22 March 2023

Alpha Group International plc

("Alpha" or the "Group")

Full Year Results

for the year ended 31 December 2022

Alpha Group International plc (AIM: ALPH), a high-tech, high-touch provider of financial solutions, dedicated to corporates and institutions operating internationally, is pleased to announce its audited Full Year Results for the year ended 31 December 2022.

Financial Highlights

Operational Highlights

¹ Underlying excludes the impact of other operating income and non-cash share-based payments.

² Please refer to table calculating Adjusted Net Cash within Cash Flow & Balance Sheet section.

³ The Group exclude Training Accounts (those that have generated less than £10,000 in revenue since being onboarded) in order to provide a clearer picture of client growth and retention.

⁴ 'Account' refers to an account opened by clients to manage their funds, and that are live at the period end.

⁵ The Group defines a 'long-term equity interest' as an equity stake that is: held prior to the Company's IPO; or held in the Group's growth share schemes; or shares owned directly in one of the Group's trading subsidiaries.

Outlook

Through our successful track record of investment, innovation and expansion, our foundations for growth have never been stronger and our market opportunity has never been larger. These dynamics, combined with our team's hard work and dedication, are generating high levels of demand for our services.

The current macro environment requires appropriate levels of caution and prudence. However, we have proven over the last fourteen years that we can navigate and grow through many testing conditions and have become stronger and more resilient with every new challenge.

Trading since 31 December 2022 has been positive and in line with our expectations. Looking ahead to the rest of the year, we are confident in delivering strong revenue and profit growth, whilst also delivering on our recently announced intention to bring forward investment in our operations, thereby accelerating our growth plans.

Throughout the current uncertainty within the banking sector, our operations have remained unaffected and our balances have remained stable. As a reminder, Alpha safeguards 100% of its clients' cash in segregated safeguarding accounts with Tier 1 counterparties consisting of Barclays Bank, Citi Bank, Goldman Sachs and Lloyds Bank. In addition, unlike a bank, Alpha does not use client cash to issue loans and therefore 100% of client held funds remain in cash at all times.

Treatment of Other Operating Income

Whilst the Group is likely to continue benefitting from material levels of interest rate income on our client balances, it is important we do not let this distract from the underlying performance of the business, which is the Board's main measure to judge success against our expectations.

The quantum and variability of the interest on client balances will create some volatility in Other Operating Income based on variables that are largely outside of our control and that have limited correlation to the underlying performance of the business. As a reminder, the interest income is dependent on the amount of client cash we hold, its currency, and the interest rates we are able to obtain.

With this in mind, we will continue to focus our trading updates and performance reviews on underlying metrics, while we will share the blended average client balances and interest rates through our website on a quarterly basis, in order to provide a mechanism for stakeholders to model this interest income themselves.

So far this year, the blended average balances has been £1.6bn and the blended average interest rate has been 2.8%. As disclosed in the accounts, we have also hedged some of this interest income through interest rate swaps (see notes 10 & 15).

Morgan Tillbrook, Chief Executive Officer of Alpha Group International plc, commented:

"2022 has been a year of strong but also controlled growth for the business - one in which we delivered great results whilst taking the time to invest in the strength and sustainability of our growth platform. Although I am pleased with our numbers, what I am most proud of is the quality of revenue and level of progress behind the scenes which, although not immediately visible, will go a long way to securing our long-term growth ambitions and extending our competitive advantage.

Our strong financial performance belies the fact that raising standards and building scalability were frequently prioritised ahead of revenue growth throughout the year. In Alternative Banking Solutions, for example, our team throttled back on the number of accounts they were onboarding, in favour of improving scalability and laying the foundations for accelerated growth in our existing markets, as well as our global expansion strategy. In FX Risk Management meanwhile, the team's passion and belief in our 'Selling Standards' framework has meant there were often moments in 2022 where revenue was left on the table, as we doubled down on our risk management principles, and challenged clients even further on what they need, versus what they want; an essential business conversation that in times of heightened FX volatility can often be even more challenging.

Ultimately, the maturity, commercial integrity, and long-term thinking that I have witnessed throughout this year has made 2022 one of my proudest as CEO of this company. I believe we are on the cusp of a new and important era in the business, and it remains a huge privilege to be surrounded by such a fantastic team, as we embark on this exciting next stage in our journey."

Enquiries:

Market Abuse Regulation

This announcement is released by Alpha Group International plc and contains inside information for the purposes of the Market Abuse Regulation (EU) 596/2014 ("MAR") and is disclosed in accordance with the Company's obligations under Article 17 of MAR. The person who arranged for the release of this announcement on behalf of Alpha Group International plc was Tim Powell, Chief Financial Officer.

Notes to Editors

Alpha provides FX risk management and alternative banking solutions to corporates and institutions across the UK, Europe and Canada.  Combining leading expertise and technology, the Group partners with a small number of high value clients, to provide enterprise-level solutions across four key areas: FX risk management, international payments, accounts and collections. Since it was incorporated in 2010, Alpha Group has been able to build and retain a high-quality client base that includes a number of highly respected brands.

CEO STATEMENT

Overview

I am pleased to report another strong year of growth, with Group revenue increasing 27% to £98.3m (2021: £77.5m), underlying profit before tax increasing 16% to £38.6m (2021: £33.4m) and reported profit before tax increasing 42% to £47.2m (2021: £33.2m). We achieved these results alongside a significant year of investment in our people, processes, and technologies, with a 67% increase in employee headcount, taking our team to over 350 people across eight global offices, strengthening the foundations for future growth.

Importantly, these results were delivered during a year in which we took the time to further enhance our standards and scalability, at times even throttling back on short-term growth to achieve this. These long-term decisions highlight the maturity and commitment of the senior leadership team and will enable us to accelerate our growth sustainably as we move into 2023 and beyond.

It remains a pleasure to work with a team that care so passionately about their clients, colleagues, and the long-term future of the business. The difference our people make in shaping Alpha's growth story cannot be overestimated, and whilst this report will go into great detail about all the various drivers of growth, ultimately what it all boils back down to is them. I would therefore like to thank all my colleagues for another exceptional year working together and I look forward to seeing what we can achieve in 2023 and beyond.

A Note on Detail

The focus of our investor relations program is to attract and retain shareholders who share our long-term vision, and I believe providing more comprehensive and up to date disclosures is key to that. Over the past few years, I have been pleased to receive feedback from investors who value the level of detail and context we provide in our trading updates. However, as time goes on, our story grows longer, and I therefore increasingly find myself torn between the need to provide enough context for new investors, without creating too much repetition for existing ones.

To solve this dilemma, moving forward I will reference relevant context via hyperlinks throughout our statements. This will give investors the flexibility to opt-in or out of additional detail, depending on their level of familiarity (or interest!) in the subject.

Group Environment

Over the last thirteen years, we have consistently delivered organic revenue growth, alongside a balanced programme of strategic investments that have expanded our market opportunity, deepened our differentiation, and made us increasingly attractive to work with.

Importantly, market conditions have not always been straightforward during this time. Indeed, our introduction to public life in 2017 was swiftly followed by some of the greatest macro-economic events seen in a generation, with Brexit, COVID-19, the supply chain crisis, the Russia/Ukraine conflict, and (most recently) rising inflation, all testing our resilience. Despite this, we have continued to manage and grow through these challenges, and each time emerged a stronger and wiser business.

At our IPO we had one office and one offering focused exclusively on UK corporates, and we were still barely scratching the surface of our addressable market. Today, however, we have two leading offerings that are decentralised and delivered through eight global offices, with a high-quality client base of corporates and institutions across three continents. Our market opportunity is therefore larger and more diversified than it has ever been, and with our offerings continuing to evolve and pegged to business activities that are largely non-discretionary in nature, we are well-positioned to continue delivering predictable, defensible long-term growth, even in challenging macro-economic climates.

