.8	3.1	3.9
Net book value
At 31 December 2021	0.4	0.4	0.8
Cost
At 1 January 2022	1.2	3.5	4.7
Additions	0.4	0.3	0.7
Disposals	(0.1)	-	(0.1)
At 31 December 2022	1.5	3.8	5.3
Depreciation
At 1 January 2022	0.8	3.1	3.9
Charge for the year	0.2	0.3	0.5
Disposals	(0.1)	-	(0.1)
At 31 December 2022	0.9	3.4	4.3
Net book value
At 31 December 2022	0.6	0.4	1.0

 

17. Right-of-use assets

 

£m	Motor vehicles	Property	Total
Cost
At 1 January 2021	0.2	17.9	18.1
Additions	0.2	1.3	1.5
At 31 December 2021	0.4	19.2	19.6
Depreciation
At 1 January 2021	0.1	3.2	3.3
Charge for the year	0.1	1.8	1.9
At 31 December 2021	0.2	5.0	5.2
Net book value
At 31 December 2021	0.2	14.2	14.4
Cost
At 1 January 2022	0.4	19.2	19.6
Additions	0.1	-	0.1
Disposals	-	(8.3)	(8.3)
At 31 December 2022	0.5	10.9	11.4
Depreciation
At 1 January 2022	0.2	5.0	5.2
Charge for the year	0.1	1.6	1.7
Disposals	-	(2.6)	(2.6)
At 31 December 2022	0.3	4.0	4.3
Net book value
At 31 December 2022	0.2	6.9	7.1

The disposal relates to the assignment of the lease to the 9th floor of Moor Place, 1 Fore Street Avenue, London. Refer to note 32.

The Group recognised the following amounts in the consolidated statement of profit or loss and comprehensive income in relation to leases under IFRS 16:

£m	2022	2021
Depreciation	(1.7)	(1.9)
Interest expense	(0.6)	(0.8)
Short‑term lease expense	(0.2)	(0.2)

 

Sub-lease rentals

One of the leased properties was being sub-leased to tenants under operating leases, with rentals payable quarterly. This sub-lease ended during 2022. Minimum lease payments receivable on these sub-leases of property are as follows:

£m	2022	2021
Within one year	-	-
Later than one year but not later than five years	-	-
Later than five years	-	-
Total sub-lease payments receivable	-	-
Income from sub-lease in the year	0.5	0.5

 

 

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 accruals and share-based payments.

£m	2022	2021
Balance as at 1 January	1.8	1.8
Effect of changes in tax rates	-	0.2
Adjustments in respect of prior period	(0.1)	(0.6)
Deferred income taxes recognised in the consolidated statement of profit or loss and comprehensive income	(0.2)	0.1
Deferred tax on share-based payments recognised in reserves	0.1	0.3
Balance as at 31 December	1.6	1.8
Consisting of:
Depreciation in excess of capital allowances	(0.1)	-
Other timing differences	1.7	1.8
Balance as at 31 December	1.6	1.8

 

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 £4.1m at 31 December 2022 (2021: £3.4m).

At the reporting date, 75% (2021: 72%) of the provision for deferred tax relates to the UK.

 

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 auto and equipment finance industry. 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

£m	2022	2021
Carrying amount as at 1 January	0.2	0.3
Share of net loss from the joint venture	(0.1)	(0.1)
Carrying amount as at 31 December	0.1	0.2

Loan to joint venture

£m	2022	2021
Carrying amount as at 1 January	0.1	0.1
Interest	-	-
Carrying amount as at 31 December	0.1	0.1

The total loss from interest in joint venture is £0.1m (2021: £0.1m) and the total interest in the joint venture is £0.2m (2021: £ 0.3m).

 

20. Trade receivables

 

£m	2022	2021
Trade receivables	8.9	6.0
Provision for impairment	-	-
Trade receivables - net	8.9	6.0

Ageing of trade receivables

Ageing of net trade receivables £m	2022	2021
Within agreed terms	6.4	4.1
Past due 1-30 days	2.4	1.2
Past due 31-90 days	0.1	0.6
Past due 91+ days	-	0.1
Trade receivables - net	8.9	6.0

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

£m	2022	2021*
GBP	4.5	3.4
USD	2.7	2.4
Other	1.7	0.2
Trade receivables - net	8.9	6.0

 

*     The 2021 USD figure was originally stated to be £0.9m and included only USD balances held in the US subsidiary. This has been restated to £2.4m to include USD balances within UK subsidiaries as well with a corresponding reduction in the GBP balances, and so has no impact on the overall total.

