5 January 2023

Alpha Group International plc

("Alpha" or the "Group")

Launch of Bristol Office and Share Scheme

New Share Scheme

Overview

Alpha Group International plc (AIM: ALPH), a leading provider of financial solutions dedicated to global corporates and institutions, is pleased to announce the formal launch of a new sales office in Bristol along with a related share scheme.

The Bristol office (the "Bristol Operation") was initially established in January 2022, to focus on providing Alpha's existing offering to smaller corporates (UK companies with turnovers of £5m - £30m) compared to those the Group has historically served. The Bristol Operation has a sales team that leverages the existing operations and infrastructure of the Group's FX Risk Management ("FXRM") division in the same manner as its FXRM offices in Amsterdam, Milan and Toronto.

Why this market?

Having only captured a fraction of the UK corporate market, the Board believes that the Group already has a substantial runway for growth. However, the UK SME market represents an additional and attractive market opportunity that can be captured efficiently, cost-effectively and without distracting from our wider focus on larger corporates and institutions. The Bristol Operation is already off to a strong start and has generated revenues in excess of £2m in 2022.

UK companies in this turnover range are often even more underserved by traditional providers than their larger peers. By providing these clients with Alpha's distinctive approach to FX risk management and access to established capabilities, the Group can provide them with a much-needed level of service and enter this market with a significant competitive advantage. Although clients will be smaller, our focus will remain on servicing high-quality companies, thereby providing a valuable opportunity to partner with high-growth companies and secure a significant share of wallet at an early stage.

After almost fifteen years of investment in our operations, underpinned by a strong focus on scalability and agility, the Group is now able to enjoy strong economies of scale across the business and service this marketplace whilst leveraging the capacity within its existing operations.

Why Bristol?

Smaller businesses naturally provide smaller revenue opportunities. In order to take Alpha's high-quality offering to this marketplace whilst maintaining attractive profit margins, we needed to ensure that our cost to service would be lower, whilst also ensuring we could continue to access high-quality talent. An office in Bristol made this possible for three main reasons: firstly, Bristol provides a high standard, but lower cost of living; secondly, the city has one of the highest productivity levels per capita, employment and qualification rates of all major UK cities¹, which underlines the quality of available local talent; and thirdly commercial rents are significantly lower.

One of the core considerations when deciding to launch a SME division was ensuring we could build and sustain a high-quality team with a resolute focus on becoming a leader within the SME market. Achieving this meant that we needed to avoid becoming an incubator for front office employees wishing to eventually work with larger businesses - something that would have naturally occurred if the SME division was based within or near the London office.  Having a separate office in Bristol, where the cost of living is lower, but the quality of life is high, ensures that the financial and lifestyle dynamics available to the team are equally as attractive as they are in our other offices.

¹ Bristol Key Facts 2022 | www.bristol.gov.uk

Bristol Share Scheme

In order to incentivise the key personnel within the Bristol Operation, the Group is putting in place an employee share ownership scheme for certain individuals (the "Bristol Participants").

A new class of shares ("I Shares") in Alpha FX Limited is being created, with 79% owned by the Group and 21% owned by the remaining Bristol Participants. The value of the I Shares will be linked to the performance of the Bristol Operation. The Bristol share ownership scheme is structured in a similar way to the share schemes implemented for other FX risk management divisions in Canada and The Netherlands. From March 2025, the Bristol Participants will have the option to convert 25% of their holding of I Shares into ordinary shares of £0.002p each in the Company ("Ordinary Shares") each year for four years (with the final option being exercisable in March 2028).  The value of the shares upon conversion is based on an 8x multiple of the operation's annual profit after tax, and therefore is designed to be accretive on an EPS basis for our Group shareholders as long as Alpha's valuation stays in excess of an 8x multiple of earnings and Group earnings continue to grow sufficiently.   

Speaking on the launch of the Bristol office, Morgan Tillbrook, CEO of Alpha said:

"The opportunity to apply Alpha's principles of currency risk management and powerful capabilities to UK SMEs is an attractive one. Whether you're a £5m company or a £500m company, the impact of currency volatility is felt in the same way, but unfortunately smaller businesses often remain the most overlooked when it comes to strategic support. It's also a pleasure to see another long-standing member of the team, Luc Barford, leading this division. Luc first joined Alpha in 2015 and is someone who lives and breathes the Alpha ethos. I am looking forward to seeing him and the team go from strength to strength as they embark on this next stage in their journey."