Whilst the current inflationary environment will not alter our investment strategy, we are conscious that as businesses grow larger, there is a propensity for unnecessary costs to creep in. Whilst we have maintained very strong margins over the years, it would be unrealistic to think we have been immune to this. With this in mind, we will be using the current environment as a timely reminder to maintain a strong cost discipline as we scale, especially as we accelerate our investment.

You will find more detailed explanations on the individual business environments of our FXRM and ABS divisions in their respective sections later in this statement.

Inflationary Environment & Interest Rates

In my discussions with investors throughout the year, inflation and rising interest rates were understandably an area of interest. On balance, this has been (and continues to be) a positive tailwind for Alpha. In an economy where prices rise, the volume of currency our clients need to trade will also typically rise, putting us in a fortunate position where increasing commissions for our clients is not required. Rising interest rates meanwhile have enabled us to benefit from additional interest income of c. £9m, as reported in our January 2023 trading update.

This interest is being generated from our own balances and sterling, euro and dollar denominated client funds that are aggregated and held overnight, off balance sheet, as part of Alpha's safeguarding arrangements for its alternative banking solution. We anticipate this additional interest income will become even more material in the year ahead, but we are also mindful that this is an unpredictable income stream and, if we return to a low interest rate environment, a potentially transitory one. With this in mind, we have chosen to recognise this as 'other operating income', not underlying revenue. Indeed, as one investor recently said to me: "the interest income is the cherry on the sundae… but nobody buys a sundae because of the cherry!"

Our Offerings Explained

Historically, I have provided brief overviews of our FX Risk Management ("FXRM") and Alternative Banking Solutions ("ABS") offerings within my own statement. In doing so however, I have often felt that brevity comes at the expense of clarity, and that we are in some respects oversimplifying what we do and, more importantly, what differentiates us. Whilst some oversimplification will remain necessary in order to protect commercially sensitive information, as our competitive moat has widened, there are now areas which we feel more comfortable sharing publicly.

With this in mind, for the first time this year the leaders of each of our divisions have prepared their own detailed explanations of our offerings, which can be read via the links below:

-       Introduction to FX Risk Management

-       Introduction to Alternative Banking Solutions

Together, these overviews provide the most comprehensive explanations of our offerings to date, and I believe they are a must-read for anyone who wishes to properly understand what we do and what makes us distinctive. Alex Howorth (Group MD FXRM) and Adam Dowling (Group MD ABS) have been instrumental in shaping their divisions into what they are today, and their perspectives will make for an incredibly valuable read, even amongst our longest standing investors.

FX Risk Management ("FXRM")

Read an introduction here

Highlights

-       22% revenue growth to £69.5m (2021: £57.1m)

-       Underlying profit before tax margin of c. 39%

-       19% increase in FXRM client numbers to 1,047 (2021: 881)

-       52% increase in FXRM Front Office headcount to 102 (2021: 67)

-       Average annual revenue per FXRM client continued to increase

-       Two new international offices launched in Sydney and Milan, with a third launching in Madrid in Q2 2023

-       Launch of new online platform

In its fourteenth year of trading, our FXRM division continued to deliver strong growth, with revenue increasing to £69.5m (2021: £57.1m), and client numbers increasing to 1,047 (2021: 881). Behind these numbers were some encouraging trends: our overall client concentration fell whilst average revenue per client continued to increase, reflecting our ability to grow wallet share with existing clients whilst also winning increasingly larger ones, as our reputation and balance sheet grow.



Additionally, we have continued to see increases in the average revenue generated by our Front Office Portfolio Manager's ("PMs") in their first, second and third years - something we call the "learning curve". This reflects compounding improvements in our training, capabilities and reputation, along with the consistently high calibre of people that are being hired.

Notably, much of our existing team are still in the very early stages of their learning curves, meaning that our current headcount alone provides significant capacity to support materially higher revenues. The hires from our recruitment team today are therefore cementing our future growth prospects and giving us far greater visibility over our growth trajectory. Additionally, the depth of senior talent within our teams continues to grow, providing us with strong foundations to develop emerging talent and support the scaling of the business.

As we grow our headcount, Front Office productivity is a key metric for us. We track this by looking at the total cumulative tenure of our Front Office, compared to our revenue growth. The graph below shows that we have been able to maintain productivity, despite international expansion into new markets, often seeded by our top performers, as well as a significant number of new starters in 2022, who will naturally have a minimal contribution in their first year. Headcount growth was also flat during 2020 as a result of COVID-19, resulting in an uplift in overall productivity. By contrast we only added eleven Back Office employees in FXRM during the year compared to 35 in Front Office, improving our operational gearing.

FXRM Global Recruitment

Our success in hiring is in no small part down to the efforts of our Front Office recruitment team. We set up this team in 2020, and during the first couple of years spent a lot of time learning how to build a high-performing recruitment function and establishing a core team. Equally important was making sure this team were deeply ingrained in the Alpha culture and intimately understood the role, our principles and standards.

Three years on, and I can now say with confidence that we have a team which not only knows what a strong Alpha candidate looks like, but can represent our career opportunities in a compelling and authentic way. In 2022, the team really hit its stride, with global Front Office headcount at the year-end increasing to 102 (2021: 67), and a strong pipeline of candidates going into 2023.

As someone who was closely involved in Front Office recruitment for a long time, I know first-hand how difficult it can be to find the right candidates - both in terms of ability and culture. Not only is the recruitment market incredibly competitive, but often the best hires are people who come from unconventional backgrounds and are not actively looking for a new role. I am therefore very pleased with the progress the team has made, and believe this function provides a significant and global competitive advantage for the business moving forward. To reflect this, I am also delighted to have been able to include the recruitment team in our long-term equity schemes.

FXRM Technology

In May 2022, we were also proud to launch our brand-new client platform for FX Risk Management, representing the culmination of many months of hard work and dedication from our technology and product teams. The new platform benefits from significantly enhanced functionality and a modern and intuitive user interface, designed to provide clients with even greater visibility and efficiency when managing and reporting on FX. As a business that is both high-tech and high-touch, this platform is serving to further deepen our differentiation in this space, and feedback has been very encouraging.

Even after the upgrades made to date, the team's ambitions to build meaningful innovations is incredibly exciting. FXRM was where our business was born, and there was a considerable amount of legacy that had built up over the past decade. Our decision to 'sunset' these legacy systems in 2021 in order to build upon a new greenfield stack created a powerful step-change in the scope and pace of new product development. This is serving to add significant and growing value to our online capabilities, and with an exciting roadmap in place for 2023, underpinned by a talented technology and product team, I am looking forward to sharing new developments in the months ahead.

FXRM Offices

By way of a recap, at our IPO in 2017 we were a small team based in Reading, Berkshire. From there we moved to London, before going on to launch FXRM sales offices in Toronto, Amsterdam, Milan, Bristol and Sydney, with an office in Madrid expected to launch in Q2 2023.

Our London team continued to deliver strong revenue growth of 13% in 2022, whilst remaining the incubator for talent that will go on to build Alpha's presence in overseas markets. Our global expansion strategy in FXRM is focused on the identification and analysis of key overseas markets which not only fit in terms of market size, structure and culture, but where a local presence is deemed highly accretive to growth.

Where regulatory permissions allow, we prefer to initially test international markets by servicing them from our existing office. Once proven, we then go on to establish offices overseas, made up of people who have been through the 'Alpha Academy' and can therefore be relied upon to successfully export our selling standards and culture.