Trade receivables due from significant customers

Customers with revenue accounting for more than 10% of total revenue in the current year have outstanding trade receivables as follows:

£m	2022	2021
Customer A	0.7	0.8

 

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

 

£m	2022	2021
Accrued income	6.5	6.3
Prepayments	4.5	3.2
Corporation tax recoverable	0.2	-
Other receivables	0.2	1.0
Total other receivables held at amortised cost	11.4	10.5

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 increased by £0.2m. The current year balance represents unbilled professional fees for work in progress, and £0.5m of one-off licence revenue items where there is contractual agreement to invoice in subsequent periods.

Prepayments include £1.7m (2021: £1.1m) of deferred costs in relation to costs to fulfil contracts - see note 1.5. During the year £0.3m (2021: £0.2m) relating to costs to fulfil contracts has been recognised within cost of sales.

 

22. Cash and cash equivalents

 

£m	2022	2021
Cash at bank and in hand	18.7	23.1
Cash and cash equivalents	18.7	23.1

Currency of cash and cash equivalents

£m	2022	2021
GBP	10.0	14.9
USD	4.3	4.4
AUD	2.1	1.3
EUR	1.9	2.0
Other	0.4	0.5
Cash and cash equivalents	18.7	23.1

Cash and cash equivalents are all held with banks and other financial instructions which must fulfil credit rating and investment criteria approved by the Board.

 

23. Current and non-current liabilities

£m	2022	2021
Trade payables	0.8	0.8
Other payables	8.7	8.5
Corporation tax	-	1.8
Contract liabilities - deferred licence	8.6	5.3
Contract liabilities - deferred maintenance	6.2	5.7
Lease liabilities (note 24)	9.3	17.1
Provisions for other liabilities	0.9	1.4
Total current and non-current liabilities	34.5	40.6
Less non-current portion	(8.9)	(16.6)
Total current liabilities	25.6	24.0

Other payables includes amounts relating to other tax and social security of £1.9m (2021: £2.4m). Of the remainder, £5.3m (2021: £4.1m) relates to amounts due as part of payroll.

The corporation tax payable of £1.8m in 2021 is a receivable in 2022 (see note 21).

 

24. Lease liabilities

 

The following table sets out the reconciliation of the lease liabilities from 1 January to the amount disclosed at 31 December:

£m	2022	2021
Lease liabilities recognised at 1 January	17.1	17.5
Additions	0.1	1.5
Disposals	(6.3)	-
Interest charge	0.6	0.8
Payments made on lease liabilities	(2.2)	(2.7)
At 31 December	9.3	17.1

 

Additions to lease liabilities include extensions to existing lease agreements. Refer to note 32.3 for more information on the disposal. Total lease payments in 2022 were £2.4m (2021: £2.9m).

 

Below is the maturity analysis of the lease liabilities:

£m	2022	2021
Non-current	8.0	15.2
Current	1.3	1.9
Total lease liabilities	9.3	17.1
No later than one year	1.8	2.7
Between one year and five years	6.2	10.1
Later than five years	2.9	7.5
Total future lease payments	10.9	20.3
Total future interest payments	(1.6)	(3.2)
Total lease liabilities	9.3	17.1

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. These are the only changes in liabilities arising from financing activities in the year.

 

25. Provision for other liabilities

 

£m
At 1 January 2021	1.4
Provided in the period	0.7
Utilised in the period	(0.1)
Released in the period	(0.6)
At 31 December 2021	1.4
Provided in the period	0.3
Utilised in the period	(0.3)
Released in the period	(0.5)
At 31 December 2022	0.9

Provisions for other liabilities comprise amounts for office dilapidations, employer taxes on share-based payments and legal matters. It is expected that these will be utilised by as follows: £0.2m in 2030 and £0.7m over various years.

 

26. Share capital

	2022		2021
Issued and fully paid	Shares	£m	Shares	£m
Ordinary shares - 0.1 pence	300,000,000	0.3	300,000,000	0.3
Balance as at 31 December	300,000,000	0.3	300,000,000	0.3

No additional shares have been issued or cancelled in the year ended 31 December 2022.