Alpha's approach to share schemes

Share schemes are intrinsically linked to both dilution and long-term value creation for shareholders. We therefore believe it is important to clearly explain our approach to new share schemes in any related announcements.

Providing employees with the opportunity to earn a stake in the business via share ownership schemes is an intrinsic part of Alpha's entrepreneurial culture and client-first philosophy. Employees that think and act like owners are naturally deeply invested in building sustainable businesses. Likewise, they recognise that the future of their business is determined by the long-term value they can provide their clients.

Naturally however, issuing new shares schemes dilutes existing holders. It is therefore essential that the growth they are designed to create is of a long-term nature and materially outweighs the impact of any dilution. To achieve this, our focus is on creating separate schemes that ensure participants' rewards are contingent on the growth of the divisions they directly influence. For example, if one division underperformed, but the rest of the group overperformed, shareholders would not be expected to dilute for the underperforming division.

With over 110 employee shareholders and multiple business units, achieving this level of alignment naturally introduces complexity. However, we strongly believe that a simple, one-size-fits-all scheme, whilst easier to understand and administer, would not create the individual accountability that is so important to ensuring rewards are always and clearly linked to results. People must be rewarded for their ability to contribute to growth, not simply for being part of a journey. With this in mind, the Group has two main types of share schemes:

1.    Group & Established Division Share Schemes

The above schemes are typically used to incentivise either Central Services employees who support divisions across the Group, or divisional employees who are targeted on growing revenues within the Group's more established business divisions, currently just UK Corporate.

These schemes vest annually in equal tranches over a period of no less than four years, based on the achievement of organic revenue growth targets. For Group schemes, these targets are based on Group revenue. For established division schemes, they are based on the organic revenue growth of the division they are a part of. All revenue targets are ambitious and compounding, and rewards are now also capped against a maximum market capitalisation, and thus designed to make each growth scheme earnings per share accretive, as long as overall Group earnings continue to grow sufficiently.

2.    New Venture Share Schemes

Share schemes for new ventures are typically used to incentivise employees who are working within newer divisions, e.g. Bristol, Toronto, Amsterdam, Institutional, Alpha Platform Solutions, and in due course, Milan and Sydney.

With this type of scheme, employees own an equity stake in their individual business unit, with an option to convert their stake into Group shares in equal annual tranches over a period of four years, with the first vesting typically beginning in their third or fourth year of operation. The value of shares at the time of conversion is based on an 8x multiple of the operation's profits after tax and is therefore designed to make each growth scheme earnings accretive to the Group, as long as Group earnings continue to grow sufficiently and Alpha's valuation stays in excess of an 8x multiple of earnings. At conversion, and in exchange for converting their shares into Group shares, participants' holdings in their business units commensurately decrease and the Group's holding commensurately increases.

Equity stakes within these new ventures are typically larger than in our Group & Established Division share schemes. This reflects the fact that these ventures are new, unproven, and being led by individuals from experienced and established backgrounds, who are taking on significant levels of accountability - often requiring long-term relocations to new countries or even continents. Aligning the schemes to profitability ensures that these rewards are intrinsically linked to their ability to execute and create sustainable and profitable revenue growth.

Speaking on Alpha's share schemes, Morgan Tillbrook, CEO of Alpha said:

"Alpha has a strong track record of generating organic growth and successfully breaking into new products and markets. It is important to remember however that behind each strong set of results       are people who have committed deeply to building valuable, long-term businesses with market-leading offerings. Whilst it may be rare for a company to invest so much effort into creating bespoke share schemes, it is also rare for a company within our industry to deliver such consistently high levels of growth. We believe this correlation is not by chance and that, as our track record has shown, empowering our people in this way is ultimately the most rewarding path for everyone involved."

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Notes to Editors

Alpha is a high-tech, high-touch provider of enhanced financial solutions dedicated to corporates and institutions operating internationally. Working with clients across 50+ countries, we blend intelligent human capabilities with new technologies to solve complex problems across three key areas: FX risk management, global accounts and mass payments.

Key to our success is our team - nearly 300 people based across seven global offices, brought together by a high-performance culture and a partnership structure that empowers them to act as owners of our business.

Despite being an established business listed on the London Stock Exchange, we remain relentlessly focused on maintaining the same level of operational agility and client focus we had when we first started in 2009. This dynamic, combined with the passion of our people, have enabled us to make a substantial and enduring difference to our clients, and deliver a growth story to match.