We do not underestimate that, for any company, launching new offices overseas is not without its challenges. In our H1 2022 results statement we notified the market that we could see challenges arising in our Toronto office and expected this to cause a reduction in their revenues for the year (see here). This was indeed the case, with revenues falling by 15% in the year. The office has however continued to remain profitable, despite increasing investment into a Back Office team to support our 24/7 service capabilities, as well as a move to a new purpose-built office space. We have learned from our experience in Toronto, and expect the team to return to growth in 2023.

Our Amsterdam, Milan and Bristol offices all continue to make excellent progress. All three offices were launched by employees with many years' experience working with the business, and are growing quickly under their stewardship:

-       Amsterdam (trading since April 2020) delivered strong profit, with revenues up 69% on 2021 to £6.4m;

-       Bristol¹ (trading since January 2022) delivered revenues in excess of £2m; and

-       Milan (trading since March 2022) delivered revenues of £2m.

¹For any investors who are unfamiliar with why we chose to have a separate UK office in Bristol, I cover this in more detail in our announcement here.

Our most recent office launch in Sydney secured its regulatory licence in October and delivered encouraging initial revenues in the last couple of months of the financial year, with this momentum continuing so far into 2023. Investing in an office in Sydney not only gives us access to some major regional Australian and Asian target markets but, alongside our offices in Toronto and London, gives us the 24/7 capability to support our clients globally. This will allow us to service many more countries than we do today and supports our longer-term plans to expand our regional teams. We are confident in our ability to effectively export Alpha's strong culture and have already had four established UK colleagues emigrate to Australia to support this, alongside local hires who are already experienced in the market.  

We are also pleased to be finalising preparations to launch a Spanish office at the end of Q2 2023 in Madrid. The Madrid team will be led by three highly experienced, long-term Alpha employees who have been successfully penetrating these markets from our London HQ since 2018, and have already built a significant Spanish-speaking client base. Our presence in Spain is designed to enhance our growth prospects in Spanish-speaking markets by providing us with greater access to Spanish-speaking talent, as well as increasing our attractiveness to clients who prefer to do business with suppliers that have a local presence.

FXRM Current Environment

2022 was a year of extreme volatility within the foreign exchange markets, and against backdrops like this we are sometimes asked by stakeholders whether our FXRM division has benefited. The rationale behind this question is the belief that increased volatility leads to increased hedging - a view endorsed by many FX providers. However, this is where the fundamental difference between Alpha and its competitors is most pronounced.

Alpha's clients buy and sell currency for commercial purposes, therefore volatility does not materially change the overall amount they will need to transact. For example, a client that needs to purchase $10 million over the next 12 months does not then need to purchase $15 million because the exchange rate has changed. In addition, the majority of Alpha's clients hedge forecasted cash flows (as opposed to firm commitments). When hedging firm commitments, it can make sense to increase the proportion hedged in times of volatility to gain certainty. However, when hedging cashflow forecasts, if we were to encourage clients to deviate away from a predefined strategy and disproportionately hedge more, simply in response to increased volatility, we would be doing two things: 1) increasing their concentration to a particular exchange rate; and 2) increasing the amount of currency being hedged further into the future. Whilst this would immediately boost our own revenues, the problem with this is two-fold. Firstly, if this exchange rate moves against our clients, having an overconcentration to it will negatively impact their pricing and purchasing power, and potentially leave them exposed to large margin calls. And secondly, when that happens, we will understandably lose the trust and business of our clients, not to mention having compromised our own risk management principles in the process. As a risk management specialist, both outcomes would be wholly inappropriate.

Ultimately, the only way such an approach to managing currency works is if a company can reliably and consistently predict the currency market. Unfortunately, however, despite all of the noise and forecasts that are out there, such a firm doesn't exist. If it did, they wouldn't need to make their money exchanging other people's currency! It is for these reasons that we do not see times of heightened uncertainty as an opportunity to increase revenues. Instead, our approach is to help our clients maintain a balanced hedging profile by tailoring tried and tested risk management principles to the underlying dynamics of their business. Our clients hedge in line with a long-term, pre-agreed strategy - not off the back of FX market volatility, or the accompanying commentary and fanfare that are prevalent in our industry.

Our approach of helping clients hedge strategically in line with a predefined programme driven by commercial purposes means we do not experience the same revenue spikes that other providers might off the back of volatility, but it does mean we can be confident that we have provided our clients with advice that is in their best long-term interests. This naturally then results in more consistent and predictable performances for their businesses, as well as our own. Where volatility can help however, is in serving to highlight why it is important to have a proper currency risk management strategy in place. Indeed, this will often be felt most by companies that have fallen victim to over-hedging or under-hedging as a result of poor advice.

In Q4 2022, we started to see the headwinds from the global economic slowdown across the wider marketplace and were aware that some businesses were overstocking in anticipation of supply chain shortages. At the same time, we also saw less fund and institutional flow due to reduced deal activity. Nonetheless, with a diversified client base, fantastic team, and leading capabilities, we remain confident about our growth prospects.

FXRM Credit Environment

Alpha provides tailored credit facilities against the hedging instruments we offer to clients. Credit risk is mitigated by the quality and diversity of our client base, alongside the robustness of our credit controls and systems. Further mitigation comes from the fact that our terms and conditions ensure all future client trades are at our discretion. We can therefore react quickly to changes in the macro environment or individual client profiles by refusing future trades, thereby capping our exposure to past trades only. This reduces our risk exposure and poses significantly less risk than traditional credit facilities. In addition, unlike a typical lending/borrowing facility we are only exposed to the deviation in MTM value of the FX contract (which could be in or out of the money and on average has a length of six months) and not the notional value of the trade.

In a recessionary environment, the risk of any form of credit default is naturally heightened, and Alpha is not immune to this. Likewise, as our business grows and we underwrite more credit facilities, we are naturally exposed to more potential defaults. Importantly however, the risk of potential losses is factored into our expectations each year and is inherent in any business that extends credit. We are also sector agonistic and therefore highly diversified across our marketplaces and continue to publish our sector concentration and top 20 client exposures on our website biannually here.

Alternative Banking Solutions ("ABS")

Read introduction here

Highlights

-       41% revenue growth to £28.8m (2021: £20.4m)

-       141% increase in live accounts invoiced to 4,200 (2021: 1,746)

-       Deferred revenue from account fees, which will be recognised over the next 12 months, increased to £4.9m (2021: £2.2m)

-       Underlying Profit before tax margin of c. 39%

-       114% growth in headcount to 171 (2021: 80)

Our Alternative Banking Solutions division was discreetly launched in 2020 with the vision to become the world's first purpose-built provider of account solutions for the alternative investment industry. Just over three years later, the division has grown revenue by 41% in the year to £28.8m (2021: £20.4m) and increased its number of live accounts invoiced, to 4,200 (2021: 1,746). Significant progress has also been made in frontloading our hiring in order that we have the ability and maturity to scale significantly: headcount increased by 114% to 171 (2021: 80), with roles primarily in Compliance, Technology and Client Services.

Whilst this is a solid financial performance in this division, the number of accounts onboarded was, in truth, lower than we originally planned for. This reflects the team's strategic decision to throttle back on the number of accounts being onboarded in order to prepare for our global expansion and shift focus towards larger-scale strategic partnerships with corporate service providers and fund administrators. Such providers typically open and manage many thousands of accounts on behalf of alternative investment funds and, in a number of instances, are not only opening individual accounts with us, but are now looking to conduct sizeable migrations of existing accounts currently held with their traditional banking providers, in order to benefit from our purpose-built solution.