 

27. Translation reserve

 

£m	2022	2021
At 1 January	-	0.1
Currency translation of subsidiaries	0.4	(0.1)
At 31 December	0.4	-

 

28. Own shares

 

£m	2022	2021
Balance at 1 January	3.4	-
Acquired in the year	5.6	4.6
Distributed on exercise of options	(1.5)	(1.2)
Balance at 31 December	7.5	3.4

 

On 18 January 2022 the Group announced the launch of a share buyback programme. Refer to the Company website for more details.

The own shares reserve represents the cost of shares in Alfa Financial Software Holdings PLC that have been:

Purchased in the market and held by the Group's employee benefit trust to satisfy options under the Group's share options plans. The number of shares held at 31 December 2022 were 2,163,952 (2021: 2,590,260); and

Purchased in the market and held by the Group as a result of the share buyback programme that was launched on 18 January 2022. The number of shares held at 31 December 2022 were 2,832,073 (2021: nil).

Own shares distributed relate to shares distributed to employees from the employee benefit trust for bonus awards under share schemes. As at 31 December 2022, the Group held 1.67% (2021: 0.86%) of its own called-up share capital.

 

29. Share awards

The Group recognised total expenses relating to share-based payment of £1.8m (2021: £1.5m) in the current year. Of this, £1.6m (2021: £1.5m) relates to equity-settled LTIP schemes and £0.2m (2021: £0.0) relates to Employee Share Save schemes. See further detail below. The outstanding share schemes are made up of the following:

 

Grant date	Condition Type	Plan	Vesting date	Exercise price	Share options 31 December 2022	Share options  31 December 2021
November 2019	Service Only	LTIP	November 2022	0p	-	1,113,909
June 2020	Service and Performance	LTIP	June 2023	0p	2,322,473	2,322,473
April 2021	Service and Performance	LTIP	April 2024	0p	1,070,668	1,121,104
November 2021	Service Only	LTIP	October 2024	0p	60,872	60,872
November 2021	Service Only	UK Employee ShareSave	January 2025	153.6p	397,228	774,659
November 2021	Service Only	US Employee ShareSave	January 2024	167.0p	70,515	77,724
April 2022	Service and Performance	LTIP	April 2025	0p	741,162	-
April 2022	Service Only	LTIP	April 2025	0p	237,965	-
April 2022	Service Only	US Employee ShareSave	December 2024	141.1p	36,731	-
May 2022	Service Only	UK Employee ShareSave	December 2025	132.8p	530,320	-
September 2022	Service Only	LTIP	September 2025	0p	5,917	-

 

The weighted average share price at the date of exercise for share options exercised during the period was 150.0p (2021: 130.4p). The options outstanding at 31 December 2022 had a weighted average exercise price of 27.1p (2021: 24.1p), and a weighted average remaining contractual life of 1.2 years (2021: 1.7 years).  The opening weighted average exercise price at 1 January 2022 was 24.1p (1 January 2021: nil). The weighted average exercise price of options forfeited and exercised during the year was 128.5p (31 December 2021: nil).

The expected price volatility is based on the historical volatility adjusted for any expected changes to future volatility due to publicly available information.

The total share-based payment charge relating to Alfa Financial Software Holdings PLC shares for the year is split as follows:

£m	2022	2021
Employee share schemes - value of services	1.5	1.1
Expense in relation to fair value of social security liability on employee share schemes	0.3	0.4
Total cost of employee share schemes	1.8	1.5

 

Details of the share options outstanding during the year are as follows:

	2022	2021
Outstanding at 1 January	5,470,741	6,139,161
Conditionally awarded in year	1,552,095	2,034,359
Exercised	(1,032,382)	(2,575,681)
Forfeited or expired in year	(516,603)	(127,098)
Outstanding at 31 December	5,473,851	5,470,741
Exercisable at the end of the year	-	-

 

29.1     LTIPs

 

The 2019 November LTIP awards vested during the year. The exercise of these awards had a net impact of £0.4m on own shares and £1.3m on retained earnings.

The 2020 June LTIP and 2021 April LTIP awards (service and performance conditions) are conditional on performance conditions, 50% based on EPS performance (non-market condition) and 50% on TSR (market condition) as well as a three-year employment fulfilment. The fair value of these awards has been determined using the Monte Carlo model / Black Scholes model at the grant date.