These partnerships represent an exciting step change in our growth opportunities in this division and provide us with the opportunity to significantly accelerate our current run rate. However, integrating with these partners not only takes time, but requires us to have the right foundations and teams in place to handle a step change in scalability. This has meant carefully managing our rate of growth during the year, in order to create bandwidth to accelerate our investment in scalability, which will support faster growth globally in the future and ensure we maintain excellent service levels. These investments have primarily been focused on: developing system integrations, increasing automation, and frontloading recruitment in Compliance, Client Services & Technology, in anticipation of our growth trajectory.

In light of these investments, we think it is important to provide some clarity around the operational scalability of ABS and how our headcount is evolving in both Malta and London. The chart below represents the core headcount that is intrinsically linked to our cost to serve. We expect to see enhanced scalability through 2023 and beyond, which is a by-product of the maturity of the team coming through, our investment in processes and automation, and our partnership agreements.

Many of the partners we are working with individually manage far in excess of the 4,200 accounts that have been opened by Alpha to date, and fully support our decision to take a measured and controlled approach to this exciting next stage in our journey. We ended last year with 4,200 accounts, and we intend to have at least doubled this to 8,400 by the end of 2023, and will continue to keep the market updated on our progress. Importantly, the business we receive through our partnerships is also well-diversified across a number of different service providers, with no concentrated exposure to any one service provider.

Whilst we remain vigilant to the potential for new entrants in this marketplace, we also know that there are significant barriers to entry, and we have a strong competitive advantage. After three years of technical development, market testing, product optimisation and diagnosing the challenges that alternative investment institutions face, we now provide a truly purpose-built platform for the industry. This end-to-end software stack is only one half of the equation however, and is underpinned by dedicated infrastructure, processes, blue-chip banking relationships, and a team of over 170 people, solely focused on the alternative investment market. Additionally, investment managers and their service providers expect to see a strong level of governance, track record, balance sheet and experience when working with a non-bank - something that most non-bank entrants simply do not have. Incumbent banks meanwhile continue to retrench - a trend that speaks to the deep levels of specialisation required to service this marketplace effectively and profitably.

It has taken time and investment to build a solution that can effectively and sustainably service this marketplace. Far from slowing down, we are now about to embark on our most significant programme of investment to date in order to increase our first-mover advantage and deepen our differentiation even further. Our ABS team in the UK is now preparing to move to their own dedicated office (adjacent to our London HQ) which, when combined with our ABS offices in Malta and Luxembourg, will provide space for over 400 people dedicated to the alternative investment industry over the next few years.

Whilst we are only scratching the surface of the European market, the service providers we are partnering with are global, and have already expressed a strong desire for us to expand our offering to North America and Asia. These regions are currently outside of our regulatory scope, but with the benefit of the interest tailwind, we have taken the opportunity to begin regulatory applications in the US and Singapore. These applications are just one such example of our accelerated investment in scalability that is being carried out to secure our global expansion. Providing these applications are accepted, this will open up new revenue opportunities for the business, from existing partners who have already shown a strong appetite to work with us in these jurisdictions.

ABS Environment

The alternative investment industry (within which our ABS division operates) saw a decline in deal activity in 2022 and investment managers naturally found fundraising more challenging as a result. Despite this, we continued to see high demand for account openings, and the team delivered strong growth. We believe there are three main reasons for this. Firstly, the c. 4,200 accounts that Alpha has onboarded to date, pales in comparison to the size of the overall market; Preqin tracks 160,000 funds globally and we estimate that each fund will have on average ten assets, each requiring accounts.¹ Secondly, Alpha's innovative offering has proved highly attractive and therefore remains in high demand. And thirdly, the alternative investment industry is highly diversified across a variety of asset types, investment timeframes and geographies, all of which provide a counterbalancing effect. For example, whilst investors reduced their appetite for some asset classes (e.g. private equity) this was offset by increased demand for (comparatively) lower risk assets such as private debt.

The combination of these three factors means that, even if the market was to slow down further, our business would still be in a strong position to grow. Indeed, we did monitor a slowdown in trading going through existing accounts in the fourth quarter of 2022, which temporarily reduced demand for FX transactions. We believe this reflects the fact that some investors are holding onto their allocations in the current environment - a view echoed by EY in their recent 2022 Global Alternative Fund Survey (see here). Furthermore, the industry is still expected to grow over the medium term, with Preqin estimating an annualised rate of growth of 10.8% over the next five years to 2027.¹ Finally, whilst many investment managers are expected to hold their allocations for the time being, the 2022 Global Alternative Fund survey indicated that those expecting to change will be increasing their allocations to alternative investments over the next three years.

With such a large market to go after, combined with the strength of Alpha's unique offering, this opportunity is once again very much about Alpha deploying our proven entrepreneurial skills to build a high-growth, high-value business.

¹ Preqin Global Report 2023: Alternative Assets

Our People

In previous reports I have sometimes talked about the importance of talent and cultural 'density'. The principle is a simple one - the stronger a company's pool of talent and culture, the better its ability to perform, evolve and adapt to the inevitable challenges that come with growth.

As a business scales, there is always a risk that its density in these two areas will become diluted. Amongst other things, the pressure of resource gaps, managing budgets, and growth targets can lead people to compromise on their standards. It is for this reason that we remain relentlessly focused on ensuring we maintain high levels of talent and cultural density as we scale, by ensuring our investments in our people and culture are commensurate to the Company's growth, and that we don't compromise our standards and principles.

Building Our Team

As I have already mentioned, we made excellent progress in hiring throughout the year, with Group headcount at year end increasing by 67% to 357 (2021: 214).

With a 67% increase in headcount, some investors may be concerned that we have compromised on our standards to deliver these numbers. In reality however, there are two important factors to take into consideration here. Firstly, with our hiring split across two fully decentralised divisions, the step change in headcount is divided up and therefore more manageable: 91 heads were added in ABS, 44 in FXRM, and 8 in Central Services. Secondly, whilst the percentage of employees that part ways with Alpha during their first six months has marginally reduced (a reflection of our improved hiring ability), it has not dropped dramatically because the principle of setting a high standard internally, from a competence and cultural perspective, remains intact.

Ultimately, employee churn in the early months is a by-product of our best-in-class ambition. Whilst we will continue to focus on improving our ability to filter the right candidates, and develop and retain the best people, we are realistic that a certain level of employee turnover is a by-product of upholding the highest standards.

Empowering Our Team

At Alpha, our definition of a high-performance environment is "a place where everyone's getting better". From our work with Dr Ceri Evans, we've identified that the most important ingredient for everyone to be getting better is to have a speak-up culture. As our team grows and becomes more globally spread, it becomes increasingly important that we strive for a culture where employees feel empowered to "speak up" about where we can improve at every level, and in every aspect of our business. Doing so will enable us to better identify what holds us back, our blind spots, call out inconvenient facts and uncomfortable truths that need to be addressed, and moreover, keep learning and improving.

We've learned from our work with Dr Evans that speaking up is not always easy for people to do. In fact, if left unchecked, many people's natural bias is to do the exact opposite - whether that's through fear of being wrong, exposing their own knowledge gaps, or coming across as defensive. Nonetheless, the evidence from decades of investigation and intervention in high-stake, high-pressure environments is that the foundation for reliability and excellence under pressure, is leadership that encourages and values honest communication and teamwork.

Consequently, as a leadership team we are doubling down on this aspect of Alpha's culture and are striving to be one of the best organisations in the world in this respect. Whilst we know this is a high bar, we see it as central to both our team's individual growth, as well as the growth of the business as a whole. It is a privilege and a pleasure to have a close long-term working relationship with someone of Ceri's calibre and the principle of a speak up culture is something that has been adopted by a number of ambitious organisations with great success. Indeed, Toto Wolff of Mercedes Formula 1 has on a number of occasions gone on record to credit Ceri's impact himself (see here).

The idea of a 'speak up' culture was first coined by Amy Edmondson (Professor of Leadership and Management at Harvard Business School) to describe companies that create 'psychological safety' in the workplace so that colleagues feel both safe and valued to 'speak up'. When people don't feel they can speak up, their company's ability to innovate, learn and grow is compromised. By contrast, an open and candid culture empowers people and unlocks enormous benefits for innovation, learning and risk management.

Rewarding Our Team

If you have the right people and right culture, you also need to make sure you have the right incentives. I'm passionate about ensuring every member of our team has an opportunity in front of them to learn more, earn more and ultimately progress their careers. For many this will include working towards becoming an equity partner in the business.

When I launched our employee share ownership schemes, it was with two overarching thoughts. Firstly, I wanted a way for more people to share in the growth they created and be rewarded for the hard work they put in. And secondly, I passionately believed that if we gave more people the opportunity to own a stake in the business, together we would go on to deliver stronger and more sustainable growth. An ownership mentality is incredibly powerful - it unlocks discretionary energy, new ideas and gets people to think long-term.

Based on Alpha's track record to date, shared ownership seems to be working. Since the schemes were first launched in 2017, our share price has increased c. 700% and created c. £700m in additional value for shareholders. This, off the back of five consecutive years of strong, organic growth, without any acquisitions, and often delivered against some very challenging backdrops.

With this in mind I am delighted that 48 employees will be rewarded with equity vesting in Q1 2023, in recognition of all their hard work and commitment. Additionally, it was also a pleasure to be able to welcome 42 new colleagues onto our share schemes, taking our total number of Partners to 110 - a reflection of not only the part they've played in our growth story to date, but also the impact they will have on its long-term future.

Moving forward, we remain committed to creating more employee shareholders as our company grows in order to reward high performance and loyalty, amplify our long-term culture, and ensure everyone has the opportunity to work towards becoming a shareholder. As founder-CEO, seeing the impact these schemes can have on people's lives is undoubtedly the most rewarding part of my job. Importantly, these awards are also contingent on delivering a level of financial performance that ensures any dilution to existing holders is materially outweighed by the growth they created. For investors who are interested in reading more about how we achieve this, a detailed explanation can be found towards the end of our RNS here.

Leading Our Team

With Adam Dowling and Alex Howorth leading the growth of our ABS and FXRM divisions, and excellent bench strength across the wider Group, the business is on an exciting and stable trajectory. As CEO, I take great pleasure in seeing the teams honing their strategy-setting and execution capabilities, and it is a privilege to be in a position where both divisions are executing so well. This is now providing me with more bandwidth to focus on our longer-term Group strategy, and explore new opportunities that will enhance our growth, whilst creating some healthy distance from which I can challenge and evaluate the FXRM and ABS strategies. From my time in these strategy sessions, I can say with confidence the business is maturing in all the right ways, whilst crucially retaining the start-up foundations of cultural density, operational agility and client centricity that have underpinned our high-growth story. The combination of big business maturity and start-up flair (something I've often described as being "David and Goliath") bodes extremely well for both the trajectory and predictability of our growth in the future. To have a leadership team that can operate so effectively at both ends of the spectrum is rare and gives me great confidence and excitement for the future.

I also wish to extend one final farewell to our former CFO, Tim Kidd, who has now officially left the Group after providing us with an extended notice period following his January 2022 announcement of his planned retirement. Tim has made an incredible, positive impact since joining us in 2016 ahead of our IPO - not just on the business, but on myself personally too. Whilst he will undoubtedly be missed, we look forward to keeping in touch with him as an honorary member of the team and we wish him all the best for the future.

With Tim Kidd retiring, I was delighted to officially welcome our new CFO, Tim Powell, to the Board in December. Tim Powell brings a wealth of experience working at fast-growing public companies, 17 years of which were at the London Stock Exchange Group. The team and I have had the pleasure of working with him for just over three months now, and his ability to fit right in and hit the ground running, is testament to his skill set and character.

New Offices

2022 and the start of 2023 have been characterised by increasing investments in office space, with our teams in Amsterdam, Bristol, Malta and Toronto all moving to new purpose-built offices for the first time since their inception. Additionally, we have signed heads of terms to split our London HQ into two neighbouring offices to create dedicated HQs for each of our divisions. Our existing office will now become home to our FXRM team, whilst our new office will become home to our ABS team. Our Central Services team meanwhile will have the luxury of rotating between the two!

Whilst FXRM and ABS are now very much two separate business units, the offices are still only a 60 second walk away from one another, and we are keen to maintain interaction between each division. To this end, we will intentionally be ensuring there are a number of "shared amenities" between the two offices.

Our investment in office space is being driven by the growth within our teams, but most importantly, our team's desire to be in the office. Indeed, prior to opening our second London HQ, demand had already exceeded capacity, to the extent our operational teams were having to work from the office (as opposed to home) on rotation. In a climate where many employers are struggling to encourage their teams to return to the office, I consider this a great problem to have! Whilst I know having the flexibility to work from home can be valuable, I fully support our team's desire to regularly come together under one roof and believe it has significant benefits for performance, collaboration, and culture. With that in mind, we remain committed to providing inspiring office environments that reward our team for their hard work and enhance their performance and well-being.

Investing for growth in 2023

As outlined in our January trading update, we find ourselves in a fortunate position where we are anticipating exceptional performance in 2023, driven by a combination of expected strong revenue growth and other operating income. Consequently, we have made the strategic decision to bring forward investment in our operational infrastructure, originally planned for 2024/2025, particularly within ABS. This investment is already underway and focused on accelerating future revenue growth and strengthening the long-term scalability of this division.

Additionally, in the event that our Underlying Operating Profit (which excludes other operating income) exceeds our expectations throughout the year, we will look to make additional investments in discretionary initiatives (e.g. marketing campaigns and regulatory applications) designed to further accelerate growth, without the initiatives becoming embedded in our cost base.

Any accelerated investment will naturally be reflected in our operating margin in the short-term, but Group profit before tax margins and the absolute level of EPS will be enhanced by the other operating income. The Board and I firmly believe this accelerated investment program will further enhance our long-term growth prospects and scalability in the medium to long-term.

Group Strategy

When it comes to business, strategy can often be overly complicated. At its most basic level, Alpha's objectives are relatively simple. We want to: (i) win new clients; (ii) retain existing ones; and (iii) grow our share of their wallet, to build long-term intrinsic value for our shareholders and steadily enhance our earnings per share. How we set about achieving this is then determined by three strategies: (i) our FX Risk Management strategy; (ii) our Alternative Banking Solutions strategy, and (iii) our Group Strategy.

Our FXRM and ABS strategies are led by Alex Howorth and Adam Dowling respectively, and are focused on moat-widening activities that separate their businesses from their competitors. This is covered extensively in their business introductions here and here. Our Group Strategy meanwhile is concerned with smart capital allocation and upholding the long-standing principles that will support these moat-widening activities. These principles are: (i) Client Centricity; (ii) Operational Agility; and (iii) Cultural & Talent Density.

Moving forward we will continue to invest our capital and deliver initiatives that support all three of our strategies, align to the principles above, and embrace a long-term horizon. We run this business with a view of years and decades, as opposed to quarters and annual comparisons, and think this is a key advantage in creating strong, sustainable shareholder value over time.

Capital Allocation

As our offerings have become more diversified, our cash conversion has continued to grow and, combined with the interest rate tailwinds, we are now in a position where as at 31 December 2022 we have net assets of £144.5m (2021: £109.8m), including £114.4m of adjusted net cash (2021: £88.2m).