The 2021 November LTIP awards are conditional on employment only. The fair value of these awards is equal to the closing share price on the date of grant, discounted by the expected 12-month dividend yield to reflect the lack of dividend accrual over the vesting period (three years). The expected price volatility is based on the historic volatility (based on the remaining life of the scheme), adjusted for any expected changes to future volatility due to publicly available information.

The 2022 April LTIP awards (service and performance conditions plan) are granted conditional on performance conditions, 50% based on EPS performance (non-market condition) and 50% on TSR (market condition) as well as a three-year employment fulfilment. For those share schemes with market-related vesting conditions, the fair value has been determined using the Black Scholes 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. The following table lists the inputs to the model used for the awards granted in the year ended 31 December 2022 based on information at the date of grant:

LTIP awards (granted in April)	TSR element	EPS element
Share price at date of grant	164p	164p
Award price	0p	0p
Volatility	57.8%	0.0%
Embedded TSR	13.9%	-
Average correlation	39.3%	-
Life of award	3 years	3 years
Risk-free rate	1.53%	-
Fair value per award	88p	147p

In April and September 2022, the Group awarded to certain employees a LTIP conditional on employment only. The fair value of these awards on the date of grant is 147p, discounted by the expected 12-month dividend yield to reflect the lack of dividend accrual over the vesting period (three years).

All of these Company schemes, as well as any non-cyclical awards, are equity-settled by award of ordinary shares.

 

29.2     Employee ShareSave Scheme

 

The Group has in place an Employee ShareSave Scheme - the Save As You Earn (SAYE) scheme in the UK and Employee Stock Purchase Plan (ESPP) scheme in the US. The scheme started in 2021 but there were new grants in 2022 as well. Under these schemes, eligible employees can save up to a set limit each month. At the end of the savings period (three years for SAYE and two years for ESPP), employees can choose whether or not they wish to buy the shares at the option price or take back their savings as cash. The option price is the share price at the start of the plan with a 20% discount for the UK scheme and 15% discount for the US scheme. The fair value of these awards have been determined using the Black Scholes model at the grant date.

	31 December 2022
	SAYE		ESPP
	Number of share options	Exercise price	Number of share options	Exercise price
Outstanding at beginning of year	774,659	154p	77,724	167p
Conditionally awarded in year	530,020	138p	36,731	141p
Forfeited or expired in year	(243,732)	154p	(7,209)	167p
Replaced in year (i.e. left the 2021 plan to join the 2022 plan)	(133,699)	154p	-	-
Outstanding at the end of the year*	927,548	145p	107,246	158p
Exercisable at the end of the year	-	-	-	-

* The exercise price is a weighted average.

The inputs used in the calculation of the fair value of options granted in the year were as follows:

 

	SAYE 31 December 2022	ESPP 31 December 2022
Share price	184p	164p
Exercise price	138p	141p
Expected volatility	56.8%	58.5%
Expected life	36 months	24 months
Risk-free rate	1.67%	1.51%
Expected dividend yields	3.40%	3.40%

 

30. Unrecognised items

 

30.1     Contingencies and commitments

The Group has no capital commitments, no material contingent liabilities and no contingent assets.

30.2     Events occurring after the reporting period

As part of the share buyback programme, the Company has acquired shares in Alfa Financial Software Holdings PLC in the period between 1 January 2023 and 1 March 2023. See alfasystems.com/investors. There have been no other reportable subsequent events.

 

31. Dividends

 

A 2021 ordinary dividend of 1.1 pence per share was paid on 24 June 2022 amounting to £3.3m (2021: £3.0m).

A special dividend of 3.0 pence per share was paid on 16 June 2022 amounting to £8.9m (2021: £29.7m).

A 2022 special dividend of 3.5 pence per share was paid on 7 October 2022 amounting to £10.3m (2021: £nil).

Subject to approval at the Annual General Meeting on 26 April 2023, a 2022 final dividend of 1.2 pence per share will be paid on 26 June 2023 to holders on the register on 26 May 2023. The ordinary shares will be quoted ex-dividend on 25 May 2023. In addition, the Board has decided to declare a special dividend of 1.5 pence per share, with an ex-dividend date of 13 April 2023, a record date of 14 April 2023 and a payment date of 9 May 2023.