Our overarching preference is to allocate capital into high-confidence organic growth initiatives, within both existing and potential new business units. Such initiatives include: expanding our territories, extending and improving product lines, or any other moat-widening opportunities that separate us from competitors.

In view of the Group's confidence in the sizable and exciting market opportunities that are presented to us, it is the Board's belief that, after maintaining our progressive dividend policy, retaining and deploying this cash within the business will deliver significant levels of growth and deliver the best value for shareholders long-term. As a company where top management has a significant proportion of their worth concentrated in company stock, we are investing alongside you with each of these decisions.

As well as providing cash for investment, a strong balance sheet is also important to our counterparties, as a healthy cash profile is required as collateral for hedging facilities, regulatory capital, and also provides our clients with confidence.

We will of course review our cash position on a regular basis, and if we feel our cash position becomes greater than we require, will look to reassess. We are however earning strong returns on deploying our capital and are confident in our ability to do so in the future.

Premium Listing

We have hugely enjoyed our journey on AIM since our IPO in 2017 and have seen the sizeable benefits that the public markets can offer.

Being a public company has not only enabled us to raise capital to grow and create employee shareholders, but it has also greatly enhanced our reputation amongst the global corporates and institutions that we work with, who take confidence from our public market status, as well as the increased transparency and governance that comes with this.

As a business that is growing in size, becoming more global, and gaining interest from increasingly larger clients, particularly within the institutional space, we believe a Main Market Premium listing will serve to further enhance our reputation and support our market penetration as we move into new countries and engage larger clients. At the same time, Premium Listing reporting standards will naturally lead to higher levels of governance and disclosure, both of which we know will be well-received by our clients, banking partners and investors alike.

The Board and I are now in the process of establishing the relevant workstreams and timelines required to deliver a listing prospectus, with a target timeline of 2024. We are very excited to think that Alpha may shortly be in a position to join the FTSE 250 and will look to update investors again in September, when we publish our interim results statement.

Thank you

I would like to end by thanking all of our team for their hard work throughout 2022 to deliver another record performance. When I look at the numbers delivered, it is humbling to think that behind this incredible growth story is still a relatively small team of just over 350 people, and that shortly we hope to be taking our business to the Main Market of the London Stock Exchange. It is a privilege to work amongst people with the energy, passion and commitment that they all bring to work each day, and I look forward to seeing what we can achieve together in the rest of 2023.

FINANCIAL REVIEW

Revenue

2022 has seen strong growth across both divisions with total revenues increasing 27% to £98.3m (2021: £77.5m). FX Risk Management revenue grew 22% to £69.5m, whilst Alternative Banking Solutions grew 41% to £28.8m.

*  Corporate division is primarily London but also includes other offices not disclosed elsewhere (Bristol, Milan, and Sydney)

**For the purpose of deriving margins for ABS and FX Risk Management, the cost base of the Institutional division have been allocated based on revenue.

FX Risk Management

The FX Risk Management division focuses on supporting corporates and institutions that trade currency for commercial purposes through the Group's sales teams located in London, Toronto, Amsterdam, Milan, Bristol and Sydney. Revenue grew by 22% over the prior year to £69.5m (2021: £57.1m) with strong growth across all regions except Canada.

Revenue growth remained strong in the London FX Risk Management business, up £6m (13%) with a further £6m (70%) of growth coming from our overseas offices and Bristol.

Total revenue from hedging products (forwards and options) has increased by 23% against the prior year from £40.7m to £50.1m. The revenue from forward transactions represents the difference between the rate charged to clients and the rate paid to banking counterparties.

The underlying operating profit margin of the division was c. 39%, (2021: c. 44%) with the decrease primarily being driven by the first-year costs of our new offices in Bristol, Milan and Sydney. Excluding these new offices the Corporate margin would have been c. 47%.

Alternative Banking Solutions

Alternative Banking Solutions revenue grew substantially from £20.4m in the prior year to £28.8m in 2022 driven by an increased number of accounts and greater ancillary payment and spot fees.

Account fee revenue increased by £6m (260%) to £8m, as the number of accounts being managed increased by 141% from 1,746 to 4,200 and we generated a full year of income from accounts opened in the prior year. Revenue from annual account fees is recognised on a straight-line basis over the 12 months from the date the account was opened or renewed. At 31 December 2022 deferred revenue was £5m (2021: £2m), that will be recognised as revenue in 2023.

The underlying operating profit margin of the ABS division was c. 39%, (2021: c. 42%). This small reduction on 2021 was predominately due to the timing mismatch of in-year investment and increased account fees deferred.

Group Profitability

Underlying profit is presented in the income statement to allow a better understanding of the Group's financial performance on a comparable basis from year to year. The underlying profit excludes the impact of the other operating income (see below) and the share-based payments.  On this basis, the underlying profit before tax in the year increased by 16% to £38.6m. Statutory profit before tax increased by 42% to £47.2m (2021: £33.2m).

The year ended 31 December 2022 was another year of significant investment. Overall headcount increased in the year from 214 to over 350 at 31 December 2022 to support future long-term growth. The underlying profit before tax margin decreased slightly to 39% (2021: 43%) reflecting the increased levels of investment and increase deferred account revenue. However, the statutory profit before tax margin significantly increased to 48% (2021: 43%) reflecting the other operating income.

Other Operating Income

As outlined in our October 2022 and January 2023 trading updates, the current interest rate environment has allowed the Group to benefit from additional interest income predominantly generated from its client balances, as well as a small proportion from its own. With the number and size of client balances growing, this has contributed £9.3m of interest income in the last four months of 2022 (2021: £nil). 

It is worth noting that the Group is only able to obtain attractive interest rates on these overnight client cash balances because of our ability to aggregate numerous individual client balances, many of which are transitory in nature and typically only held for 24 hours.

Whilst the increased interest stream from client balances is a positive boost for the Group and a natural by-product of our increasingly diversified product offering, we are mindful that aspects of its dynamics are driven by macroeconomics beyond our control. As outlined in October, we have therefore chosen to recognise interest income on client balances as 'other operating income', not revenue from operating activities. The interest income generated on our own cash is shown as underlying finance income.

Taxation

The effective tax rate for the period was 17% (2021: 22%). The decrease in effective rate is primarily due to SME R&D tax credits and the impact of the SAYE scheme. This also reflects the mix of profits across our global subsidiaries without any material changes in underlying rates. The effective tax rate in 2021 reflected a one-off charge for the internal transfer of clients between our UK and Malta operations, excluding this the effective tax rate in 2021 would have been 19%. We expect this effective tax rate to increase in 2023 driven by the UK's increase in corporation tax rates to 25%.

Earnings Per Share

Underlying basic earnings per share increased 20% in the year to 70.1p (2021: 58.3p), whilst basic earnings per share were 50% higher at 86.8p (2021: 57.7p), driven by the interest income.

Key Performance Indicators

The Group monitors its performance using several key performance indicators which are reviewed at operational and Board level. The key financial performance indicators are revenue, underlying profit before tax, profit before tax, margin, number of FXRM clients, number of ABS client accounts, and the number of FXRM Front Office staff.

Cash Flow and Balance Sheet

In the year ended 31 December 2022, 60% of the revenue in the year was derived from products where the revenue is converted into cash within a few days of the trade date (2021: 60%). Including other operating income, cash conversion increased to 63% in 2022. This has continued to have a positive impact on the Group's cash flow. On a statutory basis, net cash and cash equivalents increased in the year by £29m to £137m.

The Group's statutory cash position can fluctuate significantly from day to day due to the impact of changes in, collateral paid to banking partners, margin received from clients, early settlement of trades, or the unrealised mark to market profit or loss from client swaps. These movements result in an increase or decrease in cash with a corresponding change in other payables and trade receivables. Therefore, in addition to the statutory cash flow, the Group presents an adjusted net cash summary excluding these items, shown below. On this basis, adjusted net cash increased in the year by £26m to £114m.

*   Included in 'other payables' within 'trade and other payables'.

** Excluding collateral received from clients, collateral paid to banking counterparties, early settlement of trades and the unrealised mark to market profit or loss from client swaps.

The overall net assets of the Group increased in the year by £35m to £144m.

Looking ahead, and as stated in our January Trading update, investment in 2023 is expected to increase as we bring forward investment in our operations (in particular in our Alternative Banking Solutions division), originally planned for 2024/25 and beyond. This investment is already underway and is focused on accelerating future revenue growth and strengthening the long-term scalability and sustainability of our business. 

Dividend

Following the strong full year results, the Board is pleased to declare a final dividend of 11p per share (2021 - 8.0p). Subject to shareholder approval, the final dividend will be payable to shareholders on the register at 14 April 2023 and will be paid on 12 May 2023. This represents a total dividend for the year of 14.4p per share (2021: 11.0p).

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2022

Consolidated Statement of Financial Position

As at 31 December 2022                                                                   Company number: 07262416

Consolidated Statement of Cash Flows

For the year ended 31 December 2022

Consolidated Statement of Changes in Equity

For the year ended 31 December 2022

Notes to the Consolidated Financial Statements

For the year ended 31 December 2022

1.   General information

Alpha Group International plc, (the "Company") is a public limited company having listed its shares on AIM, a market operated by The London Stock Exchange, on 7 April 2017. The Company is incorporated and domiciled in the UK (registered number 07262416) and its registered office is Brunel Building, Canalside Walk, London, W2 1DG. The consolidated financial statements incorporate the results of the Company and its subsidiary undertakings.

Statutory accounts for the year ended 31 December 2021 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2022 will be delivered to the Registrar of Companies following the Group's Annual General Meeting.

The auditors' reports on the financial statements for 31 December 2021 and 31 December 2020 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

2. Accounting policies

Basis of preparation

The Consolidated Financial Statements have been prepared in accordance with UK international accounting standards using the measurement bases specified by UK IFRS for each type of asset, liability, revenue or expense.

The financial information set out above does not constitute statutory accounts for the purposes of section 435 of the Companies Act 2006, for the years ended 31 December 2022 and 31 December 2021, but is derived from those accounts.

The Directors have assessed the Group's projected business activities and available financial resources together with detailed forecasts for cash flow and relevant sensitivity analysis. The directors believe that the Group remains well placed to manage its business risks successfully. After making appropriate enquiries the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  Accordingly, the directors continue to adopt the going concern basis in preparing the statutory accounts for the year ended 31 December 2022.

The preparation of consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Accounting policies

The accounting policies adopted in these financial statements are identical to those adopted in the Group's most recent annual financial statements for the year ended 31 December 2021.

Segment reporting

The revenue for the Group is generated through the sale of forward currency contracts, option contracts, foreign exchange spot transactions and fees received from payments collections and cash accounts. The Group has five reportable segments based on the individually reportable subsidiaries and divisions. 

In 2022, 33% of the Group's revenue derived from within the UK.  Details of segmental reporting are shown in note 3.

3.   Segmental reporting

During the year, the Group generated revenue from the sale of forward currency contracts, option contracts, foreign exchange spot transactions and fees received from payments collections and cash accounts.

The Group has five reportable operating segments under the provisions of IFRS 8, based on the individually reportable subsidiaries and divisions. These five segments are:

The chief operating decision makers, being the Group's Chief Executive Officer and the Chief Financial Officer, monitor the results of the operating segments separately each month. Key measures used to evaluate performance are revenue, and profit before taxation. Management believe that these measures are the most relevant in evaluating the performance of the segment and for making resource allocation decisions.

In April 2021, the Group decentralised into two divisions; Alternative Banking Solutions and FX Risk Management.

These two divisions are now the key drivers to the Group strategy and growth of each operating segment. Revenue for each operating segment has been split by the two divisions, as this reflects how the chief operating decision-makers manage the business.

Revenue in the table below is in accordance with the methodology used for preparing the financial information for management, for each operating segment. Although a proportion of the revenue from EU clients is initially booked through Alpha FX Europe Limited in Malta, revenue in the table below has been reallocated to the relevant entity where the sales team is located.

Within 2022, the Group opened offices in Milan Italy, Sydney Australia and Bristol. All of these offices service Corporate clients from their local offices. The results of these new offices are included within the Corporate London Segment.  Additionally, there were costs associated with Alpha Europe (based in Luxembourg) which have been shown 50/50 within Institutional and Alpha Pay. Under IFRS 8 these segments do not meet the quantitative reporting thresholds in 2022. The revenue of these offices in aggregate was £4.5m and underlying loss before taxation in aggregate was £1.6m.

*FX Risk Management represents revenue derived from foreign exchange forward, spot, and option contracts provided to corporate and institutional clients, primarily for the purpose of hedging commercial foreign exchange exposures.

**Alternative Banking Solutions represents revenues derived from fees and foreign exchange spot contracts generated from the provision of cross border payments, collections and annual account fees to corporates and institutions.

Other operating income

Interest is earned on overnight deposits with several credit institutions all 'A' rated with the leading rating agencies.  The amount of interest earned is dependent on several variables:

·      The absolute balance we hold, which can move significantly from day-to-day

·      The mix of currency balances we hold, and;

·      The interest rate environment and rates that can be obtained from credit worthy institutions.

Interest income is a natural by-product of our accounts solution, and as such is an uncontrollable income stream for the Group, which would be transitory if we return to a low interest rate environment. We have therefore chosen to recognise interest income on client cash balances as 'other operating income', not revenue.

In 2022 material interest income was only earned over the last four months of the year.  During this time the blended average client balances and interest rates were £1.6bn and 1.5% respectively (£0.8bn and 0% respectively in the prior year).

4. Operating profit

Operating profit is stated after charging/(crediting):

5. Finance income and expenses

*During 2022 the remaining provision balance of £55,533 relating to the Norwegian client was reversed in finance income.

6. Taxation

 Tax charge

Factors affecting tax charge for the year

*When planning for the possibility of a no-deal Brexit and in response to the limited scope covering financial services within the Free Trade Agreement, a wholly-owned subsidiary was established in Malta in March 2021. This enabled the Group to continue to service all clients without disruption both now and in the future. As a result, a number of clients were transferred from Alpha FX Limited in the UK to Alpha Europe Limited in Malta which crystallised a one-off UK tax charge of £892,095 in 2021 for the transfer of business.

At the year ended 31 December 2022 the group had unused oversea tax losses amounting to £182,079 (2021: £nil) for which no deferred tax asset has been recognised. Alpha FX Europe Limited's carried forward tax losses of £169,539 were utilised in the year ended 31 December 2022.

Deferred tax

The deferred taxation liability is based on the expected future rate of corporation tax of 25% (2021: 25%) and comprises the following:

The UK deferred tax liability as at 31 December 2022 and as at 31 December 2021 relates to the tax effect of timing differences in respect of fixed assets. The deferred tax also includes charges through other comprehensive income.

Deferred tax on each component of other comprehensive income is as follows:

7. Earnings per share

Basic earnings per share is calculated by dividing the profit for the year attributable to equity holders of the Parent, by the weighted average number of ordinary shares in issue during the financial year. Diluted earnings per share additionally includes in the calculation, the weighted average number of ordinary shares that would be issued on conversion of any dilutive potential ordinary shares. The dilutive effect is calculated on the full exercise of all potentially dilutive ordinary share options granted by the Group.