 

32. Related parties

 

32.1     Controlling shareholder

 

The ultimate parent undertaking is CHP Software and Consulting Limited (the 'Ultimate Parent'), which is the ultimate parent undertaking of the smallest and largest group in relation to these consolidated financial statements. The ultimate controlling party is Andrew Page.

 

32.2     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 and country of incorporation	Principal activity	Held by Company 2022	Held by Group 2022	Held by Company 2021	Held by Group 2021
Alfa Financial Software Group Limited	Moor Place, 1 Fore Street Avenue, London, EC2Y 9DT, UK	Holding company	100%	100%	100%	100%
Alfa Financial Software Limited	Moor Place, 1 Fore Street Avenue, London, EC2Y 9DT, UK	Software and services	-	100%	-	100%
Alfa Financial Software Inc	124 E Hudson Ave, Royal Oak, MI 48067, United States	Software and services	-	100%	-	100%
Alfa Financial Software Australia Pty Limited	Lisgar House, Level 3, 32 Carrington Street, Sydney, NSW, 2000, Australia	Services	-	100%	-	100%
Alfa Financial Software NZ Limited	Level 1 Building B, 600 Great South Road, Greenlane, Auckland 1051, New Zealand	Services	-	100%	-	100%
Alfa Financial Software GmbH	Bockenheimer Landstraße 20, 60323 Frankfurt am Main, Germany	Software and services	-	100%	-	100%
Alfa Financial Software International Limited	Moor Place, 1 Fore Street Avenue, London, EC2Y 9DT, UK	Software and services	-	100%	-	-
Alfa iQ	Moor Place, 1 Fore Street Avenue, London, EC2Y 9DT, UK	Software and services	-	51%	-	51%

Alfa Financial Software International Limited was established in February 2022.

 

32.3     Transactions with related parties

 

See note 8 for further detail on remuneration of key management (including Directors).

Dividends to the amount of £15.0m were paid to the Ultimate Parent (2021: £21.7m).

Dividends of 3 pence, 1.1 pence and 3.5 pence per share were paid to all shareholders in 2022 (2021: 1 pence and 10 pence per share). Directors and other key management received dividends based on their beneficial interest in the shares of the Company.

The balances outstanding from the Ultimate Parent at 31 December 2022 and 2021 were £nil and £nil respectively.

In 2020 the Group invested £0.4m in Alfa IQ consisting of: a capital contribution of £0.3m; and an interest-free loan fair valued at £0.1m. At 31 December 2022 the value of the investment is carried at £0.1m (2021: £0.2m) and the loan fair valued at £0.1m (2021: £0.1m).

On 9 February 2022, the Company entered into a short-term rental agreement with the Ultimate Parent for rental of the 9th Floor of Moor Place. The resulting rental income for 2022 was £0.4m (2021: £nil).

The Company also received rental income of £3,718 (2021: £34,610) in the year relating to its prior arrangement with the Ultimate Parent for the rental of a meeting room on the 9th Floor of Moor Place.

On 29 July 2022 the Group reached an agreement for the assignment of its lease to the 9th floor of Moor Place, 1 Fore Street Avenue, London to the Ultimate Parent. There is no consideration for the transaction, with the Ultimate Parent taking on all the rights and liabilities for the 9th floor from Alfa. The assignment of the lease resulted in the de-recognition of the right to use asset and lease liability, which resulted in a one-off gain of £0.6m which was fully recognised in the year.

There were no other outstanding receivable balances from related parties at the end of the reporting period.

 

33. 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 2022 and 31 December 2021 in the consolidated statement of financial position.

31 December 2022 £m	Gross amounts	Amounts offset	Net amounts presented
Accrued income	15.6	(9.1)	6.5
Contract liabilities - deferred licence	(17.7)	9.1	(8.6)

 

31 December 2021 £m	Gross amounts	Amounts offset	Net amounts presented
Accrued income	14.0	(7.7)	6.3
Contract liabilities - deferred licence	(13.0)	7.7	(5.3)

 

 

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 2021 Annual Report available on our website.  In our 2022 Annual Report the following risks have been added or removed:

Risks removed:         

-     High customer concentration

-     Pandemic outbreak in Alfa and/or customer geographies 

Risks added:

-     Pressure on Margin due to increased cost base or through increased competition

-     Foreign exchange rate uncertainty

     

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The responsibility statement below has been prepared in connection with the annual report and financial statements for the year ended 31 December 2022. 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 2022, 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.

The 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

1 March 2023