The Group additionally discloses an underlying earnings-per-share calculation that excludes the impact of share-based payments, other operating income and their tax effect, which better enables comparison of financial performance in the current year with comparative years.

The calculation of basic and diluted earnings per share is based on the following number of shares:

The earnings used in the calculation of basic, diluted and underlying earnings per share are set out below:

8. Dividends

All dividends paid are in respect of the ordinary shares of £0.002 each.

The Directors propose that a final dividend in respect of the year ended 31 December 2022 of 11.0p per share amounting to £4,641,621 will be paid on 12 May 2023 to all shareholders on the register of members on 14 April 2023. This dividend is subject to approval by shareholders at the AGM and has not been accrued as a liability in these Financial Statements in accordance with IAS 10 'Events after the reporting period'.

9. Right-of-use assets and lease liabilities

Leases where the Group is a lessee are accounted for by recognising a right-of-use asset and a lease liability except for leases of low value assets and leases with a term of 12 months or less.

In October 2022, a lease was signed for new premises in Malta. The lease has a contractual start date of 30 November 2022 and is a ten-year lease with a break option at 5 years. After the end of the rent-free period of six months, rent of €461,700 (£409,715) is payable per annum, subject to a 3% increase after one year, and a subsequent rent review of no more than 3% per annum. The incremental borrowing rate used to discount lease liabilities at initial inception is 4.7%, based on management's assessment. On initial recognition of the lease, a right-of-use asset of £3,557,614 was recognised.

In October 2021, a lease was signed for new premises in Amsterdam. The lease has a contractual start date of 1 January 2022 and has been accounted for as a right-of-use asset and a lease liability from that date. It is a ten-year lease with a break option at 6.5 years. The incremental borrowing rate used to discount lease liabilities at initial inception is 1.6%, based on management's assessment. On initial recognition of the lease, a right-of-use asset of £2,173,543 was recognised.

The Group signed two further leases for new premises which commenced in the year, one in Bristol for five years and one in Toronto, Canada for seven years. On initial recognition of these leases, a right-of-use asset of £297,999 was recognised in respect of the Bristol lease and a right-of-use asset of £836,785 was recognised in respect of the Toronto lease.

In May 2019, the Group signed a ten-year lease for the Head Office Premises in London expiring in May 2029.  The rent is subject to a rent review after five years and the lease does not contain any break clause. The incremental borrowing rate used to discount lease liabilities at initial inception is 4.5%, based on management's assessment (2021: 4.5%). 

Right-of-use assets

Lease liabilities

10. Derivative financial assets and financial liabilities

Items that will be reclassified to the Consolidated Statement of Comprehensive Income:

Since the Group's inception, it has historically operated in a low interest rate environment. However, since Q3, 2022, when interest rates started to rise, the Group started to receive a large amount of interest on its own free cash balances as well as client cash balances. In line with the Group's treasury policy, we have entered into interest rate swap contracts to manage interest rate risk, see further details below.

Interest rate swap contracts

The interest rate swap contracts designated as hedging instruments relate to transactions entered into in December 2022 to fix the rate of interest receivable on cash balances held by the Group in respect of its own free cash balances as well as client cash balances.  With the interest rate swap, the Group receives a fixed rate of interest and pays a floating interest rate based on SONIA, the difference between the rates results in the Group receiving a fixed rate of interest.

The contracts commence in June 2023 with expiries in June 2025 and June 2026, with an average net interest rate receivable of 4.1%. Upon expiry of the contracts or if they no longer qualify for hedge accounting, the deferred gains/losses in comprehensive income relating to the Group's own free cash balances will be reclassified within finance income and those relating to client cash balances will be reclassified within other operating income.  The hedging ratio at year end was 1:1. The hedge effectiveness will be reassessed at each reporting date.

Foreign currency forward contracts

The forward contracts designated as hedging instruments relate to hedges entered into in December 2022 to fix the exchange rate of interest receivable denominated in dollars and euros. The contracts have monthly expiries up to December 2023. The deferred gains/losses in comprehensive income will be reclassified within other operating income upon expiry of the contracts or if they no longer qualify for hedge accounting.  The hedging ratio at year end was 1:1. The hedge effectiveness will be reassessed at each reporting date.

Derivatives not designated as hedging instruments are intended to reduce the level of foreign currency risk for expected future cash flows. The tables above show the fair value of those foreign exchange forward contracts as at each year-end.

11. Other receivables

12. Cash

Cash and cash equivalents comprise cash balances and deposits held at call with banks.

Fixed collateral comprise cash held as collateral with banking counterparties for which the Group does not have immediate access.

Cash balances included within derivative financial assets relate to the variation margin called by banking counterparties regarding out of the money trades.

Cash balances included within derivative financial assets relate to the variation margin called against out of the money trades with banking counterparties.

13. Capital and reserves

Share capital

The following movements of share capital occurred during the year ended 31 December 2022:

On 21 March 2022, the Company issued 1,123,946 new shares following the vesting of shares under the B, C and E Growth Share Schemes and the Institutional Share Scheme.

On 25 March 2022, the Company issued 99,386 new shares in respect of shares issued following the vesting of the SAYE share scheme.

The Company issued a further 8,997 new shares in respect of shares issued following the vesting of the SAYE share scheme, between April 2022 and June 2022.

The following movements of share capital occurred during the year ended 31 December 2021:

On 23 March 2021, the Company issued 822,873 new shares following the vesting of shares under the B and C Growth Share Schemes.

On 23 March 2021, the Company issued 2,403 new shares in respect of shares issued following the early exercise by an employee of the SAYE share scheme.

On 19 April 2021, the Company issued 2,596 new shares in respect of shares issued following the early exercise by an employee of the SAYE share scheme.

On 10 September 2021, the Company issued 12,785 new shares in respect of shares issued to a former employee of Alpha FX Institutional Limited as part of a settlement agreement.

14. Other payables

Other payables consist of margin received from clients and client-held funds. The carrying value of other payables classified as financial liabilities measured at amortised cost, approximates fair value.

15. Events after the reporting period

On 17 February 2023, the Group entered into an interest rate swap for a notional amount of up to $400m to fix the rate of interest receivable on US Dollar cash balances held in respect of the Group's client cash balances. With the interest rate swap, the Group receives a fixed rate of interest and pays a floating interest rate based on SOFR, the difference between the rates results in the Group receiving a fixed rate of interest. The contract commences in August 2023 and expires in August 2025 with a net interest rate receivable of 4.14%. Hedge accounting is applied in accordance with IFRS 9.

Following the vesting of the B Growth Share Scheme for the year ended 31 December 2021, the Company will be issuing 549,137 shares in March 2023 and 88,015 shares in March 2025 to an ex-employee as part of a settlement agreement.

Following the vesting of the C Growth Share Scheme for the year ended 31 December 2022, the Company will be issuing 171,810 shares in March 2023.

Following the vesting of the E Growth Share Scheme for the year ended 31 December 2022, the Company will be issuing 161,064 shares in March 2023.

Following the second year of vesting of the Alpha FX Institutional Limited share scheme for the year ended 31 December 2022, the Company will be issuing 123,768 shares in March 2023.

Following the first year of vesting of the Alpha Foreign Exchange (Canada) Limited share scheme for the year ended 31 December 2022, the Company will be issuing 8,395 shares in March 2023.

Following the first year of the vesting for D Share scheme for the year ended 31 December 2022, the Company will be issuing 111,085 shares in March 2023.

16. Availability of Annual Financial Report

The Group notes that the Annual Report & Accounts for the year ended 31 December 2022 will be posted to Alpha Group International shareholders w/c 17^th of April 2022. The document will also be available on the Group's website at www.alphagroup.com and in hard copy at Brunel Building, 2 Canalside Walk, London, W2 1DG.